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

Saturday, November 30, 2013

week ending Nov 30


The Fed’s Exploding Balance Sheet! - What is one to make of a balance sheet that has exploded from roughly $870 billion in 2007 to almost $4 trillion today. That is the balance sheet of the US Federal Reserve Board as the financial crisis of 2008 saw one of the largest bailouts in financial history followed by three rounds of quantitative easing (QE) plus Operation Twist whereby the Fed exchanged short dated Treasury maturities for longer dated Treasury maturities. It was with QE3 that the Fed began to purchase $40 billion a month of agency mortgage backed securities (MBS) every month greatly adding to its holdings of MBS.  Below is a timeline of QE since 2008 imposed on a chart of the Dow Jones Industrials (DJI). It makes for an interesting read. The Fed has stated that as recently as its June FOMC “that the range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.” At its September FOMC, the Fed voted 9-1 to continue with QE3 of $85 billion a month citing tighter financial conditions. Talk of the “taper” appears to be largely a media event but the odds of the Fed “tapering are low to none given that the new Fed Chairman Janet Yellen comes on in January 2014 and the likelihood of any “taper” is unlikely until at least after the budget and debt debates of January 2014. Yellen is a noted Fed dove and many analysts believe that under Yellen the Fed could even increase QE.

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

 In Fed Policy, the Exit Music May Be Hard to Hear - Mankiw - Is it time for the Federal Reserve to start its exit from the extraordinary set of policies it has pursued over the past few years? That crucial question is on the minds of the nation’s central bankers, as well as the stock and bond traders who follow the Fed’s every move.  When Ben S. Bernanke and his Fed colleagues embarked on their policy of near-zero interest rates and large-scale asset purchases, they hoped that things would be back to normal by now. Unfortunately, events haven’t gone as predicted. Even though the recovery began more than four years ago, it has been so meager that the economy, by some metrics, is still very sick. The slowness of the healing has delayed the Fed’s exit — although minutes of last month’s policy-making meeting indicate that it is considering some changes.  In her recent testimony before the Senate Banking Committee, Janet L. Yellen made clear she didn’t think the time for an exit had come. With inflation running below the Fed target of 2 percent and continued weakness in the labor market, she argued, the economy needs all the help the central bank can provide.  Many of the numbers back up that diagnosis. The unemployment rate is about three percentage points higher than it was seven years ago, before we got the first whiffs of the economy’s financial problems. The employment-to-population ratio is about five percentage points lower, and it has not recovered much at all since the trough of the recession.  But that is only a small part of the story. A relevant measure is the employment-to-population ratio for those in the prime working age group —25 to 54. This statistic also shows the recession’s lingering effects: the ratio declined to about 75 percent from 80 percent over the course of the recession, and has recovered to only about 76 percent today. So we have recovered only about a fifth of what we lost during the downturn.

The separation principle drives the Fed towards tapering - President Obama will now find it easier to appoint at least two new monetary doves to support Ms Yellen on the Board of Governors next year. This will offset what might otherwise have been a shift towards hawkishness on the FOMC, since regional Presidents Fisher and Plosser (both hawks) are rotating into voting status, and the unannounced new President of the Cleveland Fed may turn out to be “on the hawkish end”, according to J.P. Morgan. These personnel changes will create their own uncertainty. But, in addition, the Fed’s monetary strategy is clearly in a state of flux, with its approach to tapering having developed markedly in recent weeks. A new “separation principle” seems to be emerging, and it explains why the FOMC seems eager to begin winding down its asset purchases in the near future, while relying even more heavily than before on “lower for longer” guidance on forward short rates. This could have important ramifications for markets. The perceptive Tim Duy’s Fed Watch provides strong evidence from the latest FOMC minutes that the committee is increasingly desperate to taper soon, even if there has not been a “substantial” improvement in the outlook for the labour market before they press the button. This is because a significant number of participants now sees the costs of asset purchases beginning to outweigh the benefits, in ways which have not been fully explained to the public. Tapering may not happen in December, but the precise timing no longer matters very much: it is just around the corner in any event.

Will the Fed "Taper" in December? Inflation is the Key -- A month ago I asked Will the Fed "Taper" in December? Although the consensus is the Fed will wait until 2014 to start to taper asset purchases, December is still possible.
• The unemployment rate criteria should probably be expanded - not only would the Fed like to see the unemployment rate decline in November, they'd like to see the participation rate increase (the participation rate declined sharply in October to 62.8% from 63.2% in September, and I suspect the Fed will like to see some of that reversed in the November report).
• Following the solid October employment report, it will be pretty easy for total employment to be up 2.2 million year-over-year in November (employment was up 2.33 million year-over-year in October).  The Fed will probably be looking for November job growth in line with the consensus of 180 thousand.
• Inflation is probably the key right now.  Core PCE was up 1.2% year-over-year in September, and the Fed would like to see this increasing towards their 2.0% target.   PCE prices for October will be released next Friday, and the consensus is for core PCE prices to only be up 1.1% year-over-year.  Low inflation might stop the Fed from tapering in December.
• Some sort of fiscal agreement looks likely now since Congress is playing "small ball". Of course you never know with Congress.

Why Fed's taper is essential to stabilize agency MBS liquidity - While we've discussed some of the economic implications of the Fed's current policy, let's now take a quick look at the impact of QE on the overall mortgage bond market. Here is a simple fact: the amount of mortgage-related securities in the US has been declining since 2008 - after reaching just over $9 trillion at the peak.The reason is simple. With a large portion of all mortgages funded via the bond markets, the ongoing decline in total mortgages outstanding results in smaller MBS balances. Of course as the population grows and more homes are built (albeit very slowly) this trend should reverse. And now with these market dynamics as the backdrop, put the Fed into the mix. At it's current pace the Fed is taking out about half a trillion of MBS securities out of the market. In fact the Fed is now removing more than 100% of the paper that is being issued. The supply of agency (Fannie and Freddie) MBS securities in the market is declining sharply as the Fed reduces the total "tradable float".  According to Credit Suisse, without the Fed's anticipated taper in Q1, the demand for agency paper could outstrip the supply by $340bn in 2014, creating a liquidity problem.CS: - Liquidity in the MBS market could come under pressure in the coming months due to Fed’s settled purchases exceeding 100% of gross issuance of non-specified conventional 30-year pools. Tradable float in conventional 30-year MBS should decline between 6% and 30% during the year, increasing the risk of a potential liquidity disruption in the market under longer taper delay scenarios. As a result some of the private participants, particularly banks, have been reducing their agency MBS holdings. The chart below shows the year-over-year changes in MBS holdings by commercial banks.

Dan Kervick Discusses the Banking System with Tom O’Brien on From Alpha to Omega -  I recently joined Tom O’Brien as a guest on his terrific podcast From Alpha to Omega, and the interview is now available online. We discuss many of my favorite topics: the central banking system and the role of reserves, fiscal vs. monetary policy, capital requirements, differences between the US and European systems, and the need for healthy deficits and engaged government action to promote full employment and drive transformative change. Here is the link to the podcast: Oh So Reserved – Dan Kervick on From Alpha to Omega

The government-dominated bond market - This chart alone suffices to explain why the markets care so much about the taper: central-bank buying accounts for $1.6 trillion — more than half — of the total demand for bonds in 2013. Meanwhile, private banks are taking the opposite side of the trade: while they were huge buyers of bonds in 2007 and 2008, they’re net sellers in 2013 and 2014, more or less completely negating the buying pressure from pension funds, insurance companies, bond funds, and retail investors. In 2014, it seems, substantially all the net demand for bonds is going to come from the official sector. So it matters a great deal when that demand is diminished. What’s more, central-bank buying, overwhelmingly from the Fed and the Bank of Japan, accounts for the lion’s share of official-sector buying: sovereign wealth funds and other foreign official institutions will buy just $364 billion of bonds this year, according to JP Morgan’s estimates, down from $678 billion last year. So the heavy lifting is still going to have to be conducted by QE operations, in the face of a taper which JP Morgan estimates at $500 billion over the course of the year. (The assumption is that it starts in January, and is completed by September.) Between the taper and other sources of diminished demand, total bond-buying firepower is likely to be $750 billion smaller in 2014 than it was in 2013.

Hussman's Open Letter to the Fed; The Problem with Bubbles; Textbook Pre-Crash Bubble; Reflections on Not Chasing Bubbles; Integrity vs Respect - John Hussman's last three weekly emails have been outstanding. Let's take a look at a couple short snips from the first two articles and then a longer snip from his letter to the Fed. November 11: Textbook Pre-Crash Bubble Hussman: "The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak." This is exactly how I have felt for two years running. It reminds me of 1999-2000 when tech stocks put on that last big rally. Avoiding a bubble is incredibly hard to do, and this one has been exceptional.  Here is a of chart from the article with Hussman's comments. November 25: An Open Letter to the FOMC: Recognizing the Valuation Bubble In Equities by John Hussman: The chart below is from one of the best tools that the Fed offers the public, the Federal Reserve Economic Database (FRED). The chart shows the ratio of corporate profits to GDP, which is presently at a record. The fact that profits as a share of GDP are more than 70% above their historical norm should immediately raise a question as to whether current year earnings or next year’s projected “forward earnings” should be used as a sufficient statistic for long-term cash flows and equity market valuation without any further reflection. Then again, more work is required to demonstrate that such an approach would be misleading. We’re just getting warmed up.

Bubblephobia and Monetary Policy - Krugman - How do you know that monetary policy is too loose? The textbook answer is that excessively expansionary monetary policy shows up in rising inflation; stable inflation means money is neither too loose nor too tight. This answer has, however, come under challenge from both sides. One side — the side I’m on says that at low inflation rates this rule breaks down, so stable inflation at a low level is consistent with an economy operating well below potential. But there’s a critique from the other side that seems to be gaining a lot of traction with central bankers not named Janet Yellen — namely, the notion that if asset prices are rising, and that this might signal a bubble, it’s time to tighten, even if inflation is low or falling. As Simon Wren-Lewis points out, the Swedish Riksbank has gone all in on this doctrine — a decision that isolated my former colleague Lars Svensson (one of the people who warned long ago about the dangers of a liquidity trap), and led to his departure. The picture is really quite amazing: The Riksbank raised rates sharply even though inflation was below target and falling, and has only partially reversed the move even though the country is now flirting with Japanese-style deflation. Why? Because it fears a housing bubble.  But here’s the thing: if we really are in the Summers/Krugman/Hansen world of secular stagnation, things like this are going to happen all the time. The underlying deficiency of demand will call for pedal-to-the-medal monetary policy as a norm. But bubbles will happen — and central bankers, always looking for reasons to snatch away punch bowls, will use them as excuses to tighten.

The Bitcoin bubble --BITCOIN is booming. Investors are piling into the digital currency, which is not issued by a central bank but is conjured into being by cryptographic software running on a network of volunteers’ computers. This week the price of a Bitcoin soared to above $1,000, from less than $15 in January. Having long been favoured by libertarians, gold bugs and drug dealers, Bitcoin is attracting some surprising new fans. Germany has recognised it as a “unit of account”. Ben Bernanke, chairman of the Federal Reserve, told a Senate committee on virtual currencies that the idea “may hold long-term promise”. A small but growing band of shops and firms accept payments in Bitcoin. Some like the way it allows funds to be transferred directly between users, without middlemen. Others are attracted by the potential for anonymous transfers, or by the fact that the number of Bitcoins in circulation has a fixed upper limit—so there is no way a central bank can inflate their value away by issuing more.

Governments Will Struggle to Control Bitcoin - The hearings in the US senate last week were the most high profile public discussions that have taken place on the subject of virtual currencies. The US showed its openness by broadcasting the hearing, and it was watched by many Bitcoin enthusiasts around the world. The discussion looked at the potential risks and opportunities Bitcoin and other virtual currencies pose for society, without going into any of the technical details. Senators made analogies with previous technologies and offered personal anecdotes, placing Bitcoin among inventions such as the internet and mobile phones.Positive comments from senators, the judiciary and US financial authorities sent the price soaring to its highest price yet, reaching US$900 at one point. At the start of this year, a single coin cost less than US$15.But the knowledge gap between legislators, law enforcement and Bitcoin developers is still vast. Coalitions of government agencies across borders are beginning to collaborate on addressing the gap. In 2012, the FBI founded the Virtual Currency Emerging Threats Working Group (VCET), which alongside the US department of justice and financial crime agency also collaborates with the UK’s National Crime Agency. However, at times these bodies seem to lack an understanding of the basic principles behind cryptographic currencies.

The Official Video from the Federal Reserve on How It Creates Electronic Money - Unless you’ve been lost at sea since 2008, you’ve likely heard time and again that the Federal Reserve is creating money out of thin air. Type the words “Federal Reserve creates money AND thin air” into the Google search engine and you’ll find about 2.4 million people weighing in on the subject, including folks at PBS. There’s no reason for the debate. The Federal Reserve has put out its very own video explaining how it creates money. It prefers the phrase “newly created electronic funds” to the colloquial “out of thin air.” The video is narrated by Steve Meyer, a Senior Advisor to the Federal Reserve Board of Governors, who explains how the Fed has been paying for those trillions in bond purchases since the 2008 crash. Meyer says on the video:  “You may wonder how the Federal Reserve pays for the securities it buys. The Fed does not pay with paper money. Instead, the Fed pays the seller’s bank using newly created electronic funds; and the bank adds those funds to the seller’s account. The seller can spend the funds, or, can simply leave them in the bank. If the funds stay in the bank, then the bank can increase its lending, purchase more assets, or build up the reserves it holds on deposit at the Fed. More broadly, the Fed’s securities purchases increase the total amount of reserves that the banking system keeps at the Fed.” The Fed has even included a cute little graphic, included above, to educate the public on how this all works.

Speculation About Whether the Fed Manipulates the Stock Market Becoming More Mainstream - Yves Smith - Even during the pre-Lehman days of the financial crisis, blogs and professional investors in my various e-mail conversations would discuss the idea that the Fed had a “plunge protection team” which would intervene to stem market routs. Over the years, this sort of talk among various investors (and these aren’t small fund operators; I’ve seen this point of view from fund managers and prime brokerage managers at very large, well-known firms) seems to have gone from being seen as conspiracy theory to being at least common, if not prevalent, among equity investors.Let me stress that I’m an agnostic on this topic. On the one hand, it’s completely plausible that the Fed would see it as desirable to intervene in the markets during times of extreme upheaval; it’s “unusual and exigent circumstances” powers give it the authority to accept, as former central banker Willem Buiter put it, a “dead dog” as collateral for loans. On the eve of the Lehman bankruptcy, the Wall Street Journal even got a bizarre leak from a Fed official saying it would accept equities as collateral for lending.  The Greenspan and Bernanke put, of lowering interest rates to stop markets from falling; the idea of a Plunge Protection Team would just be an extension of this policy.  So if you accept the proposition that the Fed could and might well prop up a tanking stock market, might it not intervene at other times to further policy aims? Even before the crisis, top Fed officials have made it clear that they regard rising stock prices as a boost to economic growth, both directly (through the wealth effect) and indirectly (through the confidence fairy).

Has the Fed Stabilized the Price Level? - NY Fed - The Federal Reserve Reform Act of 1977 established the monetary policy objectives of maximum employment, stable prices, and moderate long-term interest rates. The goal of “stable prices” has long been understood to mean a low positive inflation rate. On January 25, 2012, the Federal Open Market Committee (FOMC) explicitly defined its price stability mandate in terms of a longer-run goal of 2 percent inflation measured by the total personal consumption expenditure (PCE) deflator. Here, we examine how the behavior of inflation over different time periods compares to this goal. We then discuss how the goal of stabilizing inflation over the long run, rather than on a year-after-year basis, tends to imply a stabilization of the U.S. price level around a trend line—an outcome similar to that from price-level targeting, which offers various theoretical benefits.

Greg Mankiw Is Concerned About Accelerating Inflation - Dean Baker - With the Fed promising to keep the overnight money rate at zero long into the future, while it throws $85 billion a month into the economy with its quantitative easing policy, many are no doubt wondering who is on watch against another outbreak of inflation. Greg Mankiw gave us the answer to that question in his NYT column today. After noting that the job vacancy had risen to 2.8 percent, which Mankiw describes as "almost back to normal," he tells readers; "Data on wage inflation also suggest that the labor market has firmed up. Over the past year, average hourly earnings of production and nonsupervisory employees grew 2.2 percent, compared with 1.3 percent in the previous 12 months. Accelerating wage growth is not the sign of a deeply depressed labor market." Let's check this one out a bit more closely. The graph below shows the year over year growth in average hourly earnings for production and nonsupervisory workers (blue line) and all employees (red line). The former group comprises a bit more than 80 percent of the work force. The latter group tends to be more highly educated and is better paid on average. If we look at the chart there is a modest acceleration in wage growth for production non-supervisory workers in 2013, but only because the rate of wage growth had continued to fall through 2012. If acceleration or deceleration is the measure of whether we have a fully utilized labor market we went quite quickly from a period of excess slack in 2012 when wages were falling to a period of tightness in the last year, even though employment growth has been rather tepid. That one seems a bit hard to accept.  Furthermore, if we use the broader measure of wage growth for all workers, we don't see any evidence of acceleration at all. Wage growth has been hovering around 2.0 percent for the last two and a half years. It had been somewhat lower in 2010 (@ 1.6 percent), but there certainly is no upward pattern in this series.

Nowhere Near The Exit - Paul Krugman - Dean Baker is annoyed with Greg Mankiw — not for the first time — for suggesting that the time for a Fed exit strategy may be drawing near. Dean focuses mainly on Greg’s use of what he considers a misleading wage number, but the problem runs deeper. So, about that number. We have multiple measures of wage developments, and while they tend to move together in big changes, they can tell somewhat different short-run stories. Here are three of them: One of these numbers, wages of production and nonsupervisory workers, shows a modest uptick, the others not. All three remain well below their pre-crisis rates of increase. Is this the kind of evidence on which you want to base a major policy change? Not in my world.

Dean Baker v. Greg Mankiw on Wage Inflation - I may have been too nice to Greg Mankiw per something Dean Baker notes with support from Paul Krugman. Dean notes:  if we use the broader measure of wage growth for all workers, we don't see any evidence of acceleration at all. Wage growth has been hovering around 2.0 percent for the last two and a half years. It had been somewhat lower in 2010 (@ 1.6 percent), but there certainly is no upward pattern in this series. Paul adds:  One of these numbers, wages of production and nonsupervisory workers, shows a modest uptick, the others not. All three remain well below their pre-crisis rates of increase. Is this the kind of evidence on which you want to base a major policy change? Not in my world. Whether we examine the growth in average hourly earnings for production and nonsupervisory workers, the growth in average hourly earnings for all employees, or the employment cost index, wages seem to be rising by only 2% per year. If this increase in nominal wages is matched by an increase in productivity, one would think that unit labor costs would not be rising. The Bureau of Labor Statistics publishes the change in unit labor costs on a national basis every quarter. Unit labor costs actually fell by 3.7% in 2010 and have barely increased since. Call me old school – but why are we worried about a modest increase in nominal wages when unit labor costs are basically flat?

Consumer Inflation Views in Three Countries - - SF Fed - Monetary policymakers care about the public’s inflation expectations for many reasons. For instance, consumers will find a 5% interest rate far more attractive when they expect inflation to be 5% instead of 2%. So, when policymakers make decisions on interest rates, they need to know how much inflation the public expects. Expectations also provide information about central bank credibility. If an inflation-targeting central bank is credible, the public’s inflation expectations will lie close to the inflation target, especially over a longer time horizon. Financial markets and professional forecasters expect central banks to hit their inflation targets. But U.S., British, and Japanese consumers expect inflation to be higher. Data suggest that consumers in these countries don’t pay attention to central bank inflation targets and react sluggishly to persistent shifts in the inflation rate. However, the price of oil apparently influences inflation expectations strongly. It’s possible that consumers use highly volatile oil prices in a rule of thumb for updating their inflation expectations.

Is Obamacare worsening the liquidity trap? - The Economist - The White House Council of Economic Advisers last week released a long and thorough study on the recent slowdown in the growth of health care spending. Americans have been so worried about runaway health costs for so long that this deceleration has been almost universally welcomed. Good economists that they are, the CEA points out that slower health spending can be good or bad. Health outlays depend on both the volume of services consumed, and their price. If people consume more services that improve their health, that’s good. But if they consume more useless services or simply pay a higher price, that’s bad. In particular, “Increases in health care prices (above general price growth) are unambiguously bad for households since they reduce the amount of health care a household can buy with a given number of (real) dollars.” The CEA goes on to note that both health volume and prices have slowed. Indeed, health care inflation is now running at the same level as overall inflation.  Enlarge graph.  By their logic, this is unambiguously good.  But it’s not. Lower prices are unambiguously good for consumers of health care, but consumers are not the same as households. Some households are producers of health care: they’re doctors, nurses, home health care aides, or health insurance plan administrators. Therefore, a decline in the price of health services may help consumers at the expense of producers. Ordinarily, this would not be a macroeconomic issue. But it is when inflation is already too low, in which case this deceleration in prices is potentially bad.

A negative natural interest rate? … No - The economy is nearing the natural level of real GDP and economists are saying that the natural rate of interest is negative. Now the natural rate of interest is the equilibrium interest rate when real GDP reaches its natural level. It is absolutely crazy to think that the natural rate would be negative… absolutely crazy. The best source to understand the natural interest rate is this paper by John Williams, President of the Federal Reserve Bank of San Francisco.“In this Letter, the natural rate is defined to be the real fed funds rate consistent with real GDP equaling its potential level (potential GDP) in the absence of transitory shocks to demand. Potential GDP, in turn, is defined to be the level of output consistent with stable price inflation, absent transitory shocks to supply. Thus, the natural rate of interest is the real fed funds rate consistent with stable inflation absent shocks to demand and supply.   "…so the natural rate refers not to the real funds rate expected over the next year or two, but rather to the rate that is expected to prevail once the recovery is complete and the economy is expanding at its potential growth rate.

Inflation expectations, income expectations & financial repression - The Federal Reserve Bank of San Francisco published a letter titled, Consumer Inflation Views in Three Countries, written by Bharat Trehan and Maura Lynch. The letter explores inflation expectations among consumers in the UK, US and Japan. Basically the story is that inflation expectations by consumers are tied to the level of oil prices and recent inflation. Policy adjustments by a central bank do not play much of a role in determining their inflation expectations. The inflation expectations of consumers are important to evaluate the spending and wage demands of consumers. If consumers raise their inflation expectations, they would bargain for higher wages, only if they have power to do so. Labor has little power nowadays to bargain for better wages. So what the letter from the FRBSF is missing is a comparison between what consumers expect of inflation and what they expect from their own incomes. Simply put, if I expect inflation to be 3%, but expect my own income to rise at around 0%, then I feel I am losing ground… and I will be less likely to spend money. Surely it makes more sense to spend money now since prices are rising faster than I can keep up with them, right? No… Spending more money now would make me feel even more insecure.

Fed Reveals New Concerns About Long-Term U.S. Slowdown - Federal Reserve Chairman Ben S. Bernanke and his colleagues are suffering through their own form of cognitive dissonance: revealing new concerns about the economy’s long-term prospects even as they forecast faster growth in 2014. Worker productivity, a key component of an economy’s health, has risen at an annual clip of 1 percent during the last four years, as the U.S. has struggled to recover from the worst recession since the Great Depression. That’s less than half the 2.2 percent average gain since 1983, according to data from the Labor Department in Washington. “Slower growth in productivity might have become the norm,” the central bankers noted at their Oct. 29-30 meeting, according to the minutes released last week. That’s a switch from past comments by Bernanke that the deceleration probably was temporary and would end as the expansion continued. A combination of forces may be at work. Chastened by the deep economic slump, corporate executives have reduced spending plans for factories, equipment, research and development. Startup businesses have been held back as would-be entrepreneurs find it harder to get financing from still-cautious lenders. And out-of-work Americans have seen their skills atrophy the longer they’re without jobs. 

Economy Stalling Out -- We think the global growth outlook is deteriorating due to lack of structural reforms, under-investment and contractionary U.S. monetary policy.

  • Interest rates are set below-market, limiting credit growth and channeling it to the government and established corporations. This rationing process causes the same problems experienced with other types of price controls. In the case of credit rationing, it leaves labor growth and dynamism weak.
  • While many of the assets favored by the Fed’s policy have been pushed up in price on the theory that the Fed is creating extra credit, we think non-favored activities (like new business formation, a critical factor in job growth) are harmed, leaving a sluggish and disinflationary environment despite inflation in government-favored assets.

With interest rates artificial, we’re skeptical of some of the normal leading indicators. Initial weekly claims fell to 316,000 today, normally an indicator of a strengthening labor environment, but we note the unusually low turnover in the current labor force (gross hiring in the JOLTS report at 4.6 million in September has been relatively flat since May 2012 when it was at 4.5 million.) Today’s leading indicators (up 0.2% in October after a strong upward revision to 0.9% for September) have been lifted by distortions in financial markets. Credit spreads are narrowing and small-cap stocks outperforming, but those sectors are prime beneficiaries of Fed policy and don’t generate a big share of job growth.

  • The Fed’s policy isn’t a free lunch. To buy bonds, it borrows from the banking system, pushing bank reserves to a staggering 25% of bank deposits. Other parts of the economy are paying for the gains in corporate margins and bond issuance. With U.S. and global GDP growth prospects weak, we think corporate earnings will disappoint, weighing on equities and other asset prices

Krugman Goes Splat: I was fairly amazed to read Paul Krugman’s latest op-ed in the New York Times, titled “A Permanent Slump?” He seemed to be coming remarkably close to saying what several of us have been trumpeting for the past few years—that world economic growth is ending and we’d better retool accordingly. “What if the world we’ve been living in for the past five years is the new normal?,” he writes. “What if depression-like conditions are on track to persist, not for another year or two, but for decades?” Wow. That’s a gutsy statement, given that it’s coming from one of the high priests of the Religion of No Limits (otherwise known as economics). What’s even more remarkable is that Krugman’s sudden insight was evidently triggered by comments from Larry Summers (who was almost nominated to be the next Fed Chairman), in a speech at a recent IMF conference. Evidently, Respectable People are starting to discuss The End of Growth. Wow. But read further. Why does Krugman think the economy has slowed? Because population growth (especially in the US and other industrialized nations) has tapered off. “A growing population creates a demand for new houses, new office buildings, and so on; when growth slows, that demand drops off.” True. So I guess the solution is to aim for an infinitely large human population so that we will never have to worry about slower economic growth. Hmm. Might be some problems with that.

People Are Still Talking About That Amazing Larry Summers Speech — And It Can Be Summarized In Two Sentences - For the last two weeks, people have been talking about a speech Larry Summers gave to the IMF about secular stagnation, bubbles, and negative interest rates. If you haven't read it yet, have no fear, Citigroup FX analyst Steven Englander has published a note on the speech wherein he summarizes it in two sentences: The ability of the economy to generate adequate demand is so impaired that we are getting financial bubbles before we get full employment. In consequence, under current policies episodes of full employment are fleeting and unsustainable. That's pretty disturbing and you can see why everyone's so interested. Read more on the speech here.

If this is “secular stagnation”, I want my old job back - “Secular stagnation” is doing the rounds as a theory of why we’re in the mess we’re in, after this Larry Summers talk, which Paul Krugman is claiming basically summarises ideas that he’d also been talking about for the last few years. I am not sure about the extent to which anyone can claim priority on this though – as Krugman says, Summers is basically giving a clear expression of a set of ideas which have been ubiquitous for a long time, to the extent that I was making jokes along that line, ten years ago. I will follow Krugman in saying that I also had been thinking about a similar explanation of things since 2009, set out in cursory form here and in greater detail here[1]. Basically, the thesis is that since about the mid-1990s, it has been the case that it has only been possible to achieve anything like full employment in America during periods when the private sector has been chronically over-consuming and increasing its debt levels. The “natural rate of interest” consistent with full employment has been consistently negative all that time, and since there are good theoretical reasons[2] to presume that the natural rate of interest has some relationship to the natural rate of economic growth, this might be saying something rather depressing about the underlying growth potential of the developed world’s economy. And so on, and so forth. Now it’s an interesting question, although not one on which I find myself with anything to say, as to whether we are stagnating secularly[3]. But the thing I do want to address is that, in the way in which the issue is being discussed historically, there is a lot of rewriting of the recent past.

Household Debt and Delinquency Levels and Their Impact on GDP Growth - The recent Quarterly Report on Household Debt and Creditfrom the New York Fed shows an interesting change in the trend of household debt in the United States.  Here is a graphic showing the total household debt balance, including both housing and non-housing debt for the third quarter of 2013:  It is interesting to note that while the percentage of loans that are more than 30 days delinquent has dropped from its peak of 11.9 percent in the first quarter of 2010, at 7.4 percent, it is still nearly double the 3.5 to 5 percent range experienced prior to the Great Recession.   Of the total outstanding household debt, $831 billion is considered delinquent with $600 billion considered seriously delinquent (at least 90 days late).  Here is a graph showing the new delinquent balances by the type of loan: For the first time since the end of 2012, the total balance of new delinquent loans grew, hitting nearly $200 billion.  You will also note that the total delinquent loan balance is still well above the pre-Great Recession level of between $135 billion and $150 billion.  Despite the improvement in the economy, about 355,000 consumers had a bankruptcy notation added to their credit reports, roughly the same number as the year before.  Here is a graph showing the number of consumers with new foreclosures (in blue) and new bankruptcies (in red): What concerns me is the still elevated level of household debt delinquencies.  With household debt levels now on the rise and the threat of interest rate increases looming, only time will tell whether tapering will put upward pressure on already high delinquency rates, forcing consumers to reduce their debt levels.  With nearly 70 percent of GDP stemming from consumer expenditures, any reduction in consumer spending for any reason will put further downward pressure on what is already anemic economic growth.

A Pair Of Positive Macro Reports On Thanksgiving Eve - Today’s updates on initial jobless claims and the Chicago Fed National Activity Index bring encouraging news for the US economy as the nation prepares to celebrate the Thanksgiving holiday. New filings for jobless benefits dropped again last week, falling to the lowest level since late-September. Meanwhile, the three-month average of the Chicago Fed National Activity Index (CFNAI-MA3) inched ahead in October, reaching the highest level in eight months. Taken together, these two numbers bring a slightly stronger positive aura to the US economic outlook. It’s still premature to argue that growth overall is set to accelerate, but the data du jour suggest that it’s not getting any easier to be a pessimist when it comes to big-picture macro analysis. Let’s start with the Chicago Fed data. CFNAI-MA3 increased last month to +0.06--a bit better than my econometric forecast. True, the advance is small, although the return to positive territory for the three-month average tells us that the economy is again expanding at a rate that’s slightly above trend. (A zero reading means that the pace of growth matches the historical trend, while a negative number indicates below-trend growth). More importantly, the +0.06 level for October is far above the danger zone of -0.70 (values below -0.70 indicate an "increasing likelihood" that a recession has started, according to guidelines from the Chicago Fed.)

Merrill Lynch: Economy "Out of Rehab" --  Ethan Harris and the Merrill Lynch team has done an excellent job of forecasting the U.S. economy. Here is their outlook for 2014, from Ethan Harris at Merrill Lynch: Out of rehab. A few excerpts:  As we have been arguing for more than a year, we think 2014 is the year when the economy finally exits rehab and starts growing at a healthy 3% (4Q/4Q). In our view, the economy would have already exited rehab this year if the politicians had not hit the economy with a double dose of austerity and confidence shocks. Two keys to better growth—the housing market and the banking sector—had already shown serious signs of improvement in 2012, with solid gains in home prices and construction and a modest improvement in bank lending. ... Absent the shocks out of Washington, we believe growth this year would have been 3 to 3.5%....Not only are structural headwinds fading, we expect Washington to be less shocking. While the sequester shock is not over—there is about a 0.2pp hit to GDP in 2014—the vast majority of the 2%-plus in fiscal austerity has already been absorbed into the economy. At the same time, with the election looming, we expect moderate politicians in each party to assert themselves and avoid another shutdown...While some of the cyclical bounce has already happened, it is important to recognize that the US is still in the early stage of the business cycle. Business cycles don’t die of old age, they die from overexpansion and inflation. ... In our view, the auto recovery is fairly well-advanced, but there is a long way to go in other consumer durables, housing, and business investment. Even more important ... inflation seems a distant concern.

Leading Indicators Index Ticks Up -- The index of leading economic indicators rose in October, suggesting economic sectors are holding up into year-end, according to data released Wednesday. The Conference Board said its leading index increased 0.2% last month after an upwardly revised 0.9% reading in September, which originally came in at 0.7%. August’s leading index rose 0.7%. Economists surveyed by Dow Jones Newswires had expected the latest index to stay unchanged. “The US LEI has increased for four consecutive months,” said Ken Goldstein, an economist at the board. “Overall, the data reflect strengthening conditions in the underlying economy. However, headwinds still persist from the labor market, accompanied by business caution and concern about federal budget battles.” Gains in the financial indicators and housing and manufacturing segments of the economy helped to lift the index, while hesitant spending and investing by businesses continue to weigh on growth, the report said.

All the ways — well, at least some of them — in which this economic recovery is totally disappointing -- The above chart from the Dallas Fed looks at several economic indicators in the 69 months since each business-cycle peak, comparing the Great Recession to six previous recessions. And it is not a flattering comparison. From the study:

    • 1. Real GDP is 5.3 percent higher than it was when the Great Recession began, compared with average real GDP growth of more than 20 percent for the six previous recoveries at this same point in the business cycle.
    • 2.The coincident index and its four economic indicators are also highlighted in Chart 2. Through September 2013, the coincident index is 0.8 percent below its value when the Great Recession  began. By comparison, all of the six previous recoveries had surpassed their NBER recession  peak values an average 13.8 percent by this same point in the business cycle, ranging from an  increase of 8 to 24 percent.
    • 3. For payroll employment, jobs are 1.3 percent below the level when the Great Recession began, compared with an average increase above peak of 10.2 percent for the previous six business cycles.
    • 4. Industrial production remains 0.8 percent below its level when the Great Recession began, compared with an average increase of 16.3 percent for the previous six business cycles.
    • 5. The only two indicators that have surpassed their pre-Great Recession peak levels are personal income and manufacturing and trade sales. Personal income is 3.1 percent higher than when the Great Recession began, and manufacturing and trade sales is 0.1 percent higher..

Nicole Foss : Where the Rubber Meets the Road in America - There has been a lot of attention focused on shenanigans at the federal level in the USA this year, with games of brinkmanship and political theatre over the fiscal cliff, the debt ceiling and the government shutdown. Cheap political points were scored in a series of unedifying spectacles, but there was no serious risk of default, despite the dramatic rhetoric. It is not at the federal level that the rubber meets the road in the US, but at the state and municipal level, where many states and municipalities are poised to hit a financial brick wall at a hundred miles an hour, as Detroit spectacularly did on July 18th. They can neither print money nor monetize debt, meaning that tax hikes and service cuts are on the cards, along with the wholesale breaking of financial promises in some jurisdictions. Both pensions and bonds are at risk, along with the services residents depend on. One group of stakeholders – residents – is currently shouldering all the losses while others remain whole, for the time being. The losses suffered by residents, in the form of tax hikes and service cuts rarely make headlines, allowing a form of slow motion financial train wreck to occur on Main Street without the attention that would come with formal default on ‘protected’ obligations like pensions and bonds.

War! Inflation! Bull markets! - Josh Brown, aka the Reformed Broker, is pleased to see his favourite of all the earth’s charts, updated by the Stock Trader’s Almanac.Far be it from us to stand in the way of good chart, or the majestic sweep of history, but we’re going to admit to some confusion on this one (click to enlarge). Major wars only, meaning no place then for the Korean Police action. But here’s the logic from the Reformed Broker:The basic idea behind this is that major wars are funded with massive government spending and this money always finds its way into the economy eventually, causing prices and wages to rise along with secular bull markets for stocks.Wars then are inflationary, which is bad for stock markets, but once that inflation is out of the way (the roaring twenties, 1950s on, post 1983) the effect is awesome. Hmmm. Sounds rather like the broken window fallacy. Unfortunately, money spent on destruction, and then to recover from it, is not a net benefit to the economy. Otherwise the Doozers, with their symbiotic relationship to the Fraggles, would be a useful model to follow.

Fiscal Drag in 2013 - From Torsten Slok at Deutsche Bank: [F]iscal drag in 2013 is 2.4%, ie if GDP growth in 2013 ends up being 1.7% then if we had not had the fiscal drag then GDP growth would instead have been 4.1% (=1.7% + 2.4%). .. ...Translated into nonfarm payrolls this means that instead of having nonfarm payrolls at 186k - the average monthly number so far for this year - then nonfarm payrolls would have been more than 400k...

Loathsome Wall Street Deficit Hysterics: ‘Blame the Old and Sick, Not Us’ – Part 1 - The austerity push by politicians, political operatives, and pundits of the last 5 years is the height of economic, political, and social perversity and stupidity. Yet, as it still resonates in the halls of power, in the White House and Congress, and in many parts of the media, it still requires explanation and clarification.  Besides inspiring the reduced level of government funding we are now seeing in the US and elsewhere, the deficit hysteria campaign is threatening to undermine what remains of the American social safety net that helped form and support the American middle class over the past 70 years.  In addition, now and in the future, we will need a government able to use the full range of fiscal (i.e. financial) tools to combat climate change, tools which the austerity campaign seeks to lame or sequester for the benefit of a small financial elite.   In the latest turn, deficit hysterics are trying to incite intergenerational warfare between the young and the old, accusing the latter of taking more than their share of public financial resources which the young will need later in life. Within the past couple of years, I have tried to explain in a compact and vivid way the austerity campaign, which remains now as then a perverse, unrealistic and destructive set of economic opinions and policy recommendations.  Recently, a view of the austerity drive has come into focus, which maybe has occurred to others as well.  Here is my exposition of this sharper perspective upon what remains a dangerous movement among the political and economic elite to strangle and reverse social progress

Loathsome Wall Street Deficit Hysterics: ‘Blame the Old and Sick, Not Us’ – Part 2  [Part I] - Stated as above, the deficit hysteria-driven austerity campaign would have never gotten off the ground; no one outside the financial industry or its paid minions would choose to design society to facilitate the financial sector’s enrichment at the expense of the rest of the economy.  However, the engineers of this campaign, including Peterson and Rubin, have couched the deficit hysteria campaign as if Social Security and other social spending are simply financial transactions between members of the private sector, generalizing as it were from their experience on Wall Street.  In transactions between members of the private sector, credits and liabilities are assumed to balance.  Debts must be paid in full or the debtor is assigned a social or financial penalty and/or stigma.  This simple morality is supposed to apply to private sector to private sector business transactions (though often for Wall Street and the well-connected this morality is rarely compulsory) and is in most day-to-day interactions a workable rule of thumb for anonymous or largely anonymous business dealings between people. However, even this morality, which is spoken about by some as if it is universal and unimpeachable, has limits to its scope in private-sector to private-sector transactions, if viewed over the entire ebb and flow of the business cycle.   As Michael Hudson has written “debts that can’t be repaid, won’t be repaid”.  The ideal vision of a society composed of  mostly solvent individuals or a society in which most people can choose to remain solvent, assumed by the simple morality applied by deficit hysterics, cannot be extended to our current reality in many instances.  A broad social “reset” is required, as income and wealth become concentrated among the few, while the many become ever more cash-constrained.

We’re Not Broke — We’ve Been Robbed -- With the Friday the 13th December deadline for a federal budget deal, the cries of “we’re broke,” and “we can’t afford to keep spending,” are ringing again. But we’re not broke and acting like we are is making us poorer.  One of the biggest common misunderstandings is that governments are like households, which need to tighten their spending when times are tough. Actually, governments and households work in opposite ways. Governments can and should spend more when times are tough. Government spending makes up for lack of spending by families and businesses, and it helps get the economy moving by getting people back to work, putting money in their pockets, and contracting with businesses.If we needed a reminder of that, the recent government shutdown gave us one.. The estimates are that even though the shut down only lasted 16 days, it cost the economy $24 billion. During the past two years we’ve reduced the deficit by half, close to 2008 levels. That may sound like it’s a good thing, but it’s really the biggest reason the economy is so lackluster for the vast majority of Americans with a near-record-high in unemployment, stagnant wages, and a smaller proportion of Americans working than any time in the past 30 years. We’ve also cut all the wrong things: spending that puts money in people’s pockets today and investments in our economic future. We’ve cut spending on education, unemployment insurance, environmental protection, and scientific research. Our public investment, which includes annual government programs and spending on roads, bridges, transit, research, and development is actually the lowest it’s been as a share of the economy in 60 years.

Negotiators say they’ll continue to work on budget deal to replace sequester - Congress left town Thursday without a deal to avoid a government shutdown in the new year, but lead negotiators for both parties said that they will continue to work over the Thanksgiving break and that they are optimistic about reaching an agreement. “I’m hopeful,” said House Budget Committee Chairman Paul Ryan (R-Wis.). “Chairman Ryan and I are working closely together to find a path forward in good faith,” added Senate Budget Committee Chairman Patty Murray (D-Wash.). Neither Ryan nor Murray would comment on the status of the talks, which have focused on identifying alternative savings to replace sharp agency budget cuts known as the sequester. Absent an agreement, the government will shut down when the current temporary funding measure expires on Jan. 15.Both sides are eager to avoid another shutdown, particularly Republicans, who suffered greatly in public opinion polls after closing agencies for 16 days in October. As a result, people close to the talks said Murray and Ryan have agreed to jettison for now any discussion of tax increases or cuts to federal health benefits — each side’s hot button — and focus instead on a more politically neutral category of potential savings known as “other mandatories.”

Budget Negotiations Update: Playing "Small Ball" - From the WSJ: Narrow Budget Agreement Comes Into View: Negotiators in Congress are moving toward a narrow agreement on this year's federal budget that ... modestly reduce the roughly $100 billion in across-the-board spending cuts, known as sequestration, that will hit in January....To replace the sequester cuts, officials close to the talks said, lawmakers are looking at increasing airport-security fees, cutting costs in federal-employee retirement programs and drawing on revenue from the auction of broadband spectrum. Democrats also want to count savings from program changes in a farm bill, which is being negotiated in a separate process, to offset sequester cuts, but Republicans say those savings should go to general deficit reduction. The budget conference committee is scheduled to present any agreement on December 13th, and then vote on the spending bill by January 15th.  It appears a "small ball" agreement is likely.

Do-Nothing Congress Dithers on Budget as Deadline Nears - Congress’s latest attempt at crafting a budget plan is on track to end up the same way as others have in the past decade: with little or no agreement.Negotiators have little chance of breaking this string of futility, even after a 16-day government shutdown in October that cost the U.S. economy $24 billion. If they do, it’ll only be to curb automatic spending cuts, including $19 billion that hits the Pentagon starting in January. Now budget experts, labor unions and business groups are saying enough’s enough, and questioning why lawmakers can’t live within their means the way ordinary Americans do and instead lurch from one budget standoff to the next. “It’s a stupid way to run a country,” said Maya MacGuineas, head of the Campaign to Fix the Debt, a non-partisan advocacy group whose members include business leaders and former lawmakers.

Shutdown prevention: back-room talks start - A bipartisan group of senators may serve as a last-minute lifeline if the government faces another shutdown at the start of next year. Led by Sens. Susan Collins (R-Maine) and Joe Manchin (D-W.Va.) and launched during the government shutdown as a springboard for bipartisan negotiations, the “common sense caucus” may offer solutions on budget issues that have long plagued each party. For now, the group is working in the shadows of the more high-profile budget conference committee chaired by Rep. Paul Ryan (R-Wis.) and Sen. Patty Murray (D-Wash.). The deadline for that panel to craft an agreement is Dec. 13, and there are some signs it might reach a narrow deal to replace the sequester with more targeted spending before the eruption of another fiscal impasse. But if that effort fails, the 16-member Collins-Manchin group may be the best hope of avoiding another shutdown on Jan. 15. Members of the group — who say theirs isn’t one of the Senate’s famous gangs — believe their personal relationships and built-in communication infrastructure might offer Congress a way out. “Let’s say the Budget Committee is unable to reach any kind of agreement,” Collins said. “I would think that our group would reconvene and talk about whether we could put together a plan.” “They’re making some headway. Not as much as I’d like to see,” Manchin said of the budget leaders. “If they fall and get nothing and you come on the eve of a shutdown? You don’t want that to happen. We’re not going to let that happen.”

Sequester Watch, #32 - Our 32nd edition of sequester watch features stories about defense cuts, scientific research, and furloughs at a Portsmouth, NH shipyard. There’s also a lot of pick up of a piece by the Center for American Progress on how sequester cuts will be deeper in 2014 than 2015.  But then there’s this piece below (“negotiators working on a deal…”) suggesting that this ongoing budget conference might actually produce a deal to reverse some of the sequester cuts, something I hoped might materialize.  I’d give it 40/60 that they’ll make a deal, which are actually high odds given the impossibility of doing anything remotely helpful on the fiscal side. An interesting wrinkle here is that if they are able to pull off a deal, it will be because the notion of a “grand bargain”–trading new tax revenues for entitlement cuts–was kicked out of the room.

DFAS and 8 trillion dollars and more since 1996 - Via Reuters Part 1 Defense Finance and Accounting Service, or DFAS (pronounced “DEE-fass”). This agency, with headquarters in Indianapolis, Indiana, has roughly 12,000 employees and, after cuts under the federal sequester, a $1.36 billion budget. It is responsible for accurately paying America’s 2.7 million active-duty and Reserve soldiers, sailors, airmen and Marines. It often fails at that task, a Reuters investigation finds. A review of individuals’ military pay records, government reports and other documents, along with interviews with dozens of current and former soldiers and other military personnel, confirms Aiken’s case is hardly isolated. Pay errors in the military are widespread. And as Aiken and many other soldiers have found, once mistakes are detected, getting them corrected – or just explained – can test even the most persistent soldiers (see related story). Part 2 This account is based on interviews with scores of current and former Defense Department officials, as well as Reuters analyses of Pentagon logistics practices, bookkeeping methods, court cases and reports by federal agencies...“The Pentagon can’t manage what it can’t measure, and Congress can’t effectively perform its constitutional oversight role if it doesn’t know how the Pentagon is spending taxpayer dollars,”

Lawmakers Ready U.S. Budget Fallback Options Amid Taxes Impasse - With less than three weeks until their deadline, U.S. budget negotiators have yet to break an impasse over revenue, prompting lawmakers to draft plans to blunt $19 billion in defense cuts set to start in January. One idea -- known as “smoothing” -- would redistribute the 2014 reductions across the 10-year timeframe of the automatic Pentagon cuts known as sequestration. Instead of the cuts hitting in January, defense spending next year would remain at or higher than the current $518 billion level, with greater reductions coming in future years. Budget analysts call the smoothing approach a gimmick, and Tea Party-aligned lawmakers probably will oppose it. “It’s the budget equivalent of rearranging the deck chairs on the Titanic,” Still, if Democrats and Republicans on the 29-member budget panel can’t bridge the revenue divide, smoothing may serve as an alternative for both parties that want to stop cuts the Pentagon says will devastate important military functions. “It’s either this or nothing,” meaning if this doesn’t work, the deeper automatic cuts will take effect, Collender said.

6 of the Top 10 U.S. Billionaires Are Kochs and Waltons - For the first time ever, according to Forbes magazine, the  400 richest Americanshave more than $2 trillion in combined wealth. And, a fifth of that amount is held by just 10 individuals. Of those top 10 richest Americans, six hail from two families—the Kochs and the Waltons—who are destroying our economy and corrupting our politics. We all should be outraged.  Arguably, the two most urgent tasks in this country are to transform our economy and to clean up our politics, and these two families stand in the way of both. Our economy is addicted to fossil fuels and Charles and David Koch’s company, Koch Industries, is a key driver with investments in  pipelines and refineriesacross the United States. These two Koch brothers rank four and five on the billionaire list.  In addition, our economy is marked by stagnating wages, which have sunk to  povertylevels for millions of workers. The key driver of our low-wage economy is  Walmart, with its 11,000 stores worldwide that pay so little that many of its workers get by on  food stamps. The four main heirs to Walmart’s founder, Sam Walton, rank numbers six, seven, eight, and nine on the billionaires list. Three sit on the Walmart board, including Rob Walton, the board chair. (Other U.S. billionaires have made their fortunes in destructive Wall Street financial firms and through the generous government handouts of what President Eisenhower called "the military-industrial complex.")  The problem is, of course, not just economics. It’s the way that economics interacts with politics. The Koch brothers have poured some of their combined $72 billion in wealth into  conservative and tea party politicians at the governor and state legislature levels. The Waltons—experts at  tax avoidance—exercise a subtler, but equally corrosive, influence of our politics through their continued role in the world’s largest global corporation, Walmart.

Wealth And Income Inequality In America - One of the most disturbing trends in this country is the rise of extreme wealth and income inequality. As the following charts show, America is rapidly becoming a country of a few million overlords and 300 million serfs. Unfortunately, this issue has been politicized, which means that people don't think about the implications of it — they just start yelling. But extreme inequality is bad for everyone, even the overlords. Why? Because when inequality gets bad enough, serfs can't afford to buy products from overlords. This hurts the overlords' ability to get even richer.And that's what's wrong with the American economy right now. The serfs are tapped out. The overlords are responding by cutting costs (firing serfs), to increase profits. Unfortunately, one person's "costs" are another person's "wages," so this is making the problem worseThe best way to start reversing our inequality trend is not to increase taxes on overlords and give the additional money to the serfs. That just inflames class warfare and gets people yelling about "socialism." The best way to fix inequality is to persuade our overlords that it is in their best interests to share more of their wealth by paying their employees more for their work — work that, not incidentally, is what makes the overlords rich.

End the 1 percent’s free ride: Taxing land would solve America’s biggest problems - At present, neither party advocates the tax code so elegant it can reduce inequality, mitigate poverty, stimulate productivity, prevent asset price bubbles, stem community-shredding gentrification and drain the distended Wall Street cabal of its ill-gotten gains – in just one tax. Land value. If we want a real overhaul/simplification of the tax code, the way to do it is to tax land value. It might be the only tax we need. No sales tax. No income tax. No payroll tax to fill a Social Security trust fund. No corporate income tax that, as we can plainly see, offshores profits. No need to tax labor and industry at all. Just tax the stuff that humans had nothing to do with creating, and therefore have no basis to claim ownership over at all. You’ll find that almost all of it is “owned” by the fabled 1 percent. And boy are they sucking a lot of money out of it. By far the most valuable asset form in the U.S. is real estate, and the majority of that is the value of the land, as distinct from the value of the human-made buildings. Economist Michael Hudson has assessed that the land value of New York City alone exceeds that of all of the plant and equipment in the entire country, combined. No one put any enterprise or cost into producing the land’s value – they simply bought it when it was cheap, sold it when it was dear, and waited for the check. “They” are the Finance, Insurance and Real Estate (FIRE) sector, and they capture 40 percent of the United States’ profits, despite the complete passivity of their profit-accumulation method.

Effective Corporate Tax Rates - Although the prospects for tax reform in Congress have dimmed of late, the lobbying activity has not. The corporate community continues to put pressure on Congress to reduce the statutory corporate tax rate, which, at 39.1 percent including state and local taxes, is the highest among members of the Organization for Economic Cooperation and Development. What tends to get lost in the debate is how much corporations actually pay in taxes once various deductions and credits are taken into account. A corporation’s total tax bill divided by its profits is its effective tax rate. It’s hard to imagine a corporation paying anywhere close to 39 percent of all its profits in taxes, as that would mean it has no deductions or credits whatsoever. According to the Internal Revenue Service, corporations had gross profits of $1.8 trillion in 2007 and taxable income of $1.2 trillion. Since the Tax Reform Act of 1986, new corporate tax preferences have widened the gap between gross income and taxable income. In 1987, gross corporate profits reported on tax returns were $328 billion and taxable income was $312 billion. Thus since 1987, taxable income has fallen to 68 percent from 95 percent of gross income. Of course, many corporations are so adept at manipulating the tax code that they pay no federal taxes at all. According to Citizens for Tax Justice, a progressive group, 78 companies paid no federal income taxes at least one year between 2008 and 2010. The data come from annual company reports and may not necessarily reflect actual tax payments on tax returns because of different accounting concepts.

Real Estate: Will Church Ministers Lose Tax-Free Housing? -   A federal judge in Wisconsin has ruled that housing write-offs for ministers, priests, rabbis and other clerics are unconstitutional, a violation of the First Amendment’s establishment clause.At issue was the question of whether clergy are entitled to a tax-free rental allowance under 26 U.S.C. § 107. This federal legislation — first passed in 1954 and amended in 2002 — allows “ministers of the gospel” to receive such a write-off. However, despite the specific language of the legislation, the IRS has broadly interpreted the term “ministers of the gospel” to include non-Christians. What it has not done is include non-believers, meaning that the leaders of theFreedom from Religion Foundation, the atheist group that brought the suit in Madison, WI, are not entitled to a housing deduction. “Plaintiffs’ alleged injury,” said Federal District Judge Barbara B. Crabb, “is clear from the face of the statute and that there is no plausible argument that the individual plaintiffs could qualify for an exemption as ‘ministers of the gospel.’” Crabb then ruled that the law was unconstitutional and ordered the IRS to end the deduction. Not only does the law discriminate against non-believers, said the judge, it also discriminates against religious faiths which do not have clergy. In addition, it allows clerics with a parsonage allowance to obtain income tax-free which can be used to pay down a mortgage — and to then write off mortgage interest and property taxes.

Why Code is Law - Several bellwether software initiatives have gone off the rails over the last five years. I am going to focus on one, because I learned about it on Naked Capitalism, and is where I first saw the expression “Code is Law”. I hope when history is written, this example will stand out on how the anarchist nerds that we call software engineers inadvertently started to hijack public institutions. More cynically we could believe that the software engineers where just useful idiots to corruption. But conspiracy theories are not necessary for this story, and given the pace of events, I doubt there were smart enough conspirators anyways.  In this story, software engineers summarily rewrote policies that had been in place for centuries, and arbitrarily replaced historical procedures run by clerks, land offices and judges with a buggy central data-base. This is the story of the software used for mortgage securitization leading up to the credit crisis. Property ownership is fundamental to money and credit, which in turn is fundamental to capitalism, and therefore should be treated with great care. There are many examples of societies tinkering with property ownership, only to see their economy damaged in predictable sequences of setbacks involving money, credit, trade and investments.

The NYT Implies that Not Prosecuting JPMorgan Proves DOJ’s Vigor --  William K. Black -  No one expects Andrew Ross Sorkin’s slavish “Deal Book” lackeys to demand that the elite Wall Street bankers whose frauds drove the financial crisis be imprisoned, but the slavishness to the banks revealed when major news stories emerge continues to irritate if not surprise.  A recent embarrassment can be found here. The context of the NYT article was the expected settlement between DOJ, various states, and JPMorgan.  “Deal Book” shows that cricket masters can impart very different spins.  The first substantive paragraph’s spin is to minimize JPMorgan’s fraud. “The civil settlement, which materialized after months of wrangling, resolves an array of state and federal investigations into JPMorgan’s sale of troubled mortgage securities to pension funds and other investors from 2005 through 2008. The government accused the bank of not fully disclosing the risks of buying such securities, which imploded in 2008 and helped plunge the economy to its lowest depths since the Depression.” “Deal Book’s” first spin takes the fraud completely out of fraud.  In its place we have something designed to sound trivial, ethics-free, and non-criminal – “not fully disclosing the risks of buying such securities.”  The goal is to make the reader yawn. We don’t need no stinkin’ ethics! Step back from the details of the story and recall that the Wall Street Journal notes that DOJ and various states were pursuing nine fraud investigations of JPMorgan – and that is not counting the fraud cases that were settled with JPMorgan concerning massive numbers of felonies through false affidavits that produced unlawful foreclosures and the “London whale” accounting and securities fraud (and the non-investigation of JPMorgan’s conduct of the world’s largest proprietary trading operation in contravention of Dodd-Frank).  JPMorgan is one of the largest banks in the world and it is a cesspool of diversified fraud schemes.  It allegedly participated in the largest cartel in world history (by four orders of magnitude – LIBOR) and the three most destructive control fraud epidemics in history that drove the financial crisis.  These were the twin epidemics of mortgage origination fraud (appraisal fraud and liar’s loans) and the resultant epidemic of fraudulent sales of the fraudulent mortgages to the secondary market.  DOJ, for reasons that pass all understanding, is not even investigating the twin mortgage origination frauds – so we really have 13 diversified fraud schemes discovered to date, each of which occurred primarily or exclusively while Jamie Dimon was CEO.

Who's Paying for JPMorgan's Settlements? - It's sort of funny to read that JPMorgan "plans to keep overall compensation roughly flat this year from last year, in a sign that employees will feel at least some pain from the bank's recent legal settlements." Some quick stupid math:

  1. JPMorgan's recent legal settlements, if by "recent" you mean "within the last week," total to $17.5 billion.1
  2. That is just about equal to JPMorgan's estimated net income for the year.2
  3. JPMorgan's compensation and benefits bill last year was about $30 billion, so I guess this year it will be around $30 billion.

So settlements equal to around 100 percent of net income reduced compensation by about zero percent. "At least some pain," then, if you include "absence of increased pleasure" in your definition of pain. There is probably a Greek philosophy about that. That is not a fair way to do the math, of course. Those $17.5 billion of settlements didn't drop from the sky on an unsuspecting JPMorgan; the bank has been reserving for them and their friends for years, smoothing the effect of the settlements both on net income and on compensation. Each of the past week's settlement announcements contained words to the effect of "we are already reserved for this stuff so don't worry," and no one did; JPMorgan's stock is higher today than it was before the settlement announcements.

Why JPMorgan Is JPMorgan - Which is to say, a basket case. Along with Citigroup, and Bank of America. We all know that JPMorgan Chase is too big to fail. We all know that this means that it enjoys the benefit of a likely bailout from the federal government and the Federal Reserve should it ever collapse in a financial crisis. So why does that make it a poorly run company?  One reason, of course, is that it’s too big to manage. Even if bribing Chinese officials by hiring their children wasn’t part of the master strategy, not being able to stop it from happening is a sign that things aren’t really under control. Mark Roe (blog post; paper) points out another reason. For decades, the supposed cure for bad management has been the so-called market for corporate control. In other words, do a bad job, and someone will take over your company and you’ll be out of a job. That someone might be a corporate raider like T. Boone Pickens, or it might be a private equity firm, but in either case bad management is a sign of opportunity. Not so with too-big-to-fail banks. For one thing, TBTF banks  are impossible to acquire in one piece: no other bank could absorb JPMorgan, even if there weren’t the rule against a banking conglomerate having more than 10 percent of all U.S. deposits. The other option is to engineer a breakup, which is what all manner of shareholder advocates have been arguing for. But, Roe argues, if being too big to fail is your competitive advantage, that would kill the golden goose. Therefore, the market for control doesn’t work properly, and these behemoths continue bumbling along their way—not just threatening the financial, but doing a lousy job at their job of providing credit to the economy.

Christmas Time on Wall Street - Remember how Quantitative Easing was going to “get the banks lending again”?Well, it hasn’t worked that way. In fact, after 4 years of zero rates and $3 trillion in monetary pump-priming, “banks are lending less to small businesses and consumers than before the financial crisis”. But how can that be, you ask, after all, didn’t the banks just report record profits in the Third Quarter? Yep, they sure did. $40 billion-worth. But the bulk of that dough was raked off their gaming operations, you know, all the dodgy activities that Dodd-Frank regulations were going to stop, but never did. As far as lending to households and small businesses, that’s been a non-starter from the get-go. Check this out from the IBT: “Small business loans… decreased in 2012 from 2011. … there was $588 billion in small business loans outstanding in June 2012, 3.1 percent less than at the end of 2011.” (“Banks Have Received $2.3 Trillion In Quantitative Easing But Are Lending Less To Small Businesses And Consumers Than Before The Financial Crisis“, International Business Times ) Okay, so let’s do the math: The Fed beefs up its balance sheet by a hefty $3 trillion, and the banks issue a whopping $588 billion in new loans. Sounds like a bargain to me! You’re doing a heckuva job, Bernanke!

Subprime MBS With a Government Guarantee - Dean Baker - Way back in the last decade we had a huge housing bubble which was propelled in large part by junk loans that were packaged into mortgage backed securities (MBS) by Wall Street investment banks and sold all around the world. As Floyd Norris explains in his column this morning, the Dodd-Frank financial reform has a provision requiring investment banks to retain a 5 percent stake in less secure mortgages placed in the MBS they issue. This gives them an incentive to ensure that the mortgages they put into an MBS are good mortgages. However the definition of a secure mortgage has been gradually weakened over time. Originally many considered the cutoff to be a 20 percent down payment, which is the traditional standard for a prime mortgage. This was lowered to 10 percent and then 5 percent, even though mortgages with just 5 percent down default at four times the rate of mortgages with 20 percent down.   Norris tells us that the latest proposed rules would allow mortgages with zero down payment to be placed into pools with no requirement that banks maintain a stake. This change would mean that banks would have the same incentive as in the housing bubble years to put junk mortgages in MBS. If this rule is coupled with the Corker-Warner proposal for having a government guarantee for MBS, it will mean that banks will likely find it far easier to pass on junk and fraudulent mortgages going forward than they did in the years of the housing bubble.

Reducing the Impact of Too Big to Fail - In the years leading up to the financial crisis, market participants assumed that policy makers would intervene to avoid the potential negative economic impact from the failure of a systemically important bank. As William C. Dudley, the president of the Federal Reserve Bank of New York, discussed in a recent speech, the belief that some companies were too big to be allowed to fail gave rise to a variety of problems, notably including a situation of moral hazard that encouraged risky bets by market participants who figured they could keep the upside but have their losses covered by taxpayers.  And indeed, when things went wrong during the crisis, the interventions materialized, as detailed in a recent report by the Government Accountability Office. The Dodd-Frank financial regulatory reform law of 2010 and regulatory changes since the crisis have affected the incentives for both companies and investors, but it is too soon to say that the advantages and risks of large banks have been addressed or that the era of too big to fail is over. We will not really know until the next time a large bank is on the verge of collapse.

Getting the Volcker Rule Done - Simon Johnson - December is deadline time for one of the most important unfinished pieces of businesses from the the Dodd-Frank financial reform legislation: the Volcker Rule. Based on an important intervention by Paul A. Volcker, the former chairman of the Board of Governors of the Federal Reserve System, in late 2009, the “rule,” whose legal intent is enshrined in Dodd-Frank, is simple – end proprietary trading by very large banks. “Proprietary trading” is the business of betting, using the bank’s own funds, on the direction of markets. When these bets go well, traders and executives are very well paid through bonuses and other mechanisms. But when even a few mega-bets go badly (think mortgage-backed securities), there is a big potential downside risk to the economy, including damage to the bank’s ability to conduct all its ordinary activities (such as making loans to the non-financial sector). The rule takes aim at the five largest complex financial companies, which have an implicit government backstop as well as insurance from the Federal Deposit Insurance Corporation for their retail deposits. This arrangement presumably encourages reckless risk-taking, including proprietary trading. The big bank lobby has been fighting hard against any version of the Volcker Rule since it was first proposed. They have lost some important battles but remain determined to make one last-ditch stand, focusing on the argument that the rule should be further delayed. But delay in this kind of situation rarely leads to a better or stronger regulation. It’s time to get the Volcker Rule done properly – and that means in line with what Mr. Volcker originally proposed and what the Democratic senators Jeff Merkley of Oregon and Carl Levin of Michigan put into legislative language.

CFPB What Have You Done for Me Lately? The Cash America Case, For One Thing -- The CFPB just settled an enormous enforcement action against payday lender Cash America. Under the settlement, Cash America will pay $5 million in penalties and $14 million in refunds to overcharged customers. The CFPB found that Cash America or its affiliates robo-signed documents in debt collection lawsuits, made loans to military servicemen in violation of the federal Military Lending Act, and even destroyed documents during discovery. . As most of you know, the Dodd-Frank Act gives the CFPB various enforcement powers including the authority to engage in administrative enforcement actions (typically followed by a consent order) and to bring civil litigation proceedings. The CFPB is required to report all public enforcement actions to which it is a party, which is where Andy got his data, all from 2012. During the time period of January 1, 2012 through December 31, 2012, the CFPB was involved in nine public enforcement actions. Of these actions, five were administrative actions and four were litigation in Federal District court. Of the five administrative actions, three were against American Express and were consolidated into one consent order. This chart contains some of the details on these actions.

S&P says banks may have to spend extra $104bn on mortgage cases - The biggest US banks may have to spend a further $104bn to resolve mortgage-related legal issues as they try to put the costs of the subprime crisis behind them. Standard & Poor’s, the credit rating agency, estimates the banks, including JPMorgan Chase and Bank of America, may need to pay between $56.5bn and $104bn on legacy mortgage settlements with investors and counterparties. Payments at the upper end of the estimates would wipe out about two-thirds of the $154.9bn litigation buffer estimated to be held by the banks but would not cut into their regulatory capital. Large US banks have increased their reserves in the face of a new wave of lawsuits from investors who are clubbing together to argue they have lost money from buying mortgage-backed securities comprised of bad loans. Banks originated and then bundled together billions of dollars worth of mortgages in the years leading up to the financial crisis. Investors are claiming that the companies broke the “reps and warranties” that promised certain underwriting standards on some of the deals. JPMorgan this month inked a tentative $4.5bn settlement with investors over mortgage-related securities, while the fairness of a similar proposed $8.5bn settlement between BofA and its investors is still being evaluated in a New York district court. “Mortgage-related litigation has recently gotten a second wind and has expanded beyond investor claims,” S&P analysts led by Stuart Plesser wrote in the report. S&P’s $56.5bn estimate extrapolates from the proposed $8.5bn BofA settlement. The rating agency added that further legal costs were unlikely to result in downgrades for the banks, although S&P has a negative outlook on BofA, partly because of “the uncertainty and volatility of the company’s legacy mortgage exposure”.

Banks Warn Fed They May Have To Start Charging Depositors - While most attention in the recently released FOMC minutes fell on the return of the taper as a possibility even as soon as December (making the November payrolls report the most important ever, ever, until the next one at least), a less discussed issue was the Fed's comment that it would consider lowering the Interest on Excess Reserves to zero as a means to offset the implied tightening that would result from the reduction in the monthly flow once QE entered its terminal phase (for however briefly before the plunge in the S&P led to the Untaper). After all, the Fed's policy book goes, if IOER is raised to tighten conditions, easing it to zero, or negative, should offset "tightening financial conditions", right? Wrong. As the FT reports leading US banks have warned the Fed that should it lower IOER, they would be forced to start charging depositors. In other words, just like Europe is already toying with the idea of NIRP (and has been for over a year, if still mostly in the rheotrical and market rumor phase), so the Fed's IOER cut would also result in a negative rate on deposits which the FT tongue-in-cheekly summarizes "depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households." If cutting IOER was as much of an easing move as the Fed believes, banks should be delighted. And yet, they are not:  Executives at two of the top five US banks said a cut in the 0.25 per cent rate of interest on the $2.4tn in reserves they hold at the Fed would lead them to pass on the cost to depositors. “Right now you can at least break even from a revenue perspective,” said one executive, adding that a rate cut by the Fed “would turn it into negative revenue – banks would be disincentivised to take deposits and potentially charge for them”.

Unofficial Problem Bank list declines to 654 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for November 22, 2013.  Changes and comments from surferdude808:  Another quiet week for the Unofficial Problem Bank List as there was only removal. The OCC terminated the action against Lafayette Savings Bank, FSB, Lafayette, IN ($355 million Ticker: LSBI). After removal, the list holds 654 institutions with assets of $222.8 billion. A year ago, the list held 857 institutions with assets of $329.2 billion. We thought the FDIC would release industry results and the Official Problem Bank List totals for the third quarter, but perhaps that will happen next week along with the FDIC's enforcement action activity through October.

Michael Hudson: Oligarchs Will Never Cancel Debts We Owe Them -- Michael Hudson sent this short video which explains the history of debt jubilees and the role of private debt in the rise of oligarchies. This is a useful piece in and of itself and as a tool for persuading friends and colleagues who may be ambivalent about debt restructurings.

Foreclosed Sales at U.S. Auctions Double as Prices Gain - Purchases of foreclosed homes at auctions jumped last month as banks benefited from surging prices and shunned approvals of sales by homeowners dumping their dwellings at a loss. In October, about 20 percent of repossessed properties sold at U.S. auctions compared with 15 percent in July, said Daren Blomquist, vice president of Irvine, California-based RealtyTrac. Auction deals accounted for 2.5 percent of all U.S. sales in October, almost doubling from a year earlier. Short sales, in which banks agree to accept less than is owed on the property, comprised 5.3 percent of purchases, falling from 11 percent, data company RealtyTrac said in a report today.“Banks are starting to get the prices they want on the auction block so they’re less willing to lock in their losses with a short sale,” Blomquist said. Some homes are being sold for amounts that almost match the values of their defaulted loans. “That means banks are getting close to recouping some of their losses,” Blomquist said. Investors, including hedge funds and private equity firms, which acquire the lion’s share of homes at auctions, have raised about $20 billion to purchase as many as 200,000 homes to rent. Their purchases are spurring a rebound in property prices after the housing bust shaved as much as 35 percent off real estate values nationally. The median home price gained 12.8 percent in October from a year ago, just shy of August’s 13.4 percent gain -- the highest since the peak of the property boom in 2005, the National Association of Realtors reported last week 

Freddie Mac: Mortgage Serious Delinquency rate declined in October, Lowest since March 2009 - Freddie Mac reported that the Single-Family serious delinquency rate declined in October to 2.48% from 2.58% in September. Freddie's rate is down from 3.31% in October 2012, and this is the lowest level since March 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  These are mortgage loans that are "three monthly payments or more past due or in foreclosure".   Although this indicates progress, the "normal" serious delinquency rate is under 1%.   The serious delinquency rate has fallen from 3.31% in October 2013 - and at that rate of improvement, the serious delinquency rate will not be below 1% until mid-to-late 2015.   Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications.  Therefore I expect an above normal level of distressed sales for 2+ years (mostly in judicial states).

Fannie Mae: Mortgage Serious Delinquency rate declined in October, Lowest since December 2008 -- Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in October to 2.48% from 2.55% in September. The serious delinquency rate is down from 3.35% in October 2012, and this is the lowest level since December 2008.  The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.  Earlier this week, Freddie Mac reported that the Single-Family serious delinquency rate declined in October to 2.48% from 2.58% in September. Freddie's rate is down from 3.31% in October 2012, and this is the lowest level since March 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure". The Fannie Mae serious delinquency rate has fallen 0.87 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in less than 2 years. Note: The "normal" serious delinquency rate is under 1%.

Some call on city to explore eminent domain to combat blight - A California city's controversial plan to use eminent domain to help its residents burdened with mortgages worth more than their homes has caught the eye of some Baltimore leaders, who say the city might benefit from the program. There are thousands of such underwater mortgages in Baltimore, so 4th District Councilman Bill Henry has asked the City Council to explore the possibility of using the city's power to take mortgages from banks and then work with a private firm to refinance the loans based on current property value. The city of Richmond, Calif., pioneered the idea by establishing an authority to offer to buy underwater loans from lenders and, if refused, seize them by eminent domain for refinancing using the home's current value. New, private investors would fund the program, which targets loans that are difficult to refinance because they are locked up in private-label securitizations, packages of mortgages sold by investment banks. Under eminent domain, property must be acquired for "fair market value," which means the city could force the owner to take a loss on the face value of the loan. Divisions of Wells Fargo & Co. and Deutsche Bank AG promptly sued Richmond over the program, saying it is driven by profit, not public good. Mortgage investors, the banks argued, would be hit with "irreparable economic harm" if the program moves forward. A federal judge dismissed the case, and a similar one filed by Bank of New York Mellon and others, saying the program has yet to go into effect. The banks appealed.

A new wave of U.S. mortgage trouble threatens (Reuters) - U.S. borrowers are increasingly missing payments on home equity lines of credit they took out during the housing bubble, a trend that could deal another blow to the country's biggest banks. The loans are a problem now because an increasing number are hitting their 10-year anniversary, at which point borrowers usually must start paying down the principal on the loans as well as the interest they had been paying all along. More than $221 billion of these loans at the largest banks will hit this mark over the next four years, about 40 percent of the home equity lines of credit now outstanding. For a typical consumer, that shift can translate to their monthly payment more than tripling, a particular burden for the subprime borrowers that often took out these loans. And payments will rise further when the Federal Reserve starts to hike rates, because the loans usually carry floating interest rates. The number of borrowers missing payments around the 10-year point can double in their eleventh year, data from consumer credit agency Equifax shows. When the loans go bad, banks can lose an eye-popping 90 cents on the dollar, because a home equity line of credit is usually the second mortgage a borrower has. If the bank forecloses, most of the proceeds of the sale pay off the main mortgage, leaving little for the home equity lender.

Still Deleveraging American Homeowners - We still have a ways to go, five years after the Global Financial Crisis.  Total mortgage debt has eased down from 10.5 trillion dollars to 9.3 trillion, but that 10% drop aligns poorly with the 25% drop in home values, not to mention stagnant real wages.  Reuters reports that home equity lines of credit (HELOCs) will be the next wave of defaults as many 10-year interest-only periods expire.  After that will come the mortgages modified to below-market rates, which go back up after 5 years...

Are Heloc defaults about to spike? -- Peter Rudegeair is worried about Helocs. In particular, he’s worried about all the home equity lines of credit which were written in the run-up to the financial crisis, and which are now beginning to turn 10 years old. When they do that, their default rates have a tendency to spike, since most borrowers have to start paying down their principal after ten years. Here’s the chart, which I put together from FDIC data; the red line marks the ten-years-ago point. Rudegeair’s point is that we’re only just embarking on the 10th anniversary of the run-up in Heloc issuance. What’s more, a large proportion of the Helocs issued between 2003 and 2008 went to subprime borrowers. Because they’re credit lines, they don’t need to get paid down, at least for the first ten years. And so as these loans hit their tenth birthdays, millions of borrowers around the country are going to start being faced with new mandatory repayments. Which they might not be able to afford:After 10 years, a consumer with a $30,000 home equity line of credit and an initial interest rate of 3.25 percent would see their required payment jumping to $293.16 from $81.25, analysts from Fitch Ratings calculate. That’s why the loans are starting to look problematic: For home equity lines of credit made in 2003, missed payments have already started jumping. Borrowers are delinquent on about 5.6 percent of loans made in 2003 that have hit their 10-year mark, Equifax data show, a figure that the agency estimates could rise to around 6 percent this year. That’s a big jump from 2012, when delinquencies for loans from 2003 were closer to 3 percent.

MBA: Mortgage Applications Decrease Slightly  - From the MBA: Mortgage Applications Decrease Slightly in Latest MBA Weekly Survey Mortgage applications decreased 0.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 22, 2013. ... The Refinance Index increased 0.1 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.2 percent from one week earlier. ... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.48 percent from 4.46 percent, with points decreasing to 0.31 from 0.38 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. 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 is now down about 5% from a year ago.

RealtyTrac: "Institutional Investor Housing Purchases Plummet Nationwide" -  Concluding the trifecta of today's housing data, we present perhaps the most authoritative report on what is actually going on in the market, that by RealtyTrac. What RealtyTrac has to say is in direct contradiction with both the Permits and Case-Shiller data, both of which are now openly reliant on yield-starved institutional investors dumping cash into current or future rental properties. In fact it's worse, because if RealtyTrac is accurate, the great institutional scramble for any housing is now over - to wit: "Cash Sales Pull Back From Previous Month, Still Represent 44 Percent of Total Sales Institutional Investor Purchases Plummet Nationwide...  Institutional investor purchases represented 6.8 percent of all sales in October, a sharp drop from a revised 12.1 percent in September and down from 9.7 percent a year ago. Markets with the highest percentage of institutional investor purchases included Memphis (25.4 percent), Atlanta (23.0 percent), Jacksonville, Fla., (22.2 percent), Charlotte (14.5 percent), and Milwaukee (12.0 percent)." And plunging.Some other observations from RT's October 2013 Residential & Foreclosure Sales Report, which makes one thing clear - while prices may still be going up, transaction volumes have cratered:Despite the nationwide increase, home sales continued to decrease on an annual basis for the third consecutive month in three bellwether western states: California (down 15 from a year ago), Arizona (down 13 percent), and Nevada (down 5 percent).The national median sales price of all residential properties — including both distressed and non-distressed sales — was $170,000, unchanged from September but up 6 percent from October 2012, the 18th consecutive month median home prices have increased on an annualized basis. The median price of a distressed residential property — in foreclosure or bank owned — was $110,000 in October, 41 percent below the median price of $185,000 for a non-distressed property.

Will US investors pull the pin on housing? - Following on from this morning’s post on how Wall St has re-inflated US housing, here is Westpac’s Elliot Clarke on the role of investors in US housing. I see two possible ways this can go. If Wall St is driving the rebound through rental securitisations then it could run despite rising interest rates because it’s a play on reaping the financial packaging fees. But the asset remains in the hands of the bank et al there has to be a high risk of run on the market when rates turn (or taper arrives). A tipping point scenario if I’ve ever seen one. The US housing sector has been a key focal point in this recovery, not only due to the material price and activity declines that occurred following the GFC, but also because of the sector’s historical ability to have a positive, broad-based impact on activity – directly through new construction, and indirectly through confidence and consumption. When considering the health of the housing market, house prices have been the financial market’s primary benchmark, the expectation being that as go prices, so goes activity. However, this has not proven to be entirely correct, with the contribution to growth of housing activity lacklustre relative to the scale of the prior decline and past cycles.

Weekly Update: Housing Tracker Existing Home Inventory up 3.2% year-over-year on Nov 25th - Here is another weekly update on housing inventory ... for the sixth 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 October).  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 3.2% above the same week in 2012 (red is 2013, blue is 2012). We can be pretty confident that inventory bottomed early this year, and I expect the seasonal decline to be less than usual at the end of the year - so the year-over-year change will continue to increase. Inventory is still very low, but this increase in inventory should slow house price increases.

Home Prices in 20 U.S. Cities Rise Most Since February 2006 -  Home prices in 20 U.S. cities rose by the most since February 2006 in the 12 months through September, showing the housing market sustained progress even as borrowing costs climbed. The S&P/Case-Shiller index of property values advanced 13.3 percent after increasing 12.8 percent a month earlier, the group said today in New York. The median forecast in a Bloomberg survey of 31 economists called for a 13 percent advance. Today’s S&P/Case-Shiller report also included quarterly figures for the market nationally. Prices covering all of the U.S. climbed 11.2 percent in the third quarter from the same period in 2012, the biggest increase since the first three months of 2006, compared with a 9.9 percent gain in the quarter ended in June. Home prices adjusted for seasonal variations increased 1 percent in September from the previous month, compared with a 0.9 percent gain in August. The Bloomberg survey median called for a 0.9 percent rise. Unadjusted prices climbed 0.7 percent in September after a 1.3 percent gain as 19 of the 20 cities showed advances. The year-over-year gauge, which includes records going back to 2001, provides a better indication of price trends, the group has said. All of the 20 cities in the index showed an increase in year-over-year prices, led by gains of 29.1 percent in Las Vegas and 25.7 percent in San Francisco. The smallest gain was in New York, which showed a 4.3 percent advance.  

Home Prices Rise, Though Not as Fast as Before - Data from two national sources confirmed that housing prices continued to rise in September, posting a solid past 12 months, although price acceleration appears to be slowing.  The S&P/Case-Shiller 20-City Home Price Index was up 0.7% in September over August, and 13.3% year-over-year. The Federal Housing Finance Agency Home Price Index, which is usually a more moderate number since it includes conventional mortgage sales only — the middle tier of housing sales — was up 0.3% from August and 8.8% year-over-year.  The rate of price appreciation slowed in 19 of 20 cities covered by the Case-Shiller index, with Miami as the outlier. The South Florida metro showed consistent price increases, up 0.8% for September and 0.8% for August. Market observers wondering about the price deceleration need look no further than interest rates. According to FHFA, the contract rate for loans closed in October was 4.32%, up sharply from 3.55% in June. It appears that another month of interest rate increases may be in that data pipeline — a reflection of the financial markets’ anxiety about the government shutdown in October — and so it appears likely that reported home prices will continue to cool next month. However, the data is coming off a good strong run. Nationally, home prices as measured by Case-Shiller are back to their mid-2004 levels, and now only 20% off their bubble peak of the summer of 2006. Inhabitants of many locales are feeling tighter housing price markets than that, and the data show wildfire in the West, with Los Angeles, San Diego, and San Francisco up more than 20% year-over-year. Las Vegas, leading the pack, is up a dizzying 29.1% for the 12 months. Other cities experiencing double-digit price jumps include Atlanta (up 18.7%), Detroit (up 17.2%), Minneapolis (up 10.1%), and Tampa (up 14.5%).  Tight inventory conditions, investment purchases, and stronger, though still middling, employment appear to factors behind the longer-term price strength.

Case-Shiller: Comp 20 House Prices increased 13.3% year-over-year in September S&P/Case-Shiller released the monthly Home Price Indices for September ("September" is a 3 month average of July, August and September prices). This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities) and the national quarterly index. Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs. From S&P: Home Prices Advance in Third Quarter According to the S&P/Case-Shiller Home Price Indices Data through September 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... showed that the U.S. National Home Price Index rose 3.2% in the third quarter of 2013 and 11.2% over the last four quarters. In September 2013, the 10- and 20-City Composites gained 0.7% month-over-month and 13.3% year-over-year. While 13 of 20 cities posted higher year-over-year growth rates, 19 cities had lower monthly returns in September than August. “The second and third quarters of 2013 were very good for home prices,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The National Index is up 11.2% year over- year, the strongest figure since the boom peaked in 2006. The 10-City and 20-City Composites year-over-year growth at 13.3% was their highest annual numbers since February 2006." This was at the consensus forecast.

Case-Shiller Home Prices Show 2006 Level Yearly Increases Again -- The September 2013 S&P Case Shiller home price index shows a seasonally adjusted 13.3% price increase from a year ago for both the 20 metropolitan housing markets and the top 10 housing marketso.  America is now only 20% away from the peak of the housing price bubble and the two indexes are comparable to May 2004 levels  Graphed below is the yearly percent change in the composite-10 and composite-20 not seasonally adjusted Case-Shiller Indices. This is the largest annual increase in home prices in seven years as it was last month.  Home prices only increased greater in February 2006, right before the start of the great housing bubble collapse.  Below is a graph of the annual change in the S&P Case-shiller home price composite-20 and composite-10 indexes.  Notice how in March 2006, annual increases are at a cusp and early 2006 is the start of a long slide down.  We have housing bubble déjà vu, so much so S&P mentioned it in this month's press release:The strong price gains in the West are sparking questions and concerns about the possibility of another bubble.  S&P also produces a third quarterly national index.   S&P is using the not seasonally adjusted national index when they report Q3 2013 home values are up 3.2% from Q2 2013, although the seasonally adjusted change is 2.4% between quarters.   Below is the national index, not seasonally adjusted (blue), which are used as the headline numbers, against the seasonally adjusted one (maroon).  Below is the quarterly national index percent change from a year ago, now at 11.2%.   The national index also shows soaring prices and a return to not affordable housing. Below are all of the composite-20 index cities yearly price percentage change, using the seasonally adjusted data.  Las Vegas is a bubbling cauldron of trouble as prices have increased over 29.2% from a year ago.  Nevada has the worst unemployment rate in the nation, so it is unfathomable these are real people buying these homes and not investors and flippers.   Generally speaking the West is on fire with increasing prices and we know wages and income for most Americans cannot afford these home prices in spite of very low mortgage rates.

Baffle With BS Continues As House Prices Beat And Miss At Same Time; Detroit Home Prices Go Parabolic --It's a full-on "Baffle with BS" onslaught this morning. On one hand, the Case-Shiller Top 20 Composite Index rose by 13.3% Y/Y, better than the 13.00% expected, and the highest annual price increase since 2006. Unfortunately, the ramp is coming to an end, especially since the touted NSA data shows that monthly price increases have slowed for the fifth consecutive month, and stood at just 0.7%. At this rate the sequential price change in October will be negative. This is further reinforced by today's "other" housing report: the September FHFA House Price Index, which unlike Case-Shiller rose 0.3%, below expectations and in line with last month. So on one hand home prices are better than expected, on the other: worse. Clear as mud. But one thing is certain: the surge in the housing market of bankrupt Detroit has never been stronger, and the Y/Y price change just picked up once again, rising to a 3 month high of 17.2% compared to last year.

A Look at Case-Shiller by Metro Area - Home prices extended a winning streak of year-over-year gains, posting the strongest jump since 2006, according to the S&P/Case-Shiller indexes. The composite 20-city home price index, a key gauge of U.S. home prices, was up 13.3% in September from a year earlier. All 20 cities have posted year-over-year gains for nine straight months. Prices in the 20-city index were 0.7% higher than the prior month. Adjusted for seasonal variations, which reflect a traditional stronger spring and summer selling season, prices were 1% higher month-over-month. Only Charlotte posted a monthly decline, though on a seasonally adjusted basis priced no city saw a drop. As mortgage rates move up, some economists speculate home prices may have peaked. “The increase in house prices already seen is bringing hesitant and previously sidelined sellers back to the market, helping to drive a loosening in supply conditions,” “Meanwhile, the recent sales activity data have come in fairly weak, which will further add to the loosening in the balance between supply and demand.” Read the full S&P/Case-Shiller release..

Comment on House Prices and Graphs - It appears house price increases have slowed recently based on agent reports and asking prices (a combination of a little more inventory and higher mortgage rates), but this slowdown in price increases is not showing up yet in the Case-Shiller index because of the reporting lag and because of the three month average (the September report was an average of July, August and September prices). I expect to see smaller year-over-year price increases going forward and some significant deceleration towards in early 2014. Zillow's chief economist Stan Humphries said today: “Zillow’s own data, which excludes REO re-sales, shows the same markets that dominate the Case-Shiller indices – particularly some of the California markets – to be cooling. This suggests that Case-Shiller’s inclusion of REO re-sales is heavily skewing overall appreciation in these markets." I also think many of us expect house price increase to slow.. Here are some graphs:

Zillow: Case-Shiller House Price Index expected to show 13.9% year-over-year increase in October -The Case-Shiller house price indexes for September were released Tuesday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.   It looks like another very strong month ...From Zillow: Zillow Predicts October Case-Shiller Will Show Still More Inflated Appreciation The Case-Shiller data for September came out [Tuesday], and based on this information and the October 2013 Zillow Home Value Index (ZHVI, released Nov. 26), we predict that next month’s Case-Shiller data (October 2013) will show that both the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 13.9 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from August to September will be 1 percent for both the 20-City Composite and the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for October will not be released until Tuesday, Dec. 31. ...  The following table shows the Zillow forecast for the October Case-Shiller index.

Bob Shiller Warns "It's Different Now, We Can't Trust Momentum" -- "I just don't see evidence that people believe we are launching into a great new era" of home price appreciation,"that's what we had in the early 2000s." Simply put, he chides Faber and Cramer, "people are not so excited about the future," in spite of record high stock prices (and surging home prices) as it seems the Fed's plan was foiled again. In a fascinating to-and-fro, they note "we don't want to go back to 2005," even though "it would lift the economy" since "we know how that story ends." The hedge funds and 'investors' proclaim themselves long-term investors, but Shiller notes "they are not, what they have learned there is short-run momentum in the housing market," and will bail at the first sign of that ebbing, "it's different now, we can't trust momentum."Some uncomfortable truths from the Nobel winner..."Real homebuyers are not as excited about the housing market as the price increases seem to suggest..." "It's more of an 'unusual' demand from investors that's driving the market now..." "...the market is driven more by psychology than affordability" The rental market demand 'excuse' for growth and long-term gains is obsequious as Shiller asks rhetorically, "how can these guys not notice how fast prices have been going up and historically momentum is a much better play in housing than it has been in the stock market." He adds, "I'm pretty sure [an exit] is on their minds," but as he warns, "they are not going to say this, of course."

How Wall Street Has Turned Housing Into a Dangerous Get-Rich-Quick Scheme — Again - Over the last year and a half, Wall Street hedge funds and private equity firms have quietly amassed an unprecedented rental empire, snapping up Queen Anne Victorians in Atlanta, brick-faced bungalows in Chicago, Spanish revivals in Phoenix. In total, these deep-pocketed investors have bought more than 200,000 cheap, mostly foreclosed houses in cities hardest hit by the economic meltdown. Wall Street’s foreclosure crisis, which began in late 2007 and forced more than 10 million people from their homes, has created a paradoxical problem. Millions of evicted Americans need a safe place to live, even as millions of vacant, bank-owned houses are blighting neighborhoods and spurring a rise in crime. Lucky for us, Wall Street has devised a solution: It’s going to rent these foreclosed houses back to us. In the process, it’s devised a new form of securitization that could cause this whole plan to blow up — again. Since the buying frenzy began, no company has picked up more houses than the Blackstone Group, the largest private equity firm in the world. Using a subsidiary company, Invitation Homes, Blackstone has grabbed houses at foreclosure auctions, through local brokers, and in bulk purchases directly from banks the same way a regular person might stock up on toilet paper from Costco. Few outside the finance industry have heard of Blackstone. Yet today, it’s the largest owner of single-family rental homes in the nation — and of a whole lot of other things, too. Blackstone manages more than $210 billion in assets, according to its 2012 Securities and Exchange Commission annual filing. It’s also a public company with a list of institutional owners that reads like a who’s who of companies recently implicated in lawsuits over the mortgage crisis, including Morgan Stanley, Citigroup, Deutsche Bank, UBS, Bank of America, Goldman Sachs, and of course JP Morgan Chase. In other words, if Blackstone makes money by capitalizing on the housing crisis, all these other Wall Street banks — generally regarded as the main culprits in creating the conditions that led to the foreclosure crisis in the first place — make money too.

U.S. Home Permits Rise at 5-Year High on Apartments — U.S. homebuilders planned to build apartments in October at the fastest pace in five years, a sign they expect a jump in rentals in coming months. The Commerce Department says plans to build houses and apartments were approved at a seasonally adjusted annual rate of 1.034 million. That’s 6.2 percent higher than the September rate of 974,000 and the fastest since June 2008, just before the peak of the financial crisis. Nearly all of the increase was for multi-family homes, a part of residential construction that can be volatile. Those permits rose 15.3 percent to a rate of 414,000. Permits for single-family houses rose 0.8 percent to a rate of 620,000. The government report did not include information on homes started. That was delayed again by last month’s government shutdown.

Housing Permits increase to 1.03 million SAAR in October - Note: The Census Bureau has announced that the housing starts releases for September and October will be delayed until December 18th. From the Census Bureau: New Residential Construction in October 2013. Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,034,000. This is 6.2 percent above the September rate of 974,000 and is 13.9 percent above the October 2012 estimate of 908,000. Single-family authorizations in October were at a rate of 620,000; this is 0.8 percent above the September figure of 615,000. Authorizations of units in buildings with five units or more were at a rate of 387,000 in October. The graph shows total and single unit permits since 1960. This shows the huge collapse following the housing bubble, and that housing starts have been generally increasing after moving sideways for about two years and a half years. The increase in permits was mostly due to the volatile multi-family sector. This is the highest level for permits since 2008.

Housing Permits Print At Highest Since June 2008 Entirely On Surge In Rental Units -- Call it the last hurrah for Private Equity and hedge funds as they scramble to "telegraph" that there is still some interest in rental property conversions. Despite ever louder cries that the REO-to-Rent and the general surge into rental properties is over (see our report on RealtyTrac's latest data due out shortly), as many PE firms seek to cash out and to flip their existing exposure, today's Housing Permits number for October showed just the opposite.  Because while permits for single-family housing units was virtually unchanged month over month, barely rising from 615K to 620K on a seasonally adjusted annualized basis, it was the structures with 5 units or more, aka rentals, that exploded by the most in the past two months going back all the way to 2008.  Whether this is merely an attempt to game the system and buy virtually zero-cost permits by the boatload, thus engineering a last-minute momentum push in the rental market, offloading existing properties to the last and dumbest money around, remains to be seen. However, one thing is clear: the rebound in the conventional, single-family housing market is over, and the only variable remains rental. The variable will become a constant once it becomes clear that increasingly fewer Americans can afford all time record high rent payments.

Is The Latest Rise In Housing Permits A Sign Of Things To Come? - Yesterday’s surprisingly strong update on newly issued housing permits is a convincing signal for expecting that the residential real estate market will continue to grow in the near term. The double-shot releases of September and October data for permits beat expectations by a healthy margin. Last month’s number was especially strong, with permits rising to a 5-year high. The release of the hard data on housing starts, which usually accompanies the permit numbers, has been postponed until Dec. 16. But since permits and starts tend to track one another through time, yesterday’s upbeat news suggests that it’s likely that the triple play of September, October and November starts data that we’ll see next month will tell an encouraging tale. The news on permits is all the sweeter because it aligns with a positive macro trend overall for the US. As I discussed earlier this week, the current macro profile continues to imply that the moderate rate of expansion will endure for the foreseeable future. Although there’s always something to worry about, there are minimal signs of business cycle risk in terms of a broad review of the latest numbers.

October housing permits the best US economic news in over half a year: Yesterday's report that October housing permits cam in at 1.034 million on an annualized basis, the highest in over 5 years, as shown in the graph below: is simply the best economic news on over half a year. I have said in the past that, if there were only one piece of economic data I could have, it would be housing permits. They are a long leading indicator of the real economy, turning well over a year before the economy as a whole does, as shown in this graph of permits going back over half a century: That's because, once a permit is issued, the house gets built, the landscaping is put in place, furniture and appliances are bought, and other improvements are made by the new homeowners. The entire process can play out several years, so that is a long tail of economic activity. An increase in permits means an increase in all of that activity subsequently, so that permits have increased to a new post-recession record is very welcome news. As the graph above shows, housing permits have fallen by at least 200,000 on an annualized basis to signal the likelihood of a subsequent recession. Although it doesn't show well in the above graph, even the 2001 just-barely-a-recession was preceded by a decline from 1.742 million annualized in September 1998 to 1.542 in July 2000, an exact 200,000 decline.

If You Build It, Will They Come? - Builders in the U.S. are going ahead with lofty construction plans, but consumers might not follow their lead. After a government-shutdown-related delay, the Commerce Department reported Tuesday that building permits increased in both September and October. The October level of 1.03 million is the highest since June 2008. Permits are precursors to actual housing starts, so the large number of authorizations–particularly for multiunit buildings–suggest starts will rise further in coming months. Builder confidence was also evident in the November housing market index, released last week. Although the top-line index fell a bit, it remains well above its year-ago level, and builders are still upbeat about future sales. The question is: Will there be enough buyers for all these new homes? Consumers are still interested in owning their own homes, according to the Conference Board‘s November survey. Buyer interest in the past few years has been fueled in large part by the Federal Reserve’s efforts to keep mortgage rates near record lows. When asked about what type of home, however, consumers who plan to buy in the next six months are more interested in existing houses rather than new ones. During the boom years, the preferences were more evenly split. (Another share are uncertain what type of home they will buy.) Home buyers might think they can get better bargains in the resale market. They may also think the selection of existing homes remains large, although the supply of lived-in homes on the market has fallen sharply in the past two years.

Pending Home Sales Collapse At Fastest Pace Since April 2011, Drop To December 2012 Levels -- Despite the downtick in rates for a month or two, the housing 'recovery' appears to have come to an end. This is the fifth consecutive monthly decline in pending home sales and even though a smorgasbord of Wall Street's best and brightest doth protest, it would appear the lagged impact of rising rates is with us for good (as the fast money has left the flipping building). This is the biggest YoY decline since April 2011 as NAR blames low inventories and affordability for the poor performance. Perhaps more worrying for those still clinging to the hope that this ends well is the new mortgage rules in January that could further delay approvals.

Pending Homes Sales Point to Party Over  - The National Association of Realtors Pending Home Sales declined by -0.6% in October 2013.  This is the 5th month in a row where pending home sales have declined and is the lowest level for pending home sales since Decenber 2012.  September pending home sales dropped by -4.6%  Pending home sales have declined -1.6% from a year ago.   The above graph shows pending home sales are showing a consistent monthly decline after an incredible run up.  It looks like the party is over for increased pending sales.  The NAR notes the IRS was closed for October so income verification was backlogged and held up some sales.  Still it is clear there is a downtrend as prices are again out of reach for middle America with repressed wages and not enough jobs.  From the NAR: The government shutdown in the first half of last month sidelined some potential buyers. In a survey, 17 percent of Realtors® reported delays in October, mostly from waiting for IRS income verification for mortgage approval. We could rebound a bit from this level, but still face the headwinds of limited inventory and falling affordability conditions. Job creation and a slight dialing down from current stringent mortgage underwriting standards going into 2014 can help offset the headwind factors. The PHSI are contracts which have not yet closed and why pending home sales are considered a future housing indicator. The PHSI represents future actual sales, about 45 to 60 days from signing.

Vehicle Sales Forecasts: Stronger Sales Expected in November  - Note: The automakers will report November vehicle sales on December 3rd. Here are a few forecasts: From WardsAuto: Forecast Calls for Post-Shutdown BounceU.S. automakers should sell 1.21 million light vehicles in November, according to a new WardsAuto forecast. The forecast sales volume (over 26 days) would represent ... equate to a 15.9 million-unit SAAR. From JD Power: Consumer Demand for New Vehicles Picks Up in November In November, U.S. new-vehicle sales are likely to reach 1.2 million units ... based on an auto sales forecast update from J.D. Power and strategic partner LMC Automotive.The average sales pace in November is expected to translate to a 16.1 million-unit seasonally adjusted annual rate, or SAAR, which would ... outpace the 15.2 million-unit SAAR in October, 2013.From November Auto Sales Set the Tone for Final Stretch of 2013, Forecasts ... forecasts that 1,196,663 new cars and trucks will be sold in the U.S. in November for an estimated Seasonally Adjusted Annual Rate (SAAR) of 15.7 million.It appears sales in November will be significantly above the government slowdown pace of 15.154 million in October 2013.

Weekly Gasoline Update: Regular Jumps Seven Cents - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular rose seven cents and Premium eight cents. However, Regular and Premium are down 39 cents and 44 cents, respectively, from their interim highs in late February.  According to, No state is averaging above $4.00 per gallon, and only Hawaii is averaging over $3.90. Two states (Oklahoma and Kansas) are averaging under $3.00, down from seven states last Monday.

Vehicle Miles Driven: 3rd Month of Fractional Population-Adjusted Increase - The Department of Transportation's Federal Highway Commission has released the latest report on Traffic Volume Trends, data through September. 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). Cumulative estimate for the year is 2233.9 billion vehicle miles of travel (PDF report). Both the civilian population-adjusted data (age 16-and-over) and total population-adjusted data are fractionally above the post-financial crisis lows set in June. Here is a chart that illustrates this data series from its inception in 1970. .The rolling 12-month miles driven contracted from its all-time high for 39 months during the stagflation of the late 1970s to early 1980s, a double-dip recession era. The most recent decline has lasted for 70 months and counting — a new record, but the trough to date was in November 2011, 48 months from the all-time high.Total Miles Driven, however, is one of those metrics that should be adjusted for population growth to provide the most meaningful analysis, especially if we're trying to understand the historical context. We can do a quick adjustment of the data using an appropriate population group as the deflator. I use the Bureau of Labor Statistics' Civilian Noninstitutional Population Age 16 and Over (FRED series CNP16OV). The next chart incorporates that adjustment with the growth shown on the vertical axis as the percent change from 1971.

Consumer Confidence Declines Again in November - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through November 15. The 70.4 reading was below the 72.9 forecast of and 2.0 below the October 72.4 (previously reported at 71.2). The index is at its lowest level since April. Here is an excerpt from the Conference Board report. "Consumer confidence declined moderately in November after sharply declining in October. Sentiment regarding current conditions was mixed, with consumers saying the job market had strengthened, while economic conditions had slowed. However, these sentiments did not carry over into the short-term outlook. When looking ahead six months, consumers expressed greater concern about future job and earning prospects, but remain neutral about economic conditions. All in all, with such uncertainly prevailing, this could be a challenging holiday season for retailers."  Consumers' assessment of overall current conditions decreased slightly. Those claiming business conditions are "good" edged up to 19.9 percent from 19.5 percent, while those claiming business conditions are "bad" increased to 25.2 percent from 23.0 percent. Consumers' appraisal of the job market was little changed. Those saying jobs are "plentiful" ticked up to 11.8 percent from 11.6 percent, while those saying jobs are "hard to get" decreased slightly to 34.0 percent from 34.9 percent.  Consumers' expectations, which had decreased sharply in October, declined further in November. . Those anticipating more jobs in the months ahead fell to 12.7 percent from 16.0 percent, but those anticipating fewer jobs also decreased to 21.7 percent from 22.6 percent. The proportion of consumers expecting their incomes to increase declined to 14.9 percent from 15.7 percent. Those expecting a decrease in their incomes rose slightly to 15.9 percent from 15.5 percent.   [press release]

Consumer Confidence Misses (Again), Tumbles To Lowest In 7 Months -- No matter what measure of confidence, sentiment, or animal spirits one uses, the consumer is not encouraged by the record-er and record-er highs in the US equity market. The Conference Board's consumer confidence data missed for the 2nd month in a row - its biggest miss in 8 months - as it seems in October consumers were un-confident due to the government shutdown... but in November they are un-confident-er due to its reopening. As we have noted in the past a 10 point drop in confidence has historically led to a 2x multiple compression in stocks (which suggests the Fed will need to un-Taper some more to keep the dream alive). Ironically, more respondents believe stocks will rise of stay the same over the next 12 months even as the 'expectations' sub-index collapsed to its lowest in 8 months.

U.S. Consumer Confidence Tumbles - U.S. consumer confidence unexpectedly dropped again in November after losing ground during the government shutdown in October, according to a report released Tuesday. The Conference Board, a private research group, said its index of consumer confidence fell to 70.4 this month from a revised 72.4 in October, first reported as 71.2. The November index is well below the 73.0 expected by economists surveyed by Dow Jones Newswires. The board’s present situation index, a gauge of consumers’ assessment of current economic conditions, was little changed at 72.0 from a revised 72.6, originally put at 70.7. Consumer expectations for economic activity over the next six months declined to 69.3 this month–the lowest reading since March–after they plummeted to a revised 72.2 in October from 84.7 in September. October expectations were first reported at 71.5. The dim economic view held by households raises questions about the coming holiday gift-buying season, which Franco characterized as “challenging.” To drum up sales, many major retailers are opening on Thanksgiving. Within the board’s confidence survey, views on the current labor market improved. The board’s survey showed 11.8% of consumers this month think jobs are “plentiful,” from 11.6% thinking that in October. Another 34.0% think jobs are “hard to get,” down from 34.9% who said that last month. But consumers are more cautious about labor markets over the next six months. Those anticipating more jobs in the future fell to 12.7% this month from 16.0% saying that in

Measures of Consumer Moods Moving in Different Directions - U.S. consumers’ moods improved more than expected by the end of November, according to one survey of households released Wednesday, even as a separate survey earlier this week showed consumers’ moods souring. The Thomson-Reuters/University of Michigan final November sentiment index rose to 75.1 from a preliminary November reading of 72.0 and an end-October level of 73.2, according to an economist who has seen the numbers. Economists surveyed by Dow Jones Newswires expected the end-November index to increase but only to 73.5. The final November current conditions index edged up to 88.0 from 87.2 early in the month. The expectations index increased to 66.8 from 62.3. On Tuesday, the Conference Board reported its own consumer confidence index fell to the lowest reading since April. Economists had expected the confidence index to rise. The advance in the Michigan sentiment may reflect that fact that the government shutdown has ended, stock prices are soaring and economic data suggest the labor markets are improving.

Among American workers, poll finds unprecedented anxiety about jobs, economy - American workers are living with unprecedented economic anxiety, four years into a recovery that has left so many of them stuck in place. That anxiety is concentrated heavily among low-income workers such as Stewart.More than six in 10 workers in a recent Washington Post-Miller Center poll worry that they will lose their jobs to the economy, surpassing concerns in more than a dozen surveys dating to the 1970s. Nearly one in three, 32 percent, say they worry “a lot” about losing their jobs, also a record high, according to the joint survey, which explores Americans’ changing definition of success and their confidence in the country’s future. The Miller Center is a nonpartisan affiliate of the University of Virginia specializing in public policy, presidential scholarship and political history.Job insecurities have always been higher among low-income Americans, but they typically rose and fell across all levels of the income ladder. Today, workers at the bottom have drifted away, occupying their own island of in­security. Fifty-four percent of workers making $35,000 or less now worry “a lot” about losing their jobs, compared with 37 percent of ­lower-income workers in 1992 and an identical number in 1975, according to surveys by Time magazine, CNN and Yankelovich, a market research firm. Intense worry is far lower, 29 percent, among workers with incomes between $35,000 and $75,000, and it drops to 17 percent among those with incomes above that level.

Anxious about the economy, more Americans worry about their jobs  - As the recovery from the Great Recession proceeds at an uneven pace for many Americans, a Washington Post-Miller Center poll taking the public’s pulse on the economy finds a high degree of anxiety among many about being able to get ahead financially, the difficulty of finding good jobs and, for those that are employed, concern about losing them.  About six-in-ten (62%) of those surveyed said they worried a lot or a little about losing their job because of the economy, with 32% saying they worried a lot. The joint Post-Miller Center poll said this figure surpassed the level of concern about losing jobs registered in more than a dozen surveys dating to the 1970s. The poll was conducted in September. The survey noted that 54% of workers earning $35,000 or less worried a lot about losing their jobs compared to 37% who had that concern in 1992. About three-quarters (74%) said finding good jobs had become harder. Nearly half (48%) in the poll said they felt less financially secure as they did a few years ago, compared with 23% who felt more secure and 29% who described their circumstances as about the same.

Un-Paving Our Way To Nirvana - Kunstler - You can’t overstate the baleful effects for Americans of living in the tortured landscapes and townscapes we created for ourselves in the past century. This fiasco of cartoon suburbia, overgrown metroplexes, trashed small cities and abandoned small towns, and the gruesome connective tissue of roadways, commercial smarm, and free parking is the toxic medium of everyday life in this country. Its corrosive omnipresence induces a general failure of conscious awareness that it works implacably at every moment to diminish our lives. It is both the expression of our collapsed values and a self-reinforcing malady collapsing our values further. The worse it gets, the worse we become. The citizens who do recognize their own discomfort in this geography of nowhere generally articulate it as a response to “ugliness.” This is only part of the story. The effects actually run much deeper. The aggressive and immersive ugliness of the built landscape is entropy made visible. It is composed of elements that move us in the direction of death, and the apprehension of this dynamic is what really makes people uncomfortable. It spreads a vacuum of lost meaning and purpose wherever it reaches. It is worse than nothing, worse than if it had never existed. As such, it qualifies under St. Augustine’s conception of “evil” in the sense that it represents antagonism to the forces of life.  Circumstances gathering in the home economics of mankind ought to inform us that we can’t keep living this way and need to make plans for living differently. But our sunk costs in this infrastructure for daily life with no future prevent us from making better choices. At least for the moment. In large part this is because the “development” of all this ghastly crap — the vinyl-and-strandboard housing subdivisions, the highway strips, malls, and “lifestyle centers,” the “Darth Vader” office parks, the infinity of asphalt pavements — became, for a while, our replacement for an economy of ecological sanity. The housing bubble was all about building more stuff with no future, and that is why the attempt to re-start it is evil.

Growing pains of nation's first high-speed rail line, in Calif - After decades of promises, plans, and politics, California has finally reached the construction phase of its high-speed rail line between Los Angeles and San Francisco. But a judge's ruling this week could derail the $68 billion project, setting new legal and financial hurdles in the path of a proposed 520-mile railroad for 220-mile-an-hour bullet trains. Championed by Gov. Jerry Brown as a transforming project akin to the early freeways and the Golden Gate Bridge, the high-speed rail line would be America's first. The project is being closely watched in the Northeast by boosters of a similar line between Washington and Boston. If California succeeds, Americans could experience at home the kind of travel widely available in Europe, Japan, and China. A 475-mile, L.A.-to-San Francisco train ride is slated to take two hours and 40 minutes, three hours less than the 380-mile car trip. In addition to fast travel, the project promises to deliver up to 66,000 construction jobs a year and 400,000 related jobs, reduced highway and airport congestion, and cleaner air. If successful, it could whet the appetite for similar trains in the Northeast Corridor, the nation's busiest rail route. But if the California project dies, "critics will quickly point to that" to challenge any high-speed trains for the Northeast, said Drew Galloway, Amtrak's chief of Northeast Corridor planning and performance.

Obama’s bullet train dream just derailed in California - Not a good month for the progressive policy agenda. In addition to Obamacare’s failed rollout, bad news from California about its high-speed rail plan. The San Jose Mercury News:In rulings that threaten the future of California’s bullet train, a Sacramento judge on Monday ordered the state to draft a new budget for the multibillion dollar project and prove there’s enough money to finish the job before it is started.Superior Court Judge Michael Kenny found the state’s High-Speed Rail Authority failed to follow voter-approved requirements designed to prevent reckless spending on the $68 billion project. Those safeguards are a key piece of the ballot measure voters approved in 2008 allowing the state to sell $10 billion in rail bonds to help build the nation’s first high-speed rail line, from San Francisco to Los Angeles. And from Reuters:.Critics of California’s high-speed rail effort say money will run dry before its network can be completed and that it is uncertain federal and private funds will be available for it over the long haul. A USC Dornsife/Los Angeles Times Poll in September found seven out of 10 California voters want another vote on whether the high-speed rail project should continue and 52 percent say it should be stopped, compared with 43 percent who want it to move forward.

The U.S. economy needs an exports-led boost - A recent visit by President Obama to an Ohio steel mill underscored his promise to create 1 million manufacturing jobs. On the same day, Commerce Secretary Penny Pritzker announced her department’s commitment to exports, saying “Trade must become a bigger part of the DNA of our economy.”These two impulses — to reinvigorate manufacturing and to emphasize exports — are, or should be, joined at the hip. The U.S. needs an export strategy led by research and development, and it needs it now. A serious federal commitment to R&D would help arrest the long-term decline in manufacturing, and return America to its preeminent and competitive positions in high tech. At the same time, increasing sales of these once-key exports abroad would improve our also-declining balance of trade. It’s the best shot the U.S. has to energize its weak economic recovery. R&D investment in products sold in foreign markets would yield a greater contribution to economic growth than any other feasible approach today. It would raise GDP, lower unemployment, and rehabilitate production operations in ways that would reverberate worldwide.

U.S. Durable-Goods Orders Fall 2 Percent in October  — Orders for U.S. long-lasting factory goods fell last month as businesses spent less on machinery, computers and most other items. The decline suggests companies may have been reluctant to invest during the 16-day partial government shutdown The Commerce Department says orders for durable goods dropped 2 percent in October. That follows a 4.1 percent increase in September. Durable goods are meant to last at least three years. Demand for commercial aircraft plunged nearly 16 percent last month, accounting for much of the decline. But orders also fell 1.2 percent in a closely watched category that excludes volatile transportation and defense orders. That was the second straight decline. The report conflicts with a private sector survey, which showed companies shrugged off the shutdown and boosted orders.

Durable Goods Orders Drop 2% in October -- A gauge of planned U.S. business spending on capital goods unexpectedly fell in October and new orders for long-lasting manufactured goods were down, pointing to a loss of momentum in factory activity. The Commerce Department said on Wednesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 1.2 percent last month. It was the second month of declines after orders for these so-called core capital goods fell 1.4 percent in September. Economists polled by Reuters had expected this category to increase 0.6 percent. The unexpected drop in these orders suggested some ebbing in the manufacturing sector's recently found strength. It could also be an indication that a 16-day partial government shutdown last month hurt business confidence. Orders for durable goods - items from toasters to aircraft that are meant to last at least three years - fell 2 percent, largely because demand for civilian and defense aircraft tumbled. Durable goods orders had increased 4.1 percent in September. The tone of the report was generally mixed, with gains in new orders for primary metals, computer and electronic products, motor vehicles and electrical equipment, appliances and components.

US durable goods orders drop 2% in October: — New orders for durable goods fell 2 percent in October due to a big drop in transportation orders, the Commerce Department reported Wednesday. New orders for durable goods totaled $230.3 billion, down $4.6 billion from the September level, the data showed. Analysts had projected a decline of 2.2 percent. Orders for transportation equipment drove the overall count down, falling 5.9 percent to $73.0 billion. Of the different segments in transportation equipment, new orders for civilian aircraft fell 15.9 percent to $16 billion, while new orders for defense aircraft dropped 20 percent to 4.0 billion. Excluding transportation equipment orders, which can vary widely month-over-month, durable goods orders dipped 0.1 percent to $157.2 billion. Analysts said the report was disappointing and suggested business was holding back in light of continued uncertainty in Washington, where a bitter political debate led to a partial government shutdown in October. "If it looks like the budget talks are making progress (and so far, it doesn?t appear that way), that will lift the heavy fog of political uncertainty and help boost business investment,"

October Durable Goods Orders Disappoint - The November Advance Report on October Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders:New orders for manufactured durable goods in October decreased $4.6 billion or 2.0 percent to $230.3 billion, the U.S. Census Bureau announced today. This decrease, down following two consecutive monthly increases, followed a 4.1 percent September increase. Excluding transportation, new orders decreased 0.1 percent. Excluding defense, new orders decreased 1.3 percent.  Transportation equipment, also down following two consecutive monthly increases, led the decrease, $4.6 billion or 5.9 percent to $73.0 billion. This was led by nondefense aircraft and parts, which decreased $3.0 billion. Download full PDF The latest new orders number at -2.0% percent was close to the forecast of -1.9 percent. Year-over-year new orders are up 5.3 percent.If we exclude transportation, "core" durable goods came in negative MoM at -0.1 percent but up 4.3 percent YoY. was looking for a 0.5 percent MoM increase.If we exclude both transportation and defense, durable goods came in at 1.2 percent MoM and up 5.4 percent YoY.Core Capital Goods posted the second consecutive negative month, down 1.2 percent in October following a decline of 1.4 percent in September. The October YoY number is a positive 3.6 percent.  The first chart is an overlay of durable goods new orders and the S&P 500. An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.

The Durable Goods Orders Report Was Terrible : Durable goods orders fell by 2.0% in October due to lower aircraft orders. This was right in line with expectations. Still, orders excluding transportation fell 0.1%, missing expectations for a 0.5% gain. Nondefense capital goods orders excluding aircraft — a key measure of business investment — fell 1.2%, which was much worse than the 0.8% increase expected. "The continuing slump in US non-defencs capital goods (ex. aircraft) orders and shipments suggests that business equipment investment contracted over the entire second half of this year," said Capital Economics Paul Ashworth. "The survey evidence on capex intentions has been pointing to a rebound in equipment investment for some time now, but it just isn't coming through in the actual hard data."

Drop in Durables Orders Points to Slow Investment: Economy - Bloomberg: Orders for durable goods dropped in October, pointing to a slowdown in U.S. business investment that will curb U.S. economic growth this quarter.Bookings (DGNOCHNG) for goods meant to last at least three years decreased 2 percent after a 4.1 percent gain in September, the Commerce Department reported today in Washington. Other data, including a drop in jobless claims and unexpected increases in consumer sentiment and leading indicators, indicate any cooling in the expansion will be short-lived. The federal shutdown last month and the prospect of more budget cuts have prompted companies such as Lockheed Martin Corp. (LMT) to trim staff and close factories. At the same time, a rebound in household confidence heading into the holiday-shopping season combined with improving hiring prospects may brighten the outlook for retailers such as Macy’s Inc. (M), which are discounting merchandise to boost sales.

The "Real" Goods on the Durable Goods Report = Earlier today I posted an update on the November Advance Report on October Durable Goods Orders. This Census Bureau series dates from 1992 and is not adjusted for either population growth or inflation. Let's now review the same data with two adjustments. In the charts below the red line shows the goods orders divided by the Census Bureau's monthly population data, giving us durable goods orders per capita. The blue line goes a step further and adjusts for inflation based on the Producer Price Index, chained in today's dollar value. This gives us the "real" durable goods orders per capita. The snapshots below offer an alternate historical context in which to evaluate the standard reports on the nominal monthly data.Here is the first chart, repeated this time ex Transportation, the series usually referred to as "core" durable goods.  Now we'll leave Transportation in the series and exclude Defense orders. And now we'll exclude both Transportation and Defense for a better look at a more concentrated "core" durable goods orders. Here is the chart that I believe gives the most accurate view of what Consumer Durable Goods Orders is telling us about the long-term economic trend. The three-month moving average of the real (inflation-adjusted) core series (ex transportation and defense) per capita helps us filter out the noise of volatility to see the big picture.

Durable Goods, Inventories and Q3 GDP  - The Durable Goods, advance report shows new orders decreased by -2.0% for October 2013 after a 4.1% increase in September.   The decline was mainly aircraft as transportation durable goods new orders by themselves dropped -5.9%.  Without transportation orders, which aircraft is a large part, durable goods new orders fell by -0.1%.  We also estimate Q3 GDP will be revised upward to 3.2% on inventories.  Below is a graph of all transportation equipment new orders, which declined by -5.9% for the month.  Motor vehicles & parts actually increased by 1.7%.   Aircraft and parts new orders from the non-defense sector decreased -15.9%.  Aircraft & parts from the defense sector declined by -20.0%.   Aircraft orders are notoriously volatile, each order is worth millions if not billions, and as a result aircraft manufacturing can skew durable goods new orders on a monthly comparison basis. Core capital goods new orders declined by -1.2% for October and September saw a -1.4% change.  This implies a slowing of economic activity.  Core capital goods is an investment gauge for the bet the private sector is placing on America's future economic growth and excludes aircraft & parts and defense capital goods.  Capital goods are things like machinery for factories, measurement equipment, truck fleets, computers and so on.  Capital goods are basically the investment types of products one needs to run a business. and often big ticket items.  A decline in new orders indicates businesses are not reinvesting in themselves.  Machinery by itself showed a -0.3% drop in new orders in October and a -2.0% change in September. To put the monthly percentage change in perspective, below is the graph of core capital goods new orders, monthly percentage change going back to 2000.  Looks like noise right?    We use so many graphs to amplify trends for one month of data does not an economy make.

Richmond Fed: Manufacturing improved in November - From the Richmond Fed: Fifth District Survey of Manufacturing Activity Manufacturing in the Fifth District improved in November, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders rose. Employment, average workweek, and wages also picked up this month. Capacity utilization and the backlog of orders flattened, while vendor lead-time rose at a slower pace. Manufacturers were optimistic about their future business prospects. Firms anticipated shipments and the volume of new orders would grow more quickly during the next six months.The composite index of manufacturing strengthened, climbing to a reading of 13 in November following last month's reading of 1. The index of shipments improved 18 points, ending at 16, and the index for new orders advanced 15 points compared to a month ago. In addition, the index for the number of employees gained two points, finishing at a reading of 6.  Manufacturing employment edged up this month, moving the index to 6 from 4. The average workweek grew solidly, pushing that index up 13 points to end at a reading of 12. Additionally, average wages grew more quickly, reaching an index of 15 compared to last month's reading of 9.  This is the last of the regional surveys.  Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Richmond Fed Manufacturing: Activity Improved in November - The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to the nation's Central Bank. The complete data series behind today's Richmond Fed manufacturing report (available here), which dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components.Today's update shows the manufacturing composite at 13, a substantial improvement over the last two months, which hovered around zero after hitting an interim high of 14 in August. Today's number came in well above the forecast for an increase to 3. Because of the highly volatile nature of this index, I like to include a 3-month moving average to facilitate the identification of trends, now at 4.7. Here is a snapshot of the complete Richmond Fed Manufacturing Composite series. Here is the latest Richmond Fed manufacturing overview. Manufacturing in the Fifth District improved in November, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders rose. Employment, average workweek, and wages also picked up this month. Capacity utilization and the backlog of orders flattened, while vendor lead-time rose at a slower pace. Manufacturers were optimistic about their future business prospects. Firms anticipated shipments and the volume of new orders would grow more quickly during the next six months. Additionally, they expected an increase in capacity utilization. Producers looked for rising backlogs of new orders and expected shorter vendor lead times. Survey participants predicted an increase in the number of employees and faster wage growth during the next six months. Additionally, firms projected slower growth in the average work week. Raw materials and finished goods prices rose at a slower pace in November compared to last month. For the six months ahead, manufacturers expected slower growth in prices paid, while prices received were projected to increase at a faster pace, compared to their outlook of a month ago.

Chicago PMI Beats Expectations On Highest Inventory Build Since September 2006 - Those who were looking at the JPY monkeyhammering at 9:42 spotted the exact moment the November Chicago PMI number was released early to MarketNews subscribers, and also knew precisely that the number would be a beat. Sure enough, at 9:45 when the number was released for broad distribution, this was confirmed because while the headline number dropped from last month's epic 65.9 to 63.0, it was still a sizable beat of expectations of 63.0, with the Employment number rising from 57.7 to 60.9 the highest since October 2011. However, one look at the internals shows that not all was well. In fact, with New Orders dropping from 74.3 to 68.8, production sliding from 71 to 64.3 and backlogs down from 61.0 to 59.8, the forward looking metrics all dipped so it was all up to that old faithful channel stuffer - Inventories - to fill the gap. And fill the gap it did, by soaring from 48.0 to a whopping 61.1, the highest number since September 2006!  Just as the Durable Goods goods number suggested, the inventory buildup is the only thing that is keeping manufacturers busy. Selling said inventory at a profit (especially with Prices Paid surging from 56.7 to 63.7), or investing in future production capacity, not so much.

Final November Consumer Sentiment increases to 75.1, Chicago PMI at 63.0 - The final Reuters / University of Michigan consumer sentiment index for November was at 75.1, up from the October reading of 73.2, and up from the preliminary November reading of 72.0.This was above the consensus forecast of 73.3. Sentiment has generally been improving following the recession - with plenty of ups and downs - and one big spike down when Congress threatened to "not pay the bills" in 2011.  Unfortunately Congress shut down the government in October, and once again threatened to "not pay the bills", and this impacted sentiment last month.  The spike down wasn't as large this time, probably because many people realized the House was bluffing with a losing hand.  And now sentiment is starting to recover.Chicago PMI: From the Chicago ISM: The November Chicago Business Barometer softened to 63.0 after October’s sharp rise to a 31-month high of 65.9. November’s slight correction came amid mild declines in New Orders, Production and Order Backlogs after double digit gains in the prior month. Despite November’s weakening, the Barometer remained well above 60 for the second month, pushing the three month moving average to the highest level since November 2011 [note: above 50 is expansion] Employment was up for the second consecutive month, reaching the highest level since October 2011, and the first time above 60 since February 2012.

New Service-Sector Index Shows November Bounce Back - The private-service sector may make up more than half of U.S. gross domestic product, but it accounts for almost nothing as a share of economic data. Data provider Markit is trying to change that. On Monday, it launched a new U.S. purchasing managers’ index that focuses on service industries. London-based Markit has been compiling service PMIs for other nations, spurred originally by the urging of the Bank of England, says chief economist Chris Williamson. Markit began collecting U.S. data in late 2009. The data history is long enough to allow for seasonal adjustment but not long enough to see how the index performs during a downturn. The Markit PMI differs from the widely watched Institute for Supply Management‘s nonmanufacturing PMI in two key ways. First, PMI is a misnomer for the Markit index since the survey is sent to senior executives including chief financial officers and chief executives. Second, Markit concentrates on private U.S. services while ISM covers the economy’s nonmanufacturing sectors, including construction and public administration. So what did Monday’s report say about the service sector? The flash November reading, which is based on about 85% of replies, jumped to 57.1 this month from the final October reading of 49.3. (Like most diffusion indexes, a reading above 50 denotes expansion.) The gain means services output “bounced back after having been previously affected by the disruption caused by the government shutdown,” the report said.

Real Businessmen Respond to Quantity Signals, Not Price Signals - Back in the day when I was running a high-tech conference company, we had a favorite (and actually rather cruel) interview question: “What’s the best price for a conference?” There was only one right answer: “The price that makes us the most money.” That answer encapsulates the position of almost every business trying to sell real goods and services. You have to choose a price, and you have little or no idea what sales differences will result from different choices. The implications are enormous — no other decision affects profits so powerfully — and you’re basically shooting in the dark. Every business or product-launch plan I’ve ever seen has a huge dartboard right in the middle of it: How much, how many, will we sell? (“Well, it depends what we charge…”) In some businesses there are ways to do controlled tests of different prices and see how sales respond — Amazon being a brilliant example, and we did a a bit of it using direct mail with split runs — but most businesses (i.e. all of Amazon’s producers/suppliers) don’t have that luxury. You have to just choose a price with your best guess, based on various scraps of hard-to-interpret historical-sales and market data. Analysts expected Apple to sell five million iPhone 5s in its first weekend. They sold nine million. Did the price go up? No. They rousted workers out of bed in China and filled the goddamn orders. When one of our conferences wasn’t selling well we couldn’t just lower the price, cause we’d piss off everyone who’d already signed up. If sales were good and it looked like we might sell out (there was simply no more room for hotel employees to place chairs), the last thing we were going to do was raise the price and risk stomping on that success. It’s very difficult for producers to derive prices signals from the market.

Two Amazing Charts -- Research by Christopher Erceg and Andrew Levin is providing solid evidence that the decline in the labor force participation rate since 2007 has been due to cyclical factors–the recession and slow recovery–rather than to demographic factors.  In other words, the fact that such a large number of people have dropped out of the labor force is associated with the weak economy rather than to their reaching their retirement years–or some other typical demographic trend.  Because the unemployment rate does not count the people who dropped out of the labor force it no longer gives a good reading of the state of the labor market. The unemployment rate would be much higher without this large decline in labor force participation.In the latest version of their paper Chris and Andy estimate how large the US unemployment rate would be without this abnormal decline in the labor force, and they produced this amazing chart which summarizes their findings (I tweeted about this yesterday). That the actual unemployment rate has become such a poor indicator of labor market trends is one reason why many economists have focused on the employment to population ratio.  Here is an update of a chart I have been using for several years to illustrate the lack of progress in employing the working age population compared to recoveries from previous deep recessions, such as the recovery from the recessions in the early 1980s.  It too is an amazing chart.

Former Romney Advisors on the State of the Labor Market - While the Washington Republican leaders keep pushing austerity and complain about the Federal Reserve pursuing expansionary monetary policy, it is refreshing to see what Greg Mankiw is saying about the choices Janet Yellen will have to face:  With inflation running below the Fed target of 2 percent and continued weakness in the labor market, the economy needs all the help the central bank can provide. Many of the numbers back up that diagnosis.Mankiw note only cites the continuing high unemployment rate but also the low employment to population rate. Yet, Mankiw did note some contrary evidence:  . Data on wage inflation also suggest that the labor market has firmed up. Over the past year, average hourly earnings of production and nonsupervisory employees grew 2.2 percent, compared with 1.3 percent in the previous 12 months. Accelerating wage growth is not the sign of a deeply depressed labor market.  John Taylor, however, thinks the labor market is still incredibly weak:  In other words, the fact that such a large number of people have dropped out of the labor force is associated with the weak economy rather than to their reaching their retirement years–or some other typical demographic trend. Because the unemployment rate does not count the people who dropped out of the labor force it no longer gives a good reading of the state of the labor market. The unemployment rate would be much higher without this large decline in labor force participation.Taylor shows the Erceg-Levin chart with unemployment adjusted for a “normal” labor force participation rate, which suggests an adjusted rate near 11%. He concludes: There is no longer debate that the labor market performance in this recovery–and the recovery itself–is unusually weak. The debate is now over why. I have argued that it is the economic policy.

The Case for Techno-optimism - Paul Krugman - The debate over secular stagnation has shown some signs of getting confused with the debate over technological stagnation; it’s important to understand that they are not the same thing. What Bob Gordon (pdf) is predicting is disappointment on the supply side; what Larry Summers and I have been suggesting is that we may face a persistent shortfall on the demand side. It’s true that Gordon’s world might suffer from low investment demand, since investment demand depends more on the rate of growth than it does on the level of real GDP. Still, they are distinct concepts.But what do I think about Gordon’s notion that the good times of progress are behind us? One honest answer would be that I don’t know, and can’t even make a good guess.  What I can say, however, is that my gut feeling remains that while Gordon may be right about the next decade or two, he’s likely to be very wrong beyond that. Or maybe it’s a bit more than my gut. I know it doesn’t show in the productivity numbers yet, but anyone who tracks technology has a strong sense that something big has been happening the past few years, that seemingly intractable problems — like speech recognition, adequate translation, self-driving cars, etc. — are suddenly becoming tractable. Basically, smart machines are getting much better at interacting with the natural environment in all its complexity. And that suggests that Skynet will soon kill us all a real transformative leap is somewhere over the horizon, maybe not this decade, but this generation.

Watching the trajectory of the Beveridge Curve - A number of economists continue to talk about the "structural shift" in US labor markets that took place during the Great Recession. For example, back in September, Georgetown University published a report called Failure to Launch: Structural Shift and the New Lost Generation (see document). The paper focuses on changes with respect to youth employment that appear to be structural (long-term) rather than cyclical. But how does one measure the degree to which the labor markets deviate from historical norms? The simplest indicator of this shift remains the Beveridge Curve (see discussion). It's a scatter plot of job openings versus the unemployment rate (here we use the U5 rate). More job openings should result in lower unemployment. But the path and the slope of the curve tells us something about the current situation relative to recent history. The data captures structural effects such as:
1. Weak labor mobility - with mortgages underwater, many workers for example can't simply move to North Dakota where the job market is vibrant.
2. Skills mismatch - workers with a college degree often go on unemployment rather than taking a low-paying job in the fast food industry for exmple. At the same time workers with specialized skills may be difficult to find (see example).
3. Part-time vs. full-time mismatch - many workers who receive unemployment benefits do not accept part-time work.
4. Impact of long-term unemployment - workers who have been out of work for a long time have trouble reentering the workforce even if there are job openings.

U.S. Jobless Claims Drop to 316,000, as Layoffs Slow - The number of Americans seeking unemployment benefits dropped 10,000 last week to a seasonally adjusted 316,000, a sign that workers are in less danger of being laid off. The Labor Department says the less volatile four-week average fell 7,500 to 331,750. Both the weekly jobless claims and the average have returned to pre-recession levels. Weekly unemployment claims are a proxy for layoffs. They have fallen in six of the past seven weeks. As layoffs have dwindled, hiring has picked up. Employers added 204,000 jobs last month, indicating that companies were undeterred by the 16-day government shutdown. Private businesses added 212,000 new positions, the most since February. The economy has added an average of 202,000 jobs a month from August through October, up from 146,000 in May through July.

Weekly Initial Unemployment Claims decline to 316,000 - The DOL reports: In the week ending November 23, the advance figure for seasonally adjusted initial claims was 316,000, a decrease of 10,000 from the previous week's revised figure of 326,000. The 4-week moving average was 331,750, a decrease of 7,500 from the previous week's revised average of 339,250. The previous week was up from 323,000. 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 331,750. Some of the recent volatility in weekly claims was due to processing problems in California (now resolved). The level of weekly claims suggests an improving labor market.

Philly Fed: State Coincident Indexes increased in 44 states in October - This was released this week by the Philly FedThe Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for October 2013. In the past month, the indexes increased in 44 states, decreased in four states, and remained stable in two, for a one-month diffusion index of 80. Over the past three months, the indexes increased in 45 states and decreased in five, for a three-month diffusion index of 80. Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:  The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).In October, 45 states had increasing activity(including minor increases). This measure has been and up down over the last few years ...Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and all green at times during the recovery.There are a few states with three month declining activity, but most of the map is green.

'The Dallas Fed Rebuffs the Idea that Immigrants are Stealing Jobs from Americans' -- Gillian Tett of the FT summarizes research from the Dallas Fed: ...when it comes to immigration – of the legal and illegal kind – the Lone Star Fed is not sitting with the Tea Party core. On the contrary, it has just published a paper – under the provocative title “Gone to Texas” – arguing that immigration is good for the local economy. And it rebuffs the idea that immigrants are stealing jobs from native-born Americans. On the contrary, it insists, they tend to boost growth in a win-win way.Now, if this conclusion had emerged in a state with few immigrants and plenty of unfilled jobs (think North Dakota), that might be unsurprising. But the picture that Fed researchers paint of Texas is eye-popping. Since 1990, the number of foreign-born people living there has jumped from 1.5 million to 4.3 million...”, and that “among large states, none has experienced a surge like Texas has, with immigrants rising from 9 per cent of the population in 1990 to 16.4 per cent in 2012”. Some immigrants are highly skilled... But most are not: two-thirds do not have a high-school diploma, two-thirds come from Mexico, and almost half – or 1.8 million people – are illegal... Here's a link to the report.

Jobs vs. Employment Analysis Suggests Huge Obamacare Impact (And Way Less Job Growth than Anyone Thinks) - Every month (on average), for about a year, there has been a startling discrepancy between employment as measured by the household survey and jobs as reported by the establishment survey. I believe the discrepancy is yet another Obamacare artifact. Jobs vs. Employment Discussion Before diving into the details, it is important to understand limits on data, and how the BLS measures jobs in the establishment survey vs. employment in the household survey. Establishment Survey: If you work one hour that counts as a job. There is no difference between one hour and 50 hours. Establishment Survey: If you work multiple jobs you are counted twice. The BLS does not weed out duplicate social security numbers. Household Survey: If you work one hour or 80 you are employed. Household Survey: If you work a total of 35 hours you are considered a full time employee. If you work 25 hours at one job and 10 hours at another, you are a fulltime employee. Recall that the definition of fulltime under Obamacare is 30 hours, but fulltime to the BLS is 35 hours. Next, consider what happens under Obamacare if someone working 34 hours is cut back to 25 hours, then picks up another parttime job.

Statistics: The Real Lost Generation - “American teens and young adults have never, since record-keeping began, done worse in the job market than in the past decade,” writes economist Jeff Madrick in Harper’s Magazine. New Orleans has it worst, Madrick writes. There, 23 percent of 18-to 24-year-olds are out of school and without jobs. The national number is 17 percent. Experts figure there are 6.7 million young people nationwide who are in this fix. American policymakers were once determined to have it otherwise. “A lot of this determination had to do with fears of social unrest stirred up by the racial violence of the Sixties and, several decades later, the Rodney King riots in Los Angeles,” Madrick writes. “One of the federal government’s responses was to create hundreds of thousands of summer jobs for teenagers at parks, construction sites, and nonprofits. But these programs mostly ended in the early years of the George W. Bush Administration, after a decade of falling crime.”  And today, “The employment prospects for those between the ages of twenty and twenty-four have fallen more than for any other age group besides teens. In 2000, 72 percent of those young adults had steady employment; today, only 61 percent do. And when they are able to find work, their jobs don’t pay well: inflation-adjusted wages for men aged sixteen to twenty-four were about 30 percent lower in 2010 than in 1973. Among young women, wages dropped 11 percent in that time.”  Furthermore, many jobs once held by youths are going to older workers that require little training.

Former Walmart Exec Leads Shadowy Smear Campaign Against Black Friday Activists -As activists continue to organize demonstrations at McDonalds, Walmart and other low-wage firms, big protests are planned against retailers for mistreating their workers this Black Friday. In response, union-busting consultants are ramping up efforts to marginalize them. Last night—Worker Center Watch, a new website dedicated to attacking labor-affiliated activist groups like OUR Walmart, Restaurant Opportunities Center, and Fast Food Forward—began sponsoring advertisements on Twitter to promote smears against the protests planned for Black Friday. In one video sponsored by the group, activists demanding a living wage and better working conditions for workers are portrayed as lazy “professional protesters” who “haven’t bothered to get jobs themselves.” “This Black Friday, just buy your gifts, not their lies,” instructs the Worker Center Watch narrator. Watch it: Worker Center Watch has no information its website about its sponsors. Yet the group attacks labor activists and community labor groups for lacking transparency. has discovered that Worker Center Watch was registered by the former head lobbyist for Walmart. Parquet Public Affairs, a Florida-based government relations and crisis management firm for retailers and fast food companies, registered the Worker Center Watch website.

Working at Amazon Could Literally Make People Lose Their Minds - People often claim that their jobs make them crazy, but after looking at the results of a BBC investigation into work conditions at a UK Amazon Warehouse, a stress expert said that working at the facility actually could cause “mental and physical illness.” Undercover reporter Adam Littler, 23, got a job as a “picker” in a Swansea warehouse. He recorded his night shifts during the holiday season, a time in which Amazon employs 15,000 extra staffers. Littler was given 33 seconds at a time (a countdown going off on a handset) to collect individual orders throughout the 800,000 square foot warehouse, walking nearly 11 miles a night. If he was too slow or made a mistake, the handset beeped and there was a risk of disciplinary action. “We are machines, we are robots, we plug our scanner in, we’re holding it, but we might as well be plugging it into ourselves,” he said.

A universal income is not such a silly idea - The idea is endorsed not only by experts on inequality such as Oxford’s Sir Tony Atkinson, but by the late Milton Friedman, an unlikely communist. The idea of a basic income is one that unites many left- and rightwingers while commanding very little support in the mainstream. Friedman saw an alternative to the current welfare state. We pay money to certain people of working age, but often only on the condition that they’re not working. Then, in an attempt to overcome the obvious problem that we’re paying people not to work, we chivvy them to get a job. Our efforts are demeaning and bureaucratic without being particularly effective. A basic income goes to all, whether they work or not. If the basic income was something more modest than the Swiss campaigners have in mind – say, £75 a week, roughly the level at which the UK’s Income Support is paid – then I think most people would want to supplement that. There wouldn’t be a sudden withdrawal of benefits, so seeking part- or full-time work would be straightforward. Some advocates of a basic income see the prospect of voting with your backside as an advantage of the proposal: it would encourage employers to make low-paid jobs less uncomfortable and degrading.

Changing Assistance for the Unemployed -- Even if federal unemployment insurance expires at the end of the year, it will be replaced by an even more generous assistance program for people leaving their jobs. Unemployment insurance is jointly administered and financed by federal and state governments, offering funds to “covered” people who lost their jobs and have as yet been unable to find and start a new one. The cash assistance comes weekly, with states paying benefits of about $300 a week for 26 weeks or until the person starts a new job, whichever comes first.  Normally, the assistance stops after 26 weeks, even if the beneficiary has yet to find a job. But during recessions the federal government’s temporary “extended” and “emergency” unemployment compensation programs pick up benefits after the state benefits are exhausted.  The last remaining federal program, known as Emergency Unemployment Compensation, is set to fully expire at the end of this year. Congress has extended its final expiration date several times in the past – most recently as part of the fiscal cliff deal – but there is no guarantee that Congress will continue its extensions.  If the emergency program continues while the new health care assistance comes on line, the incentives of workers and employers to create and retain jobs will take a big hit. The solid line in the chart below shows my estimates of the average marginal tax rate on worker’s income, accounting for the fact that earning income on a job results in both additional taxes and withheld federal benefits. The higher the tax rate, the less is the incentive to work.

Hungry Americans Less Productive as Budget Cuts Deepen -  People worried about life’s necessities are less able to focus on solving problems or being more creative. Such stress, which is being exacerbated by recent cuts in government social services, damps the current and potential output of adults and children, filtering through to everything from corporate profits and dividends to worker pay and entrepreneurship. “If people are very anxious and feeling insecure economically, their performance on the job is going to be affected,” said Isabel Sawhill, a senior fellow in economic studies at the Brookings Institution in Washington. “And if children from low-income families are not given an opportunity to climb the ladder, we are going to continue to have a lot of social problems and low productivity. It affects everyone.”  U.S. lawmakers failed to agree on a plan to reduce the federal budget deficit earlier this year, meaning automatic across-the-board spending cuts began taking place on March 1, weighing on the economy. Another round of forced reductions, or sequestration, will begin on Jan. 15 if policy makers are again unable to reach agreement. Federal spending on food stamps has more than doubled in the past five years, with the bulk of the money spent at retailers including Wal-Mart Stores Inc. and Kroger Co.

Food stamp cuts, holidays stress food banks - Food banks across the country are bracing for what has become an annual occurrence during this season: a spike in demand as millions of Americans struggle to put holiday meals on their tables. For those who help the hungry, 2013 is looking a lot like the years since the recession began—with the added challenge of a $5 billion cut in food stamp benefits, which took effect Nov. 1. About 48 million Americans will be hit by the reduction in the Supplemental Nutritional Assistance Program (SNAP), which will subtract $36 per month for a family of four. Total benefit amounts vary by state. "Nobody's been able to catch their breath," said Ross Fraser of Feeding America, a nationwide network of 200 food banks that supplies 63,000 agencies around the country. "Everyone's scared to death about these SNAP cuts." Bad timing As advocates for the hungry tell it, the reduction in food stamp benefits — the result of an expiration of a temporary boost enacted in 2009 — couldn't have come at worse time. The Great Recession has already stretched food banks' ability to help the 15% of all Americans who are considered "food insecure," according to an Agriculture Department report. Many of those people do not use food stamps. Many food banks are holding extra food drives, or asking companies to make special seasonal donations – turkeys, for example. Others food banks just buy more food; one reported buying 50% more this month compared to October.

Thanksgiving: Food stamp cuts leave pantries struggling to meet rising need: Food pantries and food banks struggled to meet demand this Thanksgiving, just weeks after food stamp cuts for millions of Americans took effect. On Nov. 1, the 47 million people who rely on food stamps — also known as the Supplemental Nutrition Assistance Program (SNAP) — saw a decrease in benefits when Congress allowed a 2009 program funding boost to expire. As a result, a family of four will receive $36 less in food stamps in November and each month thereafter, according to the USDA. “All of our food banks have really ratcheted up what they have had to serve,” said Ross Fraser, media relations director at Feeding America, a network of 200 food banks that serve 61,000 food pantries across the nation. Feeding America determined that 37 million Americans turn to food pantries each year. Across the nation, food pantry workers say they have seen a rush of clients, including many who have never turned to a pantry before but now “need help more often because they have fewer food stamps,” Fraser said. ----- This month, Foodbank has seen a 40 percent jump in families seeking assistance compared with November 2012, and most of those families are first-time clients, Vargas said.

Breadlines Return - The Great Recession was the worst downturn since the Great Depression.  And yet, throughout the recent decline and today’s sluggish recovery, conditions have never seemed as bad as they were in the 1930s. Breadlines, for example, have not been commonplace. That may be about to change. In an article published on Monday, The Times’s Patrick McGeehan described a line snaking down Fulton Street in Brooklyn last week, with people waiting to enter a food pantry run by the Bed-Stuy Campaign Against Hunger. The line was not an anomaly. Demand at all of New York City’s food pantries and soup kitchens has spiked since federal food stamps were cut on Nov. 1. The cut — which affects nearly all of the nation’s 48 million food stamp recipients — amounts to a loss of $29 a month for a New York City family of three. On the shoestring meal budgets of food stamp recipients, that’s enough for some 20 individual meals, according to the New York City Coalition Against Hunger. The food stamp cuts are occurring even though need is still high and opportunity low. In a report released today, the Coalition estimates that one-sixth of the city’s residents and one-fifth of its children live in homes without enough to eat. Those numbers have not improved over the past three years. And there are more food-stamp cuts to come. House Republicans have proposed to cut the program by $40 billion over 10 years in the pending farm bill; the Senate has proposed a $4 billion reduction. With Congress framing its task not as whether to cut the program, but how much, is there any doubt that food lines will soon be getting longer — and children hungrier?

Food Stamp Costs Are Decreasing Without The GOP's Cuts - As Congress debates renewing the farm bill, Republicans have been pressing for big cuts to the food stamp budget as part of the negotiations. House GOP leaders want to slash as much as $40 billion from the Supplemental Nutrition Assistance Program (SNAP) over the next decade, a cut that would affect nearly four million low-income people. Rep. Steve Southerland (R-Fla.), a former funeral director and current House pointman in the negotiations, has called the "explosion of food stamps in this country" the "defining moral issue of our time," and he's set out to "reform" the program by imposing work requirements on recipients.Southerland would specifically push states to end SNAP benefits for poor families in areas of high unemployment. The premise behind his reform proposals is that the food stamp program is "growing into oblivion." But  a new study  from the Center on Budget and Policy Priorities shows that in fact, enrollment in the food program, which hit a record during the recession, has already started to plateau and is projected to decline about five percent next year even if Congress does absolutely nothing.

Why U.S. Cities Have Been Making it Harder to Feed the Homeless - Every night around 6:15 p.m., the Greater West Hollywood Food Coalition parks its truck on the same street corner in Los Angeles – because, of course, people need to know where to go – and begins serving meals to the homeless. Often 200 of them in a night. The scene has increasingly frustrated the neighbors, as Adam Nagourney describes in the New York Times. They're upset that the homeless then linger in the neighborhood with nowhere to go. They're upset by the noise. As a result, two Democratic city councilmen have introduced an ordinance that would ban the public feeding of the homeless in Los Angeles, in a bid to push such efforts indoors. What's most surprising about the story, though, is that Los Angeles is hardly an outlier. In the last few years, cities across the U.S. have been adopting new laws limiting what and how charitable groups can feed the homeless (New York City's take has been typically Bloombergian: Last year, the city outlawed food donations to shelters out of concern for its fat and salt content). As Nagourney writes: Should Los Angeles enact such an ordinance, it would join a roster of more than 30 cities, including Philadelphia, Raleigh, N.C., Seattle and Orlando, Fla., that have adopted or debated some form of legislation intended to restrict the public feeding of the homeless, according to the National Coalition of the Homeless. “It’s a common but misguided tactic to drive homeless people out of downtown areas.” “This is an attempt to make difficult problems disappear,” he said, adding, “It’s both callous and ineffective.”

Fox News Chastises People for Giving to the Homeless: ‘You’re an Enabler’ - It takes a special kind of person to look at a homeless man on the street — with no home to stay warm in, little access to a shower or clean clothes, and few possessions — and decide that he’s got it too good. But Fox Business host John Stossel bravely took up that mantle Thursday morning during a guest appearance on Fox & Friends, warning viewers about the perniciousness of giving money to the poor. Donning a fake beard, Stossel sat on a New York City sidewalk with a cardboard sign asking people for help. “I just begged for an hour but I did well,” he said. “If I did this for an eight-hour day I would’ve made 90 bucks. Twenty-three thou for a year. Tax-free.” Elizabeth Hasselbeck, who recently purchased a $4 million home in Greenwich, gasped in horror at the prospect of poor people earning $23,000 a year. Some people asking for money “are actually scammers,” Hasselbeck warned, seemingly unaware of the irony that the only panhandling “scammer” Fox News identified was Stossel. Because he was able to successfully convince good-hearted pedestrians that he was poor, Stossel went on to chastise people who gave the homeless money because, in his view, “most are not…for real.” He implored viewers to stop giving money to poor people because if you do, “you’re an enabler.” Watch the segment:

Unemployment Hurts Kids’ Futures and Social Mobility - Brookings - Unemployment is bad news all round—and it may damage social mobility through its effects on parenting, and the drive and ambition of the next generation. That’s the warning given by Larry Summers—recently passed over as Fed Chair—in a thought-provoking interview with the Wall Street Journal. While economists and policy makers rightly worry about today’s jobless, there are potentially some long-term costs, too, not just for the individual out of work—but for their children. And not just in terms of economic and educational opportunities, but in terms of the picture of adult life provided to impressionable children. As Summers says:  “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. There’s now been clear studies that show that when dad and mom have jobs that they’re proud of and they’re doing those jobs, junior works harder in school, does better in school, and is more likely to succeed.”  In other words, jobless parents raise less ambitious kids. If that’s right, inequality across generations gets entrenched even more deeply.

About Half of Kids With Single Moms Live in Poverty -- Children raised in single-parent households in the U.S. are far more likely to live in poverty than children with both parents present, according to Census figures released Monday. As a result, far more black and Hispanic children are raised in poverty than white kids. Among all children living only with their mother, nearly half — or 45% — live below the poverty line, the Census Bureau said. For those living with just the father, about 21% lived in poverty. By comparison, only about 13% of children with both parents present in the household live below the poverty line. About 55% of black children and 31% of Hispanic children live with one parent, compared to 20% of white children and 13% of Asian children. Other new data released in the report:

  • – One in four women raising children are doing it on their own. Women are far more likely to be single parents than men, the figures show. Two-thirds, or 67%, of mothers living with their children have a spouse present, compared with 86% of fathers living with their children.
  • – The share of so-called family households — in which at least two occupants are related by blood, marriage or adoption — has fallen sharply in recent decades. This year, roughly two-thirds, or 66%, of households were family households, down from 81% in 1970.
  • –The share of households that are married couples with children has declined by about half, to 19% this year versus 40% in 1970.
  • – Households also are becoming smaller. On average, 2.5 people share a household currently, compared to 3.1 people in 1970. That’s in part because families are having fewer children. Average children per family fell to 0.9 from 1.3 during that period.

U.S. Student Homelessness Up 10% Since Last Year - (video)  Yves Smith: On Bill Moyers last week, Henry Giroux talked about how our political system is willing to throw young people on the trash heap:…. you have a whole generation of young people who are now seen as disposable. They’re in debt, they’re unemployed. My friend calls them the zero generation: zero jobs, zero hope, zero possibilities, zero employment. And it seems to me when a country turns its back on its young people because they figure in investments not long term investments, they can’t be treated as simply commodities that are going to in some way provide an instant payback and extend the bottom line, they represent something more noble than that. They represent an indication of how the future is not going to mimic the present and what obligations people might have, social, political, moral and otherwise to allow that to happen, and we’ve defaulted on that possibility. Another symptom is the general lack of concern about high and rising levels of homelessness among students. Of course, we’re supposed to be in a recovery, so we can’t acknowledge that American has rising levels of desperation for the lower orders. But the reality, as many here know altogether too well, is that only group that has shown meaningful gains over the last few years is the top 1%.

Science Textbooks Across the Country Will Teach Real Science Because of A Decision In Texas - Because of a small meeting in Texas on Friday, science textbooks across the nation will teach high school students real climate science — and not the version of science advocated by the fossil fuel industry and conservative ideologues. Last week, the Texas Board of Education voted to approve 14 textbooks used in biology and science classes. “These textbooks were recommended by the top scientists and teachers in Texas,” said Joshua Rosenau of the National Center for Science Education.  Texas is the second-largest textbook market in the country, and because the State Board of Education decides which books to purchase (instead of local school districts), publishers pay serious attention to which books the Board buys. These choices become the basis upon which standard textbooks are written across the country. A publishing executive told Washington Monthly in 2010 that “publishers will do whatever it takes to get on the Texas list.”

What Happens When Great Teachers Get $20,000 to Work in Low-Income Schools? - In 10 cities, including Los Angeles, Miami, and Houston, researchers at Mathematica identified open positions in high-poverty schools with low test scores, where kids performed at just around the 30th percentile in both reading and math. To fill some of those positions, they selected from a special group of transfer teachers, all of whom had top 20 percent track records of improving student achievement at lower poverty schools within the districts, and had applied to earn $20,000 to switch jobs. The rest of the open positions were filled through the usual processes, in which principals select candidates from a regular applicant pool. In public education, $20,000 is a whopping sum. If a transfer teacher stayed in her new, tougher placement for two years, she’d earn the $20,000 in five installments, regardless of how well her new students performed. In public education, $20,000 is a whopping sum, far more generous than the typical merit pay bonus of a few hundred or a few thousand dollars. In the process, a remarkable thing happened. The transfer teachers significantly outperformed control-group teachers in the elementary grades, raising student achievement by 4 to 10 percentile points—a big improvement in the world of education policy, where infinitesimal increases are often celebrated.

Florida's prepaid college tuition cost has skyrocketed for cash strapped families -- Cornelia and her husband chose the top tier 4 year University plan that cost nearly $750 a month. "We did that for a couple of months and we decided that we could not afford it," said Cornelia. Not many people can, which is why participation in Florida Prepaid has plummeted . Back in 2007, the 4 year university plan cost $15,000 in a lump sum. Today it costs just under $54,000-more if you spread out the payments. The executive director of the program blames massive tuition hikes. " In five out of the last six years in Florida, we saw double digit increases in tuition," said Kevin Thompson. Because the pre-paid Florida board sets the price based on what they think tuition will be 18 to 28 years down the road, they have to assume the inflation will continue.

Moocs are no magic bullet for educating Americans - Optimists have scoured the dictionary for superlatives to describe the future of internet education. But the cult of the Mooc – massive online open courses – took a blow last week when one of its leading Silicon Valley pioneers, Sebastian Thrun, described it as a “lousy product”. Students taking Mr Thrun’s online courses at Udacity performed far worse – and dropped out in far higher numbers – than those with a human instructor. But Mr Thrun, who invented the self-driving car, said that another Udacity course that included human mentors had performed very well. Nevertheless, Luddites will be feeling vindicated. Yet the need to reinvent US education is more pressing than ever. If America’s college dropout rates are not persuasive enough – nearly half of US students fail to complete their four-year degree within six years – the fate of those who make it ought to be. Graduate earnings have fallen 5 per cent since 2000. The college premium is still there but only because the earnings of those with a high-school diploma have dropped by far more. Meanwhile, the costs of getting a degree continue to rise, which means the trade-off of taking on ever larger debt to boost future earnings keeps getting weaker. This is where online education comes in. Moocs can drive down costs to almost zero. Yet they will be hard-pressed to fix the cost problem if more than 90 per cent of their enrollees lose interest, which was the outcome of Udacity’s much-hyped experiment. This is twice the attrition of mainstream students.

Federal government books $41.3 billion in profits on student loans - The federal government made enough money on student loans over the last year that, if it wanted, it could provide maximum-level Pell Grants of $5,645 to 7.3 million college students. The $41.3-billion profit for the 2013 fiscal year is down $3.6 billion from the previous year but still enough to pay for one year of tuition at the University of Michigan for 2,955,426 Michigan residents. It’s a higher profit level than all but two companies in the world: Exxon Mobil cleared $44.9 billion in 2012, and Apple cleared $41.7 billion. “It’s actually neither accurate nor fair to characterize the student loan program as making a profit,” Education Secretary Arne Duncan said during a July conference call with reporters after the Free Press and other news media reported on profits from student loans. The department did not return calls or e-mails seeking comment before the story was published, but issued a statement today. “The administration has taken steps to improve college affordability, and thanks to collective efforts, students and families are paying lower rates on their loans today than they would have otherwise,” “More must be done to bring down the cost of college, and we look forward to continuing to work with Congress, institutions, borrowers, and other stakeholders to make college more affordable.”

On Social Security, Elizabeth Warren Gets It Mostly Right - Huffington Post reports a recent floor speech where Sen. Elizabeth Warren (D-Mass.)  condemned the notion that we ought to be cutting back on Social Security benefits rather than expanding them:Sen. Elizabeth Warren (D-Mass.) recently joined the push to increase Social Security benefits, saying the program can be kept solvent for many years with “some modest adjustments.” “The suggestion that we have become a country where those living in poverty fight each other for a handful of crumbs tossed off the tables of the very wealthy is fundamentally wrong,” Warren said in a Senate floor speech on Monday. “This is about our values, and our values tell us that we don’t build a future by first deciding who among our most vulnerable will be left to starve.” She added, “We don’t build a future for our children by cutting basic retirement benefits for their grandparents.” I agree with Warren: It’s morally wrong to cut Social Security benefits when seniors are already struggling and the generations coming behind us will have fewer pensions and lousier savings in their 401(k)s, if they have any savings at all.  We are a wealthy nation, but our wealth is being shifted away from the majority and into the pockets of a smaller and smaller slice of upper income earners and rich families.  As EPI’s State of Working America reveals, from 1983 (when the last major Social Security reform was enacted) through 2010, the wealth of the bottom 60 percent of Americans actually declined.  Even as the nation’s wealth increased by 63 percent, the bottom 60 percent of families were made poorer because a range of policies froze their wages, shipped their jobs overseas, lowered the minimum wage (after adjustment for inflation), and indebted them by raising the price of education.

Identity Politics and the Stoking of Generational Warfare - Yves Smith - I have to confess I find stereotyping annoying, and in almost all cases, it’s a poor substitute for more careful analysis and characterization. Yet it is marvelously effective in politics, as Karl Rove proved. Stereotyping, which is often not all that different from bigotry, goes hand in hand with what Lambert calls “strategic hate management,” For instance: “People who get welfare and social services are leeches;” “If you lost your home, you were a deadbeat and deserved it;” Women who were raped don’t get pregnant so there’s no reason to let them have abortions.” Manipulating voters with hot-button issues has the convenient side effect of diverting their attention from how major corporate and other big monied interests extract cash and other prizes from the government. ... By contrast, we’ve had a tremendous amount of economic mismanagement in this country, not only in the policies that gave us the global financial crisis, but the approach to the aftermath, which has pretty much been, “save the banks and the hell with everyone else.”  The weak job market hitting all age groups, but it is a particularly hard blow to new and recent graduates, who invested in (often costly to them) educations to give them a leg up in the job market. Many have found it didn’t do much good.  A particularly potent political grouping would be for older people, particularly retirees, to team up with young people on economic issues. So it’s not surprising that some political mavens are trying to make sure that doesn’t happen. One of the strategies of the plutocrats comes from financier Jay Gould : “I can hire one half of the working class to kill the other half,” except this time, they aren’t even having to hire one half to turn it against the other.

California, Here We Come?, by Paul Krugman - It goes without saying that the rollout of Obamacare was an epic disaster. But what kind of disaster was it? Was it a failure of management, messing up the initial implementation of a fundamentally sound policy? Or was it a demonstration that the Affordable Care Act is inherently unworkable? ...Well, your wish is granted. Ladies and gentlemen, I give you California.Now, California isn’t the only place where Obamacare is looking pretty good. A number of states that are running their own online health exchanges instead of relying on are doing well. ...California is, however, an especially useful test case. First of all, it’s huge: if a system can work for 38 million people, it can work for America as a whole. Also, it’s hard to argue that California has had any special advantages other than that of having a government that actually wants to help the uninsured. ...For one thing, enrollment is surging. ... To work as planned, health reform has to produce a balanced risk pool — that is, it must sign up young, healthy Americans as well as their older, less healthy compatriots. And so far, so good: in October, 22.5 percent of California enrollees were between the ages of 18 and 34, slightly above that group’s share of the population. What we have in California, then, is a proof of concept. Yes, Obamacare is workable — in fact, done right, it works just fine.

California Myths - Paul Krugman - Among the many vituperative reactions I had to yesterday’s column, one recurred a lot — namely, the assertion that California’s rising enrollment in Obamacare would bankrupt the state, which is already a fiscal basket case. First of all, the Obamacare subsidies — both the credits for insurance purchased on the exchanges and the Medicaid expansion — are paid for by the federal government. In fact, implementing Obamacare is a major fiscal and economic boost to any state that does it, and states opting out of the Medicaid expansion are going to have significantly lower overall incomes and fewer jobs than if they had gone along. (My back of the envelope says around 1 percent of GDP, but I’m still working on that.) Beyond that, however, the California as fiscal basket case narrative is way, way out of date. Jerry Brown and the huge Democratic majority in the legislature have turned that situation completely around. I know, it’s not supposed to be that way — and a lot of people will stick to their narrative, never mind the facts. But anyway, California is doing OK, both on health care and on budget policy.

Access to coverage is not access to care: California Medicaid edition - Who are you going to believe, California health officials or California doctors? From The New York Times:In California, with the nation’s largest Medicaid population, many doctors say they are already overwhelmed and are unable to take on more low-income patients. Dr. Hector Flores, a primary care doctor in East Los Angeles whose practice has 26,000 patients, more than a third of whom are on Medicaid, said he could accommodate an additional 1,000 Medicaid patients at most. “There could easily be 10,000 patients looking for us, and we’re just not going to be able to serve them,” said Dr. Flores.California officials say they are confident that access will not be an issue. But the state is expecting to add as many as two million people to its Medicaid rolls over the next two years — far more than any other state. They will be joining more than seven million people who are already in the program here. One million of the newly eligible will probably be enrolled by July 2014, said Mari Cantwell, an official with the state’s Department of Health Care Services.On top of that, only about 57 percent of doctors in California accept new Medicaid patients, according to a study published last year in the journal Health Affairs — the second-lowest rate in the nation after New Jersey. Payment rates for Medicaid, known in California as Medi-Cal, are also low here compared with most states, and are being cut by an additional 10 percent in some cases just as the expansion begins.

The Obamacare Worm Turns - Paul Krugman --- I suggested yesterday that we’re probably heading for a turning point in the health reform discussion. Conservatives are operating on the assumption that it’s an irredeemable disaster that they can ride all the way to 2016; but the facts on the ground are getting better by the day, and Obamacare will turn into a Benghazi-type affair where Republicans are screaming about a scandal nobody else cares about. And it’s already starting to happen. White House officials are sounding increasingly upbeat. They could be deluded or spinning; but after what happened two months ago one suspects that the last thing they want is to inflate expectations unduly. Meanwhile, media coverage is shifting fast. It’s still mostly trying for equivalence — each positive story of people being helped matched by a negative story of people hurt. But the stories don’t actually match up at all.

Obamacare Cutbacks Shut Hospitals Where Medicaid Went Unexpanded - The local public hospital, 9 miles from the crash, had closed six weeks earlier because of budget shortfalls resulting from Obamacare and Georgia’s decision not to expand Medicaid.  It took two hours before Renshaw, in pain from second- and third-degree burns on almost half her body, was flown to a hospital in Florida. At least five public hospitals closed this year and many more are scaling back services, mostly in states where Medicaid wasn’t expanded. Patients in areas with shuttered hospitals must travel as far as 40 miles (64 kilometers) to get care, causing delays that can result in lethal consequences, said Bruce Siegel, chief executive officer of America’s Essential Hospitals. “Everyone in a community will be affected,” “We could see the end of life-saving services, and patients would bear the brunt.” Hospitals have dismissed at least 5,000 employees across the country since June, mostly in states that haven’t expanded the joint state-federal Medicaid health program for the poor as anticipated under the U.S. health overhaul known as Obamacare. Hospitals like the Cleveland Clinic in Ohio, Vanderbilt University Medical Center in Tennessee and Indiana University Health are among providers seeking cost savings in areas such as cancer treatment, mental health and infant care.

Obamacare Ain't Lookin' Too Caring - Are you confused about Obamacare?    It is still difficult to obtain a concise, clear picture on what is happening to America's health care.  We gather below a few critical snippets of information which point to more impending disaster for the individually insured. First there is the failure of the website.  This should be no surprise that the financial back end contract was a no bid award to BlueCross BlueShield via their subsidiary. Those include accounting and payment systems to send premiums to insurers and transfer funds to insurers that attract more than their share of customers with high medical costs. The costs and timelines for these websites are astounding and goes to show how the U.S. government contract system is major bloatware to the U.S. taxpayer.  Over and over America pays and gets little in return when it comes to tech contracts.  So far, 24 states have been paid $4.4 billion to set up websites.  The Federal site has already racked up a huge bill and is expected to cost $634 million.  Now reports are surfacing 40% of the site hasn't even been implemented.  As it stands, government has paid $714 per person needed to sign up for on-line health care exchange websites.  Websites that do not actually work.  Horror stories on the costs of insurance are pouring in.  Obamacare is supposed to give subsidies for anyone making less than $45,900 a year, or 138% to 400% above the poverty line.  Yet CNN found many will not receive a subsidy, simply because the insurance premium is lower than expected.  In other words, the subsidy calculator by itself is a complex absurdity maze.  Generally speaking policies are severely restricting the physicians and facilities one can go to.   The costs are on average 41% higher than before Obamacare for premiums.  Pundits will talk about the terrible coverage allowed under previous plans yet Obamacare allows for 40% copays under the so called bronze plans while premiums are much higher.  The specific cost and policy details are still so hidden and complex some in the press are offering an interactive map as well as a subsidy calculators to help navigate even a portion of the costs.  Yet obtaining the actual contract, along with the coverage details is still next to impossible to come by.   The bronze level plan 60% coverage is simply horrible in terms of deductibles and copays.  Overall, health insurance deductibles are on average 27% higher with Obamacare.

Few Think Affordable Care Act Has Improved Their Lives - Over a month into the implementation of the Affordable Care Act there seems to be no increase in the number of people who feel they have been helped by the law. In fact there has been a modest increase in the number who think they have been hurt by the law. From Gallup: (graphic) This is the exact opposite of what Democrats were hoping for. This is also why I think it is unlikely the law will become very popular even if the Obama administration can get the system working smoothly. The law was not designed to directly impact most people, so most people probably will never have a personal experience with the law that will convince them to rethink their long held opinions about it. In addition, there is a significant segment of the population that is convinced the law has hurt them and it is unlikely anything will change their mind. Things like the Medicaid expansion will help many people but that group still make up only a small percentage of the country as a whole.

Even if website works, Obamacare could see trouble ahead (Reuters) - The Obama administration says it is on target to make its problematic health insurance website work smoothly for the "vast majority" of users by this weekend, but some Americans who want coverage by January 1 may not be able to get it - even if they successfully navigate the portal and sign up for a plan. The problem, according to insurance industry officials and other specialists, is that the administration is behind schedule in building a computer program needed to help insurers verify the names, insurance plan choices and other details of those who sign up for health coverage under the Patient Protection and Affordable Care Act, known as Obamacare. The computer program - which administration officials acknowledge will not be finished until sometime next year - is among several crucial pieces of administrative technology the government is devising to serve new online healthcare marketplaces that allow people to purchase subsidized private health insurance or join the Medicaid program for the poor in all 50 states. The missing technology includes a computer program to make sure government subsidies to help low-income enrollees pay for coverage get to insurers. Even if is able finally to handle the flood of enrollees that officials expect in December, the administration could face a backlash from people who have enrolled but whose paperwork will not be completed by the time their coverage is supposed to take effect on January 1.

Obamacare fail isn’t the site — it’s the law -- In early October, as things went sour, the White House tried to pass it all off as a simple computer glitch. Two months on, it is hard to overstate the magnitude of the failure. Three years and $600 million were spent creating a nonfunctional system that was never fully tested and has deep security flaws. With the Nov. 30 deadline for system repairs approaching, the Democrats’ hope for a quick fix is fading as fast as their poll numbers. Last week Obamacare’s technology chief admitted that up to 40 percent of the software still remained to be developed. But a working website was never the real problem; it’s the law itself — which, tragically, performs as designed. By setting unrealistically high coverage standards, Obamacare renders millions of insurance policies illegal. Since Oct. 1, about 100,000 have signed up for new coverage under the law, while nearly 5 million families have had their current plans canceled.Simple economics tells us that nearly everyone dropped by their current insurer will see rate increases; if the law demands new features, those features will cost money. We also know that prices will increase for the younger, healthier purchasers who are expected to subsidize the older and less healthy. At Maryland’s Bowie State College, 5,500 students lost coverage when their premiums rose more than 1,500 percent.

We’re now entering the phase of Obamacare - Aside from Republicans, the biggest obstacle to enrolling people in Obamacare has been the Affordable Care Act’s own federal Web site. The feds intended it as a portal to health care for people in the three dozen states that didn’t set up their own exchanges, but it turned into more of a barrier than a gateway. But’s role is now changing, as customers from the two-thirds of the U.S. it covers will soon have the chance to enroll in subsidized insurance through federally licensed commercial insurance exchanges — potentially changing the scope and flow of health care signups and shifting much of the activity to the private sector. Last year, the U.S. Department of Health and Human Services (HHS) and its Centers for Medicare and Medicaid Services – the department and agency overseeing health care reform – issued regulations that permit commercial insurance exchanges to enroll individuals who are eligible for tax subsidies under the Affordable Care Act. In July, a number of commercial exchanges – including,,, and GoHealth.comsigned an agreement with HHS to act as web brokers through the Federally Facilitated Health Insurance Exchange (FFE), the new federal health data ecosystem of which is the most visible frontend

Obamacare’s Secret Success, by Paul Krugman -- The law establishing Obamacare was officially titled the Patient Protection and Affordable Care Act. And the “affordable” bit wasn’t just about subsidizing premiums. It was also supposed to be about “bending the curve” — slowing the seemingly inexorable rise in health costs. ... So, how’s it going? ... Has the curve been bent? The answer, amazingly, is yes. In fact, the slowdown in health costs has been dramatic .... Since 2010, when the act was passed, real health spending per capita ... has risen less than a third as rapidly as its long-term average. Real spending per Medicare recipient hasn’t risen at all; real spending per Medicaid beneficiary has actually fallen slightly. What could account for this good news? One obvious answer is the still-depressed economy, which might be causing people to forgo expensive medical care. But this explanation turns out to be problematic in multiple ways. ... A better story focuses on what appears to be a decline in ... expensive new blockbuster drugs, even as existing drugs go off-patent and can be replaced with cheaper generic brands. ... But since drugs are only about 10 percent of health spending, it can only explain so much. So what aspects of Obamacare might be causing health costs to slow? One clear answer is the act’s reduction in Medicare “overpayments”... A less certain but likely source of savings involves changes in the way Medicare pays for services. The program now penalizes hospitals if many of their patients end up being readmitted soon after being released — an indicator of poor care — and readmission rates have, in fact, fallen substantially. Medicare is also encouraging ... “accountable care,” in which health organizations get rewarded for overall success in improving care while controlling costs.

Is Obamacare on the rebound? Media turn to positive stories. (+video) - After weeks of stories about website crashes and canceled health plans – and an extraordinary mea culpa from President Obama – a competing story line is starting to emerge. Slowly but surely, people are navigating the exchanges and getting insurance – for some, cheaper and better than what they had. Last week, The New York Times and Los Angeles Times touted a “surge” in enrollment figures, especially in states that have their own exchanges.This week, a Washington Post story described almost an Obamacare nirvana – people in rural Kentucky lining up and getting coverage, some for the first time in their lives.Part of this wave of positive stories may be a media effect: Reporters (and the public) get tired of all the wall-to-wall negativity, and to keep interest up, seek out happy stories for a change of pace. The Obama administration has also ramped up its public relations efforts on the Affordable Care Act (ACA), going around the national media and directly into local markets. On Tuesday, the administration announced that seniors saved $8.9 billion on prescription drugs thanks to the ACA.

Are Deaths Due to Lack of Health Insurance Seriously Underestimated? Update -- Lately, I’ve had the feeling that “progressive” journalists and commentators too often pull their punches in calling attention to social problems, by underestimating the magnitude of problem-related statistics such as the unemployment rate and the number of fatalities due to lack of health insurance in the United States. My theory about this is that “progressives” are being defensive in their approach and bending over backwards to give the right wing the benefit of the doubt by understating numbers out of an abundance of caution. If this is right, then my reply is that underestimating problem-related numbers is just as bad as over-estimating them, and that what people ought to do is try to provide the best estimates they can and let the critical chips from the right fall where they may. In this post, I want to raise a question about the accuracy of the numerical estimates of US deaths due to lack of health insurance often seen in articles and blogs authored by people, like myself, who favor eliminating insurance coverage shortfalls by passing Medicare for All.

The Single-Payer Alternative -- Rush Limbaugh’s take on the disastrous rollout of the Affordable Care Act could, ironically, warm the hearts of those at the other end of the political spectrum. He contends that President Obama knew all along that the Affordable Care Act would crash and burn, but pushed it through so that the conflagration would clear the way for single-payer health insurance. The conspiracy charge sounds deranged, but problems with the new health insurance system may indeed revitalize demands for more substantive reforms, which many policy makers and voters set aside in the putative interests of political pragmatism. Whatever the advantages of a single-payer system such as that currently administered by Medicare, one view held, American voters were unlikely to get behind it. Yet one of the greatest advantages of a single-payer system — its relatively low administrative costs — have been thrown into sharp relief by problems registering with the new health exchanges. . The malfunctioning website has magnified problems inherent in coordinating enrollment across many different companies in many different exchanges in cooperation with many different government agencies.. Improved software can do only so much. In theory, competition and choice should increase efficiency. In practice, health insurance companies are able to take advantage of the complexity and uncertainty surrounding health care choices to make comparison sh

Healthcare industry vested in success of Obamacare  — President Obama's healthcare law, struggling to survive its botched rollout, now depends more than ever on insurance companies, doctor groups and hospitals — major forces in the industry that are committed to the law's success despite persistent tensions with the White House. Many healthcare industry leaders are increasingly frustrated with the Obama administration's clumsy implementation of the Affordable Care Act. Nearly all harbor reservations about parts of the sweeping law. Some played key roles in killing previous Democratic efforts to widen healthcare coverage. But since 2010, they have invested billions of dollars to overhaul their businesses, design new insurance plans and physician practices and develop better ways to monitor quality and control costs. Few industry leaders want to go back to a system that most had concluded was failing, as costs skyrocketed and the ranks of the uninsured swelled. Nor do they see much that is promising from the law's Republican critics. The GOP has focused on repealing Obamacare, but has devoted less energy to developing a replacement

Obamacare Payment System to Insurers Changed in Setback - Parts of the Obamacare enrollment system used to pay insurers are being pushed back from January in the latest technology delay for the president’s U.S. health-care overhaul.  The administration is setting up a temporary process to send companies the federal subsidies used to help millions of Americans buy coverage because the online system won’t be ready as planned, said Aaron Albright, a spokesman for the Centers for Medicare & Medicaid Services. Insurers will estimate what they are owed rather than have the government calculate the bill.  The rollout of the Patient Protection and Affordable Care Act has been marred by missed deadlines for small businesses, broken promises to consumers and sticker shock over coverage prices., the main portal for consumers to shop for insurance plans, has been error-prone since its Oct. 1 debut and an administration official said this month that 30 percent to 40 percent of the online marketplace hasn’t been finished. Obama administration officials have said the troubled website will work for the vast majority of users by today. “This temporary process, which is consistent with how payments have been made to issuers in the Medicare program, will ensure that issuers begin to get premium tax credits and cost-sharing subsidy payments on time, beginning in January,” Albright said yesterday in a telephone interview.

Court to rule on birth-control mandate (UPDATED) - Taking on a new constitutional dispute over the Affordable Care Act, the Supreme Court on Tuesday agreed to hear religious challenges to the requirement that employers provide health insurance for their workers that includes birth control and related medical services.  The Court said it would decide constitutional issues, as well as claims under the Religious Freedom Restoration Act. The Court granted review of a government case (Sebelius v. Hobby Lobby Stores) and a private business case (Conestoga Wood Specialties Corp. v. Sebelius).  Taking the Conestoga plea brought before the Court the claim that both religious owners of a business and the business itself have religious freedom rights, based on both the First Amendment and RFRA.   The Hobby Lobby case was keyed to rights under RFRA. The Court also took on a new dispute over legal immunity for Secret Service agents when they take action while protecting the president (Wood v. Moss).  And it added a case on the status in bankruptcy of an Individual Retirement Account that someone has inherited, rather than set up personally (Clark v. Rameker).The Court did not expedite the briefing schedules for the new cases, so presumably they will be heard in March.  Moreover, the Court has already released its argument schedule for all sittings through the February session.

It Will Take Both Parties to Save Obamacare - Some conservative policy pundits are starting to imagine a detente over Obamacare, in which Republicans recognize the conservative nature of the law and support it in return for tweaks that advance their ideas. Liberals should be open to such a deal.   Even though Democrats passed it, the Affordable Care Act offers a hospitable environment for conservative reform. That’s not just because it incorporates aspects of a proposal from the conservative Heritage Foundation, closely resembles the health-care-reform bill that Mitt Romney signed in Massachusetts, and bears striking similarities to earlier proposals by Republican members of Congress. No, the reason the ACA may be good for conservatives is that it provides a sound chassis for many of their health-policy proposals. Some of us have been saying so for years; finally, some conservative thinkers are recognizing it too. In a recent op-ed, Paul Howard and Yevgeniy Feyman offer ideas that would “make Obamacare a Trojan horse for conservative health-care reform.” Ramesh Ponnuru, Yuval Levin and Ross Douthat have also proposed reforms consistent with Obamacare’s structure. Well, it’s about time! Imagine what could be accomplished if conservatives built a coalition for reasonable changes to the law, instead of wishfully thinking repeal was within reach: Democrats could rest easier about the law’s future, and Republicans could advance their priorities. With the basic structure in place, so much could be achieved with relatively modest change.

23andMe Is Terrifying, But Not for the Reasons the FDA Thinks - Last Friday the U.S. Food and Drug Administration (FDA) ordered the genetic-testing company immediately to stop selling its flagship product, its $99 “Personal Genome Service” kit. In response, the company cooed that its “relationship with the FDA is extremely important to us” and continued hawking its wares as if nothing had happened. Although the agency is right to sound a warning about 23andMe, it’s doing so for the wrong reasons. Since late 2007, 23andMe has been known for offering cut-rate genetic testing. Spit in a vial, send it in, and the company will look at thousands of regions in your DNA that are known to vary from human to human—and which are responsible for some of our traits.  At first, 23andMe seemed to angle its kit as a fun way to learn a little genetics using yourself as a test subject. (“bringing you personal insight into ancestry, genealogy, and inherited traits,” read the company’s website.)  That phase didn’t last for long, because there is much more interesting stuff in your genome than novelty items. Certain regions signal an increased risk of breast cancer, the impending onset of metabolic diseases, and sensitivity to medications. 23andMe—as well as a number of other companies—edged closer and closer to marketing their services as a way of predicting and even preventing health problems. And any kit intended to cure, mitigate, treat, prevent, or diagnose a disease is, according to federal law, a "medical device" that needs to be deemed safe and effective by the FDA. But as the FDA frets about the accuracy of 23andMe’s tests, it is missing their true function, and consequently the agency has no clue about the real dangers they pose. The Personal Genome Service isn’t primarily intended to be a medical device. It is a mechanism meant to be a front end for a massive information-gathering operation against an unwitting public.

The Good, Bad and Ugly of Genetically Modified Food - The debate continues whether genetically modified organisms are out to save the world or destroy it. But the argument from either side is far from cut-an-dry. Learn the backstory on a few of the most pressing issues.

Asian Seafood Raised on Pig Feces Approved for U.S. Consumers - At Ngoc Sinh Seafoods Trading & Processing Export Enterprise, a seafood exporter on Vietnam’s southern coast, workers stand on a dirty floor sorting shrimp one hot September day. There’s trash on the floor, and flies crawl over baskets of processed shrimp stacked in an unchilled room in Ca Mau. Elsewhere in Ca Mau, Nguyen Van Hoang packs shrimp headed for the U.S. in dirty plastic tubs. He covers them in ice made with tap water that the Vietnamese Health Ministry says should be boiled before drinking because of the risk of contamination with bacteria. Vietnam ships 100 million pounds of shrimp a year to the U.S. That’s almost 8 percent of the shrimp Americans eat. Using ice made from tap water in Vietnam is dangerous because it can spread bacteria to the shrimp, microbiologist Mansour Samadpour says, Bloomberg Markets magazine reports in its November issue.At Chen Qiang’s tilapia farm in Yangjiang city in China’s Guangdong province, which borders Hong Kong, Chen feeds fish partly with feces from hundreds of pigs and geese. That practice is dangerous for American consumers, says Michael Doyle, director of the University of Georgia’s Center for Food Safety. “The manure the Chinese use to feed fish is frequently contaminated with microbes like salmonella,”

World food security at risk as crop yields plateau (Thomson Reuters)–For the last decade and a half, a mysterious and worrisome trend has emerged in the farming world that has sent farmers, scientists and policy makers looking for answers. Crop yields – how much of a crop is harvested per hectare – for some of the world’s major grains like rice, wheat and corn have gone from increasing year after year to plateauing in many of the world’s biggest grain producers Until about the middle of the 20th century, the only way farmers knew to increase production was to increase the area of land they farmed. But around that time, science and farming came together, and the advent of artificial fertilisers, advanced irrigation systems and a surge in selective breeding changed the way farmers grew their crops. Suddenly, farmers could increase production without expanding farmland, and the global grain harvest exploded. From 1950 to 2011, the global grain harvest tripled, growing twice as much in those 61 years as it had in the history of agriculture before 1950, according to Lester Brown, founder of the Earth Policy Institute (EPI) and a food security expert.But Brown, once a farmer himself, said farmers knew it would not last forever.“The plateauing of grain yields is something we knew would come,” he said. “Farmers realize that there is a glass ceiling at some point that they can’t go beyond.” With increases in population adding to the demand for food but eating up the land on which to grow it, that could pose an increasingly serious problem.

Asia Times - The TPP and ill health -- Ellen Brown -Whether or not depopulation is an intentional part of the agenda, widespread use of GMO and glyphosate is having that result. The endocrine-disrupting properties of glyphosate have been linked to infertility, miscarriage, birth defects and arrested sexual development. In Russian experiments, animals fed GM soy were sterile by the third generation. Vast amounts of farmland soil are also being systematically ruined by the killing of beneficial microorganisms that allow plant roots to uptake soil nutrients.  In Gary Null's eye-opening documentary Seeds of Death: Unveiling the Lies of GMOs, Dr Bruce Lipton warns, "We are leading the world into the sixth mass extinction of life on this planet ... Human behavior is undermining the web of life."  As the devastating conclusions of these and other researchers awaken people globally to the dangers of Roundup and GMO foods, transnational corporations are working feverishly with the Barack Obama administration to fast-track the Trans-Pacific Partnership, a trade agreement that would strip governments of the power to regulate transnational corporate activities.  Negotiations have been kept secret from the US Congress but not from corporate advisors, 600 of whom have been consulted and know the details. According to Barbara Chicherio in Nation of Change: The Trans Pacific Partnership (TPP) has the potential to become the biggest regional Free Trade Agreement in history ... The chief agricultural negotiator for the US is the former Monsanto lobbyist, Islam Siddique. If ratified the TPP would impose punishing regulations that give multinational corporations unprecedented right to demand taxpayer compensation for policies that corporations deem a barrier to their profits. ... They are carefully crafting the TPP to insure that citizens of the involved countries have no control over food safety, what they will be eating, where it is grown, the conditions under which food is grown and the use of herbicides and pesticides.

Jack Keller: Understanding Peak Water -(interview, podcast) "A very, very large amount of our total food production is depending on a diminishing supply of water," remarks Jack Keller, one of our own regulars here in the community and an accomplished world expert on water management. Similar to oil and other key natural resources that are mined and consumed, water is subject to the same exponential trends. Both surface supply and underground fossil stores of clean water are depleting at alarming rates, and the energy and economic costs of extraction are swiftly increasing. Water is our most precious natural resource (well, perhaps after oxygen). Advances in irrigation in the past century ushered in tremendous prosperity (the "green revolution"), particularly in food production, power generation, and a dramatic increase in the supportable populations for vast regions of land. If the water supply in future years dwindles to less than today's, those societal gains are going to have to retreat to some extent. Jack sees us as "nearing the end of our string" in terms of the efficiencies new technologies can bring to water management. The story that's going to matter more is conservation -- how well we use what we have left. The good news is, he remains optimistic that a sustainable state can be reached. But unfortunately, the bad news is that Jack has little confidence our political leaders have any real plan to deal with the core issues.

Rapid Plankton Decline Puts The Ocean's Food Web In Peril - Springtime blooms of plankton — microscopic sea creatures that are the foundation of most marine ecosystems — were at the lowest levels ever seen off New England.The dramatic decline happened in the North Atlantic in first half of this year, scientists with the National Oceanic and Atmospheric Administration (NOAA) told the AP. It also coincided with sea surface temperatures from the mid-Atlantic to the Gulf of Maine that were the third-warmest on record, after an all-time high in 2012. Further south in the Atlantic there was more cooling, but overall warming throughout the oceans remains on a steady upward trend. The result is earlier warming events in the oceans over the past few years and NOAA scientists suspect the changes are affecting plant and animal reproduction.“The first six months of 2013 can be characterized by new extremes in the physical and biological environment,” said Kevin Friedland, a marine scientist with NOAA.Phytoplankton — the most basic form of plankton — are a massive part of the planet’s overall ecosystems: they account for roughly half the organic matter produced on Earth, produce half the oxygen in the atmosphere, draw carbon dioxide out of the air, and serve as the foundational food source for most of the oceans’ food webs.

Missing Data from Arctic One Cause of Pause in Temperature Rise - Keeping track of our planet's temperature is no easy task. The keepers of such long-term data sets, usually government institutions, know they have to account for numerous variations to keep a consistent measurement of temperatures through time. Without that, it is impossible to know how our world is changing. Yet today's thermometers are not the same as those 100 years ago. The time of day that temperature measurements are taken has changed. Then there's the issue of coverage -- where, exactly, those thermometers are located. In more remote places, there are fewer measurements. A new study finds that some of those missing measurements, particularly in the Arctic, which has recently warmed faster than any other part of the world, may have affected the trajectory of global temperatures in a key temperature data series. "Our best measurements only cover about five-sixths of the globe," The new study, accepted for publication in the Quarterly Journal of the Royal Meteorological Society, suggests one of the reasons for the apparent slowdown in warming might lie in the fact that the Arctic, which has been warming much, much faster than the rest of the world, is under-represented in the HadCRUT4 temperature series.

No Global Warming 'Pause,' Planet Warming Much Faster Than Previously Thought: Report - The planet may be warming much more – and much faster – in recent years than many experts have believed, according to a new study released this week by the U.K.-based Royal Meteorological Society.Prepared by British and Canadian researchers, the study reports that the rise in global temperatures over the past 15 years has been significantly underestimated due to gaps in temperature data around the world, largely in Earth's polar regions. “It turns out that we only have surface measurements over about 84 percent of the globe," said Weather Underground's Dr. Jeff Masters, noting that there are no direct measurements of temperatures in places like the Arctic even today, especially across its vast stretches of sea ice. Relying on weather station data to determine globally averaged temperature trends, as points out, has a long-acknowledged weak spot: temperature records in places like Antarctica began only in the 1950s, and they're extremely limited even today in much of the Arctic and parts of Africa.Leaving out these parts of the planet means that the most widely-used global temperature data sets – like the U.K. Met Office's Hadley Center observations and NOAA's National Climatic Data Center – estimated that these regions were warming at the same rate as the rest of the world. Using satellite data to fill in those gaps, the study found that global surface temperatures have been warming 2 1/2 times faster over the past 16 years than previously believed, calling into dispute the widely-reported global warming "pause," the observed slowdown in the rise of global temperatures since 1997 despite steadily-increasing amounts of greenhouse gases in the atmosphere.

Global Warming Paws Fails to Materialise: Earth Still Warming and Global Sea Level Rising Like Gangbusters - Human industrial activity burns fossil fuels which then release planet-warming greenhouse gases into the atmosphere thereby causing the Earth to warm. Most of this "extra" heat goes into the ocean (some 93.4% over the last few decades) and the rest goes into heating the land, global ice, and atmosphere (2.3%)All these Earthly heat reservoirs are warming, resulting in the global-scale loss of land-based ice from mountain glaciers and the polar ice sheets, and the rise of global sea level. Indeed the rate of sea level rise, although complicated by a handful of factors, has risen at a much greater rate over the last two decades (the period of satellite-based observation) than it did during the rest of the 20th century. Despite these observations clearly indicating ongoing heat accumulation by the Earth's climate system, climate science contrarians and some mainstream media have been hard out propagating the myth that global warming has paused. This, of course, relies on the time-honoured contrarian tradition of cherry picking - one of the five characteristics of scientific denial. Surface air temperatures have recently warmed at a slightly slower rate partly due a temporary increase in tropical and mid-latitude wind strength which mixes more heat down into the ocean. Contrarians and some media outlets have misconstrued this slower warming of surface air temperatures for a pause in global warming. The ocean is by far the largest heat reservoir on Earth and the stronger ocean warming means, counterintuitively, that global warming has increased at a faster rate in recent times.

NPS researchers predict summer Arctic ice might disappear by 2016, 84 years ahead of schedule -- Tucked away on the third floor of the Naval Postgraduate School’s building of Engineering and Applied Sciences, a small team of researchers is leading an effort that will change the way the world thinks about the world. Their project is the Regional Arctic System Model (RASM), and it is arguably the most advanced – and accurate – Arctic climate model in existence. Lt. Dominic DiMaggio describes the area captured by NPS’s innovative Arctic climate model, a project involving 25 researchers and graduate students from 10 institutions. Then, almost 60 dizzying minutes later, he just as casually points to a graph showing a RASM projection for melting Arctic sea ice, a phenomenon that occurs every summer but has been accelerated by climate change: By the summer of 2016, the Arctic Ocean could be ice-free, opening the door to vast reserves of fossil fuel, and eventually, freeing up a shipping lane between Europe and Asia. NPS Professor Wieslaw Maslowski, who leads the team of researchers behind RASM, says 2016 is at “the lower bound” of the current range of projections, while DiMaggio calls it “an aggressive interpretation” of RASM. But most conventional climate models predict the Arctic won’t have a sea ice-free summer until 2100. So why is the RASM model so different? Mainly, it’s a matter of scope. Because most climate models are projecting the global climate, there is not enough computing power to account for what can often be key regional details.

Learning to Live in the Anthropocene - The 19th Conference of the Parties (COP19) is now underway in Warsaw, Poland, where thousands have gathered in the streets calling upon UN delegates to agree to drastic reductions in carbon emissions in order to stave off the harshest results of climate change and preserve human life on this planet.That's why I was a little distressed in reading Roy Scranton's recent opinion piece in The New York Times, “Learning how to die in the Anthropocene.” The words of the Russian poet Vladimir Mayakovsky came to mind. I believe a translation goes something like: “In this life / it's not hard to die. But to make life / is trickier by far.” Scranton's tour of duty in Iraq and his time spent providing relief in post-Katrina New Orleans gave him a glimpse of an apocalyptic future; a time when ruination and havoc will not confine themselves to war zones surgically chosen by the Pentagon, and when superstorms are commonplace. He asks us to ponder what it means to live in the Anthropocene Epoch, as emissions of heat-trapping greenhouse gases lead to an uptick in droughts, floods and food shortages. For Scranton, however, the answer lies in learning to die. “The biggest problem we face,” he writes, “is a philosophical one: understanding that this civilization is already dead. The sooner we confront this problem, and the sooner we realize there’s nothing we can do to save ourselves, the sooner we can get down to the hard work of adapting, with mortal humility, to our new reality.”Again, a poet offers an apt response from beyond the grave: “Do not go gentle into that good night. / Rage, rage against the dying of the light.”

Global Warming Threatens Pacific Economies, Report Says -- Rising temperatures might sound nice for people planning a beach vacation. But for Pacific Island nations, global warming poses a big threat to their ability to capture tourist dollars, according to the Asian Development Bank. In a report Tuesday, the Manila-based lender says sun-baked tropical nations from Samoa to the Cook Islands that rely on tourism income could become less attractive destinations as global temperatures rise. Damage to coral reefs prized by divers and snorkelers, rapid erosion of sandy beaches and more frequent weather events like tropical storms could shave one-third off tourism revenue in the Pacific region by the end of the century, the ADB said. That doesn’t even include the effects of coastal flooding, coral bleaching, decline of fishing stocks and increased health risks, the bank said. “The weather patterns have changed,” said Christine McCann, head of sales and marketing for Jean-Michel Cousteau Resort on Vanua Levu, Fiji’s second largest island. Staff members at the picturesque resort have planted mangroves to prevent coastal erosion, replant broken coral so it can be returned eventually to the nearby reef, and avoid fishing on the reef.

    U.N. climate talks impasse ends as China and India drop demands — Avoiding a last-minute breakdown, annual U.N. climate talks limped forward Saturday with a modest set of decisions meant to pave the way for a new pact to fight global warming. More than 190 countries agreed in Warsaw to start preparing “contributions” for the new deal, which is supposed to be adopted in 2015.That term was adopted after China and India objected to the word “commitments” in a standoff with the United States and other developed countries. The fast-growing economies say they are still developing countries and should not have to take on commitments to cut carbon emissions as strict as those of industrialized nations. “In the nick of time, negotiators in Warsaw delivered just enough to keep things moving,” said Jennifer Morgan of the World Resources Institute, an environmental think tank. The conference also advanced a program to reduce deforestation and established a “loss and damage” mechanism to help island states and other vulnerable countries under threat from rising seas, extreme weather and other climate problems. The wording was vague enough to make rich countries feel comfortable that they were not going to be held liable for climate catastrophes in the developing world.

    The Warsaw Climate Negotiations, and Reason for Cautious Optimism - The Nineteenth Conference of the Parties (COP-19) of the United Nations Framework Convention on Climate Change (UNFCCC) came to a close in Warsaw, Poland, on Saturday, November 23rd, after what has become the norm – several all-night sessions culminating in last-minute negotiations that featured diplomatic haggling over subtle changes to the text on which countries were finally willing to agree.  The key task of this COP was essentially to pave the way for the negotiations next year at COP-20 in Lima, Peru, as a lead-up to the real target, reaching a new international climate agreement at the 2015 negotiations in Paris to be implemented in 2020, when the second commitment period of the Kyoto Protocol comes to an end.  If that was the key objective, then the Warsaw meetings must be judged to be at least a modest success – the baton was not dropped, rather it was passed successfully in this long relay race of negotiations.

    Cristian Suteanu: Arctic warming almost certainly man-made - A geography and environmental science professor at Saint Mary’s University in Halifax has been analyzing temperature data from the far north and says he’s almost certain the warming in the Arctic is caused by humans.  Cristian Suteanu has been looking at data from weather stations in Canada, Norway and Russia and said it’s almost improbable that the warming trend he’s seeing could be caused by natural variability. “The temperatures on one day are not independent from the temperature of the next day or the next week, the next month and — it might sound surprising — the next year or the next decade. All the values are correlated with each other,” he told CBC’s Mainstreet. “If you include that type of correlation in your analysis, the conclusion is that the warming, indeed, is more compelling. Even more importantly, it is even more improbable for the warming to occur naturally so we have to think of an anthropogenic source.” Suteanu’s analysis of the temperature data will be published in a peer-reviewed journal called Pattern Recognition In Physics. He said the scale of climate change and what’s happening to the planet is scary. “You can’t avoid a feeling, a kind of shivering feeling,” said Suteanu.

    US spewing 50% more methane than EPA says — The United States is spewing 50 percent more methane — a potent heat-trapping gas — than the federal government estimates, a new comprehensive scientific study says. Much of it is coming from just three states: Texas, Oklahoma and Kansas. Related StoriesThat means methane may be a bigger global warming issue than thought, scientists say. Methane is 21 times more potent at trapping heat than carbon dioxide, the most abundant global warming gas, although it doesn't stay in the air as long. Much of that extra methane, also called natural gas, seems to be coming from livestock, including manure, belches, and flatulence, as well as leaks from refining and drilling for oil and gas, the study says. It was published Monday in the Proceedings of the National Academy of Science. The study estimates that in 2008, the U.S. poured 49 million tons of methane into the air. That means U.S. methane emissions trapped about as much heat as all the carbon dioxide pollution coming from cars, trucks, and planes in the country in six months. That's more than the 32 million tons estimated by the U.S. Environmental Protection Administration or the nearly 29 million tons reckoned by the European Commission.

    Arctic Seafloor Methane Releases Double Previous Estimates: The seafloor off the coast of Northern Siberia is releasing more than twice the amount of methane as previously estimated, according to new research results published in the Nov. 24 edition of the journal Nature Geoscience. ... "Increased methane releases in this area are a possible new climate-change-driven factor that will strengthen over time." Methane is a greenhouse gas more than 30 times more potent than carbon dioxide. On land, methane is released when previously frozen organic material decomposes. In the seabed, methane can be stored as a pre-formed gas or asmethane hydrates. As long as the subsea permafrost remains frozen, it forms a cap, effectively trapping the methane beneath. However, as the permafrost thaws, it develops holes, which allow the methane to escape. These releases can be larger and more abrupt than those that result from decomposition. ... Methane is an important factor in global climate change, because it so effectively traps heat. As conditions warm, global research has indicated that more methane is released, which then stands to further warm the planet. Scientists call this phenomenon a positive feedback loop. "We believe that the release of methane from the Arctic, and in particular this part of the Arctic, could impact the entire globe," Shakhova said.

    Shakhova & Semiletov: East Siberian Arctic Shelf is venting at least 17 teragrams of the methane, double previous estimates, now on par with terrestrial permafrost release — The seafloor off the coast of Northern Siberia is releasing more than twice the amount of methane as previously estimated, according to new research results published in the Nov. 24, 2013, edition of the journal Nature Geoscience.  The East Siberian Arctic Shelf is venting at least 17 teragrams of the methane into the atmosphere each year. A teragram is equal to 1 million tons.  "It is now on par with the methane being released from the Arctic tundra, which is considered to be one of the major sources of methane in the Northern Hemisphere," said Natalia Shakhova, one of the paper's lead authors and a scientist at the University of Alaska Fairbanks. "Increased methane releases in this area are a possible new climate-change-driven factor that will strengthen over time." Methane is a greenhouse gas more than 30 times more potent than carbon dioxide. On land, methane is released when previously frozen organic material decomposes. In the seabed, methane can be stored as a pre-formed gas or asmethane hydrates. As long as the subsea permafrost remains frozen, it forms a cap, effectively trapping the methane beneath. However, as the permafrost thaws, it develops holes, which allow the methane to escape. These releases can be larger and more abrupt than those that result from decomposition. The findings are the latest in an ongoing international research project led by Shakhova and Igor Semiletov, both researchers at the UAF International Arctic Research Center. Their twice-yearly Arctic expeditions have revealed that the subsea permafrost in the area has thawed much more extensively than previously thought, in part due to warming water near the bottom of the ocean. The warming has created conditions that allow the subsea methane to escape in much greater amounts than their earlier models estimated. Frequent storms in the area hasten its release into the atmosphere, much in the same way stirring a soda releases the carbonation more quickly.

    Methane blind spot - could be much bigger than we think  - The potent greenhouse gas methane (CH4) is given short shrift in climate science, and that's not even considering the methane hydrate or permafrost thaw issues. In fact, sustained methane levels from microbe-generated methane (microbial methanogenesis) could dwarf an Arctic methane hydrate pulse from the East Siberian Shelf. Current climate models ignore this issue. They use a set of prescribed greenhouse gas levels to run their simulations, and they generally follow the same standardized prescriptions, the RCP scenarios. These RCP scenarios assume that today's atmospheric methane level rises and falls only as a result of direct human activity. This activity is mostly things like methane-producing farming practices and methane releases from burning fossil-fuels.  But looking at the paleoclimate data for the past 800,000 years shows that methane is closely tied to carbon dioxide levels and temperature. I believe that it's reasonable this relationship will persist, and that therefore very faulty assumptions of methane levels underlie each of the four standard RCP (representative concentration pathway) scenarios. This is a serious problem because these pathways form the basis for almost all climate science studies and evaluations of potential impacts.   What's more, in the RCP scenarios, because methane is presumed to be entirely now under human direct control, its level remains at today's atmospheric concentration or even falls below it, despite significantly higher CO2 levels (even in the lowest RCP2.6, CO2 reaches about 450 ppm), except for just one scenario, the worst-case¹ scenario, RCP8.5. This worst-case scenario is used less often out of the four central scenarios for evaluating future impacts of global warming. In other words, the projections for agricultural output, sea level rise, temperature rise, rates of species extinction, droughts, and so on, are all based on what appears to be far-too optimistic assumptions about methane.

    The 'Ticking Time Bomb' That Could Cause Such Rapid Global Warming We'd Be Unable to Prevent Extinction -- If, 250 million years ago, you were standing thousands of miles away from what is now Siberia in the first years of the Permian Mass Extension, probably the most you would notice is an odd change in the weather and a reddish hue in the northern sky. What you wouldn’t know, and probably your children wouldn’t even realize –although their grandchildren probably would – is that a tipping point had already been passed, and an extinction – an unstoppable one – was already underway. Extinction? What could get America’s leading experts on climate change to agree on something that the average American has probably never even heard of? Methane. Methane is a far more potent greenhouse gas than carbon dioxide, and there are trillions of tons of it embedded in a sort of ice slurry called methane hydrate or methane clathrate crystals in the Arctic and in the seas around continental shelves from North America to Antarctica. If enough of this methane is released quickly enough, it won’t just produce “Global warming.” It could produce an extinction of species on a wide scale – an extinction that could even include the human race. If there is a “ticking time bomb” in our biosphere that could lead to a global warming so rapid and sudden that we would have no way of dealing with it, it’s methane.

    Methane Tracker - A very interesting site called Methane Tracker shows atmospheric methane over the Arctic.Best viewed when choosing the layers from 650 mb / 11775 feet through 469 mb / 19819 feet. . Take note that there is plenty of methane coming from other shelves around the Arctic, in particular off Greenland

    Solar Dominates New US Generating Capacity - Big solar’s big year just keep getting bigger. The monthly energy infrastructure report from the Federal Energy Regulatory Commission [PDF], which tracks utility-scale projects, shows that through October, 190 solar units totaling 2,528 megawatts in installed capacity had been added in 2013. That’s more than double the 1,257 MW for the same period in 2012, and constitutes 21 percent of all new electrical generating capacity this year. Through the first three quarters of last year, solar had accounted for just 7 percent of new capacity additions in the year.  October, in particular, was a huge month for utility-scale solar, with the five projects with capacities in double figures coming online – the 280-MW Solana Generating Station in Arizona; 139-MW Campo Verde Solar project in Imperial County, Calif., a 36-MW final phase of the 249-MW California Valley Solar Ranch in San Luis Obispo County, Calif.; the 30 MW Spectrum Solar project in Clark County, Nev.; and the 10-MW Indianapolis International Airport Solar Farm Phase 1. As the Solar Energy Industries Association gleefully pointed out on Monday, “12 new solar units accounted for 504 MW or 72.1 percent of all new capacity last month” in the United States.

    Canada’s Most Populated Region Is Banning Coal Forever - On Thursday, the Premier of Canada’s most populous and second-largest province announced the upcoming closure of its last coal-fired electricity plant. When that happens, there will be no more coal in Ontario.  Over the next year, Ontario’s Thunder Bay Generating Station will be converted to a so-called “advanced” biomass plant, which is not plainly described in Premier Kathleen Wynne’s announcement but seems to describe new ways of breaking down natural material, or biomass, into useable materials for biofuels. While biofuel is generally created using steam explosion — a process in which biomass is treated with hot steam under pressure — advanced biomass uses chemicals like liquid salts or glycerol to pre-treat the natural materials. The union representing Ontario’s hydro-power workers lauded the announcement, saying advanced biofuels are renewable, carbon-neutral and domestically sourced, therefore good for the economy.  “Europe’s electricity sector has been benefiting from the use of carbon-neutral biomass, much of it imported from Canada, for decades,” Power Workers Union President Don MacKinnon said in a statement. “Ontario’s vast farm and forest sourced biomass — wood wastes, agricultural residues and purpose grown crops — provides our province with a unique energy advantage.”

    Huge area around Fukushima to be waste disposal site-- The Japanese government said it plans to buy 9.3 square miles of land surrounding the devastated Fukushima nuclear power plant for a waste storage facility. The area the government plans to acquire spans three towns surrounding the nuclear power station that melted down after a devastating earthquake and tsunami in March 2011. The massive plot the government plans to buy includes a buffer zone surrounding plant officials have deemed uninhabitable because of sustained radiation levels, Kyodo News said Saturday. The Japanese environment ministry said it is setting aside about $200 billion to acquire the land, which will serve as the ultimate holding center for anything tainted by radiation from the Fukushima disaster. Residents whose home are within the plot will not be permitted to return but will be compensated for their homes. About 150,000 people from the area surrounding the plants remain in temporary housing. The full cost of the cleanup effort is expected to top $1 trillion, the government said.

    Yakuza forcing homeless people to work on the Fukushima nuclear plant clear-up - Japan's notorious Yakuza gangsters are forcing homeless people to join the desperate clear-up effort at the Fukushima nuclear plant before simply firing them when they suffer high doses of radiation, it has been claimed. Tokyo Electric Power Company (Tepco) which operates the plant have been struggling to recruit workers who are desperately needed to join the hazardous operation dismantling the plant. As a result Tepco subcontractors reportedly reached out out to the Yakuza for help. The gangsters are said to often provide workers at short notice for large scale construction projects. The workers say they were not made aware of the risks and say they have been treated like 'disposable people'.  Russian news network RT reports one former worker as saying: 'We were given no insurance for health risks, no radiation meters even.  'We were treated like nothing, like disposable people – they promised things and then kicked us out when we received a large radiation doze. 'They promised a lot of money, even signed a long-term contract, but then suddenly terminated it, not even paying me a third of the promised sum.'

    Japan Reacts to Fukushima Crisis By Banning Journalism -- We noted earlier this month:Japan will likely pass a new anti-whistleblowing law in an attempt to silence criticism of Tepco and the government:Japanese Prime Minister Shinzo Abe’s government is planning a state secrets act that critics say could curtail public access to information on a wide range of issues, including tensions with China and the Fukushima nuclear crisis. The new law would dramatically expand the definition of official secrets and journalists convicted under it could be jailed for up to five years.In reality, reporters covering Fukushima have long been harassed and censored. Unfortunately, this is coming to pass. As EneNews reports: Associated Press, Nov. 26, 2013: Japan’s more powerful lower house of Parliament approved a state secrecy bill late Tuesday [...] Critics say it might sway authorities to withhold more information about nuclear power plants [...] The move is welcomed by the United States [...] lawyer Hiroyasu Maki said the bill’s definition of secrets is so vague and broad that it could easily be expanded to include radiation data [...] Journalists who obtain information “inappropriately” or “wrongfully” can get up to five years in prison, prompting criticism that it would make officials more secretive and intimidate the media. Attempted leaks or inappropriate reporting, complicity or solicitation are also considered illegal. [...] BBC, Nov. 26, 2013: Japan approves new state secrecy bill to combat leaks [...] The bill now goes to the upper house, where it is also likely to be passed.

    Bridge Out: Bombshell Study Finds Methane Emissions From Natural Gas Production Far Higher Than EPA Estimates A major new study blows up the whole notion of natural gas as a short-term bridge fuel to a carbon-free economy. Natural gas is mostly methane (CH4), a potent heat-trapping gas. If, as now seems likely, natural gas production systems leak 2.7% (or more), then gas-fired power loses its near-term advantage over coal and becomes more of a gangplank than a bridge. Worse, without a carbon price, some gas displaces renewable energy, further undercutting any benefit it might have had. Fifteen scientists from some of the leading institutions in the world — including Harvard, NOAA and Lawrence Berkeley National Lab — have published a seminal study, “Anthropogenic emissions of methane in the United States.” Crucially, it is based on “comprehensive atmospheric methane observations, extensive spatial datasets, and a high-resolution atmospheric transport model,” rather than the industry-provided numbers EPA uses.  The US EPA recently decreased its CH4 emission factors for fossil fuel extraction and processing by 25–30% (for 1990–2011), but we find that CH4 data from across North America instead indicate the need for a larger adjustment of the opposite sign. How much larger? The study found greenhouse gas emissions from “fossil fuel extraction and processing (i.e., oil and/or natural gas) are likely a factor of two or greater than cited in existing studies.” In particular, they concluded, “regional methane emissions due to fossil fuel extraction and processing could be 4.9 ± 2.6 times larger than in EDGAR, the most comprehensive global methane inventory.” This suggests the methane leakage rate from natural gas production, which EPA recently decreased to about 1.5%, is in fact 3% or higher.This broad-based look at methane emissions confirms the findings of 3 recent leakage studies covering very different regions of the country:

    As Marcellus Shale loses momentum, a reassessment - The Marcellus Shale industry, which arrived in this northern Pennsylvania city five years ago and turned Williamsport into the seventh-fastest-growing area in the nation, appears to have lost some momentum. Economic activity in this city affectionately known as "Billtown" has subsided noticeably in the last year as the pace of drilling natural gas wells slowed in response to low gas prices. Statewide, exploration companies drilled 30 percent fewer wells in 2012 and are on course to drill even fewer this year. About half as many drilling rigs are operating in Pennsylvania now as in early 2012, when the rigs began moving to more lucrative oil-producing regions.In Lycoming County, motels and restaurants are not so crowded these days - hotel-tax revenue was off last year by 13 percent after doubling the previous three years. Fewer out-of-state pickup trucks swarm the fuel pumps at the Sheetz stations.But local civic and business leaders insist the shale-gas industry has not gone bust. They say that it has merely taken a breather, and that all signs point to a long-term boost for this region.

    U.K. Water, Gas Lobbies Sign Agreement to Minimize Fracking Risk - U.K. water and fossil-fuel industry lobbies agreed to work together to seek to minimize the risk of drilling for shale gas for the country’s water supply. Water U.K., after reviewing recent reports into shale gas extraction, believes threats can be mitigated as long as rules are enforced, the two groups said in an e-mailed statement. The hydraulic fracturing technique cracks open fossil-fuel deposits using high volumes of pressurized water mixed with chemicals. The industry is still emerging in the U.K. with Cuadrilla Resources Ltd. the only driller to have fracked for shale gas. The method is criticized by campaigners and local groups who say there is a threat of contaminating ground water. Fracking one well requires about 5 million gallons of water on average. Water U.K. signed a memorandum of understanding with U.K. Onshore Operators Group, representing the onshore oil and gas industry, to help minimize any effects on water resources. Their members will monitor the effect on quality and quantity of local resources, the composition and disposal of waste water and the long-term demand of explorers with expansion plans. “Our members are determined to ensure any potential risks of shale extraction are minimized,” Water U.K. Chief Executive Officer Pamela Taylor said in the statement. The agreement gives water companies “a crucial extra layer of safeguards” beyond current rules to ensure supplies are protected, she said.

    Fracking Bonanza Eludes Wastewater Recycling Investors - After two years searching for a blockbuster investment in oilfield water management, fund manager Judson Hill is still holding on to his money. Hill’s NGP Energy Capital Management saw potential in what looked like a hot growth area in energy: treating and recycling the 21 billion barrels of wastewater flowing annually from U.S. oil and natural gas wells -- particularly from shale. Instead, it found the market “too fragmented and too frothy,” said Hill, a managing director at the private equity firm in Texas whose latest fund has invested $3.6 billion. “It’s not as though we look back and say, ’Wow, half the ones we passed on were just home runs.’ They weren’t.” Cleaning up water in the oil patch is a tougher slog than many expected. Geology and water chemistry vary so much by location that no one has devised a cheap, one-size-fits-all technology to convince most producers to recycle. While NGP and its peers have successfully invested in U.S. shale producers, picking a winner in water treatment eludes even Schlumberger Ltd. (SLB), the world’s largest oilfield services provider. Schlumberger jumped into water recycling years ago envisioning a fast-growing, vibrant new specialty. “We’ve spent millions and millions of dollars evaluating virtually every available and reasonable-looking technology out there, always hoping we’d find the silver bullet,” said Mark Kidder, who runs Schlumberger’s oilfield water management unit. “At this point, we found nothing.”

    Obama Approves Major Border-Crossing Fracked Gas Pipeline Used to Dilute Tar Sands - Steve Horn - Although TransCanada's Keystone XL tar sands pipeline has received the lion's share of media attention, another key border-crossing pipeline benefiting tar sands producers was approved on November 19, 2013, by the U.S. State Department. Enter Cochin, Kinder Morgan's 1,900-mile proposed pipeline to transport gas produced via the controversial hydraulic fracturing ("fracking") of the Eagle Ford Shale basin in Texas north through Kankakee, Illinois, and eventually into Alberta, Canada, the home of the tar sands. Like Keystone XL, the pipeline proposal requires U.S. State Department approval because it crosses the U.S.-Canada border. Unlike Keystone XL -- which would carry diluted tar sands diluted bitumen ("dilbit") south to the Gulf Coast -- Kinder Morgan's Cochin pipeline would carry the gas condensate (diluent) used to dilute the bitumen north to the tar sands."The decision allows Kinder Morgan Cochin LLC to proceed with a $260 million plan to reverse and expand an existing pipeline to carry an initial 95,000 barrels a day of condensate," the Financial Post wrote. "The extra-thick oil is typically cut with 30% condensate so it can move in pipelines. By 2035, producers could require 893,000 barrels a day of the ultra-light oil, with imports making up 786,000 barrels of the total."

    Black Smoke Friday: Missouri Gas Pipeline Explosion Causes 300-Foot Fireball - A 30-inch gas gas pipeline in a rural area of western Missouri ruptured and exploded early Friday morning and sent a 300 foot high fireball into the air, Fox 4 news reports. NBC station KOMU reported that the glow from the burning Panhandle Eastern Pipeline could be seen for miles. There were no injuries or fatalities, but three homes within a half-mile of the blast were evacuated. The blaze took more than two hours to extinguish and by mid-morning on Friday the residents had been allowed back in, according to Fox. Local news reports said that by morning, a “smoldering moon-like crater” could be seen at the site of the explosion. The flames also destroyed seven buildings on a nearby hog farm. One commenter on KOMU’s report said the fire “lit up the whole area like it was daytime.” Some residents reported their homes were shaking.  The explosion can be seen here courtesy of YouTube user John Pahlow:

    US Court Denies Halt on Pipeline Set to Replace Keystone XL Northern Half - A story covered only by McClatchy News' Michael Doyle, Judge Ketanji Brown Jackson shot down Sierra Club and National Wildlife Federation's (NWF) request for an immediate injunction in constructing Enbridge's Flanagan South tar sands pipeline in a 60-page ruling.. That 600-mile long, 600,000 barrels per day proposed line runs from Flanagan, Illinois - located in the north central part of the state - down to Cushing, Oklahoma, dubbed the "pipeline crossroads of the world." The proposed 694-mile, 700,000 barrels per day proposed Transcanada Keystone XL northern half also runs to Cushing from Alberta, Canada and requires U.S. State Department approval, along with President Barack Obama's approval.   Because Flanagan South is not a border-crossing line, it doesn't require the State Department or Obama's approval. If Keystone XL's northern half's permit is denied, Flanagan South - along with Enbridge's proposal to expand its Alberta Clipper pipeline, approved by Obama's State Department during Congress' recess in August 2009 - would make up that half of the pipeline's capacity and then some. Sierra Club and NWF argued for an injunction - or halt - in constructing and pumping tar sands through Flanagan South until the legality of issuing a Nationwide Permit 12 is decided, an issue still awaiting the decision of Judge Jackson. Like the Keystone XL southern half case, Nationwide Permit 12 was used instead of going through the National Environmental Policy Act (NEPA).  NEPA - unlike the fast-track Nationwide Permit 12 - requires the EPA to issue a full draft Environmental Impact Statement and final Environmental Impact Statement, with 1-2 month public commenting periods following each Statement. Use of Nationwide Permit 12 has quickly become a "new normal" for fast-track approval of tar sands pipelines and other controversial domestic energy infrastructure projects. 

    Will Rail Become the Next Target of Oil Protests? - A watchdog report said the Canadian government isn't doing enough to ensure the rail transport industry is monitored effectively. With rail one of the few viable alternatives to pipelines, the concern may add another layer of frustration to the North American energy debate. "Transport Canada [the nation's transportation regulator] needs to address significant weaknesses in its oversight of safety management systems," Auditor General Michael Ferguson said. More than 40 people died in July when a train carrying crude oil from North Dakota derailed in Lac-Megantic, Quebec. Canadian Prime Minister Stephen Harper said parts of Quebec looked like a "war zone" following the wreck. There are some 27,000 miles of track in Canada carrying more than 50 percent of the goods transported by land. Oil production increases in North America, meanwhile, mean more petroleum products are delivered by rail because there aren't enough pipelines to keep up. Railway operators in Canada were told in 2001 to take steps to better their safety policies through training and risk control strategies. Ferguson, however, said Transport Canada completed about a quarter of the work necessary and questioned the skills of the inspectors themselves. Transport Canada's policies are "not robust enough to know that the companies are doing what they need to do to make sure their safety systems are working as they should be," he said.

    Toil for oil means industry sums do not add up - The most interesting message in this year’s World Energy Outlook from the International Energy Agency is also its most disturbing. Over the past decade, the oil and gas industry’s upstream investments have registered an astronomical increase, but these ever higher levels of capital expenditure have yielded ever smaller increases in the global oil supply. Even these have only been made possible by record high oil prices. This should be a reality check for those now hyping a new age of global oil abundance.However, less than one-third of this increase was in the form of conventional crude oil, and more than two-thirds was therefore either what the IEA calls unconventional crude (light-tight oil, oil sands, and deep/ultra-deepwater oil) or natural-gas liquids (NGLs). This distinction matters because unconventional crude has a higher cost than conventional crude, while NGLs have a lower energy density. The IEA’s long-run cost curve has conventional crude in a range of $10-$70 a barrel, whereas for unconventional crude the ranges are higher: $50-$90 a barrel for oil sands, $50-$100 for light-tight oil, and $70-$90 for ultra-deep water. Meanwhile, in terms of energy content, a barrel of crude oil is worth 1.4 barrels of NGLs. The much higher cost of developing unconventional crude resources and the lower energy density of NGLs explain why, as these sources have increased their share of supply, the industry’s upstream capex has increased. But the sheer scale of the increase is staggering: upstream outlays have risen more than threefold in real terms over the past 12 years, reaching nearly $700bn in 2012 compared with only $250bn in 2000 (both figures in constant 2012 dollars).

    Breathing Life into Egypt’s Dying Energy Sector: When Egyptian strongman Hosni Mubarak was taken down in the 2011 revolution, the energy sector went with him. Since then, it has been a long stream of bad news for the sector and its foreign investors, most of whom had to withdraw non-essential personnel in the violent aftermath of the 2 July 2013 coup that overthrew yet another leader, the Muslim Brotherhood’s Mohamed Morsi. Now, with the energy sector pretty much out of control, domestic demand on the rise with shortfalls threatening further stability, foreign reserves plummeting and $6 billion in arrears owned to foreign investors, the interim military-backed government is trying to put things right—sort of. Late October and early November have seen some indications of compromise over the energy sector, but not nearly enough. Domestic production was largely halted with the Arab Spring, and while the government is hoping for a revival it is limiting the playing field to the onshore ventures because there’s no incentive for investors to hit the gas-rich ultra-deep.Onshore, the interim government has signed nine new oil and gas exploration deals representing new investment of $470 million that should see the drilling of 15 new wells in the Gulf of Suez, the chaotic Sinai and the eastern (Nubian) and western deserts. Then, during the first week of November, Egypt signed five more agreements for $115.5 million with Canada’s TransGlobe Energy (TGA) and Greece’s Vegas Oil and gas—again, onshore. These deals come on the heels of rumors that international oil companies were planning to halt their production in Egypt due to unpaid debts.

    World powers reach nuclear deal with Iran to freeze its nuclear program - — Iran and six major powers agreed early Sunday on a historic deal that freezes key parts of Iran’s nuclear program in exchange for temporary relief on some economic sanctions. The agreement requires Iran to halt or scale back parts of its nuclear infrastructure, the first such pause in more than a decade. Iranian Foreign Minister Mohammad Javad Zarif hailed the deal, which was reached after four days of hard bargaining, including an eleventh-hour intervention by Secretary of State John F. Kerry and foreign ministers from Europe, Russia and China. “It is important that we all of us see the opportunity to end an unnecessary crisis and open new horizons based on respect, based on the rights of the Iranian people and removing any doubts about the exclusively peaceful nature of Iran’s nuclear program,” Zarif told reporters in English. “This is a process of attempting to restore confidence.” The deal, intended as a first step toward a more comprehensive nuclear pact to be completed in six months, freezes or reverses progress at all of Iran’s major nuclear facilities, according to Western officials familiar with the details. It halts the installation of new centrifuges used to enrich uranium and caps the amount and type of enriched uranium that Iran is allowed to produce. Iran also agreed to halt work on key components of a heavy-water reactor that could someday provide Iran with a source of plutonium. In addition, Iran accepted a dramatic increase in oversight, including daily monitoring by international nuclear inspectors, the officials said.

    Special Report: 'Great Satan' meets 'Axis of Evil' and strikes a deal (Reuters) - Saturday night had turned into Sunday morning and four days of talks over Iran's nuclear program had already gone so far over schedule that the Geneva Intercontinental Hotel had been given over to another event. At the last minute, with the ministers already gathered in the room, an Iranian official called seeking changes. Negotiators for the global powers refused. Finally the ministers were given the all clear. The deal, a decade in the making, would be done at last. Now that the interim deal is signed, talks are far from over as the parties work towards a final accord that would lay to rest all doubts about Iran's nuclear program."Now the really hard part begins," Kerry told reporters. "We know this."The deal, which represents the most important thaw between the United States and Iran in more than three decades since Iranian revolutionaries held 52 American hostages in the U.S. embassy in Tehran, very nearly did not happen.There was still ample ground to cover on the final day, when U.S. Secretary of State John Kerry arrived, joining foreign ministers from Britain, China, France, Germany and Russia.

    Obama: Iran nuclear deal limits ability to create nuclear weapons (CNN) -- A historic deal was struck early Sunday between Iran and six world powers over Tehran's nuclear program that slows the country's nuclear development program in exchange for lifting some sanctions while a more formal agreement is worked out. The agreement -- described as an "initial, six-month" deal -- includes "substantial limitations that will help prevent Iran from creating a nuclear weapon," U.S. President Barack Obama said in a nationally televised address.The deal, which capped days of marathon talks, addresses Iran's ability to enrich uranium, what to do about its existing enriched uranium stockpiles, the number and potential of its centrifuges and Tehran's "ability to produce weapons-grade plutonium using the Arak reactor," according to a statement released by the White House. Iran also agreed to provide "increased transparency and intrusive monitoring of its nuclear program," it said.

    Oil prices likely to drop after Iran nuclear deal -Oil prices are likely to drop when futures trading re-opens Sunday evening, analysts say, as the nuclear accord between Iran and six world powers potentially paves the way for more crude oil to reach the global market. Under the deal, reached Sunday, Iran will stop all production of near-weapons grade nuclear fuel and allow the removal of Tehran's stockpile of the fissile material, estimated to be nearly enough to produce one nuclear bomb. In exchange, Western powers will ease economic sanctions that U.S. officials estimate will provide between $6 billion and $7 billion in foreign exchange for Tehran over the next six months.  "The knee jerk reaction will be a move lower in both Brent and [U.S. oil prices],"  Brent futures ended Friday at $111.05 a barrel, the highest since Oct. 11, in part because a deal with Iran looked remote at the time the market closed. Concerns over Libya's ability to export oil on deepening labor unrest also drove prices higher for the international benchmark.   U.S. oil prices haven't risen as much, as production from shale oil and Canadian oil sands are keeping the domestic market supplied.The breakthrough agreement defuses international tensions over Iran's nuclear program and would likely send oil prices lower. Iran's oil reserves are among the world's largest, though its exports have dropped off as the U.S. and Europe tightened sanctions.  "There's about a million barrels of oil a day that could be very quickly returned to the global market,"

    Now for the Hard Part - Early Sunday morning in Geneva, the P5+1 and Iran announced that they had reached an interim deal on Iran's nuclear program. Many are heralding the agreement as an historic breakthrough, and the deal does indeed buy us time, but it is much too early to declare victory. Indeed, the Iranian nuclear crisis might still very well end in President Obama making a fateful choice between Iran with the bomb or bombing Iran. The interim pact is a step in the right direction. It puts strict ceilings on all aspects of Iran's program, including: centrifuge production, number and types of operating centrifuges, stockpiles of low- and medium-enriched uranium, numbers of enrichment facilities, and the start-up of the Arak reactor. In addition, these measures are to be verified by more intrusive inspections. In exchange, the United States offered relatively modest sanctions relief to the tune of roughly $7 billion. The deal will leave the most important aspects of the sanctions regime in place and, if Tehran honors its end of the bargain, prevent Iran from inching ever closer to a nuclear weapons breakout capability while negotiations continue. But we are not out of the woods yet.  The interim deal is, as Secretary of State John Kerry has said, only a "first step." It is to remain in place for six months until a "comprehensive" accord can be reached. In other words, now comes the hard part. 

    A Temporary Deal With Iran -- There is now a temporary deal between the U.S. (and some sideshows) and Iran about some reduction of illegal U.S. sanctions against Iran in exchange for some freeze of legal Iranian industrial nuclear activities. Since March secret negotiations were held between the Obama administration and Iran to achieve this break through. But it is dubious that the deal is a real change of course. The White House "fact sheet" on it is still typically condescending.  Some preliminary thoughts:

    • - The deal is limited to six month and chances are that no permanent deal will follow. We will likely be back to the usual animosities and renewed calls for war some six month from now. There are many who do not want a more permanent deal and they will do their best to prevent one.  Congress has ways and means to increase sanctions and thereby break this deal and will likely do so.
    • - A much better deal, from the U.S. perspective, could have been had in 2003, 2005 and 2007.
    • - While the White House claims that the deal does not accept Iran's "right to enrich" it factually does.
    • - The deal and any possible follow on only came through because the U.S. needs to change its foreign policy focus from the Middle East to Asia. For lack of resources and capacity the U.S. can only do so after achieving some balance in the Middle East. All issues the U.S. has with the Middle East are in some form influenced by Iran. It simply can no longer be ignored. The "pivot to Asia" which the U.S. needs to counter China necessitates a "pivot towards Iran".

    Disagreements break out within hours of Iran accord - Shortly after the historic nuclear agreement was reached with Iran in the early hours of Sunday morning, John Kerry, US secretary of state, took to Twitter to announce a “first step that makes the world safer”. In one of those gestures that would have been unthinkable a few weeks ago, Iran’s President Hassan Rouhani promptly retweeted his comment. Yet within hours, both men had also revealed substantial disagreements over the nuclear negotiations in Geneva which served to expose the very large gaps that still lie between this initial deal and a final agreement on Iran’s nuclear programme over the next six months. Not only do American and Iranian leaders run the risk of a political backlash at home from domestic critics deeply wary of their diplomacy, but the negotiations must also now deal with the much harder issue of whether Iran will substantially roll back its nuclear programme to a point where building a bomb would be near-impossible. Or as Mr Kerry put it in his tweet: “more work now”. The interim agreement reached in Geneva places a cap on central parts of the Iranian nuclear programme in return for modest sanctions relief. However, it still leaves Iran with a substantial nuclear infrastructure which western experts believe could produce the material for a bomb within a few months. Speaking just hours after the deal was announced, Mr Rouhani declared that “world powers have recognised the nuclear rights of Iran”. Tehran has long insisted that it has a “right” to enrich uranium under international treaties. However, this view was immediately rejected by Mr Kerry, who gave a series of television interviews in Geneva at 5am and claimed an Iranian right to enrich was “not in this document”. Mr Rouhani also predicted that the sanctions regime against Iran had been broken and that cracks created by the agreement would “widen” – precisely the fear that Benjamin Netanyahu, Israeli prime minister, who called the agreement a “historic mistake”, has voiced about the negotiations. However, the White House was quick to hit back against this claim. US officials said that sanctions relief amounted to $6-$7bn, not the $40bn that some Israel officials had predicted, and that Iran would still lose $30bn in revenue over the next six months from the oil and banking sanctions that remain in place.

    The Hidden Cost Of The Iranian Nuclear Deal | Brookings Institution -- One's evaluation of the nuclear deal depends on how one understands the broader context of US-Iranian relations. There are potential pathways ahead that might not be all that bad. But I am pessimistic. I see the deal as a deceptively pleasant way station on the long and bloody road that is the American retreat from the Middle East.  By contrast, President Obama sees this agreement as stage one in a two-stage process. Six months from now, he believes, this process will culminate in a final, sustainable agreement. In the rosiest of scenarios, the nuclear rapprochement will be the beginning of something much bigger.  Like Nixon’s opening to China, it will inaugurate a new era in Iranian-American relations. Whether Obama himself is dreaming of such an historic reconciliation is anybody’s guess, but many commentators certainly are.  I, however, am not among them. On the nuclear question specifically, I don’t see this as stage one. In my view, there will never be a final agreement. What the administration just initiated was, rather, a long and expensive process by which the West pays Iran to refrain from going nuclear. We are, in essence, paying Ayatollah Khamenei to negotiate with us. We just bought six months. What was the price?

    Iran and the oil markets - Here to explain why refiners in Asia aren’t getting giddy about the Iran deal are some analysts accompanied by an angry Congress, angry Israel, angry Saudi, OPEC, existing sanctions, such as the ban on exports to the EU, and a large implicit counterfactual – without a deal, sanctions would have tightened further. As the FT said: In the short term, Iranian exports may receive a limited boost from current levels estimated by traders at up to 1.2m barrel per day, as the remaining large buyers of the country’s crude feel less pressure to reduce imports. However, a return to pre-sanctions levels of exports of around 2.5m b/d is not on the cards for now. To Barc: On Saturday evening, President Obama warned the US Congress against potentially derailing the deal by enacting additional sanctions legislation during the next six months. As we have noted before, many of the most restrictive sanctions – including the restrictions on dealing with the Iranian central bank and the requirement for foreign countries to reduce their Iranian oil imports every six months – originated in the US Congress, not the White House. These measures were passed with overwhelming, bipartisan support in both the US House of Representatives and the US Senate. While President Obama has latitude to waive implementation, outright repeal would require action by both houses of Congress. To date, Congress has shown no signs of removing any of these sanctions, in fact it is currently considering additional punitive measures.

    Oil Prices Fall in Asia on Accord - Oil prices fell early Monday in Asia, as a nuclear accord between Iran and six world powers eased geopolitical tensions. The deal may pave the way for more crude oil to reach the global market. The U.S. and five other world powers struck a historic accord with Iran on Sunday, agreeing to ease part of an economic stranglehold in exchange for steps to cap Tehran's nuclear program. The accord aims to ensure that the Islamist government doesn't rush to develop atomic weapons. Iran, in return, will gain relief from Western economic sanctions that U.S. officials believe will provide between $6 billion and $7 billion in badly needed foreign exchange for Tehran over the next six months.  Crude oil for January delivery opened $0.84 lower at $94.00 a barrel on the New York Mercantile Exchange on Monday. ICE Brent crude oil for January delivery, the European benchmark, fell $2.61 at $108.44 a barrel.

    Rise of ‘Saudi America’ will alter globe, prolong U.S. superpower role -  For the past 40 years, U.S. presidents have launched distant wars, allied with autocratic sheikhs and dispatched naval fleets to protect sea lanes, all for the imperative of keeping foreign oil spigots flowing. That imperative has now subsided. Rather suddenly, the center of gravity of global energy production has swung toward the Americas as shale oil and gas fields in North Dakota and Texas hum with activity. America is moving to the fore as the world’s largest producer of petroleum and natural gas.  That change will reorder the globe in ways large and small.  U.S. experts say it will prolong the United States’ position as the predominant global superpower. Arab nations that shook the world with the 1973 oil embargo almost certainly will be weakened. Russia will find its power ebb as European nations find alternate suppliers for natural gas. New energy technologies will reorder the scales of global winners and losers. “There are not many times in history where you can see the balance of power shift,” . “We are going to see that.” Coinciding with America’s shale oil boom, Goldwyn said, are cutting-edge technologies that allow new parts of the globe to tap into unconventional energy resources, including deep offshore natural gas beds. Places like Cyprus in the eastern Mediterranean, Mozambique in Africa and Colombia in South America hold promise with energy reserves.  “We’re really seeing the small ‘d’ democratization of access to energy in more countries and more places,”

    Energy abundance and the end of economics - Let us imagine now that the deserts of the world are nearly completely covered with cheap, efficient solar panels able to convert both sunlight and infrared light into electricity. Improvements in storage mean that the energy produced can be sent around the world for almost no cost and the only significant outlay is upkeep (mostly handled by robots). So in this world, barring war or global natural disaster, the main economic threat is an aggregate demand shock caused by the bursting of a speculative bubble. Left unchecked these can be every bit as nasty as an energy shock. A crisis would force firms either to lay off staff or cut hours in an effort to protect narrow profit margins – risking Krugman and Eggertsson’s Paradox of Thrift and Toil. Workers, even those with high skill levels, could be forced to compete with one another for every hour of work, undercutting their bargaining position and driving down their wages. If this situation were allowed to continue the energy abundance would mean prices going into freefall. As prices collapsed the illusion of scarcity is burst leaving consumers with the choice either to return to a barter economy or decide to generate value by pooling their human capital. It would, in effect, mark the end of the dominant 19th and 20th century capitalist economic model.

    Brent-WTI spread widens again as the discount shifts to the Gulf - The spread between crude oil traded in the international markets and the US benchmark, the so-called Brent-WTI spread has blown out once again. It's now approaching levels not seen since February.What's going on? What happened to the Goldman's forecast of convergence between the two indices, as more US crude is pumped from the Midwest toward the Gulf of Mexico (see post)? In the past the bottleneck was in getting growing US supplies from Cushing, Oklahoma (where WTI settles) to the Gulf. While that problem has been at least partially solved, the oversupply of crude now simply shifted from Oklahoma to Louisiana.FT: - Surging shale oil production along with severe restrictions on exports has led the US oil market to diverge from the global market in recent years. This week US benchmark West Texas Intermediate crude fell to a five month low of $91.77 per barrel, almost $20 per barrel less than the global marker Brent.  But until recent months infrastructure constraints have made it costly to move oil from inland shale formations to the country’s main refining hubs in Texas and Louisiana, limiting the benefits of low prices to the wider US economy. With more oil now able to flow through pipelines, the Gulf Coast market is also diverging from Brent. On Thursday, Louisiana Light Sweet, the Gulf Coast benchmark, hit a low for the year of $95.30 per barrel. Its discount of $16.01 per barrel to Brent, was easily the highest on record in Reuters data going back twenty years. Traditionally LLS has traded at a premium to Brent, reflecting its superior quality and the cost of shipping to the US.

    Mind the WTI-Brent spread! - The WTI-Brent spread is at a record wide of almost $20 per barrel. This isn’t, of course, what was supposed to happen. As JBC Energy wrote on Thursday:January crude futures moved in opposite directions with ICE Brent posting a moderate gain of 43 cents per barrel to settle at $111.31 even as Nymex WTI took a heavy hit, settling at $92.30 per barrel, down $1.38 on the day. . US crude production for the week ending 22 November surpassed the 8 million b/d level for the first time since 1989 and crude stocks appear to be zeroing in on the record levels seen in May, despite higher utilisation. This is all the more remarkable considering that this is the time of the year when stocks tend to remain flat before heading south due to less maintenance and tax considerations. It is therefore hardly surprising that the market reacted to this strong counter-seasonal trend by widening the WTI/Brent discount by another $1.80 to $19.01 per barrel. Lacking a legal way to export crude, Saudi America was supposed to find a way to export shale surpluses by way of product markets. Turns out, however, there’s only so much the US system can export in this way. Not because it doesn’t want to, but rather because there’s a fresh bottleneck impeding such exports. Most product exports come out of Padd III, the Gulf coast, but the area has a finite capacity. Currently, refiners and product sellers can’t load the product quickly enough onto ships to take advantage of the spread that can be captured. This means Padd III stocks are rising, turning the Gulf Coast into something like the new Cushing. This is particularly apparent during the non-US driving season, when refiners are forced to rely more on export markets.Here’s a chart illustrating the phenomenon from Stephen Schork last week:

    Iran sanctions deal to unleash oil supply but Saudi wild card looms - A global deal to lift sanctions against Iran could unleash a flood of oil onto world markets by next year just as crude output pick ups in Libya, Iraq, and North America, triggering a slide in prices and a major shake-up of the energy landscape. The prospect of cheaper oil is a welcome relief for the West, but poses a major threat to Russia and string of countries that depend on oil revenues to finance their budgets. The weekend deal in Geneva between Iran and key world powers opens the way for a gradual end to sanctions, provided the new government of Hassan Rohani delivers on pledges to curb its nuclear programme. The accord should unlock 800,000 barrels a day (b/d) of global supply by next year in a market of 89m, rising over time as foreign firms return and the country’s ruined oil industry comes back to life. Export curbs will stay in place for another six months but a planned escalation of curbs will not occur. Citigroup said the Geneva deal should cut global oil prices by $13 over time, enough to depress Brent crude below $100 and US crude below $85. 

    OPEC Rift Emerges Over Oil Output - Tensions are emerging within the Organization of the Petroleum Exporting Countries over which member countries should trim oil production to make room for a resurgence in Iraqi exports and the possible return of more Iranian crude to world markets if sanctions are eased. There is no expectation of a decision to cut back at the OPEC cartel's meeting in Vienna on Wednesday. The group of 12 of the world's largest producers, though long riven by squabbling, has kept its overall production ceiling at 30 million barrels a day since December 2011. OPEC expects overall demand for its crude to drop by about 300,000 barrels a day next year and some members are pushing to trim output, according to people familiar with the debate. Members will have to decide whether to cut production as early as the first half of the year, with the risk that short-term global supply might build to a level where prices fall, an OPEC official said. OPEC holds outsize sway in global oil markets, producing more than one out of every three barrels burned in the world. But its ability to move prices significantly has been hindered recently by a surge in non-OPEC crude, including a boom in U.S. production of shale oil. Iraq is also on track to produce some three million barrels a day on average this year, its highest sustained level in at least 20 years. .

    Nuclear Accord With Iran Opens Diplomatic Doors in the Mideast -   Much will depend, of course, on whether the United States and the other major powers ever reach a final agreement with Iran to curb its nuclear ambitions. Mr. Obama himself said Saturday night that it “won’t be easy, and huge challenges remain ahead.” But the mere fact that after 34 years of estrangement, the United States and Iran have signed a diplomatic accord — even if it is a tactical, transitory one — opens the door to a range of geopolitical possibilities available to no American leader since Jimmy Carter. “No matter what you think of it, this is a historic deal,” said Vali R. Nasr, the dean of the Johns Hopkins School of Advanced International Studies. “It is a major seismic shift in the region. It rearranges the entire chess board.” Mr. Obama has wanted to bring in Iran from the cold since he was a presidential candidate, declaring in 2007 that he would pursue “aggressive personal diplomacy” with Iranian leaders, and ruling out the concept of leadership change, which was popular at the time.

    Iran nuclear deal changes Middle East alliances as Saudi Arabia rebels against US - Saudi Arabia threatens to reappraise its entire foreign policy after America's nuclear deal with Iran. Saudi Arabia will adopt a "new defence doctrine" focused on resisting Iranian influence in the Middle East, a senior diplomatic adviser warned on Monday, after the nuclear deal struck with Tehran by six world powers including the US. As Britain urged the main regional powers to back the agreement, the Saudis offered their grudging support, with an official statement saying that it "could be a first step towards a comprehensive solution for Iran's nuclear programme, if there are good intentions". But the kingdom's rulers remain deeply suspicious of Iran's intentions - and almost equally wary of America's diplomacy, especially since they were kept in the dark about the secret US contacts with Iran that preceded the Geneva agreement. Nawaf Obaid, a counsellor to Prince Mohammad bin Nawaf, the Saudi Ambassador to London, accused America of dishonesty. "We were lied to, things were hidden from us," he said. "The problem is not with the deal struck in Geneva, but how it was done." The response, said Mr Obaid, would be a "new defence doctrine" based on containing Iran.

    Russia and Iran: A Balancing Act - To the surprise of many observers, it was France rather than Russia that played the lead role in opposing last weekend’s proposed nuclear deal with Iran. There should have been no surprise, at least in the case of Moscow. A close study of Russian policy shows that Moscow’s role in the Iranian drama is more complex and subtle than simply fanning tensions between Iran and the West. Russian officials have to balance a complex set of goals in their relations with Tehran: supporting nonproliferation, averting war or regime change, maintaining regional security, minimizing sanctions, enhancing Moscow’s diplomatic leverage, limiting U.S. influence in Eurasia, and advancing energy and economic cooperation. The hierarchy of these objectives varies depending on changing circumstances. Furthermore, some of these aims conflict, at least in the short run, requiring Russian policymakers to choose among them or behave schizophrenically. In general, the present stalemate, with Iran and the West in a state of nonviolent conflict, seems best suited for promoting Russian security interests since it elevates Moscow’s influence in Tehran. The election of Hassan Rouhani as Iran’s new president has not fundamentally changed Russia’s relationship toward Iran. Since entering office, Rouhani has continued his predecessor’s praising of Moscow for its supportive role in the negotiations over Iran’s nuclear program and has continued Iranian calls for enhanced bilateral economic ties. But Rouhani has focused his diplomatic outreach on reconciling with the West, trying to demonstrate that his government is not pursuing nuclear weapons. A relaxation of Iranian-Western tensions could provide some benefits to Moscow, but a genuine reconciliation could prove economically, diplomatically and strategically costly for Moscow.

    Historic defeat for EU as Ukraine returns to Kremlin control - Ukraine bowing to pressure from Russia is the first major defeat for the EU in its eastward march since the fall of Communism. Twenty years after the collapse of the Soviet Union, Ukraine is slipping back under Kremlin control. Ukraine’s shock decision to opt for Vladimir Putin’s Russia and pull out of EU talks on the eve of an historic deal is a dramatic upset to the European balance of power. It is the first major defeat for the EU in its eastward march since the fall of Communism. While the region’s geo-politics remain fluid, the upset may prove as fateful as the move by the Kossack chief Bohdan Khmelnytsky to turn his back on the West and accept Tsarist suzerainty in the 1640s. “Ukraine’s government suddenly bowed deeply to the Kremlin. The politics of brutal pressure evidently work,” said Sweden’s foreign minister Karl Bildt. Ukraine’s prime minister, Mykola Azarov, told Ukraine’s parliament that the country has been forced to cancel its trade and pre-accession deal with the EU because Russian sanctions are strangling the economy, “pushing Ukraine to the brink of a huge social crisis.” The accord was due to be signed at the EU’s Vilnius summit next week. The volte-face stunned EU officials, torn between fury over Ukraine’s conduct and deep alarm over what has happened. Kiev said it acted in the “national security interest”. The pro-Kremlin outlet Russia Today said Ukraine had wisely stepped back from the EU “horror show” and accepted the real worth of Russian ties rather than hot air from Brussels. Ukraine had dodged a “death spiral” by protecting its eastern trade flows.

    China Cotton: Bale of a Tale - It is never easy to put a positive spin on buying high and then selling low. Then again, the cotton that China plans to start selling from its vast state reserves this week, at a price below what it paid for this year’s harvest, might be rather hard actually to spin, period. Cotton can go brittle if stored for a long time. The China National Cotton Reserve will be auctioning bales that came off farms in 2011. Should mills balk at the quality and buy Indian imports instead, the great Chinese stockpile sell-off might not augur so badly for the cotton market. Spot prices have already fallen to 10-month lows. Still, what a marvellous monument to state planning has been created, even if the buying programme might finally end overall next year. China started its stockpiling to encourage farmers to plant cotton when prices looked set to go south two years ago (price volatility threatened a crisis for the nation’s cotton industry). But it has ended holding about 10m tons, or more than half of global inventory. It is now considering direct subsidies to cotton farmers instead. In any case, foreign cotton producers benefited from Chinese state buyers’ hard work. Even after taking into account import tariffs and quotas, they could still sell cotton to the Chinese textile industry more cheaply than the state-owned stockpile could. Balance will have to be restored eventually, although it could take the Chinese some time to sell their cotton. Australia took a decade to get rid of every last thread of its wool reserves after ending its own farmer support policy in 1991. In the process, the farming industry suffered plenty of damage. But free-market innovation won out over state control in the end. The Australians probably made the fine merino wool in your suit. Not to spin a tale, but perhaps a similar process can work for the Chinese. .

    China Announces That It Is Going To Stop Stockpiling U.S. Dollars - China just dropped an absolute bombshell, but it was almost entirely ignored by the mainstream media in the United States.  The central bank of China has decided that it is "no longer in China’s favor to accumulate foreign-exchange reserves".  During the third quarter of 2013, China's foreign-exchange reserves were valued at approximately $3.66 trillion.  And of course the biggest chunk of that was made up of U.S. dollars.  For years, China has been accumulating dollars and working hard to keep the value of the dollar up and the value of the yuan down.  One of the goals has been to make Chinese products less expensive in the international marketplace.  But now China has announced that the time has come for it to stop stockpiling U.S. dollars.  And if that does indeed turn out to be the case, than many U.S. analysts are suggesting that China could also soon stop buying any more U.S. debt.  Needless to say, all of this would be very bad for the United States.

    Nicaragua canal boosts China power - China's role in the development of this canal is partly about expanding its global trade. But it's also a way for China to push back against Washington's militarized "Pacific Pivot", as well as the US drive to establish a Trans-Pacific Strategic Economic Partnership (commonly shortened to Trans-Pacific Partnership, or TPP) that seeks to contain China's global economic growth.  The TPP is a US-led free trade agreement - a partial draft version of which WikiLeaks recently exposed to the public - that is being devised in secret by 12 Pacific Rim governments and 600 of the world's largest corporations. It seeks to define the rules for investment and trade in the 21st century. Unless China is willing to adopt rules that will rewrite its regulatory and investment laws to conform to the standard of this agreement - for example, by curtailing its state-owned investments and opening its state-owned enterprises to Wall Street investment rules - China will remain outside the TPP. The TPP - with its current 12-nation membership, including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam - has a combined GDP of more than $27 trillion, representing over a third of global GDP.  Yet despite its economic power and its military influence throughout the region, the United States has not been able to conclude this agreement. There has been focused criticism nationally and internationally against the TPP, as it is seen as an undemocratic agreement primarily written by corporations for the benefit of corporations. Additionally, for the TPP to conclude, it still needs congressional approval. The push to "fast-track" Obama's Trade Promotion Authority is likely to meet further resistance from lawmakers. China's success in regional and global trade, meanwhile, has given it the economic and fraternal clout to partner with the other ex-colonial - or ex-socialist - emerging economies to provide an alternative model to the neoliberal TPP. It is therefore no coincidence that none of the BRICS countries participates in the TPP.

    Firms Take Advantage of China’s Murky Interbank Market – Report - Until recently, China’s banking system remained stubbornly boring, but gradual liberalization has unleashed a tidal wave of inventive accounting in the best tradition of Wall Street, with regulators struggling to keep track of the ways banks move risky deals off their balance sheets. The interbank market – the innards of the financial system, where banks and other financial institutions lend to each other – has become the venue for all kinds of skullduggery.Tuesday’s report comes against a background of increased scrutiny of China’s murky interbank market, with rumors circulating that regulators plan a renewed crackdown on banks’ use of the market to sidestep capital rules and loan-to-deposit ceilings. The People’s Bank of China has been fighting to get the interbank market under control for months. In June, just as banks were trying to pretty up their balance sheets in time for the end of the first-half reporting period, the PBOC unexpectedly withheld liquidity from the market, sending interbank interest rates through the roof. That was widely seen a shot across the bows of the most over-extended banks, a warning that they couldn’t rely on the central bank to provide generous liquidity buffers forever. China’s “shadow banking system” – comprised of entities that behave a bit like banks but aren’t subject to the same oversight – has been behind a massive expansion of credit in recent years. Total social financing, a broad measure of credit creation that captures a lot of shadow banking activity, was up 15.7% on-year in the first three quarters of 2013, well ahead of bank loans, though it dropped off markedly in October. As for the banks themselves, only part of their lending actually goes to companies that make and do things in the real economy. Loans to other banks have been growing faster – and in the last two years, the fastest growth of all has been to shadow banks.

    Let a hundred moles be whacked - China, caught somewhere between futility and necessity, is attempting to once again regulate the whack-a-mole game that is its interbank market. From the FT on Tuesday:The China Banking Regulatory Commission is looking to establish three new hard caps on the interbank market, according to the draft of what is known as “document no. 9”. First, lending to any single financial institution should not exceed 100 per cent of a bank’s net capital. Second, lending to non-bank financial institutions should not exceed 25 per cent of a bank’s net capital. Third, lending to all financial institutions should not exceed 50 per cent of a bank’s total deposits.Among other measures, the CBRC proposed limiting the duration of interbank loans to a maximum of one year and preventing banks from rolling them over at maturity. It also said that banks would have to set more capital aside against interbank assets, without quantifying an amount.A brief recap of dodgy interbank activity would include the types of activity — basically interbank deposits, unsecured borrowing and secured borrowing — with the observation that the use of repo has been favoured with dodgy motives often propelling it. Dodgy motives might include a desire to massage one’s loan-to-deposit ratio (LDR) in order to push out new business. One would also mention the absurd extremes reached when shuffling a credit around (oh, the asset isn’t recorded on anybody’s balance sheet anymore? Fair enough then) and that small banks are especially reliant on interbank funding.

    In China, Stabilizing Producer Prices Signal a Turning Point -- If there’s one thing worse than inflation, it’s deflation. Falling prices hammer profits for businesses, kill any chance of pay rises for workers and raise the real burden of debt – the mirror image of “inflating away” your liabilities.This is something China’s manufacturers have been dealing with for a while. The producer price index, which represents the prices paid at the factory gate, has been in deflationary territory for almost two years, underlining the weakness in demand for Chinese goods at home and abroad.But the PPI has lately stopped falling, offering tantalizing hope of a recovery. As of October, prices were still down 1.5% from a year earlier, but they haven’t fallen month-to-month since July.That goes hand in hand with a gentle uptick in the consumer price index, which measures inflation as most of us experience it. Annual CPI growth hit 3.2% in October, its fastest pace since February. Falling prices for industrial goods have helped keep the CPI in check this year, even as food prices have raced ahead. PPI is next released Dec. 9 and if it stabilizes, it could be an indicator that China’s economy is in better shape. Firmer prices would be a signal of higher demand, whether domestically generated or driven by a pickup in exports as the world economy staggers back toward normality. Entrenched deflation in key sectors like steel, aluminum, cement and glass is a product of rampant overcapacity, with companies that pay small dividends and borrow on easy terms re-investing their profits into producing things that nobody wants.

    U.S. to Continue Flights in Defense Zone Claimed by China - The U.S. won’t change its flight operations to comply with China’s newly claimed air defense zone in the East China Sea, a Pentagon spokesman said today. China announced an air defense identification zone in the East China Sea effective Nov. 23 and said its military will take “defensive emergency measures” if aircraft enter the area without reporting flight plans or identifying themselves. “We see it as destabilizing,” Warren said of China’s decision. He said U.S. pilots always maintain the ability to defend themselves. China’s declared intent to protect an air zone encompassing islands contested by Japan has escalated tensions between Asia’s two largest economies. The disputed islands are known as Diaoyu in Chinese and Senkaku in Japan. Japan’s foreign minister, Fumio Kishida, said China has engaged in “profoundly dangerous acts that unilaterally change the status quo,” according to a statement issued over the weekend. .

    Biden to raise China’s ‘unsettling behaviour’ in visit - US Vice-President Joe Biden will tell Chinese leaders next week the recent establishment of an air defence zone is “unsettling” to its neighbours and raises questions about its broader international behaviour. Mr Biden is expected to use a week-long visit to Asia starting on Sunday to press China about last weekend’s announcement of a set of flight restrictions over an area including a disputed chain of islands in the East China Sea. China’s foreign ministry defended the decision on Wednesday, saying it was a “legitimate action taken to safeguard its legitimate rights”. However, the US has already challenged the move by flying a pair of B-52 bombers through the area, and the new Chinese rules are now being widely flouted by Japanese airlines. The move has also been criticised by South Korea, Taiwan and Australia. Last weekend’s announcement has opened up a new front in an increasingly bitter territorial dispute between Asia’s two largest economies over a group of uninhabited islands, known as the Senkaku in Japan and the Diaoyu in China. The controversy is part of a broader contest for influence in the western Pacific between China, which has invested heavily in its navy over the past two decades, and the US and its allies. A senior US official said on Wednesday Mr Biden, who visits Japan, China and South Korea next week, would not be “delivering a demarche” to Beijing and would focus on trying to reduce tensions in North Asia. However, the official added: “There is an emerging pattern of [Chinese] behaviour that is unsettling to China’s own neighbours and which raises questions about how China operates in international space and deals with areas of disagreement with its neighbours.”

    China’s dispatch of jets raises tension over air zone - Tensions have risen further over China's declaration of an air defence zone in disputed regions of the East China Sea after it sent fighter jets and an early warning aircraft to patrol the area. The state news agency Xinhua announced the patrols after Japan, South Korea and the US all sent military aircraft through the zone in a clear challenge to the Chinese measure. Beijing had previously responded only by saying it had monitored the flights. Shen Jinke, a spokesman for the Chinese air force, described Thursday’s dispatch of aircraft as "a defensive measure and in line with international common practices” in the Xinhua report. "China's air force is on high alert and will take measures to deal with diverse air threats to firmly protect the security of the country's airspace," he said. A previous patrol took place on Saturday, when the zone was declared. Many countries have similar zones, requiring aircraft approaching their territorial airspace to identify themselves, and China has said it created the area to defend its national security. But its zone is controversial because it includes the skies over islands known as the Senkaku in Japan and Diaoyu in China, which are the subject of a long-running territorial dispute, and overlaps zones established by Japan and South Korea.

    China has thrown down a gauntlet to America - At first glance, Beijing’s designation of an air defence zone in the East China Sea marks a calibrated escalation of its longstanding dispute with Japan about sovereignty of the Senkaku or, in Chinese, Diaoyu islands. A more worrying, and plausible, interpretation is that Beijing has decided to square up to the US in the western Pacific. East Asia is looking an ever more dangerous place. When Xi Jinping met Barack Obama in California this year, the Chinese president told his US counterpart the Pacific Ocean was large enough to accommodate two great powers. The inference was that the US and China should divide the spoils. Also implicit in the remark, though, was that China would not accept a status quo that saw the US remain the Pacific’s pre-eminent power. At the summit, Mr Obama sidestepped the issue. Now it seems Mr Xi has decided it is time for China to start grabbing its share. The Senkaku have been administered by Japan since the late 19th century, apart from a spell of US control after the second world war. China restaked a claim during the early 1970s, but for decades did little to press its case. Since the 2008 Olympics, Beijing has adopted a more assertive approach, making regular incursions into the disputed territory’s sea and air space. This has prompted a US warning that the area is covered by the US-Japan mutual security pact. This US commitment is now being tested. The question Beijing seems to be asking is how far will Mr Obama go to uphold the existing order. China’s strategic objective is to push the US away from its coastline and establish its suzerainty in the East and South China seas. Does an America exhausted by wars in the Middle East have the political will to risk conflict in Asia in order to defend a few uninhabited rocks? It was probably no accident that Beijing’s timing coincided with one of the most troubled periods of Mr Obama’s presidency.

    China scrambles fighter jets towards US and Japan aircraft in disputed air zone - China scrambled fighter jets to investigate US and Japanese aircraft flying through its new air defence zone over the East China Sea on Friday as the regional clamour over the disputed airspace escalated.  The ministry of defence announced the move, which is the first time China is known to have sent military aircraft into the zone alongside foreign flights, stepping up its response to the challenge after its unilateral establishment of the zone. It previously said it had monitored US, Japanese and South Korean aircraft and had flown routine patrols in the area on Thursday. The ministry's statement said two US reconnaissance aircraft and 10 Japanese early warning, reconnaissance and fighter planes had entered the zone.The airforce "monitored throughout the entire flights, made timely identification and ascertained the types", defence ministry spokesman Shen Jinke told the official China News Service. The Pentagon has yet to respond to the statement. Japanese officials declined to confirm details of any flights, saying that routine missions were continuing.

    Japan Dispatches F-15s, E-767s And P-3 Into China's Air Defense Zone, China Scrambles Su-30 In Response -- China's escalation and re-escalation described in detail yesterday, has just been met with a corresponding re-re-escalation by Japan.

    • China's Ministry of Defense reports that the nation identified Japanese military planes that entered into Chinese air defense identification zone today.
    • 7 batches of 10 Japanese planes consisting of E-767, P-3 and F-15 entered into the zone
    • China has also identified 2 batches of 2 U.S. surveillance planes consisting of P-3 and EP-3, without specifying whether the planes entered into the zone
    • China scrambled Su-30, J-11 and other aircraft in response.

    And now it's China's turn to, once again, respond. And then Japan and the US again, and so on, until someone gets hurt.  Source.

    Japan Finances Worse Than at War’s End - To illustrate just how woeful Japan’s fiscal conditions are now, one merely has to look at how they were in March 1945. About half a year before Japan’s military-controlled government surrendered, Tokyo was borrowing at a feverish pitch to pay for its losing war effort and the Bank of Japan was furiously printing money to cover the soaring deficit. To illustrate just how woeful Japan’s fiscal conditions are now, one merely has to look at how they were in 1945. The central government’s debt-to-gross domestic product ratio stood at 204% at the end of March 1945. More than half a century later, this ratio–a key measure of a government’s ability to pay down debt–is already above that milestone. The Ministry of Finance estimates it will reach 227% by the end of March next year. “Looking at our country’s outstanding liabilities from a historical perspective, they are above the levels seen near the end of the Pacific War, when all resources available were being spent for the war effort,” said the finance ministry’s fiscal system council in documents released Friday. “This situation is extremely grave.” Although the BOJ and the government aren’t currently in a snake-eating-its-own-tail type of situation where the central bank is monetizing sovereign debt, bond dealers suspect they’re pretty close. Under its aggressive program launched in April to stamp out over 15 years of deflation, the BOJ is buying government bonds from the market that account for a whopping 70% of newly issued debt, which has helped hold down borrowing costs for the government.

    Fresh Price Data Show “Abenomics” Making Progress -- Prices of home durable goods in Tokyo rose in November for the first time in two decades and at their fastest pace in 30 years, government data showed Friday, further evidence that Japanese Prime Minister Shinzo Abe is making progress toward his goal of overcoming 15 years of deflation. Prices of goods such as TV sets and refrigerators rose 4.0% in November from a year ago, the Ministry of Internal Affairs and Communications said. Prices in this category had fallen every month since April 1993, and hadn’t risen by more than 4% since May 1982. “Abenomics” aims to spur Japan’s economy back to life after nearly two decades of sluggish growth through monetary and fiscal policy, as well as structural economic reforms. The Bank of Japan has said it will do everything to achieve 2% inflation within two years of the new BOJ governor’s ascension last April. Economists say a growing public perception that Japan’s economy is finally reviving is driving consumer appetite for items like high-end air conditioners and computers. But whether the momentum continues depends to a large extent on whether companies decide to raise wages, economists say. The government is pressuring major business and labor lobbies to ensure wages rise next spring, before the sales tax is raised to 8% from 5%.

    3 key facts about Japan's deteriorating demographics -- While there is a great deal of detailed discussion in the blogosphere about Japan's unsettling age demographics (see example), it's worth pointing out three key facts that add some urgency to the issue.
    1. With zero immigration and falling birth rates, Japan's working-age population is declining sharply and is now at a level not seen in 30 years. The decline also seems to be accelerating. Wells Fargo: - While the overall population has only recently begun getting smaller, the labor force has been shrinking for more than a decade. This has serious implications for both the size of Japan’s future workforce and for domestic demand. According to the IMF, the size of the working-age population is projected to fall from its peak of 87 million in 1995 to about 55 million in 2050. If realized that would roughly equal the size of the Japanese workforce at the end of World War II.
    2. As a result, the percentage of Japanese who are over the age of 65 has risen above 25% for the first time (and the growth in that ratio also seems to be accelerating.) A quarter of Japan's population is now over 65. That compares to about 14% of Americans who are over 65 (see stats).
    Just to put this in perspective, the total sales of adult diapers in Japan is about to exceed that of baby diapers (see story). Also see this amazing story about "a program to promote the use of nursing care robots to meet expected increases in demand in the face of Japan’s rapidly aging population."
    3. According to Wells Fargo this is creating some material distortions in Japan's domestic interest rates. In fact (and this is an amazing fact indeed), Japanese seniors are having a greater impact on bringing down JGB yields than BOJ's unprecedented QE effort (see post).

    A senior moment -- It’s well known that Japanese society is ageing, rapidly. Here’s the trend charted, by Nomura’s Kyoichiro Shigemura. Click to enlarge, By 2012, Japan’s oldies had already topped 30m, while the number of those available for work (aged 15-64) has continued to shrink. The working-age population peaked at just over 87m in 1995; by 2050 it is forecast to have fallen below 50m. Now, while lots of Japan-watchers reckon the country will have to do something radical to address this, such importing non-Japanese workers en masse, Nomura’s Shigemura has come at this from a different angle: he reckons certain Japanese companies will become global leaders in the growth business of servicing the old. He’s identified four companies that he thinks will spearhead this trend and then another five firms that he thinks will also do well. Click for fuller details. There’s more on this in the usual place.

    Pictures of the Trans Pacific Partnership and to Giroux’s biggest lie: Capitalism is Democracy - I learned about two maps that show the connection of corporations.  I found copies of them at Occupy Educated.   The first one “Corporate Connections” was created in 2003.  You can read about it here.  The second one is a condensed update looking at just 10 corporations and the brands which they control. These two maps make me think of all sorts of things.  Like, do we have choice in the market place?  Do we have choice in the market place of ideas?  Choice of  ideas are professed to be necessary for a healthy capitalistic system.  It is ideas that compete not products as they only represent an idea.International trade agreements.  Are they preserving the citizens action of choice of an idea as it relates to that prime condition for capitalism to work?  Do the keepers of the knowledge of all things that are capitalism even have this book in their library?Then there is our own issue of corporate citizenship butting heads against human citizenship and equality of power.  Can any one person be so influential as one of these corporations?  Would a completely united citizenship in anyone nation be as powerful and equal as a world corporation?  As we extent, humanize a human creation and imbibe it with rights considered acquired via the process of birth from a human sperm and egg combining can we expect to have dominance over our creation?  Corporations are still currently a creation of law which is a creation of our choice.

    Salt Lake TPP Talks End with Growing Pressure to Announce “Deal” at December TPP Ministerial, but No Resolution of Major Controversies - A week of intense TPP negotiations, marked with increasingly heavy-handed U.S. tactics, came to an end late Sunday night in Salt Lake City, Utah. Negotiators working on the 12 TPP chapters not yet completed were instructed to narrow disagreements to matters that the chief negotiators or trade ministers will decide. At least three chapters – those covering intellectual property, state owned enterprises and medicine-pricing formularies – did not reach this target. Talks on the controversial intellectual property chapter were extended and will continue for at least two more days.  There was no discussion of disciplines to counter currency manipulation despite 230 House and 60 Senate GOP and Democrats demanding such terms.In Salt Lake City, TPP chief negotiators prepared a long list of final trade-offs and decisions for trade ministers who will meet from December 7-10 in Singapore. Many TPP country governments are billing the Singapore Ministerial as the ‘end game’ of negotiations. The intensity of efforts at Salt Lake City demonstrated that the United States is desperate that its latest end-of-year deadline for TPP’s completion not be missed like three past deadlines.Claims that a final TPP deal is close seem incredible, given that it appears that the most  politically sensitive issues that have arisen in three years of talks remains unresolved.  Controversy is growing in many TPP nations about demanded trade-offs relating to medicine prices, Internet freedom, financial regulation and other sensitive non-trade matters. Plus, Congress’s bottom lines - from disciplines against currency cheating and subsidies on state owned enterprises to enforceable labor and environmental standards - remain unachieved.

    Here’s why Obama trade negotiators push the interests of Hollywood and drug companies - Earlier this month, the transparency organization WikiLeaks leaked the "intellectual property" chapter of the Trans-Pacific Partnership, a trade agreement that is being negotiated in secret by Pacific Rim nations. The draft text showed that the positions taken by U.S. negotiators largely mirrored the provisions of U.S. law, but the U.S. negotiating position also had an unmistakeable bias toward expanding the rights of copyright and patent holders. Those positions are great for Hollywood and the pharmaceutical industry, but it's not obvious that they are in the interests of the broader U.S. economy. To the contrary, critics contend that the rights of copyright and patent holders have been expanded too much. Those concerns do not seem to have swayed the trade negotiators in the Obama administration. Two major factors contribute to the USTR's strong pro-rightsholder slant. An obvious one is the revolving door between USTR and private industry. Since the turn of the century, at least a dozen USTR officials have taken jobs with pharmaceutical companies, filmmakers, record labels, and technology companies that favor stronger patent and copyright protection. A more subtle factor is the structure and culture of USTR itself. In its role as a promoter of global trade, USTR has always worked closely with U.S. exporters. That exporter-focused culture isn't a problem when USTR is merely seeking to remove barriers to selling U.S. goods overseas, but it becomes problematic on issues like copyright and patent law where exporters' interests may run directly counter to those of American consumers.

    TPP Defenders Take To The Internet To Deliver Official Talking Points; Inadvertently Confirm Opponents’ Worst Fears - The leaked TPP draft, pried loose from the "open and transparent" grip of the USTR, is generating plenty of commentary all over the web. After getting a good look inside, it's little wonder the USTR felt more comfortable trying to push this through under the cover of darkness.  As the criticism of the push for IP maximalism mounts, the treaty's defenders have leapt into the fray, hoping to assure everyone who wasn't previously aware of the treaty's contents (which is pretty much everyone) that there's nothing to see here and please move along.   Mike recently broke down the ridiculous claims and posturing of the USTR's "talking points." Amanda Wilson Denton, counsel to the IIPA (International Intellectual Property Alliance) has showed up right on cue to "set the record straight" on the leaked TPP draft. Let's see how well she followed the talking points. (Talking points in bold.)

    Talks on Global Free-Trade Deal Collapse in Geneva — Negotiators came close but failed Tuesday to clinch a free-trade deal that could have helped boost the world economy by $1 trillion a year and cleared the way for a broader global agreement. Diplomats from the World Trade Organization’s 159 members had been trying to forge an agreement before a trade ministers’ meeting next week in Bali, Indonesia. Achieving a deal in Bali is seen as a final effort to revive a broader 12-year effort to ease global trade rules. The mini-deal discussed in Geneva had been intended, in part, to reduce delays and inefficiencies at national borders. Making it easier to move goods across borders could boost the global economy by nearly $1 trillion a year and support 21 million jobs, according to a report co-written by Jeffrey Schott, a senior fellow in international trade at the Peterson Institute for International Economics. The lack of a global deal hasn’t prevented individual countries from seeking agreements among themselves. But experts say the failure to reach a global deal leaves poorer countries worse off. “This should be a no-brainer for developed and developing countries,” Schott said. Some poor countries are demanding economic and technical assistance before they sign on. India is holding up a deal by insisting on protections for its farmers.

    What We’ve Learned From Nafta: It Successfully Undermined Regulations -Yves Smith, Room for Debate, Times - Nafta has been effective at helping major corporations at the expense of ordinary American citizens. Most critics have focused on Nafta-related job losses. But they miss the true significance of this and subsequent mislabeled “trade” agreements.  Arbitration panels designed to protect transnational investments have precedence over domestic courts and the rights of Americans. Most of Nafta’s text was devoted to investments, specifically the granting investors rights relative to what Nafta defined as investments. The premise of these provisions in Nafta and similar treaties was that some of the signatory nations had legal systems that might authorize the expropriation of assets, like factories, so foreign investors need recourse to safe venues to obtain compensation. Provisions of this type have been included in subsequent American free trade agreements and are expected to be increased considerably in the pending Trans-Pacific Partnership.  These investor provisions restrict the rights of governments to regulate these investors and their investments. For instance, investors can sue by arguing that if a government changes policies, regulations, or modifies the terms of a contract, such that the investor has suffered a loss of potential profits. A review of cases filed shows they’ve attacked operations at every level of government.  The mechanism for enforcing these sweeping investor rights is “investor-state” arbitration panels, which operate outside of and have been given precedence over domestic court systems. The result has been to give foreign investors greater rights than those of home country citizens and businesses.

    Nafta Lowered Wages, as It Was Supposed to Do - Room for Debate - Dean Baker- Given the trends in U.S. trade with Mexico over the last two decades, it is strange that there is much of a debate over Nafta's impact on wages. At the time Nafta was passed in 1993 the United States had a modest trade surplus with Mexico. In 2013 we are on a path to have a trade deficit of more than $50 billion. The $50 billion in lost output corresponds to roughly 0.3 percent of gross domestic product, assuming the same impact on employment, this would translate into more than 400,000 jobs. If each lost job would have led to half a job being created as a result of workers spending their wages, this would bring the total impact to 600,000 jobs.A main purpose was to let U.S. firms locate in Mexico without fear of nationalization or restrictions on repatriating profits. Of course some of the shift from surplus to deficit might have occurred even without Nafta, but it would be difficult to argue that Nafta was not a major contributing factor. After all, one of the main purposes of the agreement was to make U.S. firms feel confident that they could locate operations in Mexico without having to fear that their factories could be nationalized or that Mexico would impose restrictions on repatriating profits. This encouraged firms to take advantage of lower cost labor in Mexico, and many did.This can produce economic gains; they just don’t go to ordinary workers. The lower cost of labor translates to some extent into lower prices and to some extent into higher corporate profits. The latter might be good news for shareholders and top management, but is not beneficial to most workers.

    India tops China as most attractive investment destination: India has overtaken China as the most attractive investment destination, according to Ernst & Young (EY), with the sharp depreciation in the rupee and opening up of new sectors to foreign players boosting the South Asian nation's allure. Companies are most likely to invest in India, followed by Brazil (2), China (3), Canada (4) and the United States (5), EY's ninth bi-annual Capital Confidence Barometer - a survey of 1,600 senior executives across more than 70 countries - showed. In the eight edition of the survey, published in May, China had the top spot, followed by India and Brazil. "The investor outlook for India remains positive, despite the challenges the country's economy has faced in the recent past," "At the same time, the improved condition of the world economy has helped increase confidence amongst deal makers, prompting them to take a bolder stance toward executing transactions...the Fed's [Federal Reserve] reassurance on not pulling back stimulus in the near term has boosted confidence in the board rooms,"

    RBI Program Attracts Billions More Than Expected - India’s central bank’s program to bring dollars into the country has attracted More than $10 billion more than analysts had expected, giving the Reserve Bank of India more ammunition to defend the rupee the next time it is under attack. The swap program–through which the RBI subsidized banks’ costs of raising dollars—is set to end this week and is likely to have pulled in more than $25 billion, according to one central bank official.When the program was announced in early September, most analysts had expected it to attract less than $15 billion. “The swap facility has definitely worked and has been a key support for the rupee in recent months,” Introducing the swap facility was the first move of Raghuram Rajan, a high-profile academic who took over as the head of India’s central bank a few days after the rupee hit a record low of 68.80 to the dollar on Aug. 28.The sharp fall was fuelled by concerns about India’s chronic current account deficit and fears that the U.S. Federal Reserve would end its easy money policy that has flooded global markets with cash in recent years.Since then, the U.S. Fed’s decision to postpone its stimulus withdrawal and measures taken by Mr. Rajan to build confidence in the rupee have helped the currency gain 11% from its record low. It was last changing hands at 62.38 to the dollar.

    India Growth Seen Below 5% for Longest Spell Since 2005 - India’s economic growth probably held below 5 percent for a fourth straight quarter, the longest stretch in data going back to 2005, as Prime Minister Manmohan Singh struggles to boost investment and tame elevated inflation. Gross domestic product rose 4.6 percent in July through September from a year earlier, compared with 4.4 percent in the prior quarter, according to the median of 35 estimates in a Bloomberg News survey before a report due Nov. 29. India uses the year ended March 2005 as the base to work out GDP growth. Expansion may continue to struggle, with Goldman Sachs Group Inc. predicting last week the central bank would further raise interest rates and the government facing pressure to curb spending and pare the budget deficit. Exports have provided a bright spot following a drop in the rupee, cushioning industry from moderating demand among India’s 1.2 billion people.

    Philippine Growth Forecast Cut as Typhoon Damage Becomes Clearer -  As more details emerge of the destruction wrought by Typhoon Haiyan, JP Morgan Chase cut its Philippine growth forecast for this year but predicted a V-shaped recovery when reconstruction efforts begin in earnest in 2014. The government now estimates rebuilding costs at about US$6-7 billion, or some 2.3% of gross domestic product.“This estimate is much lower than many of the initial market estimates of US$15 billion, but the overall impact of the storm on the near-term outlook will likely be larger than we had initially expected,” analyst Matt Hildebrandt wrote in a research note Monday.  As a result, the firm on Monday cut its expectations for Philippine GDP growth for a second time since the storm, to 6.9% this year from a previous estimate of 7.1%. Reconstruction spending should drive GDP growth to 6.0% next year, it said, up from a previous estimate of 5.6%.The Philippine government estimated Monday that the Nov. 8-9 storm, which killed more than 5,200 people, caused some 24.54 Philippine pesos (US $559 million) in damages, nearly evenly split between infrastructure and agriculture.Philippine GDP grew 7.6% in the first half of the year — one of the fastest rates in the world – driven by a red-hot business processing outsourcing industry and strong remittance flows. The growth pace is likely to slow after Haiyan, with the government expecting essentially flat sequential performance in the last three months of the year.Credit Suisse said last week that the government’s reckoning might be too pessimistic, given the small share of GDP produced by the affected regions. The hardest hit areas in the Eastern Visayas are primarily agricultural – the main products are coconuts and rice – and account for just 2.2% of GDP.

    North Korea’s Food Production Improves - North Korea’s food production has improved for the third successive year, but malnutrition in infants remains high and food shortages are still widespread, two United Nations agencies reported Thursday. The study by the Food and Agriculture Organization and World Food Program, which took place in the fall and covered all of North Korea’s provinces, found that food output was up about 5% from a year earlier. But the agencies estimated that 84% of households still have “borderline or poor food consumption.” “Despite continued improvement in agricultural production, the food system in the DPRK remains highly vulnerable to shocks, and serious shortages exist, particularly in the production of protein-rich foods,” said Kisan Gunjal, FAO economist and co-leader of the mission. North Korea’s food problems are the result of years of mismanagement of the economy, outdated farming practices, a lack of access to fertilizers because of sanctions and extreme weather conditions such as flooding during the summer rainy season, which causes widespread erosion. The agencies noted the increasing importance of markets and informal bartering to secure food following the breakdown of the nation’s public food-distribution system after famine years of the mid-1990s. The report recommended that food shortages be filled by purchases by the North Korean government and/or international support. Earlier this year, North Korea asked Mongolia to consider sending aid, tapping a potential new donor.

    Protests force Thailand to lower interest rate-- Responding to the signs of the national economy slowing down due to waves of protests in Bangkok, the Bank of Thailand (BOT) has agreed to lower interest rate to 2.25%. According to Mr. Paiboon Kittisrikangwan, Secretary General of the Monetary Policy Committee, the change was a necessary measure to the political turmoil and the delayed public investment. The measure is designed to push for future growth as the Thai economy in 2013 performed less than expected because of low price sensitivity and a decline in internal debts, Mr. Paiboon said. The announcement came after the country is risking delayed public investments and the fading confidence from private sectors regarding the political anxiety. The BOT also announced its expectation for the kingdom’s GDP for 2013 to stay at 3%, and 4% in 2014.

    Rupiah Drops to Weakest Level Since 2009 After Failed Debt Sale -- Indonesia’s rupiah dropped to the weakest level since March 2009 after the nation missed its fundraising target at a domestic dollar debt sale amid concern the Federal Reserve will bring forward a plan to cut stimulus.  The government raised $190 million from the bond sale yesterday, short of the $450 million goal, . Global funds sold a net $361 million of Indonesian stocks this month through yesterday, while the benchmark index declined by the most since September today.  “We expect to see the rupiah weakening, keeping in view the Fed-tapering risk,”  “There’s been damage to confidence recently, so the government may look to do another sale of the bonds when conditions stabilize.”

    Should Emerging Markets Worry about “Tapering”? - World Bank -  The US and European economies are showing some signs of recovery from the global financial crisis that began in 2008. As a result, the US Federal Reserve Bank is considering phasing out, or “tapering”, the extraordinary monetary policy measures through which it responded to the crisis. On May 22, Fed Chairman Ben Bernanke testified before Congress that the Fed may begin to reduce the size of its bond buying program. There was an immediate withdrawal by investors from stocks and bonds in emerging markets. The World Bank's East Asia and Pacific regional update estimated that in East Asia alone $24 billion was withdrawn from equities and $35.2 billion from bonds. Share prices fell by 24 percent in Indonesia, 21 percent in Thailand, and 20 percent in the Philippines. Yields on 10 year local currency bonds increased by 273 basis points in Indonesia, 86 basis points in Thailand and 76 basis points in Malaysia. The exchange rate depreciated by 18 percent in Indonesia, and about 5 percent in the Philippines and Thailand. Financial markets largely recovered once the Fed decided to postpone tapering in September, but there is still nervousness. The Indonesian Rupiah and Indian Rupee both fell significantly in November, till Fed Chair nominee Janet Yellen signaled that she saw a continued need for the bond buying program. At some point the Fed will indeed begin to taper. Investors should clearly be concerned as there is a risk of sudden and dramatic falls in asset prices. Should policy makers be concerned? Will there be an impact on growth, inflation or macroeconomic risk that requires a response from policy makers?

    Analysis: Surfing central banks in a benign 'QE trap' -  (Reuters) - The message is sinking in - economies of the rich world face super-easy money far into the future and central banks are now convinced it's the least of all policy evils. Despite rumblings of dissent about the financial bubbles and iniquities associated with zero interest rates and money printing, 2013 is ending with a remarkable certainty among global investors that cheap money is around for the long haul. And the outsize financial market reaction this year to even a suggestion the U.S. Federal Reserve would dial back money printing crystallizes the point for many. And even if the Fed does taper asset buying in 2014, liquidity from the Bank of Japan or European Central Bank could be boosted to offset it. That's not to say money managers are all cheer leading this. Many who spoke at Reuters Investment Outlook summit last week doubted its long-term efficacy and feared its social and political fallout even as waves of cheap cash continue to push stock markets to new records.If financial asset owners benefit more from 'quantitative easing' than the jobless or low wage earners, they insist, then monetary pumping merely exaggerates already disturbing wealth and earnings inequality in the United States, Britain and beyond - injects unforseen and incalculable political tension. Yet despite these misgivings, most assume zero interest rates, QE and extraordinary credit easing are the only likely horizon if soundings from the halls of monetary power in Washington, Tokyo, Frankfurt were taken seriously.

    Asia’s Exports Recover, but Can They Still Drive Growth? - A string of recent export data shows Asia is finally benefiting from a pickup in demand from the U.S. and Europe. But it’s unclear whether the region can rely on exports to power growth as it has in the past. Exports from East Asia recovered quickly in the immediate aftermath of the global financial crisis, expanding 30.0% in 2010 and 15.6% in 2011. But that growth slowed to just 2.3% last year. Recently, there has been some hope the worst is over.Japan and Singapore last week posted solid export figures, buoyed by growing U.S. demand. That follows a broader recovery in Asian manufacturing activity since October. J.P. Morgan Chase believes rising demand in the developed world augurs well for Asia. The bank points out that activity in the electronics sector, which accounts for more than one-third of Asia’s manufacturing output, is looking healthy. Meanwhile, the latest export numbers show the recovery broadening to include non-telecommunication technology equipment, as well as smartphones.Capital Economics economist Gareth Leather said Asia’s most export-oriented economies – Hong Kong, Singapore, South Korea and Taiwan – should perform better as exports pick up over the next few years.But pessimists say U.S. demand is unlikely to drive Asian growth as much as it used to. For one, Asia’s reliance on the U.S. has declined as trade has grown within the region, especially with China. In 2012, 13.6% of East Asian exports were destined for the U.S., down from 23.8% in 2000, according to data from the Asian Development Bank. Over the same period, exports to China rose to 22.7% of East Asia’s total exports, from 9.7%.

    World Trade Volume up in Third Quarter -- The volume of world trade rose in September and in the third quarter, a sign that the global economy is picking up. The Netherlands Bureau for Economic Policy Analysis, or CPB, Monday said exports and imports rose 0.8% from August, when they fell 0.9%. With volumes also having risen in July, exports and imports during the third quarter were 1.1% higher, a pickup from the 0.3% rate of growth recorded in the second. Developing economies in Asia led the pickup in September, with imports rising 2.5% and exports by 1.1%. In central and eastern Europe, imports swelled 3.2% and exports rose 1.7%. The euro zone and Latin America were among the weak spots, recording declines in imports. The U.S., Japan and Africa and the Middle East recorded declines in exports. The CPB said its measure of momentum–which compares the average of the three months to September with the average for the three months to August–was the strongest since July 2012. “The increase reflects abrupt rises in both import and export momentum in emerging economies,” the CPB said in its monthly report. The CPB’s figures are watched closely by policy makers, including a number of central banks, because they provide the earliest available measure of global trade and an indication of how the world economy is faring.

    Venezuela Oil Rut Makes Dollars Even More Scarce - The slump in Venezuelan oil prices is depriving the South American nation of its main source of revenue and threatening bondholders already suffering the worst losses in emerging markets. Average prices of Venezuelan crude exports, responsible for 95 percent of the nation’s foreign currency earnings, fell to a 16-month low this month and ended last week at $93.98 a barrel. Each $1 dollar decline in a barrel of oil costs Venezuela about $700 million per year, according to estimates from state-owned Petroleos de Venezuela SA. The lost revenue is adding to concern over Venezuela’s creditworthiness after President Nicolas Maduro sent in the army to help enforce price controls at some stores and called on congress to grant him special powers to fight the “parasitic bourgeoisie.” Venezuela’s debt securities have declined 7 percent this month as borrowing costs touched a 22-month high of 14.56 percent, according to JPMorgan Chase & Co. “With this reduction in oil income, the government won’t be able to maintain spending levels,”

    The Problem With Big Sugar -Sugar is sweet, but the ethics of its production are anything but appealing. “Sugar Rush” a recent report released by Oxfam International as part of its “Behind the Brands” campaign, has shown that our use of sugar implicates us in land grabs that violate the rights of some of the world’s poorest communities. It is no surprise that the poor lose when their interests conflict with those of the rich and powerful. The Oxfam report provides several examples of producers who have acquired land without the consent of the people who live on it, turning farmers into landless laborers. Here is one. In the northeastern Brazilian state of Pernambuco, a group of fishing families had lived since 1914 on islands in the Sirinhaém River estuary. In 1998, the Usina Trapiche sugar refinery petitioned the state to take over the land. The islanders say that the refinery then followed up its petition by destroying their homes and small farms—and threatening further violence to those who did not leave. As recently as last year, the fishing families say, employees of the refinery burned down homes that had been rebuilt. Trapiche moved the families to a nearby town, where they gained access to electricity, water, sanitation, and schooling, but if they want to continue to fish, they have to travel a long distance. Many of them are still seeking to return to the islands.

    Behind Brazil's strong employment numbers hide a deteriorating economy and impending debt downgrade - A great deal has been said recently of Brazil's declining unemployment rate - which is now less than 40% of what it was a decade ago. Impressive indeed. But is this an indication of stabilization in the nation's economic growth? Hardly. It turns out that Brazil is experiencing a decline in the overall labor force, causing improved unemployment statistics.In spite of the seemingly strong unemployment numbers, Brazil's overall economic growth remains weak. The good old days of China-driven commodity boom are over. Financier Worldwide: - In recent years, Brazil has benefited significantly from enormous rises in commodity prices. However, analysts have suggested that these price increases were entirely artificial, driven by record low interest rates in the US and the huge demand for commodities from China. The commodity price boom is over and, with the prospect of the US Federal Reserve stimulus package soon being phased out, there is likely to be a great deal of concern across all emerging economies, including Brazil.  Further contributing to the county’s domestic woes, strong local demand for commodities served only to push prices upward, while inflation is approaching the upper limit of the official target set at 6.5 percent.  However, with industry shrinking rapidly, household consumption growing at its worst rate since the third quarter of 2011 and inflation now running at 6.46 percent on an annual basis, the Brazilian Central Bank has found itself in the uncomfortable position of needing to raise its base interest rate to 9 percent despite slow economic growth, highlighting imbalances in the economy.Both the current account and the government balance are now firmly in the red. And forecasts show further deterioration.

    Unleashing Brazil’s Growth - iMFdirect - Since the early 2000s, Brazil’s economy has grown at a robust clip, with growth in 2010 reaching 7.5 percent—its strongest in a quarter of a century. In the last couple of years Brazil’s growth slowed down. Although other emerging market economies experienced a similar slowdown, the growth outturns in Brazil were particularly disappointing. And the measures taken to stimulate the economy did not produce a sustained recovery. This is because unleashing sustained growth in Brazil requires measures geared not at stimulating domestic demand but at changing the composition of demand towards investment and at increasing productivity. Inadequate infrastructure and imbalances in demand are hampering Brazil’s growth process. During 2011-13 private consumption in Brazil has been strongly supported by very low unemployment, broad gains in real wages (partly owing to large increases in minimum wages), and buoyant credit expansion.  But investment has been disappointingly weak. Global uncertainties played a role, especially in 2011, but the main factors behind the sluggish investment have been home-grown, including the steady loss of competitiveness. To address this situation, the recent report on Brazil’s economy prepared by IMF staff recommends solidifying Brazil’s macroeconomic policy framework and adopting measures and reforms geared at increasing the economy’s productive potential and improving competitiveness.

    The World's 2170 Billionaires Control $33 Trillion In Net Worth, Double The US GDP - Before it became a conspiracy fact, the traditional response to all suggestions of a massive Libor/FX/commodity/mortgage rigging cartel was a simple if stupid one: too many people are involved and so it can never be contained. As it turns out not only can it be contained, but when the interests of the "conspiracy" participants are alligned, it can continue for decades. Naturally, the same applies for the pinnacle of the global wealth pyramid: the world's billionaires and their plan of wealth preservation and accumulation. Not only have the world's richest been the biggest beneficiaries of the monetary and fiscal policies since 2009, with the current 2170 global billionaires representing a 60% increase since 2009 according to UBS, but their consolidated net worth has more than doubled from $3.1 trillion in 2009 to $6.5 trillion now. At the same time, the net worth of the "bottom 90%" of the world's not so lucky population, has declined. Yet, somehow, the Fed is still revered.  Naturally, as in global financial conspiracies, the question arises: is it possible that instead of representing the interests of the general population, what the central banks simply do is follow the instructions of a far smaller cabal, that of the world's uber wealthy?

    More worn out ideological prattle from R&R -- There are seven graphs in the paper. An Excel spreadsheet was involved. Shonky stuff alert! R&R are back with another attention-seeking effort after they were disgraced when their Excel manipulation that just happened to generate ideologically-convenient results was discovered to be shonky (in the extreme). This time is not different though. As in all their so-called historical insights the pair conflate monetary regimes across time and at points of time, which means most of their conclusions are erroneous. While their insolvency threshold has zero credibility now they also still hang on it, if only by implication. And they claim that repression is when residents of free nations enjoy parking their savings in risk-free, interest-bearing government bonds, instead of taking risks with commercial paper. Sounds like free choice to me. Is suggest R&R take some R&R and let governments get on with expanding their deficits and reducing unemployment. The public debt ratios will take care of themselves.The contention in their latest paper – Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten – is that advanced nations are going to have to face the medicine soon enough, just like poor “emerging economies” because austerity and/or growth will not reduce debt levels.This is one of those studies that assumes the major issues away because they are inconvenient to the ideology being pushed.

    Data Suggests Euro-Zone Recovery May Be Fizzling - Business activity in the euro zone slowed in November, a closely watched survey of purchasing managers showed, while consumer confidence fell for the first time in a year, underscoring concerns that the region's already tepid recovery is fizzling.Thursday's figures, from data firm Markit, also highlighted a widening gap between Germany and France, the euro zone's two biggest economies that account for half the bloc's gross domestic product.Business activity expanded in Germany at its fastest clip in 10 months, led by its export-sensitive manufacturing sector. France's fell, fanning concerns that it could slide back into its third recession in five years. The euro zone Purchasing managers index fell to 51.5 in November from 51.9 in October, according to Markit, which compiles the figures based on a survey of purchasing executives. Index readings above 50 signal expansion, while numbers below 50 indicate falling activity.  The report "suggests the region's anemic recovery may be losing more steam," said Ben May, economist at Capital Economics. Gross domestic product in the euro zone grew just 0.4% at an annualized rate last quarter, down from 1.1% in the second. Euro-zone GDP contracted for six straight quarters through the first three months of this year.In a separate report, the European Commission said consumer confidence in the euro zone fell to minus 15.4 in November from minus 14.5, an indication that consumer spending will likely be sluggish in the final weeks of the year. Economists at J.P. Morgan shaved their forecasts for GDP growth in the fourth quarter as well as the first three months of 2014 after the PMI figures were released.

    French Megabank – “Germany Should Leave The Eurozone” - Wolf Richter - France’s government is struggling to stay relevant. François Hollande has become the most despised president since comparable polls started in 1958. To save his skin, Prime Minister Jean-Marc Ayrault proposed a total tax reform by shuffling around who pays what, an impossible undertaking, fraught with strive and protests. Blindsided, Economy Minister Moscovici decided to not let himself be “buried alive,” as he said…. On the far right, Marine Le Pen, head of the National Front, has been clamoring for years to “let the euro die its natural death.”  But since it’s her idea, the political elite that have taken turns governing France for decades have to brush it off. Suddenly, there’s the next solution. This one is attractively presented with graphs and in simple economic terms that even a politician might understand. It’s seemingly well-reasoned and has no visible partisanship attached to it. And it came from one of the largest megabanks in France, Groupe BPCE, that hardly anyone knows. And now, its asset management and investment banking subsidiary, Natixis, released a zinger of a study designed to influence policy. It’s titled, “On a purely macroeconomic basis, Germany should leave the Eurozone.” Germany should get out of the way so that the remaining countries can devalue in a big way what would remain of the euro. France, Italy, Spain, Greece, etc. have always done that, one way or the other, before the euro took that nifty tool of sudden money destruction away from them. It would be the ideal solution for France. After conceding that there may be non-economic reasons to form a monetary union, the report lays out five reasons why Germany needs to exit. But it offers an alternate solution: if Germany wants to stay, it needs to pay.

    Euro Makes It Harder for Countries to Adjust Imbalances - Germany’s central bank has weighed in on a thorny topic in Europe: whether the euro has made it harder for countries in the currency to adjust their current account imbalances. The Bundesbank‘s conclusion: it has, and could create problems for the currency bloc down the road.“Current account adjustment is significantly hampered in countries that are members of a monetary union,” a pair of Bundesbank economists concluded in a paper published Monday by the central bank.If imbalances prove persistent, “ultimately, this could increase the risk of a balance of payments crisis going hand in hand with capital reversals. That is what we actually found in the data,” authors Sabine Herrmann and Axel Jochem wrote.The economists combed data from 1994 to 2011 for all 27 countries in the European Union, which includes those both inside and outside the 17-nation euro bloc. The analysis captures countries with flexible exchange rates as well as those with fixed exchange rates that also have more leeway on interest rates with their own monetary policies.The current account is comprised mostly of the trade balance in goods and services, but also includes income on investments. When these deficits rise, a normal adjustment is for a country’s currency to depreciate. That gives a lift to exports, which become more price competitive in global markets. The downside is more inflation.“The exchange rate regime does indeed matter for the pace of current account adjustment,” the authors wrote.

    Euro-Zone Financial System Stress Is at Pre-Crisis Levels, E.C.B. Says — Euro zone financial sector stress has fallen to levels not seen since before the global financial crisis began in 2007, but the sector remains fragile, the European Central Bank said on Wednesday. In its semi-annual Financial Stability Review, the ECB said the key risks to euro zone financial stability are economic and financial shocks, tensions in government debt markets, global financial market turbulence and bank funding challenges in the euro zone periphery. "Indicators measuring systemic stress have fallen back to close to their pre-crisis levels," the ECB said in the report. "Stress indicators and euro area fundamentals suggest alleviation of financial market tensions, especially on the banks' funding side." Data published separately on the ECB's Internet site showed that the systemic stress indicator hit in late September its lowest level in the euro era and has remained close to those levels since. But the central bank said that with a crunch period of bank funding approaching, risks of banks cutting their balance sheets are increasing. "With sizeable amounts of bank debt maturing over the coming months, persistently high funding costs for a set of challenged banks could amplify pressures for deleveraging of a disorderly nature - with an associated negative impact on economic welfare and growth."

    War Between Spain and Germany Erupts Over Next Round of Watered Down Stress Tests; Germany Complains About the "Carry Trade" - Via translation El Confidencial reports War between Spain and Germany Erupts Over the Hardness of Stress Tests The new stress tests of European banks have caused the outbreak of a new confrontation between the governments of Spain and Germany. Until now, it was Spain who argued in favor of a tough exercise, similar to what Spain had to undergo when seeking bailout funds.  By contrast, Germany (supported by France and Italy) preferred more lax exercises that do not bring to light the shame of their banks balance sheets of billions in toxic assets, including Spanish mortgage securitizations.  But now the German authorities found one flank to counterattack: the huge public debt exposure of Spanish banks, which they believe should be penalized in these exercises, which can be catastrophic for our financial system when it just starts to lift head. The German authorities consider that if the tests need to be hard, then they should be hard in every way, including sovereign debt. In addition, the German central bank seeks to distinguish between the sovereign debt of their country and peripherals. It is what they call "enforce the triple A".

    I.M.F. Shifts Its Approach to Bailouts -— The International Monetary Fund, convinced that Europe erred in forcing debtor countries like Greece and Portugal to bear nearly all the pain of recovery on their own, is pushing hard for a plan that would impose upfront losses on bondholders the next time a country in the euro area requests a bailout.  Scarred by its role in misjudging the depth of the Greek recession and rebuffed in its attempt to get European governments to write down their Greek loans, the I.M.F. is advocating a more aggressive approach to debt restructuring to try to ease the rigors of German-style austerity.  But the proposal — which is still being hashed out behind the scenes by top economists and lawyers at the fund — is encountering stiff resistance, not just from the powerful global banking lobby, but also from European policy makers, and more recently, the United States government, which is the I.M.F.’s largest financial contributor.  Indeed, despite tough talk on both sides of the Atlantic about making bond investors share the cost of bailouts with taxpayers, the world’s largest economies seem to have accepted the dire warnings advanced by investors and bankers that the I.M.F.’s proposed new approach would badly roil still-fragile credit markets in Europe.  . “But in the end there is no trade-off between austerity and debt restructuring — you have to do both,”

    The Resurgence of Authoritarianism in Economically Beleaguered Greece: The Shaping of a Proto-Fascist State: Forty years after the collapse of the military junta and the return to parliamentary democracy, authoritarianism is once again in full swing in economically beleaguered Greece. The country is under the direct command of the troika of the European Commission, the European Central Bank and the International Monetary Fund, which in May 2010 provided the terms for the first "bailout" package of Greece for the sum of 110 billion euros as the country was shut out of the international credit markets because of its staggering level of government debt (close to 128 percent) and astronomically high deficit (more than 15 percent) and faced the prospect of a default. A sovereign default would have resulted in huge losses for German, French, Swiss and other European as well as American banks and carried contagion risk, which might have led to the dissolution of the eurozone itself. Indeed, "rescuing" Greece for the sake of the euro was so important for European policymakers that a second "bailout" was approved in March 2012 for the years 2012-14, this time for 130 billion euros. And a third "bailout" almost certainly will be introduced in 2014. As the small Mediterranean nation and birthplace of democracy surrendered its financial sovereignty to its international creditors, the debt was being repaid exclusively by the blood and tears of the average working citizens, who have seen their incomes decline by as much as 30 percent in the past couple of years while simultaneously experiencing drastic social program cuts and sharp reductions in their pension benefits. The Greek government, especially the current one, which consists of a highly opportunistic alliance between conservatives and socialists, is increasingly resorting to authoritarian methods to enforce the commands of the troika, which has shown not the slightest concern for the economic impact and social consequences of its policies. These include the largest decline in the national output of any economy in recent history (nearly 25 percent), massive levels of unemployment (currently standing at 28 percent, and with youth unemployment more than 60 percent), widespread poverty (more than one of three Greeks now lives below the poverty level), homelessness, a surge in suicides, massive migration among the nation's most skilled and educated segment of the population and the rise of political extremes.

    The Anti-Debt-Relief Crowd Is Wrong on Greece - Klaus Regling, the managing director of Europe’s bailout fund, the European Stability Mechanism. argued in an interview last week that by now the maturities on Greek debt are so long and the interest rate it pays so low that the scale of the debt pile itself has become “meaningless.”  This is a new and more sophisticated twist to the usual argument against debt relief, which is that forgiveness risks encouraging chronically undisciplined countries to again run up their budget deficits, safe in the knowledge that whenever debts get out of control they won’t have to pay. Both the old and the new arguments are wrong and fraught with risk. The expectation that debt relief should follow the German elections was based on a number of immovable facts. The first is that Greece is in the grip of an economic depression that has lasted six years, wiping out 30 percent of its gross domestic product -- the same contraction the U.S. suffered during the Great Depression. Greece is bleeding profusely. The second fact is that after four years of austerity measures designed to reduce Greece’s public debt, it has instead continued to grow to 175 percent of GDP. This is despite the 2012 restructuring of bonds held by the private investors, which shaved 30 percent of GDP worth of debt from what Greece owes.  Regling said in his interview that Greece already enjoys concessional interest rates and long maturities on its debt that amount to a form of relief -- and this is true. The annual interest rate that Greece has to pay on these new loans is low, about 3 percent.Yet whether Greece can pay the interest on its loans for now is not the issue. Until Greece’s nominal GDP growth, currently sharply negative, rises above the interest rate it pays on its debts, these will go on increasing as a proportion of the economy. This is simple arithmetic: Debt service costs add to the debt, the numerator, faster than GDP, the denominator, rises.

    Austerity budget tabled in parliament  -- Austerity measures to the tune of €5.6bn, to be achieved through increasing tax revenue and cutting social spending in 2014, are at the heart of the draft state budget submitted to parliament on Thursday. The document foresees increasing tax revenue to €49.6bn, up €2.3bn or about 5.5% on the €47.3bn that the government is expected to bring in this year. It also envisages slashing social spending by about €3.2bn, a 6% reduction from its present €52.6 billion to €49.4bn in 2014. Some €2.29bn of those cuts will be from the health and social insurance budget. Presenting the document, the finance ministry said the country would return to growth in 2014, achieving a primary surplus of €3bn (up from an expected €812m this year). As the draft budget has not been approved by the troika, it may be subject to change next year even if it is passed when it comes to a vote in parliament in early December. This increase will come mainly from increasing direct taxes by 8.5% (to reach €21.5bn) and by reducing indirect taxes by 1.8% (to reach €24.08bn). An 11.5% increase in income tax is expected to bring that total to €12.9bn while property tax revenue is expected to reach €3.93bn (an increase of 41.4%). 

    Anti-austerity protests disrupt travel in Spain and Portugal - Air passengers travelling to and from Portugal Sunday saw their travel disrupted as an anti-austerity strike by border police resulted in long queues and delayed international flights, a union spokesman said. The strike affected airports in Lisbon, the northern city of Porto, and Faro in the southern Algarve region, as well as the airport for the island of Madeira, said Acacio Pereira, a spokesman for the union representing border police. Portugal’s national carrier TAP advised passengers to arrive early at the airport and for people with electronic passports to use automated controls. The strike, which extends to ID checks at ports and road borders, is set to continue for a second day on Monday. Border police are protesting understaffing and salary cuts of up to 12 percent for civil servants announced as part of the debt-wracked nation’s 2014 budget. This strike is the latest in a long series of angry street protests over tough austerity policy put in place by the centre-right government to reduce its public deficit and increase the efficiency of its economy to receive rescue loans of 78 billion euros ($106 billion).

    Portugal's latest austerity budget wins approval: (AP) — Portugal faces more austerity next year after Parliament approved the government's tough 2014 budget in the face of widespread opposition. The spending plan will bring a third straight year of cuts demanded by creditors who granted Portugal a 78 billion-euros ($105 billion) bailout in 2011. The budget aims to save 3.9 billion euros — about 2.3 percent of Portugal's annual gross domestic product. Among other measures, government workers earning more than 675 euros a month will have their pay cut by between 2.5 and 12 percent and their pensions will be reduced by 10 percent on average. Several thousand protesters gathered outside Parliament Tuesday during the vote. Though Portugal has made progress on the budget front, the country's economy remains weak with unemployment at 16.3 percent.

    Portugal adopts tough austerity budget amid massive protests - Debt-ridden Portugal approved Tuesday a harsh austerity budget for 2014 as thousands protested against the measure, with some demonstrators entering ministry buildings and the parliament. The ruling center-right coalition, which holds 132 of 230 parliament seats, overrode left-wing opposition to adopt the budget, which intends to save 3.9 billion euros (US$5.3 billion), in part by cutting public sector salaries and pensions. The adopted budget would cut civil servant wages by between 2.5 and 12 percent for earners of more than 675 euros per month ahead of taxes. Public pensions worth more than 600 euros per month would be cut by 10 percent. The age for getting a full pension would also go up to 66 from 65 as it is now, and spouse pensions would be means-tested. Thousands of protesters gathered outside parliament chanting “government resign!” and “enough of these crooks!” as the vote occurred, AFP reported.

    25% of Spanish Would Consider Leaving Spain for Economic Reasons; But Where Would They Go? - The employment and pay situation in Spain is so bad that 33% struggle to pay their bills. More importantly, 25% would consider leaving the country for better opportunities. Via translation from La Vanguardia, please consider One in three Spaniards have no money after paying their billsOne in three Spanish claims to have no money left after paying the bills, according to a report on consumer payments. The study further reveals that 25% would be think of emigrating because of their economic situation. The same percentage say do not have enough money for a decent life.In regard to Spain, the percentage of citizens who say they have no money after paying the bills is higher than the European average, which stands at 26 percent, although some countries like Greece, Estonia and Hungary reach 40 percent. If they have to prioritize in order to pay bills, the Spaniards choose to pay for the latest mobile phone and internet purchases. And if they can get savings on their household budgets, 79% do so by reducing leisure and clothing expenses. Another revealing statistic is that 25% of Spaniards say they do not having a sufficient amount of money for a decent life.  Estonia leads this ranking with 52%, followed by Hungary with 47% and Greece with 44%.  25% would leave for better opportunities, but where would they go? The same question applies to Greece, Portugal, and Estonia.

    Euro workers: no systemic risk - In his last press conference Mario Draghi said that the ECB was ready for negative deposit rates if necessary. His comments led to several European bankers rejecting this as a possibility (here and here). The comments of the Deutsche Bank and Commerzbank CEOs reflect on either their ignorance of how monetary policy works or their fighting against an ECB action that could make their lives harder (and their profits lower). Martin Blessing from Commerzbank argues that "too much cheap credit could lead to future crises" and he concludes that he does not know "how too much cheap liquidity can solve a problem that was created by too much cheap liquidity." This argument has now been wrongly used for 5 years, I thought that by now we would have learned that this is the wrong analogy. Fischen from Deutsche Bank complains that setting negative interest rates on deposits at the ECB would be like "penalizing banks". And this "will later be felt in a painful manner so that's what I've been warning about" (a threat?). This is the usual argument that banks are so important that you cannot do anything that annoys them. But what if negative interest rates are the right equilibrium value? In what way are we penalizing banks? Banks can go and invest their funds somewhere else if they find that this is not a competitive rate. In addition, it is not uncommon to have these CEOs arguing that what the Euro zone needs (in particular countries in the periphery) is a large reduction in wages. I guess this is fine. "Penalizing" workers is ok because they do not pose any systemic risk to the economy as a whole.

    France Minister of Industrial Renewal has New Target in his Sights - Arnaud Montebourg, Minister of Industrial Renewal of France, has a new target in his sights, the French public procurement group UGAP. Here is some background information about UGAP. Montebourg's complaint follows. UGAP's overall objective is to strengthen the social and environmental performance of public procurement, without increasing the cost of services offered. "We centralise applications and mutualise costs in order to propose offers that are financially successful. We ensure that the inclusion of social and environmental requirements in our bidding do not cause additional costs to the services offered."Montebourg is upset that UGAP does not supply enough products made in France, and he threatens to dissolve the group. Via translation from Le Monde, Arnaud Montebourg Targets UGAP Over "Made in France" Arnaud Montebourg has a new target in his sights: UGAP, the main central purchasing agency for state and local communities. UGAP does not provide enough support for French companies in the eyes of the minister of productive recovery . In response, Montebourg threatens to apply for dissolution of the company. "I consider that there is a serious problem with patriotic UGAP ," thundered the minister Tuesday, November 26 , before the presidents of the regions he received at Bercy. UGAP has a global order book except for France .  Montebourg is willing to overpay for everything as long as it's made in France.

    Dutch downgrade: Northern discomfort | The Economist: THE decision by Standard & Poor’s to strip the Netherlands of its coveted AAA rating is a vivid illustration of the damage that the euro crisis has wreaked not just on the troubled economies of southern Europe but also within the northern core. The rating agency downgraded the Netherlands today one notch to AA+. That leaves only Germany, Finland and Luxembourg within the 17-strong euro area with a top rating from the three main agencies. The Netherlands may be a small place but in fact it is the fifth biggest economy within the euro zone. And it has political clout within the currency club. Along with Finland, the Netherlands has been a crucial ally of Germany in formulating the response of northern creditor nations to the calls for help from the periphery. What worries S&P is poor growth prospects, which it says are weaker than it had previously expected and worse than that of other similar rich countries (which it defines as countries whose GDP per person is over $27,000). The agency thinks that it will take until 2017 for GDP to exceed its level in 2008. The economy is weighed down by high household debt. House prices, which have fallen by 20% from their peak are expected to fall a bit further next year. But the Netherlands is not alone in the northern core of the euro zone in suffering from poor growth prospects. France, whose economy is the second biggest, is also struggling. That puts more pressure on Germany to buttress the troubled currency union, but the policies set out by the proposed new coalition government seem more likely to weaken than to strengthen the euro-zone's biggest economy. The Dutch downgrade is yet another sign of how sick the euro zone remains.

    Standard & Poor’s Poor Analysis of the Dutch Economy - Today, Standard and Poor’s lowered it’s rating on Dutch sovereign debt. S&P is certainly right to mention low growth as one of the biggest problems in the Netherlands. And, I can only hope that Dutch policy makers finally start to be concerned with growth and unemployment, rather than being obsessed with budget deficit. However, it does not help at all that the Dutch sovereign is downgraded based on a poor understanding of the workings of the Dutch economy and the Dutch government finances.S&P downgrades the Dutch government by referring to disappointingly low growth, but this is in no small part due to the massive amount of austerity the Dutch government is imposing on the economy, in addition to the balance-sheet problems in the private sector (see more below). However, on austerity, S&P remains suspiciously silent, probably because S&P has in the past repeatedly issued warnings that ratings would indeed be lowered if deficits larger than 3-percent would persist. See for example here. For many years now, the Dutch government has been behaving as a dog chasing its own tail. Austerity has sent the Dutch economy into a downward spiral. Every year economic growth is lower than projected. Budget deficits are larger than projected. And, hence, every year the Dutch government announces ad hoc and ill-reasoned austerity packages so as not to breach the Brussels’ 3-percent deficit limit.

    Survival isn't enough - By fixing their exchange rates against each other the members of the euro can no longer resort to devaluation if they become uncompetitive. Instead they must regain competitiveness the hard way through “internal” devaluation, allowing their wages and prices to fall relative to those of the other members.  The nations that were the first to devalue in the 1930s did much better than those like France that clung on to gold. Given this experience, an obvious question is why the euro has survived whereas the gold standard disintegrated. In a new paper, Nicholas Crafts, an economic historian at Warwick University, gives three main reasons. First, it was easier to leave the gold standard than the euro because countries still had their currencies in place and were not bound by treaty obligations, whereby an exit from the euro entails leaving the European Union. Second, the “pernicious” link between weak banks and weak sovereigns in the euro-zone – like two drunkards trying to support each other - was less in evidence in the interwar years because banks were much smaller. And third, the euro-zone countries in difficulty have received support from other European partners and the IMF. But survival is not enough and Mr Crafts asks whether saving the euro may be a Pyrrhic victory. This is not just because of the woeful performance of the single-currency club since it started in 1999 in terms of living standards (which are now for example lower in Italy) but also because the prospects for the euro zone are so gloomy. And this judgment goes well beyond the short-run worries about a feeble recovery sparked by recent figures showing that euro-wide growth in the third quarter was a miserable 0.1%.

    ECB contemplating new LTRO - with a twist  -- As discussed back in September (see post), the ECB may be forced to take further action in an attempt to reignite the area's recovery. The central bank's consolidated balance sheet is continuing to decline and many are blaming this reduced liquidity for the area's weak credit growth as well as tepid and uneven economic expansion.It was therefore not too surprising to hear that the ECB is in fact discussing taking further non-conventional policy measures. Reuters: - The European Central Bank is considering a new long-term liquidity operation available only to banks that agree to use the funding to lend to businesses, a German newspaper reported on Wednesday, citing sources.  CB President Mario Draghi and other Governing Council members have repeatedly mentioned the option of conducting more liquidity operations, or LTROs, to help the fragile euro zone economy and ensure the flow of credit to the private sector. A few months ago some economists were hoping that the relentless decline in credit growth in the Eurozone may have bottomed. The year-over-year changes in the area's loan balances have turned in the right direction. Unfortunately the latest data show that not to be the case - both in corporate and consumer lending.

    Vital Signs: Progress on Euro Zone Inflation - Members of the European Central Bank got some relief on the price front: inflation turned higher in November instead of continuing to sink to levels not seen since around the deflationary period of the last recession. Consumer prices increased 0.9% in the 12 months ended in November, up from the 0.7% pace of October. The acceleration is small and inflation remains well below the ECB’s target. But the news pairs well with reports that the October Euro zone unemployment rate slipped to 12.1% from its record-high 12.2% in September. The improvements in inflation and unemployment take a smidgen of pressure off the ECB, which is set to meet Thursday, December 5. Economists at IHS Global Insight do not expect the central bank to take any action at the upcoming meeting, but they think new action may come later. “We expect the ECB will take further action before long, most likely in the form of another Long-Term Refinancing Operation (LTRO) especially given latest data showing a further and deeper fall in bank lending to businesses in October,” write the IHS economists. “Indeed, there are reports that the ECB is considering introducing a new LTRO which will be available only to banks that agree to use the funding to lend to businesses. While we would not rule out an LTRO being announced on [December 5], we believe it is more likely to occur early in 2014.”

    Euro Zone Inflation Rises to 0.9% as Jobless Rate Dips to 12.1% - The euro zone, suffering from years of stagnation or worse, reached another milestone in its stumbling recovery on Friday when the official unemployment rate fell for the first time since 2011. But a separate report showing a slight rise in inflation was not enough to quell fears that the 17 nations that rely on the euro as their common currency were at risk of being sucked into a potentially ruinous downward price spiral. Unemployment in the 17 European Union members that use the euro dropped to 12.1 percent in October, from the 12.2 percent record of the previous month, according to official figures. While it was mildly encouraging that an estimated 61,000 fewer people were jobless, the unemployment figures also showed that the rate in the 28 countries in the European Union, including countries not in the euro zone like Britain, Poland or Romania, was unchanged at 10.9 percent.  At the same time, estimated inflation in the euro zone rose to 0.9 percent in November from a year earlier, up from 0.7 percent in October, according to Eurostat, the European Union’s statistics office. The inflation rate is still well below the European Central Bank’s target rate of around 2 percent, and short of the level required to convince many economists that the euro zone is safe from deflation, a persistent and broad decline of prices that is a typical feature of economic depression.

    European Unemployment Declines From All Time High, Youth Unemployment Hits Fresh Record - Full Breakdown -- Following the "good" news in the inflationary front, in which European November CPI rose and beat expectations if posting the first sub-Japan inflationary rate in Eurozone history, Eurostat followed with more holiday cheer when it reported a surprising decline in the overall Eurozone unemployment rate from 12.2% to 12.1%, the first such drop since late 2010. This was driven by a decline in the jobless rate in France (from 11.1% to 10.9%), Portugal (from 15.8% to 15.7%) Ireland (from 12.7% to 12.6%) and Lithuania (from 11.4% to 11.1%). The offset was as usual Spain which rose to a new record high of 26.7%, and Belgium rising to 9.0%. It was not all good news however, and when one looks at Europe's weakest link - youth unemployment - the number once again rose to a fresh all time high, of 24.4%:In October 2013, 5.657 million young persons (under 25) were unemployed in the EU28, of whom 3.577 million were in the euro area. Compared with October 2012 youth unemployment decreased by 29 000 in the EU28, but increased by 15 000 in the euro area. In October 2013, the youth unemployment rate5 was 23.7% in the EU28 and 24.4% in the euro area, compared with 23.3% and 23.7% respectively in October 2012. In October 2013, the lowest rates were observed in Germany (7.8%), Austria (9.4%) and the Netherlands (11.6%), and the highest in Greece (58.0% in August 2013), Spain (57.4%) and Croatia (52.4% in the third quarter of 2013). Of all, Spain was most notable, because its record high youth unemployment rate of 57.4%, is now just why of the sad Greek record of 58.0%.

    Inequality & growth - It poses - but does not answer - the question: is the inequality we now have conducive to growth or not?  Two big things suggest not. First, GDP growth recently - and for that matter before the crisis - has been poor even as inequality, as measured by the share of incomes going to the top 1%, has risen. Secondly, we enjoyed decent growth in the 50s and 60s when inequality was lower than it is now. Of course, these two facts prove nothing.  But they do hint at something - that perhaps there are some mechanisms offsetting the ones Mr Johnson mentions. And these might cause inequality - beyond some point - to depress growth (pdf). These are:

    • - The urge to keep up with the Joneses doesn't just spur useful work. It might also encourage people to get into debt to spend as much as the rich, and this can (perhaps) lead to over-gearing and a financial crisis.
    • - Inequality can reduce trust, and distrust can reduce growth.
    • - Inequality might be a symptom of a dysfunctional economic and political system. If we have monopoly or other market failure and/or crony capitalism, we'll see some mega-rich people, but not a thriving economy.
    • - Inequality might itself create dysfunctional politics. If the poor push for redistributive policies which weaken investment incentives, or if the rich use their wealth to buy political favours, growth will suffer.

    Rationing the punch-bowl - THE role of central bankers is often compared to that of a sober adult who has to take away the punch bowl just as the party starts getting a little too rowdy. But what happens when the party as a whole is pretty glum apart from a small group of hooligans in the corner? Take away the booze then and you ruin the party for everybody else. Instead the answer is to pay particular care to who gets another drink. This is something of the dilemma facing the Bank of England. The economy seems to be improving and employment is up. But the recovery is a fragile one that could quite easily be choked off by higher interest rates. Yet house prices have taken off and are starting to look alarming on some measures such as loan-to-income metrics. It also doesn’t take a huge stretch of the imagination to see how further increases in house prices, and the accompanying increase in household debt as buyers lever up to buy houses, could leave large numbers of people extremely stretched and unable to keep paying their mortgages if interest rates rise.

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