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

Saturday, January 4, 2014

week ending Jan 4

FRB: H.4.1 Release-- Factors Affecting Reserve Balances -- Thursday, January 02, 2014: Federal Reserve Statistical Release - Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed Watch: On Challenging the Fed - At first blush, the Federal Reserve looked to have pulled off an almost seamless hand-off of accommodation from quantitative easing to forward guidance at the last FOMC meeting. The announcement of the long-awaited taper was met with a subdued bond market reaction while stocks soared. Since then, however, bond yields have climbed, breaching the three percent mark at the end of last week. Mortgage rates have been pulled along for the ride, and if they continue higher, the sustainability of the housing recovery will again be questioned. As discussed earlier by Matt Boesler at Business Insider, this very much looks like a challenge to the Federal Reserve's forward guidance. Or is it? It is not really a "challenge" if it simply reflects expectations of what a data-dependent policymaker would do in the face of a stronger than expected economy. I think a little of both is happening. Policymakers will be alert to signs that recent gains in rates look to be driven by expectations that the Fed will hike rates sooner than suggested by the Fed's own forward guidance. Relying on the separation principle so well defined by Gavyn Davies, the Fed would be less concerned with rate increases driven by a higher term premium. Using the two year Treasury rate as a proxy for the forward path of short rates, however, it looks clear that market participants are fundamentally reassessing Fed policy:

Boston Fed Chief Defends Dissenting View on Tapering –Federal Reserve Bank of Boston President Eric Rosengren said that his bank has become a leading light in focusing on how to balance both of the central bank’s mandates, jobs and inflation, and also defended his recent decision to oppose the Fed move to cut back on its easy-money policy stance. At the Boston Fed, “we have highlighted the high costs related to being below full employment for a long period of time,” Mr. Rosengren said in prepared remarks. At the same time, “we have strongly argued that policymakers should be as concerned about inflation being too low as being too high, given the toll and persistence of deflation were it to emerge.” Mr. Rosengren said in his remarks that his bank’s understanding of the Fed’s so-called “dual mandate” has informed the two times he has voted against the collective decisions made by the monetary policy-setting Federal Open Market Committee. He has long been one of the strongest supporters of aggressive action to support the economy, and he dissented at the December FOMC meeting when the Fed decided to slow the pace of its bond-buying stimulus program. Mr. Rosengren used his remarks to further explain the rationale behind his dissent. “With the inflation rate below target and the unemployment rate significantly above target, we believe strongly that monetary policymakers have the opportunity to be patient in removing accommodation, speeding up the process of achieving both elements of the Fed’s dual mandate,” he said. But it wasn’t the fact that inflation is well below the Fed’s 2% target that caused Mr. Rosengren to oppose the trims in Fed bond buying. Still-high unemployment remains a problem the Fed should target, he said.

Fed’s Lacker: Taper Decision Was Right Call - Federal Reserve Bank of Richmond President Jeffrey Lacker said Friday the central bank made the right call last month when it cut the pace of its bond-buying stimulus program, in a speech that predicted continued moderate levels of growth for 2014. “I supported” the decision of the monetary policy setting Federal Open Market Committee to slow the pace of its monthly bond-buying campaign to $75 billion, from $85 billion. He noted that when the Fed started the effort it wanted to see an improvement in labor markets, and that is what has happened. “It made sense to initiate the process of bringing the program to a close,” Mr. Lacker said in the text of a speech to be delivered before a bankers’ group in Baltimore. “I expect further reductions in the pace of purchases to be under consideration at upcoming meetings.” Mr. Lacker has long been skeptical of the Fed’s bond-buying efforts. He has feared the costs of the endeavor outweigh what he has seen as relatively scant benefits. In that light, his support of the Fed’s decision to pull back is unsurprising. Most market participants expect a gradual wind down in the purchases over the course of the year, but Fed officials who support the stimulus have cautioned what happens depends on the performance of the economy. Mr. Lacker said in his speech that as he looks forward to 2014, he is mindful of the fact that there have been repeated false dawns when it came to the recovery: many thought better growth was about to arrive only to have those expectations dashed.

El-Erian Warns "Fed May Have Won The 'Taper' Battle; But Are Yet To Win The 'QE-Exit' War" - With equity markets reacting enthusiastically to the Fed’s historic policy change announced last week, PIMCO's Mohamed El-Erian notes many have rushed to declare victory.  While most Fed officials will welcome the markets’ favourable reaction – and especially so after the May-June shock – El-Erian suspects that they are much more cautious. Indeed, in this FT Op-Ed, he lays out four reasons why such caution is understandable. Via The FT, First, the impact of Fed policy remains overly dependent on using artificially-high asset prices to alter household and company economic behaviour. Other transmission mechanisms, including the credit channel and the deployment of cash in real economic investments, remain muted. Second, the Fed is entering a more uncertain policy phase due to its ongoing instrument pivot – namely, less reliance on a direct measure (monthly purchases) and greater reliance on an indirect one (impacting behaviour through forward policy signals). Third, those at the Fed who follow closely market positioning will probably recognise that equity markets are currently in the grips of very favourable technicals; and, judging from history, such technicals can lead to price overshoots whose reversal can be quite disruptive. Finally, the Fed is not the only central bank that has been active in maintaining economic and financial tranquility and, to this end, continuously bolstering asset prices; and it is not the only institution that has been forced to rely on imperfect instruments to fulfil this task. The European Central Bank and the Bank of Japan are in the same boat. After a couple of false starts, Fed officials have impressively won the first big battle in implementing a gradual orderly exit from QE3, a highly-experimental measure whose longer-term consequences are not fully known as yet. They are yet to win the war.

Fed Watch: What Comes After the Evan's Rule? - Since the last FOMC meeting, market participants have grown cautious about the near term path of monetary policy, sending two year rates higher even as the Fed lowers their expectation of the policy path. Is this entirely justified by the economic data, or is another explanation at work? I suggest that the Evan's rule has turned hawkish and will increasingly be a challenge for Federal Reserve policy. In short, the nature of forward guidance is very much a question for 2014. I believe it was David Andolfatto who first recognized the hawkish nature of the Evan's Rule:  But surely, if the unemployment rate crosses the 6.5% threshold, the perceived probability of an imminent rate hike is likely to spike up. Absent the unemployment rate threshold, the market would likely expect the policy rate to instead remain low for a longer period of time. This is the hawkish nature of the Evans rule. Take this in light of Accross the Curve's commentary today: Several participants with whom I have spoken have expressed concern about the unemployment rate and how much it will drop when those jobless whose benefits expired drop out of the work force. That will be a participation rate event but since the FOMC did not tamper with threshold some are concerned about a big drop in the rate. As I noted yesterday, there was some disappointment that the Fed did not change the thresholds. The Fed wants it both ways - they want the impact of changing the threshold without actually changing the threshold.   Why don't they want rules? Because they don't know what the rule should be. Remember Federal Reserve Chairman Ben Bernanke's press conference - he thinks the decline in the labor force participation rate is largely structural and that current wage growth is sufficient to deliver a 2% inflation rate. He doesn't doesn't sound like he wants his hands tied by some rule, because he doesn't know where to draw the line. 6.5 percent is easy. Is 5.5 percent?

Fed Watch: Inflation, Wages, and Policy - As something of a addendum to my last piece, I wanted to follow up on the take-down of the inflation story by Ethan Harris of BAML as reported by Sam Ro at Business Insider. Harris' argument is that there is plenty of slack in the labor market, so there is no reason to worry that wage growth-fueled inflation is just around the corner. Fair enough; I have always said that the ultimate test of the theory that labor markets were tight would be higher wages. The part I wanted to follow up on was this quote: Moreover, even if wages do inch higher, we are a long way from the normal 3 or 4% rate that could start to create serious pricing pressure. I think this overlooks an important point - the Federal Reserve has historically tightened policy at or before wage growth turns upward and the policy peak occurs when wage growth is hovering in the 4-4.5 percent range: In other words, we don't need to see wage growth high enough to create price pressures to trigger tighter monetary policy. Typically, the Fed is tightening policy ahead of higher wage growth. This, I think, is one reason to question the Fed's stated policy path and also explains why the Fed would be hesitant to embrace a lower unemployment threshold. The fact that wages are rising while unemployment remains high is probably something of a puzzle to them, and lends credence to the stories that the labor market is currently affected by severe structural issues even though they see the same measures of labor market slack that Harris identifies.

Fed’s Plosser: May Need to Employ Aggressive Tightening Campaign - The Federal Reserve is facing daunting challenges when it comes to eventually ending its current easy money stance, and it might have to raise short-term rates faster than many expect, warned Federal Reserve Bank of Philadelphia President Charles Plosser. While he didn’t say the central bank is on the edge of needing to raise rates off of their current rock-bottom levels, the official fretted the Fed confronts a wide range of uncertainties about how that process will play out. Mr. Plosser has been a long-term skeptic of the Fed’s bond-buying stimulus efforts, and he’s been uncomfortable with the duration of very low short-term rates.  His comments follow the FOMC’s decision in December to slow the pace of what had been an $85 billion per month bond-buying program. Going forward, the monthly pace of purchases will stand at $75 billion, and many in the market expect a gradual but steady reduction in the pace of buying as the year progresses. Mr. Plosser used his remarks to look out a bit further at the monetary policy outlook. Currently, the Fed expects to keep short-term rates very low until some time in 2015. The veteran central banker is uneasy with that, and warns the Fed should prepare for a faster and more aggressive campaign of rate hikes given the inflation risks presented by all the liquidity it has provided markets. Mr. Plosser said the Fed would like to raise rates “gradually” but added “it doesn’t always work that way.”

The Fed’s Lopsided Inflation Target - Is the Federal Reserve being cavalier about consistently undershooting its inflation target — and therefore compromising potentially stronger growth and job creation? Some economists think so. First and foremost, there is Boston Fed President Eric Rosengren, who dissented against the central bank’s decision in December to begin paring back the pace of its bond-buying stimulus by $10 billion to $75 billion per month. “I would prefer to wait until the economic improvement that I am forecasting is clearly evident in the data before reducing the size of the asset-purchase program. I think patience remains appropriate at this time,” he said, citing how far the Fed is falling short on both the inflation and employment sides of its dual mandate. Other officials have expressed similar concerns, and the Fed statement itself cautions that “inflation persistently below its 2% objective could pose risks to economic performance.” The Fed has been missing its inflation target for much of the period much since the start of the financial crisis in mid-2007. In November, officials’ preferred inflation measure, the personal consumption expenditures index, stood at just 0.9%, under half policy makers’ stated 2% goal. This causes some of the more dovish observers to argue the central bank treats its target as asymmetric — that is, it is more concerned about overshooting than underachieving. A recent New York Fed study suggested otherwise. It found that, because the relative stability of inflation over a 20-year horizon around the Fed’s 2% goal, formalized at the start of 2012 but long seen as an implicit objective, central bank policy has in part mimicked a more aggressive approach known as price-level targeting. That would require policy makers to actively shoot for higher inflation so that price growth would trend back towards the desired level more quickly. Prominent economists including Olivier Blanchard at the International Monetary Fund and Kenneth Rogoff of Harvard have called for a higher inflation target, at least temporarily, to make up for lost ground and take up some of the remaining economic slack.

Bernanke: ‘Even Low Inflation Can Create Problems’ - Low U.S. inflation poses risks to the economy by leaving it vulnerable to shocks, Federal Reserve Chairman Ben Bernanke said on Friday. Ben Bernanke—Bloomberg NewsAsked about whether the goal of Fed policies was to raise inflation or lower interest rates, Mr. Bernanke emphasized the latter. The Fed in 2012 established a long-run inflation target of 2%. Inflation has been running well below that level this year. Referring to the Fed’s second round of bond buys in 2010, he said then “the goal was to avoid deflation. Deflation is not a zero sum thing. Even low inflation can create problems.” He said, “inflation then, like today, was very soft but even more so. The Fed in December decided to start reducing its monthly bond purchases to $75 billion per month from $85 billion. The policy is aimed at keeping long-term interest rates low and spurring borrowing, particularly in housing and other rate-sensitive sectors.

Don’t fret about soaring asset prices – this time is different - Back in 2006 and 2007, commentators (including this one) warned about the rise in stock prices, housing credit and other forms of risky lending in several advanced economies. House prices are rising again. Stock indices have broken records. Derivatives with three-letter acronyms are back. So are long-forgotten old favourites, such as the “cov-light” loan (don’t ask). Should we be worried? Not really. This time really is different. I do not mean that the world has entered a new phase allowing us to use silly arguments, such as a change in demography, to defend high and rising asset prices. . For starters, what matters for economic stability is not the level of asset prices, and their subsequent deflation, but leverage and contagion. By 2007, several advanced economies had reached the final third stage in Hyman Minsky’s financial instability hypothesis. This was what the famous economist called Ponzi-finance – a snowball-type financial racket that was bound to end badly. The US subprime mortgage market was, of course, the most extreme case of late-stage Ponzi-type finance, which ultimately triggered a near-meltdown of the global financial system. The second reason I am more optimistic is that there is a greater consensus among central bankers in favour of using macroprudential tools. In several markets we may be in a late-stage one or early-stage two of the Minsky financial instability cycle – somewhere between what he calls hedge finance and speculative finance. And finally, the upturn in the business cycle in the US and the UK reduces to some extent the conflict between economic stability and financial stability. It has been necessary for central banks to keep policy interest rates low to prevent deflation and stabilise employment. If low nominal interest rates persist for long periods, we know that they tend to encourage financial speculation. As the business cycle in the advanced economies turns upwards, interest rates will begin to rise. There will be less incentive for speculative borrowing then.

Fed getting it wrong tops list of investor concerns - Top of many known worries lists is that the Fed’s control of events will slip. “The biggest risk for 2014 is definitely the risk of the Fed getting it wrong,” says Didier Saint-Georges, investment committee member at Carmignac. US Treasury yields have risen this year but bond market volatility has been low.  “What is kept artificially stable is often what is most risky. It’s like the turkey analogy; a turkey that is fed regularly in the run-up to Christmas turns about to be the least safe bird of all.” Mohamed El-Erian, chief executive of Pimco, worries about a mishap as central banks switch from “policy-induced growth to higher, durable and more inclusive private sector-led growth . . . In each case – that of the Fed, the European Central Bank and Bank of Japan – the policy transition is complex. It involves changes in an already highly experimental policy mix.”

US broad money supply growth slows - The US broad money supply expansion has slowed materially in the last few months, with the year-over-year growth now at the lowest level since mid 2011. Except for certain components of M2 such as money market funds, the broad money supply is an indicator of the nation's overall credit expansion. This may, at least in part, explain the relatively low inflation the US has experienced in recent months (see post).

Is the treasury curve artificially steep? - The treasury yield curve remains quite steep by historical standards. Typically such steepness is driven by expectations of higher inflation in the future. But as discussed earlier, that is not the case in the US (see post). Instead it is the expectation of the Fed's "taper" that has been influencing the shape of the curve. Measured as the difference between the 10-year and the 1-year yield, the US curve is now steeper than those in most developed economies, including Canada, Germany, France, the UK, Japan, and Australia. The only developed economies with steeper government curves are in the Eurozone periphery - the result of lingering credit concerns.

Bitcoin Is Evil - Paul Krugman - So far almost all of the Bitcoin discussion has been positive economics — can this actually work? And I have to say that I’m still deeply unconvinced. To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why BitCoin should be a stable store of value. Brad DeLong puts it clearly: Underpinning the value of gold is that if all else fails you can use it to make pretty things. Underpinning the value of the dollar is a combination of (a) the fact that you can use them to pay your taxes to the U.S. government, and (b) that the Federal Reserve is a potential dollar sink and has promised to buy them back and extinguish them if their real value starts to sink at (much) more than 2%/year (yes, I know). Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly? I have had and am continuing to have a dialogue with smart technologists who are very high on BitCoin — but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange. Even if I buy this (which I don’t, entirely), it doesn’t solve my problem.  What about the normative economics? Well, you should read Charlie Stross: BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions.  Go read the whole thing.

An Ubernerd Weighs In - Paul Krugman - My old college roommate John R. Levine, who was a techie before anyone knew such creatures existed (let alone that they would rule the world), sends me a note about Bitcoin that confirms some of my own suspicions:It occurs to me that part of the disconnect is that Bitcoin solved a major technical problem, one that people had been thinking about for about 20 years, and we nerds just can’t believe that it doesn’t also solve an economic problem. The technical problem is double spending–if I have some digital money, it’s easy enough to verify cryptographically that it’s real, but if I give it to you, how can you tell that I haven’t also given it to someone else? Until Bitcoin, the answer was to have a bank that knew which coins were valid, so you’d present my coin to the bank, which would check its database and if it’s valid, cancel it and give you a new one. Bitcoin has its decentralized blockchain which is a very clever recasting of the problem so that the state of the “bank” is whatever the majority of bitcoin miners agree that it is. Getting enough of the miners to agree is known as the Byzantine Generals problem, and has a technical history of its own.So with this breakthrough, we must have an economic breakthrough? We don’t? Well, then you just don’t understand/are in the pocket of the illuminati/whatever. If you belive that Bitcoin is a lot like paying for stuff with little bags of gold dust where every grain of dust has a publicly recorded serial number, well, then, uh.

Cynical Fantasies - Paul Krugman -- One thing that happens when you try to have a rational discussion of Bitcoin, gold, and/or other libertarian causes is that you get a lot of cynical remarks about government (which is one of the clues that this is, to an important extent, about politics.) You say that there’s nothing putting a floor under Bitcoin’s value? Well, how do you know that the government won’t debase the dollar to nothing? Huh? Huh? Well, there’s an answer to that: governments care about their reputations, and even, to some extent, about the welfare of their citizens. I can hear the jeering already. We know better, don’t we? Don’t governments with the power of the printing press universally abuse that power? Well, no. That sounds like cynical realism, but it’s actually cynical fantasy. Yes, Weimar. Also Zimbabwe. And, in recent decades, who else? Actually, nobody. The real track record of fiat currencies is that most of them are run responsibly except in the aftermath of political chaos. If you look at the actual facts, you discover that episodes of high inflation have become quite rare, even though nobody is on the gold standard or (except in the euro area) anything like it. So, again, the notion that governments can’t be trusted with the printing press sounds cynical and realistic, but it’s actually a fantasy, probably brought on by reading Ayn Rand instead of Tolkien.

The End of Pretend - Kunstler - If being wealthy was the same as pretending to be wealthy then people who care about reality would have a little less to complain about. But pretending is a poor way for a society to negotiate its way through history. It makes for accumulating distortions which eventually undermine the society’s ability to function, especially when the pretending is about money, which is society’s operating system.  The pretense and distortions start at the top of American life with a President who broadcasts the message that some kind of “recovery” has occurred in the economic affairs of the country. Either he just wants the public feel better, or he is misled by the people and agencies in his own government, or perhaps he just lies to keep the lid on. To truly recover from the dislocations of 2008, we would have to make a consensual decision to start behaving differently in the process of adapting to the new circumstances that the arc of history is presenting to us. We’d have to decide to leave behind the economy of financialization, suburban sprawl, car dependency, Wal-Mart consumerism, and prepare for a different way of inhabiting North America.  The dislocations of 2008 when the banking system nearly imploded were Nature’s way of telling us that dishonesty has consequences. The immediate dishonesty of that day was the racket in securitizing worthless mortgages ­— promises to pay large sums of money over long periods of time. The promises were false and the collateral was janky.  It got so bad and ran so far and deep that it essentially destroyed the mechanism of credit creation as it had been known until then, and it has not been repaired.  Since then, we have pretended to repair the operations of credit by falsely substituting bank bailouts and Federal Reserve “quantitative easing” (QE) or digital money-printing for plain dealing in borrowed money between honest brokers at the local level. The unfortunate consequence is that in the process we have distorted — and possibly destroyed — the value of our money and the various things denominated in it, especially securities, bonds, stocks and other money-like paper.

Fed's Lacker: Projecting 2% GDP Growth in 2014 - From Richmond Fed President Jeffery Lacker: Economic Outlook, January 2014 Many forecasters are citing the recent surge as support for projections of sustained growth at around 3 percent starting later this year. It's worth pointing out, however, that this has been true at virtually every point in this expansion. Ever since the recovery began, most forecasters have the economy picking up speed in the next couple of quarters with the easing of headwinds that have been temporarily restraining growth. My own forecasts (at least initially) followed this script as well. Although consumption grew rapidly at the end of last year, we have seen similar surges since the last recession, only to see spending return to a more moderate trend. Consumer spending trends are likely to depend on whether the dramatic events of the last few years are only a temporary disturbance to household sentiment or if they instead represent a more persistent shift in attitudes about borrowing and saving. At this point, I am inclined toward the latter view. Businesses also appear to be quite reticent to hire and invest. A widely followed index of small business optimism fell sharply during the recession and has only partially recovered since then. Interestingly, when small business owners were asked about the single most important problem they face, the most frequent answer in the latest survey was "government regulations and red tape." This observation accords with reports we've been hearing from many business contacts for several years now. They've seen a substantial increase in the pace of regulatory change and a substantial increase in uncertainty about the shape of new regulations. Both are said to discourage new hiring and investment commitments.

Merrill Ups Q4 GDP Forecast to 3.0%  2013 finished strong ...From Merrill Lynch: As we enter 2014, most of the data releases continue to surprise to the upside. We are now tracking 3.0% for 4Q GDP growth, following a solid 4.1% pace in 3Q. This is a marked improvement from the first half average growth rate of 1.8%. We should not be too surprised, however. The economy was hit with significant fiscal tightening at the beginning of 2013: taxes were hiked in January and the sequester spending cuts went into effect early in the year. The economy was able to handle the drag and has proved resilient. This leaves us feeling optimistic about the prospects for stronger growth to persist in 2014. The gain in the second half of 2013 has been driven by the consumer. For 4Q, real consumer spending is tracking a solid 4.0% pace. ... We believe a pickup in consumer spending should leave businesses feeling more confident and willing to invest.

Is the U.S. economy really about to go boom?: When it comes to the economy, hope tends to spring eternal at the start of the New Year. Wall Street ended 2013 feeling bullish, with major stock markets reaching record highs—the best performance in nearly two decades. Following last month’s news that U.S. growth was also up, to 4.1 percent in the third quarter, and unemployment down to 7 percent, the lowest point since Barack Obama was first elected president, many economists expect 2014 to be the year when America’s economic engine roars back to life—“the one that doesn’t disappoint.” Certainly, Obama thinks so: “We head into next year with an economy that’s stronger than it was at the start of the year,” he said during his year-end news conference. “I firmly believe that 2014 can be a breakthrough year for America.” But should we really be so optimistic about the year ahead? Politico Magazine asked leading economic thinkers to tell us which green shoots promise real improvement in the new year—and which ones we should view more skeptically. Here are the words of encouragement, and caution, we heard from eight.

Is the US Economy Really About to Go Boom? -- Politico asked 8 of us for a prognosis on US growth in the new year. This was my response – Something important will get better in 2014: Fiscal policy will stop hurting the economy. The results should show up as expansion in such service sectors as health, education and construction. The biggest impediment to economic expansion over the last three years has been destructive budget policy coming out of the Congress: misguided fiscal drag in the short term (crude cuts in spending, especially under the sequester; the expiration a year ago of Obama’s payroll tax holiday); repeated unnecessary disruptive and uncertainty-maximizing political crises (debt ceiling showdowns and government shutdown); and little progress on the genuine longer-term fiscal problem, which is the 40-year prognosis for U.S. debt (a result of projected rapid growth in entitlement spending). These fiscal failures have together probably subtracted well over a percentage point from U.S. growth in each of the last three years. Private-sector output and employment have been rising for four years, which is what has made this a period of continued economic recovery. Many of the benefits have come in manufacturing and energy, unexpectedly. But real government spending has been falling since 2010 in absolute terms, let alone as a share of GDP. For the first time in four years, Congress will probably not inflict contractionary fiscal policy on the American people. If the government sector stops making a negative contribution, that will show up as economic growth.

Is the U.S. economy really about to go boom? - Politico Magazine asks "should we really be so optimistic about the year ahead?" Mohamed El-Arian (PIMCO), Jared Bernstein (CBPP), Laurence Kotlikoff (Boston U.), Robert Reich (Berkeley), Menzie Chinn (Wisconsin U.) and Jeffry Frieden (Harvard), Jeffry Frankel (Harvard) and Dean Baker (CEPR) respond.  From the Chinn and Frieden entry: Is the American economy finally going to grow rapidly? Our book, Lost Decades: The Making of America's Debt Crisis and the Long Recovery, stressed that recovery would be long and slow, and could be hampered by such misguided policies as withdrawing fiscal stimulus too rapidly. Nonetheless, five years after the end of the Great Recession, there is finally some cause for optimism. GDP and employment growth are accelerating and manufacturing is rebounding, in large part due to growing exports. With corporate profits at record levels, business fixed investment is also going to surge—especially now that uncertainty created by congressional fiscal brinksmanship appears to have been resolved. Prospects for continued growth are good, especially because the economy is finally shaking off the aftereffects of accumulated household debt. Equity markets and home values have risen, bringing real household net worth back to its pre-recession peak. This has helped clear the debt overhang that held back consumer spending and bank lending for so long.  These points are discussed in this post, and illustrated in the following graphs.

Nouriel Roubini’s 2014 Outlook Is Only A Tiny Bit Gloomy - Ever since Nouriel Roubini predicted the credit crisis, everyone turned to the NYU professor for his assessment of the ongoing economic risks.  And for years, Roubini's words were often gloomy and sometimes outright doomy. He frequently used frightening imagery like "perfect storms" to describe what would happen when various likely risks would collide. However, his outlook for 2014 is far from doom and all-out gloom. From his new piece in Project Syndicate: The good news is that economic performance will pick up modestly in both advanced economies and emerging markets. The advanced economies, benefiting from a half-decade of painful private-sector deleveraging (households, banks, and non-financial firms), a smaller fiscal drag (with the exception of Japan), and maintenance of accommodative monetary policies, will grow at an annual pace closer to 1.9%.  Moreover, so-called tail risks (low-probability, high-impact shocks) will be less salient in 2014. The threat, for example, of a eurozone implosion, another government shutdown or debt-ceiling fight in the United States, a hard landing in China, or a war between Israel and Iran over nuclear proliferation, will be far more subdued.  But don't confuse this lack of doom with outright bullishness. Roubini believes that the world economy will continue to grow at a less-than-stellar pace. And he continues to be concerned about long-term bearish themes.

Why Has U.S. Recovery Been so Slow? - Uncertainty, policy missteps and a severe financial crisis all have hobbled America’s climb back from the depths of the recession, economists said Friday, taking on a subject that has bedeviled scholars since the downturn. A discussion of “Recessions and Recoveries” at the annual meeting of the American Economics Association in Philadelphia blamed factors before and after the 2007-2009 slump for the curiously slow pace of the U.S. recovery. According to research by Harvard professors Carmen Reinhart and Kenneth Rogoff, the 4 1/2-year-old recovery is no outlier in historical terms. In comparing the fallout from more than 100 systemic banking crises around the world over the past century, they found a common characteristic: “the protracted and halting nature of the recovery. On average its takes about eight years to reach the precrisis level of income; the median is about 6 1/2 years.” Another theory for the economy’s lethargic progress in the past few years is political uncertainty, said Stanford University economics professor, Nicholas Bloom. Along with a number of colleagues, Mr. Bloom has come up with a measure of economic political uncertainty, based on factors including media coverage, tax policies and differences among economic forecasts.

Brad DeLong asks questions about the financial panic of 2007-2009 and our current macroeconomic predicament - Brad asks: There are a large number of serious and, so far, unanswered questions about the financial panic of 2007-2009 and our current macroeconomic predicament. Among them are:

  • 1)Why is housing investment still so far depressed below any definition of normal?
  • 2)Why has labor-force participation collapsed so severely?
  • 3) Why the very large spread between yields on safe nominal assets like Treasuries and yields on riskier assets like equities?
  • 4) Why didn’t the housing bubble of the mid-2000s produce a high-pressure economy and rising inflation?
  • 5) To what extent was the collapse of demand in 2008-2009 the result of the financial crisis and to what extent a simple consequence of the collapse of household wealth?
  • 6) Why has fiscal policy been so inept and counterproductive in the aftermath of 2008-9?
  • 7) Why hasn’t more been done to clean up housing finance (in America) and banking finance in Europe
    I will try to answer

Wonkblog’s Graphs of the Year - If you’re looking for a few minutes of deeply nerdy fun and insight, you can’t do better than to browse through Wonkblog’s graphs of the year.  This year’s graphs are particularly diverse and interesting (I’ve got one in there too, on–you guessed it–full employment and the lack thereof), but there’s a meta-level of analysis here that I found particularly revealing: linking the graph with the person who chose it.

  • Hillary Clinton’s policy interests are so broad that it’s easy to forget her concerns about the disadvantages facing lower-income kids at the starting gate.  I’ve also thought those studies on how many words kids from different income classes hear at home are indicative of something important.
  • –Peter Orszag, with whom I worked back in the day, always suspected that common sense changes to uniquely wasteful incentives in the US health care delivery system could bend the health-case cost curve.  Though this is a dynamic process that continues to evolve, I think he was right.
  • –Bill Gates’ graph is worth a look too, not just because it’s about such an important topic–causes of untimely deaths–but because it doesn’t really show what he says it does (he asserts, and I believe him, that the number of those dying from communicable diseases is coming down, but how do you get that from this graph?) and it’s really complicated and hard to figure out, kinda like Windows (note all those little blocks you can’t really read, plus a bunch of blocks that don’t appear to have any writing on them at all).

Why Aren’t the 90% More Vocal for Policies That Would Support Them? - Brad DeLong -  Unless something goes unexpectedly wrong in 2014, the level of real per capita GDP in the United States will match and exceed its 2007 level. That is not good news. To see why, consider that, during the two business cycles that preceded the 2007 downturn, the US economy’s real per capita GDP grew at a 2% average annual pace; indeed, for a century or so, the US economy’s real per capita GDP grew at that rate. So US output is now seven years–14%–below the level that was reasonably expected back in 2007. And there is nothing on the horizon that would return the US economy to–or even near–its growth path before the 2008 financial crisis erupted. The only consolation–and it is a bleak consolation indeed–is that Europe and Japan are doing considerably worse relative to the 2007 benchmark.The US economy’s annual per capita underperformance in 2014 will thus amount to $9,000. That means $9,000 per person per year in consumer durables not purchased, vacations not taken, investments not made, and so forth. By the end of 2014, the cumulative per capita waste from the crisis and its aftermath will total roughly $60,000. If we project that forward–with nothing visible to restore the US to its pre-2008 growth path–at the annual real discount rate of 6% that we apply to equity earnings, the future costs are $150,000 per capita. If we use the 1.6% annual real discount rate at which the US Treasury can borrow via 30-year inflation-protected Treasuries, the future per capita costs are $550,000. And if we combine the costs of idle workers and capital during the downturn and the harm done to the US economy’s future growth path, the losses reach 3.5-10 years of total output.

Fiscal Fever Breaks, by Paul Krugman - In 2012 President Obama, ever hopeful that reason will prevail, predicted that his re-election would finally break the G.O.P.’s “fever.” It didn’t. But the intransigence of the right wasn’t the only disease troubling America’s body politic in 2012. We were also suffering from fiscal fever... Instead of talking about mass unemployment and soaring inequality, Washington was almost exclusively focused on the alleged need to slash spending (which would worsen the jobs crisis) and hack away at the social safety net (which would worsen inequality).  So the good news is that this fever, unlike the fever of the Tea Party, has finally broken.  True, the fiscal scolds are still out there, and still getting worshipful treatment from some news organizations. As the Columbia Journalism Review recently noted, many reporters retain the habit of “treating deficit-cutting as a non-ideological objective while portraying other points of view as partisan or political.” But the scolds are no longer able to define the bounds of respectable opinion. For example, when the usual suspects recently piled on Senator Elizabeth Warren over her call for an expansion of Social Security, they clearly ended up enhancing her stature.

Budget deal’s pension cuts anger veterans -  The plan to trim pension increases for working-age military retirees such as Preston is by far the most controversial provision in a bipartisan budget deal approved by Congress and signed last week by President Obama. The cut is small — a one-percentage-point reduction in the annual cost-of-living increase — but it has provoked outrage among veterans, some of whom argue that the country is reneging on a solemn pact. And even though lawmakers, especially in the GOP, fulminate about the need to cut the cost of federal health and retirement benefits, many have vowed to roll the cut back when Congress returns to work next week.  The authors of the budget deal, House Budget Committee Chairman Paul Ryan (R-Wis.) and Senate Budget Committee Chairman Patty Murray (D-Wash.), have agreed to amend the provision to exempt disabled retirees and survivors of those killed in action, eliminating roughly 10 percent of the $6 billion in savings projected over the next decade. But Ryan has resisted efforts to abandon the pension cut entirely, calling it a “modest” adjustment to a particularly generous program — and therefore a more sensible choice than harder decisions that may lie ahead.

IRS could face blame for Obamacare’s unexpected tax bite - A key piece of the health care law gives Americans making less than 400 percent of the poverty line subsidies to buy insurance. But if buyers don’t alert the insurance exchanges to big life changes throughout the year — like a divorce, promotion or new job for them or a spouse— they could wind up with sticker shock at tax time. It’s a new responsibility for this group — many of whom are just struggling to sign up. The IRS, for its part, must make sure consumers don’t get blindsided — or it will face a bunch of angry taxpayers who didn’t realize they would owe Uncle Sam money back, tax experts said. “If I were the IRS, I would be very concerned that I’m going to be viewed as the villain when people have to pay back money the government gave them for health insurance,” There is time. Potential “repayments” to the government will not come due until 2015, when recipients file next year’s taxes. But the new rule for reporting these life changes begins this January.

The Great Italian Auto Bailout — Courtesy of U.S. Taxpayers - At the beginning of 2014, Detroit may be bankrupt, but they’re cheering the five-year-old U.S. auto bailout in Italy. That’s because after being the beneficiary of billions in U.S. taxpayer largesse, Fiat, the leading Italian auto company, is going to buy its final stake in Chrysler from that other big bailout recipient, the United Auto Workers (UAW). “Chrysler’s Now Fully an Italian Auto Company,”  reads the Time magazine online headline. But wait a minute! Wasn’t the bailout supposed to be about saving the American auto industry? As Mark Beatty and wrote in The Daily Caller in November 2012, after presidential candidate Mitt Romney made the controversial claim that Fiat would be expanding production of Chrysler’s Jeep in China (a claim that turned out to be correct), The real outrage arising from the 2009 Chrysler bailout is not that its parent company, Fiat, is planning to build plants in China. It’s that the politicized bankruptcy process limited Chrysler’s growth potential by tying it to an Italian dinosaur in the midst of the European fiscal crisis. The Obama administration literally gave away ownership of one of the Big Three American auto manufacturers to an Italian car maker struggling with labor and productivity issues worse than those that drove Chrysler to near-liquidation.

Why do we pay taxes? - There are a number of reasons to pay taxes. One is to legitimate the currency, as your taxes can't be paid in any other currency than the one legitimated by the government. This means that you have to use this currency and no other. Another function of taxes is to serve as an economic redistribution mechanism, which is a political function that sometimes works well and at other times not so well. At present, it isn't working well in this sense at all. A third function of taxation is to control spending, sometimes as an aid to reduce inflationary pressures. Whether this is the best mechanism for doing this is a matter of some debate.  None of this has anything to do with supplying the government with money to spend. The type of economic system we have now is what is known as, and called so by Keynes, a fiat system accompanied by a floating exchange rate with foreign currencies. In a fiat currency system, money is created by government fiat, that is, ex nihilo, out of nothing. Should anyone else attempt to create this currency, they become counterfeiters. Where else can it originate?  If the government creates all the money, then it must spend it before anyone has any of it to pay any taxes that might be owed to said government. In a deflationary situation in which we currently find ourselves there is a good argument for substantially reducing the tax burden for both companies and individuals. In an inflationary situation, this may be a good time, depending on circumstances, to increase taxes, which would hopefully calm economic activity.

The Rich Got Richer in 2013 - If you happen to be one of the wealthiest people on earth, chances are you can look back on 2013 as a year of financial success. The total net worth of the world’s 300 richest individuals rose $524 billion in 2013, according to the Bloomberg Billionaires Index. Only 70 of the 300 posted a net loss for the year. As the ball dropped on New Year’s Eve, the aggregate net worth of the world’s top billionaires was $3.7 trillion. Microsoft founder Bill Gates, 58, had the best year, with his fortune increasing by $15.8 billion to $78.5 billion. Earlier in 2013, Gates knocked off Mexican investor Carlos Slim to retake the title of the world’s richest person. The next-biggest winner for the year was gaming mogul Sheldon Adelson, 80, whose fortunes improved to the tune of $14.4 billion.  Income inequality in the U.S. has been rising for decades and is now at a level unseen since 1928. The poverty rate in America held steady at 15 percent in 2012, the most recent year for which the Census Bureau has released data, though the total number of those living in poverty ticked up to 46.5 million. Nearly one in four Americans under age 18 lives below the poverty line.

Brother, Can You Spare $91.44 Billion?  -- Wall Street got $91.44 billion in bonuses for 2013.  The 98% of us want those bonuses paid back to the victims of the financial crisis.  We're pretty sure $91.44 billion won't even start to compensate for the damage.  A magazine, How To Spend It, is devoted to helping the super rich spend their newly acquired wealth.  The magazine is a fine example of unbridled greed and conspicuous consumption.  Needless to say, helping people and paying back victims for their financial crimes is not an idea mentioned as a way to spend those Wall Street Bonuses.  The other 98% wants Wall Street to donate their bonuses to help those now homeless from foreclosure and unemployment and have put up a petition which you too can sign.

Clawbacks? They’re Still a Rare Breed - Financial executives who are actually held to account for misdeeds remain as rare as hen’s teeth, alas. That’s why a recent enforcement action by the Securities and Exchange Commission caught my eye.  The case was filed Dec. 4 against Fifth Third Bank, which is based in Cincinnati and has $126 billion in assets. Daniel T. Poston, the bank’s former chief financial officer, was also named in the suit.  The S.E.C. contended that both the bank and Mr. Poston improperly delayed writing down the value of $1.5 billion of nonperforming loans in 2008. Mr. Poston certified that Fifth Third’s financial statements had been prepared in accordance with generally accepted accounting principles, but the S.E.C. said that wasn’t the case.  Both the bank and Mr. Poston settled the case, the bank paying $6.5 million in penalties and Mr. Poston paying $100,000. Neither the bank nor Mr. Poston, who became chief strategy and administrative officer at Fifth Third in October, admitted or denied the S.E.C.’s allegations.  The Fifth Third case is interesting because it shows that securities regulators can indeed require executives to pay penalties out of their own pockets when they settle charges of flouting securities laws.  But the regulatory action is also notable for what it did not involve: an executive pay clawback under the Sarbanes-Oxley law. Indeed, the Fifth Third action illustrates how challenging it is for regulators to mount such cases.

Wolf Richter: Fizzing Optimism For Wild Financial Engineering In 2014 - Hedge funds raked in the moolah in 2013, with assets under management rising by $228.8 billion to an all-time record of $2.01 trillion – not counting the hedge funds that our TBTF banks have become. But returns paled compared to the miracles the Fed performed with the stock market. Hedge funds specializing in distressed debt outperformed all other strategies with a 16.8% gain, ahead of long/short equities hedge funds, up 14.3%, and event-driven hedge funds, up 11.3%. Compared to 29% for the S&P 500. But hey, what matters is that the all-important metric of assets under management gets pushed to new highs. Hedge funds get paid 2% on it, come hell or high water, so about $40 billion in 2013. And they get paid another 20% on any gains, so roughly $55 billion in 2013, for a total fee intake of $95 billion or so. Hopes are riding high for a killer 2014. Corporate deal-making also bloomed in the US in 2013: mergers rose 11% to over $1 trillion, the highest since the financial crisis. Reshuffling the corporate deck is good for everyone: CEOs, investment banks, hedge funds with insider knowledge, and workers who are going to get laid off as the post-merger synergies are being implemented…. The accelerating pace of the mergers during the last two quarters is goosing extrapolations of what an insanely good year 2014 is going to be – helped along by a “stronger economy,” some sort of “stability at the Fed,” and an inexplicable absence “of near-term economic bumps,” Companies are motivated. Stock valuations have moved into the stratosphere. Financial engineering, such as share buybacks, has been covering up, more or less elegantly, the ugly reality of stalling growth in revenues and earnings. But there will be a moment of truth.

Volcker Rule Lawsuit: Small Banks Sue to Undo Financial Regulation - While you were getting that pair of socks you always wanted, the government got an unexpected Christmas present: the first lawsuit seeking to nullify a portion of the Volcker rule, which regulators just finalized a few weeks ago. And the lawsuit was not filed by JPMorgan Chase or Goldman Sachs, but the American Bankers Association, which is the trade group for small and mid-sized banks. The ABA objected to a part of the rule that would force legitimate accounting on losses garnered in the wake of the financial crisis. The suit represents an important and early test of financial reform—and you can trust that the Wall Street behemoths are watching closely to see whether regulators will have the spine to defend a rule they spent years writing. So far, the early signs are not promising. Under the Volcker rule, banks are restricted from holding certain “covered funds” in their long-term portfolios, including collateralized debt obligations, or CDOs. There’s good reason to do so: CDOs, which take the riskiest parts of other securities and re-package them to allegedly make them safe, nearly blew up Citigroup. After the housing bubble collapsed, CDOs derived from mortgage-backed securities became almost worthless, creating hundreds of billions in losses at Citi, and leading to multiple government bailouts. The covered funds provision would force banks like Citi away from assuming such high-risk financial exposures. It goes hand in hand with the main goal of the Volcker rule, to limit profit-seeking proprietary trading at commercial banks.

Is the New York Fed Too Deeply Conflicted to Regulate Wall Street? -- This is just a partial list of how the New York Fed is unique among its peers:

  • The President of the New York Fed sits permanently on the Federal Open Market Committee (FOMC). The Presidents of the other 11 regional banks rotate on the FOMC;
  • Although there is no law requiring that the New York Fed should be the sole regional Fed Bank to conduct the open market operations of the FOMC, it has uniquely served in this function since 1935;
  • It is the only regional Fed Bank to have its own trading floor and speed dials to the largest firms on Wall Street;
  • It is the only regional Fed Bank to be allowed to intervene in foreign exchange markets;
  • The New York Fed, uniquely among the regional Fed Banks, stores gold for foreign central banks, governments and international agencies;
  • The New York Fed played a uniquely controlling role in the disbursement of trillions of dollars in loans to foreign and domestic banks during the 2007 to 2010 meltdown of Wall Street;
  • And, problematically, while needing the good will of Wall Street firms to carry out its open market operations mandate, it simultaneously functions as a primary regulator to some of the largest firms.

NY Times attack by innuendo: Commodity price speculation edition - I've written a few times [e.g., 1, 2, 3, ] about commodity price speculation, arguing that speculation hasn't been the cause of volatility in recent years.  My views on this haven't changed, but I'm open to new arguments for why I and legions of other economists might be wrong.  Overall, I haven't found this topic to be a very interesting, because those arguing that Wall Street caused the food price crisis, or caused oil prices to spike, really haven't presented any kind of logical argument.  All they do is point to the fact that Wall Street has gotten into the commodity game more than they have in the past.  I've been waiting for this issue to die.  But it seems there are political winds that won't let it.  Yesterday the New York Times came out with a new attack on academics, particularly Craig Pirrong and Scott Irwin.  These guys have been doing some consulting work, mainly for oil companies and the Chicago Mercantile Exchange. These companies have also been giving money to these their universities.  There is a lot of innuendo in the story, and I do feel uncomfortable about academic economists getting cushy consulting contracts with big trading companies.  Still, the scale of what's mentioned seems tame relative to the kind of consulting gigs that seem commonplace in the economics realm of academia, or even the levels of corporate cash given to universities.  The story is most notable for what it lacks: how, exactly, are the various companies distorting markets in a way that hurts consumers and or producers?  Inside Job describes the shady business of securities backed by stated-income mortgages, how Goldman Sachs was shorting the products it was selling to clients, etc.  We can see that there were shady business dealings and how they probably helped to fuel the real estate bubble.  So, where's the real underlying story in commodity market trading?

Playing Games with the Economy for Profit and Fun - Economist Dean Baker wrote an excellent call out on corruption in the economics profession.  He calls it theories for sale and boy howdy is he right.  This site was started due to so much statistical spin.  One cannot tell the trees through the forest often, unless one has the time to go digging deep into faulty assumptions and in many cases, the mathematics manipulated to come up with an economic lie.  Most people do not have the time or the theoretical background to realize they have been hoodwinked.  A science which should be following the methods of accuracy and objectivity has been corroded into just another political and public relations spin tool.  If lobbyists could boil down the U.S. constitution to talking points, they would and the constant buying off of Economists has eroded the profession. If you head a big pharmaceutical company and you want to strengthen your patent monopolies to allow you to charge more money for your drugs for a longer time, there is no shortage of economists who are willing to argue your case. If you run an investment bank and you want to avoid regulations and oversight, there are plenty of economists who are willing to attest that government interference will slow growth and cost jobs. If you own a gas or oil company that wants to frack without paying for the damage done to farmland and drinking water, you can find economists to back you too.  In short, in keeping with economic theory, there are plenty of economists who, under the influence of moneyed interests, are willing to put forward arguments that don’t fit the data. For this reason, the public has rightly grown skeptical of economists.

Overthrow the Speculators - Chris Hedges: Today's speculators have created grotesque financial mechanisms, from usurious interest rates on loans to legalized accounting fraud, to plunge the masses into crippling forms of debt peonage. They steal staggering sums of public funds, such as the $85 billion of mortgage-backed securities and bonds, many of them toxic, that they unload each month on the Federal Reserve in return for cash. And when the public attempts to finance public-works projects they extract billions of dollars through wildly inflated interest rates. Speculators at megabanks or investment firms such as Goldman Sachs are not, in a strict sense, capitalists. They do not make money from the means of production. Rather, they ignore or rewrite the law -- ostensibly put in place to protect the vulnerable from the powerful -- to steal from everyone, including their shareholders. They are parasites. They feed off the carcass of industrial capitalism. They produce nothing. They make nothing. They just manipulate money. Speculation in the 17th century was a crime. Speculators were hanged. We can wrest back control of our economy, and finally our political system, from corporate speculators only by building local movements that decentralize economic power through the creation of hundreds of publicly owned state, county and city banks.

2014 outlook: Sugar high - US credit markets rebounded in 2013 as a flood of central bank money and continued low interest rates pushed investors into riskier but higher-yielding assets. While many see the resurgent demand for riskier loans and bonds as a natural effect of a nascent US recovery, others – such as Mr Tannenbaum – see it as evidence of a bubble blown by central banks. To the sceptics, the market is experiencing the kind of frothiness seen before the 2008 financial crisis. This, too, will end in tears, they warn. Perhaps the foremost of these “credit Cassandras” is Jeremy Stein, the US Federal Reserve governor who warned in February that markets may be overheating. “A prolonged period of low interest rates, of the sort we are experiencing today, can create incentives for agents to take on greater duration or credit risks, or to employ additional financial leverage, in an effort to ‘reach for yield’,” he said, flicking through slides of warning signals. Since then, those warning signals have flashed ever brighter. Issuance of syndicated leveraged loans – those made to companies that already carry high debt loads – reached $535.2bn in 2013. That is just shy of the $604.2bn sold in 2007, at the height of the last credit bubble. Meanwhile, loans that come with fewer protections for lenders, known as “covenant-lite”, accounted for almost 60 per cent of loans sold in 2013, compared with a 25 per cent share in 2007. Sales of “payment-in-kind” notes, which give borrowers an option to repay lenders with more debt reached $11.5bn in 2012 – a post-crisis high. Sales of “junk”, or high-yield, bonds surged to a record in 2013 as companies rushed to refinance and investors snapped up the resulting assets. Issuance of junk bonds rated “triple C” – the lowest designation – jumped to $15.3bn, surpassing the pre-crisis peak.

We Are All Useless Morons that Suck - Let’s face it you suck at investing. Your adviser sucks at investing too. If you had picked the best stock to buy every day you could have turned $1000 into $264 billion by mid December. That is a 26.4 billion percent return. Did you even get a 1 billion percent return? How about 1 million percent? 1000%? 100%? If you did not hit a 100% return then you did not get even 4/10 millionths of what was out there. Translation: You suck at stock picking. People like Jack Bogle will use this type of data to tell you that you are wasting your time even trying and that you should just index your portfolio. Coincidentally he runs a few dollars in an index fund. I find it more interesting when some manager makes a killing and convinces themselves that they are geniuses. No one in this game is a genius. 100% return sucks remember? When you dig into more of these people, the elite suckers, the ones that can do it again and again, they all have one thing in common. It is not that they are on television and have great hair. Have you noticed that they usually are a bit modest about their results? The one thing they have in common is that they all have a process and are continually trying to improve it. Yes there is still skill involved to be an elite sucker, but all of them also know that they are not as good as they can be and are trying to be better everyday. They work at it full time, all the time. And the best they can do is make less than 4/10 millionths of the best possible return out there. Where else can you strive to achieve that kind of suckiness and be called a superstar? There are only 3 days left in the trading year and you are not likely to materially change your return against market perfection. But those 3 days are 3 more days to try to get better at what you do. To suck less. If you had a ‘good’ year, beating your benchmark then congratulations. But move on and keep trying to get better, because you still suck.

Dallas Fed’s Richard Fisher talks TBTF on EconTalk (#OWS) -  Mathbabe -- Yesterday Russ Roberts had Dallas Federal Reserve President Richard Fisher as his guest on his podcast EconTalk to talk about Too-Big-To-Fail (TBTF) banks and the Fed’s monetary policy. It was a fantastic discussion and I’m grateful to Roberts for continuing to discuss this important and nonpartisan issue. We in Alt Banking have been impressed by Fisher’s stance on TBTF and have thought about trying to get him to come visit us to talk, so this was a great opportunity to get a preview of what he’d likely say if he ever made it over. Given that he’s an active central banker, he’s refreshingly open and honest about stuff, even if every now and then he deliberately makes it seem like everything that happened was a mistake rather than a criminal act.  You should listen to the entire podcast, it’s about an hour long but well worth the time. I will submit a short summary of their conversation here:

The Rich Country Trap - Simon Johnson - Until about 10 years ago, it was fashionable among policy makers to suppose that relatively rich countries had grown or evolved beyond the stage where they would be vulnerable to debilitating financial crises. The reasoning was that financial markets had become sophisticated, in part because big companies knew how to diversify their risks. This view proved completely wrong; think about what we have seen since 2003. In the United States and Europe, the financial system proved able to destabilize the real economy. Risks were created and mismanaged on a grand scale. The largest banks were quickly and repeatedly among those in the most trouble. When middle-income “emerging markets” encounter a financial crisis because of dysfunctional incentives in the banking system, the obvious reaction is to adopt reforms that make banks safer. Prominent people in other sectors are deeply annoyed at the collateral damage caused by excessive risk-taking by bankers. In contrast, in a country like the United States or Britain, the financial sector is much larger as a percent of G.D.P. – from 7 to 9 percent, depending on how exactly you measure it. There is no sector in the modern United States or Britain that is willing to stand up to big banks in the political arena. And top financial-sector executives continue to enjoy such high prestige that they are still called upon to run public finances. Politicians continue to defer to the supposed wisdom of these individuals.

The Wind Down of TARP is Almost Complete - Treasury Notes - The U.S. Treasury Department made significant progress towards completing the wind down of the Troubled Asset Relief Program (TARP) in 2013. Treasury fully exited the taxpayers’ investment in General Motors (GM), recovered an additional $5.9 billion of the investment in Ally Financial (Ally), and substantially wound down the remaining bank investments. Forty banks repaid taxpayers and Treasury auctioned or otherwise sold our positions in 81 institutions. To date, Treasury has recouped $432.8 billion on all TARP investments – including the disposition of Treasury’s remaining investment in AIG – compared to $421.9 billion disbursed. In December of 2012, GM repurchased 200 million shares of GM common stock from Treasury. At that time, Treasury announced that we would sell the remaining shares gradually over the following 12-15 months, and we began doing so in January. Over the course of the year, GM’s common stock was added to the S&P 500 index, and the average daily volume of trading increased. As a result, we were able to complete the exit earlier this month. As a result, we were able to complete the exit earlier this month.

Bankers Beaten Back A Bit - Paul Krugman -- Mike Konczal has some surprising news: Financial reform is getting somewhere. We entered 2013 amid universal cynicism; the bankers had bought Washington again, and any reforms would be purely cosmetic. We leave it with significant progress. You can still argue that reform falls far short of what should have happened, and won’t do much to prevent future crises. But relative to expectations, this is a happy story. How did that happen? Partly, says Konczal, the London Whale disaster came at the right time from the right place. There you had Jamie Dimon, the smooth-talking head of JPMorgan Chase, telling everyone that Wall Street had everything under control, and politicians shouldn’t worry their pretty little heads about it — and suddenly we learn that Dimon’s own firm has suffered huge losses in an out-of-control, inadequately monitored trading operation. Perfect. Meanwhile, Konczal says, a loose coalition of progressive think tanks, reformist academics, and political figures — especially, but not only, Elizabeth Warren — kept the pressure on. Mike portrays this as an interesting combination of politically unrealistic demands that nonetheless helped shape the conversation — notably Anat Admati’s calls for drastically higher capital requirements — and detailed, line by line input on proposed regulations.

Are Bank Runs a Worry of the Past? - Since the 19th Century, financial regulators have had a central goal: Prevent mass withdrawals of bank deposits in order to avoid a collapse of the banking system and protect the rest of the economy. A speech by Federal Reserve governor Jeremy Stein on Friday reflected how much times have changed. Mr. Stein, one of six Fed officials in Washington responsible for regulating some of the largest U.S. financial institutions, suggested that these days, old-school bank runs are low on his lists of worries. “Bank funding is actually pretty stable. It tends not to run,” Mr. Stein said at an American Economic Association meeting in Philadelphia. He pointed out that banks have government insurance for the deposits they hold and are relatively well capitalized compared to other financial institutions thanks to the regulation that comes along with that insurance. Instead, Mr. Stein said, it’s other financial institutions, generally called “shadow banks”, that are much more prone to runs. A “run” on that system, with investors pulling their money from financial firms that weren’t traditional banks, contributed to the panic of 2008, according to analysis by Mr. Gorton and others. It is now Mr. Stein and the Fed’s charge to think about how to reduce the possibility of that sort of run causing another broad economic downturn.

Simon Johnson Reminds Us That the Banks’ Quiet Coup is Still Very Much in Place -  Yves Smith - Simon Johnson wrote a remarkably blunt article for the Atlantic in May 2009 titled The Quiet Coup. In case you managed to miss it, it remains critically important reading. He provided an update of sorts in a New York Times column today.  Johnson, a former chief economist to the IMF, described how the financial services industry had effectively engaged in a banana-republic-style takeover of government. And the IMF’s experience of countries that had suffered economics crises due to mismanagement of the ruling oligarchs was that there was one condition that was key to whether reforms stuck: at least some of the ruling group needed to break ranks and be willing to cede power. Clearly, nothing of the kind has happened here.  Johnson depicted how the banking sector came to be bloated relative to the economy as a whole:…elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them….

Unofficial Problem Bank list declines to 619 Institutions, Q4 Transition Matrix -This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for December 27, 2013.   Changes and comments from surferdude808:  As expected, the FDIC released its enforcement action activity through November 2013 this week. That release coupled with a periodic list review led to many changes to the Unofficial Problem Bank List. This week, there were 15 removals and one addition that leave the list at 619 institutions with assets of $205.7 billion. A year ago, the list held 838 institutions with assets of $313.1 billion. During December 2013, the list declined by a net 26 institutions and $7.7 billion in assets after 20 action terminations, six mergers, one failure, and one addition.With the close of the fourth quarter of 2013, we have updated the Unofficial Problem Bank List transition matrix. Full details may be found in the accompanying table and a visual of the trends may be found in accompanying chart.  Since its inception, 1,662 institutions have made an appearance on the list. To date, about 63 percent or 1,043 of the banks that have appeared on the list have been removed. Action termination is the now the primary way banks are exiting the list as 495 banks have had their enforcement action terminated. During the fourth quarter of 2013, action terminations slowed a bit from the torrid pace last quarter, but there were the second highest quarterly amount at 54. At the start of the fourth quarter, the list had 685 banks, which means the terminations represented 7.9 percent of the starting balance.

Wells Fargo reaches $591 million settlement with Fannie Mae over mortgage securities --  US bank Wells Fargo has reached a $591 million settlement to resolve mortgage claims with state-controlled lender Fannie Mae, the two companies announced Monday. Fannie Mae said Wells Fargo will pay $541 million in the fourth quarter to resolve repurchase requests on certain loans originated prior to 2009, and was credited for prior repurchases. Wells Fargo, the fourth-largest US bank by assets, said it had accrued the cost of the agreement on September 30. The settlement resolves Fannie Mae’s claim that Wells Fargo overstated the quality of mortgage securities it sold the quasi-public mortgage finance giant in the run-up to the 2008 financial crash. “We have closed out our legacy repurchase reviews with this agreement with Wells Fargo,” said Timothy Mayopoulos, president and chief executive of Fannie Mae. “This agreement represents a fitting conclusion to our year of hard work to put legacy issues in the rear view mirror and begin 2014 focused on improving the future of housing finance.”

Citigroup paid $250 million to resolve U.S. mortgage suit - (Reuters) - Citigroup Inc. paid $250 million to taxpayer-owned Fannie Mae and Freddie Mac to settle a lawsuit over soured mortgage securities, the regulator of the two housing finance firms said on Thursday. Related StoriesGeneral Electric Co. also paid $6.25 million to settle a similar suit, the Federal Housing Finance Agency said in a statement. Ally Financial Inc, the former parent of bankrupt Residential Capital LLC, paid $475 million. Citi, GE and Ally had previously settled the claims in 2013, but none had disclosed the financial terms. The banks are among 18 financial institutions that were sued in 2011 for allegedly misleading Fannie Mae and Freddie Mac, the biggest provider of housing finance in the United States, into buying more than $200 billion in mortgage-backed securities. Six institutions have since settled the accusations. GE and Citi were the first two to resolve the claims in early 2013, but the FHFA kept the terms confidential as they negotiated additional settlements.

Fannie Mae: Mortgage Serious Delinquency rate declined in November, Lowest since December 2008 - Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in November to 2.44% from 2.48% in October. The serious delinquency rate is down from 3.30% in November 2012, and this is the lowest level since December 2008.  The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%. Last week, Freddie Mac reported that the Single-Family serious delinquency rate declined in November to 2.43% from 2.48% in October. Freddie's rate is down from 3.25% in November 2012, and is at 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 0.86 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%. Maybe serious delinquencies will be back to normal in late 2015 or 2016.

The Re-ARM-ing Of The Housing Market Bubble -- Worried about being priced out of the housing market once again? Concerned that longer-term fixed rates will rise? It seems the general public, guided by the always full of fiduciary duty - mortgage broker - has reverted to old habits and is charging back into Adjustable-Rate Mortgages. As The LA Times reports, ARMs, which all but vanished during the housing bust, are back - accounting for 11.2% of homes purchased in November (double that of the year before)! While not the Option Arms of yesteryear, it would appear people, pushing for lower monthly payments, remain completely oblivious to the word "adjustable" when they shift their risk to the shorter-end. Though, as the 'experts' continue to tell us, rising rates won't affect housing negatively - not at all... Via The LA Times, It seems we never learn...When Michael Shuken recently bought his family's first home, a four-bedroom in Mar Vista, his adjustable-rate mortgage helped them stay on the pricey Westside.For now, his interest-only loan costs him about 35% less per month than a 30-year fixed mortgage, he said. But he'll have a much bigger monthly bill in 10 years, when the loan terms require him to start paying off principal at potentially high rates. "What is going to happen if I can't restructure my loan and extend it? Are interest rates going to be 7%, 8%?" the 43-year-old commercial real estate broker said. "The home is big enough for me to grow into. The question is, will I be able to?"

 Home Prices Back at Peaks in Some Areas - Home prices have zipped back into record territory in a handful of American cities, a milestone that comes seven years after the housing bust ravaged the market and the broader economy. Values are up more than 13% from their 2007 high in Oklahoma City and by more than 6% in the Denver metro area. Prices are back to all-time highs in 10 of the nation's 50 largest metropolitan areas, according to a Wall Street Journal analysis of price data from Zillow, an online real-estate information service. Prices are within 5% of their previous peak in San Jose, Calif.; Nashville, Tenn.; and Dallas.  Prices nationally remain below the highs of the past decade, and many of the cities that have seen the biggest gains largely escaped a boom and bust. Home prices in some parts of the country that did experience a bust have benefited from low supplies of homes for sale and historically low interest rates that have boosted prices—and sparked concerns that prices could again be overvalued. The figures aren't adjusted for inflation, but experts say they underscore the uneven nature of the U.S. housing recovery. The 10 metro areas enjoying a full-scale rebound are based on figures for the entire region. The Wall Street Journal also analyzed Zillow price data individually in more than 4,400 cities and towns in the country's largest metro areas. Nearly 10% of municipalities have seen prices reach new highs this year when compared with their previous peak, and prices are within 5% of their previous highs in 300 more. These cities are largely exceptions, and prices in many parts of the U.S. are still well below their peak. In some 1,500 cities, values are still at least 25% lower than their previous highs. Nationally, values fell 23.8% between 2007 and 2011 before rebounding 9.9% after hitting bottom in late 2011; they are now 16.3% below the high of the last decade, according to Zillow.

LPS: House Price Index increased 0.1% in October, Up 8.8% year-over-year - The timing of different house prices indexes can be a little confusing. LPS uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted. From LPS: LPS Home Price Index Report: October Transactions, U.S. Home Prices Up 0.1 Percent for the Month; Up 8.8 Percent Year-Over-Year Lender Processing Services ... based on October 2013 residential real estate transactions. The LPS HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The LPS HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.The year-over-year increase was slightly less in October than in September. The LPS HPI is off 14.1% from the peak in June 2006.  The press release has data for the 20 largest states, and 40 MSAs. Prices declined slightly in eight of the 20 largest states in October, and 18 of the 40 largest MSAs. LPS shows prices off 44.6% from the peak in Las Vegas, off 37.4% in Orlando, and 35.4% off from the peak in Riverside-San Bernardino, CA (Inland Empire). "After months of setting new highs, Texas - and the major metropolitan areas of Austin and Dallas - saw a slight pullback in October."

Case-Shiller Home Prices Double Digit Annual Increase Party May Be Over  -- The October 2013 S&P Case Shiller home price index shows a seasonally adjusted 13.6% price increase from a year ago for both the 20 metropolitan housing markets and the top 10 housing markets.  This is an incredible price run up and has not been seen since the height of the housing bubble, February 2006.  America is now only 20% away from the peak of the housing price bubble and the two indexes are comparable to June 2004 levels  Home prices have increased for 17 months in a row as shown in the below graph of the annual price increase percentage change.  Below are all of the composite-20 index cities yearly price percentage change, using the seasonally adjusted data.  We can see some absurd increases in San Francisco, Los Angeles and Las Vegas.  Las Vegas has a 10% unemployment rate, one of the worst in the nation, so it is unfathomable these are real people buying these homes and not investors and flippers.   Los Angeles is even worse with a 13% unemployment rate.  According to S&P, the midwest showed some housing price gains that have not been seen previously, abet they are using not seasonally adjusted data. Chicago recorded its highest annual rate (+10.9%) since December 1988. Charlotte and Dallas posted annual increases of 8.8% and 9.7%, their highest since the inception of their indices in 1987 and 2000.  S&P reports the not seasonally adjusted data for their headlines.   Housing is highly cyclical.  Spring and early Summer are when most sales occur.  See the bottom of this article for their reasoning.   For the month, the not seasonally adjusted composite-20 percentage change was 0.2% whereas the seasonally adjusted change for the composite-20 was 1.1%.   The monthly not seasonally adjusted composite-10 percentage change was 0.2%, whereas the seasonally adjusted composite-10 showed a 1.0% increase.  This is fall, so the not seasonally adjusted increase should be less than the seasonally adjusted composite-20.  The below graph shows the composite-10 and composite-20 city home prices indexes, seasonally adjusted.

Case Shiller Index Rises At Fastest Annual Pace Since 2006; Detroit Home Prices Soaring 17.3% - Moments ago the October Case Shiller home price index was released which came largely as expected: the seasonally adjusted number rose by 1.05% in the month, which despite the collapse in mortgage applications, shows that cash still rules everything, as average home prices across the Composite 20 cities increased at a 13.63% annual clip, the highest since February 2006. Both were a fraction higher than the expected 0.95% and 13.50% M/M and Y/Y increases. On the more relevant NSA basis (according to the authors) however, the October increase was 0.18%, the lowest since January and an indication that the institutional "all cash" buying wave is finally fading.  Indeed, as can be seen on the chart below, the actual home price gains over the past three months have plateaued and absent another major push in early 2014 facilitating Wall Street's purchases of US real estate, it is very likely that this chart will once again resume trending lower.

Case-Shiller: Press Release and Graphs - S&P/Case-Shiller released the monthly Home Price Indices for October ("October" is a 3 month average of August, September and October prices). This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities). Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.  From S&P: Home Prices Stage Advance According to the S&P/Case-Shiller Home Price Indices Data through October 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... showed that the 10-City and 20-City Composites posted year-over-year gains of 13.6%. This is their highest gain since February 2006 and marks the seventeenth consecutive month that both Composites increased on an annual basis. In October 2013, the two Composites showed a small gain of 0.2% for the month. Eighteen cities posted lower monthly rates in October than in September. After 19 months of gains, San Francisco showed a slightly negative return. Phoenix held onto its streak and posted its 25th consecutive increase.  “Both Composites’ annual returns have been in double-digit territory since March 2013 and increasing; now up 13.6% in the year ending in October. Las Vegas showed the largest gain with an increase of 1.2%, followed by Miami with a 1.1% monthly gain. Atlanta, Boston, Chicago, Cleveland, Dallas, Denver, San Francisco, Seattle and Washington were the nine cities that declined month-over-month; two of them, Denver and Dallas, are slightly off their peak set last month. New York remained flat. Only Charlotte and Miami accelerated on a monthly basis. The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The Composite 10 index is off 21.5% from the peak, and up 1.0% in October (SA). The Composite 10 is up 19.0% from the post bubble low set in Jan 2012 (SA). The Composite 20 index is off 20.7% from the peak, and up 1.0% (SA) in October. The Composite 20 is up 19.7% from the post-bubble low set in Jan 2012 (SA). The second graph shows the Year over year change in both indices. The Composite 10 SA is up 13.6% compared to October 2012. The Composite 20 SA is up 13.6% compared to October 2012. This was the seventeenth consecutive month with a year-over-year gain. Prices increased (SA) in 20 of the 20 Case-Shiller cities in October seasonally adjusted. Prices in Las Vegas are off 46.6% from the peak, and prices in Denver and Dallas are at new highs.

Housing market could be facing another bubble: Shiller: The U.S. housing market could be in the early stages of yet another bubble, warned Robert Shiller, co-founder of the Case-Shiller index. "In the housing market, it has its own momentum right now as people see it coming back. We're sort of in the beginnings of another housing bubble," the Nobel Prize-winning economist told CNBC. U.S. single-family home prices rose less than expected in October, but posted their strongest annualized gain in more than seven years, the closely watched S&P/Case Shiller survey said Tuesday. The composite index of 20 metropolitan areas gained 0.2 percent in October on a nonseasonally adjusted basis, below economists' expectation of a 0.7 percent gain. Prices rose 0.7 percent in September.On a seasonally adjusted basis, prices were up 1 percent. Compared to a year earlier, prices were up 13.6 percent, beating expectations of 13 percent and marking the strongest gain since February 2006, when the increase was 13.8 percent. Housing prices have been rising since early 2012, and a rebound in the sector has helped the U.S. recovery gain steam.

Breathing New Life Into the Second U.S. Housing Bubble - When we last looked at the U.S. housing market, we observed that median new home sale prices appeared to be stalling out. But what a difference a month makes, as both new data and the revision of data whose collection had been delayed as a consequence of the partial federal government shut down in early October 2013 makes it clear that new life is being breathed into the U.S. housing market.  Our chart below shows the relationship between median new home sale prices and median household income for each month since December 2000. In this chart, we observe that the second U.S. housing bubble, which first began inflating after July 2012, has resumed inflating after stalling out in the months from July 2013 through September 2013.  The reason why median new home sale prices stalled out during that period has a lot to do with speculation on the U.S. Federal Reserve's potential tapering of its current quantitative easing programs during that time, thanks to their effect on U.S. mortgage rates.   But when the Fed decided to not begin tapering its purchases of U.S. Treasuries and Mortgage-Backed Securities at that time, mortgage interest rates responded by falling by about 0.3% on average, adding fuel and new life to the inflation phase of the second U.S. housing bubble, which we observe as the resumption of an upward trajectory for median new home sale prices with respect to median household income after September 2013.  It will be interesting to see what happens next. Following the end of November 2013, U.S. mortgage rates have once again risen to be close to the 4.5% mark, as speculation that the Fed would announce it would begin tapering its QE programs in December first gained steam, then became a reality when the Fed made it official at its Federal Open Market Committee's December 2013 meeting. If mortgage rates rise sufficiently high enough, they could once again put the brakes on the inflation of the second U.S. housing bubble, just as they did from July 2013 through September 2013.

Home Prices Back at Peaks in Some Areas - Home prices have zipped back into record territory in a handful of American cities, a milestone that comes seven years after the housing bust ravaged the market and the broader economy. Values are up more than 13% from their 2007 high in Oklahoma City and by more than 6% in the Denver metro area. Prices are back to all-time highs in 10 of the nation's 50 largest metropolitan areas, according to a Wall Street Journal analysis of price data from Zillow, an online real-estate information service. Prices are within 5% of their previous peak in San Jose, Calif.; Nashville, Tenn.; and Dallas.Prices nationally remain below the highs of the past decade, and many of the cities that have seen the biggest gains largely escaped a boom and bust. Home prices in some parts of the country that did experience a bust have benefited from low supplies of homes for sale and historically low interest rates that have boosted prices—and sparked concerns that prices could again be overvalued. The figures aren't adjusted for inflation, but experts say they underscore the uneven nature of the U.S. housing recovery. "The main story in a lot of these places is that they didn't have much of a housing recession. It's much easier to be back at peak levels when you didn't have a big boom and bust," said Stan Humphries, chief economist at Zillow.

Fast Facts-The Case Shiller Monthly Way Behind the Curve Housing Update - With Case Shiller out this morning touting rip roaring price gains, it’s time for me to remind everyone yet again that that index is the worst housing indicator on the planet, forever 5 1/2 months behind reality, due to its insane methodology. The real, more current facts, are below in this post from December 30. The NAR’s Pending Home Sales Index had its second straight year to year decline in November. This index represents contracts signed during the month. Most result in closed sales within 30 to 60 days. This is as close as we get to a real time barometer of actual housing market sales volume, although Redfin, an online real estate brokerage, reports a sample of the 19 big markets they represent a little earlier in the month. That measure also declined on an annual basis for two straight months. It may be time to start worrying that the pitiful housing “recovery” under way for two years has reached its limit.The seasonally adjusted headline number reported by the NAR, and dutifully regurgitated by the mainstream media, showed a rise of 0.2% month to month. That was weaker than the consensus expectation of economists of a 1% rise, but it does not capture the reality that the actual change from October was much worse than average. As is often the case, the seasonally finagled number failed to accurately reflect the reality. November is always a weak month, but the 17.9% decline for the month was the worst November since November 2009, which was exacerbated by the expiration of an earlier Federal tax credit to home buyers which had stolen sales from the future. This November’s decline wasn’t quite as bad a drop as the 22% decline in November 2008 at the worst point in the housing crash, but it was worse than the 17.2% drop in November 2007, in the earlier months of the collapse.

Tale of Two Housing Markets - Here's an economic data series to watch in 2014. The mean home price for homes paid for in cash shot above the mean home price for homes financed by conventional mortgages in the second and third quarters of 2013. (Later data is not yet available, and the 2013Q3 data is still preliminary.) The mean price for a cash purchase was $408,200, compared to $338,900 for a conventional mortgage. These figures refer to new one-family homes. The ratio of number of new homes purchased with cash to number of new homes financed by a conventional mortgage is just above 10%, more than double its value in the mid-2000s, but still below the early 1990s (Figure 2, below).  In the 1990s and most of the early 2000s, homes financed with conventional mortgages consistently sold for a higher mean price than homes finances with cash--around $20,000 higher. Now, homes financed with a conventional mortgage are about $69,000 less than cash-financed homes.  In real terms, the mean price of a home purchased with cash is nearly as high as its record in the third quarter of 2007. Right in the thick of the housing crisis, cash purchase prices spiked above conventional mortgage prices in 2007Q2 and Q3. Towards the end of the 2007Q3, the Federal Reserve made its first rate cut in four years, and the cash purchase price fell sharply in 2007Q4.  The spike in the mean home price for cash financing in the most recent two quarters was of similar magnitude to the spike in 2007Q2-3. I will be watching the next few releases of this data with interest, as I think it provides some indication of the uneven nature of the housing recovery, and will be informative about the impacts of tapering. The housing market is rather segmented, and Fed policy has differential impacts on cash-in-hand investors and "typical" households.

Nov. home sales fall to a 5-year low in Vegas - The Las Vegas market turned into the comeback kid after investors flooded the city in the wake of the real estate bust. While investor activity drove up prices and helped restore one of the hardest hit housing markets in recent years, it appears their influence is starting to wane. New research from DataQuick shows that last month, home sales in Vegas fell to their lowest level for any November recorded in the past five years. Waning home affordability, constrained supply and a decline in investor activity took most of the blame for interrupting investors' reign. Inquiring investors found the median sale price dipping a bit from October to November, but the median price still hovered 26% above year ago levels, leaving buyers with less attractive pricing when compared to the deep discounts available after the housing downturn.Overall, 3,539 new and resale homes and condos closed in escrow last month in the Las Vegas-Paradise metro area – down 15.4% from a month earlier and a 14.6% decline from last year, San Diego-based DataQuick said. This is also the lowest number of November sales recorded since 2008 when 3,325 homes sold. Coincidentally, that was also at the beginning of the housing meltdown.

The top 10 destination cities for Chinese buyers -- As the Chinese economy continues to boom, Chinese are looking abroad to spend money on real estate. Where are they buying? New York and Los Angeles top the list of U.S. cities they are most interested in, according to, a website where Chinese buyers browse global real estate listings. More surprisingly, Philadelphia and Detroit come in at No. 3 and No. 4. The top 10 list is rounded out by Houston, Chicago, Las Vegas, Atlanta, San Diego and Memphis. Chinese buyers purchased $8.2 billion worth of U.S. property in 2012, according to Juwai. It ranked cities by how many searches they attracted from Chinese house hunters. This is a welcome clientele for U.S. sellers. The median home price among Chinese buyers was $425,000 in 2012, compared with the overall median U.S. home price of $199,500. And the transactions are often quick and clean: 70% of the Chinese buyers pay cash, according to the National Association of Realtors.

Pending Home Sales Index increased 0.2% in November -- From the NAR: Pending Home Sales Edge Up in November The Pending Home Sales Index, a forward-looking indicator based on contract signings, inched up 0.2 percent to 101.7 in November from a downwardly revised 101.5 in October, but is 1.6 percent below November 2012 when it was 103.3. The data reflect contracts but not closings... The PHSI in the Northeast declined 2.7 percent to 82.6 in November, but is 1.9 percent above a year ago. In the Midwest the index fell 3.1 percent to 100.6 in November, but is 0.4 percent higher than November 2012. Pending home sales in the South rose 2.3 percent to an index of 116.1 in November, and are 0.1 percent above a year ago. The index in the West increased 1.8 percent in November to 95.0, but is 8.7 percent below November 2012, in part from inventory constraints. Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in December and January.

Vital Signs: A Few More Homebuyers Sign on the Dotted Line - Pending home sales edged up slightly in November, a sign that the drag from mortgage rates is easing if only a bit. The pending home sales index compiled by the National Association of Realtors edged up 0.2% in November after five consecutive monthly declines. The index covers house contracts signed. When each contract is closed (usually one to two months after the signing), the transaction is counted as an existing home sale. Pending home sales have trailed off the most in the West. While U.S. pending sales are down 1.6% from a year ago, Western house contracts have fallen 12.1%. But the drop in pending sales out West does not reflect weak demand. The Realtors say “inventory constraint” is holding back sales in the West, a problem that is also slowing the total U.S. sales number. Even with the obstacles of rising mortgage rates and low supply, the NAR says U.S. resales are on track to reach 5.1 million this year, a gain of almost 10% from the 2012 rate. The Realtors expect 2014 sales to hold at about 5.1 million, then rise to 5.3 million in 2015.

Joke Headline of the Day: "Pending Home Sales Rise"; Five Housing Headwinds -- I was perusing online stories about today's release of pending homes sales data from the National Association of Realtors. Here are a few sample headlines.
NAR: Pending Home Sales Edge Up in November
CNBC: US pending home sales rise 0.2 percent
Calculated Risk: Pending Home Sales Index increased 0.2% in November
Forbes: Pending Home Sales Tick Up In November, First Time In Five Months
Reuters: U.S. pending home sales end slide, hint at stabilization
Fox Business News: Pending Home Sales Rise Slightly, Miss Street View
Zero Hedge: Pending Home Sales Plunge At Fastest Pace Since April 2011
All but the ZeroHedge headline (not necessarily the articles) ignored the NAR statement (see first link) "The Pending Home Sales Index,* a forward-looking indicator based on contract signings, inched up 0.2 percent to 101.7 in November from a downwardly revised 101.5 in October, but is 1.6 percent below November 2012 when it was 103.3." ZeroHedge has a chart that shows just that.It's kind of easy for sales to be up when the previous month was revised lower. But how much lower? The NAR did not even say. Let's take a look at monthly NAR reports to find out.  November 25 NAR: October Pending Home Sales Down Again, but Expected to Level Out: The Pending Home Sales Index,* a forward-looking indicator based on contract signings, slipped 0.6 percent to 102.1 in October from an upwardly revised 102.7 in September, and is 1.6 percent below October 2012 when it was 103.8. October 28 NAR: Pending Home Sales Continue Slide in September: The Pending Home Sales Index,* a forward-looking indicator based on contract signings, fell 5.6 percent to 101.6 in September from a downwardly revised 107.6 in August, and is 1.2 percent below September 2012 when it was 102.8. The index is at the lowest level since December 2012 when it was 101.3;

Cracks Forming In Housing Bubble II (But This Time It’s Different) The peak of the bubble, the apogee of all the craziness that was maligned and ridiculed, has become, abracadabra, a target for the housing “recovery.” The “healing process” won’t be complete until the prior bubble in home values has been outdone around the country. This is the level of insanity to which the Fed has driven this country. But these bubble prices – at least that’s what they were called after the prior housing bubble – are slamming into higher mortgage rates. Affordability has collapsed. And even as the current housing bubble continues to inflate, just like the last one, cracks have been appearing for months. One of them widened today. The National Association of Realtors’ Pending Homes Sales Index – a precursor for actual home sales – rose a scant 0.2% in November. But it “rose” only because October had been conveniently revised down today, giving the debacle a positive spin. Compared to the October index as originally reported, pending home sales in November actually dropped 0.4%.  This wasn’t a one-month fluke. And it confirmed a host of other measures. Pending home sales peaked in June, before the toxic mix of higher mortgage rates and higher prices started wreaking havoc on affordability. Then pending homes sales began to drop. By October, the fourth month in a row of declines, they’d dropped below the level of October last year, putting a damper on what had been a booming market. At the time, NAR chief economist Lawrence Yun blamed “the government shutdown in the first half of last month” that had “sidelined some potential buyers.” A sharp rebound was expected in November. But that didn’t happen. In November, pending homes sales were 1.6% below last year.

Construction Spending increased in November, Highest since March 2009 - The Census Bureau reported that overall construction spending increased in November: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during November 2013 was estimated at a seasonally adjusted annual rate of $934.4 billion, 1.0 percent above the revised October estimate of $925.1 billion. The November figure is 5.9 percent (±2.0%) above the November 2012 estimate of $882.7 billion.  Spending on private construction was at a seasonally adjusted annual rate of $659.4 billion, 2.2 percent above the revised October estimate of $644.9 billion. Residential construction was at a seasonally adjusted annual rate of $345.5 billion in November, 1.9 percent above the revised October estimate of $339.2 billion. Nonresidential construction was at a seasonally adjusted annual rate of $313.9 billion in November, 2.7 percent above the revised October estimate of $305.7 billion. ... November, the estimated seasonally adjusted annual rate of public construction spending was $275.0 billion, 1.8 percent below the revised October estimate of $280.2 billion.This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted. Private residential spending is 49% below the peak in early 2006, and up 51% from the post-bubble low. Non-residential spending is 24% below the peak in January 2008, and up about 39% from the recent low. Public construction spending is now 16% below the peak in March 2009 and up about 4% from the recent low.The second graph shows the year-over-year change in construction spending. On a year-over-year basis, private residential construction spending is now up 24%. Non-residential spending is up 1% year-over-year. Public spending is down slightly year-over-year.

U.S. Construction Spending Near Five-Year High - U.S. construction spending rose to its highest level in nearly five years in November, the latest indication the economic recovery gained momentum in the final months of 2013.  November outlays for construction projects rose 1% to a seasonally adjusted annual rate of $934.41 billion from October, according to a report from the Commerce Department Thursday. The increase was driven by broad-based gains in private spending on everything from new housing to office buildings to communications facilities.  Private spending on residential construction rose 1.9% in November to $345.53 billion, the highest level since June, 2008. A separate report from the Commerce Department last month had showed November housing starts surged to a near-six-year high.  Private nonresidential construction spending rose 2.7% in November to $313.87 billion, its highest level in 11 months. Some economists have forecast that a pick-up in investment in structures other than housing will be an important driver of growth for the overall economy this year. A recent survey of its members by the National Association for Business Economics forecast that nonresidential-investment growth will accelerate to 5.9% in 2014 from 1.7% in 2013. The smaller public-sector component of construction spending fell 1.8% in November as all levels of government continue to wrestle with tight budgets.

Market Price and Replacement Cost: Why Homebuilding Remains Subdued - Here’s the question that’s been vexing me all year, “If housing supply is near record lows, why is it that homebuilding remains near record lows?” The simple answer is, “It’s the replacement cost, stupid.” When market values for homes is less than the replacement cost of a new home, you’re not going to get much home construction (see older communities in the Rust Belt).  If a home is going to get built a lot of things have to fall into place. A builder must be able to acquire buildable land. He must have the resources to build the house. A willing and able buyer must be found. And that buyer must be willing to pay the builder’s costs plus enough of a profit margin for that builder to build the house. . We know that the average square footage of a new house these days is around 2400 square feet. The NAHB has a handy breakdown of the costs that go into a new home. And what we find is that for an average new home, construction costs average around $80/square foot. Land costs average around 40% of construction costs, so call that $30/square foot. Be very conservative on everything else, including the builder’s profit margin, and call that another $10/square foot. So all in, say we’re looking at $120/square foot. How does that compare with home values where much of the homebuilding took place in the last cycle? What we see today is that even after a big recovery in home values, Clark County homes are worth around $100/square foot, Palm Beach County homes around $115/square foot, and Gwinnett County homes around $75/square foot. If you’re looking to buy a home and you can buy a Clark County home built in 2006 for $100/square foot, you’re probably not going to pay $150/square foot for a new home. And in Clark County, if you’re a homebuilder you can’t compete with $100/square foot, so you don’t build.

Homeless Couple Gets A Home On Christmas Eve, Thanks To Innovative ‘Occupy’ Group - For many couples, the thought of living together in a 96-square-foot house sounds awful. But for Chris Derrick and Betty Ybarra, it’s a Christmas miracle. That’s because Derrick and Ybarra have spent the better part of a year braving Madison, Wisconsin’s often-harsh climate without a roof over their head.They’ll spend this Christmas in their own home, thanks to more than 50 volunteers with Occupy Madison, a local Wisconsin version of the original Occupy Wall Street group in New York. The group, including Derrick and Ybarra, spent the past year on an innovative and audacious plan to fight inequality in the state’s capital: build tiny homes for the homeless. In a city where an average home for sale costs nearly $300,000, many low-income individuals simply can’t afford somewhere to live.

U.S. Consumer Confidence Rises on Better Job Outlook - U.S. consumers’ confidence in the economy rose this month on a better outlook for hiring and growth.The Conference Board says its index of consumer confidence rose to 78.1 in December, up from 72 in the previous month. November’s figure was revised up from 70.4. The December increase followed three months of declines. Americans expressed more confidence that steady job gains would continue. Consumers’ confidence is closely watched because their spending accounts for 70 percent of economic activity.

Consumer Confidence: A December Bounce - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through December 17. The 78.1 reading was above the 76.0 forecast of and 6.1 above the November 72.0 (previously reported at 70.4). This measure of confidence has risen from two months of weak numbers but remains below its range in the low 80s from June through September. Here is an excerpt from the Conference Board report. "Consumer confidence rebounded in December and is now close to pre-government shutdown levels (September 2013, 80.2). Sentiment regarding current conditions increased to a 5 ½ year high (April 2008, 81.9), with consumers attributing the improvement to more favorable economic and labor market conditions. Looking ahead, consumers expressed a greater degree of confidence in future economic and job prospects, but were moderately more pessimistic about their earning prospects. Despite the many challenges throughout 2013, consumers are in better spirits today than when the year began."  Consumers' appraisal of overall current conditions improved. Those claiming business conditions are "good" edged down to 19.6 percent from 20.4 percent, however, those claiming business conditions are "bad" decreased to 22.6 percent from 24.6 percent. Consumers' appraisal of the job market was also more upbeat. Those saying jobs are "plentiful" ticked up to 12.2 percent from 12.0 percent, while those saying jobs are "hard to get" decreased to 32.5 percent from 34.1 percent.  Consumers' expectations, which had decreased in November, improved in December. The percentage of consumers expecting business conditions to improve over the next six months increased to 17.2 percent from 16.7 percent, and those expecting business conditions to worsen decreased to 14.0 percent from 16.1 percent.  Consumers' outlook for the labor market was considerably more optimistic. Those anticipating more jobs in the months ahead increased sharply to 17.1 percent from 13.1 percent, while those anticipating fewer jobs decreased to 19.0 percent from 21.4 percent. The proportion of consumers expecting their incomes to increase declined to 13.9 percent from 15.3 percent, while those expecting a decrease in their incomes declined to 14.0 percent from 15.5 percent.   [press release]

Vital Signs: Consumers Experience Fewer Labor Pains - Consumers have a better perspective on the labor markets at the end of 2013, a good omen for December’s employment report. The Conference Board’s consumer confidence index jumped to 78.1 in December, from 72.0 in November. One big boost to economic optimism: more consumers think jobs are “plentiful” in December compared with November, while a smaller percentage characterized jobs as “hard to get.” The resulting labor differential, that subtracts the two responses, fell to -20.3% in December, the best reading since late 2008, when the financial crisis was about to hit. Over time, the differential tracks very well against the U.S. unemployment rate. The December reading suggests that the jobless rate may hold at November’s 7%, which was the lowest rate since November 2008. The Labor Department will release its December employment report on January 10.

Consumers End 2013 on a Happy Note - U.S. consumers feel much more upbeat about the economy in December after two months of pessimism triggered by the October government shutdown, according to a report released Tuesday. The Conference Board, a private research group, said its index of consumer confidence bounced back to 78.1 in December, from a revised 72.0 in November, first reported as 70.4. December’s level is the highest reading since September. The December index is better than the 76.5 expected by economists surveyed by Dow Jones Newswires. The board’s present situation index, a gauge of consumers’ assessment of current economic conditions, increased to 76.2 from a revised 73.5, originally put at 72.0. The current index is the highest since April 2008, the board said. Consumer expectations for economic activity over the next six months rose to 79.4 from a revised 71.1, first reported as 69.3 in November. Within the board’s confidence survey, views on the current labor market are more upbeat. The improvement supports expectations for another solid gain in hiring in December. The Labor Department will release its December payrolls report January 10. Nonfarm payrolls increased 200,000 in October and 203,000 in November.

Housing, confidence gain as economy improves: Home prices in most U.S. cities are increasing more slowly than earlier in the year, and consumer confidence is rising, in dual signs that expectations of a stronger economy in 2014 are taking root. The Conference Board's Consumer Confidence Index rose 6.1 points in December, to 78,1, recouping almost all of the drop it sustained during the October government shutdown, the board reported on Tuesday. Economists had expected the index to rise to 76.8, according to a survey by Econoday. The biggest change was more optimism about the economy's path over the next six months, which rose more strongly than perceptions of the current state of the economy, the board said.  Separately, the Standard & Poor's/Case-Shiller 20-city home price index rose 0.2% from September to October. Monthly price gains slowed in 18 of the 20 cities tracked by the index, Prices have risen 13.6% over the past 12 months, the fastest since Feb. 2006, S&P-Dow Jones Indices said. The S&P/Case-Shiller index isn't adjusted for seasonal variations, so the change partly reflects slower buying in the fall.

Fast Facts -If I Was Reporting the Con Con, I’d Hammer Out A Warning - “The Conference Board said its sentiment index climbed to 78.1 from 72 in November, exceeding the median forecast of economists surveyed by Bloomberg and the strongest year-end reading since 2007.” That’s how Bloomberg put it in crowing about the ConCon beating the consensus guess of economists, whose median expectation was a reading of 76. The pundits then took that “beat” to make all kinds of absurd extrapolations about the wonderful future we face in 2014. My take is a little different as usual. First we need to have a little perspective on this one month change reading.That comes from a long term chart. In this case, the data is proprietary to the Con Board, but puts up a nice chart each month. Like the good chartist, I just add a few lines and then interpret the chart based on common standards of technical analysis, a discipline which economists, being the clown frauds that they are, do not take seriously.The mainstream media conveniently ignores the fact that the Con Con has been in a 15 year downtrend. It ignores the fact that over the past 4 years the index has merely returned to the upper trendline. Technical analysts and chartists would call that “resistance.”  Professional traders, particularly if they work for Wall Street Primary Dealers, would probably be establishing large short positions on the Con Con right about now. In other words, sell the news.

Restaurant Performance Index increases in November - From the National Restaurant Association: Restaurant Performance Index Hit a Five-Month High in November Driven by improving same-store sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) hit a five-month high in November. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.2 in November, up 0.3 percent from October and the strongest level since June. In addition, the RPI stood above 100 for the ninth consecutive month, which signifies expansion in the index of key industry indicators. “Recent growth in the RPI was fueled in large part by improving same-store sales and customer traffic levels,” “In addition, restaurant operators are somewhat more confident that sales levels will improve, and a majority plan to make a capital expenditure in the next six months.”..The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 101.2 in November – up 0.3 percent from a level of 100.9 in October and the highest level in six months. ...  Fifty-seven percent of restaurant operators reported a same-store sales gain between November 2012 and November 2013, up from 54 percent in October and the highest level in six months.The index increased to 101.2 in November, up from 100.9 in October. (above 100 indicates expansion).

Vital Signs: Americans Holding on to Their Cars Longer - U.S. auto makers on Friday report sales for December, numbers which should cap off the best year for vehicle sales since 2007. Demand for cars has been a main driver behind consumer spending and manufacturing production. One reason for all those trips to dealers’ lots is the age of the average car on the road. Even before the Great Recession, better design and reliability enabled drivers to hold onto their cars for longer. But during the 2007-2009 downturn and after, financial problems and tight credit standards prevented many consumers from replacing their old vehicles. As a result, estimate analysts at IHS Automotive, the average age of a vehicle stands at a record 11.3 years. The average age increased faster in the five years ended in 2013, than in the five years before that. The trend is true for cars and for light trucks. Households are in a better financial situation now. Plus credit standards, especially for autos, have eased. That has supported the surge in carbuying last year. IHS projects vehicle sales will total just over 16 million in 2014, and the new cars will help to slow the aging of America’s car fleet.

U.S. Light Vehicle Sales decrease to 15.5 million annual rate in December, Annual Sales up 7.5% - Based on an estimate from WardsAuto, light vehicle sales were at a 15.53 million SAAR in December. That is up 2.3% from December 2012, and down 4.8% from the sales rate last month.   This was below the consensus forecast of 16.0 million SAAR (seasonally adjusted annual rate). For the year, most forecasts were for auto sales growth to slow in 2013 to around 4% growth or 15.0 million units. Actually sales growth were up about 7.5% to 15.5 million.This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for December (red, light vehicle sales of 15.53 million SAAR from WardsAuto). December sales were a little disappointing, but overall 2013 was solid. The second graph shows light vehicle sales since the BEA started keeping data in 1967. Note: dashed line is current estimated sales rate. Unlike residential investment, auto sales bounced back fairly quickly following the recession and were a key driver of the recovery.

Domestic Vehicle Sales Lowest In 14 Months; Miss By Most In Over 5 Years - Oops. While Phil LeBeau was proudly crowing about how great the auto industry 'was' doing, the actual data of how it 'is' doing printed with a dismal drop from Novermber's exuberance. Domestic Sales dropped to their lowest annualized level in 14 months with the biggest miss since Oct 2008! The story was very widespread, as SMRA notes, nearly ever automaker reported lower than expected sales... apart from: *MASERATI SALES UP 210% ...and on the basis of cars sold per employed person... we have peaked...Via SMRA, Nearly every automaker has reported lower-than-expected sales for the month of December relative to our forecast and the consensus. At this time, domestic light vehicle sales are running at a disappointing low 11.3 million annualized pace, which compares with 12.6 million for November. If taken into context, we can say that the strong selling pace in November pulled sales away from December. In September and October, domestic light vehicle sales fell under 12.0 million due to the impact of the federal government shutdown, slipping to 11.7 million for both months, as it negatively impacted on buying confidence.

Weekly Gasoline Update: Regular Up Six Cents, Premium Five - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular rose six cents and Premium five. Regular and Premium are down 45 cents and 40 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. One state (Montana) is averaging under $3.00, down from three states last Monday and eight states the Monday before.

Everything Better Is Purchased At The Price Of Something Worse – Ilargi - It is precisely Jung and Freud’s insights into the human mind that have made it possible for politicians and advertisers and other tricksters to fool us into thinking we want or need the things that make our world poorer, not richer. There is a huge amount of irony in this: that we use our increased ability to understand our minds in order to fool ourselves. If that doesn’t prove that Everything Better Is Purchased At The Price Of Something Worse, what does? Although it would be best to incorporate the principle into our lives as just that, a general principle, it is of course possible to name specific examples. The automobile, the car, has brought us a lot of pleasure and comfort. It has also polluted our world like maybe no other single invention has ever done. And that’s not even the worst part: the car has cut through our communities like a gutting knife (to the point where we have no recollection of what these communities used to look like), separating us from each other, turned public space into no-go zones, and arguably been made more important than the people whose comfort they were supposed to serve. For many people who have no car, for one reason or another, their own communities have become de facto inaccessible and unnavigable. And the car is an easy example. What about medicine? We have, through progress in medicine, been able to save so many people from dying, and/or enabled them to die later, that our population has exploded, a huge problem in more ways than I could even attempt to discuss here. And that’s a hard one: nobody, including me, will suggest we stop saving lives, or start killing people, but there is a problem all the same. Everything Better Is Purchased At The Price Of Something Worse.

Thinking Outside the (Big) Box - Ton, 39, grew up in Turkey and spent several summers working at her father’s apparel factory, often sewing pockets for bathrobes. The job was, like many menial low-wage tasks, both pressure-filled and boring, and Ton wished she could find a way to make such workers happier. After a volleyball scholarship brought her to the United States as a young adult, she eventually dedicated her academic career to figuring out how to make low-paid work more rewarding for employees and employers alike.  In the last few years, Ton has become a revolutionary force in a field that would seem unlikely to generate many — the Kafkaesque-titled Operations Management. Her central thesis is that many of those big-box retailers have been making a strategic error: Even the most coldhearted, money-hungry capitalists ought to realize that increasing their work force, and paying them and treating them better, will often yield happier customers, more engaged workers and — surprisingly — larger corporate profits. This sounds Pollyannaish, sure, but a study co-authored by Marshall Fisher, a Wharton professor who specializes in retail-management studies, backs it up. For every dollar of increased wages, one retailer that was studied by Fisher brought in $10 more in revenue. For more-understaffed stores in the study, the boost was as high as $28.

The trade deficit: Star-spangled spenders -- ANY American who bought a top-of-the-range Maytag Maxima front-loading washing machine a few years ago contributed in his own small way to the country’s persistent trade deficit; the machine was made in Germany. Not so anyone who has bought one in the past six months, because Whirlpool, the manufacturer, has since moved production to a plant in Clyde, Ohio. That shift helps explain a remarkable improvement in America’s external accounts. At the end of 2005 the current-account deficit reached 6.2% of GDP, the sign of a society living dangerously beyond its means. But by the third quarter of 2013 it had dropped to 2.2%, the lowest since 1998, a level it could easily sustain indefinitely. The deficit has narrowed, in part, thanks to a rising surplus in investment income and growth in the traditional surplus in services trade, such as royalties. But the biggest factor has been the deficit in trade in goods, which has shrunk by 2.2% of GDP. In previous expansions the deficit widened as the domestic appetite of households and businesses for foreign-made stuff outpaced exports. This time, though exports and imports both fell during the recession, exports rebounded more strongly, exceeding 9% of GDP in the third quarter (above pre-recession levels), whereas imports have stabilised around their prerecession level, just below 14% of GDP.

Chicago PMI Tumbles As Inventories Collapse Most Since 1977 - Stocks dropped and bonds rallied modestly as the early subscribers received the Chicago PMI which missed expectations significantly. Seemingly, with taper in place, bad news is bad news as the 59.1 print (vs a 60.8 exp) is the biggest miss in 6 months. Under the covers things are even worse with the lowest employment index since April. Inventories also collapsed (by the most since 1977) which is a problem since New orders and production also plunged suggesting the post-government shutdown 'surprise' GDP-enhancing inventory-build is entirely a one-off event (as we noted here).

ISM Manufacturing index declines slightly in December to 57.0 - The ISM manufacturing index indicated slightly slower expansion in December than in November. The PMI was at 57.0% in December, down from 57.3% in November. The employment index was at 56.9%, up from 56.5%, and the new orders index was at 64.2%, up from 63.6% in November.  From the Institute for Supply Management: December 2013 Manufacturing ISM Report On Business®   "The PMI™ registered 57 percent, the second highest reading for the year, just 0.3 percentage point below November's reading of 57.3 percent. The New Orders Index increased in December by 0.6 percentage point to 64.2 percent, which is its highest reading since April 2010 when it registered 65.1 percent. The Employment Index registered 56.9 percent, an increase of 0.4 percentage point compared to November's reading of 56.5 percent. December's employment reading is the highest since June 2011 when the Employment Index registered 59 percent. Comments from the panel generally reflect a solid final month of the year, capping off the second half of 2013, which was characterized by continuous growth and momentum in manufacturing." Here is a long term graph of the ISM manufacturing index. This was at expectations of 57.0%, and was the 2nd highest reading of 2012. The new orders index was at the highest level since April 2010, and the employment index was at the highest since June 2011. A very solid report

ISM Manufacturing Index Slipped 0.3% in December - Today the Institute for Supply Management published its December Manufacturing Report. The latest headline PMI at 57.0 percent is a slight decline from 57.3 percent last month, which was the best reading since April 2011, thirty-two months ago. Today's number matched the forecast of 57.0.Here is the key analysis from the report:Manufacturing expanded in December as the PMI™ registered 57 percent, a decrease of 0.3 percentage point when compared to November's reading of 57.3 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.  A PMI™ in excess of 42.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the December PMI™ indicates growth for the 55th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the seventh consecutive month. Holcomb stated, "The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through December (53.9 percent) corresponds to a 3.7 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI™ for December (57 percent) is annualized, it corresponds to a 4.6 percent increase in real GDP annually."  Here is the table of PMI components.

ISM Manufacturing PMI 57% But Inventories Contract for December 2013  - The December ISM Manufacturing Survey shows PMI decreased -0.3 percentage points to 57.0%.  This is still strong growth, the 2nd highest in 2013, although manufacturing inventories contracted.  Overall manufacturing looks stable with 13 of the 18 industries reporting growth.  The employment index is at a high not seen since June 2011.  The ISM manufacturing index is important due to the economic multiplier effect.  While manufacturing is about an eighth of the economy, it is of scale and spawns all sorts of additional economic growth surrounding the sector.  PMI is a composite index using five of the sub-indexes, new orders, production, employment, supplier deliveries and inventories, equally weighted.  This is a direct survey of manufacturers and every month ISM publishes survey responders' comments.  Overall survey respondent comments were positive, with many implying demand has picked up.  Transportation said the continued government spending cuts have impacted negatively their production.  Fabricated Metal Products said this was their largest backlog of orders ever, a positive sign.  Even furniture said they were busy, busy, busy. New orders increased 0.6 percentage points to 64.2%.  This is really strong growth, the index is in the 60's, and increasing.  Generally speaking, ISM sub-indexes in the 60's and staying there are truly positive signs for the manufacturing sector.  The Census reported November durable goods new orders increased by 3.5%, where factory orders, or all of manufacturing data, will be out later this month, but note the one month lag from the ISM survey.  The ISM claims the Census and their survey are consistent with each other and they are right.  Below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics.  Here we do see a consistent pattern between the two and this is what the ISM says is the growth mark: A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders.

ISM Beats Expectations Despite Its First Drop In Seven Months - After beating expectations for 6 months in a row, the whisper expectations for December's Manufacturing ISM was a small miss of the 56.8 consensus print. Instead, the US inventory build up in the quarter boosted the ISM for one more month with the headline print of 57.0 beating expectations modestly, if recording the first decline in seven months, down from November's 57.3. There was little surprise in the internals, which saw New Orders (64.2 vs 63.6), Employment (56.9 vs 56.5) and Prices Paid (53.5 vs 52.5) all rise modestly. The New Orders Index increased in December by 0.6 percentage point to 64.2 percent, which is its highest reading since April 2010. The Employment reading was the highest since June 2011. Like the Chicago PMI previously, inventories dipped into contraction territory, if not as violently as in Chicago, down from 50.5 to 47.0. Judging by the boost to the US economy from the government shutdown, perhaps Congress should close more often: like permanently?

US Manufacturing PMI Shows Solid Expansion, Led by Large Companies; Expect "Measured Pace" Tapering - Both the ISM Report and the Markit PMI report show strengthening US manufacturing.  ISM: The December 2013 Manufacturing ISM Report On Business® shows Economic activity in the manufacturing sector expanded in December for the seventh consecutive month. "The PMI™ registered 57 percent, the second highest reading for the year, just 0.3 percentage point below November's reading of 57.3 percent. The New Orders Index increased in December by 0.6 percentage point to 64.2 percent, which is its highest reading since April 2010 when it registered 65.1 percent. The Employment Index registered 56.9 percent, an increase of 0.4 percentage point compared to November's reading of 56.5 percent. December's employment reading is the highest since June 2011 when the Employment Index registered 59 percent. Comments from the panel generally reflect a solid final month of the year, capping off the second half of 2013, which was characterized by continuous growth and momentum in manufacturing."  Markit: Here is a look at the Markit US Manufacturing PMI.

  • PMI rises to 11 - month high, indicating solid improvement in business conditions
  • Output supported by strong increase in new orders
  • Employment growth quickens to nine - month high
  • Input price pressures intensifies

Summary: Business conditions in the U.S. manufacturing sector improved at the fastest rate since January, according to the final December Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™). At 55.0, up from 54.7 in November and above the earlier flash estimate of 54.4, the PMI indicated a solid rate of expansion. Production in the series average and the fastest since March 2012. All three market groups (consumer, intermediate and investment) posted higher levels of output in December, with manufacturers of investment goods posting the fastest rate of increase.

US global share of research spending declines: — The United States' global share of biomedical research spending fell from 51 percent in 2007 to 45 percent in 2012, while Japan and China saw dramatic increases in research spending. The research and development spending in the United States dropped from $131 billion to $119 billion, when adjusted for inflation, from 2007-2012, while Japan increased spending by $9 billion and China increased by $6.4 billion. Overall, Asia's share of spending grew from 18 percent to 24 percent. Europe held steady at 29 percent. Prior analyses have suggested the United States' share of global expenditures were once as high as 80 percent. ... Despite reductions in funding from the National Institutes of Health, including a 20 percent drop in purchasing power since 2003, the researchers discovered that the United States' decline was driven almost entirely by reduced investment from industry, not the public sector. This includes support for clinical trials testing potential new therapies. ----- "We were surprised the impact of industry funding was that dramatic, but it's key to note that government funding is equally important to maintain or grow. Research funded through the National Institutes of Health helps scientists understand how diseases work – this will happen slower as NIH funding continues to be cut,"

Preserving Wireless Competition - NYTimes editorial -  The corporation that controls Sprint, the third-biggest cellphone company in the country after Verizon and AT&T, is reportedly planning to make an offer to buy the smaller rival T-Mobile in a move that would reduce competition in an important industry that already has too little of it.  Most Americans have a choice of just four national cellphone companies — Verizon, AT&T, Sprint and T-Mobile — compared with six in 2003. The Federal Communications Commission recently described the industry as “highly concentrated” based on an index used by regulators to measure how competitive a market is. In 2011, the Department of Justice used a similar analysis to effectively block AT&T from acquiring T-Mobile.  Sprint, recently bought by the Japanese company SoftBank, appears to believe that regulators might look favorably on a proposal to purchase T-Mobile because the combined company would still be smaller than AT&T and Verizon in revenue and customers. Sprint would probably argue that the combined company would become a more effective competitor to the two larger companies.  Because T-Mobile uses a different wireless technology than Sprint, SoftBank could face significant technological hurdles in trying to integrate the two. But that’s a separate issue; the main issue is whether consumers would benefit from the acquisition, and the evidence suggests they would not.

U.S. Struggles to Keep Pace in Delivering Broadband Service - San Antonio is the seventh-largest city in the United States, a progressive and economically vibrant metropolis of 1.4 million people sprawled across south-central Texas. But the speed of its Internet service is no match for the Latvian capital, Riga, a city of 700,000 on the Baltic Sea.  Riga’s average Internet speed is at least two-and-a-half times that of San Antonio’s,  And the cost of Riga’s service is about one-fourth that of San Antonio. The United States, the country that invented the Internet, is falling dangerously behind in offering high-speed, affordable broadband service to businesses and consumers, according to technology experts and an array of recent studies.  In terms of Internet speed and cost, “ours seems completely out of whack with what we see in the rest of the world,” said Susan Crawford, a leading critic of American broadband.  The Obama administration effectively agrees. “While this country has made tremendous progress investing in and delivering high-speed broadband to an unprecedented number of Americans, significant areas for improvement remain,” The disagreement comes over how far behind the United States really is in what many people consider as basic a utility as water and electricity — and how much it will affect the nation’s technological competitiveness over the next decade. “There aren’t any countries ahead of us that have a comparable population distribution,”

End the broadband panic meme - It happens about every twelve months, maybe with more frequency recently. Another reporter writes about how the US is falling behind international rivals in the supply of broadband. The latest version of this article came from the New York Times. It had the title “US Struggling to Keep Pace in Broadband Service,” and it brought out the usual concern that all US growth will fall behind if the US does not have the fastest broadband in the world. If you are curious, read this. First, while it is irritating to have slow service at home, US productivity does not depend much on that.  Household broadband is less important for economic growth than the broadband to business. And what really matters for productivity? Speed to business. The number of minutes it takes a household to download Netflix is statistically irrelevant for productivity growth in comparison to the time it takes to download information to conduct business transactions with employees, suppliers, and customers. Is there any sense that US business Internet is too slow? Well, perhaps the speed of a household’s internet says something about the speed of business Internet, but I doubt it. In all the major cities of the US there is no crisis at all in the provision of broadband.  Broadband speeds in downtown Manhattan are extraordinary, as well as in Wall Street. The Silicon Valley firms who need fast speeds can get them. Same with the firms in Seattle. Hey, the experiments with Google Fiber in Kansas City raise questions about whether entrepreneurship will follow the installation of super high speeds, but that is an open question. It is an interesting question too, but not a crisis.

NSA Scandal May Help Build Cyber-Barriers - The smooth flow of online communication and commerce between Europe and the U.S. is at risk of interruption, thanks in part to naked opportunism on the part of European telecommunications giants. If the governments involved fail to keep online barriers between the continents low, the Internet’s potential to be an engine of global economic growth will be constrained.  Take Deutsche Telekom AG (DTE) (DTE), the largest provider of high-speed Internet access and wireless services in Germany and the largest telecommunications organization in the European Union. To expand, the company will have to acquire additional communications companies; in order to do so, it hopes to free itself from the German government’s 32 percent ownership in the company. It has also expressed a desire to diversify into non-telecommunications lines of business, such as technical-services delivery. The snooping scandal at the U.S. National Security Agency may help Deutsche Telekom achieve both these goals. T-Systems International GmbH, the company’s 29,000-employee-strong distribution arm for information-technology solutions, wants to refocus the company on providing cloud services.  Deutsche Telekom has also proposed to help Europe avoid NSA surveillance by creating “Schengen area routing,” a network for the 26 European countries that have agreed to remove passport controls at their borders. This network would supposedly allow these nations to securely exchange data among themselves. Conveniently, the Schengen area does not include the U.K., which is now known to be closely cooperating with the NSA.

Good News for the Economy in 2014 - Economy watchers had reasons to be cheerful Thursday morning as several economic reports pointed to stronger growth in 2014. The Labor Department announced that the seasonally adjusted number of “initial jobless claims,” or new workers who have filed for unemployment insurance benefits, fell in the week ending Dec. 21 to 339,000 from the previous week’s revised estimate of 341,000. Other data like the Institute for Supply Management’s monthly survey of the American manufacturing industry were also bullish for the labor market, with manufacturers indicating economic growth expanded in December. The overall index registered at 57 percent, the second highest reading for the year after November’s index of 57.3 percent. Any reading above 50 indicates an expanding manufacturing sector. Finally, the Census Department reported this morning that construction spending during November 2013 was estimated at an annual rate of $934.4 billion on a seasonally adjusted rate, 1 percent higher than October’s reading, and 5.9 percent higher than last year.

The recession may be over, but its jobs shortfall is still with us - Don't let the small ups and downs of the monthly jobs report or weekly unemployment claims distract you from the big picture: In November 2013, the labor market had 1.3 million fewer jobs than when the recession began in December 2007. Further, because the potential labor force grows every month, the economy would have had to add 6.6 million jobs just to preserve the labor market health that prevailed in December 2007. Counting jobs lost plus jobs that should have been gained to absorb potential new labor market entrants, the U.S. economy had a jobs shortfall of 7.9 million in November 2013. And that is the context in which Congress let emergency unemployment benefits lapse for people dealing with long-term unemployment. Republicans like Rand Paul would tell you that unemployment insurance somehow makes people less likely to look for or find jobs, but the reality is that it makes them more likely to look—the jobs just aren't there. As you can see in this chart.

Weekly Initial Unemployment Claims at 339,000 -- The DOL reports:In the week ending December 28, the advance figure for seasonally adjusted initial claims was 339,000, a decrease of 2,000 from the previous week's revised figure of 341,000. The 4-week moving average was 357,250, an increase of 8,500 from the previous week's revised average of 348,750. The previous week was revised up from 338,000. The following graph shows the 4-week moving average of weekly claims since January 2000. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 357,250. Weekly claims are frequently volatile during the holidays because of the seasonal adjustment. This is the highest level for the 4-week average since October.

Weekly U.S. Unemployment Benefit Claims Fall to 339K — The number of Americans seeking unemployment benefits dipped 2,000 last week to a seasonally adjusted 339,000, evidence that layoffs are low and hiring will likely remain steady.The Labor Department said Thursday that the less volatile four-week average rose 8,500 to 357,250. The average was driven up in recent weeks by spikes that reflected seasonal volatility around the Thanksgiving and Christmas holidays. The government struggles to account for seasonal hiring by retailers and other businesses and for temporary layoffs of school employees during the holidays.  Applications are a proxy for layoffs. They appear to have stabilized near the pre-recession levels reached in the late summer and are at a level consistent with solid hiring. The job market has picked up in recent months. Employers have added an average of 200,000 jobs a month from August through November. That’s helped lower the unemployment rate to a five-year low of 7 percent. There have been other signs the economy is improving. Americans are more confident and spending more. And orders to U.S. manufacturers jumped in November, evidence that businesses are spending more on factory-made items such as machinery, computers and electrical goods.

HP Announces Another 5,000 Layoffs, For A Total Of 34,000 - HP has officially ratcheted up its layoff numbers again. It will be cutting another 5,000 jobs above and beyond the 29,000 jobs it had previously targeted.  And that was an increase from the 27,000 jobs it announced in May 2012, as first reported by Business Insider.  In HP's previous quarterly earnings reports filed with the SEC, it warned investors that the company might get rid of more than 29,000 employees.  In its annual report filed on Monday, it made the bigger layoff official, declaring it would cut 34,000 jobs.  Here's what HP said in that SEC documentDue to continued market and business pressures, as of October 31, 2013, HP expects to eliminate an additional 15% of those 29,000 positions, or a total of approximately 34,000 positions, and to record an additional 15% of that $3.6 billion in total costs, or approximately $4.1 billion in aggregate charges. HP expects to record these charges through the end of HP's 2014 fiscal year as the accounting recognition.  HP CEO Meg Whitman has promised that HP will not do another big layoff once this one is complete. It is supposed to end by October, 2014, HP says.  HP says it currently has about 331,800 employees.  The silver lining for current employees is that HP has already done most of the cutting. As of October 31, 2013, HP had eliminated approximately 24,600 positions of the 34,000 it expects to cut, the company said in its annual report.

End of Extended Unemployment Could Cause Jobless Rate to Tumble - The end of extended jobless benefits for more than 1 million Americans last week could cause the unemployment rate to tumble dramatically early this year, according to some Wall Street analysts. Nearly 1.4 million people received payments through the financial-crisis era program as of Dec. 14, 2013, the Labor Department said Thursday. Those benefits expired last week. If a large portion of the recipients now drop out of the labor force, the unemployment rate would fall. TD Securities estimates the decline in the jobless rate could be as much as a half-percentage point. Other analysts suggest the fall could be a smaller, but still significant, quarter-point drop.The unemployment rate is the share of the total labor force that is out of work but actively seeking employment. To receive jobless benefits recipients need to keep applying for jobs. But once the government deposits stop flowing, they may be less motivated to look for work and thus drop out of the labor force. “The people losing benefits are by definition long-term unemployed and thus much more likely to give up looking for a job,” . The longer a person is out of work the harder it is for him or her to find a job, he said. Recipients in the federal program that ended last week have already exhausted the roughly 26 weeks of unemployment benefits most states provide. Some have been receiving benefits for more than a year.

Meet the Americans Who've Lost Their Unemployment Benefits: "I'm Thoroughly Petrified" - When Congress reconvenes next week, lawmakers will have to decide whether to extend federal unemployment benefits for about 1.3 million Americans. These emergency benefits—which Congress let expire shortly after Christmas—are part of a 2008 program that allows workers who have been out of the job for more than six months to receive an emergency extension on their payments up to 47 weeks. If Congress fails to renew these benefits, only a quarter of jobless Americans will be receiving any benefits at all, according to the Huffington Post.  As these charts show, the United States is looking at the worst long-term unemployment crisis since soup kitchen lines peaked during the Great Depression. Americans who have been unemployed for more than six months are often hit with major financial and personal hardship. Around 10 percent must file for bankruptcy, more than half report putting off medical care, and many say they have, "lost self-respect while jobless." But who are these Americans who have lost their benefits? Some reached out to Mother Jones. Here are their stories:

Senate Democrats plan fast-track fix to reinstate lost unemployment benefits -- Democratic leaders in the Senate are planning to fast-track legislation to extend unemployment insurance, a move that would provide a lifeline to more than a million jobless Americans who lost their benefits five days ago. Senator Jack Reed, a Democrat from Rhode Island whose bipartisan bill will ensure a three-month extension of the federal benefits program, told the Guardian the measure would stimulate the economy and alleviate what he called the “mental torment” suffered by those long-term unemployed who now feel abandoned. The benefits, which apply to people who are unemployed for longer than six months, were left to expire on Saturday after a bipartisan budget deal on federal spending for the next two years failed to include a reauthorisation of the program. “On a human level, many of these people are desperate,” Reed said in an interview on Thursday. “It is the difference between being able to pay their mortgage or not. Many of these are people who have worked for decades. They had good jobs, and they’ve been sending out sending out thousands of résumés, but they’re in a job market that is terrible.”

January may be do-or-die for jobless benefits: In one week, Congress will return to Washington and start tackling its enormous to-do list. Senate Majority Leader Harry Reid has already said restoring long-term unemployment benefits that lapsed on Dec. 28 will among the first orders of business for the chamber when it reconvenes — but how likely is passage? And what happens if it fails?  Conversations with several people involved in the push present a fairly clear road map, though no doubt a very difficult one. The first order of business, as noted, is getting 60 votes for a bill by Sens. Jack Reed (D-R.I.) and Dean Heller (R-Nev.), which would extend jobless benefits for three months at a cost of $6.5 billion. Advocates are hoping that other Republicans have been reading the brutal polls on letting benefits lapse and hearing from constituents on the issue over the holidays, and will return to Washington with a different mindset. Heller is the only Republican on board, so four more would be needed in the Senate — and that’s before one even considers the House prospects, where Speaker John Boehner insists that any unemployment extension be paid for with offsetting cuts. The Reed-Heller bill does not have an offset, which my colleague Ryan Cooper notes is a good thing: We shouldn’t be afraid of some paltry deficit spending to help those truly struggling in this economy. Perhaps Boehner will come to see it that way if a bipartisan bill emerges from the Senate and public pressure continues apace.

Shorter Workweeks Are Likely in New Year - Three economic forces are pushing toward shorter workweeks for employees during the new year. The red line in the chart below is a monthly index of the employment-to-population ratio, normalized to a value of 100 in December 2007, when the recession began. In this series, each employed person counts the same, regardless of how many hours she or he works. By that measure, there has been hardly any labor market recovery because, as indicated by an index value of 93, employment per capita still remains 7 percent below what it was before the recession began. Average weekly hours of private-sector employees (the blue line) returned comparatively quickly to near their prerecession level and have maintained that level over the last two years.I predict that average weekly work hours will decline again over the next year because fiscal policy is now switching from penalizing part-time work to rewarding it.  Many of the part-time-work penalties disappear this week when the federal government stops paying long-term unemployment benefits (short-term unemployment benefits will continue, and they embody some of the same incentives), although the penalties would reappear should Congress resurrect the program. Full-time work has traditionally offered health and other benefits that part-time jobs rarely do, and those benefits have kept a number of workers in full-time positions. The Affordable Care Act aims to end that advantage, by giving workers opportunities to obtain insurance outside the workplace. In addition, in some cases the new insurance opportunities can be so inexpensive compared with employer insurance that people stand to, paradoxically, have more disposable income from working part time than they do from working full time.

Real Median Household Income: Month-over-Month Slippage But Off Its 2011 Low - The Sentier Research monthly median household income data series is now available for November. Nominal median household incomes were down $136 month-over-month but up $522 year-over-year. However, adjusted for inflation, real incomes fell $199 MoM and are down $107 YoY (-0.3% and -0.2%, respectively). Note that these numbers do not factor in the expiration of the 2% FICA tax cut. The median real household income is up only 2.4% since its post-recession trough set in the summer of 2011, now 27 months later.  The first chart below is an overlay of the nominal values and real monthly values chained in November 2013 dollars. The red line illustrates the history of nominal median household, and the blue line shows the real (inflation-adjusted value). I've added callouts to show specific nominal and real monthly values for January 2000 start date and the peak and post-peak troughs.In the latest press release, Sentier Research spokesman Gordon Green summarizes the recent data. Since August 2011, the low-point in our household income series, we have seen some improvement in the level of real median annual household income. While the trend in household income since August 2011 has been uneven, on balance we have seen an upward movement of 2.4 percent since August 2011. We still have a significant amount of ground to make up to get back to where we were before, but at least we have shown some improvement since the low point.

Everyone In America Is Even More Broke Than You Think - The massive and growing gulf between rich and poor is one of the direst challenges facing the U.S. economy.  Highlighting this gap, more than half of U.S. wage earners made less than $30,000 last year, according to an analysis released by the Social Security Administration on Tuesday. That's not far above the $27,010 that marked the federal poverty line for a family of five in 2012. We've created this infographic to help visualize the skewed income distribution in the country. Where do you stack up?

  • -If you make more than $10,000, you earn more than 24.2% of Americans, or 37 million people.
  • -If you make more than $15,000 (roughly the annual salary of a minimum-wage employee working 40 hours per week), you earn more than 32.2% of Americans.
  • -If you make more than $30,000, you earn more than 53.2% of Americans.
  • -If you make more than $50,000, you earn more than 73.4% of Americans.
  • -If you make more than $100,000, you earn more than 92.6% of Americans.
  • -You are officially in the top 1% of American wage earners if you earn more than $250,000.

Narrowing the Income Gap, Without Another Bust - There are two opposing views out there right now regarding the economic prospects for 2014.  There are those making the case that this will be the year the economy finally escapes the residual gravitation pull of the great recession and hits escape velocity, i.e., gross domestic product and job growth accelerate, households — with their balance sheets back in the black, and with home prices rising — pick up their consumption, and businesses respond to this newfound activity by bringing more of their investment capital off the sidelines and into the game. The other view is embodied in a recent CNN/ORC poll result that finds that nearly 70 percent said the economy “is generally in poor shape,” while “just over half expected the economy to remain in poor shape a year from now.” Most readers of this blog will have no problem aligning these two disparate viewpoints.  There is no single United States economy that’s either doing well or poorly.  When someone asks “how’s the economy doing?” the correct response is “Whose economy you talkin’ about?”  In our era of historically high levels of income inequality, growth is of course necessary, but it’s not sufficient to lift the living standards of the bottom half.  The chart above gives a rough look at the problem, showing the growth over the expansion thus far in G.D.P. (up 10 percent), corporate profits (up 50 percent), the Standard & Poor’s 500-stock index (up 77 percent), and median household income (down 4 percent), all adjusted for inflation.

Americans on Wrong Side of Income Gap Run Out of Means to Cope - Rising income inequality is starting to hit home for many American households as they run short of places to reach for a few extra bucks. As the gap between the rich and poor widened over the last three decades, families at the bottom found ways to deal with the squeeze on earnings. Housewives joined the workforce. Husbands took second jobs and labored longer hours. Homeowners tapped into the rising value of their properties to borrow money to spend. Those strategies finally may have run their course as women’s participation in the labor force has peaked and the bursting of the house-price bubble has left many Americans underwater on their mortgages. The result has been a downsizing of expectations. By almost two to one -- 64 percent to 33 percent -- Americans say the U.S. no longer offers everyone an equal chance to get ahead, according to the latest Bloomberg National Poll. The lack of faith is especially pronounced among those making less than $50,000 a year, with close to three-quarters in the Dec. 6-9 survey saying the economy is unfair.

“Honey, I Shrunk Killed the Middle Class” -- Yves Smith - A new Bloomberg story, Americans on Wrong Side of Income Gap Run Out of Means to Cope, is a zeitgeist indicator: the normally-well-insulated-from-realty investing classes have noticed that large swathes of what was once the middle class aren’t just downwardly mobile but are struggling. Some facts from the story: The top 10 percent in the US captured a biggest share of income in 2012 than any year since 1917 Real median income of college-educated men 25 or older fell 10% since 2007. Of people who lost jobs in 2009 through 2011 that they’d had for three or more years, only half the women and 61% of the men were re-employed by the start of 2012 (and remember, a mere one paid hour of work a week counts as employmentOnly 1/3 of adults 18 to 32 lived in their own household, only marginally higher than the 38 year low set in 2010. But the Bloomberg story find it hard to capture what this distress means in human terms. It does have this anecdote at the close: Latoya Caldwell, 30, has been employed at a Wendy’s Co. restaurant for six years and earns the state’s minimum wage of $7.35 an hour. Working 25 to 30 hours a week, she has asked for more shifts to help support her four children, with whom she lives in one bedroom of her aunt’s house.  More older workers — including one over 65 years — as well as college-educated are joining her team, showing that rough economic times have swelled the ranks beyond the typical teenager at the register, Caldwell said. “We’re making barely enough to even survive,” Caldwell said. “We’re not even surviving — we’re dependent on state assistance while our CEO makes $5.8 million and he’s sitting in an office.”

Rand Slaps Down Rand - Paul Krugman -- Here’s Rand Ghayad’s piece. Rand Paul has lately been citing Rand Ghayad’s research as a reason to eliminate long-term unemployment benefits. Rand Ghayad replies, “You know nothing of my work.” Which is true: as the good Rand documents, it’s clear that neither the bad Rand nor anyone on his staff read beyond the opening sentence or two. And in general, the whole notion that the way to cure unemployment is to slash aid to the unemployed is an astonishing case of sloppy thinking allied to cruelty. What Ghayad showed was that employers are reluctant to hire workers who have been unemployed for a long time. Paul takes this as evidence that we need to make long-term unemployment even harder to endure than it is now, to force workers to get jobs sooner. What’s wrong with this idea? It’s fallacious at two levels. First, the notion that unemployment benefits have a major negative impact on job search is no longer supported by most labor economists. The papers right-wingers love to cite are, in general, two or more decades old; Second, and at a deeper level: The level of unemployment in America today has nothing to do with job search or the lack thereof. Think about it. It’s possible (though dubious) that an individual worker who is currently unemployed may increase his or her chances of getting a new job by engaging in heroic efforts — making hundreds of phone calls per week, expressing a willingness to accept minimum wage or less, whatever. But none of this gives employers any incentive to create a new job. All this worker can do is move closer to the head of the line, getting a job that would otherwise have gone to someone else.

Living Standards in an Open Economy: The Danger of Front-Loading Income Inequality - Over the past decade, the American left has directed a growing share of its attention at income inequality.[1] Indeed, for some, reducing income inequality seems to have become the central goal.There are compelling reasons to object to America's high and rapidly rising level of income inequality. One is fairness. Much of what determines a person's earnings and income - intelligence, creativity, physical and social skills, motivation, persistence, confidence, connections, inherited wealth, discrimination - is a product of genetics, parents' assets and traits, and the quality of one's childhood neighborhood and schools. These aren't chosen; they are a matter of luck. A non-trivial portion of income inequality is therefore undeserved. Second, income inequality may increase inequality of other valuable things, such as education, health and happiness. Even if we think greater inequality in the distribution of income is acceptable, we may feel that greater inequality in the distribution of health, schooling and subjective well-being is not.Third, a rise in income inequality contributes to slower absolute income growth for those in the middle and at the bottom.[2] These, however, are not the rationales commonly put forward for worrying about income inequality. Instead, the most common arguments are that inequality is bad for the economy, overall health, opportunity and democracy.  Under conditions of endemic inequality, all other desirable goals become hard to achieve.  Is that true?

The Economic Case for a Universal Basic Income - The news that Switzerland will hold a referendum on a proposal to provide every citizen with an unconditional grant of 2,500 Swiss francs a month (about $2,800) has sparked renewed interest in the old idea of a universal basic income (UBI). Under such a program, the government would not just top up the incomes of the poor, but would give a subsistence-level grant to everyone, regardless of wealth, work status, or anything else. The appeal of a UBI seems to cut across the ideological spectrum. Progressives, libertarians, and conservatives have all supported one or another variant. This post begins a series that will explore various aspects of a universal basic income, beginning with the simple economics of the UBI and contrasting it with other approaches to income support. Future posts will examine the fiscal cost of a UBI and some of the political and ideological issues it raises. What makes an income support program good or bad? Although opinions differ, people who evaluate existing or proposed policies often appeal to these four criteria:

  1. A good income support program should be effective in leaving no one below an agreed poverty level.
  2. It should be targeted in the sense that it should provide support to those who need it rather than to those who already have adequate means.
  3. It would,  as much is possible, leave work incentives intact.
  4. It would be administratively efficient, in the sense of holding down administrative costs per dollar of support that beneficiaries receive.

Unfortunately, no income-support mechanism can simultaneously meet all of these criteria in full. There are inherent trade-offs among them. Let’s take a look at the different ways that actual and proposed policies handle those trade-offs.

Let’s treat the jobless like animals - I know there are those among you who think that the US is a heartless country. After all, because of congressional inaction, we cut off long-term unemployment benefits a few days ago for 1.3m jobless people. But let’s look on the bright side. This misfortune is only falling on one segment of our idle population – the kind with two legs. We can be quite caring as a society when it comes to looking after the wellbeing of workers who walk on all fours. Just consider the crew that was entrusted last year with some of the toughest landscaping jobs in the territory around Chicago’s O’Hare International Airport. These groundskeepers focus on the thick scrub in areas that are hard to reach with conventional mowers – and that provide breeding grounds for birds and other wildlife that can pose hazards at an airport. Theirs, though, is seasonal work, and when the weather turns wintry, there is little demand for their services. Yet their employers are making sure they will be in fine fettle for the spring. During their months of down time, they receive regular medical care, shelter from the elements and all the food they can eat – which, in the case of some of the bigger appetites in the group, is about 40 pounds of grub a day. Such levels of sustenance make sense because these workers are a bunch of animals – several dozen goats, sheep, llamas and burros (as some donkeys are known) hired by the Chicago Department of Aviation to graze on 120 hard-to-maintain acres. They did their thing from August until mid-November and will resume their activities later this year when the growing season begins, according to a news release issued by the aviation department.

Disinformation on Inequality - Paul Krugman - Miles Kimball catches Bret Stephens pulling a fast one on Wall Street Journal readers – but it’s much worse than Kimball says. Kimball take Stephens to task for overstating the economic progress of poorer Americans by presenting nominal figures, without any adjustment for inflation. What Kimball doesn’t mention is that the constant-dollar figures are presented by the Census in the same table (Excel file) from which Stephens is taking his numbers – and the constant-dollar figures actually show a small decline in the incomes of the bottom 20 percent. Wait, it gets worse. In the same piece in which he commits the unforgivable sin of using nominal incomes as a measure of progress, Stephens also accuses President Obama of a “factual error” in claiming that the top 10 percent receive half the income; it’s the top 20 percent, says Stephens, and there has been no significant rise since the mid-1990s. What’s going on here? Stephens is citing the Census data, which everyone who knows anything about inequality knows has a problem with very high incomes thanks to “top-coding”. The Piketty-Saez data, which use tax returns to estimate income shares, do indeed show the top 10 percent receiving half the income, up from 42 percent in 1995. Maybe you don’t like those estimates, but Obama made no mistake – while Stephens did. Why doesn’t this sharp rise show in the Census data? Because almost all of it took place among the top 1 percent – the income range that the Census data, which are survey-based, can’t effectively track.

Why Obama frets about income inequality, not family breakdown - The Obama White House argues hard that rising US income inequality makes it tougher for Americans to climb the economic ladder. When President Obama gave a big speech on “social mobility” earlier this month – liberal pundits called it the “most important” of his presidency – he mentioned inequality more than two dozen times to pound the point home. And Team Obama has much publicized its chart illustrating the “Great Gatsby Curve” which suggests strong correlation globally between high income inequality and low earnings mobility. Yet the issue of family breakdown deserves at least as much attention, if not more, from Obama than income inequality. Using data on local jobs markets from the Equality of Opportunity Project, e21 economist Scott Winship can’t find much of a statistical relationship between inequality – particularly of the 1% vs. 99% sort — and economic mobility. The EOP authors also find “a high concentration of income in the top 1% was not highly correlated with mobility patterns.” What does seem to be highly correlated with mobility is family structure. In these communities, the share of families with single moms predicts mobility levels “quite well all by itself,” according to Winship’s analysis.  Again, this result is not real surprising. Researchers on the left and right have found that kids raised by both biological parents fare better financially, educationally, and emotionally. And as the EOP scholars conclude: “Some of the strongest predictors of upward mobility are correlates of social capital and family structure.”

How Obama can kick off the minimum-wage push - The New York Times reported this morning (echoing the reporting of Greg Sargent and others earlier this year) that Democrats plan to campaign on raising the minimum wage during the election season.  Aside from being good economic policy, raising the minimum wage is quite popular, even among moderates and conservatives.  And there’s one way President Obama can show he takes the issue seriously: by issuing an executive order raising the minimum wage for 2 million federal contractors. This, too, is good policy, and the president is likely to get significant pressure from his left flank to do so. More than half a million employees of federal contractors make less than $12 an hour, according to a study by the progressive think tank Demos.  When the National Employment Law Project interviewed more than 500 federal contract workers who work in service-industry type jobs, sew military uniforms and drive trucks, more than 70 percent made less than $10 an hour. Progressives have been pushing the president for years to issue an executive order that would require federal agencies to give contracting preference to contractors that pay at least $10.10 an hour. This is something advocates argue the president can do without consulting Congress, and they point to similar executive orders by presidents Kennedy and Johnson, who raised federal labor standards in regards to equal opportunity and nondiscrimination.

'Minimum Wages and the Distribution of Family Incomes' -- Arin Dube new working paper entitled "Minimum wages and the distribution of family incomes." Here is his short summary: The paper tries to make sense of the existing literature, while providing new (and I would argue better) answers to old questions such as the effect on the poverty rate, and also conduct a more full-fledged distributional analysis of minimum wages and family incomes using newer tools. Here is the abstract: I use data from the March Current Population Survey between 1990 and 2012 to evaluate the effect of minimum wages on the distribution of family incomes for non-elderly individuals. I find robust evidence that higher minimum wages moderately reduce the share of individuals with incomes below 50, 75 and 100 percent of the federal poverty line. The elasticity of the poverty rate with respect to the minimum wage ranges between -0.12 and -0.37 across specifications with alternative forms of time-varying controls and lagged effects; most of these estimates are statistically significant at conventional levels. For my preferred (most saturated) specification, the poverty rate elasticity is -0.24, and rises in magnitude to -0.36 when accounting for lags. I also use recentered influence function regressions to estimate unconditional quantile partial effects of minimum wages on family incomes. The estimated minimum wage elasticities are sizable for the bottom quantiles of the equivalized family income distribution. The clearest effects are found at the 10th and 15th quantiles, where estimates from most specifications are statistically significant; minimum wage elasticities for these two family income quantiles range between 0.10 and 0.43 depending on control sets and lags. I also show that the canonical two-way fixed effects model---used most often in the literature---insufficiently accounts for the spatial heterogeneity in minimum wage policies, and fails a number of key falsification tests. Accounting for time-varying regional effects, and state-specific recession effects both suggest a greater impact of the policy on family incomes and poverty, while the addition of state-specific trends does not appear to substantially alter the estimates.

Working for Minimum Wage in America - There has been substantial discussion about raising the minimum wage in America over the past year.  Even President Obama got in on the action in November 2013, backing a bill that was sponsored by Senator Tom Harkin (D-Iowa) and Representative George Miller (D-California) that would push the federal minimum wage up from its current level of $7.25 an hour to $10.10 an hour in 95 cent an hour increments.  Let's look at some statistics from the Bureau of Labor Statistics that gives us a sense of how many American workers would benefit from any proposed changes.  Historically, the concept of a minimum wage came into being during the later part of the Great Depression.  During the Great Depression, crushing unemployment in the United States made millions of Americans so desperate for work that they would work for any wage under any conditions.  In 1938, Congress passed the Fair Labor Standards Act of 1938 which set the standard for minimum wages that every employer had to pay to each of their employees.  Back then, the minimum wage was set at $0.25 an hour and as shown on this graph (in blue) which also shows the real value of the minimum wage corrected for inflation (in red), the federal mandated minimum wage has a very long history of changing at irregular intervals:   You can readily see that the current real minimum wage is now below the levels seen back in the late 1950s.  The graph above shows a decline in the real value of the minimum hourly wage when Congress elects not to raise the level to keep pace with inflation.

Minimum Wage to Rise in 13 States in 2014 - New Year’s Day will bring good tidings indeed for the roughly 2.5 million low-income American workers who will see their hourly pay climb when 13 states increase the minimum wage on Jan 1. New Jersey residents voted in November to increase the minimum wage by a dollar, to $8.24 per hour. Lawmakers increased the minimum wage to $8.70 in Connecticut, and $8 in Rhode Island and New York. Workers in Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont and Washington will see a minimum wage increase due to annual cost of living adjustments, CNN Money reports. Currently, 19 states have a minimum wage set higher than the federal level of $7.25 per hour. As of Jan. 1, that number will increase to 21 states.

Nearly One And A Half Million Workers Will Get A Raise On New Year's Day - Come January 1, over 1.4 million people — 1,441,000 to be exact — will get a raise thanks to increasing minimum wages in 13 states, according to an analysis by the National Employment Law Project (NELP). Four states — Connecticut, New Jersey, New York, and Rhode Island — passed increases in their minimum wages this year that take effect at the beginning of 2014. The other nine — Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington — will see an increase thanks to state laws that require automatic annual raises tied to the cost of living. California also passed a higher wage of $10 an hour that will take effect later in the year.  At the city level, workers in the small Washington state town of SeaTac will get a $15 wage after a ballot initiative passed in November, and San Francisco and San Jose will both see increases on January 1 thanks to required automatic adjustments indexed to inflation, raising their wages to $10.79 and $10.15, respectively. Those in Washington, D.C. are likely to get one of $11.50 next year as well. NELP also estimates that more than 1.1 million workers who make just above the minimum will be indirectly impacted by the 13 states’ higher wages as pay scales are revised upward. The increased wages for both those making minimum wage and those just above it will come to nearly a billion dollars, or $978 million. The extra spending that will generate will boost GDP by nearly $620 million.

4.5 Million Workers Start the New Year with Higher Pay - On January 1st, thirteen states raised their state minimum wages, lifting the pay of more than 4.5 million workers. Eight of these states (Arizona, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington), have state minimum wages that are “indexed” to inflation so that every year, the minimum wage is automatically increased in order to protect the purchasing power of minimum-wage workers’ incomes. Colorado also automatically increases its minimum wage based on inflation, with the increase occurring each July. In the remaining 5 states (California, Connecticut, New Jersey, New York, and Rhode Island) citizens voted to raise their state minimum wages during the past year. Voters in New Jersey also chose to index their state minimum wage to inflation so that in January of 2015, New Jersey’s minimum wage workers will see the same paycheck protection afforded workers in the 9 other states with inflation indexing.  The table below details all of these increases. As the table shows, these increases will give more than $2.7 billion in additional wages to affected workers over the course of the year.  For the states that voted to raise their minimum wages, these additional wages represent a modest, but valuable injection of dollars into the pockets of workers who typically rely on every penny they earn and are likely to spend those dollars right away. For the states with indexing, these new wages ensure that minimum wage workers can still afford the same volume of goods and services that they bought the previous year.

N.J. minimum wage rises by $1  -  Effective Wednesday, New Jersey's minimum wage will rise by $1 to $8.25 an hour, boosting the paychecks of more than 250,000 NewJerseyans and bumping up costs for businesses with low-wage workers. While the wage increase is immediate, the reaction by businesses may take longer to assess - especially in light of the automatic annual increases voters approved in November, guaranteeing minimum-wage workers future raises. Businesses will "over time decide how they're going to deal with it," said Thomas Bracken, president of the New Jersey Chamber of Commerce. "I don't think there's going to be any huge impact in 2014 on employment statistics or anything of that nature." New Jersey is one of 13 states that will raise their minimum wage Wednesday, according to the National Employment Law Project, a nonprofit that advocates for raising the wage. Three states - Connecticut, New York, and Rhode Island - passed laws last year to raise their wages, while the other states are adjusting wages through annual automatic increases, according to the group. In Pennsylvania, where the minimum wage matches the federal minimum of $7.25 an hour, Democrats have proposed raising it. A proposal in Congress would raise the federal minimum wage to $10.10 an hour. Sixty-one percent of New Jersey voters said yes last fall to amending the state constitution to raise the wage to $8.25 an hour and include annual increases tied to the Consumer Price Index.

Supporters of $15 Wage Seek Appeal of Ruling - — Supporters of a $15 minimum wage, approved by voters here in November but partly struck down last week by a county judge, asked the state’s highest court to hear an appeal.  The SeaTac wage statute, which has been challenged repeatedly by business groups that say it will cripple businesses and lead to job cuts, takes partial effect on Wednesday, covering about 1,600 hospitality and travel workers in the city. Coverage for an additional 4,700 low-wage workers at Seattle-Tacoma International Airport, which is within city limits, was struck down on Friday by Judge Andrea Darvas of King County Superior Court, who agreed with the arguments by lawyers for the business groups — led by Alaska Airlines — that the legal reach of voters did not extend into airport property administered by the Port of Seattle.  The appeal request filed with the Washington Supreme Court hinges on that same issue, the limits of authority. Can a local government with one of the nation’s busiest airports within its borders administer wage rates at airport-based companies?  “The legal question is whether the airport is a legal island,”

Senator Spends Vacation Day With Homeless Man To Learn About The Challenges He Faces -- Their day began at 7:30 a.m., when the shelter Nick stayed at asks residents to vacate. Their first stop was the methadone clinic for Nick to treat his drug addiction. The two then hung out at Dunkin Donuts and walked around to kill time, waiting for the library to open at 10 a.m. Nick spent the next hour and a half filling out sales job applications, responding to emails, and setting up an appointment with a career counseling organization. Because he doesn’t own a car, the jobs he could apply for were restricted to those that had offices on a bus route. His drive to get back on his feet is clearly strong. What was really holding Nick back, however, was his lack of an address. Even though Nick has worked for 20 years and has an impressive résumé, he’s caught in something of a catch-22, Murphy told ThinkProgress by phone Thursday. “He can’t get a job without a permanent address and can’t get a permanent address without a job.” Nick used the address of the shelter on applications, but some employers might harbor prejudice against those who can’t afford a home. If there’s one thing Murphy took away from the experience, it’s a better sense of how critical stable housing is as a foundation for solving other problems. “Without a place to live, Nick can’t find a job,” Murphy said. “Without a house, it’s much harder for him to kick his drug habit.” But without more affordable housing in Connecticut and funding for the poor, it’s extremely difficult for people like Nick to leave the shelter and break out of the cycle of poverty. The challenge became even more difficult this week as Nick’s only source of income — $100 in unemployment benefits — wasn’t renewed by Congress. “If we don’t extend unemployment benefits this month, you’re going to see a lot more homeless people here in Connecticut and across the country,” Murphy said.

Next Shoe To Drop In Broke California’s Lopsided ‘Recovery’ - If you come to San Francisco or Silicon Valley and look around, you’d arrive at the conclusion that California is booming, that companies jump through hoops to hire people, that they douse them with money, stock options, and free lunches. You’d see engineers spend lavishly and drive up rents and home prices to where landlords react with record evictions of the less-lucky. . In San Francisco, you’d see throngs of tourists from China and other places, spending money hand over fist. And there are a few other pockets in California where money is no objective. But in the rest of the state, the picture isn’t that rosy. Total unemployment, officially, is still 8.5%, though that’s far better than the hellish 12.4% in February 2010. Of those unemployed, 28% have been jobless for over a year. Those receiving unemployment benefits – a fraction of the total unemployed – have dropped from 1.5 million to 712,000, whether they found jobs or just fell off the list. But, as the LA Times reported, there are still 400,000 fewer jobs in the state than there were before the crisis. So finding a job, if you aren’t into software, consumer tracking, or life sciences, is tough.    The unemployment debacle has been expensive. Employers pay payroll-based unemployment insurance into a fund that then covers the 26 weeks of unemployment benefits that the state pays. But during the crisis, unemployment skyrocketed, and by January 2009, California’s unemployment system became one of the first in the nation to go broke. California itself went broke; in July that year, it issued IOUs instead of checks to pay its bills. By now, according to Loree Levy, a spokeswoman for the California Employment Development Department (EDD), the state owes the federal government $9.7 billion for state unemployment benefits. How can California ever pay this back? Jacking up taxes on employers, raising eligibility requirements, and/or chopping benefits. None of them are palatable. None of them will help the economy. And the Legislature has not yet found, or even looked for, a solution.

California Voters Take Negative View of Labor Unions - According to the latest Field Poll, California voter views of labor unions have taken a decidedly negative turn over the past two and one-half years. Whereas a March 2011 survey found voters by a four to three margin, believing that labor unions generally do more good than harm, opinions about this have shifted, with more voters now saying they do more harm than good, 45% to 40%.  The poll also finds Californians sharply divided on the question of whether public transit workers should be allowed to go on strike, with 47% feeling they should continue to have this right, while 44% believe they shouldn’t. Voters in the nine-county San Francisco Bay Area, who faced a paralyzing strike by its Bay Area Rapid Transit (BART) workers in both July and October and who face the possibility of a third strike, are more likely than voters elsewhere to oppose public transit workers having the right to strike.

Michigan Legislators Consider Making It More Difficult for Police to Steal - Michigan legislators have introduced a pair of bills that would reform the state’s asset forfeiture laws, which currently enable law enforcement agencies to seize property from innocent people easily and profitably. Michigan police departments and district attorneys have padded their budgets to the tune of $70 million in the last three years via forfeiture, according to Lee McGrath of the Institute for Justice,* a law firm that litigates asset forfeiture.  HB 5213 would require a criminal conviction before the police and prosecutors can forfeit property. Such a change is desirable because Michigan police and prosecutors have an unfortunate habit of taking peoples' stuff even when the criminal charges that supposedly justify the forfeiture are dropped, dismissed, or otherwise jettisoned.  HB 5081, meanwhile, would require seizing agencies to compile detailed reports on their forfeiture activities. Such a change is desirable because, apart from aggregates and anecdotes, information (on what is being seized, from whom, and why) is hard to come by. Also, transparency may encourage police to use funds more judiciously.

Four Years Into Economic Recovery, America’s Fertility Rate Remains Depressed - America’s baby bust is easing—but there are few signs U.S. women are having more children. The nation’s fertility rate flattened out in 2012, after four years of hefty declines, according to new data from the Centers for Disease Control and Prevention. The latest findings, which pushed the rate—the number of births per 1,000 women aged 15 to 44—to the lowest level on record, largely confirm preliminary figures released in September. The rate dropped slightly to 63 births per 1,000 women from 63.2 births. The number of children U.S. women are expected to have over their lifetime also slipped last year to 1.88 from 1.89 in 2011. That is below the nation’s so-called “replacement rate” of 2. (To put things in perspective, the world’s “total fertility rate,” as this estimation of births over a lifetime is called, is about 2.5 children; Niger’s rate, the world’s highest, is 7.6 children, while Spain’s, one of the lowest, is 1.3 children.) Separately, the CDC recently released early findings on 2013 that also failed to show a post-recession uptick in births: According to these initial figures, the U.S. fertility rate dropped to 62.7 births per 1,000 women during the 12-month period ending June 2013, down from 63 between June 2011 and June 2012. “Economists might say the recession is over, but there is no evidence of a recovery in births through June 2013,”Low fertility means less growth in a country’s population, barring a pickup in immigration. Fewer people can mean fewer workers to propel the economy and a smaller tax base to draw from to pay the benefits due retired Americans. On Monday, the U.S. Census Bureau said America’s population grew just 0.72% between July 2012 and July 2013, the slowest rate of growth since around the Great Depression and well below the nation’s post-World War II average of 1.2%.

Tell Me How It Feels to Be a Bad Student -  Being a bad student must be a miserable experience.  Teachers, parents, and other kids point out your failings day after day.  Even if they sugarcoat their negative feedback ("Billy needs to improve in... everything"), that's gotta hurt.Why then do we hear so little about the plight of the bad student?  The obvious answer: Bad students rarely grow up to be writers or public speakers.  (Enlightening counter-example: Comedians).  Indeed, bad students rarely grow up to read blogs or comment on them. "Rarely," however, does not mean "never."  My request: If you were ever a bad student, please tell us how it felt.  How would you compare it to other sorrows you've experienced?  The more details, the better.  It is time for your voice to be heard.

They’re Back: The Poltergeists in the Kansas Senate Renew their Attack on Education -  William K. Black - Two Kansas legislative leaders who have been attacking Kansas education for over a decade through their wars on teaching about sex and evolution are back.  Their threats drove the Regents’ policy destroying academic freedom and tenure.  I have written two prior columns (here and here) explaining how the Kansas Regents casually ended academic freedom and tenure in their universities with no notice to or participation by the faculty. What I did not explain is what prompted the Regents’ policy.  Some other articles have hinted at the source but have not provided the historical context or the key role of the legislative leaders that extorted the Regents’ assault.  My readers could easily have assumed that the Regents’ unholy war against academic freedom originated with the Regents.  Here is the bad news – the Regents are typical Kansas Koch-heads in their policy views.  The Koch (pronounced like “coke”) brothers are the leading funders dedicated to turning Kansas into Aynrandia.  Left to their own devices, the Regents would not have eviscerated academic freedom and tenure (at this time).  The Republican Party has absolute power in Kansas and the State is infra-red because Kansas Republicans are cannibals who eat their own if they show any lack of fidelity to the latest Koch dogmas.  To be a Republican “moderate” in Kansas is to be a heretic who knows the truth faith but betrays that faith by refusing to display fealty to the Kochs’ dogmas.  Koch-heads despise Republican “moderates” far more than they do Democrats.  They dismiss Democrats as unworthy of respect, but they loathe “moderates” with a visceral passion.  The Koch-heads’ favorite appetizer is sucking the marrow from the broken bones of Republican “moderates.” 

Pricing Public Colleges - I am quite frequently a pessimist, but this is one area where I don’t think we should give in so easily. The US had a strong comparative advantage for post-secondary education due to several factors:

  1. the First Amendment, critical to the atmosphere of free inquiry in which scholarship and studying thrive;
  2. liberal immigration laws that brought the world’s talent to teach and learn;
  3. decentralized control of education, which created intellectual and prestige-oriented competition between campuses and states;
  4. a public-private mix, which further contributed to variety — and provided an outlet for religious-themed education while reducing attempts to impose religious orthodoxy on the majority of campuses;
  5. a national consensus that higher education matters,
    • as a matter of national security (post-Sputnik)
    • as part of the social contract with veterans (the GI Bill)
    • as one of the primary means of personal advancement in the post-Horatio Alger world

and that higher education was thus worth paying for as a public good rather than billing for it as a private good. None of these factors other than the last part of the last one were in any way ‘social democratic’. And most are still in place. The two that are hurting are fixable.

High Finance and Financial Education -  Web-based financial education sites are eager to tell you how to assess your own credit reports and scores. But it’s not easy to find a credibility report on the sites themselves, some of which are sponsored by major players in the game they promise to explain.  Bank of America recently teamed up with Salman Khan of Khan Academy, a highly respected on-line educator, to promote a website, Better Money Habits (a phrase they have officially trademarked). Huffington Post has a new collaborative financial education section.  Better Money Habits conveys useful information in a friendly and effective way. But, at least to date, it omits some of the most important information ordinary people need. Long on advice about how to qualify for more credit, it remains short on advice on how to shop effectively for lower interest rates.   But the group of videos entitled “Understanding Credit” urges viewers not to pay off their entire balance immediately in order to develop a better credit record history – rather unseemly advice coming from the third largest issuer of credit cards in the United States, which profits from the resulting interest payments. In general, university credit unions offer students better and more cost-effective services than commercial banks, but Bank of America is unlikely to point that out. Nor does it have much incentive to link to consumer-directed websites such as Credit Card Forum, which publishes detailed ratings of credit cards (including those issued by Bank of America) along several dimensions.

Does America’s Future Contain Elite Public Universities? - As you may or may not remember, I think that the historic tasks of a UC Berkeley Chancellor today are three: two financial (with concomitant implications for the deployment of Berkeley's resources) and the third technological. The financial tasks are:

  • to rebalance Berkeley's finances in this post-Clark Kerr era by (partially) transforming it into a finishing school for the superrich of Asia.
  • to rebalance Berkeley's enrollment by creating a system and which nobody who should be going to Berkeley feels that they cannot afford it or cannot risk it, and yet in which it is rich Berkeley graduates rather than the poorer median taxpayers of California who bear the financial burden of supporting the public university.

The technological task is:

  • to figure out how to use, rather than to misuse, abuse, or not use the new educational technologies made feasible by our ongoing revolutions in information and telecommunications.
  • And, of course, the chancellor must make progress via the Sisyphean process of bureaucratic persuasion and marginal budget reallocation...

Tall order, yes? Certainly not one that I am qualified to take on, or would take on even if they paid me $1 million (a year) to do it. But that will not stop me from advising and judging, will it? So let me expand on these three:

Pomp and Exceptional Circumstance: How Students Are Forced to Prop Up the Education Bubble - If there was going to be major action to reduce the $1 trillion in student debt—or at least the rate at which it’s increasing—it probably should have happened by now. The conventional wisdom going into the election was that President Obama and the Democrats would have to galvanize the youth vote if they wanted a repeat of 2008. With nearly 20 percent of families, and 40 percent of young families, owing a slice of the education debt, the issue affects a large and growing constituency. And because existing student loan policy is so anti-student and pro-bank, Democrats could have proposed a number of commonsense, deficit-neutral reforms, even reforms that would have saved the government money. The stars were aligned for a major push.Remarkably, it didn’t happen. Instead we saw dithering, half-measures, and compromises meant to reassure voters that politicians were aware of their suffering and that something was going to be done. The moves that were implemented did not address the core problem: the amount of money debtors will have to pay. For example, President Obama claimed credit for delaying a doubling of interest rates on federal loans from 3.4 to 6.8 percent, while, at the same time, ending interest grace periods for graduate and undergraduate students. The first measure is temporary and is expected to cost the government $6 billion; the second is permanent and will cost debtors an estimated $20 billion in the next decade alone. Despite his campaign rhetoric, President Obama has overseen an unparalleled growth of student debt, with around a third of the outstanding total accruing under his watch.

Student-Loan Debt Slows Recovery - This year featured yet another political battle over student-loan interest rates.  But while Congress resolved that matter, it did nothing about exceptionally high loan burdens, which increasingly are weighing on borrowers and likely putting a drag on the recovery. Undergraduate borrowers who graduated in 2012 owed, on average, $29,400 in student debt, up a staggering 25% from four years earlier, the nonprofit Institute for College Access & Success said. Americans now owe around $1 trillion in student debt, according to the Federal Reserve Bank of New York. Defaults on those loans are rising.  Nearly 12% of all student debt was delinquent by the end of the third quarter, up from 7.6% five years earlier, according to the New York Fed. The Fed defines delinquent as debt that hasn’t had a payment in at least 90 days. Because that figure includes debt owed by students still enrolled in school and other borrowers who have been allowed to delay payments, the true scope of delinquency is far bigger. Research by the New York Fed in 2012 indicated more than 1 in 5 borrowers whose loans had come due were delinquent. The Education Department’s official gauge—the two-year cohort default rate—shows 10% of borrowers whose loans came due in 2011 were in default within two years. That is up from 6.7% of borrowers five years earlier. The agency defines default as having gone at least 360 days without a payment. Officials at the Consumer Financial Protection Bureau have warned that rising student-loan defaults are damaging borrowers’ credit, likely making it harder for former students now starting careers to obtain mortgages, car loans and other types of financing that boost consumer spending and fuel economic growth.

Debt, no degree: Bills mount for ex-college students who never reached the finish line - Glenn, 27, had been inching toward a bachelor’s degree since 2004, transferring schools and taking breaks from her studies to switch her major, live with her parents to save money, and later move around Indiana with her husband to chase the best-paying jobs. Lately, she’d been working fulltime as a sales associate for a skin care retailer in an Indianapolis mall, and didn’t have the bandwidth to focus on her schoolwork. Advertise | AdChoicesThe night of her panic attack, she made a decision to leave school. “I just looked at the bills and realized this didn’t make sense anymore,” she said. Her husband, Christopher, 29, had dropped out a couple of years before after getting “burnt out” by both working and studying first at St. Joseph’s, then Ball State University, then Indiana University. He got his EMT certification instead. Together, they have around $40,000 in student loan debt, but no degrees to show for it.  The Glenns are part of a growing population stuck paying down debt for a degree they never got. According to a 2011 study by the Harvard Graduate School of Education, only 56 percent of students who enter four-year programs graduate within six years. That number plunges to 22 percent for for-profit colleges. Meanwhile, the percentage of incoming students relying on loans is growing—from 2001 to 2009, the number increased from 47 percent to 53 percent, according to a report by Education Sector. The same report also found that borrowers who drop out are four times more likely to default on their loans.

The Student DebtCropper System: Even the Destitute Hounded by Debt Collectors - Yves Smith -- As most people who have passing familiarity with student debt in the US know, it’s a millstone that is brutally difficult to remove. But it turns out that even the limited ways out are often not available in practice thanks to the hyper-aggressive conduct of a critical government contractor. Unlike every other type of obligation save child support and criminal penalties, it can’t be discharged in bankruptcy. The lone type of exception is “undue hardship”: when a borrower is so clearly incapable of ever paying that it’s ridiculous to keep pressing them for the money.  The undue hardship standard is very difficult to meet, so one would think given how stringent it is, and therefore the comparatively small number of cases that are involved, that the student debt collectors would accept this minuscule level of losses and focus their resources on people with means.  But it instead seems that the debt police are unable to contain themselves. A New York Times story discusses bankruptcy court abuses by the organization that is the main contractor to the Department of Education on these cases, the Educational Credit Management Corporation: A review of hundreds of pages of court documents as well as interviews with consumer advocates, experts and bankruptcy lawyers suggest that Educational Credit’s pursuit of student borrowers has veered more than occasionally into dubious terrain. AA panel of bankruptcy appeal judges in 2012 denounced what it called Educational Credit’s “waste of judicial resources,” and said that the agency’s collection activities “constituted an abuse of the bankruptcy process and defiance of the court’s authority.” For a group of bankruptcy appeal judges to make a public statement of this sort is extremely unusual and strong evidence that the critics are on solid ground. The Times starts with a case of Stacy Jorgensen who had $43,000 of student debt as well as large medical bills due to fighting pancreatic cancer. When she filed for bankruptcy, Educational Credit’s position was tantamount to that she had to be a terminal case before any relief was warranted:  “Survival rates for younger patients tend to be higher,” Mind you, Educational Credit’s position was that Jorgenson should not get any sort of break.

10 Worst States for College Graduates in Student Debt - The student debt crisis continues to grow larger and more dangerous with each passing school year. The skyrocketing price for a college degree is causing an epidemic with student loans as more people rack up unsustainable amounts of debt to further their education. Using debt to obtain a degree can be beneficial if done properly, but there are certainly some states worse off than others when comparing debt to earnings. With lenders handing out loans like candy, the amount of student loan debt in America has nearly doubled in the past five years, from $550 billion in late 2007 to $986 billion in the first quarter of 2013. In fact, two-thirds of recent graduates have student loans, with an average balance of more than $27,000, according to a new report from the Joint Economic Committee. The report was released by Senator Amy Klobuchar (D-Minn.) in an effort to bring awareness to the issue and prompt Congress to block the scheduled interest rate hike for student loans. If Congress fails to take action by July 1, interest rates on federally subsidized Stafford loans will double from 3.4 percent to 6.8 percent. The change would increase the cost of a college education by $4,500 for a student borrowing the maximum amount. “Allowing the interest rate on subsidized Stafford loans to double at a time when the government’s cost of borrowing is so low undermines the public policy objective of providing affordable loans to students,” the report explains. “The increasing debt burden presents challenges for recent graduates just beginning their careers and poses a potential risk to the economy, since individuals who shoulder heavier debt balances may delay purchasing a home, buying a car, starting a family and saving for retirement.”Although there are many variables to consider during the college process, here’s a look at the 10 worst states if you are a recent college graduate with debt and a job:

Worrisome Spike in Student Loan Write-Offs - The dramatic rise in student loan volume is a worrisome trend for policymakers, but perhaps a more troubling one for banks is a big spike in write-offs (see chart 1). Between January and August of last year, lenders wrote off $13.6 billion in student loan debt, a 46 percent increase from the same period of 2012 and the highest amount for this period in any of the last eight years, according to the data from Equifax (See chart 2). The credit bureau's tally of write-offs includes both private and federal student loans, and is the sum of loans that either have been sent to collections or belong to people who have filed for bankruptcy. Federally insured loans are rarely written off, but must be adjusted if the borrower cannot repay; lenders typically write off the portion by which a loan has been reduced only at the end of the loan's amortization period, usually 20 years. The surge in write-offs comes as more banks shut down their student loan operations, generally because of a lack of profit resulting from changes to the federal program. 

One of these things is not like the other ... This is the time when everyone is making financial and economic forecasts for the upcoming year and beyond. Here is a simple forecast from Sober Look that did not require much analysis. By the end of 2014, student loan balances held by the federal government will exceed $850 billion and by the end of 2015 the number will be above a trillion. And this is on top of some half a trillion of loans that are not directly held but guaranteed by the federal government.So what? We've gotten numerous e-mails asking this question. The problem of course is government-subsidized and rising consumer debt burden - all on the back of the taxpayer. When the government is involved on such a large scale, there are usually unintended consequences and market distortions (elevated tuition costs for example). But it's the growing number of borrowers who are stretched to the limit due to student loans and limited employment opportunities that is the immediate problem - both for the borrowers and the taxpayers. Remember the old song from Sesame Street: "One of these things is not like the other..."? The chart below from Wells Fargo shows the one thing that is definitely not like the other.

The Graying of America: Youngest Boomers Turn 50 This Year - WSJ - View a larger version of this graphic as a slideshow.

Congress Set to Overturn COLA Cuts for Retirees | A flurry of bills to repeal the just-enacted cuts to the cost-of-living-adjustment for military retirees was expected to come up for immediate consideration as soon as Friday, when the House and Senate re-convene from the holiday recess. Under fire from constituents and veterans groups in their home districts and states, members from both sides of the aisle in the Senate and House were ready to reverse course on the COLA section of the overall budget act that most of them voted for earlier this month to ease budget pressures. Starting in 2015, the current budget act would reduce the COLA adjustment to the pensions of military retirees by one percentage point until they reach the age of 62, when the full COLA increase would be restored. The Defense Department has projected that the COLA cut for about 800,000 military retirees would save $6 billion over 10 years. The various bills offered In the House and Senate to repeal the COLA cut differ mainly on how to offset the $6 billion in savings. The bill backed by Roby, Rep. Michael Fitzpatrick, R-Pa., and others would replace the COLA cut with an estimated $7 billion in savings they said could be achieved by closing a tax loophole that allowed non-citizens to receive cash payments from the Refundable Child Tax Credit. In her proposed Military Retirement Restoration Act, Sen. Jeanne Shaheen, D-N.H., would make up for the $6 billion in COLA savings by closing loopholes for corporations using offshore tax havens. Sen. Patty Murray, D-Wash., and Rep. Paul Ryan, R-Wis., who jointly wrote the Budget Control Act, were also in agreement on easing the COLA cut provision in their own bill -- at least for disabled retirees.

Retirement Unlikely for Some Blue-Collar Americans - “It’s never going to happen. By the time I reach retirement age, there won’t be Social Security. There’s not going to be any money,” Edwards said. “I’ll do like my father did: I’ll work ’til I die.” Across the U.S., such concerns are common among blue-collar baby boomers — the 78 million Americans born between 1946 and 1964. Many have jobs that provide paltry pensions or none at all, as many companies have been moving toward less generous retirement packages in the past decade. Many boomers expect to work the rest of their lives because they have little cash put away for their old age and they worry Social Security won’t cover their bills. Some hope to move to jobs that are less physically demanding. The share of U.S. workers who are 55 and older is expected to continue growing, according to the “The Oxford Handbook of Retirement 2013.” The group comprised 12.4 percent of the workforce in 1998. The share jumped to 18.1 percent in 2008 and is expected to be almost 25 percent by 2018.

Pension crisis a global problem - A global retirement crisis is bearing down on workers of all ages. Spawned years before the Great Recession and the 2008 financial meltdown, the crisis was significantly worsened by those twin traumas. It will play out for decades, and its consequences will be far-reaching. Many people will be forced to work well past the traditional retirement age of 65. Living standards will fall and poverty rates will rise for the elderly in wealthy countries that built safety nets for seniors after the Second World War. In developing countries, people's rising expectations will be frustrated if governments can't afford retirement systems to replace the tradition of children caring for aging parents.The problems are emerging as the generation born after the Second World War moves into retirement.The crisis is a convergence of three factors:

  • Countries are slashing retirement benefits and raising the age to start collecting them. These countries are awash in debt since the recession hit. And they face a demographics disaster as retirees live longer and falling birth rates mean there will be fewer workers to support them.
  • Companies have eliminated traditional pension plans that guaranteed employees a monthly check in retirement.
  • Individuals spent freely and failed to save before the recession and saw much of their wealth disappear once it hit.

Those factors have been documented individually. What is less appreciated is their combined ferocity and global scope.

OH NOES! SOCIAL SECURITY IS BROKE AGAIN - A couple of public spirited citizens have taken some of their Own Time to warn us that Social Security is (taken from last January) “worse than you think.”They take their cue from that great humanitarian and patriot, Peter G Peterson, who has donated a Billion Dollars of His Own Money to his tax free charitable and educationable organization to warn the People that Social Security is going to kill them, and burden their children with staggering burdens,  and, well, I digress....these two professors want us to know that the Social Security Trustees are using an outmoded procedure to forecast life expectancies a hundred years from now. Why, they say, we have a New Statistical Procedure that shows that since people are all going to live to be… ah…. older than they are now…  Social Security will GO BROKE, and we need to do something about it.  NOW. Like raise the retirement age.  And anyway, “new research [is] suggesting that RETIREMENT ITSELF…MAY REDUCE LIFE EXPECTANCY”! Well, we all know Statistics never lie.  And that the average reader is well equipped to evaluate claims based on statistics.  And in any case if Statistics shows us SOMETHING BAD IS GOING TO HAPPEN in a hundred years unless we DO something about it RIGHT NOW,  we better do it.  And hurry.  Especially if it’s something Peter G. Peterson has been telling us we need to do right now for the last thirty years.

With new year, Medicaid takes on a broader health-care role - Medicaid embarks on a massive transformation Wednesday — from a safety-net program for the most vulnerable to a broad-based one that finds itself at the front lines of the continuing political and ideological battle over the Affordable Care Act. Already the nation’s largest health-care program, Medicaid is being expanded and reshaped by the law to cover a wider array of people. Among them will be many who consider themselves middle class — people such as Sandy Kush, who initially bristled when she learned that she would be joining a program she had always thought of as being only for the poor. “Maybe it’s like a shame thing. I was raised middle-class. I own my house. It just seems like not me,” On Wednesday, people who have signed up for coverage under the new law will become eligible to receive it, in what supporters have hailed as a historic moment for health care in the United States. So far, more than 2 million Americans, many previously uninsured, have enrolled in private health plans, thanks in large part to new federal subsidies for low- and middle-income people to buy coverage. Their difficulties in navigating the system since its rocky launch Oct. 1 have dominated the headlines. A far greater number — about 3.9 million — took steps in October and November to sign up for Medicaid, according to federal figures. That includes people who became eligible for the state-federal program under the expansion as well as those who could have enrolled previously, but for one reason or another did not sign up until now.

More emergency room use isn’t necessarily bad - I’m not going to do a whole thing on the most recent OHIE analysis, published today, on Medicaid’s effect on ED use. Here’s the abstract: In 2008, Oregon initiated a limited expansion of a Medicaid program for uninsured, low-income adults, drawing names from a waiting list by lottery. This lottery created a rare opportunity to study the effects of Medicaid coverage using a randomized controlled design. Using the randomization provided by the lottery and emergency-department records from Portland-area hospitals, we study the emergency-department use of about 25,000 lottery participants over approximately 18 months after the lottery. We find that Medicaid coverage significantly increases overall emergency use by 0.41 visits per person, or 40 percent relative to an average of 1.02 visits per person in the control group. We find increases in emergency-department visits across a broad range of types of visits, conditions, and subgroups, including increases in visits for conditions that may be most readily treatable in primary care settings. I’ve written about the OHIE so many times, I’m not wasting time praising it. Let me say that I have no problem believing these results. Unlike many others, I’ve never really believed that increasing insurance coverage leads to less ED use.  There are tons of reasons people use the ED over primary care. (See a 2010 post here).

Medicare Advantage and the 'Theft' of $156 Billion - In a Dec. 27 lead editorial, “Government Advantage,” the editorial writers of The Wall Street Journal wrote: Amid the larger ObamaCare meltdown, seniors are discovering their choices are fewer, costs higher and coverage poorer too. Liberals fear the increasing popularity of Medicare Advantage, and they’re starting to gut this market alternative to their original health care entitlement before the sand runs out on President Obama’s second term. About 14 million people or 28 percent of Medicare beneficiaries choose Advantage over the government option, which is why the Affordable Care Act steals about $156 billion from the program – even as enrollment has surged 30 percent since 2010. A theft of $156 billion should catch one’s attention, especially if government is the thief. It warrants a closer look. For starters, what is the time frame of this $156 billion “theft”? Greater clarity on this point would have been helpful, lest readers think that this is an annual figure. In fact, it is the sum of projected future annual cuts off projected future total payments to Medicare Advantage plans over the decade 2013-2022 (see line 8 of Table 2, page 5 in this Congressional Budget Office projection). That point aside, what the Affordable Care Act has done to the Medicare Advantage plans lies, like beauty, in the eyes of the beholder.

Obamacare Clusterfuck: Our HEARTLESS government is forcing people in states without Medicaid Expansion to apply for Medicaid - I was perusing the Obamacare hardship exemption form to see what level of privacy I have to give up to file my "cancelled health plan" exemption from being required to carry junk insurance.  Under proof needed to qualify for exemptions I found this entry (on page 2): The proof required to file for a hardship exemption because your state didn't expand Medicaid is apparently a denial of Medicaid letter. It is beyond a travesty that the feds couldn't figure out this exception based on income and state of residency without requiring that people file an exemption. They do this all the time for disaster exemptions. Instead they are punishing people by making them file for Medicaid, knowing they won't be eligible. Then the same people have to take their denial letter and file an exemption form with the feds. Both the states and the feds will have to endure the costs of processing the forms.

Why Will Healthcare Insurance be Cheaper in Florida with the PPACA??? -- The fact of the matter is; healthcare insurance will not be cheaper in some places. Why it will not be so in Florida, I will get into later. If you remember from 2010, the progressive state of Florida was the first to launch a suit in Federal court claiming the PPACA was unconstitutional. Eventually and after the casting of the bones by the news media and pols numerous times in attempts to predict what SCOTUS would do and why it will do it; in the end, little of the PPACA changed with the June 2012 decision. Struck down by SCOTUS was the mandate of the Medicaid Expansion for all < 138% of FPL or face a penalty of the overall defunding of Medicaid (which practice is not something unusual by the federal government as it was used with highway funding). Apparently with different SCOTUS justices, the practice is now unconstitutional. States such as Florida chose not to expand Medicaid or implement state exchanges which in the end will have an economic impact on the states besides insurance rates. In Florida’s case, the state went further to hinder the PPACA implementation. Even at the lowliest Bronze level, the PPACA provides preventative care which previously would have come after co-pays or not be covered and access to healthcare at a no cost be it the hospital chargemaster cost, negotiated rate, or flat fee. Maggie Mahar at Health Beat Blog points out the 62 new preventative services and procedure now available under the PPACA without deductibles or copays. While much of the expected increase in insurance cost from added benefits has been negated in much the same way as the elderly being covered at lower rates are occurring through gained efficiency brought to bear by the PPACA; however, they too will cause an increase in the cost of coverage. Preventative services and products such as immunizations, anemia screening, and well women visits that were out of pocket are now covered.

Lack aid? Many counties have only pricey plans -  More than half of the counties in 34 states using the federal health insurance exchange lack even a bronze plan that’s affordable — by the government’s own definition — for 40-year-old couples who make just a little too much for financial assistance, a USA TODAY analysis shows. Many of these counties are in rural, less populous areas that already had limited choice and pricey plans, but many others are heavily populated, such as Bergen County, N.J., and Philadelphia and Milwaukee counties.More than a third don’t offer an affordable plan in the four tiers of coverage known as bronze, silver, gold or platinum for people buying individual plans who are 50 or older and ineligible for subsidies. … The prices of exchange plans have shocked many shoppers, especially those who had plans canceled because they did not meet the ACA coverage requirements. But experts are not surprised. “The ACA was not designed to reduce costs or, the law’s name notwithstanding, to make health insurance coverage affordable for the vast majority of Americans,” says health care consultant Kip Piper, a former government and insurance industry official. “The law uses taxpayer dollars to lower costs for the low-income uninsured but it also increases costs overall and shifts costs within the marketplace.”

New Obamacare figures: 975,000 in December - Nearly 1 million people signed up for health insurance through the federal Obamacare exchanges between Dec. 1 and the Dec. 24 deadline for getting coverage by the start of the new year, according to figures released by the administration Sunday. The 975,000 people who enrolled during that window bring the total number of federal sign-ups to more than 1.1 million since the rocky rollout of the government’s website on Oct. 1.“We experienced a welcome surge in enrollment as millions of Americans seek access to affordable health care coverage through new Health Insurance Marketplaces nationwide,” Marilyn Tavenner, the administrator of the Centers for Medicare and Medicaid Services, wrote in a blog post announcing the numbers. Tavenner reported a late spike in enrollment in which the last few days before the deadline saw nearly twice as many people sign up as had done so in the first three weeks of the month. The administration did not release figures showing the mix of the enrollment pool — whether enough young and healthy folks are signing up to balance out older and sicker consumers — which is considered by many experts to be the most important metric in assessing the success of the insurance exchanges. 

Obamacare Not A Total Disaster, Continued - Paul Krugman - Perceptions about health reform are in an interesting place. Just about everyone on the right is still living in October, the annus horribilis of Obamacare (yes, I know it was just a month, and I don’t care), and is waiting to move in for the kill after the whole thing collapses. Meanwhile, a funny thing has been happening: enrollments surged this month, to such an extent that the original expectation of 7 million people signed up via the exchanges by the end of March no longer looks crazy. OK, the usual caveats: we don’t know how many of the people signing up via the exchanges are replacing existing policies, and we don’t know how much trouble there will be when people start trying to use their new insurance. On the other hand, we know that there are a substantial number of people buying ACA-compliant policies directly from insurers, who don’t show up in the numbers yet. And while 7 million has become the number to match or beat, the truth is that it doesn’t matter too much if “only” 6 million sign up via the exchanges, plus millions more who are signed up under expanded Medicaid. Even a slightly disappointing first year will still offer enough people benefits to make reform politically irreversible. At this point, we have more than 2 million signed up via the exchanges and more than 4 million added to Medicaid. Both numbers will grow a lot over the next three months. This is pretty close to the end game. Enrolls 1.1 Million by Year-End––Cause For Celebration or Worry? - After the disastrous launch of Obamacare the enrollment of 1.1 million people in the 36 state exchanges run by the feds is a major accomplishment. It is likely that the enrollment in the 14 state-run exchanges will take total Obamacare's private insurance enrollment to near 2 million for the year. Does this mean that Obamacare is finally on track and moving toward success? At least the front-end of is now clearly working. I will suggest there are still some very important questions for Obamacare that need to be answered. First, how many of these new enrollments are people whose policies have been cancelled under Obamacare? I expect at least 80% of those in the existing individual health insurance market to lose their coverage by the end of 2014. Half of the market bought their coverage after March 2010 and therefore cannot continue while most of the other half of the market will not qualify under the Obama administration's stringent grandfather rules. What we don't know is just how many of these people had to buy new coverage on January 1 given the widespread offers by carriers to "early renew" their coverage into late 2014. Then the President asked insurers and states to allow people to keep their coverage another year. It appears about two-thirds of the states went along with that request. Then many of the cancellations won't occur until they renew throughout calendar year 2014.

Doctors, hospitals expect some confusion as Obamacare plans start | Reuters: - Hospitals and medical practices across the United States braced for confusion and administrative hassles as new insurance plans under President Barack Obama's healthcare law took effect on Wednesday. More than 2 million people enrolled in private plans offered under the Affordable Care Act, popularly known as Obamacare, during the initial sign-up period for health benefits. Enrollment began in October and lasts through March, but Americans in most states had to enroll by last week to get coverage that takes effect with the start of the new year. A spokeswoman for the Centers for Medicare and Medicaid Services, or CMS, part of the U.S. Department of Health and Human Services, said there were no hiccups to report in the first day the plans were in effect. The expansion of coverage through the new plans is one of the main parts of the 2010 law, the most sweeping U.S. social legislation in 50 years. Over time, the law - which requires most Americans to buy insurance, offers subsidies to help low-income people get covered and sets minimum standards for coverage - aims to dramatically reduce the number of Americans who lack health insurance, which the U.S. government has estimated at more than 45 million. After a difficult October launch plagued by problems with the website used to enroll people in coverage, the focus for the government and healthcare providers has turned to what will happen beginning on Wednesday when patients with the new coverage start to seek care.

O-Care coverage begins, presenting tests | TheHill: President Obama’s signature law takes effect on New Year's Day 2014, giving approximately 2.1 million enrollees the chance to exercise their new plans at hospitals and clinics across the country. ADVERTISEMENTThat will open up a new set of challenges for the administration in a midterm election year that may hinge on how well the healthcare law plays across the nation. The White House emerged from 2013 battered after enrollment delays linked to a troubled website put it behind its projections of getting 7 million people enrolled in 2014. Poll numbers showed support for the law dipping along with Obama’s approval rating amid stories about the troubled website and reports of people losing their existing insurance despite the president’s promise they could keep it under the new law. That erased a generic ballot edge that Democrats had enjoyed over Republicans after the government shutdown, which had boosted hopes in Obama’s party that they would retain the Senate and take back the House. While enrollment appeared to surge in December, experts warn the bottom could fall out as the 2.1 million enrollees visit their physicians. Enrollment deadline delays and processing errors at have been an administrative nightmare for insurers, and may leave some consumers discovering that they don’t have the insurance they thought they purchased when they show up at the doctor’s office.

Obamacare Goes Live Today: Here Is The Next Big Problem -- Obamacare officially went live at midnight. This means that 2.1 million Americans (the latest enrollment number provided by the administration) will be given a chance to exercise their new plans at hospitals and clinics across the country (it was unclear what the latest number of Americans kicked off their existing plans was most recently: the tally was 4.0 million as of mid-November and it is fair to assume it has risen since then). And then the real glitches will begin. We reported two weeks ago that navigating the labyrinth successfully and "signing up" for Obamacare is one thing; actually activating coverage by making a payment is something totally different. We added that "if people don’t pay by Dec. 31, insurers may end up stuck with a disproportionate number of sicker and costlier customers." It is this "shock" realization that one's Obamacare plan is not active until after the healthcare service has been rendered, that may hit as many as 50% of all enrollees, which means that of the 2+ million Americans who believe they have coverage, up to 1 million is about to be served with a bill which they can't afford. This also happens to be the main story across various media outlets today.

The Obamacare We Deserve - Michael Moore- TODAY marks the beginning of health care coverage under the Affordable Care Act’s new insurance exchanges, for which two million Americans have signed up. Now that the individual mandate is officially here, let me begin with an admission: Obamacare is awful.  That is the dirty little secret many liberals have avoided saying out loud for fear of aiding the president’s enemies, at a time when the ideal of universal health care needed all the support it could get. Unfortunately, this meant that instead of blaming companies like Novartis, which charges leukemia patients $90,000 annually for the drug Gleevec, or health insurance chief executives like Stephen Hemsley of UnitedHealth Group, who made nearly $102 million in 2009, for the sky-high price of American health care, the president’s Democratic supporters bought into the myth that it was all those people going to get free colonoscopies and chemotherapy for the fun of it.  I believe Obamacare’s rocky start — clueless planning, a lousy website, insurance companies raising rates, and the president’s telling people they could keep their coverage when, in fact, not all could — is a result of one fatal flaw: The Affordable Care Act is a pro-insurance-industry plan implemented by a president who knew in his heart that a single-payer, Medicare-for-all model was the true way to go. When right-wing critics “expose” the fact that President Obama endorsed a single-payer system before 2004, they’re actually telling the truth.  The president took Romneycare, a program designed to keep the private insurance industry intact, and just improved some of its provisions. In effect, the president was simply trying to put lipstick on the dog in the carrier on top of Mitt Romney’s car. And we knew it.  By 2017, we will be funneling over $100 billion annually to private insurance companies. You can be sure they’ll use some of that to try to privatize Medicare.

ObamaCare’s use expected to spike beginning next week - The number of people seeking to use their new ObamaCare coverage for the first time is expected to spike next week. Representatives from healthcare companies, trade groups, and the Obama administration told The Hill that many who obtained new coverage under the law are using this week to learn about their plans and set up preliminary appointments. They’re expected to turn out in force at the nation’s clinics and hospitals as early as next Monday. The administration and healthcare groups have been bracing for the latest test of the law after enrollment deadline delays and processing errors at HealthCare.Gov created an administrative nightmare for insurers. Two worries are paramount. The first is that a sizable number of consumers who show up at the doctor’s office will discover that they don’t have the insurance they thought they purchased. A second is that people have enrolled in ObamaCare, but have to make a payment. Some will discover they don’t have the insurance they thought they purchased as a result . 

Skimpy health law plans leave some “underinsured” (AP) - For working people making modest wages and struggling with high medical bills from chronic disease, President Barack Obama's health care plan sounds like long-awaited relief. But the promise could go unfulfilled. It's true that patients with cancer and difficult conditions such as multiple sclerosis or Crohn's disease will be able to get insurance and financial help with monthly premiums. But their annual out-of-pocket costs could still be so high they'll have trouble staying out of debt. You couldn't call them uninsured any longer. You might say they're "underinsured." These gaps "need to be addressed in order to fulfill the intention of the Affordable Care Act," Out-of-pocket costs include a health plan's annual deductible, which is the amount before insurance starts paying, as well as any copayments and cost-sharing. A few numbers tell the story. Take someone under 65 with no access to health insurance on the job and making $24,000 a year - about what many service jobs pay. Under the health care law, that person's premiums would be capped below 7 percent of his income, about $130 a month. A stretch on a tight budget, yet doable. But if he gets really sick or has an accident, his out-of-pocket expenses could go as high as $5,200 a year in a worst-case scenario. That's even with additional financial subsidies that the law provides people with modest incomes and high out-of-pocket costs.

Four ways to tell if Obamacare is working - There are a handful of ways that we tend to measure the success of health insurance expansions in the United States. The Affordable Care Act is no exception here; it's a complex law where there are at least four policy outcomes that all count as some definition of "working." Do more people have health insurance? One key goal of the health law was to reduce the uninsured rate by making it easier for the 48 million Americans without insurance coverage to get it. The Congressional Budget Office projects that about 30 million people will gain coverage over the next decade, compared to a scenario where the Affordable Care Act had never passed. This is actually difficult to measure, at least in the short-term, because there's no national clearinghouse of people who do or don't have insurance. Do Americans have better access to health care? Insurance cards, on their own, are not very much fun. In fact, they're probably among the more boring pieces of plastic you own. Nobody pays hundreds of dollars each year in premiums to get a small plastic card -- they do it for the access that card gives to insurance coverage. So another metric to measure the Affordable Care Act is whether Americans have an easier time seeing the doctor, for example, or meeting their medical needs without financial hardship.Are Americans getting healthier? The whole idea of health insurance -- as the name pretty bluntly implies -- is improving health. That's why this is another metric that will likely be tracked with the Affordable Care Act, whether the insurance expansion is making the population healthier. Is health care becoming more affordable? The president regularly talks about the health-care law as both an expansion of insurance coverage and an attempt to control health-care costs -- there's a reason, after all, the word "affordable" turned up in the law's name. The health-care law contains dozens of experiments, mostly in Medicare, meant to encourage lower spending on health care without cutting into quality. The Obama administration is also optimistic that the new insurance exchanges will drive down the cost of premiums, by putting all insurers into a regulated marketplace.

Justice Sotomayor blocks Obamacare contraception mandate  -- President Obama’s besieged Affordable Care Act has suffered another setback with a US Supreme Court justice issuing a temporary injunction late Tuesday preventing enforcement of the law’s contraception mandate against a group of Roman Catholic nuns who provide care to low-income elderly patients. Justice Sonia Sotomayor issued the injunction shortly before the ACA mandate was set to take effect at midnight on New Year’s Eve. “It is ordered that respondents are temporarily enjoined from enforcing against applicants the contraceptive coverage requirements imposed by the Patient Protection and Affordable Care Act,” Sotomayor wrote in her brief order. She gave the Obama administration until Friday at 10 a.m. to file a response.

Obamacare heading back to the Supreme Court - In 2014, SCOTUS may hear the federally facilitated exchanges (FFE) tax credit cases, in addition to the contraception mandate cases (Hobby Lobby and many others; BNA has a nice gated summary; Sotomayor just granted a delay for the plaintiffs pending full review). The contraception mandate, while high profile, will not threaten the ACA. It is not actually a constitutional challenge, but a statutory issue under the Religious Freedom Restoration Act. No matter how the Supreme Court rules, the ruling will not gut the rest of the law.  (Back in the NFIB ruling in June 2012, four justices said the ACA was not “severable” from the Medicaid expansion; that threat isn’t present in the contraception mandate cases). So – an interesting question of religious freedom for privately held corporations, but no fundamental upheaval of the ACA. The same cannot be said for the FFE tax credit cases, which were designed by the Cato Institute to wreck havoc. The most prominent federal district court cases are Halbig v. Sebelius in Washington, D.C. and King v. Sebelius in Virginia. The conventional wisdom is that SCOTUS won’t take the bait and the law is safe (see the McDermott Will & Emery briefing here). That was my prediction back in July 2012.

Investing and Dementia - It seems obvious that older people shouldn’t be forced into making complex decisions about health care and investments. But it isn’t obvious enough to market cheerleaders. They say the elderly should be buying medical care insurance and drug plans in the open market, and that they should be managing their own retirement funds. A recent report from the Federal Reserve Board discusses one particularly awful aspect of the policy of self-reliance. It says that a substantial number of older people are attacked by dementia and risk losing the family’s financial security. The report, Dementia Risk and Financial Decision Making by Older Households: The Impact of Information, says that 14% of Americans over the age of 70 are affected by dementia, based on the estimates in a study from 2007, and that the percentage increases with age. The Alzheimer’s Association provides recent estimates:An estimated 5.2 million Americans of all ages have Alzheimer’s disease in 2013. This includes an estimated 5 million people age 65 and older and approximately 200,000 individuals younger than age 65 who have younger-onset Alzheimer’s. The number of Americans with Alzheimer’s disease and other dementias will grow as the U.S. population age 65 and older continues to increase. By 2025, the number of people age 65 and older with Alzheimer’s disease is estimated to reach 7.1 million—a 40 percent increase from the 5 million age 65 and older currently affected. By 2050, the number of people age 65 and older with Alzheimer’s disease may nearly triple, from 5 million to a projected 13.8 million, barring the development of medical breakthroughs to prevent, slow or stop the disease.

Doctors Warn of New Stomach 'Superbug' Hitting U.S. - A new strain of norovirus that wreaks havoc on people's stomachs is so vicious that it's being called a " superbug" by doctors. Though it was first identified in Australia, this norovirus - also called the Sydney strain - is quickly spreading across the United States. In an average year, according to the Centers for Disease Control and Prevention, about 21 million Americans get the norovirus, with classic stomach flu symptoms such as vomiting and diarrhea. Eight hundred die. Symptoms come on very suddenly, within hours after a person has been exposed to it. Because no one has immunity to this new strain, more Americans - perhaps 50 percent more, the CDC says - could become violently ill. The flu can last two to four hours on hard surfaces outside your body, but the norovirus can survive and remain infectious for weeks.

One-third of Americans reject evolution, poll shows (Reuters) - One-third of Americans reject the idea of evolution and Republicans have grown more skeptical about it, according to a poll released on Monday. Sixty percent of Americans say that "humans and other living things have evolved over time," the telephone survey by the Pew Research Center's Religion and Public Life Project showed (Click here for the full survey). But 33 percent reject the idea of evolution, saying that "humans and other living things have existed in their present form since the beginning of time," Pew said in a statement. Although this percentage remained steady since 2009, the last time Pew asked the question, there was a growing partisan gap on whether humans evolved. The poll showed 43 percent of Republicans and 67 percent of Democrats say humans have evolved over time, compared with 54 percent and 64 percent respectively four years ago.

Tribalism, Biology, and Macroeconomics - Paul Krugman - Pew has a new report about changing views on evolution. The big takeaway is that a plurality of self-identified Republicans now believe that no evolution whatsoever has taken place since the day of creation. The move is big: an 11-point decline since 2009. Obviously there hasn’t been any new scientific evidence driving this rejection of Darwin. And Democrats are slightly more likely to believe in evolution than they were four years ago. So what happened after 2009 that might be driving Republican views? The answer is obvious, of course: the election of a Democratic president.  Wait — is the theory of evolution somehow related to Obama administration policy? Not that I’m aware of, but that’s not the point. The point, instead, is that Republicans are being driven to identify in all ways with their tribe — and the tribal belief system is dominated by anti-science fundamentalists. For some time now it has been impossible to be a good Republicans while believing in the reality of climate change; now it’s impossible to be a good Republican while believing in evolution.  And of course the same thing is happening in economics. As recently as 2004, the Economic Report of the President (pdf) of a Republican administration could espouse a strongly Keynesian view, declaring the virtues of “aggressive monetary policy” to fight recessions, and making the case for discretionary fiscal policy too. Oh, and the report — presumably written by Greg Mankiw — used the “s-word”, calling for “short-term stimulus”.

Developing world obesity quadruples - The number of overweight and obese adults in the developing world has almost quadrupled to around one billion since 1980, says a report from a UK think tank. The Overseas Development Institute said one in three people worldwide was now overweight and urged governments to do more to influence diets. In the UK, 64% of adults are classed as being overweight or obese. The report predicts a "huge increase" in heart attacks, strokes and diabetes. Globally, the percentage of adults who were overweight or obese - classed as having a body mass index greater than 25 - grew from 23% to 34% between 1980 and 2008. The majority of this increase was seen in the developing world, particularly in countries where incomes were rising, such as Egypt and Mexico. The ODI's Future Diets report says this is due to changing diets and a shift from eating cereals and grains to the consumption of more fats, sugar, oils and animal produce. A total of 904 million people in developing countries are now classed as overweight or above, with a BMI of more than 25, up from 250 million in 1980. This compares to 557 million in high-income countries. Over the same period, the global population nearly doubled.

A World Drowning In Fatties: 1.5 Billion Of The World's Adults - One In Three - Are Obese Or Overweight - While it will hardly come as a surprise that in the age of pervasive, accessible and cheap pink slime fast food, more people than ever are obese, the actual numbers may be a shock to most. Conveniently, quantifying the world's obesity epidemic is precisely what the London-based Overseas Development Institute has done with a just released report titled Future Diets (pdf link). Its findings are stunning: more than a third of all adults in the world - 1.46 billion to be exact - are obese or overweight.

Bt Overview - One of the two basic types of GMOs is the type which endemically manufactures its own insecticidal poison. (The other type is that which is resistant to one or more herbicidal poisons.) This type is engineered to express a toxin derived from the bacterium Bacillus thuringiensis (Bt). Many such poison-generating genes have been commercialized. The latest “stacked” product, Monsanto’s SmartStax maize, generates six Bt poisons. This kind of escalation is necessary as the target insects, corn borers and rootworms, develop resistance to poisons which have been on the market for awhile. The same is true of the surge of herbicide-resistant superweeds, and the collapse of glyphosate as an effective herbicide.  This escalation is part of the design of GMOs. Monsanto’s profit and control follow from agriculture’s total dependency upon poisons which continually fail and therefore must continually be escalated. Not only must commodity corn farmers buy an endemically poisonous corn seed, but for it to be reliable, it now needs to produce no fewer than six such poisons. This is why many commentators call these “poison plants”, or “pesticide plants”. It’s getting to the point where it’s not even as if agricultural poisons are applied to food, but rather that we’re supposed to be eating poison which allegedly has some food value. As much as I write about this, I haven’t yet ceased to marvel at the insanity of subordinating the production of our food to the production of poison, or at the evil of anyone who supports or tolerates this. I’ll now be writing a series of posts on the health effects of these poisons we must ingest in order to get some food. I’ll start with Bt toxins. Unless otherwise linked, all the studies and information I mention in this post, along with their original sources, can be found in the 2012 Earth Open Source report “GMO Myths and Truths” and/or the 2013 paper “Don’t Look, Don’t Find”.

General Mills Starts Making Some Cheerios Without GMOs - General Mills has started producing Cheerios free of genetically modified content, making the 73-year-old breakfast cereal one of the highest-profile brands to change in the face of growing complaints over such ingredients from activist groups and some consumers. The change—which only affects original Cheerios, not other varieties like Honey Nut Cheerios—has been in the works since about a year ago, when General Mills began working to change manufacturing for Cheerios to eliminate ingredients containing genetically modified organisms, or GMOs. The company started manufacturing the GMO-free cereal several weeks ago, and expects it to be available to consumers "shortly," once the products have made their way through the distribution system and onto shelves. The Cheerios will carry the label "Not Made With Genetically Modified Ingredients," though the company notes that they could contain trace amounts due to contamination in shipping or manufacturing. Critics of GMO use in foods called attention to the Cheerios move Thursday, hailing it as a major victory. Advocacy groups have raised concerns about possible health problems from eating foods with GMOs, which are crops like corn grown from seeds genetically engineered for desirable traits like pest resistance. The groups have promoted consumer campaigns in some states to mandate labeling of GMOs in food, and targeted specific brands—including Cheerios—and to change their policies. Most big food companies have rebuffed such efforts, arguing that there is no evidence of any health problems resulting from GMOs despite decades of use.

Cheaper Hanoi Pork Shows Crops Ease World Food Cost - At an outdoor market in Hanoi, Vietnam’s capital, Trinh Thi Thanh pays 100,000 dong ($4.74) a kilogram for the pork her family eats more than any other meat. That’s down from 150,000 dong a few years ago, easing pressure on the cost of family meals that had been surging, she said.  Gains in food costs around the world have slowed as record harvests from India to the U.S. expanded supply and sent corn, soybeans, wheat, sugar and coffee into bear markets. The Standard & Poor’s GSCI Agriculture Index of eight crops tumbled 22 percent last year, the biggest annual drop since 1981. Morgan Stanley and Rabobank International cut their outlooks for farm goods in December, and costs are easing for buyers including Panera Bread Co. and General Mills Inc. The world’s food-import bill slid 3.2 percent in 2013 to $1.15 trillion, the United Nations estimates. Global costs are down 13 percent from an all-time high in February 2011, when floods and drought ruined crops and sparked protests in Africa and the Middle East, toppling leaders in Tunisia and Egypt. The International Monetary Fund said prices will drop 6 percent this year. In Vietnam, where a third of income is spent on meals, increases slowed to a 5.1 percent annual rate in December from as high as 34.1 percent in August 2011.

China Says 8 Million Acres Of Farmland Now Too Polluted For Food - An official from the Chinese government announced Monday that approximately 3.33 million hectares, or 8 million acres, of China’s farmland is now too polluted to grow crops, according to a Reuters report from Beijing. China’s Vice Minister of Land and Resources Wang Shiyuan reportedly told a news conference that current farming on the now-too-contaminated land — roughly the size of Belgium — will be halted and rehabilitated in order to ensure food safety. It was unclear late Monday whether food that had already been grown on that land would be sought out or recalled. “These areas cannot continue farming,” Wang said, noting that the Ministry of Environmental Protection had deemed all of the 8 million acres as having “moderate to severe pollution.” The Chinese government has said that the country needs at least 120 million hectares of arable land to ensure it is able to meet the vastly populated country’s food needs. Though China started 2013 with a strong 135 million hectares of arable land, contamination — paired with recent efforts to convert farmland to forests, grasslands and wetlands — has caused the amount of stable cultivated land to drop to 120 million hectares, Wang said. Wang also said the country is committed to spending “tens of billions of yuan” a year for projects aimed at rehabilitating polluted land.

Amazon deforestation threatens food, water, energy, health security in Bolivia, Brazil, Columbia, Ecuador and Peru -- The continued destruction of the Amazon to exploit its resources for mining, agriculture and hydro-power is threatening the future of the South American continent, according to a report by campaigning groups using the latest scientific data. Five countries -- Bolivia, Brazil, Colombia, Ecuador and Peru -- share the Amazon, and for all of them the forest area occupies more than 40% of their territory. All face threats to their water supply, energy production, food and health. In addition, the report says, because of the over-exploitation of the region rainfall will fall by 20% over a heavily-populated area far to the south of Amazonia known as the La Plata basin, covering parts of Argentina, Brazil, Bolivia, Paraguay and Uruguay. Last month it was reported that deforestation in Amazonia had increased by almost a third in the past year, with an area equal to 50 football pitches destroyed every minute since 2000. The report says the prosperity of the region is based on the abundance of water. There always seemed to be an endless supply of water, but the combination of industrial and agricultural pollution and droughts is creating a once unthinkable vulnerability for the five countries of Amazonia.

Seals, Sea Lions, Polar Bears, Bald Eagles, Sea Stars, Turtles, King and Sockeye Salmon, Herring, Anchovies, Sardines All Dying - We’ve previous documented that seals, sea lions, polar bears, sea stars, turtles, sockeye salmon, herring, anchovies and sardines on the West Coast of North America are all suffering mysterious diseases … which are killing many. We’ve asked whether this is related to massive releases of radiation from Fukushima. Update. Sadly, we can now add other wildlife to the list. EneNews reports: Los Angeles Times, Dec. 29, 2013: Bald eagles are dying in Utah — 20 in the past few weeks alone — and nobody can figure out why. [...] Many suffered from seizures, head tremors and paralysis [...] Many of the eagles were brought to the mammoth Wildlife Rehabilitation Center of Northern Utah [...] Within 48 hours, most were dead. [...] State wildlife specialists are baffled. For weeks, officials have sent birds for necropsies [...] At first, the agency’s disease scientists guessed the illness could be encephalitis, which is caused by the West Nile virus, but later ruled out that possibility. [...] Officials suggest the die-off is possibly connected to the deaths of thousands of eared grebes that began in Utah in November. [...] Officials still don’t know why the shore birds became sick. [...] Officials at the Wildlife Rehabilitation Center have their own theories. Some point to radiation from Japan after the 2011 meltdown at the Fukushima Daiichi nuclear power plant. [...] A call from Idaho shed new light: A wildlife official said bald eagles there were also getting sick, suggesting the birds were arriving in Utah already in bad health.

Climate Change Will Starve The Deep Sea, Study Finds - It’s a vast, frigid abyss, where light rarely penetrates, and oxygen is in short supply. It’s very otherworldliness has helped it seep into cultural awareness through science fiction an horror stories, but for most people the deep sea barely seems like a real place, let alone an important one.  That’s why the news this week that climate change is expected to lead to staggering losses in deep-sea life, may not have seemed nearly as relevant as the traffic report or weather forecast.  Whether or not it’s public knowledge, however, the deep sea is home to thousands of commercially important species and is one of the last frontiers for new species discovery. The creatures of the deep are also key to the cycling of nitrogen, carbon and silicon in the ocean, a process that maintains the delicate balance of ocean life.  An international team of scientists from the UK, Australia, Canada and France have, for the first time, quantified the decline in seafloor life predicted by some of the most recent Intergovernmental Panel on Climate Change’s (IPCC) climate models. They found that globally, about five percent of deep-sea life will be lost over the next century, while up to 38 percent of benthic life will disappear in the North Atlantic.  “I know a five percent loss doesn’t sound like a lot,” said lead author Daniel Jones of the National Oceanography Centre in England, in an interview with Climate Progress. “But when you understand the amount of life that represents, its huge. We are talking about losses of marine life weighing more than every person on the planet put together. That gives you a sense of just how much is down there.” The research was published online in Global Change Biology.

Climate Change Could Put One-Fifth Of World’s Population In Severe Water Shortage - A new study by a diverse group of researchers from twelve countries found that of the human impacts stemming from climate change, the threat it poses to global water supplies may be the most severe. Published in the Proceedings of the National Academy of Sciences and reported in the journal Nature, the researchers found that if global temperatures rise by an average of 2°C, up to a fifth of the global population will suffer from severe water shortages. Recent research has shown that a minimum average temperature of rise of 2°C by 2100 is becoming an accepted likelihood, even though just a few years ago it had been the stated benchmark that scientists hoped to remain beneath. A new study published in the journal Nature shows that temperatures will rise by at least 4°C by 2100 and potentially more than 8°C by 2200 if carbon dioxide emissions are not reduced. Hans Schellnhuber, director of the Potsdam Institute for Climate Impact Research in Germany, explained why climate change’s impact on global water supplies is of particular concern: “Water and all that relies on it, from food to sanitation and public health, is an emblematic aspect of climate change whose urgency people tend to instantly understand.”

Still uncertain: climate change’s role in drought - It’s common for direct connections to be drawn between climate change and the effects of the devastating droughts that have been afflicting the U.S. and other parts of the world over the last decade. A new analysis led by scientists from the National Center for Atmospheric Research says there are still many uncertainties about how climate change is affecting drought globally, though. The analysis, authored primarily by NCAR senior scientist Kevin Trenberth, concludes that more global precipitation data need to be made available and natural variability needs to be better accounted for to fully determine how climate change is affecting drought worldwide.  “We are really addressing the question of, how is drought changing with global warming and expected to change in the future?” Trenberth said Friday. “To address that question, how is drought changing with global warming, you have to address the question, is drought changing?” A variety of papers written on the matter show the limitations in scientists’ ability to determine how drought and precipitation patterns are changing under global warming, Trenberth’s analysis says.

2013 Australia's hottest year on record -- 2013 is the year Australia marked its hottest day, month, season, 12-month period and, by December 31, hottest calendar year.  "We're smashing the records,". "We're not tinkering away at them, they're being absolutely blitzed." Global interest in Australia's weather flared early. In January, when models predicted heat that was literally off the charts, the Bureau of Meteorology added colours to maps - a deep purple and pink - to indicate maximum temperatures of 50-54 degrees. But for David Jones, head of climate analysis at the bureau, 2013's stand-out event was a month largely overlooked by a media diverted by football finals and federal elections: "From a climate point of view, what happened in September was probably the most remarkable." September's mean temperature soared to be 2.75 degrees above the 1961-90 average, eclipsing the previous record monthly deviation set in April 2005 by 0.09 degrees,  Maximums were 3.41 degrees over the norm, with South Australia's out by 5.39 degrees and NSW's by 4.68. Victoria's mean and minimum temperatures exceeded previous anomalies. Nationally, the warmth broke the previous September mean record by 1.1 degrees. January baked, Australia's hottest month in its hottest summer. "January was incredibly hot for such a long time for such a large area," said Jones. "In many ways we were very fortunate not to have had a frontal system like Black Saturday (in 2009) to draw down that hot air into a coastal zone with a gale force wind."

Australia swelters after record hot 2013; farmers slaughter cattle, bushfire warning  (Reuters) - A searing heatwave is baking central and northern Australia, piling more misery on drought-hit cattle farmers who have been slaughtering livestock as Australia sweltered through the hottest year on record in 2013.Temperatures have topped 40 degrees Celsius (104 Fahrenheit) in large parts of Australia's key agricultural regions for most of the past week, with the mercury topping 48 degrees Celsius in the central west Queensland town of Birdsville.The heatwave is moving east across Australia, prompting health warnings on Friday in some of the country's biggest cities and firefighters were already battling bushfires.But it is in the outback that soaring temperatures have had the most devastating impact, especially on cattle farmers in Queensland, which accounts for about 50 percent on the national herd."Water supplies are fast diminishing and whatever feed supplies that were left are cooking off to the point where there won't be any left," said Charles Burke, a beef farmer and chief executive of Agforce, a Queensland cattle industry group."This drought is shaping to be an absolute disaster."

Cold U.S. Temperatures Expected To Break Records As ‘Polar Vortex’ Blasts Midwest— The weather warnings are dire: Life threatening wind chills. Historic cold outbreak. Bitter cold temperatures. Winter is normally cold, but starting Sunday tundra-like temperatures are poised to deliver a rare and potentially dangerous sledgehammer blow to much of the Midwest, driving temperatures so far below zero that records will shatter. One reason? A "polar vortex," as one meteorologist calls it, which will send cold air piled up at the North Pole down to the U.S., funneling it as far south as the Gulf Coast. The temperature predictions are startling: 25 below zero in Fargo, N.D., minus 31 in International Falls, Minn., and 15 below in Indianapolis and Chicago. At those temperatures, exposed skin can get frostbitten in minutes and hypothermia can quickly set in because wind chills could hit 50, 60 or even 70 below zero. Temperature records will likely be broken during the short, yet forceful deep freeze that will begin in many places on Sunday and extend into early next week. That's thanks to a perfect combination of the jet stream, cold surface temperatures and the polar vortex — a counterclockwise-rotating pool of cold, dense air, "All the ingredients are there for a near-record or historic cold outbreak," he said. "If you're under 40 (years old), you've not seen this stuff before." > 

Winnipeg deep freeze as cold as uninhabited planet - The Manitoba Museum is reporting Winnipeg's temperatures on Tuesday were actually as cold as the surface of Mars. According to the Curiosity Rover, Mars reached a maximum temperature of -29 C on Tuesday, a temperature Winnipeg only reached shortly before 3 p.m.  The deep freeze over much of Southern Manitoba prompted extreme wind chill warnings in the area and most of the north. In Winnipeg, the daytime high temperature for Tuesday was only expected to reach –31 C, but the windchill made it feel more like –40 to –50. That means exposed skin can freeze in less than five minutes. On Monday, it got as warm as –28 C.

Two Subglacial Lakes Discovered in Greenland - A team of researchers from the University of Cambridge’s Scott Polar Research Institute has discovered two lakes about 800 m below the ice sheet near the town of Qaanaaq in northwestern Greenland. Subglacial lakes are likely to influence the flow of the ice sheet, impacting global sea level change. The discovery of the lakes in Greenland will help researchers to understand how the ice will respond to changing environmental conditions. The Cambridge scientists used airborne radar measurements to reveal the lakes underneath the ice sheet. The two lakes are roughly 8-10 km2, and at one point may have been up to 3 times larger than their current size. They are found in the northwest sector of the Greenland Ice Sheet, about 40 km from the ice margin, and below 757 and 809 m of ice, respectively. “Our results show that subglacial lakes exist in Greenland, and that they form an important part of the ice sheet’s plumbing system. Because the way in which water moves beneath ice sheets strongly affects ice flow speeds, improved understanding of these lakes will allow us to predict more accurately how the ice sheet will respond to anticipated future warming,”

Should Taxpayers Subsidize Insuring Homeowners Against Climate-Change-Induced Flood Damage? -  Yves Smith -- The problem of who should bear the costs of climate-change-induced rises in flood frequency in coastal communities is difficult even before throwing in the not-trivial problem that is it also highly politicized. And as readers will see from the stalemate over what to do about Federal flood insurance subsidies, even coming up with “kick the can down the road” remedies is fraught. They also fall well short of what long-term solutions look like, since they ultimately involve relocating some, perhaps lots, of people away from these areas and coming up with more comprehensive approaches to community development (I’m reminded of a Jay Leonhardt song on global warming, which includes: “Goodbye Miami, goodbye Lauderdale/Pass me a bucket, pass me a pail”). And if you think that because you live comfortably inland, this discussion doesn’t affect you, think again. The insurance program under discussion, called the National Flood Insurance Program (NFIP) went from being more or less breakeven for decades (as in it actually once worked as insurance) to being $24 billion in the red thanks to more frequent and severe storms. The current political row that people outside flood-prone states haven’t heard of is over a bill to restore the program to break-even by raising premiums back to a viable level. But “viable” is now so high in many cases as to be unaffordable to homeowners. So whose ox is to be gored?

Planet likely to warm by 4C by 2100, scientists warn -- Temperature rises resulting from unchecked climate change will be at the severe end of those projected, according to a new scientific study.  The scientist leading the research said that unless emissions of greenhouse gases were cut, the planet would heat up by a minimum of 4 degrees centigrade by 2100, twice the level the world's governments deem dangerous. The research indicates that fewer clouds form as the planet warms, meaning less sunlight is reflected back into space, driving temperatures up further still. The way clouds affect global warming has been the biggest mystery surrounding future climate change.Professor Steven Sherwood, at the University of New South Wales, in Australia, who led the new work, said: "This study breaks new ground twice: first by identifying what is controlling the cloud changes and second by strongly discounting the lowest estimates of future global warming in favour of the higher and more damaging estimates." "4 C would likely be catastrophic rather than simply dangerous," Sherwood told the Guardian. "For example, it would make life difficult, if not impossible, in much of the tropics, and would guarantee the eventual melting of the Greenland ice sheet and some of the Antarctic ice sheet," with sea levels rising by many metres as a result.

Cloud mystery solved: Global temperatures to rise at least 4°C by 2100: Global average temperatures will rise at least 4°C by 2100 and potentially more than 8°C by 2200 if carbon dioxide emissions are not reduced according to new research published in Nature. Scientists found global climate is more sensitive to carbon dioxide than most previous estimates.  The research also appears to solve one of the great unknowns of climate sensitivity, the role of cloud formation and whether this will have a positive or negative effect on global warming.  “Our research has shown climate models indicating a low temperature response to a doubling of carbon dioxide from preindustrial times are not reproducing the correct processes that lead to cloud formation,"“When the processes are correct in the climate models the level of climate sensitivity is far higher. Previously, estimates of the sensitivity of global temperature to a doubling of carbon dioxide ranged from 1.5°C to 5°C. This new research takes away the lower end of climate sensitivity estimates, meaning that global average temperatures will increase by 3°C to 5°C with a doubling of carbon dioxide."

Four Degrees Warming by 2100? -- Until now, global warming predictions have varied significantly. A new study in Nature closes the gap in those predictions, favoring the more extreme models. Until now, climatologists did not understand how climate change would affect cloud formation. They now know that atmospheric mixing will “dry out” clouds, making cloud formation increasingly difficult as the planet warms. Fewer clouds globally means warming accelerates. By 2100, expect four degrees of warming.  For a plain language explanation of the new study and its implications, see The Guardian.Professor Steven Sherwood, at the University of New South Wales, in Australia, who led the new work, said: “This study breaks new ground twice: first by identifying what is controlling the cloud changes and second by strongly discounting the lowest estimates of future global warming in favour of the higher and more damaging estimates.” “4C would likely be catastrophic rather than simply dangerous,” Sherwood told the Guardian. “For example, it would make life difficult, if not impossible, in much of the tropics, and would guarantee the eventual melting of the Greenland ice sheet and some of the Antarctic ice sheet”, with sea levels rising by many metres as a result.

Reducing sunlight "will not cool Earth" – Two German scientists have just confirmed that you can’t balance the Earth’s rising temperatures by simply toning down the sunlight. It may do something disconcerting to the patterns of global rainfall. Earlier this year a US-led group of scientists ran sophisticated climate models of a geo-engineered world and proposed the same thing. Now Axel Kleidon and Maik Renner of the Max Planck Institute for Biogeochemistry in Jena, Germany, have used a different theoretical approach to confirm the conclusion, and explain why it would be a bad idea. The argument for geo-engineering goes like this: the world is getting inexorably warmer, governments show no sign of drastically reducing greenhouse gas emissions, so why not control the planetary thermostat by finding a way to filter, block, absorb or reflect some of the sunlight hitting the Earth?  Such things can be done by pumping soot or aerosols into the stratosphere to dim the skies a fraction, or even floating mirrors in Earth orbit to reflect some of the sunlight back into space. Either way, the result is the same: you have global temperature control, tuned perhaps to the average at the beginning of the last century, and you can then go on burning as much petrol or coal as you like. But now the two biogeochemists at Jena report in the journal Earth System Dynamics that they used a simple energy balance model to show that the world doesn’t work like that. Water simply doesn’t respond to atmospheric heat and solar radiation in the same way.

EPA Unveils Long-Awaited Regulations To Make New Wood Heaters Burn 80 Percent Cleaner - The U.S. Environmental Protection Agency on Friday released proposed long-awaited pollution standards that would require all new wood-powered stoves and heaters to burn 80 percent cleaner than those manufactured today. The rules — which would cover new woodstoves, fireplace inserts, hydronic heaters, forced air furnaces, and masonry heaters — would officially go into effect in 2015 and become stricter after five years, the EPA said. Forcing companies to make cleaner-burning wood heaters will have a significant effect on the environment and human health, according to the agency, which recently estimated that emissions from wood-burning devices account for 13 percent of all soot pollution in the nation. “Smoke from residential wood heaters, which are used around the clock in some communities, can increase toxic air pollution, volatile organic compounds, carbon monoxide and soot … to levels that pose serious health concerns,” the EPA said in a statement, adding that particle pollution is linked heart attacks, strokes, and asthma attacks.

Elizabeth Kolbert On The Sixth Extinction - I wrote about the Sixth Extinction several times on DOTE. Most recently I talked about it in One Last Time — A Mass Extinction In The Oceans, in which said There is a mass extinction under way, humans are causing it, it is centered in the oceans, and it is happening incredibly rapidly on the geological time-scale. So long before Elizabeth Kolbert started working on her new book The Sixth Extinction: An Unnatural History, I could have written it. In the New Yorker podcast below Kolbert talks about her forthcoming book. It's worth listening to, and I recommend that you listen all the way to the end. At the beginning, you will have to put up with a brief segment in which Calvin Trillin talks about preparing and eating hot tamales. Hot tamales and a human-caused mass extinction  That's a nice summary of the Human Condition, isn't it?

Navy sailors have radiation sickness after Japan rescue - Navy sailor Lindsay Cooper knew something was wrong when billows of metallic-tasting snow began drifting over USS Ronald Reagan. “I was standing on the flight deck, and we felt this warm gust of air, and, suddenly, it was snowing,” Cooper recalled of the day in March 2011 when she and scores of crewmates watched a sudden storm blow toward them from the tsunami-torn coast of Fukushima, Japan. Now, nearly three years after their deployment on a humanitarian mission to Japan’s ravaged coast, Cooper and scores of her fellow crew members on the aircraft carrier and a half-dozen other support ships are battling cancers, thyroid disease, uterine bleeding and other ailments. “We joked about it: ‘Hey, it’s radioactive snow!’ ” Cooper recalled. “I took pictures and video.” But now “my thyroid is so out of whack that I can lose 60 to 70 pounds in one month and then gain it back the next,” said Cooper, fighting tears. “My menstrual cycle lasts for six months at a time, and I cannot get pregnant. It’s ruined me.” The fallout of those four days spent off the Fukushima coast has been tragic to many of the 5,000 sailors who were there. At least 70 have been stricken with some form of radiation sickness, and of those, “at least half . . . are suffering from some form of cancer,” “We’re seeing leukemia, testicular cancer and unremitting gynecological bleeding requiring transfusions and other intervention,”

Special Report – Japan’s homeless recruited for murky Fukushima clean-up - In January, October and November, Japanese gangsters were arrested on charges of infiltrating construction giant Obayashi Corp's network of decontamination subcontractors and illegally sending workers to the government-funded project. In the October case, homeless men were rounded up at Sendai's train station by Sasa, then put to work clearing radioactive soil and debris in Fukushima City for less than minimum wage, according to police and accounts of those involved. The men reported up through a chain of three other companies to Obayashi, Japan's second-largest construction company. Obayashi, which is one of more than 20 major contractors involved in government-funded radiation removal projects, has not been accused of any wrongdoing. But the spate of arrests has shown that members of Japan's three largest criminal syndicates - Yamaguchi-gumi, Sumiyoshi-kai and Inagawa-kai - had set up black-market recruiting agencies under Obayashi. Part of the problem in monitoring taxpayer money in Fukushima is the sheer number of companies involved in decontamination, extending from the major contractors at the top to tiny subcontractors many layers below them. The total number has not been announced. But in the 10 most contaminated towns and a highway that runs north past the gates of the wrecked plant in Fukushima, Reuters found 733 companies were performing work for the Ministry of Environment, according to partial contract terms released by the ministry in August under Japan's information disclosure law.

Meet The Minimum-Wage Homeless Who Are "Cleaning Up" Fukushima (For The Yakuza) - "We're an easy target for recruiters," one homeless man explains. "We turn up here with all our bags, wheeling them around and we're easy to spot. They say to us, are you looking for work? Are you hungry? And if we haven't eaten, they offer to find us a job." As Reuters exposes, 3 years after the earthquake and tsunami that caused the meltdown at Fukushima's nuclear facility, Northern Japanese homeless are willing to accept minimum wage (from yakuza-based entities) for one of the most undesirable jobs in the industrialized world: working on the $35 billion, taxpayer-funded effort to clean up radioactive fallout across an area of northern Japan larger than Hong Kong.

Fukushima meltdown? Mystery steam rising over Reactor 3 - Fukushima's Reactor Building 3 exploded on 13th March 2011 as a result of a hydrogen buildup, breaching the building's containment and emitting a huge plume of radiation. The reactor itself is in meltdown. And now fresh plumes of steam have been seen coming out the structure. These have now been confirmed by Tepco, the owner of the nuclear plant, from 19th December onwards. The company believes the steam is coming from the fifth floor of the building. However it does not know the cause of the steam. Lethal levels of radiation and the physical damage to the structure have so far made entry and inspection impossible.The Reactor 3 fuel storage pond still houses an estimated 89 tonnes of the plutonium-based MOX nuclear fuel employed by the reactor, composed of 514 fuel rods. Ever since the explosion Tepco has been concerned that if the spent fuel storage pond dries out, the intensely radioactive spent fuel rods would melt down and produce further significant radioactive emissions.One possibility is that this process may now be taking place. In the event of water loss from the pond, the water would begin to overheat and produce clouds of steam, prior to a complete meltdown. If this is the case then a second major nuclear disaster at Fukushima is in the making.

36 Signs The Media Is Lying To You About How Radiation From Fukushima Is Affecting The West Coast - The west coast of the United States is being absolutely fried by radiation from the Fukushima nuclear disaster, and the mainstream media is not telling us the truth about this. What you are about to see is a collection of evidence that is quite startling. Taken collectively, this body of evidence shows that nuclear radiation from Fukushima is affecting sea life in the Pacific Ocean and animal life along the west coast of North America in some extraordinary ways. But the mainstream media continues to insist that we don’t have a thing to worry about. The mainstream media continues to insist that radiation levels in the Pacific and along the west coast are perfectly safe. Are they lying to us? Evaluate the evidence compiled below and come to your own conclusions… #1 Independent researchers have measured alarmingly high levels of radiation on the beaches of the west coast. For example, the video posted below was taken on December 23rd, 2013 at Pacifica State Beach. As you can see in this video, radiation levels near the water are up to five times higher than normal background radiation…  According to Oceanus Magazine, the total amount of cesium-137 that has been released into the Pacific Ocean from Fukushima is 10,000 to 100,000 times greater than the amount released into the oceans by the Chernobyl disaster or by the atmospheric nuclear weapons tests of the 1960s. Former MSNBC host Cenk Uygur has admitted that while he was at MSNBC he was instructed not to warn the public about the radiation coming from Fukushima

Retired Mobil Oil VP Louis Allstadt warns of fracking and climate change - (interview) Few people can explain gas and oil drilling with as much authority as Louis W. Allstadt. As an executive vice president of Mobil oil, he ran the company's exploration and production operations in the western hemisphere before he retired in 2000. In 31 years with the company he also was in charge of its marketing and refining in Japan, and managed its worldwide supply, trading and transportation operations. Just before retiring, he oversaw Mobil's side of its merger with Exxon, creating the world's largest corporation. Allstadt launched his leisure years in this idyllic spot, intending to leave the industry behind. But then friends started asking him questions about fracking - it had been proposed near the lake. In these pages last year he called high-volume fracking "conventional drilling on steroids." "Just horrible," is how he described the 2011 SGEIS in our conversation in June 2013. Allstadt has become an indispensable guide for one of the country's most powerful environmental movements, New York's grass-roots anti-fracking resistance. He said this interview was a first for him: earlier talks and interviews have focused on what he calls "tweaking the technology and [promoting] tighter regulations." Never before has he focused squarely on the industry's impact on the planet's atmosphere. A note about interview chronology: Allstadt's observations about the Obama climate-change address were added in phone conversations in July 2013. The rest of the interview took place in person in mid-June 2013. We began by discussing fracking as part of what oil-scholar Michael Klare calls "the race for what's left. "

Methane emissions from oil & gas development - Earlier last year we posted a blog on whether the new natural gas boom, thanks to improved drilling technologies and hydraulic fracturing or “fracking”, was to be considered a boon or bane to Earth’s climate. The boon part comes from the fact that natural gas burns much cleaner and causes roughly a factor of two lower CO2 emissions than the burning of coal. So if the gas were exclusively used in high efficiency gas-fired power plants, or even combined heat and power (CHP) plants to replace coal combustion power plants for electricity production, CO2 emissions reduction would be maximized. The bane part is the fact that mining and use of natural gas does not happen without the inevitable gas leaks, in this case releasing a different, more powerful greenhouse gas: methane. Several recent scientific assessments put current fossil fuel related, “fugitive” methane emissions to the atmosphere at 100 million tons per year, roughly two thirds coming from the oil&gas industry, the remaining third from coal mining. It is useful in this context to realize that humans have roughly tripled the emissions of methane to the atmosphere since the beginning of the industrial revolution.   Because methane is such a strong greenhouse gas, reducing its emissions has direct benefits for climate stabilization. Methane’s comparatively short atmospheric lifetime would make the effects of emissions reductions measurable in the atmosphere within a decade.  So are the emissions from the fossil fuel industry in the US increasing due to fracking, or not?Unfortunately, this question was not answered in 2013, despite a number of new publications shining a light on the question through actual measurements. In August, a publication by CIRES and NOAA researchers [2] showed that methane emissions from a large oil&gas exploration field in Utah may be 6% to 12% (one standard deviation range) of average production rates, far exceeding the less than 1-2% claimed by the industry. In November, another study by NOAA [3] revealed that methane emissions nationwide appear to be significantly underestimated (by the inventory!) with respect to both of the large man-made sources, beef production and fossil fuel mining.

SPECIAL: Fracking Industrialization And Induced Earthquakes (link to pdf) This paper explores the recent significant increase in felt earthquakes in the midcontinent of the United States over the past decade in relation to fracking industrialization and its associated voluminous wastewater disposal needs. Studies and expert insight from geologists and seismologists from over the past fifty years will be utilized in order to render evidenced-based conclusions regarding these matters that have often remained at the opinion level of discourse in the public sphere. The current extent of U.S. fracking industrialization will be reviewed, including dissection of shale oil and gas production levels, the scale of proliferation of fracking wells, the volume of toxic and radioactive effluent, fracking flowback and produced wastewater disposal needs, and the impact of the exponential growth in deepinjection disposal well usage on the United States’ current seismic reality. Two important limiting conditions, the impervious unknowns regarding subterranean geological formations and the fact that disposal wells will fail and leak, provide context for discussion of our obscured yet viable long term understanding of the mechanisms underlying the whole phenomenon of fracking wastewater disposal induced earthquakes.

Fracking and Your Endocrine System - A recent study published in Endocrinology looks at the chemicals used in fracking and finds that the contamination of both ground and surface water by the more than 750 chemicals used in the process is not insignificant when measured in terms of their endocrine-disrupting nature with a recent study showing that over 100 of these ingredients having the ability to cause negative health effects through the human endocrine system.  These chemicals are termed endocrine disrupting chemicals or EDCs.  EDC's have the ability to mimic or block the effects of the body's reproductive hormones and exposure to these chemicals has been linked to birth defects, cancer and infertility.  The authors from the Department of Obstetrics, Gynecology and Women's Health and the Department of Health Management and Informatics, both at the University of Missouri and the United States Geological Survey, collected water samples in Garfield County, Colorado where the drilling density is high (there are more than 10,000 natural gas wells in the area) and fracking is commonly used in drilling operations.  Looking at the bigger picture in Colorado, there are now about 30,000 active wells in the state, up markedly from 5700 twenty years ago.  In the study, unique water samples were collected from five fracking fluid spill sites, two reference sites and the Colorado River.   These samples were tested for twenty-four chemicals used in natural gas drilling operations and were measured for both estrogen (female) and androgen (male) receptor activities in human cells.  Let's open by looking at at map of Colorado from FracTracker showing the outline of shale basins (in light orange) and shale plays (in pink), where directional wells are being drilled in the state (in dark orange) and where spills from directional wells have taken place (in yellow):

Bluegrass Uprising - Lorrie Reed lives alone in a trailer on a rural road outside Frankfort, Kentucky, on two acres of land that her late husband bought more than twenty years ago. He left the property to her and their daughters when he died in a motorcycle accident.  She owns a pistol because she is afraid of the feral dogs that she says are common in the area. She held the gun in her palm when the pipeline consultants pulled into her gravel driveway. “You’re trespassing,” she told them. Still, she decided to sign the paperwork allowing them to survey. A day later, a letter arrived at her house from the Bluegrass Pipeline Blockade, a loose-knit network of Kentuckians organized mainly through Facebook. Reed learned that the pink survey ribbons in the field across the street from her land marked the potential route of a two-foot-diameter transcontinental pipe. It would haul a mix of butane, propane, pentane and other chemicals—called “natural gas liquids,” or NGLs—from fracking wells in West Virginia, Ohio and Pennsylvania all the way to the Gulf of Mexico. Nine years ago, a four-inch NGL pipeline about a tenth as big destroyed five homes in eastern Kentucky and left a state trooper with severe burns after he rescued a 3-year-old child. In August of this year, a ten-inch NGL pipeline ruptured in western Illinois, shooting flames 300 feet into the air. The information frightened Reed, and she wrote to the Williams Companies, one of the two corporations leading the pipeline project, to say that she had changed her mind: no one from the Bluegrass Pipeline project should set foot on her land.

Colorado Ballot Measure Could Let Towns Ban Fracking - As the natural gas industry tries to fight Colorado’s voter-passed fracking bans in court, organizers are working on a ballot initiative that would ensure local governments have the right to ban drilling. In November, four Colorado towns passed ballot initiatives that either banned or put moratoria on hydraulic fracturing: Broomfield, Fort Collins, Lafayette, and Boulder. Broomfield’s vote was so close that its results are pending a ruling from a judge, prompted by a separate energy industry lawsuit. The Colorado Oil and Gas Association (COGA) quickly filed suit over two of the bans, arguing that only the state has the authority to ban drilling, and that communities can’t decide for themselves. But the activists behind the fracking bans have formed the Colorado Community Rights Network to work on an amendment to the Colorado state constitution that would appear on the ballot in November. Organizers plan to finish language for the ballot initiative in the next week or so, after which they would have to collect signatures to get it on the ballot. Cliff Willment, with the East Boulder County United group that pushed for the fracking ban in Lafayette, told the Denver Business Journal after the votes that the right to ban fracking was about democracy for the people of Colorado. “We maintain that people do have the right to self-determination and clearly the oil and gas industry has lost public credibility, they can’t win at the ballot box and this is the last resort — corporate attorneys and litigation,” he said.

The Shale Oil Party Is Ending, Phibro's Andy Hall Warns - Phibro's (currently Astenback Capital Management) Andy Hall knows a thing or two about the oil market - and even if he doesn't (and it was all luck), his views are sufficiently respected to influence the industrial groupthink. Which is why for anyone interested in where one of the foremost oil market movers sees oil supply over the next decade, here are his full thoughts from his latest letter to Astenback investors. Of particular note: Hall's warning to all the shale oil optimists: "According to the DOE data, for Bakken and Eagle Ford the legacy well decline rate has been running at either side of 6.5 per cent per month... Production from new wells has been running at about 90,000 bpd per month per field meaning net growth in production is 25,000 bpd per month. It will become smaller as output grows and that’s why ceteris paribus growth in output for both fields will continue to slow over the coming years. When all the easily drillable sites are exhausted – at the latest sometime shortly after 2020 – production from these two fields will decline."

Judge Rules Exxon Must Face Criminal Charges Over 50,000 Gallon Fracking Waste Spill - Exxon Mobil Corp. subsidiary XTO Energy will have to face criminal charges for allegedly dumping tens of thousands of gallons of hydraulic fracturing waste at a Marcellus Shale drilling site in 2010, according to a Pennsylvania judge’s ruling on Thursday.  Following a preliminary hearing, Magisterial District Judge James G. Carn decided that all eight charges against Exxon — including violations of both the state Clean Streams Law and the Solid Waste Management Act — will be “held for court,” meaning there is enough evidence to take the fossil fuel giant to trial over felony offenses.Pennsylvania’s Attorney General filed criminal charges back in September, claiming Exxon had removed a plug from a wastewater tank, leading to 57,000 gallons of contaminated water spilling into the soil. The Exxon subsidiary had contested the criminal charges, claiming there was “no lasting environmental impact,” and that the charges could “discourage good environmental practices” from guilty companies. 

7 things everyone knows about energy that just ain't so (2013 Edition) - Below I've listed seven whoppers that it would be charitable to call misleading. Longtime readers will recognize that I've addressed them before in various pieces. But I thought that it would be useful to review the worst of the worst of 2013 as the year ends. Here are seven things everyone knows about energy that just ain't so:

  1. Worldwide oil production has been growing by leaps and bounds in the last several years. Oil companies (with governments following suit) have cleverly redefined oil to include something called natural gas plant liquids (NGPLs) that you might surmise actually come from natural gas wells. These include propane, butane, ethane, and pentanes. The new definition also includes biofuels such as ethanol and biodiesel. This mishmash is sometimes referred to as "total liquids," but more often "total oil supply."  There is some interchangeability, but the volume is relatively small
  2. U.S. natural gas production continues to grow by leaps and bounds. This claim is even more misleading than the first one. It's true that natural gas production has grown in the United States in recent years due to the exploitation of gas trapped in deep shale deposits, deposits that new technology called hydraulic fracturing is now making accessible. But, it turns out that the rate of production of these wells declines rapidly, and the numbers suggest that raising the overall U.S. rate of production is going to be very difficult and expensive.

Massive Fireball From North Dakota Oil Train Derailment Caught On Tape - Wind is taking toxic smoke towards areas southeast of Casselton, ND, after train derailment. Residents urged to stay indoors A train has derailed west of Casselton, North Dakota just before 2:20 p.m. Monday. As Valley News Live reports, several area emergency teams are on scene and are setting up an incident command center. Emergency crews are urging people to stay inside and a code red alert has been sent out to residents in a two mile radius of the accident. The Casselton Fire Department says a Burlington Northern Santa Fe train is involved. An unknown number of cars derailed, but Valley News Live reports is told one bulk oil car is on fire and toxic black smoke is being released.

Train Derailment Causes Fiery Destruction In Casselton, ND (AP) — Authorities urged residents to evacuate a small North Dakota town Monday night after a mile-long train carrying crude oil derailed outside of town, shaking residents with a series of explosions that sent flames and black smoke skyward. The Cass County sheriff's office said it was "strongly recommending" that people in the town of Casselton and anyone living 5 miles to the south and east evacuate. As many as 10 cars out of more than 100 caught fire when the BNSF Railway Co. train left the tracks about 2:30 p.m. Monday. No one was hurt. The cars were still burning as darkness fell, and authorities said they would be allowed to burn out. Authorities hadn't yet been able to untangle exactly how the derailment happened, but a second train carrying grain was involved. BNSF spokeswoman Amy McBeth said the train carrying grain derailed first, then knocked several cars of the oil train off adjoining tracks.

As Evacuation Ends For Explosive Oil Train Crash, Officials Hint At The Persistent Threat Of Rail Transport - While the crash of a train carrying crude oil in North Dakota led to fireballs rocketing into the air, clouds of thick black smoke for 15 miles, and the evacuation of nearby residents, officials are saying the incident could have been much worse.   Officials say residents were not exposed to any of the deadly toxins that explosive crude might give off, though one woman in the town said the particulates in the air alone were enough to make you “want to barf your guts out.”  In a press conference on Tuesday, Casselton officials acknowledged that even carbon monoxide poisoning would not be the worst potential outcome from such a serious crash.  “If that thing happened a half mile into town, we’d be looking at a very, very different discussion here today.”  North Dakota trains now carry more oil across the country than the controversial Keystone XL pipeline would. Ninety percent of the fossil fuel-rich state’s oil is carried by freight, shipped off to refineries all around the U.S. and Canada. One of those freighters turned up in a massive derailment in Alabama in November of 2013, when a 90-car train derailed and caught fire, sending flames 300 feet up into the air.  Still, rail transport of crude is proliferating in North America. A new proposal for a rail terminal in California may soon bring North Dakota crude to that state, too. And the executive of a major oil company has even deemed rail a good alternative to pipeline transport. The surge in rail transport, he added, is calling into question the importance of the Keystone XL pipeline.

North Dakota’s explosive Bakken oil: The story behind a troubling crude - The massive columns of smoke in North Dakota this week turned the afternoon sky to midnight, and the ground shook with each blast. In November, an explosion in rural Alabama sent a huge ball of fire 100 metres into the sky, and scorched the swampy earth around it. And in July, emergency crews battled four days to extinguish the flames in Lac-Mégantic, Que. It would take longer for the dead to be counted.Each of these accidents shared a key ingredient: Trains carrying hundreds of thousands of barrels of crude oil from North Dakota derailed on their way to refineries in Canada and the United States, and the cargo exploded in ways that no one had previously thought possible. Until Lac-Mégantic, crude oil was known to be flammable. But no one – not government regulators or oil shippers – thought it was explosive. Until Alabama, the Lac-Mégantic disaster was thought to have been a freak accident that would likely not reoccur. And before Monday’s fiery derailment of an oil train near Casselton, N.D., which caused the evacuation of nearly 3,000 people, the North Dakota government was commissioning a study that would show it was safe to move massive amounts of oil on 100-car trains. The report, when finished, would try to dispel the negative press the state’s oil industry was getting since 47 people were killed in Lac-Mégantic. However, Bakken crude is not like other oil. Before I ever set eyes on Bakken crude for the first time, I was warned it would look different. But it’s true: the crude looks more like gasoline than it does oil. This is also where it gets its explosive properties. 

Warren Buffett Bought Stake in Pipeline Company on Same Day as North Dakota Oil Train Explosion - On December 30, 2013, the same day a Burlington Northern Sante Fe (BNSF) oil train derailed and exploded in Casselton, North Dakota, Warren Buffett — owner of holding company giant Berkshire Hathaway, which owns BNSF — bought a major stake in pipeline logistics company Phillips Specialty Products, Inc. Owned by Phillips 66, a subsidiary of ConocoPhillips, Phillips Specialty Products' claim to fame is lubricating oil's movement through pipelines, increasingly crucial for the industry to move both tar sands crude and oil obtained via hydraulic fracturing ("fracking") in an efficient manner. "Phillips Specialty Products the global leader in the science of drag reduction and specializes in maximizing the flow potential of pipelines," explains its website. Buffett — the second richest man in the world — sees the flow lubricant business as a lucrative niche one, increasingly so given the explosion of North American tar sands pipelines and fracked oil pipelines. "I have long been impressed by the strength of the Phillips 66 business portfolio," he said of the deal in a press release. "The flow improver business is a high-quality business with consistently strong financial performance, and it will fit well within Berkshire Hathaway."

Scientists Find 7,300-Mile Mercury Contamination ‘Bullseye’ Around Canadian Tar Sands -- Canadian government scientists have found that levels of mercury — a potent neurotoxin which has been found to cause severe birth defects and brain damage — around the region’s vast tar sand operations are up to 16 times higher than regular levels for the region. The findings, presented by Environment Canada researcher Jane Kirk at an international toxicology conference, showed that the 7,500 miles contaminated are “currently impacted by airborne Hg (mercury) emissions originating from oilsands developments.” The region’s heavy crude oil is mixed with clay, bitumen, and a good deal of sand — hence the name “oil sands.” This makes for a unique and energy-intensive extraction process that some scientists say produces three times the greenhouse gas emissions of conventionally produced oil. Environment Canada has said it expects production emissions from tar sands to hit 104 million tonnes of CO2 by 2020 under current expansion plans. Mercury pollution is just the latest contamination-related environmental woe to hit the tar sands. In May of this year, leaks of the oil started popping up in Alberta, and haven’t yet stopped. In September, the company responsible for the leaks was ordered to drain a lake so that contamination on the lake’s bottom could be cleaned up. By September 11, the leaks had spilled more than 403,900 gallons — or about 9,617 barrels — of oily bitumen into the surrounding boreal forest and muskeg, the acidic, marshy soil found in the forest.

Mining in Greenland - a country divided - Greenland's economy relies on fishing and hunting, but the government has ambitious plans to develop the country's resource industries. In places like Narsaq, there's a fear that mining could destroy the environment and traditional ways of life. Greg Barnes is chief geologist for Australian mining company Tanbreez Minerals, and he's brought the minister here to pitch his plan to turn the mountain they're looking at into a mine. "It is the world's biggest rare earth deposit, it's probably got 50% of the world's rare earth in it," he claims. "This is one of the world's top 10 mines eventually we think." Rare earth elements are used in everything from mobile phones to solar panels to wind turbines. China dominates world supply, but if people like Greg Barnes are right, Greenland has the potential to be a major player. It's not just rare-earth minerals - Greenland also has reserves of gold, iron-ore, rubies and uranium, as well as oil and gas. In this country of just 57,000 people, with a GDP of $2.4bn (£1.5bn), developing those resources could have a big economic impact.

Why A Finite World Is A Problem - Gail Tverberg - Why is a finite world a problem? I can think of many answers:

  • 1. A finite world is a problem because we and all of the other creatures living in this world share the same piece of “real estate.” If humans use increasingly more resources, other species necessarily use less. Even “renewable” resources are shared with other species. If humans use more, other species must use less. Solar panels covering the desert floor interfere with normal wildlife; the use of plants for biofuels means less area is available for planting food and for vegetation preferred by desirable insects, such as bees.
  • 2. A finite world is governed by cycles. We like to project in straight lines or as constant percentage increases, but the real world doesn’t follow such patterns. Each day has 24 hours. Water moves in waves. Humans are born, mature, and die. A resource is extracted from an area, and the area suddenly becomes much poorer once the income from those exports is removed. Once a country becomes poorer, fighting is likely to break out.
  • 3.  A finite world means that we eventually run short of easy-to-extract resources of many types, including fossil fuels, uranium, and metals.  This doesn’t mean that we will “run out” of these resources. Instead, it means that the extraction process will become more expensive for these fuels and metals, unless technology somehow acts to hold costs down. If extraction costs rise, anything made using these fuels and metals becomes more expensive, assuming businesses selling these products are able to recover their costs

Israel’s Gas Ambitions Put National Security at Risk - The Israeli government said it would tap into new-found natural gas supplies in the Mediterranean Sea in an effort to wean its economy off oil. With international players, including arch foes in Lebanon and Syrian ally Russia, staking out area reserves, the region's bloody territorial disputes may move offshore. Retail gasoline provider Delek Israel, a division of energy explorer Delek Group, said it plans to open its first compressed natural gas facility in the country within the next year. The strategy is part of an ambitious plan to cut oil use in the Israeli transportation by 60 percent by 2025. For Israel, the combined 2.8 trillion cubic feet of natural gas available in the Leviathan and Tamar natural gas fields in the Mediterranean Sea means there are plenty of resources on hand for fuel independence by way of natural gas. Israel under the terms of its fuel strategy will rely on about 10 percent of the offshore reserves to meet its 2025 targets. In early December, Delek Israel signed a $105 million deal to secure natural gas from Tamar and last month, its parent company said there may be even more gas deposits in the region than previously thought. Israel's plans are lofty by international standards, meaning it will need to make considerable claims to natural gas reserves in the Mediterranean Sea to meet its goals. Interest in Mediterranean reserves has already prompted Lebanon to complain its territorial sovereignty was under threat and Hezbollah, Israel's arch enemy, vowed to attack should Israel continue working in Leviathan.

Saudi Arabia Ups the Ante as it Opens Up a New Pipeline - Saudi Arabia has established a new pipeline linking the Lebanese military to its bank accounts. The kingdom has promised to pump some $3 billion of its oil revenue  to fund the Lebanese military. One of the weakest in the region, Lebanon’s army is outmanned and outgunned by all its neighbors and even by local militias. Lebanon shares borders with Syria and Israel; it is highly unlikely that these weapons will be aimed at Israel. In fact, it is just as unlikely that they would be used against Syria, too.  The Lebanese army, though it has recently briefly – very briefly -- engaged both the Israelis to the south and the Syrians to the east, is in no way able to sustain any serious military engagement with either neighbor, who maintain far larger fighting forces, who are better equipped, trained and experienced. . Both the Syrian and the Israeli military are far more powerful than the Lebanese army, one that lacks a real air force, a necessity in any modern war to support ground operations. In fact the Lebanese military is not designed or trained to fight foreign forces, rather it is the enemy within that it is really meant to engage. It is meant to be more of a police force on steroids rather than a weak army.

Gazprom Flag Planted Firmly in Arctic - Greenpeace International continued to express alarm over oil activity in the pristine arctic climate even as the last of its non-Russian activists were freed from prison. For Russia's Gazprom, their freedom means one less hurdle to a bold new campaign in the Pechora Sea. Campaigners with Greenpeace, later dubbed the Arctic 30, were arrested in September after steering their Arctic Sunrise protest vessel to the Prirazlomnoye drilling platform in the Pechora Sea. Originally charged with piracy, Putin had them released as part of a general amnesty that extended to punk rock group Pussy Riot.  Gazprom deployed an ice-resistant oil platform to the shallow water Prirazlomnoye field early this year. The company said the Pechora Sea reserve area may contain more than 520 million barrels of oil and could produce as much as 48 million barrels of oil annually at its peak. The project is the first of its kind for Gazprom and marks the beginning of what Russian officials said was a long-term strategy for Russia's energy sector. Authorities in Moscow said the reserves from Prirazlomnoye would be sent to Gazprom's clients in Europe and Asia and for Putin, there are no holds barred for protecting strategic interests like oil.

Exxon’s Russia Ambitions Show Drilling Trumps Obama-Putin Spats - As Barack Obama and Vladimir Putin argue over human rights in Russia and the fate of fugitive U.S. intelligence analyst Edward Snowden, the countries’ biggest oil companies are preparing to drill for giant oil discoveries together in the Arctic Ocean.  Exxon Mobil and OAO Rosneft (ROSN) are set to start their first Arctic well this year, targeting a deposit that may hold more oil than Norway’s North Sea. It will kick off a series of landmark projects and cement an alliance begun in 2011. They also plan to frack shale fields in Siberia, sink a deep-water well in the Black Sea and build a natural gas-export terminal in Russia’s Far East. “We have a unique partnership,” Glenn Waller, Exxon’s Russian chief, said in an interview in Moscow. “They have the world’s biggest reserves and we have the largest market capitalization.” The deepening alliance shows the two governments’ fractious relationship is no bar to America’s most valuable energy company investing billions in Russia. For Rosneft Chief Executive Officer Igor Sechin, the Irving, Texas-based company brings financial heft and the expertise needed to drill offshore in some of the world’s harshest conditions for rigs.

The Real Oil Extraction Limit, and How It Affects the Downslope -- There is a lot of confusion about which limit we are reaching with respect to oil supply. There seems to be a huge amount of “reserves,” and oil production seems to be increasing right now, so people can’t imagine that there might be a near term problem. There are at least three different views regarding the nature of the limit:

  1. Climate Change. There is no limit on oil production within the foreseeable future.  The main concern is climate change. The only reason that oil production would drop is because we have found a way to use less oil because of  climate change concerns, and choose not to extract oil that seems to be available.
  2. Limit Based on Geology (“Peak Oil”). In each oil field, production tends to rise for a time and then fall. Therefore, in total, world oil production will most likely begin to fall at some point, because of technological limits on extraction. In fact, this limit seems quite close at hand. High oil prices may play a role as well.
  3. Oil Prices Don’t Rise High Enough. We need high oil prices to keep oil extraction up, but as we reach diminishing returns with respect to oil extraction, oil prices don’t rise high enough to keep extraction at the required level. If oil prices do rise very high, there are feedback loops that lead to more recession and job layoffs and less “demand for oil” (really, oil affordability) among potential purchasers of oil. One major cut-off on oil supply is inadequate funds for reinvestment, because of low oil prices.

In my view, our real concern should be the third item above, “Oil Prices Don’t Rise High Enough.” The problem is caused by a mismatch between wages (which are not growing very quickly) and the cost of oil extraction (which is growing quickly). If oil prices rose as fast as extraction costs, they would leave workers with a smaller and smaller percentage of their wages to spend on food, clothing, and other necessities–something that doesn’t work for very long. Let me explain what happens. 

US refineries' production hits a record; reasons for the increase misunderstood - During the month of December large money managers have been once again beefing up their long bets on crude oil.  Bloomberg: - Hedge funds increased bullish bets on crude oil to the highest level in three months as stockpiles dropped and the U.S. economy expanded more than forecast.  Money managers raised net-long positions, or wagers on rising prices for West Texas Intermediate crude, by 4.4 percent in the week ended Dec. 24, U.S. Commodity Futures Trading Commission data show. It was the fourth consecutive increase, the longest streak since July. What's driving this push into crude? The media focus has been on the recent sharp decline in supplies, which some have attributed to improving economic conditions in the US. While the US economy is certainly showing signs of improvement, there is more to this story than the domestic demand for energy. This drawdown in crude was the result of US refineries firing on all cylinders, particularly in the Gulf Coast states. In fact refinery inputs have hit a new record.  As discussed earlier (see post), US energy firms can export gasoline and jet fuel abroad but are restricted from easily exporting US crude. With domestic crude production at recent record levels (see Twitter chart), refining and selling abroad is the name of the game. And that is benefiting the US refinery sector. The mass media is looking for simple answers for these rising long bets and stronger prices on crude oil.  But the "US growth" explanation is not accurate. Over the past several years, US exports of refined products have tripled, going from about a million barrels per day to over 3 million. And bets on WTI crude are more about increased refinery capacity in the US and the resulting growth in exports.

Why Oil is Mightier than the Sword for U.S. Foreign Policy - The American Petroleum Institute said the United States is emerging as a superpower in terms of energy and should use that leverage by exporting crude oil overseas. Some U.S. lawmakers pressing for tighter sanctions on Iran, meanwhile, oppose the export drive, suggesting potential superpower influence may run up against protectionist policies. U.S. crude oil exports are restricted under legislation enacted in response to the 1970s Arab oil embargo. Now, with the U.S. Energy Information Administration predicting crude oil production will reach 9.5 million barrels per day by 2016, the industry and its supporters said it's time to reverse that policy.API in February said the United States was an "energy superpower" thanks in part to shale oil and natural gas developments. Erik Milito, director of upstream operations for API, said the oil lobbying group plans to reach out to U.S. legislators to help remove obstacles to U.S. crude oil exports. The decision lies with President Obama, but API said any effort needed to lift export restrictions requires a bubble-up strategy. API welcomed mid-December statements from U.S. Energy Secretary Ernest Moniz saying the export ban deserves "some new analysis and examination." That didn't sit well with some legislators worried about the economic affects at home, however. "Crude oil produced in the U.S. should be used to lower prices here at home, not sent to the other side of the world ," Robert Menendez, D-N.J., chairman of the Senate Foreign Relations Committee, said in a letter to Obama.  "Easing this ban might be a win for Big Oil, but it would hurt American consumers,"

Baghdad asks Kurds for information on “106 million oil barrels” it says have gone missing - Azzaman English: Kurdish reports of their oil output and exports fail to account for 106 million barrels of oil, the Ministry of Finance says. The ministry’s audit department has officially asked the regional Kurdish government in northern Iraq to account for the massive volume of oil it says it has gone missing and which at current prices is worth more than $10 billion. “We could not trace 106 million barrels of oil produced by the Kurdish region. They have probably been smuggled abroad,” the department said in a statement. The Kurds say they have the capacity to produce 400,000 barrels of oil per day at a time they need about 100,000 barrels a day for domestic consumption. Hathem al-Jibouri, an MP from Prime Minister Noori al-Malik’s parliamentary bloc, said he attended several meetings arranged by the Finance Ministry attended by officials from the Kurdish region. “We have repeatedly told the Kurds that they still need to account for 106 million barrels of oil,” he said. “The volume must have been smuggled abroad.” The Kurds, he said, want to refer the matter to an international audit firm to examine their accounts of oil output in their region.

US Arms Shiite Iraqi Gov't to Kill Sunni Rebels, Arms Syrian Sunni Rebels to overthrow Shiite Gov't --The Obama administration is sending hellfire missiles and surveillance drones to the Shiite Islamic Mission Party-dominated government of Iraq to help in the latter’s struggle against radical Sunni rebels who have increased their bombings and attacks this year. If the helicopter gunships and missiles really could take out the radicals that would be all to the good, but one suspects that the al-Maliki government can only prevail against them if it reaches out politically to the Sunni Arab community (it hasn’t).  Ironically, the Sunni radicals in Iraq are much the same as those in Syria. Indeed, there is a united Islamic State of Iraq and Syria that operates both in Falluja and Aleppo. Some of the Iraqi radicals’ new momentum comes from the money and aid they have received for their Syrian operations from wealthy Gulf residents in places like Kuwait.  Meanwhile, the Iraqi government of Prime Minister Nouri al-Maliki is close to Iran and to the Baath government of Bashar al-Assad, and it is alleged that 70% of the materiel imported to Damascus is coming from Iraq. So the US is supporting the Shiite government of Iraq, which supports Iran and Syria, against Sunni extremists. But it is backing Sunni rebels in Syria against the Alawite Shiite government in Damascus

Cars or coal? Scientists split over main culprit of Beijing's air pollution - The Chinese capital has for many years suffered from serious air pollution. Primary sources of pollutants include exhaust emission from Beijing's more than five million motor vehicles, coal burning in neighbouring regions, dust storms from the north and local construction dust. A particularly severe smog engulfed the city for weeks in early 2013, elevating public awareness to unprecedented levels and prompting the government to roll out emergency measures.  The Chinese Academy of Sciences (CAS), the country's top research body, released a study on December 30 saying motor vehicle emissions were only responsible for less than 4 per cent of Beijing's PM2.5, the most health-threatening fine air pollutants. Instead, the study identified fossil fuel burning as the largest contributor of PM2.5, contrary to popular beliefs that the nearly 5.5 million cars clogging the capital's streets were chiefly to blame for its air pollution. However, barely 24 hours later, Pan Tao, president of the Beijing Municipal Research Institute of Environmental Protection, openly challenged the findings, telling People's Daily online that motor vehicle emissions were “undoubtedly” the major source of Beijing’s air pollution. The CAS study analysed air samples in the capital on a seasonal basis, and found that pollutants generated from industrial production and coal-burning the source of Beijing's PM2.5 pollutants. According to the study, coal burning, industrial pollution and secondary inorganic aerosol, a catch-all term for inorganic particulates formed as a product of complex chemical reactions among pollutants, account respectively for 18 per cent, 25 per cent and 26 per cent of the air pollution at large.

The Taper And The China Credit Power Struggle Squeeze - Ilargi - There is a crisis a-brewing in China that evolves around interest rates, with interbank rates as, let’s say, the initial center piece. The underlying cause of the crisis is that both official banks and the shadow banking system seek to escape the restrictions placed on the financial system by the government and the central People’s Bank of China (PBoC), who in essence want to set all interest rates and all policies. The PBoC has set the interest people can get on their deposits with banks so low they’re actually losing money. Many Chinese have bought newly built empty apartments as an investment, which can’t be rented out because that would make them no longer “new”, and hence less valuable. But people are still looking for other investment opportunities. One major, relatively new, option banks offer are WMPs, or Wealth Management Products. And it all gets shady right off the bat here. Banks are not allowed to lend out money directly to real estate developers and local government financing platforms (LGFPs), which therefore pay higher interest rates. . So what do the banks do? They (co-)create trust companies, or establish business deals with them, and repackage old loans, CDO-like, into WMPs, all of which sees them move very close to, if not enter, the shady territory shadow banking operates in. Banks conduct complex reverse repurchase transactions, or repo’s, with the trust companies, which enables the latter to lend out to real estate and local governments, at 12+%. They move this entire process through WMPs, which allows the banks to offer their clients/investors a 6% interest on deposits, and divide the remaining 6+% between themselves and the trusts. But, you guessed it, there is a problem here (quite a few actually). Most importantly, there is a growing liquidity risk due to the different durations of WMPs and trust loans. Two thirds of WMPs have a three months or less duration, while durations of trust loans to real estate developers or local governments are often as long as a few years. Ergo, banks have a hard time recovering funds from trust loans quickly enough to repay maturing WMPs, which leads to a lack of capital. And the PBoC eventually caved in to pressure and conducted “short-term liquidity operations” (SLOs) to make sure banks had capital.  That has a lack of “trust” and “confidence” written all over it.

China local government debt surges to $3 trillion --China's local government liabilities jumped to nearly $3 trillion at the end of June, according to a new audit, in a much-anticipated glimpse into the financial health of the world's No. 2 economy. The audit released on Monday showed China's local government liabilities totaled 17.9 trillion yuan ($2.95 trillion) at midyear. China's last full audit of local-government borrowings estimated liabilities at 10.7 trillion yuan at the end of 2010. The new tally includes direct debt as well as guarantees and other potential liabilities, according to a report released by the National Audit Office. Debt from central and local governments but excluding guarantees and other liabilities stood at 20.7 trillion yuan by the end of June, according to the report. The office said in the report that risks from local government debt are still controllable. That echoes recent comments by top Chinese leaders, including Premier Li Keqiang, who has said local debt remains within safe levels.

Local Government Debt Audit Sheds Light on What’s Ailing China - For the last year China’s credit growth has been going gangbusters, with total social financing up 13.2% in the first 11 months of 2013 from a year earlier. Meanwhile, growth in the real economy slowed to about 7.6%, its slowest pace in years. That has led analysts to wonder where all that money is going. Has China run out of productive ways to invest? An audit of government debt published Monday hints at a possible answer. The National Audit Office surveyed not just the central government but thousands of regional and local governments around the country to find out just how much they’re on the hook for. Unlike most countries, China’s localities owe more than the central government. The results came in below some estimates, but they’re worrying all the same. Local government debt and liabilities came to 17.9 trillion yuan ($2.95 trillion) at end-June, a rise of 67% in two-and-a-half years. Much of that was channeled through “local government financing vehicles,” corporate entities set up to sidestep restrictions on direct borrowing by governments. These vehicles are a financial black box: Much of the money may have been siphoned off into kickbacks or wasted on pointless construction projects. Even where the money has been spent on worthwhile, genuinely productive infrastructure investments, it will be a long time before these projects can generate meaningful cash flows. Meanwhile, much of the borrowing that funded them is about to come due.

China Moves Slowly Toward State Sector Overhaul - China’s Communist Party wound up a key policy meeting last month, unveiling a raft of economic reforms and promising to give a “decisive role” to market forces. It said little about plans for the often inefficient state sector, and that led many analysts to conclude that overhauling state companies was not a priority. Powerful vested interests appeared to have  successfully defended their turf. But in the weeks since the Communist Party’s Third Plenum there have been some noises – if not quite a drumbeat – that suggest there might be movement towards reform of state companies. China’s government holding company – the state-owned Assets Supervision and Administration Commission – earlier this month said it would push forward with the transformation of state-owned enterprises into joint stock companies and encourage private sector investment in some areas. SASAC, which holds controlling shares of 113 companies, says the government would retain 100%  ownership in sectors which are “vital to national security” or “the lifeblood of the economy.” Authorities are planning to allow differing levels of private ownership in other industries, depending on their strategic importance. Both financial and strategic investors will be allowed to buy stakes, Huang Shuhe, SASAC’s vice chairman, told a news conference this month. Mr. Huang said that China is still reviewing which of the central government companies will be open to private sector participation and he gave no timetable for putting the reforms in place.

China Debt Swelling Adds Urgency to Xi’s Fiscal Repair Job - China’s local-government debt swelled to 17.9 trillion yuan ($2.95 trillion), underscoring risks to the financial system as President Xi Jinping rolls out economic reforms.  Debt including contingent liabilities rose about 13 percent in the six months through June, based on figures in a report by the National Audit Office, posted on its website yesterday. That followed a 48 percent increase over the previous two years.  China’s borrowing spree in recent years has evoked comparisons to debt surges that tipped Asian nations into crisis in the late 1990s and preceded Japan’s lost decades. The audit result adds pressure for Xi, yesterday named head of a Communist Party leading group for reform, to repair a fiscal system that starves local governments of tax revenue.

Rawhide in China - China says rollover. From the FT’s Simon RabinovitchFaced with a mountain of maturing loans this year, China has given local governments the go-ahead to issue bonds as a way of rolling over their debt to avoid defaults.The announcement by the National Development and Reform Commission, a top central planning authority, is the most explicit official endorsement of a massive debt refinancing operation that has become unavoidable and is already under way, analysts said. It comes on the heels of a report by China’s National Audit Office which said, and we paraphrase here, that China’s public debt load is manageable (30.3tn, or 56 per cent of GDP at the end June 2013, click here for a lovely table from UBS if you fancy more detail) even if the pace of its increase probably isn’t and if you don’t include corporate debt as the contingent liability it rather probably is. From Rabinovitch again: With many of the original loans used for infrastructure projects that have yet to generate revenue, rollovers have long been seen as one of the few viable options for preventing defaults. Regulators have quietly allowed rollovers in the past while still discouraging them in public comments, fearful that cities and towns would exploit them as an easy way out of their debt troubles.

China’s growth and manufacturing output decline as property prices soar - Chinese manufacturing activity declined in December, piling pressure on communist leaders grappling with the slowest economic growth in the country since 1999, amid booming property prices and rising local government debts. An industry group, the China Federation of Logistics & Purchasing, said on Wednesday that its purchasing managers index for December declined to 51 from the previous month's 51.4, where numbers above 50 indicate increasing activity. The group's spokesman, Zhang Lijun, blamed a decline in exports for much of the slowdown and lacklustre demand from domestic buyers. "There still is downward pressure on economic growth," he said. The figures follow surveys showing property prices rising in December and a report highlighting the mounting debts of local authorities. Prices of new homes in 288 cities in December had climbed 10.04% from a year earlier, little changed from November's annual rise of 10.11% and a seventh consecutive month of double-digit annual gain, according to a poll by property services firm E-House China. Property prices have become a running sore in Chinese society with many priced out of the market and forced to pay high rents. The government has sought to boost affordable housebuilding and construct bus and train links to new developments, but demand has continued to outstrip supply. Meanwhile, much of the burden of funding housing projects has fallen on local authorities, which have seen their debts rocket to almost $3tn (£2.2bn), according to China's National Audit Office, underlining fears that thousands of local councils and state-owned businesses in the world's second biggest economy have over-stretched themselves and are close to collapse. Communist leaders have sought to boost growth in the short term with additional investment in infrastructure while embarking on long-term reforms to overhaul the debt-laden public sector, bring more competition to traditionally state-run markets and encourage consumer spending.

Economists React: China’s Manufacturing Sector Runs Into Trouble - All isn’t well with China’s manufacturing industry, long the economy’s major engine. The HSBC China manufacturing purchasing managers’ index, published Thursday, fell to 50.5 in December from 50.8 in November—just a whisker above the 50-mark that separates expansion from contraction. That echoes the signal from the government’s own PMI, released a day earlier, which dropped to 51.0 from 51.4. A gradual recovery in Europe, the U.S. and Japan – key export markets – should be good news for China’s factories, but an appreciating currency and rising wages pull the other way. Meanwhile, domestic demand is uncertain. The consumer market continues to expand, but some categories of manufacturing, especially heavy industry, are under pressure from excess capacity and government attempts to control pollution. And with banks under strain and financing costs rising, credit is getting harder to come by. Here, economists weigh in on the latest numbers (edited slightly for style and clarity):

The Chinese Dream: Will China Become A Land of Opportunity? - Living in China for the past nine years, my sense was that it was a nation with limited social mobility. Now I’ve seen data that confirms my impression. If one father earns 100% more than another, then how much more on average will his children earn relative to the other father’s children?  Miles Corak answers this question by calculating the elasticity of inter-generational income.  In Denmark the answer is 15%: there’s an advantage to being born into a high-income family, but it’s pretty small.  The U.S. sustains a myth that anyone can get ahead, but in fact the U.S. has low social mobility among developed countries: here, the children of the higher-income dad will earn 47% more. In China the figure is 60%.  Hukou makes it difficult to move around. About 60% of the population is still registered as rural.  If your father was a farmer, a relatively low-income occupation, that constrains your opportunities sharply. You can move to the city to do menial labor as a migrant, but you cannot compete for good urban jobs.  Here, China is similar to the U.S. in that financing for education and other social services is often decentralized.  The Shanghai schools stood out on recent international tests as among the best in the world. But in smaller cities around China the resources devoted to public education and its quality are much lower.  For children in rural areas the situation is worse still.

Japan Prices Seen Rising Five Times Faster Than Wages -- Japanese employers will fail in the next fiscal year to heed Prime Minister Shinzo Abe’s goal of wage increases that outpace inflation, highlighting risks that the nation’s recovery will stall, surveys of economists show. Labor cash earnings, the benchmark for wages, will increase 0.6 percent in the year starting April 1, according to the median forecast in a poll of 16 economists by Bloomberg News. Consumer prices will climb five times faster, increasing 3 percent, as Japan raises a sales tax for the first time since 1997, a separate Bloomberg survey shows. The squeeze on consumers from higher prices risks undermining public support for Abenomics and dragging on retail spending, unless Abe can convince companies to boost wages to cushion the blow. At stake is sustaining a recovery in the world’s third-biggest economy, set to expand this year at the fastest pace since 2010 as Abe tries to drive an exit from 15 years of deflation. “Wage increases will be slower than the rise in prices at least until 2015, dealing a blow to Prime Minister Abe,” “It will take a while for companies to change their mind-set, which is still mired in deflation.” In an interview in Tokyo this month, Abe urged companies to increase wages faster than gains in the cost of living. “For us to escape deflation it is extremely important that wages rise,” Abe said Dec. 6.

Monetary Policy in Japan: Finally on Track - Japan’s central bank, the Bank of Japan, is finally taking the action long suggested by outside economists as a remedy for two decades of stagnation: a prolonged period of substantial monetary expansion to end deflation and reverse the drag on business and consumer spending induced by deeply embedded deflationary expectations.  Under the leadership of its governor, Haruhiko Kuroda, the bank increased its purchases of Japanese government bonds in April, with a stated aim of lifting inflation to 2 percent. There are signs of initial success, as core inflation (consumer prices without volatile food and energy components) rose in November to 0.6 percent over the past year — still low, but the largest gain in 15 years. The idea is that sustained price gains will eventually feed through into higher wages, then into stronger spending by consumers who no longer wait for prices to fall, and ultimately into more vigorous investment and hiring by Japanese businesses. A Japanese turnaround would be good for the United States in both economic and national security dimensions.  The economic benefits would include increased American exports and better returns for American investors. These gains will be amplified if Japan follows through on Prime Minister Shinzo Abe’s promises of wide-ranging structural reforms that include opening the economy more broadly to competition, including competition from foreign companies. One mechanism for such liberalization would be the conclusion of a Trans-Pacific Partnership agreement that would reduce barriers to trade and investment in Japan, the United States and many other nations.

Proposed Export Ban in Indonesia -  Indonesia is blessed with abundant natural resources, including copper, nickel, bauxite, and other metals. In 2009 a mining law was adopted that included a 20 percent export tax and a ban on mineral ore exports starting in 2012. The tax went into effect, but the export ban was subsequently postponed until 2014. Earlier this year, the government issued regulations obligating miners to increase domestic value-added, or the contribution of local inputs to the value of the final product. As the target date approaches, few miners have invested in processing facilities, and the country faces a collapse in exports. This possibility has unsettled world metals markets. The government also faces a frenzied lobbying campaign to ditch the law. For fans of political economy, the maneuvering is fascinating. For the rest of us, it is a mess. Two cleavages have opened up: one between the nickel and bauxite miners who export ore with low domestic value-added, and the copper producers whose exports embody a much higher degree of domestic processing. The other cleavage is between large multinationals and small local miners. The big transnationals differ from the small indigenous producers in that they may not be fans of the mining law, but they have the financial and technological resources to comply. Rusal and Norilsk Nickel, for example, have indicated that they would be willing to invest up to $4 billion in smelter facilities. On the other hand, the big multinationals have less of a stake in local politics than the small indigenous miners.

Asia Themes 2014: North-South Divide Widening - Moving into 2014, the contrasts between north and south Asia are sharpening. Three factors will likely widen the divide this year: North Asia is more leveraged to the global cycle, thus better positioned for a growth acceleration; balance-of-payment dynamics have cemented north Asia’s status as a safe-haven market; and with elections coming, political risks are likely to rise in south Asia. The first source of divergence is growth. North Asian economies have seen a faster turnaround in their exports, with stronger growth momentum in H2, led by a pickup in PMIs in developed economies. With stronger consumption growth also likely in China, we expect the North Asian economies to benefit first. This is because north Asia is better tapped into the Chinese consumer, given that it has stronger distribution networks and product brand premium. In contrast, resource suppliers in south Asia and Australia, which are more reliant on China’s infrastructure development, are likely to experience slightly weaker export growth and terms of trade. Already, north Asia is beginning to see stronger demand from the G3 economies, particularly an improvement in leading indicators for the global electronics industry. The cycle can go into a higher gear if U.S. corporates start deploying some of their idle cash to upgrade technology platforms. On the flipside, rate hikes, low commodity prices (a negative terms-of-trade shock) and persistent capital outflows have led to a broader slowdown in growth in the south. Tighter monetary conditions in India and Indonesia have sapped domestic demand. Sentiment-sensitive industries are also facing headwinds from rising political noise. This could be very relevant in Thailand if the current political uncertainty continues.

New Year’s Jeers for India’s Finance Minister - Indian Finance Minister P. Chidambaram had little reason to party on New Year’s eve as the latest data suggested he will struggle to live up to his resolution for a lower fiscal deficit this year. Government data released Tuesday showed India’s deficit has already reached close to 94% of the full-year target of 5.42 trillion rupees—or 4.8% of gross domestic product–just eight months into the fiscal year that ends in March. A breach of the target could prompt rating agencies to downgrade India’s debt to junk, a stigma Asia’s third largest economy must avoid if it hopes to emerge from a prolonged and painful slowdown. Mr. Chidambaram has repeatedly sought to assure markets and investors the target of 4.8% is a “red line” which would not be breached. But the data are making it hard for economists to believe. “Indeed we estimate fiscal deficit to be higher at 5.1% to 5.5% of GDP depending on the government’s control over expenditure, disinvestment and telecom auction proceeds,” Morgan Stanley said in a note.

Analysis: Singh Tweets His Economic Record - Even before announcing he would not run for a third term as prime minister on Friday, Manmohan Singh was already getting nostalgic about his time in 7 Race Course Road.For the past two weeks India’s prime minister has been blasting his nearly one million followers on Twitter with charts showing the country’s economic progress during his 10 years in office.The blue-turbaned leader of the world’s largest democracy may be stepping down after general elections but his party needs voters to appreciate India’s recent economic achievements if it hopes to stay in power beyond polls this spring.The biggest threat to the Congress party and its allies will be the opposition Bharatiya Janata Party, whose prime ministerial candidate, Narendra Modi, has a reputation for skillful economic management as Gujarat’s chief minister. Opinion polls show that Mr. Modi and the BJP are viewed as better for business and the economy. Mr. Singh has tried to set the record straight in his recent tweets, which show the last 10 years’ growth in everything from personal bank accounts to air traffic

What the RBI Is Worried About in 2014 -- This was a busy year for India’s central bank, as it struggled to support the Indian rupee which fell to a record low against the U.S. dollar this summer, in addition to the bank’s traditional duties like taming inflation. On Monday, the Reserve Bank of India released its semi-annual Financial Stability Report which assesses risks to India’s economy and financial sector. Here are five key areas where the RBI forsees potential risks for India in 2014.

  • Rupee’s stability: In May, when investors had feared that the U.S. Federal Reserve would trim its massive bond-buying program, it had sent the rupee tumbling against the U.S. dollar. This month, when the U.S. central bank officially announced its tapering program, the announcement didn’t move the Indian rupee or stocks much. Still, the RBI warned in its report Monday that volatility could pick up if the Federal Reserve were to wind down its program faster than expected.
  • Bank bad loans: A combination of high interest rates and slowing economic growth is taking a toll on India’s banks, as some borrowers struggle to repay their debt.
  • Inflation: India is mired in stagflationary conditions, with consumer prices increasing at double-digit rates even as the economy is growing at its slowest pace in a decade. To curb inflation, the RBI raised interest rates twice in 2013.
  • Home prices: After the U.S. sub-prime mortgage crisis of 2007-2008, regulators globally have been worried about preventing housing bubbles in their own economies.
  • Financial fraud: Cases of large fraud — involving amounts of more than 500 million rupees ($8 million) — have increased nine times to 45 cases in the fiscal year through March 2013, the RBI noted. The total amount of money involved in these frauds has shown an “even more alarming increase”, the RBI said.

In India, a Spectre is Haunting Us All - In five-star hotels on Mumbai’s seafront, children of the rich squeal joyfully as they play hide and seek. Nearby, at the National Theatre for the Performing Arts, people arrive for the Mumbai Literary Festival: famous authors and notables drawn from India’s Raj class. They step deftly over a woman lying across the pavement, her birch brooms laid out for sale, her two children silhouettes in a banyan tree that is their home. It is Children’s Day in India. On page nine of the Times of India, a study reports that every second child is malnourished. Nearly two million children under the age of five die every year from preventable illness as common as diarrhoea. Of those who survive, half are stunted due to a lack of nutrients. The national school dropout rate is 40 per cent. Statistics like these flow like a river permanently in flood. No other country comes close. The small thin legs dangling in a banyan tree are poignant evidence. The leviathan once known as Bombay is the centre for most of India’s foreign trade, global financial dealing and personal wealth. Yet at low tide on the Mithi River, in ditches, at the roadside, people are forced to defecate. Half the city’s population is without sanitation and lives in slums without basic services. This has doubled since the 1990s when “Shining India” was invented by an American advertising firm as part of the Hindu nationalist BJP party’s propaganda that it was “liberating” India’s economy and “way of life”.

Indian Police Hijack Hearse Of Gang Rape Victim To Take Body For Forced Cremation - We have been discussing of the continuing rape epidemic in India, including repeated rapes by police officers in that country or efforts by police to shield rapists. Police in Kolkata reached a new level of abuse in actually hijacking the hearse of a victim who was gang-raped and dumped at at a hospital for nine days with fatal burns. The police then tried to force the family to agree to an immediate cremation. The family was waiting for relatives to arrive for the funeral and cremation but police hijacked the body when it was being trace to a mortuary and forcibly took it to the crematorium. A relative in the vehicle had to jump out of the hearse after it was hijacked. When the crematorium refused to carry out the cremation, the police went to the family and threatened members to try to get them to sign the form.  The family eventually agreed to the cremation in exchange for a promise of protection from the government. Yet, the question is why the police would want to destroy the body of the rape victim and whether forensic evidence was gathered before the cremation. The girl was reportedly raped before going to the police department and then raped again after returning from the department.

Police Open Fire on Striking Garment Workers - Five people were reportedly killed after police opened fire on striking garment workers in Cambodia's capital on Friday. Workers from hundreds of the country's garment factories demonstrated in Phnom Penh's Canadia Industrial Park, home to dozens of factories that make clothing for well-known western brands including H&M and Puma, demanding a doubling of the minimum wage, currently set at $80 a month. According to local human rights watchdog group Cambodian League for the Promotion and Defense of Human Rights (LICADHO), security forces shot live ammunition directly at civilians, and used tear gas and grenades, leaving 21 injured in addition to the five killed. "The use of live ammunition was prolonged and no efforts appear to have been made to prevent death and serious injury," according to a statement from the group.

Accountability Is Elusive in Global Clothing Supply Chain -  From a sleek gray distribution center near Barcelona, the global fashion brand Mango ships 60 million garments in a year.  Five thousand miles away in Bangladesh, hundreds of men and women hunched over sewing machines to produce garments in an assembly line system unchanged for years. Last spring, as it pushed forward with global expansion plans, Mango turned to Phantom Tac to produce a sample order of polo shirts and other items. Then, on April 24, the Rana Plaza factory complex collapsed, killing more than 1,100 people in the deadliest disaster in garment industry history, and destroying Phantom Tac and other operations in the building.  Now, eight months later, the question is what responsibility Mango and other brands should bear toward the victims of Rana Plaza, a disaster that exposed the murkiness and lack of accountability in the global supply chain for clothes. Under intense international pressure, four brands agreed last week to help finance a landmark $40 million compensation fund for the victims.  But many other brands, including Mango, have so far refused to contribute to the fund. Mango argues that it is not responsible because it had not “formalized a commercial relationship” with Phantom Tac. Company officials say that Mango was still conducting quality inspections and factory audits of Phantom Tac, and that the factory had not started producing samples for an order of 25,000 items.

Venezuela's Consumer Prices Climbed 56% in 2013 - Venezuela's consumer prices rose 56% in 2013 as the rate of economic growth slowed sharply to 1.6%, officials said Monday. The preliminary numbers given out by the central bank and by President Nicolás Maduro compare to the oil-rich country's 5.6% economic expansion and 20% inflation recorded last year, and underscore the challenge faced by Mr. Maduro, who earlier this year inherited the heavy state-spending policies of his mentor and late leader Hugo Chávez. Many observers expect that Mr. Maduro's administration will have to devalue the currency in early 2014 to generate more revenue when the government converts dollars earned through oil sales. Such a move, however, also would accelerate inflation, already the highest in the region, according to Barclays.  Consumer prices rose 4.8% in November and 2.2% in December, the central bank said Monday. The rise came as Mr. Maduro expanded price controls and ordered investigations into allegedly price-gouging businesses that he said were responsible for high inflation. Some stores were forced to slash prices 60% as part of Mr. Maduro's campaign. Inflation in November and December would have risen 6% and 4.2%, respectively, without the crackdown on prices, the central bank said.

NAFTA turns 20: Factory North America | The Economist: OUR correspondents discuss the impact of the North American Free-Trade Agreement over the past two decades and look at how the controversial pact might be reinvigorated

NAFTA, Twenty Years After: A Disaster - New Year’s Day, 2014, marks the 20th anniversary of the North American Free Trade Agreement (NAFTA). The Agreement created a common market for goods, services and investment capital with Canada and Mexico. And it opened the door through which American workers were shoved, unprepared, into a brutal global competition for jobs that has cut their living standards and is destroying their future. NAFTA’s birth was bi-partisan—conceived by Ronald Reagan, negotiated by George Bush I, and pushed through the US Congress by Bill Clinton in alliance with Congressional Republicans and corporate lobbyists. Clinton and his collaborators promised that the deal would bring “good-paying American jobs,” a rising trade surplus with Mexico, and a dramatic reduction in illegal immigration. Instead, NAFTA directly cost the United States. a net loss of 700,000 jobs. The surplus with Mexico turned into a chronic deficit. And the economic dislocation in Mexico increased the the flow of undocumented workers into the United States. Nevertheless, Clinton and his Republican successor, George Bush II, then used the NAFTA template to design the World Trade Organization, more than a dozen bilateral trade treaties, and the deal that opened the American market to China—which alone has cost the United States another net 2.7 million jobs. The result has been 20 years of relentless outsourcing of jobs and technology.  Yet today—channeling Reagan, the Bushes and Clinton—the president proposes two more such trade deals: the Trans-Pacific Partnership with eleven Pacific Rim countries and a free trade agreement with Europe.

How Beer Explains 20 Years of NAFTA’s Devastating Effects on Mexico - Twenty years ago, on January 1, 1994, NAFTA took effect, and Mexico was the poster child for the wonders of free trade. The promises seemed endless. Mexico would enter the “First World” of developed countries on the crest of rising trade and foreign investment. Its dynamic manufacturing sector would create so many jobs it would not only end the U.S.  immigration problem but absorb millions of peasant farmers freed from their unproductive toil in the fields. Mexico could import cheap corn and export electronics. So much for promises.NAFTA produced a devastating one-two punch. For the first 10 years, the flood of U.S. exports of corn, wheat, meat and other staples drove Mexican producer prices well below the costs of production. Mexico’s three million small-scale corn farmers saw prices for their crops fall 66 percent, largely because the United States increased corn exports by 400 percent, exporting at prices 19 percent below even U.S. farmers’ costs of production. (See my earlier study.) Call it the Age of Agricultural Dumping. By the mid-2000s, Mexico was importing 42 percent of its food, mostly from the United States. Corn import dependence had grown from 8 percent before NAFTA to 32 percent. Mexico was importing nearly 60 percent of its wheat where before it had imported less than 20 percent. Import dependence was more than 70 percent for soybeans, rice and cotton. Then came the sucker punch. In 2007, international prices for many staple crops doubled or tripled, and so did the cost of importing them. Countries like Mexico that had gotten hooked on cheap imports paid a heavy price. Call it the Age of Dependency.

Inequality in Latin America: Better, But Still Terrible -- Latin America, after many years of stagnation, has recently been held up as a model for reducing inequality. Yet as a paper from three World Bank economists suggests, the progress of the last 15 years or so masks a failure to address the major problem of those living just on the edge of poverty–and therefore vulnerable to falling back below the official line. The report notes that “although the decline in poverty and inequality has been impressive, Latin America remains one of the most unequal regions of the world.”As for the key sources driving poverty and inequality reduction in the region, these include government transfers and remittances as well as real wage increases for lower-income workers.“The most equal countries in Latin America – Argentina and Uruguay –  are still more unequal than the least equal among all of the non-Latin American OECD countries,” the authors write, referring to the 34 countries that comprise the Organization for Economic Cooperation and Development.Since 1995, extreme poverty, defined as individuals earning less than $2.50 per day, has been cut in half, to 13% from 26%, according to World Bank figures. The drop comes with a major caveat: “The largest segment of the region’s population still remains vulnerable to falling back into poverty, with 40% of the population living with incomes above the poverty line” of $4 per day.

Cash Handouts Are Changing Inequality In Brazil - Ten years ago, Brazil set out to do something that few countries have ever overtly attempted: become more equal. The undertaking was unusual, but even more remarkable was the outcome: measurable success. Brazil has in the past decade moved people out of poverty on an unprecedented scale – the standard of living improved so much for 22 million that they are no longer considered “poor.” Millions more living on the knife-edge of starvation in drought-ridden expanses of the interior are still poor but vastly better off. Between 2003 and 2009, incomes of the poorest Brazilians grew seven times those of rich citizens. And how did Brazil help? It gave its poorest citizens money. It’s an idea that was once anathema to development experts and economists, and which is still deeply unpopular in many quarters – witness the hostility to “welfare moms” in the developed world. But the effectiveness of giving money to poor people to make them less poor is supported by mounting evidence as a smart way to address poverty. Sixty-three countries have sent experts here to learn about the Bolsa Familia – the family grant. Brazil’s is not the biggest anti-poverty program in the world – it is dwarfed by several in South Asia, such as India’s $70-billion guaranteed-income-for-work scheme, for example. And it is not the only one to use cash transfers, which are done on a moderate scale in India, on a larger one in South Africa, and which exist in some form in dozens of developing countries today, run either by the state or by private aid organizations. What makes Brazil’s program stand out is the rock-solid evidence of the many ways this program has served to remake, dramatically, the lives of millions of people over the past decade.

World-Wide Factory Activity, by Country - Much of the world’s factory sector was expanding in December, slowing just a bit from the previous month. Purchasing Managers Indexes, in which readings above 50 signal expansion, showed activity expanding in the U.S., China and across Asia. The U.K.’s PMI was above 50, as was the overall number for the euro zone. However, factories in France moved further into contractionary territory.

IMF paper warns of ‘savings tax’ and mass write-offs as West’s debt hits 200-year high - Much of the Western world will require defaults, a savings tax and higher inflation to clear the way for recovery as debt levels reach a 200-year high, according to a new report by the International Monetary Fund. The IMF working paper said debt burdens in developed nations have become extreme by any historical measure and will require a wave of haircuts, either negotiated 1930s-style write-offs or the standard mix of measures used by the IMF in its “toolkit” for emerging market blow-ups. “The size of the problem suggests that restructurings will be needed, for example, in the periphery of Europe, far beyond anything discussed in public to this point,” said the paper, by Harvard professors Carmen Reinhart and Kenneth Rogoff. The paper said policy elites in the West are still clinging to the illusion that rich countries are different from poorer regions and can therefore chip away at their debts with a blend of austerity cuts, growth, and tinkering (“forbearance”). The presumption is that advanced economies “do not resort to such gimmicks” such as debt restructuring and repression, which would “give up hard-earned credibility” and throw the economy into a “vicious circle”.

1930s-style debt defaults likely, says IMF research - Many advanced economies are likely to require financial repression, outright debt restructuring, higher inflation and a variety of capital controls, a new research paper commissioned by the International Monetary Fund (IMF) has warned. The magnitude of today's debt in Western economies will mean fiscal austerity will not be sufficient, Harvard economists Carmen Reinhart and Kenneth Rogoff said in the report, as policymakers continue to underestimate the depth and duration of the downturn. "It is clear that governments should be careful in their assumption that growth alone will be able to end the crisis. Instead, today's advanced country governments may have to look increasingly to the approaches that have long been associated with emerging markets, and that advanced countries themselves once practiced not so long ago," they said. Delving into the realms of history, they detail the widespread default by both advanced and emerging European nations on World War I debts to the United States during the 1930s. The research suggests that "collective amnesia" of this history has led to current policies that in some cases risk exacerbating the final costs of deleveraging.

When it comes to current account imbalances, one nation stands out - Over the past few decades there has been a great deal of focus on the large trade imbalance between the US and Asia - first with Japan and more recently with China. While that is still an issue, we may be facing a new imbalance that is starting to grab the attention of politicians, economists, and the markets. The chart below shows the current account balance as a percentage of each nation's GDP. And one nation clearly stands out - Germany.  According to Merrill Lynch the massive German current account surplus will manifest itself in two major ways:
1. It is bound to generate friction within the Eurozone, particularly as German assets appreciate, while the periphery is experiencing deflationary pressures. Merrill: It should not be easy to achieve a balance between Germany with its growing current account surplus and where real-estate prices have started turning up [see Twitter chart from the ECB], and the periphery countries that are facing disinflation despite having somewhat reduced their current account deficits as a tradeoff for low growth. Whether it happens in 2014 or not, eurozone fiscal policy discussions will be necessary at some point, though politically difficult. Eurozone financial issues could still destabilize global financial markets at some point in the future.
2. This imbalance is likely to have an impact on the currency markets, particularly with respect to the yen. Merrill: While Germany’s current account surplus has expanded, it is Japan’s current account that has deteriorated sharply. Comparing Japan’s balance of trade in 2010 and 2013 (Jan- Nov for both years), reveals that it has fallen by ¥16.1tn (3.2% of GDP). Around half (¥7.5tn) of this is in non-energy trade. Of that ¥7.5tn, more than ¥2tn is due to trade with the EU, and the rest is versus Asia. Japan is expected to post a ¥11-12tn (1.2- 1.4% of GDP) trade deficit for 2013. Although its income balance will keep the current account positive, the surplus will likely be less than 1% of GDP.

Germany Abandons Inflation Angst With Merkel Offering New Agenda - Ninety years after a generation’s savings were wiped out, the German preoccupation with inflation is giving way. A Hamburg University study published by the Bundesbank shows that any anxiety that inflation will erode savings is concentrated among senior citizens, the unemployed and those on lower incomes. The majority surveyed anticipate inflation at about 2 percent in the coming 12 months.  Polls now reveal that inflation concerns have been supplanted by the consequences of deleveraging from the euro area’s debt crisis. A growing number of young people don’t even know what the word “inflation” means, according to the BdB banking lobby in Berlin. Diminishing inflation angst is evidence of an increasing German normalization almost 70 years after World War II. It’s a trend that has accelerated under Angela Merkel’s chancellorship as she oversaw the country’s ascendancy to the fore of European policy making during the debt crisis. Removing the prime driving force dictating German postwar economic policy might let Merkel look beyond a focus on price stability after her Sept. 22 election victory with the widest margin since reunification. Germany may also exert less anti-inflation pressure on the European Central Bank and be more generous to fellow Europeans.

German Food Banks and Soup Kitchens Struggle with Demand - Spiegel - Food banks and soup kitchens in many German cities are having trouble keeping up with growing demand. Some are now abandoning their free food models in their effirts to continue helping the needy. Würges and many other representatives of 917 other food banks and soup kitchens in Germany share the same fear over their future. Across the country, food pantry workers, most of them volunteers, are sounding the alarm that charitable donations are no longer enough to pay for storage space, delivery trucks and rents. Some are also having trouble stocking enough food to satisfy demand. In Hamburg, for example, food banks have been forced to turn some people away in recent weeks. Pantry volunteers and employees blame the plight on the fact that increasingly more people have come to depend on free meals. They also say that people have become less inhibited when it comes to publicly admitting to poverty and having to rely on charity. But the growing demand for food-pantry services is only part of the story. The charity movement has also made mistakes that would force a seasoned business enterprise to its knees: growing too fast and turning away from its core business.In some places, charitable organizations have expanded their services and taken on some of the responsibilities of the social welfare state. In addition to offering free meals, some now provide training programs to help welfare recipients improve their job-seeking skills, cooking classes and childcare for single mothers.

Cesspool Of Greek-German Corruption - Wolf Richter - Apparently, it has been impossible to sell Greece any weapons at all, not even a water pistol, without bribing officials at the Defense Ministry. Corruption is so pandemic that Transparency International awarded Greece once again the dubious honor of being the most corrupt country in the EU. For 2013, Greece ended up in 80th place of the 177 countries in the survey, same as China. But it takes two to tango. And in holier-than-thou Germany, where exporting at any price is a state religion (with chart) regardless of who runs the show, the defense industry was allegedly eager to dance with Greece – supplying tanks, submarines, and other equipment that broke Greece didn’t need and couldn’t afford and that pushed it deeper into the hole. Now there’s a confession. After four days of grilling, investigating magistrates in Athens extracted it from Antonios Kantas, General Secretary for Procurement at the Defense Ministry between 1996 and 2002. He’d been arrested in mid-December after authorities found nearly €14 million in various accounts. In his 30-page testimony, elements of which have been leaked, he admitted having pocketed €15 million in bribes since 1989 – just this one guy! But it was a community effort that stretched across party lines. He named names, euros, and dollars, implicating 17 Greek politicians and businessmen. They include former head of procurement Yiannis Sbokos, former Defense Minister Akis Tsochatzopoulos – who, along with Sbokos, has already been condemned to years in the hoosegow for laundering the kickbacks he’d received in various arms deals – and his worthy successor, former Defense Minister Yiannos Papantoniou. And Kantas named the coddled weapons manufacturers in Germany.

France’s Hollande Gets Court Approval for 75% Millionaire Tax -- French President Francois Hollande received approval from the country’s constitutional court to proceed with his plan to tax salaries above 1 million euros at 75 percent for this year and next. Under Hollande’s proposal, companies will have to pay a 50 percent duty on wages above 1 million euros ($1.4 million). In combination with other taxes and social charges, the rate will amount to 75 percent of salaries above the threshold, the court wrote in a decision published today. “The companies that pay out remuneration above 1 million euros will, as expected, be called upon for an effort of solidarity on remuneration paid in 2013 and 2014,” the Economy Ministry said in an e-mailed statement. Hollande, who once said he “didn’t like” the rich, announced the 75 percent tax in February 2012 as part of his presidential campaign to appeal to his Socialist base. It has become a symbol of his government’s record-high taxation rate. A first proposal to put the change into law was turned down by the constitutional court in December last year because the tax applied to individuals and not households. Hollande revived the plan this year, making it apply to salaries and be paid by employers rather than individuals. The total amount is limited to 5 percent of a company’s revenue.

France's 75% 'millionaire tax' to become law - France's controversial "millionaire tax" is set to become law, allowing the government to levy a 75% tax on companies that pay salaries in excess of €1 million.  The tax was approved by France's constitutional council on Sunday after an earlier version was deemed unconstitutional last year. President François Hollande introduced the tax as a way to force the rich to help France shrink its massive budget deficit and support the sagging economy. It had originally been created as a tax on individuals, but was eventually shifted to a tax on companies paying high annual salaries. According to the constitutional council, employers must pay the levy on salaries exceeding €1 million ($1.4 million) a year. The tax will apply for two years -- 2013 and 2014 -- and will not be allowed to surpass 5% of a company's annual revenue.  Hollande has said the new tax is "symbolic" and designed to make a political statement about economic fairness. The tax is not ultimately expected to be a big money-maker, with the French government estimating the tax will affect roughly 470 companies.

France's 'Culture Tax' Could Hit YouTube and Facebook - Should YouTube subsidize le cinéma français? France’s audiovisual regulator thinks so. In a report this week, the Superior Audiovisual Council (CSA) says that video-sharing websites should be subject to a tax that helps finance the production of French films and TV shows. The so-called culture tax, totaling more than €1.3 billion ($1.8 billion) annually, is paid by movie theaters, broadcasters, and Internet service providers in France. The CSA contends that YouTube (GOOG), French video-sharing site DailyMotion, and their ilk are effectively providing video-on-demand services, which are already subject to the tax. Separately, France is considering a tax on smartphones, tablets, and other devices as another source of revenue for cultural subsidies. A government-commissioned report, released in May, said that a sales tax of 1 percent should be imposed on electronic devices capable of accessing movies, music, and other content. The proposed tax would raise an estimated €86 million annually that would be used to finance the “cultural industries’ digital transition,” France’s Culture Ministry said at the time.

All quiet on the southern front -After a wild ride in 2011-2012, interest rates have settled down on European sovereign debt. For now. Greek yields fell sharply following the PSI agreement in March 2012, a de facto default that ended up reducing the value of Greek's debt by 20%. But as a result of ongoing deficits and plunging GDP, the ratio of debt to GDP for Greece is now almost back up to where it was in at the end of 2011. In the mean time, debt/GDP has continued its uninterrupted climb for Portugal, Ireland, Italy, and Spain.. On the other hand, these countries have seen sharp improvements in their current account, having gone in a very short period from large deficits to outright surpluses. Unfortunately, this seems not so much due to currency depreciation or wage and price adjustments restoring competitiveness as it has to the collapse in aggregate spending (on both home and foreign goods) associated with the sharp economic downturns in these countries. Still, the improved current accounts mean less borrowing from abroad and reduced vulnerability to shifting moods of international credit markets. My recent paper identified the debt-to-GDP ratio and current-account deficits as two key factors that influence a country's vulnerability to sudden spikes in borrowing cost. One distinctive feature we found in the data was a strong nonlinear interaction between the current-account deficit and debt loads. Our paper used a 5-year average of the current-account/GDP ratio as the variable that interacts with the current debt load to predict the interest rate on a country's long-term sovereign debt. I was curious to see what our estimates would imply if we assumed that the recent improvements in the current account turn out to be permanent.

Is Europe Recovering Yet? - (8 graphs) Something that doesn't seem to have been in the news much of late is the state of the European economy.  I was curious to catch up on this, so here is a short graphical summary of the latest official data (from Eurostat).  The data in most graphs start at the beginning of 2005 or last quarter of 2004 - so they show decent growth for the first year or two, then the onset of the great recession in late 2007 and 2008, then the partial recovery of 2009/2010, which ended in a second decline in 2011. Here, first, is Europe-wide industrial production, which shows a very weak recovery in 2013, though most of the very slight gain was lost in the last couple of months of data.Retail trade has a very similar pattern: Here is real GDP growth, quarter-over-quarter, with the US for comparison: Q2 and Q3 of 2013 were the first clearly positive quarters in quite a while, but growth was still extremely weak, and in particular much weaker than in the US, which has not incurred a double-dip recession in the same way (though growth has not been exuberant there either). Next is the unemployment rate: European unemployment has stopped getting worse in 2013, but has not really started to go down on a continent-wide basis. If we look particularly at the "PIIGS" countries that were at the epicenter of the sovereign finance crisis of 2010-2012, we can see their unemployment rates as follows: Ireland and Portugal have clearly improved in 2013. Greece and Spain have stabilized (at terribly high levels) but not started to improve, and Italy continues to worsen apace. However, it's worth taking note of this Jim Hamilton piece pointing out that the debt of PIIGS countries is not stabilizing yet, and at least some of the countries will need to default again: Despite this, central bank guarantees are keeping sovereign interest rates moderate. Overall, it seems that the European economy has stopped getting worse in 2013, but the "recovery" is so weak and patchy as to barely justify the name.

ECB modestly successful in tempering eurozone rates divergence - European Central Bank action has had only modest success in easing big differences in interest rates paid by businesses across the eurozone, which remain near peaks seen at the height of the region’s debt crisis. Companies in the eurozone’s weakest economies still face significantly higher borrowing costs than rivals in countries such as Germany, according to a cross-market analysis by Goldman Sachs. The extent of the divergence has fallen since a peak in May 2013 but is higher than in mid-2011. The degree of fragmentation will disappoint the ECB and fuel its concern about constraints on private-sector credit flows to the eurozone “periphery” economies. Mario Draghi, president, warned earlier in December that it was “essential that the fragmentation of euro area credit markets declines further”. The ECB has slashed official interest rates and Mr Draghi has pledged to prevent a eurozone break-up, moves which have pushed yields on the government debt of peripheral countries sharply lower. But the effects have failed to feed through into interest rates charged by banks in countries such as Spain or Italy. “We have turned an important corner in Europe and the acute, financial phase of the crisis is behind us. But the process of healing financial markets . . . is slow and hesitant,” said Huw Pill, European economist at Goldman Sachs, who was previously a senior monetary policy official at the ECB. If severe fragmentation became a long-term feature of the eurozone, it could cast doubt on whether a single monetary policy was workable, Mr Pill warned. “If we have to live with the current level of fragmentation, the viability of monetary union will eventually be called into question.”

The State of the Euro, In One Graph - Krugman: What you see here is that borrowing costs for the troubled euro countries have dropped a lot. But it’s not because austerity policies have brought their debt under control — debt ratios are still rising, in large part because of shrinking economies and deflation. Instead, there has been a dramatic flattening of the relationship between debt and interest rates. Why has this happened? The timing strongly suggests that it’s mainly the Draghi effect — that the ECB’s signal that it will, in a pinch, act as sovereign lender of last resort has removed much of the fear of self-fulfilling liquidity panics. It’s possible that there has also been some reduction in the political risk premium, because European nations are proving amazingly determined to stay on the euro at almost any cost. So is the euro crisis over? No — it’s not over until the debt dynamics sing, or perhaps until the debt dynamics sing a duet with internal devaluation. We have yet to see any of the crisis countries reach a point where falling relative wages are generating a clear export-led recovery, or in which austerity is actually paying off in falling debt burdens. But as a europessimist, I do have to admit that it’s now possible to see how this could work. The cost — economic, human, and political — will be huge. And the whole thing could still break down. But the ECB’s willingness to step up and do its job has given Europe some breathing room.

Austerity and the Euro in Two Graphs: A Reply to Paul Krugman - Paul Krugman started the New Year yesterday with a zingy little post in his New York Times blog titled “The State of the Euro in One Graph”. Here is the graph . . . and here is the text that accompanies it: What you see here is that borrowing costs for the troubled euro countries have dropped a lot. But it’s not because austerity policies have brought their debt under control — debt ratios are still rising, in large part because of shrinking economies and deflation. Instead, there has been a dramatic flattening of the relationship between debt and interest rates. Oops. I see two problems here.

  1. If “shrinking economies” are distorting fiscal policy indicators that are stated in relation to current GDP (and they are), shouldn’t his graph measure the debt ratio relative to potential GDP, not current GDP?
  2. Since when is the debt ratio the proper measure of austerity policy? Austerity, which we used to call fiscal consolidation, means reduction of the deficit, not the debt. The debt ratio is too strongly influenced not only by the state of the economy, but by past fiscal history, to be a good measure of year-to-year changes in the policy stance.  The chart is further muddled because debt dynamics are strongly influence by interest rates, the variable on the vertical axis.

Let me suggest an alternative graph that better illustrates the relationship between changes in fiscal policy and changes in interest rates. This version has the 10-year government bond rate on the vertical axis (I think that is what Krugman uses, although he doesn’t say so) and the underlying primary balance (UPB) on the horizontal axis. The latter is an indicator favored by the OECD that is similar to what we more commonly call the primary structural balance (PSB).  The UPB differs from the PSB in that it also corrects for one-off budget measures like tax amnesties and privatizations, factors that are important for some of the European crisis countries.

Eurozone Manufacturing Expands Except in France and Greece; Hollande Concedes Taxes 'Too Heavy' Offending Everyone -- Eurozone manufacturing is at a 31-month high according to Markit. Every country but France and Greece are expanding. French manufacturing is at a seven-month low in an intensified downturn.  The seasonally adjusted Markit Eurozone Manufacturing PMI® rose for the third month running to post 52.7 in December, up from 51.6 in November (and unchanged from the earlier flash estimate).   The latest improvement in overall operating conditions was underpinned by solid and accelerated growth in the Netherlands, Germany, Ireland and Italy, while Austria continued to expand at a robust clip despite the rate of increase easing slightly since November. Meanwhile the Spanish PMI moved back into expansion territory. There was even relatively positive news from Greece, where higher levels of output and new orders elevated its PMI to a 52-month high and close to the 50.0 stabilisation point. France moved in the opposite direction, however, with its PMI falling to a seven - month low and signalling contraction for the twenty-second successive month.  "While Germany, Italy and Spain are seeing the strongest output growth since early - 2011, buoyed to varying degrees by improved export sales, France is seeing a steepening downturn, in part the result of widening export losses. This suggest s that competitiveness is a key issue which the French manufacturing sector needs to address to catch up with its peers."

Euro area's persistent credit contraction - In spite of a number of positive economic indicators out of the Eurozone (see example), credit growth remains the area's Achilles' heel. The latest private sector loan growth aggregate from the ECB shows an annual decline of 1.8% (adjusted for sales and securitization - see press release). Here is what it looks like for households and corporations. As a result the broad money supply growth has weakened as well, now well below long-term historical averages. Euro area M3 aggregate (source: ECB) Related to this weakness in credit growth, the area's disinflationary pressures do not seem to be abating, with the latest CPI aggregate below 1%. In Spain for example consumer prices have been basically flat for the past two years. Euro area CPI (source: ECB) With credit contraction remaining one of the key risks to the fragile economic expansion and inflation running below 1%, many economists are calling for the ECB to take further action (discussed here). ISI Research: - Eurozone growth is still very slow, and inflation is MIA, so nominal GDP growth is minuscule. ECB could and should do more. But given the historical lack of urgency at the ECB (particularly with the usual resistance from the Bundesbank), it may take some time for the central bank to "adjust" its policy.

Poverty in Italy hits record levels - Poverty in Italy has reached its highest level in at least 16 years as the economic crisis has bitten, driving up unemployment and cutting wages, according to a report on social cohesion issued on Monday.Relative poverty, defined as a family of two living on a monthly income of 991 euros ($1,400) or less, affected 12.7 percent of families, the highest level recorded since the current series of data began in 1997, the report by statistics agency ISTAT said. The report, a compendium of data on issues ranging from employment to demographics, said poverty had deepened in all areas of Italy between 2011 and 2012. Relative poverty rose from 4.9 percent to 6.2 percent in the richer north and from 23.3 percent to 26.2 percent in the poorer south. The report painted a grim picture of the impact of the country's worst postwar recession, with joblessness at record levels, incomes squeezed and permanent, full-time employment declining.

Poverty In Italy Rises To All Time High - As Italy's ISTAT reported yesterday, poverty in Italy has reached its highest level in at least 16 years "as the economic crisis has bitten, driving up unemployment and cutting wages, according to a report on social cohesion issued on Monday. Relative poverty, defined as a family of two living on a monthly income of 991 euros (847.61 pounds) or less, affected 12.7 percent of families, the highest level recorded since the current series of data began in 1997, the report by statistics agency ISTAT said." The report, a compendium of data on issues ranging from employment to demographics, said poverty had deepened in all areas of Italy between 2011 and 2012. Relative poverty rose from 4.9 percent to 6.2 percent in the richer north and from 23.3 percent to 26.2 percent in the poorer south.

Greece waste: Mounds of filth on an island paradise - A putrid mix of stale waste and methane engulfing the air - that is the stench that hits you as you approach the Fyli landfill just outside Athens. Six thousand tonnes of rubbish arrive here every day from the capital and neighbouring regions. As trucks unload what they have collected that day, thousands of seagulls swirl above, ready to dart down on to the stinking pile. But there are other scavengers too - local Roma, who wade through the mountain of waste to pick out what they need. Most is covered by gravel and then buried into a growing mound. But it is a ticking time bomb - Greece's largest landfill site is almost 90% full and has a year left until it is totally saturated. The country's economy may be rotten but other problems are piling up too - and waste management is among the most serious. Greece buries 80% of its rubbish - over twice the EU average. At Fyli, there is a recycling plant but it only deals with a sixth of the waste that arrives here. Metal is removed for reuse, food is made into compost and some other items are converted into alternative fuel, mainly for the cement industry. But recycling is still in its infancy here.

Greek Economic Crisis Leads to Air Pollution Crisis -— In the midst of a winter cold snap, a study from researchers in the United States and Greece reveals an overlooked side effect of economic crisis -- dangerous air quality caused by burning cheaper fuel for warmth. The researchers show that the concentration of fine air particles in one of Greece's economically hardest hit areas has risen 30 percent since the financial crisis began, leading to potential long-term health effects. These fine particles -- measuring less than 2.5 microns in diameter (approximately 1/30th the diameter of a human hair) -- are especially dangerous because they can lodge deep into the tissue of lungs, according to the EPA.  "The problem is economic hardship has compelled residents to burn low quality fuel, such as wood and waste materials, that pollutes the air." Unemployment in Greece climbed above 27 percent in 2013. Meanwhile, heating oil prices have nearly tripled in Greece during the Greek financial crisis of the last few years -- driven in part by a fuel tax hike. Cold Greeks, it would appear (according to the air quality), have turned to wood as a major fuel source.

Toxic Smoke Cloud Engulfs Greece; Six Years of Relentless Recession; Horrific Statistics - Please consider a mass of grim statistics regarding Greece, via translation from the El Pais article: Ruined Greece takes the helm of the EU in the first half of 2014On January 1, Greece assumes the rotating presidency of the European Union in a state close to suffocation, not only via austerity adjustments since 2010, but also literally, by a toxic cloud fueled by wood fires that replace conventional heating. The beret dense smog that grips these days Athens or Thessaloniki is also a metaphor for the political gridlock: the government insists on not lowering the tax on heating oil to intractable limits for broad social layers, but a group of 41 deputies of the conservative New Democracy (ND), rector of the bipartite Executive, has unsuccessfully raised a parliamentary motion to reduce it. An authentic rebellion aboard the party of Prime Minister Andonis Samaras. ND and Pasok socialist now number just 152 seats in a House of 300, and the rebel MPs representing about one-third in the ranks of ND. Horrific Statistics:

  • A 27.4% unemployment (nearly 52% among those under 24 years)
  • 3.8 million Greeks living in poverty or social exclusion in 2012 (400,000 more than the previous year)
  • 350,000 households without electricity for non-payment bills
  • 30% of the population have no access to public health care
  • Virtual paralysis of the universities, which since September run almost unattended by the dismissal of officials
  • Three killed by asphyxiation because of home fires for warmth
  • Four out of five blocks of flats facing the winter without heating due to inability to afford it
  • 21 continuous quarters recession
  • 34.6% of the Greek population at risk of poverty or social exclusion

UK Flooding: another austerity Christmas present - The big news in the UK over the Christmas period has been flooding caused by heavy rain. The Prime Minister naturally toured some of the worst affected areas, but the reaction he got was not what he might have hoped in terms of media coverage. Was this hostility fair? Here are some facts. (Source (pdf): Flood defences in England, House of Commons Library) Until 2010, flood defence spending by the government had been steadily increasing: between 1997 and 2010 spending increased by 75% in real terms. There are good reasons why spending should be increasing. One is that climate change is likely to substantially increase the chances of periods of severe rainfall. Flood damage currently costs over £1 billion a year, but the Environment Agency has estimated this figure could rise to £27 billion by 2080. When the current government came to power, their 2010 comprehensive spending review reduced spending by 20% in real terms, according to the Committee on Climate Change. Following floods in 2012 the government provided a small amount of additional money - shown in purple on the chart. So instead of continuing to raise spending to deal with a growing threat, the government cut back spending as part of their austerity programme.

RBS leaves taxpayers £14.5bn out of pocket five years on from bailout - Taxpayers end 2013 with a £14.5bn loss from their stake in Royal Bank of Scotland, five years after the Edinburgh-based bank received a record-breaking government bailout. While shares in the bank are languishing below the 502p average price at which 82% taxpayers' stake was bought, there is a £1bn profit – on paper at least – for their share in Lloyds Banking Group at the end of 2013. In its last stock exchange announcement of the year, RBS also revealed that it had handed its new chief executive, Ross McEwan, 454,106 shares - worth £1.5m - under the terms of his recruitment package from Commonwealth Bank of Australia in 2012. The New Zealander, who took over from Stephen Hester on 1 October after a year running the retail bank, immediately sold £700,000 of them to meet his tax bill.  RBS shares ended at 338p – above the 324p at which they started 2013 – while Lloyds ended at 78.8p – well above the 47.9p at which they began the year and higher than the 73.6p at which taxpayers break even on their stake. The government began to sell off part of its stake in Lloyds during 2013 and in 2014 is expected to take further opportunities to reduce its 32% holding, including through a retail offering.

The UK Coalition’s fiscal ‘mission accomplished’ twaddle - George Osborne and fellow Conservatives are attempting – seemingly with success – to run the argument that the fact that the economy is now growing quickly proves that their austerity policy was the right one.  The message gets pumped out by the Tory Party, and everyone that wishes them well.  For example, I subscribe to tweets from an old Bank of England colleague Tim Montgomerie, now Times columnist and influential thinker on the right, and this is one of his staple retweets.  Although the silliness has been countered already by others, it seems appropriate to fight repetitive twaddle with repetition.  And while I’m at it, it’s worth recapping on the multiple mistakes made since the Coalition took over. Modern macro theory suggests that economies will eventually return to growth unless governments kept contracting fiscal policy.  The Coalition’s plan involved a slow reduction in fiscal drag.  This reduction in drag has contributed to the return to growth.  That growth proves nothing about what the ideal path of fiscal policy was beforehand.  It does disprove any claim that austerity would lead with certainty to a vicious cycle of ever higher deficits and ever greater recession.  But no-one ever made such a claim.  Some of Ed Balls’ interventions alluded to there being a risk of such a vicious cycle.  This was understandable, because arguably that’s what the Euro peripheral countries are going through.  But that this was a risk then is not disproved by it not materializing later.  Even my six year old boy understands that just because he threw a double six in a game of Snakes and Ladders doesn’t disprove that there was a risk he could have got a double one.  By taking this tactic, Osborne presumes and then exploits the public’s lack of understanding about risk and uncertainty. 

No comments: