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

Saturday, February 15, 2014

week ending Feb 15

Fed's Balance Sheet 12 February 2014: Marginal Growth Again - Fed’s Balance Sheet grew to a record $4.076 trillion (up from the last week’s record $4.066 trillion). The complete balance sheet data and graphical breakdown of the cumulative and weekly changes follows here...

FRB: H.4.1 Release--Factors Affecting Reserve Balances--February 13, 2014: Federal Reserve statistical release - Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed’s Forward Guidance Is Working - WSJ - The Federal Reserve has been drawing derision lately for its “forward guidance” — its vow to keep short-term interest rates very low until the job market gets a lot better. But this criticism comes when forward guidance finally seems to be working. Fed policymakers (according to their published forecasts) and financial markets (according to trading in futures markets) both expect the Fed to keep short-term rates near zero well into 2015. One tool the Fed used the economy a boost was to buy trillions of dollars of Treasury bonds and mortgages (“quantitative easing”). That amounted to pushing down longer-term rates with brute force. The other was to pledge to keep short-term interest rates low for a long time. That was an attempt at persuasion; the bond market sets long-term rates in part based on its view of future short-term rates. It said then that it wouldn’t raise short-term interest rates until joblessness fell at least to that level. Unemployment has now fallen to 6.6%. The Fed hasn’t said it would raise short-term rates when unemployment hits 6.5%. In fact, it said otherwise. In its December statement — in language new Fed Chairwoman Janet Yellen is likely to reiterate in her testimony Tuesday and Thursday — the Fed’s policymaking Federal Open Market Committee said it expects short-term rates to be very low “well past the time that the unemployment rate declines below 6-1/2 percent,” especially if projected inflation continues to run below the Committee’s 2 % longer-run goal.

Unemployment and Unnecessary U-turns in Forward Guidance - Friday’s jobs report showed the US unemployment rate falling to 6.6% in January. This is within a whisker of the 6 ½ % threshold that the Fed had announced at the end of 2012: It had said that it planned on keeping monetary policy easy at least until the unemployment rate had fallen below that level. But the central bank is nowhere near ready to raise interest rates, and so has had to back away from that particular “forward guidance.” The FOMC said on December 18 that it now expects to keep interest rates low well past the time that the 6 ½ % mark is reached.  Even though the Fed had always said that the unemployment threshold was a necessary but not sufficient condition for tightening, some critics believe that this shift in emphasis is a policy “U-turn” that has confused the financial markets. If so, it was avoidable. Janet Yellen is now at the helm of the Fed. She will have to re-think forward guidance and use information other than the unemployment rate. (And other than the inflation rate, which has been part of the guidance all along.)

Full Text of Fed Chair Janet Yellen’s Testimony Today Before House Financial Services Committee -  Janet Yellen, the newly installed Chair of the Federal Reserve Board of Governors, will face her first Congressional grilling as Fed Chair today before the House Financial Services Committee. That Committee is chaired by Jeb Hensarling, a staunch conservative, who has turned the web site for the Committee into a billboard for self promotion and the Koch Party platform for small government, deregulation, and partisan attacks.  Below is the written testimony that Yellen will deliver this morning at 10:00 a.m. before the Committee.

FRB: Testimony--Yellen, Semiannual Monetary Policy Report to the Congress--February 11, 2014: Chair Janet L. Yellen

Fed Watch: Yellen's Debut as Chair - Janet Yellen made her first public comments as Federal Reserve Chair in a grueling, nearly day-long, testimony to the House Financial Services Committee. Her testimony made clear that we should expect a high degree of policy continuity. Indeed, she said so explicitly. The taper is still on, but so too is the expectation of near-zero interest rates into 2015. Data will need to get a lot more interesting in one direction or the other for the Fed to alter from its current path....Her disappointment in the [employment] numbers raises the possibility - albeit not my central case - that another weak number in the February report could prompt a pause. My baseline case, however, is that even if it was weak, it would not effect the March outcome but instead, if repeated again, the outcome of the subsequent meeting. Remember, the Fed wants to end asset purchases. As long as they believe forward guidance is working, they will hesitate to pause the taper....Yellen reiterates the current Evans rule framework for forward guidance, giving no indication that the thresholds are likely to be changed. Jon Hilsenrath at the Wall Street Journal interprets this to mean that when the 6.5% unemployment rate threshold is breached, the Fed will simply switch to qualitative forward guidance. I tend to agree. Bottom Line: Circumstances have not change sufficiently to prompt the Federal Reserve deviate from the current path of policy.

Fed's Yellen Sets a Steady Policy Course -  The Federal Reserve will keep winding down one of its highest-profile easy-money programs unless the economy takes a serious turn for the worse, Janet Yellen said in her inaugural public appearance since becoming the central bank's first chairwoman.  Some recent economic data have been soft, Ms. Yellen noted in her steady-as-she-goes comments before the House Financial Services Committee, but she doesn't want to overreact to that. She promised overall to press ahead with the policies of her predecessor as Fed chief, Ben Bernanke, delivering almost six hours of testimony (including multiple breaks) with little evidence of drama."Let me emphasize," she said, "I expect a great deal of continuity in the [Fed's] approach to monetary policy. I served on the committee as we formulated our current policy strategy and I strongly support that strategy." Ms. Yellen was the Fed's vice chairwoman for more than three years before being sworn in last week as its new leader. From the No. 2 spot she pushed aggressively for the Fed to adopt easy-money policies, including the third round of bond buying launched at the end of 2012, to encourage borrowing, spending, investment and hiring. Her comments left little doubt that her plan—as was Mr. Bernanke's—is to tiptoe away from those policies only gradually as the economy improves.

Yellen Sets a Familiar Direction for the Fed - Janet L. Yellen, the new chairwoman of the Federal Reserve, told a House committee on Tuesday that she strongly supported and planned to continue the policies adopted under her predecessor, Ben S. Bernanke. At the same time, in emphasizing her concern about unemployment — and in agreeing to spend almost six hours answering the committee’s questions — Ms. Yellen also began the delicate process of imposing her own influence on the Fed’s direction.Ms. Yellen made clear that the Fed planned to keep cutting back on its bond buying, which had been a crucial part of its economic stimulus campaign, unless there was a “notable change” in the economy toward a more negative outlook. “I served on the committee as we formulated our current policy strategy, and I strongly support that strategy,” she said.Related Coverage Economix Blog: Yellen’s Testimony to House CommitteeFEB. 11, 2014 interactive Timeline: Yellen’s Path to the PinnacleOCT. 8, 2013 But she described the recovery of the labor market as “far from complete,” and said she retained her longstanding conviction that the Fed had the power to improve the situation. That suggests the Fed may continue to strengthen the mainstay of its campaign, keeping short-term interest rates at extraordinarily low levels.Ms. Yellen’s marathon testimony was a statement in the same vein. As the Fed’s vice chairwoman, she pushed to increase communication with investors and the public, reflecting her view that clear communication enhances the power of monetary policy. Communication, in the form of assurances that the Fed intends to keep rates low, is now the Fed’s primary means of suppressing rates.

Federal Reserve Chair Janet Yellen Sees Tapering, Continuity With Bernanke - Federal Reserve Chair Janet Yellen said Tuesday that the central bank will continue to scale back its stimulus bond-buying program amid the brightening economic recovery. In her first public testimony as Fed chair, eight days after formally taking the reins, Yellen pledged to continue the asset-purchasing program charted by her predecessor Ben Bernanke, designed to shore up the fragile economy as it fought through headwinds created by the 2008 recession. “I believe that I am a sensible central banker,” Yellen told the members of the House Financial Services committee. “These are very unusual times.” Yellen defended the Fed policy known as quantitative easing, arguing it has tamped down long-term interest rates, stimulated growth and boosted employment. “The objective has been to push down longer term interest rates, and I believe we have succeeded in doing that,” she said.

Fed Might Pause Taper if Outlook Worsened Notably, Yellen Says -  The U.S. economic outlook would have to take a distinctive turn for the worse before the Federal Reserve considers halting its ongoing reduction of bond purchases, Chairwoman Janet Yellen said on Tuesday. “I think what would cause the committee to consider a pause is a notable change in the outlook,” Ms. Yellen told lawmakers. Asked about January’s weak employment report, Ms. Yellen emphasized that the Fed would look at the long-term pattern and consider a wide range of indicators. “I was surprised that the jobs reports in December and January, the pace of job creation, was running under what I had anticipated. But we have to be very careful not to jump to conclusions in interpreting what those reports mean,” Ms. Yellen said. Recent bad weather may have been a drag on economic activity, she added, saying it would take some time to get a true sense of the underlying trend. Ms. Yellen said she believes “most of the increase” in unemployment was due to temporary weakness in the business cycle, though probably a small portion has been due to more permanent changes, such as workers who don’t have the skills for which employers are searching.

Yellen and the Labor Market - Paul Krugman - In her first testimony as Fed chair, Janet Yellen said — as we all hoped and expected she would — that she doesn’t believe that the conventional unemployment rate gives a good picture of the amount of labor market slack. She mentioned, in particular, the high level of long-term unemployment and the large number of involuntary part-time workers. Indeed. Here’s a quick and dirty exercise which I’m sure has been done at the Fed and elsewhere. Compare the usually cited unemployment rate (U3) with the broadest definition, U6, a definition that includes discouraged and involuntary part-time workers. Since U6 data begin in 1994, it looks like this: The blue dots are for the period before the Great Recession, the red dots for later observations, and I show the latest month. Historically, U3 and U6 have moved very much together. But currently U6 is higher than you would have expected given the decline in U3; if the pre-GR relationship still held, you wouldn’t expect U6 to be this high unless the narrower definition of unemployment was at 7.5 percent.So which is the right measure, in the sense of giving a better picture of labor market slack? We won’t know that until or unless labor markets get strong enough that wage growth begins to accelerate.  The policy implications are, however, quite clear, because the risks are asymmetric. If the Fed were to tighten soon because it thought we were nearing full employment, and it turned out to be wrong, we would be well on the way to a permanent low-inflation or even deflation trap. If it waits, inflation might tick up a bit before it sees that it has overshot, but since there are good reasons to raise the inflation target anyway, that’s not a scary prospect.

Jobless drop will force Fed to more 'traditional' policy: Bullard (Reuters) - The Federal Reserve will probably have to return to more "traditional" policy-making now that the U.S. jobless rate has fallen to 6.6 percent, so close to the U.S. central bank's existing 6.5-percent threshold for considering an interest-rate rise, a top Fed official said on Wednesday. St. Louis Fed President James Bullard, speaking on a panel at the New York Stock Exchange, said the Fed will have to adjust its so-called forward guidance on monetary policy. He expects the Fed to drop its economic thresholds and have to "make more qualitative judgments" on when to tighten policy. The debate over what to do about the increasingly less relevant thresholds is growing within the central bank. As it stands, the Fed has said it expects not to raise benchmark rates until well after the unemployment rate falls below 6.5 percent, especially if inflation remains below target. Joblessness has fallen to 6.6 percent last month from 7.9 percent a year earlier, a drop Bullard called "dramatic." The thresholds "have done well but we'll have to modify this going forward," Bullard, a centrist U.S. central banker who does not vote on policy this year, said at a European American Chamber of Commerce event. He downplayed the idea of simply lowering the unemployment threshold to 6.0 percent or 5.5 percent, as Narayana Kocherlakota of the Minneapolis Fed has suggested. Instead, Bullard said qualitative guidance on rates is the "natural thing to do" since it is how the Fed will make policy over coming decades, and it would allow the Fed to take into account "all encompassing" measures of the health of the labor market.

Janet Yellen to Emerging Markets: Good Luck - During Janet Yellen’s interminable testimony today before Congress, the Federal Reserve’s new chairman made it clear that the turmoil in certain emerging markets wouldn’t affect the policy decisions of the U.S. central bank. She’s right: Monetary policy is hard enough without having to worry about the spillover effects to other countries that should take care of themselves. The official monetary policy report released earlier today noted that “investors appear to have been differentiating among EMEs based on their economic vulnerabilities.” In other words, if you’re an official in a country with a declining currency and rising interest rates, stop whining about tapering and think about what you did to bring those things on yourself. Here’s the key passage: Those economies that appear relatively more vulnerable according to the index also experienced larger currency depreciations. Moreover, the more vulnerable EMEs have also suffered larger increases in government bond yields since late April (not shown). This evidence is consistent with the view that reducing the extent of economic vulnerabilities is important if EMEs are to become more resilient to external shocks, including those emanating from financial developments in the advanced economies. The chart below illustrates the Fed’s the point:

The Fed’s waning magic in the age of Yellen - Whatever might blindside Janet Yellen, she starts off with a problem that affected none of her predecessors: the Fed has run out of ammunition. Moreover the one remaining weapon the Fed thinks it has – the hocus-pocus of “forward guidance” – is a gun that fires blanks. Given how much emphasis Ms Yellen puts on forward guidance, her first conundrum is plain. A widely forecast year of US take-off is once again in danger of faltering before it happens. US job creation since November has averaged 116,000 a month – well below escape velocity. Manufacturing growth has stalled. And export growth is slowing sharply. Some of this might be seasonal. Last month’s chilling “polar vortex” was hardly a good time for America’s jobseekers to pound the streets. But it is inconsistent with the strong rebound that was expected in 2014. Should the poor numbers persist, Ms Yellen’s first option – to press pause on the Fed’s two-month-old tapering – would be hard to take even if she wanted to. At his final meeting in January, Mr Bernanke wound down quantitative easing by another $10bn to $65bn a month. Ms Yellen, who delivers her first congressional testimony on Tuesday, was right behind him. Last year the Fed confused everybody – and shook the markets – by hinting that tapering was imminent then changing its mind before finally going ahead in December. Another shift would look careless. Besides, Ms Yellen has made it plain that the costs of QE3, in terms of equity market froth, were starting to exceed its benefits. Expect her to continue with the taper.

Fed Taper on ‘Auto-Pilot,’ Economists Say - Most economists surveyed by the Wall Street Journal expected the Federal Reserve to stick to its strategy of scaling back its signature bond-buying program in $10 billion increments at coming policy meetings, and conclude the program by the end of the year. More than 70% of the 46 economists surveyed — not all of whom answered every question — expected the Fed to persist with its slow-and-steady reduction strategy. In December, Fed officials said they would start scaling back their monthly bond purchases by $10 billion, reducing the program to $75 billion, and said in January they would trim them again to $65 billion. They’ve pledged to continue to trim in measured steps, provided the economy lives up to their forecasts — a message newly-installed Fed Chairwoman Janet Yellen underscored to lawmakers Tuesday. She said it would take a “notable change” in the Fed’s outlook for growth, employment or inflation to cause the Fed to pause in winding down the program, which aims to spur spending, hiring and investment by pushing down long-term borrowing rates. Expectations for the program’s end date varied. Slightly less than one-fourth of economists saw the central bank ending bond purchases in October 2014. The next most popular predictions, in order, were December, November and September of this year. Altogether, about 60% of economists see the Fed ending the program in the fourth quarter. The average prediction was that the Fed’s portfolio of bonds and other assets would be worth $4.4 trillion when the bond-buying program ends, up from less than $900 million before the crisis.

Fed, Others Reluctant to Target Price Level -- In principle, it’s a simple concept: True price stability means inflation should remain as close to the central bank’s target for as long as possible. And yet the notion that policy makers should target the level of prices, actively aiming for higher inflation for a time to make up for ground lost during economic downturns, has never taken off among major central banks. That’s the focus of a paper by Canadian economist Steve Ambler, a professor at the Université du Québec à Montréal, entitled “Price-Level Targeting: A Post-Mortem?” “Price-level targeting has convincing advantages, especially as a tool for avoiding the worst consequences of economic downturns,” writes Mr. Ambler, also chair in monetary policy at the C.D. Howe Institute. “In spite of these advantages, and although several central bank policy rates have been at or near their lower bound for prolonged periods since the financial crisis, no central bank has seriously considered adopting price-level targeting except for the Bank of Canada.” At the Federal Reserve, Chairwoman Janet Yellen has repeatedly warned that actively aiming for higher inflation would risk untethering inflation expectations, denting what policy makers see as their hard-earned inflation-fighting credentials. Atlanta Fed Research Director David Altig argued in a blogpost last year that the Fed’s approach, in practice, was not all that different from what a price-level-targeting system might prescribe.“We also believe that the Federal Open Market Committee has effectively implemented the equivalent price-level target outcomes via its flexible inflation-targeting approach over the past 15 to 20 years.”

Fed Taper Too Little Too Late -- While the last 5 years of super easy Fed policy has not generated the economic growth or jobs as hoped for, stock prices have soared and lending standards are beginning to wane. It appears that stock prices are being driven more by valuation expansion than revenue growth, which is unsustainable, and could be indicative of a bubble. Easy policy has incentivized a rotation out of lower yielding securities to fund speculation in higher yielding assets and securities like stocks. There are also indications that commercial and industrial (C&I) loan lending standards are falling as banks desperately struggle for business, which could also be a sign of an impending bubble. These indications seem all too familiar in an environment with a highly accommodative Fed. The question is can the Fed reverse its most accommodative policy in history fast enough to prevent another bubble and subsequent bust? The anticipated Fed plan of reducing Quantitative Easing (QE) purchases at $10 billion increments over the next 7 meetings would not end the purchase program until the December 16-17th, 2014 meeting. At this pace by the time QE is phased out, and the zero interest rate tether is released, it might too late to prevent a third bubble in only 20 years. The Fed has a history of not switching to tighter policy aggressively enough after years of overtly easy policy.

Fed’s Plosser: Taper Process Might Need To Be Quicker - Federal Reserve Bank of Philadelphia President Charles Plosser said Tuesday the central bank may need to be cutting the pace of its asset buying at a faster pace than is currently the case. The official said the Fed’s decision last month to cut the monthly rate of its asset-buying effort to $65 billion, from $75 billion, was a step “in the right direction.” But he added that cutting the buying by $10 billion per month “may prove to be insufficient if the economy continues to play out” according to the Fed’s official forecasts. When it comes to current Fed policy, “the foot is still on the accelerator.  My preference would be that we conclude the purchases sooner rather than later,” the official said.Mr. Plosser’s comments came from the text of a speech prepared for delivery before an audience at the University of Delaware, in Newark, Del. His comments largely repeated remarks given in a speech earlier this month. Mr. Plosser, who is a voting member of the monetary policy setting Federal Open Market Committee this year, has long opposed the central bank’s bond-buying effort. He has said it provides little economic benefit and comes with significant risks, most notably on the inflation front. Mr. Plosser has been arguing to get it completed mainly because the Fed got the outcome it wanted—reduced unemployment.He added, “a case can be made for ending the current asset purchase program sooner to reflect the improvement in the economic outlook and to lessen some of the communications problems we will face with our forward guidance,” in reference to the Fed’s efforts to convey short-term rates will remain low for a long time in the future.

Price Slowdown for Cars, Baby Clothes Raises Fed Concerns - Five years into the U.S. economic expansion, inflation shows little sign of picking up as prices rise more slowly for goods and services from automobiles to medical care, complicating the Federal Reserve’s drive to guide the economy away from the precipice of deflation. The personal consumption expenditures price index, minus food and energy costs, rose 1.2 percent in 2013, matching 2009 as the smallest gain since 1955. Of 27 categories of goods and services in the gauge, 18 showed smaller price increases over the past two years, according to data compiled by Bloomberg. The slowdown has been broad-based, with durable goods such as autos, nondurables like clothing and services including health care all playing a role. Fed policy makers are on guard to keep such disinflation from morphing into outright deflation, a persistent drop in prices that prompts households to delay purchases in anticipation of even lower costs and leads companies to postpone investment and hiring. “There’s a lack of pricing power in most areas of the economy,” “In certain months we see weakness in medical care, and then that passes on to apparel prices in other months. It’s a weakness that never quite fades.”

Who’s Right About Rising Prices: the Public or the Fed? -- If you want to find the place where the public and economics professionals are least in agreement, the inflation outlook is your first stop. Simply put, the American public expects there to be considerably more inflation in the future relative to economists and Federal Reserve officials.  Data released Monday by the New York Fed showed that as of last month, consumers foresee inflation one year ahead at around 3%, well over the weak 1% rate that now prevails. Private sector economists expect something weaker, and the Fed sees weakest price gains of all at 1.5%. The divergence likely owes something to how households form their views. Food and energy prices loom largely for most folks, and in recent years, these volatile prices have generally moved higher, sometime dramatically so. Professional forecasters prefer to look more broadly. That said, much of the Fed’s confidence inflation will move back to its 2% target rests on the current level of consumer expectations. If households are getting it wrong, that could call into question the central bank’s longer run price pressure views.

Rickards: Fed is always surprised because their models are flawed (video interview) “The Fed will say the policy is data dependent — which it is, that’s true — but the data has been coming in weak,” he tells us. Yet $10 billion in additional tapering in March is baked in the pie because that’s the first meeting [Yellen's] chairing…so she’s not going to walk into the room and tear up policy.” But Rickards says come May, June, July and the data comes in weak, look for a pause. “They’ve been making it up for the last five years and they are going to keep making it up.” But Rickards says come May, June, July and the data comes in weak, look for a pause. “They’ve been making it up for the last five years and they are going to keep making it up.”

Jobs, productivity - It’s going to take more than two weak prints to sway the Fed…I see the odds of this expansion cycle being over increasing with each release, as the drivers of H2 continue to fade- housing, cars, income, inventory, and, at least for now, jobs. And the federal deficit- the economy’s ‘allowance’ from Uncle Sam- is no longer enough to offset the demand leakages/unspent income inherent in the institutional structure.  That is, we’re flying without a net.  *note that the household survey was about 1 million jobs short of the payroll survey over the last year and routinely dismissed as an inferior indicator, and the rate of growth remains well below the Nonfarm Payroll report even after today’s release:The jump in productivity is making the rounds. It takes a lot more top line growth to need 200,000 new employees every month with this kind of productivity growth. Could be the ‘extra’ jobs we’ve seen, implying much lower productivity increases, were due to getting ‘over lean’ during the recession, and that ‘deficiency’ may now be behind us.  And note that the lower average job growth as per the household survey has been more in line with productivity over the last year.

Fed’s Bullard Sees 3% GDP Likely for 2014 -- Federal Reserve Bank of St. Louis President James Bullard said Wednesday the U.S. economy is closer to being “normal” again and expressed hope about growth in 2014. “I’m still optimistic about the prospects for this year. I think we can get 3% or better” in terms of gross domestic product growth, Mr. Bullard said. Recent weak data “hasn’t deterred my outlook,” he said, adding he is “suspicious” of the idea that some softness can be attributed to weather-related factors. Mr. Bullard welcomed the rapid drop in the unemployment rate and said that against some fears the declines owe more to prospective workers giving up and exiting the labor force. He said the lower jobless rate–it is now at 6.6%–is “a good sign. It’s good news.” “I think that unemployment is really sending the right signal about the labor market” and the decline in the labor force participation rate is largely a demographic issue that will play out over a long time horizon, he said. Mr. Bullard has been supportive of the slowdown in bond purchasing. But at the same time, he has consistently warned that inflation levels falling short of the Fed’s 2% target are problematic

The Big Four Economic Indicators: Nonfarm Employment - The January monthly Nonfarm Employment increased by 113K, substantially below the general expectation of 185K or more new jobs. For additional discussion of the employment situation, see my latest update here. For a rosier alternative to the latest jobs number, which comes from the BLS's monthly Employment Survey, the Household Survey (a joint effort of the BLS and the Census Bureau) reported a 638K increase in civilian employment age 16 and over, a number that gets trimmed to 616K after the BLS applies its "annual adjustment to the population controls." For an overview of these "odd couple" surveys over the past fifty years, see my commentary here. Growth in Nonfarm Employment has been in frustratingly slow during the economic recovery, but the month-over-month change has been positive since August 2010. Slow growth is always preferable to contraction. The chart and table below illustrate the performance of the Big Four and simple average of the four since the end of the Great Recession. The data points show the percent cumulative percent change from a zero starting point for June 2009. The latest data point is for the 55th month. In addition to the four indicators, I've included an average of the four, which, as we can see, was influenced by the anomaly in the Personal Income tax management strategy at the end of last year with a ripple effect in the opening months of this year.

US GDP Estimates Slashed On Weak Data - Following the release of worse-than-expected retail sales data this morning, market economists are slashing tracking estimates for GDP growth in both the fourth quarter of 2013 and the first quarter of 2014.  "Alongside the weaker-than-expected print in January, downward revisions to core retail sales growth in December (to 0.1% month-over-month from 0.7%) and November (to 0.1% from 0.4%) suggest notably softer growth in Q4 consumption than initially estimated," says Peter Newland, an economist at Barclays.  "This subtracted 0.4 percentage points from our tracking estimate, which now stands at 2.2%, a full percentage point below the first official release."  Table 1 shows how the Barclays economics team's Q4 2013 GDP tracking estimate has fallen in recent days. December U.S. trade data revealed a wider deficit than expected, taking the estimate down to 2.8% from 3.2%. December wholesale inventories growth was below expectations as well, whittling down the estimate by another 0.2 percentage points, and today's retail sales release saw it cut another 0.4 percentage points to 2.2%.  Credit Suisse economists, meanwhile, are reducing Q1 2014 GDP forecasts. "Our Q1 GDP estimate is currently 1.6%, down from our previous estimate of 2.6%," says Credit Suisse chief economist Neal Soss. "The revision reflects recent soft employment and PMI data, bad weather, and lower assumptions for inventory building. This morning’s retail sales figures were also much weaker than expected, and lowered our baseline estimates further."

Goldman Slashes Q4 2013, Q1 2014 GDP Estimates, Expects Only 1.9% Growth In Current Quarter -- It was only two weeks ago when Goldman's Jan Hatzius, as we predicted he would, took a hammer to its GDP forecasts for Q1 GDP upon the shocking realization that Q4 "growth" was all inventory driven. This morning, the hammering resumes as Goldman, in the aftermath of today's disastrous retail sales, not only cut its Q4 2013 GDP forecast from 2.8% to 2.4% (vs the 3.2% initially reported), but slashed its current quarter estimate from 2.3% to 1.9%. As a reminder, this number was 3.0% three weeks ago. Once again, nothing beats an economist forecast to know what the future will not be. From Jan Hatzius: BOTTOM LINE: The January retail sales report was a significant disappointment, compounded by negative back revisions. Adverse weather was likely a substantial contributor to the weaker January figures. Separately, jobless claims were roughly in line with expectations. We reduced our Q1 GDP tracking estimate by four-tenths to 1.9%.

The Sell-Side Starts Its Mass GDP Downgrades - Despite the promise that it's different this time, that this time the growth rebound is "sustainable", that we we have finally reached "escape velocity", the dismal truth - as we noted last night courtesy of Mr Santelli - is that it is anything but different this time. On the back of disappointing retail sales (among others) and likely further weakened by this morning's drop and downward revisions in Industrial Production, the herd of sheep-like sell-side strategists have taken the knife to their hope-filled GDP growth expectations. Of course, this is all weather-related and the hockey-stick will revert to a new normal self-sustaining recovery any day now.

Stagnation by design—economy—Commentary: Joseph Stiglitz - Soon after the global financial crisis erupted in 2008, I warned that unless the right policies were adopted, Japanese-style malaise — slow growth and near-stagnant incomes for years to come — could set in. While leaders on both sides of the Atlantic claimed that they had learned the lessons of Japan, they promptly proceeded to repeat some of the same mistakes. Now, even a key former United States official, the economist Larry Summers, is warning of secular stagnation.  The basic point that I raised a half-decade ago was that, in a fundamental sense, the U.S. economy was sick even before the crisis: It was only an asset-price bubble, created through lax regulation and low interest rates, that had made the economy seem robust. Beneath the surface, numerous problems were festering: growing inequality; an unmet need for structural reform (moving from a manufacturing-based economy to services and adapting to changing global comparative advantages); persistent global imbalances; and a financial system more attuned to speculating than to making investments that would create jobs, increase productivity, and redeploy surpluses to maximize social returns. Policy makers' response to the crisis failed to address these issues; worse, it exacerbated some of them and created new ones — and not just in the U.S. The result has been increased indebtedness in many countries, as the collapse of GDP undermined government revenues. Moreover, underinvestment in both the public and private sector has created a generation of young people who have spent years idle and increasingly alienated at a point in their lives when they should have been honing their skills and increasing their productivity.

Fed’s Fisher Blames Congress for Lower Growth -  Federal Reserve Bank of Dallas President Richard Fisher said Tuesday if the economy isn’t growing more strongly, it’s Congress’s fault. “It is my firm belief that the fault in our economy lies not in monetary policy but in a feckless federal government that simply cannot get its fiscal and regulatory policy geared so as to encourage business to take the copious amount of money we at the Fed have created and put it to work creating jobs and growing our economy,” Mr. Fisher said, in a speech delivered to members of accounting trade group Financial Executives International in Dallas. “Fiscal policy is not only “not an ally of U.S. growth,” it is its enemy,” the official said. Mr. Fisher reiterated the Fed has done a lot to help the economy, and it has expanded the money supply by leaps and bounds. He said the amount of “excess reserves…lying fallow” on the balance sheets of U.S. depository institutions have grown exponentially since the end of 2007. He explained “one is hard pressed to argue that there is much efficacy derived from additional expansion of the Fed’s balance sheet. This is why I’ve been such a strong proponent of dialing back our large-scale asset purchases.” Mr. Fisher said his main worry as a central banker is not inflation but the continued lack of job growth for American middle-income workers. Mr. Fisher, who has been a frequent speaker on economic and monetary policy matters, has long opposed the Fed’s bond-buying stimulus program. He believes that it offers little economic benefit, and has said that excessive Fed liquidity has distorted financial markets.

U.S. budget deficit smaller than expected in January (Reuters) - The United States posted a smaller budget deficit than expected in January, a sign that a stronger economy is helping government coffers through a rise in tax receipts. The federal government ran $10.4 billion into the red last month, the Treasury Department said on Wednesday in a monthly statement. Analysts polled by Reuters expected a budget deficit of $27.5 billion.

The Deficit on the Milk Carton - Paul Krugman -- Has anyone noticed what we’re not talking about? I mean, really not at all? The budget deficit. After all those years when deficit scolds completely dominated the conversation, when Fix the Committee for a Responsible Debt Coalition were, if you listened to the press, the source of all that was good and noble and BowlesSimpsonish, quite suddenly the whole thing has dropped off the agenda. You could say that this reflects the dwindling of the deficit — but that’s old news; anyone doing the math saw this coming quite a while ago. Or you could mention the failure of the often-predicted financial crisis to arrive — but after so many years of being wrong, why should a few months more have caused the deficit scolds to disappear in a puff of smoke? Anyway, it’s quite remarkable. And it’s a good thing — although the price for years of warped discourse and completely wrong priorities has been immense.

GOP Leaders in New Push to Reach Debt Deal -- House Republican leaders tried Monday to build support for raising the federal debt limit by linking it to a reversal of planned cuts in some military pensions, working to overcome vocal opposition from conservatives in hopes of bringing it to a vote Wednesday. The proposal was advanced in closed-door meetings of House Republicans after more than a week of wrangling within the party over how to pass the debt-limit increase without risking an economy-rattling brush with government default. Conservatives complained that the new strategy marked a sharp reversal from past demands that any debt-limit increase be accompanied by spending cuts.  House Speaker John Boehner and his lieutenants prepared to bring the bill to a vote Wednesday, hoping that fear of breaching the debt ceiling will scare up enough Republicans and Democrats to assemble a 218-vote majority for the bill, which would extend the government's borrowing authority through the end of March 2015. But if support falls short, Republicans say they expect their leaders to bring up a simple debt limit increase without amendments. House Democrats have said they want to pass a debt ceiling increase with no policy provisions, but they didn't rule out the GOP proposal on Monday night.

The debt ceiling — yes, again  - Eventually I’m going to do exactly what the other side wants me to do seems like an odd starting point for a negotiation. But the debt ceiling negotiation that matters right now isn’t between Republicans and Democrats, but between the Republican leadership and the Republican won’t-be-leds. In that context, John Boehner’s comments last week — “We do not want to default on our debt, and we’re not going to default on our debt” — established his position ahead of meetings with the Republican tea-party flank and other potentially rebellious members. (By happy coincidence, it is also the sensible position.) The latest news out of Washington is that the leadership currently favours a plan that would tie the debt ceiling increase to a reversal of cuts to military pensions — cuts that were just agreed in the December budget deal, and which received bipartisan criticism. It’s not clear how much support it has among Republicans, and Democrats still seem to prefer a bill that raises the ceiling without conditions. According to the Washington Post, there is “a backstop option that would essentially allow Democrats to approve a debt-limit hike with no strings attached, almost entirely on their own, according to GOP advisers”.

House GOP rolls dice on debt limit -  After a few weeks of vote searching — and a good deal of soul searching — House Republicans say they think their best hope of raising the debt ceiling is to tie it to restoring pension cuts for retired soldiers. But even that might not work.The most recent strategy — unveiled in a private Monday night meeting in the Capitol — is meant to maximize Republican support, while daring Democrats to vote against restoring military benefit cuts. The vote is tentatively scheduled for Wednesday, but top Republicans concede the bill might never make it to the floor — they won’t bring up a bill that won’t pass. Republicans cannot pass it by themselves, and Democrats likely won’t help push it over the edge. Senior Senate sources say it is likely a nonstarter in their chamber — they’ve constantly advocated for a debt-limit hike without extraneous policy provisions. On Monday, the Senate advanced a fix to military cost-of-living adjustments on its own, by a whopping 94-0. There’s not much time to get this all straight. The Treasury Department says the debt limit must be lifted by Feb. 27. Congress gavels out of session Wednesday and does not return until Feb. 25.

Suspending Debt Ceiling Is New Norm - Congress now routinely deals with the debt ceiling the same way a high school principal deals with a troublemaker – suspension. The government can only borrow money up to a certain limit set by Congress, a level known as the debt ceiling. Congress in years past has voted to “raise” the debt ceiling, maybe by $400 billion or $800 billion or so, a level that used to be able to buy the government plenty of time to pay its bills before the measure had to be revisited. The last time the debt ceiling was raised in this manner was in 2011, during the big debt ceiling showdown between the White House and Congress. The debt ceiling was essentially raised (it was done in multiple steps) $2.1 trillion after that vote, a sum that gave Treasury until February 2013 before it said it needed to be raised again. Congress then began a steady process of “suspending” the debt ceiling instead of actually raising it. It suspended the debt ceiling until May 2013, which allowed Treasury to use emergency measures to continue borrowing money until October. Then, in October, Congress “suspended” the debt ceiling until this month. Now, Congress is in the process of “suspending” the debt ceiling until March 2015. Suspending the debt ceiling, as opposed to raising it, accomplishes several things. First, lawmakers can say they didn’t technically “raise” the debt ceiling. This might seem like semantics, but elections are often won or lost on semantics such as these. And second, it creates a more predictable timeframe for when these fiscal battles will take place. In previous years, the next debt ceiling battle depended more on the government’s deficit and less on the fiscal calendar. By “suspending” the debt ceiling until March 2015, Congress is essentially punting their next vote on the matter until sometime in mid-to-late 2015, assuming Treasury will delay the process as long as possible.

House narrowly passes ‘clean’ one-year increase for debt limit (Reuters) – The House of Representatives, by a narrow margin, on Tuesday passed clean legislation raising the government’s borrowing authority for one year in order to avoid a default that was looming at the end of this month. By a vote of 221-201, the House passed the bill, adhering to President Barack Obama’s demand that it have no unrelated conditions attached. With House passage, the bill now goes to the Senate, where debate could begin on Wednesday. Only 28 of the House’s 232 Republicans voted for the measure, leaving Democrats to provide most of the votes for passage.

Fever Breaking? Clean Debt Ceiling Bill Passes House -- Speaker John Boehner brought a clean bill to increase the debt ceiling to the floor of the House tonight, and it passed with mostly Democrat votes. rom the NYTThe vote – 221-201 – relied primarily on Democrats to carry the legislation, the first debt ceiling increase since 2009 that was not attached to other measures. Only 28 Republicans voted yes. But it effectively ended a three-year, Tea Party-fueled era when a series of budget showdowns raised the threat of debt defaults and government shutdowns, rattled economic confidence and brought serious scrutiny from an international community questioning Washington’s ability to govern. I give Speaker Boehner credit for standing up to those who would take an economically dangerous, ideological stand, motivated by narrow self-interest at great risk to the many. Now, is this evidence that the DC fever that’s blocked compromise and fed dysfunction is breaking…that someone’s found the key to unlock the gridlock?  Surely not in any big way, and both this and the recent bipartisan budget deal were born less out of the urge to compromise with the opposition than to avoid hurting your own brand. But the long journey begins with a step in the right direction as this is surely such a step.

The GOP's debt ceiling surrender - Less than three years ago, House Speaker John Boehner boldly demanded “trillions” in spending cuts in exchange for raising the national borrowing limit. “Let me be as clear as I can be,” Boehner told the Economic Club of New York in May 2011. “Without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase.”  But on Tuesday, everything changed.  Boehner violated his own rule by allowing the White House to win a year-long increase of the debt ceiling — with no strings attached. Senate Republican leaders urged their members to allow a quick final vote on Wednesday and drop filibuster attempts to prolong the debate. In a private lunch, Senate Republicans were more concerned about “getting the hell out of town” before an impending snowstorm than digging in on a fight they once relished, according to a GOP senator. And Boehner even privately told conservatives Tuesday they should be relieved because the concession got the “monkey off our backs,” sources said. The sharp shift in tactics within the House and Senate GOP caucuses reflects a hardening realization after three years of partisan brinkmanship over the budget: Fighting over the debt in a crisis-like atmosphere is a political loser.

It's Time to Kill the Debt Limit - For now, the debt limit is off the table as a “negotiating” tool. Yes, Ted Cruz used his position to force a cloture vote—throwing the process into momentary chaos—and yes, conservative activists are outraged at John Boehner for acting responsibly. But, for at least the rest of the year, there’s no chance for the debt ceiling shenanigans—Congress has authorized the president to pay the nation’s bills until 2015. And indeed, if we want to, we could end these confrontations forever with one, simple step—abolishing the debt ceiling.  “But how would we keep government spending in check?” Well, ignoring—for now—the idea there’s some optimal level of spending to which we should hold the federal government, there’s an easy answer: If we don’t want to spend, then we shouldn’t. In other words, we should let Congress do its job. Remember—despite its name—the debt ceiling isn’t a limit on new spending. It’s a limit on the debt we’ll authorize to pay for existing spending. Which doesn’t make any sense. When Congress passes a law, it’s giving a directive to the president: You will implement these programs and do so with the appropriated funds. Implicit in this is the reality that—if the funds aren’t present—the president will borrow them. Otherwise, he can’t follow the directive, placing him on the wrong side of the constitutional order.

CBO deficit projections - The U.S. federal deficit fell from around $1.1 trillion for fiscal year 2012 to under $700 billion for 2013, and is projected by the Congressional Budget Office to be below $500 B by 2015. Although it sounds like continuing improvement, the CBO’s projected path is actually unsustainable.  The first thing to understand is the difference between the federal deficit and the federal debt. The deficit is a flow variable, measured in dollars per year. Specifically, the deficit is the difference between the government’s spending on goods, services, transfers and interest payments over the course of an entire year and the revenues that the government takes in during that year. The $680 B/year U.S. deficit was half as big in 2013 as it had been in 2009. By 2015 the CBO is projecting that the annual deficit will be down to only a third of its 2009 value. By contrast, debt is a stock variable that measures how much money the government owes at a particular point in time. If the deficit is positive, it means that the government spends more over the year than it takes in as revenue. In that case, the government wouldn’t pay back any of the debt it owed at the start of the year, so it would have to roll over that debt and still owe that sum at the end of the year, and in addition would need to issue new debt to cover the deficit during the course of the year. Thus whenever the government is running a deficit (regardless of whether it is a smaller deficit than the year before) the total level of debt is going to be higher at the end of the year than it was at the beginning. The deficit is projected to continue to decrease further in 2014 and 2015, but the debt nonetheless will continue to climb. A growing debt load can be offset by the fact that the U.S. economy should be bigger in 2015 than it is today. The CBO projections released last week expect U.S. real GDP to rise by over 3% a year for each of the next three years. As summarized by the table below, the CBO is a little more optimistic than some other forecasters, but their growth forecasts strike me as quite reasonable.

Obamacare and the Coming Debt Crisis - The Congressional Budget Office released its new economic and budget projections last week, and most of the subsequent commentary has been on the revised estimates of what Obamacare will do to work incentives. In addition, CBO projects that rapid entitlement growth will increasingly burden the federal budget and the American economy. Deficits over the next decade will be $1 trillion higher than previously forecast.CBO notes in the report that the agency now believes Obamacare will lead to the equivalent of 2.5 million full-time workers leaving the labor force by 2024. This finding has sent shock waves through the political system, and rightly so. The electorate is likely to take in this latest bit of bad news about what the law will do the American economy and become even more convinced that the whole Obamacare exercise was a gigantic mistake.  Of course, it is not news that Obamacare creates strong disincentives to work. Even before Obamacare was enacted, federal benefit programs were creating large disincentives to work among low-income households because the benefits get withdrawn as earnings rise. The combination of the earned income tax credit, food stamps, and payroll and income taxes push the effective marginal tax rates for many low income families to rates in the 30 to 50 percent range, depending on the family structure. When Obamacare’s subsidies are added in, the effective marginal tax rates often exceed 50 percent, as Urban Institute economist Eugene Steuerle has noted. When housing vouchers are also included, the effective marginal tax rate can reach a remarkable 80 percent or more.

Does cutting government make it more efficient? - Lots of people seem to think that A) government is very inefficient, and that therefore B) we can make society more efficient by cutting the size of government. But actually, (B) doesn't follow from (A). And in fact, the very thing that makes government inefficient in the first place might make cutting it a bad idea! Why is government inefficient? Because of incentives. Companies generally make hiring and investment decisions based on a marginal cost/marginal benefit calculation (though corporate institutions can of course get in the way of that, and if there are externalities then then is not efficient, etc. etc.). But government makes its decisions based on some other kind of cost-benefit calculation entirely. Sadly, we don't have a good understanding of government decision-making, and this is an area that could use a LOT more research attention than it is getting. So because government doesn't make decisions on a cost/benefit margin, it tends to be inefficient. But because of that, if you take a hacksaw to government, starving it of funds or demanding that it fire workers and close divisions, these firing and closing decisions will not be made on a cost/benefit margin. If you force a corporation to downsize, it will usually lay off the least productive workers first. But if you force a government to downsize, it very well might lay off the most productive workers while retaining the least productive ones! The very thing that makes government inefficient can make cutting government inefficient!

 Why We Have a Debt Problem, Part 23: So, we have eleven aircraft carrier groups. No other country in the world has more than one. Everyone who has looked at the issue has agreed that we could do with fewer than eleven while still achieving our national security goals: Bush/Obama Defense Secretary Robert Gates, Obama Defense Secretary Chuck Hagel, and think tanks on the left and the right.But apparently we can’t retire even one–even though we would save not just the annual operating costs, but most of the $4.7 billion it will cost to refurbish over the next five years. Instead, the Obama Administration has promised the Pentagon that it can simply have more money and not comply with the spending limits set in the 2011 debt ceiling agreement (and modified by Murray-Ryan). Why? Well, legislators from states with Navy bases don’t want to reduce the Navy’s budget. More important, though, few people want to be for a smaller military–even when our military is irrationally large, given our other national priorities (healthcare, education, infrastructure, etc.). Instead of asking whether we need eleven times as many aircraft carriers as any other country, defenders insist that any reduction is a sign of weakness–conveniently overlooking the fact that we used to have fifteen carriers, and the world hasn’t ended.

Insolvency + Tax Season = Good News?  -- After seeing yet another prominent news article grousing about the tax consequences of short sales and other forms of mortgage relief, I thought I'd pass along a discovery I made a few years back that seems to be ignored over and over in the popular press. Bottom line: the "income" from cancellation of debt (e.g., from a mortgage modification) is often NOT taxable to the debtor. Yes, the specific tax exemption for this kind of "income" expired last year.  But there is another, more widely applicable exclusion. IRS Pub. 4681 explains the tax consequences of many kinds of "cancellation of debt (COD) income." The focus is on exclusions for COD income incident to mortgage modifications and formal Title 11 bankruptcy cases, but it also discusses another lesser-known exclusion: the "insolvency" exclusion. If the debtor was balance-sheet insolvent (total debt in excess of FMV of all assets, including secured collateral and seizure-exempt assets) both before and after the cancellation of debt, the ordinary income from the canceled debt is excluded from taxable income to the extent of the insolvency.

The Best Government Money Can Buy -- Those of you who think it is incorrect to attach “Congressional” onto the the end of Military – Industrial – Congressional Complex (MICC) would be well advised to read “Lawmaker holds stock in defense contractor he champions” (by Donovan Slack, USA Today, 8 Feb 2014) to see one reason why I always include the reference to Congress. Some political scientists use the metaphor Iron Triangle as a short hand for describing the structural aspects of this web of influence relationships.  The attached diagram depicts the triangle’s basic features for the MICC.  Note its principle idea: the two mutually-reinforcing circulations: (1) a counter-clockwise circulation of influence peddling fueling (2) a concomitant clockwise circulation of money. Moreover, as the triangle illustrates, the influence peddling and associated money flows to and from the Congressional wing of the MICC, including Petri’s operations, are but two threads in a highly evolved pattern in America’s contemporary political-economic culture. Bear in mind,  the MICC is by no means unique: the same kind of iron triangle is a useful shorthand for thinking about the political economy of Big Pharma, Big Oil, the Banksters, environmental protection businesses, and other large financial or industrial networks.  Our concern today, however, is the MICC.

The Smog of FraudKunstler -  Team Obama pulled a cute one last week nominating Blythe Masters, JP Morgan’s commodity chief, to an advisory committee of the Commodity Futures Trading Commission (CFTC) which supposedly regulates activities on the paper trades in corn, pork bellies, cocoa, coffee, wheat, corn — oh, and gold, too, by the way, in which JP Morgan has been suspected of massive gold (and silver) market manipulations and other misconduct lately.     There was such a Twitter storm over Blythe Masters that she withdrew from consideration for the committee before the day was out.  JP Morgan is one of the specially privileged “primary dealer” banks said to be systemically indispensible to world finance. Supposedly, if one of them is allowed to flop, the whole global matrix of global debt obligations — and, hence, global money — would dissolve in a misty cloud of broken promises. They are primary dealers to their shadow partner, the Federal Reserve, and their main job in that relationship is buying treasury bonds, bills, and notes from the US government and then “selling” them to the Fed (earning commissions on the sales, of course). The Fed, in turn, “lends” billions of dollars at zero interest back to the primary dealers who then park the “borrowed” money in accounts at the Fed at a higher interest rate. This is, of course, money for nothing, and even small interest rate differentials add up to tidy profits when the volumes on deposit are so massive.  At the same time, the banks began the operations of shifting all the janky debt paper, mostly mortgages and derivative instruments (i.e. made-up shit like “CDOs squared”), value unknown, from their vaults to the a vaults of the Federal Reserve, where it resides to this day, rotting away like so much forgotten ground round in the sub-basement of an abandoned warehouse of a bankrupt burger chain.

Suspicious Death of JPMorgan Vice President, Gabriel Magee, Under Investigation in London -  London Police have confirmed that an official investigation is underway into the death of a 39-year old JPMorgan Vice President whose body was found on the 9th floor rooftop of a JPMorgan building in Canary Wharf two weeks ago. The news reports at the time of the incident of Gabriel (Gabe) Magee’s “non suspicious” death by “suicide” resulting from his reported leap from the 33rd level rooftop of JPMorgan’s European headquarters building in London have turned out to be every bit as reliable as CEO Jamie Dimon’s initial response to press reports on the London Whale trading scandal in 2012 as a “tempest in a teapot.” An intense investigation is now underway into the details of exactly how Magee died and why his death was so quickly labeled “non suspicious.” An upcoming Coroner’s inquest will reveal the details of that investigation. It’s becoming clear that when JPMorgan tells us “nothing to see here, move along,” that’s the precise time we need to bring in the blood hounds and law enforcement with the guts to get past this global behemoth’s army of lawyers who have a penchant for taking over investigations and producing their own milquetoast reports of what happened. Jamie Dimon’s so-called “tempest in a teapot” in the London Whale matter morphed into $6.2 billion in bank depositor losses, $1 billion in fines to JPMorgan, 300 pages of scandalous details by the U.S. Senate’s Permanent Subcommittee on Investigations that called into question JPMorgan’s risk controls and the integrity of upper management, and, finally, resulted in criminal charges against two of the men involved. The criminal cases have yet to go to trial. According to numerous sources close to the investigation of Gabriel Magee’s death, almost nothing thus far reported about his death has been accurate.

JPMorgan Vice President’s Death in London Shines a Light on the Bank’s Close Ties to the CIA -- The nonstop crime news swirling around JPMorgan Chase for a solid 18 months has started to feel a little spooky – they do lots of crime but never any time; and with each closed case, a trail of unanswered questions remains in the public’s mind. Just last month, JPMorgan Chase acknowledged that it facilitated the largest Ponzi scheme in history, looking the other way as Bernie Madoff brazenly turned his business bank account at JPMorgan Chase into an unprecedented money laundering operation that would have set off bells, whistles and sirens at any other bank. The U.S. Justice Department allowed JPMorgan to pay $1.7 billion and sign a deferred prosecution agreement, meaning no one goes to jail at JPMorgan — again. The largest question that no one can or will answer is how the compliance, legal and anti-money laundering personnel at JPMorgan ignored for years hundreds of transfers and billions of dollars in round trip maneuvers between Madoff and the account of Norman Levy. Even one such maneuver should set off an investigation. Then there was the report done by the U.S. Senate’s Permanent Subcommittee on Investigations of the London Whale episode which left the public in the dark about just what JPMorgan was doing with stock trading in its Chief Investment Office in London, redacting all information in the 300-page report that related to that topic. One reason that JPMorgan may have such a spooky feel is that it has aligned itself in no small way with real-life spooks, the CIA kind.

JPMorgan Sued For Crony Justice - Presenting "A Decade of Illegal Conduct by JP Morgan Chase" - Earlier today, the non-profit organization Better Markets did what so many others have only dreamed of doing - they sued JPMorgan. We wish them the best of luck, as in a "crony jsutice" system as corrupt as this one - perhaps best described, paradoxically enough by the fictional movie The International - where the same DOJ previously implicitly admitted it will not prosecute "systemically important" firms like JPM to the full extent of the law and instead merely lob one after another wrist slap at them to placate the peasantry, any hope for obtaining true justice is impossible.

Better Markets Sues Department of Justice and Eric Holder Over JP Morgan Settlement - The public interest group Better Markets today filed suit against the Department of Justice and Eric Holder, alleging that the so-called $13 billion settlement that the Federal government entered into with the nation’s biggest bank was improper due to its secrecy and lack of third-party review. I’ve embedded the filing at the end of this post. Better Markets is seeking an injunction to bar the Department of Justice from enforcing the settlement until the agency submits the settlement to a court to determine whether the pact meets the relevant standards of review. Here are the guts of the allegations:

    • 6. Yet this contract was the product of negotiations conducted entirely in secret, behind closed doors, in significant part by the Attorney General personally, who directly negotiated with the CEO of JP Morgan Chase, the bank’s “chief negotiator.”…
    • 7. Thus, the Executive Branch, through DOJ, acted as investigator, prosecutor, judge, jury, sentencer, and collector, without any review or approval of its unilateral and largely secret actions….The Executive Branch simply does not have the unilateral power or authority to do so by entering a mere contract with the private entity without any constitutional checks and balances.
    • 8. Notwithstanding such extensive and historic illegal conduct that resulted in a $13 billion payment, the DOJ did not disclose the identity of a single JP Morgan Chase executive, officer, or employee, no matter how involved in or responsible for the illegal conduct. In fact, the DOJ did not even disclose the number of executives, officers, or employees involved in the illegal conduct or if any of them are still executives, officers, or employees of JP Morgan Chase today. Moreover, the DOJ did not disclose the material details of what these individuals did, when or how they did it, or to whom and with what consequences. The DOJ was even silent as to which specific laws were violated, to what degree, and by what conduct. The DOJ also did not disclose even an estimate of the amount of damage JP Morgan Chase’s years of illegal conduct caused or how much money it made or how much money its clients, customers, counterparties, and investors lost. Remarkably, the DOJ does not even clearly state the period for which it is granting JP Morgan Chase immunity…

The Mobsters of Wall Street --  Assume that you ran a business that was found guilty of bribery, forgery, perjury, defrauding homeowners, fleecing investors, swindling consumers, cheating credit card holders, violating U.S. trade laws and bilking American soldiers. Can you even imagine the kind of punishment you'd get?   How about zero? Nada. Nothing. Zilch. No jail time. Not even a fine. Plus, you still get to stay on as boss, you get to keep all the loot you gained from the crime spree, and you even get an $8.5 million pay raise! Of course, you and I would never get such outrageous, absurd, kid-glove pampering by legal authorities. But, then, we're not the capo of JPMorgan Chase, America's biggest bank and a crime syndicate that apparently is too big to jail. Jamie Dimon is the slick, vainglorious, silver-haired boss of the JPMorgan house of banksters. This CEO has fostered a culture of thievery during his years as a top executive at JPMorgan, leading to a shameful litany of crime. Yet, federal prosecutors have bowed to the politically connected Wall Streeter, refusing to ruffle his feathers with even a single criminal charge. Meanwhile, one of the scams that Dimon directly supervised produced a $6 billion loss for shareholders in 2012. And his reign of mismanagement and illegalities cost the bank's shareholders another $20 billion in federal fines last year, resulting in a 16 percent drop in profits. You might think the bank's board of directors would at least slap Jamie's wrist for the loss of those billions of dollars, but no — in January, they rewarded him, raising his pay by some 70 percent to a sweet $20 million!

The Vampire Squid Strikes Again: The Mega Banks' Most Devious Scam Yet - Taibbi - The key was repealing – or "modifying," as bill proponents put it – the famed Glass-Steagall Act separating bankers and brokers, which had been passed in 1933 to prevent conflicts of interest within the finance sector that had led to the Great Depression. Now, commercial banks would be allowed to merge with investment banks and insurance companies, creating financial megafirms potentially far more powerful than had ever existed in America. But it would take half a generation – till now, basically – to understand the most explosive part of the bill, which additionally legalized new forms of monopoly, allowing banks to merge with heavy industry. A tiny provision in the bill also permitted commercial banks to delve into any activity that is "complementary to a financial activity" Complementary to a financial activity. What the hell did that mean?  Fifteen years later, in fact, it now looks like Wall Street and its lawyers took the term to be a synonym for ruthless campaigns of world domination. "Nobody knew the reach it would have into the real economy," says Ohio Sen. Sherrod Brown. Now a leading voice on the Hill against the hidden provisions, Brown actually voted for Gramm-Leach-Bliley as a congressman, along with all but 72 other House members. "I bet even some of the people who were the bill's advocates had no idea." Today, banks like Morgan Stanley, JPMorgan Chase and Goldman Sachs own oil tankers, run airports and control huge quantities of coal, natural gas, heating oil, electric power and precious metals. They likewise can now be found exerting direct control over the supply of a whole galaxy of raw materials crucial to world industry and to society in general, including everything from food products to metals like zinc, copper, tin, nickel and, most infamously thanks to a recent high-profile scandal, aluminum. And they're doing it not just here but abroad as well: In Denmark, thousands took to the streets in protest in recent weeks, vampire-squid banners in hand, when news came out that Goldman Sachs was about to buy a 19 percent stake in Dong Energy, a national electric provider. The furor inspired mass resignations of ministers from the government's ruling coalition, as the Danish public wondered how an American investment bank could possibly hold so much influence over the state energy grid.

Ex-Morgan Stanley Chief Jams Foot in Mouth, Complains of CEO Abuse - John Mack, the former CEO of Morgan Stanley and one of the more irritatingly unrepentant dickheads of the crisis era, gave an incredible interview to Bloomberg TV. In a discussion about executive pay, Mack said we're all being too rough on his fellow too-big-to-fail bank CEOs. He would love, he said, "to see people stop beating up on Lloyd and Jamie," endearingly referring to Goldman chief Lloyd Blankfein and Chase chief Jamie Dimon by their first names (Mack must be in a bowling league with both men). He added: "I think that would make a lot of sense, and I'm in favor of that." Mack went on to say that the debate over compensation was healthy, just not always warranted. "As long as shareholders reward performance," he said, "we can argue." But, he added, "The last time I checked, this business is still a business that pays people extremely well." It's already funny that of all the injustices in the world, this was the one Mack decided to worry about on TV: the criticism of poor Jamie Dimon's 74 percent raise. But more to the point: If we really did live in a world where shareholders rewarded performance, would a CEO who just oversaw a record $20 billion in regulatory penalties even have a job, much less be getting a raise? Mack had stones enough to be whining about people "beating up" on Jamie Dimon, given the year Chase just had. But to do so and simultaneously scold us that high compensation on Wall Street is just "shareholders rewarding performance," that's either Nobel-caliber chutzpah or laboratory-pure stupidity.

Apple has some money burning a hole in its pocket - Getting real about Apple’s $100 billion stock buyback. So I was hearing some where that Apple has a lot of money just burning a hole in it’s pocket. Seems there’s an arson named Carl Icahn trying to really ignite it by using twitter. Apple has implemented a plan to spend $100 billion of it’s current estimate of $148.6 billion pocket money by 2015 to buyback it’s stock. Mr. Icahn has tweeting his joy.   Others say Apple needs to grow to grow it’s stock price.  Now wouldn’t that be the New Deal thing. Apple has 80,300 full time equivalent employees of which 42,800 are “outside the retail division”.  Yup, you guessed…what if Apple instead of buying their stock back distributed that $100 billion to its employees?  Try $1,245,300.01 to each of them by 2015.  That’s 80 thousand new millionaires. Now that’s some job creating. But, according to Apple its reach is as great as 600,000 jobs.  They have “created or supported” this number of jobs involving all 50 states.  What if Apple took that $100 billion and distributed it to all of these workers? $166,666.67 to each position.  What do you think that would do for Apple’s stock? Carl has not been tweeting such a fire.  He currently owns 4.7 million shares of Apple.  At the close of February 7, 2014 Apple’s stock was $519.68.  It’s high was $700.20 on September 17, 2012 in after hours trading. Carl’s fire is currently at $2,442,496,000.  That’s $30,417.14 per Apple employee. But, face it, Carl is looking for a much bigger fire. He saw $700.20 once and now owns 4.7 million shares.  The potential looks like $3,290,940,000 of blazing heat. $40,983.06 per Apple employee.  Carl get’s $848,444,000 more fire. A 35% increase if Apple were to succeed with it’s strategy. Kind of a strange world we’re in here.  A company can increase it’s worth without even lifting a finger (as in working) by using it’s own money to buy its self into greater wealth.  How long can this work?

The HFT arms race - High Frequency Trading costs real resources. It consumes computing power and the mental effort of smart people. When we decide if HFT benefits the world, we have to weigh these costs against whatever benefits HFT provides. What are the benefits of HFT? The normally cited benefit is that HFT "increases liquidity". And indeed, since the introduction of HFT, some types of trading costs - commissions and fees - have gone way down. If HFT reduces the total amount that America spends on trading assets without reducing the efficiency of the market, then HFT has created value, by replacing something expensive (brokerages and dealers) with something cheap. But what if HFT consumes liquidity instead of increasing it? Theory suggests that if HFT consists of a bunch of algorithms trying increasingly hard to beat each other to the punch, then liquidity will go down, and the resources spent on HFT will just be a waste. Now, via Johannes Breckenfelder of Stockholm's Institute for Financial Research, we have evidence to back up the theory.  From the conclusion of Breckenfelder's paper: High-frequency traders (HFTs) play a role of critical importance for the nancial markets. HFTs exploit not only liquidity-providing short-term investment strategies (e.g., market making), but also liquidity-consuming short-term investment strategies (e.g., directional trading). When HFTs face competition from other HFTs, liquidity-providing strategies will improve market quality, while liquidity-consuming strategies will naturally worsen market quality. We nd that competition among HFTs coincides with a decline in liquidity and an increase in liquidity-consuming high-frequency trades as well as in high-frequency momentum trading.

Fed’s Lacker: ‘Too-Big-To-Fail’ Problem Is Alive and Well - Federal Reserve Bank of Richmond President Jeffrey Lacker said Tuesday more work needs to be done to resolve the ongoing threat posed by too-big-to-fail financial institutions. “Our response to the crisis has failed to address what remains the most critical issue facing our financial system: institutions that are deemed ‘too big to fail,’ or, more precisely, too big to fail without a government-funded creditor rescue,” Mr. Lacker said. “I do not believe that enhanced regulations will, by themselves, solve the ‘too big to fail’ problem,” Mr. Lacker said. “Instead, we need measures that give market participants an incentive to develop resilient financial arrangements and that end the expectation of government support,” the official said. One path to reducing the risk presented by these firms would be to take away the Fed’s emergency-lending capabilities, which were heavily used during the financial crisis. “Credible commitment to orderly unassisted resolutions thus may require eliminating the government’s ability to provide ad hoc rescues. This would mean repealing the Federal Reserve’s remaining emergency lending powers,” Mr. Lacker said.

Auto loan competition heating up  - The Fed's banking survey seems to indicate that senior bankers on the whole see slower demand for auto loans in the US - see chart. The real issue here however is less with auto borrowers' demand and more about increasing competition. Even the largest lender in the space, the TARP-funded Ally Financial (formerly GMAC) is facing competitive headwinds as it loses its cozy relationship with Chrysler (while its GM contract is about to expire). An more banks are jumping into auto financing recently - particularly as the mortgage refi bonanza has ended. WSJ: - An exclusive contract with Chrysler to provide so-called subvented, or promotional rate loans, to car buyers ended last April after the auto maker struck a new financing partnership with lender Santander Consumer USA Holdings Inc. A similar agreement with GM was set to expire at the end of 2013, but Ally President William Muir said during the call Thursday that the companies have extended their existing agreement and are working on completing a new agreement. Competition is especially heating up in the sub-prime auto lending - with companies such as Santander expanding into the business. Reuters: - Santander Consumer offers loans through 14,000 car dealers across the United States and has about $25.6 billion of loans outstanding. A majority of the company's loans are subprime, which have higher yields but also higher default rates.

Bankers play funding trick with subprime car loan deals - While millions of Americans have fallen out of love with their cars, Wall Street has been swept off its feet by loans used to finance sales of Volkswagens, Hondas and Fords. Car ownership rates in the US have slumped to their lowest in more than 15 years – at the same time that sales of auto asset-backed securities (auto ABS) – or bonds backed by loans that fund car purchases – have surged.  For investors and the bankers who create such bonds, the rationale for buying them is clear. Auto ABS – even the riskiest of their type – performed incredibly well during the recent financial crisis and subsequent recession. Americans, the adage goes, would sooner default on their home loans than risk losing their primary mode of transport. On top of that, the returns on offer from investing in the securities are enticing and vehicle sales (until the recent spate of snowy weather) have been slowly recovering as existing drivers replace their old clunkers with newer, shinier machines. Sales of auto ABS have consequently soared, with those comprised of loans made to the riskiest borrowers especially in demand. Issuance of subprime auto ABS surged to $21.5bn in 2013, up 18 per cent from the year before. That’s not far from the record $27.5bn sold in 2005, according to Deutsche Bank figures. Yet, there is a snafu lurking in this auto securitisation success story: me. As one of the Millennial Generation without a driver’s licence – much less a car – I am the scourge of investors, bankers and carmakers who want to ramp up auto ABS deals, car loans and sales. Replacement vehicles can only carry the automotive industry so far – what is needed are brand new drivers who can revive longer-term growth rates.

Can Other Lenders Beat Back Payday Lending? - Here and here, I've looked at some of the issues with payday lending from the standpoint of whether laws to protect borrowers make sense. It's a harder issue than it might seen at first. If the options are to take out a payday loan, which is quick and easy, or pay fees for bank or credit card overdrafts, or have your heat turned off because you are behind on the bills, or not get your car fixed for a couple of weeks and miss your job, the payday loan fee doesn't look quite as bad. people can abuse payday loans, but if we're going to start banning financial products that people abuse, my guess is that credit cards would be the first to go.  "Where Banks Are Few, Payday Lenders Thrive," which appears in the Milken Institute Review, suggest the possibility that banks and internet lending operations may be starting to provide short-term uncollateralized loans that are similar to payday loans, but at a much lower price. In setting the stage, they write: "Some 12 million American people borrow nearly $50 billion annually through “payday” loans – very-short-term unsecured loans that are often available to working individuals with poor (or nonexistent) credit. ... In the mid-1990s, the payday loan industry consisted of a few hundred lenders nationwide; today, nearly 20,000 stores do business in 32 states. Moreover, a growing number of payday lenders offer loans over the Internet. In fact, Internet payday loans accounted for 38 percent of the total in 2012, up from 13 percent in 2007. The average payday loan is $375 and is typically repaid within two weeks."

Unofficial Problem Bank list declines to 588 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for February 7, 2014.  Changes and comments from surferdude808: Only two removals to report from the Unofficial Problem Bank List this week. The list includes 588 institutions with assets of $195.1 billion, which is down from 820 institutions with assets of $305.0 billion a year ago.This week, the Wall Street Journal published an article (Small Banks Face TARP Hit) stating that 27 small banks will have their quarterly TARP dividend doubled next week with another 32 by May 15th. Back on September 27, 2013 we provided the last semi-annual update on banks with outstanding TARP monies on the Unofficial Problem Bank List. A near doubling of the dividend rate will put additional financial pressure on these weak banks. As a result, many will likely need to find a merger partner.

Report: BofA, Goldman could pay $16 billion over MBS claims - According to MarketWatch, the settlements of lawsuits so far with top lenders are paving the way for an additional $16 billion in penalties to be paid by banks including Bank of America (BAC) and Goldman Sachs (GS) over mortgage-backed securities sold to Fannie Mae andFreddie Mac. Of the banks that have recently settled — including Morgan Stanley last week — the settlement amounts equate to roughly 12% to 13% of original principal balance of securities sold to the GSEs. The remaining banks could expect to pay approximately $16 billion in total if that settlement range holds. Expect the majority of financial firms to settle this year on billions of dollars from outstanding lawsuits with the government, related to the sale of mortgage-backed securities, sources tell MarketWatch.

Pimco, Blackrock Mulling Suing Ocwen Over Abusive Servicing -- Yves Smith  -- Funny what a difference a few days makes. Late last week, we discussed how banks were unhappy about the fact that Benjamin Lawsky, New York State’s Department of Financial Services, had the temerity to take his duties as a regulator seriously and launch probes into currency manipulation and evidence of incompetent-to-abusive mortgage servicing at Ocwen. Lawsky is blocking the transfer of mortgage servicing rights to $39 billion from Wells Fargo to Ocwen, questioning Ocwen’s ability to do the job properly. Ocwen is already subject to two orders from Lawsky’s office, one in 2011 and one in 2012. The December 2012 order is based on a limited exam earlier that year that uncovered a number of deficiencies.  Lawsky blocking the Ocwen transfer has bigger implications: the banks were hoping to dump their servicing headache on smaller non-banks who supposedly could do a better job. But as we’ve written repeatedly, mortgage servicing does not scale, and really large servicers tend to be good only at taking and crediting payments and remitting money to investors, and then not even very good at that (previous exams of Ocwen found it often failed to verify the accuracy of information before “boarding” the loans onto its system). It turns out big investors, including Pimco and Blackrock, also have serious reservations about Ocwen’s performance, to the point of possibly taking the unusual step of suing them. From the Financial TimesInvestors including Pimco and BlackRock are considering legal action against Ocwen Financial, in a sign of unease at the growing clout of non-bank mortgage-servicing companies which are responsible for collecting payments on millions of US mortgages.

New York AG To Put Heat On Banks for Foreclosed Properties - New York's top prosecutor is pushing banks to take more responsibility for abandoned homes to avoid neighborhood blight. State legislation backed by Attorney General Eric Schneiderman would require lenders to more quickly address so-called zombie properties after their owners abandon them. "We will make sure that a bank that enters into a foreclosure proceeding cannot simply walk away and leave a house to fall into ruin," . The proposal would address concerns that banks aren't doing enough to maintain properties in foreclosure, which are often vacated by their owners before such proceedings are completed. The legislation would change existing rules by requiring banks to take over maintenance of foreclosed homes soon after they are vacated instead of when a foreclosure judgment is entered. It also calls for the creation of a statewide database to track vacant residential properties that localities could access. The database would include information reported by banks or their servicing agents on properties in question, neighbors of vacant properties and other sources. The attorney general's office would be able to enforce a bank's responsibilities to report information on vacant properties through court action and civil penalties.

RealtyTrac: Monthly foreclosure filings reverse course, rise 8% - Monthly foreclosure filings — including default notices, scheduled auctions and bank repossessions — reversed course and increased 8% to 124,419 in January from December, according to the latest report from RealtyTrac. This marks the 40th consecutive month where foreclosure activity declined on an annual basis, with filings down 18% from January. “The monthly increase in January foreclosure activity was somewhat expected after a holiday lull, but the sharp annual increases in some states shows that many states are not completely out of the woods when it comes to cleaning up the wreckage of the housing bust,” said Daren Blomquist, vice president at RealtyTrac. “The foreclosure rebound pattern is not only showing up in judicial states like New Jersey, where foreclosure activity reached a 40-month high in January, but also some non-judicial states like California, where foreclosure starts jumped 57 percent from a year ago, following 17 consecutive months of annual decreases,” Blomquist added. As a whole, 57,259 U.S. properties started the foreclosure process for the first time in January, rising 10% from December but still down 12% from last year: the 18th consecutive month where foreclosure starts have decreased annually. Opposite of the national trend, this month’s foreclosure starts increased from a year ago in 22 states, including Maryland (up 126%), Connecticut (up 82%), New Jersey (up 79%), California (up 57%), and Pennsylvania (up 39%).

“Foreclosure Rebound Pattern”: Foreclosures SUDDENLY Jump 57% in California (And Soar In Much Of The Country): From Federal-Reserve-fueled bubble to debilitating return to reality – reality being a financial calamity – to Federal-Reserve-hyper-fueled bubble: that’s the US housing market over the last ten years. There are many places around the country, including some cities in Silicon Valley, where home values are now higher than they were at the peak of the last bubble. Of course, no one at the Fed or in government calls it “bubble.” They’re talking about the housing “recovery.” But the excesses and speculators are back, and private equity funds and highly leveraged REITs are all over it, buying up every single-family home in sight, and now Wall-Street-engineering firms have come up with a new and improved contraption, a synthetic structured security that on its polished surface looks like that triple-A rated mortgage-backed toxic waste that helped blow up the banks. But this time, it’s different. The securities are backed by sliced and diced rental payments from single-family homes that are, hopefully, rented out. Foreclosure filings – default notices, scheduled auctions, and bank repossessions – suddenly jumped 8% to 124,419 in January across the nation, according to RealtyTrac. Which left some people scratching their heads. A mild uptick was expected after the holidays, but 8%? And what about the polar vortices – weren’t they supposed to have slowed things down to a crawl?

Late-payment rate on mortgages at 5-year low  (AP) - Fewer U.S. homeowners are falling behind on their mortgage payments, aided by rising home values, low interest rates and stable job gains. The trend brought down the national late-payment rate on home loans in the third quarter to a five-year low, credit reporting agency TransUnion said Tuesday. The percentage of mortgage holders at least two months behind on their payments fell in the July-September quarter to 4.09% from a revised 5.33% a year earlier, according to the firm, whose data go back to 1992. The latest rate also declined from 4.32% in the second quarter. The last time the mortgage delinquency rate was lower was the third quarter of 2008. Within a few years of setting that mark, foreclosures began to mount as home values tumbled from housing-boom highs, leaving many homeowners in negative equity - owing more on their mortgage than the value of their home. The dynamic drove mortgage delinquencies higher, peaking at nearly 7% in the fourth quarter of 2009. The rate of late payments on home loans has been steadily declining over the past five quarters. At the same time, U.S. home sales and prices have been rebounding over the past two years, while foreclosures have been declining.

Lawler: Preliminary Table of Distressed Sales and Cash buyers for Selected Cities in January - Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for several selected cities in January. From CR: This is just a few markets - more to come - but total "distressed" share is down significantly in these markets, mostly because of a decline in short sales. And foreclosures are down in all of these areas too. The All Cash Share (last two columns) is mostly declining year-over-year.  As investors pull back in markets the share of all cash buyers will probably decline. In general it appears the housing market is slowly moving back to normal.

Number of the Week: $2 Million Homes Going Like Hotcakes in California - $2 million: The entry price for California’s fastest growing segment of home sales. California’s $2 million-and-up home market is sailing past its prebubble highs, even as the rest of the market continues to play catch up. In other words, while the state’s housing market is still on the road to recovery, the number of $2 million-and-up home sales is back to normal. Just over 4,500 California homes were sold for between $2 million and $3 million last year, according to DataQuick. Assuming there wasn’t some rush of $2 million and up home purchases before the data start in 1988, that was an all-time high and about 400 more than the previous high set in 2005. In some ways that’s about what you’d expect. The real estate market is recovering in both sales prices and volumes, so a number of $1.9 million homes have been pushed into another bracket. Also, since these prices aren’t adjusted for inflation, and since the previous peak was almost a decade ago now, it’s kind of about time. Still, even in California, $2 million dollars is a lot of money for a home, so it shows how the high end home sales have recovered much faster than the overall market. The $2 million-and-up category account for 1.65% of total home sales in the state, also a record. The rest of the market is still a ways from being back. The number of $1 million to $2 million properties was still about 25% lower than its prebubble level, while home sales that are less than $1 milion — the vast majority of homes — was a little more than half of their highs hit before the recession.

California’s Affordable Rental Housing Crisis - Renters across the nation, and in particular in California, are locked in a pernicious squeeze of rising rents and stagnant incomes that has diverted a growing share of their paycheck to rent. Often lost in the housing boom/bust/boom from mid-2000 until now is that over the period rents have for the most part gone only one direction: Up. In California, the continued rise in rents — combined with stagnating incomes and the erosion of state and federal affordable housing funds — has led to a big shortfall in affordable housing, according to a report from the California Housing Partnership.In the Golden State, as elsewhere, the burden is heaviest on those making the least. In 2011, about 20 out of 100 California households making 30% or less of their metro area’s median income was able to find an affordable home. Those making half their area median income did only slightly better, with 29 out of 100 able to find a home. Who are these people? Half of California’s median income is about $29,000, which fits a range of occupations from retail cashiers to janitors, security guards and nursing assistants, the report notes. The state’s inflation-adjusted median income fell 8% from 2000 to 2012, while rents increased 20% over the same period. That means a growing share of paychecks going to rent. In 2011, some 53% of California’s very low income households making half the median income spend at least half of their income on rent. That’s up from 30% spending half their money on rent in 2000.

The Crisis Circle Is Complete: Wells Fargo Returns To Subprime --Those of our readers focused on the state of the housing market will undoubtedly remember this chart we compiled using the data from the largest mortgage originator in the US, Wells Fargo. In case there is some confusion, as a result of rising interet rates (meaning the Fed is stuck in its attempts to push rats higher), the inability of the US consumer to purchase houses at artificially investor-inflated levels (meaning housing is now merely a hot potato flipfest between institutional investors A and B), and the end of the fourth dead-cat bounce in housing (meaning, well, self-explanatory), the bank's primary business line - offering mortgages - is cratering. So what is a bank with a limited target audience for its primary product to do? Why expand the audience of course. And in a move that is very much overdue considering all the other deranged aspects of the centrally-planned New Normal, in which all the mistakes of the last credit bubble are being repeated one after another, Reuters now reports that the California bank "is tiptoeing back into subprime home loans again."

Zillow: 30-Year Fixed Mortgage Rates increase slightly to 4.14% - The Freddie Mac Weekly Primary Mortgage Market Survey® will be released on Thursday (the series I usually follow), but here is a release from Zillow today: 30-Year Fixed Mortgage Rate Rises Slightly: Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace 4.14 percent, up from 4.09 percent at this same time last week.“Rates were essentially unchanged last week despite a weaker than expected jobs report,” said Erin Lantz, director of mortgages at Zillow. “Although this week marks Janet Yellen’s first congressional testimony as the new Federal Reserve Chair, we expect rates will remain fairly flat.”Additionally, the 15-year fixed mortgage rate this morning was 3.13 percent and for 5/1 ARMs, the rate was 2.80 percent. This is down from last August when 30 year fixed rates were at 4.58% (Freddie Mac survey), and mortgage rates have been mostly moving sideways (or down a little) since jumping last June and July after Bernanke mentioned that the FOMC could start tapering later in 2013). Last year rates averaged 3.53% in February 2013. 

MBA: Mortgage Applications decrease in Latest Survey --From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 2.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 7, 2014. ... The Refinance Index decreased 0.2 percent from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier.......The average contract rate declined for all loan products in the survey. Contract rates were at their lowest level since November 2013, except for the 5/1 ARM, which was at the lowest level since December 2013. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.45 percent from 4.47 percent, with points increasing to 0.34 from 0.25 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index is down 67% from the levels in May 2013. With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013. The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index is now down about 15% from a year ago. The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index - but this is still very weak.

Mortgage Applications Drop - Hover Near 19 Year Lows - Despite being told by Bullard, Yellen (and numerous other Federal Reserve thinkers) that quantitative easing was aimed at improving the housing market, the data suggests that - somewhat predictably - it did very little for mom-and-pop organic real home-buyer but stoked speculation and fervor among fast-money cheap-funding investors (and as Marc Faber noted actually hurt the average homebuyer via un-affordability). The week-to-week ebbs and and flows in mortgage applications are notable  (this week saw purchase applications drop 5% and back near recent lows) but a bigger picture glance at just where this "recovery" has been tells a very different story about confidence among home-buyers.

Weekly Update: Housing Tracker Existing Home Inventory up 4.7% year-over-year on Feb 10th - Here is another weekly update on housing inventory ... for the 17th consecutive week housing inventory is up year-over-year.  This suggests inventory bottomed early in 2013.There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer. The Realtor (NAR) data is monthly and released with a lag (the most recent data was for December).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014. In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year. Inventory in 2014 is now 4.7% above the same week in 2013 (red is 2014, blue is 2013). Inventory is still very low, but this increase in inventory should slow house price increases.

MBA: New Home Purchases Up Sharply in January 2014 - From the MBA: New Home Purchases Up Sharply in January 2014 MBA estimates that sales of new single-family homes were running at a seasonally adjusted annual rate of 543,000 units in January 2014, based on data from MBA’s Builder Applications Survey. “While the big jump may appear to conflict with other data, such as MBA’s purchase application index and NAR’s existing home sales data that point to a weak market for existing homes, our Builder Application Survey estimate is consistent with reports of homebuilder sentiment that show strength in the market for new homes,” . “It is also worth noting that the significant January increase also followed a particularly slow pace of sales in November and December.”The estimated 543,000 unit sales pace for January was an increase of 35 percent from December’s pace of 402,000 units. On an unadjusted basis, the MBA estimates that there were 38,000 new home sales in January 2014, a 36 percent increase from the level of 28,000 units in December 2013. The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors.A few comments:
1) The MBA Builder survey might be helpful in predicting Census Bureau reports, but there are larger swings in the MBA survey estimates (so the Census Bureau might report an increase for January, but not of the same magnitude as the MBA increase).
2) Last year, in January, the MBA estimates sales of 507 thousand (SAAR), and the Census Bureau reported sales at a 437 thousand pace (eventually revised up to 458 thousand).   So there might be revisions too.
3) Note that for December, the Census Bureau reported sales of 414 thousand (SAAR), and the MBA estimated sales at a 402 thousand pace.  I expect Census Bureau reported sales for December to be revised down.

FNC: Residential Property Values increased 8.7% year-over-year in December -- FNC released their December index data today. FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.3% from November to December (Composite 100 index, not seasonally adjusted). The other RPIs (10-MSA, 20-MSA, 30-MSA) increased between 0.4% and 0.5% in December. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales). Since these indexes are NSA, this is a strong month-to-month increase.  The year-over-year change continued to increase in December, with the 100-MSA composite up 8.7% compared to December 2012. This graph shows the year-over-year change based on the FNC index (four composites) through December 2012. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

Gap Between Most, Least Expensive Housing Markets Still Wide -- It’s a familiar conversation among couples on the nation’s coasts: Can you imagine what kind of house we could get if we could keep our jobs and move somewhere cheaper? That idea hangs over Wednesday’s Journal article about how some of the nation’s frothiest housing markets are easing back a bit. As the story notes, there’s a fear among many realtors — especially those on the coasts — that the real estate market has come back so swiftly that homes are suddenly unaffordable again. he idea of a widening price gap was even more evident in the National Association of Realtors’ annual affordability survey, which it published Tuesday as part of its fourth quarter release on Metropolitan home prices.For most of the nation, homes are extremely affordable, even among those in the struggling middle class. But the coasts — and in particular California — have reverted to an old pattern of having too many people, not enough homes and price growth that outstrip income growth. Renters have it even worse. After Honolulu, the nation’s least affordable markets were Orange County, San Jose, San Francisco, New York, Los Angeles and San Diego, according to NAR. All had an affordability index lower than 100, which is the level at which a median-income household has exactly enough income to qualify for a purchase of a median-priced existing single family home. But the affordability data beg the question: Did it always cost an insane amount of money to live in California? And is the city to city disparity in home prices growing? To answer this question we looked at some data provided by Jed Kolko, chief economist of Trulia. As a proxy for geographical price disparities, he used FHFA regional home price data to calculate a contemporaneous ratio of the nation’s 10th most expensive home market to the nation’s 90th expensive home market. “In 2013, for instance, the 10th most expensive metro (which was Boston in 2013) cost 2.86 times per foot as much as the 90th most expensive metro (which was Cincinnati in 2013),”

Latest CoStar Commercial Repeat Sale Analysis: Year-End Trends Continue Commercial Real Estate Pricing Gains in 2013 - This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at December 2013 commercial real estate pricing. Based on 1,648 repeat sales in December 2013 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity. December 2013 CCRSI National Results Highlights --  The recovery in U.S. commercial real estate advanced in 2013 as broad gains in net absorption, rents, sales activity and pricing extended across markets and property types. Driven by steady economic growth and solid job gains of 2.3 million or 1.7% in 2013, aggregate net absorption across the four major property types was the highest since the recovery began. Meanwhile, new supply remained well in hand, with the exception of the multifamily property sector, which has seen a notable increase in new construction. Year-end 2013 vacancy rates fell across the board from one year earlier, reaching new cyclical lows in both the apartment and industrial sectors over the last year. The improvement in market  fundamentals has tilted pricing power in the favor of landlords. Rents have surged 14% from the trough of the cycle in the apartment market, with more modest rent recoveries of near 6% in the office and industrial  segments since bottoming out in late 2010/early 2011. Even the beleaguered retail property sector, which experienced rent losses into 2012, saw a turnaround in the last year, with retail rents growing a  modest 1.9% in 2013. Investor demand for all commercial property types also remained strong, as overall sales volume increased 16% from 2012.

Consumer credit and deleveraging - US consumer credit showed an impressive increase at the end of last year as Americans went shopping. Consumer credit outstanding, excluding real-estate debt, stood above $3.1 trillion in December, rising in a nearly linear fashion since 2011. Reuters: - U.S. consumer credit in December grew by the most in nearly a year due to a sharp increase in credit card usage, a potentially positive sign for the economy.  Total consumer credit rose by $18.8 billion to $3.1 trillion, the Federal Reserve said on Friday. That was the biggest gain since February. But let's put this number in perspective by making a couple of adjustments. First let's look at consumer credit trend without the government-held student loans. As discussed before, student loans are not market-based and do not represent private sector credit expansion. A very different trend emerges, with non-student-loan consumer credit barely rising until mid 2013. One could argue that student debt is in effect "crowding out" private credit.Even the ex-student loan measure does not tell the whole story. The overall US economy (and the population) has grown since the financial crisis, and in order to make a fair comparison one needs look at the trend relative to the nation's GDP. A very different picture emerges - one of significant consumer deleveraging that is only now beginning to stabilize. While the absolute level of consumer credit indeed had a nice pop in December, there is clearly more to this story.

Bad debit cards are not the answer to bad FICO scores - mathbabe - Recently I was made aware of a petition by Suze Orman on to mandate credit bureaus – the companies that create credit scores – to use information from debit cards. At first glance this seems totally weird, for two reasons. First, debit cards by construction have no ability to go below zero, so they are not directly relevant to the concept of credit, which is by definition when you borrow something and then hopefully pay it back. Second, my first, second, and third intuitive response to credit bureaus is to give them less information, not more. I already think they have way too much data about us. Their recent foray into using social media data is super creepy, for example, and threatens the “no outdated information” rule of the Fair Credit Act, for example. I watched Orman explain her reasoning about her card, which I believe launched in 2012, and I kind of get her points about why she thinks this is a good idea (even though she clearly has a conflict of interest here): some people have trouble with credit cards, and for that reason they should use debit cards or cash, but cash has no data trail and thus people who are in only cash can never improve their credit scores enough to qualify for things like mortgages and car loans, which they may well be able to handle. Here’s the thing, though. Her card actually has bad terms, and loads of fees, and it doesn’t look like FICO is actually going to use data from her cards to build peoples’ credit scores after all.

Retail Sales decreased 0.4% in January - On a monthly basis, retail sales decreased 0.4% from December to January (seasonally adjusted), and sales were up 2.6% from January 2013. Sales in November were revised down from a 0.2% increase to a 0.1% decrease. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $427.8 billion, a decrease of 0.4 percent from the previous month, but 2.6 percent above January 2013. ... The November to December 2013 percent change was revised from +0.2 percent to -0.1 percent. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-autos were unchanged.  The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 3.3% on a YoY basis (2.6% for all retail sales).  The decrease in January was below consensus expectations.

Retail Sales in U.S. Unexpectedly Fell 0.4% in January - Sales at U.S. retailers declined in January by the most since June 2012 amid bad weather and uneven progress in the labor market, signaling the economy was off to a slow start in 2014. The 0.4 percent decrease followed a revised 0.1 percent drop in December that was previously reported as an increase, according to Commerce Department figures released today in Washington. The median forecast in a Bloomberg survey of economists called for no change. Jobless claims unexpectedly climbed last week, other data showed.  After the drop in retail sales, Goldman Sachs cut its tracking estimate for first-quarter growth to 1.9 percent from 2.3 percent, Credit Suisse lowered to 1.6 percent from 2.6 percent, and Morgan Stanley reduced its projection to 0.9 percent from 1.9 percent.

Cold weather chills retail sales, jobless claims up (Reuters) - U.S. retail sales fell unexpectedly in January and more Americans filed for jobless benefits last week, the latest signs the economy started the year on softer footing as unseasonably cold weather took its toll. Large parts of the country have been gripped by freezing temperatures and snow storms, which have been blamed for weak hiring over the past two months. Economists, however, are not worried yet and look for a rebound in the second quarter. "Today's data unequivocally show that the unusually cold winter weather is weighing on economic activity. Consumer spending has literally frozen,"   Retail sales fell 0.4 percent last month, led by a tumble in automobile sales and categories like clothing, furniture stores and restaurants that depend of foot traffic. Economists had expected retail sales to hold steady. Adding to the report's weak tone, December sales were revised to show a 0.1 percent dip. They had previously been reported to have increased 0.2 percent.

Retail Sales Slide Across The Board, Post Biggest Miss Since June 2012 - And so, prepare to see much more of this chart which as we warned will be used as justification to explain why retail sales not only just tumbled, but posted their worst miss since June 2012. Retail sales, which incidentally, just happen to be seasonally adjusted precisely to account for such shocking phenomena as snow in the winter:

  • Headline retail sales plunged -0.4% on expectations of a 0.0% print.
  • December headline retail sales were revised from 0.2% to -0.1%, which also means that the December data was in fact a miss of expectations of 0.1%, not a beat as was reported at the time, and also means retail sales have now missed three months in a row. We know, we know: the weather.
  • Retail sales ex autos were unchanged atg 0.0%, on expectations of 0.1%, with December also revised from a "beating" 0.7% to a miss of 0.3%
  • Retail sales ex autos and gas dropped -0.2%, on expectations of a 0.1% increase, with December revised far lower from 0.6% to 0.1%

In other words: yet another confirmation that the US consumer is tapped out thanks to draining his savings during the holiday season, and also hinting that the inevitable untaper is coming far sooner than expected.

Vital Signs: It’s Not Just Weather Holding Back Shopping -- The 0.4% drop in January retail sales is being blamed on weather. Automakers have already said harsh conditions kept consumers from car dealerships, and the 0.6% drop in sales at restaurants and bars also suggests consumers stayed home.  But nonstore retailers also took a hit in January. Their sales fell 0.6%, the first decline since August and the largest since May 2013. Internet shopping should be immune to weather, so the drop suggests more than ice and storm is holding back shoppers.   One possible reason: the jump in heating costs is diverting money that would have been spent elsewhere. Or, consumers used their credit cards too much in December. Revolving credit—which includes credit cards—increased by a hefty $5 billion in that month. Consumers received their card statements in January and may have to spend less now to pay off the December charges.

It Was So Cold In January, Even The Internet Froze - Of course, the internet can not freeze - at least not in the Old Normal world - however that is the only logical explanation we can offer in a world in which yesterday's atrocious retail sales were blamed on the weather - supposedly people stay at home, don't drive, don't go to the mall, don't shop because they have never had to engage in such activities in the winter when it snows outside - and yet online retail sales.... dropped even more? Because we know that in said world, consumption weakness can not possibly be explained by a tapped out US consumer who actually has little disposable cash left, and so we have to assume, correctly, that the weather was so bad in January, that even the Internet and online retail websites, must have frozen. There is no other explanation.

Something Has To Give Here - January retail sales data were not good by any measure, and they have economists trying to fit the puzzle pieces together today.  The chart above — from Neil Dutta, head of U.S. economics at Renaissance Macro — does an excellent job of illustrating the frustration. Recent retail sales data just don't square with recent jobs data.  "Something has to give," says Dutta. "There is a widening disconnect. Either retailers stick with it and stay confident on the expectations that sales will improve, or they will be forced to cut employment dramatically."

With Auto Sales Slumping, Car Dealerships Will Wheel and Deal - After weeks of bad winter weather have turned car sales cold, the forecast calls for automakers to hike rebates and incentives to get the new car market moving again. Automakers are expecting 2014 to be an exceptionally big year for sales. The analysts at have forecast that sales of light vehicles will hit 16.4 million this year, up nearly 6% over the 2013 total, which was itself considered a strong performance for the industry. But 2014 hasn’t gotten off to a good start for automakers and car dealerships. One reason why this is so is that people don’t tend to visit car dealerships—or even leave the house unless it’s 100% necessary—when record-setting cold spells and generally miserable weather are hitting their communities, as was the case in much of January. Despite great expectations for auto sales in 2014 as a whole, it shouldn’t have come as a surprise that car sales fell 3% in the year’s first month, compared to January 2013. Nonetheless, any sales decline — even one largely blamed on Mother Nature — can be enough to get automakers antsy; by some account, January 2014 was the first month since August 2010 that there was a month-over-month sales decrease. Therefore, it also shouldn’t come as a surprise that automakers and dealerships are going to aggressively try to rebound from the January slump with strong sales increases in the months that follow.

Channel-Stuffed US Car Dealers Cut Prices; Hope To "Sell Their Way Out Of This" - While loathed to admit it, US auto makers have done it again. As we have vociferously explained month after month (and has been vocally denied until now by the car makers themselves), much of the recovery in auto sales has been a massive channel-stuffing make-work program (mal-investment once again triggered by 'false' signals created by Fed intervention). Now, as the WSJ reports, Detroit's big 3 are trying to sweeten discounts to clear a massive inventory of unsold vehicles from dealer lots (desparate not to start a profit-killing price war). "We believe we can sell our way out," said GM, but as Morgan Stanley warns, "the best of the U.S. auto replacement cycle is over." Good luck...

A Walmart Worker Explains Why Walmart’s Customer Service Is Horrible -  The reason there's nobody to help you is because our salaried management team decided to cut hours and staff. Why did they decide to cut hours and staff if you are here now and needing help, you ask? Well, even though the company is worth billions, home office gives store managers a set amount of hours and payroll dollars that they can schedule people/pay people in each area of the store, and it is based on what the sales were in that department on that day the previous fiscal year. So even though last year was a Friday, it was snowing out, and no one was shopping, this year, on a Saturday, when its sunny out and everyone is shopping, you won't have anyone around to help you because LAST YEAR we didn't make enough money! Add to that the fact that store manager's and assistant manager's incentive bonuses (to the tune of $80K for store managers and $20K for assistant managers, once yearly) are partially determined by how much they can bring scheduled hours/payroll DOWN from the year before (of course, while still keeping sales up,) and you begin to see how this pattern of never having any help around comes to be. Us hourlies get quarterly bonuses, of course, but they're usually less than $300, and they don't even make up for all of the hours that they cut from our paychecks to earn said bonus.  Long story short, Wal-Mart won't hire more people to help you, the customer, until you part with your sweet, sweet dollars so that our sales can go up, and then maaaaaaybe they'll hire another person to cut some fabric for you. Salaried managers want their bonuses, you see, and if it means that you don't get help when you come into the store, why, they really don't care! Plus, if you have to wander around for awhile before you find someone to help you, you might end up picking up a few more things than you'd planned. See how that works?

James Surowiecki Promotes Myth of Consumer Empowerment in the Face of the Crappification of Almost Everything -- Yves Smith - There’s nothing like getting a missive from the alternative reality where neoliberalism works and all consumer problems can be solved by more diligent shopping (and remember, since we are all consumers first and citizens second, the corollary is that pretty much any problem can be solved by better shopping).  The current sighting is a story in the New Yorker by James Surowiecki, The Twilight of Brands, that tries to tell us, in all seriousness, that companies now have to be on their toes because consumers are more vigilant and less loyal. He starts with the backlash against yoga clothes maker Lululemon when quality fell sharply, and states his thesis: It’s a truism of business-book thinking that a company’s brand is its “most important asset,” more valuable than technology or patents or manufacturing prowess. But brands have never been more fragile. The reason is simple: consumers are supremely well informed and far more likely to investigate the real value of products than to rely on logos. When consumers had to rely on advertisements and their past experience with a company, brands served as proxies for quality; if a car was made by G.M., or a ketchup by Heinz, you assumed that it was pretty good. It was hard to figure out if a new product from an unfamiliar company was reliable or not, so brand loyalty was a way of reducing risk.  This is utterly backwards. The reason “brands have become more fragile” does not not reside in demanding, disloyal customers, but in short-sighted corporate behavior. The driver was a shift away from businesses focusing primarily on good old fashioned success in the marketplace (via matching product quality/price attributes versus customers needs, improving manufacturing processes, looking for new product/technology opportunities, etc) to focusing much more on financial results as the key determinant of success.

Which middle class, which squeeze? - Last month the Pew Research Center released a survey which showed that the proportion of Americans who consider themselves “middle class” has been shrinking sharply, as median incomes have stalled. Back in 2008, or just as the financial crisis hit, the ratio apparently stood at 53 per cent. Now it is just 44 per cent. And that is not because Americans are rising in self-confidence: just 15 per cent define themselves as upper class, down from 21 per cent in 2008. The real problem is that two-thirds of Americans think (quite correctly) that the gap between rich and poor is widening – and that they themselves are sinking: 40 per cent of people now define themselves as lower class, compared with 25 per cent previously.  This is startling. It helps to explain why the phrase “middle class” is now creating such political anxiety. When Barack Obama presented his recent State of the Union address, for example, he billed it as “a set of concrete, practical proposals to speed up growth, strengthen the middle class, and build new ladders of opportunity into the middle class”. And it is not just an American problem. In the UK, David Cameron keeps tossing the “m” word around, following in the wake of Ed Miliband, who recently insisted: “I know our country cannot succeed and become collectively better off without a strong and vibrant middle class . . . [we must] rebuild our middle class.”

Consumers Expect Inflation to Accelerate, NY Fed Survey Finds - A survey released by the Federal Reserve Bank of New York Monday found that in January, American households were continuing to expect inflation to increase from current levels, amid some rising signs of optimism about the job market.  In the poll of consumer expectations, the New York Fed found that respondents said they expected to see inflation readings at 3% one year ahead, a slight slowdown from the 3.14% reported in December. The finding is notable because it shows the public continues to expect inflation to rise from current levels. The economy has been weathering an extended period of weak price gains economists and policymakers alike have struggled to explain. In December, the Fed’s preferred price gauge, the personal consumption expenditures price index, was up by 1.1% compared to the same month a year ago. Fed officials want inflation at 2%, and a good deal of their current aggressive policy action is aimed at goosing up inflation to the desired level. Some central bankers fear that persistently weak inflation readings point to underlying weakness in the job market, as workers are unable to demand higher wages. The New York Fed said that consumers in their survey are expecting to be paid more over the coming year, and reckon if they lost their job, it’s getting easier to find a new one. The earnings growth expectation in January was 2.4%, from 1.8% the month before. The probability of finding a new job over the next three months if one were to lose one’s today increased to 49%, from 46% in December.

Import Prices Drop; 6th Straight Month Of Dis-Inflation - While modestly better than expected, Import Prices fell 1.5% year-over-year, down from a 1.3% year-over-year drop for December. This is the sixth month in a row of year-over-year drops in import prices and perhaps even more notably, the last 20 months have seen only 2 months of year-over-year price gains as the Japanese deflation ogre spreads around the world.

Export / Import Price Deflation Continues in January 2014 - Year-over-year export and import price deflation continues. Import prices have deflated year-over year for 18 of the last 19 months.

  • with imports up 0.1% month-over-month, down 1.5% year-over-year;
  • and exports up 0.2% month-over-month, down 1.2% year-over-year.
  • the major reason deflation continues is lower fuel prices and lower food prices.

There is only marginal correlation between economic activity, recessions and export / import prices. Prices can be rising or falling going into a recession or entering a period of expansion. Econintersect follows this data series to adjust economic activity for the effects of inflation where there are clear relationships. Econintersect follows this series to adjust data for inflation.

Heating Bills Reach Record for New Yorkers - Cold weather continues to plague U.S. consumers with high costs for heating. The Northeast in particular has been hit hard. Metropolitan New York is now paying record prices for natural gas and heating oil. For the week ending January 31, East Cost stockpiles of distillates, which include heating oil and diesel, dropped to their lowest levels since 1990, according to new EIA data. Many residential consumers in the Northeast still use heating oil to keep their homes warm in the winter. But the weeks-long cold snap (January was the coldest January in the U.S since 1994) has drained inventories and pushed up prices. EIA estimated that heating oil would average $3.77 per gallon this winter, but recent data from New York suggests pries are surpassing $4.50 per gallon. Refinery outages in the Philadelphia area, down for maintenance, have also increased prices. The problem is compounded by the shortage of natural gas supplies, forcing many to scramble for heating oil as a replacement. Some customers have “interruptible” contracts, allowing suppliers to cut them off when they are in a pinch. Infrastructure bottlenecks, combined with high demand, led to Consolidated Edison, the local utility, to restrict gas deliveries to these customers to conserve supplies. This decision will force many to look for heating oil as an alternative, in turn pushing up heating oil prices even further. The problem would have been much worse had New York not recently completed gas pipeline connections into the city.

Michigan Consumer Sentiment: Unchanged -- The University of Michigan Consumer Sentiment preliminary number for February came in at 81.2, unchanged from the January final. Today's reading was slightly above the forecast of 80.6. The index is off its 85.1 interim high set in July of last year.  See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 5 percent below the average reading (arithmetic mean) and 3 percent below the geometric mean. The current index level is at the 36th percentile of the 433 monthly data points in this series. The Michigan average since its inception is 85.1. During non-recessionary years the average is 87.5. The average during the five recessions is 69.3. So the latest sentiment number puts us 11.9 points above the average recession mindset and 6.3 points below the non-recession average. It's important to understand that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. For a visual sense of the volatility here is a chart with the monthly data and a three-month moving average.

"Catastrophic" Winter Storms Send Consumer Confidence Outlook To 6-Month Highs - Take your pick of which "confidence" measure you choose to watch to confirm your previous "common knowledge" meme. Unsurprisingly, the government's own Conference Board indicator provides the highest level of confidence relative to recent months but today's beat by UMich (81.2 flat from last month but above 80.2 expectations) is the highest overall level among the indices. It seems not even the weather can dampen the enthusiasm of the US consumer (who is retail spending at a dismally low level?) Hardly surprising is the fact that the tumble in the current conditions index was entirely dissolved by the hope for the economic outlook which stands at 6 month highs! Short-dated inflation expectations also ticked up. Of course what really matters is keeping the dream alive that multiple-expanding confidence will cover up any and all missed expectations in macro and micro data.

(Relatively) cheap gas bringing lowest inflation rate since the Great Recession: Since the middle of last year I have been using the change in the price of a gallon of gas to forecast that month's CPI in advance. My point has been, that all you really need to know about inflation is the price of gasoline. So far with one exception each forecast has turned out to be within 0.1% of the actual number. With all of January's and half of February's weekly E.I.A. reports published, we can estimate October's inflation rate now. Further, we can at least discuss where February's CPI may be as well. My method is to take the change in the price of a gallon of gas and divide by ten, then add 0.1% to 0.2% to account for core inflation, or else divide by 16 to be more conservative, to arrive at the non-seasonally adjusted inflation rate. The result of this calculation is that it is quite possible that Year over Year prices right now have actually declined slightly. In December the average price of a gallon of gas was $3.27.6 For January it was $3.31.3. This month so far it is $3.30.1. That is a +0.2% increase for January and a -0.4% decline for the first two of four reported weeks in February. For both months, dividing by 10 or 16 makes the result slightly negative but basically unchanged m/m, and adding 0.1% to 0.2% gives us a rounded result closest +0.1% each month, non seasaonally adjusted. The seasonal adjustment for January last year was -0.2%. For February it was -0.1%. This gives us a final seasonally adjusted inflation rate that rounds to -0.1% for January and 0.0% for February.

Weekly Gasoline Update: Regular and Premium Up a Penny or Two - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular is up two cents an Premium a penny. Regular and Premium are down 48 cents and 42 cents, respectively, from their interim highs in late February of last year.  According to, Hawaii is averaging two cents above $4.00 per gallon. The next highest state average is California at $3.64. No states are averaging under $3.00, down from one state from last Monday.

Rail Week Ending 08 February 2014: Another Down - Week 6 of 2014 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. The rolling averages are mixed (and generally decelerating), but show growth. The weekly data is fairly noisy, and the best way to view it is to look at the rolling averages: A summary of the data from the AAR:The Association of American Railroads (AAR) today reported mixed U.S. rail traffic for the week ending Feb. 8, 2014 with 261,254 total U.S. carloads, down 4.3 percent compared with the same week last year. Total U.S. weekly intermodal volume was 246,114 units, up 0.6 percent compared with the same week last year. Total combined U.S. weekly rail traffic was 507,368 carloads and intermodal units, down 2 percent compared with the same week last year.Four of the 10 carload commodity groups posted increases compared with the same week in 2013, including farm and farm products excluding grain, with 17,433 carloads or 5.8 percent, and grain with 18,265 carloads or 4 percent. Commodities showing a decrease compared with the same week last year included coal with 100,732 carloads, down 8.4 percent.For the first six weeks of 2014, U.S. railroads reported cumulative volume of 1,606,438 carloads, down 0.4 percent from the same point last year, and 1,429,399 intermodal units, up 1.1 percent from last year. Total combined U.S. traffic for the first six weeks of 2014 was 3,035,837 carloads and intermodal units, up 0.3 percent from last year. USA coal production is down 6.7% same week year-over-year - and coal accounts for almost half of carloads.

Fed: Industrial Production decreased 0.3% in January -- From the Fed: Industrial production and Capacity Utilization  -Industrial production decreased 0.3 percent in January after having risen 0.3 percent in December. In January, manufacturing output fell 0.8 percent, partly because of the severe weather that curtailed production in some regions of the country. Additionally, manufacturing production is now reported to have been lower in the fourth quarter; the index is now estimated to have advanced at an annual rate of 4.6 percent in the fourth quarter rather than 6.2 percent. The output of utilities rose 4.1 percent in January, as demand for heating was boosted by unseasonably cold temperatures. The production at mines declined 0.9 percent following a gain of 1.8 percent in December. At 101.0 percent of its 2007 average, total industrial production in January was 2.9 percent above its level of a year earlier. The capacity utilization rate for total industry decreased in January to 78.5 percent, a rate that is 1.6 percentage points below its long-run (1972–2013) average.  This graph shows Capacity Utilization. This series is up 11.6 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 78.5% is still 1.6 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007. The second graph shows industrial production since 1967. Industrial production decreased 0.3% in January to 101.0. This is 21% above the recession low, and slightly above the pre-recession peak. The monthly change for both Industrial Production and Capacity Utilization were well below expectations, and previous months were revised down.

The Big Four Economic Indicators: Industrial Production - The Federal Reserve's January monthly Industrial Production report came in with a 0.3 percent decline following December's 0.3 percent increase. Weather was a significant factor in the overall decline, despite the fact that increased demand for heating boosted the utilities component. Here is an excerpt from opening summary:</>  Industrial production decreased 0.3 percent in January after having risen 0.3 percent in December. In January, manufacturing output fell 0.8 percent, partly because of the severe weather that curtailed production in some regions of the country. Additionally, manufacturing production is now reported to have been lower in the fourth quarter; the index is now estimated to have advanced at an annual rate of 4.6 percent in the fourth quarter rather than 6.2 percent. The output of utilities rose 4.1 percent in January, as demand for heating was boosted by unseasonably cold temperatures. The production at mines declined 0.9 percent following a gain of 1.8 percent in December. At 101.0 percent of its 2007 average, total industrial production in January was 2.9 percent above its level of a year earlier. had forecast a month-over-month increase of 0.3 percent. The chart and table below illustrate the performance of the Big Four and simple average of the four since the end of the Great Recession. The data points show the percent cumulative percent change from a zero starting point for June 2009. The latest data point is for the 55th month. In addition to the four indicators, I've included an average of the four, which, as we can see, was influenced by the anomaly in the Personal Income tax management strategy at the end of last year with a ripple effect in the opening months of this year.

January 2014 Industrial Production Has Bad Internals - The headlines say seasonally adjusted Industrial Production (IP) declined in January. Econintersect‘s analysis using the unadjusted data concurs – but adds that the internals are far from good.

  • Headline seasonally adjusted Industrial Production (IP) fell 0.3% month-over-month and up 2.9% year-over-year.
  • Econintersect‘s analysis using the unadjusted data is that IP growth decelerated 0.2% month-over-month, and is up 3.2% year-over-year.
  • The year-over-year rate of growth has decelerated 0.2% from last month using a three month rolling average.
  • Industrial production is being affected by large movements in utilities. This is distorting the underlying trends.
  • The market was expecting 0.3% to 0.6% month-over-month (vs the headline decline of 0.3%).
  • The seasonally adjusted manufacturing sub-index (which is more representative of economic activity) was down 0.8% month-over-month – and up 1.3% year-over-year .
  • Backward revision was moderate and generally down for the last 3 months.
  • Combine that the month-over-month data is comparing a moderately revised downward December data, and the manufacturing portion had a significant decline – makes this report much worse than appears at first glance.
Industrial Production Declines, November and December Revised Lower; String of Unexpected Events Continues -  This morning the Fed reported Industrial production declined. Moreover November and December were revised sharply lower. Industrial production decreased 0.3 percent in January after having risen 0.3 percent in December. In January, manufacturing output fell 0.8 percent, partly because of the severe weather that curtailed production in some regions of the country. Additionally, manufacturing production is now reported to have been lower in the fourth quarter; the index is now estimated to have advanced at an annual rate of 4.6 percent in the fourth quarter rather than 6.2 percent. Market Groups:
  • Consumer goods fell 0.5%, the first decrease in six months
  • Consumer durables down 2.6%
  • Consumer non-energy nondurables down 0.8%
  • Within consumer durables, the production of automotive products fell 5.1% and the output of appliances, furniture, and carpeting declined 0.6%
  • Clothing up 0.5%
  • Home electronics up 1.1%
  • Paper Products down 1.0%
  • Business equipment down 0.1%, a third consecutive decline
  • Defense down 1.0%, a fourth consecutive decline
  • Construction down 1.0% following loss of 0.6% in December

Industrial Production Plunges, Fed Blames Weather -- Despite Utilities soaring 4.1%, the Federal Reserve "blames" the worst miss (and biggest drop) in Industrial Production since August 2012 on "severe weather" in some regions of the country. Capacity Utilization also tumbled - to its lowest since October. Numbers for November and December's exuberance were revised lower in both series (that must be the weather effect being anticipated that weather would be bad in January!?!). There were 6 mentions of the word 'weather' in the report (just missing out of Deutsche's Lavorgna with 8 yeaterday) as any weakness in macro data is due to unforeseeable events (weather in Winter) but any surprising beat is due to solid fundamentals underlying the real economy.

Cold Weather Causes Factory Output to Drop (AP) — Harsh winter weather led to a steep drop in U.S. factory output in January. Manufacturers made fewer cars and trucks, appliances, furniture and carpeting, as the recent cold spell ended five straight months of increased production The Federal Reserve said factory production plunged 0.8 percent in January, reversing gains of 0.3 percent in both December and November. Automakers lost days of production because of snowstorms, as their production plummeted 5.1 percent, the report said. Factory output rose a modest 1.3 percent over the past 12 months. Overall industrial production, which includes manufacturing, mining and utilities, fell 0.3 percent in January. Output for utilities rose 4.1 percent last month as the freezing temperatures boosted heating demand. Factories responded to the weather by running at a lower 76 percent capacity, a 0.7 percentage point drop over the month and 2.7 percentage points below the long-run average. The repeated battery of winter storms has slowed down the pace of economic growth, ending momentum that has boosted gross domestic product in the second half of last year. Cold weather last month delayed shipments of raw materials and caused some factories to shut down. The Institute for Supply Management, a trade group of purchasing managers, reported earlier this month that its index of manufacturing activity fell to 51.3 in January from 56.5 in December. It was the lowest reading since May, although any reading above 50 signals growth. Factory orders also fell 1.5 percent in December, according to the Commerce Department. That could have contributed to less output in January.

Vital Signs: Freezing Temps Boost Utility Use - Friday brings yet another example of how extreme winter weather is skewing the economy’s performance in the first quarter. Manufacturing output fell a large 0.8% in January, a drop the Federal Reserve attributes to “severe weather.” At the same time, utility use jumped 4.1% last month, the biggest increase since March 2013. The Fed said the gain reflected “strong heating demand because of the extremely cold weather.” With stormy weather still plaguing much of the U.S. through mid-February, energy demand may remain strong this month. But high heating bills are leaving less money for households to spend elsewhere.

IMF Paper: No U.S. Manufacturing Renaissance -  After years of lamenting the factory sector’s diminishing role in the American economy, many American firms are counting on the domestic energy boom, rising overseas labor costs and stronger domestic demand to revive the long-stagnating manufacturing sector. But most claims about a sudden surge are overly optimistic and unwarranted, a group of International Monetary Fund economists wrote in a paper published Wednesday.  “We find it unlikely for manufacturing to become a main engine of growth in the U.S.,” they said. Manufacturing has become an increasingly smaller share of U.S. economy for the better part of a century. At the end of World War II, more than a third of all U.S. workers held manufacturing jobs. That figure fell below 10% in 2008 and manufacturing employment has failed to rebound to prerecession levels, according to Labor Department data. After the Great Recession, a depreciating dollar, falling natural gas prices and declining unit labor costs boosted U.S. manufacturing production, the IMF economists write. Recent data shows that several durable goods sectors have rebounded strongly after the recession, potentially foreshadowing a strong manufacturing presence in the global marketplace, they said. Manufacturing exports could provide “non-negligible growth opportunities” for the American economy, especially as new technology allows energy companies to tap massive domestic deposits of natural gas and oil reserves, IMF economists added. The shale energy boom could add up to 0.3 percentage point a year to growth by 2020.

UAW shocked by bombshell dropped by Sen. Bob Corker during VW plant union vote in Tennessee - U.S. Senator Bob Corker of Tennessee said on Wednesday he has been “assured” that if workers at the Volkswagen AG plant in his hometown of Chattanooga reject United Auto Worker representation, the company will reward the plant with a new product to build. Corker’s bombshell, which runs counter to public statements by Volkswagen, was dropped on the first of a three-day secret ballot election of blue-collar workers at the Chattanooga plant whether to allow the UAW to represent them. Corker has long been an opponent of the union which he says hurts economic and job growth in Tennessee, a charge that UAW officials say is untrue. “I’ve had conversations today and based on those am assured that should the workers vote against the UAW, Volkswagen will announce in the coming weeks that it will manufacture its new mid-size SUV here in Chattanooga,” said Corker, without saying with whom he had the conversations. In the past few weeks, Volkswagen officials have made several statements that the vote will have no bearing on whether the SUV will be made at the Chattanooga plant or at a plant in Puebla, Mexico.

2013 Wholesale Inventories Rise At Slowest Pace In 4 Years - Wholesale inventories missed expectations and rose at their slowest rate since July 2013 at a mere 0.3% MoM. However, the more concerning aspect (asde from the inventory build in Q4 that is now over and means GDP downward revisions to come for Q4 on) is that 2013 saw the weakest growth in inventories since 2009's collapse. At a mere 3.96% YoY, 2013's wholesale inventory growth is the 2nd slowest in a decade.

Business inventories climb in December: U.S. business inventories rose as expected in December, but slowed down significantly excluding automobiles. The Commerce Department said on Thursday inventories increased 0.5 percent after rising 0.4 percent in November. Economists polled by Reuters had forecast inventories rising 0.5 percent in December. Inventories are a key component of gross domestic product changes. Retail inventories, excluding autos - which go into the calculation of GDP - gained 0.2 percent after advancing 0.6 percent in November.The government in its advance estimate for fourth-quarter GDP said inventories increased $127.2 billion, the largest rise since the first quarter of 1998. The change in inventories from the third quarter added 0.42 percentage point to the fourth-quarter's 3.2 percent annualized growth rate, confounding economists' expectations for a slower pace of restocking, which would have weighed on output. Economists believe the current level of inventory is unsustainable and expect businesses will step back to work through current stocks in the first quarter, which would restrain growth in the first three months of 2014.

Vital Signs: Small Businesses Expect More Customers and Workers -- The National Federal of Independent Business said its small business optimism index edged up to 94.1 in January, returning to levels posted before the government shutdown caused the index to crater. Important for the economic outlook, small businesses owners are more upbeat about future sales and hiring plans. Demand uncertainty has been a drag on business decision-making in this recovery, but small businesses seem to be turning the corner. According to the NFIB, a net 15% of small business owners in January expect sales to increase in the next three months, a 7 percentage-point jump from December. The index has increased for three consecutive months and now stands at its highest reading since 2008. Confidence about more customers coming through the door is leading more business owners to add to staff, a big plus for the overall labor market. The index covering job-creation plans increased 4 percentage points to 12%, the highest since 2007. The NFIB said construction firms had the best net-hiring plans, at 20%, and non-professional service companies posted a 17% reading even though consumer spending on services has lagged the overall recovery, the NFIB said. More hiring on Main Street could turn around the dismal trend in total U.S. payrolls seen in December and January.

Who Would Make A Better Bank: Walmart or the US Post Office? - Adam Levitin has an article in American Banker where he discusses some of the issues surrounding postal banking. One important note that I think is really worth emphasizing is this:  “To the extent that postal banking is meant to plug the budgetary hole in the USPS, it is not particularly appealing.”  I think this is correct, and it raises an important question: if banking is not going to fix their budgetary problems, then is it really wise to let a structurally declining industry hold bank deposits? Like Levitin, I am skeptical that the large retail network will allow banks to make a profit without charging high fees to low-income, currently unbanked customers.  Without a solution for the structural decline, I am struggling to see postal banking as anything more than a solidification of the too-big-to-fail status of the USPS, and maybe a program to increase employment there.  What I think may have more potential is to allow retail outlets like Walmart provide more financial services for the unbanked. This is a company that is profitable and not suffering a structural decline. It’s true that the post office has more thorough geographic coverage. There are 31,000 USPS locations and offices compared to Walmart’s 4,807 in the US. But I’d venture that more unbanked individuals walk into a Walmart in a given day or week than go to a post office. Levitin cites customer familiarity as one of the post office’s advantages, but I’d score this one in favor of Walmart as well. What’s more, while the post office needs to find a way to address it’s structural decline and so has incentives to charge high banking fees, Walmart could potentially see enough benefit from the increased foot traffic to run it’s banking operations with extremely low profit.

Another Month, Another Piss Poor Jobs Report -  The BLS employment report shows total nonfarm payroll jobs gained were another dismal 113,000 for January 2014, with private payrolls adding 142,000 jobs.  Government jobs decreased by -29,000.  The silver lining of the jobs report is while the government continues to cut, cut, cut, there wasn't a lot of growth in crappy jobs and gains achieved were in typically higher paying ones.  The U.S. post office alone shed 9,000 jobs.  For all of 2013, monthly job gains averaged 194,000 a month.  Below is an graph of annual gains and losses to America's payrolls.  This graph tells it all.  While the nation needs more jobs per year to employ the increasing working age population, we see annual growth in jobs actually stunted.  That repressed overall job growth isn't just due to the recession of 2008-2009, but goes back all the way to year 2001.  In 2013 there were only a 2.264 million jobs gained, about the same as the 2.249 million annual U.S. payroll gains in 2012  This just isn't enough to employ the increasing labor force, never mind recover the 7.7 million jobs lost in 2008-2010.  The start of the great recession was declared by the NBER to be December 2007.  From January 2014, The United States is now down 851,000 jobs from December 2007, over six years ago.  The monthly changes in job growth are shown in the below bar chart.  Retail trade typically has many big box low paying jobs.  Leisure and hospitality contains restaurant worker jobs, which are by far the lowest paying of them all.  January's construction job gains were the highest since March 2007.  That said, construction payrolls are still decimated and the sector shrinkage is probably permanent as the housing hype and bubble increased construction jobs as shown in the below graph.

January Jobs Report: Hard to Read - The US economy added 113,000 jobs in January, according to numbers released Friday by the Labor Department. The jobs gains were lower than expected, but the unemployment rate still dropped a tenth of a percentage point to 6.6 percent—the lowest level in five years. In contrast with with previous months, the labor force participation rate—the percentage of people working or looking for a job—increased slightly to 63 percent. Several factors make it especially hard to make much sense of this month's job numbers. Unusually cold weather last month meant that more people stayed home, dampening retail sales and hiring. Annual data revisions released Friday show that job growth was slightly stronger last year than initially reported—suggesting that January's numbers could be low, too. Extended federal unemployment benefits, which expired in December, further complicate the picture: Since individuals are required to search for jobs in order to receive unemployment benefits, the end of those benefits could cause some people to stop their job searches and drop out of the labor force. The disconnect between the two surveys the Labor Department uses to take the temperature of the economy also make January's numbers hard to interpret. The survey of employers, which is used to calculate the unemployment rate, found that 113,000 jobs were created last month. That number was much lower than the 616,000 new jobs reported in the survey of households. "Given the statistical mess," economist Douglas Holtz-Eakin noted Thursday, "the only real message is that the economy is not accelerating significantly."

Chart of the Day #2: The Madness of Austerity -  January's job numbers were fairly dismal, but the bad cheer wasn't equally spread. Private sector employment, as usual, increased—by 142,000 jobs last month. At the same time, public sector employment declined. Government employment at all levels was down 29,000 in January.  Aside from the brief census blip in early 2010, this has been the usual state of affairs for the past four years, ever since the recession officially ended. The chart below shows public and private sector employment indexed to 100 at the end of the recession. Private sector employment is up 6.8 percent. Public sector employment is down 3.4 percent. And that's during a period when population grew 2.3 percent. On a per capita basis, government employment has declined more than 5 percent since 2009, and it's still declining.  This is the price of austerity. If public sector employment had been growing normally during this period, we'd have about a million more jobs than we do now and the unemployment rate would probably be below 6 percent. We are our own worst enemies.

Job Growth Slumps. Employment Surges.  --More people have gone to work during the past three months than at any time in decades. Those same three months have seen fewer jobs created than during any similar stretch in more than a year.Both of those statements are true, or at least can be supported by Labor Department surveys. It is just that the surveys disagree. According to the household survey, in January 1,717,000 more people were working than were working in October, adjusted for a small change due to changes in population estimates that are made each January. That is an average monthly gain of 572,000.  The Bureau of Labor Statistics has a series that adjusts for such changes going back to 1990. During that period, the largest three-month change was a gain of 1,449,000 in the three months through October 1994.  Meanwhile, the establishment survey reported that total employment rose by 462,000 jobs from October 2013 to last month, an average of 154,000. That was the smallest three-month increase since the summer of 2012.The discrepancy can be traced to the fact that the two surveys are different in concept, and often different in result. The household survey is based on calls to households, asking who in the household was working during a particular week in the month. It is much more volatile than the other survey, and is (almost) never revised.Over time, of course, the two surveys will tell similar stories. But they can diverge substantially over short periods of time.

About Those 2.9 Million Jobs Lost In January...Much has been said about the January Non-farm payrolls number, which rose by 113K on expectations of a 180K increase, most of which has been focused on the US atmospheric conditions during the winter. There is a problem with those numbers: they don't really exist (as for the non-impact of "the weather" on jobs we showed previously that the number of people "not at work due to weather" as calculated by the BLS itself. this winter was lower than 2008, 2009, 2010, 2011 and 2012 - so much for historic winter weather). So what really happened in January? For the real answer we have to go to the BLS' non-seasonally adjusted data series. It is here that we find that in January, some 2.870 million real, actual jobs were lost, not gained. Putting this further in perspective, the number of NSA jobs losses in January 2014 was greater than in January of 2013, 2012, 2011 and tied that of 2010. In fact only during the peak of the depression in January 2009 was there a greater NSA drop in the first month of the year when 3.691 million jobs were lost.

Employment Data Headlines Were Wrong for January, But Bleak Employment Situation Remains - Yes, we know that the nonfarm payrolls headline number for January was wrong, but those who concluded that job growth is weak are correct. It just was not as weak in January as they thought. The real problem, and tragedy, lies in the fact that the five to ten million fake jobs that the late, lamented housing bubble spawned are never coming back. So the Fed tries to stimulate new bubbles, hoping that they will generate new kinds of fake jobs to replace the ones that were lost when the US housing mirage of 2002 to 2006 got vaporized. Yes, prices have largely recovered, but sales and construction and mortgage volume haven’t and they won’t for as long as it matters. Furthermore, bubbles that are limited to financial assets don’t stimulate jobs at all. They encourage speculation, but not real investment. Bankers and speculators benefit, job seekers don’t. Both total and full time employment are only back to 2006 levels in spite of a decent month in January. Job growth is merely keeping pace with population growth. The market has recovered only about half of the 9 million jobs that materialized during the peak years of the housing bubble. A key measure of how well or poorly the jobs picture is for American workers is the full time employment data. According to the BLS household survey, full time jobs fell by 887,000 in January. That’s the actual number, not seasonally adjusted. January is always a down month, in fact the biggest down month of every year, as seasonal retail workers get laid off after the holidays. Looking at the decline of 887,000 compared with prior years, this was a very good number. It was much better than the January 2013 decline of 1.2 million, and was second only to the January 2011 decline of 834,000, which was the best performance over the previous 10 years. The average decline for January from 2003 to 2013 was -1.4 million. The crying, moaning, and gnashing of teeth over the January jobs data was completely misplaced. On an annual basis, there were 1.9 million more jobs this January than in 2013, a gain of 1.7%. That was right in the mid range of the annual rate of gain going back to November 2011. In terms of the monthly release, this is more evidence that the headline writers and mainstream journalists overreacted to the faulty January non farm payrolls data.

Forget the Weak Payroll Numbers. January’s Employment Report was Fundamentally Positive - Although the news that the U.S. economy generated just 113,000 new payroll jobs in January 2014 disappointed many observers, the latest report from the BLS on the employment situation was fundamentally positive. That was evident not only from the 6.6 percent unemployment rate, down nearly half a percentage point over the last two months, but also from many underlying measures of employment stress—part-time work, long-term joblessness, and others. Let’s start with the bad news and get it out of the way. January’s 113,000 new payroll jobs marked the second month in a row of low job growth. December’s even lower figure was revised up by just 1,000 jobs to 75,000. Even here, though, the news was not all bad. The relatively robust November job gain was revised up from a first-reported 203,000 to 274,000. In addition, the BLS rebenchmarked its data, as it does each year, to reflect a more comprehensive count of payrolls. The rebenchmarking increased job growth for the year by 136,000, bringing the total gain to 2,322,000. The following chart shows the rebenchmarked data. Data from the household survey were considerably more upbeat than those from the establishment survey on which the data for payroll jobs are based. The two surveys differ in several ways. Among other things, the household survey includes self-employed and farm workers. It also counts workers, not jobs; one worker with two jobs gets double-counted in the establishment survey. The household survey showed strong improvement in the labor market—630,000 more employed workers and 115,000 unemployed than in December. The unemployment rate fell to 6.6 percent, the lowest in more than five years.  In contrast to December, when a decrease in the unemployment rate was largely attributed to a decrease in the labor force, the number of people working or looking for work rose by 523,000. Both the labor force participation rate and the employment-population ratio increased.

3 charts that show the US job market remains in frightful shape - In congressional testimony today, new Federal Reserve Chair Janet Yellen said, “The recovery in the labor market is far from complete.”To say the least. Then Yellen mentioned two metrics beyond the official jobless rate that prove her case: the share of long-term unemployed and the high percentage of Americans working part-time who would prefer full-time jobs. Here are some charts illustrating Yellen’s points:

  • 1.) Long-term unemployment remains at historically high levels:
  • 2.) The unemployment/underemployment rate remains at historically high levels:
  • 3.) The share of the unemployed who’ve been out of work for six months or longer remains at historically high levels:

Gallup vs. BLS Unemployment Differs by Nearly 3 Million Workers  - Inquiring minds note a huge discrepancy between Gallup measured unemployment and BLS reported unemployment. Please consider the Gallup Daily: U.S. Employment report.  Gallup says "Because results are not seasonally adjusted, they are not directly comparable to numbers reported by the U.S. Bureau of Labor Statistics, which are based on workers 16 and older. Margin of error is ±1 percentage point." However, the BLS maintains both seasonally-adjusted data and non-adjusted data. Gallup data is comparable (or at least should be) to BLS unadjusted data. Unemployment Rate Comparison:

  • BLS: 7.0%
  • Gallup: 8.9%
The non-seasonally adjusted Civilian Labor Force is 154.381 million. Thus, the 1.9 percentage point difference in the unemployment rate equates to about 2.93 million employees.Something is wrong with at least one of the above data series.

BLS: 4 Million Jobs Openings in December - From the BLS: Job Openings and Labor Turnover Summary -There were 4.0 million job openings on the last business day of December, little changed from November, the U.S. Bureau of Labor Statistics reported today.... Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits (not seasonally adjusted) increased over the 12 months ending in December for total nonfarm and total private and was little changed for government.The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  This series started in December 2000. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for December, the most recent employment report was for January. Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings decreased slightly in December to 3.990 million from 4.033 million in November. The number of job openings (yellow) is up 10.5% year-over-year compared to December 2012. Quits increased in December and are up about 12% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits"). Not much changes month-to-month in this report - and the data is noisy month-to-month, but the general trend suggests a gradually improving labor market. It is a good sign that job openings are close to 4.0 million and are at 2005 levels - and that quits (mostly voluntary separations) are up sharply year-over-year.

Data on Hiring, Quitting Point to Job Softness at Year End - Americans are getting more confident when it comes to quitting jobs — a good sign — but it’s going to take some time for workers to put the scars of the recession behind them. Economy-watchers, including Janet Yellen, the new chairwoman of the Federal Reserve, consider the willingness of workers to leave their jobs for better ones an important gauge of the job market’s health. Especially now, with the U.S. unemployment rate often falling for the “wrong” reasons — many workers have given up hunting for jobs over the past year, which means they no longer count as “unemployed” –  Ms. Yellen and other economists and policy-makers are keeping their eyes trained on a wider array of indicators to gauge the labor market’s real progress. Voluntary quitting, which Ms. Yellen has written about, is important for the economy because if workers don’t quit, there are fewer openings for other job seekers, including those who’ve lost jobs or new graduates. Most job openings come from people leaving jobs — not from newly-created positions. And existing job positions tend to be easier to get for workers than new ones. The voluntary quit rate weakened a little in December, but, as the Journal reported Monday, the longer-term trend is one of significant improvement. Some 2.37 million Americans quit their jobs in December, the Labor Department said Tuesday, down ever-so-slightly from 2.41 million in November. The “quits rate,” or the number of quits as a share of overall employment, fell to 1.7%, from 1.8%. This gauge has made considerable progress, rising from a low of 1.2% in September 2009, when the economic recovery was just starting, but the latest data suggest improvements remain stop-and-go: We’re still well below the average quits rate of about 2.1% seen before the recession. Other data in Tuesday’s report also pointed to softness in the labor market. Hiring, in particular, remains disappointing. The “hires” rate, or the number of hires as a share of total employment, ticked down to 3.2% from 3.3%, suggesting businesses really did slow their hiring in December, when the economy saw net job creation (hires minus separations like layoffs and quits) of only 75,000 jobs — much less than economists had expected.

December JOLTS, and Very Good News Regarding the Beveridge Curve (updated)  -  JOLTS continues to indicate a tepid but consistent labor recovery.  The strange drop in short-duration unemployment from the December Household Survey doesn't seem to show up in the JOLTS data at all. Here are updated graphs:Below is the Beveridge Curve - the relationship between job openings and the number of unemployed workers. After a decades-long shift to the left, the relationship began to shift to the right in 2008. I have attributed this shift, partly, to the sizable minimum wage hikes in 2008 and 2009 and to extended unemployment insurance. EUI was discontinued at the end of 2013, and the minimum wage level, compared to average wages, is trending back to 2008 levels. So, especially because of EUI, I expect to see a shift back toward the 2008 curve position over the next 6 to 12 months. It looks like we have already started to see this reshifting in December and January. Here is a short paper from the Boston Fed, which disaggregates the Beveridge Curve by age and by reason for unemployment. It's findings are very interesting. There is a bifurcation of results. Many of the subpopulations show essentially no shift in the curve. As of January 2013, the additional unemployment, relative to job openings, was mostly the result of 2 groups, split roughly 50-50: 1) Job leavers, new entrants, and re-entrants, between 20 and 34 years old. 2) Job losers, 45 years and older.

Lesser Known Improvements in the US Labor Market - The headline unemployment rate gets almost all of the attention, but the U.S. Bureau of Labor Statistics also publishes the results of the Job Opening and Labor Turnover Survey (JOLTS), which gives more detail on underlying patterns of hiring and firing. The JOLTS numbers for December 2013 came out on Tuesday, and here are a few of the highlights that caught my eye. One useful measure of the state of the labor market is the number of unemployed people per job opening. After the 2001 recession this ratio reached nearly 3:1, and during the worst of the Great Recession there were nearly 7 unemployed people for every job opening. But by December 2013, the ratio was back down to 2.6--not quite as healthy as one would like, but still a vast improvement.  Another measure is the ratio of quits to layoffs/discharges. Quits are when a person leaves a job voluntarily. Layoffs and discharges are when people are separated from their job involuntarily. In a healthy economy, more people quit than are forced to leave, so the ratio is above 1.  We have now returned to an economy where those who leave their jobs are more likely to have done by quitting voluntarily than by being laid off or discharged involuntarily.  Finally, the Beveridge curve shows a relationship between job openings and unemployment in an economy. The usual pattern is that when job openings are few, unemployment is higher, and when job openings are many, unemployment is lower. As the illustration shows, since the recession ended, the U.S. economy has not moved back up the same Beveridge curve. Instead, the data since the end of the recession is tracing out a new Beveridge curve to the right of the previous one. The shift in the Beveridge curve means that for a given level of job openings (shown on the vertical axis) the corresponding unemployment rate (shown on the horizontal axis) is higher.

Chart Of The Day: Where Do Jobs Come From, And Where Do They Go To Die? -  In short: young firms. As the following chart summarizing OECD data for the developed world, all the net job creation in the 21st century has come from firms that are 5 years old or less, having even created jobs during the peak years of the post-Lehman depression. And where do jobs go to die? Simple - old corporations, as firms older than 6 years having been net eliminators of jobs since the year 2001! What is perhaps paradoxical about this data, is that as we have shown in the past, the one age group that has benefited the most in the US "New Normal" are old workers, those 55 and above, who have been the net recipients of all job creation since the onset of the second great depression (and whose employment level just hit all time records). As for workers under 55, i.e. those in their prime, they still have several million jobs to recover before they get back to even.

I Can’t Find Enough Skilled Workers! (At the Crappy Wage I’m Offering…) - I thought this WSJ article on starting pay levels for airplane pilots of regional carriers provided an excellent microcosm of a point that is widely underappreciated.  And that point is this: When you hear employers complaining about how they can’t find the skilled workers they need, remember to plug in the unstated second part of the sentence, “…at the wage I’m willing to pay.” A widening shortage of U.S. airline pilots is spotlighting the structure of an industry built on starting salaries for regional-airline pilots that are roughly equivalent to fast-food wages. The shortage’s toll rose Tuesday, as Republic Airways Holdings Inc…said it would remove 27 of its 243 aircraft from operation because it couldn’t find enough qualified pilots… Starting pilot salaries at 14 U.S. regional carriers average $22,400 a year, according to the largest U.S. pilots union. Some smaller carriers pay as little as $15,000 a year. The latter is about what a full-time worker would earn annually at the $7.25-an-hour federal minimum wage. As the piece points out, it takes a significant investment to become a certified pilot and the cost recently went up due to new requirements that increase the minimum levels of flight experience.  It’s also the case that the pay structure in the industry has much higher salary tiers for experienced pilots at the big airlines.  But the magnitude of the mismatch between what it costs to become a pilot and starting salaries will look to any economist as a recipe for a labor shortage.

Applications for Jobless Benefits Rise to 339K  — The number of people seeking U.S. unemployment benefits rose 8,000 last week to 339,000, evidence that layoffs ticked up. Still, the increase wasn’t enough to suggest the job market is worsening.The Labor Department says the four week average of applications, a less volatile measure, increased 3,500 to a seasonally adjusted 336,750. The average is roughly in line with pre-recession levels and suggests that, despite last week’s rise, companies are cutting few jobs. Applications are a proxy for layoffs. Last week’s figure may also have been pushed up by cold weather, which can cause construction firms and other companies to stop work. A total of 3.52 million Americans received benefits as of Jan. 25 — the latest data available — up from 3.47 million the previous week.

Weekly Initial Unemployment Claims increase to 339,000 -- The DOL reports: In the week ending February 8, the advance figure for seasonally adjusted initial claims was 339,000, an increase of 8,000 from the previous week's unrevised figure of 331,000. The 4-week moving average was 336,750, an increase of 3,500 from the previous week's revised average of 333,250.The previous week was unrevised. 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 336,750. This was the higher than the consensus forecast of 330,000

Vital Signs: Work Stoppages Fall in 2013 - Fewer U.S. workers walked the picket line last year. The U.S. had 15 major strikes or lockouts in 2013, down from 19 each in 2011 and 2012, according to Labor Department data out Wednesday. The number of workers affected dropped sharply to just 55,000 last year from 148,000 in 2012 and 113,000 in 2011. The number of major stoppages (which Labor defines as involving 1,000 workers or more and lasting at least one work shift), has dwindled as union membership has declined in the U.S. Not surprisingly, stoppages are more common among state and local government workers who also tend to be more unionized than private-sector employees. According to the Labor report, the longest work stoppage in 2013 was between the New York City Public Schools and the Amalgamated Transit Union Local 1181, while the stoppage involving the University of California Medical Centers and American Federation of State County and Municipal Employees Local 3299 involved the highest number of workers, 18,800.

Is America working? - “America Isn’t Working” screams the headline on this piece by David Wessel of the Hutchins Centre. One in six American men between the ages of 24 and 54 is out of work and the majority of these are not looking for work, either. About a fifth of them are receiving disability benefits. Apparently policies are needed to combat what Charles Murray dubs this “epidemic of idleness”.But it isn’t that simple. As an aside, Wessel mentions that 70% of women aged 24-54 are working. Indeed they are – in fact it is over 70%. This chart has fascinated me for quite a while: The transformation in working patterns for both men and women is striking. Nor is this change restricted to the US. Here is the UK (this is from ONS as FRED’s data only goes back to 2000): And the ECB reports a similar change in working patterns for the Euro area, although their data only goes up to 2008. The pattern across both the US and Europe for nearly half a century has been declining male employment. For the first thirty years, that was accompanied by sharply rising female employment, but female employment has levelled off since about 1990. Wessel says the reasons for this are “unclear” but I think they might have something to do with this: That’s the proportion of the Chinese population that is employed in industrial production. I’m wary of the “lump of labour” fallacy, but it seems to me that stagnating female employment in Western countries is not unrelated to the industrialisation of China.

Enslave the robots and free the poor -  -- Walter Reuther, head of the US car workers’ union, told of a visit to a new automatically operated Ford plant. Pointing to all the robots, his host asked: “How are you going to collect union dues from those guys?” Mr Reuther replied: “And how are you going to get them to buy Fords?” Automation is not new. Neither is the debate about its effects. How far, then, does what Erik Brynjolfsson and Andrew McAfee call The Second Machine Age alter the questions or the answers?I laid out the core argument last week. I noted that the rise of information technology coincides with increasing income inequality. Lawrence Mishel of the Washington-based Economic Policy Institute challenges the notion that the former has been the principal cause of the latter. Mr Mishel notes: “Rising executive pay and the expansion of, and better pay in, the financial sector can account for two-thirds of increased incomes at the top.” Changing social norms, the rise of stock-based remuneration and the extraordinary expansion of the financial sector also contributed. While it was a factor, technology has not determined economic outcomes. The economic impacts of new technologies are many and complex. They include: new services, such as Facebook; disintermediation of old systems of distribution via iTunes or Amazon; new products, such as smartphones; and new machines, such as robots. The latter awaken fears that intelligent machines will render a vast number of people redundant. A recent paper by Carl Frey and Michael Osborne of Oxford university concludes that 47 per cent of US jobs are at high risk from automation. In the 19th century, they argue, machines replaced artisans and benefited unskilled labour. In the 20th century, computers replaced middle-income jobs, creating a polarised labour market. Over the next decades, however, “most workers in transport and logistics occupations, together with the bulk of office and administrative support workers, and labour in production occupations, are likely to be substituted by computer capital”. Moreover, “computerisation will mainly substitute for low-skill and low-wage jobs in the near future. By contrast, high-skill and high-wage occupations are the least susceptible to computer capital.” This, then, would exacerbate inequality. Jeffrey Sachs of Columbia university and Laurence Kotlikoff of Boston university even argue that the rise in productivity might make future generations worse off in aggregate. The replacement of workers by robots could shift income from the former to the robots’ owners, most of whom will be retired and are assumed to save less than the young. This would lower investment in human capital because the young could no longer afford to pay for it; and in machines because savings in this economy would fall.

Behold the new, new economy? -- Or as the FT’s Martin Wolf says on Wednesday, regarding the increasing automation of the economy …[W]e must reconsider leisure. For a long time the wealthiest lived a life of leisure at the expense of the toiling masses. The rise of intelligent machines makes it possible for many more people to live such lives without exploiting others. Today’s triumphant puritanism finds such idleness abhorrent. Well, then, let people enjoy themselves busily. What else is the true goal of the vast increases in prosperity we have created? If the above is true then the future depends on us being able to successfully redefine labour and purpose — and with it value itself. A new meritocracy based on progress, talent, creativity and doing the previously considered impossible (irrespective of monetary value) must in other words be nurtured. One value system isn’t necessarily going to replace the other overnight, but a period in which two parallel complementing value systems coexist must somehow be encouraged rather than repressed.So far, arguably, the only economy that encourages such a parallel model is China . This is perhaps the reason why western analysts and strategists, who value the economy on western terms, find it consistently breaks all the standard rules and defies all expectations (i.e. doesn’t fall apart as anticipated).

Throwaway Americans -- A bachelor who earned up to $70,000 a year, owned a home, an airplane and two cars, John now is a couple of months from being evicted from his East Falls apartment. He last paid the $1,100 rent in December. He can't afford the rent or the cost of moving or storing his belongings. When the bottom drops out, he's prepared to move into his car with his cat, Charger - and there are payments due on the car. It's hard to see how it could get much worse. He does have an $11-an-hour, desperation part-time job at Lowe's - he's grateful for that - but the monthly $350 check won't keep him from sinking. Unemployment compensation, which was supposed to last a year, "ran out" before the year was up, he was told by the state, and he can't figure out why. He went to his political reps, who showed him sympathy and the door. Swallowing his pride, John applied for welfare and was rejected, applied for food stamps and was turned down, but he's appealing that. He's on the edge of a cliff and as he looks over his life, he can't understand how this happened to him, a regular, hardworking American. There are millions more like him.  e's always worked, and always saved, but invested badly. "I got burned in the dot-com bust" in 2000, he says, then got finished off in the 2008 market implosion.He sold his home, his plane and one car to keep afloat. He used up his $12,000 in savings and is now flat on his back, his calm demeanor masking the unthinkable.

Boomers Turn On, Tune In, Drop Out of U.S. Labor Force - The share of Americans in the labor force, known as the participation rate, is hovering around an almost four-decade low as the population ages and discouraged job seekers give up looking for work. Federal Reserve research shows retirees are at the forefront of the recent exodus, which blunts the impact of policy aimed at boosting the economy and workforce. In the two years ended 2013, 80 percent of the decrease in labor force participation was due to retirement, according to calculations by Shigeru Fujita, a senior economist at the Federal Reserve Bank of Philadelphia. And while the number of discouraged workers rose sharply during and after the recession, the group’s ranks have been roughly unchanged since 2011. That tilts the debate on whether the participation rate can fully rebound alongside the improving economy, as retired workers are unlikely to re-enter the workforce. A tighter supply of workers means wage pressures would build faster than otherwise, something Fed Chairman Janet Yellen may watch as a leading indicator of inflation.

Record Number of Boomers Left the Labor Force -- Whether ideologically or politically motivated, economists and politicians on both sides of the aisle have been debating as to the reason for the falling labor participation rate. Some have been saying it's because middle-aged folks have been shuffling off into early retirement to lounge by the pool; while others are saying it's because millions of people are making fraudulent disability claims to go on the government dole (sometimes after their unemployment benefits run out); and some are saying it's because Americans turned lazy and want free government benefits like food stamps and Medicaid; while economists are arguing whether or not it's either cynical unemployment or structural unemployment. But most Americans, just by observing the month-to-month jobs reports (and by using common sense), are simply saying, "There aren't enough jobs for everybody." If you retired today (left the labor force) and went on Social Security, would your boss hire an unemployed "prime aged" person or a young high school graduate to take your place? Or are employers meeting their current demand for goods and services with fewer workers, leaving your spot vacated, while having your previous co-workers to pick up the extra slack? The same is true for those who could no longer work, quit their jobs, and applied for disability—would an employer look through a stack of applications and hire someone else to replace them? If you left the labor market today (for any reason at all) wouldn't that theoretically open up one position for one of 92.5 million Americans that are "not in the labor force"—of which a possible 48 million people say they want a full-time job—or one of the 10.2 million people that the labor department currently claims is "unemployed" — and is still a part of the labor force?

Structural Demographic Trends in Employment: Monthly Update - The Labor Force Participation Rate (LFPR) is a simple computation: You take the Civilian Labor Force (people age 16 and over employed or seeking employment) and divide it by the Civilian Noninstitutional Population (those 16 and over not in the military and or committed to an institution). The result is the participation rate expressed as a percent. The first chart below splits up the LFPR data since 1948 in two ways: by age and by gender. For the former, I chose the 25-64 age cohorts to represent what we traditionally think of as the "productive" (pre-retirement age) work force. The BLS has data for ages 16 and over, but across this 64-year time frame college attendance has surged dramatically. So I opted for age 25 as the lower boundary to reduce the college-years skew. Note the squiggly lines for the productive years and jumbled dots for the older cohorts. These result from my use of non-seasonally adjusted data. The BLS does have seasonally adjusted data for many cohorts, but not the older ones, so I used the non-adjusted numbers for consistency. The next chart eliminates the squiggles with a simple but effective seasonal adjustment suitable for long timeframes, a 12-month moving average. I've also added some callouts to quantify the data in 1948 and the present. It doesn't take Ph.D. in sociology to recognize some significant changes in the chart above. The growth of women in the workplace, the solid red line, was a major trend. The financial advantage of two income households was boosted by Title VII of the Civil Rights Act of 1964, which prohibits discrimination by race, color, religion, sex, or national origin. As for the age 25-64 cohorts, the participation rate for men peaked way back in May 1954 at 95.9%; for women it was fifty years later in October 2004 at 72.8%, and for the combined cohort is was in March 1998 at 80.2%.  However, the LFPR for the "elderly" (a term I use respectfully as a member of that cohort) flattened out in the mid-1980s and then began increasing -- slowly at first and more significantly around the turn of the century, as the numbers for the productive cohort continued to decline. The next chart gives us a clearer look at the relative patterns of growth and contraction.

Demographic Trends in the 50-and-Older Work Force: Monthly Update - In my earlier update on demographic trends in employment, I included a chart illustrating the growth (or shrinkage) in six age cohorts since the turn of the century. In this commentary we'll zoom in on the age 50 and older Labor Force Participation Rate (LFPR). But first, let's review the big picture. The overall LFPR is a simple computation: You take the Civilian Labor Force (people age 16 and over employed or seeking employment) and divide it by the Civilian Noninstitutional Population (those 16 and over not in the military and or committed to an institution). The result is the participation rate expressed as a percent. For the larger context, here is a snapshot of the monthly LFPR for age 16 and over stretching back to the Bureau of Labor Statistics' starting point in 1948, the blue line in the chart below, along with the unemployment rate. The overall LFPR peaked in February 2000 at 67.3% and gradually began falling. The rate leveled out from 2004 to 2007, but in 2008, with onset of the Great Recession, the rate began to accelerate. The latest rate is 63.0%, back to a level first seen in 1978.  It might seem intuitive that the participation rate for the older workers would have declined the fastest. But exactly the opposite has been the case. The chart below illustrates the growth of the LFPR for six age 50-plus cohorts since the turn of the century. I've divided them into five-year cohorts from ages 50 through 74 and an open-ended age 75 and older. The pattern is clear: The older the cohort, the greater the growth. The table inset in the chart above shows the participation rate for the latest month and the percentage growth since January 2000. The adjacent table rounds the rates to integers for January 2000 and for the latest month. Essentially this table gives us two snapshots: The number of workers per hundred for each of the six cohorts at the turn of the century and the number of workers per hundred now. This is not the scenario that would have been envisioned a generation ago for the "Golden Years" of retirement. Consider: Today nearly one in three of the 65-69 cohort and almost one in five of the 70-74 cohort are in the labor force.

Review of Tricky Issues in Labor Force Participation - This post from the Mercatus Center offers a good overview of the complications that arise from adjustments that need to be made with analysis of Labor Force Participation.  They have adjusted for age, which is an important first step.  Here's a graph they use, with my notations added:
1:  This is the one group with a truly unusual drop in LFP.  Some of this is a part of a long term cultural shift toward longer time spent in education.  But, the shock specific to the current time period was the 3 hikes in the minimum wage from 2007 to 2009.  In 2006, about 4% of the 16-24 year old labor force worked at or below the federal minimum wage.  By 2010, that was up to 10%.Here is the 16-24 year old LFP rate, from the BLS: Note how LFP in this age group dropped precipitously from 2007-2009, and has been flat since then.  This is a distinctly different character from the other age groups.  Minimum wages affect a larger proportion of this age group compared to the other age groups.The unusual decline in this age group can be attributed to the minimum wage, but that shock to labor demand ended 4 years ago.
2:  The movements in the 45+ age groups have, on net, been positive, and mostly reflect the undulations of boomer populations through these groups and the tendency of baby boomers to work later than earlier generations.  So, this group has seen an anomalous net increase in labor force participation during a cyclical downturn.
3:  This group represents the heart of the labor force, and the age group LFP declines appear to still be damning, even when looking at the age groups.  The average LFP drop here has been about 1.9% since 2007.  But, there are additional adjustments that need to be made.

A Second Look at the Employment-to-Population Ratio - Atlanta Fed's macroblog - This analysis is a companion piece to my Atlanta Fed colleague John Robertson's recent macroblog post. John's blog highlighted some findings of a recent New York Fed study by Samuel Kapon and Joseph Tracy on the employment-to-population (E/P) ratio. Their work has received considerable attention in the media and blogosphere (for example, here, here, and here). Kapon and Tracy's final chart (reproduced below) has received particular scrutiny.  (enlarge)  The blue line represents the authors' estimate of the demographically adjusted E/P ratio purged of business-cycle effects. This line can be thought of as "trend." The chart shows that as of November 2013, the E/P ratio was only –0.7 percentage point below trend. Was the "gap" between actual and trend E/P really this small? Attempting to answer this question requires digging into the details of Kapon and Tracy's method for estimating trend. One key excerpt is the following: To overlay our demographically adjusted E/P ratio with the actual E/P ratio, we need to adopt a normalization… [W]e adopt the normalization that over the thirty-one years in our data sample [1982–2013] any business-cycle deviations between the actual and the adjusted E/P ratios will average to zero. This methodology seems reasonable since one might typically expect business cycle effects to average out over 30 years. However, the 1982–2013 sample period is somewhat unusual in that the unemployment rate was elevated at both the starting and ending points.

The US Participation Rate Is At A 35 Year Low: This Is How It Looks Broken Down By State - Now that absolutely everyone is laser-focused more on the participation print, recently at 35 year lows, than the actual unemployment number which even the Fed has implied is meaningless in the current context, one thing to note is that while the overall number is a blended average across the US, it certainly differs on a state by state basis. 4In order to get a sense of which states are the winners and losers in the payroll to participation ratio, we go to Gallup, which conveniently has broken down this number on a far more granular basis. Gallup finds that Washington, D.C., had the highest Payroll to Population (P2P) rate in the country in 2013, at 55.7%. A cluster of states in the Northern Great Plains and Rocky Mountain regions -- North Dakota, Nebraska, Minnesota, Wyoming, Iowa, Colorado, and South Dakota -- all made the top 10. West Virginia (36.1%) had the lowest P2P rate of all the states.

America's Make-Work Sectors (Healthcare & Higher Education) Have Run Out of Oxygen - We can no longer afford the expansion of healthcare/education or their out-of-control costs. If we strip away obscuring narratives, we can clearly see that the two employment sectors that have expanded rain or shine for decades have functioned as gigantic make-work projects. I refer of course to healthcare and education, specifically higher education. We can see the outsized gains in these sectors by comparing total population growth to the number of full-time jobs and the number of jobs in education/healthcare since 1990. Here is total population: a 27% increase since 1990: To separate out the wheat (jobs that support households) from the chaff (part-time work that cannot support a household--even a job with one hour a week is counted as a P-T job), let's use full-time employment as a baseline. Full-time employment rose about 20% since 1990, less than population.Education/healthcare employment rose by 81% since 1990--three times the population growth rate and four times the percentage increase in full-time employment.

The Spectacular Myth of Obama's Part-Time America—in 5 Graphs -  If you've been paying attention to a certain slice of the financial media—see: Forbes, The Wall Street Journal, CNBC, and Fox News—you know for a fact that Obama and his health care law have tag-teamed with global economic trends to drive America inexorably toward a part-time economy. This is a testable claim. So let's test it. The first thing you would expect to see from a Part-Time America is that the number of part-time jobs added would rival the number of full-time jobs added. But in the last year, new full-time jobs outnumbered part-time jobs by 1.8 million to 8,000. For every new part-time job, we're creating 225 full-time positions. The second thing we should expect to see from Part-Time America is a growing number of part-time jobs since Obama came into office and started passing laws. Here's a graph showing the number of people working part-time for economic reasons since March 2010, the month Obamacare was passed. Huh, nothing there. In fact, the number part-time workers has fallen in the last four years. Okay, well, raw numbers can be deceiving. After all, the labor force has declined since 2010. So let's graph these part-time workers as a share of the labor force. Surely that will show a rising line... ... dang it.

The Long and Short of It: The Impact of Unemployment Duration on Compensation Growth - NY Fed - How tight is the labor market? The unemployment rate is down substantially from its October 2009 peak, but two-thirds of the decline is due to people dropping out of the labor force. In addition, an unusually large share of the unemployed has been out of work for twenty-seven weeks or more—the long-duration unemployed. These statistics suggest that there remains a great deal of slack in U.S. labor markets, which should be putting downward pressure on labor compensation. Instead, compensation growth has moved modestly higher since 2009. A potential explanation is that the long-duration unemployed exert less influence on wages than the short-duration unemployed, a hypothesis we examine here. While preliminary, our findings provide some support for this hypothesis and show that models taking into account unemployment duration produce more accurate forecasts of compensation growth.

Writing Off the Unemployed, by Paul Krugman - It’s difficult to find a better example of the hardhearted, softheaded nature of today’s G.O.P. than what happened last week, as Senate Republicans once again used the filibuster to block aid to the long-term unemployed. What do we know about long-term unemployment in America? First, it’s still at near-record levels. Historically, the long-term unemployed — those out of work for 27 weeks or more — have usually been between 10 and 20 percent of total unemployment. Today the number is 35.8 percent. Yet extended unemployment benefits, which went into effect in 2008, have now been allowed to lapse. As a result, few of the long-term unemployed are receiving any kind of support. Second, if you think the typical long-term unemployed American is one of Those People — nonwhite, poorly educated, etc. — you’re wrong, according to research by the Urban Institute’s Josh Mitchell. Half of the long-term unemployed are non-Hispanic whites. College graduates are less likely to lose their jobs than workers with less education, but once they do they are actually a bit more likely than others to join the ranks of the long-term unemployed. And workers over 45 are especially likely to spend a long time unemployed. Third, in a weak job market long-term unemployment tends to be self-perpetuating, because employers in effect discriminate against the jobless. What all of this suggests is that the long-term unemployed are mainly victims of circumstances — ordinary American workers who had the bad luck to lose their jobs (which can happen to anyone) at a time of extraordinary labor market weakness, with three times as many people seeking jobs as there are job openings. Once that happened, the very fact of their unemployment made it very hard to find a new job. So how can politicians justify cutting off modest financial aid to their unlucky fellow citizens?

Extended Benefits Kept U.S. Jobless Rate Higher, Study Says -- After the recession, extended jobless benefits kept the unemployment rate half a percentage point higher than it otherwise would have been, according to new research from the Federal Reserve Bank of Atlanta. Extending the maximum length of benefits beyond 26 weeks made highly educated unemployed people “more ‘relaxed’ and more patient in selecting jobs,” wrote Lei Fang and Jun Nie in a new working paper, “Human Capital Dynamics and the U.S. Labor Market.” Had unemployment benefits not been extended, they estimated, “the unemployment rate during the 2010-2012 period would have been 0.5 percentage point lower than the actual level.” Making benefits available to people who have been out of work for more than six months has been the subject of national debate in recent months, with federal funding for extended benefits expiring in late December. Many economists say the end of extended benefits will help bring down the unemployment rate, which stood at 6.6% in January, as unemployed people take jobs or drop out of the workforce.  One of the findings by Ms. Fang, an economist at the Atlanta Fed, and Mr. Nie, an economist at the Federal Reserve Bank of Kansas City, in their paper was that extended benefits kept the unemployment rate higher than it otherwise would have been, especially for more-educated workers. Economic output was depressed because fewer people were working, but extended benefits also increased labor productivity because they “allowed unemployed workers to be more patient in selecting jobs” and find better matches, the economists wrote.

What do the jobless do when the benefits end? - The end to federal jobless benefits for nearly 2 million people has sparked a bitter debate in Congress about whether Washington is abandoning desperate households or simply protecting strained government coffers. It is also providing real-time answers to a question economists have long pondered: How do people survive when they suddenly have no money coming in?  Studies show that about a third of the people cut off from long-term unemployment benefits will find help from Social Security or other government programs. Others will cobble together dwindling savings or support from family. But most baffling to economists are the people who appear to come up with more-idiosyncratic solutions, which are tough to identify and almost impossible to track.  Never in more than 65 years have so many workers been without a job and without a government lifeline. Congress cut off 1 million people en masse in December when it permitted a special emergency program for the long-term unemployed to lapse. Since then, their ranks have been growing by about 72,000 a week, according to the National Employment Law Project (NELP), which lobbies on behalf of the jobless.

The WSJ Wants to Blame Obamacare for Weak Hiring, but It's Not Quite Sure Why -- Dean Baker - The Wall Street Journal reported on the weak January jobs number. It's sure that Obamacare is somehow responsible, it just can't quite get a clear story together. The article begins:"A hiring chill hit the U.S. labor market for the second straight month in January, reflecting employers' reluctance to take on new workers despite some of the nation's strongest economic growth in years."So the story is that the economy is growing rapidly, but firms for some reasons are not hiring workers. We get that more explicitly a couple of paragraphs down. "The report left several puzzles unanswered, including the dichotomy of solid growth and weak hiring. Throughout the recovery, businesses have been able to boost production at a faster pace than employment. That trend could also be supporting GDP growth despite the hiring slowdown."After giving us a bit more information about the new jobs numbers the article returns to Obamacare: "The health-care sector added just 1,500 jobs in January after a gain of 1,100 jobs in December. The sector had supplied a steady stream of jobs for years, raising more questions about whether the rollout of the Affordable Care Act last fall is restraining hiring.  Anyhow, everyone should know that the WSJ is working hard to convince us that Obamacare is really bad for job growth. One day they may have some evidence to support this view. Btw, this is a news article.

GOP senator to Fox News: Providing access to health care just makes people lazy - Sen. Roy Blunt (R-MO) on Sunday suggested that President Barack Obama’s health care law would make some people so lazy that they didn’t want to work at all. Last week, Republicans used a Congressional Budget Office (CBO) report that said 2.3 million less hours would be worked after the Affordable Care Act was implemented to claim that the law was destroying jobs.  A Washington Post fact check, however, pointed out that access to health care meant that people would no longer be forced to work if their only reason for working was to receive insurance benefits. But on Sunday, Blunt stuck to the Republican talking point, saying that providing health care “can’t be a good idea” if it allowed people who were only working for health insurance benefits to leave the workforce.  “I think any law you pass that discourages people from working can’t be a good idea,” the Missouri Republican asserted. “Why would we wanna do that? Why would we think that’s a good thing? How does that allow people to prepare for the time when they don’t work?”

ObamaCare Is a Job-Killer? Not at All - Alan Blinder - The political echo chamber reverberated loudly last week after a new Congressional Budget Office report allegedly projected that cumulative job growth over the next 3-10 years could be 2 million-2.5 million lower because of the Affordable Care Act (ACA). Does that mean "ObamaCare" is a job killer? Not at all. But to understand why, we need to take a trip down memory lane—back to Economics 101.  The essential point is to distinguish between changes in demand and changes in supply. If something happens to decrease the demand in a market, both price and quantity decline as a consequence of having fewer buyers. But if something happens to decrease supply (now, it's fewer sellers instead), quantity still declines, but price rises. In the case of the labor market, that translates to less work but higher wages.  Now cut to the CBO report, where the relevant market is the national market for labor, especially low-wage labor. The CBO makes it crystal clear that its analysis suggests that U.S. labor supply, not labor demand, would likely be reduced by various provisions of the ACA. Fewer sellers, not fewer buyers. That means, for openers, that the ACA should raise wages, especially low wages. More germane to the political brouhaha, it also means that the decline in work does not mean jobs being destroyed but rather that some people are choosing to work less—or not at all. That doesn't sound so bad.

WaPo Praises The Joy Of Being "Untethered" And "Unleashed" From A Job, The "Freedom" Of Unemployment - Now that the full court press to refute the findings of the CBO report which, as we reported, confirmed what was largely known - that as a result of Obamacare, the strapped US economy will have even fewer workers as millions will fall back on welfare state entitlements which make hard work obsolete - has failed, it is time for the propaganda to take a different track: one where not having a job, and in fact losing it due to Obamacare, is hailed as an act of nobility. Sure enough, here comes one of the administration's favorites, the Bezos Times, with "They quit their jobs, thanks to health-care law" which does largely as its name suggests: highlights just how "enabling" and "liberating" Obamacare is for one's life, once a person is no longer burdened by something as trivial as a job.

Why Did CBO Wait? – Taylor - Why did the Congressional Budget Office (CBO) wait until now to inform the Congress and the rest of the country about the large negative effects of Obamacare on employment and hours of work?  (See CBO Budget and Economic Outlook pp 117-127). The disincentive effects on labor supply and demand were well known from the time the law was passed, and, more importantly, before the law was passed.  A more timely analysis could have altered or even stopped the legislation. The CBO asked itself this question in its report (See section “Why Does CBO Estimate Larger Reductions Than It Did in 2010?” on page 118), answering that it  “reviewed new research about those effects” referring to 2013 working papers by Casey Mulligan and to others. But similar research was done earlier. In fact it’s pretty old and straight forward. My colleague Dan Kessler reported some of his findings in an article How Health Reform Punishes Work  in the Wall Street Journal in April 2011, and I blogged about it here.  In fact, the nature of the disincentive effects was so straight forward that I lectured about them in my Economics 1 course at Stanford and put them in my Principles of Economics text.  But regardless of when and whose research on disincentives was done outside the CBO, isn’t this the type of policy evaluation research that the CBO was created to conduct and report to the public in order to inform debate about proposed legislation?

Why Do You Care How Much Other People Work? - Paul Krugman - The brouhaha over the CBO report – I don’t want to call it a debate, because that would suggest that people on both sides are making sense, or even listening – continues. But there is a massive lack of clarity. This is, no doubt, in large part because incoherence serves the interests of some parties. So let me try this, by asking: why should anyone be upset if some workers take advantage of Obamacare to reduce their working hours, or even drop out of the labor force? That’s a real question, by the way, not a rhetorical one. There are, it turns out, some reasons to be concerned, although they’re much weaker than the rhetoric would lead you to believe. It helps, I’d argue, if you think of the American population as comprising two groups: those who receive subsidies toward their health insurance and those who don’t – the subsidized and the subsidizers. So, we know that Obamacare has costs to the subsidizers, in the form of the subsidies that must be paid – about 0.9 percent of GDP — and that eventually must be reflected in higher taxes or lower spending than would otherwise take place. These subsidies correspondingly represent benefits to the subsidized; yes, Virginia, it’s redistribution, although many people who end up subsidizing rather than subsidized were at risk of being on the other side, and will therefore gain from the insurance aspect. For those who choose to work less, this is a clear gain – otherwise they wouldn’t do it! It’s likely to be especially beneficial because our pre-Obamacare system created so much “job lock”, trapping people in full-time employment because health insurance wasan all-or-nothing affair.

CBO | Frequently Asked Questions About CBO’s Estimates of the Labor Market Effects of the Affordable Care Act - Last week CBO released its latest report on the outlook for the budget and the economy; we also released a companion report that takes a closer look at the slow recovery of the labor market. The budget and economic projections presented in those reports include an updated analysis of the effects of the Affordable Care Act (ACA) on labor markets, which we explain in Appendix C of the report on the outlook. That analysis has attracted a great deal of attention and raised several questions. In this blog posting, we try to answer a few of the questions we have been asked. 

  • Q: Will 2.5 Million People Lose Their Jobs in 2024 Because of the ACA?
  • A: No, we would not describe our estimates in that way.  We wrote in the report: “CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor.” The reason for the reduction in the supply of labor is that the provisions of the ACA reduce the incentive to work for certain subsets of the population.

Blogs review: The labor market effects of Obamacare- the Congressional Budget Office estimates a reduction in full-time equivalent employment of 2.5 million people.  What’s at stake: This week’s controversy came from an 11-page appendix published on Tuesday by the Congressional Budget Office (CBO), which revised its estimate of the Affordable Care Act’s (ACA or Obamacare) impact on labor markets. In 2010, CBO estimated that the ACA would reduce the amount of labor used in the economy by roughly half a percent. On Tuesday, the budget office revised its estimates by a factor of 3, which would translate into a reduction of full-time equivalent employment of 2.5 million people.

Inequality, Dignity and Freedom, by Paul Krugman  -- Now that the Congressional Budget Office has explicitly denied saying that Obamacare destroys jobs, some (though by no means all) Republicans have stopped lying about that issue and turned to a different argument. — it’s still a bad thing because, as Representative Paul Ryan puts it, they’ll lose “the dignity of work.”.  It’s all very well to talk in the abstract about the dignity of work, but to suggest that workers can have equal dignity despite huge inequality in pay is just silly.  In fact, the people who seem least inclined to respect the efforts of ordinary workers are the winners of the wealth lottery. ...  So what would give working Americans more dignity ... despite huge income disparities? How about assuring them that the essentials — health care, opportunity for their children, a minimal income — will be there even if their boss fires them or their jobs are shipped overseas? Think about it: Has anything done as much to enhance the dignity of American seniors, to rescue them from the penury and dependence that were once so common among the elderly, as Social Security and Medicare? Inside the Beltway, fiscal scolds have turned “entitlements” into a bad word, but it’s precisely the fact that Americans are entitled to collect Social Security and ... Medicare, no questions asked, that makes these programs so empowering and liberating.

Conservatives Concerned About the CBO and the Dignity of Work Should Consider a Higher Minimum Wage --- It’s a shame that Ron Unz’s conservative case for a higher minimum wage gets caught up in the debate over immigration politics, because the arguments are broader and more fascinating, and incredibly important to have as part of the debate. This is especially true in light of last week’s CBO report, which has sent conservatives running to the barricades over the impact of Obamacare on waged work in this country. The conservative case for a minimum wage would address the two main concerns the right has displayed on this topic. Broadly speaking, as summarized by Josh Barro here, there are two separate elements of the conservative take on Obamacare and the CBO’s findings. The first is that it allows people to break “job lock” and leave the labor market. This means there are less people working, which concerns conservatives because, as Ross Douthat put it, paid wage labor is “essential to dignity, mobility and social equality,” and they “see its decline as something to be fiercely resisted.” [1] The second is that, because of the subsidies that are given to low-wage workers, these workers face a higher marginal tax rate.  The fact that they are losing money while earning more money, or that a higher income means a smaller subsidy, functions like a tax. And this means that workers will work a bit less. Liberals in general don’t like this (though they do like that both effects will increase wages, as well they should), but understand it is going to be part of any type of means-tested income support.

Tax Subsidies and the Incentive to Work - Last week a brouhaha erupted over a passage in Appendix C of a Congressional Budget Office report, Budget and Economic Outlook 2014-24. In that appendix, “Labor Market Effects of the Affordable Care Act: Updated Estimates,” the agency reported its estimate that the Affordable Care Act “will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor – given the new taxes and other incentives they will face and the financial benefits some will receive.”  The agency estimated this reduction in hours worked as the “full-time-equivalent workers of about 2 million in 2017, rising to about 2.5 million in 2024.” The agency hastens to point out that this number does not represent jobs no longer offered by employers but, for the most part, the decision of employees not to work. Opponents of the Affordable Care Act and many news reports quickly seized upon this estimate, characterizing it as “dropping a bomb” or having “nuked” Obamacare. Commentators supporting the Affordable Care Act pointed out that the pro-growth effect of the law’s lower health costs would swamp any antigrowth effects from a lower labor supply and that if some Americans decided to work less, given the incentives they face, they would yield available jobs to others willing to work but unable to find a job, which on balance would be a good thing.  It is worth reading Appendix C of the C.B.O. report to get a feel for what is really at stake here. In that appendix the agency explains, for example, that its “estimate that the A.C.A. will reduce employment reflects some of the inherent trade-offs involved in designing such legislation.” Further clarification was offered in a “Frequently Asked Questions” statement by the C.B.O.  As Professor Mulligan properly notes, it is not the economist’s job to come to a judgment on this trade-off.

Unpacking What CBO Actually Said re Work Incentives  - There’s been an outpouring of commentary on the dustup around the CBOs estimates of labor supply effects of the Affordable Care Act.  Summarizing, supporters, myself included, tend to emphasize the release of job lock as a positive function of the law, while opponents stress the work disincentives that result from the loss of premium subsidies as incomes go up. My position has consistently been that neither CBO nor anyone else can tell you the relative magnitudes of these different effects.  So, Like Jon Gruber (supporter), I was struck by assertions made by Casey Mulligan (opponent) as to the dominance of the higher tax rate effects in CBOs estimates of diminished labor supply.  There’s certainly no support for that assertion in the CBO report, leading Gruber to correctly conclude that this is “…simply Mulligan’s editorializing with no substantive basis.” But Jon also makes a point that is worth digging into a bit: “CBO dismisses [Casey’s] argument. According to the report, his suggested effect doesn’t impact labor supply, but rather health insurance offering…”  That’s confusing, so I thought it might be helpful to take a closer look at what the budget agency is saying, with my annotations in brackets.

The Case for a Higher Minimum Wage - NYTimes editorial - The political posturing over raising the minimum wage sometimes obscures the huge and growing number of low-wage workers it would affect. An estimated 27.8 million people would earn more money under the Democratic proposal to lift the hourly minimum from $7.25 today to $10.10 by 2016. And most of them do not fit the low-wage stereotype of a teenager with a summer job. Their average age is 35; most work full time; more than one-fourth are parents; and, on average, they earn half of their families’ total income.  None of that, however, has softened the hearts of opponents, including congressional Republicans and low-wage employers, notably restaurant owners and executives.  This is not a new debate. The minimum wage is a battlefield in a larger political fight between Democrats and Republicans — dating back to the New Deal legislation that instituted the first minimum wage in 1938 — over government’s role in the economy, over raw versus regulated capitalism, over corporate power versus public needs. But the results of the wage debate are clear. Decades of research, facts and evidence show that increasing the minimum wage is vital to the economic security of tens of millions of Americans, and would be good for the weak economy. As Congress begins its own debate, here are answers to some basic questions about the need for an increase.

Fight Over Minimum Wage Illustrates Web of Industry Ties — Just four blocks from the White House is the headquarters of the Employment Policies Institute, a widely quoted economic research center whose academic reports have repeatedly warned that increasing the minimum wage could be harmful, increasing poverty and unemployment. But something fundamental goes unsaid in the institute’s reports: The nonprofit group is run by a public relations firm that also represents the restaurant industry, as part of a tightly coordinated effort to defeat the minimum wage increase that the White House and Democrats in Congress have pushed for.“The vast majority of economic research shows there are serious consequences,” Michael Saltsman, the institute’s research director, said in an interview, before he declined to list the restaurant chains that were among its contributors. The campaign illustrates how groups — conservative and liberal — are again working in opaque ways to shape hot-button political debates, like the one surrounding minimum wage, through organizations with benign-sounding names that can mask the intentions of their deep-pocketed patrons. They do it with the gloss of research, and play a critical and often underappreciated role in multilevel lobbying campaigns, backed by corporate lobbyists and labor unions, with a potential payoff that can be in the millions of dollars for the interests they represent. In this case, the policy dispute is over whether increasing the minimum wage by nearly 40 percent to $10.10 an hour by next year would reduce poverty or further it.

Why My BS-O-Meter Redlined In The Minimum-Wage War - Wolf Richter - “There is never a good time to raise the minimum wage,” explained Joseph Sabia, an associate professor of economics at San Diego State University, to Capitol Hill staff members and reporters. The briefing was co-sponsored by the Employment Policies Institute, whose anti-minimum wage campaign includes seven reports by Sabia, for which he’d received $180,000 from the organization that is in part funded by the fast-food industry, the New York Times reported. Each of these reports found that raising minimum wage did more harm than good, destroyed jobs, or didn’t benefit the poor. The organization’s website features a section evocatively titled, “5 Things You Didn’t Know About the Minimum Wage.” It cites reports by Sabia and others to support its curious findings, among them: “For every 10 percent increase in the minimum wage, teen employment at small businesses is estimated to decrease by 4.6 to 9.0 percent.” Or, “Programs like the Earned Income Tax Credit are far better at helping low-income Americans” than raising wages. The needle on my BS-o-meter instantly redlined. But this is how the minimum wage war is being fought. At stake in Washington: raise it from $7.25 per hour to $10.10 per hour over the next two and a half years. Some states and cities are fighting their own battles over minimum wages or living wages.  If there were a shortage of labor at the low end of the skills scale, minimum wage laws would probably be superfluous. The labor market would take care of it. Companies would have to try harder to attract workers. And wages would go up. Wishful thinking in the US. There is a scarcity of jobs and plenty of jobless people. Without a minimum wage, employers could drive wages down to ridiculous lows in their pursuit of happiness and still be able to hire desperate, starving job seekers.

Obama signs order to raise minimum wage for federal contractors (Reuters) - U.S. President Barack Obama signed an executive order on Wednesday to raise the minimum wage for federal contract workers to $10.10 an hour starting next year and encouraged employers nationwide to increase wages for their workers. Obama announced during his State of the Union address last month that he intended to take executive action to raise wages for federal contract workers. The order will affect workers starting on January 1, 2015, and applies to new contracts and replacements for expiring contracts. true Obama, who has also pressed Congress to enact legislation to raise the minimum wage for all workers nationwide, urged business leaders and government officials to do more to increase workers' incomes. "I would ask any business leader out there, any governor, any mayor, any local leader listening: do what you can to raise your employees' wages," he said, rejecting arguments that doing so would hamper the economy.

After Outcry, White House Extends $10.10 Minimum Wage to Some Disabled Workers - Earlier this month, Working In These Times broke the news that Obama’s promise to raise the minimum wage to $10.10 an hour for federal contractors would not apply to thousands of disabled workers currently receiving subminimum wages—some as low as pennies an hour—under a special exemption from the Fair Labor Standards Act known as 14(c). Now, Working In These Times has learned that following public outcry from disability, civil rights and labor organizations—as well as from President Obama’s own independent advisory board, the National Council on Disability—the administration has decided to include some disabled workers employed in 14(c) programs in the wage increase. Currently, 420,000 disabled workers nationwide are making subminimum wages in 14(c) programs. Disability advocates say there are no firm statistics on how many of these workers are employed by government contractors, but the number is estimated in the thousands. The programs are controversial: While some advocates say that they provide valuable opportunities for disabled workers to learn new skills and eventually get jobs, others argue that the programs treat disabled workers as second-class citizens and maintain a situation in which people with disabilities are three times more likely than other American to live in poverty.

Raising the Federal Minimum Wage to $10.10 Will Not Lead to Job Loss - Does increasing the minimum wage lead to job losses? What does economics literature say? Based on the economic multiplier effect that results from putting additional income in the hands of lower-income workers, raising the minimum wage will likely have a modest but positive impact on job creation, leading to an additional 85,000 net new jobs when fully phased in. Lower-income earners spend their income more immediately, more completely, and more locally, than do higher income earners, and therefore generate more economic activity. Increasing the wages of 27.8 million workers by $35 billion over the phase-in period generates an additional GDP impact of $22 billion. This finding is consistent with the most recent, highly rigorous, peer-reviewed economic literature based on an analysis of real-world minimum wage increases across counties on state borders that shows essentially no disemployment effect resulting from raising the minimum wage.

Some Reasons for Guaranteeing Both an Income and Job -  Two policy proposals receiving increasing attention are the job guarantee (JG) and basic income guarantee (BIG). The first would provide everyone of working age with the option of a guaranteed job. The second would introduce an unconditional income payment. To be clear, I would support either of these as standalone programs, whichever happened to be on the policy agenda. Nevertheless, I think there are a few reasons to prefer a combined policy that integrates elements (perhaps all positive elements) of both programs. In its leanest form, a 'job or income guarantee' (JIG) could provide everyone with the option of accepting a job-guarantee position or, by opting out of the labor force, a means-tested but otherwise unconditional income payment. In expansive form, a JIG could provide a universal and unconditional basic income as well as the option of a guaranteed job for anyone who wanted one. Other intermediate variations on the theme would, of course, also be possible. The expansive form would be ideal, but even the lean version seems to offer some advantages over a standalone JG or BIG. The JIG would ensure two new freedoms:

  • 1. Nobody would be denied a job if they wanted one.
  • 2. Nobody's survival would depend on taking a job.

A JG, of course, would ensure 1 but not 2. A BIG would ensure 2 but not 1. Each would be an improvement on the current situation in which neither 1 nor 2 applies but would fall short of a JIG on these criteria. The significance of 1 and 2 can be viewed in the context of a future in which, increasingly, mechanization will present an opportunity to open up additional free time (to be used productively or in leisure at the individual's discretion) while posing a challenge to employment policy.

Why the economy isn’t doomed - The case for economic doom is easy. Whether it’s liberals worried about widening inequality and middle-class struggles, conservatives saying we’ve lost the war on poverty and are saddling future generations with enormous debt, or polls reflecting fears that the country is heading in the wrong direction, America’s economic decline seems a done deal. Done, that is, until you remember that these challenges have been with us before and have preceded eras of broadly shared prosperity. From slowing health-care costs to rising college graduation rates to a shrinking federal budget deficit, the American economy could look a good deal brighter — and not just for the 1 percent — over the coming decades.The main explanation for stagnant wages is that companies haven’t felt pressure to pay their workers more. But another important reason is that companies have been paying a higher share of employees’ compensation in health-care premiums. Firms think about compensation in terms of salaries plus benefits — and they’ve been paying higher health-care costs, instead of higher wages, as the price of insurance has skyrocketed. Increases in health-care costs have also hit workers directly, since they have to pay more for premiums and co-pays. One study has suggested that a decline in health-care costs could mean thousands of dollars in additional income for a family of four.

America’s last hope: A strong labor movement - The fate of the labor movement is the fate of American democracy. Without a strong countervailing force like organized labor, corporations and wealthy elites advancing their own interests are able to exert undue influence over the political system, as we’ve seen in every major policy debate of recent years. Yet the American labor movement is in crisis and is the weakest it’s been in 100 years. Unionized workers in the public sector now make up the majority of the labor movement for the first time in history, which is precisely why — a la Wisconsin and 14 other states — they have been targeted by the right for all out destruction. The complete collapse of unions would have devastating consequences. The labor movement has played a crucial role in advancing economic justice in the workplace and in politics. Union membership raises median weekly earnings and reduces race- and gender-based income gaps, and union workers are much more likely to receive health care and pension benefits than workers who are not members of a labor union. The decline of organized labor is directly linked to the rise in economic inequality over the last 40 years and the onset of a “Second Gilded Age.” The decline in union density coupled with the decline in the real value of the minimum wage explains one-third of the dramatic growth in wage inequality since the early 1970s.

This is how families go hungry -- A visit to a typical New York food pantry is supposed to get you nine meals, enough to last for three days. While the pantry bags may sometimes include fresh produce or fresh bread, most of the items distributed are a little more humble than that: Maybe some canned chicken, some rice, a couple single-serving packets of oatmeal. Some recipients may be able to stretch their monthly allotment further than others, but that bag of food will never be more than a stopgap to get you to the next paycheck, the next round of food stamp benefits, or—in especially desperate times—the next food pantry visit. Now, even that short-term safety net is becoming more threadbare than ever. On November 1, a $5 billion automatic cut to food stamp benefits pushed America’s already historic levels of hunger and food insecurity even higher. The result was a sharp spike in the number of people accessing emergency food services. In New York, the increased demand has been more than many food pantries are able to handle. Over the next month, nearly a quarter of the city’s pantries have had to conserve resources by cutting down on the amount of food they put in each recipient’s bag. Slightly more than a quarter of the city’s food pantries and soup kitchens have begun to turn people away due to lack of food, according to a survey by Food Bank For New York City. Some 522 food pantries and 138 soup kitchens participated in the survey.  When the food bank held its annual conference on January 15, attended by over 500 representatives of the New York’s food pantries and soup kitchens, “over half of the room said that we’re absolutely rationing the amount of food we give people,” said food bank President Margarette Purvis. What’s happening in New York is a testament to just how dire America’s hunger crisis has become. America’s most populous city also has what is perhaps the country’s most robust emergency food infrastructure, yet it is still finding it impossible to keep up with the growing pace of food insecurity.

Many Emergency Shelters Don’t Open Until Homeless People Are Already At Risk For Hypothermia - For many homeless people, an impending storm can be a death sentence.When temperatures drop to dangerously low levels, advocates and officials often seek out those in need of shelter, in order to save them from freezing to death. While many cities have emergency winter action plans in place, others do not -- leaving some of society’s most vulnerable members out in the cold. Even though hypothermia can set in between 32 to 50 degrees Fahrenheit, designated shelters in many major cities don’t open until well after those conditions set in, a National Coalition for the Homeless survey found. The study noted that winter shelters in Des Moines, Iowa, for example, don’t open until the thermometer drops to 20 degrees. Emergency shelters in Baltimore, Md., don't open until it's 13 degrees.  The brutal weather has already taken a devastating toll on the homeless this winter.When a cold front swept across the Midwest and Northeast in January, at least five homeless people died in just one week, ThinkProgress reported.  Homeless people have also died in cities that open shelters at higher temperatures. For example, Berkeley, Calif., opens its winter shelters when temperatures drop to 40 degrees, according to the survey. However, four homeless people in the San Francisco Bay Area died from hypothermia during one week this past December, according to the Associated Press.

If You Thought You Couldn't Go To Jail For Debt Anymore, You're Wrong -  Debtors' prisons sound like ancient history, right? Unfortunately, they're all too common across the United States. In spite of the Constitution, case law, and common sense, low-income people are routinely jailed in places as far-flung as Georgia and Washington State simply because they cannot afford to pay their court fines.  Let's define court fines, because it's kind of shocking. "Court fines" could be as little as a couple hundred bucks because someone was pulled over while driving with an expired license. If you've just been laid off and have kids to feed, it might be hard to find a couple hundred extra bucks in your budget. Well, that can send you to lock up. Not only does it cost the community quite a bit to jail someone (usually way in excess of the fine), but locking people up can trap them in the vicious cycle of poverty, debt, and incarceration that typifies the modern day debtors' prison. Individuals incarcerated because they can't pay minor court fines have lost their jobs, been evicted from their housing, suffered serious declines in their health, and faced family crises.  Not only are debtors' prisons wildly bad public policy, they are unconstitutional. And yet thousands of people are still beaten down by the justice system simply because they cannot pay their fines.

Solitary Confinement in California Prisons: What Pelican Bay Prisoners Weren’t Allowed to Say to Legislators -California permits long-term solitary confinement of prisoners. It is one of at least eight states with prison systems where a practice that is known to cause significant psychological and physical effects is acceptable.  There has been an ongoing push to end solitary confinement in the state, especially because prisoners at the Pelican Bay State Prison who have been held in such confinement conditions have engaged in hunger strikes over the past couple years. Legislative hearings have been held in the state to consider possible reforms to the state’s prisons. There has been plenty of criticism about whether these proposals would actually change anything or leave the practice of solitary confinement further entrenched in the prison’s system.  Prisoners at the Pelican Bay State Prison wanted to share testimony with legislators on the conditions of their confinement, but CDCR refused to let them testify, even remotely through video or audio.  The Prisoner Hunger Strike Solidarity blog posted testimony they would have given if they had been allowed by CDCR to address legislators. “We are prisoners at Pelican Bay State Prison who have all lived for over 15 years locked 23 hours a day in small windowless cells, without ever being able to hug or touch our families, without ever seeing birds, trees, or the outside world, with no programs or chance for parole,” four prisoners from the Pelican Bay Short Corridor Human Rights Movement declared.  They added, “California keeps us in these torturous conditions not because of any violence we have committed, but because it believes we are affiliated with a gang, often based on artwork or photos we possess, tattoos we have, literature we read, who we talk to, or anonymous informants statements that we have no way of challenging.

Red-light camera firm bribed officials in 13 states, says fired sales exec - A fired executive from a national red-light camera vendor claimed in an Arizona lawsuit that the company provided lavish gifts and bribes to government officials in 13 states to secure new contracts. The New Jersey Star-Ledger reported Saturday that the bombshell allegations made a 13-page counterclaim by Aaron Rosenberg, former nationwide lead salesman for Redflex Traffic Systems of Phoenix, claimed that the firm “bestowed gifts and bribes on … officials in dozens of municipalities within, but not limited to the following states: California, Washington, Arizona, New Mexico, Texas, Colorado, Massachusetts, North Carolina, Florida, New Jersey, Tennessee, Virginia, and Georgia.” Rosenberg claimed Redflex bribed local officials with meals, golf outings and tickets to professional football and baseball games, calling the expenses “entertainment” or “celebratory tokens.”

Show me the (subsidy) spreadsheets! - Good Jobs First’s new report, Show Us the Subsidized Jobs, is its third assessment of state subsidy transparency, following up on reports published in 2007 and 2010. The good news is that transparency continues to spread: From 23 states in 2007 to 37 in 2010 to 47 plus the District of Columbia in 2014.* The bad news is that for most states, online transparency still has a long way to go. Why is transparency important? As the reports says, without it, it makes it impossible for the public to get at even the most basic return on investment, accountability or equity questions. Which companies received subsidies (and what kinds of companies)? Are they delivering on job creation? How good are the new jobs? Where will the jobs be located? Reasonable people cannot have an informed debate and policymakers cannot watch the store without good job-subsidy data. Moreover, the cost of state (and local, much more poorly reported on) subsidies comes to some $70 billion a  year, according to my estimates. Moreover, there is a tremendous opportunity cost associated with this: While of course some jobs cost more and some cost less, at $50,000 per year in salary and benefits, that is enough money to hire 1.4 million state and local workers, more than have been laid off since the start of the recession.

Democracy Watch: Swaps, COPs & Lingering Questions.  In 2005, the city of Detroit faced a monumental dilemma: It desperately needed to borrow more than $1.4 billion to help shore up its two pension systems, but doing so would far exceed the legal limit on the amount of debt it could amass.  But instead of borrowing the money directly, Kilpatrick and his crew – following the advice of investment bankers who would reap massive profits from the deal – set up two nonprofit “service corporations,” which in turn created trusts that would sell certificates of participation, or COPs, to investors. Technically, it was these two nonprofits that were obligated to ensure repayment of the debt. The city then entered into a contract with the nonprofits – both of which were controlled entirely by city officials -- agreeing to pay them for services rendered. In other words, they were mere shells. Last Friday, lawyers representing the city filed a federal lawsuit claiming that the deal was illegal from the start, and because of that Detroit should not be required to continue paying off the debt. The case is now in the hands of U.S. Bankruptcy Judge Stephen Rhodes. The lawsuit came as a complete surprise to most people, even those who have been following the bankruptcy proceedings closely. Until this point, attention in this aspect of the bankruptcy proceedings has been focused instead on interest rate swaps, a controversial side deal to the COPs transactions.

The Debt Crisis in Puerto Rico: Why Is It Not More Newsworthy? - To get a sense of this conundrum, let us reflect back on the extensive coverage preceding Detroit’s Chapter 9 bankruptcy this past July. At the time of its filing, Detroit was a city of 700,000 persons, down from 887,000 as recently as 2005, and 1.2 million in 1980. The mass media began to cover the story months before the city’s formal declaration of bankruptcy.  By contrast, Puerto Rico has a much larger population with approximately 3.7 million residents. As with Detroit or any other location under economic pressure, its population has been shrinking rapidly, by about 1% per annum since 2010. This is not too surprising since Puerto Rico’s GDP has only recently begun to stabilize after contracting in every year since 2006. A large portion of this contraction is due to greatly reduced levels of investment and construction, along with stagnating “exports” to its primary trading partner, the United States. Unsurprisingly, its “headline” unemployment rate is 15.4%, much higher than any state in the Union.  As to the crisis itself, depending upon whom you read, somewhere between $55 and $70 billion of municipal or “muni” debt is at risk of default. Of this, just shy of $1 billion must be paid out or refinanced over the next month. In light of the market’s bearish turn on Puerto Rican debt, this will be neither easy nor cheap. As an index of market sentiment, consider that yields on Puerto Rico’s 20 year bonds, which were around 5% as recently as May, have now surged to over 10%. The market’s sense that Puerto Rico’s debt load is unmanageable was given additional impetus this past week when S&P and Moody’s downgraded the ratings on the Commonwealth’s bonds to “junk.”

'Backdoor bailout' boosts Puerto Rico's revenues (Reuters) - The second-largest revenue source for Puerto Rico last month was an excise tax that has been labeled a "backdoor bailout" for the struggling territory, preliminary estimates released on Monday showed. The federal government has stated repeatedly that it will not come to the rescue of the territory, whose credit rating was cut to junk last week by two of the three major rating agencies. But the island has few financial life preservers left as its population declines and its bills mount. Puerto Rico brought in $142.5 million last month through the excise tax, representing more than 20 percent of the territory's $664 million general fund revenues in January. Only individual income tax collections were greater, at $175.3 million, according to the territory's preliminary revenue report. The excise tax is levied on multinational manufacturers doing business in Puerto Rico, primarily pharmaceutical and medical device companies such as Johnson & Johnson (JNJ.N) and Pfizer (PFE.N), according to Martin Sullivan, chief economist for the publication Tax Analysts.

Why you need to care about Puerto Rico's debt -- Over the last week both Standard & Poor’s and Moody’s have downgraded Puerto Rico’s bonds to “junk.” The move exacerbates the Island Commonwealth’s already crippling debt burden and raises the very real possibility that a US bailout could be needed to save it from a full-scale economic meltdown.Puerto Rico has more than $70 billion in municipal debt outstanding, a sum comparable in size to New York and California, though both of those states have much larger underlying economies. Unlike those states or even the city of Detroit, Puerto Rico is unable to file for bankruptcy and restructure under the umbrella of American law. Puerto Rico is officially an unincorporated territory, leaving it in something of a grey area for legal purposes.According to David Kotok of Cumberland Advisors, Puerto Rico’s debt obligations are about eigh times the size of what Detroit is facing but without the same safety net for investors. In the attached clip Kotok explains that Puerto Rico is already getting what amounts to $2 billion a year in the form of a tax credit from a law that dates all the way back to 1921. That figure alone would “be enough to pay all the interest on their debt for a year” according to Kotok but it certainly hasn’t helped so far.

The School That Is Changing American Education - Two years ago, I visited a school in Brooklyn called P-TECH, the Pathways in Technology early college high school, which seemed very much like the future of education to me. It knitted together educators and job creators, and gave kids not only a high school degree, but a two-year associates degree and a job guarantee at one of the country’s top blue chip firms, IBM. In my latest piece in TIME, I look at how the amazing educators and “innovators” (that’s the P-tech word for students) behind this school are changing ideas about what secondary education in America should be. For a taste of what that looks like, check out our video on the school, which was the site of President Obama’s first visit to Brooklyn last year, above. It’s about time. The last great national leap forward in secondary education was during the post World War II period, when state governments decided that high school education, previously optional, should be mandatory in order to ensure the kind of skilled workforce needed to compete in a new, higher tech industrial era. Now, many leaders – including the President, education Secretary Arne Duncan, scores of blue chip CEOs and executives, and most top educators– believe we’re once again at such a turning point. When it comes to high school, an increasing number of them buy into the idea that not only should educators and job creators be much more closely connected, but that as Stanley Litow, the IBM executive behind the program puts it, “six should be the new four.” The push for all American kids to have a post high school future, like Tennessee governor Haslam’s recent calls for two years of free community college for every student in the state, seem to come almost daily.

Wage Premium From College Is Said to Be Up - The millennials — born after 1980 — are the best-educated generation in history. By early adulthood, a third have college degrees, and those degrees help them earn more than ever before. So scholars at the Pew Research Center were puzzled when they found that the median, inflation-adjusted income of 25- to 32-year-olds had changed very little since 1965. The reason, they discovered, is that even though a college degree is worth more, a high school degree alone is worth a lot less. Its value, in terms of wages, has declined enough to cancel out almost all the gains by all the millennials who have earned four-year degrees. From 1965 to 2013, according to a new Pew report called “The Rising Cost of Not Going to College,” the typical high school graduate’s earnings fell more than 10 percent, after inflation. “That is one of the great economic stories of our era, which you could define as income inequality,” said Paul Taylor, an author of the report. “The leading suspects are the digital economy and the globalization of labor markets. Both of them place a higher premium on the knowledge-based part of the work force and have the effect of drying up the opportunities for good middle-class jobs, particularly for those that don’t have an education.” Even middle-class jobs that are still available increasingly require a college degree, either because they require more skill than they used to or because employers have become pickier.The Pew report found that the wage premium for having a college degree was at a record high. The median annual wage for young college-educated workers now is $45,500, compared to $28,000 for high school graduates — a gap of $17,500. In 1965, the gap was much smaller: $7,400. (All the figures are in 2012 dollars.)

Skipping College Is Getting More Expensive - College is costly. But not going is even more costly. A new report from the Pew Research Center finds that Millennials with a college degree earn more, have higher employment rates and report greater job satisfaction than those who stopped their formal educations during or after high school. Median annual earnings among college-educated full-time workers aged 25-32 rose by nearly $7,000–to $45,500, in 2012 dollars–between 1965 and 2013. Meanwhile, their high-school-educated peers lost more than $3,000, with earnings falling to $28,000 over that time period. The findings are based on a Pew survey of 2,002 adults and an analysis of U.S. Census Bureau data. Young adults with college degrees also have a greater sense that they’re on a clear career path, with 86% saying their job is a career, or at least a steppingstone to a career. Just 57% of high school graduates feel the same way. Though the up-front cost of college is high, and climbing higher, the Pew report found that Millennials overwhelmingly feel their college education has already paid off. Eighty-six percent of those with loans say the degree has been worth it, or will be soon.

Pew Research Finds Almost No Gains for Young College Grads Over Last Quarter Century -- Most NYT readers probably would have missed this fact, since the blogpost highlighted the growing gap between the pay of recent college grads and those with less than a college degree. While Pew did find an large increase in the gap, almost all of this was due to a fall in the year-round pay of less-educated workers. In the 27 years from 1986 to 2013, Pew found that the median wage for full-time workers between the ages of 25-32 with college degrees increased from $44,770 in 1986 to $45,500 in 2013, a rise of 1.6 percent. This comes to an increase of 0.06 percent a year. By comparison, productivity rose 72.5 percent over this period, an average of 2.0 percent per year over this period. It is also worth noting that the unemployment rate for college educated workers of all ages was 3.7 percent in 2013. This is higher than for any year prior to the recession since this series was started in 1992.  While those without college degrees have been big losers, the Pew study shows that young people with college degrees have not been big winners in the economy over the last quarter century.

The True State Of The Economy: Record Number Of College Graduates Live In Their Parents' Basement - Scratch one more bullish thesis for the housing recovery, and the economic recovery in general. Over the past several years, optimists had often cited household formation as a key component of pent up demand for home purchases. So much for that. Recall that last August, the WSJ noted that in a report on the status of families, "the Census Bureau said 13.6% of Americans ages 25 to 34 were living with their parents in 2012, up slightly from 13.4% in 2011. Though the trend began before the recession, it accelerated sharply during the downturn. In the early 2000s, about 10% of people in this age group lived at home." It concluded, quite logically, that "the share of young adults living with their parents edged up last year despite improvements in the economy—a sign that the effects of the recession are lingering." Of course, the "improvements in the economy" were once again confused with the ongoing Fed- and corporate buyback-driven surge in the stock market, which has since been refuted to have any relationship to underlying economic conditions, and instead is merely the key factor leading to record class disparity - a very heated topic among both politicians and economists in recent months. But going back to the topic of Americans living with their parents, today Gallup reported that 14% percent of adults between the ages of 24 and 34 - those in the post-college years when most young adults are trying to establish independence -- report living at home with their parents. By contrast, roughly half of 18- to 23-year-olds, many of whom are still finishing their education, are currently living at home.

College Graduate First Person In Family To Waste $160,000 —Saying that his great grandparents could have never even dreamed of squandering such a fortune, recent college graduate Eric Singer told reporters Monday that he is the first person in his family to throw away $160,000. “This level of debt was just out of reach for my father and grandfather, which makes my wasting so much money all the more meaningful,” said Singer, noting that his mother only flushed $12,000 down the toilet during her time in school. “It’s an honor to be the first in my family to experience blowing hundreds of dollars on textbooks, or meeting with financial aid officers to fill out the paperwork locking me into a lifetime of crippling interest rates. I’m destroying my credit history in a way that just wasn’t possible for them when they were my age.” Singer added that he also hopes to be the first person in his neighborhood to rack up another $200,000 in tuition bills during law school.

How To Make Higher Education Free Without New Taxes Or More Government Spending - Yves Smith  - The headline sounds too good to be true, right? In contrast to the state of play in our bad-incentives-ridden, increasingly corrupt medical industrial complex, the drivers of out of control higher educational costs are astonishingly easy to isolate, and would actually not be hard to combat. “Higher education costs” for the most part, fund everything but education. Here is the critical bit of information from this Real News Network interview with University of California AFT president Robert Samuels: as little as 10% of university budgets go to directly educating students. Samuels outlines a clear and compelling plan to end student-debt funded activity bloat.   And of course, who does this mission creep serve? The administrators! A higher level of complexity and bigger budgets justifies more and more highly paid managers, even if all the ancillary activities add little to no value to the actual educational product.   Real News Network also released the second part of its talk with Samuels, in which he discussed how universities are abusing part time workers such interns and grad students:

How Colleges Flunk Mental Health - According to the American College Health Association's most recent annual national survey, 30 percent of college students reported feeling "so depressed that it was difficult to function" at some time over the past year. Nearly three fourths of respondents in a 2011 National Alliance on Mental Illness study of college students diagnosed with mental health conditions said they experienced a mental health crisis while in school. The Americans with Disabilities Act (ADA) and other federal disability laws prohibit discrimination against students whose psychiatric disabilities "substantially limit a major life activity" and mandates that colleges and universities provide them with "reasonable accommodations" - such as lower course loads and extended deadlines - provided they can meet nondiscriminatory academic and behavior standards and provided their disability does not pose a significant risk of substantial harm that cannot be mitigated by those reasonable accommodations. Despite that very clearly stated law, dozens of current or recent students at colleges and universities across the country - large and small, private and public - told Newsweek they were punished for seeking help: kicked out of campus housing with nowhere else to go, abruptly forced to withdraw from school and even involuntarily committed to psychiatric wards. "Colleges are very accustomed to accommodating learning and physical disabilities, but they don't understand simple ways of accommodating mental health disabilities," Lake often tells skeptics about a man who suffered from clinical depression and constantly talked about suicide: His name was Abraham Lincoln. "We don't want to remove these people," Lake says. "We want to expand the definition of diversity to make sure they're included."

Should We Place A Tax On All College Graduates? -  Loans are not the best way to fund higher education, even if we implement an income-based repayment program to ameliorate some of the risk. (If you’re just joining us now, see the previous parts of this series for more than you ever wanted to know about that). What are our remaining options to pay for college? Recently, an idea has emerged with support from a motley crew of strange bedfellows on Left and Right: funding college through a tax on all college graduates. While it might sound like Grover Norquist’s worst nightmare, it’s actually an important way of addressing some of the major shortcomings of our current ‘finger-in-the-dyke’ method of paying for college. Under a graduate tax-funded system of higher education, students would pay nothing to attend college upfront. Instead, once they graduate and move out of their parents’ basements, they would begin to pay an additional income tax (say, for example, three percent) on their earnings that would fund higher education. In other words, the current crop of college graduates funds the current crop of college students, and so on down the line. There is no debt taken on by students, which minimizes risk (good); repayment is tied to income, because only people who make income pay the tax (also good); and it is simpler and more easily administrable than plans to make loans easier to pay off (still good).

Detroit bankruptcy affecting health care coverage for city employees, retirees: Important health care cuts are happening now for Detroit City employees and retirees. Detroit retirees who are not Medicare eligible, they must sign up for new insurance by this Saturday at or have their insurance coverage cut off. Effective on March 1, the City of Detroit will stop providing health insurance to retirees. The city will provide a monthly stipend to help cover the costs, depending on the retiree's age and household income. Active employees have also seen cuts in their coverage especially with prescription drugs. Detroit continues to work through the bankruptcy process with an $18 billion debt including cutting billions in health care coverage.

Aging Boomers to Leave State Government Coffers Depleted - As the baby boomers retire, state governments will feel the pinch. Retirees tend to earn less and spend less than people of prime working age, and a recent analysis from the Federal Reserve Bank of Kansas City projected the effects of an aging U.S. population on two major sources of state revenue: income taxes and sales taxes. If the America of 2011 had looked like the America of 2030, demographically speaking, “state tax revenue would have been lower by $8.1 billion, or 1.1%,” wrote Alison Felix and Kate Watkins in “The Impact of an Aging U.S. Population on State Tax Revenues.”  Different states have different tax structures, but income and sales taxes are a major source of revenue for most states.By 2030, the economists predicted, per capita income tax revenue will fall in most states, though more than half of states will see a rise in total income tax collections due to population growth. The average per capita reduction will be 2.4%. In terms of sales tax, 49 states plus the District of Columbia will see lower per capita revenue, with average taxable expenditures falling by 0.5%. Again, total sales tax collections will increase in most states due to population growth. There are a few winners. Idaho is the only state expected to see higher per capita revenue from both income and sales taxes, in part thanks to strong population growth in the 35-to-54 age range. Tennessee and New Hampshire will both collect more income tax revenue per person, because their taxes are limited to income categories that tend to increase with age such as interest and dividends, Ms. Felix and Ms. Watkins wrote. But most states will lose out. Virginia, for example, will see per capita income tax revenue fall by 8.4%. Hawaii will see a 3.3% decline in per capita sales tax-eligible expenditures.

22 Facts About The Coming US Demographic Shock Wave - Today, more than 10,000 Baby Boomers will retire.  This is going to happen day after day, month after month, year after year until 2030. It is the greatest demographic tsunami in the history of the United States, and we are woefully unprepared for it.  We have made financial promises to the Baby Boomers worth tens of trillions of dollars that we simply are not going to be able to keep.  Even if we didn't have all of the other massive economic problems that we are currently dealing with, this retirement crisis would be enough to destroy our economy all by itself.  During the first half of this century, the number of senior citizens in the United States is being projected to more than double.  As a nation, we are already drowning in debt.  So where in the world are we going to get the money to take care of all of these elderly people?

Pension politics - David Sirota has a very important scoop today: the PBS series “Pension Peril” has secretly been funded by John Arnold, a billionaire powerbroker with an aggressively anti-pensions political agenda. This looks very bad for PBS — but it’s also bad for Arnold, who generally gets glowing press, and who would seem to have no good reason to have insisted on secrecy when writing the $3.5 million check that made the series possible. The PBS series in question seems to fall uncritically into line with the beliefs of Arnold and other Very Serious People — that pension liabilities are a huge problem, and that the only way to fix them is to reduce the amount that pensioners get paid. It’s easy to see why people think this way. If there’s no money, then what assurance do you have — really — that you’ll be paid? If you have to share your pension with others, how can you be sure that they won’t end up with more than their fair share? Isn’t it better to just keep all your money for yourself, and make sure to save enough that you can live well in retirement?  This is a pretty libertarian, every-man-for-himself view of retirement: it makes few concessions to the idea that there’s a societal obligation to the elderly, or that groups can achieve more together than they can individually. At heart, it’s a view which benefits people like John Arnold, who pay a lot of taxes, at the expense of the poorest members of society, who might take out more than they put in. And, of course, it’s a view which benefits successful investors, like John Arnold, over schmucks who have no idea how to best invest their paltry 401(k) funds.

PBS Pimps Itself Out to Billionaire Who Campaigns Against Pensions for Gov’t Employees to Produce Scaremongering Series About Government Pensions - Yves Smith - Now we know how much it takes to buy PBS programming: $3.5 million. It might even be less, but $3.5 million is a proven amount that will induce the soi disant public broadcasting network to fall all over itself and violate multiple written, supposedly sacrosanct policies, to produce shows with a story line consistent with the express aims of a right wing foundation. And the ugliest part is that it was PBS that sought out and proposed this arrangement.  David Sirota reports in must-read piece at PandoDaily that a two-year (!!!) PBS series called Pension Peril which has as its biggest funder none other than than the Laura and John Arnold Foundation, that of former Enron trader John Arnold. And quelle surprise, the story line of the series just happens to fit exactly with the mission of Arnold’s foundation, that of ending pensions for government workers.  Here’s Sirota’s description of Arnold’s political campaign: In recent years, Arnold has been using massive contributions to politicians, Super PACs, ballot initiative efforts, think tanks and local front groups to finance a nationwide political campaign aimed at slashing public employees’ retirement benefits. His foundation which backs his efforts employs top Republican political operatives, including the former chief of staff to GOP House Majority Leader Dick Armey (TX). According to its own promotional materials, the Arnold Foundation is pushing lawmakers in states across the country “to stop promising a (retirement) benefit” to public employees. It’s important to understand that the the idea that there is some sort of crisis in public pension funds is a canard. There are particular pension systems that are in terrible shape, but that’s due to deliberate underfunding compounded by mismanagement. The worst is New Jersey, where Christie Todd Whitman started the shell game in 1995 by paying less that the actuarially required amount.  And New Jersey also has the dubious distinction of being the only state ever sanctioned by the SEC for pension mismanagement.  So the understandable media interest in pension train wrecks obscures the general picture. As Sirota stresses: Whether or not the foundation has direct editorial control of PBS news content, the series still appears to violate PBS’s rules against “pre-ordained” conclusions.

Small Steps, but Not Nearly Enough -- Floyd Norris says some sensible things in his column from last week on the retirement savings problem: Defined benefit pensions are dying out, killed by tighter accounting rules and the stock market crashes of the 2000s. Many Americans have no retirement savings plan (other than Social Security). And the plans that they do have tend to be 401(k) plans that impose fees, market risk, and usually a whole host of other risks on participants.  But even his cautious optimism about some new policy proposals is too optimistic. One is the MyRA announced by President Obama a couple of weeks ago. This is basically a government-administered, no-fee Roth IRA that is invested in a basket of Treasury notes and bonds, effectively providing low returns at close to zero risk. The other is a proposal by Senator Tom Harkin to create privately-managed, multi-employer pension plans that employers could opt into. The multi-employer structure would reduce the risk that employees would lose their pension benefits if their employer went bankrupt. These are steps in the right direction, but modest ones. The underlying problem with private sector defined benefit plans is that the employee takes on counterparty risk, where the employer is the counterparty. In this case, the pension plan is insulated from the risk that a company will fail, which is an improvement, but not from the risk that the plan itself will fail due to a market downturn (of the kind we have recently seen). There is language about allowing the plan to reduce benefits in such a scenario, but this of course undermines the benefit of a defined benefit pension in the first place.

Can the government really get us to save more for retirement? - Millions of Americans aren't saving enough for retirement, prompting Congress and even the President to propose ways to help workers save. But can the government really help us save more? Last year, 46% of workers had less than $10,000 saved for retirement, according to a 2013 report from the Employee Benefit Research Institute. Meanwhile, around half of all workers and the majority of part-time workers didn't receive any retirement benefits at all from their employer, making it even more difficult for them to save. President Obama's recently announced myRA plan may be a good start, but retirement savings advocates say it's far from a solution. Any meaningful change -- one that would get the millions of workers who aren't currently saving to automatically put away money through their employers and those who are saving to put away more -- would require Congressional approval, which has proven to be a major hurdle.  The President and other legislators have proposed plans that go much further than the myRA plan, including the creation of so-called "automatic IRA" accounts, but these plans will do little to boost the savings of workers who already have retirement plans.

This is why we can’t have nice things — health costs edition - In a letter to health plans, the Centers for Medicare and Medicaid Services has proposed new rules that would more aggressively regulate the number and type of health care providers that insurance plans include in their networks. More specifically, the Obama administration plans to increase the percentage of "essential community providers" that health plans need to include in network from 20 percent to 30 percent of those in the local area. These are health care facilities that typically cater to a lower-income population, such as federally-qualified health clinics and certain hospitals. The federal government will also take a more active role in reviewing which providers health insurers include in network. Last year, the administration relied on states to do this work and ensure that their various exchange plans would provide patients with enough access to health care. In 2015, the feds will actually collect plan's providers list and determine whether they provide adequate access. "It will focus on access to hospital systems, mental health providers, oncology providers, and primary care providers," Tim Jost writes in his analysis of the new proposal in the Health Affairs blog. "CMS intends to use its review to develop time and distance or other standards for future network review."This could be the start of a backlash against narrow network plans, which have made headlines for limiting patients' access to doctors. While patients tend not to like these limits, there's a reason they exist: to hold down premiums by only including less expensive providers. That doesn't mean, by the way, excluding better hospitals: There's a lot of health economics analysis that shows little, if any, relationship between price and quality in health care.

Obamacare Raises Medicaid Cost as Insurers Shift Tax Bill -  Health insurers told to pay $150 billion in taxes over a decade to help fund Obamacare are now shifting at least part of that cost back to taxpayers. Congress passed the insurer tax four years ago to help cover the uninsured under the Patient Protection and Affordable Care Act. Now, the industry is pushing to include some of the cost in contracts with Medicaid programs for the poor that are jointly funded by state and federal governments. The strategy may add $36 billion to $39 billion to the cost of Medicaid over a decade, depending on how quickly the health program expands, according to an industry-funded study released today by the actuarial firm Milliman Inc. The tax shift is “one of the awkward little complexities of the law that are only now coming to light,” said Dan Mendelson, chief executive officer at Avalere Health LLC, a Washington-based consultant. “It’s unusual.” The insurer tax was among a variety of fees included in the act to make health-care companies pay their “fair share,” as U.S. Senator Charles Schumer of New York put it during the 2009 debate over the legislation. The idea was that insurers who would benefit from millions of taxpayer-subsidized customers under the law should contribute toward its costs.

Fixing Medicare's Unsustainable Growth Rate - In a move that should amaze and astound all health policy wonks, a bipartisan repeal of Medicare’s dreaded sustainable growth rate (SGR) mechanism is in sight. It is not perfect, and will likely face unjustified budget pressures, but it is far better than the status quo. Medicare’s SGR was devised in 1997 to try to keep annual growth in Medicare per-capita spending below the growth rate of GDP. Each year, Centers for Medicare & Medicaid Services (CMS) looks at Medicare spending over the past year and compares it to the target expenditures. If spending was greater than the target amount, then the SGR conversion factor is supposed to reduce reimbursements to physicians for the next year. However, simply put, this system has failed—miserably—because Congress has always revoked the required cuts. From 2001 to 2012, Medicare spending per beneficiary grew an average of about 6 percent annually—that includes the recent slowdown in Medicare spending growth. Over the same period, U.S. GDP growth averaged 3.9 percent—a full 2.1 percentage points slower than the growth in Medicare spending. This means that over these 12 years, Medicare has gradually taken up a larger share of the U.S. economy. But the reason that the SGR failed to control Medicare spending is not necessarily a problem with the mechanism itself—rather, the reason is political. Almost every year that physician payment rates were due to fall, Congress has enacted a “doc fix” to prevent rates from plummeting. Most recently, rates were scheduled to fall by about 24 percent (Congress passed a temporary 3-month patch shortly before the new year.) The fear has been that a significant drop in physician payments would lead to a reduction in physician access for Medicare beneficiaries. This fear is well-grounded, because physicians do not have to participate in Medicare. These annual “doc fixes” have ended up costing somewhere around $150 billion over the past ten years.

Illinois partners with The Onion to push Obamacare enrollment - Illinois officials are hoping headlines like “Recently Insured Man Can’t Wait To Get Out There, Start Seriously Injuring Himself,” and “Man Without Health Insurance is Forced to Sell Action Figures to Pay Medical Bills” will bring the right blend of comedy and news to persuade more young people to sign up for new health coverage. In a push to enroll more “young invincibles,” the state’s official Affordable Care Act outreach vehicle, Get Covered Illinois, has forged a partnership with satircal news site The Onion to run a series of advertisements and marketing material online. Under terms of the agreement, the state will pay Chicago-based Onion Inc. $150,000 for $300,000 worth of online banner ads, a video, an editorial and a custom news section that will feature Get Covered Illinois, said Mike Claffey, a Get Covered Illinois spokesman. The Onion, via its creative agency Onion Labs, will develop and feature the content through March 31, the deadline to enroll in the new health plans offered on online marketplaces created by the law known as Obamacare.

Millions Trapped in Health-Law Coverage Gap - Ernest Maiden was dumbfounded to learn that he falls through the cracks of the health-care law because in a typical week he earns about $200 from the Happiness and Hair Beauty and Barber Salon. Like millions of other Americans caught in a mismatch of state and federal rules, the 57-year-old hair stylist doesn't make enough money to qualify for federal subsidies to buy health insurance. If he earned another $1,300 a year, the government would pay the full cost. Instead, coverage would cost about what he earns. "It's a Catch-22," said Mr. Maiden, an uninsured diabetic. Without help, he said, he must "choose between paying the bills and buying medicine." The 2010 health law was meant to cover people in Mr. Maiden's income bracket by expanding Medicaid to workers earning up to the federal poverty line—about $11,670 for a single person; more for families. People earning as much as four times the poverty line—$46,680 for a single person—can receive federal subsidies. But the Supreme Court in 2012 struck down the law's requirement that states expand their Medicaid coverage. Republican elected officials in 24 states, including Alabama, declined the expansion, triggering a coverage gap. Officials said an expansion would add burdensome costs and, in some cases, leave more people dependent on government.

Picking the Financial Bones of the Dying and the Dead -- Since writing “Obamacare: Devils in the Details” posted on this site on February 3, 2013, I have investigated in detail other aspects of the insurance industry’s program to bring health care to Americans. In this article I explain estate recovery to which poorer Americans herded by Obamacare into Medicaid are subject. In violation of moral philosopher John Rawls’ second principle of justice, some of the poorest Americans will pay the highest cost of health care as they, and they alone, are subject to having the family home and any other assets they might possess confiscated by the state in order to reimburse Obamacare for the cost of their medical expenses. The compassionate rhetoric aside, Obamacare makes the poor pay the most. Under what was deceptively named the Affordable Care Act (ACA), commonly known as Obamacare, which is unaffordable for the patient in more ways than one, beginning January 1, 2014, citizens without health insurance must pay a tax penalty to the Internal Revenue Service (IRS). Qualified individuals and families with incomes between 138 and 400 percent of the Federal Poverty Level (FPL) can shop for commercial insurance policies at a Health Insurance Marketplace (an exchange) and may be eligible for a subsidy from the government to help pay for a plan. Those with incomes at or below 138 percent of the Federal Poverty Level will be tossed into Medicaid unless there are specific reasons why they would not be eligible.

ObamaCare: “Per Beneficiary” Limits a Loophole Insurance Companies Can Drive a Truck Through?  -- ObamaCare defenders consistently point to the abolition of lifetime or annual caps on dollar costs as one of the main benefits of ObamaCare. (Never mind that the administration delayed complete implementation of limits on out-of-pocket costs until 2015.) However, from ObamaCare Facts (“dispelling the myths”) we read this: While you may have to meet a certain amount of out-of-pocket expenses (deductible) before essential benefits are covered, the Affordable Care Act prohibits health plans (grandfathered and non-grandfathered) from imposing annual and lifetime dollar limits on essential benefits.  So far so good. Now get this: Health plans can still however set limits on the number of times you can receive a certain treatment. Hmm. How can this be? Let’s go to the text of the statute:Subpart II–Improving Coverage SEC. 2711. NO LIFETIME OR ANNUAL LIMITS. (a) In General- A group health plan and a health insurance issuer offering group or individual health insurance coverage may not establish– (1) lifetime limits on the dollar value of benefits for any participant or beneficiary; or (2) unreasonable annual limits (within the meaning of section 223 of the Internal Revenue Code of 1986) on the dollar value of benefits for any participant or beneficiary.  That’s the dollar cap. Here’s what sure looks like a loophole to me: (b) Per Beneficiary Limits- Subsection (a) shall not be construed to prevent a group health plan or health insurance coverage that is not required to provide essential health benefits under section 1302(b) of the Patient Protection and Affordable Care Act from placing annual or lifetime per beneficiary limits on specific covered benefits to the extent that such limits are otherwise permitted under Federal or State law.  OK, what are these “essential health benefits”? As it turns out, depending on your situation, they may not be all that

White House delays health insurance mandate for medium-size employers until 2016 - For the second time in a year, the Obama administration is giving certain employers extra time before they must offer health insurance to almost all their full-time workers. Under new rules announced Monday by Treasury Department officials, employers with 50 to 99 workers will be given until 2016 — two years longer than originally envisioned under the Affordable Care Act — before they risk a federal penalty for not complying.Companies with 100 workers or more are getting a different kind of one-year grace period. Instead of being required in 2015 to offer coverage to 95 percent of full-time workers, these bigger employers can avoid a fine by offering insurance to 70 percent of them next year. How the administration would define employer requirements has been one of the biggest remaining questions about the way the 2010 health-care law will work in practice — and has sparked considerable lobbying. By providing the dual phase-ins for employers of different sizes, administration officials have sought to lighten the burden on the small share of affected employers that have not offered insurance in the past. As word of the delays spread Monday, many across the ideological spectrum viewed them as an effort by the White House to defuse another health-care controversy before the fall midterm elections. The new postponements won over part, but not all, of the business community. And they caught consumer advocates, usually reliable White House allies, by surprise, particularly because administration officials had already announced in July that the employer requirements would be postponed from this year until 2015.

Obama validates the conservative case against the employer mandate --For years, the Obama administration has been arguing that all this talk from Obamacare critics about how the employer mandate creates an incentive to lay off workers or cut hours was nothing more than a right-wing myth. Well, apparently they believe the myth at 1600 Pennsylvania Ave. How else to explain the Obama administration’s decision yesterday to delay the employer mandate for businesses with 50-99 workers — removing the incentives for layoffs? The White House knows that the employer mandate is a job killer — and they can’t afford to have millions of Americans losing their full-time jobs right before the mid-terms elections. But the administration is doing more than removing artificial incentives for layoffs. They are also using coercion to prevent them — by informing businesses with 100 or more employees that they will not be allowed to lay off workers to fit into the 50-99 employee category.  Indeed, the administration is requiring employers to “certify” on their tax forms — on pain of perjury — that they are not laying off workers to avoid Obamacare mandates. Think about what that means: American businesses now have to justify to their personnel decisions to the IRS. If you’re a business with 101 employees, and you lay off two workers, you have to explain to Big Brother why you did it. That’s Orwellian. It’s none of the government’s business why an employer hired or fired someone. Moreover, if the employer mandate is not a job killer, why do they need to employ such coercive tactics? The White House keeps telling us no businesses are laying off workers or cutting hours to get out from under Obamacare. But if that’s the case, why do they have to make businesses attest under pain of perjury that they won’t lay off workers or cut hours to get out from under Obamacare? Apparently the administration doesn’t believe its own spin.

Still Needed: Obamacare Fix for 20 Million Working People - This week, we again witnessed another administrative change to the Affordable Care Act (ACA) by the Obama administration. That makes three in the last couple of weeks. That shouldn't really surprise anyone. The ACA is a complicated law and implementing it will take some time -- and the administration has already made a number of significant changes. Once more, however, the administration's move has impacted employers. This time, it was large employers, as reported by the Associated Press: The Obama administration is giving another delay to business groups concerned about the health care law's requirement that larger firms cover their workers.  Unfortunately, the administration's new ruling does nothing to address the problems Obamacare creates for people in non-profit self-funded plans, like the 20 million people currently covered under Taft-Hartley coverage. This week's ACA move rewards employers, who in many cases may not offer health insurance, while continuing to discriminate against and penalize the plans of hard-working Americans.

ObamaCare Part Of 'Unprecedented' Bounty For Insurers, So Far - Though some health insurers say they may lose money in the first year offering benefits under the Affordable Care Act, the biggest health plans remain committed to the program with at least one saying this week it will be part of an “unprecedented” amount of business to the industry. A parade of fourth-quarter earnings from insurers including Aetna (AET), Cigna (CI) and Humana (HUM) this week is the latest indication health insurance companies are going to be able to manage the first year of risk from newly insured customers buying subsidized private health plans via government-run exchanges. Under the law, millions of Americans can get a subsidy of up to $5,000 to purchase an array of health plan choices. On Friday, Cigna chief executive officer David Cordani said those signing up are a “little older mix relative to population.” Meanwhile, Humana earlier this week said more and more younger people are signing up as the enrollment period continues. Americans have until March 31 to avoid a penalty.  But the new business from the Affordable Care Act, which includes an expanded Medicaid program and enhancements to the Medicare health insurance program for the elderly, means robust growth ahead, insurers are telling Wall Street as they report their fourth-quarter and full year 2013 earnings.

Unskewing Obamacare - Paul Krugman -- If you’ve been tracking the news on signups under the Affordable Care Act – which is easy thanks to Charles Gaba’s invaluable site – you already knew that the program was making a pretty good recovery from the botched start. Now, however, it’s official: as of the end of January signups were only about a million behind their projected track as of last spring, which means that as of March 31 the total is likely to be 6-point-something million rather than the projected 7 million. In other words, basically OK. But here’s the thing: every online article I’ve seen about the latest numbers is followed by a huge number of vitriolic comments insisting that it isn’t true, that Obamacare is a total disaster. Some commenters declare that all the numbers are lies; others, getting their take from right-wing bloggers, say that all of those who have signed up but not yet paid their first premium – ahem, 47 percent of the total – will never pay and are fake enrollees. And so on. You can’t help but notice the resemblance to the “unskewing” fever of the final weeks of the 2012 election, when everyone on the right knew, just knew, that the polls showing a clear Obama edge were biased and wrong, and that if you reworked the numbers somehow they pointed to a Romney triumph. Now, you might ask, how do I know that the Obamacare unskewers are wrong? Actually, I don’t know that for sure – but it’s very unlikely that they’re right. For one thing, they are more or less the same as the poll unskewers – people who know nothing about the subject, but know what they want to believe. For another, CBO – which has a reputation to defend – thinks it’s going to be OK. Finally, the insurers, who have real money on the line, seem fairly calm, which wouldn’t be the case if they saw really terrible enrollment.

Obamacare? I wasn’t aware.. When it comes to summarizing the key findings of the latest Kaiser Health Tracking Poll, this Washington Post headline neatly does the job: “Americans don’t know what’s in Obamacare, do know they don’t like it.” The Kaiser poll found that support for the Affordable Care Act among the uninsured, the primary beneficiary of the law, continued to decline. Forty-seven percent of the uninsured viewed the law unfavorably (compared to 24 percent with favorable opinions). In the December poll, 43 percent of the uninsured had an unfavorable view. Nearly half of the people for whom the law was designed to help were unconvinced of its merits.  The poll also showed that roughly four in ten adults overall, and about half of the uninsured, are not aware that the law provides financial help to low- and moderate-income Americans to help them purchase coverage, gives states the options of expanding their Medicaid programs, and prohibits insurance companies from denying coverage based on pre-existing conditions. By now we might have expected those numbers to be higher, especially those that measure public knowledge of the law. Lord knows there’s been tons of press coverage in all sorts of media outlets—for a solid month, from the end of October through the end of November, and then picking up again in the weeks before Christmas, the Affordable Care Act was the national political story. So what accounts for the disconnect between the zillions of words written or spoken about the ACA and the poor public knowledge showing in the Kaiser poll?

The Insiders: Obamacare creates new ways to prosecute American business -- It’s been a bad week for Obamacare.  Incredibly, the White House has had to grant yet another delay in the employer mandate. This time, employers with between 50 to 99 employees who don’t already offer health insurance to their employees have until 2016 to comply with the shifting Obamacare requirements.  This latest delay represents another political calculation by the White House.  They are counting on the fact that the criticism they will face now for bungling incompetence and disregarding their own law is less than the criticism they would receive for damaging American business closer to the elections. And the fine print of the latest announcement from the Administration is worse than the terrible headlines. This rule includes a provision that says you have to have the right motives for having a certain number of employees to be in compliance with Obamacare. Bear with me, that’s right: You must certify to the IRS – under the threat of perjury – that the reasons for your employee head count have nothing to do with your opposition to or avoidance of Obamacare. This president doesn’t just selectively enforce the law as he sees fit; now he is actually inventing new crimes.  It’s jaw-dropping that if you fall below 100 employees, the burden will be on you to prove that you meant no disrespect to Obamacare.  I can’t wait to see the video of the first Democrat who tries to defend this new threat of prosecution within Obamacare.  In fact, look for the White House to fix this and somehow drop this provision altogether.  It’s completely indefensible.

One-Fifth of New Enrollees Under Health Care Law Fail to Pay First Premium - — One in five people who signed up for health insurance under the new health care law failed to pay their premiums on time and therefore did not receive coverage in January, insurance companies and industry experts say.Paying the first month’s premium is the final step in completing an enrollment. Under federal rules, people must pay the initial premium to have coverage take effect. In view of the chaotic debut of the federal marketplace and many state exchanges, the White House urged insurers to give people more time, and many agreed to do so. But, insurers said, some people missed even the extended deadlines.Lindy Wagner, a spokeswoman for Blue Shield of California, said that 80 percent of those who signed up for its plans had paid by the due date, Jan. 15. Blue Shield has about 30 percent of the exchange market in the state.  Matthew N. Wiggin, a spokesman for Aetna, said that about 70 percent of people who signed up for its health plans paid their premiums. For Aetna policies taking effect on Jan. 1, the deadline for payment was Jan. 14, and for products sold by Coventry Health Care, which is now part of Aetna, the deadline was Jan. 17.Mark T. Bertolini, the chief executive of Aetna, said last week that the company had 135,000 “paid members,” out of 200,000 who began to enroll through the exchanges. “I think people are enrolling in multiple places,” he said in a conference call. “They are shopping. And what happens is that they never really get back on to disenroll from plans they prior enrolled in.”

20% of Obamacare Enrollees Failed to Make First Payment -- Yves Smith -- Robert Pear of the New York Times has an important story today on the actual, as opposed to heavily-spun, state of play with Obamacare take-up. One of the obvious issues is that the Administration is desperate to show that its giveaway to the medical-industrial complex is going over well with the too-dumb-to-figure-out-they-are-being-fleeced public. How many people who get insurance that were previously uninsured is a critical indicator of success. But useful numbers have been astonishingly hard to come by. Obamacare “sign-ups” now total 3.3 million at the end of January. A Bloomberg article from Wednesday points out key gaps: How many people turning to the health insurance exchanges had been uninsured before? Officials say they don’t yet have data on how many people signing up were previously uninsured, or how many had insurance that they lost when plans were canceled. We also don’t know how many previously uninsured people bought health plans off the exchanges. The Gallup data do suggest that the overall portion of Americans going without health insurance is declining as Obamacare kicks in, but we don’t have official numbers or much insight into the actual increase in insurance coverage. How many people have paid their premiums? The White House is reporting numbers on how many people have enrolled in coverage on the exchanges, but not how many have paid for it. People won’t have coverage if they don’t pay their bills.

The Real Illness Plaguing U.S. Healthcare  -- Nearly every week a new facet of the Affordable Care Act comes to light to support the conservative go-to homily: good intentions lead to bad policy. It was a nice idea to give freeloaders the chance to be treated for illnesses they had no chance to avoid (because, you know, genetics), but it’s time to sidle up to the grown-ups table. The latest element of this cumbersome, overly-complicated bill to stir controversy shows how a profit-driven healthcare system has a pernicious effect on the old-time American religion of upward economic mobility and equality of opportunity. The lens of real estate and finance gives us an interesting look at how our healthcare system is part and parcel of an edifice that enables the rich to get richer and, well, you know.  Since the poor have been largely invisible to the mainstream media until recently, many could be excused for not knowing that states have been able to seize the estate assets of Medicaid recipients upon death. Now, in addition to doing nothing to address the problem of bankruptcy due to medical debt, the ACA, through Medicaid expansion, has increased the pool of resources that can be repossessed by state authorities to help defer the costs of the program. Granted, there are exceptions to the practice when there is a surviving spouse or minor children involved but there should be little surprise that some are now steering clear of enrollment. How did we come to this?

Vast Study Casts Doubts on Value of Mammograms - One of the largest and most meticulous studies of mammography ever done, involving 90,000 women and lasting a quarter-century, has added powerful new doubts about the value of the screening test for women of any age.  It found that the death rates from breast cancer and from all causes were the same in women who got mammograms and those who did not. And the screening had harms: One in five cancers found with mammography and treated was not a threat to the woman’s health and did not need treatment such as chemotherapy, surgery or radiation. The study, published Tuesday in The British Medical Journal, is one of the few rigorous evaluations of mammograms conducted in the modern era of more effective breast cancer treatments. It randomly assigned Canadian women to have regular mammograms and breast exams by trained nurses or to have breast exams alone. Researchers sought to determine whether there was any advantage to finding breast cancers when they were too small to feel. The answer is no, the researchers report.

Horribly depressing news about mammograms - I was ready to go to sleep when I saw this study.  From the BMJ: Objective: To compare breast cancer incidence and mortality up to 25 years in women aged 40-59 who did or did not undergo mammography screening. Results; During the five year screening period, 666 invasive breast cancers were diagnosed in the mammography arm (n=44 925 participants) and 524 in the controls (n=44 910), and of these, 180 women in the mammography arm and 171 women in the control arm died of breast cancer during the 25 year follow-up period. The overall hazard ratio for death from breast cancer diagnosed during the screening period associated with mammography was 1.05(95% confidence interval 0.85 to 1.30). The findings for women aged 40-49 and 50-59 were almost identical. During the entire study period, 3250 women in the mammography arm and 3133 in the control arm had a diagnosis of breast cancer, and 500 and 505, respectively, died of breast cancer. Thus the cumulative mortality from breast cancer was similar between women in the mammography arm and in the control arm (hazard ratio 0.99, 95% confidence interval 0.88 to 1.12). After 15 years of follow-up a residual excess of 106 cancers was observed in the mammography arm, attributable to over-diagnosis. Conclusion: Annual mammography in women aged 40-59 does not reduce mortality from breast cancer beyond that of physical examination or usual care when adjuvant therapy for breast cancer is freely available. Overall, 22%(106/484) of screen detected invasive breast cancers were over-diagnosed, representing one over-diagnosed breast cancer for every 424 women who received mammography screening in the trial.

8.7M Lbs. of 'Diseased, Unsound' Meat Recalled -– Bad news for Americans who consume food, specifically of the meat variety: California-based Rancho Feeding Corporation is recalling some 8.7 million pounds of beef and veal products after feds determined that it "processed diseased and unsound animals and carried out these activities without the benefit or full benefit of federal inspection." As per the USDA's Food Safety and Inspection Service's press release: "The products are adulterated, because they are unsound, unwholesome, or otherwise are unfit for human food and must be removed from commerce."  The time range is striking: The recall affects products produced and shipped between January 1, 2013, and January 7, 2014, notes CNN. The products include beef carcasses and parts like livers, feet, and tongues; they shipped to distribution centers and retail locations in California, Florida, Illinois, and Texas. No illnesses have been linked to the recalled meat. Click for the full recall.

California company recalls 8.7 million pounds of meat - A Northern California company is recalling more than 8.7 million pounds of beef products because it processed diseased and unhealthy animals without a full federal inspection, federal officials said. The recall involves a year's worth of meat processed by Rancho Feeding Corp., which has been under scrutiny by the USDA Food Safety and Inspection Service (FSIS). The agency said that without full inspection, the recalled products are unfit for human consumption. The goods were processed from Jan. 1, 2013, through Jan. 7 this year and shipped to distribution centers and retail stores in California, Florida, Illinois and Texas. The products include beef carcasses, oxtail, liver, cheeks, tripe, tongue and veal bones. Last month the company recalled more than 40,000 pounds of meat products that were produced on Jan. 8 and also did not undergo a full inspection. The problems were discovered as part of an ongoing investigation, the FSIS said on Saturday. A call to the company went unanswered.

Fake-food scandal revealed as tests show third of products mislabelled - Consumers are being sold food including mozzarella that is less than half real cheese, ham on pizzas that is either poultry or "meat emulsion", and frozen prawns that are 50% water, according to tests by a public laboratory. The checks on hundreds of food samples, which were taken in West Yorkshire, revealed that more than a third were not what they claimed to be, or were mislabelled in some way. Their results have been shared with the Guardian. Testers also discovered beef mince adulterated with pork or poultry, and even a herbal slimming tea that was neither herb nor tea but glucose powder laced with a withdrawn prescription drug for obesity at 13 times the normal dose. A third of fruit juices sampled were not what they claimed or had labelling errors. Two contained additives that are not permitted in the EU, including brominated vegetable oil, which is designed for use in flame retardants and linked to behavioural problems in rats at high doses. Experts said they fear the alarming findings from 38% of 900 sample tests by West Yorkshire councils were representative of the picture nationally, with the public at increasing risk as budgets to detect fake or mislabelled foods plummet.

Crop subsidies kept secret by Congress in new farm bill -The new farm bill vastly extends the taxpayer-supported crop insurance program while deliberately keeping recipients of those subsidies secret. Indeed, the final version of the law even dropped a bipartisan provision that would have at least required members of Congress and Cabinet officials to disclose such benefits. The multi-billion dollar agricultural insurance and the agribusiness establishment — backed by millions in campaign contributions and lobbying — is firmly behind the federal crop insurance program. In the 2012 election cycle alone, the agricultural services industry contributed nearly $42 million in campaign contributions at the federal and state level according to Influence Explorer and spent more than $62 million on federal lobbying. Top recipients include Obama, with $474,000 and Sen. Debbie Stabenow, D-Mich., chairwoman of the Senate Agricultural Committee, with $169,550. Donations last year to Stabenow, a fierce proponent of the program, include $10,000 from PACs associated with the American Association of Crop Insurers and $5,000 from the Rain & Hail Insurance Society. She has also gotten contributions from Michael McLeod, a lobbyist for the crop insurers trade organization.

New U.S. farm bill coddles farmers, ignores Canada's plea -  CBC - Among the many myths Americans entertain about themselves is the belief they're self-made; that any success they might enjoy is in spite, rather than with the help, of government. As Ronald Reagan once said, to a great chorus of cheers, "government isn't the solution to our problem, government IS the problem." Nowhere is that notion more fiercely beloved than in the vast spaces between this nation's cities; in gun-toting, Republican-voting, tall-standing, rural America. It's a delusion, of course. U.S. farmers are practically wards of the American nanny state. But it's a delusion the legislators who represent rural America — both Republican and Democrat — are willing to pay to maintain. Big time, in fact: propping up delusions wins elections. Take the outrageous story of Washington's hush money to Brazil. It's not one that's widely known in the U.S., probably because it cuts against Reagan's government-is-the-problem narrative. But it beautifully illustrates the lengths to which Congress will go to coddle and protect certain American businesses, even as Washington accuses other countries, like China or even Canada, of unfair trading when they do the same thing.

Peso plunge forces Argentine soya hoarding - - Faced with a sharp fall in the peso as emerging markets are battered amid concerns over the fallout of central banks’ unwinding of monetary stimulus the country’s soyabean growers have packed their dollar-denominated crop into “silo bags” rather than sell it for cash, determined to hold on to it as long as possible. A new harvest is now set to start in April. With Argentina accounting for about a tenth of the world’s soyabean exports and almost half the soyameal trade, farmers’ decisions on whether to keep hoarding will ripple through global futures markets. The consensus: widespread soyabean storage will continue. Farmers “see their crop as a protection of value against the potential devaluation. So we’re monitoring much more that impact,” Juan Luciano, chief operating officer at Archer Daniels Midland, the agricultural trading house and processor, told analysts last week. The decline in sales volumes by farmers initially hit the market at the start of last year, as concerns about peso devaluation and rising inflation deepened. Soyameal prices remained firm on the “selling strike” while the lack of soyabeans affected global companies such as ADM and rivals Bunge, Cargill and Glencore.

It’s Official: Monsanto Wants FDA Preemption on GMO Labeling - The Grocery Manufacturers Association (GMA), Monsanto’s main front group which coordinates propaganda among corporate manufacturers and retailers (who are all under the thumb of the GMO cartel), has put together a coalition of corporate groups calling for FDA preemption of state-level GMO labeling policy.  The press release hits all the points, calling upon the FDA to label, to perform “safety reviews”, to define the term “natural” in food labeling, to impose its own regulation on voluntary non-GMO labeling, and to preempt stronger state-level policy. This is the development I’ve been discussing since my November post on preemption. It tells us three things: It further demonstrates the totalitarian, anti-democracy goal of the GMO cartel and of food corporatism in general. It tells us that the state-level fight, in spite of setbacks, is working; it is striking fear in the corporations. And it tells us that Monsanto is confident that the FDA shall do its pro-GMO duty. This also puts in perspective the propaganda of Just Label It and other ostensibly anti-GMO groups who also call for an FDA solution. Aren’t the GMA and JLI talking about the same FDA? Does JLI repose its hopes in the same place Monsanto does? Or do these labeling groups and commenters think there’s two different FDAs? The fact is that there’s only one FDA, and it is pro-corporate by its nature as well as by the conscious intent of its cadres. As I explained in my preemption post (also in this post), a bourgeois bureaucracy is designed in the first place to seek pro-corporate outcomes. So the FDA will be like a fish in water if legislatively mandated along the lines Monsanto and the GMA want.

The TTIP, Corporatism, and GMOs -- Negotiation of the Transatlantic Trade and Investment Partnership (TTIP, aka TAFTA) has been slowed over the EU’s felt need to take time for a “consultation” with the people of Europe over its “investor rights” provisions. That means it needs more time for propaganda. Meanwhile any cosmetic revisions of this draconian provision won’t affect the harshness of the proposed compact’s other provisions. As with previous compacts, the corporate drivers of this plan hope to enshrine a race to the bottom, where all regulation and public interest policy, as well as all aggressive corporatist policy, has to be “equalized” at the most pro-corporate, anti-human level among the adherents to the pact.   The same will be true of European agricultural and food safety policies in general. Similarly, US law and constitutional jurisprudence would have to conform to Europe’s less strict regulation of the finance sector, and perhaps to its more strict regulation of seeds. In general, US regulation is more lawless and corporate-aggrandizing than that of the EU. As its proximate goal, the proposed compact is intended primarily to dismantle European protections and open up Europe to an escalated US corporate assault. Given how one-sided the compact will be, how generally pro-US (including in the term “US”, US-based corporations, which are best seen as extensions of the US government and of US power), the eagerness of European Commission (EC) bureaucrats to conclude this deal looks like economic malpractice and treason to the European people. Where it comes to real economic fundamentals Europe is doing very well. In particular, Europe’s agricultural sector outperforms that of the US in every qualitative way and in all the meaningful quantitative ways. Looking toward the post-fossil fuel future, Europe, while far from having a truly resilient agriculture and food system, is in a far better position to transform these systems to post-oil needs. Destroying Europe’s agricultural advantages and opening up Europe to the full onslaught of US agricultural products and systems is the main goal of the US in pushing for this compact in the first place.

Governments and Activists are Fighting the Corporate “Right” to Sue Governments - Yves Smith  Yves here. This post contains several troubling examples of how investors have used provisions in existing trade deals to attack the laws of nations that attempt to enforce environmental, labor, and consumer protections, or simply discipline bad-faith behavior. However, it’s important to understand the logic of these rules. It isn’t just any investor that can sue governments to try to obtain damages for them having the temerity to enforce their laws; it’s foreign investors who enjoy this privilege. The concern, supposedly, is that outsiders are at risk of having their assets expropriated or otherwise being abused by powerful locals and being unable (as furriners) to obtain redress in presumed-to-be-cronyistic courts. What this article skips over is how these provisions would be expanded and extended under the proposed trade deals, the TransPacific Partnership and its ugly Western sister, the TransAtlantic Trade and Investment Partnership. Even though they look to be dead for 2014 thanks to considerable Democratic and Republican opposition in the House and Senator Majority Leader Harry Reid’s refusal to table the fast-track authorization which the Administration deems necessary from a negotiating standpoint, it would be a mistake to declare victory. Obama has been resourceful about finding weaknesses in the opposition and exploiting it. We’ve already suggested he could push to get fast track passed in the lame duck session at the end of this year. So it is important to keep the heat on. Two ways to keep the momentum going: Continue to show support for Reid (letters and emails, and if you are in his district, letters to the editor of your local paper too)  Put pressure on Nancy Pelosi, who has only made some weak statements expressing concern about Fast Track rather than going into opposition. As a party leader, Pelosi is a legitimate target for out-of-district Democrats (with the missives of the form: “I’m deeply troubled by these toxic trade deals because they will weaken labor, consumer, and environmental regulations. Continued support by Democrats in Congress will lead me to reduce/stop contributing to the party. I hope you’ll take a firm, public stand against fast track authority.”). And as with Reid, if you are in her district, letters to the local media are particularly powerful.

Obama Lame Duck Watch: Pelosi Puts Another Nail in Toxic Trade Deal Coffin, Says She Opposes Giving Administration “Fast Track” Authority  --  Yves Smith - Obama now has another hurdle to overcome if he is to get his toxic trade deals, the TransPacific Partnership and the TransAtlantic Trade and Investment Partnership, passed in time for him to take credit for handing the keys to America over to multinational corporations and turning out the lights.  As we’ve discussed in recent posts, these deals have perilously little to do with trade since trade is substantially liberalized. The “trade” branding of these deals serves as a Trojan horse. Their big effect would be to considerably strengthen intellectual property rights (benefitting the medical-industrial complex, technology companies and Hollywood) while substantially weakening national sovereignity by allowing foreign investors to sue governments for lost potential profits as a result of national laws and regulation, such as environmental, labor, or consumer protection. Precisely because the content of these deals is so appalling, the Administration has conducted the negotiations in extraordinary secrecy. But as bits have leaked out (and the drafts of two critical chapters, one on intellectual property, the other on environmental regulations, were released by Wikileaks), normally complacent Congresscritters, both on the left and the right, have been increasingly objected to the substance of the deals as well as the process, that Congress in recent decades has allowed itself to be shut out of shaping these pacts by authorizing “fast track” authority, which allows the President to present Congress with the text it negotiated, for a simple up-down vote. Opposition was already hardening among House Democrats, with over 100 Democrats signing a letter opposing fast track authority and House Republicans circulating their own letter. House Majority leader Boehner had already said he couldn’t pass the bill without bipartisan support. Then Senate Majority leader Harry Reid said flatly that he was against fast track and told the Administration to go to hell back off.  Today Nancy Pelosi has told a gathering of labor leaders that she’s opposed to fast track. This is a significant development since heretofore Pelosi has made much less forceful statements.

As Obama Meets Neighbors, Nafta Critics Warn Over New Trade Deal -- Veteran critics of the North American Free Trade Agreement warn that some of the negative effects of the 20-year-old deal could be repeated in a larger trade bloc that spans the Pacific Ocean. President Barack Obama is set to meet his counterparts from Canada and Mexico, the other Nafta countries, next week, and the leaders are expected to discuss how the pact will fit into the Trans-Pacific Partnership, a new bloc under negotiation among 12 countries around the Pacific Rim, including U.S., Canada and Mexico.  The Obama administration is selling the TPP negotiations as an opportunity for a “21st century agreement” that mandates stronger labor and environmental rules for U.S. trading partners. But opponents of the free-trade agreements are warning that some of the economic drawbacks connected with Nafta could be repeated or exacerbated in the TPP. Labor unions are worried that the deal could lead to job losses to low-wage countries such as Vietnam.. Increased imports from Canada and Mexico and the relocation of factories over the border in the last two decades have led directly to the loss of 845,000 jobs, according to U.S. government data compiled by the Global Trade Watch team. While overall trade with Canada and Mexico has increased significantly, the U.S. trade deficit with these countries has swollen to $177 billion last year from $32 billion in 1993, adjusted for inflation, the report said.

How to Strengthen NAFTA’s Next 20 Years - Brookings Institution -- Amidst a flurry of retrospectives on the 20th anniversary of the North American Free Trade Agreement (NAFTA), the summit offers a timely opportunity to ask two questions: 1) What is the current state of North American trade? and 2) What can the three countries do together to position the continent for success in the global economy over the next 20 years?  Our recent report, Metro North America, offers some answers to the first question. Trade volumes between the United States and Canada and Mexico are massive and growing, due in no small part to the fact that manufacturers now treat the continent as one seamless market for research, design, production, and distribution. Firms—both large multinationals like Bombardier and Volkswagen and smaller firms like 3D Robotics and Vitro—stretch their supply chains across North America to maximize product quality and minimize product cost.  As a result, the three countries now make technologically advanced products in a globally distinct trilateral partnership. Yet despite the impressive growth rate of intra-continental trade, North America’s share of world exports has actually fallen from 19 percent to 13 percent since the signing of NAFTA.   To regain North America’s momentum in world export markets and grow jobs and incomes continent-wide, the three leaders should discuss strategies to deepen economic integration and make the continent’s co-produced products and services more globally competitive.

California drought hits farmers hardest -   Without help from the heavens, Joe Del Bosque figures that 2014 will be the last year before many family farmers in California’s vast San Joaquin Valley begin to go bankrupt.   Del Bosque has 2,000 acres scattered across several farms west of Fresno, near Firebaugh. He will leave 500 to 700 acres unplanted because there is no water for his crops. That’s about 650,000 boxes of cantaloupe, regular and organic, he won’t be harvesting come July — about $3 million worth of produce, he estimated. It’s a few hundred workers, most of them migrants, he won’t be hiring. It’s money that won’t be spent in grocery and hardware stores in small towns across the region that produces half of the country’s homegrown fruits and vegetables. It’s a lot of schools with empty seats as farm workers looking for jobs move on with their families. “Everybody will be hurt,” Del Bosque said. “When farmers idle land, the people who have small businesses in small communities . . . they’ll all suffer. It’s a huge ripple effect through the whole valley.” California is entering its third year of drought, a recurring nightmare for those old enough to remember the prolonged dry period of 1987 to 1991 and the disaster of 1976 and 1977, the previous record-setting drought. Now, 2013 is the driest year on record in California. Gov. Jerry Brown (D) officially declared a drought emergency on Jan. 17, asking the state’s 38 million people to voluntarily cut their water use by 20 percent. Two weeks later, with the snowpack in the Sierra Nevada at 12 percent of normal, the State Water Project announced for the first time in its 54-year history that it would deliver no water to agencies that serve 25 million people and 750,000 acres of farmland. They would have to get by with water from other sources, such as the Colorado River, groundwater and the little left in their reservoirs

Update: It Never Rains in California - A month ago I mentioned that California is experiencing another drought year. Since California is the largest agricultural state, the ongoing drought could have an impact on food prices - and on the economy. From the WSJ: Battle Over California Drought Solution California's drought is becoming a hot issue on Capitol Hill, where bills from Senate Democrats and House Republicans offer rival solutions on how to best aid water-starved farmers. The Golden State has suffered through a three-year drought that is forcing farmers to leave fallow hundreds of thousands of acres. Other Western states have experienced drought conditions for much of the past decade, prompting water managers across the region to embark on billions of dollars in projects to safeguard and stockpile supplies. Because California boasts a bigger agricultural sector than any other state, the drought could have an outsize economic impact nationally, raising produce prices. A weekend storm dumped rain and snow on Northern California, but officials said that put only a small dent in the drought.   Lawmakers can't make it rain! Here are a few resources to track the drought. These tables show the snowpack in the North, Central and South Sierra. Currently the snowpack is about 28% of normal for this date. And here are some plots comparing the current and previous years to the average, a very dry year ('76-'77) and a wet year ('82-'83).

Can Anybody Save California? - The mega-drought is pitting farmers against fishermen, north against south and, of course, Democrats against Republicans. But that’s frequently the case in California, which has battled for more than a century over how to allocate too little water for too many people. The dry landscape adds another layer of rancor, and with the planet heating up and fueling bigger, longer and more severe droughts, that’s likely to be a permanent fixture. The immediate impacts of this drought herald a disaster. The past year has been the driest in California’s recorded history, perhaps the worst since 1580, hearkening back to the mega-droughts of an earlier age. A series of recent storms in the northern part of the state doubled the available snowpack, but with three straight years of drought, that snowpack remains around one-fourth of the normal amount (you would need rain or snow every other day until May to catch up). The California Drought Monitor shows “severe drought” conditions in 90 percent of the state, particularly in the agriculturally rich Central Valley, sometimes nicknamed the nation’s salad bowl.  The conditions have created impossible, Sophie’s Choice-type dilemmas. The State Water Project, which supplies water to agencies serving 25 million residents, announced they would make no deliveries this month for the first time in history. Seventeen California communities and water districts, primarily in the Central Valley, may not have drinking water in the next 60-90 days. Residents  Farmers may have to leave half a million acres fallow this planting season, a record loss that could cost more than $2 billion.  Migrant workers won’t get hired to cultivate crops, leading to unemployment that could top 50 percent in some Central Valley towns. The state has banned fishing in several rivers to protect thinning populations. The dry conditions create breeding grounds for wildfires, which started this year as early as January. Ranchers have been forced to sell off their calves at half their usual sale weight because of a lack of grass,

California's severe drought exposes civilization's thin veneer - The severe drought in California and much of the West is a reminder that civilized life is a paper-thin veneer that overlays the deep upheavals of nature. Humans carry on blithely, holding fast to the illusion that the natural world can be tamed and exploited with no unavoidable consequences. Then we get slammed by a hurricane, a flood, a tornado, a wildfire, a drought or a freezing polar vortex that lets us know how wrong we are. With climate change, either we suspect it is too late to do anything about it or we just deny it is real. And even the vast majority of climate scientists who know it is a real phenomenon are quick with the caveat that no single weather event can be attributed to climate change with complete certainty. The drought in California’s agricultural lands may simply be part of a natural cycle that has kicked in independently rather than being a result of global warming caused by the sharp increase in atmospheric CO2 levels in the industrial age. Whatever the case may be, experts say it has been 500 years since it has been this dry. The last time it happened, the native cultures in the West were severely disrupted. The question facing us today is how much disruption our more complex society can handle. In the agricultural regions of California, where half of the nation’s fruits, nuts and vegetables are grown, many farmers are not planting crops this year because there is no water. Cattle and sheep are being sold off by ranchers because there is no grass. More than 25 million people who rely on dwindling local water sources are being told not to expect rescue because state and federal water reserves are quickly running out. Nevada, New Mexico and other western states face a similar crisis. Unemployment is rising among agricultural workers and American consumers will soon see food prices shoot up as well, as the bounty of the land dries up.

Technology Can Boost Crop Yields, Halve Food Prices By 2050 - Agricultural technologies could help boost global crop yields by as much as 67% and help to slash food prices by as much as 50% by 2050, at a time when the world’s population is expected to soar to around 9 billion and as increasing episodes of erratic weather patterns take their toll on international food security.  According to the latest report from the International Food Policy Research Institute or IFPRI, widespread use of various technologies, namely drought resistant crops, biotech seeds and drip irrigation could help boost corn yields by as much as 67% and wheat yields by 20% by as soon as mid-century. In its latest study, IFPRI sections the world’s farmland into 60 X 60 kilometer squares and examines the outcome of 11 various technologies on corn, wheat and rice yields under alternating climatic conditions. The increase in yields are then used as part of an economic model which gauges their impact on world food security and international trade flows for edible commodities. Yet, no sole technological method can eliminate food insecurity, warns the author of the study. “The reality is that no single agricultural technology or farming practice will provide sufficient food for the world in 2050,” . “Instead we must advocate for and utilize a range of these technologies in order to maximize yields.”

2013 was the second-hottest year on record without an El Niño - According to the global surface temperate data set compiled by Kevin Cowtan & Robert Way, which achieves the best coverage of the rapidly-warming Arctic by filling in data gaps between temperature stations using a statistical method called kriging, 2013 was the 5th-hottest year on record (since 1850).  The top three hottest years (2010, 2005, and 2007) were influenced by El Niño events, which cause short-term warming of the Earth's atmosphere. Over the past decade, we've seen less warming at the surface and more warming in the oceans.  This has been in large part due to a change in Pacific Ocean cycles.  We're currently in a cycle that tends to produce more La Niña than El Niño events, which has resulted in the oceans accumulating more heat, leaving less energy than normal to warm the atmosphere.  This in turn has led to the widespread myth that the slowed rate of increase of global surface temperatures means we no longer have to worry about global warming, or that its consequences won't be as bad as expected. The fundamental flaw in this argument is that it neglects a key fact: cycles are cyclical.  In the '80s and '90s when the Pacific Ocean was in the previous phase of this cycle, we saw more El Niño events and more warming of global surface temperatures than the average of climate models projected.  However, we can separate out the short-term El Niño and La Niña influences from the human-caused global warming component in the simple manner first suggested by  Texas state climatologist John Nielsen-Gammon, shown in this animated graphic:

>75% chance of El Nino this year: El Niño may make 2014 the hottest year on record - Long-term weather forecasts are suggesting 2014 might be the hottest year since records began. That's because climate bad-boy El Niño seems to be getting ready to spew heat into the atmosphere. An El Niño occurs when warm water buried below the surface of the Pacific rises up and spreads along the equator towards America. For nine months or more it brings rain and flooding to areas around Peru and Ecuador, and drought and fires to Indonesia and Australia. It is part of a cycle called the El Niño-Southern Oscillation.  It is notoriously hard to make a prediction before the "spring barrier" as to whether there will be an El Niño in a given year. "The El Niño-Southern Oscillation cycle more or less reboots around April-May-June each calendar year," The problem is that there is so much background variability in the atmosphere and ocean that it is hard to see any signal amidst the noise, says Wenju Cai from the CSIRO, Australia's national research agency in Melbourne. "Even if there is a developing El Niño, it is hard to predict." But now a model aimed specifically at predicting El Niño seems to be able to sift through the noise by examining a previously-unexplored feature of Pacific weather. Previous predictions have relied on full climate models. Rather than using this traditional approach, Armin Bunde and his colleagues looked at the strength of the link between air temperature over the equator and air temperature in the rest of the Pacific. The records showed that, in the year before each El Niño, the two regions became more closely linked, meaning their temperatures became more similar than at other times.Now they say the threshold was crossed in September 2013. "Therefore, the probability is 0.76 that El Niño will occur in 2014," says Bunde. In other words, there is a 76% chance of an El Niño this year.

Record warmth in Siberia and Brazil and cold in U.S. Upper Midwest - In contrast to the continuing near-record cold temperatures in the U.S. Upper Midwest, record warmth has been occurring in portions of Siberia and Brazil. Here are the details. Duluth, Minnesota, finally snapped its record longest stretch of 0 °F (-17.8 °C) or below days today (February 12th) when the temperature this morning fell to ‘only’ 10 °F (-12.2 °C). For 23 days, from January 19th to February 11th, the minimum temperature fell to zero or below. This surpassed the previous record of 22 days set in 1936 (January 17-February 7) and also in 1963 (January 10th to January 31st). Lake Superior is now 87.1% iced over, its greatest extent since the winter of 1996, and it is closing in on the record 94.7% during the winter of 1979.  Chicago fell below zero again Wednesday morning (January 12th) making this the 22nd zero-or-below day this winter tying 4th place (with the winter of 1981-1982) for the most such on record. Here’s where the ranking stands now: Meanwhile on the other side of the North Pole in Siberia… All-time-record monthly warm temperatures have been observed at many sites in the Siberian states of Yakutia and Kamchatka. In what is normally the coldest permanently inhabited place on earth, Oymyakon (various spellings) saw its temperature rise to a February record high of -12.5 °C (9.5 °F) on February 9th. The normal high temperature at this time of the year should be around -48 °C (-55 °F).  The official weather station for Sao Paulo (Brazil’s largest city) Mirante do Santana has recorded its warmest January on record with a daily average maximum of 31.9 °C (89.4 °F) surpassing February 1984, the previous warmest month on record. Since January the temperatures in Sao Paulo have shot up even higher.

Offsetting Temperature Extremes Add up to an Average January -- Winter weather is getting a lot of blame recently for disappointing economic data. But it turns out last month, on average, wasn’t all that cold due to offsetting extremes. The average temperature in the 48 contiguous U.S. states in January was 30.3 degrees, just 0.1 degree below the 20th century average, according to the National Climatic Data Center’s monthly climate report, released Thursday. It was very cold in the eastern U.S. but warmer than usual out west, “resulting in an overall monthly temperature slightly below average,” the report noted. Precipitation was below normal last month. The average of 1.32 inches was 0.9 inches below last century’s average, the lowest since 2003 and represented the fifth-driest January on record, the center said. Again, East and West were at odds. “Dry conditions dominated much of the western and southern United States, with severe-to-exceptional drought engulfing much of California and Nevada,” the report noted. “Numerous winter storms impacted the central and eastern United States, bringing above-average snowfall but closer-to-average total precipitation.”

A Watershed Moment | Watchdog Report - Bulk of $15 billion plan not directly tied to stopping Asian carp: It might be back to the drawing board for the U.S. Army Corps of Engineers' sweeping proposal to spend billions of dollars and 25 years to block an Asian carp invasion of the Great Lakes. Buried within the Army Corps' 10,000-page study, and teased out in interviews with agency staff and legal experts, the Milwaukee Journal Sentinel found that some controversial — if not inaccurate — interpretations of federal and state water laws are driving much of the project's astronomical costs and epic timeline. The bulk of the Army Corps' $15 billion-plus estimate to restore the natural separation between the Lake Michigan and Mississippi River watersheds is yoked to projects that critics contend have little to do with directly stopping invasive species. They include some $12 billion to build things like new reservoirs, sewer tunnels and water treatment plants, as well as remove contaminated river sediments. Chicago dug its canals more than a century ago to reverse the flow of its namesake river — and all the sewage discharged into it — so it flowed away from Lake Michigan and into the Mississippi River basin. Governors and regional political leaders have grown increasingly concerned about these canals as global trade has made the waterways a man-made conduit for things like the jumbo carp from China, a fish-killing virus from the Atlantic and pipe-clogging mussels from the Caspian Sea to migrate between two of America's grandest watersheds.

What Is Happening To Alaska? Is Fukushima Responsible For The Mass Animal Deaths? -Why are huge numbers of dead birds dropping dead and washing up along the coastlines of Alaska?  It is being reported that many of the carcases of the dead birds are “broken open and bleeding”.  The photo of some of these dead birds at the top of this article was originally posted by Alaska native David Akeya on Facebook.  You can find more photos of these dead birds right here.  And of course it isn’t just birds that are dying.  As you will see below, something is causing mass death events among various populations of fish as well.  In addition, it has been reported that large numbers of polar bears, seals and walruses in Alaska are being affected by hair loss and “oozing sores”.  So precisely what is causing all of this?  Could Fukushima be responsible?  Authorities are claiming that all of this is being caused by “disease” or “harsh weather”, but are they actually telling us the truth?  Evaluate the evidence that I have shared below and decide for yourself…

Last year, the oceans warmed at a rate of 12 Hiroshima bombs per second - Think global climate change hasn’t been very noticeable from where you’re standing? Down in the oceans (which is to say, over the majority of Earth’s surface), temperatures spiked last year, as warming proceeding at an incredibly rapid pace. Skeptical Science calls attention to the oceans’ temperature rise for the final quarter of 2013, which literally was almost off-the-charts: Put in terms that are easy (if horrifying) to visualize, Skeptical Science explains that the oceans used to be warming at a rate equivalent to about 2 Hiroshima bombs per second. Over the past 16 years, that’s doubled to a rate of 4 bombs per second. But in 2013, the warming became so dramatic that it was equivalent to 12 Hiroshima bombs every second. Seriously.

Unprecedented trade wind strength is shifting global warming to the oceans, but for how much longer? - Research looking at the effects of Pacific Ocean cycles has been gradually piecing together the puzzle explaining why the rise of global surface temperatures has slowed over the past 10 to 15 years.  A new study just published in Nature Climate Change adds yet another piece to the puzzle by examining the influence of Pacific trade winds. While the rate of surface temperature warming has slowed in recent years, several studies have shown that the warming of the planet as a whole has not.  This suggests that the slowed surface warming is not due as much to external factors like decreased solar activity or more pollutants in the atmosphere blocking sunlight, but more due to internal factors shifting the heat into the oceans.  In particular, the rate at which the deep oceans have warmed over the past 10 to 15 years is unprecedented in the past half century. Research led by Masahiro Watanabe suggests this is mainly due to more efficient transfer of heat to the deep oceans. Consistent with model simulations led by Gerald Meehl, Watanabe finds that we sometimes expect "hiatus decades" to occur, when surface air temperatures don't warm because more heat is transferred to the deep ocean layers.  A paper published last year found that accounting for the changes in Pacific Ocean surface temperatures allowed their model to reproduce the slowed global surface warming over the past 10 to 15 years.  However, the mechanism causing these Pacific Ocean changes has remained elusive.

Greenland glacier sets glacial speed record -- If the term “ice stream” sounds like an oxymoron to you, you haven't seen the Jakobshavn. (Pronounced “yah-cobes-hah-ven”.) This glacier on the western coast of Greenland is one of the few things in the crysophere that can’t really be said to move at a glacial pace. As ice flows from the center of Greenland to the edges, it gets funneled into low spots, forming outlet glaciers. In some places where that funneling is extreme and the ground surface is slick, the ice behaves like toothpaste being squeezed from a tube. These places are ice streams. Almost seven percent of the Greenland ice sheet gets forced through the Jakobshavn Glacier. This tremendous flow of ice makes Jakobshavn stand out—it once filled a fjord with a floating shelf of ice that was more than 35 km long. Once, but no more. That shelf has disappeared over the past 150 years as the glacier has receded; since the mid-1990s, it has retreated more than 10 kilometers.  So why the acceleration? It has to do with the topography beneath the ice. Many factors that affect the flow of a glacier, and the conditions at the base make a huge difference. Where the ground isn’t frozen (which is more common than you might think), water pressure counteracts some portion of the glacier’s weight, reducing the friction that slows the glacier. Anything that raises that water pressure greases the skids and lets the glacier speed up.

Sea walls may be cheaper than rising waters - Every country worldwide will be building walls to defend itself from rising seas within 90 years because the cost of flooding will be more expensive than the price of protective projects, researchers predict in a new study.The encroaching seawater threatens to flood hundreds of millions of people every year by 2100 as homes that are already below flood heights, or will be, succumb to climbing oceans. If governments fail to take any action, the annual cost of damage stands to reach hundreds of billions of dollars, at best, and as high as $100 trillion under grimmer scenarios, according to the paper, published yesterday in the Proceedings of the National Academy of Sciences.The bleakest outcome could result in nearly 5 percent of the world's population facing yearly floods that drain almost 10 percent from the globe's economy, the paper says. That would require a collision of severe scenarios that involve leaping ocean levels, high numbers of people living along seashores and a lack of defensive efforts. The researchers think that the worst results are unlikely to happen, because people won't tolerate it. Instead, the group of 10 European academics predicts that the difficult decision to build expensive dike systems will grow easier in the future as the price of floods increase.

Coastal flooding ‘may cost $100,000 billion a year by 2100′ – If global warming continues on its present ominous path, and if no significant adaptation measures are launched, then coastal flooding could be costing the planet’s economies $100,000 billion a year by 2100. And perhaps 5% of the people on the planet – up to 600 million people – could be hit by coastal flooding by the end of the century, according to new research in the Proceedings of the National Academy of Sciences. Jochen Hinkel from the Global Climate Forum in Berlin and colleagues have compiled, for the first time, global simulation results on future flood damage to buildings and infrastructure on the world’s coastal flood plains. They expect drastic increases in economic damage because, as sea levels rise with the decades, so will population and investment: there will be more people with more to lose. Right now, coastal floods and storm surge damage cost the world between $10 billion a year and $40 billion. But as the megacities grow – think of Lagos, or Shanghai, or Manila – more people will be at risk, and, among them, greater than ever numbers of the poorest.

Worst-case dollar cost of a few feet of rising seas could reach $100 trillion every year, according to the most rigorous scientific study of its kind - The world needs to invest tens of billions of dollars a year in beefing up shoreline defenses against rising oceans or it will face mind-boggling costs in the decades to come, according to new research published this week in the Proceedings of the National Academy of Sciences. If nations don't build up dikes, levees and sea walls, harden existing infrastructure, and preserve natural sponges like wetlands and barrier islands—and if they also do nothing to cut the emissions of greenhouse gases that cause global warming and are driving sea levels higher—the damages could be almost beyond comprehension, the researchers warned. In a worst case, almost five percent of the world's population could be exposed to flooding at the start of the next century, and the damage could surpass 9% of future global GDP each year. This future damage from floods, they wrote, "may be one of the most costly aspects of climate change."

Arctic Autumns On Track To Warm A Staggering 23°F, NOAA Warns --“Climate models show carbon emission mitigation could slow Arctic temperature increases.” That is NOAA’s glass-is-half-full-of-ice headline for a new study that finds we are on track for mind-boggling Arctic warming this century. Since that “dog bites man” headline is essentially self-evident, the story didn’t get much pick up. NOAA buried the bombshell lede: Climate model projections show an Arctic-wide end-of-century temperature increase of +13° Celsius [23°F!] in late fall and +5° Celsius [9°F] in late spring if the status quo continues and current emissions increase without a mitigation scenario.  As NOAA explains, we have long known that the Arctic would warm much faster than Earth as a whole:Temperature increases in response to greenhouse gases are amplified in the Arctic due to large-scale changes in the ability of the Arctic to reflect sunlight. As atmospheric temperatures increase, ice and snow decline, which opens up larger areas of water and land to the sun. Open water and snow and ice-free land absorb and store heat at a much higher rate than snow and ice, which reflects sunlight and heat. This physical process is known as Arctic amplification.  For more on our Arctic amplification, click here.

Carbon Output ‘Will Climb 29 Percent by 2035’ - The good news, from the climate’s standpoint, is that while global demand for energy is continuing to grow, the growth is slowing. The bad news is that one energy giant predicts global carbon dioxide emissions will probably rise by almost a third in the next 20 years. The Intergovernmental Panel on Climate Change says greenhouse gas emissions need to peak by 2020 and then decline if the world is to hope to avoid global average temperatures rising by more than 2°C over pre-industrial levels. Beyond 2°C, it says, climate change could become dangerously unmanageable. But BP’s Energy Outlook 2035 says CO2 emissions are likely to increase by 29% in the next two decades because of growing energy demand from the developing world. It says “energy use in the advanced economies of North America, Europe and Asia as a group is expected to grow only very slowly – and begin to decline in the later years of the forecast period”.But by 2035 energy use in the non-OECD economies is expected to be 69% higher than in 2012. In comparison use in the OECD will have grown by only 5%, and actually to have fallen after 2030, even with continued economic growth. The Outlook predicts that global energy consumption will rise by 41% from 2012 to 2035, compared with 30% over the last ten. Nor does it offer much hope that the use of novel energy sources will help to cut emissions. It says: “Shale gas is the fastest-growing source of supply (6.5% p.a.), providing nearly half of the growth in global gas.”

European parliament votes for stronger climate targets - The European parliament voted on Wednesday to require member states to meet binding national targets on renewable energy, energy efficiency and greenhouse gas emissions. In a decisive vote, 341 to 263 MEPs called for three binding targets for 2030: a 40% cut in greenhouse gases, compared with 1990 levels; at least 30% of energy to come from renewable sources; and a 40% improvement in energy efficiency.  This was stronger than the proposal from the European commission last month, that called for 27% of energy to come from renewable sources by the same date. Under the commission's plan, there was no target for energy efficiency, and – crucially – the UK was successful in ensuring that the renewables target would be binding only at the bloc level.

Towards Stunde Null - The West Coast news last week was bad. There is the drought, though of course that is becoming old news; and then there was the previously undisclosed attack on a San Jose power substation last April that may have been a dress-rehearsal for a terrorist attack on the US electricity grid. The story appeared on the front page of The Wall Street Journal. The New York Times followed up the next day. The details were chilling.  Starting at 12:58 a.m. last April 16, an unknown number of well-prepared raiders carried out an attack on a Pacific Gas and Electric Co. transmission substation in rural Santa Clara County, at the southern end of San Francisco Bay.  One set of nearby fiber-optic cables in a vault were cut at that moment, and nine minutes later another set not far away, apparently to disrupt communications in the area and delay alarms. At 1:31 a.m., snipers began firing at oil-cooled transformers forty yards behind an alarmed and monitored chain-link fence (whose cameras all faced in).  More than 100 rounds were fired from military assault-style rifles over the next 20 minutes; 17 of 23 enormous transformers were knocked out, after their oil-cooling systems were drained. At 1:45 a.m,, the PG&E control center ninety miles north received an equipment-failure alarm. Flashlight signals, caught on tape, apparently commenced and ended the attack; the shooters melted away into the night. Why did the story suddenly surface last week?  However WSJ reporter Rebecca Smith may have tumbled on to the story in the first place, she made the motivation of its confirmation crystal clear. Jon Wellinghoff, who had been chairman of the Federal Energy Regulatory Commission for five years, acknowledged that the incident had taken place and said he had grown increasingly concerned in recent months that a larger attack might be in the works.  He had given high-level briefings on the incident to Federal regulators, Congress and the White House, he told Smith. Now, she wrote, “He said he was going public about the incident out of concern that national security is at risk and critical electric grid sites aren’t adequately protected.”  

How America Helped Build Africa’s E-Wasteland -- The United States remains the world’s leading producer of electronic waste. Last month the Guardian reported that an individual American is responsible for an average of sixty-five pounds of e-waste (followed closely by the United Kingdom, at forty-eight pounds). Altogether, in 2010 the U.S. discarded over 250 million assorted electronics, including computers, monitors and cellphones. If you had a detailed enough map, you could find Agbogbloshie on the banks of the Korle Lagoon, just outside of Accra, Ghana’s capital city. Its four acres contain an estimated population of 40,000 men, women and children living in shacks built from scrap metal. It is the world’s largest dumpsite for electronic waste. Mosquitos from the lagoon spread malaria. Residents report headaches, chronic nausea, insomnia, respiratory problems, anorexia and burns. Smoke rises in black pillars across the landscape as plastic appliances are incinerated for the metals inside. Children hack at motherboards and smart phones with rocks and chisels while women wander through the burning scrap heaps selling fruit and bags of water, their infants tied to them and breathing the toxic air.  Agbogbloshie is strewn with the discarded pieces of VHS players, televisions, computers, laptops, refrigerators, microwaves and stereos, and the U.N. has predicted that this electronic waste will increase by 33 percent in the next four years. Already the soil is contaminated with cadmium, arsenic, mercury and lead. The ground is so saturated with lead that it measures 18,125 parts per million, forty-five times the United States’ safety standard.

Kyodo: ‘Massive’ amount of Fukushima data wrong? “Figures can’t be trusted” — NHK: Strontium-90 by ocean at 160,000 times limit — Tepco: Actual levels “exceeded the upper limit of measurement… We are very sorry” --  Kyodo, Feb. 7, 2014: TEPCO to review “massive” radiation data due to improper measurement – [TEPCO] said Friday that it will review a “massive” amount of radiation data it has collected at the crippled Fukushima Daiichi nuclear power plant because readings may be lower than actual figures due to improper measurement. “We are very sorry, but we found cases in which beta radiation readings turned out to be wrong when the radioactivity concentration of a sample was high,” TEPCO spokesman Masayuki Ono told a press conference. [...] Kyodo/Jiji, Feb. 7, 2014: [TEPCO] said it will re-analyze past water samples because some of the figures can’t be trusted. NHK, Feb. 7, 2014: TEPCO to review eroneous [sic] radiation data — The operator of the damaged Fukushima Daiichi nuclear plant has decided to review radiation data after finding the initial readings may be much lower than actual figures. [TEPCO] says it has detected a record high 5 million becquerels per liter of radioactive strontium in groundwater collected last July from one of wells close to the ocean. That’s more than 160,000 times the state standard for radioactive wastewater normally released into the sea. [...] Yomiuri Shinbun translated by EXSKF, Feb. 7, 2014: [...] 5 million Bq/Liter of radioactive strontium was detected from the groundwater sample taken on June 5 [...] about 1,000 times that of the highest density in the groundwater that had been measured so far (5,100 Bq/L). TEPCO didn’t disclose the result of measurement of strontium [...] On February 6, TEPCO explained that they had “underestimated all of the results of high-density all-beta, which [in fact] exceeded the upper limit of measurement.” [...] The company recently switched to a different method of analysis that uses diluted samples [...]

Tepco waited five months before releasing Fukushima data about radioactive strontium-90 (Reuters) – The operator of Japan’s wrecked Fukushima nuclear plant knew about record high measurements of a dangerous isotope in groundwater at the plant for five months before telling the country’s nuclear watchdog, a regulatory official told Reuters. Tokyo Electric Power Co (Tepco) said late on Wednesday it detected 5 million becquerels per liter of radioactive strontium-90 in a sample from a groundwater well about 25 meters from the ocean last September. That reading was more than five times the broader all-beta radiation reading taken at the same well two months earlier.A Tepco spokesman said there was uncertainty about the reliability and accuracy of the September strontium reading, so the utility decided to re-examine the data. Shinji Kinjo, head of a Nuclear Regulation Authority (NRA) taskforce on contaminated water issues at Fukushima, told Reuters he had not heard about the record high strontium reading until this month. “We did not hear about this figure when they detected it last September,” he said. “We have been repeatedly pushing Tepco to release strontium data since November. It should not take them this long to release this information.” Strontium-90, which has a half-life of around 29 years, is estimated to be twice as harmful to the human body as cesium-137, another isotope that was released in large quantities during the meltdowns at the Fukushima Daiichi plant in March 2011. The legal limit for releasing strontium into the ocean is 30 becquerels per liter.

TEPCO Hid Record Fukushima Radiation Levels Before Olympics Bid  -- Days before Tokyo won its bid to host the 2020 Olympics last September, Japanese PM Shinzo Abe stated that Fukushima contaminated water was "under control." Now, as Reuters reports,  the nation's nuclear watchdog has uncovered that, following  "uncertainty about the reliability and accuracy of the September strontium reading," which prompted a re-examination of samples, levels of Strontium-90 were five times the levels previously recorded. The Japanese NRA blasted TEPCO, “We did not hear about this figure when they detected it last September. We have been repeatedly pushing TEPCO to release strontium data since November. It should not take them this long to release this information." One can only wonder why - when the promise of $500 million of government support is on the line... and new cracks are appearing.

Gundersen: New Report Shows 50 tons Of Rubble Fell In Unit 3 Pool, "Removal of Fuel Cannot Exist" - YouTube: TEPCO released a report entitled, TEPCO's Fukushima Nuclear Power Plant Roadmap, that contained some astounding information regarding Unit 3. Follow Fairewinds Energy's Arnie Gundersen as he shows you the 35-ton refueling bridge that fell in the Unit 3 spent fuel pool during the Unit 3 detonation explosion. Do the math. The bottom line here is that TEPCO has just acknowledged that at least 50-tons of rubble has fallen on top of and into the spent fuel pool in Unit 3. What does this 50-ton pile of debris mean to the Unit 3 spent fuel pool and its cleanup?

Wind and Gas Forcing Out Nuclear in Midwest - Exelon Corporation is considering closing some of its nuclear power plants because they have become unprofitable. Despite what CEO Christopher Crane said during its fourth-quarter earnings call was its “best-ever year in generation,” Exelon blames low electricity prices and “bad energy policy” for making some of its units unprofitable to continue to run. By “bad energy policy,” Crane is referring to subsidies for renewable energy that Exelon has long campaigned against.  Exelon operates 17 nuclear reactors at 10 power plant sites around the country, which accounts for one-fifth of the nation’s nuclear fleet. It is the largest operator of nuclear power plants in the U.S., but it is now being forced into deciding by year-end whether or not it will ultimately close some of those units. The Chicago-based company has tried to reassure investors, arguing that there is a possible path towards profitability because of the prospect of dozens of coal plants shutting their doors in the coming years. Tighter environmental regulations and cheap natural gas is hammering the coal industry, and Exelon predicts that there are 52 gigawatts of coal-fired generation set to retire by 2016. After those plants close, the electricity market will tighten, pushing up power prices, and allowing Exelon’s nuclear plants to return to profitability

Propane Shortages Leave Many Without Heat -- Shortages of propane around the country have left many with sky-high energy bills, or worse, without heat at all. Propane prices have jumped from a national average of $2.31 per gallon at this time last year, to $3.89 in January 2014. Inventories of propane are half of what they were at this time last year, even though production of propane is up 15% on the year. And as a stretch of cold weather continues over much of the eastern half of the country, many people are having to make difficult choices about how to heat their homes and businesses.  The causes of the shortage are not entirely clear, especially considering natural gas production continues to rise, but there have been several factors. Propane, a product obtained during oil and gas drilling, usually experiences consistent demand. However, the cold winter has driven demand to unusual highs, and inventories have been drawn down as a result. Another reason is that farmers used five times the normal amount of propane this past year in order to dry out corn. The farm belt had a banner year, but much of the crop was wet from heavy rains, and propane is used to dry out corn. Energy analysts also believe that exports have played a part. With the U.S. producing surpluses in natural gas and refined products, companies have moved to ship more overseas. Since 2010, exports of refined petroleum products have surged 60%. For propane, those numbers are even more staggering. In October 2013, propane exports surpassed 400,000 barrels per day for the first time ever, up from 150,000 barrels per day in January 2012.

Propane, drying corn, and cold winter -- RB Energy describes the problems with commercial and residential propane markets: We’ve been talking a lot over the past year about the need for increasing exports to balance the U.S propane market as growth in production from gas processing plants outruns domestic demand.  U.S. propane production from gas processing has increased by over 100 Mb/d since January 2013, and there’s lots more to come.  For the first time U.S. propane exports exceeded 400 Mb/d in October 2013 thanks to growing U.S supply and infrastructure developments including dock expansions by Enterprise and Targa.  But just after exports ramped up, the propane market was hit by a couple of wild cards – a late and very heavy crop drying season and a series of record cold temperature events. In today’s blog, we continue our series covering the record setting 2014 NGL markets. but this year Midwest propane suppliers were hit particularly hard by a late and heavy crop drying season followed directly by much colder temperatures. For an in-depth look at these demand anomalies and the impact on domestic markets see A Perfect Storm – Polar Vortex Turns Propane and other NGL Markets Upside Down.  For more on propane demand and crop drying see Farmer Dries Corn and I Do Care; Propane Corn Drying, Shortages and the Cochin Reversal – Part 2 .  While seasonality in propane demand is normal, this winter has been anything but normal.  The 2013 crop drying season and the 2013-14 Polar Vortex weather pattern are both extremes.

Propane shortage devastates Dakotas reservation - A nationwide propane shortage has hit an American Indian reservation that straddles the Dakotas' border particularly hard. A more than doubling of the fuel's cost has crippled efforts to stay warm — and alive — through the harsh winter at the Standing Rock Reservation where most people rely on propane to heat their often ramshackle homes. The reservation is on the wind-swept Northern Plains where there is little to block the icy gales that whip in from the northwest and create wind chills as low as 50 below. Many residents live in mobile homes, some with ill-fitting doors, others with boards tacked up where the windows should be, or deteriorating roofs that leak much-needed warmth. The propane crisis at the reservation can be summed up in the story of Debbie Dogskin, a healthy 61-year-old woman who died this week while house-sitting for a friend in a rundown mobile home with an empty propane tank.  "We think she just fell asleep and died," Preliminary autopsy results released Friday did not identify a cause of death, but Sioux County Sheriff Frank Landeis said he believes Dogskin froze to death because it was as cold inside the home as out that morning — 1 degree below zero. Dogskin's family said she had taken off some of her clothes, a symptom of the altered state of mind of someone in the advanced stages of hypothermia. Toxicology reports were expected in six to eight weeks.

The Golden Age of Gas, Possibly: Interview with the IEA -- The potential for a golden age of gas comes along with a big “if” regarding environmental and social impact. The International Energy Agency (IEA)—the “global energy authority”--believes that this age of gas can be golden, and that unconventional gas can be produced in an environmentally acceptable way. In an exclusive interview with, IEA Executive Director Maria van der Hoeven, discusses:

•    The potential for a golden age of gas
•    What will the “age” means for renewables
•    What it means for humanity
•    The challenges of renewable investment and technology
•    How the US shale boom is reshaping the global economy
•    Nuclear’s contribution to energy security
•    What is holding back Europe’s energy markets
•    The next big shale venues beyond 2020
•    The reality behind “fire ice”
•    Condensate and the crude export ban
•    The most critical energy issue facing the world today

Shale gas and the housing market -- Compared to coal and oil, shale gas offers the prospect of greater energy independence and lower emissions of carbon dioxide and other pollutants. However, fracking is controversial due to the local externalities it creates – particularly because of the potential for groundwater contamination. This column presents evidence on the size of these externalities from a recent study of house prices. The effect attributable to groundwater contamination risk varies from 10% to 22% of the value of the house, depending on its distance from the shale gas well.

California Drought Emergency Sparks Call To Ban Fracking And Protect Water -- The ongoing California drought emergency has prompted state lawmaker Rep. Marc Levine (D) to push for a moratorium on hydraulic fracturing to limit the drilling process’ drain on natural resources. “We have to decide what our most precious commodity is — water or oil?,” Levine told Reuters. “This is the year to make the case that it’s water,” Fracking heavily relies on groundwater by injecting a mixture of chemicals and water into rock formations to release oil and gas deposits. A recent Ceres report found that 96 percent of California fracking wells are located in the areas experiencing drought and high water stress.  Right now, most of California needs 15 to 36 inches of rain to bring an end to the brutal drought. The map below shows nearly the entire state in drought conditions, ranging from abnormally dry (yellow) to extreme (red) and exceptional drought (maroon):  The problem also tends to hit other states that are suffering severe drought, including Colorado, Texas, and New Mexico. Fracking is controversial for how it affects water quality, too, and California lawmakers have called on Governor Jerry Brown to ban fracking until there is more research on the health and environmental impacts of the practice.

The EPA Finally Moves To Oversee Diesel Fuel Use In Fracking Fluids -- Add diesel fuel to the list of chemicals fossil fuel companies inject into the ground during hydraulic fracturing. The practice, commonly known as “fracking,” involves drilling for oil or gas in especially tight shale deposits, then fracturing the formation by pumping fluids underground at high pressure, so the fossil fuels can flow out. Diesel fuel is sometimes among those fluids, along with a host of other chemicals, as water alone is often absorbed too easily by the formations. The use of diesel has actually been going on for almost a decade, but the Environmental Protection Agency is now moving to exert some control over the practice. Current law gives primary permitting authority over fracking to the Department of the Interior, but companies must get permits from EPA when using diesel. On Tuesday, EPA issued new guidance concerning just what it defines as diesel, naming five different chemical variations as well as “technical recommendations” for meeting those standards.  That said, the guidance also leaves plenty of forms of diesel untouched. Nor does it amount to a hard rule: “Decisions about permitting hydraulic fracturing operations that use diesel fuels will be made on a case-by-case basis, considering the facts and circumstances of the specific injection activity and applicable statutes, regulations and case law, and will not cite this guidance as a basis for decision,” the EPA said. Diesel includes known carcinogens such as benzene, toluene and xylene which pose a heightened risk of cancer, kidney damage, liver damage, or harm to the nervous system if ingested by humans.

VIDEO: Explosion And Fire At Chevron Natural Gas Well In Pennsylvania - At around 6:45 this morning a fire was reported at a Chevron natural gas well in Greene County, Pennsylvania, just north of the West Virginia border. As of early afternoon, one person had been injured and another was still missing, according to statements from the company. Twenty workers were on the scene at the time of the fire. While Chevron did not initially know the cause of the blast, the fire chief on scene recently said it was caused by natural gas. According to Chevron spokeswoman Lee Ann Wainwright, the well was in the final stages of being put in production.  BREAKING: Attica Fire Chief says explosion was caused by natural gas. 2 blocks evacuated. — Liz Gelardi (@LizGelardiFOX59) February 11, 2014 Video taken from a helicopter over the scene shows the flames engulfing drilling and processing equipment.

Train Derails In Pennsylvania, Spilling Up To 4,000 Gallons Of Oil -- A train carrying crude oil from Canada derailed in Pennsylvania on Thursday, spilling an estimated 3,000 to 4,000 gallons of oil.  Twenty-one cars of the 118-car train derailed at around 8:30 Thursday morning, 19 of which were carrying oil and two of which were carrying liquefied petroleum gas, according to Norfolk Southern Corp., the train’s owner. Three of those cars spilled oil, but the leaks were plugged and the company did not say the how much oil spilled. The train was headed for Morrisville, Pennsylvania and derailed in the town of Vandergrift in western Pennsylvania.  The train crashed into a building, but employees that worked there were evacuated and all were accounted for and no injuries were reported.  The train is just the latest to cause a spill in recent months. Earlier this month in Minnesota, a train leaked 12,000 gallons of oil, which spilled along the train tracks for 68 miles. In November, an oil train derailed and exploded in Alabama, spilling oil and causing flames that shot 300 feet into the sky. And a North Dakota train derailment in December spilled 475,000 gallons of crude oil.

Natural Gas Pipeline Explosion Levels Homes In Kentucky Town - Adair County, Kentucky remains under a state of emergency after a natural gas line explosion early Thursday morning. Nearby residents told local news that they had just fallen asleep when the blast rocked them awake around 1 a.m.  “I had just got done watching the Olympics and was getting into bed when the whole house shook and it sounded like a big bomb went off. It lit up the sky like it was daylight, it was a great ball of fire,” Bill Kingdollar, who lives 25 miles from the explosion told WLKY.  “I could feel the heat outside my home and debris was falling, rocks and dirt. I was in the Army 20 years and I’ve never experienced an explosion like that,” he added. The blast in the small rural town of Knifely, about 90 miles south of Louisville, ignited multiple fires. Three homes were set ablaze, two of which were completely destroyed. Two barns and four cars were also incinerated. So far, only one person has been reported injured, although the extent of the injuries are not yet known. Twenty additional homes were also evacuated. The 30-inch natural gas pipeline was about 100 feet from Highway 76 and buried 30 feet underground. When it exploded, large rocks and sections of pipeline flew into the air. A 60-foot crater was left behind. The pipeline is owned by Columbia Gulf, part of NiSource’s Columbia Pipeline Group, which owns and operates more than 15,700 miles of natural gas pipelines, one of the largest underground storage systems in North America. According to the company website, approximately 1.3 trillion cubic feet of natural gas flows through the Columbia Pipeline systems each year.

Feds approve more fracking off California coast - Federal regulators have approved three new fracking jobs off the California coast, more than previously known. The revelation Wednesday comes as the California Coastal Commission attempts to exercise greater oversight over the contested practice known as hydraulic fracturing, which pumps huge amounts of water, sand and chemicals deep into rock formations to free oil. The agency launched an investigation into the extent of offshore fracking after The Associated Press last year documented at least a dozen instances of companies using fracking since the 1990s in the Santa Barbara Channel, site of a 1969 oil platform blowout that fouled beaches, and killed birds and other wildlife. While the federal government oversees fracking that occurs more than three miles off the coast, it has not distinguished the practice from regular drilling in the permit process. The state coastal commission can have a say regarding fracking jobs in federal waters if it determines the work presents a threat to water quality closer to shore, commission staff said at its monthly meeting in Pismo Beach, a beach city 175 miles northwest of Los Angeles. Through the Freedom of Information Act, the AP found the Bureau of Safety and Environmental Enforcement, or BSEE, the federal agency in charge of offshore drilling, approved a new project last March. The bureau on Wednesday confirmed that it approved three other fracking plans by the company DCOR LLC last year on a platform about nine miles offshore in the Santa Barbara Channel. While new oil leases have been prohibited since the 1980s, companies can still drill from about two dozen grandfathered-in platforms.

America's "Black Gold" Rush Is Leading To Soaring Homelessness --Lured by the promise of jobs created by the oil and gas boom, unemployed people are flocking to North Dakota en masse. This is heralded by many in the mainstream media as great news - labor mobility at its best - however, there is a darker side: rents are surging and finding a place to live at any price is difficult. As Reuters reports, amid all the boomtime plenty, however, is a housing affordability crisis. North Dakota saw a 200% jump in homelessness last year, the biggest increase of any state - "people are coming because it's widely publicized that we have jobs, but it's not widely publicized that we don't have housing."

N.C. Enviro Agency: ‘Avoid Prolonged Direct Contact’ With Area Of River Affected By Coal Ash Spill - North Carolina’s Department of Environment and Natural Resources is cautioning residents to “avoid prolonged direct contact” with a certain area of the Dan River after a stormwater pipe break spilled up to 82,000 tons of coal ash from a Duke Energy retaining pond into the river last Sunday. The reasoning behind the DENR’s caution is the results of water sampling downstream of the spill that show levels of arsenic above the 10 micrograms per liter human safety threshold. Originally, the DENR had reported that “arsenic levels for all sampling locations were within state standards.” The agency clarified that statement in a press release Sunday, saying they should have publicly noted that some samples contained elevated arsenic levels. “We made an honest mistake while interpreting the results,” “The bottom line remains that we are concerned for the long-term health of the Dan River and are working with our state and federal partners and the utility to begin the cleanup. On February 3, arsenic levels at one sampling site below the spill location were 40 micrograms per liter, with 13 micrograms per liter at the North Carolina-Virginia border. The agency notes that the concentrations of arsenic have decreased as time has passed since the incident, and agency officials are maintaining that tap water is safe to drink. The agency’s announcement comes soon after a lab analysis from Waterkeeper Alliance found elevated levels of mercury, arsenic, lead, and other toxins in the river. It’s still unclear how the spill will affect fish and other wildlife, but a DENR spokesman told CNN that there is “cause for concern for the long-term impacts of this coal ash spill on the health of the Dan River.

The Complete Guide To Everything That’s Happened Since The Massive Chemical Spill In West Virginia -  It’s been one month since a leak was discovered at a chemical storage facility operated by Freedom Industries on January 9, spilling an estimated 750,000 gallons of crude MCHM — a chemical mixture used in the coal production process — into the Elk River and the water supply for 300,000 West Virginians. Despite assurances from federal and state officials that the water is safe, residents and experts remain concerned as the black licorice smell characteristic of crude MCHM is still being detected in homes and schools.  “The scariest part is that we really just don’t know what’s going to happen,” 21-year-old Charleston resident Kellie Raines told ThinkProgress. “All of us are using the water now and we’re okay now but in 30 years — I’m young, I don’t want to in 30 years realize that I have cancer because of this water.” Here is a look at the major events that have shaped this ongoing crisis:

West Virginia Water Nightmare: Private Testing Finds Coal Chemical In 40 Percent Of Homes - One month after a major chemical leak spilled 10,000 gallons of crude MCHM into the Elk River and the water supply for 300,000 West Virginia residents, private testing found the main chemical ingredient in 40 percent of homes sampled.  All of the homes tested had followed the prescribed flushing procedure — several of them multiple times, said Evan Hansen, principal at Downstream Strategies, the environmental consulting firm that carried out the testing.  “I’m not surprised that MCHM is still being detected,” said Hansen. “In talking to people in the area, people are still reporting smells and some people are reporting reactions with their skin, so it seems clear that in some locations, the water isn’t clean yet.” Last week, several schools in the area were forced to close after staff and students complained of the licorice-like smell characteristic of crude MCHM. One teacher reportedly fainted, and “several students and employees complained of lightheadedness and burning eyes and noses.” Though West Virginia American Water gave its customers the green light to begin flushing their systems and using the water several weeks ago, none of the state and federal officials testifying at a congressional hearing on Monday would confirm that the water is indeed safe. Hansen also emphasized that samples were taken from cold water taps and they ran the water for several minutes before taking a sample. Thus, the results report water quality as delivered to homes from the West Virginia American Water distribution system.

Company Responsible For West Virginia Chemical Spill Skips Congressional Hearing - Exactly one month and a day after 10,000 gallons of chemicals spilled into West Virginia’s water, members of the U.S. House Transportation and Infrastructure committee on Monday traveled to the state’s capital city, ostensibly to ask state leaders the still-unanswered questions surrounding the leak. There are many.  Perhaps the most important party that could provide answers would have been Freedom Industries, the company whose chemical storage tanks leaked a coal-cleaning chemical called crude MCHM into the water. Company president Gary Southern had been invited to testify, but in the end, did not show up.  “Freedom Industries’ decision not to testify today compounds its gross misconduct, and is an absolute affront to every person impacted by its spill.” Freedom Industries’ decision not to show up to a hearing that otherwise housed every party that should be held accountable for the spill (Representatives from West Virginia American Water, West Virginia’s Department of Environmental Protection, and the U.S. Chemical Safety Board showed up, to name a few) is depressingly typical, and a painful reminder of the company’s non-presence throughout the month-long ordeal. They’ve been basically out of the picture since day one of this crisis, even though they were the cause of the crisis,” Executive Director of West Virginia Citizen Action Gary Zuckett, told ClimateProgress, recalling the events of the week following the spill. “The first thing that [Freedom] did was file for bankruptcy. The second thing they did was open a new corporation to loan the first corporation money.”

BREAKING: Pipe Break At Coal Facility Contaminates West Virginia Waterway -- A coal preparation facility spilled an unknown quantity of coal slurry into a creek in Kanawha County, W.V. Tuesday morning, according to West Virginia officials. As the Charleston Gazette reports, the spill occurred at Patriot Coal’s Kanawha Eagle operation, which is located near Fields Creek. The operation is near Winifrede, WV — southeast of Charleston, the state’s capitol and site of last month’s major chemical spill. The amount of coal slurry that spilled is still unknown, but a West Virginia DEP spokesman told the Charleston Gazette that the spill could probably be characterized as “significant.” According to the county’s emergency services director, the spill was caused by a break in the eight-inch slurry line that ran between the preparation plant and the company’s refuse impoundment, which occurred sometime between midnight and 5:30 in the morning. According to the DEP, the company in charge of the facility reported the spill to the DEP at 7:30 a.m.  Workers have shut down the slurry pumps to stop the spill, but the slurry has contaminated the creek, which flows into the Kanawha River. Responders are trying to contain the spill to Fields Creek in the hopes that it does not reach the Kanawha River. Officials say if the spill does reach the river they don’t think it will affect drinking water because there are no water intakes downstream of the spill.

This Is What It Looks Like When 100,000 Gallons Of Coal Waste Spill Into A West Virginia Stream - A pipe break at a Patriot Coal preparation site spewed more than 100,000 gallons of coal slurry into a waterway near Charleston, WV on Tuesday.  “When this much coal slurry goes into the stream, it wipes the stream out,” said Randy Huffman, Secretary of the Department of Environmental Protection.  Tuesday’s spill did not occur near a drinking water intake, an area of particular concern for nearby residents as the safety of their water supply remains a concern more than one month after a massive chemical spill contaminated the water for 300,000 West Virginians. Coal slurry contains a range of toxic substances, including chemicals used to wash the coal and heavy metals, like iron, manganese, aluminum and selenium.Here are some images from the spill:

U.S. Keystone XL report relied heavily on Alberta government-funded research from a subsidiary of a major tar sands developer - The analysis of greenhouse gas emissions presented by the State Department in its new environmental impact statement on the Keystone XL pipeline includes dozens of references to reports by Jacobs Consultancy, a group that is owned by a big tar sands developer and that was hired by the Alberta government—which strongly favors the project. In the end, the environmental review took into account much of the Jacobs group's work—though not quite as much as the Alberta government wanted. The State Department report will play a crucial role in the Obama administration's decision about whether to approve the Canada-to-Texas tar sands pipeline. The Jacobs Consultancy is a subsidiary of Jacobs Engineering, a giant natural resources development company with extensive operations in Alberta's tar sands fields. The engineering company has worked on dozens of major projects in the region over the years. Its most recent contract, with Canadian oil sands leader Suncor, was announced in January. "The Alberta Oil Sands are a very important component of our business," the parent company said in late 2011, announcing seven new contracts in the region. "Jacobs has a strong history in the area, and we are pleased to support our clients in these initiatives." Jacobs's deep involvement with the expansion of the tar sands extends beyond its engineering activity. Jacobs Consultancy has carried out influential studies assessing the oil sands' carbon footprint—research that has played a role in in the Obama administration's review of the Keystone XL. Two of its widely cited reports were paid for by government agencies in Alberta that are devoted to oil sands expansion. One, done in 2009, was among a handful of studies chosen by the State Department in its Jan. 31 environmental impact statement to represent a range of estimates of the tar sands' greenhouse gas impact.

New Pipeline Would Bring Tankers Of Tar Sands Through Tribal Waters Every Day -- As the battle over President Obama’s impending decision regarding the controversial Keystone XL rages on in the public eye, another similar tar sands pipeline is in the works — the environmental implications of which are just as nasty as Keystone, according to a coalition of Native American and First Nation tribes who are fighting the project. More than seven tribes of Coast Salish peoples, indigenous people from both Washington state and Canada who base their living off the Salish Sea, on Thursday announced their intention to intervene in legal proceedings regarding Kinder Morgan’s proposed Trans Mountain pipeline project. If approved, the $5.4 billion Trans Mountain project would nearly triple the flow of oil through the existing Trans Mountain pipeline from Edmonton to the British Columbia coast. The new pipeline would increase the capacity of the Trans Mountain pipeline system from 300,000 to 890,000 barrels per day, more than the 830,000 barrels that Keystone XL would carry to the Gulf Coast. The demand to keep the pipeline full would guarantee that more tar sands would be mined, and more carbon dioxide would be spewed into the atmosphere.

In the Carbon Wars, Big Oil Is Winning -- Yves here. I have some quibbles with this post, in that it treats the Keystone XL pipeline fight more seriously than it should. Keystone XL diverted attention and resources away from more important battles (notice, for instance, how no one talks about taxing carbon combined with tax credits to low income people, since this would otherwise be a regressive tax? Yet no less than the Financial Times, in an editorial, endorsed this idea in 2007). And it also ignores how much China is now contributing to carbon emissions. But the West can hardly press China unless it has its own house in order. Finally, it unwittingly dignifies the notion that fracked natural gas is “affordable”. It isn’t when you factor in the cost of the water used and the contamination of aquifers. But this is still a good piece in terms of summarizing the state of play. By Michael T. Klare: Still, whatever the president may claim, we’re not heading toward a “cleaner, safer planet.”  If anything, we’re heading toward a dirtier, more dangerous world.  A series of recent developments highlight the way we are losing ground in the epic struggle to slow global warming.   The struggle to prevent construction of the Keystone XL tar-sands pipeline is a case in point.  As noted in a recent New York Times article, the campaign against that pipeline has galvanized the environmental movement around the country and attracted thousands of activists to Washington, D.C., for protests and civil disobedience at the White House.  But efforts like these, heroic as they may be, are being overtaken by a more powerful force: the gravitational pull of cheap, accessible carbon-based fuels, notably oil, coal, and natural gas.

Oilprice Intelligence Report: Jumping the Gun on US Crude Exports to Europe -- With the debate over whether to lift the 40-year-old ban on US crude exports gaining momentum, news that the US government has approved the first licenses in years to re-export crude to Europe has caused a flurry of speculation that this might be the next step towards easing the crude export ban. Before we jump the gun, however, this was the big news this week:According to an exclusive report from Reuters based on information obtained from a Freedom of Information Act request, the Department of Commerce has granted two licenses to export crude to the UK since last year and two licenses to import crude to Italy, while a fifth license for crude exports to Germany was applied for last month. These licenses are reviewed and approved by the Bureau of Industry and Security (BIS), which reportedly has approved 120 licenses since January 2013, most of them for exports to Canada. What are they worth? UK exports under these two licenses have been worth about $1.8 billion, while exports to Italy have been worth about $3.12 billion. If the Germany license is approved, that will add another $2.6 billion in otherwise banned exports to the list.But what we’re really looking at is foreign crude that is being re-exported from the US to Europe—not exports of US crude. This is a point the government was quick to clarify, in another Reuters report.   What Reuters is now suggesting is that these new crude re-export licenses may “add to the expectations that the Obama administration will allow companies to use provisions in the existing regulation to slowly increase exports, while stalling on a decision on whether to scrap the ban.

Iraq says recoverable oil reserves stand at 15 billion barrels -  Iraq’s recoverable oil reserves have shot to 150 billion barrels, thanks to new major discoveries, Oil Minister Abdulkareem Luaibi said. Previously, the ministry’s official figure of oil reserves stood at 120 billion. Luaibi attributed the surge to “large-scale discoveries made by the ministry in explorations across the country.” Iraq was the first country in the Middle East to produce oil in commercial quantities. The country started exporting oil in 1927 when the first commercial wells were drilled in the oil-rich city of Kirkuk. In the years since 1927, Luaibi said Iraq had only pumped 8 billion barrels “at a time the reserves have risen nearly fourfold.” “The ministry will continue with its efforts to increase reserves to surpass production so that future generations can also benefit from the oil wealth,” he added. Iraq currently produces up to 3.5 million barrels per day and has its eyes set for 6 million barrels in a few years once oil fields currently developed by foreign majors come on stream. Luaibi said Iraq had no problem marketing its crude with demand exceeding supply.

The gamification of the economy: creating rivalry where there is none - Isabella Kaminska - Humanity has always been used to competing over scarce resources.  Over the years we’ve become better at it: more adept at making the most of the resources we have at our disposal and better at seizing the resources we need by force. i.e. cleverer. And so it is we find ourselves perfectly equipped for a life of competition. Genetically hard-wired for it, if you will. The problem is we can’t really improve on the way we club each other to death anymore. Muscle reached its peak with the invention of nuclear weapons. The ironic consequence of that was a peace-inducing stalemate. Wars over resources still happen, of course. But very rarely on equal footing.  Consequently, it’s probably no surprise, that ever more of our rivalrous instinct is being focused on the only other sure way of getting our hands on resources. That being, the resource allocation game we’ve developed called capitalism, which rewards those who can prove they can maximise resources for everyone’s benefit. The fight over scarce resources no longer takes place on a battlefield, but in the abstract world of a market place. Winners are allocated resources, not because they can club you to death, but because they can prove they can use them more efficiently than you. The fight in that sense is no longer about survival. It’s about achieving a better quality of life than everyone else, social status and exclusive use of finite or productive resources such as land. Success, consequently, is not measured in genetic survival terms, but in the accumulation of economic surplus, which can then be traded to those who are less ingenious. If the surpluses created are greatly desired, a position at the top of the social order can be assured. Anyone contributing labour to the creation of those surpluses can also be rewarded as well.

This Event Signals A Coal Boom Coming: Now, information on the coal sector is easy to find. In some places. Data abound on production and pricing from important players in this space like Australia and America. But some numbers are much harder to find. Which is what makes this opportunity so high-powered. The key data points in this case come not from usual-suspect places on the planet. But from a part of the world where information is much harder to come by. India. Reliable data on the Indian coal sector isn't the kind of thing you just pull off Wikipedia. In fact, even the country's government and private sector pros often don't agree on the numbers--publishing wildly different figures on coal demand and import volumes. But to anyone digging into these obscure figures, one message is clear from both sides: India's coal demand is exploding. India's Coal Minister admits it. This week in questioning he reported that Indian imports of thermal coal jumped 42% during the year ended March 31, 2013. So far during the current year—he said—it appears the import numbers are headed even higher. Those figures imply that India's coal consumers are growing their shipments of foreign coal rapidly. To the tune of tens of millions of tonnes of new import demand yearly.

How to kill an industry in Indonesia - Indonesia's exports of mineral ore are now at a standstill, with unprocessed bauxite and nickel the target of an outright ban and mining companies either refusing or unable to pay the draconian new export duty on copper and the other concentrates that were given a 12th-hour three-year extension. That's only half of the story. Far from clear is whether enforced on-shore processing of mineral ores will actually work when there are serious doubts about the economic viability of building smelters and hydrometallurgical processors in an already over-supplied global market. The dysfunctional way in which the government has implemented the new value-added policy, with unrealistic deadlines and a clear lack of preparation or understanding of its own contracts of work (COW), has shaken the Indonesian mining industry to its core. A government regulation extending the January 12 ban for copper giants Freeport Indonesia and Newmont Nusa Tenggara and 66 other, mostly Indonesian, mining companies was undercut the next day by the export tax, which rises from an already daunting 20-25% in the first year to a prohibitive 60% in the second half of 2016. This year's legislative and presidential elections in April and July make it highly unlikely any relief will be forthcoming, at least to the industry's satisfaction, unless the trade deficit widens alarmingly or until a new administration is installed in October. In the meantime, already rampant ore smuggling will likely increase dramatically and the central government may face a rising tide of resentment from provincial administrations, angry at losing a valuable source of revenue and worried about social unrest from newly-unemployed mine workers.

The Limbo of Asian Markets - The docks at big Indonesian ports like this one are quieter these days, as China’s demand for raw materials has begun to cool. But drive an hour inland and the agricultural giant Cargill is racing to finish a cocoa-bean processing plant, while a large instant-noodle factory is running full tilt to meet the demand for convenience food from Indonesia’s large and growing middle class. The contrast in many emerging markets between signs of a looming currency crisis and strong domestic demand is visible around the world. Stock markets and currencies have fallen in recent months in places like Buenos Aires; Jakarta, Indonesia; Manila, and Istanbul, as investors have worried that weaker Chinese growth and a United States Federal Reserve that is pumping out fewer dollars will cause a global stumble in many developing nations. Like limbo dancers struggling to shuffle under a low bar before standing upright again, emerging markets must shuffle along under weak commodity exports and capital outflows before they can recover their balance and let strong domestic demand for products like cars, electronics and instant noodles carry their economies forward again. The question is whether their consumers and businesses will continue to spend, or whether international troubles will spill into domestic economies in ways they cannot control.

China’s iron ore build a dodgy dash for cash? -- Bloomie has a story today that suggests the recent big spike in Chinese iron ore inventories is the result of financing deals: Companies seeking funding amid government efforts to rein in lending and shadow banking are shipping more ore to use as collateral, said Xu Xiangchun, chief analyst at researcher Rising purchases by China, the world’s largest user of the material, may reduce a global glut forecast for this year by Goldman Sachs Group Inc. and Credit Suisse Group AG. “Steel prices have fallen sharply and demand remains weak, so there are no fundamental reasons supporting such a big jump in the raw material imports,” Xu said by phone from Fuzhou today. “The only plausible reason is financing deals.” This sounds similar to yesteryear’s “cash for copper” scamsCFC financing – which is allowed by SAFE, and has been a factor in the copper market for years – involves the purchase and importation of non-domestic copper into China, the immediate sale of this copper into the Chinese domestic market post-importation (for immediate CNY cash), and a 3-6 month loan at foreign interest rates issued by an onshore bank. In this way CFC’s are a combination of the China/ex-China price and interest rate differentials.

China smog makes capital 'barely suitable' for life: report (Reuters) - Severe pollution in Beijing has made the Chinese capital "barely suitable" for living, according to an official Chinese report, as the world's second-largest economy tries to reduce often hazardous levels of smog caused by decades of rapid growth. Pollution is a rising concern for China's stability-obsessed leaders, keen to douse potential unrest as affluent city dwellers turn against a growth-at-all-costs economic model that has tainted much of the country's air, water and soil. The report, by the Beijing-based Social Science Academic Press and the Shanghai Academy of Social Sciences, ranked the Chinese capital second worst out of 40 global cities for its environmental conditions, official media reported on Thursday. true China's smog has brought some Chinese cities to a near standstill, caused flight delays and forced schools to shut. Beijing was hit by severe levels of pollution at least once every week, according to the 2012 Blue Paper for World Cities report. That was on top of a significant level of air pollution covering the capital for 189 days in 2013, according to city's Environmental Protection Bureau.

Early Look: A Shaky Economic Start - The first data of 2014, along with projections by economists, suggest the loss of momentum in China’s economy that began in December continued into the new year.  China data buffs have to make do with a meager crop of economic statistics at the start of the year. Most economic indicators suffer from distortion around the Lunar New Year holiday, which falls in January some years and February in others. To avoid misleading signals, China combines much of the data for January and February, meaning the numbers won’t be out until March. But most of the information available points in one direction: down.  Purchasing managers’ indexes released by the Chinese government and HSBC suggest that both manufacturing and services lost momentum in January. HSBC’s manufacturing PMI slipped into contractionary territory for the first time since July, and the government’s equivalent index – while positive — was only slightly stronger. The weakness came in a month when markets around the world tumbled, upset by the U.S. Federal Reserve’s moves to pare back its monetary easing, as well as weak data from both China and the U.S.

China export growth seen slowing, loans surging in January (Reuters) - China's export and import growth likely cooled in January, a Reuters poll showed, underlining a broader slowdown in the world's second-largest economy, though the Lunar New Year holiday effect may overstate the soft momentum. Weakness in China's imports could be bad news for the rest of the world, particularly for major commodity exporters such as Australia. HSBC estimates China will overtake the United States to become the world's biggest importer this year. Bank loans in China are expected to see a typical seasonal surge in January as banks get fresh lending quotas at this time every year, underlining relatively stable credit demand from the real economy. true Many economists expect a soft slowdown in China's economy in 2014 as policymakers try to embrace slower but better-quality growth to cut reliance on investment and pursue sustainable development. "Given the stable economic situation last year and increasing expectations over pushing forward reform, economic growth is facing increasing pressure in short-term," said Xie Yaxuan, an economist with China Merchant Securities in a note. Fears of a sharper-than-expected loss of momentum in China were believed to be one contributing factor in a fierce global financial market selloff in January, with emerging markets hit particularly hard.

Extremely Late to the Global Slowdown Thesis Party - Goldman Sachs CEO says China Growth to Have ‘Huge Consequences’ Globally Goldman Sachs Group Inc. Chairman and Chief Executive Officer Lloyd Blankfein said China’s economic growth will have “huge consequences” for global expansion prospects. “The China growth story is going to be the story of the next 30-40 years,” Blankfein said in an interview with John Dawson from Hong Kong while attending the Goldman Sachs Global Macro conference. “There are going to be interruptions.” Goldman Sachs will be careful not to “overfund” its own operations in China, Blankfein said. The New York-based bank will “scale our investments to the opportunities” there, he said.  Blankfein is extremely late to the recognize the China slowdown implications. I have been discussing the implications of a China slowdown for 2-3 years at least.

Perils Mount As Debt Costs Swell in China — Borrowing costs for Chinese companies are rising strongly, a shift that could herald weaker corporate profits, slower economic growth and even the first defaults by indebted corporations on the mainland.Driven by a surge in borrowing in recent years, Chinese companies amassed an estimated $12.1 trillion of debt at the end of last year, according to Standard & Poor's. That compares with an estimated $12.9 trillion for U.S. businesses, now the world's most indebted. The ratings company estimates that debt at Chinese companies is poised to exceed the U.S. total this year or next."The leverage in the corporate sector is already very high and does pose a latent risk to the entire economy,"   Challenges for companies are mounting as the government tightens credit and investors demand higher interest rates to fund borrowers.  Evergreen Holding Group Co., a private shipbuilding and marine-engineering company in eastern China, exemplifies the challenges. Its borrowing costs have more than doubled in the past 20 months as profits tumbled.In June 2012, Evergreen paid 4.64% when it borrowed 400 million yuan ($66 million) for one year. Seven months later, issuing one-year debt cost it 6.13%. In December, it had to pay 9.90% to borrow the same amoun

Swelling Debt Spreads Among China’s Local Governments - China’s traditionally underdeveloped provinces have long faced debt pressures. Increasingly, though, they are being joined by more-developed provinces that overreached, betting on resources or property investment as their paths to prosperity.That is the suggestion from a review of provincial auditors’ reports released last month. The findings underscore the varied nature of local risks across China at a time when regulators are grappling with swelling debts of local governments that have boosted their borrowings from informal lenders at higher costs.The most worrisome aren’t the provinces with the highest debt ratios but those that have relied on natural resources and urban expansion for growth and may soon find it difficult to repay their debts, said Wen Zongyu, a researcher affiliated with China’s finance ministry. For example, compared with the southwestern provinces of Guizhou and Yunan–whose total debt ratios were more than 90% at the end of 2012–the debt levels of coal-rich Shaanxi and Shanxi provinces weren’t alarming: 69% and 53%, respectively. But both face heavy repayment pressure this year: More than half of Shaanxi’s direct borrowings either matured in the second half of 2013 or will this year; for Shanxi, that ratio is more than 40%.  The central government ordered a thorough checkup of local government debt in the middle of last year-the second such audit following one released in 2011-because even the country’s leaders had little idea about the exact size of local government borrowings, as they are mostly off-budget money. The audit tracked the results of greater spending on everything from swank government offices and multilane highways to city parks. The spree extended to all local levels, from provinces down to China’s 33,000 townships.

Chinese bank bad debts hit crisis level high - Telegraph: Bad loans made by Chinese banks have risen to highest level the financial crisis, according to figures released by the country’s financial regulator. The China Banking Regulatory Commission said non-performing loans (NPLs) made by Chinese lenders reached Rb592bn (£58.3bn) in the final three months of last year. The last NPLs were at the same level was September 2008, the month when US investment bank Lehman Brothers collapsed. The rise means bad debts are now equivalent to 1pc of total lending compared to 0.97pc at the end of the previous quarter. Though still a relatively small proportion of bank assets, the rise highlights the deterioration in credit conditions in China. Loans by Chinese lenders have grown at an unprecedented rate in the past five years, with banks increasing the size of their balance sheets by Rb89 trillion, an amount roughly equivalent to the size of the entire US banking industry. This growth has prompted rising fears of the risk of a credit bubble, particularly as the Chinese authorities attempts to clampdown on lending by mainstream banks has led to the rise of shadow financial sector that is now responsible for about the same volume of new loans as the official banking sector.

U.S. Firms Fret Over China Debt, Investment Rules - U.S. companies that do business in China are worried about investment rules that limit their growth there, as well as about the repercussions of rising levels of debt in the world’s second-biggest economy, a U.S. business group said Monday. Businesses are hoping more than anything else that renewed efforts to conclude a bilateral investment treaty between the U.S. and Beijing will eventually give certain industries easier access to the Chinese market, according to a list of priorities that the U.S.-China Business Council planned to distribute to government leaders Tuesday. Secretary of State John Kerry may discuss the investment treaty, as well as regional security concerns, during a visit to Beijing in coming days. American and Chinese officials said last year that they had agreed to negotiate a treaty with the understanding that businesses would have unfettered access to all sectors except those included in a yet-to-be-determined “negative list.” Officials have met to work on the framework but have announced little progress. Global businesses have rapidly expanded trade with China, buying and selling hundreds of billions in goods. Still, many businesses want to be able to open wholly-owned units in the country within industries that don’t allow majority ownership by foreigners. Local presence is especially important in the services industries, where the U.S. has a surplus with its trading partners and a perceived global advantage.

China Resource Imports Hit New Highs - China’s imports of major industrial resources rose to record levels in January, in a sign that the country’s mild economic growth slowdown hasn’t blunted its appetite for raw inputs – or its love of bargain purchases. Imports of crude oil, iron ore and copper posted all-time-high monthly volumes for the first month of the year, according to a slate of preliminary customs data released Wednesday. The purchases correspond to a period of low global prices among many industrial commodities toward the end of last year. China’s economy has continued to grow, powering higher levels of imports even though growth is slower. Shipments of crude reached 28.16 million metric tons in January, equivalent to 6.66 million barrels a day. That is up 12% from a year ago and 5% from last month, which was also when the last record was posted. The Lunar New Year, a time when China experiences the world’s largest annual human migration, is a prime suspect behind the surge in demand. Analysts say Chinese refiners process more crude around the holiday, which fell in late January and early February this year, to meet increased demand for transportation during winter and on expectation of a busy driving season over the period. But the unusually large magnitude led at least one analyst to suspect an opportunistic stockpile purchase. “It’s not so easy for refineries to absorb such a sudden large influx of imports, so it’s more likely that the crude purchase went straight from ships into storage,” said Li Li, research director at consulting firm ICIS C1 Energy. Ms. Li said a commercial buyer in the city of Tianjin may have been behind the imports, rather than state strategic buyers. It isn’t clear yet if such stockpiling may weigh on future demand. In some cases, high stockpiles coinciding with a broad macroeconomic slowdown have taken a toll on import volumes in subsequent months.

Economists Caught Flat-Footed by Chinese Exports - The weather, lunar new year, funny numbers, hemming and hawing. These are the sounds of economists caught flat-footed by the unexpectedly strong monthly import and export figures that China released on Wednesday. Most predicted a tepid performance at best and some expected a thumping. A few even went so far as to send out advance notes warning clients not to panic when the figures tanked. The median forecast among 11 economists polled by the Wall Street Journal was for flat Chinese exports and for imports to grow by 3%. In fact, both sides of the trade ledger posted double-digit growth. The country’s exports rose 10.6% compared with January last year, up from a 4.3% year-over-year rise in December, with strong growth to the U.S., Japan and Europe. And imports grew 10.0% compared with January of 2013, up from an 8.3% rise in December. What’s going on? The dream is that this apparent bit of good news signals a future so bright you gotta wear shades. That China remains the world’s humming factory floor and has tapped into a strong U.S. and solid European growth stream the rest of us haven’t so far quite felt, as the world returns to easy street. More skeptical members of the economist tribe say it may be a monthly aberration or some very innovative new method of fake invoicing – always a risk with Chinese statistics – that isn’t yet obvious. China’s interest rates, which are high compared to many countries, is pushing investors to look for ways to circumvent China’s capital controls.

Chinese export data stokes wide skepticism - From Nomura: We find this strong level of export growth puzzling. First, it is inconsistent with the new export order indexes from both HSBC and official PMIs, as both have been below 50 since November and have been on a downtrend for the past two months. Second, there is a strong base effect from the lunar new year holiday, which fell on 31 January this year and likely negatively affected production during the last week of January. The lunar new year occurred on 10 February in 2013. Third, although official data showed that exports were very strong in early 2013, these were driven to some extent by capital inflows that were disguised as trade flows through mis-invoicing. This also led to a very high base effect in January 2013.It is unclear to what extent the strong export data reflect true strength in the economy. At this stage, we believe capital inflows may have contributed at least partly to January’s strong export growth numbers. The lunar new year led to strong liquidity demand, yet domestic liquidity conditions have been tight, so there may have been strong demand for capital inflows. The data on industrial production for January and February will be released on 13 March and should help to confirm the actual strength of export growth.We maintain our view that GDP growth will slow to 7.5% y-o-y in Q1 and 7.1% in Q2, despite favourable base effects. I’ve seen several other notes with similar reasoning already..

China, Taiwan hold first direct talks since 1949 split - China and Taiwan held their first official government-to-government talks on Tuesday since splitting during a civil war in 1949, in an attempt to forge closer economic links and reduce tensions over the thorny issue of eventual re-unification. Tuesday afternoon’s talks in the eastern Chinese city of Nanjing may not yield much, but that they are taking place is a breakthrough in itself. Beijing refuses to formally acknowledge the government in Taiwan, which it considers a breakaway province, and previous negotiations on cross-strait relations have been conducted by quasi-official representatives rather than government officials.

World asleep as China tightens deflationary vice -  We keep our fingers crossed as we glimpse the first foam of a deflationary Ch'ient'ang'kian coming our way from China. The world's central banks have no margin for error. China's Xi Jinping has cast the die. After weighing up the unappetizing choice before him for a year, he has picked the lesser of two poisons. The balance of evidence is that most powerful Chinese leader since Mao Zedong aims to prick China's $24 trillion credit bubble early in his 10-year term, rather than putting off the day of reckoning for yet another cycle. This may be well-advised for China, but the rest of the world seems remarkably nonchalant over the implications. Brazil, Russia, South Africa, and the commodity bloc are already in the cross-hairs. "China is getting serious about deleveraging," says Societe Generale. "It is difficult to gently deflate a bubble. There is a very real possibility that this slow deflation may get out of control and lead to a hard landing." Zhang Yichen from CITIC Capital said the denouement will be a ratchet effect since China has capital controls and banks are an arm of the state, but that does not make it benign. "They are trying to deleverage without blowing the whole thing up. The US couldn't contain Lehman contagion, but in China all contracts can be renegotiated, so it is very hard to have a domino effect. We'll see a slow deflating of the bubble ," he said.

What Would Chinese Hegemony Look Like? - East Asia is becoming, in the language of international relations theory, "bipolar." Until recently, Asia was arguably “multipolar” - there was no one state large enough to dominate and many roughly equal states competed for influence. China’s dramatic rise has unbalanced that rough equity. Until recently, China pursued a “peaceful rise” strategy, one of accommodation and mutual adjustment. This approach sought to forestall an anti-Chinese encircling coalition. Since 2009 however, China has increasingly resorted to bullying and threats. All this then sets up a bipolar contest between China and Japan, in the context of China’s rapid rise toward regional dominance and such goals would broadly fit with what we have seen in the behavior of previous hegemons and a potential Sinic Monroe Doctrine

Australian Mining Profits Set to Rise on China - Commodity prices may have come off the boil and China’s economy cooled, but some of Australia’s biggest mining names are still powering ahead thanks to the No. 2 economy’s still-strong hunger for raw materials. Analysts expect profits at companies like Rio Tinto PLC and Fortescue Metals Group to have widened as they lodge their latest earnings reports this month, after Chinese imports of commodities like iron ore rocketed to record highs. For some, it will be the first time since 2011 they have posted an on-year rise in profit. China’s growth has of course been slowing, with the economy no longer operating at full throttle. Last month, Beijing said the country’s gross domestic product grew 7.7% in 2013, matching the year-earlier rate but well below the double-digit gains it chalked up over recent decades. Still, Australian miners have been pumping out record volumes of minerals like iron ore, used to make steel, and coal, and shipping them north on massive vessels to Asia. China’s imports of crude oil, iron ore and copper posted all-time highs for the first month of the year, after rising sharply in 2013, according to new customs data Wednesday. While growth may be slowing, China’s economy is many times larger than it was a few years back and it still needs massive quantities of raw materials to construct houses and fuel urbanization.

Australian Unemployment Jumps to 10-Year High -- Australia’s unemployment rate climbed to the highest level in more than 10 years in January, spurring traders to pare bets on an interest-rate increase and sending the Aussie to its biggest drop in almost three weeks. The jobless rate rose to 6 percent from 5.8 percent, the statistics bureau said in Sydney. The median estimate was an increase to 5.9 percent in a Bloomberg News survey of economists. The number of people employed fell by 3,700.  The softer-than-expected jobs report damped expectations the Reserve Bank of Australia will switch to tighter policy amid surging property prices, rising building approvals and a forecast acceleration in growth and inflation. Toyota Motor Corp., General Motors Co. and Ford Motor Co. have said they’re closing plants and shedding jobs in Australia as high production costs and a strong currency render them uncompetitive.  “While some may argue that employment is a lagging indicator, we would also suggest this print will be a negative for household income, sentiment and thus spending,”

Japan Machinery Data Show Companies Still Cautious on Outlook - A sharp drop in Japan’s December machinery orders suggests companies remain cautious about domestic growth prospects.Core machinery orders fell 15.7% on-month in December — the biggest fall since the data series began in April 2005 and far worse than the 4.1% decline expected. Core orders exclude often volatile orders for electric power companies and ships. Machinery orders are widely regarded as a leading indicator of corporate capital investment, since they typically increase if businesses are expanding operations. That makes December’s figure a worrisome sign for Prime Minister Shinzo Abe’s economic program, known as Abenomics. Policy makers were hoping corporate capital expenditure would help the economy grow if consumption falls as expected after a planned sales tax hike in April. The government said December’s sharp fall came after a sharp rise in November — when the data were buoyed by some unusually big orders — and that orders still increased in the October-December quarter from the previous one. The volume of orders in the quarter — Y2.4 trillion ($24 billion) — was also the biggest since the third quarter of 2008.The government forecast core machinery orders to fall 2.9% in the January-March quarter from October-December, when they rose 1.5%.

Japan Machine Orders Crumble At Fastest Pace In 22 Years As BOJ Board Member Warns More QE May Not Be Coming - If you needed another reason to buy stocks, trust in the growth meme, and have your faith in Abenomics confirmed... look away. Japanese Machine orders for December just printed -15.7% in December - the biggest MoM plunge since 1992. This is the biggest miss to expectations since 2006 and what is considerably more problematic for Abe et al. is that YoY expectations of a core machine order rise of 17.4% was hopelessly missed with a small 6.7% gain (and this is data that excludes more volatile orders). While machine orders are completely irrelevant, even if on their own they portend a recession; what would be far more troubling to the Kool aid addicts is if the BOJ were to announce that just like the Fed, it too is tapering its Open-ended QE ambitions. Considering this is precisely what BOJ board member Kiuchi just did, that relentless USDJPY meltup overnight may not be such a slamdunk...

Japan's current account firmly in the red - Japan's current account continues to deteriorate, with the latest number coming in below expectations - a record low. Reuters: - Japan's current account logged a record deficit for December, Ministry of Finance data showed on Monday, as a weak yen inflated the cost of energy imports. The deficit stood at 638.6 billion yen ($6.25 billion), against a median forecast for 707.7 billion yen. For 2013, Japan's current account recorded a 3.3 trillion yen surplus, the data showed. This was the smallest surplus in comparable data available from 1985.Energy imports and weaker yen continue to be the key culprits. Should oil prices rise further, the nation's deficit could worsen. Bloomberg: - The yen’s slide and increased demand for foreign energy due to nuclear plants closures are causing imports to outstrip exports. A surplus in overseas investment income is staving off the risk of a sustained deficit that could undermine investor confidence in a nation with the world’s largest debt burden.

Japan govt debt reaches record 1,017 trillion yen (Reuters) - Japan's outstanding government debt rose to a record at the end of last year, data from the finance ministry showed on Monday, highlighting the worsening state of public finances in a country that has the world's largest debt burden. Outstanding debts stood at 1,017 trillion yen ($9.95 trillion) at the end of last year, the finance ministry said in a statement. Japan's debt burden, at twice the size of its $5 trillion economy, is the worst among industrialised nations.

Japan speeds up stimulus as tax hike looms -  Japan said Friday it is moving to speed up the impact of a US$50 billion stimulus package aimed at countering any slowdown from a looming sales tax hike. The rare move -- which sets out a timeline for spending a big chunk of the special budget -- comes days before the release of fourth-quarter growth figures. They will mark the first annual data since Shinzo Abe swept to power on a ticket to restore Japan's fading status as a global economic superpower. The prime minister's high-profile policy blitz, dubbed Abenomics, helped sharply weaken the yen and stoked a huge stock market rally last year as the once-anaemic economy outpaced G7 nations in the first half of 2013. But the sales tax rise -- seen as key to chopping Japan's eye-watering national debt -- has sparked fears it would derail a recovery in the world's third-largest economy.

In Asia, Concerns About Inflation Re-Emerge -  Inflation is back as an issue to watch for many emerging economies. The three Asian countries that have released January price data so far – Thailand, Indonesia and the Philippines – all have surprised to the upside. Partly it’s a result of depreciating currencies that have pushed up the cost of imported goods, particularly oil. In some countries, such as Indonesia and Malaysia, slashing subsidies for items like fuel and electricity – necessary to improve government balance sheets – has pushed up consumer prices. More fundamentally, as ANZ Bank notes in a recent report, many Asian countries are running up against capacity constraints following years of low investment and a lack of access to long-term funding. Glenn Maguire, ANZ’s chief economist for Asia, says a lack of investment has lowered potential growth rates by as much as a full percentage point in India and a half-percentage point in Indonesia. “We think Asian economies will be bumping up against these lower potential growth rates over the course of 2014, and we’re likely to see inflation return as a result of that,” Mr. Maguire said. Later this week, India will release consumer and wholesale price data for January, while China releases consumer and producer price data. In Indonesia, which faces some of the highest inflation in the region, the central bank must decide whether to raise interest rates further – after already lifting them by 175 basis points since last summer – in an ongoing struggle against rising prices.

US blind to barbs in Japan defense plan: The United States government, be it the White House, security strategists, the civilian leadership or the military brass, apparently has no qualms about Prime Minister Shinzo Abe's decision to affirm Japan's right to practice "collective self defense", or CSD. In the face of public disapproval, resistance by an impotent political opposition, and gentle push-back from the minority partner of the ruling Liberal Democratic Party (LDP), Abe looks to implement CSD by asserting the government's right to repurpose the provisions of the pacifist constitution without formal revision or reinterpretation, but through a simple statement by the cabinet. US supporters have been cheering him on in this awkward process, like anxious soccer parents on the sidelines trying to will a clumsy toddler into nudging the ball into an empty net. Whether this is a good idea, especially as it will permit Japan to restructure its security relationship with its future Asian allies without US mediation, history will, as they say, judge. But it looks like the United States is all in, on the basis that collective self-defense will enable Japanese military forces to assist the US. I assume Ambassador to Japan Caroline Kennedy (term as ambassador and, indeed, total public career to date: three months) lacks the political or foreign policy throw-weight to freelance on key US-Japan issues, so this statement of support for collective self defense is probably an authoritative indicator of Obama administration preferences:

U.S. Trade Protest Over India Solar Energy Program - U.S. brought a trade complaint against India Monday over a solar energy program it says discriminates against American manufacturers, adding another wrinkle to a bilateral relationship strained by the recent arrest and strip-search of an Indian diplomat. It is the second time in a year that Washington has requested dispute settlement consultations with India over the program that it contends violates World Trade Organization rules by requiring suppliers use Indian-manufactured solar cells and modules. U.S. officials say the trade case was in the works long before the December arrest of India’s deputy consul general in New York, Devyani Khobragade, who was accused of visa fraud and under-paying her maid. In a compromise, Khobragade was indicted then deported in January, and both governments say they want to repair the relationship. In announcing the trade complaint, U.S. Trade Representative Michael Froman said the Obama administration was “standing up” for the rights of American workers and businesses — a common theme in a year of congressional elections, and as the administration tries to persuade fellow Democrats to support its agenda to expand trade in Asia. U.S. officials say India is the second largest foreign market for the U.S. solar energy industry after Japan, with exports totaling $119 million before the local content requirements were introduced in 2011 and having fallen since then. Last February, the U.S. held dispute consultations with India over the first phase of that program but the U.S. says its concerns weren’t addressed. It is now seeking fresh consultations over the program’s second phase, approved by India’s Cabinet in October, that’s been expanded to include thin film technology which comprises the majority of U.S. solar product exports to India.

India's finance minister seen walking budget tightrope as economy slows (Reuters) - India's finance minister will be walking a tightrope when he presents an interim budget for the coming fiscal year on Monday, doling out more funds to woo voters and tax cuts to support industry while projecting a lower fiscal deficit before elections. Asia's third-largest economy is facing its worst economic slowdown in nearly a decade, with shrinking manufacturing, slower jobs growth and high inflation limiting the government's ability to offer sops to voters or companies to boost growth. Opinion polls predict defeat for the Congress-led ruling alliance in elections due by May amid widespread discontent with its mismanagement of the economy, high inflation and corruption scandals. true Officials say Finance Minister P. Chidambaram is likely to make a last-ditch attempt to win back voters by announcing more funds for health, rural jobs, roads and food subsidies, and to speak about the government's achievements in the last 10 years. Chidambaram will have slightly more maneuvering room after an auction of telecommunications spectrum which ended on Thursday brought in a much higher-than-expected $9.85 billion in bids. The government will get at least $3 billion of that upfront in the current fiscal year, with the rest spread out until 2026.

Inflation a Bane for Asian Central Banks - The Journal wrote earlier this week about how falling currencies in emerging markets are adding to inflationary pressures and forcing central banks to raise interest rates.  Late Wednesday, India reported its consumer price inflation rose 8.8% on year in January. While this is below a peak in November of 11.2%, it’s still high. More worrying, core inflation, which strips out food and other volatile prices, is not coming down. That means lower growth for India, whose economy is already expanding below 5% per year, much slower than recent rates around 9%. The central bank is unlikely to be able to step in to cut rates in the near future, Capital Economics said in a note to clients. “After a weak fourth quarter, prospects for 2014 do not look any better,” the London-based research group said.Indonesia’s inflation rate also came in higher than expected in January. Bank Indonesia, which meets later Thursday, will decide whether to raise rates again after pushing up its key rate by 1.75 percentage points last year. Most economists say more rate hikes are unlikely for now. After slumping in 2013, the rupiah currency has remained stable since the start of the year. But inflation remains an issue and loose monetary policy isn’t an option for Indonesia, even as its commodity-fueled economy cools rapidly. The situation is hurting growth prospects in other parts of Asia, Africa and South America even as worries over deflation in industrialized nations and the U.S. shale gas revolution is holding down energy and commodity prices.

The Fed is not to blame for turmoil in emerging markets - The Federal Reserve is causing heartburn for central bankers in emerging markets. Since 2008 the US central bank has been flooding capital markets with cheap money, forcing down yields on safe assets. Many investors scurried into places such as India and China in the hope of earning higher returns. Now that the Fed is reversing course, credit booms in emerging markets are turning to bust. This is especially painful for countries with current account deficits, which are reliant on foreign finance. The trouble is that every central bank has a mandate that focuses on its own economy. The Fed has argued that any spillover effects of its policies would be limited if other countries let their exchange rates adjust freely. Emerging markets have indeed used currency adjustments to cushion themselves from the impact of Fed policy. That is why, despite the turmoil they are experiencing, few of them are on the verge of a classic currency crisis. But this has not prevented their central bankers from complaining vigorously about a US central bank that, so far as they are concerned, displays all the sensitivity of a bull in a china shop. This whingeing ought to stop. The root of the problem is a failure of the domestic policy of their own governments. Emerging market central banks are being asked to keep currency values stable, hold down inflation, support growth and maintain financial stability. This balancing act, difficult at the best of times, becomes impossible when other policies – fiscal and structural – are providing little support, or even working at cross-purposes. In India, misguided agricultural policies have driven up food prices. This feeds into broader inflation in an economy where food expenditure accounts for a large fraction of average household budgets. The government has proved unable to cut the budget deficit or reform the labour market, and has failed to attract private financing for badly needed infrastructure investment.  In Turkey, a sharp rise in interest rates has kept the currency’s value from collapsing. This risks hurting growth but the central bank had little choice: political turmoil has stymied reform and heightened the risk of capital flight. Emerging markets are not alone in leaning too heavily on monetary policy. In the US, fiscal policy is being tightened prematurely. In Japan, structural reforms remain a mirage and the central bank will probably have to ease monetary policy even further to keep the economy from stalling.

Fed Urges Emerging Markets to Take Heftier Policy Actions to Stem Capital Flight - Recent efforts by emerging markets such as Brazil, India and Turkey to stem investor flight from their economies are just “stopgap measures” that need to be followed by heftier policy actions, the Federal Reserve said Tuesday in its semiannual monetary policy report to Congress. Finance officials in some of the hardest-hit countries have raised interest rates and tweaked rules on cross-border investments to help tame the capital exodus, blaming the Fed’s wind down of its easy money policies as a primary cause of recent equity, bond and currency sell-offs in their countries. But the Fed suggested emerging market leaders need to do more to tame inflation, cut their government debt levels and boost competitiveness in their economies to reassure investors. In a chart showing exchange rate appreciation and economic vulnerability of emerging markets, the Fed highlighted Turkey, Brazil, India, Indonesia and South Africa as the most exposed to further problems. The Fed’s “vulnerability index” is based on six indicators, including how much countries have to borrow from abroad to finance their trade deficits, public and private indebtedness, inflation, and the size of their emergency cash stockpiles. “Continued progress implementing monetary, fiscal and structural reforms will be needed in some [emerging market economies] to help remedy fundamental vulnerabilities, put [them] on a firmer footing, and make them more resilient to a range of economic shocks,” the Fed said. The Fed acknowledged in the report that the emerging market routs last summer were triggered by its announcement that it was preparing to start winding down its bond-buying program later in the year. But it said the current market squalls were the result of “a few adverse developments” in some developing economies. The Fed pointed out that markets were relatively unperturbed when it decided in December to start shrinking its monthly bond purchases. The turbulence in late January was triggered by weaker-than-expected economic data out of China, a devaluation of the Argentine peso and Turkey’s intervention to support the value of its lira, the Fed said. That turmoil accelerated as investors pulled back out of riskier assets, it said. Fed Chairwoman Janet Yellen told lawmakers the central bank made clear from the start that the bond-buying program would not go on forever, and that it would wind down as the economy picks up.

Why Emerging Markets Should Look Within - Tyler Cowen - In recent weeks, Argentina, Turkey, Ukraine and Thailand have endured plunging currencies, capital flight and political disruptions in varying combinations. While they have all been affected by global economic tides, these nations are facing crises because of problems in their national governance. And if we look elsewhere around the world, we find that governance has been re-emerging as a major factor behind success or failure in many emerging nations. It’s not that macroeconomic quandaries have gone away in all of those countries. There are still many such issues: how to deal with current account deficits, for example, or how to face the consequences of tighter monetary policy in the United States. But these concerns were foreseeable, and some countries have been meeting them, if imperfectly, while others are letting these problems push them over the precipice. In this context, good governance means directing political energies at strengthening the economy rather than trying to cement power and keep down the opposition. Let’s consider the role of governance in four countries facing some of the most pressing crises:

Are Ever Larger Global Booms and Busts Really Inevitable? - I’ve been meaning to respond to this piece by Eduardo Porter from a few days ago on both recent and historical stirrings in global financial markets.  I found it to be unduly depressing and defeatist.  The piece argues that the future holds bigger and badder bubbles and busts and there’s just not much that anyone can do about it.  What’s driving this unfortunate cycle is the interaction of savings imbalances, skittish global capital, and aggressive central banks.   Trade surplus countries used massive foreign reserves to help finance an unregulated real estate bubble.  When the bubble burst, the central bank put the monetary pedal to the metal in order to offset the demand contraction, leading investors to trot the globe in search of higher returns.  As the central bank starts thinking about returning to more normal operations, the specter of higher rates leads to unpredictable and sudden shifts in the flows of global money.Economists quoted in the piece point out that such booms and busts are “older than the hills” and are likely to get worse before they get better…actually, none of them said anything about getting better.  Economic officials in emerging markets hit by capital outflows are calling for international monetary coordination, but it’s unclear what that would look like and even more so, why the US Fed, for example, would hold rates down to protect, e.g., the Turkish currency. In fact, the key word a few ‘grafs up is “unregulated.”  The problem with all of this is that it assumes that successful regulation of financial markets is beyond our capacity.  Again, I’m not sure that’s wrong, but I think it is.  And we won’t know if we don’t try.

Argentina's Fernandez slams supermarkets for 'price speculation': (Reuters) - Argentine President Cristina Fernandez criticized supermarket chains and said they could face consequences for what she claimed was price speculation on basic products, as the government tries to keep a lid on inflation. Fernandez said consumers had denounced supermarkets for not complying with a recent voluntary agreement between the government and food suppliers to contain the price of goods including beef, sugar and yerba mate tea. "We are going to take all the measures that we have to," said Fernandez in a speech at the presidential palace broadcast on television on Wednesday. "Why does Argentina lack yerba? That is speculation pure and simple." In December, the Argentine government introduced its third attempt in less than 12 months to freeze prices on basic goods. The country is dealing with high inflation, estimated privately at over 25 percent in 2013, with a sharp currency devaluation in January adding to pressure on prices.

Brazil’s Leaders Set Lower and Middle Classes Against Each Other - “In Brazil there is a saying: ‘A good thief is a dead thief,’ ” journalist Nicole Froio writes at The Guardian. “These words have never been more relevant in today’s Brazilian class-ridden landscape, where prejudice, violence and racism run free.” Froio continues: The last week has been full of violent acts in Rio de Janeiro. Once again, police and protesters clashed during a protest in the centre of the city. A few days earlier a teenage boy was beaten, stripped naked and tied to a lamp post by a group of vigilantes for allegedly mugging people in the street. A video of a white man pre-emptively accusing a black, poorly dressed youth of intent to mug him has gone viral. All Brazilians, black and white, rich and poor, are terrified of the aggressive atmosphere. The confrontations are no longer people versus authority; they have become people versus people. And senior media figures have backed the vigilantes taking justice into their own hands. This week Rachel Scheherazade, the SBT news anchor, said their actions were “understandable”, and that if people were pro-human rights they should “do Brazil a favour and adopt a thief”. She made these declarations on national primetime TV. To many people, the statistics justify the violent backlash, Froio writes. Between 2007 and 2013 more than 33,000 people were murdered in Rio de Janeiro. 1,070 were killed as a consequence of being mugged. More frighteningly, she says, 5,412 people died in conflicts with the police.

Brazil power regulator proposes rate hike; may stoke inflation (Reuters) - Brazil's electricity regulator ANEEL on Tuesday proposed a 4.6 percent increase in rates paid by consumers to help cover power subsidies, a move that could add pressure to already-high inflation in Latin America's top economy. ANEEL expects a deficit of 5.6 billion reais ($2.33 billion) this year in the so-called Energy Development Account, or CDE. That does not include the cost of using more expensive thermal energy to make up for a drop in hydroelectric output. Last year, President Dilma Rousseff made a deal with power utilities to slash electricity prices in a bid to bolster Brazil's slow-moving economy and tame a surge in prices. A year has passed and the economy remains fragile and inflation high, which has threatened Brazil's investment grade rating as investors worry about the country's fiscal health. true Finance Minister Guido Mantega has promised to pay for any extra energy costs to avoid an increase in consumer bills. That cost, which some media reports say could reach 5 billion reais, also threatens to derail government efforts to show markets it is becoming more fiscally responsible.

Obama and the IMF Are Unhappy With Congress? Good - John Taylor - The $1.1 trillion spending bill signed into law by President Obama last month did not include a crucial change in the U.S. financial contribution to the International Monetary Fund. By refusing to accommodate the White House's strenuous pleas to increase the IMF's discretionary loan budget, Congress effectively rejected an international agreement brokered at the 2010 G-20 meeting—and set off cries in some Washington quarters of a new isolationism. Critics were right that this was a big deal, but wrong in the way they and the administration have portrayed it. At a meeting of the Council on Foreign Relations, Treasury Secretary Jacob Lew said changing the IMF funding was "critical" but that the administration "didn't get it done." He was obviously embarrassed by what the White House considered a broken promise to the other G-20 countries, all of which approved the agreement. But the real broken promise was by the IMF, thanks to an abrupt decision it made that increases risks to the world financial system. The 2010 agreement sensibly shifts IMF voting power toward those emerging market countries such as Brazil, China and India whose economies have grown rapidly in recent years and away from the slow-growing European economies. But the agreement also doubled the funds that the IMF is free to loan to any country it wishes, from Greece to Grenada. That's where the trouble lies.

Canadians' consumer debt swells to $1.4 trillion: Equifax -- The love affair Canadians have with debt is still going strong, according to a new report by credit monitoring agency Equifax Canada. Equifax said Monday that its figures show that consumer debt, excluding mortgages, rose to $518.3 billion through the end of November 2013. That was up 4.2 per cent from $497.4 billion a year earlier. Despite the increase in debt, however, the overall delinquency rate -- bills due past 90 days -- declined to a record low of 1.12 per cent from 1.19 per cent in the same period of 2012. Canadian consumer debt to hit record $28,853 in 2014: TransUnion forecast "The real pattern that we've been observing is that Canadians are taking on more debt, but they can handle it well and are making those monthly payments," said Regina Malina, director of analytics for Equifax. Meanwhile, overall consumer debt, including mortgages, also continues to rise -- up 9.1 per cent to $1.422 trillion from $1.303 trillion a year earlier.

Did Canada Just Pop Its Housing Bubble? -- The Canadian economy is rolling over and their recent jobs situation is worse than the US (and it's always cold weather-y up there?!) but the last great pillar of the 'recovery' in Canada is perhaps about to get crushed. As the WSJ noted recently, Canada's housing market is the most expensive in the world (60% over-valued by historical standards) and one simple reason explains it - Canada has been very open to foreign investors, which means that in an age of unprecedented global liquidity cash-rich wealthy individuals who are looking for places to park their excess funds can do so in its housing market. Until now... As SCMP reports, Canada’s government has announced that it is scrapping its controversial investor visa scheme, which has allowed waves of rich Hongkongers and mainland Chinese to immigrate since 1986. Soft landing?

OECD Jobless Rate Falls to 7.6% - Unemployment across the 34-nation Organization for Economic Cooperation and Development fell for the third straight month in December, driven by falling jobless rates among young people and men. The OECD said Tuesday the unemployment rate for its members—mostly countries with developed economies—fell to 7.6% from 7.7% in November and 7.8% in October, having been steady at 7.9% for much of 2013. The sustained decline suggests the labor market has started to benefit from the modest economic recovery that took root across developed economies last year. In another encouraging development, the rate of youth unemployment fell to 15.5% from 15.6% in November. Young people were particularly hard hit by the shrinking job market in the years following the global financial crisis, leading to fears of a "lost generation" whose life prospects would be impaired by a lack of work experience. The number of people without jobs fell to 46.2 million from 46.9 million in November, but remained 11.5 million higher than in July 2008, before the global financial crisis and ensuing economic slowdown. The U.S. and Japan led the decline in unemployment, while Spain and Ireland also recorded significantly lower rates in December. However, jobless rates increased in Canada, Israel and Mexico.

IMF Paper Refutes Rogoff, Reinhart Debt Study -- A paper published by the International Monetary Fund has refuted a 2010 study by Harvard University scholars Carmen Reinhart and Kenneth Rogoff that found a high level of public debt causes an economy to stagnate. The paper, “Growth in a Time of Debt,” found that ratios of public debt to gross domestic product of more than 90% leads a country’s economy to contract. The study set off a firestorm of debate in the U.S. and Europe, where it was viewed as lending ballast to proponents of lower government debt. The work was critiqued by University of Massachusetts Amherst economists, who ran the numbers again and found economies with debt-to-GDP ratios of 90% grew at 2.2%. (Here is the authors’ response to that critique.)  Now, the IMF has weighed in on the debate with a new paper entitled, “Debt and Growth: Is There Magic Threshold?” “Our results do not identify any clear debt threshold above which medium-term growth prospects are dramatically compromised,” the paper says. The authors also say that it’s the direction in which debt levels are moving, not the absolute levels of debt, that appear key. “Among countries with the same debt levels, the growth performance over the next 15 years in countries where debt is decreasing is better than that in countries where it is increasing,” it says.

The Biggest Threat To Markets That Is Most Likely To Happen Has All But Fallen Off The Radar - Richard McGuire, head of rates strategy at Rabobank, warns in a weekly note to clients that the groundwork is being laid in Europe for a crisis accelerant down the road. The chart above maps risks to markets by impact and likelihood of occurrence.  The most likely threat, according to McGuire, is that Eurosceptic politicians dominate European Parliamentary elections in May, leading to increased tensions next time there is a crisis. He writes: In terms of the risk we judge to be the most likely, at the top of this chart we have the threat of Eurosceptic parties enjoying a strong showing in the European Parliamentary elections on May 22. Certainly given their relatively positive performance in recent opinion polls, whether it be France’s Front National, Italy’s Five Star Movement, the Netherlands’ Freedom Party or Greece’s Syriza, this looks to be a significant risk. Note also that while there can sometimes be a notable divergence between voter intentions ahead of elections and how they actually vote in the election itself (as evidenced by the Freedom Party’s poor performance in the 2012 Dutch elections despite riding high in the opinion polls), this dichotomy is likely to much less marked here. Generally one might argue that voters respond to opinion polls with their hearts but vote with their heads when it comes to putting their cross on the ballot paper. However, given the supranational nature of the Euro-parliamentary elections, we suspect voters are less likely to be swayed by more prosaic local concerns and, hence, feel less constrained in casting a protest vote against the euro.

The Troika and the New York Times Bury the Issues, not just the Lead - Bill Black -On February 6, 2014, Mario Draghi, the head of the ECB said a series of contradictory things each of which indicated a failure to understand economics – and the BBC article about his policies failed to point out or analyze this failure.  Draghi’s primary message, in response to news that “Eurozone inflation slowed to 0.7% in January from 0.8% in December” was:“We have to dispense with this idea of deflation. The question is – is there deflation? The answer is no.We have to treat the recovery with extreme caution. It is very fragile. It is starting from very low levels but it is proceeding.”As I explained in my January 25, 2014 column, the troika consists of the ECB, the EU Commission, and the IMF.  The troika’s definition of the “recovery” it hopes for in Spain is grim.  The troika made Spain its poster child for the success of austerity in late 2013.  In early 2014 Spain admitted that unemployment had risen to 26 percent and the troika’s most over-the-top propagandist for austerity, Ollie Rehn, was the only one willing to comment on that news. I have explained at length why the troika’s framing of the “deflation” issue indicates an abject failure to understand economics – and the media’s failure to even raise this point indicates how bad economic coverage is. A recent NYT article on deflation shows the problem.  It is actually a far better article than most NYT articles on the EU crisis – and that’s why I focus on it.  At its best, the NYT is terrible on this subject – and that indicates the success of the troika’s insidious “there is no alternative” (TINA) meme.  Economically literate alternatives disappear under TINA. “‘In a deflationary environment, monetary policy may thus not be able to sufficiently stimulate aggregate demand by using its interest rate instrument,’ the E.C.B. says on its website. ‘This makes it more difficult for monetary policy to fight deflation than to fight inflation.’Many economists argue, though, that it is already past time for the E.C.B. to take some sort of further action.”

Spain Exports Its Construction Model, With Predictably Dire Consequences -- When tiny Panama decided, in 2007, to expand its canal, it had little choice but to put the project out to international tender, since it had neither the funds nor the technical know-how to do it itself.  The project would double the canal’s capacity, allowing ships with up to 12,000 containers to use the canal — 8,000 more than is currently possible. Given the sheer scale (to get an idea, check these photos), economic importance and international prestige of the project, bids came flying in from all directions — including from some of the world’s biggest construction firms such as U.S. giant Bechtel. The initial estimated cost of the project was 5.25 billion dollars — a huge financial undertaking for a country with total GDP of less than 60 billion dollars. So, imagine, if you will, the Panamanian government’s pleasant surprise when a consortium of firms called the United Group for the Canal (GUPC, for its Spanish acronym), led by the Spanish company Sacyr, put in a bid for just over three billion dollars — two whole billion dollars less than the government’s expected budget.It was an offer Panama could hardly refuse. However, what the Panamanian government didn’t know at the time — but certainly does now — was that Spanish construction firms habitually underestimate total costs when submitting bids for large public projects.  However, when it tried to pull the “oh, shit, this might cost you just a little more” ruse, it discovered that Panama’s government would not cave in quite so easily. When GUPC informed ACP, the administrator in charge of the project, that more lucre would be needed to finish the work — 1.6 billion dollars, to be precise — ACP’s response was to threaten to cancel the 3.2 billion dollar deal and look for another contractor to finish the work.

Surreal News Du Jour: Spain, Turkey To Jointly Build An Aircraft Carrier -- In what has to be the most surreal "news" of the past 24 hours, we learned that Spain, caught in the vice of an unprecedented historic depression, endless "recovery" propaganda notwithstanding, and Turkey, the country whose currency crashed to record lows against the dollar a few short days ago and whose government has been defending itself from a tsunami of corruption allegations and busy firing all the judges who dare to voice disagreement with PM Erdogan, have decided to jointly build ... wait for it ... an aircraft carrier. According to Bloomberg, the proposed ship will be similar to Spain’s Juan Carlos I aircraft carrier, Turkish PM Recep Tayyip Erdogan says in Ankara during a news conference with Spanish counterpart Mariano Rajoy, in which Rajoy repeated that Spain remains a big supporter of Turkey joining the EU even if Germany has repeatedly (and will continue to) say "nein."

Eurozone banks face £42bn ‘capital black hole’ -- Eurozone banks are facing a new capital black hole of as much as €50bn (£42bn), according to one of the UK’s most respected financial analysts. Davide Serra, the chief executive of Algebris, who advises the Government on banking, said that this year’s stress tests by the European Banking Authority and the European Central Bank were likely to find fresh problems in the eurozone banks. He said that Germany had one of “the worst banking systems in the world” and that three or four regional Landesbanken were likely to be wound up. He also said banks in Portugal and Greece were likely to need more capital. “The country where I expect bad news is the country which has not been scrutinised and has been deemed to be the strongest,” Serra said. “I expect more bad news coming out of Germany. The strongest German Panzer was unbeatable, but there is only one problem – they have one of the worst banking systems in the world. If you are a bright engineer in Germany you work for BMW or Mercedes, you do not become a banker. “I expect at least three or four [regional] Landesbanken to be put in run-off mode. The German regulator, BaFin, is one of the weakest. It has always been lobbied by local politicians.” 

Whatever You Do, Don’t Pay Attention to the Rising Eurozone Stresses - Yves Smith  - One of the noteworthy elements of Davos, at least according to media accounts, was the cheery, self-congratulatory tone among the Davos Men, at least until the final day, when the emerging markets rout began. And why shouldn’t they be pleased? They’d come richer and more powerful out of an-economy-wrecking financial crisis, the sort of disruption that should normally have shaken up the social order and dislodged some of them from their perches. The fact that they fared so well boded well for them profiting from future upheavals, or at least surviving them intact.One of their causes for celebration was the supposed improvement in the Eurozone, as witnessed by official results generally stopping their downward trajectory and showing enough noise around a new low base that the Panglossians have hazarded to call it a recovery. But as we have pointed out repeatedly, the fundamental policy contradictions remain unresolved. Germany wants to continue to run trade surpluses, particularly to other countries in Europe. It also wants to stop lending to them. It cannot have both. Yet it seems as unwilling to change its economic model or moderate its austerian demands of the so-called periphery countries as it was two years ago. So while we see no overt crisis indicators (well on second thought, interbank lending rates have been elevated), political stresses seem to be rising. And it’s not clear how political conflict will play back into the economic realm, but the two have the potential to interact in nasty ways.

Courts, voters and the threat of another euro crisis - Germany has surrendered and the euro is saved. That seems to be the markets’ interpretation of last week’s ruling by the German constitutional court on the European Central Bank’s “whatever it takes” policy to save the single currency. The judges’ ruling essentially boiled down to this: “We don’t like what the ECB is doing. We think it illegal. But only the European Court of Justice can strike it down.” Since the European Court is highly unlikely to accept this invitation, the ECB will be able to preserve its policy of Outright Monetary Transactions – essentially a promise to be the buyer of last resort for the bonds issued by eurozone countries. Had the German courts struck down the ECB’s policy last week you would have seen chaos on the markets. Instead, calm prevailed. The ECB’s initial announcement of its bond-buying policy in mid-2012 was, without doubt, a turning point in the euro crisis – preventing the borrowing costs of Italy and Spain from soaring to unbearable levels. Now the ECB may be tempted to go even further. With the threat of deflation haunting Europe, the bank is under pressure to launch a European version of quantitative easing, imitating the US, Japanese and British authorities. Mario Draghi, the ECB president, wary of the reaction in Germany, has hitherto suggested that such a policy would be illegal. But now that he knows the German courts are likely to refer any such decision to the more integrationist ECJ, he may decide to be a bit bolder. The court’s ruling has profound political implications. Germany seems essentially to have accepted that, even though the euro is Germany’s currency, its management is not subject to control by German institutions. Since the German representative on the ECB board is easily outvoted by the board members from the rest of Europe, German eurosceptics feel checkmated. But European integrationists should restrain their cheers. They could pay a heavy political price for victories of this sort. The cost could be a steady undermining of the legitimacy of the European project and the euro in Germany, the EU’s largest state and strongest economy. Two of the most respected institutions in Germany, the Bundesbank and the constitutional court, are now on record as registering profound objections to the policies underpinning the euro.

ECB Considers Negative Deposit Rate - The European Central Bank is “seriously” considering taking its rate on overnight bank deposits into negative territory, a top member of its executive board said Wednesday, adding to mounting speculation that the central bank will act at its next policy meeting to keep the tepid euro-zone economy on track. “[Negative rates] is something we are considering very seriously,” Benoît Coeuré, ECB executive board member, told news agency Reuters in an interview, adding that it is “a very possible option.” The ECB confirmed Mr. Coeuré’s remarks. Such a measure could help to kick-start the flow of bank credit to households and businesses by penalizing banks for parking their excess funds at the central bank instead of lending them to other banks in the financial markets. The euro zone relies heavily on bank lending to finance spending, investment and hiring, but the financial crisis and a lengthy recession that ended in the spring of 2013 saddled bank balance sheets with bad loans. Lending by euro-zone banks to households and businesses slumped 2.3% in December, matching the steepest drop in two decades. However, Mr. Coeuré down-played the effect such a measure would have on the euro-zone economy. “You should not expect too much of it,” he said.

Europe Considers Wholesale Savings Confiscation, Enforced Redistribution -- At first we thought Reuters had been punk'd in its article titled "EU executive sees personal savings used to plug long-term financing gap" which disclosed the latest leaked proposal by the European Commission, but after several hours without a retraction, we realized that the story is sadly true. Sadly, because everything that we warned about in "There May Be Only Painful Ways Out Of The Crisis" back in September of 2011, and everything that the depositors and citizens of Cyprus had to live through, seems on the verge of going continental. In a nutshell, and in Reuters' own words, "the savings of the European Union's 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis, an EU document says." What is left unsaid is that the "usage" will be on a purely involuntary basis, at the discretion of the "union", and can thus best be described as confiscation.The source of this stunner is a document seen be Reuters, which describes how the EU is looking for ways to "wean" the 28-country bloc from its heavy reliance on bank financing and find other means of funding small companies, infrastructure projects and other investment. So as Europe finally admits that the ECB has failed to unclog its broken monetary pipelines for the past five years - something we highlight every month (most recently in No Waking From Draghi's Monetary Nightmare: Eurozone Credit Creation Tumbles To New All Time Low), the commissions report finally admits that "the economic and financial crisis has impaired the ability of the financial sector to channel funds to the real economy, in particular long-term investment."

ECB Survey Shows Inflation to Remain Below Target - Inflation in the euro zone will remain below the European Central Bank's target through 2016, according to a quarterly survey of forecasters released by the ECB Thursday, prompting calls for the bank to provide additional stimulus for the fragile euro-zone recovery at its next policy meeting in March.The ECB survey of 53 economic forecasters said that annual inflation this year will average 1.1%, below the 1.5% rate predicted in November. For 2015, inflation is expected to pick up slightly to 1.4%. By 2016, consumer-price growth should reach 1.7%. That is still below the ECB's target of a little below 2%, but well above the euro zone's current 0.7% annual inflation rate. Thursday's survey cited the appreciation of the euro and the weak economies and labor markets in the euro zone as the reason for revising the inflation forecasts for this year and next downward.The findings were consistent with the ECB's repeated assertions that the monetary bloc will experience a lengthy period of low inflation below the ECB's target but will escape deflation, defined as a persistent downward trend in prices that threatens consumer spending, wages, business profits and investment. "According to respondents, the probability of negative inflation remains very low," the report said. Gross domestic product growth should pick up from 1% this year to 1.7% by 2016, according to the survey. Unemployment should come down, albeit slightly.However, economists said that even the slight downward revisions to inflation forecasts may prove troubling for the ECB. Anything that shows a potential de-anchoring of inflation expectations over the two-to-three year horizon is a concern for the ECB

Euro’s fate is now in Germany’s hands  — The German Constitutional Court’s ruling earlier this month on the legality of Europe’s bond-buying program will have a much bigger effect on the euro and the euro-zone crisis than is being assumed. Announced in 2012, the OMT (“Outright Monetary Transactions”) allows the European Central Bank to make unlimited purchases of government bonds issued by euro-zone members under specified conditions, providing funding and lowering borrowing costs. In conjunction with the austerity plan to reduce budget deficits and public debt and the banking union, the OMT has underpinned the relative stability of European financial markets over the last 18 months.  The Constitutional Court’s review was prompted by a petition filed by 37,000 Germans questioning the OMT’s legal status. Following several months of consideration and often-heated hearings, the court decided to refer the matter to the European Court of Justice (“ECJ”) in Luxembourg. The court ruling was by a majority. Six judges ruled in favor of the referral. Two others dissented on the grounds that the suit should be dismissed as being outside the court’s jurisdiction.  The German court did not rule directly on the OMT but instead requested that the ECJ clarify several issues: The legality of the conditions of the program; the absence of any limit on purchases; the ECB’s ability to selectively purchase bonds of only some members; the lack of consideration of the credit quality of the bonds; the ability to purchase in the primary market; the need to hold the bonds to maturity, and the interaction between the OMT and other ECB and European Union programs.

Eurozone exceeds hopes in recovery - The eurozone’s recovery beat expectations at the end of last year, boosting hopes that the region’s crisis years were over with even the worst-hit southern economies showing surprisingly strong growth. European shares rallied on Friday after official data showed the currency bloc’s economy outpaced forecasts in the final quarter to expand by 0.3 per cent, up from 0.1 per cent in the previous three months. The revival of confidence in eurozone economies suggests the healing process that began with European Central Bank president Mario Draghi’s pledge to do “whatever it takes” to save the euro is gaining ground. The figures mean that the region’s economy grew by 0.5 per cent between the final quarter of 2012 and the end of 2013. In 2012 the region’s economy contracted on the back of fears that the monetary union could collapse. Mr Draghi’s pledge in the summer of 2012 helped to calm these concerns but it has taken time for this to feed through to the bloc’s households and businesses. The latest data suggests this now happening in the crisis-engulfed periphery. Portugal smashed expectations, with its economy expanding by 0.5 per cent against forecasts of a 0.1 per cent rise. Italy came out of recession, recording growth of 0.1 per cent, its first quarterly expansion since the spring of 2011 . Spain grew by 0.3 per cent according to figures released last month.

Europe Stunned, Angry As Switzerland Votes To Curb Immigration - This wasn't supposed to happen. At a time when the European Union, reeling from the ongoing near collapse of the Eurozone, has been preaching its key benefits - the removal of borders and the free transit of labor - moments ago Switzerland, with a tiny majority of 50.4%, voted in favor of new immigration curbs which requires the government to set an upper limit for foreigners, risking a backlash from the (utterly toothless) European Union.Voters in the cities of Zurich and Basel and cantons in western Switzerland opposed the measures, while those in rural German- speaking cantons and the Italian-speaking region of Ticino backed it, reports Bloomberg.

Spain, Italy, and France: Economic Failures that Will Soon be Political Failures --  William K. Black -- The troika has consigned one-third of the Eurozone to a gratuitous Great Depression.  I have written several articles recently describing Spain’s continuing Great Depression levels of unemployment and the absurdity of the troika’s policies with regard to the “threat” presented by “deflation.”  The troika consists of the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF).  This column focuses primarily on Italy’s related economic and political problems, but it also briefly discusses what is likely to be political instability in the longer term in France and Spain as well. Update: it appears that Italy’s prime minister’s resignation could be imminent (see discussion below).  Italy and Spain are suffering Great Depression levels of unemployment.  Collectively, there population is roughly 105 million, which is nearly one-third of the eurozone’s total population of roughly 330 million.  Italy and Spain are two of the eurozone’s largest economies data are as of yearend 2012 and are taken from the “Trading Economics” site.)  Note that Italy and Spain’s GDPs are still materially smaller than they were before the crisis.  They have not begun to dig out of the hole they have been in since 2008.  The troika is rationally anti-democratic: it fears the voters’ rationality and competence. The fact that the troika does not find it an unacceptable emergency that one-third of the eurozone’s population has been forced by the troika’s self-destructive “austerity” policies and the severe defects of the euro into a gratuitous Great Depression proves that the troika consists of three organizations that are abject economic, anti-democratic, and moral failures. The troika’s anti-democratic for a rational reason – they stink at their jobs and would have been tossed out by a democratic electorate years ago.    The euro and the troika are the gravest threats to European unity.

Greece in danger of repeating familiar mistakes with Golden Dawn - Barring any last minute upsets, Golden Dawn will officially become Greece’s third-largest party when local and European Parliament elections are held in May. At least that is what opinion polls have been indicating for some time. It would represent another milestone in the shocking rise of the Neo-Nazi party, which has proved a challenge Greece’s political system has been unable to tackle. The disintegration of Greece’s political system has also played a significant part in the rise of Golden Dawn. For decades the two parties that governed Greece - PASOK and New Democracy - often fed their supporters a diet of cheap populism and ersatz nationalism. The tacit exchange of votes for public sector jobs or contracts and the promise that the state would always step in to protect vested interests created unsustainable expectations about what governments could offer.  These illusions were shattered when Greece signed its first bailout in May 2010. Suddenly, governments were taking and not giving. This changed the dynamic between the two big parties and their voters. Some realised the jig was up, others believed the myths promulgated by the new generation of populists about “traitor” politicians, greedy “banksters,” “predatory” lenders and “subhuman” immigrants.

Greek unemployment rises in November to record high (Reuters) - Greece's unemployment rate rose further to a new record of 28 percent in November from a downwardly revised 27.7 percent in the previous month, the country's statistics agency ELSTAT said on Thursday. The reading - more than twice the euro zone's record-high average of 12.1 percent in November - highlights the impact of Greece's prolonged, austerity-fuelled recession on the labour market.

Greek Unemployment Hits New Record; People Employed Drops To Record Low; 61.4% Of Youth Without A Job - Something funny happened on the Grecovery: the Grecession.... Actually, make that the Grepression. In a nutshell - according to Elstat, Greek unemployment in November rose to a record high on both a seasonally adjusted and unadjusted basis with 28% of the labor force without a job, the number of people unemployed rose to a record high 1.382 million, even as the number of labor inactive people keeps rising, hitting 3.377 million and on its way to catch up with the rapidly declining 3.55 million people employed, which incidentally in November also posted a new record low. And tying it all together was the Greek youth unemployment rate which posted a record high for November at 61.4%, and after a few months of declines which gave some hope that things are indeed improving is back to its old, soaring ways.

Worse than Greece: Fitch says Ukraine's default risk high - The worsening political and economic circumstances in Ukraine has prompted the Fitch Ratings agency to downgrade Ukrainian debt from B to a pre–default level CCC. This is lower than Greece, and Fitch warns of future financial instability. “Intensification of political and economic stress is such that default on government debt becomes probable,” Fitch said in an e-mail. On the brink of default, the Ukrainian economy has taken a further beating as protests drag on in the capital Kiev. Foreign debt is $140 billion, nearly 80 percent of the country’s gross domestic product. “There are emerging signs of stress in the banking system. Demand for foreign currency cash has risen, potentially leading to further steep exchange rate depreciation. These developments pose liquidity and asset quality risks, given the large amounts of foreign currency debt on private sector balance sheets,” the note said. The Ukrainian Central Bank is tapping into the country’s reserves to pay off the country’s fast-accumulating debt. Foreign reserves shrank 12.8 percent to $17.8 billion in January, the lowest since 2006, according data published by the central bank. Overall in 2013, international reserves dropped 16.8 percent, losing a total of $4.1 billion.

Ukraine on the brink - Ukraine's sovereign CDS spread is approaching the high reached right before the Russian bailout was announced. The currency is nearing the pre-bail-out lows.  The market is all but discounting the nation's ability to obtain the next batch of bailout funds - wherever it comes from - before defaulting. Euronews: - Financial experts have warned Ukraine is on the brink of default with some saying currency reserves are enough for only two months. Russia has provided the first three billion dollar tranche of a loan. With the political stand off the rest has been frozen. There are no easy answers here, as the nation faces a daunting challenge of obtaining cash to run its government for the next few months. Many view the country as a victim of tensions between the West - who prefers to see a certain type of government there - and Russia, who is not too interested in Ukrainian sovereignty. Some analysts warn that Russia could escalate its pressure on the former Soviet republic. WSJ - Behind its coercive diplomacy in Ukraine is the threat of force, either incited by Russia or carried out by it. Recent reports of pro-government militant groups forming in eastern Ukraine, calls in the Crimean legislature for Russia to "rescue" them from Ukraine's anti-government uprising, and repeated discussions in the Russian media about partitioning Ukraine, all point to a pattern of escalating pressure from Moscow—a pattern that paves the way for the use of force. In the mean time, the tensions on the streets are escalating as both sides harden their stance (see story). Time is running out for Ukraine.

Belgium's parliament votes through child euthanasia: Parliament in Belgium has passed a bill allowing euthanasia for terminally ill children without any age limit, by 86 votes to 44, with 12 abstentions. When, as expected, the bill is signed by the king, Belgium will become the first country in the world to remove any age limit on the practice. It may be requested by terminally ill children who are in great pain and also have parental consent. Opponents argue children cannot make such a difficult decision. It is 12 years since Belgium legalised euthanasia for adults. In the Netherlands, Belgium's northern neighbour, euthanasia is legal for children over the age of 12, if there is parental consent.

Are the UK floods Cameron’s Katrina? - There are three reasons why the government should be very worried about the political fallout from the unprecedented level of UK flooding.

  • 1) When they came into office, they cut back substantially on funding flood prevention, when there was a clear need to increase spending. That is a simple fact, which no amount of playing with averages can avoid. The Guardian reported in June 2012 that “300 flood defence schemes across England have been left unbuilt due to government budget cuts.” 
  • 2) The reason why there was a need to increase spending on flood prevention was climate change. This was well understood by the relevant government agencies and departments, so it is no surprise that the Met Office should confirm the link. Yet the government is vulnerable on this because so many of its MPs are active or closet climate sceptics, including the minister in charge of the relevant department.
  • 3) The government’s philosophy towards the public sector is to roll back or privatise. No doubt there are some areas where this makes sense, but in others it is undoubtedly causing distress and hardship. Yet those affected typically have little political voice, and so are not too visible. In addition, many in the government have encouraged the idea that recipients of the welfare state are either undeserving, or victims of a dependency culture. In contrast, flood victims are very visible, and a strategy of blaming the victims will not work politically.

U.K.’s Historic Flooding Is Washing Sewage Into The Streets - Across the south of England, severe rain and flooding has lead to hundreds of reports of raw sewage oozing up in backyards and human waste washing into flooded homes, adding a potential health crisis to the storm-battered region. In Maidenhead, an affluent suburb of London, many residents have had sewage in their backyards for over two months.  “I accept flooding but it is the sewage that’s the problem. The smell comes up through the plug-hole in our kitchen. There’s bits of toilet paper in the garden,” June Dobbs told the Maidenhead Advertiser.  Many cities and towns in the U.K. rely largely on Victorian-era combined stormwater and sewage systems which have become completely overwhelmed by both the intensity and duration of the winter storms. When the systems can’t hold any more water, they spew raw sewage mixed with stormwater into streams and down main streets.

Lord Turner: UK economy is like 90s Japan - Lord Turner has warned that the UK has failed to rebalance its economy and is simply repeating the errors made in the run-up to the 2007/8 financial crisis. The self-styled technocrat, who was chairman of the City regulator until last April, likened the domestic economy over the last five years to Japan in the 1990s. The former Financial Services Authority chief - who made it on to the shortlist to replace Lord King as Governor of the Bank of England - said that although the economy was now showing obvious signs of growth, there was the potential that it will not be sustained due to the continued build up of credit in the system. “The concerning thing about the UK economy is that from 2009 until early last year, a lot of the debate was around the need to rebalance, from being over focused on financial services and the housing market,” Lord Turner told The Telegraph. “In the last year we've started to grow again, but it's all down to consumer expenditure and real estate again. In the UK we haven't got the answers to rebalance the economy.”

Bank of England Shifts on Factors That Could Prompt a Rate Increase - — The Bank of England on Wednesday abandoned its six-month-old strategy of pledging to consider raising interest rates only when unemployment falls to 7 percent, saying it would now take a number of factors into account.Mark J. Carney, the governor of the Bank of England, also stressed that higher interest rates were still some way off and that any increase would be gradual. The central bank also raised its growth forecast for 2014 again, to 3.4 percent from 2.8 percent which it had forecast in November.Overhauling his forward guidance strategy, Mr. Carney said that decisions on a rate increase would now be linked to a broader range of factors, including spare capacity in the economy, labor productivity and wage growth.“As yet the recovery is neither balanced nor sustainable,” Mr. Carney told a news conference, adding that the central bank would take no risks with the fragile economic rebound. Securing the recovery could be achieved by “waiting to raise the bank rate until spare capacity has been absorbed further and then eventually through gradual and limited rate increases. Bank rates may need to stay at low levels for some time to come,” Mr. Carney said.

The Bank of England has confirmed that economic forecasting is basically impossible - “The economy has been stronger than we thought. That’s a good thing, obviously.” Bank of England governor Mark Carney’s defensive tone as he fielded pointed questions at a press conference today cast some doubt on whether the dilemma he faces could be called “good.”  As Carney reassured markets that an interest rate rise is not imminent, he also announced that the British central bank has revamped its policy of “forward guidance” on interest rates, and released an updated assessment of the UK’s surprisingly perky economy. The bank now expects UK GDP to grow by a robust 3.4% this year, up from its previous forecast of 2.8%.  But what is making life uncomfortable for Carney is that the bank’s existing forward-guidance policy, unveiled only six months ago, served to confuse as much as enlighten. Back then, the bank pledged to keep its benchmark interest rate on hold until the unemployment rate fell to 7%. Three months ago, the bank put the probability of this threshold being reached in the current quarter at 10%, but today—with the rate at 7.1%—it revised those odds to 70%. As the jobless rate tumbled faster than the bank’s projections, markets started pricing in a rate hike much sooner than the bank seems comfortable with (next year, at the earliest).

Why Mark Carney is a breath of fresh air - The British establishment is excessively secretive, and the Bank of England is part of that establishment. I have for too many years (e.g. pdf, para 105) argued that central banks should publish their forecast for the interest rate they set. Unsurprisingly the innovative New Zealand Fed did it first, followed by the ever rational Swedes and Norwegians, and then of course the US Fed itself. I really did hope that at this point the Bank of England’s line that the naive British public would not understand the difference between a forecast and a commitment would buckle, but no, the Bank continued to base its forecasts for everything on the market’s forecast for interest rates, rather than their own. Even wise ex-MPC members continued to suggest all this openness elsewhere would end in tears.   Things began to change with Canadian Mark Carney’s arrival as governor. In my view there were two things the forward guidance he introduced last August was trying to achieve. The first was to clarify what the MPC’s objectives were. In particular, they were not (or at least were no longer) trying to target two year ahead inflation regardless of what was expected for output or unemployment. The second aim was to give a clear indication that the MPC (or at least the governor) did not think rates were going to rise anytime soon. This is important, because it either gives us additional information about the Bank’s forecasts or their objectives.

Government underestimates the amount of student loans that are likely to be paid back -- According to a report published by the Parliamentary Public Accounts Committee, the Government are currently underestimating how many students will actually pay back their university loans over the coming decades.  Currently, the Government estimates that between 35 and 40% of loans to Higher Education students are never paid back - the Committee believes that the rate on non-repayment is much higher and reflects a weakness in the loan collection method.  The primary reason for non-repayment is that student details get lost over a period of time particularly if the graduate moves and works abroad or was an EU citizen who has returned to their own country.  The method of using the income tax registration process as a way of locating former students has been criticized for not being an effective method of collecting information.  It is estimated that the shortfall could be as much as £80 million by 2042. The cost of Higher Education and the policy to deal with that cost has always been a great case study on Government policy and Government failure for A level students given that many are considering continuing their education and are concerned about the potential cost.  Given that likely cost, I've found that it is also a fantastic exercise in testing students by asking them to remain balanced in their evaluative responses. So now we have a little more information to add to the debate.  Firstly, the Government solution may be failing as it doesn't receive all of the income that it intended.  Government failure in this case is down to inadequate information.  Add to that is the new double-whammy - graduates who do pay back their loans are also subsidizing those who don't through paying taxes to fund the shortfall of collected money! 

Drugs and Prostitution to be included in GDP: I have to admit I did a double take when I saw this in The Times today. In other countries (well, the Netherlands in particular) where prostitution and some drugs are legal, these activities are included in the calculation of GDP. Philip Aldrick, writing in The Times 10th February 2014 reports that £10 Bn could be added to the UK economy if prostitution (£3 Bn) and drugs (£7 Bn) were included in GDP and the EU has ordered the ONS to include these activities in its estimates of UK GDP. Although there has been widespread derision of the measure, the EU sees it as necessary to create a level playing field when allocating subsidies from its budget. In fact, it has been suggested that Greece's GDP could rise by as much as 2% if their black economy was counted in GDP. The effect on the UK's GDP would in fact be relatively trivial.

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