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

Saturday, February 22, 2014

week ending Feb 22


FRB: H.4.1 Release--Factors Affecting Reserve Balances--February 20, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed Minutes Point to Continued Paring of Stimulus - Federal Reserve officials agreed at their January meeting that further gradual reductions in their stimulus would be appropriate as long as the economy keeps improving. Officials discussed the need to stress to investors that the Fed’s key short-term interest rate would remain near zero, according to the minutes of the Jan. 28-29 meeting. But they couldn’t agree on how to modify their commitment to keep the rate near zero “well past” the time unemployment falls below 6.5 percent. The rate is now 6.6 percent. After that meeting, the Fed said it would further cut its monthly bond purchases beyond the cut it made in January. The bond purchases are intended to keep rates low to spur spending.

FRB: Press Release--Minutes of the Federal Open Market Committee, January 28-29, 2014 -- Release Date: February 19, 2014

FOMC Minutes: "A clear presumption in favor" of Additional Tapering -- From the Fed: Minutes of the Federal Open Market Committee, January 28-29, 2014 . Excerpt: In their discussion of the path for monetary policy, most participants judged that the incoming information about the economy was broadly in line with their expectations and that a further modest step down in the pace of purchases was appropriate. A couple of participants observed that continued low readings on inflation and considerable slack in the labor market raised questions about the desirability of reducing the pace of purchases; these participants judged, however, that a pause in the reduction of purchases was not justified at this stage, especially in light of the strength of the economy in the second half of 2013. Several participants argued that, in the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor of continuing to reduce the pace of purchases by a total of $10 billion at each FOMC meeting. That said, a number of participants noted that if the economy deviated substantially from its expected path, the Committee should be prepared to respond with an appropriate adjustment to the trajectory of its purchases.  Participants agreed that, with the unemployment rate approaching 6-1/2 percent, it would soon be appropriate for the Committee to change its forward guidance in order to provide information about its decisions regarding the federal funds rate after that threshold was crossed.

Fed Gives Yellen Discretion to Expand Reverse Repo Program -- Federal Reserve officials gave their chairwoman, Janet Yellen, the authority to expand an experimental program run by the New York Fed, which is designed to give the central bank better control over short-term interest rates, minutes from the central bank’s January meeting revealed. The program is called an overnight fixed-rate reverse repurchase facility. Under the program, which the Fed started in September, the Fed lends bonds from its large holdings of Treasury securities in exchange for cash from eligible financial firms. Policymakers can change the interest rate offered on this tool, effectively setting a floor for short-term interest rates. Market participants have been watching this program closely because it could be an important tool used by the Fed when it eventually starts raising short-term interest rates. The Fed announced at the conclusion of its January policy meeting that officials voted to extend the program by another year and raise the limit on how much business banks and other trading partners could do with the facility each day to $5 billion each, up from $3 billion. The release noted that officials expected that allotment cap to increase further in coming months. The New York Fed is authorized to set a rate on these transactions between zero and 0.05%.

Fed’s Bullard Sees Steady Taper - A strong U.S. economy facing its best prospects since the financial crisis will likely allow the Federal Reserve to steadily reduce its monthly bond purchases, St. Louis Fed President James Bullard said Wednesday in an interview with The Wall Street Journal. Mr. Bullard said the recent decline in the jobless rate is real, downplaying concerns that it is partly driven by a decline in the number of Americans in the labor force. “The bottom line is then you should take the signal from the unemployment rate decline as a signal of an improving labor market and an improving economy,” Mr. Bullard said. Mr. Bullard, who has expressed concern about low inflation, says he expects it to return to the central bank’s official 2% target. “The main factor driving inflation is inflation expectations. Those have remained relatively well-anchored up to now and that’s why my forecast for inflation is that it will go back to target,” he said. However, he added that further declines in key inflation measures, currently hovering around 1%, would put pressure on Fed officials to take some sort of policy action to drive it higher. Mr. Bullard is forecasting the U.S. economy will grow 3% or more this year, bolstered by the fading drag from tight fiscal policy from Washington.

Fed’s Williams: High Bar for Fed to Change Tapering Trajectory - The bar is high for the Federal Reserve to change course on winding down its signature bond-buying program, Federal Reserve Bank of San Francisco President John Williams said Wednesday. “In my view, the hurdle is pretty high on changing the pace of the step-downs in our purchases that we started back in December… I think that, in fact, to my mind, it would take more than just weak, relatively weak reports,” Mr. Williams said during an interview on CNBC. “What I’m looking for is steady improvement in the labor market generally, and we are seeing that in other series that the government follows, such as job vacancies and perceptions of the labor market. So I really don’t want to overreact to any specific piece of data, and really look at what it means for the medium-term trend.” The Fed’s bond purchases are aimed at spurring U.S. economic growth by lowering borrowing costs. It announced in December it would reduce the monthly purchases by $10 billion, and said in January it would cut them by an additional $10 billion in January, to $65 billion currently. Fed officials have indicated they will continue reducing their purchases this year as long as the economy performs as they expect. Mr. Williams said winter weather “has been an important factor” in the “somewhat disappointing” economic data in recent months, though it’s difficult to gauge the effect. He noted employment data in recent months have been “a little weaker than were expected;” employers added 75,000 and 113,000 jobs in December and January, respectively, according to the Labor Department.

Fed’s Lockhart: Despite Weak Data, Taper Process To Proceed - Federal Reserve Bank of Atlanta President Dennis Lockhart said Wednesday he’s “looking through” recent weak economic data, and continues to expect the central bank to wind down its bond-buying stimulus program over the remainder of this year. In a speech in Macon, Ga., the official said “as long as the outlook remains solid and does not deviate dramatically from the path we believe it’s on, I would expect the tapering of asset purchases to continue over the balance of the year.” He added, “I expect the asset purchase program to be completely wound down by the fourth quarter of this year.” Mr. Lockhart was referring to what is now a $65 billion per month program of bond buying by the Fed. The monthly pace of purchases was cut at the December and January Fed meetings, and most market participants expect, as Mr. Lockhart predicts, the program will end this year. The Fed has been buying bonds to stimulate growth and drive down unemployment, and its move to cut back on purchases reflects central bankers’ rising optimism about the outlook. Mr. Lockhart has been supportive of the Fed effort to end the asset buying. While the official does not hold a voting role on the interest-rate setting Federal Open Market Committee this year, Mr. Lockhart is widely viewed as a centrist, with views indicative of where policymakers’ consensus lies. Other Fed officials have said recently that recent data weakness was not altering their support for the tapering process. While Mr. Lockhart is optimistic about the outlook, he noted monetary policy is, and will remain for some time, “highly accommodative.” He said he remains “comfortable” with the prediction the Fed won’t hike what are now zero percent short term rates until the second half of 2015, provided the economy plays out as he expects.

FOMC minutes to January: little guidance on the eventual new guidance -- The January FOMC meeting, Bernanke’s last, had an uneventful outcome: the taper would continue at the same pace, while the statement itself had only mild changes to the economic outlook. If the minutes to that meeting were slightly more interesting, this passage is the reason:  Participants agreed that, with the unemployment rate approaching 6½ percent, it would soon be appropriate for the Committee to change its forward guidance in order to provide information about its decisions regarding the federal funds rate after that threshold was crossed. A range of views was expressed about the form that such forward guidance might take.Some participants favored quantitative guidance along the lines of the existing thresholds, while others preferred a qualitative approach that would provide additional information regarding the factors that would guide the Committee’s policy decisions.Several participants suggested that risks to financial stability should appear more explicitly in the list of factors that would guide decisions about the federal funds rate once the unemployment rate threshold is crossed, and several participants argued that the forward guidance should give greater emphasis to the Committee’s willingness to keep rates low if inflation were to remain persistently below the Committee’s 2 percent longer-run objective. Additional proposals included relying to a greater extent on the Summary of Economic Projections as a communications device and including in the guidance an indication of the Committee’s willingness to adjust policy to lean against undesired changes in financial conditions.

Forward Guidance - Kunstler --   “Guidance” is the new organizing credo of US financial life with Janet Yellen officially installed as the new Wizard of Oz at the Federal Reserve. Guidance refers to periodic cryptic utterances made by the Wizard in staged appearances before congress or in the “minutes” (i.e. transcribed notes) from meetings of the Fed’s Open Market Committee. The cryptic utterances don’t necessarily have any bearing on reality, but are issued with the hope that they will be mistaken for it, especially by managers in the financial markets where assets are priced and traded.  Last May’s remarks by then Fed Chairperson Ben Bernanke that the Fed might consider “tapering” its gigantic monthly purchases of US Treasury bonds plus an equal amount of stranded mortgage paper made the markets so nervous that stock indexes had a seizure and the interest rate on the lodestar ten-year treasury bill shot up 150 basis points — into a zone that would cripple the government’s ability to keep its credit revolving. These dire portents prompted Bernanke to take back what he’d said, but then three months later, in the fall, he restated the taper guidance. By then, market watchers and playas were sure that he was just juking them, and anyway they were too busy stuffing their Christmas bonus stockings to take him seriously.  Lo, the taper is still on under Wizard Yellen, for the simple reason that if she backed out of it now, before she officially chaired her first meeting of the Fed governors, her outfit would lose whatever shreds of credibility it still hangs onto. Even with the taper on, it is for now still pumping over half a trillion dollars a year into the banking system. There is some reason to think that it made the markets puke two weeks ago. But then a really bad employment number came out, and in the inverse climate of bad-news-being-good-news for bubble markets, that was construed as a sure sign that the Fed might have to un-taper sometime around late spring with Yellen’s chairpersonship fully established.  I suspect they’ll do something else: they’ll continue to taper down purchases of treasuries and mortgage detritus via the direct TBTF bank channel and they’ll establish a new “back door” for shoveling money into the system. Nobody knows what this is yet, and it may be some time even after it starts that the mechanism is discovered. In the meantime, the seeming placidity of the renewed “risk on” mood should be a warning to market cheerleaders. Something’s got to give and I think it will be the US dollar index, which has been in Zombieland since November.

What Is the Stance of Monetary Policy? - Atlanta Fed's macroblog - Will the Federal Open Market Committee's (FOMC) current large-scale asset purchase program, so-called QE3, continue to melt away as spring arrives? The release of the minutes from the January meeting of the FOMC, along with commentary from various participants in that meeting (noted in rapid succession here, here, and here, for example) have left the distinct impression that the answer is most probably yes. The anticipated winding down of asset purchases almost inevitably invokes a habit of language concerning what it all means for the stance of monetary policy. From the New York Times, for example, we have this (emphasis added):When Federal Reserve officials last met at the end of January, they were surprised by the strength of the economy, cheered by the optimism of consumers and convinced they should continue to dismantle the Fed's economic stimulus campaign, according to an account the Fed released Wednesday. The sentiment expressed in that highlighted passage is front and center at the G-20 meetings, currently taking place in Australia: Setting the scene for this weekend's Group of 20 meetings, Australian Treasurer Joe Hockey's main challenge was to avoid appearing partial in the escalating blame-game between the U.S. and developing countries over the recent exodus of capital from emerging markets…. Emerging market countries like India and Brazil have blamed the wide-scale selloff in local stocks, bonds and currencies on the Federal Reserve's plan to exit gradually from monetary-stimulus policies, which last year began sending investors into a panic. Here's the thing. It is not at all clear that winding down asset purchases means an exit from or dismantling of monetary stimulus, gradual or otherwise.

Markets flooded with cash, should Fed prep to stamp out risk? (Reuters) - A debate is growing louder within the Federal Reserve over whether it should stand ready to raise interest rates to prick any risky asset bubbles that its regulatory tools might fail to address. The 2007-2009 financial crisis left many wondering whether the U.S. central bank should have more boldly tightened policy in the preceding years to head off the explosion of risky mortgage debt on Wall Street. Now, after holding interest rates near zero for more than five years and pumping trillions of dollars into the economy through bond purchases, the question of how best to deal with bubble-like signs could become a defining one for the Fed and its new chief, Janet Yellen. true If the economy continues to grow but inflation stays stubbornly low, concerns over financial instability could prompt Yellen to more quickly wind down the policy stimulus than she otherwise might.

Two Steps Forward and One Step Back for the Fed - Simon Johnson - This week the Federal Reserve took a major step toward establishing a more sensible set of rules for global banks operating in the United States. Yet in a separate and almost simultaneous smaller announcement, the Fed announced a change to the board of the Federal Reserve Bank of New York that sent all the wrong signals regarding whether the United States will really end up with more effective oversight for its financial system. The Fed should put its new global banking rules into effect but rethink its criteria for who should sit on the New York Fed board.  Unfortunately, this good news was partly spoiled by the unrelated announcement that a vacancy on the board of the New York Fed would be filled by David M. Cote, chief executive of Honeywell. (Mr. Cote is the only candidate in an election to fill that vacancy; the vote is by what is known as Group 2 banks, which means those “with capital and surplus of $30 million to $1 billion” that belong to the Second District of the Federal Reserve System, served by the Federal Reserve Bank of New York.) I have nothing personal against Mr. Cote, whom I have never met. But I must point out that he is not only a former board member of JPMorgan Chase, he was also on that board and a member of its risk committee from July 2007 through July 2013, a period that spanned the London Whale trading losses debacle and other egregiously unacceptable behavior that has resulted in record fines and settlements for the company (including accusations of manipulating energy markets, ignoring warning signs about Bernard Madoff’s Ponzi scheme and much more).

The Fed’s a Perpetual Bubble-Maker: David Stockman - “We don’t need to change taxation, we don’t need to have more Keynesian-type middle-income oriented manipulations. We need to get the Fed out of the financial markets, its fat thumb off the scale, let interest rates clear the market based on true supply and demand, let traders and speculators be at risk, and shut down the Fed-fueled casino.” Mr. Stockman’s interview begins at 3:51

An Aggressive Fed Finds Critics on Wall Street -  Every time Janet L. Yellen, the chairwoman of the Federal Reserve, testifies in Congress, she can expect some senators to scoff and representatives to question.But Washington’s critics pale next to Wall Street’s.Since the financial crisis, the Fed has engaged in an aggressive stimulus campaign, which has helped lift stock and bond markets, greatly enriching Wall Street in the process. Even so, a surprisingly large number of investors and bankers remain deeply skeptical — and even angry — about what the Fed is doing.Many of them say the central bank’s policies are causing harm — and they are confident that Ms. Yellen, who succeeded Ben S. Bernanke as chief this month and is extending his policies, will fail spectacularly.  “I wish the Fed were not manipulating the market the way it is.”   In many ways, the Fed bashing, which remains widespread and undimmed five years after the crisis, is not surprising. Financiers have always weighed in on the economic policy questions of the day. And it is in character for certain top Wall Street figures to believe they are smarter than the government employees who have the actual job of fighting unemployment.Yet, to hear the Fed’s critics tell it, their antipathy toward the central bank is not motivated by a reflexive opposition to government intervention, but by a desire to end the big booms and busts that have hurt the economy in recent decades.

Time to stop obsessing about central banks - George Magnus, former chief economist at UBS, writing in a private capacity on his blog, says central banks can’t do much more to support the economy and it’s time to stop obsessing about their every policy manoeuvre because it’s counterproductive.In his opinion, the economy’s future health lies in structural adjustments which can only be implemented and organised by government. The burden of responsibility, meanwhile, has only been placed on central banks because of bad politics, which have prevented necessary fiscal and structural action being taken. The sooner we realise this, the sooner we can make progress. In the meantime, he says, it’s best for central banks to remain reassuringly vague so as to put the onus on progressive government action and step out of government’s way. Or as he notes: To compensate and restore balance to the mix of policy-making, we need to look to governments to play their proper part in deploying policy tools designed to lead to economic stability and steady growth in incomes and employment. That’ll make the job of central banks easier and more plausible.

IMF Fires a Warning Shot at the Fed on Deflation -- The U.S. government’s economic policy wonks are the habitual finger wags. They’ve lectured Japan incessantly for 20 years on how to beat its intractable deflation problem and in more recent years pointed at China for keeping its currency artificially low to boost exports.  Last October 30, when the U.S. Treasury released its semi-annual “International Economic and Exchange Rate Policies” report to Congress, it turned its finger-pointing on Germany, grousing that:“Germany has maintained a large current account surplus throughout the euro area financial crisis, and in 2012, Germany’s nominal current account surplus was larger than that of China.  Germany’s anemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro-area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment.  The net result has been a deflationary bias for the euro area, as well as for the world economy.” Given this backdrop, it was noteworthy that yesterday the International Monetary Fund (IMF) pointed its own finger squarely at the U.S. central bank, the Federal Reserve Board of Governors, in its statement on “Global Prospects and Policy Challenges” prepared for the upcoming G-20 meeting. Central bank flooding of the financial markets through bond purchases in hopes something will stick in terms of job creation, economic growth, and longer term financial stability is referred to as quantitative easing or QE by the general public. The MF has its own acronym, UMP, for Unconventional Monetary Policy. Regardless of the chosen phrase, no one is sure how all of this unconventional meddling is going to end, although at least three Republican Senators suspect it is akin to either a morphine drip, disguising chronic pain and a seriously ill patient, or leading the financial markets into a “sugar high” complacency as another asset bubble forms.

Key Measures Shows Low Inflation in January - The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.2% annualized rate) in January. The 16% trimmed-mean Consumer Price Index increased 0.1% (1.5% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report. Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.1% (1.7% annualized rate) in January. The CPI less food and energy increased 0.1% (1.5% annualized rate) on a seasonally adjusted basis. Note: The Cleveland Fed has the median CPI details for January here. The price for fuel oil and other fuels increased sharply in January, but prices for motor fuels declined. This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.0%, the trimmed-mean CPI rose 1.6%, and the CPI less food and energy rose 1.6%. Core PCE is for December and increased just 1.2% year-over-year. On a monthly basis, median CPI was at 2.2% annualized, trimmed-mean CPI was at 1.5% annualized, and core CPI increased 1.5% annualized.

Maybe Inflation Isn’t as Low as Fed Thinks - Maybe inflation isn’t as soft as the Federal Reserve thinks it is. The Labor Department reported Thursday the consumer price index was up 1.6% from a year earlier in January. That’s the closest the Fed has been to its 2% inflation goal since July. Inflation much below that rate is a sign of a weak economy they want to avoid. Of course, the Fed’s preferred inflation measure is the Commerce Department’s personal consumption expenditure price index, and that is running much lower. In December it was up 1.1% from a year earlier, too low for the Fed’s comfort. Fed officials believe the PCE does a better job of accounting for shifts in spending behavior by individuals and they prefer its treatment of sectors like housing. Most Fed officials expect inflation to return to 2% in the next couple of years. But at their January meeting officials discussed several reasons why inflation might not pick up as anticipated, according to meeting minutes released Wednesday. Their concerns included: “Slow growth in labor costs, the lack of pricing power reported by business contacts in various parts of the country, the low level of inflation in other advanced economies, and the danger that inflation expectations at short and medium horizons might not be as well anchored as longer-run inflation expectations.” Still, Thursday’s reported rise in the consumer price index might give Fed officials comfort in their belief inflation will return to more normal levels, and another reason to keep pulling back on their bond-buying program.

The Impact of QE on GDP and Inflation - A brief study by economists at the Federal Reserve Board of San Francisco looks at the stimulatory effects of QE (or large scale asset purchases) on the U.S. economy.  Here are some of the salient points.  The economists  look at the impact of QE2, the second stage of the Fed's grand experiment, announced in November 2010.  In this stage, the Fed was set to purchase $600 billion of long-term Treasuries in an attempt to push long-term interest rates down, push up inflation to avoid deflationary pressures and boost economic growth.  The authors note that the forward guidance offered by the Fed was key to the program's success.  Here's how successful QE 2 was:  Real GDP growth increased by 0.13 percentage point in late 2010. Inflation increased by 0.03 percentage point.  Without forward guidance, QE2 would only have added 0.04 percentage point to GDP growth and 0.02 percentage point to inflation.  Here is a graph showing the change in real GDP growth related to QE and how the impact of large scale asset purchases declines over time to zero:

Federal Reserve confident in economy despite high student debt - Total student loan debt -- a titanic figure that has quadrupled since 2003 and now exceeds all other forms of U.S. consumer debt, even credit cards -- does not pose a significant threat to the nation's economic stability as far as Federal Reserve policy makers can see. That's despite the fact that student debt has the highest delinquency rate of any consumer loan category and could affect the long-term financial future of graduates for decades to come. The Consumer Financial Protection Bureau estimates that student loans outstanding total around $1.2 trillion, spread among 40 million borrowers, for an average debt of nearly $30,000 per graduate. "This is an issue that has implications for economic growth and bears watching, but it's not necessarily a crisis in the making with respect to the nation's financial stability," said Ann Marie Wiersch, a senior policy analyst at the Federal Reserve Bank of Cleveland. Many people, she said, are trying to draw comparisons to the housing crisis that helped trigger the Great Recession, but banks don't have the same exposure to the student loan market. Financial institutions actively providing capital for student loans only accounted for 7 percent of the total market in 2010-11, the most recent year data are available. The other 93 percent was provided by the federal government through its student loan programs.

St. Louis Fed Chief Bullard Talks About the Economic Outlook–Video -- St. Louis Federal Reserve president James Bullard talks to WSJ's Jon Hilsenrath.

Weekend Reading: 2008 FOMC Transcripts From some weekend reading, here are the 2008 FOMC transcripts. - Here is a gem from August 2008 from St Louis Fed President James Bullard:  My sense is that the level of systemic risk associated with financial turmoil has fallen dramatically. For this reason, I think the FOMC should begin to de-emphasize systemic risk worries. My sense is that, because the turmoil has been ongoing for some time, all of the major players have made adjustments as best they can to contain the fallout from the failure of another firm in the industry. They have done this not out of benevolence but out of their own instincts for self-preservation. As one of my contacts at a large bank described it, the discovery process is clearly over. I say that the level of systemic risk has dropped dramatically and possibly to zero.

The 2008 FOMC Laugh Track: Gallows Humor at the Federal Reserve - Here are some of the best – and worst – jokes from the 2008 Fed meetings.

Federal Reserve 2008 Transcripts: Full Coverage - The Federal Reserve on Friday released transcripts of 14 scheduled and emergency policy meetings it held in 2008, providing new details of discussions within the central bank as financial turmoil related to the housing bust escalated into a full-blown crisis threatening the financial system and the economy. The Fed releases transcripts of its eight policy meetings with a five-year lag. In 2008, the Fed held eight regular policy meetings of 2008,and six unscheduled emergency meetings as officials grappled with financial turmoil, cut interest rates and launched new lending programs.  Below you’ll find the latest coverage by WSJ reporters, including summaries of the main events in each quarter of 2008 (along with links to Journal stories published during each period and relevant Fed documents).

Hilarious Transcripts of Fed Minutes from 2008 Reveal Completely Clueless Fed - Today the Fed released minutes of meetings at the start and during the great financial crisis. These minutes show how clueless the Fed Governors were at the start of the recession. Here is a list of FOMC Transcripts and Other Historical Materials, 2008 I purposely cherry picked statements of various Fed governors. There was much more gloom in the early minutes than I show below. Yet, the consensus opinion, even though the recession had already started, was that a recession would be avoided.     Amazingly, Bernanke spoke of pent-up demand for housing in January of 2008   The January 29-30 transcript was a whopping 194 pages long. I slogged through most of it. Some outside consultants presented to the Fed at that meeting, generally giving an amazingly rosy view of the world as well.

The Demise of U.S. Economic Growth - The United States achieved a 2.0 percent average annual growth rate of real GDP per capita between 1891 and 2007. This paper predicts that growth in the 25 to 40 years after 2007 will be much slower, particularly for the great majority of the population. Future growth will be 1.3 percent per annum for labor productivity in the total economy, 0.9 percent for output per capita, 0.4 percent for real income per capita of the bottom 99 percent of the income distribution, and 0.2 percent for the real disposable income of that group.  The primary cause of this growth slowdown is a set of four headwinds, all of them widely recognized and uncontroversial. Demographic shifts will reduce hours worked per capita, due not just to the retirement of the baby boom generation but also as a result of an exit from the labor force both of youth and prime-age adults. Educational attainment, a central driver of growth over the past century, stagnates at a plateau as the U.S. sinks lower in the world league tables of high school and college completion rates. Inequality continues to increase, resulting in real income growth for the bottom 99 percent of the income distribution that is fully half a point per year below the average growth of all incomes. A projected long-term increase in the ratio of debt to GDP at all levels of government will inevitably lead to more rapid growth in tax revenues and/or slower growth in transfer payments at some point within the next several decades.

Two Indicators U.S. GDP Is Already Declining in 2014: In 2013, the U.S. economy, as measured by gross domestic product (GDP), rose at an average rate of 1.9% compared to 2.8% in 2012. And as it stands, GDP may slow further in 2014. What makes me think this? In January, U.S. industrial production declined by 0.3% from the previous month. This was the first decline in production since August of 2013. Production of automotive products in the U.S. economy declined by 5.15%, and appliances, furniture, and carpeting production declined by 0.6% in the month. And factories in the U.S. economy just aren't as busy as they used to be. The capacity utilization rate, a measure of companies using their potential production, was 78.5% in January. The average rate between 1979 and 2013 has been 80.1%. While a difference of two percent in factory utilization isn't a big number, because overhead is often fixed in factories, a two-percent decline in production is a big deal. Then there's the inventory problem; inventories in the U.S. economy continue to increase. In December, inventories at manufacturers increased by another 0.5% to $1.7 trillion. From December 2012, they have increased by 4.4%. We have a situation in the U.S. economy today where factories are working at lower capacity than they have historically, while business inventories are rising—two bad omens for the economy; hence, you can see why I'm concerned about economic growth in 2014.

Measuring Economic Progress - Economists have always been aware that GDP does not measure welfare, but in practice its growth has come to be widely used as the general litmus test for the health of the economy, both in the economic literature and in the media and public policy debate. So it is not surprising that the tension between measuring welfare and measuring economic growth has re-emerged several times over the decades since World War II. James Tobin and William Nordhaus argued in 1972 that maximising the growth of GNP (more commonly used then) was not a proper objective for economic policy (Nordhaus and Tobin 1972). They proposed a Measure of Economic Welfare in its place. Subsequently others have suggested a number of alternative measures. One of the best-known is the Index of Sustainable Economic Welfare, proposed by Herman Daly and John Cobb in 1989, and its successor the Genuine Progress Indicator (Daly and Cobb 1989). This subtracts a range of ‘costs’ from GDP, including resource depletion, pollution, and the costs of crime, commuting, and unemployment. By definition, growth in the GPI (or similar indices) is lower than GDP growth.

U.S. Cross-Border Outflow of Capital Hits Highest Since 2009 - -- A measure of capital flowing in and out of the U.S. showed the biggest net selling since February 2009 as the Federal Reserve prepared to scale back its bond buying, according to Treasury Department data released today. Investors sold a net $15.4 billion of long-term agency debt in December, the biggest monthly drop in those securities since September 2010 amid selling in Caribbean banking centers often used by hedge funds, the figures showed. They also sold U.S. stocks and corporate bonds, while China and Japan reduced holdings of Treasuries in the month the Fed decided to trim monthly asset purchases to $75 billion from $85 billion. “You saw corporates and agencies and equities being sold off, and I think that was more a function of the market reaction to the December tapering announcement,” said Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York. “Markets would have been de-risking in anticipation of higher interest rates.” The total cross-border outflow in December, including short-term securities such as Treasury bills and stock swaps, was $119.6 billion, after a revised outflow of $13 billion in November, the data showed. Foreign net sales of long-term securities totaled $45.9 billion, after selling of $28 billion in November, the figures showed.

Does Anyone Else Realize The Federal Debt Ceiling Was ELIMINATED? - Last week's news reports about congressional (actually...congressional Republican) action on the debt ceiling did what in the journalism business is called "burying the lead," that is, the stories typically didn't start with the most important part of what happened.  To a certain extent that wasn't surprising. As most reports said, the GOP folded its debt ceiling tent and went home. Three years after Senate Minority Leader Mitch McConnell (R-KY) began to insist that Congress would never allow the  government's borrowing limit to be raised again unless Republicans got something something in return, and long after House Speaker John Boehner (R-OH) said there would be no debt ceiling increase unless he got a dollar in spending cuts for every dollar of increased borrowing authority, congressional Republicans allowed the government to borrow more without getting anything from the White House and congressional Democrats. That is indeed a great inside-the-beltway story with a little of everything. It has conflict within the GOP, a change in politics on Capital Hill, a significant change in attitude and negotiating strategy by congressional Republicans, a successful White House and at least a tacit admission by Boehner and McConnell that their party had been politically damaged by last October's government shutdown. Add in the continuing decrease in the tea party's influence both in Washington overall and within the Republican Party in particular and you get the kind of story political reporters and columnists fall all over themselves to write. And they did.

The Cruel Political Paradox of Deficit Reduction -- When the economy is bad, deficits rise and the public support for reducing them grows. Yet a poor economy is the worst possible time to raise taxes and cut spending. By contrast, a period of strong growth is the best time to tackle the deficit. But when the economy is healthy, deficits normally fall and so does the political motivation for pols to do anything about them. And as the Congressional Budget Office’s fiscal outlook released today shows, deficits are dropping like the proverbial stone. As the economy improves and the growth in health costs slows, the deficit is likely to continue to decline, at least for the next few years. CBO figures deficits will fall to just 2.9 percent of GDP in 2016, their lowest level since 2007. That’s far below their 9.8 percent peak in the depths of the Great Recession in 2009. Despite this good news, we are hardly out of the fiscal woods. The national debt will continue to rise, and CBO warns that annual deficits will return to troublesome levels of around 4 percent of GDP by the early 2020s. But those predictions are unlikely to drive policy since they are both uncertain and far beyond the short-term vision of either the public or most pols. You can see the turn in public opinion in a new poll by the Pew Research Center. The share of those who see deficit reduction as a top priority fell from 72 percent in January, 2013 to 63 percent in last month.  Eight in ten of those surveyed think strengthening the economy should be the nation’s top priority now.

Have we been living in an age of austerity? - A number of readers and conservative commentators today have argued that I was wrong to describe the past several years as an age of austerity in the United States. Chuck Blahous, a well-known conservative economist, writes this morning: Since 1947 the four largest deficits run by the US government, as a percentage of the economy, were in fiscal years 2009, 2010, 2011 and 2012—the first term of the Obama Administration. These deficits ranged in size from 6.8 percent to 9.8 percent of GDP. The previous annual record was 5.9 percent in 1983. Blahous notes a number of other measures that suggest the nation hasn't been austere at all. Spending is far higher as a percentage of the size of the economy than throughout most of postwar history, and the federal debt held by the public is far above what it was before the recession that ended in 2009 and only likely to grow over the long-term. Given that picture, how could I conceivably consider the past few years to be an age of austerity? I'd argue that you must consider the stance of fiscal policy relative to the environment we're in. And for the past few years, we've been recovering from the worst recession since the Great Depression, and in that environment it makes sense that the government will do what it can to make up for a massive shortfall in demand.

Obama to Drop Entitlement Cuts from 2015 Budget - President Barack Obama is done pretending that he’ll get any new budget cooperation from House Republicans. His proposed 2015 budget, due to be released next month, will stick to the economic strategy the White House has laid out without the compromise suggestion he floated last year, White House officials said Thursday.  Gone, the White House said, is Obama’s proposal for chained CPI — an offer to reduce the the benefit increases for Social Security and other federal social programs.  And gone with it, senior administration officials said Thursday, is any sense of presidential urgency on long-term entitlement reform. It’s still something Obama believes in, they said, and would like to do — but changing economics and mathematics have meant a change in his approach. The president’s 10-year projection in the budget will show the deficit down to 2 percent of the GDP and the debt-to-GDP ratio lower than in previous administrations. Administration officials said the earlier offer of chained CPI — which many Democrats revolted against — was what they called a show of good faith, made in the aftermath of the fiscal cliff deal and with the sequester cuts looming.

Obama drops proposal to cut pensions - President Barack Obama is dropping a proposal to cut pensions by using a less generous measure of inflation, and will tighten the rules against corporate tax avoidance by multinationals, in the latest sign of a shift towards his liberal Democratic base on economic policy. Obama administration officials said on Thursday that Mr Obama’s budget – to be released in early March – would no longer include a plan to apply a new inflation index for Social Security retirement payments. The measure, which would save more than $200bn for the US government over 10 years, was first floated last year by Mr Obama to lure Republicans into a big deficit reduction agreement. The US president had always maintained that the new inflation policy – akin to the “chained consumer price index” – was conditional on Republicans accepting cuts to tax breaks for the richest Americans. But Republicans resisted that trade, and efforts to reach such a big bipartisan deficit reduction deal have stalled. “Over the course of last year, Republicans consistently showed a lack of willingness to negotiate on a deficit reduction deal, refusing to identify even one unfair tax loophole they would be willing to close, despite the President’s willingness to put tough things on the table,” a White House official said. The Obama administration is also expected to propose tougher curbs on corporate tax avoidance schemes used by many blue-chip US companies, particularly in the technology and pharmaceutical sectors, to reduce their tax bill on international profits.

The Stimulus Anniversary - Paul Krugman - Lots of discussion around the fifth anniversary of the Recovery Act. I don’t have time for an extended discussion today, but my quick verdict remains the same as it was right from the beginning: this was a plan that did considerable economic good but considerable political harm.  The economic good was straightforward: everything we have seen since 2009 confirms that expansionary fiscal policy is expansionary, contractionary fiscal policy is contractionary. There is every reason to believe that the Recovery Act boosted GDP and employment while it was in effect relative to what would have happened without it.The political harm came mainly from the fact that the ARRA was too small and too short-lived to do the job, but partly also from a serious mistake in the way the administration sold it. There’s a widespread canard against those of us who said that the ARRA was too small — namely, that we were only making excuses after the fact. No, we weren’t — people like Joe Stiglitz and I warned right from the beginning that the thing was way too small, and that there would be serious political economy damage as a result.  Alas, I wasn’t wrong.

Just Released: Does Transportation Spending Make Good Stimulus? – NY Fed - On January 14, the Transportation Research Board, an arm of the National Research Council, released a new report, Transportation Investments in Response to Economic Downturns. The report is intended to provide guidance on three important and related policy questions:

  1. If the federal government undertakes a future stimulus program, should transportation spending be part of that package?
  2. If so, how should the transportation spending be structured and managed?
  3. Should established transportation programs be modified to make transportation spending more useful as economic stimulus?

     While there have been four stimulus bills since World War II that included at least some public works component, transportation spending had, until 2009’s American Recovery and Reinvestment Act (ARRA), fallen out of favor as a stimulus tool. Economists have described effective stimulus as “timely, targeted, and temporary,” and transportation spending—although it is often well-targeted to employees of the procyclical construction industry—was often thought too slow to reach the economy in time to counteract recessions. In addition, concerns were raised that increased federal aid would simply substitute for state and local spending, allowing those governments to save more and defeating the stimulative purpose of the spending. The committee that wrote the report concluded that ARRA rules on both “maintenance of effort” and the speed with which funds had to be spent vitiated these concerns, particularly given the length of the recent recession and the sluggishness of the recovery.

Individual Income Taxes May Soon Generate Half of All Federal Tax Revenue - Over the next decade, the individual income tax will be the fastest growing source of federal revenue, according to new estimates by the Congressional Budget Office. In fact, the individual income tax will pretty much be the only revenue source likely to increase significantly over the next decade.  As a result, it will generate more than half of all federal revenue for the first time since the turn of the 21st century.  Overall, CBO figures total federal revenues will grow from their recent recession-battered low of 14.6 percent of Gross Domestic Product in 2009 and 2010 to about 18.4 percent in 2024. CBO projects revenues this year will rebound to 17.5 percent of GDP.  Over the decade, revenues will average about 18.1 of GDP, which is pretty close to the historic post-WW II average. But the really interesting story is in the composition of revenues. Nearly all the projected increase in taxes will come from the individual income tax: CBO projects the levy will rise from 8.0 percent of GDP this year to 9.4 percent by 2024. As a result, CBO figures that a decade from now, the individual income tax will account for nearly 52 percent of all federal revenue. The last (and only) time the individual tax generated half of all federal revenues was in 2001, just before the bubble burst and Congress passed the first of the huge George W. Bush-era tax cuts.

The tax treatment of sperm and egg sales - But what kind of income is it?:  Also, Perez could pay lower tax rates on the income if it were treated as long-term capital gains. Eggs could be considered property she had possessed since birth, in which case the sale could be seen as a long-term capital gain.If they’re not considered property until removed from her body, the eggs could be seen as generating short-term gains. Richard Carpenter, Perez’s San Diego-based attorney, said the judge said after the trial that the capital gains questions wouldn’t apply in this case. I like the phrase “future sperm tax certainty” from the title of the piece.  There is more here, from Richard Rubin.

The Rise (and Rise and Rise) of the 0.01 Percent in America -  Take one look at this graph, and you'll think you recognize the story: Yeah, yeah, yeah, the 1 percent blasts into the stratosphere while the 99 percent languishes in stagnation, moving on... Simple, right? Except this graph doesn't tell that story, at all. Because you see that languishing green line at the bottom? That's the 1 percent. Now let's add labels (the income lives here here if you wanna play at home) and voila, you can see this isn't a picture of the rich and the rest. It's the 40-year history of the rich, the truly rich, and the truly filthy stinking rich—the 1 percent, the 0.1 percent, and the 0.01 percent. Who even are these people—the 1 percent of the 1 percent? As Tim Noah explained, they're mostly executives and bankers. A 2010 study of the top 0.1 percent found that 61 percent of this group is either a banker or an executive/manager another big corporation. The rest are mostly lawyers (7 percent), doctors (6 percent), and real estate people (4 percent).  How'd they all get so rich? It wasn't the way the rest of us get rich. It wasn't their wages. It was something else. The richer you are, the more likely your riches come from stocks, not salary. For the three groups graphed above—1 percent, 0.1 percent, and 0.01 percent—capital gains account for 22, 33 and 42 percent (respectively) of their average income. At the very tippy-top of the economy, the 400 richest tax returns analyzed by the IRS take home about 50 percent of their income from capital gains.

The Rich Aren’t Rich Because They Work Harder. They Work Harder Because They’re Rich! - You lazy bum. Yea, I’m talking to you. Are you a member of the 99 percent? Do you earn less than $393,941 a year? Yep. You’re lazy. That’s what Sam Zell says, at least. “The one percent work harder” than you, said the billionaire real estate investor in a recent interview. That’s why they’re so much richer than you. Zell isn’t alone. More than a third of all Americans — and more than half of all Republicans — believe that the rich are rich because they worked harder than everyone else. When pressed for proof, they usually point to surveys showing that the rich spend more hours working and fewer hours in “leisure activities” than everyone else. It’s a revealing statistic — but not for the reasons that Zell seems to think. First of all, the rich work more because they can. They have the option to work more hours. Most middle-class and poor Americans have very little control over their work schedules — and that’s assuming they can even find a job in the first place. Thirteen percent of workers can’t find a full-time job — and virtually none of those workers are in the one percent. But instead of seeing this crisis for what it is, the one percent prefer to pat themselves on the back for their privileged job security. In his bubble of immunity, Zell cannot see how hurtful his remarks are to the millions of Americans who want to work more but can’t. Second, it is shockingly obtuse to suggest that an hour spent in a comfortable office doing a job you love is even remotely comparable to an hour spent in a sweltering kitchen flipping burgers. Low-wage jobs are so physically demanding that they drive workers into an early grave. Work too hard in a warehouse or a factory, and you can find yourself crippled for life. By comparison, Zell’s definition of “hard work” is laughably — or is it tragically? — luxurious. The rich are more than twice as likely as the poor to report that they are completely satisfied with their job, that they are very happy with life overall, and that they rarely or never experience stress. With a job like that, who wouldn’t want to work harder?

Changing the tax code could help curb inequality - Larry Summers - The United States may be on course to becoming a “Downton Abbey” economy. There are valid causes for concern about inequality: sharp increases in the share of income going to the top 1 percent of earners, a rising share of income going to profits, stagnant real wages and a rising gap between productivity growth and growth in median family incomes. A generation ago, it could have been asserted that the economy’s overall growth rate was the dominant determinant of growth in middle-class incomes and progress in reducing poverty. This is no longer a plausible claim. Issues associated with an increasingly unequal distribution of economic rewards are likely to be with us long after cyclical conditions have normalized and budget deficits have been addressed. It is neither unusual nor un-American to be concerned about income inequality, the concentration of wealth or the influence of financial interests. Demands for action are hardly unreasonable given frustration with stagnant incomes and a growing body of evidence linking inequality to reduced equality of opportunity, reduced demand for goods and services and increased alienation from public institutions. The challenge is what to do. If total income were independent of efforts at redistribution, there would be a compelling case for reducing incomes at the top and transferring the proceeds to those in the middle and at the bottom. Unfortunately, this is not the case. It is easy to conceive of policies that would have reduced the earning power of a Bill Gates or a Mark Zuckerberg by making it more difficult to start, grow and globalize businesses. But it is much harder to see how such policies would raise the incomes of the remaining 99.9 percent of the population, and such policies would surely hurt them as consumers.

Summers Says Closing Tax Loopholes Would Help Curb Inequality - Reforming the tax code to eliminate tax loopholes used by the wealthiest Americans would help narrow the income gap between the rich and the rest of the society, according to former U.S. Treasury Secretary Lawrence Summers.  “Closing the loopholes that only wealthy can enjoy would enable targeted tax measures such as the earned-income tax credit to raise the incomes of the poor and middle class,” Summers wrote in an opinion piece in the Washington Post today.  Stagnant wage gains, a wider gap between growth rates for productivity and median family income, and a rising share of income going to profits are all evidence of inequality, which leads to fewer opportunities for the poor and middle class, said Summers, who was Treasury secretary from 1999 to 2001. Such income inequality leads to less demand, he said.  “A generation ago, it could have been asserted that the economy’s overall growth rate was the dominant determinant of growth in middle-class incomes and progress in reducing poverty,” he said. “This is no longer a plausible claim.”

CEOs and their PayPals  -- Warren Buffett (worth $58.5 billion) was not joking about winning the class war. Before the Great Recession (in 2006) Warren Buffett had said "they were winning". But in the aftermath of the Great Recession (in 2011) he said "they won". — while the wealth of the top 0.01% has been exponentially escalating ever since. So if the top 0.01% had already won the class war back in 2011, what have they been doing since then—massacring their POWs? The Huffington Post has an informative article noting that one key source of wealth at the very top is the pay of the executives of our largest companies (besides investment income, such as capital gains on stocks). But they go on to explain that CEOs overly generous executive pay packages are approved by the other corporate directors, who are themselves paid for their service. Many of those directors are also executives at other companies, meaning they sit on both sides of the arrangement. Salaries for top executives and payments to board members are all publicly made available in shareholder reports, annual company statements and SEC filings (look for "investors relations" on their corporate websites). But they have never been displayed in an easy-to-explore way—until researchers at the Center for Economic Policy and Research compiled the data—and The Huffington Post began presenting it as part of a new project that focuses on one major element of income inequality. They're calling it "Pay Pals".

Pay Pals - infographic - CEO pay is determined by a company’s board of directors. Those directors are compensated for the time they spend shaping the company’s strategy. Here’s what the Fortune 100 executives paid each other from 2008 to 2012.

Iron Men of Wall Street -- Paul Krugman -- Greg Mankiw has written another defense of the 0.1 percent — and this one is kind of amazing. ... Mankiw invokes the strong role of financial fortunes in U.S. inequality to argue that the incomes are deserved...  Has Greg been living in a cave since 2006? We’re now in the seventh year of a slump brought on by Wall Street excess; the wizardly job of “allocating the economy’s investment resources” consisted, we now know, largely of funneling money into a real estate bubble, using fancy financial engineering to create the illusion of sound, safe investment. We also know that there is a real question whether hedge funds, in particular, actually destroy value for their investors.  One more thing: Mankiw argues that our tax system is fair because the top 0.1 percent pays a higher share of income in federal taxes than the middle class. This neglects the partial offset of this progressivity by regressive state and local taxes. But surely the main point is that to the extent that taxes on the 0.1 percent are high (they aren’t really, in historical context) that’s largely because Mitt Romney lost the 2012 election... It’s kind of funny to claim that our system is fair thanks to policies that you and your friends tried desperately to kill.

We Still Need to Worry About Wall Street CEO Pay - According to a new regulatory filing, Bank of America CEO Brian Moynihan received a compensation package for 2013 worth $14 million, a $2 million increase over 2012. This places Moynihan third on the list of big bank CEOs, behind Goldman Sachs chief Lloyd Blankfein, who made $23 million last year and JPMorgan Chase’s Jamie Dimon, who made $20 million. Moynihan's top underlings also received multi-million dollar compensation packages of their own.  With these numbers, it seems that Wall Street’s biggest banks are trying to put the financial crisis of 2008 firmly in the rear view mirror. (Never mind that many of them, most prominently JPMorgan, are still paying out hefty fines, penalties and settlements due to their actions in the lead up to that crisis.) Nothing more to see here! Back to business as usual! All’s well that ends profitably! Ohio State University professor Steven Davidoff even lamented the outsized attention still garnered by CEO pay at Wall Street firms, when, for instance, tech CEOs sometimes make much more.  But there’s a good reason for the focus on Wall Street pay. For tech firms, misaligned incentives aren’t likely to crash the economy. For Wall Street, however, short-term risk-taking in pursuit of bigger bonuses can cause systemic problems, as several studies have shown. That’s why the Dodd-Frank financial reform law included new regulations meant to tie executive compensation at banks to longer-term performance (and it didn’t hurt that reining in Wall Street pay makes for good politics).

As Bank Deaths Continue to Shock, Documents Reveal JPMorgan Has Been Patenting Death Derivatives -  The probability of two vibrant young men in their 30s who are employed by the same global bank but separated by an ocean dying within six days of each other is remote. And few companies are in as good a position to understand just how remote as is JPMorgan: since 2010, it has received four patents on quantifying longevity risks and structuring wagers via death derivatives. Wall Street veterans have also commented on the fact that JPMorgan may actually stand to profit from the early deaths of the two young men in their 30s. As we reported in March of last year, when the U.S. Senate’s Permanent Subcommittee on Investigations released its report on JPMorgan’s high risk bets known as the London Whale debacle, its Exhibit 81 showed that JPMorgan’s Chief Investment Office was also overseeing Bank Owned Life Insurance (BOLI) and Corporate Owned Life Insurance (COLI) plans which allow the corporation to reap huge tax benefits by taking out life insurance policies on workers – even low wage workers – and naming the corporation the beneficiary of the death benefit. Both the buildup in the policy and the benefit at death are received tax free to the corporation.

Second JPMorgan Banker Jumps To His Death: Said To Be 33 Year Old Hong Kong FX Trader - The banker suicide wave that started in late January has now become an epidemic, and it seems to be focusing on one bank: JP Morgan. After the first suicide that took place in JPM's London headquarters, ending the life of 39 year old Gabriel Magee, a vice president in the investment bank’s technology department, next it was 37 year old Ryan Crane, an executive director in the firm's program trading division, who died under still unknown circumstances. Moments ago a third JPMorgan banker committed suicide, this time at the JPMorgan Charter House Asia headquarters in central Hong Kong, where a 33 year old man who was said to have been an FX trader for JPM, just jumped to his death.

One-Percent Jokes and Plutocrats in Drag: What I Saw When I Crashed a Wall Street Secret Society -- It was January 2012, and Ross, wearing a tuxedo and purple velvet moccasins embroidered with the fraternity’s Greek letters, was standing at the dais of the St. Regis Hotel ballroom, welcoming a crowd of two hundred wealthy and famous Wall Street figures to the Kappa Beta Phi dinner. Ross, the leader (or “Grand Swipe”) of the fraternity, was preparing to invite 21 new members — “neophytes,” as the group called them — to join its exclusive ranks. Looking up at him from an elegant dinner of rack of lamb and foie gras were many of the most famous investors in the world, including executives from nearly every too-big-to-fail bank, private equity megafirm, and major hedge fund. AIG CEO Bob Benmosche was there, as were Wall Street superlawyer Marty Lipton and Alan “Ace” Greenberg, the former chairman of Bear Stearns. And those were just the returning members. Among the neophytes were hedge fund billionaire and major Obama donor Marc Lasry and Joe Reece, a high-ranking dealmaker at Credit Suisse. [To see the full Kappa Beta Phi member list, click here.] All told, enough wealth and power was concentrated in the St. Regis that night that if you had dropped a bomb on the roof, global finance as we know it might have ceased to exist.

Soros doubles a bearish bet on the S&P 500, to the tune of $1.3 billion - Soros Fund Management has doubled up a bet that the S&P 500 SPX is headed for a fall. Within Friday’s 13F filings news was the revelation that the firm, founded by legendary investor George Soros, increased a put position on the S&P 500 ETF by a whopping 154% in the fourth quarter, compared with the third. (A put or short position basically gives the owner the right to sell a security at a set price for a limited time, and in making such a bet, an investor generally believes the security is going to decline.) The value of that holding, the biggest position in the fund, has risen to $1.3 billion from around $470 million. It now makes up a 11.13% chunk of all reported holdings. It had been cut to 5.14% in the third quarter, from 13.54% in the second quarter, which itself marked another dramatic lift on the bearish call.  The numbers can be found at, which makes them slightly easier to digest than the actual SEC filing.

How Big Banks Are Cashing In On Food Stamps -- The Agricultural Act of 2014, signed into law by President Obama last Friday, includes $8 billion in cuts to the Supplemental Nutrition Assistance Program (SNAP) over the next decade. One way the bill proposes to accomplish these savings is by reducing food stamp fraud. When the new farm bill is enacted, many of America’s hardest working families will experience cuts in services and have trouble putting food on their family’s table. But there will be major gains for an industry that most Americans might not expect: banking. Banks reap hefty profits helping governments make payments to individuals, business that only got better when agencies switch from making payments on paper—checks and vouchers—to electronic benefits transfer (EBT) cards. EBT cards look and work like debit cards, and by 2002, had entirely replaced the stamp booklets that gave the food stamp program its name. SNAP is the most well-known program delivered via EBT, but they also carry payments for Temporary Aid to Needy Families (TANF); Women, Infants and Children (WIC); childcare subsidies; state general assistance; and many other programs. EBT use is widespread, from the corner store to the supercenter. According to a 2012 USDA report, SNAP funds, averaging $133 per family member per month, can be spent at more than 246,000 authorized stores, farmers' markets, farms, and meal providers nationwide.

US commercial banks' changing asset mix - Here are some updates to the recent discussion on loan growth weakness relative to rising deposit balances at US commercial banks (see post).
1. Loan growth rate in the US, while better than in the Eurozone, remains on a downward path. The latest figures suggest that loans are increasing at less than 2%, while deposits continue to grow at 6-7% per year.
2. Loan-to-deposit ratio in the banking system hit a 35-year low recently.
3. Loans as a percentage of banks' total assets are at 52.2% - the lowest level on record. Just to put this into perspective, here is the breakdown of bank assets now vs. 10 years ago.

True free market proponents should support private-public competition -- Dean Baker - One of the initiatives President Obama announced in his State of the Union Address was the "MyRA," an IRA that workers could sign up for at their workplace. The MyRA would be invested in government bonds and provide a modest guaranteed rate of return.  The MyRA has several useful features. It's simple, it has low administrative costs, workers can have money deducted directly from their paychecks, and it has no risk.  However there was one very notable downside to the MyRA. Workers could not accumulate more than $15,000 in these accounts, at which point they would be required to fold their MyRA into an IRA run by the financial industry. People who commented on this requirement all assumed that this was a sop to the industry.  Everyone understands the power of the financial industry, so perhaps Obama had to include a $15,000 cap in order to avoid its wrath, but that doesn't mean the rest of us shouldn't be asking the obvious question. If the private financial industry is more efficient than the government, then why do we have to force people to use it?  This is not the only context in which this question arises. The Postal Service recently put forward a proposal to start offering basic banking services to take advantage of its retail infrastructure. This should be an obvious win-win.  There are tens of millions of low and moderate income people who are poorly served by the banking system. The Postal Service would be able to offer them checking accounts and other services at a lower cost than private competitors by taking advantage of underutilized facilities. This will extend banking services to the unbanked population and potentially be an important source of revenue to the Postal Service.

Unofficial Problem Bank list declines to 586 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for February 14, 2014.  Changes and comments from surferdude808:  Some minor changes were made to the Unofficial Problem Bank List this week. Three removals and one addition leave the list at 586 institutions with assets of $194.9 billion. A year ago, the list held 812 institutions with assets of $303.0 billion. The addition this week is Allied First Bank, SB, Oswego, IL ($121 million). Other changes to list were the termination of a Prompt Corrective Action order against Community Shores Bank, Muskegon, MI ($183 million). Next Friday, the OCC should release its enforcement action activity through mid-January 2014. We may be able to update assets through year-end 2013. The FDIC will likely release industry results and update to the official list during the last full week of the month at the earliest.

MBA: Mortgage "Delinquency and Foreclosure Rates Decline to Lowest Level in Six Years" in Q4 - From the MBA: Delinquency and Foreclosure Rates Decline to Lowest Level in Six Years The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 6.39 percent of all loans outstanding at the end of the fourth quarter of 2013, the lowest level since the first quarter of 2008. The delinquency rate decreased two basis points from the previous quarter, and 70 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the fourth quarter was 2.86 percent, down 22 basis points from the third quarter and 88 basis points lower than one year ago. This was the lowest foreclosure inventory rate seen since 2008. This graph shows the percent of loans delinquent by days past due. Loans 30 days delinquent increased to 2.89% from 2.79% in Q3. This is close to the long term average. Delinquent loans in the 60 day bucket decreased to 1.06% in Q4, from 1.07% in Q3. This is still slightly elevated. The 90 day bucket decreased to 2.45% from 2.56%. This is still way above normal (around 0.8% would be normal according to the MBA). The percent of loans in the foreclosure process decreased to 2.86% from 3.08% and is now at the lowest level since 2008. Most of the poor performing loans were originated in 2007 or earlier, from the MBA's Fratantoni: “Loan cohorts from 2009 and earlier continue to make up more than 90 percent of seriously delinquent loans. Loans originated in 2007 and earlier accounted for 75 percent of the seriously delinquent loans, while loans originated in 2008 and 2009 accounted for another 16 percent."

MBA National Delinquency Survey: Judicial vs. Non-Judicial Foreclosure States in Q4 2013  - Earlier I posted the MBA National Delinquency Survey press release and a graph that showed mortgage delinquencies and foreclosures by period past due. There is a clear downward trend for mortgage delinquencies, however some states are further along than others. From the press release:  States with judicial foreclosure systems still account for most of the loans in foreclosure. Of the 17 states that had a higher foreclosure inventory rate than the national average, 15 were judicial states. While the percentage of loans in foreclosure dropped in both judicial and nonjudicial states, the average rate for judicial states was 4.92 percent compared to the average rate of 1.52 percent for nonjudicial states. That being said, for judicial states this was still a significant improvement from the rate of 6.88 percent recorded in 2012.This graph is from the MBA and shows the percent of loans in the foreclosure process by state.   Blue is for judicial foreclosure states, and red for non-judicial foreclosure states.  The top states are Florida (8.56% in foreclosure down from 9.48% in Q3), New Jersey (7.90% down from 8.28%), New York (6.24% down from 6.34%), and Maine (5.00% down from 5.44%).  Nevada is the only non-judicial state in the top 10, and this is partially due to state laws that slow foreclosures. California (1.25% down from 1.42%) and Arizona (1.12% down from 1.26%) are now far below the national average by every measure.

New Foreclosure Case Analyses Standing and Tangible Net Benefit - The New Mexico Supreme Court decided Bank of New York v. Romero, No. 33,224 slip op. (N.M. S. Ct. February 13, 2014), last Thursday, which can be found here. The court held that (1) the Bank of New York did not establish its lawful standing in this case to file a home mortgage foreclosure action, (2) that a borrower’s ability to repay a home mortgage loan is one of the “borrower’s circumstances” that lenders and courts must consider in determining compliance with the state Home Loan Protection Act (HLPA), which prohibits home mortgage refinancing that does not provide a reasonable, tangible net benefit to the borrower, and (3) that the HLPA is not preempted by federal law. The opinion spelled out the tough standards banks must meet to have standing to  initiate foreclosures, reviewed a whole bunch of alleged “evidence” produced by Bank of NY to establish standing, including plenty of affidavits and testimony from people with no personal knowledge of what was going on. The opinion debunks the use of the business records exception to get in documents no one knows anything about and has some good MERS language too. The opinion on these facts should help homeowners with funky documentation in other states as the principles discussed are universal. As such, the case established strong principles for homeowner protection from unscrupulous lenders.

New Mexico Supreme Court Issues Important Pro-Homeowner Ruling Based on Standing, State Home Loan Protection Act - - Yves Smith - It’s gratifying to see that some jurists are still able to be offended by banks who come to court assuming they can foreclose on borrowers based on their say-so. And this New Mexico Supreme Court ruling is also a reminder that even though the servicer versus homeowner war seems to have been settled in favor of servicers, there are still important fronts being contested. The Supreme Court of New Mexico, in Bank of New York v. Romero, effectively rebuked the trial court by choosing to rule on the issue of standing even though that was not the basis for the appeal and reversing the lower court on its finding of fact that the note had been properly transferred to Bank of New York. Anyone who has dealt with foreclosures will recognize the brazen behavior of the Bank of New York. The Romeros had been talked into a refinance by Equity One which put them into a mortgage which had both higher interest rates and higher monthly payments than their original mortgage but allowed them to get $30,000 in cash. The loan was a no income, no assets loan, and Equity One did no income verification. The Romeros quickly became delinquent.  The Romeros made the expected standing arguments and also argued that the loan violated New Mexico’s Home Loan Protection Act, which among other things, makes it impermissible for lenders to make mortgage loans that do not provide a reasonable, tangible net benefit to borrowers.  The court not only ruled in favor of the Romeros, it went out of its way to set some important stakes in the ground. For instance, in dismissing the barmy notion that MERS, which is (at most) a mortgage registry, can transfer notes, the decision stated: These separate contractual functions—where the note is the loan and the mortgage is a pledged security for that loan—cannot be ignored simply by the advent of modern technology and the MERS electronic mortgage registry system.

Foreclosure Filings Jump as Investors Eye Exits - Economic fundamentals played no part in the so called housing rebound. In fact–as everyone knows–the economy stinks as bad today as it did 4 years ago when the government number-crunchers announced the end of the recession. The reason prices have been rising is because of the Fed’s loosy-goosey monetary policy (fake rates and QE), inventory suppression, bogus gov mortgage modification programs, and unprecedented speculation. (mainly Private Equity and investors groups) Those are the four legs of the stool propping up housing. Only now it looks like a couple of those legs are in the process of being sawed off which is going to put downward pressure on sales and prices. Take a look at this from DS News: “A majority of experts surveyed by Zillow and Pulsenomics expect large-scale investors will pull out of the housing market in the next few years…Out of 110 economists, real estate experts, and investment strategists surveyed in Zillow’s latest Home Value Index, 57 percent said they think institutional investors will work to sell the majority of homes in their portfolios “in the next three to five years.” These investors are largely credited with propping up housing during its recession, helping to keep sales volumes from plummeting too far. While their withdrawal will most certainly affect today’s still-fragile market—79 percent of those surveyed said the impact would be “significant or somewhat significant” should investor activity curtail this year.” Experts Predict Level Playing Field as Investors Withdraw, DS News This is what we were afraid of from the very beginning, that the big PE firms would pack-it-in and move on once they’d made a killing, which they have, since prices soared 12 percent in one year. Now they want to get out while they getting is good, which means that–in some of the hotter markets where investors represented upwards of 50 percent of all purchases–there will have to be a new source of demand. Unfortunately, the demand for housing has never been weaker. Sales are down, purchase applications are down, and the country’s homeownership rate has slipped to levels not seen since 1995, 18 years ago. The Fed’s $1 trillion purchase of mortgage backed securities (MBS) and zero rates have done nothing to stimulate “organic” consumer demand. Zilch. No “trickle down” at all. All the policy has done is generate a temporary surge of speculation that’s distorted prices and created conditions for another big bust.

Lawler: Updated Table of Distressed Sales and Cash buyers for Selected Cities in January - Economist Tom Lawler sent me the updated table below of short sales, foreclosures and cash buyers for several selected cities in January.Lawler writes: The short-sales share of home sales is down in virtually all markets, and in most markets by a lot from a year ago. Note that the foreclosure sales share in Florida is up from a year ago. From CR: Total "distressed" share is down significantly in most of these markets, mostly because of a decline in short sales. And foreclosures are down in all areas except Florida.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.

Fannie Results, REO Inventory increases in Q4 -- From Fannie Mae: Fannie Mae Reports Comprehensive Income of $84.8 Billion for 2013 and $6.6 Billion for Fourth Quarter 2013 Fannie Mae reported annual net income for 2013 of $84.0 billion, which includes the release of the company’s valuation allowance against its deferred tax assets, and annual pre-tax income for 2013 of $38.6 billion. Fannie Mae will pay Treasury $7.2 billion in dividends in March 2014. With the March dividend payment, Fannie Mae will have paid a total of $121.1 billion in dividends to Treasury in comparison to $116.1 billion in draw requests since 2008. Dividend payments do not offset prior Treasury draws.... While Fannie Mae expects to be profitable for the foreseeable future, the company does not expect to repeat its 2013 financial results, as those results were positively affected by the release of the company’s valuation allowance against its deferred tax assets, a significant increase in home prices during the year, and the large number of resolutions the company reached relating to representation and warranty matters and servicing matters. Here are some summary stats on Fannie’s single family REO activity.

Loan Complaints by Homeowners Rise Once More -  A growing number of homeowners trying to avert foreclosure are confronting problems on a new front as the mortgage industry undergoes a seismic shift.Shoddy paperwork, erroneous fees and wrongful evictions — the same abuses that dogged the nation’s largest banks and led to a $26 billion settlement with federal authorities in 2012 — are now cropping up among the specialty firms that collect mortgage payments, according to dozens of foreclosure lawsuits and interviews with borrowers, federal and state regulators and housing lawyers.These companies are known as servicers, but they do far more than transfer payments from borrowers to lenders. They have great power in deciding whether homeowners can win a mortgage modification or must hand over their home in a foreclosure. And they have been buying up servicing rights at a voracious rate. As a result, some homeowners are mired in delays and confronting the same heartaches, like the peculiar frustration of being asked for the same documents over and over again as the rights to their mortgage changes hands. Servicing companies like Nationstar and Ocwen Financial now have 17 percent of the mortgage servicing market, up from 3 percent in 2010, according to Inside Mortgage Finance, an industry publication.

Rental Income Falls 7.6% in Three Months in Blackstone’s First Home Lease Securitization - Yves Smith -  A Blackstone deal in the runup to the financial crisis, its acquisition of Equity Office Properties Trust from Sam Zell in early 2007 was recognized at the time as a sign of a market peak. Is history about to repeat itself with Blackstone’s rental securitization?  Remember the management part? As you start liquidating the homes, you are spreading overheads over fewer and fewer homes. While some activities can be cut more or less pro-rata, others can’t be as readily dialed down. So enter the Blackstone rental securitization of last October. It was a modest $479 million deal and was six times oversubscribed. Investors no doubt believed that the initial deal would have to be priced on very favorable terms to assure its success, given Wall Street’s eagerness to launch a new product type.  But there’s still the wee problem of fundamental risk. As Bloomberg tells us: Rents collected on the collateral for the first U.S. rental-home securities declined by 7.6 percent from October to January, according to Morningstar Inc. Payments declined as expiring leases and early tenant departures left residences backing the bonds of Blackstone (BX) Group LP’s Invitation Homes vacant, Becky Cao and Brian Alan, analysts at Morningstar’s credit-ratings unit, said in a report. While 8.3 percent of the properties were vacant or occupied by delinquent renters in January, renewals on 78.5 percent of leases that expired the prior month exceeded the analysts’ expected rate of 66.7 percent.  One of the big risk elements in this deal is that it was sold before anyone in the market has reached “stabilized rentals,” where the portfolio is mature enough that enough of the units have been through a lease expiration or two so that investors have an informed idea of what renewal rates look like.

Another ‘Subprime’ Adventure? Behind Wells Fargo’s Move To Ease Mortgage Lending -- Wells Fargo & Co. announced this month it would reduce minimum credit scores for certain mortgages eligible for government backing, prompting some declarations that subprime mortgages were making a comeback. After everything the mortgage industry has gone through, why would Wells Fargo want to go there again? The short answer: It doesn’t. Part of the issue is confusion over what actually constitutes a subprime loan. Unlike a prime mortgage, there isn’t a simple definition of a “subprime” loan. Originally, subprime referred either to the borrowers taking out these loans—borrowers with credit scores below 620, for example—or to lenders that specialized in higher-priced mortgages. Over time, mortgages made by subprime lenders or mortgages made to subprime borrowers became lumped together as “subprime mortgages.”   Today, many assume that subprime mortgages are irrationally risky loans made to borrowers who have little to no chance of paying them back. So what exactly is Wells Fargo doing? The bank announced earlier this month that it would drop its minimum credit score for loans backed by the Federal Housing Administration to 600 from 640. The change applies only to purchase loans, not refinances, taken out through its retail channel. (Under a system devised by Fair Isaac Corp., credit scores range from 300 to 850.) True, Wells is extending loans to borrowers with subprime credit, which means they could be called, technically, subprime mortgages. But FHA-backed mortgages are fully documented, fixed-rate mortgages—not the crazy loans that fueled the subprime mortgage crisis.

AIA: Architecture Billings Index increases slightly in January - Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From AIA: Slight Rebound for Architecture Billings Index After consecutive months of contracting demand for design services, there was a modest uptick in the Architecture Billings Index (ABI). As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the January ABI score was 50.4, up from a mark of 48.5 in December. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 58.5, down a bit from the reading of 59.2 the previous month. Regional averages: South (53.5),West (51.1), Midwest (46.5), Northeast (43.6) [three month average] This graph shows the Architecture Billings Index since 1996. The index was at 50.4 in January, up from 48.5 in December. Anything above 50 indicates expansion in demand for architects' services.  This index has indicated expansion during 15 of the last 18 months. Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.  According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  Even when positive, this index was not as strong as during the '90s - or during the bubble years of 2004 through 2006 - because the vacancy rates are still high for many CRE sectors.  However, the readings over the last year suggest some increase in CRE investment in 2014.

MBA: Mortgage Purchase Index lowest Since September 2011 - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly SurveyMortgage applications decreased 4.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 14, 2014. ...The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier and is at its lowest level since September of 2011. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.50 percent from 4.45 percent, with points decreasing to 0.26 from 0.34 (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 68% 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 - and the weekly purchase index is at the lowest level since September 2011. 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. Note: Interesting that Jumbo rates are still below conforming rates.

Mortgage Applications Plunge Further - Near 19 Year Lows - The past 5 weeks have seen mortgage applications crumble a further 16% - their biggest such drop in 14 months as the index for home purchase applications hovers close to its lowest level since 1995. Non-seasonally-adjusted, this is the worst start to a year in over a decade. Must be the weather?

Mortgage Purchase Applications Running Out Of Time -  For 2013, one of the main stories in housing was the cool down in existing home sales numbers over the second half of the year, in spite of the relative strength in GDP. What was the main reason for this? Follow the data and the answer appears. When interest rates spiked we did not see the mythical sideline home buyer rush to the market place. Rather what we saw was a collapse of the mortgage purchase application index. Thus far for this year, mortgage purchase applications numbers continue to be weak. A host of reason from the polar vortex to the lack of supply have been used to excuse the lack of demand interest. Some even say that the mortgage purchase application number is not the best tool to forecast future buyer demand. The chart below from Professor Anthony Sanders show why I haven't. been a ranging bull on housing. Buying a home is buying debt. When median incomes don't rise logic says that once housing inflation rises on prices and rates,then the number of qualified home buyers gets impacted. On the chart below the green line shows median incomes and the other metric is the mortgage purchase applications index. I believe it speaks clearly for itself . Hope springs eternal. To be sure , there is yet time for the mortgage purchase applications to make their seasonal rise for the spring selling season. However, the clock is ticking . If we don't see a pick up with in the next 5 weeks, then the 2014 existing home sales numbers will need to be revised a little lower.

Weekly Update: Housing Tracker Existing Home Inventory up 6.6% year-over-year on Feb 17th - Here is another weekly update on housing inventory ...  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 6.6% 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. 

U.S. Home Sales Plunged 5.1 Percent in January -— Sales of existing U.S. homes plummeted in January to the worst pace in 18 months. Cold weather, limited supplies of homes on the market and higher buying costs held back purchases. The National Association of Realtors says sales fell to a seasonally adjusted annual rate of 4.62 million units last month. That was down 5.1 percent from the December pace. The sales rate declined 5.1 percent over the previous 12 months. Higher mortgage rates and higher prices have contributed to a slowdown in home buying in five of the past six months. The median home price has risen 10.7 percent to $188,900 since January 2013. The flagging sales suggest a deceleration from the momentum for much of 2013, when 5.09 million homes were sold, the most in seven years.

Existing home sales fall to 18 month low - Existing home sales fell to 4.62 million annualized in January, the lowest number since July 2012 (seasonally adjusted).  Median prices also fell, but these are very seasonal, and need to be compared YoY. While the median price for an existing home is more than 20% higher than it was in January 2012,  as a multiple of the average wage the median price is no higher than it was in 1999 or 2000.This was  not unexpected, and is further evidence of a housing slowdown.

Existing Home Sales in January: 4.62 million SAAR, Inventory up 7.3% Year-over-year - The NAR reports: Existing-Home Sales Drop in January While Prices Continue to Grow Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 5.1 percent to a seasonally adjusted annual rate of 4.62 million in January from 4.87 million in December, and are also 5.1 percent below the 4.87 million-unit pace in January 2013. Last month’s level of activity was the slowest since July 2012, when it stood at 4.59 million...Total housing inventory at the end of January rose 2.2 percent to 1.90 million existing homes available for sale, which represents a 4.9-month supply at the current sales pace, up from 4.6 months in December. Unsold inventory is 7.3 percent above a year ago, when there was a 4.4-month supply. This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in January (4.62 million SAAR) were 5.1% lower than last month, and were 5.1% below the January 2013 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 1.90 million in January from 1.86 million in December. Inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Non-Existing Home Sales Miss Expectations, Plunge 14% From Highs, Drop To 18 Month Low - Existing home sales plunged 5.1% (considerably worse than the 4.1% drop expected) to its lowest level in 18 months. This extends the string of missed expectations to 5 months as even the ever-credible NAR chief economist said it was not the weather but "we can’t ignore the ongoing headwinds of tight credit, limited inventory, higher prices and higher mortgage interest rates." First-time homebuyers plunged to a mere 26% of the total - the lowest share on record as all-cash (and spec) investors rose to a record 53% share of sales.

Vital Signs: Home Sales Feel Chill from More than Winter - To no one’s surprise, sales of existing homes fell in wintry January, by a large 5.1% to an annual rate of 4.62 million, the lowest reading in 18 months. The National Association of Realtors said weather was part of the problem—but not the only one. Indeed, the January decline was not a one-off event. Resales have fallen in four of the last five months. “The housing market is clearly underperforming,” said Lawrence Yun, the NAR’s chief economist. So what besides snow is freezing sales? One challenge is higher mortgage rates and rising home prices which have hurt affordability. Another reason is lack of supply, says the NAR. The inventory of homes on the markets rose in January, but still would last only 4.9 months even at January’s winter-hobbled sales pace. These drags will still be around even after the polar vortex goes away.

Student debt may hurt housing recovery by hampering first-time buyers - The growing student loan burden carried by millions of Americans threatens to undermine the housing recovery’s momentum by discouraging, or even blocking, a generation of potential buyers from purchasing their first homes. Recent improvements in the housing market have been fueled largely by investors who snapped up homes in the past few years. But that demand is waning as prices climb and mortgage rates rise. An analysis by the Mortgage Bankers Association found that loan applications for home purchases have slipped nearly 20 percent in the past four months compared with the same period a year earlier.First-time buyers, the bedrock of the housing market, are not stepping up to fill the void. They have accounted for nearly a third of home purchases over the past year, well below the historical norm, industry figures show. The trend has alarmed some housing experts, who suspect that student loan debt is partly to blame. That debt has tripled from a decade earlier, to more than $1 trillion, while wages for young college graduates have dropped. The fear is that many young adults can no longer save for a down payment or qualify for a mortgage, impeding the housing market and the overall economy, which relies heavily on the housing sector for growth, regulators and mortgage industry experts said. “This is a huge issue for us,” said David H. Stevens, chief executive of the Mortgage Bankers Association. “Student debt trumps all other consumer debt. It’s going to have an extraordinary dampening effect on young peoples’ ability to borrow for a home, and that’s going to impact the housing market and the economy at large.”

Housing Starts decline to 880 Thousand Annual Rate in January - From the Census Bureau: Permits, Starts and CompletionsPrivately-owned housing starts in January were at a seasonally adjusted annual rate of 880,000. This is 16.0 percent below the revised December estimate of 1,048,000 and is 2.0 percent below the January 2013 rate of 898,000. Single-family housing starts in January were at a rate of 573,000; this is 15.9 percent below the revised December figure of 681,000. The January rate for units in buildings with five units or more was 300,000. Privately-owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of 937,000. This is 5.4 percent below the revised December rate of 991,000, but is 2.4 percent above the January 2013 estimate of 915,000.Single-family authorizations in January were at a rate of 602,000; this is 1.3 percent below the revised December figure of 610,000. Authorizations of units in buildings with five units or more were at a rate of 309,000 in January. The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased in January (Multi-family is volatile month-to-month). Single-family starts (blue) also decreased in January. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and that housing starts have been increasing after moving

Housing permits decline, housing starts now down YoY - In the past, with rare exception, whenever interest rates have risen by at least 1%,  housing permits have decreased by 100,000 a year or more.  The exceptions (such as 1968 and at the peak of the housing bubble) were when "buy now or be forever priced out" was a reasonable - or widespread - argument.  In 1968 it was because of secularly and rapidly rising interest rates; in 2004-05 it was because of seemingly permanently rising prices. This morning January housing permits and starts were reported.  Permits fell to 54,000 to 937,000.  This contrasts with 991,000 in December, and 915,000 one year ago, so permits rose 2.4% on a YoY basis.  The big story, however, is that housing starts fell 168,000 to 880,000.  Last month's number was revised upward by 49,000 to 1,048,000.  Which means that starts are down from 898,000 one year ago, or -18,000, or -2.0% YoY. It seems obvious that weather was an issue in the January reports.  And the initial anecdotal reports from February (e.g., this morning's MBA report) look even worse.  But what is happening is what I expected to happen.  The weather has just made it happen a little sooner, I think.

Cold weather sinks U.S. home building in January (Reuters) - U.S. housing starts recorded their biggest drop in almost three years in January as harsh weather disrupted activity, but the third month of declines in permits hinted at some weakness in the housing market. Wednesday's data was the latest suggestion that a brutally cold winter was putting a big dent in the economy. But severe weather cannot be blamed for all the slowdown in growth as the economy appears to have ended 2013 with less momentum. "The housing sector already slowed down in the fourth quarter and it's not picking up," said Thomas Costerg, a U.S. economist at Standard Chartered Bank in New York. "There is more than the weather at play and the underlying dynamics are not as favorable as people thought they were." true Groundbreaking tumbled 16.0 percent to a seasonally adjusted annual rate of 880,000 units, the lowest level since September, the Commerce Department said. The percentage drop was the largest since February 2011. Economists had expected starts to fall to only a 950,000-unit rate in January. Until recently, hopes were high for strong growth this year, but it now appears output in the fourth quarter was not as sturdy as initially thought, with downward revisions to November and December retail sales figures. In addition, export growth was weak in December.

Housing Starts Hampered By Winter Weather - Frigid winter weather and thick snow on the ground in many regions of the country have stalled U.S. housing starts for the second month in a row, and experts say it is uncertain when builders will begin projects again. Data released Wednesday morning by the Commerce Department show that privately-owned housing starts in January were at a seasonally adjusted annual rate of 880,000, down 16 percent compared with December, and down 2 percent compared with January last year, despite hopes of an improving economy and healthier construction market. But even once the weather improves, underlying changes to the economy might continue to slow growth in single-family home construction, with increases in student debt, tightening credit standards, and homeowners looking to cut down on their commutes discouraging buyers from investing in private homes. “We had very severe weather in December and January, and it might be March or April before we start to see numbers come up,” Ken Simonson, chief economist for the Associated General Contractors of America told TIME. “But I do believe over the course of this year single-family housing market is going to slow down a lot.” Meanwhile, building permits in January were 5.4 percent below the December rate and 2.4 percent above the January 2013 estimate, indicating mixed forecasts for future construction.

Housing Starts: Weakness, Weather, Fundamentals - Is the housing recovery over? Housing starts were down in January (and down slightly year-over-year). The MBA mortgage purchase index is at the lowest level since September 2011. Existing home sales were weak in January (to be released tomorrow). Oh no. Oh no. Is the sky falling? Short answer: no.  There are several reasons for the recent weakness: weather (probably a small factor), higher mortgage rates, and higher prices (homebuilders raised prices sharply in 2013).  But the fundamentals of household formation and housing supply suggest a significant increase in housing starts over the next few years.  So I'm not too concerned about short term weakness.  As always, fundamentals will eventually rule, and I think that means housing starts will continue to increase for the next few years. A few key points:
• Housing starts were revised up for 2013, and starts increased 18.7% in 2013 compared to 2012 (revised up from 18.3%).
• Even after increasing 28% in 2012 and 18% in 2013, the 927 thousand housing starts in 2013 were the sixth lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the three lowest years were 2008 through 2012).   Also, this was the fifth lowest year for single family starts since 1959 (only 2009 through 2012 were lower).   See bottom graphs for single family starts!
• Starts averaged 1.5 million per year from 1959 through 2000.  Demographics and household formation suggests starts will return to close to that level over the next few years. That means starts will probably increase another 50%+ from the 2013 level.
The following table shows annual starts (total and single family) since 2005:

Housing Starts Stay In The Toilet, With Sales and Construction Employment - January housing starts stayed in the toilet, running only about flat year to year. The multifamily boom continued while single family languished. The chart tells the story. Mainstream media reports were downbeat, citing the worst slump in 3 years, blaming, in part, the bad weather. The seasonally finagled, monthly annualized rate came in at 888,000 units. The consensus expectation was for 963,000, according to I guess economists don’t follow the weather. But then they sure are good at using it as an excuse, the clownfrauds… The real, unadjusted numbers had January starts at 59,100. That was 400 units more than January 2013. I guess the weather wasn’t that bad. Starts did decline by 10,400 units from December. In January 2013 the decline was only 4,500 units. The current number was also a good deal worse than the average January decline of the past 10 years, of 1,300 units. So all in all it was not a good month, but the overall level didn’t suffer that much, keeping pace with the year before.Single family starts totaled 38,200 units, which was down 1,200 from January 2013. All of the gains in the total number were in multifamily unit starts. Single family unit starts were down by 5,000 month to month. That compares with a gain of 1,200 in January 2013, and a 10 year average decline of 1,200 for January. Again this was not a good number. The headline numbers were reasonably accurate in showing that builders weren’t doing much in January. But anybody that lives north of the Rio Grande probably had a pretty good idea that that would be the case. Only the economists were surprised. Meanwhile, let’s keep the numbers in perspective. Back in the final bubble year of 2006 there were 121,000 single family starts in January and 153,000 total starts. There never has been a housing “recovery” by those standards. Maybe that’s the problem. The phony bubble market ginned up the numbers that never should have been in the first place.

A closer look at the housing slowdown - With yesterday's reports on housing permits and starts, we now have 3 of 5 monthly reports that have turned negative YoY: in addition to starts, pending sales and existing home sales already turned negative YoY in November and December, respectively. First of all, as I've documented a number of times, even in the post-World War 2 era where there was over 15 years of pent-up demand, typically a 1% rise in interest rates led to a -100,000 decline in nonfarm housing starts or permits within about 9 months. Here's an update of that relationship covering the last 3 years, showing the YoY change in 1,000's in permits (blue) and starts (green), and comparing that with the YoY% change in treasury bond rates, expressed in basis points (red): Now let's look at the same data, expressed as the YoY% change in permits and starts, and YoY change in treasuries by percent averaged monthly: Permits and starts follow interest rates, it's just about that simple (with the exception being those few times when "buy now or be forever priced out" was a dominant theme, which may actually have played into the October and November 2013 spike). The YoY low in interest rates was in early 2012 as shown in the above two graphs. This next graph norms permits (blue) and starts (green) to 100 as of September 2012, about 8 months later: Permits have failed to advance more than 5% above their level in September 2012 in 10 of the ensuing 16 months. Starts are more erratic, with several spikes, but generally show the same pattern. Finally, in the past I have documented that housing permits have typically declined 200,000 from their expansion high prior to a recession beginning (the notable exception was just prior to 2001, where they declined by 175,000. This final bar graph shows the declines in permits from their October highs:

NAHB: Builder Confidence declines sharply in February to 46 -- The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 46 in February, down from 56 in January. Any number below 50 indicates that more builders view sales conditions as poor than good. From the NAHB: Poor Weather Puts a Damper on Builder Confidence in February  Unusually severe weather conditions across much of the nation along with continued concerns over the cost and availability of labor and lots resulted in builder confidence in the market for newly-built, single-family homes to post a 10-point drop to 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.“Significant weather conditions across most of the country led to a decline in buyer traffic last month,” . “Builders also have additional concerns about meeting ongoing and future demand due to a shortage of lots and labor.” All three of the major HMI components declined in February. The component gauging current sales conditions fell 11 points to 51, the component gauging sales expectations in the next six months declined six points to 54 and the component measuring buyer traffic dropped nine points to 31.Looking at three-month moving averages for regional HMI scores, the West was unchanged at 63 in February while the Midwest registered a one-point decline to 57, the South registered a three-point decline to 53 and the Northeast posted a four-point decline to 38.

Homebuilder Confidence Crashes By Most On Record - Surprise! For the 3rd time in the last 20 years, homebuilder sentiment got way ahead of reality... and as the February NAHB data shows, reality is starting to catch up to them. The NAHB sentiment index crashed by its most on record in Feb, missed expectations by its most on record, and fell back below the crucial 50-level, as it starts to play cyclical catch-down to home sales and mortgage apps. Think it's the weather? nope...It's across every region (with The West dropping the most on record - hot dry weather?)

The Idiocy Of "Blaming It On The Weather" Exposed - This morning's catastrophic drop in the National Association of Hope Home Builders sentiment index has rapidly been spun as due to the weather... of course, makes perfect sense, right? What would happen if these drops were actually real fundamentals? If the status quo, the "common knowledge" was shown to be full of shit (once again). Well, riddle us this Batman... if weather was to blame, then why did the "West" region plunge the most? In fact, why did The West plunge the most on record? Too much sunny dry weather not good for sales? In fact, even the entirely indpendent provider of real estate research Trulia said that weather is not to blame...

Update: Household Debt Service Ratio at lowest level in 30+ years -  Here is an update of the Fed's Household Debt Service ratio through Q3 2013 Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.  These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. Note: The Fed changed the release in Q3.  The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income.The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR. This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:  The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only an approximation of the debt service ratio faced by households. The graph shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow). The overall Debt Service Ratio decreased in Q3, and is at a record low.  Note: The financial obligation ratio (FOR) is also near a record low (not shown) Also the DSR for mortgages (blue) is near a new record low.  This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.

Just Released: Who’s Borrowing Now? The Young and the Riskless! -- According to today’s release of the New York Fed’s 2013:Q4 Household Debt and Credit Report, aggregate consumer debt increased by $241 billion in the fourth quarter, the largest quarter-to-quarter increase since 2007. More importantly, between 2012:Q4 and 2013:Q4, total household debt rose $180 billion, marking the first four-quarter increase in outstanding debt since 2008. As net household borrowing resumes, it is interesting to see who is driving these balance changes, and to compare some of today’s patterns with those of the boom period. The next two charts show contributions to changes in debt balances by borrower age, first when household credit was expanding rapidly in 2006, and then in 2013. For each age group, the charts show the percentage change in aggregate debt outstanding for each type. Thus, summing the numbers for a given loan type produces the overall percentage growth for that type over the relevant four-quarter period. A couple of things stand out. First, overall growth in debt remains considerably more muted in 2013 than it was in 2006, with the exception of auto loans, where 2013 data continued to reflect the strong growth we have been seeing since mid-2011, and student loans. (In the case of student loans, the percentage growth has moderated since 2006, but since the outstanding balance has doubled, the lower percentage growth is associated with comparable dollar increases.) Mortgage and home equity line of credit (HELOC) balances, in particular, grew much more slowly in 2013 than in 2006. Second, for all loan types and in both years, balance increases were mainly driven by younger age groups. Again, though, student loans are an exception: even older student loan borrowers continue to increase their borrowing.  The next two charts break down the same data, this time by Equifax risk score (or credit score) groups.

NY Fed: Household Debt increased in Q4, Delinquency Rates Improve -- Here is the Q4 report: Household Debt and Credit Report: Aggregate consumer debt increased in the fourth quarter by $241 billion, the largest quarter to quarter increase seen since the third quarter of 2007. As of December 31, 2013, total consumer indebtedness was $11.52 trillion, up by 2.1% from its level in the third quarter of 2013. The four quarters ending on December 31, 2013 were the first since late 2008 to register an increase ($180 billion or 1.6%) in total debt outstanding. Nonetheless, overall consumer debt remains 9.1% below its 2008Q3 peak of $12.68 trillion. Mortgages, the largest component of household debt, increased 1.9% during the fourth quarter of 2013. Mortgage balances shown on consumer credit reports stand at $8.05 trillion, up by $152 billion from their level in the third quarter. Furthermore, calendar year 2013 saw a net increase of $16 billion in mortgage balances, ending the four year streak of year over year declines. Balances on home equity lines of credit (HELOC) dropped by $6 billion (1.1%) and now stand at $529 billion. Non-housing debt balances increased by 3.3%, with gains of $18 billion in auto loan balances, $53 billion in student loan balances, and $11 billion in credit card balances.  Here are two graphs from the report:  The first graph shows aggregate consumer debt increased in Q4.This suggests households (in the aggregate) may be near the end of deleveraging.  If so, this is a significant change that started mid-2013. The second graph shows the percent of debt in delinquency. The percent of delinquent debt is steadily declining, although there is still a large percent of debt 90+ days delinquent

Americans' Personal Debt Levels Increasing At Rapid Rate: Fed Reserve  -- Americans are known risk-takers when it comes to their personal finances. While consumer spending has traditionally been one of the great engines of the U.S. economy, it also helped get the country into the Great Recession. So after five years of economic turmoil we’ve presumably become a little better at keeping track of our debts, right? Not really. Data released Tuesday by the Federal Reserve Bank of New York show that at $11.52 trillion, overall consumer debt is higher than it has been since 2011. And more unsettling, debt is rising at rapid levels. Americans’ debt—that includes mortgages, auto loans, student loans and credit card debt—increased by 2.1%, or $241 billion in the last three months of 2013, the greatest margin of increase since the third quarter of 2007, shortly before the U.S. spiraled into recession. And on an individual level, many Americans are in a precarious financial position. According to a survey released Tuesday by the financial monitor, 28% of Americans have more credit card debt today than they have in a savings fund. That means that if one quarter of Americans even wanted to use their savings to pay off their debts at this moment, they wouldn’t be able to. Just 51% of Americans have more emergency savings than credit card debt, the lowest percentage since Bankrate begin tracking the issue in 2011. According to the Federal Reserve, overall credit debt increased by $11 billion in the fourth quarter of 2013 to $683 billion, the highest levels since 2011.

US Household Debt Climbs by Most Since 2007, Mortgage Debt Leads the Way; Annually Student Debt and Autos Lead the Way - Given stagnant wages and higher taxes, the only way households can increase spending is to go further into debt. The New York Fed quarterly report on Household Debt and Credit shows that is what happened.  Aggregate consumer debt increased in the fourth quarter by $241 billion, the largest quarter to quarter increase seen since the third quarter of 2007. As of December 31, 2013, total consumer indebtedness was $11. 52 trillion, up by 2.1% from its level in the third quarter of 2013. The four quarters ending on December 31, 2013 were the first since late 2008 to register an increase ($180 billion or 1.6%) in total debt outstanding. Nonetheless, overall consumer debt remains 9.1 % below its 2008Q3 peak of $12.68 trillion. Mortgages, the largest component of household debt, increased 1.9% during the fourth quarter of 2013. Mortgage balances shown on consumer credit reports stand at $8.05 trillion, up by $152 billion from their level in the third quarter. Furthermore, calendar year 2013 saw a net increase of $16 billion in mortgage balances, ending the four year streak of year over year declines. Balances on home equity lines of credit (HELOC) dropped by $6 billion (1.1%) and now stand at $529 billion. Non-housing debt balances increased by 3.3 %, with gains of $ 18 billion in auto loan balances, $53 billion in student loan balances, and $11 billion in credit card balances.  Delinquency rates improved for most loan types in 2013 Q4. As of December 31, 7.1% of outstanding debt was in some stage of delinquency, compared with 7.4% in 2013 Q3. About $820 billion of debt is delinquent, with $580 billion seriously delinquent (at least 90 days late or “severely derogatory”).

  • Originations, which we measure as appearances of new mortgage balances on consumer credit reports, dropped again, to $452 billion.
  • About 157,000 individuals had a new foreclosure notation added to their credit reports between October 1 and December 31.
  • Foreclosures have been on a declining trend since the second quarter of 2009 and are now at the lowest levels seen since the end of 2005.
  • Mortgage delinquency rates have seen consistent improvements; 3.9% of mortgage balances were 90+ days delinquent during 2013Q4, compared to 4.3% in the previous quarter.
  • Serious delinquency rates on Home Equity Lines of Credit decreased to 3.2%, down from 3.5% in 2013Q3.

Wolf Richter: The Young Subprime Debt-Slave Generation - Rising household debt would be a hopeful sign that consumers are once again living beyond their means, that they’re finally spending money they don’t have, that they’re in fact transferring money from the future to the present in their heroic effort to stimulate Wall Street, corporate earnings, and the Fed’s self-esteem, or something. Household debt – mortgages, credit cards, auto loans, student loans, and other debt – jumped $241 billion, or 2.1%, in the fourth quarter 2013 to reach $11.52 trillion, the New York Fed reported. It was the largest quarterly rise since 2007, near the peak of the last bubble. For the year, consumer debt rose $180 billion – the first annual rise since 2008 when the last bubble imploded. But it’s still 9.1% below the all-time record of $12.68 trillion, set in that fateful year of 2008. Very reassuring. But that household debt has bad breath. Mortgage balances, which account for 70% of total household debt, rose $152 billion in Q4 2013, to $8.05 trillion. With that whopper, mortgage debt for the entire year increased by $16 billion, the first gain after four years of declines. Home equity lines of credit declined 1.1% to $529 billion. So total housing debt was barely in positive territory. Non-housing debt – credit cards, auto loans, student loans, and “other” debt – looked better on the surface with a 3.3% gain that pushed it to $2.94 trillion. Credit card debt rose $11 billion to $683 billion in Q4, enough to nudge the year into positive territory, for the first time since 2008! Auto loan balances were up $18 billion for the quarter and $80 billion for the year to hit $863 billion, the highest level in the data series going back to 2004. The glory days may be over. In another ominous sign for the auto industry, after the auto-sales and inventory debacles that started late last year, newly originated auto loans dropped in the fourth quarter to $88 billion. Student loan balances soared $53 billion in the quarter and $114 billion for the year, to end at $1.08 trillion, an unbroken record in the data series of ever higher highs. Student loans now make up 9.4% of total consumer debt and 36.7% of non-housing debt. In 2003, student loans accounted for 3.1% of total consumer debt and 12.2% of non-housing debt. The $1.86 trillion in credit card debt, auto loans, and “other” debt are now a smidgen below where they were in 2004. But student loans have more than quadrupled. Student loans going to bankrupt a generation..

Close to half of Americans have more credit card debt than savings - The number of Americans who can afford to pay off their credit cards continues to drop, according to a new survey. The survey by found that only 51 percent of Americans have enough cash in their emergency accounts to clear themselves of credit card debt. That’s the lowest percentage since the firm began tracking the number in 2011. According to the survey, nearly 30 percent of Americans reported having more credit card debt than emergency savings -- the highest percentage in the past four years. Meanwhile, some 17 percent reported they had neither emergency savings nor credit card debt. This comes as the U.S. personal savings rate also continues to fall. “This is a reflection of the stagnant incomes, long-term unemployment and high household expenses that are hampering the financial progress of many Americans,” Greg McBride,’s chief financial analyst, said in a statement. The overall personal savings rate has fallen even as Americans have increased their spending. According to the U.S. Department of Commerce, the U.S. personal savings rate fell to 4.2 percent in November of last year. That is near the recent low mark of just under 3 percent which came at the end of 2007. Holiday spending this year has likely only compounded the problem.

Capital One says it can show up at cardholders' homes, workplaces -  Credit card issuer Capital One isn't shy about getting into customers' faces. The company recently sent a contract update to cardholders that makes clear it can drop by any time it pleases. The update specifies that "we may contact you in any manner we choose" and that such contacts can include calls, emails, texts, faxes or a "personal visit." As if that weren't creepy enough, Cap One says these visits can be "at your home and at your place of employment." The police need a court order to pull off something like that. But Cap One says it has the right to get up close and personal anytime, anywhere. "Even the Internal Revenue Service cannot visit you at home without an arrest warrant," Rofman observed. Indeed, you'd think the 4th Amendment of the Constitution, which guards against unreasonable searches and seizures, would make this sort of thing verboten. Apparently not.

Usurious Returns on Phantom Money: The Credit Card Gravy Train - Ellen Brown - You pay off your credit card balance every month, thinking you are taking advantage of the “interest-free grace period” and getting free credit. You may even use your credit card when you could have used cash, just to get the free frequent flier or cash-back rewards. But those popular features are misleading. Even when the balance is paid on time every month, credit card use imposes a huge hidden cost on users—hidden because the cost is deducted from what the merchant receives, then passed on to you in the form of higher prices. Visa and MasterCard charge merchants about 2% of the value of every credit card transaction, and American Express charges even more. That may not sound like much. But consider that for balances that are paid off monthly (meaning most of them), the banks make 2% or more on a loan averaging only about 25 days (depending on when in the month the charge was made and when in the grace period it was paid). Two percent interest for 25 days works out to a 33.5% return annually (1.02^(365/25) – 1), and that figure may be conservative. Merchant fees were originally designed as a way to avoid usury and Truth-in-Lending laws. Visa and MasterCard are independent entities, but they were set up by big Wall Street banks, and the card-issuing banks get about 80% of the fees. The annual returns not only fall in the usurious category, but they are returns on other people’s money – usually the borrower’s own money!  Here is how it works . . . .

Labor Department Produces New Approach To PPI -- The Labor Department this week will change the way it calculates the Producer Price Index, a gauge of U.S. inflation, to measure a much wider swath of the U.S. economy. The PPI measures changes in the prices businesses receive for selling goods and services, including products and services they sell to each other. It can be a signal of future inflation as companies pass their costs along to consumers. The report is released monthly just ahead of the closely watched Consumer Price Index, which is also produced by Labor. Labor has adopted a new methodology for the index, and will use it for the January data being released Wednesday. The index formerly measured prices for finished goods and the materials that went into them, such as parts and raw materials. It now covers 75% of U.S. production, more than double the old index’s reach, by including services, exports, government purchases and construction. The new Final Demand index is the broadest measure, capturing prices for goods and services sold for personal consumption, exports, government purchases and capital investment. The new Intermediate Demand report measures the prices of goods and services sold by businesses to other businesses, such as iron ore, car parts and accounting services. The new top-line PPI number is Final Demand. Labor will also calculate a “core” figure for PPI Final Demand that excludes food, energy and trade services. Trade services, which represents margins for retailers and wholesalers, is the most volatile service category. The Labor Department also will report a “core” PPI figure excluding food and energy only. Personal Consumption is the portion of Final Demand going to consumers, and is the closest equivalent within the report to the broader CPI. For some products, it can be a leading indicator of inflation.

Vital Signs: New PPI Tells a Familiar Story - The Labor Department released a revamped version of the producer price index Wednesday. The new PPI for final demand includes goods, services and construction while the old PPI covered only finished goods. The new data show the most of the volatility in inflation remains in the goods sector while service prices rise at a steadier and generally faster pace. Over the past two years, the goods PPI has increased 2.1% while the service PPI is up 3.2%. The trends seen in the new PPI reflect patterns in the consumer price index, which has long included both goods and services. The volatility in the goods PPI partly reflects the swings in energy commodities. Excluding them, the 12-month percent change of the index shows a steadier and falling trend over the past two years.

CPI 0.1% for January, Shelter Inflation is on the Rise --The monthly Consumer Price Index increased 0.1% for January.   CPI measures inflation, or price increases.  While the monthly inflation number seems low, the situation is actually a mixed bag as electricity has it's largest inflation jump since January 2010.  Natural gas costs also ballooned and the cost of sheltering oneself rose dramatically.  CPI has only increased 1.6% from a year ago as shown in the below graph.  This is still a low annual rate of inflation, although higher than last month.  That said, costs for real people living real lives are seemingly divorced from CPI at this point.  People are stretched to the brink.  Core inflation, or CPI with all food and energy items removed from the index, increased 0.1% and has increased 1.6% for the last year.  Core CPI is one of the Federal Reserve inflation watch numbers and 2.0% per year is their target rate.   Graphed below is the core inflation change from a year ago.  Core CPI's monthly percentage change is graphed below.  Energy overall jumped up 0.6% for the month and energy costs are now up 2.1% for the entire year.  The BLS separates out all energy costs and puts them together into one index.  This index includes gasoline which dropped -1.0% for the month and has increased only 0.5% for the year.   Yet contained within the energy index is some bad news for consumers.  Natural gas is now up 4.9% from a year ago with a monthly jump of 3.6%.  Electricity has increased 4.4% for the year.  A 4.5% yearly increase in energy services is not good news for consumers and is assuredly taking a big bite out of their already empty wallets.  Shown below is the overall CPI energy index, or all things energy.

Headline Inflation at 1.58% YoY, Core Inflation Slips to 1.62% - The Bureau of Labor Statistics released the latest CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.58%, which the BLS rounds to 1.6%, up from 1.58% last month. Year-over-year Core CPI (ex Food and Energy) came in at 1.62% (rounded to 1.6%), down from last month's 1.72%.Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.6 percent before seasonal adjustment. Increases in the indexes for household energy accounted for most of the all items increase. The electricity index posted its largest increase since March 2010, and the indexes for natural gas and fuel oil also rose sharply. These increases more than offset a decline in the gasoline index, resulting in a 0.6 percent increase in the energy index. The index for all items less food and energy also rose 0.1 percent in January. A 0.3 percent increase in the shelter index was the major contributor to the rise, but the indexes for medical care, recreation, personal care, and tobacco also increased. In contrast, the indexes for airline fares, used cars and trucks, new vehicles, and apparel all declined in January. The food index rose slightly in January. The index for food at home rose 0.1 percent, with major grocery store food groups mixed. The all items index increased 1.6 percent over the last 12 months; this compares to a 1.5 percent increase for the 12 months ending December. The index for all items less food and energy has also risen 1.6 percent over the last 12 months. The energy index has risen 2.1 percent over the span, and the food index has increased 1.1 percent.  More... The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

Inflation Continues to Run Well Below Target as Revised Seasonal Adjustments Reduce Volatility - Data released this week by the Bureau of Labor Statistics show that consumer price inflation continues to run well below target. The all-items CPI for urban consumers rose at a seasonally adjusted annual rate of 1.75 percent in January, compared with the Fed’s inflation target of 2 percent. The seasonally adjusted core inflation rate for the month, which removes the effect of food and energy prices, was 1.54 percent.The BLS makes seasonal adjustments to the CPI in an attempt to remove the effects of price changes that happen at predictable times each year, such as more expensive gasoline when the summer driving season starts and lower food prices in the harvest season. Although the adjustments are supposed to give a more accurate picture of underlying trends,  as the structure of the economy changes the adjustment factors become outdated. Accordingly, the BLS revises its seasonal adjustment factors early in each year. The following chart shows that the revisions remove much of the previously reported month-to-month volatility in the CPI while leaving the average inflation rate essentially unchanged.  Another way to overcome the problem of seasonal adjustment is to look at year-on-year changes in the CPI, rather than monthly changes. The year-on-year inflation rate in the all-items CPI for January (that is, the change from January 2013 to January 2014) was 1.56 percent. The next chart also shows the year-on-year core inflation rate, which was 1.62 percent. Both the all-items and core inflation rates have been trending downward over the past two years.

January Inflation Subdued Despite Biggest Jump In Electricity Prices In Four Years - The importing of Japan's deflation continues: in January headline consumer prices as well as prices excluding food and energy rose by 0.1%, in line with expectations, and down from a downward revised 0.2% in December. The annual increase in prices rose modestly from 1.5% to 1.6%, but still below the Fed's 2.0% target. The main reason for the increase?   Why the polar vortex, and specifically soaring electricity prices as a result of the surge in nat gas. "Increases in the indexes for household energy accounted for most of the all items increase. The electricity index posted its largest increase since March 2010, and the indexes for natural gas and fuel oil also rose sharply. These increases more than offset a decline in the gasoline index, resulting in a 0.6 percent increase in the energy index."

YoY CPI up 1.5% in January, still on track for +1.0% in February: Last week I wrote that this winter's continuing cheap gas prices may give us the lowest inflation rate in 50 years, excluding the deflation during the Great Recession. We now have the official CPI for January, and 3 of 4 weeks for February, so here is an update. January inflation, at +0.1%, was 0.2% higher than I thought it would be, but -0.1% below the consensus. December was also revised downward, making it in tune with my forrecast. The net result is that YoY inflation including January is +1.%. Gas has now begun climb into spring, as winter formulations are being replaced with summer formulations at the refineries. Even this climb is a little subdued, as in the last reporting week, gas prices only rose $.07 to $3.38. If they rise a similar amount this week, then February's average will be $3.357, or a 1.3% increase in gas m/m. This will translate into a +0.3% CPI both seasonally and non-seasonally adjusted, for a YoY inflation rate of +1.0%. This isn't quite as good as I had hoped, but it will still be more than 1% less than the YoY increase in average nonsupervisory wages, so will be a boon to consumers.

What’s Up in Inflation? Shelter and OER - Cleveland Fed - The Consumer Price Index (CPI) increased 0.1 percent from December to January according to the Bureau of Labor Statistics (BLS). Cold weather across the country contributed to the increase in the CPI, as the electricity and natural gas components of the index both rose sharply. But more generally, an important factor behind recent inflation readings has been an upward trend in inflation in the shelter component of the CPI. Shelter inflation is now the highest it has been since January 2008, based on annualized three-month growth rates to help smooth the data. Lodging away from home gave a boost to shelter inflation in January, but lodging away from home is pretty volatile over short time spans. A bigger driver of the trend in shelter inflation has been a run-up coming from owners’ equivalent rent of residences (OER). Over the last few months, OER inflation has also been at its highest levels since the beginning of 2008.  Interestingly, the recent trend in OER has diverged from the trend in rent of primary residences. Inflation in rents has been moving sideways since mid-2011, while OER has trended up since the start of 2013. Changes in OER have a significant impact on aggregate inflation as measured by the CPI. Shelter accounts for 32 percent of the CPI basket, and OER accounts for about three-fourths of the shelter index, or nearly one-fourth of the total CPI basket. (The other two main components of the shelter index are rent of primary residences, which accounts for 7 percent of the total basket, and lodging away from home, which makes up less than 1 percent of the total basket.) By far, OER has the largest relative weight of a single component in the CPI.

Vital Signs: Housing Inflation Starts to Rise -- Inflation remains muted at the start of 2014, but one large price category is beginning to move higher. The Labor Department said Thursday that the consumer price index of all goods and services increased 1.6% in the year ended in January. The core CPI, which excludes volatile energy and food prices, was also up just 1.6%. Both indexes show consumer inflation remains muted in the U.S. economy, allowing the Federal Reserve to focus more on the labor markets when making monetary policy decisions. One area worth watching, however, is housing costs, specifically the imputed cost to homeowners if they had to pay rent for their own homes. The owners’ equivalent rent index had been rising at a steady pace through most of 2012 and 2013, with 12-month percent changes hovering around 2%. But toward the end of 2013, the pace picked up. By January OER was up 2.5% compared to year-ago levels. That’s not a hot pace for housing costs (they were increasing at a yearly pace above 4% in early 2007). But since OER accounts for nearly one-quarter of the entire CPI, a pickup in that category will provide a lift to total inflation.

Tomorrow’s hamburger may cost as much as today’s steak -  Retail beef prices are near record highs. During 2013, the price consumers paid for ground beef climbed roughly 5%, according to government data beef price data released Thursday finds that consumers paid an average of nearly $3.50 per pound for 100% ground beef.  What’s more, experts say that climbing beef prices are here to stay. The USDA’s Economic Research Service projects that beef prices will rise faster than almost anything else this year. Don Close, a cattle economist with Rabo AgriFinance says he thinks prices this year could rise 7-8% and roughly the same amount in 2015. Kevin Good, a senior analyst at cattle research firm CattleFax, says that “higher prices will continue through 2015 or 2016.”  Good says that ground beef may see especially steep price hikes. He thinks that while steak retail prices could climb 5-10% in 2014, ground beef could climb 10 — 15%. So what’s with the sky-high beef prices? The bigger beef bills have been partially due to the fact that the cattle herd in the U.S. — the largest beef producer in the world — fell to an estimated 63-year low, according to a Bloomberg survey. “Cow numbers were down…the lower supply meant higher prices,” says William Hahn, an agricultural economist with the U.S. Department of Agriculture. And the dry spell in Texas, the nation’s largest cattle producer, is exacerbating the issue of smaller herds. Plus, in 2012 and 2013, grain prices were particularly high, says Close.

U.S. Inflation Is a Window into a Global Growth Risk - Thursday’s U.S. consumer price index report showed a meaningful divergence between goods and services inflation. The U.S. seems to be in a new part of the inflation cycle. U.S. services inflation is stabilizing at a lower level than it was in the 1990s and 2000s. It is long past falling. Goods inflation, on the other hand, is in a new down cycle. This seems to point to weakness abroad. It all points to a normalizing U.S. domestic economy but more vulnerability abroad. Here’s why: Goods inflation is exposed to global trade. When China was flooding the world with low cost goods in the 1990s and 2000s, it put immense downward on consumer goods prices and held down the overall U.S. inflation rate. Unlike the 1990s and early 2000s, the latest downdraft in goods inflation is likely being driven not so much by an influx of cheap goods produced by low-cost emerging market labor, but by a slowdown overseas driven by over investment in emerging markets during their boom. That’s holding down commodities prices. Services inflation is highly exposed to domestic housing and the cost of domestic labor. When the housing market collapsed and unemployment soared in 2008, it put downward pressure on services inflation. Think of it this way: Most of the cost of a haircut is the cost of the barber at your side and the cost of his rent for that space. Whereas the cost of a car includes the cost of a lot of imported parts, imported commodities and labor from abroad.

Natural Gas Prices Surge to a 5-Year-High - Just when it seemed the polar vortex had done its worse, the mere possibility of another cold front has sent natural gas prices surging to a five-year high. The Wall Street Journal reports that the price of natural gas futures climbed by 11% on Wednesday. Investors snatched up futures contracts on news that another U.S.-bound cold front could send temperatures plummeting, putting a strain on dwindling stocks of natural gas. Analysts fear that if the national supply of natural gas, currently projected at 1.4 trillion cubic feet, drops below the 1 trillion mark, shortages could stretch into next year, hitting households and businesses in the pocketbook. So the polar vortex could strike again and again, long after it has vanished.

Weekly Gasoline Update: Biggest Rise Since Just Before Thanksgiving - 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 seven cents an Premium six cents. That’s the biggest weekly increase since the week ending on November 25th of last year.  According to, Hawaii is averaging four cents above $4.00 per gallon. The next highest state average is California at $3.71. No states are averaging under $3.00, with the lowest prices in Montana at $3.07.

Energy expenditures as a percentage of consumer spending - Just though I'd look at this ... below is a graph of expenditures on energy goods and services as a percent of total personal consumption expenditures. This is one of the measures that Professor Hamilton at Econbrowser looks at to evaluate any drag on GDP from energy prices. The huge spikes in energy prices during the oil crisis of 1973 and 1979 are obvious. As is the increase in energy prices during the 2001 through 2008 period. Currently energy prices aren't much of a drag on the economy, and hopefully energy prices are resuming their down trend as a percent of PCE.

With Stable Gas Prices, Who Still Cares About Fuel Economy? - As the WSJ reports today, President Obama has announced the next phase in his administration’s push to improve fuel efficiency on U.S. roads: stricter economy rules for the nation’s fleet of medium- and heavy-duty trucks. That’s a big deal for overall U.S. fuel consumption, because while big trucks make up fewer than 5% of the vehicles on the road, they account for about a quarter of all greenhouse-gas emissions from the transport sector.  The move comes after the government introduced ambitious fuel-economy standards for passenger vehicles back in 2012, which aim to cut U.S. oil consumption by two million barrels a day by 2025. But there’s one big challenge in promoting fuel-efficient vehicles: without rising gas prices, it’s getting harder to convince consumers to buy small, economic cars.   There’s precedent for what happens to fuel economy when pump prices aren’t part of the consumer equation when buying a new car. Cheap gas in the ’80s and ’90s led to a long period where fuel efficiency stagnated — here’s how the average efficiency of the U.S. new vehicle fleet looked from 1975 to 2013, according to the EPA’s most recent trend report: Note the upward spike in fuel economy between 2008 and 2009 — a result of consumers rushing away from gas guzzlers amid record high gas prices. But now, consumers are already responding to more stable gas prices by moving back toward bigger cars. The U.S auto industry had its best sales year since 2007 last year, driven in big part by demand for larger, more powerful vehicles, as the WSJ’s Mike Ramsey reported in December

Amid storms, more than 77,000 flights canceled so far this year -- The slew of storms that pummeled the nation’s Midwest and East Coast this winter has resulted in some horrible numbers: 77,000 canceled flights, carrying nearly 6 million passengers so far this year. An additional 43 million people were on delayed flights. At Charlotte Douglas International Airport in North Carolina, about 1,000 passengers slept in the terminal Thursday night because of 675 canceled flights in and out of the airport. The airport offered sleeping cots, blankets and baby items to delayed travelers. But fewer passengers may be stranded at airports during the most recent monster storms. The reason: Airlines have gotten better about canceling flights long before travelers arrive and the bad weather hits. “By proactively canceling flights, you can minimize the impacts on your customers,” But some industry experts say airlines also cancel flights early to save on the cost of paying pilots and flight attendants to show up for flights that will ultimately sit on a tarmac for hours. They also say airlines cancel flights early to avoid being fined by the federal government for keeping passengers stranded on delayed flights.

Winter Weather Pushed ATA Truck Tonnage Index Down 4.3% in January - The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index decreased 4.3% in January, after edging 0.8% lower in December. In January, the index equaled 124.4 (2000=100) versus 130.0 in December. The all-time high was in November 2013 (131.0). Compared with January 2013, the SA index increased 1.2%.  .. “Like most economic indicators, truck tonnage was negatively impacted by bad winter weather in January,” said ATA Chief Economist Bob Costello. “The thing about truck freight is that it’s difficult to catch up. Drivers are governed by hours-of-service regulations and trucks are limited to trailer lengths and total weights, thus it is nearly impossible to recoup the days lost due to bad storms.” As a result, Costello said January will be a tough month to gauge.  “January wasn’t just one storm, it was several across a large part of the country. Therefore, I wouldn’t panic from the largest monthly drop in two years," Costello said. "I’ve heard from many fleets that freight was good, in-between storms. The fundamentals for truck freight still look good.”

LA area Port Traffic: Imports up year-over-year in January -- Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for January since LA area ports handle about 40% of the nation's container port traffic. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).  To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was up 0.4% compared to the rolling 12 months ending in December. Outbound traffic was unchanged compared to 12 months ending in December. Inbound traffic is increasing, and it appears outbound traffic is starting to pick up a little. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year). Inbound traffic was up 5% compared to January 2012 and outbound traffic was down slightly. This suggests an increase in trade the trade deficit with Asia in January.

NY Fed: Empire State Manufacturing Survey indicates slower expansion in February - From the NY Fed: Empire State Manufacturing Survey The February 2014 Empire State Manufacturing Survey indicates that business conditions improved marginally for New York manufacturers. The general business conditions index fell eight points, but remained positive at 4.5. The new orders index fell to about zero, indicating that orders were flat, and the shipments index declined thirteen points to 2.1. ...Employment indexes were little changed from last month and pointed to a modest improvement in labor market conditions. The number of employees index was 11.3, indicating a modest increase in employment levels, and the average workweek index inched up to 3.8, suggesting slightly longer workweeks...Indexes for the six-month outlook continued to convey fairly strong optimism about future business conditions. The index for expected general business conditions rose to 39.0, and the index for future new orders climbed six points to 45.3, its highest level in two years. This is the first of the regional surveys for February.  The general business conditions index was below the consensus forecast of a reading of 9.0, and indicates slower expansion in February.  The internals were mixed, with new orders flat after hitting a two year high in January, and the employment index indicated modest improvement.

Empire Manufacturing Misses; Plunges Most In 18 Months - Winter storms and cold weather dominated much of January and somehow Empire State managed its greatest beat in a year; however, we are sure the weather will be blamed for the biggest miss in 3 months for the data in Feb (printing 4.48 vs expectations of 8.5). New Orders tumbled from 10.98 to -0.21; inventories plunged, and expectations for the average work week and future Capex spend expectations collapsed to their lowest since July 09.The drop from January's exuberance is the largest in 18 months.

Empire State Manufacturing Drops 8 Points, But Remains Positive - This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions disappointed expectations, posting a reading of 4.48, down from 12.51 last month. The forecast was for 9.0. The Empire State Manufacturing Index rates the relative level of general business conditions New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state.. Here is the opening paragraph from the report.The February 2014 Empire State Manufacturing Survey indicates that business conditions improved marginally for New York manufacturers. The general business conditions index fell eight points, but remained positive at 4.5. The new orders index fell to about zero, indicating that orders were flat, and the shipments index declined thirteen points to 2.1. The unfilled orders index remained negative at -6.3. The prices paid index fell twelve points to 25.0, pointing to a slowing pace of input price increases, while the prices received index climbed two points to 15.0, suggesting a faster pace of selling price increases. Employment indexes were little changed, indicating a modest increase in employment levels and slightly longer workweeks. Indexes for the six-month outlook continued to convey fairly robust optimism about future conditions, even as the capital spending index fell ten points to 2.5, a multiyear low.  Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Philly Fed Manufacturing Survey indicates Contraction in February -- From the Philly Fed: February Manufacturing Survey The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a reading of 9.4 in January to ‐6.3 this month. This was the first negative reading of the index in nine months. The current employment index remained positive for the eighth consecutive month but declined 5 points from January.  This was well below the consensus forecast of a reading of 10.0 for February.  Also Market released their Flash PMI for February this morning that suggests faster manufacturing expansion:  February data suggested a solid rebound in U.S. manufacturing business conditions following the slowdown recorded during the previous month. This was highlighted by a rise in the Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™), which is based on approximately 85% of usual monthly replies, from 53.7 in January to 56.7 in February. The latest reading pointed to the fastest overall improvement in U.S. manufacturing business conditions since May 2010. “Hiring also picked up to the fastest since last March, with the survey signalling approximately 15,000 jobs being created in February. “While the strong PMI reading in part represents a rebound from the temporary weakness seen at the start of the year, further growth looks likely in coming months, suggesting the underlying health of the economy remain s robust. In particular, February saw the largest rise in backlogs of work seen since prior to the financial crisis, as well as a further steep fall in inventories of finished goods. Both point to ongoing growth of production and hiring in March.”

Philly Fed Plunges To 1 Year Low; Misses By Most Since Aug 2011 - On the heels of a dismal series of global macro data points (all weather-related we are sure as G10 Macro drops to 8-month lows), this morning's US PMI debacle (nope, no weather there) has been followed up by a much more reassuring disastrous (and of course we are sure weather-related) miss. Philly Fed printed -6.3, missing expectations of +8.0 by the most since Aug 2011 (and dropping most since then). This is the lowest print in a year. New orders and shipments collapsed, inventories surged, employment plunged, and the average workweek dropped notably. Just imagine all that pent-up demand... oh wait, expectations for future new orders fell to at least 6 month lows.

Philly Fed Unexpectedly Back in Contraction; Weather Blamed Again - The Philadelphia Fed Bloomberg Consensus for the Philly Fed manufacturing index was 9.4. The index came in -6.3. The Philly Fed's headline index for general conditions fell back into the negative column, to minus 6.3 vs January's 9.4. This is the first negative reading since May. Last month's big 7.8 point decline in the new order index signaled the trouble for today's report. And new orders are even worse for February, in negative ground at minus 5.2 for a major 10.3 point decline. Unfilled orders are also in negative ground, at minus 2.6 for a 1.6 point decline from January. Shipments, suffering from a lack of orders and also from weather effects, fell dramatically, down 22 points to minus 9.9. The weather effect is evident in delivery times, which slowed 5.7 points to 2.9. Weather is a temporary effect and isn't holding down the longer term outlook in the sample as six-month readings are all strongly positive led by a 6.8 point gain for general conditions to 40.2.The Philly Fed report doesn't usually cite commentary but it does for February, saying respondents attributed much of the month's weakness to severe winter weather. But January also was hit with severe weather.

Philly Fed Business Outlook: Contraction in February, But Future Outlook Strengthens - The Philly Fed's Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. The latest gauge of General Activity came in at -6.3, a sharp decline from the previous month's 9.4. The 3-month moving average came in at 3.2, down from 8.3 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. However, today's six-month outlook at 40.2 is an increase from last month's 34.4. Here are the introduction from the Business Outlook Survey released today:Manufacturing activity was reduced in February, according to firms responding to this month's Business Outlook Survey. The survey's broadest indicators for general activity, new orders, and shipments suggest moderate declines this month, but comments suggested that much of the weakness was attributable to the severe winter weather that affected theregion during the survey period. Firms continued to add to their payrolls, but average work hours fell. Despite the weakness in current indicators, many of the survey's indicators of future activity improved this month, reflecting optimism about continued growth over the next six months. (Full PDF ReportToday's -6.3 came in well below the 8.0 forecast at The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012 and a shallower contraction in 2013. The indicator is now off its post-contraction peak in September of last year.

Weather Narrative Getting Confusing - The “weather impact” debate has been ongoing for much of this year and looks set to continue for a while longer. Initially there seemed to be a clear narrative that colder-than-normal temperatures were slowing economic activity and markets seemed to gladly discount weak figures. But several data releases this week have brought confusion to the tidy story. On Wednesday, US housing starts for January were weaker than expected, with weather the obvious explanation. But a closer look at the report showed that while housing starts were exceptionally weak in the Midwest, as expected, they rose in the Northeast which was also hit by severe weather. In addition, starts declined in the West, where temperatures have been warmer than average. US PMI manufacturing data for February was released Thursday and while some economists were warning that weather would be a factor, the measurement rose more than forecasts. The latest reading was the highest since May 2010. Of course, like any data point it could be an outlier and is subject to revision, but it certainly disrupted the “cold weather hurting data” narrative. Statisticians attempt to take account of factors such as changes in weather by using seasonal adjustments. Retail sales is a data point particularly vulnerable to changes in the calendar. Without seasonal adjustment, it would be impractical to compare changes in retail activity between December and January.  The US Bureau of the Census, which compiles the report, assumes that retail sales drop by 21% in January as consumers wind back spending and weather typically creates harsher conditions.. But a problem arises when temperatures are more extreme than statisticians have accounted for. There is no definitive way to quantifying what impact weather has on a data report.

U.S. companies ramp up capex as confidence grows (Reuters) - Earlier this month, Eaton Corp Plc (ETN.N) made an announcement that captured little attention: the diversified manufacturer of heavy truck transmissions and residential circuit breakers said it would spend a record $700 million this year on tooling and machinery. Eaton is not alone. The biggest U.S. companies are poised to surprise investors this year with how much they are planning to dig into their massive cash stock piles and invest in big projects. Corporate America has been reluctant to spend aggressively since the recession, choosing instead to amass cash reserves or reward shareholders by raising dividends and buying back shares. Cash still represents close to 10 percent of the market value of members of the Standard & Poor's 500 index .SPX, though that is down from the 11.5 percent peak seen early in the economic recovery, according to S&P Dow Jones Indices data. true "A lot of companies got caught cash short in the downturn, so they have been reluctant to spend the cash they've reliquified their balance sheets with. Now they're starting to see a pickup in the economy, and they're starting to loosen the purse strings," said Jeffrey Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida. According to a Thomson Reuters analysis, 70 percent of the 227 S&P companies that have so far announced 2014 spending plans have exceeded Wall Street's expectations. That is the highest level in at least five years and suggests executives have greater confidence in their growth outlook.

Monoposony Begets Monopoly, And Vice Versa - Paul Krugman - Nothing to see here, folks, says Comcast. The cable giant’s defenders insist that its already awesome market power won’t be increased if it acquires Time Warner, because they serve (i.e., are local monopolists in) different geographical areas... But elsewhere in the business section, we see clear evidence that this is nonsense. Comcast’s size gives it monopsony as well as monopoly power — it is able to extract far more favorable deals from content providers than smaller rivals. And if it’s allowed to acquire Time Warner, it will be even more advantaged.  This would, in turn, make it even harder for potential competitors to enter markets served by ComcastTimeWarner, strengthening its monopoly position. What possible justification could there be for approving this scheme?

Barons of Broadband - Krugman -  Last week’s big business news was the announcement that Comcast ... has reached a deal to acquire Time Warner.  If regulators approve the deal, Comcast will be an overwhelmingly dominant player in the business. So let me ask two questions about the proposed deal. First, why would we even think about letting it go through? Second, when and why did we stop worrying about monopoly power?    On the first question, broadband Internet and cable TV are already highly concentrated industries, with a handful of corporations accounting for most of the customers. Once upon a time antitrust authorities, looking at this situation, would probably have been trying to cut Comcast down to size. Letting it expand would have been unthinkable.   Moreover, there’s good reason to believe that monopoly is itself a barrier to innovation. Ms. Crawford argues persuasively that the unchecked power of telecom giants has removed incentives for progress: why upgrade your network or provide better services when your customers have nowhere to go? And the same phenomenon may be playing an important role in holding back the economy as a whole. One puzzle about recent U.S. experience has been the disconnect between profits and investment. Profits are at a record high as a share of G.D.P., yet corporations aren’t reinvesting their returns in their businesses. Instead, they’re buying back shares, or accumulating huge piles of cash. This is exactly what you’d expect to see if a lot of those record profits represent monopoly rents. It’s time, in other words, to go back to worrying about monopoly power, which we should have been doing all along. And the first step on the road back from our grand detour on this issue is obvious: Say no to Comcast.

Is the Internet Really a Utility? - That’s the question at the heart of a new FCC effort to rewrite the rules of net neutrality. With the proposed merger of Time Warner Cable and Comcast, there’s a growing fear that giant cable operators as well as internet service providers like Verizon would be able to charge some kinds of content creators – like, say, Netflix – more money to deliver their movies, news, and data through their pipes faster and better than other small providers. The idea is that this could quickly Balkanize the web, and make it like the rest of America – a place where more money gets you better, faster, higher quality service. Content providers argue this would disadvantage new start-ups and hinder job creation. Pipe owners say it’s unfair that they’ve spend billions upgrading fiber optic networks and may not be able to recoup that money. To hear more about the debate, as well as what it might mean for the frothy tech stock market, check out this week’s episode of WNYC’s Money Talking, where Joe Nocera and I discuss it.

You won’t have broadband competition without regulation - Tyler Cowen isn’t worried about the cable companies’ broadband monopoly. His argument, in a nutshell: if you can’t afford broadband, that’s not the end of the world: you can always go to the public library, or order DVDs by mail from Netflix. And if the cable companies’ broadband price is very high, then that just increases the amount of money that alternative broadband providers can potentially make in this “extremely dynamic market sector”. Indeed, he says, if regulators were to force cable companies to decrease their prices, then that would only serve to decrease the amount of money that a competitor could make, and thereby lengthen the amount of time it will take “to reach a more competitive equilibrium”. The first big thing that Cowen misses here is television. Cowen knows that there’s more to broadband than watching movies on Netflix, but what he doesn’t really grok is that there’s more to Netflix than watching movies on Netflix. Netflix has moved away from the movies model (which was a constraint of the DVDs-by-mail model) to a TV model. And that makes sense, because Americans really love their TV. They love it so much that cable-TV penetration is still substantially higher than broadband penetration. As a result, any new broadband company will not be competing against the standalone cost of broadband from the cable operators: instead, they will be competing against the marginal extra cost of broadband from the cable company, for people who already have — and won’t give up — their cable TV.

The Singularity Is Further Than It Appears - Are we headed for a Singularity? Is it imminent? I write relatively near-future science fiction that features neural implants, brain-to-brain communication, and uploaded brains. I also teach at a place called Singularity University. So people naturally assume that I believe in the notion of a Singularity and that one is on the horizon, perhaps in my lifetime. I think it's more complex than that, however, and depends in part on one's definition of the word. The word Singularity has gone through something of a shift in definition over the last few years, weakening its meaning. But regardless of which definition you use, there are good reasons to think that it's not on the immediate horizon.

Robots Aren't Here Yet, But That Doesn't Mean They Never Will Be -m Robert Gordon is one our preeminent scholars of economic growth. He's also a well-known pessimist about the future: he believes that well-known trends in demographics, education, inequality, and government debt will suppress growth rates over the next several decades. Fair enough. But what about the possibility that advances in robotics and artificial intelligence will have a huge impact between now and 2050? In a new paper, Gordon dismisses the idea in a few disdainful paragraphs. Here's an excerpt:  For his demonstration at the TED conference in Long Beach in late February, 2013,  “Baxter,” the inexpensive $25,000 robot, had to be packed in a suitcase.  He could not get his own boarding pass and walk onto the plane.  This is the problem with robots — they are both mentally and physically limited to narrow tasks.  They can think but can’t walk, or they can walk but can’t think. ....This lack of multitasking ability is dismissed by the robot enthusiasts — just wait, it is coming.    But the physical tasks that humans can do are unlikely to be replaced in the next several decades by robots. ....What is often forgotten is that we are well into the computer age, and every Home Depot, Wal-Mart, and local supermarket has self-check-out lines that allow you to check out your groceries or paint cans by scanning them through a robot.  But except for very small orders it takes longer, and so people still voluntarily wait in line for a human instead of taking the option of the no-wait self-checkout-lane.  The same theme — that the most obvious uses of robots and computers have already happened — pervades commerce.  Airport baggage sorting belts are mechanized, as is most of the process of checking in for a flight.

Before Blaming the Robots, Let's Get the Policy Right - The economist Alan Blinder and I were recently discussing whether technology was making a serious dent in job growth. Technically, we were considering whether the pace at which labor-saving technology is entering the workforce has accelerated — that is, whether the likelihood of “technological unemployment” had grown — when he suggested this thought experiment:  Say you were Thomas Jefferson’s chief economist and you’d just somehow seen a report from the year 2013 showing that 1.5 percent of the workforce was in agriculture, as opposed to the 90 percent in your day. You ran to the president with news of this crisis, telling him we’ve got to start preparing for mass unemployment. Alas, like most similar warnings throughout history, yours would have been wrong. While productivity in farming has grown tremendously, displacing millions of workers, they’ve mostly found work elsewhere. That’s not at all meant to dismiss the disruption caused by technological progress on the lives of those displaced. It is simply to state that the predictions of the type we’re hearing more and more of — these days, about how robotics and digitized intelligence are finally going to cast us into unemployment in large numbers — have been wrong for centuries.

A Bit More on Technology, Jobs, and Wages - Jared Bernstein - I couldn’t jam everything I’ve been thinking about these questions about technology, work and wages into a single piece, so just a few (tantalizing) bullet points on other dimensions of what I think is a fascinating line of inquiry.

  • –A lot of how people think about these issues is impressionistic, based on amazing advances in consumer electronics.  The absolutely remarkable things that this small, thin smartphone in my pocket (the quite awesome Samsung Galaxy 3, fyi) can do must be economically transformative, right? 
  • –That is, the argument that technology is driving wage or employment trends is a lot more elusive than you’d think.  As Larry Mishel points out here, the wage trends don’t consistently move the way the tech story predicts.  Research associated with economist David Autor initially made a compelling case that technology was displacing workers in the middle of the occupation scale.  But while that theory roughly fit the data in the 1990s (see first two figures here), it doesn’t work in the 1980s or, more importantly given the subsequent dispersion of technology, the 2000s (see Autor’s own Figure 1 here).
  • –There’s newer research suggesting that the demand for skilled workers has actually decelerated in recent years.  Beaudry, Green, and Sand present an exhaustive and rigorous statistical analysis of skill demands over the last three decades.  They look at tasks, jobs, and earnings, and find that the demand for skilled workers “underwent a reversal” around 2000.  The growth in the share of high-skill, high “cognition” (using Autor’s tasks framework), and high-wage occupations stagnated in the 2000s, where the share of college grads kept growing. 

All of which is highly inconsistent with the idea that underlies all of this tech stuff: we’re surrounded by amazing devices with massive informational and communications capacity.  Surely, their ascendency has changed skill demands, wage trends, and reduced the employability of many.

Some predict computers will produce a jobless future. Here’s why they’re wrong. -- Will "smart machines" steal our jobs? With America suffering through its sixth straight year of anemic job growth, worries about long-term unemployment are in vogue. Thinkers such as Tyler Cowen and Kevin Drum believe that the problems will get even worse in the coming decades: As information technology allows the automation of more and more middle-class jobs, fewer workers will be able to find work. Massachusetts Institute of Technology professors Erik Brynjolfsson and Andrew McAfee have a more optimistic view, advanced in their new book, "The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies." This is an important book that has already landed on The New York Times bestseller list. Like Cowen and Drum, they predict that intelligent machines will increasingly displace many workers. But they believe that work will eventually shift to new jobs that technology creates. Workers will be displaced, not replaced. Brynjolfsson and McAfee have the stronger argument. Indeed, economic data show that as information technology has increasingly taken over white-collar tasks in recent decades, it has not significantly replaced workers overall. While new technology has contributed to growing economic inequality, the evidence so far does not point to a jobless future.

Moore's Law: At Least a Little Longer - One can argue that the primary driver of U.S. and even world economic growth in the last quarter-century is Moore's law--that is, the claim first advanced back in 1965 by Gordon Moore, one of the founders of Intel Corporation that the number of transistors on a computer chip would double every two years. But can it go on? Harald Bauer, Jan Veira, and Florian Weig of the McKinsey Global Institute consider the issues in "Moore’s law: Repeal or renewal?" a December 2013 paper.  The authors argue that technological advances already in the works are likely to sustain Moore's law for another 5-10 years. This As I've written before, the power of doubling is difficult to appreciate at an intuitive level, but it means that the increase is as big as everything that came before. Intel is now etching transistors at 22 nanometers, and as the company points out, you could fit 6,000 of these transistors across the width of a human hair; or if you prefer, it would take 6 million of these 22 nanometer transistors to cover the period at the end of a sentence. Also, a 22 nanometer transistor can switch on and off 100 billion times in a second. The McKinsey analysts point out that while it is technologically possible for Moore's law to continue, the economic costs of further advances are becoming very high. They write: "A McKinsey analysis shows that moving from 32nm to 22nm nodes on 300-millimeter (mm) wafers causes typical fabrication costs to grow by roughly 40 percent. It also boosts the costs associated with process development by about 45 percent and with chip design by up to 50 percent. These dramatic increases will lead to process-development costs that exceed $1 billion for nodes below 20nm. In addition, the state-of-the art fabs needed to produce them will likely cost $10 billion or more. As a result, the number of companies capable of financing next-generation nodes and fabs will likely dwindle.

Report: Offshoring and outsourcing a mixed bag for American jobs, wages -- A new study by UC Berkeley and Massachusetts Institute of Technology (MIT) researchers finds that the practices of outsourcing and offshoring jobs appear to have both positive and negative effects on American jobs and wages.   The pilot study, funded by the National Science Foundation, provides the first representative and internationally comparable evidence of the domestic and international sourcing practices of U.S. private and public sector organizations. Its coauthors, UC Berkeley economics professor Clair Brown, and Tim Sturgeon, a senior research affiliate with MIT’s Industrial Performance Center, found that a near majority of employers in the United States outsource work to contractors and suppliers within the country, and about a quarter of U.S. companies offshore work to other countries.  The researchers found that the actual share of business costs for domestic outsourcing and international sourcing in the study year (2010) was, on average, quite modest, but they also saw significant differences across firms of different sizes and in different sectors.  “The portrait that emerges is of two economies – an entirely domestic one made up of small firms and public organizations, and another one consisting of large firms with much deeper global engagement,” said Sturgeon.This is important because big firms employ more than 20 percent of the country’s full-time workers and tend to offer higher-quality jobs with better wages and benefits than does the average U.S. employer

Weekly Initial Unemployment Claims decrease to 336,000 - The DOL reports: In the week ending February 15, the advance figure for seasonally adjusted initial claims was 336,000, a decrease of 3,000 from the previous week's unrevised figure of 339,000. The 4-week moving average was 338,500, an increase of 1,750 from the previous week's unrevised average of 336,750. 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 338,500. This was close to the consensus forecast of 335,000.  Mostly moving sideways ...

Why Is the Job-Finding Rate Still Low? - Fluctuations in unemployment are mostly driven by fluctuations in the job-finding prospects of unemployed workers—except at the onset of recessions, according to various research papers (see, for example, Shimer [2005, 2012] and Elsby, Hobijn, and Sahin [2010]). With job losses back to their pre-recession levels, the job-finding rate is arguably one of the most important indicators to watch. This rate—defined as the fraction of unemployed workers in a given month who find jobs in the consecutive month—provides a good measure of how easy it is to find jobs in the economy. The chart below presents the job-finding rate starting from 1990. Clearly, the job-finding rate is still substantially below its pre-recession levels, suggesting that it is still difficult for the unemployed to find work. In this post, we explore the underlying reasons behind the low job-finding rate.

Blogs review: The employment to population ratio - does the drop in unemployment represent a genuine improvement in the US labor market?  What’s at stake: The drop and lack of recovery in the employment to population (E/P) ratio has raised questions as to whether the drop in the unemployment rate represents a genuine improvement in the US labor market. A recent study by the NY Fed, which argued that the demographically adjusted E/P ratio was just 0.7 points below trend, has received considerable attention in the blogosphere and among Fed watchers as it corroborates the picture of a recovering labor market.

Ten Million People Left Out of Employment Statistics?: As I have been pointing out to my readers, the "official" unemployment numbers issued by the government are misleading because they do not include people who have given up looking for work and those people with part-time jobs who want full-time work. In January, there were 3.6 million individuals in the U.S. economy who were long-term unemployed -- out of work for more than six months.  Those who are working part-time in the U.S. economy because they can't find full-time work stood at 7.3 million people in January. Add these two numbers into the equation and the real unemployment rate, often called the underemployment rate, is over 12%. Meanwhile, the official unemployment rate from the Bureau of Labor Statistics sits at 6.6%—that's the number you will hear politicians most often quote. But if there's a group of policymakers that looks past the "official" unemployment numbers, it's the Federal Reserve. At her speech before the Committee on Financial Services, U.S. House of Representatives in Washington, D.C. last week, Fed Chief Janet Yellen said, "Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high. These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market." Like all economists, Yellen knows that when an individual has a part-time job then their income isn't as high, so they pull back on consumer spending. This also results in a greater reliance on government assistance programs, because these people often cannot afford to pay for even the most basic needs—none of which is good for economic growth. That's why food stamp usage in the U.S. economy has risen to a record-high. Dear reader, yes, the official unemployment rate will probably decline over the next few months. And we know why; when the government makes the calculation, it leaves out people who have given up looking for work and those people who have part-time work but want full-time work. Those are two big groups of people. Another issue persists: the majority of jobs created in the U.S. economy since the Credit Crisis hit have been in the low-paying service and retail sectors.

‘Boomer bulge’ hits US employment data - The drop in the percentage of Americans at work in recent years is often cast as a story about the long-term unemployed who give up trying to find jobs. But the declining workforce participation rates, which have sharply reduced headline unemployment calculations in the world’s largest economy, could be related to a very different phenomenon: the greying of America. What is more, the trend is set to continue until around 2020 regardless of how the economy fares. A new report by Alicia Munnell, director of the Center for Retirement Research at Boston College, looked at the bulge of “baby boomers” born between 1946 and 1964 and concluded that the shrinking of the US workforce began around 2000. This puts the start of the trend well ahead of either the brief recession at the turn of the century or the fierce downturn beginning in 2007. “The bottom line is that the United States is in the process of a dramatic demographic change, the rapid ageing of the population, and that change has implications for the participation and unemployment figures that we see every month,” the report said.  The report chimes with remarks made on Wednesday by James Bullard, president of the St Louis Federal Reserve.  Demographic change offered a reasonable explanation for recent US trends that show unemployment dropping as workers leave the workforce, he said, calling for further research on the topic. “A demographically-based model would seem to have a good chance of success in explaining this data.”

Teens Dropping Out of Labor Force In Good and Bad Times - The nation’s historically low labor-force participation isn’t driven only by frustrated adults. Many teens just don’t want to work, a new analysis found. In other words: #TooBusyForAJob #GottaDoHomework The share of Americans in the labor force has hovered near a 35-year low in recent months, sitting at 63% in January among people 16 years old and up. Some economists view the figure as evidence that workers have grown frustrated with their job prospects and stopped looking for work. A report released Tuesday by outplacement firm Challenger, Gray & Christmas Inc. explains how sinking labor-force participation among teens—a trend that started well before the recent recession—is at least partially responsible for the broader decline. In the summer of 1979, nearly 71% of 16- to 19-years-olds had jobs or were seeking employment. Last July that figure was 43.3%, according to Labor Department data. Meanwhile, participation among adults age 25-to-54 remains above the 1979 level. Since the recession began in 2007, the participation rate among teens fell nearly 7 percentage points while the rate for prime-aged adults declined 1.7 percentage points. The firm’s analysis of Labor Department data found that relatively few teens were out the labor force due to lack of opportunity. In fact, most didn’t want jobs at all. Of the 11.6 million teens not in the labor force, only about 8% said they wanted a job. The fraction of teens working or looking for work has declined for more than three decades – even in very good economic times.

Most of the Decline in Labor Force Participation in the Last Six Years is Cyclical - Part of the misunderstanding is that there are two components of structural change. First, there are population shifts. Age groups that tend to have lower labor force participation rates are now a larger share of the population (think retiring boomers). These are called “compositional” shifts. Accounting for purely compositional changes by gender and age, more than 40 percent of the decline in the labor force participation rate over the last six years can be accounted for. Many people doing a quick analysis on this topic tend to stop there.However, the other component of structural change is made up of long-run trends in labor force participation within age/gender groups. The labor force participation rate among people under age 25 has been declining since the 1980s, in part due to increasing college and university enrollment. The continuation of that long-run trend accounts for an additional structural decline in the overall labor force participation rate over the last six years. The projected trend in labor force participation rate of workers age 25-54 was virtually flat, so that trend did not meaningfully contribute to structural changes over the last six years. The trend labor force participation of workers age 55+, however, was expected to rise significantly over this period, particularly for women, as cohorts with much stronger labor force attachment throughout their 20’s, 30’s, and 40’s than the cohorts that preceded them began aging into this age bracket. In other words, that’s a structural change that should have substantially contributed to an increase in labor force participation over this period.

How to better understand labour force participation, eventually -- We’ve referred often to the dueling research papers of recent years debating whether the fall in the labour force participation rate has been mainly secular vs cyclical. Bullard’s very good speech summarises this literature, and he mostly sides with the secular, “demographic” view. But at the end he also adds an interesting suggestion for how to improve the research: Still, the literature as a whole is a bit hollow. Simply saying that people in certain demographic groups tend to make the participation decision one way or another does not do enough to analyze the incentives of household labor supply decisions. The more we know about the details of the household labor supply choices, including choices to participate in market work, the better we can predict the impact of policy on labor force participation. Furthermore, we would like these decisions to be part of the macroeconomic model, as Erceg and Levin suggest. There is one strand of the literature that does provide a more complete picture of household incentives to supply labor and participate in labor markets. It is the literature on so-called “home production.” If we add to a household production model more explicit treatment of household retirement decision-making as well as of decisions by younger households to acquire human capital, we would get to a more complete model of the labor force participation rate.

Employers are measuring the value of workers with ever-greater precision -- Hannah Kuchler has a new piece in the FT on this topic, here is one bit: Another pioneering outfit is Sociometric Solutions, which puts sensors in name badges to discover social dynamics at work. The badges monitor how employees move around the workplace, who they talk to and in what tone of voice.One client, Bank of America, discovered that its more productive workers were those allowed to take their breaks together, in which they let off steam and shared tips about dealing with frustrated customers.The bank took heed and switched to collective breaks, after which performance improved 23 per cent and the amount of stress in workers’ voices fell 19 per cent.…David Lathrop, its director of research and strategy, says the sensors are now so cheap they can be put “practically everywhere”, arguing that employees could benefit by tracking their own performance. As I have stressed in Average is Over, improved measurement of worker value is very likely to increase income inequality.  When contributions are relatively vague, the natural tendency is to have weak egalitarian norms and relatively egalitarian pay structures.  When relative contributions are more clear, pay structures will follow, in the longer run dragging norms along with them.

Businesses Going Into “All Surveillance All the Time” Mode in Pursuit of More Productivity -  Yves Smith - The Financial Times tell us gives us another sighting in the all-too-familiar general story of “the Brave New World is here, and then some.” Employers are engaged in a new Taylorism, of monitoring employee behaviors to find ways to make them more productive. But the original Taylorism took the form of time and motion studies in manufacturing settings, where the objective was to re-engineer activity at the individual worker level and across the production process to improve throughput. The newest iteration is companies that engage in behavioral surveillance, ostensively to improve employee/customer relations and to screen new hires better.  The first half of the article is a series of success stories from consultants in the so-called “Quantified Workplace movement” . The vendors have too-cute names like Evolv and are up-front that more intrusion is better. For instance, co-founder and CEO Max Simkoff states: “Every week we figure out more things to track.” He also claims he can improve productivity by a minimum of 5% in at least 2/3 of his “jobs.” Evolv is initially focusing on the foot soldiers of the service economy, specifically “customer facing” activities such as retail and call centers. Needless to say, the sort of case studies served up to the media are ones that look inoffensive or even helpful to the now-even-more-intensively-scrutinized workers. It’s one thing to know your company can read all your e-mails and track all your phone calls and web site visits. That falls in the category of “it’s now easier than ever for them to fire you even if it’s pretty clearly discrimination (say you got pregnant or over 60 but they can probably find some behaviors that lots of other workers engage in but they can claim merited dismissal). But now they are starting to get serious about mining all this stuff (and more!) to identify winners and losers in advance. The temp service Kelly claims to have achieved a 7% increase in efficiency (how determined, since Kelly is not the end employer?) after they had Evolv advise on their hiring policies.

Health-Care Jobs Are Getting Squeezed, Finally - Evidence is spreading that health-care costs are growing much more slowly than before. Now, it's not just a flattening in Medicare spending; the deceleration has spread to employment, too.  Last fall, in a generally skeptical analysis of the apparent slowdown in health-care costs, Harvard University economist Amitabh Chandra and co-authors noted that, because 57 percent of overall health-care expenditures are labor costs, "it seems unlikely that we would expect to see a permanent bending of the cost curve without a commensurate shift in employment rates.” And at that point, they didn’t see any such shift. Now, a few months later, the accumulating data show that we are indeed experiencing a noticeable decline in health-care employment growth. From 1990 to 2005, according to the Bureau of Labor Statistics, employment in health care grew by an average of 2.8 percent per year. But over the past year, it has grown by only 1.4 percent. And in the past two months, it has barely changed at all -- and that is something that hasn't happened since data collection began.Within health care, employment is still expanding rapidly in some areas but has slowed sharply in others. The most notable trend is that hospital jobs, which account for a third of employment in the sector, have basically stopped increasing. On the other hand, in some outpatient care services (freestanding emergency medical centers and kidney dialysis centers, for example) the number of jobs has risen about 6 percent over the past year. These patterns reflect the broader shift toward outpatient care.

Vital Signs: Startups Starting Up Hiring Plans -  New businesses are feeling more confident and willing to hire, a good sign for the economy’s future. According to the fourth-quarter survey of new business founders released Tuesday by the Kauffman Foundation and LegalZoom, 91% of business owners are confident their companies will be more profitable in the next 12 months, up from 86% saying that in the third quarter. Readings on the outlook for the overall economy and consumer demand also improved. With more customers expected, start-up founders plan to add staff. According to the survey 43% of respondents plan to hire more employees, up from 36% saying that in the third quarter. While the Kauffman/LegalZoom survey is only two years old, the increase in its employment index echoes the gain in hiring plans reported by the National Federation of Independent Business, a small-business trade group. The advances suggest small firms will take a larger role in adding jobs.

Anti-Union Vote Will Kill New Tennessee Production Line -- Volkswagen workers reject United Auto Workers Volkswagen workers in Chattanooga, Tenn., have rejected the United Auto Workers, shooting down the union’s hopes of securing a foothold at a foreign-owned auto plant in the South.  ...The union’s presence would have also allowed the company to set up a German-style “works council,” in which representatives of both workers and middle management offer advice to executives on how to best run the plant. The workers who voted against the union are stupid. Some rightwing politicians told them that Volkswagen would not build an additional production line there should the workers vote for the union and thereby for a workers council. The boss at the plant denied that. The plant in Chattanooga is now the only major Volkswagen plant without a works council. Such work councils are one of the success factors for Volkswagen. New production line facilities for Volkswagen are decided by the global board in Germany where the global unions have half minus one of the votes. Where do the people in Tennessee think will those board members put a new production line? At that lone "rebellious" plant where the workers voted against the established management structure that works in the 100+ other Volkswagen factories and for their 550,000 other workers?  Idiots.

How fear beat the UAW in Tennessee -- On Friday, a three-day election process ended when Volkswagen workers in Chattanooga, Tenn., voted against joining the United Auto Workers (UAW) 712 to 626. Coming into the vote, both sides knew what was at stake — the union drive was a direct threat to the low-wage economy on which the South’s manufacturing base has been built. Deep-pocketed union-busters mounted a coordinated campaign against organized labor. They even told Tennesseans that the union wanted to take their guns. And Stephen Greenhouse reported for The New York Times that “Grover Norquist, the anti-tax crusader, helped underwrite a new group, the Center for Worker Freedom, that put up 13 billboards in Chattanooga, warning that the city might become the next Detroit if the workers voted for the union.” What’s more, Tennessee Governor Bill Haslam said that a ‘yes’ vote would result in the company losing its tax incentives. A powerful state lawmaker called the union drive “un-American,” and Sen. Bob Corker (R-TN) said that he’d been secretly assured that a ‘no’ vote would win the plant the production of a new SUV — a claim the company flatly denied. Fear campaigns work best in an economy where working people have every reason to be afraid, so the threats were especially potent in a state with an unemployment rate that remains stubbornly high at around eight percent. Tennessee has the fifth lowest median household income in the US.

VW works council says will pursue labor representation at U.S. plant (Reuters) - Volkswagen's works council said it would press on with efforts to set up labor representation at its Chattanooga, Tennessee plant, undeterred by a workers' vote against any such step involving the United Auto Workers union (UAW). Employees at the plant, in a region traditionally hostile to organized labor, on Friday opted to reject representation by the union, whose membership has plummeted 75 percent since 1979 and now stands at just under 400,000. "The outcome of the vote, however, does not change our goal of setting up a works council in Chattanooga," Gunnar Kilian, secretary general of VW's works council, said in a statement on Sunday, adding that workers continued to back the idea of labor representation at the plant. true VW's rise to become one of the top three global carmakers is intertwined with the influence of labor, whose representatives make up half of the group's 20-member supervisory board. Under the group's "co-determination" policy, workers have a say over matters affecting work rules and the workplace environment while the consensual structure allows management to draw on labor support in decisions on new products and plants.

After rejecting UAW, VW workers may still get works council (Reuters) - Workers at Volkswagen AG's (VOWG_p.DE) Chattanooga, Tennessee, plant may have voted against joining the United Auto Workers union last week but they may still gain some representation in the company through the formation of a works council. Frank Fischer, chief executive of VW Chattanooga and manager of the plant, emphasized on Friday night that while the workers voted against the UAW they did not vote down the idea of a works council. "Throughout this process, we found great enthusiasm for the idea of an American-style works council both inside and outside our plant," Fischer said. "Our goal continues to be to determine the best method for establishing a works council in accordance with the requirements of U.S. labor law." The power of such a council, which would be a first of its kind in the United States, would be very limited under U.S. labor law. It could be consulted only on some limited matters rather than negotiate with management on working conditions. And some labor experts say if the workers want to participate in a works council they may have to set up their own independent union to avoid the perception of a company-organized union, which is not allowed under the law. true In Germany, a works council typically involves both white- and blue-collar workers who elect representatives to participate on a body that is involved in decisions about the workplace environment and rules. However, wages and benefits are usually left for separate negotiations between labor unions and management. Chattanooga is Volkswagen's only plant in the United States

Volkswagen official threatens to block expansion if workers won't unionize - Volkswagen’s top labor representative threatened today to try to block further investments by the German carmaker in the U.S. South if its workers there are not unionized, Reuters reported today. “I can imagine fairly well that another VW factory in the United States, provided that one more should still be set up there, does not necessarily have to be assigned to the South again,” said Bernd Osterloh, a member of VW’s powerful supervisory board and head of VW’s works council. “If co-determination isn’t guaranteed in the first place, we as workers will hardly be able to vote in favor” of potentially building another plant in the U.S. South, said Osterloh, who was quoted in the German newspaper Sueddeutsche Zeitung. Workers at VW’s factory in Chattanooga last Friday voted against representation by the United Auto Workers, rejecting efforts by VW representatives to set up a works council labor board at the plant.

VW workers may block southern U.S. deals if no unions: labor chief (Reuters) - Volkswagen's top labor representative threatened on Wednesday to try to block further investments by the German carmaker in the southern United States if its workers there are not unionized. Workers at VW's factory in Chattanooga, Tennessee, last Friday voted against representation by the United Auto Workers union (UAW), rejecting efforts by VW representatives to set up a German-style works council at the plant. German workers enjoy considerable influence over company decisions under the legally enshrined "co-determination" principle which is anathema to many politicians in the U.S. who see organized labor as a threat to profits and job growth. true Chattanooga is VW's only factory in the U.S. and one of the company's few in the world without a works council. "I can imagine fairly well that another VW factory in the United States, provided that one more should still be set up there, does not necessarily have to be assigned to the south again," said Bernd Osterloh, head of VW's works council.

VW’s union rejection could hurt US economy, experts say - The obvious loser in last week’s failed bid to unionize the Volkswagen auto plant in Chattanooga, Tenn., was the United Auto Workers. The union was counting on a victory at the German-owned plant, which stayed officially neutral in the unionizing effort but hinted it welcomed a platform for organizing other plants in the South. But the vote — and the forces that had arrayed themselves against the UAW — could also represent a setback for the economy and blue- and white-collar employees, a number of auto-industry and economic experts suggested. U.S. management and labor organizations have battled each other —with both sides wasting resources in the process — ever since Frederick Winslow Taylor used his “scientific” methods a century ago to de-skill and control production workers, explained James P. Womack, For Womack, the acrimonious fight and vote in Chattanooga was part of a historical continuum that has often hobbled U.S. industry, especially in the face of international competitors who embraced much more collaborative approaches to management.  The fundamental question that the workers faced was “simple: ‘Would you like to participate in these committees on workplace management and safety?’”The bigger concern, argued Dau-Schmidt in a recent Marquette Law Review article, is that the U.S. “system of labor relations is yielding declining benefits for workers and undermining the position of the American economy as a whole.”

UAW Asks Labor Board to Weigh New Vote at Tennessee VW Plant - The United Auto Workers union has asked a federal labor agency to consider holding another vote at a Tennessee Volkswagen plant, contending interference by Republican lawmakers and others prompted workers there last week to reject union representation.  The UAW filed its request on Friday with the National Labor Relations Board, a quasi-judicial federal labor agency that supervises union elections and referees private-sector workplace disputes. The request—known officially as an objection to the election—could lead to a new election. The NLRB will review the UAW's objections, a spokesman said. Workers at the Volkswagen assembly plant in Chattanooga, Tenn., rejected UAW representation 712-626 in a stinging setback for the union and for organized labor as its seeks to increase its membership, especially in Southern states.  In its request, the UAW cites what it calls "a coordinated and widely-publicized coercive campaign" by politicians and outside organizations to deprive Volkswagen workers of their federally protected right to join a union "free of coercion, intimidation, threats and interference."  Labor lawyers said there is little precedent for the NLRB to consider objections to organizing elections based on third-party interference. Typically allegations of meddling are aimed at the company, said Art Schwartz, president of Labor and Economics Associates, Ann Arbor, Mich., consultant

Confusion over Median Hourly Wages  - I wanted to know where I was in the income scale—was I near the middle (in the "median" range), where half earned more than I did while the other half earned less? I wanted a realistic self-evaluation, and not a false perception. I've found a lot of conflicting information from the government, the media and our economists. The Bureau of Labor Statistics (BLS) reports that "median" weekly earnings of the nation's 104.8 million full-time wage and salary workers were $786 in the fourth quarter of 2013. This would equate to $19.65 an hour for a 40-hour work week. "Median" means 50% earned more and 50% earned less. And below is what the BLS reports for the number of people and the hours they're working: But...the Social Security Administration (SSA) reports 153,632,290 wage earners*, based on compensation (wages, tips, and the like) subject to Federal income taxes, as reported by employers on W-2 forms. This is 22,710,290 less wage earners than what the BLS reports as people working either full-time or part-time. Why is there a big discrepancy of the number of people working?Also, the SSA reports the "average" wage as $42,498 a year, which would equate to $20.43 an hour for a 40-hour work week (although the SSA statistics also include part-time workers) — and that number is also greatly influenced by higher wage earners at the very top of the income scale. So I need a "median" number to see where I fit into the scheme of things.This is where the SSA also reports the "median" wage (when 50% of all wage earners take home less and 50% take home more) as $27,519 a year—which would equate to $13.23 an hour.   Question: Is the Bureau of Labor Statistics saying that 50% of all full-time workers in the U.S. earned at least $19.65 an hour, while everyone else earned less? Or is it actually what the SSA reports: 50% of all wage earners take home $27,519 a year—which would equate to $13.23 an hour for a full-time job in a 40-hour work week?

The middle class’s missing $1.6 trillion - Most Americans still think of themselves as middle class.  But the marketing experts at the big consumer goods companies are giving their bosses the unsentimental advice that the middle class is an endangered species. Restaurants, appliance makers, grocery chains, hotels are learning that they either have to go completely up-scale, or focus on bargains for the struggling and budget-conscious. Current income surveys, for statistical reasons, usually segment families by broad categories, which obscure the recent radical shift of income to a thin stratum of the super-rich. Well-to-do people may buy $100 coffee pots, but the lion’s share of the income growth has been going to folks with five houses and staff to make the coffee. For the last 15 years, an international consortium of economists has been building data bases on the income shares of the richest people in the developed countries, based on pre-tax market income including capital gains and tax-exempt income, and excluding government transfers. The American data reveals the greatest inequality by far, followed by Great Britain. The stunning income distribution has a remarkable symmetry.  In 2012, the top 10 percent captured half of all reported income. But the top 1 percent got almost half of that — 22.5 percent — while the top 10th of 1 percent (0.1 percent) captured half of that. All three are within a few decimal places of the previous highs — which occurred in 1928, just before the market crash that ushered in the Great Depression.

Longer commutes disadvantage African-American workers: African-Americans spend more time than any other group getting to work and in some cases spend about 15 minutes more a day than whites commuting, according to research by Virginia Parks, associate professor at the University of Chicago School of Social Service Administration. That can be a 25 percent increase over an average urban two-way commute of about an hour, she found, based on a study of 2011 U.S. Census Bureau data. "Because of racial segregation, blacks spend more time getting to work. For low wage workers, the difference is seven minutes each way when compared with whites with similar jobs," she said. "The ability of workers to access jobs via a robust transportation system is positively associated with intergenerational economic mobility. In Chicago, African Americans continue to experience pronounced spatial disadvantage as a result of historic racial residential segregation and a jobs-housing mismatch," she explained.

The Impact of a Minimum-Wage Increase -- The Congressional Budget Office has just released an analysis of the impact of increasing the federal minimum wage.  The budget office examined two proposals: an increase from its current level of $7.25 an hour to $9, and an increase in three annual steps of $0.95, reaching $10.10 in 2016.  Since the increase to $10.10 is the proposal supported by the White House and many congressional Democrats, that’s the one I’ll focus on here.The most important finding is that on balance, low- and moderate-income Americans are big winners from a higher minimum wage, which would raise earnings and incomes, lower poverty and inequality, and do so at no net cost to the federal budget. These are among the report’s key findings:

  • It estimates that 16.5 million low-wage workers would directly benefit from the proposed increase to $10.10 by the second half of 2016.
  • It further notes that because of “spillover effects” — the fact that employers typically increase the wages of workers slightly above the new minimum (the report estimates that the spillover will go up to $11.50) — an additional eight million low-wage workers are also likely to receive some benefit from the change.  
  • It estimates that the increase in the wage would reduce employment by about 500,000.  That amounts to about 0.3 percent of total employment, and about 3 percent of directly affected workers (500,000 of 16.5 million) and 1.5 percent of the total, including spillovers (i.e., including all those earning up to $11.50).
  • While those against the increase will highlight this employment loss finding as a rationale for their opposition, it is in fact entirely consistent with the view of most supporters of the increase: while the increase is expected to cause some job losses, the number of workers who would get a raise far outweigh those displaced: 97 percent to 98.5 percent of potentially affected workers would benefit from the proposal.

    CBO on the Proposed Minimum Wage Increase - So, the data munchers and crunchers at the CBO have been awfully busy in recent weeks, and now they’ve come out with a report on the impact of the proposal to increase the minimum wage to $10.10 from its current level of $7.25.  Here’s my rundown over at the NYT Economix blog, but let me expound on a few of those points here as well. The big dustup will be over the budget office’s prediction that employment would be reduced by 500,000 jobs.  But 16.5 million low-wage workers benefit directly from the increase–they earn between the current and proposed new minimum of $10.10–and another 8 million will indirectly get a wage bump (that’s the spillover effect emanating from employers who raise the pay of workers slightly above the new minimum; see page 21).  It looks to me like CBO choose a pretty high-end estimate of job loss effects given the current state of the research.  But let’s say they’re right.  That means that 98% of those affected by the increase will be helped by it.If you can find me another policy that lifts the wages of that many low-wage workers at no cost to the federal budget (again, according to CBO), let me know what it is…quickly!  Since the report came out a few hours ago, I’ve heard from a number of folks who think there should be no employment losses.  But as I read the long and varied literature on this, the research finds job loss effects ranging from small to zero.  Some very high quality studies find zero, some find small.  Some less reliable studies find large negatives or positives (see the figure in my NYT post).  CBO, for whatever reason, pulled a card from the high-end of the deck to get their -500,000 employment impact.

    CBO report: Minimum wage hikes would kill 500,000 jobs but lift 900,000 out of poverty  (Reuters) – Raising the U.S. minimum wage would lead to the loss of about half a million jobs by late 2016 while lifting almost a million Americans out of poverty, the Congressional Budget Office forecast in a report on Tuesday that reignited debate over one of President Barack Obama’s top priorities this year. Buoyed by polls showing three-quarters of Americans in favor of a minimum wage hike, Obama and his fellow Democrats advocate raising the minimum hourly wage to $10.10 from the current $7.25 in a move to boost the stagnant wages of millions of low income workers. In the long term, Democrats also want to tie future minimum wage increases to inflation, avoiding the legislative fights over wages for lower-paying jobs. Republicans in Congress and allies in the business community have long argued that any such hike would encourage employers to shed workers to help offset higher salaries, and have vowed to fight it ahead of the congressional elections in November. They quickly seized on one of the findings in the CBO report: that raising the minimum wage in three annual steps to $10.10 would result in about 500,000 jobs being lost by late 2016.

    CBO Report Says Minimum-Wage Hike Will Cost 500,000+ Jobs; Common Sense vs. Research Papers - A new CBO study shows ObamaCare Magnifies Minimum-Wage Job Losses.  The Congressional Budget Office weighed in on President Obama's proposed $10.10-an-hour minimum wage, saying it could lead to job losses that range from "very slight" to "1 million." But in a footnote, the nonpartisan number cruncher explained that near-term job loss may be higher because its analysis didn't factor in the new ObamaCare costs imposed on employers. "At the same time that the proposed increases in the minimum wage would take effect, the Affordable Care Act's requirement that many employers provide health insurance (or pay a penalty if they do not) will impose an additional cost on employers for some low-wage workers who do not currently have employment-based health insurance," the CBO said. Over time, the CBO expects that the cost of complying with ObamaCare's employer mandate "will ultimately be borne by (low-wage) workers through lower wages." Analysts on the left lashed out at the CBO for its analysis that "flies in the face of overwhelming empirical evidence," according to Christine Owens of the National Employment Law Project.Let's go straight to the CBO Report on Minimum Wages to get some numbers.  Effects of the $10.10 Option on Employment and Income. Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects. As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers

    CBO Projects Employment Loss from Minimum Wage Hike Would be Comparable to Impact of Iraq War Size Increase in Military Spending -- Dean Baker -- The Congressional Budget Office (CBO) released a report today on the impact of an increase in the minimum wage, which projected that it would lead to a loss of 500,000 jobs. This was quickly seized on by opponents of the minimum wage hike as implying a disastrous loss of jobs. Unfortunately, some of the reporting on the issue was less clear than it could have been. The CBO projections imply that 500,000 fewer people will be employed at low wage jobs. It did not say that 500,000 people would lose their jobs. This is an important distinction. These jobs tend to be high turnover jobs, with workers often staying at their jobs for just a few months. While there will undoubtedly be cases where companies go out of business due to the minimum wage hike (many small businesses are always at the edge, so anything can push them over) the vast majority of the lost jobs are likely to be in a situations where businesses don't replace a person who leaves or don't hire additional workers as quickly in response to an uptick in demand. This means that we are not going to see 500,000 designated losers who are permanently unemployed as a result of this policy. Rather, the projection implies that workers are likely to find it more difficult to find new jobs when they leave an old job or when they first enter the workforce. With 25 million people projected to be in the pool of beneficiaries from a higher minimum wage, this means that we can expect affected workers to put in on average about 2 percent fewer hours a year. However when they do work, those at the bottom will see a 39.3 percent increase in pay.

    Takeaways From the CBO Minimum Wage Report - The Congressional Budget Office on Tuesday said that raising the minimum wage to $10.10 an hour by 2016 would increase hourly wages for 16.5 million people but reduce the workforce by 500,000 people. Here are takeaways.

    • 1)   Something for everyone. The White House and many Democrats are pushing for a big increase in the federal minimum wage from the current $7.25 level, and they will trumpet the CBO projections that millions of American workers would get a “raise” if the threshold is lifted to $10.10 per hour. But many Republicans have long warned that raising the minimum wage will lead employers to cut jobs, and CBO confirms that this will likely be the case. So get used to the numbers 16.5 million and 500,000.
    • 2)   Washington isn’t likely to budge. Democrats were hoping to use the minimum wage as a wedge issue in the November midterm elections, and that will likely remain the case after this report. But many Republicans will feel like they are on comfortable ground defending their opposition to an increase given the CBO’s estimates.
    • 3)   What a difference $1.10 makes. The CBO looked at the impact of raising the minimum wage to $10.10 hour (the current Democratic proposal) and $9 an hour (a past proposal from many Democrats). While the estimate of 500,000 lost jobs might give some Democrats pause about raising the wage to $10.10, CBO said raising the minimum wage to $9 an hour could actually ADD jobs. Presumably this is because it would create more spending power for lower-income Americans. The most likely impact at $9, however, is a loss of 100,000 jobs and 7.6 million people receiving higher pay.
    • 4)   Poverty impact. Close to 47 million Americans receive food stamps, and around 15% of Americans live in poverty, according to one estimate. CBO says raising the minimum wage to $10.10 would lift  the wages of 16.5 million people, but it would only reduce the number of people living in poverty by 900,000. As this is a key plank in the White House’s anti-poverty effort, they might have been hoping for more bang for the bucks.

    Unions Dispute CBO Report on Impact of Higher Minimum Wage - Organized labor wasted no time responding to a Congressional Budget Office report that undermines one of unions’ top priorities: raising the federal minimum wage, along with wages in general. Tuesday’s report from the nonpartisan CBO said raising the minimum wage to $10.10 an hour would lift 900,000 Americans out of poverty, but would cost the U.S. economy about 500,000 jobs — mostly low-wage ones — by late 2016. The estimate comes as unions are pushing a Democratic-sponsored proposal in Congress to boost the wage in stages from the current $7.25 an hour to $10.10 by mid-2016.  After 2016, the wage would adjust annually for inflation. Richard Trumka, president of union federation AFL-CIO, which is holding its winter meeting in Houston this week to strategize for the year,  immediately challenged the study’s findings and said it echoed false claims by conservatives. “Every time momentum builds for lifting wages, conservative ideologues say it will cost jobs.  Every time, they’ve been dead wrong,” Mr. Trumka said in a statement emailed during his closed-door meeting with labor leaders in a Hilton hotel ballroom. “This is more of the same noise,” Mr. Trumka said, adding that conservative economists don’t care about workers.  “Our country is finally poised to lift millions out of poverty and make our country work for the people who work. Let’s raise the wage and we’ll prove the CBO wrong again,” he added. At the start of winter conference on Monday, Mr. Trumka said one goal of the meeting  was to find “strategies to tackle income inequality and incubate new forms of organizing” to help boost pay.

    Even Economists Cited By The CBO Disagree With Its Minimum Wage Report - Republicans opposed to a minimum wage hike got more fodder for their case Tuesday when the Congressional Budget Office released a report stating that a $10.10 minimum wage could cost the economy about 500,000 jobs. But some economists say that estimate may be overblown, and at least three whose research was cited in the report are now questioning that figure. In a blog published by ThinkProgress on Thursday, Michael Reich, director of University of California-Berkeley's Institute for Research on Labor, argues that the CBO doesn't clearly explain how it came up with the 500,000 estimate. In his reading, it seems the budget analysts relied too heavily on studies "with methodological flaws" that found a higher minimum wage to be a job killer.  "They rely on the research literature, and the way they rely on the research literature is they say, 'Well, there are all these estimates out there' and then they somehow synthesize those estimates to one number," Reich told HuffPost. "In my view, they used numbers that were too high, based on what the research actually says." Arindrajit Dube, an economist at the University of Massachusetts-Amherst, said the CBO "put their thumb on the scale a little bit."

    CBO Report Shows Low-Wage Workers Would Be Better Off With a Minimum Wage of $10.10 -- Tuesday’s CBO report on the effects of increasing the minimum wage has generated a lot of discussion. While some of the CBO’s findings are consistent with our own analysis, we have some serious disagreements. Here’s our take on the report, particularly CBO’s estimates on employment and income (we focus on their estimates of the effects of increasing the minimum wage to $10.10 by 2016). The report finds that 16.5 million workers who make below $10.10 would get a raise, and an additional 8 million workers who make slightly above $10.10 would also likely get a bump (since employers like to preserve internal wage ladders). This is right in line with our estimates of the likely impact. They found that the increase in the minimum wage would benefit mostly adults who need the earnings from their minimum wage job to make ends meet: less than 12 percent of the people who would get a raise are under age 20 and more than 70 percent of the total earnings would go to workers in families whose income is less than three times the poverty threshold. For context, in 2013, three times the poverty threshold for a family of three was around $55,700. This too is right in line with our analysis. CBO also found that 900,000 people would be lifted out of poverty. We agree that raising the minimum will lift a significant number of people out of poverty, and if anything, CBO’s estimate here seems conservative.  A recent paper by Arin Dube looks specifically at this question and estimates that in the past, for every 10 percent increase in the minimum wage, we’ve seen a 2.4 percent decrease in the number of people in poverty. This implies that increasing the minimum wage to $10.10 could reduce the number of people in poverty by as much as 4.5 million. Notably, CBO estimates that increasing the minimum wage to $10.10 would cost 500,000 jobs—a finding that we disagree with.

    In Its Minimum-Wage Report, the CBO Places Its Thumb on the Scale - The Congressional Budget Office just threw a hand grenade into the debate over the minimum wage. A new report released Tuesday argues that a higher minimum wage, which has become a centerpiece of President Obama’s agenda for combating economic inequality, will cost jobs. What lessons should we take from this report? Let’s start with the headline number. According to the CBO, a $10.10 minimum wage will cost 500,000 jobs. (The report also says the total could range between slight losses to one million.) It also concludes that a $9 minimum wage would cost 100,000 jobs, while saying that this number could range from a slight increase to 200,000 jobs. This estimate involves no original research by the CBO. What they did is a survey of the various economic research that already exist, picking an impact that the office’s staffers thought was appropriate. As it turned out, what they thought was appropriate involved a lot of adjustments in the direction for a higher impact. In the report, the authors themselves clarify that they are taking a more conservative line. All predictions, of course, amount to speculation of things that could happen in the economy, but in this one the speculating goes in a direction that is, to a surprising extent, in tune with Republican ideology. The report speculates that a minimum wage indexed to inflation would reduce jobs. It speculates that the speed of the minimum wage increase, or its level using various inflation measures, would reduce jobs. It argues job losses will be higher because of very new research centered on growth levels, even though that research is highly controversial. It speculates that technological change is coming faster than expected, and this will have an impact. And it also, crucially, speculates that these would bite much harder at $10 minimum wage instead of a $9 one.

    CBO Whiffs on Minimum Wage - The Congressional Budget Office has just issued a report on the minimum wage that is a real head-scratcher. Analyzing proposals to raise the minimum wage to $9.00 or $10.10 per hour, it concludes in the latter case that there would be 500,000 fewer jobs in the second half of 2016 than there would be under current law (100,000 fewer for $9.00/hr.).  Predictably, conservatives have seized on this number as proof that the minimum wage is a “job killer.” Even liberal media, such as Talking Points Memo in this paragraph’s link, seem to think that number is a big problem, going on to say, “It’s not all bad, though, for one of the centerpieces of Democrats’ middle-class agenda ahead of the November congressional elections,” as if the CBO report were mostly bad news for Democrats. There are two problems with these claims. First, the CBO’s calculations undervalue the best research on the minimum wage. Second, even in the CBO’s estimated world, low wage workers are much better off as a whole than under the current $7.25/hr. minimum wage. But the CBO’s estimation procedure has serious flaws. It begins (p. 6) with what it calls “conventional economic analysis,” which is already a big mistake. Simple Econ 101 reasoning (when the price of something goes up, the quantity purchased goes down) has had only sketchy empirical support, something that has been especially clear from meta-analysis of minimum wage studies (ungated version of Doucouliagos and Stanley 2009 here).The CBO, of course, has heard of these studies, but it remains with a non-transparent explanation of how it weighted different studies (p. 22), saying it gave the most weight to contiguous state comparison studies. The only thing is, according to Arindajit Dube, these are the studies least likely to find a negative employment effect. Thus, how CBO ends up with a baseline of job loss remains mystifying.

    Raise the Wage? GOP Leader Would Prefer His Own Death (But That's Just Half the Story) - Though Democrats now seem determined to push a proposed minimum wage increase this year, lifting the federal rate from $7.25 t o $10.10, the chances of giving millions of workers a raise—even an increase that progressives see as not nearly enough—is likely dead in the Republican-controlled House of Representatives.And speaking of 'dead'—and according to The Hill on Friday—that's exactly what Speaker of the House John Boehner (R-OH) would prefer to be, if forced to choose between ending his life and giving low-wage workers even in the most minimum of wage hikes. With the headline, 'Boehner: I’d rather kill myself than raise the minimum wage,' the newspaper reports that the GOP leader's opposition to the measure is so strong historically that he once told The Weekly Standard he would "commit suicide" before voting 'Yes' on a clean minimum wage increase for workers.

    Will a $10 Minimum Wage Get All Working Americans Out of Poverty? - Yves Smith - This Real News Network segment discusses what many readers know all too well, that even a $10 minimum wage fails to provide an adequate standard of living, particularly for parents. For instance, even though MIT has a living wage calculator, its results seem unrealistic (notice, for instance, a supposed living wage of $9.20 an hour for a single person in in Jefferson County, Alabama/a>, is based on a budget that allots a mere $73 a month for “other” expenses, including clothes, shoes, cleaning and laundry, telephony and banking services). The RNN experts explain why the method for calculating the poverty line is outdated and underestimates living costs. They argue that a $15 an hour minimum wage, no matter how unattainable it seems politically, is the level needed to provide a true “minimum” wage. The segment also does a good short-form debunking of the disgracefully partisan CBO’s claim that raising the minimum wage would result in 500,000 lost jobs.

    Wal-Mart 'looking' at support of federal minimum wage rise - — The largest private employer in the U.S. said it's looking at supporting an increase in the federal minimum wage, breaking with business and industry groups that oppose such a measure. Wal-Mart is weighing the impact of additional payroll costs against possibly attracting more consumer dollars at its stores, David Tovar, a company spokesman, said today in a telephone interview. Increasing the minimum wage means that some of the 140 million people who shop at the chain weekly would “now have additional income,” Tovar said. In the mid-2000s, Wal-Mart backed an increase in the federal minimum wage that eventually took effect in 2007. Asked whether Wal-Mart would support another raise in the federal minimum wage Tovar said: “That's something we're looking at. Whenever there's debates, it's not like we look once and make a decision. We look a few times from other angles.” President Barack Obama and Senate Democrats want to raise the federal minimum wage to $10.10 an hour from $7.25 an hour, saying that doing so would boost the economy and help bridge the gap in income equality. Most Republican lawmakers oppose any such measure, dubbing it a potential job killer. So does the National Retail Federation, an industry trade group of which Wal-Mart is a member. Wal-Mart's current position on the issue is neutral, Tovar said.

    Forget the minimum-wage job losses: it's government cuts that'll get you mad - Which is worse: 500,000 Americans out of work, or 2m?... 500,000 is an estimate of the number of jobs the country might lose if the minimum wage gets raised to $10.10 an hour, according to a controversial analysis released Tuesday by the Congressional Budget Office.  What about those 2m jobs? That’s how much the economy will lose by 2019 because of federal budget cuts, as estimated by the Center for American Progress. And, well, I hate to break it to you, but Congress already voted on those last year, and it didn’t spur one fired shot. Budget cuts, also known as austerity, are the most damaging economic decision Congress has made since the financial crisis. Former Federal Reserve chairman Ben Bernanke warned lawmakers several times that austerity measures would hurt the economy, but they largely ignored his warnings. Jobs lost to government budget cuts are part of the reason why the economy still looks so weak... The cost of austerity doesn’t stop at 2m jobs, either. There could be as many as 7 million jobs that are never even created because of Washington budget cuts, according to the Economic Policy Institute. Those 7 million jobs would be the difference between the unhappy economy we have now ... and an actual recovery.  So, here’s the not-so-simple question: if everyone’s so angry about losing 500,000 jobs while paying the average worker more per hour, where’s the unstoppable outrage about the 2m jobs that already seem lost to austerity?

    Low-Wage Workers Have Experienced Wage Erosion in Nearly Every State - Though six years have passed since the Great Recession officially began in December 2007 and four-and-a-half years since its official end in June 2009, U.S. workers continue to feel the impact of the recession and the very weak recovery through elevated unemployment and through suppressed wages. The figure below shows that low-wage earners— wage-earners at the 20th percentile— have experienced wage erosion in nearly every state.  Between 2009 and 2013, low-wage earners’ wages declined in every state except three (West Virginia, Mississippi and North Dakota). Real (i.e. inflation-adjusted) wage erosion was greatest in Maryland (-$1.24), Massachusetts (-$1.18), and New Jersey (-$1.16) during this period.  The national average decline over this period was $0.68 or 6.4 percent. Further, wage erosion was not confined to this portion of the wage spectrum.  Wages at both the 10th percentile (“very low wages”), and the median wage saw erosion in forty-five states and the District of Columbia over this period. This ongoing erosion of lower-income wages is one of the prime reasons that policymakers need to take swift action to support wage growth, such as increasing the federal minimum wage to $10.10, renewing extended Unemployment Insurance, and implementing policies aimed at moving us towards full employment.

    Rising Inequality – Recovery Occurring Almost Exclusively Among the Wealthy - America’s income inequality has grown so wide that the current “recovery” is driven primarily by the upper fifth of income earners, as revealed by the latest consumer spending data. Right now, more than 60% of all consumer spending is done by just the top 20% of income earners. And retailers are noticing. This is the America that’s in recovery. Who is part of that 20% with most of the spending money? First, obviously, are the bigs (the Kochs, the Edelsteins, the Rubins and Dimons, the hedge fund kings and queens). The next level down includes their top retainers (those who are paid — or campaign-financed — to serve their financial interests … people like, well …). And finally, there’s the broad class of well-paid and needed professionals, those who get the real trickle-down, who earn real money when the economy is good. Doctors, lawyers, high-tech pros, engineers, sales types, the people at the airport on a weekday. Everyone with a needed skill who keeps the machine running and whose job can’t be outsourced. Inflation-adjusted incomes below that point have collapsed, or gone flat with barely a hint of recovery. Much of this is revealed in a study of consumer spending as described in a recent New York Times article. First, the money quote, then more from the article:[T]he current recovery has been driven almost entirely by the upper crust [the top 5% of earners], according to [the study's authors] . Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.More broadly, about 90 percent of the overall increase in inflation-adjusted consumption between 2009 and 2012 was generated by the top 20 percent of households in terms of income, according to the study

    Inequality By Design: It's Not Just Talent and Hard Work - Dean Baker -- Greg Mankiw is out there defending the 1 percent again. He put forward the argument that the big bucks are simply their just desserts; the rewards for exceptional skill and hard work. His opening act is Robert Downey Jr. who apparently got $50 million for his starring role in a single movie. This is a great place to start. How is that Downey could earn so much more than a great actor from the 50s, 60s, or 70s? In fact, a big part of the reason that Downey can collect huge paychecks is the extension and strengthening of copyrights. The United States has lengthened the period of copyrights from 28 years, with an option for a 28 year renewal, to 75 years in the 1976, and then to 95 years in 1998.  It is also worth noting that this intervention also has an indirect effect. If there was a large amount of high quality and recent material that everyone could obtain for free on the web (and show in theaters if they like), then no one would be willing to pay big bucks to see Downey's latest feature. So is Downey worth his $50 million, perhaps given the structure we have, but we could easily have a different structure which could quite possibly be a more efficient way to support and distribute creative work. (Here's my scheme.) Then we get to the CEOs who Mankiw tells us get high pay because of what they contribute to their companies and the economy. If this is the case, how do we explain CEO's of companies like Lehman, Bear Stearns, and AIG walking away with hundreds of millions of dollars even though they drove their firms into bankruptcy? When the CEO of Exxon-Mobil gets hundreds of millions because soaring worldwide oil prices sent Exxon's profits through the roof, do we really think the pay is a function of hard work? How do we explain the fact that CEOs of incredibly successful companies in Europe, Japan, and South Korea make on average around a tenth as much as our crew does?

    This 50-state chart shows how the 1 percent is gobbling up income - Top 1 percent’s share of income between 1979 and 2007. In each state in the nation, the top 1 percent of earners saw its share of the income pie grow between 1979 and 2007, according to a new 50-state study of income inequality. The change was starkest in Wyoming, where 9 percent of income belonged to the top 1 percent in 1979. By 2007, that top slice of earners laid claim to 31 percent of all income. It hasn’t always been the case, though. As the GIF above and graph below both show, the top 1 percent saw its share of all income shrink between 1928 and 1979. Over that half-century, the income pie was shared a little more equally. But since 1979, that trend reversed in every state, according to a new study from the Economic Policy Institute, a think tank that focuses on the needs of low- and middle-income workers. The authors of the report borrowed the methodology of economists Emmanuel Saez and Thomas Piketty, a duo renowned for their research into income inequality. To get the income data in each state, they analyzed tax data from the Internal Revenue Service. Using that data — which include the amount of income and the number of taxpayers in each bracket — they extrapolated how it would break down along a distribution. They then used state Census data and Piketty-Saez national estimates to identify how to apply that breakdown to each state. In four states, the only residents who saw their incomes grow from 1979 to 2007 belonged to the top 1 percent, according to the study. (Those states were Nevada, Wyoming, Michigan and Alaska.) In 15 other states, the top 1 percent captured between half and 84 percent of all income growth. That inequality was smallest in Louisiana, where the top 1 percent accounted for just 25.6 percent of all income growth over those three decades.

    Open Borders: A Morality Play by the 1%  - Alex Tabarrok, who I rarely agree with, has recently argued his moral position on open borders here. There is no doubt that most moral frameworks also support his position. As do I in the mere theoretical sense. As Tabarrok argues How can it be moral that through the mere accident of birth some people are imprisoned in countries where their political or geographic institutions prevent them from making a living? I have argued before that redistribution of wealth from the world’s richest to the world’s poorest should be at the top of the policy agenda for any economist who believes in the utilitarian foundations of their discipline. Open borders is an indirect method for pursuing similar goals of increasing wellbeing for the poorest, and usually promoted by those who fall on Mankiw’s side of the political spectrum; by those who typically argue that the rich ‘deserve’ their wealth (counterargument here). Open borders is merely the logical outcome of any type of ‘natural rights’ moral reasoning. People should have the opportunity to flourish irrespective of the patch of Earth they were born. Yet the idea boils down to being the policy you support when you want to help the world’s poor but don’t support actually giving them money. That open borders within countries does not automatically eliminate poverty reminds us be skeptical of claims that opening borders between them will reduce poverty automatically. It helps to identify the potential winners and losers from opening borders in order to better understand the motivations it its proponents. If open borders works, and large scale migration occurs, the net effect is that the poorest in the world’s richest countries would have their wages reduced due to competition for unskilled jobs. By contrast, the richest individuals in rich countries, whose incomes are derived mostly from owning capital, would increase due to the greater demand for their domestic assets (such as land) following high levels of immigration.

    Jenn’s Words: “Living in poverty is like being punched in the face over and over and over on a daily basis.“ -- Today, I did something I never thought I’d do. I yelled at my son for being hungry. Oh sure, there are many parents nodding in agreement because they’ve done the same thing. Many have yelled at their kids for asking for one more snack right before dinner was served or for wanting to eat junk food out of boredom. That’s not why I yelled. I yelled because I didn’t have extra food to give him and I was taking my frustration out on him. He wasn’t doing anything wrong. He’s just a kid, a 7 year old who is full of energy and constantly growing. Of course he’s hungry often. That’s what kids do. However, I didn’t have enough food for anyone to have extras. Everything has to be rationed out over a week or more. Food stuff needs to be stretched. Already angry and frustrated with our situation, I lost my cool when my child asked a simple question – because I knew there was nothing I could do to change it in that moment. My anger turned to worry, another constant feeling in my daily life, as I wondered if this would create food issues in my child. Will he be afraid to eat, knowing that we might not have enough the next day? I’m 35 years old. I am a mother and a wife. I am college educated, degreed, and I have held a professional license. I have been working since the age of 18. Until now. I live in poverty. I am poor. My family is poor.

    Food stamp usage has quadrupled among US service members since ‘06 — Food stamp usage among members of the US armed forces has quadrupled since 2006, as patrons of military commissaries used supplement to buy US$103.6 million of groceries in fiscal year 2013, according to the Defense Commissary Agency. Participation in the Supplemental Nutrition Assistance Program (SNAP) has increased in recent years faster among members of the US military than the overall American population. Since 2009, members of the armed forces have doubled food stamp purchases; by comparison, overall spending on SNAP went up just 51 percent in that time, according to the US Department of Agriculture (USDA). Around 5,000 active-duty military members used food stamps in 2011. That figure, which has not been updated since, made up less than 1 percent of the 44 million Americans on food stamps at the time, the USDA reported. Weak economic recovery following the heights of the Great Recession is one culprit, as the unemployment rate among spouses aged 18 to 24 of active-duty military hit 30 percent in 2012, according to the Military Officers Association of America. Base pay for a low-level soldier is around $20,000 – not including housing or food – which is just above the poverty line and, in at least a two-person household, would make the service member eligible for SNAP benefits, according to CBS News.

    Awareness Reduces Racial Bias - Brookings Institution - The authors examined a real-world setting—professional sports referees who had big incentives to make unbiased decisions but were still exhibiting significant amounts of racial bias—and found that after learning of their bias via media coverage of a major academic study, their behaviors changed. The original study, authored by Price and Wolfers and in 2007, looked at nearly two decades of NBA data (1991-2002) and found that personal fouls are more likely to be called against basketball players when they are officiated by an opposite-race refereeing crew than when officiated by an own-race refereeing crew. The results received widespread media attention at the time, with a front-page piece in the New York Times and many other newspapers, extensive coverage on the major news networks, ESPN, talk radio and in the sports media including comments from star players at the time such as LeBron James, Kobe Bryant and Charles Barkley, to then-NBA Commissioner David Stern.The new NBER working paper compares the next time period after the first study (2003-2006) to the timeframe immediately after the study was publicized (2007-2010). The authors found the bias continued in the first 3-year period after the study but that no bias was apparent after the widespread publicity of the first study’s findings. The researchers found that the media exposure alone was apparently enough to bring about the attitude change: the NBA reported that it not take any specific action to eliminate referee discrimination, and in fact never spoke to the referees about the study, nor change referee incentives or training.

    One Nation Under Guard - - Another dubious first for America: We now employ as many private security guards as high school teachers — over one million of them, or nearly double their number in 1980.And that’s just a small fraction of what we call “guard labor.” In addition to private security guards, that means police officers, members of the armed forces, prison and court officials, civilian employees of the military, and those producing weapons: a total of 5.2 million workers in 2011. That is a far larger number than we have of teachers at all levels.What is happening in America today is both unprecedented in our history, and virtually unique among Western democratic nations. The share of our labor force devoted to guard labor has risen fivefold since 1890 — a year when, in case you were wondering, the homicide rate was much higher than today.Is this the curse of affluence? Or of ethnic diversity? We don’t think so. The guard-labor share of employment in the United States is four times what it is in Sweden, where living standards rival America’s. And Britain, with its diverse population, uses substantially less guard labor than the United States.In America, growing inequality has been accompanied by a boom in gated communities and armies of doormen controlling access to upscale apartment buildings. We did not count the doormen, or those producing the gates, locks and security equipment. One could quibble about the numbers; we have elsewhere adopted a broader definition, including prisoners, work supervisors with disciplinary functions, and others.

    Yes, Virginia, You Pay Subsidies Not Just to Banks but to Flood-Prone Homes of the Rich - Yves Smith  -  Readers may recall that we wrote about the Biggert-Waters Act, a bill to address rising losses in a Federal flood insurance program that had run on a self-supporting basis until the late 2000s. As New Jersey Spotlight explained: Congress created the National Flood Insurance Program in the late 1960s after Hurricane Betsy hit New Orleans, causing over a billion dollars in damage. Flood insurance was nearly impossible to secure from the private market, so lawmakers felt the federal government had a duty to step in and provide help to residents along the coast. But beginning in 2005, Hurricanes Katrina, Rita, Wilma and several other storms caused it to blow through its budget and go $24 billion in debt. The mandated increases under Biggert-Waters started hitting at the same time when FEMA issued new flood maps. This is a periodic process, but the latest version reflected recent experience with more frequent and severe storms. As a result, people whose homes had never been in floodplains (and hence required to buy insurance) were newly included,. Those already in a flood area saw their premiums increase, at a minimum due to Biggert-Waters, plus many were hit by having their home moved into a higher risk category. The result was many faced increases of tens of thousands of dollars in annual premiums. But there were some people who managed to insulate themselves from these rate increases: the wealthy who petitioned FEMA for a break. In some cases, these properties had already gotten large insurance payouts in previous storms, and had less well heeled, well connected neighbors who got no rate relief. From NBC:As homeowners around the nation protest skyrocketing premiums for federal flood insurance, the Federal Emergency Management Agency has quietly moved the lines on its flood maps to benefit hundreds of oceanfront condo buildings and million-dollar homes, according to an analysis of federal records by NBC News. The changes shift the financial burden for the next destructive hurricane, tsunami or tropical storm onto the neighbors of these wealthy beach-dwellers — and ultimately onto all American taxpayers.

    Detroit faces bond challenge in bankruptcy plan -- The city of Detroit's effort to declare some of its general obligation bonds as unsecured debt will be challenged in bankruptcy court Wednesday in what could be a precedent-setting turn in the largest-ever municipal bankruptcy in U.S. history. The issue in front of federal bankruptcy Judge Steven Rhodes is whether a pledge of Detroit tax revenue to pay off the voter-approved bond issues is a binding obligation under Michigan law, as argued by bond insurers in two lawsuits, or merely a promise. Michigan's Governor Rick Snyder is expected to testify today at the trial.The outcome of the dispute could have a far-reaching impact on the $3.7 trillion municipal market, where general obligation bonds made up some 60 percent of the issues sold in the last decade. That could reduce investor interest in not only any future Detroit borrowings but in debt from other Michigan municipalities, forcing them to pay higher interest rates. And it could trigger similar concerns for municipal borrowers in other states.

    Kansas spanking bill would allow teachers and parents to leave bruises -- A Democratic lawmaker in Kansas says that her bill allowing teachers, caregivers and parents to beat children to point of leaving bruises is about restoring parental rights, not abusing children. State Rep. Gail Finney’s (D) bill expands current law, which allows spanking without leaving marks. According to KCTV, the new legislation would permit teachers, caregivers and parents to strike children up to 10 times, and leave redness or even bruising. McPherson Deputy County Attorney Britt Colle, who proposed the idea to Finney, told KCTV that the measure actually protected children by defining what parents were not allowed to do. “This bill basically defines a spanking along with necessary reasonable physical restraint that goes with discipline, all of which has always been legal,” Colle explained. “This bill clarifies what parents can and cannot do. By defining what is legal, it also defines what is not.”

    Missouri bill to create ‘parental warning’ requirement to teach evolution debated - Education in science will be opt-out in Missouri, if a bill requiring schools to notify parents if “the theory of evolution by natural selection” is being taught at their child’s school passes. The bill proposed by Republican State Rep. Rick Brattin had its first public hearing Thursday. Brattin has described teaching only evolution in school as “indoctrination” to local TV. The language of the bill makes little provision separating discussion of the specifics of evolutionary biology from any other element of biology upon which evolutionary theory rests, like anthropology, examination of dinosaur fossils, genetic sciences, disease or modern medicine. “My fear is that every mention of a fossil, every conversation about the development of organs and vital structures, every single mention about the genetic similarity that we share with other organisms could potentially be systematically whittled out of these student’s education,” “In the end, a lack of an education in this field will put students behind the rest of their class, and the rest of the world for that matter, in a way that they will not be able to recover from – much like leaving out multiplication would severely hinder any further advancement in mathematics.”

    Higher Education: America's Problem That Isn't Being Solved - One of the key insights from recent work in psychology is that humans tend to substitute easier problems rather than solve difficult problems. Daniel Kahneman explained this dynamic in his recent book Thinking, Fast and Slow. To "solve" a difficult problem we are unfamiliar with, we substitute a lesser problem we already know the answer to, and then declare we've "solved" the original (often knotty, complex) problem. The real problem then festers, unsolved and addressed, while the misguided "solution" only drains resources and exacerbates the real problem. An excellent example of this dynamic is higher education: the real problems are soaring costs and sharply declining yields in actual learning and in the real-world value of a diploma.

    More Calif. students seeking financial aid for college -- As tuition costs rose over the past several years, a record number of California college students have applied for financial aid. The Sacramento Bee reports Tuesday that over the last six school years, the number of California residents filing the federal financial aid application jumped nearly 74 percent. The U.S. Department of Education says some local colleges saw even higher increases -- such as an 81 percent rise among applicants at California State University, Sacramento. The percentage of Cal State and University of California freshmen receiving financial aid increased from 57 percent in 2006-07 to 72 percent in 2011-12.

    Student Loans Hit Record $1.08 Trillion; Delinquent Student Debt Rises To All Time High -- While the bulk of the quantity data contained in the Fed's quarterly Household Debt and Credit Report is known in advance courtesy of the Fed's monthly tracking of household revolving and non-revolving debt, the quality components always provide a welcome insight into the state of the US household. It is there that we find that the most disturbing trend in recent years: the encumbering of students with record amounts of loans continues. In fact, as of December 31, the total amount of non-dischargeable (for now) student loans hit a new all time high of $1.08 trillion an increase of $53 billion in the quarter. By comparison, total credit card debt as of the same period was "only" $683 billion. At this rate, total student loans will be double the size of all credit card debt within 2-3 years. What's worse, while the 90+ day student debt delinquency rate did post a tiny decline from 11.8% to 11.5% in Q4, on a total notional basis due to the increase in outstanding balances, as of this moment the amount of heavily delinquent student loans has just hit a fresh record high of $124.3 billion, up from $121.5 billion in the prior quarter.

    Student-Debt Rise Concentrated Among Those With Poor Credit - The nation’s sharp rise in student debt is being driven largely by Americans with poor credit, new data show. Overall student debt rose 12% to $1.08 trillion in 2013, the Federal Reserve Bank of New York said in a report released Tuesday. Student debt is the second-largest form of household credit after mortgages. Student debt has risen rapidly since the recession, as many Americans enrolled in school to escape a weak labor market. Also, other funding sources—such as home equity and household savings—diminished after the housing crash, forcing a greater share of students to borrow. A new analysis by the New York Fed shows the rise hasn’t been universal across groups with different credit profiles. Of the 12% overall rise in student debt, a third—or four percentage points—came from borrowers with the worst credit history, or those with credit scores of 620 or lower. About five percentage points came from those with scores between 621 and 680, and roughly two points was from those in the middle quintile—scores between 681 and 720. Only about one percentage point came from those in the 720-to-780 range. And among those with scores above 780, student debt was flat. Other data show that those with college degrees are much less likely to be unemployed and earn far more than those with only high school diplomas. But delinquencies among student borrowers are rising, a development that could inflict further damage on borrowers’ credit. That could make it harder for student borrowers to qualify for loans to purchase cars, homes and other items. Roughly 11.5% of student-loan balances were delinquent in the fourth quarter of 2013, meaning a payment hadn’t been made in at least 90 days, the New York Fed said. That’s up from a delinquency rate of about 8.5% two years earlier.

    The subprime education crisis - The NY Federal Reserve’s Household Debt & Credit Report shows that student debt is rising fast and is now at an all-time high:  That’s a good thing, isn’t it? It shows that lots of young people are signing up for college instead of sitting around at home doing nothing or doing dead-end jobs. But all is not well. Here are the figures on delinquent loans from the same report.  So, more than one-tenth of people with student loans are in arrears. This is a significant rise: only two years earlier the delinquency rate was 8.5%. The Wall Street Journal says that the rise in student credit has been concentrated most among those with poor credit records (my emphasis): “Of the 12% overall rise in student debt, a third—or four percentage points—came from borrowers with the worst credit history, or those with credit scores of 620 or lower. About five percentage points came from those with scores between 621 and 680, and roughly two points was from those in the middle quintile—scores between 681 and 720. Only about one percentage point came from those in the 720-to-780 range. And among those with scores above 780, student debt was flat.” And the eventual delinquency rate may well be higher: “….the official delinquency rate likely understates the problem, since many borrowers are still in school and thus don’t have to make payments yet. Excluding those borrowers from the overall pool of student debt would likely increase the delinquency rate.” Oh dear. We appear to have what might be termed sub-prime student loans on which there are rising defaults. In fact it is possibly worse than sub-prime mortgages, because unlike mortgages, delinquent student loans cannot be written off in return for asset seizure. The borrower is stuck with the debt – possibly for life – while the lender, i.e. the US government, receives nothing. Really it is the worst of all possible worlds

    29 Percent Of All U.S. Adults Under The Age Of 35 Are Living With Their Parents - Why are so many young adults in America living with their parents?  According to a stunning Gallup survey that was recently released, nearly three out of every ten adults in the United States under the age of 35 are still living at home with Mom and Dad.  This closely lines up with a Pew Research Center analysis of Census data that looked at a younger sample of Americans which found that 36 percent of Americans 18 to 31 years old were still living with their parents.  That was the highest level that had ever been recorded.  Overall, approximately 25 million U.S. adults are currently living at home with their parents according to Time Magazine.  So what is causing all of this?  Well, there are certainly a lot of factors.  Overwhelming student loan debt, a depressing lack of jobs and the high cost of living are all definitely playing a role.  But many would argue that what we are witnessing goes far beyond temporary economic conditions.  There are many that believe that we have fundamentally failed our young people and have neglected to equip them with the skills and values that they need to be successful in the real world.

    401k balances rise with record gains on Wall Street Wall Street’s historic gains in 2013 have boosted the value of Americans’ retirement accounts to record highs, according to several plan managers, restoring a critical component of household wealth.Fidelity Investments, the nation’s largest provider of retirement plans, said the average balance in its accounts at the end of last year was $89,300 — nearly double the amount during the depths of the recession . Vanguard, another major fund manager, said its plans clocked in at $101,650, the highest level since it began tracking the data in 1999. “While there is more to be done to help Americans save more effectively for their retirement, these are positive trends that show we are clearly moving in the right direction,” .

    U.S. health insurers brace for new steep Medicare cuts (Reuters) - The U.S. government is expected to announce this week the proposed payment rates for insurer-run Medicare plans in 2015, but industry officials say the anticipated cuts will mean higher co-pays and fewer benefits for seniors. Of the more than 50 million older Americans who receive coverage through Medicare, about 15 million are enrolled in Medicare Advantage plans offered by companies such as UnitedHealth Group Inc, Humana Inc and Aetna Inc. The rest use Medicare fee-for-service programs, in which doctors are reimbursed by the government for patient visits and procedures. Each February, the Centers for Medicare and Medicaid Services proposes reimbursement rates that it agrees to pay insurers for managing the privately run programs. It publishes a final rate 45 days later. true Insurers are bracing for a proposed cut of around 6 to 7 percent when the government makes the information public in an announcement expected on Friday, according to the latest industry and analyst forecasts. Health insurance executives have been lobbying against cuts of that magnitude, saying they would have no choice but to pass on a significant part to seniors to keep their business intact.

    Health-Law Backers Push Skimpier 'Copper' Insurance Policies - Some backers of the 2010 health-care law are pushing to create a new kind of insurance coverage that the measure essentially had ruled out: policies offering lower premiums but significantly higher out-of-pocket costs than those now available. The plans, dubbed "copper" because they would offer a lower level of coverage than the "gold," "silver" and "bronze" options on the government-run health-care exchanges, would be a departure from the minimum level of coverage that is one of the Affordable Care Act's core principles. Many plans that offered less coverage were canceled when the health-care law was rolled out because they didn't meet its new requirements. Republicans accused President Barack Obama of backtracking on his promise that the law would allow people to keep their preferred health plans. In the face of an uproar, the Obama administration asked insurers to reinstate some of the millions of canceled policies for one year. Now, some insurers and a pair of Senate Democrats are trying to change the law permanently so that individuals and small businesses can buy so-called copper plans. The plans likely would have lower premiums, but purchasers would pay more of their ordinary health costs upfront. Greater coverage would kick in for serious, unforeseen health episodes that would require, for example, a hospital stay.

    Narrow Networks Under The ACA: Financial Drivers And Implementation Strategies -- The ability of consumers to engage in a side-by-side comparison of plans on the individual and small employer (SHOP) Exchanges incentivizes insurers to compete on premium price like never before. However, the new essential health benefits and metal tier coverage requirements, guaranteed issue requirements, and community rating standards really level the playing field among insurers in terms of their ability to compete on cost.  Therefore, insurers are turning to limited network products as a way to leverage more favorable pricing from providers, drive down unit cost, and lower premiums. Historically, insurers had the ability to lower premiums by designing benefit plans that excluded, or offered minimal coverage for specific benefits..  But to ensure all individuals have access to comprehensive coverage, the ACA rules now require insurers to cover a set of 10 essential health benefit (EHB) categories, and each state to identify an EHB benchmark plan or default to the small group plan with the largest enrollment in the state, in accordance with the federal selection criteria. Insurers must offer the EHB benefit package and design a cost-sharing structure within the confines of the metal tier (bronze, silver, gold, and platinum­) actuarial value limits.  Although insurers can still use medical management as a means to influence consumer health decisions, they must cover the defined set of EHBs within the cost-sharing limitations and have limited ability to use benefit plan design to differentiate their products from a pricing perspective.

    The politics of Obamacare delays - By now, the pattern is pretty clear: Obamacare deadlines don’t stick. And they probably never will. The unanswered question is, does the extra time create more hassles than benefits for those affected - and is the goalpost-moving worth the political headaches it creates for the Obama administration? Because undeniably, every time the Obama administration bends a deadline for the Affordable Care Act — delaying the employer mandate for the second time, putting off parts of the enrollment launch, or giving customers just a little more time to sign up — it fuels the perception that the administration is just winging it, and gives Republicans new fodder to accuse the White House of rewriting laws too casually. That doesn’t mean the busted deadlines always matter in the real world, though. Some matter more than others. Insurers have been genuinely put out by all the rules that have been changed along the way, which has dumped more work in their laps. That raises the risks of enrollment errors and other problems down the road, like price increases because insurers didn’t get the mix of customers they expected. Business groups, however, don’t seem bothered by the latest delay in the employer mandate. In fact, they’re saying the employers who are getting the extra time will be happy to have it.

    How 19 Million Uninsured Tax Filers Could Get ACA Coverage - Back in November, I suggested that tax prep firms might be a useful portal for low-income people to get insurance coverage through the Affordable Care Act. The idea: Since many key ACA-related issues are income-based, commercial tax prep is an easy way for folks to learn whether they are eligible for expanded Medicaid coverage, how much of a premium subsidy they can get, and how much of a penalty they’d owe for not getting coverage. Now, a new report by my Urban Institute colleagues Stan Dorn, Matthew Buettgens, and Jay Dev shows just how many of the uninsured could benefit from linking tax prep to the ACA. They figure that at least 18.9 million federal tax filers have no insurance and are eligible for either Medicaid or ACA premium subsidies.  That’s almost three out of every four of the uninsured who could benefit from the ACA. At the same time, nearly 60 percent of those making $50,000 or less reported getting some third-party help with their tax returns in 2008. Nearly 65 percent of filers claiming the Earned Income Tax Credit use paid preparers (if you saw the EITC instructions, you’d know why). The Urban study actually underestimates the number of filers since it counts only those legally required to fill out 1040s or those eligible for the EITC. However, many other workers also file—mostly to get refunds because they have had too much tax withheld from their paychecks.

    Flu Deaths Rise Among Young and Middle-Aged U.S. Adults - Young and middle-aged adults are being hit severely by the effects of the flu this season, with a greater rise of deaths and hospitalizations than other age groups, according to U.S. health officials.  While influenza traditionally affects children and the elderly hardest, adults under age 65 accounted for 61 percent of hospitalizations so far this season, an increase from 35 percent last year, according to a U.S. Centers for Disease Control and Prevention report. The adults also accounted for 60 percent of deaths, up from 47 percent last year and 18 percent three years ago, the agency said today.  “Younger people may feel that influenza is not a threat to them, but this season underscores that flu can be a serious disease for anyone,” CDC Director Tom Frieden said in a statement. “It’s also important to remember that some people who get vaccinated may still get sick, and we need to use our second line of defense against flu: antiviral drugs to treat flu illness.”  Americans who got a flu shot this year cut their risk of falling ill by 60 percent, about the same as in 2009 when manufacturers rushed out a novel vaccine against the swine flu strain that’s also circulating this season.

    CDC urges flu vaccinations amid mounting H1N1 illnesses -- With several weeks or more remaining in a particularly deadly influenza season, U.S. health officials on Thursday urged flu vaccinations for everyone over the age of 6 months, including pregnant women. This year’s illnesses have been caused predominantly by theH1N1 virus – the same “swine flu” strain that caused the pandemic in 2009. Although officials say the prevalence of flu-related illness this season appears to be lower than in 2009, preliminary reporting suggests that it has killed or hospitalized more young and middle-aged adults than usual — particularly those with existing health problems. In studies released Thursday, CDC epidemiologists said that based on a national sampling of 122 U.S cities, 61% of all flu-related hospitalizations involved adults between the ages of 18 and 64. In the past several years, this rate has been much lower — between 35% to 43%. And, in a report that focused only on California, the state’s department of public health reported that 405 people younger than age 65 had either died or been admitted to an intensive care unit due to the flu between Sept. 29 and Jan. 18. This was more than any full season since the pandemic.

    Bumblebees infected with honeybee diseases: The beleaguered bumblebee faces a new threat, scientists say. Researchers have found that two diseases harboured by honeybees are spilling over into wild bumblebees. Insects infected with deformed wing virus and a fungal parasite called Nosema ceranae were found across England, Scotland and Wales. Writing in the journal Nature, the team says that beekeepers should keep their honeybees as free from disease as possible to stop the spread. "These pathogens are capable of infecting adult bumblebees and they seem to have quite significant impacts," said Professor Mark Brown from Royal Holloway, University of London. Around the world, bumblebees are doing badly. In the last few decades, many species have suffered steep declines, and some, such Cullem's bumblebee (Bombus cullumanus) in the UK, have gone extinct. Scientists believe that the destruction of their habitats - particularly wildflower meadows - has driven much of this loss, but the latest research suggests that disease too could play a role.

    Video Satire Blasts Dow Chemical’s ‘Agent Orange’ Crops -- When deciding what produce to buy from the supermarket, the questions a shopper typically asks are pretty basic: How's the color? Is it fresh? Can it withstand toxic chemicals that were once used to manufacture lethal nerve gas? Wait, what? The Center for Food Safety reports Dow Chemical has developed genetically-engineered, pesticide-promoting corn and soybeans that can be repeatedly doused in 2,4-D, a powerful herbicide used in forming Agent Orange. To get this information out, Center for Food Safety released a satirical "Mad Men" video featuring would-be Dow Chemical executives who are trying to market the genetically-engineered crops.

    With No End In Sight, California’s Drought Endangers Public Health - California’s drought isn’t just threatening the state’s drinking water, officials told Reuters Tuesday. It’s threatening residents’ health. Specifically, millions of Californians rely on wells and other underground sources for their drinking water. As levels decrease, contaminants in the water become more concentrated, as there’s less water to dilute them.“Many groundwater basins in California are contaminated, for example with nitrates from over application of nitrogen fertilizer or concentrated animal feeding operations, with industrial chemicals, with chemicals from oil extraction or due to natural contaminants with chemicals such as arsenic,” Linda Rudolph, co-director for the Center for Climate Change and Health in Oakland, told Reuters. Last year, California identified 183 communities relying on contaminated drinking water, and sent help to 22 of them to bring their supplies and infrastructure into compliance with environmental guidelines. The remaining communities are still in the process of updating their systems.  Jerry Brown, the state’s governor, declared a state of emergency last month thanks to the drought. And public health officials said they were targeting 10 communities for immediate relief — by bringing in freshwater supplies by vehicle and laying new piping — as they were in danger of running out of freshwater within 60 days. In addition to water contamination, drought conditions also turn creeks and ponds into stagnant pools, allowing more mosquitoes to breed and threaten local populations with disease. The dry and dusty conditions also exacerbate asthma and lung problems.

    Reasons Why Your Food Prices Are About To Start Soaring - Did you know that the U.S. state that produces the most vegetables is going through the worst drought it has ever experienced and that the size of the total U.S. cattle herd is now the smallest that it has been since 1951?  Just the other day, a CBS News article boldly declared that "food prices soar as incomes stand still", but the truth is that this is only just the beginning.  If the drought that has been devastating farmers and ranchers out west continues, we are going to see prices for meat, fruits and vegetables soar into the stratosphere.  Already, the federal government has declared portions of 11 states to be "disaster areas", and California farmers are going to leave half a million acres sitting idle this year because of the extremely dry conditions.  Just consider the following statistics regarding what percentage of our produce is grown in the state (drought-stricken CA)...99 percent of the artichokes, 44 percent of asparagus, two-thirds of carrots, half of bell peppers, 89 percent of cauliflower, 94 percent of broccoli, 95 percent of celery, 90 percent of the leaf lettuce, 83 percent of Romaine lettuce, 83 percent of fresh spinach, a third of the fresh tomatoes, 86 percent of lemons, 90 percent of avocados, 84 percent of peaches, 88 percent of fresh strawberries, 97 percent of fresh plums.

    California's New 'Dust Bowl': "It's Gonna Be a Slow, Painful, Agonizing Death" For Farmers - For the state that produces one-third of the nation's fruits and vegetables, the driest spell in 500 years has prompted President Obama to make $100 million in livestock-disaster aid available within 60 days to help the state rebound from what he describes is " going to be a very challenging situation this year... and potentially some time to come."  As NBC reports, Governor Jerry Brown believes the "unprecedented emergency" could cost $2.8 billion in job income and $11 billion in state revenues - and as one farmer noted "we can't recapture that." Dismal recollections of the 1930's Dust Bowl are often discussed as workers (and employers) are "packing their bags and leaving town..." leaving regions to "run the risk of becoming desolate ghost towns as local governments and businesses collapse." Via NBC, "A lot of people don't realize the amount of money that's been lost, the amount of jobs lost. And we can't recapture that," Joel Allen, the owner of the Joel Allen Ranch in Firebaugh, told NBC News. "It's horrible," Allen added. "People are standing in food lines and people are coming by my office every day looking for work." Allen — whose family has been in farming for three generations — and his 20-man crew are out of work.

    Obama proposes $1 billion climate protection fund -  President Barack Obama proposed a $1 billion fund to mitigate the impact of climate change in the United States, and unveiled financing to combat drought parching swathes of California. The president landed in the Central Valley area and met farmers who have lost livestock and seen once fertile lands wither through lack of water. "The budget that I send to Congress next month will include $1 billion in new funding for new technologies to help communities prepare for a changing climate," Obama said on Friday. The president also noted that the snowpack in California mountains -- which he overflew in Air Force One was less extensive than normal -- compounding water scarcity. "As anybody in this state could tell you, California's living through some of its driest years in a century. Right now, almost 99 percent of California is drier than normal," Obama said. It is unclear whether the fund has much prospect of advancing past Republicans on Capitol Hill, where skepticism of the science of global warming and Obama's wider political agenda runs deep.

    Obama Plays Water-Guzzling Desert Golf Courses Amid California Drought - President Barack Obama traveled to California on Friday to highlight the state’s drought emergency at two events near Fresno, calling for shared sacrifice to help manage the state’s worst water shortage in decades. He then spent the rest of the weekend enjoying the hospitality of some of the state’s top water hogs: desert golf courses. Vacationing with DVDs of his favorite television shows and multiple golf outings with his buddies, the duffer in chief played at two of the most exclusive courses in the Palm Springs area. On Saturday, Obama played at the Sunnylands estate, built by the late billionaire Walter Annenberg, which features a nine-hole course that is played like 18 holes. The following day he golfed at billionaire Oracle founder Larry Ellison’s 19-hole Porcupine Creek. On Presidents’ Day, Obama hit the links at Sunnylands once again. The 124 golf courses in the Coachella Valley consume roughly 17% of all water there, and one-quarter of the water pumped out of the region’s at-risk groundwater aquifer, according to the Coachella Valley Water District. Statewide, roughly 1% of water goes to keep golf courses green. Each of the 124 Coachella Valley courses, on average, uses nearly 1 million gallons (3.8 million L) a day because of the hot and dry climate, three to four times more water per day than the average American golf course.

    BBC News - California drought: Why farmers are 'exporting water' to China - While historic winter storms have battered much of the US, California is suffering its worst drought on record. So why is America's most valuable farming state using billions of gallons of water to grow hay - specifically alfalfa - which is then shipped to China? The reservoirs of California are just a fraction of capacity amid the worst drought in the state's history. In the dried-up fields of California's Central Valley, farmers like Dofflemyer are selling their cattle. Others have to choose which crops get the scarce irrigation water and which will wither.  But at the other end of the state the water is flowing as the sprinklers are making it rain in at least one part of southern California. The farmers are making hay while the year-round sun shines, and they are exporting cattle-feed to China. The southern Imperial Valley, which borders Mexico, draws its water from the Colorado river along the blue liquid lifeline of the All American Canal. It brings the desert alive with hundreds of hectares of lush green fields - much of it alfalfa hay, a water-hungry but nutritious animal feed which once propped up the dairy industry here, and is now doing a similar job in China. "A hundred billion gallons of water per year is being exported in the form of alfalfa from California,"

    Solving California's Water Crisis Requires A Look Beyond This Year -- It’s not every day that your local paper has a section of its website dedicated to news about days without rain and reservoir levels, but the San Francisco Chronicle’s drought page is one marker of the water crisis in the West. On January 17, Governor Jerry Brown declared a state of emergency, directing Californians to voluntarily conserve water and state officials to assist communities facing water shortages, reduce water use, hire more firefighters to combat the elevated fire danger, and expand public awareness. California state health officials announced in mid-January that 17 communities – all rural – could run out of water within 100 days, with other communities not far behind. Then on January 31, authorities announced that for the first time in its 54-year history, the California State Water Project, which moves water throughout the state and serves roughly two-thirds of the its population, would allocate zero water supplies to urban and agricultural users. The contractors who usually get water from the project will instead have to rely more heavily on other sources, like groundwater. Officials are relaxing requirements for water releases from reservoirs, which lowers water quality in key areas such as the Sacramento-San Joaquin River Delta in order to increase available water supply. California Republicans proposed a bill arguing for a stricter cap on the water allocations for environmental restoration and additional water allocations to the Central Valley and Southern California, which would hamper efforts to protect endangered fish. The bill’s proponents argue that addressing water shortages should take precedence. This shows how decisions made to manage the drought this year will not only affect future water supplies, but also the health of ecosystems, protected species, and agricultural sectors.

    Science Linking Drought to Global Warming Remains Matter of Dispute -  In delivering aid to drought-stricken California last week, President Obama and his aides cited the state as an example of what could be in store for much of the rest of the country as human-caused climate change intensifies.But in doing so, they were pushing at the boundaries of scientific knowledge about the relationship between climate change and drought. While a trend of increasing drought that may be linked to global warming has been documented in some regions, including parts of the Mediterranean and in the Southwestern United States, there is no scientific consensus yet that it is a worldwide phenomenon. Nor is there definitive evidence that it is causing California’s problems. In fact, the most recent computer projections suggest that as the world warms, California should get wetter, not drier, in the winter, when the state gets the bulk of its precipitation. That has prompted some of the leading experts to suggest that climate change most likely had little role in causing the drought.To be sure, 2013 was the driest year in 119 years of record keeping in California. But extreme droughts have happened in the state before, and the experts say this one bears a notable resemblance to some of those, including a crippling drought in 1976 and 1977. Over all, drought seems to be decreasing in the central United States and certain other parts of the world, though that is entirely consistent with the longstanding prediction that wet areas of the world will get wetter in a warming climate, even as the dry ones get drier.

    200 Years Of Scorchitude: Professor Warns California To Brace For A "Mega-Drought" - Two years into California's drought and locals are repeating (mantra-like) "we've never seen anything like it." They are right, of course, since this is the worst period of rainlessness since records began... but if Cal Berkeley professor Lynn Ingram is correct, they ain't seen nothing yet. The paleoclimatologist fears, if very long-run history repeats, California should brace itself for a mega drought, as National Geographic reports, a drought that could last for 200 years or more. Via National Geographic,California is experiencing its worst drought since record-keeping began in the mid 19th century, and scientists say this may be just the beginning. B. Lynn Ingram, a paleoclimatologist at the University of California at Berkeley, thinks that California needs to brace itself for a megadrought—one that could last for 200 years or more.As a paleoclimatologist, Ingram takes the long view, examining tree rings and microorganisms in ocean sediment to identify temperatures and dry periods of the past millennium. Her work suggests that droughts are nothing new to California.... "During the medieval period, there was over a century of drought in the Southwest and California. The past repeats itself," says Ingram, who is co-author of The West Without Water: What Past Floods, Droughts, and Other Climate Clues Tell Us About Tomorrow. Indeed, Ingram believes the 20th century may have been a wet anomaly.

    Half of U.S. Farmland Being Eyed by Private Equity - An estimated 400 million acres of farmland in the United States will likely change hands over the coming two decades as older farmers retire, even as new evidence indicates this land is being strongly pursued by private equity investors.Mirroring a trend being experienced across the globe, this strengthening focus on agriculture-related investment by the private sector is already leading to a spike in U.S. farmland prices. Coupled with relatively weak federal policies, these rising prices are barring many young farmers from continuing or starting up small-scale agricultural operations of their own.  In the long term, critics say, this dynamic could speed up the already fast-consolidating U.S. food industry, with broad ramifications for both human and environmental health.  “When non-operators own farms, they tend to source out the oversight to management companies, leading in part to horrific conditions around labour and how we treat the land,”  “They also reprioritise what commodities are grown on that land, based on what can yield the highest return. This is no longer necessarily about food at all, but rather is a way to reap financial profits. Unfortunately, that’s far removed from the central role that land ultimately plays in terms of climate change, growing hunger and the stability of the global economy.”

    Land Grabs: Here's Why Foreign Investors Are Trying to Buy American Farmland -- The news from the Department of Agriculture this week wasn't good. The USDA's dour projections suggest that, after a record five-year boom in crop prices, that bubble is set to burst, potentially decreasing annual farm profits by 27 percent nationally. While price fluctuations are nothing new in agriculture—there is a reason why farm subsidies exist, after all—this latest boom-and-soon-to-bust cycle in the commodity market could have a lasting impact on American agriculture. That's because wealthy international investors and corporations are buying up much of America’s usable land at astronomical prices per acre, turning the farmers into their tenants or repurposing the land altogether. Come the next boom cycle, it may be overseas interests that reap the cash rewards. “Farmland has now become the latest scarce ‘hot’ commodity for all sorts of speculators who have absolutely no interest in agriculture,” said John Peck, executive director of Wisconsin-based Family Farm Defenders. “No local farmer can compete with $7,000 an acre," he said, citing the going price foreign investors are willing to pay for America's heartland.

    142 Cities In Brazil Are Now Rationing Water As Drought Goes Critical -- Did you know that the drought in Brazil is so bad that some neighborhoods are only being allowed to get water once every three days? At this point, 142 Brazilian cities are rationing water and there does not appear to be much hope that this crippling drought is going to end any time soon. Unfortunately, most Americans seem to be absolutely clueless about all of this. In response to the recent article about how the unprecedented drought that is plaguing California right now could affect our food supply, one individual left a comment stating “if Califirnia can’t supply South America will. We got NAFTA.” Apart from the fact that this person could not even spell “California” correctly, we also see a complete ignorance of what is going on in the rest of the planet. The truth is that the largest country in South America (Brazil) is also experiencing an absolutely devastating drought at the moment. They are going to have a very hard time just taking care of their own people for the foreseeable future. And this horrendous drought in Brazil could potentially have a huge impact on the total global food supply. As a recent RT article detailed, Brazil is the leading exporter in the world in a number of very important food categories…

    Climate change means we will have to get used to flooding - It will be a miracle if the winter of 2013-14 does not go down as the wettest on record – and frankly, it is difficult to see what could have been done to prevent massive disruption given the rainfall. But why is this happening? The immediate answer is that the UK is “stuck” in a weather pattern – a common feature of our climate. But what is uncommon is the exceptional intensity of the rain and waves. There is a perfect so-called “storm factory” in the Atlantic caused by warm, moist air from the tropics coming up unusually close to the very cold polar air. The jet stream is then acting as a conveyor belt, continually firing these violent weather systems eastwards at us. The more difficult question is: to what extent is this is down to climate change? On that, the jury is still out. The latest UN climate report last year was clear that man-made activities over the past 100 years are causing unprecedented climate change. Global temperatures have increased, Arctic sea ice is melting, sea levels are rising and the oceans are getting warmer. The policymakers asked scientists for consensus and they have it – leaving climate change for future generations to deal with is a phenomenally high-risk option. Scientists cannot attribute individual weather events to climate change – but coming hot on the heels of major floods in 2007 and 2012, there could well be a link. We have long been exposed to risk from flooding, but climate change is loading the dice.

    World had 4th warmest January as eastern U.S. froze — The globe cozied up to the fourth warmest January on record this year, essentially leaving just the eastern half of the United States out in the cold. And the northern and eastern United States can expect another blast of cold weather next week. The National Oceanic and Atmospheric Administration reported Thursday that Earth was 1.17 degrees warmer in January than the 20th century average. Since records began in 1880, only 2002, 2003 and 2007 started off warmer than this year.Almost all of Africa, South America and Australia and most of Asia and Europe were considerably warmer than normal. China and France had their second warmest Januaries. Land in the entire Southern Hemisphere was hottest January on record. While more than half of America shivered last month, it was one of the few populated spots on Earth cooler than normal. The opposite happened in 2012, when the United States had its warmest year ever and the globe was only the 11th hottest on record.

    Winter weirdness: Is Arctic warming to blame? - This winter has brought unseasonable warmth to Alaska, frigid temperatures to much of the Eastern US, and more drought to California. The jury is still out on whether a warmer Arctic is behind the extreme weather. Drought or unusual warmth is in sync with the effects that climate scientists expect from global warming. But what about wintertime invasions of Arctic air into the US Deep South or into China, where, a new study indicates, record cold events became more frequent over the past 10 to 20 years? For some climate scientists, January's extremes and the atmospheric patterns that nurtured and sustained them are fresh bits of information to apply to these intriguing questions: Has global warming's effect on the Arctic set the stage for persistent weather patterns that lead to extremes? If so, is the decline in Arctic sea ice the stage manager for the wintry events? Nearly two years ago, two researchers identified atmospheric features that appear to tie a warming Arctic to mid-latitude weather extremes. Since then, when persistent weather patterns have brought drought or heat waves or repeated invasions of cold air to usually mild locations in winter, these links to the Arctic have become a go-to explanation among many commentators and policymakers. Researchers working on the issue, however, caution that while they are uncovering intriguing hints of this tie-in, it is far from ironclad. Nor is it merely an arcane debating point. If the proposition holds up, in principle it could help improve seasonal forecasts for temperature and precipitation.

    Jet stream shift could prompt harsher winters: scientists -- A warmer Arctic could permanently affect the pattern of the high-altitude polar jet stream, resulting in longer and colder winters over North America and northern Europe, US scientists say. The jet stream, a ribbon of high altitude, high-speed wind in northern latitudes that blows from west to east, is formed when the cold Arctic air clashes with warmer air from further south. The greater the difference in temperature, the faster the jet stream moves. According to Jennifer Francis, a climate expert at Rutgers University, the Arctic air has warmed in recent years as a result of melting polar ice caps, meaning there is now less of a difference in temperatures when it hits air from lower latitudes. "The jet stream is a very fast moving river of air over our head," she said Saturday at a meeting of the American Association for the Advancement of Science. "But over the past two decades the jet stream has weakened. This is something we can measure," she said. As a result, instead of circling the earth in the far north, the jet stream has begun to meander, like a river heading off course. This has brought chilly Arctic weather further south than normal, and warmer temperatures up north. Perhaps most disturbingly, it remains in place for longer periods of time.

    Freezing Out the Bigger Picture -- If the world is really warming up, how come it is so darned cold? The question might say more about how humans perceive the world than it does about the climate. After all, in principle, we are all supposed to know that climate and weather are not the same thing. But we have a strange tendency to think that whatever is happening to us right now must be happening everywhere. Scientists refer to global warming because it is about, well, the globe. It is also about the long run.  The entire United States, including Alaska, covers less than 2 percent of the surface of the earth. So if the whole country somehow froze solid one January, that would not move the needle on global temperatures much at all.  In fact, even this year’s severe winter weather has affected only part of the country. The Arctic blasts were caused by big dips in the jet stream that allowed frigid air to descend from the polar regions into the central and eastern United States. But toward the west, those dips have been counterbalanced by unusual northward swings of the jet stream that sent temperatures soaring. So while New Yorkers have been shivering this winter, California has been setting record or near-record high temperatures. The state is in its third year of a drought so severe that some towns have started to worry about running out of drinking water. Alaska has been downright balmy for much of the winter. “Record warmth, confused plants: An Alaska January to remember,” The Anchorage Daily News declared. Likewise, large parts of Russia, Canada and Europe have had bizarrely warm temperatures this winter.

    Winter’s Not Just Cold and Snowy. It’s Expensive. - The mighty $16 trillion American economy can easily shrug off a snowstorm or two, even in regions unaccustomed to wintry snow and ice. But a prolonged bout of unusual weather is taking a toll, especially on small businesses .... Economists have placed much of the blame for a recent spate of weak economic data on the effects of the unseasonable cold in the Northeast, Midwest and South, which they project will shave a few tenths of a percent off the growth of gross domestic product in the first quarter.But much of the sudden slowdown in hiring, industrial production and retail sales, they hope, will be shrugged off come spring. Consumers seem to believe this, too. The Thompson Reuters University of Michigan preliminary index of consumer sentiment for February, released on Friday, showed that a slight drop in satisfaction with current economic conditions was offset by an uptick in optimism for the future.Many weather effects are either transient (a snowstorm may keep you from the car dealership for a day or two, but it probably won’t cancel your plans to buy a car) or self-balancing (a hardware store may sell less paint and drywall but more shovels and salt). If a factory shuts down for a couple of days, chances are it will simply fill its orders a little later.But in some industries, losses cannot be made up so easily. A restaurant forced to shutter on a Tuesday is not going to sell twice as many burgers on Wednesday.

    Economic Implications of Anthropogenic Climate Change and Extreme Weather - In my ten years living in Madison, this has been the coldest thus far. Keeping in mind everything is probabilistic, it’s likely that I have anthropogenic climate change to thank for experiencing this event. [1] [2] [3] (Just like one can’t say Hurricane Sandy was directly a result of global climate change, the likelihood of such events rises with global climate change.) From NASA via RealClimate comes this graph of annual temperatures taking into account El Nino and La Nina phenomena: This figure illustrates that while temperatures vary with the El Nino and La Nina phenomena, allowing for a mean shift, one sees a clear pattern toward overall warming temperatures (notice no hiatus once looking at the data in this fashion). Now, while the annual averages are rising, global climate change models imply greater climate variation as well. (I’ve discussed the greater dispersion in temperatures in summer months here, that is spread as well as mean change.) NOAA has generated indices to measure climate extremes; components are reported here.  Since Econbrowser has a large audience of people interested in economics, I thought it useful to post estimates of the human-activity-related component of global climate change (on average, warming), from a well-known econometrician. From Kaufmann, et al, “Emissions, Concentrations, and Temperature: A Time Series Analysis,” Climatic Change (2006):

    Believe It Or Not, Last Month Was One Of The Hottest Januaries Ever Recorded - Despite some miserably cold weather along the eastern half of North America, this January was one of the warmest ever recorded globally. According to data from the National Oceanic and Atmospheric Administration (NOAA), this was the fourth-hottest January the world has seen since record-keeping began. Meanwhile, NASA’s Goddard Institute for Space Studies (GISS) compiled its numbers and determined this was the third-hottest January since its records started in 1880. Both institutions essentially work off the same data sets, but analyze them slightly differently. So while they occasionally diverge in their headline findings, their numbers actually sync up very tightly. For instance, when NOAA and GISS declared 2013 the 4th and 7th warmest year on record, respectively, the actual difference between the rankings amounted to just two-hundredths of a degree. Furthermore, NOAA’s numbers show this was the 38th January in a row with temperatures above the 20th Century average. And the last time any month dipped below that threshold was February of 1985. GISS put January 2014′s global temperatures at an average of 0.70°C (or 1.26°F) above the 1951-1980 average. Regional temperatures over Alaska, Greenland, and portions of Asia were especially high during January, and a good number of other regions across the globe saw temperatures higher than the 1981-2010 period. This puts the “polar vortex” and the accompanying cold spell that swept the lower 48 states in context: America only covers two percent of the Earth’s surface, temperature fluctuations here are hardly indicative of global trends.

    2013 Among Top Ten Warmest on Record: The year 2013 was among the top ten warmest years since modern records began in 1850, according to the World Meteorological Organization (WMO). It tied with 2007 as the sixth warmest year, with a global land and ocean surface temperature that was 0.50°C (0.90°F) above the 1961–1990 average and 0.03°C (0.05°F) higher than the most recent 2001–2010 decadal average.Thirteen of the 14 warmest years on record have all occurred in the 21st century. The warmest years on record are 2010 and 2005, with global temperatures about 0.55 °C above the long term average, followed by 1998, which also had an exceptionally strong El Niño event. Warming El Niño events and cooling La Niña events are major drivers of the natural variability in our climate. Neither condition was present during 2013, which was warmer than 2011 or 2012, when La Niña had a cooling influence. 2013 was among the four warmest ENSO-neutral (neither El Niño nor La Niña) years on record. “The global temperature for the year 2013 is consistent with the long term warming trend,” said WMO Secretary-General Michel Jarraud. “The rate of warming is not uniform but the underlying trend is undeniable. Given the record amounts of greenhouse gases in our atmosphere, global temperatures will continue to rise for generations to come,” said Mr Jarraud.

    Study Sounds ‘El Niño Alarm’ For Late This Year - A new study shows that there is at least a 76 percent likelihood that an El Niño event will occur later this year, potentially reshaping global weather patterns for a year or more and raising the odds that 2015 will set a record for the warmest year since instrument records began in the late 19th century. The study, published on Monday in the Proceedings of the National Academy of Sciences, builds on research put forward in 2013 that first proposed a new long-range El Niño prediction method.  Although they occur in the equatorial tropical Pacific Ocean, the effects of El Niño events can reverberate around the globe, wreaking havoc with typical weather patterns. El Niños increase the likelihood for California to be pummeled by Pacific storm systems, for example, while leaving eastern Australia at greater risk of drought. Because they are characterized by higher than average sea surface temperatures in the equatorial tropical Pacific Ocean, and they add heat to the atmosphere, El Niño events also tend to boost global average temperatures.By acting in concert with manmade greenhouse gases, which are also warming the planet, calendar years featuring a strong El Niño event, such as 1998, can more easily set all-time high temperature records. Today, scientists can only reliably predict the onset and severity of El Niño events by about 6 months ahead of time. And this lead time may actually decrease due to Congressional budget cuts for ocean monitoring buoys that provide crucial information for El Niño forecasting.

    How we know the greenhouse effect isn't saturated: The air doesn't just absorb heat, it also loses it as well! The atmosphere isn't just absorbing IR Radiation (heat) from the surface. It is also radiating IR Radiation (heat) to Space. If these two heat flows are in balance, the atmosphere doesn't warm or cool - it stays the same. Similarly we can change how much heat there is in the atmosphere by restricting how much heat leaves the atmosphere rather than by increasing how much is being absorbed by the atmosphere. This is how the Greenhouse Effect works. The Greenhouse gases such as carbon dioxide and water vapour absorb most of the heat radiation leaving the Earth's surface. Then their concentration determines how much heat escapes from the top of the atmosphere to space. It is the change in what happens at the top of the atmosphere that matters, not what happens down here near the surface. So how does changing the concentration of a Greenhouse gas change how much heat escapes from the upper atmosphere? As we climb higher in the atmosphere the air gets thinner. There is less of all gases, including the greenhouse gases. Eventually the air becomes thin enough that any heat radiated by the air can escape all the way to Space. How much heat escapes to space from this altitude then depends on how cold the air is at that height. The colder the air, the less heat it radiates.

    Decreasing Arctic albedo boosts global warming - A new paper in PNAS, called Observational determination of albedo caused by vanishing sea ice, reminds me of scientific work Peter Wadhams published a year and a half ago wherein he showed Arctic ice melt is 'like adding 20 years of CO2 emissions'. He based this assertion on calculations, as can be read in this BBC article from around that time. This new paper by Pistone et al., however, is based on observations (as it says in the title) and similarly concludes that the "decrease in albedo is equivalent to roughly 25 percent of the average global warming currently occurring due to increased carbon dioxide levels" I've taken this last quote from a livescience article. Here's more: Since as early as the 1960s, scientists have hypothesized that melting sea ice amplifies global warming by decreasing Arctic albedo. Researchers have since devised climate models to demonstrate this phenomenon but, until now, nobody had relied entirely on satellite data to confirm this effect through time. [See Stunning Photos of Earth's Vanishing Ice] Now, scientists based at the University of California, San Diego have analyzed Arctic satellite data from 1979 to 2011, and have found that average Arctic albedo levels have decreased from 52 percent to 48 percent since 1979 — twice as much as previous studies based on models have suggested, the team reports today (Feb. 17) in the journal Proceedings of the National Academy of Sciences. The amount of heat generated by this decrease in albedo is equivalent to roughly 25 percent of the average global warming currently occurring due to increased carbon dioxide levels, the team reports. Read the rest here.

    Melting Ice Makes The Arctic A Much Worse Heat-Magnet Than Scientists Feared  - Arctic ice provides more than just homes for fish and mammals — it also slows global warming.Dwindling sea ice in the Arctic Ocean is creating large areas of relatively dark ocean surface that reduce the albedo, or reflectivity, of the polar region. More open water causes the Earth to absorb more of the sun’s solar energy rather than reflect it back into the atmosphere. A new study by researchers at Scripps Institution of Oceanography, UC San Diego, has found that the impact this phenomenon is having on global warming has likely been substantially underestimated.  “It’s fairly intuitive to expect that replacing white, reflective sea ice with a dark ocean surface would increase the amount of solar heating,” Kristina Pistone, a graduate student at Scripps who participated in the research, said in a statement.  However, the study, published Monday in the Proceedings of the National Academy of Sciences, used direct satellite measurements for the first time rather than computer models to determine that the magnitude of surface darkening has been two to three times as large as found in previous studies. “Scientists have talked about Arctic melting and albedo decrease for nearly 50 years,” Veerabhadran Ramanathan, a distinguished professor of climate and atmospheric sciences, said. “This is the first time this darkening effect has been documented on the scale of the entire Arctic.”

    Even In Perpetual Darkness, Arctic Sea Ice Coverage Drops To Record Lows -- Despite the fact that large parts of the Arctic region have not been warmed by the sun for many weeks, sea ice extent in the far north dipped to record low levels in February. On the 18th, sea ice covered 5.544 million square miles of the Arctic, while the previous low on that date was in 2006, at 5.548 million square miles.  The National Snow and Ice Data Center reported that in January, average sea ice extent was 5.30 million square miles, which was 309,000 square miles less than the 1981-2010 average. This happened as temperatures in the region rose above normal levels.  As the shifted polar vortex caused temperatures to drop to colder-than-recent-normal levels in the eastern half of the United States, Arctic temperatures have spiked. From the beginning of February through Monday, Arctic temperatures were between 7.2°-14.4°F above normal.  “Right now, the Arctic is pretty warm everywhere,” National Snow and Ice Data Center senior scientist Julienne Stroeve told Climate Central. “If I look at temperature anomalies, there’s a huge anomaly over the Barents Sea and Sea of Okhotsk of about 10°C (above normal) compared to 1981-2010.”

    Signs of Retreat in the Global War on Climate Change - In the past few years, the ever more widespread use of new extractive technologies—notably hydraulic fracturing (to exploit shale deposits) and steam-assisted gravity drainage (for tar sands)—has led to a significant increase in fossil fuel production, especially in North America. This has left in the dust the likelihood of an imminent “peak” in global oil and gas output and introduced an alternative narrative—much promoted by the energy industry and its boosters—of unlimited energy supplies that will last into the distant future.  As oil and gas have proven unexpectedly abundant and affordable, major energy consumers are planning to rely on them more—and on renewable sources of energy less—to meet their future requirements. As a result, the promises we once heard of a substantial decline in fossil fuel use (along with a corresponding boom in renewables) are fading. According to the most recent projections from the US Department of Energy, global fossil fuel consumption is expected to grow by an astonishing 40 percent by 2035, jumping from 440 to 615 quadrillion British thermal units. While the combined share of total world energy that comes from fossil fuels will decline slightly—from 84 percent to 79 percent—they will still dominate the global energy marketplace for decades to come. Renewables, according to these projections, will continue to represent only a small fraction of the total. If this proves to be accurate, there can be only one plausible outcome: vastly increased carbon emissions leading to rising temperatures and the sort of catastrophic climate change scenarios that now seem almost impossible to imagine.

    1 In 4 Americans Thinks The Sun Goes Around The Earth, Survey Says - A quarter of Americans surveyed could not correctly answer that the Earth revolves around the sun and not the other way around, according to a report out Friday from the National Science Foundation. The survey of 2,200 people in the United States was conducted by the NSF in 2012 and released on Friday at an annual meeting of the American Association for the Advancement of Science meeting in Chicago. To the question "Does the Earth go around the Sun, or does the Sun go around the Earth," 26 percent of those surveyed answered incorrectly. In the same survey, just 39 percent answered correctly (true) that "The universe began with a huge explosion" and only 48 percent said "Human beings, as we know them today, developed from earlier species of animals." Just over half understood that antibiotics are not effective against viruses.As alarming as some of those deficits in science knowledge might appear, Americans fared better on several of the questions than similar, but older surveys of their Chinese and European counterparts.

    Alive in the Sunshine - There’s no way toward a sustainable future without tackling environmentalism’s old stumbling blocks: consumption and jobs.  For as long as the environment has existed, it’s been in crisis. In 1960s and 1970s America, dystopian images provoked anxiety about the costs of unprecedented prosperity: smog thick enough to hide skylines from view, waste seeping into suburban backyards, rivers so polluted they burst into flames, cars lined up at gas stations amid shortages, chemical weapons that could defoliate entire forests. But the apocalypse didn’t happen.  Four decades later, everyone’s an environmentalist — and yet the environment appears to be in worse shape than ever. The problems of the seventies are back with a vengeance, often transposed into new landscapes, and new ones have joined them. Species we hardly knew existed are dying off en masse; oceans are acidifying in what sounds like the plot of a second-rate horror movie; numerous fisheries have collapsed or are on the brink; freshwater supplies are scarce in regions home to half the world’s population; agricultural land is exhausted of nutrients; forests are being leveled at staggering rates; and, of course, climate change looms over all. These aren’t issues that can be fixed by slapping a filter on a smokestack. They’re certainly not about hugging trees or hating people. To put it bluntly, we’re confronted with the fact that human activity has transformed the entire planet in ways that are now threatening the way we inhabit it — some of us far more than others. And it’s not particularly helpful to talk in generalities: the idea that The Environment is some entity that can be fixed with A Solution is part of the problem. The category “environmental problems” contains multitudes, and their solutions don’t always line up: water shortages in Phoenix are a different matter than air pollution in Los Angeles, disappearing wetlands in Louisiana, or growing accumulations of atmospheric carbon. So instead of laying out some kind of template for a sustainable future, I argue that there’s no way to get there without tackling environmentalism’s old stumbling blocks: consumption and jobs. And the way to do that is through a universal basic income.

    The Sixth Extinction -- Extinction is a relatively new idea in the scientific community.  Scientists simply could not envision a planetary force powerful enough to wipe out forms of life that were common in prior ages. In the same way, and for many of the same reasons, many today find it inconceivable that we could possibly be responsible for destroying the integrity of our planet’s ecology.For example, we continue to use the world’s atmosphere as an open sewer for the daily dumping of more than 90 million tons of gaseous waste. If trends continue, the global temperature will keep rising, triggering “world-altering events,” Kolbert writes. According to a conservative and unchallenged calculation by the climatologist James Hansen, the man-made pollution already in the atmosphere traps as much extra heat energy every 24 hours as would be released by the explosion of 400,000 Hiroshima-class nuclear bombs. The resulting rapid warming of both the atmosphere and the ocean, which Kolbert notes has absorbed about one-third of the carbon dioxide we have produced, is wreaking havoc on earth’s delicately balanced ecosystems. It threatens both the web of living species with which we share the planet and the future viability of civilization. “By disrupting these systems,” Kolbert writes, “we’re putting our own survival in danger.” The earth’s water cycle is being dangerously disturbed, as warmer oceans evaporate more water vapor into the air. Warmer air holds more moisture (there has been an astonishing 4 percent increase in global humidity in just the last 30 years) and funnels it toward landmasses, where it is released in much larger downpours, causing larger and more frequent floods and mudslides.

    Terrorists, infrastructure porn and our fragile energy systems -- They came shrouded by the early morning darkness near San Jose, Calif., equipped with night-vision goggles, AK-47s and an apparent lust to spill some transformer fluid. They cut some telephone cables and then, according to the Wall Street Journal:Within half an hour, snipers opened fire on a nearby electrical substation. Shooting for 19 minutes, they surgically knocked out 17 giant transformers that funnel power to Silicon Valley. A minute before a police car arrived, the shooters disappeared into the night.It’s a dramatic tale, and — as is any story about a group of people shooting into the night with assault rifles — scary, too. The substation was a big one, and the transformers critical pieces of equipment in keeping the electrical grid humming along smoothly. And it doesn’t take a flurry of bullets to put one out of commission and take out power to millions: Simple human error, a branch rubbing against a wire, or a bird landing on or a squirrel chewing on the wrong wire can do that. In this case, grid operators were able to bypass the substation without cutting off power to Silicon Valley. Disaster averted.

    Uneconomic US nuclear plants at risk of being shut down - More US nuclear power plants are at risk of closure because they are no longer economic, industry leaders have warned, jeopardising the administration’s hopes that the reactors can help support energy security and limit greenhouse gas emissions. Exelon and Entergy are among the US power generators facing pressures to close some of their nuclear plants, as a result of lower electricity prices, competition from cheap gas, and sometimes political opposition. On the way out For a list of the US nuclear power plants being shut down and those at risk See below On Wednesday Ernest Moniz, energy secretary, said the government would offer $6.5bn in loan guarantees to support the construction by a consortium led by Southern Company of two new reactors at Vogtle in Georgia, scheduled to start up in 2017-18. Over the next five years, however, it is possible that more nuclear capacity will be shut down in the US than started up. The country has a patchwork of regulatory systems, with competitive retail electricity markets in 20 states, and it is in those states that nuclear power is under pressure. For a list of the US nuclear power plants being shut down and those at risk See below:

    Will the U.S. Follow the U.K. Into Power Shortages? -  As Britain endeavors to build new nuclear power plants to avert an electric crisis in 20 years – with the retirement of nearly all the nation’s installed capacity, as it falls prey to age – the question arises whether the United States is destined for the same crisis. Britain commissioned its first nuclear power plant back in 1954. For decades, Britain was at the forefront of the development of nuclear energy.Then came natural gas. Discoveries in the North Sea coupled with improvements in gas turbine technology caused a boom in gas-powered electricity generation. At one point, it looked as though 50 percent more gas-fired electricity generation would be installed than needed. Across the Atlantic, a sequel to the year the lights will go out in Britain may be in production. We are already shuttering nuclear plants; the total down from 104 to 99 with many more endangered as the plants either become uneconomic, as a result of competition from our gas boom, or too old. Four big new nuclear plants are under construction in Georgia and South Carolina, but they are all that are likely to be built in the foreseeable future.Currently, nuclear plants contribute 19 percent of our electricity, about the same percentage they contributed in Britain in the 1990s before plant retirements began. The numbers are being kept up by extraordinary operating efficiency gains and by upgrading– called “uprating” in the industry — the plants. How long the gas boom will last is a matter of conjecture. The lifespan of the new hydraulically fractured fields is not known, but it is expected to be about one-third that of conventional fields. The full environmental consequence is not known either. Yet the euphoria of gas abundance is boosted by multi-million-dollar campaigns from the oil and gas industries, led by the giant American Petroleum Institute. These advertisements give the impression that gas is forever in America. The way it was in the North Sea?

    Obama’s Nuke-Powered Drone Strike -- So the “all the above” energy strategy now deems we dump another $6.5 billion in bogus loan guarantees down the atomic drain. Energy Secretary Ernest Moniz has announced finalization of hotly contested taxpayer handouts for the two Vogtle reactors being built in Georgia. Another $1.8 billion waits to be pulled out of your pocket and poured down the radioactive sink hole. A nuke-powered drone strike on fiscal sanity. While Fukushima burns and solar soars, our taxpayer money is being pitched at a failed 20th century technology currently distinguished by its non-stop outflow of lethal radiation into the Pacific Ocean. “Take that $6.5 or $8.3 billion and invest it right now in wind, solar, sustainable bio-fuels, geothermal, ocean thermal, wave energy, LED light bulbs, building insulation and Solartopian south-facing windows.” The money is to pump up a pair of radioactive white elephants that Wall Street won’t touch. Georgia state “regulators” are strong-arming ratepayers into the footing the bill before the reactors ever move a single electron—which they likely never will. Sibling reactors being built in Finland and France are already billions over budget and years behind schedule. New ones proposed in Great Britain flirt with price guarantees far above currently available renewables. The Vogtle project makes no fiscal sense … except for the scam artists that will feed off them for years to come.

    Nun gets nearly 3 years in prison for nuke protest: — An 84-year-old nun was sentenced Tuesday to nearly three years in prison for breaking into a nuclear weapons complex and defacing a bunker holding bomb-grade uranium, a demonstration that exposed serious security flaws at the Tennessee plant. Two other peace activists who broke into the facility with Megan Rice were sentenced to more than five years in prison, in part because they had much longer criminal histories of mostly non-violent civil disobedience. Although officials said there was never any danger of the protesters reaching materials that could be detonated or made into a dirty bomb, the break-in raised questions about safekeeping at the Y-12 National Security Complex in Oak Ridge. The facility holds the nation's primary supply of bomb-grade uranium and was known as the "Fort Knox of uranium." After the break-in, the complex had to be shut down, security forces were re-trained and contractors were replaced.

    New Hanford cleanup price tag is $113.6 billion - An estimated $113.6 billion is the new price tag for completing the remaining Hanford nuclear reservation environmental cleanup, plus some post-cleanup oversight. #If the cost were spread evenly among everyone living in the United States today, each person would have to come up with $359. #The new estimate of cleanup costs was included in the 2014 Hanford Lifecycle Scope, Schedule and Cost Report released this week. It’s the fourth such report released since they became an annual requirement added to the legally binding Tri-Party Agreement in 2010. #The estimate is based on completing most cleanup work in 2060 and then some continuing oversight and monitoring until 2090. That oversight, called long-term stewardship, is listed as costing $5.4 billion.

    Tepco Says New Leak of Radioactive Water Found at Fukushima Site - Tokyo Electric Power Co., operator of the crisis-ridden Fukushima Dai-Ichi nuclear power plant, said it found a new leak near the tanks holding contaminated water at the disaster site. The utility, which serves 29 million customers in the Tokyo metropolitan area, is collecting soil where the leak occurred and doesn’t believe any water reached the ocean, company executives said at a briefing in Tokyo. About 100 metric tons (26,400 gallons) of water may have escaped a concrete barrier, the company said. The finding is a reminder of the task still facing Tokyo Electric as the utility, known as Tepco, battles to manage the plant almost three years since the earthquake and tsunami. Beta radiation readings of 230 million becquerels per liter were taken in a sample collected from a gutter on top of the leaked tank at the Fukushima Dai-Ichi plant, according to a statement from the Tokyo-based utility. Japan’s safety limit for radioactive materials in drinking water is 10 becquerels per liter, according to the health ministry. Radioactive water overflowed from the 10-meter long tank after two valves -- which were supposed to be closed -- had been opened, Ono said today. The leak was found 700 meters (0.4 miles) from the ocean in an area isolated from any drainage ditch, he said.

    Highly radioactive water leaks at Japan nuke plant - (AP) — Highly radioactive water has overflowed from a storage tank at Japan's crippled nuclear power plant, but the operator said Thursday it did not reach the Pacific Ocean. Tokyo Electric Power Co. said the leak involved partially treated water from early in the disaster at the plant, meaning it was more toxic than previous leaks. The cores of three reactors melted at the Fukushima Dai-ichi plant in 2011 following a massive earthquake and tsunami, and radioactive water has been stored in more than 1,000 tanks. TEPCO said about 100 tons of contaminated water overflowed through a rainwater drainage pipe, and plant workers attached a garbage bag to contain the leakage. It said the leak stopped after workers closed the valves and the water did not escape into the Pacific.

    West Virginia water after the spill: ‘We do not drink it. My pets do not drink it’ - The reaction was instantaneous and violent: in the space of 30 minutes Cassy, who has muscular dystrophy and is on a ventilator, had seven bouts of diarrhoea. At about that time, 15 miles away in Charleston, West Virginia, executives of West Virginia American Water and state officials were deciding when and how to tell 300,000 people their water was not safe to drink. One month later, Bays is still putting only bottled water into her daughter’s feeding tube, and using only bottled water for her bath. “I don’t think I will ever drink the water,” she said. “I am too scared. I just wonder how much we don’t know.” . Now, more than a month later, the tell-tale liquorice scent of MCHM still hangs over the storage tank farm on the Elk River that was the source of the contamination. The hot water carries a faint chemical smell in small communities to the north-west and north-east of Charleston. The skin on her arms and legs, though faintly scarred in rough and red spots from exposure to tap water, is healing, she said. “It was an extreme rash all over my body,” she said. “It was almost like my skin was coming off … since I have been rinsing with bottled water it’s getting better now, but it’s very itchy. It burns.” Drinking the water was even worse. At a congressional hearing into the spill on 10 February, weeks after the “do not use” order for water in the affected area was lifted, West Virginia and federal officials performed linguistic contortions trying to avoid a definitive answer about whether the water was in fact safe to drink. “That’s in a way a difficult thing to say because everyone has a different definition of safe,” Letitia Tierney, the state’s health commissioner, said.”Some people think it’s safe to jump off a bridge on Bridge Day. I don’t personally think that’s safe. So everybody has a different definition.”

    Blackwater, A Third Kind Of Coal Waste, Is Now Leaking Into A West Virginia Creek --Regulators in West Virginia are working to clean up yet another coal waste spill, after runoff from melting snow overran sediment control ponds at a slurry impoundment, sending polluted water into a creek.The slurry impoundment — which is essentially a large pool of sludge, leftover from the coal mining and preparation processes — had been re-opened by a company called Gary Partners LLC to mine the leftover bits of coal, according a report from the Charleston Gazette. After recently-fallen snow began to melt around the impoundment, it began to overflow the site’s sediment control ponds, sending something called “blackwater” into a nearby creek. “It is black, but it’s not a slurry spill or anything like that.”  The event is the third time in less than two months that West Virginia has experienced a coal-related pollutant spill into its waters. On Feb. 11, a pipe break at a Patriot Coal preparation site spewed more than 100,000 gallons of coal slurry into a waterway near Charleston. On Jan. 9, approximately 10,000 gallons of a mysterious chemical called crude MCHM, used to clean coal, contaminated drinking water for 300,000 West Virginians. All three spills have yet to be fully remediated.

    Coal Ash Piles Up As High As 5 Feet In North Carolina River, Endangering Aquatic Life - The pipe break that spilled up to 82,000 tons of toxic coal ash into a North Carolina river has affected parts of the river as far as 70 miles away from the spill’s source, federal officials said Tuesday. According to U.S. Fish and Wildlife Service officials, a pile of coal ash 75 feet long and as much as 5 feet deep has been discovered at the bottom of the Dan River near the site of the spill in Eden, North Carolina. In addition, coal ash as thick as 5 inches has accumulated on the riverbed across North Carolina’s state line. Kerr Lake, a major reservoir in North Carolina, has also seen coal ash buildup. The officials said they were concerned about the long-term environmental impacts of the spill, especially the spill’s effect on fish and other aquatic life. They said coal ash, a waste product created during the coal-burning process and which contains mercury, arsenic, lead, and other toxins, can bury aquatic life in the river and clog the gills of mussels and fish. The Dan River is home to two endangered aquatic species: the Roanoke logperch and the James spinymussel. North Carolina officials have already warned residents to avoid prolonged contact with parts of the Dan River and not to eat the fish.  “The deposits vary with the river characteristics, but the short- and long-term physical and chemical impacts from the ash will need to be investigated more thoroughly, especially with regard to mussels and fish associated with the stream bottom and wildlife that feed on benthic invertebrates,” Tom Augspurger, a contaminants specialist at the Fish and Wildlife Service said.

    Officials Confirm: Arsenic Could Have Been Flowing Into River Before North Carolina Coal Ash Leak More than two weeks after a stormwater pipe burst caused 82,000 tons of coal ash to spill into a North Carolina river that supplies drinking water, state officials have discovered that a second pipe is leaking water with elevated amounts of arsenic — and they’re not sure how long it has been happening. The North Carolina Department of Environment and Natural Resources (DENR) on Tuesday ordered Duke Energy, the company responsible for the spill, to immediately halt discharges from another leaking 36-inch stormwater pipe beneath an unlined coal ash pond at a decommissioned power plant in Eden, North Carolina. The agency discovered the second spill after requesting video recordings of the inside of Duke’s other stormwater pipes from the former plant. “When we learned there was a second pipe, we recognized there was a potential for leaks there,” DENR spokesperson Jamie Kritzer told ThinkProgress. “Duke had been running their own video [through the stormwater pipes] prior to us saying anything about it, but we asked for a copy of it.” DENR officials asked for Duke’s copy of video on Feb 11, five days after Duke voluntarily began monitoring their pipes with video cameras, and nine days after the first spill. After reviewing the video, the agency discovered multiple leaks, most of which were at the joints of the pipes. The agency had staff conduct water quality sampling — both at the spot where the pipe collects stormwater, and where it discharges into the Dan River.   The water samples, received Tuesday, showed “very high” levels of arsenic, according to Kritzer. Arsenic is a key ingredient of coal ash — a toxic waste byproduct from burning coal, usually stored with water in large ponds.

    Wave of Coal Retirements Coming by 2016 - There will be many more closures of coal-fired power plants around the country over the next two years than has been announced thus far, according to the Energy Information Administration. As of December 2013, data from power plant companies that reported their plans to the EIA over the next few years suggests that utilities will close 40 gigawatts of coal capacity by 2016. A mix of low electricity demand, low natural gas prices, and environmental regulations are forcing coal plants out of the market.  However, the EIA projects in its Annual Energy Outlook 2014 that coal retirements will be much higher than what power companies are reporting. EIA predicts that around 60 GW of coal capacity will be shuttered by 2020, which would account for about one-fifth of the existing 310 GW of coal-fired capacity. But about 90% of those retirements would come before 2016 because new limits on mercury take effect in 2015 (with a possible one year extension allowed), which will require power plant operators to install equipment to limit emissions of mercury, acid gases, and toxic metals. This pollution control technology is too expensive in many cases, forcing operators to shut the plants down instead.

    Boundless Natural Gas, Boundless Opportunities: Interview with EIA Chief - The U.S. Energy Information Administration (EIA) has predicted that natural gas production in the US will continue to grow at an impressive pace. Right now output is close to 70 billion cubic feet a day and is expected to reach over 100 billion cubic feet per day by 2040. The trend is likely to continue without hitting a geologic “peak”, and along with this trend will come new marketing opportunities for America.  In an exclusive interview with, EIA Administrator Adam Sieminski discusses:

    •    What’s at stake in lifting the US crude export ban
    •    Whether lifting the ban is inevitable
    •    Why energy-related CO2 emissions will likely climb this year
    •    What we can expect from US coal output through 2014
    •    Why US natural gas production will continue to grow strongly
    •    Where we can expect (unexpectedly) new production to come from
    •    Why Alaska just might surprise us
    •    Where the biggest new shale opportunities lie
    •    How production increases might come from ‘non-shale’ formations
    •    The potential for Colombian shale
    •    What to expect from Mexico’s reforms
    •    What the Panama Canal expansion really means
    •    Why we will see new marketing opportunities for the US

    To Russia with love: Obama’s big energy lever - Proceeds from Russia’s gas exports have emboldened Mr Putin’s foreign policy and helped underwrite the most lavish Winter Olympic pageant in history. There is no American counterpart to Gazprom. But the US energy revolution is a geopolitical windfall that will enable Washington to loosen Russia’s grip on its neighbours. It is the closest thing Barack Obama has to a game changer in what remains of his presidency.The maths behind America’s shale revolution is unanswerable. The reserves opened up by hydraulic fracturing in the past five years have slashed US natural gas prices to $4 per million British thermal units. This is less than a third of the rate Gazprom charges most of its European customers for Russia’s pipelined gas. And it is well below a fifth of the rate in much of Asia, including China. US politics remains obsessed with whether Mr Obama will approve the Keystone XL pipeline from Canada. But whichever way Mr Obama’s decision goes – my bet is he will postpone it for as long as possible – Canada’s tar oil is becoming irrelevant to America’s needs. The US has more than enough shale to be the new Saudi Arabia of natural gas, as well as being on course to overtake Saudi oil production by the end of the decade.  Last week the Obama administration approved its sixth terminal for LNG exports. The first, which is owned by Cheniere Energy, a Houston-based company, is due to start shipping to the UK, Spain and other countries in 2015. Dozens more are petitioning for export licences and clearances to build terminals. Even after including the costs of liquefaction and transport across the Atlantic, US gas prices will still be considerably lower than Russia’s at point of sale. There is also strong demand from India, which has a growing energy deficit, Japan, which closed down its nuclear industry after the Fukushima disaster, and Germany, which has also mothballed nuclear plans. Once the ships start sailing, they will have a rolling impact on the global energy market. But Washington will first need to remove a number of self-imposed hurdles.. Under American law, gas can only be exported to countries that have a free trade deal with the US. Exporters can get around this by showing they would not harm US national interests. But it is a cumbersome process. The sooner Washington updates its laws to permit a free market in energy, the quicker companies will invest in downstream infrastructure.

    Natural-Gas Prices Spike as Forecasts Turn Colder Again - —Natural-gas futures jumped Tuesday as advance weather reports reflected another coming cold front after this week's warm-up, leading traders to anticipate another spike in demand. Gas for March delivery was up 24.5 cents to $5.4590 a million British thermal units on the New York Mercantile Exchange, after climbing to $5.559/mmBtu in early trade. Prices have risen nearly 20% off their recent lows a week ago and stand within striking distance of the four-year high set earlier this month. Natural gas is a key component in heat generation, and demand rises as weather turns cold. As the March contract wanes and the end of the winter season approaches, the market had been anticipating a turn toward warmer weather. Prior weather forecasts had called for a sustained warming trend beginning this week and into next month, but new reports Tuesday revised that outlook and said another cold blast is on the way for much of the northern U.S. through the end of the month and into next. Gas inventory levels are already at a 10-year low after a severe winter in many parts of the country, and traders expect more cold weather will further reduce supplies. Analysts are expecting another large withdrawal from inventories in weekly U.S. government data to be released Thursday. Natural gas for next-day delivery at benchmark Henry Hub in Louisiana recently traded at $5.71/mmBtu, according to Intercontinental Exchange, versus Friday's average of $5.5360/mmBtu

    Oilprice Intelligence Report: April D-Day for Alaska’s Massive Gas Plans: Alaska stands at an interesting energy crossroads, with the State Legislature considering the fate of a massive liquefied natural gas project that would be an economic boost for the state and a new supply boost for Asian markets hungry for US LNG. The State Legislature session ends on 20 April and approval is by no means a foregone conclusion: Some Alaskan lawmakers don’t like the deal, which they say panders to oil companies at the expense of the state. The project will cost between $45 billion and $65 billion and is backed by giants Exxon Mobil, BP and ConocoPhillips. It envisions transporting Alaskan North Slope gas 800 miles across the state to a new LNG plant on the south coast. The pipeline project is hoping to be green-lighted in full in 2018, but first it has to get past the state legislature. As the plan stands now, the state will take a 20-25% stake in the project and as such foot the bill for $10 billion of the project’s cost, with TransCanada potentially putting up half that amount. Under the plan the state would commit to take its one-eighth royalty share of gas production in kind or in the form of gas for the duration of the project and also take state production taxes as a share of the gas. The massive pipeline will run from the North Slope to the Kenai Peninsula south of Anchorage and its total cost is seven times more than Keystone XL, whose approval is still languishing in Washington where it requires a presidential sign-off because of its cross-border element. The Alaskan pipeline project is more than a pipeline, though; it includes harbors, roads and gas liquefaction facilities.

    Shipbuilder to explore methane hydrate in Japan waters - Mitsui Engineering and Shipbuilding Co. plans to explore and extract methane hydrate, a potential source of domestic fuel for energy-poor Japan, in waters around the archipelago. The company has already been developing offshore oilfields and will apply expertise to methane hydrate, which contains natural gas, and other resources such as rare metals, sources said. “Given further technological innovations, development of oceanic resources will grow into an even larger business in 15 years,” Takao Tanaka, the company president, has said. Experts say methane hydrate, known as burning ice, abounds in seas around Japan, but low-cost extraction technology has yet to be established. Mitsui Engineering is looking for partners in research and development through subsidiary Mitsui Ocean Development and Engineering Co. to share required costs, the sources said. The company, which has designed a robot that can dive to depths of 7,000 meters for test-mining mineral ores, is considering an alliance with a North European manufacturer to develop new underwater robots.

    Study Finds Underestimated Methane Emissions Negate Industry Claims of Fracked Gas’ Benefits -- The first thorough comparison of evidence for natural gas system leaks confirms that organizations including the U.S. Environmental Protection Agency (EPA) have underestimated U.S. methane emissions generally, as well as those from the natural gas industry specifically. Natural gas consists predominantly of methane. Even small leaks from the natural gas system are important because methane is a potent greenhouse gas—about 30 times more potent than carbon dioxide. A study, Methane Leakage from North American Natural Gas Systems, published in the Feb. 14 issue of the journal Science, synthesizes diverse findings from more than 200 studies ranging in scope from local gas processing plants to total emissions from the U.S. and Canada. “People who go out and actually measure methane pretty consistently find more emissions than we expect,” said the lead author of the new analysis, Adam Brandt, an assistant professor of energy resources engineering at Stanford University. “Atmospheric tests covering the entire country indicate emissions around 50 percent more than EPA estimates,” said Brandt. “And that’s a moderate estimate.”

    A Bridge to Nowhere: Up to 75% more Deadly Methane emitted by Natural Gas Drilling than Estimated  -- The amount of methane leaking from natural gas emissions is far higher than previously estimated, a new study shows, more evidence, as one expert says, that urgent action must be taken to reduce these greenhouse gas emissions. The findings, based on a review of over 200 previous studies, was published Friday in the journal Science. Methane is about 30 times more potent of a greenhouse gas than carbon dioxide, so while President Obama has championed natural gas as a "bridge fuel" to address global warming, the climate implications of this "leaky" industry deserve scrutiny."People who go out and actually measure methane pretty consistently find more emissions than we expect," said lead author of the study Adam Brandt, an assistant professor of energy resources engineering at Stanford University."Atmospheric tests covering the entire country indicate emissions around 50 percent more than EPA estimates," said Brandt. "And that's a moderate estimate."The amount could be as high as 75 percent greater, the researchers found.Part of the discrepancy in the federal government's estimates of methane and those presented in the studies is because the EPA took measurements from sites in which companies participated voluntarily. The EPA also does not measure methane emissions from natural sites like wetlands. Atmospheric studies, in contrast, are able to be more encompassing.

    By The Time Natural Gas Has A Net Climate Benefit You’ll Likely Be Dead And The Climate Ruined - The evidence is mounting that natural gas has no net climate benefit in any timescale that matters to humanity. In the real world, natural gas is not a “bridge” fuel to a carbon-free economy for two key reasons.  First, natural gas is mostly methane, (CH4), a super-potent greenhouse gas, which traps 86 times as much heat as CO2 over a 20-year period. So even small leaks in the natural gas production and delivery system can have a large climate impact — enough to gut the entire benefit of switching from coal-fired power to gas.  Sadly as a comprehensive new Stanford study reconfirms, “America’s natural gas system is leaky.” The news release explains: A review of more than 200 earlier studies confirms that U.S. emissions of methane are considerably higher than official estimates. Leaks from the nation’s natural gas system are an important part of the problem. Second, natural gas doesn’t just displace coal — it also displaces carbon-free sources of power such as renewable energy, nuclear power, and energy efficiency. A recent analysis finds that effect has been large enough recently to wipe out almost the entire climate benefit from increasing natural gas use in the utility sector if the leakage rate is only 1.2 percent (comparable to the EPA’s now discredited new lowball estimate). In fact, as a major paper we reported on in November found, “The US EPA recently decreased its CH4 emission factors for fossil fuel extraction and processing by 25–30% (for 1990–2011), but we find that CH4 data from across North America instead indicate the need for a larger adjustment of the opposite sign.”

    Data Made Beautiful: Weather, Climate and Fracking Water   Humans bring life to data and put them together in ways that help us better understand the world. Some people call this art “data visualization,” and 2014 has already produced some mind-splitting examples. Below are four favorites. Example 2: Frack Me a River  A database of hydraulically fractured wells is overlaid on a map of baseline water stress in the United States. Colors represent water stress, black dots represent hydraulically-fractured wells. Source: WRI Aqueduct Water Risk Atlas  Texas has a lot of fracking resources. Water isn’t one of them. What does Texas’s fracking need most? That’s right: water, and lots of it.  Fracking, or hydraulic fracturing for the ill-humored, is the process of blasting chemical-rich water into the ground to cause tiny fractures from which natural gas can be collected. The technique is at the heart of the U.S. energy boom, which happens to coincide with some of the worst droughts in modern U.S. history.  This week Ceres, a group of data-loving visualizers, superimposed U.S. fracking wells over maps of water stress created by the World Resources Institute. Open the map, click the little circle in the bottom right to expand it to full screen and then zoom in.  Ceres’s analysis found that nearly half the fracked wells (black dots on the map) in the U.S. were in areas with high or extremely high water stress (areas in red). Scary stuff if you live in a water-stressed area. It’s interesting enough just to see those 40,000 wells spread across the country; keep in mind, this is just a sampling of frack wells built since 2011.

    Trading Water for Fuel is Fracking Crazy - It would be difficult to live without oil and gas. But it would be impossible to live without water. Yet, in our mad rush to extract and sell every drop of gas and oil as quickly as possible, we’re trading precious water for fossil fuels. A recent report, Hydraulic Fracturing and Water Stress, shows the severity of the problem. Alberta and B.C. are among eight North American regions examined in the study by Ceres, a U.S.-based nonprofit advocating for sustainability leadership.Nearly half (47 percent) of oil and gas wells recently hydraulically fractured in the U.S. are in regions with high or extremely high water stress. Map credit: Ceres[/caption]  One of the most disturbing findings is that hydraulic fracturing, or fracking, is using enormous amounts of water in areas that can scarcely afford it. The report notes that close to half the oil and gas wells recently fracked in the U.S. “are in regions with high or extremely high water stress” and more than 55 percent are in areas experiencing drought. In Colorado and California, almost all wells—97 and 96 percent, respectively—are in regions with high or extremely high water stress, meaning more than 80 percent of available surface and groundwater has already been allocated for municipalities, industry and agriculture. A quarter of Alberta wells are in areas with medium to high water stress. Drought and fracking have already caused some small communities in Texas to run out of water altogether, and parts of California are headed for the same fate. As we continue to extract and burn ever greater amounts of oil, gas and coal, climate change is getting worse, which will likely lead to more droughts in some areas and flooding in others. California’s drought may be the worst in 500 years, according to B. Lynn Ingram, an earth and planetary sciences professor at the University of California, Berkeley.

    Fracking brings oil boom to south Texas town, for a price - Just a few years ago this was a sleepy town of 5,600, and people eked out a living from the land. Now, an oil and gas boom is transforming the economy of south Texas, turning Carrizo Springs into a busy city of at least 40,000.  Property owners who have seen the state's fortunes rise and fall during oil booms in years past — before the aging oil wells that first spurted "Texas tea" went dry — are suddenly making new millions selling and leasing, earning them the nickname "Eagle Ford Hillbillies." The region is set to reap more than $90 billion in the next decade.  But the newfound prosperity comes at a price. The highway leading into Carrizo Springs is cracked and pitted from the heavy traffic. Sexual assaults, thefts and crashes are up. Women frequent parking lots selling perfume — a pretext for prostitution. There's a new strip club.  The sheriff has hired 15 deputies — doubling the force — and complains that Mexican drug cartels are taking advantage of the chaotic atmosphere, using fake oil trucks to conceal and transport narcotics.  Unemployment dropped from 12% to 4% countywide in the last five years. At quitting time, fleets of white energy company trucks occupy the parking lots. Companies have pitched more than a dozen military-style man camps, or temporary housing complexes, spartan and secure as overseas military bases. RV parks multiplied alongside them, from two at the start of the boom to 70.  Drilling operations are visible from space. At night a golden arc of light — from natural gas flaring and electrical lights on drilling platforms — sweeps east from Carrizo Springs to the heart of Texas. By 2022, the deposits are expected to generate 128,000 jobs and untold side effects across the region.

    Fracking the Eagle Ford Shale (2 part video) The Eagle Ford Shale in South Texas is the site of one of the biggest energy booms in America, with oil and gas wells sprouting at an unprecedented rate. But local residents fear for their health - not from the water, but from the air they breathe. Our eight-month investigation reveals the dangers that come with releasing a toxic soup of chemicals into the air and just how little the government of Texas knows - or wants to know - about it. (from The Weather Channel | InsideClimate News | The Center for Public Integrity)

    Gripping Report and Film Reveal How Fracking Boom Destroys Texans’ Lives --Shelby Buehring was born in South Texas and bought a home there in 1995, but he has grown to hate the area.That's because the area's fracking boom caused his wife, Lynn, to depend on an inhaler to help her breathe properly amid an atmosphere rife with thick black smoke, strong stenches and other environmental effects from fracking near their Karnes County home. The Buehrings are two of several people the Center for Public Integrity, InsideClimate News and The Weather Channel spoke to as part of a most-gripping report and short film package released Tuesday that exposes the impact of fracking as well as any on record.  “There's nothing we can do,” Shelby Buehring said of living near the Eagle Ford Shale play. “Nobody is listening to us. "They're not going to stop, so we have to live with it or leave ... This is my home, and I hate it here.”

    Watch: Fracking The Eagle Ford Shale – Big Oil And Bad Air On The Texas Prairie -- A new joint investigation out this week on air quality in the Eagle Ford Shale has brought up troubling questions about the effect fracking in South Texas is having on the health of residents. Inside Climate News, The Center for Public Integrity, and the Weather Channel cooperated on the report, which took eight months. Among the report’s findings:

    • “Texas’ air monitoring system is so flawed that the state knows almost nothing about the extent of the pollution in the Eagle Ford. Only five permanent air monitors are installed in the 20,000-square-mile region, and all are at the fringes of the shale play, far from the heavy drilling areas where emissions are highest.”
    • “Thousands of oil and gas facilities, including six of the nine production sites near the Buehrings’ house, are allowed to self-audit their emissions without reporting them to the state. The Texas Commission on Environmental Quality (TCEQ), which regulates most air emissions, doesn’t even know some of these facilities exist. An internal agency document acknowledges that the rule allowing this practice “[c]annot be proven to be protective.”
    • “Companies that break the law are rarely fined. Of the 284 oil and gas industry-related complaints filed with the TCEQ by Eagle Ford residents between Jan. 1, 2010, and Nov. 19, 2013, only two resulted in fines despite 164 documented violations. The largest was just $14,250. (Pending enforcement actions could lead to six more fines).”

    The report also notes that the TCEQ’s budget has been slashed, reducing their ability to conduct inspections and air monitoring. Simultaneously, there has been a ”100 percent statewide increase in unplanned, toxic air releases associated with oil and gas production since 2009.” These “are usually caused by human error or faulty equipment,” the report notes, and can be fixed.

    Exxon CEO joins anti-fracking lawsuit after drilling threatens his property value - Exxon CEO Rex Tillerson is involved in a legal battle over fracking. The weird part is, he’s on the side that’s against it. Don’t worry, Tillerson hasn’t changed his “Drill, baby, drill” mentality or had a change of heart about the evils of regulatory oversight in general. He’s just worried about the effect that drilling is going to have where he lives. Specifically, he wants to block the construction of a 160-foot water tower next to his home in Bartonville, Texas, which would provide water for nearby fracking operations. In order to do so, The Wall Street Journal reports, he’s signed onto a lawsuit that details the many unsavory consequences of fracking: [Tillerson] and his neighbors had filed suit to block the tower, saying it is illegal and would create “a noise nuisance and traffic hazards,” in part because it would provide water for use in hydraulic fracturing. Fracking, which requires heavy trucks to haul and pump massive amounts of water, unlocks oil and gas from dense rock and has helped touch off a surge in U.S. energy output.…While the lawsuit Mr. Tillerson joined cites the side effects of fracking, a lawyer representing the Exxon CEO said he hadn’t complained about such disturbances. “I have other clients who were concerned about the potential for noise and traffic problems, but he’s never expressed that to me or anyone else,” said Michael Whitten, who runs a small law practice in Denton, Texas. Mr. Whitten said Mr. Tillerson’s primary concern is that his property value would be harmed.

    Exxon CEO Comes Out Against Fracking Project Because It Will Affect His Property Values - As ExxonMobil’s CEO, it’s Rex Tillerson’s job to promote the hydraulic fracturing enabling the recent oil and gas boom, and fight regulatory oversight. The oil company is the biggest natural gas producer in the U.S., relying on the controversial drilling technology to extract it.  The exception is when Tillerson’s $5 million property value might be harmed. Tillerson has joined a lawsuit that cites fracking’s consequences in order to block the construction of a 160-foot water tower next to his and his wife’s Texas home. The Wall Street Journal reports the tower would supply water to a nearby fracking site, and the plaintiffs argue the project would cause too much noise and traffic from hauling the water from the tower to the drilling site. The water tower, owned by Cross Timbers Water Supply Corporation, “will sell water to oil and gas explorers for fracing [sic] shale formations leading to traffic with heavy trucks on FM 407, creating a noise nuisance and traffic hazards,” the suit says.Though Tillerson’s name is on the lawsuit, a lawyer representing him said his concern is about the devaluation of his property, not fracking specifically. When he is acting as Exxon CEO, not a homeowner, Tillerson has lashed out at fracking critics and proponents of regulation. “This type of dysfunctional regulation is holding back the American economic recovery, growth, and global competitiveness,” he said in 2012. Natural gas production “is an old technology just being applied, integrated with some new technologies,” he said in another interview. “So the risks are very manageable.”

    How Fracking The Eagle Ford Shale Takes Advantage Of Low Income Communities - A 400-mile-long sedimentary rock formation in Texas known as the Eagle Ford Shale is home to one of the country's most significant energy booms, but it's coming at a cost. More than 7,000 oil and gas wells have popped up in the area since 2008, according to an exhaustive report from The Weather Channel, InsideClimate News and The Center for Public Integrity. But the drilling involves "releasing a toxic soup of chemicals into the air," and it's causing respiratory issues for residents. The journalists behind the eight-month investigation joined HuffPost Live's Alyona Minkovski on Feb. 18 to share their findings and discuss what it all means. Jim Morris, a senior reporter and editor at The Center for Public Integrity, said he was told by an industry spokesperson that the Eagle Ford Shale has become the "largest economic development zone in the world," but the people who live there are typically low-income families. "I think that's one of the main reasons that the oil and gas industry feels sort of free to do what it wants to do, because this development is not in suburbia," Morris said. "It's in mostly rural areas. It's in a part of Texas that many people don't get to, don't go to. It's not near any of the big cities." But Texas lawmakers have a significant financial stake in the energy-mining development at Eagle Ford, according to InsideClimate News reporter Dave Hasemyer. "Forty-two of the 181 state legislators -- the people who are responsible for setting the rules and regulations for oil and gas development -- have a personal financial interest, either through themselves or through their spouse, of as much as $10 million total," Hasemyer said. "So there is a great incentive by the state of Texas."

    Ohio Agency Tasked With Limiting Fracking On Public Lands Was Actually Planning To Promote It - The Ohio Department of Natural Resources developed a plan to promote fracking and drilling in state parks and forests while regulating the practice at the same time, according to a document leaked by the governor’s administration.The memo, which was drafted in 2012 but was never implemented by the state government, outlines a plan to convince Ohio residents of the benefits of opening up public lands to resource extraction. It also makes note of probable sources of opposition to the drilling, including environmental activists, which the memo refers to as “skilled propagandists” who will put up “zealous resistance.”“Vocal opponents of this initiative will react emotionally, communicate aggressively to the news media and online, and attempt to cast it as unprecedented and risky state policy,” the memo reads, adding that this opposition will require “aggressive” communications from the Ohio DNR to inform the public about the safety of the plan. The memo also warned that anti-fracking activists would “attempt to create public panic” about the health risks of fracking and drilling, which would require more sustained messaging from the DNR. The memo aimed to promote the economic benefits of opening parks and forests to fracking and to convince the public that the practice would solve long-standing problems in Ohio, including creating “thousands of new jobs” and providing funds for new park infrastructure like bathrooms and camp grounds.  The memo was leaked on Friday, and when Ohio Gov. John Kasich’s administration was initially asked about it by the Columbus Dispatch, an administration spokesman said the governor’s office had never seen the memo. However, after a 2012 email from the Kasich administration seeking a meeting about the pro-fracking PR campaign became public, it became clear that the administration did know about the plan.

    Plan Shows Regulatory Agency and Fracking Industry in Cahoots to Promote Drilling in State Parks in Ohio (but coming to a state near you!) - Public documents reveal a plan by the Ohio Department of Natural Resources (ODNR), the agency responsible for regulating fracking in Ohio, to work with “allied” groups to promote the controversial drilling technique in state parks. The “allied” groups named were both fracking industry and state regulatory bodies alike, drawing new criticisms to what many people have been calling Gov. Kasich’s agenda to have his own way with the state’s public funds and resources. The document, Oil & Gas State Lands Leasing: Draft Outline for Communication Plan, was uncovered by Program Coordinator for the Ohio Chapter of the Sierra Club Brian Kunkemoeller after making a public records request. It outlines a PR initiative from August 2012 to “encourage support” to stakeholders and the public for fracking in state parks and forests, and proactively counter “zealous resistance by environmental activist opponents, who are skilled propagandists.” After reading the 13-page document, Kunkemoeller was gravely concerned as the ODNR seemed to be acting like a marketing firm for the oil and gas industry instead of the agency charged with regulating oil-and-gas drilling in Ohio to protect human health and the environment.“This is an unprecedented collusion between oil and gas companies and the agencies that regulate them. This isn’t just bad news for our parks and forests, it’s bad news for our democracy,” said Kunkemoeller.

    New Evidence Exposes Gov. Kasich’s Role in PR Plan to Promote Fracking in State Parks -- As reported Sunday, new evidence was released today showing Ohio Gov. Kasich’s involvement in the communications plan that detailed how the Ohio Department of Natural Resources (ODNR) would “marginalize” opponents of fracking by teaming up with “allied” corporations—including Halliburton, business groups and media outlets—to promote this controversial drilling technique in state parks. Wayne Struble, Gov. Kasich’s director of policy, sent out an invitation on Aug. 20, 2012 to eight of Kasich’s most senior staffers with the subject line: “State-Land Leasing—Strategy and Communications.” The subject line is nearly identical to the title of the original memo, Oil & Gas State Lands Leasing: Draft Outline for Communication Plan (8/20/12), created by the ODNR. The only other invited guests were top officials from the ODNR. Among the Kasich staff invited to the meeting were: Gov. Kasich Communication Director Scott Milburn, Chief of Staff Beth Hansen, Senior Advisor Jai Chabria, former Director of Legislative Affairs Matt Carle (now Gov. Kasich’s campaign manager) and former Policy Advisor Craig Butler (now Kasich’s Ohio Environmental Protection Agency director). “It is simply astonishing that the agency tasked with protecting the environment would see Halliburton as a friend and the Sierra Club as an enemy,” said Deb Nardone, director of the Sierra Club Beyond Natural Gas Campaign. “It’s shocking to see an orchestrated PR hit job in black and white.”

    Legislators Seek Hearings on Political Targeting by Gov. Kasich, ODNR and Fracking Industry -- State Representatives Nickie J. Antonio (D-Lakewood) and Robert F. Hagan (D-Youngstown) today called on the Ohio Speaker of the House to hold legislative hearings to determine whether Gov. Kasich and the Ohio Department of Natural Resources (ODNR) are promoting the interests of the oil and gas industry rather than protecting the public interest. Just days ago, a memo was uncovered that detailed how the ODNR and Gov. Kasich would stifle and discredit groups and elected officials concerned about fracking by teaming up with “allied” corporations to promote this controversial drilling technique in state parks. The document—obtained through an unrelated public records request—targets Democratic legislators and environmental watch groups as part of a strategy to marginalize public concern and advance oil and gas interests. Reps. Antonio and Hagan were included by name on a list of “opposition groups;” while “allied groups” included the Governor’s office, JobsOhio, and big oil and gas companies such as Halliburton.

    Ohio Governor Reverses Course On Fracking In State Parks After Plan To Discredit Environmentalists Leaked -- After it was revealed that top advisers to Ohio Governor John Kasich (R) were aware of a plan crafted by the state’s Department of Natural Resources to discredit the “eco-left” over fracking in state parks, Kasich reversed course on the issue Wednesday. “At this point, the governor doesn’t support fracking in state parks,” Kasich spokesman Rob Nichols told The Columbus Dispatch. “We reserve the right to revisit that, but it’s not what he wants to do right now, and that’s been his position for the past year and a half.” As the Dispatch notes, the reversal comes on the same day that Democrats called for an investigation into a leaked 2012 memo outlining a plan to sway public opinion on opening up public lands for oil and gas drilling.  The memo identifies groups like the Sierra Club, Natural Resources Defense Council and the Ohio Environmental Council as the opposition, and warns that an “initiative to proactively open state park and forest land to horizontal drilling/fracturing will be met with zealous resistance by environmental activist opponents, who are skilled propagandists” (emphasis theirs). The PR plan also cautioned “that anti-fracking activists would ‘attempt to create public panic’ about the health risks of fracking and drilling, which would require more sustained messaging from the DNR,” ThinkProgress reported Tuesday.

    Fracking Well Blowout Causes Oil And Chemical Wastewater Spill In North Dakota  - An oil well owned by Whiting Petroleum Corp. started leaking hydraulic fracturing fluid and spewing oil late on Thursday, after a blowout that company and state officials said may take “a couple more days” to clear up, according to Friday reports in Reuters.  The well lost control after a blowout preventer failed, and began leaking between 50 and 70 barrels (2,100 to 2,940 gallons) per day of fracking fluid — a mixture of generally classified chemicals, water, and sand — and 200 barrels (8,400 gallons) per day of oil, the Reuters reports said. As of Friday, fluids from the leak were being collected and trucked from the site. Whiting is maintaining that none of the liquids entered the water, though some oily “mist” did spray onto the frozen creek. “This [leak] is a large one and also a health and human risk, it’s a big one,” Lynn Helms, the head of the state’s Department of Mineral Resources, said in a conference call. Though the harmful effects of an oil leak are widely known, less is known about the effects of the chemicals used in the hydraulic fracturing process.  Thanks to laws pushed by corporate front groups like the American Legislative Exchange Council (ALEC), states have allowed minimum disclosure of the chemicals used in the fluid.

    This North Dakota Oil Town Has The Highest Rent In The Country -- The oil boom in North Dakota has garnered headlines for a range of reasons, many of them unsavory: the possible increase of violence, drug addiction and STDs, the wastefulness of gas flaring, and the increase in oil and waste water spills. Now, it can be tied to another effect: really high rent. According to a recent survey from Apartment Guide, the region around the town of Williston, North Dakota has the highest average rent in the U.S., beating out other traditionally expensive areas such as the Washington D.C. and New York City metropolitan regions. A renter in Williston can expect to pay an average of $2,394 a month for a 700-square-foot, one-bedroom apartment — space that would cost $1,504 in New York and $1,411 in the Los Angeles area. Williston is in the heart of the oil patch — one of the most active oil-producing cities in the second largest oil-producing state in the country. In 2012, the number of oil rigs in the town increased from increased to about 200, a jump from the 70 or so that the town held in 2010. With that growth in oil rigs came a spike in population — the number of people in Williston has more than doubled from 14,700 people in 2010, to up to 33,000 people in 2012. But the housing market in the town hasn’t been able to keep up with the influx of people looking to make their fortunes in the oil field, which explains the inflated rent prices. Many in Williston and surrounding North Dakota towns have struggled to find homes, often living in barracks-style “man camps” (the ratio of men to women in Williston, in particular, is 12 to 1, driven by the surge of jobs in the male-dominated oil industry). Prostitution and strip clubs have begun popping up around the camps, but the Department of Justice is also studying whether more serious effects of the camps have been taking place, including “domestic violence, dating violence, sexual assault, and stalking.”

    North Dakota: The State That's Beginning to Wish It Never Got Rich - Oil has brought great wealth and the nation’s lowest unemployment rate to North Dakota. Soaring homelessness, crime, and housing prices have come along for the ride.  North Dakota has had much to brag about in recent years. It is the state with the fastest-growing population in the nation (up 7.6% from 2010 to 2013) and, by no small coincidence, also the lowest unemployment rate (just 2.6%). North Dakota now ranks 29th in millionaires per capita, up from 47th in 2007, climbing far faster up the ladder than any other state in that department.  Yet in the same way that many lottery winners say their jackpot was a curse, North Dakota is currently absorbing a string of be-careful-what-you-wish-for lessons.   In recent weeks, reports have surfaced revealing the following disturbing factoids:

    Meanwhile, a 2012 report by ProPublica is one of several exploring how the oil industry could spell environmental disaster for northwestern North Dakota, the epicenter of the state’s boom. A well-publicized accident involving a freight train carrying crude oil in North Dakota last December has also called into question the safety of the production and transportation of crude in the state.

    Gas Drilling Explosion Highlights Problems of Proximity to Homes and Schools --- On Feb. 11, the town of Dunkard, PA was rocked by an explosion at a Chevron Appalachia natural gas drilling site. Yesterday the fire was still burning. One worker was reported injured and another as missing. According to press reports, Pennsylvania Department of Environmental Protection (DEP) Secretary Chris Abruzzo said it was “fortunate” that the nearest house was about a half mile away from the exploding drilling site. While Abruzzo is busy thanking fortune for protecting families and the community from the devastating explosion, it is his agency that continues to fight to reinstate Governor Corbett’s pro-drilling Act 13—the law that would allow gas well pads and  their attendant infrastructure and harms, to be built just 300 feet from homes, schools, day care centers, hospitals or any other structure in Pennsylvania. It is time for good judgment, not just good fortune. The half mile buffer good “fortune” gave to the residents of Dunkard far surpasses what the DEP or the Governor would see them have (see picture that shows the comparison of what good fortune gave Dunkard versus what Abruzzo and Corbett continue to argue for). Sec. Abruzzo and Gov. Corbett continue their efforts to reduce the buffer of protection between drilling sites and houses, between the poisonous hazards on these site and the streams that provide us our drinking water, between dangerous drilling infrastructure and every aspect of our communities.

    Chevron Offers One Free Pizza (Special Combo Only) to Residents Affected by Natural Gas Drilling Explosion -  A week ago today an explosion at a Chevron Appalachia natural gas drilling site shook the town of Dunkard, PA. The ensuing fire burned for days and one missing worker has been presumed dead, according to CBS Pittsburgh. For days after the explosion the sound of the fire can be heard at least a mile away from the site. Reportedly, in an effort to smooth ties with residents affected by the blast, the Chevron Appalachia Community Outreach Team went door-to-door delivering gift certificates for free pizzas to about 100 homes. The coupon is good only for a large special combo pizza from Bobtown Pizza. The voucher also includes a two-liter soda and expires May, 1.

    Officials Say Public Not Warned Of Propane Car Derailment On Massachusetts Overpass - A train carrying liquefied petroleum gas (LPG) through a Main Street overpass in Westford, Massachusetts derailed on Wednesday evening, but the company responsible did not notify public officials until Thursday afternoon, according to local media reports. The derailment of five Pan Am Railways freight cars — two carrying LPG, or propane — in Westford was not made public until a local fire chief drove by and spotted the cars off their tracks. Though there was no spill reported, the Lowell Sun reported “a faint smell of gas in the air,” as well as concerns from public officials that the event could have caused a catastrophe. “According to [Pan Am] this is not an emergency, as far as I know nothing’s leaking, ” Westford town manager Jodi Ross told local reporters on the scene. “Our concern is when they get these cars back on the track if they were to knock them over into our aquifer, or they leak in the densely populated area around here.”Ross also said she was “dismayed” over the fact that she wasn’t allowed to be near the scene of the derailment. After Ross was notified of incident by the local fire chief, she said, the manager presiding over the derailment called the police to get her away from the tracks.

    Getting oil, tankers off the bridge - Austin, 44, arrived before sunrise, parking on a dirt road leading to the railway. "Wow," he remembers thinking. "What do we do?" That question has confronted cleanup crews since seven of 101 cars on a CSX train derailed south of Center City on Jan. 20, in the middle of the night. The slow and delicate process of removing them - two of the cars were leaning off the bridge - has thrown jackhammers and 100-ton cranes into action, and sent dozens of workers to cringe-worthy heights above the icy river. The accident came at a time when federal safety officials were already voicing concerns about the risks of moving flammable crude oil around the country by rail. Just last month, a trainload of crude in North Dakota exploded, causing millions in estimated damage. The Philadelphia derailment was far less serious - no fire started, no oil spilled. The workers' task was to keep it that way. Derailment experts from as far away as Mobile, Ala., have worked in 12-hour shifts for more than a week at the site, located near the University City hospital complex. The last freight car on the bridge was expected to be moved Tuesday night.  Thousands of drivers on the Schuylkill Expressway have been able to see the hard-hatted workers, about 70 during the day and 40 at night, who had a dizzying view of the road and the river from above.

    Train accidents stir worries about crude transport (AP) - At least 10 times since 2008, freight trains hauling oil across North America have derailed and spilled significant quantities of crude, with most of the accidents touching off fires or catastrophic explosions. The derailments released almost 3 million gallons of oil, nearly twice as much as the largest pipeline spill in the U.S. since at least 1986. And the deadliest wreck killed 47 people in the town of Lac-Megantic, Quebec.Those findings, from an Associated Press review of U.S. and Canadian accident records, underscore a lesser-known danger of America's oil boom, which is changing the global energy balance and raising urgent safety questions closer to home. Experts say recent efforts to improve the safety of oil shipments belie an unsettling fact: With increasing volumes of crude now moving by rail, it's become impossible to send oil-hauling trains to refineries without passing major population centers, where more lives and property are at risk. Adding to the danger is the high volatility of the light, sweet crude from the fast-growing Bakken oil patch in Montana and North Dakota, where many of the trains originate. Because it contains more natural gas than heavier crude, Bakken oil can have a lower ignition point. Of the six oil trains that derailed and caught fire since 2008, four came from the Bakken and each caused at least one explosion. That includes the accident at Lac-Megantic, which spilled an estimated 1.6 million gallons and set off a blast that levelled a large section of the town.

    Oil Train Derailments Reaching Crisis Point - On February 13 a Norfolk Southern Railway train bound for New Jersey derailed in Vandergrift, Pennsylvania. About 3,500 to 4,500 gallons of crude oil spilled, although miraculously it somehow didn’t leak into nearby water supplies. The Federal Railroad Administration announced that it will investigate the crash. The episode is merely the latest in a series of derailments and will raise pressure on federal regulators to issue new safety rules. It is hard to imagine the National Transportation Safety Board (NTSB) not taking action soon as the problem has become too common to ignore. The big question is whether or not PHMSA will require and accelerate the phase out of DOT-111 cars, making reinforced cars mandatory. The House Transportation and Infrastructure Committee will hold a hearing on rail safety on February 26, an indication that after multiple train derailments and explosions, the issue is finally getting greater attention on Capitol Hill.

    Coal And Oil Trains Would ‘Consume Most Of The Existing Rail Capacity’ In West, Report Says -- Even with the collapse of plans for building 3 of 6 proposed coal export terminals in Oregon and Washington, the amount of coal that could move from the Powder River Basin to export facilities in the U.S. Pacific Northwest and British Columbia by 2023 could still be huge and cause major rail traffic headaches in the region, according to a new study. The report, by the Western Organization of Resource Councils, predicts that within a decade the number of coal trains, full and empty, moving from mines in Wyoming and Montana across the northern plains and northwest could reach 63 a day. Add in the projected 22 trains carrying crude oil from the Bakken field in North Dakota to proposed and existing oil terminals on the coast and then returning empty to the Bakken and the daily traffic could reach 85 trains a day. “The voluminous and very profitable…export coal traffic and profitable Bakken oil traffic….would consume most of the existing rail capacity, which would displace traffic and result in higher freight rates for other rail shippers,” the report says. The analysis — titled “Heavy Traffic Still Ahead,” is an updated version of an earlier report in 2012 by the organization, which is a network of regional community action organizations stretching from the Dakotas to Montana, Wyoming and Colorado.

    North Dakota Has Highest Rents in the Country from Bakken Boom --A new survey from Apartment Guide ranks metropolitan on their average costs of rental housing. You may be thinking that the most expensive rental market in the country might be New York City, San Francisco, Los Angeles, or Washington DC. You would be wrong. The survey finds that Williston, North Dakota – yes, North Dakota – has the highest average rent in the country. A 700 square-foot, one bedroom apartment in Williston, North Dakota costs an average of $2,394 per month. And San Francisco only slightly edges out Dickinson, North Dakota for third place. Dickinson’s average rental rate of $1,733 a month was good enough for fourth. By way of comparison, New York comes in at 7th place with an average rent of $1,504 per month

    Judge strikes down Nebraska law that allowed Keystone XL pipeline -- A Nebraska judge on Wednesday struck down a law that allowed the Keystone XL pipeline to proceed through the state, a victory for opponents who have tried to block the project that would carry oil from Canada to Texas refineries. Lancaster County Judge Stephanie Stacy issued a ruling that invalidated Nebraska Gov. Dave Heineman’s approval of the route. Stacy agreed with opponents’ arguments that the law passed in 2011 improperly allowed Heineman to give Calgary-based TransCanada Corp. the power to force landowners to sell their property for the project. Stacy said the decision to give TransCanada eminent domain powers should have been made by the Nebraska Public Service Commission, which regulates pipelines and other utilities. A spokeswoman for Nebraska Attorney General Jon Bruning said the state will appeal the ruling. Stacy’s decision could cause more delays in finishing the pipeline, which is critical in Canada’s efforts to export its growing oil sands production. It also comes amid increased concerns about the dangers of using trains to transport crude oil after some high-profile accidents — including a fiery explosion in North Dakota last month and an explosion that killed 47 people in Canada last year. A spokesman for pipeline developer TransCanada said company officials were disappointed and disagreed with the decision, which came in a lawsuit filed by three Nebraska landowners who oppose the pipeline. The company planned to review the ruling before deciding how to proceed.

    A Canadian Company Is About To Become One Of The First To Extract U.S. Tar Sands Oil --The controversial oil extraction process made famous by Canada — deemed the world’s “dirtiest type of liquid fuel” — is coming to America. According to a Sunday report in DeSmogBlog, a Canadian company called U.S. Oil Sands has received all the necessary permits to open the nation’s second commercial-scale tar sands mine, which will soon begin producing tar sands oil — a thick, hard-to-extract mixture of heavy oil, sand, and water. The Utah Unitah Basin project will be allowed to extract 2,000 barrels of oil per day. Some scientists say the unique and energy-intensive extraction process produces three times the greenhouse gas emissions of conventionally produced oil. According to the Bureau of Land Management there are 12 to 19 billion barrels of tar sands oil in Utah, though not all of it is recoverable. And recovering it is not easy, as DeSmogBlog notes: U.S. Oil Sands’ water-and-energy-intensive extraction process involves first digging up congealed tar sands, then crushing them to reduce their size. The company then mixes the crushed sand with large amounts of hot water (at a temperature of 122-176°F) to loosen up and liquefy the tarry, oil-containing residue and separating it from the sand. Next, coarse solids sink, are subsequently removed and considered waste tailings. Air is then bubbled through the remaining water-oil mixture, which makes the oil float to the top in what’s referred to as “bitumen froth,” in industry lingo. The froth is then deaerated, meaning all the air molecules are removed. After this, as BLM notes, it takes approximately four tons of sand and four barrels of fresh water to make a barrel of oil, which is the equivalent of about 42 gallons. The amount of water the process uses is of particular concern in Utah, where water is scarce. Still, U.S. Oil Sands has received permits from the Utah Water Quality Board despite questions about the ongoing water crisis in Utah and the American southwest.

    Meet The Family The Tar Sands Industry Wants To Keep Quiet - There is an abandoned house in Alberta, Canada, where Alain Labrecque used to live. Tucked in the farming community of Peace River, it is a place brimming with personal history, rooted to his grandfather’s land where his parents and eight aunts and uncles grew up, and where Alain’s own children were born. Now, Alain’s property and the surrounding area are primarily home to large, black cylinders of oil.   Though Alain once thought having the tanks on his property would be a blessing, he now describes them as a curse. After experiencing an unusual kind of sickness — fainting, weight loss, gray skin, strange growths — that he believes was caused by the tanks’ unregulated emissions, Alain and his family were eventually forced to move to British Columbia. They have pegged Baytex Energy, the owner of the tanks, as their enemy. Baytex has produced studies claiming innocence, but has also offered to buy the Labrecques’ land in exchange for their silence. So, taking their doctor’s own advice, the family decided to move, and fight the battle for their home from afar.  The doctor’s words to them? “He said, ‘You are just a small, little bolt in this huge robot, and you don’t matter. Move.’”

    Restore Louisiana Now: Harry Shearer interviews John Barry -- A followup to last year's interview of John Barry regarding the New Orleans East Bank levee board lawsuit. Podcast here; transcript below the fold. I actually got to hear someone say start building land. And the gold standard is a cypress tree. Harry Shearer: This is Le Show, and last August, I believe, I had a guest on this program and we discussed a news-making lawsuit that he was at the forefront of getting filed against more than 90 petroleum and oil service companies. It was a lawsuit filed by the East Bank levee board in New Orleans against these companies for the damage that they had allegedly done over a period of decades to the wetlands surrounding New Orleans, damage that made arguably New Orleans far more vulnerable to storm surge and hurricane winds. Some interesting things have happened in the interim and, unusually for a broadcast medium, we’re following up. So John Barry is my guest again today. John Barry, a distinguished author, most notably of Rising Tide but of several other nonfiction books of great investigative repute, and more to the point until recently he was a member of that East Bank levee authority that filed the lawsuit against the oil companies. At the time we talked, he was still a member of that agency. He is not now. He is a representative of a new organization called Restore Louisiana Now, and, full disclosure, I’m not talking to him as a journalist, I’m talking to him as a friend, and he recently invited me to be on the advisory board of the organization, so this is a conversation between friends. John, welcome back.

    Alaska's million-barrel battle heats up as years of oil decline predicted -- With a new Alaska forecasts showing a decade more of declining North Slope oil production, Gov. Sean Parnell may be forced to admit defeat on his tax cutting effort to get 1 million barrels flowing through the trans-Alaska pipeline. With a new state forecast showing Alaska oil production falling to unprecedented lows in the coming decade, Democrats are calling on Gov. Sean Parnell to concede that his multibillion-dollar tax break -- primarily benefiting BP, ConocoPhillips and Exxon Mobil Corp. -- will produce less oil than the old tax system it replaced.But the governor, who once set a goal of getting 1 million barrels flowing daily through the pipeline in a decade, isn’t backing down. His office says he’ll concede nothing because the tax cut that became effective Jan. 1 is already working by sparking billions of dollars in new investment in Alaska.   What will that investment lead to? That’s a critical question because revenue from oil production -- currently flowing at about 550,000 barrels each day -- pays for most state services. More production, perhaps a lot of it, will be needed to close the massive budget deficits the state now faces. So far, estimates of new oil to come won’t make much of a dent in the falling production Alaska has experienced for two decades. But state officials say their forecasts are now more cautious than in the past, and they are being careful not to count uncertain projects.

    Chinese Iron Ore Stockpiles Rise To Record As End Demand Plummets -  It may not be one of the core three (somewhat) realistic and accurate econometric indicators of China's economy (which as a reminder according to premier Li Keqiang are electricity consumption, rail cargo volume and bank lending), but when it comes to getting a sense of capacity bottlenecks in China's fixed investment pipeline - be it in ghost cities or the latest skyscraper building spree - nothing is quite as handy as commodity, and particularly iron ore (if not copper, which as we have explained before has a far more "monetary/letter of credit" function in China's markets), stockpiles at China's major ports. The logic is simple: no stockpiles means end demand by steelmakers is brisk and there is no inventory build up which in turns keep Australia, Brazil and other emerging markets happy. Alternatively, large stockpiles indicates something is very wrong with final demand, and hence, the overall economy. One look at the chart below, which shows how much iron ore has been stockpiled at China's 34 major ports (spoiler alert: it just hit an all time high), should explain at which of these two extremes China currently finds itself.

    More on China’s ore for cash scams - The MSM spruik machine turns its eye to iron ore today and likes what it sees. From Reuters via the AFR: Chinese steel mills and traders are buying more iron ore to use as collateral to secure loans, helping imports and stocks of the raw material defy expectations for a slowdown in demand by the world’s biggest consumer. The increasing use of iron ore for financing explains why China is maintaining its voracious appetite even as a slowing economy threatens to curb demand for steel.…Steel mills had turned to Chinese state-owned enterprises for funding by pledging iron ore as collateral, said an official with a state-run iron ore trading firm based in Hangzhou. “Steel mills come to us for financing support because we can get a loan from the bank,” he said. “They give us iron ore which we give back when they pay back the money plus interest. Our interest is a bit higher than the bank but they cannot get a bank loan themselves.” There are also traders who obtain cheap US dollar-denominated loans via letters of credit overseas, import the iron ore and then sell it in the spot market. They can invest the cash, which they only need to pay back in three to six months, in other sectors such as real estate.: ”Financing activity is definitely quite strong and the fact that there’s tight credit in China has helped spur demand.”

    Still waiting for that China copper unwind… Whack-a-mole finance can have a long reach after all and may very well be skewing LME copper price levels which, instead of reflecting the LME stock position, are maybe reflecting all of that copper sitting somewhere in China, often tied up in tricky financing deals in the shadowy sectors of the economy.What remains interesting is the implicit and very sensible worry that all of that supply won’t stay under wraps forever. We’ve written about that before quite a bit but recent WMP hiccups make it a tad more immediate. Before we get to that though, the first question should really be, where is all that dark inventory? From Citi’s metals team (with our emphasis):Not all in the bonded network if market estimates of Shanghai bonded inventory are to be believed. Indeed, estimates of Shanghai bonded volumes fell throughout 2013 from around 800- 900,000 mt at the start of the year, to around 525-550,000 mt by year end. In addition, SHFE inventory fell by 79,000 mt through the year, pointing to a bonded + SHFE fall of around 400,000 mt. Estimates of excess availability of metal in 2013, when combined with market estimates of draws from Shanghai bonded warehouses and SHFE warehouses, either suggest that even high 2013 consumption growth estimates of 11.7% were pessimistic or that inventory builds were going on elsewhere. We believe that large volumes of collateralised financed metal are being held in bonded warehouses not only in Shanghai, the focus of most bonded estimates, but also in other Eastern Seaboard port cities. We also believe that metal might be being held in ‘hidden stocks’, essentially in the form of on-shore customs cleared stocks, which we believe are being used by some Chinese corporates as a collateral tool to secure loans at reduced interest rates. However, this is not the only source of non-reported or not estimated stock holding and stock builds. The Chinese State Reserves Bureau (SRB) is a holder of large volumes of copper in China. There was strong, though unsubstantiated, market speculation that the SRB were active copper buyers during H2 last year.

    China Factory Gauge Falls Amid Risks of Credit Souring: - A Chinese manufacturing index fell to the lowest level in seven months, adding to challenges for Communist Party officials grappling with risks to the financial system from trust defaults and soured loans. The preliminary February reading of 48.3 for a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compares with January’s final figure of 49.5 and the 49.5 median estimate in a Bloomberg News survey of 17 economists. A number below 50 indicates contraction. Asian stocks extended declines, commodities fell and the yuan tumbled the most since May in offshore trading as the data added to concern that the world’s second-largest economy is at risk of a deeper slowdown. Softening factory output increases pressure on policy makers to support economic expansion that’s forecast to slide to a 24-year low of 7.4 percent in 2014.

    China manufacturing index hits seven-month low: HSBC - - A key index of Chinese manufacturing fell further in February to hit its lowest level in seven months, HSBC said Thursday, in a sign of diminishing strength in the world's second-largest economy. Related Stories China's manufacturing slows to seven-month low Associated Press China manufacturing activity at 7-month low: HSBC MarketWatch China February flash PMI hits seven-month low, spooks markets Reuters China January inflation flat at 2.5% year-on-year AFP China, U.S. drag on global manufacturing revival Reuters The British banking giant's preliminary reading for its purchasing managers' index (PMI) for China, which tracks manufacturing activity in factories and workshops, fell to 48.3 this month. That marked a further tumble from the final reading of 49.5 in January, when the figure showed contraction for the first time in six months. The index is a closely-watched gauge of the health of the Asian economic powerhouse. A reading above 50 indicates growth, while anything below signals contraction. Qu Hongbin, HSBC economist in Hong Kong, blamed February's worsening figure on decreasing new orders and production at Chinese factories, and called on the government to adjust policy to support growth.

    China Manufacturing Deteriorates at "Moderate Pace" = The HSBC Flash China Manufacturing PMI shows China business conditions deteriorate at moderate pace in February. Key points:

    • Flash China Manufacturing PMI™ at 48.3 in February (49.5 in January) Seven-month low.
    • Flash China Manufacturing Output Index at 49.2 in February (50.8 in January) Seven-month low.
    Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co - Head of Asian Economic Research at HSBC said:  "February’s flash reading of the HSBC China Manufacturing PMI moderated further as new orders and production contracted, reflecting the renewed destocking activities. The building-up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening. We believe Beijing policy makers should and can fine-tune policy to keep growth at a steady pace in the coming year"

    What if China Does Land Hard? - Over the last two weeks, several major investment houses have published reports exploring the idea of a hard economic landing in China. They include “We don’t expect it to happen” caveats. But what if it did happen? Would the rest of the world tank as well? A catalyst for this concern has been the end of America’s easy-money policies, which buoyed emerging-market economies. The gradual end of the Fed credit flood has sparked concerns that developing countries with high fiscal and trade deficits, excess credit growth, currency risks and other problems could face a liquidity crisis, leading to a broad loss of confidence. Among the countries investors worry most about are those hit by political uncertainty, such as Venezuela, Argentina and Turkey. Also on the radar are economies with structural concerns including India, Brazil, Indonesia and South Africa. China is different, as its leaders are fond of pointing out. It’s got huge foreign currency reserves, still-strong economic growth – GDP slowed slightly to 7.7% on-year in the fourth quarter, from 7.8% in the third — and it posted 10.6% on-year export growth in January.But that hasn’t stopped some investors from seeing the worst, given the Asian giant’s extensive links with other emerging markets, credit and debt concerns and the possibility of some internal crisis.

    China a Growing Worry Among Fund Managers, BofA Survey Finds -- Global investors are increasingly worried about a sharp slowdown in China, which has eclipsed the U.S. Federal Reserve’s cutbacks in its bond-buying as the biggest perceived threat to the global economy, according to a survey of fund managers by Bank of America-Merrill Lynch. Nearly half of those surveyed, or 46%, pointed to a hard landing for China’s economy, and an accompanying collapse in commodity prices, as the biggest risk. That’s up from up from 37% last month and 26% in December.The bank polled 222 fund managers who manage a total of $591 billion of assets. Their biggest worries throughout much of the past year were political gridlock over the U.S. debt ceiling, followed by the Fed’s paring of its monthly asset purchases. Still, the growing worry about China’s economy doesn’t amount to bearishness. In fact, many investors remain convinced that China is well-placed to shrug off any market turbulence and still has policy levers it can use.

    Even China’s Economists Are Singing the Blues - China’s state media have long accused foreign analysts of being too bearish on the Chinese economy. Those analysts looking in from the outside are often said to be too eager to be “chanting decline”—chang shuai—when it comes to the economy’s prospects. This time around, China’s own economists seem to be chanting a pessimistic tune about growth prospects. Perhaps they are not quite as negative as those pesky foreign counterparts—who according to at least one report China’s state media are being told to avoid—but they are increasingly outspoken about slowing growth and rising financial risk. “We are now in a painful stage,” economist Wang Luolin told a seminar this week. “Let’s not try to dress things up,” said the consultant to the Chinese Academy of Social Sciences, a government think tank. Yu Bin, a senior researcher at the influential Development Research Center under the State Council, took a similarly pessimistic view. “The fact is, China’s economic growth is facing substantial downward pressure,” he said. “I don’t think we should get our hopes up for this year’s growth.”

    Is China at Risk of a Debt Crisis? Not Really, Bank Says -- Is China headed for a debt crisis? That has emerged as a pressing question over the past year as the country’s overall debt level rises quickly and the recent specter of defaults in the shadow banking system rattles financial markets in China and abroad. For economists at the Royal Bank of Scotland, the answer is “no” – at least not imminently. Comparing China to countries that have suffered recent debt crises – including the United States, United Kingdom and Spain in 2007, and South Korea and Thailand in 1997 – RBS finds that on two key metrics, the world’s second-largest economy is on safer footing.  For one thing, China’s loan-to-deposit ratio, which reflects the banking system’s resilience to a sudden drop in asset prices, is the lowest for all the countries tracked — half of Korea’s level and 43% of Thailand’s level when those economies melted down in the late 1990s. Then there’s the current account, which reflects a country’s sensitivity to foreign investment. A current-account deficit can leave developing economies acutely vulnerable to a sudden exit of capital, as India, Indonesia and some other emerging-market stars found out last year. Unlike nearly all the countries RBS examined, China runs a current-account surplus — a reflection both of its export dominance and, critics would say, its related determination to keep its currency undervalued. There’s also the fact that China’s capital controls make it difficult for investors to pull their money out of the country, even if they wanted to.

    Japan’s Trade Gap With China Expected to Grow - Japan’s large trade deficit with China is expected to grow further this year as the growth in imports to meet domestic demand outpaces sluggish exports to the Chinese market, the country’s trade promotion body said Tuesday. The deficit with China was the biggest among Japan’s trading partners in 2013, at $52 billion. Saudi Arabia and Qatar, both major oil and gas suppliers to Japan, were ranked second and third. While an increase in energy imports since 2010 has been the largest contributor to the deteriorating balance, trade deficits with China have also been a key factor, accounting for 26% of an overall ¥18 trillion ($78 billion) reversal in the overall trade balance over the period, according to JPMorgan. The Japan External Trade Organization, a government affiliated body, said that trade between the two countries is expected to grow in 2014 for the first time in three years. Data from China showed that bilateral trade between the two countries was up 10.6% in January from the same period last year. Trade ties have suffered since 2012 when a long-running territorial dispute flared up, sparking consumer boycotts of Japanese goods in China. China remained Japan’s biggest trading partner, however, ahead of the U.S. and South Korea. Sales of Japanese cars, which were hit hard by the anti-Japanese sentiment, are among those recovering, Jetro says. The share of Japanese brands in the Chinese new car market rose to 19.7% in December, from a low of 7.6% in October 2012, nearly returning the recent peak of 23.2% marked in July 2011, Jetro said citing Chinese auto sales data.But as trade ties improve, China is expected to be the main beneficiary, with imports of smart phones and other items from China expected to grow faster than exports of Japanese cars and construction and mining equipment.

    Japan fin min official says weak yen no longer directly lifts exports (Reuters) - Depreciation of the Japanese yen no longer directly boosts the country's exports as many of its major industrial firms have moved production offshore, a senior Japanese finance ministry official said on Tuesday. "Depreciation of the yen does not directly result in improvement in domestic industries' competitiveness," Tatsuo Yamasaki, a director-general at Japan's finance ministry, said at a conference in Seoul. Yamasaki noted that Japan's exports did not grow in volume even as the yen depreciated rapidly against the dollar following the country's aggressive monetary policy easing early last year. In fact, exports made a negative contribution to Japan's real gross domestic product growth last year, he added.

    Japan's quarterly growth disappoints ahead of sales tax hike: Japan's economy grew less than expected at the end of last year, countering forecasts it would see higher spending ahead of a sales tax increase in April. Gross domestic product rose by 1% on an annualised basis in the three-month period to December, compared with market estimates for a 2.8% expansion. This was due to weaker private consumption and capital spending, as well as lower export figures. However, this was Japan's fourth straight quarterly expansion. The latest figures highlight questions about the sustainability of Japan's economic recovery, and whether the government's policy of 'Abenomics' is working. "The disappointing GDP result is a reflection of the limit of Abenomics," "Fiscal stimulus and monetary stimulus can only do so much without the actual change in the competitiveness of Japanese economy. "Only when there is a real change in the competitiveness of the Japanese companies, and a positive change in the long term economic outlook will there be a real change in Japan's growth performance."

    Slowing Japan economy stokes tax-rise fears — Japan's economy slowed to a crawl in the last quarter of 2013, data showed on Monday, exacerbating fears that an April sales tax rise will derail Prime Minister Shinzo Abe's bid to stoke growth after two decades of deflation. While the world's number three economy grew 1.6 percent over last year -- its best performance in three years -- it slowed to 0.3 percent in the October-December quarter, presenting a major challenge for Abe and his much-touted policy blitz, dubbed Abenomics. The lacklustre fourth-quarter growth was far lower than the 0.7 percent widely expected by economists, according to a Nikkei business daily survey. And the full-year figure only modestly beat Japan's expansion in 2012 before Abe launched his bid to restore the country's fading status as an economic superpower. Since the conservative Abe swept national elections in late 2012, the yen lost about a quarter of its value against the dollar -- giving a boost to Japanese exporters. Critics, however, fear that the controversial sales tax rise to 8.0 percent from 5.0 percent -- seen as crucial for cutting Japan's eye-watering national debt -- would curtail the budding recovery in an economy beset by years of deflation. Data released last month showed Japan's consumer prices logged their first rise for five years in 2013.

    Tepid Economic Growth In Japan — The Japanese economy grew at the tepid rate of 1 percent in the final quarter of 2013, data showed Monday, falling short of analysts’ expectations and heightening concerns that the country’s recovery might not be strong enough to weather an impending sales tax increase, a worsening trade balance and other problems expected this year. Forty-one economists polled by the Japan Center for Economic Research had predicted an annualized growth rate of 3 percent for the quarter. But an unsteady recovery in exports and a surge in imports helped blunt the rate of growth, according to preliminary figures released on Monday by the Cabinet Office. On a quarterly basis, Japan’s economy expanded 0.3 percent from October to December, for the fourth-consecutive quarter of growth. Economic growth for the year came to an estimated 1.6 percent, separate data showed. Private consumption rose 0.5 percent from the previous quarter, though economists attributed much of that to spending ahead of a sales tax increase set to take effect in April and warned that growth could slow later this year. Exports grew 0.5 percent, a gain that was offset by a 3.4 percent jump in imports. The latest readings underscored the challenges facing Prime Minister Shinzo Abe and his three-pronged plan to put Japan’s economy, long in the grips of deflation, back on a path to robust growth.

    Japan GDP Biggest Miss In 18 Months; Slowest Growth Since Before Second Coming Of Abe -- Get long 'Depends' may be the most befitting headline for tonight's massive macro miss in Japan. For the 3rd quarter in a row, Japanese GDP missed expectations with a meager +1.0% annualized growth (versus a +2.8% expectation), and a tiny 0.3% Q/Q change vs expectations of a 0.7% increase, this is the biggest miss and slowest growth since Abe retook the economic throne after his chronic-diarrhea-prone first attempt to save the nation. No matter how hard they try to spin this, there's no silver lining as consumer and business spending missed expectations notably and the only Tokyo snow fell just last week so long after the quarter was over... and this is before a tax hike that is aimed at showing how fiscally responsible the nation and not simply an insolvent ponzi scheme alive through the good graces of the greater fools of leveraged carry trades.

    Takeaways from Japan GDP - Japan said Monday its economy grew an annualized 1.0% in the last quarter of 2013. For 2013 as a whole, growth came to 1.6%. Is this good or bad? Here are takeaways from Japan’s latest gross domestic product data:

    • 1.  The fourth quarter figure is a disappointment for Abenomics–Prime Minister Shinzo Abe’s economic reform drive. Many economists had looked for growth far exceeding 3% in the third and fourth quarters, following a 4% expansion in 2013′s first two quarters. But both July-September and October-December undershot expectations, pointing to a clear deceleration of the Japanese economy.
    • 2. The unexpectedly weak growth may increase pressure on the Bank of Japan to expand its monetary easing measures. While most BOJ watchers don’t predict fresh action from the central bank at its two-day policy board meeting starting Monday, the GDP figure could refuel expectations—which had weakened recently–for additional steps in the coming months, especially as the economy is sure to slow down after an April sale tax increase.
    • 3. Private consumption, which had been Japan’s growth engine in the past year, grew 0.5% from the previous quarter, but was also below the 0.7% increase on average forecasted by economists.
    • 4. Surging Imports, Sluggish Exports:  Some of the consumption growth, however, leaked to imports, which grew a hefty 14.9%. A weak yen increased the prices for many imported items, but that didn’t deter Japanese consumers from buying some of the imported items, such as Apple Inc.’s iPhone. Exports grew, but the growth was so slow (at 1.7%) that it failed to make up even for the 2.7% drop in the third quarter and generated little optimism for 2014.

    Bank of Japan likely to expand asset buying by summer - (Reuters) - The Bank of Japan is expected to ease policy further by this summer to help boost the economy and pull it out of a 15-year deflation, as the effects from Prime Minister Shinzo Abe's stimulus strategy loses momentum, a Reuters poll showed. Economists in the survey also remain skeptical that the central bank will achieve its 2 percent inflation target in the year from April 2015. Just as the world's third-largest economy is about to hit headwinds from an April sales tax hike, growth is already coming in well below expectations on sluggish exports and lackluster consumer spending and capital expenditure. Japan's economy grew at a much slower pace than expected in the fourth quarter, expanding at an annual 1.0 percent rate, well below the median forecast of 2.8 percent. Given the prospect that the positive effects could be fading from Abe's unprecedented monetary stimulus and huge fiscal spending, expectations are rising that the BOJ will have to increase its enormous purchases of bonds and other assets.

    Japan Export Growth Stalls as Economy Picks Up -- If there was one thing that Japan could always count on to drive its economy after World War II, it was exports. But just as the world’s third-largest economy starts showing signs of life again, it appears outbound shipments may be taking a back seat. Exports grew just 1.7% in the fourth quarter of 2013 after a 2.7% annualized fall in the third quarter, gross domestic product data released Monday showed.While this was a rebound, it was hardly a strong one for a component of the GDP that frequently racks up double-digit percentage gains, especially when the sharply weaker yen, which is supposed to make Japanese exports more competitive overseas, is taken into consideration.“The expected recovery in exports didn’t materialize,” said a senior government official.In the fourth quarter, the sluggish exports kept overall growth at 1.0%, much below the over 5% growth Japan needed to achieve 2.6% growth projected for the fiscal year ending March.Domestic demand has been strong recently, but that isn’t seen as enough to put Japan on a long-term growth path of 2% to 3% called for by Prime Minister Shinzo Abe, officials say.And lifting exports won’t be easy either, with much of the nation’s manufacturing sector having moved overseas over the past few years.Take electronics, for instance. Japanese TVs, refrigerators, air conditioners and computers are now mostly assembled in China. So it would stand to reason that even if the global economy continues to recover it wouldn’t translate into increased shipments of domestically produced electronics.

    Japanese GDP Disappoints; But Details Are More Nuanced: Yesterday, Japan printed a GDP Q/Q seasonally adjusted growth rate of 1%. According to Bloomberg, the market had been expecting approximately a 2.8% increase, meaning this number was a disappointment. However, a look at the details shows things aren't as bad as the headline number suggests. Here is a table from the report: On a seasonally adjusted basis, private demand increased .8%, which comes out to an annual rate of 3.2%. And the various sub-components are also showing decent growth -- household consumption increased .5%, and residential investment increased 4.2%. While public demand did slow from the 1.6% increase the previous quarter, the .9% is hardly fatal. The real issue is the 3.5% increase in imports and .4% increase in exports. With the yen at a lower value relative to other currencies, we should be seeing a larger export growth number. But while other economies are expanding, they're not doing so at a fast enough rate to really boost Japanese exports. And the increase in imports is the result of increased energy imports and stronger consumer spending. Energy demand is increasing, meaning the economy is expanding faster. But as Japan is a net energy importer, faster growth means more imported energy, which subtracts from growth. This is a rather unique double edged sword for the economy. At the same time, increased consumer activity also means increased imports, which in the long-run is a net positive for the economy.

    Japan’s Consumers Still Cautious - Japan’s economic future is increasingly dependent on the nation’s consumers. But the latest data paints an unclear picture of whether consumer spending will be robust enough to bolster growth over the longer term. The economy for long has been driven by exports. That appears no longer to be the case. Japan’s economy grew at an annualized pace of 1% in the fourth quarter, below expectations of a 2.8% increase. A main reason for the disappointment was the poor performance of exports. Prime Minister Shinzo Abe’s policy of loose money, in place for over a year, has helped weaken the yen and bolster exporters’ profits and the stock market. The country’s consumer prices are rising after years of deflation. But the policy hasn’t led to sharply stronger exports. That’s partly because many Japanese firms have built factories offshore to benefit from cheaper labor. Others have yet to reduce prices in dollar terms, fearing the yen’s weakness will be short-lived, and so export volumes haven’t increased as much as expected. Instead, ‘Abenomics’ so far has worked largely through higher stock prices, bolstering consumption. Consumption was indeed a positive factor in the fourth quarter. Household spending grew 0.5% on quarter. But that was below an expected 0.7% rise and shows that consumers remain timid. The spending numbers look especially weak given that Japan plans to raise its sales tax in April, and consumers are expected to be front-loading purchases ahead of that increase.

    Record Japan trade deficit highlights risk of economic stumble (Reuters) - Japan suffered a record trade deficit in January as growth in exports spurred by a weak yen was far outstripped by a surge in import costs, raising fresh doubts about Prime Minister Shinzo Abe's strategy to spark an economic revival. The trade numbers came on the heels of a survey showing manufacturers' sentiment worsened in February in a sign that businesses were bracing for a chill in demand after a planned sales tax increase takes effect in April. The drumbeat of disappointing data threatens to slam the brakes on the world's third-largest economy barely a year after Abe set about recharging growth with a potent mix of fiscal and monetary stimulus. true Exports rose 9.5 percent in January, Ministry of Finance (MOF) data released on Thursday showed, though growth slowed for the third straight month with the effect of the softer yen on shipments outweighed by a substantial rise in import costs. The trade balance came to a deficit of 2.79 trillion yen ($27.30 billion) in January -- a record 19th straight month of shortfalls -- as imports rose 25 percent to a record amount. The ballooning deficit is a reminder that a weak yen alone cannot boost exports as Japanese firms are shifting production abroad, while overseas demand lacks strength needed to offset a blow from the planned sales tax hike.

    Japanese Trade Deficit Explodes To Record - No J-Curve Miracle In Sight - With exports up 9% but imports up a massive 25% YoY, Japan's Trade balance pushed to its largest deficit on record. This is the 2nd largest drop in the trade balance on record - beaten only by March/April 2011 (the Tsunami and Fuskushima). The miracle of the J-Curve (the hoped for recovery in exports that will come any minute now from the devaluation of the currency) is simply non-existent!! We love the smell of GDP downward revisions in the morning... Foreigners sold Japanese stocks for the 4th week in a row for the first time in 16 months.

    Mexico to Trump Japan as No. 2 Car Exporter to U.S. - Sayonara, Japan. Mexico is on track to replace the Asian automotive giant as the second-largest exporter of cars to the United States by the end of the year. An $800 million Honda plant opening Friday in the central state of Guanajuato will produce about 200,000 Fit hatchbacks a year, helping push total Mexican car exports to the U.S. to 1.7 million in 2014, roughly 200,000 more than Japan, consulting firm IHS Automotive says. And, with another big plant starting next week, Mexico is expected to surpass Canada for the top spot by the end of 2015. “It’s a safe bet,” said Eduardo Solis, president of the Mexican Automotive Industry Association. “Mexico is now one of the major global players in car manufacturing.” Experts say Mexico’s relatively low wages, closeness to the U.S. and free-trade deals with more than three dozen nations have made it one of the favorite locations for international automakers to invest since the 2008 global recession and rising energy and shipping prices forced companies to find ways to cut costs. Despite Mexico’s surge, the vast majority of the cars and trucks made in North America, are still produced in the U.S. for domestic consumption and export to other countries. And many of the vehicles built in Mexico are assembled with parts that are produced in the United States and Canada and cross the border without tariffs under the North American Free Trade Agreement.

    Thomas Friedman Escaped and Is Writing About Economics Again - Thomas Friedman is loose in Silicon Valley, the economic hub best known for colluding to rip off its workers. He can't contain his enthusiasm for "start-up America," telling readers;"What they all have in common is they wake up every day and ask: 'What are the biggest trends in the world, and how do I best invent/reinvent my business to thrive from them?' They’re fixated on creating abundance, not redividing scarcity, and they respect no limits on imagination. No idea here is 'off the table.'" Yeah, it must have taken some brilliant Silicon Valley imagination for Apple to sue Samsung to get its competitor's cell phones off the market. Okay, but that's just cheap fun. The real story here is that Friedman is calling out Washington for not supporting the trade deals the corporations love. Just to be clear, Friedman makes no pretense of evaluating trade deals based on evidence. In fact, he boldly proclaimed the opposite: "I was speaking out in Minnesota and a guy stood up in the audience, said, 'Mr. Friedman, is there any free trade agreement you’d oppose?' I said, 'No, absolutely not.' I said, 'You know what, sir? I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative. I didn’t even know what was in it. I just knew two words: free trade.'" Given his religious devotion to pacts labeled "free-trade" agreements, it is hardly surprising that Friedman would strongly support the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Pact (TTIP). He begins by calling them "next generation" trade agreements:

    TPP NO! -- A couple days ago, I expressed opposition to Obama’s request for fast track authority for the TPP (Trans Pacific partnership) trade agreement. I felt frustrated, because I like to be able to explain why I oppose something. Since TPP remains secret, the only direct evidence I have to go on is leaks and rumors. However, there is lots od indirect evidence, which Katrina vanden Heuvel has covered quire well. Last Wednesday, House minority leader Nancy Pelosi repeated in no uncertain terms her opposition to granting President Obama authority to seek “fast-track” approval of the Trans-Pacific Partnership, a mammoth “free trade” deal the US has been negotiating in secret since the days of George W. Bush. Fast-tracking the TPP—which Senate majority leader Harry Reid also opposes—would allow the administration to submit the treaty for an up-or-down vote, thus protecting it from any debate or discussion or amendments. Without that authority, the administration would have to take into account the vehement objections of labor unions and other opponents of the treaty, who rightly note that the pact—the text and scope of which have been zealously guarded from public scrutiny—would likely do irreversible harm to American workers and consumers; fast-tracking the TPP would allow its corporate backers and their congressional allies to run roughshod over the treaty’s opponents and avoid a much-needed debate. Inserted from <The Nation> The reason to oppose fast track authority tor TPP is precisely that we do not know exactly what it contains.  Before it becomes law it is critical that we have the opportunity to analyze it, debate it, and make whatever changes are needed to guarantee that American workers are not the victims of vulture capitalists, as they are under NAFTA.

    Obama’s TPP negotiators received huge bonuses from big banks - A controversial trade deal being touted by the White House is expected to give American corporations broad new authority if approved. Now according to newly released documents, big banks gave millions to the execs that are now orchestrating the agreement. Investigative journalist Lee Fang wrote for Republic Report on Tuesday this week that two former well-placed individuals within the ranks of Bank of America and CitiGroup were awarded millions of dollars in bonuses before jumping ship to work on the Trans-Pacific Partnership on behalf of the White House.  The Trans-Pacific Partnership, or TPP, is a widely-contested trade deal between the US and 11 other nations adjacent to the Pacific Rim, and has been negotiated by representatives for those countries in utmost secrecy. According to leaked excerpts of the TPP and remarks from experts following the news closely, though, it’s believed that the arrangement would allow corporations to oppose foreign laws while at the same time limiting the abilities for governments to regulate those entities.  On Tuesday, Fang wrote that two major United States-based financial firms have significantly awarded former executives who have since attracted the attention of President Barack Obama and subsequently been offered positions that put them directly involved in TPP talks.  Former Bank of America investment banker Stefan Selig, Fang acknowledged, received more than $9 million in bonus pay after he was nominated to join the Obama administration in November. And Michael Froman, the current US trade representative, was awarded over $4 million from Citigroup when he left them in 2009 in order to go work for the White House. Republic Report were provided those statistics through financial disclosures included in Fang’s article.

    Industry powers with access to TPP plans lavish money on Congress — Operatives of top global corporations, which spend great amounts of cash to lobby Congress, are also part of a small group in the US outside the Obama administration that can access working plans on the controversial Trans-Pacific Partnership trade pact. According to data analyzed by government transparency advocate MapLight, current members of Congress received around US$24 million in the last ten years from organizations represented on an exclusive industry board, created and staffed by Congress. This board has inside access - such as not even granted to members of Congress, much less the public - to the highly-secretive negotiations of the Trans-Pacific Partnership agreement, which promises to give powerful industry players more clout over global trade rights.  The United States is currently in negotiations with 11 other Pacific Rim nations on the lucrative trade pact known as theTrans-Pacific Partnership (TPP), which aims to liberalize trade among the signees. Among the contentious issues in the TPP is that the agreement stipulates new powers for multinationals that would allow them to challenge country laws in privately run international courts. Washington has endorsed such powers in previous trade deals such as the North American Free Trade Agreement (NAFTA), but conditions in the TPP could grant multinational more powers to challenge a wider range of laws. Under NAFTA several companies including Dow Chemicals and Exxon Mobil have sought to overrule regulations on fracking, oil drilling, and drug patents.  Ultimately, the pact would give corporate entities much more influence over commerce, elevating “individual foreign firms to equal status with sovereign nations,” consumer rights advocate Public Citizen says on its website.

    Matt Stoller: “Free Trade” Pacts Were Always About Weakening Nation-States to Promote Rule by Multinationals - Yves here. I hope those of you who are in countries being browbeaten to sign the Trans-Pacific Partnership or the TransAtlantic Trade and Investment Partnership will circulate this post widely. - By Matt Stoller - Here’s part one of this series on the origins of NAFTA and our current trading regime. It’s amazing what you find in the Congressional Record. For example, you find American political officials (liberal ones, actually) engaged in an actual campaign to get rid of countries with their pesky parochial interests, and have the whole world managed by global corporations. Here’s just some of that: “For the widespread development of the multinational corporation is one of our major accomplishments in the years since the war, though its meaning and importance have not been generally understood. But to fulfill its full potential the multinational corporation must be able to operate with little regard for national boundaries – or, in other words, for restrictions imposed by individual national governments. To achieve such a free trading environment we must do far more than merely reduce or eliminate tariffs. We must move in the direction of common fiscal concepts, a common monetary policy, and common ideas of commercial responsibility. Implied in this, of course, is a considerable erosion of the rigid concepts of national sovereignty, but that erosion is taking place every day as national economies grow increasingly interdependent, and I think it desirable that this process be consciously continued.  For the explosion of business beyond national borders will tend to create needs and pressures that can help alter political structures to fit the requirements of modern man far more adequately than the present crazy quilt of small national states. And meanwhile, commercial, monetary, and antitrust policies – and even the domiciliary supervision of earth-straddling corporations – will have to be increasingly entrusted to supranational institutions…. We will never be able to put the world’s resources to use with full efficiency so long as business decisions are frustrated by a multiplicity of different restrictions by relatively small nation states that are based on parochial considerations, reflect no common philosophy, and are keyed to no common goal.”

    Non Performing Assets's soar 35.2% to Rs 2.43 trillion in 9 months ended December - The gross non-performing assets (NPAs) of listed banks rose 35.2 per cent to Rs 2.43 trillion during the first three quarters of the current financial year, according to an industry report. In absolute terms, the 40 listed banks added Rs 63,386 crore to their gross NPAs during the nine months, with State Bank of India, the largest, leading with an accretion of Rs 16,610 crore,, a portal that tracks bad assets in the system, said today. Troubled Kolkata-based United Bank of India's gross NPAs rose 188.3 per cent to Rs 8,546 crore, an addition of Rs 5,582 crore. It had Rs 2,963.8 crore of bad loans on March 31, 2013, according to a bank filing with the BSE. IDBI Bank added Rs 3,562 crore, or 55.2 per cent, to take its gross NPA book to Rs 10,012 crore, while Bank of Baroda's bad loans increased Rs 3,943 crore, or 49.4 per cent, to Rs 11,926 crore, it said. For SBI, the increase in gross NPAs was 32.4 per cent. The bank had gross NPAs of Rs 67,799.33 crore as of December 31, up from Rs 51,189.4 crore on March 31 last year, according to its Q3 earnings filing to the BSE.

    India to Inject $1.8 Billion of Capital Into State-Run Lenders -- India will inject 112 billion rupees ($1.8 billion) of capital into state-run banks in the next fiscal year to bolster risk buffers after bad loans climbed to a six-year high. “Banks are under strain owing to rising nonperforming assets,” Finance Minister Palaniappan Chidambaram said today in New Delhi as he presented the government’s interim budget for the year ending March 2015 to parliament. “Bankers have assured me that as the economy turns they will be able to contain the nonperforming assets and recover more loans.” The capital infusion will help lenders boost credit as more borrowers default in an economy forecast by the government to grow 4.9 percent in the year to March 31, compared with the previous decade’s 8.3 percent annual average growth rate. Banks’ sour loans climbed to 4.2 percent of total credit as of Sept. 30, the highest level in at least six years, from 3.4 percent last March, according to a Dec. 30 report from the central bank. The government typically injects money into the banks it controls by buying shares. It invested 140 billion rupees in state-run lenders in the year through March 2013.

    India’s fiscal position remains weak: Moody’s -  Global rating agency Moody’s, on Tuesday, said India’s interim budget was in line with the policy assumptions that underpinned the government’s Baa3 rating with a stable outlook. The global rating agency has, however, cautioned that India’s fiscal position remains ‘weak’. “Moody’s stable outlook on India’s Baa3 sovereign rating incorporates the macro-economic risks posed by the government’s high deficit and debt ratios as well as its recent efforts to control the fiscal deficit through ad hoc measures,” it said in a statement. The rating also incorporates the medium-term credit support provided by the government’s favourable access to domestic savings for the purposes of financing its large borrowing requirements, the statement added. The new government, which would take office likely by May, would determine the longer-term fiscal trends that could impact the government’s credit profile, it said. Global rating agencies like Moody’s, S&P and Fitch have repeatedly threatened to lower India’s credit rating and a downgrade would mean pushing the country’s sovereign rating to junk status, making overseas borrowings by corporates costlier.

    In Rate Decision, RBI Gov. Goes It Alone -- Reserve Bank of India Gov. Raghuram Rajan has earned a reputation as a maverick for defying market expectations. We’re starting to learn that he’s not afraid to be something of a lone ranger within the central bank as well. Minutes from the RBI’s January monetary-policy meeting, released this week, show that Mr. Rajan’s surprise decision to raise interest rates by 0.25 percentage points last month was opposed by a majority of his seven external monetary-policy advisors.According to the minutes, four external members of the RBI’s technical advisory committee on monetary policy recommended keeping the repo rate at 7.75% because of political uncertainty and weak economic growth.Two committee members supported a rate hike, citing high inflation and the RBI’s earlier stated commitment to price stability. One member recommended a rate cut, “to demonstrate the Reserve Bank’s concern that growth does not come to a grinding halt.” There’s no indication that Mr. Rajan, who took the reins at the bank in September, has made a point of flying against his experts’ wisdom: At last October’s meeting of the advisory committee—the only other Rajan-era meeting for which minutes have been released—the governor’s decision to hike rates was supported by a majority of the committee’s external members. But it underlines the tricky economic circumstances under which last month’s monetary-policy decision was made. India’s economy is growing weakly, prices are volatile, and both domestic and global uncertainties still loom large.

    A New Way to Measure Poverty in India -- It is a question that has generated enormous controversy in India. The country’s government says that since the mid-1990s, the number of people living below the official poverty line has dropped by more than half, hitting 270 million, or 22% of the population, in 2012. Still, India continues to rank extremely low in United Nations’ measures of well-being. India ranked 136 out of 186 countries in the 2012 U.N. Human Development Index and 94 out 119 in the U.N. World Food Programme’s Global Hunger Index. The Indian government sets its official poverty line at 816 rupees per person per month in rural areas and 1,000 rupees per person per month for city dwellers. That works out to about 40 cents a day in the countryside and 50 cents a day in the city. A new study by the McKinsey Global Institute – the research arm of consulting company McKinsey – says that such a gauge of extreme poverty has its place. But it argues India should focus instead on a more comprehensive measure of what it would take to satisfy a person’s basic needs for food, energy, housing, drinking water, sanitation, healthcare, schooling and social security. McKinsey calls its new measure an “empowerment line.” It is the level where the report’s authors conclude that India’s citizens can get out of poverty and have the resources to build better lives for themselves, rather than scrape along at subsistence levels. McKinsey set its empowerment line at 1,336 rupees a month – roughly 50% above the government poverty line.

    From India, Proof That a Trip to Mars Doesn’t Have to Break the Bank - While India’s recent launch of a spacecraft to Mars was a remarkable feat in its own right, it is the $75 million mission’s thrifty approach to time, money and materials that is getting attention. Just days after the launch of India’s Mangalyaan satellite, NASA sent off its own Mars mission, five years in the making, named Maven. Its cost: $671 million. The budget of India’s Mars mission, by contrast, was just three-quarters of the $100 million that Hollywood spent on last year’s space-based hit, “Gravity.” “The mission is a triumph of low-cost Indian engineering,” said Roddam Narasimha, an aerospace scientist and a professor at Bangalore’s Jawaharlal Nehru Center for Advanced Scientific Research. “By excelling in getting so much out of so little, we are establishing ourselves as the most cost-effective center globewide for a variety of advanced technologies,” said Mr. Narasimha.  India’s 3,000-pound Mars satellite carries five instruments that will measure methane gas, a marker of life on the planet. Maven (for Mars Atmosphere and Volatile Evolution), weighs nearly twice as much but carries eight heavy-duty instruments that will investigate what went wrong in the Martian climate, which could have once supported life.

    Turkey in eye of emerging market storm as everything goes wrong at once - Telegraph: Turkey's finance minister knows his country is in the cross-hairs as the US and China tighten the liquidity spigot, viewed by many as the most vulnerable of the big emerging market states, and potentially the detonator of a broader global crisis. Mehmet Şimşek is a poacher turned game-keeper. He used to work for Merrill Lynch and is a well-known face in London. Indeed, he is a British citizen. "We are not going to fight the markets because we know we can't win. We'll let the adjustment take place, as it already has with the currency," he said. Everything has gone wrong at once. Hedge funds are closing in on those countries with the worst current account profiles, and Turkey is looking naked with a deficit of 7.6pc of GDP. Foreign reserves have fallen to two months import cover. The International Monetary Fund issued a blistering report in December, warning that Turkey is on an "unsustainable" path, with gross external financing requirements above 25pc of GDP per year. It said monetary and fiscal policy were both too loose.  There has been a chronic erosion of Turkey's net foreign asset position since 2008 to minus 53pc of GDP. Investment in factories and plant (FDI) has dried up, replaced by hot money. The IMF said Turkey risks a "sudden stop" in capital flows that could trigger recession.

    EMs stay hooked on balm of Fed liquidity - One of the toughest decisions facing investors worldwide these days is whether to return to the promise of emerging markets or cling instead to the far more transparent but more sobering prospects for developed markets. And if the smartest investors in the world disagree, what are the rest of us supposed to do? Moreover, if analysts cannot agree on what has led to the diminished outlook for emerging markets in the past, how does one go about predicting the future? The uncertainty is heightened not reduced by the change at the helm of the Fed. It was now former chairman Ben Bernanke’s suggestion last May and June that quantitative easing would not last forever that precipitated the downdraft in both the equity and local debt markets from Argentina and Brazil to Indonesia, Turkey and Uruguay. The prospect of rates rising in the US promptly led to an outflow of capital from these markets, where as Mr Baratta points out, the returns often do not justify the risks.  Now indications are that the tapering of December and January may well have been premature. Analysts at HSBC believe that rates in the US may go down before they climb. That’s because the latest raft of data about the US economy continues to show that recovery is elusive and deflation, which bankers hate, remains a more immediate threat than inflation. They also suggest that quantitative easing has not worked very well of late. The growth of credit sensitive spending is on the big outlays, such as housing and business fixed investment, was actually weaker in 2013 than in 2012, and weaker in the fourth quarter than earlier in the year, according to data from JPMorgan. The quick fix of easy money is proving transient without the prospect of lots more of it.

    Fed Policy and Emerging Market Economy Vulnerabilities - The recent weakness in emerging market currencies, and implementation of the taper, are sure to be topics of discussion at the G-20 meetings in Australia. While the imminent retrenchment in quantitative/credit easing is responsible for some of the currency movements of late, I’m not sure this is the only way to look at recent events; nor do I think we need see a replay of previous episodes of currency crises in response to US monetary tightening.  For those of us who believed unconventional monetary policy (quantitative and credit easing, as well as forward guidance) had an impact on cross-border asset prices, including exchange rates (see this this post and this BIS discussion paper) it was has been no surprise that exchange rates should move in response to talk of reducing the amount of monetary stimulus.  While forward guidance has been consistent in its phrasing, apparently recent discussion of more durable rapid growth in the US has meant a movement forward in the market-predicted raising of the Fed funds rate:  Notice the precipitous decline in the median time of exit from the ZLB between September and December of 2013. The recently released Fed minutes gives further weight to this view. [1]  That being said, it’s clear from the heterogeneity in responses – Argentina has suffered far more than Thailand, for instance – it’s clear that domestic factors are very important. (For the debate over the importance of local factors, see this presentation). Nonetheless, thinking back to a previous episode of monetary tightening, in 1994, gives pause for thought.

    Emerging Nations Demanding Western Support for Flailing Economies - At the G-20 finance ministers' meeting in Sydney, emerging economies will push for joint action to halt rising interest rates. But the industrialized nations want nothing to do with it and are instead arguing that each country should solve its own problems.  Representatives from India, Brazil and Turkey in particular accuse the US Federal Reserve, under the leadership of new head Janet Yellen, of having severely handicapped their economies by backing away from the crisis driven policies it has pursued in recent years. By reducing the number of US sovereign bonds it purchases, the Fed has triggered a rise in US interest rates, with the consequence that a flood of investors are now returning to the dollar from emerging economies. To halt the decline of their currencies, India and Turkey were recently forced to raise their own interest rates, a move which, while propping up the exchange rate, also puts the brakes on economic growth. As such, they and similar countries want to use the meeting in Sydney to establish a common approach with the industrialized economies, particularly with the US. They want the developed world to pay closer attention to economies in Asia and Latin America.

    Brazil Central Banker Sees Inflation Falling in 2014 —Brazil’s struggle to bring down inflation is unlikely to end soon, though it’s showing early results, the country’s central bank governor indicated Tuesday. At the same time, Alexandre Tombini steered clear of joining a large chorus of emerging market central bankers blaming the U.S. Federal Reserve for recent financial market turmoil outside the U.S. In a conference call with foreign press, Mr. Tombini noted the central bank’s seven interest rate increases over ten months have helped push inflation down by about one percentage point to 5.6%. That’s still well above the central bank’s target of 4.5%, and Mr. Tombini suggested the central bank wouldn’t finish the job of bringing it into line this year. He said inflation would keep falling “in the following quarters,” and added the decline would occur through 2014 “and beyond.” Long-term interest rates fell after his remarks. Some investors took them to mean that short-term interest rate increases are coming to an end. But Mr. Tombini wasn’t clear and some observers believed otherwise.

    Argentina tries to delay $1.3bn repayment to creditors - Argentina has petitioned the US courts to try to stall a $1.3bn (£0.8bn) repayment to its creditors. If the petition to the Supreme Court is not successful, the country risks triggering a default and debt crisis. The money is owed to creditors who refused to participate in a debt restructuring process arising from the country's $100bn default 12 years ago. Most bondholders agreed to accept a hefty discount on what they were owed, but those who held out are demanding to be repaid in full. President Cristina Fernandez de Kirchner has said her government will honour payments to those who accepted the debt swaps, but will pay nothing to the creditors who held out, including hedge funds NML Capital and Aurelius Capital Management. She has described the hold-out creditors as "vulture funds". The move by Argentina reignites investors' worries about a new debt crisis in the country.

    Russian Ruble Falls to New Low Against Euro-Dollar Basket - —The Russian ruble dropped to a new all-time low versus the euro-dollar basket Tuesday, extending its slide that started in the middle of 2013 on the back of globally rising risk aversion. Poor economic data also added to the selling pressure on the ruble, underlining Russia's deteriorating economic potential. The ruble hit 41.30 against the currency basket, the central bank's main gauge of the currency market. The Russian unit also fell to its weakest ever level of 48.55 against the euro and hovered around 35.20 versus the dollar, a level last seen earlier this month and in the midst of the 2008-2009 crisis. "The ruble doesn't feel well as macroeconomic data leave much to be desired," said Denis Korshilov, head of fixed income, currencies and commodities at Citi in Moscow. Economic growth slowed to a postcrisis low of 1.3% last year while dozens of billions of dollars continued to flee the country. This week the data showed that industrial production fell nearly 19% on the month in January and declined in annual terms, while the market widely expected it to grow on the year. On Tuesday, the central bank said that economic growth is unlikely to recover this year as previously expected due to high volatility in global markets and the possible decline of commodity prices. The central bank also decided not to raise interest rates rapidly to slow the ruble's depreciation as some other emerging market central banks did.

    Inequality — the bubonic plague of modern society -  Inequality continues to grow all over the world — so don’t even for a second think that this is only an American problem! In case you think — like e. g. Paul Krugman — that it’s different in my own country — Sweden — you should take a look at some new data from Statistics Sweden and this (Swedish) video. . The Gini coefficient is a measure of inequality (where a higher number signifies greater inequality) and for Sweden we have this for the disposable income distribution: Source: SCB and own calculations What we see happen in the US and Sweden is deeply disturbing. The rising inequality is outrageous – not the least since it has to a large extent to do with income and wealth increasingly being concentrated in the hands of a very small and privileged elite. Societies where we allow the inequality of incomes and wealth to increase without bounds, sooner or later implode. The cement that keeps us together erodes and in the end we are only left with people dipped in the ice cold water of egoism and greed. It’s high time to put an end to this the worst Juggernaut of our time!

    The permanent scars of economic pessimism: Gavyn Davies at the Financial Times reflects on the growing pessimism of Central Banks regarding the growth potential of advanced economies. In the US, the Euro area or the UK, central banks are reducing their estimates of the output gap. They now think about some of the recent output losses as permanent as opposed to cyclical. It output is not far from what we consider to be potential, there is less need for central banks to act and it is more likely that we will see an earlier normalization of monetary policy towards a neutral stance...But it is important to understand that the permanent effects are the consequence of the recession itself. If we could manage to reduce the length and depth of the recessions we would be minimizing those permanent effects. And in that sense, accepting these changes as structural and unavoidable is too pessimistic, leads to inaction and just makes matters worse. If you read the evidence properly, you want to do the opposite, you want to be even more aggressive to avoid what it looks at a much bigger cost of recessions.

    Merkel, Hollande to discuss European communication network avoiding U.S.  (Reuters) - German Chancellor Angela Merkel said on Saturday she would talk to French President Francois Hollande about building up a European communication network to avoid emails and other data passing through the United States. Merkel, who visits France on Wednesday, has been pushing for greater data protection in Europe following reports last year about mass surveillance in Germany and elsewhere by the U.S. National Security Agency. Even Merkel's cell phone was reportedly monitored by American spies. Merkel said in her weekly podcast that she disapproved of companies such as Google and Facebook basing their operations in countries with low levels of data protection while being active in countries such as Germany with high data protection. true "We'll talk with France about how we can maintain a high level of data protection," Merkel said. "Above all, we'll talk about European providers that offer security for our citizens, so that one shouldn't have to send emails and other information across the Atlantic. Rather, one could build up a communication network inside Europe." Hollande's office confirmed that the governments had been discussing the matter and said Paris agreed with Berlin's proposals. Government snooping is a particularly sensitive subject in Germany due to the heavy surveillance of citizens practised in communist East Germany and under Hitler, and there was widespread outrage at the revelations of NSA surveillance by former NSA contractor Edward Snowden.

    Europe Says No Rush on Greek Debt Help, Leaving Samaras in Limbo - Dutch Finance Minister Jeroen Dijsselbloem dashed Greek government hopes of gaining debt relief before European elections in late May, saying the euro area would likely wait until August to take up the matter. Dijsselbloem, also head of the group of euro-area finance ministers, said yesterday they would focus over the next six months on Greece’s eligibility for aid payments under the country’s existing rescue program. Greek Prime Minister Antonis Samaras’s fragile coalition government is keen for extra euro-area support by the time of European Parliament elections May 22-25, asserting Greece posted a budget surplus excluding interest payments last year. Euro-area finance ministers agreed in November 2012 to “consider further measures and assistance” including debt relief for Greece once it achieves a so-called primary surplus. Eurostat, the European Union’s statistics agency, is due to certify in April whether Greece achieved that goal last year. “There is absolutely no reason to rush on the basis of the Eurostat figures, which will only come out at the end of April, to rush to a new program or new decisions,” Dijsselbloem told reporters in Brussels where European finance chiefs wrap up a second day of meetings today. “The Greeks will be financed on the conditions of the current program if they fulfill them, they will be financed right up till August. So then in August we’ll talk about the future.”

    The Troika and financial assistance in the euro area: successes and failures - This study provides a systematic evaluation of financial assistance for Greece, Ireland, Portugal and Cyprus. All four programmes, and in particular the Greek one, are very large financially compared to previous international programmes because macroeconomic imbalances and the loss of price competitiveness that accumulated prior to the programmes were exceptional. Yet programmes were based on far too optimistic assumptions about adjustment and recovery in Greece and Portugal. In all four countries, unemployment increased much more significantly than expected. Although fiscal targets were broadly respected, debt-to-GDP ratios ballooned in excess of expectations due to sharp GDP contraction. The GDP deterioration is due to four factors: larger-than-expected fiscal multipliers, a poorer external environment, including an open discussion about euro area break-up, an underestimation of the initial challenge and the weakness of administrative systems and of political ownership. The focus of surveillance of conditionality evolved from fiscal consolidation to growth-enhancing structural measures. The Greek programme is the least successful one. Ireland successfully ended the programme in December 2013, but problems remain in the banking system. Exit from the Portuguese programme in May 2014 appears feasible but it should be accompanied by a precautionary credit line. It is too early to make pronouncements on the Cypriot programme, which only started in May 2013, but it can safely be said that there have been major collective failures of both national and EU institutions in the run-up of the programme.

    Study: Greece to need new $55 billion bailout -  An influential think tank estimates that Greece will need a third package of international bailout loans worth $55 billion to reduce its debt burden to a sustainable level by 2030. Brussels-based Bruegel said in a study published Thursday that currently discussed plans to only extend the maturity and lower the interest rates on Greece’s outstanding debt won’t be sufficient. Greece’s European partners and the International Monetary Fund have kept the debt-stricken country afloat since 2010 with bailout loans worth about $326 billion. Bruegel says a new loan package would allow the country to gradually reduce its debt level, provided it balances its budget by 2018 and continues to record primary budget surpluses, that is, before counting interest payments. Greece’s debt level currently stands at about 175 percent of GDP.

    Spanish public debt ended 2013 at its highest level in a century - Spain’s public debt is on course to surpass the size of its economy as the balance at the end of 2013 stood at 961.555 billion euros, 93.7 percent of last year’s GDP. Public debt has tripled since the start of the current crisis around 2008 and now stands at its highest level in a century, according to the historical series compiled by the IMF, which puts Spain’s all-time record at 123 percent of GDP. The government’s initial target for the debt/GDP ratio for last year was 90.5 percent, but it subsequently raised that figure to 94.2 percent. Debt has been swelled by persistent deficits, fueled in part by ballooning unemployment benefits because of the high jobless rate and by the European bailout of some 41 billion euros to clean up the banking system. After emerging in the third quarter of last year from its longest recession since the restoration of democracy, the Spanish economy faces a scenario of weak growth over the next few years, complicating the task of reducing the country’s level of indebtedness to more sustainable levels. The austerity drive to reduce the deficit has also weighed on activity, producing a sort of vicious cycle like a dog chasing its own tail. In 2007 before the crisis broke, the debt/GDP ratio stood at 36 percent, practically half the average in Europe. In the third quarter of last year, it hit 93.4 percent, compared with an average for the euro zone of 92.2 percent, according to figures from the European Union’s statistics office, Eurostat.

    Spanish Bad Loans Hit Record; Surge Most In A Year - With Spanish sovereign bond yields hitting record lows - marginally above those of the US - one might be surprised to learn that unemployment is at record highs, suicide rates are at record highs, youth joblessness is at record highs, and now, to top it all off, Spanish bad loans are at record highs once again (at 13.6% of all loans). Of course, not deterred by the uncomfortable reality, Economy Minister Guindos is out in full propaganda mode: However, given the 17.7% rise in the last 12 months - the most in a year - we are struggling to see signs of the turning point he is so confident of. The data - Guidos argues - reflects "recognition of reality" in what seems like an admission that all the spin and hoopla about marginal improvements til now have been based on entirely unreal data...

    Europe Car Sales Grow 5th Straight Month -- European automakers continue to claw their way out of the industry’s longest slump ever, posting the fifth straight month of growth in January. The European carmakers’ association said Tuesday that car sales rose 5.5 percent in January to 935,640 units. Still, the industry’s six years of contraction set the bar low: sales were the second lowest for January in a decade. All major markets saw growth: Britain, Spain and Germany all posted more than 7-percent increases and Italy, which is just shaking off recession, saw car sales grow 3.2 percent, the second straight month of gains.

    European Consumer Confidence Plunges; Misses By Most In 30 Months - Despite record low yields on sovereign bonds, record high stock prices, and a political elite proclaiming it's all shits and giggles from here... it seems record unemployment, record suicide rates, record bad loans, and record low credit creation were finally enough to trump the 'wealth effect' exuberance that European consumer confidence has envisaged in recent months. This is the biggest drop in confidence in 18 months and the biggest miss since Aug 2011. This is a 3 sigma miss from expectations and below all 25 "economist" guesses. How's the weather in Europe?

    The ECB still ignoring the disinflationary trend - So far the ECB has not responded to the disinflationary risks building in the Euro area. Some Governing Council members dismissed the calls for action from numerous economists, referring to the analysts' reports as the Anglo-Saxon irrational fear of deflation. Perhaps. But is doing nothing then a "rational" policy? While the ECB has been on the sidelines, the balance sheet of the Eurosystem has been contracting fairly sharply - all in the face of unusually tight credit conditions (see post).While many Governing Council members insist that the recent trend of below-target inflation is transient, the data tells us otherwise. For example, the latest report shows the German PPI consistently in the red for several months in a row. Similarly the French CPI figures are also significantly below historical averages, with the core rate declining particularly quickly. In isolation these disinflation signals may be fine, but on the whole the trends across multiple countries could spell trouble. This is especially important as China's economic growth slows (see story), making it more difficult for the Eurozone to export its way into stronger growth (as some member nations have been doing). An economic slowdown in the Eurozone at this stage could tip the balance, pushing the whole euro area into a deflationary environment.

    Structural Reform is the Last Refuge of Scoundrels - Paul Krugman - OK, let’s be clear: I’m in favor of structural reform (as long as it’s the right kind of reform). I’m also in favor of peace, kindness, and good coffee for everyone.But when I see influential people calling for structural reform as the universal answer to all economic problems, I get angry. Hence my morning ire at the OECD.  Some background: the OECD is definitely one of the bad guys of this crisis. Back in 2010, it not only enthusiastically endorsed fiscal austerity, it demanded sharply higher interest rates too. When austerity and inadequate monetary stimulus led Europe to an economic performance now in line with that of the 1930s, the OECD warned vociferously against any change in course.Now, with growth terrible and disinflation-heading-toward-deflation a real threat — largely thanks to the tight fiscal and inadequate monetary policies the OECD cheered on — the OECD warns that things don’t look good. And the answer is … structural reform!  I’m sorry: This may sound serious, but it’s intellectually lazy and cowardly.

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