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

Saturday, February 8, 2014

week ending Feb 8

Bernanke Leaves Fed with Record Balance Sheet of $4,102,138,000,000 - Reserve Chairman Ben Bernanke, who was replaced by Janet Yellen as of today, is leaving the Federal Reserve with an unprecedented $4,102,138,000,000 in total assets on its balance sheet, up 391 percent from the $834,663,000,000 in total assets the Fed showed on its balance sheet when Bernanke took over as chairman in February 2006. Much of the increase in the Fed’s assets has come in the form of U.S. Treasury securities and Freddie Mac and Fannie Mae mortgage-backed securities that the Fed purchased over the last five years in its attempts to stimulate the economy. As of Feb. 1, 2006, when Bernanke took over as chairman, the Fed’s balance sheet indicated it owned $748,840,000,000 in U.S. Treasury securities. At that time, the balance sheet listed no mortgage-backed securities. As of Jan. 29, 2013, the balance sheet indicated the Fed owned $2,243,176,000,000 in U.S. Treasury securities and $1,532,224,000,000 in mortgage-backed securities.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--February 6, 2014 - Federal Reserve statistical release - Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed's Lockhart - shrinking balance sheet will take years  (Reuters) - The Federal Reserve will likely start to shrink its balance sheet "in some period of years" and must watch for inflation pressures, a top U.S. central banker said on Wednesday. "I am reasonably confident that this can be done in an orderly fashion over a number of years," Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said during a question-and-answer session at the Rotary Club of Birmingham. Lockhart said it would be important to watch for upward inflation pressure at the time that excess reserves started to transition to increased lending. The Fed has trimmed back its monthly bond purchases by $10 billion at each of its last two meetings, a pace many economists expect to continue for the rest of the year. Policymakers next meet in March, when they will have to consider whether to cut purchases again from the current $65 billion a month.

Fed balance sheet would shrink quickly without sales: Rosengren  (Reuters) - Simply letting purchased bonds mature in the years ahead would shrink the Federal Reserve's swollen balance sheet fairly quickly without the need to actively sell them, a top U.S. central banker said on Thursday. "Our intention is to get back to a more normal size balance sheet," Boston Fed President Eric Rosengren said at a Florida conference, acknowledging the risk that interest rates are likely to rise in the future, leading to possible losses on the balance sheet that is now worth $4 trillion and growing. "If we stopped purchasing mortgage backed securities, that part of the balance sheet comes down actually relatively quickly," he said. As for the purchases of longer-term Treasury bonds, Rosengren said that side of the balance sheet also declines "surprisingly quickly by just not doing any purchases and not reinvesting."

Fed’s Lockhart: Bond Taper Likely to Continue, Buying Ended by Fourth Quarter - Federal Reserve Bank of Atlanta President Dennis Lockhart said Wednesday that as long as the economy continues to grow as he expects, he foresees further cuts in the central bank’s bond-buying and an end to the program this year.“An orderly wind-down of asset purchases is contingent…on the economy staying substantially on track,” Mr. Lockhart said in the text of a speech to be given before a group in Birmingham, Ala. Citing the Fed’s decision last week to lower its monthly purchases to $65 billion from $75 billion, he said “absent a marked adverse change in the outlook for the economy, I think it is reasonable to expect a progression of similar moves, with the asset purchase program completely wound down by the fourth quarter of the year.”Mr. Lockhart  said although the Fed is trimming its bond purchases, the overall stance of monetary policy will remain very supportive of the economy, and short-term interest rates won’t be raised from near zero any time soon. The bond-buying program aims to spur spending, hiring and investing by lowering long-term interest rates.“Short-term interest rates are quite low–and in my own outlook, they will remain low for quite some time. I expect the Fed’s policy rate to stay put until well into 2015,” the central banker The central banker’s speech Wednesday was his first set of public remarks since the Fed’s policy meeting last week. The Fed cited announced its latest reduction in its bond buying amid expectations of continued economic improvement this year. But the Fed’s policy statement made no mention of the financial turmoil roiling emerging markets.

Fed’s Plosser: QE Should End Before Unemployment Rate Hits 6.5% -- The Federal Reserve risks falling behind the curve if it doesn’t speed up its stimulus-reduction process as the U.S. economy and jobs market improves, a top Fed official said Wednesday. Given his relatively upbeat outlook on growth this year, Federal Reserve Bank of Philadelphia President Charles Plosser said while he voted in favor of the Fed’s decision last week to reduce monthly bond purchases by another $10 billion, he would have preferred a more aggressive scale-back. “I believe a good case can be made for speeding up the pace of our taper if the economic outlook plays out as I expect,” Mr. Plosser said in prepared remarks at an economic outlook seminar here. “My preference is to scale back our purchase program at a faster pace to reflect the strengthening economy.” The official has long been an outspoken critic of the Fed’s aggressive bond-buying program, worried about inflation flaring up down the line. Mr. Plosser rotated into a voting slot on the Fed’s policy-making board this year. The Fed currently buys $65 billion in Treasurys and mortgage bonds a month, after first reducing the original $85 billion program by $10 billion in December, then again in January. Mr. Plosser said he voted in favor of the move in January because it was a step in the right direction, although he would have preferred a larger reduction and providing a hard stop on the purchases by naming a fixed amount the Fed plans to buy.

Fed’s Rosengren: Fed Must Be ‘Patient’ in Cutting Back Stimulus - Federal Reserve Bank of Boston President Eric Rosengren said Thursday underlying weakness in the labor market and persistently low inflation argue against raising short-term interest rates any time soon. “I firmly believe that monetary policymakers should remain quite patient in removing accommodation,” Mr. Rosengren said in the text of a speech to be delivered in Sarasota, Fla. The central banker said the issue is important because the Fed soon may see the unemployment rate fall below the 6.5% mark that, once crossed, is supposed to put the prospect of an increase in short-term rates on the table. The current jobless rate is 6.7%, and the Labor Department is scheduled to release its January jobs report on Friday. Even as this threshold approaches, “labor-market conditions remain far from where they would need to be to justify raising short-term rates,” Mr. Rosengren said. “Everyone following the economy should be placing weight on the broader measures of labor market underutilization,” because “these measures remain far above where they were when the Federal Reserve began raising short-term rates in the previous recovery.” Mr. Rosengren has been one of the strongest supporters of aggressive action to help spur growth and drive down unemployment. He used his vote at December’s monetary policy-setting Federal Open Market Committee meeting to dissent against the central bank’s decision to begin cutting back its bond-buying stimulus program. He argued that with inflation well under the Fed’s 2% target and the joblessness rate still high, the Fed easily could have maintained the pace of its asset purchases for longer.

Fed’s Evans: Rate Increase Still Unlikely Until 2015 -- Federal Reserve Bank of Chicago President Charles Evans said  that interest rate increases still lie well into the future, even as signs of positive economic momentum are gathering.“Policy likely will need to remain highly accommodative for such a time to ensure we make adequate progress toward maximum employment and price stability,” the official said in the text of a speech prepared for delivery in Detroit. “I currently expect that low inflation and still-high unemployment will mean that the short-term policy rate will remain near zero well into 2015,” he said, adding “the benefits of our policy choices continue to far outweigh the potential risks.”Mr. Evans’ remarks were the first set of public comments from him since last week’s monetary policy setting Federal Open Market Committee meeting. At that gathering central bankers decided to again cut the pace of their bond-buying stimulus program, trimming the campaign from $75 billion per month to $65 billion. There are broad expectations more cuts will come and lead to a wind down of the program this year. The Fed again indicated that raising short-term rates off their current zero percent mark lies well off in the future.But as Fed officials have backed away from their aggressively easy policy stance, global markets have convulsed. While U.S. stock markets have lost considerable ground, the pain has been far worse in emerging markets. The level of volatility has been enough that some have called on the Fed to hold steady and not cut bond buying further.

The Federal Reserve Lies About Everything–Rob Kirby - Financial writer and former international derivatives broker Rob Kirby thinks the Fed’s recent cut back in money printing or “taper” is a con game.  Kirby says, The threat of taper made rates go up.  The actual taper has made the 10-year Treasury drop 40 basis points in less than a month.  The notion that the taper had anything to do with interest rates going higher seems to be a non-story.”  The Fed has long claimed it was buying bonds to hold down interest rates, but if that is not true, what was the Fed doing buying all of those so-called toxic mortgage bonds from the big banks?  Kirby says, “My thesis about taper is that the banks in the U.S. had mortgage bonds on their books probably close to the tune of a trillion dollars that they could not sell to anyone.  It was dead money, and they had to write them off somehow.  The problem with writing off close to a trillion dollars’ worth of mortgage bonds that were held in all the U.S. banks is that kind of money is probably more than the total market capitalization of the U.S. banking industry.  So, they had to figure a way to get those mortgage bonds off the books of the banks and silo them somewhere without basically admitting that the U.S. banking system was insolvent.”  Kirby goes on to say, “For the most part, with them now tapering, we can almost say mission accomplished.  They’ve taken these mortgage bonds off the books of the banks, and they are held right now on the balance sheet of the Federal Reserve.”

Rate Decision to Drive Yellen's Early Agenda - After she is sworn in as Fed chairwoman Monday a new question will almost immediately crowd [Janet Yellen's] agenda: Why is unemployment falling so fast and what, if anything, should the central bank do about it? ...[Yellen] and other Fed officials worry [the decline in the unemployment rate] masks large pockets of stress still plaguing the labor market, including millions of people who want work but aren't looking anymore and therefore are no longer counted as unemployed....People are leaving the labor force for different reasons— they're retiring, going back to school, joining disability rolls, giving up looking for jobs or doing other things—reducing the number of people counted as unemployed. The trend raises hard-to-answer questions for the Fed. Will some of these people come back to work when the economy improves or have they left permanently? Do these shifts mean there is less slack in labor markets—workers available to take jobs—than they realized, or is the slack still out there, hidden in these numbers?

Fed Watch: Markets Tumble. How Will the Fed React? -- The financial markets are not being kind to freshly minted Federal Reserve Chair Janet Yellen. The level of scrutiny she will face when she makes what is likely to be her first public appearance as Chair next week was already high, and is rising by the minute. Global markets are faltering, and US equity markets tumbled Monday, with the weak ISM numbers reported to be the proximate cause of the sell-off: The decline was driven by what can only be described as a jaw-dropping decline in the new order component: Weather is suspected in the decline, and the ISM report offered some anecdotal support in that direction: "We have experienced many late deliveries during the past week due to the weather shutting down truck lines."  That said, this is arguably more than about just weather, and at least partially should trigger a fresh assessment on the strength of the US economy. To be sure, 2013 finished off with strong GDP numbers, strong enough to give the Fed hope that their 2014 forecast will be realized: Moreover, concerns about the health of the global economy are growing. Indeed, Ambrose Evans-Pritchard sees the threat of a global policy tightening in the making: We now have a situation where the world's two biggest economies – the US and China – are both winding down stimulus in lockstep. Europe is tightening passively as its balance sheets shrinks, and M3 money fizzles out. So let us call it G3 tightening (even if the Europeans are doing it by mistake) This amounts to something of a shock to large parts of the emerging market nexus. Is it therefore proper for these EM states to further compound the shock with pro-cyclical monetary (or fiscal) tightening, and to do so on a scale that could ultimately push the global economy closer to a deflation trap? Sounds very similar to my concerns from last week: Funny thing is that what the Fed sees as no tightening is evolving into a global tightening now as central banks rush to raise rates.. This seems to me to be a pretty clear global disinflationary shock. And it isn't like inflation was on a runaway train to begin with. To reiterate the last point, the Fed's decision to taper despite the obvious challenge to their inflation target looks increasingly questionable:

Fed Watch: No End To Tapering Yet - Yesterday I said: Altogether, the desire to end asset purchases suggests to me that what we have seen so far is insufficient to prompt the Fed to change their plans. That is especially the case if the data does not soften further - if, for example, the next employment report shows a rebound in payroll growth and a further decline in the unemployment rate. Today we learn via Bloomberg: “The hurdle ought to remain pretty high for pausing in tapering,” Richmond Fed President Jeffrey Lacker said. Chicago’s Charles Evans said in Detroit that policy makers probably face “a high hurdle to deviate” from $10 billion cuts in monthly bond buying at each of their next several meetings. One hawk, one dove, both concluding that the bar to stopping the taper is quite high. Things need to get worse.  I would suggest that the decline in rates indicates the Fed is too tight, not too easy. But the Fed doesn't see it that way. They see lower rates as a signal that policy is easier. And hence are not inclined to react to ease policy further by stopping the taper. Moreover, I don't think the Fed believes that the end of asset purchases is impacting global markets because they are convinced that tapering is not tightening. If it is tightening, then why should global markets react? And even if it was tightening, the Fed wouldn't see it as their problem in the first place. (To be sure, you may or may not agree, and I suggest you read Izabella Kaminska, Frances Coppola, and Felix Salmon for further insight into the topic.)

Market Rout Continues, Proving Abject Failure of Fed’s Forecasts and Policies (Updated) by Yves Smith - In case you missed it, it’s ugly out there. US markets swooned as an unexpectedly weak manufacturing report, the ISM, was so bad it couldn’t be attributed solely to bad weather and deepened investor funk. The January Institute of Supply Management’s manufacturing index dropped from 56.5 in December to 51.3 in last month. Worse, it’s new orders sub index plunged from 61.4 to 51.2, the biggest decline since 1980. The S&P 500 fell 2.3%, the ten year Treasury rallied as yield fell to 2.58%, and the dollar dropped as investors anticipated the Fed putting the taper on hold.  The rout continued in Asia, with the Nikkei an impressive 4.2%: As we warned yesterday, even with the defensive increases in interest rates in Argentina, Mexico, Turkey, South Africa, and other emerging economies, investors who are now anticipating a return to the “old normal” are now looking at real returns relative to historical norms and deem them to be too low. So we can expect continuing pressure on emerging economies to raise rates further. That might halt the currency runs, but then you have the knock-on effect of the rate shock, which will kill growth. Most of these economies were already feeling a slowdown thanks to falling prices for commodities as demand from China cooled. A sudden downturn in these economies means more credit risk and lower prospective returns, leading to more capital outflows. It may take IMF intervention to break some of these vicious cycles.

Fisher: Fed Not World’s Central Bank - Federal Reserve Bank of Dallas President Richard Fisher said the central bank should end its bond-buying stimulus effort as quickly as possible, and added in this time of unsettled global markets, the Fed has to pursue policies that benefit the American economy. When it comes to asset purchases, “I would like to see it go to zero as soon as practicable” given the rising inflation risk that attends continued purchases, The central bank lowered the monthly rate of purchases to $65 billion from $75 billion this week, amid expectations further cuts will happen as the year moves forward. The Fed’s decision came amid heavy turbulence in emerging markets. There, the reality of reduced Fed stimulus, and an end to bond buying some time later this year, is causing severe market volatility. The stress has been great enough some market participants have argued the Fed should refrain from further cuts in stimulus so as to help calm these markets and reduce the chance their woes will inflect the U.S. financial system. Mr. Fisher observed “some believe we are the central bank of the world and should conduct policy accordingly.” But that’s not true: “We are the central bank of America” and need to pursue actions that promote the mission Congress has charged the Fed with, he said. Other nations have their own central banks that have “their own responsibilities,” the official said. Mr. Fisher added “we try to help each other” but “we are mandated to meet certain standards Congress gives us.” Other nations “have to figure out” how to deal with their own issues, he said.  He pointed to Poland and Mexico as nations that have gotten it right. Those who used the liquidity for consumption—he cited Brazil—are likely to find this period of reduced liquidity more difficult, he said.

Central banks must co-ordinate policy - Not since 2008 has there been a greater need for policy co-ordination among major central banks to harmonise monetary and bank regulatory policies. Back then, the financial crisis forced swift co-ordinated responses by the US Federal Reserve and the European Central Bank, followed by the Chinese authorities, which prevented a global depression. Now, new storms are likely. Recent financial market developments triggered by emergency central bank actions in Argentina, Turkey, India and South Africa, but reflecting broader concerns about interest rate trends, may prove to be just a foretaste of things to come. The risks are rising of a prolonged period of exceptionally volatile and disruptive cross-border financial flows that could create financial market turmoil and undermine the fragile revival of growth now being seen in many economies. In 2013, key central banks were moving in parallel. They were pumping out liquidity, holding interest rates down and shouldering the lion’s share of responsibility for stimulating growth. But now divergence, rather than cohesion, is emerging. Traders may win, while everyone else may lose. Making matters worse is the rising fragmentation of the international bank regulatory system, which creates increasing opportunities for regulatory arbitrage. Banking authorities have still not put in place agreed approaches to resolution; the Volcker rule may or may not be applied in different ways in key jurisdictions; capital ratios differ significantly from one jurisdiction to another; and, there have been repeated failures to agree on international accounting standards. Under these circumstances banks will underperform in providing lending for productive investments that are now essential for reducing unemployment and securing growth in many economies. Ideally, intensified efforts at policy co-ordination by central banks should take place alongside a broader palette of co-operative policy actions led by Group of 20 governments, including measures to revive slumbering world trade growth. But the next G20 summit is not until November, and a great deal needs to be done before then if the world’s economy is to not face serious problems.

The Low-Inflation Policy Trap - Some central bankers in the world seem surprised that they are seeing low rates of inflation.  The chart shows headline CPI inflation for Canada, Germany, Italy, Japan, the UK, and the US. Except for Japan, all of these countries experienced the most recent peak in the inflation rate about mid-2011, and their inflation rates today are lower than they were then. All of the central banks responsible for monetary policy in these countries have an inflation target of 2%. But, except for the UK, which is now hitting the 2% target, all have fallen short, and two (Canada and Italy) have inflation below 1%. As I have stated before, (here and here), for the U.S., the current policy stance is a trap. The Fed clearly intends to maintain its policy interest rate target at essentially zero, possibly well into 2016. But, particularly as the economy continues to strengthen, most forces are pushing short-term real rates of return up. With short-term nominal rates of return pegged at zero by the central bank, the inflation rate has nowhere to go but down. But central bankers appear only to understand the short-term liquidity effects of central bank actions. They seem to think that a low short-term nominal interest rate must mean high inflation, even if the nominal interest rate is persistently low. Though real rates of interest are certainly not constant, and there can be persistence in deviations of real rates of interest from long-run averages, if the short term nominal interest rate is low for a long period of time, then the inflation rate is guaranteed to be low.

Vital Signs: That Wasn’t Supposed to Happen -- WSJ: The yield on the 10-year Treasury tumbled to its lowest level since November on Monday, and is down 0.4 percentage points this year. That wasn’t supposed to happen. Last year, the Federal Reserve announced that it would begin trimming its $85 billion a month bond purchases, and rates on the 10-year bond moved up, as was expected. Tighter Fed policy and an improving economy should make bonds less attractive, leading to lower prices and higher yields. Economists in the January forecasting survey expected the 10-year yield to rise to 3.24% by the end of June. It was at 2.57% Monday. The move higher for yields only lasted for two weeks. At the start of the year, worries began to emerge about global growth. A selloff in emerging markets accelerated last month, driving investors back into the perceived safe haven of the U.S. bond market. And then yesterday a disappointing manufacturing report raised concerns about the strength of the domestic economy, further depressing yields.

Economics of Bitcoin - Bitcoin is a digital currency for which no government, bank, or corporation takes responsibility. Like many others, I was curious to learn how it works and why it seems to be succeeding. Instead of having a sum (in dollars) in an account with a bank, you could have a sum (in Bitcoins) that you hold in an account that is kept track of by a network of individuals with a public record of where all the sums reside. The mechanics of being able to transfer an entry from one Bitcoin account to another are based on advances in cryptology that use open-architecture algorithms to convert one string of data into another. You can see one in operation here. You enter one string of characters, and out comes another string. Although the formulas by which the output is calculated are totally open and public, it is essentially infeasible to do the operation in reverse. If you only know the string that came out as a result of the operations, about the only way you can guess what went in is by trying every possible input string, a very time-consuming process even for the fastest computers. On the other hand, if you tell me the input you used and I already know the output, I can readily verify whether the input string was indeed as you reported. The output of a Bitcoin transaction is based on combining some private code associated with your holdings, which only you know, with the full history of previous transactions, which everyone knows. If you supply the correct private code, other users can verify that you indeed were the owner of that sum because your code together with the public history correctly solves a known math problem. In this way, your participation is required to transfer your sum to a new owner, with security of the system maintained by the difficulty of anyone simply guessing the code.

Governments should ditch paper currency in favor of electronic - From a technical point of view, Bitcoin is far ahead of governments in its beautiful implementation of electronic money. But Bitcoin itself is not the future of money, because it is hard to believe that governments will willingly hand over control of the world’s monetary policy to the Bitcoin algorithm. Nor should they. Keeping the value of money constant over time is difficult and requires strong, capable institutions like central banks. But looking toward the future, it is the electronic dollar (and euro and yen and pound … ) whose value should be kept constant, not yesterday’s paper currency. The key advantage of electronic money over paper currency is this: Monetary systems based on paper currency allow for strongly positive interest rates, but not strongly negative rates; by contrast, it is easy to have interest rates on electronic money vary all the way from strongly positive to strongly negative. High interest rates make it expensive to spend now compared with waiting until later, while low interest rates encourage people to spend now. If interest rates can vary freely over a wide range, they are able to signal to households and businesses as loudly as necessary that the economy needs people to cut back on spending and save more when the economy is overheated, or cut back on saving and spend more when the economy is in a recession.To zero in on the key problem, in our current monetary system we take for granted an interest rate of zero on paper currency. That interest rate of zero can falsely signal to households and firms that it is OK for them to hold back on spending—even at times when businesses desperately need the customers and people desperately need the jobs that extra spending would provide. Think of a one-year loan. With a positive interest rate, of, say, 2 percent, borrowers pay back their initial loan, plus 2 percent interest. With an interest rate of zero, borrowers pay back the loan with no additional costs. With a negative interest rate, of, say, minus 2 percent, borrowers pay back the loan, minus 2 percent. In effect they’re being paid for taking on a loan. Can you imagine anything that might better stimulate economic activity?

Q4 2013 GDP Details on Residential and Commercial Real Estate The BEA released the underlying details for the Q4 advance GDP report. The first graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes).A few key points:
1) Usually the most important components are investment in single family structures followed by home improvement. However home improvement has been the top category for twenty one consecutive quarters, but that is about to change. Investment in single family structures should be the top category again soon.
2) Even though investment in single family structures has increased significantly from the bottom, single family investment is still very low - and still below the bottom for previous recessions. I expect further increases over the next few years.
Investment in home improvement was at a $177 billion Seasonally Adjusted Annual Rate (SAAR) in Q4 (about 1.0% of GDP), still above the level of investment in single family structures of $174 billion (SAAR) (also 1.0% of GDP). Single family structure investment will probably overtake home improvement as the largest category of residential investment very soon. The second graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased recently, but from a very low level. Investment in offices is down about 53% from the recent peak (as a percent of GDP). There has been some increase in the Architecture Billings Index lately, so office investment might start to increase. However the office vacancy rate is still very high, so any increase in investment will probably be small. Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 56% from the peak (note that investment .

January ISM Data Suggest Sharp Slowing in Q1 GDP: At the start of each month, the U.S. Institute for Supply Management (ISM) released data on the state of the manufacturing and non-manufacturing industries of the U.S. economy. The data are closely followed by economists, stock market brokers, and the media as they provide the earliest reading on the current state of the economy. The ISM provides data on the performance of a number of indicators related to the manufacturing and non-manufacturing industries, such as production, employment, new orders, and backlog of orders, deliveries, inventories, new exports, imports, and prices. Figure 1 plots the evolution since the first quarter of 1998 of a proprietary coincident economic index from The Forecasting Advisor, built from a number of indicators from both the survey on manufacturing and non-manufacturing industries, and U.S. real GDP. The aggregation of indicators from both surveys into a coincident economic index provides a close relationship with historical movements in real GDP growth. In other words, the Figure suggests that the coincident index contains useful information on the economy. Because the ISM data are never revised, except for the annual updates of the seasonal adjustment factors, the coincident economic index could thus be a useful real time forecasting tool and provide valuable leading information on ongoing changes in the pace of economic growth. Figure 2 plots the performance of an indicator model, using the coincident economic index as the unique explanatory variable, in forecasting the rate of growth in U.S. real GDP from the first quarter of 2002 to the fourth quarter of 2013.

Frigid Winter Spells Trouble for U.S. Economy -  Investors who want to divine the outlook for U.S. economic growth should look at the weather. David Woo’s rule: the colder, the slower. Financial markets tend to overreact to abnormally warm or cold conditions, said Woo, head of global rates and currencies at Bank of America Corp., in a Feb 4. report. He found a 48 percent correlation between first-quarter economic growth and temperature over the past decade. With Woo calculating January to be the coldest in the U.S. since 1988 and February set to stay chillier than usual, his growth prognosis isn’t optimistic. Much of the Northeast this week faced snowstorms and more may come this weekend. The coldest December since 2009 already helps explain a slowdown in employment growth, said Woo. He found that over the past decade, a 1 degree Celsius (1.8 degree Fahrenheit) drop below December’s historical norm has led to that month’s non-farm payrolls coming in an average of 38,000 below forecasts. A 1 degree Celsius drop in temperature in the first quarter is associated with an average 1.5 percentage point decrease in gross domestic product growth since 2004. One explanation is that retail sales are more sensitive to temperature in January and February than in December, when Christmas leads people to shop, he wrote.

According To Bank Of America The Outlook For The Entire World Has "Deteriorated" Due To Cold US Weather -- It really doesn't get funnier than this, and explains the 7 figure comp for the Bank of America authors who can certainly get matching compensation in the comedy circuit. From BofA's Naeem Wahid: We recommend closing the short EUR/SEK trade that we initiated last week. While Swedish economic data have improved, as we expected, the global outlook has deteriorated – caused by a larger than expected weather effect in the US (the US ISM has fallen to 51.3, from December’s 56.5). As such we close out the trade at  8.8300 (entered at 8.8100) and look to reinitiate once risk appetite turns positive again. In other words, the outlook for the global economy - that would be the economy of the entire world - has just taken a hit due to cold weather and snowfall during the US winter....

CBO cuts 2014 deficit estimate by $46 billion -- The U.S. budget deficit for fiscal 2014 will total $514 billion, or 3% of gross domestic product, the Congressional Budget Office estimated on Tuesday. That is a decline of $46 billion from CBO's prior estimate. CBO said the expiration of various tax breaks and the improving economy would help revenues rise 9% this year. Spending is projected to rise just 2.6%. In its latest budget and economic outlook, CBO also estimated the U.S. economy will grow by 3.1% in 2014, down from the agency's prior estimate of 3.4%. The U.S. jobless rate will stay at its current 6.7%. If current law stays in place, CBO said accumulating deficits would boost debt held by the public to 79% of GDP by 2024.

CBO | The Budget and Economic Outlook: 2014 to 2024: The federal budget deficit has fallen sharply during the past few years, and it is on a path to decline further this year and next year. CBO estimates that under current law, the deficit will total $514 billion in fiscal year 2014, compared with $1.4 trillion in 2009. At that level, this year’s deficit would equal 3.0 percent of the nation’s economic output, or gross domestic product (GDP)—close to the average percentage of GDP seen during the past 40 years. As it does regularly, CBO has prepared baseline projections of what federal spending, revenues, and deficits would look like over the next 10 years if current laws governing federal taxes and spending generally remained unchanged. Under that assumption, the deficit is projected to decrease again in 2015—to $478 billion, or 2.6 percent of GDP. After that, however, deficits are projected to start rising—both in dollar terms and relative to the size of the economy—because revenues are expected to grow at roughly the same pace as GDP whereas spending is expected to grow more rapidly than GDP. In CBO’s baseline, spending is boosted by the aging of the population, the expansion of federal subsidies for health insurance, rising health care costs per beneficiary, and mounting interest costs on federal debt. By contrast, all federal spending apart from outlays for Social Security, major health care programs, and net interest payments is projected to drop to its lowest percentage of GDP since 1940 (the earliest year for which comparable data have been reported).

Observations on the GDP Release and the CBO Outlook -- The output gap remains large, even as the external sector supports growth; this outcome is partly due to excessively rapid fiscal consolidation The CBO released Budget and Economic Outlook on Tuesday. As part of the report, the CBO released its estimates of potential GDP in a manner consistent with the new GDP measures that incorporate intellectual property in the investment data. The output gap remains large and negative, using these updated estimates.  Note that by 2013Q4, the output gap is -4.3% (log terms), and taking the mean WSJ survey response, the output gap at 2014Q4 is -2.9%. Even with the high estimate of GDP growth (after trimming the sample by 20%), the gap is -2.4% (Joseph Carson/Alliance Bernstein), whereas the low (after trimming) forecast indicates a -3.7% gap.  The CBO projection (under current law, and based on data available as of December 2013 and the 2013Q3 second release) is 3.3%. Part of the reason the progress in shrinking the output gap slowed in 2013 can be directly attributable to fiscal drag — in other words the prediction that the sequester would slow growth was realized. [1] (When the sequester deal was finalized in April, Macroeconomic Advisers forecasted 2.6% growth for 2013; q4/q4 growth turned out to be … 2.7%. [2]) Consider the shrinkage in the cyclically adjusted budget balance (expressed as a share of potential GDP). The adjusted deficit shrank substantially in Fiscal Year 2013.

CBO Projection: Budget Deficit to be below 3% of GDP for next four years - The Congressional Budget Office (CBO) released their new The Budget and Economic Outlook: 2014 to 2024: The federal budget deficit has fallen sharply during the past few years, and it is on a path to decline further this year and next year. CBO estimates that under current law, the deficit will total $514 billion in fiscal year 2014, compared with $1.4 trillion in 2009. At that level, this year’s deficit would equal 3.0 percent of the nation’s economic output, or gross domestic product (GDP)—close to the average percentage of GDP seen during the past 40 years. As it does regularly, CBO has prepared baseline projections of what federal spending, revenues, and deficits would look like over the next 10 years if current laws governing federal taxes and spending generally remained unchanged. Under that assumption, the deficit is projected to decrease again in 2015—to $478 billion, or 2.6 percent of GDP. After that, however, deficits are projected to start rising—both in dollar terms and relative to the size of the economy—because revenues are expected to grow at roughly the same pace as GDP whereas spending is expected to grow more rapidly than GDP. In CBO’s baseline, spending is boosted by the aging of the population, the expansion of federal subsidies for health insurance, rising health care costs per beneficiary, and mounting interest costs on federal debt. By contrast, all federal spending apart from outlays for Social Security, major health care programs, and net interest payments is projected to drop to its lowest percentage of GDP since 1940 (the earliest year for which comparable data have been reported).  The CBO projects the deficit will decline further in 2014 and 2015, and be below 3% of GDP for the next four years.

CBO: Federal Deficit at $10 Billion in January -- From the Congressional Budget Office (CBO): Monthly Budget Review for January 2013 The federal government ran a budget deficit of $184 billion for the first four months of fiscal year 2014, CBO estimates—$107 billion less than the shortfall recorded in the same span last year. Revenues are higher and outlays are lower than they were at this time a year ago. Without shifts in the timing of certain payments (which otherwise would have fallen on a weekend), the deficit for the four-month period would have been $141 billion less this year than it was in fiscal year 2013. And for January 2014: The federal government incurred a deficit of $10 billion in January 2014, CBO estimates—a $13 billion difference from the $3 billion surplus realized in January 2013. Because February 1 fell on a weekend in 2014, and January 1 is a holiday, certain payments that ordinarily would have been made in February this year were instead made in January, and certain payments that would ordinarily be made in January were made in December in both 2012 and 2013. Without those shifts in the timing of payments, the federal government would have realized an $8 billion surplus in January 2014 and a $15 billion deficit in January 2013—a $23 billion difference.After accounting for timing, that is a significant reduction in the deficit in January.  My guess is the deficit for fiscal 2014 will be smaller than the CBO currently expects (less than 3.0% of GDP).

U.S. deficit to decline, then rise as labor market struggles: CBO (Reuters) - The Congressional Budget Office on Tuesday reduced its estimate of the U.S. budget deficit for the current fiscal year but said sluggish economic growth and stubbornly high unemployment will cause the improvement to be short-lived. The CBO said the deficit will fall to $514 billion in the fiscal 2014 year ended September 30, down from its previous estimate of $560 billion and a fiscal 2013 deficit of $680 billion. The deficit will decline to $478 billion in fiscal 2015, but the gap for that year will be $100 billion larger than previously estimated. The deficits will start to grow steadily thereafter as the economy struggles with an unemployment rate that fails to fall below 6.0 percent until late 2016, the non-partisan budget referee agency said. true The report may take some immediate pressure off of Congress for further deficit reduction, but makes clear that there are still major fiscal challenges ahead associated with the cost of caring for the fast-retiring Baby Boom generation and a chronically low participation in the labor force among Americans. The CBO sharply cut its projections of U.S. GDP growth in 2015 by a full percentage point to 3.4 percent, where it also stays for 2016, down nearly a full point from the CBO's previous estimates. "CBO estimates that the economy will continue to have considerable unused labor and capital resources, or 'slack' for the next few years," the agency said in the report.

Taxes, Entitlements and Federal Debt: The CBO’s Latest Projections -- This morning the Congressional Budget Office published its Budget and Economic Outlook: 2014 to 2024, available as a 175-page PDF file. The main body of the document is divided into four parts: The Budget Outlook, The Economic Outlook, The Spending Outlook and The Revenue Outlook. The Appendix, which constitutes over half the document, covers a range of topics, including four decades of historical data.First, let's review the most recent year on the books. In 2013, the U.S. took in $2,774 Billion in Revenues against $3,454 Billion in Outlays, which amounts to a calendar year deficit of $680 Billion.  The debt held by the public at the end of the year was $11.98 Trillion.  The adjacent pie-chart gives us a snapshot of the relative size of the major expense categories in the budget for the past year.  As we can see, entitlement of one sort or other accounted for 65%, almost two-thirds, of the overall budget. Now let's put the current deficit into the larger pattern of federal spending. I created the next two charts from a combination of CBO historical data since 1971 and their budget projections for 2014-2024. The first chart shows the astonishing growth of entitlements. The next chart shows the projected gap between revenues and outlays over the next decade together with an overlay of the accelerating growth of public debt. As long as the red line is above the green, the size of the debt burden will accelerate. The final chart below shows the growth of entitlements as a percent of total US revenues since the early 1970s. I added a linear regression through the historical data and extended it into the future. The purpose is to illustrate that the CBO's estimates for the next decade are on the optimistic side (i.e., below) the regression, especially in light of the growing population of retiring Boomers.

Interest on debt to nearly quadruple over decade - CBO - For the next few years, deficits are looking pretty good. But the interest owed on the country's cumulative debt is set to nearly quadruple over the next decade. The Congressional Budget Office projects that interest will be $233 billion this year, or 1.3% as a share of the economy. By 2024, it will reach $880 billion, or 3.3% of GDP. That means interest will account for the lion's share of the $1.1 trillion deficit projected for that year and will come close to what will be spent on Medicare. Interest costs will jump for two reasons. The first is the improving economy, which is expected to push what have been historically low interest rates to higher, more typical levels. The second reason is that the underlying debt will remain very large and continue to grow.  The CBO projects that under current policies, public debt will reach $21 trillion -- or 79% of GDP -- by 2024. That would be its highest level in more than 75 years and would leave debt at nearly double its long-term average of 40% of GDP. The thing about large and growing interest payments is that they consume tax revenue that could otherwise be spent on the country's priorities. In contrast to the rapid growth of interest spending, outlays for defense programs and domestic programs -- such as education, infrastructure, disaster relief and law enforcement -- are on track to fall to their lowest levels since 1962.

Oh, great! The CBO says the ‘new normal’ is here to stay - The long-term, anti-employment impact of the Affordable Care Act is, unfortunately, not the worst bit of news from the Congressional Budget Office. More disturbing and important is the CBO’s gloomy US economic forecast. After nearly five years of glacial economic recovery, the agency sees GDP growth accelerating from 2014 through 2018 to 3.2% — roughly its postwar average.Great. But that’s apparently as good as it gets: “Beyond 2017, CBO expects that economic growth will diminish to a pace that is well below the average seen over the past several decades.” Obamacare’s effect on hours worked is one factor, though hardly the only one. More important is slower labor force growth from the aging of America and the retirement of the Baby Boomers. And slower labor force growth also means less business investment to equip workers. Innovation is also lower than in previous decades.The result? CBO expects annual growth through 2024 to decelerate back to the low level seen right after the Great Recession, just 2.2%. To put it another way, potential US GDP growth is now only two-thirds what it was in the 1980s and 1990s.Two more CBO predictions: not only will depressed labor force participation – which CBO blames half on demographics, the rest on labor demand and worker mismatch – remain low, it’ll dip further. At the same time, budget deficits will begin rising again due to entitlements. (Also, the CBO sees $2 trillion in additional debt over a decade since its previous forecast due to slower GDP growth.)

Oh, Sweet Mercy, Are We About To Have Another Debt Ceiling Fight? - One of the things I've been attempting to track the past few weeks is whether or not America is headed for another stupid, protracted fight over the debt ceiling. Technically, we will hit the debt ceiling deadline on Feb. 7, but you know the drill -- the Treasury can take a certain number of "extraordinary measures" to stave off a default crisis until the end of the month. Back on Jan. 22, the office of House Speaker John Boehner (R-Ohio) was putting out word that a "clean debt limit increase simply won't pass in the House." As Jonathan Chait noted at the time, "Then how come a clean debt-ceiling bill passed the House three months ago by a vote of 285–144? And how come, nine months before that, a clean debt-ceiling increase passed the House by the same margin?" Chait went on to note that for Republicans, who have bluffed and lost twice, staging a third round of hostage-taking just didn't make any logical sense:But you can only try this bluff once. The only way it could still work would be if Obama either paid a ransom or Republicans shot the hostage. Once the mark knows you’re bluffing, it’s over. You can’t do it again. Nobody is falling for this.And, indeed, reason seemed to have been briefly restored days later, when Politico's Jake Sherman and John Bresnahan reported "House Republicans are getting ready to surrender." At that moment in time, Chait's reasoning seemed to have finally taken hold in the House GOP caucus.

Lew calls for urgent increase in US borrowing limit - Jack Lew, US Treasury secretary, issued an urgent call for Congress to raise the US borrowing limit by the end of the month, as political manoeuvring to avoid a sovereign debt default gathered steam. “Congress should act quickly to resolve the debt limit without unnecessary delays or political posturing that could snowball into a manufactured crisis that the American people so clearly want us to avoid,” Mr Lew said in a speech on Monday at the Bipartisan Policy Center in Washington. Lifting the US’s borrowing limit has been a persistent cause of tension and brinkmanship between the Obama administration and congressional Republicans, leading to a series of dramatic budgetary stand-offs over the past few years. If the debt limit is not lifted, the US would risk default since without new borrowings the Treasury would run out of cash to pay all its bills. In the past, Republicans had demanded huge concessions from the White House in exchange for debt ceiling increases, including deep spending cuts and a repeal of the 2010 health law.  But this year, they are considering attaching much more modest policy changes as a condition of a debt ceiling increase, with the latest idea being to scrap some of the protections for big losses for insurers under “Obamacare”. But Mr Lew signalled that the White House would continue to oppose negotiations over the debt ceiling. “The President has made it clear time and again that neither he nor any other President should have to pay a ransom so the United States can pay its bills. Presidents from both political parties have always stood firm on the importance of protecting the full faith and credit of the United States. We should never put this precious asset in jeopardy,” the Treasury secretary said.

Treasury's Lew warns that U.S. default could happen quickly (Reuters) - The Obama administration warned on Monday it could start defaulting on the government's obligations "very soon" after it runs out of room to borrow under a legal cap on public debt. Washington is due to reinstate a limit on its borrowing at the end of this week and Treasury Secretary Jack Lew said the administration can use accounting measures to stay under the new cap until the end of February. After that time, "very soon it would not be possible to meet all of the obligations of the federal government," Lew said at an event hosted by the Bipartisan Policy Center, a prominent Washington think tank. true U.S. politicians now partake in a regular dance around the country's so-called debt limit. First, Congress authorizes spending that outstrips tax receipts. Then lawmakers balk over whether to OK enough borrowing to pay the bills. A rancorous debate ensues over putting public finances on a stable path. Washington has danced perilously close to the edge of default several times since 2011, and this year some Republicans pledge to extract policy concessions from Democrats before they allow the debt limit to rise. The administration has vowed not to negotiate on the matter, and Lew said public finances are in good enough shape that long-term fiscal problems don't have to be solved this year anyway.

US Treasury adjusts to avoid debt limit - The US Treasury Department says it will suspend the sales of certain securities on Friday to allow for headroom in government finances as the country hits its borrowing limit. Sales of the State and Local Government Series (SLGS), special-purpose securities, will be suspended on February 7 at noon (0400 AEDT on Saturday), the Treasury said in a statement. "This suspension is necessary by reason of the statutory debt ceiling. The suspension will assist Treasury's management of the debt subject to limit." In October, congress temporarily suspended the debt limit through February 7. On that date, the total amount borrowed will become the new debt limit, in the absence of action by congress to raise the debt ceiling. US debt currently stands at $US17.3 trillion ($A19.83 trillion). The suspension will impose some added cost and inconvenience on some state and local government issuers of new debt as they will have to invest the proceeds in alternative assets to remain in compliance with tax law, it said.

Repeal Imaginary Obamacare Bailout, GOP Insists --As of yesterday, House Republicans were torn over what to demand in return for lifting the debt ceiling to accommodate the budget they passed.  One option was the Keystone XL pipeline. The other was the risk corridor provision in Obamacare, which they falsely call a “bailout.” Here’s what happened next. First, the Congressional Budget Office released its annual budget report, and, among other things, it utterly annihilated the premise that there is any such thing as an “Obamacare bailout.”   Having seen their imaginary claim conclusively debunked, Republicans are now leaning toward demanding its repeal anyway: The Obamacare Bailout repeal plan is “gathering momentum” this morning. Tomorrow, the House Oversight & Government Reform Committee is holding a hearing entitled, “Obamacare: Why the Need for an Insurance Company Bailout?” The alleged bailout is actually one of three provisions in the Affordable Care Act designed to prevent insurance companies from cherry-picking healthy customers. One of them, called “risk corridors,” would impose a kind of tax on insurance companies that sign up healthier-than-expected customers, and reimburse the firms that sign up sicker-than-expected customers. (The same thing exists in the prescription-drug benefit enacted by Republicans in 2003 – the only difference is that Obamacare’s version of risk corridors only last for the first three years, while the Medicare Part D version lasts forever.) The Republican Party has decided that this amounts to a bailout, and has been pounding away at the theme for weeks, with major figures like Marco Rubio and Charles Krauthammer leading the way, and pretty much everybody else in the party following along.

House GOP stymied on debt limit -  All week, House Republican leaders have been stymied in crafting a debt-limit package that could pass with only Republican support.  Now, Speaker John Boehner (Ohio) and other top Republicans are considering attaching a whole laundry list of provisions to the debt ceiling that do precious little to decrease the deficit but would instead serve only to attract enough Democratic support to move the legislation on to the Senate. One option — which was widely discussed Wednesday in closed-door meetings and on the House floor — is to attach a nine-month patch of the Sustainable Growth Rate to the debt-limit increase. The SGR, or “doc fix,” as it is known on Capitol Hill, is the formula by which the federal government reimburses doctors who treat Medicare patients. Still very much in the mix is a proposal to reverse recent cuts to the cost-of-living adjustment for some military retirees. Top Republicans — including some of Boehner’s allies — think that language could also attract Democratic support. But Senate insiders say Boehner is sorely mistaken, since it would reverse a recent budget deal hashed out by Rep. Paul Ryan (R-Wis.) and Sen. Patty Murray (D-Wash.). Ryan said in a brief interview Wednesday that the COLA change wouldn’t blow up the budget deal as long as Republicans find other offsets or budget cuts. Democrats in the House and Senate are watching with bemusement as Boehner tries to craft this package. They say his only way out of this box is to pass a clean debt ceiling bill. Most GOP leadership aides understand that’s where this debate is headed but are reluctant to say that publicly.

Is this the end of America’s debt ceiling wars? – This again? The US will be unable to borrow enough money to pay its bills sometime between February 28 and March 25, and so far it’s not clear whether its lawmakers will choose to raise the debt limit in time to avoid a potential default or costly brinksmanship.When the debt ceiling siren started wailing in Quartz’s newsroom last week, we began to plotting our debt ceiling coverage: Spot the falling prices of the short-term bonds coming due near the X-date, publish a road-map of the various outlandish scenarios that could result from default, assess the viability of a platinum coin, ask if the Fed can save us, check in with skeptical bond rating agencies, find the corporations with better cash balances the government, fret about the potential collapse of the financial system, and look longingly toward the sensible Danes. But maybe things are about to change and we can hold our horses. The borrowing limit is something of the appendix of the US fiscal system: It doesn’t typically do much, but if it goes wrong, the results could be catastrophic. Originally enacted to make it easier (pdf) for the US Treasury to issue debt, it evolved into a symbolic check on federal borrowing: The president’s party was generally expected to supply most of the votes to get it to pass, but everyone knew—then as now—that actual decisions about how much to borrow are made when lawmakers and the president agree on how much to tax and spend during the budget process.

Tax Refunds Add Urgency on Debt Ceiling - —A fresh battle over the debt ceiling is looming, and lawmakers will have less time and flexibility to negotiate than in earlier fights because of the annual rush of people seeking tax refunds this month. Treasury Secretary Jacob Lew on Monday urged Congress to intervene quickly to raise the debt limit, the latest in a drumbeat of warnings from the Obama administration that dawdling could potentially lead to delays or cuts in Social Security benefits and military pay. In October, as part of the deal that ended the government shutdown, Congress suspended the borrowing limit until Feb. 7. After that, the Treasury Department is expected to use emergency measures, such as halting certain pension payments, to allow it to continue borrowing money to pay the government's bills. Those powers will run out by the end of the month, Mr. Lew said, a much shorter fuse than during previous fights. "Without borrowing authority, at some point very soon, it would not be possible to meet all of the obligations of the federal government," Mr. Lew said in a speech to the Bipartisan Policy Center.

Skating Close to the Edge, Again, on the Debt Ceiling - As of Friday, the Treasury will no longer have the authority to issue bonds as necessary to pay the government’s bills. In a matter of weeks, the government could run out of cash and begin defaulting on some payments unless Congress acts to raise the official ceiling on the national debt. And once again, Congress is struggling to avoid a potential fiscal and economic train wreck.  But this fourth debt ceiling standoff in three years is taking place in an atmosphere of fatigue and caution rather than brazenness and conviction. A confrontational parliamentary tactic that came in with a bang might finally be exiting with a whimper. “This is the dying gasp of a dead-end strategy,” said Representative Peter Welch, a Vermont Democrat. “I think this fight is over.” Even as some Republicans continued to hunt for one policy concession or another to demand from Democrats in exchange for lifting the ceiling, leadership has indicated it has no appetite for brinkmanship — particularly as Republicans head into a midterm campaign for control of Congress where they feel they have an upper hand, given the botched rollout of the Affordable Care Act and President Obama’s low approval ratings. And the White House has made clear that it has no intention of giving Republicans anything in exchange for increasing the limit.

Room for Small Deals on Tax Policy - I’d guess that any large-scale changes to federal tax policy are off the near-term table. But the absence of “big deals” from the scene could be more of a feature than a bug. In fact, I’d argue that one reason the budget deal came to fruition was that grand bargains were kept out of the room. Could there possibly be enough oxygen left in that room for deals involving parts of the tax code? Historically, meaningful changes in the tax code face a long runway, so even if none of these ideas come to pass in the near term, we should still taxi them out of their hangars.

  • Expanding the Earned-Income Tax Credit for Childless Workers: A positive outcome of the fact that we’re now debating inequality and opportunity (instead of deficit reduction) is that members of both parties have been compelled to offer some ideas to help less-advantaged workers other than just reducing the deficit. One idea that has surfaced with bipartisan support is to expand the earned-income tax credit, a highly effective, pro-work wage subsidy for low-income workers.  But workers without children are currently all but left out of the earned-income tax credit — their average benefit is under $300 per year compared with around $2,800 per year for families with children — and partly as a result, they are the only group of workers that the federal tax code taxes into — or deeper into — poverty.
  • Corporate Tax Reform, With a Side of Infrastructure Investment: Many in both parties argue that our corporate tax rates are too high and render American companies uncompetitive. It’s an odd argument to make these days, given that corporate profits are through the roof. It’s also an argument based on the statutory tax rate. In reality, because of tax advantages to offshore income and debt financing, and other tax breaks and loopholes in the corporate code, what many corporations actually pay in taxes has little to do with the statutory rate.
  • Turning Upside-Down Tax Savings Incentives Right Side Up: The figure below shows another tax problem in need of a fix: when it comes to incentives for retirement savings, the code channels the bulk of tax breaks to high-income households, but little to low- and moderate-income households.

Private-Equity Firms' Fees Get a Closer Look - In a new article published over the weekend, Mr. Polsky takes aim at the tax treatment of another revenue stream for private-equity firms, called monitoring fees. He claims the industry may be underpaying federal corporate taxes by hundreds of millions of dollars a year by mischaracterizing these fees. Monitoring fees are payments made by acquired companies to private-equity managers for what typically is described as ongoing consulting services. The companies paying the fees often deduct them as ordinary business expenses, a move that reduces their taxes. In his article in the journal Tax Notes, Mr. Polsky argues that monitoring fees often should be treated as dividends, in part because fees sometimes bear little relationship to any services being performed. Rather, like dividends, they often are paid out proportionally to ownership stakes or as a percentage of earnings. Under tax law, payment of a dividend isn't a deductible business expense. "The fee agreements I've seen are so problematic on their face," Mr. Polsky said in an interview, "it boggles the mind how anybody could think these payments are deductible under the current law." Mr. Polsky discloses in his article that, as an attorney, he represents a would-be whistleblower who has made a claim to the IRS using similar arguments. An IRS spokesman declined to comment. Looking at 229 large buyout deals in which information on monitoring fees is available, Mr. Polsky, of the University of North Carolina, and associates tallied more than $3.9 billion in monitoring-fee payments from 2008 to 2012 that he said have one or more features suggesting they were dividend-type payments.

Wall Street Journal Exposes Entirely New Private Equity Tax Scam -  Yves Smith -- Yet another private equity tax swindle has come to light. According to Monday’s Wall Street Journal, a leading tax academic has published a paper arguing that so-called “monitoring fees” that PE firms levy on the companies they’ve bought should actually be recognized as dividends for corporate tax purposes. This is is significant because fees are a tax deductible expense to the companies while the dividends aren’t, so the effect of this ruse is to shortchange Uncle Sam, and hence ordinary taxpayers to the PE funds’ benefit.  Professor Gregg Polsky, professor of tax at UNC Law School and former IRS Professor in Residence, contends that PE firms enter into sham fee-for-service contracts with their portfolio companies in order get a business expense tax deduction for the companies and to hide the reality that the payments are actually dividends. According to Polsky, this scam costs the U.S. Treasury hundreds of millions of dollars annually.  Tax law has long recognized that business owners have an incentive to mischaraterize cash distributions to them as fees for service rather than as dividends. As a result, the IRS relies on a two prong test, where both prongs must be satisfied, to determine whether the deduction is valid.  The first prong is whether the fees paid were reasonable in light of the services received. Polsky is not arguing this prong. He is focused on the second prong, which is whether a company, in making the payments, intends them to be compensation for services. According to Polsky, hundreds of agreements can be found on-file at the SEC between PE firms and their portfolio companies that reveal a complete lack of any intent for the payments to related to the rendering of services. Amazingly, the agreements almost always have an explicit provision disclaiming any requirement that the PE firms actually perform any services whatsoever in order to earn a monitoring fee.

The Myth of the Plutocrats - Most members of the upper-class do not stay there very long. Treasury Department data tracked 400 individuals with the highest incomes from 1992 to 2009. The results show high levels of turnover among the highest-income Americans. Seventy-one percent of taxpayers who were among the 400 highest-income Americans in one year did not return to the top 400 again over the 17 year time period. Just 2 percent, or 87 taxpayers, remained among the top 400 highest-income returns for ten years or more. The minimum adjusted gross income to be in the top 400 income tax returns peaked in 2007, at $139 million. Because of the financial crisis and ensuing recession, the cutoff fell 44 percent over the next two years, to $77 million in 2009. Contrary to what some believe, there is not an elite upper-class that controls the economy year-after-year.

Jamie Dimon’s $10 Million Raise is a “Common Sense” Fraud Reward - William K. Black -- Andrew Ross Sorkin (and his “Deal Book” team at the New York Times) seemed to have built an insurmountable lead in the race to be declared the most unctuous panderer to the financial plutocrats who grew wealthy by leading the frauds that blew up our economy.  As I wrote recently, Politico became my instant dark horse candidate for the Street’s sycophant-in-chief with Ben White’s fantasy that “In 2009, Washington went to war against big Wall Street banks.”  I noted that the “war” consisted of the Treasury and the Fed dumping trillions of dollars on the biggest Wall Street banks and evoked Tevye in Fiddler on the Roof: “May the Lord smite me with [such a “war”]. And may I never recover!” Sorkin has kicked off a race to the bottom at the NYT and James Stewart has just penned the most obsequious ode to Dimon yet recorded.  In a further proof of our family rule that it is impossible to compete with unintentional self-parody, Stewart’s brand for his column is “Common Sense.”  Stewart’s version of “Common Sense” when it comes to Dimon reads exactly like Thomas Paine’s famous “Common Sense” would have read had it been written by a City of London banker in 1776.  If we had listened to people like Stewart defending privilege rather than Paine’s annihilation of the pretenses of the British plutocrats we would not have become an independent Nation for another century.

Elizabeth Warren slams JPMorgan Chase for giving a raise to CEO Jamie Dimon - Speaking during a Senate Banking Committee hearing, Massachusetts Sen. Elizabeth Warren noted how government regulators have much work to do when it comes to changing the culture of Wall Street, pointing specifically to the example of JPMorgan Chase CEO Jamie Dimon. The JPMorgan Chase example is simple and instructive: Despite the fact that the megabank spent much of 2013 negotiating with federal regulators, and ultimately was fined billions of dollars, the board decided to increase CEO Jamie Dimon’s compensation to $20 million. The raise is very real, but it should be kept in mind that Dimon’s annual compensation had been previously slashed in half, to $11.5 million, as punishment for 2012′s so-called London Whale fiasco, which cost the bank billions.After a reportedly heated debate — in which some members argued Dimon’s compensation should remain at its “reduced” level, due to the bank’s fines in 2013, while other advocated increasing the CEO’s compensation as a reward for his stewardship during the crisis — the board ultimately decided on the $20 million figure.“Jamie Dimon got a raise after he negotiated $17 billion to pay for activities that were illegal that he presided over,” Warren said on Thursday. “So I’m not quite sure how this is a deterrent for other CEOs.”You can see Warren criticize Dimon’s raise below, via CNBC:

The Farce Is Complete: Blythe Masters Joining CFTC - That's right - you read it correct: "Blythe Masters, head of JPMorgan Chase & Co.’s commodities division, is joining an advisory committee of the U.S. Commodity Futures Trading Commission, said Steve Adamske, a spokesman for the regulator. Masters, 44, was invited by acting Chairman Mark Wetjen to sit on a global markets committee at the Washington-based regulator of futures and swaps, according to a person with knowledge of the matter. Masters is scheduled to participate in a CFTC meeting on Feb. 12 to discuss cross-border guidance on rules, the person said." Ok - ignore, if you will, all alegations about Blythe Masters "interventions" in the precious metals markets.  But don't ignore Blythe's CNBC interview in which the soon to be former JPMorganite said, days before the London Whale fiasco was exposed and so were JPM's attempts to corner the bond market, that JPM has "offsetting positions. We have no stake in whether prices rise or decline. Rather we're running a flat or relatively flat matched book" - a statement that was a bold faced lie, No, Blythe had much greater manipulative ambitions, namely becoming the next Enron, which we learned after than the FERC fined JPMorgan - and the group ran by Blythe Masters - for manipulating electricity prices in California and other states. In other words, you too can get a job at the CFTC if only you can answer yes to the following two questions:

  • Has your bank manipulated energy markets under your watch, and
  • Have you been found guilty of commodity price manipulation

Twitter 2, JP Morgan, 0: Bythe Masters Withdraws After One Day Appointment as CFTC Advisor -- Yves Smith  No, this was not a world-record revolving door stint. Blythe Masters, head of JP Morgan’s commodities group, was announced yesterday as having joined a Commodities Futures Trading Commission advisory committee. I didn’t bother writing it up because what could you say beyond what appalling evidence it was of how much the Administration was willing to toady to JP Morgan. The Federal Energy Regulatory Committee settled with JP Morgan for $410 million over charges of manipulating the energy markets. Masters also got away with lying to regulators during the FERC inquiry. She was lucky to escape civil charges. And that’s before we get to the fact that the missing-in-action-as-far-as-big banks-crimes-are-concerned Department of Justice, was, predictably, not willing to take up the case. By any commonsense standard, Masters should have been under the hot lights. But this was even worse than the specter of Jamie Dimon getting a raise for negotiating a very favorable settlement for widespread abuses and regulatory violations that took place on his watch. His board apparently also has a soft spot for children who shoot their parents and then plead for sympathy for being orphans. But this wasn’t an internal wink and nod (and fat envelope with cash) for getting away with flagrant, recidivist lawbreaking; now Federal regulators are rewarding it.The Twitterstorm was intense, although not as large as the #askJPM fiasco. That’s no surprise; Masters is known mainly to finance pros and regulators, while the banks’ misdeeds (and its shameless leader Dimon) are infamous. A selection of choice tweets:

The Prosecution That Isn’t Happening - People keep asking why no senior executive has gone to jail for the misdeeds that produced the financial crisis—and cost the United States more than $6 trillion, or $50,000 per household, in lost economic output. The usual answers are that it’s too hard to convict individuals in complex financial fraud cases. At the same time, however, the U.S. Attorney’s office for the Southern District of New York—the district that includes Wall Street—has amassed a 79-0 record in insider trading cases, including yesterday’s jury verdict against Mathew Martoma, a trader at the hedge fund firm SAC Capital Advisors. You might say that Mathew Martoma is no senior executive, and you would be right. As one witness said, Martoma was only a “grain of sand” next to Steven Cohen, the head of SAC Capital Advisors and the man the Southern District and the FBI really wanted to nail. But the SEC is going after Cohen, too, on civil charges of negligent supervision. So why isn’t anyone going after Lloyd Blankfein, Angelo Mozilo (for something other than dumping his own Countrywide stock), Jamie Dimon, or any of the other CEOs who, at best, were unaware that their lieutenants and foot soldiers were ripping off their clients? It’s true that negligent supervision is a specific type of liability that applies to investment advisors (although any big bank these days includes dozens of investment advisory firms within its umbrella), but it’s hard to imagine that an imaginative prosecutor couldn’t come up with another source of liability. Tourre, for example, was found liable for aiding and abetting wrongdoing committed by Goldman Sachs. Whom, then, was he aiding and abetting?

A Rash of Deaths and a Missing Reporter – With Ties to Wall Street Investigations -- In a span of four days last week, two current executives and one recently retired top ranking executive of major financial firms were found dead. Both media and police have been quick to label the deaths as likely suicides. Missing from the reports is the salient fact that all three of the financial firms the executives worked for are under investigation for potentially serious financial fraud. The deaths began on Sunday, January 26. London police reported that William Broeksmit, a top executive at Deutsche Bank who had retired in 2013, had been found hanged in his home in the South Kensington section of London. The day after Broeksmit was pronounced dead, Eric Ben-Artzi, a former risk analyst turned whistleblower at Deutsche Bank, was scheduled to speak on his allegations that Deutsche had hid $12 billion in losses during the financial crisis with the knowledge of senior executives. Just two days after Broeksmit’s death, on Tuesday, January 28, a 39-year old American, Gabriel Magee, a Vice President at JPMorgan in London, plunged to his death from the roof of the 33-story European headquarters of JPMorgan in Canary Wharf. According to Magee’s LinkedIn profile, he was involved in “Technical architecture oversight for planning, development, and operation of systems for fixed income securities and interest rate derivatives.” JPMorgan is under the same global investigation for potential involvement in rigging foreign exchange rates as is Deutsche Bank. One day after Magee’s death, on Wednesday, January 29, 2014, 50-year old Michael (Mike) Dueker, the Chief Economist at Russell Investments, is said to have died from a 50-foot fall from a highway ramp down an embankment in Washington state. Again, suicide is being presented by media as the likely cause. (Do people holding Ph.D.s really attempt suicide by jumping 50 feet?)

NY regulator opens currency probe - New York’s top banking regulator has demanded documents from more than a dozen banks, opening a new front in the sprawling global investigation into alleged foreign exchange manipulation. Ben Lawsky, superintendent of New York’s Department of Financial Services (DFS), sent requests to banks including Deutsche Bank, Goldman Sachs, Lloyds, Royal Bank of Scotland, and Standard Chartered, one person familiar with the matter said. All the banks declined to comment on whether they had been contacted. The intervention by Mr Lawsky comes just a day after the UK’s financial watchdog said allegations that traders colluded to rig prices in the $5.3tn spot market were “every bit as bad” as Libor rigging claims, which have resulted in over $6bn of fines, prompting fears that the currency manipulation scandal is spiralling out of banks’ control. The global investigation is adding to the considerable woes of global banks’ forex desks, which are under severe pressure as top traders leave amid rapidly falling revenues, intense regulatory scrutiny and a further push towards electronic trading. On Wednesday, it emerged that a Buenos Aires-based trader has left Deutsche Bank in relation to the probe, drawing the South American continent into the scandal for the first time. Deutsche has also fired three bankers – emerging markets trader Diego Moraiz, and directors Robert Wallden and Christopher Fahy – in connection with the investigation, according to two people familiar with the situation.

Nate Heckmann: Peter Schiff is Wrong About Everything - via Naked Capitalism - Yves here. I’m of two minds about featuring a post about Peter Schiff, since criticizing him treats him as being a more legitimate commentator than he is. But some targets ask so hard for a debunking that it’s hard to resist. Schiff has been in the press recently for having said on the Daily Show that some people, such as the “mentally retarded,” didn’t even deserve minimum wage but should be paid only $2 an hour. But being offensive is not the worst of his sins.  Schiff is a money manager who claims to be an economist but has no formal credentials.* He such a terrible money manager that one wonders why the SEC hasn’t come calling. He lost 60% to 70% of customer assets in a two-year period when he was supposedly making correct macro calls. It isn’t just that he made disastrously bad timing decisions. He violated one of the basic rules of investment management, which is diversification (as of the last time his account results were made public, his picks represented only 2 bets: energy and gold, and that via small gold stocks or trusts). And he also appears to loaded up his customers with lots of risk. If so, he might have violated “know your customer” rules. Mind you, this performance occurred when his public calls were generally correct. One can only imagine how he’s done when he’s been screaming “hyperinflation” and we instead have disinflation tending to deflation.

How to fix runaway pay on Wall Street? - — There are two prevailing schools of thought on Wall Street bonuses. There’s the European model that caps them. There’s the U.S. model which, in theory, ties them to performance.  There is some agreement in this area: Neither plan works nor stands a chance of working. Pay, say even those who benefit from it , is out of hand and out of whack.  Forget whether taxpayers have a right to set limits on pay for industries they bail out (they do). Forget that controls on banker pay could effectively limit risk-taking (it could).  Truly linking pay to performance is obviously a pie-in-the-sky ideal that just isn’t going to happen. If there’s one thing bankers and brokers are good at, it’s getting around financial rules. And when it’s their own paycheck on the line, you can bet they have the incentive to be creative .  The better solution is the more dramatic change. Allow bankers to make whatever they want, but force them to separate the risk from the money system. In other words, bring back the Glass-Steagall division between commercial banking and investment banking.  By cleaving the two businesses, the risk-taking inherent in J.P. Morgan’s “London whale” trade would have been the responsibility of a stand-alone brokerage and its CEO. It wouldn’t be a direct threat to a deposit-taking institution that put government-insured funds at risk. Let a stand-alone brokerage take the risk and reap the reward — or the losses.

Coming to a Post Office Near You: Loans You Can Trust? - Elizabeth Warren - According to a report put out this week by the Office of the Inspector General (OIG) of the U.S. Postal Service, about 68 million Americans -- more than a quarter of all households -- have no checking or savings account and are underserved by the banking system. Collectively, these households spent about $89 billion in 2012 on interest and fees for non-bank financial services like payday loans and check cashing, which works out to an average of $2,412 per household. That means the average underserved household spends roughly 10 percent of its annual income on interest and fees -- about the same amount they spend on food.  Think about that: about 10 percent of a family's income just to manage getting checks cashed, bills paid, and, sometimes, a short-term loan to tide them over. That's more than a full month's income just to try to navigate the basics.  The poor pay more, and that's one of the reasons people get trapped at the bottom of the economic ladder.  But it doesn't have to be this way. In the same remarkable report this week, the OIG explored the possibility of the USPS offering basic banking services -- bill paying, check cashing, small loans -- to its customers. With post offices and postal workers already on the ground, USPS could partner with banks to make a critical difference for millions of Americans who don't have basic banking services because there are almost no banks or bank branches in their neighborhoods.

Elizabeth Warren Has A Radical Plan To Remake The Post Office -- Massachusetts Senator Elizabeth Warren wants to solve two American problems with one solution — turn the country's increasingly empty post offices into simple retail banks for low-income citizens without bank accounts.  In an op-ed in the Huffington Post, Warren writes that "about 68 million Americans — more than a quarter of all households — are underserved by the banking system. Collectively, these households spent about $89 billion in 2012 on interest and fees for non-bank financial services like payday loans and check cashing, which works out to an average of $2,412 per household."  That means poor Americans spend roughly 10% of their income on basic banking services, according to a recent report from the Office of the Inspector General.  Meanwhile, we've got an entire infrastructure of post offices and postal employees who are seeing the number of letters and packages they deliver dwindle more and more by the day. The services Warren and the OIG are suggesting aren't complex — just check cashing, small international money transfers, small loans, reloadable prepaid cards, and bill paying. The OIG insists that the USPS wouldn't become a bank. In fact, it insists that these services would merely use the USPS's ubiquitous network to complement what banks do and go where banks can't go.  Other countries have already done this, and the OIG says that if even 10% of what underserved Americans pay on interest and fees went to the USPS it would generate $8.9 billion in new revenue per year.

Would the U.S. Postal Service Make a Better Banker for the Poor? -  Banks have been consistently uninterested in providing financial services to poorer Americans, but others are increasingly jumping at the chance to do so. The latest is the United States Postal Service (pdf), whose inspector general published a paper last week detailing how serving the so-called unbanked with savings accounts and small-scale loans could provide a valuable public service while shoring up the finances of the vulnerable agency.  The Post Office’s proposal follows T-Mobile’s (TMUS) plan to offer some financial services to its customers, and Wal-Mart Stores (WMT) has been offering similar services for several years, along with a few other companies whose main businesses are retail goods and services. These companies are stepping into the vacuum created as traditional financial institutions withdraw from serving unprofitable low-income areas. Banks closed almost 2,300 branches in 2012, and 93 percent of the closings since 2008 occurred in Zip Codes where the median income is below the national average. Payday lenders, pawn shops, and other exploitative businesses have been happy to step in, but the high costs of their services leave them open to competition, and the increasing interest of regulators leaves them vulnerable.

Why the Post Office needs to compete with banks - Back in 2011, I said that “the only way to save the Post Office will be to allow it to move into financial services”, seeing as how “banks in the US are mistrusted and disliked and many people would love to be able to just bank at the Post Office instead”. That’s still true, and has been given a lot more salience since the Post’s Office inspector general released a 33-page white paper, last week, saying that the Post Office should move into what it calls, in its headline, “Non-Bank Financial Services for the Underserved”. The report has been warmly greeted by Elizabeth Warren, on its own terms: If the Postal Service offered basic banking services — nothing fancy, just basic bill paying, check cashing and small dollar loans — then it could provide affordable financial services for underserved families, and, at the same time, shore up its own financial footing. Warren also, however, praises David Dayen’s article about the white paper, which has an unambiguous headline: “The Post Office Should Just Become a Bank”. And Adam Levitin, who used to be Warren’s co-blogger at Credit Slips, also uses the paper to push the idea of postal banking. So let’s be clear: there’s a very important difference between postal banking, on the one hand, and what the inspector general is proposing, on the other. And while postal banking is a good idea, the non-bank proposal from the inspector general is simply not going to fly.

Fed Survey: Banks eased lending standards, Experienced increased demand --From the Federal Reserve: The January 2014 Senior Loan Officer Opinion Survey on Bank Lending PracticesThe January 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months. Domestic banks, on balance, reported having eased their lending standards on many types of business and consumer loans and having experienced increases in loan demand, on average, over the past three months.  On net, domestic institutions also reported having eased standards for most types of commercial real estate (CRE) loans and having experienced stronger demand for such loans. ...Changes in standards and terms on, and demand for, loans to households were mixed. The survey results indicated that a modest fraction of large banks had eased standards on prime residential real estate loans, but a similar fraction of small banks had tightened standards on such loans. A moderate fraction of banks reported, on balance, weaker demand for prime mortgage loans to purchase homes, and a large net fraction reported weaker demand for nontraditional mortgage loans. Demand for home equity lines of credit (HELOCs) was little changed. Respondents indicated that they had eased standards on credit card loans, auto loans, and other consumer loans. Here are some charts from the Fed.

Unofficial Problem Bank list declines to 590 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for January 31, 2014. Changes and comments from surferdude808: The FDIC released its enforcement action activity through year-end 2013, which contributed to many changes to the Unofficial Problem Bank List. For the week, there were 10 removals and one addition that leave the list at 590 institutions with assets of $195.4 billion. A year ago, the list held 822 institutions with assets of $308 billion. During the month, the list declined by a net of 29 institutions and assets dropped by $18.1 billion. This was the largest net monthly decline in the number of institutions and assets since the list was first published. While the 19 action terminations during the month were above average, there are well below the monthly high of 25 terminations during April 2012. Thus, mergers, failures, and voluntary liquidations contributed to the 31 removals during the month. Over the next two weeks, we expect for there to be only a few changes to the list as the OCC will likely not release an update until February 21st. By the end of the month, the FDIC should release fourth quarter industry results and provide an update to the official figures.

Morgan Stanley will pay $1.25 billion to resolve FHFA claims -- Morgan Stanley [MS] announced a $1.25 billion settlement in principle to resolve its mortgage-backed securities litigation pending in the United States District Court for the Southern District of New York with the Federal Housing Finance Agency (FHFA). The FHFA is acting on behalf of Freddie Mac and Fannie Mae and is subject to final approvals by the parties. "In connection with the settlement, the Company will record an addition to legal reserves of $150 million, which will have the impact of reducing income from continuing operations applicable to Morgan Stanley by $97 million," the filing stated.. Most lenders are settling with the FHFA, which accuses them of misrepresentation when selling mortgages to Fannie and Freddie before the housing crisis.

Judge puts approval of BofA's $8.5 billion mortgage settlement on hold (Reuters) - A new judge presiding over Bank of America Corp's proposed $8.5 billion settlement with investors in soured mortgage securities on Tuesday postponed entering a final judgment in the case, raising the possibility of additional legal maneuvers. Justice Saliann Scarpulla of New York state court in Manhattan, who took over the case this week, agreed to delay the decision from taking effect until at least February 19, according to lawyers involved in the case. Scarpulla's decision came just four days after Justice Barbara Kapnick approved the settlement with the investors, who had bought securities issued by mortgage lender Countrywide Financial Corp. Bank of America acquired Countrywide during the financial crisis. In her ruling last Friday, Kapnick said the ruling would take effect on February 7. Kapnick's decision came on her last day as a trial court judge. She was promoted to a state appeals court effective February 3, and most of her cases were handed over to Scarpulla. On Tuesday, American International Group Inc (AIG.N), which led investors who opposed the settlement, sought a further delay. A postponement was necessary so that the "many issues that were left open" in Kapnick's decision could be litigated, AIG's lawyer, Mark Zauderer, wrote in court papers. Scarpulla agreed to the delay at a court hearing later on Tuesday, lawyers involved in the case told Reuters.

Mortgage Monitor: Foreclosure Starts Lowest Since April 2007 -Black Knight Financial Services (BKFS, formerly the LPS Data & Analytics division) released their Mortgage Monitor report for December today. According to LPS, 6.47% of mortgages were delinquent in December According to LPS, 6.47% of mortgages were delinquent in December, up from 6.45% in November. BKFS reports that 2.48% of mortgages were in the foreclosure process, down from 3.44% in December 2012. This gives a total of 8.95% delinquent or in foreclosure. It breaks down as:
• 1,964,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,280,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,244,000 loans in foreclosure process.

For a total of ​​4,488,000 loans delinquent or in foreclosure in December. This is down from 5,292,000 in December 2012. This graph from BKFS shows percent of loans delinquent and in the foreclosure process over time. From BKFS:
• Delinquencies are now just 1.5x the pre-crisis average with foreclosures 4.6x (down from over 8)
• Foreclosure starts ended the year at the lowest level since April 2007 and pipelines are clearing in most states
• Sizeable delinquent inventories remain in the north- and south-east
Delinquencies and foreclosures are moving down - and might be back to normal levels in a couple of years. The second graph from BKFS shows foreclosure starts. From BKFS:

    Fannie Mae: Mortgage Serious Delinquency rate declined in December, Lowest since November 2008 - Fannie Mae reported Friday that the Single-Family Serious Delinquency rate declined in December to 2.38% from 2.44% in November. The serious delinquency rate is down from 3.29% in December 2012, and this is the lowest level since November 2008.  The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.Last week, Freddie Mac reported that the Single-Family serious delinquency rate declined in December to 2.39% from 2.43% in November. Freddie's rate is down from 3.25% in December 2012, and is at the lowest level since February 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure". The Fannie Mae serious delinquency rate has fallen 0.91 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in about eighteen months. Note: The "normal" serious delinquency rate is under 1%. Maybe serious delinquencies will be back to normal in late 2015 or 2016.

    How Eviction Resisters Are Using Stand-Your-Ground Laws To Challenge Fannie Mae -  Stand Your Ground laws and the national foreclosure crisis have sparked intense debate and nationwide grass-roots mobilization in the past few years. But thus far, if these issues were pictured in a Venn diagram, the circles would not overlap. That's about to change. In early February 2014, Moral Monday Georgia demonstrators gathered at the Capitol in Atlanta to urge the repeal of their state's Stand Your Ground statutes. On the same day, one foreclosure victim, three activists and their intrepid lawyer flipped the script by trying to make Stand Your Ground work in favor of housing justice. In motions filed Monday in Dekalb County Magistrate Court, the group argues that when Mark Harris refused to leave his home as police attempted to evict him at gunpoint, he wasn't criminally trespassing - he was standing his ground. Mawuli Davis, the lawyer representing Harris, and the members of Occupy Our Homes Atlanta who also were arrested during the eviction say they aim to challenge the double standard by which Stand Your Ground laws often have been applied.He explains, "We oppose the Stand Your Ground law because it hurts people of color and poor people. But since it's on the books, we want to try to make it applicable to this situation and see if we can make American law really work for everyone. If it's supposed to apply to all Americans, let's see if it applies in this situation, where we have a big corporation hiding behind the law."

    Welcome Relief for Homeowners, Then the Tax Bill - Come tax time, JPMorgan Chase will be able to write off the $1.5 billion in debt relief it must give homeowners to satisfy the terms of a recent settlement.But the homeowners who receive the help will have to treat it as taxable income, resulting in whopping tax bills for many families who have just lost their homes or only narrowly managed to keep them.They are not alone. A tax exemption for mortgage debt forgiveness, put in place when the economy began to falter in 2007, was allowed to expire on Dec. 31, leaving hundreds of thousands of struggling homeowners in financial limbo even as the Obama administration has tried to encourage such debt write-downs.  Congress routinely allows tax breaks to expire and then reinstates them, usually retroactively, as it did last year.  The tax exemption was intended to help homeowners who are underwater — that is, who owe more on their mortgages than their homes are worth. According to the real estate data service CoreLogic, there are still more than 6.4 million households underwater. Typically, if someone lends you money and later says you do not have to pay it back, the I.R.S. counts the amount forgiven as income, except in cases of bankruptcy or insolvency.  Short sales, in which a bank agrees to let homeowners sell their homes for less than they owe (a common way of avoiding outright foreclosure), are a form of canceled debt, as are loan modifications that reduce the amount owed.

    The Exquisitely Reengineered Frankenstein Housing Monster --It’s back, a new and improved contraption, a synthetic structured security that on its polished surface looks like that triple-A rated mortgage-backed toxic waste that helped blow up the banks and your 401(k) in 2008. But this time, it’s different. It’s even worse. American Homes 4 Rent, a highly leveraged REIT that went public last August with great hoopla and that owns 21,000 single-family homes it bought helter-skelter out of foreclosure since 2012 and is now desperately trying to rent out – well, that Wall Street darling, according to unnamed sources of the New York Times, is planning to hawk securities backed by $500 million of mortgage debt. But this time, the securities – if you can call them that – are backed by rental payments from single-family homes that are, hopefully, rented out, and will, hopefully, stay rented out. The usual suspects are lined up to engineer these elegant products, the same ones that were bailed out last time: JPMorgan, Goldman Sachs, and Wells Fargo. Wall Street is licking its chops: the market for this type of synthetic monster is estimated to be $1.5 trillion. They’re hoping that $7 billion of these kinds of securities will be shoved out the door in 2014, and once the routine sets in, about $20 billion per year. Since 2012, when all this craziness started, mega-landlords have bought about 200,000 vacant, single-family homes out of foreclosure for which they’re now trying to find tenants. If anyone at the Fed needed more proof that the US is in the midst of the largest and craziest credit bubble in history, here it is.

    The Warped, Distorted, Manipulated, Flipped, Housing Market - Reality will reassert itself in 2014, with lemmings, flippers, and hedgies getting slaughtered as the housing market comes back to earth with a thud. The continued tapering by the Fed will remove the marginal dollars used by Wall Street to fund this housing Ponzi. The Wall Street lemmings all follow the same MBA created financial models. They will all attempt to exit the market simultaneously when their models all say sell. If the economy improves, interest rates will rise and kill the housing market. If the economy tanks, the stock market will plunge, creating fear and killing the housing market. Once it becomes clear that prices have begun to fall, the flippers will panic and start dumping, exacerbating the price declines. This scenario never grows old.

    Is the growing market share of ARMs cause for concern? -- Capital Economics states the share of adjustable-rate mortgages is growing, though it still remains small. New ARMs, as per current regulations, primarily contain longer term fixed interest rate periods. The economics company states the mortgages appear to be in the middle of something akin to a renaissance. "Freddie Mac data show that the share of loan applications which are for ARMs increased from 9% in November 2012 to 12.5% in May 2013, while their latest ARM survey suggests that the popularity of ARMs has risen further since then." And here's a reason for this growth: "The recent rise in mortgage interest rates has primarily effected long-duration loans and has left short-term loans looking relatively cheap." Here are three reasons they give as to why the rise of ARMs are not particularly alarming.

      • 1: Market share and volume remain at traditional lows. The average share of ARM applications in 1985 was 24%, nearly double the current share.
      • 2: The 5/1 is the most popular product, followed by the 3/1, 7/1 and 10/1 mortgage. At an interest rate of 3.15% (the current 5/1 rate), a borrower will have repaid 11% of the outstanding mortgage balance after five years. This rises to 15% after seven years and 23% after 10 years. This equity buffer offers lenders a degree of protection should borrowers default when the rate begins to float.
      • 3: Unlike during the housing boom, ARMs are not being used to lure borrowers into cheap teaser rates which subsequently reset at a rate beyond borrowers’ means. Indeed, the CFPB’s ability-to-repay rule no longer allows such mortgages to be written.

    MBA: Mortgage Applications Increase Slightly From the MBA: Mortgage Applications Increase Slightly in Latest MBA Weekly Survey: Mortgage applications increased 0.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 31, 2014. ... The Refinance Index increased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. ... ... The average contract rate declined for all loan products in the survey. Contract rates were at their lowest level since November 2013, except for the 5/1 ARM, which was at the lowest level since December 2013. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.47 percent from 4.52 percent, with points decreasing to 0.25 from 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index is down 67% from the levels in May 2013. With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013. The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index is now down about 14% from a year ago.

    Weekly Update: Housing Tracker Existing Home Inventory up 2.7% year-over-year on Feb 3rd  - Here is another weekly update on housing inventory ... for the 16th consecutive week housing inventory is up year-over-year (but not by much).  This suggests inventory bottomed early in 2013. There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer.  The Realtor (NAR) data is monthly and released with a lag (the most recent data was for December).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014. In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year. Inventory in 2014 is now 2.7% above the same week in 2013 (red is 2014, blue is 2013). Inventory is still very low - and barely up year-over-year - but this increase in inventory should slow house price increases.

    CoreLogic: House Prices up 11% Year-over-year in December -  The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Reports Home Prices Rise by 11 Percent Year Over Year in December Year over year, home prices nationwide, including distressed sales, increased 11 percent in December 2013 compared to December 2012. This change represents the 22nd consecutive monthly year-over-year increase in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, decreased by 0.1 percent in December 2013 compared to November 2013.  Excluding distressed sales, home prices increased 9.9 percent in December 2013 compared to December 2012 and 0.2 percent month over month compared to November 2013. Distressed sales include short sales and real estate owned (REO) transactions. 76 vbThe CoreLogic Pending HPI indicates that January 2014 home prices, including distressed sales, are projected to increase 10.2 percent year over year from January 2013. On a month-over-month basis, home prices are expected to dip 0.8 percent from December 2013 to January 2014. This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was down seasonally 0.1% in December, and is up 11.0% over the last year. This index is not seasonally adjusted, and the month-to-month changes will be negative for a few months. The index is off 18.0% from the peak - and is up 21.8% from the post-bubble low set in February 2012. The second graph is from CoreLogic. The year-over-year comparison has been positive for twenty two consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

    Trulia: Asking House Prices up 11.4% year-over-year in January - From Trulia chief economist Jed Kolko: 5 Truths of Tech-Hub Housing Costs In January, asking home prices rose 1.1% month-over-month, the largest monthly gain since June 2013. But the quarter-over-quarter price increase of 2.1% remains below spring 2013 levels, when asking prices accelerated at their fastest rate in the recovery. Year-over-year, asking prices are up 11.4% nationally and are positive in 97 of the 100 largest metros. It appears the year-over-year asking price gains are slowing, but asking prices are still increasing. In November, asking prices were up 12.2% year-over-year. In December, the year-over-year increase in asking home prices slowed slightly to 11.9%. And in January, the year-over-year increase was 11.4%.  Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases, but at a slower rate, over the next few months on a seasonally adjusted basis.

    Lawler: Expect Downward Revisions to Census Q4 New Home Sales, Broad-Based Builder Optimism for 2014 - From economist Tom Lawler: Below is a table showing some stats for nine large publicly-traded home builders reporting results for the quarter and year ending December 31. First, “home sales” at these builders defined as net orders in 2013 were up just 6.9%, from 2012, while “home sales” rightly defined as settlements (closed sales) were up 21.6%.  Second, net orders at these builders did not experience the fourth quarter rebound suggested by Census’ estimate of new SF home sales, and net orders at these builders were up for the year by far less than Census’ estimate of new SF home sales. While the above factors make it “most difficult” to compare builder results with Census new home sales data, I have found that builder results have been useful in projecting revisions to Census new home sales. Based on these builder results, I would expect that Census’ estimates of new home sales in the fourth quarter of 2013 will be revised downward significantly. That slowdown did not dampen most builders’ optimism for the 2014 spring selling season, and most builders have the land/lots to increase substantially their community counts this year, and plan to do so. One reason for their optimism is that the previous hikes in prices have at many builders pushed margins up well above “normal” levels, meaning they can drive higher revenues with higher volumes without price increases, and in fact can be “quite profitable” by holding prices even if construction costs rise. As such, a reasonable assumption for new home prices from the end of 2013 to the end of 2014 would be “flattish.”

    Signs of Life in Home Building -- In a perfect world for the housing industry, the employment picture contains a virtuous cycle in which housing drives jobs and jobs drive housing. Some analysts found evidence of that Friday in the January jobs report. The construction sector had its largest gain — 48,000 jobs — in almost four years. While some of that was a recovery from a drop of 22,000 jobs in December, the residential component of the sector did not drop in December and has added close to 200,000 jobs since housing began to recover in early 2012. Of course, the housing sector sank so low during the crash that it is still seeing a rebound effect. Last month the nation’s largest home builder, D.R. Horton, said its quarterly earnings had risen by 86 percent. The real question is whether, once the industry has made up some of its lost ground, there will be new customers, not just homeowners trading up. More than half of first-time home buyers are between 25 and 34, and things were looking up for that age group: January was a postrecession high point for their employment rate (though it still has not returned to prerecession norms). “If one is looking for a positive sign for home buying later this year as well as for autos, this is the most powerful one,” Only 12 percent of 25- to 34-year-olds who have jobs live with their parents, says Jed Kolko, the chief economist for, compared with fully 20 percent of those who are unemployed. So the better the employment picture for that age group, the bigger the demand for housing.

    NAHB: Builder Confidence improves year-over-year in the 55+ Housing Market in Q4 - This is a quarterly index from the the National Association of Home Builders (NAHB) and is similar to the overall housing market index (HMI). The NAHB started this index in Q4 2008, so the readings have been very low. From the NAHB: Builder Confidence in the 55+ Housing Market Ends Fourth Quarter on a Record High Builder confidence in the 55+ housing market for the fourth quarter of 2013 is up sharply, according to the National Association of Home Builders’ (NAHB) latest 55+ Housing Market Index (HMI) released today. All segments of the market—single-family homes, condominiums and multifamily rental—registered strong increases compared to the same quarter a year ago. The single-family index increased 20 points to a level of 48, which is the highest fourth-quarter reading since the inception of the index in 2008 and the ninth consecutive quarter of year over year improvements. [CR Note: NAHB is reporting the year-over-year increase]  All of the components of the 55+ single-family HMI showed significant growth from a year ago: present sales climbed 26 points to 53, expected sales for the next six months rose 24 points to 62 and traffic of prospective buyers increased 9 points to 33. This graph shows the NAHB 55+ HMI through Q4 2013.  The index declined in Q4 to 48 from 50 in Q3 - however the index is up solidly year-over-year.  This indicates that about the same numbers builders view conditions as good than as  poor. This is going to be a key demographic for household formation over the next couple of decades, but only if the baby boomers can sell their current homes.  There are two key drivers: 1) there is a large cohort moving into the 55+ group, and 2) the homeownership rate typically increases for people in the 55 to 70 year old age group. So demographics should be favorable for the 55+ market.

    Is it wise to expect continued output growth when most consumption was increased by high incomes? - There was an insightful article by Nelson Schwartz in the New York Times on how the hollowing out of the middle class is affecting business. He brought up some great points… “The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.”  OK… so if business is shrinking for the middle class, it will just grow in other areas, right? “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, which was sponsored by the Institute for New Economic Thinking, a research group in New York.”The increased consumption by capital income between 2009 and 2012 is seen in the following graph. Yet it peaked and has been coming down. This graph uses preliminary numbers for 4th quarter 2013.

    The Middle Class Is Steadily Eroding. Just Ask the Business World. - As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away. If there is any doubt, the speed at which companies are adapting to the new consumer landscape serves as very convincing evidence. Within top consulting firms and among Wall Street analysts, the shift is being described with a frankness more often associated with left-wing academics than business experts. “Those consumers who have capital like real estate and stocks and are in the top 20 percent are feeling pretty good,” In response to the upward shift in spending, PricewaterhouseCoopers clients like big stores and restaurants are chasing richer customers with a wider offering of high-end goods and services, or focusing on rock-bottom prices to attract the expanding ranks of penny-pinching consumers.“As a retailer or restaurant chain, if you’re not at the really high level or the low level, that’s a tough place to be,” Mr. Maxwell said. “You don’t want to be stuck in the middle.  ”Although data on consumption is less readily available than figures that show a comparable split in income gains, new research backs up what is already apparent in the marketplace.In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995, the researchers found.

    If consumers can't buy, and can't refinance, a recession follows -- It's not too often when the Progressive point of the day coincides exactly with something wonky I was going to say, but well, today is such a day. From the New York Times via Charlie Pierce and Atrios, we learn that As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away. In the 4th quarter of 2013, consumers only got a little help.  We got two reports on median wages in the last couple of weeks.  First came the Census Bureau's report os usual weekly wages: Usual weekly wages went up $1 adjusted for inflation in the 4th quarter. The post-recession bottom was in the 3rd quarter of 2012 and the 1st quarter of 2013. Usual weekly wages have stagnated since the end of the tech boom, now nearly 15 years ago. The big jump during the recession is when gas prices fell from $4.25 a gallon to below $1.50 a gallon, and the decline from 2009 through 2012 was gas prices going right back up to nearly $4 a gallon again. Last week the Employment Cost Index was reported. This is another median measure. In nominal terms, median wages rose over 2% for the first time in over 4 years: Adjusted for inflation, in 2013 median wages rose about 0.5% from 2012, and were at about 2007 levels. But note they are still below their 2008 levels, let alone their levels a decade ago in 2002--04

    How Eroding the Middle Hits Economic Growth - Since my article on Monday about the narrowing of the customer base for midtier restaurants, retailers and other consumer-oriented businesses like hotels and casinos, much of the discussion has focused on what that trend says about whether and how the American middle class is indeed shrinking. While that issue is important, a less obvious fact is that the shift of income to the wealthiest Americans can reduce consumption over all, according to many economists, and therefore economic growth for everyone — poor, middle and rich, too. Alan B. Krueger, a Princeton economist who was a top economic adviser in the Obama administration from 2009 to 2013, estimates that had the shift in income gains to the wealthiest earners since 1979 been more uniformly distributed, annual consumption would be $400 billion to $500 billion higher today, equal to about 3.5 percent of gross domestic product. Guy Berger, United States economist at RBS, says the divergent trajectory of richer and poorer consumers has most likely sapped the broader growth rate of consumer spending in recent years. That, in turn, is one reason that economic growth since the end of the Great Recession has compared so unfavorably with previous recoveries. Since the end of 2009, consumer spending has risen by 2.4 percent annually, Mr. Berger noted, compared with nearly 3 percent annually in the middle of the last decade and 5 percent a year in the late 1990s boom.

    U.S. consumer credit posts biggest jump in 10 months (Reuters) - U.S. consumer credit in December grew by the most in nearly a year due to a sharp increase in credit card usage, a potentially positive sign for the economy. Total consumer credit rose by $18.8 billion to $3.1 trillion, the Federal Reserve said on Friday. That was the biggest gain since February. Economists polled by Reuters had expected consumer credit to rise by $12 billion in December. true Revolving credit, which mostly measures credit-card use, rose by $5 billion in December after climbing $465 million in November. Revolving credit figures can be volatile. Non-revolving credit, which includes auto loans as well as student loans made by the government, increased $13.8 billion in December.

    Consumers Max Out Their Credit Cards In Month When Personal Savings Tumble - Today, we got the credit side of the "savings debit" ledger with the December consumer credit report, in which we learned that in addition to the now traditional draw of Car and Student loans, which came out to $13.8 billion, or exactly in line with the 12 month average draw, sending the total notional to a record $2.24 trillion, it was revolving credit, i.e., credit cards, which saw a substantial $5 billion increase in outstandings - the most since May 2013 - bringing total revolving credit to $862 billion if still far below the nearly $1.1 trillion in student loans outstanding. So just as the US consumer was tapped out, and saw their personal income remain unchanged from November and real disposable income cratered, as a result having to draw down on their savings, the remainder of all purchases was funded through the use of credit cards, which may or may not be repaid in 2014. There is always hope that this time will be different and incomes finally pick up.

    Why Walmart is getting too expensive for the middle class - Here’s a mystery of the modern economy: Growth is picking up, the job market is improving and most government data show the economy on the mend. Yet the parts of the private sector that ought to be enjoying a robust recovery aren’t. The sliding fortunes of Walmart (WMT) may best represent this recovery gap. Overall, retail sales rose 4.2% in 2013, or about 2.7% after accounting for inflation. And consumer confidence surveys show Americans on the whole feel considerably better now than they did a year ago. That ought to indicate good times for the nation’s biggest retailer. Yet Walmart is struggling with weak sales and an underperforming stock price. The company recently cut its profit outlook, with analysts polled by S&P Capital IQ expecting just a 2.1% gain in sales when Walmart reports its quarterly earnings on February 20. That’s for a company that has consistently outcompeted nearly every other retailer except, perhaps, Amazon. Walmart, though known as a discounter, may be too expensive for millions of shoppers finding themselves more pinched — not less — as the pace of the so-called recovery accelerates. “Their consumer is shifting downward,” “The competition for Walmart is changing. It’s now dollar stores.”

    Consumer Spending Reflects New Priorities post Recession - Cleveland Fed - Accounting for approximately 70 percent of the nation’s GDP, personal consumption expenditures represent the backbone of the American economy. During the current economic recovery, personal consumption has continued to expand despite modest and erratic income growth, high unemployment, higher taxes, and higher energy and food prices. Factors contributing to the consumer’s resiliency are many, with strong financial asset market performance, recently improving housing market conditions, and a slowly improving labor market all working to support growth in personal consumption. At the end of the recession, personal consumption expenditures resumed growing at a positive average annual rate of 3.8 percent. Between the end of the prior recession and the beginning of the recent recession, it averaged 5.3 percent. During both recovery periods, disposable personal income grew at relatively slower rates, 3.3 percent and 5.1 percent, respectively. Additionally, the current recovery period has been characterized by slower growth in household asset values than in previous recoveries, and until recently, muted growth in house prices. However, despite consumers being somewhat constrained in their ability to draw from expanding income and wealth sources during the recovery, the growth in their consumption remains stronger than one might expect.

    Do Oil Prices Predict Inflation? -- Cleveland Fed - People pay a lot of attention to inflation and expend a great deal of effort trying to predict what prices will do in the future. Some pay particular attention to oil prices, thinking that they might give an advance signal of changes in inflation. After all, gasoline prices do constitute a significant part of the Consumer Price Index (CPI)—about 6 percent in 2012—so changes in oil prices would be expected to affect inflation as measured by the CPI. Oil is also required to produce or deliver most goods and services, so rising oil prices may feed through to their prices as well. In fact, in the data there is a rather high degree of comovement between changes in gasoline prices and the CPI (figure 1). However, using a variety of statistical tests, we find that adding oil prices does little to improve forecasts of CPI inflation. Our results suggest that higher oil prices today do not necessarily signal higher CPI inflation next year, although they do help to explain short-term movements in the CPI.

    Pressure to lower prices…- Across the Curve has a post about pressure to lower prices… The culprit is the weakness of labor’s income to bolster prices. So now many companies are maneuvering to do whatever to cut prices. The last half of 2013 made this clear. Yet, some companies are not going to be successful at this game. These “cost-cutting challenged” companies are hiding in the woodwork… and they will progressively infect economic growth. The effective demand limit is biting down on the economy. More so if wage cuts or restricted hiring are part of the aggregate package to cut costs. The seeds of a coming contraction are being sown. quotes from the post…“American companies are struggling with falling prices for a number of their key products, keeping a lid on revenue growth and hiring.” “Corporate revenues are showing the strain, whether from lower prices, weak demand or a combination of the two.” “Part of the problem is that weak revenue leads companies to cut prices to boost sales, which reduces the value of those sales, and trickles down through the supply chain.”““When you have such weak top-line growth, such weak demand, the competitive environment becomes much tougher,” This type of tight competitive environment for profits indicates the effective demand limit. When the economy is below the limit, profits can rise for most companies, but at the limit, profits get crowded out. Such that if one company gains profits, another company is losing profits. Price cutting is a reaction, especially when supply is so much more potent than demand.

    Target Hackers Broke in Via HVAC Company - KrebsonSecurity - Last week, Target told reporters at The Wall Street Journal and Reuters that the initial intrusion into its systems was traced back to network credentials that were stolen from a third party vendor. Sources now tell KrebsOnSecurity that the vendor in question was a refrigeration, heating and air conditioning subcontractor that has worked at a number of locations at Target and other top retailers. Sources close to the investigation said the attackers first broke into the retailer’s network on Nov. 15, 2013 using network credentials stolen from Fazio Mechanical Services, a Sharpsburg, Penn.-based provider of refrigeration and HVAC systems. Fazio president Ross Fazio confirmed that the U.S. Secret Service visited his company’s offices in connection with the Target investigation, but said he was not present when the visit occurred. Fazio Vice President Daniel Mitsch declined to answer questions about the visit. According to the company’s homepage, Fazio Mechanical also has done refrigeration and HVAC projects for specific Trader Joe’s, Whole Foods and BJ’s Wholesale Club locations in Pennsylvania, Maryland, Ohio, Virginia and West Virginia.

    Weekly Gasoline Update: Regular and Premium Unchanged for the Second Week - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). For the second week in a row, rounded to the penny, Regular and Premium are unchanged. Regular and Premium are down 49 cents and 43 cents, respectively, from their interim highs in late February of last year. According to, Hawaii is averaging a fraction two cents above $4.00 per gallon. The next highest state average is Connecticut at $3.61. One state (Montana) is averaging under $3.00, unchanged from last Monday

    U.S. Light Vehicle Sales decrease to 15.1 million annual rate in January -- Based on an estimate from WardsAuto, light vehicle sales were at a 15.14 million SAAR in January. That is down slightly from January 2013, and down 2.5% from the sales rate last month.   This was below the consensus forecast of 15.7 million SAAR (seasonally adjusted annual rate).This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for January (red, light vehicle sales of 15.14 million SAAR from WardsAuto). The automakers reported January sales were impacted by the unusually cold weather. The second graph shows light vehicle sales since the BEA started keeping data in 1967. Note: dashed line is current estimated sales rate. Unlike residential investment, auto sales bounced back fairly quickly following the recession and were a key driver of the recovery. Looking forward, the growth rate will slow for auto sales, and most forecasts are for around a small gain in 2014 to around 16.1 million light vehicles. Of course 2014 is off to a slow start.

    Ford, GM Car Sales Tumble: Weather Blamed As Usual - Once again we learn that not a single sell-side analyst could have predicted the unprecedented "snow in the winter" weather shock that everyone knew about a month or so ago. In the latest example of just how confused "analysts" were when it comes to analyzing weather patterns, we just got both Ford and GM January car sales which tumbled by 7.5% and 12% respectively, on expectations for a decline of only 2.3% and 2.5% for the two US carmakers. And confirming that automaker executives continue the trend we have seen with all other sellers of goods and services, namely that when it is snowing in the winter, nobody buys anything, it was all the weather's fault.

    GM Channel Stuffing Second Highest Ever In January - We touched upon the disappointing GM car sales number reported earlier, which were promptly blamed on snow in the winter in some part of the country, which supposedly also meant that California's ravenous car buyers didn't purchase vehicles due to drought or something. Either way, one thing is clear: there was a big drop in auto demand which was to be expected from an overextended consumer whose plight we have been following for years. However, where GM did surprise, is that despite its apparent realization of climatic conditions, the company decided to plough through with abnormal production levels and flooded its dealer network with inventory. So much inventory, in fact, that in January, GM's channel stuffing pipeline rose by another 42K cars (a quarter of total sales in January), increasing the stock of cars parked at dealer lots and collecting dust to 780K from 748K in December, the second highest ever!

    US Factory Orders Down 1.5 Percent in December -  U.S. manufacturers saw orders for their products decline in December by the largest amount in five months although the setback for a key category that tracks business investment was not as large as first reported. Orders to U.S. factories fell 1.5 percent in December, the biggest drop since July, with much of the weakness coming from a plunge in aircraft orders, the Commerce Department reported Tuesday. Orders had risen 1.5 percent in November after a 0.5 percent October decrease. Orders in a closely watched category that serves as a proxy for business investment declined 0.6 percent, a smaller fall than the 1.3 percent drop estimated in a preliminary report last week. The decrease followed a sizable 3 percent jump in November, an increase spurred by an expiring tax break. Demand for durable goods, items expected to last at least three years, fell 4.2 percent, slightly less than the 4.3 percent preliminary estimate. Orders for nondurable goods such as chemicals, paper and food rose 1.1 percent in December following a 0.4 percent November gain. Analysts say part of the weakness in December reflected a temporary slowdown following a rush to purchase capital goods in November to take advantage of expiring federal tax breaks. Orders for all of 2013 totaled $5.82 trillion, up 2.5 percent from 2012, as manufacturing continued to recover from the Great Recession.

    Factory, construction spending data hint at slowing economy (Reuters) - U.S. manufacturing activity slowed sharply in January on the back of the biggest drop in new orders in 33 years while construction spending barely rose in December, pointing to some loss of steam in the economy. Economists largely blamed frigid temperatures for the chill in economic activity and said they expected a rebound in the months ahead. However, they also cautioned that the economy was receiving some payback after a strong performance in the second half of 2013. "The disappointing data provide further confirmation of a dramatic slowing in economic growth momentum," said Millan Mulraine, deputy chief economist at TD Securities in New York. true The Institute for Supply Management (ISM) said its index of national factory activity fell to 51.3 last month, its lowest level since May 2013, from 56.5 in December. Bad weather also appeared to hurt U.S. auto sales in January, with Ford Motor Co, General Motors Co and Japan's Toyota Motor Sales USA reported a slide in sales for the month.

    Factory Orders Drop Most In 5 Months, Inventories Rise Fastest Since June - Factory Orders dropped 1.5% in December - their biggest fall since July - but modestly beat weak expectations. This drop despite the fact that inventories of manufactured durable goods in December, up eight of the last nine months, increased $3.2 billion or 0.8 percent to $387.9 billion to the highest level since the series was first published. This is the fastest year-over-year inventory build in 6 months - and fastest month-over-month build in 15 months.

    ISM Manufacturing Index Comes in Well Below Expectations -Today the Institute for Supply Management published its January Manufacturing Report. The latest headline PMI at 51.3 percent is a major decline from 56.5 percent last month (adjusted from 57.0 percent). Today's number was well below the forecast of 56.4. Here is the key analysis from the report:Manufacturing expanded in January as the PMI® registered 51.3 percent, a decrease of 5.2 percentage points when compared to December's seasonally adjusted reading of 56.5 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.  A PMI® in excess of 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the January PMI® indicates growth for the 56th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the eighth consecutive month. Holcomb stated, "The past relationship between the PMI® and the overall economy indicates that the PMI® for January (51.3 percent) corresponds to a 2.7 percent increase in real gross domestic product (GDP) on an annualized basis."  Here is the table of PMI components.

    ISM Manufacturing PMI Pummeled for January 2014 -- The January ISM Manufacturing Survey PMI was pummeled with an astounding -5.2 percentage point drop in a month.  PMI is barely breathing any growth now, down to 51.3%.  New orders simply imploded with a -13.2 percentage point decline.  This is the largest monthly decline in the history of the ISM manufacturing survey for new orders by our calculations.  Many are blaming the unusually bad weather and freezing cold.  We believe this is simply a statistical anomaly and we can only hope that the ISM manufacturing survey was sucked into the polar vortex and all will be well in February.  As is, this still is a very disturbing report. This is a direct survey of manufacturers and every month ISM publishes survey responders' comments.  In spite of the horrific report, the actual survey comments were positive, with many sectors reporting business is picking up.  Two, Fabricated Metal Products and Plastics & Rubber Products, mentioned the weather was negatively impacting them.  The ISM manufacturing survey was annually adjusted for seasonal factors.  It is highly probable those annual adjustments for seasonality is what threw this month's report in a lurch.  The ISM adjusts some subindexes for seasonality, others not.  We suggest focusing in on the actual level numbers to get an indicator of growth or slowing in the manufacturing sector.  PMI is a composite index using five of the sub-indexes, new orders, production, employment, supplier deliveries and inventories, equally weighted.  New orders is now 51.2%.  This is bad for it implies new orders are barely growing.  The Census reported December durable goods new orders plunged by -4.3%, where factory orders, or all of manufacturing data, will be out later this month, but note the one month lag from the ISM survey. 

    ISM Manufacturing index declines sharply in January to 51.3 due to "adverse weather conditions" -- The ISM manufacturing index indicated slower expansion in January than in December. The PMI was at 51.3% in January, down from 56.5% in December. The employment index was at 52.3%, down from 55.8%, and the new orders index was at 51.2%, down from 64.4% in December. From the Institute for Supply Management: January 2014 Manufacturing ISM Report On Business® "The January PMI® registered 51.3 percent, a decrease of 5.2 percentage points from December's seasonally adjusted reading of 56.5 percent. The New Orders Index registered 51.2 percent, a significant decrease of 13.2 percentage points from December's seasonally adjusted reading of 64.4 percent. The Production Index registered 54.8 percent, a decrease of 6.9 percentage points compared to December's seasonally adjusted reading of 61.7 percent. Inventories of raw materials decreased by 3 percentage points to 44 percent, its lowest reading since December 2012 when the Inventories Index registered 43 percent. A number of comments from the panel cite adverse weather conditions as a factor negatively impacting their businesses in January, while others reflect optimism and increasing volumes in the early stages of 2014." Here is a long term graph of the ISM manufacturing index. This was well below expectations of 56.0%. A weak report, but probably weather related

    Huge Miss in ISM; Largest Decline in New Orders in 4 Years; Weather to Blame?  - Expectations for continued growth in the US remain overoptimistic. For example Bloomberg reports the median forecast of 85 economists surveyed by Bloomberg called for a decrease in ISM to 56 from a December reading of 56.5.  Instead, the index plunged to 51.3, a number marginally above the expansion-contraction reading of 50.  Here are the numbers from the January 2014 Manufacturing ISM Report On Business® - ISM Report Snips: Manufacturing expanded in January as the PMI® registered 51.3 percent, a decrease of 5.2 percentage points when compared to December's seasonally adjusted reading of 56.5 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.  ISM's New Orders Index registered 51.2 percent in January, a significant decrease of 13.2 percentage points when compared to the December seasonally adjusted reading of 64.4 percent. This represents growth in new orders for the eighth consecutive month, but is also the largest decline in new orders in the last four years.  ISM's Production Index registered 54.8 percent in January, which is a decrease of 6.9 percentage points when compared to the seasonally adjusted 61.7 percent reported in December. This month's reading indicates growth in production for the 17th consecutive month, but at a significantly slower rate than in December. An index above 51.1 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.  ISM's Employment Index registered 52.3 percent in January, which is 3.5 percentage points lower than the seasonally adjusted 55.8 percent reported in December, and represents the seventh consecutive month of growth in employment, but at a slower rate than in December. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

    ISM Has Biggest Miss On Record, New Orders Plunge Most Since 1980 - The downward revision to last month's recent record high appears to have been the warning flag but this is a disaster. ISM Manufacturing dropped by its most since 2008 to levels not seen since May, missed by the most on record, and new orders collapsed at the fastest pace since December 1980. The employment sub-index also tumbled from 55.8 to 52.3. "Poor weather" was blamed by some respondents and still hangovers from the government shutdown but these numbers are simply unprecedented as the data came in at a 6-sigma miss to "economist" expectations.

    An overreaction to the ISM manufacturing index? - Has the US manufacturing sector experienced a significant decline in January? As discussed before (see post), the ISM tends to be volatile and often diverges from other manufacturing indicators. Alan Tonelson (MarketWatch) had a nice write-up on the topic this morning. The ISM measure overshot on the way up and is potentially overshooting on the way down. MarketWatch: - The ISM seems to do a good job capturing huge swings in manufacturing output and employment reported by the Fed and the BLS. But any finer changes too often contrast strikingly with the government numbers — which are both based on much bigger, more varied sets of evidence than the ISM’s survey of 400 member companies. The best place to look beyond the ISM report, particularly where we get timely data, is the Markit Manufacturing PMI. And indeed there has been a downward move in manufacturing growth, but nothing as extreme as we heard from ISM. Chris Williamson, Chief Economist at Markit: - Survey respondents reported the weakest growth of output and new orders for three months in January, but with many companies blaming exceptionally cold weather for production and supply chain disruptions, the underlying trend looks to have remained robust. The ongoing expansion suggests that the goods producing sector is on course to contribute to another quarter of solid economic growth in the first quarter, and is also helping sustain a decent rate of job creation. The survey is broadly consistent with ... 10,000 jobs being created per month in the manufacturing sector which, added to the signal from the flash services PMI, points to non-farm payroll growth in the region of 200,000 in January.

    ISM Non-Manufacturing Index increases to 54.0 in January --The January ISM Non-manufacturing index was at 54.0%, up from 53.0% in December. The employment index increased in January to 56.4%, up from 55.6% in December. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: January 2014 Non-Manufacturing ISM Report On Business®  "The NMI® registered 54 percent in January, 1 percentage point higher than the seasonally adjusted reading of 53 percent registered in December. The Non-Manufacturing Business Activity Index increased to 56.3 percent, which is 2 percentage points higher than the seasonally adjusted reading of 54.3 percent reported in December, reflecting growth for the 54th consecutive month and at a faster rate. The New Orders Index increased to 50.9 percent, 0.5 percentage point higher than the seasonally adjusted reading of 50.4 registered in December. The Employment Index increased 0.8 percentage point to 56.4 percent from the December seasonally adjusted reading of 55.6 percent and indicates growth in employment for the 25th consecutive month and at a faster rate. The Prices Index increased 2.4 percentage points from the December seasonally adjusted reading of 54.7 percent to 57.1 percent, indicating prices increased at a faster rate in January when compared to December. According to the NMI®, eleven non-manufacturing industries reported growth in January. The majority of respondents' comments reflect an improvement in business conditions. Some of the respondents indicate that weather conditions have impacted their business. ." This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

    ISM Non-Manufacturing: Up a Percent -- Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 54.0 percent, up from last month's 53.0 percent. Today's number came in slightly above the forecast of 53.7 and the 53.8 consensus posted by Here is the report summary:"The NMI® registered 54 percent in January, 1 percentage point higher than the seasonally adjusted reading of 53 percent registered in December. The Non-Manufacturing Business Activity Index increased to 56.3 percent, which is 2 percentage points higher than the seasonally adjusted reading of 54.3 percent reported in December, reflecting growth for the 54th consecutive month and at a faster rate. The New Orders Index increased to 50.9 percent, 0.5 percentage point higher than the seasonally adjusted reading of 50.4 registered in December. The Employment Index increased 0.8 percentage point to 56.4 percent from the December seasonally adjusted reading of 55.6 percent and indicates growth in employment for the 25th consecutive month and at a faster rate. The Prices Index increased 2.4 percentage points from the December seasonally adjusted reading of 54.7 percent to 57.1 percent, indicating prices increased at a faster rate in January when compared to December. According to the NMI®, eleven non-manufacturing industries reported growth in January. The majority of respondents' comments reflect an improvement in business conditions. Some of the respondents indicate that weather conditions have impacted their business. There remains a bit of uncertainty about the overall economy for some of the survey respondents; however, the majority feel positive about continued economic growth." Like its much older kin, the ISM Manufacturing Series, I have been reluctant to focus on this collection of diffusion indexes. For one thing, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

    ISM Services, Immune To Snow And Cold, Beat Expectations - Weather affected jobs; weather affected manufacturing; and weather affected the global outlook for the economy... but weather did not affect the US ISM Services index which modestly beat expectations. However, at 54.0 (vs a 53.7 expectation), ISM Services remain notably below the three-year average and while new orders rose modestly, they remain a smidge above 5 year lows... Today we saw how bad weather is used to explain away the bad January numbers (ADP), but when the number is better than expected, the weather spin is ignored and it is a "reflection of the stronger economy" as was the case with the just released Services ISM number - and that is how you pick and choose the components that fit your narrative... and the tapering trend can continue.

    Martin Wolf Sounds Cautionary Note on Rise of Robots - Yves Smith - Martin Wolf, the highly regarded chief economics editor at the Financial Times, has roused himself to take up the topic of whether robots represent a threat to the economic and social order. Recall that Davos Men seemed decidedly rattled by this possibility (have the ones not in tech been unaware of the Singularity?). Wolf takes the case for concern seriously and lays out a set of potential dangers. Note that the term “robots” is used in a broad sense, and refers not to the sort of robots that replaced repetitive manual labor, like Japanese automobile factory robots or or the floor-cleaning cat transportation devices known as Roombas, but includes the use of artificial intelligence or as Wolf calls it, “machine intelligence”.  Wolf’s point of departure is what sounds like an insistently cheery book by by Erik Brynjolfsson and Andrew McAfee, The Second Machine Age. Wolf proceeds to cut its chipper forecasts down to size: Yet, to paraphrase a celebrated 1987 quip about computers by Robert Solow, a Nobel-laureate MIT economist, we see information technology everywhere except in the productivity statistics. Trends in output per hour in the US are quite mediocre. Indeed, after an encouraging surge in the 1990s and early 2000s, growth has subsided again. Recent performance in other big high-income economies is worse. One possible explanation is that the impact of these technologies is overhyped. Not surprisingly, the authors disagree.

    Worrying About Net Exports (While Appreciating Their Recent Contributions) -- Among the many economic things I worry about is X-M, or net exports (X=exports, M=imports).  As I’ve stressed in these pages, and in joint work with Dean Baker, trade deficits—(X-M)<0—have been a significant drag of growth for many years in recent decades and thus one reason why job markets have been more slack than tight.  Yet much of the policy conversation ignores these deficits. ASK most people in this city [DC] what the most important step is to increasing economic growth and job creation, and they’ll reply, “Reduce the budget deficit!” They’re wrong. So-called austerity measures — lowering budget deficits while the economy is still weak — have been shown both here and in Europe to be precisely the wrong medicine. But they could be on to something important if they popped the word “trade” into that sentence. Simply put, lowering the budget deficit right now leads to slower growth. But reducing the trade deficit would have the opposite effect. Not only that, but by increasing growth and getting more people back to work in higher-than-average value-added jobs, a lower trade deficit would itself help to reduce the budget deficit.. So it is with these dynamics in mind that I took note of the greater-than-one-percentage-point contribution to overall growth from net exports in the advance 2013Q4 GDP report from last week.  In fact, for most of the past few years, net exports have contributed to GDP growth.  Switching to annual averages to smooth out some noise, net exports added an average of a bit more than 0.10 of a percentage point to growth each of the past three years.  That’s not a lot but at least it’s pushing in the right direction.

    Trade Deficit increased in December to $38.7 Billion - The Department of Commerce reported this morning: [T]otal December exports of $191.3 billion and imports of $230.0 billion resulted in a goods and services deficit of $38.7 billion, up from $34.6 billion in November, revised. December exports were $3.5 billion less than November exports of $194.8 billion. December imports were $0.6 billion more than November imports of $229.4 billion.  The trade deficit was larger than the consensus forecast of $36.0 billion. The first graph shows the monthly U.S. exports and imports in dollars through December 2013.Imports increased, and exports decreased in December. Exports are 15% above the pre-recession peak and up 1% compared to December 2012; imports are just below the pre-recession peak, and up about 1% compared to December 2012. The second graph shows the U.S. trade deficit, with and without petroleum, through December. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil averaged $91.34 in December, down from $94.69 in November, and down from $95.16 in December 2012. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China was mostly unchanged at $24.47 billion in December, from $24.53 billion in December 2012. A majority of the trade deficit is related to China. Overall it appears exports are picking up a little, and imports (ex-oil) are increasing too.

    Here Come The Q4 GDP Downward Revisions As December Exports Tumble, Trade Deficit Balloons - Update: that didn't take long - Barclays Cuts 4Q Tracking GDP to 2.8% From 3.2%Here come the downward revisions to the "strong" initial Q4 GDP print. Moments ago the December trade deficit was released, and it soared from the impressive November deficit print of $34.6 billion to a far less impressive $38.7 billion, far above the $36.0 billion expected, and an indication that, as we warned, the Q4 GDP revisions are imminent (unless of course inventory numbers rise even more to offset the weakness). As the BEA simply explains, "The deficit increased... as exports decreased and imports increased." Indeed. Breaking it down:Exports of goods and services decreased $3.5 billion in December to $191.3 billion, reflecting a decrease in exports of goods. Exports of services increased.

    • The decrease in exports of goods reflected decreases in industrial supplies and materials, in capital goods, in other goods, in automotive vehicles, parts, and engines, and in consumer goods.
    • The increase in exports of services reflected increases in travel, in passenger fares, and in other transportation, which includes freight and port services.

    Imports of goods and services increased $0.6 billion in December to $230.0 billion, reflecting increases in imports of both goods and services.

    • The increase in imports of goods reflected increases in consumer goods, in industrial supplies and materials, and in other goods that were partly offset by decreases in automotive vehicles, parts, and engines, and in capital goods.
    • The increase in imports of services reflected increases in travel and in passenger fares that were partly offset by a decrease in other transportation.

    U.S. Goods Trade Deficits with China Increased by $3.3 Billion in 2013, and by $3.5 Billion with Countries in the Proposed Trans-Pacific Partnership - The U.S. Census Bureau reported that the annual U.S. trade deficit in goods and services declined from $534.7 billion in 2012 to $471.5 billion in 2013, an improvement of $63.1 billion (11.8 percent). This reflected a $24.8 billion (12.0 percent) improvement in the services trade surplus and a $38.3 billion (5.2 percent) improvement in the goods trade deficit. However, the overall improvement in the goods trade balance masked important structural shifts in U.S. goods trade. Although the U.S. goods trade deficit in petroleum goods declined by $59.0 billion (20.2 percent), the U.S. trade deficit in non-petroleum goods[1] increased by $20.7 billion (4.6 percent).  Growing trade deficits in non-petroleum goods have been a primary driver in the displacement of U.S. manufacturing jobs over the past decade. Trade deficits in non-petroleum goods, which have increased over the past four years, remain a substantial threat to the recovery of U.S. manufacturing employment. Growing trade deficits in non-oil goods reduce demand for U.S.-made goods, especially manufactured products, which make up more than 85  percent of U.S. goods exports.  China and the members of the proposed Trans-Pacific Partnership (TPP)[2] were important contributors to the growing U.S. trade deficit in non-petroleum goods in 2013.  The goods trade deficit with China increased by $3.3 billion (1.1 percent) in 2013, and the U.S. trade deficit[3] with the 11 TPP members increased by an estimated $3.5 billion (1.4 percent). U.S. trade and investment deals such as NAFTA, KORUS and China’s membership in the WTO have resulted in growing U.S. trade deficits and job losses and downward pressure on U.S. wages.   This is not the time for massive trade deals that cost jobs and depress wages.  The United States should stop negotiating new trade deals such as the TPP, and fix the ones we have.

    U.S. Productivity Growth Has Taken a Dive - The remarkable productivity growth that has enabled the U.S. to become the wealthiest country on earth has slowed considerably in recent years. The productivity of U.S. workers has grown at an average annual rate of about 2.5% since 1948, but has averaged only about 1.1% since 2011—less than half the historical rate. Monday's stock-market plunge on news of slowing manufacturing growth in January only underlined the urgency of restoring U.S. productivity growth. The implications are enormous. If productivity growth rates this low persist for a decade, as they did in Japan in the 1990s following a severe recession, then U.S. living standards will only increase by about 12% between now and 2024 instead of 28% at the historical rate. But even if productivity growth returns to its historical average, as it did in Japan by around 2002, U.S. GDP would remain permanently depressed by about 8% or more relative to trend. Japan's GDP remains below trend more than 20 years after its severe recession in the early 1990s. This is not because of deflation as some have argued, but because Japan has not managed to restore that lost decade of productivity growth.The most recent period of rapid productivity growth in the U.S.—and rapid economic growth—was in the 1980s and '90s and reflected the remarkable success of new businesses in information and communications technologies, including Microsoft, Apple, Amazon and Google. These new companies not only created millions of jobs but transformed modern society, changing how much of the world produces, distributes and markets goods and services.  Rising living standards in the future will depend on the continued success of these businesses but also on the next generation of success stories. Getting the U.S. economy back on track will require a much higher annual rate of new business startups. Sadly, the annual rate of new business creation is about 28% lower today than it was in the 1980s, according to our analysis of the U.S. Census Bureau's Business Dynamics Statistics annual data series.

    A Mis-Leading Labor Market Indicator - NY Fed - The unemployment rate is a popular measure of the condition of the labor market. With the Great Recession, the unemployment rate increased from a low of 4.4 percent in March 2007 to a peak of 10.0 percent in October 2009. As the economy recovered and growth resumed, the unemployment rate has fallen to 6.7 percent. What other measures are useful to supplement our understanding of the degree of the labor market recovery? The employment-population (E/P) ratio frequently is used as an additional labor market measure. The E/P ratio is defined as the number of employed divided by the size of the working-age, noninstitutionalized population. An advantage of the E/P ratio over the unemployment rate is that it is not impacted by discouraged workers who stop looking for employment. The E/P ratio also dominates a measure focusing just on total employment in the economy, since it adjusts for changes in the size of the working-age population. The chart below shows the E/P ratio since 2001. The gray shading represents time periods when the economy was in a recession. Over the Great Recession, the E/P ratio (red line) declined by 4.1 percentage points relative to the average of the E/P ratio over the prior expansion (blue line). Since the end of the recession, the E/P ratio has largely remained constant—that is, virtually none of the decline in the E/P ratio from the Great Recession has been recovered to date. An implication is that the 7.6 million jobs added since the trough of employment in February 2010 has essentially just kept pace with growth in the working-age population.

    The Overall Employment to Population Ratio: Not the Best Summary Indicator, But Not That Misleading, Either -- A blog post by researchers at the Federal Reserve Bank of New York has been making the rounds today, arguing that much of the decline in the employment to population ratio (EPOP) since the Great Recession began is actually reflecting changing demographics of the workforce. The researchers (Samuel Kapon and Joseph Tracy) argue that the overall U.S. EPOP in recent years should have been expected to fall relatively rapidly simply because so many U.S. workers were reaching typical retirement ages and were voluntarily leaving paid work. Given this, they claim that the overall EPOP is a misleading labor market indicator if it’s large fall and subsequent non-recovery is taken as evidence that a demand shortfall continues to keep aggregate demand further beneath the economy’s productive potential than other labor market measures—like the overall unemployment—are currently indicating. I don’t think this is right. First, as Matthew Klein has noted on Twitter, the same reasoning doesn’t apply if we just look at the EPOP for prime-age working adults—those between 25 and 54. It seems hard to imagine why lots of these workers would be voluntarily retiring starting right at the beginning of the Great Recession. And yet this measure shows the same sharp decline and subsequent very slow recovery as the overall measure. Second, a key piece of the method used by Kapon and Tracy to estimate the “trend” EPOP actually answers the question that should be answered by the data. This is how they describe one aspect of their method for constructing the trend:

    Demography and Employment (Wonkish) - Paul Krugman - A blog post reporting research by Samuel Kapon and Joseph Tracy of the New York Fed is creating a splash in wonkworld today, and it is making an important point. However, the way that point is presented is, I think, likely to mislead, because it mixes two propositions together. One, which is clearly true, is that the aging of the adult population would have meant a considerable decline in the employment-population ratio over the past 7 years even if the economy had remained near full employment.  The other, which is far from obvious, is that the economy was highly overheated in late 2007, with employment far above sustainable levels. You can make that argument — although I would disagree. But the way they present the data, that argument is sort of smuggled in through the back door. So, on the demography: a number of people have made this point, although without as much detailed modeling. I made a stab at it myself a while back. Here’s another version. Take BLS data on the composition of the noninstitutional population. Here’s a breakdown for December 2007 and December 2013: Here share07 is the share of the over-16 population in 12/07, share13 the share in 12/13, and ep07 is the employment-population ratio in 12/07. You can see the decline in the share of prime-age adults, and this should, other things being the same, have reduced the overall employment-population ratio. How much? Doing shift-share on the 07 employment rates, you get a decline from 62.9 to 61.3, or 1.6 points. This is almost the same as the Kapon and Tracy estimate of 1.7 points; what I take from this is that the crude calculation wasn’t missing too much. Now, how much does this change our view of the Lesser Depression? The decline in the actual employment-population ratio looks like this: The actual decline was from 62.9 to 58.6, or 4.3 points. This would seem to suggest that around 40 percent of the decline is demographics, but the rest is cyclical, and that we’re still far below full employment.

    Participation rate hysteresis, labour market slack, and why it doesn’t have to matter -- It’s been easy to lose track of the dueling research papers and notes published in the last year that have tried to discern the causes behind the demographic-adjusted fall in the US labour force participation rate. The resulting confusion, specifically about whether those causes are mainly cyclical or structural, has led to uncertainty about what the Fed will do if the unemployment rate falls to or below the 6.5 per cent threshold (the rate is now at 6.7 per cent). These studies have focussed on the particulars of the US labour market, naturally enough. But the OECD economics department published a paper in 2011 assessing the impact on participation rates in thirty countries that had experienced severe recessions between 1960 and 2008. “Severe” is roughly defined as recessions in which the estimated output gap, from peak to trough, widened by more than six percentage points. From the abstract: Severe recessions appear to have a significant and persistent impact on participation, while moderate downturns do not. The aggregate participation rate effect of severe downturns peaks on average at about 1½ to 2½ percentage points five to eight years after the cyclical peak, and is still significant after almost a decade. Youths and older workers account for the bulk of this effect. Early retirement incentives embedded in old-age pension schemes and other social transfer programmes are found to amplify the responsiveness of older workers’ participation to economic conditions. The participation rate in the US has declined by 3.6 percentage points since it peaked in December 2006. And it is down 3.2 percentage points since the start of the recession in 2007.

    Evaporating Unemployment - Before the recession, in December 2007, about 63 percent of American adults had jobs. Six years later, in December 2013, less than 59 percent of adults had jobs. And a new analysis says that the recession has very little to do with it. The study, by two economists at the Federal Reserve Bank of New York, asserts that workforce participation is in long-term decline. If the recession had never happened, or the economy had since returned to complete health, the authors estimate 59.3 percent of adults would have jobs, instead of 58.6 percent. Employment fell sharply during the recession, of course, and the number of jobs still has not recovered completely even as the population has continued to grow. But as the baby boom ages into retirement, the authors argue that fewer people want those jobs. The problem of unemployment is evaporating right before our eyes.  This assertion has large consequences. It suggests that the rapid fall in the unemployment rate, which reached 6.7 percent in December, is an accurate measure of a labor market that is almost done healing. But this analysis is unlikely to be taken as the final word on the subject. Perhaps the most simple counterpoint is to consider adults in their prime working years, between 25 and 54. About 80 percent had jobs at the end of 2007; only 76 percent had jobs at the end of 2013. Indeed, the president of the New York Fed, William Dudley, has pointed to this data as evidence that the decline was caused by the recession, and as justification for continuing the Fed’s stimulus campaign.

    A Prime-Aged Look at the Employment-to-Population Ratio - Atlanta Fed's macroblog - Trying to interpret changes in labor utilization measures such as the employment-to-population ratio is complicated by the fact that they do not refer to the same set of people over time. The age composition of the population is changing, and behavior can vary across and within age cohorts. This issue is illustrated in a recent New York Fed study of the employment-to-population ratio by Samuel Kapon and Joseph Tracy. This ratio nosedived during the recent recession by about 4 percentage points and has barely budged since. This measure of labor utilization is the clear laggard on any labor market recovery dashboard. But the authors show that it is not so clear that the employment-to-population ratio is really so far from where it should be, once you control for the fact the employment rates tend to be lower for younger and older people and that the age composition within the population has shifted over time. A simple, and admittedly crude, alternative to computing the demographically adjusted employment-to-population ratio trend is to look at a segment of the population that is on a relatively flat part of the employment (or participation) rate curve. A common standard for this is the so-called prime-aged population (people aged 25 to 54). These individuals are less likely to be making retirement decisions than older individuals and are less likely to be making schooling decisions than younger people. So what do we find? The prime-aged employment-to-population ratio declined almost 5 percentage points between the end of 2007 and 2009 (versus 4 percentage points overall) and since then has recovered about 25 percent of that decline. Using the end of 2007 as reference, the Kapon and Tracy trend estimate has declined about 1.7 percentage points, which implies the overall employment-to-population ratio, by not continuing to decline, has improved by about 40 percent.

    Only About One-Third of Labor Force Dropouts Will Return -  Millions of people have dropped out of the labor force since the start of the recession in late 2007, and only about a third of them will come back in the years ahead when the economy is stronger, the Congressional Budget Office said in a new report released Tuesday. People are always leaving the labor force for various reasons — such as going back to school, retiring or going on disability. But the big exodus since late 2007 has driven the labor-force participation rate, the share of adults holding or seeking jobs, to a 35-year low of 62.8% in December. The labor force departures also have contributed to the drop in the jobless rate, to 6.7% in December, because people aren’t counted as unemployed if they aren’t actively looking for work. Of the 3 percentage point decline in labor force participation since the end of 2007, about 1.5 percentage points is due to long-term trends, mostly the retirement of Baby Boomers, CBO said. The downward pressure from this group on the participation rate would have happened regardless of the 2007-2009 recession. Temporary factors — namely the anemic recovery — account for another 1 percentage point of the labor force participation decline, the equivalent of roughly 3 million people, the CBO said.. As the economy strengthens and demand for workers rebounds, these people will re-enter the labor force, the CBO said, predicting that the “dampening effect” this factor has on participation will end by 2018.Finally, about 0.5 percentage point of the decrease in labor force participation since 2007 was due to people who have dropped out permanently, and not because of demographic trends. These people wouldn’t have left if not for the harsh recession and unusually weak recovery that followed. Some who had trouble finding work decided to sign up for Social Security Disability Insurance instead. Others departed for early retirement or “chose alternative unpaid activities, such as caring for family members, and will remain out of the labor force permanently,”

    CBO: Health Law To Cut Into Labor Force - The new health law is projected to reduce the total number of hours Americans work by the equivalent of 2.3 million full-time jobs in 2021, a bigger impact on the workforce than previously expected, according to a nonpartisan congressional report. The analysis, by the Congressional Budget Office, says a key factor is people scaling back how much they work and instead getting health coverage through the Affordable Care Act. The agency had earlier forecast the labor-force impact would be the equivalent of 800,000 workers in 2021. Because the CBO estimated that the changes would be a result of workers' choices, it said the law, President Barack Obama's signature initiative, wouldn't lead to a rise in the unemployment rate. But the labor-force impact could slow growth in future years, though the precise impact is uncertain.The agency also said the rough launch of the health law's online insurance portals shrunk its estimates of the number of people who will get coverage in 2014. It said six million people would obtain private coverage through the exchanges and eight million people would sign up for Medicaid, compared with its earlier estimates of seven million and nine million, respectively. The report, part of the budget office's annual economic and budgetary outlook, provides the agency's most detailed analysis yet of the ways in which the law is expected to change incentives in the workplace as it takes full effect. The report indicates that, in effect, some workers will either leave the workforce entirely or cut back on hours because the law lets them get coverage on their own without regard to their medical history, in some cases with a subsidy.

    Obamacare will push 2 million workers out of labor market: CBO - Obamacare will push the equivalent of about 2 million workers out of the labor market by 2017 as employees decide either to work fewer hours or drop out of the job market altogether, according to estimates released Tuesday by the Congressional Budget Office. The analysis set off a furious debate in Washington. The White House argued that the reduction is positive because it means Americans will forgo jobs or extra work to stay home with their children or strike out on their own as entrepreneurs. Republicans, however, said the report amounted to an “I told you so” moment and that subtracting the equivalent of 2 million workers can’t be good for the economy. The CBO said the number of workers dropping out of the labor force will grow from 2 million in 2017 to 2.5 million by 2024. Although part of those numbers are attributed to job cuts, the vast majority represent workers who decide it makes more sense to stay home or work fewer hours, weighing the higher taxes they pay in the workforce versus their qualifications for benefits if they drop out. “CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 to 2 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor — given the new taxes and other incentives they will face and the financial benefits some will receive,” the nonpartisan tax agency said in its economic outlook.

    Health Care Law Projected to Cut the Labor Force -  A Congressional Budget Office analysis released Tuesday predicted that the Affordable Care Act would shrink the work force by the equivalent of more than two million full-time positions and recharged the political debate over the health care law, providing Republican opponents fresh lines of attack and putting Democrats on the defensive.The nonpartisan budget office’s analysis, part of a regular update to its budget projections, was far more complicated than the Republican attack lines it generated. Congressional Republican leaders called the findings “devastating,” “terrible” and proof that the health care law was a job killer. The report did say that the law would reduce hours worked and full-time employment, but not because of a crippling impact on private-sector job creation. With the expansion of insurance coverage, the budget office predicted, more people will choose not to work, and others will choose to work fewer hours than they might have otherwise to obtain employer-provided insurance. The cumulative reduction of hours is large: the equivalent of 2.5 million fewer full-time positions by 2024, the budget office said.The report “rightfully says that people shouldn’t have job lock,” said Senator Harry Reid of Nevada, the Democratic leader. “We live in a country where we should be free agents. People can do what they want.”He continued: “Republicans talk about losing millions of jobs. That simply isn’t true.”

    Obamacare Creates Incentive to Work Less; CBO Estimates Obamacare Will Cost 2 Million Full-Time Equivalent Jobs by 2017 -- MarketWatch reports Obamacare plans to exceed $1 trillion, create reluctant workersThe CBO projects that insurance subsidies and related spending will account for increasing chunks of deficit spending, starting at $20 billion this year and steadily increasing to $159 billion in 2024, for a collective cost of just under $1.2 trillion. The cumulative total from the ACA for the next decade could reach $1.35 trillion. In several charts in its report, the CBO calls these “effects on the cumulative federal deficit.” But in footnotes and other portions of the 175-page report, the CBO points out there are other sources of revenue generated under the ACA that are expected to make it deficit neutral.  Inquiring minds are also in interested in labor force projections. For that let's dive into the massive 182 page PDF CBO Budget and Economic Outlook 2014 to 2024 report.  On PDF page 44 (Report page 38) a curious footnote reads "By providing subsidies that decline with rising income (and increase with falling income) and by making some people financially better off, the ACA will create an incentive for some people to work less."
    The GOP Has It Wrong: Obamacare Won't 'Cost' 2 Million Jobs: Republicans thought they found a gold mine when the Congressional Budget Office released its latest report Tuesday on the federal budget and Obamacare. They seized on one line in particular: The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024 They had a new talking point: President Obama's hated health care reform law would cost more than 2 million American jobs. "Obamacare To Print Even More Pink Slips," read the subject of the Senate Republican conference email blasted out after the report's release. "Obamacare will cost our nation about 2.5 million jobs," tweeted Sen. Lindsey Graham (R-SC But is that what the CBO actually said or meant? No. What the CBO really found was that the numbers of hours worked would decrease under Obamacare, by roughly 1.5 percent to 2 percent between 2017 and 2024. The report then translated those lost hours into the equivalent of 2.5 million jobs. But that doesn't mean 2.5 million jobs are going to disappear from the U.S. economy. The CBO report, in fact, specifically undermines that claim. Those lost hours will "almost entirely" be the result of people choosing to work fewer hours because of Obamacare -- not because they lost their jobs or can't find a full-time job

    Obamacare To Crush Workforce By 2.5 Million Workers In Next Decade, CBO Admits - When the "impartial" Congressional Budget Office first attempted to predict the impact on the US labor force as a result of the administration healthcare ponzi scheme, also known affectionately as Obamacare and less affectionately by other names, it estimated that 800,000 Americans would drop out of the labor force by 2021. Moments ago it just revised that projection, admitting that it was off by the usual 100% or so: the hit to the US labor force due to Obamacare is now estimated to so0ar to 2.3 million through 2021, and furthermore the CBO just admitted that the enrollment rate will be dramatically below the White House's baseline estimates, with 2 million fewer people signing up this year than previously estimated.

    CBO: The ACA is Driving Workers Out of the Workforce -- For the past few years, a problematic phenomenon has troubled economists: US job growth has been anemic even as the unemployment rate has steadily dropped, mainly because large numbers of workers are dropping out of the workforce altogether.  A recent Washington Post column discussed some of the factors contributing to this costly exodus from the workforce.  One factor – the Baby Boomers entering their retirement years – is something other analysts and I have long warned about.  Some have attempted to wish away our fiscal problems by positing rosy economic growth scenarios that ignore population aging; but as many of us have pointed out, economic growth depends significantly on workforce growth, and population aging undercuts that.  But now a new Congressional Budget Office report  identifies another culprit driving workers out of the workforce:  the Affordable Care Act (ACA, often referred to as “Obamacare.”) CBO finds that the ACA is deterring Americans from holding jobs – and will do so much more in the future.  An already frequently-cited statistic from the CBO report is that the ACA will by itself reduce the effective number of workers by 2.0 million by 2017, and by 2.5 million by 2024.   Driving millions of additional workers out of the workforce in the current economic environment is a disastrous effect that renders nearly all of our economic policy challenges even more difficult to solve.  Despite this, some ACA supporters have actually tried to spin the CBO report as good news.  It isn’t; it’s a huge problem.   Pushing more Americans out of the workforce slows economic growth, lowers government revenues, worsens deficits, and results in greater burdens on the workers that remain.

    CBO Updates Analysis of Obamacare Effect on Jobs - The Congressional Budget Office today released the latest update of its projections for the economy and the budget, including Obamacare. And a fair reading would be that not a ton has changed since last time. CBO now expects the law will lead to 25 million people getting health insurance, while some 31 million people will remain uninsured. It will require a lot of new government spending but, because of offsetting revenue and cuts to other programs, it will actually reduce the deficit. But CBO revised one finding and, all day long, critics have been seizing on the revision as proof that the law is a boondoggle.The real story, as usual, is a lot more complicated. The projection is about how the Affordable Care Act will affect labor output—that is, the number of hours Americans work every year. From the get-go, CBO assumed that Obamacare would slightly reduce labor output, relative to what it might have been without the law in place. Why? The CBO gave a bunch of different reasons. For one thing, CBO reasoned, the financial assistance Obamacare provides depends on income. The more money you make, the less assistance you get. CBO argued that this would discourage some workers from putting in more hours, since the reward for working harder would be more income but less assistance on health insurance. In addition, CBO noted, historically some people have taken or held on to jobs exclusively to get health insurance. Obamacare makes it possible to get coverage without a job. As a result, CBO predicted, some of these people would stop working—or, at least, work fewer hours. These weren’t the only ways that Obamacare will affect jobs, according to the CBO. And sometimes Obamacare will lead to people working more hours—for example, by giving people with chronic medical problems more freedom to switch jobs or start their own firms.

    Obamacare’s effect on work is 3x worse than previously expected - The Affordable Care Act is going to have an even bigger impact on the US labor market than first thought, according to the Congressional Budget Office. And it’s not good. Back in 2010, CBO estimated that the ACA would, on net, reduce the number of full-time workers — either due to quits or reduced hours — by around 800,000 over a decade. But now that number has jumped by a huge amount:CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receiveThe reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024. Although CBO projects that total employment (and compensation) will increase over the coming decade, that increase will be smaller than it would have been in the absence of the ACA. …Because some people will reduce the amount of hours  they work rather than stopping work altogether, the  number who will choose to leave employment because of  the ACA in 2024 is likely to be substantially less than  2.5 million. At the same time, more than 2.5 million  people are likely to reduce the amount of labor they  choose to supply to some degree because of the ACA,  even though many of them will not leave the labor force  entirely. Or as JP Morgan writes in a new note: “CBO now believes that the work disincentives created by the ACA will hold back the amount of labor supplied by households, thereby restraining overall economic activity.”

    No, the CBO Did Not Find That the ACA Kills Jobs --For years, health and labor economists have studied the inefficiencies created by the fact that most Americans under 65 get health insurance through their job. One potentially large inefficiency is “job lock”—people making decisions to take and/or keep a particular job because without it, they wouldn’t have affordable health insurance. Enter the Affordable Care Act, which has now established state-based health insurance exchanges that significantly reform the individual insurance market and make it possible for many workers and their families to find affordable health insurance coverage outside the employment-based market. Which brings us to today. The Congressional Budget Office released its Budget and Economic Outlook, and, in Appendix C, one can find an expanded discussion of the labor market effects of the Affordable Care Act. Not surprisingly, the CBO finds that, all else equal, people are less likely to work and will work fewer hours under the ACA. They find, and I quote, “The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in business’ demand for labor” These are purely voluntary labor supply decisions, not people being laid off from jobs they’d rather keep, or people looking for work and being unable to find it. Working-age adults can now choose, without regard to their need to secure health insurance, whether they wish to supply labor and how much labor they wish to supply to the labor market. This is unabashedly a good thing for them. Opponents of the ACA will try to paint these CBO estimates as evidence that the ACA has “killed jobs” or something like it. That’s flat wrong. What the ACA has done is expand the menu of options available to Americans about how to obtain decent health insurance without having their income fall to poverty levels.

    A CBO Report Shows How Obamacare Will Help the Working Poor - The attack on the Affordable Care Act by conservative Republicans after the release of the Congressional Budget Office's new report was desperate. Bravo to much of the media for setting the story straight almost immediately. But so strong is the anti-government bias involving social policy that critics hardly stopped to think.  No, businesses were not about to issue a couple of million pink slips, as Senate Republicans put it. Rather, because of the subsidy to buy health care, people could choose to quit their jobs or work fewer hours and lead a marginally better life. Heaven forbid. And that’s the real rub. Republicans must think this is a new dole for the undeserving. But actually, it’s another example of how perverse and unfair the health care system in America is. In other words, according to CBO estimates, 2 million people or so were basically working so they could get insurance. Working makes acquiring health care cheaper because you are in a group plan and the employer will often help subsidize the price. (Of course, that subsidy partly results in lower wages for the worker.)  Because many Americans work just to get health care, they are locked into their jobs. And this may reduce their desire to bargain for higher wages out of fear of being fired.

    Here’s Why the CBO Thinks Obamacare Will Reduce Employment Among the Poor The Congressional Budget Office has updated its estimate of the effect of Obamacare on employment: CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024....Because the largest declines in labor supply will probably occur among lower-wage workers....CBO estimates that the ACA will cause a reduction of roughly 1 percent in aggregate labor compensation over the 2017–2024 period, compared with what it would have been otherwise. Why will Obamacare reduce employment? Because it's a job killer? Because employers will push lots of workers into part-time positions?  No. Those effects are tiny at best. It's much simpler than that. Obamacare will reduce employment primarily because it's a means-tested welfare program, and means-tested programs always reduce employment among the poor: Subsidies that help lower-income people purchase an expensive product like health insurance must be relatively large to encourage a significant proportion of eligible people to enroll. ....For some people, the availability of exchange subsidies under the ACA will reduce incentives to work both through a substitution effect and through an income effect. The former arises because subsidies decline with rising income (and increase as income falls), thus making work less attractive. As a result, some people will choose not to work or will work less—thus substituting other activities for work. The income effect arises because subsidies increase available resources—similar to giving people greater income—thereby allowing some people to maintain the same standard of living while working less..

    Obamacare cures 'job lock' -- On February 4, the Congressional Budget Office released new long-term economic projections. Over the next ten years, they envision millions of new jobs in a growing economy – but up to 2.5 millionf ewer full-time equivalent workers by 2024 compared with what would have been the case without the Affordable Care Act. This was decried by opponents of health reform as evidence that the law is a "job killer."Quite the opposite is true. Health reform is undoing what is known as "job lock" – a reluctance to change jobs for fear of losing employer-sponsored health insurance. About three out of fivefull-time American workers get health insurance through their employers. Millions have experienced what experts call job lock. In a 2004 survey by the Employee Benefit Research Institute, 27% of workers cited health insurance as the primary reason they would not change jobs or retire. Job lock is a problem not just for would-be entrepreneurs but also for employees who want to consider changing jobs, and for workers who want to reduce their hours, or take a break from the workforce to care for a family member or raise children. The CBO reportwas clear that the 2.5 million fewer full-time equivalent workers estimate is a result of choices made by workers because they won't be locked into jobs – some will choose to quit working altogether (perhaps choosing early retirement) and others will work fewer hours.

    Obamacare and the Reverse Notch - Paul Krugman - I’m behind on the big wonkverse thing of the day, the new CBO report that, among other things, increases the budget office estimates of labor supply effects; it now says that affordable care will reduce labor supply by the equivalent of 2 million jobs. That’s a valid point. And CBO, wich has been burned before on this sort of thing, really needs to be more careful in how it states things — a lot of the press ran with the headline “Obamacare costs 2 million jobs”, and it will become part of what everyone on the right “knows”, yet is totally untrue. First of all, we’re mainly talking about reduced hours rather than quitting the work force. Second, as Greg Sargent and Jonathan Cohn try to explain, we’re talking about a voluntary, supply-side response here — people choosing to work less — not about job destruction.  I’ll write this up at greater length later, but the basic point here is that we started with a system in which incentives were already strongly distorted by the deductibility of employer-paid health insurance premiums. This was a significant benefit, but one in general available only to full-time workers. The result was to create something like the infamous “notches” sometimes created by welfare state benefits — but in reverse. The traditional notch comes when, say, housing subsidies are available as long as you’re below 150 percent of the poverty line — which means that you have a strong disincentive to move your income from slightly below to slightly above that threshold. What we had here was, instead, a system in which subsidies were available only if you worked more than a certain amount, surely leading some people to work more than they would have wanted to otherwise. And that’s not a hypothetical — I know a fair number of people in just that situation. I also know some people in “job lock” — feeling trapped in their current job because they aren’t sure they could get implicitly subsidized health insurance if they moved.

    Labor Supply and the Meaning of Life - Krugman - So the CBO estimates that the incentive effects of the ACA will lead to a voluntary reduction in labor supply of around 1 1/2 percent, the equivalent of 2 million full-time jobs. Labor compensation would fall less, around 1 percent, because the reduction in hours would be skewed toward the less well paid. Although they don’t say this, we would expect potential GDP to fall by roughly the same amount (assuming wages more or less reflect marginal productivity); since compensation is about 55 percent of GDP, this would mean reducing potential GDP by a bit over 0.5 percent.That’s not a very big number — nothing like the claims you hear on the right that Obamacare is bringing economic doom. Even so, however, it’s a clear overstatement of the true economic costs of the program. Why? Because when workers voluntarily withdraw 1 percent of their hours, it’s very different from what happens when 1 percent of workers lose their jobs and become involuntarily unemployed. When workers lose their jobs, it’s almost always a terrible experience: not only does it cause financial hardship, it eats away at the soul.  When workers choose to work less, by contrast, they presumably do so because they gain something that is, to them, worth more than the foregone income: more time with their children, an earlier retirement, etc.. Now, in making these choices they won’t take into account the spillovers to the rest of society that come from their paying less in taxes or receiving more in benefits; so you probably don’t want to think of the reduction in labor supply as a net economic good. But it’s surely a smaller cost than the headline effect on GDP.

    'The Media's Disastrous Coverage of the CBO Report' - Paul Krugman on the Colbert Report

    A Report’s Real Message: It Wasn’t About Health Care -- Only in Washington could the following occur: the Congressional Budget Office releases a dense, technical report wherein it tweaks its estimates of how labor supply will be affected by the health care act over the next decade … and the whole town goes nuts.  Not only that, but in our mass nuttiness, we missed the actual message from that potboiling page-turner also known as the Budget and Economic Outlook, 2014-2024.  That message had almost nothing to do with the Affordable Care Act.  It was instead a stark warning about the damage to our fiscal outlook from diminished economic growth, jobs and incomes.  First, let us dispose of the Affordable Care Act silliness, at least among ourselves (as much as I’d like to, I can’t stop the warring parties down here from their predictable responses).  Those who want to bash the health care act argue that it’s a job killer, and thus they latched onto the budget office’s estimate that there will be “a decline in the number of full-time-equivalent workers of about … 2.5 million in 2024.   Sounds like a job killer, right?  Wrong.  There’s a difference between workers (labor supply) and jobs (labor demand).  The budget office bent over backward to make this distinction, claiming that employers’ demands for workers will not change much at all because of the health care law.  So what do you get when there’s less labor supply around stable labor demand?  A tighter job market. There is thus no support in the Congressional Budget Office report for the claim that the health care act kills jobs.  As the report put it, the estimated reduction in hours of work “stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in businesses’ demand for labor.”

    The ACA's known unknowns - QUESTION: what effect did the Congressional Budget Office conclude Obamacare would have on labour supply in America? Answer: it basically has no idea. That is exactly the approach that the CBO has taken in its estimate of the ACA's effects. "CBO’s estimate of the ACA’s impact on labor markets is subject to substantial uncertainty, which arises in part because many of the ACA’s provisions have never been implemented on such a broad scale and in part because available estimates of many key responses vary considerably. CBO seeks to provide estimates that lie in the middle of the distribution of potential outcomes, but the actual effects could differ notably from those estimates. For example, if fewer people obtain subsidized insurance coverage through exchanges than CBO expects, then the effects of the ACA on employment would be smaller than CBO estimates in this report. Alternatively, if more people obtain subsidized coverage through exchanges, then the impact on the labor market would be larger... The ACA also could alter labor productivity—the amount of output generated per hour of work—which in turn would influence employment (for example, by affecting workers’ health or firms’ investments in training of workers). The effects on productivity could be positive or negative, however, and their net impact is uncertain, so they are not reflected in CBO’s estimates of labor supply or demand. Because the ACA could affect labor markets through many channels, with substantial uncertainty surrounding the magnitude of the effects and their interactions, CBO has chosen not to report specific estimates for each of the channels encompassed by its analysis... Some recent analyses also have suggested that the ACA will lead to higher productivity in the health care sector— in particular, by avoiding costs for low-value health care services—and thus to slower growth in health care costs under employment-based health plans. Slower growth in those costs would effectively increase workers’ compensation, making work more attractive. Those effects could increase the supply of labor (and could increase the demand for labor in the near term, if some of the savings were not immediately passed on to workers)."

    The Buried Lede In The CBO Report: Obamacare Will Raise Wages -- Earlier today, the Congressional Budget Office released a report saying the Affordable Care Act will reduce employment by 2.5 million full time-equivalent workers as of 2024, almost entirely through effects on the labor supply side: That is, the law won't much change firms' interest in hiring, but it will make people want to work less.  Here's a key implication of that finding that most people are glossing over: Obamacare will drive wages up.  The price of labor, like any good or service, is determined by supply and demand. If producers of labor (workers) become less inclined to sell it, but consumers of labor (firms) are unchanged in their interest in buying, then the price of labor has to rise in order to bring the quantity supplied and the quantity demanded into line.  This helps explain why so many business owners have been apoplectic about the law.  The usual warning about Obamacare from the right has been that it will "kill jobs" by making firms less inclined to hire. While this warning tends to come from (or on behalf of) business owners, the phenomenon it describes would mostly have negative effects on workers, by increasing unemployment and reducing their ability to command wage increases.  If (as CBO predicts) the decline in work is driven almost entirely by a decline in labor supply, the upshot will be very different. Employers will be left holding the bag economically. Workers will choose to work fewer hours; since firms won't be any less interested in hiring, they'll have to pay more per hour to get those workers in the door.

    Weekly Initial Unemployment Claims decrease to 331,000 -- The DOL reports: In the week ending February 1, the advance figure for seasonally adjusted initial claims was 331,000, a decrease of 20,000 from the previous week's revised figure of 351,000. The 4-week moving average was 334,000, an increase of 250 from the previous week's revised average of 333,750.  The previous week was revised up from 348,000. The following graph shows the 4-week moving average of weekly claims since January 2000. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased slightly to 334,000. This was the lower than the consensus forecast of 337,000.

    New Jobless Claims at 331K, A Bit Better Than Expected - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 331,000 new claims number was a welcome 20,000 decline from the previous week's 351,000, an upward revision from 348,000. The less volatile and closely watched four-week moving average, which is usually a better indicator of the trend, rose by 250 to 334,000.Here is the opening of the official statement from the Department of Labor:In the week ending February 1, the advance figure for seasonally adjusted initial claims was 331,000, a decrease of 20,000 from the previous week's revised figure of 351,000. The 4-week moving average was 334,000, an increase of 250 from the previous week's revised average of 333,750. The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending January 25, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending January 25 was 2,964,000, an increase of 15,000 from the preceding week's revised level of 2,949,000. The 4-week moving average was 2,985,500, an increase of 25,750 from the preceding week's revised average of 2,959,750. Today's seasonally adjusted number came in 4K below the forecast of 335K. Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the volatility in recent months.

    Employers Added 175,000 Jobs Last Month, Survey Signals -- The first of two reports this week about how many jobs were added to U.S. payrolls in January indicates that growth was slow but solid. The ADP National Employment Report estimates that there were 175,000 more jobs in the private sector last month than in December. But whether ADP's figure will turn out to be in line with the week's other much-anticipated employment report — from the Bureau of Labor Statistics on Friday — is uncertain. The two reports, which are based on different surveys of employers, don't always reach the same conclusion. Four weeks ago, ADP estimated that 238,000 jobs were added to private payrolls in December. (It has now revised that figure to 227,000.) The ADP report was followed two days later, however, by word from the BLS that it believed only 87,000 jobs had been added to private payrolls in December. It's worth noting that when BLS issues its figures on Friday it could revise its December estimate to something more in line with ADP's data. And economists expect BLS will release a figure for January that's close to what ADP said today about that month: "Nonfarm payrolls are expected to have increased by 185,000 last month, according to Reuters' poll of economists."

    ADP: Private Employment increased 175,000 in January - From ADP: Private sector employment increased by 175,000 jobs from December to January according to the January ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis....Mark Zandi, chief economist of Moody’s Analytics, said, "Cold and stormy winter weather continued to weigh on the job numbers. Underlying job growth, abstracting from the weather, remains sturdy. Gains are broad based across industries and company sizes, the biggest exception being manufacturing, which shed jobs, but that is not expected to continue.” This was at the consensus forecast for 170,000 private sector jobs added in the ADP report.   Note: ADP hasn't been very useful in directly predicting the BLS report on a monthly basis, but it might provide a hint.

    Vital Signs: Services Take the Lead in January Hiring -- Economy-watchers breathed a sigh of relief on Wednesday after the Institute for Supply Management reported a pickup in January activity among non-manufacturers. Of particular interest, two days ahead of Friday’s payrolls report, was news that employment among non-manufacturers — mainly service companies — increased last month. The employment index rose to 56.4, the highest reading since November 2010. The upbeat hiring in the service sector contrasts with the employment slowdown in the ISM manufacturing report, released Monday. The split was also evident in a private-sector jobs survey released Wednesday by Automatic Data Processing. The ADP report showed service jobs increased 160,000 while factory payrolls fell by 12,000. Although economists wonder whether weather might skew the January payrolls number tallied by the Labor Department, Wednesday’s news supports expectations that employment increased at a solid pace last month. Economists surveyed by the Wall Street Journal think payrolls increased by 189,000. “The broad-based strengthening of the ISM non-manufacturing index in January remains consistent with further improvement in labor market activity during the month,”

    Private construction payrolls continue to show resilience -- There wasn't anything particularly special about today's ADP private payrolls number. The company estimates that about 175,000 private sector jobs were added in January. The slowdown in manufacturing (see post) resulted in some job losses in that sector. The one area that continues to show resilience however is construction. Over the past 5 months the proportion of new jobs from construction has remained unusually stable - from 10 to 15% of total monthly private payrolls.As discussed earlier, construction spending is at such low historical levels relative to the overall economy, it would take only a small increase to create a significant jump in new construction payrolls. The chart below shows the number of US construction jobs (in thousands) per one billion of GDP (in 2009 dollars). Clearly nobody expects this to get to pre-recession levels any time soon, but there is still a great deal of room for growth. And unlike many new service jobs that suppress wage growth in the US (see post), construction employment could actually improve the situation..

    ADP Plunges In January To 175K; Biggest Miss Since August; December Revised Lower: "Cold, Storms" Blamed - Earlier today, we predicted with absolute accuracy what today's joke of an ADP print would be.  And sure enough, the January ADP print missed as we expected, printing at 175K vs the expected 185K, while the December 238K was revised lower to 227K, confirming that ADP is nothing but an NDP trend follower and an absolutely worthless and meaningless data point that does nothing to add relevant data to the economic picture. For those who care, this was the biggest miss since August and the largest monthly drop since August 2012, and the weakest print since August as well.

    The Impact Of Heavy Snowfall On Jobs: What The Facts Really Say - If you repeat a lie often enough, and if you only speak with confidence and in a calm, cool collected voice, the people will believed you - propaganda 101. Also, if you repeat enough times that the US economy - that $17 trillion juggernaut 0 which as recently as December was fabled to have entered the escape velocity phase and thus was safe from the adverse side effects of the Fed's taper, has hit a brick wall because of snow in the winter, then maybe the people will believe that too. Of course, there are the facts, and as always happens, the facts are diametrically opposed to the propaganda.  Presenting Exhibit A: a scatterplot chart showing the December-February nonfarm payroll growth vs the snow extent anomaly over the same period collated from the Rutgers Global Snow Lab. The correlation between the two data sets... drumroll: -10%. In fact, over the entire historical record, there are two instances when heavy snow resulted in substantial job losses. In other words, there is virtually no correlation between the amount of heavy snowfall and concurrent jobs gains, and in reality, there is a modest inverse correlation.

    January 2014 Jobs Report: Another disappointing jobs report - The economy added 113,000 jobs in January while the unemployment rate dropped slightly to 6.6 percent, the Labor Department reported Friday. The number of jobs added fell short of expectations — analysts had projected job growth of around 181,000, according to a Bloomberg survey. The report also updated the number of jobs created in December from 74,000 to 75,000 — a disappointing result as many analysts had anticipated a more significant upward revision. “The White House is going to be disappointed on the payroll numbers,” Austan Goolsbee, a former top economic aide to President Barack Obama, said on CNBC. Economists had cautioned prior to Friday that several wild cards – such as the weather and the expiration of unemployment benefits at the end of December – could complicate the jobs data for the first month of 2014. Many economists treated the surprisingly weak payroll employment figures from December as an anomaly, created in part by disruptive weather which can hurt hiring in sectors like construction.

    January Employment Report: 113,000 Jobs, 6.6% Unemployment Rate - From the BLSTotal nonfarm payroll employment rose by 113,000 in January, and the unemployment rate was little changed at 6.6 percent, the U.S. Bureau of Labor Statistics reported today. ... After accounting for the annual adjustment to the population controls, the civilian labor force rose by 499,000 in January, and the labor force participation rate edged up to 63.0 percent. Total employment, as measured by the household survey, increased by 616,000 over the month, and the employment-population ratio increased by 0.2 percentage point to 58.8 percent....The change in total nonfarm payroll employment for November was revised from +241,000 to +274,000, and the change for December was revised from +74,000 to +75,000. With these revisions, employment gains in November and December were 34,000 higher than previously reported. [Benchmark revision] The total nonfarm employment level for March 2013 was revised upward by 369,000 (+347,000 on a not seasonally adjusted basis, or 0.3 percent). ... This revision incorporates the reclassification of jobs in the QCEW. Private household employment is out of scope for the establishment survey. The QCEW reclassified some private household employment into an industry that is in scope for the establishment survey--services for the elderly and persons with disabilities. This reclassification accounted for an increase of 466,000 jobs in the establishment survey. This increase of 466,000 associated with reclassification was offset by survey error of -119,000 for a total net benchmark revision of +347,000 on a not seasonally adjusted basis. Historical time series have been reconstructed to incorporate these revisions. The headline number was well below expectations of 181,000 payroll jobs added. The first graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring. This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis. Employment is 0.6% below the pre-recession peak (866 thousand fewer total jobs). The third graph shows the unemployment rate. (more)

    January Payolls Big Miss Again At 113K Below 180K Expected, December Unrevised - So much for the hope of either a surge in January jobs, or a massive upward revision in the December print. Moments ago the January jobs number came out and at 113K, it was a huge miss to the expected 180K, but more importantly, the December number which was expected to be revised much higher was virtually unchanged at 75K, compared to 74K originally. The unemployment rate, which has become largely irrelevant, dipped to 6.6% from 6.7%, just so Obama can get the brownie points for fixing the economy. However, judging by the market reaction this is hardly what the traders think. From the report:Both the number of unemployed persons, at 10.2 million, and the unemployment rate, at 6.6 percent, changed little in January. Since October, the jobless rate has decreased by 0.6 percentage point. (See table A-1.)  (See the note and tables B and C for information about the effect of annual population adjustments to the household survey estimates.)  The number of long-term unemployed (those jobless for 27 weeks or more), at 3.6 million, declined by 232,000 in January. These individuals accounted for 35.8 percent of the unemployed. The number of long-term unemployed has declined by 1.1 million over the year. (See table A-12.) After accounting for the annual adjustment to the population controls, the civilian labor force rose by 499,000 in January, and the labor force participation rate edged up to 63.0 percent. Total employment, as measured by the household survey, increased by 616,000 over the month, and the employment-population ratio increased by 0.2 percentage point to 58.8 percent. (See table A-1. For additional information about the effects of the population adjustments, see table C.)

    Another Disappointing Jobs Report: Only 113K New Jobs, But the Unemployment Rate Slips to 6.6% - Here is the lead paragraph from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:Total nonfarm payroll employment rose by 113,000 in January, and the unemployment rate was little changed at 6.6 percent, the U.S. Bureau of Labor Statistics reported today. Employment grew in construction, manufacturing, wholesale trade, and mining....  In 2013, total nonfarm payroll temployment growth averaged 194,000 per month. Today's report of 113K new nonfarm jobs was well below the forecast, which was for 185K. And the unemployment rate of 6.6% came in below the expectation of no change at 6.7%. The popular financial press, rarely at a loss for an explanation, blames bad weather in January for today's weak new jobs number (e.g., CNBC and Reuters), even though weather during the survey week was seasonally normal. The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948.  The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. The latest number is 2.3%, for the second month below the previous peak in 1983. This measure gives an alternative perspective on the relative severity of economic conditions.The next chart is an overlay of the unemployment rate and the employment-population ratio. This is the ratio of the number of employed people to the total civilian population age 16 and over.

    BLS Revises Historical Job Numbers Higher By Half A Million: A Look At The "Before" And "After" -- With the HFT brigade selling then buying, and trying to goalseek an explanation of why this happened after the fact, one key aspect of today's release that was ignored is that the BLS just revised its Establishment Survey data, in the process changing all historical job numbers. To wit: "Establishment survey data have been revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors. Also, household survey data for January 2014 reflect updated population estimates." As a result of this revision, while the monthly changes were not that dramatic, what happened is that the "stock" level of jobs as reflected in the Establishment Survey rose by half a million as of December 31, from 136,877 to 137,386. And so all key historic data - from GDP in early 2013 to jobs - has now been revised to reflect a more rosy economy, and instill consumers with even more confidence in hopes they will spend, spend, spend. A table summary of the change: before and after.

    Jobs: First Impressions - The nation’s payrolls grew by 113,000 last month, once again dashing analysts’ expectations for a stronger month of job growth and reinforcing the possibility of yet another slowdown in job creation. A closely watched piece of this puzzle was the revision to December’s surprisingly low payroll number—originally 74,000.  But today’s revision left that paltry number essentially unchanged, at 75,000.  November’s payroll gain, on the other hand, was raised by 33,000 to 274,000, bringing the average gain over the past three months to about 150,000 compared to about 200,000 per month over the prior three months. Last month, I stressed that one month does not a trend make.  Today, I’ll stress that two months does not quite a trend make either, but the possibility that the US job creation engine has once again downshifted cannot be rejected out of hand. However, a significant factor in the deceleration of job growth is the government sector, which lost a large 29,000 last month and 14,000 the month before, driven by losses at all levels: federal, state, and local (see figure below).  Private sector payrolls, leaving out government jobs, added 142,000 in January and have averaged about 170,000 over the past three months compared to about 190,000 in the prior three months—still a deceleration, but a slight one compared to the total. Unlike last month’s report, today’s version from the survey of households shows better results.  Unemployment fell slightly from 6.7% to 6.6%, and not because people left the labor force.  In fact, the labor force rate ticked up slightly to 63%, still low—and down six-tenths from a year ago—but at least a move in the right direction.  The number of involuntary part-timers also fell last month by about 500,000.  However, given the much larger size of the payroll survey and thus the relatively lower signal-to-noise ratio of the household survey, I’d say the weak payroll number is imparting more information than the slight decline in the jobless rate and growth of the labor force.

    Nonfarm Payrolls +113,000, Median Bloomberg Estimate 180,000; Huge March 2013 Employment Revision --  Nonfarm Payrolls rose by 113,000. The Median Bloomberg estimate was +180,000. December was revised up a tiny bit from 74,000 to 75,000. Beneath the surface, things actually look better for a change. The household survey shows a gain of employment of 638,000. That said, revisions were in play.  Nonfarm employment for March 2013 was revised up by 369,000 (347,000 on a not seasonally adjusted basis). The benchmark revision incorporates a large non-economic change that resulted from a reclassification of 466,000 jobs from private households (out of scope by CES definition) to services for the elderly and disabled (in scope for CES). Once again economists were caught totally unaware by bad weather.MarketWatch reports "The latest report may have been influenced by other unusual factors that render it less reliable as a bellwether of labor-market trends: extremely cold and snowy weather and the government’s annual “benchmark” update on how many jobs were created in the past year. Economists polled by MarketWatch had forecast a gain of 190,000 jobs."  Apparently economists did not realize it has been cold and snowy. Alternatively, they predicted 180,000 to 190,000 jobs even though they knew it was cold and snowy. Which is it? December BLS Jobs Statistics at a Glance:

    • Nonfarm Payroll: +113,000 - Establishment Survey
    • Employment: +638,000 - Household Survey
    • Unemployment: -115,000 - Household Survey
    • Involuntary Part-Time Work: -514,000 - Household Survey
    • Voluntary Part-Time Work: +434,000 - Household Survey
    • Baseline Unemployment Rate: -0.1 to 6.6% - Household Survey
    • U-6 unemployment: -0.4 to 12.7% - Household Survey
    • Civilian Non-institutional Population: +170,000
    • Civilian Labor Force: +523,000 - Household Survey
    • Not in Labor Force: -355,000 - Household Survey
    • Participation Rate: -0.2 at 62.8 - Household Survey
    • The unemployment rate varies in accordance with the Household Survey, not the reported headline jobs number, and not in accordance with the weekly claims data.
    • In the past year the population rose by 2,252,000.
    • In the last year the labor force fell by 239,000.
    • In the last year, those "not" in the labor force rose by 2,2533,000
    • Over the course of the last year, the number of people employed rose by 1,840,000 (an average of 153,33 a month)

    Another Mediocre Jobs Report - Going into today’s release of the  January Jobs Report, consensus estimates from economists and market analysts tended to agree that we’d see job growth in the neighborhood of roughly 180,000 net new jobs added in the first month of the new year. There was some concern that the weather last month, which included snowstorms and frigid temperatures that descended as far south as the Deep South for a time, would have an impact on hiring and job-seeking, but most observers seemed to agree that the economy would bounce back from the incredibly disappointing numbers that we saw for December. In that report, we were hit with a one-two punch of bad news as jobs growth slowed to a pathetic 74,000 net new jobs and labor force participation dropped by a jaw-dropping 300,000 people. If there’s any good news coming out of January, it’s the fact that we were only hit with one punch this time around. Job growth increased to 113,000 net new jobs, but the seemingly “good news” is that the top-line Unemployment Rate dropped down to 6.6% while labor force participation actually ticked up just a little bit. Here are the details from the BLS Report: Total nonfarm payroll employment increased by 113,000 in January. In 2013, employment growth averaged 194,000 per month. In January, job gains occurred in construction, manufacturing, wholesale trade, and mining. (See table B-1.) Construction added 48,000 jobs over the month, more than offsetting a decline of 22,000 in December. In January, job gains occurred in both residential and nonresidential building (+13,000 and +8,000, respectively) and in nonresidential specialty trade contractors (+13,000). Heavy and civil engineering construction also added 10,000 jobs.

    Unemployment Drops, for Good Reasons for Once -The employment report released this morning by the Bureau of Labor Statistics shows that we added 113,000 jobs in January. That brings the average growth rate of the last three months to just 154,000. At this pace, it will take more than six years to get back to pre-recession labor market conditions. The unemployment rate declined by one-tenth of a percentage point to 6.6 percent, and in an unusual turn in recent months, the decline was for good reasons—a higher share of the potential workforce found work, with the share of the workforce with a job rising by two-tenths of a percentage point. The labor force participation also rose by two-tenths of a percentage point. Labor force participation is still very depressed; there are still 5.7 million missing workers (workers who have given up looking for work, or never started, because job openings are so weak) but this is a step in the right direction. However, when the two surveys tell different stories as they do today (weak employment growth in the establishment survey but strong employment growth in the household survey), the rule of thumb is to place much more weight on what the establishment survey says, because it has a much larger sample size. In other words, altogether, today’s data show that 2014 did not get off to a strong start.

    Highlights From the January Jobs Report - Here are highlights from the January employment report, which showed weak gains for the second straight month with an increase of 113,000 jobs.

    • December weakness reaffirmed: December job growth was revised up only slightly, to 75,000 from an initially reported 74,000. That marked the weakest month of job creation in 2013.
    • Jobless rate drops again: The unemployment rate ticked down a tenth of a percentage point to 6.6%. Other signs pointed to some progress. The number of Americans employed rose a bit, while the ranks of the unemployed fell. The labor-force participation rate clicked up 0.2 percentage point to 63.0%. That’s still historically weak–0.6 point below the level a year ago and hovering near 35-year lows.
    • Fed threshold approaches: The jobless rate moved even closer to the 6.5% threshold Federal Reserve policy makers have discussed as an indicator for when it will begin considering raising interest rates. That’s happened quicker than Fed officials had predicted. However, the broad picture suggests the labor market has weakened in recent months rather than strengthened.
    • Government cuts continue: January would have looked a bit better without cuts in the public sector. Government employment fell by 29,000. The federal government cut 12,000 jobs, three-quarters of them due to cuts at the U.S. Postal Service. Over the past year, federal government employment has fallen by 85,000, or 3%, the Labor Department said.
    • Manufacturing: Employment in the factory sector climbed by 21,000, an unspectacular figure that nonetheless could ease fears of a major manufacturing slowdown in the world’s biggest economy. A report earlier this week showed a key purchasing manager’s index unexpectedly fell sharply in January. Turmoil in markets overseas over new concerns about emerging economies is stoking worries that U. S. factories could be hit, dinging the U.S. recovery. An earlier report this week showed exports weakened in December. But so far the sector remains in growth mode.

    The BLS Jobs Report Covering January 2014: Revisions and Seasonal Lows - Because of yearly revisions, direct December-January comparisons are dicey. I will just note that, in the business survey, seasonally adjusted 197,000 jobs were added December 2012-January 2013 as compared with 113,000 this month, December 2013-January 2014. Keep in mind that anything below 200,000 is weak, and anything below 150,000 is bad. Keep in mind too that seasonally adjusted numbers project trends and smooth out hills and valleys in the data. One of the largest of the valleys occurs December to January with the loss of jobs related to the holiday shopping season. So in fact, no jobs were created December-January. Rather 2.870 million were lost.  In the Household data, the official unemployment rate declined another tenth of a percent to 6.6%, highlighting once again the increasingly irrelevance of this measure to pretty much anything other than the desire of our elites to define out of existence an ongoing crisis they have no interest in dealing with.  The difference between the real and the trend is especially noticeable this month in the labor force numbers. Seasonally adjusted the labor force increased 523,000, that is 499,000 plus a Census adjustment of 24,000 to 155.460 million. That is 1.079 million more than the unadjusted number of 154.381 million. It will likely be May, four months from now, before the real (unadjusted) economy catches up to the seasonally adjusted levels.  The January report contains significant revisions to both the business and household surveys. In the business survey, revisions are made using March 2013 payroll data from the unemployment insurance system as a benchmark. This increased the March 2013 jobs number 369,000 seasonally adjusted and 347,000 unadjusted. However, this 347,000 increase is the result of the creation of a new category of employment in the business survey: private household employment involving services for the elderly and persons with disabilities. 466,000 such jobs minus a 119,000 sampling error yields the 347,000. If this category had not been included, then the unadjusted March benchmark revisions would have been negative 119,000, the sampling error. This would, of course, also affect the seasonally adjusted numbers as well.

    Nonfarm Payrolls Headline Number Misleads Again - The nonfarm payrolls headline number for January was hogwash, thanks to a defective seasonal adjustment (SA) factor. Here’s how the Wall Street Journal treated the news. The WSJ pointed out that “Economists had expected a gain of 189,000 jobs…” so this was a huge miss. The Journal’s reporter added that, “December and January marked the weakest two-month stretch of job growth in three years.” That was not true. December- January 2011 saw payrolls shrink by 3,17 million. Payrolls shrank by 3.14 million in the most recent 2 month stretch. And January was not to blame for that. December was a worse than average month. January bounced back. Nowhere did the WSJ bother to report the facts. Nowhere did they report that the seasonal adjustment factor resulted in a false impression, that the January change in nonfarm payrolls was actually well within the parameters of normal trend growth for the past 10 years. The Journal blew it. Their competitors at Bloomberg were no better. Bloomberg also stressed the “miss” and did not bother to analyze or even report the actual, not seasonally manipulated numbers. I’ve long complained about the media’s exclusive use of seasonally adjusted abstract impressionism. The government does report the actual, not seasonally adjusted data in addition to the seasonally finagled numbers that everyone runs with. Deriving meaningful comparisons from actual data is a lot easier than from seasonally adjusted abstractions. Here is the actual nonfarm payrolls data from the BLS employer survey.

    The Biggest Job Winners (Construction) And Losers (Government) In January - When you have one after another "polar vortex" out there, and feet of snow covering the country and supposedly crushing economic activity, what do you do? Why you hire construction workers of course. As the following breakdown of the best and worst jobs of December shows, the one job category to benefit the most from January's horrifying weather which was the reason for all those weak January numbers (if one listens to the propaganda pundits and other TV anchors) was construction workers, which saw 48K jobs created. Which in some parallel universe surely makes sense. Just not this one. The only good if just as non-credible news in this jobs report: fewer government workers. The full breakdown of biggest job winners and losers: Oh, and naturally the surge in construction jobs "explains" perfectly why New Home Sales in January plunged by the most since July - must have been all those new workers put to work... doing nothing.

    Don’t Blame the Weather for Weak Jobs Report -- Snowstorms and severe cold in January didn’t chill the latest employment report. The gain of 113,000 jobs last month followed an even worse December report, which economists widely blamed on unusually cold weather. While winter squalls this time frustrated many workers, it didn’t have an outsize impact on the report. About 262,000 people couldn’t get to their jobs because of bad weather last month, according to Labor Department data. That’s less than the 330,000 average over the past 10 Januarys and down from 273,000 in December. That number is from a separate survey than the one the change in the number of jobs comes from, but it acts as a proxy for how big a deal weather was in any given month. And a closer look at where the economy added jobs and the way the Labor Department makes its calculations indicate only muted effects from January storms. The construction industry, which does much of its work outdoors, added 48,000 jobs over the month. That more than reversed a decline of 22,000 in December. Manufacturing, which can suffer when supply chains get snarled, added 21,000 jobs in January after expanding by only 8,000 in December. Transportation payrolls also rose, led by couriers and messengers, support activities and trucking. “Weather was a clear drag on December, but this actually reversed in January,”

    Those noisy payrolls figures -- The chart of the day comes from Betsey Stevenson, and helps to show just how noisy the payrolls data really are. The big headline figures of the day, 113,000 is ostensibly the increase that we saw, in January, in the number of people on American payrolls. It’s a disappointing number, while a print of say 200,000 would have been decidedly encouraging. But just look at how we got to that 113,000 figure. We took January’s workforce, of 135,396,000 people, and then subtracted December’s workforce, of 138,266,000 people — for a total decrease of 2,870,000 jobs. But we know that the number of jobs in America always decreases in January — even when the economy is surging. It’s cold out, making outdoor jobs very difficult to do, and the Christmas seasonal jobs are all in the past. So the BLS institutes some seasonal adjustments. In this case, it subtracted 880,000 jobs from the December number, and it added 2,103,000 jobs to the January figure. All of which means that the 113,000 headline figure is, in fact, 135,396,000 + 2,103,000 – 138,266,000 – 880,000. You want to trade on that being 70,000 jobs lower than you thought it would be? But wait: we’re not even close to being done. This month’s payrolls release is much longer than normal — 2,465 words — because it has to explain a lot of changes. As it says in a big box at the very top of the page: Establishment survey data have been revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors. Also, household survey data for January 2014 reflect updated population estimates. These changes are not small: last month’s preliminary number, for instance, was revised up — on a seasonally adjusted basis — to 137,386,000 workers from 136,877,000. That’s a difference of more than half a million people.

    Job Growth Was Stronger Last Year After Revisions - Job growth was slightly stronger last year than previously thought, according to annual government revisions, but the overall picture remains one of a lackluster recovery. Thanks to new data, it now appears there were roughly 369,000 more jobs in the economy in March 2013 than previously estimated, the Labor Department said in a revisions report released Friday. That brought the estimate of total U.S. employment that month to 135.7 million jobs. The new data suggest the economy added 194,000 jobs a month in 2013 — or roughly 11,300 more than the agency’s previous estimates. The new figure results from the agency’s annual “benchmark revision” of nonfarm employment, which is based on a thorough review of employer tax records and is a cumulative figure applied to March each calendar year. The revisions largely reflect the incorporation of service workers employed by individual households – such as home health care workers – that previously weren’t included in survey data. The revisions are hardly cause for celebration. The Labor Department said the effect on the underlying trend in employment was “minor.” The adjustment in overall employment was only 0.3%–in line with the average benchmark revision of the past decade. The underlying trend remains a jobs market growing sluggishly and haltingly since the U.S. emerged from recession in mid- 2009.

    Unemployment Rate Telling a Much More Hopeful Story --The U.S. added a meager 113,000 jobs last month, raising concerns about the durability of the economy, but the unemployment rate dropped to 6.6% and a broader measure of unemployment dropped even further to 12.7% and it appeared to be for encouraging reasons. The main reason for the disparity is that the two figures are derived from different surveys. The number of jobs added comes from businesses in what is known as the establishment survey, while the unemployment rate is taken by a poll of households. The two data sets generally move in the same direction but can vary widely from month to month. January was one of those months.  The number of people who said that they had a job last month soared in January. The Labor Department made its annual change in the numbers it uses for the overall population this month. That makes January-to-December comparisons difficult, but those adjustments were pretty small overall this year. But even taking the adjustment into account, there were more than 600,000 more people this month counted as employed than last month.At the same time the number of people in the overall labor force surged by nearly 500,000. That brought the share of the population working or looking for work — called labor force participation rate — up to 63%, still a low rate historically but moving in the right direction.That is especially surprising given the expiration in extended unemployment benefits that hit at the beginning of this year. Some 1.3 million workers lost those benefits when the program expired, and it was expected that many of them would become discouraged and drop out of the labor force altogether. And that may have happened. The number of people unemployed for more than six months declined by 232,000 in January. It’s many of those people got new jobs and how many left the labor force. Month-to-month comparisons are difficult because of the population adjustment, but there was a drop in the broader rate that measures workers on the margins.

    Forget the Unemployment Rate, Let’s Talk About the Employment Rate - The unemployment rate gets all the press, but the employment rate has been improving lately too. The number of Americans working as a proportion of the overall populace — called the employment-population ratio — rose to 58.8% in January. That level was last consistently seen in 2009. Still, the measure remains well below its prerecession levels in the 60s. It bottomed out at 58.2% in late 2010, a fact many economists highlight as evidence of a lack of progress in the jobs recovery despite a falling unemployment rate. The nation’s unemployment rate fell to 6.6% in January, a much more sizable improvement from its 10% peak in late 2009. But some of the same factors that many economists believe are overstating the improvement of the unemployment rate are also understating the improvement in the employment-population ratio. The unemployment rate is falling so quickly in part because of many people dropping out of the labor force. The portion of Americans who are working or looking for work has been on a downward trajectory for many years, a process that gained momentum during the recession and which puts downward pressure on ratios of both employment and unemployment.

    Comments on Employment Report: Disappointing Payroll Number -- This was another disappointing employment report, but there were several positive - as an example there were upward revisions to prior months, the unemployment rate declined while the participation rate increased (a good sign),  the number of long term unemployed declined, and the number of people working part time for economic reasons declined sharply.   Private payroll employment increased 142 thousand and is now 291 thousand below the previous peak  (total employment is still 866 thousand below the peak in January 2008).  It is likely that private employment will be at a new high in March. Of course government employment was down again, and even state and local employment is barely above the post-recession minimum (last graph). This is the second consecutive month with a disappointing headline payroll number, but my outlook hasn't changed (I still expect payroll employment to pickup this year).  Of course if the employment data continues at this level, I'll change my mind. Since the participation rate declined recently due to cyclical (recession) and demographic (aging population) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old. In the earlier period the employment-population ratio for this group was trending up as women joined the labor force. The ratio has been mostly moving sideways since the early '90s, with ups and downs related to the business cycle. The 25 to 54 participation rate increased in January to 81.1% from 80.7%, and the 25 to 54 employment population ratio increased to 76.5% from 76.1%. This was a large increase in participation, and as the recovery continues, I expect the participation rate for this group to increase. This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at maximum job losses. At the recent pace of improvement, it appears employment will be back to pre-recession levels next year (Of course this doesn't include population growth). In the earlier post, the graph showed the job losses aligned at the start of the employment recession. Part Time for Economic Reasons From the BLS report: The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) fell by 514,000 to 7.3 million in January. These individuals were working part time because their hours had been cut back or because they were unable to find full-time work. These workers are included in the alternate measure of labor underutilization (U-6) that declined to 12.7% in January. This is the lowest level since November 2008.

    Payroll Data Shows a Lag in Wages, Not Just Hiring - For the more than 10 million Americans who are out of work, finding a job is hard. For the 145 million or so who are employed, getting a raise is even harder.The government said on Friday that employers added 113,000 jobs in January, the second straight month of anemic growth, despite some signs of strength in the broader economy. The unemployment rate inched down in January to 6.6 percent, the lowest level since October 2008, from 6.7 percent in December. But the report also made plain what many Americans feel in their bones: Wages are stuck, and barely rose at all in 2013. They were up 1.9 percent last year, or a mere 0.4 percent after accounting for inflation. Not only was that increase even smaller than the one recorded in 2012, it was half the normal rate of wage gains in the two decades before the last recession. Related The stagnation helps explain why many people feel apprehensive even though the economy grew at a robust pace in the second half of 2013, corporate profits rose, the stock market boomed and the housing market continued to gain ground. The issue cuts across the American work force. In fact, white-collar workers did a bit worse than blue-collar workers last year in terms of wage growth.

    Let Them Eat Symbols: Obama’s Plan for the Long-Term Unemployed - Black Agenda Report - On the Friday after Obama’s tepid State of the Union Speech – a speech in which he pledged his concern for the long-term unemployed and low-wage workers – the Administration brought members of the corporate and financial elite to the White House to discuss strategies for addressing the plight of the long-term unemployed. Not surprisingly, since this meeting was nothing more than one of many events planned as part of the Democrats’ media strategy to better position the party for the mid-term elections, the only thing that emerged from this gathering was photo ops and diversionary rhetoric. Notwithstanding the predictable outcome of this meeting, it did graphically demonstrate once again the incredible cynicism of the Obama administration. A deep social crisis is upon us, and the rulers know it – their system created it. “Obama’s feel good rhetoric and his Administration’s minimalist program of 'promise zones,' corporate funded jobs programs that don’t actually employ anyone and rhetorical concern for income inequality, are preemptive moves geared to mitigate any demands that might emerge for fundamental reforms or radical change.”

    Comparing U.S. and Euro Area Unemployment Rates -- Euro area growth has been stalled since 2010, mired in the sovereign debt crisis, while the United States has managed a slow but steady recovery following the Great Recession. Euro area and U.S. labor markets reflect these differing growth paths. While unemployment rates in the euro area and the United States were both around 10 percent in 2010, the unemployment rate in the euro area has since increased to 12.0 percent, and the U.S. rate has fallen to 6.7 percent. However, the outperformance of the U.S. labor market as measured by unemployment rates is overstated. Employment relative to the population has declined in the euro area, but the divergence of this measure from that of the United States is more modest than suggested by unemployment rates. The difference is that, unlike in the United States, the share of women in the euro area labor force is increasing, and that development accounts for roughly half of the current gap between unemployment rates in the two economies.  The unemployment rate is the number of people unemployed divided by the labor force, which is the number of people either employed or unemployed and searching for work. The chart below shows that U.S. unemployment rate rose more sharply than in the euro area after 2007 and that the rates had converged by 2010. Since then, the euro area unemployment rate has pushed higher while the U.S. rate has fallen considerably, widening the gap to over 5 percentage points.

    Older Job Seekers Quick to Give Up Regardless of Labor Market Conditions -- Age doesn’t bring persistence when it comes to the hunt for work, according to new research. Older job seekers are actually quick to give up, with a vast majority either finding a job or quitting the search in a year or less, regardless of local labor-market conditions, according to a study from the Center for Retirement Research at Boston College.  “The study suggests that older workers have little tolerance for the stressful task of looking for work,” He looked at more than a decade of Census data for workers between 55 and 70 years old. In a four month period on average, 19% of the seekers ended their search, while 61% continued. Twenty percent found work. The decision to keep looking for a job changed little with local labor-market conditions. When unemployment was higher, workers were somewhat less likely to stop looking in the early months of their search and somewhat more likely to give up their search after a year. Still, Mr. Rutledge writes the differences aren’t substantial, suggesting the impatience of older workers has little to do with the difficulty of finding work.Instead, factors such as work limitations because of health or being eligible for Social Security played a considerably larger role in the decision of older job seekers.

    Where Are All the Self-Employed Workers? - Along with a bunch of other, more headline-grabbing numbers, the Bureau of Labor Statistics reported this morning that 14.4 million Americans were self-employed in January. Of those, 9.2 million were unincorporated self-employed workers and another 5.2 million were incorporated. That’s interesting, given that back in January 2000 (which is as far as the BLS tally of the incorporated self-employed goes), the number of self-employed was  … 14.4 million. Since then there have been some modest ups and downs, but overall no change. And as you can see in the chart below, the long-term trend in the percentage of workers who are self-employed actually appears to be downward: But isn’t this the age of Free Agent Nation, as Dan Pink declared back in 1997? What about “The Rise of the Supertemp” that Jody Greenstone Miller and Matt Miller reported in HBR in 2012? Or “The Third Wave of Virtual Work” described by Tammy Johns and Linda Gratton last year in HBR, which has untethered knowledge workers from offices and made independent work more practical? It is as if, to paraphrase economist Robert Solow, you can see the age of self-employment everywhere except in the self-employment statistics. Why is this? Two reasons, mainly. One has to do with definitions — the BLS standard for self-employment isn’t the only valid one. The second is really about history. We may well be witnessing the rise of a new kind of independent worker, but there have been different kinds of independent workers in the past. Far more of them as a percentage of the workforce, in fact, than we see today or are likely to see anytime soon.

    New research reveals that unemployment is especially hellish in the U.S. — because unemployed Americans blame themselves for their plight - I stumbled across this fascinating article about a new book that examines how Americans experience unemployment. Ofer Sharone, a sociologist at MIT, compared unemployment in white collar labor markets in America and Israel.  What he found is that unemployed workers in the U.S. often experience much more personal distress over their joblessness, because they tend to blame themselves, and not the system, for their plight. From the article: In the U.S., Sharone says, job hunts emphasize the presentation of personal characteristics; job seekers play, in his terms, a “chemistry game” with prospective employers. In Israel, by contrast, the job-placement process is more formally structured and places greater emphasis on objective skills. Obviously, it is bruising for job seekers to keep getting rejected. But according to Sharone, the American self-help industry, with its emphasis on individualism and pulling yourself up by your own bootstraps, tends to make things even worse “by encouraging unemployed workers to believe they entirely control their job-search outcomes”:  Often, job-hunting Americans soon find fault with their own personalities, networking skills, or lack of career direction, and become distressed by the “emotional labor” of looking for work. The cycle of self-blame that results can destroy the job-seekers’ confidence and wreak havoc with their personal lives. Sharone talked to people who said their self-esteem was destroyed, who came to believe there was “something wrong” with them, and who lost their marriages. At least one of them even attempted suicide.

    Workers Who Have Been Unemployed Earn Less for Years -- The hangover from a period of unemployment can last long after the first day at a new job. “Workers that experience a job displacement of any length have substantially lower wages than nondisplaced workers — an effect that persists for nearly 20 years after the unemployment episode,” wrote Daniel Cooper in a recent working paper from the Federal Reserve Bank of Boston, “The Effect of Unemployment Duration on Future Earnings and Other Outcomes.”  Mr. Cooper, a senior economist at the Boston Fed, analyzed data from the University of Michigan’s Panel Study of Income Dynamics. He found people who have been unemployed earn less than other workers, with the gap narrowing over time and disappearing only after about 19 years. The pain is magnified for the long-term unemployed. After 10 years, people who were out of work less than six months made 9% less than continuously employed workers. People out of work for more than six months earned 32% less. “This finding is inconsistent with the idea that a longer job search leads to better employment matches, and is more consistent with unemployment resulting in human capital [skill] loss or so-called scarring effects,” Mr. Cooper concluded.

    Over 1 in 6 Men in Prime Working Years Don’t Have a Job -- Yves Smith  - A new Wall Street Journal story on how many men aged 25 to 54 can’t find work, fails to mention but nevertheless shellacks an embarrassing New York Fed paper released earlier this week. The Fed’s propagandists tried to argue that labor markets are tighter than is widely believed. The basis for the authors’ sunny view? Changing demographics. Their proof? An absurd “normalized, demographically adjusted,” seasonally adjusted, business-cycle free employment to population ratio, to wit: For each of the 10.2 million individuals in our sample, based on their decade of birth, sex, race/ethnicity, and education, we select one of our 280 estimated career employment rate profiles. Using the worker’s age, we calculate the predicted employment rate for that individual based on their selected employment rate profile. We then calculate the weighted average of these predicted employment rates across all individuals in a given time period to generate an estimated E/P ratio for that time period. We repeat this exercise for each time period covered by our data.Oh, and after that they seasonally adjusted and then “normalized” the data. They might instead have looked out the window, say at the long lines any time a big employer opens a new facility, or readily-available information like this:  Now if you had managed to take the New York Fed’s porcine maquillage seriously, you’d also have to believe that employment conditions hadn’t deteriorated within particular demographic groups. The Wall Street Journal shows how the very backbone of the labor market, men in their prime (for measurement purposes, 25 to 54), are out of work to an unprecedented degree. The story is worth reading in full; it has a larger-than usual number of anecdotes, including a 53 year old community college grant writer who was fired as a result of budget cuts, to a 29 year old who was laid off shortly after getting his first job as a public school administrator, to a 52 year old Army staff sergeant who was discharged six months prior to being eligible to receive a full pension as a result of a training injury.

    Employment’s Decline, for Men of All Ages -- Men who graduated from high school between 1982 and 1986 were victims of bad timing. They entered their prime working years during a period of slow growth. By January 1994, only 83.3 percent of men 25 to 29 years old were working. A decade later, the same thing happened. Men who graduated from high school between 1992 and 1996 entered their prime working years as the roaring 1990s were coming to an end. In January 2004, the government once again reported that only 83.3 percent of men between 25 and 29 were working. But the two groups grew older in very different periods, and their experiences diverged. The ’80s graduates got to enjoy the 1990s. The ’90s graduates landed in a second recession. The chart below compares the employment experience of men born since 1949, banded into five-year cohorts. The groups are compared at the same ages, rather than in the same years. Employment rates in the recession year of 2009 are highlighted for each of the age cohorts. There is a growing body of research suggesting that the sharp drop in the share of Americans with jobs is largely a result of demographic changes, like an aging work force. This chart is a reminder that the full story must be more complex.  It is necessary to understand why men now between the ages of 35 and 39 are so much less likely to have jobs than men in that bracket a decade earlier. As the chart shows, the same thing is true at every age level, most prominently for the youngest workers. Employment rates have increased modestly in the five years since January 2009, but they uniformly remain lower than for earlier cohorts.

    Slow Progress On Long-Term Unemployment Benefits As 1.6 Million Miss Out -- Lawmakers are almost getting somewhere on restoring unemployment insurance to the 1.3 million workers whose benefits lapsed last month. Sort of.  Sen. Jack Reed (D-R.I.) told reporters Friday that he's been talking to a handful of Senate Republicans during this week's congressional recess about how to pay for the benefits in a way that would make them happy.  "We've made significant movement in terms of trying to address the biggest concerns a significant number of Republicans have had," Reed said, mentioning Republican Sens. Dean Heller (Nev.), Susan Collins (Maine) and Rob Portman (Ohio).  "I don't want to presume we've got a solution but we're working awfully hard to get one," Reed said. "We're looking at different approaches." Moderate Senate Republicans have said they'd like to preserve federal unemployment insurance for workers who run out of state benefits, but only if the cost of the federal program is offset with cuts to other parts of the budget. Last week Democrats put together a bill to keep the long-term benefits for 11 months, but Republicans voted against it because they didn't like the offsets Democrats had chosen.  Then everybody left town for a week.

    Senate To Vote On New Unemployment Bill That Targets Millionaires: -- The Senate will vote Thursday on new legislation to restore unemployment insurance for more than a million workers whose benefits stopped short last month. To win Republican votes, Sen. Jack Reed (D-R.I.) announced that the bill would ban millionaires from receiving unemployment insurance, a proposal that has previously won unanimous support in the Senate but did not become law. "This will be a crucial vote and a critical test of whether Congress can listen to the American people and come together to do what is in the best interest of our economy," Reed said in a press release. Reed's legislation will revive the benefits for three months, rather than the full year Democrats had previously demanded. It's unclear if enough Republicans will support the legislation for Democrats to overcome the 60-vote threshold required to break a GOP filibuster. Even if it passed the Senate, the measure would face long odds in the House. Without federal benefits, state-funded jobless aid lasts six months. Each week since the federal insurance lapsed, another 70,000 workers reached the end of their state benefits, bringing the total who've missed checks to 1.7 million. Reed's office said the $6.4 billion cost of the benefits would be offset by "pension smoothing," allowing companies to make smaller pension contributions, resulting in higher profits and therefore more tax revenue for the government in the short term.

    Senators from States with High Long-Term Unemployment Will Decide the Fate of Emergency Unemployment Compensation - The U. S. Senate is about to vote again on providing unemployment compensation for millions of jobless people who are still looking for work after exhausting their regular state unemployment benefits, which usually happens after 26 weeks. The emergency program, which had been in place since the recession hit in 2008, expired at the end of last year. More than 1.6 million people who would have gotten some help have been cut off, left without the income they desperately need to pay their bills and put food on the table. The Senate is expected to vote tomorrow on a brief, three-month extension. Senators in several states with very high shares of people who have been jobless for more than six months have not signaled which way they will vote: Sen. Kelly Ayotte in New Hampshire (31.6% of the unemployed are long-term), Sen. Rob Portman of Ohio (34.6% of the jobless are long-term), Sen. Ron Kirk of Illinois (41.3% of the unemployed are long-term), and Sen. Dan Coates of Indiana (29.1% of the unemployed are long-term). The unemployment rate in Illinois (8.6%), in Indiana (6.9%), and Ohio (7.2%), is above the national average. Even though weekly unemployment insurance benefits average less than $300 a week, they make a huge difference to families that might otherwise have no income at all. They can also have a powerful, positive impact on the economy. EPI’s Heidi Shierholz and Lawrence Mishel estimate that continuing the full program of emergency long-term unemployment compensation would have supported more than 300,000 jobs in 2014. The much-reduced program the Senate will debate tomorrow will affect far fewer workers and have a smaller, but still positive impact on jobs and the economy.

    Senate still at odds over whether to extend unemployment benefits for long-term jobless - The Senate remained gridlocked Thursday over an effort to renew emergency unemployment insurance for the long-term jobless, including more than 1.7 million Americans who lost their benefits when the federal program expired in late December. In a largely party-line vote, Democrats were a single vote shy of the 60 needed to break a filibuster by Republicans, who said that the latest proposal did not have a proper offsetting spending cut to lessen the impact on the federal deficit. Additionally, the two sides continued to squabble over procedural matters related to how many amendments the Republicans would be allowed to offer. “We’ve given them everything they wanted,” Senate Majority Leader Harry M. Reid (D-Nev.) told reporters before the vote, accusing the Republicans of not wanting to reach a deal. “They can’t take yes for an answer.”The latest Democratic proposal, sponsored by Sen. Jack Reed (R.I.), would extend the federal unemployment benefits program by three months, at a cost of $6.4 billion. That program, coming in the wake of the “Great Recession,” has provided additional benefits to unemployed workers who have exhausted the normal 26 weeks of insurance provided in each state.

    What Wage Inflation? Unit Labor Costs Have Biggest Annual Drop Since 2010 - As today's "Productivity and Costs" report from the BLS confirmed what many already know, namely those who collect a regular wage, wages are not going up. In fact, in the fourth quarter, unit labor costs plunged by 1.3%, the most since the second quarter of 2010, and prove that not only is the Fed's QE not being "trickled down" into wages, but that anyone who bet on a simple reflation thesis (not to be confused with the runaway inflation that would result from unlimited currency debasement which as everyone knows is the Fed's Plan Z) based on an expectation that wages will revert to the mean, has been proven wrong.

    Vital Signs: Productivity Growth Spurt Will Be Short-Lived - Productivity is showing some strength. Don’t get used to it. Output per hour worked in the nonfarm business sector increased at a 3.2% annual rate in the fourth quarter, on top of a 3.6% gain in the third quarter. The growth spurt in the second half enable worker efficiency across all of 2013 to rise 1.7%, the best yearly showing since 2010 when productivity surged as typically happens in the early stages of a recovery. The productivity gains reflect stronger output growth in the last two quarters, even as the increase in hours worked held fairly steady. Consequently, unit labor costs fell 1.3% during 2013, the biggest yearly drop since 2009. The challenge for 2014, however, is that nonfarm output this year is not expected to grow at the 5%-plus annual pace of 2013’s second half. One reason: The inventory sector is unlikely to contribute as much to economic growth in coming quarters as they did in the previous two quarters. Economists at BNP Paribas note that the productivity and unit labor costs landscape could look different after the Labor Department releases its annual benchmark revisions to payrolls within Friday’s payroll report. For now, they write “it appears that U.S. firms have regained some footing on the productivity front while labor still has no bargaining power.”

    What is the Disposable Employee Model?: We realized that it was time to explain in detail a system that has long been obvious to those on the inside. It's called the Disposable Employee Model. The D.E.M. is a strategic combination of policies that guarantees short-term employment among the bottom 80-90% of a company. What companies use it? More each year, in particular: fast food companies, grocery stores, big box retailers, chain restaurants, and fast coffee:

    • Different work schedule each week (days/hours generated by computer software)
    • Mixtures of shifts that start as early as 4:45 a.m. and end as late as 10:00 p.m.
    • Fluctuating pay: employee scheduled 10 hours one week, 30 hours the next
    • Wages just above legal minumum
    • Annual "raises" not even cost-of-living increases
    • Benefits essentially unattainable
    • Shift lengths around 4-5 hours (working 5 days/week = about 20 hours)
    • Over-hiring practices that create an artificial labor hour scarcity
    • Gratuitously harsh but selectively enforced policies that allow the company to quickly dispose of any employee who sticks around long enough to start complaining about any of the previous issues

    Customers inevitably ask, why would an employer use such a terrible model? Because chaos, instability, stress, scarcity, and fear are important elements in preventing and combating resistance.

    Nearly Half Of America Lives Paycheck-To-Paycheck - While stocks are still near record highs and the inventory-stuffed picture of economic growth for the US ticks up to its fastest pace in 2 years, Time reports that a study (below) by the Corporation for Enterprise Development (CFED) shows nearly half of Americans are living in a state of “persistent economic insecurity,” that makes it "difficult to look beyond immediate needs and plan for a more secure future." In other words, too many Americans are living paycheck to paycheck... but their findings get worse. As Time notes, The CFED calls these folks “liquid asset poor,” and its report finds that 44% of Americans are living with less than $5,887 in savings for a family of four.  The plight of these folks is compounded by the fact that the recession ravaged many Americans’ credit scores to the point that now 56% percent of us have subprime credit.

    Walmart’s holiday profits are way down. Food stamp cuts are a big part of the reason. - Kathleen Geier - The Financial Times reports that, according to estimates, fourth quarter sales and profits were down for Walmart, the nation’s largest retailer. Previously, Walmart had announced that sales were expected to be flat, but now it’s saying sales are likely to be “slightly negative.” Official results are due out on Feb. 20. What’s especially interesting is that Walmart is citing food stamp cuts as one reason for declining sales. Fully 20 percent of Walmart’s customers use food stamps. The article notes that Walmart isn’t the only retailer that experienced a bad fourth quarter last year. Outlets from Sears to Best Buy to Amazon experienced flat sales or slowed growth. But all of this bad business news is continuing evidence that the economy has yet to recover from its prolonged, Japan-style slump. I’m particularly struck by the example Walmart’s declining sales provides of the wages of austerity economics. The government induces cutbacks, people have less money in their pockets, businesses suffer. The next step is that those same businesses start laying off people. Then the G.O.P. geniuses start telling us “It’s time to tighten our belts,” and it’s lather, rinse, repeat.

     Time to end redistribution upwards: minimum wage increases would boost economy and lift all boats.-  Linda Beale -   No matter how much the business lobby complains about the “business costs” of increasing the minimum wage, legislators should look past that self-serving ideology and look at reality.  Workers have contributed to increased productivity but received a stagnant to declining share of the income that comes from the increased productivity.  IN the meantime, top-echelon managers and shareholders reap larger and larger benefits from the increased productivity provided by the workers.  At the same time, much of the tax expenditure provisions in the Internal Revenue Code–from the charitable contribution deduction (and things like contributing appreciated assets from IRAs) to the mortgage interest deduction to  the life insurance exclusion to the preferential rate on capital gains and the almost non-taxation of corporate dividends are hugely beneficial to the same top echelon in the income distribution, meaning that those provisions are aiding “redistribution”–just not the kind that is condemned by those on the right as a kind of socialism, since this redistribution is upwards and favors the rich.The result of the productivity gains going to the top while the Code embeds numerous tax expenditures that redistribute upwards as well is that the rich continue to get richer, while the middle class suffers and the poor lose out altogether in the vaguely disguised, racially tainted condemnation of those in poverty or near poverty for lack of “personal responsibility” or decorum or “entrepreneurial spirit”.  Fact is, those who have have been ripping off those who aren’t in their elite social class for decades now, and it is getting worse, as they have recovered and more from the Great REcession, while those who lost homes and jobs are suffering on.  Changing the tax provisions–most importantly by eliminating the capital gains preferential rate and by eliminating or reducing other tax preferences that highly favor the wealthy–and extending unemployment benefits while lifting the minimum wage–ideally to a level that approximates where it would have been if it had been increased regularly over time, but minimally to at least $12 an hour–are three key actions that need to be undertaken to restore a broadly sustainable economy that benefits everyone rather than a select few. 

    Is Economy Too Fragile to Raise the Minimum Wage? - President Barack Obama says a minimum wage boost can help lift low-income workers out of poverty. A new study says a pay increase amid economic uncertainty could damage the job prospects of those the policy intends to help. In his State of the Union address last week, the president called on Congress to increase the minimum wage to $10.10 per hour, from $7.25. “Americans overwhelmingly agree that no one who works full time should ever have to raise a family in poverty,” Mr. Obama said. But Joseph Sabia, an economist at San Diego State University, said minimum-wage increases aren’t the poverty-fighting tool the president thinks. In a newly released study, Mr. Sabia found that minimum-wage increases hit employment for low-skilled workers particularly hard in times of high unemployment. “There’s never a good time to raise the minimum wage,” Mr. Sabia said during a presentation last week in Washington. “But times of economic uncertainty and recession are the worst times.”   Economists have argued for years about the precise effect of the minimum wage on low-skilled workers. Mr. Sabia tries to shed new light on the topic by focusing his argument on the economy’s health at the time of a minimum wage increase. Among high-school dropouts under the age of 25, a group that disproportionately earns the lowest pay, a 10% increase in the minimum wage will reduce employment for the group by 2.1% when the overall unemployment rate is less than 5%. But when the unemployment rate in a state exceeds 8%, that same group sees their employment fall 4.2% when the minimum wage rises by 10%. The president is backing a 39% jump in the wage.

    Higher Minimum Wage Leads Many Firms to Shutter, but New Ones Take Their Place -- Raising the state minimum wage didn’t have much effect on fast-food employment in California, Illinois or New Jersey in the 2000s. But it did lead to change: a spike in restaurants exiting the market after wages rose, while a bunch of new restaurants moved in. “We show that small net employment changes in the restaurant industry may hide a significant amount of firm level churning that arises in response to a minimum wage hike,” economists said a recent working paper from the Federal Reserve Bank of Chicago. “In particular, increases in the minimum wage induce greater firm exit, a result consistent with many existing models. However, more surprising, we find a simultaneous and roughly offsetting increase in firm entry.”  The ecoomists studied employment trends in three states that raised their minimum wages between 2001 and 2006: California, Illinois and New Jersey. They focused on fast-food restaurants, a large employer of low-wage workers.“Across all three states, we find little evidence of an economically notable net employment response to a minimum wage change,” they wrote.But they did find considerable churn as restaurants opened and closed. In all three states, “exit rates are roughly 4 to 7 percentage points higher than they would be absent such an increase.” But in New Jersey and Illinois, though not California, “entry rises by an additional 3 to 4 percent and this corresponds to employment levels that roughly counteract the job loss due to exit.”

    Important Points that are Rarely Made on Income Inequality Statistics There are some very important points here that aren't really being made, or very rarely, in the media, and politics and economics blogosphere.

    • 1) The statistics you almost always see are per household, not per adult, or earner. For some of these quintiles, deciles, etc. you see a slight gain – over 30 or 40 years – but it’s per household, not per worker. To make only slightly more over a generation or more, and then it's only with now both spouses having to work to get it! This should always be talked about. It makes it much worse. You know how much more stressful it is to have to work long hours at work and then have to go home and work long hours on housework, cooking, and all these other things, because now both spouses are working. You know how much time and effort it takes to manage a household and raise children in this day and age, and now you no longer have one spouse who can devote all of his or her time and energy to it. And on top of that, parents are now substantially older, and so have less energy, yet far more total work – all for almost no increase in household income.
    • 2) It's not just average income, at all. It's the variance, the riskiness, of income – In finance, you hear non-stop about the risk-average return tradeoff, but when we talk about income inequality over time, it's typically only the average, never the riskiness. But this is such a big part of it. Families are so much more at risk today of unemployment and ruin.  A point Harvard bankruptcy and financial distress expert Elizabeth Warren made so well is that in the early 1970's the typical family's basic fixed "must-have" expenses were only about 50% of their after-tax income, and with just one earner. Today it's about 75% with two earners, so just a 25% loss can send them over the edge (see this Senate testimony, especially page nine). And with two earners, the odds of a job loss are, at a first cut, twice as high.

    How Inequality Hollows Out the Soul - One of the well-known costs of inequality is that people withdraw from community life and are less likely to feel that they can trust others. This is partly a reflection of the way status anxiety makes us all more worried about how we are valued by others. Now that we can compare robust data for different countries, we can see not only what we knew intuitively — that inequality is divisive and socially corrosive — but that it also damages the individual psyche.  Our tendency to equate outward wealth with inner worth invokes deep psychological responses, feelings of dominance and subordination, superiority and inferiority. This affects the way we see and treat one another.A few years ago, we published evidence that showed that in developed countries, major and minor mental illnesses were three times as common in societies where there were bigger income differences between rich and poor.   These differences are not a matter of awareness, definitions or access to treatment: To compare mental illness rates internationally, the World Health Organization asked people in each country about their mood, tiredness, agitation, concentration, sleeping patterns and self-confidence. These have been found to be good indicators of mental illness. More recent studies have affirmed the pattern we found. One, looking at the 50 American states, discovered that after taking account of age, income and educational differences, depression was more common in states with greater income inequality. Another, which combined data from over 100 surveys in 26 countries, found that schizophrenia was about three times as common in more unequal societies as it was in more equal ones.

    A cautionary note on that recent upward mobility study -- While US upward mobility appears stable since the 1970s – or “stalled’ to use President Obama’s rather negative characterization — despite an increase in high-end inequality, there is no reason for complacency. First, mobility could be better. What’s more, economist Timothy Taylor points out that the results from the Equality of Opportunity Project are a little fuzzy for kids born after the early 1980s: … their standard measure of mobility across the income distribution is to look at children’s income at age 30, and then compare it to their parent’s income. But as they write: “We cannot measure children’s income at age 30 beyond the 1982 birth cohort because our data end in 2012.” You’ll notice that in the figure above, the line includes those born into the early 1990s. For those born from 1983-1986, they look at earnings as of age 26, which they argue are pretty close correlated with earnings at age 30. Then for those born from 1987-1993, they project future income based on rates of college attendance. … Thus, while this study and a several previous studies suggests that intergenerational mobility of incomes hasn’t shifted much over time, the issue is certain to be revisited as new evidence emerges over time.

    Does Obamacare exchange an opportunity ladder for a poverty trap? - It’s simple: Climbing the opportunity ladder into the middle class or higher requires a job. And there’s your trouble with the Affordable Care Act. It slaps working class and low-income families with a big tax increase if they try and climb that ladder. Higher incomes are offset by lower insurance subsidies from government. As a result of steep effective marginal tax rates, some people will work fewer hours. Other will quit the job market completely. Obamacare supporters call that a feature not a bug. People who are only working to pay for health care will now have the ability to make a different “choice.” Older workers doing physical labor will be able to retire earlier. Moms can switch to part-time work or even stay home full-time. Workers will have more flexibility to change jobs or start a business. So it’s good news … wait … fantastic news that the Congressional Budget Office now says that “more than 2.5 million people are likely to reduce the amount of labor they choose to supply to some degree because of the ACA,” three times more than its earlier forecast. But even the best-intended, smartly-devised plans often have unintended and harmful consequences. Here is one trade-off, one reality that President Obama doesn’t want to talk about. Keith Hennessey offers the example of a working-class family of four whose sole wage earner makes $35,000 a year and doesn’t get health insurance through a job. The other spouse wants to take a $12,000 part-time job to raise the family’s income. But doing that would reduce Obamacare’s subsidy and raise the family’s effective federal tax rate to 50% from 37%. Yes, the Obamacare subsidies help the family afford health insurance. But there is the trade-off.

    Bipartisanship is Ruining America - Whatever else its virtues—and there are few—the farm bill, passed yesterday by the Senate after a drawn out fight in the House, is a good illustration of what’s wrong with our national fetish for bipartisanship.Passed in both chambers with support from both sides of the aisle, the bill is a classic Washington compromise—lawmakers traded priorities, made deals, and came away with something that everyone could support.The problem, however, is that the “something” is an awful betrayal of our most vulnerable Americans. This year’s farm bill cuts nearly $9 billion from the Supplemental Nutrition Assistance Program—hitting 850,000 households with reduced benefits—while providing tens of billions in subsidies to a small group of wealthy farmers and agricultural conglomerates. Yes, the average benefit cut amounts to “just” $90, but for a low-income family of four, that’s a huge reduction in spending power. And when you combine that with the failure to extend emergency unemployment benefits, which affects many of the same households, what you have is a group of people who—for no reason at all—have been pushed from desperation into destitution. But these awful, counterproductive measures are almost par for the course when it comes to bipartisan policymaking. The last three years of deficit reduction, for instance, were achieved with bipartisan policies (like sequestration) that reduced the deficit at the cost of a slower economy and higher unemployment.

    Poverty isn't a Money Problem - This can not be said enough: "People don't choose to be poor."  Most people do all they can to better their lives. It's not the mismanagement of their available resources, it's not being able to obtain the minimum resources necessary in which to survive—such as being able to find a job, or finding a job that pays a living wage, or finding a job that offers enough hours. Some of the poorest people manage their money better than anyone else, because their lives depend on it. They are attempting to "take personal responsibility for their lives".  Many of the nouveau poor today are mentally well-balanced individuals with college educations. Many are middle-aged adults with years of experience in their field of study or trade, but were replaced with H-1B workers willing to work for lower wages; or they had their jobs offshored. They are poor, not because they didn't responsibly plan ahead or work hard; they are poor because the rich insisted on becoming richer.  Millions of the unemployed (and now, the new poor) had educations, saved their money, and lived within their budgets. They weren't reckless and irresponsible; they didn't go to Vegas to gamble away their paychecks every weekend—they paid their bills.  Very few people try to "game the system" because they are lazy. Most Americans aren't drug addicts or alcoholics either.   Poverty isn't a money problem for poor people; poverty (in the richest country in the world) is a problem with our distribution of resources. Poverty is the problem of inequality. Poverty is a problem because the rich hoard their resources. Poverty is a problem because corporations hoard cash while Americans remain unemployed. Poverty is a problem because of corporate welfare. Poverty is a problem because of unethical job creators. The problem isn't because poor people are poor; the problem is because the rich never think they are rich enough.

    Homeless: The New Normal - One day, a young man of about 20 walked up to me on the street and asked me for some change. “I’ve got nothing I can spare,” I told him, “I’m homeless.”  The kid was amazed. “Really?” he asked, tilting his head to the side and studying me carefully. “I would never have thought so. You look perfectly normal.” “I am normal,” I assured him. “I have human DNA, just like you. But I am homeless. Looks have nothing to do with it.” And they don’t. In fact, a great many homeless people, perhaps most of us, do not fit the stereotype. We are not alcoholics or drug addicts. We are not mentally ill. We have spent our lives working hard, raising families, paying bills―doing all the things responsible citizens do. Some of us are college educated, and a lot of us still have jobs. But we don’t have a roof over our heads―no place to live, keep our things, and go back to at the end of the day. Homelessness is growing rapidly in America, and it’s on the rise in other industrialized countries, too. With fewer good jobs, rising costs, and a disappearing safety net, housing―something we used to take for granted– has become, for many people, unaffordable. A fortunate few can bunk in with relatives, at least for a while. But most of us must sleep in our cars, or pitch a tent, or go to a shelter, or hit the streets. Often, we try several of these options in succession, as our resources dwindle and run out. We keep hanging in there, looking for a real job, searching for solutions, and praying for a miracle. Sometimes things get better, but often they do not. With no roof above us, no walls around us, and no locked door between us and the wide world, we are vulnerable―to the weather, to illness, and to violence.

    We Are the 99% Wasn't About Inequality; It Was Telling Us We Have a Tyranny - Saphron -- In 2011 - the same year that the Occupy protests occurred - political scientist Jeffrey A. Winters published a book entitled, Oligarchy Professor Winters explains that the common definition of oligarchy as "rule by the few" is incorrect. The defining feature of oligarchy is the power of wealth and specifically, fortunes so vast that they can be leveraged to corrupt an entire political process - elections, the media, lobbying of representatives, revolving-door corruption of administrative agencies, paid scientific experts, drafting of legislation and so on. Thus, oligarchs are not elites and are not the result of ordinary (even fairly marked) inequality. Oligarchy results from vast concentration of wealth; the type of wealth that can thoroughly corrupt an entire political system. Winters explains that civil oligarchy - our form of oligarchy - is relatively new. In the past, oligarchs existed, but they were armed (meaning they themselves possessed police power). Interestingly, you are starting to hear claims of tyranny. However, those claims are coming from those concerned with war powers and/or the NSA. Unfortunately, what they are referring to are the symptoms of tyranny, not its cause. Tyranny results from inequality of power; it's symptoms are abandonment of rule of law and oppression. So, the inequality crowd as well as the those concerned with NSA abuse are really talking about the same thing: however, one side of the debate is concerned with the cause of the tyranny (vast wealth inequality, creating a civil oligarchy) and the other is concerned with the symptoms of tyranny (disregard of rule of law and oppressive tactics).

    Pennsylvania's cost of prisons tops $2 billion: Pa. budget 2014 -- The cost of incarcerating Pennsylvania's 51,000 state prison inmates would exceed $2 billion for the first time in history under Gov. Corbett's proposed 2014 budget. Corrections costs have been flirting with the $2 billion budget threshold for several years. Over 92 percent of the $78 million increase is for contractual salary and benefit increases. The budget also includes a $13 million increase for Probation and Parole and $13.7 million for four new classes of State Police cadets. Verdict: Hung jury — increasing corrections costs aren't a win for Pennsylvania taxpayers, as savings from the Justice Reinvestment reforms are realized more slowly than expected. However, Corrections Press Secretary Sue McNaughton notes the meteoric rise of prison population — and the associated spike in cost — has abated, with the population remaining relatively level for the past five years.

    White House says still not considering Puerto Rico bailout - (Reuters) - The White House said on Wednesday it was still not considering a bailout for Puerto Rico after Standard & Poor's on Tuesday cut its credit rating to junk status. A White House spokeswoman declined to comment about the S&P move specifically but said the administration's position had not changed since Jan. 22, when she said that no "deep federal assistance" was being contemplated. With roughly $70 billion of tax-free debt, Puerto Rico's economy has for months been under threat of a ratings downgrade by all three U.S. credit ratings agencies.

    Boeing to throw party to thank lawmakers for $8.7 billion -- Boeing lobbyists are throwing a "thank you" party for Washington state lawmakers who helped provide the company with billions in tax breaks. #An invitation obtained by The Associated Press shows Boeing executives will host a reception for lawmakers Wednesday evening at a house across the street from the Capitol campus in Olympia. The invitation to lawmakers says the event will "thank you for your efforts to land the 777X in Washington state." #Last year, the Legislature approved an extension of Boeing tax breaks in a deal worth an estimated $8.7 billion. Lawmakers swiftly approved the idea in a special session, which put pressure on union workers to accept a contract that transitioned them away from pension plans. #Democratic Rep. Reuven Carlyle, who helped guide the tax package through the Legislature, said he declined to attend Boeing events late last year — such as a dinner with company officials — when lawmakers were considering the deal. He said those early events didn't feel appropriate, but he had no objections to lawmakers attending Boeing's reception this week now that time has passed.

    State Could Be First In The Nation To Make Sure Workers Can Take A Vacation -- Washington lawmakers have proposed requiring businesses to give their workers paid vacation time, and if the bill were to become law, it would make the state the first to do so. The federal government doesn’t mandate paid vacation or holiday time for workers, unlike 20 other developed peers, including all European Union countries. And so far no states have taken it upon themselves to guarantee paid time off. While many American workers are offered paid vacation time through their employers, about a quarter don’t get that benefit, and their ranks have been growing over the past 20 years. By contrast, France guarantees its workers a whole month of paid time off, and five countries even require that employers give workers an extra bonus to cover their expenses when they take a vacation. Washington’s bill would require employers with 25 or more workers to give vacation time to those who work 20 or more hours a week. An employee would start to accrue paid leave after she was at the job for six months, earning 40 hours in the first year, 60 hours in the second year, and 80 hours in the third. After five years, workers would get three weeks annually. A bill was introduced in Congress to require certain employers to provide workers with at least a week of paid vacation, but it didn’t go anywhere. Washington’s bill still has to get a vote from the House Labor Committee, and even if it were to advance out of the chamber, it may have a tough road in the Senate, which is controlled by a mostly Republican coalition.

    Many New, Educated Entrants to Big U.S. Cities Came From Overseas - Many of the highly-educated people who move to America’s economic hubs each year — Los Angeles, Washington D.C. and Manhattan — come from overseas. Over 13% of the people 25 years old and up who move to Los Angeles County in a given year with graduate or professional degrees in hand are from Asia, according to new U.S. Census data released Thursday and analyzed by William Frey, a demographer at the Brookings Institution. By contrast, only 1.3% of highly-educated 25+ movers to L.A. come from South America. Same with Central America. Indeed, about 24% of people 25+ moving to L.A. with less than a high-school diploma come from Central America. Washington, D.C. and Manhattan tell similar stories. Roughly 9% of the highly-educated 25+ year olds entering Washington, D.C. (the county) are from Europe, with another 5% coming from Asia. (The rest come from elsewhere in the U.S., obviously.) The same figures for Manhattan are 16% from Europe and 7% from Asia. In fact, Europe and Asia top the list, when it comes to highly-educated movers to Manhattan. All told, foreigners account for 24% of the highly-educated 25+ year-olds moving to Los Angeles County, 31% for Manhattan and 19% for D.C., according to Mr. Frey’s analysis.Such figures are just one of the takeaways from the Census’s latest data on Americans’ county-to-county moving patterns, which come from its American Community Survey. With the data, which cover 2007 to 2011 and now include movements of foreigners, there’s a handy “Census Flows Mapper” you can use to turn the data into visuals. Pick a county, and you can see the flows of people leaving, or coming, where to and from, what the net change was, while adjusting for variables like income and education.

    Detroit Bankruptcy Exit Plan Threatens Munis as Pensions Favored -- Detroit’s proposal to restructure its $18 billion of debt by paying pensioners at more than twice the rate of some municipal bondholders threatens to increase borrowing costs for localities throughout Michigan. The draft plan given to creditors this week by Emergency Manager Kevyn Orr offers different recovery rates for classes of unsecured creditors. Pensions would get 45 to 50 cents on the dollar, though retiree health-care liabilities would recoup just 13 cents, according to the plan. By comparison, those who loaned $1.4 billion to shore up the two pension funds would receive 20 percent of their claims. Holders of $369 million in unlimited-tax general obligations would recover 46 percent.  Detroit’s latest proposal reinforces concerns in the $3.7 trillion municipal market about what Fitch Ratings called an “us versus them” mentality, favoring retired state workers over bondholders. Republican Governor Rick Snyder proposed the state pay $350 million over 20 years specifically for pensioners in its most populous city.   “If you’re a bondholder in the state of Michigan, every pledge should be viewed as a subordinate pledge going forward,” said Adam Mackey, head of munis at PNC Capital Advisors LLC in Philadelphia. “Ultimately you’re going to see Michigan debt be penalized.”

    Detroit Turns Bankruptcy Into Challenge of Banks.  -- Detroit’s bankruptcy is rapidly shaping up as a battle of Wall Street vs. Main Street, at least as far as the city’s creditors are concerned.  Amy Laskey,a managing director at Fitch Ratings, said in a recent report that she sensed an “us versus them” orientation toward debt repayment. And in the view of bondholders, bond insurers and other financial institutions, it only grew worse last week after the city circulated its plan to emerge from bankruptcy and filed a lawsuit on Friday. The suit, brought by the city’s emergency manager, Kevyn D. Orr, seeks to invalidate complex transactions that helped finance Detroit’s pension system in 2005. In a not-so-veiled criticism, the city said the deal was done “at the prompting of investment banks that would profit handsomely from the transaction.” Of even greater concern to creditors is the city’s 99-page “plan of adjustment,” the all-important document that details how Detroit proposes to resolve its bankruptcy and finance its operations in the future. Banks, bond insurers and other corporate creditors think they are being asked to share a disproportionate amount of pain under the plan, still in draft form and not yet filed with the bankruptcy court. “The essential issue is the near-total wipeout of the bondholders,” said Matt Fabian, a managing director of Municipal Market Advisors. He said Detroit’s case appeared to be heading toward a “cramdown,” or court-ordered infliction of losses on unwilling creditors.

    Detroit's bankruptcy tab at $13.7 mln and growing (Reuters) - Detroit's price tag for lawyers, consultants and other professionals hit $13.7 million in the first 75 days of its historic bankruptcy, according to a report filed late Tuesday by a court-appointed fee examiner. The tab for professional services covers the period beginning with Detroit's July 18 bankruptcy filing until the end of September and likely has mushroomed since then, as lawyers spent significant time before U.S. bankruptcy judge Steven Rhodes, even throughout the holiday season. The fees and expenses Detroit incurred through the end of September were "substantial" but also unavoidable given circumstances of the bankruptcy, wrote Robert M. Fishman, who was appointed fee examiner in August, in his first quarterly report to the U.S. bankruptcy court. "Due to the magnitude and complexity of the case, the novelty of the legal issues, the extremely tight time frames imposed by the court and the strong differences in opinion between the various parties about what to do and how to do it, it was (and continues to be) inevitable that the costs associated with the services provided by the various professionals were going to be significant," Fishman said in the report. The fees date from July 18, when Detroit filed the biggest municipal bankruptcy in U.S. history in an effort to address more than $18 billion in debt and other liabilities. The city's labor unions, pension funds, bond insurers and other creditors have fought various aspects of the case, efforts that have churned up large fees for Detroit's team of bankruptcy professionals.

    Repopulating Doomsville: Detroit & US Migration - Followers of international migration know that there is a movement among traditional migrant-receiving nations, usually Anglophone countries Australia, Canada, New Zealand, and the United States, to steer migrants away from overcrowded gateways into less-populated areas short on labor. In other words, your chances of successfully petitioning for permanent residency are greater in, say, Toowoomba instead of Brisbane.  In the United States, something similar is happening as authorities are interested in managing demography. Instead of packing people off to [zzzzz] New York, Los Angeles or Chicago, why not send them where they are needed like, say, Detroit? To you and me it may be a terrible instance of urban decay that is in its death throes via depopulation and bankruptcy. For others, however, it is a prime example of the Land of Opportunity. The Arab American News has an interesting article along these lines as a Polish immigration lawyer says there is no better time than now to attain permanent residence in, er, Detroit: If you are a legal permanent resident eligible for American citizenship, there is no better time than 2014 to resolve to become a citizen. As someone who has spent years working with Arab-American immigrants here in Detroit, my own resolution is to help as many of them as possible here in Detroit to take the necessary steps toward citizenship with the New Americans Campaign. Your community is larger than you might think. Michigan is home to 130,000 lawful permanent residents who could become citizens.

    Texas Overhauls Textbook Approval To Ease Tensions Over Evolution -- The Texas Board of Education, which has long been an ideological battleground for the teaching of evolution, says  it will limit the use of citizen review panels and instead give priority to teachers in determining science and history curricula.   Because Texas public schools represent such a large market for textbook publishers, the state has an outsized influence on what is taught in the rest of the country.Science curricula in particular have become a source of tension over the past 30 years amid moves to downplay the teaching of evolution or to include biblically inspired creationism or "intelligent design."Critics have been concerned that a small number of religious or political activists can dominate the process of approving texts, and the Board of Education's move appears to try to tamp that down.Conflicts have also seeped into the approval of history textbooks in recent years, where some have sought to change the characterization of religion's role in the development of the early republic.Among the changes approved by the state on Friday was "a mandate for teachers and professors to be given priority for serving on textbook review panels for subjects in their areas of expertise. They also enable the board to appoint outside experts to check objections that review panels raise,"

    Baton Rouge’s Rich Want New Town to Keep Poor Pupils Out: Taxes -  In East Baton Rouge Parish, Louisiana, middle-class and wealthy neighborhoods want an educational divorce from a neighboring community where four out of 10 families live in poverty. Saying they want local control, they’re trying to leave the 42,000-pupil public-education system. They envision their own district funded by property taxes from their higher-value homes, which would take money from schools in poorer parts of state-capital Baton Rouge, home of Louisiana State University. They even want their own city. Similar efforts have surfaced in the past two years in Georgia, Alabama, Texas and Tennessee, some of them succeeding as the end of court-ordered desegregation removed legal barriers. The result may be a concentration of poverty and low achievement. A 2012 report by ACT, the Iowa-based testing organization, found only 10 percent of low-income students met college benchmarks in all subjects, less than half the average.

    Charter High Schools Increase Earnings and Educational Achievement -- Private and charter schools appear to have significant but modest effects on test scores but much larger effects on educational attainment and even on long-run earnings. A new working paper from Booker, Sass, Gill and Zimmer and associated brief from Mathematica Policy Research finds that charter schools raise high school graduation, college enrollment and college persistence rates by ~7 to 13%. Moreover, the income of former charter school students when measured at 23-25 years old is 12.7% higher than similar students. Similar in this context is measured by students who were in charter schools in grade 8 but who then switched to a traditional high school–in many ways this is a conservative comparison group since any non-random switchers would presumably switch to a better school (other controls are also included). The effect of charters on graduation rates is consistent with a larger literature finding that Catholic schools increase graduation rates (e.g. here and here). I am also not surprised that charters increase earnings but the earnings gain is surprisingly large; especially so when we consider that the gain appears just as large among charter and non-charter students both of whom attended college (i.e. the gain is not just through the college attendance effect). I wouldn’t bet on the size of the earnings effect just yet but what we are learning from this and related research, such as Chetty et al. on teachers, is that better schools and better teachers appear to have a significant and beneficial long-run impact that is not fully captured by higher test scores.

    A Well-Known Liberal Bias - Professors on America’s college campuses are politically quite liberal compared with the general public.  A 2005 study that was discussed widely in the popular press at the time reported that perhaps as many as 70 percent of college professors were self-described liberals.  A similar 2007 study by Neil Gross and Solon Simmons reported that roughly 10 percent of faculty members described themselves as far left while virtually none self-identified as far right.   It is not obvious why American college faculty members have such strong liberal political views.  Many conservatives argue that it is due to discrimination in hiring and that the students receive a sharply biased education as a consequence.  I don’t think that the intellectual capacities of conservatives are below that of liberals but I suppose it could be a possible explanation.  My own guess is that it is due to selection on attitudes towards accepting received wisdom as truth.  As I mentioned in a previous post, academics are encouraged to break new ground or even to overturn established ideas.  Einstein is an excellent example of such a thinker.  So are Stephen Hawking, John Maynard Keynes, Alfred Blalock, etc.*  Deliberately setting out to tear down established parts of your field requires a certain mindset and this mindset might be more common with people who have liberal political views.   Another possibility is that, as Paul Krugman has written on a few occasions, “the facts have a well-known liberal bias.”  I’m not entirely sure I know what he means by this.  It could be that Krugman is thinking mostly about the tension between facts and far-right positions.  Creationist ideas don’t really survive close contact with the facts.  Extreme supply-side economic ideas don’t either. 

    Administrators and Part-Timers: Changes in U.S. Higher Education Workforce - U.S. higher education has been seeing three main changes in staffing patterns in the last decade or so: 1) part-time faculty are way up; 2) administrators are way up; 3) and staff are down. In the middle of all this, the number and pay of full-time tenure track faculty hasn't changed much. Donna M. Desrochers and Rita Kirshstein describe the patters in  "Labor Intensive or  Labor Expensive? Changing Staffing and Compensation Patterns in Higher Education," at the American Institutes of Research. The analysis is based on a dataset maintained by the National Center for Education Statistics. Here is some of the evidence that caught my eye. The total number of employees U.S. higher education rose 25% from 2000 to 2012--but the nubmer fo students in higher education increased, too. Thus, when looking at employees in higher education, it is most useful to adjust for the number of students. This figure shows that among public institutions, the number of employees per 1,000 students has been flat or declining since 2000. For private institutions, which tend to have greater financial resources, it has been rising. Research institutions have more employees, because running the administrative apparatus requires them.  But within these overall employee numbers, a shift is occurring. This figure shows changes in different categories of employees over time just for research universities, again expressed per 1,000 full-time equivalent students.Overall, full time faculty are about 20-25% of the employees in higher education, with the number being a little lower in research-oriented institutions and higher in teaching-oriented institution. The number of faculty relative to the number of students (the blue line) has barely budged in the public research universities, and has risen in the private ones.  But even among full-time faculty, the share with a time-limited contract instead of a conventional tenure arrangement is declining.

    The Economics of Online Education -- The Economist covers the economics of online education: Alex Tabarrok…reckons the most salient feature of the online course is its rock-bottom marginal cost: teaching additional students is virtually prices converge towards marginal cost, there will be little scope for undercutting the competition. Instead MOOCs are likely to compete on quality…Higher production costs are a small price to pay to attract much greater numbers of students. Such markets often evolve into winner-take-all, “superstar” competitions. The best courses attract the most customers and profit handsomely as a result. In this respect online education may more closely resemble information industries such as film-making than service industries such as hair-cutting. The market for textbooks already fits this description. New textbooks are costly to write and design but can be reproduced fairly cheaply. Not surprisingly, only four introductory economic texts account for half of the American market, according to Mr Tabarrok. Indeed, says Tyler Cowen, a co-founder of Marginal Revolution University, it is possible that textbook publishers are better equipped than universities to develop MOOCs profitably.

    Graduate School Attendance Is up, but Wage Premium Steady -The number of Americans who have attended graduate school at some point has surged 24% since the recession. But the return on their investment — the gap between their earnings and those of high-school grads with no college — narrowed a bit in the post-recession period, new Census data show. Roughly 36 million people in the U.S. had some graduate school under their belts (though not necessarily an advanced degree) in early 2013, the Census Bureau said Tuesday. That’s up from 29 million in early 2008, during the recession. Enrollment in college and graduate school typically picks up when the economy is weak because many people decide to attend school to improve their skills rather than endure a sluggish labor market. Overall, the number of Americans with at least some college, including undergrad and grad school, rose 11% since 2008 to 121 million in 2013. But there was a downside. Just as more people received degrees, a lot of students entered graduate programs but never completed them. The number of people with some graduate school but no degree jumped 38% from 2008 to 2013.  The rise in enrollment varied across programs. For example, the number of Americans with an associate’s degree increased almost 19% between 2008 and 2013. Those who had earned a bachelor’s degree, but with no graduate school, climbed just 3%.

    100 Reasons NOT to Go to Graduate School - This blog is an attempt to offer those considering graduate school some good reasons to do something else. Its focus is on the humanities and social sciences. The full list of 100 reasons will be posted in time. Your comments and suggestions are welcome.

    Our Two Most Onerous Taxes: College Tuition And Healthcare Insurance - I have long argued that to make an apples-to-apples comparison of real tax rates in the U.S. and other equivalently developed advanced democracies, we have to include two enormous expenses that are funded by the central state in countries such as Denmark and France: healthcare and college tuition/fees.With an unofficial tax rate for healthcare and college tuition that makes Scandinavian countries look like low-tax havens, no wonder the middle class in America is vanishing like mist in Death Valley. The political class is now bleating about the erosion of the middle class and rising wealth inequality. There are two primary sources of rising inequality in America: the Federal Reserve and the higher-education and healthcare cartels that so generously fund the campaigns of the bleating politicos.

    School pension costs to jump nearly 8% next year: School pension costs in New York are set to increase 7.8 percent in the coming school year — the fifth year in a row of rising retirement costs for school districts. The state’s Teachers’ Retirement System quietly posted the rates for the 2014-15 school year on its website this month. The increase is less than the 37 percent increase that schools are grappling with this year, but it’s an additional rise in pension costs at a time when schools say they are dealing with growing costs and limited revenue. Pension costs will increase from 16.25 percent of payroll to 17.53 percent of payroll for the 2014-15 school year, which starts July 1. The bill is paid in the fall of 2015. The Teachers’ Retirement System, which serves 277,000 active members and nearly 150,000 retirees, said it is still digging itself out from the recession. It estimates that pension costs will drop in future years.

    California Pension Gap Widens on Longer Lives, Brown Says - Longer life expectancies for retirees may add $9 billion to the funding gap for the California Public Employees’ Retirement System, the largest U.S. public pension, Governor Jerry Brown said today. Brown, a 75-year-old Democrat, urged leaders of Calpers to account for the higher costs in their calculations of the $275.2 billion pension’s unfunded obligations rather than wait two years as their staff recommended, Brown said in a letter to Rob Feckner, the board president. “No one likes to pay more for pensions, but ignoring their true costs for two more years will only burden the system and cost more in the long run,” Brown said. By 2028, men who retire at 55 are projected to live 2.1 years longer and women 1.6 years longer, boosting the state’s costs by $1.2 billion a year, or 32 percent, the governor said. The unfunded liability would rise by $9 billion to $54 billion, he said.

    The problem with retirement savings: making enough money to save --  Americans don't have a problem saving for retirement. The real issue is that Americans aren't making enough money.  “We’re not lacking plans. Too many people lack the income with which to save,”.  That's why convincing Americans that they need to save more – much more – for their retirement requires more than just another savings vehicle like the White House's newly introduced MyRA plan.  There's no question that a retirement crisis is looming. The numbers just don't work for many Americans right now. For instance, do you think you can live on only $575 a month? That's for rent, food, utilities, and transportation as well as any fun you may want to have. Probably not: an income of $575 a month is well below the federal poverty line. Yet that’s the estimate of how much the average American with a 401k plan will be able to earn from his or her nest egg. And about half of all Americans don’t even have a 401k plan, often because their employer doesn’t offer one.  With pensions deader than the proverbial dodo, income growth flat-lining and Americans either unable or unwilling to take on more responsibility for their own retirement savings.  But the president’s creation of an entirely new kind of retirement savings plan, dubbed MyRA, is not likely to solve the problem. It may, at most, spur debate.  It's at least something. MyRA – surprisingly hard to pronounce, so that even the president tripped over it – has been billed as a "starter plan" for Americans who can’t save enough to easily accumulate the minimum balance of $1,000 plus often required to open an IRA account with major asset management companies.  With the MyRA plan, Obama "is trying to reach working people who today have no access to either a pension or a 401k,”  It’s a very, very tiny positive step. It offers a way for families to squirrel away small bits of spare cash – the upfront investment can be as little as $25, and the saver can opt for tiny deductions of $5 or so from his paycheck after that.

    Harvard study says lack of Medicaid expansion in red states will kill thousands - Thousands of Americans will die as a result of red state governors’ refusal to expand Medicaid and extend health coverage to their states’ neediest citizens, according to a study by researchers at Harvard University and the City University of New York. Talking Points Memo reported that as many as 17,000 people will die because they cannot afford to access health care. President Barack Obama’s Affordable Care Act (ACA) — also known as “Obamacare” — attempted to reform the nation’s health care system by increasing access to affordable health insurance plans, improving the plans that are available, and by making federal funds available to states to improve and expand their Medicare system, which offers free health care to low-income adults. Republican governors and state legislatures in 23 states have refused the supplemental funds out of political motivations, but the study authors say that this act of political sabotage will have deadly consequences. “The results were sobering,” ,” said study author Samuel Dickman.“Political decisions have consequences, some of them lethal.” The study found that a projected 423,000 diabetics will not be able to adequately manage their disease. Some 659,000 women will not receive mammograms and 3.1 million will not get necessary gynecological checkups like pap smears.

    New State-by-State Analysis: States Rejecting Medicaid Expansion Under the Affordable Care Act Are Costing Their Taxpayers Billions - The 20 states choosing not to expand their Medicaid programs under the Affordable Care Act are forgoing billions of dollars in federal funds, while residents in their states are contributing to the cost of the expansions in other states, according to a new Commonwealth Fund study. After taking into account federal taxes paid by state residents, states with the highest net losses include Texas, which will see a net loss of $9.2 billion in 2022; Florida, which will lose $5 billion; Georgia, which will lose $2.9 billion, and Virginia, which will lose $2.8 billion.  How States Stand to Gain or Lose Federal Funds by Opting In or Out of the Medicaid Expansion, is the first study to calculate the net cost to taxpayers in states turning down the Affordable Care Act's Medicaid expansion. Using data from the Urban Institute projecting Medicaid enrollment and spending under the law in the year 2022, Glied and Ma estimate the effects of states’ decisions about whether to accept the health reform law’s expansion of the Medicaid program to residents with incomes at or below 138 percent of the federal poverty level ($32,499 for a family of four). The expansion, which became voluntary for states after the Supreme Court’s 2012 ruling, is mostly financed by the federal government, which pays 100 percent of the total costs through 2016. The federal contribution will decline from 100 percent to 90 percent by 2020, and stay at 90 percent after that.

    Life after Jan. 1: Kentucky clinic offers early glimpse at realities of health-care law - Nine days into the new year, the 41-year-old call-center worker headed to the health clinic on Highway 15. She saw a doctor about her chronic stomach ulcers, had her blood drawn for tests and collected referrals for all the specialists she had been told she needed but could never afford. The next week, she saw a neurologist, who found lesions on her brain and prescribed medicine for the cluster headaches. She lined up a gynecologist for abnormal uterine bleeding and a hematologist for anemia and an ophthalmologist for an affliction she called “arthritis of the eye,” which was diagnosed on one of the rare occasions she decided to see a specialist, a $250 visit her husband paid for by selling his lawn mower. This is the world that many critics of the new health-care law have worried about, one in which the sick and the poor expand the ranks of Medicaid while other Americans see premiums rise, policies canceled or favorite doctors booted out of networks. Supporters of the new law argue that another scenario will unfold in places such as eastern Kentucky, in which the sick and the poor get insurance, seek treatment for long-neglected illnesses and prevent other health problems down the line, ultimately saving the health-care system billions in emergency-room visits and other costs. A week at the Breathitt County Family Health Center provides an early glimpse into how those theories are beginning to play out in a place where people have long worried about having no insurance at all.

    Millions Are Now Realizing They’re Too Poor For Obamacare -- Thanks to a Supreme Court ruling and staunch Republican resistance, Marc Alphonse, an unemployed 40-year-old Marine veteran who is essentially homeless, cannot get health insurance under Obamacare. Three years ago, Alphonse learned he has a kidney disorder that will deteriorate into kidney failure, and possibly prove fatal, if left untreated. As it stands now, he suffers from bouts of nausea caused by his dysfunctional kidneys, and he's dogged by an old knee injury that limits his job prospects. He gets by on $400 a month in unemployment benefits, and his family can no longer afford housing in their home city of Miami. Alphonse is one of  nearly 5 million uninsured Americans caught in a cruel gap that renders some Americans "too poor for Obamacare."  Obamacare was supposed to make health coverage affordable, or even free, for low-income Americans. The law's official name is the Affordable Care Act. However, the Supreme Court tossed a huge obstacle in the path of that goal in 2012, ruling that the states could opt out of one of Obamacare's crucial provisions: The expansion of Medicaid coverage to anyone making less than 133 percent of the federal poverty level, or about $15,300 a year for a single person. Since the court's ruling, 24 states, including Florida, chose not to expand the program.

    Obamacare enrollees hit snags at doctor’s offices - After overcoming website glitches and long waits to get Obamacare, some patients are now running into frustrating new roadblocks at the doctor's office. A month into the most sweeping changes to healthcare in half a century, people are having trouble finding doctors at all, getting faulty information on which ones are covered and receiving little help from insurers swamped by new business. Experts have warned for months that the logjam was inevitable. But the extent of the problems is taking by surprise many patients — and even doctors — as frustrations mount. Danielle Nelson said Anthem Blue Cross promised half a dozen times that her oncologists would be covered under her new policy.. But when she went to her oncologist's office, she promptly encountered a bright orange sign saying that Covered California plans are not accepted. To hold down premiums under the healthcare law, major insurers have sharply cut the number of doctors and hospitals available to patients in the state's new health insurance market. Now those limited options are becoming clearer, and California officials say they are receiving more consumer complaints about access to medical providers."There are a lot of economic incentives for health insurers to narrow their networks, but if they go too far, people won't have access to care. Network adequacy will be a big issue in 2014."

    Aetna may pull out of Obamacare: CEO --There is so much uncertainty about Obamacare that Aetna, the U.S.'s third-largest insurance provider, may be forced to double its rates or opt out of the program, the company's CEO, Mark Bertolini, told CNBC on Thursday.  What action Aetna will take is still up in the air, but the company doesn't plan to set its 2015 Obamacare rates until May 15. Between now and then, though, Bertolini said he's trying to get the necessary information from the Obama administration to properly price its insurance products.  "I think in the end analysis, pulling out is always the last resort," Bertolini told "Closing Bell."  "We don't like to do that because we disenfranchise customers and we disappoint customers, so we always look at that as a last resort, but that is an option that we will pursue if we need to if the program doesn't settle down; if we can't get a good handle on the data and the less data we have, the more risk premium we need to put into our products and that means the prices are higher." To Bertolini, it's still unclear whether Aetna will need to expand its network or if people will be able to keep their program for another year, for example, under the Affordable Care Act.

    CBO says Obamacare will add to deficit, create reluctant work force -- President Obama’s health-care overhaul will put roughly 25 million into public health exchanges by 2018, add more than $1 trillion to the federal deficit over the next decade and could well create a small contingent of workers unwilling to work for fear of losing federal medical aid. Those are the findings from a Congressional Budget Office report released Tuesday, which also said the number of those receiving subsidies through exchanges will total 20 million in that time. ShutterstockThe report is sure to give ammunition to Republicans and other foes of the Affordable Care Act, who have repeatedly warned of Obamacare’s shortcomings and are trying to repeal it. It also creates a major issue for the president, who has repeatedly said the ACA will be revenue neutral. Instead, the CBO projects that it will account for increasing chunks of deficit spending, starting at $20 billion this year and steadily increasing to $159 billion in 2024, for a collective deficit of just under $1.2 trillion. Not only does the report on the federal budget take an in-depth look at the ACA and its effects on the budget, but also on the work force in general. Most of these effects won’t hit until after the next few years, once Obamacare has had a chance to gain momentum and get going.

    The Next Obamacare Issue - Christmas has come early for opponents of the health-care law, as the Congressional Budget Office released a new report projecting that the law will reduce the total number of hours Americans work by the equivalent of 2.3 million full-time jobs in 2021. Needless to say, that’s a bigger impact on the workforce than had been expected. Republicans leapt on the report to renew calls for the law’s repeal, pointing also to the report’s lower estimates for how many people will get coverage in 2014. But there was good news for the Obama administration, too: The CBO estimated that insurance premiums on the exchanges were 15% lower than originally forecast, and predicted that the growth of Medicare costs would slow in coming years. The report also offers Democrats a win on “risk corridors,” estimating that the government will collect $8 billion in savings from the provision. More on “risk corridors” here: The CBO didn’t offer any definitive findings for the law’s impact on the labor market, saying it could vary markedly depending on how many people enroll for benefits and how quickly the unemployment rate falls. And one of the law’s impacts, the report found, would be downright humane: Workers could seek jobs that better match their skill set because they wouldn’t have to worry as much about a new job’s health-care coverage. Louise Radnofsky and Damian Paletta report. If you haven’t had enough of the CBO yet, Damian Paletta has the rundown on the good news and bad news in its deficit projections.

    CBO: ObamaCare Means Less Work; Social Security In Worse Shape - ObamaCare's work disincentives will reduce employment levels by the equivalent of 2 million full-time jobs by 2017, the Congressional Budget Office said Tuesday. Less work, slower economic growth and burgeoning entitlement-fueled deficits marked the CBO's downbeat 10-year outlook, adding to concerns about the long-term budget. Over 2014-2023, CBO now expects federal deficits to be $1 trillion higher than seen a year ago. Debt is seen climbing to 79% of GDP by 2024. The overriding reason is a less-optimistic economic outlook: "CBO has reduced its projections of the total amount of wages and salaries over the 2015-2023 period by about $3.2 trillion (or 3.6%)." In the near term, CBO expects growth to maintain its recently accelerated pace, with GDP growing 3.1% in 2014 and 3.4% in each of the next two years. Yet growth is expected to average 2.6% over 2014-2023, down from 2.9% projected a year ago. ObamaCare's impact on work — which CBO now estimates to be three times as large as it supposed in 2010 — explains just one part of the downgraded outlook. Total compensation will be about 1.5% lower in 2024 due to ObamaCare. CBO expects an additional 0.5% drop in compensation due to the work disincentive of higher taxes as rising incomes push some taxpayers into higher brackets.

    Facing up to Obamacare's flaws - It is wrong for a country as rich as America to have tens of millions of people without health insurance," this newspaper wrote in 2010 in urging Congress to pass Barack Obama's health reform. As that leader said, there were, and there remain, good, fundamental reasons to back Obamacare. But that should not blind one to its drawbacks, and one of the biggest, is its detrimental effect on the supply of labour. The Congressional Budget Office ignited debate over these effects with new estimates, released on February 4th , that the equivalent of 2.5m people would choose not to work because of the disincentive effects of Obamacare. For a country already facing a sharply slowing labour force, this is a serious problem. But rather than acknowledge it, Mr Obama and his allies have tried to spin the CBO’s findings as good news. On closer examination, their claims are either misleading or beside the point.  "According to the CBO, Obamacare will result in a 1.5% to 2% decline in hours worked, and 0.5% to 1% decline in compensation per hour. Dean Baker and Jared Bernstein  seize on the fact that hours fall more than compensation to argue that Obamacare leads to higher wages. Just as Bill Gates walking into a bar will cause the patrons' average income to skyrocket, this observation is both true and meaningless. The people most likely to work less because of Obamacare are at the lower end of the income scale. Removing them from the calculation means that the average wage of the remainder must be higher; it does not mean that those remaining workers actually earn more. The increase in the wage is a purely compositional effect, rather than the result of a tighter labour market or higher productivity.

    The CBO Obamacare Brouhaha - The headlines blare Obamcare will cause over two million more jobs to be lost by 2017 and the losses will grow to 2.5 million jobs by 2024.  That analysis is from the Congressional Budget Office in their 2014 Budget Outlook report.  Unfortunately, the rationale behind the CBO claims are that the subsidies to buy health insurance for individuals are larger than the wages earned working full-time hours.  From the report: The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024. Although CBO projects that total employment (and compensation) will increase over the coming decade, that increase will be smaller than it would have been in the absence of the ACA. The decline in fulltime-equivalent employment stemming from the ACA will consist of some people not being employed at all and other people working fewer hours. The problem with the CBO analysis is worker behavior is most influenced by actual wages than anything else.  The CBO report has many assumptions yet little statistical data and even calculations.  For example, the report states someone at 150% of the federal poverty line will pay 4% of their income on health insurance while someone at 200% of the federal poverty line will pay 6.2% of their income due to reduction in the Obamacare subsidy.  For an individual using 2013's federal poverty $11,490 level, 150% of that would be an annual income of $17,235 and 200% above the poverty threshold would be $22,980.  A person earning two times the federal poverty level and would pay $1,447.74 per year for health insurance whereas a person earning $17,235 would pay $609.4 for the same policy.  Continuing on with the CBO example, this is a price difference due to the Obamcare health insurance subsidy change of $758.34.  Yet, if one notices, the income difference is $5745.  Despite the unfortunate claims of Obamacare costing jobs that are really impossible to prove at this point, there were actually important results of the CBO report and they are not good news.  The CBO has projected real economic growth will be below it's potential until year 2017 and as one can see in the below graph, that's an astounding long stretch of time.  After that the CBO expects real GDP to grow at the rate of potential GDP, but of course that is relative since the United States manufacturing now has stunted capacity.  Long term, the CBO projects GDP will be below it's potential all the way until 2024.  Economic growth is expected to be stronger for years 2014 to 2017, yet there is still economic slack and weak demand.  For 2014 through 2017 they expect GDP to increase by 3.1%, yet after that they expect sluggish growth of 2.5%.

    When It Comes to Poor Adults, Rep Ryan is Very Wrong About an ACA “Poverty Trap” - During a hearing today on the latest CBO report, Rep. Paul Ryan declared the health care law to be “a poverty trap.”  He’s way off base.  In fact, he’s got it backwards. Rep. Ryan was riffing off of the estimates in the new CBO study predicting that some people—the equivalent of 2.5 million full-timers by 2024—will choose to work less to avoid having the ACA subsidy reduced as their earnings rise. The facts, as shown in this Kaiser Family Foundation fact sheet (see table 3), are that in states that accepted the ACA Medicaid expansion, poor adults can earn far more than they could before the new law and still maintain their Medicaid eligibility.  The median income cutoff for the 26 states that accepted the expansion is 138% of poverty.  For the states that did not, that cutoff is 47% of the poverty line for parents and 0% (!) for childless adults.   If the earnings of a single parent with two kids in Texas, where the eligibility threshold is 19%, goes above $3,600, that parent loses Medicaid (their kids remain covered).  That’s a bit more than three months of full-time work at the minimum wage.  Now that, Mr. Ryan is a poverty trap.

    CBO: ACA OK - Paul Krugman - What with the fuss over the CBO estimates of employment effects of health reform — Appendix C — everyone seems to have overlooked Appendix B, on the reform’s effects in doing what it was supposed to do: cover the uninsured. How has the disastrous initial rollout affected CBO’s projections about reform’s near future? Here’s the answer: Oh noes! The exchanges will cover 6 million people, not the 7 million we expected! The number of uninsured will fall 13 million, not 14 million!  In short, CBO thinks that reform has been only mildly set back by the mess, that at this point it’s going pretty well. And by the way, these are predictions we’ll be able to test in real time, unlike the labor force estimates, which will get lost in statistical noise.

    Health, Work, Lies, by Paul Krugman - On Wednesday, Douglas Elmendorf, the director of the nonpartisan Congressional Budget Office, said the obvious: losing your job and choosing to work less aren’t the same thing. If you lose your job, you suffer immense personal and financial hardship. If, on the other hand, you choose to work less and spend more time with your family, “we don’t sympathize. We say congratulations.” And now you know everything you need to know about the latest falsehood in the ever-mendacious campaign against health reform. Let’s back up. On Tuesday, the budget office released a report on the fiscal and economic outlook that included two appendices devoted to effects of the Affordable Care Act. The first appendix attracted almost no attention from the news media, yet it was actually a bombshell. Much public discussion of health reform is still colored by Obamacare’s terrible start, and presumes that the program remains a disaster. Some of us have pointed out that things have been going much better lately — but now it’s more or less official. The budget office predicts that first-year sign-ups in the health exchanges will fall only modestly short of expectations, and that nearly as many uninsured Americans will gain insurance as it predicted last spring. This good news got drowned out, however, by false claims about the meaning of the second health care appendix, on labor supply.

    AOL is latest to blame Obamacare - AOL became the latest company to blame Obamacare for cutting back on employee benefits. The tech firm will now pay its 401(k) company match only to employees who are active on Dec. 31 of that year, as opposed to in their paychecks throughout the year. So those who leave the company before the end of the year will forfeit the match. AOL (AOL) CEO Tim Armstrong blamed $7.1 million in additional Obamacare costs the company is facing this year. Had the company not made the change in its 401(k) payments, employees would have seen their health insurance costs increase, he told CNN Thursday. Armstrong did not provide a lot of specifics about what aspects of Obamacare were pushing up the company's health care costs, but said it was one factor affecting the 401(k) restructuring. "The Obamacare Act and some of the changes that happened there had increases in our health care costs," Armstrong told CNN. "We had to make a choice whether we pass those on or whether we took other benefits and reduce them." Some employees will still see their premiums rise, depending on the plan they picked, though AOL "ate a huge piece of the increase."

    Jails Enroll Inmates in Obamacare to Pass Hospital Costs to U.S. - Being arrested in Chicago for, say, drug possession or assault gets you sent to the Cook County Jail to be fingerprinted, photographed and X-rayed. You’ll also get help applying for health insurance. At least six states and counties from Maryland to Oregon’s Multnomah are getting inmates coverage under Obamacare and its expansion of Medicaid, the federal and state health-care program for the poor. The fledgling movement would shift to the federal government some of the more than $6.5 billion in annual state costs for treating prisoners. Proponents say it also will make recidivism rarer, because inmates released with coverage are more likely to get treatment for mental illness, substance abuse and other conditions that can lead them to crime. “When someone gets discharged from the jail and they don’t have insurance and they don’t have a plan, we can pretty much set our watch to when we’re going see them again,” . The still-small programs could reach a vast population: At the end of 2012, almost 7 million people in the U.S. were on parole, probation, in prison or locked up in jail, according to the federal Bureau of Justice Statistics. About 13 million people are booked into county jails each year, according to the Washington-based National Association of Counties. can’t handle appeals of enrollment errors - Tens of thousands of people who discovered that made mistakes as they were signing up for a health plan are confronting a new roadblock: The government cannot yet fix the errors. Roughly 22,000 Americans have filed appeals with the government to try to get mistakes corrected, according to internal government data obtained by The Washington Post. They contend that the computer system for the new federal online marketplace charged them too much for health insurance, steered them into the wrong insurance program or denied them coverage entirely.For now, the appeals are sitting, untouched, inside a government computer. And an unknown number of consumers who are trying to get help through less formal means — by calling the health-care marketplace directly — are told that’s computer system is not yet allowing federal workers to go into enrollment records and change them, according to individuals inside and outside the government who are familiar with the situation. Addie Wilson, 27, who earns $22,000 a year working with at-risk families, said that she is paying $100 a month more than she should for her insurance and that her deductible is $4,000 too high. When Wilson logged on to in late December, she needed coverage right away. Her old insurance was ending, and she was to have gallbladder surgery in January. But the Web site would not calculate the federal subsidy to which she knew she was entitled. Terrified to go without coverage, Wilson phoned a federal call center and took the advice she was given: Pay the full price now and appeal later.Now she is stuck.

    Obamacare Computers Still Can't Correct Previous Errors: Report: (Reuters) - The Obama administration on Monday said it will soon begin hearings to resolve problems for people who enrolled in health insurance through the Obamacare website, only to encounter errors including unnecessarily high costs. The U.S. Centers for Medicare and Medicaid Services (CMS), the lead agency responsible for implementing the healthcare reform law, issued a statement saying it was reaching out to consumers with error-ridden enrollments to help them complete applications for coverage without a formal appeal. The statement came in response to a Washington Post report that said about 22,000 Americans have appealed to CMS for help fixing enrollment mistakes that have led to excessive charges, enrolled them in the wrong health plan, or denied them coverage altogether. The appeals have hit a technological dead end, the newspaper reported, because the administration has yet to complete the technology infrastructure necessary to manage the appeals process. Obamacare's rocky implementation has already weathered paralyzing glitches and a public outcry over insurance policy cancellations for millions of people in the health plan market for individuals.

    Anthem to raise some premiums as much as 25% - Thousands of Anthem Blue Cross individual customers with older insurance policies untouched by Obamacare are getting some jarring news: Their premiums are going up as much as 25%. These increases, 16% on average, are slated to go into effect April 1 for up to 306,000 people — unless California regulators persuade the state's largest for-profit health insurer to back down. Amid the fury last fall over canceled health policies, consumer advocates and state officials warned people that holding onto grandfathered policies purchased before the federal healthcare law was enacted in 2010 wouldn't shield them from significant rate hikes. Walter and Kathy Warner of Westlake Village are facing a 25% rate increase, for a total of $1,822 per month. Their premiums had already jumped 53% since 2010, not including this latest change. The California Department of Insurance and the state Department of Managed Health Care are reviewing Anthem's proposed increase, and they are awaiting additional information from the company.  Anthem Blue Cross said its plan to raise rates reflects that escalating healthcare costs are an economic reality industrywide. The company said customers do have new options thanks to the healthcare law. The Affordable Care Act makes it easier for people in this situation to switch coverage because insurers can no longer deny applicants on the basis of preexisting conditions or charge them more because of their medical history. But changing plans isn't an appealing option for some consumers who like the benefits they have now and worry about losing access to their doctors.

    Cost, not 'invincibility,' keeps young people from buying health insurance: Cal State survey -- A Cal State University poll released Monday suggests that the cost of insurance - and not perceived 'invincibility' - is the primary reason why some 18-to-34 year olds - the so-called "Young Invincibles" - are not signing up for health coverage.The survey of students at three CSU campuses indicated that about 30 percent of Cal State students remain uninsured.  Nearly 80 percent of the uninsured respondents said they didn’t have coverage because they couldn’t afford it; only 7 percent said they were uninsured because they didn’t believe they needed insurance. The Young Invincibles are considered crucial to the success of the Affordable Care Act, because as a largely healthy population, their participation in the insurance pool will help keep premiums down. Since open enrollment began last October at Covered California, the state's insurance marketplace, Young Invincibles have made up about 25 percent of those who enroll in a health plan - which is about their portion of the overall population.Another 4 percent who responded to the Cal State survey said they wanted health insurance but had been rejected in the past by an insurance provider. Under the ACA,  insurance firms may no longer deny coverage due to preexisting medical conditions.

    Health Law Goals Face Antitrust Hurdles - This political theater, however, has little relevance to the actual delivery of medical services. For that, the debate that matters has been taking place far from the klieg lights, in a remote courthouse in Idaho, where less than two weeks ago a district judge sided with the Federal Trade Commission and ordered the unwinding of the merger between one of the state’s biggest hospital systems and its biggest independent network of doctors.The ruling against St. Luke’s Health System’s 2012 purchase of the Saltzer Medical Group underlined a potentially important conflict between the nation’s antimonopoly laws and the Affordable Care Act. The new law has encouraged the creation of big, broad accountable care organizations, which are paid to keep patients healthy rather than for individual services.  Judge B. Lynn Winmill seemed to agree. In his decision, he noted that the merger, had he let it stand, would probably have improved patient outcomes: “St. Luke’s is to be applauded,” he wrote, “for its efforts to improve the delivery of health care in the Treasure Valley,” which stretches west from Boise. Still, he slapped it down because the merged group, he reasoned, would be able to demand higher reimbursement rates from health insurers and raise rates for services like X-rays, pushing up health care costs for consumers. “There are other ways” to obtain the desired efficiencies that “do not run such a risk of increased costs,” he concluded.

    Cancer 'tidal wave' on horizon, warns WHO: The globe is facing a "tidal wave" of cancer, and restrictions on alcohol and sugar need to be considered, say World Health Organization scientists. It predicts the number of cancer cases will reach 24 million a year by 2035, but half could be prevented. The WHO said there was now a "real need" to focus on cancer prevention by tackling smoking, obesity and drinking. The World Cancer Research Fund said there was an "alarming" level of naivety about diet's role in cancer. Fourteen million people a year are diagnosed with cancer, but that is predicted to increase to 19 million by 2025, 22 million by 2030 and 24 million by 2035. The developing world will bear the brunt of the extra cases. Chris Wild, the director of the WHO's International Agency for Research on Cancer, told the BBC: "The global cancer burden is increasing and quite markedly, due predominately to the ageing of the populations and population growth. "If we look at the cost of treatment of cancers, it is spiralling out of control, even for the high-income countries. Prevention is absolutely critical and it's been somewhat neglected."  The WHO's World Cancer Report 2014 said the major sources of preventable cancer included:

    • Smoking
    • Infections
    • Alcohol
    • Obesity and inactivity
    • Radiation, both from the sun and medical scans
    • Air pollution and other environmental factors
    • Delayed parenthood, having fewer children and not breastfeeding

    Thank You Fukushima: Global Cancer Cases To Skyrocket The incidence of cancer worldwide is growing at an alarming pace. A new report by the World Health Organization finds that, as USA Today reports, new cancer cases will skyrocket globally from an estimated 14 million in 2012 to 22 million new cases a year within the next two decades, the report says. During that same period, cancer deaths are predicted to rise from an estimated 8.2 million annually to 13 million a year. The total annual cost globally of cancer was estimated to reach approximately $1.16 trillion in 2010, which is damaging the economies of even the richest countries and is way beyond the reach of developing countries. Via USA Today,The most common cancers diagnosed globally in 2012 were those of the lung (1.8 million cases, 13% of the total), breast (1.7 million, 11.9%), and large bowel (1.4 million, 9.7%), the group says. The most common causes of cancer death were cancers of the lung (1.6 million, 19.4% of the total), liver (0.8 million, 9.1%), and stomach (0.7 million, 8.8%)

    Harvesting cash from taxpayers: $1T farm bill will deliver pork to millionaire farmers — $1B per page over 10 years - The video above and this report below are from CBS News: When the Senate votes on passing the new bipartisan farm bill today, it’s deciding on $956 billion tax dollars in spending over 10 years (Note: the bill just passed 68-32). The bill itself is 949 pages. That averages out to over a billion dollars per page. The farm bill has long been a target of taxpayer watchdog groups who criticize many provisions as welfare for corporate giants and special interests. According to US PIRG, the confederation of state Public Interest Research Groups, four percent of agribusiness collected 74 percent of the farm bill subsidies in recent years. Some of the biggest recipients of farm subsidies include Tyson’s Food, Pilgrim’s Pride and Riceland Foods. “These subsidies are pure and simple a boon for special interests, at the expense of average taxpayers.” According to the USDA, the $1 trillion farm bill will provide “a dependable safety net for America’s farmers, ranchers and growers. It would maintain important agricultural research, and ensure access to safe and nutritious food for all Americans.” And yet, according to data from the USDA’s website, it’s not clear that Big Farm really needs a “dependable safety net.” The combined net income of US farmers more than doubled over the last four years, from $60.4 billion in 2009 to an all-time high last year of $131 billion (see brown bars in the chart below). Further, Big Farm’s net worth reached an all-time high last year of $2.7 trillion (see blue bars below), which works out to an average of more than $1.2 million in net worth for each of the nation’s 2.17 million farmers. In other words, the average farmer in America today is a millionaire based on net worth – do they really still need taxpayer life support?

    Congress passes $8.7 billion food stamp cut - It’s official: 850,000 households across the country are set to lose an average of $90 per month in food stamp benefits. The Senate on Tuesday voted 68-32 to send the 2014 Farm Bill – which includes an $8.7 billion cut to food stamps – to President Obama’s desk. Nine Democrats opposed the bill, and 46 members of the Democratic caucus voted for it, joining 22 Republicans. The House passed the law by a similarly commanding margin last Wednesday. After the House vote, White House press secretary Jay Carney made clear that the president would sign off on the legislation. “We are pleased by the progress that we’ve seen,” Carney said last week. “As you know, the president made clear last fall that this was something that he believed Congress needed to and could act in a bipartisan way to get done. If the bill, as it is currently designed, reaches his desk, he would sign it.” In a statement released shortly after the Senate approved the law, President Obama applauded the “strong bipartisan vote.” “As with any compromise, the Farm Bill isn’t perfect – but on the whole, it will make a positive difference not only for the rural economies that grow America’s food, but for our nation,” he said.

    Corporate Welfare vs. Public Welfare  -- Last night on MSNBC's The Last Word, Lawrence O’Donnell in his "Rewrite" compared the new 5-year farm bill to Socialism; where taxpayers have to guarantee profits for large corporate farmers with crop insurance and farm subsidies (bad socialism), while at the same time, the Republicans and the Democrats also agreed cut food stamps (good socialism) for the poor. Fifteen members of Congress or their spouses received $237,921 in federal farm subsidy payments last year, according to a new analysis of Agriculture Department data by the Environmental Working Group. According to Arthur Delaney at the Huffington Post, the House and Senate farm bill will boost subsidies for farmers to buy crop insurance policies that protect them against losses from weather or price changes.The federal government spends about $5 billion a year on direct payments to farmers and $9 billion per year on crop insurance subsidies. Rep. Stephen Fincher (R-Tenn.) and his wife, for example, received $70,574 in direct payments last year. Fincher's payments made headlines after he said during committee debate that lawmakers should cut food stamp spending because they shouldn't use "other people's money" to feed the hungry.Lawrence O’Donnell also pointed out that the taxpayers also foot the bill for sports stadiums, and that organizations like the NFL get tax exempt status—and that they should not be classified as a charity, but should also pay their share of taxes. He says that the team players might make a few million less, but that they'd still make millions, only those at the bottom might earn a little more.

    Turning the ‘Tied’? 2014 Farm Bill and the Future of U.S. Food Aid -- After years of delay, the U.S. Senate voted yesterday in favor of the 2014 Farm Bill, which passed easily in the House or Representatives last week. President Obama is widely expected to sign the bill into law. The bill’s provisions on food aid, though not as far reaching in the end as many had hoped for a year ago, are being hailed as a first step toward more major reform in the future. But newly emerging donors mimicking outdated U.S. food aid practices may muddy the reform efforts. U.S. food aid policy has seen remarkably few major changes since it was initiated 60 years ago, in 1954. Donated food is still required to be primarily grown in the United States, and at least half must still be transported on U.S. flag ships. But in these past 60 years, the world has changed a great deal, making U.S. food aid policy arcane and outdated. NGOs such as Oxfam and others pushing for reform have emphasized these points. A number of progressive aid groups welcomed the new provisions on food aid in the new Farm Bill legislation, especially the regularization of the 2008 pilot project on local and regional procurement (LRP) and its upgrade to a budget of $80 million per year. The food aid provisions in the current bill are still a far cry from what President Obama originally proposed a year ago, which included untying of up to 45% of U.S. food aid. Obama’s earlier proposal was defeated last June in the face of intense lobbying from interests that benefit from tied aid. The vote, however, was incredibly close, which NGOs fighting for reform see as an optimistic sign for the future.

    World Food Prices Fall First Time in Three Months - World food prices fell in January, marking the first decline in three months as lower prices for grains (wheat and corn), sugar, and meat outweighed stronger prices for dairy produce, data from the United Nations’s Rome-based Food and Agriculture Organization showed. The U.N.’s food index, a leading indicator of food inflation which measures the monthly change in price of a basket of edible commodities, averaged 203.4 points in January 2012, falling 1.3% on month and now 4.4% below January 2013’s levels. “We’re seeing lower prices due to abundant supplies, but stronger upturn in demand, such as an increase in the pace of imports from Asia, could limit the decline,” Sugar and vegetable oils fell 5.6% and 3.8% respectively last month, while bumper crops continued to pressure grain prices – now as much as 23% lower than in January 2013.Even meat prices fell a tad in January after having creeping higher at the end of last year, buoyed by higher Chinese demand.“The only notable exception was a rise in dairy prices. The FAO dairy price index registered a 1.3% increase in January to 267.7 points, largely reflecting strong demand, especially from China, North Africa, the Middle East and the Russian Federation,

    Now We Know: Ethanol Caused the 2008 Financial Crisis and the Little Depression - These price jumps in grains have also revealed the chaotic state of economic analysis of agricultural commodity markets. Economists and scientists have engaged in a blame game, apportioning percentages of responsibility for the price spikes to bewildering lists of factors, which include a surge in meat consumption, idiosyncratic regional droughts and fires, speculative bubbles, a new “financialization” of grain markets, the slowdown of global agricultural research spending, jumps in costs of energy, and more. Several observers have claimed to identify a “perfect storm” in the grain markets in 2007/2008, a confluence of some of the factors listed above. In fact, the price jumps since 2005 are best explained by the new policies causing a sustained surge in demand for biofuels. The rises in food prices since 2004 have generated huge wealth transfers to global landholders, agricultural input suppliers, and biofuels producers. The losers have been net consumers of food, including large numbers of the world’s poorest peoples. The cause of this large global redistribution was no perfect storm. Far from being a natural catastrophe, it was the result of new policies to allow and require increased use of grain and oilseed for production of biofuels. Leading this trend were the wealthy countries, initially misinformed about the true global environmental and distributional implications.What does this have to do with the financial crisis of 2008? Simple. As Scott Sumner, Robert Hetzel, and a number of others (see, e.g., here) have documented, the Federal Open Market Committee was focused like a laser on rapidly rising commodities prices, fearing that inflation expectations were about to become unanchored – even as inflation expectations were collapsing in the summer of 2008. But now we know that rising commodities prices had nothing to do with monetary policy, but were caused by an ethanol mandate that enjoyed the bipartisan support of the Bush administration, Congressional Democrats and Congressional Republicans.

    New Report on Genetic Engineering and the TTIP aka TAFTA -- Testbiotech has contributed a new report to the fight against the Transatlantic Trade/Investment Partnership (TTIP), aka TAFTA. The report covers just one part of the ground in demonstrating how globalization assaults like this have nothing to do with legitimate trade* or investment, and everything to do with supply-driven corporate planned economy aggression. The core goal of TAFTA, as the US emphasis on agricultural issues during the negotiations has demonstrated, is to accelerate the GMO assault on European economies, markets, and societies.   The basic thrust of the report is to describe how EU regulation has greatly slowed the commercialization of GMOs, compared to the US; how the US and the GMO cartel hope to use TAFTA as the jackboot to kick in Europe’s door; and the more newfangled kinds of genetic engineering assaults which are newly being deployed or are on the drawing board and which the corporations hope to force upon us with no regulatory hindrance. TAFTA is supposed to forestall any repetition of what happened in Europe with GMOs. [*It's awful how even those who oppose corporatism and globalization seem to have largely assimilated the enemy's Orwellian propaganda term "free trade". It should go without saying that what corporatism calls free trade is not free and has nothing to do with legitimate trade, which can only be demand-driven. "Free trade" globalization, on the contrary, is a command economy dedicated to forcing "markets" for overproduction and for production of things like GMOs which no one wanted in the first place and for which there has never been a natural market. Also, most people tend to have an unexamined positive reaction to terms like "free trade" and "free market". That's why these fraudulent terms were made mainstays of corporate propaganda in the first place. So why would anti-globalization analysts and polemicists want to adopt the same terminology, use the enemy's own terms?]

    Monarch butterfly numbers drop to lowest level since records started:  Monarch butterfly numbers drop to lowest level since records started Decline of Monarch population wintering in Mexico now marks a statistical long-term trend, experts say The number of Monarch butterflies (Danaus plexippus) wintering in Mexico plunged this year to its lowest level since studies began in 1993, leading experts to announce Wednesday that the insects’ annual migration from the United States and Canada is in danger of disappearing. Lincoln Brower, a leading entomologist at Sweet Briar College in Virginia, wrote that “the [Monarch butterfly] migration is definitely proving to be an endangered biological phenomenon.” “The main culprit is now GMO herbicide-resistant corn and soybean crops and herbicides in the USA,” which “leads to the wholesale killing of the monarch’s principal food plant, common milkweed,” Brower wrote in an email.

    A hole in the regulation of GMOs that kudzu could fit through: A little-noticed, almost nonchalant, article in the Columbus Dispatch last week portends substantial environmental and economic mischief. The article notes that Scotts Company is going forward with plans to commercialize GMO Kentucky bluegrass. Mentioned in passing was that this grass, engineered for resistance to the herbicide glyphosate (AKA Roundup), is not regulated by USDA, and that company employees will begin planting the grass at their homes. What was that? Historically, unapproved GMO crops have been grown only in controlled plots, regulated and monitored by USDA (leave aside that these are not adequately regulated either). So why are Scotts employees allowed to grow this grass in an uncontrolled environment? We have to go back to two little-noted decisions by USDA in July of 2011 to understand this. First, in response to a petition from the Center for Food Safety to regulate the GMO bluegrass as a noxious weed under the Plant Protection Act of 2000 (PPA), the USDA decided that, despite fitting the agency’s criteria of a noxious weed, it would deny the petition. Second, USDA decided that because the genes used to make the GMO grass did not come from known plant pests (e.g., plant pathogens), and did not use a plant pest to introduce the genes into the grass, the GMO bluegrass would not be regulated as a possible plant pest. To grasp the importance of this, it must be understood that virtually every previous GMO plant or crop has been regulated as a possible plant pest.

    California Water Officials Cut Delivery as Drought Grows - Officials in drought-stricken California said that for the first time in state history, they won’t be able to provide any water to contractors that supply two-thirds of the population and a million acres of farmland. The California Department of Water Resources, which earlier predicted it would supply about 5 percent of the amount requested, said today it now projects that it won’t be able to deliver any of the 4 million acre-feet of water sought by local agencies. An acre-foot is the volume needed to cover an acre of land one foot deep with water. The reduction means that agencies will have to rely on existing supplies such as ground water or what is in storage behind dams. The Los Angeles-based Metropolitan Water District, serving 19 million people in Southern California, and the San Francisco Public Utilities Commission, which supplies much of the Bay Area, have built up water reserves.  “This isn’t a coming crisis,” said Mark Cowin, director of the Water Resources Department, the state’s largest supplier. “This isn’t an evolving crisis. This is a current crisis.”  Governor Jerry Brown declared a drought emergency Jan. 17 in the most populous U.S. state after three years of below-average rainfall, including the driest year on record, left some reservoirs and rivers at critical levels. He asked residents and businesses to voluntarily cut use by 20 percent and warned that mandatory restrictions may follow.

    Amid drought, California says it won't allot water to local agencies | Al Jazeera America: Amid severe drought conditions, California officials announced Friday they won't send any water from the state's vast reservoir system to local agencies beginning this spring, an unprecedented move that affects drinking water supplies for 25 million people and irrigation for 1 million acres of farmland. The announcement marks the first time in the 54-year history of the State Water Project — a water storage and delivery system of reservoirs, aqueducts, powerplants and pumping plants — that such an action has been taken. The 29 agencies that draw from the state's water-delivery system have other sources, although those also have been hard-hit by the drought. Many farmers in California's Central Valley, one of the most productive agricultural regions in the country, also draw water from a separate system of federally run reservoirs and canals, but that system also will deliver just a fraction of its normal water allotment this year. The announcement affects water deliveries planned to begin this spring, and the allotment could increase if weather patterns change and send more storms into the state. Nevertheless, Friday's announcement puts an exclamation point on California's water shortage, which has been building during three years of below-normal rain and snow.

    Parched, California Cuts Off Tap to Agencies - — Responding to one of the worst droughts in California’s history, state officials announced on Friday that they would cut off the water to local agencies serving 25 million residents and about 750,000 acres of farmland.With no end in sight for the dry spell and reservoirs at historic lows, Mark Cowin, director of the California Department of Water Resources, said his agency needed to preserve what little water remained so it could be used “as wisely as possible.”   It is the first time in the 54-year history of the State Water Project that water allocations to all of the public water agencies it serves have been cut to zero. That decision will force 29 local agencies to look elsewhere for water. Most have other sources they can draw from, such as groundwater and local reservoirs.Related Coverage Severe Drought Grows Worse in CaliforniaJAN. 17, 2014 But the drought has already taken a toll on those supplies, and some cities, particularly in the eastern San Francisco Bay Area, rely almost exclusively on the State Water Project, Mr. Cowin said.“We’ll always keep basic human health and safety as highest priority,” he said. “We’ll try to meet those needs as best we can.” The Metropolitan Water District, which serves much of Southern California, gets about 30 percent of its water from the State Water Project. Most of the farmers served are in Kern County, at the southern end of the Central Valley. Kern County is a major producer of carrots. “Our action is intended to keep as much of the remaining water supplies upstream in reservoirs,” Mr. Cowin said, “so we have it available for the warm period in the summer and fall.”

    Severe Drought Has U.S. West Fearing Worst -  The punishing drought that has swept California is now threatening the state’s drinking water supply.With no sign of rain, 17 rural communities providing water to 40,000 people are in danger of running out within 60 to 120 days. State officials said that the number was likely to rise in the months ahead after the State Water Project, the main municipal water distribution system, announced on Friday that it did not have enough water to supplement the dwindling supplies of local agencies that provide water to an additional 25 million people. It is first time the project has turned off its spigot in its 54-year history.  State officials said they were moving to put emergency plans in place. In the worst case, they said drinking water would have to be brought by truck into parched communities and additional wells would have to be drilled to draw on groundwater. The deteriorating situation would likely mean imposing mandatory water conservation measures on homeowners and businesses, who have already been asked to voluntarily reduce their water use by 20 percent. “Every day this drought goes on we are going to have to tighten the screws on what people are doing” said Gov. Jerry Brown, who was governor during the last major drought here, in 1976-77.  This latest development has underscored the urgency of a drought that has already produced parched fields, starving livestock, and pockets of smog.  “We are on track for having the worst drought in 500 years,” said B. Lynn Ingram, a professor of earth and planetary sciences at the University of California, Berkeley. Already the drought, technically in its third year, is forcing big shifts in behavior. Farmers in Nevada said they had given up on even planting, while ranchers in Northern California and New Mexico said they were being forced to sell off cattle as fields that should be four feet high with grass are a blanket of brown and stunted stalks.

    California Halts Major Water Delivery Service, Yet Doesn’t Call For Mandatory Water Restrictions - The situation is dire in parts of California. Seventeen rural communities are in danger of running out of water in 60 to 120 days, communities that in all are home to about 40,000 residents. Now that the SWP deliveries have stopped, officials predict the number of communities on the brink of running out of water could rise. If communities run out of water, it will have to be trucked in, and additional wells will have to be drilled.  Governor Jerry Brown declared a drought emergency in California in January, and has said his administration is “taking every possible step to prepare the state for the continuing dry conditions we face.” But so far, Brown has only called for voluntary restrictions on water usage from California citizens and businesses, calling on Californians to voluntarily reduce their water consumption by 20 percent. The LA Times’ editorial board questioned this hesitance to enact mandatory restrictions on water, at least at this point in the drought, saying that though Californians have been historically good at conserving water when asked, enacting mandatory restrictions or enforcing them in cities such as Los Angeles, where they’re already in place, makes sense in a mega drought.  “A mandate rather than a request can mean the difference between a homeowner choosing to replace a lawn with a drought-tolerant landscape this year or waiting until next year,” the board writes.

    California drought: 17 communities could run out of water within 60 to 120 days, state says - As California's drought deepens, 17 communities across the state are in danger of running out of water within 60 to 120 days, state officials said Tuesday. In some communities, wells are running dry. In others, reservoirs are nearly empty. Some have long-running problems that predate the drought. The water systems, all in rural areas, serve from 39 to 11,000 residents. They range from the tiny Lompico County Water District in Santa Cruz County to districts that serve the cities of Healdsburg and Cloverdale in Sonoma County. And it could get a lot worse. "As the drought goes on, there will be more that probably show up on the list," . Most of the affected water districts have so few customers that they can't charge enough money to pay for backup water supplies or repair failing equipment, leaving them more vulnerable to drought than large urban areas. The state health department compiled the list after surveying the more than 3,000 water agencies in California last week. The list will be updated weekly, Mazzera said. State health officials are in discussion with leaders of other agencies, including the state Office of Emergency Services and the Federal Emergency Management Agency, to work on immediate solutions, he added. Those could include everything from trucking in water to the health department providing emergency funds for drilling new wells or connecting faltering systems to other water systems.

    California Drought Reaches New Level of Severity Never Recorded on U.S. Drought Monitor in the State - California's historic drought reached a new milestone Thursday when the newly released U.S. Drought Monitor showed that exceptional drought now covers 9 percent of the state. This is the worst possible category of drought in the analysis and is the first time since the Drought Monitor analysis was started in 2000 that any part of the Golden State has seen exceptional drought. The exceptional drought extends from north to south across parts of 11 counties including, southeast Santa Cruz, far southern Santa Clara, San Benito, Merced, western Fresno, eastern Monterey, eastern San Luis Obispo, western Kern, western Madera, Kings and southwest Tulare. According to the U.S. Drought Monitor report, impacts in the exceptional drought area range from wells running dry to no food sources for cattle to graze on, forcing livestock to be sold off. Extreme drought coverage, the second worst category, also increased over the previous week to 67 percent. This is nearly double the coverage of extreme drought that was recorded in the 2007 drought (35 percent), which previously had the highest percentage of extreme drought prior to January 2014. In what is typically one of the wettest months of the year, January 2014 has turned out to be among the driest in history for some cities.

    Western U.S. drought puts big strain on reservoirs | Watch the video - Satellite photos show the Colorado River, which feeds Nevada's Lake Mead, is drying up, meaning the lake is rapidly shrinking. The lake provides water for 20 million people in southern Nevada, southern California and Arizona -- and it's lost 4 trillion gallons of water since 2000. Ben Tracy reports.

    California: Before And After The Drought, And Why It's Only Going To Get Worse -  While the Northeast is blanketed by another winter storm, California has its own, quite inverse, climatic problems in the form of a historic drought which as Bloomberg reports, is forcing farmers in the fertile central valley region to fallow thousands of acres of fields and has left 17 rural towns so low on drinking water that the state may need to start trucking in supplies. It is so bad that water reservoirs are at about 60 percent of average, according to state water data, and falling as rainfall remains at record low levels.  Unfortunately for our California readers, it is going to get worse before it gets better because mountain snowpack is about 12 percent of normal for this time of year. The following picture of California from January and a year ago shows just this dramatic difference, which confirms that there is little hope for the parched state.

    How Climate Change is Worsening California's Epic Drought - Scientists have long predicted that climate change would bring on ever-worsening droughts, especially in semi-arid regions like the U.S. Southwest. As climatologist James Hansen, who co-authored one of the earliest studies on this subject back in 1990, told me this week, “Increasingly intense droughts in California, all of the Southwest, and even into the Midwest have everything to do with human-made climate change.” Why does it matter if climate change is playing a role in the Western drought? As one top researcher on the climate-drought link reconfirmed with me this week, “The U.S. may never again return to the relatively wet conditions experienced from 1977 to 1999.” If his and other projections are correct, then there may be no greater tasks facing humanity than 1) working to slash carbon pollution and avoid the worst climate impact scenarios and 2) figuring out how to feed nine billion people by mid-century in a Dust-Bowl-ifying world. Remarkably, climate scientists specifically predicted a decade ago that Arctic ice loss would bring on worse droughts in the West, especially California. As it turns out, Arctic ice loss has been much faster than the researchers — and indeed all climate modelers — expected. And, of course, California is now in the death-grip of a brutal, record-breaking drought, driven by the very change in the jet stream that scientists had anticipated. Is this just an amazing coincidence — or were the scientists right? And what would that mean for the future? Building on my post from last summer, I talked to the lead researcher and several other of the world’s leading climatologists and drought experts.

    Lake Superior nearing rare ice-over -- A frigid winter is pushing Lake Superior toward a complete ice-over for the first time since 1996, though there's still a ways to go before you can skate from Duluth to the Soo Locks. Lake Superior had at least some ice across an estimated 91 percent of its surface as of Thursday, according to the Great Lakes Environmental Research Laboratory. That compares with the 40-year average annual Lake Superior ice coverage for February of just 30 percent. George Leshkevich has been tracking Great Lakes ice for the National Oceanic and Atmospheric Administration Great Lakes Environmental Research Laboratory since 1973. He's seen all kinds of winters over those 41 years, and all sorts of ice cover. So far, this winter has had among the most rapid ice buildups of his tenure. That matches air temperatures that show this is the coldest winter since 1979. The widespread ice in January and early February this year "wouldn't have been anomalous back in the '70s or with some of the winters in the mid-'90s. But it certainly has been a while since we've seen this much ice this early," Leshkevich said.

    U.K.’s January Flooding Surpasses All 247 Years Of Data On The Books - According to the world’s longest-running weather station, the Radcliffe Meteorological Station at Oxford University, more rain fell there in January than during any winter month since daily recording started in 1767. Total rainfall last month was around 5.8 inches, more than three times the average.   It doesn’t look like February will bring much respite from the deluge. “There will be more wet and windy weather from the Atlantic this week,” Met Office forecaster Callum MacColl told the Guardian. “And the 15-day outlook sees the unsettled theme very much continuing.”The “unsettled theme” applies to the impacts the wet weather is having on communities as well as the conditions that give rise to it. Last week U.K. Environment Minister Owen Paterson ordered for a plan that creates a long-term solution to deal with the flooding, as efforts to keep the damages at bay tested the limits of the country’s Environment Agency’s resources.  The Environment Agency has issued nine severe flood warnings — the highest level of alert — in parts of Southern England and Wales where up to 1.2 inches of rain is scheduled to fall over the weekend. The Agency considers lives to be in danger and is discussing the option of deploying military amphibious vehicles with the Ministry of Defense to help those in need.

    Protecting farms or front rooms? The impossible dilemma that climate change forces upon us -- At last, someone has said it. Chris Smith, chair of the Environment Agency, wrote in the Telegraph of the impossible dilemma facing Britain as climate change leads to ever-worsening flooding:"…This involves tricky issues of policy and priority: town or country, front rooms or farmland? Flood defences cost money; and how much should the taxpayer be prepared to spend on different places, communities and livelihoods – in Somerset, Lincolnshire, Yorkshire, or East Anglia? There’s no bottomless purse, and we need to make difficult but sensible choices about where and what we try to protect."Smith’s words go to the heart of the challenge climate change poses to these shores. Do we continue to defend all parts of the country against rising sea levels and increasing floods – or abandon whole swathes of low-lying land to its fate? This vexed, heartrending conundrum ought to be one of the biggest issues in British politics. Yet it is barely spoken about in Westminster. The scientists and engineers facing up to the problem are far less circumspect. "Retreat is the only sensible policy," says Colin Thorne, professor of physical geography at Nottingham University and respected flooding expert. "If we fight nature, we will lose in the end… Can the Somerset Levels be defended between now and the end of the century? No."

    Searching for signs of Fukushima radiation on North Coast - Two divers hauled a mesh bag full of common brown kelp out of a Mendocino County cove Tuesday, kicking off a scientific search for evidence that radiation from the crippled Fukushima nuclear reactors has traveled 5,000 miles across the Pacific Ocean to California. If cesium isotopes from the reactors ravaged by an earthquake and tsunami nearly three years ago in Japan have reached the state, they will be concentrated in kelp that flourishes along the West Coast, experts say. Initial results from the search, called Kelp Watch 2014 and stretching from Alaska to Mexico, will be posted online by the end of April by marine biologist Steven Manley’s lab at CSU Long Beach. The year-long project, Manley said, intends to answer questions on the minds of many Californians who wonder if the state’s coastal waters — and the food from them — are as safe as they used to be. Biologists say kelp, which grows in abundance along the coast, acts like a sponge in soaking up elements contained in seawater, including, possibly, radiation.Fourteen pounds of raw kelp, dried and ground to one liter of powder at the Bodega facility,will be shipped to Lawrence Berkeley National Laboratory in Berkeley, where $80,000 gamma-ray spectrometers will determine if the kelp absorbed cesium isotopes that match Fukushima’s radioactive fingerprint.

    The Oceans Warmed up Sharply in 2013: We're Going to Need a Bigger Graph - Because the oceans cover some 71% of the Earth's surface and are capable of retaining heat around a thousand times that of the atmosphere, the oceans are where most of the energy from global warming is going - 93.4% over recent decades. So greenhouse gases emitted by human industrial activity not only cause more heat to become trapped in the atmosphere, they also cause more of the sun's energy to accumulate in the oceans. Long-term the oceans have been gaining heat at a rate equivalent to about 2 Hiroshima bombs per second, although this has increased over the last 16 or so years to around 4 per second. In 2013 ocean warming rapidly escalated, rising to a rate in excess of 12 Hiroshima bombs per second - over three times the recent trend. This doesn't necessarily mean we are entering a period of greatly accelerated ocean warming, as there is substantial year-to-year variation in heat uptake by the oceans. It does, however, once again dispel the persistent myth of a pause in global warming, because the Earth has actually continued to warm faster in the last 16 years than it did in the preceding 16 years. As can be seen in Figure 1 below, the global oceans have warmed so quickly in 2013 that the National Oceanographic Data Center (NODC) is going to need a bigger graph.      

    A Mystery Illness Is Causing Starfish to Rip Themselves Into Pieces - Tens of thousands of starfish in the Pacific are dying from a mysterious illness that causes their arms to walk away from them until they rip out. Scientists say about a dozen different species of starfish are afflicted with the disease, which they're calling "sea star wasting syndrome." Cases have been reported on both the east and west coasts. Sick starfish develop lesions on their bodies and begin to twist their arms into knots. The arms then crawl in opposite directions until they rip off. The starfish are unable to regenerate new limbs and die within 24 hours. The disease is spreading up and down the coast, but seems centered around the Pacific from Alaska as far as San Diego. The prevailing theory right now is that a boat carried a pathogen from the other side of the world. Scientists say the theory is supported by the fact that the so-called hotspots generally line up with major shipping routes.The starfish deaths also have a major impact on the ocean ecosystem.  Sea stars are voracious predators, like lions on the seafloor. They gobble up mussels, clams, sea cucumbers, crab and even other starfish. That's why they're called a keystone species, meaning they have a disproportionate impact on an ecosystem, shaping the biodiversity of the seascape.

    Rising Seas - National Geographic Interactive - If All the Ice Melted - he maps here show the world as it is now, with only one difference: All the ice on land has melted and drained into the sea, raising it 216 feet and creating new shorelines for our continents and inland seas. There are more than five million cubic miles of ice on Earth, and some scientists say it would take more than 5,000 years to melt it all. If we continue adding carbon to the atmosphere, we’ll very likely create an ice-free planet, with an average temperature of perhaps 80 degrees Fahrenheit instead of the current 58.

    Sea Level Rise Could Reduce The World Economy By 10 Percent This Century - New research predicts that by 2100, damage from flooding and rising seas could cost the world almost a tenth of its economy. The paper, by researchers at the University of Southampton, modeled the economic effects of future sea level rise, using various projections from the Intergovernmental Panel on Climate Change (IPCC) of future carbon emissions and global warming, along with various models of future economic growth, population growth, and population movement.According to the IPCC’s projections, sea level will rise 25 to 123 centimeters, depending on whether humanity does a lot to tackle climate change or just coasts along with business-as-usual. Using those models, the researchers concluded 0.2 to 4.6 percent of the world’s population will be flooded annually by the end of the century, resulting in annual losses of 0.3 to 9.3 percent of global GDP. For reference, 5 percent of the world’s population in 2100 could mean 600 million people — many of whom will live in deeply impoverished regions like southern Asia. As for GDP, 9.3 percent of that could be over $100 trillion. The researchers also looked into scenarios in which people around the world attempt to protect themselves and their coasts by expanding dikes, levees, and other protection systems. The paper concludes such efforts could reduce the damage from flooding by two or three orders of magnitude, at a cost of $71 billion per year under the most demanding circumstances.

    Lake Ice In Northern Alaska Shows A ‘Dramatic’ Decline In 20 Years, Study Finds - The study, published in The Cryosphere, looked at radar satellite radar imagery from lakes in Alaska’s North Slope and found a decrease in “grounded ice” — or ice frozen completely to the bottom of a lake — of 22 percent from 1991 to 2011. In all, that meant a decrease in ice cover of about 7 to 8.6 inches from 1991 to 2011 and of about 8.2 to 14.9 inches from 1950 to 2011. “Prior to starting our analysis, we were expecting to find a decline in ice thickness and grounded ice based on our examination of temperature and precipitation records of the past five decades from the Barrow meteorological station,” Cristina Surdu, lead author of the study, told “At the end of the analysis, when looking at trend analysis results, we were stunned to observe such a dramatic ice decline during a period of only 20 years.” The authors state that it’s changes in air temperature and precipitation that have made the most difference in the timing, duration and thickness of ice cover on Arctic lakes. That’s in line with other studies on climate change’s effect on the Arctic, which has been found to warm more quickly than other regions — as ice and snow decline due to warming, more heat is absorbed by water and land instead of reflected, causing more ice to retreat. The loss of sea ice particularly affects the Arctic’s warming, with the white, reflective ice giving way to dark, heat-absorbing ocean.

    Greenland’s fastest glacier sets new speed record - The latest observations of Jakobshavn Glacier show that Greenland’s largest glacier is moving ice from land into the ocean at a speed that appears to be the fastest ever recorded. Researchers from the University of Washington and the German Space Agency measured the speed of the glacier in 2012 and 2013. The results were published Feb. 3 in The Cryosphere, an open-access journal of the European Geosciences Union. .“We are now seeing summer speeds more than four times what they were in the 1990s, on a glacier which at that time was believed to be one of the fastest, if not the fastest, glacier in Greenland,” said lead author Ian Joughin, a glaciologist at the UW’s Polar Science Center. The new observations show that in summer of 2012 the glacier reached a record speed of more than 10.5 miles (17 kilometers) per year, or more than 150 feet (46 meters) per day. These appear to be the fastest flow rates recorded for any glacier or ice stream in Greenland or Antarctica, researchers said. The scientists note that the summer speeds are temporary, with the glacier flowing more slowly over the winter months. But they point out that even the glacier’s average annual speed over the past couple of years is nearly three times its average annual speed in the 1990s. This speedup of Jakobshavn means that the glacier is adding more and more ice to the ocean, contributing to sea-level rise.

    Redefining ‘Glacial Pace’: Greenland’s Fastest-Moving Glacier Sets New Speed Record Of 150 Feet A Day - Climate change is remaking our vocabulary. The permafrost ain’t perma thanks to global warming. The Everglades ain’t forever thanks to sea level rise. “Glacial pace” used to mean “suggesting the extreme slowness of a glacier.” But one can hardly use that term when scientists who track warming-induced glacial movement have found that the world’s fastest glacier is speeding up to record levels — and may more than triple its speed again in coming decades: “The latest observations of Jakobshavn Glacier show that Greenland’s largest glacier is moving ice from land into the ocean at a speed that appears to be the fastest ever recorded … in summer of 2012 … more than 10.5 miles (17 kilometers) per year, or more than 150 feet (46 meters) per day. These appear to be the fastest flow rates recorded for any glacier or ice stream in Greenland or Antarctica.” Why is this happening? “The calving front of the glacier is now located in a deeper area of the fjord, where the underlying rock bed is about 0.8 miles (1.3 km) below sea level, which the scientists say explains the record speeds.” But as fast as Jakobshavn is moving now, the study in The Cryosphere predicts it could well speed up even more: While the current increase in annual discharge flux remains less than a factor of three, the increase plausibly could reach or exceed a factor of 10 within decades. This is a consequence of the fact that retreat into deeper water increases both speed and thickness of the terminus.

    Ending the World the Human Way – Climate Change as the Anti-News - Tom Engelhardt - Here’s the scoop: When it comes to climate change, there is no “story,” not in the normal news sense anyway. The fact that 97% of scientists who have weighed in on the issue believe that climate change is a human-caused phenomenon is not a story.  That only one of 9,137 peer-reviewed papers on climate change published between November 2012 and December 2013 rejected human causation is not a story either, nor is the fact that only 24 out of 13,950 such articles did so over 21 years.  That the anything-but-extreme Intergovernmental Panel on Climate Change (IPCC) offers an at least 95% guarantee of human causation for global warming is not a story, nor is the recent revelation that IPCC experts believe we only have 15 years left to rein in carbon emissions or we’ll need new technologies not yet in existence which may never be effective.  Nor is the recent poll showing that only 47% of Americans believe climate change is human-caused (a drop of 7% since 2012) or that the percentage who believe climate change is occurring for any reason has also declined since 2012 from 70% to 63%.  Nor is the fact that, as the effects of climate change came ever closer to home, media coverage of the subject dropped between 2010 and 2012 and, though rising in 2013, was still well below coverage levels for 2007 to 2009.  Nor is it a story that European nations, already light years ahead of the United States on phasing out fossil fuels, recently began considering cutbacks on some of their climate change goals, nor that U.S. carbon emissions actually rose in 2013, nor that the southern part of the much disputed Keystone XL pipeline, which is to bring particularly carbon-dirty tar sands from Alberta, Canada, to the U.S. Gulf Coast, is now in operation, nor that 2013 will have been either the fourth or seventh hottest year on record, depending on how you do the numbers.

    Industry groups plan "unified strategy" against EPA carbon pollution rules (Reuters) - Forty industry groups launched a new partnership on Thursday to form a "unified strategy" to respond to forthcoming federal regulations targeting carbon emissions from the country's fleet of power plants and other carbon-intensive facilities. Led by the National Association of Manufacturers (NAM) and the U.S. Chamber of Commerce Institute for 21st Century Energy, the group will lobby local, state and national lawmakers and educate the public about what they believe will be the economic impact of future regulation. NAM President and chief executive officer Jay Timmons and other members of the Partnership for a Better Energy Future said President Barack Obama's climate action plan, which will target domestic emissions through executive actions, such as power plant emission standards, aims to completely eliminate fossil fuels from the U.S. economy. true "To remain competitive in a global economy, manufacturers need an 'all-of-the-above' energy strategy to ensure they have access to affordable and reliable energy," Timmons said in a statement. Obama touted what he said was a successful energy approach in his State of the Union address on Tuesday night, saying the strategy has enabled an expansion of natural gas and oil production while driving a decline in greenhouse gas emissions. "The all-of-the-above energy strategy I announced a few years ago is working, and today, America is closer to energy independence than we've been in decades," he said.

    Emissions impossible: Did spies sink key climate deal?: The revelations of the NSA whistleblower, Edward Snowden, are an ongoing embarrassment for the US government. From Angry Birds to the mobile phone of Angela Merkel to the banal conversations of millions of people, the scale of the National Secutiry Agency's spying activities knew few boundaries.   But can the world's inability to fix the problem of global warming also be laid at the spooks' door? Wind your mind back to December 2009, when world leaders converged on Copenhagen to cook up a global climate deal that would solve the problem of rising temperatures. But it appears the US already knew what everyone else was thinking. According to documents released to a Danish newspaper by Snowden, the NSA was ready, willing and able to provide "unique, timely and valuable" insights into the negotiating positions of the countries that attended the blockbuster summit. By monitoring "signals intelligence", the spies would keep US negotiators "as well informed as possible" about "sidebar discussions", informal huddles and corridor conversations during the two week conference. In other words, the sneaky buggers (well, they do install bugs, don't they?) were giving the US a major advantage in the negotiations.

    President Obama, Are You Going to Detonate the World’s Largest “Carbon Bomb”? - In your State of the Union address this week, you have showed yourself to be perhaps of “two minds” with regard to action on climate change.  On the one hand, you made a brief statement which affirmed that “Climate change is a fact”.   Yet in the same speech you spent more time touting your Administration’s “all of the above” energy plan, which does not categorically distinguish between non-polluting renewable energy and polluting sources of energy like oil and natural gas.  You based your enthusiasm for “all of the above” on the chimera of “energy independence” when it comes to fossil fuel extraction, ignoring the role of international markets in determining where oil and increasingly natural gas is consumed, no matter where it is extracted.  . A cynic reading your speech might come to the conclusion that you were a President with a primary allegiance to the oil and gas industry, who used some throwaway remarks about climate change, energy efficiency, and renewable energy as political cover against criticism of your energy policy… It would appear, given the contents of the State Department EIS released today, that you are surrounded or you have surrounded yourself with government contractors and officials who are enablers of our country’s and our world’s catastrophic, in the words of your predecessor in office, “addiction to oil” and other fossil fuels.  That report, which severely underestimates the climate impacts of tar sands exploitation enabled by the pipeline as well as the economic importance of the pipeline, was produced by a firm that has direct ties to TransCanada, the builder of the pipeline, and other oil and gas industry players.  For each gallon of tar sands oil produced, approximately 70-110% more greenhouse gases are emitted “well to tank” than for a conventionally produced gallon of gasoline.  The KXL pipeline is the object of such intense lobbying by the Canadian government and the oil industry because it will in fact have a critical role in reducing the costs of and therefore the extent of exploitation of the tar sands.  The oil industry-tainted report has every appearance of a short-sighted means to “grease the skids” for you to approve the Keystone XL pipeline.

    Keystone: The Pipeline to Disaster, by Jeff Sachs -- The new State Department Environmental Impact Statement for the Keystone Pipeline does three things. First, it signals a greater likelihood that the pipeline project will be approved later this year by the administration. Second, it vividly illustrates the depth of confusion of US climate change policy. Third, it self-portrays the US Government as a helpless bystander to climate calamity. According to the State Department report, we are trapped in the Big Oil Status Quo We Can Believe In.  The proposed pipeline will complete a pipeline network running from Alberta, Canada to the US Gulf Coast, carrying petroleum produced from Alberta's oil sands to the Gulf refineries. The volumes will be enormous, roughly 830,000 barrels per day. The pipeline will thereby facilitate the mass extraction and use of Canada's enormous unconventional supplies. Therein lies the problem.  The overwhelming scientific consensus is that human-induced climate change is occurring; that the world is experiencing a rapidly rising frequency of extreme climate-related events such as heat waves; and that there is much worse to come unless we change course on the use of fossil fuels. Specifically, with energy business as usual, the world is on a trajectory to raise the mean global temperature by at least 3 degrees C (5.4 degrees F) by the end of century, and possibly far more, a climate disruption that most scientists regard as catastrophic. The world's governments have agreed to try to keep the temperature increase below 2-degrees C, yet until now they've done far too little to meet that target.

    Fire Prompts Evacuation of Nuclear Repository - ABC News: Emergency crews are battling a fire in the federal government's underground nuclear waste repository in southeastern New Mexico. Officials say a truck hauling salt caught fire about 11 a.m. Wednesday at the Waste Isolation Pilot Plant near Carlsbad, N.M. According to a press release and a spokeswoman who answered the emergency line, all employees have been evacuated and none of the radioactive waste has been impacted. But a press release says "multiple employees" are being taken to a hospital for potential smoke inhalation. Emergency officials say all waste handling operations are suspended and rescue teams have been activated. The repository takes plutonium-contaminated waste like clothing, tools and other debris from Los Alamos National Laboratory and defense projects. The waste is then buried in rooms cut from underground salt beds.

    Record strontium-90 level in Fukushima groundwater sample last July | The Japan Times: – Tepco says a groundwater sample taken from a well at the Fukushima No. 1 nuclear plant last July contained a record high 5 million becquerels per liter of radioactive strontium-90. Tokyo Electric Power Co. initially said it had detected 900,000 becquerels per liter of beta ray-emitting radioactive substances, such as strontium, in the sample taken July 5 but then found problems in the measuring equipment in October. Strontium-90 usually accounts for about a half of all beta particle-emitting substances in contaminated water at the disaster-stricken power station. The total amount of beta particle-emitting materials in the samples are likely to be around 10 million becquerels, far higher than the previous high of 3.1 million becquerels for that well, a Tepco official said Thursday. Tepco stopped releasing strontium-90 data after finding problems in the readings for July and August. It recently found mistakes in its calculation method and obtained new readings through rechecks. According to Tepco officials, readings of beta particle-emitting substances in water tend to come out lower than actual amounts when concentrations are high, for instance 100,000 becquerels per liter or more. To deal with the problem, Tepco changed its measurement method in October, but it did not announce the change at that time.

    Tens of Thousands of Tons of Coal Ash Spilling Into N.C. River - Up to 82,000 tons of coal ash and 27 million gallons of polluted water have poured into North Carolina's Dan River after a pipe burst beneath a coal ash pond owned by Duke Energy."The Dan River is very gray and ashy looking, incredibly dark," Amy Adams of Appalachian Voices told Common Dreams as she stood at the river. "It looks like if you had mixed your run-of-the-mill campfire ash in a five-gallon bucket of water." According to the utility company, the incident occurred Sunday afternoon at the now-shuttered Dan River Steam Station in Eden, which was retired in 2012 and is now a dumping ground for ash left behind by burned coal. The company waited until Monday to announce the disaster to the public, infuriating local residents and environmental organizations.Duke spokeswoman Catherine Butler says the utility can provide no concrete numbers on the magnitude of the spill and claimed that the leak has been stopped for now yet has not been permanently repaired, according to the Charlotte Business Journal.Yet Adams told Common Dreams that the spill is still ongoing.Residents and environmental groups are demanding that Duke Energy and the North Carolina Department of Environment and Natural Resources immediately and publicly disclose the full extent of the disaster.

    Up To 82,000 Tons Of Toxic Coal Ash Spilled Into North Carolina River From ‘Antiquated’ Storage Pit -- A stormwater pipe under an unlined coal ash pond at a shuttered plant in Eden, North Carolina, burst Sunday afternoon — draining tens of thousands of tons of coal ash into the Dan River.  Duke Energy, which owns the Dan River Steam Station, retired since 2012, estimates that 50,000 to 82,000 tons of coal ash and up to 27 million gallons of water were released from the 27-acre storage pond. The leak has at least temporarily been stopped, while Duke works on a more permanent solution. Coal ash is a toxic waste byproduct from burning coal, usually stored with water in large ponds. The closest community at risk from the spill is Danville, Virginia, which takes its water from the Dan River about six miles downstream of the pond. No water quality issues have been reported so far.  “This is the latest, loudest alarm bell yet that Duke should not be storing coal ash in antiquated pits near our state’s waterways,” Frank Holleman, an attorney for the Southern Environmental Law Center (SELC) told the Charlotte Business Journal.  SELC and others have been calling for Duke to remove ash from earthen basins such as the one at Dan River to more secure lined ponds to protect local water sources. Duke has 14 coal-fired power plants in the state, 7 of which have been retired.

    Up to 82,000 tons of toxic coal ash spilled into N.C. river - Up to 50,000 to 82,000 tons of coal ash and up to 27 million gallons of water were dumped into North Carolina’s Dan River, Duke Energy announced Monday. The leak, which began Sunday afternoon, stemmed from a broken pipe underneath a coal ash pond containing the waste left behind from a now-defunct power plant — waste that, according to the Associated Press, contains “arsenic, mercury, lead, and over a dozen other heavy metals, many of them toxic.” The Charlotte Observer reports: A security guard spotted an unusually low water level in the ash pond about 2 p.m. Sunday, leading to the discovery of the pipe break. Ash was visible on the banks of the Dan River on Monday, and the water was tinted gray. “While it is early in the investigation and state officials do not yet know of any possible impacts to water quality, staff members have been notifying downstream communities with drinking water intakes,” the North Carolina environmental agency reported late Monday afternoon.Danville, Va.’s water intake is about 6 miles downstream of the pond. Barry Dunkley, the city’s water director, said in a release that “all water leaving our treatment facility has met public health standards. We do not anticipate any problems going forward in treating the water we draw from the Dan River.”

    Water Samples Show Disturbing Levels of Heavy Metals from Duke Energy Coal Ash Spill - Today Waterkeeper Alliance and Yadkin Riverkeeper issued the results of water sampling from the Dan River in the wake of the third largest coal ash spill in U.S. history. A certified laboratory analysis of Waterkeeper’s samples, completed today, reveals that the water immediately downstream of Duke Energy’s ash spill is contaminated with extremely high levels of arsenic, chromium, iron, lead and other toxic metals typically found in coal ash.  Late Monday afternoon Duke Energy reported that it spilled an estimated 50,000 to 82,000 tons of coal ash mixed with 27 million gallons of water into the Dan River near Eden, North Carolina, although Duke has not updated the initial spill estimates despite ongoing discharges for the last four days. Several groups have also criticized the state regulators for failing to alert the public of a massive toxic waste release into a drinking water source for at least 24 hours after they claim to have become aware of the spill. On Feb. 4, Waterkeeper Alliance took water samples from a stretch of the Dan River downstream of the spill located between Eden, North Carolina, and Danville, Virginia. [See the map of samples here.] . Laboratory results of Waterkeeper’s samples, also show that, compared to the levels found in a “background” water sample taken upstream of the spill, arsenic levels immediately downstream of the spill are nearly 30 times higher, chromium levels are more than 27 times higher, and lead levels are more than 13 times higher because of Duke Energy’s coal ash waste. Waterkeeper’s testing found an arsenic concentration in the polluted water immediately below the discharge of 0.349 mg/L. Arsenic is a toxic metal commonly found in coal ash and is lethal in high concentrations. The 0.349 mg/L concentration found in Waterkeeper’s sample is greater than Environmental Protection Agency’s (EPA) water quality criterion for protection of fish and wildlife from acute risks of injury or death. It is more than twice as high as EPA’s chronic exposure criterion for fish and wildlife, and is almost 35 times greater than the maximum contaminant level (MCL) standard that EPA considers acceptable in drinking water. 

    Report: River Contaminated With High Levels Of Lead, Arsenic, Mercury After NC Coal Ash Spill - So far, initial reports indicate that Danville, Virginia’s water supply is reportedly safe from the toxic slurry of coal ash that had spilled into a river upstream four days earlier.  But a lab analysis of Dan River’s water, conducted by Waterkeeper Alliance, show sobering findings. As opposed to “background” water tests Duke Energy allegedly collected, Waterkeeper’s analysis found the water immediately downstream of the spill with high levels of mercury, arsenic, lead, and other toxins. Waterkeeper reported that the 0.129 mg/L for lead concentration alone is 50 times greater than the Environmental Protection Agency’s recommendation for wildlife and 1000 times the maximum for drinking water.  “Our sample crew on the Dan River today reports that there is still coal ash waste dripping out of the pipe,” Donna Lisenby, Global Coal Campaign Coordinator for Waterkeeper Alliance, said in a press release. “Waterkeeper Alliance is very concerned that neither Duke Energy nor government officials have released any heavy metal test results from the ash being discharged into the Dan River.” Sunday afternoon, a storm pipe under a coal ash pond located between Danville, Virginia, and Eden, North Carolina ruptured. The toxic brew that covered the river looked like “lava” or gray sludge, eyewitnesses said. In a statement Wednesday, a Danville, Virginia spokesperson maintained no arsenic or heavy metals have been found in the first samples of river water.

    Could The EPA Have Prevented Toxic Waste From Filling The Dan River? -- As the Obama Administration continued delaying regulation of coal ash, up to 82,000 tons of it spilled into North Carolina’s Dan River from an “antiquated” storage pit, contaminating the river with high levels of lead, arsenic and mercury. Danville, Virginia draws its drinking water from the Dan River and is located 25 miles downstream from the spill. Five days after the spill, Danville’s water appears to be safe, but the long-term effects of the spill will not be known for some time.  Sunday’s spill occurred at the kind of storage basin that has been long-criticized by public health advocates: an earthen pond located near a major waterway that provides drinking water to nearby towns. A storm pipe under the basin ruptured Sunday, allowing 27 million gallons of water mixed with up to 82,000 tons of ash to flow out and into the river before the leak was stopped. Many utilities have begun using lined storage ponds placed farther away from waterways to store ash, but absent federal regulation, spills like this one are likely to continue. A judge ordered the Environmental Protection Agency (EPA) to set a deadline for creating the first-ever federal coal ash regulations due to a lawsuit from public health and Native American groups, which they set for the end of 2014. It is currently unclear what those regulations will entail or when they will be implemented.

    Death by sludge, coal and climate change for Great Barrier Reef? - "Death by a thousand cuts," they call it, as small chunks of habitat are lost and environmental laws are eased or repealed. A bit of bush here for a tourism development, a stand of mangroves there for a beachside resort. An entire nature reserve for a coal mine. Sometimes, the threats come like pincer movements with all angles covered.  For the Great Barrier Reef, though, the world's most famous and largest coral reef system, a final decision passed down today gives us another gash, through which could rush millions of tonnes of coal. The reef is being threatened from all sides. Dredging for coal and gas ports. Increased shipping frequency. Run off from agricultural developments. Increased ocean acidity and rises in sea temperatures from fossil fuel burning. The threats have got the reef surrounded. Now the government's Great Barrier Reef Marine Park Authority (GBRMPA) has decided to allow up to three million cubic metres of ocean bottom to be dredged and then dumped within the borders of the marine park and also the Great Barrier Reef World Heritage area. The decision is another necessary block removed in order to liberate millions of tonnes of coal from Queensland's Galilee Basin, where miners hope to then rail it to shore and load it onto containers at an expanded coal terminal at Abbot Point. The dredging is to make way for the ships as they weave their way through the Great Barrier Reef – a wondrous icon of the blue planet that doubles as the world's most iconic coal shipping lane. Most of the coal is destined for Asia and India, where it will be burned, releasing more greenhouse gases to warm the oceans and the atmosphere.

    Consumers Paying More As Nat Gas Cash Prices Spike -- As natural gas prices climb, reaching over $5/mcf again on 4 February, and with an unseasonably cold winter, local utilities say that natural gas customers’ bills are 30-40% higher now than last winter. Last week, we saw natural gas prices rise above $5 for the first time in three years, then falling back a bit only to rise again on 4 February, with March futures trading above $5.25/mcf—or more than 6%, according to expert trader Dan Dicker. Customers are footing the bill for higher gas prices and the coldest November-January period in four years in the Midwest and Northeast. Utilities are paying high prices for gas because demand has been higher and consumption rates at a level that has reduced storage by about 17% over the average of the previous five years. 

    Much Of North Dakota's Natural Gas Is Going Up In Flames -- NPR - North Dakota's oil boom isn't just about oil; a lot of natural gas comes out of the ground at the same time. But there's a problem with that: The state doesn't have the pipelines needed to transport all of that gas to market. There's also no place to store it. In many cases, drillers are simply burning it. "People are estimating it's about $1 million a day just being thrown into the air," says Marcus Stewart, an energy analyst with Bentek Energy. Stewart tracks the amount of gas burned off — or flared — in the state, and his latest figures show that drillers are burning about 27 percent of the gas they produce. While that percentage has been declining, Stewart says the overall amount of wasted gas is still rising as more oil wells are drilled. Part of the problem is the energy industry's focus. As drillers arrived to tap the riches of the Bakken shale formation under western North Dakota, they were looking for oil, not natural gas. Now that they've found gas, it's taking time and money to build the pipelines and processing plants to use it. Meanwhile, infrastructure for the oil rush needs to be built, too, and oil prices are relatively high, while natural gas prices are really low. That means companies are investing in oil infrastructure first.

    Oil And Gas Facilities Need To Start Reporting Their Chemical Emissions To The EPA, Group Says - Large oil and gas facilities across the U.S. are releasing a total of 8.5 million tons of chemicals into the environment each year without having to report their emissions to a public EPA database, according to a new report.The report, put together by the Environmental Integrity Project, states that a loophole allows oil and gas facilities — excluding refineries but including wells, storage tanks, gas processing plants and most pump stations — to avoid reporting their emissions to the Toxics Release Inventory (TRI). TRI is a public database operated by the EPA that keeps track of the release and management of certain potentially harmful toxic chemicals. Researchers from EIP looked at national and state emissions inventories for Colorado, Louisiana, North Dakota, Pennsylvania, Texas, and Wyoming, and found that 395 facilities emitted more than 10,000 pounds each of at least one toxic chemical, a threshold which would have required them to report their emissions under the TRI if they had been facilities under another industry.  Though the EIP researchers were able to determine some of the emissions information for these facilities through state and national records, they said on a call last week that data for some years were missing, and some states don’t require facilities to report quantities of individual chemicals. If the facilities were required to report to TRI, it would make it much easier for citizens who live nearby these facilities to find out about what chemicals the facilities are emitting, the EIP representatives said.

    Pennsylvania Governor Wants To Scrap The Ban On Gas Drilling In State Parks And Forests - As part of his state’s overall budget for the coming fiscal year, Pennsylvania governor Tom Corbett has proposed lifting a 4-year-old ban on gas drilling in state parks and forests, saying leasing those public lands to private companies would bring an additional $75 million in new revenue to the state. Though Corbett didn’t specifically talk about his proposal to lift the ban during his public presentation of his $29.4 billion spending plan Tuesday, he did talk up the benefit of reaping fossil fuels from the Marcellus Shale — an essential act if Pennsylvania is to become the second-largest producer of natural gas in the nation, according to NPR. “Shale gas offers our country a chance at energy independence and greater economic security,” Corbett said, noting the state could also derive a substantial amount of additional royalty revenue in the future from the gas produced on state land. “It’s part of the all-of-the-above strategy we’ve put in place.”  The last time drilling was allowed on Pennsylvania’s state parks and forests was in 2010, when former state Gov. Ed Rendell leased more than 700,000 acres of state forest land. Afterward, Rendell signed an executive order to put a moratorium on additional leasing. The executive order, however, is fragile — Corbett could undo the ban with the stroke of a pen.

    Frackquakes: Public Opposition Builds As Property Rights Are Endangered in Texas - The earthquakes you may have heard about—the 30 tremblers that have struck north central Texas since November 1, 2013, and have damaged many homes. The quakes are most likely being caused by underground disposal wells used to get rid of wastewater generated during fracking operations. “Frackquakes,” some are calling them.  And they seem to be changing Texans’ opinions about fracking. The oil and gas is cleaned and piped and sold. But what of the toxics-laced flowback fluid and other (briny, and sometimes radioactive) water produced by the well?  Although some of it is reused, the vast majority of it must be disposed of. The disposal of fracking wastewater (flowback plus produced water) is what causes fracking earthquakes. Because of the chemicals in fracking wastewater, it cannot be treated at an ordinary sewage wastewater treatment plant. Instead, it is injected in another well deep underground. It has long been known that this type of wastewater injection deep underground can lead to earthquakes when it occurs near a fault . So it is no surprise that as fracking has become near universal—more than 90% of all new oil and gas wells are fracked—that the number of fracking wastewater injection wells and associated earthquakes has soared as well.

    New Report: Fracking Is Stressing Water Supplies In Areas Already Wracked By Drought - Extensive and rapid development of oil and gas resources by hydraulic fracturing in areas of the U.S. that are already dry or in drought is putting significant strains on water supplies, a new analysis finds.The report by Ceres, a non-profit that works to mobilize companies and investors to promote sustainability, found that more than 55 percent of the wells that were hydraulically fractured, or fracked, between 2011 and 2013 were in areas experiencing drought and that nearly half were in areas with high or extremely high water stress. In areas with extremely high water stress, more than four-fifths of surface and groundwater is already committed to other uses.The report used data on 39,294 wells. During the time period covered by the Ceres study, 97 billion gallons of water were used for fracking, almost half of it in Texas.  Development of oil and gas from shale formations has a particular reliance on groundwater, which are at higher risk of being depleted because that water source is generally less well regulated than surface waters.The report described Texas as “ground zero for water sourcing risks.” Water use by fracking there is expected to double over the next decade, and more than two-thirds of the state is experiencing drought. California and Colorado are also at significant risk, according to Ceres. In Colorado the demand for water use in fracking will double by next year to 6 billion gallons, the report projected.  “Future water demand for hydraulic fracturing will only grow with tens of thousands of additional wells slated to be drilled, and many shale basins and plays are just beginning to be developed,” the report said.

    As Drought Hits, Fracking Poses Threat to Water Supply -- Yves here. It’s striking how, in various discussions of resources constraints, potable water is almost never on the list. Yet on current trajectories it’s the one where we run into limits first, around 2050. And although some people like to point to desalination or reuse as remedies, those take energy, and energy is another scarce resource. Thus in general, the first line of defense is not newer better technology, but conservation. So I’ve also been surprised at how long it has taken to point out one of the big costs of fracking: the large amounts of water it consumes and contaminates. A new report finds that hydraulic fracturing is posing a growing risk to water supplies in several regions around the country. Only, instead of groundwater contamination that so often makes the headlines, it is from the massive consumption of fresh water in water-parched areas like Texas, Colorado, and California. Hydraulic fracturing (“fracking”) requires millions of gallons of water to frack single well, and in places that are suffering epic droughts, fracking is increasingly competing for access to water with other uses.  The report, “Hydraulic Fracturing and Water Stress,” comes from Ceres, a network of investors, companies, and public interest groups that pushes investor money towards sustainable practices. Ceres finds that about three-quarters of all the 39,294 wells hydraulically fractured between January 2011 and May 2013 (the time period they studied) have occurred in water scarce areas, and more than half in areas suffering from drought.  The report finds that, “Texas is ground zero for water sourcing risks due to intense shale energy production in recent years.” And the problem of water use is compounded by the fact that Texas has been suffering from several years of meager rainfall. As Ceres notes, “over two-thirds of Texas continues to experience drought conditions, key groundwater aquifers are under stress and the state’s population is growing.” There are 29 communities in Texas with a presence of oil and gas drilling that are in danger of running out of water within days.

    GRANTHAM: The Great American Shale Boom Is A Dangerous Waste Of Time And Money - Jeremy Grantham, whose GMO LLC investment firm manages $117 billion in assets, says the Great American Shale Boom is a dangerous waste of time and money.  Grantham, who started his career as an economist at Shell, recently contemplated attending an anti-Keystone Pipeline demonstration in front of the White House.   In his new letter to clients, Grantham explains why any country, from the U.S. to China, still going down the path of developing fossil fuels is walking into a trap.   First, he argues we are overstating the benefits of switching to natural gas:  “Fracking gas,” like all natural gas, is basically methane. Methane unfortunately is an even more potent greenhouse gas than CO2: at an interval of 100 years it is now estimated to be 32 times as bad, and at 20 years to be 72 times worse! If it leaks from well head to stove by more than 3%, it gives back its critical advantage and becomes no better than coal in its climate effect. Emissions, for whatever reasons, have not been carefully monitored.  In old cities with Victorian era gas lines, leakage will be terrible – probably 2% or 3% on their own. At some “cowboy” wells, emissions will be much higher than that.    Next, he discusses the links between fracking and earthquakes:  Exhibit 1 [below]  is my favorite example of circumstantial evidence (presented initially in Science). You can see that in the Midwest earthquakes measuring over 3.0 on the Richter Scale occurred with the almost remarkable regularity of 17 a day on average. Decade after decade this pattern continued – producing a remarkably straight line – until 2002, when the line climbed steadily above trend, coincident with the drilling of fracking wells in the region. From 2002 until now the average has risen by over three times to 54 a day and peaked in 2011 at 171! There is no prize for pointing out that few, if any, individual incidents can be attributed to a particular well with certainty, but to me at least the connection is clear and statistically certain..

    Grand Jury Launches Criminal Investigation Into West Virginia’s Chemical Spill - A federal grand jury has begun a criminal investigation into last month’s chemical spill in West Virginia, looking into Freedom Industries and West Virginia American Water Company. According to CNN, subpoenas have been issued for the investigation, which started soon after a holding tank owned by Freedom Industries spilled about 10,000 gallons of crude MCHM and PPH into the Elk River on January 9. United States Attorney Booth Goodwin said on January 10 that his office had “opened an investigation into the circumstances surrounding the release,” and the grand jury’s actions marks steps forward in that case.  Though water bans have been lifted in West Virginia, many residents are still hesitant to drink and use their water — caution that was underscored on Tuesday, when an independent water test initiated by CNN found that there are still trace quantities of MCHM in untreated river water and tap water at two locations in Charleston. The CDC has maintained that levels of crude MCHM below 1 part per million are safe — however, questions remain about whether that threshold is truly safe. “The water ban has been lifted, but too many west Virginians are left wondering if their water is really safe,” Tennant said people she’s talked to in West Virginia are melting down snow in order to give their children baths. They don’t trust reports of safe water, she said, because there’s so little information on the safety of the chemical. Just last week, news broke that crude MCHM can break down into formaldehyde, which can cause cancer.

    The West Virginia Water Contamination Crisis Is Far From Over -  Nearly one month after a massive chemical leak was discovered in Charleston, West Virginia — just upstream from the water intake facility that provides drinking water to Raines’ home and to the homes of 300,000 West Virginians — residents and experts alike remain concerned about the water they’ve repeatedly been told is safe. “The scariest part is that we really just don’t know what’s going to happen,” Raines said. “All of us are using the water now and we’re okay now but in 30 years — I’m young, I don’t want to in 30 years realize that I have cancer because of this water.” On Thursday, health officials received complaints from 14 Kanawha County schools about the licorice-like smell characteristic of crude MCHM, a chemical mixture used in the coal production process. Several schools were closed and children sent home, all after the buildings had been classified as ‘non-detect’ and given the green light to flush the system and reopen. So what’s happening? “Our analytical capabilities have limitations,” explained Marc Glass, principal at the environmental consulting firm Downstream Strategies. The Morgantown, West Virginia-based firm has been conducting its own testing of water in private homes and businesses and the results have proven to Glass that “our noses can detect the presence of some component of the crude MCHM or something that was spilled from Freedom … at a lower level than our chemistry can detect.”

    Train Full Of Hazardous Materials Derails Near Mississippi Mobile Home Park -- A train carrying fuel oil, fertilizer, methanol derailed in southeast Mississippi Friday morning, forcing a local evacuation, officials said.  There was no fire or explosion, but 50 people living within a half-mile radius were evacuated, and a nearby highway was shut down as a precaution. “They’ve got these spills pretty much contained and secured, and we’re working on starting the cleanup process at this point,” local sheriff Jimmy Dale Smith said from the scene. The train — owner and operated by Canadian National Railway Company — was running from from Jackson, Mississippi to Mobile, Alabama, when it derailed near a mobile home park outside the town of New Augusta around 9am Friday morning. Various reports state the pileup involved anywhere from 18 tot 21 cars, and that four to eight of the cars were leaking at some point. No injuries have so far been reported. As North American crude oil production boomed in 2013, fuel-by-rail has doubled. Spills are the luckier of the possible derailment scenarios. 2013 saw a number of rail crashes in the U.S. and Canada that ended in flames. These included derailments in Alabama, North Dakota, and the Canadian province of Quebec — in the latter case, the derailment and explosion flattened half of a small town and killed 47 people.

    Train Spills 12,000 Gallons Of Oil In Minnesota, No Major Cleanup Effort Planned - 12,000 gallons of crude oil leaked from a Canadian Pacific Railway train on Monday in Minnesota, dribbling oil along the tracks for 68 miles, according to local media reports.  Officials at the Minnesota Pollution Control Agency said Tuesday they would investigate the cause of the spill, but said no major cleanup effort was planned because of its relatively small size (one single tanker car carries 26,000 gallons) and the way that it happened: the tanker carrying the oil didn’t derail and leak all in one place, rather oil gradually splattered out of the car between the rails onto the track bed as the train was moving. The leak, according to the Star-Tribune, was traced to a valve or cap problem.  “It’s like it spray-painted oil,” MPCA spokesperson Cathy Rofshus told the Leader-Telegram. There were no reported pools of oil, Rofshus added, saying the agency would continue to monitor the area’s conditions.

    The ‘Traveling Bombs’ That Could Devastate A Major American City - SPOKANE— Railroads made this eastern Washington city a commercial powerhouse in the inland Northwest. But with a spate of recent fiery, and even deadly, accidents involving trains carrying crude oil from the booming Bakken oil field in North Dakota and Montana, railroad traffic here is increasingly being viewed as a threat rather than a blessing. Only one or two oil trains a day now come through Spokane, where the tracks parallel the river for long stretches, cross over it, and run straight through the downtown core — not far from hospitals, schools, businesses and residential neighborhoods. But plans to expand or construct nearly a dozen oil by rail projects on the West Coast could soon bring as many as 11 fully loaded oil trains a day through Spokane, carrying Bakken crude to refineries or shipping terminals to the west, and then returning empty to North Dakota.   From a safety point of view, it’s a huge issue … They blow up if there is a crash.  The biggest oil by rail terminal in the Pacific Northwest is being planned for the port of Vancouver, Washington. That facility would move as much as 360,000 barrels a day off trains and onto ships for transport to refineries along the West Coast. If all of the proposed projects are built, they could handle nearly 800,000 barrels a day, only slightly less than the controversial Keystone XL pipeline.

    Oil sands pollution two to three times higher than thought (Update): The amount of harmful pollutants released in the process of recovering oil from tar sands in western Canada is likely far higher than corporate interests say, university researchers said Monday. Actual levels of polycyclic aromatic hydrocarbon (PAH) emissions into the air may be two to three times higher than estimated, said the findings in the Proceedings of the National Academy of Sciences, a peer-reviewed US journal. The study raises new questions about the accuracy of environmental impact assessments on the tar sands, just days after a US State Department report said the controversial Keystone pipeline project to bring oil from Canada to Texas would have little impact on climate change or the environment. Current, government-accepted estimates do not account for the evaporation of PAHs from wastewater pools known as tailings ponds, which are believed to be a major source of pollution, said researchers at the University of Toronto. According to corporate interests which are responsible for projecting their environmental impact, the Athabasca oil sands beneath Alberta, Canada—which hold the third largest reserve of crude oil known in the world—are only spewing as much pollution into the air as sparsely populated Greenland, where no big industry exists.

    Five takeaways from State Department’s review of the Keystone XL pipeline: Bottom line: The report concludes that blocking or approving the northern leg of the Keystone XL pipeline would not have a "significant" impact on overall greenhouse-gas emissions and future tar-sands expansion. That's because, it argues, most of Alberta's oil will likely find a way to get to the market anyway — if not by pipeline, then by rail. Now, this report is not the final okay for TransCanada's $5.4 billion pipeline. But today's report is a major step in the process. Here are five key takeaways:

    • 1) Oil from Alberta's tar sands produces 17 percent more greenhouse-gas emissions over its life-cycle than regular oil. Crude from Alberta’s oil sands is heavier, more viscous, and contains more impurities than other types of oil. So it takes more energy to extract and process.
    • 2) The State Department thinks blocking the Keystone XL pipeline would have only a small impact on tar-sands production and climate change. So what happens if Keystone XL gets blocked? Here the State Department seems pretty confident that the oil will find its way to market anyway — especially by rail.
    • 3) Transporting oil by rail carries more environmental risks than by pipeline. The report adds that, if the pipeline gets blocked and producers are forced to ship by rail or truck instead, overall transportation emissions for the oil in question could even increase by 28 to 42 percent (see p. 34 here). That's because there would be more trains and trucks burning diesel fuel and more rail terminals using electricity.
    • 4) A pipeline spill is "unlikely" to harm the key Ogallala Aquifer. The Ogallala Aquifer in the Midwest is one of the key freshwater sources for the Great Plains. The report suggests that pipeline spills are inevitable, particularly smaller ones (it estimates the Keystone XL pipeline will leak an average of 518 barrels of oil per year).
    • 5) The Keystone XL project, if built, would support 42,000 jobs over its two-year construction period. The report notes that building the pipeline would support approximately 42,100 direct and indirect jobs and contribute roughly $3.4 billion to the economy (that's about 0.02 percent of GDP). About 3,900 of those jobs would be temporary construction jobs. After two years, once built, the pipeline would support 50 jobs.

    USA TODAY poll: Slight majority backs Keystone pipeline  - These poll results came out before the State Department issued their favorable report: A slight majority of Americans favor the controversial Keystone XL oil pipeline that President Obama is expected to approve or reject this year, finds a poll conducted for USA TODAY.  About 56% say they favor the northern leg of the billion-dollar, Canada-to-U.S. project and 41% oppose it, according to the poll of 801 U.S. adults completed last month by Stanford University and Resources for the Future (RFF), a non-partisan research group. More men (60%) than women (53%) support the 1,179-mile pipeline extension, which would carry heavy tar sands from Alberta through Montana and South Dakota to Steele City, Neb. Support was consistent regardless of education level but much stronger among self-described conservatives than liberals, a slight majority of whom oppose it. ...

    Keystone XL's Northern Leg: A Fracked Oil Pipeline Along with Tar Sands - The State Department's FEIS argues that the northern half of Keystone XL, if built, "remains unlikely to significantly impact the rate of extraction in the oil sands, or the continued demand for heavy crude oil at refineries in the United States." But flying under the media's radar so far, the State Department review also highlights the prospect that Keystone XL will not only carry tar sands, but also be tapped to carry up to 100,000 barrels per day of oil extracted via hydraulic fracturing ("fracking") from North Dakota's Bakken Shale basin. "[Keystone XL] would have the capacity to deliver up to 830,000 bpd, of which 730,000 bpd of capacity has been set aside for [tar sands] and the remaining 100,000 bpd of capacity set aside for [Bakken] crude oil," the report details..  A smaller proposed project owned by TransCanada called the Bakken MarketLink pipeline would ship the fracked oil to Keystone XL's northern leg as an "on ramp."  "Last November, rail shipped 71% — nearly 800,000 barrels of oil a day — of the Bakken’s oil, much of it on lines across Minnesota and Wisconsin, while pipelines shipped just 22%, according to estimates from the North Dakota Pipeline Authority," explains the Duluth News Tribune.The State Department FEIS suggests that if Keystone XL were never completed, the oil industry will instead ship the Bakken crude via rail. Both Union Pacific and Burlington Northern Santa Fe (BNSF) are mentioned by name as the potential corporate beneficiaries.

    Pipeline rupture report raises questions about TransCanada inspections - CBC News-  A CBC News investigation has unearthed a critical report that the federal regulator effectively buried for several years about a rupture on a trouble-prone TransCanada natural gas pipeline. On July 20, 2009, the Peace River Mainline in northern Alberta exploded, sending 50-metre-tall flames into the air and razing a two-hectare wooded area.Few people ever learned of the rupture — one of the largest in the past decade — other than the Dene Tha’ First Nation, whose traditional territory it happened on. In an early 2011 draft report about the incident, the National Energy Board criticized TransCanada, the operator of the line owned by its subsidiary NOVA Gas Transmission, for “inadequate” field inspections and “ineffective” management.Environmental policy expert Nathan Lemphers says he’s “deeply concerned” that the federal regulator kept the “fairly damning” report behind closed doors. “It’s quite likely that there are other incidents like this that the public simply doesn’t know about,” said Lemphers, a former Pembina Institute analyst. “This one stands out simply because of its size and the timing and the company involved.” Lemphers questions whether TransCanada’s contentious Keystone XL proposal, under environmental review in the U.S. at the same time, had a bearing on the regulator not publishing the Peace River Mainline draft report.

    Canadian Oilsands Staff Fired, Reportedly Replaced With Foreign Workers: - The federal government is investigating an allegation that several dozen Canadians working in Alberta's oilpatch were laid off this week and replaced with foreign workers. A spokeswoman with Employment Minister Jason Kenney's office said Thursday that he has asked for an urgent review. The Alberta Federation of Labour said that 65 of its ironworkers were laid off on Tuesday. The workers' paystubs say they were being paid by a company called Pacer Promec Joint Venture. Federation president Gil McGowan said the employees were immediately dismissed from their jobs at Imperial Oil's (TSX:IMO) Kearl oilsands mine. "They called the guys into an office, told them that they were gone, and they literally walked past the replacements on the way out," McGowan said. He alleged the foreign workers from Croatia are making about $18 an hour — half the wage of the Canadians. A spokesman for Imperial Oil said its contractors make their own hiring decisions.

    WTI Crude Oil Surges To Highest Price On Record For This Day In History  - Whether driven by real supply-demand issues, concerns over terrorism (sparked by the Sochi plane debacle), or hopes a renewed un-tapered QE on the basis of 2 piss-poor jobs reports in a row is unclear. What is clear is that WTI crude is having its best day in over 2 months - now at its highest in 2014, back above $100 a barrel and its most expensive in history for this time of year

    JPMorgan nears commodities sale - JPMorgan Chase moved closer to a sale of its physical commodities business on Wednesday, when the bank entered exclusive talks with the trading house Mercuria, according to a person close to the situation. If a deal is finalised, it will lift the Geneva-based company to the upper tier of global commodities traders while sharply curtailing JPMorgan’s presence in the oil, natural gas and coal markets. Lightly regulated trading houses such as Mercuria, Glencore Xstrata and Vitol have grabbed commodity trading personnel – and market share – in recent years, as banks have been constrained by higher capital requirements and looming restrictions on handling physical cargoes. Deutsche Bank recently said it would largely exit commodities markets, while Morgan Stanley has agreed to sell part of its global oil business to Rosneft of Russia. JPMorgan faced extra scrutiny after paying $410m to settle charges of manipulating California electricity markets and regulatory pressure to divest London-based Henry Bath, a metals warehousing network that was part of its $1.7bn purchase of most of RBS Sempra Commodities in 2010.

    Shell Cancels Arctic Drilling Campaign Amid Declining Profitability - Royal Dutch Shell reported a 71% decline in net-profit in the fourth quarter when it released its earnings statement on January 30, 2014.   The results were not a huge surprise since Shell announced two weeks ago that it expected its numbers would be significantly down for the last quarter of 2013. Shell’s oil production declined by 5% in 2013 to 3.25 million barrels per day due to well shut-ins from security issues in Nigeria, as well as natural decline in many of its oil fields. Separately, ExxonMobil also reported a dip in earnings as production declined 1.8% on an oil-equivalent basis.  The big news was Shell’s decision to call off its Arctic exploration program this summer for yet another year. A Court of Appeals decision from January 22 ruled that the U.S. Department of Interior violated the law when it auctioned off exploration blocks in the Chukchi Sea. The ruling threatens to derail Arctic oil exploration entirely, but the immediate implications are unclear. Shell’s new CEO Ben van Beurden explained that Shell would hold off due to the uncertainty, “[t]his is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014. We will look to relevant agencies and the court to resolve their open legal issues as quickly as possible." The company has blown more than $5 billion and its campaign has resulted in multiple false starts, a mistake-ridden summer of exploration in 2012, followed by two more years of inactivity.

    What happens when fossil fuels run out?  The foundation of the world economy is built on energy. And if you believe that the economy is structured in such a way that it needs to grow continually in order to survive, then it will take an endless supply of energy to feed it. But what happens to that equation when the net amount of energy we extract from the earth is shrinking? How, then, does an economy grow exponentially forever if the one element it needs more than anything to flourish is contracting with time? Well, in the mind of Chris Martenson, it creates a moment when it’s vital to challenge existing orthodoxies about the way the economy, debt and capital markets work, and to think about how wealth is accumulated, more generally. His view of the future isn’t particularly rosy.  He has been labelled a prophet of doom and a survivalist, by some.  That’s incongruous given his view that we’re pillaging the Earth of its energy resources in the most inefficient and wasteful ways possible. And this is not a good thing, considering there is not an infinite supply of that energy we’re ripping from the ground. At some point the unsustainable hits the moment of won’t. Mr. Martenson’s case is compelling and, as you’d expect of a scientist, based on mounds of data. In decades past, we got 99 barrels out of the ground for every barrel we used in the extraction process. By the 1970s, that ratio was down to about 25 to one. But when you look at the Alberta oil sands and other similar fields, that percentage is closer to three or five to one. “That’s a whole different proposition from what we were getting in prior decades,” Mr. Martenson said in an interview. “Net energy [resources] in the world [are] shrinking. That is a fact.”

    Venezuela Selloff Worsens as U.S. Oil Exports Sink -- Venezuela’s plummeting oil sales to the U.S., its biggest export market, are exacerbating a collapse in the nation’s debt securities. Bonds issued by Venezuela sank 3 percent on Jan. 31, a day after data released by the U.S. Energy Information Administration showed that 2013 energy sales to the country are headed for a 28-year low. The selloff pushed losses this year to 12.4 percent, more than three times the average 3.93 percent drop among notes from the least-creditworthy developing nations, according to data by Bloomberg. The tumble in oil exports, Venezuela’s biggest source of dollars, comes as President Nicolas Maduro faces a shortage of U.S. currency that’s caused consumer prices to soar 56 percent and foreign reserves to plunge to a decade-low of $21 billion. Petroleos de Venezuela SA, the state-run oil producer known as PDVSA, is sending hundreds of thousands of barrels a day to China to repay loans totaling more than $40 billion since 2008, at a time when its production is shrinking.

    Why Iran’s Economy Might Not Get a Big Break from Sanctions  - Iran says it's received a little more than 10 percent of the oil money unlocked when it agreed to the terms of a nuclear agreement with the so-called P5-plus-1 last year.  In November, the International Monetary Fund said Iran needed to start addressing fundamental structural challenges to its economy. Apart from an eventual recovery for its oil sector, Iran's nuclear posture may help address long-term economic woes. Or it may be a bitter case of irony for the Islamic republic. Iran said it received about $550 million of the $4.2 billion in oil revenue frozen by sanctions in overseas bank accounts. Iran secured relief from sanctions when in November it agreed with the five permanent members of the U.N. Security Council -- United States, Russia, China, United Kingdom, and France -- plus Germany to curb its enrichment activity. The IMF said in an October financial survey Iran's real gross domestic production should increase by 1.3 percent in 2014, erasing years of decline. In 2012, the Iranian currency, the rial, collapsed under sanctions pressure. The value of its currency has since rebounded in the wake of the November deal, though inflation is still high and any recovery in the rial is still short of what's needed to offset the economic hardship from sanctions. The IMF, meanwhile, cautioned economic growth in countries like Iran that rely on oil exports may be vulnerable to market dynamics. Iranian President Hassan Rouhani in November blamed his predecessor, Mahmoud Ahmadinejad, for the poor state of the nation's economy. When he ran for office last year, Rouhani, a former nuclear negotiator, vowed to put Iran on course to play a more productive role on the international stage. When he spoke to delegates at the World Economic Forum in Davos, Switzerland, last month, he said Iran was ready to take its place among leading world economies.

    Why would the central bank of Nigeria decide to sell dollars and buy Yuan? - At first glance it might not seem the most interesting or pressing question for you to consider. But I think it is one of those little loose threads that if pulled upon carefully begins to unravel the hints and traces of a much larger story. But please be warned this is speculative.Two days ago the Nigerian Central Bank announced it was going to increase the share of its foreign currency reserves held in Yuan from 2% at present, to up to 7%. To do this it was going to sell US Dollars. Now a 5% swing in anything financial is big. In our debt drunk times it’s difficult somethimes to remember that 2.15 billion dollars (which is what 5% comes to) is actually a great deal of money, even if it is less than a drop in America’s multi trillion dollar debt ocean. On the other hand even a 5% increase in Yuan would still leave 80% of Nigeria’s $43 billion worth of reserves in dollars. Nigeria is Africa’s second largest oil and gas exporter. It holds as many dollars as it does because oil is sold in dollars. Nigeria gets paid in dollars which it then needs to recycle. This is the famous petrodollar in action. It is also a major reason the dollar is still the world’s major reserve currency and that in turn is why America can have such a monumental pile of debt and still (for now) be the  risk-off haven that institutional  investors run to when other currencies and markets become too risky and unstable.What interest me is that prior to this announcement from Nigeria’s central bank, China has, for some years now, been working hard and succesully to buy exploitation rights in Nigeria’s oil fields.

    As China’s Economy Slows, the Pain Hits Home - Piles of unsold coal line rural roads in north-central China. Some iron ore mines near Beijing are operating at a fraction of capacity. Chinese farm products are even increasingly scorned by the Chinese consumer.While China remains nearly self-sufficient in all these categories, it is importing more from other emerging markets. Economists and investors around the world have been fretting in recent days about the effects on smaller emerging markets if China’s economic slowdown worsens. Those concerns have driven down share prices and currencies from Jakarta to Istanbul to Buenos Aires, although emerging markets staged a partial recovery on Wednesday. They helped to prod the central banks of Turkey and India to raise benchmark interest rates unexpectedly on Tuesday.Yet the most vulnerable producers these days may not be the coal mines in Indonesia, palm oil plantations in Malaysia or soybean farms in Brazil, but the farms and particularly the mines in China itself.  China’s role as the largest buyer of a long list of commodities, from iron ore to palm oil, means that emerging markets are heavily exposed to any economic slowdown. But their ability to capture ever-larger shares of the Chinese market at the expense of China’s commodity producers has limited at least somewhat the exposure of emerging markets. China’s steadily strengthening renminbi, persistent inflation and soaring blue-collar wages have combined to erase much or all of the cost advantage of domestic production for a long list of commodities. At the same time, tightened pollution regulations have made it harder for steel mills to use China’s low-grade iron ore reserves or for power plants to burn China’s low-quality coal. “With the increasing focus on the environment and high costs in some industries in China, China seems to be importing more of the key commodities they need,”

    Pettis: Chinese banks are signaling more slowing - Tom Holland had an interesting  in the South China Morning Postlast week in which he discusses the low valuations of Chinese banks.  On Monday, the weighted average price-book value ratio for the 10 Chinese banks listed in Hong Kong fell to just 0.98. In other words, as an investor you would have been able to buy shares in Chinese banks for less than the cash you would have received – in theory – if the companies were wound up the following day and the residual value returned to shareholders. That’s a highly unusual state of affairs, especially in a rapidly developing economy like China’s where banks have traditionally been regarded as a geared play on future growth. Holland goes on the argue that this has important implications about the quality of the banking balance sheets:  Some observers argue that the current abnormally low valuation of China’s banks is an aberration which represents a great buying opportunity. There is, however, another interpretation. Imagine that the market has got the pricing of Chinese bank shares about right. That would imply the value at which they are carrying assets on their books is far too high. Or, to put it another way, the proportion of non-performing loans on the balance sheets of China’s commercial banks is a lot greater than they are admitting. A very rough back of an envelope calculation suggests how high the true level of bad loans might be. If the long-term price-book ratio were an accurate representation, it would imply the real value of bank net assets should be some 40 per cent below their declared level.

    China PMI Batters Global Markets…Are you kidding me? -- iMFdirect -"Economic Shifts in U.S. and China Batter Markets” continuing “Stocks Slide Globally…Investors Head for Exits” read the front page headline in last week’s New York Times.  The purported China trigger was a survey of manufacturers. The Purchasing Managers’ Index (PMI) fell somewhat, crossing the magic threshold from expansion to contraction. PMIs are useful, but let’s not get carried away. China’s PMI is not the best indicator for growth, the decline was rather small, and January and February data (because of the Lunar “Chinese” New Year) are hard to interpret. In early January, we actually raised our forecast for China’s growth in 2014. Specifically, from 7¼ percent projection made in October to 7½ percent. The subsequently published 2013 data—7.7 percent annual growth—matched our expectation and we reaffirm our forecast for 7½ percent growth in 2014. (see “China: Why Less is More”). Our projection is for growth to slow 0.2 percentage points. This is peanuts for an economy growing at 7½ percent. And, given the momentum in domestic demand and improved outlook in advanced economies, growth this year could very well be higher. Specifically, we expect domestic demand to moderate as the government implements its recently announced economic blueprint. While containing the risks from rapidly expanding credit and rising local government debt will put the economy on sounder footing, it will also be a modest drag on domestic activity. This is a good tradeoff for securing long-term growth. Thus, buried in our forecasts is a slowing of domestic demand—over ½ percentage point—partly offset by rising net exports fueled by the global recovery

    China Services PMI Slides To Lowest Since Aug 2011; 2nd Lowest On Record - At 50.7, HSBC's China Services PMI is 0.1 above its previous record low from August 2011. In contrast to the manufacturing side of the economy - which lost jobs at the fastest rate since March 2009 - the services side saw a modest rise in employment but, as HSBC notes, as part of efforts to boost sales, both manufacturers and service providers cut their selling prices in January at the strongest rate of discounting since June 2012. The backlog of work for service providers dropped for the first time since April 2013 and new order growth was the slowest in 7 months. . HSBC's Chief Economist noted: “The slower expansion of services activities in January reflected soft manufacturing growth and the impact of Beijing's latest measures to curb official extravagance." Need more graft and expensive watches stat!

    Watching the 'China taper' --- Chicago Tribune: - "Emerging markets should be much more concerned about the 'China taper' than the Fed taper" -  Crossborder Capital Managing Director Mike Howell.Indeed, while the rate of US taper is modest and reasonably well defined, signs point to slower economic expansion in China - for now. And even in the near-term there is little visibility on China. The January HSBC services PMI print this morning was quite weak. One of the explanations seems to be that services have slowed due to Beijing forcing officials to go easy on the extravagant parties that have become so prevalent in recent years. Once that is dealt with things should improve? Perhaps.  Hongbin Qu/HSBC (published by Markit): - The slower expansion of services activities in January reflected soft manufacturing growth and the impact of Beijing's latest measures to curb official extravagance. As business sentiment remains stable, we expect services growth to bounce back a little in the coming months. Yet a meaningful improvement relies on stronger growth of manufacturing sectors and the implementation of reforms to boost service sectors.

    The Rise Of China's Super-Rich -- From Vancouver to New York, London, Paris and Hong Kong, shopping mall sales assistants are seeing more Chinese shoppers scoop up designer handbags than ever before, while real-estate agents are fielding calls from tycoons looking for living spaces with  good feng shui. Many of the newly prosperous are using the weeklong national holiday for Lunar New Year this month to fly overseas. China National Tourism Administration, estimates the number of Chinese outbound tourists will reach 8.5 million for this year's holiday, up 13% from the 7.5 million travellers the previous year. An increasing number are joining the ranks of the super rich. The number of Chinese with more than 3.03bn Chinese yuan ($500m) in assets will grow by 6% this year to 535 people, according to a recent report by Wealth-X, a Singapore-based company that collects data on ultra high net-worth individuals.Other studies have shown that the country’s high net worth population — people with more than 10m Chinese yuan ($1.6m) — is also climbing. Between now and 2015, the country’s high net-worth group will swell from 800,000 people to about 1 million, estimates US-based global management consulting firm Bain & Company.  Where’s all this money coming from? Massive economic growth, said Mykolas Rambus, Wealth-X’s CEO. For most of the last decade, the country’s gross domestic product has grown by about 10%a year — by comparison, US GDP growth has only exceeded 3% twice since 2003 — and it’s been business owners who’ve been able to take the most advantage of that rapid expansion

    Philippine Leader Sounds Alarm on China — President Benigno S. Aquino III called on Tuesday for nations around the world to do more to support the Philippines in resisting China’s assertive claims to the seas near his country, drawing a comparison to the West’s failure to support Czechoslovakia against Hitler’s demands for Czech land in 1938. Like Czechoslovakia, the Philippines faces demands to surrender territory piecemeal to a much stronger foreign power and needs more robust foreign support for the rule of international law if it is to resist, President Aquino said in a 90-minute interview .  “If we say yes to something we believe is wrong now, what guarantee is there that the wrong will not be further exacerbated down the line?” he said. He later added, “At what point do you say, ‘Enough is enough’? Well, the world has to say it — remember that the Sudetenland was given in an attempt to appease Hitler to prevent World War II.” Mr. Aquino’s remarks are among the strongest indications yet of alarm among Asian heads of state about China’s military buildup and territorial ambitions, and the second time in recent weeks that an Asian leader has volunteered a comparison to the prelude to world wars. Prime Minister Shinzo Abe of Japan caused a stir in Davos, Switzerland, when he noted last month that Britain and Germany went to war in 1914 even though they had close economic ties — much as China and Japan have now. The Philippines already appears to have lost effective control of one of the best-known places of contention, a reef called Scarborough Shoal, after Philippine forces withdrew during a standoff with China in 2012. The Philippine forces left as part of an American-mediated deal in which both sides were to pull back while the dispute was negotiated. Chinese forces remained, however, and gained control.

    How China’s Slowdown Is Having Ripple Effects All Over the World - Chinese economic growth slowed to the lowest level since 1999 last year, expanding 7.7%. Policymakers have recognized the need to rebalance economic growth and are now slowly transitioning away from a credit and export driven economy to one driven by consumer growth. Some argue that the recent crackdown on shadow banking and the money market rate spikes are part of this effort. But what sort of ripple effects impact is all of this having on the global economy?  First, let's take a look at economies that rely on China to consume their exports. Bloomberg chief economist Michael McDonough tweeted this chart that shows the percent of country's total exports consumed by China.And this chart from McDonough shows the countries most dependent on China for their exports:  A marked slowdown in China would obviously have a significant impact on these economies.

    Australia’s Exports to China Still Firing - Australia’s exports of commodities are charging ahead, despite weaker growth in China’s economy. A slowdown in Chinese growth – to 7.7% in 2013 from double-digits in recent years – has hurt Australia’s economy. The country expanded its mining capacity as Chinese growth rocketed. As China’s expansion slowed, global commodity prices fell and Australia’s economy also began to grow at a slower pace as mining investment crumpled. But that doesn’t mean Australian exports to China have fallen. China’s economy is much larger than a few years ago and needs huge new amounts of commodities for its infrastructure projects and to build houses. On Thursday, Australia posted a A$468 million trade surplus for December, in contrast to the small deficit forecast by economists. That built on a surplus in November of A$83 million dollars, the first trade surplus in two years. The value of exports rose 4% on-month in December, thanks to solid gains in sales of coal and iron ore, largely to China. Imports rose 2% on-month.. Imports grew just 6.4% in 2013, versus 15.1% annual growth in exports.Prices for many commodities remain weak as China’s growth cools and new supply becomes available. But China’s demand for commodities is still increasing, albeit at a slower pace. The country’s iron ore imports hit a record in November, up a fifth from the start of 2013. And Australian producers also have benefited from a weaker Australian dollar, which has fallen 15% from its peak last year, boosting export values in local currency terms.

    US Sours on its own Secretive Trade Shocker - (Yves here. This article refers to a New York Times op ed with criticizes the presently stalled TransPacific Partnership. I hope you can read it in full.) I have warned repeatedly about the risks posed to Australia’s sovereignty and consumer welfare from the Trans-Pacific Partnership (TPP) – the proposed regional trade deal between 12 Pacific Rim countries, including Australia. If the TPP goes ahead, it will establish a US-style regional regulatory framework that meets the demands of major US export industries, including pharmaceutical and digital. The draft chapter on intellectual property rights, revealed by WikiLeaks, included a “Christmas wishlist” for pharmaceutical companies, including the proposal to extend patent protection and strengthen monopolies on clinical data. As part of the deal, the US is reportedly seeking patents for “new forms” of known substances, as well as on new uses on old medicines – a proposal which would lead to “evergreening”, whereby patents can be renewed continuously. The pact poses a huge risk to Australia’s world class public health system, which faces cost blowouts via reduced access to cheaper generic drugs and reduced rights for the government to regulate medicine prices. It also risks stifling innovation in the event that patent terms are extended too far. The US is also seeking to insert an Investor-State Dispute Settlement (ISDS) clause into the agreement, which could give authority to major corporations to challenge laws made by governments in the national interest in international courts of arbitration. Effectively, US companies would be allowed to sue the Australian Government under international law. The US is also opposing a proposal that would allow the circumvention of technology that restricts products to certain regions, even though this was recommended by the Australian parliament’s Inquiry into IT Pricing, as well as opposing the parallel importation of goods made under authorisation in other countries – both of which would act to maintain higher prices (to the detriment of Australian consumers).Australia’s Trade Minister, Andrew Robb, has signaled Australia’s support for the TPP provided Australia gains significant access to agricultural markets, labeling the agreement as a “platform for 21st-century trade rules”. Yet, warnings about the deleterious implications of the TPP have been voiced across the globe.

    Did Harry Reid KO Obama's Asian, EU FTAs? - The traditional constituency of the United States' Democratic Party has always included organized labor.  Both Democratic presidents of recent memory, Bill Clinton and Barack Obama, have made it a standard ploy to court organized labor during election time and then ditch it after elections are won. However, it is not that easy for rank-and-file members in Congress who do not have term limits to pull off this about-face. What's more, these can be quite powerful politicians. A sign of Obama's lame duck status--he cannot have another term as president--is of Senate Majority Leader Harry Reid (D-NV) hitting Obama with massive blows on trade. A few days ago, the one-time boxer Reid reiterated that he will not grant Obama fast-track status for negotiated free trade agreements. At the moment, the major US initiatives are expanding the Trans-Pacific Partnership (TPP) in Asia and forming the Transatlantic Trade and Investment Partnership (TTIP) with the European Union. I've already mentioned how it will be quite challenging for either to be concluded unless significantly watered-down, but Harry Reid adds another complication. Without granting fast-track status to his president, Reid makes it possible for Congress to change the contents of the negotiated agreements with Asian or European counterparts instead of the legislature simply voting for or against these FTAs as hammered out during international negotiations. "I'm against fast track," Mr. Reid (D., Nev.) said, using the shorthand term for legislation that prevents overseas trade agreements from being amended during the congressional approval process. "I think everyone would be well-advised just not to push this right now."

    Trade backlash leaves US ‘pivot’ to Asia on the rocks - The abrupt termination this week by his own party of Barack Obama’s push to swing Congress behind his ambitious trade agenda set off wails of complaints about strengthening protectionist sentiment among Democrats. But the impact of Senate majority leader Harry Reid’s decision to delay giving the White House approval to negotiate trade pacts goes deeper, says analysts and former officials, undermining one of Mr Obama’s key diplomatic initiatives – the pivot to Asia. The rebalancing, first outlined in late 2011, was already faltering before Mr Reid pulled the pin on granting Mr Obama’s negotiators the authority to cut deals without fear they will later be modified by Congress. Defence cuts, the overwhelming focus of John Kerry, the secretary of state, on the Middle East and Iran, and the cancellation of Mr Obama’s trip to Asia late last year to deal with the US government shutdown have drained momentum from the initiative. Mr Reid’s decision deals it another body blow, as it stalls the Trans Pacific Partnership trade talks with Asia-Pacific nations, including Japan, which had been launched on a tight timetable. The pivot to Asia was always intended to be a long-term drive to reinforce the American presence and relevance in the region and counter a rising China after a decade of fighting war in Iraq and Afghanistan. Yet while its success will be measured over a decade, rather than just a few months, the setback plays into the hands of a confident China, which has been telling Asian nations the pivot was primarily about military strength.

    Obama’s trade agenda hangs on a thin Reid - If you listened carefully last week you would have heard the soft voice of Harry Reid undoing Barack Obama’s “pivot to Asia”. The Senate Democratic majority leader may largely be unknown outside of the United States. But as one of the two most powerful figures on Capitol Hill he has the authority to wreck his country’s global trade agenda. Last Wednesday Mr Reid made full use of it. In his State of the Union address the night before, Mr Obama appealed to Mr Reid and his colleagues to pass Trade Promotion Authority, which enables a straight up-or-down vote on trade deals. Without TPA, the president will be unable to negotiate serious deals with America’s Pacific and Transatlantic partners. The deals, which are approaching crunch point, are by far the most ambitious items on Mr Obama’s global economic agenda. Mr Reid quietly buried prospects of it passing this year. With friends like this, Mr Obama has no need of the Tea Party. Mr Reid has one goal in mind – to retain his job as Senate majority leader in the November midterm elections. The hardscrabble Democrat from Searchlight, Nevada, has never met a trade deal he liked. Nor, more importantly, does he think the voters like them much either. In spite of the pickup in US growth, most Americans say they are pessimistic about their economic prospects. Electoral forecasters say that the Senate could tip either way in November: Republicans need to win just six of the 36 seats up for grabs in order to regain the majority. By a quirk of the calendar, most of the seats in play are held by Democrats.

    US trade deals remain on track, says Froman -  America’s top trade official has sought to reassure European and Asian negotiating partners that the White House can overcome rising dissent in Congress as it tries to keep momentum behind two of the world’s most ambitious regional trade agreements. Michael Froman, US trade representative, told the Financial Times that the administration was convinced it could secure congressional backing for the deals even after Harry Reid, the Democratic senate majority leader, last week said he would oppose fast-track legislation for any agreements.  His opposition was widely seen as a major blow to President Barack Obama’s plans to strike accords with the EU and 11 Pacific Rim countries. European and other officials have said that unless the Obama administration secures support for legislation known as “Trade Promotion Authority” they would be wary of making the the concessions that are likely to be needed for either deal. The legislation would prevent Congress from amending any pact and ensure that it would have to consider any accords in a timely fashion.  But Mr Froman said he was sure that the support of Congress could be achieved. He also said both negotiations remained “very much on track” for the time being. “Moving a trade bill or a trade agreement through Congress is a marathon, not a sprint”, Mr Froman said. “It’s important that we reach [deals] of high standards, ambition and comprehensiveness. When we do, then we will be able to demonstrate to the Congress the benefits of the agreements for job creation, for promoting growth, for strengthening the middle class in the US. That will form the foundation for support,” he added. Doubts about TPA risk undermining talks that are close to being finalised. They would create a Trans-Pacific Partnership among 12 nations, including Japan, that account for 40 per cent of global trade. Mr Reid’s comments also sounded alarm bells with regard to negotiations with the EU on the Transatlantic Trade and Investment Partnership (TTIP), even if it is moving ahead on a slower timetable. “Obama [and] Froman have their work cut out,” one European official told the FT.

    President Obama, Harry Reid didn’t talk trade at meeting -  President Barack Obama and Senate Majority Leader Harry Reid did not discuss their public rift on controversial trade legislation during a private meeting at the White House, Reid told reporters on Monday afternoon. The majority leader returned to the Capitol about 75 minutes after a scheduled 2:30 p.m. meeting with the president and told reporters his opposition to fast-tracking trade pacts through Congress was not broached during his huddle with Obama. “We’re on the same page with everything,” Reid said, rejecting a reporter’s question on whether the Democratic leader is in Obama’s “doghouse” after voicing disapproval of the trade legislation. Asked whether they discussed trade, Reid curtly replied “no.” The White House believes a trade bill written by Sen. Max Baucus (D-Mont.) is critical to finalizing trade deals with countries in the Pacific Rim and Europe. But a day after Obama pressed for such a measure during this State of the Union address, Reid said he won’t put trade promotion authority legislation on the Senate floor anytime soon, angering Republicans but soothing liberal Democrats who are staunchly opposed to the bill.

    Pacific Rim Job -  It's time I wrote about the Transpacific Partnership, aka the TPP. It's not as if I hadn't known about its existence. But being a political journalist in the 21st century necessarily involves some intellectual triage, in weighing how much attention one scandal should get over the countless multitudes of others. It's literally an embarrassment of riches.  Yet it can't be said the utterly worthless mainstream media has been investing much time and effort in educating the public about what is shaping up to be the worst trade deal in human history, one that would put the kibosh on virtually every progressive citizen movement in this and 11 other countries.  Let's start with the typically deceptive moniker: The Transpacific Partnership. That sounds nice and collegial, does it not? The trade negotiators from the United States and 11 other nations, many in the Pacific Rim, stand together and smile for photographs and just want to partner and pool resources for a better tomorrow.   And I suspect the mainstream media's typical muteness in the face of these super top secret trade negotiations isn't so much predicated on heavy-handed micromanaging and microediting from the top, or the five corporations who own 100% of our MSM, as much as it's based on apathy.   The American people are reduced to fumbling for clues through leaked documents like the three blindfolded Chinese men feeling an elephant. But this trade deal is so incredibly toxic for democracy and to basic human rights that even small samples of the specificities are enough to alarm anyone who posesses a modicum of reading comprehension.   Perhaps most troubling, aside from the legal immunity it would give massive corporations such as those in Big Ag and the enormous influence it would have over net neutrality (as if the FCC's recent decision on it hasn't already buttfucked that back to the age of the ARPANET) is that, as far as our country goes, the greatest dangers of the TPP poses are being accelerated by Max Baucus like drunken, suicidal train engineer determined to kill everyone on the train knowing the bridge up ahead is out.

    Real Japanese Wages Slip, Posing Challenge to ‘Abenomics’ -  Prime Minister Shinzo Abe appears to be succeeding in his fight to end Japan’s long bout of deflation. But that could actually be bad news for workers, whose real wages — those adjusted for inflation — seem to be slipping. Government data released Wednesday showed base wages adjusted for inflation declined last year to levels around those during the global recession of 2009. That shows just how great the challenges facing Mr. Abe are as he urges companies to increase wages to allow workers to consume more even as prices rise, ensuring an escape from deflation. A labor ministry index that takes price changes into account showed that pay, including overtime and bonuses, fell to 98.9 in 2013, nearly as low as 98.7 in 2009, the lowest since the ministry began compiling the index in 1990. The data also showed that total cash earnings for workers climbed by 0.8% to Y544,836 in December compared with the same month a year earlier. But a labor ministry official said this was largely due to an increase in overtime pay, which climbed by 4.6% in December, and bonus pay, which rose by 1.4%.

    Abenomics Disaster: Japan Regular Wages Fall For 19 Consecutive Months; Real Wages Drop To 16 Year Low - For the past year Abenomics has gotten the "get out of a jail free" card because while the plunging yen was crushing Japanese purchasing power, and sending nominal regular wages ever lower, at least the stock market was higher so (some of the) locals could delude themselves they are getting richer, if only on paper. However, following the most recent 10% correction in the Nikkei which may soon become an all out rout if the 101 level in the USDJPY doesn't hold (and then 100, and so on), all Japan suddenly has left, is the shock of soaring food and energy prices, and the hangover of declining wages that refuse to drop droppoing. Case in point, last night the Japan labor ministry reported that monthly wages excluding overtime and bonus payments fell 0.2 percent in December from a year earlier to 241,525 yen on average per worker, a series of declines which has now stretched to 19 consecutive months.

    Crazy Abenomics Orgy In Japan Is Ending Already – Pounding Hangover Next - Wolf Richter - Kudos to the Bank of Japan. Its heroic campaign to water down the yen has borne fruit. The Japanese may not have noticed it because it is not indicated in bold red kanji on their bank and brokerage statements, and so they might not give their Bank of Japandemonium full credit for it, but about 20% of their magnificent wealth has gone up in smoke in 2013.  What folks do notice is that goods and services keep getting more expensive. Inflation has become reality. The scourge that has so successfully hallowed out the American middle class has arrived in Japan. The consumer price index rose 1.6% in December from a year earlier.  But adjusted for inflation – this is where the full benefits of Abenomics kick in – average income dropped 1.7%. Real disposable income dropped 2.1%.  Abenomics is tightening their belts. But hey, they voted for this illustrious program. And inflation-adjusted consumption expenditures – excluding housing, purchase of vehicles, money gifts, and remittances – dropped 2.3%. But purchases of durable goods have been soaring. Everyone is front-loading big ticket items ahead of April 1, when the very broad-based consumption tax will be hiked from 5% to 8%. Pulling major expenditures forward a few months or even a year or so is the equivalent of obtaining a guaranteed 3% tax-free return on investment. That's huge in a country where interest rates on CDs are so close to zero that you can’t tell the difference and where even crappy 10-year Japanese Government Bonds yield 0.62%. It’s a powerful motivation.

    BOJ says monetary base at ¥200 tril. -- Japan’s monetary base stood at ¥200.88 trillion at the end of January, up from ¥130.94 trillion a year before, the Bank of Japan said Tuesday. The BOJ aims to lift the monetary base, or the combined balance of currency in circulation and commercial financial institutions’ current account deposits at the central bank, to ¥270 trillion by the end of 2014 in order to achieve its 2 percent inflation target. For the whole of January, the daily average balance of the monetary base stood at ¥200.41 trillion, up 51.9 percent from January last year.

    Korean Household Debt Reaches Record High of 1 Quadrillion Won --Korean household debt climbed to over 1 quadrillion won (US$922 billion) in December 2013, and individuals with defaults on liabilities and bad credit rose to the highest level in four years. According to the Credit Consulting and Recovery Service and financial circles on February 3, individuals entering bankruptcies plan for loans defaulted over 3 months increased to 77,481, and those entering pre-bankruptcy plans totaled 19,658, altogether adding up to be 97,139. This represents a 7.8 percent increase from 2013, and is the highest since 2009, when the total number was 101,714. Since October 2002, those who applied for credit recovery plans totaled 1,237,638. This excludes those that have supposedly completed a bankruptcy plan designed by the government, which is estimated at about 300,000.

    Jobless college graduates top 3 mil. - The number of college graduates who are “economically inactive” surpassed 3 million for the first time, government data showed Monday. According to Statistics Korea, the number of people who have college degrees, but gave up searching for jobs soared to 3.08 million last year, up 3.2 percent from the previous year. The number has been on a steady increase because of an increased number of university graduates. It stood at 1.59 million in 2000 but surpassed the 2 million mark in 2004. “The number of unemployed with college degrees will be on an upward trend for a while,” Kong Mi-sook, an official from the agency, said. “The main reason is that there are a growing number of college graduates.” The college entrance rate stood at 30 percent in the early 1990s but exceeded 80 percent in 2004 as the country set up more two-year or three-year vocational colleges nationwide, according to the statistics agency. The number of graduates from two-year colleges and from four-year universities stood at 1,008,000, up 1.2 percent from the previous year, and 2,071,000, up 4.2 percent, respectively. This increasing number has also triggered an increase in the number of economically-inactive people. It stood at 14.05 million in 2000 but jumped to 16.22 million last year. The ratio of the highly educated among the economically-inactive population has also been rising. In 2000, the ratio was about 11 percent but rose to 15 percent in 2005 and 18.98 percent last year, according to Statistics Korea.

    Debt Rattle Jan 31 2014: Risk Times Risk Equals Fear – Ilargi - Financial risk is springing up from so many sides and nooks and angles and crannies by now that the overall picture has become chaotic. And needless to say, anyone invested in anything detests chaos; it instills fear. If you can no longer oversee from which angle which risk might pop up, selling looks like a good move, and that’s what we see happening. The Nikkei closed down again earlier today, and European markets are doing them one better (aka worse). There is a long list of European countries, both in the EU and outside of it, that experience de facto deflation, offset in many cases only by higher taxation.  There’s an equally long list of emerging markets that see a rapid outflow of foreign currencies, so rapid in fact that panic has either already set in or is on the doorstep. Russia’s vow to engage in “unlimited” protection of the ruble might actually work, but even if it does, it’ll be a lone wolf. If energy prices too are brought down by the general mood in financial markets, however, Putin may yet be in trouble of Olympic dimensions. Russian GDP growth of just 1.3% doesn’t bode well in that regard. Emerging nations, like all nations, have invested in and planned for a future based on experiences over the past 5-10 years. Until very recently, that meant robust growth numbers, in turn based upon investments from abroad. As this investment crumbles, so will growth, and so will the entire growth-based plan. And then what? Elect a new president, and another one 2 months after, as Argentina did in the early 2000s? There’s no telling how people will react in all these different places, but it probably won’t be pretty.

    Shake me, wake me! - Kunstler - The rot moves from the margins to the center, but the disease moves from the center to the margins. That is what has happened in the realm of money in recent weeks due to the sustained mispricing of the cost of credit by central banks, led by the US Federal Reserve. Along the way, that outfit has managed to misprice just about everything else  — stocks, houses, exotic securities, food commodities, precious metals, fine art. Oil is mispriced as well, on the low side, since oil production only gets more expensive and complex these days while it depends more on mispriced borrowed money. That situation will be corrected by scarcity, as oil companies discover that real capital is unavailable. And then the oil will become scarce.  Meanwhile, the rot of epic mispricing expresses itself in collapsing currencies and the economies they are supposed to represent: India, Turkey, Argentina, Hungary so far. Italy, Spain, and Greece would be in that club if they had currencies of their own. For now, they just do without driving their cars and burn furniture to stay warm this winter. Automobile use in Italy is back to 1970s levels of annual miles-driven. That’s quite a drop.   Before too long, the people will be out in the streets engaging with the riot police, as in Ukraine.      Who can otherwise explain the amazing placidity of the sore beset American public, beyond the standard trope about bread, circuses, and superbowls? Last night they were insulted with TV commercials hawking Maserati cars. Behold, you miserable nation of overfed SNAP card swipers, the fruits of wealth and celebrity! Savor your unworthiness while you await the imminent spectacles of the Sochi Olympics and Oscar Night! Things at the margins may yet interrupt the trance at the center. My guess is that true wickedness brews unseen in the hidden, unregulated markets of currency and interest rate swaps.

    Who’s to blame for the emerging-market crisis? - Paul Krugman and Dani Rodrik are out with dueling op-eds on the subject of the latest bout of financial-market craziness in places like Argentina and Turkey. Both men have been following emerging-market crises for decades; both indeed, are world-class experts on such episodes. What’s more, both economists have a broadly left-liberal worldview: there’s no deep ideological or philosophical rift here. And yet the two seem diametrically opposed. Here’s Krugman: Turkey isn’t really the problem; neither are South Africa, Russia, Hungary, India, and whoever else is getting hit right now. The real problem is that the world’s wealthy economies — the United States, the euro area, and smaller players, too — have failed to deal with their own underlying weaknesses.  And here’s Rodrik: Emerging markets aren’t hapless and undeserved victims; for the most part they are simply reaping what they sowed…The fact is that the emerging economies’ troubles are domestically generated problems and not the fault of foreigners. The complaint of emerging-market countries seems a classic case of blaming outsiders for choices and actions that have been predominantly domestic.Take a step back, and you’ll find a certain amount of agreement: both Krugman and Rodrik would accept that a large part of the story here is that the Fed’s QE program caused enormous amounts of cash to flow into the world’s emerging markets, thereby helping to inflate the markets which are currently crashing. What goes down must have gone up — and it’s easy to see where the inflows came from.

    Emerging Markets: Deja vu all over again - Where have seen this screenplay before? A string of countries tighten policy at the same time – some drastically – in order to prevent capital flight and show investors how tough they can be. Turkey, South Africa, and India all raised rates last week. Brazil and Indonesia did so before. Chile, Peru, Hungary, and others need to loosen but dare not do so. Russia is spending $2bn a week in FX reserves propping up the rouble, automatically tightening its internal credit conditions in the process. The tougher they are, the more praise they win from emerging market analysts. This from Bartosz Pawlowski from BNP Paribas: Much of the media (and not only on the financial pages) seems to be vying to produce the most bearish story on emerging markets. Arguments against owning anything in emerging markets are being thrown around carelessly and hardly anyone is reporting the other side of the story." We think that policy responses in countries such as Turkey, South Africa, India and even Brazil should be sufficient to show that central banks ‘mean business’ and that if there is a need to do more, they will deliver. Bartosz is right in a sense. Many of these countries had policies that were far too loose for years, as you can see from this Taylor Rule chart on EM monetary policies put together by the World Bank. (The bigger the divergence from the Rule, the bigger the mistake, ceteris paribus)

    Emerging markets risk repeating eurozone blunder on tightening  -- So now we have witnessed yet another sell-off of emerging market assets in global financial markets in the last week of January, which has caused currencies to depreciate from Argentina to Indonesia and many countries in between. For those who had seen it coming,  it was one more reminder of the extreme fragility generated by global financial integration, and the problems that such exposure can create for developing countries whether or not they also have specifically domestic economic concerns.  Indeed, the first round of such capital flight in the middle of 2013 did not even require any actual policy change in the United States. Rather it was generated simply by talk, when U.S. Federal Reserve Chairman Ben Bernanke announced the likely possibility of tapering down the massive monetary stimulus that had been feeding capital markets with huge amounts of liquidity since 2009.  The irony is that both strategies of the U.S. Fed—first the “extraordinary measures” that unleashed massive liquidity in global markets and then the recent attempts to reduce these somewhat—have created problems for emerging markets. Several of the countries who were particularly badly hit and suffered relatively sharp currency depreciations in 2013—such as Brazil and India, for example—were also the ones that had complained the loudest just the previous year about the adverse effects of the massive quantitative easing indulged in by the U.S. (and the EU) and the policy of very low, near-zero interest rates.  However, there is a big problem when countries containing two billion people all try to prove that they "mean business" at the same time. What may make sense for one economy, does not make sense for the international system as a whole. (This is a variant of our old friend from the 1930s, the beggar-the-neighbour syndrome).This is more or less the same flawed strategy that has bedevilled the Europe for the last four years. While austerity/deflation policy might work for Ireland or Portugal in isolation, such a policy is madness when applied to the whole of southern Europe together. It creates bad feedback loops all over the place. One must never argue from the micro (national) to the macro (global).

    Emerging Markets’ Victimhood Narrative - From Istanbul to Brasilia to Mumbai comes a crescendo of complaints about dollar imperialism. Heads of state and central bank governors allege that the policies of central banks in industrial countries, especially the U.S. Federal Reserve, pursued in self-interest, are wreaking havoc in emerging-market economies. This allegation is mostly unfair. Emerging markets aren’t hapless and undeserved victims; for the most part they are simply reaping what they sowed.  The victimhood narrative is further misplaced for two broader reasons. Many large emerging-market countries have consciously and enthusiastically embraced financial globalization. Yes, the foreign finance fetish reigned as the prevailing ideology in the run-up to the Lehman crisis. But there were no domestic compulsions forcing these countries to so ardently woo foreign capital. Last summer, when a bout of volatility hit the fragile five -- Brazil, India, Indonesia, South Africa and Turkey -- many of them responded by trying to open up their economies and enact policies to attract even more capital.  Over the last five years in India, every episode of rupee pressure has provoked a relaxation of regulations on foreign inflows, which has rendered the economy vulnerable to the next rupee shock, which, in turn, provokes the next liberalization and so on. In Turkey, policy makers spun a tale of invulnerability to shocks and contagion even as the economy’s growth was driven by a flood of short-term capital inflows. China provides an instructive contrast. China has chosen to insulate itself from foreign capital and has correspondingly been less affected by the vagaries of Fed actions and the fickleness of foreign finance.

    The EM’s ‘fragile 8′ must save themselves - The start of 2014 has seen the global markets decisively in risk-off mode, with global equities falling, government bonds rallying and many emerging market currencies collapsing. Yet few investors currently believe that the risk-off pattern will continue in the developed markets (DM’s) for the year as a whole. The bullish consensus for developed equities remains firmly intact, for now. Economic fundamentals in the DM’s have not really changed. There have been some mildly disappointing data releases in the US, but these have been mostly due to an excessive build-up in manufacturing inventories since mid 2013, and the prospects for final demand seem firm. Furthermore, the Fed’s tapering of asset purchases has now been clearly separated from its intentions on short rates, which remain extremely dovish. So far, the decline in developed market equities has been very minor compared with the rises seen last year, and do not even constitute a normal pull-back in a bull market.  In the emerging markets (EM’s), however, there is much greater cause for concern. As the graph above shows, the EM crises in the late 1990s did not, in the end, prove fatal for equities in the US and Europe, but they did cause occasional air pockets, notably in 1998. This is why investors are focused on whether the current EM crises will deteriorate further, and whether they will eventually take the DM’s down with them.

    Dollar imperialism 1: Emerging marks | The Economist -- WITH emerging markets still in some turmoil, it is easy to believe they are victims of something. But of what, exactly? In the past five days, four of our finest economists have proposed three answers.

    • 1. Emerging markets are victims of the Fed, argues Raghuram Rajan, governor of India's central bank, the Reserve Bank of India (RBI).
    • 2. They are victims of a "foreign-finance fetish", argue Dani Rodrik of Princeton and Arvind Subramanian of the Peterson Institute for International Economics.
    • 3. They are, at bottom, victims of the rich world's "secular stagnation", argues Paul Krugman of the New York Times.

    Over the next couple of posts, I hope to show there is an intellectual thread connecting these three positions. To give away the punchline: they all reject the optimistic view of the international monetary system best articulated in Rose (2006) and they are all working off the less appetising menu presented by Rey (2013).

    Dollar imperialism 3: Tactless tapering | The Economist: IN THE Financial Times, Willem Buiter, the outspoken chief economist at Citi, adds his voice to the chorus of complaints about Fed unilateralism. By failing even to mention the overseas effects of its tapering, the Fed has displayed bad manners, Mr Buiter argues. He supports the plaintive call by Raghu Rajan, governor of the Reserve Bank of India (RBI), for more co-operation between central banks.The dollar is imperial; the Fed is parochial. That seems to be the nub of the problem. If so, there are two logical solutions. One is to limit the dollar's sway. The other is to expand the Fed's sympathies. The first is difficult. The second, potentially illegal. The Fed's parochialism is the product of both economic circumstance and legislative design. It is required by law to care about US inflation, US employment and long-term US interest rates. This limited circle of concern is hardly unique to the Fed. Central banks around the world pay attention to everything that affects their economies. They do not pay attention to everything their economies affect. That is as true of Raghu Rajan's Reserve Bank of India as it is of the Federal Reserve. Earlier this week, Amando Tetangco, who heads the central bank of the Philippines, warned that interest-rate "tweaks" by emerging economies might backfire, increasing financial volatility. Did Mr Rajan take that into account before tweaking rates last month? In the policy statement and conference calls accompanying his decision, he talked about the emerging-market turmoil only insofar as it affected India. He mentioned the Philippines not at all.

    The Emerging Markets Saw Their 15th Straight Week Of Investor Outflows And It Was A Monster - Emerging market funds just saw their 15th straight week of outflows, to the tune of $6.36 billion, according to Morgan Stanley. That's the biggest exodus since August 2011, and it's the fifth largest in history. And combined with last week's $6.33 billion figure, the largest two-week outflow since January 2008. Cumulative outflows totaled $33.3 billion over the past 15 weeks. Investors are fleeing EM over a bunch of different concerns — like macro issues in China and currency stress in Turkey. "At the country level for equities, Thailand, Chile and Poland reported the largest outflows relative to their AUM for the current week," noted Morgan Stanley's Jonathan Garner. "In dollar terms, China (-US$1.14bn), India (-US$0.64bn), Brazil (-US0.63bn) and Russia (-US$0.60bn) reported the largest outflows for the current week." Take a look at the chart from Morgan Stanley:

    Don’t Rush to Blame the Fed - — Last week, Turkey’s central bank surprised investors by raising a key interest rate to 10 percent from 4.5 percent. It was a bold move to rein in inflation and calm the markets. But Turkey’s prime minister, Recep Tayyip Erdogan, has been vocal in blaming the “interest-rate lobby” — a supposed conspiracy of foreign bankers, and some economists and journalists — for volatility in stock prices and a steep decline in the lira.  Turkey is far from the only country to blame foreigners for recent market turmoil. Venezuela’s president, Nicolás Maduro, recently complained of a “psychological war from abroad.” The governor of the Central Bank of Brazil, Alexandre Antônio Tombini, describes rising interest rates in rich countries as a “vacuum cleaner” that indiscriminately sucks capital out of emerging markets Emerging markets are justified to be concerned about the recent “sudden stop” in capital flows. In several economies — Argentina, Brazil, India, Indonesia, Russia, South Africa, Turkey — investors have been dumping stocks, currencies have depreciated and central bankers have been sounding the alarm. This will no doubt slow growth and create challenges at home.  But for all the colorful language, this obsession with monetary policy in the developed world (code for the United States) is misplaced. Factors other than the “tapering” (the slowdown in asset-buying) by the Fed have been more important in determining why countries like Turkey have been hit hard over the past few months: underlying structural problems, inadequate policy responses and trends in the global economy. A current account deficit is one of the most obvious measures of a country’s reliance on foreign borrowing. Countries with larger deficits are more affected (and more likely to see their currencies drop) when United States interest rates rise, as evidenced since last spring’s “taper turmoil,” when anxieties erupted over the prospect that the Fed would start slowing its giant stimulus program, known as quantitative easing.

    Danger of Global Recession After 30 Years of Neoliberal Counterrevolution - via Yves Smith - Heiner Flassbeck is one of the few economists to get into positions of influence despite being firmly opposed to the prevailing doctrine of neoliberalism. He’s also direct and articulate.  In this Real News Network interview, he discusses why the danger of a global recession is acute and what remedies would be viable.

    The I.M.F. Needs a Reset - For all the criticism that has been directed at it over the decades, the International Monetary Fund provides vital services to the world economy. In particular, it acts as the nearest thing to an international lender of last resort to countries experiencing external financial crises — and thereby helps to maintain international financial stability. But the I.M.F. is experiencing a crisis of governance. The governments of big developing countries have become frustrated with the unwillingness of Western countries to adjust the distribution of power in the fund in line with their rising economic weight. Frustration has encouraged some to explore bypass institutions, such as the development bank and the currency-pooling scheme being negotiated among the BRICS (Brazil, Russia, India, China, South Africa). Today the four big BRICS (Brazil, Russia, India, China) have a combined share of world gross domestic product of 24.5 percent, compared with the 13.4 percent share of the four big European economies (Germany, France, Britain, Italy); but the four BRICS countries have a combined share of votes of only 10.3 percent, compared with the four European nations’ share of 17.6 percent. In 2010 the fund’s board of governors agreed on a package of governance reforms, subject to ratification by the I.M.F.’s member countries. Members would increase their quota subscriptions (similar to credit union deposits), raising the fund’s resources. At the same time 6.2 percent of voting shares would be shifted in favor of “dynamic” emerging-market and developing countries. The overwhelming majority of I.M.F. member states approved the changes, but more than three years later the quotas and votes remain unchanged because the United States Congress has still not approved what the executive branch agreed to. Without congressional approval the whole readjustment remains paralyzed.

    Interactive currency-comparison tool: The Big Mac index - The Economist -  THE Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries. For example, the average price of a Big Mac in America in January 2014 was $4.62; in China it was only $2.74 at market exchange rates. So the "raw" Big Mac index says that the yuan was undervalued by 41% at that time. Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of at least 20 academic studies. For those who take their fast food more seriously, we have also calculated a gourmet version of the index.This adjusted index addresses the criticism that you would expect average burger prices to be cheaper in poor countries than in rich ones because labour costs are lower. PPP signals where exchange rates should be heading in the long run, as a country like China gets richer, but it says little about today's equilibrium rate. The relationship between prices and GDP per person may be a better guide to the current fair value of a currency. The adjusted index uses the “line of best fit” between Big Mac prices and GDP per person for 48 countries (plus the euro area). The difference between the price predicted by the red line for each country, given its income per person, and its actual price gives a supersized measure of currency under- and over-valuation.

    Inflation Is Especially Painful in Developing Countries - Inflation may lead to social unrest in developing countries because rising prices are especially painful for households that rely heavily on cash as a store of wealth, according to recent research from the Federal Reserve Bank of St. Louis.  Yi Wen, an assistant vice president in the St. Louis Fed’s research division, wrote in a new working paper that in developing nations, “liquid money [cash and checking accounts] is the major form of household financial wealth and a vital tool of self-insurance [precautionary saving] to buffer idiosyncratic shocks because of the lack of the well-developed financial system.” Mr. Wen also noted “historical evidence” that “moderate inflation [around 10% to 20% a year] may be significant enough to cause widespread social and political unrest in developing countries.” But, he wrote, traditional models find the “welfare cost” associated with a rise in inflation is relatively small: in one example, a less than 1% hit to aggregate output from a rise in inflation from 4% to 14%. He instead proposed a model that he said accounts for people in developing nations — and, he added, “low income people in rich countries” — relying heavily on cash rather than less-liquid assets. “When the model is calibrated to match not only the interest elasticity of aggregate money demand but also the extent of idiosyncratic risk faced by households in the data, the implied welfare cost of increasing the inflation rate from 0% to 10% per year is around 3% ~ 4% of consumption,” Mr. Wen wrote. That “astonishingly large welfare cost,” he wrote, helps justify the policies of central banks that seek to keep inflation low and forgo any benefits of higher inflation.

    Are Jobs and Growth Still Linked? - The IMF Blog - Over 200 million people are unemployed around the globe today, over a fifth of them in advanced economies. Unemployment rates in these economies shot up at the onset of the Great Recession and, five years later, remain very high. Some argue that this is to be expected given that the economy remains well below trend and press for greater easing of macroeconomic policies (e.g. Krugman, 2011, Kocherlakota (2014)). Others suggest that the job losses, particularly in countries like Spain and Ireland, have been too large to be explained by developments in output, and may largely reflect structural problems in their labor markets. Even in the United States, where unemployment rates have fallen over the past year, there is concern that increasing numbers of people are dropping out of the labor force, thus decoupling jobs and growth. What does the evidence show? In new research, we find that the link between output growth and employment growth holds strongly in most advanced economies. We find no evidence that this link—which goes by the wonkish name of Okun’s Law—broke down during 2008 to 2013, including in high unemployment countries like Ireland and Spain. On average across the 20 advanced economies we study, a 1 percentage point increase in output growth leads to a ½ percentage point increase in employment growth (Figure 1). This link between jobs and growth, called the Okun coefficient, varies across countries, ranging from high values of 1.5 for Spain and 0.7 for Ireland to low values of 0.3 for Italy and 0.2 for Austria. The high value of Spain’s Okun coefficient reflects the greater use of temporary contracts there compared to other countries: this means that when times are good many new jobs are created but there is also a lot of job loss during recessions

    BBC News video - How an ageing population will change the world: The number of people across the world over 65 years old will triple by 2050, drastically altering some countries' demographic make-up, according to a new report by the Pew Research Center. Perceptions of this shift vary widely across the globe, the report says. While 87% of Japanese believe the ageing population poses a problem to the country, only 26% of Americans agree. The survey of 21 countries found that most people believe governments should be responsible for the care of their older populations. These demographic shifts may adversely affect economies, as more elderly people depend on working-age men and women.

    The Challenges of Running Responsible Supply Chains - Laura Tyson - At a dreadful human cost, the Rana Plaza tragedy has led to some beneficial changes. To protect their brands and reputations, American and European corporations have scrambled to reduce the risks of similar calamities. Several big European companies have signed an Accord on Fire and Building Safety in Bangladesh, which includes binding commitments and financial obligations to make factories safer and submit them to independent inspectors. Major retailers in the United States have signed a similar but less-ambitious agreement known as the Alliance for Bangladesh Worker Safety. Both groups have cooperated to establish a fire safety and structural integrity standard for the factories with which they do business. American companies have committed to completing inspections at more than 700 factories to assess their compliance with the new standard by the middle of this year. This will be a formidable task. There is a shortage of trained inspectors in Bangladesh, and at the end of January only about 30 percent of the required inspections were done. In response to strikes and protests in the wake of the Rana tragedy, a special board appointed by the Bangladesh government called for a 77 percent increase in the minimum wage – to about $68 a month – to take effect this year. The increase was initially opposed by most factory owners on the grounds of competitiveness but is likely to be approved by the prime minister, Sheikh Hasina, who is facing a tough election. Even with the increase, the wages paid to garment workers in Bangladesh will remain among the lowest in the world. Bangladesh, however, is just one link in the global supply chain. As a result of globalization, almost every item bought by consumers in developed countries is produced at least in part by low-wage workers in developing countries. While it’s true that these jobs have lifted many individuals out of grueling poverty, it’s also true that many of them work in conditions that violate acceptable standards in the United States and other developed countries.

    Manufacturers’ Lack of Confidence -- As this is written three regional manufacturing PMIs have been flash estimated for January: euro area, U.S., and China. These three also represent the largest global economic weights by many measures, including the purchasing power parity measure. They also provide a wake-up call for the many number of people, who at the end of 2013 felt these economic growth risks weren’t before us (but they were: here, and here.) China’s purchasing managers’ index (PMI) fell 0.9, to 49.6, where any level below 50 indicates contraction. However, this PMI drop by itself is not extraordinary.  During all of 2012 and 2013, China’s PMI average stagnated at this same contractionary 49.6 (and with a monthly typical deviation of a larger 1.3). Less noticed, the U.S. had a relatively larger PMI drop of 1.3, to 53.7. This above 50 reading indicates there was still some steady expansion. For example, during 2012 and 2013, the U.S. PMI average was running about the same at 53.3 (but with a similar monthly typical deviation as the 1.3 drop). This shows among other things that the U.S. had fared better than China during the past two years, a time when China also experienced far greater volatility in their PMI measure versus what we just saw in its January reading.  We can look to multivariate analysis of other regional PMIs, in connection to the euro area, the U.S., and China. In doing so, we see that Brazil has tracked close to the joint confidence of the U.S. and China, and to a lesser degree to either country taken in isolation. See the dark dotted line on the chart below, which shows a somewhat expected drop in Brazil’s PMI, for January.The euro area’s PMI is nearly 2/3 more volatile, as either PMI series for the U.S. or China (in addition to none of these 3 PMIs being correlated with one another). As a result, econometric analysis tends to have many regional PMIs fit better to the euro area’s PMI.

    Panama canal dispute throws $5.2bn expansion project into disarray - Giant ships will have to wait longer before they can ply their way through the Panama Canal after talks between the canal’s authority and the Spanish-led consortium building new locks broke down, throwing the $5.2bn expansion project into disarray days before it celebrates its centenary. The breakdown in talks “puts the Panama Canal expansion and up to 10,000 jobs at immediate risk”, the consortium said. “Without an immediate resolution, Panama and the ACP face years of disputes before national and international tribunals over their steps that have pushed the project to the brink of failure.” The row kicked off in January when the Spanish consortium threatened to halt work in a dispute over a $1.6bn cost over-run. But Grupo Unidos por el Canal subsequently backed down and the two sides attempted to hammer out a compromise. Those talks saw the two parties, and insurance group Zurich, discuss various options. But with no solution on the table by the latest deadline of midnight on Tuesday, the contractors said the canal authority, the ACP, had broken off talks after failing to bend in its “unreasonably rigid position”. There was no immediate comment from the ACP over whether it would seek to bring in a new contractor to finish the job. GUPC said it was still pushing for an extension to negotiations to find a funding solution.

    Loan Rates in Argentina Reach 65% Annually; Is 65% a Good Rate? - Emerging markets continue to crumble, and the spillover on major economies is obvious. Problems always start somewhere, usually at the periphery.Via translation from Lanacion, please consider Credit Is More Expensive. Following the peso devaluation and sharp hike in interest rates by the central bank, interest rates on loans increased as much as 11 percentage points.  For a personal loan, private banks now charging at least 44% per year. Factoring in fees and other administrative expenses (up to 11 percentage points), the total financial cost  exceeds 65% annually.  Public banks have with nominal rates for personal loans in pesos that range from 32% to 44%, with a total financial cost up to 55% annually. Banks also shortened their terms and revised installments on credit cards If Argentina is in the midst of full-blown hyperinflation, then any loan rate is a good rate, because the peso will soon become worthless. If banks believe that is likely, they may publish rates, but credit will completely dry up.

    Argentine gov't slams farmers for withholding crops - Agriculture Minister Carlos Casamiquela said that farmers are sitting on 8 million metric tons of crops, mostly soybeans that could be exported to help arrest a decline in foreign reserves key for sustaining a stable exchange rate. Argentina’s government has accused businesses, particularly within the agricultural industry, of withholding stock to protect themselves from the weakening peso and rising inflation. “We are fighting alone against powerful groups seeking to establish a pricing system absolutely contrary to consumers,” Presidential Chief of Staff Jorge Capitanich said in a televised press conference on Friday. Agriculture Minister Carlos Casamiquela said that farmers are sitting on 8 million metric tons of crops, mostly soybeans that could be exported to help arrest a decline in foreign reserves key for sustaining a stable exchange rate. Capitanich said the withholding of crops is “greedy” because farmers are betting that the peso will depreciate further against the dollar, meaning that they will make more pesos on their exports. The government devalued the peso to 18 percent, 8 per dollar last week, and has said it will seek to keep it at that exchange rate. But economists warn that the peso could drop further, as dwindling foreign-currency reserves make it harder for the Central Bank to satisfy growing demand for dollars.

    Argentine International Reserve Discrepancy Widest Since 2008 - The discrepancy between the Argentine central bank’s preliminary international reserves figures and official data released 48 hours later is at the widest since 2008, according to central bank data compiled by Bloomberg. The central bank said yesterday that reserves in January fell $2.85 billion to $27.7 billion, a loss that’s $365 million, or 15 percent, bigger than what was reported in the bank’s preliminary reserve statement. Reserves, which the nation uses to pay off international debt, have plunged to the lowest level in seven years and at the fastest annual rate since 2003. In the wake of the biggest devaluation in 12 years, the central bank may be initially overstating reserves in a bid to manage investor expectations, according to Vladimir Werning, an economist at JPMorgan. The tactic may instead backfire as the bank risks losing investor confidence, he said. “It is a dangerous game to play,” Werning wrote in a report yesterday. “During a balance of payments crisis - as Argentina is undergoing - such manipulation of official statistics (and one so critical for market sentiment) is detrimental to the needed confidence building around the transition in the FX regime.”

    Venezuela Gives Businesses Until Monday to Comply with "Fair Prices Act" or Face State Takeover - There will be no goods at all on shelves of any stores in Venezuela if the president follows through with his latest warning. Via translation from El Economista, please consider Maduro Threatens to Expropriate Businesses for Violation of Fair Prices ActThe president of Venezuela, Nicolas Maduro, has threatened to expropriate businesses that do not comply with the new Fair Prices Act. "I have called for self-regulation of products and prices. 'll Give businesses until Monday to comply. Come Monday, if I find companies violating the Law of Fair Prices I'll take more radical measures," Maduro warned. "Do not underestimate sectors of the bourgeoisie on whether to expropriate. You will discover on Monday we are going to apply more drastic measures," added the Venezuelan president, who was quoted by the newspaper La Truth. Maduro also reported Tuesday the arrest of a businessman on the border with Colombia. Maduro assured the businessman will face the maximum sentence of 14 years in prison for trafficking in consumer products.

    Want to end poverty? Brazil’s answer: Give people money: Here is a brilliant idea for how to help poor people: give them money. Specifically, give them enough money to end their poverty. This is from Brazil’s social development minister Tereza Campello, who was in Washington this week discussing the country’s first decade of experience under the highly-touted Bolsa Familia cash transfer program. It’s a discussion relevant to the U.S., involving a simple social contract that hands over cash – with no strings attached on how it is spent or who is considered part of a family – as long as any kids involved attend school. The same day Campello addressed executives and staff at the World Bank, where the Bolsa program is considered a model that might be transplanted to other developing countries, a panel at the Brookings Institution was dissecting the performance of U.S. safety net programs during the recession. There has been a spate of research on that topic. Some of the findings are comforting. Some are not.

    A massive leak cracks open the secrets of tax havens - (map) More than 110 journalists in 60 countries investigate who does business offshore

    Emerging Markets Contagion Starting to Hit Eurozone -- Yves Smith -- Emerging markets-related disruption continued overnight, as the Nikkei fell nearly 2%, pounded by the rise in the yen due to its status as a flight currency. Other Asian markets took a hit as well, with only Australia emerging relatively unscathed:  And the stress is unlikely to abate any time soon. Despite South Africa, Argentina, and Turkey having moved up interest rates to defend their currencies, theirs and other emerging markets still have their interest rates now looking too low in real terms. That puts the leaders of these countries in a no-win situation: let their currencies fall sharply, precipitating self-reinforcing capital flight, draining FX reserves, and stoking domestic inflation (worst, in food and fuel, which hit the poor and low income the hardest, increasing the risk of revolt) or raising interest rates, which is likely to trigger a slowdown, likely a full-blown recession. Here’s the underlying problem per Bloomberg: Inflation-adjusted interest rates are still too low in developing nations to foresee an end to the worst emerging-market currency selloff in five years. One-year borrowing costs in Turkey are 3.6 percent, less than half of the average in the three years before the 2008 global financial crisis, even after the central bank doubled its benchmark rate last week, according to data compiled by Bloomberg. The real yield for Mexico is almost zero, while South Africa’s is 1.4 percent, compared with an average of 2 percent over the past decade. Central bank rate increases in Turkey, India and South Africa last week failed to contain January’s 3 percent selloff in emerging-market currencies. Citigroup says yields aren’t high enough to attract the capital needed to finance current-account deficits in some of those nations…. One-year real yields in developing economies, based on the difference between interest-rate swaps and consumer-price inflation, are about 1 percent, according to Goldman Sachs. While rising, the rates are lower than the average of about 2 percent from 2004 to 2013, a model at the New York-based bank shows.

    Brazil, Russia Cancel Debt Auctions; Head-in-Sand Move Won't Work -- Russia and Brazil don't like escalating interest rates. Their "solution"? Cancel government debt auctions. Yesterday, Reuters reported Russia cancels domestic bond auction citing market conditions Russia's finance ministry cancelled its weekly domestic bond auctions for the second week in a row on Tuesday, saying in a statement the decision was "based on an analysis of current market conditions".Yields on so-called OFZ bonds have risen by 70-80 basis points since the start of the year. A new ministry sale could have potentially pushed the rates higher, analysts said.  Today, Bloomberg reports Brazil Government Yields Fall After Auctions Canceled. Brazilian government bond yields extended their drop from a four-year high after the Treasury canceled auctions of fixed-rate and zero-coupon bonds amid a selloff in emerging-market assets. Yields on local bonds maturing in 2017 declined 18 basis points, or 0.18 percentage point, to 12.80 percent at 3:20 p.m. in Sao Paulo after increasing Feb. 3 to 13.14 percent, the highest since January 2010.  The Treasury cited market conditions for its decision and said the last time it canceled auctions to sell zero-coupon LTNs and fixed-rate NTN-Fs was in July. The government had planned to sell zero-coupon bonds maturing in 2014, 2016 and 2018 and fixed-rate bonds maturing in 2021 and 2025.  This kind of head-in-the sand move won't work long. In fact, it did not work at all, it only created an illusion of working. Unless underlying conditions change quickly, and favorably (both doubtful), there is a strong likelihood of increased volatility when auctions resume.

    Ruble Slump Prompts Large Intervention in January - A rapid slump in the Russian ruble in January prompted the central bank to carry out the largest intervention since early 2009, the bank said Tuesday. The central bank sold $7.8 billion and €586 million on the market to ease downside pressure on the ruble in the first month of 2014. The last time the central bank sold comparable amounts of foreign currencies from its reserves was in January 2009, in the midst of the global financial crisis. The ruble fell a victim of risk aversion and an exodus of funds from emerging markets in January along with a statement made by Russia's economy minister, who said that the ruble is more likely to weaken than to firm. In January, the ruble hit an all-time low versus the euro-dollar basket, the central bank's main gauge of the currency market, shedding more than 5% in one month. The ruble's volatility may increase further as the central bank plans to stop intervening in 2015 to let the ruble float freely.

    European banks have $3 trillion of exposure to emerging markets -- (Reuters) - European banks have loaned in excess of $3 trillion to emerging markets, more than four times U.S. lenders and putting them at greater risk if financial market turmoil in countries such as Turkey, Brazil, India and South Africa intensifies. The risk is most acute for six European banks - BBVA, Erste Bank, HSBC, Santander, Standard Chartered, and UniCredit - according to analysts. But the exposure could be a headache for the industry as a whole, just as it faces a rigorous health-check by the European Central Bank, aiming to expose weak points and restore investor confidence in the wake of the 2008 financial crisis.

    Giant Sucking Sound? Emerging-Markets Fiasco To Topple European Banks - It’s not like Europe is out of the woods, after years of recession, lurching from bank bailout to country bailout, and sweeping remaining fetid matters under the rug. But its banks are now sinking deeper into an even greater morass: the emerging-markets fiasco. Since QE Infinity turned into a pipedream in early May last year when the Fed’s taper cacophony bounced around the world, it has been a volatile mess in the emerging markets that picked up steam recently with currencies, stocks, and bonds skidding. Argentina devalued. Venezuela has become a complete basket case. Turkey, which is mired in a political and democratic crisis, including a “frantic crackdown“ on the media, jacked up its interest rates to make your head spin, in a vain effort to prop up the lira. Brazil, India, Indonesia, and South Africa are flailing about to contain the ravages. China is slowing too. And what we hear is that giant sucking sound of hot money leaving.What QE giveth, the end of QE taketh away.Turns out, these illustrious banks are stuck in the credit muck with loans totaling $3.4 trillion to the emerging markets (more than four times the exposure of US banks), according to analysts at Deutsche Bank. And $1.7 trillion of this malodorous debt is on the books of just six (mercifully unnamed) European banks. If a portion of those loans default....

    Europeans Undermining Trade Negotiations -- Simon Johnson -The Obama administration would like to negotiate separate free-trade agreements with some Pacific trading partners and with the European Union. The prospects of sufficient support on Capitol Hill for the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership are being weakened by European demands to include financial regulation in its partnership. The Europeans should drop this demand for political reasons and because it makes no sense from the perspective of making the financial system safer. (For more on current sticking points for Trans-Pacific Partnership see my Dec. 5 post.) The primary goal of negotiations with the European Union is to bring about convergence on the details of product safety and similar regulation. If a seat belt is good enough for the German authorities, it should be good enough for American regulators, and vice versa. Converging on such details is not without controversy – think of genetically modified food – but still a sensible goal.  Many officials on the American side would prefer to leave financial regulation out of partnership with the European Union, and there is strong precedent for this approach, as Jeffrey J. Schott and I explained in a recent policy brief. Financial regulation is already covered in forums including the Basel Committee for Banking Supervision, the United States-European Union Financial Markets Regulatory Dialogue and the International Organization of Securities Commissions. Nevertheless, the European Commission is determined to include financial regulation in the new partnership, and various representatives were in Washington making this case recently. Their argument is that we need to have a legally binding treaty that will commit the United States and Europe to trust each other’s rules, including on bank capital (i.e., how much equity is used to fund banks, relative to their debts) and on all the details of derivatives (including how transactions are structured and reported). To be clear, the European Union proposal is not to negotiate financial regulation within the new partnership – they acknowledge that it is better handled in other forums – but rather to use the trade agreement as a way to enforce compliance with agreed-upon principles of cooperation.

    Barcelona to Fine Owners of Empty Homes 100,000 Euros -- Via translation from Libre Mercado, the city council of Barcelona, Spain proposes €100,000 Fine on Owners of Empty HomesThe City Council will fine owners of empty homes up to 100,000 euros. The proposal by the City Council commits the government to detect unused homes, starting with the banks.  The statement also reflects the Council's commitment to initiate disciplinary proceedings which could end up with three fines "of up to 100,000 euros" if homes remain empty. The municipality of Barcelona draw "Inspection Programs to detect, check and effects pointing this statement, in order to guarantee the right to housing of the population and to address the housing emergency." To get around this idiotic law, banks and other landlords will either have to tear down houses or quickly dump them at distressed prices. Both of those things will compound the difficulties of already stressed banks.Alternatively, banks, other landlords, and owners of vacations homes will enter a mad scramble to find renters, at any price, to get around the occupancy restriction. An avoidance maneuver of that kind would stress rent prices and rental landlords.Clearly, this is another one of those too stupid to make up ideas.

    Germany preparing third financial rescue for Greece  - Germany has signalled it is preparing a third rescue package for Greece – provided the debt-stricken country implements "rigorous"austerity measures blamed for record levels of unemployment and a dramatic drop in GDP. The new loan, outlined in a five-page position paper by Berlin's finance ministry, would be worth between €10bn to €20bn (£8bn-16bn), according to the German weekly Der Spiegel, which was leaked the document. Such an amount would chime with comments made by the German finance minister, Wolfgang Schäuble, who, in a separate interview due to be published on Monday insisted that any additional aid required by Athens would be "far smaller" than the €240bn it had received so far.The renewed help follows revelations of clandestine talks between Schäuble and leading EU figures over how to deal with Greece, which despite receiving the biggest bailout in global financial history, continues to remain the weakest link in the eurozone. The talks, said to have taken place on the sidelines of a Eurogroup meeting of eurozone finance ministers last week, are believed to have focused on the need to cover an impending shortfall in the country's financing and the reluctance Athens is displaying to enforce long overdue structural reforms. The lack of progress is at the root of stalled talks between Greece and its "troika" of creditors, the International Monetary Fund (IMF), European Central Bank and EU.

    Germany Says No Greek Haircut -- The German Finance Ministry, rejecting a report in the news magazine Der Spiegel that said Germany was readying a third bailout package for Greece, reiterated that there is no chance of debt relief and that Greece will have to pay back the $325 billion in two bailouts it received from international lenders. “There is no new situation regarding Greece,” said spokesman Marco Semmelmann. Asked about the possibility of a debt write-down, he said: “I can deny that categorically.” If Greece is allowed debt relief, the cost would have to be passed on to taxpayers in the other 17 Eurozone countries who would have to pass for generations of wild overspending by Greek politicians. Weekly Der Spiegel reported that Berlin was preparing the ground for a third aid package for Greece of 10-20 billion euros which could include a further haircut affecting public creditors or a “limited additional program” involving fresh funds from the European rescue fund. The magazine said it had seen a five-page ministry position paper outlining the details of the Greek aid, including allowing Greece not to repay all it owes to the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB.) The IMF also previously rejected the idea of taking losses but said that the ECB and EU lenders should.

    Troika Estimates Greece Will Need Further Financial Support -- Greece ’s international creditors in Europe and Washington estimate that besides the loan of 10-20 billion euros currently under negotiation, the Greek economy will need further financial support in order to stay afloat by 2016. Troika officials have estimated that Greece’s fiscal deficit for the years 2014 and 2015 will reach the amount of 8 billion euros and 11 billion euros by 2016. Thus, a loan of 20 billion euros would be enough for Greece to meet its financial obligations. However, troika fears that Greece’s fiscal deficit will be bigger than initially predicted, despite the impressive primary surplus that the Greek government managed to achieve during the last year. Troika predicts that the fiscal gap of the Greek economy could reach and even surpass the amount of 14 billion euros. This estimation is based on the lack of progress in the Greek privatization process and on some judicial decisions that have stalled some of the memorandum’s measures. More accurate estimations on Greece’s deficit could be made after the double-elections (Greek local elections for the European Parliament). Meanwhile, from May to August the Greek government must to pay 16.8 billion euros in expired Greek bonds. Thus, a new loan of 30 billion euros will be necessary in order for Greece to meet its financial obligations. Nonetheless, if a new “bailout package” is considered as necessary by both Greece and its lenders, further drastic and strict measures will be asked for in return.

    German Government Considers New Aid Package for Greece - SPIEGEL -- No matter where Greek government representatives crop up these days, they spread a festive mood.  For the first time in years, there are signs of economic recovery, with exports on the rise and a booming tourism industry, he said. But above all, public finances are recovering. Greece had delivered, Stournaras said, and now it was time for its partner countries to make new funds available to the country. Thus, pride met prejudice. In no other ailing European nation are self-image and public perception further apart than in Greece. Stournaras and his Prime Minister Antonis Samaras see their country as being on a par with the successful models of Ireland and Spain when it comes to reforms. Europe's finance ministers, on the other hand, paint a very different picture: While Spain and Ireland no longer depend on the assistance of European bailouts, it is exactly the opposite for the Greeks. European officials are now searching for a new strategy for handling their biggest problem case, and it appears that German Finance Minister Wolfgang Schäuble is pushing for a swift solution. In a five-page internal memorandum to his ministry, entitled "Greece Position Paper," the strategy of both supporting and making demands has been given new content: Greece can only hope for new aid from its creditors if the government is prepared to make further reforms. According to the unsparing list made by Schäuble's officials, the bankrupt state's deficiencies are numerous, including the issue of fundamental problems in public administration that remain to be remedied. Tax authorities are unreliable, the creation of a nationwide land registry has stalled, and privatization isn't moving ahead. The job market has also failed to become as flexible as desired. In short, the reforms undertaken by Greece aren't enough.

    EU Said to Weigh Extending Greek Rescue Loans to 50 Years - The next handout to Greece may include extending the maturity on rescue loans to 50 years and cutting the interest rate on some previous aid by 50 basis points, according to two officials with knowledge of discussions being held by European autorities. The plan, which will be considered by policy makers by May or June, may also include a loan for a package worth between 13 billion euros ($17.6 billion) and 15 billion euros, another official said. Greece, which got 240 billion euros in two bailouts, has previously had its terms eased by the euro zone and International Monetary Fund amid a six-year recession.  “What we can do is to ease debt, which is what we have done before through offering lower interest or extending the maturity of loans,” Dutch Finance Minister Jeroen Dijsselbloem, who heads the group of euro finance chiefs, said yesterday on broadcaster RTLZ. “Those type of measures are possible but under the agreement that commitments from Greece are met.”

    ECB's next steps could involve suspending SMP sterilization - instant QE - Today Credit Suisse confirmed our earlier assessment that the ECB will be shifting toward looser monetary stance in the near future (see post). CS: - There are increased risks that the ECB acts earlier and (possibly) more aggressively than we expected. ... our economists lowered their inflation forecasts, with March now projected at 0.4% yoy (vs. 0.7%) and the 2014 average lowered to 0.7% from 1.0%. It seems hard to believe the ECB will remain idle against the backdrop of a sharply lower inflation path. They now expect the following:

    • The depo rate to go to -0.1% accompanied by a token key policy rate cut in March or April.
    • The threshold for balance sheet expansion has fallen. As shown [here] the ECB balance sheet has been contracting with accelerated LTRO repayments and is in stark contrast to the Fed and BoJ. Removing the SMP sterilization (liquidity injection of €175.5bn) would be an effective way of providing stimulus and buys the ECB time to work out logistics of other measures. We would also see suspension of the SMP sterilization as a powerful signal that the ECB could engage in outright asset purchases if inflation continues to fall.
    What does CS mean by "suspension of the SMP sterilization"? Between 2010 and 2012 the ECB purchased over €200bn of EMU member states' government securities in order to help contain rising interest rates in the periphery nations (this included some Greek bonds that ultimately defaulted.) The program was called the Securities Markets Programme (SMP).

    German yields fall on talk Draghi wants to stop sterilisation (Reuters) - German Bund yields hit their lowest level in six months on Tuesday on talk the European Central Bank was seeking support to stop sterilising its crisis-era bond purchases in money markets. The ECB takes an amount equivalent to its holdings of euro zone government bonds as weekly deposits from banks to offset the buying and neutralise any threat it will fuel inflation. The weekly operations are also aimed at quelling concerns the bond purchases were directly financing governments, something the ECB is not allowed to do. A Bloomberg report, citing two euro-area central bank officials familiar with the debate, said ECB President Mario Draghi would only consider ending the sterilisation if he is openly backed by the Bundesbank. true "There's talk Draghi is looking for German support for ending sterilisation. For me, that's effectively QE (quantitative easing)," a trader said. QE is market jargon for central bank asset purchases as a monetary policy easing tool.

    Quantified negativity and the ECB - Just in case Draghi actually, finally, opts for negative rates later today and puts us all out of our misery, Deutsche Bank’s George Saravelos has taken a stab at how big a hit the euro would take (with our emphasis in the last paragraph):

      • First, even in a ZIRP world, the FX market remains very sensitive to short-end rates. Running regressions across all tenors, the correlation between EUR/USD and rate differentials is largest in the short-end of the curve. Not only that, but the beta is high – a 10bps move in yields is associated with a 3-4big figure move in the currency (chart 1).
      • Second, the effect on FX once the zero bound is crossed will likely be non-linear. On the one hand, it will be the first time a major central bank “pays” investors to short the currency. Swiss money market rates briefly turned negative in the crisis but the SNB never charged banks for deposits. Denmark also has negative rates but this is to defend a fixed exchange rate. If the euro becomes the first major funder with NIRP (negative rate policy) rather than ZIRP status, portfolio shifts are likely to be larger than usual.
      • Third, negative rates will open up market pricing for QE. The ECB can’t take rates too negative, because at some point the opportunity cost of depositing at the ECB will be high enough to encourage physical cash hoarding and financial disintermediation. Once rates go negative, the next step is for the market to start pricing quantitative easing, and rightly so in our opinion – real rates in Europe remain higher than in the US (chart 3).

    Portuguese Debt About to Implode? What About Spain? - Is Portugal about ready to implode? That's what one hedge fund manager believes. For now, interest rate action suggests otherwise. We will explore the case for implosion but first consider this chart of 10-year sovereign bonds.The New York times describes the setup in A Lonely Bet Against Portugal’s Debt, but I am more interested in Tortus Capital's thesis.  Salanic maintains the status quo is not sustainable. Here is his overall thesis:

    • The Troika Program is off track. Portuguese bondholders are at the mercy of that market.
    • Portugal has excessive public and private debt financed from abroad. Portugal can neither grow nor devalue that debt.
    • Austerity fatigue has set in as the people carry the full burden of the adjustment.
    • Corporates are defaulting en masse and cannot sustain their debt burdens, leading to a vicious cycle of deleveraging.
    • The long-term outlook is bleak.
    • Debt-to-GDP is very high and growing one percent per month. Portugal is the third most leveraged country in the Eurozone.
    • Accounting for growth and interest expense, Portugal's debt is the highest in the Eurozone and is not sustainable.
    • Portugal can neither raise taxes nor cut expenditures, leaving little room to improve debt-servicing capacity.
    • 40 consecutive years of deficit and 18 years without a primary surplus confirm that Portugal cannot sustain so much debt.
    • In the most optimistic case, the Portuguese sovereign has at least 30% too much debt.

    Corruption across EU 'breathtaking' - EU Commission: The extent of corruption in Europe is "breathtaking" and it costs the EU economy at least 120bn euros (£99bn) annually, the European Commission says. EU Home Affairs Commissioner Cecilia Malmstroem has presented a full report on the problem. She said the true cost of corruption was "probably much higher" than 120bn. Three-quarters of Europeans surveyed for the Commission study said that corruption was widespread, and more than half said the level had increased. "The extent of the problem in Europe is breathtaking, although Sweden is among the countries with the least problems," Ms Malmstroem wrote in Sweden's Goeteborgs-Posten daily. The cost to the EU economy is equivalent to the bloc's annual budget. For the report the Commission studied corruption in all 28 EU member states. The Commission says it is the first time it has done such a survey. Bribery widespread In the UK only five people out of 1,115 - less than 1% - said they had been expected to pay a bribe. It was "the best result in all Europe", the report said. But 64% of British respondents said they believed corruption to be widespread in the UK, while the EU average was 74% on that question. In some countries there was a relatively high number reporting personal experience of bribery,

    "Fuck The EU" - US State Department Blasts Europe; Revealed As Alleged Mastermind Behind Ukraine Unrest --A leaked recording of a telephone conversation allegedly between US assistant secretary of state Victoria Nuland and the US envoy to the Ukraine, Geoffrey Pyatt discussing who should be in Ukraine's next government has, according to The FT, threatened to fuel east-west tensions over the troubled nation's future. In apparent frustration with the EU – which has failed to join the US in threatening sanctions against Ukraine’s leaders if they violently crush the protests – the voice resembling Ms Nuland at one point exclaims "Fuck the EU". As the two US diplomats decide whether "Klitsch" or "Yats" should be 'in' or 'out', listeners will be reminded (uncomfortably) that the governments of Ukraine and Russia previously alleged that the protests are being funded and orchestrated by the US.  The authenticity of the recording has not been confirmed (though comparisons to Nuland's recent media appearances provide some confidence) - the FT reported that the US embassy in Kiev declined to comment, which is a tacit admission: if the clip was a fake, the US would immediately make it clear.

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