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

Saturday, March 1, 2014

week ending Mar 1

Federal Reserve Balance Sheet Now Hits $4.16 Trillion -  The Federal Reserve is under a new Chairman, and the new policy is still one that will come with ongoing bond purchase tapering. Still, the Fed’s balance sheet keeps growing and is moving further above the 4 trillion mark.  For the week that ended on February 26, 2014, the total assets on the Fed’s balance sheet were $4.16 trillion ($4.1599T rounded up). This was a gain of $10.75 billion from the prior week, but is up a whopping $1.07 trillion from the same week a year ago. Treasury securities grew by $10.4 billion up to $2.171 trillion. Mortgage-backed securities grew by $1.38 billion in the last week to $1.57 trillion. Compared to a year ago, this is $528.7 billion higher in Treasury securities and $554.1 billion higher in mortgage-backed securities. The markets have absorbed the bond tapering quite well. The S&P 500 has hit yet another high. And since the end of 2013, the 10-year Treasury yield has fallen from just over 3.0% down to 2.65%.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--February 27, 2014: Federal Reserve statistical release - Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Do we even need a Fed balance-sheet reduction? --Either via IOER or fixed rate full allotment reverse repos (what we like to call Farps) the Fed can, if it wishes, steer interest rate policy with a floor system rather than Fed funds per se. In other words, if it needs to raise rates, it can do so not by lending at a certain rate, but by borrowing from the market at the rate it needs to absorb liquidity instead. As noted before, the only possible risk for the Fed is that it ends up paying out more than it receives from its balance sheet instead. It’s a different type of central bank force, and one which ultimately reflects the fact that there is greater demand for safe assets in the system than funds to borrow. Barclay’s Joseph Abate makes the point in a note this Friday: The Fed’s fixed rate reverse repo facility (FRFA) appears able to establish a floor on overnight market rates regardless of the level of bank reserves. Is it time for this rate to replace fed funds as the Fed’s principal policy lever?

    • • Enormous levels of bank reserves have eliminated the short base in the market for bank reserves. But given the benefits of high levels of excess reserves, the Fed may not want to restore the fed funds rate.
    • • Instead the Fed might be ready to consider replacing its policy lever. Two candidates are IOER and the fixed rate on its full allotment reverse repos.
    • The January FOMC minutes reveal some discomfort with extending the FRFA testing. We suspect this mostly reflects concern about replacing fed funds.
    • • We think the fixed rate on reverse repos is more likely to become the policy lever than IOER because it will have been extensively tested and covers a wider swath of counterparties.

Dallas Fed’s Fisher Wants to Continue Reducing Bond Purchases -  The Federal Reserve should continue reducing its monthly bond purchases in $10 billion increments this year, Federal Reserve Bank of Dallas President Richard Fisher said Monday. “That’s certainly what I am in favor of,” Mr. Fisher, a vocal critic of the Fed’s bond-buying program, said during an interview on the Fox Business Network. The task of spurring stronger economic growth now fall to fiscal, not monetary, policymakers, he said. The Fed’s bond-buying program has aimed to drive faster growth by lowering borrowing costs, which should encourage more spending, hiring and investment. The central bank decided in January to trim its purchases by $10 billion to $65 billion a month and Fed officials have signaled they’ll likely continue reducing the purchases this year if the economy improves as they expect. Mr. Fisher this year is a voting member of the central bank’s policy making Federal Open Market Committee. He said “things are picking up” in the U.S. economy: “We’re still not seeing employment being driven to the degree that we would like to see at the FOMC, but it’s definitely improved. … We’ve recovered over 90% of the jobs lost in the Great Recession, and we’re moving forward, I think that’s the important point — without inflationary pressure.”

Fed’s Lockhart Expects Central Bank to Continue Cutting Bond Buying - Federal Reserve Bank of Atlanta President Dennis Lockhart said Thursday he expects the central bank to continue cutting its bond buying campaign despite uneven economic data. “I think it’s a high bar to change any of the direction, on asset purchases at this time,” Mr. Lockhart told reporters at a conference on banking held at the Atlanta Fed. The Fed has been cutting the pace of its bond-buying stimulus program since December. The central bank is currently buying $65 billion a month in bonds and it is widely expected to end those purchases later this year as long as long as growth meets expectations. Mr. Lockhart has been a supporter of slowing the pace of asset purchase. But questions have grown about cutting the purchases in the wake of recent economic data that have come in on the weaker side. Mr. Lockhart said he expected some tepid news. But he added, “the data we have seen are inconclusive” and some of what’s been seen may be due to the weather. “You have to worry if there’s something more fundamentally going on, showing a weakness in the economy,” Mr. Lockhart said. “I don’t believe that is the case, but it’s a little too early to draw that conclusion.”

Fed’s Fisher Would Be Open to Accelerating Taper -- Federal Reserve Bank of Dallas President Richard Fisher said Thursday that if the pace of economic growth picks up in the U.S. that he would be open to accelerating the Federal Reserve’s reduction of bond purchases.  The economy has “enough money to create jobs,” he said. In the case of a “more rapidly accelerating economy, I might be in favor of a further reduction,” in bond buys he said.  He reiterated that he was against the U.S. central bank’s third round of quantitative easing, known as QE3.  “There is plenty of money there, so reducing the amount we are adding, that was as much as I could have hoped for. I am very happy with it, happy with the direction we are going,” he said to journalists on the sidelines of a conference here. The Fed’s bond-buying program was designed to drive faster growth by lowering borrowing costs to encourage more spending, hiring and investment. The central bank decided in January to trim its purchases by $10 billion to $65 billion a month, and Fed officials have signaled they’ll likely continue reducing the purchases this year if the economy improves as they expect.  Speaking at the conference sponsored by Germany’s central bank, Mr. Fisher warned that a prolonged period of accommodative monetary policy could create risks to financial stability, in part by steering money to risky assets.  He blamed ineffective U.S. fiscal policy with impeding the transmission of the Fed’s expansive monetary policy to the economy.

The Urge To Tighten - Paul Krugman - People are going through the Fed’s 2008 transcripts, and finding that most officials had no idea what was going down.  I’m a bit surprised, but that’s not the most surprising thing. What’s really surprising, and a bit dismaying, is the fact that a number of Fed officials were evidently focused on inflation, and some were eager to raise rates. That is, there were a fair number of people at the Fed — very much not, however, including Janet Yellen –who would, if they could, have echoed the ECB’s big mistake. What’s kind of shocking about this is that official Fed doctrine is to focus on core inflation, not react to short-run fluctuations in commodity prices. And the history of the past decade or so has showed that this is very much the right thing to do — headline inflation has swung widely, while focusing on core inflation has been a much better (though not perfect) guide to appropriate policy:Were Fed officials just not on board with this doctrine? Or was it part of a general urge to tighten, because central bankerly types just really dislike easy money?

Taper Will Continue if Growth, Job Gains Persist, Says Fed’s Pianalto -- The departing head of the Federal Reserve Bank of Cleveland said Wednesday the central bank will press forward with cutting back on its bond-buying stimulus as long as the economy performs as expected.As long as job gains continue and economy growth meets expectations, “we can continue to scale back our asset purchases,” Federal Reserve Bank of Cleveland President Sandra Pianalto said in response to audience questions at an event in Wooster, Ohio.  Ms. Pianalto, who has headed the Cleveland Fed since 2003, is retiring this year. She will be succeeded on June 1 by Loretta Mester, who is currently the director of research at the Philadelphia Fed. The Cleveland Fed president holds a voting slot this year on the policy-setting Federal Open Market Committee. Ms. Pianalto has been a centrist throughout her tenure as a Fed bank president. She has also been a supporter of the Fed’s ongoing bond-buying stimulus program, and she has backed the central bank’s efforts to cut the pace of purchases to reflect the improved state of the economy. The Fed is widely expected to press forward with more cuts to what is now an $65 billion-a-month effort and end the purchases some time later this year. In past remarks, Ms. Pianalto has worried about the effect continued bond purchases might have on financial stability, but she has also been concerned about the state of the economy. Despite expectations the program will end this year, a round of weak economic data has raised for some the possibility the Fed may take a break from cutting bond purchases while it assesses incoming events

Last Year’s Taper Tantrum May Have Been Taste of the Future, Paper Says - Over the summer of 2013, financial markets convulsed as investors began to price securities for what many investors saw as a nearing chance of a Federal Reserve rate increase, in an episode now called the “Taper Tantrum.” The problem was, from the Fed’s vantage point, nothing had changed when it came to the rate-increase outlook. And what’s worse, the market’s move to boost borrowing costs could hurt an economy that was finally showing signs of being on the mend. New research warns the same process may well play out again the next the market gets the first scent the central bank is fixing to raising short-term interest rates off what are currently near zero percent levels. “When investors infer that monetary policy will tighten, the instability seen in summer of 2013 is likely to reappear,” warns a paper to be presented Friday at a conference held by University of Chicago Booth School of Business in New York. The paper points to a negative feedback loop between some types of bond market investors and the Fed. Investor expectations of tighter policy push up borrowing costs in a way that wounds growth, which in turn forces the Fed to back off of the move toward tighter policy. Also, they warn the amount of stimulus the Fed provides now needs to be balanced against the prospects its withdrawal later will cause a bad market reaction. “Stimulus now is not a free lunch, and it comes with a potential for macroeconomic disruptions when the policy is lifted,” the paper said.

Fed’s Kocherlakota: Market Volatility May Attend Tightening - Federal Reserve Bank of Minneapolis President Narayana Kocherlakota on Friday acknowledged the central bank’s extraordinary efforts to keep rates low could mean a jump in yields when the time nears to tighten monetary policy.  Mr. Kocherlakota made his comments in the text of a speech to discuss a paper presented at the University of Chicago Booth School of Business. The paper took stock of the 2013 “taper tantrum,” where bond yields rose sharply as market participants braced for a tightening in monetary policy central bankers said wasn’t likely.  The paper said a replay of this situation is likely the next time the Fed nears a point in which it might raise short-term interest rates. The paper’s authors suggested market sentiment can change very quickly, leading to aggressive swings in market direction. The paper also warned that the type of bond-market investors who react this way don’t depend on leverage. That means Fed supervisory and regulatory powers have a difficult time affecting their actions.  Mr. Kocherlakota didn’t discuss the monetary policy outlook in his brief remarks. But he did say “financial instability may not be associated with the usual suspects.” He also said the large increase in yields seen over the summer may have been related to how much Fed bond-buying had pressured those yields lower.

 What is the expected date of the first interest rate increase? - I was reading this econbrowser post , and I was surprised to see this graph, from the San Francisco Fed, of the median expected exit from the zero lower bound. Here is how it compares to my very basic estimate, using treasury yields: Now, the estimate I show in this graph is from a very broad analysis of treasury yields, with a blunt adjustment made to account for the asymmetry of the yield curve near the zero lower bound (ZLB).  I have a more rigorous model that starts with Eurodollar futures data in September 2012, but the blunt estimate from treasury data fits the estimate from that model surprisingly well.  (Below is a comparison of my two estimates since September 2012.)  The graph above is similar to this previous graph that I posted.  Keep in mind that the two graphs above measure the distance to the ZLB exit at any given time, whereas the graph in my previous post, and this little graph comparing my two models are showing the expected exit date on a fixed calendar. And, the pattern fits the pattern of the estimate from the Fed pretty well, too, up to QE3.  We both see a spike before QE2, which is reversed during QE2, before spiking again at the end of 2011 and moving sideways into 2012.  But, after that, they seem to move in opposite directions.  My model shows the exit moving back, from 2.5 years to 1.5 years, from the beginning of QE3 until September 2013, when it levels off at about 1.5 years.  The Fed model shows the exit date remaining fairly level, around 2 years, until September 2013, after which it declines steeply toward 1 year. This is an important difference.  My data would support what I would call the market monetarist version of events.  The expected exit date had been moving ahead over time, so that we were not making progress on escaping ZLB.  But, QE3 improved economic and inflation expectations, which stabilized the expected exit date until economic improvements in early 2013 caused the exit date to move toward us.  Taper talk in June 2013, followed by the establishment of a tapering schedule later in the year, reversed some of these expansionary expectations, which moved the expected exit date back into late 2015.  Continued improvements in the economic outlook, in spite of the taper, have continued to have a positive influence on the expected exit date. But, the Fed data would tend to support what I call the "Wizard of Oz" view of the Fed, which ascribes a powerful ability to target interest rate levels over time to the Fed.  With this data, and in this view, QE3 signaled a plan from the Fed of holding rates lower for longer, so the expected exit date kept moving into the future, but with the talk of taper in June 2013 and the subsequent implementation after September 2013, the Fed has signaled that they will raise rates sooner than they had previously planned, so the expected date of the exit has moved back toward us.

New York Fed Boosts Rate Slightly on Facility in Testing Phase -- The Federal Reserve Bank of New York said it is raising the rate it offers on a facility now in a testing phase that central bankers hope will eventually provide better control over short-term rates. The bank said Tuesday that it was raising the return on its overnight fixed-rate reverse repurchase agreement facility to 5 basis points, from 4 basis points. The change takes effect with Wednesday’s operation. The reverse repo facility loans Fed-owned bonds to eligible financial firms and takes in cash, which the Fed then pays interest on. The tool is currently in a testing phase through January of next year. The reverse repos drain liquidity from the financial system. As they test it, central bankers are trying to see how this facility affects short-term rates. The hope is that the rate the Fed offers via the reverse repos will put a floor underneath short-term rates, and offer better control of rates relative to more traditional methods of market intervention. Central bankers have indicated that the terms of the program will be adjusted at various points as the Fed explores how reverse repos function. The Fed has stressed the reverse repos operation has no monetary policy implications at the current time. That said, program participants, which include Wall Street’s biggest banks and other large money managers, have utilized the facility aggressively since late last year. A dearth of borrowable Treasury bonds in the so-called repo market has driven firms to the Fed for its ample and easily attained supply of government securities. Financial firms have borrowed around $100 billion in Treasury bonds per day from the Fed over much of this year.

Fed Debates Whether to Use Interest Rates to Fight Bubbles - WSJ - Federal Reserve Governor Daniel Tarullo speaks today at the National Association of Business Economics on financial stability and monetary policy. Most central bankers want to separate the two. Former Fed chairman Ben Bernanke has argued that the Fed’s low interest rates didn’t cause the last housing bubble and financial crisis, and if a new bubble emerges, interest rates shouldn’t be used to pop it. The first line of defense against a financial boom is macro prudential tools — regulations designed to address the problem with precision — and not higher rates which would hurt the whole economy. There are three challenges to this line of thinking. First, as former Kansas City Fed President Thomas Hoenig told us Monday, it’s not clear Mr. Bernanke is right about rates and the last housing boom. “Rates that are held too low for too long, as was done between 2002 and 2006, risks inflation and asset bubbles,” he said. If monetary policy is a cause of asset bubbles, it can’t so easily be dismissed as the necessary tool for prevention. Second, central bankers are putting an awful lot of faith in macro prudential tools that don’t have a perfect track record. Third, there is the Jeremy Stein argument. In some cases monetary policy — i.e. higher interest rates — might be the preferable tool for addressing bubbles and threats to financial stability. That’s because monetary policy finds problems that regulators can’t. Regulators didn’t see problems brewing in collateralized debt obligations back by residential mortgage-backed securities in 2006. But higher rates might have slowed their issuance. As Mr. Stein, a Fed governor, said last year, “while monetary policy may not be quite the right tool for the job, it has one important advantage relative to supervision and regulation–namely that it gets in all of the cracks.”Let’s see where Mr. Tarullo comes down on these issues. It’s an important Fed debate in an era of exceptionally low rates.

Fed’s Tarullo Sees Signs of Market Risks - The Federal Reserve‘s leading bank supervisor, Daniel Tarullo, said on Tuesday he is seeing modestly increased risks in credit markets, particularly in corporate bonds and leveraged loans. Mr. Tarullo said the U.S. central bank should not rule out using monetary policy to fight potentially-damaging asset bubbles, but stressed it should first try to employ and refine current existing regulatory tools for spotting such threats to financial stability. “High-yield corporate bond and leveraged loan funds, for instance, have seen strong inflows, reflecting greater investor appetite for risky corporate credit, while underwriting standards have deteriorated, raising the possibility of large losses going forward,” . “At present, our monitoring does find some evidence of increased duration and credit risk, but the increases appear relatively moderate to date–particularly at the largest banks and life insurers,” Mr. Tarullo said. “Monetary policy action cannot be taken off the table as a response to the build-up of broad and sustained systemic risk.” Still, Mr. Tarullo added that a monetary policy reaction to every little sign of a bubble would have significant damaging consequences for the economy. Turning to the economic outlook, Mr. Tarullo said the Fed has begun reducing the pace of its monthly bond buys aimed at supporting growth because “evidence [is] accumulating that the labor market is improving materially.”

Fed Watch: Tarullo on Monetary Policy and Financial Stability -  Federal Reserve Governor Daniel Tarullo tackled the issue of financial stability in a speech that I think is well worth the time to read. The starting point is that many lessons have been learned over the past two cycles, including the perils of ignoring financial stability issues. But how should such concerns be incorporated into the policymaking process? Tarullo: While few today would take the pre-crisis view common among central bankers that financial stability should not be an explicit concern of monetary policy, there is considerable disagreement over--among other things--the weight that financial stability concerns should carry compared with traditional monetary policy goals of price stability and maximum employment. As Tarullo notes, the Fed's actions have not come without backlash. Of much focus is the size of the balance sheet, and the likelihood of unwinding the resulting liquidity should inflation rear its head. Tarullo quickly dismisses this concern as no longer of major concern given the expansion of the Fed's toolkit. He turns his attention toward bigger game:The area of concern about recent monetary policy that I want to address at greater length relates to financial stability. The worry is that the actual extended period of low interest rates, along with expectations fostered by forward guidance of continued low rates, may be incentivizing financial market actors to take on additional risks to boost margins, thereby contributing to unsustainable increases in asset prices and a consequent buildup of systemic vulnerabilities. Indeed, in the years preceding the crisis, a few prescient observers swam against the tide of conventional wisdom to argue that a sustained period of low rates was inducing investors to "reach for yield" and thereby endangering the financial system.

Why monetary policy should ignore bubbles – Janet Yellen’s confirmation hearing showed signs that US monetary policy will soon adopt a third mandate. She said: “Overall, the Federal Reserve has sharpened its focus on financial stability and is taking that goal into consideration when carrying out its responsibilities for monetary policy.” While Yellen has traditionally downplayed this mission, the December FOMC meeting minutes also revealed a growing chorus of FOMC participants who believe that monetary policy should do more than just ensure full employment and price stability. Rather, they believe that monetary policy should look out for bubbles and pop them before they jeopardize financial stability.  At first glance, this sounds like a good idea. After all, who wants financial instability? But back in 2002, Bernanke outlined several reasons why tightening monetary policy in response to bubbles is unlikely to work in practice. First, there’s no reason to believe that the Fed can accurately identify bubbles in advance. Second, even if a bubble appears, it’s not clear that raising short term interest rates could pop it. Third, even if monetary policy ends up bringing asset prices down, it is likely to do so only through hurting the livelihoods of average Americans.

The foie gras bubble -- James Montier of GMO is the subject of the latest Welling on Wall Street newsletter, a weekly long-form interview conducted by Kate Welling. Montier, ever the bear, doesn’t like the negative expected return environment we’re in. He thinks we’ve learnt little from the crisis and that one the biggest risks is that the market isn’t being adequately compensated for the risk it’s being forced to take. We can’t duplicate too much of the interview here, but consider the following something of a teaser. The questions are being posed by Welling: That’s what’s so terrifying.Because we haven’t learned a thing? It appears not. On that score there is a great quote from Jeremy Grantham, which I really love — When he was asked what people would learn from the whole financial crisis, Jeremy said, “In the short term a lot, in the medium term a little, in the long term, nothing at all. That would be historical precedent.”But I think what has surprised us all is how incredibly short the long term proved to be. It is just breathtaking to me how quickly we’ve gone back into this — what I describe as kind of a fois gras bubble environment. A fois gras bubble]?Yes, because we’re all being force fed risk assets. It’s an unpleasant experience, when you’re playing goose to the central bank’s farmer. It’s just not fair. It’s a really odd situation to find yourself in, and to know how to deal with it is one of the real challenges. I have even described this as the toughest time in which to be an asset allocator — primarily because nothing is cheap.

Fed’s Evans Is Willing to Risk Higher Inflation to Boost Hiring -- Federal Reserve Bank of Chicago President Charles Evans said Friday the central bank should be willing to allow inflation to go over its 2% target if that will help the economy get back on track more quickly. “We need to repeatedly state clearly that our 2% objective is not a ceiling for inflation,” Mr. Evans said in the text of a speech.“A slow glide toward our goals from large imbalances risks being stymied along the way and is more likely to fail if adverse shocks hit beforehand,” the policymaker told an audience at a conference in New York held by the University of Chicago Booth School of Business. “The surest and quickest way to get to the objective is to be willing to overshoot in a manageable fashion.” A willingness to go over the Fed’s 2% inflation target is to some degree already included in the Fed’s regime on monetary policy making. The central bank currently holds that it will not consider raising rates as long as the jobless rate is above 6.5%, so long as expected inflation does not go above 2.5%. Officials have made it clear they want inflation on target but, even so, this guidance suggests the Fed is willing to trade a little bit of above-target inflation to get unemployment down more quickly. Mr. Evans has been a steadfast supporter of aggressive Fed action to aid the economy. But he has also offered his support to the Fed’s ongoing effort to trim the pace of its bond-buying stimulus. In his prepared remarks, the official didn’t comment on the monetary policy outlook.

Exposed: Irrational Inflation-Phobia at the Fed Caused the Panic of 2008 - Matthew O’Brien at The Atlantic has written a marvelous account of the bizarre deliberations of the Federal Open Market Committee at its meetings (June 25 and August 5) before the Lehman debacle on September 15 2008 and its meeting the next day on September 16. A few weeks ago, I wrote in half-seriousness a post attributing the 2008 financial crisis to ethanol because of the runup in corn and other grain prices in 2008 owing to the ethanol mandate and the restrictions on imported ethanol products. But ethanol, as several commenters pointed out, was only a part, probably a relatively small part, of the spike in commodities prices in the summer of 2008. Thanks to O’Brien’s careful reading of the recently released transcripts of the 2008 meetings of the FOMC, we now have a clear picture of how obsessed the FOMC was about inflation, especially the gang of four regional bank presidents, Charles Plosser, Richard Fisher, James Lacker, and Thomas Hoenig, supported to a greater or lesser extent by James Bullard and Kevin Warsh.

How the Fed Let the World Blow Up in 2008  It was the day after Lehman failed, and the Federal Reserve was trying to decide what to do. It had been fighting a credit crunch for over a year, and now the worst-case scenario was playing out. A too-big-to-fail bank had just failed, and the rest of the financial system was ready to get knocked over like dominos. The Fed didn't have much room left to cut interest rates, but it still should have. The risk was just too great. That risk was what Fed Chair Ben Bernanke calls the "financial accelerator," and what everyone else calls a depression: a weak economy and weak financial system making each other weaker in a never-ending doom loop.  But the Fed was blinded. It had been all summer. That's when high oil prices started distracting it from the slow-burning financial crisis. They kept distracting it in September, even though oil had fallen far below its July highs. And they're the reason that the Fed decided to do nothing on September 16th. It kept interest rates at 2 percent, and intoned that "the downside risks to growth and the upside risks to inflation are both significant concerns." In other words, the Fed was just as worried about an inflation scare that was already passing as it was about a once-in-three-generations crisis.

The Curse of Unanimity - The transcripts that the Federal Reserve released last week of its policy makers’ 2008 meetings record in painful detail the ignorance of its officials about economic conditions during that crisis year. What the transcripts do not explain is why the Fed failed at one of its most basic tasks. I wrote last week that the cause was a combination of bad data, bad models and bad assumptions. But that does not explain why the Fed discounted good data, failed to build better models or persisted in its mistaken assumptions. It does not explain why other people were able to see the cliff.Neil Fligstein, a sociology professor at the University of California, Berkeley, argues in a recent paper that the broader problem was cultural. The Fed increasingly is dominated by one kind of official: academic economists who lack private-sector experience. “They all start out analyzing everything in more or less the same way,” he said. Moreover, Professor Fligstein and his co-authors argue that the Fed “does not just favor macroeconomists, but people who appear unlikely to take extreme positions.”  The result, according to Professor Fligstein and his co-authors, is that the Fed’s discussions begin with a narrow range of views and quickly head toward consensus. In the transcripts of Fed meetings between 2000 and 2008, they wrote, “one is constantly struck by how cautious the nature of the discussion appears and how the give-and-take in the discussion often ends up at some middle position.”

ECRI claims we're in the longest recession since 1929-32  - I haven't addressed the badly blown recession call by the formerly highly-regarded ECRI since its 2 year anniversary last September.  I'm updating my commentary now because, as of February, ECRI's fictitious recession, which they claim started in July 2012, is 1 year and 8 months old.  That makes it longer than 1973-74, longer than 1981-98, even longer than December 2007 - June 2009.  In fact if their claim is to be believed, this is the longest recession since the "great contraction of 1929-32.  Forget government statistics, which ECRI notes can be revised significantly.  Private statistics which don't get revised like railroad traffic, truck tonnage, steel production, the ISM manufacturing and services indexes, temporary hiring and consumer purchasing as measured by the ICSC, Johnson Redbook, and Gallup, have all nearly relentlessly risen throughout this period. ECRI's original mistake was a very human one:  the interpretation of a downturn in their indexes.  You may recall that they originally said that a recession was "unavoidable" just after the debt ceiling debacle as consumers and businesses froze while they waited to see whether the US government would actually default on its debts, and if not, what altered landscape any proposed "grand bargain" might bring about. As a result, the ECRI Weekly Leading Index and Weekly Coincident Index, which had each been as high as about +7 early in 2011, and had already dipped to 0 in the WLI and about +4 in the WCI at the time the debt ceiling debacle began,  dropped to about -7 and +3 by the time of their September recession call.  He's a graph of both of the them for the year 2011:

Janet Yellen wants ‘firmer handle’ on the weather effect on data - The Federal Reserve wants a “firmer handle” on the causes of a recent string of weak economic data to determine whether it reflects a broader economic slowdown that could call into question its policy of scaling back monetary easing, Janet Yellen told Congress. In Ms Yellen’s first appearance before the Senate banking committee since taking over as chairwoman of the US central bank, Ms Yellen acknowledged “we have seen quite a bit of soft data over the last month or six weeks”, pointing to disappointing numbers on jobs, housing, retail sales and industrial production. “What we need to do . . . is to try to get a firmer handle on exactly how much of that set of softer data can be explained by weather and what portion if any is due to a softer outlook,” she said, suggesting that the Fed is still determined to continue tapering and is not convinced that the US recovery is experiencing a big loss of momentum. The Fed began “tapering” its asset purchases in December, lowered by $10bn a month to $65bn a month, at a time when the US economy appeared to be accelerating at a comfortable clip. But since then, the data have been less comforting, and although Fed officials have suggested there is a high bar to changing their tapering policy, protracted weakness could force the central bank to keep the asset purchases steady. The Fed chair also addressed the US central bank’s forward guidance, since the unemployment rate of 6.6 per cent is almost at the 6.5 per cent level established by the central bank as a threshold for starting to raise interest rates, which are now near zero. Many Fed officials, including Ms Yellen, believe the unemployment rate points to a healthier labour market than is the case and there is a vigorous debate within the central bank about how to change the forward guidance. The Fed has already tweaked its guidance to say interest rate increases should not be expected until “well past” the time the unemployment rate reaches 6.5 per cent.

Fed’s Plosser, Bullard Optimistic on Economic Prospects - Two regional Federal Reserve bank presidents in separate interviews expressed optimism about the economy’s prospects even amid noisy data due to weather. Federal Reserve Bank of Philadelphia President Charles Plosser said Friday on Bloomberg TV despite “very noisy” data due to weather and winter factors, he remains optimistic about the “longer-term growth” prospects of the U.S. economy noting it’s in a firmer position than it’s been for some years. Mr. Plosser urged “patience” with the U.S. data, however, saying we might not get a handle on the underlying economy for a couple months, and suggesting perhaps that at the March meeting Fed policymakers may have their hands tied because they won’t know what the economic indicators are showing. Mr. Plosser repeated his forecast that he is still looking for “close to 3% growth” in the U.S. economy in 2014. Asked about the Fed’s unemployment and inflation mandates, he said “both” are equally important but that the 6.5% unemployment threshold is “obsolete” and now we need to figure out how to go forward from here. Federal Reserve Bank of St. Louis President James Bullard said it’s difficult to disentangle the impact of weather on recent weakness in the economy but he’s “still optimistic” about U.S. economic growth in 2014 even if fourth-quarter GDP is revised down to 2.4% later Friday and we get the first quarter in the 2% range.

Predicting the Health of the Economy - The Surprise Index -- There are thousands of statistical methods that are used to measure the health of the economy but one that I find eye-catching is the interestingly named Citi Economic Surprise Index (CESI).  This metric is calculated daily on a three month rolling basis and measures a combination of both qualitative and quantitative macroeconomic indicators of economic news using weighted historical standard deviations of economic data surprises (i.e. when economists project that a metric will change by a certain amount and the metric changes by far more in a positive or negative direction with respect to the anticipated consensus level).  A positive Surprise Index suggests that economic data releases have been generally better than the consensus of economists and a negative Surprise Index suggests the opposite, that economic data releases have been generally worse than consensus.  As many of us observe, markets frequently move most substantially when macroeconomic data surprises to the upside or downside.  One recent example was the Philadelphia Fed's manufacturing survey for February; economists polled expected a 7.3 reading however, the actual reading was negative 6.3 showing that conditions were far worse than expected.  This would result in a negative Surprise Index number.  Please keep in mind that a positive or negative index value has nothing to do with the actual health of the economy, rather it reflects the relationship between expectations and reality. Citi is not the only promoter of this metric.  A 2012 paperby Chiara Scotti at the Federal Reserve Board examines the construction and use of a surprise index which is calculated using this equation:

U.S. Economy’s Growth Was Slower in Fourth Quarter - The economy grew at a slower pace in the fourth quarter of 2013 than first thought, weighed down by disappointing retail sales, inventory adjustments and a less robust trade balance.The Commerce Department said Friday it now estimates the economy grew by 2.4 percent in October, November and December, down from an initial estimate of 3.2 percent released on Jan. 30.Economists had been expecting the government to revise the estimated rate of growth downward to 2.5 percent.At 2.4 percent, the revised figure represents a substantial slowing from the pace of growth in the third quarter, 4.1 percent.Most experts believe the economy will continue to expand at a lackluster pace in the first several months of 2014, with growth picking up over the remainder of the year. Economists are looking for growth of about 2 percent in the first quarter.One reason for the current weakness is the more rapid pace of inventory gains in the second half of 2013, which tends to pull growth forward and then create slack as stockpiles at warehouses and store shelves are gradually wound down.Still, after a burst of optimism late last year, fears have been rising that the economy is not gaining momentum as originally hoped and is entering another of the periodic slow patches that have characterized the recovery of the last five years.

BEA: Q4 GDP Revised down to 2.4% - From the BEA: Gross Domestic Product, Fourth Quarter and Annual 2013 (second estimate)Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.4 percent in the fourth quarter of 2013 (that is, from the third quarter to the fourth quarter), according to the "second" estimate released by the Bureau of Economic Analysis. ... The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 3.2 percent. ...The second estimate of the fourth-quarter percent change in real GDP is 0.8 percentage point, or $32.7 billion, less than the advance estimate issued last month, primarily reflecting downward revisions to personal consumption expenditures (PCE), to private inventory investment, to exports, and to state and local government spending that were partly offset by an upward revision to nonresidential fixed investment.Here is a Comparison of Second and Advance Estimates. PCE growth was revised down from 3.3% to 2.6%. Government spending was a larger drag than originally estimated (-5.6% vs -4.9%).

GDP Q4 Second Estimate at 2.4%, Down from the 3.2% Advance Estimate -  The Second Estimate for Q4 GDP, to one decimal, came in at 2.4 percent, down from 3.2 percent in the Advance Estimate. The GDP deflator used to calculate real (inflation-adjusted) GDP rose to 1.5 percent from 1.3 percent in the Advance Estimate. had forecast 2.5 percent for today's GDP estimate and the deflator to remain unchanged. Here is an excerpt from the Bureau of Economic Analysis news release: Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.4 percent in the fourth quarter of 2013 (that is, from the third quarter to the fourth quarter), according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 4.1 percent.  The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 3.2 percent. With this second estimate for the fourth quarter, an increase in personal consumption expenditures (PCE) was smaller than previously estimated.  The increase in real GDP in the fourth quarter primarily reflected positive contributions from PCE, exports, nonresidential fixed investment, and private inventory investment that were partly offset by negative contributions from federal government spending, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.  The deceleration in real GDP growth in the fourth quarter reflected a deceleration in private inventory investment, a larger decrease in federal government spending, and downturns in residential fixed investment and in state and local government spending that were partly offset by accelerations in exports, in PCE, and in nonresidential fixed investment and a deceleration in imports. [Full ReleaseHere is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I've also included recessions, which are determined by the National Bureau of Economic Research (NBER). (chart series)

Q4 GDP Marked Down a Bit - Real GDP growth in the last quarter of last year (2013Q4) was marked down from an annualized growth rate of 3.2% to 2.4%, as per revisions reported today by the Bureau of Economic Analysis.  That also means that growth towards the end of the year was notably slower than that of the third quarter, which clocked in at 4.1%.  Details are here, but the markdown was the result of downward revisions to inventories, consumer spending, exports (more on that in a moment), and state and local spending. The slowdown from the third quarter was expected.  Inventories gave back some of the buildup from Q3 and the government shutdown in October was also implicated.  The deceleration in residential investment (new homes and home improvements) reflects a bit of slowing in the housing market in recent months, from higher mortgage rates, ongoing difficulty with credit access, and some price moderation.  And unusually cold weather’s in there somewhere too. All told, average growth in 2013, including today’s revision, was around 2%.  This year, the expectation is we’ll hit something closer to 3%, due in no small part to diminished fiscal drag from the “do-less-harm” Congress.  As you see in the figure below–it’s just average annual growth in real GDP–that’s pretty much the growth band of the recovery: 2-3%, by no means terrible, but a pretty persistent slog, and a pace that’s been insufficient to close the output gaps in growth and jobs that have been with us since the recession began in late 2007.

Revised Q4 GDP Tumbles 26% From Initial Estimate To 2.4%; Personal Consumption Hit - So much for that blow out initial estimate of Q4 GDP that had annualized GDP at 3.2%. One month later and the number has been cut by 25% to 2.4% following a substantial downward revision to Personal Consumption, which dropped from 3.3% to 2.6%, well below the 2.9% expected. As a percentage of the actual annualized GDP number, it dropped from 2.26% to 1.73%. The other components in the calculation that had material revisions were inventories which added just 0.14% to GDP vs 0.42% in the last revision and 1.67% in Q3, as the destocking from record high inventory build up levels continues to take a bite out of growth; offsetting this was an increase in the Fixed investment estimate from 0.14% to 0.58%. Which in turn means that even more CapEx growth was pulled back into last year than previously expected, suggesting further downward cuts to Q1 2014 GDP are coming. Finally, the government deducted -1.05% from Q4 GDP as opposed to the 0.93% estimated previously.

Key Inflation Measures Slow as Q4 GDP Growth Revised Down to 2.4 Percent - Revised data released today by the Bureau of Labor Statistics showed that U.S. real GDP grew at an annual rate of 2.4 percent in the fourth quarter of 2014, somewhat slower than the 3.2 percent previously reported. Allowing for population growth of about 0.7 percent, the annualized growth rate of real GDP per capita was 1.7 percent. The report also showed that key inflation measures derived from the national income accounts slowed in the quarter.  As the following table shows, the downward revisions affected nearly all sectors of the economy. The one bright spot was the contribution to GDP growth from private investment, which increased from a previously estimated .58 percentage points to .72 percentage points. Furthermore, more of the growth came from fixed investment and less from inventory buildup than previously reported. The contributions from consumption and net exports were both less than previously reported. The various deflators that the Bureau of Economic Analysis derives from the national income accounts provide an important check on the more widely publicized inflation figures for the Consumer Price Index, which are compiled by the Bureau of Labor Statistics. The two sets of inflation estimates are based on completely different data sets and use different methodology. For comparison, the next chart shows trends in the core and all-items CPI, based on data that the BLS released earlier this month. As you can see, the two charts both show that inflation by any measure has been slowing over the past two years, and continues to run below target.

Vital Signs: GDP Growth Slowdown Is Just More of the Same - The U.S. economy didn’t grow as robustly as the Commerce Department first thought. But this recovery’s history shows the downshift should not be a surprise. Real gross domestic product grew at an annual rate of 2.4% last quarter, down from the 3.2% pace Commerce reported a month ago. New data show consumer spending, exports and government purchases were weaker than first estimated, while housing and business investment did better than originally thought. The weaker gain follows a strong 4.1% jump in the third quarter and highlights the zig-zag pattern of growth so far in this recovery. One reason is the volatile swings in inventory accumulation. The sector added only 0.14 percentage points to growth last quarter but its impact has ranged from adding nearly 3 percentage points to subtracting as much as 2 points in certain quarters of this upturn.

Visualizing GDP: Dissecting the Second Estimate Downward Revision - The chart below is my way to visualize real GDP change since 2007. I've used a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. Here is the latest overview:The increase in real GDP in the fourth quarter primarily reflected positive contributions from PCE, exports, nonresidential fixed investment, and private inventory investment that were partly offset by negative contributions from federal government spending, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased. The deceleration in real GDP growth in the fourth quarter reflected a deceleration in private inventory investment, a larger decrease in federal government spending, and downturns in residential fixed investment and in state and local government spending that were partly offset by accelerations in exports, in PCE, and in nonresidential fixed investment and a deceleration in imports. Let's take a closer look at the contributions of GDP of the four major subcomponents. My data source for this chart is the Excel file accompanying the BEA's latest GDP news release (see the links in the right column). Specifically, I used Table 2: Contributions to Percent Change in Real Gross Domestic Product.  Over the time frame of this chart, the Personal Consumption Expenditures (PCE) component has shown the most consistent correlation with real GDP itself. When PCE has been positive, GDP has usually been positive, and vice versa. In the latest GDP data, the contribution of PCE came at 1.73 of the 2.28 real GDP. The Q4 contribution from PCE increased from Q3, but the Second Estimate is a downward revision from the 2.26 contribution in the Advance Estimate.To help us understand the Second Estimate revisions, here's a side-by-side look at the Advance and Second Estimate subcomponents. PCE was significantly trimmed in the Second Estimate, especially the Goods subcomponent, but it remains the largest contributor. Net Exports was also trimmed. Gross Private Domestic Investment increased, mostly in Fixed Investments.

Real GDP Per Capita: Another Perspective on the Economy - Earlier today we learned that the Second Estimate for Q4 2013 real GDP came in at 2.4 percent, down from 3.2 percent in the Advance Estimate and fractionally below most forecasts. Let's now review the latest numbers on a per-capita basis. For an alternate historical view of the economy, here is a chart of real GDP per-capita growth since 1960. For this analysis I've chained in today's dollar for the inflation adjustment. The per-capita calculation is based on quarterly aggregates of mid-month population estimates by the Bureau of Economic Analysis, which date from 1959 (hence my 1960 starting date for this chart, even though quarterly GDP has is available since 1947). The population data is available in the FRED series POPTHM. The logarithmic vertical axis ensures that the highlighted contractions have the same relative scale. I've drawn an exponential regression through the data using the Excel GROWTH function to give us a sense of the historical trend. The regression illustrates the fact that the trend since the Great Recession has a visibly lower slope than long-term trend. In fact, the current GDP per-capita is 10.4% below the regression trend, down from the Advance Estimate's 10.1%, but still a slight improvement over the 10.6% spread in Q2 of last year.   The real per-capita series gives us a better understanding of the depth and duration of GDP contractions. As we can see, since our 1960 starting point, the recession that began in December 2007 is associated with a deeper trough than previous contractions, which perhaps justifies its nickname as the Great Recession. In fact, at this point, 24 quarters beyond its Q4 2007 peak, real GDP per capita marks its third consecutive new high.Here is a more revealing snapshot of real GDP per capita, specifically illustrating the percent off the most recent peak across time, with recessions highlighted. The underlying calculation is to show peaks at 0% on the right axis. The callouts shows the percent off real GDP per-capita at significant troughs as well as the current reading for this metric at 0%, since its at an all-time high.

Chicago Fed: "Economic growth slowed in January" - The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth slowed in January Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to –0.39 in January from –0.03 in December.The index’s three-month moving average, CFNAI-MA3, decreased to +0.10 in January from +0.26 in December, marking its fifth consecutive reading above zero. January’s CFNAI-MA3 suggests that growth in national economic activity was above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed: Economic Growth Slowed in January - "Index shows economic growth slowed in January": This is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report:Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to -0.39 in January from -0.03 in December. Two of the four broad categories of indicators that make up the index decreased from December, and two of the four categories made negative contributions to the index in January.  The index's three-month moving average, CFNAI-MA3, decreased to +0.10 in January from +0.26 in December, marking its fifth consecutive reading above zero. January's CFNAI-MA3 suggests that growth in national economic activity was above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.  The CFNAI Diffusion Index decreased to +0.11 in January from +0.28 in December. Forty-one of the 85 individual indicators made positive contributions to the CFNAI in January, while 44 made negative contributions. Forty-one indicators improved from December to January, while 44 indicators deteriorated. Of the indicators that improved, ten made negative contributions. [Download PDF News Release]  The Chicago Fed's National Activity Index (CFNAI) is a monthly indicator designed to gauge overall economic activity, constructed so a zero value for the index indicates that the national economy is expanding at its historical trend rate of growth. Negative values indicate below-average growth, and positive values indicate above-average growth. The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity. I've added a high-low channel for the MA3 data since 2010. As we can see, the MA3 of the index hit the top of the channel two months ago and has now logged its second month of lower values.

An Unpleasant Surprise - Several sluggish economic readings in recent weeks have stirred worries about the state of the economic recovery. Look no further than the closely watched Citigroup U.S. Economic Surprise Index–which reflects whether economic reports are coming in better or worse than Wall Street economists’ expectations–to see just how discouraging the data have been. Reports ranging from jobs created to housing activity to manufacturing surveys pushed Citi’s index to negative 7.7 on Friday, the lowest level since July 23. Positive numbers suggest the data are beating economists’ forecasts, whereas negative numbers mean reports are missing estimates. The index, which is updated daily, was in positive territory for all but two days from July 31 through last week. It moved as high as 72.7 on Jan. 15, but has slumped since. This winter’s brutal weather conditions have market watchers grappling with whether the recent economic readings are an aberration or mark a renewed slowdown. So far investors largely have been willing to give the economy a pass. The S&P 500 has mostly recovered from its 5.8% fall in mid-January through early-February and is down just 0.6% for the year. But the weather can’t be blamed for everything and it will be difficult for investors to shrug off the data if they continue to miss. “Estimating weather effects is imprecise,” says Michael Feroli, chief U.S. economist at J.P. Morgan. “Instead, we see much of the recent weakness as payback for unsustainably strong growth in the second half of last year.”

What’s to Blame for Slower Potential Growth in U.S.? - Downgraded estimates of the U.S. economy’s potential performance rest more on economists’ overly rosy outlook in 2007 than the damage inflicted during the financial crisis and slow recovery, an upcoming Congressional Budget Office analysis is expected to show.  The nonpartisan arm of Congress has lowered its own projection for potential output in 2017 by more than 7% compared with its 2007 assessment made before the recession began. Most of that downgrade — 5.25 percentage points — is due to a reevaluation of economic trends leading up to 2007. The rest — 1.75 percentage points — is a result of the recession’s “long shadow,” “It’s a reassessment, from our perspective, of what the underlying growth rates in key variables of the economy are,” Mr. Elmendorf said. The agency will release an analysis in the coming weeks that details the reasons for the downgrade, he said. The finding backs an emerging view that the relatively weak recovery is due to more than just the deep recession. Economists appear to have not accurately projected the impact of a number of trends, including demographic shifts and changes in the number hours worked per week, that were taking shape even before the recession took hold. Former Treasury Secretary Lawrence Summers said the potential output of the U.S. economy has been revised down by 5% since the recession in what he described as “a sustained, long-term” shift. Mr. Summers was walking through his argument that the economy is undergoing a period of “secular stagnation” in which reduced capital and labor restrain growth potential. Economic potential is the level of output that can be sustained over the long term. Weaker potential could suggest a higher natural unemployment rate and lower maximum labor force participation and business income.

This year’s crazy weather is freezing the economy - The extraordinarily cold weather this winter is hitting a range of industries and holding down economic growth. Economists at Goldman Sachs have tried to figure out exactly what’s been going on, writing up the findings in a recent report. They've found the cold, snowy weather to be a factor in slowing down housing growth, hiring and retail sales. Goldman estimates that the weather subtracted 0.2 percentage points of economic growth during the fourth quarter of 2013 and 0.5 percentage points of economic growth in the first quarter of this year. Goldman expects the economy to add 130,000 jobs in February, which would be a disappointing figure, following the paltry 113,300 jobs added in January. The number would be closer to 190,000 jobs without the extreme weather, according to the report. Goldman made the calculations first by looking at how unusual the weather’s been this year. The government and outside economists usually adjust data to reflect seasonal variations, but Goldman’s point is that this year is out of the ordinary even once you make those adjustments. Of the 52 high-impact snowstorms over the pat 50 years, Goldman points out, five have occurred this winter. The following chart shows how we’ve had an unusual high level of cold weather and snow days. The next chart shows the impact of the weather on Goldman’s Current Activity Indicator, which is a proprietary index that measures economic activity. As you can see, it hits construction hardest, followed by hiring, housing starts, business conditions and consumer confidence.

Yellen: Too Soon to Tell How Much Weather Has Softened Data - Federal Reserve Chairwoman Janet Yellen commented on recent weak economic data in the one addition to testimony delivered before the Senate today compared to her prepared remarks to the House two weeks ago. Since her last testimony, she said, “a number of data released have pointed to softer spending” than analysts expected. That may reflect in part, “adverse weather conditions,” she said. “But at this point it is difficult to discern exactly how much.” She said officials would be tracking the data carefully to estimate whether it warrants a shift in their outlook. Separately, Ms. Yellen took her predecessor Ben Bernanke‘s tack on fiscal policy. It is a drag in the short-run but deficits need to be addressed in the long-run. She avoided asking Congress for fiscal stimulus in the short-run, but urged Congress at least not to do any more harm. Fiscal policy in recent years “has been quite tight and has imposed a substantial drag on spending in the U.S. economy,” Ms. Yellen said. She added that “fiscal policy drag” has placed a larger burden on monetary policy, which in the U.S. is managed by the Fed. “I do think the economy is beginning to recover and we have made progress,” Ms. Yellen said. “At a minimum, I would hope that fiscal policy would do no harm.”

Corporate Economists Downplay Health Law’s Effect On U.S. Growth -- Debate over the economic impact of the Affordable Care Act flared again this month after the Congressional Budget Office said the health law would reduce U.S. employment by more than it had estimated earlier. Many members of the National Association for Business Economics see it differently. In the group’s latest survey released Monday, 42% of the 230 respondents thought the Affordable Care Act would have “no significant effect” on long-term U.S. economic growth. About one in five — 18% — thought the new legislation would boost growth. By comparison, 30% of respondents said they thought the health law would reduce growth. The remaining 10% said they didn’t know or had no opinion on the matter.Some economists attribute incentives in the law, allowing people to work fewer hours, as the factor leading to lower long-term economic growth. The CBO earlier this month said the law could reduce the total number of hours Americans work by the equivalent of 2.3 million full-time jobs in 2021. That was up from its previous estimate of 800,000 jobs. On monetary policy, the NABE survey found 43% of respondents expect the Federal Reserve to finish winding down its bond-buying program in the fourth quarter, in line with the Fed’s guidance. It found that 42% of respondents don’t expect the purchases to end until 2015 or later. The remaining 15% thought the program would end before the fourth quarter of this year.

Economics Has a Surprising Mental Disorder - Lynn Parramour - The typical mainstream economist is about as good at making predictions as a monkey reading tea leaves. Exhibit A: The financial crisis, which only a few economists outside the mainstream saw coming, despite oceans of papers, prognostications and plumb academic assignments. The question is, why? Researcher Vinca Bigo decided to investigate, and found a surprising explanation: the profession of economics is suffering from a collective mental disorder, causing practitioners to project their pathologies onto the rest of us. Which is very costly for you and me. In a fascinating paper, Bigo hones in on the fact that economists are in love with mathematical models, despite the glaring fact that they often don’t work in their field. The problem starts when researchers base their models on arbitrary and often ridiculous assumptions about how people and institutions behave, which leads to conclusions that are airily detached from reality. The complexities of the real world then come along to blow up those fancy models, rendering them all but useless. Yet this never stops the mainstream economist, who just goes on to make more models.   According to the predictions of mainstream (often called “neoclassical”) economists, the 2007-'08 financial crisis wasn’t supposed to happen. I bet it felt pretty real to you, didn’t it?

 Age of Austerity - Paul Krugman - One simple measure is the ratio of government spending to potential GDP — the ratio to actual GDP is somewhat inflated by the fact that GDP itself is depressed. And I would argue that you should look at expenditure by all levels of government — state and local as well as federal — partly because state and local austerity measures have in part been a political choice, partly because not providing sufficient federal aid to avert harsh budget cuts is another political choice. (The numbers are similar but less striking if you look only at federal expenditures). What you get is this: There was a temporary rise in this spending ratio, driven in part by the stimulus, in part by automatic stabilizers like unemployment insurance and food stamps. That rise has now been fully reversed — which means that all government support has been withdrawn despite a still-depressed economy, with the Fed unable to cut interest rates because they’re already zero. You should also bear in mind that there with unchanged policy this ratio would in fact have risen significantly between 2007 and 2014, for several reasons: automatic stabilizers, but also the aging of the population and hence increased Social Security and Medicare rolls, plus some health care cost growth (though not as much as before). So this is indeed a picture of serious austerity.  There’s no real question that without this austerity we would have a significantly lower unemployment rate, indeed might be close to full employment at this point.

Jim DeMint Hasn't Destroyed Heritage's Intellectual Integrity - Krugman - The organization never had any.I think it’s interesting that DeMint has pushed Heritage into an even more blatant political role; but the subtext of such stories often seems to be that until DeMint arrived Heritage was a center of honest, serious, if conservative-leaning research. In their dreams — or maybe in the dreams of self-proclaimed centrists, who wanted to believe that such an organization existed.The truth is that the pre-DeMint Heritage was Hack Central, producing garbage posing as research. It promoted the death tax scam; it proclaimed that the Ryan plan would push the unemployment rate down to 2.8 percent, then tried to send that “result” down the memory hole. . Heritage economists have promoted the fallacy that government spending can’t increase demand. And so on.So Heritage never was a “think tank” in the sense that actual thought or research took place there. It just played one on TV.

Lessons From the Recovery Act – Jared Bernstein - As the vice president’s chief economist at the time, as well as a member of the economics team that helped to shape the package, I was an active participant in this important chapter of our economic history.  A deeper understanding of the economic damage should have prevented the precipitous pivot away from stimulus toward deficit reduction.  In those days I learned the power of the single worst analogy I know: “just as families have to tighten their belts in tough times, so does the government.” It’s not just that this is wrong; it’s that it’s backward. When families are tightening, government (including the Federal Reserve) must loosen, and vice versa. But the phrase, uttered by no less than the president himself at times, makes so much folksy sense that it too infected the policy and precipitated the pivot.  About one-third of the stimulus package went to tax cuts. There’s an excellent political rationale for that apportionment, but particularly given the diagnosis noted above, tax cuts’ bang-for-buck in terms of jobs is less than optimal. First, for the cuts to stimulate the economy, recipients have to spend the extra money, not save it. In a deleveraging cycle, that’s a heavier lift. Second, when they do spend the money, they need to spend it on domestic goods. So there’s a lot of potential leakage. It’s also the case that one-quarter of the tax cuts went to relief from the alternative minimum tax that would have happened anyway, so that part wasn’t even stimulus (which by definition means new spending or tax cuts).

Why Some Republicans Are Happy to Move Beyond Gridlock -- Republican leaders in Congress made a basic decision in recent weeks: They calculated they are better off politically when getting some things done than they are simply fighting the Obama administration. That isn’t exactly a universally held view within the party, of course. Many in the tea-party movement are furious with their party’s leaders for agreeing to compromises to settle a long-simmering budget fight and to raise the nation’s debt ceiling. But some congressional leaders think moving past those paralyzing debates opens a path for Republicans to articulate a broader conservative agenda that will appeal to voters this election year. As Tuesday’s Capital Journal column notes, House Majority Leader Eric Cantor is, in particular, trying to lay out such an agenda. Other Republicans think they are better off right now simply showing that they can govern effectively, even if that means compromising on some strongly held beliefs. And poll numbers suggest they have a point.

Federal Budget Deficit Falls to Smallest Level Since 2008 - Closing the books on a fiscal year in which the federal budget deficit fell more sharply than in any year since the end of World War II, the Treasury Department reported on Thursday that the deficit for 2013 dropped to $680 billion, from about $1.1 trillion the previous year. In nominal terms, that is the smallest deficit since 2008, and signals the end of a five-year stretch beginning with the onset of the recession when the country’s fiscal gap came in at more than $1 trillion each year. As a share of the nation’s economy, the budget deficit fell to about 4.1 percent, from a high of more than 10 percent during the depths of the Great Recession. The report comes days before the White House is scheduled to release a new budget for the fiscal year beginning Oct. 1 that avoids cuts in spending and focuses on ways to help spur the still-tepid recovery through additional government investment.  Growth in tax revenue from an improving economy accounted for much of the decline in the deficit. But increases in taxes and cuts in federal spending played a significant role, as did a surprising — and surprisingly long — slowdown in the pace of health spending.

Federal Revenues Are Projected to Increase Significantly Over the Next Two Years and Remain Steady as a Share of GDP Thereafter - CBO: - The federal government’s revenues will increase by 9 percent in 2014 and by another 9 percent in 2015, CBO projects in The Budget and Economic Outlook: 2014 to 2024, reaching $3.3 trillion in 2015—about $530 billion more than receipts in 2013. As a share of gross domestic product (GDP), revenues are projected to rise from 16.7 percent in 2013 to 17.5 percent (about the average for the past 40 years) in 2014 and to 18.2 percent in 2015. They are projected to remain between 18.0 percent and 18.4 percent of GDP from 2016 through 2024. Because of the recent recession, revenues had fallen to 14.6 percent of GDP in both 2009 and 2010 (see the figure below).  CBO’s current revenue projections are lower than the comparable projections published last May—by a total of $1.6 trillion (or 4 percent) over the ten-year period in which the forecasts overlap. That reduction largely reflects slower GDP growth in CBO’s updated economic forecast.  More than half of the projected growth in revenues relative to GDP between 2013 and 2015 comes from changes in provisions of law that have already occurred or are scheduled to occur. The largest contributors are the following:

  • The expiration, at the end of calendar year 2013, of a number of tax provisions that reduced corporate and individual income taxes, especially one that allowed businesses to immediately deduct a significant portion of their investment in equipment.
  • A number of changes that, because they took effect in January 2013, will increase revenues more in fiscal year 2014, the first full fiscal year they are in effect, than they did in fiscal year 2013. Those changes include the expiration of a two-year reduction in Social Security payroll tax rates, as well as increases in income tax rates and a new surtax on investment income that apply to certain high-income individuals.
  • New taxes, fees, and fines related to health insurance coverage under the Affordable Care Act, although those additional revenues will be partially offset by new tax credits to subsidize the purchase of health insurance.

The U.S. Budget Outlook, with Consistent Growth/Real Rate Assumptions, Looks Much Less Dire! - The U.S. Congressional Budget Office (CBO) in early February released its revised outlook for U.S. deficits and debt. The picture is alarming. According to CBO the gap between our revenue and spending—our primary deficit—closes rather nicely over the next 10 years. Nonetheless, CBO projects that as interest rates normalize, debt-service costs are destined to mushroom. Late in the period, our deficits and debt swell as the government is forced to pay much more to borrow. And in the long run? Deficits continue to rise as demographic forces swell the primary deficit and as debt service costs grow dramatically. In 2038, 25 years from now, CBO envisions debt at around 100% of GDP, nearly a 30 percentage point jump from its current level. Relax. No need to buy shotguns and canned peas. For starters, take comfort by looking at previous CBO projections. A little more than a decade ago, CBO envisioned a decade of near perfection that was slated to deliver an accumulated $5 trillion surplus. Sadly for all of us, that proved to be a spectacularly incorrect projection. But it is an important reminder of just how wrong long term forecasts can turn out to be. CBO, understandably, dares not stray too far from conventional wisdom about evolving economic circumstances. And it is easy to document that consensus thinking is strikingly predisposed to embrace the recent past as a blue print for the future. That is, unambiguously, what they did in 2001. And that, it appears to me, is precisely what they are doing today.

Budget Deficits Shrinking at the Expense of Economic Recovery --A refreshing degree of punditry nonchalance greeted the latest release of the Congressional Budget Office’s (CBO) updated budget and economic projections. This had Paul Krugman rightfully rejoicing over the Beltway’s rhetorical U-turn, as “the price for years of warped discourse and completely wrong priorities has been immense.”  Why the change in tune? For starters, all hopes for a bipartisan deficit reduction grand bargain—which had been fueled with deficit fear mongering—have crashed and burned. But much of this newfound fiscal antipathy stems from the federal budget deficit plunging rapidly from a recession-swollen, post-war high. The GOP’s “trillion dollar deficit” epithet no longer applies. (Not that it ever should have carried any weight.) Bigger budget deficits are desirable during a severe economic slump. And therein lies the problem. The U.S. economy remains far from healthy, but Congress has prematurely prioritized deficit reduction. Why is this significant? Government spending acts as a shock absorber for depressed aggregate demand. This needed economic support was withdrawn well before private investment and household spending were capable of making up the sizable demand shortfall from the housing bubble’s collapse.

The Grand Bargain's dead. What now? --Hopes for a Grand Bargain between the White House and Congress to overhaul entitlements and taxes disappeared many months ago. But President Obama is making the end of that era official in his 2015 budget. Obama is dropping cuts to Social Security that he first proposed last year, which would have reduced benefits by tying the entitlement program to a different index of inflation known as “chained CPI.”  And he’ll propose increasing discretionary spending by $56 billion, boosting both defense spending and domestic programs like education, job training, and manufacturing, among other initiatives. It’s an attempt to end the age of austerity that has governed Washington’s budgeting decisions for the past three years.  Ultimately, the small-ball budget brokered between House Budget Chair Paul Ryan and Senate Budget Chair Patty Murray in December only reversed a fraction of the discretionary cuts imposed by sequestration and did even less on entitlement spending. The dealmakers trumpeted the bill’s $6 billion in military pension cuts, but those were reversed by Congress only weeks after it passed – largely replaced by Medicare provider cuts that take effect so many years out that future lawmakers could easily reverse those, too.  With no prospects of a Grand Bargain and with midterm elections just around the corner, Obama seemed to have little practical or political motivation to stick with a Social Security cut that liberals hate.

Bye Bye Chained CPI and Other Budget Surprises - The Obama administration is finally abandoning their endorsement of chained CPI for next years budget.  The reason is probably not good economics, but political.  Election season is near and this is just one of many policies the Obama administration endorsed which raised the ire of the retired.  A refresher, chained CPI is another method to adjust for cost of living increases at a reduced rate than what is currently used, CPI-W.  Chained CPI would have reduced social security benefits  Below is a graph showing just how much lower the adjustment would be over time.  Yet the politics might be hoodwinking the American people again for chained CPI might be negotiated in a back room deal. President Barack Obama’s decision to drop a proposal to trim cost-of-living increases for Social Security and many other federal benefits from his budget cheered liberals on and off Capitol Hill — although the White House clarified the offer remains “on the table.”That's the problem with budgets.  What eventually is passed by Congress has little to do with the original.  Yet to capitulate before the first ball is thrown in the game has outraged groups who normally would be Obama supporters.  Now they rave and praise when the deal has yet to be done.  Only time will tell if chained CPI is really gone and the threat to reduce retirement benefits along with it.  Yet finally, the Obama administration is not throwing in the towel before the first bell has run in the budget battle opening round.

  Chained CPI Isn't in Obama's Budget, But It's Not Dead - The White House revealed yesterday that the president’s budget will not contain chained CPI this year. That has set off a round of applause among liberals who have long hated President Barack Obama’s willingness to include it in his budget. But the celebration is premature. Obama is still as willing as ever to trade chained CPI for increased taxes on the rich—by closing loopholes—in a grand bargain. He’s just become more realistic about the possibility of reaching a deal with Republicans. But chained CPI is also not an accurate inflation measure for seniors, because it represents cost-of-living changes for all urban consumers. Seniors, however, do not purchase a similar assortment of goods as your average urban consumer. For instance, they purchase a lot more health care services, which, until recently, have been growing way faster than inflation. That means that chained CPI (and CPI-W for that matter) understates the cost-of-living changes for seniors, cutting their benefits. That’s why liberals don’t want Obama to agree to chained CPI, and why they were so happy that he didn’t include it in his budget. But the White House hasn’t backed away from it. Yesterday, a White House official said: “However, over the course of last year, Republicans consistently showed a lack of willingness to negotiate on a deficit reduction deal, refusing to identify even one unfair tax loophole they would be willing to close, despite the President’s willingness to put tough things on the table.  The offer to Speaker Boehner remains on the table for whenever the Republicans decide they want to engage in a serious discussion about a balanced plan to deal with our long-term fiscal challenges that includes closing loopholes for the wealthiest Americans and corporations, but the chained CPI provision will not be included in this year’s budget."

Pentagon Plans to Shrink Army to Pre-World War II Level - Defense Secretary Chuck Hagel plans to shrink the United States Army to its smallest force since before the World War II buildup and eliminate an entire class of Air Force attack jets in a new spending proposal that officials describe as the first Pentagon budget to aggressively push the military off the war footing adopted after the terror attacks of 2001. The proposal, described by several Pentagon officials on the condition of anonymity in advance of its release on Monday, takes into account the fiscal reality of government austerity and the political reality of a president who pledged to end two costly and exhausting land wars. A result, the officials argue, will be a military capable of defeating any adversary, but too small for protracted foreign occupations. The officials acknowledge that budget cuts will impose greater risk on the armed forces if they are again ordered to carry out two large-scale military actions at the same time: Success would take longer, they say, and there would be a larger number of casualties. Officials also say that a smaller military could invite adventurism by adversaries.

US ambassadorial nominees face more backlash over appointments - President Barack Obama’s nominees for the ambassadorships to Norway, Argentina and Hungary may soon face a new hurdle to confirmation, as the professional association for US diplomats is set to decide in the coming days whether to publicly oppose their nominations – and others – as part of an escalating dispute in foreign policy circles over Obama’s nomination of political donors to embassy posts. The three nominees – George Tsunis, Noah Mamet and Colleen Bell – combined raised more than $4.2m for Obama’s re-election campaign. Their appointments caused outrage last month after Senate hearings revealed they had little or no knowledge of their future postings. A Guardian investigation in July revealed that the controversial practice of rewarding donors with plum foreign postings has accelerated under Obama, leaving the average “price” paid by his donors for ambassadorships in the last election cycle at nearly $2m. Now the American Foreign Service Association, an independent professional body representing US diplomats, is considering making its first formal complaint about a US ambassadorial nominee’s suitability since 1992, in a sign that recent appointments may have proven the final straw for the diplomatic community.

House GOP tax plan would cut top rates but also hit high earners with a surtax - The long-awaited simplification of the tax code being drafted by House Republicans would slash the top income tax rate to 25 percent from 39.6 percent and impose a surtax on some of the nation’s wealthiest households. Under the proposal, set for release Wednesday, the vast majority of taxpayers would see little change in the ultimate size of their tax bills, according to a nonpartisan congressional analysis of the legislation. But the tax system would be dramatically simpler, with seven existing brackets collapsed into just two, set at 10 percent and 25 percent. In addition, the plan would impose a 10 percent surtax on certain types of earned income over roughly $450,000 a year. The surtax would hit many salaried professionals, such as attorneys and accountants, while dodging farmers and manufacturers — as well as the super-rich, whose income often is derived primarily from interest and investments.The analysis by the congressional Joint Committee on Taxation, reviewed by The Washington Post, does not indicate which of the hundreds of tax breaks that litter the code would be sacrificed to clear the way for the lower rates.

Hidden Taxes in the Camp Proposal - House Ways and Means Committee Chair Dave Camp (R-MI) has produced an impressive tax reform plan that eliminates most loopholes, deductions, and credits. But the plan also introduces a number of hidden taxes that push marginal rates—mostly for higher-income taxpayers—well above the advertised levels.  For some taxpayers, the effective tax rate under Camp’s plan could be as high as 67 percent, based on my analysis of the section-by-section description of the proposal.  On its face, the new tax schedule appears straightforward: three tax rates—10 percent, 25 percent, and 35 percent. The 25 percent rate starts at taxable income of $71,200 for couples ($35,600 for singles) and the 35 percent rate starts at “modified adjusted gross income” (MAGI) of $450,000 ($400,000 for singles). (MAGI is a broader definition of income than the more common AGI.)  The proposal would end both the individual and corporate AMTs and the phaseouts of itemized deductions and personal exemptions (by abolishing the latter entirely). Most tax policy experts would cheer their demise.  But the plan also introduces a whole raft of new phaseouts and hidden tax rates. First, the 35 percent rate is marketed as a 25 percent base rate plus a 10 percent surtax that applies to a broader base of income (MAGI). This turns out to be important.Effectively, the surtax can be thought of as an additional tax on certain preference items such as the value of employer-sponsored health insurance, interest on municipal bonds, deductible mortgage interest, the standard deduction, itemized deductions (except charitable contributions), and untaxed Social Security benefits. Although the list of preference items differs from the old add-on minimum tax, the idea is eerily similar.  Then there are the phaseouts, which all amount to hidden surtaxes.

McConnell: Tax reform is dead - One day before Rep. Dave Camp (R-Mich.) is due to release his long-awaited tax reform plan, Senate Minority Leader Mitch McConnell (R-Ky.) offered some public advice: Don't bother.“I think we will not be able to finish the job, regretfully,” McConnell told reporters after Senate Republicans regular Tuesday lunch. "I don't see how we can."McConnell blamed his pessimism on  the refusal by Democrats to consider any tax reform plan that doesn't raise significant new cash for deficit reduction. President Obama has sought roughly $600 billion over the next decade, while Senate Democrats have approved a budget blueprint that calls for $1 trillion. Given that reality, McConnell said, "I don't see how we can" advance tax reform. Republicans have refused to consider any changes in tax laws that would increase overall collections for the government.

Taxing the rich is good for the economy, IMF says -  A new paper by researchers at the International Monetary Fund appears to debunk a tenet of conservative economic ideology — that taxing the rich to give to the poor is bad for the economy. The paper by IMF researchers will be applauded by politicians and economists who regard high levels of income inequality as not only a moral stain on society but also economically unsound.  Labelled as the first study to incorporate recently compiled figures comparing pre- and post-tax data from a large number of countries, the authors say there is convincing evidence that lower net inequality is good economics, boosting growth and leading to longer-lasting periods of expansion. In the most controversial finding, the study concludes that redistributing wealth, largely through taxation, does not significantly impact growth unless the intervention is extreme.  In fact, because redistributing wealth through taxation has the positive impact of reducing inequality, the overall affect on the economy is to boost growth, the researchers conclude. "We find that higher inequality seems to lower growth. Redistribution, in contrast, has a tiny and statistically insignificant (slightly negative) effect," the paper states.

The One Percent Should Pay for Faster Growth - Could high income inequality actually be a coiled spring that can be used to boost growth? Could redistributing wealth actually be good for the economy? These are the somewhat counterintuitive conclusions one might draw from a new paper by a team of International Monetary Fund economists. The IMF researchers worked with a newly available data set that allowed them to distinguish between market inequality (before taxes and transfers) and net inequality (after taxes and transfers). That made it possible to work out the size of social transfers and see how they correlate with economic expansion. The IMF economists' conclusion was that "lower net inequality is robustly correlated with faster and more durable growth" and that "redistribution appears generally benign in terms of its impact on growth." According to the IMF study, a 5-point increase in the Gini coefficient, a measure of income inequality, is on average associated with a 0.5 percentage point decline in annual gross domestic product growth. It also finds that growth spells last longer in countries with less inequality. The researchers showed that more redistribution is actually associated with faster growth: The positive effects of lower inequality appear to cancel out the disincentive effects of even large taxes and transfers. "On average, across countries and over time, the things that governments have typically done to redistribute do not seem to have led to bad growth outcomes, unless they were extreme," the IMF paper says. "And the resulting narrowing of inequality helped support faster and more durable growth, apart from ethical, political and broader social considerations."

US senators rebuff Credit Suisse arguments over tax allegations - US senators accused Credit Suisse executives of hiding behind Swiss laws during a testy hearing in Washington to investigate allegations the bank helped 22,000 US clients avoid tax. Credit Suisse chief executive Brady Dougan and the bank’s general counsel, Romeo Cerutti, repeatedly told the Senate Permanent Subcommittee on Investigations that they were prohibited from providing all the US client names that authorities are seeking. Four bank executives were subjected to three and a half hours of questioning on Wednesday by US senators, who also criticised the Swiss government and the Department of Justice. The hearing followed a scathing report from the subcommittee, which detailed ways bankers allegedly met US clients in secret elevators, created offshore shell companies and made trips to the US under false pretences. Carl Levin, the Democratic senator, dismissed the argument that Switzerland’s bank secrecy laws and the Senate’s failure to ratify a tax treaty between the US and Swiss governments prevented the bank from co-operating further. “You come to this country, set up an office in the US, help US customers hide from US authorities, and now the jig is up,” Mr Levin said. “You are hiding behind Swiss laws. You want to do business here, you’ve got to comply with our laws.” Mr Cerutti said the approval of such a treaty would allow Credit Suisse to turn over “thousands” of names

Credit Suisse 'cloak-and-dagger' tactics cost US taxpayers billions – Senators - Credit Suisse used “cloak-and-dagger schemes that belong in a spy novel” to help 22,000 US customers hide billions of dollars from US tax inspectors, top senators said Tuesday as they released their latest report into offshore tax schemes. Senators Carl Levin and John McCain had harsh words for the Justice Department and the Swiss government, too, as they released a 178-page permanent subcommittee on investigation (PSI) report into offshore tax avoidance. McCain said US authorities had done too little to prosecute bankers, and accused the Swiss government of trying to “close the door” on misconduct. The PSI report was released before a congressional hearing Wednesday at which Credit Suisse CEO Brady Dougan and three other senior bank officers are scheduled to appear. Levin and other US officials have for more than six years been investigating how Americans dodged taxes by hiding assets in secret Swiss bank accounts. At a press briefing, McCain said offshore tax practices operated by Credit Suisse and other institutions had cost US taxpayers $337.3bn in potential revenue, which he called “the largest amount of tax revenue lost due to evasion in the world.” He said Credit Suisse, Switzerland’s second largest bank, had “greatly profited from this infamous business model”. The report sets out in detail some of the practices used by Credit Suisse to help its customers avoid the US authorities – practices McCain said “belong in a spy novel.”

Oh Those Credit Suisse! --  Yet another Senate report, yet another bank is busted for tax evasion.  The Senate permanent subcommittee on investigations has released a report on Credit-Suisse bank detailing their systemic offshore tax evasion of U.S. funds.  Generally speaking Switzerland is a well know tax haven and in spite of government efforts, even today Switzerland roadblocks the United States in collecting on unpaid taxes.  Credit Suisse has opened offshore accounts for 22,000 U.S. citizens with an estimated $10 to $12 billion in assets, of which 95% of these assets have not reported or paid any taxes to the IRS.  The Senate is calling out Credit Suisse for aiding and abetting U.S. tax invaders.  The United States cannot even get the account holder names.  Out of the 22,000, the United States has only 238 names associated with the accounts at Credit Suisse. Tax evasion and money laundering is simply part of doing business for these multinational banks.  The last one who in the end faced little consequence was HSBC.  Senator Carl Levin on the report findings:

How Credit Suisse Helped Thousands Of Americans Avoid Paying Taxes --Just when the latest wave of litigation against banks seemed to be calming down with one after another fraudclosure-related settlement (which have cost JPM alone some $30 billion in the past four years), here comes the Senate Permanent Subcommittee chaired by Carl "Shitty Deal" Levin, and blows up the peace of Zurich's nighttime air with a bombshell of a 175-page report which put Switzerland's second largest bank, Credit Suisse, front and center in a brand news tax evasion scandal... not that there is anything inherently wrong with that: the last thing the US government needs is to be enabled to be even bigger, plus any money the Treasury needs, the Fed will simply print on its behalf. However, it is considered illegal, at least in polite company. And so among the accusations listed in the report, seen by FT, is that "Credit Suisse made false claims in US visa applications, conducted business with clients in secret elevators and shredded documents to help more than 22,000 American customers avoid US taxes, according to a scathing report by a US congressional committee.

The Scandal in America That Is Hidden In Plain Sight - Privilege Blindness - “There’s a new isolationism,” Kerry said during a nearly one-hour discussion with a small group of reporters. "We are beginning to behave like a poor nation,” he added, saying some Americans do not perceive the connection between US engagement abroad and the US economy, their own jobs and wider US interests. The Guardian, John Kerry Slams 'New Isolationism' Things may seem rosy from your perspective, John, but the sad truth is that far too many people in this country are doing without, doing more with less, too often living on the edge, and are far too often afraid.  They are referred to disparagingly as 'the common 99%',  as takers not makers, and even the 'parasitic 47%,'.   They are what is commonly referred to as 'the people' in the Constitution. They are being spied on, bullied, repressed, and conned at almost every turn by a foul partnership of big money and power.  They often sacrifice their personal liberties, and send their children to foreign shores to fight in a perpetual war against a loosely defined 'enemy.' One of the great marvels of the time is how effectively well-funded propaganda campaigns and a captive mainstream media have distorted the peoples' view of reality so that they act as if they are sleep-walking.  An ongoing trend in the US has been a tax code that favors large multinational corporations with loopholes and subsidies that far too often result in an effective tax rate of close to zero, despite booming corporate profits in the face of a long stagnation in median family income and wages. 

Public Debt, Public Assets and Public Capacity - Dan Kervick - Everybody is very excited about Thomas Piketty’s new book Capital in the Twenty-First Century, that studies long term trends in the accumulation and concentration of wealth, and in the evolution of inequality. The argument of the book is intensely data-driven, and has been billed as a game changer since it first appeared in French earlier this year. Matt Yglesias reproduces a chart from the book, and calls it “the chart the debt alarmists don’t want you to see”. However, if I were a debt alarmist, I don’t think I would be very much moved by the chart, and wouldn’t worry so much about others seeing it. Let me explain. Here is Piketty’s original version of the chart, and here is Yglesias’s colorized reproduction:  “Public assets” in Piketty’s usage denotes all of a government’s fixed assets, financial assets and land. Interestingly, Piketty excludes such non-produced assets as “energy and mineral resources, timber, spectrum rights, and the like” in his calculations of public assets.  So what the chart shows, assuming Piketty’s numbers are accurate, is that the United States is solvent in the sense that its public assets exceed its public debt liabilities. But even the debt alarmists know that the US government possesses a great deal of land and fixed capital wealth. What they seem to argue, though, is that we are on a fiscal path that will lead to higher borrowing costs and debt service payments, and either to greater real tax burdens or to ultimate dollar devaluation as we monetize and inflate away some of the debt. There are very good responses that can be made to counter these fears, but I don’t think appealing to the value of US fixed assets and land is one of them. If progressives respond to the debt alarmist arguments only by arguing that the US government has positive real net worth, and can always pay its debt by selling off Yellowstone, the Executive Office Building or the USS Nimitz, they have clearly lost the political argument. The focus in countering the debt worriers should be on economic sustainability arguments that do not depend on the ultimate capacity of government to liquidate its fixed and real public wealth in a fire sale.

Why So Little Media Coverage of How the Rich Are Becoming Richer and the Middle Class Wages are Being Squeezed? -  Yves Smith -- I’m seriously behind in highlighting an article by Ryan Grim and Mark Gongloff on one of the key mechanisms by which CEO pay has risen to stratospheric levels: cronyism and backscratching among board members, many of whom are also CEOs. While this behavior is well understood by most people who know the workings of the top levels of large corporations, the general public is largely in the dark. . As the Huffington Post article explains: The rise in U.S. income inequality in recent decades is largely due to massive wealth accumulating at the top of the income scale. The press and popular culture treat this phenomenon almost as if natural forces were guiding it — an invisible hand dealing out different shares to different people. But the hands doing the dealing are in fact quite visible. They belong to the directors of the boards of the major companies in the U.S. and around the globe. One key source of wealth at the very top is the pay of the executives of our largest companies. That pay is approved by corporate directors, who are themselves paid for their service. Many of those directors are also executives at other companies, meaning they sit on both sides of the arrangement….. The system operates largely in the open, with corporate records filed publicly for shareholders to view. But there is little practical transparency around the issue. Based on research conducted by [Dean] Baker’s CEPR, which combed through Securities and Exchange Commission filings, HuffPost has built the first-ever interactive database of every director of every company in the Fortune 100. The database is here, and the article names and describes how this corporate incest works, for instance, describing how as Erskine Bowles approved hefty pay increases for CEOs at underperforming companies.  And remember, even the board members who are not executives at public companies benefit over time from this largesse. As CEO pay zooms upward, board member pay is also reset higher, since the board members are of the same class as the corporate officers they are overseeing and need to be paid appropriately.

The bank tax rises from the dead - Back in January 2010, Barack Obama — flanked by Tim Geithner, Larry Summers, and Peter Orszag — unveiled a new tax on big banks, or a “financial crisis responsibility fee”, as he liked to call it. Of course, this being Washington, the initiative never got off the ground, and was largely forgotten — until now:The biggest U.S. banks and insurance companies would have to pay a quarterly 3.5 basis-point tax on assets exceeding $500 billion under a plan to be unveiled this week by the top Republican tax writer in Congress.  This doesn’t mean the tax is likely to actually see the light of day, of course — but the fact that it has some kind of Republican support has surely breathed new life into a proposal that most of us thought was long dead. There are some interesting differences between the Obama tax of 2010 and the Dave Camp plan of 2014. The Obama tax was on liabilities; it specifically excluded deposits (which already have a sort-of tax associated with them, in the form of FDIC insurance); and it would have been levied on all financial institutions with more than $50 billion in assets. It was set at 0.15%, and was designed to raise $90 billion over ten years. The Camp tax, by contrast, is on assets, which means that deposits sort-of get taxed twice; but that means it can also be set much lower, and the size cap be raised much higher, while still raising the same amount of money. Camp’s tax is a mere 0.035%, and is applied only to assets over half a trillion dollars. It’s designed to raise $86 billion over ten years — although, confusingly, the Bloomberg article also says that “it would raise $27 billion more over a decade than the president’s plan would”.

The shocking numbers behind corporate welfare - State and local governments have awarded at least $110 billion in taxpayer subsidies to business, with 3 of every 4 dollars going to fewer than 1,000 big corporations, the most thorough analysis to date of corporate welfare revealed today. Boeing ranks first, with 137 subsidies totaling $13.2 billion, followed by Alcoa at $5.6 billion, Intel at $3.9 billion, General Motors at $3.5 billion and Ford Motor at $2.5 billion, the new report by the nonprofit research organization Good Jobs First shows. Dow Chemical had the most subsidies, 410 totaling $1.4 billion, followed by Warren Buffett’s Berkshire-Hathaway holding company, with 310 valued at $1.1 billion. The figures were compiled from disclosures made by state and local government agencies that subsidize companies in all sorts of ways, including cash giveaways, building and land transfers, tax abatements and steep discounts on electric and water bills. In fact, the numbers significantly understate the true value of taxpayer subsidies to businesses, for reasons explained below.

Summers worried about shadow banking - In an interview Monday, the former Clinton-era Treasury Secretary said he would give the 2010 Dodd-Frank law – Democrats’s remedy for preventing another financial crisis – a grade of “incomplete.” “The impulses behind Dodd-Frank were sound. I think you’ve seen a lot of change towards increased capital; increased liquidity in the financial system,” said Summers, who was in Washington to attend the National Association for Business Economics policy conference. “It is deeply demoralizing that the SEC has not been able to act yet on money market funds and I think that the Achilles heel going forward may be the shadow financial system — shadow banking system.” The Harvard University professor, once considered a frontrunner to replace former Federal Reserve Chairman Ben Bernanke, was passed up for the job last year after his potential nomination angered those who believe that Summers’ support for banking deregulation during the Clinton administration was partly responsible for a 2008 financial meltdown.

Bombshell Documents Vanish in the JPMorgan-Madoff Investigation - According to a Freedom of Information Act response received by Wall Street On Parade, Federal law enforcement may share the blame with JPMorgan Chase for allowing Bernard Madoff’s Ponzi scheme to be perpetuated for so long. On January 7 of this year in a press conference called to announce felony charges against JPMorgan Chase for its role in the Madoff Ponzi scheme, U.S. Attorney Preet Bharara, FBI Assistant Director-in-Charge George Venizelos, and the Director of the Financial Crimes Enforcement Network, Jennifer Shasky Calvery, took turns at the podium excoriating JPMorgan for observing brazen, long-term money laundering activity occurring under its nose in the business bank account it held for Bernard Madoff while ignoring its legally mandated duty to file a Suspicious Activity Report (SAR) with the federal government. The Financial Crimes Enforcement Network, known throughout Wall Street and the banking world as FinCEN, is a bureau of the U.S. Treasury Department that receives the SARs and is tasked with making sure the reports are seriously investigated. JPMorgan Chase and its predecessor banks, Chase Manhattan and Chemical, oversaw Madoff’s primary business account for more than 20 years. During that time, flagrant money laundering signs should have set off automated bells, whistles and sirens inside the banks and triggered repeated SARs to FinCEN. None were filed by JPMorgan or its predecessor banks according to U.S. law enforcement until after Madoff turned himself in.

Bitcoins, Murder-for-Hire, 28-Year Old Pie Makers: Welcome to the New World of Banking - Pam Martens - Mark Karpeles, a 28-year old Frenchman and the head of the now shuttered Bitcoin web site Mt. Gox, where customers are said to have lost hundreds of millions of dollars, may be a very talented software developer and entrepreneur, but what he clearly is not is a competent banker; and yet, he was allowed to accept large quantities of deposits of money from the public. Mt. Gox, a purveyor of the virtual currency, Bitcoin, held no banking license or bank charter in the U.S. It had no FDIC insurance guaranteeing the deposits. There were no bank examiners periodically checking the books to be certain the deposits were safe. And yet, according to the chart below from Alexa, it may be U.S. citizens who suffered the largest losses. Alexa ranks sites by traffic from around the globe. Despite the fact that Karpeles was based in Tokyo, the largest percentage of his traffic was coming from the United States. Concerns about virtual currencies such as Bitcoin have grown by U.S. regulators since October of last year when the U.S. Department of Justice shut down an outfit called Silk Road which was involved in both Bitcoins and an effort at murder-for- hire. Mythili Raman, Acting Assistant Attorney General of the Criminal Division of the Justice Department, testified as follows on November 18 of last year to the U.S. Senate Committee on Homeland Security and Governmental Affairs: “…the Department took action against one of the most popular online black markets, Silk Road.  Allegedly operated by a U.S. citizen living in California at the time of his arrest, Silk Road accepted Bitcoins exclusively as a payment mechanism on its site.  The Department’s complaint alleges that, in less than three years, Silk Road served as a venue for over 100,000 buyers to purchase hundreds of kilograms of illegal drugs and other illicit goods from several thousand drug dealers and other criminal vendors.  The site also purportedly laundered the proceeds of these transactions, amounting to hundreds of millions of dollars in Bitcoins.

Can bitcoin capitalize on the death of Mt Gox? - The truth of the matter is that it’s too early to tell. Mt Gox was a unique institution in the bitcoin universe: it was there from the beginning, and people have been moaning about it from the beginning. It was always a badly-run and far too opaque institution; if bitcoin is ever going to really take off — if Ben Horowitz is going to win his socks – then the death of Mt Gox was surely necessary sooner or later. At the same time, however, Mt Gox was for many years the cleanest dirty shirt in the bitcoinverse, and historically accounted for the lion’s share of trading in the currency. That’s one of the reasons why it somehow managed to be sitting on such an enormous lode of bitcoins at the time it went belly-up. The rumor is that 744,408 bitcoins are “missing due to malleability-related theft which went unnoticed for several years”; that’s hundreds of millions of dollars that have been stolen, and it’s almost impossible to believe that Mt Gox was so incompetent as to not be aware, for years, of a nine-figure hole on its balance sheet. Instead, it quietly sold itself not only as a trading venue but also as a wallet service: store your bitcoins with us, they’re safe here. So long as the number of people using Mt Gox as a wallet was greater than the number of bitcoins that had been stolen, the service could continue. But then, when the run started, Mt Gox collapsed — inevitably — in a matter of days. It’s a Ponzi scheme, essentially — just one that looks like it was driven by theft rather than avarice.

Mt. Gox Seeks Bankruptcy After $480 Million Bitcoin Loss -  Mt. Gox, once the world’s largest Bitcoin exchange, filed for bankruptcy in Japan saying about $480 million in Bitcoins belonging to its customers and the firm were missing. “The company believes there is a high possibility that the Bitcoins were stolen,” Mt. Gox said in a statement. The filing follows three weeks of speculation about the fate of the Tokyo-based exchange, which suspended withdrawals on Feb. 7. Since Bitcoins exist as bits of software, they can be stolen if a hacker gains access to the computers and servers used to run online exchanges, where the virtual currency can be traded for dollars, euros and other currencies.

Western Union faces probe for fraud-induced money transfers  (Reuters) - Money-transfer company Western Union is being probed by the Federal Trade Commission and a U.S. district court over fraud-induced money transfers, the company said in a regulatory filing on Monday. The company said it received a civil investigative demand from the FTC on February 21, requesting documents related to consumer complaints regarding fraud-induced money transfers sent from or received in the United States since 2004. Western Union also said it has received multiple subpoenas since November 25 from the U.S. attorney's office for the Middle District of Pennsylvania. The inquiries have sought documents related to complaints made by consumers to Western Union relating to fraud-induced money transfers since January 1, 2008, as well as information about Western Union's agents, the company said in the filing. "The government's investigation is ongoing and the company may receive additional requests for information as part of the investigation," Western Union said. Western Union has been battling the FTC over a civil investigative demand for information about consumer complaints in December 2012. A federal judge in New York ordered the company to comply with the request last December.

Citigroup reports fraud in Mexico unit, lowers 2013 results (Reuters) - Citigroup Inc (C.N) said on Friday that it has discovered at least $400 million in fraudulent loans in its Mexico subsidiary and said employees may have been in on the crime. The bank wrote down bogus loans to a company whose assets Mexican law enforcement officials have now seized. Citigroup's 2013 profit fell by $235 million to $13.67 billion after the write-down. Citigroup Chief Executive Officer Michael Corbat called the incident a "despicable crime" and said the bank believes it was an isolated episode. The bad loans were made to Mexican oil services company Oceanografia OCNGR.UL, a contractor for Mexican state-owned oil company Pemex PEMX.UL. true Oceanografia borrowed from Citigroup's Mexican unit, Banco Nacional de Mexico, known as Banamex, using expected payments from Pemex as collateral. In recent weeks, Banamex learned that Oceanografia appeared to have falsified invoices to Pemex that were collateral for loans, Corbat said in a separate memo to employees. The bank wrote down about $400 million of loans backed by the bogus invoices. On February 11, Pemex suspended Oceanografia from receiving any government contracts for 21 months and 12 days, a serious blow for a company that receives about 97 percent of its revenue from the Mexican oil company. Public records show that Oceanografia was awarded almost $3 billion through more than 100 contracts with Pemex between 2003 and last year. Citigroup said it began looking at its exposure to Oceanografia after the suspension.

A Maelstrom of Fraud Without Early Warning  0 Not for the first time, Citigroup has stepped into a mess – and by extension besmirched the financial industry. Not that Citigroup committed a crime, or colluded to set foreign exchange rates or Libor prices, say. Rather, the bank is the victim of fraud in Mexico that could cost it much as $400 million. The problem is that the lender has been cheated out of the cash in one of the most basic businesses in banking. That should worry Citigroup’s rivals, too. Citigroup’s latest slip emerges from the usually sleepy world of accounts receivable. This is the unit that makes short-term loans while clients wait for money owed to them by other companies to arrive. In this case, by the end of 2013, Citigroup thought it had lent Oceanografia, a Mexican oil-services firm, $585 million to cover any shortfalls while it waited for the state oil company Pemex to pay some bills. So far, so boring. It turns out, however, that a person or persons at Oceanografia falsified a whole swath of invoices to make it look as if Pemex owed them money. Employees at Banamex, Citigroup’s Mexican subsidiary, signed off on them. Citigroup, with Pemex’s help, has now worked out that only $185 million of the invoices were valid. What’s surprising is that Banamex did not seem to suspect anything was amiss. The bank was alerted to the fraud on Feb. 11 only after Mexico banned Oceanografia from receiving new government contracts for 21 months as a result of a corruption investigation.

JPMorgan Chase to cut thousands more jobs: JPMorgan Chase is planning more job cuts in its mortgage business on top of the 13,000-15,000 positions already due to be slashed because of plunging demand for home loans. Several thousand more cuts are planned, according to people familiar with the matter, and could be announced at JPMorgan's annual investor day on Tuesday. They are part of a new efficiency drive at the largest US bank by assets that also encompasses staffing branches with fewer employees.  Jamie Dimon, chief executive, and his management team are due to address shareholders for the first time since the bank agreed to a record $13bn settlement with the Department of Justice and regulators to resolve allegations of mortgage mis-selling.

If HFT is here to stay it needs to be regulated - Mark Cuban, the cigar-tugging media entrepreneur and owner of the Dallas Mavericks basketball team, was in the news last week, railing against the seeming failure of American regulators to get to grips with what Mr Cuban reckons is the Number one threat to US national security: high frequency market trading (HFT), of course. “If I wanted to blow up this country, I don’t need bombs . . . It is going to happen so fast and it is going to be so undetectable that people will say it’s a fat finger . . . The next thing you know, there are flash crashes . . . and there is so much confusion that people don’t trust the markets and then they pull out.” It is Mr Cuban’s contention that HFT, where computers loaded with algorithms trade in and out of financial markets at lightening speed, amounts to a parasitical practice – and that regulators such as the Securities and Exchange Commission should stop worrying about things like insider dealing and concentrate instead on the real threats to our collective financial wellbeing. What is beyond doubt is the fact that HFT has now replaced the role of traditional market maker across a host of financial assets, most notably equities. The machines really have taken over from people here – a situation that the HFT camp claims is a good thing, since it provides market liquidity, and which the detractors condemn as evidence of a rigged market. But if HFT is here to stay, the broader investor community needs assuring that it is robustly and expertly regulated – and unfortunately there is not a lot of evidence that this is the case.

FRFA may provide relief to product-starved US money markets - Expectations of future shortages in quality liquid bonds in US debt markets continue to persist (see story). These shortages however are likely to be more acute for short-term paper. As a percentage of total government debt for example, treasury bills outstanding continue to decline.Similarly, commercial paper volumes remain subdued relative to historical levels, as banks and corporations no longer want to rely on money-markets-based funding to finance their operations. At the same time the US broad money supply has almost doubled in the past 10 years. Savers are looking for more relatively safe short-term product that can compete with bank deposits. That is why the Fed's reverse repo facility (FRFA - see post) is going to be so critical in the next few years. The Fed now holds nearly $4 trillion in securities, which the central bank can "sterilize" by taking in short-term deposits. These deposits in turn will be a good alternative to treasury bills and bank deposits, providing some relief to product-starved US money markets.

Banks Fight Revised U.S. Plan to Monitor Checking Overdraft Fees - U.S. banks are seeking to shield from scrutiny the $30 billion they collect annually in checking-account fees, saying a proposed requirement for periodic reports is unacceptable even if it exempts small institutions. The dispute is the latest installment in a multi-year fight between the industry and the Consumer Financial Protection Bureau over how to monitor the way banks assess charges on their depositors, particularly when people overdraw checking accounts. The bureau, along with the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency, proposed last year that all institutions include detailed breakdowns of their revenue from account fees in the public quarterly reports they file with the FDIC. That would give the consumer bureau data it could use to write new regulations curbing revenue from overdraft services. Small banks, which earn a larger slice of their revenue from such fees than big institutions, pushed back on the plan. Their resistance led the FDIC and OCC, which regulates nationally chartered banks, to break ranks with the consumer bureau and oppose the change, according to a person briefed on the deliberations who spoke on condition of anonymity because the discussions weren’t public. Andrew Gray, a spokesman for the FDIC, declined to comment, as did OCC spokesman Stephanie Collins.

Quelle Surprise! Banks Are Opposed to More Liquid Markets When They Don’t Make Enough From Them - Yves Smith - Bloomberg has an intriguing story about a bit of lobbying the big dealer banks are engaged in via a group called the Treasury Borrowing Advisory Committee, which represents 15 out of the total of 22 primary dealers (a primary dealer, among other things, gets to bid for its own account at Treasury bond auctions). Of course, the object of their efforts is to improve their profitability, here by putting parties they regard as competitors at more of a disadvantage.  The latest quarterly presentation to Treasury contains a peculiar section in which the group argues that Treasury should have more say in the selection and oversight of primary dealers. That job in theory falls to the Fed, but in fact the Fed dismantled its primary dealer supervision unit in 1992. But what sounds like a request for more regulation (clearly something the dealers don’t want) is just a coded request for the Treasury to shore up their once-cozy oligopoly by getting more stringent with recent entrants that have been eating into the already thin entrants into this market. As Bloomberg explains, the dealers over time have lost market share to electronic order placement and execution: A record 49 percent of Treasury trading was done electronically in 2013 and the amount of debt sold directly to investors at auction rose to 17.7 percent of issuance from 2.5 percent in 2008.  Now this sounds like a plus from a taxpayer perspective. More bidders at auctions almost certainly means somewhat better prices for Treasury (as in lower interest rates). Remember, any time regulators threaten to raise capital requirements or (horrors!) impose transaction taxes, dealers howl that it will hurt liquidity. Mind you, what they are talking about there is (nearly always) secondary market liquidity, when investors are buying and selling already-existing securities or instruments. Savvy investors have argued that too much liquidity is detrimental, because it diverts capital from productive investment into speculation:

Fed’s Dudley: Breaking Up Too-Big-To-Fail Firms Bad Idea -- Federal Reserve Bank of New York President William Dudley repeated Tuesday his opposition to breaking up too-big-to-fail financial firms, and argued in favor a pressing forward with a host of other reforms to improve the resiliency of the financial system.“The goal of financial stability will remain elusive so long as we have financial firms that are judged as ‘too big to fail,’” Mr. Dudley said.“Some might argue that this is reason enough to break up these firms. I do not believe that this is the best course of action,” the official said.Instead, Mr. Dudley believes there are other ways to mitigate the ongoing risk posed by financial firms that have grown so large and complex that their failure would threaten the broader functioning of the financial system. The issue is again in the spotlight in the wake of the release of the transcripts from the 2008 Fed policy meetings. Then, central bankers confronted a collapsing financial system that was pushed to the brink by the failure of the investment bank Lehman Brothers. Officials, most notably Chairman Ben Bernanke, lamented that they did not have the tools to deal systematically with large financial firms that had run into trouble.In his speech, Mr. Dudley said he prefers a “multi-faceted” reform effort. He wants to minimize the risk a firm can get into trouble in the first place via methods like the central bank’s stress test exercises. The official wants to ensure the existence of a “credible” resolution mechanism to handle firms that have failed. Mr. Dudley also said that it’s important for regulators to get more and better data about the state of the financial system so that they can better see what’s going on.

BofA fights attempt to raise ‘hustle’ fine - Bank of America hit out at the US government’s request to more than double the penalty it is seeking from the bank in a case known as “the hustle”, where it was found liable for civil fraud over mortgages sold to Fannie Mae and Freddie Mac. The bank said the government’s “headline-seeking” request for a higher penalty of $2.1bn “contradicts every pertinent legal principle”, in a filing made late on Wednesday. BofA disputed the fine on the grounds that the calculation included the principal amounts its Countrywide unit lent to borrowers to originate the loans. “Countrywide did not ‘gain’ $2.1bn by any stretch of the term; it simply recovered amounts that it had previously paid out,” the bank said in the filing. BofA argued that it should not pay any penalty if it is to be calculated based on profit. The case dubbed the “hustle” – after the bank’s internal “high-speed swim lane” for rushing through loans – is one of several high profile mortgage-related cases that BofA is still facing as it tries to put its legal woes behind it. US banks have been dogged by multibillion-dollar settlements with the government as they pay the price for weak underwriting standards in the lead-up to the financial crisis. This case has been unusual because a jury ruled on it. In October, the jury found BofA and mid-level employee Rebecca Mairone liable for fraud over bad mortgages sold by Countrywide. In January, the government raised the amount it was seeking from the bank from $860m, which was based on gross losses incurred by Fannie and Freddie resulting from bad mortgages by Countrywide, which BofA acquired in 2008.

Why Do Community Banks Carry Water for the Megabanks? - The US has a very unusual financial landscape with 6,812 banks (plus thousands of credit unions). 41% of the assets with in the banking system are held by just four mega-banks, and the 108 biggest banks (those with over $10 billion in assets) hold 81% of the assets in the system. Yet politically, particularly in the House of Representatives, the smaller banks (most, but not all of which we can call community banks) hold an outsized amount of political power, as they are located in every district and often play an important economic and civic role, particularly in rural districts. Therefore, the political support or opposition for community banks really matters in regulatory reform debates.  Community banks compete with big banks; they probably compete with big banks more than they compete with each other, as most community banks operate in very geographically limited areas. Yet community banks have repeatedly opposed regulatory initiatives that are restricted only to big banks and which have put us well on our way to a formal two-tier regulatory system.  For example, community banks opposed the Durbin Interchange Amendment, even though its key price cap provision applies only to the 108 banks (out of 6,812) that have over $10 billion in assets.  Similarly, community banks were opposed to the creation of the CFPB, even though supervision and enforcement of banks with less than $10 billion remained with the prudential regulators.  Community banks and credit unions opposed chapter 13 cramdown, despite an exemption in the legislation for institutions with less than $10 billion in assets.  And then this week, incredibly, the Independent Community Bankers of America came out in opposition to the Republican proposal for a special tax on banks with over $500 billion in assets (there are only 4 such banks).

What CFPB’s Harsh Words to Servicers Mean for Banks - American Banker - video - The Consumer Financial Protection Bureau's crackdown on mortgage servicers' operations will increase the pressure on lenders to improve their processes, paperwork and communications with borrowers. American Banker journalists discuss how both banks and nonbank servicers can get ahead of the new regulatory scrutiny.

What Makes a Bank Stable? A Framework for Analysis - NY Fed - One of the major roles of banks and other financial intermediaries is to channel funds from savings into valuable projects. In doing so, banks engage in “liquidity and maturity transformation,” since they finance long-term, illiquid projects while funding themselves with short-term, liquid liabilities. By performing this important role, banks expose themselves to the risk of runs: If depositors or other short-term creditors worry about their claims, they may withdraw funds en masse and cause the bank to fail. The recent financial crisis once again highlighted the fragility associated with financial intermediaries performing the roles of maturity and liquidity transformation. This post draws upon our paper “Stability of Funding Models: An Analytical Framework” to illustrate the determinants of a financial intermediary’s ability to survive stress events.

Factors that Affect Bank Stability - NY Fed - In a previous Liberty Street Economics post, we introduced a framework for thinking about the risks banks face. In particular, we distinguished between asset return risk and funding risk that can interact and cause a bank to fail. In our framework, a bank can fail for two reasons:

  • Low asset returns: Fundamental insolvency due to erosion of equity by low asset returns that don’t cover a bank’s debt burden.
  • Loss of funding: Costly liquidation of assets that erode equity.

In this post, we use the framework to study how several factors and policy instruments affect a bank’s risk of failure. We look at how changes in the liquidity of banks’ assets affect failure risk, we analyze what happens if the bank has more capital (or lower leverage), and we show how similar the implications are if the bank held more cash instead of risky assets and if the bank had more long-term instead of short-term debt. In addition, we provide an interactive chart where you can experiment yourself with how changing these bank characteristics affects bank solvency.

Unofficial Problem Bank list declines to 578 Institutions  - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for February 21, 2014.  Late Friday, the OCC released an update on its recent enforcement action activity that contributed to many removals from the Unofficial Problem Bank List. During the week, there were eight removals that lowered the list institution count to 578 with assets of $193.0 billion. A year ago, the list held 809 institutions with $302.8 billion of assets. Next week, the FDIC should release an update on its latest enforcement action activities and a report on industry results for the fourth quarter and full year of 2013. Included should be updated figures on the Official Problem Bank List. At the last quarterly release in November 2013, the count on the unofficial list exceeded the official by 130. Since then, the unofficial list has declined by 67 institutions. We are anticipating for the difference to narrow with this release.

FDIC: Earnings increased for insured institutions, Fewer Problem banks, Residential REO Declines in Q4 --The FDIC released the Quarterly Banking Profile for Q4 today. Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $40.3 billion in the fourth quarter of 2013, a $5.8 billion (16.9 percent) increase from the $34.4 billion in earnings that the industry reported a year earlier. This is the 17th time in the last 18 quarters — since the third quarter of 2009 — that earnings have registered a year-over-year increase. The improvement in earnings was mainly attributable to an $8.1 billion decline in loan-loss provisions. Lower income stemming from reduced mortgage activity and a drop in trading revenue contributed to a year-over-year decline in net operating revenue (the sum of net interest income and total noninterest income). More than half of the 6,812 insured institutions reporting (53 percent) had year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable fell to 12.2 percent, from 15 percent in the fourth quarter of 2012.The FDIC reported the number of problem banks declined: The number of "problem banks" fell for the 11th consecutive quarter. The number of banks on the FDIC's "Problem List" declined from 515 to 467 during the quarter. The number of "problem" banks is down by almost half from the recent high of 888 at the end of the first quarter of 2011. Two FDIC-insured institutions failed in the fourth quarter of 2013, down from eight in the fourth quarter of 2012. For all of 2013, there were 24 failures, compared to 51 in 2012.

Freddie Mac Rakes in $8.6B in 4Q Profits, Repays $71.3 Billion Bailout - Freddie Mac revealed on Thursday it hauled in $8.6 billion of profits during the fourth quarter, paving the way for the government-controlled mortgage giant to return another $10.4 billion to taxpayers. The latest profits from Freddie Mac come a week after sister company Fannie Mae said it would return $7.2 billion to the Treasury Department, marking the return of all money contributed to the rescues of the mortgage giants. For the year, Freddie Mac logged net income of $48.7 billion, well above the $11 billion it raked in during 2012. Freddie Mac chalked up its upbeat results to strong home-price appreciation, deferred tax asset valuation allowances and legal settlements. However, the No. 2 U.S. mortgage company warned the strong growth “is not sustainable over the long term,” citing real estate value moderation and mandated declines in the size of its mortgage-related investment portfolio. Freddie Mac also pointed to changes in interest rates, the yield curve and mortgage spreads, which can hurt earnings.

Freddie Mac Reports $48.7 Billion 2013 Profit - Freddie Mac reported a record annual profit of $48.7 billion for 2013 on Thursday, powered by a strong rebound in U.S. home prices and a series of legal and accounting benefits that reversed earlier losses. Freddie will pay $10.4 billion to the U.S. Treasury after it posted an $8.6 billion fourth-quarter profit, the ninth-straight quarter in which the company has been profitable. The bulk of those gains were due to either one-time benefits or to home price gains that are likely to moderate.  As home prices plunged and mortgage delinquencies soared in 2008 and 2009, the companies were forced to set aside more money for expected losses. They also suffered large write-downs on riskier securities that they had purchased as investments. But as home prices have rebounded and with the firms guaranteeing pristine new loans, they have found themselves with fewer loans going delinquent and higher recoveries on those that complete foreclosure, reversing earlier losses. In a sign that housing demand could be cooling, the company said it took back more properties through foreclosure than the number that it sold for the second straight quarter. Executives told reporters on Thursday that the trend was mostly seasonal, as housing demand tends to slow down in the winter.

JPM To Lay Off 17,000 Mortgage Bankers In 2013 And 2014, Because The "Housing Recovery" -  The last time JPMorga had an investor day, Jamie Dimon explained to Mike Mayo why he is richer than him (and pretty much anyone else). This year, Jamie will be more focused on explaining to 8,000 JPM workers why after firing 16,500 people in consumer and mortgage banking, the bank will now let go another 2K and 6K in those same two groups (which will bring total mortgage and consumer banking headcount reductions between 2013 and 2014 to at least 17K and 7.5K, respectively). This may be tricky especially in the context of, you know, the housing and economic recovery, and stuff.

Black Knight: Mortgage Serious Delinquency Rate lowest in over five years, Foreclosures Lowest since November 2008 - According to Black Knight (formerly LPS) First Look report for January, the percent of loans delinquent decreased in January compared to November, and declined by more than 10% year-over-year. Also the percent of loans in the foreclosure process declined further in January and were down 31% over the last year. Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.27% from 6.47% in December. The normal rate for delinquencies is around 4.5% to 5%.The percent of loans in the foreclosure process declined to 2.35% in January from 2.48% in December.   The is the lowest level since late 2008.The number of delinquent properties, but not in foreclosure, is down 365,000 properties year-over-year, and the number of properties in the foreclosure process is down 528,000 properties year-over-year. Black Knight will release the complete mortgage monitor for January in early March.

Foreclosures Surging in New York-New Jersey Market - Bloomberg: The epicenter of the U.S. foreclosure crisis is shifting to New Jersey and New York, threatening a housing rebound in one of the country’s most densely populated areas. New Jersey has surpassed Florida in having the highest share of residential mortgages that are seriously delinquent or in foreclosure, with New York third, a Mortgage Bankers Association report showed last week. By contrast, hard-hit areas such as Arizona and California have some of the lowest levels of soured loans after allowing banks to quickly foreclose after the 2007 property crash. The number of New York and New Jersey homeowners losing their houses reached a three-year high in 2013. Banks in these states have been slowly working through a backlog of delinquent loans that enabled borrowers to skip mortgage payments for years. Now these properties are poised to empty onto a market where affluent Manhattan suburbs neighbor blighted towns that are struggling most with surging defaults.

The Housing Recovery Myth In New York And New Jersey Ends With A Bang As Foreclosures Surge-- It was about a year ago when we noted a core component of the US housing non-recovery: the time to sell foreclosed homes had just hit a record of 400 days across the nation. Fast forward to today when even the last traces of the lie that sustained the housing recovery myth are being swept away, and we get the following article from Bloomberg titled "Foreclosures Surging in New York-New Jersey Market."  The good news (according to some): thousands of people could live mortgage free for years until the bank delays obtaining the keys to the foreclosed property. This was money which instead of going to the mortgage owner, would instead go to buy Made in China trinkets and gizmos and otherwise keep the US retail party humming. Which brings us to the bad news: the party - retail and otherwise - is ending, as courts and banks finally catch up with inventory levels on both sides of the foreclosure pipeline, and those who lived for years without spending a dollar for the roof above their head are suddenly forced to move out and allocated the major portion of their disposable income toward rent.

Demand for Foreclosed Homes Eased Last Quarter, Fannie Mae Says - Real Time Economics - WSJ: Another sign that the housing market slowed down during the fourth quarter: Fannie Mae, the nation’s largest mortgage guarantor, saw demand for foreclosed properties dip at the end of the year. Fannie reported last week an $84 billion annual profit for 2013 on the backs of large home-price gains and a series of one-time legal and accounting benefits. But the report also showed that its inventory of foreclosed homes increased for the second straight quarter as it begins to take back more properties in Florida and other states where foreclosures have been tied up in courts. And the report showed that the prices Fannie received on those properties, as a share of the underlying mortgage balances, declined slightly from the prior quarter for the first time in 2½ years. Between higher prices and higher interest rates, “we’ve seen demand for [foreclosed] properties soften a bit,”  Foreclosed properties aren’t rising in a significant way, and there are no real signs that a much vaunted “shadow” inventory of foreclosures is set to pour onto housing markets. Delinquencies continue to fall, suggesting that the increase in foreclosure stems from old loans that have been stuck in delinquent-loan purgatory for years. While some 9.3% of loans guaranteed by Fannie between 2005 and 2008 were at least 90 days past due at the end of last year, just 0.33% of loans made since 2009 are seriously delinquent.  Still, the report offers the latest clue that reduced affordability is leading housing markets to downshift from the sales frenzy of one year ago. Foreclosed properties have been bid up aggressively over the past two years by investors, including institutional buyers that have acquired tens of thousands of properties with the goal of converting them into rentals. “I think what you’re seeing is less interest on the part of institutional buyers,” said Mr. Mayopoulos. “Some of that demand has diminished.”

Moody’s warns on specialised mortgage servicers - Non-bank mortgage servicers are poised to become the “next generation” of subprime lenders as the companies seek to diversify their rapidly expanding businesses in the face of mounting regulatory scrutiny, Moody’s says. The warning from the credit rating agency comes as specialised mortgage servicers, particularly Ocwen Financial, face increasing criticism from regulators, who argue that the companies have grown too quickly in recent years. Mortgage servicers such as Ocwen, Nationstar and Walter Investment have been buying hundreds of billions of dollars worth of “mortgage servicing rights” from big banks including JPMorgan Chase and Bank of America. Under these MSRs, the companies collect payments on US mortgages in exchange for a small portion of the income. Banks have sold the rights in the face of a wave of troublesome post-financial crisis foreclosures as well as regulatory pressure to offload the assets. The amount of outstanding mortgages serviced by Ocwen, the biggest non-bank mortgage servicer in the US, has risen from $43bn in 2005 to more than $500bn now. Ocwen estimates that banks still have $1tn worth of MSRs to sell, but servicing mortgages has a finite shelf life and originations of the subprime loans in which the company has historically specialised are unlikely to recover to pre-crisis levels. That could spur Ocwen to expand its nascent prime lending business to include making subprime loans, which have historically been the domain of banks. Moody’s said it was concerned about the possibility that specialised servicers will attempt to offset a “decrease in growth by shifting business models and originating non-prime mortgages”, which would be a “net credit negative” for the companies. “Ocwen and the special servicers could become the next generation of non-prime originators, given their wealth of non-prime servicing experience along with the cyclical, low-margin nature of prime mortgage originations,” Moody’s noted.

The Home Mortgage Business, Where Cheaters Always Seem to Prosper: Ocwen is a little company with a dream: to become the nation’s largest mortgage servicer. If they weren’t so uniformly terrible at mortgage servicing, they might even achieve that goal. And while state and federal investigations, multi-billion-dollar fines, and legal threats would seemingly throw a wrench in most companies’ high-minded plans for success, Ocwen is different. Because in America, rank incompetence need not impede a corporate quest, at least not in the financial services industry. As cracks in its public image continue to surface, Ocwen is attempting to pull off one of the most brazen schemes in recent memory: getting what amounts to a cash advance for the very work they can’t seem to do properly. Ocwen is the biggest of a group of “non-bank” servicers, which don’t originate loans themselves. They merely handle the day-to-day accounting of loans for other owners, usually big institutional investors—collecting monthly payments, making decisions on loan modifications and pursuing foreclosures when necessary. Previously, the lion’s share of mortgage servicing operations were housed within the biggest Wall Street banks. But those institutions were caught committing massive amounts of fraud in the foreclosure process, and were forced to pay tens of billions in fines. Legal settlements in the wake of this conduct led to a new set of servicing standards that increased compliance costs. And new global capital rules gave unfavorable treatment to mortgage servicing rights (or MSRs, as they are commonly known), making the business a balance sheet liability.

Regulator probes Ocwen ‘conflicts of interest’ - Ocwen Financial, the fourth-largest US mortgage servicer, has come under renewed fire as New York’s chief financial regulator cautioned that potential conflicts of interest could encourage the company to “push homeowners unduly into foreclosure”. In a letter to Ocwen’s general counsel, New York’s Department of Financial Services highlighted the dual role of William Erbey, the Ocwen chairman, who is also the largest shareholder of four publicly listed affiliated entities: Altisource Portfolio Solutions, Altisource Residential Corporation, Altisource Asset Management Corporation, and Home Loan Servicing Solutions. DFS said his interest in such businesses “raises the possibility that management has the opportunity and incentive to make decisions concerning Ocwen that are intended to benefit the share price of affiliated companies, resulting in harm to borrowers, mortgage investors, or Ocwen shareholders as a result”. Ocwen said, “These agreements are fully disclosed in our public filings, and we believe them to be on an arms-length basis. We look forward to addressing the matters raised by NY DFS and will fully co-operate.” Ocwen has expanded rapidly in recent years as it snapped up billions of dollars worth of assets that give the company the right to collect payments on thousands of American home loans. In 2009, it spun off Altisource, which in addition to providing mortgage servicing, also stands to profit by selling and renting homes that have been foreclosed on. The servicing firm’s practices have been under growing regulatory scrutiny. This month, DFS halted indefinitely Ocwen’s purchase of servicing rights from Wells Fargo, citing concerns about its ability to handle the increased servicing.

Zillow: Negative Equity declines further in Q4 2013 - From Zillow: Negative Equity Crosses 20 Percent Threshhold to End 2013 According to the fourth quarter Zillow Negative Equity Report, the national negative equity rate dipped below 20 percent to 19.4 percent for the first time in years, thereby reducing negative equity by roughly a third from its 31.4 percent peak in the first quarter of 2012. Negative equity has fallen for seven consecutive quarters as home values have risen, freeing almost 3.9 million homeowners nationwide in 2013. The national negative equity rate fell from 27.5 percent of all homeowners with a mortgage as of the end of the fourth quarter of 2012, and 21 percent in the third quarter. However, more than 9.8 million homeowners with a mortgage still remain underwater.The following graph from Zillow shows negative equity by Loan-to-Value (LTV) in Q4 2013 compared to Q4 2012. Almost half of the borrowers with negative equity have a LTV of 100% to 120% (the light red columns). Most of these borrowers are current on their mortgages - and they have probably either refinanced with HARP or the loans are well seasoned (most of these properties were purchased in the 2004 through 2006 period, so borrowers have been current for eight years or so). In a few years, these borrowers will have positive equity.

1 in 5 homeowners still underwater at year’s end - Just under 1 in 5 homeowners are still underwater, according to the latest Zillow negative equity report, meaning they still owe more on their mortgage than their home is worth. The national negative equity rate ended 2013 below 20% for the first time in years, dipping to 19.4% of all homeowners with a mortgage. More than 9.8 million homeowners are still underwater nationwide. The fourth quarter of 2013 is the seventh consecutive quarter that home values have risen, freeing almost 3.9 million homeowners nationwide in all of 2013. The national negative equity rate fell from 27.5% of all homeowners with a mortgage as of the end of the fourth quarter of 2012, and 21% in the third quarter. But while negative equity is slowly but surely receding, a number of factors will help ensure it remains a factor in the market for years to come. “We’ve reached an important milestone as negative equity has fallen below 20% nationwide, which has helped free up marginally more inventory and contribute to further stabilization of the market,” said Zillow chief economist Stan Humphries. “But a number of headwinds will prevent negative equity from falling at the kind of sustained, rapid pace we need before the market can completely return to normal, and it remains roughly four times what it is in a healthier market. High negative equity is just another sign of how distorted the market continues to be, and how far we still have to go on the road back to normal.”

Sequestration’s Toll: 70,000 Fewer Low-Income Housing Vouchers - Some 70,000 fewer low-income families used housing vouchers to rent private housing in December than a year earlier, according to new CBPP projections.  The projections, based on new Department of Housing and Urban Development (HUD) data, show that low-income seniors, people with disabilities, and families with children continue to feel the effects of the across-the-board sequestration cuts, which started last March.  The big question now is whether the President and Congress will reverse these cuts next year. We estimate that roughly three-fourths of state and local housing agencies have had to shrink the number of families they help due to sequestration, which cut funding for the Housing Choice Voucher Program by nearly $1 billion last year.  The map below provides state-by-state figures on the lost vouchers; see this table (in .pdf or .xls format) for more details. These cuts come at a particularly bad time.  The number of renter households paying unaffordable housing costs is at historic highs, according to a new report by Harvard’s Joint Center for Housing Studies, which warns that the “spread of severe cost burdens [where renters pay more than half their income for housing] during the Great Recession and its aftermath is particularly alarming.” Also, homelessness remains widespread.  More than 600,000 Americans, including some 58,000 veterans and 138,000 children, are living either in emergency shelters or on the street on any given day, according to HUD’s latest count

Average 30-Year U.S. Mortgage Rate Up to 4.37 Percent — Average U.S. rates on fixed mortgages rose for a third straight week as new data showed a surprisingly strong pace of new-home sales last month. Rates still remain near historically low levels. Mortgage buyer Freddie Mac says the average rate for the 30-year loan increased to 4.37 percent from 4.33 percent last week. The average for the 15-year mortgage rose to 3.39 percent from 3.35 percent. The report Wednesday from the Commerce Department boosted expectations that the spring home buying season will be solid enough to lift the overall economy. Sales of new homes rebounded in January to the fastest rate in more than five years. The strength in purchases followed a slowdown that had been linked to higher mortgage rates and severe winter weather.

MBA: Mortgage Purchase Index lowest since 1995 -  From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 8.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 21, 2014. ... The Refinance Index decreased 11 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier to the lowest level since 1995. ... . The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.53 percent, the highest rate since week ending January 17, 2014, from 4.50 percent, with points increasing to 0.31 from 0.26 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.  The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.47 percent, the highest rate since week ending January 24, 2014, from 4.45 percent, with points increasing to 0.13 from 0.11 (including the origination fee) for 80 percent LTV loansThe first graph shows the refinance index. The refinance index is down 72% 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 16% from a year ago - and the weekly purchase index is at the lowest level since 1995. The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index - but this is still very weak.

Mortgage apps drop to two-decade low - Mortgage applications fell 8.5% from a week prior continuing its downward trend for the week ended Feb. 21, the latest Mortgage Bankers Association report found. The seasonally adjusted Purchase Index decreased 4% from one week earlier to the lowest level since 1995. As a whole, the refinance share of mortgage activity fell slightly to 58% of mortgage applications: the lowest level since September 2013. Additionally, the refinance index fell 11% from the previous week, as the purchase index decreased 4% from one week earlier. "Purchase applications were little changed on an unadjusted basis last week, but this is the time of a year we would expect a significant pickup in purchase activity, and we are not yet seeing it,” said Mike Fratantoni, MBA’s chief economist. Meanwhile, the 30-year, fixed-rate mortgage with a conforming loan balance increased to 4.53% from 4.50%. The 30-year, FRM with a jumbo loan balance increased to 4.47% from 4.45%. The 30-year, FRM backed by the FHA reached 4.17%, a growth from 4.16% a week prior.

Mortgage Applications Plunge Most In 3 Months; "Purchases" Collapse To 19 Year Lows -- Despite the surge in "seasonally-adjusted new home sales", un-seasonally-adjusted mortgage applications tumbled 8.5% this week, the biggest drop in 3 months as the modest January bounce has been almost entirely unwound. This pushes the broad MBA mortgage applications index down to near its lowest in 14 years. However, the home-purchase index continues to collapse. Purchase applications are down 30% from their May highs plunging in the last few weeks to their lowest level since 1995. Must be the weather, eh? Or is it like Bob Shiller warned yesterday, the unwind of "bubble thinking," especially as "gains are slowing from month-to-month and the strongest part of the recovery in home values may be over."

Weekly Update: Housing Tracker Existing Home Inventory up 5.7% year-over-year on Feb 24th -- Here is another weekly update on housing inventory ...  There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer. The Realtor (NAR) data is monthly and released with a lag (the most recent data was for January).  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 5.7% above the same week in 2013 (red is 2014, blue is 2013). Inventory is still very low, but this increase in inventory should slow house price increases. 

U.S. Home Prices Dip for Second Straight Month - U.S. home prices fell for the second straight month in December as brutally cold weather, tight supply and higher costs slowed sales. The Standard & Poor’s/Case-Shiller 20-city home price index declined 0.1 percent from November to December, matching the previous month’s decline. The index is not adjusted for seasonal variations, so the dip partly reflects slower buying as winter weather set in. For all of 2013, however, prices rose by a healthy 13.4 percent, mostly because of big gains earlier in the year. That was the largest calendar year gain in eight years. But the year-over-year gain slowed from November’s 13.7 percent pace. That’s only the second time that year-over-year increases have declined since prices began recovering two years ago. The figures come after other reports show that home sales and construction have slowed after strong gains last year. Most economists expect the housing recovery will continue this year, though likely at a slower pace.. The Case-Shiller index covers roughly half of U.S. homes. The index measures prices compared with those in January 2000 and creates a three-month moving average. The December figures are the latest available.

Case-Shiller: Comp 20 House Prices increased 13.4% year-over-year in December - S&P/Case-Shiller released the monthly Home Price Indices for December ("December" is a 3 month average of October, November and December prices). This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities) and the quarterly national index.  From S&P: ome Prices Lose Momentum According to the S&P/Case-Shiller Home Price Indices Data through December 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed that National home prices closed the year of 2013 up 11.3%. This represents a slight improvement over last quarter’s annual rate of 11.2%. In the fourth quarter of 2013, the National Index declined 0.3%.  In December, the 10-City Composite remained relatively unchanged while the 20-City Composite showed its second consecutive monthly decline of 0.1%. Year-over-year, the 10-City and 20-City Composites posted gains of 13.6% and 13.4%, approximately 30 basis points lower than their November rates. Chicago showed its highest year-over-year return since December 1988. Dallas set a new peak and posted its largest annual gain since its inception in 2000. Denver declined 0.1% and is now 0.7% below its all-time index level high set in September 2013.  After 26 months of consecutive gains, Phoenix posted -0.3% for the month of December, its largest decline since March 2011.  The six cities with the highest year-over-year figures saw their rates decline (Las Vegas, San Francisco, Los Angeles, Atlanta, San Diego and Detroit) and most cities ranked at the bottom improved (Denver, Washington and New York) – Charlotte and Cleveland were the two exceptions." The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The Composite 10 index is off 20.1% from the peak, and up 0.8% in December (SA). The Composite 10 is up 21.0% from the post bubble low set in Jan 2012 (SA). The Composite 20 index is off 19.3% from the peak, and up 0.8% (SA) in December. The Composite 20 is up 21.7% from the post-bubble low set in Jan 2012 (SA). The second graph shows the Year over year change in both indices. The Composite 10 SA is up 13.6% compared to December 2012. The Composite 20 SA is up 13.4% compared to December 2012. Prices increased (SA) in 19 of the 20 Case-Shiller cities in December seasonally adjusted. (Prices increased in 6 of the 20 cities NSA) Prices in Las Vegas are off 45.5% from the peak, and prices in Dallas are at new highs (SA).

Case-Shiller Shows Home Prices At Plateau -- The December 2013 S&P Case Shiller home price index shows a seasonally adjusted 13.4% price increase from a year ago for the 20 metropolitan housing markets and a 13.6% yearly price increase in the top 10 housing markets.  While just slightly lower than last month's year ago price increase, the yearly price jumps are still in line with the February 2006 housing bubble.  The two indexes are comparable to July 2004 price levels and 2013 is the highest price increase year since 2005.  S&P claims the party is over and momentum is slowing, yet prices are now only 20% away from their peak over-inflated housing bubble years price levels.S&P also produces a third quarterly national index.   S&P is using the not seasonally adjusted national index when they report Q4 2013 home values are down -0.3% from Q3 2013, although the seasonally adjusted change is 2.6% between quarters.   Below is the national index, not seasonally adjusted (blue), which are used as the headline numbers, against the seasonally adjusted one (maroon).  We believe the seasonally adjusted 2.6% quarterly change is more accurate, due to the seasonality of the real estate market. Below is the quarterly national index percent change from a year ago, now at 11.3%.  The national index also shows soaring prices and the lack of affordable housing as a major reason prices might have plateaued.  Below are all of the composite-20 index cities yearly price percentage change, using the seasonally adjusted data.  Las Vegas appears to be a re-bubbling cauldron and San Francisco is now the site of protests for affordable housing.  Generally speaking the West is clearly not affordable for most people.  Either investors are purchasing these homes or something has to be returning to financial bubble like state, for the localized median income comes nowhere near being able to afford a mortgage at these prices.  Since March 2012, prices have increased 23-24% for the 10 and 20 city composite indexes.

Case Shiller Has Second Consecutive Monthly Decline, Warns Of "Bleaker Picture For Housing", Momentum Gone - While the sell-side community urgently continues to pimp Seasonally Adjusted Case Shiller data, despite the Case-Shiller index creators' own wishes that NSA data be used, it is becoming increasingly difficult to mask the fact that home price momentum is fading. This is precisely what one sees when looking at the change in unadjusted prices, which in December posted the second sequential decline in a row, dropping by -0.08%, following a -0.05% drop in November for the 20-City Composite index, and the biggest sequential decline since November 2012. The annual increase of 13.42% was in line with the expected 13.4%, and was the third month in a row of declines in annual house prices, something we have known for a while, and which the 2 month delayed Case Shiler index finally confirmed. Finally, we are grateful to Case Shiller for being the first to admit that it was not all the weather: "Some of the weakness reflects the cold weather in much of the country. However, higher home prices and mortgage rates are taking a toll on affordability." Let's hope there is no rain in the Spring and sun in the summer then as everything else is already bad and getting worse.

America’s Hottest Housing Market Has Suddenly Cooled Down - After a remarkable rebound, the Phoenix housing market is cooling down. Home prices in Phoenix posted their first monthly decline since 2011 in December, according to the S&P/Case-Shiller price index released Tuesday. Because it was among the country’s first hardest-hit markets to stabilize, Phoenix has served over the past two years as a bellwether of sorts for much of the Sunbelt that also experienced high levels of foreclosures and severe price declines. If Phoenix cools, that could portend ominously for parts of California, Nevada, and Florida that have shown similar rebounds in recent years. The latest figures show Phoenix is off to a less than promising 2014. The number of homes for sale in January stood 29% above their levels of a year earlier, according to the Arizona Regional Multiple Listing Service Inc.

A Look at Case-Shiller by Metro Area -- Home prices extended a winning streak in December, making 2013 the best year for gains since 2005, according to the S&P/Case-Shiller indexes. The composite 20-city home price index, a key gauge of U.S. home prices, was up 13.4% in December from a year earlier. All 20 cities posted year-over-year gains for all of 2013. Prices in the 20-city index were 0.1% lower than the prior month, but that’s mostly due to the weaker winter selling season. Adjusted for seasonal variations, prices were 0.8% higher month-over-month. Twelve of the 20 cities posted monthly declines, though on a seasonally adjusted basis only Cleveland saw a drop. Though the gains have continued, the pace has slowed. “The strongest part of the recovery in home values may be over,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

Comment on House Prices: Real Prices, Price-to-Rent Ratio, Cities - I've been hearing reports of a slowdown in house price increases (more than the usual seasonal slowdown), and perhaps this slowdown in price increases is finally showing up in the Case-Shiller index.  This makes sense since inventory is starting to increase.  According to Trulia chief economist Jed Kolko, asking price increases have slowed down recently, and Kolko expects that price slowdown will "hit Feb sales prices and get reported in April index releases".  It might take a few months, but I also expect to see smaller year-over-year price increases going forward. I also think it is important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $276,000 today adjusted for inflation (about 38%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).The first graph shows the quarterly Case-Shiller National Index SA (through Q4 2013), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through December) in nominal terms as reported. In nominal terms, the Case-Shiller National index (SA) is back to Q1 2004 levels (and also back up to Q3 2008), and the Case-Shiller Composite 20 Index (SA) is back to July 2004 levels, and the CoreLogic index (NSA) is back to September 2004. The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices. In real terms, the National index is back to Q2 2001 levels, the Composite 20 index is back to May 2002, and the CoreLogic index back to May 2002. In real terms, house prices are back to early '00s levels.

Update: Seasonal Pattern for House Prices - There has always been a clear seasonal pattern for house prices, but the seasonal differences have been more pronounced in recent years. Even in normal times house prices tend to be stronger in the spring and early summer than in the fall and winter. Recently there has been a larger than normal seasonal pattern because conventional sales are following the normal pattern (more sales in the spring and summer), but distressed sales (foreclosures and short sales) happen all year. So distressed sales have had a larger negative impact on prices in the fall and winter. This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller Composite 20 index since 2001 (both through December).   The seasonal pattern was smaller back in the early '00s, and increased since the bubble burst.Case-Shiller NSA and CoreLogic both recently turned slightly negative month-to-month, but this is just seasonal.  The second graph shows the seasonal factors for the Case-Shiller composite 20 index. The factors started to change near the peak of the bubble, and really increased during the bust.  I was one of several people to question this change in the seasonal factor - and this led to S&P Case-Shiller reporting the NSA numbers. It appears the seasonal factor has stopped increasing, and I expect that over the next several years - as the percent of distressed sales decline - the seasonal factors will slowly move back towards the previous levels. 

Zillow: Case-Shiller House Price Index expected to show 13.0% year-over-year increase in January - The Case-Shiller house price indexes for December were released today. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.    It looks like the year-over-year change for Case-Shiller is still strong, but slowing. In January 2013, the Composite 20 seasonally adjusted index was up 0.8% (a 10% annual rate), and is forecast to be up "only" 0.5% in January 2014 (a 6% annual rate). From Zillow: Case-Shiller Indices Show Little ModerationThe Case-Shiller data for December 2013 came out this morning, and based on this information and the January 2014 Zillow Home Value Index (ZHVI, released February 19) we predict that next month’s Case-Shiller data (January 2014) will show that the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 13.0 and 13.3 percent on a year-over-year basis, respectively. The seasonally adjusted (SA) month-over-month change from December to January will be 0.5 percent for both the 20-City Composite and the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for January will not be released until Tuesday, March 25.

Study: More than half of U.S. housing wealth concentrated in 10 percent of communities - A sizable chunk of the nation’s housing wealth is concentrated in a few markets, and that picture is unlikely to change as the housing recovery unfolds, according to a report released Wednesday. The Demand Institute, a nonprofit group run by the Conference Board and Nielsen, analyzed prices of owner-occupied homes in 2,200 of the largest cities and towns. It found that 10 percent of communities held 52 percent of total housing wealth — about $4.4 trillion.By contrast, the bottom 40 percent held 8 percent of the wealth, or $700 billion. The disparity has remained constant for years, with little movement in and out of the top and bottom rungs, the report says. Also, although home values rose across the board from 2000 to 2012, the gains totaled nearly $2 trillion for the top 10 percent but $260 billion for the bottom 40 percent. The authors concluded that the national recovery in home values since then “masks wide local discrepancies, with some markets soaring ahead of others,” a theme that’s been sounded more than once this week with the release of various home value measures that also show wide variations among localities. Many forecasters in the real estate industry say that the double-digit rise in home prices nationally will slow to the single digits through 2018 to a level more in line with historical norms. However, the Demand Institute dug beneath the national numbers and found that some areas could lag behind others for a long time. The study’s authors also noted that the spectacular gains made in some spots may not be as large as they seem at first glance.

Wolf Richter: The Smart Money Quietly Abandons The Housing Market - Yves here. Some savvy investors were warning the single family home rental market was overheated nearly a year ago. Carrington, one of the early entrants, said it had pulled back last May, largely because “stupid money” had flooded the market.  In a recent post, readers confirmed that private equity investors are, not surprisingly, taking a very short-sighted posture towards their investments in single-family homes. It’s not uncommon for them to list well above-market rent rates and include unrealistically low levels of reinvestment in their projections. But sweating an asset works only if you’ve got an exit strategy. As we indicated, the cleanest and simplest one, that of doing an IPO of the operating company, appears to no longer be viable, thanks to the Fed’s taper. A few deals got launched, then one was pulled, as it seems the PE landlords can’t get the pricing they want via this route. Another that Wall Street was very keen to establish was that of securtizing the rental stream (a prospect your truly regards with horror, since if mortgage servicers were terrible, I shudder to think what the property management will be like in these deals). But with Blackstone’s first rental securitization showing a nearly 8% fall in rental income shortly after it was launched, the bloom may be off that rose as well.

U.S. Housing Markets Face Growing Wealth Inequality --Home prices will rise between 2.1% annually between 2015 and 2018, according to a new report released Wednesday, but those gains mask major differences between the pace of recovery from one community to the next. .The report found that among those 2,200 cities and towns, the wealthiest 10% accounted for 52% of the country’s total housing wealth, while the poorest 40% held just 8% of all housing wealth. Since 2000, the value of housing for the top decile rose 73% — or by around $2 trillion in nominal dollars — while the bottom 40% of the market rose by 59%, or just $260 billion.The median forecast of 2.1% annual price growth will mark a slowdown from the sharp price gains of the past two years as investors retreat from scooping up bargain-priced foreclosures. Weak household income growth and more sales by traditional sellers who eventually list their homes for sale should curb price gains, researchers wrote.The projected gains will put national median prices near its nominal 2006 peak, though after adjusting for expected inflation rates, median home prices will still stand 25% below their 2006 level. But the recovery “masks wide local discrepancies, with some markets soaring ahead and others still very much distressed,” the report says. “There are clear winners and losers.” Among the top 50 largest metro areas, home prices will go up by 32% between 2012 and 2018, while the bottom five will see prices gain by just 11%. (See a full list of the 50 largest metro areas below)

Don't Blame the Weather For Existing Home Sales -5.1% Drop  - The NAR reported existing home sales plunged -5.1% from last month and are down -5.1% from January of last year.  This is the 3rd decline from from year ago.   Existing home sales are now at July 2012 levels.  While many blame the harsh winter on falling sales, in the West where weather has not been a factor, existing home sales declined -7.3% for the month and are down -13.7% for the year.  The above graph shows why existing home sales are showing declines from a year ago.  At this point we are seeing a sort of mini-bubble for 2013.  The NAR also mentioned problems with food insurance causing declining sales.  Yet only 8 to 9 percent of sales needed flood insurance and of those, 30% of the transactions were cancelled.  This equates to a little more than half of this month's sales decline is due to problems with soaring rates for food insurance.  Below is a quote from the NAR on flood insurance and note these figures are not annualized. Since going into effect on October 1, 2013, about 40,000 home sales were either delayed or canceled because of increases and confusion over significantly higher flood insurance rates. The volume could accelerate as the market picks up this spring. The national median existing home sales price, all types, is $188,900, a 10.7% increase from a year ago.  Below is a graph of the median price.  One needs to compare prices only a year ago for increases due to the monthly ups and downs in prices associated with the seasons.  The average home price for January was $237,500, a 8.8% increase from a year ago.  It appears that as bank owned properties and foreclosures dry up, prices are once again soaring and sales are down.  What is more interesting is the decline in distressed home sales.   Foreclosures and short sales are now only 15% in January whereas a year ago they were 24% of all sales.  The breakdown in distressed sales was 10% foreclosures and 4% short sales.  The discount breakdown was 16% below market value for foreclosure sales and 13% for short sales.  So called investors are still buying up existing homes and they were 20% of all sales.  All cash buyers were 33% of all sales with 70% of investors buying homes paying cash.  First time home buyers were 26% of the sales.  First time home buyers are at a record low, the lowest since October 2008 when NAR started tabulating how many existing home sales were to first time home buyers.  NAR claims first time home buyers should be 40% of all existing home sales.

Why Higher Interest Rates Could Depress Housing Turnover - Record declines in home prices are a big reason housing turnover has been so muted in recent years, but low interest rates could serve as an additional — and underappreciated — contributor to the depressed level of homes being offered for sale, according to a forthcoming paper from researchers at DePaul University. As interest rates begin to rise from their record lows of the past two years, more homeowners with a 3.5% rate will find it less appealing to sell their home when faced with buying their next one at, say, a 5.5% or 6% rate. Millions of homeowners could face so-called “lock in” from low interest rates, especially if rates rise sharply in the coming years, potentially curbing housing demand.  The American economy remains particularly exposed to this risk because of the popularity of fixed-rate mortgages, which also shield borrowers, of course, from higher payments during a rising interest rate environment. The potential for lock-in arises because homeowners that refinanced at ultralow interest rates face a “higher payment on the same mortgage amount,” DePaul researchers looked at mortgages outstanding between 2005 to 2011 in Cook County, Ill., which includes Chicago. Their simulation modeled a one percent increase in interest rates in each of the coming three years, along with a 10% increase in home prices.The result? Even though rising prices will free more “underwater” homeowners, or those who owe more than their homes are worth, to list their homes for sale, it wouldn’t be enough to offset the potential number of households who don’t want to sell because they’d have to trade up to a much higher interest rate.

Housing Weakness: Temporary or Enduring? - The recent data for housing has been weak, with new home sales and housing starts mostly moving sideways over the last year (with plenty of ups and downs, and I expect downward revisions to Q4 new home sales). Existing home sales have declined 14% from a peak of 5.38 million in July 2013 on a seasonally adjusted annual rate basis (SAAR), to just 4.62 million SAAR in January. There are several reasons for the recent weakness:
1) Higher prices. Case-Shiller reported prices were up 13.7% year-over-year in November. Other indexes had smaller increases, but all showed significant price increases in 2013.
2) Higher mortgage rates. 30 year fixed mortgage rates increased last summer from around 3.5% in May 2013 to 4.4% in July 2013..
3) Fewer distressed sales.   Although the decline in foreclosures, short sales, and mortgage delinquencies is good news, this has meant fewer overall existing home sales
4) Less investor buying.  This is related to fewer distressed sales.  If we use cash buyers as an indicator of the level of investor buying, then the decline in cash buyers in areas like Las Vegas, Phoenix, and Sacramento suggests investors are pulling back.
5) Limited inventory.  The sharp decline in inventory over the last few years was a key story for housing
6) Supply chain constraints for New Homes.   I noted at the beginning of 2013 "I've heard some builders might be land constrained in 2013 (not enough finished lots in the pipeline)."
7) And some of the recent weakness in December and January (and February) might have been weather related.
Here are a few graphs to show the recent weakness:

Housing: Is It Really Just the Weather?: There is little argument that the economic data has been "weaker than expected" with the reason being quickly attributed to "the weather."  However, is the reason for the weakness in housing really just a "weather" related story? Let's take a look at the data to make a more informed determination. When the mainstream analysts and economists discuss housing data it is generally on a seasonally adjusted and annualized basis. For example, in January of this year we were told that on a "seasonally adjusted basis" the number of New Housing Starts was 880,000, this number was down from December's total of 1.48 million. However, 880,000 homes were NOT started in January but rather just 59,100 which is a much less exhilarating number.  In order to get from 59,100 to 880,000, the U.S. Department Of Commerce assumes that 59,100 homes will continue to be built each month throughout the remainder of the year. Therefore, 59,100 new homes are multiplied by 12 months to get a total of 709,200 new homes on an "annualized" basis. However, the "fun with numbers" doesn't stop there. The 709,200 new homes is assumed to "be low" because January months are ALWAYS impacted by inclement weather which suppresses building activity. Therefore, the number of new homes is adjusted upward by 170,800 to account for the impact of "weather related conditions."

NAR: Pending Home Sales Index down 9% year-over-year --From the NAR: Pending Home Sales Hold Steady in JanuaryThe Pending Home Sales Index, a forward-looking indicator based on contract signings, edged up 0.1 percent to 95.0 in January from an upwardly revised 94.9 in December, but is 9.0 percent below January 2013 when it was 104.4...The December index reading was the lowest since November 2011, when it stood at 94.6.
The PHSI in the Northeast rose 2.3 percent to 79.0 in January, but is 5.3 percent below a year ago. In the Midwest the index declined 2.5 percent to 92.9 in January, and is 9.3 percent lower than January 2013. Pending home sales in the South increased 3.5 percent to an index of 111.2 in January, and is 5.5 percent below a year ago. The index in the West fell 4.8 percent in January to 84.2, and is 17.5 percent below January 2013.Existing-home sales are expected to be weak in the first quarter. 
A few comments:
• Mr. Yun blamed some of the decline on the weather (the weather was unusually bad again in January), but the index remained weak in the South too (down 5.5% year-over-year and probably not weather), and in the West (partially related to low inventories).
• My view is there were several reasons for the decline in this index: weather in some areas, fewer distressed sales, less investor buying, fewer "pending" short sales, and low inventories.  I think fewer distressed sales, fewer "pending" short sales, and less investor buying are all signs of a healthier market - even if overall sales decline.

Pending Home Sales Stabilize - A gauge of upcoming home sales ticked slightly higher in January after plummeting in December, a sign of stabilization for a sector grappling with unusually cold weather. —Bloomberg NewsThe National Association of Realtors said Friday its seasonally adjusted index of pending sales of existing homes rose 0.1% in January from the prior month to 95. That was less than economists’ forecast of an 1.4% increase but the first rise since June, when the index hit a six-year high. In December, it fell 8.7% from November to its lowest level in more than two years. “The relatively flat reading in January is the first positive sign from pending home sales in several months,” said Michael Gapen, an economist at Barclays. The pending home sales tallied by the realtors’ trade group typically translate into sales of existing homes one or two months later. The Commerce Department reported earlier this week that sales of new homes, which make up a much smaller portion of the housing market, surged in January to their highest level since July 2008. Most recent data on the housing sector and broader economy has been weaker than expected, though economists and policymakers think the readings might be distorted by unusually cold and stormy weather over the last couple of months.

Mess in the West: Home Sales Index Hits 7-Year Low -- An index that measures contracts to purchase previously owned homes was mostly unchanged in January from December, according to a report Friday. But the index showed another drop in the West, where it has fallen for eight consecutive months. The index fell in the West to its third lowest level since the NAR began its tab in 2001, surpassing only two months from the summer of 2007, when housing markets were beginning their free fall. Western markets such as Las Vegas and Phoenix have witnessed some of the largest price gains as they rebound from very low levels. California markets, meanwhile, have grown much less affordable given the combination of price increases and higher interest rates. Inventories of homes for sale had been very low last year in many Western markets, but they have climbed since demand fell last fall. It’s not clear that weather can be blamed on this: the index is seasonally adjusted, and this is the West, where winters are milder. The index is now down 27% since last June, when it nearly reached a four-year high.  The government contribution to GDP growth, as measured by government consumption expenditures and gross investment, was an unusually large negative, -1.05 percentage points. Most of that was due to falling federal spending, especially on defense, but the state and local government contribution to growth turned negative for the first time since last winter. As the next chart shows, shrinking government consumption and investment expenditure has been a drag on the recovery for most of the past four years.

Pending Home Sales Beat And Miss Expectations At Same Time, Weather Blamed -- If only it wasn't for that pesky GDP print, it would have been 4 out of 4 beats today. Well, three and a half: moments ago the Pending Home Sales number was released and showed a tiny 0.1% increase in January activity, compared to the expected 1.8%. The means that the data has bounced the smallest possible bounce off the lowest print since November 2011. But don't worry: in the same release we found that the data also beat, because on a year over year basis, sales declined by "only" 9.1%, compared to the -10.8% expected. So this is great news. Finally, just in case someone focused on the bad news instead of the good news, NAR's Larry Yun made it quite clear that it was the weather's fault: "Ongoing disruptive weather patterns in much of the U.S. inhibited home shopping.

Here Is Why The NAR Just Blamed The Weather For Weak Pending Home Sales -  In his commentary of yet another month of weak existing home sales, Larry Yun said that: "ongoing disruptive weather patterns in much of the U.S. inhibited home shopping." Thanks to the chart below showing the break down of the NAR's Pending Home Sales Index by region we know that he was obviously referring to the disruptively warm and pleasant weather in the Northeast where home sales ticked up by 2.3%, and also to the unprecedented freezing cold and freak snow storms from San Diego to San Francisco, which in turn led the West to post a -4.8% drop in pending home sales.

Land Investors Brace for Slowdown - Texas developer H. Ross Perot Jr. and a few other big land investors are taking some chips off the table, betting that the swift increase in prices on residential land in recent years will abate in 2014. Many economists predict home prices this year will increase by roughly half of their percentage gain in 2013, when they rose by an average of 11.3%, according to the S&P/Case-Shiller national index of home prices. The direction of home prices heavily influences what home builders will pay for land. "Unless home prices go higher, I don't see land [prices] going much higher," says Mr. Perot, whose Hillwood Development Co. owns 9,400 residential acres in seven states.  . Hillwood sold 13 residential tracts totaling 4,300 acres in the past year for $125 million, nearly double the amount it had invested in them. Hillwood also bought two tracts last year totaling 1,800 acres, but 2013 was the first year in the past 10 that Hillwood was a net land seller. It is unusual for Hillwood to sell huge tracts of raw land. Typically, the company develops tracts into dozens or hundreds of home lots—with electricity, roads and other infrastructure—and sells them piecemeal to multiple home builders. Another Texas land investor, Stratford Land Co., intends to complete sales of at least $400 million of land early this year after selling $100 million of land last year and $150 million in 2012. To sell, Stratford looks to double the money it spent on the land. It still holds about $1 billion of assets.According to Zelman's monthly surveys of builders, brokers and developers in 55 major markets, prices of finished lots receded from their biggest recent gain—6.8% in the first quarter of 2013 from the previous quarter—to a more tepid 2.9% gain in last year's fourth quarter.

U.S. Sales of New Homes Up in January — U.S. sales of new homes rebounded in January to the fastest pace in more than five years, offering hopes that housing could be regaining momentum after a slowdown last year caused by rising interest rates. The Commerce Department says sales of new homes increased 9.6 percent in January to a seasonally adjusted annual rate of 468,000. That was the fastest pace since July 2008. It came as a surprise to economists who had been forecasting a sales drop in January, in part because of a belief that activity would be held back by bad winter storms in many parts of the country. Sales had fallen 3.8 percent in December and 1.8 percent in November, leading to worries that the housing recovery could be losing momentum.

New Home Sales at 468,000 Annual Rate in January, Highest since 2008 - The Census Bureau reports New Home Sales in January were at a seasonally adjusted annual rate (SAAR) of 468 thousand. December sales were revised up from 414 thousand to 427 thousand, and November sales were revised down from 445 thousand to 444 thousand.  The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Sales of new single-family houses in January 2014 were at a seasonally adjusted annual rate of 468,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 9.6 percent above the revised December rate of 427,000 and is 2.2 percent above the January 2013 estimate of 458,000. This was the highest sales rate since 2008. Even with the increase in sales over the last two years, new home sales are still near the bottom for previous recessions. The second graph shows New Home Months of Supply. The months of supply decreased in January to 4.7 months from 5.2 months in December. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal). Starting in 1973 the Census Bureau broke inventory down into three categories: Not Started, Under Construction, and Completed. This graph shows the three categories of inventory starting in 1973.

New Homes Selling At Fastest Rate Since July 2008 - Sales of new homes in January reached their fastest pace since July 2008, reviving hopes of a sturdy recovery in the housing market after growth slowed at the end of last year. New home sales increased 9.6 percent in January to a seasonally-adjusted annual rate of 468,000, the Commerce Department reported Wednesday, easing concerns that rising interest rates were slowing house sales. Sales fell 3.8 percent in December and 1.8 percent in November. The annual rate is the highest since July 2008, when it hit 477,000 homes. Economists are forecasting sales of new and previously occupied homes to rise in 2014, reports the Associated Press, boosting job gains and improving the economy. The median home price in January was up 3.4 percent from a year ago to $260,000, and interest rates on a 300-year mortgage increased to 4.33 percent last week. Even while sales improved in January, cold winter weather slowed construction starts last month by 16 percent.

New Home Sales January 9.6% Surge Still Inside Error Margin -- January 2014 New Residential Single Family Home Sales increased 9.6% to 468,000 in annualized sales.  This change is well within the statistical error margin of ±17.9%.   This is the highest level of new home sales since July 2008.  New single family home sales are now just 2.2% above January 2013 levels, but this figure has a ±20.2% margin of error.   A year ago new home annualized sales were 458,000.  Sales figures are annualized and represent what the yearly volume would be if just that month's rate were applied to the entire year.   These figures are seasonally adjusted as well.  Beware of taking these monthly percentage changes in new home sales to heart, for most months the change in sales is inside the statistical margin of error and will be revised significantly in the upcoming months.  This month's increase especially is suspect for other housing indicators show declines.  To see an affordability problem, just look at new home prices now.  The average home sale price was $322,800, a 5.2% increase from a year ago.   These prices are still clearly outside the range of what most wages can afford.   January's median new home price was $260,100.  From January 2013, the median new home sales price has increased by 3.4%.   Median means half of new homes were sold below this price and both the average and median sales price for single family homes is not seasonally adjusted.   New homes available for sale had no change from last month to 184,000 units.  This is a 23.5% increase from a year ago.

What Weather? New Home Sales Surge 9.6% In Feb As Median Home Price Drops To 5 Month low -- Following last month's biggest miss in 5 months, New Home Sales were revised higher in Jan and rose 9.6% in February to 468k (beating the 400k expectations by the most in 13 months). This is a new five-year high for new home sales. The "catastrophic" storm-battered NorthEast had new home sales of 33k - the highest since June; and the Snow-covered South saw huge sales. Home prices are up year-over-year by 3.4% but dropped to their lowest since August. If this does not entirely dismiss the 'weather is to blame' meme for any other macro weakness, then what does?

The Reality Behind The New Home Sales Number - Yesterday's "better than expected" New Home sales served as the "good news" pre-market boost to send futures ramping higher once again, if not enough to cause a fresh all time high. Here is what really happened when one spreads the numbers, courtesy of Mark Hanson's housing blog. "If all of the 4 regions were in this morning's New Home Sales print were rounded down to the nearest thousand by the Census Bureau vs up, it would subtract 4k sales, or about 12%.  Even with the massive January seasonal adjustments, this would result in a SAAR headline print of 428k, or flat YoY vs the up 10% reported.   If only the South was flat YoY like the other regions, the same thing would occur. "

Lawler: If New Home Sales report Accurate, Suggests Large Builder Share Down - From housing economist Tom Lawler: Government New Home Sales Report, If Accurate, Suggests Large Builder Share Down; Aggressive Home Price Hikes May Be to Blame. The Commerce Department earlier this week estimated that new SF home sales ran at a seasonally adjusted annual rate of 468,000, up 9.6% from December’s upwardly-revised (to 427,000 from 414,000) pace. Estimated sales for October and November were revised downward slightly, and the estimated sales for the fourth quarter of 2013 were not revised. While January’s new SF home sales estimate was somewhat higher than I expected, I was even more surprised that last quarter’s sales estimates were not revised downward. Most large publicly-traded home builders reporting on a calendar quarter showed relatively weak net orders last quarter compared to a year earlier, and the nine large builders I regularly track1 had combined net orders that were down 3.8% from a year earlier (not seasonally adjusted, of course.) That contrasts sharply with Census estimates showing an unadjusted YOY increase in sales last quarter of about 15%. If in fact the Census sales estimates are reasonable (further revisions will occur, given its methodology), an implication would be that large builders’ share of the new SF home market declined significantly in the second half of last year. One possible reason is that many of the large publicly-traded builders, facing demand that exceeded their ability to supply new homes (in several instances because of “supply-chain” issues) in the early part of the year, jacked up prices by not just unusually large amounts, but by more than other builders. The combination of higher mortgage rates and these unusually aggressive price hikes not only slowed their sales, but also slowed their sales relative to other builders. Given that the huge price hikes at many large builders pushed margins on closed sales in the second half of last year to the highest levels in seven to eight years, it’s perhaps not “shocking” that other builders weren’t as aggressive.

New Home Sales: Don't read too much into January Sales Rate - New home sales jumped to the highest level since July 2008 in January, which is really good news if it holds. But the Census new-home sales data is a choppy indicator with a small sample size, and when you take a longer look at the series it’s pretty clear that the nation’s two-year-old real estate turnaround is still largely a recovery in prices. The building of new homes — the housing sector’s biggest contribution to annual economic growth — continues to lag badly. This disconnect goes a long way toward explaining why U.S. growth is still pretty weak some four years after the recession. It’s also why economists’ hopes that 2014 will finally be a breakout year for the economy depend on home building regaining its footing in the spring. One way of looking at this is the ratio of monthly existing-home sales to the ratio of new-home sales. As the chart shows, that ratio is still at around 11, down from its recessionary peaks but still close to double the normal level. New home sales are not new home starts, of course, but monthly new home sales are a strong predictor of new home permits in that month, notes Jed Kolko, chief economist at Trulia. A lot of homes are sold before they’re finished or even started. January’s 880,000 housing starts, at a seasonally adjusted annual rate, is about 40% back to normal, as Trulia notes in its monthly housing barometer. A normal level of new homes starts means about 1.5 million new home starts, the pre-bubble level, not the 2.3 million peak reached in January 2006. By contrast, the number of existing home sales, excluding distressed sales like foreclosures, is about 80% back to normal, according to data from Trulia and the National Association of Realtors. Home prices are about 70% back to normal.

US household debt - first increase in 4 years  -  For the first time in 4 years the overall debt of US households rose on a year-over-year basis. Consumer deleveraging seems to be finally slowing.  While this overall increase could be interpreted as a sign of improved credit conditions and stronger consumer confidence, a more detailed look tells us there is more to this story. Below is the full breakdown of household debt outstanding over time.  Here are some observations:

  • Mortgage balances were basically flat on a year-over-year basis, though the steady multi-year declines have been halted.
  • Credit card balances remain fairly flat as well.
  • Auto loans showed improvement, particularly with longer dated and sub-prime loan volume picking up (see post).
  • Student loans on the other hand increased by a whopping $114 billion for the year.

CS economists summarized the situation quite well:Credit Suisse: - This development can be interpreted as 1) an indication that household risk tolerance is on the rise and income confidence has improved and 2) a sign that bank lending conditions are loosening up.   Both conclusions, while legitimate, are tempered by the fact that most of the increased debt taken on by households over the past year has been in the form of generous student loans provided by the federal government –not generous consumer loans provided by commercial banks.  And the pickup in net mortgage debt outstanding in recent months is due to reduced foreclosures and bank loan write-offs, as opposed to increased new mortgage production.

Household wealth still down 14 percent since recession: Household wealth for Americans still has not recovered from the recession, despite last summer's optimistic report from the U.S. Federal Reserve, a new study suggests. Economists at The Ohio State University found that the mean net worth of American households in mid-2013 was still about 14 percent below the pre-recession peak in 2006. Their analysis suggested that middle-aged people took the biggest hit. In a report last June, the Federal Reserve said that net worth of Americans – which includes the value of homes, stocks and other assets minus debts – had essentially recovered since the recession of 2007 to 2009. In fact, the Fed claimed wealth was the highest it had been in nominal terms since records began in 1945. But the Fed's analysis included four data issues that gave a significant boost to its optimistic reading of the economy, said Randy Olsen, co-author of the study and a professor of economics at Ohio State. The four problems with the data: It didn't adjust for inflation or population growth; it included accounts held by foreigners living outside of the United States; and it included wealth held by nonprofits and not just households. "All four of these issues with the Fed report pointed in the same direction, leading toward a conclusion that was far rosier than what exists in the real world," Olsen said.

Bad Weather to Blame for Consumer Spending Pullback? Numbers Argue Otherwise: Mainstream stock advisors are blowing air ... telling us the U.S. economy is stalling due to cold weather. They say the economic chill caused by the uncharacteristically cold weather this year is only temporary. I don't believe this for a moment. Sure, the weather had its impact. Consumers have been reluctant to go out and shop, and higher home heating bills might have them spending otherwise so far in 2014, but there's more to the story. While discussing existing-home sales for January, the chief economist at the National Association of Realtors said, "Disruptive and prolonged winter weather patterns across the country are impacting a wide range of economic activity, and housing is no exception." Existing-home sales in the U.S. economy declined by 5.1% in January from the previous month. The reality of the situation is that existing-home sales in the U.S. economy have actually been declining since August of last year. The annual rate of already built homes being sold in the U.S. economy was 5.33 million in August. In January, it was 4.62 million. Below, I've prepared a table that shows the extent of the drop in existing-home sales in the U.S. economy.  But weak home sales aren't the big-ticket item being blamed on weather. We are told auto sales are slowing down due to cold weather as well. But my numbers show the annual rate of change in auto sales in the U.S. economy has been declining since November of 2013. U.S. auto sales declined 6.1% in December and then by another one percent in January. Retail sales in the U.S. economy are in a very similar situation. Look at the table below.

Real retail sales portend weak growth, but no downturn -  Real retail sales have declined by nearly 1% in the last two months. How concerned should we be? Let's leave aside for purposes of this post speculating on how much of the decline might be due to unusually poor winter weather in most of the US. How serious have similar declines been shown to be in the past? Real retail sales themselves (divided by 2 YoY) are a fairly good harbinger of employment, as shown in this graph of the last 20 years: Thus in the next few months we might expect particularly poor (for this cycle) nonfarm payrolls. Beyond that, real retail sales per capita (i.e., how much are individuals spending vs. aggregate spending in the economy), has been an excellent short to long leading indicator for recessions. Here is that measure (averaged by quarter to cut down on noise) from 1952 through 1971: Here it is from 1972 through 1991: And here it is from 1992 to the present: As you can see, real retail sales per capita peaked at least two quarters, and usually at least 4 quarters before the onset of a recession. Of course, no series is perfect, and in this case the 1966 slowdown which was very nearly a recession is evident. There is also a lengthy period between the peak and the ensuing recession in the mid-1950's. So while the downturn this winter is of concern, it doesn't herald any imminent contraction in the economy.

Retail Sales Not As Bad As They Said, On the Other Hand, They Were Worse -  On the surface, the January retail sales report released on February 13 doesn’t look so bad, in spite of the hysterical headlines about the big “miss” because of January’s bad weather. Street economists had a consensus guess that the seasonally adjusted headline number would be unchanged from December. Instead the number dropped by -0.4%. The analysts blamed the weather. Being the diligent observers that they are, they were shocked to discover that the weather was bad in January. The actual, not seasonally adjusted number for January actually wasn’t as bad as all the media teeth gnashing implied. This was just another case of bad economic guesswork, not bad economic data.Nominal retail sales were up 3% year to year, not great, but not terrible. The actual month to month change in January was a drop of -19.3%. That’s pretty typical for January, in fact it’s better than the 10 year average January drop of 21%. January 2013 dropped 18.7%, but January in each of the 3 prior years January dropped by more than 21%. Any way you slice it, last month just wasn’t that bad. Even the trend looks really healthy. Nominal sales in January were 19% above the peak January level in 2007 and they are 24% higher than they were in January 2009. That’s a growth rate that’s nothing to sneer at. But alas, as so often happens, the headlines don’t tell the whole story or even an accurate story. Those numbers aren’t adjusted for inflation. Nor do they reflect the spending of the average American. Backing out inflation and breaking the data down on a per capita basis gives us a clearer picture of how most Americans are faring, not just the top 10% who do the bulk of the retail spending. It also makes sense to back out gasoline sales. They are mostly non discretionary and are relatively inelastic.  Rising gas sales due to rising prices falsely inflate total retail sales, when in fact consumers were spending less on everything else. Conversely, when gas prices fall, it reduces total retail sales, when in fact consumers may have been buying more of everything else. I want to know what’s the status of sales of everything else in terms of actual sales volume, not nominal prices.

Consumer Confidence Weakens in February - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through February 13. The 78.1 reading was below the 80.0 forecast of and 6.1 below the January 79.4 (previously reported at 80.7). This measure of confidence has risen from its interim low of 72.0 in November but remains below its 82.1 interim high in June of last year. Here is an excerpt from the Conference Board report. "Consumer confidence declined moderately in February, on concern over the short-term outlook for business conditions, jobs, and earnings," . "While expectations have fluctuated over recent months, current conditions have continued to trend upward and the Present Situation Index is now at its highest level in almost six years (April 2008, 81.9). This suggests that consumers believe the economy has improved, but they do not foresee it gaining considerable momentum in the months ahead."  Consumers' appraisal of current conditions improved for the fourth consecutive month. Those claiming business conditions are "good" increased to 21.5 percent from 20.8 percent, while those claiming business conditions are "bad" declined to 22.6 percent from 23.4 percent. Consumers' assessment of the labor market also improved. Those claiming jobs are "plentiful" increased to 13.9 percent from 12.5 percent, while those saying jobs are "hard to get" decreased slightly to 32.5 percent from 32.7 percent.  Consumers' expectations, which had been improving over the past two months, retreated in February. The percentage of consumers expecting business conditions to improve over the next six months decreased to 16.3 percent from 17.0 percent, while those anticipating business conditions to worsen increased to 13.3 percent from 12.2 percent. Consumers' outlook for the labor market was also more pessimistic. Those expecting more jobs in the months ahead declined to 13.3 percent from 15.1 percent, while those anticipating fewer jobs increased to 20.6 percent from 19.0 percent. The proportion of consumers expecting their incomes to increase declined from 16.6 percent to 15.4 percent, but those anticipating a decrease in their incomes also declined, from 13.9 percent to 13.1 percent.   [press release]

Vital Signs: Consumers Say, ‘Now’s OK. Tomorrow, Maybe Not.’ -- Despite disappointing job growth, rising heating bills and harsh winter weather, U.S. consumers think the current economy is in pretty good shape. But they aren’t as optimistic about the future — and that raises a risk to the spending outlook. The Conference Board said its confidence index slipped to 78.1 in February, from 79.4 in January. But the top-line index masked a distinct split in householders’ views on the present and future. The present situation index rose to 81.7 this month, the highest reading in nearly six years. But the expectations index fell sharply to 75.7, pulling down future sentiment close to its dismal readings following the October 2013 federal government shutdown. While the connection between confidence and actual spending is not strong, consumers who are fearful about the future are more likely to scale back their near-term spending and save some cash for a future rainy day. That pullback, however, can trigger a self-fulfilling prophesy, as less consumer spending slows the overall economy.

Consumer Sentiment Holds Steady - U.S. consumers ended February with little change in their assessment about the economy despite a negative financial impact from high heating bills, according to one survey of households released Friday. The Thomson-Reuters/University of Michigan final February sentiment index edged up to 81.6 from a preliminary reading of 81.2, the same level posted at the end of January. The early-February reading was a bit better than the 81.2 reading expected by economists surveyed by The Wall Street Journal. The end-February current conditions index increased to 95.4 from an early read of 94.0, while the expectations index fell to 72.7 from 73.0. The split in the subindexes echoes a similar divergence in the Conference Board‘s February consumer confidence report. The board said the differences suggest consumers don’t see the economy’s momentum building in the future. According to the Michigan report, the extreme winter has had the biggest impact on consumers over the age of 65. Although high heating costs had a negative impact on consumers’ financial situations overall, the strain was greatest on older households. “It had the least net impact on those under age 35, as the winter weather was offset by gains in income and employment,” the report said. Consumer spending drives the U.S. economy. Earlier Friday, the Commerce Department said growth at the end of 2013 was slower than estimated earlier. Commerce now says real gross domestic product grew at an annual rate of 2.4%, down from 3.2% reported a month ago. Real consumer spending increased only 2.6% last quarter, not the robust 3.3% reported before.

Michigan Consumer Sentiment: A Modest Increase Despite Bad Weather - Despite an unseasonably cold winter that has dinged some economic indicators, the University of Michigan Consumer Sentiment final number for February came in at 81.6, a bit stronger than the 81.2 January final. Today's reading fractionally beat the forecast of 81.3. The index is off its 85.1 interim high set in July of last year. See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.  To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 4 percent below the average reading (arithmetic mean) and 3 percent below the geometric mean. The current index level is at the 37th percentile of the 434 monthly data points in this series. The Michigan average since its inception is 85.1. During non-recessionary years the average is 87.5. The average during the five recessions is 69.3. So the latest sentiment number puts us 12.3 points above the average recession mindset and 5.9 points below the non-recession average. It's important to understand that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. For a visual sense of the volatility here is a chart with the monthly data and a three-month moving average.

Consumers More Confident In February Than Initially Thought, UMichigan Finds - Who cares about tumbling GDP: it is all about the confidence of Wall Street CEOs, pardon, consumers whose confidence that the winter weather would finally end , if not so much in the economy with over 91 million people out of the labor force, resulted in yet another beat in the data, sending the Final UMichigan print higher from 81.2 to 81.6 on expectations of an unchanged print. The internals were largely irrelvant, but in terms of current conditions, consumers were most confident since November, up from 94.0 to 95.4, while expectations about the future was at 72.8 the highest since August. Finally, 1 year inflation expectations dropped modestly from 3.3% to 3.2%: don't worry though - in the New Normal declining inflationary expectations is enough to send the S&P 500 to new all tinme highs.

Final February Consumer Sentiment at 81.6, Chicago PMI at 59.8  - The final Reuters / University of Michigan consumer sentiment index for February increased to 81.6 from the January reading of 81.2, and from the preliminary February reading of 81.2.  This was above the consensus forecast of 81.2. Sentiment has generally been improving following the recession - with plenty of ups and downs - and a big spike down when Congress threatened to "not pay the bills" in 2011, and another smaller spike down last October and November due to the government shutdown.I expect to see sentiment at post-recession highs very soon.  From the Chicago ISM: February 2014:  The Chicago Business Barometer remained broadly unchanged at 59.8 in February compared with 59.6 in January, as a double-digit gain in Employment offset declines in New Orders, Production and Order Backlogs. ... Some panellists cited the negative effect of the poor weather on their business, although overall this appeared to have a minor impact that was only visible in longer supplier lead times.After expanding at a faster rate in January, Production and New Orders decelerated in February, while a more pronounced set back was seen in Order Backlogs. In contrast, the Employment Indicator bounced back sharply in February, jumping out of contraction, and nearly reversing the declines seen in the previous two months.

Labor Department Weighs Cutting Data on Import and Export Prices to Save Money - The Labor Department is weighing cuts to a program tracking import and export prices, a cost-saving move that could alter major gauges of U.S. inflation and economic output, according to people familiar with the matter. Economists and policy makers use the data to measure imported inflation, trade flows and overall economic activity. The figures “are principal economic indicators,” one person briefed on the cuts said. A decision to cut the data could be announced as early as this week, the person added. A Labor Department spokesman didn’t respond to requests for comment. The department compiles its monthly report on export and import prices using data collected from U.S. companies. In addition to its economic and policy implications, companies use the report to adjust prices for products they buy and sell abroad. The nation’s primary statistics-gathering agencies are preparing new spending plans after lawmakers last month reached a broad deal to fund the federal government for the next two years. Funding for statistics has been trending lower in recent years amid broader battles over government spending. Under the terms of the latest budget deal, the Labor Department’s Bureau of Labor Statistics received a small funding increase this year from last year, when the federal budget faced a series of cuts known as the sequester. Still, the $592 million provided for the Labor Department’s statistics arm in 2014 remains below 2011 and 2012 funding levels. Last year, the Labor Department eliminated reports tracking mass layoffs, environmentally friendly jobs and international labor markets

Labor Department to Cut Export-Price Data Due to Budget Constraints - The Labor Department said Tuesday it will stop collecting data on export prices used to calculate economic output and measure trade flows due to funding constraints. The department said in a statement it also will scale back data it collects in a quarterly program on employment and wages in order to achieve “necessary savings” and to “protect core programs.” The nation’s primary statistics-gathering agencies are preparing new spending plans after lawmakers last month reached a broad deal to fund the federal government for the next two years. Funding for statistics gathering has been trending lower in recent years amid battles over government spending. In the latest budget agreement, the Labor Department’s Bureau of Labor Statistics received a small funding increase this year. Still, the $592 million provided for the statistics agency in 2014 remains below 2011 and 2012 funding levels and $21.6 million below what President Barack Obama sought in his 2014 budget. “With that comes a lot of choices we’d rather not be making,” Jason Furman, chairman of the White House Council of Economic Advisers, said at a conference Tuesday. “This is one of the difficult choices when it comes to statistics and there will be difficult choices in just about every area of the budget.” The export price data is part of a program that also collects data on import prices. The department compiles a monthly report on import and export prices using data collected from U.S. companies.

Secretive Netflix-Comcast Deal Destroys Promise of Net Neutrality -- A secretive deal between cable giant Comcast and the video streaming company Netflix is being slammed by consumer watchdog and media groups for formalizing the idea that large, deep-pocketed content providers can pay internet service providers (ISPs) in order to receive special treatment on their networks. Announced on Sunday, the deal will give Netflix direct access to Comcast delivery networks by side-stepping third-party delivery systems that others are forced to use. In effect, the arrangement will speed up Netflix streaming, but only because Netflix can afford to pay the fee that Comcast has now set. That situation, in which one company can make an exclusive deal with an ISP in order to receive special treatment is a fundamental betrayal of the concept known as 'net neutrality,' in which all online content is given equal treatment across the internet.

Gas Prices Rise 12 Cents In Two Weeks - The average cost of gasoline nationwide rose 12 cents to $3.41 during the past two weeks, according to a survey released Sunday. The increase was partially due to changes in crude oil dude to violence in petroleum-producing nations Venezuela and South Sudan, according to industry analyst Trilby Lundberg, reports the Associated Press. The current price is still 38 cents per gallon lower than last year, but Lundberg said she expects further increases. The average price for a gallon of premium gas was $3.60, while premium gas was $3.75 and diesel averaged $4.01 per gallon.

Weekly Gasoline Update: Biggest Rise Since Just Before Thanksgiving - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular is up six cents and Premium five cents -- the highest prices since last September.  According to, Hawaii is averaging five cents above $4.00 per gallon. The next highest state average is California at $3.78. No states are averaging under $3.00, with the lowest prices in Montana at $3.12.

Gasoline Volume Sales, Demographics and our Changing Culture -  The Department of Energy's Energy Information Administration (EIA) data on volume sales is over two months old when it released. The latest numbers, through mid-December, were published yesterday. However, despite the lag, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural dynamics in this data series. Because the sales data are highly volatile with some obvious seasonality, I've added a 12-month moving average (MA) to give a clearer indication of the long-term trends. The latest 12-month MA is 8.0% below the all-time high set in August 2005. We are fractionally above the interim low of 8.3% set in December 2012. The next chart includes an overlay of real monthly retail gasoline prices, all grades and formulations, adjusted for inflation using the Consumer Price Index. I've shortened the timeline to start with EIA price series, which dates from April 1993. The retail prices are updated weekly, so the price series is the more current of the two. The next chart adjusts the 12-month MA of sales volume for population growth based on the monthly data for Civilian Non-Institutional Population over age 16 from the Bureau of Labor Statistics, via the St. Louis FRED repository. What we see here is that gasoline sales on a per-capita basis are 7.7% lower than it was at the end of the Great Recession. The gallons-per-capita series includes the complete EIA data, but since I'm using the 12-month MA, the red line starts in 1984. We see the double peak in March 1989 (the all-time high) and August 1990. The latest per-capita daily average is 20.9% below the 1989 high.

DOT: Vehicle Miles Driven increased 1.1% year-over-year in December - The Department of Transportation (DOT) reported: Travel on all roads and streets changed by 1.1% (2.7 billion vehicle miles) for December 2013 as compared with December 2012....Cumulative Travel for 2013 changed by 0.6% (18.1 billion vehicle miles).The following graph shows the rolling 12 month total vehicle miles driven. The rolling 12 month total is still mostly moving sideways but has started to increase a little recently. In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.  Currently miles driven has been below the previous peak for 73 months - 6+ years - and still counting.  Currently miles driven (rolling 12 months) are about 2.2% below the previous peak.The second graph shows the year-over-year change from the same month in the previous year.

Vehicle Miles Driven: Updated Through December - The Department of Transportation's Federal Highway Commission has released the latest report on Traffic Volume Trends, data through December.  Travel on all roads and streets changed by 1.1% (2.7 billion vehicle miles) for December 2013 as compared with December 2012. Cumulative Travel for 2013 changed by 0.6% (18.1 billion vehicle miles) (see report). However, if we factor in population growth, both the civilian population-adjusted data (age 16-and-over) and total population-adjusted data are only fractionally above the post-financial crisis lows set in June of last year. Here is a chart that illustrates this data series from its inception in 1970. I'm plotting the "Moving 12-Month Total on ALL Roads," as the DOT terms it. See Figure 1 in the PDF report, which charts the data from 1988. My start date is 1971 because I'm incorporating all the available data from earlier DOT spreadsheets. The rolling 12-month miles driven contracted from its all-time high for 39 months during the stagflation of the late 1970s to early 1980s, a double-dip recession era. The most recent decline has lasted for 70 months and counting — a new record, but the trough to date was in November 2011, 48 months from the all-time high. Total Miles Driven, however, is one of those metrics that should be adjusted for population growth to provide the most meaningful analysis, especially if we want to understand the historical context. We can do a quick adjustment of the data using an appropriate population group as the deflator. I use the Bureau of Labor Statistics' Civilian Noninstitutional Population Age 16 and Over (FRED series CNP16OV). The next chart incorporates that adjustment with the growth shown on the vertical axis as the percent change from 1971. The population-adjusted all-time high dates from June 2005. That's 102 months — eight-and-a-half years ago. The latest data is 8.87% below the 2005 peak, fractionally above the the -9.02% post-Financial Crisis low set in June 2013. Our adjusted miles driven based on the 16-and-older age cohort is about where we were as a nation in January of 1995.

Vehicle Sales Forecasts: Decent sales in February; Some weather impact - Note: The automakers will report January vehicle sales on Monday, March 3rd.Here are a couple of forecasts: From Kelley Blue Book: New-Car Sales To Report Sixteenth Consecutive Month Above 15 Million SAAR According To Kelley Blue BookNew-vehicle sales are expected to hit a total of 1.19 million units, and an estimated 15.3 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book ... While a 15.3 million SAAR is flat compared to February 2013, it marks the sixteenth month in a row above 15 million. "For the second consecutive month, winter storms and unusually cold weather in many parts of the country are expected to negatively impact sales," said . "However, it is likely these purchases have only been delayed and many lost sales will be recorded in March or April."  From J.D. Power: Healthy New-Vehicle Demand Exists Despite Severe Winter Weather"Although severe weather impacted sales in early February, the negative effect should be somewhat mitigated since the majority of vehicle sales occur in the second half of the month," said John Humphrey, senior vice president of the global automotive practice at J.D. Power. "The industry is on track to reach its highest-ever average transaction price for the month of February, with prices exceeding $29,000. This beats the previous record from February 2013 by more than $400."In addition to forecasting a record transaction price for the month of February, the firms expect new-vehicle sales to increase 5% over the same month in 2013.

U.S. Durable Goods Orders Drop But Ex-Transportation Orders Rise: While the Commerce Department released a report on Thursday showing a drop in new orders for U.S. manufactured durable goods in the month of January, orders unexpectedly rose when excluding transportation equipment. The report said durable goods orders fell by 1.0 percent in January after tumbling by a revised 5.3 percent in December. Economists had expected orders to drop by about 1.6 percent compared to the 4.2 percent decrease that had been reported for the previous month. However, excluding a notable decrease in orders for transportation equipment, durable goods orders actually rose by 1.1 percent in January compared to a 1.9 percent drop in December. The increase in orders excluding transportation came as a surprise to economists, who had expected a modest decrease of about 0.4 percent.

Another Month, Another Drop in Durable Goods New Orders - The Durable Goods, advance report shows new orders declined by -1.0% for January 2014, but December 2013 new orders were revised downward to a -5.3% plunge.  The better news of this report is core capital goods increased by 1.7%.  For the last three of four months durable goods new orders as a whole have declined.  The culprit for January's durable goods new orders decline was transportation new orders, yet without the Department of Defense buoying up durable goods by ordering stuff, the overall monthly decline would have been -1.8%. Below is a graph of all transportation equipment new orders, which plunged by -5.6% for the month.  This is not just due to volatile aircraft orders as motor vehicles & parts declined by -2.2%, not a good sign.   Aircraft and parts new orders from the non-defense sector decreased -20.2%.  Aircraft & parts from the defense sector increased by 19.4%.   Aircraft orders are notoriously volatile, each order is worth millions if not billions, and as a result aircraft manufacturing can skew durable goods new orders on a monthly comparison basis.  Core capital goods new orders increased by 1.7%.  December's core capital goods new orders decreased by -1.8%.  Core capital goods is an investment gauge for the bet the private sector is placing on America's future economic growth and excludes aircraft & parts and defense capital goods.  Capital goods are things like machinery for factories, measurement equipment, truck fleets, computers and so on.  Capital goods are basically the investment types of products one needs to run a business. and often big ticket items.  A decline in new orders indicates businesses are not reinvesting in themselves.  This month it appears fabricated metal products is what saved the day with core capital goods.  By themselves new orders increased 7.3%.

Durable Goods Report: January Wasn’t As Bad As Expected - The February Advance Report on January Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders:New orders for manufactured durable goods in January decreased $2.2 billion or 1.0 percent to $225.0 billion, the U.S. Census Bureau announced today. This decrease, down three of the last four months, followed a 5.3 percent December decrease. Excluding transportation, new orders increased 1.1 percent. Excluding defense, new orders decreased 1.8 percent. Transportation equipment, also down three of the last four months, drove the decrease, $4.0 billion or 5.6 percent to $67.3 billion. This was led by nondefense aircraft and parts, which decreased $3.4 billion. Download full PDF The latest new orders number came in at -1.0% percent month-over-month, which was a bit better than the forecast of -1.5 percent. Year-over-year new orders were up 4.6 percent. If we exclude transportation, "core" durable goods came in at 1.1 percent MoM and 1.2 percent YoY. had a forecast of -0.3 percent. If we exclude both transportation and defense, durable goods were flat MoM and up only 0.8 percent YoY.The Core Capital Goods New Orders number (captial goods used in the production of goods or services) was up 1.7 percent MoM, but the YoY number was a fractional decline of 0.8 percent.The first chart is an overlay of durable goods new orders and the S&P 500.

Another Recessionary Print: Core CapEx Posts First Annual Decline Since 2012 -- For now the only number that matters is the capital goods orders nondefense aircraft, aka core capex. It is here that while the sequential print was a modest increase of of 1.7%, compared to expectations of a -0.2% decline, it is the annual number that is of interest. We focus on this, because as can be seen on the chart, the annual change just posted its first annual decline in a year: in the past any such decline would mark the start of a recession, except of course for in 2012 when the New Normal central planning, and the trillions in Fed liquidity injections, made the business cycle as we know it meaningless. So much for that $1+ trillion in QE: it is good to know that it went to stock buybacks and dividends... if not so much to actually investing in future growth.

Vital Signs: Demand for Capital Goods Flattens Out - Thursday’s durable goods report was a mixed bag, but of particular interest to the economic outlook is the trend in orders for capital goods that contribute to the business-investment sector of gross domestic product. The Commerce Department said new orders for nondefense capex goods excluding aircraft increased 1.7% about reversing the 1.8% drop in December. The performance continues a year-long zig-zag in new demand. Even when orders are smoothed out in a three-month moving average, the pattern shows no headway since spring of 2013, although the backlog or orders has strengthened in recent months. Many economists expect business investment to be a small contributor to GDP growth in 2014, which was pretty much the case in the past two years.  The lack of enthusiasm for capex spending carries over to hiring,  “The key to the economy is quality job creation and the catalyst to a robust job market is ample investment,” she writes in a research note. “It appears, at least at this stage, businesses have yet to regain the confidence needed to loosen purse strings and ramp up activity.”

Dallas Fed Manufacturing: General Business Index Flat, Production Increases, Employment Increases - From the Dallas Fed: Texas Manufacturing Picks Up Again but Less Optimism in OutlookTexas factory activity increased for the tenth month in a row in February, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 7.1 to 10.8, indicating output grew at a slightly stronger pace than in January.  Other measures of current manufacturing activity also reflected a pick up. The capacity utilization index edged up to 9.1, with a quarter of manufacturers noting an increase. The shipments index rose again in February, coming in at 13.3. The new orders index continued to indicate demand growth and was 9.5, down from 14.4 in January but above the levels seen toward the end of last year...The general business activity index fell to zero after eight positive readings in a row. The company outlook index also declined, from 15.9 to 3.4, hitting its lowest reading since last spring.Labor market indicators reflected continued employment growth and longer workweeks. The February employment index edged up for a third consecutive month, rising to 9.9. Eighteen percent of firms reported net hiring compared with 8 percent reporting net layoffs. The hours worked index shot up from 3.4 to 12, reaching its highest level in more than two and a half years. A mixed report, but the employment indexes were positive.

Richmond Fed: "Manufacturing Sector Softened" in February - Another weak manufacturing survey for February. From the Richmond Fed: Manufacturing Sector Softened; Shipments and New Orders Declined Manufacturing in the Fifth District slowed, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders declined. Hiring flattened, while the average workweek shortened and average wage growth rose. ... The composite index of manufacturing dipped to a reading of −6 following last month's reading of 12. The index for shipments fell 20 points, ending at −6, and the index for new orders dropped 23 points, finishing at a reading of −9. The index for the number of employees shed six points, settling at 0. As a result of bad weather a few survey participants reported that manufacturing facilities experienced downtime in February, with some reductions in shipments. Manufacturing employment eased off this month, settling at an index of 0 and the average workweek shortened. The index shed 13 points moving to a reading of −5. The index for average wages grew only slightly faster; that gauge edged up to 14 from the previous reading of 11.

Richmond Fed Manufacturing: The February Slowdown - The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to the nation's Central Bank. The complete data series behind the latest Richmond Fed manufacturing report (available here) dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components. The February update shows the manufacturing composite at -6, which is a dramatic decline from last month's 12. Not surprisingly, the full report mentions bad weather as a factor.  Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at 6.3, to facilitate the identification of trends. Here is a snapshot of the complete Richmond Fed Manufacturing Composite series. Here is the latest Richmond Fed manufacturing overview. Manufacturing in the Fifth District slowed, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders declined. Hiring flattened, while the average workweek shortened and average wage growth rose. The backlog of orders declined and vendor lead time remained flat in February, as capacity utilization lost traction. Manufacturers were less optimistic about their future business conditions than they were a month ago. Firms anticipated slower growth in shipments and new orders. Additionally, producers looked for flat backlogs and slower growth in capacity utilization. Survey participants expected the number of employees and wages to grow on pace with last month’s outlook, with slower growth in the average workweek. Expectations were for vendor lead time to remain unchanged. Raw materials and finished goods prices rose at a slower pace in February compared to last month. Manufacturers expected faster growth in prices paid and prices received over the next six months compared to last month’s predictions. Here is a somewhat closer look at the index since the turn of the century.

Kansas City Fed: Regional Manufacturing increased "slightly" in February -- From the Kansas City Fed: Growth in Tenth District Manufacturing was Slightly Positive Growth in Tenth District manufacturing activity was slightly positive in February, and although producers’ expectations moderated somewhat they remained at solid levels overall. Several contacts continued to cite delays and slowdowns caused by severe winter weather issues. Price indexes were mostly stable or slightly lower. The month-over-month composite index was 4 in February, similar to the reading of 5 in January and up from -3 in December ... The new orders, employment, and capital expenditures indexes were mostly unchanged.“The story in February was similar to January. Regional factory activity was held back somewhat by unusually harsh weather, but still managed to grow modestly.” [said Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City] This is the last of the regional surveys.  Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

US Services PMI Slumps To Weakest In 4 Months (Ignores Manufacturing Renaissance) - Much as the 3rd grade Markit US Manufacturing PMI 'beat' was blamed for the furious rally last Thursday in stocks, it appears bad news in the form of today's 3rd grade Markit Services PMI 'miss' is (rightly) completely ignored by the market. While the Services segment of the economy is vastly larger and more important for 'guessers', it seems USDJPY would not provide the juice this morning as this is the weakest services performance in 4 months. Of course, "weather" is blamed and optimism for the future remains but what was odd to us is that economists claim that in February manufacturing returned to normal... but clearly services did not.

Vital Signs: Another Sign of Winter’s Grip on Economy - U.S. service sector activity is slowing this month, according to data provider Markit’s flash report released Monday. And weather is a big reason. Markit’s flash purchasing managers’ index fell sharply to 52.7 in February, from 56.7 in January. Excluding the plunge in the October index during the federal-government shutdown, the index is at its lowest level since October 2012. “Respondents widely cited the negative influence of recent weather-related disruptions,” the report said which tallies the responses of about 85% all the usual monthly replies.  Demand, however, remains “resilient,” the report said. The new business index–a proxy for orders—has posted high readings since December.

Weekly Initial Unemployment Claims increase to 348,000 - The DOL reports: In the week ending February 22, the advance figure for seasonally adjusted initial claims was 348,000, an increase of 14,000 from the previous week's revised figure of 334,000. The 4-week moving average was 338,250, unchanged from the previous week's revised average. The previous week was revised down from 336,000. 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 was unchanged at 338,250.

New Jobless Claims at 348K: Substantially Higher Than Expected - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 348,000 new claims number was an increase of 14,000 from the previous week's 334,000 (revised from 336,000). The less volatile and closely watched four-week moving average, which is usually a better indicator of the trend, was unchanged at 338,250. Here is the opening of the official statement from the Department of Labor:In the week ending February 22, the advance figure for seasonally adjusted initial claims was 348,000, an increase of 14,000 from the previous week's revised figure of 334,000. The 4-week moving average was 338,250, unchanged from the previous week's revised average.  The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending February 15, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending February 15 was 2,964,000, an increase of 8,000 from the preceding week's revised level of 2,956,000. The 4-week moving average was 2,954,750, an increase of 4,000 from the preceding week's revised average of 2,950,750.  Today's seasonally adjusted number at 348K came in substantially above 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

U.S. Labor Market Has Recovered Slowly and Only Partially Since the End of the Recession - CBO -  As a companion to CBO’s The Budget and Economic Outlook: 2014 to 2024 released earlier this month, CBO released The Slow Recovery of the Labor Market—a report that takes a closer look at developments in the labor market since the recent recession and CBO’s projections for the labor market for the next decade.   The deep recession that began in December 2007, when the economy began to contract, and ended in June 2009, when the economy began to expand again, has had a lasting effect on the labor market. More than four and a half years after the end of the recession, employment has risen sluggishly—much more slowly than it grew, on average, during the four previous recoveries that lasted more than one year. At the same time, the unemployment rate has fallen only partway back to its prerecession level (as shown in yesterday’s blog post), and a significant part of that improvement is attributable to a decline in labor force participation that has occurred as an unusually large number of people have stopped looking for work (see the figure below). Moreover, the rate of long-term unemployment—the percentage of the labor force that has been out of work for more than 26 consecutive weeks—remains extraordinarily high.

The Vast Majority of the 5.8 Million Missing Workers Are Under Age 55 -- Since the start of the Great Recession over six years ago, labor force participation has dropped significantly. Most of the drop—roughly three-quarters—was due to the lack of job opportunities in the Great Recession and its aftermath.   There are now 5.8 million workers who are not in the labor force but who would be if job opportunities were strong. It is possible that some of these missing workers who are at or near retirement age have given up hope of ever finding decent work again and decided to retire early. Such workers may not ever be drawn back into the labor market, even when labor market conditions substantially improve. It is important to note, however, that more than 70 percent of the 5.8 million missing workers are under age 55. These missing workers under age 55—4.2 million of them—are extremely unlikely to have retired and are therefore likely to enter or reenter the labor force when job opportunities substantially improve. If the missing workers were in the labor market looking for work, the unemployment rate right now would be 10.0 percent instead of 6.6 percent. That is a lot of additional slack in the labor market that the official unemployment rate is not picking up. In any assessment of how much slack there is in the labor market, it is essential to keep the missing workers in mind.

Say It Together: Young Businesses, Not Small Ones, Drive Job Growth - It’s not size that matters — at least when it comes to job creation. The age of the company is a bigger factor. The Federal Reserve Bank of Chicago’s Jason Faberman on Monday became the latest in a long line of economists to unpack the misconception – promoted frequently by elected officials — that small businesses are the key to creating new jobs in the U.S. It’s a subset of small firms—young, innovative companies—that lead in job creation. “It’s the new guys, not necessarily the small guys, that generate growth,” he said at the National Association for Business Economics policy conference in Arlington, Va. “The focus for policymakers shouldn’t be on small business job growth, but on new business formation.” Nearly 90% of U.S. firms employ 19 or fewer workers. Those smaller firms create jobs at nearly twice the rate of larger companies. Controlling for the age of the firm, Mr. Faberman found the strongest job growth came from firms that were less than four years old Most small businesses, he said, are “mom-and-pop” companies such as construction firms, doctor’s offices and law practices. Those businesses don’t tend to aggressively increase employment. But the roughly one-sixth of small businesses that innovate and develop new products have the strongest potential to grow. Those firms, he cautioned, also tend to fail at a greater rate.

The Pattern of Job Creation and Destruction by Firm Age and Size -- Atlanta Fed's macroblog -- A recent Wall Street Journal blog post caught our attention. In particular, the following claim: It’s not size that matters—at least when it comes to job creation. The age of the company is a bigger factor. This observation is something we have also been thinking a lot about over the past few years (see for example, here, here, and here).The following chart shows the average job-creation rate of expanding firms and the average job-destruction rates of shrinking firms from 1987 to 2011, broken out by various age and size categories: In the chart, the colors represent age categories, and the sizes of the dot represent size categories. So, for example, the biggest blue dot in the far northeast quadrant shows the average rate of job creation and destruction for firms that are very young and very large. The tiny blue dot in the far east region of the chart represents the average rate of job creation and destruction for firms that are very young and very small. If an age-size dot is above the 45-degree line, then average net job creation of that firm size-age combination is positive—that is, more jobs are created than destroyed at those firms.  The chart shows two things. First, the rate of job creation and destruction tends to decline with firm age. Younger firms of all sizes tend to have higher job-creation (and job-destruction) rates than their older counterparts. That is, the blue dots tend to lie above the green dots, and the green dots tend to be above the orange dots. The second feature is that the rate of job creation at larger firms of all ages tends to exceed the rate of job destruction, whereas small firms tend to destroy more jobs than they create, on net. That is, the larger dots tend to lie above the 45-degree line, but the smaller dots are below the 45-degree line.

Obama wants to put people to work by fixing the nation’s crumbling roads and bridges (Reuters) – President Barack Obama will fly to St. Paul, Minnesota, on Wednesday to propose a four-year, $302 billion plan to create jobs by fixing the nation’s crumbling roads, bridges, rail and transportation infrastructure. Congress faces a September 30 deadline to renew federal funding for transportation programs, a deadline that has made state governors concerned about planning projects that typically run through September and into the fall months. Obama will propose ending some tax breaks to provide a one-time $150 billion infusion of cash into transportation funding, the White House said. “This vision will show how we can invest in the things we need to grow and create jobs by closing unfair tax loopholes, lowering tax rates, and making the system more fair,” the White House said in a statement previewing his speech

Stop Currency Manipulation and Create Millions of Jobs: With Gains across States and Congressional Districts | Economic Policy Institute: Six years after the start of the Great Recession nearly 8 million jobs are still needed to return to prerecession labor market health (EPI 2013). Job creation should still be goal number one. Yet prospects for any fiscal policy action to boost jobs have disappeared under the weight of congressional dysfunction, and the Federal Reserve has begun to wind down monetary stimulus (Wall Street Journal 2013). But besides fiscal and monetary policy, there is a third tool of macroeconomic stabilization that could provide a huge boost to economic activity and job growth: realigning exchange rates to lower the U.S. trade deficit. The best part of this solution is that there is broad, bipartisan support for congressional action on this issue. In addition, under existing authority, the president can initiate policies that would make currency manipulation costly and/or futile. Together, these policies could lead to exchange rate movements that would create 2.3 million to 5.8 million jobs over the next three years by ending currency manipulation by a group of about 20 countries, with China as the linchpin. These actions would create jobs in every state and in most or all congressional districts. They would boost GDP, boost jobs and reduce unemployment, and actually reduce the federal deficit by spurring economic growth—all without direct budget costs. No other policies could achieve this economic trifecta.

The Thumb on the Scale in the Winner Take All Economy - Robert Frank has an interesting discussion in the NYT of the "winner take all" dynamics created by the Internet economy, but he leavves out an important part of the picture. The notion of winner take all is that advances in modern technology allow the best in various areas to become hugely wealthy, while leaving almost everyone else out in the cold. There are reasons for disputing this view in general (see The End of Loser Liberalism: Making Markets Progressive --free download available), but the entertainment industry, the focus of Frank's piece provides excellent turf for framing the issues. Frank points to evidence that an increasing share of sales of music is going to a relatively small number of big hit performers. He sees this as evidence of the winner take all theory. However there is an important aspect to this story that Frank neglects to mention. The big winners get to be big winners because the government is prepared to devote substantial resources to copyright enforcement. This is crucial because if everyone could freely produce and distribute the music or movies of the biggest stars, taking full advantage of innovations in technology, they would not be getting rich off of their recorded music and movies.The internet has made copyright hugely more difficult. The government has responded by passing new laws and increasing penalties. But this was a policy choice, it was not an outcome dictated by technology.

Worse than Wal-Mart: Amazon’s sick brutality and secret history of ruthlessly intimidating workers - Like Walmart itself, Amazon combines state-of-the-art CBSs with human resource practices reminiscent of the nineteenth and early twentieth centuries. Amazon equals Walmart in the use of monitoring technologies to track the minute-by-minute movements and performance of employees and in settings that go beyond the assembly line to include their movement between loading and unloading docks, between packing and unpacking stations, and to and from the miles of shelving at what Amazon calls its “fulfillment centers”—gigantic warehouses where goods ordered by Amazon’s online customers are sent by manufacturers and wholesalers, there to be shelved, packaged, and sent out again to the Amazon customer. Amazon’s shop-floor processes are an extreme variant of Taylorism that Frederick Winslow Taylor himself, a near century after his death, would have no trouble recognizing. With this twenty-first-century Taylorism, management experts, scientific managers, take the basic workplace tasks at Amazon, such as the movement, shelving, and packaging of goods, and break down these tasks into their subtasks, usually measured in seconds; then rely on time and motion studies to find the fastest way to perform each subtask; and then reassemble the subtasks and make this “one best way” the process that employees must follow. Amazon is also a truly global corporation in a way that Walmart has never been, and this globalism provides insights into how Amazon responds to workplaces beyond the United States that can follow different rules. In the past three years, the harsh side of Amazon has come to light in the United Kingdom and Germany as well as the United States, and Amazon’s contrasting conduct in America and Britain, on one side, and in Germany, on the other, reveals how the political economy of Germany is employee friendly in a way that those of the other two countries no longer are.

Defining the 'O-Generation' - I currently work three different jobs, and none of them carry any sense of the words “job security.” I teach after-school programs at the local high school, work as a teacher’s assistant for an elite college that accepts only 13 percent of its applicants and hammer nails on the side as a self-employed carpenter. I work hard and push myself to go above and beyond at everything I’m doing, knowing there is a line of people wrapped around the block eager to take my jobs if I fall behind. Regretfully, I have to utilize food stamps in order to buy most of my groceries, my monthly allotment of which was cut almost in half by Congress two months ago. On average, I work 70 to 80 hours per week and I honestly can’t remember the last time I didn’t have to use most of a Sunday to catch up on work. My access to health care is constantly at the whim of ever-changing bureaucracies and my one attempt to purchase dental care, the only dental coverage I’ve had since high school, cost me more money than my rent, utilities and car insurance combined. I have no 401k, or anything resembling a retirement plan and the outlook for Social Security for my generation is looking pretty grim.

Nearly 1 in 3 Americans Aren’t Saving Any Money - Fewer U.S. households are stashing away cash today than during the early stages of the economic recovery. A new survey released Monday found that only 68% of all Americans are spending less than they earn and saving the difference. That’s down from 73% in 2010, the first full calendar year after the recession ended. Some 64% of households have emergency funds, down from 71% in 2010. The survey found 76% are reducing their consumer debt, down from 79% in 2010. A divide remains along incomes. More than 80% of households earning over $50,000 spend less than they earn. Only about 69% of households making less than $50,000 are able to save. The pattern holds for reducing consumer debt and maintaining an emergency fund. Nearly 90% of households in the top half are reducing their debt or are debt free, and more than 80% have a “sufficient” emergency fund.Only 78% of those making less than $50,000 are reducing their debt or debt free, while 63% are content with their emergency fund.  Median household income in the United States in 2012 was $51,017, according to Census Department data.

Workers in Riskier Jobs Save Less Money - Americans in high-risk jobs like construction and mining tend to save less money than other workers despite facing a higher risk of becoming disabled, according to a new analysis from the Federal Reserve Bank of St. Louis.  One possible explanation: “If some people put a relatively higher value on their current welfare, they will save less of their income than those with more interest in future rewards,” . “Interestingly, this same difference in preferences might explain why some people take on riskier jobs, in which they trade higher pay today for potentially greater problems later in life.” Ms. Michaud, a professor at Indiana University in Bloomington, and Mr. Wiczer, an economist at the St. Louis Fed, analyzed people in what they considered high-risk jobs, like machine operators, truck drivers, farmers and construction workers. Those workers accounted for 46% of Social Security Disability Insurance recipients in their sample, more than their roughly 33% share of the working population. “To put this another way, 21 percent of workers in the riskier occupations received benefits from SSDI, whereas only 12 percent from the rest of the occupations did,” they wrote. People in riskier jobs “were less-educated than those in safer occupations,” Ms. Michaud and Mr. Wiczer wrote, but “were paid relatively well. Though the average earnings were lower among this group, that was partly an effect of educational differences. When we controlled for their education and other demographics, they made just about the same as their counterparts and, compared with workers with similar education and demographic characteristics, workers in risky occupations made $5,000 more a year.”

U.S. Lags Behind World in Temp Worker Protections - For nearly six years, Limber Herrera has toiled as a temp worker doing the same work for the same company in Mira Loma, Calif. About 40 hours a week, he unloads shipping containers for NFI—one of the largest freight distribution firms in America—moving goods that will eventually stock the shelves of Walmart and Sam’s Club. If Herrera worked in South Korea, his temporary assignment would be limited to two years, after which the company would have to hire him as a regular employee. If he worked in Germany, he would be guaranteed the same wages and working conditions as employees hired directly by the company. And if he worked in Chile, his temp agency could be shut down if it failed to pay him his wages or put him in harm’s way. But Herrera works in the United States, which has some of the weakest labor protections for temp workers in the developed world, according to data compiled by the Organization for Economic Cooperation and Development (OECD), which produces research on behalf of 34 of the world’s industrialized nations.

The Joy and Freedom of Working Until Death  - I have noticed a recent increase in news articles, in the alarmist fashion as usual, proclaiming that a growing number of Americans will not be able to retire. While the articles often cite statistics that may be informative and truthful, they also perpetuate the unhealthy and untruthful social convention that freedom can only be procured through financial means. And if this financial freedom is not obtained, it means a life of imprisonment—one where you must “work until you die!” This is because, in America, retirement generally refers to the latter years of life where the retiree has escaped the hellish workforce and has survived decades of sacrifice to graze in the proverbial pastures of relaxation and travel, and to complete whatever bucket list items have yet to be crossed off the list. But retirement is simply a social norm or convention; it is a financial concept disguised as a personal quest and achievement. Retirement can be anything you decide it to be; but it must be defined by you; the abstract concept must be made into the concrete; otherwise you have inadvertently formed a life philosophy that is based upon a false premise; you have defined your life to reflect the definition of a word, idea, concept, or convention.  With the prospects of a financially secured retirement extending beyond the grasp of more and more people, it may be time for a more realistic and healthier definition of retirement. Rather than receiving the work-until-you-die news as a prison sentence, a healthier message is one of a change in perspective: Working until you die can be a gift of a lifetime if your work is meaningful.

Your Ancestors, Your Fate - To a striking extent, your overall life chances can be predicted not just from your parents’ status but also from your great-great-great-grandparents’. The recent study suggests that 10 percent of variation in income can be predicted based on your parents’ earnings. In contrast, my colleagues and I estimate that 50 to 60 percent of variation in overall status is determined by your lineage. The fortunes of high-status families inexorably fall, and those of low-status families rise, toward the average — what social scientists call “regression to the mean” — but the process can take 10 to 15 generations (300 to 450 years), much longer than most social scientists have estimated in the past. We came to these conclusions after examining reams of data on surnames, a surprisingly strong indicator of social status, in eight countries — Chile, China, England, India, Japan, South Korea, Sweden and the United States — going back centuries. Across all of them, rare or distinctive surnames associated with elite families many generations ago are still disproportionately represented among today’s elites. Does this imply that individuals have no control over their life outcomes? No. In modern meritocratic societies, success still depends on individual effort. Our findings suggest, however, that the compulsion to strive, the talent to prosper and the ability to overcome failure are strongly inherited. We can’t know for certain what the mechanism of that inheritance is, though we know that genetics plays a surprisingly strong role. Alternative explanations that are in vogue — cultural traits, family economic resources, social networks — don’t hold up to scrutiny.

When Measuring Mobility, Location Still Matters - When the Equality of Opportunity Project released new data on mobility at the end of January the initial headlines focused on the authors’ overarching finding that mobility at the national level had basically stayed the same while inequality had risen over the past half century. Most of the media coverage, however, missed the nuances at local and regional levels that were discussed in the paper. So we decided to use the data to make some visuals that help pull those nuances out. In this post you’ll find five maps that examine changes in local and regional mobility measured by income mobility, college mobility, and a composite mobility measure. The different presentations of the data demonstrate that intergenerational mobility over this period of time in the United States has changed substantially by region even if the national average remained stable. As you’ll see, the first three maps show that by several measures of mobility the South and West experienced the highest gains in mobility over this period, while much of New England, the Rust Belt and upper Midwest saw declines in mobility.  But when looking at the level of mobility, the South has remained among the lowest despite the improvements while most of the West started with fairly high mobility and has generally gotten better.

Down the Up Staircase - Paul Krugman -- James Surowiecki makes an important point: if you want a society in which everyone has a decent life, you need to construct a society in which everyone has a decent life — not a society in which everyone has a small but equal chance of living the lifestyle of the rich and famous. Not that we’re anywhere close to the second condition, anyway — the most important factor in whether you can become rich is whether you chose the right parents: Most people are going to end up with socioeconomic status close to where they started. But even if that weren’t true, those moving up the ladder would be matched by an equal number moving down. Since anyone could find himself or herself downwardly mobile, social mobility arguably actually strengthens the case for a strong safety net. I think you want to read Surowiecki in the context of people like Eric Cantor, who first chose to celebrate Labor Day by congratulating people who start businesses — forgetting about the workers — then, more recently, tried to get his fellow Republicans to understand that most people work for other people, and that employees vote too. The point is that even in the best of worlds, only a few people will live out Horatio Alger stories; the quality of our society depends on what happens to everyone else.

The Minimum Wage Increase and the CBO’s Job Loss Estimate - Let’s look at bit more at the CBO’s job loss estimate of 500,000 from their minimum wage report out last week (I’m focusing largely on their analysis of the increase to $10.10, then indexed to inflation).  My point last week was that even if the budget office is right about this employment loss guesstimate, we’re still talking about a policy that lifts the pay of 24.5 million low-wage workers (16.5 million directly, 8 million indirectly), meaning 98% of the target audience reap the benefit of the policy. This post is about whether their employment loss estimate is defensible.  Recall that the CBO did not do original research on the impact of higher minimum wages on employment.  They just went into their “demand elasticity supply closet” and took a number that many of us who follow this work thought was from a pretty high shelf. That number was -0.1 in the case of teenage workers for the $10.10 increase, implying a 10% increase in the minimum wage would lead to a 1% loss of jobs held by teenagers.  The CBO suggests—though it’s not clear how they landed on this number—that they took the midpoint between a range of estimates.  Two problems here.  First, I’m pretty sure that’s not the midpoint.  Summarizing a vast literature (more on that exercise in a moment), the CBO says that the midpoint lies between zero and -.15, or -0.075 (there are credible estimates of positive impacts of minimum wage increases on jobs, but let’s stick with their range).  Second, as economist Michael Reich points out in a recent piece on the current state of research on this question of the minimum wage and job loss, if the budget office had weighted the various estimates by the quality of the studies, they would have given a heavier weight to those which find no significant impact on employment.  Reich discusses the methodological advances that the CBO discounted, generating results like those summarized here in Table 2 from testimony by Arin Dube, a co-author of Reich’s on various careful analyses of this question.

Jeff Madrick: Why the CBO Can’t Be Trusted - Yves here. I’ve written from time to time how openly partisan the Congressional Budget Office is, not in the traditional sense of favoring one party over the other, but as serving as an key enforcer of neoliberal ideology. For instance, its projections of government debt to GDP ratios were highly misleading by virtue of failing to net out financial assets. And after being called out for that error in paper, what did the CBO do? Make it even harder to find the data to prove the magnitude of their misdirection. They were eviscerated by fiscal impacts experts at the Federal Reserve, not only for the assumptions being dubious, but for the methodology being contrary to the process that the CBO is mandated to use. So while it’s good to see Jeff Madrick take the CBO to task, his criticisms are actually mild relative to how often the CBO has been fudging data and analyses to support deficit hawkery and anti-middle class policies. I have written about the deep and misleading flaws inherent in Congressional Budget Office (CBO) forecasts before. But given last week’s projections of job losses due to a proposed minimum wage hike, the inadequacy and misleading character of CBO pronouncements needs addressing again. What particularly provokes me now is a quasi-debate between economist Jared Bernstein, former economic adviser to Vice President Joseph Biden, and Republican economist Douglas Holtz-Eakin, former head of the CBO, on CNBC. The CBO had issued its customary over-simplified statement that “Once fully implemented in the second half of 2016, the $10.10 [per hour minimum wage] option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects.” They next point out that this is merely the midpoint of a range of possibilities they derive from existing research on the relationship between the minimum wage and jobs. But why make the declarative statement in the first place? The damage is done. Politicians and the media pick it up as if it is a forecast, not a midpoint based on a wide range of conflicting research.

Hidden Within the Minimum Wage Dustup: A Pathway for the Democrats -- When the Congressional Budget Office last week concluded that a jump in the minimum wage to $10.10 an hour could eliminate 500,000 jobs by 2016, both parties mobilized to seize the upper hand. For Republicans, the report provided credible and well-timed ammunition that a higher minimum wage—a top Democratic priority this year—would kill jobs. Democrats and the White House bristled over the job-loss number and pointed to other findings in the CBO report: that the higher wage would lift 900,000 people out of poverty by 2016 while increasing the incomes of 16.5 million workers. But amid the fuss, both sides missed a key finding: That a smaller hike from the current $7.25 to $9.00 an hour would cause almost no pain, and still lift 300,000 people out of poverty while raising the incomes of 7.6 million people. Raising the wage floor to $9.00 an hour—a move President Barack Obama championed just a year ago before shifting to the higher level last autumn—would itself mark the largest percentage jump in the minimum wage in 40 years. It would also make the wage the highest it has been, when adjusted for inflation, since the early 1980s. And yet so far, there has been no sign that Democratic lawmakers or the White House plan to scale back their ambitions on the wage front.

Dems ramp up pressure on minimum wage: House Democratic leaders will announce at a presser tomorrow that they will file a discharge petition to try to force a House vote on the minimum wage hike, a Dem leadership aide tells me. The move was expected, but it’s good to have confirmation that it will happen. House Dem leaders have already confirmed they don’t expect House Republicans to sign it — it would require as many as two dozen GOP signatures to get the 218 it needs to force a vote. But they still think the move is worthwhile, because it could help sharpen the contrast between the two parties’ economic agendas heading into the 2014 elections. What’s more, even if House Republicans don’t support a discharge petition, it is possible House Republicans will come under pressure to take up a minimum wage hike anyway. That’s because the possibility of it passing the Senate can’t be ruled out entirely. Indeed, Bloomberg reports that GOP Senator Susan Collins is looking to round up some Republican Senators in support of a hike: Another consequence of the holdup is that it gives more time to Senator Susan Collins, a Maine Republican, who said she’s seeking bipartisan support for a less costly measure. “I haven’t settled on particular numbers,” Collins said in an interview. “I’m just trying to figure out what would do the most, in terms of not creating disincentives for employers to create jobs, and to help some of the low-income families.”

The Real Job Killers - Robert Reich - House Speaker John Boehner says raising the minimum wage is “bad policy” because it will cause job losses.   The U.S. Chamber of Commerce says a minimum wage increase would be a job killer. Republicans and the Chamber also say unions are job killers, workplace safety regulations are job killers, environmental regulations are job killers, and the Affordable Care Act is a job killer. The California Chamber of Commerce even publishes an annual list of “job killers,” including almost any measures that lift wages or protect workers and the environment. Most of this is bunk. When in 1996 I recommended the minimum wage be raised, Republicans and the Chamber screamed it would “kill jobs.” In fact, in the four years after it was raised, the U.S. economy created more jobs than were ever created in any four-year period. For one thing, a higher minimum wage doesn’t necessarily increase business costs. It draws more job applicants into the labor market, giving employers more choice of whom to hire. As a result, employers often get more reliable workers who remain longer – thereby saving employers at least as much money as they spend on higher wages.

More On the False Choice of Higher EITC or Minimum Wage - On the way home I tuned into this pretty frustrating discussion about the minimum wage versus the EITC.  Why frustrating?  First, they’re complements, not substitutes.  You need both.  There’s an strong economic rationale for that below, but there’s a fiscal rationale as well.  We now spend $60 billion a year on the tax credit—money very well spent, as this is one of the most effective antipoverty tools in the toolbox, lifting 10 million people, half of them kids, out of poverty in 2012.  And there’s certainly room for extending the credit, particularly for childless adults, who get very little help from the current structure. But to place the full burden of “making work pay” for low-wage workers on the EITC threatens to place too much pressure on the program.  As my CBPP colleague Bob Greenstein recently noted, “if policymakers tried to do the job solely through refundable tax credits, the cost to the government would be well beyond what they likely would countenance.”

Where a Higher Minimum Wage Hasn't Killed Jobs -  Economists and government officials endlessly speculate on the impact of raising the $7.25 federal minimum wage. Most recently, a report by the nonpartisan Congressional Budget Office said that raising the federal minimum wage to $10.10 an hour might cut employment by 500,000 workers. That is balanced by the projection that higher pay could also boost about 900,000 people out of poverty. But some places in the U.S. already have real-life experience with raising their minimum wage. Washington state, for example, has the nation's highest rate, $9.32 an hour. Despite dire predictions that increases would cripple job growth and boost unemployment, this isn't what happened. At 6.6 percent, the unemployment rate in December was a click below the U.S. average, 6.7 percent, and the state's job creation is sturdy, 16th in the nation, according to a report by Stateline, Fifteen years ago, Washington voters approved an initiative giving the lowest-paid workers a raise almost every year, with increases now tied to inflation. Those increases produced the highest U.S. rate, although California could lap that in 2016 when it hits $10 an hour. Washington Governor Jay Inslee and Democratic legislators have been pushing to raise the statewide amount to almost $11 or $12 an hour, but that now seems unlikely this year. Critics of the voter-approved increase in Washington said it would harm the economy and cause businesses to flee to lower-wage states, such as neighboring Idaho, where the minimum wage is $7.25 an hour. That didn't happen, as the experience of Washington counties bordering Idaho show.

Senate to Try Again for Jobless Benefits Extension - Senate Majority Leader Harry Reid (D., Nev.) said Tuesday lawmakers are still trying to restore emergency jobless benefits for the long-term unemployed after several failed attempts. Several lawmakers said they are now eyeing a six-month extension of the benefits, which lapsed late last year. Mr. Reid said he hopes to bring legislation to a vote “soon” on the Senate floor. Senate Democrats have been working with a handful of Republicans to extend the employment benefits. “I’m going to try again,” Mr. Reid said, noting he has held “good conversations with Republican senators, plural.” Mr. Reid spoke with Sen. Susan Collins (R., Maine) on Monday, according to a senior Democratic aide. The Senate’s earlier efforts to pass an extension of the program collapsed amid partisan disputes over procedure and whether the chamber would hold roll call votes on Republican amendments. Earlier in February a three-month extension of the unemployment insurance fell two votes short of the 60 needed to advance the measure, effectively lacking just one Republican vote. Mr. Reid had voted no as a tactical move that gives him the right to bring the bill to the floor again. Reaching a bipartisan deal on the unemployment benefits has faced numerous hurdles, including settling on an acceptable time frame for an extension and how to pay for it.

Does Tackling Inequality Reduce Growth? No - In the ongoing debate about rising income inequality, two questions are often raised: one from the left—Is rising inequality impeding economic growth? And the other from the right: Does tackling inequality, which usually involves some form of redistribution, reduce growth?  Economic theory isn’t much help in resolving this debate. It’s pretty easy to build mathematical models in which high rates of inequality, by generating higher rates of saving and investment, are associated with higher rates of G.D.P. growth. (Nicholas Kaldor demonstrated how to do it back in the nineteen-fifties.) It’s a bit trickier, but also perfectly possible, to construct models in which high rates of inequality—by, for example, constricting saving and investment (especially human-capital investment) among the poor—lead to lower rates of growth. (Brown University’s Oded Galor is a leader in this area.)  The debate, then, turns on data. And, thanks to three researchers at the International Monetary Fund, we’ve got some striking new findings that answer the second question, whether tackling inequality reduces growth, with a firm no. Countries that take redistributive measures in order to attenuate inequitable market outcomes do not, on average, tend to grow less rapidly than other countries. Indeed, the contrary is true. They tend to grow a bit more rapidly. The research paper, “Redistribution, Inequality, and Growth,” has been posted on the I.M.F.’s Web site and authorized for distribution by Olivier Blanchard, the I.M.F.’s chief economist.

Cutting Food Stamp Payments to the Poor Hurts the Rich - Like most retailers, Walmart blamed the awful weather during the vital Christmas shopping season for its mediocre results in the quarter ending January 31. The company reported quarterly sales of $128.8 billion, up a tepid 1.4% and earnings of $4.4 billion, down 21%. And sales in U.S. stores opened for at least a year, a key growth measure, dropped 0.4%. According to Walmart treasurer Claire Babineaux-Fontenot, 200 stores were closed at some point because of harsh weather.  Walmart also noted that it is a victim of government spending cuts: last November participants in the federal Supplement Nutrition Assistance Program (SNAP) had their monthly allotments cut by a few dollars. SNAP benefits had increased following passage of the Recovery Act in 2009, but that funding ran out in November and wasn’t renewed.  SNAP households are Walmart customers, meaning that if they had less to spend on groceries, they were going to buy fewer of them, which turned the quarter into a downer for Walmart in the U.S. “In the absence of a reduction of government SNAP benefits, which represented approximately 40 basis points of impact to comp sales, we believe the quarter would have been flat,” the company said. Walmart also reported that grocery sales dropped in the low single-digits, citing the SNAP benefit reductions.

Governors move to block Farm Bill's food stamp cuts - Nearly 350,000 households have received a temporary reprieve from the food stamp cuts included in the 2014 Farm Bill, which was originally expected to cost as many as 850,000 households an average $90 per month in benefits. This week, the governors of New York and Connecticut—both Democrats—announced they would move around federal funds to prevent food stamp cuts in their respective states. The governors were able to delay the cuts for one year by increasing the amount of heating subsidies that affected households receive. The 2014 Farm Bill, which President Obama signed into law earlier this month, cuts food stamp benefits for households which receive less than $20 per month in heating subsidies. To get around the proposed cut, New York and Connecticut will simply raise federal heating subsidies for all the affected households to just barely meet the threshold. In New York alone, which was originally expected to absorb up to 30% of the Farm Bill’s food stamp cuts, that means nearly 300,000 households will get to keep an average $127 per month in benefits which they would have otherwise lost. Food Bank For New York City President Margarette Purvis, who also chairs Gov. Andrew Cuomo’s Anti-Hunger Task Force, said she was ecstatic over the news. “It’s a huge deal,” she said. “It’s a huge deal. This Farm Bill cut has been our nightmare.”

10 States Where Income Inequality Has Soared -- Although average real income in the United States increased by more than a third between 1979 and 2007, not all workers benefited equally. In each of the 50 states, income growth among the top 1% of earners rapidly outpaced that of the bottom 99%, according to a recent study.  In four states — Alaska, Michigan, Nevada and Wyoming — average income increased exclusively for the top 1% and declined for the bottom 99%. In another six states, the top 1% accounted for more than two-thirds of all income growth between 1979 and 2007, while the income of the bottom 99% grew at a much slower pace. Based on a report published by the Economic Policy Institute (EPI), 24/7 Wall St. reviewed the 10 states with the most lopsided income growth.  In many of the states with the most lopsided income growth, real average income rose little, if at all, between 1979 and 2007. While the average income of the bottom 99% rose 19% nationwide, it rose less than 5% in eight of these states.  In an interview with 24/7 Wall St., Mark Price, coauthor of the study and a labor economist at the Keystone Research Center, said that to many observers the issue of income inequality is a story about Wall Street’s growth. But “It’s not just a story of the financial markets in New York City,” Price said. “Over time, that [top] group in each state is accruing an increasingly larger share of the growth in income.”

South Carolina City Implements Law Requiring $120 Permit To Feed The Homeless - Feeding the homeless is about to get harder as a new policy is set to begin this Saturday, Feb. 15, in Columbia, SC. Charities and non-profits well be required to pay a fee and obtain a permit 15 days in advance in order to feed the homeless in parks.  One impacted charity that was interviewed by the Free Times, Food Not Bombs, has been serving food to the homeless in Finlay Park every Sunday for 12 years. The group’s organizer, Judith Turnipseed, noted that the group has an impeccable track record and always tidies up after the meal. But with the new crackdown, Food Not Bombs will have to pay at least $120 per week for the right to feed the homeless. Since the Columbia City Council approved its exile plan in August, the city has been trying to herd its homeless people to a shelter on the outskirts of town and keep them away from downtown. If charities continue to provide food in downtown parks, the thinking goes, it will allow homeless people to continue to live downtown, rather than being forced to leave

Local Policies That Work for Workers - For years, activists who pushed hard for local policies to improve low-wage jobs feared that their small successes would have only marginal effects. But now, as the debate over proposed increases in the federal minimum wage heats up, their grit and determination may pay off. In her essay in a new edited volume, “What Works for Workers?,” Stephanie Luce points out that more than 125 living-wage ordinances have been put into place since Baltimore first implemented one in 1994. While the number of workers directly affected has been relatively small, no ill economic effects have been documented, and the political demonstration aspect of it has been heartening. The patchwork of local victories has educated voters about the issues, helping explain why a poll conducted by CBS News in mid-January found that 72 percent of Americans favor raising the federal minimum wage to $10.10 an hour. The patchwork also created valuable points of comparison for assessment of economic consequences.  Variations in state policy provided a natural experiment, making it possible to evaluate employment growth among low-wage companies close to state boundaries where the minimum was raised on one side but not the other. The results showed no negative employment impacts. Analysis of the same variations reveals significant reductions in employee turnover in the first nine months after a minimum-wage increase, a factor that increases efficiency and helps compensate for increased costs.

Stamp of Disapproval - The $1 trillion spending bill that the House of Representatives passed in January included a warning to the U.S. Postal Service: Stop selling off the nation’s priceless architectural assets. Over the past several years, the USPS has reported huge net losses: $15.9 billion in 2012 and $5 billion in 2013. To avoid remaining in the red, the USPS has put up some 40 buildings for sale. But Congress instructed the postal service to “suspend the sale of any historic post office” until March, when the USPS Office of Inspector General will release results of an investigation into whether the sale of the buildings violates preservation laws. Many of the buildings are on the National Register of Historic Places.  The proposed sale of two buildings, in particular, has generated an uproar: Berkeley, California’s downtown post office and the Bronx General Post Office (built in 1914 and 1935, respectively). The New York Times describes the Bronx structure as “a centerpiece of life in the borough for more than 75 years.” Unloading the buildings is just the USPS’s latest attempt to relieve financial pressure. In 2011, it targeted 2,000 branches for closure, but abandoned the plan after aggressive pushback nationwide. Instead, it cut back operating hours in many branches.  One office slated for closure served the Hudson River Valley hometown of Steve Hutkins, a professor of literature at New York University. In response, Hutkins became a vocal post-office advocate and created the website Hutkins, who teaches a course about how literature creates a “sense of place,” says that while most local post offices may not be as historically significant as the Berkeley and Bronx branches, they’re just as critical to the fabric of their communities.

Potholes devour municipal budgets in U.S. - About three-fourths of U.S. states and many cities have outspent their maintenance budgets dealing with the extreme weather, said Greta Smith, an associate program director with the American Association of State Highway and Transportation Officials in Washington. She said this pothole season is “one of the worst in memory.” The potholes are emblematic of a deeper chasm. The gap between the cost of improvements to U.S. transportation infrastructure and available revenue from both state and federal sources was as much as $147 billion, according to a 2009 National Transportation Infrastructure Financing Commission report. They also contribute to substandard conditions on more than a quarter of U.S. urban roads that cost the average driver using them $377 a year and $80 billion nationwide, according to TRIP, a nonprofit transportation research group in Washington. The current plague has diverted resources, the group said. “That money comes out of a finite budget, and so when you have a harsher climate for your infrastructure and even less money to spend on repairs, that's asking for trouble,” said

Detroit Bankruptcy Funding Hinges on Creditor Settlement - Detroit’s plan to end its $18 billion bankruptcy assumes bondholders offered 20 cents on the dollar will eventually swallow a deal that guarantees police and firefighters collect 90 percent of their pensions. Within hours of the plan being filed, the creditors that city officials must win over rejected the proposal, even as they continue talking behind closed doors. Unions and bond insurers both registered their displeasure. “While we understand that favoring pensioners and discriminating against bondholders and other creditors might be politically popular, we believe this is contrary to bankruptcy law and will result in costly litigation that will hamper the city’s emergence from bankruptcy,” Steve Spencer, a financial adviser for bond insurer FGIC Corp., said in an e-mailed statement. “The proposed plan of adjustment is a gut punch to Detroit city workers and retirees,” the American Federation of State, County and Municipal Employees said in a statement. “Retirees cannot survive these huge cuts to the pensions they earned. The plan is unfair and unacceptable.” Under the plan, the city’s retired general employees, represented by AFSCME, wouldn’t get as much as police and firefighters. If Rhodes approves the plan as-is, the general workers would be forced to take 66 percent of their current pensions. If the workers voluntarily accept the proposal, they would get 74 percent, and police and firefighters 96 percent, according to the filing.

Detroit bankruptcy plan includes deep pension cuts  - Detroit's plan to emerge from bankruptcy this year largely hinges on significant cuts to city workers' pensions and retiree health benefits — actions vehemently fought by public employee unions — as well as decreased payments to bondholders, according to a blueprint filed Friday to restructure the city's $18-billion debt. In the plan, which probably will be amended in the weeks ahead, police, firefighters and those departments' retirees will take a 10% cut to their current pension payment. The pensions of all other city employees and retirees will be cut more than three times as much: 34%. Neither group will receive cost of living adjustments in the future. Unions immediately decried the bankruptcy blueprint.  "Retirees cannot survive these drastic cuts." Many city employees maintain that pensions are protected under the Michigan Constitution, and that the state must chip in to make sure pensioners are made whole. "A more than 30% cut combined with the virtual elimination of healthcare is devastating to the people who dedicated a career to Detroit,"

Detroit’s Plan Submission — Now What? --  Much excitement in our nerdly circles is arising about Detroit's plan of adjustment, just filed yesterday.  This has gotten me thinking about what's next (other than the obvious ongoing cajolling/negotiations).  Three ruminations thereon:

  • 1. The future: the media are focused on the haircuts the major creditors are being asked to take, which is fine, but what's more interesting to me is the capital expenditures the city proposes investing -- about a billion and a hallf.  This is important, because...
  • 2. Feasibility.  Even if the parties don't raise it, Judge Rhodes has an obligation to gauge feasibility.  He is not going to want a chapter 18.  (Cf. Valejo.)  This means that there has to be an ongoing plan of investment, services, etc. that will attract/retain a vibrant base of taxpayers (plus such banal matters as financial transparency and accountability).  This is as important if not more important than the creditor haircuts.  But let's not forget...
  • 3. Pension impairment constitutionality appeal.  CA6 just accepted the certification (but declined expedition).  Will that reignite the pension fight and distract from signing on, or did CA6's coincidental timing of its order upon plan release mean the pension funds are on board?  This is a development I can't yet gauge well.  Given CA6 earlier stalled on issuing the order (pending a mediation update), I tentatively think the non-expedited route is a plan to slow-boat this issue in the hopes a consensual plan is done and everyone can do the equitable mootness dance.

All Drugged Up: The Overmedication And Overschooling Of Today’s Youth - What are we going to do about those little monsters called children? They won’t be quiet, won’t sit still and won’t pay attention. They aren’t succeeding in school, and no matter how many drugs we pump into them, they don’t seem to get any better. To the surprise of no one, a new study has just been released showing that the staggeringly popular prescription drug Adderall is not having any positive effects on children’s grades, and in fact may be causing more kids to drop out of school. The finding should have been obvious, but don’t expect inattentive parents to stop buying the drug, and don’t expect greedy psychiatrists to stop handing them out like candy – for a hefty price. The problem is partially a cultural one, but it is also exacerbated by government attempts to meddle in education.

Teach For America’s unspoken alliance with the one percent - Not being an educator, my knowledge of Teach For America (TFA) has been scant. Basically: it was a component of the Americorps program created during the Clinton administration, and plugged willing but un- or under-qualified young people into vacant positions in low income schools for two years. Identify schools that need teachers and have energetic, idealistic recent college grads work to make a difference. Sounds great. It turns out TFA has taken on an new role in the last few years, though. Last week the #ResistTFA hash tag on Twitter started trending, courtesy of Students United for Public Education. SUPE supporters criticized TFA’s modest five weeks of training for recruits and questioned the adequacy of their preparation.  TFA defenders quickly responded. One asked “why do principals and schools still line up to hire TFA corps members when they have the chance?” Instead of considering that a lower paid and non-unionized workforce might be attractive for strictly administrative reasons, the author claims TFA recruits interview better because (among other reasons) “They don’t cry during interviews”. Others endorsed TFA as a “pipeline for education reform”1 and cited a Department of Education (DOE) study (PDF) that argued for its effectiveness. There might be an element of self-fulfilling prophesy about this, though. In a long, thorough examination of the billionaires behind the attacks on public education, Joanne Barkan writes how DOE head Arne Duncan has his thumb firmly on the scales in favor of business interests:

Not a Single Home Is for Sale in San Francisco That an Average Teacher Can Afford - This week, the real estate listings website Redfin published a startling statistic. In the entire city of San Francisco, not one home or apartment is available on the market for under $220,000, which the site says is affordable for a typical teacher in the city. Statewide, just 17 percent of homes for sale are affordable for teachers. With the tech industry booming and the Google Bus quickly becoming a cultural icon, it’s not a surprise that San Francisco faces an affordability crisis. But how can it have become so dramatic? The answers boil down to two factors: San Francisco’s hot real estate market and dwindling income for city teachers. First, the real estate market. This is pretty straightforward. San Francisco is the single least-affordable housing market in the country, according to the real estate website Trulia (TRLA). As Trulia’s chart shows, the median sales price has more than doubled since 2000 and is up 11.5 percent just in the past year.  Now, on to the teachers. If you look at Redfin’s data, you’ll see that San Francisco has the second-lowest median salary of teachers for any county in California. That’s despite having a higher cost of living than other areas in the state and a thriving private sector, thanks to the knowledge economy.

Fabrice "Fabulous Fab" Tourre To Teach Economics Class At University of Chicago  -- Just in case you thought for a second that the sorry discipline we call economics couldn’t stoop any further into the gutter of academic idiocy and irrelevance, think again. It’s now being reported that ex-Goldman Sachs trader Fabrice “Fabulous Fab” Tourre (recently convicted on six counts of securities fraud) will be teaching an honors economics class at the “prestigious” University of Chicago. There’s nothing like an esteemed University setting the already culturally accepted example that ethics are for suckers. Stealing, cheating and corruption are the values most exalted in today’s world. It doesn’t matter how you achieve your wealth, as long as you attain it.

UConn says it must raise fees, tuition even further - Officials at the University of Connecticut intend to vote this week to further increase the cost of attending the state's flagship university over and above the 26 percent, four-year increase already approved. UConn President Susan Herbst Monday outlined for the General Assembly's budget-writing committee the university's dire fiscal picture despite the $15 million infusion from the state the school will receive for fiscal 2014-15 to fund the "Next Generation" initiative. . "We've made about as many cuts on the non-academic side as we can. We are going to have to start in the academic side, and it's very, very worrisome. It's dangerous." If the Board of Trustees approves $76 in additional fees for full-time students Wednesday, Connecticut residents would each pay $678 more in tuition and fees next school year -- a 5.6 percent increase over this year. In addition, board members will vote on further boosting the cost for students to live on campus by another $188 over what was approved in the four-year plan they adopted in 2011. If these increases are approved, students living on campus would pay $1,210 more than they do this school year.

Home College: an Idea Whose Time Has Come (Again) – Thousands of qualified, trained, energetic, and underemployed Ph.D.s are struggling to find stable teaching jobs. Tens of thousands of parents are struggling to pay for a good college education for their children. Home-schooling at the secondary-school level has proved itself an adequate substitute for public or private high school. Could a private home-college arrangement work as a kind of Airbnb or Uber for higher education? I don’t think I am overstating the qualifications of many of my fellow academics in the humanities to say that any one of them could provide, singlehandedly, a first-rate first-year college education in the liberal arts.    As a matter of economics, why not consider the option of hiring a single professor to teach a first-year curriculum to a small number of students? At the level of the individual student, it may make sense to some families. Rather than spend $50,000 for a year of college at a selective private institution, one could hire a single Ivy League-trained individual with a doctorate and qualifications in multiple fields for, say, two-thirds the price (far more than an adjunct professor would make for teaching five courses at an average of $2,700 per course). The idea becomes more attractive with multiple students. A half-dozen families (or the students themselves) could pool resources to hire a single professor, who would provide all six students with a tailored first-year liberal-arts education (leaving aside laboratory science) at a cost much lower than six private-college tuitions, and at the level of a real salary for a good sole-proprietor professor. A low-cost, high-value first-year education would allow students to transfer into a traditional degree-granting institution at a second- or third-year level, saving a year or more of tuition. Home-colleged students would have a year of personal attention to writing skills, research skills, oral-presentation skills, and the relationship of disciplines in the liberal arts. The attention to oral and written skills may be particularly valuable to non-English-speaking students looking to succeed at an American college or university.

Why College Supply Matters - Most of the debate over America’s stagnant college graduation rates focuses on things that affect demand, like college affordability and the availability of financial aid. We ponder whether high school graduates are prepared for a college education.There is a missing link in the analysis, however: supply. Most discussion about our dismal educational attainment implicitly assumes that if the demand for higher education materializes, public and nonprofit colleges and universities will step up to meet it. Recent research has shown, however, that this is not generally the case. There is pretty good evidence that shortfalls in the supply of higher education slots have constrained college completion. John Bound of the University of Michigan and Sarah Turner at the University of Virginia tracked college education through the second half of the 20th century. They found that when states had a large college-age population, public spending per student declined and graduation rates suffered. “Reduced resources per student following from rising cohort size and lower state expenditures are likely to have significant negative effects on the supply of college-educated workers entering the labor market,” they concluded.

The Bane and the Boon of For-Profit Colleges - For-profit colleges have come under a barrage of negative publicity, been targeted by government investigators and been dragged into congressional hearings. They are on notice from the Education Department, which is expected to issue specific new regulations for them later this year. “That is not good public policy,” Mr. Jerome said. “Targeting only for-profit institutions and exempting public or nonprofit institutions with poor outcomes is ultimately more harmful to the students the administration is seeking to protect and could ultimately drive them to schools with lower graduation rates, higher default rates” and weaker potential for future earnings, he said.For-profit colleges in many states are lightly regulated, and some have engaged in egregious fraud, including deceptive marketing. They tend to charge higher tuition than community colleges, which get direct funding from states. Their students take on more debt, have a tougher time repaying it and suffer higher unemployment rates. Still, Mr. Jerome makes an important point: Private for-profit institutions are indispensable players in American higher education, filling a gap that other schools neglect. The goal should be to improve the sector, not shrink it.

The Robber Barons of the For-Profit College Sector - Honest, well-run for-profit colleges can be helpful to students who do not qualify for traditional schools. But the robber barons in the for-profit sector represent a menace that requires more federal oversight. They saddle students with crushing debt while furnishing them useless degrees – or no degrees at all. These schools have been known to push students who are eligible for low-cost, federal loans into ruinously priced private loans that have fewer consumer protections and that give borrowers who get in trouble little choice but to default. That in turn makes it difficult for them to find jobs, get credit or rent apartments. And because private student loans are difficult to escape through bankruptcy, the stricken borrower might never recover. Attorneys general in 32 states are actively pursuing this problem .  This week the federal Consumer Financial Protection Bureau finally got into the act. On Wednesday it filed suit against an Indiana-based for-profit chain, ITT Educational Services, Inc., which has tens of thousands of students enrolled online or at one of roughly 150 institutions in nearly 40 states. The bureau, which paints a damning portrait of the company’s policies, accuses the chain of practicing “predatory student lending.” According to the bureau, ITT’s costs are among the highest in the for-profit industry: associate’s degrees can cost more than $44,000; bachelor’s degrees can cost twice that. Despite the price tag, the bureau says, credits that students earned “typically did not transfer to local community colleges or other nonprofit schools such as public or private colleges.”

Universities top the list for hackers - Universities were the sector most attacked by cyber criminals across the world in 2013, as hackers abused their large and porous networks to get to intellectual property sometimes vital to national security. The education sector topped a list of targets for cyber criminals last year in a report by FireEye the cyber security company, which analysed almost 40,000 attacks. “Universities have a very rich intellectual property base, emerging technology, new patents and cutting-edge research in an environment meant to be open to the world and collaboration,” he said. “These are good hackers, thinking in the long term.” Elite research universities, most often in the US, were the most likely to be targeted because of their links to government, which was the fourth most popular target, after financial services and high-tech industries. “A lot of these universities happen to be doing research today that will be classified in five years if the navy or the air force picks up the research,” he said. “So you can see why the advanced persistent threats might be thinking that far ahead to support their mission.” Universities could be looking at “torpedoes, hypersonic missiles, high performance quantum computing” that would “benefit the military or intelligence organisation of any state”, he said. He added that universities often lacked the protections that government and large critical infrastructure providers are putting in place and their staff’s openness to collaboration may mean they are not as “guarded” as, for example, a government employee.

Panel Seeks Greater Disclosures on Pension Health -  A panel of risk experts sees a teachable moment in Detroit’s bankruptcy and pension woes.A blue-ribbon panel of the Society of Actuaries — the entity responsible for education, testing and licensing in the profession — says that more precise, meaningful information about the health of all public pension funds would give citizens the facts they need to make informed decisions.In a report to be released on Monday, the panel will recommend that pension actuaries provide plan boards of trustees and, ultimately, the public with the fair value of pension obligations and estimates of the annual cash outlays needed to cover them. That means pension officials would disclose something they have long resisted discussing: the total cost, in today’s dollars, of the workers’ pensions, assuming no credit for expected investment gains over the years.“We think it would be a useful benchmark for plans to have,”  Economists refer to this elusive number as the plan’s total liability, discounted at a risk-free rate. They have called for its disclosure for years, saying it would help pension trustees make better decisions. Economists have calculated rough approximations in recent years for various states and cities, but only the plan actuaries have the data needed for precise calculations.For all their billions, public pension systems are largely unregulated. Actuarial standards, however obscure, may be the closest thing the sector has to a uniform and enforceable code.

We Sue CalPERS Over Denial of Our Private Equity Public Records Act Request - Yves Smith -- Although it’s probably sensible to expect a public agency to resist providing information in response to a Freedom of Information Act filing, the lengths to which CalPERS has gone to mislead and obfuscate in trying to thwart my efforts is quite remarkable, particularly since some of the moves CalPERS staff took are in violation of CalPERS’ own procedures.  For readers who may be new to this site, CalPERS is the California Public Employees Retirement Systems. This state agency is the largest public pension fund, with assets under management at the end of October 2013 of $277 billion on behalf of 1.6 million employees. It also oversees health insurance plans on behalf of 1.3 million. CalPERS is also one of the largest investors in private equity in the world and is seen as a sophisticated player. Starting in the early 2000s, took to providing information on a quarterly basis about its private equity fund results, showing, among other things, quarterly net asset values by fund.   I filled out the PRA form on the CalPERS website on September 29, 2013. However, in early October, I saw that my request has not been listed along with the new PRA requests filed in September. I filled out the form again, asking what had happened. A CalPERS public records act coordinator Barbara Galli said they had no record of my asking for the data (which seems implausible given that I received an auto-generated receipt) and asked me to send the request via e-mail. Because her message was tagged as spam, I did not see it for nearly a month and replied on November 12, 2013. My request was again missing from the November log. In early December, I called and e-mailed to ascertain what was going on. I got no direct reply, but i did get a letter dated December 18. The critical part: Staff continues to gather and review responsive information for disclosure under the Public Records Act. We estimate having the information to you by December 27, 2013. However, December 27 came and went, early January came and went, and still no information. Again, I made calls (as directed in the letter!) and sent e-mails and got no reply.

The Political Underbelly of the Pensions Crisis: What Broke the System, and How Do We Fix It? - Since the beginning of the Great Recession, policymakers and reporters have spoken of a growing crisis in public pensions. Many state and local governments are struggling to meet their obligations to retirees, and the easiest explanation is that government workers are overpaid and their pensions are unaffordable. But the evidence suggests that the pensions crisis is both less pervasive and more complex than that. Beyond the economic crisis, which put enormous pressure on state and municipal budgets, a range of factors including poor decision-making and the influence of big money interests has led to the underfunding of some state and city public pensions. With a clearer understanding of the problem, we can begin to take steps to solve it and keep our promises to public workers. Contrary to public perception, pension underfunding is not a widespread issue. There is wide variation in pension performance across states, and underfunding is concentrated in particular states (for example, Illinois and Kentucky) and cities (Chicago and Providence). Where underfunding does occur, it seems to stem largely from the internal problems of those governments, which existed well before the recent economic crisis put additional pressure on their budgets.

NYT Reporters’ Anti-Public Pension Bias Leads to Faulty Conclusions -I love the New York Times. But its reporters’ slant on public employee pensions has been driving me crazy, and the latest story by Mary Williams Walsh and Rick Lyman didn’t help. Walsh has been carrying a vendetta against public pensions for many years, so it is no surprise that the article makes the unsupportable claim that none of the 40 state pension overhauls has “come close to closing their pension gaps quickly enough to keep pace with a rapidly aging and retiring—public work force.” I leave it to the reader to fully decipher that statement, but it seems to reflect the story’s headline, that “Public Pension Tabs Multiply as States Defer Costs and Hard Choices.”  It implies that despite the states’ pension overhauls, things are getting worse everywhere because public employees are aging and retiring faster than the financing is improving. It’s surely meant to be alarming, as is the chart of Moody’s Investor Service data showing 13 states with “unfunded pension liability greater than annual revenue.” Moody’s, itself, tells a different story. Moody’s points out that its data are 20 months old and don’t reflect current balance sheets or the enormous market gains of the last 18-20 months. Moody’s points out that “A run-up in financial markets has helped shrink public pension shortfalls” since June 30, 2012, because “Investment returns provide the lion’s share of the retirement systems’ revenue”:But fiscal 2012 ended for most states on June 30, 2012, and since then, a run-up in financial markets has helped shrink public pension shortfalls. Investment returns provide the lion’s share of the retirement systems’ revenue, and in 2013, pensions’ holdings reached record amounts.

This Is How You Fix Ailing Public Pensions -- At a conference I attended this week on pension reform sponsored by the Roosevelt Institute, a liberal think tank, participants like Nobel laureate in economics Joseph Stiglitz and University of Massachusetts political science professor Thomas Ferguson had a few ideas to share on that front. Below, the takeaway:

  • 1. Pension funds shouldn’t be in high-risk assets, period. As very few articles on the topic mention, pension money substitutes for social security for many state employees – this is their ONLY money, and there should be legislatively mandated limits on risky assets (lots of pensions below up on CDOs in 2008).
  • 2. They need to be diversified away from state headquartered companies, many of which are major donors to local politicians or to groups that fund them. It’s no accident that some of the most under-funded pensions are also the least geographically diversified.
  • 3. Pensions should be mainly invested only in no or low fee index funds. As Vanguard fund founder Jack Bogle himself has said, the mutual fund market has become a “ponzy” scheme of sorts, charging high fees for lower than average returns. Making sure pensioners aren’t paying too much for too little should be a huge priority in cleaning up the system.
  • 4. That may require cleaning up campaign financing. As Ferguson pointed out, the number of local politicians receiving funding from Wall Street or anti-pension business interests is increasing. Making sure pensioners get a fair shake will require tackling the money culture—an even tougher task than bringing back Detroit.

PBGC pension bailouts continue - In 2011 we discussed the sad state of affairs at PBGC, the government agency responsible for bailing out private pensions (see post). Back then the debate centered around the bankruptcy filing by American Airlines and the fate of its pension. Now the agency is back in the news. Today's Bloomberg article discussed PBGC's dealings with the 2013 Hostess failure - the maker of twinkies who shared its pension with its supplier. Needless to say the supplier's employees went through some turbulent times.  Many other sizable private pensions that pool employees of multiple companies (multiemployer plans) are also not doing so well. As PBGC takes on more failed pensions, its financial deficit - payments to pensioners offset by premiums it charges pensions - gets worse. By the agency's own admission, PBGC will be insolvent in 10-15 years as its capital base dwindles.This means that the US government will be on the hook not just for the failing public plans such as the Social Security Trust Fund, but also for some private pensions as well. Though the total failing private pension liabilities are expected to be small relative to the massive public sector problem, PBGC anticipates to see some 173 pensions fail in the next decade or so. To avoid another federal agency bailout, three things need to happen:
1. Corporate pensions will need to pay higher premiums to PBGC.
2. Employees will need to contribute more to these plans on an ongoing basis.
3. Employees of bankrupt companies with underfunded pensions will need to take larger haircuts on their payouts.
And it will probably take all three - in addition to steady US economic expansion - in order to avoid any taxpayer involvement.

What Do People Have Against Retirement Income? - Over the past few years, economists have expended a lot of time and energy attempting to explain what they call “the annuity puzzle.” The puzzle is this: A guaranteed lifetime income is a valuable thing (especially if it comes with regular cost-of-living adjustments), and people who receive one through a traditional state or corporate pension are generally very happy with it. So why is it that those with the self-directed “defined contribution” retirement plans that have become standard in the U.S. — 401(k)s, 403(b)s, IRAs, and the like — so rarely convert the money they’ve saved into pension-like life annuities that guarantee a monthly check until they die? Part of the explanation is that only 6% of corporate 401(k) plans even offer an annuity option at retirement (you instead have to roll the money over into an IRA and then shop for an annuity). But even among those with traditional defined-benefit pensions that offer a choice between a lifetime income and a lump sum, the majority chooses the lump sum. And new research from economists seems to indicate that most of these people don’t fully understand the choice they’re making. As a big fan of the all-annuity Dutch retirement system, generally considered the world’s best, I tend to read such findings and harrumph in dismay. A couple of years ago I was invited to speak about “Investment Advice in a Turbulent Economy” at a college reunion. Everybody else on my panel was a money manager with tips on what to buy; I instead subjected my fellow alumni to a harangue about how ridiculous it was that American retirees had to spend so much time thinking about their investments, and how much better off most people would be with lifetime annuities. I think the audience appreciated that I at least had something different to say, but I could also see eyes glazing over every time I said the word “annuity.”

U.S. government seeks to cut Medicare payments to insurers (Reuters) - The U.S. government on Friday proposed a cut in payments to private health insurers for 2015 Medicare Advantage plans, a move Republican lawmakers said would hurt benefits for the elderly and disabled. The proposal, released in a document by a division of the U.S. Department of Health and Human Services, appeared to cut payments by more than the 6 to 7 percent the insurance industry had expected, one Wall Street analyst said. "Now the lobbying begins: can the plans get Congress to help make the cut less severe?" CRT Capital analyst Sheryl Skolnick said, adding that her assessment of the hundreds of pages of information was preliminary. Friday's notice of proposed rates opens a window for negotiations on the final ruling, due April 7. Insurers and lawmakers have said cuts will mean smaller networks of doctors and hospitals and higher out-of-pocket costs. Insurers have said they could only maintain benefits if there was no change in payments for 2015 from 2014. Many factors go into determining the government's total reimbursement to insurers. These payments are based in part on the assumption that Medicare Advantage spending per person will fall 3.55 percent in 2015. Total reimbursement to insurers, however, is influenced by factors such as payments for patients who are sicker than average. An executive at one company that manages Medicare Advantage plans said that insurers are facing cuts in the 8 percent to 10 percent range when factoring in the per capita spending decline and other planned reductions. These include a new health insurance tax under President Barack Obama's healthcare law as well as other risk adjustments.

Feds set big cuts for Medicare Advantage plans -  Federal regulators have proposed larger-than-expected cuts in the government’s payments to the private insurers that run so-called Medicare Advantage plans—a move that insurers warn could force them to reduce services to retirement-age patients who belong to those programs. The cuts, which would take effect in 2015, were announced late last week by the Centers for Medicare and Medicaid Services, the agency that administers Medicare. Advantage programs let Medicare beneficiaries enroll in networks similar to managed-care organizations, rather than in the fee-for-service model of traditional Medicare: According to the Kaiser Family Foundation, about 14.4 million people, or 28% of Medicare members, belonged to an Advantage program in 2013. The Advantage option was originally designed to trim spending using the managed-care model, but by the 2000s, the government was consistently spending more per patient for Advantage care than it was in traditional Medicare. One of the less-discussed provisions of the Affordable Care Act is designed to phase in reductions in Advantage spending through the year 2017; those cuts are expected to yield $156 billion in savings over the next decade, according to Ariana Eunjung Cha of the Washington Post. The proposed cuts for 2015 would amount to a reduction of between 6% and 7% from this year’s payment levels, which in turn average about 5% less than in 2013, Anna Wilde Mathews reports in The Wall Street Journal. The 2014 reduction was initially supposed to be larger, but insurers convinced the government to scale it back, and the same thing may happen this year, industry analysts tell Mathews.

How the Medical Establishment Got the Treasury’s Keys - About half a century ago, organized medicine and the hospital industry in this country struck a deal with Congress that in retrospect seems as audacious as it seems incredible: Congress was asked to surrender to these industries the keys to the United States Treasury. In return, the industries would allow Congress to pass a 1965 amendment to the Social Security Act, described as “an act to provide a hospital insurance program for the aged under the Social Security Act with a supplementary health benefits program and an expanded program of medical assistance, to increase benefits under the Old-Age, Survivors, and Disability Insurance System, to improve the Federal-State public assistance programs, and for other purposes.” We have come to know it as Medicare. Medicare was not to interfere in any way in the physicians’ treatment of Medicare patients – through what we now know in private health insurance as “managed care.” Nor was Medicare allowed to influence the way hospitals were constructed and operated. Finally, the deal called for a completely one-sided payment system.  Under this payment system, Medicare was required to reimburse each individual hospital (and other inpatient facilities) retrospectively for all the money that individual facility reported having spent on treating Medicare patients. The guaranteed rate of return to profits, incidentally, helped the large investor-owned hospital chains get off the ground, because whatever capital outlays on acquiring hospitals the chains made could be so easily recovered through “reimbursement.” Doing well for shareholders in those days was like shooting fish in the barrel.  One need not have a Ph.D. in economics, of course, to appreciate that the deal was inherently inflationary.

ObamaCare Deductibles Hit Patient Pocketbooks And Hospital Finances -  Health plans offered on state and federal marketplaces known as exchanges mean higher deductibles and higher out-of-pocket costs for consumers and potentially less business for hospitals under the Affordable Care Act. A parade of reports out this week looks at the repercussions for consumers who choose high deductible plans to get a lower priced premium and health facilities, which are being pushed further away from fee-for-service medicine to an era when they are paid based on the value of medical care that they provide. “The increasing shift to high deductible health plans meaningfully impacted patient volumes in 2013,” said Jim LeBuhn, senior director and sector head at Fitch Ratings, which said in a report this week that such plans and “rising consumerism” would negatively impact hospital financial ratings. “We expect the growing popularity of these plans to further challenge utilization rates going forward.” When deductibles and co-payments are high, patients tend to think twice about their health care purchases, making them more likely to shop around for the best deal. Fitch sees this impacting hospital patient volumes with choosier patients more likely to demand “price and quality information,” the New York based financial ratings firm said in its report. The move to high deductible plans will only accelerate as millions of Americans join the ranks of the insured under the health care law, these reports indicate.

Obamacare stats still hard to nail down -  When you go to all this trouble to cover the uninsured, is it really that unreasonable to ask how many uninsured people Obamacare has covered so far? The answer, apparently, is: Yes. It’s unreasonable. The truth is, nobody has a good, real-time fix on how successful the Affordable Care Act has been in reducing the ranks of the uninsured. The Obama administration hasn’t been able to say how many of the 3.3 million people who have signed up for private health insurance coverage, or of the 6.3 million who have been determined eligible for Medicaid, were actually uninsured before — and health care experts aren’t sure yet, either. There have been a couple of surveys, and at least one state — New York — has been keeping track of how many people were uninsured when they applied for coverage. But their answers are so wildly different that all we can say is, it’s either a tiny minority that were uninsured, or it’s most of them. Want to narrow that down? You’ll just have to wait. We might have some better hints in April — but it could be next year before there are national numbers that everyone will accept.

Are ObamaCare’s “Retroactive Advance Payments” for Buying Private Policies in States with Failed Exchanges Even Legal? -- Here’s a summary of the administration “fix” in question, otherwise known as a “rule change.” From CNBC: Major tech problems at several state Obamacare enrollment websites are so bad that the federal government Thursday said it would give some people who in frustration bought health insurance outside those websites the tax subsidies that otherwise would be unavailable to them.While the latest Obamacare fix, laid out in a complex, densely worded “guidance,” will affect a relatively small number of people, it is the first time that those subsidies are being allowed to be used for Affordable Care Act-compliant insurance plans bought outside the government-run health exchanges.As part of the fix, the government also will allow people not yet enrolled in health insurance since Jan. 1 because of ongoing problems with some states’ Obamacare marketplaces to be covered retroactively once they obtain a plan from their state’s marketplace. Cost reduction subsidies also will be applied retroactively, according to the rule change by the Centers for Medicare and Medicaid Services.The fix is available to states that adopt a formal process laid out by CMS. No state is obligated to implement the loosened rules.

Florida Food Chain Imposes Obamacare Price Hike - A restaurant chain in Florida is now forcing customers to pay a little extra because of the new health care reform law. At least eight Gator’s Dockside restaurants in central Florida are now charging patrons a one-percent Affordable Care Act surcharge for their meals, the local CBS affiliate reports. “The costs associated with ACA compliance could ultimately close our doors,” reads a sign posted in affected Gator’s restaurants. “Instead of raising prices on our products to generate the additional revenue needed to cover the costs of ACA compliance, certain Gator’s Dockside locations have implemented a 1% surcharge on all food and beverage purchases only.” Gator’s Dockside has about 500 employees, half of whom work full-time, CNN reports. The health care reform law will require companies with 100 or more full-time employees to provide health care coverage for those workers beginning in 2015. Sandra Clark, the company’s director of operations, estimates the law will cost the company about $500,000 per year. The meal surcharge is expected to bring in $160,000 per year. A separate set of Gator’s Dockside restaurants run by a different company will not levy the health care charge.

Medical bills and bankruptcy - One of the great hopes of health care reform is that it will reduce the number of Americans who file for bankruptcy because of medical debt. A new study in Massachusetts is providing evidence that the reform law passed in that state in 2006, and which served as the model for the Affordable Care Act, is indeed making a significant dent in bankruptcy filings. The study, conducted by economists at the Federal Reserve Bank of Chicago, found that the Massachusetts reform law, often called RomneyCare after then GOP Gov. Mitt Romney, has reduced personal bankruptcies in the state by 20 percent. In no other country in the developed world is medical debt a leading cause of personal bankruptcy. But in the U.S. it is the leading cause, a phenomenon even FOXBusiness News highlighted in a report last week. Citing a 2013 study by NerdWallet Health, an online service that helps people make more informed health care decisions, FOX reported that unpaid medical bills were the number one cause of bankruptcy filings in this country, surpassing both credit card and mortgage debt.

Poll: For Right Price, Consumers Will Accept Limited Choice Of Doctors, Hospitals -- As a way to keep costs down and be competitive, insurers across the country have pieced together limited networks of doctors, hospitals and other medical providers. Consumers wanting broader choices of providers are often given the option of buying plans with higher premiums.  The narrow networks have encountered resistance from doctors, patient groups and some insurance regulators, who fear consumers will not grasp their limited options until they seek medical care. Roughly 6 million people this year are expected to buy their own insurance through the health care exchanges that started operation in January. Most people with private insurance still get their coverage through their employer. Among members of that group, limited networks are unpopular, according to the poll from The Kaiser Family Foundation.   Fifty-five percent would rather buy a plan that costs more but allows them to see a wider range of doctors and hospitals, while only 34 percent prefer a less expensive plan with limited providers. However, those views are reversed among people who either lack insurance or are buying their own coverage. Only 35 percent would pay more for a greater array of options, while 54 percent said they would rather save money and accept the narrower choices. That willingness wanes if they are told they cannot visit their usual doctor or hospital. In that case, the share of people buying their own insurance who are willing to go into the narrower network drops from 54 percent to 35 percent. Conversely, more people are willing to embrace a narrower network if told they could save up to 25 percent on their health care costs. After mulling those savings, those who favored the broader network shrunk from 35 percent to 22 percent among the uninsured and people buying coverage on their own.

There’s a reason pediatricians are worried about retail clinics - From the WSJ: Retail health clinics that are popping up in drugstores and other outlets shouldn’t be used for children’s primary-care needs, the American Academy of Pediatrics said, arguing that such facilities don’t provide the continuity of care that pediatricians do. While retail clinics may be more convenient and less costly, the AAP said they are detrimental to the concept of a “medical home,” where patients have a personal physician who knows them well and coordinates all their care. “We want to do all we can to support the concept of ‘medical home’ for kids,” said James Laughlin, lead author of the statement, published in the journal Pediatrics Monday. As I recently said, you need to think about the biases of everyone involved, including the people criticizing stuff.  Why might they be afraid of retail clinics? Retail clinics also are generally open seven days a week, don’t require an appointment, accept more types of insurance than doctors do and charge 30% to 40% less for similar services, studies show. Costs vary widely by region and service offered, but getting a common ailment treated at a retail clinic, without insurance, typically runs between $50 and $75. and: Studies show that people who use retail health clinics tend to be younger, healthier and more affluent than average. As many as 70% of parents who use them have a pediatrician but say they can’t wait for an appointment or take time off work when the doctor’s office is open

Obesity Rate for Young Children Plummets 43% in a Decade - Federal health authorities on Tuesday reported a 43 percent drop in the obesity rate among 2- to 5-year-old children over the past decade, the first broad decline in an epidemic that often leads to lifelong struggles with weight and higher risks for cancer, heart disease and stroke.The drop emerged from a major federal health survey that experts say is the gold standard for evidence on what Americans weigh. The trend came as a welcome surprise to researchers. New evidence has shown that obesity takes hold young: Children who are overweight or obese at 3 to 5 years old are five times as likely to be overweight or obese as adults.A smattering of states have reported modest progress in reducing childhood obesity in recent years, and last year the federal authorities noted a slight decline in the obesity rate among low-income children. But the figures on Tuesday showed a sharp fall in obesity rates among all 2- to 5-year-olds, offering the first clear evidence that America’s youngest children have turned a corner in the obesity epidemic. About 8 percent of 2- to 5-year-olds were obese in 2012, down from 14 percent in 2004.

New F.D.A. Nutrition Labels Would Make ‘Serving Sizes’ Reflect Actual Servings - — The Food and Drug Administration for the first time in two decades will propose major changes to nutrition labels on food packages, putting calorie counts in large type and adjusting portion sizes to reflect how much Americans actually eat.It would be the first significant redrawing of the nutrition information on food labels since the federal government started requiring them in the early 1990s. Those labels were based on eating habits and nutrition data from the 1970s and ’80s, before portion sizes expanded significantly, and federal health officials argued that the changes were needed to bring labels into step with the reality of the modern American diet.  The proposed changes include what experts say will be a particularly controversial item: a separate line for sugars that are manufactured and added to food, substances that many public health experts say have contributed substantially to the obesity problem in this country. The food industry has argued against similar suggestions in the past.

Plastic Corporate Food -- If you haven't heard the story of corporate food manufacturer's adding plastics to your food, you should.  This one is downright disgusting and what it has done to people, health wise, is yet to be seen.  Instead of using good old fashioned yeast for breads, these companies add dough conditioners, which are in fact plastic.  The reason your sandwich looks so good is because it is shellacked. If you’ve planked on a yoga mat, slipped on flip-flops, extracted a cell phone from protective padding or lined an attic with foam insulation, chances are you’ve had a brush with an industrial chemical called azodicarbonamide, nicknamed ADA. In the plastics industry, ADA is the “chemical foaming agent” of choice. It is mixed into polymer plastic gel to generate tiny gas bubbles, something like champagne for plastics. The results are materials that are strong, light, spongy and malleable.  This industrial plastics chemical shows up in many commercial baked goods as a “dough conditioner” that renders large batches of dough easier to handle and makes the finished products puffier and tough enough to withstand shipping and storage. According to the new EWG Food Database of ingredients in 80,000 foods, now under development, ADA turns up in nearly 500 items and in more than 130 brands of bread, bread stuffing and snacks, including many advertised as “healthy.” Please check out this list of foods containing ADA.  It is long and scary on how many trusted brands are on this list.  If you had a gut feeling not to eat these foods, and suspected something funky, turns out your gut instinct was spot on.  Generally speaking listening to your inner self is a good idea for so often that gut feeling turns out to be a major scandal down the road.  This finding makes us wonder what else is in America's food supply?  To put an actual plastic into food is simply outrageous, unethical and shows how little this industry cares about the health and well being of America.

Disturbing Fast Food Truth Not Exactly A Game-Changer For Impoverished Single Mom Of 3 —Despite the release of a new documentary exposing the disturbing practices and adverse health effects associated with the fast food industry, impoverished single mother of three Karen Ford told reporters Thursday that the revelations in the shocking new film haven’t exactly “flipped [her] world upside down.” “Look, I’m working two minimum-wage jobs just to keep my kids fed and clothed, so I can’t say I’m quite ready to throw the playbook out the window just because the cheapest and only locally convenient source of food happens to contain some GMOs and trans fats,” Ford told reporters, noting that the film’s advocacy of cooking most meals at home from fresh produce and sustainably raised meats hasn’t really changed the fact that her take-home pay is just under $400 a week. “Hey, I’d love for my children to be eating perfect five-dollar florets of broccoli and fresh-caught fish from a fancy organic grocer, but the closest one of those stores is four towns away and, after paying for a roof over my kids’ heads and keeping the water flowing in our home, I’m going to go out on a limb and say that our food budget might not be quite big enough to feed me seven nights a week, let alone three growing kids. So I can’t say these hard new truths about fast food have really been a deal-breaker for my family’s dietary habits.” Ford added that she would definitely sit right down and intently watch the full documentary the minute she had a few hours free from her 75-hour workweek and around-the-clock parenting duties

Panel Says Most Carotid Screening Is Unnecessary  - The U.S. Preventive Services Task Force has targeted another common screening test as being overused and too often resulting in inappropriately aggressive follow-up care. This one involves taking ultrasound pictures of the arteries in the neck. We’ve explained the USPSTF’s less-is-more guidelines for ovarian, prostate and breast cancer screenings, to name a few. This time, as explained on, the task force reaffirmed its original recommendation in 2007 that adults who don’t show symptoms of narrowed carotid arteries should not be screened for the disorder. After reviewing the latest evidence, the USPSTF concluded "with moderate certainty that the harms of screening for asymptomatic carotid artery stenosis outweigh the benefits." Humans have two carotid arteries, running up either side of the neck. They are the major highways delivering blood to the brain. Narrowed carotid arteries increase the risk of stroke, but nobody yet knows really good ways to cut that risk or figure out who is at the highest risk.

FDA panel debates technique that would create embryos with three genetic parents - The provocative notion of genetically modified babies met the very real world of federal regulation Tuesday, as a government advisory committee began debating a new technique that combines DNA from three people to create embryos free of certain inherited diseases. The two-day meeting of the Food and Drug Administration panel is focused on a procedure that scientists think could help women who carry DNA mutations for conditions such as blindness and epilepsy. The process would let them have children without passing on those defects. The debate over whether the technique — nicknamed “three-parent IVF” — should be allowed to proceed to human tests underscores how quickly the science of reproductive medicine is evolving. Scientists argue that this technology, like cloning and embryonic stem cell research, has huge potential to help people. But it is also highly sensitive, touching ethical and political nerves.  The technology involves taking defective mitochondria, the cell’s powerhouses, from a mother’s egg and replacing them with healthy mitochondria from another woman. After being fertilized by the father’s sperm in a lab, the egg would be implanted in the mother, and the pregnancy could progress normally.

Rare 'polio-like' disease reports: US doctors are warning of an emerging polio-like disease in California where up to 20 people have been infected. A meeting of the American Academy of Neurology heard that some patients had developed paralysis in all four limbs, which had not improved with treatment. The US is polio-free, but related viruses can also attack the nervous system leading to paralysis. Doctors say they do not expect an epidemic of the polio-like virus and that the infection remains rare. Polio is a dangerous and feared childhood infection. The virus rapidly invades the nervous system and causes paralysis in one in 200 cases. It can be fatal if it stops the lungs from working. Global vaccination programmes mean polio is endemic in just three countries - Afghanistan, Nigeria and Pakistan.  There have been 20 suspected cases of the new infection, mostly in children, in the past 18 months, A detailed analysis of five cases showed enterovirus-68 - which is related to poliovirus - could be to blame. In those cases all the children had been vaccinated against polio. Symptoms have ranged from restricted movement in one limb to severe weakness in both legs and arms.

Virus that caused flu pandemic dominates again - The swine flu responsible for the pandemic five years ago is once again the dominant strain in North America. This doesn't mean we are in the midst of another swine flu pandemic, but it does mean that people of working age are once again hardest hit by the virus, which has been hanging around since 2009. So far, more than 60 per cent of people in the US who have caught severe flu this season, or died of it, are between 18 and 64 years old. This is similar to rates during the pandemic but double the number of severe cases in this age group in the past three winters, when the H3N2 virus – which is more likely to hit older people – was top dog in North America. Only about a third of severe cases in the US this year are in people over 65. Tom Frieden, head of the US Centers for Disease Control and Prevention in Atlanta, Georgia, last week, chalked this up to working-age adults being half as likely to get a flu shot as older ones. But this can't be right: vaccination rates were similar last winter, when severe flu hit more than twice as many older adults as younger ones. And the vaccine is only about 60 per cent effective, even less in over-65s, making it seem even less likely to account for the shift.

Study Connects Monsanto’s Roundup to Fatal Kidney Disease Epidemic -- CKDu, a disease which is almost completely treatable in wealthier countries, has killed more people in El Salvador and Nicaragua than diabetes, AIDS and leukemia combined, over the last five years on record, according to the Center for Public Integrity. The study, Glyphosate, Hard Water and Nephrotoxic Metals: Are They the Culprits Behind the Epidemic of Chronic Kidney Disease of Unknown Etiology in Sri Lanka? hypothesizes that while Roundup (also known as glyphosate) is toxic, it is not solely capable of destroying kidney tissue on the scale recently seen in rice paddy regions of Northern Sri Lanka, or in El Salvador where it is the second leading killer of men.  The researchers propose glyphosate becomes extremely toxic to the kidneys when it’s combined with “hard” water or heavy metals like arsenic and cadmium, either naturally present in the soil or added externally through the spread of fertilizer. The new hypothesis explains a number of observations linked to the disease, including why afflicted regions like Sri Lanka have seen a strong association between the consumption of hard water and the occurrence of the kidney disease, with 96 percent of CKDu patients having drunk hard or very hard water for at least five years.

USDA Invests $3 Million Into Program To Boost Honeybee Numbers -Commercial and wild honeybee populations have been declining for more than a decade in the U.S. and across the globe, a loss that poses a major threat to the world’s food supply. Scientists have scrambled to determine exactly what’s causing the bees to die, and what can be done to help save them. Now, in an attempt to boost honeybee numbers, the U.S. Department of Agriculture is investing $3 million into a program that pays farmers in Michigan, Minnesota, North Dakota, South Dakota, and Wisconsin to reseed their fields with bee-friendly cover crops like clover and alfalfa, as well as providing incentives for farmers to make changes to their farm so that their farm animals can move freely from pasture to pasture, allowing vegetation in pastures to recover and grow plants that bees are attracted to. The USDA chose the five Midwestern states because most beekeepers bring their bees there during the summer — the Midwest acts as a “resting ground” for the bees, which gather pollen for the winter months there.  The USDA says 65 percent of the approximately 30,000 commercial beekeepers in the U.S. bring their bees to the Midwest each year, and some farmers are beginning to take up the practice because fields in their region don’t provide enough food for their bees. Tim Tucker, a beekeeper with hives in Kansas and Texas, told the AP he’s considering taking his bees to South Dakota this year.

U.S.D.A. says food prices to rise 2.5% to 3.5% in 2014 -- The all-food component of the Consumer Price Index was forecast to rise 2.5% to 3.5% in 2014, according to the U.S. Department of Agriculture’s Food Price Outlook issued Feb. 25. Such a level of price inflation would represent a jump from 1.4% in all-food price inflation in 2013, the report said. Foods consumed at home with the highest price inflation forecasts in 2014 were beef, veal and poultry, expected to show a 3% to 4% rise in prices compared with 2013. The food items expected to show the lowest rates of price inflation were fats, oils, cereals and bakery products, whose prices were expected to show price advances of 1.5% to 2.5% in 2014, the Food Price Outlook said. Forecast changes in prices paid to producers (the Producer Price Index) for 2014 showed a wider range of changes. On the high end, prices paid to farmers for cattle were expected to rise 5% to 6% in 2014. Farm eggs were expected to rise 4% to 5% in 2014. Some of the widest declines in producer prices forecast for 2014 included farm-level soybeans and wheat, expected to fall in price by 7% to 8% in 2014 compared with 2013, and wholesale wheat flour, which was expected to decline in price by 9% to 10% from the previous year, the U.S.D.A. said.

USDA estimates that 31% of the food supply is lost and uneaten --  A new report from USDA's Economic Research Service finds:  In the United States, 31 percent—or 133 billion pounds—of the 430 billion pounds of the available food supply at the retail and consumer levels in 2010 went uneaten. The estimated value of this food loss was $161.6 billion using retail prices. For the first time, ERS estimated the calories associated with food loss: 141 trillion in 2010, or 1,249 calories per capita per day.

Can the World Feed China?  Overnight, China has become a leading world grain importer, set to buy a staggering 22 million tons in the 2013–14 trade year, according to the latest U.S. Department of Agriculture projections. As recently as 2006—just eight years ago—China had a grain surplus and was exporting 10 million tons.    Since 2006, China’s grain use has been climbing by 17 million tons per year. (See data.) For perspective, this compares with Australia’s annual wheat harvest of 24 million tons. With population growth slowing, this rise in grain use is largely the result of China’s huge population moving up the food chain and consuming more grain-based meat, milk and eggs. In 2013, the world consumed an estimated 107 million tons of pork—half of which was eaten in China. China’s 1.4 billion people now consume six times as much pork as the United States does. Even with its recent surge in pork, however, China’s overall meat intake per person still totals only 120 pounds per year, scarcely half the 235 pounds in the U.S. But, the Chinese, like so many others around the globe, aspire to an American lifestyle. To consume meat like Americans do, China would need to roughly double its annual meat supply from 80 million tons to 160 million tons. Using the rule of thumb of three to four pounds of grain to produce one pound of pork, an additional 80 million tons of pork would require at least 240 million tons of feedgrain. Where will this grain come from? Farmers in China are losing irrigation water as aquifers are depleted. The water table under the North China Plain, an area that produces half of the country’s wheat and a third of its corn, is falling fast, by more than 10 feet per year in some areas. Meanwhile, water supplies are being diverted to nonfarm uses and cropland is being lost to urban and industrial construction. With China’s grain yield already among the highest in the world, the potential for China to increase production within its own borders is limited.

Waterkeepers Urge Governor to Declare State of Emergency on Pig Deaths from PED -- Facts you need to know about the PED epidemic:

  • Industrial hog facilities across North Carolina have been struck by (PED), a fast-spreading virus that kills piglets.
  • PED is believed to have originated in China and appeared in the U.S. last spring. Since then, the epidemic has spread to more than two-dozen states.
  • In North Carolina, home to around 10 million hogs and the highest concentration of hog feeding operations in the country, nearly 100 cases per week have been reported, however, that number is most likely fairly low since farmer’s aren’t required to report new cases of PED.
  • While PED cannot be transmitted directly to humans, the massive numbers of pigs that have died from this virus pose a significant threat to public health if not disposed of in a manner that is safe to the public. There is currently little or no local or state government oversight of carcass disposal.

The Global Drinking Water Crisis That Is Hitting Close to Your Home - If you live in Alabama, Georgia, Maryland, Arkansas or New York, and certainly if you live in West Virginia or North Carolina, you know how tenuous and precious our water supplies are -- or you should.  Climate change, extreme energy extraction methods and preventable accidents spurred by loosening restrictions mean that more of us in more parts of the U.S. can't find water that's safe for drinking, cooking and bathing, or we can't find test results to reliably prove our water is safe. That's become painfully apparent to the people of West Virginia, where the governor is now stepping back from his earlier assurances about the safety of drinking water after a chemical spill into the Elk River.  The ways in which we test water safety contribute to this distrust. For example, in Eden, North Carolina, where contaminants from a Duke Energy coal ash dump are still leaching into the Dan River, the government is using instantaneous testing to ascertain water safety levels. Instantaneous testing is exactly what it sounds like; officials dip a glass jar at the surface of the water and pull up a small sample. Whatever they get in that jar at that moment and at the surface of the river is what they use to determine the health of the entire water column. That approach makes little sense when the people who will consume, cook with and bathe in that water will do so for many, many instants. Alternatively, cumulative testing is far more indicative of what we should know about the chemicals in our water. By absorbing contaminants over time, we are sampling not just from the surface, but at all levels of the water column.

California drought: communities at risk of running dry - It is a bleak roadmap of the deepening crisis brought on by one of California's worst droughts - a list of 17 communities and water districts that within 100 days could run dry of the state's most precious commodity. The threatened towns and districts, identified this week by state health officials, are mostly small and in rural areas. They get their water in a variety of ways, from reservoirs to wells to rivers. But, in all cases, a largely rainless winter has left their supplies near empty. In the mountain town of Lompico in Santa Cruz County, the creek that provides the community with water has run dry, while three wells that tap an underground aquifer aren't drawing as much as usual. The water district has required its 1,200 or so customers to scale back water use by 30 percent to preserve what little water it has, but officials aren't sure the conservation targets are realistic."Here's the problem: We live in the Santa Cruz Mountains. People don't have lawns. They don't have gardens. How are they going to conserve 30 percent?"

Feds Withhold Water To California Farmers For First Time In 54 Years - The US Bureau of Reclamation released its first outlook of the year and finds insufficient stock is available in California to release irrigation water for farmers. This is the first time in the 54 year history of the State Water Project. "If it's not there, it's just not there," notes a Water Authority director adding that it's going to be tough to find enough water, but farmers are hit hardest as "they're all on pins and needles trying to figure out how they're going to get through this." Fields will go unplanted (supply lower mean food prices higher), or farmers will pay top dollar for water that's on the market (and those costs can only be passed on via higher food prices). Via AP, Federal officials announced Friday that many California farmers caught in the state's drought can expect to receive no irrigation water this year from a vast system of rivers, canals and reservoirs interlacing the state. The U.S. Bureau of Reclamation released its first outlook of the year, saying that the agency will continue to monitor rain and snow fall, but the grim levels so far prove that the state is in the throes of one of its driest periods in recorded history. Unless the year turns wet, many farmers can expect to receive no water from the federally run Central Valley Project. ... the state's snowpack is at 29 percent of average for this time of year.

Drought-Stricken California to Get No Irrigation Water; 17 California Communities Could Run Dry; Higher Food Prices Expected; Is Shutting Off Irrigation Water a Good Idea? --- As the California Farm Drought Crisis Deepens, a federal agency rules agricultural heartland won’t get any federal irrigation water this summer.  In a move that will likely signal higher food prices nationally, a federal agency says California’s drought-stricken Central Valley — hundreds of thousands of acres of the most productive farmland in the U.S. — won’t get any irrigation water this summer. Friday’s announcement by the U.S. Bureau of Reclamation follows an earlier warning of no irrigation deliveries from the California State Water Project and leaves Central Valley farms and cities with only wells and stored water to get through the worst drought since the state began keeping records in the 1800s.  Statewide, some 8 million acres of farmland rely on federal or state irrigation water. California Gov. Jerry Brown has declared a state of emergency following reports that the water content of snow in Northern California’s Sierra Nevada, whose spring runoff is stored in reservoirs and moved by canals to other areas of the state, stands at 29% of normal.  The announcement is significant because California is the largest U.S. agriculture producer. According to the U.S. Department of Agriculture’s most recent California Agricultural Statistics for the 2012 crop year, the state remains the leading state in cash farm receipts, with more than 350 commodities representing $44.7 billion, or 11% of the U.S. total, in 2012. Over a third of the U.S.’s vegetables and almost two-thirds of its fruits and nuts were produced in California, the USDA’s National Agricultural Statistics Service said in a report. The federal agency’s announcement will particularly affect San Joaquin Valley farmers who are last in line to receive federal water, San Jose Mercury News reported, adding that many farmers will have to pump already overtaxed wells or leave fields fallow this year. Farmers will leave 500,000 acres of fallow this year,

The Severity of California's Terrible Drought, in One Image -- California just suffered its driest year in 119 years, and the horrid drought that's plaguing the state (and much of the American West) still shows no sign of relaxing its withering grip. But how bad is it, really? Well, it's so dry that "grass-fed beef" is becoming "grain-fed beef," as ranchers can't find any grass to feed their cattle. Things are so parched that the state's municipal water system has announced it can't get water to many farmers. But if you want one image to convey the extreme nature of the drought, try this comparison of photos on for size. They show the water level at Folsom Lake near Sacramento in 2011 and 2014. Two-and-a-half years ago, this reservoir was at 97 percent of its capacity (and 130 percent of its historical average for summer). But last month it was as if somebody had pulled out a massive sink plug and drained the lake into a quagmire. The lake was at a mere 17 percent capacity, and 35 percent of its historical average, with vast stretches of its basin the concrete color of the nearby Folsom Dam. This stark comparison was released to the public this week by the California Department of Water Resources, which announced that it will continue to partner with NASA to monitor and prepare for the diminishing water resources. The agencies will be performing a number of collaborative projects this year, such as flying over the Tuolumne River Basin to determine the health of this source of H2O for 2.6 million people in the Bay Area. Explains NASA:

Play It Again: January Continues Globe's Warm Trend - Last month was the fourth-warmest January since recordkeeping began in 1880. It was also the 347th consecutive month with above-average temperatures compared to the 20th century average, which has been fueled in large part by climate change. That streak is one month shy of 29 straight years. Global average temperatures were also among their top 10 warmest for the ninth straight month, according to data released Thursday by the National Oceanic and Atmospheric Administration (NOAA). Global average temperatures over land and sea in January checked in 1.17°F above the 20th century average. This is the 38th consecutive January with above-normal temperatures and the warmest since 2007. The last January cooler than the 20th century average was in 1976, the month the Concorde took its inaugural flight and Jimmy Carter won the Iowa caucus. Siberia was the most anomalously cold place on the planet, with temperatures running as much 9°F below the long-term average. However, many more areas experienced above normal temperatures. France, Spain, Austria, and Switzerland all recorded one of their top 5 warmest Januarys on record. A series of strong winter storms have also drenched the region. China had its second-warmest January recorded while much of southern Africa experienced record warmth. A heat wave also vaulted Australia to its 12th-warmest January since 1910.

An El Niño Coming in 2014? | Weather Underground: We are seeing increasing evidence of an upcoming change in the Pacific Ocean base state that favors the development of a moderate-to-strong El Niño event this Spring/Summer. To begin, here is a snap shot of global sea-surface temperature (SST) anomalies (the departure of temperature from average) 30 days ago: Note the relatively weak look to the SST anomaly pattern in the equatorial Pacific, with warm anomalies in the western half of the basin and mixed warm and cold anomalies in the eastern half of the basin. The mixed warm/cold signals in the equatorial eastern Pacific are the result of instability “easterly” waves in the ocean, which are associated with short distances between “warm” and “cold” phases. Now let’s compare to what the SST anomaly map looks this week: We’ve observed strong cooling in the eastern half of the Pacific Basin, giving a spatial map that strongly resembles “La Niña”--the opposite of El Niño. So why I am pushing the idea that El Niño might be right around the corner if the map looks like La Niña!?It comes down to ocean dynamics. There are other types of waves that are deep in the Pacific Ocean. One such wave is called an “Oceanic Kelvin Wave”. Oceanic Kelvin waves travel only from West to East at extremely slow speeds (2-3 m/s). These waves have been alluded to as the facilitators of El Niño. There two phases of an Oceanic Kelvin wave, the “Upwelling” phase and the “Downwelling” phase. The Upwelling phase of an Oceanic Kelvin wave pushes colder water from the sub-surface towards the surface, resulting in cooling at the surface. The Downwelling phase of an Oceanic Kelvin wave is the opposite, where warmer waters at the surface of the West Pacific warm pool are forced to sink, resulting a deepening of the thermocline and net warming in the sub-surface.

Heatwave frequency 'surpasses levels previously predicted for 2030' - The government has been urged to better articulate the dangers of climate change after a report that shows the frequency of heatwaves in parts of Australia has already surpassed levels previously predicted for 2030. The Climate Council report highlights that Adelaide, Melbourne and Canberra all experienced a higher average number of hot days between 2000 and 2009 than was expected to occur by 2030. Research by the CSIRO forecast that Melbourne would experience an average of 12 days over 35C each year from 2030, but the average over the past decade was 12.6 days. Adelaide experienced an average of 25.1 days a year over 35C in this time, while Canberra surpassed this mark an average of 9.4 days. The annual number of record hot days across Australia has more than doubled since 1950, according to the Climate Council report, with the south-east of the country at particular risk from more frequent heatwaves, drought and bushfires.

Climate change refugees are our responsibility - Australia needs to plan for an influx of climate change refugees from neighbouring countries that face ever increasing risks from cyclones, rising sea levels and more severe droughts, according to a researcher at the University of Technology, Sydney (UTS). Fears about waves of mass migration from climate change are unfounded, says the university's Elaine Kelly. But Dr Kelly, a UTS Chancellor's Post Doctoral Research Fellow, says Australia should start planning migration streams that include people who have lost their homes to climate change, in addition to those we already accept for other humanitarian reasons. "The reality is climate change will provoke more displacement, and displacement of those who are most poor," says Dr Kelly. "How are we going to plan for that?" The international community is now talking less about how to cut carbon dioxide (CO2) levels in the atmosphere and more about how to cope with the dramatic changes excessive amounts of CO2 will have on climate and temperatures, she says. One of the solutions is planned migration from those areas particularly vulnerable to the effects of climate change to less vulnerable places. It is a major shift in thinking that has yet to be adopted by Australian politicians.

Rising sea levels threaten Los Angeles - Los Angeles, City of the Angels in southern California, sits on a flat shelf of the Pacific coast of America, with a view of the sea. And if climate scientists are right, it could soon have an even closer view of the sea. The city of more than 12 million people occupies 12,000 square kilometres of land, much of it no more than three metres above sea level. By 2050, rising sea levels could pose a threat to the infrastructure, museums and historic buildings of this great capital of entertainment, education, business, tourism and international trade, according to a new study by the University of Southern California. “Some low-lying areas within the city’s jurisdiction, such as Venice Beach and some areas of Wilmington and San Pedro, are already vulnerable to flooding,” says Phyllis Grifman, lead author of the report, commissioned by the city and the USC Sea Grant Program. “Identifying where flooding is already observed during periods of storms and high tides, and analyzing other areas where flooding is projected, are key elements to effective planning for the future.” The city has already started to prepare for climate change: in June last year it published a report from the University of California Los Angeles on the pattern of snow fall and spring melt over recent decades and the ominous message for winter sports and summer water levels.

The Flood Next Time - Much of the population and economy of the country is concentrated on the East Coast, which the accumulating scientific evidence suggests will be a global hot spot for a rising sea level over the coming century.The detective work has required scientists to grapple with the influence of ancient ice sheets, the meaning of islands that are sinking in the Chesapeake Bay, and even the effect of a giant meteor that slammed into the earth.The work starts with the tides. Because of their importance to navigation, they have been measured for the better part of two centuries. While the record is not perfect, scientists say it leaves no doubt that the world’s oceans are rising. The best calculation suggests that from 1880 to 2009, the global average sea level rose a little over eight inches.  That may not sound like much, but scientists say even the smallest increase causes the seawater to eat away more aggressively at the shoreline in calm weather, and leads to higher tidal surges during storms. The sea-level rise of decades past thus explains why coastal towns nearly everywhere are having to spend billions of dollars fighting erosion. The evidence suggests that the sea-level rise has probably accelerated, to about a foot a century, and scientists think it will accelerate still more with the continued emission of large amounts of greenhouse gases into the air. The gases heat the planet and cause land ice to melt into the sea.The official stance of the world’s climate scientists is that the global sea level could rise as much as three feet by the end of this century, if emissions continue at a rapid pace. But some scientific evidence supports even higher numbers, five feet and beyond in the worst case.

Arctic Sea Ice Sits at Record Low for Mid-February -- Arctic sea ice growth has slowed dramatically in recent weeks, thanks in large part to abnormally warm air and water temperatures. Sea ice now sits at record low levels for mid-February. According to the National Snow and Ice Data Center, as of February 18, sea ice covered about 14.36 million square kilometers in the Arctic. The previous low on this date was 14.37 million square kilometers in 2006.  The main culprit — in addition to the overall trend of global warming — is likely the rash of warm temperatures. With the polar vortex bringing cold air down to the U.S. this winter, warmer temperatures have been the norm in the Arctic. From February 1-17, temperatures were 7.2° to 14.4°F above normal for much of the Arctic. Some areas have been even warmer.

Arctic ‘is set to reach 13 °C by 2100′ -- US scientists say that by the end of this century temperatures in the Arctic may for part of each year reach 13 °C above pre-industrial levels. Global average temperatures have already risen by about 0.8 °C over the level they were at in around 1750. The Intergovernmental Panel on Climate Change said in its 2013 Fifth Assessment Report that it thought the probable global temperature rise by 2100 would be between 1.5 and 4 °C under most scenarios. Most of the world’s governments have agreed the global rise should not be allowed to exceed a “safety level” of 2 °C. [There is no scientific basis for thinking that a "2 °C" temperature rise is "safe" -- this was simply a politically expedient number.] But James Overland, of the US National Oceanic and Atmospheric Administration, and colleagues, writing in the American Geophysical Union’s journal Earth’s Future, say average temperature projections show an Arctic-wide end of century increase of 13 °C in the late autumn and 5°C in late spring for a business-as-usual emission scenario. By contrast, a scenario based on climate mitigation would reduce these figures to 7 °C and 3 °C, respectively. The team say they consider their estimates “realistic,” and they have used a large number of models in reaching them.

Global Warming ‘Hiatus’ Caused By Volcanoes’ ‘Cooling Effect,’ Study Says Eruptions Slow Global Temperature Rise - According to a new study, published in the journal Nature Geoscience, volcanoes are the reason the average rate of warming dropped from .31 degrees Fahrenheit per decade between 1970 and 1998 to .072 degrees Fahrenheit per decade between 1998 and 2012. This “muted surface warming” was the result of a series of 17 small volcanic eruptions, beginning in 2000, that spewed enough aerosols into the atmosphere to explain the disparity between climate change models and actual warming trends. The reason is what researchers call the “cooling influences” of volcanic gases. Sulphur has a sun-blocking effect, scattering incoming sunlight and offsetting emissions of heat-trapping gases. The influence of these volcanic ejections has been largely ignored, researchers claim. Scientists say the effect accounts for about 15 percent of the difference between predicted and observed warming since 2000. "Part of the lack of the increase in warming for the last 15 years may be due to the cooling effect of volcanoes," Céline Bonfils told Live Science. The cooling impact of volcanic eruptions, including the 2011 Nabro eruption in Eritrea, the 2008 Kasatochi eruption in Alaska and the 2010 Merapi eruption in Indonesia, could explain why Earth’s warming climate has paused. According to Reuters, large volcanic eruptions can dim global sunshine for years. But scientists are increasingly learning that even small eruptions can have a dimming effect.

Limitations of climate engineering - Despite international agreements on climate protection and political declarations of intent, global greenhouse gas emissions have not decreased. On the contrary, they continue to increase. With a growing world population and significant industrialization in emerging markets such as India and China the emission trend reversal necessary to limit global warming seems to be unlikely. Therefore, large-scale methods to artificially slow down global warming are increasingly being discussed. They include proposals to fertilize the oceans, so that stimulated plankton can remove carbon dioxide (CO2) from the atmosphere, or to reduce the Sun's incoming radiation with atmospheric aerosols or mirrors in space, so as to reduce climate warming. All of these approaches can be classified as "climate engineering". "However, the long-term consequences and side effects of these methods have not been adequately studied," says Dr. David Keller from the GEOMAR Helmholtz Centre for Ocean Research Kiel. Together with colleagues the expert in earth system modeling has compared several Climate Engineering methods using a computer model. The results of the study have now been published in the internationally renowned online journal Nature Communications.

The Latest from Dr. Chu - In beginning his discussion about climate change, Dr. Chu addressed the attitude by some who say that peak oil, or the running out of oil will happen, and that when it does, that will take care of greenhouse emissions — so we really don’t need to worry. Dr. Chu denied that this is likely to happen, as he sees that technology for finding oil is racing forward, with the ability to recover an ever growing percentage of the oil from wells, and citing for example, that now we can extract oil that is two miles deep quite affordably. Thus, he said we will easily be able to cook ourselves with gas and oil alone, not even counting coal. Dr. Chu is very “bullish” on batteries, and reports good progress in battery technology.  A big concern of Chu’s in energy demand here in the U.S. comes from data centers. On our current trajectory, he reports that the two percent of electricity that servers now use could become ten percent by 2020. He called our attention to the fact that biodegradable bioplastics are bad, because they release carbon, whereas non-biodegradable plastic is better, because it sequesters carbon.  In another agriculture-related topic, he reminded us that a whopping 22 percent of the energy used by the state of California is used to move water. In all of the water shortage headlines lately about California, that is a startling fact which you seldom see.

Trans-Pacific Partnership leaked summary shows U.S.’s attempt to take climate and environmental protections out of trade pact - “Climate change” has gone missing in trade talks between the United States and 11 Pacific Rim countries. Top U.S. trade negotiators appear to be trying to steer their counterparts away from even using the phrase in the massive Trans-Pacific Partnership pact, a leaked summary of the the U.S.’s most recent proposal seems to show. The document indicates that the White House’s rewrite would replace “trade and climate change” as the title of a section with “transition to a low-emissions economy.” That’s not all. The United States also wants to nix references to a United Nations climate change agreement and drop references to “adaptation,” meaning the anticipation of adverse effects of global warming and attempts to minimize the harm ahead of time, according to the summary, which was published by the Peruvian human rights group RedGE. In a section on biodiversity, the United States’ proposal would expunge language that guarantees the countries’ rights to determine access to their natural and “genetic resources,” a change that would seem to enhance corporate access to those materials, environmental advocates said. The U.S. proposal is “incredibly disappointing,” said Ilana Solomon, director of the Sierra Club’s Responsible Trade Program. “The United States is weakening an already weak text. The proposal should be strongly opposed by other governments, and has to be strengthened,” Solomon said.

Degrees of Responsibility for Climate Catastrophe – 1 - The climate crisis is an event with such profound personal and broadly social moral implications that many shy away from discussing the crisis itself let alone its ethical aspects.  Via our society’s use of fossil fuels we are, if our combustion of these fuels remains unchecked and in addition we further destroy the carbon fixing capacity of natural systems, destroying almost all wealth, the likelihood of their being future civilizations, and even the possibility for existence for future generations.  To continue ignoring climate change and effective climate action is definitely an après moi le deluge stance, an expression of callousness and self-absorption unsupportable by moral justification.  Morality and ethics is here not an exotic preoccupation of a select group but a basic reality-check:  does what we are doing make sense and promote the general ends to which these activities are devoted?  How do we assess our own agency and role and those of others, in events that are occurring around us and will with very high likelihood exacerbate in the future? In addition to the lulling effects of the organized climate denial industry as well as propaganda for fossil fuels broadcast in all media channels, one of the difficulties facing climate change activism is that, taking effective, durable action is not primarily an individual phenomenon but a massive group enterprise, ideally with full participation and leadership by governments.  It is difficult for people to understand how a sense of personal ethical obligation, which people may or may not feel, can translate into effective action, given the uncertainties and variability of the participation of others and of the varying, non-existent, or contrary commitments of social institutions to the necessary changes in our energy system.  With some justification, people on the ground believe they are, in their isolation, too small and insignificant to remake the energy basis of society and the economy.

Catastrophic Solar Storm Inevitable, Insurers Warn --  The sun erupted on Monday, releasing a powerful flare that happened to point away from earth, a lucky break for earthlings. In 1859, a similar solar eruption knocked out telegraph systems across Europe and North America, and had Rocky Mountain gold miners up for breakfast at 1 a.m. because they thought it was daytime. Analysts say that another solar storm as severe as that 1859 event is inevitable, will be much more costly–and they note ominously that the sun is now near the peak of its activity cycle. The threat of solar storm is serious enough that in January, the Federal Energy Regulatory Commission proposed adoption of new standards to address “potentially severe, widespread effects on reliable operation of the nation’s bulk-power system,” according to a statement. Last year, Commissioner Cheryl A. LaFleur said in a statement, “While there is debate over whether a severe GMD [geomagnetic disturbance] event is more likely to cause the system to break apart due to excessive reactive power consumption or to collapse because of damage to high-voltage transformers and other vital equipment, there is no debate that the widespread blackouts that could result under either scenario are unacceptable.”

U.S. Army’s $7 Billion Interest in Renewable Energy - Slowly but surely, the U.S. armed forces are getting serious about renewable energy. In April 2012, the White House announced the Defense Department was making one of the largest commitments to clean energy in history, by setting a goal to deploy three gigawatts of renewable energy, including solar, wind, biomass or geothermal on Army, Navy and Air Force installations by 2025, enough energy to power 750,000 homes. The Army’s share of the initiative was the energy goal of generating one gigawatt. Four months later, on 7 August 2012, the Army announced a $7 billion Multiple Award Task Contract (MATOC) Request for Proposal (RFP), designed to assist the Army in procuring reliable, locally generated, renewable and alternative energy through Power Purchase Agreements (PPA) for up to 30 years.  Since January 2014 the U.S. Army has added 21 companies to its $7 billion large-scale renewable and alternative energy power production MATOC program, covering work to develop and produce renewable energy for the Army and Defense Department. According to the Army Corps of Engineers, 79 contractors are now involved in the three decade program, with those selected competing for task orders to provide renewable energy by owning, operating and maintaining the energy assets.

US To Sell Nuclear Fuel To Former Foe Vietnam, Will Permit Uranium Enrichment -There was a time when Vietnam was America's staunchest proxy war foe. This is not those times which explains why yesterday the president signed a landmark, controversial and not to mention hypocritical deal with Vietnam in which allows the U.S. to sell nuclear fuel and technology to its former foe, which will then be allowed to further enrich it. Why (because there is always a reason when the US does something so unexpected, and especially when nuclear power is involved)? Simple: as the Hill explains, the US "aims to help guarantee Vietnams' energy independence as China asserts a more prominent role in the region." Of course, the last time the US sought to prevent Vietnam's affiliation with a foreign superpower, the results were quite disastrous. One can only hope this time it's different.

New tests show elevated radiation near WIPP 24 Feb 2014 New test results indicate "slightly elevated" levels of airborne radiation near a nuclear waste repository in southeast New Mexico, the U.S. Department of Energy said Monday. Samples taken from spots on and around the Waste Isolation Pilot Plant outside Carlsbad show radiation levels below those considered a public or environmental hazard, the DOE said in a statement. The DOE said the data show a potential dose of less than one millirem — a calculation of radioactivity exposure — at each of the sampling locations. By comparison, a single chest x-ray can deliver a dose of about 10 millirems.

13 Were Exposed to Radiation at New Mexico Plant 27 Feb 2014 Thirteen workers at the nation's underground nuclear waste dump in southeastern New Mexico have tested positive for radiation exposure after a recent leak released toxic radioactive particles in and around the plant, officials announced.  WIPP officials have said no employees were underground when a radiation detector went off late Feb. 14. And everyone at the plant when the leak occurred was checked for contamination before being allowed to leave, the news release said. But biological samples were also taken to check for possible exposure from inhaling radioactive particles. But watchdog Don Hancock, director of the Nuclear Waste Safety program at the Southwest Research and Information Center, said the fact that the workers were exposed raises questions about those claims."The WIPP systems right now are in the guinea pig stage," he said. "We know in theory what they were designed to do but we don't know how well they worked because they have never been tried." The accident is [allegedly] the first-known release of radiation since the dump near Carlsbad began taking plutonium-contaminated waste from the nation's nuclear bomb building sites 15 years ago. It came just nine days after a truck hauling salt in the plant's deep mines caught fire, but officials say they are confident the incidents are unrelated.

WIPP Plutonium Leak May Have Been From Ceiling Collapse -- Officials are considering a ceiling collapse that crushed radioactive waste barrels containing plutonium as a possible cause for the radiation leak detected almost a week ago at the WIPP facility. The head of the facility admitted they think a container has been breached. One possible cause officials gave to the press was that the ceiling in the area may have fallen in crushing the barrels and causing some to open, leaking plutonium. “No one has gone below the surface since the event, so officials can only hypothesize about what happened. Drums of low level waste are piled up in stacks underground and one of the working theories right now is that a big slab of the roof broke free, hit the stack, knocked some drums off and smashed and opened one or more of them.” In our early report we identified the location DOE considers to be the possible location of the plutonium release. It is in a section of the facility where they are currently loading waste for permanent storage. This theory of the roof falling in is certainly credible. A local opposition group documented the delaminating and ongoing failures of the ceiling of the panel 1 area even before they were done loading the area, this is the first section of the mine to be used.

Fukushima’s Radioactive Ocean Water Arrives At West Coast - Radiation from Japan's leaking Fukushima nuclear power plant has reached waters offshore Canada, researchers said today at the annual American Geophysical Union's Ocean Sciences Meeting in Honolulu. Two radioactive cesium isotopes, cesium-134 and cesium-137, have been detected offshore of Vancouver, British Columbia, researchers said at a news conference. The detected concentrations are much lower than the Canadian safety limit for cesium levels in drinking water, said John Smith, a research scientist at Canada's Bedford Institute of Oceanography in Dartmouth, Nova Scotia. Tests conducted at U.S. beaches indicate that Fukushima radioactivity has not yet reached Washington, California or Hawaii,  "We have results from eight locations, and they all have cesium-137, but no cesium-134 yet," Buesseler said. (Isotopes are atoms of the same element that have different numbers of neutrons in their nuclei. In this case, cesium-137 has more neutrons than cesium-134.) The scientists are tracking a radioactive plume from Japan's Fukushima Daiichi nuclear power plant. The initial nuclear accident from the Fukushima reactors released several radioactive isotopes, such as iodine-131, cesium-134 and cesium-137. Cesium-137 has a half-life of 30 years and remains in the environment for decades. Cesium-134, with a half-life of only two years, is an unequivocal marker of Fukushima ocean contamination, Smith said. "The only cesium-134 in the North Pacific is there from Fukushima," he said. Cesium-137, on the other hand, is also present from nuclear weapons tests and discharge from nuclear power plants.

Fukushima Radiation Reaches Waters Off the Coast Of Canada, Expected To Reach U.S. In April - Fukushima may have reached North American shores. Water samples collected off the coast of Vancouver, British Columbia, had trace amounts of radionuclides associated with the disastrous 2011 radiation leak at the Japanese nuclear plant, according to research presented at the Ocean Sciences Meeting on Feb. 24.  The levels of radioactive cesium isotopes are well below safe limits and researchers from the Woods Hole Oceanographic Institution will monitor the shores of Canada and the United States throughout 2014 as Fukushima fallout is expected to arrive in the coming months. Ken Buesseler, senior scientist at WHOI, has been performing tests and collecting samples from 24 different costal locations and presented the research at the Ocean Sciences Meeting Monday.  WHOI scientists detected cesium-134 and cesium-137, radioactive isotopes that have more neutrons, reports LiveScience, but the levels are below safe limits in drinking water. Radioactive isotopes leaked from Fukushima include cesium-134, cesium-137 and iodine-131. Cesium-137 has a longer half-life than cesium-134 and can be found in the ocean as the result of past nuclear tests.

Worst Spill in 6 Months Is Reported at Fukushima - — About 100 tons of highly radioactive water leaked from one of the hundreds of storage tanks at the devastated Fukushima nuclear plant, its operator said Thursday, calling the leak the worst spill at the plant in six months.The operator, the Tokyo Electric Power Company, said the leak, discovered on Wednesday and stopped on Thursday, happened far enough from the plant’s waterfront that none of the radioactive water was likely to reach the Pacific Ocean, as has happened during some previous spills. Still, the leak was an uncomfortable reminder of the many mishaps that have plagued the containment and cleanup efforts at the plant, as well as the hundreds of tons of contaminated groundwater that still flow unchecked into the Pacific every day.The company, known as Tepco, said it had traced the latest leak to a pair of valves that were left open by mistake. The leaked water was among the most severely contaminated that Tepco has reported in the aftermath of the March 2011 disaster at the Fukushima Daiichi plant, when damage caused by an earthquake and a tsunami led to meltdowns in three of the plant’s reactors. Each liter of the water contained, on average, 230 million becquerels of particles giving off beta radiation, the company said. About half of the particles were likely to be strontium 90, which is readily taken up by the human body in the same way that calcium is, and can cause bone cancer and leukemia.

Coal Mine Fire Still Burning After Weeks Looks Like Mordor, Fills Australian Town With Smoke - A coal seam fire still raging after three weeks has turned a small town in southern Australia into a smoke- and ash-filled hazard. Elderly people, young children and pregnant women were advised to evacuate Morwell, and  photos from the burning Hazelwood Coal Mine elicit comparisons to the fictional horrorscape of Mordor. Dr Rosemary Lester, Victoria, Australia's top health officer, told press Friday that a full evacuation of the town of 14,000 people was not necessary, because there had been no significant increase in danger from air quality.  "We can't sleep, we can't go outside, we can't breathe," Morwell resident Estelle Landy told local news station 9News.

Polluting Appalachia’s Streams With Mountaintop Removal Mining Just Got Harder - This week the U.S. District Court for the District of Columbia tossed out a late-2008 Bush Administration decision to scrap a decades-old rule protecting streams from the spoils of mountaintop removal mining. It said the rule violated the Endangered Species Act. The rule in question, issued in 1983, established a buffer zone around streams to keep toxic coal mining spoil from entering sensitive waterways. In December 2008, the outgoing Bush Administration issued its own “Stream Buffer Zone Rule” that essentially removed those protections. The National Parks Conservation Association challenged the rule, and lawyers from the Southern Environmental Law Center argued the case. The Interior Department and the Environmental Protection Agency are defendants in the case, though they asked the Court to rule against them in a September hearing. The National Mining Association protested the government’s position as an intervening defendant, arguing that the government erred in partially conceding the case. The Interior Department conceded that it did not consult the U.S. Fish and Wildlife Service about possible Endangered Species Act impacts of the stream buffer zone rule. In the decision, the Court said that the Bush Administration rule did indeed threaten endangered species: “the record is clear that the 2008 Rule ‘may affect’ threatened or endangered species or critical habitat.”But the waterways of Appalachia are not out of the woods yet. Coal advocates in the House are pushing a bill that would take the Bush Administration stream rule and apply it to all states. H.R. 2824 was scored by the CBO in January after a committee hearing last fall. The court’s decision on the buffer rule complicates the bill’s prospects, though it could soon face a vote.

Gulf Coast set for Bakken-like boom with liquefied natural gas --The energy boom that has North Dakota boasting the country’s lowest unemployment rate — and skyrocketing real estate prices — could soon do the same for the Gulf Coast.  Dozens of facilities are set to sprout up along the Louisiana and Texas coasts to liquefy natural gas from shale formations as far away as Pennsylvania and Ohio for export around the world. The energy boom, which is turning the U.S. into a net exporter, could drive liquefaction capacity to an eight-fold increase in the next five years alone, experts say. That could mean hundreds of thousands of new jobs along the Gulf Coast, by some estimates.  More than 110 liquefied natural gas (LNG) facilities now operate in the U.S., some exporting the super-cooled liquid, while others turn natural gas into an energy form that occupies up to 600 times less space than natural gas for vehicle fuel or industrial use. Worldwide, LNG trade is expected to more than double by 2040, according to the Energy Information Administration. Up to a dozen long-term deals, each worth billions of dollars, have been signed by American natural gas producers with companies in China, Japan, Taiwan, Spain, France and Chile, according to Reuters. The federal Energy Department has authorized companies to export up to 8.5 billion cubic feet per day of liquefied natural gas, about 13 percent of current daily production. Given the entrenched oil and gas industry, access to shipping and regional resources, the Gulf Coast is set to become the epicenter of the coming liquefaction boom.

Natural gas in focus again - Another cold front bringing frigid temperatures and snow to central and eastern US has sent natural gas prices higher again. Even the April futures contract broke through $5 MMBTU - something we haven't seen in quite some time.  Traders are watching US natural gas stockpiles falling way below the 5-year range as demand for gas remains high.The high heating bills this year will be creating a temporary drag on US consumer spending - it's not just about the snow keeping shoppers home. This sharp decline in gas inventory has also brought into focus the expected spike in natural gas exports (see Greg Merrill's post). Very soon large amounts of natural gas will be flowing out of the US, providing support for prices. FOX News: - Up to a dozen long-term deals, each worth billions of dollars, have been signed by American natural gas producers with companies in China, Japan, Taiwan, Spain, France and Chile, according to Reuters. The federal Energy Department has authorized companies to export up to 8.5 billion cubic feet per day of liquefied natural gas, about 13 percent of current daily production. Given the entrenched oil and gas industry, access to shipping and regional resources, the Gulf Coast is set to become the epicenter of the coming liquefaction boom.   This means that the days of the $2 - $3 natural gas prices are over. In the years to come, it will no longer be just about the weather.

Colorado Becomes The First State To Regulate Methane Emissions From Fracking - Colorado will be the first state in the nation to clamp down on emissions of the super potent greenhouse gas methane from the state’s booming oil and gas industry. The rules, finalized Sunday, will require well operators to comply with stricter leak detection requirements — a provision the state’s main oil and gas industry trade group fought to change.  The new rules were spearheaded by Gov. John Hickenlooper (D) in an effort to tackle the increasingly visible pollution along the Colorado’s Front Range, and brought together the three largest operators — Noble, Anadarko and Encana — along with the Environmental Defense Fund.  When the rules were first introduced in November, state health chief Larry Wolk estimated they could cut overall air pollution in Colorado by 92,000 tons a year — roughly equivalent to taking every car in the state off the road for a year. “This is a model for the country,” Dan Grossman, EDF’s Rocky Mountain regional director, told Bloomberg. “We’ve got this simmering battle between the oil and gas industry and neighborhoods throughout the state that are being faced with development. That degree of acrimony is pushing the industry and policy makers to look for ways to get some wins.”

ALEC's Fracking Chemical Disclosure Bill Moving Through Florida Legislature - Steve Horn - The American Legislative Exchange Council's (ALEC) model bill for disclosure of chemicals injected into the ground during the controversial hydraulic fracturing ("fracking") process is back for a sequel in the Sunshine State legislature.  ALEC's model bill was proposed by ExxonMobil at its December 2011 meeting and is modeled after a bill that passed in Texas' legislature in spring 2011, as revealed in an April 2012 New York Times investigative piece. ALEC critics refer to the pro-business organization as a "corporate bill mill" lending corporate lobbyists a "voice and a vote" on model legislation often becoming state law. The bill currently up for debate at the subcommittee level in the Florida House of Representatives was originally proposed a year ago (as HB 743) in February 2013 and passed in a 92-19 vote, but never received a Senate vote. This time around the block (like last time except for the bill number), Florida's proposed legislation is titled the Fracturing Chemical Usage Disclosure Act (HB 71), introduced by Republican Rep. Ray Rodrigues. It is attached to a key companion bill: Public Records/Fracturing Chemical Usage Disclosure Act (HB 157). Taken together, the two bills are clones of ALEC's ExxonMobil-endorsed Disclosure of Hydraulic Fracturing Fluid Composition Act. That model — like HB 71 — creates a centralized database for fracking chemical fluid disclosure. There's a kicker, though. Actually, two. First kicker: the industry-created and industry-owned disclosure database itself — FracFocus — has been deemed a failure by multiple legislators and by an April 2013 Harvard University Law School study. Second kicker: ALEC's model bill, like HB 157, has a trade secrets exemption for chemicals deemed proprietary.

City Council Vote Brings Los Angeles One Step Closer To Banning Fracking - A Los Angeles City Council committee has given the green light to a measure paving the way to prohibit hydraulic fracturing in the city, according to a report in the LA Times.  The Planning and Land Use Management Committee’s Tuesday decision effectively means that the entire City Council will vote on Friday on whether to draft new rules that would ban fracking and other types of “well stimulation” across the city until they’re sure the practice is safe. The decision to move forward on the rules drew cheers and applause from a packed auditorium, the LA Times said. “We can’t allow the safety of our neighborhoods that we represent to be jeopardized by dangerous drilling,” Los Angeles Councilman Mike Bonin said, noting fracking should not be allowed in Los Angeles until all public health, seismic, and water risks are assessed. The city council’s measure comes at a time of drought emergency across California, which has prompted some lawmakers to push for a statewide moratorium on hydraulic fracturing. Fracking relies heavily on groundwater by injecting a mixture of chemicals and water into rock formations to release oil and gas deposits. A recent Ceres report found that 96 percent of California fracking wells are located in the areas experiencing drought and high water stress.

California Farmers Demand Fracking Moratorium - California farmers, grappling with a record drought that’s parching their fields and livelihoods, call on Gov. Brown (D-CA) to place a moratorium on the water-intensive extreme oil and gas extraction process known as hydraulic fracturing, or fracking. Yesterday afternoon, Shafter almond farmer Tom Frantz, California State Grange President Bob McFarland and Monterey County vintner Paula Getzelman of Tre Gatti Vineyards, delivered a petition to Gov. Brown’s office signed by 145 California farmers calling for a moratorium on fracking. “Water is the lifeblood of a farm—without clean, affordable water we cannot grow food,” said almond farmer Tom Frantz, who caught on video the illegal dumping of fracking wastewater in an unlined pit next to an almond orchard. “This drought has already put many of California’s small and midsized farms on the brink. To allow fracking on some of California’s most fertile agricultural land will further devastate California’s bucolic heritage. I don’t think this is the legacy that Gov. Brown wants to leave behind.”  California’s drought is particularly devastating to the state’s farmers who grow the bulk of America’s fruits, vegetables and nuts, especially those in the primarily agricultural Central Valley. The State Water Project recently announced that it would be cutting off water deliveries for the first time in its 54-year history, and the federal government announced last week that farmers should expect to receive no water from the Central Valley Project. Additionally, the price for water has increased tenfold, from $135 an acre-foot last year to $1,350 an acre-foot in the second week of February.

USGS Maps Fracking in Fragile Region of Wyoming - Oil and gas wells, including those involved in hydraulic fracturing—fracking—operations, scar a major portion of southwest Wyoming, according to a recent analysis by the U.S. Geological Survey. Nearly 17,000 well pads and former drilling areas associated with oil and natural gas production were identified in satellite images across a 30,000-square-mile region. The maps include well scars dating from around 1900, when oil drilling started in the region, up to 2009, at which point natural gas extraction far outweighed oil production. Since then, production has only intensified in Wyoming, a leading state in the U.S.'s unconventional oil and gas boom. The mapping effort, a first step in determining how oil and gas drilling operations impact wildlife and ecosystems, focused on southwestern Wyoming because it not only has some of the nation's largest natural gas reserves, but also because the region has high-quality wildlife habitat and encompasses a major portion of the country's remaining intact sagebrush steppe.

FrackGate Comes to Illinois? Media Blackout on Fracking Vote - As the national media puts the spotlight on the "FrackGate" public relations scandal in Ohio, where state officials worked to “marginalize opponents of fracking by teaming up with corporations—including Halliburton—business groups and media outlets," Illinois residents behind a ballot initiative to ban fracking in rural Johnson County are facing a similar campaign of misinformation and local news blackout. Until last Friday, the Vienna Times/Goreville Gazette newspaper company, the only local newspapers in Johnson County's treasured Shawnee National Forest heartland, had provided fairly balanced coverage of the fracking debate, including the county commissioners' decision last May to support a one-year moratorium on the controversial fracking process, as out-of-state corporations like Kansas-based Woolsey Energy swept up land leases.  But now, with the same local citizens group's non-binding ballot initiative gaining widespread support across the county from residents especially concerned about the threat of involuntary "forced pooling" from neighboring leases, the Vienna Times/Goreville Gazette has suddenly announced—according to local residents—a new policy to refuse all anti-fracking ads, letters to the editor or news releases, even as it accepts ads and press releases from an Orwellian campaign set up to dismiss the community rights-driven campaign against absentee fracking corporations as a "radical agenda of out-of-state interests." Since when are local farmers called "out-of-state" and absentee fracking corporations considered homeboys?

Oil rigs dumping billion of gallons of fracking waste off California coast with OK from feds -- Wastewater from offshore drilling is being dumped into the Pacific Ocean off the coast of California, and it’s apparently legal. Oil rig operators have federal permits to dump 9 billion gallons of hydraulic fracturing, or fracking, waste into the ocean each year – enough to fill more than 100 football stadiums. Federal regulators signed off on minor revisions to permits that allowed the oil company DCOR to begin fracking off the coast without completing any environmental reviews, according to a TruthOut report. At least 12 rigs off the California coast inject potentially dangerous chemical into undersea rock formations to break them up and more easily extract crude oil, reported KCET-TV. About half of the fluid pumped into those wells during hydraulic fracturing, or fracking, is pumped back out again as wastewater. At least half of the state’s offshore rigs pump some of that water into the Santa Barbara Channel, according to the public TV station. The Center for Biological Diversity filed a petition Wednesday asking the Environmental Protection Agency to rewrite those federal permits to put an end to the practice and to develop national guidelines for disposal of offshore fracking wastewater.

11K+ Call on Chevron to Apologize for Responding to Gas Well Explosion With Pizza Coupons - When one of its gas wells exploded in Dunkard Township, Greene County, PA, killing one worker, injuring another and sparking a fire that burned for days, Chevron responded by issuing pizza coupons to area residents. Today, thousands outraged by the insulting gesture let Chevron’s CEO and staff know that pizza does not mean never having to say you’re sorry.  In an apparent effort to smooth ties with the town, last week Chevron delivered coupons for one large pizza and a two-liter drink to residents affected by the blast. Impacted residents, concerned citizens and grassroots organizations delivered petition signatures to Chevron’s Smithfield, PA, office in a pizza box with a two-liter coke. Hundreds of others called and emailed Chevron’s CEO James Watson to place pizza orders. Many pizza orders were posted to Chevron’s social media pages. Karen Feridun, founder of Berks Gas Truth, started organizing a call-in day on social media that quickly grew to include a petition drive and a delivery of the signatures gathered to Chevron’s office. Chevron’s ‘let them eat pizza’ attitude toward the people most directly and profoundly impacted by the explosion speaks volumes about how people in the communities are regarded by the industry as a whole.

Corporation Exploiting Major Loophole To Quickly Build 600-Mile Tar Sands Pipeline  “People know Keystone, but nobody’s heard of Flanagan South.” Unlike Keystone’s northern leg, which has been mired in court challenges and political skirmishes since 2008, Flanagan South is already in the works, after about two years of negotiating with landowners along the route and going through its permitting process. Once completed, it will pass over approximately 1,950 wetlands and waterways, including the Missouri and Mississippi rivers.  This is really laying the groundwork for the way they’re going to take over this country with pipelines.  But it’s not the threat of spills or the ever-present worry of climate change that concerns Michaud most about Flanagan South. It’s the ease and speed by which the pipeline was approved, using a tactic that Michaud — and a pending Sierra Club lawsuit — says allows companies to bypass certain environmental protection laws to fast-track pipeline projects. Once constructed, Flanagan South, an Enbridge project, will be a 589-mile pipeline that will carry tar sands and Bakken crude from Pontiac, IL. to refineries in Cushing, OK. The pipeline, which workers began constructing last fall, will have an initial capacity of 600,000 barrels of oil from Canada, North Dakota and Montana per day — by comparison, Keystone XL will be 1,179 miles in its entirety and have a capacity of 830,000 barrels per day.

Some Of The Most Dangerous Crude Oil In The World Is Fueling North Dakota’s Energy Boom  -  Bakken shale crude oil is also the most explosive compared to oil from 86 other locations worldwide, according to an analysis released Sunday by the Wall Street Journal. The findings raise “new questions about the safety of shipping such crude by rail across the U.S.,” and “concerns that more dangerous cargo is moving through the U.S. than previously believed,” the Journal said, speculating on whether safety regulations on railcars need to be strengthened.Allegations of increased volatility in Bakken shale light crude oil were raised after a number of high-profile train derailments and subsequent explosions, including the deadly Lac-Mégantic, Canada disaster. Federal regulators at the Pipeline and Hazardous Materials Safety Administration (PHMSA) speculate that the oil’s explosive nature may be due to either particular properties of the oil, or added chemicals from the hydraulic fracturing process used to extract it. PHMSA has yet to release specific details of its investigation with regard to the oil’s flammability. The Wall Street Journal, however, conducted its own investigation, using data from the Capline Pipeline in Louisiana. The Capline tested crude oil from 86 different locations around the world for something called “vapor pressure,” which reportedly translates into the oil’s ability to evaporate and emit combustible gases. The Wall Street Journal’s report notes: According to the data, oil from North Dakota and the Eagle Ford Shale in Texas had vapor-pressure readings of over 8 pounds per square inch (PSI), although Bakken readings reached as high as 9.7 PSI. U.S. refiner Tesoro Corp., a major transporter of Bakken crude to the West Coast, said it regularly has received oil from North Dakota with even more volatile pressure readings — up to 12 PSI.

Emergency Order to Avoid Oil Train Disasters - US federal regulators on Tuesday issued an emergency order for tougher testing of crude oil before shipment by rail to determine sensitivity to potential explosion and fire.  The new federal order follows some 10 derailments of trains carrying crude in North America during the past year.  The worst accident was in July 2013, in Quebec, when a train derailed and exploded, killing 47 people. And a string of incidents since then, on both sides of the border, has given regulators cause for concern.  On 13 February, a Norfolk Southern Railway train bound for New Jersey derailed in Vandergrift, Pennsylvania. About 3,500 to 4,500 gallons of crude oil spilled. In early January, a Canadian train carrying five cars of crude oil and four cars of liquefied petroleum gas derailed and caught on fire in New Brunswick province, prompting the evacuation of 150 nearby residents. On 30 December, a mile-long train carrying crude oil derailed outside of the North Dakota town of Casselton, bursting into flames and erupting into a series of explosion, prompting the temporary evacuation of nearby residents. The Transportation Department said the order is aimed at Bakken crude but will cover shipments from anywhere. The testing requirement goes into effect immediately with a stiff penalty for noncompliance.

U.S. Agency Issues Emergency Order To Address Danger Of Shipping Crude Oil By Rail -- The Department of Transportation on Tuesday issued an emergency order requiring shippers to test the volatility of crude oil being shipped from the Bakken oil region of North Dakota and Montana, another in a series of federal responses to explosive derailments in recent months. “Today we are raising the bar for shipping crude oil … If you intend to move crude oil by rail, then you must test and classify the material appropriately,” “And when you do ship it, you must follow the requirements for the two strongest safety packing groups.” Early this month, the Department of Transportation issued violation notices and fines against tank car loaders in North Dakota for wrongly classifying crude oil from the Bakken. Three companies were fined for essentially downgrading the hazard rating of crude shipments.  Crude oil is classified as packing group I, II or II depending on the level of danger of the material based on the temperature at which it boils and catches fire, with group I posing great danger, group II moderate danger, and group III the least danger. The emergency order issued Tuesday requires shippers to classify crude oil shipments as either packing group I or II, and determines that group III “will not be accepted, until further notice.”

Barge with 80,000 gallons oil hits bridge, leaks: A barge carrying 80,000 gallons of oil hit a railroad bridge in Vicksburg, Miss., on Sunday, spilling light crude into the Mississippi River and closing the waterway for eight miles in each direction, the Coast Guard said. A second barge was damaged. Investigators did not know how much had spilled, but an oily sheen was reported as far as three miles downriver of Vicksburg after the 1:12 a.m. incident, said Lt. Ryan Gomez of the Coast Guard's office in Memphis, Tenn. Authorities were still trying to determine the source of the leak, but it appeared to be coming from one or two tanks located at the stern of the first barge, Gomez said. He said there was no indication that any oil was leaking from the second vessel, and said it was still unclear whether the second barge also hit the bridge or was damaged through a collision with the first. "Investigators are still trying to figure out what happened," he said. United States Environmental Services, a response-and-remediation company, was working to contain the oil with booms before collecting it and transferring it to one of the barge's undamaged tanks, then ultimately to a separate barge, Gomez said. He could not say how long the river would remain closed in the area. Five northbound and two southbound vessels were waiting to pass, he said.

Oil Spill Shuts Down 65 Miles Of The Mississippi River - An oil spill has shut down 65 miles of the Mississippi River in New Orleans, as authorities work to clean up the oil. The spill occurred on Saturday when a barge carrying oil crashed into a tugboat between Baton Rouge and New Orleans. Authorities closed the stretch of river on Sunday and still can’t say exactly how much oil was spilled, though a light sheen of oil is being reported. No injuries were reported from the crash.  In St. Charles Parish, public drinking water intakes along the Mississippi were closed as a precaution, but a news release Sunday assured the public that the water supply “remains safe” in the parish. As of Sunday night, the closure was stalling 16 vessels waiting to go downriver and 10 waiting to go upriver.  This isn’t the first time the Mississippi River has experienced an oil spill due to a barge crash. Last year, a barge carrying 80,000 gallons of oil crashed into a rail bridge, spilling oil and causing a sheen as far as three miles from the crash site. That spill closed the Mississippi River for eight miles in each direction. In February 2012, an oil barge crashed into a construction bridge, spilling less than 10,000 gallons of oil into the river. In 2008, according to the AP, a major spill occurred on the Mississippi, when a barge broke in half after a collision and spilled 283,000 gallons of oil into the river, closing it for six days.

Oil spill shuts down 65-mile stretch of the Mississippi River - A 65-mile stretch of the Mississippi River, including the Port of New Orleans, was closed to all water traffic Sunday as crews cleaned up oil that spilled from a barge after it ran into a towboat between Baton Rouge and New Orleans, the Coast Guard said. Officials don’t know how much oil spilled, but only a sheen was reported on the river following the collision, which happened Saturday afternoon near Vacherie, 47 miles west of New Orleans by land, said Coast Guard Petty Officer Bill Colclough. No one was hurt and all barges were secured, Colclough said. The cause of the collision was under investigation. By late Sunday afternoon, 16 vessels were waiting to go downriver and 10 vessels were waiting in an upriver queue, Colclough said. He could not estimate when the river would reopen but said it was likely to remain closed overnight. Public drinking water intakes on the river were closed as a precaution in nearby St. Charles Parish, officials said. “The water supply in St. Charles Parish remains safe,” parish officials said in a news release Sunday afternoon.

Study: Lifting the oil export ban will reduce US gas prices -- Resources for the Future has just released a study titled “Crude Behavior: How Lifting the Export Ban Reduces Gasoline Prices in the United States,” here are some of the study’s key points:

    • The “fracking” revolution has led to an excess supply of light crude oil in the United States, particularly in the Midwest.
    • These excess supplies of light crude oil, combined with a US ban on exporting crude oil and transport bottlenecks, have led to sharply reduced crude oil prices in the Midwest.
    • These lower crude oil prices in the Midwest do not seem to have resulted in lower prices for refined products in the Midwest.
    • US refineries are better suited to process heavy crude oil, while refineries in other countries are better suited to process light crude oil.
    • As a result, lifting the ban on US crude oil exports would allow for a more efficient distribution of crude oil among refineries in the Western Hemisphere and elsewhere in the world.
    • A better allocation of refinery activity will result in more gasoline production, which will lower US gasoline prices.

Dream of U.S. Oil Independence Slams Against Shale Costs - Bloomberg: The path toward U.S. energy independence, made possible by a boom in shale oil, will be much harder than it seems. Just a few of the roadblocks: Independent producers will spend $1.50 drilling this year for every dollar they get back. Shale output drops faster than production from conventional methods. It will take 2,500 new wells a year just to sustain output of 1 million barrels a day in North Dakota’s Bakken shale, according to the Paris-based International Energy Agency. Iraq could do the same with 60. Drillers are pushing to maintain the pace of the unprecedented 39 percent gain in U.S. oil production since the end of 2011. Yet achieving U.S. energy self-sufficiency depends on easy credit and oil prices high enough to cover well costs. Even with crude above $100 a barrel, shale producers are spending money faster than they make it.  Companies are showing the strain. Chesapeake Energy Corp., the Oklahoma City-based company founded by Aubrey McClendon, reported profit yesterday that missed analysts’ forecasts by the widest margin in almost two years. Shares declined 4.9 percent. Fort Worth, Texas-based Range Resources Corp. fell 2.3 percent after announcing Feb. 25 that fourth-quarter profit dropped 47 percent. QEP Resources Inc., a Denver-based driller, slid 10 percent after fourth-quarter earnings reported Feb. 25 fell short of analysts’ predictions.

Obama Administration May Open Up Atlantic to Seismic Testing - A report expected to be released on February 27 or 28 could allow the early stages of oil exploration to move forward on the U.S. Atlantic seaboard, which has long been off limits for oil and gas drilling. The Department of Interior will publish its final environmental analysis, which will clear a major hurdle on the way towards allowing the seismic testing off the East Coast in decades. The report is expected to be greeted with strong pushback from environmentalists.  At issue is whether or not Interior’s environmental analysis adequately takes into account the effect of seismic testing on whales, dolphins, and other marine animals. Seismic testing involves blasting sound waves to the seabed, which give engineers detailed 3-D maps that can inform where the best places to drill might be. However, the acoustic disturbance can harm marine life, and the National Marine Fisheries Service is developing guidelines on seismic testing. Environmental groups argue that Interior is moving forward before those guidelines are published. And opposition is not just coming from environmentalists. Nine Senators sent a joint letter to Secretary of Interior Sally Jewell on February 26, arguing that seismic testing should not be allowed until the best available science is known, including the incorporation of NMFS data.  The Atlantic seaboard is expected to hold substantial oil reserves, but until detailed seismic surveys are conducted, the specifics are unknown. Environmental groups hope that by preventing seismic testing, they can stop oil drilling in the Atlantic before it gets started.

Opinion: Why oil drilling in Ecuador is ‘ticking time bomb’ for planet - Experts believe that in order to avoid the worst of a future climate change catastrophe, most of the planet's fossil fuels must be left in the ground. Ecuador's ambitious Yasuni-ITT Initiative, launched in 2007, was hailed as a landmark plan to keep oil exploration out of the country's most pristine forest and to preserve the homes of indigenous tribes living there. But Ecuador abandoned the plan last year, and drilling could now begin any time. Leila Salazar of the U.S.-based NGO Amazon Watch equates oil exploration in Ecuador's rainforests with "ignoring a ticking time bomb for the entire planet." But the once global struggle to secure the Yasuni-ITT Initiative has now largely fallen on the shoulders of a few indigenous tribal communities who have pledged to fight, some to the death, to keep oil companies out of their communities and their oil in the ground. Will the world back them up? It is a question with significance far beyond Yasuni National Park. The age of "easy oil," if it ever existed, is over. What is left is in places like the Yasuni, previously deemed too sensitive, valuable, or risky to drill. The cost to both the planet and local people of pursuing such oil grows in tandem with the difficulty of extracting it. The Yasuni presents a critical opportunity to demonstrate that a different path is possible, though fortunately it is not the only place where the effort to leave our "oil in the soil" has taken root.

Visit a Crumbling, Soviet-Era Floating ‘Oil City’ - Sail out into the western Caspian Sea and you'll soon encounter an incredible sight: spires of steel rising from the waves, connected with miles of decrepit pipes and wooden bridges. This is Neft Dashlari, an inhabited, Soviet-era structure that's said to be the "largest and oldest offshore oil city in the world." It remains a productive source of petroleum to this day, as well as a token of interest to esoteric-architecture fans or parents wanting to punish bad children with the worst theme-park vacation ever. The crusty mega-platform, whose name translates to Oil Rocks or Oily Rock, stands roughly 40 miles east of Baku, Azerbaijan, on pillars mounted on the carcasses of sunken ships (including history's first oil tanker, the Swedish-built Zoraster).  But whereas Neft Dashlari was meant to hold a population of 5,000, with attractions including a cinema, soccer field, lemonade factory, and a tree-dotted park, today it harbors less than half that number and constantly fights against natural forces that want to drag it down into the dark waters. Der Spiegel has a fair rundown of how this jewel of Soviet energy exploration came to its current state: The collapse of the Soviet Union ushered in the decline of this floating city as new oilfields were discovered elsewhere and the price of oil began to fluctuate. The workforce has halved to 2,500, and most of the rigs are now out of use or can't be reached because the bridges leading to them have collapsed. Of the 300 kilometers of roads, only 45 kilometers remain usable, and even they have fallen into disrepair. During a flood a few years ago, many apartments were submerged up to the second story.

Iraq’s petrochemical industries grind to a halt for lack of fuel - Iraq’s once flourishing petrochemical industries have come to a grinding halt due to lack of fuel, a statement issued by the State Company for Petrochemical Industries said. The statement, faxed to the newspaper, said the company ceased production shortly after the 2003-U.S. invasion. It only partially resumed operations only to have them halted three years ago. The statement said the Oil Ministry has failed to supply the company with gas, which is necessary to operate its power stations and factories. “The company has been facing lack of fuel in sufficient quantities since 2003 until its operations came to a complete halt in 2011,” the statement signed by the company’s Director-General Salim Ibrahim said. The statement said the supply of fuel was erratic and it rarely exceeded one third of needs. It said the company had several meetings with the Oil Ministry to boost the supply of fuel, but so far they have come to nothing. “The company is ready to resume at full capacity once fuel supplies of gas are made available,” the statement said.

Beijing smog prompts World Health Organization to declare crisis -  A thick blanket of smog covering much of northern China has led the World Health Organisation (WHO) to declare a crisis. Beijing has recorded its sixth day in a row of hazardous pollution with residents being warned to wear masks or stay indoors as a precaution. Instruments have measured pollution levels above 450 on an air quality index - nine times the safe level for human beings. Skyscrapers in the Chinese capital are barely visible through the haze. The smog is even threatening crops, local scientists say, with the lack of sunlight reportedly causing a drastic slowdown in plant photosynthesis. The authorities raised the pollution alert to the second-highest "orange" danger level for the first time on Friday after drawing public ire for its ineffective response. We asked how China should deal with its smog problem. Here's what you had to say. "Of course, on days where pollution levels reach or even exceed the scale we are very concerned and we have to see this as a crisis," "There's now clear evidence that, in the long term, high levels of air pollution can actually also cause ... lung cancer." Authorities have introduced countless orders and policies and made innumerable vows to clean up the environment but the problem only seems to get worse.

China's toxic air pollution resembles nuclear winter, say scientists - Chinese scientists have warned that the country's toxic air pollution is now so bad that it resembles a nuclear winter, slowing photosynthesis in plants – and potentially wreaking havoc on the country's food supply. Beijing and broad swaths of six northern provinces have spent the past week blanketed in a dense pea-soup smog that is not expected to abate until Thursday. Beijing's concentration of PM 2.5 particles – those small enough to penetrate deep into the lungs and enter the bloodstream – hit 505 micrograms per cubic metre on Tuesday night. The World Health Organisation recommends a safe level of 25. The worsening air pollution has already exacted a significant economic toll, grounding flights, closing highways and keeping tourists at home. On Monday 11,200 people visited Beijing's Forbidden City, about a quarter of the site's average daily draw. He Dongxian, an associate professor at China Agricultural University's College of Water Resources and Civil Engineering, said new research suggested that if the smog persists, Chinese agriculture will suffer conditions "somewhat similar to a nuclear winter". She has demonstrated that air pollutants adhere to greenhouse surfaces, cutting the amount of light inside by about 50% and severely impeding photosynthesis, the process by which plants convert light into life-sustaining chemical energy. She tested the hypothesis by growing one group of chilli and tomato seeds under artificial lab light, and another under a suburban Beijing greenhouse. In the lab, the seeds sprouted in 20 days; in the greenhouse, they took more than two months. "They will be lucky to live at all," He told the South China Morning Post newspaper.

Air purifier rush as smog shrouds northern China: Dangerous smog which has blighted swathes of northern China in recent days has prompted a spike in air purifier sales, local media reported Monday, as pollution continued to shroud Beijing. China's National Meteorological Centre issued a "yellow" smog alert for much of the country's north on Monday, the fifth consecutive day of heavy pollution which has slashed visibility and seen pollution reach hazardous levels. The smog has prompted a rush by consumers to buy face masks and air purifiers, state-run China National Radio reported, with sales of the machines tripling in recent days at one Beijing electronics store, it said citing a store employee. Beijing issued an "orange" pollution alert on Friday—the second-highest on the scale—leading to orders for manufacturing plants in the city to cut production, while building work has been halted and barbeques curbed. Physical education classes and outdoor exercises at schools have also been called off, the state-run Xinhua news agency reported. Levels of small airborne particles which easily penetrate the lungs and are known as PM 2.5 have repeatedly reached more than 400 micrograms per cubic metre in recent days, according to a count by the US embassy in Beijing, more than 16 times the World Health Organization's (WHO) safety guideline of 25 micrograms.

China’s Militant Workers Embrace Collective Action -  - A new report on China’s labor movement, covering about 1,170 strikes and other labor actions from mid-2011 through 2013, illuminates how what is arguably the world’s biggest proletariat is growing more agitated and polarized. Despite China's seemingly miraculous economic boom, in many ways, its emergent labor struggles are strikingly similar to those experienced by workers in more developed economies: weak-to-zero collective bargaining rights, a lack of social and health protections, the poverty and instability facing interregional migrant labor, global economic volatility and consequent job insecurity. And of course, that’s all in a fractious atmosphere of breakneck national growth rates, greater economic ambitions among the working class and soaring inequality. Manufacturing workers are feeling the tension between middle-class aspirations and working-class problems, and many are growing increasingly militant in asserting their labor rights. The report’s author, China Labour Bulletin (CLB) observes that the shift is driven by a deepening sense of social rights on the political and economic fronts, including “earning a living wage, creating a safe work environment and being treated with dignity and respect by the employer.”

Behind China’s Labor Unrest: Factory Workers and Taxi Drivers - What’s the state of dissent among China’s hundreds of millions of workers? They are increasingly aware of and demanding their rights, according to a new report by the China Labor Bulletin.  There were 1,171 strikes and protests in China recorded by the Hong Kong-based labor advocacy group from June 2011 until the end of last year. Of those, 40 percent occurred among factory workers, as China’s exports suffered a slowdown and its overall economy cooled. “Many manufacturers in China sought to offset their reduced profits by cheating workers out of overtime and cutting back on bonuses and benefits, etc. These cost-cutting tactics proved to be a regular source of conflict with the workforce,” notes the report, “Searching for the Union: The workers’ movement in China 2011-13″ (pdf), which was published on Thursday. Meanwhile, the report cites a large number of worker protests “caused by the downsizing, closure, relocation, sale or merger of businesses” spurred by the government’s declared policy of tenglong huanniao, or “changing the birds in the cage.” That’s when Beijing has encouraged the closure of factories engaged in lower-tech businesses, including shoes, textiles, and toys. All together, 57 percent of factory worker protests took place in Guangdong, home to the Pearl River Delta manufacturing region, followed by 9 percent in Jiangsu, home to many export factories in the Yangtze River Delta.

“Are Chinese Capital controls still binding and if so, to what end?” - At present, the dominant view both among Chinese policy makers and analysts is that at some point the capital controls have to go. They are incompatible with the pursuit of a free market economy especially for a country with a leadership role in international commerce. However, as with many other reforms, the chosen model of capital account liberalization has been baby steps. So far, the on-going millennium has been characterized by a long chain of small capital account liberalization measures, all of which have at least seemingly opened up some new channel for Chinese firms to transfer funds abroad or foreigners to invest in China. An important related development has been the emergence of Hong Kong as the hub of RMB trade abroad, where off-shore RMB can be deposited and freely traded. So, after all these developments, are the controls still effective? And if so, to what end? To shed light on these issues, we study the covered interest differential (CID) between onshore and offshore RMB (the paper, working paper version). The CID is a much used measure of the effectiveness of capital account restrictions because it vanishes by arbitrage under free capital mobility. So, if we find that the CID is still large (in absolute value), we can be confident that capital account restrictions are binding, and the arbitrageurs have not yet had their day.

Open and Shut Case: A Warning on China's Capital Account - As part of its push to give markets a “decisive” role in the economy, China has pledged to drop controls on the movement of capital and make its currency, the yuan, fully convertible. China for years has maintained a “closed” capital account, meaning companies, banks and individuals can’t move money in or out of the country except in accordance with strict rules. The limit for individuals is currently $50,000 a year, while corporate investments need government approval. Loosening those controls could bring in investment, not to mention offering Chinese savers new options beyond a sky-high property market and shady “wealth management products.” The risk is that it leads to unwanted swings in asset prices as speculative capital herds in and out. Capital controls are the main thing that has saved China from the turmoil that hit other emerging markets at the start of this year. Officials have suggested that China could respond to dangerous movements of money by simply closing the capital account again. But backtracking would be a bad idea, according to a recent report from the London-based Official Monetary and Financial Institutions Forum. “If you do this, don’t go back on your reforms in the face of opposition… The problem is that if you do people will say ‘we told you so’.” That could make it harder to push ahead again in the future, he said.

China’s Currency Suddenly Reverses Direction, Stuns World Markets The value of China’s currency, the yuan, is arguably the most debated and contested in the world. The country’s trading partners, especially the U.S., have long criticized Beijing’s policymakers of keeping the yuan artificially cheap to give Chinese exports an unfair advantage in global markets. However, for several years now the direction of the yuan has been generally the same: Steadily (though very slowly), the yuan has gotten stronger against the dollar. The progress has been so consistent that many in financial markets assumed that it would continue to get stronger indefinitely.  Well, as we’ve all learned by now, nothing in the world economy is a certainty. In recent days, the yuan has shocked global investors by suddenly reversing course. The yuan declined against the dollar by about 1%, not much in the world of currency trading, but an unusually sharp change for the yuan, the trading of which is restricted by the government. The move has prompted all sorts of debate about what’s afoot. Some speculate that the central bank has engineered the reversal as a prelude to currency reform. Analysts are expecting regulators to allow the yuan to trade greater volatility. Currently, the yuan is permitted to move only 1% from its opening value each day; the expectation is that will be liberalized to 2%. The step could be part of China’s longer-term, and often-pledged, goal of making the yuan’s trading and valuation more market-oriented. That, in turn, would transform the yuan into a real rival to the U.S. dollar in global trade and finance.

Watch China’s exchange rate policy - There has been a significant weakening in China’s exchange rate in recent days. Although the spot rate against the dollar has moved by only about 1.3 per cent, this is actually a large move by the standards of this managed exchange rate. Furthermore, the move is in the opposite direction to the strengthening trend seen in the exchange rate over the past three years. This has triggered some pain among investors holding long renminbi “carry” trades, along with much debate in the foreign exchange market about what the Chinese authorities are planning to do next. Since China does not explain its internal or external monetary policy in a transparent manner that is intelligible to outsiders, there is much scope for misunderstanding its true intentions. The key question is whether the Chinese authorities are changing their commitment to a strong exchange rate and, if so, why? The rise in China’s real exchange rate, amounting to more than 40 per cent since 2005, has been one of the forces which has helped the global economy to rebalance in recent years, encouraging a narrowing in the US trade deficit against China, and also allowing other emerging economies to absorb the effects of the devaluation in the Japanese yen without feeling too much pain. It has also helped China to hold down inflation, and boost consumption, which is a key requirement in its own internal rebalancing. And it has reduced the danger of a severe policy confrontation between China and the US, with the latter having largely dropped its complaints about “manipulation” of China’s exchange rate. Overall, it is one of the things that has clearly gone right in the global economy in recent times.

Oh yuan, you temptress - And on the seventh day it fell again, in accordance with the PBoC… which cut the fixing rate. Pity the RMB carry trade, no matter what the reason. Deliberate carry trade rumbling, trade band widening to allow greater market control of the exchange rate… or maybe, just maybe, that China is kinda thinking that a depreciating yuan ain’t a terrible policy right now. That may very well be a ‘bad thing’. As Gavyn Davies over at his (highly recommended) blog said, “the rise in China’s real exchange rate, amounting to more than 40 per cent since 2005, has been one of the forces which has helped the global economy to rebalance in recent years.” Reversing it would reverse that, economically and geopolitically. The suggestion, and it’s still very much just a suggestion which Davies calls highly improbable, is that a China spooked by a wobbling financial system might be tempted to push down on its exchange rate in order to grab a bigger slice of the world’s export market and take some stress off the adjustments its delevering system has to go through. That would be bad for a few reasons — as mentioned, it wouldn’t be pretty for everybody else but also it really doesn’t follow the normal ‘China rebalancing’ plan. It wasn’t meant to be this way. As Michael Pettis has run through numerous times, the idea was that as the renminbi revalued the price of imported goods ands services would drop for Chinese households — the real value of their wealth would increase. That would have represented a shift of wealth from the PBoC, exporters and your mulitudionous Chinese plutocrats who have their cash squirreled away in foreign banks. Thus, as households benefitted you would see an increase in household wealth and consumption.

More Flexible Yuan Is Low-Hanging Fruit of Financial Reforms By The People’s Bank of China - China’s central bank is moving closer to widening the trading range for the tightly controlled yuan, but it still faces obstacles to carry out other reforms that have long been on the agenda. In the past week, the People’s Bank of China has been trying to inject more two-way volatility into yuan trading by guiding the currency lower, an effort Chinese officials and analysts say is aimed at paving the way for widening the yuan’s trading band sometime this year. In mainland China, the PBOC sets a benchmark rate against which the yuan can trade; currently the bank allows investors to push its value 1% in either direction from that set rate. Many analysts and economists expect the central bank to expand that range by allowing the currency to move up or down by 2% daily, a move some say could happen as soon as next month, when China’s rubber-stamp legislature meets in Beijing. And some see the yuan-band widening as the low-hanging fruit as far as reform efforts are concerned. “The PBOC has said it would speed up financial reforms, but things like liberalizing interest rates and exchange rates carry a lot of risks,”  “By comparison, it’s a lot easier to do something like widening the yuan’s trading band because that would still leave the PBOC in control of the currency.”More difficult tasks the central bank faces include giving the market a bigger role in setting the exchange rate and in allocating resources and opening the door wider to foreign capital flows – or money moving in and out of the country. PBOC officials, led by Gov. Zhou Xiaochuan, are eager to press ahead on those reforms to help reshape the country’s economic model so it’s more reliant on domestic consumption and less on exports and investments. But some officials and scholars fear that an aggressive financial reform agenda that leaves untouched other pillars of the economy, such as state-owned enterprises, could backfire.

Beijing guides renminbi lower in effort to manage financial risks - In guiding the renminbi into its steepest dive since 2005 this week, Beijing was employing a strategy of “one arrow, two vultures”, as the saying goes. The first vulture denotes the international speculators who have – in spite of warnings by Chinese officials – regarded renminbi appreciation against the US dollar as a one-way bet. The second vulture signifies the domestic shadow financiers who refuse to be brought down to earth. Neither of Beijing’s avian quarries is dead or even mortally wounded, but the renminbi’s surprise decline will have ruffled plenty of feathers. More importantly, it serves notice that China is opening up a new front in its battle to reduce risks in a highly volatile financial system. It takes a little detective work to unravel how guiding the renminbi lower helps China manage financial risks because it involves a vast twilight zone of financial dealings for which there is little data, official or otherwise. Nevertheless, it is the dealings in this zone – which includes domestic shadow finance and irregular cross-border capital flows – that are increasingly setting the tone for Beijing’s policies. The story starts with the People’s Bank of China’s repeated failure to bring shadow finance to heel. Since the announcement of Document 463 in December 2012, authorities have been turning up the pressure on shadow finance, mainly with the aim of preventing high-interest trust loans from triggering a wave of defaults among local government borrowers. But official statistics show that such efforts have not yet borne fruit. Entrusted loans, a key part of the panoply of shadow finance products, rose to Rmb396.5bn ($64.7bn) in January, almost double the levels of the same month a year ago. Worse than this failure, though, is evidence that the PBoC’s policies may be backfiring. Dodging the central bank’s pressure to liquidate shadow financial assets (which offer attractive returns), banks are opting instead to sell off lower yielding enterprise bonds (debt issued by state-owned companies), thus raising the cost of financing to companies and local governments, according to research by China Confidential, a research service at the FT.

China’s Shift on Yuan Exchange Fixes One Problem but Creates New Ones - Despite the People’s Bank of China’s deliberate interventions, which were first reported Wednesday in The Wall Street Journal, the yuan is still the best performing emerging-market currency over the past year, according to analysis by Bank of America Merrill Lynch showing that it was up 8.3% on a trade-and inflation-adjusted basis in the 12 months to January 31. Pushed out to a two-and-a-half-year period, this measure of the yuan’s trade-weighted real exchange rate was up 20%. Trade-weighted real exchange rates measure a currency’s valuation against a basket of various trading partners’ currencies that’s weighted according to the size of the trade relationship and also incorporate the effect that inflation in making a country’s exports more expensive. The bottom line is that while the global economy has slowed and China’s main emerging-market competitors’ currencies have weakened, its producers have had to sell their products overseas at considerably higher prices. That’s hardly something that’s in this export-dependent country’s best interests. China is trying to migrate from a less export-dependent model to a consumer-led one. But it can’t afford to hit its export sector too hard in the process, lest that exacerbate the risk of bankruptcies and job losses. The problem is that trade interests have not been the main driver of the exchange rate. Blame that on capital flows, led by speculators. Indeed, one of the most striking elements of the PBOC’s move to curtail the yuan’s appreciation – made in apparent preparation for widening the trading band within which the central bank allows the currency to float freely against the dollar – is that it implicitly acknowledges that capital flows are happening despite the government’s restrictions on such money movements. The incoming money ends up fueling an underground lending industry that has in turn helped sustain bubble-like prices in many Chinese real-estate markets.

Morgan Stanley Warns Of "Real Pain" If Chinese Currency Keeps Devaluing - The seemingly incessant strengthening trend of the Chinese Yuan (much as with the seemingly inexorable rise of US equities or home prices) has encouraged huge amounts of structured products to be created over the past few years enabling traders to position for more of the same in increasingly levered ways. That was all going great until the last few weeks which has seen China enter the currency wars (as we explained here). The problem, among many facing China, is that these structured products will face major losses and as Morgan Stanley warns "real pain will come if CNY stays above these levels," leading to further capital withdrawal, illiquidity, and a potential vicious circle as it appears the PBOC is trying to break the virtuous carry trade that has fueled so much of its bubble economy.

Yuan Drops Most on Record Amid Band Widening Speculation -  China's yuan tumbled by the most on record on speculation the central bank will widen the currency’s trading band, allowing greater volatility at a time when growth is slowing in the world’s second-largest economy. The yuan slid as much as 0.9 percent to a 10-month low of 6.1815 per dollar, the largest decline since China unified official and market exchange rates in 1994, according to data compiled by Bloomberg. The currency lost 1.3 percent in February, the biggest monthly drop on record. Trading in yuan options surged in New York, making them the most traded contracts among major currencies. The People’s Bank of China is expected to double the yuan’s trading band by the end of June, according to the majority of 29 analysts surveyed by Bloomberg, as policy makers loosen exchange-rate controls and promote greater usage of the currency in global trade and finance. Lawmakers will meet next week to decide on major economic policies and an official report tomorrow is forecast to show manufacturing expanded this month at the slowest pace since June.

China Currency Plunges Most In Over 5 Years, Biggest Weekly Loss Ever: Yuan Carry Traders Crushed - And just like that the Chinese yuan devaluation has shifted away from the merely "orderly." In the past few hours of trading, China, which as we reported two days ago has started intervening aggressively in the Yuan market, has seen its currency crash by nearly 0.9%, which may not seem like much, but is in fact the largest drop since December of 2008, and at last check was trading at around 6.18, even as the PBOC fixed the CNY reference rate 0.02% higher from the last official close to 6.1214, erasing pivot support point at 6.1346 and 6.1408.  Naturally this means that the obverse, the CNYUSD, has crashed to as low as 0.1620. Should this move sustain without reverting, this will be the biggest weekly loss ever! The dramatic move is shown on the chart below.

China official PMI hits 8-month low, adds to slowdown signs: Activity in China's factory sector slowed to an 8-month low in February, a government survey showed, reinforcing signs of a modest slowdown in the economy as demand weakens. The official Purchasing Managers' Index edged down to 50.2 in February from January's 50.5, the National Bureau of Statistics said on Saturday, just ahead of market expectations of 50.1. A PMI reading above 50 indicates expanding activity while one below that level points to a contraction. A preliminary survey released last week by HSBC and Markit Economics showed that the factory sector activity hit a seven-month low of 48.3 from 49.5 in January. The index for new orders dropped below 50 and employment reached its lowest point since the global financial crisis. The new orders sub-index in the official PMI China fell to a 8-month low of 50.5 in February from 50.9 in January and the sub-index for export orders fell to 48.2 last month, also a 8-month low, from 49.3 in January.

Household debt passes 1 quadrillion won: Korea’s household debt has risen sharply to surpass 1 quadrillion won ($931.7 billion), mainly due to increased mortgage lending, the Bank of Korea (BOK) said Tuesday. According to data from the central bank, the nation’s total household debt was 1.0213 quadrillion won in December. It was up 27.7 trillion won from three months earlier, and the quarterly gain was the fastest since the bank started collecting data in 2002. Household debt includes credit purchases and loans for households extended by financial companies including commercial banks, savings banks, credit card firms, insurers and brokerages. Nine years ago, household debt was 494.2 trillion won, about half the current figure. Its annual quarterly growth rose from 47.6 trillion won in 2012 to 57.5 trillion won in 2013, and the fourth-quarter increase was the largest ever. “The household debt growth accelerated in the fourth quarter, as mortgage lending grew sharply ahead of the end of the government’s tax breaks on home purchases,” a BOK official said

In South Korea, Reform Plan Resembles Japan’s Abenomics - In its swift rise out of poverty over the past half-century, South Korea borrowed heavily from Japan’s post-World War II playbook, riding the strength of huge and diversified conglomerates to become a leading exporter of cars, ships, steel and electronics. Perhaps it’s no surprise, then, that as both countries try to revamp their economic growth models, the program outlined Tuesday by South Korean President Park Geun-Hye bears some striking resemblances to Japan’s Abenomics. Ms. Park went so far as to say that South Korea – where gross domestic product growth has slowed from 6.3% in 2010 to 2.8% last year – has “no future” without the changes envisioned in her “474” plan, so named because of the key numerical targets it posits. “In both instances the leader of the country has explained these programs by saying the country is at some sort of threshold or decisive point and can’t continue on the path it’s on, and these reforms are necessary to snap it out of a slow-growth path ,” ING economist Tim Condon said. “In that sense, it’s a close parallel.”

Japanese inflation isn't as high as you think -- But actually, "core-core" is a type of Japanese inflation that does not include food or energy prices. You may recognize this as being the same thing as what the U.S. calls "core" inflation. And you'd be right. The problem is that Japan already had something that they called "core" inflation, which omits food but does include energy prices. This naturally produces confusion in the press, since journalists dutifully report on Japanese "core" inflation, which readers take to be the same as the U.S. measure, even though it isn't. Anyway, so why is this important? Because for months now, you've been hearing that Abenomics - or at least the monetary policy part of Abenomics - has been a solid success. Japanese inflation, you've heard, is climbing up toward the 2% target. To many people, that is a sign that monetary easing can hit inflation targets if the central bank is really committed to doing so. The problem is, the Japanese inflation that people are looking at is the Japanese "core" rate, not the "core-core" rate. In other words, those rosy numbers you're seeing include energy prices. And energy prices have gone up, partly because of supply restrictions that are unique to Japan (i.e. restrictions on nuclear power in the wake of Fukushima). Sober Look has the details:

Having lost $468 million in bitcoins, MtGox files for bankruptcy protection - MtGox has applied for bankruptcy protection in Japan, telling a Tokyo District Court that it has outstanding debt of about $63.6 million, with assets worth a little more than half that amount. Speaking at a Tokyo news conference on Friday, The New York Times reported that Mark Karpeles, the French-born CEO of the company, appeared in court uncharacteristically wearing a suit, and “bowed in contrition and apologized in Japanese.” “I’m truly sorry to have caused inconvenience,” he said.

Japan says any bitcoin regulation should be international (Reuters) - Any regulation of the bitcoin crypto-currency should involve international cooperation to avoid loopholes, Japanese vice finance minister Jiro Aichi said on Thursday. Commenting on the closure this week of Tokyo-based Mt. Gox, once the world's biggest exchange for the bitcoin virtual currency, Aichi said the ministry would respond to the problems "if necessary", after finding out exactly what happened. "It's not just the Ministry of Finance; many other agencies are related," Aichi told a news conference. "As for its legal position, a currency (under Japan's jurisdiction) would be coins or notes issued by the Bank of Japan. At the very least, we can say bitcoin is not a currency." true U.S. Federal Reserve Chair Janet Yellen, appearing on Thursday before a Senate committee, said the Fed has no jurisdiction over bitcoin but that Congress should consider ways to regulate such virtual currencies. The Mt. Gox website and Twitter feed went blank on Tuesday after weeks of turmoil. It suspended withdrawals on February 7 following a series of cyber attacks, leaving customers unable to recover their funds.

Japan Labor Data Not So Rosy - Data from Japan today helped bolster a feeling that Japan’s economy might withstand a tax hike in April that’s needed to get public finances under control. But data on the labor force weren’t as pretty as solid increases in consumer prices and industrial production – both of which were taken as signs that Japan is succeeding in putting years of deflation behind it.On the face of it, employment data was good. Excluding self-employed workers, the economy added 460,000 people to the work force in January from a year earlier. The jobless rate was 3.7%, flat from December, and there continued to be more jobs than workers.Scratch at the surface, though, and things aren’t as rosy. For one, Japanese companies continue to rely on non-regular workers. This signals they remain wary of hiring workers who they find it hard to fire later given Japan’s rigorous protections for full-time staff. That’s hardly a ringing endorsement for the economy. Full-time, permanent jobs fell by 94,000 to 32.42 million, while non-regular workers rose 1.33 million to 19.56 million, making up more than one-third of the workforce. “Given the move among firms to boost in non-regular workers, many companies are not yet convinced the recovery will be sustained,”

BOJ Beat: No Simple Link Between GDP and Easing - Bank of Japan Gov. Haruhiko Kuroda likes to use simple, easily digestible language to communicate complex monetary policy. It’s a strategy that has succeeded in maximizing the psychological impact of each policy action. Last week, the BOJ’s decision to “double” the size of a set of lending programs–outside the framework of its main monetary policy–helped turn around sentiment in financial markets, boosting Tokyo share prices and pushing down the yen. The move came after disappointing data showed a slowdown in Japan’s economic growth, a possible linkage not lost on market participants. But simplification of the central bank’s communication approach doesn’t mean Mr. Kuroda has also simplified the policy-setting process to focus on just one set of data–gross domestic product–people close to the central bank said. The people spoke after the governor caused a stir when he suggested that the BOJ’s future course of action would depend heavily on Japan’s growth rate for the current financial year ending March. Speaking a day after the surprisingly weak GDP data for the October-December quarter were released, Mr. Kuroda said the BOJ would be willing to take fresh action should growth for the fiscal year fall short of the BOJ’s current projection. If Mr. Kuroda means what his language suggests, additional easing action is almost guaranteed.

Administration Desperate to Announce Deal at TPP Ministerial, But What Is a Real Deal? - Familiarity with kabuki theatre may be useful in interpreting the outcomes of the  high-level Trans-Pacific Partnership (TPP) meeting that starts Feb. 22 in Singapore as U.S. officials push for an announcement of a “deal” with the hope of reviving the administration’s quest for Fast Track trade authority and setting the stage for President Barack Obama’s April 2014 Asia trip, “There is a sense that whether or not any real deal is finalized, there may be an announcement of one, if only to portray the talks as not unraveling despite growing opposition to the TPP in some of the countries involved,”  “An announcement also could be a ploy to try to pressure Congress on trade authority and maximize President Obama’s leverage when he visits Japan.”A bilateral U.S-Japan ministerial meeting last weekend failed to break a deadlock on sensitive agricultural and auto market access issues. Other TPP nations are loath to consider tradeoffs relating to U.S. demands on medicine patents, copyright, state-owned enterprises, financial regulation and other issues on which they face considerable domestic political liability without knowing what market access gains they may achieve in return. A TPP ministerial slated for January was postponed because of the market access deadlock. “People who follow the TPP closely are baffled about why this meeting is happening,” said Wallach. “Either it is an attempt to improve the optics surrounding the beleaguered talks by announcing some deal, whether or not one is done, or they are afraid that already having postponed this ministers’ meeting once, canceling it would signal that the talks were unraveling.”

Are Trade Talks Going Anywhere? - Ok, I know that trade ministers from 12 countries gathered in Singapore this week to haggle over something called the Trans-Pacific Partnership, or TPP. Is the thing going anywhere? Well, at least not anywhere fast. U.S. Trade Representative Michael Froman said officials arrived with a “problem-solving mindset,” advanced the talks in several areas and now have some sort of understanding on rules for state-owned enterprises, investment in services industries, the telecommunications sector and food safety.

  • So did the negotiators nail anything down? Nope. The 12 countries said in a statement Tuesday that they have “agreed on the majority of the landing zones identified at our last meeting. While some issues remain, we have charted a path forward to resolve them in the context of a comprehensive and balanced outcome.”
  • What is a “landing zone”? A spokeswoman for Mr. Froman’s office said a landing zone is a “general framework for agreement among the parties on a given issue.” Because of the nature of the interrelated talks on a variety of topics and the need to compromise, there are no final agreements in a particular area until the big issues are resolved and the overall agreement takes shape.
  • What’s an area where there is no agreement on a “landing zone”? The sensitive issue of data protection for the developers of biologic drugs hasn’t been resolved, Mr. Froman said. The topic has made waves in Congress, with some lawmakers defending strong patent rights and related protections for U.S. pharmaceutical companies. In developing economies of the TPP, officials are more worried about cheap access to medicine, a position shared by many liberals in the U.S.
  • What’s preventing the negotiators from striking a deal? Beyond the newfangled rules for intellectual property and Internet data, negotiators are having trouble working through the old-fashioned “market access” issues of tariffs and quotas, especially in agriculture. Another issue: the auto trade between the U.S. and Japan. Detroit auto makers want to shift the nearly one-way trade in passenger cars between the two countries and get rid of what they say are the unfair advantages their Japanese competitors enjoy.  For its part, Tokyo is asking the U.S. to lift its 2.5% tariff on Japanese car imports as soon as possible

No Big Deal, by Paul Krugman - Everyone knows that the Obama administration’s domestic economic agenda is stalled in the face of scorched-earth opposition from Republicans. And that’s a bad thing:  It’s less well known that the administration’s international economic agenda is also stalled, for very different reasons. In particular, the centerpiece of that agenda — the proposed Trans-Pacific Partnership, or T.P.P. — doesn’t seem to be making much progress, thanks to a combination of negotiating difficulties abroad and bipartisan skepticism at home. And you know what? That’s O.K. It’s far from clear that the T.P.P. is a good idea. It’s even less clear that it’s something on which President Obama should be spending political capital. I am in general a free trader, but I’ll be undismayed and even a bit relieved if the T.P.P. just fades away. The first thing you need to know about trade deals in general is that they aren’t what they used to be. The glory days of trade negotiations — the days of deals like the Kennedy Round of the 1960s, which sharply reduced tariffs around the world — are long behind us. There’s a lot of hype about T.P.P., from both supporters and opponents. Supporters like to talk about the fact that the countries at the negotiating table comprise around 40 percent of the world economy, which they imply means that the agreement would be hugely significant.  Meanwhile, opponents portray the T.P.P. as a huge plot, suggesting that it would destroy national sovereignty and transfer all the power to corporations. This, too, is hugely overblown. .What the T.P.P. would do, however, is increase the ability of certain corporations to assert control over intellectual property. Again, think drug patents and movie rights.

Trade: More homework, please | The Economist -- BACK in December, Paul Krugman promised to provide his opinion of the Trans-Pacific Partnership, writing to readers, "I'll do some homework and get back to you." Today, his column provides his opinion of the TPP. It doesn't provide much evidence that he did his homework. Mr Krugman writes: Basically, old-fashioned trade deals are a victim of their own success: there just isn’t much more protectionism to eliminate. Average U.S. tariff rates have fallen by two-thirds since 1960. The most recent report on American import restraints by the International Trade Commission puts their total cost at less than 0.01 percent of G.D.P..... But the fact remains that, these days, “trade agreements” are mainly about other things. What they’re really about, in particular, is property rights — things like the ability to enforce patents on drugs and copyrights on movies. And so it is with T.P.P. It's just not clear to me how anyone who had looked at available information on the TPP could have arrived at this conclusion. It is true that tariff rates on goods have come down enormously over the past half century. In macroeconomic terms, there is very little left to be gained from further reductions (though little is not nothing, of course). But tariff rates are not universally low. On some categories of goods they remain quite high, and while those categories might be too small to make liberalisation macroeconomically important, tariff-reduction might nonetheless be microeconomically desirable. Slashing tariffs on equipment used in wind-power installations or solar-energy facilities will not make a dent in GDP growth. But it would still be a really good thing to do. And trade in environmental goods and services is part of the TPP agenda.Second, one of the stated ambitions of both TPP and the Trans-Atlantic Trade and Investment Partnership is reduction in non-tariff barriers, which in most cases add substantially more to goods costs than tariff barriers. According to estimates by the World Bank, for instance, American tariff restrictions on agricultural imports are relatively low on the whole, at just 2.2%. But the tariff equivalent of an all-in measure of restrictiveness, which takes into account non-tariff barriers, jumps to 17.0%. The all-in rates for many of the partners in TPP negotiations are substantially higher; Japan's all-in tariff equivalent on agricultural imports is 38.3%. South Korea's is 48.9%. Australia's is 29.5%.

Corporatism and Globalization: The Context of the TTIP and TPP - Perhaps the best way to prove the tyrannical intentions of the globalizers is to start with their own words. If we look at the manifestoes and comments issued by the various business consortiums, industry groups, and individual corporations, we find the unvarying demand that all government action be subordinated to the corporate profit prerogative, and that no other value be allowed to interfere with this. This is why I call corporations and their intent totalitarian. My definition of this term: A powerful person or entity is relentless in pursuit of an imperative, at every moment wants to enforce the domination of that imperative to the fullest extent possible, and refuses to recognize the right of any other value to exist at all. A totalitarian may or may not be willing to “tolerate” the existence of something purely extraneous. But where there’s any conflict between the corporate domination imperative and any other value, it’s taken for granted there can be no compromise. The non-corporate value must submit, if necessary to the point of its own extinction. As the historical record makes clear, this is true of all human values – health, happiness, prosperity, culture, tradition, religion, morality, simple human decency and fairness. None of these can coexist with corporations. In the long run these must all go extinct, if corporatism continues to exist.

Liberal Politicians Launched the Idea of “Free Trade Agreements” In the 1960s to Strip Nations of Sovereignty Liberals might assume that it is Republicans who are cheerleaders for global corporations at the expense of government.  But, as shown below, liberal politicians have been just as bad … or worse.  Matt Stoller – who writes for Salon and has contributed to Politico, Alternet, Salon, The Nation and Reuters – knows his way around Washington. Stoller – a prominent liberal – has scoured the Congressional Record to unearth hidden historical facts.  For example, Stoller has previously shown that the U.S. government push for a “New World Order” is no wacky conspiracy theory, but extensively documented in the Congressional Record. Now, Stoller uses the Congressional Record to show that “free trade” pacts were always about weakening nation-states to promote rule by multinationals: Political officials (liberal ones, actually) engaged in an actual campaign to get rid of countries with their pesky parochial interests, and have the whole world managed by global corporations. Yup, this actually was explicit in the 1960s, as opposed to today’s passive aggressive arguments which amount to the same thing. Indeed, a scripted psuedo-war between the parties is often used by the powers-that-be as a way to divide and conquer the American people, so that we are too distracted to stand up to reclaim our power from the idiots in both parties who are only governing for their own profit … and a small handful of their buddies. See this, this, this, this, this, this, this, this, this and this.

Bow to Davos Man, your homeless overlord - It is this very shift in capitalist accumulation that has created a new, transnational capitalist class. The formation of this class has evolved from the opening up of national economies and global integration since the Thatcher and Reagan era. Capital has become more mobile. This means that class formation is less and less tied to a particular nation-state or territory. The transnational capitalist class is a global ruling class. It is a ruling class because it controls the levers of an emergent transnational apparatus and global decision-making. It is a new hegemonic bloc of various economic and political actors from both the global North and South, which has come out of the new conditions of global capitalism. Members of this new class have connections to each other that have become more significant than their ties to their home nations and governments. Forums such as the annual World Economic Forum at Davos are where these hyper-elites can get together and become a class without a country: the new global leadership. This bloc is composed of the transnational corporations and financial institutions, the elites that manage the supranational economic planning agencies, major forces in the dominant political parties, media conglomerates and technocratic elites and state managers in both North and South. These 7000 or so people include heads of state, religious and military leaders – even the neoliberal in sunglasses, Bono – but the core membership is businessmen: hedge fund managers, technology entrepreneurs and private equity investors.

Global Capitalism Has Written Off The Human Race -- Economic theory teaches that free price and profit movements ensure that capitalism produces the greatest welfare for the greatest number.  Losses indicate economic activities where costs exceed the value of production, thus investment in these activities is curtailed.  Profits indicate economic activities where the value of output exceeds its cost, thus investment increases.  Prices indicate the relative scarcity and value of inputs and outputs, thus serving to organize production most efficiently. This theory doesn’t work when the US government socializes cost and privatizes profits as it has been doing with the Federal Reserve’s support of “banks too big to fail” and when a handful of financial institutions have concentrated much economic activity.  Subsidized “private” banks are no different from the former publicly subsidized socialized industries of Great Britain, France, Italy, and the former communist countries.  The banks have imposed the costs of their incompetence, greed, and corruption on taxpayers. Indeed, the socialized firms in England and France were more efficiently run and never threatened the national economies, much less the entire world, with ruin as do the private US “banks too big to fail.”  The English, French, and communists never had to print $1,000 billion dollars annually to save a handful of corrupt and incompetent financial enterprises. This only happens in “free market capitalism” where the capitalists, with the approval of the corrupt US Supreme Court can purchase the government, which represents them and not the electorate.  Thus, the taxation and money creation powers of government are used to support a few financial institutions at the expense of the rest of the country.  This is what is meant by “markets are self-regulating.”

Most-Powerful Woman in Indian Finance Declares War on Bad Loans - When she was a village branch manager in eastern India, she was quick to grab a screwdriver to fix power outages. Now, as the most-powerful woman in Indian finance, Arundhati Bhattacharya must tackle the highest bad-loan ratio among India’s 10 largest banks. Appointed in October as the first female chairman and most-senior executive officer of the country’s largest lender, State Bank of India, Bhattacharya has been combing through balance sheets riddled with 678 billion rupees ($10.9 billion) of bad debt. Some 5.7 percent of total loans at the 207-year-old behemoth are nonperforming, the highest level in at least eight years, the earliest date for which data are available, exchange filings show. “The war on bad loans continues,” Bhattacharya, 57, said in a Feb. 14 interview in Mumbai after SBI (SBIN) reported a bigger decline in third-quarter profit than estimated. “I have no magic wand to make the nonperforming assets go away. We have to work through the pain to fight the issue.”

What does Mr Rajan actually want? - IF YOU'RE already fed up with Fed transcripts, you could turn instead to the transcribed words of a different central banker, Raghu Rajan, governor of the Reserve Bank of India. His latest thoughts are drawn from an interview with CNBC at the G20 meeting last weekend. (The transcript was released with a lag of 48 hours, unlike the Fed scripts, which stewed for over five years.) As I have already discussed ad nauseum, Mr Rajan feels that rich-world central bankers are neglecting, in word and deed, the damaging side-effects of their policies on emerging economies. In the CNBC interview, Mr Rajan made it clear that he was complaining on behalf of the emerging economies as a whole, not on behalf of India in particular. His country, he points out, weathered the latest bout of emerging-market turmoil quite well. He also emphasises that his complaint was symmetrical. He worries about "gales of capital" blowing in both directions: heedless monetary easing is as destabilising as heedless tightening. Indeed, Mr Rajan, it turns out, does not want the Fed to delay its cuts in bond purchases. "I would not alter the pace of tapering," he said. The "$10 billion that was done in the last two Fed meetings is fine."So what does he want the Fed and others to do? He wants them to recognise the side-effects of their decisions on emerging markets. Second, he wants them to acknowledge those spillovers in their language. Third, he seems to want rich-world central bankers to say what they would do if those side-effects prove particularly large and damaging:

Rajan Defends His Hawkish Moves - Raghuram Rajan, India’s central bank chief, defended his decision to repeatedly raise interest rates, reiterating Wednesday that reducing inflation was the best way to foster stable growth. “We cannot wait until the public’s expectations of inflation get more entrenched, and the inflationary spiral gains momentum,” Mr. Rajan said, defending his decision to raise the Reserve Bank of India’s key policy rate three times by a combined 0.75 percentage points since he took over as head of the central bank in September.Mr. Rajan indicated that he agreed with the recommendations of a central bank panel which had suggested the RBI start using a consumer price inflation target to determine monetary policy. The panel suggested the RBI tries to bring down the consumer price inflation rate to 8% by January 2015 and to 6% by January 2016. After that it should aim to keep it within two percentage points of 4%, the panel said. Some executives have complained about the central bank’s tightening, saying India needs lower interest rates to trigger growth as the country is stuck in a slowdown. Mr. Rajan said the gradual raising of interest rates now rather than later is the best way to slowly squeeze inflation out of the economy. “Rather than administer shock therapy to a weak economy, the RBI prefers to dis-inflate over time rather than abruptly, while being prepared to do what is necessary if the economy deviates from the projected inflation path,” Mr. Rajan said.

India's Economy Expanded 4.7% Last Quarter - India's economic growth remained stuck below 5% for the seventh consecutive quarter last quarter as inflation and waning investor confidence continued to drag on Asia's third-largest economy. The government said Friday that gross domestic product during the October to December quarter rose 4.7% from a year earlier, compared with the 4.8% and 4.4% expansion in the preceding two quarters. A poll of 16 economists by The Wall Street Journal had predicted 4.9% growth. While some economists and executives are cautiously optimistic that India's period of stagflation—during which it struggled with high inflation rates even as economic growth has been slowing—is coming to an end, many warn it could be years before India returns to the near 10% expansion rate it witnessed just a few years ago.  Friday's data showed output services such as financing, insurance and real estate grew 12.5% from a year earlier. Farm output also increased 3.6%. However, the manufacturing sector contracted 1.9%.

Fed Policy Has the Emerging World Lamenting the Dollar’s Dominance -- The U.S. Federal Reserve is taking heat these days from policymakers in the developing world. They have good reason to be disgruntled. Ever since the Fed signaled last year that it would begin scaling back – or “tapering” – its unorthodox program to stimulate the U.S. economy, emerging markets have been in turmoil. Investors, fearful that a cutback in Fed largesse would crimp funds flowing to the emerging world, have yanked their money back, causing currencies to tumble from Turkey to South Africa to India.  That has forced central bankers in the developing countries into unwelcome choices. Many have had to hike interest rates in an attempt to stabilize their currencies, a move that could slow growth. And they’re not too happy about it. The most outspoken has been India’s central bank governor, Raghuram Rajan, who has complained that global policy coordination has broken down, the Fed has acted on its own, and selfishly left the emerging world to its fate. “Industrial countries have to play a part in restoring that [co-operation], and they can’t at this point wash their hands off and say, we’ll do what we need to and you do the adjustment,” Rajan recently criticized. He continued his critique at this month’s G-20 meeting in Sydney. The message from the U.S. and other major economies “is that you [emerging markets] are all on your own, no one is going to come to your help,” he warned on CNBC. “If that’s the message that goes out, we’re setting in place the roots of the next crisis.”

Treating Inequality with Redistribution: Is the Cure Worse than the Disease? - IMF - Rising income inequality looms high on the global policy agenda, reflecting not only fears of its pernicious social and political effects, (including questions about the consistency of extreme inequality with democratic governance), but also the economic implications. While positive incentives are surely needed to reward work and innovation, excessive inequality is likely to undercut growth, for example by undermining access to health and education, causing investment-reducing political and economic instability, and thwarting the social consensus required to adjust in the face of major shocks.Understandably, economists have been trying to understand better the links between rising inequality and the fragility of economic growth.  But what is the role of policy, and in particular fiscal redistribution to bring about greater equality? Conventional wisdom would seem to suggest that redistribution would in itself be bad for growth but, conceivably, by engendering greater equality, might help growth. Looking at past experience, we find scant evidence that typical efforts to redistribute have on average had an adverse effect on growth. And faster and more durable growth seems to have followed the associated reduction in inequality.

Can Brazil Keep Raising Interest Rates? - Real Time Economics - WSJ: Can Brazil keep raising interest rates? We may move one step closer to an answer this week when the Central Bank of Brazil meets to determine the next step for the country’s key rate, the Selic, which already stands at a towering 10.5%, one of the highest in the world. Over the last 10 months, the rate has increased by a full 3.25 percentage points. It’s likely to go higher on Wednesday, but there’s some debate about the extent of the increase. Out of 14 economists and analysts surveyed, four expect the central bank’s monetary policy committee, known as Copom, to maintain cruise control with a 0.50-point hike. But 10 expect the central bank to downshift to a 0.25 percentage point hike, and perhaps hint at bringing the interest rate increases to an end. The reason is simple: worryingly weak economic growth. Central bank data published earlier this month suggested the country flirted with recession in the second half of 2013. We’ll know for sure on Thursday, when the official fourth-quarter data is released. Increasingly, economists argue that higher interest rates can only harm growth further. The outlook for this year keeps getting worse: on Monday, the bank’s survey of market participants showed growth is now seen at 1.7% this year, down from 1.8% last week. And 2015 isn’t looking much better, with growth forecast at around 2%. That’s a far cry from the boom years of 2009 and 2010 when Brazil and its emerging market peers were expected to help drive the global economy out of recession. Yet inflation remains a serious problem. Many economists believe the central bank has all but given up on hitting its official target of 4.5% any time in the next couple of years, and that instead it’s simply content to keep the number below the upper threshold of 6.5%. It’s a charge the central bank denies vehemently.

Argentina's poor at risk as inflation weakens safety net - Food prices have soared, the 29-year-old maintenance worker complained, squeezing his meager monthly budget and leaving him reliant on charity to keep his wife and six children fed. "I hoped it wouldn't come to this," he said. "But it's just too hard to make ends meet now." He is not alone. A sharp currency devaluation in Argentina last month has worsened one of the world's highest inflation rates, threatening to unravel a generous social safety net at the heart of President Cristina Fernandez's economic policies. One in four Argentine families now rely on state welfare programs ranging from payouts for the unemployed to scholarships for poor high school students, as social spending boomed along with the economy over much of the past decade.

Corporate Colonialism – Winners and Losers of Global ‘Free’ Trade - Don Quijones - On February 12th of this year, the presidents of Mexico, Colombia, Peru and Chile signed an agreement to eliminate tariffs on 92 percent of trade among their countries. The agreement is seen as vital in the economic integration of the four fastest-growing economies in Latin America, and a significant advance in their goal of working as a united trade partner with Asia. At least that’s the official story, reported verbatim and with gushing enthusiasm by the mainstream financial and general press. However, as Colombian president Juan Manuel Santos acknowledged, there will be “winners and losers” along the way. The winners will inevitably be the same as always: big industry, big agriculture and big finance, including, of course, big domestic players such as Mexico’s Cemex and Chile’s Antofagasta. As for the losers, they will be the rest of society, in particular the poorest and most vulnerable. Mexico’s experience following its signing of NAFTA is a perfect case in point. According to the Mexican left daily La Jornada, even the World Trade Organisation has now acknowledged that there have been much fewer gains for the poorest segments of society. Post-NAFTA Mexico is as much a poster child of the potential macro-economic benefits of so-called “free trade” as it is of the micro-economic ravages it leaves in its wake. Between 1993 and 1998 foreign investment in the country almost tripled. The total value of Mexico’s exports to the United States rose from 49.4 billion dollars in 1994 to 135 billion dollars in 2000. All of which, on the face of it, sounds impressive – enough to excite even the most impassive economist. But there is another, altogether bleaker side to the story – one, unfortunately, rarely told beyond Mexican borders:

From BRICs to MINTs? -- Back in 2001, Jim O'Neill--then chief economist at Goldman Sachs--invented the terminology of BRICs. As we all know two decades later, this shorthand is a quick way of discussing the argument that the course of the world economy will be shaped by the performance of Brazil, Russia, India, and china. Well, O'Neill is back with a new acronym, the MINTs, which stands for Mexico, Indonesia, Nigeria, and Turkey. In an interview with the New Statesman, O'Neill offers some thoughts about the new acronym. If you would like more detail on his views of these countries, O'Neill has also recorded a set of four radio shows for the BBC on Mexico, Indonesia, Nigeria, and Turkey. In the interview, O'Neill is disarmingly quick to acknowledge the arbitrariness of these kinds of groupings.   But even arbitrary divisions can still be useful and revealing. In that spirit, here are some basic statistics on GDP and per capita GDP for the BRICs and the MINTs in 2012.

  • 1) The representative growth economy for Latin America is now Mexico, rather than Brazil. This change makes some sense. Brazil has had four years of sub-par growth, its economy is in recession, and international capital is fleeing. Meanwhile, Mexico is forming an economic alliance with the three other nations with the fastest growth, lowest inflation, and best climates for business in Latin America: Chile, Columbia and Peru.
    2) All of the MINTs have smaller economies than all of the BRICs. China is the key factor shaping the growth of emerging markets in the future.
    3) O'Neill argues that although the MINTs differ in many ways, their populations are both large and relatively young, which should help to boost growth. He says: "That’s key. If you’ve got good demographics that makes things easy."

G20 shifts focus away from austerity, vows to add $2 trillion to world economy to lift growth - The world's biggest economies vowed Sunday to boost global growth by more than $2 trillion over five years, shifting their focus away from austerity as a fragile recovery takes hold. Finance ministers and central bank governors from the Group of 20, which accounts for 85 percent of the world economy, also agreed to pursue greater transparency about monetary policy after rifts about the US taper. They expressed "deep regret" that reforms to the International Monetary Fund have stalled, because the United States Congress has yet to ratify them. After their meeting in Sydney, the G20 ministers issued what host Australia called "an unprecedented" and unusually brief two-page statement to drive "a return to strong, sustainable and balanced growth in the global economy". "We will develop ambitious but realistic policies with the aim to lift our collective GDP by more than two percent above the trajectory implied by current policies over the coming five years," they said in reference to two percentage points.

G-20 Agrees To Grow Global Economy By $2 Trillion, Has No Idea How To Actually Achieve It -- Apparently all it takes to kick the world out of a secular recession and back into growth mode, is for several dozen finance ministers and central bankers to sit down and sign on the dotted line, agreeing it has to be done. That is the take home message from the just concluded latest G-20 meeting in Syndey, where said leaders agreed that it is time to finally grow the world economy by 2% over the next 5 years. "We are putting a number to it for the first time -- putting a real number to what we are trying to achieve," Hockey told a news conference. "We want to add over $2 trillion more in economic activity and tens of millions of new jobs." There is only one problem: the G-20 has absolutely no idea how to actually achieve its goal of boosting global output by more than the world's eighth largest economy Russia produces in a year. Nor does it have any measures to prod and punish any laggards from this most grand of central planning schemes.

G-20 agrees on automatic tax data sharing: OECD - Group-of-20 nations agreed to implement a global standard for automatically exchanging information between tax authorities by the end of 2015, the Organization for Economic Cooperation and Development said. The endorsement is a step toward putting an end to "banking secrecy as we know it," Pascal Saint-Amans, director of the OECD's centre for tax policy and administration, told reporters on Sunday in Sydney, where G-20 finance ministers and central bankers are meeting. A decision on the technology needed and detailed rules on how governments will swap tax data is likely to be made at a G-20 meeting in September, he said. The new standard would see countries automatically exchange information gathered from their financial institutions. The OECD, supported by 34 member countries including the US, UK, Germany and Japan, is working on plans for a global exchange of information to crack down on tax-avoidance strategies used by companies such as Google Inc, Apple Inc and Yahoo! Inc. While the group doesn't have figures to calculate the total cost of overseas tax avoidance, the British Virgin Islands was one of the top five investors in Russia and China, Saint-Amans said. The accumulated profit of US companies held offshore was $2 trillion, he said. "The political message is that we will be closing down all the loopholes," he said. "What multinationals are doing is legal. If it's legal and you don't like the outcome, you need to change the rules."

World Governments Agree To Automatic Information Sharing - It’s like 34 drunken sailors holding each other up. That’s the best way I can think of to describe the latest product from the good idea factory that is the OECD. Over the weekend in yet another cushy five-star hotel, representatives from this unelected supranational bureaucracy announced plans for world governments to exchange all their citizens’ tax and financial data with one another. It’s a pathetic display of exactly the sort of tactics that governments embrace when they go broke. And most of these OECD countries ARE broke – Italy, Japan, the US, Spain, Greece, etc.

Former Goldman Banker Calls for G-7 Shake-Up -- In the wake of the recent Group of 20 nonevent in Sydney, former Goldman Sach’s economist Jim O’Neill has a new paper arguing for a wholesale change in the way the globe’s big economies coordinate action. Mr. O’Neill, now a research fellow at Bruegel, a European think tank, gained fame for coining the term “BRICS” to refer to Brazil, Russia, India, China and South Africa. Mr. O’Neill is calling for an overhaul to the current system of global pow-wows to reflect these realities. In the paper, Mr. O’Neill and co-author Alessio Terzi argue the G-20 is too unwieldy to take decisive action. Such limitations were on display last week in Sydney, when the G-20 leaders called for nations to boost global growth by $2 trillion over the next few years – but failed to offer new ideas to reach that goal. Part of the problem, Mr. O’Neill argues, is that the G-20 contains too many voices. Launched in 2008, the group was supposed to be more diverse and initially it had some success in coordinating a world-wide response to the financial crisis. But now, with members ranging from the U.S. to Indonesia and Turkey, it is “too cumbersome to be truly effective,” Mr. O’Neill writes. Instead, world leaders should consider an overhaul of the Group of Seven – the club of developed nations that used to coordinate global policy. Rather than have Italy, France and Germany in that grouping, the European Union would get one seat, freeing up space for China and another fast-rising economy, Mr. O’Neill suggests. Mr. O’Neill uses data to underscore the point. China’s economy is today four times the size of Italy’s, and this could rise to seven times by 2020. Canada, another G-7 member, is even smaller than Italy.

A Broken Promise and a Cold War Fight - Three months of civic unrest in Ukraine spiraled out of control last week with dozens of people dead, the center of this elegant city turned into a burning war zone and the eventual flight from the capital Saturday by the president. Puzzled about the conflict and how it got so bad? Here’s a primer. There are three core factors that led to the chaos: First is a broken promise between a leader and his citizens: President Viktor F. Yanukovych had long promised to integrate Ukraine with the European Union by signing sweeping political and trade agreements. In November, he refused to sign. Second is a lingering Cold War-era fight between Russia and the West for influence over countries in Eastern Europe still suffering from political and economic problems rooted in the Soviet era. While Europe and the United States have made a priority of fostering democracy in the former Soviet republics, the Kremlin sees an ulterior motive: the expansion of Western military and economic power. Perceiving a threat to its big military and economic interests in Ukraine, Russia exerted enormous pressure to scuttle the accords with the European Union.  Third is searing public outrage over the government’s sometimes brutal response to the street protests that followed the president’s about-face on ties with the European Union. The crackdowns deeply contradicted Ukraine’s post-Soviet national identity as a peaceful, pluralistic society. Even in the 2004 Orange Revolution, in which there were also huge street demonstrations, the authorities did not assault the protesters.

Financial crisis threatens Russia as Ukraine spins out of control - The dramatic escalation of Ukraine’s civil conflict and fears of Russian military intervention have sent financial tremors across Eastern Europe, turning the region into the new fulcrum of the emerging market crisis. “This has suddenly gone from a domestic Ukrainian story into a geopolitical clash,” said Lars Christensen, from Danske Bank. The Russian ruble has fallen to a record low against the euro, with contagion reaching Poland, Hungary and Romania in recent days. “The moves in Russia are very like the events during the war in Georgia in 2008. Markets are pricing in the risk of Russian intervention,” he said. Any deployment of Russian troops to stiffen the Ukrainian governmment - even if invited by President Viktor Yanukovich - could spiral out of control, leading to an East-West stand-off not seen since the Cold War. It might even been seen as replay of Russian intervention in Hungary in 1956 to prevent the country slipping out of the Soviet sphere. German foreign minister Frank-Walter Steinmeier called Ukraine a “powder keg” as the death toll rose to 70, while Poland’s premier Donald Tusk warned of civil war.

Ukraine seeks $35 bn as warrant against Yanukovich is issued  - Ukraine's interim government said the country needs $35 billion of financial assistance to avoid default as it issued an arrest warrant for fleeing ex-President Viktor Yanukovich for his role in last week's violence. Lawmakers in Kiev are working on a coalition government after ousting Yanukovych from the presidency, while the US and the European Union have pledged aid for a new cabinet. Yanukovich and others were placed on a wanted list for their role in violence that killed at least 82 people last week. Ukrainian assets gained. "The situation in the financial sphere in general is difficult but controllable," acting Finance Minister Yuriy Kolobov said on the government body's website. The ministry and the central bank are working around the clock to shore up the financial system, he said. With protesters in control of the capital, Yanukovich's opponents face a contentious period after the release from prison of former Prime Minister Yulia Tymoshenko, who vowed to return to the fractured political scene before a presidential election May 25. While a new government needs to be established before Ukraine can receive aid, the first payments may arrive next week, Elmar Brok, the head of the European Parliament's foreign affairs committee, told reporters in Kiev today.

Ukraine’s Acting President Warns Economy Is in Dire State - Ukrainian lawmakers gave presidential powers to parliament Speaker Oleksandr Turchynov, who urged political parties to agree on a new government and warned of the “catastrophic” state of the nation’s economy. The U.S., Europe and the U.K. said they would help with financial aid when a new cabinet is formed, a day after the assembly ousted Viktor Yanukovych from the presidency for his role in violence that killed at least 82 people last week. Border officials stopped him and members of his cabinet from fleeing Ukraine at an airport in the country’s eastern city of Donetsk yesterday. They were not detained. “The situation in Ukraine, first of all in the economy, is catastrophic,” Turchynov told parliament today in Kiev. “There are no funds in the state Treasury account.” Ukraine spiraled into crisis in November when protesters took to the streets to oppose Yanukovych’s rejection of a deal to deepen ties with the European Union. Violence crested last week in fighting on the capital Kiev’s Independence Square before a peace deal brokered by EU foreign ministers ended the clashes and triggered Yanukovych’s flight from Kiev.

Ukraine’s economy still near the edge - From the introduction to a new IIF paper:The already acute financial pressures appear to have intensified further in recent weeks, with bank deposits falling sharply, the government out of funding and foreign exchange reserves likely to have tanked to as low as $12 billion by late February. The political change in Kiev has increased odds that Ukraine would receive the urgent financial assistance needed soon enough to avert default. With the Russian bailout likely to be put on hold, this assistance should amount to at least $20 billion this year alone. However, this would require the prompt formation of a new government able to undertake the reforms needed to alleviate the acute macroeconomic imbalances and put the economy on sound footing. Russia has already said, in addition to other irate public comments, that its bailout was on hold until Ukraine had a “normal, legitimate government” in place. And a little further into the IIF paper begins the unrelentingly awful detail: Budget financing has become virtually unavailable. The new acting president Mr. Turchinov announced on February 23 that the Treasury account is empty and that the Pension fund does not have enough money to meet pension obligations. On the other hand, tax revenues appear to have collapsed along with economic activity during the weeks of the political standoff. With no access to foreign markets, and domestic banks under intense liquidity pressure, the central bank has become the sole financier of the government. Broader payments discipline has deteriorated, too, especially among regional district heating companies, forcing the state-owned natural gas distributor Naftogaz to threaten to cut natural gas supply to some utilities.

EU to offer financial aid to Ukraine - The European Union foreign policy chief, Catherine Ashton, has traveled to Ukraine to discuss EU aid with the new leadership. On offer is an international aid package to help with Ukraine's "short, medium and long-term economic difficulties," a spokesman for the European Commission in Brussels said. But, it is unclear what exactly she can offer and how much money is involved. Before she left, Ashton called on all sides to respect the wishes of the people of Ukraine for democracy and to preserve the unity and sovereignty of the country. European Commission spokesman Olivier Bailly was unable to confirm that there would be an international donors' conference, as proposed by the acting Ukraine finance minister. European Commissioner for Monetary and Economic Affairs, Olli Rehn, said at the meeting of G20 finance ministers in Sydney on Sunday (23.02.2014), that financial support in the billions of euros was under consideration, not just hundreds of millions. During the political upheavals in Ukraine, the EU had stressed again and again that the association and free trade agreements that had already been negotiated lay ready to sign on the table. The European Commission in Brussels confirmed that it depended on Ukraine alone as to when and if the agreements would be signed. But there has been no talk of a date.

Ukraine Pledges to Protect Deposits as Kiev Rally Called - Ukraine is weighing measures to stem cash withdrawals after as much as 7 percent of deposits were taken from banks during last week’s bloody uprising, underscoring the need for action to fend off a default. Withdrawals peaked with as much as 30 billion hryvnias ($3.1 billion) Feb. 18-20 as police and anti-government demonstrators fought in the center of Kiev, Natsionalnyi Bank Ukrainy Governor Stepan Kubiv, 51, said in his first interview since being appointed Feb. 24. A rally will be held on Independence Square this evening as lawmakers seek to install a new government. The interim administration is trying to secure as much as $35 billion in financial aid to fend off a possible default. Acting President Oleksandr Turchynov yesterday pushed back a parliamentary vote on the formation of a new administration to Feb. 27 after indicating that a new administration should be formed quickly.

Everything you know about Ukraine is wrong -- I haven’t lived in that part of the world since the Kremlin ran me out of town, so I’m not going to pretend that I know as much as those on the ground there. Still, I’ve been driven nuts by the avalanche of overconfident ignorance that stands for analysis or commentary on the wild events there. A lethal ignorance, a virtuous ignorance. Virtuous ignorance about world affairs used to be the exclusive domain of neo-con pundits, but now it’s everywhere, especially rampant on the counter-consensus side — nominally my own side, but an increasingly shitty side to be on.  Nearly everyone here in the US tries to frame and reify Ukraine’s dynamic to fit America-centric spats. As such, Ukraine’s problems are little more than a propaganda proxy war where our own political fights are transferred to Ukraine’s and Russia’s context, warping the truth to score domestic spat points. That’s nothing new, of course, but it’s still jarring to watch how the “new media” counter-consensus is warping and misrepresenting reality in Ukraine about as crudely as the neocons and neoliberals used to warp and Americanize the political realities there back when I first started my Moscow newspaper, The eXile. So, yes, I wanted to comment on a few simplifications/misconceptions about Ukraine today:

Is the U.S. Backing Neo-Nazis in Ukraine? - As the Euromaidan protests in the Ukrainian capitol of Kiev culminated this week, displays of open fascism and neo-Nazi extremism became too glaring to ignore. Since demonstrators filled the downtown square to battle Ukrainian riot police and demand the ouster of the corruption-stained, pro-Russian President Viktor Yanukovich, it has been filled with far-right streetfighting men pledging to defend their country’s ethnic purity.  White supremacist banners and Confederate flags were draped inside Kiev’s occupied City Hall, and demonstrators have hoisted Nazi SS and white power symbols over a toppled memorial to V.I. Lenin. After Yanukovich fled his palatial estate by helicopter, EuroMaidan protesters destroyed a memorial to Ukrainians who died battling German occupation during World War II. Sieg heil salutes and the Nazi Wolfsangel symbol have become an increasingly common site in Maidan Square, and neo-Nazi forces have established “autonomous zones” in and around Kiev.  An Anarchist group called AntiFascist Union Ukraine attempted to join the Euromaidan demonstrations but found it difficult to avoid threats of violence and imprecations from the gangs of neo-Nazis roving the square. “They called the Anarchists things like Jews, blacks, Communists,” one of its members said. “There weren’t even any Communists, that was just an insult.”

Ukraine Calls Russia's Bluff, Slashes Nat Gas Imports By 80% --Twice in recent years, Russia has suspended gas supplies, or notably raised prices, as the somewhat well-known "trump card" of Russia's oil and gas supply to Ukraine (and Europe for that matter) remains Putin's easiest option for clenching his iron-first against the divided nation. Following a pre-emptive move in November by Ukraine to diversify its energy supply,  Russia had reduced the price of gas for the highly indebted Ukraine in December (to entice Ukraine under Russia's wing); but, after recent events, Dmitry Medvedev signaled on Monday that the price could be raised again. However, today we find that Ukraine's state oil and gas company, Naftogaz, has slashed gas imports from Russia's Gazprom by stunning 80% in February as Ukraine tries to show Russia it can't be pushed around of course, with limited (and more expensive) alternative supplies, we fear this could well shoot them in the foot. That and the whole being out of money thing too won't help.

Russian Lukoil Halts Oil Supplies To Ukraine Odessa Refinery -- A few days ago we reported that the Ukraine decided to call Russia's "trump card" bluff - that would be everyone else's reliance on Russian gas supplies - when it drastically cut imports of Russian gas by 80% in February, seemingly to demonstrate its energy independence from Puting. Now Russia has decided to take the Ukraine to task, by announcing it has halted oil deliveries to the Ukraine Odessa refinery. Hopefully the Ukraine, whose foreign currency reserves tumbled from $17.9 billion on February 1 to $15 billion currently, has alternative means of supplying itself with energy from benevolent sources, particularly those who are willing to provide the country with oil in exchange for goodwill.

Ukraine foreign reserves drop to $15 billion-central bank chief  (Reuters) - Ukraine's foreign currency reserves have dropped to $15 billion from $17.8 billion on Feb. 1, central bank chief Stepan Kubiv said on Wednesday. He attributed the fall to intervention moves to prop up the weakening national currency, the hryvnia. "Latterly, the central bank has supported the exchange rate by drawing on foreign currency reserves which have fallen to $15 billion," Kubiv told journalists. Earlier, Kubiv said the central bank did not plan to intervene on the foreign currency market in the near future. The hryvnia hit a record low of 10.00 per dollar UAH= earlier, bringing its losses this year to 19 percent.

Ukraine's currency in free fall - Ukraine's financial situation continued to unravel today as the currency gave up another 10% - and seems to be in free fall. With fresh promises of aid from the West, including possibly the IMF, the near-term financial situation could potentially be stabilized. The political realities however look grim. It is not clear if the revolutionaries in Kiev will support the Parliament and the interim government.  It is also not entirely clear if the nation as a whole supports the revolution. The probability of more violence - possibly on a broad scale - remains high. History is not on Ukraine's side. The Ukrainian people have been under some form of control of one or several of their neighbors for centuries. Other than during the years following the collapse of the Soviet Union and a short period at the beginning of the 20th century, the nation has almost no history of independence. It may take more than an ouster of an unpopular leader to create an independent state with a democratic government.  Even after the collapse of the USSR, the Ukrainians have had a tough time moving away from the Russian sphere of influence - in large part due to their reliance on Russian energy resources. The Russians in turn are unlikely to just let Ukraine go. That's why the latest developments in Crimea (see story) are especially troubling. The Russian ruble, which has already been under pressure as a result of the central bank policy (see post), has traded to new lows in part due to potential escalation of tensions in the region. The situation remains quite fluid and more volatility is to be expected.

Ruble slides to record low on Ukraine tensions - The Russian ruble dropped to an all-time low against the euro-dollar basket on Thursday, according to The Wall Street Journal, after a sudden escalation of tensions between Russia and Ukraine. The ruble slid against the euro, with the euro-zone currency climbing to a record high of 49.3991. Against the dollar, the ruble fell 0.3%, with the dollar trading at 36.1739. Russian stocks were also hit hard, and the RTS index dropped 2.4% to 1,254.45. The selloff in both the Russian currency and stock market came after Russian President Vladimir Putin on Wednesday ordered a test of combat readiness for troops in a region close to Ukraine. Early Thursday, the tensions intensified when pro-Russian gunmen stormed parliament buildings in Ukraine's Crimean region.

Russian banks which lent to Ukraine companies at risk-Fitch (Reuters) - Russian banks which made loans to Ukrainian companies or businessmen who bought assets there are at risk if the country's economy falls into recession or the currency devalues, Fitch credit rating agency said on Tuesday. Ukraine this week appealed for $35 billion over two years to hold up its economy following the ouster of President Viktor Yanukovich. Its economy flatlined in 2013 and the hryvnia currency has fallen 8 percent in three months. Russian banks have around $28 billion of exposure in total to Ukraine, President Vladimir Putin said in November, naming Gazprombank, Vnesheconombank (VEB), Sberbank and Bank VTB as creditors. Banks' exposure may "materially impact the solvency of some institutions" if borrowers suffer as a result of economic stress, Fitch said. "By solvency we mean that in the worst case scenario some of these banks may (require) support," Alexander Danilov, senior director of financial institutions at Fitch in Moscow told Reuters.

Changing Trade Patterns Could Threaten Euro Zone -  The euro zone is slowly coming to grips with its banking and debt problems, but may have to prepare for a new round of turbulence if a paper published by the Brussels-based Breugel think tank is on the mark. The euro zone’s formation was driven by the belief that trading links between its members would grow ever greater, transforming the currency area into a single, integrated unit that resembled the U.S. rather than a grouping of 11, and now 18, individual national economies. Sharing a single currency would aid that process, and that closer integration would in turn make it less disruptive for members to be guided by a single monetary policy. But according to Jim O’Neill and Alessio Terzi, the rising share of global trade accounted for by large developing economies will challenge that underlying logic. Mr. O’Neill is best known for having coined the term BRIC nations to highlight the growing importance of Brazil, Russia, India and China to the global economy. Despite recent slowdowns in those economies, he and Mr. Terzi still expect developing economies to significantly increase their share of global economic output and trade by 2020. One consequence of that is that a greater share of exports from individual members of the euro zone will go to countries outside the currency area, and in some cases, their leading trade partners may not be their near neighbors. According to the authors, by 2020 China, rather than France, is likely to be Germany’s largest single export market.

European Inflation Has Biggest Monthly Drop On Record - For those who have been following the abysmal loan creation in Europe, which recently dropped to an all time low today's inflation, or rather make that deflation, data out of Europe should not come as much of a surprise. Then again, with January inflation posting the biggest drop in history, when it tumbled by a record 1.1% from December levels, even the skeptics may be stunned by how rapidly deflation is gripping the continent.

Europe May Face Deflation Risk: Former ECB Chief - Jean Claude-Trichet, former president of the European Central Bank, said Monday euro-zone policy makers should not rule out the risk of deflation given recent low inflation readings in the bloc. Mr. Trichet stressed that the medium- and long-term inflation outlook is what truly matters for the ECB and other central banks. On that count, he said, euro-zone inflation has averaged 2.03% in the currency union’s first 15 years of existence. Still, on a day when euro-zone consumer prices posted their biggest monthly decline since records began in 2001, Mr. Trichet said the threat of a prolonged period of falling prices and wages could not be dismissed. “Deflation is a potentially new challenge,” Mr. Trichet said during a question-and-answer session with David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy, at a conference sponsored by the National Association for Business Economics. The European Union’s statistics agency said Monday that consumer prices in the 18 nations that use the euro fell 1.1% in January from December. The annual rate of inflation was unchanged at 0.8% last month, well below the ECB’s target of just under 2%, but higher than a previous estimate of 0.7%. Current ECB President Mario Draghi signaled Sunday the central bank’s March policy meeting could be critical in determining whether it will provide additional stimulus to shore up the nascent euro-zone economic recovery.

Why the euro inflation number is worse than it looks  - January’s eurozone inflation number, out earlier on Monday, showed price pressures in the currency bloc are not quite as subdued as first feared, registering 0.8 per cent – a touch higher than Eurostat’s initial estimate of 0.7 per cent. It’s hardly a game changer: inflation is still less than half the 2 per cent target. But the slightly better figure will reduce pressure on the European Central Bank a little after it faced renewed calls to ease policy following the release of the flash estimate. However, the detail of this morning’s release suggest disinflationary pressures might be even worse than feared. This excellent chart from Marchel Alexandrovich of Jefferies International shows why: One of Mario Draghi’s five reasons for why the eurozone is not about to enter a Japan-style lost decade, where businesses and households rein in spending because of suspicions prices will tumble, is that falling prices in the currency bloc are far less broad based that in Asia’s second-largest economy. On this score, the breakdown on the components of the inflation basket contained in Eurostat’s release this morning is worrying. Mr Alexandrovich’s chart shows that deflation is becoming more broad based across the bloc, and in all but one of the eurozone’s largest economies. That doesn’t mean that the eurozone is turning Japanese just yet — deflation remains far less broad based than it was there. But it does not bode well.

EU forecasts weak growth, warns about deflation -  European Union economists on Tuesday forecast tepid growth for most of the region through 2015, while warning that lingering debt burdens and the specter of deflation could sabotage the recovery. The forecasts, published by economists at the European Commission, see a mild recovery over the next two years. The impact of budget austerity, a major drag on growth since the euro-zone debt crisis flared in 2009, is expected to fade this year. Meanwhile, policy overhauls in the euro zone’s weaker economies are starting to bear fruit, helping to boost their export sectors, the commission said. . Growth in the euro area is forecast at 1.2% this year and 1.8% next, after two consecutive years of contraction. That won’t be enough to make much of a dent in euro-zone unemployment, which is seen hovering near record highs of 12% in 2014 and 11.7% in 2015. The commission report forecasts growth in the broader EU—buoyed by strong momentum in the U.K.—at 1.5% this year and 2% next. But the tepid recovery faces some daunting obstacles. Debt owed by governments, households, businesses and banks remains too high in many of the bloc’s countries, the commission report says. And low inflation in the euro zone, or even the threat of outright deflation, threatens to make the debt problems even worse. The commission forecasts inflation in the euro zone at 1% this year and 1.3% next, well below the European Central Bank’s target of just under 2%.

The ECB receives another disinflationary warning - The ECB received another warning today: the German CPI rate came in below expectations. The disinflationary pressures are no longer just about the Eurozone periphery. Moreover, the euro area private loan balances continue to contract and the broad money supply growth remains weak. Reuters: - "Weak money supply growth is not only condemning the euro zone to stagnant recovery, but it is raising the odds that the single-currency area could easily slip back into recession again," said David Brown at New View Economics.  "The ECB still needs to think outside the box to get the euro zone motoring into the fast-lane," he added. "A change of heart on quantitative easing still beckons ahead."  The ECB, worried that inflation risks getting stuck in a "danger zone" below 1 percent, is considering whether to take fresh policy action next Thursday to support the economy.

Euro zone lending contraction compounds ECB headache - Lending to households and firms in the euro zone fell again in January and money supply growth remained subdued, adding to pressure on the European Central Bank to take action next week to support the economy. The ECB has cut interest rates to a record low, pumped extra liquidity into the banking system and announced a fresh government bond purchase program, but the measures have so far not managed to unclog lending to the real economy. Euro zone inflation is also running at only 0.8 percent - far below the ECB's target of just under 2 percent. Loans to the private sector fell by 2.2 percent in January from the same month a year earlier, ECB data released on Thursday showed. That compared to a contraction of 2.3 percent in December. Euro zone M3 money supply - a more general measure of cash in the economy - grew at an annual pace of 1.2 percent, picking up slightly from 1.0 percent in December.

Deflation Is Not Benign - There has been much discussion recently about the possibility of deflation in the global economy. Many Western economies are experiencing what we call “disinflation”, where the rate of increase of prices falls over time. If the rate of increase falls enough, it becomes a decrease – and then we are into deflation. This sort of “boiling frog” deflation is very different from the acute deflation of the financial crisis, when prices went into freefall with catastrophic effects on jobs and incomes. Many people regard it as beneficial. After all, if prices are falling, money goes further, doesn’t it? You can buy more stuff both now and, if you save, in the future. What’s not to like?  Those who think that this kind of slow deflation can be benign usually point to the latter part of the 19th century as a time when economies were growing even though the general price level was falling.  But comparing such a period with now is comparing apples and pears. During the Long Depression, the whole Western world was using gold as its currency, though sometimes with silver too. Using a commodity such as gold as money means that the quantity of money in circulation remains fixed unless more gold coinage is produced. A falling general price level is therefore a sign that the economy is GROWING. But this is very different from the way in which the quantity of money changes in a modern fiat money economy. In our fiat money economy, the quantity of money in circulation is determined principally by bank lending. When banks lend, they create an amount of fiat money equal to the amount of the loan. What we call “broad money” – which is the money actually used for transactions in the real economy – therefore expands. When the loan is paid off, the money the bank has created is destroyed, and the broad money supply therefore contracts.

Wage Shares Fall in the US, Germany and Many Other Countries While Financial Shocks Hit Emerging Economies - Yves here. This Real News Network interview with Yilmaz Akyuz, formerly the Director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development (UNCTAD), describes how the problems that produced the financial crisis have morphed into new, no less troubling problems. One key part of this discussion focuses on how China has adapted to its considerably smaller trade surplus, and why having Germany as the new excessive exporter poses new perils to the global economy

Scandal of Europe’s 11m empty homes - More than 11m homes lie empty across Europe – enough to house all of the continent's homeless twice over – according to figures collated by the Guardian from across the EU. In Spain more than 3.4m homes lie vacant, in excess of 2m homes are empty in each of France and Italy, 1.8m in Germany and more than 700,000 in the UK.There are also a large numbers of vacant homes in Ireland, Greece, Portugal and several other countries, according to information collated by the Guardian. Many of the homes are in vast holiday resorts built in the feverish housing boom in the run up to the 2007-08 financial crisis – and have never been occupied. On top of the 11m empty homes – many of which were bought as investments by people who never intended to live in them – hundreds of thousands of half-built homes have been bulldozed in an attempt to shore up the prices of existing properties. Housing campaigners said the "incredible number" of homes lying empty while millions of poor people were crying out for shelter was a "shocking waste". "It's incredible. It's a massive number," said David Ireland, chief executive of the Empty Homes charity, which campaigns for vacant homes to be made available for those who need housing. "It will be shocking to ordinary people."Homes are built for people to live in, if they're not being lived in then something has gone seriously wrong with the housing market."

Greek banks need 'five billion euro cash injection' - Greece's four top banks are expected to need an extra capital injection of about five billion euros, local media said Sunday as the country's international lenders prepared for a new audit of Greek finances. The Bank of Greece is currently evaluating the restructuring plans of the country's four main lenders -- National Bank, Alpha Bank, Piraeus Bank and Eurobank -- before releasing stress test results that will show whether they can absorb possible future shocks from bad loans. The Ethnos newspaper reported that the central bank's preliminary estimates put the banks' capital needs at around five billion euros ($6.8 billion), while the weekly Realnews said it would be between 4.5 to 4.8 billion euros. The central bank said official results would be published by early March. Officials from the European Union, the European Central Bank and International Monetary Fund are set to begin their latest audit of Greek finances that will decide whether a new tranche of aid will be released on Monday. The so-called troika of lenders will also meet with Greek Finance Minister Yannis Stournaras.

Greece 'very close' to agreement with troika as talks resume in Athens: Greece is “very close” to an agreement with the troika, according to government spokesman Simos Kedikoglou, who was speaking ahead of the resumption of talks between the two sides on Monday afternoon. Greek government officials are due to begin meetings with troika inspectors in Athens at 4 p.m. The Greek side is hoping to achieve an agreement in principle by the March 10 Eurogroup and to secure the disbursement of 8.8 billion euros in bailout loans by a meeting of eurozone finance ministers due to be held in Athens on April 1. Among the issues that remain to be settled are the lifting of barriers to competition in several sectors and the reduction of employers’ social security contributions by 3.9 percentage points. “We are very close to an agreement on both things,” Kedikoglou told Mega TV on Monday morning. He suggested that the government was ready to make alternative proposals on the issues of fresh milk and non-prescriptions medicines. The troika wants Greece to extend the shelf life of fresh milk and to allow some drugs to be sold in super markets.

Greek Financial Crisis Tied To Country's Rising Rates Of HIV, Depression, Infant Deaths - Researchers say they have found new evidence that Greece's financial crisis is taking a toll on the health of its citizens, including rising rates of HIV, tuberculosis, depression and even infant deaths. Since the economic crisis hit several years ago, the government's health spending has been slashed and hundreds of thousands of people have been left without health insurance. As cuts have been made to AIDS prevention programs, rates of HIV and tuberculosis in drug users have spiked. Previous studies have found suicides in Greece have increased by about 45 per cent between 2007 and 2011. The new research found the prevalence of major depression more than doubled from 2008 to 2011, citing economic hardship as a major factor. Suicides and mental health problems tend to be underreported, so "this is probably just the tip of the iceberg," said Alexander Kentikelenis of Cambridge University, the study's lead author.

Greece resumes bailout talks with lenders, no hard figures discussed (Reuters) - Greece resumed bailout talks with its international lenders on Monday, hoping to end six months of wrangling over the release of new rescue loans it needs to avoid default. At stake is the disbursement of funds to repay 9.3 billion of bonds maturing in May, the biggest single debt redemption Greece faces in the next three decades, according to Thomson Reuters Eikon data. They held a first round of talks but no hard numbers were discussed. "Talks are tough, a lot of issues are open," a senior Finance Ministry official said, declining to be named. The review by the European Union and the International Monetary Fund has dragged on since September, with disagreements about the extent of savings and reforms Athens must make to comply with the terms of its bailout. The lenders say the government is dragging its feet over reforms, such as softening employment protection and introducing more competition, for fear of hurting vested interests and losing support ahead of European and municipal elections in May.

Don’t Try This at Home! Greek Austerity - The US and Europe passed through the greatest economic storm since 1929 and have not yet fully exited from the turbulence. Both the US and Europe addressed the crisis with belt-tightening austerity, with the US having tightened its belt a bit, and Europe a lot more. Several years later, we have the results: the US economy, while not in the best of health, is better off than much of Europe’s.  European governments responded to the crisis by tightening their belts all at once. The result, ironically, was increasing government debts and sluggish economic growth. In the United States, many governors practiced European-style draconian budget cuts. But, because the US has a true federal government (unlike the EU), its budget cutting states have continued receiving federal payments in the form of Social Security, Medicare, Student Loans, etc. Ironically, the very New Deal legacy that austerians work to euthanize in the US, is the chief thing that prevented the US economy from completely crashing. The EU does not have these federal transfers to its budget cutting member states, and thus, have faired worse. Politicians in this country frequently warn their opponents’ policies threaten the United States with a fate worse than Greece’s. Americans have a curious view of democracy’s birthplace. They seem to think Greeks have been overtaxed. In fact, the opposite is true. Unlike the United States where only some of the rich evade taxes (as Warren Buffet has mentioned), Greece is more democratic in that nearly everyone evades them. Tax evasion contributed to Greece’s original fiscal mess. Budget cutting then deepened it. Greece tried remedying this by raising taxes at the peak of the crisis, but a crisis is no time to raise taxes. Greece also radically cut budgets and tried another policy supported by some in this country: cutting wages. The result? So far, following the budget and wage cuts national income fell by a massive 25 percent.

Soros and Paulson each take €92m bet on Spanish real estate - George Soros and John Paulson are taking major stakes in the flotation of a Spanish property group, reflecting an increasing confidence among investors in the eurozone periphery’s economic recovery. The two hedge fund managers – who were ranked first and fourth in the world for their total earnings in 2013 – have both taken €92m stakes in Hispania Activos Inmobiliarios, said people with knowledge of the deal. Last week, Hispania announced plans for an initial public offering of remaining shares – having already raised a substantial part of its €500m target from early-stage investors. Its prospectus is awaiting approval from Spain’s regulators. Hispania is seeking to list on the Madrid Stock Exchange as a real estate investment trust, focusing on property with scope for value growth, primarily in key cities. It is targeting a double-digit annual total return over a six-year period, people familiar with the plans said. The Reit will be managed by Azora, an independent asset manager founded in 2003 that has accumulated €2.8bn of assets across Europe. Azora refused to comment.

EU Says Spain Deficit to Widen in 2015 Without Cuts - The European Commission said Spain risks failure in tackling one of the European Union’s widest budget deficits unless it agrees more spending cuts. The commission, the EU’s executive arm in Brussels, sees the shortfall at 6.5 percent of gross domestic product in 2015, above Spain’s target of 4.2 percent, even as growth in the euro region’s fourth-largest economy accelerates. The deficit will meet a goal of 5.8 percent of GDP in 2014, it said. “Under the no-policy-change assumption, the headline deficit is expected to widen,” the commission said in its winter economic forecasts today. “This projection assumes that some temporary tax measures will expire in 2014.” EU peers agreed last year to give Spain until 2016 to bring the gap back within the EU limit of 3 percent as it struggled to emerge from its second recession since 2008. With the economy starting to recover and general elections due in 2015, Prime Minister Mariano Rajoy has pledged to cut taxes after increasing them in 2012.

Growth in Italian economy to be weaker in 2014 than expected - Growth in the Italian economy will be weaker this year than previously forecast and its debt as a percentage of gross domestic product will rise, the European Commission said Tuesday. The EC revised down Italy's 2014 growth forecast to 0.6% from previous estimates of 0.7% and warned that when final figures for last year are settled, those results will likely also be weaker than previously thought. "After contracting 1.9% in 2013, Italy's economy is expected to stage a slow recovery in 2014, driven by stronger external demand," the EC said in its report on the Italian economy. "As credit conditions ease, growth is expected to rise further in 2015," along with consumer confidence and external demand from trading partners regaining their own strength following recession in many parts of Europe, the report said. Debt as a percentage of GDP will increase this year, due to new expenses in 2014, including payments owed to private business, and will reach 133.7% - still lower than the 134% previously forecast by the EC, it said. Next year, the debt-to-GDP ratio will begin to drop, thanks to a better economy, the report added. The EC said it had revised downwards its economic growth forecast for Italy this year and last, but was keeping steady its expectations for growth of 1.2% in 2015. The EC had previously expected the economy would lose 1.8% in 2013 and in this report, it worsened its 2013 forecast to a loss of 1.9%. That is gloomier than the Italian government's predictions late last year for a 1.7% loss in 2013, growth of 1% this year and of 1.7% in 2015. Unemployment in Italy will likely be worse than previously predicted, the EC said as it lowered its forecast to a 12.6% jobless rate for 2014 and 12.4% for 2015. In November, the EC had predicted a jobless rate at 12.4% and 12.1% for 2014 and 2015, respectively.

French to break deficit promise to EU - France is set to breach promises to cut its public deficit, according to new figures from the European Union suggesting the country's deficit will remain above the 3pc ceiling in 2014 and 2015. The EU's winter economic outlook suggested France's deficit will climb to 4pc of output this year and remain at 3.9pc in 2015. Following the release of public deficit figures last year, the French government had promised to keep its deficit beneath the EU's 3pc ceiling, predicting public spending cuts would keep the deficit beneath 2.8pc for 2015. Pierre Moscovici, economy minister, maintained that his country is on course: "France has a public finance trajectory that it presented to the European Commission and it is sticking to it." However, the EU's outlook suggests economic growth in France is set to pick up, reaching 1pc this year and 1.7pc by 2015, in line with economic growth predictions for the rest of the eurozone.

French Joblessness Surges To New Record High (Up 30 Of Last 32 Months) --It would appear French President Francois Hollande's promise to bring jobs to the nation continues to fail dismally. Perhaps it was his recent trip to the US, but French Jobseekers rose more than expected for the 3rd month in a row to a new record high of 3.316 million. Joblessness has now risen for 30 of the last 32 months. The last 5 months have seen jobseekers reaccelerate - surging by 2.5% (the most in 6 months). So, in a nutshell, things are getting worse, faster for the 2nd largest economy in Europe (and 5th largest in the world).

Italian jobless rate nears 40-year high - --Italy's unemployment rate rose to its highest level in nearly 40 years in January, driven by hefty job losses among prime-age adults even as more people joining the labor force, national statistics institute Istat reported Friday. The official jobless rate rose to 12.9% in January, up from 12.7% in December, Istat said, citing preliminary seasonally adjusted data. That is the highest in this data series beginning in 2004 and the highest recorded since 1977. The increase reflected a 60,000 decline in the number of employed residents and a 45,000 drop in the number of people not seeking a job, according to Istat. The youth unemployment rate rose to 42.4%, up from 41.7% in December, Istat said. The dismal figures reflected weakness in domestic demand even as Italy's economy begins to expand thanks to exports. Male employment, which is more likely to be in manufacturing sectors, actually rose modestly from the previous month, while female employment fell, according to Istat's data. Still, the male jobless rate increased, as more declared they are seeking work. That suggests Italy's income-support benefits for those who lose their jobs are running out, as those receiving them are not counted as unemployed.

Rome days away from bankruptcy -  Matteo Renzi, the Italian prime minister, came under pressure on Thursday as the city of Rome was on the brink of bankruptcy after parliament threw out a bill that would have injected fresh funding. Ignazio Marino, Rome mayor, said city services like public transport would come to a halt and that he would not be a "Nero" - the Roman emperor who, legend has it, strummed his lyre as the city burnt to the ground. Marino said that Renzi, a centre-left leader and former mayor of Florence who was only confirmed by parliament this week, had promised to adopt urgent measures to help the Italian capital at a cabinet meeting on Friday. The newly-elected mayor faces a budget deficit of 816 million euros ($1.1 billion) and the city could be placed under administration if he does not manage to close the gap with measures such as cutting public services. "Rome has wasted money for decades. I don't want to spend another euro that is not budgeted," Marino said, following criticism from the Northern League opposition party which helped shoot down the bill for Rome in parliament.

Randy Wray: MMT and External Constraints - MMT argues that a sovereign government that issues its own “nonconvertible” currency cannot become insolvent in terms of its own currency. It cannot be forced into involuntary default on its obligations denominated in its own currency. It can “afford” to buy anything for sale that is priced in its own currency. It might be able to buy things for sale in foreign currency by offering up its own currency in exchange—but that is not certain. Pegging your currency adds a constraint: you need to obtain that-to-which-you-peg in order to ensure you can convert at the pegged price. How binding is the constraint? It depends. In the case of China today, its “managed” exchange rate is not very binding. For example, China has committed to fairly rapid growth of domestic wages. By contrast, in the case of Nepal, the peg against the Indian currency is constraining. If Nepal were to pursue China’s policy of raising wages, her trade deficit with India would grow; unless she could somehow increase remittances from her workers abroad, reserves of Indian currency as well as dollars would be depleted. Her peg would be threatened and a currency crisis would be likely. Now, would China or Nepal benefit from floating? I have no doubt that China would eventually be in a position where floating would not only be desired, but it would be necessary. China will probably float long before it reaches such a position. China will become too wealthy, too developed, to avoid floating. She will stop net accumulating foreign currency reserves, and will probably begin to run current account deficits. She will gradually relax capital controls. She might never go full-bore Western-style “free market” but she will find it to her advantage to float in order to preserve domestic policy space. If she did not, she could look forward to a quasi-colonial status, subordinate to the reserve currency issuer. China will not do that.

Foreign banks could be banned from City - Foreign banks with branches in Britain have been warned by the Bank of England that they could be barred from operating in the City amid concerns over their poor regulation. The Prudential Regulation Authority (PRA), Britain’s banking supervisor, has for the first time set out a series of requirements for non-EU banks wishing to do business in the UK. In a consultation paper published on Wednesday, the PRA says it will require foreign regulators to meet British standards of oversight as a condition of continuing to allow their overseas bank branches to operate in Britain. Failing to meet those British standards could lead to financial groups from some countries being banned entirely from the UK and the City of London. Branches set up in Britain allow overseas banks to do business in the country without having to meet the more onerous regulatory standards required by the UK financial authorities of full-blown subsidiaries. In contrast to a subsidiary, a branch operation does not have to be a separately capitalised legal entity and continues to be regulated in its country of origin. Non-UK bank branches based in Britain now manage assets worth about £2.4 trillion, equivalent to 160pc of this country’s GDP. But they have become a source of concern for the Bank of England since the financial crisis, amid fears about the standards being imposed on them by their domestic regulators.

RBS pays out £588m in bonuses despite suffering £8.24bn loss -  Royal Bank of Scotland has defended plans to pay £588m in staff bonuses despite suffering an £8.24bn loss in 2013 as it slumped into the red for the sixth successive year. The size of the bank's bonus pool fell 18% from last year but the RBS chief executive, Ross McEwan, acknowledged that the issue was "highly emotional" as he explained the multimillion pound windfall at the taxpayer-owned institution. "I need to pay these people fairly in the marketplace to do the job. I do need to make sure we are there or thereabouts and that is all I'm asking for," he said. The latest annual loss was caused by £3.8bn of costs for settling litigation and regulatory problems – including £1.5bn extra to compensate customers mis-sold payment protection insurance and interest rate swaps in the UK – and £4.5bn of losses on bad assets.

Russian oligarchs buy UK visas for £1million - Britian has been handing visas to hundreds of Russian oligarchs in return for them paying at least £1million towards our £1.2trillion national debt.Russian and Chinese businessmen have been allowed to jump to the front of the immigration queue by ‘investing’ a seven-figure sum in Government gilts.Immigration advisers say the foreign investors and their families are the big winners because as long as they have their money stored in Treasury bonds, they can settle in the UK and enjoy its fair legal system and good schools.  Indeed, because they receive interest on the bonds, the Government is effectively paying the wealthy to live here – where they can then also invest in our lucrative property market. If they take their money out of the bonds the visa is revoked.But the British public gets very little out of the deal, according to the Home Office’s Migration Advisory Committee.

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