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

Saturday, March 15, 2014

week ending Mar 15

Fed Sends $79.6 Billion in Profit to Treasury -- The Federal Reserve‘s balance sheet grew to $4 trillion at the end of last year, and the larger securities holdings earned it enough interest to remit $79.6 billion to the U.S. Treasury. The central bank’s asset holdings rose by $1.1 trillion last year, financial statements released Friday show, as it embarked on its third major bond-buying program, aimed at supporting a weak economic recovery. The Fed’s interest income on its holdings rose $9.9 billion over the course of the year to $90.4 billion.Some economists, including within the Fed, worry a large balance sheet, now some four times its precrisis size, could it make it harder for the central bank to tighten monetary policy when it decides the time is right.  But Fed Chairwoman Janet Yellen and other top Fed officials have repeatedly argued they have the tools needed to withdraw liquidity from the financial system in a timely manner.

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

Foreign Banks Account for Nearly Half of Reserves at Fed Due to FDIC Changes - Because of changes in charges levied by the Federal Deposit Insurance Corp., foreign banks accounted for almost half of the reserves held at the U.S. Federal Reserve in December, according to a paper published by the Bank for International Settlements Sunday. Written by BIS economists Robert McCauley and Patrick McGuire, the paper says that “perhaps counterintuitively,” the Fed’s bond buying program led to “a massive inflow” of bank funds into the U.S. as the U.S.  branches of foreign banks took advantage of a risk-free opportunity to make a small profit. The branches raised dollars abroad with the aim of holding them as reserves at the Fed, where they earned interest. After the FDIC’s decision to levy fees not just on deposits but also on banks’ short-term borrowings from April 2011, the U.S. branches of foreign banks that didn’t pay the charge had a competitive advantage, the two economists said that. “With wholesale rates of 10 basis points or less, the new FDIC charge made bidding for such funds and parking them at the Fed at 25 basis points unattractive for many US-chartered banks but not to the US  branches of foreign banks, which pay no FDIC fee,” they wrote.According to the authors, at the end of 2013 these foreign bank branches held almost $1 trillion of the $2.2 trillion in reserves at the Fed, or 43% of the total. They did that largely by reversing their traditional role as providers of dollar funds to other parts of their bank group. Before the financial crisis, foreign bank branches had borrowed from U.S. money market mutual funds to fund their parent banks. But according to the authors, having been net lenders to their offices outside the U.S. to the tune of $400 billion, by the end of last year they had become net borrowers of $200 billion.

Overseas Treasury Holdings at Fed Post Record Drop - U.S. government bonds held at the Federal Reserve for foreign central banks and other overseas investors plunged by a record $104.5 billion in the latest week, a drop that rattled some investors and sparked speculation about who might be doing the selling or transferring. Overall foreign demand for U.S. Treasurys, particularly by the largest holders, China and Japan, remains strong after hitting an all-time high in December. While the Fed has begun winding down its purchases of Treasury and mortgage bonds, 10-Treasury yields bond yields remain historically low at around 2.65%, evidence of continued desire for U.S. government assets. Some Wall Street traders speculated the steep one-week drop, over three times the size of the second-largest decline in June 2013, might be attributed to Russia. There was no immediate evidence to support this.U.S. Treasurys prices rose Friday after data showing weaker U.S. consumer sentiment, on top of concerns about a weakening Chinese economy and the military standoff between Russia and Ukraine. Many investors move their money into Treasurys in times of turmoil because of the perception that they are very safe.The Fed is gradually reducing its monthly bond buying, which is aimed at supporting a weak economic recovery. Analysts disagree about whether recent softness in the economic data primarily reflects a harsh winter weather or the start of another slowdown.

Fed’s Evans: Time to Revise Forward Guidance - The Federal Reserve official who was instrumental in guiding the central bank to provide detailed verbal guidance on the potential timing of interest rate increases says the time has arrived to change this system. Federal Reserve Bank of Chicago President Charles Evans said Monday “there’s not a large expectation” the current system of numerical thresholds will remain in place for much longer. The Fed is likely to replace it with more “qualitative” guidance, he said. He was addressing one of the biggest issues confronting the Fed: The central bank has said it won’t consider raising short-term interest rates from near zero until well past the time unemployment falls below 6.5%, as long as expected inflation stays under 2.5%. But with joblessness having fallen to 6.7% in February, a number of Fed officials have argued that it’s time to revisit that guidance. Officials such as New York Fed President William Dudley believe it’s time to set aside guidance linked to the unemployment rate in favor of something more broadly descriptive in nature. Adopted at the end of 2012, the 6.5% threshold closely matches a formula championed by Mr. Evans, and is widely referred to as the “Evans Rule.” Speaking with reporters after his speech, Mr. Evans said “I can’t predict to you when we will pull the trigger and change the language” for the guidance. “Once we get to 6 ½%, pretty soon we are going to have to come up with a different language formulation that doesn’t mention 6 ½%,” Mr. Evans told reporters. “That’s why I say I expect it will be a qualitative description. It ought to be something that captures well the fact” that short-term rates, now near zero percent, will “continue to be low well past the time we change the language.”

Forward guidance threatens to ‘encourage excessive risk’ - Efforts by central banks to spur economic recovery by providing guidance on what will happen to interest rates could endanger the global financial system, economists at the Bank for International Settlements have warned. Investors are being encouraged to load up on risk because they believe forward guidance will warn them well in advance about any rise in interest rates, according to research published by the Basel-based institution known as the central bankers’ bank. More videoThe strategy could also result in rates remaining too low for too long because central banks fear the reaction of markets to any rate rise, fuelling even riskier behaviour. The guidance, which all four of the leading central banks have undertaken, could raise the threat of “an unhealthy accumulation of financial imbalances”, economists argue. It could also cause panic if investors believe the guidance had changed unexpectedly.

The Rate-Hiker's Guide to the Economy - Paul Krugman -- The big headline on the front page of today’s FT goes to this report about the Bank for International Settlements. According to the article, the BIS is warning that “forward guidance” — the attempt to drive long-term interest rates down by promising to keep short-term rates low for a long time — “could endanger the international financial system.” So I thought, typical BIS — the gnomes of Basel have been consistently against anything that might restore full employment, have been into punishment all the way. And I got ready to write a BIS-bashing post. But first I thought I should check the actual BIS report — and it’s not very much like the description in the FT. Yes, it mentions possible risks to financial stability, but it also talks about the reasons for forward guidance and the need for some kind of unconventional stimulus; if it seems somewhat down on the policy, it’s more about doubtful effectiveness than about looming doom. In other words, the fear factor here is more the FT projecting its own prejudices onto the BIS than the BIS itself. And that, I think, is an indicator. The urge to hike rates — the rationale keeps changing, but the demand stays the same — is widespread in the financial press. Why? The ever-changing reasons for a never-changing policy suggest that we aren’t really talking about policy analysis. Instead we’re talking about some mix of class interest (rentiers want their rents) and desire to see economics as a morality play (easy money feels good, therefore it must be bad). Anyway, quite amazing. And I worry that the incessant drumbeat of demands for rate hikes will eventually wear the central bankers down.

Fed Won’t Raise Rates Until Mid-2015, Economists Say - Most economists surveyed by The Wall Street Journal think the Federal Reserve won’t raise interest rates before June 2015 despite a falling unemployment rate and improving economy. The Fed has said it will keep short-term interest rates near zero, where they have been anchored since December 2008, “well past the time” the jobless rate falls below 6.5%. It ticked up to 6.7% in February, according to the Labor Department, but economists in the survey estimated it will hit the 6.5% threshold this June. A plurality of economists, 27%, said the Fed’s first rate increase will come in June 2015, but 30% expect the Fed will raise rates sometime before then. “Short-term policy stays accommodative around the world,” said Mesirow Financial chief economist Diane Swonk. Five of the 37 economists who answered the question predicted the Fed would wait until 2016 to raise the rate, and four said they expect a rate increase in late 2014. Twenty-eight said the first rate hike would come sometime in 2015. That generally tracks with the Fed’s own predictions. In December, 12 of 17 Federal Open Market Committee participants said they expected to start raising the Fed’s benchmark federal funds rate, an overnight rate on lending between banks, in 2015. Two said 2014 and three said 2016. Economists expect the Bank of England to move sooner to raise rates, with an average prediction of March 2015. They expect the European Central Bank to start lifting rates in March 2016 and the Bank of Japan to begin in September 2016.

The Fed’s next focus is on wages - A few weeks ago, this blog advanced the theory that the behaviour of the major central banks, which had dominated market attention for so long, would not be the decisive element for asset prices in 2014. With the Fed, the Bank of England and the ECB all increasingly doubtful about the effectiveness of further growth in their balance sheets, the central banks had become much more circumspect about how much more monetary policy could achieve. Supply side pessimism was gaining ground. So far, so good for this theory. The Fed has embarked upon “tapering by auto pilot”, and seems increasingly satisfied with its handiwork. A moderate recovery in GDP growth, along with much diminished risks of financial market disruption, is sufficient.  Emergency policy interventions like QE3 in 2012 have been replaced by an atmosphere of calm.  As a result, the markets’ expectations for interest rates have become more stable, and are now almost exactly where the central banks would want them: The path for forward short rates in the US is precisely in line with the median forecast of FOMC members. The ECB’s promise of an “extended period” for near-zero rates, followed by a very gradual rise thereafter, is also very apparent. In the battle to tame the markets’ short rate expectations, which raged at times last year, the central banks have decisively been declared the winners. That is no bad thing. The period of monetary shock and awe was fascinating for macro-economists, but it scarcely signalled that the global economy was in a healthy condition. Now that the developed economies seem to be returning to normal, the central banks are becoming more boring again. They are rock stars no more.

Fed Watch: On That Hawkish Wage Talk - The issue of the degree of labor market slack in the US economy is now a hot topic. Joe Weisenthal and Matthew Bosler at Business insider have been pushing the debate forward, see here and here, for example. This is an important concern for monetary policy as the general consensus on the Fed is sufficient slack will continue to justify an extended period of low interest rates. Hence, rate hikes can be delayed until mid- to late-2015, or even 2016 as suggested by Chicago Federal Reserve President Charles Evans. There exists, however, considerable uncertainty about the amount of slack in labor markets. My feeling is that path of rates currently expected by policymakers assumes a great deal of slack. As a consequence, indications that slack is less than expected will tend to move forward the timing of the first rate hike and, perhaps the pace of subsequent tightening. Wage pressures are likely to be an early indicator that slack is diminishing. I see two flavors of uncertainty regarding the amount of excessive slack. First is the question about the value of the unemployment rate as a signal of tightness. The decline in the labor force participation rate has clearly placed additional downward pressure on the unemployment, leading to speculation that the unemployment rate is signaling a tighter labor market than exists in reality. Under this scenario, an improving economy will trigger a flood of entrants into the labor force to provide additional slack. Thus, the unemployment rate is underestimating the degree of slack. This argument, however, is becoming less persuasive by the day. Evidence seems to be mounting (see here and here) that retirement and illness/disability are a dominant reason for labor force exits since the recession began. Consequently, the decline in the labor force participation will be a persistent phenomenon. The Fed, I think, has largely moved in this direction. The next issue is the degree of underemployment with the labor market. The dovish view is that the underemployed and long-term unemployed represent considerable slack:

The Fed Shouldn't Give Up on the Long-Term Unemployed - Are the long-term unemployed just doomed today or doomed forever? That's the question people are really asking when they ask if labor markets are starting to get "tight." Now, it's hard to believe that this is even a debate when unemployment is still at 6.7 percent and core inflation is just 1.1 percent. But it is. The new inflation hawks argue that these headline numbers overstate how much slack is left in the economy. That the labor force is smaller than it sounds, because firms won't even consider hiring the long-term unemployed. That our productive capacity is lower than it sounds, because we haven't invested in new factories for too long. And that wages and prices will start rising as companies pay more for the workers and work that they want. In other words, they think that the financial crisis has made us permanently poorer. That the economy can't grow as fast as it used to, so inflation will pick up sooner than it used to—and we need to get ready to raise rates. (Notice how that's always the answer no matter the question). There are only two problems with this story: There's not much evidence for it, and we should ignore it even if there is. It's pretty simple. If tighter labor markets were causing wage inflation, they'd have caused wage inflation. But they haven't, not really. Now, it's true that average hourly earnings ticked up in February, but, as Paul Krugman points out, that was probably a weather-related blip. All the snow kept 6.8 million people from working full-time like they normally do, and, historically-speaking, that tends to affect hourly workers more than salaried ones. So higher-paid people probably made up a bigger share of the workforce last month—and voilà, it looked like wages rose. But that was just statistical noise, and if you look at the bigger picture, wage growth is still far below its pre-Lehman levels.

The market is already expecting fairly loose monetary policy -- Evan Soltas has an excellent post on this topic, here is one bit:There’s no doubt that the costs and benefits of an “overshoot” of full employment are asymmetric. Stay too loose for too long, and you get a temporary bit of inflation. Exit too early, and you leave the work of fixing the recession unfinished forever. Who wouldn’t take the first one?The problem with this cost-benefit logic is that the consensus policy track already agrees with it, as do I, to the extent to which the logic works. Futures markets anticipate the first rate hike in the fall of 2015. Rate are then set to rise about one percentage point per year. This locks in a solid amount of “overshoot” already.How do I figure that? The unemployment rate is 6.7 percent. It has fallen roughly 0.8 percentage points per year. Extrapolate forward to the fall of 2015, and you get that the first rate hike will happen with an unemployment rate of about 5.5 percent. The Fed’sestimate of the natural rate of unemployment is 5.2 percent to 5.8 percent, and the middle of that range is 5.5 percent.Markets therefore expect the Fed to cross its own estimate of full employment with its policy rate at zero. That’s extraordinary. Like Soltas, I am of the opinion that no further loosening is in order, while fully granting and indeed stressing that a more expansionary monetary policy absolutely was called for in earlier years.

Overshooting and the Fed -- I think people are confusing two separate questions in the recent debate about wage rises and spare capacity in the US economy: first, the amount of slack left in the labour market, and second, whether the Fed should deliberately try to overshoot its inflation objective of 2 per cent. A lot of interesting analysis recently tries to divine how much spare capacity there is in the US economy (Matthew Boesler notes recent wage rises, Paul Krugman says not so fast, Eric Rosengren of the Boston Fed makes the dovish case, Tim Duy andEvan Soltas have pretty solid takes).  I don’t plan to go into the labour market analysis. I just want to note that regardless of whether your goal is to stabilise inflation at 2 per cent, or whether you are happy to go to 2.5 or 3 per cent first, you need an answer on the amount of slack. If you think the natural rate of unemployment is 4 per cent, fine, but you need an answer to this question or you cannot know when to raise interest rates. My view is that there is probably still quite a lot of slack, but significant uncertainty about how much, and the Fed will have to take that into account as it makes policy.A separate argument is that it does not matter how much slack there is: the Fed can just wait until it is all used up and inflation rises, because an overshoot on inflation is worth it to bring unemployment down faster (see Ryan Avent and Cardiff Garcia). I think this argument is wrong and misunderstands the case for letting inflation overshoot when interest rates are trapped at zero.

Poll Shows Why QE Has Been Ineffective: I have discussed many times in the past the Fed's ongoing Quantitative Easing (QE) programs and their ineffectiveness of generating "self-sustaining" economic growth. While the Fed's interventions have certainly bolstered asset prices by driving a "carry trade," these programs do not address the central issue necessary in a consumer driven economy which is "employment." In an economy that is nearly 70% driven by consumption, production comes first in the economic order. Without a job, through which an individual produces a good or service in exchange for payment, there is no income to consume with. While income can come from social welfare, as seen in the latest personal income data, these dollars are derived from the production of others through taxation.  Like any common accounting equation, if taxation is increased on one side of the ledger, the offset is lower consumption, and ultimately economic growth, on the other. This is why the multiplier from government spending, and social welfare, is effectively near zero, if not potentially a negative. The problem with the Federal Reserve's ongoing QE program is that the inflation of asset prices, the "wealth effect," has not impacted much of the overall economy. A recentBloomberg National Poll found: "More than three-quarters of Americans say the five-year bull market in U.S. stocks has had little or no effect on their financial well-being." This is not surprising when you look at the statistics of how wealth is divided in the domestic economy today. The video below, based on a Harvard Business School study, shows the wealth distribution in America.

Fed Chair Bernanke Held 84 Secret Meetings in the Lead Up to the Wall Street Collapse - It’s been over five years since the collapse of iconic Wall Street firms such as Bear Stearns and Lehman Brothers; the insolvency and bailout of AIG and Citigroup; the receivership of Fannie Mae and Freddie Mac; the shotgun marriage of Bank of America and Merrill Lynch. After a 5-year delay, the Federal Reserve has released the full transcripts of its meetings in 2007 and 2008 – the two key years of the crisis. But for unexplained reasons, the Fed Chairman, Ben Bernanke continues to redact 84 meetings from his appointment calendar that occurred between January 1, 2007 and the pivotal collapse of Bear Stearns on the weekend of March 15-16, 2008.At first blush, one might think that Bernanke is attempting to protect the image of the Chairman of the Federal Reserve Board of Governors as independent of any political influence or business lobbying. But the mystery of these redactions is deepened by the fact that Bernanke has no problem listing meetings with President Obama, specific members of Congress, representatives of the Bank of England, every major CEO of a Wall Street firm, titans of industry like the heads of Ford Motor, IBM, and British Petroleum, quasi lobbyists like the U.S. Chamber of Commerce. Even the Reverend Jesse Jackson of RainbowPUSH Coalition is listed as meeting with Bernanke. So just who is left whose identify needs to be secreted away for more than five years? One meeting on Tuesday, September 25, 2007 is so secret that both the meeting participant(s) and the location are redacted.

The Fed’s Age of Inflation -- Serious inflation has been absent from the American scene for years–but for the Federal Reserve, the threat remains omnipresent. Indeed, recently released transcripts show that even in the dark days of the 2008 financial crisis, many Fed officials were more worried about inflation than the economy collapsing around them. Maybe they’re just born that way. At their confirmation hearings before the Senate Banking Committee on Thursday, Fed board nominees Stanley Fischer and Lael Brainard dutifully noted the risks of high inflation, while skirting the issue of whether it is too low. This even though the Fed’s preferred measure of core inflation, at 1.1%, is well short of its 2% target. Headline inflation just 1.2%. Experience likely breeds suspicion of such low numbers. Since turning 18, Mr. Fischer, now 70 years old, has seen an average U.S. inflation rate (including food and energy costs) of 3.6%. Ms. Brainard, who is 52, has seen an average of 2.8%. Both of them may also have been playing to their audience. The median age for a U.S. Senator is 63. As adults, 63 year old Americans have experienced an average annual rate of inflation of 3.8%.That’s as nothing against the median-aged American, though. At 37, they have seen inflation average just 1.9% since turning 18. Call them Generation QE.

What is the Fed's Real Inflation Target? - In my last post I showed a figure that suggested the Fed has effectively been targeting a 1-2% core PCE inflation range target. If so, it would be consistent with the observations made by Ryan Avent and Matthew Yglesias that the Fed is using 2% as an upper bound on inflation. Here is Ryan Avent back in April, 2012:The Fed's second failure is to treat the 2% figure as a ceiling rather than a target...[T]he Fed gives a range for projected inflation over the next three years with 2% as the upper extent. The Fed's preferred inflation measure—core PCE inflation—remains below 2%...If the Fed does indeed have a symmetric approach to the target, as Mr Bernanke asserted yesterday, one would expect 2% to be at the middle of the range, not the top.  In addition to my figure from the last post, the figures below further corroborate this observation. They show the central tendency ranges of inflation forecasts provided by members of the FOMC in the 'projections' material. Not every FOMC meeting has projection materials, but for every meeting that does provide them they are lined up chronologically in the figures. The first figure shows the inflation range forecasts for the current year at each FOMC meeting. It shows that inflation forecasts ranging between 1%-2%

Why the Fed Hates Inflation: 1.2 Trillion Dollars of Why - Inflation transfers real buying power from creditors to debtors, with nary an account transfer visible anywhere on anyone’s account books. Inflation means that debtors pay off their loans over time with less-valuable dollars — dollars that can’t buy as much bread, butter, and guns.* Higher inflation causes, is, a massive transfer from creditors to debtors.** And the Fed is run by creditors. Inflation is, always and everywhere, very very bad for them. How bad? Look at the fixed-income assets and liabilities of financial corporations:  Financial businesses are net creditors to the tune of $9-$14 trillion dollars. If inflation was 1% higher than it is, it would transfer between $90 and $140 billion dollars to their debtors. Every year. For every extra point of inflation. Add it up: an extra point of inflation over the last ten years would have cost financial businesses $1.2 trillion dollars.  It’s enough to get a banker’s attention.

Morgan Stanley: Economy's Slow Growth Is Now Permanent - -- A new report from Morgan Stanley argues that potential growth for the economy is now just around 2%. The report argues that drops in productivity and Labor Force Participation mean a new, slower growth track than what we're used to. This has significance for monetary policy, as there may not be as much "slack" in the economy as the Fed believes. Sorry. We're not going back to the old normal. At least that's according to Morgan Stanley. In a new note, economist Vincent Reinhart estimates that the economy's potential growth rate is now around 2% (down from 2.5%) and that 6% is probably what represents "full employment." The Fed will have to acknowledge there's less "slack" in the system than they thought. This chart shows the new impaired trend.

Will There Be a Recession in the Next Decade? - Dean Baker -- Annie Lowrey's Economix blogpost on President Obama's budget concludes by telling readers:  "But it is worth noting that perhaps the single most important factor when it comes to deficits is largely out of the White House’s hands: economic growth. Mr. Obama’s budget assumes that there will be no recession for the next decade – indeed, he sees a moderate but strengthening recovery. History suggests those might be the most unrealistic numbers in the document." Actually the lessons of history on this point are less clear than this comment implies. Historically we have gotten recessions for two reasons, either the Fed raises interest rates to slow the economy in response to a rise in the inflation rate, or a bubble bursts throwing the economy into a tailspin. While both scenarios are in fact possible at the very least they would imply more rapid growth in the period leading up to the recession. In other words, if we get a recession it is likely to be preceded by a period of faster than projected growth. The net effect on the deficit, compared to the Obama administration's projections cannot be known in advance. Anyhow, it is remarkable how much time ostensibly intelligent people spend speculating about events 6-10 years in the future when all the historical evidence shows we don't have a clue. I'm fine with make work jobs in a weak economy, but let's not imagine these projections for are worth anything more than the cyberspace they are printed on.

People Think We're in a Recession. Don't Blame Them. - The United States economy emerged from recession in June 2009 and has been growing for nearly five years. Yet this week, an NBC News/Wall Street Journal poll of American adults found that 57 percent still think the economy is in recession. It’s not hard to see why. People don’t take this as a technical economic research question; they take it to mean, “Is the economy good?” And for much of America, despite years of modest gross domestic product growth and strong stock market gains, the economy isn’t good. Two trends are responsible. The labor market is still slack, meaning millions who would like to work can’t, and those who do work have limited ability to demand higher wages. Last year, Emanuel Saez — an economist from the University of California, Berkeley — made headlines with the finding that 95 percent of income gains from 2009 to 2012 accrued to the top 1 percent of earners. But this finding was not about the rich doing well; their incomes are actually growing a little more slowly than in the last two economic expansions. Instead, it reflects the failure of most of America to recover at all, with real market incomes for the 99 percent rising just 0.1 percent a year. Higher corporate profits and higher stock prices have not translated into meaningfully higher wages. The other trend is a long-term one: For four decades, even in stronger economic times, wage gains have not kept pace with economic growth. Wages and salaries peaked at more than 51 percent of the economy in the late 1960s; they fell to 45 percent by the start of the last recession in 2007 and have since fallen to 42 percent.

The Weather, Economics, and Financial Stocks: We've been dealing with an abnormally cold winter for most of 2014 with the weather being blamed for the recent poor economic data we've had over the last two months. That seems like a logical conclusion when Central Park in New York received 56.6 inches of snow by the middle of February, the 7th highest snowfall total going back to 1868. However, there are plenty of naysayers who dismiss the effects of old man winter and claim the economy is beginning to cool on its own account. So, who's right? Personally, I think it is a huge mistake to minimize 141-year-old records being broken as having little to no effect on the economy. Because economists can't accurately predict the weather nor how it could impact their forecasts, it's not surprising that recent economic data has been below consensus estimates. The Citigroup Economic Surprise Index, which measures the outcome of economic data relative to estimates, fell from a peak 72.7 on January 15th to a recent low of -34.10 today. Due to the weaker than expected economic reports seen over the last few months, investors have ratcheted down their economic growth estimates for the first quarter and the bond market has responded as longer-term interest rates have fallen this year. Consequently, the yield curve has flattened as short-term yields remain steady while longer-term yields have fallen. The link between negative economic surprises and the yield curve is shown below:

Weakening Economy or Just Bad Winter? - Retail spending by households in January 2014 was a major disappointment, coming in well below expectations. January 2014 was also one of the coldest months in memory in many parts of the country. Was the extreme cold weather to blame for weak retail spending? Or is the economy weakening? These questions are especially pressing given the release of data tomorrow on February 2014 retail spending–February again was a very cold month.  We use state-level data on new auto purchases to attack this question. Here is the basic idea. Not all states experienced a horrible January 2014 — in fact, much of the western part of the country actually was warmer than normal. We can use this variation across the country in January weather to see if national auto sales were brought down by states that experienced abnormally cold temperatures...The evidence is pretty clear. New auto purchases in January 2014 were more than 5% down in states that were more than 7 degrees below their normal January temperature. New auto purchases were down slightly in states that were between -7 and -4 degrees below normal. In the rest of the country where temperatures were closer to normal, new auto purchases were quite strong.

Goldman Cuts Q1 GDP Forecast To 1.5% On Weaker Retail Sales; Half Of Goldman's Original Q1 GDP Forecast - As we predicted when we highlighted the cumulative decline in the control retail sales group, it was only a matter of time before the banks started cutting their Q1 GDP forecasts. Sure enough, first it was Barclays trimming its Q1 GDP tracking forecast from 2.3% to 2.2%, and now it is Goldman's turn which just cut its latest Q1 GDP forecast from 1.7% to 1.5%.  From Goldman: Although February retail sales rose a bit more than expected, negative back revisions more than offset the front-month surprise. Separately, initial and continuing jobless claims both fell more than expected. Import prices rose more than expected in February, but declined on a year-on-year basis. We reduced our Q1 GDP tracking estimate by two-tenths to 1.5%.  February retail sales rose 0.3% (vs. consensus +0.2%). Core retail sales?used by the Commerce Department to estimate the personal consumption expenditures (PCE) component of the GDP report?also rose 0.3% (vs. consensus +0.2%). By category, the strongest gains occurred in sporting goods (+2.5%) and non-store retailers (+1.2%), both bouncing back from weakness in January. (Non-store retailers mainly represent online shopping.) However, back-revisions to core retail sales in January (-0.3pp to -0.6%) and December (-0.2pp to +0.1%) were significant and widespread across categories, suggesting a trajectory of consumer spending in Q1 that was weaker than we anticipated. We reduced our Q1 GDP tracking estimate by two-tenths to 1.5%.

CBO Estimates $195b Feb Govt Deficit Vs $204b Deficit Feb 2013- The following are excerpts from the Congressional Budget Office's Monthly Budget Review For February released late Friday. The release of the Treasury Department's February budget statement has been delayed until Thursday due to last week's inclement weather: The federal government incurred a deficit of $195 billion in February 2014, CBO estimates - $9 billion less than the $204 billion deficit incurred in February 2013. Because March 1 and February 1 both fell on a weekend in 2014, certain payments that ordinarily would have been made in March this year were made in February, and certain payments that would have been made in February were made in January. Without those shifts in the timing of payments, the deficit in February 2014 would have been $1 billion larger than it was. CBO estimates that receipts in February totaled $144 billion - $21 billion (or 17 percent) more than those in the same month last year:

  • - Individual income and social insurance (payroll) taxes rose by $11 billion. Amounts withheld from workers' paychecks rose by $13 billion (or 8 percent). Higher wages and salaries contributed to that increase. But refunds of income taxes were also larger - by $2 billion (or 3 percent).
  • - Corporate income taxes rose by $5 billion. February is one of the months in which those receipts are smallest, and they can vary significantly for onetime reasons.
  • - Receipts from the Federal Reserve, largely representing earnings on its portfolio, rose by $5 billion.

Total spending in February 2014 was $338 billion, CBO estimates, $12 billion more than outlays in the same month in 2013. If not for the effects of timing shifts, outlays in February would have been $13 billion (or 4 percent) higher than they were in the same month last year. Among the larger changes in outlays, compared with outlays in February last year, were the following (which reflect adjustments to account for the timing shifts):

CBO: Federal Deficit through February $148 billion less this year than it was in fiscal year 2013 (adjusted for timing) --From the Congressional Budget Office (CBO): Monthly Budget Review for February 2014 The federal government ran a budget deficit of $379 billion for the first five months of fiscal year 2014, CBO estimates, $115 billion less than the shortfall recorded in the same span last year. Revenues are higher and outlays are lower than they were at this time a year ago. Without shifts in the timing of certain payments (which otherwise would have fallen on a weekend), the deficit for the five-month period would have been $148 billion less this year than it was in fiscal year 2013. And for February 2014: The federal government incurred a deficit of $195 billion in February 2014, CBO estimates—$9 billion less than the $204 billion deficit incurred in February 2013. Because March 1 and February 1 both fell on a weekend in 2014, certain payments that ordinarily would have been made in March this year were made in February, and certain payments that would have been made in February were made in January. Without those shifts in the timing of payments, the deficit in February 2014 would have been $1 billion larger than it was.CBO estimates that receipts in February totaled $144 billion—$21 billion (or 17 percent) more than those in the same month last year ... Total spending in February 2014 was $338 billion, CBO estimates, $12 billion more than outlays in the same month in 2013.

Feb US Budget Deficit 32% Better, But Improvement Temporary - The Treasury Department Thursday reported that last month, like 48 of the last 60 Februarys, generated more red ink for the government yet this fiscal year is impressively better than last year, 32% better, in fact. As the Dallas Federal Reserve Bank pointed out a few hours earlier, the improvement won't last. February's budget deficit was officially $193.5 billion compared to a year earlier's $203.5 billion for the single month. In the five months of the government's fiscal year, the total is up to $377.5 billion, 24% smaller than last year. Or if you make the adjustments for how the calendar shifts government payments, a more accurate 32% smaller, Treasury officials told reporters. The Congressional Budget Office says by Sept. 30, the full year's deficit will be up to $514 billion. The Obama administration last week chose to be more conservative and said the total FY'14 deficit will be $649 billion. Either way, the deficit has improved to where it's running at about 3% of GDP, significant because that's about back to normal, the 40-year average. Anyone who follows the wandering path of U.S. fiscal policy knows the next point to be made is that deficits really are not improving for good, just temporarily.

Ways Sequestration Cost Taxpayers Money - Brookings Institution - Last Thursday, the GAO issued a report detailing how agencies implemented sequestration. The report included a discussion of the costs of sequestration. In many agencies, mandatory spending reductions affected programs that provided returns on investment. Ironically, sometimes budget cuts cost the government money—and sequestration did. The problem is compounded when policymakers apply blanket, shortsighted solutions to complex problems. Below we outline ways the public was shortchanged by sequestration.

  • Limiting Internal Oversight – Reduced Waste Prevention - One part of the federal government hit hardest by sequestration were offices of inspectors general (IGs) and chief financial officers (CFOs). Both types of offices are charged with oversight and monitoring actions that are designed to detect waste, fraud, and abuse. Such investigations allow agencies to recoup money and streamline processes
  • Limiting Finding Fraud – Reduced Revenue Recovery - Budget cuts for IGs and CFOs did not simply affect waste detection within federal agencies. Those offices and other enforcement divisions throughout the federal government help prevent fraud and abuse in a variety of areas. IRS faced profound challenges under sequestration that cost taxpayers substantially—and contributed to the deficit. The tax enforcement division is one area where the Department of Treasury can predict lost revenue due “to fewer tax return reviews and diminished fraud detection.”
  • Limiting Government Investment – Reduced Long-Term Returns - Government also reduces long-run costs by investing in itself and its surroundings. This includes upkeep of federal buildings, IT systems, public infrastructure, and procurement systems, among others. Sequestration led to costly reductions in investment. Pentagon officials stated that “delaying and reducing installation support services in fiscal year 2013 will likely lead to higher future costs for these services due to facility degradation.”

No, Virginia, the Austerity Era Is Not Over - If the President’s budget were enacted by Congress, and OMB’s projections over the next decade hold, it would almost certainly mean economic stagnation punctuated by recession over the next decade. Would it also mean austerity, however? Let’s see. The Sector Financial Balances (SFB) model is an accounting identity, and these are always true by definition alone. The SFB model says: Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0. The terms refer to balances of flows of financial assets among the three sectors of the economy in any specified period of time. So, for example, when the annual domestic private sector balance is positive, more financial assets are flowing to that sector, taken as a whole, than it is sending to the other two sectors. Similarly, when the annual foreign sector balance is positive, more financial assets are being sent to that sector than it is sending to the other two sectors. When the private sector balance is negative, the private sector is sending more to the other two sectors than it is getting from them, and so on. Now let’s think about austerity. From the perspective of the SFB model, government macroeconomic austerity is medium to long-term fiscal policy characterized by a focus on reducing budget deficits, or increasing budget surpluses, and mostly on the former in today’s environment where many nations have trade deficits. In addition, it involves destroying private sector net financial assets by cutting government spending and/or raising taxes in such a way that Government additions of net financial assets to the non-government portions of the economy (government deficits) fall to a level low enough (even becoming government surpluses) that they are less than the size of the trade balance, whether in deficit or in surplus.

Mike Lee’s Tax Plan: An Intriguing Idea That Would Add $2.4 Trillion to the Deficit - An ambitious tax reform plan proposed by Sen. Mike Lee (R-UT) would provide generous new tax credits for families with children and repeal the Alternative Minimum Tax, while at the same time eliminating the standard deduction and nearly all itemized deductions. More than 60 percent of households would pay lower taxes than under current law but, as a result, the plan would increase the deficit by $2.4 trillion over the next decade, according to a new analysis by the Tax Policy Center. In contrast to many other GOP tax reform plans, Lee’s—first offered last fall– does not aim to sharply reduce marginal tax rates. He’d replace the current system with two brackets—15 percent and 35 percent. By eliminating the 10 percent bracket, he’d actually increase rates for many households, nearly all of whom would be paying at 15 percent. Others now paying at 28 percent would be taxed at the top rate of 35 percent. Indeed, many households would face higher effective marginal rates than under current law. Lee’s goal is to cut taxes for families with kids. Thus, it is full of trade-offs. He’d eliminate the standard deduction and repeal Head of Household filing status—a step that would raise taxes on some single parents. He’d also end the personal exemption for taxpayers and their spouses, but retain the dependent exemption, create an additional child tax credit, and a new personal tax credit. A married couple with two kids could get a combined credit of as much as $11,000 ($4,000 from the personal credit, $2,000 from the existing CTC, and $5,000 from the new child credit). The plan would retain preferential tax rates for capital gains. Nearly all deductions would be ended, except those for charitable giving and mortgage interest, which would be available for only the first $300,000 in mortgage debt. Since there would no longer be a standard deduction, the remaining subsidies would no longer be limited to today’s itemizers.

Bitcoin is Not a Currency -  Yves Smith  - Japan has just decided that Bitcoin is not a currency, which subjects it to sales and income taxes. This is consistent with the view of the Canadian Revenue Service, which has found Bitcoin to be property and not a legal currency, and the United Kingdom, which leaning towards treating Bitcoin as a voucher and subject to VAT.   Bitcoin is not a currency any more than gold bars or collectable baseball cards are. Or as tax maven Lee Sheppard puts it in a recent article in TaxNotes, Busting the Bitcoin Myths: “If Bitcoin is a currency, any tradable store of value would be a currency.”  That means the branding of Bitcoin as a “cyrpto currency” or “digital currency” is promoter hype which credulous journalist have repeated verbatim. As we’ll see, the fact that Bitcoin is not a currency in the eyes of many tax authorities, and the US will probably follow suit, has serious implications for this “innovation”.  The US Treasury will be determining what Bitcoin is for tax purposes. Sheppard is pretty confident that, like the Japanese, the US will deem Bitcoin not to be a currency. And Sheppard is not shooting from the hip. She’s a world-recognized tax authority and her article (sadly paywalled) is chock-full of references to the tax code, court cases, and regulatory practice.

Cash Abroad Rises $206 Billion as Apple to IBM Avoid Tax - The largest U.S.-based companies added $206 billion to their stockpiles of offshore profits last year, parking earnings in low-tax countries until Congress gives them a reason not to. The multinational companies have accumulated $1.95 trillion outside the U.S., up 11.8 percent from a year earlier, according to securities filings from 307 corporations reviewed by Bloomberg News. Three U.S.-based companies -- Microsoft Corp. (MSFT), Apple Inc. and International Business Machines Corp. -- added $37.5 billion, or 18.2 percent of the total increase. “The loopholes in our tax code right now give such a big reward to companies that use gimmicks to make it look like they earn their profits offshore,” said Dan Smith, a tax and budget advocate at the U.S. Public Interest Research Group, which seeks to counteract corporate influence. Even as governments around the world cut tax rates and try to keep corporations from shifting profits to tax havens, the U.S. Congress remains paralyzed in its efforts. The response of U.S.-based companies over the past few years has been consistent: book profits offshore and leave them there.

Number of millionaire households in the U.S. reaches high - It looks like the rich have finally shaken off the recession. The number of U.S. households with a net worth of $1 million or more, excluding primary residence, rose to 9.63 million in 2013, according to a new report from Spectrem Group, a consulting and research firm.That's more than a 600,000 leap up from 2012, and the highest number on record. This is the first year that the number has surpassed the pre-recession high of 9.2 million in 2007. Once the global financial meltdown hit and the bottom fell out of the market, the number tanked to 6.7 million in 2008. "The last few years, we've seen the number continually increase, but this was the first year that we're finally beyond the economic crisis,"

Wall Street and Multinationals Get Theirs While America Suffers  -- While America still suffers with repressed wages, increasing poverty and a vanishing middle class, Wall Street and big Multinational Corporations are having a party.  Bonuses increased 15% and are back to their pre-financial crisis excesses  Corporations hording cash offshore increased 11.8% in 2013 to a whopping $1.95 trillion.  According to the New York State Comptroller, the average bonus paid on Wall Street was $164,530 in 2013, the third highest on record.  Below is a graph of Wall Street's average bonus and as we can see the greed and excesses just continue.  The average 2012 salary on Wall Street was $360,700.  This is 5.2 times larger than the average New York City private sector salary of $69,200.  The 2013 bonus pool was $26.7 billion spread over 165,200 workers  If an individual works 50 weeks, 40 hours a week for the $7.25/hr minimum wage, the gross annual income is $14,500.  Wall Street accounts for 22% of private sector salaries in New York City while being only 5% of those employed.  If Wall Street bonuses weren't bad enough, shipping good jobs overseas is clearly quite profitable for multinational corporations.  According to Bloomberg, corporations are stockpiling cash, tax free, abroad and added $206 billion to their coffers in 2013.  The offshore cash holdings now are $1.95 trillion.  Three of the biggest labor arbitragers and offshore outsourcers of them all, Microsoft, IBM and Apple, account for 18.2% of the 2013 offshore cash holdings increase.  All of these companies have fired top tier Scientists and Engineers and replaced them with cheaper foreign guest workers as well as moved R&D jobs offshore.  Their actual production and manufacturing jobs are long gone to India and China.  These companies also repackage copyrights, trademarks and patents into SPVs and park them offshore in the Cayman's and other tax havens.  According to a Congressional Research Service report, multinationals reported 43% of their 2008 overseas profits were in such tax havens.  Profit shifting is what it's all about instead of contributing to America and even innovating new products.  Bloomberg created a graphic, reprinted below.  Their visual really tells the story on how multinational corporations don't give a damn about America or even their own employees.  They live and breathe for their tax avoidance weasel game.

How the Rich Became Dependent on Government Welfare - Remember when President Obama was lambasted for saying "you didn't build that"? Turns out he was right, at least when it comes to lots of stuff built by the world's wealthiest corporations. That's the takeaway from this week's new study of 25,000 major taxpayer subsidy deals over the last two decades. Entitled "Subsidizing the Corporate One Percent," the report from the taxpayer watchdog group Good Jobs First shows that the world's largest companies aren't models of self-sufficiency and unbridled capitalism. To the contrary, they're propped up by billions of dollars in welfare payments from state and local governments.Such subsidies might be a bit more defensible if they were being doled out in a way that promoted upstart entrepreneurialism. But as the study also shows, a full "three-quarters of all the economic development dollars awarded and disclosed by state and local governments have gone to just 965 large corporations" — not to the small businesses and startups that politicians so often pretend to care about.  In dollar figures, that's a whopping $110 billion going to big companies. Fortune 500 firms alone receive more than 16,000 subsidies at a total cost of $63 billion. These kinds of handouts, of course, are the definition of government intervention in the market. Nonetheless, those who receive the subsidies are still portrayed as free-market paragons.

The Imaginary Epidemic of Envy in America -- Conservatives used to say all the time that envy doesn’t work in American politics, that Americans admire the rich rather than begrudge them their fortune. They rarely say that anymore. Instead they warn that Americans resent the rich too much, that our noxious resentment carries all sorts of dangerous side effects. American Enterprise Institute president Arthur Brooks wrote a column in the Sunday New York Times earlier this month warning, “a national shift toward envy would be toxic for American culture,” and then asserted such a shift is already under way. Another Times column a week later, by Harvard economist Sendhil Mullainathan, who is not even a conservative, likewise frets that rampant envy "has made us less pragmatic and more dogmatic."  Neither column supplies any evidence, even anecdotal, to support the claim that envy is rising, or even that it has ever motivated public policy. Mullainathan expresses deep fears that American policy is being driven by “a misguided belief that the economy is a zero-sum game and that reducing the position of the top one percent automatically improves everyone else’s.” But neither column quotes a politician at any level expressing any such belief. (At least the Timesdubious monocle trend story identified actual human beings who possess monocles.) It’s not even clear why they imagine such a thing would be possible — in a system that requires candidates for any major office to spend hour after hour courting wealthy donors, and which virtually guarantees they themselves will join the one percent immediately upon leaving office, who would ever want to personally impugn the rich?

Deal Book Thinks Lawyers’ “Cardinal Rule” is to Advise CEOs how to Defraud with Impunity - William K. Black - The New York Times’ “Deal Book” continues its ethics-free treatment of the ethical collapse of the leaders of many of our most elite firms related to finance.  David Gelles’ March 6, 2014 article is entitled “4 Accused in Law Firm Fraud Ignored a Maxim: Don’t Email.” The article is about the indictment charging the leaders of one of finance’s leading law firms – Dewey & LeBoeuf – with securities fraud and larceny. “The indictment paints a portrait of a law firm being run like a criminal enterprise. Mr. Vance said his office had already secured guilty pleas from seven other people who once worked for Dewey.” Deal Book refuses to recognize control fraud even when the indictment describes a control fraud.  The indictment does not “paint a portrait of a law firm being run like a criminal enterprise.”  The indictment describes a criminal enterprise led by the partners controlling Dewey & LeBouef.  Deal Book still can’t bend its mind around the fact that seemingly legitimate firms make the best “weapons” for fraud.

Bill Black Slams New York Times for Wink and Nod Endorsement of Criminal Conduct -  Yves Smith - Bill Black is so steamed about a recent New York Times story on the indictment of former partners of the failed law firm Dewey & LeBoeuf that he’s written two posts about it. The title of the article telegraphs the reason for his ire: 4 Accused in Law Firm Fraud Ignored a Maxim: Don’t Email. Thus, the big message of the piece that Dewey & LeBoeuf got caught because they were dumb crooks. And as Black stresses, the story is more perplexed by than critical of their behavior. Worse, its opening paragraph states that covering up misconduct, including criminality, is a normal part of a lawyer’s job: Several former leaders of the once-high-flying law firm Dewey & LeBoeuf apparently violated a cardinal rule that lawyers always tell their clients: Don’t put anything incriminating into an email.   As Black argues: The article’s hook is the ironic failure of top lawyers to follow their own advice that they purportedly “always tell their clients” on how to commit fraud with impunity by ensuring that there is no paper (or electronic) trail of “incriminating” evidence of their crime. The “crim” root of the word “incriminating” comes from the Latin word for “crime.” The word “incriminating” means that it provides evidence that one has committed a crime. What the Deal Book describes as corporate lawyers’ “cardinal rule” is clearly unethical and often a crime. A corporate lawyer who counsels a “client” on how to commit a crime without being prosecuted by using fraud mechanisms that prevent the FBI from finding the “incriminating” evidence establishing the crime has made himself a co-conspirator who is aiding and abetting the fraud. The lawyer has also breached his legal ethical duties and his duties to the client. If Deal Book were correct in its purported statement of our “cardinal rule” as corporate counsel, then Deal Book had the financial news scoop of the decade. It should have written a series of articles as soon as it discovered the purported “cardinal rule.” Now someone might argue that the piece eventually treats the alleged crimes as serious. It does state that the e-mails are “the kind of rogue language that one might expect to find in emails unearthed during a corporate fraud case from the Enron era” but that again simply underscored the “dumb crooks” thesis: a savvy law firm should know not to leave a paper or digital trail of its foul deeds.

Bill Black at TED Explains How Insiders Rob Banks and Cause Crises - A presentation by Bill Black disproves that TED only features elite-flattering conventional wisdom. Black in this talk recaps the findings of his book, The Best Way to Rob a Bank is to Own One, and uses those lessons to explain how banks caused the financial crisis and why it was completely avoidable.  This is a great piece to share with friends and who still aren’t sure why we had a crisis or are predisposed to blame it on greedy borrowers, as opposed to greedy and reckless financial services industry players.

Inside Job: SEC Employees 'Systematically Dodge the Revelation of Bad News' for Their Stocks -- Securities and Exchange Commission (SEC) employees aren't necessarily better at investing in stocks than everyone else, but they are much better at getting out of bad investments before the "bad news" hits. That's according to a new paper by Shivaram Rajgopal and Roger M. White, called, "Stock Picking Skills of SEC Employees." "The decomposition of returns earned by SEC employees suggests that the abnormal returns are earned in the sell portfolio. In particular, the 12 month ahead (252 trading days) abnormal returns, using the four factor Fama-French model as the model of expected returns, of U.S. common stocks that SEC employees buy (sell) is 0.56% (-7.97%). Hence, SEC employees’ stock purchases look no different from those of uninformed individual investors ... but their sales appear to systematically dodge the revelation of bad news in the future. This fact pattern is consistent with the greater informational advantage related to potential enforcement activities that employees of a regulator are likely to enjoy over other market participants," the authors of the study write. Bloomberg's Matt Levine is suspicious but cautious. "Statistical anomalies are, perhaps, the lowest form of evidence, but they are evidence, and this is some evidence that the Securities and Exchange Commission's employees are making use of their inside information to trade stocks," reads a Bloomberg article on the study. And Levine wonders why SEC employees are even trading individual stocks:

Record margin debt poses risk for bull market: The amount of money investors borrowed from Wall Street brokers to buy stocks rose for a seventh straight month in January to a record $451.3 billion, a potential warning sign that in the past has coincided with irrational exuberance and stock market tops. Borrowing money or using leverage to buy a house or a car is a sign of confidence. But getting a loan from a broker to finance stock purchases might be a sign of overconfidence in the outlook for the market, especially one trading in record-high territory, as is the current Wall Street bull. "One characteristic of getting closer to a market top is a major expansion in margin debt,"  "Expanding market debt fuels the bull market and is an investors' best friend when stocks are rising. The problem is when the market turns (lower), it is the market's worst enemy."

Has Automated Trading Promoted Efficiency in the FX Spot Market? - New York Fed -- The relative merits of algorithmic and high-frequency trading are most often discussed in the context of equity markets. In this post, we look at the foreign exchange (FX) spot market. The growth of algorithmic and high-frequency trading in this market has introduced new entrants as well as new complexities and challenges that have important implications for the liquidity landscape and the risk management framework in FX markets. This post focuses narrowly on an important measure of FX market efficiency, absence of arbitrage opportunities, to discuss the improvements in this particular measure of efficiency that have coincided with significant growth in algorithmic and high-frequency trading.

Exchange rate behaves like particles in a molecular fluid -- When scientists observe minute particles like nanoparticles or bacteria in fluid under a microscope, they don't see a motionless image. What they do see are particles making the tiniest irregular twitches not unlike the nervous ups-and-downs of market prices and exchange rates. These two forms of random twitching – microparticles in fluid and price developments on the financial market – are not just similar at first sight as a Japanese-Swiss team has now demonstrated. The underlying mechanism is the same too. Brownian motion, the name given by scientists to the microtwitching of particles in fluid, results from the impact of the universal thermal agitation of the individual molecules in the fluid. The renowned French mathematician Louis Bachelier observed back at the beginning of the 20th century that there were parallels between this random walk behavior and exchange rates. However, it is only now that Didier Sornette, Professor of Entrepreneurial Risks at ETH Zurich together with colleagues from Japan, has been able to demonstrate exact correlations between the two. The scientists have published their work in the reputed journal "Physical Review Letters".

Lloyds Trader Said to Tip Off BP to $500 Million FX Deal - A senior currency dealer at Lloyds Banking Group shared details of a pending order by his firm with a trader at another company to the potential detriment of the bank, according to four people with knowledge of the matter.  The Lloyds’s dealer, Martin Chantree, alerted the other trader on Jan. 31, 2013, that his desk had received instructions from the bank’s treasury department to swap more than 300 million pounds ($499 million) for dollars and that they would continue selling regardless of price movements, said two of the people, who asked not to be identified amid a probe into alleged rigging of the currency market. The recipient of the tip worked for oil company BP Plc, the other two people said.  In the seven minutes between the communication at 10:53 a.m. and the time Lloyds began executing the order, the pound fell 16 basis points against the dollar, or 0.16 percentage point, according to data compiled by Bloomberg. As the U.K. currency tumbled, costing Lloyds an estimated $750,000, Chantree told colleagues that maybe he shouldn’t have shared the information, two of the people said.

Wall Street's 2013 Bonuses Were More Than All Workers Earned Making the Federal Minimum - Purveyors of Ferraris and high-end Swiss watches keep their fingers crossed toward the end of each calendar year, hoping that the big Wall Street banks will be generous with their annual cash bonuses. New figures show that the bonus bonanza of 2013 didn’t disappoint. According to the New York State Comptroller’s office, Wall Street firms handed out $26.7 billion in bonuses to their 165,200 employees last year, up 15 percent over the previous year. That’s their third-largest haul on record. That money will no doubt boost sales of luxury goods. Just imagine how much greater the economic benefit would be if that same amount of money had gone into the pockets of minimum-wage workers. The $26.7 billion Wall Streeters pocketed in bonuses would cover the cost of more than doubling the paychecks for all of the 1,085,000 Americans who work full-time at the current federal minimum wage of $7.25 per hour. And boosting their pay in that way would give our economy much more bang for the buck. That’s because low-wage workers tend to spend nearly every dollar they make to meet their basic needs. The wealthy can afford to squirrel away a much greater share of their earnings.

JPMorgan whistleblower gets $63.9 million in mortgage fraud deal (Reuters) - A whistleblower will be paid $63.9 million for providing tips that led to JPMorgan Chase & Co's agreement to pay $614 million and tighten oversight to resolve charges that it defrauded the government into insuring flawed home loans. The payment to the whistleblower, Keith Edwards, was disclosed on Friday in a filing with the U.S. district court in Manhattan that formally ended the case. In the February 4 settlement, JPMorgan admitted that for more than a decade it submitted thousands of mortgages for insurance by the Federal Housing Administration or the Department of Veterans Affairs that did not qualify for government guarantees. JPMorgan also admitted that it had failed to tell the agencies that its own internal reviews had turned up problems. The government said it ultimately had to cover millions of dollars of losses after some of the bank's loans went sour, resulting in evictions and foreclosures nationwide. "There were a lot of bad loans made during the financial boom, and the United States taxpayer was left holding the bag through the VA and FHA loan programs," Edwards' lawyer, David Wasinger, said in a phone interview. "Hopefully the settlement sends a message to Wall Street that this conduct is not allowed, and that in the future it will be held accountable."

A Whistle That’s Lost in the Crowd - Late last month, deep in the annual financial statement filed by SunTrust Banks there was this nugget of news: The Justice Department is investigating mortgages that SunTrust, a large bank holding company operating in the Southeast, underwrote and sold to Fannie Mae and Freddie Mac, the home loan finance giants. What’s particularly intriguing about this mortgage investigation (after all, there have been many) is that it sounds very similar to a whistle-blower complaint described in this space last April. That complaint, filed by a former SunTrust mortgage underwriter, seemed to be languishing at the Securities and Exchange Commission since its submission in early 2012. The whistle-blower contended in the complaint that SunTrust misled its shareholders by failing to disclose its exposure to risky mortgages made from 2006 to 2008 — the kind that didn’t require documentation of borrowers’ salary or assets. As a result, the whistle-blower said, SunTrust failed to alert investors to buyback risks on “tens of billions” worth of loans. The bank has made no mention of any S.E.C. inquiry along these lines. That raises a troubling question for whistle-blowers bringing complaints to the S.E.C. The Dodd-Frank law, passed in 2010, created a program that offered awards of 10 to 30 percent of recoveries to encourage people to come forward when they saw wrongdoing at companies. What if the S.E.C. doesn’t bring a successful case based on a whistle-blower’s complaint but another law enforcement agency does, using the same information? The answer appears to be this: The whistle-blower may get no award at all.

FDIC sues 16 banks over Libor manipulation: A U.S. bank regulator is suing 16 of the biggest U.S. and foreign banks, accusing them of manipulating an influential benchmark used to set interest rates on contracts around the world. The Federal Deposit Insurance Corp. alleges the banks committed fraud by manipulating the London Interbank Offered Rate, or Libor, to enrich themselves. Those banks, which include Bank of America, Citigroup and JPMorgan Chase, all sit on an industry panel that set the London Interbank Offered Rate, or Libor. The FDIC is suing on behalf of a group of U.S. banks that failed during the financial crisis and were taken over by the agency. The FDIC alleges that collusion among the banks that set Libor rates interfered with the competitive process in the markets for money and Libor-based financial instruments. Their actions artificially increased the prices they charged and the margins they earned in those markets, according to the FDIC's complaint. The Libor panel banks' actions allowed them to charge higher underwriting fees and obtain higher offering prices for financial products "to the detriment of the closed banks and other consumers," the FDIC alleged.

Banks shedding asset management businesses - Here is a chart showing the number of transactions that involve acquisitions of an asset management business by year. It tells us about a couple of trends developing in recent years.
1. Increasingly asset managers are bought by other asset managers in strategic acquisitions (and to a lesser degree by financial sponsors).
2. Banks have stopped acquiring asset management businesses. In fact what the chart doesn't tell us is that banks have been actively selling their asset management businesses (particularly alternatives) mostly to established asset management firms (which is where the trend in item #1 above comes from). Here are some high profile examples:

  • Blackstone buys secondary private equity fund called Strategic Partners from Credit Suisse (see press release).
  • Grosvenor (fund of hedge funds) buys private equity fund of funds named Customized Fund Investment Group (CFIG) from Credit Suisse (see story).
  • Aberdeen Asset Management buys Scottish Widows fund from Lloyds Bank (see story).
  • SunTrust sells RidgeWorth asset management business to Federated Investors (see story).
  • Credit Suisse blows out its mezzanine fund business called DLJ Investment Partners to Portfolio Advisors (see story).
  • Deutsche Bank to sell its asset management business (see story) - likely to Guggenheim Partners.
  • JPMorgan is still trying to sell its private equity business (see story), although the price tag has been a bit too rich for potential buyers (see story).

Why are banks selling these businesses? The obvious answer of course is the looming Volcker Rule. But these funds invest clients' money - why would it impact banks' balance sheets? The answer has to do with investors' requirement that banks that manage money put some serious "skin in the game". A typical general partner (fund manager) may put in say 1-3% into a fund it manages. A bank however is required to coinvest a much larger percentage with its investors. That's because investors worry that banks will stuff deals which are difficult to sell into their funds, focusing on lucrative fee income at the expense of performance.

Is UCC Article 9 Going to Kill the Use of Bitcoin by US Businesses? -- Yves Smith  - A new post at Credit Slips by Bob Lawless, based on a discussion with Professor Lynn LoPucki, raises a fundamentally important issue that will severely hamper the use of Bitcoin in commercial transactions once the issue is understood. As we’ve indicated in previous posts, the idea that Bitcoin might someday as anything other than a vehicle for speculation and a curiosity depends on whether it obtains a decent level of acceptance as a means of purchasing real economy goods and services. And as we will discuss in due course, forget about changing the UCC to accommodate Bitcoin; new Basel regimes are decided and implemented faster than changes to the UCC. UCC stands for “Uniform Commercial Code”. It is foundational legislation which was devised with considerable care and has been adopted in some form by all 50 states. Key sections from Wikipedia: So what does this have to do with Bitcoin? I’m going to quote liberally from the Credit Slips post and unpack as needed:  As many readers will know, all 50 states have enacted the UCC with only minor variations. Article 9 governs security interests in personal property…The bank that gave you a car loan has an Article 9 security interest in the automobile serving as collateral for the loan, and the bank providing operating capital for your corner bakery similarly may have an Article 9 security interest in the inventory, equipment, and accounts at the store. Article 9 is one of those laws that only specialists tend to know, but it plays an important role in the flow of commerce.

Has Commercial Bank Lending Peaked? - One of the concerns that inflation hawks continue to discuss is the potential for trouble when banks start lending out all that liquidity that’s sitting on their balance sheets. At that point, we’re told, inflation will return with a vengeance and the Fed’s great monetary stimulus will become a burden. But inflation remains subdued, with consumer prices rising less than 2% lately, or near the lowest levels in modern history. But some analysts say that if the economic growth picks up this year, the inflation threat will finally start to bite. By some accounts, one of the warning signs that this tipping point is here will be rising levels of commercial loans. Actually, bank lending to businesses has already revived in a meaningful degree. But it looks like the trend has peaked. That throws cold water on the idea that inflation is about to roar skyward. A decelerating rate of commercial lending also raises questions about the health of the economy. Consider the year-over-year percentage change in the value of commercial and industrial loans (C&I). Using monthly data, the pace of growth is decelerating. C&I lending grew 7.1% in January vs. a year ago, according to the latest monthly release from the Fed. In fact, the chart below shows that C&I lending’s annual rate peaked in July 2012 at 13.4% and has been edging down ever since. Instead of threatening higher inflation, this trend seems to imply the opposite.

US Postal Service Inspector General Proposes Launching Low-Fee Public Bank:  (Real News Network, video & transcript) The inspector general of the U.S. Postal Service released a white paper in January that proposes the post office provide basic banking services. The proposal gained widespread attention after it was endorsed by Senator Elizabeth Warren. Now joining us to discuss all of this is our guest, Mike Konczal. Mike is a fellow with the Roosevelt Institute, where he works on financial reform, unemployment, inequality, and a progressive vision of the economy.

Unofficial Problem Bank list declines to 564 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for March 7, 2014.  Not many changes to report this week to the Unofficial Problem Bank List. After two removals, the institution count and asset total dropped to 564 and $180.1 billion. A year ago, the list held 805 institutions with assets of $296.4 billion.Totals have declined for the past 67 consecutive weeks.  Next week should be quiet as well as the OCC likely will not release its update until March 21st.

CoStar: Commercial Real Estate prices increased in January, Distress Sales Declining Rapidly - Here is a price index for commercial real estate that I follow. From CoStar: Commercial Real Estate Prices Remain on Upward Trajectory in January: In a pattern repeated over the last several years, the number of repeat property sales in January 2014 fell from the previous several months as trading activity predictably returned to a more normal level following the frenzied pace at year-end. This slowdown in investment activity has typically accompanied a pricing decline in the first quarter. And while the CCRSI Value-Weighted U.S. Composite Index slipped by a slight 0.6% in January 2014, reflecting the slowdown in sales activity among larger properties, the Equal-Weighted U.S. Composite Index, which is more heavily influenced by smaller transactions, remained on an upward trajectory, increasing by 1.0% in January 2014.  Despite the slowdown in January 2014, the number of observed trades over the last 12 months increased by 14.3% over the prior 12-month period. Importantly for the pricing indices, the number of distressed sales has declined by 21.8% over that same period. As of January 2014, the percentage of total observed pair counts classified as distress sales fell below 10%, down sharply from a peak of 35% in October 2010. Rising occupancies have helped stabilize NOIs across a growing number of markets leading to a large net reduction in the number of forced sales. This trend has been a positive force for commercial real estate pricing.  This graph from CoStar shows the Value-Weighted and Equal-Weighted indexes.  CoStar reported that the Value-Weighted index is up 52.2% from the bottom (showing the earlier demand for higher end properties) and up 10.6% year-over-year. However the Equal-Weighted index is only up 20.3% from the bottom, and up 12.2% year-over-year.

Credit Suisse Documents Point to Mortgage Lapses - The email from a Credit Suisse executive was blunt: The bank seemed to be pushing through risky home mortgages from questionable applicants.  A different email, from another Credit Suisse executive in June 2007, went further: “Our diligence process is such a joke.”  The emails are part of a newly released trove of internal communications and documents, mostly from 2006 and 2007, that paint a troubling picture of how Credit Suisse, a major player in the American mortgage market, operated as the housing bubble inflated. The documents, filed in Massachusetts state court as part of an investor lawsuit, suggest that top officials at the bank routinely pressed subordinates to override due diligence standards and accept questionable loans that were subsequently bundled into mortgage investments.  The documents are noteworthy because Credit Suisse, unlike many other major banks, has refused to settle large lawsuits stemming from the mortgage crisis. The bank has long maintained that its operations were held to a high standard and that the mortgage investments it sold lost value largely because of the broad housing collapse, rather than its practices.  The documents, which were made public on Friday, include internal audits indicating that the mortgage unit’s activities worsened over time in 2004, and concluding that the unit could expose the company “to a significant and unacceptable level of operational, financial or reputational risks.”

U.S. Says One Thing, Does Another on Mortgage Fraud, Watchdog Says - Four years after President Obama promised to crack down on mortgage fraud, his administration has quietly made the crime its lowest priority and has closed hundreds of cases after little or no investigation, the Justice Department’s internal watchdog said on Thursday. The report by the department’s inspector general undercuts the president’s contentions that the government is holding people responsible for the collapse of the financial and housing markets. The administration has been criticized, in particular, for not pursuing large banks and their executives. The inspector general’s report, however, shows that the F.B.I. considered mortgage fraud to be its lowest-ranked national criminal priority. In several large cities, including financial hubs like New York and Los Angeles, F.B.I. agents either ranked mortgage fraud as a low priority or did not rank it at all. “Despite receiving significant additional funding from Congress to pursue mortgage fraud cases, the F.B.I. in adding new staff did not always use these new positions to exclusively investigate mortgage fraud,” the report concludes. Mortgage fraud was one of the causes of the 2008 financial meltdown. Mortgage brokers and lenders falsified documents, sometimes to make mortgages look safer, other times to make the property look more valuable. Critics in Congress and elsewhere have criticized the Obama administration for going too easy on Wall Street banks and not taking mortgage fraud seriously enough.

New Lawsuit Alleges That Wells Has a Manual for Mass Fabrication of Foreclosure Documents -  Yves Smith - Recall that some of the most damaging documents released by Edward Snowden come from NSA manuals, which both discuss in detail how certain abuses occur and provide strong proof that that behavior is routine and presumably widespread. Catherine Curan of the New York Post has an important new story on a Federal lawsuit that looks to have unearthed a smoking gun about systematic document fabrication at Wells Fargo. As the article notes, this filing confirms a report we received from a whistleblower in 2013. The reason this new case is a bombshell is that so far, the cases against Wells, both in court and in the court of public opinion, have specific. Even though the abuses are often flagrant, they are noise to Wells, since the allegations of specific borrowers or individual whistleblowers seldom gets traction outside foreclosure-defense oriented sites and local newspapers. This suit has the potential to demonstrate that Wells constructed a well-oiled machine to flout the law. Key sections of Curan’s article: In a filing in New York’s Southern District in White Plains for a local homeowner in bankruptcy, attorney Linda Tirelli described a 150-page Wells Fargo Foreclosure Attorney Procedures Manual created November 9, 2011 and updated February 24, 2012. According to court papers, the Manual details “a procedure for processing [mortgage] notes without endorsements and obtaining endorsements and allonges.”…

The Vacant Dead: One In Five Foreclosed Homes Is A Vacant Zombie - The latest foreclosure news out of RealtyTrac is out, and provides the latest proof that if there is a housing recovery somewhere, it sure isn't in the US, where the dislocations in the supply/demand for real estate are so profound that one in five homes in the foreclosure process has been vacated by the distressed homeowner. To wit: "As of the first quarter of 2014, a total of 152,033 U.S. properties in the foreclosure process (excluding bank-owned properties) had been vacated by the distressed homeowner, representing 21 percent of all properties in the foreclosure process." This means that neither the distressed homeowner or the foreclosing lender taking responsibility for maintenance and upkeep of the home, leading to a veritable army of Vacant Dead housing units that are spreading like zombies across the nation in the most improbable housing "recovery" of all time.

How To Live Mortgage Free For Up To Three Years - Simple: just don't pay the mortgage. Because here is what happens next: shortly thereafter foreclosure proceedings will begin and at some point, far in the distant future, the bank will finally complete the foreclosure process, claiming the property and putting it on the block with intent to resell (or simply raze it). How far in the future? According to RealtyTrac, the average duration of the foreclosure process for zombie foreclosures is an average of a record 1,031 days. Or just shy of 3 years.  Which means that all one has to do to live in a house which is in ownership limbo for over 1000 days, is to stop paying, pretend to vacate, then quietly sneak back and squat there until such time as the bank finally reclaims it. Which for those living in Arkansas, Hawaii, Florida, Nevada and New York is after 1128, 1112, 1095, 1055, and 1037 days, respectively.  As for such trivial things as one's credit rating - don't worry. Remember: Wells Fargo, desperate to push its mortgage origination business, is now rerunning the last housing bubble and will lend anything to anyone with a pulse, completely oblivious if one's FICO score is triple, double or single digits. It's just one of countless others desperate to find anyone to lend to in the New Normal. Here is the breakdown of how long in the foreclosure process zombie properties remain in select states.

Lawler: Preliminary Table of Distressed Sales and Cash buyers for Selected Cities in February  - Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for several selected cities in February.  This is just a few markets for February - more to come. Total "distressed" share is down in all of these markets, mostly because of a sharp decline in short sales. Foreclosures are down in most of these areas too, although foreclosures are up a little in Las Vegas (there was a state law change that slowed foreclosures dramatically in Nevada at the end of 2011 - so it isn't a surprise that foreclosures are up a little year-over-year). The All Cash Share (last two columns) is declining year-over-year.  As investors pull back, the share of all cash buyers will probably decline. In general it appears the housing market is slowly moving back to normal.

What Can Take the Place of Fannie and Freddie? -- The problem with overhauling mortgage-finance giants Fannie Mae and Freddie Mac boils down to this: many in Washington say they want to get rid of the companies, but they want to preserve many of the benefits that those companies enabled — namely, providing a steady source of relatively cheap 30-year, fixed-rate mortgages. This explains not only why it has taken nearly six years for the overhaul debate to heat up but also why it could take several more before Washington figures out how to remake the nation’s $10 trillion mortgage market. The leaders of the Senate Banking Committee agreed last week on a bill that promises to replace Fannie and Freddie with a new system of federal backing of certain mortgage securities. Fannie and Freddie play key roles by backing nearly half of all mortgages outstanding and nearly two-thirds of all new loans. The bill will clarify the fault lines in the upcoming battle, which is really one over how the nation wants to rebuild its mortgage market, who will provide credit, and on what terms. While there are scores of technical questions that lawmakers need to answer, perhaps the hardest one will be this: what will take the place of the two finance giants? “The whole plumbing of the mortgage market runs through these companies. You can’t just take these things away without having a very clear and specific view about what’s going to replace them,” In addition to serving as mortgage guarantors, the firms also amassed over the last two decades huge investment portfolios, which helped them generate larger returns to appease shareholders. The companies claimed that these portfolios helped reduce borrowing costs for homeowners, but critics argued that they simply used their implied government guarantee to profit between the spread on those investments and the cheaper debt-funding costs.

Blackstone's Home Buying Binge Drops 70% From Its Peak Last Year - The whole story about how private equity firms and hedge funds have steamrolled into the residential home market to become this decade’s slumlords is a story we covered long before mainstream media even knew it was happening. We first identified the trend in January of last year in one of my most popular posts of 2013: America Meet Your New Slumlord: Wall Street. Since then, we've done my best to cover the various twists and turns in this fascinating and disturbing saga. With all that in mind, let’s now take a look at the latest article from Bloomberg, which points out that Blackstone’s home purchases have plunged 70% from their peak last year. Perhaps they overestimated the rental cash flow potential of indebted youth living in their parents’ basements?

Blackstone’s Home Buying Binge Ends as Prices Surge:  - Blackstone’s acquisition pace has declined 70 percent from its peak last year, when the private equity firm was spending more than $100 million a week on properties, said Jonathan Gray, global head of real estate for the New York-based firm. After investing $8 billion since April 2012 to buy 43,000 homes in 14 cities, the company has narrowed most of its purchasing to Seattle, Atlanta, Miami, Orlando and Tampa.   “The institutional wave has passed,” Gray, who oversees almost $80 billion in property investments, said in a telephone interview. “It’s at a much lower level than it was 12 or 24 months ago.” American Homes 4 Rent (AMH) has slowed its buying in some of its 42 markets, chief executive officer David Singelyn said at a March 5 investor conference in Florida. ... American Residential Properties Inc. (ARPI), a landlord with 6,000 homes, slowed acquisitions by almost half in its latest quarter ending Dec. 31

Investors Pulling Back — What Happens to Housing Now? -- Bill McBride at (a must read in the economics blogosphere) has been doing some fantastic posts on the abrupt pull-back by investors in the U.S. housing market. They were very aggressively buying homes in depressed markets from 2010 to 2012, but the excitement is now cooling. This is closely related to a previous post where we showed that house price growth has been stronger in cities where investors were extremely active. See this, this, and this. We argued in our previous post that the 2010-2013 housing rebound was “strange” because it was driven mostly by investors buying up foreclosed properties that were sold at prices below fundamental value (a “fire sale”, in the language of Shleifer and Vishny). What happens now that these investors no longer see bargains? Who steps in to buy? Is the 2010-2013 pace of house price growth sustainable? Difficult questions. We plan on looking deeper at this issue as more data become available.

MBA: Mortgage Applications Decrease in Latest Weekly Survey - From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey: Mortgage applications decreased 2.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 7, 2014. ...The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.52 percent from 4.47 percent, with points increasing to 0.29 from 0.28 (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 4.41 percent from 4.37 percent, with points unchanged at 0.20 (including the origination fee) for 80 percent LTV loans. The first graph shows the refinance index. The refinance index is down 70% 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 18% from a year ago.

Weekly Update: Housing Tracker Existing Home Inventory up 5.8% year-over-year on March 10th - 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 5.8% 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. Note: One of the key questions for 2014 will be: How much will inventory increase? My guess is inventory will be up 10% to 15% year-over-year by the end of 2014 (inventory would still be below normal).

FNC: House prices increased 9.0% year-over-year in January -- From FNC: FNC Index: Home Prices of Normal Sales Up 0.4% in January The latest FNC Residential Price Index™ (RPI) shows U.S. home prices have gotten off to a positive start in 2014, rising a modest 0.4% in January. The index, constructed to gauge the price movement among normal home sales exclusive of distressed properties, indicates home prices of the underlying housing market continue to strengthen as market fundamentals and credit conditions continue to improve. The index is up 9.0% from a year ago and continues to point to the fastest year-over-year growth to date since the recovery began. Home prices are expected to rise modestly in February as improving signs are emerging in the for-sale market: The for-sale market has strengthened in February and the average seller asking price discount dropped from 5.4% in January to 4.7% in February.... Based on recorded sales of non-distressed properties (existing and new homes) in the 100 largest metropolitan areas, the FNC national composite index shows that in January home prices rose at a seasonally unadjusted rate of 0.4%. The two narrower indices (30- and 10- MSA composites) show faster month-over-month price appreciation in the nation’s top housing markets, up 0.6% and 0.8%, respectively. The 30- and 10-MSA composites’ year-over-year trends also show more rapid growth rate in the double digits and, similar to the national index, the fastest year-over-year growth to date since the recovery began.  The 100-MSA composite was up 9.0% compared to January2013. The FNC index turned positive on a year-over-year basis in July, 2012.This graph shows the year-over-year change for the FNC Composite 10, 20, 30 and 100 indexes.   Even with the recent increase, the FNC composite 100 index is still off 23.2% from the peak.

17 Million Reasons Rent Control is Efficient --  A short version of the story is that billionaire developers Arthur and William Zeckendorf paid $401million for the Mayflower Hotel adjacent Central Park, planning to turn the site into 202 super-luxury apartments. The building was occupied by many long-term tenants under New York’s rent-control laws. This meant that tenants could only be evicted upon mutual agreement, which in turn led to the new owners offering attractive lump sum payments to tenants for them to leave the building. While most tenants accepted offers ranging from $650,000 to $1million, the final tenant held out for an astonishing $17million lump sum payment, in addition to the developers offering him another apartment to live in for the rest of his life for a peppercorn rent of $1 per month. To me the most astounding part of the story has been the reaction by the press and social media, which has been of outrage over the injustices of rent control – that for some reason poor old Sukendik didn’t deserve the money. There have also been cries of rent-control hindering development – that somehow rent-control is ‘inefficient’.  This absolutely wrong. Wrong, wrong wrong.

Housing, Interest Rates, Rents, and Inflation -- I have floated the idea that housing prices during the housing boom could be explained largely by low real long-term interest rates.  Home ownership can be described as pre-paid rent - a long position in a very long-duration, inflation-protected bond. This graph basically tells that story:In this graph, I compare bonds, stocks, and houses all based on the same mental framework - the price of each type of asset at any point in time, expressed in proportion to a stable measure of returns.  Bonds in the secondary market are valued this way, but bonds are usually reported in terms of yield.  Homes are basically valued this way, since implied rent is a fairly stable measure of cash flow.  Stocks are basically valued this way, except that instead of a stable coupon rate, stocks represent a volatile earnings stream. Here, I have attempted to present all of these assets in a way that can be comparable.  And, the point I have been making in my housing posts is that, when we use a standardized mental framing, we see that home prices were never out of line compared to the other asset classes.  They remained very low in the 1990's, and at the top of the housing boom, the relative value of homes in 2005 compared to the 1980's was similar to a 30 year bond.  A home is essentially a perpetuity of rent payments on real property, so price behavior similar to a 30 year + bond is hardly uncalled for. So, I say, home prices weren't too high in the 2000's.  Instead, a lack of access to the home market, created by the peculiar way we finance real estate investments, has frequently led to markets where home prices were not bid high enough.  The frictions dampening home demand were increasing the implied yield on home ownership, which means that these frictions have frequently kept home prices too low, making homes a very good investment for those who could qualify for the financing.  This is why conventional wisdom about buying a home usually worked.  It didn't work in the 2000's because the behavior of home prices in the 2000's was much more bond-like, did not reflect a liquidity premium, and therefore homes were not necessarily appropriate investment vehicles for many households that could qualify for them.

CHART: The Monthly Mortgage Payment Vs The Monthly Rental Payment Since 1981 -- People consider many factors before deciding between buying or renting a home. One of the more straightforward considerations is whether they can make their monthly payments. As the U.S. housing bubble ballooned, surging home prices caused the median monthly mortgage payment to diverge substantially from the median monthly rental payment. And when home prices crashed as the bubble burst, mortgage payments actually fell below rent payments. Scarred by the housing bubble, it was clear that sentiment played a big roll in Americans' decisions to opt for an increasingly expensive rental than commit to a home that could quickly pull them underwater. Now mortgage payments are back above rental payments, adding to perceptions that affordability is deteriorating. The difference, however, is pretty much negligible. "Admittedly, despite a slight fall in the fourth quarter, typical monthly mortgage costs are above median rental payments,""But the $45/month gap between the two is small by historical standards, suggesting that few would-be homeowners are likely to be put off by the increase in costs relative to renting."

Housing Market Rebound Fundamentally Different -- Our initial blog post on Friday made the argument that the housing market rebound was driven primarily by investors buying up foreclosed properties. As a result, we should not expect it to fuel household spending as we saw before. Two articles out today make arguments that are closely related: home building is shifting toward rental apartments and surging home prices are pricing out first-time buyers.

Both of these excellent reporters are must follows if you want to understand developments in the housing market.

Mark Hanson: "Why We Could Be In A Housing Bubble Right Now" -- I think it’s safe to say that America — especially the American media and Wall Street firms — has fallen in love with real estate again. But, this time around it’s not ‘all of America’ like the last time; when the most exotic mortgage loans known to mankind turned every ma and pa end-user homeowner into a raging speculator. One has to look no further than the generationally low level of purchase loan applications — with rates at generational lows — to realize something isn’t ‘normal’ about this housing market. Rather, controlling this housing market over the past three years has been a small, unorthodox slice of the population that “invests” in real estate using tractor-trailer trucks full of cash-money slopping around the financial system put into play specifically for this purpose. Over the past few years so much cash-money has been deployed into the housing sector by unorthodox parties, that in many regions ma and pa end-user hasn’t stood a chance to buy. Especially, if they need a mortgage loan, which of course presents numerous risks to the seller vs the all-cash buyer. In part, this is why I believe we could be back in a house-price bubble right now and not even realize it. And also because everybody is looking at the wrong thing…house prices. Sound confusing? It’s not, really.

Kolko: Where Do Housing “Leading Indicators” Lead Us?  -  This is from Trulia chief economist Jed Kolko: How well do leading indicators predict housing activity? In theory they should if housing construction and home purchases follow a logical sequence. When homes are sold, contracts are signed (as measured by NAR’s pending home sales index) before sales close (NAR existing home sales); also, many buyers apply for mortgages (MBA purchase applications index) before a sale closes. Also, when new homes are built, they get permits (Census new home permits) before construction begins (Census new home starts); and roughly two-thirds of new home sales happen when homes are under construction or completed, rather than before they’re started.  But lots of factors can erode the link between leading indicators and the activities they foreshadow. Some homes inevitably fail to follow the standard paths: some sales under contract may fail to close, some permitted units might not get built, and – especially now – homes can be purchased with cash and therefore skip the mortgage-application step altogether. Unanticipated events can break the link, too: bad weather or a sudden crisis that hurts confidence could delay construction on already-permitted units. Simple correlations and time-series regressions show empirically how well leading indicators actually predict key housing measures. Because the relationships between indicators can change over time, it’s helpful to focus on the most recent years of data. (The real test is whether leading indicators predict month-over-month changes, not year-over-year changes, since eleven months of a year-over-year change are already known before each monthly release of a year-over-year number.)  Based on national housing measures from 2008 to the present, the leading-indicator crystal ball is generally pretty cloudy, though better for existing home sales than for new home starts or sales.

Mortgage Equity Withdrawal Still Negative in Q4  - The following data is calculated from the Fed's Flow of Funds data (released last week) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is little MEW right now - and normal principal payments and debt cancellation. For Q4 2013, the Net Equity Extraction was minus $46 billion, or a negative 1.5% of Disposable Personal Income (DPI).This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.  There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now).  The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding decreased by $10.8 billion in Q4. Compared to recent years, this was a small decrease in mortgage debt and following Q3 when mortgage debt increased for the first time since Q1 2008,  The Flow of Funds report also showed that Mortgage debt has declined by over $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. With residential investment increasing, and a slower rate of debt cancellation, it is possible that MEW will turn positive again soon.Home equity is rising, but don’t get too excited about it: The amount of the equity people have in their homes hit $10 trillion in the fourth quarter, the highest level since 2007. It's a tidbit of data from the Federal Reserve that generated lots of excitement this week about how the comeback will lift consumer spending. Not so fast, says Amir Sufi, a finance professor at the University of Chicago Booth School of Business. “This is not your 2002-to-2006 housing boom,” he said. A rise in equity is closely tied to a rise in home prices. And home prices have been climbing in recent years because investors have been snapping up foreclosures in cities hard hit by the housing meltdown. These investors tend to be wealthier than the average household, so a rise in the values of the homes they own will probably not affect their spending, Sufi said. By contrast, the homeowners who amassed equity in their homes during the boom – some of whom also lost their homes during the bust – tended to be the borrowers with lower credit scores and lower incomes. They’re the ones who tapped into the equity and upped their spending. They often used the cash-out refinancing to take money out of their home. This chart plots how cash-out refinancing closely tracked house price growth.

Equity Extraction and Personal Consumption Expenditures  - In comments to my previous post I made this statement of historical fact: “home price bubble equity was an ATM that grew consistently as a fraction of PCE after 1996, and accounted for over 2% in 2005 – and I got this from Greenspan and Kennedy, Table 2.” In my estimation, this implies that the collapse of the housing bubble eliminated the possibility of equity extractions, and was therefore a major contributor to the decline in personal consumption expenditures [PCE] that led into the Great Recession. Here is the explanation.  Bill McBride at Calculated Risk has been following the equity extraction data. Here is the March, 2014 update. Dr. James Kennedy, mentioned above, wrote that for technical reasons, the data set that he and Greenspan were using was no longer valid after 2008, and presented an alternate calculation method [link at the linked CR post.] McBride uses this alternate measure, calculated from the Fed’s Flow of Funds data and the BEA supplement data on single family structure investment. Also linked at the CR article is a spread sheet with the two data sets. Graph 1, from CR, shows how the two data set compare.  I’m looking at the correlation between equity extractions and personal consumption expenditures during the housing bubble and collapse to support my claim. The method is to compare McBride’s calculated data, which extends past the end of ’08, and FRED Series PCE. Graph 2 shows Equity Extractions [blue, left scale] and the YoY dollar change in PCE [green, right scale] from 1991 through Q1, 2010, both in billions, quarterly data.

What The Hell Is That Ticking Sound In My Head! Household Wealth - -Yesterday the media got all bulled up over the Fed’s new data on household wealth showing that it hit a record in the fourth quarter of 2013. As usual with Wall Street’s chattering media class, this wasn’t quite the whole story, at least not the “real” story.  The real story is deeply ominous. The total net worth of households and non profits did reach a record in nominal terms. That is true. But that’s not the same thing as the wealth of individual households hitting a record in real, inflation adjusted terms. In addition, the calculation of the numbers is based on absurd assumptions which everyone takes for granted as being realistic. And if the net worth of the top 1% was lopped off, the picture would be far bleaker. But we need not even go there. By now it’s been well established that those in the upper income strata have gotten virtually all of the gains in wealth in recent years while the majority falls deeper into the economic mire. For this analysis I just look at the data as a whole, and do the simple exercises of dividing the total net worth of households and non-profits of $80.66 trillion by the census bureau’s estimate of the total year end population of the US of 317.44 million. Then I converted that to real terms by dividing the result by the Consumer Price Index. That’s conservative enough. It probably understates inflation by underweighting housing and doesn’t take into account asset inflation at all. But it’s a widely accepted means of converting nominal measures into real, inflation adjusted numbers. The same operation is then performed for every quarter going back in time as far as the data goes. The results are then plotted on this graph. It shows how the wealth of households has trended in real terms per capita.

Good Times for Capital - Last week, the Wall Street Journal highlighted a Federal Reserve report on total household net worth. Surprise! Americans are richer than ever before, both in nominal and real terms. At the same time, though, wealth inequality is increasing from its already Gilded Era levels. The main factor behind increasing household net worth over the past year was the rising stock market (followed far behind by rising housing prices). These obviously only help you if you own stocks—not if, say, you never had enough money to buy stocks, or you had to cash out your 401(k) in 2009 because you were laid off. Put another way, rising asset values help you if you are a supplier of capital more than a supplier of labor. Is there anything we can do about this? The conventional wisdom from the political center all the way out to the right fringe is that we shouldn’t tinker too much with the wealth distribution—otherwise people won’t work as hard, which is bad for everyone. But perhaps it isn’t true. In a new paper (Vox summary), three IMF economists look at the relationship between redistribution—measured by differences between the pre-tax-and-transfer income distribution and the post-tax-and-transfer income distribution—and overall economic growth over five-year periods, across countries and across time. They find (from the summary) “remarkably little evidence in the historical data used in our paper of adverse effects of fiscal redistribution on growth.” In general, that is, average levels of redistribution tend to be associated with higher levels of growth that are sustained for longer.

Household Net Worth: The "Real" Story: Let's take a long-term view of household net worth from the latest Z.1 release. A quick glance at the complete data series shows a distinct bubble in net worth that peaked in Q4 2007 with a trough in Q1 2009, the same quarter the stock market bottomed. The latest Fed balance sheet shows a total net worth that is 45.2% above the 2009 trough at a new all-time high 17.8% above the 2007 peak. The nominal Q4 net worth is up 3.8% from the previous quarter and up 13.8% year over year. But there are problems with this analysis. Over the six decades of this data series, total net worth has grown about 7699%. A linear vertical scale on the chart above is misleading because it fails to provide an accurate visual illustration of growth over time. It also gives an exaggerated dimension to the bubble that began in 2002. But there is another more serious problem, one that has to do with the data itself rather than the method of display. Over the same time frame that net worth grew seven-thousand-plus percent, the value of the 1950 dollar shrank to about nine cents. The Federal Reserve gives us the nominal value of total net worth, which is significantly skewed by money illusion. Here is a log scale chart adjusted for inflation using the Consumer Price Index. The next chart gives us a more intuitive sense of real net worth. Here I've divided the inflation-adjusted series above by the Bureau of Commerce's mid-month population estimates, which have been recorded since January 1959.

New In-Depth Study Shows How Debt Collectors Abuse Legal System and Borrowers - The Loyola Consumer Law Review has just released an important paper by Peter Holland of the University of Maryland Francis School of Law. Holland has undertaken the most extensive study of outcomes in debt collections to date, investigating 4400 lawsuits in all 26 Maryland district court jurisdictions in 2009 and 2010, across 11 of the most active debt collectors in state. We’ve embedded it at the end of this post for your convenience. As readers presumably know well, in the overwhelming majority of cases, these are junk claims that could be beaten if the borrower had the means. In many cases, the debt is invalid by being too old (the statute of limitations has expired), previously discharged (the borrower actually paid it or it was wiped out in bankruptcy). And even when it might be valid, debt collectors can rarely meet the legal standards needed to enforce the obligation (which includes a copy of the original agreement with the borrower’s signature, the payment history that proves the amount owed, and the complete documentation to substantiate all the transfers of the debt from the original lender to the current holder). To add insult to injury, the debt collectors typically can’t begin to prove how the borrower came to owe the amount it says is due. But broke borrowers aren’t in a great position to pay legal fees.   Here are the main findings:

    • Only 2 in ten borrowers who were served respond to a summons (one has to wonder what percentage of the summons were “sewer service”)
    • 70% of the time, the debt collector prevails, with the average judgment exceeding $3000
    • The overwhelming majority of cases aren’t settled (some Maryland jurisdictions provide for “restitution conferences” in court but with no judge presiding)
    • Under 2% of borrowers had an attorney representing them. The few that did engage attorneys got much better results
    • Racial minorities suffer more under this system than whites
    • If debtors who lose or get default judgments fail to appear in the supplementary hearing to find out what assets they have, they risk being charged with contempt and arrested. The bond is typically set as the amount owed the debt collector. Thus debtors’ prisons are alive and well in America

A dark side to the trustee's strong arm powers -- Conventional wisdom views bankruptcy as a place that protects homeowners and homeownership.  One of the primary reasons Chapter 13 allows debtors to retain all property of the estate, whether exempt or not, is to allow debtors to hang on to their personal residences even though applicable exemption law would not otherwise allow this.  OK Chapter 13 doesn’t permit modification of residential mortgages, but it does allow debtors to decelerate and cure mortgages in default, providing some consumer debtors some protection from foreclosure.  Chapter 7 is traditionally viewed as less protective of the homestead – that is, it protects residences only to the extent of applicable homestead exemption law, but it has been widely accepted that debtors might protect their homes in chapter 7 by combining a discharge from unsecured debts with reaffirmation of a residential mortgage. The recent financial crisis has strained both the state court foreclosure process and the federal bankruptcy system, raising questions about the continuing accuracy of the notion that bankruptcy provides a safe place for homeowners.  Whether bankruptcy does or even should protect homeownership is a very big question, one undoubtedly best answered in combination with careful analysis of data, and I won’t presume to tackle that question in a blog.  But I do want to use this format as a safe place for thinking about these issues. As a first step, I propose looking into a couple of recent cases that prompted a double take from me.

Compensation Climbing Thanks to Surging Benefits Costs -- Private employers are boosting their workers’ compensation at the fastest quarterly pace since before the recession. But the gain was driven disproportionately by benefits, a new Labor Department report showed Wednesday. U.S. firms in December spent an average of $29.63 per hour worked for total compensation including benefits, up 1.4% from three months earlier, the department said. Wages and salaries made up 70.1% of the total, while benefits accounted for the remaining 29.9%. The last time total compensation rose at least 1.4% was in the third quarter of 2006. The report measures employer costs for wages, salaries and benefits for workers at nonfarm private firms and at state and local governments. It does not include people who work for the federal government or are self-employed. Benefit costs include common expenses such as health insurance and life insurance along with paid leave, such as vacation or personal time. The figure also covers the legally required benefits of Social Security, Medicare, unemployment insurance and workers’ compensation. The December report focused on paid leave and legally required benefits costs in private industry. Paid leave benefits averaged $2.05 per hour worked and totaled 8.5% of overall compensation. People in management and professional occupations saw the largest gains from benefits, at $4.39, largely because benefit costs are linked closely to salaries. How much companies paid workers for vacation or holiday time varied widely by company size, the report found. In companies with fewer than 100 workers, paid leave costs were $1.45 per hour worked, compared with $2.10 for firms with 100 to 499 employees. Large companies with 500 workers or more paid employees $3.68 per hour worked for leave. Social Security payments, which made up the largest legally required benefit cost component, were 4.7% of total compensation in December, the Labor Department said.

The Untold Story of the Tapped U.S. Consumer: These days, no matter where you look, the general census among economists is that the U.S. economy is witnessing economic growth. We hear stock advisors defend their bullish positions with arguments of increasing auto sales in the U.S. economy, jobs creation, and companies posting great profits (all fallacies). But as I have argued many times in these pages, the U.S. economy is stressed and fragile. Auto sales are strong because we have sub-prime loans for auto buyers coming into play; jobs growth in the U.S. economy has been meek and concentrated in low-paying service jobs; public companies are posting per-share earnings growth because of record stock buybacks; and Americans are increasing their spending by either tapping into their savings or by borrowing money. Something very important to look at during any economic cycle is consumer income; personal incomes are supposed to increase as an economy improves. But this isn't happening in the U.S. economy right now! Real disposable income per capita in the U.S. economy dropped to $36,941 in the fourth quarter of 2013 from $37,265 in the fourth quarter of 2012.   Another important economic indicator -- the personal saving rate -- is also going the wrong way. Between September 2013 and January 2014, the personal saving rate in the U.S. economy has dropped by an alarming 16%. In the meantime, consumer debt has been increasing. In the fourth quarter of 2013, consumer debt in the U.S. economy saw its biggest quarter-over-quarter increase since the third quarter of 2007! It's quite simple: if consumer debt continues to rise and consumer incomes continue to decline, there comes a point when the consumer won't be able to return what they have borrowed. At the end of the fourth quarter of 2013, $820 billion worth of consumer debt was delinquent and $580 billion of that was seriously delinquent. In the fourth quarter of 2013, 332,000 Americans filed for bankruptcies in the U.S. economy, very close to the number that filed for bankruptcy in 2012. These numbers suggest the situation in the U.S. economy is not improving!

Stock Market Surge Bypasses Most Americans, Poll Shows - More than three-quarters of Americans say the five-year bull market in U.S. stocks has had little or no effect on their financial well-being, according to a Bloomberg National Poll. Seventy-seven percent of respondents dismissed the 176 percent rise in the Standard & Poor’s 500 Index (SPX) since its March 9, 2009 financial crisis low, according to the poll, taken March 7-10. Barely one in five -- 21 percent -- said the market’s gains have made them “feel more financially” secure. “I don’t think there’s anything real behind it,” said David Skelly, 47, a policeman in Kankakee, Illinois. “It’s just an artificial boom.” The poll shows that most Americans still think the country is on the wrong track; fewer people than in Bloomberg’s December poll expect the economy or job market to strengthen over the next 12 months; and President Barack Obama gets little credit for what gains there have been.

The Great Housing Hangover - Just how bad was the housing binge from 2002 to 2006? Here is retail spending on furniture, appliances, and home improvement from 2006 to 2013. The lines are indexed to 2006, so for every year, if you take the point for that year and subtract 100 you get the percentage change from 2006 to that year. It is stunning. Nominal retail spending on furniture, appliances, and home improvement remains below its 2006 level in 2013, 7 full years later. Remember that this is nominal spending, so if you adjust for inflation the gap is even large.   A natural question is whether 2006 represents a useful benchmark. Perhaps spending on housing-related goods in 2006 was artificially inflated by the housing boom, and is therefore not a useful reference point? Or alternatively, perhaps 2006 spending was what we would expect from a normally functioning economy? The truth is in between. Spending on housing-related goods was no doubt fueled by the unsustainable housing boom. But the correction is likely also too extreme — different policy actions during the Great Recession likely could have helped soften the blow.

Hotel Occupancy Rate increased 2.1% year-over-year in latest Survey -- From STR: US results for week ending 8 March The U.S. hotel industry posted positive results in the three key performance measurements during the week of 2-8 March 2014, according to data from STR. In year-over-year measurements, the industry’s occupancy increased 2.1 percent to 64.0 percent. Average daily rate rose 4.8 percent to finish the week at US$114.85. Revenue per available room for the week was up 7.1 percent to finish at US$73.52.  Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room. During the same week in 2008, RevPAR was around $65. and ADR was at $108. In 2009, RevPAR and ADR declined sharply, but these metrics are now at new highs. The 4-week average of the occupancy rate is close to normal levels. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

The "Harsh Weather" Verdict: 19% Spent Less, 27% Spent More, 55% Spent The Same - With Goldman proclaiming that half the recent downturn in US macro data is due to "weather" and the rest of the hockey-sticking sell-side extrapolators fully entrenched on the Spring-will-save-us-all bandwagon (despite the manifold examples of the worst macro data misses being from regions that simply were unaffected by the winter storms), we thought the following chart would be of interest. RBC finds only a mere 19% of those surveyed "spent less" due to the weather - and 27% spent more!

Retail Sales increased 0.3% in February -- On a monthly basis, retail sales increased 0.3% from January to February (seasonally adjusted), and sales were up 1.5% from February 2013. Sales in December and January were revised down from a 0.4% decrease to a 0.6% decrease. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $427.2 billion, an increase of 0.3 percent from the previous month, and 1.5 percent above February 2013. ... The December 2013 to January 2014 percent change was revised from -0.4 percent to -0.6 percent. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-autos increased 0.3%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 2.2% on a YoY basis (1.5% for all retail sales). The increase in February was above consensus expectations, but the downward revisions to December and January were negatives. However, it appears much of the weakness in January and February was due to the weather.

February Advance Retail Sales Up 0.3% But from Significant Downward Revisions -  The Advance Retail Sales Report released this morning shows that sales in February rose 0.3% month-over-month, up from -0.1% in January, but the January number was a substantial downward revision from -0.4% to -0.6%. Likewise Core Retail Sales (ex Autos) was up 0.3% in February, but from an even larger downward January revision, from unchanged to -0.3%. Today's headline and core numbers came above the forecast of a 0.2% gain for both.  The first chart below is a log-scale snapshot of retail sales since the early 1990s. I've included an inset to show the trend in this indicator over the past several months. Here is the Core version, which excludes autos. Here is a year-over-year snapshot of overall series. Here we can see that the YoY series is off its peak in June of 2011 and has been relatively range-bound since April of last year. Here is the year-over-year performance of at Core Retail Sales.

Retail Sales Beat Following Sharp January Downward Revision: Control Group Decline Continues - When retail sales last month came in far weaker than expected, it was the weather's fault. A month later, we find that the January retail sales were even weaker than expected, with the headline number revised from a -0.4% drop to -0.6%, the ex autos number revised from unchanged to -0.3%, and the ex autos and gas whose drop more than doubled from -0.2% to -0.5%. Oh well: one can't go back in time and force the algos to soar even more (since everyone knows bad news is great news). So how about February? Well, apparently it warmed up because despite expectations of a 0.2% increase in headline and ex auto and gas retail sales, the actual prints were 0.3% for both, beating by the tiniest of margins, yet net lower when adding the January revision. Of course, what happens in April, when the March data too is revised lower, is irrelevant - all that will matter is the current month numbers all of which recently seem to get an odd "optimism" boost that promptly fades away in no time.

Retail Sales February Sign of Life Squashed by Harsh Winter Sales -- February 2014 Retail Sales increased 0.3% for the month.  This is the first increase in three months.  January was revised all the way down to -0.6% and December's drop was -0.3%.  Retail sales have now increased just 1.5% from a year ago.  January's decline was due to a real nose dive in auto sales, down -2.3% for the month.  Online retailers continue their rise with a 6.3% increase from a year ago.   Retail sales are reported by dollars, not by volume with price changes removed. Retail trade sales are retail sales minus food and beverage services and these sales also increased 0.3% for the month..  Retail sales without gasoline purchases increased 0.3% for the month.  Total retail sales are $427.2 billion for February.  Below are the retail sales categories monthly percentage changes.  These numbers are seasonally adjusted.  General Merchandise includes super centers, Costco and so on.  Health and personal care sales have increased 5.5% from a year ago, largely due to prescription drugs.  Below is a graph of just auto sales.  We see how the recession just decimated auto sales and also how autos have dropped off recently with a 2.2% increase for the year.  Budget cuts and government shutdown games can impact auto sales as governments use large fleets of autos and trucks.  Going for a test drive in a polar vortex probably also really hurt auto sales.  Department stores are clearly hurting.  Their retail sales are down -4.8% from a year ago.  Obviously people are shopping at department stores less and less as online shopping is becoming increasingly more common.  Building materials, garden sales, which are large by volume, have increased 3.2% from a year ago.  Grocery stores have increased sales by 2.4% from this time last year and for the month were down -0.1%  Sporting goods, hobbies, books & music sales have are down -5.2% from last year.  Miscellaneous retail stores have increased 1.4% from a year ago, but are down -0.9% for the month.  Electronics and appliances are down -2.4% for the year,-0.2% for the month.   Below are the retail sales categories by dollar amounts.   As we can see, autos rule when it comes to retail sales.  We also see online retailers are really making a dent in their importance to the economy.

Where Did Consumers Spend Their Money in February? - Retail sales in February increased 0.3% from a month earlier, and the gains were relatively spread. With the bad weather, sales at nonstore retailers, most of which sell things online posted an increase. Building materials and furniture stores notched gains, in a possible positive sign for the housing market. But it wasn’t all good news. Electronics, general merchandise and grocery stores all showed declines. Click for full interactive graphic.

The Devil Lurking In The Retail Store Closure Details -- "US retail as we have known it for hundreds of years is in sharp decline," warns Bloomberg Brief's Rich Yamarone, adding that "market participants should take note of the fallout in a sputtering US economy." The retail apocalypse, as we discussed here, is dominated by mass layoffs, weak traffic, and poor wage growth and, as Yamarone highlights, it's not hard to see why... Via Bloomberg Brief's Richard Yamarone, The 13-week moving average pace of retail spending shown by the ICSC-Goldman Sachs Retail Chain Store Index is below that which traditionally signals a slowdown.  Of course this most recent dive will all be blamed on the weather but another look at the chart shows the trend was well in place long before this winter and will continue well into the future unless something changes. As Yamorone goes to note, this has significant implications - as the shift from bricks-and-mortar to online echoes up through the retail infrastructure of America...

20 Stunning Facts On The US Retail Apocalypse -- If the U.S. economy is getting better, then why are major retail chains closing thousands of stores? If we truly are in an "economic recovery", then why do sales figures continue to go down for large retailers all over the country? Without a doubt, the rise of Internet retailing giants such as have had a huge impact. Today, there are millions of Americans that actually prefer to shop online. Personally, when I published my novel I made it solely available on Amazon. But Internet shopping alone does not account for the great retail apocalypse that we are witnessing. In fact, some retail experts estimate that the Internet has accounted for only about 20 percent of the decline that we are seeing. Most of the rest of it can be accounted for by the slow, steady death of the middle class U.S. consumer. Median household income has declined for five years in a row, but all of our bills just keep going up. That means that the amount of disposable income that average Americans have continues to shrink, and that is really bad news for retailers. And sadly, this is just the beginning. Retail experts are projecting that the pace of store closings will actually accelerate over the course of the next decade. So as you read this list below, please take note that things will soon get even worse.

Update: Framing Lumber Prices -Here is another graph on framing lumber prices. Early last year lumber prices came close to the housing bubble highs. Then prices started to decline sharply, with prices declined over 25% from the highs by June. The price increases early last year were due to stronger demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online).  Prices are down about 10%  from a year ago, probably due to more supply coming on the market.   Here is another mill coming back from the Oregonian: Cave Junction sawmill will reopen If all goes as planned, the small-log mill will be retooled and running by July. Its owners say they are confident that they can maintain a single shift, and put 67 people to work running the mill. “Demand is good right now,” Link Phillippi said. “Our markets are good. our customers are begging for wood.” This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through last week (via NAHB), and 2) CME framing futures. Prices are probably close to the peak for this year (demand usually peaks seasonally in March and April).

Inflation Is Tame Unless You Eat Bacon or Smoke Cigarettes - From burgers to cupcakes, almost everything is better topped with bacon. But does that list include inflation? Consumer prices increased slowly during the past five years, up 8.2% from 2008 to 2013, according to the Labor Department. That’s an average gain of less than 2% per year. (By comparison prices rose 17% from 2003 to 2008.)But bacon prices haven’t been held back by a weak economic recovery. The price for America’s favorite cured meat increased at more than three-times the rate of inflation since 2008. Users of peanut butter, tobacco and college text books may also have a hard time believing inflation is mild.Tomato-loving couch potatoes, however, have little to complain about. Prices for furniture, televisions, tomatoes and even potatoes have declined in the past five years. Below see a sortable list of price changes since 2008 and share of consumers’ budgets for more than 300 products, but first some highlights:

Consumers See Faster Inflation, Slower Home-Price Gains - U.S. consumers see a small acceleration in inflation over the next year, according to a survey released Monday. The Survey of Consumer Expectations from February done by the Federal Reserve Bank of New York, shows consumers think the inflation rate will rise to 3.09% on the one-year horizon, up from 3.0% in January. The median inflation expectations for the next three years edged up to 3.18% from 3.05% a month earlier. Expectations about home prices, however, slowed last month. The New York Fed survey found consumers think the median gain in home prices during the coming year will be 4.0%, down from a 4.54% increase expected in January. Workers were slightly more uncertain about job availability. The average perceived chance of finding new work within three months if a current job were lost declined to 46.09% from 48.67% in January. The February decline was driven by workers with a high school degree or less and by workers aged 60 years or older. Despite that uncertainty, workers feel more secure about their current positions. Workers on average give a probability of 16.15% of losing a job, the lowest reading since July. And when asked about voluntarily leaving a job, the average probability edged up to 21.18% in February from 20.78%.

The Geographical Dispersion of U.S. Inflation - Most accounts of inflation focus on national statistics. While the national series is still low, in some select locations, it’s even lower. Figure 1 depicts 12 month inflation for the four BLS regions, and for the US as a whole. Midwest inflation is the lowest, while all series are trending downward. Core inflation is declining as well, with the Midwest once again leading the descent. As of January, core inflation in the region was 1.26%, less than the 1.6% recorded for the nation overall. The BLS regions are pretty large, so one would not expect a lot of dispersion. Hence, I also examine the evolution in prices in several cities. LA and Philadelphia hit zero inflation earlier, in 2013, and inflation in those urban areas remains low. In assessing all these region- and city-specific indices, it’s important to realize that there’s considerably more sampling uncertainty, manifested in part by the greater volatility in these series. Hence, a positive reading could be obtained even when actual inflation is negative. Does the geographical dispersion of inflation matter? In Europe, dispersion matters for interpreting the overall low rate of inflation (see IMF via Krugman). That’s partly because the lower degree of labor and credit market integration (think banking systems). In the United States, assets and liabilities are likely to be held more widely; nonetheless, for a given household, the relevant deflator for a given nominal debt is going to be at least somewhat region-specific, so actual deflation in a region is a matter for some worry.

Core Producer Inflation Drops By Most In 9 Months -- Producer Prices in the US (less the all important food and energy - which no on uses) fell 0.2% month-over-month - the biggest drop since July 2013 - and missing expectations of a 0.1% rise. This is only the third month of 'disinflation in the last 18 months. Perhaps even more relevant is the dramatic slowdown in prices for final demand services which dropped 0.3% (the biggest drop since May 2013) and equal slowest rise year-over-year since the 'recovery' began.

Weekly Gasoline Update: Prices Continue to Rise - 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 three cents and Premium two cents -- the highest prices since mid-September. According to, Hawaii is the only state with regular above $4.00 per gallon, now at $4.15. The next highest state average is California at $3.90. No states are averaging under $3.00, with the lowest prices in South Carolina at $3.17.

U.S. Total Gasoline Retail Sales By Refiners - from the EIA

Grocery Stores Don’t Slash or Jack Up Prices When Demand Shifts - Don’t worry too much about supply and demand at the supermarket. Two Federal Reserve economists have found grocery stores don’t tend to jack up or slash their prices in response to big shifts in customer traffic caused by winter storms, hurricanes, picket lines and major natural disasters. “Our key finding is that large swings in demand appear to have, at best, a modest effect on the level of prices, consistent with a flat short- to medium-term supply curve in the retail industry. This finding holds even in the case of our most persistent shocks for which stores adjusted the price of most items multiple times (or at least a couple of times in the case of regular prices),” Mr. Gagnon and Mr. Lopez-Salido analyzed weekly scanner data for 29 common supermarket items in 50 U.S. metropolitan areas from 2001 through 2011. They looked at events that caused shifts in shopping patterns: a 2003 supermarket strike in St. Louis, a 2003-2004 supermarket strike in southern California, the displacement of roughly 1 million people by Hurricane Katrina in 2005, 59 major snowstorms and 21 hurricanes. The idea that prices respond to changing availability and consumer demand is a basic concept in economics. If demand increases, prices rise. If demand falls, prices fall. Supermarkets change their prices frequently, the economists noted, and tend to match price changes by their competitors. But large increases or decreases in demand didn’t cause correspondingly large changes to prices, they found.

Michigan Consumer Sentiment: March Preliminary Falls Short of Expectations - The University of Michigan Consumer Sentiment preliminary number for March came in at 79.9, a decline from the 81.6 February final. Today's reading was below the forecast of 82.0. 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 6 percent below the average reading (arithmetic mean) and 5 percent below the geometric mean. The current index level is at the 34th percentile of the 435 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 10.6 points above the average recession mindset and 7.6 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.

Consumer Confidence Fades; Misses By Most In 15 Months - It would appear that pending wars in Europe, freezing snow storms (and droughts) in the US, and Asian credit concerns have finaly taken their toll on US consumer confidence. At 79.9 relative to an expectation of 82.2 this is the biggest miss since Dec 2012 and lowest since Nov 2013.Current conditions rose modestly but the economic outlook fell by its most in 5 months. UMich confidence remains notably below the July 2013 peak levels (which correspond quite coincidentally to the same 4 year 4 month cycle we have seen in the prior 2 cycles) despite stocks have made higher highs since then as the decoupling remains in place.

Consumer Begin March Feeling More Gloomy - U.S. consumers began this month feeling more worried about their economic future, according to one survey of households released Friday. The Thomson-Reuters/University of Michigan preliminary March sentiment index unexpectedly slipped to 79.9 from an end-February reading of 81.6, according to an economist who has seen the numbers. The early-March reading was well below the 81.8 reading expected by economists surveyed by The Wall Street Journal. The worries were centered in the economic outlook. The early-March expectations index fell to 69.4 from 72.7 at the end of February. The early-March current conditions index edged up to 96.1 from a final-February reading of 95.4. The top-line sentiment and expectations indexes are each the lowest since November. The health of the consumer sector is important to the total economy. Householders have faced a rough winter, with higher heating bills and work hours lost because of bad travel conditions. Retail sales picked up in February, but consumer spending so far in the first quarter is sluggish. The one-year inflation expectations reading for early March held at 3.2%. Inflation expectations covering the next five to 10 years remained at 2.9%.

U.S. Wholesale Inventories Rise, but Sales Drop Sharply -  U.S. wholesale inventories rose more than expected in January, as companies built up stocks of autos and machinery, though sales posted their largest decline in nearly five years. The Commerce Department said on Tuesday wholesale inventories rose 0.6 percent to $521.2 billion after a revised 0.4 percent gain in December. Economists polled by Reuters expected stocks of unsold goods at wholesalers to rise 0.4 percent in January. Sales at wholesalers fell 1.9 percent in January, their biggest drop since March 2009, compared to a revised 0.1 percent increase the prior month. Economists had forecast sales to edge up 0.2 percent. Sales of non-durable equipment such as petroleum and paper products dropped 3.2 percent, the sharpest fall since December 2008. At January's sales pace it would take 1.2 months to clear shelves, compared to December's pace of 1.18 months.

Wholesale Inventories Piled Up in January as Sales Tumbled - Merchandise piled up on wholesalers’ shelves in January, likely reflecting a shift in consumer spending toward heat and healthcare during a bad-weather month. Wholesale inventories climbed 0.6% from December, the Commerce Department said Tuesday. Sales tumbled 1.9%, the sharpest decline since the tail end of the recession in March 2009. Inventories are a key component of gross domestic product, the broadest measure of the nation’s economic output. Rising stockpiles added 0.14 percentage point to the fourth quarter’s 2.4% advance and 1.67 percentage points to the third quarter’s 4.1% growth. While inventories remain fairly lean, some economists expect businesses to draw them down, potentially constraining the top-line number for first-quarter GDP. Wholesalers want to have enough products on hand to meet demand, but not so much that they are left with unwanted goods tying up money and warehouse space. Even with January’s plunge, sales remain above levels from a year earlier, a sign of steady if slow economic expansion at the start of the year. January was a tough month for many retailers and restaurants. Consumers boosted spending on health care and utilities in chilly January but pulled back on many discretionary products. Purchases of goods fell for the second straight month.

Vital Signs: Like the Snow, Inventories Are Piling Up - Icy roads and subfreezing temperatures have kept customers at home, and that has stuck businesses with more inventory than they probably want. The Commerce Department reported inventories held at manufacturers, wholesalers and retailers increased 0.4% in January on top of a 0.5% gain in December. But business sales declined in each of those months, 0.1% in December and a large 0.9% in January. Those diverging trends caused the inventory-sales ratio—the number of months that existing inventories would last at the current sales pace — to edged up to 1.32, the highest reading since late 2009. The increase in the ratio has been especially noticeable at the retail level where the inventory-sales ratio has been edging up since the fourth quarter and stands at a 4-plus-year high of 1.46 in January. Some of those stocked goods were probably sold in February, when retail sales increased 0.3%. But businesses, especially stores, will have to work off more of their excess inventories before they start to order new merchandise. That drawdown will subtract from gross domestic product growth, if not this quarter, then in the second.

Wholesale Sales Collapse Most In 5 Years As Autos Lead Inventory Surge -- We are sure the great and good of the economic world will explain away this data with one word - "weather" but the 1.9% drop in Wholesale Sales is the largest in 5 years and aside from the financial crisis is the worst since 1993! This is also the biggest miss on record. Inventories rose more than expected (+0.6% vs +0.4% expectations) which could be a problem as the inventories/sales ratio surges to its highest in 11 months. Unsurprisingly, Autos saw the largest inventory build (+6.8% YoY).

Auto-Industry Over-Production Sends US Inventory-To-Sales To Post-2009 Highs - The 'field-of-dreams' recovery is dismally missing in action. This morning's inventory-to-sales data shows the US total at 1.32x - its highest since the financial crisis and highest in a decade aside from that. The worst sector - or more over-produced or mal-invested - drum roll please... Autos. As the following stunning chart shows, over the last 22 years, the auto-industry has only had a higher inventory-to-sales in the midst of the crisis. If we build it, they might not come... (and apparently they didn't).

Auto Regulators Dismissed Defect Tied to 13 Deaths - Federal safety regulators received more than 260 complaints over the last 11 years about General Motors vehicles that suddenly turned off while being driven, but they declined to investigate the problem, which G.M. now says is linked to 13 deaths and requires the recall of more than 1.6 million cars worldwide. A New York Times analysis of consumer complaints submitted to the National Highway Traffic Safety Administration found that since February 2003 it received an average of two complaints a month about potentially dangerous shutdowns, but it repeatedly responded that there was not enough evidence of a problem to warrant a safety investigation. The complaints — the most recent of which was filed on Thursday — involved six G.M. models that the automaker is now recalling because of defective ignition switches that can shut off engines and power systems and disable air bags. G.M. said the first recall notices were mailed on Friday to the owners of the vehicles.  Many of the complaints detailed frightening scenes in which moving cars suddenly stalled at high speeds, on highways, in the middle of city traffic, and while crossing railroad tracks. A number of the complaints warned of catastrophic consequences if something was not done. “When the vehicle shuts down, it gives no warning, it just does it,” : “Engine stops while driving — cannot steer nor brake so controlling the car to a safe stop is very dangerous.”

Use of Public Transit in U.S. Reaches Highest Level Since 1956, Advocates Report - More Americans used buses, trains and subways in 2013 than in any year since 1956 as service improved, local economies grew and travelers increasingly sought alternatives to the automobile for trips within metropolitan areas, the American Public Transportation Association said in a report released on Monday.The trade group said in its annual report that 10.65 billion passenger trips were taken on transit systems during the year, surpassing the post-1950s peak of 10.59 million in 2008, when gas prices rose to $4 to $5 a gallon.The ridership in 2013, when gas prices were lower than in 2008, undermines the conventional wisdom that transit use rises when those prices exceed a certain threshold, and suggests that other forces are bolstering enthusiasm for public transportation, said Michael Melaniphy, the president of the association.“Now gas is averaging well under $4 a gallon, the economy is coming back and people are riding transit in record numbers,” “We’re seeing a fundamental shift in how people are moving about their communities.”From 1995 to 2013, transit ridership rose 37 percent, well ahead of a 20 percent growth in population and a 23 percent increase in vehicle miles traveled, according to the association’s data.

How Finance Gutted Manufacturing - In May 2013 shareholders voted to break up the Timken Company—a $5 billion Ohio manufacturer of tapered bearings, power transmissions, gears, and specialty steel—into two separate businesses. Their goal was to raise stock prices. The company, which makes complex and difficult products that cannot be easily outsourced, employs 20,000 people in the United States, China, and Romania. Ward “Tim” Timken, Jr., the Timken chairman whose family founded the business more than a hundred years ago, and James Griffith, Timken’s CEO, opposed the move. Timken management argued that making both materials and products enabled them to bring to market higher-quality goods that met customers’ needs: for example, their ultra-large bearings for windmill towers, which measure two meters in diameter, weigh four tons, and have to stand up to extreme wind and temperature conditions. Controlling the entire value chain, they said, allowed them to fine-tune the attributes of the steel in order to make superior products. Nonetheless, the financial calculation about how to maximize quarterly returns won out.

Manufacturers Blame Expiring Tax Breaks For Restrained Investment - More than a third of U.S. manufacturers say they’ll scale back investment plans this year because a pair of federal tax breaks expired at the end of 2013, according to a survey by the National Association of Manufacturers to be released Monday. The tax breaks, known to insiders as “enhanced Section 179 expensing” and “bonus depreciation,” helped firms write off costs associated with replacing old equipment or adding factory capacity. Almost two-thirds of manufacturers said they took advantage of them in 2012 and 2013, according to the NAM/IndustryWeek quarterly survey. About 35% of firms responding to the survey said the expiration of those two provisions at the end of last year altered their investment plans this year. Among small and medium-sized manufacturers — firms with fewer than 500 employees — 40% said their plans changed. The Congressional Research Service, an arm of Congress, has cast the tax breaks in a less favorable light than manufacturers see them. It concluded in a report last July that “available evidence, as incomplete as it is, indicates that the expensing allowances probably have had no more than a minor effect” on business investment. In Washington, both Democrats and Republicans are pushing proposals to overhaul the U.S. tax system. But there’s little hope that any major legislation will pass this year, particularly because so many groups (including manufacturers) are pushing to secure targeted tax provisions for their members.

Why is American internet so slow? - According to a recent study by Ookla Speedtest, the U.S. ranks a shocking 31st in the world in terms of average download speeds. The leaders in the world are Hong Kong at 72.49 Mbps and Singapore on 58.84 Mbps. And America? Averaging speeds of 20.77 Mbps, it falls behind countries like Estonia, Hungary, Slovakia, and Uruguay. Its upload speeds are even worse. Globally, the U.S. ranks 42nd with an average upload speed of 6.31 Mbps, behind Lesotho, Belarus, Slovenia, and other countries you only hear mentioned on Jeopardy. So how did America fall behind? How did the country that literally invented the internet — and the home to world-leading tech companies such as Apple, Microsoft, Netflix, Facebook, Google, and Cisco — fall behind so many others in download speeds? Susan Crawford argues that "huge telecommunication companies" such as Comcast, Time Warner, Verizon, and AT&T have "divided up markets and put themselves in a position where they're subject to no competition." How? The 1996 Telecommunications Act — which was meant to foster competition — allowed cable companies and telecoms companies to simply divide markets and merge their way to monopoly, allowing them to charge customers higher and higher prices without the kind of investment in internet infrastructure, especially in next-generation fiber optic connections, that is ongoing in other countries.  Verizon stopped building out fiber optic infrastructure in 2010 — citing high costs — just as other countries were getting to work.

Wireless Bills Go Up, and Stay Up -  Competition in the U.S. wireless market has increased over the past year, but so have Americans' overall phone bills.While carriers have trimmed the price of their plans here and there in recent months, billings per user continue to grow amid a shift to smartphones and a surge in wireless Internet use. The results call into question the notion of a price war in the U.S. market. Rather than aggressively compete outright on price, carriers are tailoring their moves to accomplish other goals as well, like weaning customers off expensive smartphone subsidies and encouraging them to use more data. T-Mobile raised the cost of its core unlimited data plan on Friday. The carrier says it has been competing more effectively by doing away with subscriber "pain points" like service contracts and international data fees. But its executives have also been signaling that they don't plan to start a price war.

Funding shortage could delay US road, rail projects this summer -- U.S. transportation officials warned lawmakers on Wednesday that dwindling funds for highway and rail projects may cause delays in work this summer during the height of the construction season unless they quickly approve billions of dollars in new funding. The Highway Trust Fund, which receives money from a federal tax on every gallon of gasoline and diesel fuel sold in the United States, is expected to become insolvent by 2015. Funding for some programs could fall to dangerously low levels by this summer, forcing the Department of Transportation to delay payments to states, Peter Rogoff, the department's acting under secretary for policy testified before Congress. "If the trust fund were to become insolvent, hundreds of thousands of jobs across the nation could be at risk and our ability to address the many road, rail, and transit needs in every state will be severely impeded," Rogoff said.

Harlem gas explosion highlights aging nationwide infrastructure - A gas explosion that destroyed two buildings in New York City on Wednesday and killed at least eight people may have been caused by a leak from an ancient gas pipe, investigators say.  New York City has 1,300 miles of gas mains made of cast iron and unprotected steel. On average, these pipes are 53 years old. This tragedy has now cast a harsh spotlight on the aging, leaky pipes that compose much of the country's natural gas infrastructure.  "So much of our gas mains are unprotected steel and cast iron, materials that are very leak prone, and it leads to gas leaks, and leads to in some cases, disaster,". "New York is far from the only city which has aging gas infrastructure. Last week, an explosion outside Trenton, New Jersey, leveled a townhouse. One person died and seven were injured. In February, another blast tore out the side of an apartment building in Chicago. Two women were hurt. The same month an underground gas line blew up, causing a 60 foot wide crater in Adair County, Kentucky. Two homes were destroyed and two people hospitalized. According to a report by Massachusetts Sen. Ed Markey, there are around 91,000 miles of leaky pipes across 46 states. Over a 10-year period, those gas lines were blamed for 116 deaths, 465 injuries and more than $800 million in property damage.

NFIB: Small Business Optimism Index declines in February -- From the National Federation of Independent Business (NFIB): February optimism takes a tumble Small business optimism continues its winter hibernation with the latest Index dropping 2.7 points to 91.4 ... NFIB owners increased employment by an average of 0.11 workers per firm in February (seasonally adjusted), virtually unchanged from January..This graph shows the small business optimism index since 1986. The index decreased to 92.7 in February from 94.1 in January.

Small Business Sentiment Ends a Three-Month String of Improvement - The latest issue of the NFIB Small Business Economic Trends is out today. The March update for February came in at 91.3, down 2.7 points from the previous month's 94.1, ending a three-month string of improvement. Today's headline number has slumped to the 12.1 percentile in this series. Since its initial recovery following its Great Recession trough, this index has been stuck in an extremely volatile range for the past three years. Since January of 2011, it has repeatedly bumped a ceiling around the 94.5 level and then retreated. The forecast was for 95.3. NFIB's chief economist once again points a finger at Washington as the source for small-business doldrums. "Uncertainty is a major cause of the Index's dip. Lacking any progress in Washington and facing continued unknowns with the healthcare law, the EPA, the minimum wage, tax reform and more, it is no surprise that the Small Business Optimism Index fell, reversing a few months of modest gains," Here is the opening summary of the news release. The Small Business Optimism Index fell 2.7 points to 91.4, a substantial reversal in an unexciting January measure but ends a 3 month improvement trend. Only one of the Index components improved, three were unchanged, and six were lower, indicating that the small business half of the economy is still adding little to growth beyond that needed to support population growth. The substantial decline in the Index is consistent with the prospect that GDP growth will remain in the mid 2 percent range barring some exceptional good news, unlikely in this election year.   (Link to news release).  The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings of the past four years. The NBER declared June 2009 as the official end of the last recession.

Vital Signs: Small Businesses Feel A Winter Chill - Small businesses felt less confident about the economy and sales activity last month. And the unrelenting winter was a big reason why. The National Federation of Independent Business reports its small business optimism index plunged to 91.4 in February, from 94.1 in January. The index is back to its lowest reading in almost a year. The NFIB slump echoes other data that indicate the U.S. economy lost traction during the harsh winter weather. On Tuesday, economists at IHS Global Insight reduced their estimate for first-quarter gross domestic product. They think real GDP is currently growing at just a 1.4% annual rate, down from 2.4% in the fourth quarter. ““Parts of the country that were not seriously impacted by weather exhibited less than inspiring growth as well.” Besides weather, the NFIB says the weaker-than-expected performance by the housing sector is contributing to the more subdued outlook among NFIB members who include many small construction firms. February also saw some giveback in hiring plans among small companies. The NFIB hiring plans index fell to 7% from 12% in January. That means a net percentage of small businesses plan to hire in the next three months, but that share is less than those planning to hire in January.

Business Barometer Bounces Back From Steep Drop - The Dow Jones-Bank of Tokyo-Mitsubishi-UFJ weekly business barometer rebounded in the latest week, offsetting some of the drag posted a week earlier. The barometer increased 0.4% in the week ended March 1, recovering little more than half of the 0.7% decline posted in the prior week. The latest index is up only 0.2% from its year-ago reading. A statistically smoothed version of the index was unchanged after slipping 0.1% in the week before. The DJ-BTMU barometer is a weighted, 10-component index designed as a coincident measure of overall economic activity. In the March 1 week, eight components increased, with almost all recovering from earlier declines. Mortgage activity bounced up 9.4% after four consecutive large weekly drops. Electric output increased 8.5%, after falling 10.8% in the week before. Declines were seen in two components: railcar loadings, off 1.2%, and auto output, down 1.4%. Real chain store sales edged up 0.4% after a 0.5% drop in the prior week.

February employment report: nothing to write home about - (8 graphs) The February employment report from the BLS provides little material to sway anyone’s prior beliefs, although the headline jobs number was slightly higher than many prognosticators prognosticated. The establishment survey reports total nonfarm employment increased 175,000 with 162,000 attributed to the private sector and the remaining 13,000 to an increase in government workers. Total employment has nearly reached its December 2007 level…some six years after the beginning of the recession.The service sector added 140,000 jobs, with professional and business services adding 79,000 jobs, 24,400 of which are temporary services. Average weekly hours fell slightly to 34.2 from 34.3…and a year ago in February average hours were 34.5. The household survey shows the number of employed (145,266,000) and unemployed (10,459,000) persons both increasing slightly. The unemployment rate ticked up slightly from 6.6% to 6.7%. Since February 2013, the unemployment rate has declined 1.0 percentage point. The employment to population ratio and the labor force participation rate were unchanged. Fortunately or unfortunately the headline story of the US remains much the same as it has been since the beginning of the recovery in mid-2009.

The Jobs Report Covering February 2014: Seasonal Signs of Life But Nowhere Near Full Employment - The most recent attempt to explain away the jobs crisis is to reset the level of structural employment, the non-accelerating inflationary rate of unemployment (NAIRU), at 6.6%. This means that the unemployment rate can not descend further without sparking inflation. Although this month’s unemployment rate inched up to 6.7%, under this reasoning, it is still game over, mission accomplished as lambert would say, on the jobs front. The argument for this higher level of structural unemployment runs like this. The job market is tightening as witnessed by higher wages and a greater willingness of workers to quit their present jobs in search of better ones. The February data support neither of these propositions. In February, average weekly wages for 4/5 of the labor force fell and are currently running below inflation on a yearly basis. The number of workers quitting their jobs as reflected in the unemployment numbers has been on the decline for the last two years and represents a relatively small fraction (7.5%) of the unemployed.  Bad weather has probably had no effect on the jobs numbers because of the way these are calculated. If you worked one hour during the reference week, you are counted as having a job. Bad weather could have some effect on the wage data, but we have had bad weather in both December and January with very little effect on them. It is interesting though that while the bottom 4/5 of workers lost $1.09 in wages a week in February due to declining hours, the top 20% gained $7.61 in them. In seasonal terms, February marks the beginning of the rebuild in jobs after the large post-Christmas job losses. Unadjusted, that is where the economy is now, the number of unemployed was little changed, while the number of employed rose by 600,000. Most of these came from outside the labor force and most found full time employment. The business survey reported 750,000 new jobs in February. However, 450,000 of these were in state and local education, possibly tied to the end of the winter holidays. Healthcare which had been a major driver of jobs growth has gone noticeably cold, probably as a consequence of Obamacare.

Nowhere Close: The Long March from Here to Full Employment -- The last official business cycle peak occurred in December 2007. After that, the economy entered 18 months of virtual freefall—with job losses averaging more than 750,000 per month for the worst six-month stretch. The official end of the recession was June 2009—and some have recently declared full recovery has been reached in the 54 months since, as 2013 per capita GDP finally exceed its pre-recession levels. However, for the very large majority of Americans who rely on paid employment for the vast majority of their income, recovery likely still feels very far off. And they’re right—by any reasonable definition the United States is far from having reached a full recovery. That’s because simply clawing back to the per capita income level that prevailed before the start of the Great Recession is far too low a bar to clear to declare mission accomplished on recovery. The reason for this is simple: Joblessness (and the sapping of bargaining power that accompanies its rise even for still-employed workers) rises whenever a gap develops between the economy’s underlying productive potential and aggregate demand for goods and services. The intuition here is simple: A given number of customers’ demands can be satisfied with fewer people as each incumbent worker becomes more productive, and each new potential worker (new graduates, for example) seeking to enter the workforce will only be employed if there is extra consumer demand for what he or she produces. So, demand has to rise in line with the economy’s productive potential in order to keep joblessness from rising.

The REAL "real unemployment rate" for February 2014 - In order to be counted among the unemployed for purposes of the monthly jobs survey, a person must have actively looked for a job during the reference period.  Several sources, including Mish and the Economic Policy Institute, have attempted to measure the number of "missing workers", which EPI in their press release describes as:  potential workers who, because of weak job opportunities, are neither employed nor actively seeking a job. In other words, these are people who would be either working or looking for work if job opportunities were significantly stronger. The monthly household jobs survey measures exactly this in a statistic called "not in labor force, want a job now."  Despite this, the EPI's "missing workers" metric uses the household report's measure of the unemployed, and measure of the civilian labor force, but then ignores the "not in labor force, want a job now" statistic in the exact same survey, in favor of an extrapolation from the forecast of a 2006 Fed study.  There has been no explanation from EPI as to why they have overlooked this actual, monthly-updated obvious metric in favor of an 8 year old study.  Mish has published a rate that assumes the 2007 participation rate would have continued, i.e., that there is no such thing as the Baby Boom, whose oldest member was 61 in 2007, but nearly 1/3 of whom have now hit at least the early retirement age of 62. (To be fair, this month he dropped that and focused only on younger workers). There really is no reason to look further than the monthly report, which measures precisely this number in a series called "not in labor force, want a job now."  Here's what that metric shows for the last 20 years:

The Full-Time/Part-Time Employment Ratio Shows a Small Improvement - Let's take a close look at Friday's employment report numbers on Full and Part-Time Employment. Buried near the bottom of Table A-9 of the government's Employment Situation Summary are the numbers for Full- and Part-Time Workers, with 35-or-more hours as the arbitrary divide between the two categories. The Labor Department has been collecting this since 1968, a time when only 13.5% of US employees were part-timers. That number peaked at 20.1% in January 2010. The latest data point, over four years later, is only modestly lower at 18.8%, down from 19.0% last month. However, this is the lowest percentage since January 2009. Here is a visualization of the trend in the 21st century, with the percentage of full-time employed on the left axis and the part-time employed on the right. We see a conspicuous crossover during Great Recession. Here is a closer look since 2007. The reversal began in 2008, but it accelerated in the Fall of that year following the September 15th bankruptcy of Lehmann Brothers. In this seasonally adjusted data the reversal peaked in early 2010. Four years later the spread has narrowed, but we're a long way from returning to the ratio before the Great Recession. The two charts above are seasonally adjusted and include the entire workforce, which the CPS defines as age 16 and over. A problem inherent in using this broadest of cohorts is that it includes the population that adds substantial summertime volatility to the full-time/part-time ratio, namely, high school and college students. Also the 55-plus cohort includes a subset of employees that opt for part-time employment during the decade following the historical peak spending years (ages 45-54) and as a transition toward retirement.

Demographic Trends in the 50-and-Older Work Force: Monthly Update -  In my earlier update on demographic trends in employment, I included a chart illustrating the growth (or shrinkage) in six age cohorts since the turn of the century. In this commentary we'll zoom in on the age 50 and older Labor Force Participation Rate (LFPR). But first, let's review the big picture. The overall LFPR is a simple computation: You take the Civilian Labor Force (people age 16 and over employed or seeking employment) and divide it by the Civilian Noninstitutional Population (those 16 and over not in the military and or committed to an institution). The result is the participation rate expressed as a percent. For the larger context, here is a snapshot of the monthly LFPR for age 16 and over stretching back to the Bureau of Labor Statistics' starting point in 1948, the blue line in the chart below, along with the unemployment rate. The overall LFPR peaked in February 2000 at 67.3% and gradually began falling. The rate leveled out from 2004 to 2007, but in 2008, with onset of the Great Recession, the rate began to accelerate. The latest rate is 63.0%, back to a level first seen in 1978. The demography of our aging workforce has been a major contributor to this trend. It might seem intuitive that the participation rate for the older workers would have declined the fastest. But exactly the opposite has been the case. The chart below illustrates the growth of the LFPR for six age 50-plus cohorts since the turn of the century. I've divided them into five-year cohorts from ages 50 through 74 and an open-ended age 75 and older. The pattern is clear: The older the cohort, the greater the growth.

The US employment situation is far weaker than the February jobs number suggests: While February job growth was decent at +175,000, the overall US employment picture in the last few months has deteriorated substantially. First of all, since 2009 there was been some apparent unresolved seasonality in the report: winter employment report were considerably stronger than summer employment reports. Not so this year, as shown in the below graph of the percent of YoY employment gains: In the last 3 months, the YoY% change has declined to near a 3 year low. When we look at aggregate hours worked, a more granular measure of employment, the picture is even less rosy. Here's the index for the last 20 years: What I want you to notice is that the index rarely declines for more than one month during an expansion. In fact, during the last 50 years, it has only declined for 3 months during an expansion twice - until now Lest you think that is not much of a deal, here is the YoY% change in aggregate hours for the last 50 years: Seven out of the 9 previous times that the YoY% change in aggregate hours was as low as it is now, the economy had entered a recession.

February: 223,000 More Unemployed Individuals -- The number of unemployed individuals 16 years and over increased by 223,000 in February, according to the Bureau of Labor Statistics (BLS). In February, there were 10,459,000 unemployed individuals age 16 and over, which was up 223,000 from January, when there were 10,236,000 unemployed individuals. In addition, according to the BLS, there were 91,361,000 Americans, 16 or older, who did not participate in the nation’s labor force in February, meaning they neither held a job nor actively sought one. That brought the national labor force participation rate to 63%, which matched January's participation rate. In February, according to BLS, the nation’s civilian non-institutional population -- all people 16 or older who were not in the military or an institution -- hit 247,085,000. Among those people, 155,724,000 participated in the labor force by either holding a job or actively seeking one. The 155,724,000 who participated in the labor force in February equaled only 63% of the 247,085,000 civilian non-institutional population. For the same 155,724,000 who participated in the labor force, 145,266,000 had a job and 10,459,000 did not have a job but were actively seeking one, making them the nation’s unemployed.

Multiple Jobholders: Another Sign of a Job Market in Crisis? --  How many times since the start of the Great Recession have you heard a story like this one, from USA Today? Anecdotes like this grab our attention, but just how common are they? After taking a look at the data on part time workers earlier this year, I thought it would be worth digging into the story of multiple jobholders. The first thing we learn is that although multiple jobholders are not rare, they are not as common as the impression you might get from accounts in the media. The following chart shows the basic data. Multiple jobholders account for about 4.5 percent of the labor force. These include 2.4 percent who hold a part time job in addition to a full time job—a  pattern we can call FT/PT. Those who piece together two or more part time jobs—Heather Rolley’s category, or PT/PT—make up about 1.2 percent of the labor force. (People like Rolley, whose primary or secondary job is self-employment, count as multiple jobholders, but people whose only work consists of two or more forms of self-employment do not.) Smaller numbers of workers, not shown in the chart, hold two full time jobs or hold multiple jobs that are unclassified because they vary in hours from week to week.  The chart shows that multiple jobholding has decreased a bit since the start of the recession, but seasonal variation and the format of the chart make it hard to track recent trends in detail. The next chart does two things to bring those trends out more sharply. First, it removes the seasonal variation by plotting 12-month moving averages. Second, it changes the vertical scale to an index with each indicator’s average value for 2007 equal to 100.

The Chronic Employment Data Conflict: Establishment versus Household Surveys -  Friday's employment report again highlights an ongoing conflict between the jobs number in the Establishment Survey versus the roughly comparable data in the Household Survey. The Nonfarm Payrolls of the former came it at a welcome 175K new jobs -- about 25K better than consensus forecasts. In contrast, the Household Survey reported a 42K increase in civilian employment age 16 and over. Here is a fifty-year snapshot (a wide one) of the Establishment Survey data on nonfarm employment. I've included a 12-month moving average overlay to help us visualize the trend patterns. and-over employed population. Note that I've used the same vertical scale to ensure an apples-to-apples comparison. The dramatically higher volatility of the Household Survey comes as no surprise, given the much larger source of survey sampling. The column chart below illustrates the sometimes radical greater monthly change in the Household Survey data for the employed.  My general tendency in studying economic data is to focus on long-term trends. What I find most interesting in the first two charts chart above are the moving averages (MA). In addition to smoothing the volatility, they show us a subtle trend, especially in the Employment Survey. Over this timeframe, the MA highs have been progressively lower since the peak in the late 1970s. The change has been gradual and is in part a reflection of the demographics of the Boomer generation. However, over last the 10-15 years, the trend has also been impacted by the efficiencies of technology and the globalization of the economy, which continues to put pressure on national employment data.In past business cycles, particularly in the Establishment Survey, the 12-month MA has generally sloped downward for several months before recessions start. The one conspicuous outlier is the second half of the 1980s double-dip recession, which was essentially engineered by the Fed to break the back of runaway inflation.

Structural Demographic Trends in Employment: Monthly Update - The Labor Force Participation Rate (LFPR) is a simple computation: You take the Civilian Labor Force (people age 16 and over employed or seeking employment) and divide it by the Civilian Noninstitutional Population (those 16 and over not in the military and or committed to an institution). The result is the participation rate expressed as a percent.  The first chart below splits up the LFPR data since 1948 in two ways: by age and by gender. For the former, I chose the 25-64 age cohorts to represent what we traditionally think of as the "productive" (pre-retirement age) work force. The BLS has data for ages 16 and over, but across this 64-year time frame college attendance has surged dramatically. So I opted for age 25 as the lower boundary to reduce the college-years skew. Note the squiggly lines for the productive years and jumbled dots for the older cohorts. These result from my use of non-seasonally adjusted data. The BLS does have seasonally adjusted data for many cohorts, but not the older ones, so I used the non-adjusted numbers for consistency. The next chart eliminates the squiggles with a simple but effective seasonal adjustment suitable for long timeframes, a 12-month moving average. I've also added some callouts to quantify the data in 1948 and the present.

More Employment Graphs: Duration of Unemployment, Unemployment by Education, Construction Employment and Diffusion Indexes -- A few more employment graphs by request ... This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. The general trend is down for all categories, and both the "less than 5 weeks" and 6 to 14 weeks" are close to normal levels. The long term unemployed is at 2.5% of the labor force - the number (and percent) of long term unemployed remains a serious problem. This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down. Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment. Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed". This graph shows total construction employment as reported by the BLS (not just residential). Since construction employment bottomed in January 2011, construction payrolls have increased by 509 thousand. Historically there is a lag between an increase in activity and more hiring - and it appears hiring should pickup significant in 2014. The BLS diffusion index for total private employment was at 59.3 in February, down from 60.6 in January. For manufacturing, the diffusion index decreased to 51.2, down from 52.5 in January.

Just Released: Beyond the Unemployment Rate: Eight Different Faces of the Labor Market - This morning, the New York Fed released a new set of charts measuring various dimensions of the labor market. These charts are mostly generated from data available through the Current Population Survey (CPS), the Current Employment Statistics (CES) program, and the Job Openings and Labor Turnover Survey (JOLTS). This new monthly release will provide timely updates to help economists and the public understand national labor market conditions. The charts are split into eight distinct categories: unemployment, employment, hours, labor demand, job availability, job loss rate, wages, and mismatch.

BLS: 4 Million Jobs Openings in January - From the BLS: Job Openings and Labor Turnover Summary There were 4.0 million job openings on the last business day of January, little changed from December, the U.S. Bureau of Labor Statistics reported today. ... Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits (not seasonally adjusted) was little changed over the 12 months ending in January for total nonfarm, total private, and government. The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.   The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings decreased slightly in January to 3.974 million from 3.914 million in December. The number of job openings (yellow) is up 7.6% year-over-year compared to January 2013. Quits decreased in January and are up about 3% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits"). Not much changes month-to-month in this report - and the data is noisy month-to-month, but the general trend suggests a gradually improving labor market. It is a good sign that job openings are close to 4.0 million and are at 2005 levels.

Jolts Report Shows 2.6 Unemployed Per Job Opening in January 2014 - The BLS JOLTS report, or Job Openings and Labor Turnover Survey shows there are 2.6 official unemployed per job opening for January 2014.  Job openings were around four million yet hires and separations are almost equal, keeping the job market fairly static.   Job openings have increased 85% from July 2009, while hires have only increased 24% from the same time period.  Job openings in the private sector have increased 92% since the July 2009 plunge, yet hires have only increased 25%.  There were 1.8 official unemployed persons per job opening at the start of the recession, December 2007.  Below is the graph of the official unemployed per job opening, currently at 2.6 people per opening.  As shown, the situation is now more akin to the 2001 recession.  If one takes the U-6 broader measure of unemployment that includes people who are forced into part-time work and the marginally attached, the ratio is 5.1 people needing a job to each actual job opening.  In December 2007 this ratio was 3.2.  JOLTS reports any job opening, regardless of pay.  There is no information on the ratio of part-time openings to full-time ones.   Graphed below are raw job openings.  Job openings are still below the 4.7 to 4.3 million levels of 2007.  Currently job openings stand at 3,974,000.  This is in stark contrast to the 10.5 million official unemployed.  Since the July 2009 trough, actual hires per month have only increased 24%.  This is simply terrible and the most important indicator in our view for employers are clearly refusing to increase hiring, across the board and thus not recover from our jobs crisis.  Businesses can say there are job openings, but if they do not hire an American and fill it, what's the point?  The truth is business are refusing to hire Americans and this is while profits are at roaring highs.  Below is the graph of actual hires, currently at 4,535,000, to show how flat line actual hiring really is. Graphed below are total job separations, currently at 4.452 million, and fairly static for the past year.  The term separation means you're out of a job through a firing, layoff, quitting or retirement.

Fewer Confident Enough to Quit in Chilly Winter Job Market - The latest data on U.S. workers’ willingness to change jobs adds to evidence the job market slowed this winter — and just not because of the weather. The share of U.S. workers who voluntarily resigned from their jobs — the nation’s “quits rate” — dipped to 1.7% in January, from 1.8% in December, the Labor Department said Tuesday. That was the first drop in this rate since March 2013, though it remains just below its highest level during the economic recovery. All told, some 2.38 million workers quit their jobs in January, down slightly from 2.42 million in December and the second straight drop following months of gradual improvement. Economists, including new Federal Reserve Chairwoman Janet Yellen, consider the willingness of workers to leave their jobs an important gauge of the health of the labor market. When workers are confident about jobs, they’re more likely to jump ship to find a new one or because they have already secured a position. When they’re not confident about the labor market, they stay put. The nation’s “quits” rate, the number of quits as a share of the employed, has taken on extra importance recently since the most important economic indicator, the unemployment rate — now 6.7% — appears to be sending faulty signals. Ms. Yellen and other Fed officials are placing more emphasis on alternate gauges of the labor market — things like quitting levels and numbers of workers forced to work part-time because they can’t get full-time jobs. On Monday, the Federal Reserve Bank of New York released a handy set of charts that guide viewers through a gallery of labor-market indicators.

The Hiringless Non-Recovery In Full Farce - The latest JOLTS numbers are out, and while most economists look at the simple headline Job Openings number, which printed at a disappointing 3.974MM, below the expected 4.015MM, and a drop from the unrevised 3.990MM last month (conveniently revised lower to 3.914MM to make the sequential change appear as an increase), as well as down from the 4.126MM in November, far more interesting data can be found in the Hires and Separations data series. As we have shown before, when it comes to the "recovery" in the job market, there is no greater myth than "employers are finally looking to hire at past economic peak levels." Because while the monthly job increase may have stabilized in the mid-100k range, the actual hiring is nowhere near close to where it should be based on historic patterns. The chart below shows that while there has traditionally been near 100% correlation between the 1 year cumulative change in payrolls, and the monthly amount of job hires, in the New Normal this is anything but true

Weekly Initial Unemployment Claims decline to 315,000 -- The DOL reports: In the week ending March 8, the advance figure for seasonally adjusted initial claims was 315,000, a decrease of 9,000 from the previous week's revised figure of 324,000. The 4-week moving average was 330,500, a decrease of 6,250 from the previous week's revised average of 336,750. The previous week was revised up from 323,000.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 declined to 330,500. This was below the consensus forecast of 330,000.  The 4-week average is mostly moving sideways

New Jobless Claims at 315K: A 9K Decline from Last Week - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 315,000 new claims number was a decline of 9,000 from the previous week's 324,000 (revised from 323,000). The less volatile and closely watched four-week moving average, which is usually a better indicator of the trend, declined to 330,500, a decline of 6,250 from the previous week. Here is the opening of the official statement from the Department of Labor:In the week ending March 8, the advance figure for seasonally adjusted initial claims was 315,000, a decrease of 9,000 from the previous week's revised figure of 324,000. The 4-week moving average was 330,500, a decrease of 6,250 from the previous week's revised average of 336,750. The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending March 1, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending March 1 was 2,855,000, a decrease of 48,000 from the preceding week's revised level of 2,903,000. The 4-week moving average was 2,915,750, a decrease of 19,500 from the preceding week's revised average of 2,935,250. Today's seasonally adjusted number at 315K came in below the forecast of 330K. 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.

Those With Jobs Are More Secure Even as Hopes Dwindle for Long-Term Unemployed - Yet another recession-triggered split in the consumer sector is becoming more evident: Higher job security among those with a job versus dwindling hope for the long-run unemployed. The growing gap is recasting the consumer sector and raises questions on how it will support economic growth. Recent reports show workers are feeling fewer job jitters. The Survey of Consumers Expectations released Monday by the Federal Reserve Bank of New York shows workers on average give a probability of 16.15% of losing their current job, the lowest reading since July. In addition, the latest U.S. household survey done by the Royal Bank of Canada indicates only 22% of workers fear they may lose their jobs. That is the lowest reading in three years. However, just because people with jobs are worried less about losing them doesn’t mean long-run job-seekers are having an easier time of finding work. The share of long-term jobless among total unemployed has been stuck around 37% for about the last year. Prior to the last recession, the share hit 26% after the 1981-82 downturn but never ran for more than a month or two above 23%, not even during the previous jobless recoveries. One reason for the high share: Employers seem to be discriminating against the long-term unemployed. The plight of the long-term unemployed–and their impact on the economy–is made worse by the loss of unemployment benefits at the start of this year. According to the Commerce Department, the expiration of the Emergency Unemployment Compensation program reduced personal income by an annualized $16.7 billion. In other words, the long-term unemployed are less likely to rejoin the labor force and now have less means to support themselves as consumers in an economy heavily dependent on the consumer sector.

Missing in Action: Where are the Jobs and the Job Seekers? The EPI had an interesting chart and comments in its report The Vast Majority of the 5.8 Million Missing Workers Are Under Age 55There 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  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. I like the above idea but a chart that shows changes over time would be better. Also, let's take out those under the age of 25 to see trends in the core 25-54 age group.  In general, those in age group 25-54 should be working, not retired, and not still in school. Reader Tim Wallace, who somehow I neglected to mention in my Word of Thanks post on Sunday, once again provides the chart.  Since February 2007....

  • Population of age group 25-54 declined by 1,107,000 
  • Labor Force declined by 3,256,000 
  • Employment declined by 5,183,000 
  • Full-Time Employment declined by 6,126,000
The loss in employment in the core 25-54 age group is a whopping 5,183,000. Factoring in the decline in population, that is an excess job loss of 4,076,000!  The labor force should have declined by 1,107,000. Instead, it declined by 3,256,000. That is an excess labor force decline of 2,149,000

Still No Jobs for More Than 60 Percent of Job Seekers - The Job Openings and Labor Turnover Survey (JOLTS) data released this morning by the Bureau of Labor Statistics showed that job openings increased by 60,000 in January, bringing the total number of job openings to 4.0 million. In January, the number of job seekers was 10.2 million (unemployment data are from the Current Population Survey). Thus, there were 10.2 million job seekers and only 4.0 million job openings, meaning that more than 60 percent of job seekers were not going to find a job in January no matter what they did. In a labor market with strong job opportunities, there would be roughly as many job openings as job seekers. We are not in a strong labor market. Furthermore, the 10.2 million unemployed workers understates how many job openings will be needed when a robust jobs recovery finally begins, due to the existence of 5.7 million would-be workers who are currently not in the labor market, but who would be if job opportunities were strong. Many of these “missing workers” will become job seekers when we enter a robust jobs recovery, so job openings will be needed for them, too. One of the best ways to judge the relative strength of job opportunities over time is to examine the hires rate—the share of total employment accounted for by new hires. This is one of the best comprehensive measures of the strength of job opportunities because it incorporates two components: 1) net new hires, and 2) new hires that are due to churn (discussed below). Figure A shows the hires rate each month over time. It fell dramatically in the Great Recession, saw some very modest improvement between the middle of 2009 and early 2012, but has made no sustained improvement since February 2012, nearly two years ago.

I’m a Slacker Not a Quitter and You Should be Too - I enjoyed the framing in Evan Soltas’ analysis on the debate over how much slack there is in the US economy.  The “slackers” think we’re still facing sizable output gaps in GDP and jobs.  The “quitters” think the job market is tightening up (based in part on recent movements in quit rates—more on that in a moment), and that wage and price inflation will follow. Using many of the series and data point in Evan’s piece, let me explain why you should quit the quitters and kick back with us slackers.  My main concern is that at a time like the present, US macro-management policy confuses improvement with “all better” and thus has the potential to stomp out gains just as they’re gaining momentum.  Or to put it another way, as I’ve argued before, if we want to repair some of the damage that’s been done, the goal is to reach full employment or even beyond, and stay there.First, quit rates (Dean Baker just beat me to this point).  The theory is that when workers who are unhappy with their job become more confident about finding a better one, they quit.  And, in fact, as you see below, quits are a cyclical indicator.  Unfortunately, these data don’t go back very far, but even so, they’re maybe about halfway back to their pre-recession peak, and as far as we can tell, that peak was below the previous one at the end of the 2000s cycle, a period where labor markets were a lot tighter than they’ve been anytime since. So, I’d say quits are moving in the right direction but barring other evidence of undue pressure, not flashing red.  Not much to see here, folks…move along.

Quits Won't Tell Us About the True Unemployment Rate - Can the number of people quitting their jobs tell us anything useful about slack in the labor market? No. At most, it tells us to focus even more on the stuff we already knew to be watching. Evan Soltas has argued that the rate at which people quit their job tells us all we need to know about the unemployment rate, in particular how likely it is that the long-term unemployed and people who have left the labor force could be brought back into the labor force. There were several responses from Dean Baker, Jared Bernstein, and Cardiff Garcia. As a reminder, there are currently 2.5 million Americans who want a job but aren’t looking, and as such are counted as “marginally attached to the labor force” instead of unemployed. There’s a major debate about how much of the collapse in the labor force participation rate is due to de facto unemployment, or people who will come back into the labor force if it gets better (with much of the research pointing to about half). We should distinguish between what quit rates can tell us about the employed and what they can tell us about the status of the unemployed. What’s the theory of quits in which they tell us what the “true” unemployment rate is? Soltas: “Think about the decision to quit. It's a function of your confidence that you'll find a better job quickly -- which embodies some unobserved but holistic measure of labor-market tightness.” If quits go up, then the long-term unemployed, in this view, “no longer [have] the power to restrain wage growth or discourage the employed from quitting and switching jobs.”   If I understand this correctly, this assumes that quits are a measure of people first becoming unemployed and then looking for a new job (trying to “find a better job quickly”).[i] But I don’t think this is right. A very large percentage, perhaps half, of quits are people moving job-to-job rather than becoming unemployed.[ii]

Debate: How Much Slack? - This morning’s worthwhile internet debate to watch is the ongoing debate over how much slack there is in the U.S. economy:

Me? I would say that “normal” monetary policy would call for the first rate increases when the JOLTS quit rate crosses 2% heading north. But I would also say that right now and for the foreseeable future “normal” monetary policy is not appropriate: the inflation rate was clearly too low going into the financial crisis to give monetary policy enough room to maneuver–an inflation target of 3% or 4%/year is clearly much more appropriate than a symmetric inflation target of 2%/year, let alone the asymmetric inflation target of 2%/year that we have. And I would say that right now the benefits of a high-pressure economy before our current cyclical unemployment has completed its transformation into structural unemployment are unusually large. So, yes, I would say that pretty much any sensible cost-benefit analysis would postpone the first rate increases on the current track until 2016 or 2017…

Are We Really on a Rapid Glide-Path to Full Employment? - Josh Bivens - Evan Soltas asks some questions about how much slack remains in the economy, some directed at my recent deck on the issue (which has been edited—grabbed the wrong quarter as the trough for a couple of series—all that really changes is lower relative growth in business investment in the  current recovery). Jared and Dean have largely answered his first question on quits, but since he re-poses it in his latest, here goes my answer, largely mirroring theirs—the quit-rate is actually about where it was in the middle of the recession. It’s headed generally up, but in the latest month’s data is back to where it was in September, so I can’t really look at this and think that slack is fading so fast we’ll run up against capacity constraints soon. As an aside, I’d just note that Evan occasionally implies that I’m arguing that there has been no reduction in slack since the recession. That’s not true—I don’t argue that anywhere. Further, I’m not exactly sure what to make of his linear projection of unemployment combined with futures markets’ expectations of short-term rate hikes in coming years. He finds that combining the two imply short-term interest rates will still be very low even when unemployment is very low, and takes this as evidence that monetary policy is actually on a very (maybe even riskily?) accommodative path. But isn’t the more likely interpretation of these series simply that futures markets don’t believe his linear unemployment projection is likely to come to pass?

Labor Market Slack: A Guide for the Perplexed - Central bankers like a little unemployment. They want to keep the labor pool reasonably well stocked so that inflation remains under control. They regard a measure of human misery now as the price of avoiding more misery later. And some of America’s central bankers are starting to fret about the depth of that labor pool. For the first time in years, some Federal Reserve officials and private-sector economists are talking about the imminence of tighter labor conditions. This may seem remarkable. The economy is still about 11 million jobs short of employment levels before the recession – and it would take a few million more jobs to match levels at the end of the 1990s, the last time that times were good. But these are not good times. There is growing agreement that some of the damage from the Great Recession will endure. The question is basically, how much?  The argument is easiest to explore by dividing people without full-time jobs into four categories. The chart below shows the share of all adults in each group in February 2007, at the high-water mark for each group, and in February 2014.

Fear of Wages, by Paul Krugman - Four years ago, some of us watched with a mixture of incredulity and horror as elite discussion of economic policy went completely off the rails. Over the course of just a few months, influential people all over the Western world convinced themselves and each other that budget deficits were an existential threat, trumping any and all concern about mass unemployment. The result was a turn to fiscal austerity that deepened and prolonged the economic crisis, inflicting immense suffering. And now it’s happening again. Suddenly, it seems as if all the serious people are telling each other that despite high unemployment there’s hardly any “slack” in labor markets ... and that the Federal Reserve needs to start raising interest rates very soon to head off the danger of inflation.  The starting point for this turn in elite opinion is the assertion that wages, after stagnating for years, have started to rise rapidly. And it’s true that one popular measure of wages has indeed picked up, with an especially large bump last month. But that bump is probably a snow-related statistical illusion. As economists at Goldman Sachs have pointed out, average wages normally jump in bad weather — not because anyone’s wages actually rise, but because the workers idled by snow and storms tend to be less well-paid than those who aren’t affected. Beyond that, we have multiple measures of wages, and only one of them is showing a notable uptick. It’s far from clear that the alleged wage acceleration is even happening.  And what’s wrong with rising wages, anyway? In the past, wage increases of around 4 percent a year — more than twice the current rate — have been consistent with low inflation. And there’s a very good case for raising the Fed’s inflation target, which would mean seeking faster wage growth, say 5 percent or 6 percent per year. Why? Because even the International Monetary Fund now warns against the dangers of “lowflation”: too low an inflation rate puts the economy at risk of Japanification, of getting caught in a trap of economic stagnation and intractable debt.

How to Create 5.8 Million Jobs Pronto - Stop Currency Manipulation - Want to know how to create up to 5.8 million jobs in three years?  End currency manipulation.  So says a new study released from the Economic Policy Institute.  If currency manipulation was stopped, the U.S. trade deficit would shrink by up to $500 billion in three years, annual GDP would increase up to $720 billion, the federal budget deficit would be reduced by $100 billion each year and 40% of the new jobs created would be in manufacturing. Isn't it strange then that anything but currency manipulation is mentioned by the Obama administration and other politicians when it comes to job creation?  Just today, former Federal Reserve chair Ben Bernanke claimed one reason manufacturing jobs have increased is increased energy production in the United States.  While assuredly true, this factor pales into what confronting currency manipulation would do for the U.S. manufacturing sector.  Currency manipulation involves foreign currency exchange rates.  There is a certain ratio of U.S. dollars to say the Japanese Yuan or Canadian dollar.  Normally these rates change minute by minute, they float and are traded in open markets.  Trade in particular is affected by exchange rates.  If another country's exports become more expensive due to the value of that country's currency, then the importing country will bring in less goods and services from exporting nation since the items would now cost more.  This what is meant by cheap Chinese goods.  Because China's currency is so undervalued, it makes their goods very cheap in other nations.  Those Chinese exports then flood the U.S. markets since the same good made in America is more expensive than it's Chinese counterpart.

The Jeep Plant Mitt Romney Said Was Moving to China Is Hiring 1,000 Workers in Ohio - Remember the closing days of the 2012 presidential campaign when Mitt Romney ran that explosive ad suggesting Chrysler was going to stop building Jeeps in Ohio and move production to China? The one that got “Four Pinocchios” from the fact-checker at the Washington Post? The one Romney himself echoed in a speech he delivered near the Jeep plant in Ohio:  It didn’t move to China. And it’s actually doing quite well. No, scratch that: It’s going gangbusters. Demand for Jeeps is so high that Chrysler workers are clocking 60 hours a week and still can’t keep up. So according to the Toledo Blade, the company is planning on hiring up to 1,000 part-time workers—American workers, in Ohio—so they can crank out enough Jeeps to meet the demand. These workers are even going to get health insurance. Here’s the Blade: Chrysler Group LLC plans to hire up to 1,000 part-time employees for the Toledo Assembly complex to keep production rolling while giving regular employees the chance for a break. “‘Our people have been working a tremendous amount of hours,’ Plant Manager Chuck Padden said. ‘To get them more time off is important to us, to make sure they’re refreshed, and can work safely.’ “With record demand for the Jeep Wrangler and the launch of the new Jeep Cherokee last year, employees are regularly working 60 hours a week. And while employees generally like the extra pay that results from working overtime, such lengthy stretches can wear on workers, he said.”

This is what a job in the U.S.’s new manufacturing industry looks like: "No one's really worried about the fact that you're so exhausted from working seven days a week, you're dependent on some drug to stay awake, or dependent on some drug to go asleep, or for pain," he says, relaxing after shift on an L-shaped leather couch at the home he rents in Columbia. His 37-year-old body is powerful, built like a football player's, but no longer impervious. "That's the most common thing people are addicted to. And everybody I work with has some type of pain, whether it's hands, fingers, back, feet, something." Young doesn’t actually work for Nissan — he works for Yates Services, an in-house contractor that's hired thousands of people over the past few years to ramp up production as people started buying vehicles again. It’s a big difference. Yates is like a company within a company, with separate bulletin boards and rules and procedures. The bona fide Nissan employees are easily recognizable through their logoed shirts, which Yates workers don't receive. And the disparity isn't just symbolic. Yates pays between $10 and $18 an hour, which is about half what Nissan employees make. Plus, the gap in benefits is wide. Back at home, Young pulls out a crumpled sheet of paper from the company that lays out the differences and pokes at the two columns with his finger. "I build the same Infiniti SUV that Bob does," says Young, referring to a hypothetical Nissan worker. "Bob is able to lease a vehicle, I cannot. Long term disability? Bob gets that, I do not. . But Bob and I are on the same line, busting our butts."

My Life as a Retail Worker: Nasty, Brutish, and Poor - My plunge into poverty happened in an instant. I never saw it coming. Two years ago, I was a political reporter at Politico, and I spent my days covering the back-and-forth of presidential politics. I had access to the White House because of my reporting beat, and I was a regular commentator on MSNBC. My career had been on an upward trajectory for 30 years, and at age 50 I still anticipated a long career. On June 21, 2012, I was invited to discuss race, Republican candidate Mitt Romney, and the 2012 presidential election on MSNBC. Because I’m an African American, enraged conservative bloggers branded me an anti-white racist. Others on the right, like Andrew Breitbart’s Big Media, mined my personal Twitter account and unearthed a crude Romney joke I’d carelessly retweeted a month before. The Romney campaign cried foul. In less than two weeks I was out of a job.   That’s how I found myself working a retail job at a sporting goods store—the only steady job I could find after six months of unemployment in a down economy and a news industry in upheaval. In a matter of months, I was broke, depressed, and living on food stamps. I had lost my apartment, and ended up living out of a suitcase in a guest bedroom of an extraordinarily generous family I barely knew. My cash flow consisted of coins from my piggybank and modest sums earned from odd jobs: freelance copy-editing, public relations, coordinating funerals, mowing lawns. So when Stretch, the laconic, 34-year-old manager of a chain store I’ll call Sporting Goods Inc. called to tell me I was hired, it was the best news I’d had in a long time. (I have chosen not to name the store or its employees here, because the story is intended as an illustration of what it is like to work in a low-paid retail environment, and not as an expose of a particular store or team.)

Even Skilled Workers Can Get Stuck in Dead-End Jobs --In a recent analysis, Labor Department economist Audrey Watson examined occupational specialization within different business sectors. That is, which jobs are most exclusive to a particular industry. Her finding:  It may be advantageous to pursue a career path that enables work across an array of business sectors — jobs like managers, accountants, office and payroll clerks, or computer operators. Or in the careful words of a government economist: “Occupations concentrated in a single industry, such as travel agents or shoe machine operators and tenders, may require skills that are highly specific to that industry. If workers in these occupations become unemployed, it may be difficult for them to use their skills in other industries.” “Workers in more widely distributed occupations may find it easier to transfer their skills in response to job loss,” Ms. Watson said. Ms. Watson slices and dices occupational and industry statistics (using the Herfindahl-Hirschman index and industry quotients, if you must know) to determine a kind of market concentration for specific job descriptions.

Some Jobless Facing Eviction After Loss Of Benefits: More than two months after Congress dropped long-term unemployment insurance, some of the people who lost benefits say they're now facing eviction. Craig Bruce, 45, told The Huffington Post that he and his wife were evicted Tuesday from their apartment in Rancho Santa Margarita, Calif. He  "I can't get a job. Either I'm over-qualified or somebody else is closer and they don't have to pay them any moving fees to take the job," he told HuffPost. Bruce, a Gulf War veteran, lost his quality assurance analyst job at an engineering company in the fall of 2012. He said his unemployment's been hard on him and his wife, who is still working in quality assurance. Long-term unemployment insurance ended Dec. 28 for 1.3 million Americans. Since then, another 70,000 workers would have been eligible for the federal benefits after reaching the end of their state-funded compensation, but have been left hanging instead. Congressional Democrats have demanded that Congress reauthorize the benefits, but they've been unable to win enough Republican support. A bipartisan Senate compromise unveiled on Thursday, however, is a promising sign the upper chamber might approve the benefits, though it's not clear how the GOP-led House would react. A reauthorization would deliver lump-sum checks to everyone who's missed benefits.

Low-wage jobs unexpectedly a way of life for many: — For years, many Americans followed a simple career path: Land an entry-level job. Accept a modest wage. Gain skills. Leave eventually for a better-paying job. The workers benefited, and so did lower-wage retailers such as Wal-Mart: When its staffers left for better-paying jobs, they could spend more at its stores. And the U.S. economy gained, too, because more consumer spending fueled growth. Not so much anymore. Since the Great Recession began in late 2007, that path has narrowed because many of the next-tier jobs no longer exist. That means more lower-wage workers have to stay put. The resulting bottleneck is helping widen a gap between the richest Americans and everyone else. The trend extends well beyond Wal-Mart, the nation's largest employer, and is reverberating across the U.S. economy. It's partly why average inflation-adjusted income has declined 9 percent for the bottom 40 percent of households since 2007, even as incomes for the top 5 percent now slightly exceed where they were when the recession began late that year, according to the Census Bureau. Research shows that occupations that once helped elevate people from the minimum wage into the middle class have disappeared during the past three recessions dating to 1991.

How Big is America’s Underground Sex Economy? - How big is the underground sex economy in the United States and how does it work? The Urban Institute is out with a big study today that offers some answers. Here’s a brief summary of the full study (see also the accompanying feature). Our study focused on eight US cities— Atlanta, Dallas, Denver, Kansas City, Miami, Seattle, San Diego, and Washington, DC. Across cities, the 2007 underground sex economy’s worth was estimated between $39.9 and $290 million. While almost all types of commercial sex venues—massage parlors, brothels, escort services, and street- and internet-based prostitution—existed in each city, regional and demographic differences influenced their markets. Pimps and traffickers interviewed for the study took home between $5,000 and $32,833 a week. These actors form a notoriously difficult population to reach because of the criminal nature of their work. Our study presents data from interviews with 73 individuals charged and convicted for crimes including compelling prostitution, human trafficking and engaging in a business relationship with sex workers.

Wages of Fear (Somewhat Wonkish) - Paul Krugman - The trouble is that this emerging consensus is all wrong. In fact, it’s wrongheaded in at least four ways. First, the widespread impression, after the latest job report, that we’re seeing a surge in wages is probably a snow job. Literally. The team at Goldman Sachs (no link) points out that average hourly wages normally spike after a spell of cold weather. Why? It’s a compositional effect: the workers idled by bad weather tend to be hourly workers, who are paid less than salaried workers. So the average worker in a snow-ridden month is better-educated and better-paid than in a normal month, because the lower-paid workers aren’t working. The blip in measured wages is a statistical artifact, not a sign of tight labor markets. Second, almost all the talk about rising wages is driven by just one labor market indicator, the average wage of nonsupervisory workers. Other wage indicators, like the average of all employees and the Employment Cost Index, are telling a different story. Here are three measures; you do get an impression of rising wages:  But take out the nonsupervisory workers, and that impression mostly though not entirely vanishes: Third, what’s so bad about rising wages? Wage increases are running far below their pre-crisis levels, and everything we’ve learned in this crisis – basically about the dangers of the two zeroes – says that pre-crisis wage increases, and inflation in general, was too low. And to get wage gains up to where they should be, we need a period of overfull employment. Fourth, there’s good reason to believe that everyone is working with the wrong paradigm here. Ever since the 1970s, textbook macroeconomics – reflecting the experience of the 1970s — has assumed an “accelerationist” framework, in which low unemployment leads not just to rising wages but to an ever-rising rate of wage increase. But the actual data haven’t looked like that for a long time.

Vital Signs: Shorter Workweek Is a Drag on Incomes - Add weekly paychecks to the list of victims of this unrelenting winter. According to the Friday’s employment report, seasonally adjusted weekly pay over the past three months has lost a bit of ground compared to the average of the previous three months. Compared to a year ago, February’s weekly paychecks are up just 1.3%, the slowest advance in four years. The problem is not hourly pay. That has been rising at a 2.0%-2.2% yearly pace throughout much of this recovery. Instead, workers logged fewer hours over the past few months. The average week in February was 34.2 hours, the shortest workweek since late 2010. In addition, a large number of full-time employees had to take time off because snow storms and sub-freezing conditions. In February alone, almost 6.9 million workers reported working less than full-time because of bad weather. That’s the highest February number since Labor started tracking in 1976. About six in every 10 U.S. workers are paid hourly, according to Labor Department data. Slower growth in paychecks will be a drag on first-quarter consumer spending at a time when higher utility bills are taking a bite out of buying power. The good news is that hours should pop back up when winter ends, triggering a rebound in paycheck growth.

Why Americans Should Take August Off --Americans don’t take August off, but most people probably don’t even take two weeks during that month. Twenty rich countries have a national guarantee that workers can get some vacation time. Thirteen also make sure workers get at least a few paid holidays off. The United States, on the other hand, is the only advanced economy in the world that doesn’t have either requirement. About a quarter of Americans don’t have any paid vacation or holidays at all, a share that is growing—although I would guess that the luxury-product-buying, power-suit-wearing character McDonough plays in the commercial does get paid vacation time, as these benefits are disproportionately the purview of the rich. The average American worker gets about ten days of paid vacation and six paid holidays a year—that’s just over two weeks every year—which is less than the minimum required in nearly every other country. And of those who get paid vacation, they leave more than three days, on average, unused.

The Secret Benefits Of Paid Sick Days For All -- When you get sick, you shouldn’t need to worry about losing pay or even your job. It seems like a simple concept. And, for most professionals who have such a benefit, many assume that the ability to do so is standard. But the United States is the only country among 22 developed nations that doesn’t guarantee the right to paid leave if someone falls ill or has to care for a sick family member. Forty-one million people in the country don’t have access to paid sick leave.That has changed in a few places around the country: seven cities and one state have passed paid sick leave laws, ensuring workers can earn time off. This new right has a profound impact on the lives of those workers. But that impact also has ripple effects. It transforms relationships between employers and employees – and between workers and the rest of society. Workers, particularly those at the low end of the wage scale in service sector jobs, could benefit from a lot of changes: a higher minimum wage, better health care, more stable schedules. But paid sick days often top the list of things they’d most like to see in their workplaces. In a survey of women living in poverty or right on the edge, nearly 90 percent said this leave would be “very useful.” It is the number one policy they said would give them a leg up, ahead of an increase in wages or other benefits.The Incredible Vanishing Takeaway from the CBO Report on Minimum Wage - I’m surprised that nobody highlights what for me is the key takeaway from that report. They predict, with a $10.10/indexed increase:

  • Low-end incomes increase $19 billion.
  • High-end incomes decline $17 billion.
  • For a net GDI increase of $2 billion.

Table 1, page 2: Pie gets bigger, all that rot. The increase is presumably explained by the last phrase in footnote F to that table:increases in income generated by higher demand for goods and services.

The Average Low-Wage Worker Is Responsible for Half of His or Her Family’s Income -- One common myth perpetuated by opponents of raising the minimum wage is that increasing it will mostly benefit young workers who will use the money to support discretionary spending.  The reality is much different: Among workers who would be affected by raising the federal minimum wage to $10.10, the average age is 35 years old, and more than a third (34.5 percent) are at least 40 years old.  In fact, minimum-wage workers are often bread-winners, with families who depend on their earnings. The average low-wage worker who would benefit from a minimum-wage increase is responsible for half (50 percent) of his or her family’s income (ranging from 33 percent in New Hampshire to 60 percent in Louisiana). Nationally, nearly one in five children (19 percent) has a parent who would be affected by raising the minimum wage to $10.10 (ranging from 11 percent in Alaska to 26 percent in Texas). While some minimum-wage earners are young workers looking for some spending money, the majority are adults working to put food on their families’ tables. These numbers further reinforce how important raising the minimum wage is to improving the economic well-being of America’s families. Raising the minimum wage increases the number of economy boosting jobs that pay enough for families to maintain spending on the basics, lifting families, communities, and local businesses in the process.

Obama Will Seek Broad Expansion of Overtime Pay - President Obama this week will seek to force American businesses to pay more overtime to millions of workers, the latest move by his administration to confront corporations that have had soaring profits even as wages have stagnated. On Thursday, the president will direct the Labor Department to revamp its regulations to require overtime pay for several million additional fast-food managers, loan officers, computer technicians and others whom many businesses currently classify as “executive or professional” employees to avoid paying them overtime, according to White House officials briefed on the announcement.Mr. Obama’s decision to use his executive authority to change the nation’s overtime rules is likely to be seen as a challenge to Republicans in Congress, who have already blocked most of the president’s economic agenda and have said they intend to fight his proposal to raise the federal minimum wage to $10.10 per hour from $7.25. Mr. Obama’s action is certain to anger the business lobby in Washington, which has long fought for maximum flexibility for companies in paying overtime.

Updating Overtime Rules Could Raise the Wages for Millions - EPI - We are pleased that the president is directing the Department of Labor to update overtime regulations, a policy change that I have previously proposed. About 10 million workers could benefit from a rule that makes clear that anyone earning less than $50,000 a year is not exempt from overtime requirements and must be paid time-and-a-half for any work the do past 40 hours a week. An updated overtime rule will not only help employees who work hard get ahead, it will also provide a boost to the economy by putting money into the pockets of workers who are likely to spend it. There is not one easy fix to the decades of stagnant wages in America, but revising outdated overtime rules is an important first step. It is time to raise America’s pay.

Time to Adjust Overtime Pay - Since the Fair Labor Standards Act of 1938, it has been established that if you’re an hourly paid worker and you work more than 40 hours per week, you should get overtime pay equal to time and a half, meaning 1.5 times your base wage.  But the law did not stop there.  It recognized that certain salaried and white-collar workers should also benefit from overtime pay, as neither their relatively low salaries nor their duties at work should exempt them.  So the law created a salary threshold below which salaried workers must get overtime and a set of “duties test” to establish whether salaried workers earning above the threshold were truly engaged in exempt duties for most of their time at work, including supervisory, managerial and executive tasks. Unfortunately, these parts of the overtime rules have eroded, meaning that millions of workers who should be eligible for overtime are not.  Fortunately, President Obama has proposed to update these rules, and double-fortunately, he does not need congressional approval to make this type of regulatory change.   In a recent paper I wrote with Ross Eisenbrey of the Economic Policy Institute, we pointed out that were the 1975 weekly salary threshold updated for inflation since then, it would be around $980 today, or around $51,000 a year.   That’s more than double the current threshold of $455, but the chart below shows how out of step that threshold is with the history of this important metric. In fact, the current threshold is below the poverty line for a family of four. Each bar represents the real value, in today’s dollars, of the Fair Labor Standards Act salary threshold that was reset in that year. Were the current threshold update to reflect inflation since 2004, it would be $560.  Before that clearly low-ball 2004 update, the average is around $950, about where we’d set it today.  This change alone would entitle millions of workers to the protections they should be getting under the statute.

Reduce Record Wall Street Bonuses and Double the Pay of Minimum Wage Workers Instead -- It was a banner year for Wall Street bonuses in 2013, a Reuters March 12th article reports: The cash bonus pool jumped 15 percent to $26.7 billion in 2013, pushing the average cash bonus was $164,530, according to the New York state comptroller's annual estimate based on personal income tax trends.The uptick in bonuses reflects statistical evidence that 95 percent of revenue and asset gains in the economy since the bust of 2008 have gone to the top one percent. According to an Associated Press analysis: But since the recession officially ended in June 2009, the top one percent have enjoyed the benefits of rising corporate profits and stock prices: 95 percent of the income gains reported since 2009 have gone to the top one percent. While fast food workers are fighting for survival wages, IPS points out that they could have a livable income if the Wall Street bonuses were not so excessive: Wall Street banks handed out $26.7 billion in bonuses to their 165,200 employees last year. That amount would be enough to more than double the pay for all 1,085,000 Americans who work full-time at the current federal minimum wage of $7.25 per hour.  IPS also points out the inherent risk of our economy crashing again because of lavish rewards for pushing through the envelope of financial regulation: Huge bonuses, we learned from the 2008 financial industry meltdown, create an incentive for high-risk behaviors that endanger the entire economy. And regulators have failed to implement a provision in the 2010 Dodd-Frank financial reform legislation to prohibit financial industry pay packages that encourage “inappropriate risks.” Low-wage jobs, on the other hand, endanger nothing. Concentrated in agriculture, hospitality, and retail, these jobs provide real services. They deserve much higher minimal rewards.

A Top-Heavy Focus on Income Inequality -- I worry about growing income inequality. But I worry even more that the discussion is too narrowly focused. I worry that our outrage at the top 1 percent is distracting us from the problem that we should really care about: how to create opportunities and ensure a reasonable standard of living for the bottom 20 percent.   Our passion about the widening disparity in wealth and income is easy to understand. After all, studies often find that unequal incomes reduce happiness. Of course they do: Jealousy and envy are strong emotions. They are also very basic ones that develop as early as 4 months of age. There is even evidence that great apes are averse to inequality. And though there is debate about that point, at least it produces enjoyable videos. Our outrage at inequality is primal.  But primal emotions are not always noble ones.  So why would we want public policy to cater to such feelings?

Economic Inequality: Why Isn’t There More Outrage?  -- Justin Fox makes an excellent point.  Some of our one percenters have lately indulged in drama queen hysterics over the modest political pushback that’s begun to develop over their obscene accumulation of wealth. But in the context of the vertiginous rise we’ve seen in economic inequality over the past several decades, and of the fierce populist reactions we’ve seen during similar eras in our nation’s past, what’s shocking is that public expressions of outrage haven’t been far more vocal: Have these people never heard about Teddy Roosevelt excoriating the “malefactors of great wealth,” or his cousin Franklin getting Congress to raise the tax rate on top incomes past 90%? Americans have been pillorying the rich on and off for more than 200 years, and our economic system has survived and mostly thrived. In fact, the political and labor-relations compromises occasioned by what you might call class warfare have on balance surely made the country stronger. In the past, Americans were downright furious at the plutocrats for appropriating such large amounts of wealth for themselves and immiserating the working classes. Fox mentions vicious satirical cartoons and angry editorials and speeches, but the populist reaction to the plutocrats was hardly limited to that. There was wave after wave of protests and strikes. And there were acts of violence, too, most notably the 1920 bombing of Wall Street by anarchists that killed 38 people. The plutocrats lived in fear of the masses. Industrialists like George Pullman were so widely loathed that they went to extraordinary lengths to protect their burial places, which they feared would be desecrated by angry workers:

Where to Find the Most Inequality - The gap between the rich and poor has increased in 94 of the 100 largest metropolitan areas since 1990. And the growth in the gap has accelerated in the past few years. Those are some of the conclusions of a new report from the real estate firm Trulia. It found that Fairfield County, Conn. — home to hedge fund titans living in Greenwich as well as the impoverished city of Bridgeport — has the sharpest inequality, when comparing the 90th and 10th income percentiles. It should come as no surprise that New York City and San Francisco share space in that upper left-hand quadrant. Florida retiree havens including Fort Myers and Lakeland have some of the lowest inequality measures, as did Allentown, Pa., Tacoma, Wash., and Las Vegas. The report also took a close look at the relationship between housing costs and income inequality, given that high rents and prices can drive out middle-income workers and put significant burdens on the poor.

Redistribution and the Lesser Depression - Paul Krugman -- I’ve finally gotten around to a careful read of the new IMF paper on redistribution and growth (pdf) — which concludes that there is no negative effect of redistributionist policies, at least within the range we normally see, and quite possibly a positive effect from the reduction in inequality. I like this conclusion, politically — which is a good reason to kick the tires, and I’ll present some cautions in a later post. For now, however, a quick-and-dirty piece of data analysis inspired by the paper’s method.Ostry et al measure redistribution by the difference between the Gini coefficient (a measure of inequality) before and after taxes and transfers. The LIS project, with which I will soon be associated, has done this for a number of countries (pdf), so we can all do such exercises. So what I found myself thinking about was the common trope on the right that the economic crisis is the result of overlarge welfare states. This is generally stated not as a hypothesis but as a fact. But what do the data say?  There is, it turns out, a fair bit of variation among euro area countries in the amount of redistribution — and there is actually a positive correlation between redistribution and growth over the post-crisis period, significant at the 10 percent level. Overall, the data offer no reason to believe that the economic crisis has something to do with the welfare state — an empirical observation that will have no impact whatsoever on the right’s convictions.

Liberty, Equality, Efficiency, by Paul Krugman -  Most people, if pressed on the subject, would probably agree that extreme income inequality is a bad thing, although a fair number of conservatives believe that the whole subject of income distribution should be banned from public discourse.  But what can be done about it? The standard answer in American politics is, “Not much.” Almost 40 years ago Arthur Okun, chief economic adviser to President Lyndon Johnson, published a classic book titled “Equality and Efficiency: The Big Tradeoff,” arguing that redistributing income from the rich to the poor takes a toll on economic growth. Okun’s book set the terms for almost all the debate that followed:  everybody knew that doing anything to reduce inequality would have at least some negative impact on G.D.P. But it appears that what everyone knew isn’t true. Taking action to reduce the extreme inequality of 21st-century America would probably increase, not reduce, economic growth.  Let’s start with the evidence.

Inequality in Capitalist Systems Is Not Inevitable, by Mark Thoma - Capitalism is the best economic system yet discovered for giving people the goods and services they desire at the lowest possible price, and for producing innovative economic growth. But there is a cost associated with these benefits, the boom and bust cycles inherent in capitalist systems, and those costs hit working class households – who have done nothing to deserve such a fate – very hard. Protecting innocent households from the costs of recessions is an important basis for our social insurance programs. It is becoming more and more evident that there is another cost of capitalist systems, the inevitable rising inequality documented by Thomas Piketty in “Capital in the Twenty-First Century, that our social insurance system will need to confront. Why is rising inequality a matter that our social insurance system should address? The idea behind insurance is to spread the costs of harmful events we cannot control across a large number of people. With fire insurance, for example, participants pool their money into a large sum, and the unlucky few that experience fires draw from the pool of money to cover their losses. In the end there is a redistribution of income from the winners who escape a fire to the unfortunate who don’t, but it would be wrong to view this as a net cost to the winners. The insurance premiums buy protection from fire – a benefit – and presumably the benefit exceeds the cost of the insurance.

Wage, Tax, Debt -- I've been thinking a little bit about the different financial figures for contemporary class war.  There's the struggle to increase the minimum wage.  There are discussions of taxes -- taxing corporations (or ending their tax breaks), taking the rich, taxing inheritance, etc. And there is debt -- particularly individual and household debt linked to student loans and medical expenses. The anti-foreclosure movement would fit in this category insofar as foreclosures are effects of mortgage defaults. The struggle over the wage resonates with historical working class struggles. It's basically a struggle for consumption, for the capacity to consume more. Perhaps it thereby aligns with claims for bread or battles around bread prices. Taxes, historically, have been instruments by which the wealthy try to prevent the state from taking their assets. Most working class people don't pay much of their income in taxes. The success of the capitalist class in cutting their taxes over the last thirty years is one of the reasons education and infrastructure have taken such a hit. The rich don't want to pay for them anymore. Debt has not been as central to struggles in the US during this century. For the most part, it has affiliations with farmers forced off their farms during periods of depression, recession, and decline. Only recently, thanks to the efforts of activists such as those in Strike Debt, has debt become more central. It is still relatively unstable as an issue, still too associated with individual failures -- fortunately this is changing as activists make clear the connections between debt and the collapse of public infrastructures, like schools and hospitals, as well as the connections between debt and wage suppression.  At any rate, I wonder if there is a parallel between wage, tax, and debt and the class claims of proletariat, bourgeoisie, and proletariat. If so, does it make sense (is it useful) to try to articulate them together?

When the 1 percent opposes long-term economic growth - Last month, the Congressional Budget Office reported that ObamaCare would reduce the size of the labor force by roughly 2.3 million by 2021. Conservatives pounced, bellowing that ObamaCare is aa job-killer — which is wrong, of course, since this is about labor supply, not demand. But once they got that sorted out, they continued to wring their handkerchiefs piteously about the long-term implications for the economy. By luring Americans into the hammock of a slightly less threadbare safety net and thereby reducing the incentive to work, we are impoverishing future generations — or so the argument goes. On this point they have been joined by many mainstream pundits and business journalists, who while not quite so transparently full of it as conservatives, still think the long-term effect of government benefits on labor supply is worth considering. They’re not wrong, exactly. As Kevin Drum at Mother Jones points out, any means-tested benefits program is going to have some employment-lowering effect among the poor.  But the way conservatives and quote-unquote serious centrists talk about the labor supply versus other long-term economic issues reveals a very interesting divergence. Anything the Federal Reserve does, for example, will utterly dwarf the long-term effects of ObamaCare. And yet when it comes to the central bank, there is much less concern about whether the Fed is doing everything in its power to ensure robust growth down the road.

A Relentless Rise in Unequal Wealth - What if inequality were to continue growing years or decades into the future? Say the richest 1 percent of the population amassed a quarter of the nation’s income, up from about a fifth today. What about half? To believe Thomas Piketty of the Paris School of Economics, this future is not just possible. It is likely. In his bracing “Capital in the Twenty-First Century,” which hit bookstores on Monday, Professor Piketty provides a fresh and sweeping analysis of the world’s economic history that puts into question many of our core beliefs about the organization of market economies. His most startling news is that the belief that inequality will eventually stabilize and subside on its own, a long-held tenet of free market capitalism, is wrong. Rather, the economic forces concentrating more and more wealth into the hands of the fortunate few are almost sure to prevail for a very long time.  It is possible to slow, or even reverse, the trend, if political leaders like President Obama, who proposed that income inequality was the “defining challenge of our time,” really push. But he also adds that history does not offer much hope that political action will, in fact, turn the tide: “Universal suffrage and democratic institutions have not been enough to make the system react.”  Professor Piketty’s description of inexorably rising inequality probably fits many Americans’ intuitive understanding of how the world works today. But it cuts hard against the grain of economic orthodoxy that prevailed throughout the second half of the 20th century and still holds sway today.

How to Help the Working Poor -- Congress is currently addressing two major proposals to help the working poor: an increase in the federal minimum wage to $10.10 an hour from $7.25 an hour, where it has been set since July 24, 2009, and an increase in the earned income tax credit, proposed by the White House, that sends cash payments to those with low earnings. Supporters of a higher minimum wage point out that it has fallen 32 percent in inflation-adjusted terms since 1968. One problem with proceeding simultaneously with two very different programs designed to aid the same population is calculating their interactions. For example, a higher minimum wage will lead to additional earned income tax credit payments for some workers because they will now have more wages to which the tax credit applies, giving them a double benefit. On the other hand, others may find that their higher earnings have pushed them up into the zone where the earned income tax credit is withdrawn. Higher earnings may also cause workers to lose other means-tested benefits, creating high de facto marginal tax rates. Earnings aren’t the only factor that contributes to disparate impact; so do family characteristics such as marriage and the presence of children. The following tables from the Congressional Research Service show how various programs interact to significantly affect net income depending on program eligibility.  But the fact is that even with supplementary welfare programs, many workers remain officially poor. An April 2013 study of the working poor by the Bureau of Labor Statistics found that poverty rose among this group between 2007 and 2011. This is why the Obama administration has proposed a higher earned income tax credit, as well as a higher minimum wage. The earned income tax credit is a refundable credit that adds to a worker’s income rather than subtracting from it as taxes normally do. It has long been championed by both conservative and liberal economists as encouraging work and helping workers lift themselves out of poverty. The Council of Economic Advisers estimates that the proposal will lift about half a million additional people out of poverty.

How Aid to the Poor Is Also an Investment - An interesting debate is percolating in the evaluation of our federal antipoverty programs. President Obama’s recent emphasis on the problem of high inequality and low upward mobility has forced conservatives to join that debate, and they’ve developed a meme that, at the risk of straining the metaphor, goes like this: Our current spate of anti-poverty programs operate more like a hammock than a safety net when what we really need is a trampoline. As Representative Paul Ryan, who has been hacking at the safety net for years, put it just the other day (before misrepresenting a fictional story as an actual anecdote against nutritional support), the “left” is “offering people is a full stomach and an empty soul.” In economic terms, it’s pitting consumption against investment.. Representative Ryan might say that consumption is for the stomach; investment is for the soul. I should start by pointing out that I’ve heard this argument only from people whose personal consumption is unconstrained by the inability to meet their family budget and more. But put that aside. I suspect it’s a resonant argument to many and a potentially challenging one to the status quo. There are, however, two big problems with it. First, it presumes that those who set up this dichotomy have a robust investment plan, though they do not. But more interestingly, a spate of recent research shows that it’s wrong on the merits. A lot of what you’d mistake for consumption really works like investment: Yes, it fills the stomach today, but it’s also linked to better outcomes tomorrow.

U.S. Teen Birthrate Plummets - To be sure, the U.S. teen birthrate remains well above that of most other high-income countries, where the teen birthrate is usually in the range of 5-10 births per 1,000 women aged 15-19. Still, the teen birth rate in the U.S. has fallen by half in the last couple of decades. What might be the underlying causes? There are three possibilities: teens having sex less often, teens who are having sex using contraception more often, and a higher number of abortions. The abortion rate among teens has not risen in a way that would explain the fall in teen births, so Kearney and Levine focus on the first two causes. They sum up their overall perspective in this way (citations omitted for readability): "To some extent, it is appropriate to consider teen childbearing to be the result of “non-decisions;” some teens are sufficiently ambivalent about becoming pregnant that they do not commit themselves to taking precautions against such an outcome. To illustrate this point, half of teens who report having an unintended pregnancy were not using contraception at the time of conception. This way of thinking about the issue allows for individual error and randomness in the process, but ultimately considers that individuals – even teens – respond to the environment around them and make choices that either increase or decrease the likelihood of becoming a teen parent. Indeed, the data suggest as much, with teen childbearing rates rising and falling with environmental factors in systematic ways."

Illinois deficit nearly $45 billion - An annual state report released by Comptroller Judy Baar Topinka places Illinois' deficit at nearly $45 billion. Topinka said Wednesday the shortfall increased by less than one percent from the previous budget year and the growth is most likely due to obligations to state pensions and other post-employment benefits. Illinois has a $100 billion shortfall in its five pension systems, but the comptroller's office said the accounting method used in the annual report only measures what should have been put to the side to keep up with obligations, not the total debt. Illinois lawmakers and Governor Pat Quinn adopted a plan to reduce the state's debt last year, but it has since been challenged in court. The state's general spending account deficit dropped 19 percent to $7.3 billion

Interest on Illinois' unpaid bills reaches $318 M — Interest payments on Illinois' late bills cost the state $318 million last year — enough to cover the annual budget of the Illinois State Police, according to a published report. The state auditor's overview of Illinois' finances shows interest payments from fiscal year 2013 were more than double what was paid in the previous year when the figure was $136 million, according to a report by the Springfield bureau of Lee Enterprises newspapers. The state's interest on unpaid bills was $91 million in 2011, $97 million in 2010 and $36.9 million in 2009. Brad Hahn, a spokesman for Illinois Comptroller Judy Baar Topinka, said this year's interest payments should be much lower because the state has been "aggressive" about working to reduce the backlog of unpaid bills. "Because much of the backlog has been paid down, we should not see the kind of interest payments in 2014," Hahn said. The state's overall backlog of unpaid bills is expected to fall to $5.6 billion by June 30, which is the end of the current fiscal year. That's down from a high of $9.9 billion in 2010.

Update on California Budget: Revenue Almost $1 Billion above Forecast in February - In November 2012, I was interviewed by Joe Weisenthal at Business Insider. One of my comments during our discussion on state and local governments was:  I wouldn’t be surprised if we see all of a sudden a report come out, “Hey, we’ve got a balanced budget in California.”. And a couple of months later California announced a balanced budget, see The California Budget SurplusThe situation has improved since then. Here is the most recent update from California State Controller John Chiang: Controller Releases February Cash Update: State Controller John Chiang today released his monthly report covering California's cash balance, receipts and disbursements in February 2014. Revenues for the month totaled $5.6 billion, surpassing estimates in the 2014-15 Governor's Budget by $968.9 million, or 20.9 percent. "Driven by strong retail sales and personal income tax withholdings, February receipts poured in at nearly $1 billion above projections," said Chiang. "How we conserve and invest during the upswings of California's notorious boom-or-bust revenue cycles will determine how critical programs – such as public safety and education – will weather the next economic dip. With fiscal discipline and a focus on slashing debt, we can make California more recession-resistant and prosperity a more enduring hallmark of our state." Income tax receipts exceeded the Governor’s expectations by $721.7 million, or 45.7 percent. Corporate tax receipts came in ahead of estimates by $87.4 million, or 236.2 percent. Sales and use taxes were $113.7 million above, or 3.9 percent, expectations in the Governor's 2014-15 proposed budget

A Conservative Meme On School Lunches: Work For It, Kids! - Before Rep. Paul Ryan (R-WI) fibbed and told a story at CPAC about free school lunches that turned out to be false, the meme had been long in the making as a conservative rallying cry about the evils of liberal ideology.  It was adopted in the Senate primaries by Rep. Jack Kingston (R-GA), who suggested in December that school kids "maybe sweep the floor of the cafeteria" if they want to avail of free lunches. (Kingston, who is struggling in a three-way race with two ultraconservative opponents, was later found to have expensed nearly $4,200 in meals to his congressional office.) Last April, a state lawmaker in West Virginia, Ray Canterbury (R), argued during a school lunch debate that it'd be a "good idea" to have "the kids work for their lunches." He proposed that they take out the trash, sweep the hallways or mow the lawns in order to earn their food.  In the Salt Lake City School District in January, lunch trays were swiped away from dozens of elementary school children before they could eat anything, as officials told those students it was because they had negative balances in their accounts. The National School Lunch Program, which provides federal assistance for public and private schools to offer lunch to children, has been around since 1946. It feeds 17.5 million kids with free or reduced-cost lunches every school day.  It aims to address a real problem: three out of five teachers report that kids in their classrooms regularly come to school hungry, and a majority says the problem is getting worse, according to a survey by the advocacy group No Kid Hungry. So, what's really behind the antipathy toward government-subsidized school lunches?

Are you smarter than a 5-year-old? Preschoolers can do algebra -- Millions of high school and college algebra students are united in a shared agony over solving for x and y, and for those to whom the answers don't come easily, it gets worse: Most preschoolers and kindergarteners can do some algebra before even entering a math class. In a just-published study in the journal Developmental Science, lead author and post-doctoral fellow Melissa Kibbe and Lisa Feigenson, associate professor of psychological and brain sciences at Johns Hopkins University's Krieger School of Arts and Sciences, find that most preschoolers and kindergarteners, or children between 4 and 6, can do basic algebra naturally. "These very young children, some of whom are just learning to count, and few of whom have even gone to school yet, are doing basic algebra and with little effort," Kibbe said. "They do it by using what we call their 'Approximate Number System:' their gut-level, inborn sense of quantity and number." The "Approximate Number System," or ANS, is also called "number sense," and describes humans' and animals' ability to quickly size up the quantity of objects in their everyday environments. Humans and a host of other animals are born with this ability and it's probably an evolutionary adaptation to help human and animal ancestors survive in the wild, scientists say. Previous research has revealed some interesting facts about number sense, including that adolescents with better math abilities also had superior number sense when they were preschoolers, and that number sense peaks at age 35.

Recession's over: Why aren't public services coming back? - — At Noble Prentis Elementary School, a classroom is crammed with 31 students and all their backpacks and books. Last year, the fifth-grade class had just 17 students, but a teaching position was cut when the school ran short of money. The school nurse, who comes in only twice a week, freezes kitchen sponges to use as ice packs because her budget is too small for her to buy any. Schools have always had to fight for more funding, but Noble Prentis' problems were exacerbated during the recession when state budget cuts left schools, like many other public services, foundering. Now, the state's general fund revenues are up $150 million since 2008, but Kansas officials are in no hurry to restore spending cuts the economic downturn made necessary. It's not just Kansas. Conservative legislators committed to the idea that smaller government works best are passing tax cuts that they say help stimulate the economy. They are moving to make recession-era budget cuts permanent.  In Ohio, the Legislature eliminated mandatory full-day kindergarten in 2011 and cut state money for local government funds, which help pay for police and fire services, by $1 billion — a decrease of 50%. Wisconsin slashed the amount of money available to local governments. Oklahoma's governor this year has proposed trimming state agency budgets by 5%, while also suggesting a tax cut.

What The U.S. Can Learn From Finland, Where School Starts At Age 7  - Finland, a country the size of Minnesota, beats the U.S. in math, reading and science, even though Finnish children don't start school until age 7.Despite the late start, the vast majority arrive with solid reading and math skills. By age 15, Finnish students outperform all but a few countries on international assessments.Krista Kiuru, Finland's minister of education and science who met with education officials in Washington recently, chalks success up to what she calls the "Finnish way." Every child in Finland under age 7 has the right to child care and preschool by law, regardless of family income. Over 97 percent of 3- to 6-year-olds attend a program of one type or another. But, says Kiuru, the key to Finland's universal preschool system is quality."First of all, it's about having high-quality teachers," Kiuru says. "Day care teachers are having Bachelor degrees. So we trust our teachers, and that's very, very important. And the third factor: we have strong values in the political level."  Then there's the money issue. In Finland, of course, preschool and day care are basically free, because people pay a lot more taxes to fund these programs. Another glaring difference is the child poverty rate, which is almost 25 percent in the U.S. — five times more than in Finland.

The SAT, Test Prep, Income and Race - The announcement of the new, new SAT has created a lot of hand-wringing about SAT scores and their correlations with income and also race. Wonkblog, the New York Times and many others all feature a table or chart showing how SAT scores increase with income. Wonkblog says these charts “show how the SAT favors rich, educated families,” and the NYTimes says about the SAT, “A Test of Knowledge or Income?” The consensus explanation for these “shocking” results is the evil of test prep as summarized by NBCNews: …there is also mounting criticism as to whether students who can afford expensive SAT test preparation courses have an unfair advantage, especially given a strong correlation between family income level and test results. All of this is almost entirely at variance with three facts, all of which are well known among education researchers. First, test prep has only a modest effect on test scores, on the order of 20-40 points combined for a commercial test preparation service. More expensive services such as a private tutor are towards the high of this range, cheaper sources such as a high-school course towards the lower. The second surprising fact about test prep is that it doesn’t vary nearly as much by income as people imagine. In fact, some studies find no effect of income on test prep use while others find a positive but modest effect. The third fact is that test prep varies by race in the opposite way that people imagine. In the quote above, Chris Hayes suggests that whites use test prep much more than blacks. In fact, blacks use test prep more than whites, as is well documented among education researchers (e.g. here, here, here),

Study: Women Who Can Do Math Still Don’t Get Hired --  Larry Summers famously suggested once that so few women become scientists and engineers because of discrimination, preference and even differences in innate ability. In a paper published Monday in the Proceedings from the National Academy of Sciences, three business school professors tried to isolate the first of those reasons. They set up a lab experiment in which “managers” hired people to complete mathematical tasks that, on average, men and women performed equally well. With no information about the job “applicants” other than their appearance, the managers (of both sexes) were twice as likely to hire a man over a woman. The professors tried another version of the experiment, which they labeled “Cheap Talk.” In this version, the job candidates were allowed to predict their own performance. Men tended to exaggerate their acumen, while women downplayed theirs. But the managers failed to compensate for that difference, and were again twice as likely to choose a man.The bias persisted even when managers were given hard data about the applicants’ ability to perform the tasks in question. Managers were still one-and-a-half times more likely to hire a man. When they knowingly chose the lower-performing candidate, two-thirds of the time they were choosing the male applicant. The managers were also given an “implicit association test,” or I.A.T., to measure their gender bias when it comes to math and science. “The very people who are biased against women about math, they’re also less likely to believe that men boast,” Mr. Zingales said. “So they’re picking up a negative stereotype of women, but not a negative stereotype of men.”

White House spearheads efforts to teach students to handle money — Despite a greater need to understand finances _ student debt has tripled over the last decade and college tuition continues to rise _ most students don’t know how to handle their money.The President’s Advisory Council on Financial Capability for Young Americans on Monday recommended addressing that problem by integrating hands-on financial education into curricula as early as prekindergarten. The recommendation emphasizes taking charge of personal finances over learning about financial management, a move that Treasury Secretary Jack Lew said was a strong investment in the country’s economic future.Right now, financial education rarely makes it into most classrooms. And when it does, it’s sporadic and random at best, said Amy Rosen, a member of the council who’s also the president and CEO of the Network for Teaching Entrepreneurship, a program that teaches entrepreneurship to youths from low-income communities.

Debt Servitude and the Student Loan Bubble -- Is the student loan debacle comparable to the housing bubble collapse of 2008?  There should be little doubt that it represents a massive, unsustainable bubble, considering how rapidly and unsustainably this debt grew.  The likely payoff of getting a four year degree is looking less enticing compared to the cost of obtaining the degree.  Debt servitude is a future no one wants to embrace.  Federal officials are seemingly trying to head off a mass collapse in the trillion dollar loan bubble with income based repayment plans that transfer much of the cost of these debts to taxpayers more generally.  Short of another major economic crisis, student loan borrowers are unlikely to default all at once, as happened with the Wall Street bubble crash in late 2008.  But there should still be great concern that the taxpayer burden of these loans is increasingly unbearable.  And a mass default (followed by bankruptcy of companies holding these loans) is possible in the future if there is another economic crisis accompanied by growing unemployment. The negative effects of this mountain of debt are disturbing.  The average student borrows $30,000 to pay for college, and parents typically borrow (on average) more than $20,000.  The average public university in Illinois where I teach (for example University of Illinois or Illinois State University) is nowhere near affordable for the “average” family.  A family putting one child through college (and earning, for example, $60,000 to 70,000 a year) will need to cover an average of about $23,500 in total cost of attendance per year.  This translates into a tremendous burden for parents and children – nearly $95,000 per student for four years.  Half of that cost realistically materializes in the form of student loans (adding the average parental and student loans together), with the other half being paid for by parents who deplete their earnings and savings.  The actual costs per family are likely to be much higher than $96,000, as recent estimates suggest that recent high school graduates on average will take nearly six years (not four) to graduate.  Add to this the growing cost of living in America – covering rapidly increasing costs of food, health care, and consumer products – and student loan debt contributes to a “death of a thousand cuts” assault on America’s shrinking middle class.

Which Side Is Your Pension On?  - To offer some insight into the state of finance in America, we need to venture into the arcane world of union pension fund investment. Pension funds are ground zero for financial democracy for three related reasons. First, workers’ retirement funds have accumulated a huge financial fortune since their widespread emergence in the 1950s. They went from small holdings during the war to currently totaling over $10 trillion in assets. While collectively-bargained union pension funds comprised the large majority of these assets in the few decades following World War II, they are now the minority. Much of current fund assets derive from non-union 401(k)-type retirement plans. However, the union funds aren’t small potatoes. Today they control over $1.7 trillion in assets — about one-tenth of total US GDP. Next, pension funds have become a critical source of finance capital for American firms. After the war, these funds were initially investing in the less risky corporate and government bond markets. In 1950, almost 30 percent of pension assets were invested in government securities while about 42 percent were invested in corporate bonds. That rapidly changed. Within a few decades, bond market investments were dwarfed, while equity market investments, previously quite marginal, were increasingly favored by fiduciaries. By 1972, nearly 74 percent of all pension fund investments were directed into corporate stocks. The move, which tied retirement income to the market, entailed a real shift toward risk for workers.

Why higher taxes are inevitable in Chicago - Anybody who thinks Chicago can escape its pension funding crisis without significant tax increases should read the report Moody's Investors Service released last week when it cut city bond ratings.   New York-based Moody's punctures any illusion that pension reforms out of Springfield could spare taxpayers the cost of irresponsible city fiscal policy. Between 2003 and 2014, Mayors Richard M. Daley and Rahm Emanuel shorted city contributions to public employee pension funds by more than $7 billion, creating an aggregate deficit of $32 billion. At more than eight times annual operating revenue, it's the largest shortfall of any city in the country, Moody's says.   Much of the debate over pension costs has focused on legislation to reduce benefits. And it's clear that benefit growth must be curtailed as part of a comprehensive plan to steer city pensions from the abyss.   But even if state lawmakers pass a pension reform bill for the city—as they have for state employee pensions—and even if such a law were to survive the inevitable court challenge, it won't make up for years of underfunding. “We expect that any cost savings of such reforms will not alleviate the need for substantial new revenue and fiscal adjustments in order to meet the city's long-deferred pension funding needs,” Moody's writes.

U.S. public pensions need more than investment windfall - Double-digit annual returns for most U.S. public pension systems over the past two years have done little to shrink the yawning deficits facing many of them after a decade of inadequate funding, according to analysts and recent data. Thanks to a robust stock market, most systems have enjoyed windfalls recently, with investment returns far exceeding projections. Even so, many are still struggling with shortfalls. In some cases, they have worsened as state contributions fail to keep pace with what is needed to pay beneficiaries. Roughly half of U.S. state pension plans have worrying gaps between what they have promised retirees and the funds on hand to pay benefits, according to most analyses. The higher-than-expected returns since 2012 are welcome, but experts say they don't make up for a legacy of insufficient funding, a problem that afflicts many states that allow elected officials to control the process. "For many public pension funds, the hole is so deep -- in the range of many tens of billions of dollars for some of them -- that they would need decades of double-digit returns to approach full funding,"

Has CalPERS’ General Counsel Lied to Its Board About Our Suit? -  Yves Smith - As readers may recall, we filed suit against CalPERS on February 27, 2014 to obtain access to private equity fund data that CalPERS previously gave to two academics at Oxford University. We have proof of service as of March 4, 2014 (please find both filings embedded later in this post). At around that time, CalPERS moved the matter over internally from being handled by its Office of Stakeholder Relations, which includes Public Records Act specialists, to a litigator.  You’d think that’s pretty conclusive evidence that CalPERS knows we’ve sued them. CalPERS’ Interim General Counsel, Gina Ratto, is telling CalPERS board members the exact opposite, that there was no new litigation filed in the past month. That statement is made at the location in the agenda materials where the CalPERS General Counsel reports to the board on new lawsuits to which CalPERS is a party (you can also view this document on the CalPERS website).  Gina Ratto Representation re Calpers Litigation by webber3292 Now astute readers might argue that CalPERS could have a threshold of materiality before the legal department is required to report a particular legal action to the CalPERS board. We have reason to doubt that. Individuals who have knowledge of CalPERS’ internal practices have taken interest in our work. One well placed source has told us that this report customarily included even trivial legal disputes and added, “Historically, there was no materiality test applied as to whether a suit merited being reported.” While it is possible that CalPERS has changed its procedures of late, CalPERS’ previous irregularities in its handling of our Public Records Act request suggest that these procedural failures are the result of an effort to keep disclosure of our inquiry to the bare minimum. CalPERS staff failed, contrary to long-standing internal policies, to tell its board about our records request on a timely basis.

As GOP certainty about Obamacare’s collapse deepens, number of uninsured falls again: The most important political and policy news of the day is Gallup’s new finding that the rate of uninsured Americans has now fallen in three straight Gallup surveys: The percentage of Americans without health insurance continues to fall, measuring 15.9% so far in 2014 compared with 17.1% in the fourth quarter of 2013. [...] The uninsured rate has been declining since the fourth quarter of 2013, after hitting an all-time high of 18.0% in the third quarter. The uninsured rate for the first quarter of 2014 so far includes a 16.2% reading for January and 15.6% for February. The uninsured rate for almost every major demographic group has dropped in 2014 so far. The percentage of uninsured Americans with an annual household income of less than $36,000 has dropped the most — by 2.8 percentage points — to 27.9% since the fourth quarter of 2013, while the percentage of uninsured blacks has fallen 2.6 points to 18.3%. Hispanics remain the subgroup most likely to lack health insurance, with an uninsured rate of 37.9%. The percentage of uninsured has declined across all age groups this year, except for those aged 65 and older. The uninsured rate for that group has likely remained stable because most Americans aged 65 and older have Medicare. The uninsured rate among 26- to 34-year olds and 35- to 64-year olds continues to decline — now at 26.6% and 16.3%, respectively.

HHS Doesn't Know How Many Uninsured Are Signing Up for Obamacare -  There's a lot we don't know about how Obamacare enrollment is going. Apparently that's also true even within the Obama administration. Gary Cohen, the soon-to-be-former director of the main implementation office at the Health and Human Services Department, stopped by an insurance industry conference Thursday to offer an update on enrollment. The main points were familiar: People are signing up (about 4 million have picked a plan so far), and the administration is going all out to promote Obamacare over the last few weeks of the enrollment window. But Cohen didn't have much more to offer insurers—who need this to work just as much as the White House—on some of the biggest unknowns about the law's progress: How many uninsured people are signing up? The Congressional Budget Office estimates that the health care law will reduce the number of uninsured people by about 24 million over the next few years, and that about 6 million previously uninsured people will gain coverage through the law's exchanges this year. So, is enrollment on track to meet that goal? Overall enrollment is looking pretty decent, but how many of the people who have signed up were previously uninsured? "That's not a data point that we are really collecting in any sort of systematic way," Cohen told the insurance-industry crowd on Thursday when asked how many of the roughly 4 million enrollees were previously uninsured. New York state is collecting that data, and it says about 70 percent of its enrollees were not covered before, while about 30 percent are changing their coverage rather than gaining it.

Health Care Enrollment Falls Short of Goal, With Deadline Approaching - Almost a million people signed up last month for private health insurance under the Affordable Care Act, federal officials said Tuesday, bringing the total to date to 4.2 million but leaving the Obama administration well short of its original goal, with less than a month to go before the end of the open enrollment period.White House officials predict a surge in sign-ups just before the six-month enrollment period ends on March 31, but it will be a challenge to make up for the slow start that resulted from technical problems crippling the federal insurance marketplace in October and much of November.The administration said Tuesday that 943,000 people signed up for coverage last month, down from 1.1 million in January and 1.8 million in December. Officials noted that February was a short month, with fewer days for people to apply.  Administration officials said they were pleased with the pace of enrollment, even though the total fell short of the target initially set by the Department of Health and Human Services. In an internal memorandum in September, federal health officials said they wanted to have 5.6 million people enrolled by the end of February, with a total of seven million signed up by the end of this month. The goal for February alone was 1.3 million.

Hawaii Cuts Uninsured Population in Half - In case you haven’t seen Charles Gaba’s great website, you really need to see it. It is the best source available for tracking Obamacare enrollments, covering all categories of signups, including Medicaid, the federal and state exchanges, off-exchange signups, and estimated under-26ers. One of the most notable achievements of Obamacare is in the President’s birthplace, Hawaii, where the number of uninsured people has already fallen by more than half, despite having a horrible website for the state-run exchange. The biggest chunk of this is through Medicaid enrollments, both people newly eligible and those previously eligible who had not signed up (“woodworkers,” people who’ve come out of the woodwork). Here are the totals:

  • Uninsured: 102,000
  • Medicaid: 48,000
  • Exchange: 4,661
  • Off-exchange: 4,000
  • Total newly insured: 56,661, or 55.6%.

Moreover, approximately 10,000 Hawaii residents are ineligible for Medicaid or ACA subsidies due to their immigration status, so the state is doing very well indeed.

Unions Conclude Obamacare Will Make Inequality Worse -- A new report from the union UNITE HERE, entitled The Irony of Obamacare: Making Inequality Worse, concludes that the Affordable Care Act will increase inequality because low-income Americans will have fewer hours of work and have to pay more for health insurance. At the same time, according to the report, insurance companies will gain $965 billion in federal transfers to provide health insurance. As Americans have seen, the Affordable Care Act has plenty of problems ranging from disincentives for hiring to cancelled plans. That is one reason President Obama is rolling out a series of delays in the Act's implementation, delays that some say are extra-legal. But these legitimate problems do not need to masquerade as increasing income inequality. UNITE HERE, with nearly 300,000 members, is rightly concerned because its multi-employer health insurance plans do not comply with the provisions of the Affordable Care Act. As plans conform with the law, they become more expensive. Low-income Americans without employer-provided insurance get federal subsidies to buy insurance on the exchanges. But not members of multi-employer plans, such as those negotiated by UNITE HERE. Multi-employer plans, also known as Taft-Hartley plans, cover groups of employers whose workers are represented by the same union. The plans are managed by boards with union and employer representatives. These plans were set up in order to provide continuous coverage for union workers who changed companies but who continued to be represented by the same union.

Why casino workers hate Obamacare -  Culinary Workers Union Local 226 is pushing about a dozen of its employers to contribute more money to its health insurance fund to cover rising Obamacare costs. Currently, employers pay 100% of the premiums. The union, which is in contract negotiations, wants to keep it that way. But the spike Obamacare-related expenses could make it tougher to convince employers to pony up more money. Union workers picketed outside the Stratosphere over the weekend, ahead of a March 20 vote that would give the union the right to call a strike. At issue are Obamacare fees and mandates that have greatly increased the health insurance fund's expenses in recent years. What's angering the local, along with many unions nationwide, is that the fund doesn't qualify for federal subsidies to cover low-income workers that for-profit insurers do. The union fund wants these subsidies to help offset the added costs. Those subsidies, which go directly to insurers, help lower-income Americans purchase insurance on the individual market through state and federal exchanges. But since union plans are considered employer-sponsored plans, there is no federal money to subsidize its members. So far, White House officials have not made an exception for the unions.

The PPACA Penalty Fee in 2014 Misinformation - A lot of people think that all they have to pay is $95 in 2014 to get around the PPACA. The $95 penalty is true if you make < $19,650 in Household  income and this comes after your deduction of $10,150. The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014.  The penalty in 2014 is calculated one of 2 ways. You’ll pay whichever of these amounts is higher:

  • 1% of your yearly household income. (Only the amount of income above the tax filing threshold, $10,150 for an individual, is used to calculate the penalty.) The maximum penalty is the national average yearly premium for a bronze plan.
  • $95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285.

The way the penalty is calculated, a single adult with household income below $19,650 would pay the $95 flat rate. A single adult with household income above $19,650 would pay an amount based on the 1 percent rate. (If income is below $10,150, no penalty is owed.)

Poor people’s health care -- I remember when this happened. Joaquin Rivera, musician and activist, a wonderful, hard-working man who was loved and respected by his community, died of a heart attack in the ER waiting room and his lifeless body was then was robbed by junkies. This, by the way, is the same hospital to which I was taken by the city’s EMTs when I had pancreatitis. The same lousy hospital that first diagnosed me, then told me it was a mistake, there was nothing wrong. How did I get the positive test? I asked the doctor. I don’t know, he said, shrugging. Now I know better. When the gallstone was stuck, my pancreas were inflamed. When it finally passed, the test was negative. This doctor either did know this, or should have known this. I think he pretended not to know, because it was a medical emergency and the hospital did not want to be on the hook for the cost of my gall bladder surgery. Let me tell you the difference between a crappy Tier 1 hospital and the reassuring efficiency of a Tier 3 facility: Joaquin Rivera wouldn’t have still been in the waiting room. When a patient presents with cardiac symptoms at a Tier 3 hospital, the triage nurse sees you immediately and you’re a priority. Because, you know, death. This all came back to me the other night, when I was helping my son sign up for Obamacare. Once again, I was hit with a wave of disgust at how the cheapest plan restricted poor people to the worst hospitals in the city. And what I wanted to say is, that while I’m happy with the plan I got (and my kid got), the fight doesn’t end here. Bad care is bad care, and injustice anywhere is still injustice everywhere.

The High Cost of Hospital Care in America - Numerous studies have shown that health care costs, particularly costs related to hospitalization, in the United States are prohibitive and often lead to great financial hardships for American families.  A recent data release by National Nurses United, America's largest union and professional association of registered nurses, gives us a sense of just how hospitals charge for the services that they render and how that charge to-cost-ratio has changed over the years.  This is particularly pertinent given that hospital profits hit a record $53 billion in 2011.  Here is a graph showing how the charge-to-cost ratio has risen between fiscal 1996 - 1997 and fiscal 2011 - 2012:  A charge-to-cost ratio of 331 percent means that hospitals are charging $331 for every $100 of their total costs.  You will note that the charge-to-cost ratio has risen from 200 percent in fiscal 1999 - 2000 to its current level of 331 percent, an increase of 113 percentage points or 65.5 percent over 12 years. That works out to a compounded annual growth rate of 4.3 percent.  That said, the charge-to-cost ratios have not increased evenly over the 12 year period as shown here: Note the big percentage point jump in charge-to-cost ratios just as Obamacare was set to be implemented?  Coincidence? Here is a listing of the top five most expensive hospitals in the United States and the total charges to patients as a percentage of total costs to the hospital:

How to Shave $1 Trillion Out of Health Care - Americans spend more than 17 percent of GDP on health care; other high income industrial democracies spend only about 11 percent. The 6 percent difference in our $17 trillion economy amounts to $1 trillion. The excess in the United States is primarily attributable to a more expensive mix of procedures and services, higher prices paid to drug companies and physicians, and inefficiencies in the financing of health care. There are undoubtedly cultural differences between the United States and other countries, but it is also true that Swedes differ from Italians, Germans from French, and the English from all of the above. What these countries have in common that distinguishes their health care systems from the American is universal insurance for basic care, a larger share of government in financing health care (typically about 75 percent of the total versus 50 percent in the United States), and more aggressive control of expenditures. What could Americans do with that trillion dollars each year and what would we have to give up if our health care system became more like those of our peers?  In the United States, the private sector pays about one-half of the health care bill; federal, state and local governments pay the other half. Assuming the same split in savings from a more prudent system, the private sector could keep half of the trillion dollars for consumption and investment, while the other half could be used for public investment. For example, we could:

  • —Increase expenditures on highways, bridges, tunnels, and other infra-structure by 50 percent. Annual cost: $100 billion
  • — Increase annual salaries of K-12 teachers by an average of $25,000. Annual cost: $100 billion
  • —Fund a two-year apprenticeship program for one million men and women ages 17-24. Annual cost $80 billion.
  • — Provide a first-class pre-school experience for all four-year olds. Annual cost: $80 billion

Up to 1000 NIH Investigators Dropped Out Last Year  - New data show that after remaining more or less steady for a decade, the number of investigators with National Institutes of Health (NIH) funding dropped sharply last year by at least 500 researchers and as many as 1000. Although not a big surprise—it came the same year that NIH’s budget took a 5% cut—the decline suggests that a long-anticipated contraction in the number of labs supported by NIH may have finally begun. Although NIH publicizes the number of grants it funds each year, it does not routinely disclose the number of principal investigators—the leaders of the labs these grants support. But in response to a request from ScienceInsider, NIH shared these data for two sets of grants: research project grants (RPGs), which include all research grants, and R01 equivalents, a slightly smaller category that includes the bread-and-butter R01 grants that support most independent labs. These data show that despite minimal budget growth at NIH since a 5-year doubling ended in 2003, the number of investigators with R01-equivalent grants has held steady at about 22,000. (That number does not necessarily include researchers who received funding from a $10 billion, one-time spending boost that NIH got as a result of stimulus programs designed to combat the recession.) But the numbers fell sharply last year when NIH’s budget plummeted $1.55 billion due to sequestration. As NIH has reported, new R01-equivalent awards fell by 534. The new data show that the number of investigators with these awards dropped in sync by 605, from 22,116 to 21,511 (raw data here). The decline for RPGs was 511. The loss was a staggering 1001 when all R grants are tallied, according to an analysis by American Society for Biochemistry and Molecular Biology President Jeremy Berg, a former director of the National Institute of General Medical Sciences

Whole genome sequencing not ready for prime time - From JAMA, “Clinical Interpretation and Implications of Whole-Genome Sequencing“:

    • Importance - Whole-genome sequencing (WGS) is increasingly applied in clinical medicine and is expected to uncover clinically significant findings regardless of sequencing indication.
    • Design, Setting, and Participants - An exploratory study of 12 adult participants recruited at Stanford University Medical Center who underwent WGS between November 2011 and March 2012. A multidisciplinary team reviewed all potentially reportable genetic findings. Five physicians proposed initial clinical follow-up based on the genetic findings.
    • Results - Depending on sequencing platform, 10% to 19% of inherited disease genes were not covered to accepted standards for single nucleotide variant discovery. Genotype concordance was high for previously described single nucleotide genetic variants (99%-100%) but low for small insertion/deletion variants (53%-59%). Curation of 90 to 127 genetic variants in each participant required a median of 54 minutes (range, 5-223 minutes) per genetic variant, resulted in moderate classification agreement between professionals (Gross κ, 0.52; 95% CI, 0.40-0.64), and reclassified 69% of genetic variants cataloged as disease causing in mutation databases to variants of uncertain or lesser significance. Two to 6 personal disease-risk findings were discovered in each participant, including 1 frameshift deletion in the BRCA1 gene implicated in hereditary breast and ovarian cancer. Physician review of sequencing findings prompted consideration of a median of 1 to 3 initial diagnostic tests and referrals per participant, with fair interrater agreement about the suitability of WGS findings for clinical follow-up (Fleiss κ, 0.24; P < 001).

The Perils of Problematic Prescribing: A Double Dose of Warnings -  Twice this week, the Centers for Disease Control and Prevention has pointed to the harm caused by aberrant and inappropriate prescribing by physicians. First, the CDC reported Monday that doctors are a primary source of narcotic painkillers for chronic abusers at the highest risk of overdoses.  Physicians edged out even family, friends and drug dealers. More than 16,000 people died of narcotic overdoses in 2010, the most recent year for which data is available, the CDC has reported.  On Tuesday, the public health agency said that it found vast differences in the use of antibiotics among different hospitals’ medical/surgical wards. Doctors in some hospitals prescribed three times as many antibiotics as those in other hospitals. The CDC also said that in about one-third of cases, prescriptions for the antibiotic vancomycin included a potential error – either it was prescribed without proper tests or evaluation, or given for too long. For more than a year, ProPublica also has been looking at physicians’ prescribing practices. Our reporting has showed striking differences in how doctors prescribe drugs, with some ordering massive quantities of risky or potentially inappropriate medications in Medicare’s prescription drug program. Despite collecting data on every prescription, the government has done little with the information. Our Prescriber Checkup tool allows the public to look up individual physicians and compare their drug choices in Medicare’s program, known as Part D, to others in the same specialty and state.

The Fat Drug - IF you walk into a farm-supply store today, you’re likely to find a bag of antibiotic powder that claims to boost the growth of poultry and livestock. That’s because decades of agricultural research has shown that antibiotics seem to flip a switch in young animals’ bodies, helping them pack on pounds. Manufacturers brag about the miraculous effects of feeding antibiotics to chicks and nursing calves. Dusty agricultural journals attest to the ways in which the drugs can act like a kind of superfood to produce cheap meat.  But what if that meat is us? Recently, a group of medical investigators have begun to wonder whether antibiotics might cause the same growth promotion in humans.  Of course, while farm animals often eat a significant dose of antibiotics in food, the situation is different for human beings. By the time most meat reaches our table, it contains little or no antibiotics. So we receive our greatest exposure in the pills we take, rather than the food we eat. American kids are prescribed on average about one course of antibiotics every year, often for ear and chest infections. Could these intermittent high doses affect our metabolism? To find out, Dr. Blaser and his colleagues have spent years studying the effects of antibiotics on the growth of baby mice. In one experiment, his lab raised mice on both high-calorie food and antibiotics. “As we all know, our children’s diets have gotten a lot richer in recent decades,” . At the same time, American children often are prescribed antibiotics. What happens when chocolate doughnuts mix with penicillin? The results of the study were dramatic, particularly in female mice: They gained about twice as much body fat as the control-group mice who ate the same food. “For the female mice, the antibiotic exposure was the switch that converted more of those extra calories in the diet to fat, while the males grew more in terms of both muscle and fat,” Dr. Blaser writes. “The observations are consistent with the idea that the modern high-calorie diet alone is insufficient to explain the obesity epidemic and that antibiotics could be contributing.”

Farm Bill Reflects Shifting American Menu and a Senator’s Persistent Tilling - — The farm bill signed by President Obama last month was at first glance the usual boon for soybean growers, catfish farmers and their ilk. But closer examination reveals that the nation’s agriculture policy is increasingly more whole grain than white bread.Within the bill is a significant shift in the types of farmers who are now benefiting from taxpayer dollars, reflecting a decade of changing eating habits and cultural dispositions among American consumers. Organic farmers, fruit growers and hemp producers all did well in the new bill. An emphasis on locally grown, healthful foods appeals to a broad base of their constituents, members of both major parties said.  While traditional commodities subsidies were cut by more than 30 percent to $23 billion over 10 years, funding for fruits and vegetables and organic programs increased by more than 50 percent over the same period, to about $3 billion.  Fruit and vegetable farmers, who have been largely shut out of the crop insurance programs that grain and other farmers have enjoyed for decades, now have far greater access. Other programs for those crops were increased by 55 percent from the 2008 bill, which expired last year, and block grants for their marketing programs grew exponentially.  In addition, money to help growers make the transition from conventional to organic farming rose to $57.5 million from $22 million. Money for oversight of the nation’s organic food program nearly doubled to $75 million over five years.

NYT’s Op-Ed About Water for Livestock Used Poor Logic -  Kay McDonald - The NYTs publishes many quality and thought-provoking op-eds, but “Meat Makes the Planet Thirsty” by James McWilliams was not one of them. In fact it was a herd mentality piece that lacked much in the way of critical thinking or analysis, and, judging from the popularity of the piece, its readers eagerly digested it sans rumination.  Citing a Netherlands study, he tells us that…  “Beef turns out to have an overall water footprint of roughly four million gallons per ton produced.”   It seemed misleading that the Netherlands study distinguished between the less water intensive methods of raising beef and the more water intensive methods, whereas McWilliams led us to believe that all beef is bad because it uses too much water in its production. Though the study goes into differences in methods of production and types of land, animal, and feed used, McWilliams doesn’t mention those important differences. Although the study mentioned the “equivalent” nutritive differences between beef and starchy vegetables, for example, McWilliams did not. Beef compared to sugar beets? Really, what’s the point of even comparing those two foods in water requirements in view of their grossly different nutritive values? His next point is building a case against alfalfa. He’s right that growing hay uses a lot of water in California to support the livestock and dairy in the state. But, hey, alfalfa is a pretty sustainable crop as compared to many others because it is a long rooted perennial/legume which adds nitrogen to the soil, and thus conserves the soil. You could do much worse if you turned these alfalfa fields into more almond operations, or, perhaps golf courses, for example, so I’m screaming inside as I read this, “what would he like instead of alfalfa?” The Land Institute in Kansas has been working to engineer perennial grains for decades, now, and everyone thinks they have a brilliant objective, so why hate alfalfa?

Sen. Elizabeth Warren Takes FDA Chief To Task On Weak Antibiotics Guidance - In December, the Food and Drug Administration showed just how little it actually cares about drugs in our food by — after more than 35 years of dragging its feet on the topic — politely asking drug companies to pretty please stop selling medically unnecessary antibiotics to farmers who put the drugs in animal feed solely to encourage muscle tissue growth. Today, Senator Elizabeth Warren had the chance to grill FDA Commissioner Margaret Hamburg on the topic, and she didn’t pull her punches. Appearing before the Senate Committee on Health, Education, Labor & Pensions (HELP), on Thursday, the questioning of Hamburg got off to a good start with Sen. Warren of Massachusetts citing the recent CDC study which found that more than 2 million Americans get sick with antibiotic-resistant infections every year, and research showing that antibiotics fed to animals for non-medical purposes are only serving to create new drug-resistant superbugs. “If we continue to use 30 million pounds of antibiotics in food animals every year — which is about four times as much as we use in people — we’re likely to have a lot more resistant infections, and fewer antibiotics that work when we need them,” said the Senator.

Pesticides Destroy Bees’ Ability to Carry Pollen, Protein - Pollen, though irritating come spring time, is crucial to the health of bees. And bees are crucial to the health of plants, and therefore humans. But research shows commonly-used pesticides are destroying bees’ ability to carry pollen, their only source of protein and truly their life’s work. According to The Guardian, the research comes during a two-year ban on the pesticides in question in the European Union. The ban includes three neonicotinoids, the most popular pesticides in the entire world. Temporarily banned because of their risk to bee populations, experts are calling for a permanent ban and one that encompasses the globe. But experts aren’t the only ones voicing concerns. Just recently, it was announced that thousands of individuals are going to swarm Lowe’s and Home Deport in protest, demanding that the stores stop selling chemicals linked to bee destruction. The research from Professor Dave Goulson and his colleagues with the University of Sussex reveals the use of these toxic formulas actually halves the pollen collection abilities of bees. “Pollen is the only source of protein that bees have, and it is vital for rearing their young,” said Goulson. “Collecting it is fiddly, slow work for the bees and intoxicated bees become much worse at it. Without much pollen, nests will inevitably struggle.” More than 75% of the world’s crops require pollination by insects. Bees remain the biggest pollinators, but bee populations are falling, and neonicotinoids are one part of the problem.

Trade fears sprout in the GMO divide - - It is not a new message: the fight against corn rootworm, a common pest, is perennial in agriculture. But Syngenta’s latest attempt to protect crops from the larval creature, by adding a new genetically modified ‘trait’, has triggered a new battle – involving biotechnology companies, the grain trading industry and the government of China. As the US corn belt prepares for its planting season next month, Syngenta’s Agrisure Duracade seeds have been approved inside the US – but not yet in China. As one of the world’s emerging corn import heavyweights, however, China’s stance on genetic modification has the potential to transform agricultural markets. Late last year, China’s decision to reject imports containing another unapproved corn trait caused losses of hundreds of millions of dollars at commodities trading houses globally, including Archer Daniels Midland and Louis Dreyfus Commodities, industry executives say. Now, traders are alarmed that Duracade corn will leak into their export stream, making it unsaleable in China. This impasse highlights the risk to agricultural traders as the world’s growing dependence on agricultural imports collides with national policies. China’s timeline for approving biotech grain imports lags behind months or years that of the US. Traders say Duracade is the biggest genetically modified crop controversy to shake US grain exports since StarLink corn, which was not approved for human consumption but turned up in food products more than a decade ago.

Climate change hampers fight against malaria - study - Warming temperatures expand the risk area for malaria, pushing the disease farther uphill in afflicted regions, according to a new study. Infecting more than 300 million people each year, malaria emerges from a tapestry of temperature, rainfall, vectors, parasites, human movement, public health and economics. Fighting the disease involves pulling on all of these threads, but scientists have a hard time figuring out which ones are the most important to predicting where the disease will go. Temperature has been especially contentious. Some previous research indicated that warmer weather only plays a minor role in this mosquito-borne illness, with human factors being the major influence on disease risk (ClimateWire, Feb. 4). Other studies concluded that climate change will cause no net increase in the disease in some parts of the world (ClimateWire, Sept. 20, 2013). "Part of the controversy has to do with how to attribute particular causes to a long-term trend," Tracking year-to-year temperature variations from 1990 to 2005, researchers observed how malaria's range shifted. Infection rates tend to increase as temperatures go up, since the Plasmodium parasite that causes the disease reproduces faster inside vector mosquitoes when it's warmer, increasing the infection likelihood when the mosquito bites someone, Pascual explained. The Anopheles mosquitoes that spread the disease also thrive in the heat.

Next Chapter In The Global Banana Trade’s Bloody History: ‘Walmartization’ - Two of the world’s biggest banana companies announced Monday that they're joining together to form a banana empire. It's just the latest development in the centuries-long power struggle of the banana world -- an industry dominated by a handful of companies who have strategically muscled out smaller players and exerted outsize control over the countries where they operate. The new company ChiquitaFyffes, which combines U.S.-based Chiquita with the Irish company Fyffes, the largest banana distributor in Europe, is expected to generate about $4.6 billion in annual revenues and be worth about $1.1 billion. For Chiquita, the move represents an opportunity to do more of what the company has always done: use its leverage to get the best business deals and operate in the most favorable political climate. In addition, the deal means that the already tightly consolidated banana industry is now largely in the hands of just three companies. Chiquita, Dole, Fyffes and Fresh Del Monte Produce control more than 80 percent of the global banana trade, according to the United Nations.. "Both Chiquita and Fyffes have longstanding relationships with small growers around the world and this merger provides us with even greater capacity to support the industry," the statement reads. "We believe this translates into more opportunities for the customers and consumers we serve, our dedicated employees and our growers and suppliers around the globe." The graphic below, which is an analysis of 2011 data from BananaLink, a public interest group, shows just how few players there are in the banana business.

Water Scarcity Worsens in Mideast, Threatens Food Security - Water scarcity is one of the most urgent food security issues facing countries in the Middle East and North Africa, with fresh water availability in the region expected to plunge by 50% by 2050, according to the United Nations. Per capita fresh water availability in those countries has already slumped by two-thirds over the past 40 years. Demographic trends also intensify the water shortages there as population growth in the region continues growing at a strong rate of 2% — that’s nearly twice the global rate. Farming and other agricultural activities, such as irrigation, consume over 85% of available fresh water resources in the region and this is only expected to get worse; the demand for agricultural products is expected to grow amid burgeoning urban populations and increased exports. “Most Middle Eastern countries are faced with what hydrologists call absolute water scarcity. This means that even if they have the economic capacity to develop their water resources, they will not be able to meet the demand for freshwater from their growing populations and growing economies,” “Actually this can be more accurately viewed as securing water, because for many Middle Eastern countries what they lack is sufficient water, and the host countries lack the financial and institutional capacity to develop their agriculture and water resources sustainably,”.

In Parched California, Town Taps Run Nearly Dry - As of last week, just two of the five wells drilled into the dry lake bed that serve its 300 homes were producing water. The mountains of the nearby Los Padres National Forest got their first dusting of snow — and it was a light one — last week; it is the winter snow that feeds the wells come spring. People are watering trees with discarded dishwater, running the washing machine once a week, and letting their carefully tended beds of flowers and trees wither into patches of dusty dirt. There are scenes all across California that illustrate the power of the drought. A haze of smog, which normally would be washed away by winter rains, hung over Los Angeles this week. Beekeepers near Sacramento said the lack of wildflowers has deprived bees of a source of food, contributing to a worrisome die-off. Across the rich farmland of the San Joaquin Valley, fields are going unplanted. But for 17 small rural communities in California, the absence of rain is posing a fundamental threat to the most basic of services: drinking water. And Lake of the Woods, a middle-class enclave 80 miles from downtown Los Angeles, a mix of commuters, retirees and weekend residents, is one of the most seriously threatened. Signs along its dusty roadways offer stark red-on-white warnings of a “Water Emergency” and plead for conservation . “Our wells are so deep. I have lived here for 40 years, and this is the first time we’ve had a problem like this.”  So far, nothing has seemed to have helped: not the yearlong ban on watering lawns and washing cars, not the conscientious homeowners who clean their dishes in the sink and reuse the gray water on trees, not even the three inches of rain that soaked the area last weekend. Three attempts to drill new wells, going down 500 feet, have failed.

Severe Drought In California May Force State To Truck 30 Million Salmon To The Pacific Ocean -- Under a plan announced this week by state and federal officials, the state’s 30 million young hatchery-born fall-run Chinook salmon will be shipped via truck to the Pacific Ocean if water levels in the river are too low and the water too warm for the fish to complete their migration. That means the salmon will be packed into climate controlled, water-filled 18-wheelers and take an approximately three-hour ride from their hatcheries to San Pablo Bay. There, they’ll be submerged into the bay in netted pens where they’ll remain for a few hours to adjust to the temperature, light and salinity before being towed farther out into the bay and released into the outgoing tide.  Hatchery-raised salmon are shipped by truck to the ocean even in non-drought years, but if all 30 million salmon are shipped by truck this year, it would be about three times the amount of salmon usually shipped by truck. Harry Morse, Information Officer at the California Department of Fish and Wildlife, said each truck could transport about 130,000 young fish at a time, and that the department would be renting five trucks in addition to the one truck it owns for the project. The gas bill alone for the endeavor, he said, would likely be more than $100,000, and the trucks would be run almost daily from the end of March to the middle of June.

Huge tract of Australia in 'biggest ever drought': The Australian state of Queensland is in the grip of its most widespread drought ever, with close to 80 percent of its territory parched after a failed wet season, officials said Friday. Australia is famous for its droughts and flooding rains, and Queensland was hit by devastating floods in 2010-11 which left much of the state a disaster zone and brought the state capital Brisbane to a standstill. But the situation has now radically reversed, with 79 percent of the massive northeastern state—all bar a narrow northern coastal zone and a few other pockets—declared in drought. "Queensland is a big state and there is usually a drought somewhere, but this is the largest area of Queensland that has ever been drought-declared at one time," state agriculture minister John McVeigh said. Queensland is nearly seven times the size of Britain, with an area of 1.7 million square kilometres (656,000 square miles). McVeigh said February was normally one of the wettest times of the year, but this time round many shires missed out on rain altogether. Some of the newly drought-declared areas—prime regions for growing sugar cane—were flood zones just over a year ago.

Methane-producing microbe blooms in permafrost thaw - In time with the climate warming up, parts of the permafrost in northern Sweden and elsewhere in the world are thawing. An international study published in Nature Communications describes a newly discovered microbe found in the thawing permafrost of a mire in northernmost Sweden. There it flourishes and produces large amounts of greenhouse gases.  Several billion years ago, before cyanobacteria oxygenised Earth's atmosphere, there was a group of microbes called archaea which flourished in the warm, shallow oceans, letting out the greenhouse gas methane into the atmosphere. Today, most of the archaea's descendants hide in places where oxygen cannot reach them. Many still produce methane. The methane-producing (methanogen) archaea in permafrost have led still lives in the frozen soil. The small amounts of methane they produced have stayed below the ice or have been consumed by methane-eating neighbours.  The heating-up of the arctic regions has changed this status quo. The methanogens now have access to carbon dioxide and hydrogen which they convert into methane. The methane is let out into the atmosphere and contributes to further global warming.

Global warming not slowing - it's speeding up -- In 2013 the Earth’s oceans accumulated energy at a rate of 12 Hiroshima atomic bombs per second, according to global ocean heat content records from the US National Oceanographic Data Center (NODC). This rapid heating in 2013 compares to an average of 4 Hiroshima bombs per second since 1998, and 2 bombs per second since records began in 1955. The vast majority of heat from global warming goes into the oceans, so ocean heat content is a more reliable indicator of climate than surface or atmospheric temperature. This data shows global warming has accelerated in the last 15 years, contrary to denialist claims that global warming has “slowed”, “paused”, or “stopped” because the upper ocean, atmosphere, and surface have warmed more slowly in recent years. Warming oceans fuel hurricanes, raise sea level, melt sea ice, devastate coral reefs, and force fish to migrate to cooler waters. Satellite measurements confirm Earth is gathering heat at the rate indicated by ocean heat content. This can be expected to continue as atmospheric CO2 is currently at 400 ppm and rising (its highest level in at least 13 million years and well above the estimated safe level of 350 ppm).

IPCC: 2015 last chance for cheap mitigation - From the FT today, the head of the UN Intergovernmental Panel on Climate Change (IPCC) Rajendra Pachauri says: “We will have to work much harder to win this battle now than we would have been required to do 10 or 15 years ago…The challenge is daunting but I don’t for a moment feel pessimistic,” he said, explaining there were many examples of technical advances and political actions underway to combat the problem. The IPCC…will release the latest section of its fifth lengthy report at the end of this month. Each of its assessments has confirmed what it says is unequivocal warming, caused largely by emissions of carbon dioxide, the main man-made greenhouse gas, produced by burning fossil fuels such as coal and gas.However, carbon emissions have kept steadily increasing over the lifetime of the IPCC and last year rose to more than 400 parts per million, the highest level in millions of years.…ahe IPCC’s new report is expected to confirm that the cost of containing climate change will rise the longer governments wait to reduce emissions. Dr Pachauri said: “We will be looking at the costs of mitigation in next month’s report but in our last report in 2007, we said if you want to stabilise temperature increases to no more than 2C – 2.4C at the least cost, then 2015 is the year when C02 emissions will need to peak.”

Four reasons why the fight against climate change is likely to fail -- Democrats in the Senate stayed up all night talking about the perils of climate change. But while there's hope that technology, changing consumer and business practices or new policies could finally turn the tide and slow or reverse climate change, there are also good reasons to think those efforts will fail.

  1. There isn’t enough research and development into ways of generating energy without emitting carbon dioxide. “The U.S. energy sector invests only 0.23 percent of its revenue in research and development, and federal R&D spending is only half of what it was in 1980,”
  2. The price of fossil fuels doesn’t include the cost of environmental damage and climate change. Legislation, meanwhile, isn’t doing the trick when it comes to increasing the price. A cap and trade program is complicated, virtually impossible politically, and not working all that well in Europe. A carbon tax – even a small gasoline tax – won't get adopted by Congress.
  3. Many countries still subsidize fossil fuels, including those in the Middle East where consumption is growing fastest. The International Monetary Fund puts the annual cost at $1.9 trillion (on a post-tax basis).
  4. China is determined to increase living standards with more cars, more power plants, and more everything. In 2012, the average Chinese emits 6.2 metric tons a year of carbon dioxide versus 17.6 metric tons for the average American. Closing even one-third of that gap (even with more energy efficient economy) will generate a lot more emissions.

Developed Nations Give Up on Stopping Climate Change, Turn to Mitigating Impact, Largely Abandoning Third World: "The hardest truth about climate change is that it is not equally bad for everyone," Funk writes in a statement that some would consider underemphasizes the likely severity of global warming for even the wealthy northern nations. (Just consider that in the worst-case scenarios, most of the cities on the East and West coasts of the United States eventually could be floating in several yards of ocean water. National Geographic published possible scenario maps of just such a United States with its coastal urban areas underwater.) But he is onto something in that the developed countries are largely now not sincerely attempting to reduce climate change: They are aiming merely to mitigate its damage to the wealthy nations that primarily have caused it. That is what appears to be behind President Obama's proposed "climate resilience fund," which according to the Christian Science Monitor, "will include $1 billion to help communities deal with the effects of climate change." Funk, from an overall perspective, has nailed a significant point: With investors poised to profit from global warming largely created by the developed world - and with impact reduction technology being planned mostly for only already prosperous nations - the degradation of our atmosphere will not affect the peoples of the Earth equally. Just consider all the underdeveloped nations in the tropics and subtropics that would experience unbearable heat as temperatures warm.

Pentagon Warns Increase In Terrorism Due To Global Warming -- For the past few weeks we have seen stock markets surge as macro-economic data has collapsed around the world. The 'excuse' given for this apparent dichotomy - weather. But now it seems "weather" is to blame for other problems in the world too. As Russia Today reports, in its latest Quadrennial Defense Review, the US Department of Defense (DoD), stressed threats to global stability and American hegemony posed by climate change warning that that an erratic climate will likely cause increased “terrorist activity,” among other impacts..."The pressures caused by climate change will influence resource competition while placing additional burdens on economies, societies, and governance institutions around the world...these effects are threat multipliers."

Whither the Green Economy?  - Over a year ago, in March 2013, the U.S. Bureau of Labor Statistics (BLS) released its 2011 Green Goods and Services (GGS) Survey. Its purpose was to describe employment and development trends in five key categories of the burgeoning U.S. green economy: energy from renewable sources (aka “clean energy”), energy efficiency, pollution abatement and materials recycling, natural resources conservation and environmental compliance, education, training and public awareness. Some good news emerged from the GGS Survey: In 2011, there were 3.4 million green goods and services jobs, accounting for 2.6 percent of U.S. employment. However, there was also bad news to report. In March 2013, the BLS announced that, as part of the cross-the-board spending cuts authorized through the federal budget “sequestration,” it would no longer be producing any more GGS Surveys after the 2011 report. In short, the U.S. green economy and employment may or may not be growing, but since 2011 we have had no national survey reporting on these trends. The fate of the Green Goods and Services Survey seems symbolic of the entire green economy in North America. There is signs of considerable progress, but mostly we seem to have little idea whether we are on an upward trend or whether “green growth” has actually stalled. The main dilemma to “growing” the green economy in North America has been apparent for some time: Is it just one small niche sector within an overall “brown” economy, or is the green economy really the force for a new wave of industrial innovation, R&D and employment that ultimately replace the brown economy with a more sustainable and greener version?

The Red Faces of the Solar Skeptics - If the faces of renewable energy critics are not red yet, they soon will be. For years, these critics — of solar photovoltaics in particular — have called renewable energy a boutique fantasy. A recent Wall Street Journal blog post continues the trend, asserting that solar subsidies take money from the poor to benefit the rich.  But solar-generated electricity is turning into a powerful environmental and economic success story. It’s also threatening the balance sheets of electric utility companies that continue to rely heavily on fossil fuels and nuclear energy. As their costs per kilowatt hour have fallen through the floor, solar arrays have hit the rooftops.  The average price of a solar panel has declined an estimated 60 percent since the beginning of 2011, and this year the total photovoltaic capacity in the United States is projected to reach 10 gigawatts, the energy equivalent of several nuclear power plants. (By one estimate, photovoltaic costs crossed over to become cheaper than electricity generated by new nuclear plants about four years ago.) An analysis of remodeling and construction permit data from 77 municipalities around the United States reveals that solar installations — primarily photovoltaic rather than solar thermal — grew by a third last year alone. With a relatively short payback period, these home-improvement investments are now within the reach of many middle-class families.  In both Europe and the United States, generous public subsidies including tax breaks and feed-in tariffs requiring utilities to buy back consumer-generated electricity that feeds into the grid have allowed solar photovoltaics to achieve vastly lower unit costs. But these subsidies are dwarfed by historical taxpayer support of both fossil-fuel and nuclear-generated electricity. The International Energy Agency warns that continuing fossil-fuel subsidies contribute significantly to global environmental problems.

Powerlines disturb animal habitats by appearing as disturbing flashes of UV light invisible to the human eye - Wild animals see overhead power cables in remote regions of the countryside as disturbing lines of flashing lights, which could explain why many species avoid electricity pylons to the point where their natural territories become seriously fragmented, scientists said. A study of wild reindeer in Norway has shown that they can see overhead power lines in the dark because their eyes are sensitive to the flashes of ultraviolet light which are invisible to the human eye but are constantly being emitted by high-voltage electrical transmission, the researchers said. Many other species, from birds in the Arctic to elephants in Africa, can also see ultraviolet radiation which may explain why different kinds of animals in widely varying habitats all tend to avoid overhead power lines even though they are considered to be inert and invisible to wildlife, they said. The adult human eye can only see wavelengths of light down to the blue-violet end of the visible spectrum but other animals are able to see well into the ultraviolet range. Reindeer for instance have reflective surfaces at the back of the eye that help them to see UV light on dark winter days, said Professor Glen Jeffery of University College London. “Reindeer see deep into the UV range because the Arctic is especially rich in UV light. Insulators on power lines give off flashes of UV light,”

Fukushima disaster: Plan to send residents home three years after nuclear accident labelled irresponsible - A nuclear industry insider has told the ABC that the situation at the stricken Fukushima reactor is still not under control, three years after the disaster there. Japan's prime minister Shinzo Abe has announced he wants 30,000 residents to return to their homes and the reactors to be switched back on within two years. But a Fukushima insider and two former prime ministers have told the ABC's 7.30 program that such a move would be irresponsible. At the risk of losing his job if his identity is revealed, a man who worked at TEPCO's Fukushima plant for more than 20 years says the situation at the reactor is not under control and no-one knows how to fix the problem. "There are too many systems and they all have problems," he said. "For example, too many water tanks with too many lines - it's very difficult to operate. It's made worse because all the experienced workers have reached their radiation limits, so TEPCO has to rely on staff that don't know the site and who aren't trained." The whistleblower says mistakes are made weekly, and contaminated water leaks into the Pacific Ocean every day.

Troubled waters: Nuclear radiation found in B.C. may pose health concerns: A radioactive metal from the Fukushima nuclear plant disaster in Japan has been discovered in the Fraser Valley, causing researchers to raise the alarm about the long-term impact of radiation on B.C.’s west coast. Examination of a soil sample from Kilby Provincial Park, near Agassiz, has for the first time in this province found Cesium 134, further evidence of Fukushima radioactivity being transported to Canada by air and water. “That was a surprise,” said Juan Jose Alava, an adjunct professor in the school of resource and environmental management at Simon Fraser University, in an interview on Tuesday. “It means there are still emissions ... and trans-Pacific air pollution. It’s a concern to us. This is an international issue.” Cesium 134 has a half-life of two years, meaning its radioactivity is reduced by half during that time. Its presence in the environment is an indication of continuing contamination from Fukushima. A more persistent danger to people and marine life is radioactive Cesium 137, which has a half-life of 30 years, and bioaccumulates in the food chain.

Unions Rail Against Obama Proposal to Privatize Tennessee Valley Authority: Tucked away in President Obama's 2014 budget proposal released early last week, say union critics, is a renewed proposal by the administration to destroy one of the last remaining success stories that resulted from Franklin Delano Roosevelt's "New Deal" more than 80 years ago.According to reporting by The Hill on Tuesday, Obama's inclusion of a previously floated plan to privatize the Tennessee Valley Authority—created by FDR and Congress in 1933—have put unionized workers employed by the TVA on the "attack" against an idea they say will cost them their jobs and destroy a federal entity that has fulfilled its mission in every way. From The Hill: The president first announced the proposal in last year’s budget plan, saying the administration “intends to undertake a strategic review of options for addressing the TVA’s financial situation, including the possible divestiture of the TVA, in part or as a whole.” In this year’s budget, the administration said it “continues to believe that reducing or eliminating the federal government’s role in programs such as the TVA, which have achieved their original objectives, can help mitigate risk to taxpayers.” That language was included over the strenuous objections of labor unions, which approved a resolution at the AFL-CIO convention in September urging Washington to reject all efforts to privatize the TVA.

NRC Finds Several Reactors with “Degraded Level of Performance” - The U.S. Nuclear Regulatory Commission just published its annual assessment of the nation’s nuclear power fleet, grading power plants on their performance and safety record. Of the 100 nuclear power plants in operation around the country, 89 of them fell in the two highest performance categories. That left several plants that were graded with a “degraded level of performance” designation or worse. The NRC conducts inspections and measures performance indicators to arrive at its conclusion for how to assess a given power plant. A total of 80 nuclear power plants met all safety and security performance objectives.  Nine more only needed to resolve one or two items of “low safety significance.” After the plant’s operator fixes these minor items, the NRC may conduct a follow up inspection to make sure everything checks out alright. The nine plants in this category include: Browns Ferry 3 (Ala.); Clinton (Ill.); Fitzpatrick (N.Y.); Grand Gulf 1 (Miss.); LaSalle 2 (Ill.); Point Beach 2 (Wisc.); Prairie Island 2 (Minn.); Robinson (S.C.); and Turkey Point 3 (Fla.). The NRC, in a press release, noted that the Robinson plant has since addressed its issues and has been placed in the highest performance category.

NC cuts 13 percent of water protection agency only weeks after massive coal ash spill -- North Carolina has moved forward with a decision to cut 13 percent of the agency responsible for protecting water resources even as one of the nation’s largest coal ash spills continued to devastate rivers in the state. Last month, the Duke Energy plant in Eden discovered that gray coal ask sludge was leaking out of a storage pond into the Dan River.  Gov. Pat McCrory (R), a former executive at Duke Energy, has been criticized for his close ties to the company, and for receiving more than $1 million in campaign donations from the company and its employees. The News & Observer reported last week that the Department of Environment and Natural Resources (DENR) had eliminated 13 percent of the staff positions from the Division of Water Resources only weeks after the coal spill was discovered.

Inside the West Virginia Chemical Spill -- A 2013 Gallup-Healthways survey found West Virginia to have the lowest state of wellbeing in the country — for the fifth straight year. According to the study, state residents had the country's highest rates of cholesterol and blood pressure, and its second highest rate of obesity. Their emotional health is also suffering: residents of no other state had as negative an outlook on the future. And now, with the MCHM spill, those living in Chemical Valley have sustained another blow. In Charleston things appear normal — businesses are open, the National Guard is gone, the tanker trucks of clean water are no longer idling in strip-mall parking lots — but scratch the surface and it's clear that the emergency is not over. Behind the counter at a café sit two five-gallon tanks of bottled water hooked up to the coffee machines. At a local eatery, when I order a soda, the bartender explains that it comes from the tap. "Are you sure you don't just want bottled water?" he asks. Grocery stores still can't keep their water shelves stocked. Talk to people on the street and you're told that no one drinks from the tap. Some people bathe in it, others use it to wash their clothes, but almost no one trusts it.

Not Just New York: Gas Leaks Are A Problem All Over The U.S. - Two buildings in New York City collapsed this morning, killing two people and injuring 22, according to ongoing reports. Police are still investigating the cause for the collapses, Reuters reports, but there's some evidence pointing to a natural gas leak. A growing collection of evidence suggests that natural gas leaks and explosions are a problem throughout the U.S. It's a problem that gas companies know about, but aren't motivated to fix, according to an award-winning feature published in 2013 in the online magazine Matter. Left unchecked, the leaks occasionally threaten people and property. They may also contribute to global warming as much as coal, undermining natural gas' reputation as a greener choice and, well, threatening people and property, in the long run. Matter reports: Natural gas pipeline explosions in the United States kill an average of 14 people every year, and injure an additional 50 or so. In 2010, an explosion in the Californian city of San Bruno killed eight people and destroyed almost 40 homes. An independent audit ordered by state regulators found that the local energy provider, PG&E, had spent 15 years diverting more than $100 million in funds earmarked for safety and operations into other areas, including executive bonuses.The following year an explosion in Allentown, Pennsylvania killed five; regulators called the safety record of UGI Utilities, the company that owned the pipeline, 'downright alarming' and fined the corporation $500,000. The feature follows Bob Ackley, a longtime gas-company contractor who drives around cities, finding gas leaks. Most recently, the team published a study reporting more than 5,800 leaks in Washington, D.C. The team found 12 manholes—where leaked gas tends to accumulate—had high enough concentrations of methane to cause an explosion. Four months after they gave their results to the local gas company, nine manholes remained dangerously full of methane, the main—and most dangerous—chemical in natural gas.

Ohio halts Mahoning drilling after two small earthquakes - The Ohio Department of Natural Resources today ordered a drilling company to temporarily halt operations in Mahoning County, in the wake of two small earthquakes. The order affects Hilcorp Energy that has been drilling horizontal wells in Poland Township. It has drilled a dozen wells in the area. The two quakes were centered near Lowellville on the Ohio-Pennsylvania line and were about 1.2 miles deep, according to the U.S. Geological Survey. The first quakes occurred about 2:26 a.m. and measured 2.8 magnitude. It was later upgraded to 3.0 magnitude. It was reportedly under the Carbon Limestone Landfill where Hilcorp Energy is drilling some of its wells. The second quake occurred after 11 a.m. and the epicenter was to the southeast of the first quake. It measured a 2.6 magnitude. No injection wells are in the area where the quakes occurred, ODNR said.  Injection wells have been blamed for small earthquakes in Ohio and other states, but horizontal drilling has not been blamed for causing earthquakes previously.

Ohio halts gas drilling near Youngstown after earthquakes: -- State regulators ordered a gas drilling company to halt operations in an area of northeastern Ohio after three minor earthquakes were felt in the area. No property damage had been reported from the earthquakes that happened Monday morning just west of Youngstown. The Ohio Department of Natural Resources says there's nothing indicating that the earthquakes are connected to any injection wells. The department says it asked the only oil and gas operator in the area to stop all work until it can further test the area. An injection well used to hold wastewater from the fracking process has been tied in recent years to a series of earthquakes in the Youngstown area.

Youngstown News, Fifth earthquake struck early this morning: USGS -  The U.S. Geological Survey recorded a 2.1 magnitude earthquake in Poland Township today, just after 3 a.m. It’s the fifth, the smallest and most recent seismic tremor to be recorded in Mahoning County after the area experienced four earthquakes on Monday. USGS located the first epicenter almost directly below Carbon Limestone Landfill in Poland Township, where the oil-and-gas producer Hilcorp Energy Co. has 7 wells in various stages of production. One was actively producing. ODNR on Monday ordered Hilcorp to suspend all activity at the site until further notice.

Tremors In Ohio Attributed To Shale Drilling - A series of small earthquakes on Monday brought shale gas drilling to a standstill in Mahoning County, Ohio and reinforced concerns about the seismic consequences of hydraulic fracturing. The National Earthquake Information Center of the U.S. Geological Survey recorded four earthquakes with magnitudes over 2.2 on the Richter scale, including a 3.0-magnitude earthquake that took place early at 2:26 AM. The epicenter of these quakes was located in close proximity to several shale gas wells being drilled by Hilcorp Energy, an oil and gas producer based in Houston, TX-based in the Carbon Limestone Landfill in Poland, Ohio. Hilcorp Energy, which is drilling seven wells at the site, immediately suspended all activity at its wells on Monday. In a press release on Monday, Hilcorp stated:  It is far too early in the process to know exactly what happened, and we are not aware of any evidence to connect our operations to these events. We would also like to remind the community that a number of Utica wells have been drilled in Ohio in recent years without incident. Nevertheless, we do acknowledge that public safety is of paramount importance to our company. Accordingly, Hilcorp agrees with the [Ohio Department of Natural Resources] that all activity at the site will be suspended immediately until we determine it is safe to continue our operations.

Ohio earthquakes linked to fracking -- Ohio authorities shut down a hydraulic fracturing, or fracking, natural gas operation in Mahoning County on Monday after two earthquakes were felt in the area, near the Pennsylvania border, local newspapers and broadcasters reported. The quakes registered magnitudes of 3.0 and 2.6, the U.S. Geological Survey’s National Earthquake Information Center said on its website. Two smaller earthquakes were also reported later in the day. The Ohio Department of Natural Resources (ODNR) halted operations of Texas-based Hilcorp Energy — which conducts fracking in the area — while experts from the department analyze data from the earthquakes, The Columbus Dispatch said, citing a statement it received from the ODNR.  Hilcorp has drilled seven wells at the site near Monday’s earthquakes, according to The Business Journal, a local newspaper. The Columbus Dispatch cited the ODNR as saying all available information indicates the latest quakes are not connected to injection wells.Alison Auciello, the Ohio organizer for environmental group Food and Water Watch, told Al Jazeera that the location and depth of the latest earthquakes’ epicenters are consistent with the particular drilling sites — meaning they may have been caused by the fracking operation itself rather than waste disposal. Wilma Subra, an environmental consultant and veteran activist, told Al Jazeera that it is only a matter of time before fracking operations cause earthquakes. “When you put that much liquid under extreme pressure down into a shale formation, it leaks out of the shale formation and into an area where there is a fault, resulting in an earthquake,” she said.

Ohio halts gas drilling after two fracking-induced earthquakes - US State regulators ordered a gas drilling company to halt operations in an area of northeastern Ohio after three minor earthquakes were felt in the area. Ohio authorities shut down a hydraulic fracturing (“fracking”) natural gas operation in Mahoning County on Monday after two earthquakes were felt in the area, which is near the Pennsylvania border, local newspapers and broadcasters reported. The first quakes occurred about 2:26 am and measured 2.8 magnitude. It was later upgraded to 3.0 magnitude. It was reportedly under the Carbon Limestone Landfill where Hilcorp Energy is drilling some of its wells. The second quake occurred after 11 am and the epicenter was to the southeast of the first quake. It measured a 2.6 magnitude. The Ohio Department of Natural Resources (ODNR) halted operations of Texas-based Hilcorp Energy — which conducts fracking in the area — while experts from the department analyze data from the earthquakes, the Columbus Dispatch newspaper said, citing a statement it received from the ONDR.

Ohio Bans Fracking To Investigate Recent Flurry Of Earthquakes Seemingly Unrelated To Waste Water Disposal But In Area Of Fracking -- The Los Angeles Times is reporting: A fracking operation at the eastern border of Ohio remained closed Wednesday, two days after a string of earthquakes stirred some people from their sleep and prompted state regulators to investigate whether the shale-drilling may have been a cause.  Areas in the central and southern U.S. have seen a 20-fold increase in small earthquakes during the past few years, and federal scientists have said the boom in drilling for oil and natural gas has been a contributing factor.  Primarily, part of the dramatic rise has been attributed by the scientists to injection wells, where waste water from fracking is gushed back deep into the earth for storage. The fracking process of firing a mix of water and chemicals at underground rocks -- in hopes of freeing oil and gas stored inside them -- has not been a major cause for earthquakes, according to the U.S. Geological Survey.  But none of the seven wells near the Ohio temblors are for waste disposal, leading local officials and environmentalists to question whether fracking that began last month on one of the wells might have been enough to trigger the human-felt earthquakes.Could small tremblors relieve stress along faults, preventing the BIG one from hitting California? So much to study; so little time.

Oil, gas wastewater disposal causes cascade of Oklahoma quakes-USGS (Reuters) - Underground disposal of wastewater from oil and gas drilling likely triggered a series of earthquakes in central Oklahoma in November 2011, according to a study from the U.S. Geological Survey that will add to the controversy surrounding the impact of the U.S. energy boom. A magnitude 5.0 earthquake on Nov. 5 near Prague, Oklahoma, which has already been linked to oil and gas wastewater disposal nearby, likely caused another magnitude 5.7 quake the next day. That, in turn, caused "thousands of aftershocks", the USGS said in a statement last week. The report adds to previous studies suggesting that pumping millions of gallons of drilling fluids underground puts stress on fault lines and can cause earthquakes. While the USGS study concentrates on wastewater, it also draws attention to the oil and gas production technique known as fracking, which involves pumping a mix of chemicals, water and sand deep underground to release oil and gas. Much of that water flows back to the surface and is disposed of in caverns. true The USGS said the 5.7 magnitude quake was the largest earthquake associated with wastewater injection, but said that the earthquakes have not been directly linked to fracking.

U.S. Geological Survey confirms: Human activity caused 5.7 quake in Oklahoma - The United States Geological Survey (USGS) issued a press release yesterday indicating that the magnitude 5.7 earthquake that struck Prague, Oklahoma in 2011 was unintentionally human-induced. The USGS claims that the magnitude 5.0 earthquake triggered by waste-water injection the previous day “trigger[ed] a cascade of earthquakes, including a larger one, [which] has important implications for reducing the seismic risk from waste-water injection.” Injection wells are considered by some to be the most environmentally sound method of disposing of waste-water — which is a byproduct of both hydrofracking and conventional oil production — because they use the earth itself to both filter and contain the pollution. The decade-long explosion of energy-producing facilities in the central United States has, according to a recent article in the journal Geology, led to an 11-fold increase in the number of earthquakes occurring in areas that are typically tectonically calm, including Arkansas, Texas, Ohio, and Colorado in the past four years alone. The 5.7 magnitude quake in Prague followed an injection of waste-water approximately 650 feet away from the Wilzetta fault zone, a complex fault system about 124 miles in length. All three earthquakes exhibited a slip-strike motion, and did so at three different locations, indicating that three separate areas of the fault zone were activated.

Testimony: Record 36% of North Dakota Fracked Gas Was Flared in December -- The recent March 6 House Energy & Commerce Subcommittee on Energy and Power hearing titled "Benefits of and Challenges to Energy Access in the 21st Century: Fuel Supply and Infrastructure" never had over 100 online viewers watching the livestream at any point in time. And it unfolded in an essentially empty room.  But the poor attendance record had no relation to the gravity of the facts presented by testifiers. Among other things, one presenter revealed 36 percent of the gas by-product from oil obtained via hydraulic fracturing ("fracking") in North Dakota's Bakken Shale basin was flared off as waste during a brutally cold midwest winter with no end in sight.  These damning facts were brought forward by Coalition for Environmentally Responsible Economies (Ceres) Oil & Gas and Insurance Programs Director Andrew Logan, one of eight people called to testify around topics ranging from domestic propane markets to fossil fuels-by-rail markets, to pipeline markets and flaring.  A topic covered previously by DeSmogBlog, Logan submitted to the Subcommittee that flaring "is getting worse, not better." "Flaring in North Dakota hit 36% in December, a new record," Logan told the subcommittee. "This means that more than 1/3 of all natural gas produced in the state is going up in smoke, at the same time as consumers around the country are seeing price spikes from natural gas in this cold winter, along with actual shortages of propane in many places." Logan also said that wasteful flaring is also a growing quagmire in Texas, which has seen a 10-fold increase in flaring permits since 2010.

Fracking chemicals won’t stay secret much longer: Wyoming Supreme Court rejects industry’s justification of secrecy surrounding chemicals injected underground --The concoction of chemicals used in the oil and gas drilling process known as ‘fracking’ may not be kept a “trade secret” for much longer, following a ruling by the Wyoming Supreme Court on Wednesday. The plaintiffs in the case, the Powder River Basin Resource Council and other groups concerned about the controversial drilling technique, said the Wyoming Oil and Gas Commission should not be able to withhold the types of chemicals it injects into the ground during the process, which have been known to contaminate groundwater. On Wednesday, the court rejected an earlier ruling from the District Court in Casper that allowed the industry to keep those chemicals hidden from public knowledge, sending it back to the District Court for reconsideration. The Wyoming Supreme Court held that the Oil and Gas Commission has to justify its use of a trade secrets exemption rule, which it has used to hide the fracking chemicals ingredients.

Shell's American Woes Highlight Difficulty of Cracking Shale: Shell's new boss, Ben van Beurden, said bets on U.S. shale plays haven't worked out for his company. Its North American performance was already hit by pessimism over offshore Alaska, but its latest move shows Big Oil hasn't quite mastered how best to capitalize on the U.S. oil boom. "Some of our exploration bets have simply not worked out," Shell’s Chief Executive Officer Ben van Beurden said. Van Beurden said it was bad management policy to commit close to $80 billion in capital on its North American portfolio and still lose money. Now, he said, it's time to cut the loss and slash exploration and production investments by 20 percent for 2014. Related Article: Glencore Eyes Shell’s Beleaguered Nigeria Assets Shell's new boss made big waves earlier this year when he said he wasn't ready to commit any more capital to drilling in the arctic waters off the coast of Alaska. Now, the company said its profitability has been impacted by losses in U.S. shale basins in the Lower 48.

Wisconsin sand-mining boom pitting critics against supporters of the fracking-led practice -  Ohio isn’t the only Midwestern state dealing with the pros and cons of fracking. Our neighbors who aren’t seeing a spike in oil and gas drilling are instead seeing a big increase in a related field: Sand mining. Oil and gas companies need huge amounts of sand used in fracking operations to hold open cracks in shale rock. In Ohio, that rock is usually the Utica formation. In West Virginia and Pennsylvania, it’s the Marcellus shale. Much of that sand is ripe for mining in upper Midwestern states such as Iowa, Illinois, Minnesota and especially Wisconsin. And just as in Ohio, where support for fracking can vary wildly county-by-county and neighbor-by-neighbor, the people in those states have vastly different opinions on its impact, the Christian Science Monitor reports. Some people in rural areas of the states view sand-mining as an extension of farming. Opponents see sand-mining as ruining once-idyllic land, the Monitor reports. “Since 2012, Wisconsin has found nearly two dozen sand-mining operations in violation of air and water pollution rules,” the paper says. Here’s how the Christian Science Monitor describes its use: “To extract it, mining companies scrape away the soil, break up the sandstone with explosives, and then crush it. The raw sand is washed, sorted by size, and shipped by truck, rail, and barge to fracking operations in the U.S. and Canada. There the sand is mixed with water and chemicals and pumped underground, where the particles lodge in cracks and prop them open while gas or oil flows out.”

Oil Sands and the Post-Apocalyptic Wonderland - (photo essay) With the Keystone decision pending, and the kerfuffle over the potential environmental impact of the pipeline on American soil, I wanted to give my readers some idea of what it looked like where the oil that the pipeline will transport is sourced from.  Most of you know that the oil will come from Canada's oil sands, located in the northeastern corner of Alberta, Canada's petro-province.  As a suggestion, if you are not particularly interested in the background information that I am providing in this posting and want to get right to the video showing the ecological impact of the mining operations, that section of this posting starts near the bottom.  Let's open with a map from the Alberta Oil Sands Information Portal showing the extent of the oil sands, the current mineable area, the current projects and operating boundaries (in blue) for both in situ and mining operations and the location of upgraders: Notice that Fort McMurray is in the lower centre of the map and the scale is 0.75 inches equals 10 miles.  Here is a screen capture from Google Earth showing the extent of the current main oil sands projects:  For scale, the highway between Fort MccMurray and the southernmost oil sands mines is a four lane highway.  Before we look at the ecological impact of oil sands mining, I want to provide you with some background regarding the mines that are currently operating, their current and historical production data and plans for future expansion.   In this screen capture from Google Earth, I have focussed on the mining projects in the southern part of the currently mined area; Syncrude's Mildred Lake and Suncor's Millennium and North Steepbank Mines, the oldest mines in the area:  Here is a graph showing the ramping up of production by Syncrude's Mildred Lake operations since 1978:

Company In Charge Of Ongoing Tar Sands Leaks Wants To Try Again At The Same Site - The Canadian company in charge of a tar sands site that’s been leaking oil for about 10 months has applied for permission to resume extracting oil on the site, despite the fact that an investigation into the spill’s causes has yet to be completed. Canadian Natural Resources, Ltd. applied in February to start pumping high-pressure steam into the ground at their Primrose tar sands project near Cold Lake, Alberta, the site of four ongoing leaks which have so far expelled more than 12,000 barrels of oil onto the forest floor. CNRL’s application is for a site that is outside the one-kilometer (about .6 mile) restricted zone around the leaks which has been off-limits to drilling since last spring when the leaks were discovered. The company says it will reduce the pressure of the steam and increase monitoring to try to prevent more leaks. But since the site sits on the same geological location as the leak site, opponents say that CNRL should not be allowed to resume mining operations there until investigators uncover the cause of the leaks.

Canada’s Oil Sands Exports to U.S. Hampered by Infrastructure - The volume of exports to the U.S. Gulf in 2013 coming from Canada’s oil sands fell far short of original estimates. The oil industry projected that about 200,000 barrels per day (bpd) of oil from Canada’s oil sands provinces would reach Gulf Coast refiners by the end of 2013. But, data from December – expected to be the year’s peak – show that deliveries were below 40,000 bpd, according to Reuters. Data from Canada’s National Energy Board show higher numbers – about 57,000 bpd – but still far short of the industry’s original projections.  In what has become a crucial detail over the fate of the Keystone XL pipeline, exports of Canada’s oil sands have been significantly hampered by a lack of infrastructure. The U.S. State Department cited industry figures as evidence that oil sands development would happen regardless of the fate of an individual pipeline. The industry would simply shift to rail to make its deliveries. However, it appears that the industry is struggling to make that happen. Making up for the 800,000 bpd capacity of the Keystone XL pipeline would require 13 trains of oil, a mile long each, to reach the Gulf Coast every day. Shipping crude by rail is already more expensive than using pipelines. But with a series of train derailments carrying crude oil over the past year, the industry is being forced into using reinforced train cars, which could contribute to higher costs.

U.S. Agrees to Allow BP Back Into Gulf Waters to Seek Oil -- Four years after the Deepwater Horizon rig explosion, BP is being welcomed back to seek new oil leases in the Gulf of Mexico. An agreement on Thursday with the Environmental Protection Agency lifts a 2012 ban that was imposed after the agency concluded that BP had not fully corrected problems that led to the well blowout in 2010 that killed 11 rig workers, spilled millions of gallons of oil and contaminated hundreds of miles of beaches. BP had sued to have the suspension lifted, and now the agreement will mean hundreds of millions of dollars of new business for the company. But even more important, oil analysts said, it signifies an important step in the company’s recovery from the accident, which has been costly to its finances and reputation. “After a lengthy negotiation, BP is pleased to have reached this resolution, which we believe to be fair and reasonable,” said John Mingé, chairman and president of BP America. “Today’s agreement will allow America’s largest energy investor to compete again for federal contracts and leases.” That prospect elicited sharp criticism from environmental groups. “It’s kind of outrageous to allow BP to expand their drilling presence here in the gulf,”

U.S. lifts ban blocking BP from new government contracts - (Reuters) - The U.S. government lifted a ban on Thursday that excluded BP from new federal contracts, after the British oil major filed a lawsuit saying it was being unfairly penalized for its 2010 Gulf of Mexico spill. The Environmental Protection Agency and BP said they reached an agreement ending the prohibition on bidding for federal contracts on everything from fuel supply contracts to offshore leases after the company committed to a set of safety, ethical and corporate governance requirements. Shares of BP traded in the United States rose about 1 percent to $48.09 after the close of regular trading on the New York Stock Exchange, a sign investors were hopeful the company could now try to grow its U.S. offshore operations. "It's time to let them out from the doghouse. Let's let them get back to work,"

Exporting Liquefied Natural Gas Is A Dreadful Idea For The Climate - The crisis in Ukraine has rekindled arguments that the U.S. should export shale gas, supposedly to diminish the threat posed by Russia’s “energy weapon.” Sadly, few seem to care about diminishing the threat posed by climate change, since it has become increasingly clear that LNG would make things worse. I explained back in June 2012 why “exporting liquefied natural gas (LNG) is bad for the climate.” That analysis predated multiple studies that make clear that “by the time natural gas has a net climate benefit you’ll likely be dead and the climate ruined.”So we’re in double jeopardy with LNG. First, natural gas is mostly methane, (CH4), a super-potent greenhouse gas, which traps 86 times as much heat as CO2 over a 20-year period. So even small leaks in the natural gas production and delivery system can have a large climate impact — enough to gut the entire benefit of switching from coal-fired power to gas. Sadly, many recent studies find that there are sizable leaks. A February study from Stanford reported that “A review of more than 200 earlier studies confirms that U.S. emissions of methane are considerably higher than official estimates. Leaks from the nation’s natural gas system are an important part of the problem.” That study of studies found a best estimate for life-cycle natural gas leakage of a whopping 5.4% (+/- 1.8%). And that means replacing coal plants with gas plants would be worse for the climate for more than 6 decades.

Rand Paul Says He Would Respond To Ukrainian Crisis By ‘Drilling In Every Possible Conceivable Place’ -- Sen. Rand Paul (R-KY) said Sunday that he thinks the best way to respond to the crisis in Ukraine would be drilling for oil and natural gas “in every possible conceivable place” in the U.S. Paul, who won the presidential straw poll at the Conservative Political Action Conference this weekend, told Fox News Sunday host Chris Wallace that if he were president, expanding drilling would be a key part of his response to Russia invading Ukraine. “I would do something differently from the president,” Paul said. “I would immediately get every obstacle out of the way for our export of oil and gas, and I would begin drilling in every possible conceivable place within our territories in order to have production we can supply Europe with if it’s interrupted from Ukraine.” Paul isn’t the first American lawmaker to call for exporting gas to Europe in the wake of the crisis in Ukraine. Last week, Rep. Paul Ryan (R-WI) said that the U.S. “should be upping our exports of natural gas to this region and showing there will be real consequences to these kind of actions.” A day later, Rep. Ted Poe (R-TX) introduced a bill in the House that would force the Department of Energy to fast-track the approval of permits to export natural gas to Ukraine and other European Union and former Soviet countries.

Relaxing restrictions on U.S. exports of oil and natural gas - Tensions between Russia and Ukraine have prompted some discussion of revisiting U.S. policy on exports of oil and natural gas.  Speaker of the House John Boehner (R-OH) last week called for faster Energy Department approval of facilities to export liquefied natural gas (LNG). Senator Lisa Murkowski (R-AK) called for lifting the ban on U.S. crude oil exports. Here I offer an assessment of these proposals. There is no question that Russia’s critical importance in world energy markets is a key factor deterring the West from responding more vigorously to recent events. Although Russia’s strong hand derives in part from its role as a critical supplier of energy, it is hard to see how relaxing restrictions on U.S. exports of oil and natural gas would make much difference for any of these calculations. Even if more LNG facilities were approved tomorrow, it would still take years before they would begin delivering gas to customers, and it’s inconceivable that the U.S. could ever replace the 7.4 trillion cubic feet of natural gas that Russia exported in 2012. Notwithstanding, Europe’s vulnerability to a disruption in natural gas supply is going to be an issue for some time, and more U.S. exports might mitigate that. Ambassadors from Hungary, Poland, Slovakia and the Czech Republic support Boehner’s call for increased LNG exports. In the case of crude oil, it is even harder to make the case for relaxing export restrictions because of geopolitical considerations. Despite recent increases in U.S. production, the U.S. still imports on net around 5.5 million barrels a day. And the U.S. will continue to be a major net oil importer as far into the future as anyone can see.

The Ukraine Crisis Is Bolstering America's Oil And Gas Boom - The hand-wringing over what to do to help Ukraine has had a very positive impact on the U.S. oil and gas industry. Politicians like Sen. Lisa Murkowski (R-AK) are seizing on the crisis to call for a lifting of the ban on U.S. oil exports — the better to counterbalance Russia’s petro-influence. While the Wall Street Journal this morning wrote that western politicians are working on a variety of options to help “loosen Russia’s energy stranglehold on Ukraine” including “larger exports of U.S.-made natural gas.” Nevermind that the U.S. currently exports no natural gas in the form of LNG because new liquefaction plants won’t be completed until late 2015. The bigger point was made by economist Ed Yardeni in his morning note today: “By invading Crimea, Russian President Vladimir Putin may have succeeded in resolving the debate in the U.S. about whether or not we should export natural gas and crude oil.” Yardeni noted this New York Times editorial over the weekend as proof positive that the Obama administration (and the rest of the left-leaning side of the political class) now embraces U.S. energy exports as a potentially powerful political tool. When even the New York Times editorial board defies the anti-fracking lobby to conclude that “natural gas exports could serve American foreign-policy interests in Europe” it indicates that LNG exports are something we can all agree on

Ukraine, Russia and the nonexistent U.S. oil and natural gas "weapon" - Commentators were falling all over themselves last week to announce that far from being impotent in the Ukraine crisis, the United States had a very important weapon: growing oil and natural gas production which could compete on the world market and challenge Russian dominance over Ukrainian and European energy supplies--if only the U.S. government would change the laws and allow this bounty to be exported.  But, there's one very big problem with this view. The United States is still a net importer of both oil and natural gas. The economics of natural gas exports beyond Mexico and Canada--which are both integrated into a North American pipeline system--suggest that such exports will be very limited if they ever come at all. And, there is no reasonable prospect that the United States will ever become a net exporter of oil.  The EIA in its own forecast predicts that U.S. crude oil production (defined as crude including lease condensate) will experience a tertiary peak in 2016 around 9.5 mbpd just below the all-time 1970 peak and then decline starting in 2020. This level is far below 2013 U.S. consumption of about 13.2 mbpd of actual petroleum-derived liquid fuels.  It's true that U.S. natural gas production trended up significantly from its post-Katrina nadir in 2005. But the trend has now stalled. U.S. dry natural gas production has been almost flat since January 2012. The EIA reports total production of 24.06 trillion cubic feet (tcf) for 2012 and 24.28 tcf for 2013, a rise of only 0.9 percent year over year. Not mentioned by any of the commentators touting the U.S. natural gas "weapon" is that U.S. natural gas imports for 2013 were about 2.88 tcf or about 11 percent of U.S. consumption. So, let me see if I understand this: The plan seems to be to import more so we can export more. And this would change exactly what in the worldwide supply picture?

Washington Does Not Have a Natural Gas Weapon Against Moscow - After Russia’s invasion of Ukraine and its occupation of Crimea, many in the West wondered what could be done to oppose Moscow. Complicating matters, Europe depends on Russia for over thirty percent of its natural gas supply, and Moscow has used this leverage before to extract political concessions. To many, the answer to the specter of Russian natural gas dominance is clear: unleash America’s natural gas abundance and displace Moscow. This sentiment was crystalized in an op-ed penned by John Boehner in the Wall Street Journal last week, which called on President Obama and the Department of Energy to accelerate LNG export terminal approvals and open up America’s vast natural gas supplies to export. Boehner claimed that not only can the United States match Russia in the European energy marketplace—it has an obligation to do so.  Would American natural gas exports help shift the European balance of power? In short: no. Most of the natural gas that could potentially head for Europe is already committed in long-term supply contracts. The reasons for this are financial. Building an LNG export facility is a multi-billion dollar endeavour, and financiers want to be sure that future revenue is guaranteed, at least until the debts are paid off. This necessitates long-term contracts between LNG exporters and LNG import facilities at the other end. This means that even once American LNG exports are booming, little of that gas could be rerouted in a surge to offset Russian supply.  Furthermore, most of those contracts are in Asia, where natural gas prices are higher than in Europe. The United States does not sell natural gas, nor does Europe buy it; commercial entities do, and these companies are not going to voluntarily lose money in order to advance American interests.  Landed LNG prices in Europe range between $10 and $11 per MMBtu, while the price in Asia is $15 or higher. Also consider that the liquefaction process adds between $4 and $6 to the price of natural gas, and that the Henry Hub spot price, the benchmark for American natural gas, spiked to over $7 per MMBtu in the beginning of March on the back of an abnormally cold winter. At these prices, it would be hard for American producers to compete with European prices even if they wanted to.

Gas Wars: Will US Export LNG to Europe? --Russia’s move on Ukraine’s Crimea region has sparked Central European countries to increase calls for the United States to export its natural gas to Europe and help the region reduce its energy reliance on Moscow.  Former Soviet satellites Poland, the Czech Republic, Hungary and Slovakia—otherwise known as the “Visegrad 4”—are hoping to lobby Washington to remove bureaucratic hurdles for exporting US natural gas to Europe to minimize the effects of gas a key weapon in Russia’s political arsenal.  “With the current shale gas revolution in the United States, American companies are seeking to export gas, including to Europe. But the existing bureaucratic hurdles for the approval of the export licenses to non-FTA (free-trade agreement) countries like the Visegrad countries are a major hurdle,” the four countries’ ambassadors to the US wrote in a letter to House Speaker John Boehner.  Previous disputes over gas payments between Russia and Ukraine have caused Russia to cut off supplies that feed Eastern and Central Europe.  Last week, Russia threatened the new interim Ukrainian government that it might shut off the taps over unpaid bills, and particularly over $440 million that was due in February. For Ukraine, getting the US to export liquefied natural gas (LNG) to Ukraine and to the wider Central European region, is now more vital than ever. And if this conflict escalates, it could derail gas deliveries bound for Europe, because much of Europe’s gas goes through pipelines that pass through Ukraine.

U.S. Refiners Make Case Against Oil Exports -- Record-setting levels of U.S. oil production have sparked calls from industry officials and policymakers to reverse a 1970s ban on crude oil exports. Dissent, however, is emerging from inside the U.S. oil sector itself. A January report from the American Petroleum Institute, an energy trade group counting more than 500 energy companies among its members, said exporting U.S. crude oil could add $70 billion to upstream investments by 2020 and lead to an increase of as much as 500,000 barrels per day in domestic production.  The U.S. Energy Information Administration said in its short-term market report an usually harsh winter has curbed domestic oil production. The administration said strong growth from the Bakken, Eagle Ford and Permian basins should more than make up for the shortfall, however.   Leo Gerard, president of the United Steelworks lobby, said reversing the ban would actually be bad business for the refiners that make those products, however. "Lifting the ban would benefit oil companies that engage in oil exploration and production, but it would harm their refining operations that have to purchase crude at the market price," he said. Last month, energy mogul T. Boone Pickens stepped into the fray by expressing concerns about the wisdom of reversing the ban and now the industry itself is drawing battle lines over the debate.  For USW's Gerard, crude oil exports would lead to higher prices for petroleum products like gasoline at home. West Texas Intermediate and Brent crude oil prices both fell Wednesday when the U.S. Energy Department announced the test sale of 5 million barrels from the Strategic Petroleum Reserve. Generally speaking, the more oil there is on the market, the lower the price. While that could give some indication of the market reaction to crude oil exports, refiners could lose out on cheaper oil from U.S. shale if it's exported.

U.S. Oil Production Hits Highest Level in 25 Years -- New data from the U.S. Energy Information Administration shows that U.S. crude oil production is at its highest levels since 1989. December 2013 posted an impressive monthly average of 7.9 million bpd. For 2013, average oil production reached 7.5 million barrels per day. That was 967,000 bpd higher than 2012, a massive jump. The 15% annual increase in production is the largest since 1940. Much of the production increases came from the Bakken in North Dakota, and the Eagle Ford in Texas. Taken together, these two fields accounted for 83% of 2013’s gains. The Bakken averaged 0.9 million bpd for 2013 while the Eagle Ford reached an annual average of 1.22 million bpd. The record production pushed refinery utilization up to 88% for the year. Higher crude oil production also allowed the U.S. to decrease its oil imports, which fell to 7.6 million bpd, the lowest level since 1996. Imports dropped 10% in 2013, down 861,000 bpd. And since a peak in June 2005 at 10.7 million bpd, imports have declined by 30%. The EIA expects the rapid growth in oil production to continue, hitting 8.4 million bpd this year. If achieved that would be another remarkable increase of around 900,000 bpd. And for 2015, EIA projects an 800,000 bpd increase, allowing the U.S. to surpass 9.2 million bpd.

Ukraine is about oil. So was World War I - Ukraine is a lot more portentous than it appears. It is fundamentally about the play for Persian Gulf oil. So was World War I. The danger lies in the chance of runaway escalation, just like World War I. Let’s put Ukraine into a global strategic context. The oil is running out.  The rate at which known reserves are being depleted is four times that at which new oil is being discovered. That’s why oil cost $26 a barrel in 2001, but $105 today. It’s supply and demand.  In industrial civilization, the nation that controls the oil is king. And 60% of the known oil reserves are in the Persian Gulf. That’s why the U.S. invaded Iraq in 2003: to seize control of the oil. Alan Greenspan told at least one truth in his life: “I hate to have to admit what everybody knows. Iraq is about oil.” But the U.S. lost the war in Iraq. Remember?   The U.S. was run out after proving unable to pacify the Islamic jihad it had unleashed under the pretext of searching for non-existent weapons of mass destruction. Instead, Iraq allied itself with Iran, its Shi’ite comrade-in-arms in the Muslim Wars of Religion. So today, the battle for the Persian Gulf is being carried out through its two regional powers, Saudi Arabia, the champion of Sunni Islam, and Iran, the torch carrier for Shi’ite Islam. Think of the Wars between the Protestants and Catholics in the 1500s. The U.S. backs Saudi Arabia, as it has done since 1945, when Roosevelt cut a deal with Ibn Saud to protect his illegitimate throne in exchange for the House of Saud only selling oil in dollars.

Ilargi: Big Oil and Gas Wars -  We live in a world built on such an overkill of 24/7 propaganda and misinformation that some of it easily slips by. That’s about how I felt when I read yesterday about EU plans to deliver gas to Ukraine by reversing the flow through existing pipelines. That made me wonder things like: ‘How would that work in practice?’ and: ‘Which gas?’  Here’s an idea of how that went for me. First, the Guardian on the initial report: EU leaders draw up plans to send gas to Ukraine if Russia cuts off supply: EU leaders are rapidly drawing up plans to send some of their stocks of Russian gas back to Ukraine and other eastern European countries that need it, if Vladimir Putin reacts to western sanctions over the Crimea crisis by starving the continent of energy. Gazprom provides Ukraine with around half its gas, and other countries in eastern and southern Europe, including Poland and Greece, reportedly have low stocks of gas. Although Gazprom said the threat to Kiev would not affect the supply to the rest of Europe, western leaders are steeling themselves for a possible battle with Moscow over energy supplies. [..]My first question about reverse gas flows was: ‘How would that work in practice?’. Here’s what the article says about this:… European officials and energy experts concede there are doubts over whether it would be technically possible to transfer sufficient gas through the continent, west to east, if Russia decided to restrict its supplies for a significant period of time. While short-term assistance through the summer months could help, western Europe would not have the capacity to supply neighbours in the east for an extended period of time. Speaking on the condition of anonymity, one senior executive said reversing gas flows would be an extremely complex move. “This is not easy to do. Certainly the Gazprom export pipeline is built to move gas only in one direction, and it would involve a lot of time and money to reconfigure for imports ,” the executive said. “You would also have to get the agreement of dozens of commercial and other organisations. It is not going to happen.”

Ukraine Sees Gazprom Charging 37% More for Gas in Second Quarter - Ukraine faces a 37 percent increase in the price it pays for Russian natural gas after OAO Gazprom canceled a discount and threatened to cut supplies, Ukrainian Energy Minister Yuri Prodan told reporters today.  Ukraine will pay about $368.50 per 1,000 cubic meters of the fuel in the second quarter, Prodan said. Russia agreed last year to cut the price it charges Ukraine to $268.50. Gazprom rescinded the discount last week and said Ukraine risks a repeat of 2009, when the Moscow-based company reduced shipments during a pricing dispute.  Ukraine needs to import about 30 billion cubic meters of gas this year, of which a third may come from Slovakia, Prodan said March 5. Gazprom said March 7 in a statement it’s owed $1.89 billion by Ukrainian state gas company NAK Naftogaz Ukrainy for supplies already received.

Gazprom Chairman Sold All His Shares Just Before Russia Invaded Crimea - We are sure it is just coincidence - and awkward combination of luck and suspicious timing - but Vedomosti reports that Viktor Zubkov, the Chairman of Russia's massive energy monopoly Gazprom, dumped his entire stake in the company just a few weeks before Vladimir Putin crossed the red line. Gazprom shares have dropped 25% in the last 3 weeks so his timing was impeccible.

Which European Countries Will Suffer The Most If Russia Turns Off The Gas - With the Sunday Crimean referendum seemingly unstoppable now, its outcome certain, it is set to unleash a chain of events that is not entirely predictable but is at best, ominous, as it will involve the launch of trade, economic and financial sanctions against Russia (despite China's stern disapproval), which will lead to a "symmetric" response in kind by Moscow. And in a worst case escalation scenario, should game theory completely collapse and everyone starts defecting from a cooperative equilibrium state, the first thing to go will be European gas exports from Russia, anywhere from one day to indefinitely. So which European countries are most exposed to the whims of Gazprom? The following map from the WSJ, shows just how reliant on Russian gas exports most European countries are.

Poland Urges EU to Buy Russian Gas as Single Bloc - Polish Prime Minister Donald Tusk Wednesday urged the European Union to consider joint natural gas purchases for the entire bloc in order to strengthen its purchasing power with Russia amid rising tensions in Ukraine. Mr. Tusk has been vocal recently about the high reliance of the European Union on gas supplies from its eastern neighbor making a decisive reaction to Russia’s actions in Crimea more difficult. “Should the European Union decide first to buy gas then distribute it between member states depending on needs then no one, not even Russia, can neglect such a large client,” Mr. Tusk told the Polish public radio, adding it would stop Russia from “playing different EU states when it comes to gas purchases.” EU energy security is one of the topics Mr. Tusk will cover with German Chancellor Angela Merkel during her visit to Poland later Wednesday. Over the past few years Poland has taken steps to lessen its reliance on imports from its eastern neighbor and has been building pipelines connecting it with European Union neighbors to the west and south, as well as a liquefied natural gas port on the Baltic coast allowing it to bring in imports from Qatar. On Tuesday the country also offered six-year tax breaks to the shale gas industry to speed up exploration work.

Does Russia Need To Sell Gas More Than The EU Needs To Buy It? -  The Russian occupation of Crimea has raised concerns about the European Union’s dependence on its eastern neighbor for natural gas. The EU gets about 34% of its natural gas imports from Russia, a large portion of which transits Ukraine through a web of pipelines. For Eastern Europe, that dependence is much greater. In the brutally cold winter of 2009 Russia cut off gas supplies to Europe allegedly over a pricing dispute with Ukraine. However, it was also a lesson to Western Europe on its dependence on Russia for energy. Russia has a track record of using its natural gas supplies as a political weapon. The latest incursion into Ukraine has no doubt revived worries among European policymakers that saw what happened back in 2009. Thankfully, Vladimir Putin eased tensions on March 4, indicating that he wasn’t seeking a military conflict. This allowed natural gas prices to fall back a bit after spiking by 10% the day before. But how vulnerable is Europe to the political machinations of the Kremlin? It appears that this time around the EU is in better shape. A mild winter and stagnant demand have left Europe with higher levels of inventory than in past years. According to a spokeswoman at the European Commission, the EU has 40 billion cubic meters of natural gas on hand in storage, which accounts for 10% of annual demand for the entire European Union. Those figures vary by country (Czech Republic and Slovakia have 90 days of supplies; Hungary two months; Austria six months), but as a bloc, the EU has 20% greater supplies at its disposal than it did last year. And it’s not just seasonal patterns that have put the EU in a better spot. Europe has been reducing its reliance on Russian gas for a while now – in 2003 the EU imported 45% of its natural gas from Russia. It’s now down to around one-third.

Oilprice Intelligence Report: How Would LNG Get to Ukraine?: With all the talk about using US natural gas exports as a weapon to fight Russian aggression in Ukraine, what no one’s asking is how this liquefied natural gas (LNG) would get to Ukraine (or Europe in general) in the first place. The answer is Turkey—if Turkey is willing to play ball. The potential for LNG exports to Europe without a deal between Turkey and Ukraine for the transport of LNG through the Bosphorus will fall flat. This, in turn, makes the Black Sea region potentially the next major geopolitical game venue. As the crisis in Ukraine’s Crimean Peninsula escalates, the Black Sea becomes a highly significant venue, with Turkey controlling access here. Turkey authorized a US Navy destroyer to pass through the Bosphorus last week, and US-NATO war games have begun in the Black Sea region, close to the borders of Crimea. As noted in a recent repor published by in’s premium Oil & Energy Insider: “For Ukraine, LNG is the key to energy independence. For Turkey, LNG is the key to becoming one of the most important energy hubs between the Middle East and Europe. In combination with the Trans-Anatolian Pipeline (TANAP), which will bring Azerbaijani gas from Shah Deniz through Turkey on to European markets, controlling the LNG segment through the Black Sea would give Turkey broader leverage than any other player in Europe. For both Ukraine and Turkey, it would mean greater access to the economic benefits of the European Union, control over Europe’s LNG market and a level of political leverage over the continent that would render both world-class strategic players.”

Western countries alarmed as Libya slides towards chaos -  (Reuters) - Western countries voiced concern on Thursday that tensions in Libya could slip out of control in the absence of a functioning political system, and they urged the government and rival factions to start talking. Two-and-a-half years after the fall of former leader Muammar Gaddafi, the oil-rich North African state is struggling to contain violence between rival forces, with Islamist militants gaining an ever-stronger grip on the south of the country. "The situation in Libya is very worrying," French Foreign Minister Laurent Fabius told reporters on the margins of a conference in Rome to discuss the Libyan crisis. He said the uncertain security position, especially in the south, worsened an unstable political situation which required Libyan political forces to come together to reach a solution.  But with violent disputes between rival tribal factions disrupting exports of Libyan oil, the lack of a stable political foundation is causing growing concern for energy-hungry western countries, several of which were involved in overthrowing the Gaddafi government."It's incredibly important for the simple reason that oil is clearly a key driver of the economy,"

U.S. surprises oil market with sale from strategic reserve (Reuters) - The United States will hold the first test sale of crude from its emergency oil stockpile since 1990, offering a modest 5 million barrels in what some observers saw as a subtle message to Russia from the Obama administration. The Energy Department said the test sale had been planned for months, timed to meet demand from refiners coming out of annual maintenance cycles. But oil traders noted that Russia's effort to take over the Crimea region from Ukraine has prompted calls for use of booming U.S. energy resources to relieve dependence on Russian natural gas by Europe and Ukraine. Oil prices dipped to their lowest levels in a month after news of the test sale, which closes in two days. true Officials said the release would ensure that oil stored in vast salt caverns could still reach local refiners affected by recent changes in pipeline infrastructure. "Due to the recent dramatic increase in domestic crude oil production, significant changes in the system have occurred," department spokesman Bill Gibbons said. The test sale was needed to "appropriately assess the system's capabilities in the event of a disruption," he added.

US Using Oil to Fight Russian Gas Politics in Ukraine? -- The US appears to be building pressure on Russia over its actions in Ukraine by releasing crude oil from its emergency stockpile onto the market, with news of a “test sale” causing oil prices to dip to their lowest levels in a month.  The US announced yesterday that it would hold the first test sale of crude from its strategic reserve since 1990, releasing 5 million barrels onto the market—just enough to send a message to Russia, whose economy depends on high oil prices.    US crude oil fell by more than 2% on Wednesday, its biggest drop in two months, on the news. The White House said it did not associate the release with the crisis in Crimea, while the US Department of Energy claimed that it had been planning the strategic oil release for months. However, the timing of the release—as Ukraine faces a threat from Russia and as Russia takes control of Ukraine’s Crimea Peninsula—leaves traders unconvinced.  

Saudi Arabia threatens to blockade Qatar over terrorism -  Saudi Arabia has threatened to blockade neighbouring Qatar by air, land and sea unless Doha cuts ties with Egypt’s Muslim Brotherhood, closes global channel al-Jazeera, and expels local branches of the US Brookings Institution and Rand Corporation think tanks. The threat was issued by Riyadh before it withdrew its ambassador to Doha and branded as “terrorist organisations” the brotherhood, Lebanon’s Hizbullah and al-Qaeda-linked Islamic State of Iraq and Syria and Jabhat al-Nusra. Although the kingdom has long been the font of Sunni ultra-orthodox Salafism and jihadism, it now seeks to contain radical movements and media and other organisations giving them publicity.  King Abdullah has decreed that any Saudi who fights abroad could be jailed for 20-30 years, and those who join, endorse or provide moral or material support to groups classified as “terrorist” or “extremist” will risk prison sentences of five to 30 years.  The decree followed the gazetting of a sweeping new anti- terrorism law prohibiting acts that disturb public order, promote insecurity, undermine national unity or harm the reputation of the kingdom.

Nigerians Ask Why Oil Funds Are Missing — Even in a country where untold oil wealth disappears into the pockets of the elite, the oil corruption scheme he was investigating seemed outsize — and he threatened to lay it bare at a meeting with Nigeria’s top bankers. The rabble-rouser was none other than the governor of the country’s central bank. Weeks later, however, he was out, fired by Nigeria’s president in an episode that has shaken the Nigerian economy, filled newspapers and airwaves here, and even inspired a rare street demonstration.The bankers were going to have to open their books, the governor, Lamido Sanusi, warned them at the recent meeting. He wanted to see where the money was going — $20 billion from oil sales that, mysteriously, was not making its way to the treasury, in a country that could soon be declared Africa’s biggest economy and already attracts the most direct foreign investment on the continent, according to the United Nations. But his suspicions were cutting too close, Mr. Sanusi said — too close to an oil-politics nexus that both feeds the political establishment in Nigeria, in his view and that of analysts, and deprives the country of vital revenue.

Long Crude Oil Speculative Bets Rise To All Time High - Whether or not institutional investors, read large speculators, decided to invest alongside Putin in the one trade that is most critical to the future prosperity and positive cash flow balance of Russia, namely keeping the price of Crude high, and rising, is unknown, however, as the following chart the net position in crude oil futures as of the week of March 4, just hit an all time high of $44.0 billion up from $42.4 billion the week prior, surpassing all prior peaks, and certainly any set during the summer of 2008 when oil was threatening to make a run on $150, and was set to hit $200 if one believes Goldman (which nobody does).

Copper, iron ore futures gripped by “panic selling” - Markets are not enjoying the China data. From the SMH blog: Shanghai copper has dropped by its 5 per cent daily limit to its lowest in more than four years after weak Chinese trade data fanned concerns over its metals industry following the country’s first domestic bond default last week. The most-traded May copper contract on the Shanghai Futures Exchange has plunged 5 per cent to 46,670 yuan ($US7600) a tonne, its lowest since September 2009. On the Comex in New York, copper futures for delivery in May slid as much as 2.8 per cent to $US2.9955 a pound, the lowest intraday level since June 25, and last traded at $US3.0205 in Tokyo. The metal fell 4.2 per cent on Friday, the biggest drop since December 2011, and dropped 3.3 per cent last week. ‘‘It’s a bit of panic selling on concern that China’s demand is slowing,’’ said Kazuhiko Saito, a Tokyo-based analyst at commodities broker Fujitomi. ‘‘China is driving industrial metals lower.’’ Remember that Dr Copper, a proxy for global demand, is sitting right on the very key technical level at $3:

Iron Ore Prices Collapse Into Bear Market On China Credit Concerns - Iron Ore prices have dropped 25% since the end of last year, sending the key steel-making component into a bear market after slumping by over 9% overnight - its biggest daily drop on record. We warned last week this was likely to happen on the heels of Copper prices fell on monetary financing fears as we explained here how Iron Ore replaced copper as the collateral pool for new loans (following China's clampdown on cash-for-copper deals last year) and stockpiles hit record highs. What is further hurting the Iron ore prices are concerns over China's new anti-pollution reforms which are set to close thousands of furnaces. It may not be one of the core three (somewhat) realistic and accurate econometric indicators of China's economy (which as a reminder according to premier Li Keqiang are electricity consumption, rail cargo volume and bank lending), but when it comes to getting a sense of capacity bottlenecks in China's fixed investment pipeline - be it in ghost cities or the latest skyscraper building spree - nothing is quite as handy as commodity, and particularly iron ore (if not copper, which as we have explained before has a far more "monetary/letter of credit" function in China's markets), stockpiles at China's major ports. The logic is simple: no stockpiles means end demand by steelmakers is brisk and there is no inventory build up which in turns keep Australia, Brazil and other emerging markets happy. Alternatively, large stockpiles indicates something is very wrong with final demand, and hence, the overall economy.

Chinese Credit Concerns Clobber Copper; Collapse Continues To Lowest Since July 2010 - Copper futures prices are plunging once again, back under $3.00 back at the lowest levels since July 2010. The last 3 days have seen prices drop over 7.5% as China credit contagion concerns surge and letters-of-credit from last summer's cash-for-copper financing deals roll-off and businesses need the cash. The vicious circle of tumbling collateral values (copper and Iron ore) is exacerbating the tightening financial conditions in China as banks hoard liquidity, unwilling to lend to the over-capacity industries that the government has deemed unworthy. Rumors today of further defaults triggered this latest drop, and as we noted previously, there are a lot more to come.

Copper's 'fall out of bed' underscores China woes -  Copper prices fell to their lowest level in four years on the Shanghai Futures Exchange on Monday, after tanking 5 percent, a move which analysts say underscores China's bleak outlook following weak data and the country's first ever corporate debt default. The most heavily traded copper futures contract on the Shanghai Futures Exchange fell 5 percent - its daily limit - to 46,670 yuan ($7618) a tonne. The move followed a steep fall in the price of copper futures on the Comex division of the New York Mercantile Exchange on Friday. May futures tumbled 4.2 percent to $3.0825 a pound, the heftiest one-day drop since December 2011, and the lowest level since July. Analysts closely watch copper prices as a barometer for global risk appetite, as it is sensitive to macro-economic developments. "The [China] data wasn't that impressive, and when you combine that with [last week's bond] default, it presents a weak picture in terms of demand and ongoing ripples that that will cause. So copper did fall out of bed, which I think was something that was expected," he added. Copper's swoon comes against a backdrop of worry about slowing Chinese demand, which has seen prices slump 9.2 percent year to date. China, the world's largest copper importer, accounts for around 40 percent of global demand.

China February Exports Tumble Unexpectedly - China's exports unexpectedly tumbled in February, swinging the trade balance into deficit and adding to fears of a slowdown in the world's second-largest economy despite the Lunar New Year holidays being blamed for the slide. The sharp drop in exports follows a series of factory surveys since the start of 2014 that point to weakness in economic activity as demand falters at home and abroad. Exports in February fell 18.1 percent from a year earlier, following a 10.6 percent jump in January, the General Administration of Customs said on Saturday.  Imports rose 10.1 percent, yielding a trade deficit of $23 billion for the month versus a surplus of $32 billion in January. That compares with market expectations in a Reuters poll of a rise of 6.8 percent in exports, an 8 percent rise in imports and a trade surplus of $14.5 billion. Analysts cautioned against reading too much into single-month figures for January or February, given possible distortions caused by the long Lunar New Year holiday, which began on January 31 and covered early February. Many plants and offices shut for extended periods during the festival. Still, combined exports in January and February fell 1.6 percent from the same period a year earlier, versus a 7.9 percent full-year rise in 2013. Imports rose 10 percent year-on-year in the first two months, compared with a 7.3 percent rise in 2013.

Why China’s economy is in trouble in one chart - With its 1.3 billion people and its position as the second largest economy in the world after the U.S., China has been the engine that powered much of global economic activity over the past 10 years. So when China said its exports fell 18.1% year-on-year in February–economists had been expecting growth of 5%–it sparked waves of sales in equities and commodities that reverberated from New York to Frankfurt. While it may be too soon to know whether the sharp drop in exports will be an ongoing narrative, one thing worth noting is that China’s exports have not fallen this dramatically since mid-2009 when the international financial markets were still reeling from the U.S. financial crisis.

To Understand China’s Trade Data, Look at the Yuan - February’s surprise fall in Chinese exports may have less to do with the strength of foreign demand than with changing perceptions of the Chinese yuan.  A glance at the mainland’s trade data with Hong Kong suggests the strong capital inflows that boosted China’s export data in early 2013 have begun to wane as the outlook for the yuan currency becomes less rosy. China on Saturday reported a rare trade deficit of nearly $23 billion in February, the largest in two years. That reflected an 18% drop in exports from a year ago, probably linked to speculative fund movements back then. “We believe the weak export numbers reflect both fundamental weakness and capital outflows due to [yuan] depreciation in February,” China’s exports early last year were unusually strong — they surged 25% in January 2013 and almost 22% in February – leading to suspicion that the data were distorted.  Economists said the numbers were inflated by over-reporting of exports in order to skirt capital controls and bring more foreign exchange into China. Exporters were looking to take advantage of a strengthening yuan currency, which climbed nearly 3% last year.  In the first two months of this year the People’s Bank of China has allowed more volatility in yuan trading, helping to curb speculative capital inflows disguised as foreign trade. The yuan dropped nearly 1.4% in February and touched a 10-month low, throwing yuan bulls off balance. After taking a breather last week, the yuan has continued to fall this week. The Chinese central bank has set its benchmark exchange rate weaker every day, at 6.1327 per dollar Tuesday from 6.1312 Monday and 6.1201 last Friday. Tuesday morning, the yuan was trading at 6.1359 to the dollar.

China shadow lending slows sharply - lending in China slowed sharply in the first two months of the year as government efforts to control financial risks led banks to bring more credit back on to their balance sheets. But even as shadow financing was squeezed, China’s broad money growth remained stable, with the drop in lending by non-bank financial institutions such as trust companies almost entirely replaced by an increase in conventional bank loans. On-balance-sheet bank loans accounted for nearly 64 per cent of new credit issuance in China in the first two months of 2014, up from 55 per cent last year. At the same time, lending by trust companies fell from nearly 11 per cent of new credit to just over 5 per cent. “It’s quite clear what is happening. The central bank has been deleveraging the shadow banking sector and encouraging banks to bring loans back on to their balance sheets to monitor risks,”. “They are trying to slow shadow banking activity but still want overall liquidity to be strong.” Over the previous three years, caps on bank lending pushed credit-hungry borrowers into the arms of other financial institutions that were able to offer them loans, though often at higher rates. Many of the borrowers that tapped the shadow lenders were customers deemed too risky for the country’s banks such as local government investment companies and property developers. Alarmed at the surge in lending outside the formal bank sector, regulators last year made it harder for companies to funnel money from the interbank market into more lightly-regulated shadow credit products. Intensive media coverage of the near-defaults of two trust company products earlier this year may also have discouraged investors from providing more funding to the shadow sector.

China industrial output growth at five-year low - (AFP) - China's industrial production rose at its slowest pace in five years and other key indicators showed surprising weakness, data showed Thursday, raising alarm bells over the world's second-largest economy as Premier Li Keqiang outlined "serious challenges" ahead. Related Stories China's Jan-Feb economic activity cools to multi-year lows Reuters China govt targets 7.5 percent economic growth for 2014 AFP China sets 7.5 percent growth target Associated Press Deflation fears as China inflation drops to 2.0% AFP [$$] Beijing's GDP Goal Under New Scrutiny The Wall Street Journal Industrial output, which measures production at factories, workshops and mines, rose 8.6 percent in January and February year-on-year, the National Bureau of Statistics said on its website.The result was the lowest since the 7.3 percent recorded in April 2009, according to previous NBS data. The statistics covered a two-month period due to China's Lunar New year holiday week, which fell in both months. Retail sales, a key indicator of consumer spending, gained 11.8 percent in the two months from the year before, the lowest since an 11.6 percent increase in February 2011. And fixed asset investment, a measure of government spending on infrastructure, expanded 17.9 percent during the first two months of 2014, the NBS added. The pessimistic data set surprised economists and followed other recent indicators for manufacturing, trade and inflation that suggested weakness in China's economy, a key global growth engine. China's gross domestic product (GDP) grew 7.7 percent in 2013, unchanged from the year before, which was the worst result since 1999.

China industrial output data add to economic concerns - Chinese industrial output, investment and retail sales all slowed sharply at the start of the year, reinforcing concerns about a sudden weakening of growth in the world’s second-largest economy. With global commodity prices already under pressure and bond troubles in China adding to market jitters, investors had looked to the data on Thursday as the first comprehensive indication of Chinese economic performance thus far in 2014. The figures, which covered both January and February, fell short of market expectations on every metric. Industrial output slowed to 8.6 per cent, down from 9.7 per cent in December and missing forecasts of 9.5 per cent. It was the lowest reading for industrial output, which closely tracks overall economic growth, since August 2009. Fixed-asset investment fell to 17.9 per cent year-on-year, down from 19.6 per cent in December and far short of forecasts for 19.4 per cent. Retail sales fell to 11.8 per cent from 13.1 per cent in December, again well below forecasts of 13.5 per cent. The slowdown in China is in large part the product of the government’s own efforts to contain financial risks after a surge in debt levels over the past five years. Beijing has insisted that its policies are putting growth on a more stable footing, but many analysts and investors are worried that the deleveraging process could inflict substantial pain on the economy.

Why the Chinese Economic Slowdown Matters: Understanding the economic slowdown in the Chinese economy is very important because not only does it impact American companies doing business there, but what happens in the Chinese economy -- now the second-largest economy in the world -- affects the global economy. While media outlets tell us the Chinese economy will grow by about seven percent this year (30% below the 10% the economy has been growing annually over the past few years), the statistics I see point to much slower growth. In February, manufacturing activity in the Chinese economy contracted and hit an eight-month low. The final readings on the HSBC Purchasing Managers’ Index (PMI) for February showed manufacturing output and new orders declined for the first time since July of 2013. (Source: Markit, March 3, 2014.) And there are other troubles. The shadow banking sector in the Chinese economy shows signs of deep stress, but we don’t know how much money is really on the line here. China keeps much of its real economic news to itself, but we do hear how firms that are involved in the sector are defaulting on their payments. And the Chinese currency, the yuan, keeps declining in value compared to other major world currencies. The Wisdom Tree Chinese Yuan Strategy (NYSEArca/CYB) is an exchange-traded fund (ETF) that tracks the performance of Chinese money market instruments and the yuan compared to the U.S. dollar. Look at the chart below:

Which countries will fare worst from a Chinese slowdown? - If you want to look at some good tables ranking the vulnerability of emerging countries to China, you could do worse than check Craig Botham of Schroders’ views summarised at Ranking EM vulnerability to China. According to this, Chile, Columbia, Russia, South Africa and Peru are the most exposed, but few countries in Asia get off lightly, or Brazil for that matter. And while Australia doesn’t figure, of course, Perth should. And because of other concerns people have about the lack of demand in Australia ex-Perth, creeping weakness in employment,  and looming instability in housing and mortgage markets, this is definitely a ‘watch-this-space’. Looking at copper, half of China’s usage is accounted for by infrastructure and construction, and a further third by consumer and industrial goods. To the extent this reflects China’s development model, i.e. with an emphasis on fixed investment and exports, respectively, it is clear that economic rebalancing away from these sectors to household goods and services must entail a significant fall-out in terms of the commodity intensity of growth.China’s consumption of other commodities also accounts for a hefty share of global production, though not as large as for base metals. In the case of non-renewable energy resources, the proportion is 20%, and for major agricultural crops, it’s 23%.

Assessing Risk in China’s Shadow Banking System - A vague panic has overcome many analysts when discussing China’s shadow banking sector. The sector has even been referred to as a “ticking time bomb” by some. Other analysts say there is nothing to fear in the shadow banking sector. So which is it? Is the risk so high that a shock in this sector might result in a financial crisis? Or is the risk so low that growth will be entirely unaffected? Looking at the sector from several angles, we try to rate the level of risk in various shadow banking sectors to determine whether this fear is justified. We look at liquidity risk, or whether shadow banking institutions have sufficient cash to repay asset holders in the short run; solvency risk, whether shadow banking institutions can muster up repayments in the long run; and market risk, whether shadow banking institutions are exposed to an overall decline in asset prices

Xu Shaoshi says all is well with China's economy - China's propaganda machine went into full gear as it sets its sights on foreign economic forecasters who are continuing to profess slower economic growth for the nation.  People's Daily: How should we view this negative publicity, and what is China's current economic situation? On March 5, Xu Shaoshi, head of the National Development and Reform Commission made clear that the Chinese economy has made a good start to the year and that future prospects are favorable. On the sidelines of the "two sessions" - the annual sessions of the National People's Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC) - reporters interviewed NPC deputies and CPPCC members. Are the Western analysts just "prophets of doom" hyping up the China-slowdown story? While a severe recession in China remains an unlikely outcome, there is no question we are seeing PRC face some serious headwinds.First of all it is well known that many of China's insiders, analysts working for Chinese organizations, seem to be just as bearish on China's economic expansion as their counterparts abroad. Moreover, key economic data continue to indicate that growth is below expectations - see the latest export figures for example. And while one could debate the veracity of such data due to seasonal effects and other biases, it's harder to argue with the markets. Commodities that are sensitive to China's industrial demand, particularly iron ore (see chart), steel (see chart), and copper (chart below) have been hit unusually hard. Clearly something is wrong here. China's authorities certainly have the wherewithal to stabilize growth through either fiscal or monetary stimulus. They've done it before. The central government however has been trying to wean the country from both in order to contain the buildup of market bubbles in areas such as wealth management ($6 trillion shadow banking balance sheet), corporate credit, and real estate. And if all was well with the nation's economy, Beijing would be staying the course here. Lately however China's central bank has become quite accommodative. It stopped appreciating the yuan - in fact the currency has been allowed to depreciate (see chart) to help the nation's exporters. It is also allowing short term rates to decline. Some of that decline is due to falling demand, as banks pull back on lending into certain sectors. Partially it is the result of PBoC injecting liquidity via unsterilized dollar purchases (yuan sales). Whatever the case, the outcome is a sharp decline in interbank rates - a loosening monetary stance.

Despite Low Inflation, China Has Little Room to Cut Rates - It wasn’t long ago that China was struggling with uncomfortably high inflation. For some, that proved the huge stimulus that followed the global financial crisis was over the top: With so much money flowing into the economy, critics said, it was only a matter of time before prices got out of control.  But the pendulum has now swung so far the other way that some analysts are warning of a deflation risk. After peaking above 6% in the middle of 2011, consumer price inflation came in as low as 2% on-year in February this year. Low inflation can be a sign that the economy is running below its potential — and for an economy growing as quickly as China’s, 2% is low. The latest figures have led some economists to call for a renewed stimulus from the government, or at least a pause in the tighter monetary policy the central bank has been pursuing since last year. Demand is looking weak, The government “will require monetary easing and additional fiscal stimulus” to hit its 7.5% economic growth target for this year, At least consumer price inflation remains positive. The producer price index, which reflects the prices paid to manufacturers for finished goods, has been negative for two full years now. The index fell 2% on-year in February. Falling prices aren’t the blessing they sound like. When businesses and households expect prices to keep falling, it’s rational for them to postpone spending, slowly choking the economy.Deflation in the manufacturing sector is partly a result of sluggish prices for raw materials, especially mining products, on global markets. But it also reflects the burden of excess capacity, which has driven profits into the ground in key sectors of China’s economy.

Chinese Debt Worries - Krugman - Atif Mian and Amir Sufi, our leading experts on the macroeconomic effects of private debt, have a new blog — and it has instantly become must reading. Their latest post is about China, which is looking a whole lot like an overleveraged economy at great risk of a Minsky moment. The key figure is this one: In the middle years of the last decade, China was able to sustain growth despite weak consumer spending thanks to massive and growing trade surpluses. But as the surplus eroded, it turned to sustaining extremely high and probably low-return investment via credit expansion — and now debt levels are looking scary. We used to worry about America experiencing a China syndrome; but maybe we now need to worry about China experiencing an America syndrome.

Reaching Debt Limits: With or without China’s problems, we have a problem -- In the past several years, the engine of world’s growth has been China. China’s growth has been fueled by debt. China now seems to be running into difficulties with its industrial growth, and its difficulty with industrial growth indirectly leads to debt problems. A Platt’s video talks about China’s demand for oil increasing by only 2.5% in 2013, but this increase being driven by rising gasoline demand. Diesel use, which tracks with industrial use, seems to be approximately flat. The UK Telegraph reports, “Markets hold breath as China’s shadow banking grinds to a halt.” According to that article, A slew of shockingly weak data from China and Japan has led to a sharp sell-off in Asian stock markets and the biggest one-day crash in iron ore prices since the Lehman crisis, calling into question the strength of the global recovery. The Shanghai Composite index of stocks fell below the key level of 2,000 after investors reacted with shock to an 18pc slump in Chinese exports in February and to signs that credit is wilting again. Iron ore fell 8.3pc. Fresh loans in China’s shadow banking system evaporated to almost nothing from $160bn in January, suggesting the clampdown on the $8 trillion sector is biting hard. Many recent reports have talked about the huge growth in China’s debt in recent years, much of it outside usual banking channels. One such report is this video called How China Fooled the World with Robert Peston.

Even the Chinese Can Tell the TransPacific Partnership is Unlikely to Get Done -  Yves Smith -- The Chinese have good cause for being interested in the toxic, inaccurately labeled trade treaty known as the TransPacific Partnership. The big reason is that it is designed to be an “anybody but China” deal, in order to crimp the growing power and influence of the Middle Kingdom over its neighbors.  China was sufficiently worried about the TPP that it tried throwing a spanner in the works last October. China used the APEC meeting and Obama’s absence from the TPP session to have a go at the TPP negotiations. From Agence France-Presse: China and even some developing nations included in the TPP have expressed concern that it will set down trade rules primarily benefiting the richest countries and most powerful firms.“China will commit itself to building a trans-Pacific regional cooperation framework that benefits all parties,” Chinese President Xi Jinping said in a speech following Kerry at the Apec business forum…. ndonesia also signalled its irritation at the huge focus on TPP at the Apec summit, shunting the planned meeting on Tuesday afternoon of the 12 nations involved to a hotel outside the official venue…Meanwhile, China and Indonesia are involved in plans for a rival free trade pact involving 16 countries around the region and being spearheaded by the Association of Southeast Asian Nations.   Late last week, the Nikkei reported, in With TPP stalled, China more confident in own free trade plans, that even China is not all that worried about the TPP getting done:His [Commerce Minister Gao Hucheng's] statements suggest that, with TPP negotiations stalled amid disagreements between the U.S. and Japan, Beijing senses more leeway to wait and see how things turn out. The tone is a step down from last summer, when President Xi Jinping suggested that China would consider participating in the TPP. Beijing has been greatly concerned that U.S.-led free trade deals across the region would effectively amount to a containment policy against China. Japan’s decision to get on board with the TPP prompted Beijing to become the driving force behind a free trade agreement with Tokyo and Seoul. But at the same time, China left open the option of signing on to the TPP.

Trans-Pacific Partnership Reveals Deadly Cost of American Patents -- Yves Smith - While US news stories occasionally mention the breathtaking cost of some medications, they almost always skirt the issue of why American drugs are so grotesquely overpriced by world standards. The pharmaceutical industry has managed to sell the story that it’s because they need all that dough to pay for the cost of finding new drugs.  That account is patently false. First, part of the story the drug industry chooses to omit is that a substantial portion of drug R&D, and the riskiest part (basic research) is heavily funded by the National Institutes of Health and other government agencies. It’s hard to put all the data together, but the latest estimates I’ve seen put the total funded by the government at over 30%.  Second, Big Pharma spends more on marketing than on R&D. And it markets in the highest cost manner possible: in person sales calls to small business owners (doctors). The fact that it is worth it to sell in such an exceptionally high cost manner is proof of fat margins (the marginal value of a sale supports such a costly sales effort). Third, and this is where the foreign debate over the TransPacific Partnership comes in, one of the big reasons US drugs are so costly is we allow drug companies to milk patents to a degree that is unparalleled elsewhere. Consider this section of an article from The Star (Malaysia) by Martin KhorIt’s really a matter of life and death. For the TPPA can cut off the potential supply of cheaper generic life-saving medicines, especially when the branded products are priced so sky-high that very few can afford them. The fight for cheaper medicines has moved to cancer and other deadly diseases, when once the controversy was over AIDS medicines. Last week, a cancer specialist in New Zealand (one of the TPPA counties) warned that the TPPA would prolong the high cost of treating breast cancer because of new rules to protect biotechnology-based cancer drugs from competition from generics. And this will affect the lives of cancer patients. Some cancer medicines can cost a patient over US$100,000 (RM329,600) for a year’s treatment, way above what an ordinary family can afford. But generic versions could be produced for a fraction, making it possible for patients to hope for a reprieve from death.

Medical Procedure Patents in the TPP: A Comparative Perspective on the Highly Unpopular U.S. Proposal -- The Trans-Pacific Partnership (TPP) Intellectual Property Chapter published by WikiLeaks reveals that after years of negotiations, the United States still seeks to impose medical procedure patents on Asian and Latin American countries. All eleven other negotiating countries oppose the proposal. Medical procedure patents raise healthcare costs. Health providers, including surgeons, could be liable for the methods they use to treat patients. Essentially, except for when a surgeon uses her bare hands, surgical methods would be patentable under the U.S. proposal. While U.S. law immunizes certain care providers from infringement liability, the U.S. TPP proposal fails to include these safeguards, risking yet more serious consequences for TPP negotiating countries. Click here for the full Public Citizen Brief

Canada & Korea Show Trade Treaties Can Skip Copyright Rule Changes - An anonymous reader writes "Canada and South Korea announced agreement on a comprehensive trade agreement earlier today. Michael Geist reports that the intellectual property chapter is significant for what it does not include. Unlike many other trade deals — particularly those involving the U.S., European Union, and Australia — the Canada-South Korea deal is content to leave domestic intellectual property rules largely untouched. Instead, the approach is to reaffirm the importance of intellectual property and ensure that both countries meet their international obligations, but not to use trade agreements as a backdoor mechanism to increase IP protections. That means no copyright term extension, no three-strikes and you're out rules, and increase to pharma patents."

Two Years On, South Korea Benefits More From Free-Trade Agreement Than U.S. - -  Bilateral trade has risen 4.1% for the past two years with the South Korean surplus—or the U.S. deficit—growing, show Seoul’s trade ministry data. The data show South Korea’s surplus in trade with the U.S. widening to $17 billion for the first year after the pact took effect and $20 billion for the second year—from $12 billion for a year before the deal. Beneficiaries from the two-year free-trade pact include South Korean auto-parts suppliers, petroleum-goods producers and processed-food makers as well as U.S. pumping-machine manufacturers, pesticide producers and fruit growers—whose exports to the other side grew sharply. “For the past two years since the implementation of the FTA, [South Korean] exports to the U.S. grew much faster than those to the entire world,” Seoul’s trade ministry said in a press release. South Korean exports to the U.S. increased 1.6% on-year for the first year after the pact took effect and rose 5.4% for the second year. South Korean shipments to the world fell 2.0% and rose 2.6% during the same periods respectively, according to Seoul’s trade ministry data.The latest data reignited criticism of the free-trade pact in the U.S. “Government data, congressional voices, and economic studies confirm that the US-Korea Free Trade Agreement has failed us,” United Steelworkers President Leo Gerard said in a statement posted on his union’s website. “It has failed to produce goods jobs and the evidence on exports is clear.”

U.S.-Korea Trade Deal Resulted in Growing Trade Deficits and Nearly 60,000 Lost Jobs -- This Saturday is the second anniversary of the U.S.-Korea Free Trade Agreement (KORUS), which took effect on March 15, 2012. President Obama said at the time that KORUS would increase US goods exports by $10 to $11 billion, supporting 70,000 American jobs from increased exports alone. Things are not turning out as predicted. In first two years after KORUS took effect, U.S. domestic exports to Korea fell (decreased) by $3.1 billion, a decline of 7.5%, as shown in the figure below. Imports from Korea increased $5.6 billion, an increase of 9.8%. Although rising exports could, in theory, support more U.S. jobs, the decline in US exports to Korea has actually cost American jobs in the past two years. Worse yet, the rapid growth of Korean imports has eliminated even more U.S. jobs. Overall, the U.S. trade deficit with Korea has increased $8.7 billion, or 59.6%, costing nearly 60,000 U.S. jobs. Most of the nearly 60,000 jobs lost were in manufacturing. Trade deals do more than cut tariffs, they promote foreign direct investment (FDI) and a surge in outsourcing by U.S. and foreign multinational companies (MNCs). FDI leads to growing trade deficits and job losses. U.S. multinationals were responsible for nearly one quarter (26.9 percent) of the U.S. trade deficit in 2011. Foreign multinationals operating in the United States (companies like Kia and Hyundai) were responsible for nearly half (44.2 percent) of the U.S. goods trade deficit in that same year. Taken together, U.S. and foreign MNCs were responsible for nearly three-fourths (77.1 percent) of the U.S. goods trade deficit in 2011.

China has No Room For Compromise with Japan - The Chinese foreign minister took a strong stand Saturday on China’s growing territorial disputes with neighboring nations, saying that “there is no room for compromise” with Japan and that China would “never accept unreasonable demands from smaller countries,” an apparent reference to Southeast Asian nations. In the East China Sea, China refuses to accept Japan’s administration of, or its claims to, islands that Japan calls the Senkaku and China calls the Diaoyu.Tensions between China and Japan have been playing out in diplomacy around the globe. In January, the Chinese ambassador to Britain and his Japanese counterpart both wrote op-ed articles for The Daily Telegraph in which they equated the other country to Lord Voldemort, the villain in the Harry Potter series. The two ambassadors even refused to sit at the same table during a televised BBC interview. Also in January, Mr. Abe told an audience at the Davos conference in Switzerland that the rivalry between China and Japan was similar to that between Germany and Britain before World War I, meaning their differences could supersede their close trade ties. In the South China Sea, China has been trying to stake sovereignty to islands and waters that are also claimed by Southeast Asian nations. Vietnam, the Philippines and Malaysia are among the opponents to China’s claims. The United States has said it takes no side on sovereignty issues but will maintain freedom of navigation. More recently, it has asserted that the so-called nine dashes map that some Chinese officials say defines China’s ambitious claims in the South China Sea violates international law because the territorial boundaries are not based on land features.

Japan Lurches Toward First Current Account Deficit Since 1980 - Japan is teetering toward its first annual current account deficit since 1980. That’s a likely development that until recently only seemed possible in the dim and distant future. Unlike other Asian economies running current account deficits, the world’s third-largest economy has long been one of the biggest net creditor nations internationally and has enjoyed a strong external balance of payments position. But its trading strength has weakened quickly in recent months. The current account indicates net receipts from trade and investment with the rest of the world. January’s figures, released Monday, showed the monthly current account posting its fourth straight deficit–including three record shortfalls in a row. While that still keeps the April-January tally positive, it’s only by a slim margin of ¥132.7 billion ($1.29 billion). In the remaining period of the fiscal year up to the end of March that overall surplus is likely to be overwhelmed by deficits that have topped ¥500 billion in recent months, including the latest whopping deficit of ¥1.59 trillion. Japan last recorded an annual current account deficit of ¥1.5 trillion in 1980 in the extreme circumstances of the second oil shock. This time around, however, a fiscal year deficit for the current account is likely to be more than just a one-off reflection of global events

Japan's deficit hits record as economic growth slows - Japan's current account deficit widened to a record 1.5tn yen ($15bn; £8.7bn) in January, the largest since records began in 1985. In further bad news, the country's economic growth figures were also revised downwards. Japan's economy grew by 0.7% in 2013, down from an initial estimate of 1%. Investors reacted with disappointment to the news, with the benchmark Nikkei 225 index falling by 95 points, or more than 0.6%. From October to December 2013 Japan's economy grew by just 0.2%, after earlier estimates showed an increase of 0.3%. The sluggish growth and growing deficit come just before a planned sales tax increase, scheduled to take effect in April. Many economists had expected growth to pick up towards the end of 2013, as consumers spent ahead of the tax rise. But the latest revisions show consumer spending increased by 0.4% in the fourth quarter of 2013, revised downwards from 0.5%.

Japan has record deficit, lowers growth estimate - Japan racked up a record current account deficit in January, and lowered its growth estimate for the October-December quarter today in the latest sign of hardships for the world's third-largest economy. Japan's current account deficit totaled 1.589 trillion yen ($15 billion), the biggest for January since comparable records began in 1985, according to the Finance Ministry. The Cabinet Office revised its real gross domestic product growth to an annual pace of 0.7 percent, lower than its initial 1.0 percent. It said that both private and public demand was lower than it had estimated last month, including lower levels for private consumption and public investment. The government has encouraged a weak yen to help exports, a boon to multinational companies such Toyota Motor Corp. But a cheap yen makes imports more expensive at a time when dependence on imported oil and natural gas has risen since the March 2011 nuclear disaster. Reactors dotting the nation's coastline have been shut down for safety fears, but the government wants to restart some of them. Before the disaster, nuclear energy provided 30 percent of Japan's energy needs.

Japan's fourth-quarter GDP revised down - Japan's economy grew 0.7 percent on-year in the fourth quarter of 2013, revised down from a preliminary reading of 1 percent due to a slowdown in capital spending and private consumption, data on Monday showed. "It's kind of a miss. I don't think it's enough to shock the BOJ into action but it is worrying, probably because business investment is still not looking strong," HSBC Economist Izumi Devalier told CNBC Asia's "Squawk Box." The revised number was also below forecasts by economists polled by Reuters for annualized growth of 1 percent. The breakdown of the data showed private consumption rose 0.4 percent in the fourth quarter from the previous one, compared with an initial estimate of 0.5 percent. Japan also logged its biggest current account deficit on record in January, the country's Ministry of Finance said separately. The deficit stood stood at 1.589 trillion yen ($15.4 billion), against economists' expectations for a 1.4 trillion yen deficit.

BOJ keeps stimulus in place, cuts view on exports in warning sign  (Reuters) - The Bank of Japan maintained its massive monetary stimulus on Tuesday on the view that growth in the economy and consumer prices remains on track, but downgraded its assessment of exports in a warning about external demand. Governor Haruhiko Kuroda expressed confidence that the weakness in exports is temporary and stuck with the BOJ's overall assessment that the economy can continue a gradual recovery, suggesting additional easing was not imminent. The BOJ did upgrade its view of capital expenditure and turned more optimistic about industrial production, showing more confidence in domestic demand before an increase in the sales tax scheduled for April 1. true However, this optimism is unlikely to ease concerns that domestic demand will weaken after the tax hike and that exports will not be strong enough to support growth, which could increase calls for more monetary stimulus. "It is not an atmosphere where the BOJ will ease immediately even if it downgrades growth forecasts as core consumer prices have been hovering in a range higher than previously expected,"

What if Japan’s Export Boom Never Shows Up? -- One of the great promises of Prime Minister Shinzo Abe’s economic program was that by weakening the yen, Abenomics would breathe new life into Japan’s crucial export machine. The yen has indeed weakened, losing more than 20% of its value over the past 16 months – but shipments have remained fairly static. Japan recorded a massive trade deficit in January of ¥2.3 trillion (about $22.3 billion) as exports remained sluggish while the cost of imports soared. On Tuesday, the Bank of Japan lowered its view, acknowledging that exports had “recently leveled off more or less.” As economic growth disappoints, a number of factors have been cited for exports’  failure to drive Japan’s recovery. For one, Japanese companies have chosen to book larger profits from their overseas shipments (when translated back into yen), rather than take advantage of the cheaper currency to cut prices and gain market share. And some Japanese companies who saw their competitiveness undercut during the strong-yen years have moved some manufacturing offshore, where they’re closer to their end customers – a process that isn’t likely to be reversed.  Some say the export boom is still coming — it usually takes 18 months for the gains from a cheaper currency to fully show up — and counsel patience. But there may be deeper factors that suggest the export boom isn’t merely delayed, as proponents of Abenomics hope, but may never occur — at least not until global demand picks up generally.

Japan Business Sentiment Soars: A Flash in the Pan or Here to Stay? - Sentiment among large Japanese companies jumped to an all-time high in the January-March period, amid hopes for a consumer spending binge ahead of the April 1 sales tax increase, a government survey showed Wednesday. The question is whether the current optimism will endure the tax rise. The same survey predicts sentiment will drop sharply to become pessimistic overall in April-June, the quarter most likely to be hit by a fall in consumption under the higher tax. The results also indicate, however, that the setback to sentiment will be short-lived, with a quick recovery in the following quarter returning the index to a positive figure. Government officials say there’s no reason to doubt the results, based on a poll of 8,240 companies. But the survey has less encouraging news too. It predicts the bumper profits currently being enjoyed by corporate Japan will soon come to an end. For the fiscal year starting in April, pretax profits at big businesses are expected to fall 4.8%, following a 24% jump in the current fiscal year, as sales are expected to dip 0.1%, after a 4.0% gain this year. The results suggest that the cheap yen effect engineered by the government of Prime Minister Shinzo Abe and the Bank of Japan has largely run its course. Capital expenditure is also forecast to fall 5.1% in the new fiscal year, following an estimated 9.9% jump in the current fiscal year. Officials note, however, that capital expenditure estimates in the survey tend to start very low and rise as the year progresses. The minus 5.1% forecast is actually better than the minus 6.5% predicted at the beginning of the current fiscal year. The headline index figure is calculated by subtracting the percentage of companies saying business conditions are getting worse from those saying they are improving.

Japanese Consumer Pessimism Hits New High Under Abe - While Japan Inc. may be whistling a happy tune on the back of robust profit growth and a weaker yen thanks to the pro-business agenda of Prime Minister Shinzo Abe, a key survey released Wednesday shows that consumers aren’t in a similar Abenomics-induced state of rapture. The Cabinet Office’s monthly Consumer Confidence Index contracted for the third straight month in February to 38.2. That’s the worst reading since Mr. Abe entered office in January 2013 and the lowest since September 2011. Respondents were even more pessimistic than during Mr. Abe’s year-long term as prime minister between September 2006 and September 2007.  The survey of 8,400 households asks consumers about their feelings toward the six months ahead and how willing they are to spend. A reading below 50 indicate pessimists outnumber optimists. Undercutting hopes that consumers would have a greater urge to get in some last-minute shopping ahead of a sales tax increase in April, sentiment toward buying durable goods fell sharply in February, continuing a trend that started in October. Even though recent data showed the basic earnings of workers in the world’s third-largest economy rose for the first time in almost two years in January, respondents in the February survey were less optimistic about their income growth, the value of their assets, and their overall livelihood than they were a month earlier.  The downbeat reading prompted the government to downgrade its assessment, saying it is “on a weak note.”

Japan Machinery Data Suggest Businesses Can Weather Tax Hike - Japan’s first major tax hike in 17 years is about two weeks away, and government officials are anxious about how it will affect the economy. Data out Thursday suggest that businesses, at least, don’t expect a harsh blow. That’s good news for Abenomics, which has appeared to be running out of steam in recent months as a promised export recovery never quite materializes. Strength in business investment suggests there’s better news ahead. Core machinery orders, a leading indicator of capital investment six months down the road, leapt 13.4% on-month in January, the second biggest gain under the current data series that began in 2005. That suggests firms may be more confident than expected that the economy can weather the rise in the sales tax. Of course, January’s gain follows a 15.7% fall in December, and merely puts core orders back on the gradual recovery trend that had been in place prior to that. Still, January’s reading makes it more likely that core orders will be positive for the first quarter of the year , suggesting that corporate investment will support, not drag on, the economy in the latter half of the year. Orders will be positive for the quarter as long as they don’t decline more than 3.8% on-month in each of February and March.

Why a Jump in South Korea’s Jobless Rate is a Good Sign - In South Korea, a jump in the unemployment rate is being seen as a positive economic indicator. The government said Wednesday that the seasonally adjusted unemployment rate surged to 3.9% in February from 3.2% a month earlier, its highest level in almost four years. Officials and analysts noted a silver lining to that cloud: The leap was largely driven by a huge influx of job seekers, including some who have actively begun looking for jobs on expectations of an economic recovery. The number of employed rose 835,000 in February from a year earlier — the fastest growth since March 2002 — but the labor market was unable to fully absorb the surge in job seekers. The country’s population of those employed or actively seeking employment increased by a record 1.02 million. That contrasts with the situation in the United States, where the unemployment rate has been falling — but that’s partly because more and more people are dropping out of the workforce, not because they’re finding jobs. South Korean officials noted that the jump in job seekers was also due to a new set of college graduates entering the labor market.“The unemployment rate rose as the season for graduation and recruitment led more young people to actively look for jobs, while the economically inactive population, like full-time housewives, decreased,” Statistics Korea said.

Australian youth unemployment reaches “crisis point” - Based on the ABS data, west and north-west Tasmania, which includes Burnie and Devonport, has the highest youth unemployment rate of 21 percent. Cairns in northern Queensland was next with 20.5 percent, followed by northern Adelaide, which includes Elizabeth and Gawler, with 19.7 percent. Across northern Tasmania, job destruction has become an ongoing fixture of life. Since 2010, 1,114 manufacturing jobs have been eliminated, including 200 by mining equipment manufacturer Caterpillar at its Burnie plant in February 2013. According to Burnie mayor Steve Kons, the job cuts are having a devastating effect, with a flow-on effect of another 1,000 job losses. Tracy Edington-Mackay from the Burnie Community House said she planned to refer families to emergency support services due to the lack of any other opportunities in the region. Tasmania as a whole has a population of just over half a million. High youth unemployment in tropical Cairns is bound up with the slump in the tourism industry, a product of the global economic downturn, as well as a high Australian dollar. According to a 2012 study by the Australia Institute, the number of tourists visiting Cairns and far north Queensland had declined by 25 percent.In northern Adelaide, the systemic closure of car production and related manufacturing has contributed to high unemployment in Elizabeth and Gawler, with terrible consequences for working people. One in four residents of Elizabeth relies on some form of social security. The median weekly income of a household in the area is just $595, compared with the national average of $1,234.

Australia Sells Record A$7 Billion Bonds as Deficit Widens - Australia sold A$7 billion ($6.3 billion) of 12-year notes in the nation’s largest bond sale on record. The sale of April 21, 2026 notes was managed by banks and exceeds the A$5.9 billion offered at the government’s last syndicated bond transaction in November. The securities were priced to yield 4.375 percent, or 24 basis points more than 10-year bond futures, according to the Australian Office of Financial Management. The federal government has ramped up debt sales as it looks to finance a budget shortfall and extend the length of its yield curve. Treasurer Joe Hockey has pledged spending cuts after official forecasts at the end of last year showed Australia’s budget deficit may widen to A$47 billion in the 12 months to June 30, from a previous estimate of a A$30.1 billion shortfall. “With such a large funding task this year it’s good to get a healthy syndication behind us like that because just takes the pressure off us for the remainder of the year,”

Drought in Brazil Could Push Interest Rates Even Higher Than Expected -- Inflation in Brazil accelerated in February, and there may be more to come. One of the worst droughts in 40 years could be changing the game for the Central Bank of Brazil, suggesting interest rates could be pushed up even higher than investors are currently expecting. After a sharp decline in January, inflation in surged in February, largely due to one-off annual increases in tuition fees. The IPCA consumer price inflation in February was 0.69%, slightly higher than had been expected; 12-month rolling inflation reached 5.68% in February, up from 5.59% in January. And well above the target of 4.5%. The central bank had been relying on inflation to decelerate in the first half of this year, but that now seems unlikely. Food prices have jumped sharply in recent weeks and could remain high for the next couple of months. Underlying inflation pressures remain significant. Even if there were to be some decline in services inflation due to slower consumer spending, the government would likely use that space to allow the prices of some managed items, such as electricity and gasoline, to recover. They’ve been kept artificially low in recent months to help with inflation. While the food-price shock should only be temporary, it means the respite the central bank had expected in the first six months likely won’t materialize. That in turn may prevent the central bank from bringing to an end its year-long cycle of raising its key interest rate.

Are there really 21 million slaves worldwide?: Some Caribbean nations are demanding reparations from Europe over the Atlantic slave trade. But slavery still happens today - film director Steve McQueen said at the Academy Awards there are 21 million slaves worldwide. Is that figure correct? The figure mentioned by McQueen in his Best Picture acceptance speech at the Academy Awards comes from the UN's International Labour Organisation (ILO), which has been producing a global figure for nearly 10 years. The kind of slavery depicted in McQueen's film, 12 Years a Slave, is long gone, although the legacy of the slave trade lives on - claims for reparations are reportedly being made by 15 former colonies against eight European countries. Slavery experts believe there is nowhere in the world where people are legally shackled, beaten and sold as if they were property, but the ILO's report "2012 Global estimate of forced labour" estimates that 20.9 million people are victims of forced labour. Its definition of this is "work or service which is exacted from any person under the threat of a penalty and for which the person has not offered himself or herself voluntarily". The most common form is called collateral debt bondage, which involves people who have borrowed money pledging themselves and their family as bonded labourers to the loan shark or slaveholder, which can carry on through generations until the debt is paid.

Indonesia launches world's largest health insurance system -  Indonesia is planning to phase-in the world’s largest single-payer health care insurance program between now and 2019. Under the new system, the government is committed to providing universal health care to its 247 million citizens, though employers and wealthier citizens are obliged to pay their own premiums. The program was mandated by a law passed in 2004. But opposition from industry had stood in the way until now, since the law will require employers to pay premiums. The government also dragged its feet on implementation and was successfully sued in 2010 by a worker's rights group for failing to follow the law. Still, it's a measure of Indonesia's ambitions and rising expectations that the government is trying to roll out health services for all. Indonesia extended free health insurance to 48 percent of its population on Jan. 1. By the time the system is fully implemented in 2019 it will cover the whole country at an estimated cost of $15 billion a year – about $60 per Indonesian citizen and 15 percent of the central government’s budget. The insurance program, known as Jaminan Kesehatan Nasional (JKN), differs from the US approach in one important way: choice. JKN doesn’t have any. Organizers here are betting its stripped-down, no frills policies will satisfy popular demand. “The single payer approach has its advantages,”

Emerging Market Nightmare? - Hyun Song Shin has been doing some terrific work on a potential emerging market crisis. His big worry is the rise in non-financial corporate debt in emerging markets, and the important role that bond managers have played in buying up this debt. One of the points Shin makes is that a lot of this debt has been raised by emerging market multi-nationals outside of their home country – thus bypassing their local regulatory authorities. It is a kind of carry trade done by the big boys of emerging markets: keep deposits at home to earn higher yield on corporate deposits in local currency, and borrow in dollars at very low rates in London or Hong Kong. Of course doing so exposes the corporations (and their economies) to exchange rate risk. This is an old story – remember the East Asian crisis? Here is the scary chart: Shin offers a scenario in which elevated levels of emerging market debt could lead to serious problems. It goes as follows. A monetary tightening in the U.S. or Europe leads to:

  1. A rise in the borrowing cost for emerging market companies.
  2. Runs on wholesale corporate deposits from the domestic banking sector become likely
  3. Currency depreciation, corporate distress, a freeze in corporate capital expenditures, and a slowdown in growth ensues
  4. Asset managers cut back on their holdings of emerging market bonds, citing slower growth
  5. Back to Step 1, and repeat

In Taper Crisis, Foreign Banks Continued to Lend to Asia - Foreign banks continued to lend into East Asia last year, just as many global investors were yanking money from emerging-market stocks and bonds.Institutional investors brought money back to the U.S. after the Federal Reserve in May pushed U.S. yields higher by signaling it would begin winding back extraordinary monetary policies. Markets across Asia took a beating. But foreign lending data for Sept. 30, released at the weekend by the Switzerland-based Bank for International Settlements, shows a more sanguine response from foreign banks’ lending departments. Outstanding foreign bank loans in East Asia were 5% higher on Sept. 30 than a year earlier, at $3.29 trillion, led by double-digit increases in lending to the region’s two largest financial centers – Hong Kong and Singapore – as well as a 22% rise in credit to Taiwan. Much of that foreign-bank lending likely went to finance multinational companies’ investments in Asia to build factories and other big-ticket spending. Despite the market jitters, and slowing growth in much of Asia, the region’s economies still are growing faster than many industrialized countries. Of course, rising foreign lending also can be a symptom of interest in an economy from global portfolio investors. In this case, there appears to be a bit of both involved.

India’s path from poverty to empowerment - India has made encouraging progress by halving its official poverty rate, from 45 percent of the population in 1994 to 22 percent in 2012. This is an achievement to be celebrated—yet it also gives the nation an opportunity to set higher aspirations. While the official poverty line counts only those living in the most abject conditions, even a cursory scan of India’s human-development indicators suggests more widespread deprivation. Above and beyond the goal of eradicating extreme poverty, India can address these issues and create a new national vision for helping more than half a billion people attain a more economically empowered life. To realize this vision, policy makers need a more comprehensive benchmark to measure gaps that must be closed and inform the allocation of resources. To this end, the McKinsey Global Institute (MGI) has created the Empowerment Line, an analytical framework that determines the level of consumption required to fulfill eight basic needs—food, energy, housing, drinking water, sanitation, health care, education, and social security—at a level sufficient to achieve a decent standard of living rather than bare subsistence.  In applying this metric to India, we found that in 2012, 56 percent of the population lacked the means to meet essential needs. By this measure, some 680 million Indians experienced deprivation, more than 2.5 times the population of 270 million below the official poverty line. Hundreds of millions have exited extreme poverty but continue to struggle for a modicum of dignity, comfort, and security. The Empowerment Gap, or the additional consumption required to bring these 680 million people to the level of the Empowerment Line, is seven times higher than the cost of eliminating poverty as defined by the official poverty line (exhibit).

Growing Hope Adds Heat to Rupee Rally -- The Indian rupee which was one of the world’s weakest currencies last summer has been reborn as one of its strongest and is expected to continue its climb against the dollar. The country’s narrowing current account deficit and easing inflation as well as hope that a pro-business party will take power after elections in May have all boosted confidence that India is again a safe place to part portfolios. The rupee touched a seven-month high of 60.65 to the dollar Tuesday. Economists say it could continue to strengthen to around 59 rupees to the dollar in coming months. “The most relevant market imbalances, like the wide current account deficit have been fixed,” said Cristian Maggio, senior emerging market strategist with London-based TD Securities. “This has helped (investors) regain confidence.” It has been a sharp turnaround for the Indian currency which— along with the Brazilian real, Turkish lira, Indonesian rupiah and South African rand—was dubbed one of the “fragile five” by Morgan Stanley. The biggest change in India has been the radical reduction in its current account deficit. The deficit was a huge liability for the country last year amid concerns that the end of easy money policy in the U.S. would leave fewer dollars sloshing around the globe to cover India’s gap. India’s current-account deficit shrank to a five-year low last quarter as government restrictions slowed gold imports while improving demand in western economies helped boost exports. The deficit narrowed to $4.2 billion, or 0.9% of the gross domestic product, in the three months to December, December, down from$32 billion a year earlier and $5.2 billion in the previous quarter.

India Backs Russia's "Legitimate Interests" In Ukraine - On Thursday a senior Indian official appeared to endorse Russia’s position in Ukraine in recent days, even as Delhi urged all parties involved to seek a peaceful resolution to the diplomatic crisis. When asked for India’s official assessment of the events in Ukraine, National Security Adviser Shivshankar Menon responded: “We hope that whatever internal issues there are within Ukraine are settled peacefully, and the broader issues of reconciling various interests involved, and there are legitimate Russian and other interests involved…. We hope those are discussed, negotiated and that there is a satisfactory resolution to them." Local Indian media noted that Menon’s statement about Russia’s legitimate interests in Ukraine made it the first major nation to publicly lean toward Russia. The larger question, of course, is why India decided to take such a relatively pro-Russian stance on the Ukraine issue?

In response to U.S. sanctions over Ukraine, Russia may freeze weapons inspections - Russia broadened its war of words with the United States over Ukraine on Saturday when the Ministry of Defense said it would consider stopping international inspections of its nuclear weapons in response to threatened sanctions from the West. “The unfounded threats towards Russia from the United States and NATO over its policy on Ukraine are seen by us as an unfriendly gesture,” the ministry said in a statement distributed to Russian news agencies. Those threats, the statement said, have created new circumstances, giving Russia the right to pull out of the inspections required under the START treaty with the United States and a separate agreement with the Organization for Security and Cooperation in Europe. Russia, infuriated at the prospect of Western sanctions in response to its intervention in Ukraine’s Crimean peninsula, has been making one threat after another in recent days, and it has been difficult to distinguish bluster from serious intent. The United States has been urging Russia to pull its troops back to its existing bases for the Black Sea Fleet, and not to annex Crimea.  State Department spokeswoman Jen Psaki said the Russian government had not yet notified the United States of a decision but was expected to uphold its treaty obligations. “We would take very seriously and strongly discourage any Russian decision to cease implementation of its legally binding arms control treaty obligations and other military transparency commitments,” she said.

Deep State Descending - Kunstler - And so it’s back to the Kardashians for the US of ADD. As of Sunday The New York Times kicked Ukraine off its front page, a sure sign that the establishment (let’s revive that useful word) is sensitive to the growing ridicule over its claims of national interest in that floundering, bedraggled crypto-nation. The Kardashians sound enough like one of the central Asian ethnic groups battling over the Crimea lo these many centuries — Circassians, Meskhetian Turkmen, Tatars, Karachay-Cherkessians — so the sore-beset American public must be content that they’re getting the news-of-the-world.      Secretary of State John Kerry has shut his pie-hole, too, for the moment, as it becomes more obvious that Ukraine happens to be Russia’s headache (and neighbor). The playbook of great nations is going obsolete in this new era of great nations having, by necessity, to become smaller broken-up nations. It could easily happen in the USA too as our grandiose Deep State descends further into incompetence, irrelevance, buffoonery, and practical bankruptcy.  Theories abound about what drives this crisis and all the credible stories revolve around the question of natural gas. I go a little further, actually, and say that the specter of declining energy sources worldwide is behind this particular eruption of disorder in one sad corner of the globe and that we’re sure to see more symptoms of that same basic problem in one country after another from here on, moving from the political margins to the centers. The world is out of cheap oil and gas and, at the same time, out of capital to produce the non-cheap oil and gas. So what’s going on is a scramble between desperate producers and populations worried about shivering in the dark. The Ukraine is just a threadbare carpet-runner between them.

Ukraine shock waves jeopardize global economy -- Geopolitical risks, prices for commodities such as grain and energy security are at stake. The appreciation of the yen and stock price declines worldwide are also a threat if risk aversion spreads to financial markets. The U.S. has decided to impose sanctions on Russia for its military intervention in the Ukrainian region of Crimea. Ukraine's importance to the U.S. and Europe "cannot be measured simply in terms of its per-capita gross domestic product of less than $4,000," said Hajime Yoshimoto, senior economist at Nomura Securities. The European Union imports 30% of natural gas for its consumption through pipelines from Russia, and 60% of the procurement is via Ukraine. If Russia cuts off its supply, Europe may turn to crude oil as an alternative, pushing up prices for the resource. Risk in Ukraine may impact Middle East peace negotiations as a "worst-case scenario," said Naohiro Niimura, a partner at research and marketing company Market Risk Advisory. If the negotiations fail, crude oil prices could rise above $200 per barrel and rekindle geopolitical risks in the Middle East, Niimura said. Ukraine is an agricultural country and a major corn and wheat exporter. A civil war would lead to increases in grain prices. Crude oil futures prices on New York Mercantile Exchange temporarily surged to $105, the highest in five and a half months, after Russia's military intervention in Crimea. Grain prices also climbed, causing a flight of money to "safe assets" such as gold, the yen and U.S. Treasuries. Similar consequences are highly likely if the situation in Ukraine grows more serious.

Russian Dollar Dump Could Crash Financial System-John Williams -- Economist John Williams says if Russia sells its U.S. dollar holdings, it could trigger hyperinflation.  Could it collapse the financial system?  Williams contends, “Yes, it certainly has a potential to do that.  Looking outside the United States, there is something over $16 trillion in cash, or near cash.  That’s about the same size as our GDP.  . . Nobody has wanted to hold the dollar for some time.  The dollar, fundamentally, is weak.  It couldn’t be weaker.  All the major factors are against it.  It’s just a matter of what would trigger the massive selling.  Nobody wants to hold it.  The Russians start selling, and you have China indicating a general alliance here in terms of what’s transpiring.  If the rest of the world believes this is what’s going to happen, people who have been wanting to get out of the dollar for some time very easily could front-run the Russians.  The scare is on.  People will try to get out of it as rapidly as they can.  What would happen if there was massive dollar dumping globally?  Williams says, It would be disastrous for our markets.  All those excess dollars coming in, with bonds being sold, interest rates would spike.  The stock market would sell off and we’d see inflation.  To prevent that and try and keep things stable, the Fed would tend to buy up those Treasuries.  It would intervene wherever it could to stabilize the circumstance.  It’s going to be very difficult, and it’s going to be very inflationary.   We have not seen a return of health to the banking system.  So, the system is very vulnerable; and if the Russians carry through with their threat, you have, indeed, the risk of it collapsing the system.”

The Russians Have Already Quietly Pulled Their Money From The West - Earlier today we reported that according to weekly Fed data, a record amount - some $105 billion - in Treasurys had been sold or simply reallocated (which for political reasons is the same thing) from the Fed's custody accounts, bringing the total amount of US paper held at the Fed to a level not seen since December 2012. While China was one of the culprits suggested to have withdrawn the near USD-equivalent paper, a far likelier candidate was Russia, which as is well-known, has had a modest falling out with the West in general, and its financial system in particular. Turns out what Russian official institutions may have done with their Treasurys (and we won't know for sure until June), it was merely the beginning. In fact, as the FT reports, in silent and not so silent preparations for what will be near-certain financial sanctions (which would include account freezes and asset confiscations following this Sunday's Crimean referendum) the Russians, read oligarchs, have already pulled billions from banks in the west thereby essentially making the biggest western gambit - that of going after the wealth of Russia's 0.0001% - moot.

Obama And Putin Are Trapped In A Macho Game Of “Chicken” And The Whole World Could Pay The Price - The U.S. government and the Russian government have both been forced into positions where neither one of them can afford to back down.  If Barack Obama backs down, he will be greatly criticized for being "weak" and for having been beaten by Vladimir Putin once again.  If Putin backs down, he will be greatly criticized for being "weak" and for abandoning the Russians that live in Crimea.  In essence, Obama and Putin find themselves trapped in a macho game of "chicken" and critics on both sides stand ready to pounce on the one who backs down.  But this is not just an innocent game of "chicken" from a fifties movie.  This is the real deal, and if nobody backs down the entire world will pay the price. Leaving aside who is to blame for a moment, it is really frightening to think that we may be approaching the tensest moment in U.S.-Russian relations since the Cuban missile crisis. There has been much talk about Obama's "red lines", but the truth is that Crimea (and in particular the naval base at Sevastopol) is a "red line" for Russia. There is nothing that Obama could ever do that could force the Russians out of Sevastopol.  They will never, ever willingly give up that naval base. So what in the world does Obama expect to accomplish by imposing sanctions on Russia?  By treaty, Russia is allowed to have 25,000 troops in Crimea and Russia has not sent troops into the rest of Ukraine. Economic sanctions are not going to cause Putin to back down.  Instead, they will just cause the Russians to retaliate.

Ukraine – Three Awkward Questions for Western Liberals and a Comment on the EU’s Role - Yanis Varoufakis -- Let us accept (as I do) the principle that national minorities have the right to self-determination within lopsided multi-ethnic states; e.g. Croats and Kosovars seceding from Yugoslavia, Scots from the UK, Georgians from the Soviet Union etc.

  • Awkward question no. 1: On what principle can we deny, once Croatia, Kosovo, Scotland and Georgia have come into being, the right of Krajina Serbs, of Mitrovica Serbs, of Shetland Islanders and of Abkhazians to carve out, if they so wish, their own nation-states within the newly independent nation-states in the areas where they constitute a clear majority?
  • Awkward question no. 2: On what principle does a western liberal deny the right of Chechens to independence from Russia, but is prepared to defend to the hilt the Georgians’ or the Ukrainians’ right to self-determination?
  • Awkward question no. 3: On what principle is it justifiable that the West acquiesced to the raising to the ground of Grozny (Chechnya’s capital), not to mention the tens of thousands of civilian deaths, but responded fiercely, threatened with global sanctions, and raised the spectre of a major Cold War-like confrontation over the (so far) bloodless deployment of undercover Russian troops in Crimea?

The above three questions are being asked not because I want to challenge the notion that Mr Putin is a dangerous despot. I have no doubt that he is.  My three awkward questions have two aims: To remind readers of the West’s unprincipled attitude toward ‘other’ people’s struggles and tragedies. And to explain, in part, why such unprincipled behavior by the proponents of democratic principles ends up denigrating not only these very principles but greatly reinforcing the power and influence of the Putins of this world as well.

Denying the Far-Right Role in the Ukrainian Revolution -- Some commentators on the Ukraine crisis seem so convinced that it must be a struggle between good guys and bad guys that they're willing to ignore evidence that there's anything problematic about their chosen side. In the US press, this generally means whitewashing the opposition that overthrew the government of President Viktor Yanukovych, since Yanukovych had the support of official enemy Russia. To maintain a simple good vs. evil framework, the fact that Ukraine's neo-fascist movement had a significant role in that opposition–and in the new government that replaced Yanukovych–was downplayed or even outright denied.

Propaganda, lies and the New York Times: Everything you really need to know about Ukraine - You need a machete these days to whack through the thicket of misinformation, disinformation, spin, propaganda and straight-out lying that daily envelopes the Ukraine crisis like kudzu on an Alabama telephone pole. But an outline of an outcome is now faintly discernible. Here is my early call: We witness an American intervention in the process of failing, and the adventure’s only yields will be much pointless suffering among Ukrainians and life for years to come in the smothering embrace of a justifiably suspicious Russian bear. Nice going, Victoria Nuland, you of the famous “F the E.U. tape,” and your sidekick, Geoffrey Pyatt, ambassador in Kiev. Nice going, Secretary of State Kerry. For this caper, Nuland and Pyatt should be reassigned to post offices in the bleak reaches of Kansas, Khrushchev-style. Kerry is too big to fail, I suppose, but at least we now know more about what caliber of subterfuge lies behind all those plane trips, one mess following another in his jet wash. On the ground, Vladimir Putin continues to extend the Russian presence in Crimea, and we await signs as to whether he will go further into Ukraine. This is very regrettable. Viewed as cause-and-effect, however, it is first a measure of how miscalculated the American intervention plot was from the first. Pretending innocent horror now is a waste of time. The Ukraine tragedy is real estate with many names on the deed. This must not get lost in the sauce.

For First Time, Kremlin Signals It Is Prepared to Annex Crimea - Russia signaled for the first time on Friday that it was prepared to annex the Crimea region of Ukraine, significantly intensifying its confrontation with the West over the political crisis in Ukraine and threatening to undermine a system of respect for national boundaries that has helped keep the peace in Europe and elsewhere for decades.Leaders of both houses of Russia’s Parliament said that they would support a vote by Crimeans to break away from Ukraine and become a region of the Russian Federation, ignoring sanction threats and warnings, from the United States and other countries, that a vote for secession would violate Ukraine’s Constitution and international law. The Russian message was yet another in a series of political and military actions undertaken over the past week that outraged the West, even while the Kremlin’s final intentions remained unclear. As new tensions flared between Russian and Ukrainian forces in Crimea, the moves by Russia raised the specter of a protracted conflict over the status of the region, which Russian forces occupied last weekend, calling into question not only Russia’s relations with the West but also post-Cold War agreements on the sovereignty of the nations that emerged from the collapse of the Soviet Union.

Europe prepares sanctions against Russia - European officials were preparing sanctions against Russia and additional aid for Ukraine as diplomats acknowledged their efforts had not only failed in persuading Russia to calm the conflict but had seen the Kremlin tighten its grip on Crimea. A German-led effort to establish a “contact group” to negotiate a Russian stand-down in the occupied region – which the EU has set as a prerequisite for Moscow to avoid travel bans and asset freezes on top officials – was foundering, with Sergei Lavrov, Russian foreign minister, saying western proposals “did not fully satisfy us”. In a meeting with Vladimir Putin, Russian president, Mr Lavrov laid blame for the diplomatic stalemate at the feet of John Kerry, saying the US secretary of state had cancelled a trip to Moscow at the weekend and was insisting Russia recognise the new government in Kiev. A Russian foreign policy official said Moscow did not reject the contact group in principle but refused to tie any start of talks to the question of the Ukrainian government’s legitimacy. “Any attempt at addressing the problems in Ukraine must involve a return to constitutional order in that country,” said the official.

China Warns West Not To Enforce Sanctions Against Russia -- "Sanctions could lead to retaliatory action, and that would trigger a spiral with unforeseeable consequences," warns China's envoy to Germany adding that "we don't see any point in sanctions." On the heels of Merkel's warning that Russia risked "massive" political and economic damage if it did not change course, Reuters reports ambassador Shi Mingde urged patience saying "the door is still open" for diplomacy (though we suspect it is not) ahead of this weekend's referendum. Russia's Deputy Economy Minister Alexei Likhachev responded by promising "symmetrical" sanctions by Moscow. So now we have China joining the fray more aggressively.

$3 Billion for Ukraine Aid Would Go to Russia -- As Western leaders prepare a bailout package for embattled Ukraine, they face a startling irony: Thanks to the almost bizarre structure of a bond deal between Ukraine and Russia, billions of those dollars are almost certain to go directly into the coffers of the Putin government. As CNBC has reported, some aid money is bound to go into Russia as a result of energy trade and other economic factors. But the situation is actually much more acute than just that: An existing agreement between the two countries makes an immediate, direct transfer from Ukraine to Russia legally enforceable. In December, Russian President Vladimir Putin agreed to lend Ukraine $15 billion. Few details were released at the time, except that Ukraine would issue bonds and Russia would buy them in installments through 2014. The first and only installment occurred in late December, while then-Ukrainian President Viktor Yanukovych was still in charge in Kiev. The second installment was slated to happen in late February, but it never occurred, because the pro-Russian president had fled Ukraine and a new government was in place.

Ukraine president: Russia 'is refusing crisis talks': Russia's leaders are refusing all negotiations with their Ukrainian counterparts, Ukraine's acting President Oleksandr Turchynov has said. He told AFP news agency that Ukraine would not intervene militarily in Crimea, even though a secession referendum there was a "sham". Meanwhile interim Prime Minister Arseniy Yatsenyuk is travelling to the US to meet President Barack Obama. On Thursday he is due to address the UN Security Council in New York. 'A provocation' "We cannot launch a military operation in Crimea, as we would expose the eastern border [close to Russia] and Ukraine would not be protected," Mr Turchynov told AFP.

Merkel warns of massive damage as Russia masses forces: In Berlin, German Chancellor Angela Merkel gave a stark and emotional speech to her parliament warning of "massive damage" unless Russia changes course, while in eastern Ukraine a man died in fighting between rival protesters in the mainly Russian-speaking city of Donetsk. Dr Merkel removed any suspicion that she might try to avoid a confrontation with Russian President Vladimir Putin. A pro-Ukrainian protester in Donetsk throws back a smoke bomb at pro-Russian protesters. Photo: AFP"Ladies and gentlemen, if Russia continues on its course of the past weeks, it will not only be a catastrophe for Ukraine," she said. "We, also as neighbours of Russia, would not only see it as a threat. And it would not only change the European Union's relationship with Russia. No, this would also cause massive damage to Russia, economically and politically."

Why Is Ukraine's Economy Such a Mess? - Justin Fox -- When Ukraine became an independent nation in 1991, it was on more or less the same economic footing as its neighbors. Look what’s happened since: Ukraine has 45 million inhabitants, is the second-largest European country by land area (after the European parts of Russia and not counting the Asian parts of Turkey) and by all rights ought to be one of the continent’s major economic powers.. There were a lot of Soviet-era machine-bulding plants in Eastern Ukraine, machine-building and metals. There is also some banking, and media interests. The industrial base is important, particularly in eastern Ukraine. We all know about Ukraine as the breadbasket of Europe, and it is indeed an incredibly fertile country. There’s been a lot of Chinese investment in that part of the Ukrainian economy. There is also a technology outsourcing industry. And then finally, in some parts of Ukraine, tourism has been becoming more important. Why is the economy such a mess? Because of very bad, kleptocratic governments. That is 90% of the reason. In terms of the economy, Ukraine only accomplished maybe half of the things that you need to do, when the Soviet Union collapsed and they moved to a market economy. They did do privatization. There are now a lot of private companies, and there is a market. It’s important for us to remember that not so long ago even selling a pair of jeans was illegal.

Did the World's Economy Decelerate Sharply? - On Monday, the word on the street was that China's exports to the world had plunged, which sent U.S. stock prices lower during the day. Here's the basic information as reported by USA TodayData released on the weekend showed China's exports fell by an unexpectedly large 18.1% in February, possibly denting hopes trade will help drive the slowing economy while communist leaders push ambitious reforms.  CNBC provides some additional perspective on the narrative being floated by the media that Monday:  China's exports had investors fretting about the health of the global economy.  Wall Street's decline "is a reflection of what went on over in China; China's exports dropped pretty startling, and the Chinese are again dropping the value of their currency, which has investors worrying about the global recovery,"  China's exports unexpectedly fell 18.1 percent last month versus expectations of a 6.8 percent climb.  "We're the largest destination for exports from China, so investors have started questioning what retail sales will look like this week.,"  Now, we should note that the source of the data in this case is China's government, and the reliability of that data has long been considered to be highly questionable.  Fortunately, we don't need to rely on data emanating from China to measure the relative health of its economy. We can instead take advantage of the U.S. Census Bureau's more reliable records for trade between the U.S. and China, which was just updated on Friday, 7 March 2014. Our chart below shows the year-over-year growth rates for all of that trade data from January 1986 through January 2014:  So, if the volume of goods that China exports to the world falls, that would be an indication that the relative economic health of the nations receiving those goods has declined. For the volume of exported Chinese goods to fall so sharply, we would then expect to have noticed a considerable contraction - particularly in the United States which is a major recipient of the goods that China exports.

Global Debt Has Hit The $US100 Trillion Mark - (Bloomberg) — The amount of debt globally has soared more than 40 percent to $US100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record low interest rates. The $US30 trillion increase from $US70 trillion between mid-2007 and mid-2013 compares with a $US3.86 trillion decline in the value of equities to $US53.8 trillion, according to the Bank for International Settlements and data compiled by Bloomberg. The jump in debt as measured by the Basel, Switzerland-based BIS in its quarterly review is almost twice the U.S. economy. Borrowing has soared as central banks suppress benchmark interest rates to spur growth after the U.S. subprime mortgage market collapsed and Lehman Brothers Holdings Inc.’s bankruptcy sent the world into its worst financial crisis since the Great Depression. Yields on all types of bonds, from governments to corporates and mortgages, average about 2 percent, down from more than 4.8 percent in 2007, according to the Bank of America Merrill Lynch Global Broad Market Index.

Global Debt Exceeds $100 Trillion as Governments Binge, BIS Says - The amount of debt globally has soared more than 40 percent to $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record low interest rates, according to the Bank for International Settlements.  The $30 trillion increase from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value of equities to $53.8 trillion in the same period, according to data compiled by Bloomberg. The jump in debt as measured by the Basel, Switzerland-based BIS in its quarterly review is almost twice the U.S.’s gross domestic product.  Borrowing has soared as central banks suppress benchmark interest rates to spur growth after the U.S. subprime mortgage market collapsed and Lehman Brothers Holdings Inc.’s bankruptcy sent the world into its worst financial crisis since the Great Depression. Yields on all types of bonds, from governments to corporates and mortgages, average about 2 percent, down from more than 4.8 percent in 2007.  “Given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers,”   BIS is owned by 60 central banks and hosts the Basel Committee on Banking Supervision, a group of regulators and central bankers that sets global capital standards.

Closing the door on the GFC - Steve Keen - One of the ironies of the economic crisis that began in late 2007 is that the best acronym for it -- the “GFC” for “global financial crisis” -- was coined in the one country that suffered the least from it, Australia. The year 2014 is the seventh of the “GFC” (the panic began on August 9, 2007, when BNP Paribas shut down three of its subprime-based funds), but at last the majority of economic reports are of sustained if anaemic growth, rather than of bank failures and recession. Australia’s reported growth rate for 2013 of 2.8 per cent follows the UK reporting 1.9 per cent and the US 2.4 per cent; even the EU, where several countries are still mired in outright Depressions, recorded an overall growth rate of 0.1 per cent for 2013. These are hardly sterling growth rates, but the fact that they are all positive is causing a noticeable change of mood in economic commentary -- and a shift in public expectations as well. Is it enough to call the GFC/Great Recession/North Atlantic Financial Crisis over? It isn’t. But I’m willing to do so on an entirely different measure: the rate of change of private debt is now strongly positive. The period of private sector deleveraging that caused the crisis appears to be over. Debt is now not merely growing, but growing faster than GDP -- see figure 1.

Apple iTax stings global consumers - Apple, famous for its innovative products, is equally creative in its tax structure. From 2009 to 2012, it successfully sheltered US$44 billion from being taxed anywhere in the world, including sales generated in Australia. While there are probably some sound reasons for Apple’s CEO, Tim Cook, to claim in a US congressional hearing in May 2013 that his company “complies fully with both the laws and spirit of the laws”, many people may think it is immoral for such a successful company to avoid taxation. But the company shouldn’t be alone in the being blamed for the low tax it pays around the world. Concerted government action, including specific provisions inserted into US tax laws in 1997, have made it possible for multinationals with complex structures to funnel profits between the gaps of tax authorities. And it is unlikely to be a coincidence that Irish tax law has been crafted to allow companies incorporated in Ireland to take full advantage of these gaps in the US. Mapping the reach of Apple’s iTax scheme and the rules it uses to hide profits is difficult, if not impossible, to discern from its financial statements. My research on this topic would have been impossible but for information revealed in the US Senate hearing in May last year.

Baltic Dry Plunges 8%, Near Most In 6 Years As Iron Ore At Chinese Ports Hits All Time High -- It would appear record inventories of Iron ore and plunging prices due to China's shadow-banking unwind have started to weigh on the all-too-important-when-it-is-going-up-but-let's-blame-supply-when-dropping Baltic Dry Index. With the worst start to a year in over a decade, the recent recovery in prices provided faint hope that the worst of the global trade collapse was over... however, today's 8% plunge - on par with the biggest drops in the last 6 years - suggests things are far from self-sustaining. Still think we are insulated from the arcane China shadow-banking system, which suddenly everyone is an expert of suddenly? Think again.

The TTIP and the Corporatist Coordination Plan, Part Three - In Part One I described the corporations’ basic regulatory Gleichschaltung (coordination) plan they hope to attain with the TTIP and TPP globalization compacts. In Part Two I described the specific demands of the GMO cartel within this framework. Now in Part Three I’ll discuss the eagerness with which the European Commission (EC) has responded to these plans and demands. First a few words about the position of a nominal government bureaucracy like the EC. In being formally totalitarian, dedicated only to profit in principle, corporate bureaucracies are explicitly established as the direct exercise and rule of power (Might Makes Right), mediated only by government regulatory action. Strictly speaking, corporations are not supposed to be restrained directly by law. On the contrary, part of the purpose of the corporate form is to place absolutory legal barriers between the actions of corporate cadres and those actions’ having any actionable legal character, civil or criminal. Government bureaucracy, meanwhile, is supposed to be restrained by law and by respect for democracy. But here too individuals are often formally absolved of personal responsibility for actions. This kind of absolution goes to the core of the evil of any such hierarchies, since nothing is so firmly proven as that if you give individuals power and freedom from consequences for their actions, they’ll take their actions to bad extremes. That’s why humans should never allow power to concentrate, and should never grant individuals a blank check, and most of all should never combine the two. Meanwhile it’s laughable to expect any bureaucrat to respect democracy. By its nature bureaucracy respects only administrative power and process, and despises law and democracy.

The TTIP and the “Right to Profit” (Investor-to-State Dispute Settlement) - I’ve previously written (parts one, two, three) about the provisions of the TTIP and TPP for regulatory Gleichschaltung (coordination) under corporate rule. While that’s meant to be a longer-term project, a more immediate and direct attack on democracy and politics will be these compacts’ souped-up corporate tribunals called “investor-to-state dispute settlement” (ISDS). ISDS is a way for corporations to directly sue countries over any policy provision which allegedly costs them profit. The suits take place in secret tribunals presided over by corporate lawyers. These tribunals are lawless administrative courts outside of any kind of democratic oversight or accountability. They’re most similar to administrative courts which have been run by secret police organizations like the tsarist Okhrana and the Nazi SS. The process gives oligopoly corporations based in any country which is party to a compact special privileges over the rights of the people or of any legitimate business within any country which is also a party. It exalts the “right” to corporate profit as the supreme imperative of society, lofting it far above all other values, rights, goals of policy and law. If the TTIP and TPP are ratified, their ISDS provisions will follow the NAFTA model for filing disputes. From the corporatist point of view this is an improvement over the older WTO model. Under less rigorous globalization compacts, when a corporate sector based in a country feels hampered by a law or regulation in another participating country, its government sues the other government in a WTO corporate tribunal. When, hardly ever “if” (the complainant almost always wins), the WTO finds the law in question to be a barrier to “trade”, it grants the plaintiff country the right to impose retaliatory tariffs on imports from the defendant country. These so-called retaliatory tariffs themselves are chosen in a way to penalize certain imports in order to support certain exports, so what the complainant wins at the tribunal is not so much a right to retaliate as a right to commit new aggression.

US claims EU abandoning tariff pledge - The US has accused the EU of abandoning a pledge to remove all tariffs applied to goods traded across the Atlantic, in the first substantive row to hit landmark trade negotiations between the two economies. The EU and US last year launched a push to reach a Trans-Atlantic Trade and Investment Partnership billed as the world’s largest regional trade negotiation covering economies comprising almost half of the global economy. Much of the focus of the discussions has been on bringing regulations in line to encourage more trade and on reducing other non-tariff barriers. But both sides had also pledged to seek to remove all tariffs on transatlantic trade, and in a sign of the difficult discussions to come the US has accused the EU of backing away from that goal. In discussions this week in Brussels, EU officials have told their US counterparts that they plan to allow US beef, chicken and pork into the EU only under a quota system. The move amounts to a stick in the eye of US negotiators who face powerful agricultural lobbies at home and a Congress that is appearing ever more sceptical about the value of trade agreements. It also follows a concerted effort by Karel De Gucht, the EU trade commissioner, to label the US’s original tariff offers tabled last month as less ambitious than the EU’s. The EU’s original offer would eliminate tariffs on 96 per cent of goods traded across the Atlantic while the US offer promised to wipe out tariffs on 88 per cent of goods. US officials insist they plan to negotiate their offer upward and remain committed to the goal of eliminating all tariffs. However, EU officials, they say, have told their US counterparts that they will not eliminate tariffs on beef, chicken or pork and instead subject them to a sliding system of tariff-rate quotas.

Transatlantic trade talks hit German snag - Germany has introduced a stumbling block to landmark EU-US trade negotiations by insisting that any pact must exclude a contentious dispute settlement provision. The “investor-state dispute settlement” mechanism, or ISDS, would allow private investors to sue governments if they felt local laws threatened their investments. Public opposition to its inclusion has grown in both Europe and the US since the launch last year of negotiations over a transatlantic trade area. Earlier this year, the European Commission suspended negotiations over the ISDS clause to allow for a 90-day public consultation exercise, expected to be launched within days. That move was intended to help defuse some of the opposition and explain why an arbitration mechanism was needed. But opposition to ISDS has only grown since then. Now, in the biggest blow yet to those seeking its inclusion in the deal, Berlin has decided that it will push for the exclusion of the ISDS provisions in the deal. A spokesman for the economy ministry in Berlin said on Friday that the government had relayed its position to officials in Brussels, where negotiators have ended a week of talks over the proposed Transatlantic Trade and Investment Partnership (TTIP).

Eurozone banks' sovereign exposure hits new high - Banks in the eurozone are now more exposed to government debt than at any time since the financial crisis began, with many increasingly using their balance sheets to prop up ailing governments, deepening the bank-sovereign link that has already pushed a number of countries and lenders into bailouts. Banks in the region now hold about 1.75 trillion euros in government debt, equivalent to 5.7 percent of their assets and the highest relative exposure since 2006, according to European Central Bank data. In Italy and Spain, roughly one in every 10 euros in the entire banking system is now on loan to governments. Although the ECB has said it is keen to break what it terms the sovereign-bank nexus, analysts warn that its hands are tied. European governments need - and many encourage - their banks to finance growing public debt piles because many simply do not have enough alternative buyers after an exodus of foreign investors. "The sovereign-bank nexus is growing and it is a concern," said Nikolaos Panigirtzoglou, a strategist at JP Morgan. "The ECB and regulators want to reduce this risk, but they know they can't right now because the region is only just emerging from a debt crisis. If debt sustainability issues resurface in the future, it will be a problem for heavily exposed banks."

Welfare States in the Euro Crisis - Paul Krugman - A follow-up on my last post, on redistribution and its role or lack thereof in the economic crisis. One thing we can do instead of looking at measures of redistribution — which is, in a way, the output of the welfare state — is look at social expenditures, which are in effect the input. And this gives us data on a few more countries. If we look at the relationship between social expenditures in 2007, on the eve of the crisis, and performance in the next five years, we get this: The countries that rode out the crisis best had relatively large welfare states by European standards, while those that did worst had somewhat smaller than average social expenditures. I don’t think this is causal; what happened instead was that during the years of europhoria, money flowed from Europe’s wealthy core, with its well-established welfare states, to less developed economies on the periphery, which then went bust. The size of the welfare state probably had nothing to do with it either way. But then that’s the point: the right-wing theory of the crisis gets no support from the facts.

European banks face double hit from emerging market slide and ECB crackdown - The deepening slowdown in emerging markets is holding back global recovery and risks fresh financial strains in Spain, Britain and other European countries with large bank exposure to the bloc, the OECD has warned. Rintaro Tamaki, chief economist for the OECD club of rich states, said bond tapering by the US Federal Reserve has “only just begun” and threatens to trigger a fresh wave of capital flight from vulnerable parts of the emerging market nexus. “There remains a risk that capital flows could intensify,” he said. Mr Tamaki said Spanish bank exposure to developing countries is 35pc of Spain’s GDP, mostly through the operations of Santander and BBVA in Latin America. Exposure is 21pc for Britain and 18pc for Holland. The US is largely insulated at just 3pc of GDP. Much of Britain’s link is through lending to Chinese companies on the dollar market in Hong Kong. British-based banks account for almost a quarter of the estimated $1.1 trillion of foreign-currency loans to China. The OECD called on the Fed to go easy on bond tapering and said the European Central Bank and the Bank of Japan may have to step up stimulus to prevent the recovery faltering.

Italian banks' non-performing loans in January stood at $222 billion (Reuters) - Non-performing loans at Italian banks rose by 24.5 percent in January on a year ago, a slightly lower rate than the 24.7 percent rise recorded in December, Bank of Italy data showed on Monday. Non-performing loans on banks' balance sheets totalled 160.4 billion euros ($222 billion) in January, up from 155.9 billion euros the previous month and banks cut back further on lending to companies as they tried to keep a lid on their bad debts. Italy's central bank said loans to non-financial companies fell 5 percent year-on-year in January, a slight slowing in the pace of contraction from 5.2 percent in December. Overall lending to the private sector shrank 3.5 percent in January after a 3.7 percent fall in December. Holdings of Italian government bonds at Italy-based banks stood at 383.4 billion euros in January, down from 387.4 billion euros the previous month, according to data that is partly calculated at market value.

Italy's UniCredit posts record $19 bln loss after writedowns (Reuters) - UniCredit posted a record 14 billion-euro ($19 billion) loss on Tuesday due to huge writedowns on bad loans and past acquisitions as it moved to clean up its balance sheet ahead of an industry-wide health check by European regulators. true Italy's biggest bank by assets said full-year provisions against losses from loans totalled 13.7 billion euros in 2013, with 9.3 billion euros in the fourth quarter alone. "This is a jaw-dropping clean-up," said one banking analyst, who declined to be named. "The company is taking 9.3 billion euros of loan losses. We had (forecast) 4.5 billion euros and thought we were high."

Italy presents sweeping tax cuts, plans to raise deficit goal  (Reuters) - Italian Prime Minister Matteo Renzi on Wednesday presented a sweeping package of tax cuts, saying they could help economic recovery in the euro zone's third largest economy without breaking EU budget deficit limits. Renzi, in his first full news conference since taking office last month, said income tax would be reduced by a total of 10 billion euros ($14 billion) annually for 10 million low and middle income workers from May 1. "This is one of the biggest fiscal reforms we can imagine," he told reporters after a cabinet meeting that approved the measures. true The cuts will be financed by reductions in central government spending, extra borrowing and by resources freed up thanks to the recent fall in Italy's borrowing costs, he said. Daniel Gros, the head of the Brussels-based think tank CEPS, said it was worrying that Renzi appeared to be back-tracking on previous pledges to finance any tax cuts entirely with structural spending reductions. "This is not what Italy needs," he said. "We don't know what bond yields will do in the future and, with its huge public debt, the government cannot afford more deficit spending."

Italy's public debt rises to 2.0895 trillion euros - Italy's massive public debt rose to 2.0895 trillion euros in January, up 20.5 billion since the end of 2013, the Bank of Italy said Friday. The European Commission recently said Italy's 2014 budget did not do enough to bring down debt, around 132% of gross domestic product (GDP). As a result it put Italy under "specific monitoring" over its "excessive macroeconomic imbalances", which include high debt and poor competitiveness, as part of an in-depth review. Italy's 2014 budget was passed by ex-premier Enrico Letta. Meanwhile his successor, Matteo Renzi, has unveiled a major package of tax cuts and investments to revive the weak Italian economy, which has received a guarded reception from European Economic and Monetary Affairs Commissioner Olli Rehn. "It is important to respect the rules of the stability pact, which means balancing the budget in structural terms and being in line with the debt rules," a spokesman said. In its monthly bulletin, the European Central Bank complained Thursday that Italy has not made "tangible progress" on hitting budget-deficit targets set by the Commission. Italian government sources said that the ECB's bulletin was scheduled in advance, so the comments on Italy were not a condemnation of Renzi's new measures.

Greek Banks Need A Few Extra Billion --It’s been a while since we checked in on Greece. So how are things at the former political and economic dysfunction capital of Europe? A little bit good and a bunch of badGreece’s four big, systemic banks will need another €5.8 billion ($8.0 billion) to shore up their fragile balance sheets, the country’s central bank said Thursday, in order to cope with a growing mountain of bad loans that have become another painful legacy of Greece’s protracted debt crisis. In a statement, the Bank of Greece said the four banks— National Bank of Greece SA, Piraeus Bank SA, Alpha Bank AE and Eurobank Ergasias SA—would need to present plans by mid-April detailing how they would raise that capital, such as by selling assets, going to the capital markets or appealing for further state aid. Where is the bright side, you might ask? Well, option no. 2—going to the capital markets—appears to possible once again, at least for one of the banks.

Spain Modifies Bankruptcy Laws to Prevent Corporate Liquidations; 65,000 Companies, 1.3 Trillion Euro Delinquencies in Play - In the name of saving jobs, the Spanish government has decided to change the rules as to whether or not a business is viable. In bankruptcy proceedings, companies will no longer be free to decide whether they prefer to liquidate the company.  Instead, corporations will be obliged to accept debt restructuring offerings from creditors on creditor-proposed terms centered around debt-to-equity conversions. Via translation from El EconomistaAccording to various judicial, legal and bankruptcy administration sources consulted by elEconomista, companies will no longer be free to decide whether they prefer to liquidate the company. New rules favor foreign financial institutions including the vulture funds, to take over companies. The decree aims to end the massive liquidation of companies in bankruptcy. Followup post by el Economista The Ministry of Economy approved the bankruptcy reform legislation to save viable businesses including a provision that transforms debt into equity. If creditors representing at least 60% of the financial liability agree, forced conversion of loans into equity may last up to five years. If creditors representing at least 75% of the financial liability agree, forced conversion of loans into equity may last ten years. Dissenting creditors may choose a haircut equivalent to the nominal amount of the shares that would correspond subscribe or take and, where appropriate, the corresponding premium or assumption.

Top German body calls for QE blitz to avert deflation trap in Europe - Telegraph: A leading German institute has called for full-blown quantitative easing by the European Central Bank (ECB) to head off a deflation spiral, marking a radical shift in thinking among the German policy elites. Marcel Fratzscher, head of the German Institute for Economic Research (DIW) in Berlin, demanded €60bn (£50bn) of bond purchases each month to halt the contraction of credit and avert a Japanese-style trap. "It is high time for the ECB to act. Otherwise Europe risks falling into a dangerous downward spiral of sliding prices and declining demand", he wrote in Die Welt. "The ECB must counter the deflation threat quickly and decisively, and launch a broad-based programme of bond purchase along the lines of the Federal Reserve," he said. The scale should be 0.7pc of eurozone state debt each month, comparable to 'QE3' in the US. The plea came after the ECB refused to take further action last week, even though the M3 money supply has fallen below zero over the last eight months and inflation has dropped to 0.8pc. The ECB's hawkish line has pushed the euro higher to $1.39 against the dollar, further tightening the deflationary vice.

ECB’s Coeure: No Deflation in the Euro Zone, but Risk Remains -- There are no signs of deflation in the euro zone, but it is a possible risk, a top European Central Bank official said Wednesday. “We don’t see deflation in the euro zone. We see it as a possible risk, and we have to be ready to act against the risk if it materializes,” said Benoit Coeure, an executive board member with the ECB. He added that the central bank has a number of instruments at its disposal to address the problem. Inflation in the euro zone has been well below the central bank’s target of just under 2% for months, prompting fears of deflation, defined as a persistent downward trend in prices that threatens consumer spending and investment. But ECB President Mario Draghi has said repeatedly there are no such signs in the euro zone. The ECB lowered its inflation forecast for this year to 1% from an earlier forecast of 1.1% in December, but said inflation would gradually rise to 1.3% in 2015. Assuming a stable euro, annual inflation should slowly rise to 1.7% by the end of 2016, closer to the ECB’s target. Earlier this month, the ECB left its main interest rate, the rate at which it lends to banks through its regular loan facilities, at a record low 0.25%, where it has been since November. It kept a separate rate on overnight bank deposits parked with the ECB at zero.

The power of the 1% - Simon asks why there's so little outrage about the high incomes of the top 1%. Let me deepen this question. I suspect that one reason is that people don't see top incomes as affecting them; they don't look at Euan Sutherland's pay and think "that's coming out of my pocket". But this lack of reaction is contestable. It's quite possible that we would be better off if the top 1% were less well-paid. Simple maths tells us that if the income share of the top 1% could be reduced from its current 12.9% to 9.9 per cent - its level in 1992 - then the incomes of the 99% would rise 3.4%, equivalent to a gain of £72 per month for someone on £25,000 a year.Of course, this calculation only makes sense if we assume such redistribution could occur without reducing aggregate incomes. But such an assumption is at least plausible. The idea that massive pay for the 1% has improved economic performance is - to say the least - dubious. For example, in the last 20 years - a time of a rising share for the top 1% - real GDP growth has averaged 2.3% a year. That's indistinguishable from the 2.2% seen in the previous 20 years - a period which encompassed two oil shocks, three recessions, poisonous industrial relations, high inflation and macroeconomic mismanagement - and less than we had in the more egalitarian 50s and 60s.What's more, there are reasons to suppose that the disease of which high top pay is a symptom - the managerialist ideology which empowers CEOs to enrich themselves - is bad for the economy:

Bank of England Destroys Tapes of Meetings After Minutes Published - In this era of ever-increasing central bank transparency, lawmakers in the U.K. parliament were somewhat taken aback Tuesday when a senior Bank of England official said the U.K. central bank destroys the tapes of its monthly policy meetings once it has published the minutes of the sessions. Paul Fisher, executive director for markets at the BOE, made the remark in evidence to Parliament’s Treasury Committee, a panel of lawmakers who scrutinize economic policy. “The recordings are not kept once the minutes are published,” Mr. Fisher said. The minutes of the BOE’s Monetary Policy Committee’s deliberations are published two weeks after rate-setters’ policy decision has been announced. Dry and formulaic, they’re usually of interest only to central-bank aficionados. The absence of a recording means the minutes are effectively the BOE’s final word on past discussions. Other central banks publish verbatim transcripts of officials’ deliberations, albeit with a long lag.

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