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

Saturday, March 22, 2014

week ending Mar 22

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

Fed Statement Following March Meeting - The following is the full text of the Fed statement following the March meeting.

Parsing the Fed: How the Statement Changed - The Federal Reserve releases a statement at the conclusion of each of its policy-setting meetings, outlining the central bank’s economic outlook and the actions it plans to take. Much of the statement remains the same from meeting to meeting. Fed watchers closely parse changes between statements to see how the Fed’s views are evolving. The following tool compares the latest statement with its immediate predecessor and highlights where policy makers have updated their language. This is the March statement compared with January.

FOMC Statement: More Taper, Forward Guidance Changed - FOMC Statement: Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.  The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.  In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month.

Fed Cuts Bond Purchases by Another $10 Billion - The Federal Reserve further curtailed its economic stimulus campaign on Wednesday, even as it said the effort would continue for the foreseeable future given the enduring consequences of the Great Recession. The Fed, as expected, announced it would reduce its monthly purchases of Treasury and mortgage-backed securities by $10 billion, to $55 billion, because of its confidence that the four-year-old recovery is finally becoming self-sustaining. The Fed also signaled its intention to keep short-term interest rates near zero after the unemployment rate falls below 6.5 percent. Investors, however, drew the conclusion that the central bank might begin to raise short-term interest rates, which it has held near zero since December 2008, well before the end of 2015. But Janet L. Yellen, in her first news conference as the Fed’s new chairwoman, sought to offset that optimism, saying the committee intended to raise short-term rates only gradually, because the economic environment remains weak. Importantly, she said, the Fed expected to conclude the process with rates still below the historically normal level of 4 percent.

Fed Dropping Numbers-Based Guidance Ends Policy-Making Experiment - The Federal Reserve’s decision Wednesday to move away from numbers-based guidance about the timing of future interest rate increases has closed the door on what many economists see as a successful, if imperfect, experiment in monetary policy making. On Wednesday, the Fed stopped linking its plans for raising interest rates to numerical unemployment and inflation thresholds governing the path of short-term interest rates. Since December 2012 the Fed had said it wouldn’t consider lifting short term rates from near zero until after the unemployment fell to 6.5%, as long as expected inflation stayed under 2.5%. The formula became known as the Evans Rule because it had been advocated by Chicago Fed President Charles Evans. Many economists say the formula succeeded because it stated in concrete terms that the Fed’s easy money policies would be in place for a long time to come, which helped hold down borrowing costs for households, businesses and investors. Fed officials hoped this would give the economy a lift by encouraging more spending, hiring and investment. Proponents say the approach was better than past efforts that used vague time frames and specific calendar dates. Critics of the approach say the low-rate assurances could fuel dangerous asset bubbles. The Evans Rule didn’t work perfectly. It didn’t help anchor expectations during the market’s heavy turbulence in the summer and autumn of 2013. During that time, expectations the Fed would soon begin to slow the pace of its bond buying caused short and long-term borrowing costs to surge. Many investors thought, incorrectly, the Fed pullback on bond buying would mean it would start raising interest rates sooner. Most Fed officials thought the rule would have had a longer lifespan because they expected it would take much longer for unemployment to reach the 6.5% threshold.

US monetary policy moving in the right direction - The Fed struck a somewhat more hawkish tone today - certainly enough to spook the markets. Expectations for the first rate hike have shifted forward by nearly a quarter, pointing to late spring of 2015 as the starting point.This monetary stance, combined with another $10bn taper was the right move. Here are the reasons:
1. The $10bn cut per meeting removes much of the remaining uncertainty around taper trajectory. The reductions are on autopilot. Often it's not the policy itself but the uncertainty surrounding it that creates issues for the economy. That was one of the key problems with this open-ended QE - the fear of a painful exit put the economy on hold.
2. It is unclear if extremely low rates stimulate credit growth at all, and in fact some argue it could be the opposite. At the same time savers, including many retirees, have been punished by negative short term real rates for years. This zero rate policy needs to end.
3. The US economy is stronger than is commonly believed. "How dare you say that, you heretic - don't you read all the financial blogs?" That has been the response from many. Perhaps. But it may behoove some folks to pay attention to the data ... More on this later. The point here is that the US economy will be fine without QE and with higher interest rates.
4. The current environment has created such hunger for yield that investors are increasingly taking higher risk in order to target the same performance they experienced in the past. Insurance firms, pensions, individuals - the behavior can be seen in a number of areas. The Fed's exit should help adjust some of the distortions.

Too much coddling of the wealthy… so why loose monetary policy? --- Mark Thoma is absolutely correct when he writes…“The wealthy think it’s the same — in their minds they are the job creators, what’s good for the wealthy is good for America! — but it’s not.”  This is where I have to ask the question… So if loose monetary policy is good for the wealthy, then why support it? In your mind, you must still agree that they are job creators. There is a contradiction. Economists seem to think that loose monetary policy will benefit the un-rich, but why can’t they see that this is not the case? Loose monetary policy is creating more imbalance of economic power than seen in a long time. This is not good for society. So I find it intriguing that economists, and Mark Thoma is not the only one, put Fed policy into a different category from tax policy, financial un-regulation and political influence. Loose monetary policy is just another policy benefiting the rich… bringing undesirable consequences. This is a moment where you might hear the phrase… “Well, don’t throw the baby out with the bath water.” The meaning is that we would still need loose monetary policy while we deal with other policies that directly benefit the rich. Well, loose monetary policy no only directly benefits the rich, it reinforces the other policies being criticized… and if you look closely, the creature being coddled in the bath water is not a baby, it is a rich person acting like a baby needing to be coddled.

The bitter medicine of quantitative easing - Barry Ritholtz wrote an opinion piece on Bloomberg today arguing that it's hard to criticize the Fed's QE programs simply because we don't know what would have happened without them. Since this is not a "controlled" experiment in which we can compare a patient taking experimental medication with the one taking a placebo, there is no way to tell if the therapy had worked. All we know is that the patient has undergone a slow recovery and according to the "doctor" may have been worse off without the "treatment". "If you are testing a new medication to reduce tumors, you want to see what happened to the group that didn't get the test therapy. Maybe this control group experienced rapid tumor growth. Hence, a result where there is no increase in tumor mass in the group receiving the therapy would be considered a very positive outcome."This argument was used a number of times in recent years, including for example with the American Recovery and Reinvestment Act of 2009 - the $840 billion "stimulus" bill. . Was it effective relative to other job creation programs? We of course will never know because we can't peer into an "alternative universe" where the stimulus bill had not passed. But maybe we are asking the wrong question.  Experimental medication is usually applied in dire cases when the patient's health is deteriorating and traditional therapies had not worked. The use of the first round of quantitative easing, QE1, was just such a case.  But what about QE3? Mr. Ritholtz argues that with other parts of the federal government dysfunctional, the Fed was simply the only game in town to get the economy moving. However was the US economy in such a disastrous shape in the summer of 2012 that it called for another extreme intervention? A patient who is getting better, albeit slowly, is generally not given an ever larger dose of experimental medication in hopes of miraculously accelerating the recovery.

Yellen Suggests Roughly 6 Month Gap Before Rate Increases After QE Ends - Federal Reserve Chairwoman Janet Yellen on Wednesday said interest-rate increases could begin in the first half of 2015, around six months after it winds down its bond-buying program. The Fed, in its policy statement, said the benchmark federal-funds rate will remain near zero for a “considerable time” after its signature bond-buying program ends. For the first time, Ms. Yellen attempted to define that term, saying it is “hard to define” but “probably means something on the order of around six months.” The Fed has been reducing its bond-buying program in $10 billion increments and is on track to wind it down this year. If the Fed continues its tapering of bond purchases at the current pace, the program would conclude in the December meeting. That would put the first potential date of increase in mid-2015, which was the consensus expectation of economists surveyed by the Wall Street Journal earlier this month.

Fed Watch: Unintentionally Hawkish - The outcome of the FOMC meeting was pretty much as I anticipated. Asset purchases were cut by $10 billion. The Evans rule was dumped. And forward guidance was enhanced to emphasize that rates would be low for a long, long time. All seems pretty much in-line with the general consensus. Yet financial market participants took a hawkish view of the news. Bonds were trounced - the 5 year Treasury yield lept almost 15bp. Market participants clearly saw something they didn't like. This despite what was a reasonably dovish inaugural press conference by Federal Reserve Chair Janet Yellen. Indeed, she strongly emphasized the new forward guidance language: When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. This makes clear that low rates may persist after the unemployment rate hovers closer to 5.5%. In other words, in the absence of clearly higher inflation or a reasonable forecast of higher inflation, the Fed is in no rush to push rates to a more normalish 4%. Low rates, however, are not the same as near zero interest rates. And the interest rate forecasts seems to imply tighter policy in 2015 and 2016 than implied by the December projections. But during the press conference, Yellen denied the little dots contained any meaningful forecast information. Again, she pointed to the statement as the relevant guidance. And the statement clearly says to expect a period of low interest rates and takes no firm position on the exact timing of the first rate hike. Sounds pretty dovish. Moreover, it is not clear that the patterns of the dots represent a meaningful change in policy even if taken at face value.

Confused delivery distracts from Fed’s main message - The same desk where Ben Bernanke used to sit was waiting for Janet Yellen’s first press conference as US Federal Reserve chairwoman on Wednesday, with one subtle change. Its legs had been chopped off to allow for her shorter height. A similar air of the unsettled amid the familiar pervaded the whole press conference. Ms Yellen’s message sounded a lot like Mr Bernanke’s and she delivered it with confidence. But she also slipped up several times to leave confusion about where the Fed stands. Her biggest slip came when she was asked how long the Fed might wait between halting its asset purchases and raising interest rates. In response, Ms Yellen made the classic central banker error of giving a specific, six months, in the midst of a nuanced answer. “It’s hard to define but, you know, it probably means something on the order of around six months or that type of thing,” she said. “What the statement is saying is it depends what conditions are like.” For the financial markets, it did not matter what it depended on. They had heard six months. Add six months on to this October, when the Fed is likely to end its asset purchases, and – depending on the timing of Fed meetings – you get to March or April 2015. That is some months earlier than the Fed had been expected to raise rates. In a matter of seconds, the S&P 500 shed about 1 per cent and yields on Treasury securities soared. If Ms Yellen did not already realise the awesome power of her every word as Fed chair, she does now.

On Yellen’s First FOMC Presser And Efficient Markets… - Jodi Beggs --In case you aren’t already convinced that Janet Yellen is the most powerful woman in the world (or, I suppose, that financial markets are at least approximately informationally efficent), take a look at this:  Okay, so maybe that requires a bit of explanation…today, the Federal Reserve released the statement coming out of its March meeting, and Janet Yellen held a press conference to discuss the Fed’s course of action and answer some questions. Judging by the above picture, I’m going to go ahead and infer that the whole statement/press conference thing started at 2pm. So why was the market unhappy? Let’s go to the statement and see what we can find:

  • The Fed still believes that bad weather was at least in part responsible for slow economic activity at the start of the year. (Not everyone agrees with this assessment.)
  • Inflation is still below the Fed’s target, and future inflation expectations haven’t really changed.
  • The Fed is cutting its asset purchases (read, quantitative easing, or, more generally, expansionary monetary policy) from $65 billion per month to $55 billion per month.
  • The Committee (i.e. the Federal Reserve Board of Governors) wants the world to know that they will keep tapering as the economy improves, but that it is not on a pre-set schedule and reserve the right to do what they want when they want.
  • The Committee described its current approach as “highly accommodative” and reiterated its commitment to keeping interest rates low, even after the specific quantitative easing program ends.

For context, it’s helpful to know how this statement differs from the January statement and those from 2013 and such…luckily, the WSJ has been stealing my moves and developed a handy tool to track changes across FOMC meeting statements. (Spoiler alert: The Fed appears to be quite adept with cut and paste.) Upon reading the most recent statement, it’s mainly the change in asset purchases that really stood out, so the market’s reaction was likely due to the news of the further tapering.

Janet Yellen didn’t gaffe -- It’s become received opinion that Janet Yellen made a “rookie gaffe” in her first press conference as Fed chair, thereby “rattling markets”. She didn’t. According to Peter Coy, Yellen made a “substantial blunder”. John Cassidy says she “got into trouble” when she told Reuters’ Ann Saphir that the Fed would wait “something on the order of around six months” after QE ends before starting to raise rates. Clive Crook was so perturbed by the presser that he is beginning to doubt the wisdom of the Fed having any kind of forward guidance at all. Mohamed El-Erian seems inclined to agree: the markets aren’t mature enough, he says, to internalize new information without over-extrapolating (i.e., freaking out). But here’s the thing: the market didn’t freak out. The chart above shows the benchmark US interest rate — the yield on the 10-year note. The chart gives you a reasonably good idea of what normal volatility is: last Thursday, for instance, the yield fell by a good 10bp when John Kerry made noises about imposing sanctions on Russia. And overall, the yield has stayed comfortably in a range between 2.6% and 2.8%. What’s more, the big FOMC-related move in the 10-year bond yield happened immediately at 2pm, when the statement was released. Yellen’s “gaffe” caused barely a wobble. So why does everybody think that Yellen blundered? The answer is simple: they were looking at the stock market (which doesn’t matter), rather than the bond market (which does). Stocks fell, briefly; not a lot, and not for long, but enough that people noticed.

Federal Reserve dissenter Kocherlakota attacks new guidance - -- The US Federal Reserve damaged its credibility and created uncertainty that will weaken the US economic recovery, said a senior official as he explained his dissent from this week’s monetary policy decision.  Narayana Kocherlakota, president of the Minneapolis Fed, said he voted against new forward guidance on monetary policy because it implies the central bank will tolerate inflation below 2 per cent and creates uncertainty about its willingness to stimulate the economy. Mr Kocherlakota’s statement shows how some dovish Fed officials fear the central bank is losing its will to fight unemployment aggressively. He said the new guidance is “unusually significant” because it describes how the Fed will act “for some time to come”.  On Wednesday, with the unemployment rate having already fallen to 6.7 per cent, the rate-setting Federal Open Market Committee scrapped its 6.5 per cent threshold for a first rise in interest rates.  The Fed replaced the threshold with vague guidance about indicators – including labour market conditions, inflation and financial markets – it will ponder in deciding when to raise interest rates.  That creates too much uncertainty, Mr Kocherlakota said. “In its forward guidance, the committee provides little information about its desired rate of progress toward maximum employment,” he said. “These omissions create uncertainty about the extent to which the committee is willing to use monetary stimulus to foster faster growth, and this uncertainty is a drag on economic activity.”

Fed Watch: Kocherlakota's Dissent -- Minneapolis Federal Reserve President Narayana Kocherlakota defended his dissent at the March FOMC meeting. I thought it was quite remarkable. The reason of the dissent itself is not particularly unexpected: I dissented from the new guidance for two reasons. The first reason is that the new guidance weakens the credibility of the Committee’s commitment to target 2 percent inflation. The second reason is that the new guidance fosters policy uncertainty and thereby suppresses economic activity. I have already discussed the implications of dropping the Evans rule in regards to inflation. It implies an intention to approach the inflation target from below as well as a lack of tolerance for above target inflation. As far as the second point, Kocherlakota is arguing that the lack of quantitative guideposts increases uncertainty about the path of policy and that uncertainty tends to make economic agents risk adverse.  More interesting, in my opinion, was Kocherlakota's alternative language. Consider for a moment Kocherlakota's version of the Evans rule: For example, the Committee could have adopted language of the following form: “the Committee anticipates keeping the fed funds rate in its current range at least until the unemployment rate has fallen below 5.5 percent, as long as the one-to-two-year-ahead outlook for PCE inflation remains below 2 1/4 percent, longer-term inflation expectations remain well-anchored, and possible risks to financial stability remain well-contained.” Kocherlakota has to come up with something he can sell to the rest of the FOMC. It says something about the rest of the FOMC that the most he thinks he can sell is a meager 25bp bump above the Federal Reserve inflation target. It says even more if that's the most he could sell to himself. If the most dovish member of the FOMC can tolerate no more than a 25bp upside miss on inflation, what does it say about the other FOMC members?

Fed Not Seen Boosting Rates Until 2016 – Goldman Sachs -- Despite growing angst, Goldman Sachs sticks to its call: the Federal Reserve won’t raise short-term interest rates until 2016. Federal Reserve Chairwoman Janet Yellen—AFP/Getty Images“Rate hikes are far off,” wrote Jan Hatzius, Goldman’s chief Fed watcher, in a note to clients late Thursday. “Our central forecast for the first hike remains early 2016, although the risks now tilt in the direction of a slightly earlier move.” The latest call came after U.S. stock and bond markets sold off Wednesday after the Fed’s latest policy announcement raised worries that the first rate hike could come during the spring of 2015. Fears have eased over the past two days as U.S. stocks rebound and the bond market has stabilized, but analysts warn more chopping trade ahead as debate over the Fed’s interest-rate policy outlook continues to be the key focus of financial markets. Some banks revised their Fed calls. Bank of America Merrill Lynch now expects the Fed will start hiking rates in the fourth quarter of 2015, earlier than its previous forecast of the first-quarter of 2016. Some other Fed watchers didn’t change their forecasts, either. Stephen Stanley, chief economist at Pierpont Securities, still expects the first rate hike in the third quarter of 2015. But Mr. Hatzius believes a rate hike may not come at all in 2015. He cited several factors to back his argument as below: “First, we do not think that Yellen meant to send a strong signal of a shift in the reaction function. Second, while we agree that the most likely path for growth is a pickup to a 3%+ pace, the risk to this forecast is on the downside. Third, we expect a more gradual return to 2% inflation than the FOMC. Fourth, we see a significant risk that a tightening of financial conditions in the run-up to the first rate hike will delay the first hike, much as last summer’s “taper tantrum” delayed the actual move to QE tapering.”

Dallas Fed President Says QE "Massive Gift of Wealth": In perhaps the strongest repudiation of the US Federal Reserve policy, a voting member of the central bank called quantitative easing “A massive gift intended to boost wealth.” Gift of wealth comes amidst rising inequality As rising income inequality plagues the US to historic levels, and political leaders look at the issue from a campaign standpoint, such critique of the Fed policy could receive widespread attention. As reported in ValueWalk, a recent study from a global group of economists shows that the United States continues to be the leader in creating income inequality. Speaking to a London group, Richard Fisher, president of the Federal Reserve Bank of Dallas, noted the massive additions to the Fed balance sheet and advocated for a much faster elimination of the Fed’s policy towards quantitative easing, ideally ending in October.  Fisher was also critical of the Fed’s policy of giving forward guidance, according to a report.  This is a response to Fed Chairwoman Janet Yellen’s first policy-setting meeting and later press conference, where she indicated the historic bond buying program might come to an end in the spring of 2015.

Fed Challenge: Pull Back Without Pulling the Rug Out - March has been an up-and-down stretch for the stock market, but it is turning into a month of milestones nonetheless.  Already, it’s the fourth-strongest bull, with a gain of more than 172 percent in the Standard & Poor’s 500-stock index.  Perhaps most significantly, Federal Reserve figures released this month show that levitating stock prices were the primary cause of a surge in total household wealth to $80.7 trillion in 2013 — the highest level in American history,  even after inflation is taken into account. All of this is undoubtedly reason for celebration, especially for the affluent households that hold the bulk of the wealth and have benefited most from the stock market’s big rebound. But for anyone with even a modest stake in the market — as well as for Janet L. Yellen and the other Fed policy makers who are at least partly responsible for the market’s rise — the startling increase in asset prices also raises difficult questions.  For market strategists, chief among them may be this: How will the bull market respond as the Fed throttles its accommodative monetary policy?  When the Federal Open Market Committee meets on Tuesday and Wednesday, with Ms. Yellen at the helm for the first time, policy makers are expected to discuss how to proceed with the tightening of monetary policy without causing serious problems for financial markets.

Rethink the Monetization Taboo - Adair Turner - The Fed’s tapering merely slows the growth of its balance sheet. The authorities would still have to sell $3 trillion of bonds to return to the pre-crisis status quo. The rarely admitted truth, however, is that there is no need for central banks’ balance sheets to shrink. They could stay permanently larger; and, for some countries, permanently bigger central-bank balance sheets will help reduce public-debt burdens. If central bank holdings of government debt were converted into non-interest-bearing perpetual obligations, nothing substantive would change, but it would become obvious that some previously issued public debt did not need to be repaid. This amounts to “helicopter money” after the fact. ...  Permanent monetization of government debts is undoubtedly technically possible. Whether it is desirable depends on the outlook for inflation. Where inflation is returning to target levels, debt monetization could be unnecessarily and dangerously stimulative. Central-bank bond sales, while certainly not inevitable, may be appropriate. But if deflation is the danger, permanent monetization may be the best policy.

Fed Shouldn’t Use Rates to Target Bubbles, Paper Says --Federal Reserve officials have started warming up to the notion that they might one day need to raise interest rates to prevent dangerous asset bubbles from inflating too much. Anton Korinek at Johns Hopkins University and Alp Simsek at MIT have a simple warning: Don’t do it. They say regulatory policies aimed at limiting leverage are the better way to tackle financial markets that appear to have gotten out of whack.“Contractionary monetary policy is inferior to macroprudential policy in addressing excessive leverage, and it can even have the unintended consequence of increasing leverage,” the authors write in a new paper published by the National Bureau of Economic Research. Examples of macroprudential policies they cite include limits on loan-to-value ratios and requiring equity insurance with mortgages as ways to limit borrowers’ leverage. The finding is very timely. Fed officials, including Chairwoman Janet Yellen, consider the costs vs. the benefits of their easy money policies. They have often highlighted the potential for fueling financial instability as a major potential cost. But most see it outweighed so far by the benefits of spurring growth and employment. Some disagree. Dallas Fed President Richard Fisher, a vocal critic of the central bank’s bond buying, said last week the Fed is courting danger. “I fear that we are feeding imbalances similar to those that played a role in the run-up to the financial crisis,” Mr. Fisher said in a Mexico City speech. “With its massive asset purchases, the Fed is distorting financial markets and creating incentives for managers and market players to take increasing risk, some of which may result in tears.”

Fed Watch: That Train Left the Station - I was re-reading some of the recent overshooting debate and it occurred to me that it is comical that we are even having this discussion. The Fed is not going to deliberately overshoot inflation, period. That train left the station long ago. So long ago that you can't even here the rumble on the tracks.The train left the station on January 25, 2012, with this statement by the Federal Reserve: The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. On that day, the Federal Reserve locked in the definition of price stability. They locked it in as a commitment device to tie the hands of future policymakers as they would need to justify changing the definition of price stability, presumably a very high bar for any central banker to cross. On that day, the Federal Reserve took higher inflation expectations off the table. They pulled it from the toolkit.  The only tolerable deviations from that target are essentially forecast errors. That's it. If the Fed has already proved they can't stomach inflation expectations hovering just below 3% (remember that this is on a CPI basis by which TIPS are calculated, not on a PCE basis that is the Fed's target) for even a few months, they really can't wrap their minds around inflation actually reaching 3% as suggested by Karl Smith:The Evans Rule was nice, but addressing the overshoot directly would be better. For example, a statement like: “In the committee’s view the appropriate path for the federal funds rate would, in the medium term, allow inflation to rise above 2 per cent, but not above 3 per cent, for a period no less than three months but no greater than one year. Within those parameters the committee will continue to adjust the target for the federal funds rate so as to achieve maximum employment and keep long term inflation expectation well anchored.” And note that I am being generous by trusting that the Fed's inflation target is actually 2%. David Beckworth suggests it is actually the range of 1% to 2%.

Fed Acknowledges Potential Deflation Problem: There are already many commentaries regarding Chairman Yellen's first Federal Reserve press conference. I simply want to highlight a point that will probably be overlooked: the heightened deflationary threat to the US. Consider the second paragraph from the Fed's policy announcement: Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term. The problem with deflation is this: when consumers and businessses see prices either not moving higher or moving lower, they put off purchases, anticipating either consistent prices (It will be the same price when I buy it later this year) or falling (it will probably be cheaper when I buy it). In either situation, the velocity of economic activity slows. Consider these charts. The year over year percentage change in CPI has been fluctuating between 1% and 2% for a little over a year. And before that, price pressures were clearly decreasing. The point of the above charts is this: they indicate the Fed's concern about potential deflation is reasonable.

Wage Growth, Inflation, and Interest Rates -- I think the topic of wage growth and inflation is one of those topics that is muddled by what I call the "Wizard of Oz" theory of the Fed.  Or, maybe a better name would be the "Pet Rock" Fed.  This is the notion that interest rates are primarily set by the Fed, so that if we move from .25% to, say, 3% short term rates over the next few years, that reflects intentions of the Fed regarding inflation control.  I would say that most of that movement is determined, essentially, by the market, and that, if the Fed is lucky, they keep their target near the market rate as we move along. The Fed is like a gas station.  In the literal sense, they can go out to the curb each day to set the price.  But, in another sense, they are guessing at what the right price is, and tweaking it one direction or another.  If they get outside a given range for too long, bad stuff is going to happen.  Here is a graph showing wage growth, short term rates, and inflation. Next is a graph estimating wage growth and short term interest rates, net of inflation. Generally there is a relationship between wages and interest rates, both nominally and in real terms. But, I think, instead of thinking of wage growth as a cause of inflation, which, in turn, causes Fed tightening through rising interest rates, I think it makes more sense to simply think of wages and interest rates as two symptoms of a thriving investment market. Firms with a high demand for investment are bidding up both the price of capital and of labor. Inflation may reflect Fed policy, but real interest rates and wages tend to rise and fall together in both high and low inflationary periods. Wage growth might signal interest rate increases, but not necessarily because the Fed plans it that way.

Charge of the Right Brigade - Paul Krugman -- Noah Smith writes about what he calls the “finance macro canon.” It’s mainly the view that money-printing and deficits lead inexorably to runaway inflation, plus assorted other arguments about why easy money is a terrible thing even in a depressed economy.  And Noah is right — it’s still a view that is dominant on much of Wall Street. I’ve had several recent conversations with finance-industry people — including traders — who talk with some wonderment about the failure of high inflation and a plunging dollar to materialize, because “all the experts” told them to expect that outcome. When I found myself on CNBC with Joe Kernan, he described me as a “unicorn” — he couldn’t believe that there was anyone out there who didn’t believe that deficits and QE were going to lead to rapid doom. Now, it’s interesting to note that the really smart Wall Street money doesn’t buy into this canon. Jan Hatzius and the rest of the economics group at Goldman have an underlying macroeconomic framework pretty much indistinguishable from mine, and have consistently talked down the risks from easy money and deficits. But the great Armani-suited unwashed apparently don’t know that; they think that “everyone” shares their springtime-for-Weimar vision.

Key Measures Shows Low Inflation in February -- The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.2% annualized rate) in February. The 16% trimmed-mean Consumer Price Index also increased 0.2% (1.9% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report. Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.1% (1.2% annualized rate) in February. The CPI less food and energy increased 0.1% (1.4% annualized rate) on a seasonally adjusted basis. Note: The Cleveland Fed has the median CPI details for February here. The price for fuel oil and other fuels increased sharply in February.This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.0%, the trimmed-mean CPI rose 1.6%, and the CPI less food and energy rose 1.6%. Core PCE is for January and increased just 1.1% year-over-year. On a monthly basis, median CPI was at 2.2% annualized, trimmed-mean CPI was at 1.9% annualized, and core CPI increased 1.4% annualized.

FOMC Projections and Press Conference - The key sentence in the announcement was: "The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run." Rates will be low for a long long time ... As far as the "Appropriate timing of policy firming", participant views were mostly unchanged (almost all participants expect the first rate increase in 2015). Yellen press conference here. On the projections, GDP was revised down slightly, the unemployment rate was revised down again, and inflation projections were mostly unchanged. Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. As of January, PCE inflation was up 1.2% from January 2012, and core inflation was up 1.1%. The FOMC expects inflation to increase in 2014, but remain below their 2% target (Note: the FOMC target is symmetrical around 2%, so this is about the same miss as 2.9% inflation).

Economy Plods on As Fed Sows The Seeds of Destruction - The seasonally adjusted headline number for February Industrial Production crushed economists’ expectations, coming in at a month to month gain of 0.6% versus the pros’ guesstimate +0.1%.  We had a good idea that the subsequently released data would surprise on the upside. The actual number for February, not seasonally adjusted, was 101.1, a gain of 3.2% on a year to year basis. The annual growth rate has been very stable, near 3% for the past 6 months. The US economy is a big lumbering behemoth consisting of hundreds of millions of actors and billions of transactions every day. It has a life of its own, an inertia against which all of the Fed’s policy manipulations are insanely meaningless. Moreover those manipulations are dangerous because they promote distortion, malinvestment, and asset bubbles. The Fed’s few hawks have protested that all along. Maybe the doves are finally getting it through their delusional skulls that QE has not worked, and has put us all back in immense danger. Perhaps QE 1 had something to do with getting the economy turned around or perhaps it would have turned on its own. That’s just unknowable. But the assumption that the Fed caused the recovery is also questionable. We didn’t try anything else. The recovery might have come along anyway, probably would have in my view. Looking at the chart, it’s clear that QE2 in 2011, and QE 3-4 from November 2012 until now have had absolutely no impact on stimulating production. In fact, the rate of growth slowed dramatically under QE2, and it has barely budged from the 2-3% growth range in the past 3 years whether the Fed had QE on hiatus or was printing full bore. It just has not helped the economy.

We’re Doing Worse Than Anyone Could Have Imagined A Few Years Ago, Krugman Notes, But People Have Started To Accept Terrible Economic Conditions As the New Normal --  There may not be “any major economic crises underway right this moment,” but that doesn’t mean we’re not stuck in the middle of a “miserable” economic situation, writes New York Times columnist Paul Krugman. So dire is our current situation that even paltry economic news — like 1 percent growth in Spain’s depressed economy with 55 percent youth unemployment — is celebrated as a major triumph. “We’re doing worse than anyone could have imagined a few years ago,” Krugman notes in his Friday column, but people have started to accept terrible economic conditions as the new normal: How did this happen? … I’d argue that an important source of failure was what I’ve taken to calling the timidity trap — the consistent tendency of policy makers who have the right ideas in principle to go for half-measures in practice, and the way this timidity ends up backfiring, politically and even economically.  In other words, Yeats had it right: the best lack all conviction, while the worst are full of passionate intensity.

U.S. CEOs Expect Slow Economic Growth, Scant Hiring -- Chief executives at major U.S. companies are forecasting another year of tepid economic expansion and limited payroll growth, underscoring the recovery’s slow pace. A quarterly survey released Tuesday by the Business Roundtable, a Washington trade group representing big-company CEOs, said they expect gross domestic product to advance 2.4% this year. The forecast is a slight upgrade from an expectation of 2.2% in the previous survey but still less than many hoped to achieve nearly five years after the recession ended. “The slightly upgraded outlook from the group’s previous CEO poll was due partly to last year’s budget deal forged by Sen. Patty Murray (D., Wash.) and Rep. Paul Ryan (R., Wisc.). The two-year agreement ended back-and-forth budget battles, including repeated brinkmanship over the debt ceiling and a government shutdown in October. While 72% of CEOs expect sales will increase in the next six months, only 37% think they will add U.S. employees and less than half expect to increase capital investment. Limited hiring and investment diminishes prospects for growth. The economy’s trajectory has dipped since the fall, when a healthy 4.1% growth rate fueled expectations for a stronger expansion, faster job creation and rising wages this year. U.S. GDP, the broadest measure of economic output, grew at a seasonally adjusted annual rate of 2.4% in the final quarter of the year, the Commerce Department said last month. Private economists are forecasting more of the same in the first part of this year.

An Insane Idea- The US Economy is Overheating -- One of the off-the-wall theories that I have espoused lately is that rather than slowing because of the winter weather, the US economy is actually beginning to overheat as it enters the final stages of a free money boom that has benefitted the few at the expense of the many. Most observers with whom I’ve shared this thought, think that I’m nuts, and I agree. But I’ve been watching the Federal withholding tax collections literally going off the charts for a couple of weeks, and based on that it sure looks to me like the US economy is beginning to go into blowoff mode. Sure, only the 1%, or maybe 10%, are participating, but the people who run this show have gambled that the bottom 90% doesn’t matter and they’ve driven policy accordingly. Withheld taxes are mostly from employee wages, salaries, commissions, and bonuses. Withholding from other sources like financial backup withholding is typically negligible in the big picture. So this trend should give us a pretty good idea in real time of just how fast the US economy is growing in nominal terms, which includes an unknown inflation component. Lop off about 2% for CPI, and you can even back into a CPI adjusted real growth rate that often gives a good idea of what the subsequently released lagging GDP numbers, and a whole host of other economic data will be. Federal withholding tax collections have been going through the roof in recent weeks. Not only that, but the year over year rate of increase has accelerated from zero to 7.5% in nominal terms since the recession bottomed in 2009. Tax cuts suppressed the growth rate in 2011, but the payroll tax increase restored those cuts in 2013. The 2014 year to year comparison is now against a period when those taxes were fully restored, and still the gains are as strong as in 2010. Something is going on here that no one in the mainstream economic establishment is talking about–acceleration. I guess it’s either too early, or too unbelievable, given the conventional wisdom that the growth rate is soft.

Current-Account Gap Falls To Lowest Level Since 1999 - The U.S. current-account deficit sank to the lowest level in more than 14 years at the end of 2013, reflecting a smaller trade gap and better returns on assets Americans own abroad. The broad measure of international transactions registered a shortfall of $81.12 billion in the fourth quarter of last year, the Commerce Department said Wednesday. It was the smallest deficit since the third quarter of 1999. The gap, which has narrowed 20% from a year earlier, now represents 1.9% of U.S. gross domestic product. That’s the smallest shortfall as a share of the U.S. economy since 1997. The gap narrowed from $96.37 billion in the third quarter in part due to stronger exports of U.S. goods overseas and only a small gain in foreign imports. The trend partially reflects that Americans are buying less oil from overseas as U.S. energy production climbs. Returns on American-owned foreign assets increased more swiftly in the fourth quarter than payments on foreign-owned assets in the U.S., also helping to narrow the gap. A smaller deficit implies the U.S. needs to attract somewhat less foreign financing from China and other countries in order to maintain the value of the dollar.

Why the Dollar Endures - Why hasn’t the dollar plunged? Since the 2007-8 global financial crisis, the public debt of the United States government has soared to $17.4 trillion, roughly equivalent to America’s annual gross domestic product. The Federal Reserve has pumped more than $1 trillion into the economy in an attempt to spur lending — and, in effect, weaken the dollar. Uncle Sam’s credit rating was downgraded, for the first time ever, in 2011. Round after round of fighting over the debt ceiling led to a government shutdown last October. Bitter gridlock has made it difficult for America to get its fiscal house in order. All of these circumstances would predict, under normal economic theory, a decline in both the value and the importance of the dollar. Strangely, this hasn’t occurred — instead, quite the opposite. Since the crisis, the dollar has more than held its own against other major currencies, like the euro, the Japanese yen, the British pound and the Swiss franc. Over the last decade, experts have variously warned that the euro — or even the Chinese renminbi — might threaten the dominance of the dollar; almost no one seriously says that anymore. Most international trade and financial deals are still transacted in dollars. Central banks around the world hold nearly two-thirds of their foreign-currency reserves in dollar-denominated assets, mostly Treasury securities. To understand the dollar’s endurance, it’s necessary to distinguish the different roles the currency plays in global finance.

Will the U.S. Dollar Remain the World's Reserve Currency? - In the question-and-answer period after I give talks about the U.S. economy, someone always seems to ask about whether the U.S. dollar will remain the world's reserve currency. But at least so far, it's holding steady. Eswar Prasad reviews the arguments in "The Dollar Reigns Supreme, by Default," which appears in the March 2014 issue of Finance & Development. One way to look at the importance of the U.S. dollar is in terms of what currency governments and investors around the world choose hold as their reserves. In the aftermath of the 1998 financial and economic crash in east Asia, lots of countries started ramping up their U.S. dollar international reserves. In the aftermath of the Great Recession, a number of countries spent down their dollar reserves to some some extent--and now want to rebuild. For example, here's a figure from Prasad on the form in which governments hold foreign exchange reserves. Notice that there's no drop-off in the years after the recession.

China remains No 1 holder of US T-bill debt - : China remained the largest holder of US debt in January, increasing its holdings for the first time in two months even as overall foreign demand for US Treasury securities weakened, according to new data from the Treasury Department. Treasuries saw an outflow of $571 million at the start of the 2013, from an inflow of $17.9 billion in December. Foreign official institutions sold $16.7 billion in January and $11.9 billion in the final month of the year, data showed. Analysts said they saw no significance in China's move to add $3.5 billion in Treasuries - less than 1 percent - for a total $1.274 trillion, despite weaker overall foreign buying. It was the first increase in holdings of US debt by China since it bought $12.2 billion worth in November. "The two-month moving average of China's holdings is still a downtrend," Michael Woolfolk, senior market strategist at BNY Mellon in New York, said. "The Chinese have not been investing in US Treasuries at the level they had in the past." Japan remained the second-biggest foreign US creditor, boosting its holdings 1.6 percent to $1.201 trillion.

Meet The Brand New, And Shocking, Third Largest Foreign Holder Of US Treasurys - Something hilarious, and at the same time pathetic, happened earlier today: at precisely 9 am the US Treasury released its delayed Treasury International Capital data (which was supposed to be released yesterday but was delayed because it snowed) which disclosed all the latest foreign Treasury holdings for the month of January.  Here is Reuters with the full data summary (save it before this article is pulled).  So why is it hilarious and pathetic? Because just three short hours later, the Treasury - that organization that has billions of dollars at its budgetary disposal to collate, analyze and disseminate accurate and error-free data - admitted that all the previously reported data was in effect made up! Of course, it didn't phrase it as such. Instead, what TIC did was release an entire set of January numbers shortly after it had released the "old" numbers, which differed by a small amount but differed across the board - in other words, not a small typo here and there: a wholesale data fudging exercise gone horribly wrong. For example:

  • Instead of a $14 billion increase, China's revised holdings were only $3.5 billion higher.
  • Instead of unchanged, Japan's holdings suddenly mysteriously increased by $19 billion in January.
  • Instead of plunging by $17 billion, the Caribbean Banking Centers were down by a tiny $1 billion.
  • And instead of the previously reported increase of just under $1 billion, the all important Russia was revised to have sold $7 billion, bringing its new total to just $132 billion ahead of the alleged previously reported dump of Fed custody holdings in mid-March.

However, what was perhaps more disturbing than even that was the revelation that as of January, the US has a brand new third largest holder of US Treasurys, one which in the past two months has added over $100 billion in US Treasury paper, bringing its total from $201 billion in November, to $257 billion in December, to a whopping $310 billion at January 31.  The country? Belgium

If We’re Going to Take Budget Forecasts Seriously, Then This is a Good Way To Present Them -- The figure below, from one of the administration’s recent budget reports, provides a range of uncertainty around their central forecast of the deficit as a share of GDP.  Using the errors from past forecast, we can get a rough sense of the confidence interval around our current estimates. By 2019, the deficit has a 90% chance of being within a range of +4.6% of GDP and -9.1% of GDP.  And this is just the five-year range.  The 10-year range fans out much more than what you see below.  I’m not saying we shouldn’t make such forecasts.  Within a few years of the forecast, they provide useful guidance of the budget path under a number of assumptions (each of which have their own range of uncertainty).  I’m saying we should be a) very mindful that these are estimates that grow increasingly uncertain over time and thus b) very careful about asserting certain policy courses based on them.

Paul Ryan isn't the wonk of Washington – it's time to listen to more good ideas | Dean Baker - The Congressional Progressive Caucus (CPC) released its budget last week. As usual, it was almost completely ignored by the major media outlets. As a result, we know very little about the actual ideas in the budget, but we know a lot about the media. Let’s start with those ideas: most importantly, the progressive caucus budget is designed to get us back to full employment. It calls for a major program to modernize and improve our infrastructure. It would also provide funding to state and local governments to reverse many of the cutbacks in education, healthcare and other areas over the last few years. In past recoveries, state and local hiring has helped to boost the recovery. In this recovery, cutbacks slowed growth. This kind of spending would lead to larger deficits in the first two years of the budget window, but make no mistake: it also would lead to more growth and more jobs. The simple fact that just about everyone in the budget debate concedes is that, in the near-term, if we want more jobs, we will need larger budget deficits. And we know we have no problem borrowing the money because interest rates are extremely low.  The decision to run smaller deficits is a decision to slow growth and throw people out of work. Additional private sector spending is not replacing the cuts in government spending. This means the folks who boast about getting the deficit down are boasting about slowing growth and making people unemployed. That passes for good work in Washington. Over a longer term, the CPC budget actually leads to lower debt levels than the baseline budget. It includes a number of tax increases aimed at the wealthy and also focused at reducing harmful activities – such as placing a modest sales tax on financial transactions like sales of stocks, bonds and derivatives.

Still Not Over: CPC Update -- The Congressional Progressive Caucus (CPC) recently issued its “Better Off Budget” document as an alternative to the White House/OMB document, and the coming House budget document, a Republican/conservative alternative. The “Better Off Budget” has received enthusiastic evaluations from writers affiliated with the DC progressive community. Richard Eskow’s recent treatment is typical and provides other reviews that are laudatory. These “progressives” clearly see the CPC budget as anything but an austerity budget. But is it, or is it not? Recently I posted an analysis of the White House OMB budget showing that it was a budget that brought the nation close to a macroeconomic austerity at best stagnation, and at worst recession or depression situation over the next decade. My analysis used the Sector Financial Balances (SFB) model and some estimates based on related data to reach that conclusion. I also pointed out that projected private sector aggregate savings were so small due to the OMB budget, that, if the Government succeeded in implementing it, was very likely to cause severe microeconomic austerity for working and middle class people with a longer term result that would accentuate economic inequality in America due to the power of large corporations and the FIRE sector to monopolize the savings left to the private sector by the Government’s very low deficit budgets over the period 2015 – 2024. 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.

Whistleblower Reveals Favoritism Toward the Rich, Robo-Signing at the IRS - David Dayen - The great David Cay Johnston has obtained a letter written by a veteran IRS lawyer to 10 members of the Senate Finance Committee, alleging not only a gaggle workplace conduct violations but favoritism toward well-connected tax filers and even document fraud. Jane Kim, the whistleblower, worked in the Small Business/Self-Employed Division for 10 years in two offices in the New York City area. Much of the letter concerns mismanagement and labor law violations by supervising lawyers at the firm, who play favorites among staff and saddle employees they don’t like with heavy workloads. If the unlucky saps speak up they’re hit with retaliation in the form of even more work. Meanwhile a handful of teacher’s pets do nothing all day and get perfect ratings on their annual reports. The managers sound like terrible people, and senior management has a history of turning a blind eye to the abuses.  But several other things in Johnston’s report caught my eye. First: One Long Island manager, called “Wanda” in the complaints, routinely initials legal papers prepared by her subordinates without reviewing them, Kim wrote. “Rather than reviewing material at her desk, [Wanda] stands outside her door, initials documents without review, and places them in our outbox,” according to Kim’s complaint. The lawyers who prepared these papers, and others who later had to work with them, have caught numerous mistakes that the supervisor missed, she wrote. Emhpasis mine. This is no different than robo-signing. The documents initialed by “Wanda” presumably get submitted as evidence in tax court cases. I don’t know whether or not Wanda in any way legally attests that the underlying information in the legal documents is correct, but if errors routinely get found after the fact, some documents in all likelihood deliver false information to the court. No wonder nobody in Washington cared that much about robo-signing, I hadn’t entertained the possibility that it was official government policy.

New Report: Fortune 100 Companies Have Received a Whopping $1.2 Trillion in Corporate Welfare Recently - Most of us are aware that the government gives mountains of cash to powerful corporations in the form of tax breaks, grants, loans and subsidies--what some have called "corporate welfare." However, little has been revealed about exactly how much money Washington is forking over to mega businesses. Until now. A new venture called Open the Books, based in Illinois, was founded with a mission to bring transparency to how the federal budget is spent. And what they found is shocking: between 2000 and 2012, the top Fortune 100 companies received $1.2 trillion from the government. That doesn't include all the billions of dollars doled out to housing, auto and banking enterprises in 2008-2009, nor does it include ethanol subsidies to agribusiness or tax breaks for wind turbine makers. What Open the Book's forthcoming report does reveal is that the most valuable contracts between the government and private firms were for military procrument deals, including Lockheed Martin ($392 billion), General Dynamics ($170 billion), and United Technologies ($73 billion). After military contractors, $21.8 billion was granted out to corporate recipients in the form of direct subsidies; literally transfers of cash from the pockets of Americans to major corporations. The biggest winners were General Electric (GE) ($380 million), followed by General Motors (GM) ($370 million), Boeing (BA) ($264 million), ADM ($174 million) and United Technologies ($160 million). $8.5 billion in federally subsidized loans were also doled out to giant oil companies Chevron and Exxon Mobile, and $1 billion went directly to massive agri-business Archer Daniels Midland.   Of course, the banks also got their piece of the pie: $10 billion in federal insurance went to Bank of America, Citigroup, Wells Fargo, JPMorgan Chase, not including any of the 2008 bailout money. Walmart enjoyed its share of federal insurance backing as well. 

The great corporate cash-hoarding crisis - A troubling change is taking place in American business, one that explains why nearly five years after the Great Recession officially ended so many people cannot find work and the economy remains frail. The biggest American corporations are reporting record profits, official data shows. But the companies are not investing their windfalls in business expansion, which would mean jobs. Nor are they paying profits out to shareholders as dividends. Instead, the biggest companies are putting profits into the corporate equivalent of a mattress. They are hoarding what just a few years ago would have been considered unimaginable pools of cash and buying risk-free securities that can be instantly converted to cash, which together are known in accounting parlance as liquid assets. This is just one of many signs that America’s chief executive officers, chief financial officers and corporate boards are behaving fearfully. They are comparable to the slothful servant in the biblical parable of the talents who buries a fortune in the ground rather than invest it. Their caution, aided by government policy, costs all of us.

US sues 16 banks for rigging Libor rate - The US Federal Deposit Insurance Corp. (FDIC) has sued 16 big banks that set a key global interest rate, accusing them of fraud and conspiring to keep the rate low to enrich themselves. The banks, which include Bank of America, Citigroup and JPMorgan Chase in the US, are among the world's largest. The FDIC says it is seeking to recover losses suffered from the rate manipulation by 10 US banks that failed during the financial crisis and were taken over by the agency. The civil lawsuit was filed on Friday in federal court in Manhattan, the Associated Press reported. The banks rigged the London interbank offered rate, or Libor, from August 2007 to at least mid-2011, the FDIC alleged. The Libor affects trillions of dollars in contracts around the world, including mortgages, bonds and consumer loans. A British banking trade group sets the Libor every morning after the 16 international banks submit estimates of what it costs them to borrow. The FDIC also sued that trade group, the British Bankers' Association.

The Most Dishonest Number in the World: LIBORWilliam K. Black - The FDIC has sued 16 of the largest banks in the world plus the British Bankers Association (BBA) alleging that they engaged in fraud and collusion to manipulate the London Inter-bank Offered Rate (LIBOR).  BBA called LIBOR “The most important number in the world.”LIBOR is actually many numbers that depend on the currency and term (maturity) of the loan.  The collusion involved manipulating most of these rates.  A vast number of loans and derivatives are priced off of these “numbers.”  Estimates of the notional dollar amount of deals affected by the collusion range from $300-550 trillion in deals manipulated at any given time.  The LIBOR frauds began no later than 2005 and continued through 2011. The BBA and the banks claimed to the world that LIBOR was simply the prices (interest rates) set by the market for what it cost the world’s largest banks to borrow from each other.  The system was not regulated.  The theory was that the banks self-regulated.  LIBOR was the City of London’s “crown jewel” and theoclassical economics predicted that the elite banks’ self-interest in their reputation and the value they gained from having LIBOR as the global standard would ensure that the banks would report honestly.  As my readers know, any discussion of the “banks’” interests is dangerously misleading.  The fact that the FDIC “only” sued 16 of the largest banks in the world does not indicate that the other elite banks were run honestly.  The other elite banks were not part of the group that set LIBOR so they could not join in the cartel.  The LIBOR conspiracy could only succeed and persist if none of 16 elite banks was controlled by honest officers and no regulator acted to end the collusion once they became aware of the collusion. The scorecard according to the U.S. government agency that investigated the matter (the FDIC) reports that each of the leaders failed.  Our twin emergencies are financial and ethical.

Big banks put forex bonuses on hold - Barclays, Citigroup and Royal Bank of Scotland have frozen bonuses across swaths of their foreign exchange trading teams pending internal investigations into possible manipulation of key currency benchmarks. The cash and share bonus suspensions are targeted on the wider team rather than just the traders under investigation, people close to the situation said. The bonuses – which can reach as much as $2m for top forex traders – will be withheld until reviews into potential wrongdoing in the banks’ currencies trading units are concluded. Those internal probes into allegations of collusion and price rigging have so far prompted the suspension, placing on leave or firing of 25 staff across 11 banks and the Bank of England. However, legal experts report that many more traders could be under review beyond the two dozen whose fates are public, as banks seek to avoid outright suspensions by limiting the duties of certain forex staff. The bonus freeze has affected traders in London, New York and elsewhere and stretches beyond spot trading desks – the hotspot of investigative activity so far – to derivative trading units.

GE consumer-finance unit faces federal probes - General Electric Co.‘s retail credit business is facing a pair of probes from federal regulators over possible violations of consumer financial laws, according to disclosures that were released in paperwork for a planned initial public offering of the business. Synchrony Financial, the new name of GE’s consumer-credit arm, said in filings with securities regulators last week that it is in discussions with the Consumer Financial Protection Bureau related to “debt cancellation products” and marketing practices for those services. It is also in talks with the Justice Department to resolve a separate issue investigated by the CFPB involving a potential violation of federal lending discrimination laws for excluding Spanish-speaking customers from settlement offers, the filing said. The probes follow a December settlement between GE Capital and CFPB to resolve allegations that its medical credit-card division, CareCredit, enrolled borrowers in financing plans for medical and dental procedures without providing adequate explanation of the loan terms. GE agreed to refund up to $34.1 million to customers who file reimbursement claims, but didn’t admit or deny the allegations.

Locking Up the Banksters: It’s Not Hard - Dean Baker - Gretchen Morgenson had a column on a new report from the Inspector General of the Justice Department which found that prosecuting mortgage fraud was a low priority, contrary to claims by the Obama administration. Since there is so much confusion on the topic it is worth repeating again what the Justice Department would have done if law enforcement had been its concern. It's not a question of simply locking up Jamie Dimon and Lloyd Blankfein and other top bankers, the point would be to build a case from the bottom up. This means going to mortgage agents at Countrywide, Ameriquest, and other major subprime issuers. Investigators would confront them with stacks of improperly documented mortgages and ask them why they put through mortgages with improper or even obviously false documentation. Folks who took out a mortgage in years prior to bubble know the ordeal involved. You had to bring in your first grade teacher to vouch for your character. Everything had to be properly documented and was closely scrutinized. This was not the procedure that was followed in the bubble years. Justice Department investigators would ask the mortgage agents why they passed through mortgages without proper documentation. Since this was a widespread practice and not the work of a few rogue agents, presumably office managers told these agents to get mortgages and that proper documentation did not matter. Faced with the risk of jail for committing fraud, it is likely that many agents would be prepared to testify that they were acting on instructions from their branch manager. The investigators would then confront their branch managers with the testimony from their employers and ask them what prompted them to tell employers to ignore standard procedures and pass through improperly documented mortgages. Again, faced the prospect of several years in jail, it is likely that many branch managers would be prepared to testify against their bosses at the corporate headquarters.

No Noise Newscast No. 1: Bill Black On The Fraud Economy -- William K. Black, author of “The Best Way To Rob A Bank Is To Own One,” talks about the failings of The New York Times DealBook and pervasive fraud in the economy. Discussed in this episode:

The Wall Street Etiquette Guide to Helping Oneself to Other People’s Money - In case you haven’t figured it out yet, there is a right way and a wrong way to help yourself to other people’s money on Wall Street. The right way propels you into the one percent replete with mansions and yachts, your name memorialized on buildings, a golden parachute, an office and car for life fronted by defrauded shareholders and regular invitations to appear on CNBC and lecture others on how to structure the financial system. Then there’s the wrong way – as Gary Foster found out the hard way in June 2012 when he was sentenced to eight years in the slammer for embezzling more than $22 million from Citigroup and compounding his lack of etiquette in the most unforgiveable fashion – he wired the funds to Citigroup’s arch rival, JPMorgan Chase. Foster broke multiple etiquette rules for stealing money on Wall Street. First, his crime was too simple. He made it just too easy for prosecutors to explain to a jury how he wired funds from various corporate accounts at Citigroup, using fake contract numbers, to his personal accounts at JPMorgan. A man lacking so little criminal creativity is eschewed on Wall Street; he clearly has no future there so he might as well go to jail. Consider Foster’s simple plan with the bold and wickedly creative plan hatched by Sanford (Sandy) Weill to extract money from Citigroup. Weill’s plan became colloquially known on Wall Street as the Count Dracula stock option plan – you simply could not kill it; not even with a silver bullet. You couldn’t prosecute it because Citigroup’s well-paid Board of Directors was rubber-stamping it.

Fifth financial executive with ties to JPMorgan found dead - Just over 11 weeks into 2014 comes tragic news that an 11th financial executive has apparently committed suicide. The New York Post reported Monday that a 28-year-old Manhattan investment banker who formerly worked for JPMorgan Chase & Co. (JPM)) reportedly jumped from the roof of his sixth-floor East Side apartment building. Kenneth Bellando, who worked at Levy Capital since January, was found dead on the sidewalk outside his East Side building on March 12 after allegedly jumping from the sixth-story roof, sources said. The Post reported that Bellando’s brother is John Bellando, the chief investment officer with JPMorgan. This marks the third such suicide in three weeks and the 11th since late January. HousingWire – with an acknowledgement to ZeroHedge, which initially broke the story – has been covering this rash of reports of the suicides of  financial executives and bankers. Interest in these stories has been widespread, in part because of similarities shared among the victims, the firms for which they worked, or the sometimes puzzling circumstances of their deaths. Many were prominent, or worked for firms under investigation or facing allegations from regulators both in the United States and in the United Kingdom. Five of the 11 that HousingWire has covered worked for or formerly worked for JPMorgan. Zerohedge has compiled this list of the 11 bankers and finance executives.

Sudden Deaths of JPMorgan Workers Continue - Kenneth Bellando, age 28, was found outside his East Side apartment building on March 12 in what the New York Post is calling “an apparent suicide” despite an ongoing police investigation into the matter. The building from which Bellando allegedly jumped was only six stories – by no means ensuring that death would result – providing the police with an additional reason to investigate for foul play. The young Bellando, who had previously worked for JPMorgan Chase himself, was the brother of John Bellando, who was named in the Senate Permanent Subcommittee on Investigations’ report on how JPMorgan had hid losses and lied to regulators in the London Whale derivatives trading debacle that resulted in losses of at least $6.2 billion. Congressional outrage was heightened by the fact that JPMorgan was gambling in London in high risk and illiquid derivatives using deposits from its FDIC insured bank, not with its own capital. At the time of the London Whale investigation in the U.S. Senate, John Bellando’s job title was “Associate” at JPMorgan. In September of last year, the same month that JPMorgan settled the London Whale matter with four sets of regulators for $920 million, John Bellando was promoted to Vice President, according to his LinkedIn profile. He is still doing much of the same work he did during the buildup of the London Whale derivative positions, which includes: developing and presenting “key risk analytic reports for senior treasury management, business partners, various risk committees and regulators…” John Bellando has worked for JPMorgan since 2008, following the collapse of Lehman Brothers where he had worked as an analyst in fixed income operations.

Financing new economic activities and bankrolling speculation… --- Global banks do not have much to cheer about these days. Earnings are falling, and the banks are responding by cutting jobs. The Federal Deposit Insurance Corporation has charged 16 banks of colluding to rig the London Interbank Offer rate (LIBOR). And the Federal Reserve has approved a rule that requires foreign banks with $50 billion of assets in the U.S. to establish holding companies for their American units that meet the same capital adequacy standards as do their U.S. peers. The latter move has been interpreted as a sign of the fragmentation of global finance that will hinder the global allocation of credit.Banks have various ways to meet the new capital adequacy standards. They can hold back on dividend payouts from their earnings, although that may not be popular with their stockholders. They can raise funds in the capital markets. And some banks, such as Deutsche Bank, will shrink their balance sheets in order to comply with the regulations. This has led to fears of cutbacks in lending. The announcement of the new standard came as the Bank of International Settlements (BIS) was publishing its quarterly report on the international banking markets. The BIS data showed that the cross-border claims of BIS reporting banks fell by $500 billion in the their quarter of 2013, the biggest contraction since the second quarter of 2012. Most of this decline occurred in Europe, as lending between parents banks and their subsidiaries in the Eurozone and the United Kingdom declined.

A New Wall Street Looting Scheme: Disaster Savings Accounts - As famed short seller David Einhorn says, no matter how bad you think it is, it’s worse. We’ve got proof of his dictum in the form of a new looting scheme, the Disaster Savings Account Act. Since the financiers haven’t yet gotten their hands on Social Security, they are looking for new worlds to plunder. Here’s the blurb from one of its promoters: In 2011 and 2012 alone, 25 separate disasters each caused more than $1 billion in damage. Since 1996, there have been 15 natural disasters that have cost the Federal Emergency Management Agency more than $500 million, with totals for several of those events running into the billions. This pattern is unsustainable. By encouraging individuals to use their own dollars to prepare for disasters, the Disaster Savings Account Act reduces future financial liabilities for the federal government and, most crucially, saves lives by guaranteeing communities are better prepared before disaster strikes. The stakes are incredibly high. Motivating individuals to assess their natural disaster risks and prepare accordingly should be a top priority. While it isn’t the federal government’s role to come into communities and mitigate against every possible disaster, offering incentives to those looking to prepare privately is a reasonable step for Congress to take. Therefore we ask that you support the Disaster Savings Account Act and move the legislation to passage. This is an unvarnished effort to use climate change as a cover to funnel more money to Wall Street via a tax break, which of course will prove useful only to people with discretionary income, as in top 20% earners. So of course, as is always the case with neoliberal programs, lower income people must be made to suffer because they deserve it.  And the excuse is that this sop to Wall Street will help cut disaster relief spending.

Customer accuses J.P. Morgan of robo-signing credit-card collections -- The banking industry was already bludgeoned by accusations that it “robo-signed” its way through mortgage-default paperwork, shuttling struggling homeowners closer to foreclosure without giving them their due process. Now, accusations are cropping up that banks engaged in similar practices with credit-card customers. The latest development comes in the form of a lawsuit filed last week by Miami resident Ruth Moya against J.P. Morgan Chase.  According to her, she fell behind on her credit-card payments after her husband’s business failed in late 2008. So the following year, J.P. Morgan filed two collection lawsuits against her. The problem, Moya says, is that her paperwork, and that of thousands of other customers, got hurried through J.P. Morgan by bank employees who were less-than-concerned about getting things correct. Her lawsuit alleges that the bank’s collection lawsuits against credit-card customers have contained numerous errors and are often missing relevant information, such as bankruptcies or consumer disputes. It describes an office of nine or 10 employees in San Antonio, Texas, who were FedExed paperwork for 50 to 100 collection actions per state per day. The employees, the lawsuit says, signed affidavits attributing to the papers’ accuracy without reading through them. “These affidavits were executed by Chase employees en masse, often thousands at a time, one-after-the-other, without the affiant reviewing or verifying the information attested to in the affidavits,” the lawsuit says.  The bank has previously said it is revamping the way it collects debt from credit-card customers. This is, after all, not the first time it has faced such accusations. In September, the Office of the Comptroller of the Currency ordered the bank to clean up its debt-collection procedures, including making sure that any affidavits or other sworn documents were ““based on the personal knowledge of the bank employee signing the documents.”

You Don’t Say - Last week Peter Eavis of DealBook highlighted a statement made last year by New York Fed President William Dudley (formerly of Goldman Sachs, then a top lieutenant to Tim Geithner): “There is evidence of deep-seated cultural and ethical failures at many large financial institutions.” There was a point, say in 2008, when many people probably thought that our largest banks were just guilty of shoddy risk management, dubious sales practices, and excessive risk-taking. Since then, we’ve had to add price fixing, money laundering, bribery,  and systematic fraud on the judicial system, among other things.  Eavis also tried to make something positive out of a couple of other recent comments. Dudley said, “I think that trust issue is of their own doing—they have done it to themselves,” while OCC head Thomas Curry said, “It is not going to work if we approach it from a lawyerly standpoint. It is more like a priest-penitent relationship.” I don’t see much reason for optimism. First, framing the problem as a “trust issue”—customers no longer see banks as trustworthy institutions—is beside the point. Wall Street’s main defense is that its clients already realize that investment banks do not have their buy-side clients’ best interests at heart, and clients who don’t realize that are chumps. And in the wake of the financial crisis, I suspect there are few individuals out there who believe that their banks are there to help them. The banking industry has discovered that it can thrive without trust, which is not surprising; retail depositors trust the FDIC, and bond investors know that trust isn’t part of the equation.

Annals of captured regulators, NY Fed edition - Peter Eavis has a worrying story today: the chairman of the New York Fed, William Dudley, has effectively, behind the scenes, managed to delay the implementation of an important new piece of bank regulation. The first thing to remember here is that delaying regulations is an extremely profitable game for the financial industry. If a new regulation will cost a bank $100 million per year, and the bank gets that new regulation delayed by a year, then it’s just made $100 million in excess profit. What’s more, the further away you get from the crisis, the harder it becomes for new rules to grow teeth. So when the banking lobby doesn’t like a certain piece of regulation, its tool of choice is to bog it down and delay it to the point at which no one but the banking lobby cares any more. And then allow it to be implemented with so many loopholes and carve-outs that it’s effectively toothless. In this game, the banks are on one side, and the regulators — primarily the Federal Reserve — are on the other. So it’s particularly worrying when a regulator ends up causing a delay and thereby helping the banks. And yet that’s exactly what seems to have happened: Mr. Dudley’s concerns played a decisive role in holding up the final version of the rule, two of the people said. Some regulators, including officials at the Federal Deposit Insurance Corporation, were counting on the leverage regulation being completed by the end of last year. Strong supporters of the rule wanted it issued by then to reduce the chances that pressure from bank lobbyists would dilute it.  The optics here are not helped by the fact that Dudley made his millions at Goldman Sachs, a bank which would be directly affected by the rule in question, which forces big banks to increase the amount of capital that they hold against their assets. Neither are they helped by the fact that Dudley runs the New York Fed, which is generally seen as the arm of the Fed which is closest to, and friendliest with, America’s biggest banks.

Whiskey Costs Money - A few days ago I wrote a post that began with New York Fed President William Dudley talking tough about banks: “There is evidence of deep-seated cultural and ethical failures at many large financial institutions.” The thrust of that post was that I’m not very encouraged when regulators talk about culture and the “trust issue” but don’t indicate how they are going to actually affect industry behavior. As they say, talk is cheap, whiskey costs money. What’s more important than what regulators say is what they do—and don’t talk about. Peter Eavis (who wrote the earlier story about bank regulators that my previous post was responding to) wrote a new article detailing how that same William Dudley has delayed the finalization of the supplementary leverage ratio: the backup capital standard that requires banks to maintain capital based on their total assets, not using risk weighting. Dudley has said, “I do not feel that I in any way hold any allegiance or loyalty to the financial industry whatsoever.” That may be true; he certainly made enough at Goldman that he has no real financial incentive to continue to make nice with Wall Street.* Yet at the same time he appears to be parroting concerns raised by some of the big banks, raising a concern about the leverage rule that Felix Salmon calls “very silly” and that, according to Eavis, the Federal Reserve mother ship in Washington didn’t consider significant. In the grand scheme of banks and their allies weakening and slowing down new regulation, this is probably not a particularly momentous battle. But it does put things in perspective.

Mt. Gox suddenly finds 200,000 missing bitcoins, worth over $115M -- In a rare public statement, the CEO of the embattled Bitcoin exchange Mt. Gox said that the company has found an “old format wallet” containing approximately 200,000 bitcoins. At present exchange rates, that sum is worth over $115 million. The exchange site also said it would need "influential lobbyists" going forward. In the Japanese and English-language statement (PDF) posted to the company’s website on Thursday, CEO Mark Karpeles explained that the company confirmed the discovery on March 7, 2014 and reported it to the bankruptcy court in Tokyo on March 10.  Mt. Gox has filed for both bankruptcy protection in its native Japan and in the US.

The Case for Not Worrying So Much About Fed-Generated Financial Instability - There is a steady drumbeat from some corners of Wall Street and some academic economists that the Federal Reserve’s very low interest rates and unconventional monetary policy, inevitably, will create bubbles and financial instability somewhere. Keeping interest rates on Treasurys and bank deposits so low, the logic goes, is inducing investors and financial institutions to “reach for yield,” which is another way of saying that the quest for higher returns is leading them to take excessive risks.  Gabriel Chodorow-Reich, a young Harvard University economist, says, basically, not to worry. In a paper, “ Effects of Unconventional Monetary Policy,” to be presented Thursday at a Brookings Papers on Economic Activity conference, Mr. Chorodow-Reich looks closely at how life insurers, big commercial banks, money market mutual funds and defined-benefit pension plans responded to the Fed’s extraordinary polices of the past several years — pushing short-term rates to zero, promising to keep them there for a long while and printing trillions of dollars to buy long-term Treasurys and mortgages. His bottom line: These unconventional monetary policies didn’t result in life insurers or commercial banks becoming riskier, despite the widespread belief to the contrary. Fed policies did prompt higher cost money market mutual funds to take on more risks in 2009-2011, though not subsequently, and defined-benefit pension plans with larger unfunded liabilities or an older average age of beneficiaries to seek riskier investments after 2009.

Insurance Companies and Systemic Risk -  The systemic risk posed by insurance companies is something that I’ve never been entirely clear about. I know it’s an enormous issue for large insurers who want to avoid additional oversight by the Federal Reserve. I’m well aware of the usual defense, which is that insurers are not subject to bank runs because their obligations are, in large measure, pre-funded by policyholder premiums, and policyholders must pay a price in order to stop paying premiums. But this has never seemed entirely convincing to me, because some insurers are enormous players in the financial markets, and the nature of systemic risk seems to be that it can arise in unusual places. So I find very helpful Dan and Steven Schwarcz’s new paper discussing the ins and outs of systemic risk and insurance. Because it’s written for a law review audience, it covers all the basics, so you can follow it even if you know little about insurance. They cover the usual arguments for why insurers do not pose a threat to the financial system, but then posit a number of reasons for why they could pose such a threat.

Why New York AG wants curbs on high-frequency traders - High-frequency trading was thrust back into the spotlight when New York’s Attorney General Eric Schneiderman announced he would be taking a deeper look at the “unfair advantages” they have over regulator investors. The New York regulator said U.S. exchanges allow traders to obtain pricing information fractions of a second earlier, through technology, giving them an edge. “I have been focused on cracking down on fundamentally unfair — and potentially illegal — situations that give elite groups of traders early access to market-moving information at the expense of the rest of the market,” said said Schneiderman in a speech at New York Law School on Tuesday. “We call it Insider Trading 2.0, and it is one of the greatest threats to public confidence in the markets.” High-frequency trading is considered to be sophisticated computer trading algorithms that use trading strategies to move in and out of positions in fractions of a second, even milliseconds. In the last several years, HFT volume has increased and has been considered a controversial practice, becoming the topic of many regulatory discussions. Trading algorithms were blamed in the “flash crash” in 2010 when the Dow Jones Industrial Average plunged about 1,000 points in just minutes, recovering quickly. However, proponents of HFT point to how it helps to improve market liquidity and reduces trading costs. The New York Attorney General answered MarketWatch questions via email on why high-frequency trading was damaging to the markets. It’s been edited for length and clarity.

What's behind the sudden improvement in US loan growth? - Credit growth in the US seems to have stabilized and may be on the rise. It's worth mentioning that the bottom in loan growth just happened to correspond to the start of Fed's taper. Coincidence? Why is corporate America increasing its borrowing all of a sudden? The most likely answer is the improvement in capital expenditures (capex), which is evidenced by firmer capital goods spending by US companies. We saw initial signs of that improvement back in February (see story). There were other indications as well. ISI's latest corporate survey provides further support to this thesis. ISI Research: - Survey strengthened over the past two weeks with U.S. orders now a solid 61.5. Areas of strength include equipment tied to trucks, rail, aerospace, and construction.  Whether using their massive cash reserves or tapping bank credit facilities (increasing bank loan balances), the time has come for higher capital expenditures by US firms. Here is why. Barron's: - Capital expenditures [have been] just 46% of operating cash flow for nonfinancial companies in the S&P 500. The average since 1989 is 57%. Capex can't remain low forever. Already, the average age of U.S. structures is the highest it has been since 1964. Equipment hasn't been this old since 1995, and intellectual-property products, like software, since 1983. In a report issued this past week, Bank of America Merrill Lynch predicts U.S. capex growth will more than double over two years, to 5.7% in 2015, from 2.6% last year. Beyond mounting cash and aging plants and equipment, it cites some new factors. Economic growth is picking up, giving business managers more confidence and less spare capacity. Congress even passed a budget this year—one less thing for business leaders to worry about.

Report Pegs Volcker Costs at Up to $4.3 Billion - — The Volcker rule is projected to cost major U.S. banks up to $4.3 billion, due largely to the lost value of investments in certain debt instruments, a federal bank regulator said Thursday. A study released by the Office of the Comptroller of the Currency found that Volcker rule, which bars banks from trading with their own money, will cost between $413 million and $4.3 billion. The 46 OCC-regulated banks most-impacted by the rule have combined assets of $8.7 trillion, the regulator said. Regulators said there is high degree of uncertainty about the rule’s impact because it is not clear how much it will affect the market for investments in collateralized loan obligations and collateralized debt obligations. Since banks would be forced to shed such assets under the rule, the market value of CDOs and CLOs would decline, resulting in a loss of up to $3.6 billion, the report says CDOs are securities backed by a pool of mortgages or other loans, while CLOs bundle together corporate loans into bonds. The OCC report found that banks’ costs for complying with the Volcker rule would have a smaller economic impact than losses to banks’ investments. The OCC projects compliance and reporting costs of up to $541 million.

Fed: Large Banks "collectively better positioned" to cope with "an extremely severe economic downturn" -- I was strong early supporter of bank stress tests, and I'm glad the Fed has continued testing banks on an annual basis. Hopefully this will continue ... From the Federal Reserve: Press Release According to the summary results of bank stress tests announced by the Federal Reserve on Thursday, the largest banking institutions in the United States are collectively better positioned to continue to lend to households and businesses and to meet their financial commitments in an extremely severe economic downturn than they were five years ago. This result reflects continued broad improvement in their capital positions since the financial crisis.  Reflecting the severity of the most extreme stress scenario--which features a deep recession with a sharp rise in the unemployment rate, a drop in equity prices of nearly 50 percent, and a decline in house prices to levels last seen in 2001--projected loan losses at the 30 bank holding companies in the latest stress tests would total $366 billion during the nine quarters of the hypothetical stress scenario. The aggregate tier 1 common capital ratio, which compares high-quality capital to risk-weighted assets, would fall from an actual 11.5 percent in the third quarter of 2013 to the minimum level of 7.6 percent in the hypothetical stress scenario. That minimum post-stress number is significantly higher than the 30 firms' actual tier 1 common ratio of 5.5 percent measured in the beginning of 2009.

Fed 'Stress Test' Results: 29 of 30 Big Banks Could Weather Big Shock - —The Federal Reserve's annual test of big banks' financial health showed the largest U.S. firms are strong enough to withstand a severe economic downturn, a sign that many will get the green light soon to reward investors by raising dividends and buying back shares.  The Fed said 29 of the 30 largest institutions have enough capital to continue lending even when faced with a hypothetical jolt to the U.S. economy lasting into 2015, including a severe drop in housing prices and a spike in the unemployment rate. The results will factor into the Fed's decision next week to approve or deny individual banks' plans for returning billions of dollars to shareholders through dividends or share buybacks. The Fed's annual "stress tests" are designed to ensure large banks can withstand severe losses without needing a government rescue.

The Fed's Annual "Stress Test" Is Out: 29 Of 30 Banks Pass, Zions Is This Year's Sacrificial Lamb -  It's mid-March, which means it is time for the annual confidence boosting theatrical spectacle known as the Fed's stress test (for those who may have forgotten last year's farce when Jamie Dimon preempted the Fed by announcing a dividend in advance of the results, can read here). And like in the past, there were absolutely no surprises with 29 of 30 banks passing with flying colors. Of course, since it is a "test", and someone has the be sacrificial calf, this year that honor falls to Zions Bankshares. Last year its was Citi, SunTrust and MetLife. In both years the results are completely meaningless, as the Fed neither then, nor now, has any methodology for how to calculate capital in case of the same kind of counterparty failure chain as happened during Lehman, and when no amount of capital would have been sufficient to preserve the financial sector. Like we said: theatrical spectacle. But at least everyone's confidence has been boosted. So Buy stawks, and build your paper wealth! And here is the truly funny part: in the baseline stress test scenario, the Dow Jones "plunges" to 11.4K in Q3 2014, and then somehow surges back to all time highs by Q4 2016! Does the Fed understand the word Stress?

‘Ring of Death’ Throttles Georgia as Small Banks Close - While the Federal Reserve and U.S. Treasury rescued major banks amid the 2008 financial crisis to avert a meltdown of the nation’s financial system, the bailouts didn’t prevent the collapse of about 500 small lenders. Their disappearance, part of a syndrome of economic weakness, still weighs on growth and employment in dozens of counties across the U.S. “It will be difficult to fill the void left by failing small banks,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Small bank failures matter a lot to the communities in which they operate, especially in non-urban areas. Small banks are key to small businesses.” Counties that experienced bank failures from 2008 to 2010 saw income growth reduced as much as 1.43 percent, job growth cut as much as 0.5 percentage point and poverty rise as much as 1.4 percent in the following year, Fed economist John Kandrac reported in research presented last October at a community banking conference at the Federal Reserve Bank of St. Louis. He concluded bank failures had “measurable effects” on economic performance. On average, that meant a drop of as much as $700 in per capita income and a loss of close to 600 jobs in the first year after a failure, Kandrac’s research found.

Unofficial Problem Bank list declines to 559 Institutions - This is an unofficial list of Problem Banks compiled only from public sources.Here is the unofficial problem bank list for March 14, 2014. For the week, there were five bank removals with assets of $2.1 billion from the Unofficial Problem Bank List. After removal, the list includes 559 institutions with assets of $178.0 billion. A year ago, the list held 801 institutions with assets of $295.6 billion. Omnibank, National Association, Houston, TX ($285 million) found a merger partner in order to depart the list. Actions were terminated against FSGBank, National Association, Chattanooga, TN ; Northside Community Bank, Gurnee, IL ($290 million); Landmark Bank, National Association, Fort Lauderdale, FL ($269 million); and Community Resource Bank, Northfield, MN ($237 million). Next Friday, we anticipate the OCC will provide an update on its enforcement action activity.

Why the Justice Department Inspector General Report on Mortgage Fraud Matters - This allows me to ensure that NC has that whole Justice Department IG report on mortgage fraud covered. I know that Yves heaved the written equivalent of a sigh at the news, and she wasn’t wrong. But because I don’t feel the coverage so far has plumbed the depths of this corruption, and because it’s still happening, it’s not worth going silent just yet. It’s probably spitting into the wind, yes, but I’ve got the time and the spit, so I want to note a few things.  Mortgage fraud” is a limiting term: There’s a yawning gap between “mortgage fraud,” in the context of how the IG presents it in this report, and the full breadth of fraud and deception at the heart of the crisis. Mortgage fraud, per the definition used by the FBI and the IG, is very specifically mortgage origination fraud, the misrepresentation used to get people into loans. And it inherently, by definition, leaves the biggest Wall Street actors out of the equation. When the DoJ, FBI, or this IG report talks about mortgage fraud, they’re not talking about:

  • •Securitization fraud, the knowing packaging of worthless loans into bonds to unsuspecting investors;
    •Securitization fail, the improper conveyance of mortgages into trusts, breaking the chain of title on the loans;
    •False Claims Act fraud, where servicers collect on FHA insurance or other government benefits with faulty loans;
    •Tax fraud, through setting up REMICs and then not following the guidelines with mortgages and notes, yet still benefiting from the tax status;
    •Servicer-driven fraud, like the mass misplacement of loan modification documents in order to push people into default,
  • •Forced-place insurance fraud, the kickback scheme to saddle borrowers with lapsed insurance with junk policies that cost several orders of magnitude more;
    •Foreclosure fraud, the mass production of false documents to prove ownership over loans with a questionable paper trail;
    •Robo-signing, the notarization of thousands of court statements a day by line workers who know nothing about the underlying loan information;
    •Breaking and entering by “property preservation” specialists who illegally break into occupied homes and occasionally ransack them in the name of “keeping watch” over properties thought to be abandoned.

Wells Fargo foreclosure manual under fire -- Wells Fargo created an elaborate guide for how to produce missing documents to foreclose on homeowners, according to a lawsuit that has caught the attention of state and federal regulators. The bank denies wrongdoing, but the allegations rekindle claims that lenders, including Wells Fargo, used forged and shoddy paperwork during the recession to quickly foreclose on struggling homeowners, a practice known as “robo-signing.” Those charges led to a $25 billion national mortgage settlement that was supposed to put an end to such abusive practices, but bankruptcy lawyer Linda Tirelli says nothing has changed. In the course of defending a New York homeowner facing foreclosure, Tirelli said she found a 150-page manual instructing Wells Fargo lawyers how to process foreclosures when a key document, known as an endorsement, is missing. Lenders need endorsements to prove that they own the mortgage, before they can foreclose on a homeowner.  The manual, reviewed by The Washington Post, outlines steps for obtaining the missing document after the bank has initiated foreclosure proceedings. It also lays out what lawyers must do in the event of a lost affidavit or if there is no documentation showing the history of who owned the loan, paperwork the bank should already have. “This is a blueprint for fraud,” said Tirelli, who attached a copy of the manual as evidence in the lawsuit filed in U.S. District Court in White Plains, N.Y. “The idea that this bank is instructing people how to produce these documents is appalling.”Tirelli said she has long suspected Wells Fargo of manufacturing documents. A number of her past cases involving the bank featured mortgage notes that were not endorsed by anyone, but when she brought it to Wells Fargo’s attention the bank would “magically” produced the document, Tirelli said. It happened so often to her and other consumer lawyers that they started to call paperwork “ta-da” documents, she said.

Democracy Now Discusses Wells Fargo Foreclosure Document Fabrication Manual -- Yves Smith - It’s good to see that a lawsuit providing critical new evidence of systematic foreclosure abuses is getting the attention it warrants. Democracy Now interviewed Linda Tirelli, who filed a Wells Fargo “Foreclosure Attorney Procedure Manual” in a recent case in New York. This document sets forth in considerable detail how attorneys and other staff members should fabricate documents in the event that they are unable to muster up solid evidence that the bank has standing to foreclose. This manual is a smoking gun for foreclosure defense attorneys opposing Wells. Many judges have been reluctant to side with delinquent borrowers and assume that any bank error are mere sloppiness. This manual shows that the bank has institutionalized its practices for deceiving the court.  One particularly encouraging bit of news: Tirelli said that when her story hit the news, she got calls and e-mails from both New York Attorney General Eric Schneiderman’s office and that of Superintendent of Financial Services, Benjamin Lawsky. The rivalry between the two agencies greatly increases the odds that Wells will be subject to a proctological examination.  Here is the copy of manual: Wells Fargo Foreclosure Manual

Just 83,000 Homeowners Get First-Lien Principal Reductions from National Mortgage Settlement, 90 Percent Less Than Promised - Yesterday, the National Mortgage Settlement monitor, Joseph Smith, released his final crediting reports, confirming that all five banks (Wells Fargo, Bank of America, Citi, JPMorgan Chase and Ally, now known after bankruptcy as Residential Capital, or ResCap) have now satisfied the consumer relief portion of the foreclosure fraud settlement. The banks were required to spend $20 billion in “credited” relief (some actions received less than a dollar-for-dollar credit). Smith exults that the gross relief provided totaled over $50 billion, and that “more than 600,000 families received some form of relief.” What the mainstream media reports on this don’t tell you is that the $50 billion number is wildly inflated: for example, it includes $12 billion worth of deficiency waivers in non-recourse states, which the IRS confirmed have no value whatsoever. But I didn’t know just how inflated these numbers were, and how empty the promises, until I went through them all. HUD Secretary Shaun Donovan did make a prediction about how many homeowners would get relief under the settlement, so we have a benchmark. He used it over and over in the PR push to get it inked. The number? 1 million. About one million American homeowners would get writedowns in the size of their mortgages under a proposed deal with banks over shady foreclosure practices, Housing and Urban Development Secretary Shaun Donovan said on Wednesday [...] Even at the time this seemed ludicrous; a study from the Brookings Institution showed that only 500,000 would be eligible for principal reductions, given the constraints of the settlement (no Fannie/Freddie loans, for example). But it played out even worse than these fears.

Lawsuit Against California’s Robbing Homeowners of National Mortgage Settlement Funds Has Very Good Chance of Success - Late on Friday, a coalition of African-American, Latino and Asian-American groups sued California Governor Jerry Brown, demanding that he return $350 million stolen from the state’s share of the National Mortgage Settlement to plug a budget hole. California is far from the only state to divert money given as a penalty for homeowner abuse into the General Fund; in fact, less than half of the $2.5 billion given to states in the settlement actually went to housing (and that’s a generous rendering which counts things like North Dakota spending to increase housing stock in oil country for police officers, when that has nothing to do with compensation for abuse). In fact, consumer groups in Arizona already tried to sue to force $50 million that went to their state’s General Fund back into the hands of homeowners. But a Maricopa County judge ruled that the language of the consent order was sufficiently broad to allow the diversion of funds. Does that mean that this California lawsuit is nothing more than a show of vanity, destined to fail? Absolutely not. In fact, by a strict reading of the case law and the documents in the case, the plaintiffs should win in a walk.  First of all, the plaintiffs have as lead counsel Neil Barofsky, the former Special Inspector General of TARP (mentioned in my previous piece, so I guess it’s Barofsky day here), who has shown his diligence and attention to these types of matters (his firm is doing the case pro bono, with the potential provision of fees by the court if they win the case). More important, not only is the state law, which governs in this instance, more favorable in California to a positive ruling, but the language of the consent decree for California is more airtight.

Lawler: Updated Table of Distressed Sales and Cash buyers for Selected Cities in February - Economist Tom Lawler sent me the updated table below of short sales, foreclosures and cash buyers for several selected cities in February.  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).  Orlando also saw a slight increase in foreclosures. The All Cash Share (last two columns) is declining in most areas year-over-year.  As investors pull back, the share of all cash buyers will probably continue to decline.

Research: Tight Credit significantly impacting Purchase Mortgage Lending - The researchers compared currently lending to lending standards in 2001. They found that if lending standards were similar to 2001 (prior to the loose bubble lending), then there would have been up to 1.2 million more purchase mortgage in 2012. From Laurie Goodman, Jun Zhu, and Taz George: Where Have All the Loans Gone? The Impact of Credit Availability on Mortgage Volume Credit availability for mortgage purchases has been very tight over the post-crisis period. In fact, over the past decade, the number of mortgages originated to purchase a home declined dramatically. In this commentary, we examine this decline and explain how limited access to credit has contributed to the drop. We estimate the number of “missing loans” that would have been made if credit availability were at normal levels—we find this number could be as high as 1.2 million units annually.... Based on the upper bound calculation, 1.22 million fewer purchase mortgages were made in 2012 than would have been the case had credit availability remained at 2001 levels. ... This is, however, likely to overstate the impact of tighter credit. We calculate a lower bound estimate, using a similar methodology, to be 273,000 missing 2012 first lien purchase loans. ... The truth is somewhere between these estimates, but likely closer to the upper bound because many prospective borrowers with FICO scores well above 660 are affected by the tight credit box and credit overlays.

MBA: Mortgage Applications Decrease in Latest Weekly Survey -- From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 14, 2014. ... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index also 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) decreased to 4.50 percent from 4.52 percent, with points decreasing to 0.26 from 0.29 (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) decreased to 4.39 percent from 4.41 percent, with points decreasing to 0.19 from 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. The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index - but this is still very weak.

Weekly Update: Housing Tracker Existing Home Inventory up 5.5% year-over-year on March 17th - Here is another weekly update on housing inventory ... There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer. The Realtor (NAR) data is monthly and released with a lag (the most recent data was for January - February data will be released this week).  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 5.5% 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.

Existing Home Sales Look Soft -- Today the NAR came out with the February Existing Home Sales numbers, and the year-over-year action looks soft. Five points on the numbers that came out today:

  • It's looking more like zero growth in total sales for 2014. While new home sales still have room to edge higher, existing home sales, which are more indicative of what is happening on main street America, continue to be soft.
  • Inventory is higher, but housing inflation has dampened demand. As I warned back in May of 2013, housing inflation on both fronts (prices and rates) should have been the NAR major concern, not a lack of inventory.
  • 35% of the market is cash buyers. This is a pathetically high when one considers that we are in year 6 post-crash and enjoying rates of 4.5% and under. Mortgage purchase applications are down 18% year over year on the 4 week moving average.
  • Americans need 28-33% equity in their property in order to purchase a larger or more expensive home, if the desire is to not pay out any additional cash. This is not yet possible for millions of Americans-so the “trade up” market is also expected to be soft.
  • We have never had a post World War II recovery in housing where median incomes didn't recovery ... until now.

Great chart from Professor Anthony Sanders at George Mason University, who has a great blog:

Existing Home Sales in February: 4.60 million SAAR, Inventory up 5.3% Year-over-year  -- The NAR reports: February Existing-Home Sales Remain Subdued Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 0.4 percent to a seasonally adjusted annual rate of 4.60 million in February from 4.62 million in January, and 7.1 percent below the 4.95 million-unit level in February 2013. February’s pace of sales was the lowest since July 2012, when it stood at 4.59 million. ...Total housing inventory at the end of February rose 6.4 percent to 2.00 million existing homes available for sale, which represents a 5.2-month supply at the current sales pace, up from 4.9 months in January. Unsold inventory is 5.3 percent above a year ago, when there was a 4.6-month supply. This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in February (4.60 million SAAR) were slightly lower than last month, and were 7.1% below the February 2013 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 2.00 million in February from 1.88 million in January. Inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Sales of U.S. Existing Homes Slip to 19-Month Low -- Sales of U.S. existing homes slipped in February to their lowest level since July 2012 as severe winter weather, rising prices and a tight supply of homes discouraged buyers. The National Association of Realtors said Thursday that sales declined 0.4 percent last month to a seasonally adjusted annual rate of 4.6 million. That was the sixth decline in the past seven months. Freezing temperatures and snowstorms likely kept many buyers from visiting open houses. And higher mortgage rates have weighed on sales since last fall. Still, there were some signs that the market could pick up in the coming months. Sales improved in the South and West, where weather was less of a factor. And more people decided to sell, boosting the supply of available homes 6.4 percent to 2 million. Home prices are rising despite the sluggish sales, a sign that the number of homes for sale remains low. The median sales price has risen 9.1 percent in the past year, the Realtors said, to $189,000.  Investors are accounting for an increasing share of purchases, while first-time buyers remain historically low. All-cash sales, which are mostly by investors, rose to 35 percent of purchases in February, up from 32 percent a year ago.

Existing Home Sales Lowest In 19 Months, Cheapest Home Sales Tumble 18%; Weather, Student Loans Blamed - Another month, another confirmation that the so-called housing recovery is sputtering on its last breath and is being held up entirely by the higher end segment, which however is also coming to an end now that wealthy Chinese have started liquidating their ultra luxury housing. In February, according to the NAR, some 4.6 million annualized existing homes were record, in line with expectations, and a 0.4% decline from the 4.62 million print in January. This was the 19th monthly drop in a row, and the lowest since July 2012, and a 7.1% drop year over year. But the worst news is that housing is increasingly unaffordable to the poorer Americans, with houses costing in the $0-$100 bucket down 18% from a year ago. Since nobody is applying for a mortgage any more this is hardly surprising. Finally, in addition to the usual weather excuse for weak housing sales, a new scapegoat has appeared: soaring student loans: "20 percent of buyers under the age of 33, the prime group of first-time buyers, delayed their purchase because of outstanding debt. 56 percent of younger buyers who took longer to save for a downpayment identified student debt as the biggest obstacle." Oops.

Housing Investors Pulling Back Amid Fewer Bargains -- Sales of existing homes posted a year-over-year decline in February for the fourth consecutive month and are at the lowest level since July 2012, as other indicators note investors buying fewer properties. Blackstone LP has dramatically slowed its purchase of single family homes, particularly in the formerly distressed Sunbelt markets like Atlanta and Miami. With prices rising and the number of available foreclosures falling, there are fewer bargains to be had. The story comes on the heels of an earlier announcement that the buyout firm, after spending billions buying single family homes for rent, has broadened its focus to lending money to other smaller real estate investors. While Blackstone has a big name, it is far from the only big investor pulling back. Institutional-investor purchases, while still above year-ago levels, have fallen dramatically over the past two quarters, according to data from RealtyTrac. Institutional investors bought 44,087 properties in the fourth quarter of 2013, down from a peak of 60,648 in the second quarter of last year 2013. While the data aren’t adjusted for seasonal variations that included a brutal winter last year, the investor share of overall transactions fell to 5.62% in the fourth quarter from a peak of 6.23% at the beginning of 2013, according to Realty Trac. RealtyTrac data tracks investors who buy 10 or more properties in a market, so the overall investor share would actually be much higher if “mom and pop” investors were included.  Today’s drop in existing home sales looks to be caused in part by declining affordability. The problem is that, just as rising prices have scared off investors, they have caused prospective homebuyers to pause as well. Redfin, the real estate brokerage, said California home sales fell to a five year low in the 11 markets it serves in the state. Surveys of local real estate agents in Phoenix, Las Vegas and Sacramento showed the same.

The Stunning History Of "All Cash" Home Purchases In The US -- Yesterday's news from the NAR that in February all cash transactions accounted for 35% of all existing home purchases, up from 33% in January, not to mention that 73% of speculators paid "all cash", caught some by surprise. But what this data ignores are new home purchases, where while single-family sales have been muted as expected considering the plunge in mortgage applications, multi-family unit growth - where investors hope to play the tail end of the popping rental bubble - has been stunning, and where multi-fam permits have soared to the highest since 2008. So how does the history of "all cash" home purchases in the US look before and after the arrival of the 2008 post-Lehman "New Normal." The answer is shown in the chart below.

Comments on Existing Home Sales  - The NAR reported this morning that inventory was up 5.3% year-over-year in February.  A few points:
• Inventory is the KEY number in the NAR release.
• The NAR inventory data is "noisy" (and difficult to forecast based on other data), however it appears inventory bottomed in early 2013.
• The headline NAR inventory number is NOT seasonally adjusted (and there is a clear seasonal pattern).
• Inventory is still very low, and with the low level of inventory, there is still upward pressure on prices.
• I expect inventory to increase in 2014, and I expect the year-over-year increase to be in the 10% to 15% range by the end of 2014.
• However, if inventory doesn't increase, prices will probably increase a little faster than expected (a key reason to watch inventory right now).
The NAR does not seasonally adjust inventory, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko sent me the seasonally adjusted inventory (see graph of NAR reported and seasonally adjusted). This shows that inventory bottomed in January 2013 (on a seasonally adjusted basis), and inventory is now up about 6.8% from the bottom. On a seasonally adjusted basis, inventory was mostly unchanged in February compared to January. Another key point: The NAR reported total sales were down 7.1% from February 2013, but normal equity sales were probably up from February 2013, and distressed sales down. The NAR reported that 16% of sales were distressed in February (from a survey that isn't perfect): Distressed homes – foreclosures and short sales – accounted for 16 percent of February sales, compared with 15 percent in January and 25 percent in February 2013. Last year the NAR reported that 25% of sales were distressed sales.

Vital Signs: Housing Demand Meets Rising Rates – and Student Loans -- Ever since the Federal Reserve even dared to mention the idea of reducing its bond-buying program, mortgage rates have spiked. After jumping nearly one percentage point over the summer, the average rate on a 30-year fixed mortgage has hovered between 4.25% and 4.5% so far this year. While that’s still historically cheap, the rate rise along with higher home values has priced some house hunters out of the real estate market. It’s no surprise that sales of existing homes began to weaken after mortgage rates started to increase. In February, existing home sales came in at an annual rate of 4.60 million, little changed from January’s level. To be sure, the harsh weather delayed some purchases: resales suffered the most in the Northeast and Midwest. But affordability is also hurting sales, says the National Association of Realtors. The group noted affordability is less favorable than it was a year ago. The NAR says student-loan debt is also becoming a challenge for younger adults who might like to buy a home. In Thursday’s existing home report, the NAR said, “20% of buyers under the age of 33, the prime group of first-time buyers, delayed their purchase because of outstanding debt. In our recent consumer survey, 56% of younger buyers who took longer to save for a downpayment identified student debt as the biggest obstacle.”

Home Sales Usually Pick Up in Spring, but This Year May Disappoint -- The spring home-selling season really begins to ramp up in March, but there are signals that demand this year might fizzle. February’s drop in existing-home sales was one ominous sign, especially since traffic reports — which are a proxy for home sales 30 to 60 days out — show a slump in buyer interest. “The spring selling season is off to a weaker start than people in the industry had been expecting or hoping for,” said Tom Lawler, founder of Lawler Economic & Housing Consulting LLC. To be sure, it’s still early in the year. The pace could turn around, and the brutal winter played at least some role in depressing the level of sales in February. But housing also is in the midst of a kind of gear-shifting that involves moving away from a market driven by cash deals and investors to one with fewer distressed properties, homes that are more expensive, and a higher share of regular buyers whose jobs and paychecks are the bottom-line for what or whether they buy. One reason for the slump in existing home sales is that fewer investors are buying. But the same forces that are pushing away investors — higher prices, less to buy — have also soured some regular homebuyers. A February survey of buyer traffic from Credit Suisse showed a marked drop from January, with declines in 42 of the 50 markets it tracks. Unlike data from real estate agent groups, which measure closings, the Credit Suisse data give a sense of where demand will be 30 to 60 days down the line — the heart of the spring selling season.

Housing permits and starts for February: permits up, starts down -62,000 YoY -  As you all know, based on 60 years of history, almost always when interest rates have moved up 1%, housing permits at some point soon thereafter have been -100,000 lower YoY. This morning permits rose 63,000 from January to 1.012 million, for a YoY 6.3% increase.  Starts fell -2,000 to 907,000 from January, but are -62,000 less than they were a year ago, or -6.4% YoY.  Here's the graph, starting from January 2012, of the YoY% changes in permits and starts: Here is the same information, represented by 100,000s of units: Finally, here are both permits and starts, normed to 100 as of September 2012 (when the decelerating trend began): At first blush, it looks like the decelerating trend in housing has continued (granting that permits are at the top of their trend channel), and in the case of starts, we have had an outright YoY decline for two months in a row. While we haven't hit my -100,000 target, I wonder how many people thought there would be a -62,000 YoY decline a few months ago when I first made my forecast?

Housing Starts at 907 Thousand Annual Rate in February --From the Census Bureau: Permits, Starts and Completions - Privately-owned housing starts in February were at a seasonally adjusted annual rate of 907,000. This is 0.2 percent below the revised January estimate of 909,000 and is 6.4 percent below the February 2013 rate of 969,000. Single-family housing starts in February were at a rate of 583,000; this is 0.3 percent above the revised January figure of 581,000. The February rate for units in buildings with five units or more was 312,000.  Privately-owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 1,018,000. This is 7.7 percent above the revised January rate of 945,000 and is 6.9 percent above the February 2013 estimate of 952,000. Single-family authorizations in February were at a rate of 588,000; this is 1.8 percent below the revised January figure of 599,000. Authorizations of units in buildings with five units or more were at a rate of 407,000 in February.The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased slightly in February (Multi-family is volatile month-to-month). Single-family starts (blue) increased slightly in February.  The second graph shows total and single unit starts since 1968.

Housing Starts Drop For Third Month In A Row; Single-Family Permits Drop To Lowest In A Year, Rental Permits Soar - If there is one main theme in the just released February housing starts and permits data, it is that while total starts continued declining, missing expectations of a 910K print, instead dropping from an upward revised 910K to 907K, the third month in a row of declines after peaking at 1,101K in November, with single-family unit starts of 583K, virtually unchanged from the 591K level first seen in September 2012, it was the epic bifurcation in Housing Permits between single-family housing and rental (or multi-family units) that is the highlight. Yes, the headline Permit number of 1,018K beat expectations of 960K rising from January's revised 945K, but it was the composition that was the story - to wit, single-family permits dropped from 599K to 588K which just happens to be the lowest number since January of 2013, but this ongoing drop in single family was more than offset by multi-family permits, which soared to 407K - the highest number since the 540K peak recorded in June of 2008!

Vital Signs: Signs of Slowing in Housing - The latest data show some cracks in housing’s foundation. First the National Association of Home Builders said its members feel less upbeat about the future. The housing market index increased to 47 in March but that was after the index plunged 10 points to 46 in February. A reading below 50 means more builders view conditions as poor rather than good. Builders’ expectations about future sales dropped to the lowest reading since last May. Then came Tuesday’s news that fewer homes are being started in early 2014 than at the end of 2013. Total housing starts in January and February are about 10% below their fourth-quarter average. The large single-family component is running about 12% less. To be sure, the extreme harsh weather was responsible for some of the drop in starts. But even regions that did not experience extreme weather have seen builders breaking ground on fewer projects. That suggests other factors are at play. Rising mortgage rates have hurt affordability. The NAHB points to a shortage of buildable lots and skilled workers, plus rising materials prices as detriments. As long as mortgage rates do not spike in coming months, demand for new homes should hold up. But home construction is unlikely to post the big gains seen in 2012 and 2013.

A comment on Housing Starts - Bill McBride - There were 123.5 thousand total housing starts in January and February this year (not seasonally adjusted, NSA), down 1% from the 124.8 thousand during the first two months of 2013. Historically January and February are the two weakest months of the year for housing starts (NSA) due to winter weather - and the weather this year was especially severe - so I wouldn't read too much into the weak start for 2014.   Note: Permits were up 5% for the first two months of 2014 compared to 2013 - still weak growth, but positive. I don't blame all of the recent weakness on the weather (probably just a small factor) - there are also higher mortgage rates, higher prices and probably supply constraints in some areas.   But I still think fundamentals support a higher level of starts, and I expect starts to pick up solidly again this year. Here is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). These graphs use a 12 month rolling total for NSA starts and completions.

NAHB: Builder Confidence increased slightly in March to 47 - The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 47 in March, up from 46 in February. Any number below 50 indicates that more builders view sales conditions as poor than good.  From the NAHB: Builder Confidence Treads Water in March Builder confidence in the market for newly-built, single-family homes rose one point to 47 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. “A number of factors are raising builder concerns over meeting demand for the spring buying season,” “These include a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.” The index’s components were mixed in March. The component gauging current sales conditions rose one point to 52 and the component measuring buyer traffic increased two points to 33. The component gauging sales expectations in the next six months fell one point to 53.The three-month moving averages for regional HMI scores all fell in March. The Northeast dropped three points to 35, the Midwest fell three points to 53, the South posted a four-point decline to 49 and the West registered a two-point drop to 61.This graph show the NAHB index since Jan 1985. This was the second  consecutive reading below 50.

Homebuilder Confidence Misses Expectations Again As Outlook Plunges To 10-Month Lows - Despite last month's epic collapse in the NAHB Confidence index, the 'recovery' bounce this month missed expectations significantly making the 6th miss in the last 7 months (we assume that means its been winter-stormy for the last 7 months). Holding at levels seen in May 2013, future sales expectations dropped once again to 10 month lows as hope fades (or they expect more bad weather). The West (crushed by warm dry pleasant weather) continues to plummet but the NorthEast dropped to levekls not seen since Auguest 2012.

AIA: Architecture Billings Index increased slightly in February - Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From AIA: Architecture Billings Index Shows Slight Improvement After starting out the year on a positive note, there was another minor increase in the Architecture Billings Index (ABI) last month. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the February ABI score was 50.7, up slightly from a mark of 50.4 in January. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 56.8, down from the reading of 58.5 the previous month.“The unusually severe weather conditions in many parts of the country have obviously held back both design and construction activity,”  “The March and April readings will likely be a better indication of the underlying health of the design and construction markets. We are hearing reports of projects that had been previously shelved for extended periods of time coming back online as the economy improves.”  Regional averages: South (52.8),West (50.5), Northeast (48.3), Midwest (47.6) [three month average]. This graph shows the Architecture Billings Index since 1996. The index was at 50.7 in February, up from 50.4 in January. Anything above 50 indicates expansion in demand for architects' services.  This index has indicated expansion during 16 of the last 19 months. Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

Fed: Q4 Household Debt Service Ratio near 30 year low  - Here is an update of the Fed's Household Debt Service ratio through Q4 2013 Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations. These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. The Fed changed the release in Q3.  The Debt Service Ratio (DSR) is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR. This data has limited value in terms of absolute numbers, but is useful in looking at trends. The graph shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow).  The overall Debt Service Ratio increased slightly in Q4, and is near a record low.  Note: The financial obligation ratio (FOR) is also near a record low (not shown)

Headline Inflation Drops, Core Inflation Essentially Unchanged - The Bureau of Labor Statistics released the latest CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.13%, which the BLS rounds to 1.1%, down from 1.58% last month. Year-over-year Core CPI (ex Food and Energy) came in at 1.57% (rounded to 1.6%), essentially unchanged from last month's 1.62%. Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.1 percent before seasonal adjustment. An increase in the food index accounted for more than half of the all items increase in February. The food index rose 0.4 percent in February, driven by a 0.5 percent increase in the index for food at home, with four of the six major grocery store food group indexes increasing. The energy index declined, with a decrease in the gasoline index more than offsetting sharp increases in the fuel oil and natural gas indexes. The index for all items less food and energy also rose 0.1 percent in February. An increase of 0.2 percent in the shelter index was the major contributor to the rise, but the indexes for medical care, airline fares, personal care, recreation, and new vehicles also increased. In contrast, the indexes for household furnishings and operations, apparel, used cars and trucks, and tobacco all declined in February.  The all items index increased 1.1 percent over the last 12 months; this compares to increases of 1.5 percent in December and 1.6 percent in January. The index for all items less food and energy rose 1.6 percent over the last 12 months. The energy index declined 2.5 percent over the same period, while the food index has increased 1.4 percent.  More... The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

February inflation — +0.1% CPI seasonally adjusted - The Bureau of Labor Statistics released the February Consumer Price Index report earlier today: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.1 percent before seasonal adjustment. An increase in the food index accounted for more than half of the all items increase in February. The food index rose 0.4 percent in February, driven by a 0.5 percent increase in the index for food at home, with four of the six major grocery store food group indexes increasing. The energy index declined, with a decrease in the gasoline index more than offsetting sharp increases in the fuel oil and natural gas indexes. The index for all items less food and energy also rose 0.1 percent in February. An increase of 0.2 percent in the shelter index was the major contributor to the rise, but the indexes for medical care, airline fares, personal care, recreation, and new vehicles also increased. In contrast, the indexes for household furnishings and operations, apparel, used cars and trucks, and tobacco all declined in February.The seasonal adjustment on gasoline must be rather powerful. Here in southeast Wisconsin, the annual skyrocket of gasoline prices began just after February started, going from $3.15/gallon at the beginning of the month to $3.50/gallon by the end of the month. Reuters noted that the “core CPI”, which strips out energy and food, did increase by 1.6% over the past 12 months. It, however, is well below the 2% inflation rate targeted by the Federal Reserve, with the measure watched by the Fed, the index of personal consumpition expenditures, even lower than that.

Food Prices Surge as Drought Exacts a High Toll on Crops - Surging prices for food staples from coffee to meat to vegetables are driving up the cost of groceries in the U.S., pinching consumers and companies that are still grappling with a sluggish economic recovery. Federal forecasters estimate retail food prices will rise as much as 3.5% this year, the biggest annual increase in three years, as drought in parts of the U.S. and other producing regions drives up prices for many agricultural goods. The Bureau of Labor Statistics on Tuesday reported that food prices gained 0.4% in February from the previous month, the biggest increase since September 2011, as prices rose for meat, poultry, fish, dairy and eggs. Globally, food inflation has been tame, but economists are watching for any signs of tighter supplies of key commodities such as wheat and rice that could push prices higher. In the U.S., much of the rise in the food cost comes from higher meat and dairy prices, due in part to tight cattle supplies after years of drought in states such as Texas and California and rising milk demand from fast-growing Asian countries. But prices also are higher for fruits, vegetables, sugar and beverages, according to government data. In futures markets, coffee prices have soared so far this year more than 70%, hogs are up 42% on disease concerns and cocoa has climbed 12% on rising demand, particularly from emerging markets. Drought in Brazil, the world’s largest producer of coffee, sugar and oranges, has increased coffee prices, while dry weather in Southeast Asia has boosted prices for cooking oils such as palm oil.

Inflation Misses By Most In 6 Months; Core CPI Drops To 10 Year Low -- As long you don't eat, sleep under a roof, or use energy, things are positive for you as Core CPI dropped to its lowest in 10 years. Overall CPI dropped to 1.1% YoY - missing Bloomberg's estimate by the most since August. Thanks to the drought in California, food prices jumped; but energy costs overall fell despite fuel oil and other fuels rose 7% MoM (thanks to Winter storm demand). The heavily-weighted 'Shelter' index rose as did Healthcare costs.

Beef Prices Post Biggest Surge in a Decade -- In today’s Journal, a Wisconsin woman explains her first-hand experience of the rising costs of food. A Labor Department report out Tuesday shows she is on to something. What Americans paid for everything from haircuts to new cars barely rose, but the price of food alone was 0.4% higher in February from the prior month. Costs for meats, poultry, fish, dairy and eggs drove the gains. Most notably, beef and veal prices surged — just as Terri Weninger, a married mother of three in Waukesha, Wis., has learned.“Things are definitely more expensive,” the 44-year-old said. “I can’t believe how much milk is. Chicken is crazy right now, and beef—I paid $5 a pound for beef!” Prices for beef saw their biggest monthly change in February since November 2003. That was when fears of mad-cow disease abroad led to a spike of export demand for U.S. beef. When the disease was later confirmed in domestic cattle, prices shot down.

A Long-Term Look at Inflation - The March Consumer Price Index for Urban Consumers (CPI-U) released this morning puts the February year-over-year inflation rate at 1.13%, which is well below the 3.88% average since the end of the Second World War and less than half its 10-year moving average. For a comparison of headline inflation with core inflation, which is based on the CPI excluding food and energy, see this monthly feature. For better understanding of how CPI is measured and how it impacts your household, see my Inside Look at CPI components. For an even closer look at how the components are behaving, see this X-Ray View of the data for the past five months. The Bureau of Labor Statistics (BLS) has compiled CPI data since 1913, and numbers are conveniently available from the FRED repository (here). My long-term inflation charts reach back to 1872 by adding Warren and Pearson's price index for the earlier years. The spliced series is available at Yale Professor (and Nobel laureate) Robert Shiller's website. This look further back into the past dramatically illustrates the extreme oscillation between inflation and deflation during the first 70 years of our timeline. Click here for additional perspectives on inflation and the shrinking value of the dollar.

Update on Price Inflation - What Was That CPI Figure? - The penny has officially become worthless.  I finally had to admit this the other day when I found a pile of them in a parking lot, just as if they had been smelly old cigarette butts dumped out of a car ashtray by someone in a hurry. A few months ago in an earlier post, I whined about the price of M&Ms, or more accurately about the dollar's decline.  I noted therein that my favorite little candies had gone from 5 cents when I was a girl in the 1950s, through 55 cents when I had my own little store in the 1990s, to 99 cents at my local supermarket in 2011.   So today, I was not particularly surprised to see that my little packet of goodies is now $1.19 in the same supermarket. But when I did the calculations, I realized that's a 20 percent increase in three years.  That's almost 24 times the 5 cents I paid in the early 1950s.... What??  That may be par for the course, but let's ask the obvious question:  What was that CPI figure again??

The Big Four Economic Indicators: Real Retail Sales-- Yesterday's release of the February Consumer Price Index enables us to calculate Real Retail Sales. The latest month-over-month data point, up 0.17% (rounded to 0.2% in the table below), is a small improvement over the sharp two-month decline in December and January. The general opinion is that extreme weather has been largely responsible for several weak economic indicators, retail sales among them. Further illustrating the weakness in Real Retail Sales is the microscopic 0.37% year-over-year February increase.  For another perspective on sales, see my monthly update on Real Retail Sales per Capita.The chart and table below illustrate the performance of the Big Four and a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009. The latest data point is the first for the 56th month.

The Polar Vortex Kept Shoppers at Home—Will the Economy Pick Up Now? -  Consumer spending make up about 70 percent of the economy, but lately those consumers have been feeling, well, under the weather. That's what economists Atif Mian and Amir Sufi found when they looked at why sales have sagged the past few months. Now, it could have been that we just had another false dawn, and the latest slowdown was more in our heads—and initial estimates—than anything else. But as anyone who's been outside can tell you, it also could have been that the arctic air, yes, put a freeze on economic activity. Mian and Sufi decided to test this by breaking down car sales geographically. And, as you can see below, they found that the states that had the atypically lowest temperatures had the lowest sales growth in January, too. It's hard to sell a car when people try to avoid going outside.  So will sales heat up as the weather does? Well, a bit. The polar vortexes made people put off purchases and nights out that they'll probably make up for now. But there'll be an even bigger boost to spending if consumers go back to doing what they did before the crash: taking on more debt.

Vital Signs: Take a Vacation. Help the Economy - Tourism is a sector that flies under the radar, but it accounts for about $1.5 trillion in direct or indirect spending, nearly 9% of nominal gross domestic product. For much of 2013, tourists and travelers helped the recovery by lifting their spending at a faster clip than the overall economy. According to data released Thursday by the Commerce Department, tourism and travel spending grew at an annual rate of 4.2%, up from 3.1% in the third quarter. Real GDP growth decelerated over the same two quarters. Tourism employment also outpaced overall payrolls, rising 2.8% last quarter, compared to a 1.8% gain for all jobs. You might assume the harsh winter put the kibosh on first-quarter travel, but that wasn’t the case according to the Fed’s latest Beige Book. The March 5 book said, “Travel and tourism was generally strong across most reporting Districts except for Philadelphia who recorded a slight decrease.” The snow actually helped ski resorts in the Kansas City, Richmond, and Minneapolis districts. And the Super Bowl boosted hotel occupancy in New York and New Jersey. The book also reported an upbeat view for the industry for the rest of 2014: “The majority of Districts reported a solid start in the first quarter for hotel bookings, occupancy, and revenue with an optimistic outlook for the remainder of the year.”

Weekly Gasoline Update: Sixth Week of Price Increases - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium are both up four cents -- the sixth consecutive week of price increases. According to, Hawaii is the only state with regular above $4.00 per gallon, now at $4.15, unchanged from last week. The next highest state average is California at $3.95, up from $3.90 last week. No states are averaging under $3.00, with the lowest prices in South Montana at $3.21.

DOT: Vehicle Miles Driven decreased 1.3% year-over-year in January  - This monthly decline appears weather related since miles driven were down 4.6% in the Northeast, and 4.0% in the Northwest. Miles driven were up 2.9% in the West. The Department of Transportation (DOT) reported: Travel on all roads and streets changed by -1.3% (-2.9 billion vehicle miles) for January 2014 as compared with January 2013. ...Travel for the month is estimated to be 224.0 billion vehicle miles. The following graph shows the rolling 12 month total vehicle miles driven.  The rolling 12 month total is still mostly moving sideways but has started to increase a little recently.Currently miles driven has been below the previous peak for 74 months - 6+ years - and still counting.  Currently miles driven (rolling 12 months) are about 2.3% below the previous peak. The second graph shows the year-over-year change from the same month in the previous year.

Vehicle Miles Driven: Another Population-Adjusted Low -  The Department of Transportation's Federal Highway Commission has released the latest report on Traffic Volume Trends, data through December.  Travel on all roads and streets changed by -1.3% (-2.9 billion vehicle miles) for January 2014 as compared with January 2013 (see report). However, if we factor in population growth, the civilian population-adjusted data (age 16-and-over) is at a new post-Financial Crisis low and total population-adjusted data are only fractionally above its low set in June of last year. Here is a chart that illustrates this data series from its inception in 1970. I'm plotting the "Moving 12-Month Total on ALL Roads," as the DOT terms it. See Figure 1 in the PDF report, which charts the data from 1989. The rolling 12-month miles driven contracted from its all-time high for 39 months during the stagflation of the late 1970s to early 1980s, a double-dip recession era. The most recent decline has lasted for 70 months and counting — a new record, but the trough to date was in November 2011, 48 months from the all-time high. Total Miles Driven, however, is one of those metrics that should be adjusted for population growth to provide the most meaningful analysis, especially if we want to understand the historical context. We can do a quick adjustment of the data using an appropriate population group as the deflator. I use the Bureau of Labor Statistics' Civilian Noninstitutional Population Age 16 and Over (FRED series CNP16OV). The next chart incorporates that adjustment with the growth shown on the vertical axis as the percent change from 1971.

Time for Some Traffic - Total vehicle miles driven in the United States have not re-attained pre-recession peaks. Upon inspecting Figure 1 in this post, reader Patrick R. Sullivan decries the current level of auto production. His reasoning? Looking at Figure 1, I’d say that sales of cars are pathetic. Only back to the level of 2005. And that after years of far below normal sales figures, which should have resulted in pent-up demand. This is nothing to brag about for this economy. In a similar vein, Bruce Hall writes:  Just curious how much the present demand still represents “pent-up demand.” With domestic production running at 300-350K per month and then dropping like a rock for three years, it would seem that just getting back to the old “normal” still represents “behind the curve.” There are plenty of anecdotal accounts of small fleets being run into the ground because owners are afraid to spend money on replacement vehicles. I’d suggest there is still a story behind the chart that is not being told.  I agree that there is more aspects to consider. First, I think it is useful, when considering what is an appropriate level of production, to take into account what is the end-use of the product. In the case of motor vehicles, it’s miles driven. And here, the trend has been sideways — after a drop in 2009. What is more interesting to me is the decline in per capita miles driven. This variable has dropped 9% (log terms) since 2005M08 (vehicle miles have fallen 2.1% since the miles peak of 2007M09).

Why We Love Cars - An integral part of macroeconomics is understanding business cycles, i.e. figuring out what drives changes in aggregate output. As a result we are always on the lookout for measures of economic activity at finer geographical levels like zip codes or counties. One of our favorite variables in this regard – and one that we have used very often in our research and book – is the number of new automobiles bought by residents of a given zip code. Why, you might ask, does this particular data exist? The reason is that anytime someone buys a new car, they need to get it registered at the local motor vehicle authority, which in turn records the owners residential address. We can hence track on a monthly frequency the number of new vehicles bought by household in every zip code in the United States. Is zip code level data on purchase of new automobiles useful for macro-economists? First, the bad news. Sales of new vehicles comprised only 2.9% of total GDP at the start of the Great Recession. So one might think that looking at the sale of new cars is not very useful given how small a share they hold in the overall economy. But this intuition would be wrong. Remember that it is the change in GDP that we are truly interested in. And it turns out that as far as change in GDP is concerned, sales of new vehicles explain a large fraction. For example, the decline in the sale of new automobiles comprise 28.1% of the peak to trough fall in GDP during the Great Recession.

ATA Trucking Index increased in February - Here is a minor indicator that I follow, from ATA: ATA Truck Tonnage Index Jumped 2.8% in February
The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index increased 2.8% in February, after plunging 4.5% the previous month. January’s drop was slightly more than the 4.3% reported on February 19, 2014. In February, the index equaled 127.6 (2000=100) versus 124.1 in January. The all-time high was in November 2013 (131.0). Compared with February 2013, the SA index increased 3.6%. ... “It is pretty clear that winter weather had a negative impact on truck tonnage during February,” said ATA Chief Economist Bob Costello. “However, the impact wasn’t as bad as in January because of the backlog in freight due to the number of storms that hit over the January and February period.” “The fundamentals for truck freight continue to look good,” he said. “Several other economic indicators also snapped back in February. We have a hole to dig out of from such a bad January, but I feel like we are moving in the right direction again..” Here is a long term graph that shows ATA's For-Hire Truck Tonnage index. The dashed line is the current level of the index. The index rebounded in February after the sharp decline in January.

NAFTA Opens U.S. Roads to Poorly Regulated Trucks from Mexico  -- Trade deals, such as the North American Free Trade Agreement (NAFTA), have allowed poorly regulated trucks and drivers from Mexico on American highways. NAFTA included a provision that guaranteed access to U.S. roads and highways for Mexico’s truck fleet. The trade agreement did not require Mexican trucking standards be brought up to U.S. standards. In fact, reports by the Department of Transportation Inspector General revealed severe safety and environmental problems with Mexico’s truck fleet and drivers’ licensing.  After a NAFTA “court” imposed sanctions of $2.4 billion on the United States for failing to open access, trucks from Mexico were allowed on U.S. roads starting in 2011. Even so, an association of Mexican trucking firms is demanding $30 billion from U.S. taxpayers to compensate for the years they could not drive on American highways as NAFTA promised.   For more information click here.

LA area Port Traffic: Down year-over-year in February - Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for January since LA area ports handle about 40% of the nation's container port traffic. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).  To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.On a rolling 12 month basis, inbound traffic was down 0.6% compared to the rolling 12 months ending in January. Outbound traffic was down 0.2% compared to 12 months ending in January. Inbound traffic has generally been increasing, and outbound traffic has mostly been moving sideways. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year). Inbound traffic was down 7% compared to February 2013 and outbound traffic was down 2%. This suggests a decrease in trade the trade deficit with Asia in February.

Fed: Industrial Production increased 0.6% in February - From the Fed: Industrial production and Capacity Utilization Industrial production increased 0.6 percent in February after having declined 0.2 percent in January. In February, manufacturing output rose 0.8 percent and nearly reversed its decline of 0.9 percent in January, which resulted, in part, from extreme weather. The gain in factory production in February was the largest since last August. The output of utilities edged down 0.2 percent following a jump of 3.8 percent in January, and the production at mines moved up 0.3 percent. At 101.6 percent of its 2007 average, total industrial production in February was 2.8 percent above its level of a year earlier. The capacity utilization rate for total industry increased in February to 78.8 percent, a rate that is 1.3 percentage points below its long-run (1972–2013) average. This graph shows Capacity Utilization. This series is up 11.6 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 78.8% is still 1.3 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007. The second graph shows industrial production since 1967. Industrial production increased 0.6% in February to 101.6. This is 21% above the recession low, and slightly above the pre-recession peak. The monthly change for both Industrial Production and Capacity Utilization were above expectations.

Industrial Production Makes Up Ground From January's Bad WeatherRoars Back in February  - The Federal Reserve Industrial Production & Capacity Utilization report shows a 0.6% increase in industrial production.  Manufacturing alone grew by 0.8% for the month after plunging -0.9% in January due to horrific weather.  This is the largest factory output gain since last August,  Utilities were slightly down by -0.2% after January's polar vortex winter increase of 3.8%.  Mining increased 0.3%.  The G.17 industrial production statistical release is also known as output for factories and mines.  The graph below shows industrial production index.  Total industrial production has increased 2.8% from a year ago.  Currently industrial production is 1.6 percentage points above the 2007 average.  Below is graph of overall industrial production's percent change from a year ago.  Here are the major industry groups industrial production percentage changes from a year ago.  The below shows manufacturing is really fairly weak, even with this month's strong showing.

  • Manufacturing: +1.5%
  • Mining:             +6.1%
  • Utilities:           +8.3%

Manufacturing output is still 2.8 percentage points below it's the 2007 average..  Below is a graph of just the manufacturing portion of industrial production.

Industrial Production Beats, Recovers February's Big Miss On More Auto Inventory Stacking -- Hardly surprising given February's biggest miss in 10 months that March's data would rebound and so it did from an initial -0.3% in Feb, March rose +0.6% (well above +0.2% expectations)  - 2.7% above last year's levels. This 0.6% rise is above even the most exuberant "economists" estimates. Utilities fell 0.2% (as weather warmed up) but what was most notable is the 7.4% surge in motor vehicles (the biggest in at least 6 months) - which are already sitting at record levels of absolute inventories and the highest inventory-to-sales since the financial crisis. Within consumer durables, the production of automotive products jumped 4.6 percent to reverse most of a similarly sized decrease in January, and the output of home electronics increased 0.7 percent. These gains in February were partly offset by a decrease of 1.7 percent in the production of appliances, furniture, and carpeting as well as a decline of 0.1 percent in the output of miscellaneous goods.  Within consumer non-energy nondurables, the indexes for foods and tobacco, for chemical products, and for paper products each rose about 1 percent, while the output of clothing moved down 0.7 percent.

The Big Four Economic Indicators: Industrial Production - Today's release of the Fed's Industrial Production report showed a 0.6 percent increase in February, handily beating the forecast for a 0.1 percent gain. The improvement was further enhanced by the upward revision of previous month's headline number from -0.3 percent to -0.2 percent. Here is the report introduction: Industrial production increased 0.6 percent in February after having declined 0.2 percent in January. In February, manufacturing output rose 0.8 percent and nearly reversed its decline of 0.9 percent in January, which resulted, in part, from extreme weather. The gain in factory production in February was the largest since last August. The output of utilities edged down 0.2 percent following a jump of 3.8 percent in January, and the production at mines moved up 0.3 percent. At 101.6 percent of its 2007 average, total industrial production in February was 2.8 percent above its level of a year earlier. The capacity utilization rate for total industry increased in February to 78.8 percent, a rate that is 1.3 percentage points below its long-run (1972–2013) average [link].  The chart and table below illustrate the performance of the Big Four and a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009. The latest data point is the first for the 56th month.

Vital Signs: Manufacturers Shake Off the Icicles - Manufacturing output posted a surprisingly strong rebound in output in February. The gain leads credence to the idea that weather—not a weakening in fundamentals—is causing the slowdown in economic activity this quarter. According to Federal Reserve data out Monday, total industrial output increased 0.6% last month. The growth leader was manufacturing which posted a large 0.8% gain in output. The rise mostly offsets the 0.9% tumble taken in January–a decline the Fed said was the result of extreme weather. The February advance was led by a jump in the vehicle sector but it was not the only gainer. Increases were also posted in business equipment, home electronics, food and tobacco, chemicals and paper. One negative worth noting: output of home-related durable goods fell for the second month in a row. The production drops in appliances, furniture and carpeting may be weather-related, or they may hint that a slowdown in the home building sector is underway. Also on Monday came news that the housing market index—a proxy for builder confidence—edge up to only 47 in March after tumbling a record 10 points in February to 46. A reading below 50 means more builders report poor conditions than the number seeing improvement.

NY Fed: Empire State Manufacturing Activity indicates "business conditions improved" in March - From the NY Fed: Empire State Manufacturing Survey The March 2014 Empire State Manufacturing Survey indicates that business conditions continued to improve for New York manufacturers, though activity grew slowly. At 5.6, the general business conditions index was little changed from last month. [up from 4.5] ...The new orders index climbed three points to 3.1, pointing to a slight increase in orders. ... Labor market conditions continued to improve. The employment index fell five points but, at 5.9, indicated a small increase in employment levels. The average workweek index, holding steady at 4.7, pointed to a small increase in hours worked. This is the first of the regional surveys for March.  The general business conditions index was close to the consensus forecast of a reading of 6.5, and indicates slightly faster expansion in March than in February.

Empire State Manufacturing: Continued Improvement -  This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions showed improvement, posting a reading of 5.6, up from 4.5 last month. The forecast was for a slightly higher 6.0. The Empire State Manufacturing Index rates the relative level of general business conditions New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state.  Here is the opening paragraph from the report. The March 2014 Empire State Manufacturing Survey indicates that business conditions continued to improve for New York manufacturers, though activity grew slowly. At 5.6, the general business conditions index was little changed from last month. The new orders index climbed three points to 3.1, indicating that orders were slightly higher, and the shipments index inched up to 4.0. The unfilled orders index fell further into negative territory, declining ten points to -16.5, and the inventories index advanced to 7.1, pointing to rising inventory levels. The indexes for both prices paid and prices received declined but remained positive, indicating slower price growth. Employment indexes were positive and suggested a small increase in employment levels and hours worked. Indexes for the six-month outlook were down somewhat from last month’s levels, but continued to convey a fairly strong degree of optimism about future conditions, and the capital spending index rose to its highest level in several months.  Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Empire Manufacturing Misses For 7th Month Of Last 8; Outlook Plunges - Since July of last year, the Empire Fed manufacturing index has only beaten expectations once as March data once again fell below consensus (5.61 vs 6.5 est.) - hardly confirming the weakness is weather-driven. The underlying sub-indices were ugly with the most worrisome being the outlook - despite some optimism for capex, the general business conditions 6-months ahead fell by the most since Oct 2011 to its lowest since July 2013 - which once again suggest this weakness is anything but weather-driven. The number of employees fell as inventories rose but the margin-compressing divide between prices paid and prices received is concerning.

Philly Fed Manufacturing Survey indicated Expansion in March -- From the Philly Fed: March Manufacturing Survey Manufacturing activity rebounded in March, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, and shipments increased and recorded positive readings this month, suggesting a return to growth following weather‐related weakness in February. Firms’ employment levels were reported near steady, but responses reflected optimism about adding to payrolls over the next six months. The surveyʹs indicators of future activity reflected optimism about continued growth over the next six months. The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of ‐6.3 in February to 9.0 this month, nearing its reading in January. The employment index remained positive for the ninth consecutive month but edged 3 points lower, suggesting near‐steady employment.Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through March. The ISM and total Fed surveys are through February. The average of the Empire State and Philly Fed surveys was negative in February (probably weather related), and turned positive again in March.  This suggests stronger expansion in the ISM report for March.

Philly Fed Business Outlook: Rebound in March - The Philly Fed's Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. The latest gauge of General Activity came in at 9.0, a welcome bounce from the previous month's -6.3. The 3-month moving average came in at 4.0, up from 3.2 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. However, today's six-month outlook at 35.4 is an slight decline from last month's 40.2.Here is the introduction from the Business Outlook Survey released today:Manufacturing activity rebounded in March, according to firms responding to this month's Business Outlook Survey. The survey's broadest indicators for general activity, new orders, and shipments increased and recorded positive readings this month, suggesting a return to growth following weather-related weakness in February. Firms' employment levels were reported near steady, but responses reflected optimism about adding to payrolls over the next six months. The survey's indicators of future activity reflected optimism about continued growth over the next six months. (Full PDF Report)  Today's 9.0 came in above the 3.8 forecast at The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012 and a shallower contraction in 2013. The indicator is now off its post-contraction peak in September of last year.

Philly Fed Jumps Most In 9 Months As Employment Plunges To 9-Month Lows - The Philly Fed Factory Index surge 15.3 points from February's plunge for its biggest jump in nine months. New Orders recovered most of last month's loss but the employment sub-index dropped to its lowest since June 2013. Perhaps even more troubling was the drop in the business outlook with the average workweek and new orders expected to drop.

Weekly Initial Unemployment Claims at 320,000 -- The DOL reports: In the week ending March 15, the advance figure for seasonally adjusted initial claims was 320,000, an increase of 5,000 from the previous week's unrevised figure of 315,000. The 4-week moving average was 327,000, a decrease of 3,500 from the previous week's unrevised average of 330,500. The previous week was unrevised at 315,000. 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 327,000. This was below the consensus forecast of 325,000.  The 4-week average is moving down slightly and is close to normal levels during an expansion.

Continuing Claims Miss By Most In 8 Weeks As Initial Claims Rise -- Initial jobless claims rose for the first time in 4 weeks - with, oddly, no upward revision of previous data - but beat expectations for the 3rd week in a row. In the prior week the best state was New York, where claims dropped by 17,548 due to "Fewer layoffs in the transportation and warehousing, educational services, and food services industries." However, the rise in continuing claims - the most in over 2 months - is perhaps the most notable - missing expectations by the most in 8 weeks. This is notable since this week was the survey period for the all-important Non-Farm Payrolls (well less important now given Yellen's comments).

Vital Signs: Big Business May Soon Post More Job Openings - Moderation may be the key word from the latest chief executive survey done by the Business Roundtable. But at least CEOs aren’t cutting back on hiring. The roundtable first-quarter survey shows chief executives have moderate expectations for economic growth, company sales and capital spending plans. Indeed, the consensus outlook is that real gross domestic product will grow 2.4% this year, a bit slower than the 2.7% projected by professional economists. One area showing promise is employment plans. The CEO employment index increased for the sixth consecutive quarter and now stands at its highest level since early 2011. The roundtable survey shows 37% of CEOS plan to increase employment in the next six months, up from 34% saying that in the fourth quarter. And 19% expect job cuts, down from 22% saying that last quarter. With large corporations accounting for about 40% of total private U.S. employment, the rise in the index suggests private-sector job growth should shake off its winter blahs and strengthen in coming quarters.

The Most Important Economic Chart -- If you must know only one fact about the U.S. economy, it should be this chart: The chart shows that productivity, or output per hour of work, has quadrupled since 1947 in the United States. This is a spectacular achievement by an advanced economy. The gains in productivity were quite widely shared from 1947 to 1980. Real income for the median U.S. family doubled during this time just as output per hour of work performed doubled. The rising tide was lifting all boats. However, what we want to focus on today is the remarkable separation in productivity and median real income since 1980. While the United States is producing twice as much per hour of work today compared to 1980, a small part of the gain in real income has gone to the bottom half of the income distribution. The gap between productivity and median real income is at an historic all-time high today. So where are all of the gains in productivity going? Two places: First, owners of capital are getting a bigger share of GDP than before. In other words, the share of profits has risen faster than wages. Second, the highest paid workers are getting a bigger share of the wages that go to labor.

Philly Fed: State Coincident Indexes increased in 48 states in January -- From the Philly FedThe Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for January 2014. In the past month, the indexes increased in 48 states and remained stable in two, for a one-month diffusion index of 96. Over the past three months, the indexes increased in 50 states, for a three-month diffusion index of 100. Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:  The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged). In January, 49 states had increasing activity(including minor increases). This measure has been and up down over the last few years ... Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and is all green again.

Workers in Every Corner of the Nation Await Return to Full Employment - January’s state employment data released this week by the Bureau of Labor Statistics picked up where December left off, with generally positive news for most states.  Yet, despite continued positive signs, only North Dakota has both replaced the jobs lost during the recession and created enough jobs to keep up with population growth. From October 2013 to January 2014, 34 states saw gains in employment. Nevada, Vermont, and Arizona led employment gains, each recording gains of 1.0 percent or more. During the same period, 16 states and the District of Columbia lost jobs. From October 2013 to January 2014, unemployment rates declined in every state.  The South and Northeast saw the largest declines in unemployment rates, down 0.7 percentage points and 0.9 percentage points respectively between October and January. In January, Rhode Island’s unemployment rate was the highest in the nation, at 9.2 percent, followed by Illinois and Nevada, both with 8.7 percent unemployment. In total, 18 states and the District of Columbia had unemployment rates above the national average of 6.6 percent. By contrast, 12 states maintained unemployment rates below the pre-recession national average of 5.0 percent. Policymakers’ failure to make job creation the driving force behind federal budget making continues to take its toll in every corner of the nation, and the return to full employment remains alarmingly far off.  Financing necessary public investments, as proposed by the Congressional Progressive Caucus in the “Better Off Budget,” is key to achieving full economic recovery and long-term fiscal health.

Just One Large City Saw Unemployment Rise From Last Year - Unemployment in the Cleveland, Ohio, region increased slightly in January from a year ago, making it the only major U.S. metro area to have a jobless rate increase over the year. The unemployment rate in the Cleveland-Elyria-Mentor metropolitan area was 7.6% in January on a seasonally adjusted basis, 0.3 percentage point higher from a year earlier, the Labor Department said on Friday. The national unemployment rate was 6.6% in January, down from 7.9% in January 2013. Of the 49 metro areas with more than 1 million people, the largest rate decline was in the Charlotte, N.C., area. That region’s unemployment rate dropped 2.6 percentage points to 6.9% on a nonseasonally adjusted basis. Cleveland’s historically manufacturing-based economy has been slow to recover after a pullback in the sector, The region’s manufacturers added just 800 jobs over the course of 2013, but there were still around 20,000 fewer factory jobs in the Cleveland metro area than before the recession. The biggest job cuts in January from a year earlier came in the financial industry, education and state and local government. Cleveland-area employers hired more people to work in retail; mining, logging and construction; and professional and business services. The region overall added just 4,200 jobs from January 2013 to January 2014, even as the ranks of the unemployed swelled by nearly 3 million over the same period. Overall, unemployment rates across the country were lower in January from a year ago in 367 of the 372 metropolitan areas the Labor Department measures. Rates were higher in three regions and unchanged in two. Thirty metro areas had jobless rates of at least 10%, while 41 regions had rates of less than 5%.

Northern California Counties Lead in Wage Growth - The tech boom is reaping benefits on workers in San Mateo County, Calif., whose wages grew at five times the national rate in the year through September. Among large counties, San Mateo led the nation in wage growth. The county’s average weekly wage surged 9.9% to $1,698 from the third quarter of 2012 through the third quarter of 2013, the Labor Department said Wednesday in its quarterly report on county wages and employment levels. Nationally, the average wage rose 1.9% to $922. Three of the top 10 counties for wage growth were in northern California. Besides San Mateo, Yolo County, tucked between Napa and Sacramento counties, ranked seventh with a 6% increase in wages. San Francisco County ranked 10th with a 4.8% bump. The highest wages — if not the fastest-growing — were found in Santa Clara County, Calif. There, workers, on average, made $1,868 a week in the third quarter of 2013. That was $170 above the second-highest wages, in San Mateo.

The Plummeting Labor Market Fortunes of Teens and Young Adults - Brookings -- Employment prospects for teens and young adults in the nation’s 100 largest metropolitan areas plummeted between 2000 and 2011. On a number of measures—employment rates, labor force underutilization, unemployment, and year-round joblessness—teens and young adults fared poorly, and sometimes disastrously. This report provides a number of strategies to reduce youth joblessness and labor force underutilization.  Use the tool below to explore key youth workforce indicators for each of the 100 largest U.S. metropolitan areas and download the report in PDF form.

Unemployment Among Iraq, Afghanistan Veterans Remains Elevated -  Unemployment among veterans of the Iraq and Afghanistan wars fell last year but remained far higher than the national average, new figures show. About 9% of the 2.3 million American workers who served on active military duty at some point since September 2001 were unemployed in 2013, the Labor Department said Thursday. That was down from 9.9% in 2012. Still, it was far higher than the national average unemployment rate of 7.4% for all of 2013. The decline in joblessness in that group — labeled Gulf War II-era veterans by the Labor Department — mirrored a broader drop in joblessness among all former military service members. The unemployment rate for the roughly 11 million veterans in the labor force, regardless of when they served, fell to 6.6% in 2013 from 7% a year earlier. The declines occurred because more veterans found jobs, and also because the share of veterans in the labor force shrank.

Long-Term Unemployment Calls for Aggressive Policy Response - The problem of long-term U.S. unemployment may become increasingly entrenched if it is not soon addressed with policies directly targeting those without a job for six months of more, according to a new study by economist Alan Krueger, former chairman of Obama’s Council of Economic Advisers. In the paper, Mr. Krueger argues the long-term jobless have literally lost their connection to the job market and overall economic activity, and must be brought back into the fold or risk finding future employment even more difficult. “Even in good times, the long-term unemployed are often on the margins of the labor market, with diminished employment prospects and relatively high labor force withdrawal rates,” The unemployment rate has been falling gradually in recent months, to 6.7% in February. But the long-term jobless outlook, which has been highlighted by Federal Reserve Chairwoman Janet Yellen as a key concern, hasn’t improved very much. The number of long-term unemployed increased by 203,000 in February to 3.8 million people, according to the latest Labor Department figures. So what is to be done? Mr. Krueger isn’t specific about which fiscal or monetary policies might be appropriate for the current environment. But he does offer the broad contours of a policy framework, and calling for fairly aggressive measures to address a job market that most economists recognize remains far from normal.“The most important policy challenges involve designing effective interventions to prevent the long-term unemployed from receding into the margins of the labor market or withdrawing from the labor force altogether, and supporting those who have left the labor force to engage in productive activities,”

Unemployed? You Might Never Work Again - The long-term unemployed “are an unlucky subset of the unemployed.” They tend to be a little older, a little more educated, a little less white – but really they’re not that different from the broader pool of people who have lost jobs in recent years. Except for one thing: There is a good chance they’ll never work again. These are the sobering conclusions of a new paper by three Princeton University economists including Alan B. Krueger, the former chairman of President Obama’s Council of Economic Advisors.  The paper, presented Thursday at the Brookings Panel on Economic Activity, is part of a growing body of research showing that the prospects of people who lose jobs deteriorate rapidly unless they find new jobs quickly.   This has important, but opposite, implications for monetary and fiscal policymakers. It suggests the Federal Reserve has limited power to reduce long-term unemployment without tolerating higher inflation, which Professor Kreuger and his colleagues argue is affected primarily by the level of short-term unemployment. At the same time, it suggests that legislators acting with greater force and urgency could help people whose hopes are slipping away.“Overcoming the obstacles that prevent many of the long-term unemployed from finding gainful employment, even in good times,” they wrote, “will likely require a concerted effort by policy makers, social organizations, communities and families, in addition to appropriate monetary policy.” The basic argument made by the new paper, and others like it, is that the long-standing relationship between movements in inflation and unemployment, which appeared to break down during the Great Recession and its aftermath, can be restored by writing off long-term unemployment. The Phillips curve, a description of this relationship, predicted a decline of one percentage point per year between 2009 and 2013. The actual average was just 0.2 percentage points.

Long-Term Unemployed Face 1 in 10 Odds of Getting Hired Each Year - A new Princeton study reveals that 1 in 10 people who have been unemployed for six months or longer are hired annually, which underscores the struggles of those seeking to re-enter the job market after being laid offOnly one in 10 long-term people who have been unemployed for six months or more are hired every year, according to a Princeton study that affirms the bleak outlook for many long-term job seekers.With the unemployment rate near five-year lows amid a post-recession recovery, the long-term unemployed are still struggling to find jobs. Even in regions with the strongest job markets, the rate of hiring for the long-term jobless is no better.Alan Krueger, lead researcher and a former chief White House economic advisor, told CNBC that long-term job seekers are prone to becoming discouraged and putting less effort into finding a job. Meanwhile, employers can be skeptical of potential hires who have not worked for six months.“A concerted effort will be needed to raise the employment prospects of the long-term unemployed, especially as they are likely to withdraw from the job market at an increasing rate,” Kreuger wrote in the paper.

Are the Long-Term Unemployed on the Margins of the Labor Market? -- There is new Brookings research by Alan B. Krueger, Judd Cramer, and David Cho: The short-term unemployment rate is a much stronger predictor of inflation and real wage growth than the overall unemployment rate in the U.S. Even in good times, the long-term unemployed are on the margins of the labor market, with diminished job prospects and high labor force withdrawal rates, and as a result they exert little pressure on wage growth or inflation. Consistent with my earlier views, this work is suggesting that many of the long-term unemployed are/have become an economically segmented group.  This is noteworthy too, as it implies the problem is not merely initial discrimination: …even after finding another job, reemployment does not fully reset the clock for the long-term unemployed, who are frequently jobless again soon after they gain reemployment: only 11 percent of those who were long-term unemployed in a given month returned to steady, full-time employment a year later. I would consider that evidence for a notion of zero marginal product workers.  Furthermore, in my view (I am not speaking for the authors here), right now further inflation is as likely to harm as to help these individuals.  To ask whether the Fed “should give up” on the long-term unemployed is a biased framing which is more likely to mislead us than anything else. There is a good piece up at 538:

The Tyranny of the On-Call Schedule: Hourly Injustice in Retail Labor --  Instead of assembling at the waterfront, the less visible mill of workers staffing its bustling boutiques and vendors call the manager to find out how many hours they can get on a given day—stressing about whether they’ll clock enough hours this month to make rent, or hoping their next workday doesn’t interfere with their school schedule or doctor’s appointment. This anxiety of living not just paycheck to paycheck but hour to hour is the focus of a new policy brief on the impact of unfair schedules on wage workers. The report, published by the progressive think tank Center for Law and Social Policy and the worker-advocacy groups Retail Action Project (RAP) and Women Employed, reveals the flipside of the “flexibility” and “dynamism” of twenty-first-century retail: the tyranny of the daily schedule. On top of the economic hardships of working a part-time job that does not pay living wage, retail workers are often further burdened by the stress of the on-call schedule: They have to call in first to see if hours are available, wait for word from the boss and, sometimes, end up with just a four-hour shift. The labor of the whole ordeal might then be offset by the financial costs of commuting and the disruption of their entire day. Ironically, while this scheduling structure brings chaos to workers’ lives, it stems from a hyper-mechanized system of computerized staffing configuration. Under huge employers like Walmart and Jamba Juice, this Tayloristically efficient programming often leaves workers at the mercy of variables like the weather (a hot day demands reinforcements for a lunchtime juice rush) or consumer whims (a slump in sales means temporarily downsizing sales-floor staff). Even full-time workers might get saddled with erratic shifts, or are pressured to work extra hours on short notice.

Real Median Household Income Is About $4,500 Off Its 2008 High -  The Sentier Research monthly median household income data series is now available for January. Nominal median household incomes were up $164 month-over-month and up $1,009 year-over-year. However, adjusted for inflation, they were up only $88 MoM and $204 YoY, a fractional 0.4 annual percent change. The real median is up only 2.6% since its post-recession trough set in August of 2011, now 29 months later. In real dollar terms, the median annual income is 7.9% lower (about $4,500) than its interim high in January 2008. The first chart below is an overlay of the nominal values and real monthly values chained in January 2014 dollars. The red line illustrates the history of nominal median household, and the blue line shows the real (inflation-adjusted value). I've added callouts to show specific nominal and real monthly values for January 2000 start date and the peak and post-peak troughs.In the latest press release, Sentier Research spokesman Gordon Green summarizes the recent data. Since August 2011, the low-point in our household income series, we have seen some improvement in the level of real median annual household income. While the trend in household income since August 2011 has been uneven, on balance we have seen an upward movement of 2.6 percent since August 2011. We still have a significant amount of ground to make up to get back to where we were before, but at least we have shown some improvement since the low point.

Real Weekly Pay Is Looking Weakly - According to Labor Department data out Tuesday, real weekly pay fell in December and has stayed down in the following two months. One reason for the drop was a decline in real hourly pay back in December when the nominal pay raises couldn’t keep up with inflation. But another drag on pay has been the decline in the workweek, caused in part by weather-related plant closings and traffic disruptions. The February workweek shrank to the shortest reading since January 2011, another month that experienced extreme winter weather. With about 60% of the U.S. workforce paid hourly, the loss of work time is a drag on personal income, offsetting the lift coming from job growth. The good news: expect the workweek to return to more normal times in coming months. Overtime may also increase as businesses try to make up for production time lost in the snow.

Real Wages below Peak for 41st Straight Year - Remember the Economic Report of the President? It's where we get our annual data on real wages (and apparently some other stuff, too). The 2014 edition was released on March 10. As you may recall, I made my first post on the declining real wage trend through 2011 and was literally the first person to notice 2012's further slight decline. The good news is that, in what is now Table B-15 rather than B-47, real wages advanced somewhat in 2013, from $294.31 per week (in 1982-84 dollars) to $295.51, an increase of 0.4%. Woo hoo!  The bad news, of course, is that this is still 13.5% off the peak real weekly wage of $341.73, achieved in 1972. One swallow doesn't make a spring, and all that.  Interestingly, last week Paul Krugman felt compelled to argue that real wages aren't going up all that fast, but so what if they did? He said that basically, this was something primarily only visible in the real hourly (my emphasis) wages of production and non-supervisory workers, which happens to be one of the components of Table B-15. However, he was reporting based on the Bureau of Labor Statistics' monthly reporting of this stat. As he puts it, the folks he is criticizing are saying that "a dangerous acceleration in the pace of wage increases is already underway. Time to raise interest rates!" His response to them is fine as far as it goes, but he misses that even on the terrain of the supposedly most rapidly increasing measure, there is no there there.

The Cost of Comp Plans - The typical comp plan—and most software companies conform pretty closely to the same model—is a weird animal, probably not what you would come up with were you designing it from scratch. Salespeople get a percentage of each sale, but that percentage rises with their cumulative sales: some relatively low percentage until they reach some predetermined “quota” (within the comp plan, the biggest source of resentment), then a higher percentage, and then much higher percentages as their sales increase beyond quota. Quota may be set for a quarter or for the year. The system is often engineered so that a salesperson who exactly reaches quota will be paid some predetermined “target total compensation” in the upper-middle class range; this means that the salesperson who doubles or triples his quota will make far, far more.  For whatever reason, the conventional wisdom is that salespeople are motivated entirely by their personal compensation—as opposed to most people in most other jobs, like the engineer who will work nights and weekends knowing that, at most, it will earn him a few extra percentage points in his next annual raise. The economist looking at this plan would immediately realize that this creates the incentive to time the closing of deals so that they fall in the period where they will result in the highest commission. All things being equal, it’s better to land four deals in one quarter than one each in four quarters. The salesperson looking at this plan realizes the same thing.

The "Paid-What-You're-Worth" Myth - Robert Reich - It’s often assumed that people are paid what they’re worth. According to this logic, minimum wage workers aren’t worth more than the $7.25 an hour they now receive. If they were worth more, they’d earn more. Any attempt to force employers to pay them more will only kill jobs.  According to this same logic, CEOs of big companies are worth their giant compensation packages, now averaging 300 times pay of the typical American worker. They must be worth it or they wouldn’t be paid this much. Any attempt to limit their pay is fruitless because their pay will only take some other form.  "Paid-what-you’re-worth" is a dangerous myth.   Fifty years ago, when General Motors was the largest employer in America, the typical GM worker got paid $35 an hour in today’s dollars. Today, America’s largest employer is Walmart, and the typical Walmart workers earns $8.80 an hour.  Does this mean the typical GM employee a half-century ago was worth four times what today’s typical Walmart employee is worth? Not at all. Yes, that GM worker helped produce cars rather than retail sales. But he wasn’t much better educated or even that much more productive. He often hadn’t graduated from high school. And he worked on a slow-moving assembly line. Today’s Walmart worker is surrounded by digital gadgets — mobile inventory controls, instant checkout devices, retail search engines — making him or her quite productive.

The Wages of Men - Paul Krugman - For reference: Here are changes in hourly real wages of men, 1973-2012, at different percentiles of the wage distribution, calculated from Census data by the Economic Policy Institute. As you can see, wages have fallen for 60 percent of men.  I was curious to see how the House Budget Committee report on poverty deals with this fact, which surely plays some role in the persistence of poverty despite government efforts. The answer is, it never so much as mentions falling real wages.

McDonald's Accused of 'Widespread Wage Theft' Across the Country - Several lawsuits across three states have put fast food giant McDonald's against the ropes over widespread claims of wage theft. The plaintiffs are looking to form class-action lawsuits that could incorporate over 30,000 employees. They claim that their employers at McDonald's locations—which include corporate owned stores and franchises in California, Michigan and New York—systematically cut workers' pay through practices such as tampering with time-sheets, withholding overtime pay, docking pay for uniforms, forcing workers to clock out while working during non-busy store hours, and barring workers from taking breaks. The seven separate lawsuits "have been filed to stop this widespread wage theft,” said Joseph Sellers, one of the attorneys for the workers, in a conference call with reporters. “They highlight a broad array of unlawful pay practices, which together reflect ways in which McDonald’s has withheld pay from its low-paid workers in order to enrich the corporation and its shareholders.” "They were requiring employees to perform work that was simply never paid," said Sellers. "Our clients are among the most economically vulnerable in our society, and they work for a company that generated more than $28 billion in revenue last year and earned more than $5 billion in profits." The fast food industry has come under increased scrutiny throughout the year from a growing movement of labor unions and non-union employees, who say the industry needs to start paying workers above poverty wages.

Journalists’ and activists’ strange approach to low-wage workers - The left wants to raise the minimum wage, which is a good start, and perhaps even endorses fast-food workers’ demand for a union. But too often we — and I do mean to include myself here — erase the agency of the workers, debate whether they’re really demanding these things of their own volition, talk about them as though they are easily manipulated children rather than adults making a decision. We, too, talk about them as though they are not us.  Americans are mostly disconnected from the labor movement — only 6.7 percent of private sector workers are part of a union — and that means we’ve become disconnected from the idea of solidarity. Instead, we have an ill-defined feeling that we should do something for those worse off than ourselves, something that often turns into a pity-charity complex. Rebuilding the social safety net is a good start, but something more powerful would be a real understanding that we’re all in this together.  I heard that understanding in the voice of Alex Shalom, another low-wage worker who stood up for himself and his co-workers against his boss — this time, his boss at Bank of America.  The perceived class difference between a bank worker in a suit and a fast-food worker in a logo baseball cap evaporates when the rent comes due, and many of us know what it’s like to do the math of monthly bills and find you’re coming up short.  We need a movement that makes us feel strong — all of us, whether we work at Burger King or Bank of America or an automobile plant or in journalism. That means not just focusing on the poverty but also the power in the voices of a group of workers on the street outside the Wendy’s where one of their colleagues was just fired for organizing.  Too often, people derive something that feels like strength from remembering that someone else has it worse. But that’s temporary, and real strength comes from all of us being strong together.

Living paycheck to paycheck: It’s not just for the poor -- When you hear the term "paycheck to paycheck" you probably think of low-income households struggling to make ends meet. That's even the title of a new HBO documentary highlighting the plight of America's working poor. But a new paper released at the Brookings Institution's BPEA conference Friday finds that a sizeable number of wealthy households are living paycheck to paycheck, too. "The Wealthy Hand-to-Mouth," by economists at Princeton and New York University, finds that roughly one-third of American households -- 38 million of them -- are living a paycheck-to-paycheck existence. These are families who hold little to no liquid wealth from cash, savings or checking accounts. But a staggering two-thirds of these households are not actually poor; while they resemble poor families in their lack of liquid wealth, they own substantial holdings ($50,000, on average) in illiquid assets. Because this money is locked up in things like their houses, cars and retirement accounts, they can't easily dip into it when times get tough. Demographically speaking, the wealthy hand-to-mouth are older, more educated and have substantially higher incomes than their poor counterparts. Perhaps the most striking difference is that while the poor hand-to-mouth tend to stay that way for long periods of time, wealthy-hand-to-mouth status is transient, lasting an average of only 2½ years.

Income Gap, Meet the Longevity Gap - Fairfax is a place of the haves, and McDowell of the have-nots. Just outside of Washington, fat government contracts and a growing technology sector buoy the median household income in Fairfax County up to $107,000, one of the highest in the nation. McDowell, with the decline of coal, has little in the way of industry. Unemployment is high. Drug abuse is rampant. Median household income is about one-fifth that of Fairfax. One of the starkest consequences of that divide is seen in the life expectancies of the people there. Residents of Fairfax County are among the longest-lived in the country: Men have an average life expectancy of 82 years and women, 85, about the same as in Sweden. In McDowell, the averages are 64 and 73, about the same as in Iraq.In McDowell, women’s life expectancy has actually fallen by two years since 1985; it grew five years in Fairfax.“Poverty not only diminishes a person’s life chances, it steals years from one’s life.” That reality is playing out across the country. For the upper half of the income spectrum, men who reach the age of 65 are living about six years longer than they did in the late 1970s. Men in the lower half are living just 1.3 years longer.

Don’t Prosper and Die Early -  Paul Krugman - I was pleased to see this article by Annie Lowrey documenting the growing disparity in life expectancy between the haves and the have-nots. It’s kind of frustrating, however, that this is apparently coming as news not just to many readers but to many policymakers and pundits. Many of us have been trying for years to get this point across — to point out that when people call for raising the Social Security and Medicare ages, they’re basically saying that janitors must keep working because corporate lawyers are living longer. Yet it never seems to sink in. Maybe this article will change that. But my guess is that in a week or two we will once again hear a supposed wise man saying that we need to raise the retirement age to 67 because of higher life expectancy, unaware that (a) life expectancy hasn’t risen much for half of workers (b) we’ve already raised the retirement age to 67.

Low-Wage Workers Finding It’s Easier to Fall Into Poverty, and Harder to Get Out - Having worked as a nurse’s aide for 15 years, Ms. McCurdy has been among the nearly 25 million workers in the United States who make less than $10.10 an hour — the amount to which President Obama supports increasing the minimum wage. Of those workers, 3.5 million make the $7.25 federal minimum wage or less. And like many of them, Ms. McCurdy hasn’t been able to rely on steady full-time hours — she has often been assigned just 20 hours a week. Even if she worked full time year-round, her $9 hourly wage would put her below the poverty threshold of $19,530 for a family of three. Climbing above the poverty line has become more daunting in recent years, as the composition of the nation’s low-wage work force has been transformed by the Great Recession, shifting demographics and other factors. More than half of those who make $9 or less an hour are 25 or older, while the proportion who are teenagers has declined to just 17 percent from 28 percent in 2000, after adjusting for inflation, according to Janelle Jones and John Schmitt of the Center for Economic Policy Research. Today’s low-wage workers are also more educated, with 41 percent having at least some college, up from 29 percent in 2000. “Minimum-wage and low-wage workers are older and more educated than 10 or 20 years ago, yet they’re making wages below where they were 10 or 20 years ago after inflation,” said Mr. Schmitt, senior economist at the research center. “If you look back several decades, workers near the minimum wage were more likely to be teenagers — that’s the stereotype people had. It’s definitely not accurate anymore.” Continue reading the main story

U.S. Income Disparity Hits Highest Level Since 1920s Britain: In today's U.S. economy, we have a very small portion of the population earning most of the total income generated by the economy, while the majority of people suffer, as their incomes have failed to rise at the pace of the rich. According to a study by the Paris School of Economics, the richest 0.1% of Americans takes home nine percent of the U.S. national income. The bottom 90%, which is pretty much everyone else, earns just 50% of the national income. Income inequality in the U.S. economy is worse now than it was during the 1920s in Great Britain. Aside from income inequality, the other big problem with the U.S. economy is that the majority of Americans simply don't have liquid wealth. Liquid wealth is assets that can be quickly converted into cash if needed (a home is not considered liquid). According to Phoenix Marketing International, 25% of U.S. households hold about 75% of the liquid wealth in the U.S. economy. The middle class, who should be the backbone of the American economy, well, they have all but disappeared.Consider that in December of 2013, 22.7 million households in the U.S. economy used food stamps. Not long before then, in 2010, that number was 20.6 million households. For economic growth, you need personal incomes rising at all levels. When the average Joe feels better about his income, he goes out and spends. This creates economic prosperity, as companies have to produce more because they are selling more. Thus, these companies are hiring more people, investing in new projects, and stimulating the U.S. economy -- three things that are not happening right now.

Minimum-Wage Increase Could Slow Future Hiring, Employment Survey Shows - Just over half of U.S. businesses that pay the minimum wage would hire fewer workers if the federal standard is raised to $10.10 per hour, according to a survey by a large staffing firm to be released Wednesday. But the same poll found a majority of those companies would not cut their current workforce. About two-thirds of employers paying the minimum wage said they would raise prices for goods or services in response to an increase, the survey by Express Employment Professionals found. About 54% of minimum-wage employers would reduce hiring if the federally mandated rate increased by $2.85 per hour. A smaller share—38% — said they would lay off employees if the wage increase favored by President Barack Obama becomes law. The poll, designed to gauge businesses’ reaction to the wage increase, marks the latest effort by businesses and groups on both sides of the issue to shape a heated debate about whether increasing pay for workers at the bottom will help or hurt the U.S. economy. A report from the nonpartisan Congressional Budget Office, released last month, found a jump to $10.10 per hour would cost the U.S. about 500,000 jobs by the second half of 2016. But the study said the increase would also lift 900,000 Americans out of poverty by boosting incomes for the working poor. The CBO study reviewed the work of a range of economists. The staffing firm’s survey of about 1,200 companies, conducted last month, found that a wage increase would alter hiring plans for a sizable share of all employers including those that don’t have minimum-wage workers. Among all businesses polled, 19% said they would let employees go as a result of the wage increase and 39% said future hiring would be reduced.

There's More to Fixing the Minimum Wage Than Just Raising It -- Support for a minimum wage increase is running high. What’s more is that there is strong support to tie the minimum wage to inflation, which is good news. Inflation has slowly chipped away at the value of the minimum wage since the late 1960s, so tying the minimum wage to inflation will ensure that its real value is kept constant. Tying the minimum wage to inflation has another advantage. Currently, the minimum wage is increased sporadically and rarely, resulting in larger increases that are more harmful to employment. By tying the minimum wage to inflation, increases are smaller, regular, and predictable, and therefore less harmful. However, tying the minimum wage directly to inflation is a bit crude. It means the minimum wage will increase every year by at least 1-2% (approximately the same rate as inflation). There are at least two situations where this could be problematic. The first is that during a recession, businesses would have to deal not only with decreasing demand and poor economic conditions, but also a rising wage. A minimum wage increase along with a recession would hurt employment above and beyond that of just a recession. On the other hand, during good times the minimum wage would still only increase by 1-2%, whereas the economy may very well be able to absorb a larger increase. How can we design the minimum wage so that inflation doesn’t chip away at its value over time, while still giving it enough flexibility in increases to accommodate current economic conditions? The best way would be to tie the minimum wage to inflation over the business cycle instead of on an annual basis. The idea is that the minimum wage would increase during booms and would stay constant or may even decrease during busts. Over the course of a business cycle, the increases would offset the decreases enough so that the minimum wage would keep up with total inflation during that cycle.

Why Not Peg EITC Benefits to the Local Cost of Living? -- It's no secret that the cost of living varies widely across different parts of the United States, and that it can be much tougher to make ends meet on a low wage job in Manhattan, New York than in Manhattan, Kansas. So here's an obvious idea: Let's improve the Earned Income Tax Credit so that its benefits track with local needs. With President Obama proposing an increase to the EITC in his new budget, now's a good moment to look at ways this crucial lifeline for low-income households could work better. There is a huge amount of data on cost-of-living by geographic location, and what it takes for an individual or family to meet basic needs in different places. The Economic Policy Institute has crunched the numbers to show that it can literally cost twice as much to stay afloat in an affluent area like Long Island compared to, say, upstate New York. (EPI even has a handy online calculator to estimate family budget needs in 615 different areas of the U.S.) Yet right now, workers get the exact same EITC no matter where they live. That doesn't make much sense. An alternative way of doing thing is not hard to imagine, and could operate simply. Drawing on its own data, the federal government could create variable EITC levels by geographic area so when low-wage workers file their taxes, their EITC would be based on the zip code of the tax return. If you live in a high-cost area, you get more; live in a low-cost area, you get less.

IMF study finds inequality is damaging to economic growth - The International Monetary Fund has backed economists who argue that inequality is a drag on growth in a discussion paper that has also dismissed rightwing theories that efforts to redistribute incomes are self-defeating.The Washington-based organisation, which advises governments on sustainable growth, said countries with high levels of inequality suffered lower growth than nations that distributed incomes more evenly. Backing analysis by the Keynesian economist and Nobel prizewinner Joseph Stiglitz, it warned that inequality can also make growth more volatile and create the unstable conditions for a sudden slowdown in GDP growth.And in what is likely to be viewed as its most controversial conclusion, the IMF said analysis of various efforts to redistribute incomes showed they had a neutral effect on GDP growth. This last point is expected to dismay rightwing politicians who argue that overcoming inequality robs the rich of incentives to invest and the poor of incentives to work and is counter-productive.

IMF Urges Redistribution To Tackle Growing Inequality - The IMF, arguably the world’s premiere financial institution, is stating unequivocally that income inequality “tends to reduce the pace and durability” of economic growth. In a paper released Thursday, the fund also suggests that a spectrum of approaches to “progressive” redistribution – national tax and spending policies that are purposefully tilted in favour of the poor – would decrease inequality and hence “is overall pro-growth”. “This is the final judgment on inequality being  bad for growth,” Nicolas Mombrial, a spokesperson for Oxfam, a humanitarian group, told IPS in a statement. “The IMF’s evidence is clear: The solutions to fighting inequality are investing in health care and education, and progressive taxation. Austerity policies do the opposite, they worsen inequality … We hope this signals a long-term change in IMF policy advice to countries – to invest in health and education and more progressive fiscal policies.”

The Chartbook of Economic Inequality - INET - The long ignored issue of inequality is now center stage in the global debate about economic policy. The collapse of the global financial system in 2007 and 2008 and resulting economic downturn and debt crises have acted as a catalyst for growing anxiety around the increasing dispersion of incomes within most advanced economies. In short, we are not “all in it together.” The acute loss of job prospects, especially among the young, the credit crunch, and the austerity measures implemented by governments to contain the sovereign debt crisis have all put an extra burden on the shoulders of the lower and middle classes. Public discourse has started to openly debate the economic implications, as well as the legitimacy, of increasingly powerful elites seizing a growing share of the national pie year after year. These concerns led Christine Lagarde, the Managing Director of the International Monetary Fund, to point to the need for “addressing inequality and building inclusive growth” as one of three “milestones” of the future global economy. To make sense of these concerns and offer advice on policy, we need hard evidence about the extent of economic inequality, about how it is changing, and about how it compares across nations. Interestingly, researchers and scholars have also begun to single out inequality as one of the structural causes of the recent financial crisis. This has led us to compile the Chartbook of Economic Inequality. This project presents a summary of evidence regarding the long-run changes in economic inequality for 25 countries over more than 100 years. The countries selected represent more than a third of the world’s population: Argentina, Brazil, Australia, Canada, Finland, France, Germany, Iceland, India, Indonesia, Italy, Japan, Malaysia, Mauritius, Netherlands, New Zealand, Norway, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland, the U.K. and the U.S. So what do we mean by inequality? Inequality of what and among whom?

Capital Ownership and Inequality - Lots of interesting and thought-provoking reactions to our post yesterday on how the gains in U.S. productivity are shared. One aspect of the debate that is often over-looked is the concentration of financial asset holdings in the U.S. economy. Who owns financial assets such as stocks and bonds in corporations tells us who has a direct claim to the income generated by capital. Here is the distribution of financial asset holdings across the wealth distribution. This is from the 2010 Survey of Consumer Finances:  The top 20% of the wealth distribution holds over 85% of the financial assets in the economy. So it is clear that the direct income from capital goes to the wealthiest American households. For more evidence on this pattern through history, see the working paper by Edward Wolff. He shows that the share of financial assets held by the top 20% of the wealth distribution has been increasing since 1983. Now, workers that have no financial asset holdings may still have an indirect claim on the income produced by capital in the economy–for example, if the government taxes the income earned by capital and then redistributes it to workers that own no capital, workers have a claim on capital income through the government. There is also the question of incorporating housing wealth in the graph above. How should we think about housing which is more broadly held? But it’s important to have the basic facts established to begin the debate. If you think the above chart is misleading or incorrect in some way, we are happy to hear why.

Income inequality isn’t about the rich — it’s about the rest of us. -  Catherine Rampell - Yes, anti-inequality rhetoric has grown in recent years. But it’s not the growing wealth of the wealthy that Americans are angry about, at least not in isolation. It’s the growing wealth of the wealthy set against the stagnation or deterioration of living standards for everyone else. Polls show that Americans pretty much always want income to be distributed more equitably than it currently is, but they’re more willing to tolerate inequality if they are still plugging ahead. That is, they care less about Lloyd Blankfein's gigantic bonus if they got even a tiny raise this year. Unequivocally, the rich have gotten richer over time, and income has become more concentrated within a tighter tier of Americans. In the 1970s, the top 1 percent of families received about 8 percent of all income, whereas their share is nearly 20 percent today. Americans’ concerns about inequality, however, don’t closely track these changes in inequality. The General Social Survey, for example, has asked Americans about attitudes toward the income distribution for almost 30 years. Peculiarly, it shows Americans were most critical of income inequality during the early and mid-1990s, when incomes were far less concentrated than they became in later years. Remember, though, that a jobless recovery was also strangling the middle class during that time.

Who will Save Us from Inequality?  -- "Paul Krugman won't save us," writes Thomas Frank.  Frank is referring to economic inequality--in his opinion a "needlessly clinical" phrase and "a pleasant-sounding euphemism for the Appalachification of our world." Inequality, he believes, has gotten into the wrong hands: "Who is called upon to speak on the subject [of inequality] today? Why, academics, of course. 'Inequality' is a matter for experts, a field for the playful jousting of rival economists, backed up by helpful professors of political science, and with maybe an occasional sociologist permitted into the games now and then... The discovery of inequality has also compelled our leadership class to establish things like the Washington Center for Equitable Growth, which boasts a steering committee made up of six economists plus one Democratic foundation/policy type....But to look at its website, it’s just another platform for the trademark blog styling of the well-known economist Brad DeLong." Our ancestors, notes Frank, referred not to "inequality" but to "the social question." And they treated the question not with the "wonkery" and endless charts of today, but with wide and deep conviction"'Inequality' is not some minor technical glitch for the experts to solve; this is the Big One. This is the very substance of American populism; this is what has brought together movements of average people throughout our history. Offering instruction on the subject in a classroom at Berkeley may be enlightening for the kids in attendance but it is fundamentally the wrong way to take on the problem...We owe the economists thanks for making the situation plain, but now matters must of necessity pass into other hands."

Has Food Stamp Enrollment Finally Peaked? -- After years of increases that defied the roaring stock market of 2013 and the slowly falling unemployment rate, the number of Americans receiving food stamps appears to be easing. Somewhat. Very, very slowly. The U.S. Department of Agriculture, which administers the Supplemental Nutrition Assistance Program, reported that 46.8 million Americans received SNAP benefits in December. That is a lot of people, but it’s also the lowest number of Americans to receive benefits since June 2012. The December 2013 figure was down 1 million people from December 2012.The USDA also reported that 22.8 million households received SNAP benefits in December, which is the lowest number since August 2012. And the $5.8 billion in SNAP benefits that was paid out in December was the lowest number since November 2010.  SNAP data can bounce around, and it’s unclear whether the number of people receiving benefits will continue to fall. The December figures don’t take into account changes that were made in February when Congress passed a farm bill that included new limits on who can receive food stamps. Also, as more and more Americans return to work and earn more money, the number of people receiving these benefits is expected to fall, though many thought total enrollment would fall more quickly than it has.

There’s No Substitute for the Government - Mike Konczal wrote an excellent article for Democracy about the problems with a voluntary safety net and the superiority of government social insurance. The article draws on serious historical research (by other people) to prove two main points: first, there never was a Golden Age of purely voluntary charity; second, and more important, what charitable support mechanisms existed were not up to the challenges of the Second Industrial Revolution of the late nineteenth century and completely collapsed with the onset of the Great Depression.  This shouldn’t come as a surprise. There are basic economic reasons why public social insurance is superior to voluntary charity. The goal here is to protect people against risk: of unemployment, of health emergency, of outliving one’s savings, and so on. For a risk-mitigation scheme to work, there are a few things that are necessary. One is that people actually be covered. This is something you can never have with a private system (unless it’s regulated to the point of being essentially public), since charities get to pick and choose whom they want to help. As Konczal says of private agencies before the Depression,“They were also concerned they’d lose their ability to stigmatize—or to protect—various populations; by playing a role in determining who wasn’t deserving of assistance, they could shield those they felt worthy of their support.”

That Old-Time Whistle, by Paul Krugman --Paul Ryan, chairman of the House Budget Committee and the G.O.P.’s de facto intellectual leader attributed persistent poverty to a “culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working.” He was, he says, simply being “inarticulate.” How could anyone suggest that it was a racial dog-whistle? Why, he even cited the work of serious scholars — people like Charles Murray, most famous for arguing that blacks are genetically inferior to whites. Oh, wait. Just to be clear, there’s no evidence that Mr. Ryan is personally a racist, and his dog-whistle may not even have been deliberate. But it doesn’t matter. He said what he said because that’s the kind of thing conservatives say to each other all the time. And why do they say such things? Because American conservatism is still, after all these years, largely driven by claims that liberals are taking away your hard-earned money and giving it to Those People. Indeed, race is the Rosetta Stone that makes sense of many otherwise incomprehensible aspects of U.S. politics. ...One odd consequence of our still-racialized politics is that conservatives are still, in effect, mobilizing against the bums on welfare even though both the bums and the welfare are long gone or never existed. Mr. Santelli’s fury was directed against mortgage relief that never actually happened. Right-wingers rage against tales of food stamp abuse that almost always turn out to be false or at least greatly exaggerated. And Mr. Ryan’s black-men-don’t-want-to-work theory of poverty is decades out of date.

In City's Job Growth, Faces of the Working Poor -  The good news is that New York City now has 237,000 more jobs than it had before the recession. The bad news is the growing number of them that are low-wage jobs, said Jonathan Bowles, the executive director of the Center for an Urban Future. He said the number of New Yorkers who work in jobs that pay less than $28,000 a year increased from 31 percent to 35 percent in the last five years. “This is a time when New York was creating a good number of jobs,” Bowles said. “But a lot of the job growth was in fields like restaurants, healthcare, hospitality. Jobs that pay fairly low wages.” And fields like retail, where O’Kieffe works. Her family is one of 3,000 that live in homeless shelters even though at least one member works. O’Kieffe says she usually ends up with around $900 a month. That makes a major expense such as rent seem impossible. At times, even daily necessities are out of reach. “There are things that my daughter needs, like diapers, and I can’t even get it for her this week because I don’t have enough money,” she said.

The Town That Turned Poverty Into a Prison Sentence - Ford left the parking lot with tickets for no proof of insurance and driving without a license, which would come to $745 with court costs. She didn’t know it yet, but they would also cause her to spend years cycling through court, jail and the offices of a private probation company called Judicial Correction Services. JCS had contracted with the town of Harpersville several years earlier to help collect on court fines, and also to earn a little something extra for itself. It did this by charging probationers like Ford a monthly fee (typically between $35 and $45) while tacking on additional fees for court-mandated classes and electronic monitoring.  Ford tried to meet her mounting debt to Harpersville, but as the months passed and the fees added up, she fell behind and stopped paying. In June 2007, the company sent a letter telling her to pay $145 immediately or face jail. But the letter was returned as undeliverable—a fact that did not stop the Harpersville Municipal Court from issuing a warrant for her arrest. Almost two years later, in January 2009, Ford was arrested on that outstanding warrant and promptly booked in the county jail—where, to offset costs, the town charged her $31 a day for her stay.

Hunger crisis: Charities are strained as nearly 1 in 5 New Yorkers depend on aid for food - It's a quiet crisis. In a city of plenty, a staggering number of people are struggling to feed themselves and their families. Nearly one in five New Yorkers, 1.4 million people, now rely on a patchwork network of 1,000 food pantries and soup kitchens across the city to eat. That represents an increase of 200,000 people in five years — straining the charities that are trying to help. The two biggest, City Harvest and the Food Bank for New York City, now provide nearly 110 million pounds of food to soup kitchens and food pantries a year. Yet those working on the front lines of the hunger crisis say it’s still not enough. “It’s an astounding surge in need, and it’s because it is so hard for people to find jobs, or find a decent-paying job. They are turning to us for emergency help,” said Msgr. Kevin Sullivan, 63, executive director of 90 free food outlets run by Catholic Charities of the Archdiocese of New York. “So many people, too many people, don’t have enough money to pay for rent and also eat.”

Homeless Students On The Rise In Vermont -- A new report from the federal government shows that the number of homeless children attending school in Vermont is rising sharply. That's creating stresses in classrooms — and in families who have lost their homes. There is help available for them, both in shelters and schools, but resources are not growing as fast as the problem. One woman, the single mother of a 12 year old, takes methadone to fight a drug addiction. She says that carries a stigma so she asks that we not name her or her daughter. She tells her daughter she knows life has been tough for her. “You can’t tell your friends what you did this summer, you know, 'cause I went to jail and you went to the shelter. You can’t have your friends come over 'cause we live in a shelter. You know, I think a lot of that comes with embarrassment, am I correct?” she says. "You can't tell your friends what you did this summer, you know, because I went to jail and you went to the shelter. You can't have your friends come over, because we live in a shelter."  Her daughter nods silently, then says most of her classmates have no idea where she lives. She’s a good student, and says she will not experiment with drugs, as her mother did.

Homelessness on Rise Among Long Island Students - Homelessness among Long Island students has more than tripled since the start of the recession, according to New York state education department data. State education department officials confirmed that Long Island had more than 8,000 homeless students during the 2012-13 school year, up from about 2,600 during 2007-08. Long Island has the most homeless students of any New York community outside of New York City. Economic struggles and home foreclosures linked to the recession and Sandy are cited as the causes for the jump in student homelessness. “Some of the places where we tutor, they don’t have electricity,”  “They don’t even have a light bulb where we can sit a tutor to read with them and do their homework. The problem is a lot more widespread than people understand.”  The William Floyd school district in Suffolk County has more than 500 homeless students. Many of them face daily stress and struggles, officials acknowledge. Some are housed temporarily in shelters outside the district and endure lengthy bus rides to class every day. Some have limited or no access to the technology needed to keep up in the classroom. Others don’t even eat regular meals.

 New York City Lawmaker Wants To Give Free Lunches To All Students  Last week, New York City Public Advocate Letitia James announced a plan to give all students in the city’s public schools free lunches, regardless of need, Gothamist reports. Her office estimates that 250,000 students are eligible for the program but aren’t participating, likely because of the bureaucracy of enrolling as well as the stigma associated with receiving free or reduced-price lunches. Making the meals available to all lifts the hurdles of stigma and paperwork. “Every child should be guaranteed access to healthy food during the school day,” James said at a press conference. “we need to unlink school food to family income to make this program accessible to children citywide.” It would cost the city $20 million to implement her plan, but the cost of the free lunches would be reimbursed by the federal government. That’s thanks to the expansion of a program from the Department of Agriculture that gives all students free breakfast and lunch, regardless of income, in high-poverty areas. It originally targeted 11 states, but as of July, it will be expanded to 22,000 schools and reach 9 million children. New York wouldn’t be the first major city to offer all students a free meal at school. Boston is serving free breakfast and lunch to all students this year to cut down on parents’ paperwork and to help those who had fallen just outside the income eligibility limits. Dallas is now doing the same and anticipates saving money from the change thanks to fewer costs associated with processing the paperwork. Chicago is also offering all students free lunch.

High school senior jailed, kicked out of school and may lose Army dream because of pocket knife in car - An Ohio high school student has already been jailed and kicked out of school for having a pocket knife in his car, and now he fears he could lose his dream of serving in the Army. Jordan Wiser, a student at Ashtabula County Technical School in Jefferson, is finishing up his senior year from home after school officials searched his car in December and found the folding knife and an Airsoft gun. School officials called police, who charged him with illegal conveyance of a weapon onto a school ground based on the three-inch knife. Wiser, an EMT trainee who hopes to become both a police officer and a soldier, spent 13 days in the Ashtabula County Jail following the incident. The knife, which Wiser said is part of his first responder's kit and can be used for slicing an accident victim's seatbelt, was found tucked inside his EMT medical vest in the trunk of the car.

Detroit schools' deficit jumps $39 million in 3 months - Five years after it fell under state control, Detroit Public Schools is still struggling to fix its finances, with its deficit ballooning $38.8 million in the past three months, to a projected $120 million.Since the state took control March 2, 2009, DPS has shrunk steadily: It lost 37,000 students, shut 100 school buildings and shed 5,000 employees. Annual budgets have been slashed by $500 million in five years. Deficits have risen and fallen; borrowing continues.DPS partly attributes the rising debt to shortfalls of $10.7 million thisyear in property tax revenue and $21 million in Title I aid.Federal Title I aid goes to schools with lots of low-income students. DPS had budgeted $130 million in Title I money for 2013-14 but now expects only $109 million. It originally expected $68.4 million in property tax revenue, but now says it will receive just $57.7 million because collection rates have fallen.In the meantime, as revenue falls short of targets, some operating costs are rising — $19 million in extra maintenance and operations spending, for example.

Ohio Republican: Sell off all the public schools to businesses to stop ‘socialism’ - An Ohio state legislator posted a blog entry denouncing the U.S. public education system as “socialism” and advocating for a marketization of American schools. Talking Points Memo reported that state Rep. Andrew Brenner (R) posted the entry to his website Brenner Brief news earlier this month.  Brenner began by quoting the Wikipedia definition of socialism: “a social and economic system characterized by social ownership of the means of production and co-operative management of the economy.”He then went on to suggest that “(p)ublic education in America is socialism” because “It is owned and cooperatively managed by the public.”

Two Economists on School Reform: We Know (A Few) Things That Work - Professors Duncan and Murnane previously have argued that the economic forces of technology and globalization are driving a wedge between winners and losers in the U.S. economy and making it tough for schools to help children from low-income families to get the skills they need to compete. Tough, they argue, but definitely not impossible. To persuade you of that, they’ve melded academic research with case studies of students, families and schools in a short, new and hopeful book, “Restoring Opportunity: The Crisis of Inequality and the Challenge for American Education,” that you don’t need a Ph.D. to understand. Indeed, they’ve even boiled it down to an infographic. The book is a refreshing antidote to those on K-12 education in which authors claim to have found the one sure solution to all that ails American higher education, or to have identified the one true villain. To make their case, the economists report – both in the book and in short videos on their website – on three exceptional programs: a Boston public school pre-K program, the University of Chicago’s K-12 charter school network and New York City’s small high schools of choice. Each has been found to be successful by state-of-the-art evaluations. What works? It’s not simple. It’s not just more money. Or more choice. Or more tests. Or more organizational innovation. None of those options has succeeded because none has focused on improving instruction in high-poverty schools and developing a successful approach for students to master critical skills, they say. Rather, they argue, the building blocks of a solution are found in (1) nurturing the Common Core curriculum standards and developing curricula and teacher training to meeting them, (2) providing consistent coaching, training and financial support to teachers and schools with lots of low-income students, (3) creating an atmosphere in which teachers and school leaders have a deep-seated responsibility to their colleagues for educating every student, (4) harnessing the latest research, such as evidence that lousy vocabularies block low-income pupils from understanding textbooks, and (5) outside of school, supporting low-income families with programs like Wisconsin’s New Hope experiment that supplemented paychecks of low-wage workers with cash, health-insurance subsidies and advice.

Where Can a Teacher Afford to Buy a Home? - A combination of rising home prices and higher interest rates has slowed the real estate market and priced some buyers out. How has this affected middle-class buyers? Redfin, the national real estate brokerage, phrases the question this way: Where can a teacher buy a home? The answer is a lot of places – just stay away from the coasts.  San Jose, in the heart of California’s Silicon Valley, is the worst place for a teacher to buy a home, according to Redfin. There, only 1% of homes are affordable, which in this case means a median-earning teacher wouldn’t have to spend more than 28% of their pre-tax income on their monthly mortgage, taxes and insurance payment. San Jose teachers are fairly well-paid, with a median salary of $71,000. But home prices are off the charts. A teacher making the median salary would max out their mortgage payment at $250,000, but the median home price is around $750,000 in the area. The same problem exists throughout coastal California. In some cities the run-up in prices has been particularly hard on teachers. Take Sacramento, where the share of properties that would be affordable to teachers has fallen in half – from 61% three years ago to 27% today.Of course, as we’ve pointed out before, homes are very affordable in most places. And so it is for teachers. In Rockford, Ill., for instance, teachers could afford about 75% of area homes. Redfin ran teacher affordability numbers for all of the markets the brokerage serves. Here are the results, in a sortable chart.

Food pantries on the rise at US college campuses: "The perception is of college students that if you are able to go to college and you have an opportunity to go to college, you're part of the haves of this country, not part of the have-nots," said Beth McGuire-Fredericks, assistant director for college housing at the Stony Brook campus on eastern Long Island and a co-founder of the pantry.  Tuition alone has become a growing burden, rising 27 percent at public colleges and 14 percent at private schools in the past five years, according to the College Board. Add in expenses for books, housing and other necessities of college life and some are left to choose between eating and learning. Also, most students enrolled in college at least half time are not eligible for food stamps. "A lot of schools are coming to the realization that this is important," said Nate Smith-Tyge, director of the Michigan State University Food Bank and co-founder of the College and University Food Bank Alliance, which represents about 50 college food banks across the country. Most of them started in the past four or five years and are run by the colleges or student groups. Smith-Tyge estimates there may be another 50 food pantries on campuses that have yet to join his organization.

Starving College Students and the Shredded Social Contract - Dozens of food pantries are “cropping up at colleges across the country in recent years as educators acknowledge the struggles many students face as the cost of getting a higher education continues to soar,” the Associated Press reported this weekend. Tuition alone, the article notes, “has become a growing burden, rising 27 percent at public colleges and 14 percent at private schools in the past five years, according to the College Board. Add in expenses for books, housing and other necessities of college life and some are left to choose between eating and learning.” College students, of course, have long been broke, and plenty members of today’s professional class nurture nostalgic memories of their ramen years. What we’re looking at here, though, isn’t picturesque slumming—it’s serious poverty. A recent paper in the Journal of Nutrition Education and Behavior, for example, found that 59 percent of students at one midsize rural university in Oregon had experienced food insecurity in the previous year, with the problem especially acute among students with jobs. “Over the last 30 years, the price of higher education has steadily outpaced inflation, cost of living, and medical expenses,” the authors wrote. “Recent changes to federal loan policies regarding the amount and duration of federal aid received as well as how soon interest will begin to accrue after college may exacerbate the financial challenges students face. Food insecurity, as a potential consequence of the increasing cost of higher education, and its likely impact on student health, learning and social outcomes should not be considered an accepted aspect of the impoverished student experience, but a major student health priority."

How Academics Learn to Write Badly - "In the late 1960s, only a minority of those working in American four-year higher educational colleges tended to publish regularly; today over sixty per cent do ... In 1969 only half of American academics in universities had published during the previous two years; by the late 1990s, the figure had risen to two-thirds, with even higher proportions in the research universities.  "Experienced academics know that teaming up with other academics can be a means to increasing their collective output and thereby the total number of papers of which they can be credited as an author. In a field such as economics,  jointly written papers were rare before the 1970s but now they are commonplace. Journal editors, as well as those who have studied academic publishing, recognize the phenomenon of `salami slicing'. Academic authors will cut their research findings thinly, so that they can maximize the number of publications they can obtain from a single piece of research. ... So, we produce our papers, as if on a relentless production line. We cannot wait for inspiration; we must maintain our output. To do our jobs successfully, we need to acquire a fundamental academic skill that the scholars of old generally did not possess; modern academics must be able to keep writing and publishing even when they have nothing to say. .... As professional academics, we must extract the small nuggets of material relevant to our our interests from the mass of stuff that is being produced. Finding what we need to read necessarily means overlooking so much else. The more that is published in our discipline, the more there is to ignore. In consequence, the sheer volume of published material will be narrowing, not widening, horizons, containing us within ever smaller, less varied sub-worlds. It is important to remember that no one designed this system. No secret meeting planned all this. But this is where we are now."

States looking at $0 community college tuition - Amid worries that U.S. youth are losing a global skills race, supporters of a no-tuition policy see expanding access to community college as way to boost educational attainment so the emerging workforces in their states look good to employers. Of course, such plans aren't free for taxpayers, and legislators in Oregon and Tennessee are deciding whether free tuition regardless of family income is the best use of public money. A Mississippi bill passed the state House, but then failed in the Senate. The debate comes in a midterm election year in which income inequality and the burdens of student debt are likely going to be significant issues. "I think everybody agrees that with a high school education by itself, there is no path to the middle class," said State Sen. Mark Hass, who is leading the no-tuition effort in Oregon. "There is only one path, and it leads to poverty. And poverty is very expensive." Hass said free community college and increasing the number of students who earn college credit while in high school are keys to addressing a "crisis" in education debt. Taxpayers will ultimately benefit, he said, because it's cheaper to send someone to community college than to have him or her in the social safety net. Research from the Oregon University System shows Oregonians with only a high school degree make less money than those with a degree and thus contribute fewer tax dollars. They are also more likely to use food stamps and less likely to do volunteer work.

Addressing growing student debt -- Mortgage and credit card debt today are lower than they were before the Great Recession. But the dollar value of outstanding student loans has surged, growing from 4% of GDP in 2007 to over 7% today. The facilitator has been the U.S. government. The U.S. Treasury earmarks part of its regular borrowing from the public for purposes of raising funds for the Department of Education, which in turn loans the funds to students. Growth in Treasury borrowing on behalf of the Education Department accounts for more than all of the increase in outstanding student debt. The outstanding balance borrowed by the Treasury on behalf of the Department of Education’s student loan programs comprises 7% of the $12 trillion in debt owed by the Treasury to the public as of the end of last fiscal year, and by itself accounts for 20% of the growth in Treasury debt during that fiscal year.  Student debt is also the fastest growing source of problem debt, with the highest delinquency rates of any form of household debt. Students were told that borrowing for their education was a way to get ahead, but now find themselves with high debt loads and no good job. The Education Department announced on Friday a plan to deny federal loans to students at institutions for which the default rates exceed 30%. Sounds reasonable to me. But the Wall Street Journal reports this response to the proposal:  The group says many programs could be forced to close under the proposal because federal loans are their main source of funding. That, in turn, would cut off college access to many low-income and minority students, the schools contend. They add that many four-year public universities would fail the administration’s proposed standards if it applied to them.

Student Debt is Challenging the Reason for Getting that Long Sought After College Degree - What has changed for many of the college educated is finding themselves in debt longer than their parents were after college, being penalized for having student debt when going to buy homes, cars, etc., and in the end having less wealth and a lower salary when compared to those without a college education. One reader’s comment. “I’ve been meaning to write back, but a large number of days on the road takes precedence. I disagree about the relevance of my experience working endless shit jobs while living in crappy apartments and eating pb&j to pay back my loans. That said, I do respect your opinion, and I hope you continue to share your thoughts about how entirely fucked up our priorities are as a Nation when it comes to education."  The argument for a college education has always been the earning potential the 4-year degree holder has as opposed to those without a 4-year college degree. As more and more students have trouble buying into the Middle Class with the degree they have earned because of the overwhelming debt, the value of a college education has come into question considering the debt load carried by college graduates. What has changed in the last decade is tuition increases outstripping the cost of healthcare, the decline in state support for colleges, and the increased use of credit cards, home equity, and retirement account borrowing to fund college education. What remains after the piece of paper is passed out at graduation day is debt remaining with the student into his thirties and sometimes well into their forties.

Gainful Employment Rule Redux -- It’s time for us to pick up this story again. Late last week, the U.S. Department of Education finally released an 841-page notice of a new proposed final Gainful Employment Rule (GER) aimed at predatory, debt-laden higher education, particularly at for-profit colleges.  The for-profits enroll about 13 percent of the total higher education population but account for about 31 percent of all student loans and nearly half of all loan defaults. The new rule seems to have a better chance of withstanding an inevitable legal challenge than DOE’s 2012 version, and it gets tougher on career colleges in a few ways outlined below, although it's still pretty forgiving to the colleges.  The regulation would apply not just to the for-profits but also to certain non-degree certificate programs at public and non-profit schools, both of which are expected to pass muster under the rule at a higher rate than the for-profit schools.  Based on FY 2010, four million students attend all “gainful employment” programs, which receive about $36 billion a year in federal student grant and loan funds, $26 billion of that in loans that students can’t discharge in bankruptcy absent “undue hardship.” About 20 percent of for-profits and 16 of all covered programs are expected to fail the rather minimalist new standards, assuming the schools do not quickly change to remain eligible for federal Higher Education Act grant and loan funds.  For-profits in particular use a business model of maximizing receipt of federal funds, so the proposed regulation has their full attention.  Of the sectors of higher education, for-profits have both the highest levels of indebtedness and highest default rates.

California Lawmaker Wants Emergency Funding for CalSTRS -- A California lawmaker wants to give the state's teacher pension fund a big boost, but not everyone thinks that's a good idea. Noting that CalSTRS fund has a $71 billion unfunded retirement liability, state senator Mimi Walters, a Republican, wants to pump some emergency money into that fund. About $2 billion in total. Senator Walters says it critical to help CalSTRS survive or it will go broke in a couple decades. She says Democrats need to support her legislation and teachers. "If the Democrats don't support this legislation then they're saying they don't about the teachers," she said. Senate President Pro Tem Darrell Steinberg's spokesman Rhys Williams in a written statement notes Walters' proposal isn't clear on funding sources and could compromise dollars for "low- and middle-income families and kids."

CalPERS’ Sends Data With Errors in Response to Our Lawsuit, Pointing to Problems in Record-Keeping - Yves Smith - CalPERS continues to make a science of not walking its talk. If you are new to our arm-wrestling match with the giant California public pension system, we have asked CalPERS to give us data about their private equity fund performance that they provided to two scholars at Oxford University, Tim Jenkinson and Ruediger Stucke. Their paper, written with an additional co-author, Miguel Sousa, was published in 2013. It stressed that they had the entire performance of all of CalPERS’ 761 private equity investments, from CalPERS’ first participation in that strategy in 1990 through the first quarter of 2012. The article also stated repeatedly that substantial portions of their data has never been made public. CalPERS is subject to a California version of FOIA called the Public Records Act. A well-settled principle of the PRA is that once an agency has given out a record to one member of the public, it has forever waived the right to claim any exemption from disclosing the records to others.  As we’ll discuss, we’ve been trying to get this information since we filed a PRA request at the end of September. Not only has CalPERS engaged in what look like stonewalling tactics, but far more seriously, their latest, still incomplete response to our request contained serious errors which suggest there are basic record-keeping problems at CalPERS. Given that CalPERS is a fiduciary, this would be an extremely serious lapse.

CBO Director: Important to Give Advance Warning About Coming Changes to Social Security --  The United States faces "fundamental fiscal challenges" stemming from the growth in spending for Social Security and major health care programs," CBO Director Douglas Elmendorf told a gathering in Washington on Tuesday. The rising cost of those programs leaves Americans with "unpleasant" choices to make, but the sooner they're made, the better, he said: "So we have a choice as a society to either scale back those programs relative to what is promised under current law; or to raise tax revenue above its historical average to pay for the expansion of those programs; or to cut back on all other spending even more sharply than we already are," Elmendorf said. "And we haven't actually decided as a society...what we're going to do. But some combination of those three choices will be needed." Elmendorf said there are various ways to proceed: "But they tend to be unpleasant in one way or another, and we have not, as a society, decided how much of that sort of unpleasantness to inflict on whom." He noted that many Americans have paid Social Security taxes for decades, expecting to get benefits in retirement. But the money people paid years ago was used to fund other government activities. So, "If one wants to change those programs, then giving people a lot of warning about that -- those changes coming -- would be especially important," he said.

Social Security already hit by the austerity squeeze - While the odious chained CPI cut to Social Security benefits has been fought off, there's a longer-term, more successful battle against Social Security that's actually been terribly successful. More than a decade's worth of cuts to the Social Security Administration's has curtailed the SSA's work with the public, and is undermining the program.The loudest battles over Social Security are about potential benefit cuts like the recently vanquished "chained CPI" proposal. But another, less noticed fight has been going on for years. It's aimed at undermining Social Security through systematic budget cutting by Congress of the operating budget of the SSA, the agency charged with providing customer service to the public. The SSA has received less than its budget request in 14 of the past 16 years. In fiscal 2012, for example, SSA operated with 88 percent of the amount requested ($11.4 billion)."It's part of a raging fight by conservatives to get rid of the government's footprint wherever possible," says Nancy Altman, co-director of Strengthen Social Security, an advocacy group. One glaring change: that annual statement you used to get that provided your earnings to date and estimated your monthly benefits is gone now. It was an important educational tool for Social Security, and a reminder that you are paying into a secure retirement fund. The statements are still available, but you have to be able to go online or visit an SSA office in order to get it. So far only 10 million people, just 6 percent of the workforce, has signed up to get the online statements.

One-third of Americans only have $1,000 saved for retirement - More Americans are confident about their retirement prospects for the first time in seven years, but even so, more than one-third of workers (36%) have a measly $1,000 saved for their later years, according to a new study by the Employee Benefit Research Institute. (Compare that to the 28% of workers who said they had $1,000 saved in last year's survey, and the picture gets a little more grim.)  As a whole, however, Americans are feeling more confident about retirement, with 18% saying they're "very confident," up from 13% in 2013. But this year’s confidence numbers are still lower than they were before the Great Recession, when one-quarter of Americans were feeling very confident about their golden years. “We’re definitely moving in the wrong direction,” said Greg Burrows, senior vice president of retirement and investor services with the Principal Financial Group, which co-sponsored the report. “Increasingly, workers realize they need to save a lot more for retirement, and yet their actions aren’t following through.”  At a time when research has shown time and again how ill-prepared most workers are to support themselves through their golden years, the study offers a glimpse into what the "very confident" 18% have that, well, the rest of us don

Medicare put on the brink, yet again -- When Congress returns to session on Monday it will find itself in a familiar position: with its back against the wall. This time, Congress will be racing against a clock that's ticking off the seconds until the payments that doctors receive in exchange for treating Medicare patients are cut significantly. If it fails to pass legislation to stave off the reduction by March 31, the 685,000 doctors that participate in Medicare will see their reimbursements slashed by 24% starting April 1. The cut is based on what's known as the sustainable growth rate (SGR) -- a formula that was instituted as part of a 1997 deficit reduction law designed to limit federal health care spending by tying physician pay to an economic growth target. Medicare expenditures triggered an automatic 5% cut for the first time in 2002, but since then, Congress has passed 16 stop-gap measures -- sometimes retroactively -- to kick the cuts that average about 5% a year further down the road. It passed five of these band-aids in 2010 alone. "These cuts going into place and then being reversed is just an incredibly wasteful, disruptive approach to the really important problem of trying to manage Medicare costs and health care costs in general,"

White House Tightens Health Plan’s Standards After Consumers Complain— The Obama administration issued stringent new standards on Friday for health insurance to address a flood of complaints from consumers who said that costs were too high and that the choice of doctors, hospitals and prescription drugs was too limited in many health plans offered this year under the Affordable Care Act. In deciding which products can be sold in the federal marketplace next year, officials said, they will scrutinize health plans more closely and rely less on evaluations by state insurance regulators and private groups that accredit health plans. Consumer advocates welcomed the standards and said they should have gone further. But insurers and employer groups complained of burdensome overregulation and said the White House should focus first on getting the online exchanges to work properly. The federal government sets standards for insurers in the federal exchange, which serves three dozen states with about two-thirds of the nation’s population. States running their own exchanges generally build on the federal standards. Officials issued the new standards, buried in a stack of documents, at 7:15 p.m. on Friday even as President Obama was stepping up efforts to increase enrollment in health plans this year. The administration proposed new insurance regulations to go along with the new standards. In so doing, officials acknowledged problems that have bothered many consumers for months.

White House to begin Obamacare March Madness Monday -- To coincide with the start of NCAA basketball tournament, a White House official says the administration is launching an all-encompassing push around the annual basketball bonanza that will feature athletes, coaches, and others, in hopes of spurring more Americans to sign up for health care before the March 31 deadline.According to the official, the effort starts in earnest Monday morning when Univision Radio's Locura Deportiva airs an interview with President Obama.  The White House is also set to release a "16 Sweetest Reasons to Get Covered Bracket," detailing the administration’s top reasons to get insured. The administration believes it can parlay the popularity of the President's bracket - a recent tradition that registered the most views of any blog on during 2013 - into tangible enrollments by updating the results of the ACA bracket based on the "winning" votes from online users.

Poll: Two thirds satisfied with healthcare system - Two thirds of people in the United States say they’re satisfied with the country’s current healthcare system, a new poll indicates. Sixty-six percent say they’re satisfied with how the healthcare system is working for them, according to a Gallup poll released Monday. By contrast, 32 percent say they’re dissatisfied. Levels of satisfaction were largely determined by whether those surveyed have health insurance. Seventy-two percent of people with insurance say they are satisfied with the healthcare system while 26 percent of them say they are not. Only a third of people without health insurance say they are satisfied with the country’s healthcare, compared to nearly 60 percent who say they are dissatisfied. The poll also suggested young and elderly people were the two demographics most likely to be satisfied with healthcare. While young people are less likely to have insurance, 73 percent say they’re satisfied with the system. Middle-aged adults are less likely to be satisfied, the poll found. Sixty percent of people aged 30 to 49 are satisfied, as are 56 percent of those who are between 50 and 64. Eighty percent of people over the age of 65 are satisfied with healthcare. That group, of course, is eligible for the government’s health insurance program, Medicare.

One-third of the uninsured plan to stay that way, Bankrate survey finds - A third of Americans who were uninsured prior to the advent of Obamacare intend to stay that way, and just over half of the previously not-covered are planning to get coverage, according to a survey from The personal finance site conducted a survey of 3,000 Americans and found that 34% of the currently uninsured won’t pick up a health plan — and one major reason is that coverage is too expensive. Another 56% of the uninsured intend to obtain, or have obtained, a policy, the survey says. The remaining respondents weren’t sure or didn’t know. Forty-one percent of those who plan to go without coverage cite the expense as the primary reason. Pollsters also found that 17% of those going without health care are philosophically opposed to the Affordable Care Act, while another 13% said they’re healthy enough to go without coverage. One reason for the large numbers of respondents who say they won’t get coverage could be that 24 states refused to implement an expansion of the Medicaid program, says Michael Morrisey, professor of health economics at the University of Alabama at Birmingham’s School of Public Health. Morrisey is quoted by BankRate as saying that leaves a large number of people ineligible for Medicaid and too poor to buy coverage on their own. “

Obamacare enrollment push glosses over next year’s fines, some say - The deadline to enroll is coming fast — March 31 — and many people don’t realize they could be paying far more than the $95 flat fee talked about in the early days of the law, according to enrollment counselors, income tax preparation agents and accountants. Depending on the size of their households and income levels, not enrolling for Obamacare can run into hundreds of dollars, and for a few higher-income earners, possibly thousands. Brian Haile, senior vice president of health policy for Jackson Hewitt, said most people in the early days of the program recall talk about a $95 flat fee due next year for not complying with the law. But Haile said there was a second part to that equation: The fee is either $95 for adults and $47.50 per child or 1 percent of their gross adjusted income, whichever is greater. “It’s been a good news and bad news session with any number of clients,” Haile said. “A lot of people coming in assume they have to pay this year, and when I tell them you do not have to pay until next year, there is a sense a relief. But then I explain it’s more than $95, and the anxiety goes right up. We explain to them $95 is the least you will have to pay, and you are very likely to pay considerably more.” For example, a couple earning $68,000 where only one has health insurance would owe 1 percent of their income if that person doesn’t sign up. After subtracting the first $20,300 of their income not taxed by the IRS for couples who file jointly, the couple would end up paying $477 next year, Haile said.

14 Ways To Avoid The Obamacare Tax - There are 14 ways, in all, to avoid paying the Obamacare tax penalty. This fee hits people who don’t carry health insurance that conforms to the government regulations. Based on the latest revision to the Obamacare regulations, people can avail themselves of these different off ramps all the way through 2016. Many of the circumstances that qualify someone for an exemption are very specific hardships. However, at least one of these reasons (#14) seems purposely vague enough to capture a broad range of conceivable reasons for being exempt from the tax. Here are the 14 “hardship exemptions” that HHS says releases you from the Obamacare tax penalty, and the documentation you’ll need to prove that you qualify for each of these waivers. One criteria is missing. You can avoid the tax by being incarcerated for one day each month, according to Allison Bell. And pay close heed to catchall criteria #14 – “You experienced another hardship in obtaining health insurance”. As for the documentation that HHS says is required to claim this hardship , it merely notes: “Please submit documentation if possible.”

Obama: You Might Lose Your Doctor Under Obamacare -- "For the average person, many folks who don't have health insurance initially, they're going to have to make some choices. And they might end up having to switch doctors, in part because they're saving money," said Obama in an interview with the medical website WebMD. "But that’s true if your employer suddenly decides we think this network’s going to give a better deal, we think this is going to help keep premiums lower, you've got to use this doctor as opposed to that one, this hospital as opposed to that one. The good news is in most states people have more than one option and what they'll find, I think, is that their doctor or network or hospital that's conveniently located is probably in one of those networks. Now, you may find out that that network's more expensive than another network. And then you've got to make a choice in terms of what's right for your family." This is different than what Obama said when he was selling Obamacare. "If you like the plan you have, you can keep it.  If you like the doctor you have, you can keep your doctor, too.  The only change you’ll see are falling costs as our reforms take hold," said Obama in his weekly address on June 6, 2009

O-Care premiums to skyrocket - Health industry officials say ObamaCare-related premiums will double in some parts of the country, countering claims recently made by the administration. The expected rate hikes will be announced in the coming months amid an intense election year, when control of the Senate is up for grabs. The sticker shock would likely bolster the GOP’s prospects in November and hamper ObamaCare insurance enrollment efforts in 2015.  The industry complaints come less than a week after Health and Human Services (HHS) Secretary Kathleen Sebelius sought to downplay concerns about rising premiums in the healthcare sector. She told lawmakers rates would increase in 2015 but grow more slowly than in the past. “The increases are far less significant than what they were prior to the Affordable Care Act,” the secretary said in testimony before the House Ways and Means Committee. Her comment baffled insurance officials, who said it runs counter to the industry’s consensus about next year. “It’s pretty shortsighted because I think everybody knows that the way the exchange has rolled out … is going to lead to higher costs,” said one senior insurance executive who requested anonymity. The insurance official, who hails from a populous swing state, said his company expects to triple its rates next year on the ObamaCare exchange.

Health law concerns for cancer centers  — Cancer patients relieved that they can get insurance coverage because of the new health care law may be disappointed to learn that some the nation's best cancer hospitals are off-limits. An Associated Press survey found examples coast to coast. Seattle Cancer Care Alliance is excluded by five out of eight insurers in Washington state's insurance exchange. MD Anderson Cancer Center says it's in less than half of the plans in the Houston area. Memorial Sloan-Kettering is included by two of nine insurers in New York City and has out-of-network agreements with two more. Doctors and administrators say they're concerned. So are some state insurance regulators. In all, only four of 19 nationally recognized comprehensive cancer centers that responded to AP's survey said patients have access through all the insurance companies in their state exchange. Not too long ago, insurance companies would have been vying to offer access to renowned cancer centers, said Dan Mendelson, CEO of the market research firm Avalere Health. Now the focus is on costs. "This is a marked deterioration of access to the premier cancer centers for people who are signing up for these plans," Mendelson said. Those patients may not be able get the most advanced treatment, including clinical trials of new medications. And there's another problem: It's not easy for consumers shopping online in the new insurance markets to tell whether top-level institutions are included in a plan. That takes additional digging by the people applying.

The House GOP's Obamacare Alternative Won't Curb Health Care Costs—But It Will Enrich the Insurance Industry -- Earlier this week, the Washington Post reported in an "exclusive" front-page story that House Republicans are at long last promoting their alternative to Obamacare. According to the Post, the new plan, roundly panned, is really just a compilation of the same old health care proposals that Republicans have been floating for years, including allowing the sale of insurance plans across state lines, high-risk insurance pools, and, notably, restrictions on medical-malpractice lawsuits. Like so many of the Republicans' health care reform proposals, capping damages in and otherwise restricting malpractice lawsuits isn't likely to have a big impact on health care costs, or on expanding coverage to the uninsured. Just ask the state of Florida, whose Supreme Court on Thursday overturned a law similar to the one House Republicans are pushing. Florida passed its version of the House GOP plan in 2003, when doctors in the state were loudly proclaiming the existence of a "malpractice crisis" in which the state was plagued with an epidemic of frivolous lawsuits that were driving doctors' insurance premiums sky-high and forcing them to leave the state. But last week, Florida's Republican-dominated Supreme Court poked a giant hole in that hysteria. It declared that not only was that "crisis" a fiction, but that the alleged cure—caps on lawsuit damages, which are also favored by the House GOP—had done nothing but enrich insurance companies at the expense of doctors and patients, in violation of the state constitution.

A plunge in U.S. preschool obesity? Not so fast, experts say (Reuters) - If the news last month that the prevalence of obesity among American preschoolers had plunged 43 percent in a decade sounded too good to be true, that's because it probably was, researchers say. When the study was published in late February in the Journal of the American Medical Association, no one had a ready explanation for that astounding finding by researchers at the U.S. Centers for Disease Control and Prevention. Indeed, it seemed to catch the experts by surprise. Anti-obesity campaigners credited everything from changes to the federal nutrition program for low-income women and children to the elimination of trans-fats from fast food, more physical activity in child-care programs and declining consumption of sugary drinks.  But as obesity specialists take a closer look at the data, some are questioning the 43 percent claim, suggesting that it may be a statistical fluke and pointing out that similar studies find no such decrease in obesity among preschoolers. In fact, based on the researchers' own data, the obesity rate may have even risen rather than declined.

The TPP Tries to Put a “No Exit” Sign on America’s Crapified Health Care System by Allowing Medical Procedures to be Patented World-wide -- Hundreds of thousands of people — especially those who can’t afford concierge medical care — increasingly look to medical tourism to exit the tapeworm-infested brutal and hideously expensive U.S. health care rental extraction device system, with its Taylorist methods and penitentiary-like facilities, in favor of more humane and more reasonably priced alternatives available in other countries; heck, there’s even a medical tourism trade association!  Of course, “medical tourism” might be more accurately called “medical arbitrage.” For example, my privileged position as a citizen of the United States, once a first-world country in areas beyond the Acela corridor, still entitles me to various free gifts, including the high value of the US dollar, which I can arbitrage to purchase health care in not-first-world countries with lower value currencies and first-class — and not brutal — care. The Trans-Pacific Partnership (TPP) because it requires that medical procedures can be patented, will lessen this arbitrage opportunity in medical care by raising the price of medical procedures, thereby making you less able to get the kind of health care that you need and deserve, by raising its price.[1] Here is the relevant draft text, from TPP’s Article QQ.E.2, with the U.S. proposal underlined:

Billionaires With Big Ideas Are Privatizing American Science - Last April, President Obama assembled some of the nation’s most august scientific dignitaries in the East Room and he spoke of using technological innovation “to grow our economy” and unveiled “the next great American project”: a $100 million initiative to probe the mysteries of the human brain.  Absent from his narrative, though, was the back story, one that underscores a profound change taking place in the way science is paid for and practiced in America. In fact, the government initiative grew out of richly financed private research: A decade before, Paul G. Allen, a co-founder of Microsoft, had set up a brain science institute in Seattle, to which he donated $500 million, and Fred Kavli, a technology and real estate billionaire, had then established brain institutes at Yale, Columbia and the University of California. Scientists from those philanthropies, in turn, had helped devise the Obama administration’s plan.  American science, long a source of national power and pride, is increasingly becoming a private enterprise.  In Washington, budget cuts have left the nation’s research complex reeling. Labs are closing. Scientists are being laid off. Projects are being put on the shelf, especially in the risky, freewheeling realm of basic research. Yet from Silicon Valley to Wall Street, science philanthropy is hot, as many of the richest Americans seek to reinvent themselves as patrons of social progress through science research.  The result is a new calculus of influence and priorities that the scientific community views with a mix of gratitude and trepidation.

The Cost of Kale: How Foodie Trends Can Hurt Low-Income Families -- Last month, I sounded off about the new Whole Foods campaign rebranding collard greens as the next big superfood. Their efforts have resulted in public backlash over cultural appropriation and the rising costs of food—a phenomenon writer Mikki Kendall succinctly dubbed “food gentrification.”  I’m going to be frank with you: within the bigger sphere of global food justice, making fun of Whole Foods is the easy stuff. It’s easy to pick apart an ad campaign written by ignorant copywriters; it’s easy to ridicule trend-sensitive food bloggers. They’re the little fish here: symptoms of something much, much bigger. Those things are relatively easy because they skirt around the tragedies and pain that many of us experience when we can’t feed our families or are made to feel shame because we can’t feed them in a certain way. The root of the whole issue, as I think many of us can feel in our gut, is the question of how and why so many people in one of the most prosperous nations in the world cannot get enough decent food to eat every day.

The Toxins That Threaten Our Brains - Forty-one million IQ points. That’s what Dr. David Bellinger determined Americans have collectively forfeited as a result of exposure to lead, mercury, and organophosphate pesticides. In a 2012 paper published by the National Institutes of Health, Bellinger, a professor of neurology at Harvard Medical School, compared intelligence quotients among children whose mothers had been exposed to these neurotoxins while pregnant to those who had not. Bellinger calculates a total loss of 16.9 million IQ points due to exposure to organophosphates, the most common pesticides used in agriculture. Last month, more research brought concerns about chemical exposure and brain health to a heightened pitch. Philippe Grandjean, Bellinger’s Harvard colleague, and Philip Landrigan, dean for global health at Mount Sinai School of Medicine in Manhattan, announced to some controversy in the pages of a prestigious medical journal that a “silent pandemic” of toxins has been damaging the brains of unborn children. The experts named 12 chemicals—substances found in both the environment and everyday items like furniture and clothing—that they believed to be causing not just lower IQs but ADHD and autism spectrum disorder. Pesticides were among the toxins they identified.

Warning Signs: How Pesticides Harm the Young Brain -- Since 1945, the use of pesticides in the United States has quintupled. More than 1 billion pounds of pesticides—a broad term that includes weed killers, insecticides and fungicides—are now used in the United States each year. Over 1,000 chemicals registered to fight pests and pathogens are formulated into some 20,000 products. Most are for agricultural use, but a fifth are designed for nonagricultural applications—in homes and gardens, playgrounds, schools, offices and hospitals. So it’s no surprise that studies show many of us—even newborns—harboring detectable levels of pesticides in our bodies. Yet it’s hard to know what that really means for our health. Their mere presence in our systems does not, ipso facto, make for a health threat. Scientists have linked heavy chronic exposure to cancer and birth defects. But what about low-dose continuing exposures—for example, the micrograms that a farmworker might carry home each night on the soles of her boots? Or for those of us who don’t work on a farm, the traces that drift from a lawn or golf course, or remain in the dust after a landlord sprays, or that cling to a piece of fruit?  One place where the answers are being worked out is in the Salinas Valley, where for fifteen years researchers have been following several hundred children of primarily Latino farmworkers since birth. The scientists are based at the University of California, Berkeley, but the hub of the study is in the town of Salinas, in a small tan portable bungalow tucked into a parking lot between the county hospital and county jail.

Voracious Worm Evolves to Eat Biotech Corn Engineered to Kill It  - One of agricultural biotechnology’s great success stories may become a cautionary tale of how short-sighted mismanagement can squander the benefits of genetic modification. After years of predicting it would happen — and after years of having their suggestions largely ignored by companies, farmers and regulators — scientists have documented the rapid evolution of corn rootworms that are resistant to Bt corn. Until Bt corn was genetically altered to be poisonous to the pests, rootworms used to cause billions of dollars in damage to U.S. crops. Named for the pesticidal toxin-producing Bacillus thuringiensis gene it contains, Bt corn now accounts for three-quarters of the U.S. corn crop. The vulnerability of this corn could be disastrous for farmers and the environment. “Unless management practices change, it’s only going to get worse,” said Aaron Gassmann, an Iowa State University entomologist and co-author of a March 17 Proceedings of the National Academy of Sciences study describing rootworm resistance. “There needs to be a fundamental change in how the technology is used.”

Corn-eating worm evolves to feed on GMO corn designed to kill it - A voracious crop-destroying pest has evolved to feed upon the very GMO product that was designed to eliminate it. reported that the triumph over corn rootworms was one of biotech’s great success stories, saving billions of dollars in crops each year. So-called Bt corn — named for the Bacillus thuringiensis gene, which killed rootworms, corn borers and other pests — currently makes up more than three quarters of the total corn grown in the U.S., a lack of crop diversity that could spell disaster if the resistant cornworms spread. The crop itself is not to blame, say scientists, but rather mismanagement by farmers, corporations and lawmakers that has led to the squandering of whatever benefits had been gained by the use of the genetically modified crop.  Aaron Gassman, Iowa State University scientists and lead author of the study “Field-evolved resistance by western corn rootworm to multiple Bacillus thuringiensis toxins in transgenic maize,” which was published in the March 17 PNAS journal, told Wired, “Unless management practices change, it’s only going to get worse. There needs to be a fundamental change in how the technology is used.”

France bans Monsanto GM maize ahead of sowing season (Reuters) - France's agriculture ministry on Saturday banned the sale, use and cultivation of Monsanto's MON 810 genetically modified maize, the only variety currently authorised in the European Union. The French government, which maintains that GM crops present environmental risks, has been trying to institute a new ban on GM maize (corn) after its highest court has twice previously struck down similar measures. The decision is timed to avert any sowing of GM maize by farmers before a draft law is debated on April 10 aimed at banning planting of GMOs (genetically modified organisms). "The sale, use and cultivation of varieties of maize seed from the line of genetically modified maize MON 810 (...) is banned in the country until the adoption, on the one hand, of a final decision, and secondly, of (EU) community action, " said a decree published on Saturday. Annual sowing of maize in France gets under way in the second half of March.

Infographic Contrasting Food Regulations in U.S. to E.U. -- I found the infographic below over at Yes magazine. Most people are aware that the E.U.’s food regulations are much more conservative than ours here in the U.S. It is fairly amazing to note the differences between these two leaders of the developed world. Much of this infographic is about meat.  Everyone has their own favorite subject off this list, but one concern is that the U.S. is upping its use of Atrazine to combat superweeds, whereas it is banned altogether in European countries.

Study: 2ºC Warming Is Enough To Seriously Hurt Crop Yields -  Published on Sunday in the journal Nature Climate Change, a paper found that without adaptation, losses in wheat, rice, and maize production can be expected with just 2°C of warming. The study will sharpen the already-alarming findings of the Working Group II section of the IPCC’s Fifth Assessment Report, to be published at the end of March. Working Group II focuses on the environmental, economic and social impacts climate change will have and what level of vulnerability different ecological and socio-economic sectors will be subject to.  The Fourth IPCC Assessment Report, in 2007, found that regions with temperate climates like Europe and North America would hold up to a couple degrees of warming without a discernible effect on crop yields. Some studies even thought the increase in temperatures could boost production. However the new study, which pulled from the largest dataset to date on crop resources — more than double the number available in 2007 — found that crops will be negatively affected by climate change much earlier than expected.

The Energy Basis of Food Security - At the grocery cooperative near my home I can buy a breathtaking array of foods, including kale from California, grapes from Argentina, olive oil from Italy, miso from Japan, and apples from New Zealand. This rich variety lets me enjoy a diet that’s utterly dissociated from the Champlain Valley in Vermont where I live, one that renders my local climate, the character of my local soil and even the passage of seasons irrelevant to my food choices. I can eat as if I lived in a tropical paradise where summer never ends, while living in a temperate paradise where summer lasts just a few short months. As I walk out of my co-op I’m quickly reminded of the source of this food miracle: a nearby service station sells gasoline for $3.67 per gallon, and diesel for 30 cents more. These prices are high compared to what these fuels cost a decade ago, but they still provide astonishingly cheap energy. Given the high energy density of gasoline and similar industrial fuels, $3.67 per gallon equates to paying a busy agricultural laborer just under one cent per hour to do equivalent amount of physical work.1 It’s the extraordinarily cheap energy provided by industrial fuels, particularly nonrenewable fuels derived from crude oil, natural gas and coal, that powers the globalized, industrial food system that, week after week, year after year, delivers food to my co-op from the four corners of the Earth.  Most people realize that food systems require energy to function, but few seem to understand the extent of this dependency or grasp its implications. This essay hopes to remedy this oversight by exploring both the energy intensity of food production and the relationship of the food system’s exorbitant energy demand to the broader issue of food security.

Acidic waters killing off millions of scallops along the West Coast: B.C. fishermen are struggling to deal with catastrophic losses as millions of scallops and oysters are dying off in record numbers along the West Coast -- a crisis experts suggest is being caused by an increase in fossil fuels in the atmosphere, leading to a rise in ocean acidity. Rob Saunders, CEO of Island Scallops in B.C., says the rapid decrease in scallop populations has cost him millions in revenue. “By June of 2013, we lost almost 95 per cent of our crops,” he told CTV News. Saunders isn’t alone; oyster hatcheries along the West Coast say they are also losing product, causing some businesses to scale back operations and lay off staff. According to a report by the BC Shellfish Grower’s Association, the steep decline in marine species can be linked to the recent boom in the fossil-fuel industry. Experts say that oceans, which naturally absorb carbon dioxide, are becoming more acidic due to an increase in carbon dioxide emissions from burning fossil fuels. Chris Harley, a marine ecologist from the University of British Columbia, says abnormally acidic waters make it difficult for shellfish to build the tough outer shells they need to survive.

Our Brown Water Navy: New Documents Show That The U.S. Has Been Dumping Hundreds of Tons Of Waste Into Pristine Coral Area --Diego Garcia is one of the most pristine areas of the world. When the British allowed the United States to use the base in the early 1980s, the authorization came with clear environmental controls to prevent the deterioration of the natural surroundings. Four years ago, the British Indian Ocean Territory (BIOT) were declared the world’s largest marine reserve. However, its greatest danger appears to be the United States Navy. For decades, in direct violation of governing standards, the U.S. Navy has dumped hundreds of tons of human waste into the lagoon. In the meantime, while 5000 U.S. service personnel are dumping waste into the waters and coral reefs, Chagossians are being kept from returning to their home because of the delicate environmental conditions of the area. The U.S. dumping has resulted in elevated levels of nutrients with nitrogen and phosphate readings up to four times higher than normal. The coral – may be damaging the coral. The dismal record of the U.S. was revealed in a recent statement from the Foreign and Commonwealth Office. U.S. vessels have been uniformly dumping their date into the lagoon since the early 1980s. The practice violates express British policy and the Ramsar Convention on wetlands.

While the seas rise in the Outer Banks and elsewhere in NC, science treads water - After promoters of coastal development attacked a science panel’s prediction that the sea would rise 39 inches higher in North Carolina by the end of this century, the General Assembly passed a law in 2012 to put a four-year moratorium on any state rules, plans or policies based on expected changes in the sea level. The law sets guidelines under which the Coastal Resources Commission, a development policy board for the 20 coastal counties, will formulate a new sea-level prediction to serve as the official basis for state planners and regulators.The backlash fomented by a conservative coastal group called NC-20 prompted commission members in 2011, most of them Democratic appointees, to reject the 39-inch prediction from the panel of engineers and geologists, including Riggs, that has counseled the commission since the 1990s. A new documentary film, “ Shored Up,” shows anguished commission members imploring their science advisers to somehow “soften” the high-water warning.Now the 13-member Coastal Resources Commission has a new chairman and eight more new members appointed last year by Republican legislative leaders and Gov. Pat McCrory. The 2012 law says the commission must receive a new draft sea-level prediction from its science panel by March 2015, but the new commission has not asked the science panel to start work.

U.S. Govt Creates Incentives to Rebuild Flood-Hit Coastal Homes, Over and Over: - Over and over again, the Atlantic has taken aim at 48 Oceanside Drive. Almost four decades ago, it slammed the house clear off its foundation. Thirteen years later, seawater poured through the roof during a nor’easter. So often has the sea catapulted grapefruit-sized rocks through the vacation home's windows that a former owner installed bulletproof-glass. At least nine times the property has sustained significant flood damage from coastal storms. And each time, the federal government helped owners rebuild with National Flood Insurance Program payouts. It has subsidized insurance premiums at the property and in 2005, granted one owner $40,000 to elevate the home. Now, the current owner of the $1.2 million vacation house is applying for what construction experts say could be $80,000 or more from the federal government to raise the house again. ----- The saga of 48 Oceanside Drive and the sea is repeated across the U.S. There are 534 properties in New England alone that are considered Severe Repetitive Loss properties, according to the Federal Emergency Management Agency, which manages the insurance program. Often, these NFIP-insured properties have had four significant flood claims – two within one decade. Nationwide there are about 12,000.

West’s Drought and Growth Intensify Conflict Over Water Rights - Frank DeStefano was feeding a 500-acre cotton crop with water from the Brazos River 16 months ago when state regulators told him and hundreds of others on the river to shut down their pumps. A sprawling petrochemical complex at the junction of the Brazos and the Gulf of Mexico held senior rights to the river’s water — and with the Brazos shriveled, it had run short.State regulators ordered Mr. DeStefano and others with lesser rights to make up the deficit. But they gave cities and power plants along the Brazos a pass, concluding that public health and safety overrode the farmers’ own water rights. Now Mr. DeStefano and other farmers are in court, arguing that the state is wrong — and so far, they are winning.   Residents of the arid West have always scrapped over water. But years of persistent drought are now intensifying those struggles, and the explosive growth — and thirst — of Western cities and suburbs is raising their stakes to an entirely new level. In southern Texas, along the Gulf coast southwest of Houston, the state has cut off deliveries of river water to rice farmers for three years to sustain reservoirs that supply booming Austin, about 100 miles upstream. In Nevada, a coalition ranging from environmentalists to the Utah League of Women Voters filed federal lawsuits last month seeking to block a pipeline that would supply Las Vegas with groundwater from an aquifer straddling the Nevada-Utah border. In Colorado, officials in the largely rural west slope of the Rocky Mountains are imposing stiff restrictions on requests to ship water across the mountains to Denver and the rest of the state’s populous eastern half. Fearing for their existence, Colorado farm towns on the Arkansas River have mobilized to block sales of local water rights to Denver’s fast-growing suburbs.

Drought crisis: Arizona may be California’s future.: Driving through the Arizona desert between Tucson and Phoenix, it’s easy to see the remnants of agricultural boom times. Irrigated agriculture in the Arizona desert peaked in the 1950s and has steadily declined as urbanization’s water demand has exploded. The road is flanked with abandoned cotton fields that have since turned into dust-storm factories. It’s not uncommon for the road to close and for day to turn into the night during the worst storms, which happen during the early summer months as the monsoon thunderstorms move north from the Sea of Cortez. In some ways, it feels post-apocalyptic: Evidence suggests that human activity has moved somewhere else.   Improving technology has offset some of the more ridiculous uses of desert water. In the early days, farmers literally flooded fields of orange trees with water diverted from newly constructed dams. Wells have pumped at least two rivers dry in southern Arizona, where groundwater levels have dropped by hundreds of feet over the last century. It took decades, but Arizona finally learned that it had to adapt to survive. Still, many obvious questions have no easy answer: How to balance economic growth and environment? Does fairness mean cities get first dibs over farmers, even though they were here first? Is climate change a game changer? The issue of water in the Southwest is a preview of 21st-century politics worldwide.

Number of days without rain to dramatically increase in some world regions —By the end of the 21st century, some parts of the world can expect as many as 30 more days a year without precipitation, according to a new study by Scripps Institution of Oceanography, UC San Diego researchers. Ongoing climate change caused by human influences will alter the nature of how rain and snow falls; areas that are prone to dry conditions will receive their precipitation in narrower windows of time. Computer model projections of future conditions analyzed by the Scripps team indicate that regions such as the Amazon, Central America, Indonesia, and all Mediterranean climate regions around the world will likely see the greatest increase in the number of "dry days" per year, going without rain for as many as 30 days more every year. California, with its Mediterranean climate, is likely to have five to ten more dry days per year. This analysis advances a trend in climate science to understand climate change on the level of daily weather and on finer geographic scales. "Changes in intensity of precipitation events and duration of intervals between those events will have direct effects on vegetation and soil moisture,"  Polade and colleagues provide analyses that will be of considerable value to natural resource managers in climate adaptation and planning. Their study represents an important milestone in improving ecological and hydrological forecasting under climate change."

Israel no longer worried about its water supply, thanks to desalination plants -- Israel has gone through one of the driest winters in its history, but despite the lean rainy season, the government has suspended a longstanding campaign to conserve water.The familiar public messages during recent years of drought, often showing images of parched earth, have disappeared from television despite weeks of balmy weather with record low rainfalls in some areas.The level of the Sea of Galilee, the country’s natural water reservoir, is no longer closely tracked in news reports or the subject of anxious national discussion.The reason: Israel has in recent years achieved a quiet water revolution through desalination.With four plants currently in operation, all built since 2005, and a fifth slated to go into service this year, Israel is meeting much of its water needs by purifying seawater from the Mediterranean. Some 80 percent of domestic water use in Israeli cities comes from desalinated water, according to Israeli officials.“There’s no water problem because of the desalination,” said Hila Gil, director of the desalination division in the Israel Water Authority. “The problem is no longer on the agenda.”

How much hotter is the planet going to get? -- The climate is highly sensitive to carbon dioxide, according to several new studies, which means that our greenhouse gas emissions will lead to strong warming. The finding suggests we need to cut emissions fast if we are to avoid dangerous climate change. This may seem surprising given that the slower warming in the past decade has led some to conclude that the sensitivity of the climate is low. But the latest findings show that the cooling effect of aerosol pollution from factories and fires has been underestimated. This means warming will resume with a vengeance if countries in Asia clean up their skies. It's a complicated story. So New Scientist has broken it down. Climate sensitivity is a measure of how strongly the planet will react to the kicking we are giving it. It is how much surface warming we can expect if we double the amount of carbon dioxide into the atmosphere. There has long been uncertainty about the climate's sensitivity. Very low values have been ruled out, but it is far from settled. The most recent report of the Intergovernmental Panel on Climate Change (IPCC) says the climate sensitivity is between 1.5°C and 4.5°C. Even if sensitivity is low, if we fail to curb emissions soon the world will warm by 3°C by 2100, taking us above the agreed "danger" threshold. On the other hand, if sensitivity is high and emissions remain large, parts of Earth could become uninhabitable.

CO2 on Path to Cross 400 ppm Threshold for a Month -- Last year, atmospheric carbon dioxide briefly crossed 400 parts per million for the first time in human history. However, it didn’t cross that threshold until mid-May. This year’s first 400 ppm reading came a full two months earlier this past week and the seeming inexorable upward march is likely to race past another milestone next month.  “We’re already seeing values over 400. Probably we’ll see values dwelling over 400 in April and May. It’s just a matter of time before it stays over 400 forever,” said Ralph Keeling in a blog post. Keeling runs a carbon dioxide monitoring program for Scripps Institute of Oceanography, a position he took over from his father who started it. The program takes daily measurements from the Mauna Loa Observatory in Hawaii, which sits at 11,141 feet on a volcano’s northern flank. Measurements have been recorded there continuously since March 1958. They’ve risen steadily since the first measurement of 313 ppm as humans have continued to burn more fossil fuels.

An xkcd "What if?": Soda Sequestration  - How much CO2 is contained in the world's stock of bottled fizzy drinks? How much soda would be needed to bring atmospheric CO2 back to preindustrial levels? For most of the history of civilization, there were about 270 parts per million of carbon dioxide in the atmosphere. In the last hundred years, industrial activity has pushed that number up to 400 parts per million. One "part per million" of CO2 weighs about 7.8 billion tons. A can of soda contains in the neighborhood of 2.2 grams of CO2, so you would need about 450 quadrillion cans of soda. That's enough to cover the Earth's land with ten layers of cans.

New ozone-destroying chemicals found in atmosphere --Dozens of mysterious ozone-destroying chemicals may be undermining the recovery of the giant ozone hole over Antarctica, researchers have revealed. The chemicals, which are also extremely potent greenhouse gases, may be leaking from industrial plants or being used illegally, contravening the Montreal protocol which began banning the ozone destroyers in 1987. Scientists said the finding of the chemicals circulating in the atmosphere showed "ozone depletion is not yesterday's story." Until now, a total of 13 CFCs and HCFCs were known to destroy ozone and are controlled by the Montreal protocol, widely regarded as the world's most successful environmental law. But scientists have now identified and measured four previously unknown compounds and warned of the existence of many more.  Laube and his colleagues are in the process of fully analysing the dozens of new compounds, but the work completed on the four new chemicals shows them to be very powerful destroyers of ozone. Laube is particularly concerned that the atmospheric concentrations of two of the new compounds, while low now, are actually accelerating. "This research highlights that ozone depletion is not yesterday's story," said Prof Piers Forster, at the University of Leeds, who was not involved in the study. "The Montreal protocol – the most successful international environmental legislation in history – phased out ozone-depleting substances from 1987 and the ozone layer should recover by 2050. Nevertheless this paper reminds us we need to be vigilant and continually monitor the atmosphere for even small amounts of these gases creeping up."

Can There Be a Positive Prognosis for Climate Negotiations? - Robert Stavins - In Bonn this past week, international negotiations continued under the United Nations Framework Convention on Climate Change (UNFCCC).  The two most important countries in terms of greenhouse gas (GHG) emissions – China and the United States – apparently engaged in a war of words on the fundamental question of who should do what.  In particular, these two giants – and their respective allies in the developed and developing worlds – bickered over their very different interpretations of the Durban Platform for Enhanced Action’s call for an agreement to be reached in Paris in 2015 that is “applicable to all Parties” (countries). The United States and other industrialized countries have insisted that this calls for an agreement with emissions reduction pledges by all countries (in particular, by the industrialized countries plus the large emerging economies of China, India, Brazil, Korea, Mexico, and South Africa).  But China, India, and most countries in the developing world have maintained that because the Durban Platform was adopted under the auspices of the UNFCCC, it calls only for emission reduction commitments by the industrialized countries.  In previous essays at this blog, I’ve written about the potential promise that the Durban Platform can offer for a departure from the paralysis that has characterized the past 15 years under the Kyoto Protocol with its dichotomous distinction between emissions-reductions commitments for industrialized (Annex I) countries and no such commitments for other nations.  But it is difficult to claim that the rhetoric in Bonn has been encouraging in that regard.

Rent in a Warming World - Rent isn’t just the monthly check that tenants write to landlords. Economists use the term “rent seeking” to mean “using political and economic power to get a larger share of the national pie, rather than to grow the national pie,” in the words of Nobel laureate Joseph Stiglitz, who maintains that such dysfunctional activity has metastasized in the United States alongside deepening inequality.  When rent inspires investment in useful things like housing, it’s productive. The economic pie grows, and the people who pay rent get something in return. When rent leads to investment in unproductive activities, like lobbying to capture wealth without creating it, it’s parasitic. Those who pay get nothing in return. Two other types of rent originate in nature rather than in human investment. Extractive rent comes from nature as a source of raw materials. The difference between the selling price of crude oil and the cost of pumping it from the ground is an example. Protective rent comes from nature as a sink for our wastes. In the northeastern states of the U.S., for example, the Regional Greenhouse Gas Initiative requires power plants to buy carbon permits at quarterly auctions. In this way, power companies pay rent to park CO2 emissions in the atmosphere. Similarly, green taxes on pollution now account for more than 5% of government revenue in a number of European countries. When polluters pay to use nature’s sinks, they use them less than when they’re free.

Everyone is bad at pricing carbon — and society is paying -- A new report by the Environmental Defense Fund, the Institute for Policy Integrity, and the National Resource Defense Council shows how far away we are from understanding carbon emissions’ full cost to society.  The US government estimates that the social cost of carbon emissions is about $37 a tonne. But the report finds that the “latest scientific and economic research shows that $37 should be viewed as a lower bound” for the cost of carbon. Current models, the report says, miss or poorly account for the damage carbon does to human health, agriculture, oceans, forests, and ecosystems. There is currently no global, liquid market for carbon that would give us a good idea of carbon’s actual costs. Instead, there is a haphazard collection of exchanges and trading systems established overseen the European Union, the UN, countless NGOs, the State of California, and private exchanges. The result is that carbon markets aren’t very good at doing what they were created to do, which is put a price on the social costs of burning fossil fuels. Economists call these costs externalities. Society, rather than the the person who buys a gallon of gas or a tonne of coal, pays the cost of carbon emissions — in the form of climate change and its attendant problems. In theory, carbon markets are supposed to more accurately reflect the true cost of fossil fuels to society, by increasing the the price paid by the users.

Researchers: Northeast Greenland ice loss accelerating —An international team of scientists has discovered that the last remaining stable portion of the Greenland ice sheet is stable no more. The finding, which will likely boost estimates of expected global sea level rise in the future, appears in the March 16 issue of the journal Nature Climate Change  The new result focuses on ice loss due to a major retreat of an outlet glacier connected to a long "river" of ice - known as an ice stream - that drains ice from the interior of the ice sheet. The Zachariae ice stream retreated about 20 kilometers (12.4 miles) over the last decade, the researchers concluded. For comparison, one of the fastest moving glaciers, the Jakobshavn ice stream in southwest Greenland, has retreated 35 kilometers (21.7 miles) over the last 150 years. Ice streams drain ice basins, the same way the Amazon River drains the very large Amazon water basin. Zachariae is the largest ice stream in a drainage basin that covers 16 percent of the Greenland ice sheet—an area twice as large as the one drained by Jakobshavn. This paper represents the latest finding from GNET, the GPS network in Greenland that measures ice loss by weighing the ice sheet as it presses down on the bedrock. "This study shows that ice loss in the northeast is now accelerating. So, now it seems that all of the margins of the Greenland ice sheet are unstable."

New Greenland ice melt fuels sea level rise concerns - Stability in the rapidly changing Arctic is a rarity. Yet for years researchers believed the glaciers in the frigid northeast section of Greenland, which connect to the interior of the country’s massive ice sheet, were resilient to the effects of climate change that have affected so much of the Arctic. But new data published Sunday in Nature Climate Change reveals that over the past decade, the region has started rapidly losing ice due to a rise in air and ocean temperatures caused in part by climate change. The increased melt raises grave concerns that sea level rise could accelerate even faster than projected, threatening even more coastal communities worldwide. “North Greenland is very cold and dry, and believed to be a very stable area,” said Shfaqat Khan, a senior researcher at the Technical University of Denmark who led the new study. “It is surprisingly to see ice loss in one of the coldest regions on the planet.” The stability of the region is particularly important because it has much deeper ties to the interior ice sheet than other glaciers on the island. If the entire ice sheet were to melt -- which would take thousands of years in most climate change scenarios -- sea levels would rise up to 23 feet, catastrophically altering coastlines around the world.

Sea Levels To Rise More Than Expected Due To Warming-Driven Surge In Greenland Ice Loss  --Greenland’s contribution to global sea level has soared in the past two decades. An important new study finds that the massive northeastern part of the ice sheet, previously thought to be stable, has begun shedding ice. If this trend continues — and researchers say “a self-perpetuating feedback process may have been triggered” — actual sea level rise this century will likely be higher than many current models had projected. Covering 660,000 square miles — roughly 80 percent of the country — Greenland’s ice sheet is second only in size to Antarctica’s. Scientists estimate that melting from the ice sheet as a whole has accounted for about 16 percent of sea level rise every year for the last two decades. Research had also long suggested the northeastern portion of the ice sheet was stable. As a result, it was largely left out of the models used to anticipate future sea level rise. But the new study, “Sustained mass loss of the northeast Greenland ice sheet triggered by regional warming,” published in Nature Climate Change (subs. req’d), suggests the northeastern portion began melting rapidly around 2003. And after first jumping from an ice loss rate of zero to about 10 billion metric tons per year, it’s now approaching 15 or 20 metric tons per year and may well keep accelerating.

Glaciers in Western Canada still receding despite cold, snow — Despite cold and snowy winters for the past few years, scientists say it hasn’t helped to slow the retreat of the glaciers in Western Canada. Experts from Natural Resources Canada and several universities monitor annual fluctuations of glaciers in the western and northern Cordillera, which includes the iconic icefields in the Rocky Mountains. Shawn Marshall, a glaciologist and climatologist at the University of Calgary who’s studying the Haig glacier, said the snowpacks in 2011 and 2012 were higher than he’s ever seen as a researcher. “We’ve had a few really good winters,” he said in an interview from Geneva, where he’s on a sabbatical year. “It was better skiing but, come summer, it just caught up. “Last year was the same. The big rain event dumped snow at the glacier. It dumped snow, but then it went back on the melting trajectory.” Marshall’s work is part of the seasonal and annual tracking of glacier mass balance by the federal government to help determine future water supply in major rivers. There’s about 50,000 square kilometres of glacier ice in Western Canada.

Increasing temperatures cause more methane to be emitted from fresh water sources - British scientists have identified yet another twist to the threat of global warming. Any further rises in temperature are likely to accelerate the release of methane from rivers, lakes, deltas, bogs, swamps, marshlands and rice paddy fields. Methane or natural gas is a greenhouse gas. Weight for weight, it is more than 20 times more potent than carbon dioxide over a century, and researchers have repeatedly examined the contribution of natural gas emitted by ruminant cattle to global warming. But scientists considered something wider: the pattern of response to temperature in those natural ecosystems that are home to microbes that release methane. They report in Nature that they looked at data from hundreds of field surveys and laboratory experiments to explore the speed at which the flow of methane increased with temperature. Microbes, algae, freshwater plants and animals are all part of an active ecosystem and take their nourishment from and return waste to the atmosphere.  Most of the methane in freshwater systems is produced by an important group of microbes called Archaea that live in waterlogged, oxygen-free sediments and play an important role in decay. Plant uptake of carbon dioxide is affected by temperature, and so is microbial methane production. Respiration also releases carbon dioxide. The questions the researchers set out to answer were: which gas is more likely to be released in greater quantities as temperatures rise? And is the outcome the same whether they examine the Archaea only, or all the microbes in an ecosystem, or the entire package of submerged freshwater life? The answer is, the scientists say, that methane emissions go up with increased temperatures and the ratio of methane to carbon dioxide also goes up in step with temperature. And the result is the same whether you consider the microbes or the whole ecosystem. 

The Arctic Methane Monster’s Nasty Little Helpers: Study Finds Ancient, Methane Producing, Archaea Gorge on Tundra Melt - How dangerous and vicious the monster ends up being to a world set to rapidly warm by humans depends largely on three factors. First — how fast methane is released from warming stores in the sea bed. Second — how swiftly and to what degree the tundra carbon store is released as methane. Third — how large the stores of carbon and methane ultimately are.  On the issue of the first and third questions, scientists are divided between those like Peter Wadhams, Natalia Shakhova and Igor Simeletov who believe that large methane pulses from a rapidly warming Arctic Ocean are now possible and warrant serious consideration and those like Gavin Schmidt and David Archer — both top scientists in their own right — who believe the model assessments showing a much slower release are at least some cause for comfort. Further complicating the issue is that estimates of sea-bed methane stores range widely with the East Siberian Arctic Shelf region alone asserted to contain anywhere between 250 and 1500 gigatons of methane (see Arctic Carbon Stores Assessment Here). With such wide-ranging estimations and observations, it’s no wonder that a major scientific controversy has erupted over the issue of sea bed methane release. This back and forth comes in the foreground of observed large (but not catastrophic) sea-bed emissions and what appears to be a growing Arctic methane release. A controversy that, in itself, does little inspire confidence in a positive outcome. But on the second point, an issue that some are now calling the compost bomb, most scientists are in agreement that the massive carbon store locked in the swiftly thawing tundra is a matter of serious and immediate concern.

It's Been Exactly 29 Years Since Earth Had a Colder-Than-Average Month -  It's been exactly 29 years — or 348 consecutive months — since the last cooler-than-average month on this planet, according to new data released on Wednesday morning. The data, from the National Oceanic and Atmospheric Administration (NOAA), reflects the warming trend seen around the world during the past century, which scientists blame largely on the increasing amounts of manmade greenhouse gases in the atmosphere. The last cooler-than-average month (based on a 1961 to 1990 average) on a global level was February of 1985, the year the first version of Microsoft Windows was released and the first Back to the Future film hit theaters. NOAA announced that February of 2014, however, was not as unusually mild, globally-speaking, as other recent months, coming in as the 21st-warmest February since records began in 1880. When looking only at land surface temperatures, it was the coolest February since 1994, NOAA said.  This Winter Wasn't Nearly as Cold as You Think, Feds Say  The majority of the world experienced warmer-than-average monthly temperatures, and parts of the Arctic Ocean, western North Atlantic, and northeastern Pacific Ocean, among other areas, were record warm. Two areas that are normally frigid in February, Far East Russia and northern Scandinavia, had average temperatures of greater than 9 degrees Fahrenheit above average for the month.

Poll: Global warming no big threat to USA life - Though two-thirds of Americans believe global warming is happening or will happen during their lifetimes, only about one-third see it as a serious threat to their way of life, a new Gallup Poll reports. The wide perceptual gap has existed since Gallup first asked the question 17 years ago, but it has narrowed slightly. Today, 36% believe that global warming will seriously affect how they live, up from 25% in 1997. At the same time, the percentage of people who do not see global warming hampering their lives has doubled since Gallup's first survey — from 9% to 18% in the poll taken March 6 through Sunday. Seniors and Republicans were the most skeptical about global warming. But even a solid majority (57%) of younger Americans — those 18 to 29 — do not now foresee big threats as the climate warms and changes. The high-water mark of concern came in 2008, when 75% of respondents expected global warming to happen in their lifetimes and 40% said it would pose a serious threat to how they lived. Some of the latest numbers:

  • 54% — global warming is already having an impact.
  • 3% — warming will begin in a few years.
  • 8% — impact will happen during their lifetimes.
  • 16% — no effects in their lifetimes but future generations will be affected.
  • 18% — never going to happen.

In a companion survey released Wednesday, Gallup found that climate change is not keeping many people up at night, ranking near the bottom of Americans' most pressing concerns.

NASA-funded study: industrial civilisation headed for 'irreversible collapse': Natural and social scientists develop new model of how 'perfect storm' of crises could unravel global system -- A new study sponsored by NASA's Goddard Space Flight Center has highlighted the prospect that global industrial civilisation could collapse in coming decades due to unsustainable resource exploitation and increasingly unequal wealth distribution. Noting that warnings of 'collapse' are often seen to be fringe or controversial, the study attempts to make sense of compelling historical data showing that "the process of rise-and-collapse is actually a recurrent cycle found throughout history." Cases of severe civilisational disruption due to "precipitous collapse - often lasting centuries - have been quite common." The research project is based on a new cross-disciplinary 'Human And Nature DYnamical' (HANDY) model, led by applied mathematician Safa Motesharri of the US National Science Foundation-supported National Socio-Environmental Synthesis Center, in association with a team of natural and social scientists. The study based on the HANDY model has been accepted for publication in the peer-reviewed Elsevier journal, Ecological Economics. It finds that according to the historical record even advanced, complex civilisations are susceptible to collapse, raising questions about the sustainability of modern civilisation:"The fall of the Roman Empire, and the equally (if not more) advanced Han, Mauryan, and Gupta Empires, as well as so many advanced Mesopotamian Empires, are all testimony to the fact that advanced, sophisticated, complex, and creative civilizations can be both fragile and impermanent."

NASA Study Concludes When Civilization Will End, And It's Not Looking Good for Us -- Civilization was pretty great while it lasted, wasn't it? Too bad it's not going to for much longer. According to a new study sponsored by NASA's Goddard Space Flight Center, we only have a few decades left before everything we know and hold dear collapses. The report, written by applied mathematician Safa Motesharrei of the National Socio-Environmental Synthesis Center along with a team of natural and social scientists, explains that modern civilization is doomed. And there's not just one particular group to blame, but the entire fundamental structure and nature of our society. Analyzing five risk factors for societal collapse (population, climate, water, agriculture and energy), the report says that the sudden downfall of complicated societal structures can follow when these factors converge to form two important criteria. Motesharrei's report says that all societal collapses over the past 5,000 years have involved both "the stretching of resources due to the strain placed on the ecological carrying capacity" and "the economic stratification of society into Elites [rich] and Masses (or "Commoners") [poor]." This "Elite" population restricts the flow of resources accessible to the "Masses", accumulating a surplus for themselves that is high enough to strain natural resources. Eventually this situation will inevitably result in the destruction of society.

Geoengineering Is Not a Solution for Climate Change Anymore - We're now faced with ever-increasing extreme weather-related events and phenomena such as ocean acidification, which affects myriad marine life, from shellfish to corals to plankton. The latter produce oxygen and are at the very foundation of the food chain. Had we addressed the problem from the outset, we could have solutions in place. We could have found ways to burn less fossil fuel without massively disrupting our economies and ways of life. But we've become addicted to the lavish benefits that fossil fuels have offered, and the wealth and power they've provided to industrialists and governments. And so there's been a concerted effort to stall or avoid corrective action, with industry paying front groups, "experts" and governments to deny or downplay the problem. Now that climate change has become undeniable, with consequences getting worse daily, many experts are eyeing solutions. Some are touting massive technological fixes, such as dumping large amounts of iron filings into the seas to facilitate carbon absorption, pumping nutrient-rich cold waters from the ocean depths to the surface, building giant reflectors to bounce sunlight back into space and irrigating vast deserts. But we're still running up against those pesky unintended consequences. Scientists at the Helmholtz Centre for Ocean Research in Kiel, Germany, studied five geoengineering schemes and concluded they're "either relatively ineffective with limited warming reductions, or they have potentially severe side effects and cannot be stopped without causing rapid climate change." That's partly because we don't fully understand climate and weather systems and their interactions.

CHARTS: How Power Generation Threatens Water Supplies, And Climate Change Threatens Both -- The United Nations’ World Water Day 2014 is this Saturday. In its honor, the International Energy Agency is releasing its latest analysis of the intersection between the world’s power generation and its water use. The numbers are pretty bracing. Of the world’s freshwater supplies, 70 percent are locked up in the ice caps and glaciers, and almost another 30 percent are underground and hard to reach. Only about 0.3 percent is actually on the surface and easily accessible. Of that measly 0.3 percent, only 11 percent goes to municipal uses, including direct consumption by humans. Seventy percent goes to agriculture and farming, and 11 percent goes to industrial uses. That last figure includes power generation, and it’s the intersection of energy and water with which the report is concerned. Water is consumed at nearly every stage of energy production, especially when it comes to fossil fuels. It’s used in the hydraulic fluid in oil and natural gas fracking; it’s pumped into oil and gas wells to enhance recovery; it’s used to cut and suppress dust in coal mines; it’s used to wash coal before it’s burned; it’s used to make the slurry in which coal ash is stored after it’s burned; huge amounts are pulled in by coal, natural gas, and nuclear plants, both to cool things down and to generate the steam that spins the turbines; huge amounts are also consumed in the agricultural sector to produce biofuels; much smaller amounts are used for similar purposes for solar plants and concentrated solar power setups; and of course it’s stored in reservoirs for hydropower generation.

Scientists say destructive solar blasts narrowly missed Earth in 2012 (Reuters) - Fierce solar blasts that could have badly damaged electrical grids and disabled satellites in space narrowly missed Earth in 2012, U.S. researchers said on Wednesday. The bursts would have wreaked havoc on the Earth's magnetic field, matching the severity of the 1859 Carrington event, the largest solar magnetic storm ever reported on the planet. That blast knocked out the telegraph system across the United States, according to University of California, Berkeley research physicist Janet Luhmann. "Had it hit Earth, it probably would have been like the big one in 1859, but the effect today, with our modern technologies, would have been tremendous," Luhmann said in a statement. A 2013 study estimated that a solar storm like the Carrington Event could take a $2.6 trillion bite out of the current global economy. Massive bursts of solar wind and magnetic fields, shot into space on July 23, 2012, would have been aimed directly at Earth if they had happened nine days earlier, Luhmann said. The bursts from the sun, called coronal mass ejections, carried southward magnetic fields and would have clashed with Earth's northward field, causing a shift in electrical currents that could have caused electrical transformers to burst into flames, Luhmann said. The fields also would have interfered with global positioning system satellites.

Government Agency Warns If 9 Substations Are Destroyed, The Power Grid Could Be Down For 18 Months - What would you do if the Internet or the power grid went down for over a year?  Our key infrastructure, including the Internet and the power grid, is far more vulnerable than most people would dare to imagine.  These days, most people simply take for granted that the lights will always be on and that the Internet will always function properly.  But what if all that changed someday in the blink of an eye?  According to the Federal Energy Regulatory Commission's latest report, all it would take to plunge the entire nation into darkness for more than a year would be to knock out a transformer manufacturer and just 9 of our 55,000 electrical substations on a really hot summer day.  The reality of the matter is that our power grid is in desperate need of updating, and there is very little or no physical security at most of these substations.

Here's How NASA Thinks Society Will Collapse - Few think Western civilization is on the brink of collapse—but it's also doubtful the Romans and Mesopotamians saw their own demise coming either. If we're to avoid their fate, we'll need policies to reduce economic inequality and preserve natural resources, according to a NASA-funded study that looked at the collapses of previous societies. "Two important features seem to appear across societies that have collapsed," reads the study. "The stretching of resources due to the strain placed on the ecological carrying capacity and the economic stratification of society into Elites and Masses." In unequal societies, researchers said, "collapse is difficult to avoid." As limited resources plague the working class, the wealthy, insulated from the problem, "continue consuming unequally" and exacerbate the issue, the study said. Meanwhile, resources continue to be used up, even by the technologies designed to preserve them. For instance, "an increase in vehicle fuel efficiency technology tends to enable increased per capita vehicle miles driven, heavier cars, and higher average speeds, which then negate the gains from the increased fuel-efficiency," the study said.

Energy, Getting it Wrong Around the World: Interview with Ed Dolan - Smart energy policies seem to be elusive. The US policy disappoints environmentalists and industry alike; Europe’s policy is economically disastrous but is getting people to change their habits; and developing-country subsidies aren’t helping the people they’re supposed to.  At a point in time when even the Chinese are having second thoughts about the balance they have struck between pollution and growth, the United States should be concerned about how much it’s willing to give up environmentally to remain competitive with energy. But there are ways to balance out this equation without further harming the environment or the economy, according to Libertarian economist Ed Dolan.  Ed Dolan is the author of the popular economics blog Ed Dolan’s Econ Blog, a key contributor to the EconoMonitor and the newly released book: TANSTAAFL (There Ain't No Such Thing As A Free Lunch) - A Libertarian Perspective on Environmental Policy.  In an exclusive interview with, Dolan discusses:

•    Why protecting the poor and the environment aren’t mutually exclusive
•    Why holding down energy prices doesn’t help the poor
•    How a Universal Basic Income would
•    Why ‘pollution charges’ would be a step in the right direction
•    How to balance pollution and growth
•    What ‘cheap energy’ really means
•    Why Europe’s energy policies are the opposite of intelligent
•    Why the Obama administration’s energy policy isn’t working
•    How to euthanize the ethanol mandate

Unskilled and Destitute Are Hiring Targets for Fukushima Cleanup -- “Out of work? Nowhere to live? Nowhere to go? Nothing to eat?” the online ad reads. “Come to Fukushima.” That grim posting targeting the destitute, by a company seeking laborers for the ravaged Fukushima Daiichi nuclear plant, is one of the starkest indications yet of an increasingly troubled search for workers willing to carry out the hazardous decommissioning at the site. The plant’s operator, the Tokyo Electric Power Company, known as Tepco, has been shifting its attention away, leaving the complex cleanup to an often badly managed, poorly trained, demoralized and sometimes unskilled work force that has made some dangerous missteps. At the same time, the company is pouring its resources into another plant, Kashiwazaki-Kariwa, that it hopes to restart this year as part of the government’s push to return to nuclear energy three years after the world’s second-worst nuclear disaster. It is a move that some members of the country’s nuclear regulatory board have criticized. That shift in attention has translated into jobs at Fukushima that pay less and are more sporadic, chasing away qualified workers. Left behind, laborers and others say, is a work force often assembled by fly-by-night labor brokers with little technical or safety expertise and even less concern about hiring desperate people. Police and labor activists say some of the most aggressive of the brokers have mob ties. Regulators, contractors and more than 20 current and former workers interviewed in recent months say the deteriorating labor conditions are a prime cause of a string of large leaks of contaminated water and other embarrassing errors that have already damaged the environment and, in some cases, put workers in danger. In the worst-case scenario, experts fear, struggling workers could trigger a bigger spill or another radiation release.

Fukushima operator halts water decontamination system - The operator of Japan’s crippled Fukushima nuclear plant said Wednesday it has temporarily shut down a decontamination system that scrubs radiation-tainted water used to cool damaged reactors. Tokyo Electric Power (TEPCO) said it had discovered a defect in its Advanced Liquid Processing System (ALPS) and switched it off on Tuesday for repairs. It is not the first time the utility has shut down the system, which has been hit by a series of glitches since trial operations began a year ago. “We don’t know yet when we can resume operating the system as we have not detected the cause of the defect yet,” a TEPCO spokeswoman told AFP. “But we still have room to store toxic water so there is no immediate concern.” TEPCO is struggling to handle a huge — and growing — volume of contaminated water at the tsunami-damaged plant. There are about 436,000 cubic metres of contaminated water stored at the site in about 1,200 purpose-built tanks.

Forests Around Chernobyl Aren’t Decaying Properly - Smithsonian -  Nearly 30 years have passed since the Chernobyl plant exploded and caused an unprecedented nuclear disaster. The effects of that catastrophe, however, are still felt today. Although no people live in the extensive exclusion zones around the epicenter, animals and plants still show signs of radiation poisoning.  Birds around Chernobyl have significantly smaller brains that those living in non-radiation poisoned areas; trees there grow slower; and fewer spiders and insects—including bees, butterflies and grasshoppers—live there. Additionally, game animals such as wild boar caught outside of the exclusion zone—including some bagged as far away as Germany—continue to show abnormal and dangerous levels of radiation.  However, there are even more fundamental issues going on in the environment. According to a new study published in Oecologia, decomposers—organisms such as microbes, fungi and some types of insects that drive the process of decay—have also suffered from the contamination. These creatures are responsible for an essential component of any ecosystem: recycling organic matter back into the soil. Issues with such a basic-level process, the authors of the study think, could have compounding effects for the entire ecosystem.

More Radiation Escapes from New Mexico Nuclear-Waste Facility - Sensors at a U.S. atomic-waste repository in New Mexico have detected a second release of radiation in less than a month, the Associated Press reports. A brief spike in radioactivity readings occurred on March 11 at the Waste Isolation Pilot Plant, the Energy Department said on Tuesday. The incident followed a Feb. 14 leak that exposed 17 personnel to contaminants and rendered underground portions of the site inaccessible to workers. The department said the quantity of newly escaped radiation was "very small," and appeared unlikely to affect the site's surroundings, employees or neighboring communities. Specialists suggested that radioactive material from the earlier leak had accumulated in the facility's air shafts and later became dislodged, according to an Energy news release. The source of the February escape remains unclear, but the site's operator previously suggested that a tunnel collapse or forklift accident might have breached a waste container. The Feb. 14 leak came days after a vehicle in the burial site caught fire. Site administrators have dismissed any possibility of a connection between the two incidents.

Food Not Fracking | Protect New York's Foodshed - New York City is part of a burgeoning food movement, with locally grown produce, artisanal cheeses, yogurt, handcrafted beers, grass-fed beef, and more, drawing major interest from chefs and consumers alike. In recent years, the number of farmers markets in NY State tripled; sales of organic food grew 26-fold. Even without fracking, the economic and health benefits of local food are at risk from the current expansion of shale gas infrastructure such as pipelines, storage caverns, and compressor stations that could forever change our landscape. Several areas are already under attack, despite a fracking moratorium.
• The Black Dirt Region is a unique, incredibly fertile agricultural area, now exposed to pollution from the Minisink compressor station.
• The Constitution pipeline could cut across pristine farmland, bisecting New York from west to east with compressor stations at least every 40 miles.
• Residents and vintners are fighting off massive LNG storage caverns and drilling support facilities in the Finger Lakes region.
• Farms in Oneida county are at risk if tribal lands are switched to Federal jurisdiction, opening them up to fracking.
Protect your food, protect our farms and farmers. Get involved now.

Fracking a Propane Shortage - From December into February, when winter temperatures plummeted to record lows across much of the country, residents in the Midwest and Northeast struggled to stay warm amid propane shortages and price spikes. Propane, also known as autogas or liquefied petroleum gas (LPG), is vital because it heats more than six million homes, fuels equipment and vehicle fleets, and is instrumental on farms for drying grain for storage and keeping livestock-filled barns warm in the winter.  The nation’s supply of propane—a byproduct of natural gas drilling, oil drilling and oil refining—has been surging alongside the oil and natural gas being pulled from shale formations from North Dakota to Texas and from Ohio to New York. To avert what was fast becoming a crisis, more than 30 states declared emergencies and loosened certain trucking regulations to ease propane deliveries from the Gulf Coast and elsewhere. Several factors, some caused by Mother Nature, others by company actions, led to the propane crisis. They included company decisions that curtailed pipeline deliveries of propane, and record-high exports that continued to drain supplies into the peak heating season.One reason companies proceeded with exports and pipeline changes that left propane consumers vulnerable this winter is that producers of many critical commodities—including oil, natural gas, propane, gasoline, diesel, jet fuel and heating oil—are not obliged to distribute those fuels in a way that benefits U.S. consumers. If it’s more profitable for companies to sell those products overseas or reconfigure pipelines, then whenever possible, they will do so.

Jump in rig count should be a positive for jobs - In another sign of improving momentum in the US economy, the active oil and gas rig count started rising in recent weeks. This is after a major decline in 2012 and a stagnant 2013. A big part of the drop in 2012 was due to the sharp decline in natural gas price. Production in certain situations became unprofitable - particularly for some of the more leveraged projects. Now that gas prices have firmed up and likely to stay that way (see post), some of the extraction projects make sense again - especially as technology improves. Should conversion from gas to liquids become less expensive (see story), rig count will increase further. Like it or not, oil and gas jobs tend to be high-paying - which should help with US wage stagnation. The industry also generates a decent job multiplier effect through the various peripheral sectors that support it (housing, manufacturing, transportation, etc.) If sustained, this jump in rig count could therefore provide a meaningful contribution to the US economic expansion.

The limited economic impact of the US shale gas boom - The US unconventional energy boom has reversed the decline of domestic production, lowered oil and gas imports, reduced gas prices, and created political space for tougher regulations on coal-fired power plants. This column argues that it is not a panacea, however. Even if current estimates prove accurate, the long-run benefits to the US economy will be relatively small. Improving energy efficiency and promoting low-carbon technologies will be just as important as before – especially for the EU, given its more limited known reserves of unconventional oil and gas.

As Fracking Grows In Ohio, So Do Earthquakes - Ohio has experienced a surge in earthquakes in recent years, an uptick that corresponds with an increase in fracking in the state, according to a new analysis. The Columbus Dispatch looked at data from the Ohio Department of Natural Resources and found that, between 1950 and 2009, Ohio saw an average of two greater than 2.0 magnitude earthquakes each year. Between 2010 and 2014, when fracking operations began to take off in the state, that number jumped to an average of nine per year.  That’s an uptick in earthquakes that’s been mirrored nationally, the analysis found. Between 2010 and 2012, the U.S. experienced an average of 100 magnitude 3.0 or higher earthquakes each year, compared to the 21 the country experienced each year between 1967 and 2000.  The analysis was prompted by a spate of earthquakes over the last few weeks in Ohio. Last week, five earthquakes were recorded in a 25-hour period near the town of Poland Township in Mahoning County, Ohio, an area that before a few years ago hadn’t seen a sizable earthquake in 100 years, according to the Columbus Dispatch. The earthquakes prompted a shutdown of a nearby fracking operation while scientists work to figure out whether the operation caused or contributed to the earthquakes. Officials with Columbia University’s Lamont-Doherty Earth Observatory say that those five earthquakes are part of a string of 11 1.2 to 3.0 magnitude quakes felt in the Youngstown, Ohio area between March 4 and 10.

Ohio Fracking Operation Halted Over Earthquakes - A series of earthquakes hit eastern Ohio on March 10 prompting officials to halt hydraulic fracturing operations as they investigated the cause. The earthquake occurred in Mahoning County near seven drilling sites owned by Hillcorp Energy.   In a region that has not historically had a high frequency of earthquakes, the occurrence of earthquakes central and southern regions of the U.S. have increased by a factor of 20. After a well is fractured, the waste water is pushed back into the ground for storage in what are known as “injection wells.” Scientists believe that there is evidence to support the idea that injection wells are contributing to the rise in earthquakes, rather than the “frack” job itself. However, the latest series of earthquakes occurred in an area without waste injection wells, but they were located near wells that are actively being drilled. This has raised questions about the connection between fracking and earthquakes.  The Ohio Department of Natural Resources suspended the drilling operations out of “an abundance of caution.” Hilcorp Energy, the operator of the nearby wells, agreed with the agency.

Fracking Induced Seismic Events: Ohio Frackquakes - Shown below are excerpts from a letter about the recent seismic events in Ohio from Dr. Ray Beiersdorfer, a geology professor at Youngstown State University, published online in its entirety here: Fracking Induced Seismic Events.  There have been five shallow earthquakes in close proximity to a shale gas fracking site in northeast Ohio very close to the Pennsylvania border (  The first was a M 3 earthquake on Monday March 10th at 2:26 am. It was located east of Poland, OH between Hwy 224 and the Carbon-Limestone Landfill (owned by Republic Services.)  The initial quake was followed by three aftershocks of M 2.4, 2.2 and 2.6 during the next ten hours. The most recent one M 2.1 occurred the following day at 3:01 a.m. The five epicenters are probably closer together than initially reported and the real depth is most likely somewhere between the 2.5 km attributed to the first quake and the 5.0 km depths reported for the three aftershocks. According to the permit for one of the wells at the site the horizontal leg is at a depth 8,100 feet (2.5 km). The pre-Cambrian basement is about 9600 feet below the surface in this location – approximately 1,500 feet below the horizontal shale gas wells. Simply put, the longitude, latitude and depth of the shale well laterals are within a few thousand feet from the epicenters of the earthquakes. Here is a copy of the well completion report.

Environmentalists Call For Ban on Fracking in Ohio After Earthquakes -- Environmental groups are calling for a ban on fracking in Ohio after a series of small earthquakes erupted near an active fracking site last week. Ohio regulators ordered the Texas-based firm Hilcorp Energy to shut down its fracking operations in rural northeastern Ohio after five temblors ranging from 2.1 to 3.0 in magnitude were recorded March 10 and March 11 in the area. The US Geological Survey reported that the epicenter of the first and largest quake was directly below a landfill where Hilcorp was fracking. Local residents felt the quakes but did not report any serious damage. Officials with the Ohio Department of Natural Resources (ODNR), which regulates oil and gas production in the state, said initial data indicated that the earthquakes were not related to drilling wastewater injection wells, which have been linked to small earthquakes in Ohio, Oklahoma and other states. If investigators link the quakes to Hilcorp's production operations, it would be the first time that the fracking process has directly caused documented earthquakes in Ohio, if not the entire United States.  In a statement released last week, ODNR spokesman Mark Bruce said that it would be "premature to speculate about these events until our data gathering and analysis is complete."  Environmentalists in Ohio, however, are already going on the offensive against the regulatory agency, which they say has a reputation for working closely with the industry.  "In asserting that these quakes are in no way linked to nearby oil and gas waste injection wells, the ODNR is confusing the issue," said Alison Auciello, the Ohio organizer for the watchdog group Food and Water Watch. "The ODNR’s quick decision to shut down all drilling in the area clearly implies that it suspects that the quakes are linked to injections of fracking fluid."

Link Between Fracking and Earthquakes Grows With Surge of Quakes in Ohio -- Evidence is mounting that there is a connection between the hydraulic fracturing—or fracking—method for extracting natural gas and earthquakes. Consider this item from EcoWatch this week: “On Monday, Northeast Ohio experienced at least four earthquakes in Mahoning County, just south of Youngstown. Can anyone guess what was nearby? – A fracking site with seven drilling wells. The Ohio Department of Natural Resources ordered the Texas based energy company, Hilcorp, to halt all fracking operations in the area.” Also on Monday, a ClimateProgress article explored the idea that as fracking operations grow in Ohio, “so do earthquakes.” Coincidence? It’s possible, but quite possibly not. Ohio is merely the latest place to make this connection: Other sightings on the fracking-earthquake circuit have occurred in the U.K., the Netherlands, British Columbia, East Texas, Oklahoma and even California. Last November, Northern Texas towns experienced an intense string of 16 earthquakes over a three-week period–the last of which was one of the most powerful in the area in the past five years. A report last month on the Moyers & Co. Connecting the Dots blog said: “In both Texas and Oklahoma, the number of earthquakes per year has increased ten-fold. And wells storing wastewater from fracking have also been linked to hundreds of earthquakes near Youngstown, Ohio.”

Did 'fracking' play role in LA earthquake? Councilmen want to know - Three Los Angeles City Council members want city, state and federal groups to look into whether hydraulic fracturing and other forms of oil and gas “well stimulation” played any role in the earthquake that rattled the city early Monday morning. The motion, presented Tuesday by Councilmen Paul Koretz and Mike Bonin and seconded by Councilman Bernard Parks, asks for city departments to team up with the California Division of Oil, Gas and Geothermal Resources, the U.S. Geological Survey and the South Coast Air Quality Management District to report back on the likelihood that such activities contributed to the 4.4-magnitude quake. Earlier this year, the council voted to draft rules that would bar hydraulic fracturing, often referred to as “fracking,” acidizing and other kinds of well stimulation in Los Angeles until council members felt sure that Angelenos and the water they drink were safe from their effects. The risk of triggering earthquakes was among the dangers cited by Bonin and Koretz, who championed the move. “All high-pressure fracking and injection creates ‘seismic events,’” the motion states. It added, “Active oil extraction activities are reportedly taking place on the Veteran’s Administration grounds in West Los Angeles, nearby the epicenter” of the Monday quake.

California City Temporarily Bans All New Oil Drilling Over Fracking Concerns - A California city has become the first in the state to place a moratorium on all new oil and gas drilling, prompted by worries about the safety of using fracking to extract oil from the city’s rich reserves. The moratorium, which was passed unanimously this week by the Carson City Council, puts a 45-day halt on oil company Occidental Petroleum’s plans to drill more than 200 wells near homes and a university in the city. The moratorium leaves time for the city to look into the safety of multiple drilling techniques and determine whether further regulations should be imposed on the industry. After the 45-day ban is up, Carson, which is located in Los Angeles County, will determine whether or not to impose a one-year moratorium.  The ban was spurred by the news that Occidental was planning to use fracking to harvest the 52 million barrels of oil that lie beneath the Carson area. Later, Occidental said they had changed plans and wouldn’t be using fracking, but Carson residents worried that Occidental wouldn’t keep its word.  “The oil companies have drilled there for 100 years, and now all the easy-to-get-out oil is gone and ‘Big Oil’ has to resort to riskier methods,” Carson resident Glen White told the city council. “They get all the profits. We get all the risks. Their profits, our resources.”

Attempt To Ban Fracking In Johnson County, Illinois Fails - One day after the American Petroleum Institute celebrated fracking’s 65th birthday across social media, residents in Johnson County Illinois voted against a measure that would have effectively banned fracking in their community.  The southern Illinois county is home to just 12,000 people, but sits atop of the coveted “New Albany Shale” of the Illinois Basin. The shale could hold up to 300 billion barrels of oil. The referendum question in Johnson County asked: “Shall the people’s right to local self-government be asserted by Johnson County to ban corporate fracking as a violation of their rights to health and safety?” Fifty-eight percent of voters said “no.”  The referendum was organized by two anti-fracking groups — Southern Illinoisans Against Fracking Our Environment (SAFE) and the Community Environment Legal Defense Fund (CELDF) of Pennsylvania. The groups argued that fracking would endanger local groundwater supplies and warned against the risk of earthquakes in the area, which has many fault lines. SAFE collected over 1,000 signatures in support of the ban — three times as many as needed to put the issue to a vote.

Must-Read: How Fracking Destroys the American Dream - Since we first published Drilling vs. The American Dream, fracking has continued unabated, inching up and into ever more cities, towns and neighborhoods. To keep up with the changes, we updated the guide to include new data and research and new stories from the growing choir of millions of Americans who are now directly affected by oil and gas development: There are currently more than 1.1 million active oil and gas wells in the U.S., and more than 15 million Americans now live within a mile of the hundreds of thousands that have been drilled since 2000, according to an analysis by the Wall Street Journal. Made possible by the advent of fracking, drilling is taking place in shale formations from California to New York and from Wyoming to Texas. And there’s no indication that this “unprecedented industrialization” shows any signs of slowing. Almost 47,000 new oil and natural gas wells were drilled in 2012, and industry analysts project that pace will only continue. Drilling rigs now regularly inch up and even into communities that never anticipated having to address problems like round-the-clock noise, storage tanks, drums of toxic chemicals, noxious fumes, near-constant truck traffic and pipelines near homes, schools, playgrounds and parks. For many, the impacts of this kind of large-scale industrial activity are incompatible with quality of life. At a more macro level, research is staring to show that energy booms such as the current drilling frenzy may not be the economic windfall that boosters make them out to be. After the initial surge in income and jobs that comes with drilling, problems inevitably follow: higher crime rate, decreased educational attainment and over the long run, significant declines in income. The more heavily a community ties itself to the drilling economy, the greater the decline. “The magnitude of this relationship is substantial,” the study authors are quoted saying in the Washington Post, “decreasing per capita income by as much as $7,000 for a county with high participation in the boom.”

Winter Propane Shortage — Engineered Industry Gamble Which Cost Lives - Debbie Dogskin is dead. She was found in her Fort Yates, North Dakota, mobile home frozen to death with an empty propane tank. [1] [2] What was the cause of the propane shortage which caused prices to rise and supplies to dwindle in the northern midwest and the northeast this winter? Short answer: It was an engineered gamble by industry seeking to maximize profits. There were really four factors which contributed to the shortage this winter.

2: Abnormally wet corn harvest required extra propane to dry
3: Abnormally cold winter increased demand
4: Lack of local storage in the places with the greatest demand.

But what was the number 1 reason? The Enterprise TEPPCO line (which ships refined liquids, NGLs, mostly or all propane in winter) was a looped line from Texas to New York. There were two parallel segments which delivered products from storage fields in Texas to the North Central and NE markets during the winter demand months. One of those segments became the ATEX line, which was reversed to transport NGLs from the wet-gas rich Marcellus/Utica formations from SW-PA/E. Ohio/WV down to Texas for refining and marketing. So that industry folks could make money. Lots of it. FERC order approving the the TEPPCO/ATEX reversal 5-31-13 So when that happened, Enterprise-TEPPCO lost approximately 1/2 the propane supply capacity to the midwest and northeast. Oh, and there’s another reason. According to the Energy Information Agency, propane exports have risen sharply in the last few years.

Chesapeake Energy’s $5 Billion Shuffle -- At the end of 2011, Chesapeake Energy, one of the nation’s biggest oil and gas companies, was teetering on the brink of failure. The money could be borrowed, but only on onerous terms. Chesapeake, which had burned money on a lavish steel-and-glass office complex in Oklahoma City even while the selling price for its gas plummeted, already had too much debt. In the months that followed, Chesapeake executed an adroit escape, raising nearly $5 billion with a previously undisclosed twist: By gouging many rural landowners out of royalty payments they were supposed to receive in exchange for allowing the company to drill for natural gas on their property. In lawsuits in state after state, private landowners have won cases accusing the companies like Chesapeake of stiffing them on royalties they were due. Federal investigators have repeatedly identified underpayments of royalties for drilling on federal lands, including a case in which Chesapeake was fined $765,000 for “knowing or willful submission of inaccurate information” last year. Last month, Pennsylvania governor Tom Corbett, who is seeking reelection, sent a letter to Chesapeake’s CEO saying the company’s expense billing “defies logic” and called for the state Attorney General to open an investigation.

How Chesapeake Fracks Landowners  - One royalty check at a time. Docking royalty checks with post-production costs is the oldest trick in the fracking book. A guy crooked me on some royalty payments, but I sued, called the cops and sent the guy to the state penitentiary – where my cousin, the asst. warden, made sure he was treated real nice. Chessie played the royalty fraud game for billions. Here’s the key excerpt from the full report of how Chesapeake bilked thousands of landowners, including the City of Forth Worth, the Bass Brothers, and a whole lot of farmers by overcharging them on post-production costs that Chesapeake tacked on to pay back its financial backers – that bought Chessie’s gathering system. If you are a landowner got crooked, you can sue Chesapeake for the over-charge. Get in line.  “At the end of 2011, Chesapeake Energy, one of the nation’s biggest oil and gas companies, was teetering on the brink of failure. The money could be borrowed, but only on onerous terms. Chesapeake, which had burned money on a lavish steel-and-glass office complex in Oklahoma City even while the selling price for its gas plummeted, already had too much debt. In the months that followed, Chesapeake executed an adroit escape, raising nearly $5 billion with a previously undisclosed twist: By gouging many rural landowners out of royalty payments by charging back “transportation fees”- that Chesapeake was paying to its financiers.  In lawsuits in state after state, private landowners have won cases accusing the companies like Chesapeake of stiffing them on royalties they were due. Federal investigators have repeatedly identified underpayments of royalties for drilling on federal lands, including a case in which Chesapeake was fined $765,000 for “knowing or willful submission of inaccurate information” last year.

Exploding Shale Oil Bomb Trains -- Sweet light crude from the Bakken Shale formation straddling North Dakota and Montana has long been known to be especially rich in volatile natural gas liquids like propane. Much of the oil is being shipped in railcars designed in the 1960s and identified in 1991 by the National Transportation Safety Board as having a dangerous penchant to rupture during derailments or other accidents. While there’s no way to completely eliminate natural gas liquids from crude, well operators are supposed to use separators at the wellhead to strip out methane, ethane, propane and butane before shipping the oil. A simple adjustment of the pressure setting on the separator allows operators to calibrate how much of these volatile gases are removed. The worry, according to a half-dozen industry experts who spoke with InsideClimate News, is that some producers are adjusting the pressure settings to leave in substantial amounts of natural gas liquids. “There is a strong suspicion that a number of producers are cheating. They generally want to simply fill up the barrel and sell it—and there are some who are not overly worried about quality,” said Alan J. Troner, president of Houston-based Asia Pacific Energy Consulting, which provides research and analysis for oil and gas companies. “I suspect that some are cheating and this is a suspicion that at least some refiners share.” Harry Giles, a now-retired, 30-year veteran of the Department of Energy whose duties included managing the crude oil quality program for the Strategic Petroleum Reserve, said there’s “a distinct possibility” that propane has been intentionally left in Bakken oil. “I think there is such a large focus on what’s happening in the Bakken…that no one really cares to talk about these issues,” Giles said.

Shale Oil Bomb Trains: What the Frackers Won’t Admit - Until last year, crude oil from North Dakota moving by rail through the country wasn’t thought to be explosive. Then it started blowing up. As investigators have worked to determine why three oil train accidents last year resulted in catastrophic explosions with sky-high fireballs, attention has increasingly focused on the volatility of the oil and the flammable gases that saturate it. Oil moving through Oregon is no different. The North Dakota crude is unusually volatile and contains high levels of propane. It’s been more volatile than the oil involved in the July accident in Quebec that killed 47 people, which Canadian authorities said had properties similar to unleaded gasoline. The Oregonian reviewed six tests of the oil moving by rail to a Columbia River terminal outside Clatskanie. Here are five key takeaways from our reporting.

  • 1. The oil moved by trains in Oregon is more volatile than gasoline you put in your car or any crude oil moved through the country’s pipeline system. A substance that’s more volatile emits more flammable gas and more pressure when it’s heated, making it riskier to transport.
  • 2. The oil moved in the state has contained more propane and butane than comparable types of oil. The oil had six times more flammable propane than crude oils that an oil quality expert said are similar. (You burn propane if you have a backyard gas grill.) Oil producers have a financial incentive to leave propane in their shipments – it gives them more to sell, but also makes the oil more volatile.
  • 3. Quality-control rules are different if you move oil in trains than pipelines. If you move oil in a pipeline, you must ensure it’s not too volatile. If you move oil in a train car, you don’t have to.
  • 4. Moving more volatile oil is riskier because it makes it easier for pressure to build inside tank cars. . The North Dakota oil moving through Oregon has produced 11.95 psi at 100 degrees Fahrenheit.

'Significant' Oil Spill Near Ohio River -- An estimated 10,000 gallons of crude oil leaked from a pipeline and was discovered overnight in Colerain Township in Ohio, which is located in one of the Hamilton County park system's four conservation areas. The spill reportedly appears to have affected a mile of intermittent stream, pooling in a wetland in the Oak Glen Nature Preserve. Hazmat crews and the Ohio Environmental Protection Agency were called to the scene. A local Fox News affiliate, Channel 19 News reports: Fire officials said their primary concern is not the human impact, but the environmental impact. EPA officials, Hamilton County park rangers and representatives with pipeline company were on scene assessing the extent of the leak and possible environmental impact."This could be a very long, drawn-out process to mitigate it," Conn said. "They have to clean the rocks, get everything cleaned out and pump the oil out. We're obviously very worried about the water supply and the water and making sure it didn't get into that, that it didn't get into the river. If it did, we're talking about a whole other issue."During a briefing Tuesday morning, EPA spokeswoman Heather Lauer confirmed that one mile of intermittent stream was affected by the spill, which ends in one acre of wetland.

Sunoco oil pipeline leaks in Ohio nature preserve (Reuters) - A major oil pipeline owned by Sunoco Logistics Partners LP leaked thousands of gallons of crude oil into a nature preserve in southwest Ohio late on Monday. Between 7,000 and 10,000 gallons (26,000-38,000 liters) of sweet crude leaked into the Oak Glen Nature Preserve about a quarter of a mile from the Great Miami River, according to early estimates from the Ohio Environmental Protection Agency. The leak, which occurred on a line operated by Mid-Valley Pipeline Co, a division of Sunoco, was discovered at 8:20 p.m. EDT on Monday (0020 GMT Tuesday). The company shut the line, which helped reduce the pressure of the leaking oil, an EPA spokeswoman said, but it was unclear if oil was still spewing from the pipe. Some oil reached a wetland a mile away and on Tuesday, clean-up crews were preparing to vacuum the wetland, located 20 miles north of Cincinnati. The oil did not appear to have reached the Great Miami River, though tests were still being completed, the EPA said.

The biggest lease holder in Canada’s oil sands isn’t Exxon Mobil or Chevron. It’s the Koch brothers.: You might expect the biggest lease owner in Canada's oil sands, or tar sands, to be one of the international oil giants, like Exxon Mobil or Royal Dutch Shell. But that isn't the case. The biggest lease holder in the northern Alberta oil sands is a subsidiary of Koch Industries, the privately-owned cornerstone of the fortune of conservative Koch brothers Charles and David. The Koch Industries subsidiary holds leases on 1.1 million acres -- an area nearly the size of Delaware -- in the oil sands region of Alberta, Canada, according to an activist group that studied Alberta provincial records. The Post confirmed the group’s findings with Alberta Energy, the provincial government’s ministry of energy. Separately, industry sources familiar with oil sands leases said Koch’s lease holdings could be closer to two million acres. The companies with the next biggest net acreage positions in oil sands leases are Conoco Phillips and Shell, both close behind. What is Koch Industries doing there? The company wouldn't comment on its holdings or strategy, but it appears to be a long-term investment that could produce tens of thousands of barrels of the region's thick brand of crude oil in the next three years and perhaps hundreds of thousands of barrels a few years after that.

Koch Brothers Are The Largest Land Owners Of Canada’s Tar Sands - The Koch Brothers are known for many things — their vast financial empire, their conservative political ideology, their active political involvement, their support of the Keystone XL pipeline — but their Alberta, Canada land ownership has not been as widely discussed. A Washington Post feature has brought this subject back to attention as the Keystone XL debate heats up and discussion over the relationship between the Koch Brothers and their Republican allies takes on even greater significance in an important election year.  According to the Washington Post, a Koch Industries subsidiary holds leases on 1.1 million acres in the northern Alberta oil sands, an area nearly the size of Delaware. The Post confirmed the group’s findings with Alberta Energy, the provincial government’s ministry of energy.  “What is Koch Industries doing there?,” asks the Washington Post. “The company wouldn’t comment on its holdings or strategy, but it appears to be a long-term investment that could produce tens of thousands of barrels of the region’s thick brand of crude oil in the next three years and perhaps hundreds of thousands of barrels a few years after that.” The report found that Koch Industries is “one of Canada’s largest crude oil purchasers, shippers, and exporters, with more than 130 crude oil customers,” and is also responsible for about 25 percent of oil sands crude imports into the U.S., for use at its refineries.

While America Spars Over Keystone XL, A Vast Network Of Pipelines Is Quietly Being Approved -- After countless marches, arrests, Congressional votes, and editorials, the five-and-a-half year battle over the controversial Keystone XL pipeline is nearing its end. But while critics and proponents of Keystone XL have sparred over the last few years, numerous pipelines — many of them slated to carry the same Canadian tar sands crude as Keystone — have been proposed, permitted, and even seen construction begin in the U.S. and Canada. Some rival Keystone XL in size and capacity; others, when linked up with existing and planned pipelines, would carry more oil than the 1,179-mile pipeline.  With the public eye turned on Keystone, some of these pipelines have faced little opposition. But it’s not just new pipelines that worry Carl Weimer, executive director of the Pipeline Safety Trust. Weimer said companies are beginning to revamp old pipelines by expanding their capacity or reversing their flow, changes that can be troubling if proper safety measures aren’t put in place.  “Some of these pipelines have been in the ground for 40, 50, 60 years, so they were put in the ground before pipelines had the latest and greatest coatings or before the welding was up to snuff,” he said. “So there’s lots of issues about how you verify that the pipe that’s been in the ground that long is really up to additional pressures.”  But post-Keystone decision, he said, he’s not sure whether that interest will wane, or whether activists will pick right back up where they left off on Keystone and tackle other pipeline proposals.

Breaking: North Carolina Regulators Take Legal Action Against Duke Energy for Coal Ash Dumping -- North Carolina environmental regulators have cited Duke Energy for violating the conditions of a wastewater permit after it illegally dumped an estimated 61 million gallons of coal ash wastewater into a Cape Fear River tributary, according to Waterkeeper Alliance.  The state’s Department of Environment and Natural Resources (DENR) issued the citation on Thursday for the permit violations after state officials discovered the dumping during a March 11 inspection at Duke Energy’s Cape Fear Steam Electric Plant. Regulators said the wastewater was flushed from two large, confined lagoons and into the on-site canal that empties in an unnamed tributary, which connects with the Cape Fear River. The state agency calculated its estimate based on log books Duke Energy maintained for the pumping activities. Waterkeeper Alliance released aerial surveillance photos taken from a fixed-wing aircraft last week catching Duke Energy workers in the act of pumping the wastewater. “After more than a week of indecisiveness, DENR conceded that Duke’s secret pumping was indeed illegal, but yet again, DENR’s action only came after Waterkeeper Alliance and the Cape Fear Riverkeeper caught Duke in the act with aerial surveillance photos,” said Donna Lisenby, Waterkeeper Alliance’s global coal campaign coordinator. “Once again, citizens and shrewd investigative reporters had to work overtime to pick up the slack because DENR had failed to notice this egregious dumping for several months.”

Duke Energy Caught Intentionally Dumping 61 Million Gallons Of Coal Waste Into North Carolina Water - North Carolina regulators on Thursday cited Duke Energy for illegally and deliberately dumping 61 million gallons of toxic coal ash waste into a tributary of the Cape Fear River, which provides drinking water for several cities and towns in the state. The incident marks the eighth time in less than a month that the company has been accused of violating environmental regulations. The North Carolina Department of Environment and Natural Resources (DENR) said Duke — notorious for the February Dan River disaster which saw 82,000 tons of coal ash released into state waters — was taking bright blue wastewater from two of its coal ash impoundments and running it through hoses into a nearby canal and drain pipe. Duke is reportedly permitted to discharge treated wastewater from the ash ponds into the canal, but only if they are filtered through so-called “risers,” pipes that allow heavier residue in the water to settle out. DENR told ABC News on Thursday that Duke’s pumping bypassed the risers.“We’re concerned with the volume of water that was pumped and the manner it was pumped,” DENR Communications Director Drew Elliot told ABC. “It did not go through the treatment facility as it should have.”

President Of Company That Tainted West Virginia’s Water Wants To Be Paid During Bankruptcy - The man at the helm of Freedom Industries — the company that declared bankruptcy days after polluting drinking water for 300,000 West Virginians in January — would like to be paid for his troubles.  Gary Southern, who earns a $230,000 salary, has not received a paycheck since Jan. 19, according to court documents. But he has been working very hard, his lawyers say. Since Jan. 9, the day when 10,000 gallons of mystery-chemical spilled into West Virginia’s water, Southern as worked 12-16 hours per day, every day. Since March 3, he has worked 10-12 hours per day, Monday through Friday, and has been on call. Those duties have included tending to environmental clean-up efforts, cooperating with a federal investigation into his companies’ practices, and attending “daily meetings with representatives of the state and federal government.”

BP Return to Gulf of Mexico Marks U.S. Energy Sea Change -- British energy company BP on Wednesday won its first bids on acreage in the Gulf of Mexico in nearly four years. Next month marks the fourth anniversary of the Deepwater Horizon tragedy -- and the drilling moratorium that followed -- and federal officials said the region is still a centerpiece of the U.S. energy portfolio. The U.S. Department of Interior said Wednesday it attracted more than $872 million in high bids for the 1.7 million acres on the auction block in the Central Gulf of Mexico. Tommy Beaudreau, director of the Bureau of Ocean Energy Management, said the Gulf of Mexico remains one of the most productive oil basins in the world.  "While domestic energy production is growing rapidly in the United States, the Central Gulf of Mexico, as demonstrated by today's lease sale, will continue to be one of the cornerstones of the nation's energy portfolio," he said in a statement.

Net vs. gross energy: Is it wise to be complacent? - Everyone knows that when a potential employer makes a job offer, the salary or wage he or she proposes isn't what you'll be taking home. What you'll take home is your net pay. It's not quite a perfect analogy with net energy versus gross energy. But it's an everyday analogy that most people can understand. Net pay is what you have to pay your bills today. And, net energy is what society has in order to conduct its business (and its fun) on any given day. Net energy is what's left after the energy sectors of the economy--oil and gas, coal, nuclear, hydroelectric, renewable energy industries, and farming which provides food for human and animal energy and crops for biofuels--expend the energy they must to extract energy from the environment and then sell the surplus to the rest of us. We don't often think of these sectors of the economy because for most people they are out of sight and therefore out of mind. And, until the last decade food and energy have been so consistently cheap in the last 60 years or so, that few people ever paused to ponder the fact that it takes energy to get energy. And, after all, cheap energy is an indication that it takes very little energy to extract huge amounts of energy from the environment. So, why worry about that?  Since 86 percent of the energy consumed worldwide is derived from burning finite fossil fuels, we are faced with a serious dilemma. Eventually, the energy we get from these fuels will turn down--and not for the reason that most people think. The world continues to extract more gross energy in the form of oil, natural gas, and coal each year. And yet, it takes energy to find, extract, refine and deliver that energy to society. So, are we still getting more net energy from those fuels each year? No one knows the answer.

Russia’s Unconventional Weapon: Natural Gas -  Although the region’s need for Gazprom supplies may strengthen his hand in the present, the strategy is forcing Europe to end its reliance on Russia. After the crises of 2006 and 2009, Europe increased imports from Norway and Qatar. It built new facilities for receiving liquefied natural gas, and upgraded storage capacity, so that supplies could be stockpiled in case of a cutoff. It imported more coal. Pipeline connections within the E.U. were improved, making shortages easier to alleviate. The Crimea crisis will give new impetus to these efforts. The U.K.’s foreign secretary has said that the crisis is likely to make Europe “recast” its approach to energy. A draft document prepared for a forthcoming E.U. summit deplored the Continent’s “high energy dependency” and called on E.U. members to diversify their supplies. These moves are reminiscent of what happened after the oil crises of the nineteen-seventies made it clear to the West and Japan that relying on OPEC suppliers was foolish. Europe installed energy-saving technologies and invested heavily in nuclear energy and natural gas. France built fifty-six nuclear reactors in the fifteen years after the oil embargo of 1973. This time around, we’re sure to see more infrastructure for liquefied natural gas and more emphasis on renewables. Europe may also finally make its peace with fracking—a hard sell till now, not just because of environmental concerns but also because European landowners typically don’t own the mineral rights to their property, and so have no incentive to allow drilling. But there are Eastern European countries, including Poland and Ukraine, sitting on billions of cubic feet of shale gas, and Ukraine signed exploration contracts with Chevron last year. Russia is clearly anxious. Gazprom executives have been quick to belittle fracking’s potential, and the issue has turned Putin into the world’s most unlikely environmentalist. Fracking, he says, makes “black stuff” come out of your faucet.

Russia Eyes Crimea’s Oil and Gas Reserves - According to Reuters, Crimea may nationalize oil and gas assets within its borders belonging to Ukraine, and sell them off to Russia. Crimea’s Deputy Prime Minister hinted at the possibility that it would take control of Chornomorneftegaz, a Ukrainian state-owned enterprise, and then “privatize” it by selling it to Gazprom. “After nationalisation of the company we would openly take a decision – if a large investor, like Gazprom or others emerges – to carry out (privatisation),” Deputy Prime Minister Rustam Temirgaliev said. Crimea’s Russian-backed government has decided to hold a referendum on March 16 to secede from Ukraine. At the time of this writing, Russia’s heavy involvement in the drive for Crimean secession makes it hard to believe that Sunday’s result will be anything other than an overwhelming result in favor of breaking ties with Kiev (either greater autonomy or annexation by Russia). The next steps are much less clear, however. Secretary of State John Kerry is hoping Russia will hold off on fully annexing Crimea, leaving open the possibility of some diplomatic way of resolving the crisis. The ongoing political standoff in Crimea has already halted Ukraine’s oil and gas ambitions. Ukraine came close to inking a deal with a consortium of international oil companies that would have led to an initial $735 million investment to drill two offshore wells. The consortium led by ExxonMobil – with stakes held by Shell, Romania’s OMV Petrom, and Ukraine’s Nadra Ukrainy – had been particularly interested in the Skifska field in the Black Sea, which holds an estimated 200 to 250 billion cubic meters of natural gas. If it can get the field up and running, Exxon hopes to eventually produce 5 billion cubic meters per year. Exxon’s consortium outbid Russian oil company Lukoil for the rights to the block. Those plans were still in the early stages – the consortium and the Ukrainian government led by Viktor Yanukovych couldn’t agree on terms. Obviously, once Yanukovych was ousted, ExxonMobil had to put those plans on hold until further notice.

Ukraine's Oil and Natural Gas Reserves - A Pawn in Geopolitical Chess Game? - There is more than one reason why Russia is interested in Crimea and the Ukraine.  One of the reasons is likely related to the potential for oil and natural gas reserves on and adjacent to the Crimean Peninsula and onshore in both Eastern and Western Ukraine, a topic that received little attention from the world's media until the geopolitical situation in Ukraine started to heat up.    Back in the Soviet days, the oil industry discovered indications of hydrocarbons, however, productivity was poor.  Flow rates were low and were considered subeconomic given that the porosity in the fractured reservoirs was low.  With recent advances in production techniques, the potential to produce hydrocarbons from these tight reservoirs has increased substantially, particularly with the use of fracking to produce natural gas and condensate from shale reservoirs.  There are two key areas for potential hydrocarbon accumulations in Ukraine; offshore in the Black Sea around Crimea and onshore in both eastern and western Ukraine.  Here is a map showing the key oil and gas exploration and development areas in the Black Sea, noting the Crimean Peninsula in the top right side of the screen capture:

What the Loss of Crimea Means for Ukrainian Energy: Interview with Robert Bensh - Ukraine’s Crimean Peninsula is now Russia’s. It was done with an impressively organized non-violent military operation, and supported by the foregone conclusion of a referendum on independence from Ukraine. Ukrainian troops have been ordered to disengage entirely, and Russia will keep its tanks from rolling into Eastern Ukraine. We’ll hear a lot of rhetoric for the next six months before Crimea is forgotten. From an energy perspective, the Crimea is not a major loss for Ukraine, and now it’s up to the new government to get real shale development in motion, and for Turkey to face up to its own strategic realities and join forces with Ukraine to harness LNG potential, according to Ukraine energy expert Robert Bensh.  Robert Bensh is an energy and energy security expert who has led oil and gas companies in Ukraine for over 13 years, and served as an advisor to former energy minister and former vice-prime minister Yuri Boyko on issues of Western capital markets and political systems.  In an exclusive interview with from Kiev, Bensh discusses:

•    Why the Crimea game is over
•    What Russia isn’t likely to roll into eastern Ukraine
•    What Ukraine is losing from an energy perspective
•    How Russia’s moves are strengthening Ukrainian resolve
•    How the annexation of Crimea has heralded a new patriotism in Ukraine
•    Why a lot rests of Ukraine’s next move on shale
•    What opening the Bosporus to LNG would mean for Ukraine
•    Why Turkey should be watching very closely

Russia’s $160 Billion Stick Hinders Crimean Sanctions - As U.S. and European officials threaten sanctions in their face-off with Russia over Ukraine, Vladimir Putin’s $160 billion in oil and natural gas exports may be his most potent weapon to limit punitive measures. The U.S. and its European allies, meeting today in Brussels, have few levers to deter Putin even as they warn Russia not to annex Crimea after a referendum in Ukraine’s southern region yesterday. Threats of visa bans and asset freezes on some officials haven’t rattled the Kremlin thus far. Russia, the world’s largest oil producer, exported $160 billion worth of crude, fuels and gas-based industrial feedstocks to Europe and the U.S. in 2012. While shutting the spigot on Russian energy exports would starve the Moscow government of essential flows of foreign cash, the price may be too high for European consumers and it may not alter Putin’s plans, said Jeff Sahadeo, director of Carleton University’s Institute of European, Russian and Eurasian Studies. “In the short term, this would be very difficult to do and it’s not clear it would even affect Russian behavior,” If the West “puts down the card of energy sanctions, it becomes a question of who blinks first.”

Why ExxonMobil’s Partnerships With Russia’s Rosneft Challenge the Narrative of U.S. Exports As Energy Weapon In a long-awaited moment in a hotly contested zone currently occupied by the Russian military, Ukraine's citizens living in the peninsula of Crimea voted overwhelmingly to become part of Russia. Responding to the referendum, President Barack Obama and numerous U.S. officials rejected the results out of hand and the Obama Administration has confirmed he will authorize economic sanctions against high-ranking Russian officials.  But even before the vote and issuing of sanctions, numerous key U.S. officials hyped the need to expedite U.S. oil and gas exports to fend off Europe's reliance on importing Russia's gas bounty. In short, gas obtained via hydraulic fracturing ("fracking") is increasingly seen as a "geopolitical tool" for U.S. power-brokers, as The New York Times explained.  Perhaps responding to the repeated calls to use gas as a "diplomatic tool," the U.S. Department of Energy (DOE) recently announced it will sell 5 million barrels of oil from the seldom-tapped Strategic Petroleum Reserve. Both the White House and DOE deny the decision had anything to do with the situation in Ukraine. Yet even as some say we are witnessing the beginning of a "new cold war," few have discussed the ties binding major U.S. oil and gas companies with Russian state oil and gas companies. The ties that bind, as well as other real logistical and economic issues complicate the narrative of exports as an "energy weapon." The U.S. and Russian oil and gas industries can best be described as "frenemies." Case in point: the tight-knit relationship between U.S. multinational petrochemical giant ExxonMobil and Russian state-owned multinational petrochemical giant Rosneft. ExxonMobil CEO Rex Tillerson sung praises about his company's relationship with Rosneft during a June 2012 meeting with Vladimir Putin.

GASNOST: Exxon NIMBY Inks Deal With Putin  -- Steve Horn’s take on GASNOST. The Steve questions why a “corporate person” Exxon, would lobby for an LNG export terminal – ostensibly to ship gas to Europe to break Russia’s hegemony there – while at the same time ink a deal to explore for gas in Russia which will be shipped to Europe. Why indeed ! For openers, the LNG would not go to Europe, as explained here – it would go to South America and Asia. where it’s worth 2x what it’s worth in Europe.  The threat to Russia’s gaseous hegemony in Europe is not LNG from the US, but pipelines from the Mideast; like the ones they’re fighting a war over in Syria. Oh, and Exxon is not a “person”. They’re a bunch of frackers, run by a fracking NIMBY. So what do you expect ? Pizzas ? 

Deterioration in U.S.-Russian Relations May Disrupt Coming Talks With Iran - Tensions between the West and Russia over events in Ukraine have cast a shadow over the second round of talks set to begin on Tuesday in Vienna on a permanent nuclear agreement with Iran.Although the talks have no direct connection to Ukraine, their success hinges on solidarity among the so-called P5-plus-one countries — the five permanent members of the United Nations Security Council, which include Russia, plus Germany — in favor of a tough agreement with Iran to drastically scale back its nuclear program.If Russia signals that its cooperation with the West has weakened, that will reduce pressure on Iran to make concessions, said experts knowledgeable about the talks, which began last month with three days of meetings involving senior diplomats from each of the governments involved.  A senior American official, speaking before the Iran talks and just before the secession vote in Crimea on Sunday that overwhelmingly approved reunification with Russia, indicated concern about possible consequences from the friction over Ukraine. Since western nations consider that vote illegal and have warned President Vladimir V. Putin of Russia not to annex Crimea, the situation for the Iran talks would now seem more worrisome.

Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China -- While Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the "Holy Grail" energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis. One which, as some especially on these pages, have suggested would lay the groundwork for a new joint, commodity-backed reserve currency that bypasses the dollar, something which Russia implied moments ago when its finance minister Siluanov said that Russia may regain from foreign borrowing this year. Translated: bypass western purchases of Russian debt, funded by Chinese purchases of US Treasurys, and go straight to the source.

Chinese going for broke on thorium nuclear power, and good luck to them - The nuclear race is on. China is upping the ante dramatically on thorium nuclear energy. Scientists in Shanghai have been told to accelerate plans (sorry for the pun) to build the first fully-functioning thorium reactor within ten years, instead of 25 years as originally planned.“This is definitely a race. China faces fierce competition from overseas and to get there first will not be an easy task”,” says Professor Li Zhong, a leader of the programme. He said researchers are working under “warlike” pressure to deliver. Good for them. They may do the world a big favour. They may even help to close the era of fossil fuel hegemony, and with it close the rentier petro-gas regimes that have such trouble adapting to rational modern behaviour. The West risks being left behind, still relying on the old uranium reactor technology that was originally designed for US submarines in the 1950s.The excellent South China Morning Post trumpeted the story this morning on the front page of its website. As readers know, I have long been a fan of thorium (so is my DT economics colleague Szu Chan). It promises to be safer, cleaner, and ultimately cheaper than uranium. It is much harder to use in nuclear weapons, and therefore limits the proliferation risk. There are ample supplies of the radioactive mineral. It is scattered across Britain. The Americans have buried tonnes of it, a hazardous by-product of rare earth metal mining.

China’s Plan To Develop Totally New Nuclear Fuel Speeds Up - China needs energy just about any way they can get it — coal, gas, solar, wind, biomass, nuclear — they’ll take it. However the country’s heavy reliance on coal is is becoming a heavy liability. Coal-fired power plants and other industrial outlets that ring China’s growing urban hubs are creating near-permanent smog centers that choke out the sun and leave residents and visitors alike engulfed in a debilitating hazy mess. China’s top-down government is addressing this issue ever more urgently, extending influence into pollution monitoring, new regulations and most of all, new power sources. Renewables and natural gas are at the top of the list, but nuclear is also a cornerstone of China’s energy future.  With only 20 nuclear plants currently operating, China already has 28 under construction, according to the World Nuclear Association — about 40 percent of the total global number being built. Last year China expected to add nearly 9 gigawatts to nuclear capability to its grid. Even with that additional amount, nuclear still provides less than two percent of the country’s electricity (with around 70 percent still coming from coal). However, in China, plans matter. And China has big plans for nuclear, hoping to generate almost 60 gigawatts of nuclear energy by 2020 and 150 gigawatts by 2050. By 2020, Hong Kong plans to get half of its power from mainland nuclear plants.  China has big plans for this too, as authorities recently set a 10-year deadline to develop a totally different kind of nuclear power plant not dependent on uranium. In January, Jiang Mianheng, son of former leader Jiang Zemin, launched China’s push to develop thorium nuclear energy, which uses the radioactive element thorium instead of uranium as the primary element of production. The Chinese National Academy of Sciences has a start-up budget of $350 million, according to The Telegraph, with 140 scientists at the Shanghai Institute of Nuclear and Applied Physics already working on the project — and a plan to staff-up to 750 by next year. The scientists had a 25-year timeline to build their first fully-functioning thorium reactor until this week when it got moved up 15 years.

WTO panel to rule against China's limits on rare-earth exports - - The World Trade Organization's dispute resolution panel is expected to rule that China's export restrictions on rare earths and other key minerals violated trade rules. The panel investigated the joint complaint filed by the U.S., Japan and the European Union two years ago. WTO rules prohibit limiting export volumes unless the purpose is to preserve natural resources or protect the environment. The panel is likely to conclude that China is giving preferential treatment to the domestic industry. In a report on the ruling, to come out as early as Monday, the panel will likely suggest that China take alternative measures, such as limiting domestic production, if the restrictions are aimed at preserving resources. It will also conclude that China's export taxes stand counter to WTO rules, which allow such measures only for environmental protection. The panel's decision is the first of a series of dispute settlement processes under the WTO. China is expected to appeal the ruling within 60 days, which will then be reviewed by the appellate body for dispute settlement over a period of up to 90 days. The possibility of the ruling being reversed is considered unlikely. The final decision on the case will come around summer.

Copper Plunges To Fresh 5-Year Low - As we explained in great detail yesterday, the selling in commodities is far from over. The extent of China's commodity-backed-financing is only now beginning to be understood and forced sales (along with the vicious circle of collapsing collateral values and increasingly tightening credit) are hard to stop for a government set of reform. Copper prices were heavy overnight in Asia but this morning has seen futures plunge on heavy volume below $289 - the lowest since July 2009- breaking key support levels. For the same reasoning, zinc and aluminum are under pressure, as is steel rebar and gold.

What is the world’s scarcest material? -  Of all the world’s materials, which one will “run out” first? The more we consume as a society, the more we hear about how vital ores and minerals are dwindling, so it seems logical to assume that a few may be about to disappear. Yet that may be entirely the wrong way of looking at the problem. According to natural resources experts, many of the materials we rely upon in modern life won’t “run out” at all. Unfortunately, the scenario they paint about what will happen instead in the near future is hardly rosy either. Some of our most cherished devices – smartphones, computers and medical equipment, for instance – rely on a rich list of elemental ingredients. Mobile phones alone contain a whopping 60 to 64 elements. “Many of these metals are present in only minute amounts, a milligramme or less,” says Armin Reller, a chemist and the chair of resource strategy at Augsburg University in Germany. “But they are very important for the function of the device.” This includes things like copper, aluminum and iron, but also less well-known materials, like the “rare earth elements”, what the Japanese refer to as “the seeds of technology”. The latter class of materials has come under particular scrutiny because they’re a vital ingredient in smartphones, hybrid cars, wind turbines, computers and more. China – which produces around 90% of the world’s rare earth metals – claims that its mines might run dry in just 15-20 years. Likewise, if demand continues for indium, some say it will be gone in about 10 years; platinum in 15 years; and silver in 20 years. Looking farther into the future, other sources claim that things like aluminum might run dry in about 80 years.

Agriculture Prices Hold Up Despite China Jitters - Fears over China’s slowing growth so far in 2014 have hurt prices for industrial commodities like iron ore and copper. But agricultural commodity prices have held up, in part due to robust Chinese demand for food.  Copper prices have dropped 12% this year; prices for Brent crude have fallen 4%. There are many factors at play here, but concerns over a slowdown in Chinese industrial production, as the Communist Party shifts gears to move away from investment in heavy industries, is a major one. Worries over China’s debt-laden financial system have added to the downward pressure, as investors have used industrial commodities to back loans, and banks are starting to call these in, leading to forced sales of commodities onto the market. At the same time, palm oil, which is used in everything from cooking oil to household detergent, has climbed 3% this year. Soybeans, whose oil is used in cooking, are up almost 10%. And wheat, another major staple in China, has climbed more than 11%. Again, there’s more than just Chinese demand affecting these commodities. Dry weather in Brazil and Southeast Asia has hurt supply of palm oil, as has strife in Ukraine, the world’s largest producer of another cooking oil substitute – sunflower oil. Still, China’s growing middle class, and the urbanization trend, are helping keep agricultural prices on firmer ground. Industrial commodities could well stage a recovery, not least because China’s push to move millions of people to its cities in coming years will spur the building of homes and infrastructure.

Now China’s Super Rich Are Fleeing to Avoid Smog - A recent survey provides the strongest evidence yet that China’s polluted cities risk driving away the rich. Released in January by the Hurun Research Institute, the survey shows 64% of China’s rich (those with wealth above $1.6 million) were either immigrating to another country or planning to, a rise from 60% in the last poll two years ago. That came as a surprise to Rupert Hoogewerf, founder of the Hurun Report, an annual China rich list. He wasn’t expecting the already high figure to grow. He says pollution and food safety was the second-biggest reason for emigrating, after the general desire for security and financial well-being. Although the numbers of those emigrating haven’t yet reached a critical mass, Hoogewerf says “a lot of families are finding a lot of other rich families are going overseas,” providing examples to follow. What’s happening is that those who can avoid the smog, especially families with children, are escaping what a recent Chinese study reportedly called “unlivable” cities like Beijing. They’re seeking permanent residency in America and Canada, and European countries Cyprus, Portugal, and the U.K.

China facing fresh 'ghost town' crisis after developer collapse: China faces the biggest property default on record as credit curbs threaten to break the housing boom, leaving a string of "ghost towns" across the country. The Chinese newspaper Economic Daily News said Xingrun Properties, in the coastal city of Ningbo, is on the brink of collapse with debts of $US570 million ($627.3 million), mostly owed to banks. The local government has set up a working group to contain the crisis. "As far as we know, this is the largest property developer in recent years at risk of bankruptcy," said Zhiwei Zhang, from Nomura."We believe that a sharp property market correction could lead to a systemic crisis in China, and is the biggest risk China faces in 2014. The risk is particularly high in third and fourth-tier cities, which accounted for 67 per cent of housing under construction in 2013," he said. Nomura said the number of ghost towns has spread beyond the well-known disaster stories of Ordos and Wenzhou to at least eight other sites. Three developers have abandoned half-built projects in the 2.5m-strong city of Yingkou, on the Liaodong peninsular. They have fled the area, a pattern replicated in Jizhou and Tongchuan. Yu Xuejun, the Jiangsu banking regulator, said developers are running out of cash. This risks undermining land sales needed to fund local government entities. "Credit defaults will definitely happen. It's just a matter of timing, scale and how big the impact is," he said.

China unveils landmark urbanization plan - (Xinhua) -- China on Sunday unveiled an urbanization plan for the 2014-2020 period in an effort to steer the country's urbanization onto a human-centered and environmentally friendly path. Urbanization is the road that China must take in its modernization drive, and it serves as a strong engine for sustainable and healthy economic growth, according to the plan released by the Central Committee. At present, the proportion of permanent urban residents to China's total population stands at 53.7 percent, lower than developed nations' average of 80 percent, and 60 percent for developing countries with similar per capita income levels as China. ( Registered urban population, or those who hold a "hukou" under China's household registration system, accounted for only 35.7 percent in total population by the end of last year, data from the National Bureau of Statistics (NBS) showed. An increasing urbanization ratio will help raise the income of rural residents through employment in cities and unleash the consumption potential, according to the plan.The country should guide the reasonable flow of population, help rural residents become urban citizens in an orderly manner and make basic urban public services available to all permanent urban residents, it said. Other principles set by the plan include coordinating urban and rural development, optimizing macro-level city layouts and integrating ecological civilization into the entire urbanization process. By 2020, China's ratio of permanent urban residents to total population should reach about 60 percent, while residents with city hukou should account for about 45 percent of total population, according to the plan. The country will help 100 million migrant workers and other permanent urban residents to get urbanite status.

In China, ’90s Housing Is Already Vintage - China has several thousand years of history, but there’s little sign of it walking round most Chinese cities today. A furious succession of wars, revolutions and natural disasters has left the country with little in the way of historic buildings, and much of what survived into the 21st century has been summarily demolished to make way for row after row of gleaming new apartment blocks. To make an estimate of the existing housing stock in 2000, Nomura used data on living space per capita (in urban areas only) released by the National Bureau of Statistics and multiplied it by the urban population. There are no data available for the countryside. China does produce figures for new construction each year – a billion square meters of new floor space was completed in 2013, for example. Information on demolition is harder to come by. For the sake of simplicity, Nomura assumes no demolition at all until 2009, when the housing boom really got underway, and 16% of new construction thereafter. Those assumptions aren’t perfect. Using a different estimate of demolitions, Thomas Gatley of Gavekal Dragonomics, a research firm, calculates that 26% of China’s urban housing might pre-date the new millennium. But both figures are in the same ball park. If things continue at his rate, Nomura predicts, in four years just 6.5% of China’s housing will be pre-2000 vintage. Now that’s a building boom.

China Widens Yuan Trading Band - On Saturday, the People's Bank of China announced a historic economic policy shift — it widened the daily trading band around which the value of the Chinese yuan is allowed to deviate from the daily reference rate to 2% from 1%. The announcement comes on the back of a PBoC-engineered weakening of the yuan (via lower reference rates) over the past several weeks — largely designed to shake out carry-trading speculators following an extended, multi-year period of sustained appreciation against the U.S. dollar — and is seen as a significant step in liberalizing China's current account and internationalizing its currency. The wider band may allow for greater volatility in the dollar-yuan exchange rate, and as such, many believe the yuan may continue to depreciate — at least in the near term, especially as signs of weakness have emerged in economic data points released in recent weeks. "While we maintain our longer-term view of further CNY appreciation, the potential shorter-term risk of capital outflow (given the softening economic backdrop) must be acknowledged,"

PBOC Pulls the Trigger on Yuan Band Widening - China’s central bank pulled the trigger on something the market already knew it was aiming at — widening the trading band for the nation’s currency. The People’s Bank of China said it would allow the yuan to move 2% above or below a rate it sets every day for the currency against the U.S. dollar, up from 1% now, in a move that will mean the yuan will behave a little more like major currencies. The policy move, which takes effect Monday, still lets the PBOC keep its thumb on the foreign exchange scale, knowing the currency won’t move more than 2% away from where it wants it on any given day. The central bank was widely seen as preparing the market for just such a move when it let the currency slip repeatedly last month. Still, the central bank managed to surprise more than a few people with the timing of its announcement — just before dinner hour on Saturday night. One analyst referred to this as “PBOC style” with the central bank showing that it still could shake things up just a little when it wanted. The PBOC, which last expanded the band to 1% from 0.5% in April of 2012, said that this was part of its effort to make the exchange rate more market-based, and that it would continue to push ahead with this effort. It also said this did not mean either a big depreciation – or appreciation for the currency — in the future and it added that Chinese companies were already better prepared to deal with somewhat greater yuan fluctuations. It also said it would withdraw from routine intervention in the foreign exchange market.

China’s Rapid Growth Hits the Brakes -— New pockets of economic weakness in China emerged on Tuesday, as the collapse of a highly indebted real estate developer and weak home sales pointed to a slowdown in the sprawling property sector.The latest batch of difficulties add to the continuing debate over China’s commitment to economic reforms. While Beijing is pushing through initiatives to reform its economy, the worry is that the country’s slowing economy will prompt it to reverse course. The nation’s growth has decelerated to its slowest pace in more than a decade. The default of the developer, the Zhejiang Xingrun Real Estate Investment Company, is likely to heighten the concerns that growth will remain sluggish, at least by China’s standards.The vast real estate market, which has accounted for a significant portion of the gross domestic product, is an essential piece of the economic puzzle. And recent data has prompted concerns about the health of China’s housing market. In the latest example, growth in new-home sales in several of its biggest cities slowed last month from January, data released on Tuesday by the National Bureau of Statistics showed.

Yuan Tumbles To 11-Month Lows As China Home Price Growth Slows - It would appear that the widening of the daily trading bands (we discussed last night) are having a directional effect on USDCNY as the devaluation continues on the back of forced carry-trade unwinds. At 6.19, CNY is its weakest in 11 months (2.5% weaker than its lows in January) and the last 2 months have seen by far the biggest weakening in the currency on record. This 'implied' easing is modestly supporting the stock market and copper for now (though we suspect that is more spillover from risk-on squeezes post-Ukraine). While Goldman and BofA are adamant that widening the bands will not mean a change in trend overall, it seems clear that hot money is outflowing and driving a trend change anyway as corporate bond prices are not rising and home-price appreciation is slowing in the major cities.

‘Bold’ Chinese Stimulus Eased Recession Pain, Fed Economists Say - China avoided prolonged economic pain during and after the recession because, unlike the U.S., its government enacted a “bold and powerful” stimulus package, two researchers argue in a new paper from the Federal Reserve Bank of St. Louis. “We believe that the inability to implement aggressive and decisive fiscal policies in Western countries explains the stubborn persistence of the Great Recession and jobless recoveries in the United States and Europe, in contrast to the recent rapid economic recovery in China and the Great Recovery in the United States (in the 1930s-40s) following the Great Depression,” . In 2008 and 2009, as the global financial crisis and recession took shape, many public officials embraced the Great Depression-era view of economist John Maynard Keynes that increased government spending should act as a counterbalance during downturns to stimulate the economy.In the U.S., for example, the federal government enacted fiscal stimulus in the form of tax cuts in 2008 and the 2009 American Recovery and Reinvestment Act. Meanwhile, the Federal Reserve provided monetary stimulus by lowering interest rates nearly to zero in late 2008 and beginning large-scale bond purchases, or quantitative easing, to lower long-term borrowing costs. Still, the U.S. economy’s has recovered slowly and unemployment remains stubbornly high. But in China, despite exports cratering during the recession, economic growth “rebounded to its double-digit pre-crisis rate” by late 2009,

What Money Failed to Buy: The Limits of China’s Healthcare Reform - In 2009, China unveiled plans to invest $124 billion to launch its healthcare reform. Four years later, the government has actually spent more than $371 billion. The immediate result of this increased government spending has been expanded health insurance coverage. The percentage of people covered by health insurance surged from 30 percent in 2003 to 95 percent in 2011. As a result, the share of out-of-pocket spending decreased from 56 percent to 36 percent in that same period. The reform also generated increased demand for healthcare, with hospital bed utilization rate up from 36 percent to 88 percent. Yet contrary to the rosy picture portrayed by the government and some scholars, the reform has failed to fundamentally address the problem of access and affordability. According to a survey released by the independent Horizon Research Consultancy Group in October 2013, Chinese people continue to have difficulty in accessing health coverage. About 81 percent of the survey respondents said it was difficult to see a doctor, and more than 57 percent said it was more difficult than it was four years earlier to see a doctor (compared to 20 percent who said it has become easier). On the affordability front, 95 pecent of the respondents noted that it was expensive to seek care, with 87 percent saying that the cost was higher than it was four years earlier. Despite the overall increase in utilizing healthcare services, access and affordability problems have suppressed demand for healthcare unnecessarily. Of the respondents, 27 percent said that they opted out of hospitalization, with 74 percent attributing this to the high cost of inpatient care and 41 percent attributing it to the difficulty of being assigned a hospital bed.

Morgan Stanley: China’s Minksy moment is here -- From Morgan Stanley comes the latest must read bearish China report. The outlines here are right but MS underestimates the impact of a Chinese hard landing upon the world. I’m currently working on a members’ special report about how and when this business cycle ends but MS nicely describes how that ending begins. We have described in detail over the past two years how we believe China’s twin excesses (excessive investment funded by excessive debt) will inevitably unwind, causing a substantial slowdown in China’s economy, significantly below market expectations. In recent weeks, a trip to the region and further research into China’s shadow banking system have convinced us that China is approaching its “Minsky Moment,” (Display 1) which increases the chances of a disorderly unwind of China’s excesses. The efficiency with which credit generates economic activity is already deteriorating, as more investments are made in non-productive projects and more debt is being used to repay old debts. Based on our analysis, our baseline case is that China may slow from the current level of 7.7% Gross Domestic Product (GDP) growth to 5.0% over the next two years. A disorderly unwind could take Chinese growth down to 4% in a shorter time frame with potentially disastrous consequences for levered Chinese assets (banks, property) and the entire commodity supply chain (commodity stocks, equipment stocks, commodity-sensitive countries and their currencies). The consensus is more optimistic and expects China’s economy to grow by 7.4% in 2014 and 7.2% in 2015.  However, one of the more controversial conclusions of our analysis is that global economic growth could be impacted severely enough to cause a global earnings recession.

Goldman Revises China GDP Forecast - Goldman Sachs has become the latest bank to downgrade its gross domestic product (GDP) growth forecast for China, noting the world's second largest economy faces a "bumpy road ahead." The bank lowered its 2014 forecast to 7.3 percent from 7.6 percent late Wednesday. It also cut its 2015 outlook to 7.6 percent from 7.8 percent. "Both trade and consumption - factors that we had expected to provide positive support to growth this year - disappointed in the first two months of 2014, relating to the anti-corruption efforts, which affected consumption, and the soft DM (developed market) recovery," economists led by Li Cui, managing director, China Macro Research at the bank wrote in a note. "The exit of overcapacity sectors, along with the emerging default cases in the related sectors, are negatively impacting growth in the near term but are necessary from a longer-term perspective by allowing proper signals to dampen wasteful investment," they added. A number of banks including Bank of America Merrill Lynch (BofAML), Barclays and Nomura have lowered their growth projections for the mainland economy over the past week.

Tumbling Chinese yuan sets off 'carry trade' rout, triggers derivatives contracts - Telegraph: China’s yuan has suffered its biggest one-week fall in 20 years, nearing key trigger levels that threaten a wave of forced selling and mounting stress for those with dollar debts. The jitters come amid reports of fire-sales of Hong Kong property by Chinese investors desperate to raise cash, some slashing their prices by 20pc for a quick sale. A liquidity squeeze in mainland China has already led to the collapse of Zhejiang Xingrun real estate this week with $570m of debts, the biggest property failure so far. The yuan weakened sharply on Thursday to 6.23 against the dollar and has now lost 3pc since January, a clear break with China’s long-standing policy of slow appreciation. Geoffrey Kendrick, from Morgan Stanley, said the currency has broken through the 6.20 level where a cluster of structured products are triggered. These are known as losses on target redemption funds. The losses have already hit $3.5bn. The latest move creates a potential “non-linear movement” that could push the yuan rapidly to the next level at 6.38, where estimated losses would reach $7.5bn, and from there jump to 6.50.

Pettis on why the yuan is falling - First, and most obviously, the RMB is not overvalued. Looking at just the change in the value of the currency over some period is meaningless because China’s export competitiveness is based as much on low wages and cheap financing as it is on an undervalued currency, but in any “normal” world, in which China was growing at 7-8%, unemployment was low, and debt rising, while the rest of the world was barely growing, and was deleveraging amidst high unemployment, China should be running a huge deficit while the rest of the world ran a huge surplus. More importantly, however, is the rebalancing process. Depreciating the currency will not increase household income. It will raise the cost of imports, including energy and food, and so reduce the real value of household income. Choyleva argues that once you exclude reprocessing, imports are relatively low in China, in which case the benefits to households are also low, but I look at it very differently. Revaluing the currency by, let’s say, 10% will cause the PBoC to book a loss of roughly 5% of GDP. This loss, as I explained in my book, is not a loss for China but mainly part of a transfer of wealth from those sectors of the economy that are effectively long dollars (the PBoC, exporters, and wealthy Chinese with foreign assets) to sectors of the economy that are effectively short dollars (importers and households)… What is more, by reducing household income while boosting the tradable goods sector, devaluation will force up China’s already too-high savings rate. The idea that a depreciating RMB will make Chinese spend more because they will benefit from a wealth effect as their foreign assets appreciate in value assumes that ordinary Chinese already own a huge amount of foreign assets. They do not…

U.S. Firms Grow Wary of China - U.S. companies are increasingly worried about difficult business conditions in China, according to a new survey, as fears build about slower economic growth, wage inflation and government regulation.  The American Chamber of Commerce survey of 365 U.S. companies operating in China found that 50 percent cite slower growth as among the biggest risks in China, up from 47 percent in last year’s survey. The Chinese economy slowed to 7.7 percent growth last year compared with 14 percent in 2007.  The companies in the survey also cited rising labor costs and the difficulty in finding skilled labor among their biggest challenges in the world’s second-largest economy, as well as an apparently arbitrary government regulatory system. Four out of 10 companies said they are less welcome than in the past, and one in 10 said they are more welcome, the Wall Street Journal reports.

If China Sneezes, Africa Can Now Catch a Cold - Growing links with China have supported economic growth in sub-Saharan Africa. But the burgeoning commercial and financial ties between the developing subcontinent and the world’s second-biggest economy carry risks as well. These links also expose sub-Saharan African countries to potentially negative spillovers from China if the Asian giant’s growth slows or the composition of its demand changes. China has become a major development partner of sub-Saharan Africa. It is now the subcontinent’s largest single trading partner and a key investor and provider of aid.  China’s increasing role in sub-Saharan Africa reflects China’s increasing share as a major player in world trade and its historic reorientation, started during the last decade and more, toward new markets including Africa. The natural-resource intensity in China’s economic growth and sub-Saharan Africa’s natural resource abundance have further strengthened the relationship. We have assembled data that measure how changes in Chinese investment affected exports from Africa over the last decade and a half. These data show that sub-Saharan Africa’s resource-rich economies, in particular, are subject to spillover from China: natural resource exports from Africa quickly reflect trends in Asia’s dominant economy. Overall, sub-Saharan Africa has maintained a slight trade deficit with China, with fewer than half of the African countries having a trade surplus with China. In addition, China’s trade with sub-Saharan Africa is highly concentrated in a few economies. Five countries—Angola, South Africa, the Democratic Republic of the Congo, the Republic of Congo, and Equatorial Guinea—account for about 75 percent of the subcontinent’s exports to China.

Australia Is Worried Too Many Chinese Are Buying Homes There - As housing prices rise in Australia, pushing middle-class buyers to the margins of the market, local politicians and media are finding a scapegoat in wealthy Chinese. The Australian Parliament’s House Economics Committee will investigate whether foreign investment into property in the country is driving up prices and making housing unaffordable for its middle class, Liberal MP Kelly O’Dwyer, the committee’s chairwoman, said in an interview with ABC radio on Monday. The remarks came after a government report published last month found that Chinese investors spent almost 6 billion Australian dollars (US$5.4 billion) on real estate during the 12-month period ending in June 2013. An HSBC report published in February named Australia as China’s No. 1 destination for overseas property. More recently, Credit Suisse released a report that forecasts a flood of Chinese investment — to the tune of A$44 billion – to awash Australia’s shores over the next seven years.  Chinese investment in Australian real estate has become a touchy subject. The Australian government reports that Chinese money accounts for 12% of the purchases of newly built residences there, with the majority being snapped up in Sydney and Melbourne. Some apartment blocks in those cities are 100% owned by Chinese nationals, ABC says. But while the investment growth is impressive, Chinese money comprises less than one-sixth of the A$37.5 billion in foreign investment in Australian real estate – a sum that actually dropped in the 2013 fiscal year from the previous year, according to the Foreign Investment Review Board, a government agency. (U.S. and Canadian investors poured A$4.4 billion and A$4.9 billion, respectively, last year.) Australia also limits foreign buyers to only newly built houses, meaning many Chinese buys are of condominium apartments that have yet to be constructed.

Japan Sticks to Optimistic Economic View as Higher Tax Looms -- With less than a month to go before a growth-sapping sales tax increase takes effect, Japan is sticking to its relatively optimistic view of the current state of the economy. In its latest monthly report, the government chose not to be swayed by flattering figures showing a last-minute surge in production and consumption ahead of the April 1 sales tax increase, or pessimistic views of how the imminent tax increment will affect the economy. Employing the same phrase for the third straight month, the government said Monday that “the Japanese economy is recovering at a moderate pace.” The assessment is based on the most recent economic data available. The statistics mainly cover the period up to January, except for some consumption items such as autos and appliances, for which February data are also available. As Japan’s first major tax increase in 17 years approaches, the March report focused on two opposing trends in industrial production and housing construction. Industrial production jumped 4% on month in January, prompting the government to revise up its assessment of the trend as “increasing” from “gradually increasing.” Growth in output observed in the auto sector are now seen spreading to other sectors as well, most notably at makers of white goods–refrigerators, air conditioners and washing machines–as consumers purchase big-ticket items before the sales tax rate goes up to 8% from 5%. But giving a possible indication of how things might play out after the higher tax rate comes into effect, the government noted that seasonally adjusted housing starts in January dropped 6.4% on month, prompting it to lower the assessment on the sector to a “slowing” trend from an “increasing” one.

Japan passes record US$937 billion budget - Japan on Thursday passed its biggest-ever budget, a US$937 billion spending package aimed at propping up growth as consumers brace for the country's first sales tax hike in over 15 years. A total of 136 lawmakers in the 242-member upper house, controlled by the ruling Liberal Democratic Party, voted for the package, against 102 opposition votes, a parliamentary spokesman said. Two lawmakers did not cast a vote, one seat is vacant and the house speaker only casts a ballot in a tie. The passage came after the lower house last month approved the 95.88 trillion yen (US$937.4 billion) budget for the fiscal year starting in April. The new budget comes as Tokyo pushes for speedy implementation of a US$50 billion stimulus package specially designed to protect Japan's fragile economic recovery, as sales taxes rise to 8.0 per cent from 5.0 per cent on April 1 -- the first hike since the late nineties. The increase is seen as crucial to bringing down Japan's eye-watering national debt, which is proportionately the worst among rich nations. But there are fears it will derail Prime Minister Shinzo Abe's policy blitz, dubbed Abenomics, aimed at kickstarting the world's third-largest economy after it suffered years of growth-denting deflation.

Japan ready to roll out more stimulus to cushion sales tax hike (Reuters) - Japan stands ready to unleash further monetary and fiscal stimulus as needed to support the economy if the impact of a coming sales tax hike proves worse than expected, a senior government official said on Thursday. Japan's economy is on a firm footing due to brisk domestic demand but the government will closely monitor developments after the April 1 sales tax rise, Deputy Chief Cabinet Secretary Katsunobu Kato told Reuters in an interview. The remark, by a close aide to Prime Minister Shinzo Abe, comes as investor expectations are rife that the BOJ will top up its unprecedented asset-buying later this year in a bid to hit its 2 percent inflation target. Some analysts also expect the government to resort to more fiscal stimulus as early as summer to cushion the economy from the impact of the sales tax rise. "We would take necessary steps. Each policy step would work its effects on the economy with a lag, so we'd need to mix them as appropriate depending on the situation at the time," Kato said.

Abenomics—Time for a Push from Higher Wages - IMF Blog - Japan’s economic progress over the past year has been impressive, with strong growth, and inflation, investment, and credit growth all heading in the right direction. But that progress is largely the result of last year’s sizable fiscal and monetary stimulus—the first two arrows of “Abenomics”. Now, the economy needs to transition to more sustainable, private-sector led growth. A hike in wages could be just the push needed to propel that shift.As the ongoing annual wage-bargaining round draws to a close, total earnings are set to increase this year for employees at some well-known car manufacturers.  But, in the past, these increases have not trickled down to higher basic wages at small and medium-sized enterprises and to non-regular workers. This is problematic as higher inflation without higher incomes can hardly be characterized as a successful reform. For many years, nominal basic wages have been declining despite generally tight labor-market conditions. Real wages too have fallen despite solid productivity growth. So, labor’s share of national income has dwindled, from around 66 percent at the turn of the millennium to around 60 percent today. The average Japanese worker has been dipping into his savings to finance consumption growth. But there’s a limit to how far he can do this.  The savings rate as a percent of disposable income has declined from around 5 percent a decade ago to close to zero today, leaving little further room for spending from savings, amid  a continued high financing demand from the government that still runs a sizeable deficit

Japan Posts 20th Straight Monthly Trade Deficit -- Japan reported its 20th straight monthly trade deficit in February as soaring energy imports continued to offset the value of exported goods.The deficit totaled 800.3 billion yen ($8 billion), up 3.5 percent from a year earlier, according to government figures released Wednesday. It was a record deficit for the month of February but lower than January’s much larger deficit.Resource-poor Japan relies heavily on imported oil and natural gas. Those costs have surged following the March 2011 nuclear crisis in Fukushima, which has led to all 48 of the nation’s working reactors going off line.The 20-month streak of trade deficits is the longest since the Finance Ministry started keeping comparable records in 1979.

Japan Trade Deficit Exceeds Forecasts as Tax Rise Looms - Japan’s trade deficit exceeded analysts’ estimates in February, underscoring drags on the nation’s recovery ahead of a sales-tax increase in April that will weigh on domestic demand.  The 800 billion yen ($7.9 billion) shortfall reported by the finance ministry in Tokyo today was more than the 600 billion yen median estimate in a Bloomberg News survey of 31 economists. Imports expanded 9 percent from a year earlier, and exports rose 9.8 percent.  Sustained trade deficits and limited gains in exports after the yen’s decline make it harder for Prime Minister Shinzo Abe to steer the nation through the economic turbulence that’s likely after the tax increase. Gross domestic product will contract in the coming quarter and the Bank of Japan may be forced to add to stimulus this year, according to Bloomberg News surveys of analysts.  “The trend of a moderate expansion in trade deficits remains intact,” . “In the near-term the rise in imports will moderate as the temporary effect fades of imports being pushed higher by demand ahead of the sales-tax increase.”

Has Japan’s Trade Gap Turned the Corner? -  Japan’s trade deficit narrowed sharply in February as import growth slowed to a single-digit pace for the first time in 10 months. Does this herald a much-awaited turnaround in Japan’s trade balance? Officials aren’t breaking out the champagne: They believe structural factors have been behind the trade deficits – which have persisted for 20 months, reaching a record Y11.5 trillion (US$115 billion) for all of 2013– and that the large gap could last for a while yet. That could fuel more debate about the weak-yen policy pursued by Prime Minister Shinzo Abe and the Bank of Japan, which was supposed to boost exports. That hasn’t really happened, for a variety of reasons. But the weak currency has pushed up the value of imports. Domestic demand, particularly for imported goods, has been the fundamental driver of Japan’s economy lately, officials say. Of course, they don’t ignore short-term influences on the trade picture — such as a rush by Japanese consumers to make purchases before an April 1 rise in the sales tax — or the Lunar New Year holiday that may have distorted trade figures with China, Japan’s largest trading partner. But even combining the trade data for January and February to smooth out the holiday effect, the deficit for those months still averaged a whopping Y1.8 trillion, up 49.3% from a year before. Officials say that’s hardly evidence of an improving trade balance.

EU-Japan Outdoing TPP? Not So Fast… As talks on the U.S.-led Trans-Pacific Partnership stall amid a seemingly intractable dispute with the U.S., Japan appears keen to show that it has other suitors, including Australia and the European Union. An agreement can be reached with Australia soon, Japan’s point man in trade, Koya Nishikawa, said earlier this week. Others are also sounding bullish. EU Ambassador to Tokyo Hans Dietmar Schweisgut this week expressed “guarded optimism” about free trade with Japan. But a closer look shows that behind the upbeat comments, concrete deals could be a ways off.  In talks with Japan this week, Australia demanded much deeper tariff cuts for Australian beef than offered, local media reported. The current tariff is around 38.5%. Reports say Australia is pushing for 19% or lower, while Japan wants to nudge it down to 30%.  On the EU front, Mr. Schweisgut was quick to hedge his comments. He told a news conference at the the Foreign Correspondents’ Club of Japan that the 28-nation bloc won’t sacrifice quality for speed. Japan and the EU have been in trade talks for about a year, with the fifth round set for March 31 in Tokyo. The European Commission will then review the progress thus far and report to the member countries before moving on further. Mr. Schweisgut admits it’s up to the member countries, not the European Commission, to determine how things will proceed. He also offered no target for concluding the talks. Just as in the U.S.-led TPP, a major stumbling block has been agriculture. Japan insists it can’t drop its tariffs on rice, wheat, beef and pork, sugar or dairy products.

Trans-Pacific Partnership: The economic impact - In a “man bites dog” column for the New York Times (February 27th), Paul Krugman, a self-proclaimed free trader, declared that the Trans-Pacific Partnership is “No Big Deal”. With free traders like this, who needs protectionists? This column looks at Krugman’s main arguments against the TPP. First, Krugman suggests spending political capital on domestic initiatives, and not on the TPP. Second, he argues that the pay-off from TPP will be trivial since tariffs are already low. The column points to a larger message in Krugman’s op-ed, namely that the era of globalization and policy-driven liberalisation is over.

On the Wrong Side of Globalization - Joe Stiglitz - Trade agreements are a subject that can cause the eyes to glaze over, but we should all be paying attention. Right now, there are trade proposals in the works that threaten to put most Americans on the wrong side of globalization. The conflicting views about the agreements are actually tearing at the fabric of the Democratic Party, though you wouldn’t know it from President Obama’s rhetoric. In his State of the Union address, for example, he blandly referred to “new trade partnerships” that would “create more jobs.” Most immediately at issue is the Trans-Pacific Partnership, or TPP, which would bring together 12 countries along the Pacific Rim in what would be the largest free trade area in the world. Negotiations for the TPP began in 2010, for the purpose, according to the United States Trade Representative, of increasing trade and investment, through lowering tariffs and other trade barriers among participating countries. But the TPP negotiations have been taking place in secret, forcing us to rely on leaked drafts to guess at the proposed provisions. At the same time, Congress introduced a bill this year that would grant the White House filibuster-proof fast-track authority, under which Congress simply approves or rejects whatever trade agreement is put before it, without revisions or amendments. Controversy has erupted, and justifiably so. Based on the leaks — and the history of arrangements in past trade pacts — it is easy to infer the shape of the whole TPP, and it doesn’t look good. There is a real risk that it will benefit the wealthiest sliver of the American and global elite at the expense of everyone else. The fact that such a plan is under consideration at all is testament to how deeply inequality reverberates through our economic policies. ...

New Study Shows Dangers of Trade Agreements that Help Corporations Sue Governments - As the Obama administration negotiates new trade agreements with European and Pacific nations, a battle has emerged over the agreements’ egregious rules that grant giant corporations unreasonable powers to subvert democracy. These rules, dubbed “investor rights” by the corporations, allow firms to sue governments over actions—including public interest regulations—that reduce the value of their investments. Oxfam, the Institute for Policy Studies, and four other non-profits are releasing a new study that explains why these rules are so dangerous to democracy and the environment. We are among the co-authors of this study, titled “Debunking Eight Falsehoods by Pacific Rim Mining/OceanaGold in El Salvador.” The report offers a powerful case study of everything that is wrong with this corporate assault on democracy. “Debunking Eight Falsehoods” is a careful refutation of the arguments of a giant Australian/Canadian mining firm, Pacific Rim/OceanaGold, that is suing the government of El Salvador over that government’s decision to stop issuing new mining licenses. The Salvadoran government did this precisely because its citizens deemed the environmental and social costs too high. Pacific Rim’s proposed gold mine was in the fragile and already compromised watershed of the key river that supplies water to over half the country’s people.Pacific Rim/OceanaGold is, according to a 2013 IPS study, one of 31 oil, gas, and mining corporations suing governments in Latin America in the International Centre for the Settlement of Investment Disputes (ICSID), based at the World Bank. ICSID is the most frequently used tribunal under existing pro-corporate, anti-democratic trade and investment rules.

S. Korea, China begin new round of FTA negotiations - South Korea and China launched a fresh round of negotiations for a bilateral free trade agreement (FTA) Monday with both sides expected to work for much needed progress. Seoul earlier said the two countries will continue to hold discussions on all related issues, including the level of market liberalization for products, services and investment, and ways to synchronize their domestic regulations and promote cooperation. This week's meeting, the 10th of its kind since the FTA negotiations were launched in May 2012, will be held in Ilsan, just north of Seoul. It will end Friday. A major breakthrough came in the seventh round of negotiations held in September, when the two countries agreed on a set of basic guidelines, or modality, for their negotiations that included the level of overall market opening. Under the agreement, the countries will remove their import duties on 90 percent of all products traded between them. The FTA negotiations, however, have since hit a stumbling block as they failed to come up with a list of items to be liberalized or protected under the proposed FTA. South Korea is currently engaged in negotiations for eight free trade deals, including a three-way FTA that includes China and Japan. Seoul has said it is giving top priority to the Korea-China FTA, noting a free trade pact with the world's second-largest economy may affect all other FTA negotiations the country is engaged in.

A debate on emerging market turbulence - Gavyn Davies -- Financial turbulence continues to surround the emerging markets, raising the question whether this now morphing into a genuine EM crisis, of the type seen in previous eras of Fed tightening, including the early 1980s, and 1994-98. If so, how will it progress? I have asked three distinguished international economists to debate this with me. They are Maurice Obstfeld (University of California, Berkeley), Alan M. Taylor (UC, Davis) and Dominic Wilson (Co-Head of Global Economics, Goldman Sachs). Each has produced leading edge research on this topic in recent years. The entire debate is attached here, and I would encourage everyone interested in the subject to read it in full. However, since the text turned out to be fairly lengthy, I would like to offer here a summary of the main points which emerged.

Taper Talk Slammed Strong Emerging Nations Most - New research argues emerging-market nations hit hardest in the run up to the Federal Reserve’s decision to cut back its bond buying were those whose financial houses were in the best order, relatively speaking—a finding contrary to much recent conventional wisdom. The paper published Monday by the National Bureau of Economic Research argues this group of relatively strong emerging-market nations took the hit because their relatively good economic and financial health was what made them attractive destinations for international capital inflows in the first place. The paper considered a tumultuous period for emerging-market economies. Late last spring, Federal Reserve officials began hinting at coming cutbacks to what was then an $85 billion per month bond-buying program aimed at spurring stronger economic growth. With the U.S. recovery improving, Fed officials indicated they would soon start scaling back, or “tapering,” the bond purchases. The rising possibility the Fed would trim its bond purchases slammed markets worldwide, but developing markets took some of the biggest tumbles. Money that had poured in seeking high-yielding investments in riskier economies drained out. Some emerging market nations weathered this storm better than others. In some quarters, it’s been argued emerging market nations with good policies, strong international capital positions and healthy government budgets navigated the shifting fortunes of American monetary policy best. The NBER paper says that’s not quite right. In a study of a 27 emerging-market countries, the authors said nations they considered to be the best economic and financial performers got the biggest walloping. The authors argue the hardest hit countries have been punished, in a sense, for having been such an attractive place to invest during times of ample liquidity.

After Fed Guidance, Philippine Banker Fires Warning Shot on Rates - The Philippine central bank is dropping hints that it’s preparing to tighten monetary policy — perhaps as soon as next week.  After Federal Reserve Chairwoman Janet Yellen surprised markets overnight Wednesday by suggesting an earlier start to U.S. rate increases than anticipated, the governor of the Philippine central bank hinted he could move sooner rather than later as well. “We see early measured adjustments in monetary policy as ideal. Gradual rather than discrete movements would be less disruptive and would help businesses plan better,” Bangko Sentral ng Pilipinas Gov. Amando Tetangco Jr. said Thursday. “Even as domestic inflation over the policy horizon remains within target, measured adjustments may be warranted given external developments, including the heightened geopolitical risks that could result in volatility in international commodity prices,” he said. BarclaysBARC.LN -1.05% Capital said it’s possible the BSP could make a pre-emptive move as early as its March 27 meeting. More realistic, though, is the idea of a rate increase or a rise in banks’ reserve requirements at the BSP’s May 8 meeting, Barclays said. “Increased hawkishness suggests BSP’s preference is to move pre-emptively,” Barclays said. The Philippine economy roared ahead last year, growing 7.2%, the fastest rate in Asia outside of China. The government is projecting gross domestic product growth of 6.5%-7.5% for this year, while the World Bank forecasts 6.6% growth.

Pakistan to Grant India Most-Favored Nation Status - A report based on sources well-connected in the Nawaz Sharif government in Pakistan’s DAWN suggests that Pakistan is likely to make an announcement granting India most-favored nation (MFN) status on Friday this week. The announcement will be conditional on trade concessions from New Delhi. The issue of Pakistan granting India MFN status has long been a focus of trade talks between India and Pakistan and, if achieved, could serve to ease political tensions as trade relations improve between the two neighbors.  According to DAWN, MFN status for India “is expected to be announced after a special cabinet briefing to be headed by Prime Minister Nawaz Sharif.” Furthermore, “the cabinet decision, according to the source, will be conditional that Pakistan will allow import of all commodities from India via Wagah border and will abolish the negative list of 1,209 items in one go.” Pakistan’s Commerce Minister Khurram Dastagir Khan, in his talks with his Indian counterpart Anand Sharma earlier this year, sought reduced tariffs on 250 to 300 items before the MFN issue would be reconsidered. According to India’s Business Standard, the very term “most-favored nation” – a standard term in international trade and economic relations – was politically unfeasible for Pakistan. Accordingly, Khan noted that Pakistan is “now officially calling it Non-Discriminatory Market Access, or NDMA.”

How Coal Shortages Might Impact Indian Growth -- The development of India, or its non-development relative to China, is an interesting topic, and one that Bob Hindle has already been blogged about in relation to its tax system.  However, there are other aspects of the Indian economy that will also impede its ability to grow, notably its lack (or should that be 'lakh'?) of coal. This AV clip from Reuters gives an insight into the nature of the problem: It's a nice watch, not so much for the information it provides about how the lack of coal is going to impede India's growth, but because of the wide range of economic concepts that are touched upon in this two minute clip, starting with elementary demand and supply, and then moving on to consider the shortcomings of nationalised industries, the amount of red-tape (the license Raj) and India's developmental strategy. It also leaves one issue untouched - the environmental implications of coal-driven development - and that's something that could be further developed.

With Economies Healthier in Indonesia and India, Policy Course Set to Diverge -- Indonesia and India, prime examples of vulnerable emerging-market economies during last summer’s taper crisis, have followed similar policy courses to get their economies back onto more sustainable footing. Central banks in both countries raised interest rates significantly to bring down inflation and support currencies that were the worst performers in Asia during the taper selloff. The idea was to slow growth, support exports and compress imports to reduce their current-account deficits – and earn back the trust of investors. By and large, it worked: Both currencies emerged unscathed from renewed emerging-market turmoil early this year, and their assets have drawn investors in droves so far this year. From here, however, policy paths in Jakarta and New Delhi could well diverge. Bank Indonesia held rates steady last week for a fourth straight month, while the Reserve Bank of India raised rates by a quarter-percentage point when it met last in late January. Going forward, analysts think the RBI will likely have to raise interest rates further later this year. Bank Indonesia, by contrast, may have to think about easing policy if its markets keep surging. Bank Indonesia’s tight policy “has made the [rupiah] into a one-way appreciation bet,” That’s to be expected after the central bank lifted its benchmark rate by 125 basis points since last summer, to 7.5%. That helped take the sting out of consumer inflation that had reached 8.8% on-year in August; by February, it was down to 7.7%.

Falling Commodity Prices a Blessing in Disguise For Indonesia – World Bank - Falling commodity prices have dealt a hard blow to Indonesia, one of the world’s largest suppliers of minerals and agricultural commodities. But there’s a silver lining: It may drive investment into other sectors, the World Bank says.“Over the past decade, high commodity prices tilted investment incentives in favor of the resource sector and the non-tradable sectors (e.g., the real estate sector) against manufacturing and other tradable sectors,” the World Bank said in its latest Indonesia Economic Quarterly, released Tuesday. The bank said manufacturing’s share of total investment into Indonesia dropped to 12% between 2002-11, against nearly 20% in the period from 1990-96. “Going forward, lower commodity prices should increase the relative profitability and attractiveness of manufacturing and help Indonesia develop its industrial base,” the World Bank argued. Declining commodity prices over the past two years have led to a deterioration in Indonesia’s current account, which contributed to the massive exit from Indonesian assets during last summer’s taper-related crisis. But by knocking down the rupiah’s real exchange rate, that’s helping manufacturing exports and competitiveness. Rapidly rising wages in China present Indonesia with a potential opening to regain a comparative advantage in labor-intensive export sectors. Nominal wages in China have risen by almost 15% a year since 2001, which — together with slowing productivity growth in low-skilled sectors — has led to a sharp rise in Chinese unit labor costs grow since 2005, the World Bank said. Appreciation in the Chinese yuan – which has seen its real effective exchange rate rise 30% since 2005 — is further eroding China’s competitiveness in manufactured goods.

Policy changes needed to unlock Indonesia’s energy options - Indonesia is richly endowed with energy resources of various kinds: renewable, non-renewable, as well new-energy capacity.  Hypothetically, the government has a reasonably rich list of energy options from which it can choose the most viable resources to exploit. In reality, however, things are not so simple. A number of factors distort and limit the choices available, to the detriment of Indonesia’s economic development. This is the energy challenge that Indonesia must address. Influencing the development of the energy sector is a well-entrenched energy subsidy. Indonesia has subsidised energy consumption since the early days of the republic, and much has been said about how subsidy expenditures may aggravate fiscal imbalances and crowd out public investment on infrastructure as well as on energy. A 2012 IMF Country Report (No 12/278) on Indonesia’s economy argued that while the cost of capital is declining, investment in infrastructure (including in energy-related infrastructure) remains relatively weak. Public investment is hovering at about 3 per cent of the country’s GDP, among the lowest in Southeast Asia. Progress with public-private partnerships to promote investment in infrastructure has also been slow. Underpriced energy also distorts resource allocation by encouraging excessive energy consumption. And since the subsidy comes in the form of a price subsidy, most of the benefits are likely to be captured by higher-income households, which tends to exacerbate income inequality.

Moody's cuts Argentina bond rating, says reserves in 'semi-freefall' (Reuters) - Moody's Investors Service cut Argentina's government bond rating further into junk on Monday, saying a sharp drop in central bank dollar reserves has raised concern about the country's ability to service foreign debt. The credit ratings agency downgraded the rating to 'Caa1' from 'B3,' and revised its outlook to stable from negative. A major driver behind the decision to downgrade came from tumbling levels of foreign exchange reserves, which Moody's analyst Gabriel Torres called a "semi-freefall." "What we're going to be looking at more than anything now is reserves," said. "If Argentina enhances its funding options, whatever that may be - from tapping markets, to greater bilateral lending, to greater capital inflows, to whatever the options are that make it easier for them - then those are all credit positive actions," Torres said. The country's reserves have plunged to $27.5 billion from a high of $52.7 billion in 2011, according to Moody's.

The truth about Venezuela: a revolt of the well-off, not a ‘terror campaign’ -- Images forge reality, granting a power to television and video and even still photographs that can burrow deep into people’s consciousness without them even knowing it. I thought that I, too, was immune to the repetitious portrayals of Venezuela as a failed state in the throes of a popular rebellion. But I wasn’t prepared for what I saw in Caracas this month: how little of daily life appeared to be affected by the protests, the normality that prevailed in the vast majority of the city. I, too, had been taken in by media imagery.  Major media outlets have already reported that Venezuela’s poor have not joined the right-wing opposition protests, but that is an understatement: it’s not just the poor who are abstaining – in Caracas, it’s almost everyone outside of a few rich areas like Altamira, where small groups of protesters engage in nightly battles with security forces, throwing rocks and firebombs and running from tear gas. Walking from the working-class neighborhood of Sabana Grande to the city center, there was no sign that Venezuela is in the grip of a “crisis” that requires intervention from the Organization of American States (OAS), no matter what John Kerry tells you. The metro also ran very well, although I couldn’t get off at Alta Mira station, where the rebels had set up their base of operations until their eviction this week.

IMF Urges Redistribution To Tackle Growing Inequality: - The International Monetary Fund (IMF) is wading strongly into the global debate over the impact of growing income inequality, offering a series of controversial findings that push back on long-held economic orthodoxy – of which the fund itself has long been a key proponent. The IMF, arguably the world’s premiere financial institution, is stating unequivocally that income inequality “tends to reduce the pace and durability” of economic growth. In a paper released Thursday, the fund also suggests that a spectrum of approaches to “progressive” redistribution – national tax and spending policies that are purposefully tilted in favour of the poor – would decrease inequality and hence “is overall pro-growth”. “This is the final judgment on inequality being bad for growth,” Nicolas Mombrial, a spokesperson for Oxfam, a humanitarian group, told IPS in a statement.  For the past half-century, the Washington-based IMF has operated as the world’s “lender of last resort” for failing economies. In return for offering short-term loans to governments in economic crisis, the fund typically demands the imposition of a range of often stringent austerity measures aimed at solidifying the country’s finances.

Crimeans vote over 90 percent to quit Ukraine for Russia (Reuters) - Russian state media said Crimeans voted overwhelmingly to break with Ukraine and join Russia on Sunday, as Kiev accused Moscow of pouring forces into the peninsula and warned separatist leaders "the ground will burn under their feet". With over half the votes counted, 95.5 percent had chosen the option of annexation by Moscow, the head of the referendum commission, Mikhail Malyshev, said two hours after polls closed. Turnout was 83 percent, he added - a high figure given that many who opposed the move had said they would boycott the vote. Western powers and leaders in Kiev denounced it as a sham.

Payback Time: Does US Use WTO to Kick Russia? - In the absence of substantial US-Russia trade ties, the question American officials are asking themselves right about now is "How do we 'punish' Russia?" Sure the capital, foreign exchange and stock markets are naturally doing their part in hurting Russia, but how can the US throw its weight around directly?  I almost missed this relatively arcane one: WTO accession involves meeting so-called sanitary and phyto-sanitary standards (SPS). Basically, this involves meeting safety standards for trade in animals and plants--especially food. Yes, Russia finally joined the WTO at the end of 2011--some are now saying that was a mistake to let it in--but it has nonetheless been helping its allies get into the trade club. Witness Kazakhstan which is one of the few non-failed states still outside the organization. To get in, it needs guidance on SPS, for which it is counting on Russian assistance.  However, a recent Russian delegation headed for the United States regarding SPS was turned back. Being ever-so-conspiratorial, the Russians cite unease over Ukraine as the source of American pique: Russia said on Monday that the United States abruptly withdrew an invitation for Russian veterinary officials to attend talks this week and accused Washington of "sabotage", an apparent sign of tension over Ukraine. Russia's veterinary oversight agency, Rosselkhoznadzor, was informed less than 24 hours before its delegation was to depart for Washington that the visit was "unacceptable" for the United States, Rosselkhoznadzor said.

The Russina Central Bank Faces A Nightmare Scenario: With the situation in the Ukraine getting worse -- and with the threat of increased western economic sanctions against Russia an increasing possibility -- this appears to be a good time to take a look at the Russian economy to see if it could withstand increased trade problems. Let's look at this from the central bank's point of view and the dual mandate most banks face: the need to encourage growth yet prevent inflation. Let's start by looking at the annual rate of GDP growth. While this number was fairly good in 2012 printing at 4.8%, the number has been in a clear downtrend with a very disappointing 1.2% annual growth rate over the last two quarters. Ideally, this situation would dictate to the central bank that a rate cut was in order. Unfortunately, the exact opposite is happening: Instead, the Russian central bank recently raised rates 150 basis points to defend the rubel, which was collapsing relative to other currencies. The rubel has collapsed relative to the euro, falling over 10% since the first of the year. There is no reason to think this situation won't continue. And the rubel's collapse certainly won't help the inflation situation:  The inflation rate has been running at over 6% for the better part of two years.Above, we already have a central bank's nightmare scenario: slowing growth, a collapsing currency and high inflation.  From the central bank's perspective, there are no good policy options.  Raising the interest rate will undoubtedly slow growth and will most likely lead to a technical recession over the next few quarters (which will undoubtedly be aided by the international situation).  However, the bank literally had no choice.

Putin signs treaty for Crimea to join Russia - — With a historic sweep of his pen, President Vladimir Putin signed a treaty Tuesday to annex Crimea, describing the move as correcting past injustice and a necessary response to what he called Western encroachment upon Russia's vital interests.  In an emotional 40-minute speech that was televised live from the Kremlin, Putin said "in people's hearts and minds, Crimea has always been an integral part of Russia." He dismissed Western criticism of Sunday's Crimean referendum — in which residents of the strategic Black Sea peninsula overwhelmingly backed breaking off from Ukraine and joining Russia — as a manifestation of the West's double standards. At the same time, the Russian leader said his nation didn't want to move into other regions of Ukraine, saying "we don't want division of Ukraine."

Journalist Schools BBC on Russian Intervention in Crimea -- Yves Smith -- A fellow blogger with substantial experience in Europe sent this BBC footage, which I believe readers will find instructive. There were several things I liked about this segment. First, in contrast to US TV, where two sides who hold strongly opposed views talk past each other, there was a real discussion. Each side actually went beyond its talking points while remaining civil. Second was that the Telegraph writer Liam Halligan debunked some popular perceptions about Russia and Putin. This conversation also raised another issue about the situation in Russia. The BBC commentators seemed exasperated by the fact that Putin is popular, and kept stressing that his regime was authoritarian. The West has only itself to blame for Putin’s success. Western institutions like Harvard and the IMF turned post-Communist Russia into a great neoliberal lab experiment, and the results were disastrous. Not only did ex-government officials and their cronies engage in a massive plutocratic asset grab (with some well-placed Westerners making sure they got cut a piece of the pie), but conditions for ordinary people deteriorated to an extraordinary degree. Adult male life expectancy fell by four years, a shocking decline. After creating such a debacle, someone like Putin, who reined in the oligarchs and improved conditions for the population at large, would look like a big improvement.

Dependence on Russia Is Likely to Leave Region’s Economy in a Precarious State -- A.T.M.s in this sun-dappled seaside resort city in Crimea, and across the region, have been empty in recent days, with little white “transaction denied” slips piling up around them. Banks that do have cash have been imposing severe restrictions on withdrawals. All flights, other than those to or from Moscow, remain canceled in what could become the norm if the dispute over Crimea’s political status drags on, a chilling prospect just a month before tourist season begins in a place beloved as a vacation playground since czarist times. Even with the West imposing sanctions to punish Russia’s invasion of Crimea, President Vladimir V. Putin faces a far steeper financial liability as he pushes to annex the peninsula, which lacks a self-sustaining economy and depends heavily on mainland Ukraine for vital services, including electricity and fresh water. “Ukraine can quite easily cut off Crimea,” said Oleksandr Zholud, an economist with the International Center for Policy Studies in Kiev, the Ukrainian capital. “From an economic point of view it looks like a sinkhole.”

The Economics of Limiting Russia’s Expansion - Johnson & Boone - In the United States and Western Europe, discussion is focused on stopping Vladimir Putin from further expanding Russia’s territory. On present course, the West’s strategy looks set for more failure; only a major shift in economic strategy by the Ukrainian government is likely to make a significant difference. Giving or lending lots of money to Ukraine is unlikely to help and may even be counterproductive. Ukraine’s economic failure over the last two decades is astounding. When the Soviet Union broke up in 1991, Ukraine’s gross domestic product per capita was greater than Romania’s, slightly higher than Poland’s and about 30 percent less than Russia’s. Today, Poland and Romania enjoy more than twice Ukraine’s income per person and Russia nearly triple. This dismal performance reflects partly a lack of natural resources, but also self-interested leaders who have lined their pockets rather than focus on growth. The Orange Revolution of 2004 brought Viktor Yanukovych to the presidency, after more than a decade of pervasive corruption, but this episode proved to be a great disappointment. The Yanukovych years that followed were even worse. Ukraine’s economic situation has recently become more desperate. If Ukraine is to pay all of its bills, the amount needed over the next two years to make debt payments and cover the budget deficit on its current trajectory add up to nearly $40 billion. These bills are growing daily because of the severe disruptions caused by the loss of Crimea, the continuing instability in eastern Ukraine and the nonpayment for gas deliveries from Russia. Because of the West’s unbending support for the current Kiev government, many Ukrainians expect large and generous support to help the nation out of this mess.

Ukraine crisis: EU signs association deal: EU leaders have signed an agreement on closer relations with Ukraine, in a show of support following Russia's annexation of Crimea. The EU signed the deal hours after announcing more targeted sanctions. Pro-Moscow leader Viktor Yanukovych's abandonment of the deal in November had led to deadly protests, his removal and Russia taking over Crimea. On Friday, Russian President Vladimir Putin signed the law bringing Crimea within the Russian Federation. 'Rule of law' The EU Association Agreement is designed to give Ukraine's interim leadership under PM Arseniy Yatsenyuk economic and political support. EU President Herman Van Rompuy said in a statement that the accord "recognises the aspirations of the people of Ukraine to live in a country governed by values, by democracy and the rule of law".

U.S. Sanctions Aimed at Russia May Also Hurt Europe -Escalating U.S. sanctions against Russia could slash investment flows into Russia, putting another drag on the nation’s already modest growth prospects. But they could also cause collateral economic damage to Europe. Rising political tensions have already fueled cash flows out of Russia as investors worry about the economic backlash from the Kremlin-backed incursion into Crimea. Further sanctions are likely to accelerate that capital flight out of Russia, economists warn. Two ratings firms Thursday downgraded their outlooks on Russia’s sovereign debt because of the potential contraction in cash flows. “Heightened geopolitical risk and the prospect of U.S. and E.U. economic sanctions following Russia’s incorporation of Crimea could reduce the flow of potential investment, trigger rising capital outflows, and further weaken Russia’s already deteriorating economic performance,” Standard & Poor’s said. As international capital flows dry up, Russian banks and corporations would be hit hard since many rely heavily on foreign funds to finance investment and boost lending, Even if Russia doesn’t decide to expand its occupation further into Ukraine, the IIF estimates that political tensions are likely to cut capital inflows into Russia by 20%-30%. That would shrivel up investment, foreign demand for Russian corporate and sovereign bonds and bank lending from abroad. “Capital flight for the first quarter of 2014 will likely be extremely high,”

Former Ambassador: Russia Responding to Years of U.S. Hostility - The last U.S. ambassador to the Soviet Union argues that Russian President Vladimir Putin’s actions in Ukraine are a response to years of hostility from the United States, including the eastward expansion of NATO, the bombing of Serbia and the expansion of American military bases in Eastern Europe. “I think that what we have seen is a reaction, in many respects, to a long history of what the Russian government, the Russian president and many of the Russian people—most of them—feel has been a pattern of American activity that has been hostile to Russia and has simply disregarded their national interests,” former ambassador Jack Matlock told “Democracy Now!” on Thursday. “They feel that having thrown off communism, having dispensed with the Soviet Empire, that the U.S. systematically, from the time it started expanding NATO to the east, without them, and then using NATO to carry out what they consider offensive actions about an—against another country—in this case, Serbia—a country which had not attacked any NATO member, and then detached territory from it—this is very relevant now to what we’re seeing happening in Crimea—and then continued to place bases in these countries, to move closer and closer to borders, and then to talk of taking Ukraine, most of whose people didn’t want to be a member of NATO, into NATO, and Georgia. Now, this began an intrusion into an area which the Russians are very sensitive.

Putin formally gets Crimea; Ukraine, EU sign deal — Two almost simultaneous signatures Friday on opposite sides of Europe deepened the divide between East and West, as Russia formally annexed Crimea and the European Union pulled Ukraine closer into its orbit. In this ‘‘new post-Cold War order,’’ as the Ukrainian prime minister called it, besieged Ukrainian troops on the Crimean Peninsula faced a critical choice: leave, join the Russian military or demobilize. Ukraine was working on evacuating its outnumbered troops in Crimea, but some said they were still awaiting orders. With fears running high of clashes between the two sides or a grab by Moscow for more of Ukraine, the chief of the U.N. came to the capital city Kiev and urged calm all around. All eyes were on Russian President Vladimir Putin, as they have been ever since pro-Western protests drove out Ukraine’s president a month ago, angering Russia and plunging Europe into its worst crisis in a generation. Putin sounded a conciliatory note Friday, almost joking about U.S. and EU sanctions squeezing his inner circle and saying he saw no reason to retaliate. But his government later warned of further action. Russia’s troubled economic outlook may drive its decisions as much as any outside military threat. Stocks sank further, and a possible downgrade of Russia’s credit rating loomed. Visa and MasterCard stopped serving two Russian banks, and Russia conceded it may scrap plans to tap international markets for money this year. Despite those clouds, Putin painted Friday’s events in victorious colors, and fireworks burst over Moscow and Crimea on his orders, in a spectacle reminiscent of the celebrations held when Soviet troops drove the Nazis from occupied cities in World War II.

How the Russia Sanctions Could Backfire -  Putin spoke for just five minutes and did not find time to mention Ukraine, Crimea, the weakening rouble or the plunging Russian markets. Instead, he focused on a different project—“de-offshore-ization.” It is an ugly word and it sounds, if anything, even uglier in Russian, especially when Putin says it: de-offshorizatsiya. But it is one he likes, and he has been pushing it since 2008. “Russian companies must be registered on our, on their own territory, on the territory of our country and they must have a transparent property structure. I am convinced you are also interested in this,” Putin told his crowd. What sounds like a rather dry proposal for some changes to Russian financial regulation gained dramatic urgency just minutes later, when the White House issued sanctions against Kremlin insiders. U.S. individuals and companies were suddenly barred from doing business with some of Putin’s best friends. The impact was immediate. Visa and Mastercard stopped servicing several Russian banks, thus blocking their clients’ ability to use ATMs. When the markets opened the next day in Moscow, shares in companies linked to people on the list plunged. The costs to Russia are undoubtedly severe but, as Russian businessmen scramble to get their money out of America’s reach, Putin may be secretly pleased.   Russian businessmen have become adept at using the offshore banking sectors of the world to hide their wealth. This not only impoverishes Russia, it also complicates Putin’s task of bringing everything in the country within his reach—hence, his desire to de-offshore-ize it.

Western banks lend billions to Russia - Russian oligarchs, banks and corporations have been borrowing heavily from the West, underscoring the risks for both sides in escalating the Ukraine crisis. According to Russia's central bank, total foreign debt stood at $732 billion at the end of 2013, up by nearly $200 billion over two years -- and $160 billion of that was new borrowing by Russian businesses and banks.Just this week, mining giant Metalloinvest said it had arranged an export financing facility worth $1.15 billion with a group of banks including the three biggest names in France, Deutsche Bank (DB), UniCredit (UNCFF) of Italy, ING (IDG) of the Netherlands, as well as Credit Suisse (CS) and Japan's Bank of Tokyo Mitsubishi. Metalloinvest is controlled by Alisher Usmanov, who is reported to be Russia's richest man and close to Putin.

Russia's Medvedev says Ukraine owes Russia $16 billion (Reuters) - Russian Prime Minister Medvedev said in a meeting with President Vladimir Putin on Friday that in total Ukraine owes Russia $16 billion, local news agencies reported. Medvedev said that Ukraine owes Russia $11 billion because the treaty under which Russia provides Ukraine with cheap gas in return for the Sevastopol naval base was "subject to denunciation". In addition, he said that Ukraine owes Russia $3 billion for a recent loan in the form of Russian purchase of Eurobonds, and that around $2 billion is owed to Gazprom, Russia's state-controlled gas concern.

The Greek crisis we don’t see -  The economic impact of the Greek crisis has been well publicized. A recession that began in 2008 has led to GDP contracting by a quarter, while unemployment has risen above 27 percent. Greece’s fiscal consolidation effort has also received much attention. A general government deficit of 15.6 percent in 2009 was transformed into a small surplus in 2013 – one of the sharpest adjustments the world has ever seen. What sometimes goes unnoticed, though, is the effect these developments are having on people and their daily lives. The social cost of the crisis is often hidden from visitors and casual observers. It lurks behind the sight of apparently relaxed Athenians sipping coffee in the sunshine or seemingly carefree islanders clinking together their second or third glasses of ouzo. In fact if one excludes some parts of Athens and other big cities, the signs of the crisis are not always that visible. There are a number of reasons why the signs of the crisis are elusive. Perhaps the overriding one is that the social impact can rarely be seen on the street, on the beach, in cafes or in restaurants. It is most evident in places that are out of our direct view: Living rooms, offices, factories, hospitals and in the deepest, darkest recesses of people’s minds. In these places, the crisis is very real and very disturbing.

Banker Farce: Spanish Bank CEO Launches Moral Crusade Against Political Corruption - “We have to fight corruption in order to build a new model of more sustainable and fairer growth.” These laudable words came from the least likely of mouths – that of Francisco González, CEO of Spanish banking giant Banco Bilbao Vizcaya Argentaria (BBVA). González was speaking at the bank’s annual shareholder meeting, held last week in Bilbao. BBVA is Spain’s second biggest bank with operations in more than 30 countries including the U.S., China, Argentina, Columbia and Mexico. It has about 107,000 employees, 47 million customers worldwide, a million shareholders and now, it seems, a moralizing CEO. BBVA is by far Spain’s biggest investor in the arms trade. In 2011 the bank invested close to 2 billion dollars in the sector. Together with Spain’s biggest bank, Santander, BBVA accounts for 90 percent of total funding for the country’s arms industry. According to allegations from the London-based organisation Human Rights Investigations, BBVA has been consistently singled out for its human rights record and its links with the arms industry. The bank has also been criticised by Pax Christi for having no rules banning it from transactions linked to cluster bombs. As if that were not enough, a 1986 investigation by the West German Federal Criminal Bureau uncovered evidence that Syrian General Duba, Syrian dictator Hafez al-Assad, and heroin kingpin Rifaat al-Assad all maintained multimillion dollar accounts at the Banco de Bilbao (now BBVA), which were used to launder proceeds not only from weapons deals but also drug trafficking – which, as luck would have it, brings us to the next entry on BBVA’s charge sheet.

The Timidity Trap, by Paul Krugman - In Europe they’re crowing about Spain’s recovery: the country seems set to grow at least twice as fast this year as previously forecast. Unfortunately, that means growth of 1 percent, versus 0.5 percent, in a deeply depressed economy with 55 percent youth unemployment. The fact that this can be considered good news just goes to show how accustomed we’ve grown to terrible economic conditions. We’re doing worse than anyone could have imagined a few years ago, yet people seem increasingly to be accepting this miserable situation as the new normal. How did this happen?  I’d argue that an important source of failure was what I’ve taken to calling the timidity trap — the consistent tendency of policy makers who have the right ideas in principle to go for half-measures in practice, and the way this timidity ends up backfiring, politically and even economically. About the worst: If you’ve been following economic debates these past few years, you know that both America and Europe have powerful pain caucuses — influential groups fiercely opposed to any policy that might put the unemployed back to work. There are some important differences between the U.S. and European pain caucuses, but both now have truly impressive track records of being always wrong, never in doubt.  Meanwhile, in Europe, four years have passed since the Continent turned to harsh austerity programs. The architects of these programs told us not to worry about adverse impacts on jobs and growth — the economic effects would be positive, because austerity would inspire confidence. Needless to say, the confidence fairy never appeared, and the economic and social price has been immense. But no matter: all the serious people say that the beatings must continue until morale improves.

Euro Zone Inflation in Surprise Fall to 0.7% - — Pressure on the European Central Bank to do more to prevent prices from falling in the 18-country eurozone ratcheted up Monday after figures showed inflation across the region unexpectedly fell in February to its lowest level since October. Figures released Monday by the Eurostat statistics agency showed consumer prices were 0.7 percent higher in February than the year before. That was lower than the 0.8 percent initial estimate and took the annual rate down to the level it was in October, which was the lowest level since late 2009. The figures are likely to reinforce concerns in the markets that the eurozone risks suffering a bout of deflation, or falling prices. Deflation can hurt an economy by encouraging consumers and businesses to delay spending in the hope of cheaper bargains further down the line. The inflation rate, which is way below the level the ECB's target of just below 2 percent, also comes at a time when the euro has been buoyant in currency markets. A higher currency can pressure inflation downwards in two ways: It can make imports cheaper and weigh on economic activity by making exports more expensive on international markets.

Why has the Eurozone Bond Market stabilised? - Varoufakis - Europe’s apparent ‘stabilization’ can be pinned down to two factors. The first, and most crucial, was the ECB’s intervention in the summer of 2012. Moments before the Eurozone blew up, with devastating impact upon the rest of the world, the ECB stepped in with its nuclear option, also known as the OMT Phantom Program (OMT standing for Outright Monetary Transactions and ‘phantom’ because it has not been activated, so far): ECB President, Mr Mario Draghi, former Goldman Sachs and Bank of Italy golden boy, issued a stern warning to bond dealers the world over: “Bet against Italy and Spain and I shall blast you out of the water. I shall print as many euros as I need in order to buy as many Spanish and Italian bonds as necessary to bury you in your filthy bets.” Of course, these were not his chosen words. But they there the words that bonds dealers knew he meant to convey to them. They also knew that Mr Draghi had issued that threat contrary to his own charter. At that point they could have called his bluff. Instead, they chose to back off and stopped short-selling Eurozone government bonds. The second factor took longer to play out. It was a large transfer of wealth from the taxpayers to the banks and from the weaker citizens to the states’ coffers; a transfer that was predicated upon immense cuts in wages, salaries, public sector jobs, unheard of tax hikes and the effective demolition of social security. In words, austerity of a magnitude that put the patient into an induced coma. By 2012, the Eurozone was in a triple-dip recession which reduced projected growth and created deflationary expectations (which are currently being confirmed) that increased the attraction of high yielding bonds, especially under the aegis of Mr Draghi’s OMT pronouncement.

Euro too strong for exporters: EU's Van Rompuy  (Reuters) - The euro exchange rate is too strong for euro zone exporters, the president of the European Council said on Friday. Herman Van Rompuy, who represents European Union governments in Brussels, also said the economic aspects of the euro crisis, such as low growth, persisted, although the threat to the common currency's existence had passed. "The existential threat on the euro, that is over ... We've seen it on the financial markets. There is much more convergence also in the spreads (on euro zone government bond yields)," he said at an event organized by the German Marshall Fund of the United States, a think-tank. "We see it also in the exchange rate. The euro is even too strong for our exporters. The euro even became, with the crisis in the emerging countries, some kind of safe haven. So I say often the existential threat is behind us but the problems are not over," he said. France's Prime Minister Jean-Marc Ayrault made similar comments last week when he was quoted as saying that the euro was "a bit" overvalued, but that this should not discourage France from making efforts to regain competitiveness.

BOE Forward Guidance Is Working, Study Suggests -- Several major central banks have borne plenty of criticism for their recent pledges, known as forward guidance, about the likely future path of interest rates. Yet a survey published Monday in the U.K. suggests the strategy has had some success in boosting business confidence and reviving firms’ appetite for hiring and investment, goals of central bank officials in other advanced economies as well. The Bank of England pledged in August not to consider raising its benchmark interest rates at least until joblessness in the U.K. fell to 7%, provided inflation remained under control and financial stability was maintained. The Federal Reserve had earlier adopted a similar strategy, saying it would not consider raising interest rates until U.S. unemployment fell to 6.5%, while the European Central Bank pledged to keep interest-rates low “for an extended period.” The BOE in February rewrote its guidance to put greater emphasis on broader measures of slack in the economy than just unemployment. Fed officials are likely to discuss a revamp of their guidance this week. Central bankers consider it critical to give clear guidance about the outlook for interest rates because it affects the expectations and behavior of households, businesses and investors, and hence the overall economy. Critics say such pledges risk inflating new bubbles in asset prices or sparking inflation.

Children are not a lifestyle choice - Chris Dillow complains that the Government's proposal to subsidise childcare for households with incomes up to £300,000 is "inegalitarian and economically illiterate". Much of his argument makes sense. His observation that subsidising childcare will benefit employers as much as parents is particularly important: childcare subsidies are in effect wage subsidies, and wage subsidies are known to depress wages. This looks very like the latest iteration of "Help to Buy Votes" - yet more pre-election bribery of middle-class couples.  But I have to take issue with him on this: Let's start from the fact that this subsidy must be paid for by other tax-payers. It's therefore not just a subsidy to parents, but a tax on singletons.  This is inegalitarian not just because it means that a single person on the minimum wage is subsidizing the lifestyle choice of couples on six-figure incomes....It seems Chris thinks it is unfair that single people on low incomes should pay to support the children of much richer people. I beg to differ. Having children is often described as a "lifestyle choice", usually by people without children who object to supporting families with children. But this is poisonous quasi-egalitarian nonsense. People who choose not to have children rely on other people's children to support them in their old age. Whose taxes will pay for their pensions, benefits and healthcare if other people don't have children? Whose production will ensure that they have food on the table and money to spend from the returns on their investments?   When people without children support families with children from their taxes - or directly through philanthropic giving - they are contributing to their own futures. They may not realise it, but they have as much interest in ensuring that those children are properly cared for and educated as the parents do.  

Britain's five richest families worth more than poorest 20% -- The scale of Britain's growing inequality is revealed today by a report from a leading charity showing that the country's five richest families now own more wealth than the poorest 20% of the population. Oxfam urged the chancellor George Osborne to use Wednesday's budget to make a fresh assault on tax avoidance and introduce a living wage in a report highlighting how a handful of the super-rich, headed by the Duke of Westminster, have more money and financial assets than 12.6 million Britons put together. The development charity, which has opened UK programmes to tackle poverty, said the government should explore the possibility of a wealth tax after revealing how income gains and the benefits of rising asset prices had disproportionately helped those at the top. Although Labour is seeking to make living standards central to the political debate in the run-up to next year's general election, Osborne is determined not to abandon the deficit-reduction strategy that has been in place since 2010. But he is likely to announce a fresh crackdown on tax avoidance and measures aimed at overseas owners of high-value London property in order to pay for modest tax cuts for working families.

Budget 2014: Britain’s false recovery is a credit mirage, unlike real recovery in the US - No vindication can be sweeter for George Osborne than Britain’s new role as a global safe-haven, an astonishing reversal from early 2010 when hedge funds were itching to attack the pound.  The cost of default insurance on British debt – measured by credit default swaps – is now below that of the US, France and Japan, and briefly slipped below Germany last week.  The Chancellor told the House that Britain is now the growth star of the industrial world, galloping up to 2.7pc this year. The pessimists have had to apologise. Even the lordly IMF is admitting through gritted teeth that it failed to see the mini-boom coming.  Yet growth is not the salient indicator. What may matter more is a current account deficit running at more than 5pc of GDP over recent months, the worst in a quarter of a century and by far the worst of the G7. It is not a “healthy” deficit driven by imports of machinery. It is a consumption spree.  The household savings ratio has drifted down from 8pc two years ago to 5.4pc today. Output per hour has been falling and is now 21 percentage points below the G7 average, the widest productivity gap since 1992, according to the ONS.  America’s recovery has an entirely different feel. The shale revolution has slashed energy imports and powered a manufacturing revival. The US current account deficit fell to a 14-year low of 1.9pc of GDP last year. The US budget deficit is already below 3pc, and the US debt ratio has already stabilised.

London ‘Draining Life’ From Rest of U.K. Economy -- There’s London. And then there’s the rest of the U.K. More Primark to Pay $9 Million to Bangladesh Victims Tony Benn, Devoted British Socialist, Dies at 88 Men Charged With Toppling Ancient Rock Formation Avoid Jail Time Huffington Post Here's An Updated Tally Of All The People Who Have Ever Died From A Marijuana Overdose Huffington Post Lady Gaga: What's Going Wrong with the Pop Star? PeopleA tale of two Britains has increasingly emerged since the Great Recession. While the government trumpets the country’s recovery from the financial crisis and its status as the world’s fastest-growing developed economy, the rhetoric hides an increasing divide: One that pits London’s boom against the malaise in cities such as Manchester and Birmingham that are struggling to remain vibrant in the 21st century.  Buoyed by foreign investment and a resurgent financial industry, the economy of London and the rest of Britain’s South East region has expanded almost twice as fast as the rest of the country since the 2008 financial crisis. A chasm that began opening with the decline of Britain’s textile and coal industries a century ago is widening as London’s ability to attract jobs and investment leaves the rest of the country struggling. Britain’s economy is, by some calculations, the most dependent on a single urban area among the world’s most industrialized nations. Policymakers are considering a range of ideas to address the imbalance. Among them is building a 43 billion-pound ($71 billion) high-speed rail network to connect London with Birmingham, Manchester and Leeds, helping the northern cities become viable alternatives for businesses to locate. Another idea is for Manchester and Liverpool to merge into a super-city that could better compete with London for investment.

The truth is out: money is just an IOU, and the banks are rolling in it - Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called "Money Creation in the Modern Economy", co-authored by three economists from the Bank's Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. The central bank can print as much money as it wishes. But it is also careful not to print too much. In fact, we are often told this is why independent central banks exist in the first place. If governments could print money themselves, they would surely put out too much of it, and the resulting inflation would throw the economy into chaos. Institutions such as the Bank of England or US Federal Reserve were created to carefully regulate the money supply to prevent inflation. This is why they are forbidden to directly fund the government, say, by buying treasury bonds, but instead fund private economic activity that the government merely taxes. It's this understanding that allows us to continue to talk about money as if it were a limited resource like bauxite or petroleum, to say "there's just not enough money" to fund social programmes, to speak of the immorality of government debt or of public spending "crowding out" the private sector. What the Bank of England admitted this week is that none of this is really true. To quote from its own initial summary: "Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits" … "In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money 'multiplied up' into more loans and deposits."

Bank of England Admits that Loans Come First … and Deposits Follow -- The above is from a new official video released by the Bank of England. The Bank of England notes in a new article: Broad money is a measure of the total amount of money held by households and companies in the economy. Broad money is made up of bank deposits — which are essentially IOUs from commercial banks to households and companies — and currency — mostly IOUs from the central bank. Of the two types of broad money, bank deposits make up the vast majority — 97% of the amount currently in circulation. And in the modern economy, those bank deposits are mostly created by commercial banks themselves. Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.

The Bank of England Lights A Fuse Under the Field of Economics - There will be many people who don’t care, there will be many more who don’t understand, and there will be boatloads who refuse to believe it’s true, but it still is. The Bank of England, in one single document, discredited, just at first count, 1) the majority of economics textbooks, 2) vast swaths of the entire field of economics, run as it is by economists educated by those same textbooks, 3) most governments’ economic policies, designed by these economists, 4) much of its own work, also designed by the same economists, 5) Paul Krugman and 6) the “committee” that hands Krugman and his ilk their Not-So-Nobel Prizes. Indeed, the message the Bank’s people send is so devastating to economics as it is taught today that their document will most likely simply be ignored, even though that probably shouldn’t really be possible with an official central bank report. As my friend Steve Keen, whose take on this I touched on yesterday, put it: Their dominant “tactic” — if I can call it that — will be ignorance itself: most economics lecturers won’t even know that the bank’s paper exists, and they will continue to teach from whatever textbook bible they’ve chosen to inflict upon their students. A secondary one will be to know of it, but ignore it, as they’ve ignored countless critiques of mainstream economics before. The third arrow in the quill, if they are challenged by students about it (hint hint!), will be to argue that the textbook story is a “useful parable” for beginning students, and a more realistic vision is introduced in more advanced courses. Still, to see the Bank of England admit that the entire model most governments, including that of England, use to conduct policies, including austerity, should really be thrown out the window, is noteworthy. Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate published in the Quarterly Bulletin 2014 Q1 a document entitled Money Creation in the Modern Economy, and introductory document, Money in the Modern Economy: An Introduction, and two videos that unfortunately seem shot with the express intent of losing the viewer’s interest within 10 seconds, but are still worth watching.

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