week ending Apr 26

FRB: H.4.1 Release--Factors Affecting Reserve Balances--April 24, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Does This Figure Show Why Fed Policy Failed? -- What do you see in this figure from a recent New York Fed study? Technically, it shows that the Fed’s balance sheet is expected to shrink and return to the path it would have been on had there been no large scale asset purchases (LSAPs) over the past five years. This projection is a reflection of FOMC’s plan to eventually normalize the size of the Fed’s balance sheet. Bonds markets have understood this plan from the beginning as is evidenced in their inflation forecasts. The FOMC formally announced its plan to normalize and shrink its balance in its June, 2011 meeting. Subsequent speeches, press conferences, and congressional testimony by Ben Bernanke have reinforced this understanding. The point is the Fed never intended the LSAPs to be permanent. So again I ask, what do you see in the above figure? What is the bigger message it is telling? In my view, the answer to these questions is unambiguously clear. It signals the Fed never intended to unload both barrels of the gun and fully offset the collapse in aggregate demand. In other words, the figure reveals why Fed policy failed to end the slump.  You may be scratching your heard wondering how I got that message out of the figure. First, in order for there to have been sufficient aggregate demand growth the Fed needed to commit to a permanent monetary injection:[O]pen market operations (OMOs) and helicopter drops will only spur aggregate demand growth if they are expected to be permanent. This idea is not original to Market Monetarists and has been made by others including Paul Krugman, Michael Woodford, and  Alan Auerback and Maurice Obstfeld. Market Monetarists have been advocating a NGDP level target (NGDPLT) over the past five years for this very reason. It implies a commitment to permanently increase the monetary base, if needed.

A Chance to Remake the Fed - Janet Yellen has only chaired the Federal Reserve for a few months, but you could forgive her if she feels like the new kid in school that nobody wants to sit with at lunchtime. With the resignation of Jeremy Stein earlier this month, there are only two confirmed members of the seven-member Board of Governors: Yellen and Daniel Tarullo. Three nominees—Stan Fischer, Lael Brainard and Jerome Powell, (whose term expired but has been re-nominated)—await confirmation from the Senate. Another two slots are vacant, awaiting nominations. One consequence of the shortage of Fed governors is that regional Federal Reserve Bank presidents, chosen by private banks, now outnumber Board members at monetary policy meetings, allowing the private sector to effectively dictate monetary policy from the inside, and creating what some call a constitutional crisis. The need for two more nominees, however, provides an opportunity to reunite the progressive coalition that prevented Larry Summers from getting nominated as Fed Chair last year. By pursuing a nominee dedicated to tougher oversight of the financial industry, reformers can make their mark on the central bank for years to come. But it was much easier to reject a known quantity like Summers, especially with an obvious, historic alternative in Yellen. Who will progressives demand this time to represent their interests at the Fed?

Alternative Jobless Measures Reinforce Fed’s ‘Low-for-Long’ Message -- Federal Reserve Chairwoman Janet Yellen has been emphasizing alternative measures of unemployment in her assessment of the economy’s slack. On their current trajectory, some of these measures look like they are years away from reaching levels that would be considered normal in the past. Consider, for example, the Labor Department’s broadest measure of unemployment, known among economists as U6, which counts the unemployed, people working part-time who want full-time work, and people who say they want a job but haven’t actively looked for one. Ms. Yellen highlighted this measure in her March press conference. Between 1994, when the Labor Department started this series, and December 2007, when the recession started, this broad measure of labor market slack averaged 8.9%. It peaked at 16.9% in 2010 and has been descending at a rate of about one percentage point per year to 12.7% in March. At its current pace of descent, it won’t reach its historic norm until early 2018. Ms. Yellen has also highlighted the 7.4 million Americans who want full-time work but can only get part-time work. They made up 5.1% of all people employed in March. Historically they have made up 3.9% of total employed. This measure of slack has been declining by a half percentage point a year for the past three years. At its current rate, it will reach its historic norm in late 2016. A broader measure of people working part-time as a percentage of the overall labor force has been falling at an even slower pace and is on a trajectory to return to normal by 2020. The Fed projects the traditional unemployment rate, which was 6.7% in March, will reach normal levels of between 5.2% and 5.6% by late 2016. Ms. Yellen’s alternate measures reinforce her view that “low-for-long” is the right way to go on interest rates.

To Gauge Jobs Progress, Fed Should Focus on Wages: Former BOE Officials - The Federal Reserve should focus on evidence of wage gains rather than falling unemployment as a sign the economy is improving enough to start raising interest rates, two former Bank of England officials say. Falling U.S. labor force participation reflects a weak economic recovery rather than more intractable structural factors such as skill mismatches and demographic shifts, argue Danny Blanchflower and Adam Posen in a draft paper. U.S. labor force participation, the share of adults holding or actively seeking jobs, has fallen from a high of 67.3% in early 2000, with the decline accelerating after the 2008 financial crisis. At 63.2% in March, it was near its lowest level since the late 1970s. “A substantial portion of those American workers who became inactive should not be treated as gone forever, but should be expected to spring back into the labor market if demand rises to create jobs. Labor market slack in the U.S. economy remains substantial, and subject to partial control by monetary stimulus,” Messrs. Blanchflower and Posen write. Translation: There are a lot of Americans who would work if there were more jobs available, and the Fed can help spur hiring through easy credit policies. The research adds to the debate about how much of the recent softness in U.S. economic activity can be remedied by interest rate policy at a time when borrowing costs are already close to record lows. Some economists, including some Fed officials, say low interest rates can do little to boost employment when many Americans are dropping out of the work force because they are retiring or lack the needed skills for the jobs available. Messrs. Blanchflower and Posen authors come down squarely on the side of central bank action.

Maybe QE Was Helping A Little More than You Thought -- It’s hard to find anyone outside the Fed to say something positive about the impact of their quantitative easing, or “large-scale asset purchase” program.  And while there’s certainly some concrete evidence that it had its intended direct impact of lowering longer-term interest rates, there’s less evidence that it hit its broader, indirect target of investment, growth, and jobs.Still, one cannot help but notice the recent slowdown in the housing recovery and one further cannot help but wonder about the extent to which Fed actions to pull back on their LSAPs is implicated in said slowdown, though there are of course other moving parts here.According to a Credit Suisse index, homebuyer traffic is down more than a third from last year, and yesterday’s new home sales were off big-time, with sales down 13% from a year ago, the first yr/yr decline since 2011q2.  Pending home sales have also been negative in recently months and recently hit their lowest level since late 2011. But re QE, note these facts:

• –When former Fed chair Bernanke set off the “taper tantrum” in a press conference in June of last year by pointing out that at some point, the Fed would start scaling back the LSAP, bond and mortgage rates spiked (see first chart here re the 10-yr yield).
• –The 30-yr fixed rate mortgage went up about a point around then from the mid-3’s to the mid-4’s and has stayed there.
• –As the Fed has tapered its asset buys, which include agency (GSE) mortgage-backed-securities, from $85 billion/month to its current level of $55 billion, the yield curve for bonds has steepened. 

Debate Heats Up: Re-Normalize or New-Normalize Policy - John Taylor - Last week’s IMF conference on Monetary Policy in the New Normal revealed a lot of disagreement on the key issue of where policy should be headed in the future. A dispute that broke out between me and Adair Turner is one example.  I led off the first panel making the case that central banks should re-normalize rather than new-normalize monetary policy. At a later panel Turner, who headed the UK Financial Services Authority during the financial crisis, “very strongly” disagreed. Turner took issue with the  view that a departure from predicable rules-based policy has been a big factor in our recent poor economic performance, essentially reversing the move to more predictable rules-based policy which led to good performance during the Great Moderation. I used the following diagram (slide 5 from my presentation), which is an updated version of a diagram Ben Bernanke presented in a paper ten years ago.  The diagram shows a policy tradeoff curve (called the Taylor Curve by Bernanke in his paper following fairly common usage). I argued, as did Bernanke in that paper, that the improved performance from point A to point B was mainly due to monetary policy, not a shift in the curve. In my view, the recent deterioration in performance to the red dot at point C was also due to a departure from rules based policy, rather than a shift in the curve.

What’s that fishy smell? The Fed’s corrupt policies -- MarketWatch: Our financial system is so corrupt you might say that a fish rots from the Fed. How else can one describe a regime that punishes savers and rewards borrowers and speculators for years on end? Our central bank is essentially taking billions of dollars a year from average Americans, who are still struggling to get by in a bombed-out economy, and it is giving it — yes, giving it — to the very banks that helped cause the 2008 financial crisis in the first place. Richard Barrington, an analyst with Moneyrates.com, estimates the Fed’s policies have cost savers $757.9 billion since the crisis, in an analysis released Tuesday . That’s approaching $1 trillion, which used to be considered a lot of money, even to bankers, before the crisis. The Fed, meanwhile, has only given the world a little assurance that its policies will change at some point in the distant future. “It’s a stealth bailout,” Barrington said. “Low-interest-rate policies have helped bail out banks, the stock market and real estate, but the Fed has not publicly acknowledged the cost of those policies.”  Of course, not. Because the costs are staggering.  Money-market rates have been stuck between 0.08% and 0.10% but the annual inflation rate has been, at least nominally, 1.5%. That’s pretty low for inflation, yet this spread eroded the purchasing power of American deposits by $122.5 billion over the last year alone, Barrington said.

Fed's low-interest-rate policies cost savers $758 billion, study says - The Federal Reserve's low interest rate policies, designed to stimulate the economy, have cost savers about $758 billion since the end of the Great Recession, according to a study released Tuesday. Inflation and low returns on deposits have led bank customers to lose more than $100 billion in purchasing power in each of the last five years, said MoneyRates.com, which provides consumers with information about bank rates, investing and personal finance. The Fed's benchmark short-term rate has been near zero since late 2008 as central bank policymakers tried to battle the financial crisis and Great Recession. The goal was to make money cheap so that consumers and companies would spend rather than save, stimulating economic growth. The Fed's policies helped push mortgage rates to historic lows and made other types of loans cheaper, saving consumers money in some ways, said Richard Barrington, a senior financial analyst for the company. Fed officials have pointed to those savings, as well as the broader benefits of an improving economy, in justifying the low interest rates. Central bank policymakers are reducing another stimulus program, its monthly bond-buying effort, and have indicated they could start raising interest rates slowly next year if the economy continues to improve.

Speeding toward inequality -- If you were a passenger in a car speeding toward a cliff, you would scream at the lunatic driver to steer away or slow down. The car is our economy. The cliff is inequality. Inequality is a disaster for society.Who is driving the car? A combination of government policies and business institutions are steering the car toward inequality. We see low taxes on the rich and norms for higher and higher CEO pay. We see the real wage struggling behind productivity. Changing these policies would steer us away from inequality.What has been making the economy go so fast toward inequality in these last 2 years? … Monetary policy is the engine of the economy. When you push down on the gas pedal (interest rates), the car (the economy) goes faster. The speed at which we are generating inequality is largely based on monetary policy. And our long run aggressive monetary policy is speeding toward inequality.Monetary policy mostly depends upon the wealth effect to boost demand. Yes, the Federal Reserve has programs to direct liquidity into communities, but the larger impact of monetary policy is still the wealth effect through QE and the zero lower bound Fed rate. Productive investment is muted due to low labor consumption power. The wealth effect is a fast track to inequality when the economy is being steered toward inequality. If the economy was being steered toward a healthy balance between labor and capital, monetary policy would be benefiting broader society.

Consumer Price Inflation Edges Up in March but No Upward Trend in Sight for Inflation Expectations -- The latest data from the Bureau of Labor Statistics shows an uptick in consumer price inflation for the month of March. Separately, estimates by the Cleveland Fed show that inflation expectations remain flat and well below the Fed’s target of 2 percent. As the following chart shows, the all-items consumer price index rose at a seasonally adjusted annual rate of 2.43 percent last month, up from 1.21 percent in January. Food prices helped push the CPI upward, as they did in the previous month. Energy prices, which had fallen by 0.5 percent in February, decreased by just 0.1 percent in March. The core inflation rate, which removes the effect of food and energy prices, rose by 2.48 percent for the month. If we look hard, we can construe the latest inflation data to be consistent with a slight upward trend, as represented by the chart’s fourth-order polynomial trend lines, which just brush 2 percent in March. Before breaking the glass on the inflation alarm, though, we should take a look at expected inflation. The following chart shows five-year and ten-year inflation expectations, based on prices for Treasury Inflation Protected Securities. In the middle of last year, when the Fed first began discussing a tapering of its massive monthly asset purchases, expected inflation rates moved up by about half a percentage point, or 50 basis points. Since then, they have changed little. The latest release shows that both the five-year and the ten-year expected inflation rates remain slightly below the peaks reached in September. What is more, keep in mind that the chart shows the Cleveland Fed’s expectation estimates for CPI inflation. The Federal Open Market Committee instead sets its two-percent policy target for inflation in terms of the deflator for Personal Consumption Expenditures. For various reasons, the CPI inflation rate tends to track about half a percentage point above the PCE rate. That means that expected CPI inflation rates of about 1.8 percent, as shown in the chart, are really 70 basis points lower than the Fed’s target, not just 20 points lower.

Fed Reverse Repos Again See Demand Surge As Treasury Navigates Tax Time - A shortage of Treasury securities is driving very strong demand for a tool the Federal Reserve is testing in hopes that it may one day give the central bank better control over short-term interest rates. The New York Federal Reserve building.Bloomberg NewsIn recent days, eligible financial firms have been pouring cash into what the Fed calls its fixed-rate overnight reverse repurchase agreement facility. Through this tool, in testing since September, the central bank takes in cash from the list of large banks, investment funds and government-sponsored housing lenders in exchange for one-day loans of Fed-owned Treasury securities. Policy makers hope the rate the Fed pays dealers to compensate them for a de facto loan of cash, now at a minimal 5 basis points or 0.5%, will set a floor underneath short-term interest rates. If the testing phase proves successful, the so-called reverse repos could serve as the Fed’s main tool to influence short-term interest rates when the time comes to raise rates, replacing the overnight federal funds rate as the central bank’s benchmark rate. So far this year, the median total value of the Fed’s reverse repo operations has been around $85 billion per day—meaning half the time the total was higher and half the time it was smaller. The average daily total has been $89 billion. But the total size of the daily operations has been volatile. Some firms’ desire to gussy up their financial positions around year and quarter ends for reporting purposes, by doing business with the Fed in high quality Treasury securities, has frequently led to spikes in demand.

Chicago Fed: "Economic Growth Moderated in March" -- The Chicago Fed released the national activity index (a composite index of other indicators): Economic Growth Moderated in March Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to +0.20 in March from +0.53 in February. Two of the four broad categories of indicators that make up the index made positive contributions to the index in March, and two of the four categories decreased from February. ...The index’s three-month moving average, CFNAI-MA3, increased to a neutral reading in March from –0.14 in February, marking its third consecutive nonpositive value. March’s CFNAI-MA3 suggests that growth in national economic activity was at its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967. This suggests economic activity was at the historical trend in March (using the three-month average).

Chicago Fed: Economic Growth Moderated in March -  "Index shows economic growth moderated in March"  is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report: Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to +0.20 in March from +0.53 in February. Two of the four broad categories of indicators that make up the index made positive contributions to the index in March, and two of the four categories decreased from February.  The index's three-month moving average, CFNAI-MA3, increased to a neutral reading in March from -0.14 in February, marking its third consecutive nonpositive value. March's CFNAI-MA3 suggests that growth in national economic activity was at its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.  The CFNAI Diffusion Index increased to +0.04 in March from -0.14 in February. Fifty-one of the 85 individual indicators made positive contributions to the CFNAI in March, while 34 made negative contributions. Thirty-three indicators improved from February to March, while 51 indicators deteriorated and one was unchanged. Of the indicators that improved, nine made negative contributions. [Download PDF News Release] The latest headline index at 0.20 matched the Investing.com forecast of 0.20.

Conference Board Leading Economic Index Increased in March - The Latest Conference Board Leading Economic Index (LEI) for March is now available. The index rose 0.8 percent to 100.9 percent and the five previous months were revised upward (2004 = 100). The latest number was above the 0.7 percent forecast by Investing.com. Here is an overview from the LEI technical notes:The Conference Board LEI for the U.S. increased for the third consecutive month in March. This month's gain in the leading economic index was driven by positive contributions from all the financial and labor market indicators. In the six-month period ending March 2014, the LEI increased 2.7 percent (about a 5.6 percent annual rate), slower than the growth of 3.3 percent (about a 6.6 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators remain widespread. [Full notes in PDF. Here is a chart of the LEI series with documented recessions as identified by the NBER.

Vital Signs: The Leading Index Shows Economy Will Warm Up after Winter’s Chill -  The Conference Board’s leading index is designed to forecast economic activity, not the weather. So, the split between the leading and coincident indexes so far this year offers further evidence of how the weather slowed growth in the first quarter. It also supports expectations that economic activity is picking up this quarter. The board compiles 10 forward-looking data series, including jobless claims and new orders, to calculate its leading index, and the coincident index contains four series, including nonfarm payrolls and business sales. While growth in the coincident index usually follows the rate of the leading index with a lag, the gap between the two has widened in recent months. On Monday, the board said its leading index increased a larger-than-expected 0.8% in March, and the coincident index increased 0.2%. In the past four months, which included the harsh winter period, the leading index has increased 1.5% while the coincident is up just 0.4%. The gains in the leading index mean economic fundamentals should allow the recovery to pick up steam in coming months. If so, the coincident index should post better gains. “The economy is rebounding from widespread inclement weather and the strengthening in the labor market is beginning to have a positive impact on growth,”

Takeaways From New GDP-by-Industry Report - The Commerce Department on Friday presented a new quarterly breakdown of gross domestic product by 22 industries, a report that is meant to complement the department’s widely followed gauge of economic output by types of expenditure like personal consumption and business investment. Here are some key takeaways:

• Manufacturing powers ahead: Though U.S. manufacturing has gotten a lot of bad press in recent years as it lost ground to foreign competitors, it has lately been providing vital support for the economic recovery. It accounted for 1.23 percentage point of the fourth quarter’s 2.6% annual GDP growth rate as well as 0.4 percentage point of overall 2013 growth of 1.9%, making it the leading contributor to growth in both periods. 
• Construction rebound falters: Construction cooled again last year after strengthening in 2012. The sector subtracted 0.2 percentage point from the growth rate in the final quarter of last year and added just 0.06 percentage point to growth for 2013 overall. The weak performance reflects a housing recovery that has suffered from rising interest rates and nonresidential construction that has been restrained by business caution and weak government finances.
• Finance remains cornerstone of economy: A broad category encompassing banking, insurance, real estate and rentals made the second-largest contribution to growth in 2013—0.35 percentage point.
• Government is still a drag: In a year of federal budget battles and continued financial weakness on the part of many state and local governments, the government sector subtracted 0.14 percentage point from 2013 growth. In the fourth quarter, when Washington lawmakers forced a partial federal shutdown, the sector subtracted 0.25 percentage point from growth.

A Few Q1 GDP Forecasts - The BEA is scheduled to release the advance estimate for Q1 Gross Domestic Product (GDP) next week on Wednesday, April 30th. The consensus forecast is for real GDP to increase 1.1% in Q1 (from Q4, annualized). Here are a few forecasts: From Kris Dawsey at Goldman Sachs:  Despite GDP likely growing at an anemic rate of around 1.0% in Q1, we remain optimistic about the rest of 2014. The core narrative for a pickup in growth this year has not changed. The fiscal drag is still lower, consumer spending should still strengthen, and business investment seems poised for a comeback. We see the weakness in Q1 as mainly driven by temporary factors, including a large drag from weather and inventories.  For the remainder of 2014, 3%+growth remains our baseline. ...  From Merrill Lynch:  We think the first estimate of 1Q GDP will show sluggish growth of only 1.2% qoq saar. A large part of the weakness owes to the cold weather which held back economic activity in the beginning of the year. Inventories are also being drawn down, albeit gradually, as businesses were caught with excess stockpiles.  We think momentum will improve in the spring, setting the stage for a rebound in 2Q with growth above 3.0%.From Nomura:  Disregard the backward-looking Q1 GDP, April data should show the recovery taking off. ... Weather weighed on economic activity early in the year. This should be reflected in a markedly slower pace of GDP growth in Q1. We expect GDP to grow at an annualized rate of 0.9% in Q1, compared with 2.6% in Q4.  And on the April employment report to be released next Friday, the consensus is for 210 thousand payroll jobs added with Merrill forecasting 215 thousand and Nomura forecasting 225 thousand.

Goldman's Q1 GDP Forecast: From 3.0% To 1.0% In Under Three Months -- Overnight, four months after our prediction, the FDIC-backed hedge fund not only that, but so much more that even we were shocked, because from a Q1 GDP which Goldman had originally predicted was going to be 3%, the crack team of economists - or is that team of economists on crack - lowered its Q1 GDP to, drumroll, 1%! And that's in the aftermath of the stronger than expected Durable Goods reports. Because it's only logical that good news is bad news. And vice versa.

Wait, What Recovery? How the NBER Determines When Recessions End - The National Bureau of Economic Research, the semi-official arbiter of recessions in the U.S., defines recessions as periods when a significant decline in economic activity, spread across the economy, lasts more than a few months, as measured by real gross domestic product, real income, employment, industrial production and retail sales. Their analysis of when a recovery starts looks for turning points: when unemployment stops climbing, when growth stops plunging, when industrial production starts rising again. Their turning points mark troughs in the economy so if the recession is particularly severe, as it was in 2007-09, the unemployment rate can remain very high for years after the official “recovery” started. As this chart shows, recessions generally cover the period during which the unemployment rate is climbing. They do not cover the entire period during which the unemployment rate is high. In the current recovery, which began in June 2009, the unemployment rate has remained quite high, although it has clearly stopped climbing. Its current level of 6.7% is the highest at this stage of any recovery in the modern era. Thus a recovery, but one that’s far from pleasant, and enduringly painful for large swaths of the population. Getting back to normal can take a long time. One simple measure of whether the economy has gotten back to normal is whether all the jobs lost in the recession have been recovered. The above chart shows the periods when the net number of jobs has not yet recovered to its previous peak. In the current economic expansion, so many jobs were lost, and the turnaround has been so slow, that the U.S. still hasn’t quite regained its previous peak.

MMT Does Do Policy --  L. Randall Wray -- I’ve seen some pretty bizarre claims about MMTers. They are “tea partiers”, “barely left of center”, who “are not interested in policy”, who “ignore inequality”, who “are only interested in reducing taxes”. “MMTers ignore the fraud of the banksters.” They are at best “one issue” advocates for a particular view on money, taxes, and employment. I have no idea where critics get this stuff. I’m convinced they make it up. Ignorance or dishonesty; probably both. For anyone who wants to disabuse herself of such nonsense, please go to www.levy.org, click on scholars, click on my name, and find right in front of your face a few hundred pieces on policy that I wrote. Yes, inequality. Yes, the explosion of incarceration. Yes, the War on Poverty’s failure. And so on. Stephanie Kelton just reminded me of an interview I gave in December to Travis Strawn–who happens to be a former student. He was writing for the Seven Pillars Institute (full disclosure: I’m not sure what it is). Judge for yourself if this is garden-variety “liberal”, let alone “tea party”.

Peterson/CBO Beat for Austerity Goes On! -- Recently, I’ve been writing about oligarchs advocating for entitlement cuts and austerity. I’ve discussed attacks on entitlement benefits for the elderly from Abby Huntsman (of MSNBC’s The Cycle) and Catherine Rampell (a Washington Post columnist), both the children of well-off individuals. These posts have come in the context of the English language release of Thomas Piketty’s Capital in the Twenty-First Century, and the more recent pre-publication release of a study by Martin Gilens and Benjamin I. Page using quantitative methods and empirical data to explore the question of whether the US is an oligarchy or a majoritarian democracy. They conclude: ”In the United States, our findings indicate, the majority does not rule — at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.”With this as a backdrop, today I want to de-construct a recent statement by Michael A. Peterson, President and COO, of one of the centers of American oligarchy, the Peter G. Peterson Foundation (PGPF), and the son of the multi-billionaire Peter G. Peterson, commenting on the CBO’s Report earlier this month, on its updated budget projections for 2014 – 2024.

U.S., world leader in class conflict over government spending - Larry Bartels -  The United States does less to redistribute income than virtually any other economically “advanced” democracy. So why does class conflict loom so much larger in U.S. public opinion about government spending than in other affluent democracies? The answer may have something to do with our peculiar system of taxation. The claim that America is riven by class conflict may come as a surprise to people who like to think that “There are no classes in America,” as Rick Santorum put it during his 2012 presidential campaign. But the fact is that rich and poor Americans disagree about government spending to an extent virtually unmatched elsewhere in the world.In 2006, just before the onset of the Great Recession, the International Social Survey Programme (ISSP) asked people in 33 countries about “some things the government might do for the economy.” In the United States, 63 percent of the respondents favored (or strongly favored) “cuts in government spending” to boost the economy, while only 13 percent opposed (or strongly opposed) such cuts. But that was not so unusual; in 15 other affluent democracies, an average of 57 percent of the respondents favored cuts in government spending. What is much more remarkable about the pattern of opinion in the United States is the extent to which it was polarized along class lines. In the other affluent democracies, net support for spending cuts was virtually constant across income groups, from the very poor to the very affluent. In the United States , however, poor people were only slightly more likely to favor than to oppose spending cuts, while affluent people were vastly more likely to favor spending cuts. No other rich country even came close to matching this level of class polarization in budget-cutting preferences. Among the poorer countries included in the ISSP survey, only one displayed a larger division of opinion between rich and poor — South Africa.

Abigail Field: Our Corrupt Tax Code - Our nation’s tax code reflects our corrupt politics. The code contains many provisions that benefit our wealthiest, most powerful companies and people while hurting the rest of us. For Benzinga, I did a set of stories on some of the visible corruption in the code. Like the “carried interest” provision. That’s the income naming rights deal purchased by private equity, hedge funds and other extremely wealthy people with lobbying and campaign contributions. The carried interest provision lets these 0.1%ers call most of their income “long term capital gains” instead of “income.” The difference? About twenty cents out of every dollar. These folks’ capital gains are taxed at 20 percent; their income over about $407k is taxed at 39.6 percent. And given the salaries involved–the “best” hedgies can make $1 billion in a year–that adds up to meaningful money. (Best is in quotes because at least Steven Cohen, who took in $2 billion last year, made lots of money from his firm’s illegal trades.) On $1 billion, labeling the money income or capital gains means $200 million more dollars that are either paid in taxes and benefit all Americans, or aren’t, and just get added to the unspendable cash horde the hedgie already sits on top of. Aren’t taxes the more efficient use of that capital, from a system perspective? Consider: as much as $200 million more from a single person in a single year. As much as $11 billion/year in all, just by more accurately labeling the money extremely wealthy put in their pocket. That’s an enormous amount of money.

WTF Headline Of The Day: Tax-Cheating IRS Staff Got Bonuses - USA Today notes that a report by the Treasury Inspector General for Tax Administration shows the IRS handed out $2.8 million in bonuses to employees with disciplinary issues - including more than $1 million to employees who didn't pay their federal taxes.As USA Today continues,The report by the Treasury Inspector General for Tax Administration said 1,146 IRS employees received bonuses within a year of substantiated federal tax compliance problems. The bonuses weren't just monetary. Employees with tax problems received a total of 10,582 hours of paid time off — valued at about $250,000 — and 69 received permanent raises through a step increase, the report said. The report looked at bonuses in 2011 and 2012. Employees' tax problems included "willful understatement of tax liabilities over multiple tax years, late payment of tax liabilities, and underreporting of income," the report said. The IRS said it has instituted a policy to take conduct into account when handing out bonuses to senior executives. Making that policy apply to all of the agency's workers would require negotiations with the National Treasury Employees Union. The union did not respond to a request for comment

Everything you need to know about Tax Freedom Day® - Monday, April 21, was 2014 Tax Freedom Day®, according to the Tax Foundation. The Tax Foundation is not exactly known for unbiased research, and its promotion of Tax Freedom Day® is no exception. The Foundation claims that Tax Freedom Day® is “a vivid, calendar-based illustration of the cost of government.” In other words, instead of saying that its analysts expect total taxes in the United States (including social insurance) to reach 30.2% of net national income (NNI) in 2014, they say that Tax Freedom Day® arrives three days later than last year. Precise, huh? Of course, the word “freedom” tips us off to the fact that the Tax Foundation is actually trying to create an emotional response. Something along the lines of, “Oh boy, after today I’m working for myself rather than the greedy government!” The implication further is that the later Tax Freedom Day® occurs, the worse it is for the country. The thing is, neither of these insinuations is true.

As the Center on Budget and Policy Priorities points out every year, that emotional response, frequently picked up directly by the media, is not true for the vast majority of Americans. As CBPP’s Figure 1 below shows, for the federal portion of taxes, more than 80% of Americans are paying less than the 20.1% federal component of Tax Freedom Day® would suggest.  The Tax Foundation responds that it’s not trying to mislead anyone, it’s just comparing “total U.S. tax collections with total U.S. income.” Of course, if that were all it was really trying to do, it could just say that projected tax collections equal x% of NNI.

Repeat After Me: The American Tax System is Hardly Progressive at All -- The latest numbers on 2014 taxes as share of income are out, and they’re saying pretty the same thing as last year: Above about $80K a year in income, the American tax system is not really progressive. Like, at all: The people making $100K a year pay about the same share of income at people making $10 million a year. This is because — while federal income taxes are reasonably progressive — payroll, state, and local taxes are horribly regressive — particularly in (blush) my home state:  Read it and weep. (charts, tables)

No, the Tax Court Did Not Repeal Attorney-Client Privilege - There was a bit of frission in the libertarian-leaning sectors of the Internet over a Tax Court ruling that was depicted as ending attorney-client privilege. And it was even more convenient that this supposedly earth-shaking ruling came close on the heels of Tax Day.  As much as rights are slowly being eroded, and attorney-client privilege is among them, these posts were completely off base. As we’ll explain, based on the speedy work of tax maven Lee Sheppard, who weighed in at Forbes, the case in question, AD Investment 2000 Fund LLC v. Commissioner, 142 T.C. No. 13 (2014), did no such thing. You might find it instructive to know why. The simple answer is that attorney-client communications are privileged only to the extent that the attorney and client take proper steps. For instance, if you bring a third party into a conference with your lawyer about a possible suit and it’s not an agent of yours, you’ve probably tainted that communication. In this case, the litigation defense strategy adopted by the defendant against the IRS made it essential to examine certain communications with the attorney in order to validate the claims the defendant was making.  And on top of that, the defendant’s position isn’t terribly sympathetic either. As Sheppard explains, the battle was over a dodgy tax shelter called Son of BOSS. Taxpayers who tried using that gimmick lost in court on the tax treatment long ago. The ones who are still fighting are no longer disputing the basic question of whether they owe the tax and interest. They do. No getting out of that. The court fights are over whether they owe penalties too.

Insanely Rich Reporter Covers White House Meeting of the Insanely Rich -- There's a lot to pore over in the New York Times Style section's coverage of a conference for über-wealthy "next-generation" philanthropists that was recently held at the White House.  There's the list of attendees, which includes the young progeny of such hallowed, moneyed families as Hilton, Rockefeller, and Pritzker. There's the breathless, classically Style section-y way in which participants and organizers are described: eloquent, nimble, and commanding gravitas, wearing pinstripe suits and "scraggy Brooklyn-style facial hair." There's the reference to one 19-year-old attendee's "swooping" Bieberesque bangs, despite the fact that Bieber hasn't had that haircut in years. Most of all, however, there's this disclosure notice from the reporter, about halfway through the article: Disclosure: Although the event was closed to the media, I was invited by the founders of Nexus, Jonah Wittkamper and Rachel Cohen Gerrol, to report on the conference as a member of the family that started the Johnson & Johnson pharmaceutical company. At a conference for such refined people as these, not just any reporter will do. No, it must be a writer who intimately knows the struggles of the young and wealthy, and who can accurately transmit the ways in which they're saving the planet to the unwashed Times-reading masses. It must be Jamie Johnson (net worth about $610 million, according to Business Insider in 2011), heir to the Johnson & Johnson company fortune.

Who Is Thomas Piketty And Why Has The Obama White House Rolled Out The Red Carpet For Him? - This 42 year economist from French academe has written a hot new book: Capital in the Twenty-First Century. A recent review describes him as the man “ who exposed capitalism’s fatal flaw.” So what is this flaw? Supposedly under capitalism the rich get steadily richer in relation to everyone else; inequality gets worse and worse. It is all baked into the cake, unavoidable. To support this, Piketty offers some dubious and unsupported financial logic, but also what he calls “ a spectacular graph” of historical data. What does the graph actually show? The amount of U.S. income controlled by the top 10% of earners starts at about 40% in 1910, rises to about 50% before the Crash of 1929, falls thereafter, returns to about 40% in 1995, and thereafter again rises to about 50% before falling somewhat after the Crash of 2008. Let’s think about what this really means. Relative income of the top 10% did not rise inexorably over this period. Instead it peaked at two times: just before the great crashes of 1929 and 2008. In other words, inequality rose during the great economic bubble eras and fell thereafter. And what caused and characterized these bubble eras? They were principally caused by the U.S. Federal Reserve creating far too much new money and debt. They were characterized by an explosion of crony capitalism as some rich people exploited all the new money, both on Wall Street and through connections with the government in Washington.

My Head Talks Piketty With Bill Moyers - Paul Krugman

Paul Krugman Discusses Piketty’s Capital and the Rise of Inherited Wealth on Bill Moyers - Yves Smith - Paul Krugman discusses Thomas Piketty’s new book, Capital in the Twenty-First Century, on Bill Moyers’ show. Those who follow the economic press will know that Piketty and Emanuel Saez have been following and writing about the growing disparity in wealth and income since the early 2000s. This interview focuses on a major finding of Piketty’s book, that the very richest aren’t, as most people like to believe, self-made, say, Bill Gates, Warren Buffett, Steve Jobs, Larry Ellison, or a hedge fund or private equity manager like George Soros, Leon Black, or James Simons. Ironically, CEOs are typically included in the “self made” which is more accurately “first generation uber-wealthy” camp, when they become stewards of established enterprises. Piketty tells us we’ve got the wrong model. The super rich increasingly inherited their wealth. Think, for instance, of the Walton heirs. They occupy positions 6, 7, 8, and 9 on the latest Forbes 400 list, with each of their fortunes estimated at $33.3 billion to $35.4 billion. The famed Koch brothers, tied for fourth position at $36 billion, similarly inherited a family business.  There’s one argument from Piketty that Krugman didn’t dwell on:BILL MOYERS: Here’s Piketty’s main point: capital tends to produce real returns of 4 to 5 percent, and economic growth is much slower. What’s the practical result of that? If you think about this, that statement makes no sense. Even businesses that outperform the economy as a whole for a while eventually converge to GDP-ish rates of growth (or lower). And the reason is purely arithmetical: trees don’t grow to the sky. Nothing can keep growing at meaningfully higher rates of GDP forever. It would eat the economy (admittedly, the medical-industrial complex in the US is nevertheless trying really hard to do precisely that).

Thomas Piketty Is Right: Everything you need to know about 'Capital in the Twenty-First Century', by Robert Solow: Income inequality in the United States and elsewhere has been worsening since the 1970s. The most striking aspect has been the widening gap between the rich and the rest. This ominous anti-democratic trend has finally found its way into public consciousness and political rhetoric. A rational and effective policy for dealing with it—if there is to be one—will have to rest on an understanding of the causes of increasing inequality. The discussion so far has turned up a number of causal factors: the erosion of the real minimum wage; the decay of labor unions and collective bargaining; globalization and intensified competition from low-wage workers in poor countries; technological changes and shifts in demand that eliminate mid-level jobs and leave the labor market polarized between the highly educated and skilled at the top and the mass of poorly educated and unskilled at the bottom. Each of these candidate causes seems to capture a bit of the truth. But even taken together they do not seem to provide a thoroughly satisfactory picture. They have at least two deficiencies. First, they do not speak to the really dramatic issue: the tendency for the very top incomes—the “1 percent”—to pull away from the rest of society. Second, they seem a little adventitious, accidental; whereas a forty-year trend common to the advanced economies of the United States, Europe, and Japan would be more likely to rest on some deeper forces within modern industrial capitalism. Now along comes Thomas Piketty, a forty-two-year-old French economist, to fill those gaps and then some. I had a friend, a distinguished algebraist, whose preferred adjective of praise was “serious.” “Z is a serious mathematician,” he would say, or “Now that is a serious painting.” Well, this is a serious book. ...

Class, Oligarchy, and the Limits of Cynicism - Paul Krugman -  A recent paper (pdf) by Martin Gilens and Benjamin Page is getting a lot of attention, and deservedly so. Gilens and Page look at a number of issues over the past 30+ years where polling data let us identify public policy preferences, which can be compared with elite and interest-group preferences. And what they find is that politicians don’t seem to care very much about what the public thinks: when elite preferences and popular preferences are different, the elite almost always wins. This is an important insight — and it gains special force these days, when the elite’s views not only favor the elite versus the rest (duh) but have also been systematically wrong, on issues from invading Iraq to giving deficits a higher priority than jobs.  But there is a danger here of going too far, and imagining that electoral politics is irrelevant. Why bother getting involved in campaigns, when the oligarchy rules whichever party is in power? So it’s worth pointing out it does make a difference. Yes, Democrats pay a lot of attention to plutocrats, and even make a point of inviting Patrimonial Capitalism: The Next Generation to White House galas.  But it’s quite wrong to say that the parties’ behavior in office is the same. As Floyd Norris points out, Obama has in fact significantly raised taxes on very high incomes, largely through special surcharges included in the Affordable Care Act; and what the Act does with the extra revenue is expand Medicaid and provide subsidies on the exchanges, both means-tested programs whose beneficiaries tend to be mainly lower-income adults. The net effect will be significant losses for the super-elite — not crippling losses, to be sure, and hardly anything that will affect their elite status — and major gains to tens of millions of less fortunate Americans.

Video: Piketty, Krugman, Stiglitz, and Durlauf on 'Capital in the Twenty-First Century' -  "The French economist Thomas Piketty discussed his new book, Capital in the Twenty-First Century at the Graduate Center. In this landmark work, Piketty argues that the main driver of inequality—the tendency of returns on capital to exceed the rate of economic growth—threatens to generate extreme inequalities that stir discontent and undermine democratic values. He calls for political action and policy intervention. Joseph Stiglitz, Paul Krugman, and Steven Durlauf participated in a panel moderated by Branko Milanovic."

Piketty’s Wealth Gap Wake Up - Karl Fitzgerald of Renegade Economists interviews Michael Hudson about Thomas Piketty’s new book and also discusses the lastest developments in the Ukraine.

Inequality Is Not the Problem -   In his celebrated book Capital in the 21st Century, Thomas Piketty notes that Napoleon justified concentrations of wealth and high levels of inequality in France because, he claimed, the nation was a meritocracy. If you worked hard and had talent, you could rise—even back then.  Such inflated claims about income mobility have long been the refuge of the privileged at the top of the distribution of wealth. The American dream is of course built on this central assertion. Since the beginning of the year, however, the powerful findings of Piketty and other economists have entered mainstream debate as never before, challenging long-held assumptions that America is a meritocracy. Bringing into focus how lopsided the income distribution is, these findings have not only shown that inequality is widespread. They have also demonstrated that there is relatively little opportunity for those in the lower quintiles of earners to move up to a higher bracket.  Traditionally, economic conservatives have maintained that inequality is fine as long as income mobility is robust. So what if a few people make huge fortunes; everyone else has a fair chance at the opportunity to do so. But these days, even important members of the Republican Party, the traditional bastion of America privilege, have given up on this argument.  Economic data gathered since the early 2000s have shown conclusively that American social mobility is low and has been so for half a century—indeed, it is considerably lower than the nation’s supposedly stultified European competitors, where social safety nets are much larger and taxes much higher. Among the most impressive of the new work is a comprehensive study, led by Raj Chetty of Harvard and Emmanuel Saez of Berkeley, among others, published this January. It shows that income mobility has remained at roughly the same low levels since the 1970s.

Corrupting Piketty in the 21st Century - The media attention surrounding French economist Thomas Piketty’s new book Capital in the 21st Century is growing ever more fervent. Here are my two cents. To me three things are clear to be about this book. First, it is a timely reminder that distribution of resources within society matters. This is especially important for an economics profession who has often ignored the issue and whose core analytical framework is a completely inappropriate tool for its analysis. Second, and this is quite a surprise, the mainstream economics profession seems to be rather accepting of the book, which, when I read it, seemed to make the claim that most of their scholarly methods are flawed and that the economics profession knows very little about the more important elements of social organisation. While on the surface this appears to be a mature response by the profession to valid criticisms, I fear that the profession will corrupt the message of the book and will unfortunately not have the impact on improving economic scholarship that it seems intended to have. Third, and this is my one personal gripe, the book fails to acknowledge the many social processes studied by sociologists and even ecologists that have been used to explain unequal outcomes in a wide variety of settings. For example, the process of preferential attachment is fundamental to producing the unequal distribution of the success of artists, musicians and even, ironically, authors. Such a process can not only explain the broader inequalities in terms of access to resources (income and wealth), but also the inequality of book success, where Piketty finds himself in the top 1% of economics authors (and there really is no shortage of books covering similar topics recently, for example here, here, here and here). I want to now explore these latter two point in more detail.

The Piketty Panic, by Paul Krugman - “Capital in the Twenty-First Century,” the new book by ... Thomas Piketty, is serious, discourse-changing scholarship. And conservatives are terrified.  For the past couple of decades, the conservative response to attempts to make soaring incomes at the top into a political issue has involved two lines of defense: first, denial that the rich are actually doing as well and the rest as badly as they are, but when denial fails, claims that those soaring incomes at the top are a justified reward for services rendered. Don’t call them the 1 percent, or the wealthy; call them “job creators.” But how do you make that defense if the rich derive much of their income not from the work they do but from the assets they own? And what if great wealth comes increasingly not from enterprise but from inheritance? What Mr. Piketty shows is that these are not idle questions. Western societies before World War I were indeed dominated by an oligarchy of inherited wealth — and his book makes a compelling case that we’re well on our way back toward that state.So what’s a conservative, fearing that this diagnosis might be used to justify higher taxes on the wealthy, to do? He could try to refute Mr. Piketty in a substantive way, but, so far, I’ve seen no sign of that happening. Instead, as I said, it has been all about name-calling, to denounce Mr. Piketty as a Marxist, which only makes sense if the mere mention of unequal wealth makes you a Marxist..

CEO Pay is Perverse and Must be Fixed to Avoid Recurrent Crises -- Bill Black - Slate has published a piece by Zachary Karabell entitled “Stop Obsessing Over exorbitant CEO Pay” in which the author appears unaware that he has reported, and then ignored, evidence that scholars he cites favorably are “resoundingly convinced” proves the opposite.  Karabell’s author’s page shows that he has recently joined Slate and promotes theoclassical dogmas about economics.  He is a Wall Streeter of the kind that thinks it is an honor to be a “regular” on CNBC.  He also touts being a favorite of the Davos plutocrats.  In roughly a month with Slate he has managed to be an apologist for high unemployment, inequality, and high frequency trading (HFT) scams. Karabell begins by acknowledging that we need, urgently, to correct the perverse incentives of modern executive compensation. Karabell concedes that even though the business school scholars are “resounding convinced” on the basis of their econometric studies that executive compensation harms corporate performance CEOs have responded to the research by exacerbating the perverse incentives and personal payoffs.  At this juncture the obvious question, which Karabell never asks, is that since he concedes that executive compensation increases inequality and concedes that it harms business productivity it follows logically that inequality driven by CEO compensation harms other workers.  Business productivity is a necessary condition to workers increasing their incomes, so Karabell has established at least one reason why increased inequality is harming the middle and working classes.  Karabell is oblivious to the logical implications of the business school research.

The near future: There is a lot going on in America and the world today: climate change, increasing separation between the rich and the non-rich, entrenched poverty in cities, continuing effects of racism in American life, and a rising level of political extremism in this country and elsewhere, for starters. Add to this politico-military instability in Europe, continuing social conflict over austerity in many countries, and a rising number of extreme-right movements in a number of countries, and you have a pretty grim set of indications of what tomorrow may look like for our children and grandchildren. How should we think about what our country will look like in twenty or thirty years? And how can we find ways of acting today that make the prospects for tomorrow as good as they can be? This is partly a problem for politicians and legislators. But it is also a problem for social scientists and historians, because the limits of our ability to predict the future are as narrow as they have ever been.   The pace of change in the contemporary world is rapid, but even more, the magnitude of the changes we face is unprecedented. Will climate change and severe weather continue to worsen? Will the extreme right gain even more influence in determining American law and policy? Will economic crises of the magnitude of the 2008 recession recur with even more disastrous consequences? Will war and terrorism become even harsher realities in the coming decades with loose nukes and biological weapons in the hands of ruthless fanatics? All these catastrophes are possible. So how should intelligent democracies attempt to avoid them? One possible approach is to attempt to design our way out of each of those pathways to catastrophe: create better arms control regimes, improve intelligence abilities against threats of terrorism, reach effective climate agreements, try to guide the economy away from meltdowns, create better protections for rights of participation so narrow minorities can't enact restrictions on basic health rights. In other words, engage in piecemeal engineering to solve the problems we face.

Jamie Dimon: JPMorgan Employs 30,000 Programmers: There is now overwhelming evidence that Wall Street firms have entered a race to the bottom in high-tech trading wars. To grab the best programming talent, Wall Street firms are paying top dollar for the best and brightest coders and developers and potentially sapping the ability of other U.S. industries – those that make real products – to compete. Just this month, Jamie Dimon, CEO of JPMorgan, told the firm’s shareholders in his annual letter that JPMorgan employs “nearly 30,000 programmers, application developers and information technology employees who keep our 7,200 applications, 32 data centers, 58,000 servers, 300,000 desk-tops and global network operating smoothly for all our clients.” According to Anish Bhimani, Chief Information Risk Officer at JPMorgan Chase, in an interview published at the Information Networking Institute (INI) at Carnegie Mellon, JPMorgan has “more software developers than Google, and more technologists than Microsoft…we get to build things at scale that have never been done before.” Obviously, not all of those tech guys are engaged in creating ever more rapid trading strategies; but to stay competitive with the technology arms race on Wall Street, new algorithms, programs deploying artificial intelligence, and high-speed routing techniques are being created at break-neck speed across the industry. Industry insiders say that Wall Street is a potent force in campus recruiting, seeking out the computer whiz kids with large pay deals months before their graduation and before non-financial firms have had a chance to even schedule an interview.

The Real Problem with High Frequency Trading - The media firestorm over high frequency trading has flagged some legitimate concerns but misses the real issues. While Michael Lewis’ book Flash Boys is sensationalistic and simplistic, it may goad regulators into action, particular since many knowledgeable observers have been making similar arguments for years. At its foundation, high frequency trading is time-based arbitrage (which is different that statistical arbitrage which involves the real assumption of risk) and that is simply front running. It has become popular to demonize the high frequency trading crowd, but they aren’t the proper targets. The fact that high frequency trading exists at all is the result of poor regulation. Now some would argue that regulators shouldn’t interfere with high frequency trading – as they also argue that all insider trading rules should be eliminated, since that help ensure that market prices reflect the latest news. While there may be an economic argument for the elimination of insider trading rules, it comes at the expense of a level playing field. Michael Lewis’ claim that “The markets are rigged” has gotten press play precisely because trust in the integrity of the public markets is critical for them to function properly. That implies that equal access to order execution is more important than the academic arguments of greater efficiency.

Did the SEC Admit That It Knows the Stock Market is Rigged? - Last month, the Securities and Exchange Commission released the second in what looks to be a never-ending, head-scratching study into whether some aspects of high frequency trading are, in fact, the equivalent of rigging the stock market and thus patently illegal under existing law. In one long paragraph, the SEC appears to emphatically say that two strategies, order anticipation and momentum ignition, are manipulative and illegal. The SEC writes:“Directional strategies generally involve establishing a long or short position in anticipation of a price move up or down. The Concept Release requested comment on two types of directional strategies – order anticipation and momentum ignition – that ‘may pose particular problems for long-term investors’ and ‘may present serious problems in today’s market structure.’  An order anticipation strategy seeks to ascertain the existence of large buyers or sellers in the marketplace and then trade ahead of those buyers or sellers in anticipation that their large orders will move market prices (up for large buyers and down for large sellers).  A momentum ignition strategy involves initiating a series of orders and trades in an attempt to ignite a rapid price move up or down.  As noted in the Concept Release, any market participant that manipulates the market has engaged in conduct that already is illegal.  The Concept Release focused on the issue of whether additional regulatory tools were needed to address illegal practices, as well as any other practices associated with momentum ignition strategies.” The SEC certainly appears to be saying that it recognizes these activities to be market manipulation and illegal under the statutory framework of the Securities Exchange Act of 1934.

Ex-Morgan Stanley Chief Economist Admits "Fed Is Distorting Markets" - Stephen Roach, former Chief Economist at Morgan Stanley, has never been shy to share his opinions about the world and having left the Wall Street firm is even freer to speak uncomfortable truthiness. This brief clip, as Sovereign Man's Simon Black notes, says it all so succinctly... "The market has been distorted by far bigger forces than flash trading. To me, the force that has rigged the market... is the Federal Reserve, not the flash traders."

Corporate CEOs Demand that they be Tipped Off When a Whistleblower Reports their Crimes -  William K. Black - Dr. Hans Geiger  gave an impassioned denunciation of “bureaucrats” (which turned out to mean anyone who worked for the government) and the imposition of a duty on bankers to file criminal referrals when they had a “reasonable suspicion” that their clients had committed certain crimes.  The official U.S. jargon for a criminal referral is “Suspicious Activity Reports” (SARS).  Geiger was particularly distressed that the banker would not be allowed to inform his client that he was making the criminal referral (which FATF terms “Suspicious Transaction Reports” (STRs)) under the standard 21 proposed by the Financial Action Task Force in 2012.The new requirement for criminal referrals will arise as nations adopt the FATF recommendations for financial policies.  A number of nations have already done so.  Geiger is a leader of the effort to convince the Swiss government not to adopt these provisions.  He is part of an organization that encourages “tax competition” among nations.  The goal is to minimize taxes and governmental spending by denying governments revenues.  The aim is to encourage the wealthiest people to move that wealth and income to nations with the lowest taxes on wealth and income.  Geiger is also a fierce austerian.  The next day when I responded I wore my special austerian repellant tie – it’s resplendent with images of defaulted German bonds – the equivalent of wearing a garlic garland to ward off vampires.

Biggest Credit Bubble In History Runs Out Of Time - It has been a feeding frenzy for junk debt. Yield-desperate investors, driven to near insanity by the Fed’s strenuous interest-rate repression, are holding their noses and closing their eyes, and they’re bending down deep into the barrel and scrape up even the crappiest and riskiest paper just to get that little extra yield. Last year, highly leveraged companies issued $1.1 trillion in junk-rated loans. It’s a white-hot market. Leveraged-loan mutual funds – dolled up in conservative-sounding names and nice charts to seduce retail investors – gorge on these loans. They saw 95 weeks in a row of inflows, week after week, without fail, adding over $70 billion to their heft, as Bloomberg reported, and only the sky seemed to be the limit. But suddenly, that endless flow of money reversed.“It’s going to be a disaster on the way out,” Mirko Mikelic, who helps manage $7 billion in assets at ClearArc Capital, told Bloomberg. “On the way in, there’s insatiable demand....” Private equity firms have been ruthlessly taking advantage of that “insatiable demand.” And they have a special self-serving trick up their sleeve: Their junk-rated overleveraged portfolio companies issue new loans, but instead of using the funds for expansion projects or other productive uses, they hand them out through the back door as special dividends. It’s one of the simplest ways PE firms use to strip cash out of their portfolio companies.

What’s Been and What’s Next - Kunstler -  The wonder is that more Americans are not ticked off about the state of our country than whatever is happening ten thousand miles away. For instance, how come the US Department of Justice is not as avid to prosecute the pervasive racketeering in the US economy as the State Department is for provoking unnecessary wars in foreign lands on the other side of the planet, over matters that have little bearing on life here? This racketeering, by the way, amounts to a war against American citizens.  I’m speaking especially of the US military racket, the banking and finance rackets, the health care racket and the college loan racket, all of which have evolved insidiously and elegantly to swindle the public in order to support a claque of American oligarchs. In other civilized lands, health care and college are considered the highest priority public goods (i.e. responsibilities of government), and national resources are applied to support them under the theory that bankrupting people for an appendectomy or a bachelor’s degree in electrical engineering is not in the public interest. In our land, that would be considered “socialism.” Instead, we “socialize” the costs of supporting Too Big To Fail banks — so their employees can drive Beemers to their Hamptons summer house parties — and a military machine that goes around the world wrecking one country after another to support a parasitical class of contractors, lobbyists, and bought-off politicians in their northern Virginia McMansions. Hence, the laughable conceit pinging through the news media lately that some dynastic grifter like Jeb Bush or Hillary Clinton will slide into the White House in 2016 as easily as a watermelon seed popped into a shot glass. I don’t think it’s going to work out that way. The US political system needs to be turned upside down and inside out, and I expect that it will be. Either it happens within the bounds of electoral politics, or you’ll see it playing out in the streets and the windswept plains.

Payday Lending and the FTC Credit Practices Rule - Why doesn’t payday lending violate the FTC’s Credit Practices Rule (16 C.F.R. 444.2)?  That’s what I’m trying to figure out.   The Credit Practices Rule prohibits taking or receiving directly or indirectly an assignment of wages in most circumstances.  (None of the exceptions appear applicable to the payday lending context.) The FTC has gone after some payday lenders for taking a formal direct assignment of wages, but that's an usual term for payday loans. Rather, I'm more interested in the question of an indirect wage assignment. I think there's a pretty good case that a payday loan is an indirect assignment of wages:

• A payday loan is called a “payday loan”—it’s designed to ensure repayment from the borrower’s wages;
• the loan’s maturity is usually designed to match with pay periods;
• usually the only “underwriting” is verification of the borrower’s employment;
• the loan is “secured’ with either a post-dated check or authorization for an ACH debit with the date set for…payday. 

That sure looks to me like an indirect assignment of wages—the loan is designed to enable the lender to be repaid from the borrower’s wages without having to go to court and get a judgment and a garnishment order (i.e., a judicial wage assignment). 

Volcker Rule: Swiss-Cheesed or Beefed Up? - The problem with the Dodd-Frank bill is that it passed along responsibility for the complex “rule-making” process to five federal regulators, who were tasked with writing the fine details governing the implementation of the financial reform law. By design on the part of the banks, this rule-making process gave the Wall Street lobby an open playing field to obstruct, gut, and re-write the financial reform. Consequently, it was not until December 2013, a full year after the original deadline, that the actual detailed wording of the Volcker Rule was finalized. Moreover, most of it will not be implemented until 2015 or 2016, six years after passage of the Dodd-Frank legislation.  Why so much time? The answer: the banks hate the Volcker Rule and have invested millions of dollars in lobbying and buying off politicians and their staff members to delay and water down the measure. This presents us with an important question: Had the rule been so thoroughly Swiss-cheesed by the banks that it had too many holes to be of any value? Or does it still have enough substance to make the financial system safer and more socially productive? The Volcker Rule, whose details were developed by Democratic Senators Jeff Merkeley of Oregon and Carl Levin of Michigan, called for an end to “proprietary trading” by banks that had access to taxpayer bailout funds if they got into trouble. Proprietary trading is defined as activities in which banks put their own capital at risk to profit from changes in asset prices and movements in interest rate spreads, rather than from interest or fees from providing services for their customers. The logic behind the Rule is that if financial institutions want to engage in risky, speculative activities, they should not put taxpayer resources at risk. Those activities should be left to hedge funds and other similar institutions, leaving banks to engage in activities that are socially beneficial, such as providing useful credit to businesses, households and governments.

How America's Big Banks Are Begging for the Next Financial Crisis -  Our Too-Big-To-Fail banks are at it again… The Volcker Rule is supposed to ban the banks from making hazardous and speculative trades. But the big banks are begging for the chance to make the same kind of moves that got us into the 2008 global credit crisis, one of the worst in the modern world. It’s like they never learned their lesson… They’re even enlisting congressional cronies to do their bidding. One way or another TBTF banks are going to find a way to speculate us all into another crisis…The truth is the banks have been fighting the Volcker Rule since it was first floated. The Rule, named after legendary former U.S. Federal Reserve chairman of the 1980s, Paul A. Volcker, goes into effect in 2015 and has lots of moving pieces. For instance, it says banks can’t have ownership stakes in hedge funds or private equity shops and can’t gamble in the markets like they did in their good-old “Trading for Trillions” days. Collateralized loan obligations (CLOs) are one of the “instruments” or “products” banks still want to trade. The Volcker Rule says they can trade the simplest version of CLOs, those that have commercial loans in them. But they’re not allowed to trade CLOs that contain bonds, or equity, or other assets papered around CLO packages. Not that there’s anything simple about collateralized loan obligations. They’re complex from the get-go. And some varieties are a lot more complex and dangerous than others, though to the naked eye they look pretty much the same. What the banks are bitching about is how they’ll be restricted in their ability to trade the CLOs they want to own.

Banks Cling to Bundles Holding Risk - The Volcker Rule doesn’t go into effect until 2015, but that hasn’t stopped big bankers and their supporters in Washington from trying to undermine it.The latest fight involves another complex Wall Street creation, a financial instrument known as a collateralized loan obligation. Big banks want to be allowed to own them but regulators say such holdings can be hazardous and may allow the banks to evade the Volcker Rule’s prohibition on risky trading. What are collateralized loan obligations, or C.L.O.s? Translated into simple English, they are bundles of mostly commercial loans that are sold in various pieces to investors. They are similar to collateralized debt obligations, or C.D.O.s — those instruments that imperiled so many institutions in 2008 — but C.L.O.s are simpler and in some cases less risky. The loans in C.L.O.s provide money to companies, many of them subject to leveraged buyouts, that might not receive bank funding.Some $431 billion worth of C.L.O.s are currently outstanding, according to the most recent figures from the Securities Industry and Financial Markets Association. Roughly $150 billion worth were issued before 2009. That group represents the riskiest securities in the asset class, regulators say. Another $150 billion in C.L.O.s, issued after 2009, contain fewer problematic assets; those remaining, raised after the pending Volcker Rule restrictions had been announced, are viewed by regulators as the least risky of all. Insurance companies, pension funds and foreign banks own most C.L.O.s. But large United States banks hold an estimated $75 billion worth, and would have to divest many of them under the Volcker Rule. Being forced to sell these holdings is what the banks find objectionable.

What Banks Should Expect in the Future -  William K. Black - video - Bill talks with CCTV America about the future expectations for Banks

Unofficial Problem Bank list declines to 521 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for April 18, 2014.  Changes and comments from surferdude808:  An expected update from the OCC on its recent enforcement action activity contributed to a noticeable reduction in the Unofficial Problem Bank List this week. After nine removals, the list stands at 521 institutions with assets of $168.9 billion. A year ago, the list held 781 institutions with assets of $288.5 billion. Finding their way off the list through merger were National Bank of Earlville, Earlville, IL ($57 million) and Liberty Savings Bank, F.S.B., Pottsville, PA ($23 million). Actions were terminated against Eastern Savings Bank, FSB, Hunt Valley, MD ($425 million); Phoenixville Federal Bank and Trust, Phoenixville, PA ($388 million); First Federal Savings Bank, Ottawa, IL ($380 million); Southwestern National Bank, Houston, TX ($348 million); Columbia Community Bank, Hillsboro, OR ($335 million Ticker: CLBC); Pacific Global Bank, Chicago, IL ($155 million); The First National Bank of Hartford, Hartford, AL ($120 million); and Central Federal Savings and Loan Association of Chicago, Chicago, IL ($95 million). Next Friday we anticipate an update from the FDIC on its recent enforcement action activity.

U.S. Said to Ask BofA for More Than $13 Billion Over RMBS - U.S. prosecutors are seeking more than $13 billion from Bank of America Corp. to resolve federal and state investigations of the lender’s sale of bonds backed by home loans in the run-up to the 2008 financial crisis, according to people familiar with the matter. The settlement would come on top of the $9.5 billion the bank agreed last month to pay to resolve Federal Housing Finance Agency claims, said two people who asked not to be named because the negotiations are private. A deal could come within the next two months, the people said. If the Justice Department gets its way, the case against Bank of America will eclipse JPMorgan Chase & Co.’s record $13 billion global settlement over similar issues in November. That settlement, which included a $4 billion agreement with the FHFA, encompassed loans JPMorgan took over with its purchases of Washington Mutual Inc. and Bear Stearns Cos.  Bank of America, the second-biggest U.S. lender, is among at least eight banks under investigation by the Justice Department and state attorneys general for misleading investors about the quality of bonds backed by mortgages amid a drop in housing prices. Many of the loans in question were inherited by Bank of America when it purchased subprime lender Countrywide Financial Corp. and Merrill Lynch & Co., the people said.

Massive new fraud coverup: How banks are pillaging homes — while the government watches - Joseph and Mary Romero of Chimayo, N.M., found that their mortgage note was assigned to the Bank of New York three months after the same bank filed a foreclosure complaint against them; in other words, Bank of New York didn’t own the loan when they tried to foreclose on it. Glenn and Ann Holden of Akron, Ohio, faced foreclosure from Deutsche Bank, but the company filed two different versions of the note at court, each bearing a stamp affirming it as the “true and accurate copy.” Mary McCulley of Bozeman, Mont., had her loan changed by U.S. Bank without her knowledge, from a $300,000 30-year loan to a $200,000 loan due in 18 months, and in documents submitted to the court, U.S. Bank included four separate loan applications with different terms. All of these examples, from actual court cases resolved over the last two months, rendered rare judgments in favor of homeowners over banks and mortgage lenders. But despite the fact that the nation’s courtrooms remain active crime scenes, with backdated, forged and fabricated documents still sloshing around them, state and federal regulators have not filed new charges of misconduct against Bank of New York, Deutsche Bank, U.S. Bank or any other mortgage industry participant, since the round of national settlements over foreclosure fraud effectively closed the issue. Many focus on how the failure to prosecute financial crimes, by Attorney General Eric Holder and colleagues, create a lack of deterrent for the perpetrators, who will surely sin again. But there’s something else that happens when these crimes go unpunished; the root problem, the legacy of fraud, never gets fixed. In this instance, the underlying ownership on potentially millions of loans has been permanently confused, and the resulting disarray will cause chaos for decades into the future, harming homeowners, investors and the broader economy. Holder’s corrupt bargain, to let Wall Street walk, comes at the cost of permanent damage to the largest market in the world, the U.S. residential housing market.

“Independent” Foreclosure Review Error Rate Vastly Higher Than Previously Admitted -- Yves Smith -- At this point, it seems hard to add insult to injury, given the terrible track record of the OCC Independent Foreclosure Reviews.  It was clear from the outset, however, that this consent order process was never intended to help homeowners in a serious way, but was intended to give air cover for predatory servicers. Even so, the foreclosure reviews turned out to be an embarrassing and costly fiasco. It was predictable that the outcome would be that insultingly small checks would be distributed broadly to bolster claims of how many people has been recompensed, as if checks of a few hundred dollars on average was even remotely adequate restitution for the loss of one’s home.  Nevertheless, there had to be some sort of process put in place to distribute the piddling cash compensation, so the OCC set up a framework with various types of damage leading to stipulated levels of awards, with $125,000 the maximum. But this was all Through the Looking Glass logic. Since the foreclosure reviews had never been completed, how could anyone have the foggiest idea who deserved what? The  The death-of-a-thousand-unkind-cuts treatment continued with the Byzantine process of getting correct addresses to Rust Consulting, the firm in charge of sending the money, bounced checks and late mailings. Peculiarly, or perhaps predictably, the estimates of harm that were made public, even with Congressional pressure and a GAO investigation, were much lower…until today. From the Wall Street Journal: A consulting firm that scoured major U.S. banks’ foreclosure files for mistakes was finding far higher rates of error than regulators reported when they abruptly ended the review last year, a congressional inquiry has found. At Bank of America, Promontory found “systemic issues in the accuracy and timeliness of processing loan modifications,” with an error rate of 60% in one small sample of loans, according to an excerpt of a May 2013 document published by Mr. Cummings.At PNC Financial Services Group, a sample of 4,800 loans found 21% of borrowers were financially harmed, The OCC said the consultant’s review had found an overall error rate of about 4.5% after assessing about 100,000 files.The disclosure by Mr. Cummings echoes a 2013 Wall Street Journal article that identified error-rate discrepancies. The Journal reported that more than 11% of files examined for Wells Fargo had errors that would have required compensation for homeowners, compared with 9% at Bank of America.

Double Standards in Bankruptcies -  Developments in the Detroit bankruptcy have exposed a double standard in federal bankruptcy law, an injustice in urgent need of congressional reform.  In Detroit, the judge has ruled that under Chapter 9 of the bankruptcy law, the city’s creditors include even municipal pensioners whose payouts are guaranteed under the Michigan Constitution. Accordingly, the pensioners have reached a tentative deal to reduce retiree benefits; along with concessions made by other creditors, the goal is to help the debtor, the city of Detroit, get a fresh start and move forward.  Contrast that with what happened in the housing bust. The creditors in that fiasco — including powerful banks — did not have to cut deals in court with bankrupt homeowners. Under Chapter 13 of the bankruptcy law, a section heavily influenced by the financial industry, lenders cannot be forced to rework most residential mortgages in bankruptcy.That is where the legal double standard comes in. In Detroit’s bust, even pensioners have to negotiate new terms; in the housing bust, big banks did not have to negotiate, leaving many homeowners in the dust.That special treatment for banks may have helped them recover from the financial crisis. But it made things worse for borrowers and the economy. Today, 8.6 million homeowners still owe more on their mortgages than their homes are worth, for a total of $430 billion in negative equity, according to Moody’s Analytics. Some 2.1 million of the underwater homeowners are in or near foreclosure, on top of 9.6 million who have lost their homes since 2007.

The Peculiarities of the Mortgage Market and More Financial Villains - Many of the problems in the housing market are a product of peculiarities that we take for granted because of mental benchmarking.  One problem that I have mentioned before is that homes are different than most other investments, because we don't tend to treat them as divisible investments.  We also take for granted the way mortgages are owned.  They have a built in call, generally, where, if rates go down after you take the mortgage, you can just pay the mortgage back at face value (even though its market value, absent the call provision, would be higher than face value) and institute a new mortgage at a lower rate.  But, strangely, this doesn't tend to happen in the other direction.  If rates go up, the mortgage is worth less to the bank.  If they originally had a $100,000 mortgage that earned $6,000 a year when $6,000 was the going rate, now they have a $100,000 mortgage earning $6,000 when $8,000 is the going rate, which means they really have a mortgage that's worth more like $80,000.  But, as far as I know, it is not typical for homeowners in that position to go to the bank and say, "You know, I'm selling the house, and so I'll be paying off the mortgage.  I see the market value is $80,000.  I'll pay you $85,000, and we'll call it a day."  The bank would just say, "Either make the payments or don't, but if you don't we'll just foreclose and pay ourselves face value."  So, a transaction that would be perfectly normal in most financial markets becomes difficult, and leads to all sorts of dislocations. This is perfectly understandable, and I don't have an obvious way to fix it.  If the bank sold that mortgage to another bank, it would sell at the discounted price.  Corporate bonds can be bought back at a discount because their ownership is diffuse, and there is a marketplace for them.  But, mortgages are either owned by a single bank, or if they are split up into smaller shares, it is as part of a pool of mortgages, so that even though the pool of mortgages could sell at a discount, the individual mortgage can't be removed from the pool for this purpose.

American state-backed mortgages are a $5tn millstone - FT.com: In the past five years western finance has generated plenty of eye-popping statistics. For my money, though, one of the most bizarre sets of numbers involves American housing. A decade ago about 40 per cent of new US mortgages carried implicit government backing, since these loans were guaranteed by entities such as Fannie Mae and Freddie Mac. Even then this pattern looked odd, given that Washington and Wall Street espouse a free market creed. But today it is surreal. Private banks have become so reluctant to make loans that more than 90 per cent of new US mortgages now carry government guarantees. Meanwhile, Fannie and Freddie – which between them own or guarantee about $5tn worth of mortgages – remain trapped in a quasi-nationalized state after being rescued by the Treasury in September 2008. The good news is that Congress is now finally trying to address this situation: on Tuesday a Senate committee is expected to approve a reform bill. Better still, this legislation commands bipartisan support, from a Republican senator (Mike Crapo) and a Democratic counterpart (Tim Johnson). The bad news is that radical change seems unlikely. Opinions on Fannie and Freddie remain deeply split. The Crapo-Johnson plan, for example, proposes to put housing finance on a more sustainable footing by using a hybrid approach that both preserves a government guarantee and introduces more market discipline. Thus it would transfer Fannie and Freddie’s operations to smaller, competing institutions; tighten mortgage underwriting standards; improve regulatory oversight; and force private investors to swallow the first 10 per cent of losses on mortgage bonds. This, it is hoped, will enable America to retain its liquid market for “safe” mortgage bonds, and keep attracting inflows from foreign investors – delivering the cheap 30-year fixed mortgages that middle class Americans consider a God-given right.

The Moment Is Right for Housing Reform - The reformed housing-finance system should enable the dreams of middle-class and aspiring middle-class Americans to own homes by supporting consumer-friendly mortgage products such as the 30-year fixed-rate mortgage. It should provide help ... to creditworthy first-time borrowers who might otherwise have trouble qualifying for a mortgage; and it should stimulate broad access to mortgages for historically underserved communities. A reformed housing-finance system should support rental housing. It should stimulate competition and innovation, while building in consumer protections. And it should protect the taxpayer by placing substantial private capital in front of any government guarantee—and ensure that the taxpayer be properly compensated for that guarantee.Less discussed, but also important...: Housing-finance reform presents an opportunity to enhance macroeconomic stability by making the housing sector more cyclically resilient. Housing has long been one of the most volatile sectors of the economy,... with ... the most vulnerable and disadvantaged bearing the brunt of housing-related or magnified recessions. ... Housing-finance reform is a key unfinished piece of business from the financial crisis, and putting all the parts together is a complex undertaking. But the current period of relative economic calm is exactly the right time to do so.

Black Knight: Mortgage delinquency rate in March lowest since October 2007 -- According to Black Knight's First Look report for March, the percent of loans delinquent decreased in March compared to February, and declined by more than 16% year-over-year. This is the lowest level for mortgage delinquencies since October 2007. Also the percent of loans in the foreclosure process declined further in March and were down 37% over the last year.  Foreclosure inventory was at the lowest level since October 2008.Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 5.52% in March from 5.97% in February. The normal rate for delinquencies is around 4.5% to 5%. The percent of loans in the foreclosure process declined to 2.13% in March from 2.22% in February.   The number of delinquent properties, but not in foreclosure, is down 538,000 properties year-over-year, and the number of properties in the foreclosure process is down 619,000 properties year-over-year.  Black Knight will release the complete mortgage monitor for March in early May.

9.1 Million U.S. Homes Still 'Underwater', Down 26 Percent - According to RealtyTrac's latest U.S. Home Equity & Underwater Report for the first quarter of 2014, 9.1 million U.S. residential properties were seriously underwater -- where the combined loan amount secured by the property is at least 25 percent higher than the property's estimated market value -- representing 17 percent of all properties with a mortgage in the first quarter.

• 17 Percent of U.S. Properties Seriously Underwater, Down From 26 Percent Year Ago
• 9.9 Million Properties With 50 Percent Equity or More, Up From 9.1 Million in Q4 2013
• 35 Percent of Residential Properties in Foreclosure Process With Positive Equity

The first quarter negative equity numbers were down to the lowest level since RealtyTrac began reporting negative equity in the first quarter of 2012. In the fourth quarter of 2013, 9.3 million residential properties representing 19 percent of all properties with a mortgage were seriously underwater, and in the first quarter of 2013 10.9 million residential properties representing 26 percent of all properties with a mortgage were seriously underwater. The universe of equity-rich properties -- those with at least 50 percent equity -- grew to 9.9 million representing 19 percent of all properties with a mortgage in the first quarter, up from 9.1 million representing 18 percent of all properties with a mortgage in the fourth quarter of 2013.RealtyTrac also reports another 8.5 million properties were on the verge of resurfacing in the first quarter, with between 10 percent negative equity and 10 percent positive equity. This segment represented 16 percent of all properties with a mortgage in the first quarter. That was compared to 8.3 million properties representing 17 percent of all properties with a mortgage in the fourth quarter of 2013. Fewer distressed properties had negative equity in the first quarter, with 45 percent of all properties in the foreclosure process seriously underwater -- down from 48 percent in the fourth quarter of 2013 and down from 58 percent in the first quarter of 2013. Conversely, the share of foreclosures with positive equity increased to 35 percent in the first quarter, up from 31 percent in the fourth quarter and up from 24 percent in the third quarter of 2013.

David Stockman Blasts "America's Housing Fiasco Is On You, Alan Greenspan" -- So far we have experienced 7 million foreclosures. Beyond that there are still 9 million homeowners seriously underwater on their mortgages and there are millions more who are stranded in place because they don’t have enough positive equity to cover transactions costs and more stringent down payment requirements. And that’s before the next down-turn in housing prices - a development which will show-up any day. In short, the socio-economic mayhem implicit in the graph below is not the end of the line or a one-time nightmare that has subsided and is now working its way out of the system as the Kool-Aid drinkers would have you believe based on the “incoming data” conveyed in the chart. Instead, the serial bubble makers in the Eccles Building have already laid the ground-work for the next up-welling of busted mortgages, home foreclosures and the related wave of disposed families and social distress.

After foreclosure crisis, renters suffer under Wall Street landlords -- The poster child for the foreclosure crisis has been a middle-income suburban family. But low-income urban renters also saw their buildings over-mortgaged at the height of the crisis, and now faceless hedge funds and nameless investors are replacing their desperate landlords — sometimes with disastrous consequences. Six years after the foreclosure crisis helped tank the world’s economy, investors are snatching up “distressed” properties — those that are in foreclosure or facing foreclosure — and seeking to turn a profit on them. Advocates for affordable housing worry that this profit comes at the expense of tenants.  Over the last several months, Wall Street firms have snapped up an estimated 200,000 single-family homes with the intention of renting them out. The New York–based hedge fund Blackstone Group is now America’s largest landlord of rental homes after purchasing over 40,000 foreclosed single-family homes in 14 metro areas around the country, from Atlanta to Phoenix, to convert into rental properties. But certain investors are also snatching up “distressed” urban rental buildings like the one where Paulino lives in the South Bronx. Unbeknownst to many low-income renters, their buildings were over-mortgaged during the bubble. In New York, many of those buildings are due for refinancing now — making them vulnerable to acquisition by hedge funds.

Housing Secretary: “the worst rental affordability crisis that this country has ever known” - Very few people paid attention when Shaun Donovan, U.S. Secretary of Housing and Urban Development, gave this warning in December. "We are in the midst of the worst rental affordability crisis that this country has known." "Over four years, [there’s been] a 43 percent increase in the number of Americans with worst-case housing needs," says Donovan. "Let's be clear what that means: They're paying more than half of every dollar they earn for housing." This past week two other studies have been released that add solid numbers to this crisis. Earlier this week, Zillow released a study showing just how widespread the problem is.  An analysis for The New York Times by Zillow, the real estate website, found 90 cities where the median rent — not including utilities — was more than 30 percent of the median gross income. Nationally, half of all renters are now spending more than 30 percent of their income on housing, according to a comprehensive Harvard study, up from 38 percent of renters in 2000. Things are expected to continue getting worse, as rents will outpace the rate of inflation (not to mention incomes) for years to come.   Why is no one paying attention to this growing crisis? For the same reason that no one paid attention to the 2002-2007 housing bubble: too many people are making money on it. A lot of people don't want to hear talk about a housing crisis when they are raking in the cash.  In fact the housing market has been disfunctional for over a decade, and it has only gotten more disfunctional since the crash.

Americans think owning a home is better for them than it is - Some people never learn: Polls show that Americans still view their homes as the best and safest place to invest their hard-earned cash. Gallup asked Americans this month to choose the best “long-term investment.” Real estate was the most common pick, ahead of mutual funds, bonds and other options. Similarly, Fannie Mae’s National Housing Survey asked Americans to assess whether various kinds of assets amounted to a “safe investment with a lot of potential.” As has been the case since before the financial crisis, “buying a home” beat out all the alternatives. The fact that Americans still financially fetishize homeownership baffles me. Never mind that so many people lost their shirts (among other possessions) in the recent housing bust. Over an even longer horizon, owning a home has not proved to be a terribly lucrative investment either. Don’t take my word for it; ask Robert Shiller, winner of the 2013 Nobel Prize in economics who previously became a household name for identifying the housing bubble. “People forget that housing deteriorates over time. It goes out of style. There are new innovations that people want, different layouts of rooms,” he told me. Over the past century, housing prices have grown at a compound annual rate of just 0.3 percent once one adjusts for inflation, according to my calculations using Shiller’s historical housing data. Over the same period, the Standard & Poor’s 500-stock index has had comparable annual returns of about 6.5 percent.Yet Americans still think it’s financially savvy to dump all their savings into a single, large, highly illiquid asset.

Is the Government Charging Too Much For Mortgages? - Six years after ratcheting up mortgage-lending standards, lenders are showing signs of increased risk taking when it comes to mortgage credit, as the Wall Street Journal noted on Saturday. Lending standards would have grown much tighter than they did through the downturn if it hadn’t been for the Federal Housing Administration, a government agency that doesn’t make loans but instead insures lenders against losses on loans that meet its standards. The FHA allows buyers to make down payments of just 3.5%, and Congress in 2008 sharply increased the size of loans eligible for FHA backing. The result: the FHA accounted for more than one-third of all mortgages to buy homes in 2009 and 2010. Another result: the FHA took on heavy losses, particularly from loans it guaranteed as the housing boom turned to bust in 2007 and 2008. In response, the FHA has repeatedly raised the insurance premiums it charges borrowers. Borrowers must pay an upfront premium, which they pay when they take out the loan and which can be rolled into the loan. They then pay monthly premiums on top of that. Those premiums can add a couple hundred dollars onto a borrower’s monthly mortgage payments, and they are leading to some calls for the FHA to reduce those fees

Mortgage Lenders Ease Rules for Home Buyers in Hunt for Business - The credit freeze is starting to thaw. Mortgage lenders are beginning to ease the restrictive lending standards enacted after the housing boom turned to bust, a sign of their rising confidence in the housing market.While standards remain tight by historical measures, lenders have started to accept lower credit scores and to reduce down-payment requirements. Another sign that banks could get less picky: Credit scores for borrowers seeking conventional mortgages also are easing. Scores on purchase mortgages stood at 755 in March, down from 761 a year earlier, according to data from Ellie Mae, a mortgage-software provider. Those on purchase loans backed by the FHA dropped to 684, compared with 696 one year earlier. Smaller lenders are accepting even lower scores. Average credit scores on purchase loans closed through a consortium called LendingTree fell to 679 in March, down from the year-earlier 715..."Tiny fractions of borrowers can do things that they could not a year ago,"

Is Subprime Mortgage Credit Back? - -  Great reads from Nick Timiraos over at the Wall Street Journal:

• Five Questions on the State of Mortgage Lending
• Mortgage Lenders Ease Rules for Home Buyers in Hunt for Business

His central point is that the mortgage market is starting to direct credit toward lower credit quality buyers. We still think that the mortgage market remains pretty conservative, especially compared to the auto and credit card loan market. House prices have risen sharply, especially out west, and many first-time potential buyers are priced out of the market. There are many who think the mortgage market is excessively tight, but that isn’t obvious. The key question remains: can potential buyers service the payments on the large mortgages they need to buy pretty expensive homes?  Logan Mohtashami is a loan manager in southern California who argues that income levels do not justify a lot more mortgage lending given how high prices are. His views are worth checking out:(@LoganMohtashami).

Mortgage Companies Face "Tremendously Difficult" Year As Housing Recovery Crumbles - The topic of the false recovery in the US housing market has seldom been far from these pages but it seems both the mainstream media and the actual businesses on the ground are seeing that extrapolating dead-cat-bounces and easy-money bubbles (once again) ends in tears. As WSJ reports, mortgage lending declined to the lowest level in 14 years in the first quarter as homeowners pulled back sharply from refinancing and house hunters showed little appetite for new loans, the latest sign of how rising interest rates have dented the housing recovery. The decline shows how the mortgage market is experiencing its largest shift in more than a decade as an era of generally falling interest rates that began in 2000 appears to have run its course... and the marginal potential refinancer has hit their limit.

Why Credit Is Key for the Housing Recovery -- An analysis from economists at Goldman Sachs shows how the degree to which mortgage lending standards ease over the next few years could make for a big difference in home sales volumes. New home sales in March posted a surprising plunge from February, dropping 14.5%, and leaving new home sales 13.3% below their year-earlier level. The March reading of 384,000 units at a seasonally adjusted annual rate was the lowest level since July. The Goldman economists say they expect new home sales to reach 800,000 units by 2017, up from 430,000 last year, based on traditional drivers such as job growth and household formation. But sales will only rise to around 600,000 units in 2017 if lending standards remain at their current levels. The report illustrates why some economists, together with policymakers at the White House and Federal Reserve, are warning that mortgage-lending standards have become too restrictive, years after carelessness by lenders inflating the housing bubble. It also shows how sensitive any projections of home sales are to changes in credit standards. The WSJ reported last week that lenders had begun to slightly ease lending rules for certain borrowers. “Credit availability is key for the continued housing recovery,” wrote economists Hui Shan and Eli Hackel. They say a number of measures, including credit scores, product choices, and income-verification levels, show that lending standards are “exceedingly tight.” Nearly 40% of new borrowers last year had credit scores above 760, compared with just 25% before the housing bubble in 2001. Meanwhile, less than 0.2% of borrowers had credit scores below 620, compared to 13% in 2001.

MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 3.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 18, 2014. ... The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. ... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.49 percent from 4.47 percent, with points increasing to 0.50 from 0.32 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index is down 74% from the levels in May 2013 (almost one year ago). With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013. The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index is now down about 18% from a year ago.

Weekly Update: Housing Tracker Existing Home Inventory up 6.1% year-over-year on April 21st - 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 February - March inventory data will be released tomorrow).  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. In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays. Inventory in 2013 finished up 2.7% YoY. Inventory in 2014 (Red) is now 6.1% above the same week in 2013. Inventory is still very low, but this increase in inventory should slow house price increases.

Existing Home Sales in March: 4.59 million SAAR, Inventory up 3.1% Year-over-year - The NAR reports: Existing-Home Sales Remain Soft in March Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, slipped 0.2 percent to a seasonally adjusted annual rate of 4.59 million in March from 4.60 million in February, and are 7.5 percent below the 4.96 million-unit pace in March 2013. Last month’s sales volume remained the slowest since July 2012, when it was 4.59 million. Total housing inventory at the end of March rose 4.7 percent to 1.99 million existing homes available for sale, which represents a 5.2-month supply at the current sales pace, up from 5.0 months in February. Unsold inventory is 3.1 percent above a year ago, when there was a 4.7-month supply. This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in March (4.59 million SAAR) were slightly lower than last month, and were 7.5% below the March 2013 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 1.99 million in March from 1.90 million in February. 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.

Existing Home Sales Drop To Lowest Since July 2012; All-Cash Buyers, Investors Are 50% Of March Transactions -- Another month, another drop in existing home sales, which in March declined once again from 4.60MM units to 4.59MM. While the good news was that this number did beat the consensus estimate of 4.56MM (based on a a range of 4.50MM to 4.85MM from 75 economist surveyed), the bad news was that once again, a near majority of the upside was once again due to investors and other all-cash buyers, who accounted for 50% of all sales. That and that like last time, of course, this was the worst existing home sales number since July 2012. Some of the other data highlights:

• Existing-home sales fell 0.2% after falling 0.4% prior month
• 5.2 months supply in March vs. 5.0 in Feb.
• Inventory rose 4.7% to 1.99m homes
• 1st-time buyers 30% of total sales; all cash 33%; investors 17%
• Distressed sales 14% of total sales; of which foreclosures 10%; short sales 4%
• Median home price rose 7.9% from last year to $198,500

Comments on Housing and Existing Home Sales - A decline in existing home sales doesn't mean the housing recovery is over.  Far from it!  For existing home sales we need to look at the composition of sales (distressed vs. conventional), and the percent of conventional sales are increasing (even as investor buying has slowed too). That is a positive sign. For the "housing recovery", we need to look more at housing starts and new home sales (housing starts and new home sales have a larger impact on GDP and employment than existing home sales). Both starts and new home sales are off to a slow start in 2014 compared to 2013, but I expect new home sales and starts to be up solidly year-over-year soon (there was a surge in starts at the beginning of 2013, and the comparisons will be easier going forward). There are many positives for housing right now: 1) distressed sales are down sharply year-over-year, 2) delinquencies are down sharply, 3) inventory is up (this is a positive right now because there is too little inventory), 4) negative equity has declined significantly.   Overall the housing market is improving.  Probably the most important number in the NAR existing home sales report is inventory.   This morning the NAR reported that inventory was up 3.1% year-over-year in March.   This is a smaller increase than other sources suggest, and it is important to note that the NAR inventory data is "noisy" (and difficult to forecast based on other data).  A few other points:
• 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).

Vital Signs: Low Inventories Should Support Home Prices --Housing demand is cracking under the weight of affordability. The National Association of Realtors reported Tuesday that sales of existing homes fell a small 0.2% in March to an annual rate of 4.59 million. It was the seventh drop in the last eight months, pushing sales 7.5% below their year-ago readings. But the drop in demand won’t lead to a flat-line in home prices. That’s because one obstacle to lower sales is the low number of homes on the market. Even at March’s reduced sales pace, the supply of homes for sales would last only 5.2 months, a months’ supply number considered normal. During the housing bust, the months’ supply flirted with a full year reading. More homeowners may put their homes on the market during the spring selling season, but it’s unlikely the number of homes for sale will shoot up. Tight inventories should allow home prices to continue to recover.

Out with housing recovery, in with unaffordability? -- Not only have home prices been on the rise for nine straight quarters, but they are starting to creep closer to being more expensive than ever. According to the latest Zillow Home Value Forecast, home values grew 5.7% year-over-year in the first quarter, with declines experienced in the recession almost gone or close to being erased in almost 20% of metro housing markets nationwide. Home values nationwide grew .5% from the fourth quarter of 2013, and are expected to increase another 3.3% through the first quarter of 2015. "The lows of the housing recession are becoming an increasingly distant memory as home values reach new highs and homes become more expensive than ever in many areas. This is a remarkable milestone coming only two and a half years after the end of the worst housing recession since the Great Depression, and is a testament to just how robust this housing recovery has been,” said Zillow Chief Economist Stan Humphries. Across the U.S., home values are still 13.5% below their 2007 peak, after falling 22.6% during the recession before bottoming in 2011. However, the market seems to be moving past this in some areas. So far, 1,080 of the more than 8,700 cities and towns covered by Zillow, have home values already at or expected to reach pre-recession levels in the next year, including in many hard-hit areas. Affordability, however, is still a concern.

Dead-Cat Bounce Over for the Housing Market?: You can't have a housing recovery unless actual home buyers are involved. We are very far away from seeing the housing market reach its 2005 highs ... and as time passes, it becomes clearer that this generation may never see them again. How can I say that? What we have seen in the housing market since then, but mostly since 2012, in my opinion, is nothing more than a dead-cat bounce scenario -- an increase in prices after a massive decline. The chart below shows how far off we are from the housing prices of 2005. One of the key indicators I follow in respect to the state of the housing market is mortgage originations. This data gives me an idea about demand for homes, as rising demand for mortgages means more people are buying homes. And as demand increases, prices should be increasing. But the opposite is happening...In the first quarter of 2014, mortgage originations at Citigroup Inc. declined 71% from the same period a year ago. The bank issued $5.2 billion in mortgages in the first quarter of 2014, compared to $8.3 billion in the previous quarter and $18.0 billion in the first quarter of 2013.Total mortgage origination volume at JPMorgan Chase declined by 68% in the first quarter of 2014 from the same period a year ago. At JPMorgan, in the first quarter of 2014, $17.0 billion worth of mortgages were issued, compared to $52.7 billion in the same period a year ago.

U.S. Real Estate's State of Malaise: Following our analysis that median new home sale prices in the U.S. have begun to contract, we decided to dig deeper to find out more. We'll begin with the Wall Street Journal's description of the general climate in the U.S. real estate industry throughout the first quarter of 2014: Reports from local real-estate agent groups in some of the markets that were the first to rebound, including Las Vegas, Phoenix and San Diego, show year-over-year declines in March home sales. February data for pending home sales nationally—a barometer of early-spring activity—show a decline of 11% from a year ago. And in markets around the country, fewer people are showing up at open houses. An index of home-buyer traffic in 40 U.S. markets compiled by Credit Suisse was down a little more than a third from March of last year. In some parts of the country, cold weather has put a damper on traffic. New construction of single family homes is also increasing slowly, according to new data released Wednesday. New building permits for single-family homes in March fell 1.2% below the year-earlier level, the Commerce Department said Wednesday. New single-family home starts rose 1.9% from a year earlier. "Overall, even after adjusting for weather, it has been worse than what most people expected," said Tom Lawler. The WSJ goes on to confirm one of our earlier observations that the sudden increase in mortgage rates is a major factor behind the deceleration that appears to be taking hold:

Homebuyer traffic slow in April on home price concerns: Credit Suisse: Homebuyer traffic remained tepid in April, as confidence sits relatively low; however, distressed properties are becoming more attractive to investors. Credit Suisse recently reported in a monthly survey that buyer traffic decreased slightly during the first month of spring. The company attributes this fluctuation to a profound importance of value. "Buyers — both investors and occupants — continue to focus on finding value, which presents challenges from sellers in most markets," the report noted. "Buyers remain hesitant to buy before they are confident that prices have bottomed." Every month Credit Suisse surveys a nationwide network of real estate agents about current trends in the housing market. In April, the company received about 1,000 responses. Analysts calculate an index with levels about 50 representing positive trends and below 50 representing negative trends. In April the index stood at 36.8, down 0.7 points from March. Real estate agents said more and more buyers are flocking to foreclosures and short sales because of the elevated importance on value of a home. They said buyers don't want to see homes that are overpriced, yet many sellers are now willing to lower their selling price to meet today's market. "As a result, much of the traffic came from investors wanting to see distress, but also from owner-occupant buyers wanting to buy at 'rock bottom prices,'" the report said. Still, most real estate agents said April homebuyer traffic exceeded their expectations.

Lawler: Updated Table of Distressed Sales and Cash buyers for Selected Cities in March -- Economist Tom Lawler sent me the updated table below of short sales, foreclosures and cash buyers for several selected cities in March. Lawler writes: "Note the increase in the foreclosure sales share in Florida."The decline in "distressed" share was one of the positives I mentioned in the previous post.  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 in the mid-Atlantic area and Florida (judicial foreclosure) - and a little in Las Vegas (there was a state law change that slowed foreclosures dramatically in Nevada at the end of 2011 - so it isn't a surprise that foreclosures are up a little year-over-year). The All Cash Share (last two columns) is mostly declining year-over-year.  As investors pull back, the share of all cash buyers will probably decline.  Toledo, Des Moines and Wichita's cash share is up.  The cash share in Florida is still very high.In general it appears the housing market is slowly moving back to normal.

Student debt holds back many would-be home buyers - Of the many factors holding back young home buyers — rising prices, tougher lending standards, a still-shaky job market — none looms larger than the recent explosion of college debt. The amount owed on student loans has tripled in a decade, to nearly $1.1 trillion, according to the Federal Reserve Bank of New York. People in their 20s and 30s — often the best-educated and highest-earning among them — owe most of that tab. That is keeping a crucial segment of home buyers on the sidelines, deferring one of the traditional markers of adult success. The National Assn. of Realtors recently identified student debt as a key factor in soft demand for home-buying this spring. A recent study by the trade group identified student loans as the top reason many home buyers delayed their purchase. Many more didn't buy at all. Surveys show today's adults value homeownership just as much as their parents did. But the shaky job market, higher debt loads, and the roller-coaster market of recent years is keeping many from pulling the trigger, said Selma Hepp, senior economist with the California Assn. of Realtors. "They're just postponing," she said. "It's the economy and the recession and what that generation has gone through." The share of buyers who are first-timers has dropped well below historical averages — 28% of California buyers last year, compared with 38% typically, according to CAR surveys. The absence of a new generation of customers could become a long-term problem for the industry

A Stunning 80% Of All New York, Florida And Nevada Condo Purchases Are "All Cash" - Back in August of last year, we first reported data that not even believed at first, but has since been proven correct using existing home sales data, namely that a whopping 60% of all home purchases are "cash only."  The subsequent tumble in the housing market - both new and existing - confirmed that ther was no "housing recovery" and it was, as we had claimed all along, merely institutional investors bidding up real estate to convert it to rental, and foreign buyers parking illegally obtained cash in US real estate.  However, not even that data could prepare us for what we learned today courtesy of CoreLogic, which narrowed down the range from the broader "housing" segment just to the most appetizing (especially for investors and flippers) condo market. What it found was stunning: not less than 80% of all condos in key markets such as Florida, Nevada And New York are all cash.

Schadenfreude: Economists "Stunned" By Housing Fade - Since 2012, almost every economist has predicted that the housing recovery would continue into each coming year and would be a key driver of economic growth. That was again the plan for 2014, but with the housing recovery now on the ropes those same economists are perplexed as to why. Yet, "hope" remains that the recent slowdown is just a "weather related" casualty. The slowdown in housing is not due to the "weather." It began prior to the onset of the recent winter blasts. Nor will reduced distressed sales, delinquencies, negative equity or rising inventories salvage the predictions. These are all indicators "OF" the housing market, but not what "DRIVES" the housing market. The real answer to the slowdown in housing is not so difficult to comprehend... The housing market is driven by what happens at the margins. At any given point, there are a finite number of people wanting to "buy" a home and those that have a "for sale" sign in their yard. As with all markets, changes in the housing market are driven by the "supply/demand" equation. What is forgotten by the majority of economists and analysts is that individuals buy "payments," not "houses." Incremental increases in interest rates have a direct effect on a buyer's "willingness" and "ability" to make certain monthly payments. Since, the majority of American's are already primarily living paycheck-to-paycheck, any increase in the monthly payment may change both affordability and qualification for a loan.

New Home Sales Collapse To 8 Month Lows - New Home Sales collapsed 14.5% month-over-month to its lowest since July 2013. A mere 384k versus 450k expectations is the biggest miss since July. So much for the Spring buying season... This is a 7 standard deviation miss against the smart economists' estimates! Whocouldanode that when the free-money sponsored fast money leaves the game that real people with real debt and real wages are simply priced out of buying a new home? Supply of unsold new homes jumps to 6 months, its highest since Oct 2011 (as once again the visible hand's interference has produced yet another mal-investment boom as the 'if we build it, they will come' builders face an ugly reality).

New Home Sales decline to 384,000 Annual Rate in March - The Census Bureau reports New Home Sales in March were at a seasonally adjusted annual rate (SAAR) of 384 thousand.  February sales were revised up from 440 thousand to 449 thousand, and January sales were revised up from 455 thousand to 470 thousand.    The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.  Sales of new single-family houses in March 2014 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 14.5 percent below the revised February rate of 449,000 and is 13.3 percent below the March 2013 estimate of 443,000.Even with the increase in sales over the last two years, new home sales are still near the bottom for previous recessions. The second graph shows New Home Months of Supply. The months of supply increased in March to 6.0 months from 5.0 months in February. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal).This graph shows the three categories of inventory starting in 1973. The inventory of completed homes for sale is still low, but moving up. The combined total of completed and under construction is also very low.

New Home Sales Plunge 14.5%; It's Not the Weather; Steen Jakobsen on Consensus vs. Reality - The Census Bureau report New Residential Sales Report shows sales of new single-family houses in March 2014 were at a seasonally adjusted annual rate of 384,000.

• Sales are 14.5 percent below the revised February rate of 449,000
• Sales are 13.3 percent below the March 2013 estimate of 443,000
• Median sales price was $290,000 vs. $260,900 in February, $257,500 in March of 2013
• Average sales price was $334,200 vs. $318,900 in February, $300,200 in March of 2013
• Median sales price was up 11.5% from last month, 12.6% from year ago
• Average sales price was up 4.8% from last month, 11.3% from year ago
• New houses for sale was 193,000
• Supply is 6.0 months at the current sales rate

USA Today noted "Harsh winter weather helped hold down sales in February and may have in March as well." Also note: "Economists had predicted an annual rate of 450,000 for March, according to the median forecast in Action Economics survey."My question: If sales decline was weather related, then why were sales up in the Northeast? Steen Jakobsen, chief economist at Saxo Bank tweeted "Housing tanks again - according to consensus housing should add 0.5%-0.8% to GDP in the US in 2014"

Housing Rebound in U.S. Losing Steam as Prices Rise - The housing recovery in the U.S. is running out of steam as buyers balk at record prices and higher mortgage rates that are making properties less affordable. Sales dropped a surprising 14.5 percent to a 384,000 annualized pace, lower than any forecast of economists surveyed by Bloomberg and the weakest since July, Commerce Department data showed today in Washington. Three of the four regions saw setbacks, with demand in the West slumping to the lowest level in more than two years. More expensive properties, borrowing costs that have jumped almost a percentage point from last year and lenders unwilling to go out on a limb are challenging an industry still emerging from its worst slump since the Great Depression. In time, the slowly mending job market will help revive demand at builders such as NVR Inc.  “It’s the reduction in affordability, the lack of inventory, also weak growth in median household income -- all these are contributing to the sluggish recovery in housing,” said Ryan Sweet, a senior economist at Moody’s Analytics, who forecast sales would drop in March. “It’s going to raise concerns about the strength of the housing recovery, but it’s too early to be too worried.”

Why the Housing Market Has Slowed - Economists have been disappointed by a string of weaker-than-expected home-sales reports. Sales of existing homes dropped in March, including in parts of the country that weren’t hit by cold weather this winter. Sales of new homes, reported Wednesday, were down 13.3% from a year earlier to their lowest level since last July . Is the housing recovery faltering, and if so, why? First, the good news: The share of homes selling out of foreclosure continues to decline, according to a monthly survey of real-estate agents by the National Association of Realtors. Foreclosures have usually sold at a discount to traditional homes because lenders are highly motivated to cut the price and sell fast. These homes also aren’t as well maintained. That means a foreclosed-property sale can pull down the “comps” used to appraise the value of other homes selling in a neighborhood. Sales of previously owned homes have fallen in seven of the last eight months. They were down 7.5% from a year earlier in March, the fifth straight month in which sales have fallen below the year-earlier level. But some of the decline in existing-home sales stems from the shrinking supply of distressed homes, as the below chart indicates. This is welcome news for home sellers and builders, though it isn’t great for investors or real-estate agents that have made a living over the past few years recycling these properties back onto the market. Even though home prices have stopped falling, traditional sellers have been slow to list their homes for sale, and construction of new homes is still very low. This means there still aren’t very many homes on the market, which has pushed prices up. So why have home sales slowed? Prices are rising in part because there aren’t very many homes for sale. But those gains have begun to make homes less affordable, particularly after mortgage rates jumped last summer. So even though mortgage rates are still low, home buyers may still be adjusting to the reduced affordability from the combination of higher prices and rates.

New and Existing home sales show that increased interest rates and increasing sales prices are biting - Back in December, I wrote a post here at XE.oom saying that "Interest rates will negatively impact US housing in 2014." While building permits, the specific metric I cited in my post, have not turned negative YoY at all  in the first three months of 2014, every other US housing metric is now significantly negative.

• Housing starts are -59,000 YoY and -150,000 from their November 2013 peak.
• New home sales are also -59,000 YoY and -86,000 from their peak in January of this year.
• Existing home sales are -370,000 YoY and -790,000 from their peak in July 2014.

This morning we had the worst new home sales report since October 2012. So let's take a look at both existing and new home sales for the US. Existing home sales are less important for the economy, but constitute about 90% of the total market.  New home sales, because of their subsequent effect on construction, appliances, furnishings, landscaping, and other sectors, are a long leading indicator for the economy as a whole. Here are the totals for the last 5 years of new home sales (blue) and existing home sales (red):

Explaining The Horrendous Home Sales Report: It Snowed Everywhere But In The Northeast - This is our best attempt at playing clueless propaganda cheerleaders also known as economists:

• Q. Why did new home sales crash in all regions except the traditionally coldest, wettest, and snowiest Northeast, where sales rose?
• A. Uhm, because it obviously snowed everywhere except in the Northeast.

And there you have it: spin 101 for braindead zombies and vacuum tubes.

The state of housing: an update on permits and starts, and a look ahead - One of my key mantras is that I don't fight with the data.  Sometimes there is an obvious asterisk (e.g., the government shutdown, or particularly severe weather, e.g., Sandy), but as a general rule trying to make the data fit your worldview will lead you astray. With that in mind, much as it pains me to say it, while housing starts and sales have been trending down as I thought they would: the best and most forward looking indicator, housing permits, has reversed course and trended upward in the last two months:  Last year I pointed out that on 15 of 19 occasions in the last 60 years, when there had been a 1% increase in interest rates, housing permits had decreased YoY by at least -100,000.  One time, in 2000, permits decreased only -62,000.  The three remaining times appear to be cases of "buy now or be forever priced out," in which the housing market levitated for awhile, and then crashed all the harder. So here is what YoY interest rates (inverted) and housing permits YoY look like updated through March:  While permits have certainly decelerated, they have resolutely not turned negative, something that I absolutely thought would have happened by now. So why have permits held up?  A lot of the data is exactly what I'd expect to see as permits roll over.  And there are reasons to think that the tow month YoY increase in permits might be an artifact of the unusually severe winter. To begin with, builders appear to be seeing an actual slowdown.  Here's homebuilder sentiment compared with housing starts (h/t Scott Grannis):Note that the two generally move in the same direction, and homebuilder sentiment has decreased in the last few months. More significantly, here is a graph of buyer traffic (via Paper Economy):

The New American Dream Is Living in a City, Not Owning a House in the Suburbs -- Americans are abandoning their white-picket fences, two-car garages and neighborhood cookouts in favor of a penthouse view downtown and shorter walk to work. The latest housing data shows traditional, single-family suburban home construction is way down: after a walloping all-time high of 1.7 million single-family homes began construction in 2005, single-family housing starts have contracted after the housing bust to just over 600,000 in 2013. During the five years since the recession, single-family homebuilding has remained lower than it has been in decades. Census statistics released Wednesday show that fewer people are buying single-family homes, too: the seasonally adjusted annual rate of single-family house sales in March was 384,000, 13.3 percent lower than the same month last year.Meanwhile, construction of residences with five or more apartment units—multiplexes, condominiums, high-rises—have reached their highest share of overall construction since 1973 (aside from an outlier year in 1985). “These days the market is driven much more by people who are either choosing to live in the city or in the near-in suburbs, particularly people who are just getting their first job or don’t have confidence that their job is going to last long enough to warrant buying a home,” says Ken Simonson, chief economist for the Associated General Contractors of America. “The multifamily building trend is happening everywhere.”Americans are experiencing an urban renaissance of unanticipated proportions, as young people graduate college and flock to cities, delaying buying a home and perhaps rejecting the suburban ideal altogether. In 2005, multifamily housing accounted for just 17% of all housing starts. In 2013, multifamily housing accounted for fully 33% of starts. Data released last week on housing starts in March reinforce

Housing Won’t Save the U.S. Economy - Exactly a year ago from today, one of us wrote a short piece entitled “Will Housing Save the U.S. Economy?” The conclusion was pessimistic:  The days when housing was the predominant force driving economic activity are gone…” With an additional year of data, the prediction from a year ago seems spot on. Let’s take a closer look. Rising house prices could potentially boost economic activity through two channels. First, and most importantly in our view, it could allow lower income, lower credit score households to borrow and spend. This has been historically called the “housing wealth effect,” but the “home equity withdrawal effect” is a more appropriate term. As our latest research shows, the housing wealth effect is driven entirely by lower income households who borrow against rising home equity to spend. This channel was huge during the 2002 to 2006 period, something our research quantifies. Second, it could potentially boost construction activity through a standard investment channel. If prices rise while costs remain the same, then builders have an incentive to build more homes, which directly contributes to GDP. We can test whether we are getting a big kick from house price growth by comparing the last two years to the two years prior to the Great Recession. House price growth in both periods was similar. In fact, as the chart below shows, house prices grew even faster over the last two years relative to the earlier period:

Why Home Price Gains Aren’t Lifting the Economy - In each of the past few years, economists have pointed to housing as a potential locomotive to get the economy going. And while housing stopped being a drag on the economy a few years ago, few would argue that it’s living up to its true potential as a catalyst for a stronger recovery.  Over at the “House of Debt” blog, economics professors Atif Mian, of Princeton University, and Amir Sufi, of the University of Chicago, offer a trenchant post Thursday on why they believe housing isn’t going to be that locomotive. They conclude that the home price gains of the past two years are having fewer knock-on benefits for the economy than in the past because those gains have done little to stimulate either new-home construction or increased spending paid for by home-equity borrowing. Here are a few reasons rising home prices haven’t done much to stimulate the economy: First, gains that simply restore lost wealth aren’t as valuable as gains that create new wealth, a point made in the past by economists at Credit Suisse and analysts at Pimco. The upshot is that prices may need to rise even higher for the economy to enjoy any “wealth effect”—in which people spend more because they feel richer as their home or stock portfolio rises in value. Second, tight lending standards have made it tougher for homeowners to take cash out of their homes with either a second mortgage or by refinancing into a larger first mortgage. Extremely loose lending standards from 2004 to 2006, by contrast, allowed for excessive borrowing. Third, prices haven’t risen enough to encourage homeowners to sell, which is creating inventory shortages that are being blamed for sluggish sales volumes and higher prices.  Fourth, home prices are up, but they’re still not up enough to encourage builders to build more homes. Builders face higher land, labor, and supply costs, particularly as the industry rebuilds supply chains that atrophied during the housing bust. While the cost to build homes may have fallen during the downturn, costs didn’t fall nearly as much as prices did, which means builders have struggled to compete with the resale market. For now, builders have settled on putting up fewer homes that fetch higher prices.

AIA: Architecture Billings Index indicated contraction in March - Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment. From AIA: Architecture Billings Index Mired in Slowdown Following a modest two-month recovery in the level of demand for design services, the Architecture Billings Index (ABI) again turned negative 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 March ABI score was 48.8, down sharply from a mark of 50.7 in February. This score reflects a decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 57.9, up from the reading of 56.8 the previous month.  “This protracted softening in demand for design services is a bit of a surprise given the overall strength of the market the last year and a half,”“Hopefully, some of this can be attributed to severe weather conditions over this past winter. We will have a better sense if there is a reason for more serious concern over the next couple of months.”  Regional averages: South (52.8),West (50.7), Northeast (46.8), Midwest (46.6) [three month average]This graph shows the Architecture Billings Index since 1996. The index was at 48.8 in March, down from 50.7 in February. Anything below 50 indicates contraction in demand for architects' services.  This index has indicated expansion during 16 of the last 20 months. This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions. According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction

Retail Store Closures Soar In 2014: At Highest Pace Since Lehman Collapse - What a better way to celebrate the rigged markets that are telegraphing a "durable" recovery, than with a Credit Suisse report showing, beyond a reasonable doubt, that when it comes to traditional bricks and mortar retailers, who have now closed more stores, or over 2,400 units, so far in 2014 and well double the total amount of storefront closures in 2013, this year has been the worst year for conventional discretionary spending since the start of the great financial crisis!  Since the start of 2014, retailers have announced the closure of more than 2,400 units, amounting to 22.6 million square feet, more than double the closures at this point in 2013 (940 units and 6.9 million square feet). After several years of attempting to cut overhead costs, the acceleration in store closures appears to be a response on the part of retailers to cope with the challenge of ecommerce and structural declines in foot traffic, and the need to address declining levels of in-store productivity. The year-to-date totals for store closing activities now challenges 2009 as the most recent year for the highest number of store closings announcements.  While distressed retailers (eg. Radio Shack) and bankruptcies, which have reached a three-year peak year-to-date, make up 63% of the unit closures in 2014, they comprise only 34% of the total square footage closed. . Even dollar stores and drug stores, which combined have consistently built out hundreds of stores per year, are beginning to reel back on expansion, with Family Dollar and Walgreens both planning to shutter  underperforming stores.

Final April Consumer Sentiment at 84.1 (graph) The final Reuters / University of Michigan consumer sentiment index for April increased to 84.1 from the March reading of 80.0, and was up from the preliminary April reading of 82.6.  This was above the consensus forecast of 82.5. Sentiment has generally been improving following the recession - with plenty of ups and downs - and a big spike down when Congress threatened to "not pay the bills" in 2011, and another smaller spike down last October and November due to the government shutdown. I expect to see sentiment at post-recession highs very soon.

Final April Consumer Sentiment at 84.1 - The University of Michigan Consumer Sentiment final number for April came in at 84.6, a big jump from the 80.0 March final and up from the 82.6 April preliminary. This is the highest reading since the 85.1 interim high set in July of last year, and that was the highest since July of 2007. Today's update beat the Investing.com forecast of 83.0.  See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy. To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 1 percent below the average reading (arithmetic mean) and 1 percent above the geometric mean. The current index level is at the 43rd percentile of the 436 monthly data points in this series. The Michigan average since its inception is 85.1. During non-recessionary years the average is 87.4. The average during the five recessions is 69.3. So the latest sentiment number puts us 15.3 points above the average recession mindset and 2.8 points below the non-recession average. It's important to understand that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. However the latest final is a 4.6 point gain. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average.

"As Good As It Gets?" UMich Current Consumer Conditions Hit 7-Year High - After 5 years in a row of April preliminary-to-final upward revisions, 2014 did not disappoint as the flash 83.0 was upgraded to 84.1 final and near the highest since the crisis. This is the biggest beat since November as current conditions and outlook both rose as did short-term inflation expectations. Current Conditions is at its highest since July 2007 - mission accomplished.

Vital Signs: Inflation Expectations Hold Steady—For Now - don’t see much run-up in inflation in the near-term, but that could change if gasoline prices keep increasing. According to Friday’s consumer sentiment survey put out by Thomson-Reuters and the University of Michigan, consumers think inflation will be 3.2% a year from now, little changed from expectation readings so far this year. (Consumers almost always think inflation is running higher than the government’s official measures. The consumer price index, for instance, shows prices are up just 1.5% in the past year.) Changes in gasoline prices tend to color how consumers view inflation. That’s not a surprise since gas prices are very visible and drivers tend to fill up frequently. Prices at the pump have been rising lately. Add in the price jump for some grocery items—most notably beef and pork—and it would not be surprising if inflation expectations edge up in coming months.

Long- and Short-Term Unemployment Have Similar Inflation Impact: Fed Paper -- Long-term unemployment creates a drag on inflation similar to that created by short-term joblessness, according to a new paper by a Federal Reserve economist paper that casts doubt on the notion that researchers should study the two categories separately. The debate is important for a still-sluggish U.S. economic recovery because it could influence the Fed’s policy response to continued high unemployment, which was 6.7% in March. Alan Krueger, a Princeton University professor and former adviser to President Barack Obama, recently argued that the long-term unemployed—those who have been without work six months or longer–were so detached from the job market that they weren’t major drivers of wage-growth or inflation. However, Michael Kiley, associate director of the Fed’s Office of Financial Stability Policy and Research, writes in the paper, “We find that that short- and long-term unemployment exert equal downward pressure on price inflation.”

A Reply to "Does Inflation Make You Poorer?" - Carola Binder - Noah Smith channels Robert Shiller circa 1997 in his recent post, "Does Inflation Make you Poorer?" While Noah asks this question rhetorically, Shiller actually asked a series of related questions in a questionnaire of 677 people.  He found: "Among non-economists in all countries, the largest concern with inflation appears to be that it lowers people’s standard of living. Non-economists appear often to believe in a sort of sticky-wage model, by which wages do not respond to inflationary shocks, shocks which are themselves perceived as caused by certain people or institutions acting badly. This standard of living effect is not the only perceived cost of inflation among non-economists: other perceived costs are tied up with issues of exploitation, political instability, loss of morale, and damage to national prestige." The first concern is the subject of Noah's mockery. True, some people think in partial equilibrium, neglecting the effects that inflation might have on their nominal income. But it is not an unreasonable concern in some contexts. Nominal wage stagnancy is a reality for many workers. In a 2008 Pew Survey, 57% of respondents believed that their income was rising slower than the cost of living. In the figure below, the CPI, average hourly earnings for all private sector workers, and average hourly earnings for retail trade employees are all plotted. All are normalized to 100 in 2006. While average hourly earnings for all workers have grown faster than the CPI, the opposite is true for workers in retail. Since 2006, the price level is about 21% higher, but hourly wages in retail are less than 11% higher. They feel poorer and they are poorer.

Low interest rates and low inflation at full employment - Can low inflation stay low as the economy reaches full employment? Let’s look at Europe. Low interest rates and falling inflation are not stopping economic growth. Brian Blackstone from the Wall Street Journal wrote about this yesterday. Here are some selected quotes from his article… “The super-low inflation rates (in Europe) are the average for the euro zone and are propped up some by higher inflation in Germany (1.04%). Five euro members—Greece, Spain, Cyprus, Portugal and Slovakia—have negative rates.” “Yet the euro zone’s economic recovery is proceeding faster than expected… And it raises a key question for European policymakers: can economic growth coincide with weak prices? In a recent speech, Jaime Caruana, general manager of the Bank of International Settlements, a consortium of central banks, suggested it can.” “Still, recent economic reports suggest the euro zone is showing little if any ill effects from low inflation, which has been driven to a large extent by softer food and energy prices. This adds to disposable income and may help consumption…” ” Euro members outside of France and Germany posted their strongest output gain in more than three years, according to the PMI report, despite ultra-low inflation or falling prices.” The European economy is heating up and inflation is actually still falling. Will inflation keep falling?

Weekly Gasoline Update: Premium Above $4.00 - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular is up 3 cents and Premium four, the eleventh week of increases. Regular is up 49 cents and Premium 46 cents from their interim lows during the second week of November. The average for Premium at 4.01 has breached the four dollar benchmark for the first time since March of last year.

DOT: Vehicle Miles Driven decreased 0.8% year-over-year in February -   Some of this monthly decline appears weather related since miles driven were down 3.0% in the Northeast. Miles driven were up 0.4% in the West. The Department of Transportation (DOT) reported:  Travel on all roads and streets changed by -0.8% (-1.7 billion vehicle miles) for February 2014 as compared with February 2013... Travel for the month is estimated to be 212.8 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 75 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. In February 2014, gasoline averaged of $3.43 per gallon according to the EIA.. that was down from February 2013 when prices averaged $3.73 per gallon.

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 February.  Travel on all roads and streets changed by -0.8% (-1.7 billion vehicle miles) for February 2014 as compared with February 2013 (see report). However, if we factor in population growth, the civilian population-adjusted data (age 16-and-over) is at a another new post-Financial Crisis low and total population-adjusted variant is 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. My start date is 1971 because I'm incorporating all the available data from earlier DOT spreadsheets.  The population-adjusted all-time high dates from June 2005. That's 104 months — over eight-and-a-half years ago. The latest data is 9.12% below the 2005 peak, a new post-Financial Crisis low. Our adjusted miles driven based on the 16-and-older age cohort is about where we were as a nation in January of 1995.Here is a closer look at the series since 2000. We can see that the decline leveled off in 2010, rolled over in 2011, leveled off in the first half of 2012 and then rolled over again.

Vehicle Sales Forecasts: Solid in April - Auto sales were clearly impacted by the harsh winter weather in January and February, and then rebounded sharply in March. The rebound in March was predicted by Atif Mian and Amir Sufi Weakening Economy or Just Bad Winter?   Sales in March were at a 16.3 million seasonally adjusted annual rate (SAAR), and it appears sales in April will be above 16 million (SAAR) too. Here are a few forecasts: From J.D. Power: April New-Vehicle Retail Sales Showing Growth, With Consumer Spending at Record-Level Pace New light-vehicle retail sales are expected to reach their highest levels for the month of April since 2005, according to a monthly sales forecast developed jointly by J.D. Power and LMC Automotive. ... Total light-vehicle sales in April 2014 are expected to reach 1.4 million units, a 4 percent increase from April 2013. [16.1 million SAAR] From Edmunds.com: Car Sales Settle into a Groove in April, Says Edmunds.com Edmunds.com ... forecasts that 1,401,606 new cars and trucks will be sold in the U.S. in April for an estimated Seasonally Adjusted Annual Rate (SAAR) of 16.2 million. ... The forecast anticipates that the auto industry will enjoy its best April performance since dealers sold 1,444,587 vehicles in April 2006. From TrueCar: April SAAR to Hit 16.2 Million Vehicles, According to TrueCar; 2014 New Vehicle Sales Expected to be up 8 Percent Year-Over-Year New light vehicle sales in the U.S. (including fleet) are expected to reach 1,382,000 units, up 7.5 percent from April 2013 and down 10.0 percent from March 2014. ... Seasonally Adjusted Annualized Rate ("SAAR") of 16.2 million new vehicle sales is up 9.2 percent from April 2013 and down 0.5 percent over March 2014.

U.S. on Highway to Flunking Out, by Barry Ritholtz: Roads are crumbling, bridges are collapsing, and what was once considered one of the greatest achievements of any government anywhere has fallen into embarrassing disrepair. I am of course discussing our nation’s infrastructure. . Last year, the American Society of Civil Engineers gave the U.S. infrastructure a D+. When it comes to the most basic functions of government we barely get a passing grade. How did this happen? Credit a combination of benign neglect and anti-tax ideology run amok. Since 1993, the U.S. federal gasoline tax has been 18.4 cents a gallon, which finances the Highway Trust Fund. Adjusted for inflation, the tax is now about 10 cents a gallon.  The U.S. interstate highway system, once the envy of the world, is in mediocre and deteriorating condition today ... putting the U.S at a competitive disadvantage. ... The solution is simple. Raise the federal gasoline tax five cents a year for the next five years. Index it to inflation starting in the fifth year. It's the least the U.S. can do to keep up.

Sending Alerts Instead, G.M. Delayed Car Recalls -  The first word from General Motors that the Chevrolet Cobalt had a dangerous safety problem came nine years ago, in a letter to dealers warning them that the cars could suddenly stall because of faulty ignition switches.But it was not until February that G.M. recalled millions of the Cobalts and other small cars for an ignition defect that it has now linked to 13 deaths.G.M.’s chief executive, Mary T. Barra, has called the company’s slow response an “extraordinary” situation. But an analysis by The New York Times of the automaker’s recalls since it emerged from bankruptcy in 2009 shows its handling of the ignition problem was not an isolated event: G.M. has repeatedly used letters, called technical service bulletins, to dealers and sometimes to car owners as stopgap safety measures instead of ordering timely recalls, The Times found.In the past 15 months alone, G.M. has announced seven recalls for serious safety problems involving defects in electrical systems, air bags and power steering, among others, that were preceded by numerous bulletins identifying the problems months or years in advance without ordering repairs, according to recall records, regulatory filings and company documents.In one case, G.M. issued at least three separate service bulletins beginning in 2005 for power-steering problems in the Saturn Ion, but the company did not issue a recall for the car until last month. During that period, more than 40 percent of the consumer complaints to federal safety officials about the Ion were about steering problems, including instances of drivers losing control of their cars or being unable to maneuver them to the side of the road.

G.M. Seeks to Fend Off Lawsuits Over Switch - General Motors moved on Tuesday to prevent future safety lapses by expanding its oversight of problematic vehicles even as the automaker continued to take an aggressive legal posture in dealing with its past missteps.General Motors has asked a federal bankruptcy judge to dismiss dozens of potentially costly lawsuits filed against the company over its handling of a defective ignition switch in millions of cars, and to bar similar cases in the future.The legal filing, which was made late Monday in the Federal Bankruptcy Court for the Southern District of New York, asked the judge who approved the company’s 2009 restructuring agreement to explicitly enforce a provision that shielded the “new” company from liability for incidents that took place before July 10, 2009, the day the agreement went into effect. Most of the cars in the recall were manufactured before 2009.Though the motion was merely asking Judge Robert E. Gerber to reaffirm a protection that already existed in the agreement, it was seen as a shrewd tactic to get the cases dismissed in one move, saving the company enormous amounts of time, personnel and money that would come from fighting to dismiss each case one by one.

Durable Goods Report: March Beats Expectations - The April Advance Report on March Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders:New orders for manufactured durable goods in March increased $6.0 billion or 2.6 percent to $234.8 billion, the U.S. Census Bureau announced today. This increase, up two consecutive months, followed a 2.1 percent February increase. Excluding transportation, new orders increased 2.0 percent. Excluding defense, new orders increased 1.8 percent.  Transportation equipment, also up two consecutive months, led the increase, $2.8 billion or 4.0 percent to $74.1 billion. Download full PDF  The latest new orders number came in at 2.6 percent month-over-month, which beat the Investing.com forecast of 2.0 percent. Year-over-year new orders are up 9.1 percent. If we exclude transportation, "core" durable goods came in at 2.0 percent MoM and 5.1 percent YoY. Investing.com had a forecast a much smaller 0.6 percent. If we exclude both transportation and defense, durable goods were up 0.8 percent MoM and 2.5 percent YoY. The Core Capital Goods New Orders number (capital goods used in the production of goods or services) was up 2.3 percent MoM. The YoY number was up 3.5 percent. The first chart is an overlay of durable goods new orders and the S&P 500.  An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.

Durable Goods Beat On Surge In Boeing Orders, Capital Goods Orders Ahead Of Expectations - It is oddly appropriate that moments after we reported that capex at Caterpillar (and virtually every other company we have looked at in detail) tumbled by 50% year over year, that the Census Bureau released the latest Durable Goods report. In it we find that unlike previous months, when headline durable goods tumbled because of "harsh weather" in March it apparently not only did it not snow (although the New Homes Sales report may have something to say about that) but the weather so so balmy, that the headline print came in stronger than the expected 2.0%, printing at 2.6%, up from a downward revised 2.1%. The bulk of the margin however was due to Boeing, which reported some 163 new aircraft orders, compared to 74 in February.

Vital Signs: Capital Spending Shows Improvement but No Break Out - The Commerce Department reported Thursday that new orders for nondefense capital goods excluding aircraft increased 2.2% in March, more than reversing the 1.1% drop posted in February. Shipments of the same goods edged up 1.0% on top of a 0.7% gain in February. While the March increases are welcome, the nominal value of new capex orders and shipments in the first quarter are only about 2% above their respective levels in the first quarter of 2013 and, using data on producer prices, about half of that reflects higher prices. The data offer some hope that—barring a new economic shock—businesses might be ready to contribute more heavily to gross domestic product growth by accelerating their investment on new equipment. But that has not happened yet. In a research note, Dana Saporta, director of economics research at Credit Suisse, calculates the first-quarter average in core shipments is up at a 1.7% annual rate from the fourth quarter, when shipments grew a faster 7.8% from the third quarter. “So, it is reasonable to expect that the [first-quarter] capex portion of GDP was positive in Q1 but not nearly as positive as in [the fourth quarter],” she writes.

Richmond Fed Manufacturing Composite: Major Bounce from Last Month - The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to the nation's Central Bank. The complete data series behind the latest Richmond Fed manufacturing report (available here) dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components. The April update shows the manufacturing composite at 7, a major bounce from last month’s -7. Today’s composite number was above the Investing.com forecast of 0.  Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at -2.0, to facilitate the identification of trends.  Here is a snapshot of the complete Richmond Fed Manufacturing Composite series.

Richmond Fed Rebounds But Wages Tumble To 12-Month Lows -  After 2 dismal missing months in a row, the Richmond Fed manufacturing survey rebounded dead-cat-bouncedly with its biggest MoM rise since August. The bulk of the gains were a huge swing in New Orders (from -9 to +10) but average workweek was stagnant and wages dropped to their lowest in 12 months. Sadly, for those extrapolating this surge to 'escape velocity' growth any minute now, the Richmond Fed's six-month forward outlook saw shipments, new orders, employees, wages, and capex all drop...

Kansas City Fed: Regional Manufacturing "Activity Moderated Slightly" in April --From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Moderated Slightly The Federal Reserve Bank of Kansas City released the April Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity moderated slightly after rising to a two-year high in March, but producers’ expectations for future factory activity climbed higher. “Regional factory expansion was not quite as strong in April as in March, when better weather provided a boost”, The month-over-month composite index was 7 in April, down from 10 in March but up from 4 in February. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. ... the order backlog index moved into positive territory for the first time in four months, and the employment index rebounded after falling last month. The last regional Fed manufacturing survey for April will be released on Monday, April 28th (Dallas Fed). In general the regional surveys have been positive in April and suggest further improvement in the ISM manufacturing index.

US PMI Drops, Misses By Most In 8 Months - That February spike that was the catalyst for oh so much aggressive JPY selling and US equity buying and "see, we told you so, here comes the post-weather pent-up-demand exuberance" has been crushed by the sad and painful truth of reality. For the 2nd month in a row, Markit's US PMI dropped and missed expectations... despite weather being a thing of the past. Sadly the story gets worse, as Markit notes "on the inflation front, manufacturers experienced a further solid increase in average cost burdens in April," adding that pricing pressures, "will feed fears that the recovery remains on a weak foundation of intense price competition." And the full breakdown...

Markit US Services PMI Drops; Job Creation Near 2-Year Lows -- Markit's US Services PMI dropped and missed expectations input and output prices soared, employment tumbled, and business activity slowed. Staffing levels increaed at the slowest pace since June 2012 and the latest expansion of new business was only slightly faster than the 18-month low seen in March, and weaker than recorded at any time in 2013. So much for that post-weather pent-up-demand surge... Relatively subdued new business growth and weaker rises in output contributed to a slowdown in job creation in April. The latest expansion of service sector payroll numbers was only marginal and the weakest since June 2012 (it was also the joint-slowest rise in staffing levels for almost four years).

Is the economy suffering from "secular stagnation"? - Recently, Larry Summers, until recently a top economic adviser to President Obama, has revised the secular stagnation thesis based on evidence such as this graph showing U.S. GDP running consistently below its potential: Summers believes we are in a situation where savings is greater than investment -- that is, the demand for investment funds and the supply of funds are not in equilibrium. In such a situation, when investment demand is low, the economy will experience higher than normal rates of unemployment. Normally, when this happens there is downward pressure on the inflation-adjusted interest rate (what economists call the real interest rate). The fall in the real interest rate causes investment to increase because its cheaper to borrow money to finance new ventures, and it causes saving to fall since the reward for saving -- interest income -- is smaller. This continues until saving and investment are again brought into balance, and at that point the economy will return to full employment. But what if there is something that stops the interest rate from falling? For example, what if when the Federal Reserve's target interest is just above zero, as it is now, and cannot fall further? In such a case, economic output will be persistently below potential (as in the graph above), unemployment will be persistently elevated and the problem will not cure itself in an acceptable amount of time. The solution, according to Summers, is for government to undertake massive infrastructure investment and fill the investment void in the private sector. With interest rates at rock bottom, infrastructure investment will be cheap to finance, and it will provide needed jobs for the unemployed.

Business Economists See Brighter Outlook for Job Growth - Business economists’ outlook for near-term hiring strengthened this spring to the highest mark in nearly three years, a new survey found. The poll by the National Association for Business Economics said 43% of corporate economists expect hiring within their firm or industry to increase during the next six months. That was the most optimistic forecast since July 2011. The latest poll found that only 8% of economists expect businesses to cut payrolls over the next two quarters. A projected increase in hiring raises the prospect that the unemployment rate could inch down toward its historical average later this year. The unemployment rate — 6.7% in March — has fallen more than a percentage point since the start of last year, but remains elevated compared to the average monthly reading of 5.8% since 1948. Two-thirds of economists in the “goods-producing” segment, which includes manufacturers, said hiring will increase. But only 30% of service-sector firms expect employment gains to ramp up. Manufacturing jobs tend to pay higher wages than those in service sector. As a result, increased manufacturing hiring could support growth in incomes and consumer spending. Still, the latest projections come with a familiar warning label: Past predictions of an around-the-corner economic breakout have largely failed to materialize since the recovery began nearly five years ago. During the six months following the previous peak in hiring optimism in July 2011, the pace of payroll gains slowed slightly compared with the first half of that year.

Germany, China, India working to out-compete us: Barack Obama - Countries like Germany, China and India are working every day to out-educate kids so they can out-compete American businesses, the US President Barack Obama said adding that these nations are making more progress than the US. "Countries like Germany, China and India - they're working every day to out-educate our kids so they can out-compete our businesses. And each year, frankly, it shows that they're making more progress than we are," Obama said yesterday. "We're still ahead, we've still got the best cards, but they're making some good decisions," Obama said in address on "skill training" to students of a community college in Pennsylvania. "We've got to make those same decisions," the US president said as he urged his countrymen to work towards better skill development.In his speech, he emphasised on training Americans with the skills that they need for the good jobs that are going to be here today and tomorrow. "But you know what, we're not going to reverse all those trends. We can't stop technology. And you've got a global economy now where we've got to compete. We live in a 21st century global economy. Jobs know no borders, and companies are able to seek out the best-educated, most highly-skilled workers wherever they live. And that's where the good jobs and the good pay and the good benefits is going to be," Obama said.

Exclusive: Apple, Google agree to pay over $300 million to settle conspiracy lawsuit (Reuters) - Four major tech companies including Apple and Google have agreed to pay a total of $324 million to settle a lawsuit accusing them of conspiring to hold down salaries in Silicon Valley, sources familiar with the deal said, just weeks before a high profile trial had been scheduled to begin. Tech workers filed a class action lawsuit against Apple Inc, Google Inc, Intel Inc and Adobe Systems Inc in 2011, alleging they conspired to refrain from soliciting one another's employees in order to avert a salary war. They planned to ask for $3 billion in damages at trial, according to court filings. That could have tripled to $9 billion under antitrust law. The case has been closely watched due to the potentially high damages award and the opportunity to peek into the world of Silicon Valley's elite. The case was based largely on emails in which Apple's late co-founder Steve Jobs, former Google CEO Eric Schmidt and some of their Silicon Valley rivals hatched plans to avoid poaching each other's prized engineers. true In one email exchange after a Google recruiter solicited an Apple employee, Schmidt told Jobs that the recruiter would be fired, court documents show. Jobs then forwarded Schmidt's note to a top Apple human resources executive with a smiley face. Another exchange shows Google's human resources director asking Schmidt about sharing its no-cold call agreements with competitors. Schmidt, now the company's executive chairman, advised discretion. "Schmidt responded that he preferred it be shared 'verbally, since I don't want to create a paper trail over which we can be sued later?'"

When It Comes to Generating Jobs It Pays Not to Listen to the Experts -- It is remarkable that no country has outlawed economics as a dangerous occupation on a par with drug dealing or murder for hire. The damage done to the world over the last seven years based on policies designed by economists has been incredible. Floyd Norris documents this fact in a nice piece comparing the change in employment rates (the percentage of the population employed) in rich countries since 2007. The only two countries with higher employment to population ratios today than at the start of the downturn are Germany and Japan. Both countries have broken with the economic orthodoxy in important ways. In Germany, the government has adopted policies that encourage employers to keep workers on the payroll by cutting back hours rather than laying them off. As a result, their unemployment rate is almost three percentage points below its pre-recession level even though its growth has actually been somewhat slower than in the United States. Japan has adopted a policy of aggressive deficit spending even though its debt to GDP ratio is already more than twice that of the United States. It also has deliberately targeted a higher rate of inflation as a way of lowering real interest rates and reducing debt burden. As a result, it has created a number of jobs that would be the equivalent of more than 4 million in the United States. In short, ignoring the economic orthodoxy works. Listening to orthodox economists brings destruction to the economy and devastates peoples' lives. 

Weekly Initial Unemployment Claims at 329,000 - The DOL reports: In the week ending April 19, the advance figure for seasonally adjusted initial claims was 329,000, an increase of 24,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 304,000 to 305,000. The 4-week moving average was 316,750, an increase of 4,750 from the previous week's unrevised average of 312,000. There were no special factors impacting this week's initial claims. The previous week was revised up from 304,000. The following graph shows the 4-week moving average of weekly claims since January 2000.

New Jobless Claims Come In Above Expectations -- Here is the opening of the official statement from the Department of Labor:  In the week ending April 19, the advance figure for seasonally adjusted initial claims was 329,000, an increase of 24,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 304,000 to 305,000. The 4-week moving average was 316,750, an increase of 4,750 from the previous week’s unrevised average of 312,000. There were no special factors impacting this week's initial claims. [See full report] Today's seasonally adjusted number at 329K came in well above the Investing.com forecast of 310K. Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the volatility in recent months.

Initial Unemployment Claims Fall To Lowest Since 2006 --  The advance number of actual initial claims under state programs, unadjusted, totaled 297,870 in the week ending April 19, a decrease of 20,923 (or -6.6 percent) from the previous week. There were 326,264 initial claims in the comparable week in 2013. – DoL Compared to the comparable week last year claims declined 8.6%, consistent with recent trends. Initial Claims – Click to enlargeThe seasonally adjusted headline number was 329,000. That is a made up number. Conomists’ consensus was for 312,000 which was not a bad guess. Bloomberg blamed the seasonal adjustment factor for the Easter holiday for the miss. The actual unadjusted data was consistent with the trend. According to the DoL – “The seasonal factors had expected a decrease of 42,668 (or -13.4 percent) from the previous week,” versus the actual decline of 20,923. The 10 year average for the comparable week was a drop of 29,306. Accounting for the holiday, this was a slightly below average performance for the week. However, this was the lowest number of claims for this week since April 2006, at the top of the housing/credit bubble. As a percentage of total eligible workers, this week was lower than the 2006 figure, and was the lowest since April 2000.

The 'Mismatch' Theory of Unemployment Meets Its Match in Goldman Sachs - Economists at Goldman Sachs say they have pretty clear evidence against the widely held “mismatch” theory of unemployment, which essentially says people are out of work because they don’t have the skills for the jobs that are available. If the mismatch theory were correct, one would expect to find pockets of very high and very low unemployment: for example, high joblessness in outmoded occupations and very tight labor markets in up-and-coming fields where few workers have the new skills. Instead, Goldman Sachs Chief Economist Jan Hatzius shows in a series of charts that, as he says, “different groups of workers have moved in lockstep with each other.” True, unemployment during the slump spiked more for younger and less-skilled workers, but Hatzius says that’s normal in a downturn and not necessarily a sign of growing mismatch. The up-and-down movements have been pretty much the same by age, education, income, occupation, and industry, differing only in degree.

The Biggest Predictor of How Long You’ll Be Unemployed Is When You Lose Your Job --  One characteristic distinguishes the long-term unemployed from the rest of America’s jobless. It isn’t how many hours they worked at their old job, or what industry they came from, or even their level of education. It’s bad timing. A FiveThirtyEight analysis shows that by far the single biggest predictor of whether someone will be out of work for a year or more is the state of the economy when he or she loses his or her job.1 Over the past 15 years, a period spanning two recessions, a one-point increase in the unemployment rate increased an individual’s odds of remaining unemployed for at least a year by about 35 percent. No other characteristic — age, sex, race, marital status, education or occupation, among others — had even close to that big an effect. Americans who had the misfortune of losing their jobs during the height of the most recent recession in 2009 were more than four times as likely to end up out of work for a year or longer than those who lost their jobs during the comparatively good economy of 2007. Extended unemployment benefits, which are often cited as a driver of the persistently high levels of long-term joblessness, don’t appear to be a major cause of the pattern. More than 2.5 million Americans have been out of work for a year or more. That’s down from more than 4.5 million in 2010 but nonetheless represents a crisis of long-term unemployment that’s unprecedented in the U.S. since World War II. The plight of the long-term jobless has gotten renewed attention in recent weeks in part due to mounting evidence that they are being left out of the economic recovery.

Labor Shortages Pop Up, but Wage Growth Still Lags -- One interesting item in the Federal Reserve‘s beige book, released last week, was a report from the Minneapolis Fed that “in the energy-producing areas of North Dakota, the U.S. Postal Service and its union recently agreed to pay increases of up to 20% for rural carriers.” According to the Associated Press, the postal service is having a hard time, competing even with fast-food restaurants to find workers in western North Dakota, the site of the Bakken oil fields and a state with a 2.6% jobless rate. When demand for labor outstrips supply, wages rise. And the Fed is looking closely at wage trends to determine how much slack there is in the labor markets. Other enterprises are facing a shortage of some skilled workers. The first-quarter survey by professional-services firm PwC shows 28% of U.S. multinational manufacturers expect the lack of qualified workers will be a barrier to growth in the next year. That is the highest reading since 2007, just as the last expansion was unraveling. According to the March survey done by the National Association for Independent Business, a net 22% of small-business owners say they have positions they cannot fill right now because there are few or no qualified applicants for the opening. That is up from a single-digit response rate at the start of the recovery. However, while demand for certain skills is running ahead of supply, for most occupations there remains an excess of labor. Consequently, when it comes to setting pay, the advantage remains with the employer rather than the employee.

Real Median Household Income Declines 0.73% in March - The Sentier Research monthly median household income data series is now available for March. The nominal median household income was up $285 month-over-month and up only $1,494 year-over-year. Adjusted for inflation, it declined 0.73% MoM but is up 1.3% YoY. The previous monthly gain was the second largest of the 171 data points in this series since the turn of the century. The latest number erased much of that gain. In real dollar terms, the median annual income is 7.5% lower (about $4,309) 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:This latest monthly decrease in median household income between February and March 2014 underscores the uneven trend in the series since the low-point reached in August 2011. Our time series charts clearly illustrate that although the economic recovery officially began in June 2009, the recovery in household income did not begin to emerge until after August 2011. While many of the month-to-month changes in median income since the low-point in August 2011 have not been statistically significant, an overall upward trend is still clearly evident.

Unemployment and Wages in the US – A Tale of Institutional Change - Philip Pilkington - Just a short post this morning to highlight an interesting chart that I put together. Below I have mapped out year-on-year changes in wages against the unemployment rate. As we can see, in the period 1965-1981 (green circle) when unemployment went up wage-growth continued climbing regardless. However, in the period 1981-2013 (orange circle) whenever unemployment went up wage-growth slowed substantially. Indeed, in the second period we see a sort of “mirror-image” relationship. This is not to say that after 1981 wages in the US became flexible — they do not fall when unemployment rises as silly variants of mainstream theory claim — but there is a strong negative correlation between unemployment and wage growth. The reason, of course, is obvious. Union density has fallen substantially since the early 1980s as can be seen from the graph below. Everyone and their cat know this, of course. But I thought that the first chart was interesting indeed. It really shows the changes that have taken place in the US labour market since 1981 in a clear manner. Again, wages still grow as unemployment rises. But their acceleration does slow substantially. Finally, let’s look at real wages — that is, wages adjusted for inflation — and how they relate to unemployment. We can see this in the graph I’ve put together below.

The Sharing Economy Isn’t About Trust, It’s About Desperation - Wired's cover story this month is about the rise of the "sharing economy" — a Silicon Valley–invented term used to describe the basket of start-ups (Uber, Lyft, Airbnb, et al.) that allow users to rent their labor and belongings to strangers. Jason Tanz attributes the success of these start-ups to the invention of a "set of digi­tal tools that enable and encourage us to trust our fellow human beings," such as bidirectional rating systems, background checks, frictionless payment systems, and platforms that encourage buyers and sellers to get to know each other face-to-face before doing business.Tanz's thesis isn't wrong — these innovations have certainly made a difference. But it leaves out an important part of the story. Namely, the sharing economy has succeeded in large part because the real economy has been struggling. A huge precondition for the sharing economy has been a depressed labor market, in which lots of people are trying to fill holes in their income by monetizing their stuff and their labor in creative ways. In many cases, people join the sharing economy because they've recently lost a full-time job and are piecing together income from several part-time gigs to replace it. In a few cases, it's because the pricing structure of the sharing economy made their old jobs less profitable. (Like full-time taxi drivers who have switched to Lyft or Uber.) In almost every case, what compels people to open up their homes and cars to complete strangers is money, not trust.To understand why the sharing economy is thriving now, it's worth taking a look at how many full-time jobs have been replaced by part-time jobs since the recession of 2008:

America’s Middle Class Falls Behind - Once the juggernaut of the American economy and the envy of the world, the middle class has finally lost its position as the richest in the world, according to a new report. The New York Times, citing an analysis of survey data going back 35, reports that the middle class in the United States has fallen behind Canada’s middle class. While economic growth in the U.S. is equal to or stronger than growth in other countries, those gains have gone almost exclusively to the wealthiest Americans. America’s middle class is still wealthier than corresponding demographics in Europe, but the gap has narrowed significantly in the last 10 years. Meanwhile, the poor in the U.S. are significantly worse off than their counterparts in Europe and Canada—a total reversal from 35 years ago.Median income in the U.S., about $74,000 after taxes for a family of four, rose by 20% between 1980 and 2000 but has since remain mostly unchanged, according to the Times analysis. Median income in Canada, in contrast, rose by 20% between 2000 and 2010 alone. “The idea that the median American has so much more income than the middle class in all other parts of the world is not true these days,” “In 1960, we were massively richer than anyone else. In 1980, we were richer. In the 1990s, we were still richer.”

It All Begins With This: U.S. Middle Class Is No Longer The World’s Richest - Over five years ago, when we first dared to make the "bold" claim (a tangent of which now serves as the basis for bestselling books that paraphrase Karl Marx) that all Bernanke's idiotic assault on the average American, known as Quantitative Easing, would achieve, would be to crush the US middle class, it was ridiculed - perhaps we too should have charged a perfectly capitalist $23.97 for this profound assessment to be taken seriously. Still, we are gratified to learn, some five years later, that indeed, the US middle class, well on its way to extinction, just took out the first and most critical  milestone, to wit - the US middle class is no longer the world's richest. And yes, "it's all downhill from here." Sadly, mostly for America's chauvinism, the distinction of the world's richest middle class now goes to Canada, while the poor in much of Europe now earn more than poor Americans. From the NYT:The American middle class, long the most affluent in the world, has lost that distinction. While the wealthiest Americans are outpacing many of their global peers, a New York Times analysis shows that across the lower- and middle-income tiers, citizens of other advanced countries have received considerably larger raises over the last three decades.

Did Canada’s Middle Class Just Get More Affluent Than the US’s, or Did that Happen Long Ago? - The New York Times and Dave Leonhardt’s Upshot section made a big splash a few days ago by reporting on a study showing that the Canadian middle class had caught the US middle class in median income and likely surpassed it since. The study is based on an effort to measure median income per capita after taxes, and its results are presented as something truly significant. However, I think the study is biased in that in median income per capita after taxes, it selected the wrong measure. What is needed is a measure of income or affluence that takes account of the value of cross-national variations in Government benefits delivered to the middle classes. Since the United States has lower taxes than most comparable nations, but delivers much less in safety net and entitlement benefits, it’s pretty clear that the measure used in the study reported on by The Times overestimates the real median income of the US middle class in comparison with the middle classes of other comparable nations and provides a misleading impression of the relative affluence of the American middle class. In fact, it is likely that if real median income or median wealth per capita were measured in a more valid way that the study would have found that the US has lost its lead over other nations in Net Median Income Per Capita (median income per capita after taxes minus the cost per capita of benefits the State does NOT provide relative to the nation with the most generous safety net benefits), or per adult long before 2010. This is suggested by an earlier post of mine which I’ll now reproduce in full and then briefly discuss to conclude this one.

Have living standards really stopped rising?: Income inequality is soaring in the US and the UK. The income earned by all but a few has been stagnating for a generation. So I claimed in my column of March 22. But was I right? Several readers contacted me to suggest alternative interpretations of what look like grim data. Their objections are worth considering: they teach us both about the way numbers can lead us astray, and about the way our economy is evolving. The first claim is that what looks like stagnation isn’t, because real gains have been mislabelled as mere inflation. The everyday technology of today was the stuff of science fiction in the 1970s when this apparent stagnation began. Perhaps inflation measures haven’t kept up. There is truth in this argument, although we will never know how much truth unless somebody figures out how many Sinclair ZX81s an iPad is worth. But we should be cautious. In the US, 40 per cent of the consumer price index (CPI) tracks the cost of housing and related costs such as domestic heating; another 30 per cent tracks the cost of food and drink. If two-thirds of my income goes on basics such as food and shelter, and my income is barely keeping pace with the price of such basics, there is a limit to how ecstatic I am likely to feel about the fact that iPhones exist.

Why Are We Still Working So Hard? - Yves here. This post by David Specter attempts to understand the roots of overwork in advanced economies. Of course, there are many people who have to work brutally hard to make ends meet, but that’s not the conundrum that Specter focuses on. He is instead perplexed by the loss of leisure time across the spectrum of jobs. While his post a good conversation-started, but I think he misses a couple of culprits, at least in America. The first is that this culture is no longer supportive of leisure. In the much-less-harried early 1990s, I had the peculiar experience of going from having a very intense job to being self employed. When I had a gig, I’d typically be in overdrive, but over time, I was making pretty much the same money as I was before, with a lot of downtime. Mind you, when you are in a slack period, you have not idea when the next project will show up, so it wasn’t as if it would have made sense to go loaf on a beach somewhere. I needed to be able to maintain the appearance to prospective clients that I was reasonably busy and be in a position to swing into action quickly if they had an assignment. Plus that level of uncertainty over income isn’t conducive to spending freely on leisure activities.  But it was hard to find people who could deal with this on/off lifestyle. But even worse was that I had internalized the assumptions of the environments in which had worked, and my beliefs were pretty typical of New York City professionals: if you are successful, you are busy or insanely busy. Only losers have a lot of free time.And even if you haven’t gotten imprinted with that mindset, there’s a second set of factors that encourage overinvestment in work: having a decent personal life is much harder than before. Gender relations are in flux, which means couples have to do a lot more exploration and negotiation than in the past. Children’s time is vastly more structured than in the past, putting more of a burden on parents to organize it and shuttle them about.

The Policy Challenges of America’s Widening Race and Age Divide - That America is becoming rapidly more racially diverse comes as no surprise. Less explored is how the increasing racial divide between the young and old will raise tough questions for policy makers. One in two babies born last year was a minority child, according to Kenneth Johnson, a demographer at the University of New Hampshire’s Carsey Institute, who analyzed data from Census and the Centers for Disease Control and Prevention in a report Tuesday. Roughly 47% of America’s youth population—the 82.5 million people age 19 or younger—were from minority populations in July 2012, compared with 36% of the 40- to 45-year-old group and—importantly—about 20% of seniors 65 years and older. This widening racial divide by age is growing fast. In 2000, only 39% of America’s youth were from minority populations. 1990? Just 32%. Minorities represented nearly half—48%—of America’s under-5 population in 2012, but only 43% of its 15- to 19-year-old population. Granted, America hit an important demographic milestone several years ago, in 2011—when minority births exceeded non-Hispanic white births for the first time in U.S. history. The recession and America’s slow economic recovery have also depressed fertility rates, especially for Hispanic women, who tend to have more children, and earlier, than white women do. That has slowed the wheels of the diversity trend somewhat. But as the U.S. economy picks up and more American women, especially Hispanic women, have children, the long-term trend toward a bigger racial gap between young and old will gain momentum, too. That could stir up uncomfortable questions for policy makers, economists and citizens about how much support there will be for social programs like educational assistance and Social Security.

Anti-Discrimination Laws Didn’t Help Older Men Get Back to Work - Tough age-discrimination laws didn’t do much to help older unemployed men find work during and after the recession, according to a recent analysis from the Federal Reserve Bank of San Francisco.  It actually may have hurt them. “These results provide very little evidence that stronger state age discrimination protections helped older workers weather the Great Recession,” . “In fact, the opposite may have occurred, with older workers bearing more of the brunt of the Great Recession in states with stronger age discrimination protections.” Mr. Neumark studied data on duration of unemployment spells during and after the 2007-09 recession. Their analysis looked at states with laws that go beyond the federal Age Discrimination in Employment Act, which bans age discrimination against workers over the age of 40 at companies with 20 or more employees. During the period studied by the economists, 34 states barred discrimination at smaller firms and 29 states allowed people to seek additional punitive or compensatory damages against discriminatory employers. In the states allowing larger damages, older men were out of work for an average of 5.57 weeks longer than younger men during the recession, and an extra 5.04 weeks after the recession. Older women, on the other hand, saw shorter unemployment spells during the recession than younger women. The economists found no statistically significant differences in states with laws barring discrimination at small firms.

Moving in with Parents Becomes More Common for the Middle-Aged - At a time when the still sluggish economy has sent a flood of jobless young adults back home, older people are quietly moving in with their parents at twice the rate of their younger counterparts. For seven years through 2012, the number of Californians aged 50 to 64 who live in their parents' homes swelled 67.6% to about 194,000, according to the UCLA Center for Health Policy Research and the Insight Center for Community Economic Development. The jump is almost exclusively the result of financial hardship caused by the recession rather than for other reasons, such as the need to care for aging parents, said Steven P. Wallace, a UCLA professor of public health who crunched the data."The numbers are pretty amazing," Wallace said. "It's an age group that you normally think of as pretty financially stable. They're mid-career. They may be thinking ahead toward retirement. They've got a nest egg going. And then all of a sudden you see this huge push back into their parents' homes." Many more young adults live with their parents than those in their 50s and early 60s live with theirs. Among 18- to 29-year-olds, 1.6 million Californians have taken up residence in their childhood bedrooms, according to the data.

Inequality 1992 - Paul Krugman - I happened to notice Greg Mankiw citing some bogus claims that the one percent is an ever-changing group, not a persistent elite, and I thought “Wait — didn’t we deal with that one long ago?” And that brought to mind the piece I wrote for the American Prospect 22 years ago, “The rich, the right, and the facts.” (It doesn’t say this on the Prospect site, but it was indeed published in 1992). See the section on income mobility. The truth is that inequality denial is largely a crusade of cockroaches — the same bad arguments just keep coming back.  Oh, and I do think that my old piece looks surprisingly contemporary. In particular, I was focused on the one percent even then.

Consumption Inequality -  There has been a lot of attention on income and wealth inequality in the past few years. But should we care about income and wealth inequality? Presumably we care because we believe that increases in income and wealth inequality lead to higher inequality in outcomes such as consumption, health, or overall well-being. In economics, it is these outcomes that actually enter the utility function, not income or wealth. Income and wealth inequality in the United States have risen sharply since 1980. This is indisputable. But has this growth in income inequality led to an increase in consumption inequality? In other words, have the poor been buying fewer goods and services as their incomes have declined in relative terms? At first glance, the answer to this question may seem obvious: if the poor are getting poorer, how could they avoid a reduction in spending? But the answer is not obvious. If government programs provide large amounts of assistance to the poor, then consumption inequality may be muted relative to income inequality. Or if the rich lend vast sums to the poor through the financial system, then the spending of the poor may remain high, at least in the short run until the debt comes due. There is much less research on consumption inequality relative to income inequality for a simple reason: the data are not nearly as good. The primary data set used by researchers is the Consumer Expenditure Survey, which is based on surveys that ask households how much they spend. As has been well documented, there are major sources of bias in such survey data (see footnote 6 in our study here).  This is why in our own research, we rely mostly on actual spending data rather than surveys. For example, we use new vehicle registrations to measure new auto sales. Actual spending data are the future, and they will give us a better sense of how unequal consumption is for the U.S. economy.

Inequality in Well-Being - As we mentioned in our post yesterday, economists care much more about inequality in well-being rather than inequality in income or wealth. Data on well-being are more difficult to gather, but we discussed some evidence that inequality in consumption also increased from 1980 to 2010. Consumption directly affects the utility of an individual in most economic models. Income does not. Here is some more evidence, with a particular focus on the last few years ... Another strategy in measuring well-being is to look beyond spending and toward measures of health. Life expectancy data are available, and they seem to tell a similar story: the rise in life expectancy from 1980 to 2010 for people already 65 is driven almost entirely by the rich. There has been a lot of attention on income and wealth inequality, and for good reason. But inequality in outcomes such as consumption and health are far more important. We’ve gathered some evidence here, but more is needed. The evidence so far suggests that inequality in well-being has tracked inequality in wealth and income closely.

More Effective Remedies for Inequality - Yves Smith  - The subject of inequality in income and wealth has, in the last year or so, become an oft-mentioned topic in economic and political commentary. It’s now even acceptable to use the word “oligarchy” to describe the US. Yet too often lost in the debate is that this type of inequality is the result of what right society allows various members to have. For instance, in the last 30 years, intellectual property laws have gotten stronger while the rights of workers to organize have been cut back. We had a more equitable society when unions were stronger, taxes were more progressive, and anti-trust laws were enforced. This post by Geoff Davis serves as a reminder that there are remedies other than progressive taxation (which he regards as an after-the-fact remedy) to achieve that end.

Wage Theft Must Not Be Ignored - Here’s an important editorial on something I haven’t written enough about: wage theft, i.e., situations wherein “employees are forced to work off the clock, paid subminimum wages, cheated out of overtime pay or denied their tips.”  Sometimes this meshes with misclassification, another violation of labor law, wherein regular employers are classified as self-employed.  According to one study, misclassification of port truckers resulted in over $800 million in wage theft in CA alone. The editorial interestingly points out that this doesn’t just hit low-income workers, citing the Silicon Valley case where employers of top tech firms were allegedly colluding to suppress wage competition. My strong sense is that one way to deal with this is to mete out a spate of significant punishments to violators as a signal that we’re serious about cracking down on wage theft.  As I understand it, too often, the current penalties for being caught stealing workers’ wages are a slap on the wrist (though I think this is improving a bit in the misclassification space).  Also, as the NYT piece points out, wage theft is seriously under-policed, as the number of wage and hour inspectors at the Labor Dept has declined while the workforce has grown. Even today, with around 1,000 WHD investigators, the odds of any particular employer being inspected in any given year are trivial.”

Minimum Wage Hike a $15 Billion Tax on Employers - On Thursday the nonpartisan Congressional Budget Office released a cost estimate for the Minimum Wage Fairness Act, which would raise the minimum wage. According to CBO’s estimate, raising the hourly minimum wage to $10.10 would increase private sector costs by $15 billion. Essentially, a minimum wage hike is a $15 billion tax on businesses that employ low-wage workers. This would discourage the employment of such employees.  An unintended consequence of the bill is that the low-skill workers the bill’s sponsors are trying to help would be the ones most negatively affected. The misnamed Minimum Wage Fairness Act, manifestly unfair to low-skill workers, was introduced by Senator Tom Harkin (D-Iowa) and co-sponsored by 34 Democrats. A similar House bill is sponsored by Rep. George Miller (D-California), again only with Democratic support. The bill would raise the minimum wage over the course of two and a half years, followed by an annual adjustment corresponding to the consumer price index—which is widely-regarded to overstate cost-of-living increases.  The CBO cost estimate follows its February 2014 report, which concluded that half a million workers are likely to lose their jobs if the minimum wage increased to $10.10 an hour. That report actually underestimates possible job losses, because CBO’s estimate of labor elasticity is a low -0.1. The net result of assuming that elasticity is that for any wage increase, CBO would find very few workers losing their jobs. Employers in CBO’s world would hire 96 percent of workers formerly making $7.25 an hour, even when their new wage rose to $10.10. Consumers would face higher prices, but they would not adjust spending down in a substantial manner.  This is unrealistic.

A Million Veterans Would Benefit from a Minimum Wage Increase - Months ago, we released an analysis showing that increasing the federal minimum wage to $10.10 would lift wages for 27.8 million workers nationwide. The one million veterans that would benefit from such an increase are a relatively small segment of this larger group, but the fact that a million former service members would benefit from raising the minimum wage should dispel the persistent myth that raising the minimum wage only benefits teenagers and students from affluent families. Not only is this an inaccurate description of the typical low-wage worker, but the veterans that would get a raise look nothing like this affluent teen stereotype and are, in some ways, noticeably different from the larger population of would-be beneficiaries from a minimum-wage increase. (See the table below for details, or click here for a pdf.)

• Unsurprisingly, the majority of veterans that would be affected by a minimum wage increase are men (80 percent), whereas the majority of the total population (veterans and non-veterans) that would be affected are women (55 percent).

• Veterans who would be affected by a minimum wage increase are significantly older than the total population that would be affected. 40 percent of the veterans that would benefit are age 55 or older, and almost two-thirds are age 40 or older. Of the total population (veterans and non-veterans) that would benefit from an increase, 14 percent are age 55 or older and about 34 percent are age 40 and older.
• Given their older ages, it is perhaps not surprising that veterans who would get a raise are 50 percent more likely to be married than the larger group of workers that would get a raise under a $10.10 minimum wage.
• Veterans who would get a raise tend to work longer hours than the total affected population (59 percent full-time among veterans vs. 54 percent full-time overall).
• Veterans who would be affected by a minimum wage increase also have higher levels of education than the total affected population, with nearly 60 percent of affected veterans having some college experience, compared to 44 percent of the overall affected population.

Minimum wage debate goes local - Judging by the past three months, 2014 is on track to become the year of local minimum wage laws. Campaigns are under way in Richmond, Berkeley and Oakland to join San Francisco and San Jose in setting a minimum wage higher than state law. These are echoed by similar initiatives in Los Angeles and San Diego. The trendsetter, San Francisco, is itself looking to go higher, with a new proposal to raise its minimum wage to $15 an hour. And state Sen. Mark Leno, D-San Francisco, has a proposal to raise the state minimum wage to $13 by 2017. (see Page E7) California is not unique. Cities and states across the country, like Seattle, South Dakota and even Arkansas (the home of Walmart), are looking to either establish or raise their local wage floors, with three states acting just in the last three weeks alone. What's driving this groundswell of local policymaking? At root, it is a response to the profound growth in economic inequality over the past four decades, combined with an equally profound political failure to respond at the federal level. The inequality story has, of course, dominated national headlines, especially the astounding gains of the top 1 percent. But it's worth reviewing the flip side of the coin, namely the growing economic insecurity of working families. Here are three trends that best illustrate their struggles.

State Employment Trends: Does a Low Tax/Right-to-Work/Low Minimum Wage Regime Correlate to Growth? -- It’s interesting how “pro-business” policies do not appear to be conducive to rapid employment growth. Employment in Governor Walker’s Wisconsin, as in Governor Brownback’s Kansas, has lagged behind that of the United States (and behind that of Governor Dayton’s Minnesota and Governor Brown’s California).  Notice that Kansas and Wisconsin, ranked 15th and 17th in terms of the ALEC-Laffer “Economic Outlook Rankings”, are doing equally badly relative to US employment growth. In contrast, Minnesota (ranked 46th) is outperforming the United States and those two states. The cumulative employment gaps are 0.021 and 0.019, since 2011M01 (inaugurations of Governors Brownback, Walker and Dayton). The ALEC-Laffer methodology equally weights 15 measures: Top Marginal Personal Income Tax Rate, Top Marginal Corporate Income Tax Rate, Personal Income Tax Progressivity, Property Tax Burden, Sales Tax Burden, Remaining Tax Burden, Estate/Inheritance Tax Levied, Recently Legislated Tax Changes, Debt Service as a Share of Tax Revenue, Public Employees Per 10,000 of Population (full-time equivalent), State Liability System Survey (tort litigation treatment, judicial impartiality, etc.), State Minimum Wage, Average Workers’ Compensation Costs (per $100 of payroll), Right-to-Work State (option to join or support a union), and Number of Tax Expenditure Limits.  What about California? It is ranked 47th by ALEC-Laffer, and yet is doing the best in terms of employment amongst the four states. This does not deny the relevance of these indices, but for sure the correlation of the index with performance is not obvious to me. (These rankings are persistent — in 2012, Kansas and Wisconsin were ranked 26 and 32 respectively, while Minnesota and California were 41 and 38 respectively.) So, the higher the ranking according to Arthur Laffer, Stephen Moore (currently chief economist of Heritage), and Jonathan Williams, the poorer the employment growth.

Why won’t President Obama pay his interns? - As many employees of the federal government look forward to a higher minimum wage, many in the halls of the White House itself won’t see a dime. As a White House executive order allows millions of employees to start receiving overtime pay, many at 1600 Pennsylvania Ave. still won’t be paid at all. As President Obama continues to push an economic equality agenda, about one hundred and fifty summer laborers in his own office — and hundreds of thousands like them outside it — won’t be included: the unpaid interns. So long as participants in the White House Internship Program remain unpaid, the president not only perpetuates hypocrisy but also loses an opportunity to lead a shift in labor practices throughout the country. The costs of an internship, particularly ones in the nation’s highest office, might seem innocuous — but today that’s far from the case. To start, those taking an unpaid internship in cities like Washington can expect to spend $4,000 or more on rent and basic expenses while they work for free for three months. And the costs go beyond the simply monetary: While the White House has championed women’s equality and nondiscrimination in the workplace, unpaid interns have little to no legal protections against workplace sexual harassment and discrimination, specifically because they are not paid.

Are Stores Making Bank Off Food Stamps? --How much of Walmart’s revenue comes from its shoppers’ food stamps? The store isn’t required to say. But a January Court of Appeals ruling could change that. If the unanimous decision by the Eighth Circuit’s panel of three judges holds, the United States Department of Agriculture will be required to release data indicating exactly how much of the Supplemental Nutrition Assistance Program’s $80 billion in annual sales is paid to specific retailers and to individual stores. The issue, said Irene Wielawski of the Association of Health Care Journalists, which has been outspoken about the case, “isn’t conservative, it isn’t liberal. It’s an issue of: The government collects all this data. Who’s making money off the food stamps program?” The Argus Leader, a Sioux Falls, South Dakota, paper, brought suit against the USDA in 2011 after the agency denied a Freedom of Information Act (FOIA) request seeking data on USDA’s annual payments to grocers, gas stations, and other retailers in the SNAP program.  USDA argued that under federal code, specific details about SNAP revenue should be considered private business information. In the appeals court opinion, Chief Judge William Jay Riley held that the USDA had misread the code, and issued a decision in favor of the Argus. The agency has until April 28—90 days from the January decision—to file an appeal with the U.S. Supreme Court. If USDA does not file an appeal, the case will likely return to the District Court.

Most Expensive States Meet Most Stupid Infographic -- Aside from the fact, as the associated article spends its first several paragraphs admitting, that it’s monumentally stupid to consider DC, which is a tiny city, a state for the purposes of this comparison the chart massively overstates the disparities between top and bottom. The top five states (outside of D.C.) were Hawaii, New York, New Jersey, California and Maryland, and the bottom five states were Mississippi, Arkansas, Alabama, Missouri and South Dakota. So, it costs 36% more to live in Hawaii than in Mississippi. The spread between the cheapest state and the most expensive is a little over a third. But the chart makes it look like the difference between Burundi and Qatar. Indeed, the price disparities across the United States are actually much, much less than I would have guessed. Even at the metropolitan area level, Honolulu, Hawaii, the most expensive in the country, is only 54% more expensive than Danville, Illinois, the least expensive.

Idaho payday loan interest rates highest in nation at 582% - Idaho has the highest payday loan interest rates in the nation at 582 percent, according to a new study by the Pew Charitable Trusts. The news comes after a payday loan reform bill that contains no caps on interest rates passed the Idaho Legislature this year amid much controversy; opponents said the bill, backed by major payday lenders, didn’t go far enough to reform the business in Idaho. “Why not require lenders to offer a loan that fits within a borrower’s ability to repay from the start?” asked Nick Bourke, project director for the Pew Trusts. “We know through lots of research that … the vast majority of payday loan borrowers renew or repeat the loans for almost half the year. … We know that’s the problem.”

City to Pass Law Allowing Cops to Seize Homeless People's Belongings -- Messing with homeless people's property is a time-honored tactic used by cities across the U.S. to deal with homelessness by bullying the homeless until they go elsewhere. Police often threaten to confiscate homeless people's things, and cities sometimes bulldoze over their encampments, leading to a loss of essential items like medicine or documents. Ft. Lauderdale, Florida is about to codify the total disregard for the property rights of the homeless into law. As Scott Keyes writes in Think Progress, the city is close to passing a measure that would prohibit keeping personal items in public. Police would be able to seize personal belongings after a 24-hour notice, but if they decide the materials pose a threat to public safety, health or welfare, officers can take them without prior notice and just leave a note. The city keeps confiscated property for 30 days (7 days if it's deemed a safety risk). Anyone who wants their things back before they're disposed of must prove ownership and compensate the city for its trouble, paying  “reasonable charges for storage and removal of the items,” according to the language of the measure (the fee could be waived if they prove they can't pay it).  As Keyes points out, the city cites its "interest in aesthetics" as one justification for the measure. The importance of pleasing visuals aside, opponents point out that homeless people don't choose to keep their stuff in public to mess up the scenery but because they don't have homes to store it.

Puerto Rico considers legalizing marijuana and prostitution to jumpstart economy -  After suffering eight years of recession, Puerto Rico is contemplating more than a hundred different proposals intended to jumpstart its sagging economy – including legal prostitution and marijuana use. Considering the commonwealth’s dire situation – according to Fusion.net, unemployment is at 15 percent, while 45 percent of the population is living in poverty – lawmakers have been accepting proposals from all comers, including the general public. Nearly 370 different ideas to dig the government out of $70 billion in debt were submitted, and lawmakers have picked out 156 of them for further consideration. According to the Associated Press, the proposals range from eliminating various government agencies to cutting down the number of public holidays.  As for legalizing prostitution and marijuana, the government committee in charge of considering the proposals will also be taking a look at both of these options. “We are studying all alternatives and all possibilities,” Sen. Maria Teresa Gonzalez said to the AP. “Change always brings inconvenience. I’m convinced that before we talk about something as dramatic and disastrous as layoffs, we have to consider other ideas.”

Wealthy Sports Team Owners Want Taxbreaks to Go on Forever -  Every sporting event comes to an end, even if it requires extra innings or overtime. But the billionaire owners of pro sports teams now want the welfare they collect from taxpayers to go on forever.  A key test of this new page in their playbook comes in a May 6 vote in Cleveland, which the Census Bureau lists as the second-poorest large city in America. A ballot measure there and in surrounding Cuyahoga County would extend taxes first imposed in 1990 until 2035 to benefit the city’s three pro teams: the Browns (football), Cavaliers (basketball) and Indians (baseball). The taxes are small levies on alcoholic drinks and tobacco—everyone in the area who drinks beer, wine or hard liquor or uses tobacco pays, even if you never attend a game.  Something like that sports tariff is being levied all across America. The 132 major pro sports franchises have been collecting about $2 billion a year in subsidies, Field of Schemes author Neil deMause estimated for Congress in 2007. That money has mostly been used to cover 80 percent of the cost of new stadiums, but with their appetite for welfare whetted, team owners now want to keep the tax dollars forever flowing into their coffers. Pro franchises in Milwaukee; Miami; Cincinnati; Charlotte, N.C.;  Oakland, Calif.; St. Louis and many other cities are also seeking more public  dollars. Every town has a different story, but the game is the same. Some teams want taxes imposed or extended. Others seek free rent for a stadium or arena, free upgrades of scoreboards—which cost up to $30 million—and other benefits.

Report: Property Tax Collections above Pre-Recession Peak -  From Bloomberg: Property-Tax Collections Rising at Fastest Pace Since U.S. Crash Property-tax collections nationally rose to $182.8 billion during the last three months of 2013 ... according to a U.S. Census estimate last month. That topped the previous peak four years earlier ... In cities including San Jose, Nashville,  Houston and Washington, revenue from real-estate levies has set records, or is poised to.  Local governments are using the money to hire police, increase salaries and pave roads after the decline in property values and 18-month recession that ended in 2009 forced them to eliminate about 600,000 workers ...Here is the report from the Census Bureau: Quarterly Summary of State and Local Government Tax Revenue for 2013:Q4 This graph from the Census Bureau report shows Q4 property taxes since 2003 - and property taxes have increased slightly in Q4 2013 and are back to the pre-recession peak. This another data point suggesting that aggregate layoffs are over at the state and local level.

6 Reasons Why Obama’s Clemency Program For Drug Offenders Doesn’t Change Mass Incarceration One Bit - Black Agenda Report - It's all over the internet. The Obama administration is talking up the possibility of using presidential clemency powers to release some undetermined number, perhaps hundreds or even thousands of federal prisoners without wealth or political connections from their unjustly long drug sentences. But hold your hosannas, don't get your hopes up. Though the precise numbers are unclear at this time, what's unmistakably evident is that this is in no sense whatsoever the beginning of a rollback of America's prison state. The releases, as the attorney general and government officials are describing them, will not represent any significant or permanent change to the nation's universal policy of mass incarceration, mainly of poor black and brown youth. Here, in plain English are 6 reasons why:

With Philadelphia Shortfall, Schools Face Renewed Cuts  --A $216-million budget shortfall could force Philadelphia’s public schools to make further staffing cuts next year, school officials said on Friday. The superintendent of schools, William R. Hite Jr., said the 131,000-student district would not have the money it needed to maintain existing levels of education that he said were already “wholly insufficient” after a $304-million budget cut at the start of the 2013-14 school year.The district, which has had chronic budget problems, laid off some 3,800 employees as a result of that cut. Although about a quarter of those employees were rehired as some funding was restored, about 2,350 jobs could be eliminated next year unless the district finds funding to bridge its new shortfall, Dr. Hite said.“The outlook is just as bleak without significant investment from our funding partners,” he said at a news conference Friday after the district published its proposed budget for 2014-15. “Unfortunately, the reality is that we are still trying to get the $216 million that we need to keep the level of insufficient funding that we currently have this year.”

you want to know what's wrong with Common Core?  -- How about you take a look at ten minutes of video. David Coleman lead the language arts team for Common Core, even though he has never been a teacher. Due warning - Coleman is now head of the College Board, and in that capacity responsible for both the SATs and the Advanced Placement examinations. Thus how he approaches things will carry inordinate weight in shaping education for America's future. So take a look, and then see what you think.

Math and Science Pay, But High Schoolers Care Less - Math and science are the peas and carrots of the jobs market: great for a career future, but resolutely unpopular with the young. Even amid a relatively weak jobs picture, fewer U.S. high school students are taking up fields of study with proven earnings potential than was the case a decade ago. That has translated into a chronic shortage of workers schooled in science, technology, engineering or mathematics, according to researchreleased Wednesday. The STEM Index, developed by U.S. News & World Report and Raytheon, found the number of American jobs requiring math or science knowledge increased to 16.8 million last year from 12.8 million in 2000. Yet during the same period, U.S. high-school students’ interest in those subjects declined—and now stands below 2000 levels. The findings are “both surprising and kind of depressing,” said Brian Kelly, editor and chief content officer of U.S. News & World Report. The index is based on data from the Bureau of Labor Statistics, the College Board, the National Center for Education Statistics and other sources. The trend has bedeviled many employers since before the most recent recession. A work force with inadequate STEM training “really is the big issue of our time,” said Steven Goldthwaite, chief executive of Metem Corp., a parts maker for the aerospace and power-generation industries. “I know from other CEO colleagues, it’s a constant source of discussion: ‘How do we find these skill levels?’ ”

College Enrollment Continues Post-Recession Decline -- Fewer high school graduates are enrolling in college following the recession, according to a Labor Department report Tuesday. Nearly 3 million people between ages 16 and 24 graduated from high school between January and October last year, the report found. Of that group, 1.96 million – 65.9% — were enrolled in college in October. That was the lowest rate in a decade and was down from 66.2% the prior year, the agency said.The Labor Department’s figures come as a separate report out Tuesday found that more people are earning post-secondary degrees. By 2025, 60% of Americans will hold a degree, certificate or other post-secondary credential, according to the annual Lumina Foundation’s “A Stronger Nation” report. The Labor Department report also measured the number of high school graduates with a job or who are looking for work.Fewer college students were juggling jobs with their studies last year. In October, 34.1% of college students were working or looking for a job. That was the lowest figure in at least two decades, the agency said. In 2012, just over 38% of college students had a job or wanted one. Recent high school graduates who were not enrolled in college were nearly twice as likely to be working or looking for a job. That figure stood at 74.2% in October 2013, compared with 69.6% in 2012.

New BLS Data Show College Enrollment Rates of Recent High School Grads Have Been Dropping Since 2009 -- In this recent post, I pointed out that after increasing for decades, college enrollment rates have dropped since 2012. The data in that post are college/university enrollment rates for people age 20-24—I used those ages because they are very easy to get from the BLS site. This morning, BLS released their annual report on college enrollment and work activity of recent high school grads.  The figure shows college enrollment of recent high school graduates (specifically, it’s the college enrollment rate in October 2013 of people age 16-24 who graduated from high school earlier the same year).  The data are volatile year to year, but they show that college enrollment of brand new high school graduates has been dropping since 2009.  This is a worrisome trend, particularly to the extent that it is due to students being unable to enter college because the lack of decent work in the weak recovery meant they could not put themselves through school or because their parents were unable to help them pay for school due to their own income or wealth losses during the Great Recession and its aftermath.  Falling college enrollment indicates that upward mobility may become more difficult for working class and disadvantaged high school graduates. In a couple weeks, we will release our annual “Class of …” report, which will detail the labor market prospects of new high school and college graduates. (Here is last year’s report.) In this report, we investigate the drop in enrollment, including the fact that dropping enrollment rates at a time when employment is not increasing very strongly means that a larger share of young people are “disconnected”—i.e. not enrolled and not employed. This represents an enormous loss of opportunities for this cohort that will have long-term scarring effects on their careers.

Two In Five Americans Now Earn Degrees After High School - The steady increase in the proportion of Americans earning degrees after high school graduation continued in 2012 for the fifth straight year, according to a new report. The jump to 39.4% is an increase of 0.7 percentage point over 2011, according to the annual Lumina Foundation report “A Stronger Nation.” That marked the largest one-year gain in the last five years since the foundation started tracking the figure. The report indexes education completion of Americans 25 to 64 years old. “The message about the need for attainment is getting out,” said Lumina president Jamie Merisotis. “People understand the salary and wage” implications. Educational attainment remains deeply impacted by race and geography. While 44% of whites and 59% of Asians have a post-secondary degree, just 20% of Hispanics and 28% of blacks have one. Among the 25 largest metropolitan areas, the five with the highest proportion of adult residents with post-secondary degrees are Washington, D.C. (55%), Boston (54%), San Francisco (53%), Minneapolis (51%) and Seattle (48%). Mr. Merisotis believes two trends are driving much of the uptick: The first is competency-based education, which can award academic credit to students for skills they have already mastered. This allows students to move at their own pace. The second is performance-based funding, which some states are employing to reward schools with superior results in categories like graduation and retention rates.

Amid Affirmative Action Ruling, Some Data on Race and College Enrollment - The Supreme Court’s affirmative-action ruling Tuesday said that states may end racial preferences at public universities. What are the numbers behind race and college enrollment? Data from the National Center for Education Statistics suggest that there has been a convergence among races going to college in recent years. But though there has been progress in equal representation in college for high-school graduates of different races, affirmative action can only help with one barrier to higher education. The high-school graduation rates for black and Hispanic students remain low and there are growing disparities by income. College-enrollment rates by race: Among all high-school graduates, about 67% went to either a two- or four-year college, according to the most recent Digest of Educational Statistics prepared by the Education Department. That number is a three-year moving average for 2012 that aims to smooth out annual volatility. Breaking it down by race, 69% of Hispanic high-school graduates, 67% of white graduates and 62% of black graduates went on to college in 2012. More than 80% of Asian graduates enrolled in a higher-education program.

"It's Impossible To Work Your Way Through College Nowadays" -- "It's impossible to work your way through college nowadays"...is the hard-to-swallow (but not entirely surprising) conclusion of Randal Olson's research into just how extreme national tuition costs have become in the US. As The Atlantic notes, the economic cards are stacked such that today’s average college student, without support from financial aid and family resources, would need to complete at least 48 hours of minimum-wage work a week to pay for his courses. To better measure the cost of tuition, Olson links to a Reddit discussion of cost per "credit hours" -  MSU calculates tuition by the "credit hour," the term for the number of hours spent in a classroom per week. By this metric, which is used at many U.S. colleges and universities, a course that's worth three credit hours is a course that meets for three hours each week during the semester. If the semester is 15 weeks long, that adds up to 45 total hours of a student's time. The Reddit user quantified the rising cost of tuition by cost per credit hour: This is interesting. A credit hour in 1979 at MSU was 24.50, adjusted for inflation that is 79.23 in today dollars. One credit hour today costs 428.75.   In 1979, when the minimum wage was $2.90, a hard-working student with a minimum-wage job could earn enough in one day (8.44 hours) to pay for one academic credit hour. If a standard course load for one semester consisted of maybe 12 credit hours, the semester's tuition could be covered by just over two weeks of full-time minimum wage work—or a month of part-time work. A summer spent scooping ice cream or flipping burgers could pay for an MSU education. But today, it takes 60 hours of minimum-wage work to pay off a single credit hour, which was priced at $428.75 for the fall semester.

College is not a losing investment - - College enrollment is dropping again — and that’s a bad thing. A Labor Department report released this week finds that the share of young people enrolled in college by the October after they graduate from high school has tumbled in the past few years. From a high of 70.1 percent in 2009, it was down to 65.9 percent in 2013. Other reports have found similar declines in enrollment for the entire universe of college students, not just those coming directly out of high school.   No doubt many pundits will celebrate this news. The previous swells in postsecondary enrollment, driven partly by the lackluster job market, brought frequent calls of a “college bubble.” Just as the government subsidized too much homeownership, the argument goes, it’s also been subsidizing too much higher education. Many can’t find jobs, or they find jobs that don’t require a bachelor’s degree. But here’s why college is still worth it, and still worth subsidizing.Even though unemployment rates for young college grads seem high — especially in the first few months after graduation — they’re still much lower than they are for people without degrees. According to Labor Department data, the unemployment rate for Americans ages 20 to 29 who have a bachelor’s degree was 5.8 percent in 2013. In that same age group, among people with no education beyond a high school diploma, it was 14 percent.  And for those who do find work, the wage premium for higher education has grown over time. In 1979, among full-time workers of all ages, the median college graduate earned 38 percent more than did the median high school graduate; today the college-educated worker earns about 82 percent more. College is, as the Hamilton Project has pointed out, one of the best possible investments you can make, outperforming stocks, gold, long-term Treasurys, AAA corporate bonds and housing. That’s true for both a four-year degree and even more so for an associate’s degree.

Law School Trustee’s Company Chills Critical Speech With Subpoena For Students’ Personal Emails -- A New York University trustee has found a way to chill speech critical of him and the companies he owns: subpoena the personal emails of two particularly outspoken opponents. A New York University Law trustee's company wants two students to hand over their personal emails after they circulated a letter criticizing him, according to a subpoena. The law students, second-year Luke Herrine and first-year Leo Gertner, were targeted after they helped circulate a letter denouncing NYU Law School trustee Daniel Straus, who owns Care One Management, a home health aide and nursing home company embroiled in a labor dispute.  The two students started a petition asking for the removal of Straus from the Board of Trustees, pointing out that a law school should probably be associated with someone who respects the law, something Straus' companies seem to have trouble doing. His two companies, CareOne and HealthBridge Management, have been cited at least 38 times by the National Labor Relations Board for violating federal labor laws. In addition, HealthBridge was held in contempt of court for refusing to allow 600 workers to return to their jobs at their pre-strike pay levels.  CareOne's current legal battle with a local labor union, Service Employees International Union (SEIU), something that has dragged on for years at this point, has seemingly turned into a convenient way for Straus to get back at his critics. Of course, CareOne claims otherwise.

U.S. agency urges change in student loan default rules  -- Some people who pay private student loans on time are being placed in default when the co-signer of their loans dies or declares bankruptcy, the Consumer Financial Protection Bureau said in a report due out today. These "auto defaults" force borrowers to either immediately repay the full loan balance or ruin their credit, hurting their chances of getting a job, renting an apartment or buying a car. The practice occurs in the private student loan market in which banks and other financial firms provide education financing. Private loans generally carry higher interest rates and fewer protections than federal loans, and borrowers are often required to have someone else co-sign the agreement to ensure repayment. In its mid-year report on student loan complaints, the consumer bureau highlighted grievances that have emerged with more than 90 percent of private loans now being co-signed. Chief among the 2,300 complaints about private student loans submitted to the bureau in the past five months was the triggering of a default by the death or bankruptcy of a co-signer, even if the loan was being paid on time. To ease the burden on borrowers, the CFPB recommends that lenders consider alternatives to these defaults, such as giving the borrower the chance to find another co-signer. The bureau issued a set of sample letters that consumers could use to petition lenders to release a co-signer from the contract

Flood Of Students Demanding Loan Forgiveness Forces Administration Scramble -- "Loan forgiveness creates incentives for students to borrow too much to attend college, potentially contributing to rising college prices for everyone," is a study's warning over government plans that allow students to rack up big debts and then forgive the unpaid balance after a set period. As WSJ reports, enrollment in student debt forgiveness plans have surged nearly 40% in just six months, to include at least 1.3 million Americans owing around $72 billion. The administration is looking to cap debt eligible for forgiveness, as President Obama's revamped Pay As You Earn scheme has seen applications soar and is estimated to cost taxpayers $14bn a year. The 'popularity' of the student loan bailout plan surged after Obama promoted it in 2012, and now the administration must back-track as costs have massively outpaced government predictions.

Student Loans Can Suddenly Come Due When Co-Signers Die, a Report Finds -  For students who borrow on the private market to pay for school, the death of a parent can come with an unexpected, added blow, a federal watchdog warns. Even borrowers who have good payment records can face sudden demands for full, early repayment of those loans, and can be forced into default.Most people who take out loans to pay for school have minimal income or credit history, so if they borrow from banks or other private lenders, they need co-signers — usually parents or other relatives. Borrowing from the federal government, the largest source of student loans, rarely requires a co-signer.The problem, described in a report released Tuesday by the Consumer Financial Protection Bureau, arises from a little-noticed provision in private loan contracts: If the co-signer dies or files for bankruptcy, the loan holder can demand complete repayment, even if the borrower’s record is spotless. If the loan is not repaid, it is declared to be in default, doing damage to a borrower’s credit record that can take years to repair. The bureau said that after a co-signer’s death or bankruptcy, some borrowers are placed in default without ever receiving a demand for repayment. The agency did not accuse loan companies of doing anything illegal. Rohit Chopra, the bureau’s student loan ombudsman, said that he did not know how common the practice was, but that a steady stream of consumer complaints indicated it was becoming more frequent. He also said companies appeared to be doing it more or less automatically, combing public records of deaths and bankruptcies, comparing them to loan records and generating repayment demands and default notices. What makes the “auto-defaults” odd is that they do not benefit the loan servicers and lenders, who usually go to some lengths to avoid putting loans into default. A number of investment funds sell securities backed by student loans, and Mr. Chopra said it was not clear whether forcing early repayment and defaults might be tied to the terms of those securities.

The Next Massive Bailout: Student Loans - A few years ago, I began interviewing adults at least 10 years out of college and who had never managed to pay off their student debt. Some were past the age of 50 and headed slowly but surely for personal bankruptcy. Sadly, their stories were as common as they were upsetting. Not much has changed. Outstanding student loans continue to balloon, and they now total $1.2 trillion nationally, according to the Consumer Financial Protection Bureau. Among students graduating in 2012, 71% had student loans averaging $29,400, according to a report from the Project on Student Debt. So while today’s grads may be part of the most educated generation in history they are also the most indebted twentysomethings the world has ever seen. This isn’t good. Young people should be buying cars and setting up households—not boomeranging home to Mom and Dad and dedicating their income to loan repayment. Household formation is half the rate it was seven years ago, and most of that is due to the drag of student debt, the CFPB has concluded.Government is trying to address the problem. There has been talk of refinancing student debt at lower rates. But that discussion has largely stalled. President Obama is pushing for a new funding model, where the amount of student financial aid available to universities is tied to things like their graduation rate and the initial salaries of their graduates. But the rating system, which might eventually hold tuition hikes in check, is at least a year away.

San Bernardino Battles Calpers Pension Demands - — When this bankrupt, working-class city took the unprecedented step in 2012 of stopping its required pension contributions — arguing that it could not otherwise make payroll — other financially stressed California cities took notice: Could San Bernardino defy Calpers, the powerful agency that administers the state’s huge pension system?The resistance ended last year when the city resumed its payments. But now, with a mayor who swept into office last month promising to deal once and for all with skyrocketing pension costs, San Bernardino is in another fight with Calpers that could embolden other municipalities seeking relief from crippling payments to the nation’s largest public pension system.At issue is the $17 million in back payments and penalties that San Bernardino failed to make between declaring bankruptcy in August 2012 and resuming payments in July. Calpers has maintained that it is owed in full. But now in bankruptcy negotiations, the city is hoping to pay only a fraction of that, arguing that the city’s creditors must all share in the bankruptcy pain. The amount may be small, given the system’s assets, but if San Bernardino gets a reduction, the precedent could be huge, opening the door to other struggling municipalities using bankruptcy law to justify delaying or withholding payments to the pension system.

CalPERS Told Obvious Big Lies in Its Response to Our Private Equity Investigation -  Yves Smith  - By way of background, last September, we filed a Public Records Act request (California’s version of FOIA) for private equity return data that CalPERS had not previously published.  For more background, see this post. Note that in California, 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. So it seemed that our PRA request should be straightforward. Silly us. You can find the blow-by-blow of CalPERS’ inconsistent actions and disconnect between its statements (that it was cooperating) and its actions (delivering records that fell well short of what we’d asked for) here and here. We wrote a post on a remarkable, and not in a good way, press release that CalPERS issued about our suit, in a post titled CalPERS Tries Ineffective Mudslinging in Response to Our Ongoing Private Equity Investigation. The short version is that the press release was extremely inept as well as inaccurate. Generally speaking, a large institution should not deign to notice critics, and when they do, they should above all retain their dignity while trying to tell their version of the situation. But their press release was screechy, defensive, and tried to engage in character assassination.  But we didn’t address the most ham-handed falsehood that CalPERS presented in its press release, since we wanted to see if it might be repeated in some way by opposing counsel in its filings. Since each side has now provided its initial arguments for our hearing on May 2, we though we’d fill you in on a critical tidbit we held back.

Vital Signs: Most Americans Worry about Retirement - Almost three out of five Americans are worried about having enough gold for their golden years. A poll released by Gallup Tuesday shows 59% of respondents were very or moderately worried about having enough money for retirement. That has been the top financial concern since the turn of the century. The second and third concerns are not being able to pay medical bills in the event of a serious illness or accident and having enough money to maintain one’s current standard of living. The percentages of those worried about these financial issues have come down from the recession, but they still show “saving for retirement disquiets Americans in both good and bad economic times,” the report said. Importantly, it’s not just baby boomers who are worried about their fast approaching retirement years. A large 70% of persons aged 30-49 years are worried and even 50% of young adults aged 18-29 years are concerned. The report noted President Obama proposed a new retirement savings account in his State of the Union address for working adults. That’s one piece of evidence that as the report said, shows the need for more retirement savings “is considered a matter of national importance.”

More Misdirection from Rampell in the Service of Generational War - In my last post, I took issue with a recent column by Catherine Rampell, who tries to make the case that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them. Rampell relies on an Urban Institute study to make her case. Since that post, she’s offered another that replies to some of the questions raised by commenters on her earlier effort. I’ll reply to that new post shortly, but first I want to present key points emerging from my analysis of Federal monetary operations in my reply to her earlier post. See that post for the full argument. First, once Congress mandates spending, there is no way that the Treasury can be forced into insolvency or an inability to pay its obligations as long as it is willing to make use of all the ways it can cause the Fed to create reserve credits in Treasury spending accounts which can then be used for its reserve keystroking into private sector account activities that today represent most of the reality of Federal spending. Second, there is no way, in the Federal Government spending context, to link any specific category of tax revenues or FICA contributions to benefit spending. There is no way to accurately say that this tax pays for that spending. Or that this spending is “paid for” by that tax. Or that millennials, and other age cohorts, are paying for seniors’ entitlement benefits, or for the difference between what seniors’ payments were before they began to receive benefits and what they are getting paid afterwards. Third, the whole neoliberal construction of Government finance, which assumes that the Government is a currency user with limited financial resources, is false. The Government (including Congress, the Treasury, and the Fed) is a high-powered money creator of reserves, currency, and coins. It is the only high-powered money creator. It is the high-powered money monopolist.

It’s getting even harder to justify not expanding Medicaid -  One of the reasons that many states have argued that they should refuse the Medicaid expansion is because they fear the “woodwork” effect. People who were previously eligible for Medicaid, and now want it, aren’t covered 100% by the federal government like those who are newly eligible. States have to pay for 25% – 50% of their Medicaid costs, which could get expensive. Of course, they could be on the hook for these payments even if they didn’t expand Medicaid, but most have ignored that point. Regardless, the CBO, in its latest revision, argued that fewer people are coming out of the woodwork than expected. This means that the projected state share of the Medicaid expansion is even lower than previously thought. Here’s a nice chart from the CBBP: That’s not even the whole story: CBO’s estimate of the impact of the Medicaid expansion and other health reform coverage provisions on state budgets is, as noted above, only a partial estimate — because it only reflects the impact on state expenditures for Medicaid and CHIP.  The CBO estimate does not reflect the substantial savings that states and localities taking the expansion will realize from no longer having to bear the costs for various health services they were providing to large numbers of people who were previously uninsured but now have Medicaid coverage.  The Urban Institute has estimated that if all states took the Medicaid expansion, states would save between $26 billion and $52 billion in this area from 2014 through 2019, while the Lewin Group has projected state and local savings of $101 billion.  Plus, you know, millions of people will get health insurance. I’m just saying.

Male Doctors Bill Medicare for More Services Than Female Doctors -- Via German Lopez, today brings us an interesting study from Andrew Fitch of NerdWallet. Long story short, he finds that male doctors get paid a lot more by Medicare than female doctors. Obviously there are several reasons for this. Chief among them: Higher paid specialties tend to be dominated by men, and men see more Medicare patients than women. But here's the most interesting bit:

• Male doctors perform more services per patient treated.  To explore this, NerdWallet Health devised a metric to calculate a physician’s average “service volume” per patient. We found that male doctors billed Medicare, on average, for one more procedure per patient than female physicians (5.7 services performed per patient by male doctors vs. 4.7 services per patient by female doctors).
• This gap in service volume is true across specialties. Male doctors performed more services per patient than female doctors across nearly all specialties. In a specialty like pathology — where doctors infrequently provide services directly to patients — we found no variation in average service volume.

On average, male doctors bill 5.7 services per patient vs. 4.7 for women! That's a huge gap. And it's not just that cardiologists tend to bill for more services than, say, pulmonologists. Even within specialties, men bill for more services than women.

How Obamacare Leaves Some People Without Doctors: - In January, a doctor told Noam Friedlander, who was suffering from excruciating lower back pain, that she needed surgery to remove part of a severely herniated disc.  But when she started to call surgeons covered by Blue Shield, she ran into a roadblock. Surgeons who were covered by her insurance operated out of hospitals no longer covered by her insurance -- or vice versa. Friedlander spent days on the phone, hours on hold, making dozens of calls across Southern California, trying to match a surgeon with a hospital that would both be covered. In total, she reached out to 20 surgeons and five hospitals.  Unable to match a hospital and a surgeon that were both covered, Friedlander started haggling between doctors for a cash price for the surgery. In the end, she had to take out two credit cards so she could pay $16,000 out of pocket.  The first national open enrollment period under the Affordable Care Act ended last week, with a total of more than 10 million Americans signing up for public and private health plans through the insurance exchanges created under the law. However, nationwide, about 70 percent of Obamacare plans offer fewer hospitals and doctors than employer-sponsored group plans or pre-ACA individual market plans, according to a study by consulting firm McKinsey & Company released in December. This narrowed number of doctors and hospitals is what Friedlander encountered when trying to match a surgeon and hospital that would both be covered.

Democrats Confront Vexing Politics Over the Health Care Law -  — When Franklin D. Roosevelt established Social Security, he created generations of loyal Democrats.  But President Obama’s Affordable Care Act, the $1.4 trillion effort to extend health insurance to all Americans, is challenging the traditional calculus about government benefits and political impact.Even as Mr. Obama announced that eight million Americans had enrolled in the program and urged Democrats to embrace the law, those in his party are running from it rather than on it, while Republicans are prospering by demanding its repeal.The reasons are complex and layered in the early assessments, but say much about the nation’s political polarization, its shifting fault lines of class and race, and a diminished faith in government.Continue reading the main story Related in Opinion Editorial: How to Run on Health ReformAPRIL 18, 2014 Democrats could ultimately see some political benefit from the law. But in this midterm election, they are confronting a vexing reality: Many of those helped by the health care law — notably young people and minorities — are the least likely to cast votes that could preserve it, even though millions have gained health insurance and millions more will benefit from some of its popular provisions.

Health Care Policy and Marketplace Review: Obamacare Observations From the Marketplace: A few observations from my travels and conversations in the marketplace: About half of the enrollments are coming from people who were previously insured and half are not. When I try to gauge this, I go to carriers who had high market share before Obamacare and have maintained that through the first open enrollment. Some carriers have said only a small percentage of their enrollments had coverage before but health plans only would know who they insured before. By sticking to the high market share carriers who have maintained a stable market share and knowing how many of their customers are repeat buyers, it's possible to get a better sense for the overall market. Other conventional polls have suggested the repeat buyers are closer to two-thirds of the exchange enrollees. The number of those in the key 18-34 demographic group improved only slightly during the last month of open enrollment so the average age is still high. The actuaries I talk to think this issue of average age is made to be far more important than it should be. It is better to have a young group than an old group. But remember, the youngest people pay one-third of the premium that older people pay. The real issue is are we getting a large enough group to get the proper cross section of healthy and sick? The bigger concern continues to be the relatively small number of previously uninsured people who have signed up compared to the size of the eligible group

Forget the spin of eight million sign-ups -- With the announcement late last week that eight million people had signed up for Obamacare, it seemed for a while a new wave of spin was upon us. From the president himself came this: Republicans “can’t bring themselves to admit that the Affordable Care Act is working.” And from Republican House leader John Boehner (via spokesperson) came this: “The White House continues to obscure the full impact of Obamacare.” What’s a reporter to do? Serve up the standard he said/she said mix by repeating the president’s proclamation that eight million sign-ups equals success, and then quote Republican naysayers sticking to their talking points? Simply point out the holes in the White House numbers—lay out what we still don’t know, a point made by much of the media coverage? Or, move on and plow new ground in anticipation of the next open enrollment this fall? My vote is to use the plow and stake out the consumer and business stories that I’ve argued have often been eclipsed by the politics of the moment. Parsing last week’s coverage gave me some specific ideas of where reporters might dig now

Health care site flagged in Heartbleed review - (AP) — People who have accounts on the enrollment website for President Barack Obama's signature health care law are being told to change their passwords following an administration-wide review of the government's vulnerability to the confounding Heartbleed Internet security flaw. Senior administration officials said there is no indication that the HealthCare.gov site has been compromised and the action is being taken out of an abundance of caution. The government's Heartbleed review is ongoing, the officials said, and users of other websites may also be told to change their passwords in the coming days, including those with accounts on the popular WhiteHouse.gov petitions page. The Heartbleed programming flaw has caused major security concerns across the Internet and affected a widely used encryption technology that was designed to protect online accounts. Major Internet services have been working to insulate themselves against the problem and are also recommending that users change their website passwords. Officials said the administration was prioritizing its analysis of websites with heavy traffic and the most sensitive user information. A message that will be posted on the health care website starting Saturday reads: "While there's no indication that any personal information has ever been at risk, we have taken steps to address Heartbleed issues and reset consumers' passwords out of an abundance of caution."

How Much Does the Pace of Growth in Health Spending Matter? - No one really knows how fast, or how slow, federal spending on health care will climb over the next decade or two—but the answer is crucial to the outlook for the budget and the national debt. How much does the pace of growth in health spending matter? Quite a bit, it turns out. After all, health care accounts for nearly 30% of all federal spending these days; twenty years ago, it accounted for less than 20%. This chart shows long-run projections of the federal debt, measured as a share of the economy or the gross domestic product, under four scenarios. With a few tweaks, The black line shows recent Congressional Budget Office projections through 2024 – assuming current laws and policies are unchanged and the economy unfolds as CBO anticipates – and relies on Medicare actuaries for the years after that. This reflects CBO’s recent forecasts for federal health spending, which have been scaled back in light of a slowdown in the pace of increases in Medicare and Medicaid costs. CBO still expects federal outlays for Medicare to climb (partly because more baby boomers will be eligible) and expects faster increases in Medicaid (because it expects benefits per person to rise and more states to expand Medicaid under the provisions of the Affordable Care Act.) Added to all that are the brand-new ACA subsidies for some who buy private insurance on health exchanges. Social Security trust fund) will rise from about 75% of GDP today to 82% of GDP in 2024, and is projected to hit 123% of GDP in 2040. That’s a lot of debt: Before the Great Recession, the federal debt was about 35% of GDP. At the end of World War II, it soared to 106% of GDP but then fell quickly as the economy grew rapidly and the federal government ran surpluses. If, however, federal health spending grows much slower than it has been, say at the same pace as the economy, then the debt burden – the green line – will be substantially lighter. In this scenario, the debt is forecast to be about 112% of GDP in 2040, a good 11 percentage points lower than the current CBO forecast. That amounts to be about $1.9 trillion less debt, measured in today’s dollars.

Acceleration Is Forecast for Spending on Health - - “Changes in the way doctors and hospitals are paid — how much and by whom — have begun to curb the steady rise of health care costs in the New York region,” the article declared. “Costs are still going up faster than overall inflation, but the annual rate of increase is the lowest in 21 years.” Then came the punch line. The article, was published in December 1993, when the so-called managed care revolution promised for a few hopeful years to change the way doctors practiced medicine and curb the breakneck rise in health care costs for good. It is a sobering reminder that the recent improvements could wither away just as they did two decades ago. And that experience undergirds, in part, a fairly ominous forecast by Mr. Chandra, Jonathan Skinner of Dartmouth College and Jonathan Holmes of Harvard that spending on health care, which already consumes nearly 18 percent of the nation’s gross domestic product, will continue to grow 1.2 percentage points faster than the economy over the next 20 years.

Behind the Long-Term Rise in U.S. Health Care Costs - There is ongoing controversy over where U.S. health care costs are headed next. Has the rate of growth slowed, and if so when and why? Did it just slow briefly during the aftermath of the Great Recession and now is speeding up again? Health care expenditures in the U.S. economy were 5% of GDP in 1960, and have risen steadily to 17% of GDP. Of course, if health care is getting a bigger slice of the GDP pie, then other desireable areas of spending, both for households and for government, must be getting a smaller slice. Indeed, the projections for rising health care costs are by far the largest factor that drives the projections of expanding federal budget deficits in the long run.  Louise Sheiner offers some useful "Perspectives on Health Care Spending Growth" in a paper recently written for the Engelberg Center on Health Care Reform at the Brookings Institution. She makes the point that even as health care costs have been rising, public and private health care insurance has been expanding so that Americans have been paying a lower share of those costs out of pocket.

The Stealthy, Ugly Growth of Corporatized Medicine - Yves Smith - Yves here. We’ve written a great deal about Obamacare, since it epitomizes so much about what is wrong with contemporary America: the use of complexity to mask looting, the creation of two-tier systems, the crapification of the underlying service, which in this case is vitally important to society as a whole.  But Obamacare also needs to be recognized as a big step forward in a process that was already well underway, which is to convert the practice of medicine from a patient-oriented to a profit-driven exercise. This is perverse because medicine is so highly valued that medical practitioners almost always enjoy high status and at least decent incomes in most societies. And in societies undergoing breakdown, being a doctor is about the safest place to be, provided you can manage to avoid becoming aligned with the wrong warring faction.  But what is going on in the US is a type of under-the-radar enclosure movement. Doctors historically have been small businessmen, either operating solo or in a group practice. But big corporations see their profits as another revenue opportunity, and have become increasingly adept at making it so hard for them to operate independently that becoming part of the corporatized medicine apparatus looks like the least bad of the available options.  We warned last year that current institutional efforts to regiment doctors undermine the caliber of medical care. It has become distressingly common for HMOs and other medical enterprises to have business-school trained managers putting factory-style production parameters on doctor visits. Outside of foreclosure mills, it’s hard to find similar approaches in other professions. Doctors are already being told of the Brave New World that is about to be visited on them. One account came from Whole Health Chicago. The writer, Dr. David Edelberg, describes a recent presentation by a large insurance company. They’ve apparently been hosting similar sessions with physicians in the Chicago area in large medical practices. Here are the key bits (emphasis original): The health industry hopes that individual medical practices and small medical groups will ultimately disappear from the landscape by being financially absorbed into larger groups owned by hospital systems.

Cost of Drugs Depends on Where You Live -- Now that the Affordable Care Act (ACA, or “Obamacare”) is in full force, insurers no longer can exclude you from coverage because of pre-existing conditions. And, under the act’s provisions, certain preventive services are free. But that doesn’t mean the cost of care doesn’t vary -- a lot. One reason, according to a recent story on the Washington Post’s Wonkblog, is because what you pay for drugs depends on where you live.  The Post used the example of drugs to treat wet macular degeneration, a chronic, age-related eye disease that can lead to blindness. “There is no evidence that the disease varies from place to place,” it said. “But as recent Medicare data show, the way that doctors treat it does, and those choices have huge effects on the U.S. and personal budgets.” This color-coded map demonstrates where doctors are more or less likely to prescribe Lucentis, the most expensive of three drugs for treating macular degeneration. Lucentis costs about $2,000 per dose, Eylea somewhat less and Avastin only about $50. Clinical trials have shown that Lucentis and Avastin are both effective, but Avastin isn’t sold in doses that are convenient to use, so it must be divided. That adds another step, and a small risk of contamination. But is that difference worth $1,950?

Should We Regulate Drug Prices? - Hepatitis C affects 3.2 million Americans; untreated, it leads to scarring of the liver and to liver cancer. Until now, the best treatments cured only about half of patients and often had debilitating side effects. But in December the F.D.A. approved the first in a new wave of hep-C drugs, Gilead’s Sovaldi. This is huge news—not just in medicine but on Wall Street. Vamil Divan, a drug-industry analyst at Credit Suisse, told me, “Sovaldi and the other new hep-C drugs are great drugs for a tough disease.” Sovaldi can cure ninety per cent of patients in three to six months, with only minor side effects. There’s just one catch: a single dose of the drug costs a thousand dollars, which means that a full, twelve-week course of treatment comes to more than eighty grand. For Gilead this is great. Take an expensive treatment, multiply by a huge number of hepatitis-C patients, and you get a very lucrative business proposition. It’s also good news for patients. But it’s a big problem for insurers and taxpayers, who—given that hepatitis-C patients have an average annual income of just twenty-three thousand dollars—are going to end up footing much of the bill. There has been an uproar of criticism. Private insurers blasted Gilead’s pricing strategy; the pharmacy-benefit manager Express Scripts said that it wanted its clients to stop using Sovaldi once an alternative appears. Then, on March 20th, three Democratic members of Congress sent Gilead a letter asking it to explain why Sovaldi costs so much. The letter had no force of law, but it spooked investors by raising the spectre of what they most fear—price regulation.

Only 1% of hepatitis C patients have received a life-saving, new and expensive drug -  Andrew Pollack reports: Record sales of a new hepatitis C drug pushed the first-quarter earnings of Gilead Sciences far beyond expectations, the company reported on Tuesday, but could also heighten concerns about the high cost of the drug, known as Sovaldi, and the ability of the health care system to pay for it. The $2.3 billion in sales of Sovaldi appears to have shattered the previous record for sales of a drug in its first full quarter on the market. It even appears to have already eclipsed the record for first-year sales, at least in the United States. [...] The drug, a pill taken once a day, has a higher cure rate, a shorter duration of treatment and fewer side effects than previous treatments. But Sovaldi, which has a list price of $1,000 per pill, or $84,000 for a typical course of treatment, has become a flash point in a debate over drug prices. [...] “If cost were not a factor, we would want to treat the entire population,” said Dr. Rena Fox, a professor of medicine at the University of California, San Francisco. She said it was frustrating that “we finally get this great treatment and then we withhold it.” Elsewhere in the piece we learn that of the 3-4 million Americans with hep C, at most 30,000 have used Sovaldi. Oh, but let us not ration!

MERS spread by travellers ‘very likely,’ WHO warns -- Countries should be on the lookout for cases of MERS in people returning from Middle Eastern countries affected by the virus, the World Health Organization says in an updated risk assessment of the new coronavirus. The number of known infections has skyrocketed in recent days, with Saudi Arabia alone reporting 48 cases on Wednesday and Thursday. In the 20 months since the world became aware a new coronavirus was infecting people, there has not been a single month where the total cases from all affected countries was as high as that two-day tally.  In the past two weeks alone cases were exported to Greece, Malaysia, Jordan and the Philippines, the global health agency said, warning that the virus may pop up in various parts of the globe carried by people who have been to countries like Saudi Arabia and the United Arab Emirates.  "It is very likely that cases will continue to be exported to other countries, through tourists, travellers, guest workers or pilgrims, who might have acquired the infection following an exposure to the animal or environmental source, or to other cases, in a hospital for instance," Thursday's risk assessment said. The WHO noted that diagnosing cases rapidly may be a challenge because some have mild or atypical symptoms. The man detected in Greece, for instance, did not initially appear to have a respiratory infection. He had a protracted fever and diarrhea, but doctors were suspicious because he had travelled to Greece from Saudi Arabia. The man developed pneumonia while in hospital.

Vials of deadly SARS virus 'go missing' in France - More than 2,300 tubes containing samples of the potentially deadly SARS virus have gone “missing” from a high-security laboratory at the Pasteur Institute in Paris. The research body insists there is no cause for alarm as the samples have “no infectious potential”, but it has filed a complaint against “persons unknown” in an attempt to resolve the mysterious disappearance. Severe acute respiratory syndrome, or SARS, is a contagious respiratory illness that first appeared in China in November 2002, when it killed 775 people and infected around 8,000. There has been no known transmission of SARS anywhere in the world since 2004. During a recent inventory researchers at the Pasteur Institute, which was among the first to isolate HIV in the 1980s, discovered they had lost some 2,349 vials containing samples of the SARS virus. Unable to locate the samples, the body called in France’s drug and health safety agency, to help with the search. Inspectors from the Agence nationals de sécurité du medicament et des products de santé conducted a four-days “in depth” investigation from April 4th-12th but have so far been unable to resolve the mystery.

U.N. Struggles to Stem Haiti Cholera Epidemic - For three years, the United Nations has refused to address whether its peacekeepers brought a deadly strain of cholera to Haiti, insisting instead that it was more important to help the country stanch the disease once and for all.But on that score, it is still very far behind. In some ways, Haiti is even less equipped to tackle cholera than it was three years ago.The United Nations raised barely a fourth of the $38 million it needed last year to provide lifesaving supplies, including the most basic, like water purification tablets. Clinics have run short of oral rehydration salts to treat the debilitating diarrhea that accompanies the disease. Some treatment centers in the countryside have shut down as the aid groups that ran them have moved on to other crises. And a growing share of patients are dying after they finally reach hospitals, according to the United Nations’ own assessments.  Josilia Fils-Aime, 11, who lives in this village on an isolated spit of land near the Artibonite River, where the epidemic first began, knows these shortcomings all too well. Her family had run out of water purification tablets, and she drank water from what must have been a polluted stream nearby.“I felt dizzy and sick,” the girl said. She was struck by sudden vomiting and diarrhea. Doctors diagnosed cholera.Her predicament has multiplied across Haiti, which has had the most cholera cases in the world for three years in a row.

Cuts and Shutdowns Are Hurting Science - On Oct. 1 last year, the U.S. federal government shut its doors after Congress failed to pass a budget. For 16 days, around 800,000 government employees twiddled their thumbs. Many of them were scientists.  The shutdown was the culmination of months of turmoil, which started in March when politicians failed to agree on a deficit reduction plan, triggering public spending cuts totaling $85 billion. Most federal science programs were slashed. In the latest issue of Index on Censorship, the international freedom of expression magazine, Gretchen Goldman of the Union of Concerned Scientists discusses the impact on the scientific community. Eleven days into the shutdown, the UCS asked 20,000 of its members how it had affected their work. Scientists at all levels of seniority responded with stories of frustration and obstruction. From these responses, Goldman argues that the double whammy of cuts and shutdown had a major effect on scientists' right to free speech. Researchers reported all kinds of problems: once-in-a-lifetime trips or funding opportunities being missed, laptops being confiscated, access to laboratories and email being blocked, vital data sources being cut off, and peer review and journal publication being delayed.

Bug reducing Florida orange crop - A gnat-sized insect, the Asian citrus psyllid, forced Dean Mixon to replace about 1,000 orange trees in the past two years on the 50-acre Florida farm his grandfather started in the 1930s. The bug spreads a disease called citrus greening, causing fruit to shrink and drop early. . “Young trees can’t develop strong roots, and the quality of the fruit is also affected. We have been able to slow the spread of the disease, but not eradicate it.” Florida, the world’s largest orange grower after Brazil, will harvest 121 million boxes of the fruit in the season that began Oct. 1, the fewest since 1990, the Department of Agriculture estimates. Orange-juice futures in New York will rally 18 percent to $1.6465 a pound by the end of June, up from $1.39 on Dec. 24, according to the average estimate of nine traders and analysts surveyed by Bloomberg News. Last season, the USDA cut its production outlook seven times over eight months as drought compounded damage from greening. Smaller fruit size may mean that the final count for this year’s crop will total 115 million boxes, or 5 percent less than the government estimates, said Jerry Neff, a branch manager for Bradenton-based Allendale Risk Management who was the most-accurate forecaster in a Bloomberg survey before the USDA’s Dec. 10 report. A box weighs 90 pounds. Greening has discouraged growers from increasing production as new trees must be sown in greenhouses rather than outdoors to avoid further contagion, doubling the cost of planting to about $8 a tree, according to Tom Spreen, a retired University of Florida professor and an industry consultant. The area planted with orange groves will total 459,311 acres this year, the lowest since at least 1978, when the government data begins. The USDA survey was conducted every two years until 2009, when it became annual.

California's Thirsting Farmland -- He and his brother, Joel, usually also grow cantaloupes and, later in the season, winter wheat on about 600 acres or so. But this year, they and hundreds of others will get no water from the reservoirs that sustain farming in the Central Valley, where much of the nation’s fresh fruits, nuts and vegetables are grown.  So they will forgo melons. And a question mark hangs over winter wheat.  Heading into the third year of a prolonged drought, the Allens are among the many California farmers forced to make dire choices that could leave as much as 800,000 acres, or about 7 percent of the state’s cropland, fallow. While some think that estimate may be inflated so early in the planting season, the consensus is that drier and drier seasons are on the horizon.  A recent report on prospective planting from the federal Department of Agriculture forecast a 20 percent decline in California’s rice crop and a 35 percent decline in cotton this year from last year’s crop. The decisions by farmers like the Allens will translate directly into higher prices at the grocery store. Anywhere between one-third and one-half of the nation’s fruits and vegetables are grown in California, meaning Americans are facing higher prices on melons, broccoli, baby greens, almonds and other popular crops. Last year, when growers struggled with low water allocations from the state’s two largest water systems, the Central Valley Project and the State Water Project, vegetable prices were 3 percent higher and fruits cost 2 percent more, according to the agricultural department. It expects similar price increases this year.

US Produce Prices to Rise on Extreme CA Drought - Joe Del Bosque has farmed tomatoes, melons, asparagus, almonds, and cherries in California's Central Valley since 1985 but this year he is cutting back because he does not have enough water. Del Bosque has fallowed about 550 of the 2,000 acres he farms some 60 miles west of Fresno, and that's going to mean no tomato crop this year, and a 50% cut in the number of cantaloupes he grows. For irrigation, farmers like Del Bosque depend on water from the Bureau of Reclamation, a federal agency that supplies water to 140,000 Western farmers who together produce some 60% of the national vegetable supply, according to government data. But this year, for the first time in almost 30 years, Del Bosque is getting no water from the bureau. Del Bosque, 65, predicted the surviving crops will allow him to stay in business but said he will lose a great deal of money - more than $100,000 in revenue from tomatoes alone."It's a big hit," he said. "Twenty-five percent of my business has just vanished."Across the Central Valley, some 800,000 acres, or 12% of the total 6 million acres of arable land, has been or is being taken out of production in response to the drought, said Wendy Fink-Weber, a spokeswoman for the Western Growers Association whose members - in California and Arizona - provide half the national fruit and vegetable supply. Statewide, 94% of California's agricultural sector was experiencing "severe, extreme or exceptional" drought by early March, according to the USDA.

Four Bad Things We Learned About The Epic California Drought This Week -  Those concerned about California’s record-breaking drought received four pieces of bad news this week.  First, the state’s drought conditions did not improve at all. For another week, an unprecedented 23.5 percent of California is experiencing the worst drought category -– exceptional drought. And nearly 69 percent of the state is still either under extreme or exceptional drought. And a remarkable 95 percent of the state is still suffering from severe drought or worse. Second, the U.S. Drought Monitor reported a stunning loss of snowpack due to extreme warmth: Another dry week over much of the western United States … and in California, temperatures were 9-12 degrees above normal. This was detrimental to the low snowpack as some areas of California lost half of the snow water equivalence (SWE) in a single week…. Third, NOAA’s Climate Prediction Center predicted that the drought in California — and indeed in much of the Southwest — will either persist or worsen in the next three months:  Fourth, as Climate Progress reported Tuesday, a major new study found “a traceable anthropogenic warming footprint in the enormous intensity of the anomalous ridge [of high pressure] during winter 2013-14, the associated drought and its intensity.” If this result stands up, it suggests future California droughts will keep getting longer and stronger if we don’t reverse carbon pollution emissions trends ASAP.

California's Drought Ripples Through Businesses, Then To Schools : NPR: Michael's multimillion-dollar operation usually provides a wealth of crops including tomatoes, onions and melons. But recently, he's pretty pessimistic about work."It is going to be a year that's probably, at best, maybe break even. Or maybe lose some money," Michael tells NPR's Arun Rath. Michael says about one-fifth of the land will lie fallow this year. So come harvest season, he won't be able to hire as many people to work the fields. Nearly half of the country's fruits, nuts and vegetables come from California, a state that is drying up. According to the U.S. Drought Monitor, the entire state is considered "abnormally dry," and two-thirds of California is in "extreme" to "exceptional" drought conditions. Earlier this year, many farmers in California found out that they would get no irrigation water from state or federal water projects. Recent rains have helped a little. On Friday, government officials said there was enough water to give a little more to some of the region's farmers — 5 percent of the annual allocation, instead of the nothing they were getting. Thanks to the drought, much of Michael's wheat crop isn't suitable for human use, so it's already been cut to make hay for livestock. Michael says because of this, they're also buying less equipment, like big tractors that can cost upward of $400,000. Stories like this are playing out throughout the Central Valley. With less water, farmers are making fewer big purchases, fallowing hundreds of thousands of acres and hiring fewer farm laborers. All of this means they're putting less money into the local economy. Economists say it's too early to accurately predict the drought's effect on jobs, but it's likely as many as 20,000 will be lost

Drought Now Covers Every Last Inch Of California - For the first time in at least 15 years, all of California is officially in drought. According to the April 22 release of the U.S. Drought Monitor, every last inch of California is in a state of “moderate” to “exceptional” drought — the first time in the monitor’s 15-year history that’s occurred. Indeed, the vast majority of California’s territory is now either at “extreme” or “exceptional,” which are the two most severe levels. The total amount of drought covering the U.S. also increased, from 37.9 percent of the country last week to 38.4 percent this week. The southwestern United States once again saw almost no precipitation. Forecasts for the next two weeks also anticipate drier-than-normal conditions across the Southwest, the Great Plains and the Midwest. In northern California, the city of Montague requested that all outside watering be reduced until further notice — the first time it’s done that in 80 years, as the community risks running out of water by the end of the summer. And the National Oceanic and Atmospheric Administration reported last week that half the Sierra Nevada’s snowpack melted in one week, thanks to temperatures that went as high as 12 degrees above average. In an indication of how much damage the ongoing drought has already done, the agency said all the melt gave just a slight boost to reservoir levels.

Land grab in the developing world: Big agriculture will make more people hungry.: Chhek Sambo works a little farm on the fertile plains stemming from a sacred Cambodian mountain known as Phnom Kulen. For 17 years this tropical plot has given Sambo and her family rice, cassava, mangoes, bananas, lychees, “everything we can eat.” She and her neighbors raise chickens and ducks (free-range) and cows (grass-fed). The land provides her daily sustenance, and farming is the only job she’s ever known. There is nowhere else Sambo would rather be, nothing else she would rather do, than “live here forever,” working this dirt until the end of her days. But Sambo has a problem: She might lose this land. Like millions of subsistence farmers worldwide, Sambo and the 117 families in her rural community of Skuon have no formal title to their farm fields. And now, someone else wants her 2.5-acre patch. It’s a familiar story in Cambodia, where land disputes have disrupted the lives and livelihoods of half a million people. Many of the affected are small-scale farmers who grow their own food. “Without land, they no longer have the means to provide themselves with the basic requirements for a decent life,” This is a global humanitarian crisis. An unprecedented worldwide scramble for land—predominantly for agriculture—has spurred a new era in the “geopolitics of food scarcity,” according to Lester Brown, founder of the Earth Policy Institute. That scramble escalated dramatically with the 2008 economic crisis and subsequent rise in food prices. Countries that export food began to limit how much they would sell. Countries that import food “panicked,” Brown writes, and started buying up or leasing other countries’ cheap land on which to produce their own food. Hardest hit were poor countries like Cambodia, where the elite eat abundantly and the poor already struggle to feed themselves.

Food Wars Could Rage by 2050 --  Within a few more decades, dire food shortages may lead to global-scale conflict, warned a top plant scientist in the U.S. Agency for International Development (USAID). There may not be enough land, water and energy to sustain the potential 9 billion people who are projected to share the Earth by 2050. "Food issues could become as politically destabilizing by 2050 as energy issues are today," said Fred Davies, senior science adviser for tUSAID's bureau of food security, in a press release. Biotechnology, improved breeding and advances in farming techniques may not be capable of keeping up with the growing human population, according to Davies. Even if farm production can be increased through technology, those innovations may not trickle down to small-scale farmers, the very people who most need help to stave off starvation. ? Recent history shows that even massive increases in production don't solve hunger. In the middle of the last century, the “Green Revolution” dramatically increased crop yields. New varieties of wheat and other grains produced bumper crops, but required purchases of expensive seed, fertilizer and other materials. Hypothetically, food abounded for all after the agricultural advances, and hunger was indeed reduced in many regions. Yet starvation continued because of economic inequalities and lack of access to food supplies. Plus, subsistence farmers couldn't afford the new technologies or compete with the large farms that could afford fertilizers and high-yielding seeds.

Weather Extremes : March 2014 4th Warmest Globally | Weather Underground: NOAA released its global March 2014 summary today (April 22nd) which stated that it was the 4th warmest March on record over global land and ocean surfaces since 1880. The global average temperature for the month was 12.3°C (54.1°F) which was 0.71°C (1.28°F) above the 20th century average.As can be seen in the above maps, March was much warmer than normal across all of Europe and Asia aside from the sub-continent of India and surrounding areas. The month was the warmest March on record for South Korea and Slovakia and ranked in the top three such for Austria, Norway, Latvia, and Germany. Other sources claim it was actually the warmest March on record for Germany. On the other hand, it was one of the coldest March’s on record for portions of eastern Canada and the Upper Midwest and Northeast of the U.S.A. In spite of this, the Arctic Sea Ice Extent was 4.7% below the 1981-2010 average and the 5th smallest for March since satellite records of such began in 1979. However, in Antarctica the ice extent was 20% above the 1981-2010 average and 3rd largest March extent on record.

March Was 4th Warmest on Record Globally - March 2014 was the fourth-warmest March on record globally, according to recently released NASA data, making it the 349th month — more than 29 years — in which global temperatures were above the historic average. The planet’s average March temperature was 57.9 °F or 0.7 °C (or 1.2 °F) above the average temperature from 1951-1980 — behind only the March of 2002, 2010 and 1990, in that order. Data is still coming in that could change the temperature deviation from this March, but likely only a few hundredths of a degree in either direction, This warm March follows on the heels of the announcements that this winter was the eighth warmest globally and that 2013 was anywhere from the 4th to 7th warmest year on record, depending on which data set is used. The warm winter period may surprise those in the U.S. who suffered through the effects of a wobbling polar vortex, but the months of December through February were 1.57 °F above the 20th century average, according to the National Climatic Data Center.  Scandinavia and the Russian Far East saw extremely warm winters, and the period is actually summer in the Southern Hemisphere. Australia saw another summer of intense heat waves, though they didn’t reach the extents seen in 2013, Australia’s warmest year on record. NASA ranked 2013 as the seventh-warmest year on record, while the National Oceanic and Atmospheric Administration ranked it fourth, though the differences between the ranking amount to less than a couple tenths of a degree.

March of Global Warming: Month 4th Warmest on Record -- Though cool temperatures prevailed across the eastern U.S. and Canada through March, the month was the fourth warmest March on record globally, the National Oceanic and Atmospheric Administration announced Tuesday. It was the 38th March in a row with warmer-than-average temperatures. The ranking matches that from NASA data released earlier this month, and marks a jump from February, which was the 21st warmest on record globally. “The change was primarily due to warmer-than-average temperatures over central Asia in March, compared with cooler-than-average temperatures in February,” said Jessica Blunden, a NOAA climate scientist and author of the monthly reports the agency releases. Globally, the average temperature for March was 56.18°F, or 1.28°F above the 20th century average of 54.9°F, NOAA said. While much of North America (except the western U.S.) saw cool temperatures — this March was the coolest in the U.S. since 2002 — plenty of other places saw warmer-than-normal temperatures, including northern South America, most of Europe and much of Asia.

Study casts doubt on climate benefit of biofuels from corn residue -- Using corn crop residue to make ethanol and other biofuels reduces soil carbon and can generate more greenhouse gases than gasoline, according to a study published today in the journal Nature Climate Change.  The findings by a University of Nebraska-Lincoln team of researchers cast doubt on whether corn residue can be used to meet federal mandates to ramp up ethanol production and reduce greenhouse gas emissions.  Corn stover -- the stalks, leaves and cobs in cornfields after harvest -- has been considered a ready resource for cellulosic ethanol production. The U.S. Department of Energy has provided more than $1 billion in federal funds to support research to develop cellulosic biofuels, including ethanol made from corn stover. While the cellulosic biofuel production process has yet to be extensively commercialized, several private companies are developing specialized biorefineries capable of converting tough corn fibers into fuel.   The researchers used a supercomputer model at UNL's Holland Computing Center to estimate the effect of residue removal on 128 million acres across 12 Corn Belt states. The team found that removing crop residue from cornfields generates an additional 50 to 70 grams of carbon dioxide per megajoule of biofuel energy produced (a joule is a measure of energy and is roughly equivalent to 1 BTU). Total annual production emissions, averaged over five years, would equal about 100 grams of carbon dioxide per megajoule -- which is 7 percent greater than gasoline emissions and 62 grams above the 60 percent reduction in greenhouse gas emissions as required by the 2007 Energy Independence and Security Act. Importantly, they found the rate of carbon emissions is constant whether a small amount of stover is removed or nearly all of it is stripped.

If El Niño Comes This Year, It Could Be a Monster - Attention, weather superfans: El Niño might be coming back. And this time, we could be in for a big one. Official NOAA Climate Prediction Center estimates peg the odds of El Niño’s return at 50 percent, but many climate scientists think that is a lowball estimate. And there are several indications that if it materializes, this year’s El Niño could be massive, a lot like the 1997-98 event that was the strongest on record. “I think there’s no doubt that there’s an El Niño underway,” said climate scientist Kevin Trenberth of the U.S. National Center for Atmospheric Research. “The question is whether it’ll be a small or big one.” On top of some late-’90s nostalgia, a strong El Niño would bring pronounced changes to weather patterns around the globe, and possibly relief from some of the less-pleasant weather trends that have dominated headlines this year. After a Polar Vortex-fueled, unbearably cold winter in the U.S. Midwest and East Coast, a strong El Niño could bring warmer, drier weather in late 2014. And to parched California and its prolonged drought, El Niño might provide drenching rainstorms to fill up reservoirs. But the news won’t all be good. Rainstorms in California could mean floods and mudslides and, coupled with climate change, El Niño could bring harsher droughts to parts of Australia and Africa. Beyond general outlines, it can be tough to say exactly what will happen with El Niño, so we’re going to break down some potential scenarios.

Does El Niño Plus Global Warming Equal Global Temperature Records In 2014 And 2015? - An El Niño appears increasingly likely this year, according to the National Oceanic and Atmospheric Administration (NOAA) and Australia’s Bureau of Meteorology (BOM). If it starts relatively quickly, then 2014 could well be the hottest year on record, but if it is a strong El Niño, as many currently expect, then 2015 would likely break all previous global records. The BOM’s biweekly ENSO (El Niño Southern Oscillation) Wrap-Up begins: The likelihood of El Niño remains high, with all climate models surveyed by the Bureau now indicating El Niño is likely to occur in 2014. Six of the seven models suggest El Niño thresholds may be exceeded as early as July. The latest weekly ENSO report from NOAA’s National Centers for Environmental Prediction (NCEP) puts the chances of an El Niño by the end of the year at almost 2 out of 3:An El Niño is marked by unusually warm ocean temperatures for a period of several months in the Equatorial Pacific, as I discussed in March. In contrast, a La Niña has cooler than normal temps in the same region. Both tend to drive extreme weather worldwide. The following chart from NASA shows that El Niños are generally the hottest years on record — since the regional warming adds to the underlying man-made global trend — whereas La Niña years are usually below the global warming trend line.

El Nino 2014-2015: What the weather pattern means for 60-plus places.: To be declared an official El Niño, surface water temperatures in the equatorial Pacific Ocean must warm by half a degree Celsius averaged over three months and maintain that level for five consecutive three-month periods. That’s an arbitrary definition, sure, but it gives us the ability to crunch the numbers on weather patterns that tend to associate with El Niños on a global scale.  Statistically, this time of year has the least predictability at any time all year. But peering below the ocean’s surface, water temperatures are already off-the-charts-hot. If that warm water makes it to the surface, the planet could be in line for one of the most intense El Niños ever recorded. That would be enough to shift weather patterns worldwide and make the next couple of years among the hottest we’ve ever known. Earlier this month I wrote that taking into account current forecasts, El Niño could be the biggest global weather story of 2014. . There have been only a handful of El Niño events in the last few decades, and in many cases it’s difficult to generalize based on such a small sample size. Only once in the last 30 years—1998 (see above animation)—were subsurface water temperatures as warm as they are now. Which makes forecasting even more difficult. But by averaging all the recent El Niño events together, we can take a guess at the general trends for what the next few months might bring. (Since all the websites offering El Niño impacts seem to be based on a Microsoft Encarta CD-ROM from the late 1990s, I figured we needed an update.) Let this be your warning: Not all of these predictions will come to pass. Some surely won’t. Frankly, I’m overgeneralizing a lot of nuance here. The below should be read as a tilt of the odds, not a black-and-white forecast. But it’s grounded in the past, and given the current state of the ocean and atmosphere, it offers a good idea of how planet Earth might deal in 2014–15.

The Local Fight to Save the Chesapeake Becomes a National Fight Over the Clean Water Act - Bill Moyers -- The fight to restore the largest estuary in the US — the Chesapeake Bay — has attracted national attention, and considerable special interest money, as states, cities and trade groups weigh in on the extent of the Environmental Protection Agency’s authority to protect our waters. The communities around the Chesapeake Bay, renowned for its wildlife, have been struggling for years to restore the area’s ecosystem and reverse the decline in the marine life for which the region is known. Pollution from farming, industry and housing developments has lead to dead zones in areas where oxygen levels in the water are too low to support life. Over the past two and a half decades, states repeatedly missed their own deadlines for reducing their pollution.  In 2000, the Republican-led US Congress mandated, under the Clean Water Act, that states near the Bay improve the waters by 2010 so it could be removed from the EPA’s impaired waters list. But in 2007, the Chesapeake Executive Council, made up of officials from Maryland, Pennsylvania, Virginia and DC, announced that the states would not be able to meet the water quality goals they had set. So, in 2009, the Obama administration stepped in with an executive order, requiring the EPA to use a provision of the Clean Water Act to put together the Chesapeake Clean Water Blueprint. If they missed those deadlines, the EPA would take action against them. For the first time, regulators had an enforceable plan for reducing pollution in the Bay. But then monied interests made their voices heard.

Entire marine food chain at risk from rising CO2 levels in water - Escalating carbon dioxide emissions will cause fish to lose their fear of predators, potentially damaging the entire marine food chain, joint Australian and US research has found. A study by the Australian Institute of Marine Science, James Cook University and the Georgia Institute of Technology found the behavior of fish would be “seriously affected” by greater exposure to CO2. Researchers studied the behavior of coral reef fish at naturally occurring CO2 vents in Milne Bay, in eastern Papua New Guinea. They found that fish living near the vents, where bubbles of CO2 seeped into the water, “were attracted to predator odour, did not distinguish between odours of different habitats, and exhibited bolder behaviour than fish from control reefs”. The gung-ho nature of CO2-affected fish means that more of them are picked off by predators than is normally the case, raising potentially worrying possibilities in a scenario of rising carbon emissions. More than 90% of the excess CO2 in the atmosphere is soaked up by the oceans. When CO2 is dissolved in water, it causes ocean acidification, which slightly lowers the pH of the water and changes its chemistry. Crustaceans can find it hard to form shells in highly acidic water, while corals risk episodes of bleaching.

IPCC report summary censored by governments around the world -- A major climate report presented to the world was censored by the very governments who requested it, frustrating and angering some of its lead authors.  The UN’s Intergovernmental Panel on Climate Change on Sunday released the "summary for policymakers" in Berlin, intended to be a palatable synopsis of the technical conclusions of more than 200 experts on how to stop runaway global warming – and what that would cost. However entire paragraphs, plus graphs showing where carbon emissions have been increasing the fastest, were deleted from the summary during a week’s debate prior to its release. Other sections had their meaning and purpose significantly diluted. They were victims of a bruising skirmish between governments in the developed and developing world over who should shoulder the blame for, and the responsibility for fixing, climate change.  The encounter was a prelude to what promises to be a bitter battle in Paris next year, where countries are intended to sign a new binding treaty on radical action against global warming. Countries including – but not limited to – the United States, Brazil, China and Saudi Arabia fought to ensure the summary could not be used as a weapon against them in pre-Paris negotiations. The IPCC Working Group III report found that, in order to keep temperature change below two degrees, the world will have to quickly switch over to an energy supply dominated by renewables such as wind and solar power, with carbon-capture technology mopping up the remaining fossil fuel use.

The consequences of climate change (in our lifetimes): Journalist Peter Hadfield has a new video out on climate change issues. Peter takes his usual effective approach of imploring people to not rely solely on blogs for information. You have to actually read the published scientific literature, which is a proposition even Skeptical Science adheres to.  It's interesting that Peter is taking on the "in our lifetimes" aspect of climate change, because this is an issue I've often noticed that many people don't grasp. There are far too many people out there who somehow erroneously came to believe that all the predictions in Al Gore's An Inconvenient Truth were going to happen in a few years.  One of the most deeply complex aspects of climate change is cross generational responsibility. There are definitely impacts that we are already seeing, and we there are more impacts that we are going to see in the coming decades. But the worst is being saved for those who follow us. Our children and grandchildren.  Peter takes the time to carefully walk us through several aspects of climate change – ice melt, sea level rise, crop production, precipitation and feedbacks – with his engaging wit. And, with appropriate balance, he doesn't hesitate to address errors related to extreme climate impacts that are not scientifically supportable.

Climate Change Is the Tragedy of the Global Commons -  It is not something we can vote against or refuse to pay our taxes to protest. Writing letters to our congressperson will not help, nor will recycling our bottles and cans. Individual action—even the individual actions of hundreds of thousands of people in concert—won’t be enough. Climate change has too many sources, involves too many interest groups, crosses too many borders, slices through too many political alliances to make possible the kind of united national and international effort required to  stop it. Also, doing nothing is too profitable. Perhaps that last is indeed the main thing. Too many people are making money out of feeding the insatiable consumer demand for more. - Some scientists think it’s already too late, but let’s say they are wrong, and the scientists who give us ten years or even twenty are right. Let’s say that if every developed nation were to drastically cut its greenhouse emissions beginning today our poor old earth would mostly muddle through.  Overlooking the rather large fact that these measures would cause the world economy to collapse, think what would have to happen: everyone goes vegetarian, uses cars and planes only for emergencies, gets rid of air conditioning, ceases to cut down forests to build new houses. In short, we radically restrict individual consumption in every conceivable way, while governments force industry, especially the oil, coal and gas industries, to  do whatever is necessary to…do whatever is necessary. Given our system, how could any of that happen on the necessary scale, let alone happen in time?

Arctic sea ice falls to 5th lowest March extent on record: Arctic sea ice extent during March was 5th lowest in the 36-year satellite record, according to the National Snow and Ice Data Center (NSIDC). The winter maximum extent of Arctic sea ice came on March 21, and was the 5th lowest such peak on record. Temperatures in the Arctic were 2 - 6°C (4 -11°F) above average during the last half of the month, but a late-season surge in ice extent came as the Arctic Oscillation turned strongly positive the second week of March, with unusually low sea level pressure in the eastern Arctic and the northern North Atlantic. The associated pattern of surface winds helped to spread out the ice pack, keeping ice extent greater than it would have been. There was a modest increase in thick, multi-year ice over the winter, and the Arctic is in better shape to resist a record summer melt season this year than it was in 2013.

How Much Will The Sea Level Rise In Your Neighborhood? This Map Will Show You -Residents of coastal communities in the U.S. can soon search for how much sea level rise is expected to affect their regions by zip code, using a new interactive map.The mapping tool, which was launched in 2012 in New York, New Jersey and Florida, is expanding across the East Coast, Pacific states and the rest of the coastal U.S. this summer. The program, called “Surging Seas,” uses data from federal agencies to map sea level rise by zip code, adding in details such as population density and property value. The program also maps out flood risk for regions by decade, and breaks down who and what is most at risk in each region from rising sea levels — Caucasian vs. Hispanic populations, for instance, and schools vs. homes and libraries. Sea level rise is a major concern in many parts of the coastal U.S., posing a serious threat to counties in South Florida, with their flat topography and porous foundation. Hurricane Sandy also illustrated how much sea level rise could threaten the Northeast — some essential services like hospitals were caught unawares by the storm, which forced emergency evacuations in multiple hospitals.   Surging Seas isn’t the only environmentally-focused mapping tool to come out in recent months. In November, Property Shark released a map that shows how many toxic areas there are in New York, a tool that goes beyond Superfund sites to display toxic patches created by gasoline and other spills, tank failures, air discharge facilities, hazardous waste storage facilities and other polluting factors. A Google Earth Engine map shows tree losses and gains around the world, and Global Forest Watch provides a similar service. The New York Times also has an interactive map that shows where facilities that have polluted water are located around the country.

U.N. report spells out super-hard things we must do to curb warming - A U.N. climate panel on Sunday painted a sizzling picture of the staggering volume of greenhouse gases we’ve been pumping into the atmosphere — and what will happen to the planet if we keep this shit up. By 2100, surface temperatures will be 3.7 to 4.8 degrees C (6.7 to 8.7 F) warmer than prior to the Industrial Revolution. That’s far worse than the goal the international community is aiming for — to keep warming under 2 C (3.7 F). The U.N.’s terrifying projection assumes that we keep on burning fossil fuels as if nothing mattered, like we do now, leading to carbon dioxide levels in the atmosphere of between 750 and 1,300 parts per million by 2100. A few centuries ago, CO2 levels were a lovely 280 ppm, and many scientists say we should aim to keep them at 350 ppm, but we’re already above 400. These warnings come from the third installment of the latest big report from the U.N. Intergovernmental Panel on Climate Change, compiled by hundreds of climate scientists and experts. Here’s a paragraph and a chart from the 33-page summary of the latest installment that help explain how we reached this precarious point in human history. Globally, economic and population growth continue to be the most important drivers of increases in CO2 emissions from fossil fuel combustion. The contribution of population growth between 2000 and 2010 remained roughly identical to the previous three decades, while the contribution of economic growth has risen sharply … Between 2000 and 2010, both drivers outpaced emission reductions from improvements in energy intensity. Increased use of coal relative to other energy sources has reversed the long-standing trend of gradual decarbonization of the world’s energy supply.

What is the Earth Worth (6 Years Later)? - Ilargi: Once more for everyone who’s got even the lightest slightest shade of green in their thoughts and dreams and fingers, I’ll try and address the issue of why going or being green is a futile undertaking as long as it isn’t accompanied by a drive for a radical upheaval of the economic system we live in. Thinking we can be green – that is to say, achieve anything real when it comes to restoring our habitat to a healthy state – without that upheaval, is a delusion. And delusions, as we all know all too well, can be dangerous. It’s not possible to “save the planet” while maintaining the economic system we currently have, because that system is based on and around perpetual growth. It’s really as simple as that, and perhaps it’s that very simplicity which fools people into thinking that can’t be all there is to it. Switching to different fuels, alternative energy forms, is useless in such a system, because there will be a moment when the growth catches up with all preservation measures; it’s not a winnable race. There will come a time when a choice between preservation and growth must be made, and the latter will always win (as long as the system prevails). It would be very helpful if the environmental movement catches up on the economics aspect, because it’s not going anywhere right now. It’s a feel-good ploy that comforts parts of our guilty minds but won’t bring about what’s needed to eradicate that guilt. If you’re serious about preserving the world and restoring it to the state your ancestors found it in, it’s going to take a lot more than different lightbulbs or fuels or yearly donations to a “good” cause. That, too, is very simple. You won’t be able to keep living the way you do, and preserve the place you have in your society, your job, your home, your car. That is a heavy price to pay perhaps in your view, but there is no other way. Whether you make that choice is another story altogether. Just don’t think you’re going to come off easy.

Global solar dominance in sight as science trumps fossil fuels -- Solar power has won the global argument. Photovoltaic energy is already so cheap that it competes with oil, diesel and liquefied natural gas in much of Asia without subsidies.  Roughly 29pc of electricity capacity added in America last year came from solar, rising to 100pc even in Massachusetts and Vermont. "More solar has been installed in the US in the past 18 months than in 30 years". California's subsidy pot is drying up but new solar has hardly missed a beat.  The technology is improving so fast - helped by the US military - that it has achieved a virtous circle. Michael Parker and Flora Chang, at Sanford Bernstein, say we entering a new order of "global energy deflation" that must ineluctably erode the viability of oil, gas and the fossil fuel nexus over time. In the 1980s solar development was stopped in its tracks by the slump in oil prices. By now it has surely crossed the threshold irreversibly. The ratchet effect of energy deflation may be imperceptible at first since solar makes up just 0.17pc of the world's $5 trillion energy market, or 3pc of its electricity. The trend does not preclude cyclical oil booms along the way. Nor does it obviate the need for shale fracking as a stop-gap, for national security reasons or in Britain's case to curb a shocking current account deficit of 5.4pc of GDP.   But the technology momentum goes only one way. "Eventually solar will become so large that there will be consequences everywhere," they said. This remarkable overthrow of everthing we take for granted in world energy politics may occur within "the better part of a decade".

Solar's insane price drop may cause energy price deflation, stranded assets -- We’ve seen and published many dramatic graphs about the fall in solar, such as this one tracing the fall over the past 30 years and this from Citigroup, but the following graph from investment bank Sanford Bernstein is quite stunning – not just for its simplicity but because it draws attention to the potential impact of solar to the $5 trillion global energy market. As you can see, the cost of solar PV has come from – quite literally – off the charts less than a decade ago to a point where Bernstein says solar PV is now cheaper than oil and Asian LNG (liquefied natural gas). It does its calculations on an MMBTU basis. MMBTU is the standard unit of measure for liquid fuels, often referred to as one million British thermal units. “For these (developing Asian economies) solar is just cheap, clean, convenient, reliable energy. And since it is a technology, it will get even cheaper over time,” Bernstein writes in a newly released report. “Fossil fuel extraction costs will keep rising. There is a massive global market for cheap energy and that market is oblivious to policy changes” in China, Japan, the EU or the US, it writes. This has potentially massive impacts for the oil, gas and LNG markets, and therefor the massive investments in the LNG plants in Queensland, Australia, where tens of billions of dollars have been invested by Australian and international energy majors on the assumption that the demand, and the price, of LNG will rise ever upwards.

Sol Invictus - There is a lot of buzz about the effort by the Koch brothers and assorted conservative groups to end "net metering" for solar power. Kevin Drum and Paul Krugman think that it's mainly about conservative tribalism - conservatives have identified solar as something liberal, so they fight it on ideological grounds. Personally, I suspect that the current fight against net metering is mainly economic - utility companies stand to lose their government-protected monopolies if rooftop solar takes over, and of course the Kochs make their billions from the fossil fuel industry. Anyway, the first thing to realize is that even if net metering gets killed (and if it does, it will only be in red states), it's not the end for solar. It's a slight delay. With costs continuing to plummet, net metering is only important in the short term; in a few years, we won't be talking about this. And in those states that do kill net metering, the main thing that (temporarily) replaces solar will be natural gas, not coal. With U.S. carbon emissions from electricity generation already falling, the main danger for the Earth's climate is China, which is doing its own thing policy-wise. Net metering may be important for the next few years of Koch Industries profits, but it's not a factor in whether or not the planet gets fried. So don't worry! Or at least, don't worry more than you were already worrying. But anyway, Drum and Krugman do have a point, which is that lots of conservatives are fighting against solar instead of embracing it, simply because of tribal animus. Meanwhile, conservatives had their own dream, nuclear, which was ready to go, and which could only be held back through government intervention. . Solar is the Dream That Won, and nuclear is, as The Economist puts it, the Dream That Failed. Conservatives are still mad about that.They shouldn't be. Solar is a libertarian dream. The utility companies that states like Oklahoma are scrambling to protect are cozy government-protected monopolies (though eventually they too will survive by switching to solar). Rooftop solar offers a chance for independent homeowners to free themselves from reliance on a collectivist system. And solar is a triumph of human ingenuity, the kind of advance that Julian Simon believed would always save us from "limits to growth" - in the long run, oil and coal and gas will run out, but cheap solar will sustain capitalism.

U.S. Solar Capacity Grew 418 Percent In The Last Four Years  - Solar energy is booming across the U.S., with capacity up an astounding 418 percent in the last four years alone, according to data released this week by the U.S. Energy Information Administration (EIA).  Residential and commercial rooftop solar, along with other forms of photovoltaic (PV), have grown steadily over the past four years, specifically those that are net-metered. When customers install their own solar panels in states with a net metering policy, they are compensated for the excess electricity they send back to the grid. According to the EIA, these net metered applications have increased every year by approximately 1,100 MW since 2010. California currently has the largest net metered solar capacity with 38 percent of the nation’s total. Not far behind are New Jersey and Massachusetts, which together represent 21 percent of the total capacity in the U.S.

A battle is looming over renewable energy, and fossil fuel interests are losing - In state capitals across the country, legislators are debating proposals to roll back environmental rules, prodded by industry and advocacy groups eager to curtail regulations aimed at curbing greenhouse gases. The measures, which have been introduced in about 18 states, lie at the heart of an effort to expand to the state level the battle over fossil fuel and renewable energy. The new rules would trim or abolish climate mandates — including those that require utilities to use solar and wind energy, as well as proposed Environmental Protection Agency rules that would reduce carbon emissions from power plants.But the campaign — despite its backing from powerful groups such as Americans for Prosperity — has run into a surprising roadblock: the growing political clout of renewable-energy interests, even in rock-ribbed Republican states such as Kansas. The stage has been set for what one lobbyist called “trench warfare” as moneyed interests on both sides wrestle over some of the strongest regulations for promoting renewable energy. And the issues are likely to surface this fall in the midterm elections, as well, with California billionaire Tom Steyer pouring money into various gubernatorial and state and federal legislative races to back candidates who support tough rules curbing pollution. The multi-pronged conservative effort to roll back regulations, begun more than a year ago, is supported by a loose, well-funded confederation that includes the U.S. Chamber of Commerce, the National Association of Manufacturers and conservative activist groups such as Americans for Prosperity, a politically active nonprofit organization founded in part by brothers David and Charles Koch. These groups argue that existing government rules violate free-market principles and will ultimately drive up costs for consumers.

Data Centers Waste Vast Amounts of Energy, Belying Industry Image - Most data centers, by design, consume vast amounts of energy in an incongruously wasteful manner, interviews and documents show. Online companies typically run their facilities at maximum capacity around the clock, whatever the demand. As a result, data centers can waste 90 percent or more of the electricity they pull off the grid, The Times found. To guard against a power failure, they further rely on banks of generators that emit diesel exhaust. The pollution from data centers has increasingly been cited by the authorities for violating clean air regulations, documents show. In Silicon Valley, many data centers appear on the state government’s Toxic Air Contaminant Inventory, a roster of the area’s top stationary diesel polluters. Worldwide, the digital warehouses use about 30 billion watts of electricity, roughly equivalent to the output of 30 nuclear power plants, according to estimates industry experts compiled for The Times. Data centers in the United States account for one-quarter to one-third of that load, the estimates show. “It’s staggering for most people, even people in the industry, to understand the numbers, the sheer size of these systems,” said Peter Gross, who helped design hundreds of data centers. “A single data center can take more power than a medium-size town.”

Amazon FLUNKS New Energy Report — Facebook and Apple Get 'A's - According to "Clicking Clean: How Companies are Creating the Green Internet," a new Greenpeace report on energy usage by the cloud-computing industry, IT behemoths like Apple, Facebook and Google are leading the charge for renewable energy, while several others — notably Amazon Web Services and Twitter — receive failing grades due to their reliance on “dirty” power from coal and other greenhouse-gas emitting sources. At a February shareholders meeting, Apple CEO Tim Cook even suggested that climate skeptics "get out of the stock," if they didn't approve of the company's green initiatives. “Apple’s rapid shift to renewable energy over the past 24 months has made it clear why it’s one of the world’s most innovative and popular companies,” said Gary Cook, the report's lead author and a senior IT analyst for the environmental group. “By continuing to buy dirty energy, Amazon Web Services not only can’t seem to keep up with Apple, but is dragging much of the internet down with it.” The cloud industry is growing rapidly, and those endless server farms burn a lot of power — more each year than all but five of the world's most energy-hogging countries, the report states.

WIPP A Nuclear Disaster In 2014 In New Mexico and How to Understand It -- We don't know how much they have been lying, but one thing is for sure, they attempt to cover up, and then they attempt to minimize, and then they attempt to confuse the issue, and then additional admissions come out (usually). For sure, a lot of Plutonium and Americium came out in the air. And it came out for weeks because they had some open ductworks prior to the "good" HEPA filters, so the contaminated air was blasted out through an opening at a high volume rate. We only have their numbers to work with, so it could be highly variable. We know that TEPCO has lied for years, and when they do fess up we find they have been lying by a factor of 10 to 100. The more they have to lie, the more they do lie.  One of the HUGE lies they are still running with is that they are comparing Pu and Am to any other type of radiation, and it is not. One chart above shows that sucking in some hot Pu particles is 110,000 times worse than your average non-transuranic radiation. But WIPP and DOE and the University "independent lab" which is funded by DOE 100%, all have been pretending that Pu and Am are equal to the more harmless of external radiation. HUGE LIE! Pu and Am are some of the most dangerous things on the planet. When breathed in they kill 255 out of 255 young Beagles in 2 to 5 years. How Much Plutonium Does It Take to “Almost For Sure” Kill a Human?  Some people say that even one microgram (one one-millionth of gram) will kill a human. And that is true...I mean it is possible that one micro-gram could product a lung, liver, or bone tumor that would cause death. But now what is likely? The "best" testing was on Beagles, but sometimes some animals are more tolerant than humans when it comes to contamination, they don't live as long, but dogs are tougher while they live. But if humans were as tough as Beagles, then a dose of 150 micro-grams to 450 micro-grams would be enough.

Fukushima Manager Admits Water Woes "Out Of Control", Refutes Lies By PM Abe - Last September, Japanese PM Shinzo Abe told Olympic dignitaries in Buenos Aires in an address that helped Tokyo win the 2020 Games: "Let me assure you the situation is under control." It would seem, just as he 'assured' his people that Abenomics would 'fix' Japan, in the case of Fukushima, he lied. As Japan Times reports, the manager of the Fukushima No. 1 nuclear power plant has embarrassingly admitted that repeated efforts have failed to bring under control the problem of radioactive water.

They've Found the Missing Fukushima Nuclear Cores ... Scattered All Over Japan -- We reported in May 2011 that authorities knew – within days or weeks – that all 3 active Fukushima nuclear reactors had melted down, but covered up that fact for months.The next month, we reported that Fukushima’s reactors had actually suffered something much worse: nuclear melt-throughs, where the nuclear fuel melted through the containment vessels and into the ground. At the time, this was described as:The worst possibility in a nuclear accident. But now, it turns out that some of the Fukushima reactors have suffered even a more extreme type of damage: melt-OUTS. The U.S. Nuclear Regulatory Commission agrees.  Indeed, “hot particles” with extremely high levels of radiation – 7 billion, 40 billion , and even 40 billion billion Bq/kg – have been found all over the Fukushima region, and hundreds of miles away … in Tokyo. Let’s put this in perspective. The Atlantic notes: Japanese regulations required nuclear waste with 100 or more bq/kg of Cesium to be monitored and disposed of in specialized containers. The new government limit for material headed for landfills is 8000 bq/kg, 80 times the pre-Fukushima limit.So the hottest hot particle found so far is 5 million billion times greater than the current government limits of what can be put in a landfill. In other words, the core of at least one of the Fukushima reactors has finally been found … scattered all over Japan

Gallery: The Cost Of Coal - Globally, the generation of the electricity that powers modern society is still heavily reliant on a fuel that's been used for thousands of years: coal. Coal has two virtues: it's plentiful and extracting it is cheap. But almost every step involved in its production and use brings problems.  Extracting it is hazardous to miners, while alternatives like open-pit mines or mountain top removal permanently alter the landscape and often release hazardous chemicals into the environment. Burning it requires careful pollution controls to avoid the release of hazardous chemicals like mercury or acid-forming sulfur compounds. It also releases the most carbon dioxide per unit of electricity generated. Combustion also leaves behind a toxic sludge that creates a long-term contamination hazard. The April issue of National Geographic includes an article that asks "Can coal ever be clean?" (The answer is no, but at the right cost, it could be cleaner.) The article is accompanied by the photographs of Robb Kendrick, who has captured some of the costs of coal at sites around the world. National Geographic got in touch and offered to share some of these images with our readers; you can find these and more at the magazine's website.

West Virginia's Toxic Spill Water Will Be Pumped Into Wells Beneath Ohio - The geology of the Gulf Coast and the Great Lakes makes the land around them particularly suitable for an ugly task: hazardous waste disposal. There, hundreds of injection wells, each up to 10,000 feet deep, contain the chemical leftovers from steel mills, wastewater treatment, and more.   Soon, one such well will be home to the MCHM-laced water from West Virginia's recent chemical spill. There, the toxic waste will stay contained underground—we hope, at least, because no one can say for sure. The Associated Press reported on the fate of this contaminated water in a little-noticed seven-sentence story earlier this month. This is how the remnants of a massive chemical spill made possible by lax regulation get quietly buried in the Earth. But over at Next City, Sarah Goodyear has dug deeper into injection wells, and we think this story deserves a little more attention for the light it sheds on toxic waste disposal.   The 60,000 gallons of contaminated water—vacuumed up from the Elk River after the spill—will be trucked over state lines and injected into Vickery Environmental's wells. The company currently operates four Class I injection wells in Vickery, Ohio, and deals with waste from as far away as Tampa. The tainted water will be shot into the earth, under multiple layers of impermeable rock, into the sandstone of the Mount Simon formation.

They told us it would be "Cost Prohibitive" to ship waste very far...........But that proved to be UNTRUE! -- Heads up... The chemical from Freedom Industries in WV ( Remember the WV water contamination?)  is on it's way to be buried in injection wells in NORTHERN OHIO......from WV..........so there went that "assurance" that distance would prevent it from going far from the source!  More industrial waste heads for Ohio injection wells.  Out-of-state sources ship water laced with chemicals to the Buckeye state for disposal. This is a fracwater hauler in Carroll County. It is similar to the type of vehicle that is bringing waste >Download (WKSU Only)  In The Region: Ohio continues to be a dumping site for out-of-state waste.  Now, contaminated water from that industrial spill near Charleston, West Virginia in January is being sent our way. WKSU’s Tim Rudell reports on what’s coming, and why.  http://www.wksu.org/news/story/38862

‘Jobs vs. the Environment’: How to Counter This Divisive Big Lie - In an era in which our political system is dominated by plutocracy, grassroots social movements are essential for progressive change. But too often our movements find themselves at loggerheads over the seemingly conflicting need to preserve our environment and the need for jobs and economic development. How can we find common ground? The problem is illustrated by the struggle over the Keystone XL pipeline, which has been described as the “Birmingham of the climate movement,” pipeline proponents have been quick to seize on the “jobs issue” and tout support from building trades unions and eventually the AFL-CIO. In a press release titled “U.S. Chamber Calls Politically-Charged Decision to Deny Keystone a Job Killer,” the Chamber of Commerce said President Obama’s denial of the KXL permit was “sacrificing tens of thousands of good-paying American jobs in the short term, and many more than that in the long term.” The media repeat the jobs vs. environment frame again and again: NPR’s headline on KXL was typical of many: “Pipeline Decision Pits Jobs Against Environment.” A similar dynamic has marked the “beyond coal” campaign, the fracking battle and EPA regulation of greenhouse gasses under the Clean Air Act. Those who want to overcome this division must tell a different story.   One starting point for that story is to recognize the common interest both in human survival and in sustainable livelihoods. There are not two groups of people, environmentalists and workers. We all need a livelihood and we all need a livable planet to live on. If we don’t address both, we’ll starve together while we’re waiting to fry together.

"Russia with Love": Alaska Gas Scandal is Out-of-Country, Not Out-of-State - Steve Horn: A legal controversy — critics would say scandal — has erupted in Alaska's statehouse over the future of its natural gas bounty. It's not so much an issue of the gas itself, but who gets to decide how it gets to market and where he or she resides.  The question of who owns Alaska's natural gas and where they're from, at least for now, has been off the table. More on that later. At its core, the controversy centers around a public-private entity called the Alaska Gasline Development Corporation (AGDC) created on April 18, 2010, via House Bill 369 for the “purpose of planning, constructing, and financing in-state natural gas pipeline projects.” AGDC has a $400 million budget funded by taxpayers.  AGDC was initially built to facilitate opening up the jointly-owned ExxonMobil-TransCanada Alaska Pipeline Project for business. That project was set to be both a liquefied natural gas (LNG) export pipeline coupled with a pipeline set to bring Alaskan gas to the Lower 48.    Things have changed drastically since 2010 in the U.S. gas market though, largely due to the hydraulic fracturing (“fracking”) boom. And with that, the Lower 48 segment of the Alaska Pipeline Project has become essentially obsolete.Dreams of exporting massive amounts of Alaskan LNG to Asia, however, still remain. They were made much easier on April 14, when the Kenai LNG export facility received authorization to export gas from the U.S. Department of Energy. Enter the latest iteration of AGDC. This phase began in January 2014 after Governor Sean Parnell, formerly a lobbyist for ConocoPhillips, signed Senate Bill 138 into law.  The bill served as a Memorandum of Understanding (MOU) between Alaska, the AGDC, ConocoPhillips, BP, ExxonMobil, and TransCanada, with the four companies now serving as co-owners of the South Central LNG Pipeline Project. Gov. Parnell also announced who would serve on the AGDC Board of Directors in September 2013, which began meeting in October 2013. And that's where the story starts to get more interesting.

Oilprice Intelligence Report: LNG: All Boom, No Bust: As liquefied natural gas (LNG) gains significant traction with big oil and gas companies—spurred most recently by events in Ukraine even if this isn’t a logical driver—export approvals are coming online at a seemingly faster pace, and deal-making is in full throttle. Big oil is latching on to LNG because as a liquid it’s easier to store and ship, and safer too, and demand is at an all-time high and fetching nice prices particularly on the Asian market. This week alone has brought a number of significant developments, from Shell’s supply deal with Kuwait to another export license approval in Canada for a Canadian-Japanese joint venture. Royal Dutch Shell and BP announced deals over the weekend to supply Kuwait with LNG for the next five to six years, during peak demand periods from April-October. The total volume for both companies will be around 2.5 million tons per year. And Kuwait is also rumored to be preparing to sign another LNG contract with a third party sometime this week. Then we have the LNG-sector movement in Canada, where regulators on 16 April approved a 25-year LNG export license for Triton LNG, which is backed by Canadian AltaGas Ltd and Japan’s Idemitsu Kosan Co. The approval is for the shipment of 320 million cubic feet per day from a planned floating LNG facility. However, keep in mind that while export license approvals are piling up in Canada by comparison to the slower pace of approval in the US, most of the facilities have begun construction, and many have not received the necessary permits or environmental permission yet. The same is true for the Triton facility, for which the location hasn’t even been chosen yet.

Explosion At Natural Gas Plant Forces Evacuation Of Wyoming Town - An explosion and fire at a natural gas processing plant in southwestern Wyoming on Wednesday forced the evacuation of the small town of Opal about 100 miles northeast of Salt Lake City. No one was injured in the incident at a facility run by Williams Partners LP, a gas pipeline operator. According to the Associated Press, the plant removes impurities including carbon dioxide from natural gas that is collected from fields in Wyoming and Utah. The plant can handle as much as 1.5 billion cubic feet of gas per day, sending it into pipelines for distribution from the West Coast to Ohio. The explosion occurred around 2 p.m. Wednesday and the resulting fire was still burning into the night. Opal, which is home to approximately 95 residents, was evacuated as a precaution, said Lincoln County Sheriff Shane Johnson. “The fire was still very active, and because of the nature of the processing that goes on there, that was the call that was made for safety reasons.” “It burned so hot you can’t fight this thing,” Lincoln County spokesman Stephen Malik said of the fire.Brian Jeffries, executive director of the Wyoming Pipeline Authority, said the explosion would not have as big an impact on gas supplies and prices as it would have had it occurred at the height of the winter heating and summer cooling seasons.  “It really is that time of year when it’s sort of least likely to impact customers,”

A Deeper Look at a Study Finding High Leak Rates From Gas Drilling - Most efforts to slow the natural gas drilling boom in the United States have focused on questions about the environmental impacts of the process called hydraulic fracturing, or fracking, which occurs deep underground after a well is drilled.  That’s why a great deal of attention was paid last week to the results of a two-day aerial survey over gas fields in southwestern Pennsylvania that calculated emission rates of methane (the main component of natural gas) from two well pads still in the drilling phase. The emissions rates were between 100 and 1,000 times higher than what would be consistent with Environmental Protection Agency leakage estimates. The study, “Toward a better understanding and quantification of methane emissions from shale gas development,” was published in the Proceedings of the National Academy of Sciences and undertaken by Dana R. Caulton and a host of co-authors,  Much of the news coverage and commentary was greatly oversimplified, implying that airplane measurements taken on two days in 2012 and showing high methane levels over a handful of wells (and nothing unusual over almost all the other wells in the region) pointed to an extraordinary new pollution and climate change risk.  There is one aspect of the new study that’s worth a deeper dive. The authors noted the presence of sources of coalbed methane — a common peril in coal mines throughout the history of coal mining — near the methane hot spots they found (the supplementary information is here). It took a bit of time for me to seek some knowledgable input on this. I sent the paper to Louis Derry, a Cornell University geologist who’s been a constructive presence  in the Dot Earth comment stream for a long time and, although he worked several decades ago for mining and oil companies, has provided science-based guidance on research related to shale gas. Read on for Derry’s analysis, which I’m sharing with the authors [see the update below].

The EIA is Seriously Exaggerating Shale Gas Production in its Drilling Productivity Report -- “Natural gas output from US' Marcellus edges closer to 15 Bcf/d: EIA” declared the headline in Platts that attracted my attention, since the latest data on the Marcellus shale gas play of PA and WV indicated production was less than 12 bcf/d. This headline was based on the latest issue of the EIA’s new monthly Drilling Productivity Report published April 14. Reading further, the article claimed that the Haynesville shale play “peaked at about 10 Bcf/d in 2012”, when in fact it had peaked at closer to 7 bcf/d in 2011. These errors are serious exaggerations of reality and bear further investigation, as the EIA Drilling Productivity Report is widely read and quoted in the media. Fortunately the EIA also publishes independent production data by shale play in its Natural Gas Weekly Update. A check of production data for the Marcellus revealed that it was at 11.8 bcf/d in February and that the Haynesville had indeed peaked at 7.2 bcf/d in November 2011. These figures are also corroborated by Drillinginfo, a commercial database which is used by the EIA.  There are four shale plays in common between the two EIA reports: the Marcellus, Haynesville, Bakken, and Eagle Ford. The actual shale gas production from them, as provided in the EIA weekly update and confirmed by Drillinginfo, is illustrated in Figure 1.  The production for the same plays over this period reported in the EIA Drilling Productivity Report is illustrated in Figure 2. This amounts to revisionist history as these plays produced essentially nothing in 2007 yet are listed as producing nearly 7 bcf/d then by the EIA.  The aggregate error in reporting production from these four shale plays is illustrated in Figure 3. Production in February, 2014, is stated to be more than 7.8 bcf/d higher in the EIA Drilling Productivity Report than it actually is—an error of 38% on the upside, equivalent to more than 10 percent of the total gas production of the U.S.

BREAKING: Jury awards $3 million in first fracking case  -- When you present the evidence to six people who know nothing about fracking, they find fracking guilty.   I wrote a diary on Daily Kos when Lisa Parr's doctor found drilling chemicals in her blood and lungs. That was back in 2010 when I still had hope that fracking could be done right. I've learned since then that it can't. Today, a jury of their peers awarded Bob and Lisa Parr $3 million dollars in their fracking lawsuit against Aruba Petroleum. The Parr's attorneys said this was the first fracking case to ever go to trial. I'm trying to verify that.  Bob and Lisa Parr were neighbors to Tim and Christine Ruggiero in Wise County. I was there, in the Ruggiero kitchen, the day Lisa discovered that her timeline of doctor’s visits matched–exactly–Christine’s timeline of releases from the Aruba gas wells on her property.

Jury Awards $3 Million in First Fracking Case -  A jury in Dallas, TX today awarded $2.925 million to plaintiffs Bob and Lisa Parr, who sued Barnett shale fracking company Aruba Petroleum Inc. for intentionally causing a nuisance on the Parr's property which impacted their health and ruined their drinking water. The jury returned its 5-1 verdict confirming that Aruba Petroleum “intentionally created a private nuisance” though its drilling, fracking and production activities at 21 gas wells near the Parrs' Wise County home over a three-year period between 2008-2011. Plaintiffs attorneys claimed the case is “the first fracking verdict in U.S. history.”The trial lasted two and a half weeks. Aruba Petroleum plans to appeal the verdict. The pollution from natural gas production near the Parrs' Wise County home was so bad that they were forced to flee their 40-acre property for months at a time.

Texas Family Awarded $3 Million in Nation’s First Fracking Trial - It took three years, but a Texas family finally emerged victorious in a case that could long impact fracking companies and the impact they have on the communities in which they operate. A Dallas jury favored the Parr family, which sued Aruba Petroleum back in 2011 after experiencing an array of health issues attorneys argued were the result of dozens of gas wells in the area. The family was awarded nearly $3 million in what attorneys believe was the first-ever fracking trial in U.S. history.  “They’re vindicated,” family attorney David Matthews wrote in a blog post. “I’m really proud of the family that went through what they went through and said, ‘I’m not going to take it anymore’. It takes guts to say, ‘I’m going to stand here and protect my family from an invasion of our right to enjoy our property.’ The Parr’s lawsuit certainly wasn’t the first lawsuit brought against an energy company for fracking-related health issues, however most plaintiffs are paid off with stern gag orders. In 2013, The Observer-Reporter in southwest Pennsylvania reported that Range Resources paid a family living near the Marcellus Shale wells $750,000 in a settlement that the company initially wanted to keep quiet. The Parr victory could be a game-changer. “When evidence of fracking’s impacts are shown to an impartial jury in a court of law, they find them to be real and significant,” Earthworks Energy Program Director Bruce Baizel wrote in a statement. “And it shows why the fracking industry is reluctant to allow lawsuits of this type to go to trial. “Instead, fracking companies try to force out of court settlements that gag the harmed family as a condition for financial compensation. They almost always succeed, hiding from the public the proof of fracking’s dangers. Consequently, industry and government continue claiming fracking is harmless.”

Texas family plagued with ailments gets $3M in fracking judgment - CNN.com -- When the Parr family started having serious health problems late in 2008, they had no idea it was associated with what they call "a multitude" of drilling operations that popped up near their 40-acre ranch in Decatur, 60 miles northwest of Dallas. At first, Lisa Parr dismissed her migraine headaches, nausea and dizziness as the flu, but when her symptoms persistently got worse, she knew something more serious was involved. "By 2009, I was having a multitude of problems," Lisa Parr told CNN. "My central nervous system was messed up. I couldn't hear, and my vision was messed up. My entire body would shake inside. I was vomiting white foam in the mornings." In 2009, Lisa's husband, Robert, and their 11-year-old daughter, Emma, also became ill, suffering a laundry-list of symptoms. "They had nosebleeds, vision problems, nausea, rashes, blood pressure issues. Being that the wells were not on our property, we had no idea that what they were doing on the property around us was affecting us," she said. After a two-week trial that ended Tuesday -- Earth Day, coincidentally -- a Dallas jury awarded the Parr family $2.9 million for personal injury and property damages in the family's lawsuit against Plano-based Aruba Petroleum Inc.

UPDATE: $3 million awarded by jury to fracking victims - A jury just awarded Bob and Lisa Parr $3 million dollars in their fracking lawsuit against Aruba Petroleum. They said this was the first fracking case to go to trial. I’m trying to verify that.   Bob and Lisa Parr were neighbors to Tim and Christine Ruggiero in Wise County. I was there, in the Ruggiero kitchen, the day Lisa discovered that her timeline of doctor’s visits matched–exactly–Christine’s timeline of releases from the Aruba gas wells on her property. Like Tim and Christine, Bob and Lisa shared all their information with me and I developed it into a case study for presentation to the EPA at Research Triangle Park and later to Gina McCarthy before she was EPA Administrator. The situation at the Parr’s and Ruggiero’s homes was so horrific, I even took Cynthia Giles, top enforcement officer for the EPA to see for herself. The Parr’s case study was added to others and published by Earthworks in Flowback: How the Texas Natural Gas Boom Affects Health and Safety.  Later the Parrs were highlighted in Gasland Part 2. Today’s decision might take some of the wind out of the fracking windbags who prattle on endlessly about how inaccurate Gasland is. Twelve SIX regular people who knew nothing about fracking were presented with the facts and awarded the victims $3 million dollars.Their attorney has a blog post up about the verdict. It’s going to be hard to spin that. I have blogged extensively about the sins of Aruba Petroleum. From my view, they are one of the most irresponsible and reckless companies in a plethora of reckless and irresponsible companies. 

'Straight from the Horse's Mouth': Former Oil Exec Says Fracking Not Safe - In a message "straight from the horse's mouth," a former oil executive on Tuesday urged New York state to pass a ban on the controversial practice of hydraulic fracturing, or fracking, saying, 'it is not safe.' "Making fracking safe is simply not possible, not with the current technology, or with the inadequate regulations being proposed," Louis Allstadt, former executive vice president of Mobil Oil, said during a news conference in Albany called by the anti-fracking group Elected Officials to Protect New York. Up until his retirement in 2000, Allstadt spent 31 years at Mobil, running its marketing and refining division in Japan and managing Mobil's worldwide supply, trading and transportation operations. After retiring to Cooperstown, NY, Allstadt said he began studying fracking after friends asked him if he thought it would be safe to have gas wells drilled by nearby Lake Otsego, where Allstadt has a home. Since that time, he's become a vocal opponent of the shale oil and gas drilling technique. "Now the industry will tell you that fracking has been around a long time. While that is true, the magnitude of the modern technique is very new," Allstadt said, adding that a fracked well can require 50 to 100 times the water and chemicals compared to non-fracked wells. He also noted that methane, up to 30 times more potent of a greenhouse gas than carbon dioxide, is found to be leaking from fracked wells "at far greater rates than were previously estimated."

Frack Blast Radius At Schools - see the pictures - Not enough pizzas to go around for the damage caused by frack blasts near houses and schools. This is in Colorado, where the frackers paid off the Governor to let them frack anywhere – even next to schools. These Aerials Are Exhibit A why frackers have bought off the state government in Ohio and Colorado. They could never get this close to a subdivision or a grade school in a town with local control.  Noise, truck traffic and pollution 24/7/365. So that some fracker can ship gas to China.

Drilling Company Announces It Will Disclose All The Chemicals In Fracking Fluid - Energy companies have fought hard to keep secret of what exactly is in the fracking fluid they pump into the ground by the millions of gallons, and they’ve typically been successful.  But Houston driller Baker Hughes broke from that trend when it announced Thursday that it would disclose the entire chemical mixture it uses in its fracking fluid to the public. If the company follows through on that promise, it would be the first to disclose all the chemicals in its fracking fluid.  The company won’t be the first to give out some information on the mix of chemicals in fracking fluid, and it’s also not the only one moving toward more transparency in its fracking operations. In early April, after five years of pressure from shareholders, ExxonMobil agreed to disclose fracking’s risks to air, water, roads, and human health. The site FracFocus, a cooperative effort between water regulators and the fossil fuel industry, allows companies to voluntarily report the chemicals they use, but most have exemptions that allow them to keep one or more chemicals secret. California passed a law last year that requires companies to list chemicals used in fracking fluid, and a Wyoming law could result in companies being required to reveal the contents of fracking fluid, depending on the outcome of a court case.

Fracking, Youngstown and The Right to the City --  What happens when the Chamber of Commerce, labor leaders, and government officials, most of whom live outside the city, are pitted against a small yet influential group of community and university activists? That’s what’s going on right now in a debate over a ballot initiative that would prevent gas extraction by hydraulic fracturing — fracking — in Youngstown, Ohio. The proposed ordinance, Community Bill of Rights (CBR), is modeled on similar anti-drilling legislation in other Ohio communities that would largely block drilling, as well as shale gas extraction and injection wells, especially in urban areas.  This is the third attempt during the last two years to pass such legislation in Youngstown, and the vote has become closer each time. In the most recent try, 45 per cent supported the ordinance and 55 per cent opposed it. Supporters hope to shift the balance this time.  The underlying legal issue is whether local community restrictions can preempt Ohio’s legal framework for gas and oil drilling. Ohio is a home rule state where municipalities have authority “to exercise all powers of local self-government and to adopt and enforce within their limits such local police, sanitary and other similar regulations, as are not in conflict with general laws”. The Constitution would seem to give Youngstown the right to regulate fracking on the local level, but in 2004, the Ohio legislature passed a bill HB 278 explicitly denying that right. The bill was largely written by the oil and gas industry, which recruited support for it by flooding both Republicans and Democrats with campaign contributions, according to former Ohio Attorney General Marc Dann. This happened before the industry expanded drilling in the Marcellus and Utica Shale regions of Eastern Ohio, suggesting that the industry knew it would encounter local resistance.

Fracking foes challenge Ohio quake assurances - Steubenville: - A citizens group said Wednesday it isn't taking the word of state regulators that new permitting guidelines will protect public health after earthquakes in northeast Ohio were linked to the gas drilling method of hydraulic fracturing, or fracking. Members of Youngstown-based Frackfree Mahoning Valley said the science behind the finding is a mystery, and new permit conditions the state is imposing in response do nothing to prevent future quakes. "They're not going to stop any earthquakes, they're just going to pause activity when one is felt," said Youngstown State University geologist Ray Beiersdorfer, who's affiliated with the group. A state investigation of five small tremors last month in the Youngstown area, in the Appalachian foothills, found the injection of sand and water that accompanies fracking in the Utica Shale may have increased pressure on a small, unknown fault. The link has been classified as "probable." The state placed a moratorium on drilling activity at the site near the epicenter of the quakes, while allowing five existing wells to continue production. Beiersdorfer said the Ohio Department of Natural Resources should have produced a scientific report to accompany a geologist's conclusion linking Utica Shale fracking to earthquakes for the first time. Fully understanding the finding could help protect Ohioans from future fracking-related earthquakes, he said.

Youngstown: Valley fracking opponents take aim at ODNR: Fracking opponents on Wednesday criticized the Ohio Department of Natural Resources for not providing more information from an investigation that found a “probable” connection between fracking and a rash of earthquakes in Poland Township. On April 11, the state agency responsible for regulating Ohio’s oil and gas industry released a statement that identified the link and announced new permit conditions for companies applying to drill wells near known faults. “To my disappointment, that is all they are going to release,” Ray Beiersdorfer, a geology professor at Youngstown State University, said at a press conference organized by Frackfree Mahoning outside of City Hall. “I think that it is irresponsible for them to not be more forthcoming with the actual data,” he said. ODNR said fluid from a Hilcorp Energy Co. well increased underground pressure, aggravating a previously undetected “microfault” in the area. But the agency does not plan to publicly release the data it collected during its investigation of the March quakes, and no final report will follow. At issue, Beiersdorfer said, is where the fault was located in relation to the well, drilled about 8,100 feet below the surface.The exact depth is important because it can help determine if the fracking fluid could have leaked into the Precambrian basement, a nearly impermeable rock formation about 9,600 feet underground, he said. ODNR’s investigation turned up no link to the Precambrian formation, but it did indicate that fracking aggravated a small, previously undetected fault in the overlying Paleozoic rock. “That opens [another] set of problems. That means that there are potential earthquake faults in the area where they’re trying to frack to get the shale gas out,” Beiersdorfer said, urging ODNR to publish its data. Mark Bruce, ODNR spokesman, said the agency’s statement reflected all of the agency’s findings.

Marcellus Waste Radioactivity In Water Leaching From Landfills -- Tests show that wastewater from gas field landfills contains radioactivity. That is raising concerns about the disposal of Marcellus Shale drill cuttings. Bill Hughes, chair, Wetzel County Solid Waste Authority, said tests on water leaching from the Meadowfill landfill near Bridgeport show widely varying levels of radioactivity, sometimes spiking to 40 times the clean drinking water standard. The radioactivity occurs naturally in the drill cuttings and brine that come from Marcellus gas wells, he said, so it is in the waste dumped in Meadowfill and other landfills. "We are putting radioactive waste in a bunch of landfills in large quantities, and we don't yet know the long-term danger of doing this," Hughes said. Water leaching from Meadowfill averaged 250 picocuries per liter last year. The clean drinking water standard is 50, Hughes explained, adding that at times Meadowfill spiked as high as 2,000 picocuries or dropped below 40. Wetzel - the other landfill taking large amounts of the waste - also showed radioactivity. The drinking water standards are probably too tight to use on fluids leaching from a landfill, he said, but the solid waste authority is defaulting to the tougher standard, simply because the county is not set up to deal with radioactive waste in municipal garbage dumps. "It might not be a significant problem, because we've put a lot of other nasty stuff into the Ohio River," he said. "But especially after Elk River, we should really want to know what we are putting into the landfills and what's going into surface waters."

State lawmakers push to ban fracking waste in the state -  In conjunction with Earth Day this week, state legislators are pushing to pass legislation to reduce the presence of fracking waste in New York. Hydraulic fracturing, a controversial natural gas extraction process which shoots a combination of water, sand and chemicals to break up shale rock, has been illegal in New York for five years due to a de facto moratorium. However, the storage and transportation of waste related to fracking and use of gas extracted through the process is still legal in the state. Sen. Terry Gipson sponsors two bills that, if passed, would regulate the use of waste water related to hydrofracking in New York. One bill, S.3333-a, would prevent waste water from being used on highways for purposes such as melting ice. Another bill, S.5412/A.7497, which is sponsored in the Assembly by Assemblyman David Buchwald, would prohibit the treatment and storage of fracking waste water in water treatment facilities and landfills in the state. "The risk of contamination could have a serious impact on our environment, economy and public health,""No one wants to invest or live in a community whose environment could be contaminated by the spread or disposal of fracking waste water."

Petroleum Geologist on New York’s Shale Potential -- podcast (Interview with Art Berman, who, with Lynn Pittinger, just completed an assessment of New York’s shale gas potential for the League of Women Voters of New York. Starts at 22:56 into the show.) The League of Women Voters of New York commissioned a study to evaluate how much recoverable Marcellus shale gas there is in New York State. To explain the results of the study and why it was commissioned, we will speak with attorney Elisabeth Radow of Radow Law PLLC, the chairwoman of the New York State League of Women Voters’ Committee on Energy, Agriculture and the Environment and Arthur Berman, Geological Consultant at Labyrinth Consulting Services, Inc..

Is the U.S. Shale Boom Going Bust? - It's not surprising that a survey of energy professionals attending the2014 North American Prospect Expo overwhelmingly identified "U.S. energy independence" as the trend most likely to gain momentum this year.  But this optimism belies an increasingly important question: How long will it all last?  Among drilling critics and the press, contentious talk of a "shale bubble" and the threat of a sudden collapse of America's oil and gas boom have been percolating for some time. While the most dire of these warnings are probably overstated, a host of geological and economic realities increasingly suggest that the party might not last as long as most Americans think.  The problems arise when you look at how quickly production from these new, unconventional wells dries up. David Hughes -- a 32-year veteran with the Geological Survey of Canada and a now research fellow with the Post Carbon Institute, a sustainability think-tank in California -- notes that the average decline of the world's conventional oil fields is about 5 percent per year. By comparison, the average decline of oil wells in North Dakota's booming Bakken shale oil field is 44 percent per year. Individual wells can see production declines of 70 percent or more in the first year.  Shale gas wells face similarly swift depletion rates, so drillers need to keep plumbing new wells to make up for the shortfall at those that have gone anemic. This creates what Hughes and other critics consider an unsustainable treadmill of ever-higher, billion-dollar capital expenditures chasing a shifting equilibrium. "The best locations are usually drilled first," Hughes said, "so as time goes by, drilling must move into areas of lower quality rock. The wells cost the same, but they produce less, so you need more of them just to offset decline."

These Member of Congress Are Bankrolled by the Fracking Industry - (chart) The growing fracking industry is "yielding gushers" of campaign donations for congressional candidates—particularly Republicans from districts with fracking activity—according to a new report from the watchdog group Citizens for Responsibility and Ethics in Washington. The report, "Natural Cash: How the Fracking Industry Fuels Congress," examines data compiled by MapLight covering a period spanning from 2004 to 2012. In that time, CREW finds, contributions from companies that operate hydraulic fracturing wells and fracking-related industry groups rose 180 percent, from $4.3 million nine years ago to about $12 million in the last election cycle. These donations are flowing to members of Congress at a time when some legislators are trying to increase regulation of fracking, a process in which drillers inject a mixture of water, sand, and chemicals into the bedrock to release oil and natural gas reserves. The most serious of these legislative efforts is the FRAC Act. First introduced in 2009, the act would require EPA regulation of the industry and would force fracking companies to disclose the chemicals that they inject under high pressure into the ground. Both the House and Senate versions of the bill are stalled in committee.

'Man Camps' Gain Ground in the Bakken - WSJ.com: Target Logistics, a Boston-based builder and operator of dormitory-style housing, recently landed a nearly $30 million contract to provide lodging for hundreds of oil-field workers in North Dakota over the next three years. The deal is the latest example of rising demand for professionally managed "man camps," sprawling barracks that house mostly male workers at American and Canadian oil sites. A few years ago, many North American energy companies needing places to house their expanding workforces operated their own man camps or gave the business to upstart operators. But after complaints that these barracks were becoming active markets for prostitution and illegal drugs, some companies decided to turn the business over to professional companies like Target Logistics that not only house and feed the employees, but also monitor their activities during off hours.   The man camps operated by Target Logistics are similar to dormitories, with private bedrooms and either private or shared bathrooms. Residents eat in common dining halls and the facilities often include recreation rooms and gyms. But the company has strict rules, including a zero-tolerance policy for alcohol on the premises. Also, overnight guests are forbidden—including spouses of the workers. (The workers’ permanent homes often are as far as 600 miles away.) The facilities are monitored 24 hours a day and the cleaning staff is instructed to notify management if there is evidence of contraband.

How Obama Shocked Harper as Keystone's Frustrator-in-Chief - Bloomberg: This story of Harper’s and Obama’s frayed relations and how Keystone got bogged down was put together after on- and off-the-record interviews with more than 75 people -- current and former Canadian and U.S. government officials; Harper’s political advisers; industry executives; and Nebraska and Alberta politicians involved in the Keystone fray. A number of well-placed Canadian officials in a position to know the inside story asked not to be identified because they aren’t authorized to speak. Clears Hurdle Today, Harper’s pessimism over that 2011 call seems justified. On April 18, as Christians marked the Good Friday holiday, the Obama administration notified the Canadians that the pipeline would be held up one more time over unresolved legal issues involving the Nebraska route. The delay comes despite a favorable State Department environmental assessment in January that seemed to clear Obama’s major hurdle for approval -- that the pipeline wouldn’t significantly worsen global warming because the oil sands would be developed even if Keystone is blocked. The stakes are high in the U.S. too. Building the pipeline would create 3,900 jobs over its two-year construction period, contributing $3.4 billion in economic growth, according to the State Department. On the Gulf of Mexico, refiners from Total SA (FP) to Royal Dutch Shell Plc have spent more than $25 billion to upgrade U.S. refineries so they could process what they thought would be an avalanche of heavy oil from Canada.

The Insiders: The president’s cynical Keystone XL strategy - On Friday, the State Department quietly released a notification that the Keystone XL pipeline decision is being delayed yet again.  The president of the Laborers’ International Union of North America, Terry O’Sullivan, called the delay “another gutless move” by the administration.  We could also dismiss the announcement as just more of the usual dithering from this White House.  I don’t think the delay is gutless or dithering, but a more sinister, cynical ploy by this administration to manipulate two groups into continuing to support vulnerable Democrats in an attempt to keep the Senate in 2014. By appearing to have not made a decision, President Obama keeps the money pouring in from those on the fringe left — like billionaire Democrat Tom Steyer – who want the Democrats to swear allegiance to their global warming agenda.  And at the same time, the delay — not outright denial — deceptively makes voters in key states like Louisiana believe there is still some hope that the pipeline will come to life.  In Louisiana, voters think that if they reelect Sen. Mary Landrieu (D-La.), who touts her ability to influence the president on such things, the pipeline will become a reality. One side or the other is being played for a fool.  But given what we know about the weakness of the president’s second-term agenda, and the fact that he could have approved the pipeline already if he wanted to, one would have to bet Keystone XL has no chance of being approved after the 2014 elections.  There is nothing new about government officials manipulating announcements of planned projects and the like to suit their political objectives.  But Obama’s manipulation has reached a peak. Neither side that he is playing will win.  Somehow, the delusional environmentalists think that if there is no pipeline, there will be less oil.  But the oil will not stay locked up in Mother Earth — it will be extracted and either travel by freight to the United States or it will go to China.  And Louisiana voters who are placing their faith in Landrieu are equally delusional.   You can bet that if she is reelected in November, it will be her last term.  By that point, she will not care about her constituents who are working in the oil industry in Louisiana. 

Danger on the rails: outdated tankers carrying crude oil - When a train operated by CSX derailed as it crossed Philadelphia’s Schuylkill River in January, residents had good reason to be concerned. The train was carrying petroleum crude oil—a substance that is highly flammable and has become, thanks a boom in oil production in North Dakota and Canada, a major concern for cities across the country after several deadly explosions. The worst, last July in Lac Megantic, Quebec, killed over 40 people and burned down a quarter of the town.  The week before last, a group of environmental activists, lead by an interfaith coalition of religious and community leaders, held a protest calling attention to the hundreds of “oil trains” that come through Philadelphia, sometimes on a daily basis. Philadelphia has become a major distribution hub for the substance. Crude coming to Philadelphia by rail, mostly from North Dakota and Minnesota, is transported along CSX’s rail lines to facilities in Southwest Philadelphia, where it is unloaded and transferred to ships at Philadelphia’s ports, as well as onto trucks. Philadelphia is in fact home to one of the major rail-to-truck networks in the United States. The accident prompted the National Transportation and Safety Bureau (NTSB) to release a report calling the tank cars fundamentally “inadequate” for the transport of hazardous, flammable materials.The NTSB identified several flaws in the DOT-111’s design, including walls that are too thin and prone to puncturing, leading to what officials described in this case as a “catastrophic loss of hazardous materials.” The NTSB called for enhanced safety regulations. But those changes applied only to new tank cars, manufactured after October 2011.

Brent Oil price benchmark 'in urgent need of reform’ - Brent Oil, the pricing benchmark for two thirds of the world’s oil supply, is “crumbling” and is in urgent need of reform, a new study into the market argues. Liz Bossley, chief executive of Consilience Energy Advisory Group and author of the study, said too many oil contracts were being tied to Brent at a time when North Sea output was falling and demands for tighter controls had been growing in an unregulated sector. The study emerges as oil companies, traders and agencies responsible for reporting and monitoring prices examine the scope for changes to restore confidence and limit EU or US intervention and regulation they fear would be damaging and costly. A European Commission team raided the head offices of BP, Shell and Statoil as well as the London offices of Platts, the leading price reporting agency, last year in the search for evidence of price fixing and business behaviour similar to the rigging of the Libor benchmark by banks. But Brussels’ inspectors have struggled since to produce reforms the industry says will work. The Bossley study underlines the concerns about the credibility of the Brent benchmark at a time when an estimated 200bn barrels of oil a year are tied to declining Brent production, leaving the market open “to at least unrepresentative pricing and at worst manipulation”.

Netherlands to become net gas importer in 10 years – IEA -- Europe’s second largest gas producer, the Netherlands, could shift from exporter to importer within a decade, says the International Energy Agency (IEA). The study suggests seeking alternative energy sources in nuclear, unconventional fuels or renewables. Declining production at the large Groningen gas field will turn the Netherlands into a net importer of natural gas, the IEA report says.  The IEA sees opportunities for developing indigenous resources, as well as re-assessing its energy security and looking at different cost-effective paths.  Since 2005 the Netherland’s consumption of renewable energy has increased from 2.3 percent to 4.5 percent in 2013 and is expected to reach 14 percent by 2020 and 16 percent by 2023, the IEA says

With tensions escalating between Gazprom and Naftogaz another suspension of Russian gas supplies to Ukraine cannot be ruled out -- The German energy giant RWE has begun to “reverse flow” supplies of gas from Europe back to Ukraine via Poland, a process first arranged in 2012, with an agreement to deliver up to 10 billion cubic metres (bcm) of gas per year. The question for the Ukrainian interim government and state-owned energy firm Naftogaz is how this gas will be delivered, how soon, and whether it will be enough. Hungary has the capacity to deliver 5.5 bcm, Poland could deliver 1.5 bcm, and Romania could potentially provide 1.8 bcm capacity, but not before 2016-17 at the earliest. Talks between Ukraine and Slovakia have renewed in an effort to tap into its capacity to deliver 9 bcm of gas, but the Slovak government and pipeline operator, Eustream, are anxious to ensure that feeding gas back to Ukraine does not breach its contracts with Russian state-owned energy giant Gazprom. Given that Ukraine imports around half of its annual 55 bcm of gas consumption, even with these new suppliers it will remain dependent on Russian gas. The current situation comes as Kiev faces price hikes from US$285 to US$485 per thousand cubic metres of Russian gas, after Gazprom cancelled discounts offered in April 2010 and December 2013. The new price is significantly higher than, for example, the price of US$399 paid for Russian gas at the German border. Naftogaz has struggled to pay for its Russian gas imports since late 2013, and now owes Gazprom more than US$2 billion. The combination of Naftogaz’s debts and unwillingness to pay the higher price means that many in Europe fear a suspension of Russian gas supplies to Ukraine – which, as it travels through the same pipelines, would also interrupt Russia’s gas exports destined for Western Europe.

Biden Shills for Shale in Ukraine - Newly minted Shale Stooge Joe Biden went to the Ukraine to shill for shale. Catch is the ousted Ukrainian president was just run out of his job for selling Ukraine’s shale reserves to Chevron and Shell.  He cashed the signing bonus and took off – for Russia.  So what’s the new idea Joe ?  Sell the shale to Exxon instead ?  Maybe one of his aides should have clued him in on that. The civil war is over pipelines and shale.  The Steve has the scoop: Vice President Joe Biden Promotes Fracking On Ukraine Trip During his two-day visit this week to Kiev, Ukraine, Vice President Joe Biden unfurled President Barack Obama’s “U.S.Crisis Support Package for Ukraine.” A key part of the package involves promoting the deployment of hydraulic fracturing (“fracking”) in Ukraine. With the ongoing Russian occupation of Crimea serving as the backdrop for the trip, Biden made Vladimir Putin’s Russia and its dominance of the global gas market one of the centerpieces of a key speech he gave while in Kiev. “And as you attempt to pursue energy security, there’s no reason why you cannot be energy secure. I mean there isn’t. It will take time. It takes some difficult decisions, but it’s collectively within your power and the power of Europe and the United States,” Biden said. “And we stand ready to assist you in reaching that. Imagine where you’d be today if you were able to tell Russia: Keep your gas. It would be a very different world you’d be facing today.” The U.S. oil and gas industry has long lobbied to “weaponize” its fracking prowess to fend off Russian global gas market dominance.

Kerry’s Shale Gas Bluff  - The White House and State Department have engaged in brazen lying to EU governments regarding the ability of the US to supply more than enough natural gas to replace Russian gas deliveries. Recent statements by US President Obama and Secretary of State John Kerry about supplying Europe with gas are patently false.  Europe’s best alternative supply of gas is from the Mideast – via Syria. US LNG exports would go to Asia or South America, where they’d fetch twice what they would in Europe. Everybody in the industry knows that Kerry is bluffing about shipping fracked US shale gas to Europe. It’s just political rhetoric to justify permitting LNG terminals to ship gas to Asia and South America. Imagine that.  After his recent meeting with EU leaders Obama issued the incredible statement that the secret Transatlantic Trade and Investment Partnership (TTIP) that is being secretly negotiated behind closed doors by the major private multinational companies would make it easier for the United States to export gas to Europe and help it reduce its dependency on Russian energy: “Once we have a trade agreement in place, export licenses for projects for liquefied natural gas destined to Europe would be much easier, something that is obviously relevant in today’s geopolitical environment,” Obama stated.That bit of political opportunism to try to push the stalled TTIP talks by playing on EU fears of Russian gas loss after the US-orchestrated Ukraine coup of February 22, ignores the fact that the problem in getting US shale gas to the EU does not lie in easier LNG licensing procedures in the USA and EU.In other recent statements, referring to the recent boom in unconventional US shale gas, Obama and Kerry have both stated the US could more than replace all Russian gas to the EU, an outright lie based on physical realities. At his Brussels meeting Obama told EU leaders they should import shale gas from the US to replace Russian. There is a huge problem with that.

Threat Of Tough Western Sanctions On Russia Unnerves U.S., EU Energy Firms -- USA*Engage, a Washington-based coalition of business groups sponsored by the National Foreign Trade Council, issued a statement the day after the sanctions were announced to draw attention to the “real damage” the penalties would exact on U.S. companies and to urge U.S. decision makers to “fully understand the costs thereof and act only in full concert with the EU and other allies.”  For their part, EU leaders at a March 20-21 meeting of the European Council also discussed potential sanctions against Russian individuals, similar to those developed by the Obama administration.  But notably absent from the first EU sanctions list were the CEOs of Russia’s two biggest companies: Alexei Miller of Gazprom, Russia’s state-owned natural gas monopoly, and Igor Sechin of Rosneft, the Russian government’s oil company. The explanation for their absence seems clear: Russian and EU leaders realize the magnitude of their energy interdependence. For Europe, it comes down to security of supply; for Russia, security of demand.  European energy companies are even less enthusiastic about possible energy sanctions against Russia than American firms are. On April 18, Royal Dutch Shell CEO Shell Ben van Beurden met with Putin at his private residence and told him that his company wanted to expand its involvement in state-owned OAO Gazprom’s $20 billion Pacific Sakhalin-2 offshore oil and gas facility. The facility is Russia’s first offshore LNG project and has been supplying East Asian markets since 1999.

Russia Pressures Ukraine on Gas as Biden Pledges Support - Russia, the world’s biggest natural gas exporter, increased pressure on Ukraine over its $2.2 billion fuel debt as U.S. Vice President Joe Biden voiced support for the smaller country to gain energy independence. Russia will make Ukraine prepay for gas unless it starts paying down the debt it has accumulated through March, Prime Minister Dmitry Medvedev said today in the State Duma, the lower house of parliament, in Moscow. “Gas for cash,” he said. Ukraine is seeking alternative energy sources to cut reliance on Russia amid accusations that President Vladimir Putin uses exports as a political tool. Ukraine gets half of its gas from Russia and is a transit route for about 15 percent of Europe’s annual consumption of the fuel, making energy a key component of international tensions about the nation’s future.

Perverse outcomes: Lifting U.S. oil export ban would mean greater dependence on foreign oil - The United States today is a large net importer of crude oil and refined products. And, yet the story that the country can somehow export crude oil as a foreign policy measure to help reduce Ukraine's dependence on Russia won't die. Oil executives and their surrogates keep bringing it up, and unsuspecting reporters amplify a message that has absolutely no basis. The reason for this oil industry public relations blitz on the Ukraine is rooted in the industry's desire to end a decades-old ban on U.S. crude oil exports--one which the industry hopes to persuade Congress and President Obama to overturn. There is, in fact, a case regarding market efficiency for overturning the ban, but this is NOT the one the industry is using in its public relations campaign. Here's why: The major effect of lifting the ban would be to allow domestic producers to sell lighter grades of crude oil--which U.S. refineries have little remaining capacity to refine--to foreign refineries which do have spare capacity. Perversely, that would lead to GREATER imports of foreign oil--mostly heavier grades--more suitable for the current U.S. refinery infrastructure. Net imports would remain unchanged, of course, even as the country's oil supply becomes more vulnerable to events abroad. But the new arrangement would allow domestic producers to receive a higher price--the world price--for their lighter crude which comes increasingly from wells in deep shale deposits such as the Bakken in North Dakota. You don't have to take my word for any of this. Here's what Ken Cohen, Exxon’s vice president of public and government affairs, told The Wall Street Journal: Exxon has long supported free-trade policies, and argued that the same rules of trade should apply to oil and natural gas as to any other product made in the U.S.A. Beyond the ideology, too much crude from Texas and North Dakota has been pushing down oil prices in the U.S. Exxon, as the nation’s largest energy producer, wouldn’t mind getting higher prices for its crude. How do I know that this change in policy would lead to greater imports of foreign oil? Cohen again confirms this: But when it comes to oil, refiners are particular about the flavor of crude they use. American refineries along the Gulf Coast are generally set up to handle heavier crudes from Mexico and Venezuela. So there’s a mismatch. U.S. oil producers want the option of exporting some high-value light oil, leaving refiners to import lower-cost heavy oil.

US Gas Will Never Replace Russian Gas For Europe --As The FT reports, The east-west stand-off over Ukraine has sparked a political debate over whether the US should loosen its energy export restrictions so Europeans can buy liquefied natural gas, or LNG, from America’s shale energy boom. Asked if Cheniere’s terminal could rescue eastern European countries from their dependence on Russia, Mr Souki said: “It’s flattering to be talked about like this, but it’s all nonsense. It’s so much nonsense that I can’t believe anybody really believes it.” Submitted by Chris Martenson via Peak Prosperity, Recent entreaties by various US politicians to help wean Europe off of Russian gas are simply preposterous. The numbers don't add up, and they never will. Let's begin with the facts: 16% of natural gas consumed in Europe flows through Ukraine Mar 14, 2014 Europe, including all EU members plus Turkey, Norway, Switzerland, and the non-EU Balkan states, consumed 18.7 trillion cubic feet (Tcf) of natural gas in 2013. Russia supplied 30% (5.7 Tcf) of this volume, with a significant amount flowing through Ukraine. EIA estimates that 16% (3.0 Tcf) of the total natural gas consumed in Europe passed through Ukraine's pipeline network, based on data reported by Gazprom and Eastern Bloc Energy. (Source) If the US wants Europe entirely off of Russian natural gas (NG), it will have to immediately replace 5.7 trillion cubic feet per year, or 15 billion cubic feet per day. The entire set of US shale gas plays, which consist of 8 major plays and a slew of minor ones, cumulatively provide the US with 27 billion cubic feet per day. That is, just over half of the entire current US shale gas play would have to be dedicated to the European cause of eliminating Russian natural gas dependency.

Ukraine Seeks More EU Gas Imports as Russia Demands Billions - Ukraine is seeking to import more natural gas from Europe via Slovakia as Russia demands an extra $11.4 billion for contracted fuel and clashes with pro-Russian forces in the country’s east escalate. The European Union, Slovakia and Ukraine failed today to agree on flows from the west, aimed at reducing Kiev’s dependence on Russian gas, as officials met in Bratislava, Slovakia. EU Energy Commissioner Guenther Oettinger said an accord to supply substantial volumes to Ukraine would require Russian consent. With current proposals, European supplies could replace less than half the imports from Moscow-based OAO Gazprom (GAZP) this year, according to data compiled by Bloomberg. “Slovakia is going to want some sort of guarantee that it will get paid,”“The problem is in part because Ukraine is unable to pay for its gas delivered from Gazprom, and any other supplier is going to want to make sure they don’t end up in the same position.”  Ukraine and Slovakia have so far been unable to agree on terms and volumes of flows from Europe. The EU and the U.S. are jointly seeking alternative supply sources to Ukraine, including reversing pipelines amid the worst standoff between Moscow and the West since the Cold War, spurred by the new Kiev government’s plans for closer ties with the EU.  Slovakia, a transit country for the fuel, pumped more than 50 billion cubic meters from Gazprom through its pipelines to European nations last year, or about a third of the world’s biggest gas exporter’s sales to the region, according to data from Eustream AS, the Slovakian pipeline operator, and Gazprom’s export unit. That compares with 5.4 billion cubic meters Slovakia imported for its own needs, according to Gazprom.

Largest oil field in 20 years discovered in Russia - The Russian Ministry of Natural Resources announced the discovery of Velikoye, an oil field with a projected reserve of 300 million tonnes of oil and 90 billion cubic metres of natural gas, which is the largest in Russia in the last 20 years. It is located in the Astrakhan region and belongs to the small company AFB. The project is currently in the exploratory phase.“Work continues at the oil field, but it is already clear that it is one of the largest fields recently discovered on land,” stated Natural Resources Minister Sergei Donskoi. According to the minister, the development of the new oil field will proceed quickly and efficiently. The field was discovered by the small company AFB, whose major shareholder is Vitaly Vantsev, the co-owner of Moscow’s Vnukovo Airport. The company is considering the major oil and gas companies as partners for the project, but so far is not conducting any negotiations on the subject of either a partial or a complete sale of its assets.

America And Oil: This Chart Shows Why OPEC’s Knees Are Trembling  -- What would have been a demented propagandist’s flight of fancy a decade ago has become reality: For the first time in history, the US imports more oil from our dear and reliable neighbor Canada than from OPEC. With major consequences. Two primary reasons:

• Rising oil production in Canada; hence, more oil to import.
• Soaring oil production in the US, hence drastically lower oil imports in general.

Their combination has come out of OPEC’s hide. The chart, based on EIA data from January 1993 through January 2014, shows that imports from OPEC have been cut nearly in half from about 200 million barrels during the peak months of January and August 2008 to 102.7 million barrels in January 2014. During that time, US domestic oil production has jumped 49%. US independence from all crude oil imports? Not anytime soon. But North America as a whole – Mexico, US, and Canada – will likely increase production enough to where imports from OPEC become essentially irrelevant over the next few years.

The Middle East we must confront in the future will be a Mafiastan ruled by money --  Saudi Arabia is giving $3bn – yes, £2bn, and now let’s have done with exchange rates – to the Pakistani government of Nawaz Sharif. But what is it for? Pakistani journalists have been told not to ask this question. Then, when they persisted, they were told that Saudi generosity towards their fellow Sunni Muslim brothers emerged from the “personal links” between the Prime Minister and the monarchy in Riyadh. Saudi notables have been arriving in Islamabad. Sharif and his army chief of staff have travelled to the Kingdom. Then Islamabad started talking about a “transitional government” for Syria – even though Pakistan had hitherto supported President Bashar al-Assad – because, as journalist Najam Seti wrote from Lahore, “we know only too well that in matters of diplomatic relations there is no such thing as a gift, still less one of this size”. Now the word in Pakistan is that its government has agreed to supply Saudi Arabia with an arsenal of anti-aircraft and anti-tank missiles, which will be passed on – despite the usual end-user certificates claiming these weapons will be used only on Saudi soil – to the Salafist rebels in Syria fighting to overthrow the secular, Ba’athist (and yes, ruthless) regime of Bashar al-Assad. The Americans, in other words, will no longer use their rat-run of weapons from Libya to the Syrian insurgents because they no longer see it as in their interest to change the Assad government. Iraq, with its Shia majority, and Qatar – which now loathes and fears Saudi Arabia more than it detests Assad – can no longer be counted on to hold the Shias at bay. So even Bahrain must be enlisted in the Saudi-Salafist cause; his Royal Highness the King of Bahrain needs more Pakistani mercenaries in his army; so Bahrain, too – according to Najam Sethi – is preparing to invest in Pakistan.

Quantifying Effects of Sanctions on Iran's Economy - With the more moderate President Hassan Rouhani now in charge--he Tweets and attends the World Economic Forum to drum up foreign investment--Western countries have lifted some sanctions in an act of goodwill. Just when you thought Iran was rather different, here's its leader trying to drum up FDI like everyone else. To provide context, a few months prior to his WEF talk, the US and EU eased sanctions on Iran. In exchange for more scrutiny of its nuclear program, Iran gained a six-month partial reprieve on sanctions: Iran's government agreed to give Western powers more scrutiny of the country's nuclear program for six months. In exchange, Western capitals eased some sanctions. The relief is limited to just a handful of industries—aircraft, car parts and petrochemicals, for example. And Western authorities are scrutinizing deals closely. Businesses exploring the Iranian market "do so at their own peril right now," U.S. President Barack Obama said last month, "because we will come down on them like a ton of bricks."But that hasn't stopped companies from boosting their presence or sending in advance teams—essentially making exploratory visits in the hopes that sanctions may be lifted further and permanently.One of the the world's largest political risk consultancies, IHS, puts dollar signs on these important figures: 1.5 percent growth forecast, $270 billion lost due to sanctions. Rapprochement with the West will help to stabilize Iran's economy. IHS forecasts Iran’s real GDP will rise by 1.5 percent in FY 2014/15, after two years of contraction. Signs of improved relations along with temporary and conditional sanctions relief have breathed life into the Iranian economy. The EU has suspended its ban on insurance coverage for Iranian oil shipments, $4.2 billion in oil revenues has been unblocked, and current restrictions on imports of crude will be held steady for the six countries still purchasing oil from Iran.”

Ethiopia: New railway project to link Addis Ababa with Djibouti - The old French-built railway that connected Addis Ababa, the capital of landlocked Ethiopia, to the Red Sea port of Djibouti, is now being replaced by a Chinese-built electrified railway, a bold project that seeks to boost Ethiopia’s commercial exports. The new project also symbolises a shift in Ethiopia’s international relations. “You see nowadays that the dice are thrown differently. Chinese, Indian (and) Turkish interests are now taking over… times have changed,” said Hugues Fontaine, author of the recently published book Un Train en Afrique, or African Train, about the historic Ethiopian train. Indeed, Ethiopia is casting its dice eastward — seeking investors to help it achieve its grandiose Growth and Transformation Plan (GTP), which seeks to boost economic growth and achieve middle income status by 2025. The construction of the railway is a key component of the GTP: a series of eight rail corridors totalling 4,744 kilometres (2,948 miles), creating a series of key trade routes to neighbouring Kenya, South Sudan, Sudan and — crucially — to Djibouti‘s port. Two Chinese companies are contracted to build the $2.8 bn (€2.15 bn) line connecting Addis Ababa to the Djiboutian border by 2016, and Turkish and Brazilian companies are slated to construct other segments of the nation-wide rail network.

Gazprom Delighted By China Announcement Nat Gas Need To Soar By 150% In 6 Years - It may comes as a surprise to many, if certainly not the country known as Gazpromia, that according to a government statement released on Wednesday, China will raise its natural gas supply to a whopping 420 ­billion cubic meters per year by 2020 on soaring demand due to urbanization, a government statement said on Wednesday. This compares roughly 168 bcm in gas used in 2013, which means somehow China hopes to boost gas production by over 150% in just 6 years.

China’s Legislature Moves To Crack Down On Polluters - China just updated a 1989 anti-pollution law to crack down on companies and individuals who befoul the country’s environment, the New York Times reported. On Thursday, the China’s National People’s Congress approved revisions to the law, expanding its number of articles from 47 to 70. They’re the first changes made to the legislation since its enactment in 1989, and they’ll take effect on the first of the year, 2015. The legislative body usually agrees to policies already made by Communist Party Leaders, and China’s prime minister said China was ready to “declare war” on pollution.According to the New York Times, the alterations include steeper fines for companies, as well as the ability for fines to accumulate daily rather than being assessed on a one-time basis; the possibility of 15-day detainment for company executives deemed responsible for pollution; and demotions and even firings for officials who cover up for polluting companies.It’s not the only recent move China has made to ratchet down on its growing pollution problem. Earlier this year, China tightened the cuts it requires in air pollution for a large number of its cities — in some cases calling for reductions of as much as 25 percent. Much of the motivation for that move may have come from a report the government released in March, acknowledging that only three of 74 Chinese cities had fully complied with the previously required reductions. The government also started a “name and shame” campaign in 2013 to single out the cities that fell furthest behind.

How China's Commodity-Financing Bubble Becomes Globally Contagious -- Reuters notes that China's soybean imports in the first quarter jumped 33.5 percent, a record for the quarter and industry sources see a rush of cargoes in the second quarter. The rise comes amid an increasing use of soybeans in financing trades to secure credit. Traders estimate more than 10 million tonnes of soybeans, out of China's imports of 63.4 million tonnes last year, are imported for financing annually. "Marubeni [the world's largest soybean exporter to China] is deluded in thinking that payments will come once the cargoes have sailed," is the message from an increasing number of liquidity-strapped Chinese firms, "If they take these cargoes, some could go bankrupt. That's why they choose not to honor the contracts." As we explained in great detail here, this is the transmission mechanism by which China's commodity-financing catastrophe spreads contagiously to the rest of the world. A glance at the Baltic Dry is one indication of the global nature of the problem (and Genco Shipping's $1 billion bankruptcy), but as Reuters reports, "If buyers cannot resolve the issue, they may also cancel future shipments."

Pettis: 11 Reasons China Can’t Escape from Its Debt Overhang - via Yves Smith - Yves here. A certain amount of complacency has set in about China’s unsustainable economic model, simply because the Middle Kingdom has managed to stay a day of reckoning. I remember similar doubt fatigue setting in during the blowoff phase of the dot-com bubble. Even with more worrying sightings, such as distress in wealth management products (the riskiest part of China’s shadow banking system), many of the bearish sorts believe that China has enough control over its economy that it will engineer a soft landing. Yet it’s hard to ignore stories like these: My last trip to Shanghai and surrounding cities and my earlier trip in November was eye opening. A couple of years before I was in Shenzhen China vising a PC Board manufacturer to discuss $160,000 in premium freight and scheduling charges which were partially our fault. In the end I recouped half which I thought was fair and made some good contacts.  On the way in and out of Shenzhen, we passed an enormous outdoor mall of acres of store fronts unoccupied. Fast forward to 2013/14 and I found the same around Shanghai in Ningbo, Shuzhou, Wuzhen, Wuxi, Nanjing, Haimen, Hangzhou, etc. I am sure you have read about China building infrastructure to keep labor busy. They built ghost towns/malls and housing which the people can not afford. China built for GDP. Michael Pettis has pointed out more than once that China resolved its last bank crisis of 2002-2003 by having households bear the cost, which led China’s consumption share of GDP to fall. That moves it further away from adjusting from being an export-driven economy to one where internal demand plays a much bigger role. Even though China’s export share has indeed fallen, what has taken its place is not consumer demand but an unheard-of level of investment, much of it in unproductive residential real estate.  Pettis works though some of the implications of China’s high (for an emerging economy) debt levels and how they might be resolved.

Chinese Firms Turn to Foreign Investors to Borrow -- Chinese companies have increasingly turned to foreign investors for financing as domestic credit is getting harder to come by. That could result in higher borrowing costs for China Inc., which already is facing growing debt burden within the country, due to rising global interest rates and a weakening yuan. Businesses based in mainland China--led by banks, property developers and energy companies--had a total of $169.2 billion worth of outstanding bonds held by investors outside of China last year, up 60% from the previous year and more than double the amount in 2011, according to a new analysis by Nomura Holdings Inc. Many of the bonds are sold in Hong Kong, a Chinese city that operates under its own laws, and in the Caribbean region. Of all the estimated $2 trillion of Chinese corporate bonds outstanding, about 8% is held by foreigners, the Nomura study shows. Meanwhile, loans made by foreign banks to Chinese companies reached $609 billion in September, up almost two-thirds from the level as of the end of 2011, according to Nomura. That represented about 5% of all Chinese corporate loans outstanding as of September. Investors buying the debt say Chinese corporate bonds are a good bet despite a slowdown in the world's second-largest economy. The companies tapping international debt markets tend to be in good financial health and are unlikely to default, these investors say. Meanwhile, the bonds often offer bigger yields than similarly rated Western companies.

China Drafts Laws To Allow Local Governments To Issue Bonds: Report: China is planning to permit local governments to directly issue bonds to fund essential projects, the official Xinhua News Agency reported Monday. The Standing Committee of National People's Congress is reviewing the draft revisions on the budget law. According to the draft law, local governments will be able to issue bonds within a quota set by the State Council. The fund so raised could be used to partly finance construction investments that have been included in the provincial-level governments' general public budget plans. No other forms of debt raising would be allowed under the draft. The central government currently issues bonds on behalf of some local authorities. China's highly indebted local governments has raised concerns about the possible systemic risk. Local government debt surged more than 60 percent from end-2010 to around CNY 18 trillion at the end of June 2013.

April Manufacturing Data Suggest China Economy Starting to Stabilize - An initial peek at April manufacturing data Wednesday suggests China’s economy is beginning to stabilize after growth slowed sharply in the first quarter of the year. The question is whether the economy is healthy enough to recover on its own, or whether authorities will need to step in with further fiscal or monetary medicine. The HSBC flash PMI, a proxy for gross domestic product, rose to 48.3 in April from March’s final reading of 48.0, with any number below 50 indicating activity is contracting. In other words, today’s data showed Chinese industrial activity continues to slow, but the decline is moderating. Fred Neumann, co-head of Asian economics for HSBC, said sluggishness in the economy means Chinese policy makers may have to engage in a bit more pump-priming before a recovery really takes hold. “It may require extra easing steps by the authorities, including more fiscal spending and possibly also cuts in the reserve requirement ratio to add liquidity to the banking system,” The flash index incorporates responses from 85%-90% of the firms that HSBC and Markit Economics survey for the final gauge, which will be released May 5. An official PMI from the China Federation of Logistics and Purchasing, which surveys more firms but focuses especially on large and state-owned enterprises, will be released May 1.

China Manufacturing Output and New Orders Contract Once Again - Chinese manufacturing remains in contraction for 2014. Output and new orders were down for the 4th consecutive month, but at a slightly reduced pace according to the HSBC Flash China Manufacturing PMI. Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co - Head of Asian Economic Research at HSBC said: “The HSBC Flash China Manufacturing PMI stabilised at 48.3 in April, up from 48.0 in March. Domestic demand showed mild improvement and deflationary pressures eased, but downside risks to growth are still evident as both new export orders and employment contracted. The State Council released new measures to support growth and employment after the release of Q1 GDP. Whilst initial impact will likely be limited, they signalled readiness to do more if necessary. We think more measures may be unveiled in the coming months and the PBoC will keep sufficient liquidity.”

The "Real Pain" Is About To Begin As Chinese Currency Slumps To 19-Month Lows -- The PBOC's willingness to a) enter the global currency war (beggar thy neighbor), and b) 'allow' the Yuan to weaken and thus crush carry traders and leveraged 'hedgers' is about to get serious. The total size of the carry trades and hedges is hard to estimate but Deutsche believes it is around $500bn and as Morgan Stanley notes the ongoing weakness means things can get ugly fast as USDCNY crosses the crucial 6.25 level where losses from hedge products begin to surge. This is a critical level as it pre-dates Fed QE3 and BoJ QQE levels and these are pure levered derivative MtM losses - not a "well they will just rotate to US equities" loss - which means major tightening on credit conditions...

China’s Central Bank Looks for Better Monetary-Measuring Tools --Three years after China’s central bank unveiled a new measure to calculate the amount of credit in the economy, it may be going back to the drawing board. Pan Gongsheng, a vice governor at the People’s Bank of China, said this week that the financial sector has rolled out so many innovative products in recent years that it has become much more difficult to calculate the nation’s money supply. The PBOC didn’t name names, but recent financial innovations have included wealth management products and fast-growing online investment funds like Yu’e Bao – all of them offering investors higher returns than traditional bank deposits. Such innovations “have affected the accuracy, completeness and scientific methodology of money-supply calculations,” Mr. Pan said Thursday at a meeting of financial regulators and academics. “Hence we need to improve the financial calculation mechanism so as to better serve macro financial regulation and prevent systemic risks.” Mr. Pan said regulators would set up a unified and comprehensive calculation system for the financial sector, but didn’t give further details.

China’s Place in the Global Economy - Last week’s announcement that China’s GDP grew at an annualized rate of 7.4% in the first quarter of this year has stirred speculation about that country’s economy. Some are skeptical of the data, and point to other indicators that suggest slower growth.  Although a deceleration in growth is consistent with the plans of Chinese officials, policymakers may respond with some form of stimulus. Their decisions will affect not just the Chinese economy, but all those economies that deal with it. The latest World Economic Outlook of the International Monetary Fund has a chapter on external conditions and growth in emerging market countries that discusses the impact of Chinese economic activity. The authors list several channels of transmission, including China’s role in the global supply chain, importing intermediate inputs from other Asian economies for processing into final products that are exported to advanced economies. Another contact takes place through China’s demand for commodities.  The author’s econometric analysis shows that a 1% rise in Chinese growth results in a 0.1% immediate rise in emerging market countries’ GDPs. There is a further positive effect over time as the terms of trade of commodity-exporters rise. Countries in Latin America are affected as well as in Asia. These consequences largely reflect trade flows, although China’s FDI in other countries is acknowledged. But what would happen if China’s capital account regulations were relaxed? Financial flows conceivably could be quite significant. Chinese savers would seek to diversity their asset holdings, while foreigners would want to hold Chinese securities. Chinese banks could expand their customer base, while some Chinese firms might seek external financing of their capital projects. A study by John Hooley of the Bank of England offers an analysis of the possible increase in capital flows that projects a rise in the stock of China’s external assets and liabilities from about 5% of today’s world GDP to 30% of world GDP in 2025.

Yuan to become major currency in world trade: HSBC - HSBC foresees a sharp increase in the use of the Chinese yuan in global trading and payment, in particular in China's trade with emerging markets. Also, in the next five years HSBC expects more than 30 per cent of China's total global trade to be settled in yuan. Wei Wei Ng, head of international countries, Asia-Pacific Global Trade and Receivables Finance of the Hongkong and Shanghai Banking Corporation ( HSBC), said yesterday that the yuan will play a more important role in global trading. Countries trading with China like Asean nations and emerging markets should prepare for more use of the yuan in international trading in order to reduce risk from exchange rate instability. According to the financial services company, Swift, which monitors international currency flow, as of December 2013, yuan had become Europe's second most-used currency after the US dollar. From just 3 per cent in 2010, the yuan is now used to settle about 18 per cent of China's trading in the global market. But the figure is expected to increase to 30 per cent of trading value in 2019. In trading with emerging markets, by 2015, the bank expects more than half of China's trade with emerging markets, worth about US$2 trillion, will be settled in yuan. "Companies should be aware of using a variety of currencies in trading, with yuan playing a more important role in international trading amidst China's continued economic growth," said Ng. She added that by 2015, yuan would become one of the top-three global trading currencies. She said that although China's economy has seen a slowdown in growth, its economy has seen a huge increase compared with other nations. In the first quarter of this year, China's economy grew 7.4 per cent.

Exodus of Japan Inc. Slams China - The Japanese-Chinese imbroglio over the Senkaku Islands – or Diaoyudao Islands, as they’re called on the other side of the pond – has been artfully kept on the front burner with a mix of symbolic gestures, carefully orchestrated military provocations and reactions, “scholarly” papers, articles in the media, government pronouncements, and all manner of other artifices. And Japanese businesses, particularly automakers, have paid a steep price in China, where sales collapsed following the outbreak in the fall of 2012.  But now, decisions made one at a time by Japanese businesses are hitting the Chinese economy, at a moment when it can least digest such hits.  It didn’t help that the Shanghai Maritime Court seized a Japanese-owned iron-ore cargo ship. The owner, Mitsui O.S.K Lines Ltd., “still refuses to perform its obligations,” the court ruled, according to the Asahi Shimbun. These “obligations” date back to 1936, just before the Second Sino-Japanese War, when Zhongwei Shipping Co. in China leased two ships to Daido Kaiun, a predecessor of Mitsui O.S.K. The two ships were promptly confiscated without compensation by the Japanese military and sank in 1944. Other lawsuits have been filed in China against Japanese companies, demanding compensation for various wartime damages, including forced labor. Chinese authorities, adhering to the 1972 Japan-China joint communique by which China had relinquished its right to demand compensation for wartime damages, have long dismissed these lawsuits. But in March, as an indication that the honeymoon was over, a Beijing court allowed such a lawsuit to move forward for the first time..

China seizes Japanese cargo ship over pre-war debt: China's seizure of a Japanese cargo ship over a pre-war debt could hit business ties, Japan's top government spokesman has warned. Shanghai Maritime Court said it had seized the Baosteel Emotion, owned by Mitsui OSK Lines, on Saturday. It said the seizure related to unpaid compensation for two Chinese ships leased in 1936. The Chinese ships were later used by the Japanese army and sank at sea, Japan's Kyodo news agency said. "The Japanese government considers the sudden seizure of this company's ship extremely regrettable," Chief Cabinet Secretary Yoshihide Suga said on Monday. "This is likely to have, in general, a detrimental effect on Japanese businesses working in China." Shrine row The owners of the shipping company, identified by Kyodo as Zhongwei Shipping, sought compensation after World War Two and the case was reopened at a Shanghai court in 1988, China's Global Times said. The court ruled in 2007 that Mitsui had to pay 190 million yuan ($30.5m, £18m) as compensation for the two ships leased to Daido, a firm later part of Mitsui, Global Times and Kyodo said.

Obama starts Asia tour with a message to China -  President Barack Obama kicked off a tour of Asia on Wednesday with a pointed message to China and the entire region: The U.S. stands resolutely with Japan in a long dispute over some small islands in the East China Sea.As Obama landed in Japan, news here was dominated by his comments to a Japanese newspaper that the string of islands subject to a bitter Chinese-Japanese dispute fall within the scope of a U.S.-Japan security treaty.U.S. policy is clear, the president said in written remarks to The Yomiuri Shimbun, that the tiny, uninhabited islands are administered by Japan and “therefore fall within the scope of Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security.”Obama’s statement affirmed longtime U.S. policy; Defense Secretary Chuck Hagel conveyed a similar message last November in a call with Japanese military officials. But by sending the message at the start of a weeklong trip to Japan, South Korea, Malaysia and the Philippines, the president worked to reinforce a key purpose of his voyage, reassuring allies about U.S. commitment in a region that’s anxious about China.

Japan overhauls S$1.6 trillion public pension fund, the world’s biggest -- Japan overhauled the world’s biggest public pension fund on Tuesday, appointing new committee members, in a push towards Prime Minister Shinzo Abe’s goal of a more aggressive investment strategy. The government announced a reshuffle of the Investment Committee of the 129 trillion yen (S$1.6 trillion) Government Pension Investment Fund (GPIF), in line with Mr Abe’s drive to have the fund make riskier investments and rely less on low-yielding government bonds. Global financial markets are keenly watching GPIF’s investment strategy as the fund, bigger than Mexico’s economy, is a huge investor and a bellwether for other Japanese institutional investors. The new committee will play a leading role when GPIF sets its new investment allocation targets over the coming months. Mr Abe has promised GPIF reform as an element of his growth strategy, the “third arrow” in his policy, following aggressive monetary and fiscal stimulus.

Japan CPI Rises Less Than Expected - A closely watched Japanese inflation gauge rose a bit less than expected in April, the government said Friday, creating room for possible doubts among Bank of Japan 8301.TO +0.81% policy makers that the recent increase in the domestic sales tax would stoke strong upward price movements. The core consumer-price index for the Tokyo metropolitan area climbed a preliminary 2.7% from a year earlier in April, the largest gain since 1992, according to data released by the Ministry of Internal Affairs and Communications. Core CPI exclude volatile fresh food prices. Economists polled by The Wall Street Journal and the Nikkei had expected an increase of 2.8%. While the figure dwarfed a 1.0% rise in the previous month, the big jump was largely due to a sales tax increase of three percentage points that kicked in at the start of this month. By a Bank of Japan measure that cleans CPI data of the effects of the tax change, underlying inflation in Japan's capital was unchanged at a 1.0% increase. The nationwide core CPI for March increased 1.3%, the same as in February, the Internal Affairs Ministry said. Economists had expected a 1.4% rise.

Japan's inflation rate has stalled as impact of yen depreciation wanes - Today's inflation report in Japan shows that further significant progress toward the 2% target rate remains elusive. Analysts have been focused on the Tokyo CPI figure, which is reported a month ahead of the national number. The Tokyo result is the first post-consumption-tax-hike inflation indicator and provides a preview for how the nation is impacted by this increase. As expected, there was a spike in Tokyo prices.But according to the Bank of Japan estimates, the tax increase should have raised inflation by 1.7% in April. That puts the Tokyo tax-adjusted measure at 1% - unchanged from the previous month and below expectations. Some were hoping that a larger portion of the tax increase would flow through to the consumer, but it seems that Japan's companies simply lack the pricing power. At the national level (through March), the core inflation seems to be stuck at 1.3%. If the Tokyo measure is any indication, the April increase nationally will be mostly tax driven - and therefore temporary.Japan needs to break through this CPI "ceiling" in order to comfortably move away from the deflation danger zone. However much of the inflation increase last year has been due to weaker yen. But now that the yen has stabilized, the currency-related impact on prices is dissipating..  Should Japan attempt to weaken the yen even further in order to move inflation higher? The problem with that approach is that it would exacerbate the "wrong" type of inflation. Over the past year in Japan, dairy products are up 4%, meats are up 5%, gasoline is up 6%, and electricity is up 10%. These are import driven price shocks and further yen weakness could spell trouble.

Japan’s Tepid Victory Over Deflation - The good news: Economists increasingly are convinced that Japan has finally slain its deflation dragon. The bad news: The victory they envision doesn’t look like much to celebrate, with a future of slow growth and painful policy choices. That’s the rough consensus from a Wall Street Journal survey of 41 global economists, completed Thursday, taking stock of Prime Minister Shinzo Abe’s economic revival plan about a year and a half into his term. In response to the question, “do you think that Japan has successfully exited deflation?” two-thirds of respondents said “yes.” If true, that would mark success for Mr. Abe on his signature policy goal and a significant turning point for an economy gripped for nearly 15 years by a destructive spiral of falling prices, wages, spending and investment — the only major modern economy to suffer that affliction. In March,  the most closely watched gauge of inflation rose 1.3% over the previous year, the government reported Friday, continuing the recent trend of steady price increases. The economists — mainly from Japan and the U.S. — generally conclude that, contrary to earlier fears, the recovery engendered by Abenomics is strong enough to withstand the blow of the April 1 sales-tax increase. Thirty-one of the 33 economists who offered growth projections anticipated just one quarter of contraction in gross domestic product, from April-June, as consumers temporarily scale back spending following a pre-tax binge. Most expect a return to stable growth by the second half of 2014 and over the next two years, even as 76% support plans to raise the consumption tax again in October 2015. Overall, 55% of the economists gave Abenomics a “B” grade, with another 10% giving it an “A.”

Costs keep mounting for idled reactors --Since March 2011, the government has focused on the cost of cleaning up after Fukushima, the worst nuclear disaster since Chernobyl. Now, the bill is coming due for another unbudgeted consequence of that calamity — shutting down the nation’s 48 remaining nuclear reactors for costly safety reviews that could see many of them mothballed. While their reactors have been idled, nuclear plant operators have had to spend around $87 billion to burn replacement fossil fuels. This, in part, explains the utilities’ estimated combined losses of around $47 billion as of March, and the $60 billion wiped off their market value. That pain is beginning to tell. In early April, Kyushu Electric Power Co. was confirmed to be seeking an almost $1 billion bailout in the form of equity financing from the government-affiliated Development Bank of Japan because of the cost of idling its reactors. Hokkaido Electric Power Co. has also asked the bank for financial backing. Even as Prime Minister Shinzo Abe’s government has hammered out the final terms of a delayed energy policy, the bill for a reduced role for nuclear power in the world’s third-largest economy is becoming clearer. One way or another, taxpayers are going to be saddled with the cost of throttling back on nuclear power through taxes and higher electricity bills, analysts say, just as the government has had to provide funding for those who lost their homes and livelihoods due to the Fukushima disaster.

Japan Posts Largest-Ever Trade Deficit - The gap between the value of Japan’s exports and that of its imports grew by more than two-thirds in the 12 months through March, to Y13.7tn ($134bn), according to government data released on Monday. It was the third consecutive fiscal year of deficits, the longest streak since comparable records began in the 1970s. Toyota, Hitachi and other large Japanese companies have enjoyed soaring profits as a result of the weaker yen, which has fallen by a fifth against other major currencies since November 2012. But the improvement has come less from increased exports than from flattered exchange rates on overseas sales. Japanese export volumes have barely risen and the yen value of goods shipped to foreign markets has increased much more slowly than the value of imports. Exports actually declined slightly by volume in January-March compared with the previous quarter, by 0.2 per cent on a seasonally adjusted basis, according to calculations by Credit Suisse, even as imports grew by 4.5 per cent. A steady outflow of Japanese manufacturing jobs to lower-cost countries and declining competitiveness in some sectors, such as consumer electronics, has limited the power of a cheap yen to lift exports. Overall Japanese exports increased 0.6 per cent by volume last fiscal year, Monday’s data showed, leading to a 10.8 per cent rise by value in light of the weaker yen. Imports rose 2.4 per cent by volume and 17.3 per cent by value.

Japan's trade deficit quadruples year-on-year to record ¥13.75 trillion - Japan’s trade deficit quadrupled from a year earlier to ¥13.75 trillion — its largest to date — data showed Monday, with a weak yen compounding surging imports as consumers rushed to buy goods ahead of the sales tax rise. The nation imported ¥1.45 trillion worth of goods more than it exported in March, the Finance Ministry said, compared with a shortfall of ¥356.9 billion in March 2013. Exports rose 1.8 percent to ¥6.38 trillion, thanks to higher shipments of cars and processed fuel products. But imports grew a much faster 18.1 percent to ¥7.83 trillion due to higher imports of crude oil and liquefied natural gas as the resource-poor nation raced to plug its energy gap. A 17.3 percent rise in imports to ¥84.61 trillion from a year earlier to March 31 caused by post-Fukushima energy bills overwhelmed a 10.8 percent jump in exports to ¥70.86 trillion, according to Finance Ministry data. Junko Nishioka, chief economist at RBS Securities Japan, attributed the jump in imports to expectations of a last-minute surge in consumer spending before the April 1 sales tax hike. Compared with before the March 2011 disaster, “a weaker yen hasn’t increased export volume as much as it used to,” she said. “That is to say, Japanese firms aren’t as competitive as before,”

U.S.-Japan Talks Said Unable to Overcome Deal Obstacles - The 12 nations brokering a Pacific-rim trade deal will continue talks as the U.S. and Japan were unable to overcome key differences in advance of a planned visit by President Barack Obama to Japan. U.S. Trade Representative Michael Froman and Japanese Minister for Economic and Fiscal Policy Akira Amari yesterday concluded talks in Washington on the Trans-Pacific Partnership without striking a deal on some of the most contentious issues. “After more than 20 hours of negotiations, we continue to make progress,” the U.S. trade office announced yesterday in an unsigned statement. “These issues are important to both sides and considerable differences remain.” Negotiators had accelerated their work -- meeting in Tokyo last week and Washington this week -- as President Barack Obama prepares to visit Japan, Malaysia, the Philippines and South Korea April 24-28. The nations forging the pact aren’t holding themselves to a specific deadline and will take the time necessary to achieve a good agreement, according to a U.S. official who requested anonymity to brief reporters. Chief negotiators from the TPP countries will meet in mid-May in Vietnam for additional negotiations, the official said. Trade ministers will meet separately during an Asia-Pacific Economic Cooperation summit in Qingdao, China from May 17-18.

Obama is set to ‘rebalance’ ties with allies in Asia - President Obama departs Tues­day for a week-long, four-nation tour of Asia, where he and his top aides will be less focused on any big policy announcements than on reassuring jittery allies that America remains committed to bolstering its security and economic ties to the region. The trip — rescheduled from October, when Obama canceled his plans because of the government shutdown — includes two of the countries on his original itinerary, Malaysia and the Philippines, as well as Japan and South Korea. On one level, the president has a long list of tasks awaiting him: He will try to make headway on trade negotiations with Japan, work to ease tensions between Japanese Prime Minister Shinzo Abe and South Korean President Park Geun-hye, foster a closer alliance with the government in Muslim-majority Malaysia, and shore up support for Philippine President Benigno Aquino III. But it is also, by its very nature, an interim step in the administration’s larger project of seeking to “rebalance” its relationship with the most economically and socially dynamic region of the world at a time when China continues to expand its influence there.

As Obama Visits TPP Countries, New Obama Administration Report Targets Their Public Interest Policies as “Trade Barriers” to be Eliminated - The 2014 National Trade Estimate Report, published earlier this month by the Office of the U.S. Trade Representative (USTR), targets financial, privacy, health, and other public interest policies of each TPP nation as "trade barriers" that the U.S. government seeks to eliminate. The report offers unusual insight into why negotiations over the sweeping, 12-nation deal are contentious and have repeatedly missed deadlines for completion. The policies of other TPP nations criticized by the 384-page USTR report include New Zealand’s popular health programs to control medicine costs, an Australian law to prevent the offshoring of consumers’ private health data, Japan’s pricing system that reduces the cost of medical devices, Vietnam’s post-crisis regulations requiring banks to hold adequate capital, Peru’s policies favoring generic versions of expensive biologic medicines, Canada’s patent standards requiring that a medicine’s utility should be demonstrated to obtain monopoly patent rights, and Mexico’s “sugary beverage tax” and “junk food tax.” The Obama administration also targets seven of the 11 TPP partners, including majority-Muslim countries like Malaysia and Brunei, for restricting the importation or sale of alcohol, takes issue with several TPP countries’ restrictions on the importation of tobacco, and laments Vietnam’s restriction on the importation of “a variety of hazardous waste items.”

America’s Proposed TPP: Buyer Beware - Despite President Barack Obama’s charm offensive in the region, Pacific nations are well-advised to remain wary of the U.S. government’s position on the Trans-Pacific Partnership agreement (TPP). If U.S. trade negotiators got their way, the Pacific Rim would reap surprisingly few gains — but take on big risk. Until the United States starts to see Asia as a true trading partner, rather than a region to patronize, it is right to hold out on the TPP. Despite all Obama’s charm, the rosiest projections say that the TPP will raise incomes among the parties to the treaty by a mere 0.3% of GDP in 2025. Many economists see these projections as gross over-estimates. For one, they heroically assume that a doubling of exports automatically leads to more than a doubling of income. Yet, even if these estimates were taken at face value, they amount to just over one penny per day per person way out in 2025 for TPP nations. In exchange for these small benefits, the U.S.’s partners in Asia and Latin America have to take on big risks. One big risk that may be a deal breaker is that the U.S. is insisting that TPP partners surrender their right to regulate global finance.

Failed Trade Deal With Japan Puts Obama’s Economic “Pivot” on Hold - The U.S failed to reach a last-minute agreement on a bilateral trade deal with Japan during President Barack Obama’s trip this week. Clinching the deal would have paved the way for a 12-nation U.S.-led Trans-Pacific Partnership, the main economic component of Obama’s foreign policy “pivot” to Asia.Japan’s Minister of State for Economic Revitalization Akira Amari and U.S. trade representative Michael Froman made a final effort during President Obama’s visit to Japan, after conducting talks for over three weeks, but the two parties didn’t see eye to eye on most of the major contentious issues, the Wall Street Journal reports.A Senior Administration official told reporters on board Air Force One en route from Japan to Seoul, South Korea that the U.S. and Japan would continue trade talks despite the two’ countries failure to reach a final agreement while Obama was in Japan. The official also said Obama’s presence was critical in bridging a gap on one particular set of disagreements between the two countries.The U.S. had aimed to conclude talks last year. However, Japan refused to meet its demands for an elimination of all tariffs, offering only tariff reductions for sensitive farm products such as beef and pork.

Obama and Japan's Abe fail to reach trade accord - latimes.com: -- The U.S. and Japan failed to reach agreement on free-trade talks as President Obama left Japan on Friday without the breakthrough needed to advance a key element of his broader agenda of strengthening America's hand in Asia. Despite a last-minute push through the night, the two sides could not bridge their differences on tariffs and market access, clouding the prospects for the proposed free-trade pact among a dozen nations that include the U.S., Japan, Canada and Mexico. Obama had hoped to come away from his two-day summit with Japanese Prime Minister Shinzo Abe with a bilateral deal that would propel the stalled Trans-Pacific Partnership negotiations to a conclusion. Instead, as Obama headed for South Korea, the second stop of his four-nation Asia tour, the U.S. and Japan issued a statement that made clear they had fallen short of their goal. Although it said that they "have identified a path forward on important bilateral TPP issues," the statement gave no specifics and noted that "there is still much work to be done to conclude TPP." Japan's economic minister, Akira Amari, was more direct, telling reporters Friday morning that there was progress but no accord. Although he did not provide details, analysts have said the most contentious issues have been over Japanese tariffs on beef, pork and other politically sensitive farm goods, which the U.S. wants eliminated.

Pritzker Says Deal Close on Pacific-Trade Agreement (Bloomberg Transcript) -U.S. Commerce Secretary Penny Pritzker said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend, that she’s optimistic negotiators for 12 nations -- including America -- will agree on a Pacific-region trade deal that can be submitted to Congress this year.

• HUNT: President Obama and Japanese Prime Minister Abe were diplomatically polite, but they didn’t conclude any deal on the TPP, one the administration hoped to complete by the end of last year. Do you think you’re going to get a deal this year you can send to Congress?
• PRITZKER: I think so. I’m pretty optimistic about what can happen. Remember something; I come from the private sector, as you know.
• HUNT: Right.

2 Snippets to watch… World Trade & Productivity - Weakening world trade is something to watch according to Michael Pettis. “… redistributing income downwards is easier said than done in a globalized world, especially one in which countries are competing to drive down wages. The first major economy to attempt to redistribute income will certainly see a surge in consumption, but this surge in consumption will not necessarily result in a commensurate surge in employment and growth. Much of this increased consumption will simply bleed abroad, and with it the increase in employment. “Less global trade, in other words, will create both the domestic traction and the domestic incentives to redistribute income. In a globalized world, it is much safer to “beggar down” the global economy than to raise domestic demand, and so I expect that there will continue to be downward pressure on international trade.” “Until we understand this do not expect the global crisis to end anytime soon, except perhaps temporarily with a new surge in credit-fueled consumption in the US (which will cause the trade deficit to worsen) and more wasted investment in China (which, because it is financed with cheap debt, which comes at the expense of the household sector, may simply increase investment at the expense of consumption). These will only make the underlying imbalances worse. To do better we must revive the old underconsumption debate and learn again how policy distortions can force up the savings rate to dangerous levels, and we may have temporarily to reverse the course of globalization.“

World Trade Weakens in Early 2014 - World trade has started 2014 weakly, an indication that a continued, robust recovery in global economic activity is far from being assured. Each month, the Netherlands Bureau for Economic Policy Analysis–also known as the CPB–aggregates measures of imports and exports for 96 countries around the world, plus sub-Saharan Africa. It provides the most up-to-date measure of trade flows available, which has a close correlation with global economic growth. Its measure for February recorded a 0.7% decline on the month, while its measure for January was cut to record an expansion of just 0.2%. As the CPB points out, trade volumes can be very volatile from month to month, so it prefers to rely on a measure of “momentum,” which compares the average of the three months to February with the average for the three months to November last year. This reading declined to minus 0.1% from plus 0.9% in January, registering its first negative reading since October 2012. Much of the recent slowdown in trade is from an unusual source. Long the motor for trade growth, the developing countries of Asia have seen their exports decline for three straight months. In February, their imports also declined, while exports from and imports to central and eastern Europe slumped, down by 5.5% and 4.3%, respectively. These declines might be of little concern if they reflected a shift in the drivers of economic growth towards developed economies, following a number of years in which developing economies provided most of the impetus in the wake of the 2008 financial crisis. But imports to the U.S., Japan and the euro zone also fell in February.

Knowledge-Based Trade Rising Globally, Report Finds - Global trade is quickly becoming less about container ships and oil pipelines and more about the exchange of goods and services that have a high degree of knowledge or intellectual content baked in, and often digital component to boot, according to a new report. “Knowledge-intensive” flows, ranging from royalties payments to legal services to trade in cutting-edge electronics, amounted to an estimated $12.6 trillion in 2012, equal to about half the world’s total flows in goods, services and finance, according to the report by the McKinsey Global Institute released Tuesday. Those exchanges of advanced products and services are growing at 1.3 times the rate of trade in labor-intensive goods. One example: In February, NBC broadcast the Olympics after paying $1.18 billion, boosting total U.S. royalty and licensing imports to $4.3 billion that month, the most ever. Developed economies — led by the U.S., Germany and Japan – and China dominate knowledge-intensive flows, according to the report. At the same time, more and more international exchanges have a digital component. Electronic commerce last year grew to 9% of overall global trade in goods, compared with 0.4% in 2005, according to the institute, which is the research arm of consultancy McKinsey & Co. Trade in services, intellectual property, data and human capital isn’t traveling along the same shipping lanes as traditional trade in goods. Instead of major seaports handling all forms of trade and transport, new hubs of activity are springing up with specialties ranging from data flows to business travel.

International Week in Review: Creeping Deflation and Secular Stagnation Edition: This week, I want to depart from my standard method of presenting the big country by country economic numbers and instead focus on one of the biggest problems facing the developed world right now: potential deflation. Because while a period of prolonged deflation might seem like a good thing, it's actually a very dangerous economic event as it can create a "deflationary spiral" where the following facts occur: consumers start to delay purchases believing that prices will at least remain stable for an extended period of time. This slows overall economic growth, leading businesses to slow their activities in response. At minimum, this leads to a decreased pace of hiring and slow period of investment. Worse yet, this becomes a self-reinforcing cycle, as slow sales by consumers leads to a slowing business climate, which causes slow employment growth and small wage increases, which leads to slower consumer purchases. If you really have any doubts about the rather hideous nature of this situation, just ask anyone who's been living in Japan for the last 20 years. Let's start by looking at the inflation rate in the EU, UK and US: Inflation in the EU and UK (top two charts) is clearly moving lower. In fact, more and more pundits have been calling on the ECB to do more to halt this decline as the problem has become more pronounced. The US' inflation rate has been a bit more stable, but is also at very low levels -- levels low enough to cause Fed Chair Yellen to address the potential for deflation in her latest speech. The overall reason for this slow growth in prices is the lack of overall economic growth. The EU's GDP (top chart) has been stalled between 12.1 and 13 trillion for the last few years.  Despite a recent political victory lap by the current administration, the UK's GDP is still at levels below those experienced by the economy in 2008.  Only the US' overall economic growth is higher than its pre-recession levels.  But even then, the economy has only grown over 3% on a Y/Y basis in three quarters since the official end of the recession as shown in this graph:

Taper Tantrum or Tedium - “How Will the Normalization of U.S. Monetary Policy Affect Latin America and the Caribbean?”That’s the question posed in Chapter 3 of the IMF’s Regional Economic Outlook for the Western Hemisphere, released today. In the analysis, prepared by Alexander Klemm, Andre Meier, and Sebastián Sosa, the conclusions are summarized as follows:A stronger U.S. recovery will impart a positive impulse primarily to Mexico, Central America, and the Caribbean, whereas the anticipated normalization of U.S. monetary policy will affect all countries in Latin America and the Caribbean (LAC). Traditional exposures to U.S. interest rates have diminished, as governments in LAC have reduced their reliance on U.S. dollar–denominated debt. However, U.S. monetary shocks also spill over into local funding and foreign exchange markets. Spillovers to domestic bond yields have typically been contained over the past decade, but the market turmoil of mid-2013 illustrates the risk of outsized responses under certain conditions. In a smooth normalization scenario, net capital inflows to LAC are unlikely to reverse, although new risk premium shocks could trigger outflow pressures. Countries cannot fully protect themselves against such external shocks, but strong balance sheets and credible policy frameworks provide resilience in the face of financial volatility. The assessment is based on several statistical analyses. I found the panel VAR analysis of particular interest, given previous discussions of the impact of recent U.S. monetary policy measures on emerging market capital flows, [1], [2], [3], and [4].

Brazil Economists See More Inflation, Less Economic Growth This Year - --Economists are expecting more inflation and less economic expansion this year in Brazil, according to a weekly central bank survey published Tuesday. The 100 respondents in the survey raised their outlook for inflation at the end of this year to 6.51% from 6.47% last week. It was the seventh consecutive increase in the inflation view for the end of this year and the economists' forecast now is above the central bank inflation target. The Brazilian central bank inflation target is 4.5% with a tolerance band of minus or plus two percentage point.  Meanwhile, for next year, experts kept their view for inflation at 6%. Survey respondents reduced their outlook for the country's 2014 economic growth to 1.63% from 1.65% and maintained their view for economic expansion in 2015 at 2%. The respondents kept their view for the Selic interest rate at the end of this year at 11.25% and for the end of next year at 12%. The forecast ratio of Brazil's debt to gross domestic product in 2014 was maintained at 34.8%. The outlook for the trade surplus this year was increased slightly to $3.02 billion from $3 billion, while the current-account deficit forecast was raised to $77.05 billion from $77 billion. The Brazilian real is expected to end this year at BRL2.45 to the U.S. dollar, according to the survey.

Globalization and premature deindustrialization - Dani Rodrik -  Arvind Subramanian has a nice post, which provides additional evidence on the phenomenon of premature industrialization that I have talked about and documented previously.  Arvind works with data on industry rather than manufacturing per se, which I prefer. But the result is similar. The inverse U-shaped relationship between income levels and industrialization has shifted down and to the left in recent decades, so that countries are maxing out on industrialization at lower levels of income and, moreover, the peaks themselves are lower than before. Here I propose a simple explanation for this phenomenon, having to do with global market integration. When poor countries become part of the global market, their industrialization is determined largely by consumption patterns of rich countries. Since consumption in rich countries has already shifted to services, this limits how much poor countries can industrialize. In other words, once developing countries have globalized, their peak industrialization levels are driven largely by the demand patterns in the rich countries rather than their own.

Financial Adjustment in the Aftermath of the Global Crisis - That’s the title of a conference that took place at USC this weekend, co-organized by Joshua Aizenman, Menzie Chinn and Robert Dekle, and cosponsored by the USC Center for International Studies, USC School of International Relations, Journal of International Money and Finance, and the Federal Reserve Bank of San Francisco. The papers focused on new international trends and developments in the wake of the global financial crisis, including the role of corporate saving/investment/net lending (figure 7), and official flows, in the global saving glut, the behavior of cross-border banking, the size of fiscal multipliers, fiscal rules and business cycle volatility, the implications of foreign exchange reserve accumulation, monetary aspects of Abenomics, and the competing options of macroprudential regulation and financial repression.

Ukraine – Part of United States’ Desperate Solutions For Not Sinking Alone? – Ilargi - LEAP2020 is a European political/economic research institute that doesn’t shy away from volunteering opinions on the topics it researches, something that works both for and against it. It publishes a new GEAB (Global Europe Anticipation Bulletin) report every month. I thought I’d share the ‘public announcement’ of the April 2014 issue with you, because it provides a clear idea of what some people think is going on with regards to the US/EU involvement in Ukraine and the war of verbal bellicosity they have initiated with Russia. Some voices, among them former US government official Paul Craig Roberts, are convinced there is a new neocon attempt aimed at provoking war with Putin happening. Others have pointed to the arms race many US allies in the Middle East and Asia appear to be conducting. Personally, I prefer to remain on the cautious side for now, but I do think Americans and Europeans alike should demand their media and politicians explain what really goes on, instead of merely shouting insults at anyone who looks remotely Russian. What did the US spend the $5 billion+ on that Undersecretary of State Victoria Nuland has stated was handed to an alphabet soup of Ukraine NGOs? What was Nuland doing in Kiev in the months leading up to the February coup in the first place? Ukraine had a poorly functioning government, true, but then so do dozens of other countries. Why Ukraine? Why did NATO rapidly expand eastward after the break-up of the Soviet Union despite explicit promises not to do that? Why is the US apparently about to deploy perhaps as many as 10,000 soldiers to Poland when it just signed a de-escalation deal with Russia? Are we going to hold back on asking these questions until the military chest thumping stand-off has reached a point of no return? For LEAP2020, the issues are primarily economic, not military. It sees the US as a nation on the verge of breaking down economically, which seeks to drag others (Europe) with it in order to disguise its own troubles:

U.S. Warns Money Managers of More Russia Sanctions -  The Obama administration told asset managers last week that it was planning additional sanctions against Russia over the conflict in Ukraine. Officials from the Treasury Department and the National Security Council met in Washington with mutual-fund and hedge-fund managers, according to a person who attended. Their comments sent a message that more sanctions are on the way and that investors, if they were concerned about the impact, should manage that risk, said the person, who asked not to be identified because the discussions weren’t public. The meeting, convened a week before talks with Russia in Geneva that ended yesterday, left managers grappling with the question of whether the government intended to follow through, or was trying to trigger asset sales through the threat of sanctions, said the person. Former administration officials have said forcing Russia out of global financial markets is the strongest tool President Barack Obama has at his disposal in trying to defuse the crisis between Russia and Ukraine. “A lot of firms on the buy side have cut their exposure to Russia,” Jack Deino, the head of emerging-market debt at Atlanta-based Invesco Ltd., said in an interview, talking about the industry in general.

In Cold War Echo, Obama Strategy Writes Off Putin - Even as the crisis in Ukraine continues to defy easy resolution, President Obama and his national security team are looking beyond the immediate conflict to forge a new long-term approach to Russia that applies an updated version of the Cold War strategy of containment. Just as the United States resolved in the aftermath of World War II to counter the Soviet Union and its global ambitions, Mr. Obama is focused on isolating President Vladimir V. Putin’s Russia by cutting off its economic and political ties to the outside world, limiting its expansionist ambitions in its own neighborhood and effectively making it a pariah state. Mr. Obama has concluded that even if there is a resolution to the current standoff over Crimea and eastern Ukraine, he will never have a constructive relationship with Mr. Putin, aides said. As a result, Mr. Obama will spend his final two and a half years in office trying to minimize the disruption Mr. Putin can cause, preserve whatever marginal cooperation can be saved and otherwise ignore the master of the Kremlin in favor of other foreign policy areas where progress remains possible.

Why Putin Is Smiling At The Bond Market's Blockade Of Russia -  One of the recurring themes the western media regurgitates at every opportunity is that while the western "diplomatic" sanctions against Russia are clearly a joke, one thing that will severely cripple the economy is the capital market embargo that has struck Russian companies, which are facing $115 billion of debt due over the next 12 months. Surely there is no way Russia can afford to let its major corporations - the nexus of its petroleum trade - go insolvent, which is why Putin will have to restrain himself and beg western investors to come back and chase appetiziing Russian yields (with other people's money of course). Turns out this line of thought is completely wrong. Bloomberg explains:  Firms will have about $100 billion in cash and earnings at their disposal during the next 18 months, Moody’s said in an analysis of 47 businesses April 11. Almost all 55 companies examined by Fitch are “well placed” to withstand a closed refinancing market for the rest of 2014, it said in a note on April 16. Banks have more than $20 billion in foreign currency to lend as the tensions prompted customers to convert their ruble savings, ZAO Raiffeisenbank said. “The amount of cash on balances of Russian companies, committed credit lines from banks and the operating cash flows they will get is sufficient for the companies to comfortably service their liabilities,”

S&P Cut Russia Debt Rating to Step Above Junk - S&P cut Russia’s rating one step to BBB-, it said in a statement today. The grade, on par with Brazil and Azerbaijan, has a negative outlook. S&P last downgraded Russia in December 2008. Russia’s currency and bonds fell. “The tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects,” S&P said in the statement.  The downgrade was expected by investors and won’t significantly change their behavior, Russian Economy Minister Alexei Ulyukayev told reporters today. Russian President Vladimir Putin told reporters in St. Petersburg yesterday that “sanctions are not effective in the contemporary world and are not bringing the desired outcome.”  “The decision is partially expected -- Russia is almost in recession, even without sanctions,” S&P said it may lower the rating further “if tighter sanctions were to be imposed on Russia and further significantly weaken the country’s net external position.”

Russia Unexpectedly Raises Main Rate as S&P Lowers Rating - Russia’s central bank sprung a surprise by raising its benchmark interest rate after Standard & Poor’s downgraded the world’s biggest energy exporter for the first time in six years as capital outflows threaten growth. The central bank, whose scheduled decisions have been correctly predicted by the majority of economists every month since September 2012, increased the one-week auction rate to 7.5 percent from 7 percent today, according to a website statement. Hours earlier, S&P cut the nation’s sovereign rating to one level above junk, the lowest investment grade on par with Morocco and Uruguay which Russia last had in 2005.

Furious Russia, Downgraded To Just Above Junk By S&P, Proposes "Scorched Earth" Retaliation Against NATO Countries - Cyprus and Russia - what's the difference (aside from the fact that the former was a money laundering offshore center of the latter until last year of course)? In which case it will also be clear why a few hours ago that joke of a rating agency, Standard & Poor's, which also earlier announced it was "affirming" France at an AA rating making it very clear it will no longer accept being sued for telling the truth and downgrading sovereigns or otherwise have its offices abroad raided, not only upgraded Cyprus from B- to B (please deposits your funds in Cyprus banks now: they are safe, S&P promises), but - far more importantly - delivered a political message to the Kremlin, and downgraded Russia from BBB to BBB-, one short notch away from junk status. This was the first downgrade of Russia by S&P since December 2008. WSJ reports: "In our view, the tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects," S&P wrote in its report.

Rubber not hitting the road in Russia -- In Putin’s Russia, risk prices you. That includes tyres. Keeping an eye out for signs and signals from the Russian economy amid the Ukraine crisis… we note Citi’s Philip Watkins on some big drops in tyre sales: Russia -22% in February and -19% in March – Pirelli and Michelin both produce monthly market tyre volume data (Pirelli’s February and March data just released) and as Pirelli’s European data excludes Russia whilst Michelin includes Russia, it is relatively easy to determine how Russia has performed. In February and March, Michelin reported European replacement passenger car tyre volumes +4% YoY and +7% YoY respectively whereas Pirelli’s ex-Russia volumes were +8% in February and +11% in March suggesting Russia (c.13% of the European market) was -22% in Feb YoY and -19% in March YoY.Elsewhere, BNP Paribas flags up that Fiat and Renault have put a Russian car assembly project with ZIL on hold: An initial agreement had been signed last summer for 25k Renault Master and 25k Fiat Ducato starting in 2014 although no money has yet been invested. The decision to put the project on hold has been blamed on the weak rouble, while making local production more competitive the impact on interest rates and demand is the concern.

Ukraine Said to Receive IMF Staff Support for $17 Billion Loan - International Monetary Fund staff endorsed a $17 billion loan to Ukraine to help the government pay its debts amid a projected economic contraction of 5 percent this year, according to government officials who have seen the recommendations. The staff’s report was delivered to members of the IMF’s 24-seat board late on April 22, according to the officials, who spoke on condition of anonymity to discuss internal documents. The staff proposed an April 30 board meeting to consider the loan package, they said.  An IMF loan would clear the way for additional aid from the European Union, the U.S. and other donors at a time of escalating tensions between Ukraine and Russia. After weeks of talks with the government in Kiev, IMF staff concluded that Ukraine needs financing from the fund that’s at the higher end of the $14 billion to $18 billion range initially announced.

Germany shuts scheme for young unemployed - Germany said on Monday it would no longer accept applications for a programme to attract young Europeans to its job market due to overwhelming demand from crisis-ravaged countries.  The labour ministry said it had been flooded with interest from job-seekers particularly from struggling Spain and Hungary for the scheme offering subsidized job training, apprenticeships and work in fields lacking manpower. "Currently we cannot meet the demand" for the programme, called "The Job of My Life", a labour ministry spokeswoman told reporters. Germany, Europe's top economy, faced criticism from its EU partners for an approach to the eurozone debt crisis that placed a strong emphasis on fiscal discipline, which has been blamed for exacerbating the economic impact among ts weakest members. Berlin responded with initiatives to fight youth unemployment, both to help a "lost generation" out of work and to fill shortages in its own labour market in fields such as care for the elderly and gastronomy.

Germany Attacked Over Plan to Cut Retirement Age -- Speaking to national paper Die Welt, Günther Oettinger, German EU commissioner, said that Germany’s plans to allow longer-serving employees to retire at the age of 63 sent the “wrong signal” at a time when countries like Greece, Spain and Portugal are struggling to introduce tough labour market reforms. “We expect Greeks to work longer for less pay,” said Mr Oettinger. “They are now wondering that Germany is going in the other direction.” Warning that the eurozone’s largest economy faces a skills shortage, the EU energy commissioner said that politicians should start to talk instead about a retirement age of 70 and help equip people with professional training for a longer working life. Greece and Spain have agreed to raise their retirement age from 65 to 67, while Portugal recently pushed its retirement age up to 66.Under draft laws set to come into effect in July, people who have worked at least 45 years since the age of 18 will be allowed to retire at 63 with a full state pension. The official age of retirement in Germany is in the process of being raised from 65 to 67.Economists at Deutsche Bank estimate the total cost of the coalition’s pension reforms will total €230bn by 2030 and have warned that the burden of paying for people in retirement will fall on the country’s younger generation. 

Sweden Turns Japanese, by Paul Krugman --Three years ago Sweden was widely regarded as a role model in how to deal with a global crisis. ... Sweden, declared The Washington Post, was “the rock star of the recovery.” Then the sadomonetarists moved in..., the Riksbank — Sweden’s equivalent of the Federal Reserve — decided to start raising interest rates.  Lars Svensson, a deputy governor at the time ... vociferously opposed the rate hikes. Mr. Svensson, one of the world’s leading experts on Japanese-style deflationary traps, warned that raising interest rates in a still-depressed economy put Sweden at risk of a similar outcome. But he found himself isolated, and left the Riksbank in 2013. Sure enough, Swedish unemployment stopped falling soon after the rate hikes began. Deflation took a little longer, but it eventually arrived. The rock star of the recovery has turned itself into Japan. So why did the Riksbank make such a terrible mistake? ... At first the bank’s governor declared that it was all about heading off inflation... But as inflation slid toward zero..., the Riksbank offered a new rationale: tight money was about curbing a housing bubble... In short, this was a classic case of sadomonetarism in action. ... At least as I define it, sadomonetarism ... involves a visceral dislike for low interest rates and easy money, even when unemployment is high and inflation is low..., they don’t change their policy views in response to changing conditions — they just invent new rationales. This strongly suggests that what we’re looking at here is a gut feeling rather than a thought-out position. ...

European Debt Deflation - Paul Krugman -  As I noted yesterday, Sweden is now experiencing deflation, which is bad for a number of reasons — including the fact that household debt is very high, and deflation (or even low inflation) increases the burden of that debt. (This makes it even more ironic that the Riksbank’s justification for ignoring Econ 101 and raising rates in a depressed economy was concern about excessive household debt and financial stability.) Lars Svensson, who has been a prophet without honor throughout, offers more.  The thing is, this is a problem throughout Europe. You sometimes hear defenders of the ECB declaring that low overall inflation isn’t a problem, because it’s mainly caused by very low inflation or deflation in debtor countries that are in the process of adjusting. This is 180 degrees wrong: low inflation is a much bigger problem than the aggregate number suggests, precisely because it’s concentrated in debtor nations, and is therefore imposing a bigger burden on debtors than the overall number reveals. Here’s a quick and dirty version. I’ve taken the sum of public debt as % of GDP and household debt as % of income, both from OECD factbook — I should do a more careful number, but this is probably good enough for a first pass — and compared it with core inflation in the year ending last month, from Eurostat. (Sorry, don’t have software for country labels accessible right now.) The picture, for euro area countries, looks like this:

"Low Inflation has Positive Impact and Helps Spain's Competitiveness" Says Economy Minister - Luis de Guindos, Spain's Economy Minister, sings the praises of low inflation.Via translation from El Economista, please consider Economy Minister Says Deflation Has "Positive Impact". James Daniel, Spain's mission advisor to the IMF, said that inflation close to zero in the country increases the burden of debt and real interest rates and difficult to reduce unemployment.Daniel's words contradict the perception Luis de Guindos, the Spanish Minister of Economy and Competitiveness, who also said today at a press conference that low inflation "is having a positive impact" and help the country's competitiveness. Guindos noted noted that, far from being a threat, "the low level of inflation is allowing Spain win competitiveness." However, he recognized that low inflation could become a "problem" if it lasts "long" and affects the process of deleveraging in the Spanish economy. The minister expects inflation to fluctuate in the coming months at around 0.5%.

“Lowflation” Yet to Harm Euro-Zone Recovery - The euro zone has seen its fair share of “angst of the week” moments over the past couple of years (to borrow a phrase used by European Central Bank President Mario Draghi).Ultra-low inflation, or “lowflation,” as the International Monetary Fund has dubbed it, may be the latest.The annual rate of inflation in the euro zone was 0.5% in March, well below the ECB’s target of just under 2%, and it has been less than 1% since October. That period of low inflation has spurred calls for the ECB to reduce interest rates further, or follow the Federal Reserve, Bank of Japan and Bank of England and engage in large-scale purchases of assets.Underpinning those calls is the view that prolonged periods of low inflation are damaging to the economy and self-perpetuating declines in prices–known as deflation–can wreak havoc by making it harder for households, businesses and governments to repay their debts. According to this view, deflation and even low inflation can harm growth by prompting consumers to postpone purchases in the hope of getting a better deal in the future. The super-low inflation rates are the average for the euro zone and are propped up some by higher inflation in Germany. Five euro members—Greece, Spain, Cyprus, Portugal and Slovakia—have negative rates.Yet the euro zone’s economic recovery is proceeding faster than expected. The latest sign: an increase in the April purchasing managers index to more than a three-year high, even though businesses again reduced the prices they charge customers.The PMI points to annualized gross domestic product growth in the 1.5% to 2% range. That’s weak by U.S. standards, but higher than the euro zone’s long-run potential given its weak labor-force growth.

ECB Threatens Negative Interest Rates; Bank of NY Mellon Threatens Charging for Euro Deposits --ECB president Mario Draghi has been making lots of noise recently about cutting interest rates because the euro is too strong and banks aren't lending enough. Realistically, there's not much room to cut with rates already at a rock-bottom .25 percent. Some suggest negative interest rates are the just the ticket to spur lending. Should that happen, the Bank of New York Mellon Eyes Charging Clients for Euro Deposits. Bank of New York Mellon said it was considering charging clients for depositing euros if the European Central Bank decides to cut key interest rates below zero.The potential move by the world’s biggest custody bank comes after Mario Draghi, president of the ECB, said last week that the region could require “further monetary stimulus” to offset a strengthening euro. “If the eurozone were to go to negative rates that would actually present the opportunity for us to charge for deposits and we are giving that very serious consideration,”

Deflation Is About to Wallop Europe - The euro has been defying gravity for years. Europe's Teutonic North and Club Med South were joined under one monetary policy. But the 18-member euro area has no common fiscal policy and probably never will, given its vast cultural and economic differences. This hardly makes the euro a safe-haven currency.  After dropping from 1.60 per U.S. dollar to 1.20 during the global recession, the euro has risen to 1.38. And that’s despite Europe's follow-on recession, which began in the fourth quarter of 2011 and lasted six quarters. Real gross domestic product growth since then has averaged only 0.9 percent annually, well below the 2.3 percent in the U.S. Does the euro really deserve to be strong against the greenback?  The days of euro strength may be numbered, however, because of mushrooming fears of deflation in Europe. Average house prices in the euro area have dropped 5 percent since the second quarter of 2011. More important, inflation increased a mere 0.5 percent in March from a year earlier. Since January 2013, inflation has been below the ECB’s target of “just under 2.0 percent.” In the 28-country European Union, inflation was just 0.6 percent in March versus a year earlier.  Bankers and policy makers worldwide are deeply worried about trivial inflation in the euro area turning into chronic deflation. Christine Lagarde, the chairman of the International Monetary Fund, said in a January speech: “We see rising risks of deflation, which could prove disastrous for the recovery. If inflation is the genie, then deflation is the ogre that must be fought decisively.”  This month, Olivier Blanchard, the IMF chief economist, said deflation “would make the adjustment both at the euro level, and even more so for the countries in the periphery, very difficult. We think that everything should be done to try to avoid it.”

ECB Constancio: Considering All Options To Stem Risks From Low Inflation - The European Central Bank is considering non-conventional instruments, including asset purchases, to stem a prolonged period of low inflation, Vice President Vitor Constancio said Thursday. “We are concerned about that, and we will see if indeed the developments of inflation in the euro area justify that preemptively we will have to do something,” he said at a conference in Madrid, adding that no concrete decision has been made by the ECB’s governing board. “We are looking into all instruments, including non-conventional instruments such as asset purchases… in order to respond to risks that come from a very prolonged period of low inflation,” he said. Mr. Constancio’s remarks echo those of ECB governor Mario Draghi earlier in the day, and guidelines given by the central bank following the central bank’s last rate decision. The annual inflation rate in the euro zone was 0.5% in March, far below the ECB’s target of a little below 2%. Some private-sector economists and the International Monetary Fund have called for the ECB to consider further stimulus measures such as interest-rate cuts, targeted bank loans and large-scale purchases of assets in the capital markets, a policy known as quantitative easing.

Greek debt swells again as Samaras looks to creditors for relief: Greek state debt surged to the highest in the euro era last year, underscoring the urgency of Prime Minister Antonis Samaras’s push to lower the cost of the government’s bailout loans. The country’s debt pile reached 175.1 percent of gross domestic product in 2013, up from 157.2 percent a year earlier, the EU’s statistics office in Luxembourg said on Wednesday. For the eurozone as a whole, state debt rose to a record 92.6 percent of GDP from 90.7 percent. “The surge in public indebtedness since Greece’s fiscal crisis erupted in 2009 is staggering,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “The fact that, technically speaking, it’s still debatable whether Greece is solvent says much about the management of its crisis.”

Greece makes request for debt relief as loan tranche approved: Greece made its first official request on Thursday for further debt relief as the Euro Working Group (EWG) met in Brussels to rubber-stamp the 2013 primary surplus and approve the release of another 6.3 billion euros in bailout funding. A day after the European Commission confirmed that Greece’s surplus for 2013, as calculated using the troika’s methodology, stood at 1.5 billion euros, the country’s representative at the EWG made a request for more debt-lightening measures. Panos Tsakloglou, chairman of Greece’s Council of Economic Experts, reminded his counterparts of the Eurogroup’s November 2012 pledge to examine debt relief steps once Greece produced a primary surplus. Sources told Kathimerini that the other members of the EWG agreed that these discussions should take place during the course of the next troika review of the Greek adjustment program. The Eurogroup’s advisory body also agreed that Greece’s next loan tranche should be disbursed. Subsequently, the European Financial Stability Facility (EFSF) announced that it would be transferring 6.3 billion euros to Greece, taking the total it has lent the Greek government to 139.9 billion euros. Two further tranches of 1 billion euros each are due to be released in the weeks to come as long as Greece meets reform milestones agreed with its lenders.

Greece austerity caused over 550 male suicides, study finds - Spending cuts in Greece caused a rise in male suicides, according to research that attempts to highlight the health costs of austerity. Echoing official statistics in the UK showing suicide rates are still higher than before the crisis, researchers at the University of Portsmouth have found a correlation between spending cuts and suicides in Greece. According to the research, every 1 per cent fall in government spending in Greece led to a 0.43 per cent rise in suicides among men – after controlling for other characteristics that might lead to suicide, 551 men killed themselves “solely because of fiscal austerity” between 2009 and 2010, said the paper’s co-author Nikolaos Antonakakis. “That is almost one person per day. Given that in 2010 there were around two suicides in Greece per day, it appears 50 per cent were due to austerity,” he said.

EU Confidence Hits 7-Year High (Just Don't Tell The Record Number Of Unemployed) - Pre-crisis levels of confidence... never before seen bond yields... stocks surging back toward record highs... just don't tell the record number of unemployed Europeans... Peripheral bond yields continues to plunge (as ECB QE hopes are front-run en masse)... Remember what happens when the ECB actualy switches from promises to actions... Lower pane is the weekly purchases of bonds by the ECB and the upper pane is the now all-important spread between Italian and Spanish bonds and the German Bund - higher being more risky. Well that plan didn't work so well eh? It would appear that during the 2010 period spreads doubled from 100bps to 200bps and once again during the 2011 period, spreads almost doubled from 260bps to over 500bps in Spain. The new Greek issue is back at par. And EU Confidence soars to its highest since 2007...

Europe April Manufacturing Summary: France's Loss Is Germany's Gain -  There is a reason why while Germany has been delighted to keep the Euro as its currency, in the process keeping a substantial discount to where the Deutsche Mark would be trading if it weren't for the implicit FX subsidies by ther Eurozone members, France has been increasingly more panicked and vocal about the soaring EUR. That reason became apparent this morning when Markit reported that France PMI for April both declined from the March print of 52.1, and missed expectations of 51.9, printing at 50.9. Same thing for the Services PMI which at 50.3, both missed expectations of 51.3, and dropped from 51.5. France's loss however was Germany's gain, which beat expetations across the board.

France lowers deficit target but sticks by stiff spending cuts -  The French government on Wednesday revised its 2014 deficit target from 3.6 per cent to 3.8 per cent of GDP but said it still expected to meet a 2015 deadline on getting the deficit within an EU limit of 3 per cent. The revised deficit target is part of a 2014-2017 stabilization programme that will be put to a vote in parliament on April 29 before being submitted to Brussels for approval. While forecasting the deficit to fall Finance Minister Michel Sapin predicted public debt would hit a new record of 95.6 per cent of GDP in 2014 and 2015 before starting to subside in 2016. The forecasts are based on France achieving economic growth of just 1 per cent this year, rising to 1.7 per cent in 2015 and 2.25 per cent the following year. Low growth and record high unemployment have hampered France‘s progress on deficit reduction. President Francois Hollande and Prime Minister Manuel Valls had both suggested in recent weeks they would try to convince the European Union to give France more time to bridge the gap between spending and revenue. But they abandoned the idea after EU officials warned they would not grant France another extension after already giving the country two more years to bring its deficit in line.

French joblessness steadies but a record 3.3 million seek work - France’s unemployment rate stabilised in March with only 1,600 new job seekers, according to data released by the government on Friday, but the total number of people without work is still at a record 3.34 million. The news is likely to be interpreted as encouraging by the government of socialist President François Hollande, who pledged during his 2012 election campaign to counter rising unemployment. The promise has proved difficult to keep, with joblessness continuing to grow throughout his first year in office. The number of people under 25 seeking jobs shrank slightly in the month of March by 0.8 percent, or 4,300, bringing the youth unemployment rate to its lowest level since October 2012. In contrast, those over the age of 50 without jobs grew by 7,300 or 0.1 percent, continuing an uninterrupted trend since the global economic crisis hit France in 2008.

BOE voted 9-0 to keep rates at record low, QE unchanged --- The Bank of England's Monetary Policy Committee at its April 9 meeting voted 9-0 in favor of keeping interest rates on hold and making no changes to its 375 billion pound ($631 billion) asset-purchase program, according to minutes released on Wednesday . The central bank said the decision was made within the forward-guidance framework laid out in August 2013 as the unemployment rate remained above the 7% threshold at the time of the meeting. After the April policy decision, the headline joblessness rate dropped to 6.9% in the three months to February, likely activating the BOE's new, "fuzzy" guidance. The BOE is unlikely to hike interest rates in the near future, however, as its new framework focuses on absorbing slack in the economy and a wider improvement across the economy, including wage growth and productivity.

Strip private banks of their power to create money - FT.com: Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated. I explained how this works two weeks ago. Banks create deposits as a byproduct of their lending. In the UK, such deposits make up about 97 per cent of the money supply. Some people object that deposits are not money but only transferable private debts. Yet the public views the banks’ imitation money as electronic cash: a safe source of purchasing power. Banking is therefore not a normal market activity, because it provides two linked public goods: money and the payments network. On one side of banks’ balance sheets lie risky assets; on the other lie liabilities the public thinks safe. This is why central banks act as lenders of last resort and governments provide deposit insurance and equity injections. It is also why banking is heavily regulated. Yet credit cycles are still hugely destabilising. What is to be done? A minimum response would leave this industry largely as it is but both tighten regulation and insist that a bigger proportion of the balance sheet be financed with equity or credibly loss-absorbing debt. I discussed this approach last week. Higher capital is the recommendation made by Anat Admati of Stanford and Martin Hellwig of the Max Planck Institute in The Bankers’ New Clothes. A maximum response would be to give the state a monopoly on money creation. One of the most important such proposals was in the Chicago Plan, advanced in the 1930s by, among others, a great economist, Irving Fisher. Its core was the requirement for 100 per cent reserves against deposits. Fisher argued that this would greatly reduce business cycles, end bank runs and drastically reduce public debt. A 2012 study by International Monetary Fund staff suggests this plan could work well. Similar ideas have come from Laurence Kotlikoff of Boston University in Jimmy Stewart is Dead, and Andrew Jackson and Ben Dyson in Modernising Money. Here is the outline of the latter system.