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

Saturday, April 5, 2014

week ending Apr 5

FRB: H.4.1 Release--Factors Affecting Reserve Balances--April 3, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Monetary policy: What's wrong with the Fed? | The Economist -  LET'S put a slightly finer point on the argument in the previous post. The Fed technically has a three-part mandate: "maximum employment, stable prices, and moderate long-term interest rates". In January of 2012, the Fed basically defined what it thought its real mandate is as: 2% annual inflation (as measured by the price index for personal consumption expenditures) and as close to maximum employment (which it is free to define for itself) as it can get. Since the Fed made this declaration, PCE inflation has been below target roughly 90% of the time. It was just 0.9% in the most recent data release, and markets believe inflation will remain below target for the foreseeable future. Since the Fed made this declaration, the gap between the unemployment rate and the Fed's estimate of "maximum employment" has shrunk from a range of 2.2-3.0 percentage points to a range of 1.1-1.5 percentage points. The Fed still anticipates that the gap will not be closed entirely until 2016, at which point the Fed would have failed to provide maximum employment for eight full years. This is an extraordinary period of time during which the Fed has failed to meet even the rather lax definition of the mandate it has set for itself by a rather substantial margin. How can we explain this? Some possibilities are:
1) The Fed is technically unable to meet its mandate.
2) The Fed is staffed by incompetents.
3) The Fed is actually pursuing a goal outside its mandate without explaining what that goal is and what the justification is for pursuing it.
4) America's statistics are all wrong. The Fed knows this but has refused to tell anyone else.
Whichever of the above you favour as an explanation, it suggests a need for meaningful reform, either to the personnel at the Fed or to the distribution of macroeconomic responsibilities across government.

Should We Be Worried? -- A number of Fed watchers see the last FOMC meeting signaling a tightening of monetary policy.  Tim Duy, for example, sees it in the FOMC's effective lowering of its inflation target via the dropping of the Evans Rule: [A] hawkish interpretation... starts with the end of the Evans rule. Everyone seems focused on the unemployment part of the Evans rule, while my attention is on the inflation part. The Evans rule allowed for the Fed to reach their inflation target from above. It provided wiggle room on the target as long as unemployment was above 6.5%. With the end of the Evans rule, the Fed sends a signal that they no longer find it acceptable to reach the target from above. They intend to reach it from below. 2% is officially once again a ceiling.  Others see it in the moving forward on the calendar of the first federal funds rate hike as seen in the FOMC projections or in the shifting of the FOMC conversation to when the policy rate hike will occur. Here is Ylan Q. Mui: Gavyn Davies sees these developments as part of a longer tightening cycle that has been going on for some time: [I]n a wider sense there has been an unmistakable shift in the FOMC’s centre of gravity in the past few months. The key to this shift is that the mainstream doves who have dominated policy decisions in the past few years have now essentially stopped arguing against either the tapering of the balance sheet or the start of rate hikes within about a year from now.  I found this interesting because on one hand we would expect some pulling back of monetary policy as the economy recovers. In this case, we would not call it tightening, but adjusting the stance of monetary policy to its new neutral position.On the other hand, it is possible the Fed is getting ahead of itself and pulling back too fast. In this case, the Fed would be rising its target policy rate higher than the expected natural interest rate. If so, this would begin choking off the the recovery.

Yellen Says Extraordinary Support Needed for ‘Some Time’ - Federal Reserve Chair Janet Yellen, easing investor concern that interest rates may rise earlier than previously forecast, said the central bank’s unprecedented stimulus will be needed for “some time.” Yellen, citing the examples of three people struggling to find work, used a speech to a community development conference in Chicago to make the case for continued Fed stimulus, which has included more than five years of interest rates near zero and trillions in bond purchases.  “This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers at the Fed,” Yellen said. “The scars from the Great Recession remain, and reaching our goals will take time.”  Stocks rose as Yellen highlighted the Fed’s commitment to spur the economy and put 10.5 million unemployed Americans back to work. Share prices fell on March 19, when she said in a press conference that the Fed might start raising the benchmark interest rate above zero about six months after ending its bond purchase program. “It is an indirect pushback,”  “I don’t think she could directly contradict what she said at the press conference, so she did the next best thing, which was to paint a picture of a Fed that is going to be accommodative for a long, long time.”

Janet Yellen Gives ‘One of the Most Dovish Speeches I Have Ever Read’ Newly minted Fed Chairwoman Janet Yellen redeemed herself at a speech on Monday, according to one strategist who was highly critical of her performance made at a press conference earlier this month.Ms. Yellen said Monday the U.S. economy and job market are still far from healthy, and still require plenty of support from the central bank’s low-interest-rate policy. The unemployment rate currently stands at 6.7%, well above the 5.2%-5.6% range that Fed officials see as normal. Annual inflation is running just above 1%, well below the central bank’s official 2% target.“The U.S. economy is still considerably short of the two goals assigned to the Federal Reserve by the Congress” of low and stable inflation and maximum sustainable employment, Ms. Yellen told a conference on community investment. She pointed to several aspects of the labor market that suggest it continues to operate well short of its potential. Her comments drew rave reviews from David Zervos, chief market strategist at Jefferies, who previously gave Ms. Yellen a “C-” for her performance at the press conference following the Fed’s two-day policy meeting. This time, he was much more complimentary of Ms. Yellen. From the always colorful Mr. Zervos: “Ok, I just read Janet’s speech in Chicago today. Holy dovish deepdish pizza batman!! I have no recollection of a Fed Chair’s speech where the lives of three down-on-their-luck job seeking individuals were discussed in detail. This is one loving and caring Fed Chair – I must send her a “no haters” hat immediately! If anyone doubts Janet’s commitment to fighting for more job creation – read the tape. This could be one of the most dovish speeches I have ever read from a Federal Reserve official! Janet has quickly redeemed her poor performance from 12 days ago. On this assignment she gets an A+. Somehow I always knew she would pull through.”

Janet Yellen: 4 reasons why the Fed should keep trying to help US workers -- In Chicago, Fed chair Janet Yellen explains why she believes “there is still considerable slack in the labor market” and “there is room for continued help from the Fed for workers …”:

    • 1.) One form of evidence for slack is found in other labor market data, beyond the unemployment rate or payrolls, some of which I have touched on already. For example, the seven million people who are working part time but would like a full-time job. This number is much larger than we would expect at 6.7 percent unemployment, based on past experience, and the existence of such a large pool of “partly unemployed” workers is a sign that labor conditions are worse than indicated by the unemployment rate.
    • 2.) A second form of evidence for slack is that the decline in unemployment has not helped raise wages for workers as in past recoveries. Workers in a slack market have little leverage to demand raises. Labor compensation has increased an average of only a little more than 2 percent per year since the recession, which is very low by historical standards.
    • 3.) A third form of evidence related to slack concerns the characteristics of the extraordinarily large share of the unemployed who have been out of work for six months or more. These workers find it exceptionally hard to find steady, regular work, and they appear to be at a severe competitive disadvantage when trying to find a job.
    • 4.) A final piece of evidence of slack in the labor market has been the behavior of the participation rate–the proportion of working-age adults that hold or are seeking jobs. Participation falls in a slack job market when people who want a job give up trying to find one.

Fed Watch: One For the Doves -  The March employment report came in pretty much in line with expectations. Nonfarm payrolls gained by 192k, and January and February were both revised higher. If you can discern any meaningful change in the underlying pace of economic activity from the nonfarm payrolls numbers, you have sharper eyes than me: You could almost draw that twelve month trend with a ruler. The unemployment rate moved sideways: In the past, sharp declines in the unemployment rate have been followed by periods of relative stability. I suspect we are currently in one such period. The internals of the household report were generally positive. The labor force rose by 503k, pushing the participation rate up by 0.2 percentage points. And the labor market appeared to absorb those new participants nicely, with employment rise by 476k while the ranks of unemployed grew by just 27k. Measures of underemployment remain consistent with recent trends: As might be expected if there remains plenty of slack in labor markets, wage growth remained largely unchanged: I would say that on average, this report fits nicely with the view outlined by Federal Reserve Chair Janet Yellen earlier this week. The labor market continues to improve at a moderate pace, a pace that remains insufficient to rapidly alleviate the issues of underemployment and low wage growth. Indeed, combined with the readings on inflation:

Fed Raises Reverse Repo Facility Maximum Bid to $10 Billion From $7 Billion -- The Federal Reserve Bank of New York on Friday announced that it is tweaking an experimental program being tested in an effort to gain better control over short-term interest rates. Under the program, which relies on reverse repurchase agreements known as reverse repos, the Fed uses its large portfolio of securities as collateral for short-term loans from money-market mutual funds, securities firms and others. The rate the Fed pays on these loans in theory could set a floor on other short-term rates. Effective April 7, participants can do up to $10 billion in business each day with the facility, up from $7 billion, the New York Fed said. Minutes of the Fed’s January policy-making meeting said that any changes to this bid limit or the interest rate the Fed offered on its loans must be approved by Fed Chairwoman Janet Yellen. The New York Fed is currently authorized to set a rate of between zero and 0.05%. The New York Fed said the change announced Friday has no monetary-policy implications.

Monetary Policy And Secular Stagnation -The Fed’s goal is to achieve the target of 2% inflation in the long-term, and its preferred price index is the core personal consumption expenditure price index that excludes the volatile food and energy sectors (or core PCE for short). So how has the Fed performed in achieving its target of 2% inflation in the past 15 years? The chart above plots the implied core PCE index if inflation had met its 2% target (red line), and the actual core PCE index (blue line) starting from 1999. ... The divergence between target and actual inflation is all the more striking given the elevated rate of unemployment during the sample period. ... It is hard to fault the Fed for not trying... The Fed’s difficulty in maintaining a 2% target is not just about the Great Recession. The divergence started in the 2000′s... In fact the only period when the blue line runs parallel to the red (implying a 2% rate of inflation for a while) is the 2004-2006 period when the economy witnessed an unprecedented growth in credit. ...  What we are witnessing is the limit of what monetary policy alone can do. Sometimes there is a tendency to assume that the Fed can “target” any inflation rate it wishes, or that it can target the overall price level – the so-called nominal GDP targeting. The evidence suggests that the Fed may not be so omnipotent. ...

Where Do Policy Rules Come From? - John Taylor - I recently read Steve Williamson’s interpretation of what I was and was not claiming when I wrote my 1992 paper on what would come to be called the Taylor rule.  It’s quite a while ago, but I have a different view. To be specific, here is Steve’s interpretation: “When Taylor first wrote down his rule, he didn’t make any claims that there was any theory which would justify it as some welfare-maximizing policy rule. It seemed to capture the idea that the Fed should care about inflation, and that there exist some non-neutralities of money which the Fed could exploit in influencing real economic activity. He then claimed that it worked pretty well (in terms of an ad hoc welfare criterion) in some quantitative models. Woodford used the Taylor rule to obtain determinacy in NK models, and even argued that it was optimal under some special circumstances.…” But the research that led to the Taylor rule was based on economic theory and it did use specific objective functions.  The so-called Taylor curve, which was published in 1979, made this very clear: Given a specific theory (embodied in a model fit to data) and a specific objective function, one could use optimization methods to find an optimal policy rule. The monetary theory I used then combined rational expectations and price rigidities, two key ingredients of New Keynesian theories.

Kansas City Fed’s Esther George See Signs of Higher Inflation - Kansas City Fed President Esther George said Friday she saw signs of higher inflation that would gradually move price rises towards the Federal Reserve’s 2% target. Speaking before business leaders in Kansas City, she cited signs of upward wage pressures and emerging problems for some companies in hiring specialized workers. Ms. George said she expected inflation, which has run below the central bank’s 2% target for 22 consecutive months, to “gradually firm” and “stabilize” around that goal, though she didn’t give a time frame. The Fed’s preferred inflation gauge, the personal consumption expenditures price index, slowed to an annual gain of less than 1%, the Commerce Department said Friday. Her remarks contrast with those made by some other policymakers, who’ve expressed discomfort with low inflation. The Fed said in a policy statement earlier this month it will keep short-term interest rates low “especially if projected inflation continues to run below” its objective. Ms. George said she didn’t have a particular estimate for when the Fed will start raising short-term interest rates from near zero, but she is concerned they could “remain too low, for too long”. Ms. George said the U.S. economy was progressing well. She forecasts growth of around 2.5% this year.

Permahawkery - Paul Krugman -- Martin Feldstein warns us that the Fed isn’t taking the risk of rapidly rising inflation seriously enough. Certainly nobody can accuse him of that failing: he’s been warning about looming inflation for four years, eleven months,and two weeks, and hasn’t let the fact that inflation has kept falling below target alter his concerns in the slightest. In fact, Marty’s new column is almost identical in its argument to what he wrote in April 2009: he warns that the Fed won’t pull back the liquidity it created when the economy recovers, and inflation will soar. What’s interesting now is that he freely admits that the Fed does, in fact, have multiple instruments with which to pull back liquidity and forestall inflation if recovery ever really comes. It can raise the interest rate on reserves; it can sell securities. But he worries that it won’t do these things because it will be embarrassed if it finds itself paying more in interest than it is earning on its portfolio. Might we suggest that the answer here is, don’t be embarrassed? We’re talking about trivial sums — I’m not sure if Treasury has already promised to hold the Fed financially harmless, but if not it could easily be arranged. The point is that this has to be one of the weakest policy arguments I’ve ever seen: Arguing that the Fed should shy away from doing all it can to create jobs because you’re afraid that at some point in the future Fed officials will be insufficiently hawkish because they’re afraid that people will make fun of them.

Interest rates and inflation: Zero forever | The Economist: WHICH do central banks hate more: low interest rates or rising inflation? They really, really hate low rates, that's for sure. Searching the Federal Reserve's website for "reach for yield" returns a nice long list of speeches in which Fed officials warn against the dangers of a long period of low rates. And yet... A piece in this week's print edition looks at the outlook for interest rates. Despite recent ticks upward in the expected path for policy rates in America, markets think both America and Britain will by 2016 be closing in on nearly a decade of ultra-low rates. The path forward for the euro area is even flatter; markets don't anticipate the ECB getting back to 2% until at least 2020. And this is all assuming that things go according to plan. In 2007 the Bank of Japan thought it was close to putting 13 years of sub-1% rates behind it; the onset of global crisis meant it is instead nearly 20 years into its liquidity trap. Two decades appears to have been enough. Alone among big rich economies, Japan is now actively trying to raise inflation, in hopes of finally kicking its low rate, low growth habit. Higher inflation is the only reasonable way forward:

The Downward Drift in Inflation-Adjusted Interest Rates: Why? And So What? -- When Federal Reserve officials peer into the distant future and imagine an economy closer to normal, they see short-term interest rates, adjusted for inflation, hovering around 4%.  If they hit their 2% target for inflation, that would bring inflation-adjusted interest rates to about 2%. But what if the economy has changed in ways that mean it cannot return to normal — to, say, 5.5% unemployment — at what were once considered normal levels of interest rates? Two economists writing in the International Monetary Fund’s new World Economic Outlook note that inflation-adjusted interest rates have been coming down for more than three decades and suggests they may remain lower than normal for a very long time.As the accompanying chart made from IMF data shows, inflation-adjusted interest rates around the world rose sharply in the early 1980s as then Fed-Chairman Paul Volcker led a campaign against inflation that pushed rates way up. But the important point is the trend towards lower interest rates began long before the Great Recession and advent of the Fed’s quantitative easing and all that.“There are no compelling reasons to believe in a quick return to the average level [of inflation-adjusted rates] observed during the mid-2000s, that is about 2%,” “Real [or inflation-adjusted] rates are likely to remain relatively low in the medium term,” even as unemployment rates fall. This is much more likely if the U.S. and rest of the world are in for a prolonged period of very slow growth, what former Treasury Secretary Lawrence Summers is callingsecular stagnation.” Why does this matter? A long period of low interest rates, the IMF says, could be tough on pension funds and insurance companies that have promised to make payments in the future. It would be tough on savers, but great for borrowers—governments included.

Stop Worrying About Inflation—the Recovery Is Still as Slow as Ever -- Stop me if you've heard this one before. The economy is growing, but it's not growing fast enough for the millions of people who still can't find work. That was the story in 2010 and 2011 and 2012 and 2013—and now in 2014, too. Indeed, the particulars of the March jobs report weren't all that different from any other month in our Groundhog Day recovery: We added 192,000 jobs, 37,000 more in revisions, and the unemployment rate stayed steady at 6.7 percent. It was enough to, finally, push private sector employment back above its pre-recession peak. But, at this pace, it won't be enough to get us back to full employment before ... 2019. There was a glimmer of good news though. More people are looking for, and finding, jobs. Specifically, the household survey showed 503,000 more people in the labor force, and 476,000 more employed in March. So the unemployment rate didn't fall for the good reason that people aren't giving up, and are coming back now that things look a little better. As FiveThirtyEight's Ben Casselman points out, you can see this slight increase among "prime-age" workers (25 to 54-year olds) the past few months. Now, this might just be another blip, but it might not. It might be the "shadow unemployed"—particularly younger folks—getting off the sidelines of the labor market.   In other words, it looks like there's plenty of slack left in the economy. If we really were operating near full capacity, like the new inflation hawks argue, then we wouldn't expect the labor force to grow—we'd expect wages to go up instead. That hasn't happened. Average hourly earnings actually ticked down a cent in March, and have only increased 2.1 percent the last 12 months.

Final Estimate for Q4 GDP - 6 graphs -The BEA announced that real GDP increased at a saar of 2.6% for 2013 Q4 (advance estimate was 3.2% and the second estimate was 2.4%). The overall picture for the U.S. economy remains largely the same. The increase from the last estimate comes largely from personal consumption expenditures (PCE) and nonresidential fixed investment. Moreover, the increase in PCE was the largest increase since the end of 2010. The deceleration  comes mainly from a decline in inventories, a bigger decrease in government spending and residential fixed investment.

The Perpetual Bubble Economy - Want a thriving labor market? Blow a bubble. That’s one implication of a theory about the contemporary American economy developed by Lawrence H. Summers, the former Treasury secretary and prominent public intellectual.The theory is a frightening one, implying deep dysfunction in the way the American government treats the economy. It is a trendy one, all the talk among policy makers and those at think tanks. And Mr. Summers expanded on it at a forum on full employment hosted on Wednesday by the Center on Budget and Policy Priorities. The big idea is that — absent extraordinary intervention in the economy through fiscal policy, monetary policy or both — growth and employment will prove lackluster. That has been true since the late 1990s for the United States, Mr. Summers said, and appears to be true for other advanced economies as well. When it comes to strong, healthy, self-sustaining growth, “we have not done it in 15 years. The Japanese have not done it in a generation,” Mr. Summers said. “It’s been a long time since it happened in Europe.”

Understanding the Confidence Fairy -  One strange claim in the economic debate that followed the financial crisis was the impact of uncertainty on the path of investment and subsequently the recovery in economic activity. Taking just one example, it was claimed here that “fiscal policy uncertainty has directly harmed the American economy by increasing the unemployment rate by 0.6%, or the equivalent of 900,000 jobs.”  Often the idea of uncertainty is captured in economic debates by labelling its inverse, a high degree of certainty, ‘confidence’, or when being a little more critical, the ‘confidence fairy’. It was never particularly clear to me exactly what ‘high’ or ‘low’ uncertainty was supposed to mean, since the future is always uncertain and investment is always risky, and current policy decisions are not set for eternity. In this post I will dig down into the economic theory of real options that forms the basis for claims that uncertainty alone can greatly reduce investment activity. By doing so I hope the reader will develop a considered level of scepticism about such claims. First, we should acknowledge just how widespread the idea that uncertainty hampers investment has become. There is a website devoted to providing national indices of policy uncertainty, which itself rests on two decades of effort in academic circles to endeavour to capture this mirage-like phenomena. Even now, India’s growth slowdown is being blamed on this mythical beast. As a general observation, it seems there is no economic ill that cannot be blamed on government policy-induced high levels of uncertainty.

Ryan Budget Shows G.O.P. Stuck in Rah-Rah Land - Here’s all you need to know about the G.O.P.’s effort to face reality, moderate its policies, and present a more coherent policy platform to voters in 2016. David Camp, the Michigan Republican who chairs the powerful House Ways and Means Committee, and who in February introduced a sweeping tax-reform plan that, at least, recognized the basic laws of arithmetic, is leaving Congress. Paul Ryan, the conservative Moses of Capitol Hill, is sticking around. On Wednesday, he unveiled the latest of his right-wing manifestos, thinly disguised as a serious budget, proposing to repeal Obamacare, privatize Medicare, and slash spending on Medicaid and food stamps. No, it wasn’t an April Fool’s joke. The Republican Party’s reform effort, which was heralded by a March, 2013, internal report that said that the G.O.P. was trapped in “an ideological cul de sac,” is over almost before it had begun. On issue after issue (gun control, immigration, gay marriage, Obamacare, climate change, unemployment benefits, the minimum wage), suggestions that the Party might revise its extreme positions have been stomped on. The ultras have won out. And nowhere is this more true than in the biggest policy area of all: taxes and spending.

The Ryan Plan: Assume a Can Opener, Yet Again - The budget proposed by Representative Ryan touts the pro-growth impacts of deficit reduction ($5.1 trillion over ten years, according to Table S-2). It is instructive to actually read the documents that Representative Ryan’s budget cites (as it has in the past — read about the Heritage CDA previous assessments [1] [2], as well as Representative Ryan’s previous attempt to use CBO documents to lend a patina of respectability to his projections). From the House budget proposal: In a report published in February of 2013, CBO concluded that reducing budget deficits, thereby bending the curve on debt levels, would be a net positive for economic growth. According to that analysis, a large deficit-reduction package of $4 trillion, which this budget resolution actually exceeds, would increase real economic output by 1.7 percent in 2023. Their analysis concludes that deficit reduction creates long-term economic benefits because it increases the pool of national savings and boosts investment, thereby raising economic growth and job creation. The greater economic output that stems from a large deficit-reduction package would have a sizeable impact on the federal budget. For instance, higher output would lead to greater revenues through the increase in taxable incomes. Lower interest rates and a reduction in the stock of debt would lead to lower government spending on net interest expenses. CBO finds that this dynamic would reduce budget deficits by a net $186 billion over ten years, including $82 billion in the tenth year alone. Two observations, regarding the CBO “discussion” of the Ryan budget

  • The “assume a can opener” component is here again — the paths of revenues and spending are assumed to hold, and the plausibility of these were not assessed by CBO.
  • Even with the aid of dynamic scoring, there is an “interesting” omission regarding time frame of positive impacts and the degree of uncertainty.

Paul Ryan's Budgetary Fantasy - Bloomberg View:  -- Ryan, who gained some fame as a vice presidential nominee two years ago, is chairman of the House Budget Committee. Today he released his 2015 budget, and it is essentially a partisan wish list, comforting Republican constituencies and upsetting Democratic ones. It stands in stark contrast to the bold tax-reform plan produced in February by Camp, chairman of the Ways and Means Committee, which spread its pains and gains more equitably. Camp, whose plan was subsequently dismissed by no less than House Speaker John Boehner as "blah, blah, blah," has since decided to leave the House altogether: He announced his retirement yesterday. Ryan's abandonment is more subtle. He's not leaving Congress -- he may even take over Camp's committee -- and he deserves credit for reshaping public debate on debt in recent years. But this budget suggests he has other priorities. Ryan's budget proposes a reduction in the top income tax rate to 25 percent from 39.6 percent, an increase in defense spending, and a $5 trillion cut in domestic spending over 10 years, including deep cuts to food stamps and other programs that help keep poor households afloat. Ryan's last budget also required deep cuts -- so deep, in fact, that some Republicans who had voted for the budget blueprint balked when it came time for specific appropriations. This year's version also makes use of something called "dynamic scoring," a dubious practice that allows Ryan to claim his plan would balance the budget in a decade. On the positive side, Ryan makes his usual promise to cut farm subsidies, this time to the tune of $23 billion. He would cut $19 billion from the overextended, underutilized U.S. Postal Service. For future retirees currently under the age of 55, he would turn Medicare into a version of the Affordable Care Act, with a public option: Recipients would be able to choose private health plans on the market or retain traditional Medicare.

All Public Comments Are Welcome. Then What? - Do federal regulators really pay attention to public comments before they adopt new rules? A group of researchers says it has developed a tool that can answer that question — with the goal of providing an extra layer of accountability in government. By law, regulators are supposed to consider the public’s views. Any government action, after all, has the potential to help or harm many people. Once an agency proposes a rule, interested parties have a certain amount of time — usually from 30 to 90 days — to send in their comments, online or by mail. The agency’s staff must read all the comments and decide how much weight to give them, if any. Depending on the agency, the final rule can affect areas as diverse as the environment, the food supply or the financial markets.It all sounds fairly straightforward — except that it isn’t, says Andrei Kirilenko, a finance professor at the M.I.T. Sloan School of Management. Rules and proposed rules — and, in many cases, public comments — are packed with jargon that makes them hard to decipher, he says. In a recent paper, he and his fellow researchers describe an algorithm they created that is meant to help determine whether an agency adjusted its final rule in reaction to public comments. Using the algorithm, the researchers analyzed about 60,000 public comments involving 104 proposed and 67 final rules at the Commodity Futures Trading Commission from January 2010 to September 2013. That’s when a raft of new rules was proposed in response to the financial crisis. The researchers found that the agency very often heeded the public’s views when writing its final rules.

Save capitalism from the capitalists by taxing wealth -  The distribution of income and wealth is one of the most controversial issues of the day. History tells us that there are powerful economic forces pushing in every direction – towards greater equality, and away from it. Which prevail will depend on the policies we choose.Even if wage inequality could be brought under control, history tells us of another malign force, which tends to amplify modest inequalities in wealth until they reach extreme levels. This tends to happen when returns accrue to the owners of capital faster than the economy grows, handing capitalists an ever larger share of the spoils, at the expense of the middle and lower classes. It was because the return on capital exceeded economic growth that inequality worsened in the 19th century – and these conditions are likely to be repeated in the 21st. The Forbes global billionaire rankings show that the wealth of the very richest has grown more than three times as fast as the size of the world economy between 1987 and 2013. US inequality may now be so sharp, and the political process so tightly captured by top earners, that necessary reforms will not happen – much like in Europe before the first world war. But that should not stop us from aspiring to improve. The ideal solution would be a global progressive tax on individual net worth. Those who are just getting started would pay little, while those who have billions would pay a lot. This would keep inequality under control and make it easier to climb the ladder. And it would put global wealth dynamics under public scrutiny. The lack of financial transparency and reliable wealth statistics is one of the main challenges for modern democracies.

Why Most Tax Extenders Should Not Be Permanent -- What to do about the tax extenders—or, as my colleague Donald Marron calls them, the “tax expirers”? Restoring the current crop (most of which expired on December 31) for 10 years would add about $900 billion to the deficit. House Ways & Means Committee Chair Dave Camp (R-MI) and Senate Finance Committee Chair Ron Wyden (D-OR) have pledged to address these extenders, though in very different ways. Camp would take them on one by one this year, making some permanent and killing others.  Wyden (and senior panel Republican Orrin Hatch of Utah) would restore nearly all of them but only through 2015. Clearly, as my colleague Howard Gleckman suggests, we need to rigorously examine the merits of each one. But after paring out those we don’t want, should we make the rest permanent as Camp and many lawyers and accountants favor? Or should we keep them on temporarily? Making them permanent would reduce complexity and uncertainty. But keeping them temporary would allow Congress to regularly review them on their merits. I believe that, with a few exceptions, most should not be made permanent. However, I’d extend most of them for a more than a year at a time according to the purpose they are meant to serve.Why not make them permanent?  As Professor George Yin of the University of Virginia School of Law has argued, most of these provisions really look more like spending than taxes.  We must distinguish, therefore, between those items that legitimately adjust the income tax base, and those that, like direct expenditures, subsidize particular activities or persons, or respond to a temporary need.

Why Taxpayers Will Bail Out the Rich When the Next Storm Hits -As homeowners around the nation protest skyrocketing premiums for federal flood insurance, the Federal Emergency Management Agency has quietly moved the lines on its flood maps to benefit hundreds of oceanfront condo buildings and million-dollar homes, according to an analysis of federal records by NBC News.The changes shift the financial burden for the next destructive hurricane, tsunami or tropical storm onto the neighbors of these wealthy beach-dwellers — and ultimately onto all American taxpayers. In more than 500 instances from the Gulf of Alaska to Bar Harbor, Maine, FEMA has remapped waterfront properties from the highest-risk flood zone, saving the owners as much as 97 percent on the premiums they pay into the financially strained National Flood Insurance Program. NBC News also found that FEMA has redrawn maps even for properties that have repeatedly filed claims for flood losses from previous storms. At least some of the properties are on the secret "repetitive loss list" that FEMA sends to communities to alert them to problem properties. FEMA says that it does not factor in previous losses into its decisions on applications to redraw the flood zones. And FEMA has given property owners a break even when the changes are opposed by the town hall official in charge of flood control. Although FEMA asks the local official to sign off on the map changes, it told NBC that its policy is to consider the applications even if the local expert opposes the change.

CHARTS: The Amazing Wealth Surge For The Top 0.1 Percent -- New research finds that richest 0.1 percent of Americans have dramatically expanded their share of the country's overall wealth in the last three decades. The study finds that the top one-tenth of the country's wealthiest 1 percent has doubled its share of the pie from about 10 percent between 1940-1980 to over 20 percent in 2013. The analysis, highlighted on the economics blog House of Debt, was conducted by Emmanuel Saez of UC Berkeley and Gabriel Zucman of UC Berkeley and the London School of Economics, who accompanied their findings with charts (below).The gains have accrued overwhelmingly for the top 0.1 percent, who now enjoy their largest share of America's wealth since the 1920s. Over the same period, this small contingent has seen its gains rise significantly, while the wealth share for the bottom nine-tenths of the top 1 percent has remained about the same since the 1960. The study is unique in that it measures inequality in terms of wealth, rather than income. It builds upon a slew of research that details stark and growing inequalities in the United States.

How You, I and Everyone Got the Top 1 Percent All Wrong - For years, I've been making the same embarrassing mistake about U.S. economic inequality. Sorry. I've written, over and over, that the most important divide in our wealth disparity was between the 1 percent and the 99 percent. For example, when I compared the evolution in investment income since the late 1970s, I often imagined a graph like this from the Economic Policy Institute, showing the 1 percent flying away from the rest of the country. It turns out that that graph is somewhat misleading. It makes it look like the 1 percent is a group of similar households accelerating from the rest of the economy, holding hands, in unison. Nothing could be further from the truth. A few weeks ago, I shared this graph (from the World Top Incomes Database) showing how the top 0.01 percent—that's the one percent of the 1 percent—was leaving the rest of the top percentile behind. It's even more egregious than that. An amazing chart from economist Amir Sufi, based on the work of Emmanuel Saez and Gabriel Zucman, shows that when you look inside the 1 percent, you see clearly that most of them aren't growing their share of wealth at all. In fact, the gain in wealth share is all about the top 0.1 percent of the country. While nine-tenths of the top percentile hasn't seen much change at all since 1960, the 0.01 percent has essentially quadrupled its share of the country's wealth in half a century.

Why Don’t the 1 Percent Feel Rich? - It's hard out there for the 1 percent. Okay, that's not true at all. But they think it is. If you talk to people on Wall Street, most of them—even, in my experience, the ones shopping for Lamborghinis—will tell you that they're "middle class." Their lament, the lament of the HENRY (short for "high-earner, not rich yet"), goes something like this. You try living on $350,000 a year when you have to pay taxes, the mortgage on the house in a tony zip code, the nanny who knows how to cook ethnic cuisine, the private school tuition from pre-K on, the appropriately exclusive vacation, and max out your retirement and college savings accounts. There just isn't that much cash left over each month once you've spent it all! Well, sure. But burning through your money to live the lifestyle of the rich and unfamous doesn't mean you're not rich. Nor does it mean that the top 1 percent haven't been pulling away from everyone else. They have. You can see that in the chart below from Berkeley economist Emmanuel Saez's numbers on income inequality. It looks at how much different parts of the 1 percent have made as a share of total income. Now, the top 0.01 percent—that is, the 1 percent of the 1 percent—have increased the most, almost quintupling their income share in the last 40 years. But the "bottom of the 1 percent" (the 99 to 99.5 percent) have increased too. So both the super-rich and the merely rich are growing faster than everyone else.

Median CEO pay in US tops $10 million - Nineteen corporate executives raked in more than $100 million in income in 2013, and the median CEO pay for Standard & Poor’s 500 companies rose 13 percent to $10.5 million, according to an analysis of S&P data published Friday by USA Today. The newspaper said these figures were at “a level buoyed by soaring stock prices that’s likely to rise as more companies meet annual Securities and Exchange Commission filing deadlines.” In other words, this report of gargantuan paydays for corporate bosses is likely an understatement. The highest-paid CEO was Facebook co-founder Mark Zuckerberg, who took in $3.3 billion from pay and stock options, on top of the $2.3 billion he made in 2012, when the social networking site first went public. Second place in Silicon Valley went to Lawrence Ellison, CEO of Oracle Corp., who took $229.8 million from direct compensation and stock options combined.  Joining Zuckerberg and Ellison were a half dozen Wall Street financial operators: Leon Black of the Apollo Global hedge fund collected $546 million, and his partners Josh Harris and Marc Rowan took in $397 million and $366 million respectively. Stephen Schwarzman of Blackstone Group doubled his 2012 income to $465 million in 2013. The co-CEOs of Kohlberg Kravis Roberts were in the group: Henry Kravis made $161 million, George Roberts $165 million.+

Caterpillar skirted $2.4 billion in taxes, Senate report says - The Washington Post: Industrial manufacturer Caterpillar shifted billions of dollars in profits from the United States to Switzerland over a decade to avoid paying $2.4 billion in U.S. taxes, according to a Senate report due out Tuesday. The report from the Senate permanent subcommittee on investigations is the latest in a series of probes into multinational corporations, including Apple, Microsoft and Hewlett-Packard, accused of hiding portions of their global profits from taxation. Lawmakers have argued that tax shelters are an outgrowth of a broken corporate tax code and allow homegrown companies to defer taxes on overseas income indefinitely if they don’t bring the proceeds home. But lawmakers also say the failings of the tax system are no excuse for companies not to pay their fair share.

Corporate America’s overseas cash pile rises to $947bn - American companies have stockpiled nearly a trillion dollars of cash offshore to avoid paying higher tax bills at home, according to an analysis released on Monday. The growing overseas cash pile has also become the most visible sign of corporate America’s unwillingness to place bigger bets on business expansion, despite unparalleled financial conditions. Total cash reserves of US companies climbed to $1.64tn last year, according to the report by Moody’s Investors Service, the credit rating agency. That was $180bn or 12 per cent more than the year before. Many American companies keep their foreign profits offshore rather than face higher taxes if they bring it home to invest, or to pay out in the form of dividends or stock repurchases. The highly conspicuous foreign holdings, which reached $947bn last year, up 13 per cent from 2012, have brought an increase in shareholder activism, as investors have pressed companies to pay out more of their financial reserves in dividends and stock buybacks. In a break from its highly conservative financial strategy under the late Steve Jobs, Apple paid out $33bn last year – though that was still about $20bn short of its total cash profits. A strong corporate lobby, particularly made up of the tech companies that account for nearly half of all the overseas cash, has pushed for a tax holiday, which they argue would help the US economy. However, attempts at broader tax reform have stalled, and critics claim that much of the money that has built up offshore was the product of tax-avoidance measures and should not be allowed to escape higher US taxes in future.

NYSE Margin Debt Hits Another Record High -- The New York Stock Exchange publishes end-of-month data for margin debt on the NYXdata website, where we can also find historical data back to 1959. Let's examine the numbers and study the relationship between margin debt and the market, using the S&P 500 as the surrogate for the latter. The first chart shows the two series in real terms — adjusted for inflation to today's dollar using the Consumer Price Index as the deflator. I picked 1995 as an arbitrary start date. We were well into the Boomer Bull Market that began in 1982 and approaching the start of the Tech Bubble that shaped investor sentiment during the second half of the decade. The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge began in 2006, peaking in July 2007, three months before the market peak. The latest data puts margin debt at another record high, not only in nominal terms but also in real (inflation-adjusted) dollars.

Stocks On Speed: Leverage Spikes, As Does Risk Of Crash (Look At That Insane Chart!) Wolf Richter --Margin debt is a crummy predictor of a stock market crash. But after it starts spiking, it has a bone-chilling habit of peaking right around the time stocks crash. In the last fifteen years, it spiked three times: during the final throes of the bubbles that started imploding in 2000 and 2007; and now. In February, margin debt jumped by $14.5 billion to a new all-time crazy record of $465.7 billion. In the last seven months, it soared $82.8 billion. It’s now 22% above the prior all-time crazy record of $381.4 billion set in July 2007, during the glorious moments before the whole construct came tumbling down.  Margin debt, which is based on what brokers report to the NYSE, is only a fraction of total leverage in the stock market. Stocks can be leveraged in many ways. Large players borrow in the shadow banking system and buy stocks with the proceeds. Executives borrow from their company, with their shares as collateral. When the stock crashes, the exec walks away with the borrowed cash and the company gets to keep the crashed shares – an elegant mechanism that transfers the loss to the company (and to the rest of the stockholders) while the exec profits from any upside. Corporations have issued record amounts of new debt to buy back their own shares. In the fourth quarter of 2013, share buybacks of S&P 500 companies soared 30.5% year over year to $129.4 billion; for the year, buybacks jumped 19.2% to $475.6 billion. Tech companies dominated the game with 26.7% of all buybacks. Like Apple and IBM, they issued bonds to fund those buybacks. Yup, buying stocks with borrowed money.

High-Speed Traders Rip Investors Off - The U.S. stock market is rigged when high-frequency traders with advanced computers make tens of billions of dollars by jumping in front of investors, according to author Michael Lewis, who spent the past year researching the topic for his new book “Flash Boys.” “The United States stock market, the most iconic market in global capitalism, is rigged,” Lewis, whose books “Liar’s Poker” and “The Big Short” highlighted Wall Street excesses, said during the interview. The new book comes out today. “It’s crazy that it’s legal for some people to get advance news on prices and what investors are doing,” he said.  The author’s comments follow New York Attorney General Eric Schneiderman’s decision to investigate privileges marketed to professional traders that allow them to place their computers within feet of exchanges and buy access to faster data streams. Officials at the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission have also said market rules may need to be examined.

High Speed Trading and Slow-Witted Economic Policy - Dean Baker - Michael Lewis' new book, Flash Boys, is leading to large amounts of discussion both on and off the business pages. The basic story is that a new breed of traders can use sophisticated algorithms and super fast computers to effectively front-run trades. This allows them to make large amounts of money by essentially skimming off the margins. By selling ahead of a big trade, they will push down the price that trader receives for their stock by a fraction of a percent. Similarly, by buying ahead of a big trade, they will also raise the price paid for that trade by a fraction of a percent. Since these trades are essentially a sure bet (they know that a big sell order or a big buy order is coming), the profits can be enormous. This book is seeming to prompt outrage, although it is not clear exactly why. The basic story of high frequency trading is not new. It has been reported in most major news outlets over the last few years. It would be nice if we could move beyond the outrage to a serious discussion of the policy issues and ideally some simple and reasonable policy to address the issue. (Yes, simple should be front and center. If it's complicated we will be employing people in pointless exercises -- perhaps a good job program, but bad from the standpoint of effective policy.) The issue here is that people are earning large amounts of money by using sophisticated computers to beat the market. This is effectively a form of insider trading. Pure insider trading, for example trading based on the CEO giving advance knowledge of better than expected profits, is illegal. The reason is that it rewards people for doing nothing productive at the expense of honest investors.

High-Speed Trading Gets Scrutiny Again, This Time From the Feds - Authorities are probing whether firms utilizing high-frequency trading are doing so in a way that is tantamount to insider trading as they process deals in tiny fractions of a second. The FBI and the attorney general of New York are both investigating. Federal investigators are currently probing high-speed-trading firms to see if the outfits are practicing a form of insider trading — that is, making deals based on nonpublic market information. High-speed-trading firms use powerful computers to process trades in fractions of a second, taking advantage of tiny price fluctuations. A new FBI inquiry will seek to establish whether traders are abusing information in doing so, the Wall Street Journal reports. Authorities are probing if the trades, which are based not on human decisions but computer algorithms, could be classified as wire or securities fraud — although it may be more difficult for prosecutors to prove nefarious intent is present in the case of computer trades.

60 Minutes: Is the U.S. stock market rigged? (4 videos) Steve Kroft reports on a new book from Michael Lewis that reveals how some high-speed traders work the stock market to their advantage.  Is the U.S. stock market rigged? Lewis explains how the stock market is rigged.  Author Michael Lewis explains why vast sums of money are being spent by high frequency traders to gain microseconds in speed.  Lewis: Investors, big and small, are “prey”.

60 Minutes Sanitizes Its Report on High Frequency Trading -- Two of the chief culprits of aiding and abetting high frequency traders, the New York Stock Exchange and the Nasdaq stock exchange, failed to come under scrutiny in the much heralded 60 Minutes broadcast on how the stock market is rigged.This past Sunday night, 60 Minutes’ Steve Kroft sat down with noted author Michael Lewis to discuss his upcoming book, “Flash Boys,” and its titillating revelations about how high frequency traders are fleecing the little guy. Kroft says to Lewis: “What’s the headline here?” Lewis responds: “Stock market’s rigged. The United States stock market, the most iconic market in global capitalism is rigged.”Kroft then asks Lewis to state just who it is that’s rigging the market. (This is where you need to pay close attention.) Lewis responds that it’s a “combination of these stock exchanges, the big Wall Street banks and high-frequency traders.” We never hear a word more about “the big Wall Street banks” and no hint anywhere in the program that the New York Stock Exchange and Nasdaq are involved.  60 Minutes pulls a very subtle bait and switch that most likely went unnoticed by the majority of viewers. In something akin to its own “Flash Boys” maneuver, it flashes a photo of the floor of the New York Stock Exchange as Kroft says to the public that: “Michael Lewis is not talking about the stock market that you see on television every day. That ceased to be the center of U.S. financial activity years ago, and exists today mostly as a photo op.” That statement stands in stark contrast to the harsh reality that the New York Stock Exchange is one of the key facilitators of high frequency trading and making big bucks at it.

HFT: 60 Minutes Sanitizes Its Report - What Banks, What Exchanges? -- There were some gaping holes in the 60 Minutes expose about the stock market being rigged. The story was spun in such a way to make one think that uncontrolled innovation had created some unfortunate and inadvertent technical arbitrage opportunities in exchange centers outside of Manhattan, but a clever insider, funded in part by ultimate insider David Einhorn and backed by the big dogs of Wall Street, had come up with a clever technical fix in a new and better exchange called IEX.  Protected by a spool of fiber to induce network latency.   Free market triumphs, mission accomplished.   And wait breathlessly for the IPO. Don't even think about a minimum transaction tax, a speed bump rule such as a minimum order duration, or anything more comprehensive than that. A spoolful of fiber makes the medicine go down.  I was so enchanted that they allowed someone to say 'the stock market is rigged' on national television that I thought that giving it a day or two to sink in might be appropriate.  And it is rigged.  It is just not fixed, in the manner of genuine reforms.  It is a laughingstock amongst insiders. Well not everyone is laughing.  What was this 60 minutes piece, a limited hangout expose that will still be boldly and hotly denied?

Jon Stewart On HFT: "It's Not American; It's Not Even Capitalism. It's Cheating" -- John Stewart is stunned by the world of HFT (where "stock exchanges sell the right to advance information to high frequency traders [by locating their computers closest to the exchange]") and the mainstream media's immediate jump to defend it "as good for us", but as Michael Lewis explains "anyone whose livelihood is dependent on Wall Street [from CNBC, FOX and even the SEC] is invested in this... it sounds like a conspiracy." As Lewis explains, HFTs "function on volume and volatility" alone and "they know the prices before you do... which is illegal if it's a person, but as a computer, meh?"

High-frequency trading is a growing cancer that needs to be addressed - (Schwab Company statement) High-frequency traders are gaming the system, reaping billions in the process and undermining investor confidence in the fairness of the markets. It’s a growing cancer and needs to be addressed.  If confidence erodes further, the fuel of our free-enterprise system, capital formation, is at risk. We can’t allow that to happen. For sure, we still believe investing in equities is a primary path to long-term wealth creation, and we believe in the long-term structural integrity of the markets to deliver that over time for individual investors, which is all the more reason to be vigilant in removing anything that creates unfair advantage or undermines investor confidence.As Michael Lewis shows in his new book Flash Boys, the high-frequency trading cancer is deep. It has become systematic and institutionalized, with the exchanges supporting it through practices such as preferential data feeds and developing multiple order types designed to benefit high-frequency traders. These traders have become the exchanges favored clients; today they generate the majority of transactions, which create market data revenue and other fees. Data last year from the Financial Information Forum showed this is no minor blip. High-frequency trading pumped out over 300,000 trade inquiries each second last year, up from just 50,000 only seven years early. Yet actual trade volume on the exchanges has remained relatively flat over that period. It’s an explosion of head-fake ephemeral orders – not to lock in real trades, but to skim pennies off the public markets by the billions. Trade orders from individual investors are now pawns in a bigger chess game.

Incidence - One of the criticism’s of Michael Lewis’s book is that he gets his moral wrong. High-frequency trading doesn’t hurt the little guy, as Lewis claims; instead, it hurts the big guy. The explanation is this: people sitting at their desks buying 100 shares of Apple are getting the current ask, so mainly they care about volume and tight bid-ask spreads. Institutional investors, buy contrast, want to buy and sell huge blocks of shares, and they don’t want the price to move in the process; they are the ones being front-run by the HFTs. Felix Salmon pointed this out, and it’s the subject of an op-ed by Philip Delves Broughton today. What this leaves out is the question of who ends up being harmed. To figure that out, you have to ask whose money we’re talking about when we say “institutional investor.” If it’s SAC Capital, meaning Steven Cohen’s money, then who cares? But most ordinary people invest—if they are lucky enough to have money to invest—through mutual funds (401(k) plans, for example, are largely invested in mutual funds), and those funds are among the “institutional investors” losing money to HFTs. Another big chunk of institutional money belongs to pension funds. In this case, if the pension fund does poorly, the money may come out of its corporate sponsor in the form of increased contributions—or it may come out of beneficiaries and taxpayers in the form of a bankrupt plan shifting its obligations to the PBGC. Then there are insurance companies: in that case, losses from trading affect shareholders, but if they are systemic across the industry they end up as higher premiums for consumers.

M Stanley hits back over Flash Boys row - Morgan Stanley has disputed the suggestion that improvements in its equities business have been driven by controversial high-frequency trading, after questions were raised by a rival about why it has been so successful. In the book Flash Boys by Michael Lewis, the bond salesman-turned-author, Goldman Sachs executives are said to have asked “Why was Morgan Stanley growing so fast?”  Flash Boys suggests that Morgan Stanley eked out an advantage over Goldman by building infrastructure to serve high-frequency traders, known as Speedway, which “was now making Morgan Stanley $500m a year, and ... it was growing”. “It couldn’t be that we’re better than them?" said one Morgan Stanley executive. One person familiar with the matter said the $500m figure was too high and crucially Speedway did not serve high-frequency traders – such business at Morgan Stanley was minuscule – and that it was not “a straight road into the bank’s dark pool” [private exchange]. In fact, it had nothing to do with dark pools, said this person. Among the big Wall Street banks, Goldman, which co-operated with the author, comes across positively, setting out its stall as the bank that would not embrace the murky world of high-frequency trading, because of concerns about “some future calamity”. The book has divided Wall Street, and has been called an “unjust vilification of an entire industry” by William O’Brien, the president of exchange operator BATS, and lauded as a probe into “a growing cancer” by Charles Schwab, head of the eponymous discount brokerage.

SEC Goes Rogue, Defies Congress -- The Jumpstart Our Business Starups Act, also known as the JOBS Act, is meant to spur growth of small businesses in the United States. A start-up for this purpose is currently defined as a business raising up to $50 million in capital. States' investment oversight has been on the front line of preventing and catching con artists that locally scam retail investors, yet the SEC proposes to cut them out of the loop. The idea behind the JOBS Act is to jump-start growth, not to give fraudsters an easy way to fleece unwary victims. Reasonable finance professionals find the SEC's proposed rule amendments so ludicrous that the SEC seems to beg for a thorough housecleaning. The following is the text of the comment letter from Tavakoli Structured Finance filed with the SEC on February 24, 2014:

Criminal Inquiry Said to Open on Citigroup -- Just as Citigroup was putting a troubled past of taxpayer bailouts and risky investments behind it, the bank now finds itself in the government’s cross hairs again. Federal authorities have opened a criminal investigation into a recent $400 million fraud involving Citigroup’s Mexican unit, according to people briefed on the matter, one of a handful of government inquiries looming over the giant bank. The investigation, overseen by the F.B.I. and prosecutors from the United States attorney’s office in Manhattan, is focusing in part on whether holes in the bank’s internal controls contributed to the fraud in Mexico. The question for investigators is whether Citigroup — as other banks have been accused of doing in the context of money laundering — ignored warning signs. The bank, which also faces a parallel civil investigation from the Securities and Exchange Commission’s enforcement unit, hired the law firm Shearman & Sterling to lead an internal inquiry into the fraud, said the people briefed on the matter, who spoke only on the condition of anonymity. At a meeting last month, the bank’s lawyers presented their initial findings to the government. The bloom of activity stems from Citigroup’s disclosure in February that its Mexican unit, Banamex, uncovered an apparent fraud involving an oil services company. The disclosure — that at least one Banamex employee processed falsified documents that helped the oil services company obtain a loan that cannot be repaid — generated immediate interest from federal authorities. But the decision by the F.B.I. and prosecutors to open a formal investigation, a move that has not been previously reported, has now officially drawn a faraway crime to Citigroup’s doorstep.

Citigroup CEO Named To “Key Administration Post” -  Simon Johnson - Just a few short days ago, it looked like Citigroup was on the ropes. The company’s proposal for redistributing capital back to shareholders was rejected by the Board of Governors of the Federal Reserve System. Given the global bank’s repeated fiascos – including most recently the theft of around $400 million from its Mexican unit – it is hardly surprising that the Fed has said “no” (and for the second time in three years). The idea that Citigroup might now or soon have a viable “living will” now seems preposterous. If top management cannot run sensible financial projections (that’s the Fed’s view; see p.7 of the full report), what is the chance that they can lay out a plausible plan to explain how the company, operating in more than 100 countries worldwide, could be wound down through bankruptcy – without any financial assistance from the government? According to the Dodd-Frank financial reform law, failure to submit a viable living will should result in remedial action by the authorities. Such action has now been taken: CEO Michael Corbat has been named to a top White House job, with responsibility for helping to develop “financial capability for young Americans.” Given that today is April 1st, this announcement may seem a fairly obvious canard. But the White House announcement is dated March 27, 2014 (just as the failed stress test news was breaking) – and it is their media team who use the term “top administration post”. Mr. Corbat’s new job has subsequently been confirmed by the Financial Services Roundtable (roundup email of 03/28/14), and no one knows more about the detailed relationship between Big Finance and government.

A New Look at Big-Bank Subsidies - Simon Johnson - Well-financed friends of large banks, such as the Clearing House Association in the United States, are fighting tooth and nail against the notion that there is a subsidy of any kind. A new report this week from the International Monetary Fund hammered their position. The chance that policy will soon move in the right direction greatly increased. (See Chapter 3 of the Global Financial Stability Report). The I.M.F. staff speaks only for itself in this kind of report, but it has a strong preference for being in sync with — or slightly ahead of — the thinking of officials in important countries, including the United States. I would be very surprised if there proved to be a great deal of distance between this I.M.F. publication and where the Federal Reserve ends up on this issue. The I.M.F.’s findings are straightforward. Government support lowers the funding costs of big banks, because it provides a form of guarantee to creditors. Implicit subsidies of this form are worth up to $70 billion for the United States, and perhaps as much as $300 billion for the euro area, per year (see Pages 14 and 18 of the report). As the fund emphasizes, these are big and dangerous numbers — precisely because such commitments encourage dangerous risk-taking on a scale that can damage the macroeconomy.  Financial reforms, including those from the Dodd-Frank Act in the United States, contain useful measures but have not reduced these subsidies below their pre-2007 level. (The implicit subsidies are lower now than they were at the height of the crisis, but that’s the nature of a crisis — and we are trying to look forward to what would happen in the next crisis-type situation.)

Wall Street’s Subsidy Safety Net - David Dayen - Financial reformers in both parties have insisted for years that the largest banks remain too big to fail, and that Dodd-Frank did not cleanse the system of this reality. You can mark down this week as the moment that this morphed into conventional wisdom. In successive reports, two of the more small-c conservative economic institutions, without any history of agitating for financial reform—the Federal Reserve and the International Monetary Fund—both agreed that mega-banks, in America and abroad, enjoy a lower cost of borrowing than their competitors, based on the perception that governments will bail them out if they run into trouble. This advantage effectively works as a government subsidy for the largest banks, allowing them to take additional risks and threaten another economic meltdown. With institutional players like the Fed and the IMF both identifying the same problem, Wall Street grows more and more isolated, setting up the possibility of true reform.

The Too Big To Fail Subsidy Debate Is Over - Simon Johnson -- No doubt there is still a lot of shouting to come, but this week a team at the International Monetary Fund completely nailed the issue of whether large global banks receive an implicit subsidy courtesy of the American government.   Is there a subsidy, is it large, and how much damage could it end up causing to the broader economy? The answers, in order, are: yes, there is an implicit subsidy that lowers the funding costs for very large banks; the subsidy is big, with costs of borrowing for these banks lowered by as much as 100 basis points, i.e., 1 percentage point; and yet this large scale of implicit support is small relative to the macroeconomic damage that is likely to be caused by the high leverage and incautious risk-taking that the subsidy encourages. If anything the IMF’s work provides a conservative (i.e., low) set of estimates. Still, as I explain in my Economix column, I’m a big fan of this work because the Fund’s report is very good on how to handle and reconcile the main alternative methodologies for getting at the issue. The Fund offers an entirely reasonable approach that sets a very high quality bar. The Government Accountability Office (G.A.O.) is expected to produce a report on TBTF subsidies in the summer; their work now needs to be at least as careful and as comprehensive as that of the IMF. The same applies to the Federal Reserve and anyone in the private sector who attempts to dispute these numbers.

Credit bubble fears put central bankers on edge - Citigroup set out to introduce investors to the bank’s new subprime securitisation platform. This might sound like a scene plucked from 2007, at the height of the credit bubble that eventually sparked the financial crisis, but Citi’s “roadshow” began only this week. The US bank is prepping the market in advance of a debut securitisation from OneMain Financial, its subprime consumer lending arm. The planned sale is symptomatic of a wider development in credit markets as the thirst for increased returns has led to fears about possible overheating and provoked public soul-searching by central bankers. Parts of Wall Street’s securitisation machine have shifted into higher gear, while sales of junk-rated bonds have surged and lending to highly-leveraged companies has surpassed its pre-2008 level.“We are beginning to see the build-up of speculative excess. It’s more advanced in the US, and starting to come through in Europe,” says Chris Watling, chief market strategist at Longview Economics. Central bankers have been debating whether monetary policy should take into account asset bubbles ever since the low interest rates cultivated under Alan Greenspan were blamed for herding investors into riskier investments in the years preceding 2008. However, in recent months, that debate has become increasingly public as credit markets continue their upward trajectory.While many members of the Federal Reserve Board argue that the central bank should not risk derailing longer-term economic growth in order to respond to potential market excesses, some have argued the reverse.

Mixing and Matching Collateral in Dealer Banks - NY Fed - The failure or near-collapse of some of the largest dealer banks on Wall Street in 2008 highlighted the profound complexity of the industry. In some ways, dealer banks resemble well-understood traditional banks, which use deposits they receive from savers to make loans to businesses and households. Unlike traditional banks, however, dealer banks rely on complex and unique forms of collateralized borrowing and lending, which often involve the simultaneous exchange of cash and securities with other large and sophisticated financial institutions. During normal times, such transactions are highly efficient methods for allocating scarce resources. During times of stress, in contrast, they’ve proven to be destabilizing for the individual firms and, as recent history has shown, the financial system at large.  Dealer banks often receive collateral in connection with their lending and market-making activities. In many cases, the collateral received is permitted to be repledged in transactions that generate financing for the dealer bank. Dealer banks, aiming to maximize their income and minimize the cost of various regulatory constraints, optimize their business model by matching their sources and uses of collateral. The benefit from the reuse of collateral, namely the ability to secure additional low-cost financing, is enhanced when a dealer bank efficiently intermediates between those clients that demand cash and possess securities and those that demand securities and possess cash. In our contribution to this Economic Policy Review series, we focus on three categories of secured activities that exemplify such efficiencies: matched-book dealing, cash brokerage internalization, and derivatives dealing.

12 Largest Banks Sued By Public Retirement Funds For "Conspiring To Rig Global FX Markets" -- Yesterday, we read with some amusement that Goldman has moved Guy Saidenberg, reportedly one of the greater profit centers at the firm - and how could he not be when he always traded against Tom Stolper's recommendations which led to tens of thousands of pips in losses to those who listened to him over the past five years - from head of global foreign-exchange trading to a new role, as co-head of commodities.  Why did Goldman decide to scrap its once uber-profitable FX vertical and redo it from scratch? Simple - the ability to rig and manipulate FX markets, which are now under every global regulator's microscope after the "Cartel" members so foolishly let themselves be exposed to the entire world, is no longer there, as confirmed last night by news that a dozen large investors have filed a joint lawsuit against 12 banks for "allegedly conspiring to rig global foreign-exchange prices." Allegedly? Hasn't everyone read the Cartel chatroom transcripts yet?

How Chase Bank Denying Services to a Condom Shop Is Really About Deregulating Payday Lending - David Dayen: The small business owner here is named Tiffany Gaines, and the business, Lovability Condoms. From HuffPo: In mid-March, a division of JPMorgan Chase rejected an application to process payments for the fledgling New York City condom company Lovability, citing “reputational risk” associated with “adult” products.  That division of JPM, Chase Paymentech, is a third-party payment processor (TPPP). Banks use Automatic Clearing House (ACH) to clear payments, and the third-party payment processors prospect businesses that need payment services and connect them to the banks. In this case, Chase Paymentech happens to be owned by JPM, making this all the more confusing (they’re not a third party but the bank themselves). In a rare move designed to actually enforce the law, the Justice Department, along with banking regulators OCC and FDIC, have told banks to look critically at their relationships with TPPPS. Previously, TPPPs gave the banks plausible deniability to work with the scummiest of predatory operators. If those businesses ripped off consumers, the bank would simply say they didn’t know who the TPPP brought in, effectively transferring the reputational risk. Operation Chokepoint, the Justice Department initiative, held banks more responsible for these relationships. Instead of chasing fly-by-night payday lenders that close one day and open under another name the next, DoJ decided to target banks for doing business with lawbreakers. Presumably, after enough of a crackdown, the market would work its magic, and banks would refuse to work with TPPPs that signed up online payday lenders, because of the risk of prosecution. Operation Chokepoint already nailed one bank, Four Oaks, for this kind of activity (the $1 million settlement was relatively significant for such a small bank). The fees banks get from TPPPs are lucrative, and DoJ’s action levels the playing field somewhat. So you see what probably happened here. The TPPPs are deliberately interpreting Operation Choke Point incredibly broadly, to generate complaints and embarrass the regulators into calling off the dogs. The smoking-gun proof of this comes from a conversation Gaines had with a marketing executive for Chase Paymentech, after she raised the initial stink and started a petition. Zach Carter of HuffPo heard about this too, but I’ll just relay what Gaines told me about this conversation:

Lenders Are Taking More Risk - Lenders are showing an increasing willingness to take risk, especially over the last two years. One measure of risk tolerance that economists typically track in corporate bond markets is the credit spread–the difference between interest rates for risky debt versus safe debt. But for the household sector, it is much more informative to track the quantity of credit extended.The Federal Reserve Consumer Credit Statistical Release has shown strong growth in consumer debt (excluding mortgages). But this doesn’t necessarily mean that lenders are taking on more risk. They could be extending more credit to very high credit score individuals who are unlikely to default.But the microeconomic evidence suggests that the opposite is true: much of the growth in auto and credit card debt is among individuals most prone to default. We can see this using zip code level data.We split up zip codes in the United States into four groups based on their 2009 default rate. The groups each contain 25% of the population. The highest default rate zip codes tend to be those with the lowest credit scores. Lending in these areas is almost by definition more risky. The lowest default rate zip codes are the safest. We then track the growth in auto debt and credit card debt originations in the riskiest and safest zip codes. Here is the chart for auto debt: Auto debt originations have increased by almost 70% from 2010 to 2013 in the riskiest zip codes. They have increased by only 30% in the safest zip codes. The difference is especially pronounced in 2012 and 2013. Lenders are extending much more credit in the riskiest areas.  We see the exact same pattern in credit card originations:

Unofficial Problem Bank list declines to 538 Institutions, Q1 2014 Transition Matrix - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for March 28, 2014.   The FDIC released its enforcement action activity through February 2014 today as anticipated. In that month, the FDIC was very busy terminating enforcement actions. For the week, there were 14 removals that leave the list at 538 institutions with assets of $174.3 billion. A year ago, the list held 791 institutions with assets of $290.0 billion. During March 2014, the list declined by 28 institutions and $8.0 billion in assets after 23 action terminations, four mergers, and one voluntary liquidation. We have updated the Unofficial Problem Bank List transition matrix through the first quarter of 2014. Full details are available in the accompanying table and a visual of the trends may be found in accompanying chart. Since the Unofficial Problem Bank List appeared in August 2009, 1,665 institutions have graced the list with only 32.3% or 538 remaining on the list. Removals total 1,127 with 555 coming through action termination. Another 375 have failed, 183 found a merger partner, and 14 exited through a voluntary liquidation. In the first quarter of 2014, action terminations accelerated to their fastest pace as 9.7 percent or 60 of the 595 institutions at the start of the quarter had their action terminated.

Prosecuting mortgage fraud not a priority - Ted Kaufman - A couple of weeks ago, most often buried on the inside pages, newspapers ran stories about a Justice Department inspector general’s audit of the department’s efforts to address mortgage fraud. The headline in The New York Times was typical: “U.S. Criticized for Lack of Action on Mortgage Fraud.” A better headline might have been “Justice Department Acknowledges that Rich Bankers Who Committed Fraud Won’t Go to Jail.” Angry? You bet I am. Even more angry than I was back in 2009 when, as a U.S. senator, I saw shocking paper trails that I believed would have convinced juries to convict some crooked CEOs if there were aggressive efforts to prosecute them. That’s why I worked hard for and co-sponsored the Fraud Enforcement and Recovery Act, which in May 2009, gave an extra $55 million to the Justice Department over the next two years – over and above the Department’s normal appropriation. This money was specifically granted to bring to justice top executives who had engaged in fraud leading up to the financial meltdown. When a bill is passed in Congress, hearings are usually held to monitor how the bill is being implemented. Chairman Leahy allowed me to chair Judiciary Committee hearings on FERA in 2009 and 2010. Before those hearings I met with those who would testify – including Lanny Breuer, assistant attorney general for the Criminal Division; Robert Khuzami, director of enforcement for the Securities Exchange Commission; and Kevin Perkins, assistant director of the FBI Criminal Investigative Division.

Some Americans Paid Off Credit Cards While Waiting for Foreclosure -- The sheer number of foreclosures during the recession may have helped some Americans pay off other debts, such as credit-card bills. Foreclosures rose sharply during the recession, peaking around 2009, and the timeline for processing them stretched out in some states to as long as three years. That allowed people to remain in their homes longer without making mortgage payments, freeing up money for other expenses, according to research from the Federal Reserve Bank of Philadelphia. “Our findings indicate that households do not consume all the benefits from temporary relief from housing expenses; instead, they use that temporary relief to cure their bad nonmortgage debts and improve their balance sheets,”  The economists looked at data from U.S. households that were already delinquent on at least one credit card before falling behind on mortgage payments and going into foreclosure from 2004 through 2010. Their analysis of more than 27,500 loans found people whose foreclosures took longer to process were more likely to pay off nonmortgage debt like credit cards. “We demonstrate empirically that households experiencing longer foreclosure time periods are more likely to pay off their credit card debt and become cured,” i.e., “returning to a current status on their credit cards again,” . “In other words, these households are more likely to improve their overall balance sheet when compared with households for which foreclosure timelines are shorter.”

Fannie Mae: Mortgage Serious Delinquency rate declined in February, Lowest since November 2008 - Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in February to 2.27% from 2.33% in January. The serious delinquency rate is down from 3.13% in February 2013, and this is the lowest level since November 2008.  The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%. Last week, Freddie Mac reported that the Single-Family serious delinquency rate declined in February to 2.29% from 2.34% in January. Freddie's rate is down from 3.15% in February 2013, and is at the lowest level since February 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

It's My Fault You Can't Get a Mortgage -- Can’t get a mortgage?  Turns out it’s my fault.  As in mine, personally.  Yup.  That’s the claim in a Housing Wire written by right-wing banking analyst R. Christopher Whalen.  Here is Whalen’s argument in a nutshell:   Servicing regulations make banks really reluctant to deal with anyone but very good credit borrowers because it takes so long to foreclose on anyone anymore.  Servicing regulations are so onerous because of an article Tara Twomey and I wrote on mortgage servicing that said that servicers were doing bad things. The problem (in Whalen's view) is that Tara and I had it totally wrong. I'm flattered that Whalen credits the article with having inspired all of the subsequent foreclosure regulation, but it would be nice if Whalen would accurately characterize the article. (Has he even read it?)  It would also be nice if Whalen would acknowledge that servicers have done an awful lot of bad things over the past several years, which might just possibily have something to do with the current regulatory enviornment for servicing. But such an admission that might get in the way of Whalen grinding his political axe (two legs good, regulation ba-a-a-d). Whalen claims that the basic thrust of our paper “is that mortgage lenders and services want to push home owners into foreclosure, gain control over the homes and thereby profit.”   Nope.  Wrong.  First, Tara and I make no claims about lenders.  Our paper is about servicers.  Their incentives are distinct from lenders, and that's part of the problem, we argue. Second, our argument is not about servicers wanting to push homeowners into foreclosure, nor is it about servicers wanting to gain control over the homes (via foreclosure sale purchases).  And Tara and I barely mentioned the REO aftersale market in the article.

Chris Whalen Goes Off the Deep End, Issues Error-Filled Screed in Defense of Mortgage Servicers - Yves Smith - Whalen’s post at Housing Wire on the servicing industry represents a new low. It’s rife with errors and misinformation. For instance, Whalen treats the servicers as if they are the same as the lenders. They aren’t; they are agents for the lenders (who are typically securitized investors). Whalen falsely claims that the lenders have incentives to care about maximizing the value of the real estate asset (the mortgaged house, which often winds up being REO, or real estate owned). I challenge Whalen to point to the section of the pooling and servicing agreement that compensates servicers for doing a good job of maximizing the value of the house for investors, either during the foreclosure process or afterwards.  Whalen completely skips over how servicers cheat investors as well as homeowners. And note this isn’t an ideological issue; uber-conservative mortgage investor Bill Frey of Greenwich Capital has worked hard, but will little success, to organize investors to combat servicer abuses. And from what I have seen in investor reports, servicers run ever scam in the book. One uncovered by Lisa Epstein: servicers will tell the trust (investors) that it has sold a property out of REO anywhere from 2 to as many as 8 months after court records say it has been sold. Why the delay? It allows servicers to collect servicing fees to which they are not entitled. And servicers have engaged in much bigger abuses, such as modifying second liens (when they own them) ahead of first mortgages they service (and don’t own), which serves to increase the cash flow to the second liens out of borrowers that look terminal.

Slumlord Wannabe Blackstone Violates Local Housing Laws by Making Tenants Maintain Rentals - Yves Smith - One of the reasons many investors have been skeptical of the way private equity firms have gone full bore into buying distressed single family homes is that property management is a hands-on business even when it’s done it the most favorable possible setting, an apartment building. Individuals who have invested in single family home rentals almost without exception report that even when they found it to be an economically attractive proposition, it was still oversight-intensive. Admittedly, there are some private equity firms who have bought rental properties who actually do seem to be targeting markets and renters in such a way that they might be able to do a decent job of property management, for instance, by buying homes where they can rehab the kitchen and bath plumbing using the same fixtures, screening tenants in person, and then inspecting the properties monthly and giving the tenants points for passing that they can convert into credits against a purchase or take in cash. But the biggest fish in this ocean, Blackrock, is clearly taking the opposite approach, of doing as little as they can to maintain the houses and trying to fob off the responsibility onto the tenant, even when local regulations clearly prohibit it. So managing dispersed homes is no problem if you never planned to do the job in the first place.Blackstone tries to evade this duty formally, through lease terms, and informally, by making themselves inaccessible. And because Blackstone is the largest and highest profile player in this space, they may be hoping that if enough PE landlords follow their lead, communities will accept the new finance-dictate bad standards, just as they have with foreclosure abuses. But the difference here is while stressed borrowers were the ones that were hurt in foreclosures, and foreclosures and bankruptcies are seen as shameful event, there’s no reason for a victim of a bad landlord to be seen as unsympathetic. Moreover, deliberately negligent PE landlords like Blackstone traditionally have hurt the value of neighboring properties. If this trend continues, abused tenants and their neighbors face a common threat.

Reverse Mortgages Spike 20% In 2013 As Baby Boomers Scramble For Cash -- While we have covered the various ways in which Americans are scraping by in the current feudal economy, from food stamps and disability fraud, to student loans and living in mom and pop’s basement, this reverse mortgage thing is a piece of the puzzle we have been missing. These mortgages are not insignificant either. According to Inside Mortgage Finance, originations were up 20% in 2013, hitting $15.3 billion. So when you see that older guy working the cashier at Wal-Mart and wonder to yourself how he is surviving, the answer may increasingly be a reverse mortgage. Oh, and since the FHA is originating many of these loans, you the taxpayer will be on the hook!

Fannie, Freddie Overhaul Will Translate Into Higher Mortgage Rates - Mortgage rates could rise by as much as 1.5 percentage points for homeowners with weaker credit or smaller down payments under various legislative proposals to overhaul Fannie Mae and Freddie Mac, according to a study prepared for an the Leading Builders of America, a trade group representing large U.S. home builders. The study found that earlier estimates of mortgage-rate increases from an overhaul of the mortgage-finance giants understate the potential impact to average American borrowers. “We wanted to make sure people knew that there’s a range of potential costs. It’s not just the ‘best-case scenario’ cost,” The paper examined the potential cost to borrowers under the housing-finance overhaul envisioned in a bill introduced last year by Sens. Bob Corker (R., Tenn.) and Mark Warner (D., Va.). They estimate that rates could rise between 0.25 and 1.5 percentage points as a result of higher capital requirements and other fees imposed by the overhaul.The worst-case estimates are most likely to hit borrowers with credit scores of between 650 and 750 and down payments of around 5% to 15%. (Under a system devised by Fair Isaac Corp., credit scores run on a scale from 300 to 850.) The paper worked off of earlier models from Andrew Davidson, an industry consultant, and Mark Zandi, chief economist of Moody’s Analytics.

MBA: Mortgage Purchase Applications Increase, Refinance Applications Decrease -- From the MBA: Mortgage Purchase Applications Increase in Latest MBA Weekly Survey Mortgage applications decreased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 28, 2014. ...The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. ... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) was unchanged at 4.56 percent, with points increasing to 0.31 from 0.29 (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 73% from the levels in May 2013. With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013. The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index is now down about 19% from a year ago. The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index - but this is still very weak.

Average U.S. 30-Year Mortgage Rate Rises To 4.41 Percent — Average U.S. rates on fixed mortgages rose slightly this week but remained near historically low levels.Mortgage buyer Freddie Mac says the average rate for the 30-year loan ticked up to 4.41 percent from 4.40 percent last week. The average for the 15-year mortgage increased to 3.47 percent from 3.42 percent.Mortgage rates have risen about a full percentage point since hitting record lows about a year ago.A report released Tuesday by real estate data provider CoreLogic showed U.S. home prices rose in February from a year earlier at a solid pace, suggesting that a tight supply of available homes is boosting prices despite slowing sales.Most economists expect home sales to rebound as the weather improves and the spring buying season begins.

Weekly Update: Housing Tracker Existing Home Inventory up 6.7% year-over-year on March 31st -- 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).  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, and finished up about 2.7% YoY. Inventory in 2014 (Red) is now 6.7% above the same week in 2013. Inventory is still very low, but this increase in inventory should slow house price increases.

CoreLogic: House Prices up 12.2% Year-over-year in February  -  The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Reports Home Prices Rise by 12.2 Percent Year Over Year in February Home prices nationwide, including distressed sales, increased 12.2 percent in February 2014 compared to February 2013. This change represents 24 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased by 0.8 percent in February 2014 compared to January 2014. Excluding distressed sales, home prices nationally increased 10.7 percent in February 2014 compared to February 2013 and 0.9 percent month over month compared to January 2014. ... the forecast indicates that home prices, including distressed sales, are expected to increase 10.5 percent year over year from March 2013 to March 2014. This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 0.8% in January, and is up 12.2% over the last year. This index is not seasonally adjusted, so this was a strong month-to-month gain during the "weak" season. The index is off 16.9% from the peak - and is up 23.5% from the post-bubble low set in February 2012. The second graph is from CoreLogic. The year-over-year comparison has been positive for twenty four consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

1 in 3 homes is unaffordable and a bubble is forming - More than half the homes currently on the market in seven major American metros are currently unaffordable for local residents, and one-third of homes for sale are unaffordable by historic standards. That’s the conclusion from a Zillow (Z) analysis of income, mortgage and home value data in the fourth quarter of 2013, which puts to question the regular industry claim that housing is more affordable than ever because of the current price and interest rate levels coming out of the housing crash. “As affordability worsens, we’re already beginning to see more of the kinds of worrisome trends we saw en masse during the years leading up to the housing crash. These include a greater reliance on non-traditional home financing, smaller down payments and a greater pressure to move further away from urban job centers in order to find affordable housing options,” said Zillow chief economist Stan Humphries. “We’re not in a bubble yet, but we’re beginning to see the early signs of one in some areas.” Homebuyers increasingly have to search on the perimeter of the country’s largest metro markets, as downtown properties become out of reach for buyers of typical means, the report found. Zillow calculated affordability by analyzing the current percentage of an area’s median income needed to afford the monthly mortgage payment on a median-priced home, and comparing it to the share of income needed to afford a median-priced home in the pre-bubble years between 1985 and 2000. Zillow analysts took that data and if the share of monthly income currently needed to afford the median-priced home is greater than it was during the pre-bubble years, the home was marked as unaffordable.

Soaring Housing Costs Driving Educated People From Big Cities - More of America’s highly-educated people are leaving huge cities and going to cheaper areas in the West and South. What is driving the shift? A big factor, says Redfin, a national real-estate brokerage, is soaring housing costs. Medium-sized cities in the West and South often have a much bigger share of “affordable” homes than the nation’s biggest cities, New York and Los Angeles, according to an analysis of 15 cities by Redfin. In Houston, Texas, nearly 60% of homes for sale are “affordable” for a two-earner household, meaning the typical couple there — two people making the median income for Houston — wouldn’t have to shell out more than 28% of their pretax income on monthly mortgage payments. Seattle, where almost 50% of homes-for-sale are affordable, isn’t far behind, and then there’s Dallas (45%), Portland, Oregon (40%) and Denver (33%). By contrast, Brooklyn (20%), Los Angeles (18%), Manhattan (12%) and San Francisco (5%) barely offer anything affordable. The median required down-payment in L.A. is $127,000 versus just $40,000 in Houston. If you calculate affordability using just one earner instead of two, it’s even more stark: Nothing — 0% of homes for sale — would be affordable in S.F., San Jose and L.A. Granted, homes are affordable in many parts of the country, especially today, with mortgage rates low from a historical perspective. It’s also important to remember housing costs aren’t everything. Transportation costs also play a big role: Living in New York City may be expensive, but at least there’s an affordable, and robust, subway system.

The Chinese Are Buying Large Chunks Of Land Across America (And Zillow Is Now Enabling It) - Has the United States ever experienced a time when a foreign nation has attempted to buy up so much of our land all at once? As Michael Snyder details below, it appears the Chinese are on a real estate buying spree all over America as they are now the dominat 'buyers' of investment green cards. This is occurring as private equity buyers and hedge funds exit the buy-to-rent business en masse and are, as Mike Krieger explains, are desperate to pitch American property to anyone willing to keep Housing Bubble 2.0 inflated... it seems Zillow is more than happy to enable that, "Zillow agreed to make its U.S. property listings available to Chinese consumers through a partnership with a Beijing-based website."   In fact, in some cases large chunks of land are actually being given to them.  Yes, you read that correctly.  China is on the way to becoming the dominant land owner in the entire country, and that is starting to alarm a lot of people.  Do we really want a foreign superpower to physically own so much of our territory? That is why what is going on in places such as Thomasville, Alabama is so alarming.  Small communities such as Thomasville are so starved for jobs that they are willing to give land away for free to Chinese companies in order to entice them to build factories…

Construction Spending increased slightly in February - The Census Bureau reported that overall construction spending increased in February: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during February 2014 was estimated at a seasonally adjusted annual rate of $945.7 billion, 0.1 percent above the revised January estimate of $944.6 billion. The February figure is 8.7 percent above the February 2013 estimate of $869.9 billion. Both private and public spending increased slightly in February: Spending on private construction was at a seasonally adjusted annual rate of $680.0 billion, 0.1 percent above the revised January estimate of $679.1 billion. ... In February, the estimated seasonally adjusted annual rate of public construction spending was $265.7 billion, 0.1 percent above the revised January estimate of $265.5 billion.This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted. Private residential spending is 47% below the peak in early 2006, and up 58% from the post-bubble low. Non-residential spending is 23% below the peak in January 2008, and up about 42% from the recent low. Public construction spending is now 18% below the peak in March 2009 and up less than 1% from the recent low. The second graph shows the year-over-year change in construction spending. On a year-over-year basis, private residential construction spending is now up 14%. Non-residential spending is up 12% year-over-year. Public spending is down slightly year-over-year.

Vital Signs: Construction Spending Holds Up - After a winter’s pause in January, builders were back on the job in February. The Commerce Department said Tuesday that total construction spending edged up 0.1% in February after a 0.2% decline in January. Despite the harsher-than normal weather this winter, building outlays in January and February are up almost 9% from the same time in 2013. While most attention is paid to housing, the nonresidential building sector is also doing much better than in the darkest days of the recession. (The sector also fell by a smaller magnitude than housing did.) Spending on private commercial projects is up 13% from a year ago, with communication projects up 51.5% and lodgings up 40%. But given how far spending dropped during the downturn, the industry still has plenty of room to grow.

Construction Is Muted Because Too Many Buildings Went Up During the Boom - The U.S. built too many buildings in the early 2000s, and that “overhang” has been a drag on the postrecession recovery, according to researchers at the Federal Reserve Bank of Cleveland.  Private-sector investment in physical structures — such as hospitals, houses, factories and apartment buildings — remains 29% below its prerecession peak. One reason: so many buildings were constructed before the 2007-2009 recession that there isn’t as much need to build new ones now. “Using a new indicator of the optimal level of structures — the level that would be warranted by economic conditions — we measure the level of overhang before, during, and since the recession. We find evidence that investment in structures was too high in the years leading up to the recession and that an overhang of structures has held down investment growth during the recovery,” Ms. Jacobson and Mr. Occhino calculated “the stock of structures that would have been warranted by economic conditions and growth prospects in each year,” compared with what was actually built. The overhang of privately built structures grew in the prerecession years, peaking at 21% in 2006, and that oversupply held back investment in new structures in the post-recession years.“These findings suggest that investment in structures may pick up further in the future, as the remaining overhang gets absorbed, but it will not likely return to the high precrisis levels,” they concluded.

Growing Demand For U.S. Apartments Pushing Up Rents - These are good times for U.S. landlords. For many tenants, not so much. With demand for apartments surging, rents are projected to rise for a fifth straight year. Even a pickup in apartment construction is unlikely to provide much relief anytime soon. Popular Among Subscribers Mad Men’s Conquest of CoolSubscribe The Taliban’s New Campaign of Fear The Virtual Genius of Oculus RiftThat bodes well for building owners and their investors. Yet the landlord-friendly trends will likely further strain the finances of many renters. That’s especially true for the 50 percent of them who already spend more than one-third of their pay on rent. A 6 percent rise in apartment rents between 2000 and 2012 has been exacerbated by a 13 percent drop in income among renters nationally over the same period, according to a report from search portal Apartment List, which used inflation-adjusted figures.Rental demand has risen in much of the United States since the housing market collapsed in 2007. A cascade of foreclosures forced many people out of their homes and into apartment leases. At the same time, construction of apartments was stalled until the last couple of years because many builders couldn’t get loans during the credit crisis. Add to that several recent trends, from rising mortgage rates to stagnant pay, which have combined to discourage many people from buying homes. It’s resulted in fewer places to lease and a bump up in rents. The national vacancy rate for apartments shrank from 8 percent to 4.1 percent from 2009 to 2013, according to commercial real estate data provider Reis Inc. As a result, landlords were able to raise rents in many markets. The average effective rent rose 12 percent to $1,083 during those years, according to Reis, which tracked data for apartments in buildings with 40 units or more. Effective rent is what a tenant pays after factoring in landlord concessions, such as a free month at move-in

Reis: Apartment Vacancy Rate declined to 4.0% in Q1 2014  -- Reis reported that the apartment vacancy rate declined in Q1 to 4.0% from 4.2% in Q4 2013.  In Q1 2013 (a year ago) the vacancy rate was at 4.4%, and the rate peaked at 8.0% at the end of 2009.  Reis Senior Economist Ryan Severino: Vacancy declined by 20 basis points during first quarter to 4.0%, a slight improvement over last quarter’s 10 basis point decline. Over the last twelve months the national vacancy rate has declined by 40 basis points, more or less the same pace as the last few quarters. Demand for apartments remains strong four years after the recovery began while inclement weather had a negative impact on construction activity. The national vacancy rate now stands 400 basis points below the cyclical peak of 8.0% observed right after the recession concluded in late 2009. Asking and effective rents grew by 0.5% and 0.6%, respectively, during the first quarter. This is a minor decrease from the fourth quarter and the lowest figure since the first quarter of 2013. Rent growth remains relatively weak given the fact that the apartment market is at a miniscule 4.0% vacancy rate. Normally at such a low vacancy rate, rent growth is at least 100 basis points above current growth rates on an annual basis. Rent growth is being held back by the fact that rents (on a nominal basis) are at record‐high levels and the labor market is still relatively weak, generating little compensation increases for many workers.

Reis: Office Vacancy Rate declined slightly in Q1 to 16.8% - Reis released their Q1 2014 Office Vacancy survey this morning. Reis reported that the office vacancy rate declined to 16.8% in Q1. This is down from 16.9% in Q4 2013, and down from the cycle peak of 17.6%. The national vacancy rate was down 10 basis points during the fourth quarter to 16.8%. This is a very marginal improvement from last quarter, but completely in line with the tepid recovery in the office sector since it commenced in early 2011. Since that, time declines in vacancy have been no greater than 10 basis points per quarter; the vacancy rate has been unchanged in numerous quarters during the recovery. Over the last twelve months, the vacancy rate is down just 20 basis points, on par with last quarter. National vacancies remain elevated at 430 basis points above the sector's cyclical low of 12.5% recorded during the third quarter of 2007. :  Net absorption increased by 9.8 million square feet during the quarter. This is the highest quarterly figure since before the recession. Net absorption averaged roughly 7.1 million square feet per quarter during 2013 so this represents an optimistic start to the year. Construction increased by 6.3 million square feet during the first quarter. This is roughly on par with the quarterly average of 6.5 million square feet during 2013. Asking and effective rents grew by 0.7% and 0.8%, respectively, during the first quarter. These figures are all little changed from last quarter, owing to the similar tepid pace of improvement in vacancy. Nevertheless, asking rent growth was 1.6% during 2011, 1.8% during 2012, and 2.1% in 2013. This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis: Mall Vacancy Rates unchanged in Q1 -- Reis reported that the vacancy rate for regional malls were unchanged at 7.9% in Q1 2014. This is down from a cycle peak of 9.4% in Q3 2011. For Neighborhood and Community malls (strip malls), the vacancy rate was also unchanged at 10.4%. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.The national vacancy rate for neighborhood and community shopping centers was unchanged during the first quarter. Though this was slightly worse than the 10 basis points decline from last quarter, it is still on par with the pace of improvement since the market began to recover roughly two years ago. The national vacancy rate remains down 70 basis points from the historical peak vacancy rate of 11.1% which was recorded over two years ago, during the third quarter of 2011. Construction during the first quarter was the lowest since the first quarter of 2011 while net absorption was the lowest since the second quarter of 2011. [Regional] Malls continue to perform better than neighborhood and community centers, but their recovery also remains challenging. Vacancy as of the first quarter was 7.9%, unchanged from the fourth quarter and down 40 basis points from the first quarter of 2013. Vacancy is also down 150 basis points from the historical high level reached during the third quarter of 2011. Asking rents grew by 0.5% in the first quarter and 1.7% during the last twelve months. This is the twelfth consecutive quarter of rent increases at the national level for regional malls.

Economic growth was not fueled by unsustainable consumer debt. - There appears to be widespread belief in the story that for the past 30 years, economic growth was unsustainable because it was fueled by unsustainable debt accumulated by a squeezed middle class.  Here is a graph of the type that usually accompanies this story:  That story is wrong.  The real story is exactly the opposite, in fact.  This isn't a story of the American middle class mortgaging their future in order to consume today.  This is the story of the American middle class attempting to pay for tomorrow's consumption today. I believe that this is another case of a sort of money illusion that arises from changing real interest rates and the typical methods though which Americans buy homes.  Even before getting into the details, the commonly believed story is suspect, because, (1) marginalized or economically stagnating populations tend to deleverage and (2) it would be very strange if most of the households in an economy were experiencing stagnation and the most pronounced result of that stagnation was a sharp and sustained bidding war for housing.  In fact, these developments point to a strong and aspirational middle class. I think that digging into the details makes it clear that this is all about housing.  Here is a graph of mortgage debt, other consumer debt, and home equity, all as a percentage of GDP.  Non-mortgage debt is insignificant compared to mortgage debt, and follows a fairly linear, slightly increasing, trend that goes back at least 60 years.  The issue comes down to housing.  Here, we can see that mortgage debt grew slowly until the 1990's, then leveled off for a decade, then skyrocketed for a decade along with home prices and equity, then collapsed.  Below, these series are shown in nominal dollars, along with GDP.  In both graphs, it is clear that mortgages and home market values were rising together.  It was only with the collapse in home prices that the level of mortgages became out of line with the level of home equity.

Restaurant Performance Index indicates expansion in February -- From the National Restaurant Association: Restaurant Performance Index Remained Above 100 in February Despite Continued Dampened Customer Traffic Levels Although challenging weather conditions in many parts of the country continued to impact customer traffic in February, the National Restaurant Association’s Restaurant Performance Index (RPI) remained above 100 for the 12th consecutive month. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.5 in February, down 0.2 percent from January’s level of 100.7. Despite the modest decline, the fact that the overall RPI remains above 100 continues to signify expansion in the index of key industry indicators.  “Restaurant operators continued to report net positive same-store sales results in February, despite customer traffic levels that were challenged by the weather,”  Although results were mixed in February, restaurant operators reported net positive same-store sales for the 12th consecutive month. ... In contrast, restaurant operators reported a net decline in customer traffic for the third consecutive month. The index decreased to 100.5 in February, down from 100.7 in January. (above 100 indicates expansion).  Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month - and this is fairly positive considering the terrible weather in February.

Weekly Gasoline Update: Up Three Cents - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium are both up three cents. According to, Hawaii is the only state with regular above $4.00 per gallon, now at $4.22, up five cents from last week. The next highest state average is California at $3.99, up from $3.96 last week. No states are averaging under $3.00, with the lowest prices in South Montana at $3.24, up a penny.

Wal-Mart Sees $3 Billion Opportunity Refilling Empty Shelves - Wal-Mart executives, speaking at a company meeting this month, said its store shelves need to be better stocked with merchandise and that resolving the matter could be a $3 billion opportunity.  Improving “in-stocks” -- a measure of how much merchandise is available for shoppers to buy -- is a top focus for Wal-Mart, executives said at its Year Beginning Meeting, according to notes taken by an attendee that were reviewed by Bloomberg. The company also plans to add labor hours as part of an effort to bolster “in-store execution,” executives said at the summit in Orlando, Florida, which was attended by Chief Executive Officer Doug McMillon and U.S. CEO Bill Simon.  Wal-Mart, the world’s largest retailer, has struggled to keep shelves stocked over the past year at U.S. stores, Bloomberg News has reported, citing workers and customers. The lack of merchandise has frustrated some shoppers, prompting them to decamp to the chain’s competitors. Increasing labor hours could make it easier for staff to get inventory from the stockroom and replenish the products on the store floor.

An Engineer’s Eureka Moment With a G.M. Flaw - Mr. Hood, an engineer in Florida, had photographed, X-rayed and disassembled the device in the fall of 2012, focusing on the tiny plastic and metal switch that controlled the ignition. But even after hours of testing, Mr. Hood was at a loss to explain why the engine in Brooke Melton’s Cobalt had suddenly shut off, causing her fatal accident in 2010 in Georgia. Then he bought a replacement for $30 from a local G.M. dealership, and the mystery quickly unraveled. For the first time, someone outside G.M., even by the company’s own account, had figured out a problem that it had known about for a decade, and is now linked to 13 deaths. The discovery was at once subtle and significant: A tiny metal plunger in the switch was longer in the replacement part. And the switch’s spring was more compressed. And most important, the force needed to turn the ignition on and off was greater.“There was a substantial increase in the torque of the switch,” Mr. Hood said. “We took measurements. And they were very different.” So began the discovery that would set in motion G.M.’s worldwide recall of 2.6 million Cobalts and other cars, and one of the gravest safety crises in the company’s history. Mr. Hood came to realize that G.M., and the supplier that made the part, Delphi, had quietly changed the switch sometime in 2006 or early 2007, making it less likely that an unsuspecting driver could bump the ignition key and cause the car to cut off engine power and deactivate its air bags. The change was made so quietly that G.M. hired outside consultants last year to help identify which Cobalt model years contained the original switch.

Young Owners of Low-Budget GM Cars Weren’t Worth Saving - Yves Smith - Writer libbyliberal describes how the Obama Administration’s National Highway Traffic Safety Administration worked with GM for years to cover up the automaker’s ignition system defect that would lead to sudden power system failure. That fault is estimated to have caused at least 13 deaths and over 30 crashes.   When GM became aware of the defect, they refused to make the tooling changes because it would cost too much. No proposed remedy “represents an acceptable business case.”  Now consider what that means. In the famed case of exploding Pintos, Ford had calculated the number of deaths that would result from retaining the inadequate gas tank shielding that made it vulnerable to rear-end crashes and the cost per death. Ford concluded it would be cheaper for them to let people die and pay damages in litigation than spend $11 per car more for a redesigned fuel tank.  Now GM is presumably too smart to have a calculation like that in its records. But the logic of the refusing to fix it is exactly the same as with the Pinto. And one of the reasons why is that these GM cars were low-budget cars, presumably purchased by low-income people. The value of a life in a lawsuit depends on the future earning stream of the person who died. So someone with a modest income really is less worth saving to a large company than more affluent customers.

U.S. Light Vehicle Sales increase to 16.4 million annual rate in March, Highest since 2007 -- Based on an WardsAuto estimate, light vehicle sales were at a 16.38 million SAAR in March. That is up 7.3% from March 2013, and up 7.2% from the sales rate last month.  This was above the consensus forecast of 15.8 million SAAR (seasonally adjusted annual rate). This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for March (red, light vehicle sales of 16.38 million SAAR from WardsAuto). Severe weather clearly impacted sales in January and February, and some of the increase in March was probably a bounce back due to better weather. The second graph shows light vehicle sales since the BEA started keeping data in 1967. Unlike residential investment, auto sales bounced back fairly quickly following the recession and were a key driver of the recovery. Looking forward, the growth rate will slow for auto sales, and most forecasts are for around a small gain in 2014 to around 16.1 million light vehicles.

A maturing expansion: auto sales; PCE's v. real retail sales - One of the themes of economic data this year is that the expansion is mature.  I'm not expecting to get materially better than it has been for the last several years, and while I see continued expansion throughout this year, I am on the lookout for signs of longer term deterioration.  Which brings me first of all to March vehicle sales.  The good news is, these made a new post-recession high of 16.4 million annualized.  Here's Bill McBride's graph:New vehicle sales have in the past peaked at least half a year before any economic downturn.  So the new high is yet more evidence that the expansion will continue through this year. But even taking March into account, first quarter 2014 vehicle sales were essentially equal to fourth quarter 2013 sales.  So if there was pent-up demand because of the hard winter, there was no evidence of an increase of demand in the last 6 months. Even this isn't really bad.  Vehicle sales can plateau for a long time during an expansion without materially declining.  It simply emphasizes the point that this looks like a mature expansion. Which brings me secondly to an update of my comparison of PCE's and real retail sales.  In all cases since World War 2, in the earlier part of an expansion the YoY% increase in real retail sales exceeded that of PCE's.  In the latter part, the reverse is true.  Since PCE's include more spending on necessities compared with retail sales, it makes sense.  People cut down more on discretionary spending first, before they cut back on necessities. Here, the news is that for the second month in a row in March YoY PCE's have now exceeded YoY real retail sales:

Another Debt-Fueled Spending Spree? - Spending on new vehicles has been a bright spot for the U.S. retail sector. March sales estimates come out on Tuesday, and most expect a strong recovery after sales were depressed by the bitterly cold months of January and February. But a closer look at the data on new auto purchases reveals some potential worries. Nothing is conclusive at this point, but there is a chance we are seeing another debt-fueled spending spree that will prove unsustainable. We are going to take a closer look at some micro data in the next couple of weeks, but thought we would outline the case based on the aggregate data. New auto purchases have driven the consumer spending recovery to a large degree. The chart below shows the spending recovery for new auto sales and for all other retail spending. We index both series to be 100 in 2009, so the percentage change from any year to 2009 can be seen by taking the value for that year and subtracting 100. From 2009 to 2013, spending on new autos increased by 40% in nominal terms. All other spending increased by only 20%. Further, excluding autos, 2013 saw lower growth in nominal retail spending than 2012. As we’ve mentioned before, the spending cycle tends to be amplified when it comes to auto purchases, so the strong performance of autos shouldn’t be surprising. But at this point we are seeing stronger growth in auto purchases even four years after the recession ended.

Freight movement slows in January, while freight rates remain high—Is it the weather or something else? - Chicago Fed - The severity of this winter season has had a noticeably negative impact on everything from retail sales to industrial production. Roadway freight operations are no exception. The effects of the extreme cold and heavy snow, which started last December and has continued into March of this year, seem to be showing up in some recent economic data on freight services. Chart 1 below contains  the Transportation Services Index (TSI)[1] for freight in the United States. The TSI contains freight data for most modes of freight transportation, including truck, rail, inland water, air, and pipeline. This index shows that on a seasonally adjusted basis, freight movement dropped in January by 2.8%. Since the data are adjusted for seasonality, the drop in January looks to be even more significant. Though all modes of transportation have been affected by this winter’s weather, trucking arguably experienced the worst of it. Many firsthand reports (including my own) have indicated that ice and snow shut down routes in states that do not normally face such harsh wintry conditions. Extremely cold weather also made the loading and unloading of trucks more difficult, causing delays and disrupting normal schedules. This winter’s disruptions to trucking operations were also accompanied by price spikes. According to DAT Solutions, spot rates (excluding long-term contractual prices) for dry vans, which account for the majority of long-haul freight, are up 17.6% from October 2014. These price spikes could be partially due to the severe winter weather and may only be temporary; however, some evidence points to shifting fundamentals that may be contributing to rising cost trends in the industry. Since the U.S. economy reached the bottom of the Great Recession (in mid-2009), the U.S. Bureau of Economic Analysis’s producer price index for long haul truck-borne freight has climbed at an average annual pace of 3.9%.

Trade Deficit increased in February to $42.3 Billion -  The Department of Commerce reported this morning: [T]otal February exports of $190.4 billion and imports of $232.7 billion resulted in a goods and services deficit of $42.3 billion, up from $39.3 billion in January, revised. February exports were $2.0 billion less than January exports of $192.5 billion. February imports were $1.0 billion more than January imports of $231.7 billion. The trade deficit was above the consensus forecast of $39.1 billion. The first graph shows the monthly U.S. exports and imports in dollars through January 2014. Imports increased and exports decreased in February. Exports are 15% above the pre-recession peak and up 2% compared to February 2013; imports are at the pre-recession peak, and up about 1% compared to February 2013. The second graph shows the U.S. trade deficit, with and without petroleum, through January. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil averaged $91.53 in February, up from $90.21 in January, and down from $95.96 in February 2013. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China declined to $20.86 billion in February, from $23.41 billion in February 2013. About half of the trade deficit is related to China. Overall it appears trade is picking up slightly.

Q1 GDP To Tumble As Trade Deficit Surges Most Since September - So much for those already abysmally low Q1 GDP forecasts. Moments ago, the Census Bureau released trade data for February which crushed expectations of an improvement from $39.1 billion (revised to $39.3 billion) to $38.5 billion, and instead rose 7.7% to $42.3 billion, the highest monthly trade deficit since September. This was driven by a 0.4% increase in imports to to $231.7 billion offset by a drop in exports of 1.1%  to $192.5 billion. The goods deficit increased $2.2 billion from January to $61.7 billion in February; the services surplus decreased $0.8 billion from January to $19.4 billion in February. Most notably however, is that as a result of this "unexpected" surge in the deficit, the Q1 GDP forecast cuts, anywhere between 0.2% and 0.4% are set to begin.

Vital Signs: Foreign Trade Cut Into First-Quarter Growth - An unexpected widening in the February trade deficit is leading economists to lower their estimate for growth in the first-quarter gross domestic product. The nominal trade deficit for goods and services increased to $42.3 billion in February, from $39.3 billion in January, the Commerce Department reported Thursday. Some of the deterioration in trade was the result of unusual events. Payments to broadcast the Olympics, and drops in aircraft and nonmonetary gold exports contributed to the February widening. “Those oddball items meant that February was not a big spike in the trade deficit, just little improvement over January and no improvement over the fourth quarter of last year,”. After adjusting for prices, the real merchandise gap for the first two months of the first quarter is about 4% higher than the fourth-quarter average. After seeing the trade report, economists marked down their estimates for last quarter’s annualized growth. Economists at Goldman Sachs trimmed their GDP growth estimate to 1.3% from 1.5%. Forecasters at the Royal Bank of Scotland lowered their estimate from +1.2% to +0.6%.

Factory Orders Rise 1.6% in February - : New orders for U.S. factory goods rebounded more than expected in February, with shipments posting their biggest gain in seven months in a further sign the economy was regaining momentum after a recent weather-driven slowdown. The Commerce Department said on Wednesday new orders for manufactured goods jumped 1.6 percent, the biggest rise since last September. January's orders were revised to show a larger 1.0 percent drop instead of the previously reported 0.7 percent fall. Economists polled by Reuters had forecast new orders received by factories rebounding 1.2 percent in February. Shipments of new orders increased 0.9 percent in February, the largest rise since last July. Orders excluding the volatile transportation category advanced 0.7 percent in February, also the biggest gain since last July. These orders had slipped 0.1 percent in January. Factory activity is clawing back after unusually cold weather weighed on activity in December and January. Still, factories remain constrained as businesses try to work through a glut of unsold goods from the second half of 2013. The Commerce Department report showed inventories rose 0.7 percent in February, the biggest rise since October 2011. A report on Tuesday showed a gauge of national factory activity rising in March for a second month. In February, factory orders rose across most categories, with big gains in transportation, primary metals and computers and electronic products. Orders for electrical equipment, appliances and components fell as did bookings for machinery. The department also said orders for durable goods, manufactured products expected to last three years or more, increased 2.2 percent as reported last month.

Chicago PMI declines to 55.9 - From the Chicago ISM: The Chicago Business Barometer decreased 3.9 points in March to 55.9, the lowest level since August, led by a decline in New Orders and a sharp fall in Employment. ...  Although New Orders remained firm above the 50 breakeven level, they eased for the second consecutive month pointing to a slight softening in demand. Like the Barometer, New Orders posted the lowest reading since August. Order Backlogs also decreased, to their lowest level since September. Employment, the second biggest contributor to the Barometer’s decline, decreased sharply in March, erasing nearly all of February’s double digit rise. Commenting on the MNI Chicago Report, Philip Uglow, Chief Economist of MNI Indicators said, “March saw a significant weakening in activity following a five month spell of firm growth. It’s too early to tell, though, if this is the start of a sustained slowdown or just a blip.” “Panellists, though, were optimistic about the future. Asked about the outlook for demand over the next three months, the majority of businesses said they expected tosee a pick-up.” he added.
emphasis added  This was below the consensus estimate of 58.5.

Chicago PMI Plunges To 7-Month Lows, Misses By Most In A Year -- "But it must be the weather", we are sure, will be the cry of a thousand economists whose meterologist forecasts just got torn up. Chicago PMI just missed expectations by the most in a year and tumbled to its lowest since August as it appears knowing what the weather was like in March did nothing for analysts' ability to comprehend the awful reality of the underlying economy. The business barmoter has been falling since October (pre-weather) but this month saw the employment sub-index collapsed to 50 (from 59.3), prices paid dropped, and new orders tumbled to the lowest since August. However, rest assured that all will be well, as the survey reports, "Panellists, though, were optimistic about the future."

Dallas Fed: Texas Manufacturing Strengthens Further -- From the Dallas Fed: Texas Manufacturing Strengthens Further Texas factory activity increased for the eleventh month in a row in March, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 10.8 to 17.1, indicating output grew at a stronger pace than in February.  Other measures of current manufacturing activity also reflected more robust growth. The new orders index rose to a nine-month high of 14.7 ... Labor market indicators reflected stronger employment growth and longer workweeks. The March employment index rose markedly to a 21-month high of 15. The general business activity index moved up to a six-month high of 4.9 after slipping to zero last month. Expectations regarding future business conditions remained optimistic in March. The index of future general business activity edged up to 17.6, and the index of future company outlook rose 7 points to 27.4.  This is the last of the regional surveys.  Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

ISM Manufacturing index increased in March to 53.7 - The ISM manufacturing index indicated faster expansion in March than in February. The PMI was at 53.7% in March, up from 53.2% in February. The employment index was at 51.1%, down from 52.3% in February, and the new orders index was at 55.1%, up from 54.5% in February. From the Institute for Supply Management: March 2014 Manufacturing ISM Report On Business® Economic activity in the manufacturing sector expanded in March for the 10th consecutive month, and the overall economy grew for the 58th consecutive month, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®. . "The March PMI® registered 53.7 percent, an increase of 0.5 percentage point from February's reading of 53.2 percent, indicating expansion in manufacturing for the 10th consecutive month. The New Orders Index registered 55.1 percent, an increase of 0.6 percentage point from February's reading of 54.5 percent. The Production Index registered 55.9 percent, a substantial increase of 7.7 percentage points compared to February's reading of 48.2 percent. Employment grew for the ninth consecutive month, but at a lower rate by 1.2 percentage points, registering 51.1 percent compared to February's reading of 52.3 percent. Several comments from the panel reflect favorable demand and good business conditions, with some lingering concerns about the particularly adverse weather conditions across the country."Here is a long term graph of the ISM manufacturing index.

What Is America's Manufacturing Sector Telling Us? --- While the market focuses on the ISM Manufacturing monthly data, the Insittute for Supply Management also tracks another interesting statistic that is less followed by the mainstream media  that provides business sentiment about the expected direction of price changes in the economy.  From FRED, here is a graph showing the ISM Manufacturing Prices Index from 1980 to the present:  Notice how whenever there is a recession (or shortly thereafter), the manufacturing sector anticipates very low inflationary pressures? It's all in the supply - demand mantra that determines prices in the marketplace. Now, let's focus in on the period from 2002 to the present: In general, the ISM Prices Index since 2012 shows that manufacturing executives surveyed generally do not expect high levels of inflation with the prices index being at its lowest levels since the depths of the Great Recession. Inflationary pressures are also expected to be very low compared to most of the period between 2002 and 2008. Why is this the case, particularly given the substantial expansion of the monetary supply by the Federal Reserve since 2008? This graph might give us a clue:In January 2014, manufacturers' sales reached $490.67 million. At its peak in July 2008 just as the Great Depression took hold, manufacturers' sales hit $487.114 million. Over the four and a half year period since the pre-Great Recession peak, American manufacturers have seen sales rise by a paltry $3.56 million or 0.73 percent. You will also notice that since January 2012 manufacturing sales have been in a nearly no-growth situation, rising by only $17.62 million over 24 months. This is exactly the point in time when America's manufacturers dropped their expectations for inflationary pressures

US manufacturing slows a touch: U.S. manufacturing growth accelerated for a second straight month in March, an industry report showed on Tuesday, as production recovered though employment growth slowed. The Institute for Supply Management (ISM) said its index of national factory activity rose to 53.7 in March, which was up slightly from February's read of 53.2 but below the median forecast of 54.0 in a Reuters poll of economists. Readings above 50 indicate expansion in the sector.  The report remains below November's recent peak reading of 57, which was the highest read since April 2011. Gains in the month came alongside a rebound in the production subindex, which jumped to 55.9 from 48.2, ending a three-month string of slowing growth. The forward-looking new orders index rose to 55.1 from 54.5. There were some cautionary notes, as the employment index fell from 52.3 to 51.1, the weakest read for the index since June 2013. Analysts were expecting a reading of 52.8 in the employment index.A separate report from financial data firm Markit showed U.S. manufacturing activity slowed in March after nearing a four-year high in February. However, the rate of growth and the pace of hiring remained strong, a report from financial data firm Markit showed. Markit's final U.S. Manufacturing Purchasing Managers Index slipped to from 57.1 in February to 55.5, a reading that was unchanged from Markit's preliminary reading, which was released last week. Readings above 50 indicate expansion.  The latest reading was solidly ahead of the 53.7 January reading, an indication that the impact of harsh winter weather on manufacturing activity was starting to fade. The new orders component fell to 58.1 from 59.6 in February, partly the result of a decline in overseas demand, Markit said.

March Manufacturing Index Falls 2.8%; Still Growing - The Markit U.S. Manufacturing Purchasing Managers' Index (PMI) fell 2.8% to 55.5 for March, according to a Markit report (link opens PDF) released today.  An above-50 reading denotes positive change from the previous month, putting this month's report in growth territory, albeit at a slower rate. After February notched a reading of 57.1, analysts had expected a 56.8 reading from March's final reading.  This latest reading clocked in at the same level as Markit's "flash" estimate two weeks ago. The "flash" estimate is typically based on approximately 85% to 90% of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data. Despite the dip from February, this report keeps manufacturing on "solid growth footing," according to Markit. After February's index came in at the second-fastest pace in almost a year, March's numbers are still the second-highest reading since January 2013. On a component-by-component basis, the all-important new orders index fell 1.5 points to 58.1, while new export orders dipped 0.5 points to 51.1. Output eased off 0.3 points but remains near February's almost three-year high  of 57.8.

Where’s the business investment? -- The FT’s Cardiff Garcia notes that business equipment spending rebounded quickly after the recession ended in 2009, but its annual growth rate has fallen in every year since 2010. Yet many are predicting a 2014 acceleration. Garcia lists reasons for optimism: It’s what businesses themselves are increasingly saying. … Typical leading indicators are flashing positive signals. … Companies are borrowing more money, and banks are easing standards on commercial and industrial loans. … The capital stock is old (and busted) while capex as a percentage of sales and assets remains low. …  The conditions that normally support capex are emerging. … Productivity growth has fallen, and capex is one way to maintain corporate efficiency. …  Last year’s capex disappointment is thought to be a one-off. Well, we’ll see, of course. I should note that JPMorgan recently put out a note saying that the 2014 data so far suggest “hope for an investment boom  may have been misplaced; while capex continues to expand at something close to a trend-like pace, there is thus far little evidence of an investment spending surge.”

Why the government should provide internet access: Susan Crawford, Former Special Assistant to President Obama on Science, Technology, and Innovation Policy, talks to Ezra Klein about how the internet is too important to be left to the private market.

  • Ezra: Why do we need a public option for internet access?
  • Susan: We need a public option for internet access because internet access is just like electricity or a road grid. This is something that the private market doesn't provide left to its own devices. What they'll do is systematically provide extraordinarily expensive services for the richest people in America, leave out a huge percentage of the population and, in general, try to make their own profits at the expense of social good. It really makes sense to have one wire going to your house. The problem is we've gotten stuck with the wrong wire.

ISM Non-Manufacturing: March Shows Improvement, But Slightly Below Expectations - Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 53.1 percent, up from last month's 51.6 percent. Today's number came in slightly below the forecast of 53.5, which was also the consensus at is the report summary:"The NMI® registered 53.1 percent in March, 1.5 percentage points higher than February's reading of 51.6 percent. The Non-Manufacturing Business Activity Index decreased to 53.4 percent, which is 1.2 percentage points lower than the reading of 54.6 percent reported in February, reflecting growth for the 56th consecutive month but at a slower rate. The New Orders Index registered 53.4 percent, 2.1 percentage points higher than the reading of 51.3 percent registered in February. The Employment Index increased 6.1 percentage points to 53.6 percent from the February reading of 47.5 percent and indicates substantial growth after one month of contraction. The Prices Index increased 4.6 percentage points from the February reading of 53.7 percent to 58.3 percent, indicating prices increased at a faster rate in March when compared to February. According to the NMI®, 13 non-manufacturing industries reported growth in March. Despite the affects of weather on many of the respective businesses, the majority of respondents indicate that business conditions are improving. The respondents also project better business activity and economic conditions as weather conditions continue to improve." Like its much older kin, the ISM Manufacturing Series, I have been reluctant to focus on this collection of diffusion indexes. For one thing, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

ISM Non-Manufacturing Index increases to 53.1 in March - The March ISM Non-manufacturing index was at 53.1%, up from 51.6% in February. The employment index increased in March to 53.6%, up from 47.5% in February. Note: Above 50 indicates expansion, below 50 contraction. From the Institute for Supply Management: March 2014 Non-Manufacturing ISM Report On Business® -  "The NMI® registered 53.1 percent in March, 1.5 percentage points higher than February's reading of 51.6 percent. The Non-Manufacturing Business Activity Index decreased to 53.4 percent, which is 1.2 percentage points lower than the reading of 54.6 percent reported in February, reflecting growth for the 56th consecutive month but at a slower rate. The New Orders Index registered 53.4 percent, 2.1 percentage points higher than the reading of 51.3 percent registered in February. The Employment Index increased 6.1 percentage points to 53.6 percent from the February reading of 47.5 percent and indicates substantial growth after one month of contraction. The Prices Index increased 4.6 percentage points from the February reading of 53.7 percent to 58.3 percent, indicating prices increased at a faster rate in March when compared to February. According to the NMI®, 13 non-manufacturing industries reported growth in March. Despite the affects of weather on many of the respective businesses, the majority of respondents indicate that business conditions are improving. The respondents also project better business activity and economic conditions as weather conditions continue to improve." This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was slightly below the consensus forecast of 53.5% and indicates faster expansion in March than in February.

Services Data Misses As Pent-Up "Weather" Demand Fails To Show -- Markit's Services PMI missed expectations (55.3 vs 55.5 flash) and dropped from last month - as it seems an easing of the 'weather disruption' did nothing for pent-up services demand. Services employment growth slowed (suggesting a weak NFP) as did new business (very significantly) but optimism rose (so that's good). On the heels of that the ISM Services print missed expectations for the 4th month of the last 5 (53.1 vs 53.6) but rose modestly MoM.

Real Median Household Income Rises 1.2% in February - The Sentier Research monthly median household income data series is now available for February. Nominal median household incomes were up $668 month-over-month and up $1,787 year-over-year. Adjusted for inflation, they were up 1.2% MoM and 2.4% YoY. The latest monthly gain was the second largest of the 170 data points in this series since the turn of the century. However, in real dollar terms, the median annual income is 6.8% lower (about $3,892) than its interim high in January 2008.  Sentier Research, an organization that focuses on income and demographics, offers a more up-to-date glimpse of household incomes by accessing the Census Bureau data and publishing monthly updates. Sentier Research has now released its most recent update, data through January (available here).  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.

Big data: Separating tweet from chaff | The Economist -- WHAT Twitter tells you about the world largely depends on whom you choose to follow. Personal experience of hours wasted on the microblogging service suggests that few of the 15 billion “tweets” posted every month are of any interest at all. But taken as a whole, many believe the aggregated musings of 241m people tapping away on their phones might form an interesting data set which can provide real-time information on the state of the economy.The latest attempt to extrapolate a signal from the noise focuses on the American labour market. Researchers at the University of Michigan have created indexes of job losses, job searches and postings. Counting phrases such as “lost my job” or “help wanted”, the researchers think they can gauge what’s going on in the labour market weeks before official data is compiled. Anyone who has seen “Trading Places” knows how valuable that can be.Does it work? Sort of. The researchers don’t claim their new-fangled index can predict unemployment, for example, merely that it foresees the direction in which forecasters are likely to err. And even that only happens haphazardly and after a pretty intense massaging of the data. Plenty of tweets have to be ignored, for example if they comment about unemployment statistics (“looks like plenty of people lost their jobs, the official data suggest”) rather than personal circumstances. Nor do phrases that might have been correlated to job losses, such as “sacked” or “let go”, make the cut, for example. That suggests only the terms that are known to correlate with joblessness in the period concerned were included.

Using Twitter to Forecast New Applications for Unemployment -- A surprising number of people filed initial claims for unemployment benefits last week, at least if you believe an index based off Twitter. Economists at the University of Michigan have developed a technique that scans billions of tweets, looks for people tweeting about losing their jobs and then creates a prediction for the Labor Department’s weekly report on initial filings. Their prediction: 342,000 people filed new claims for jobless benefits last week. Their algorithm analyzes the vast fire hose of Twitter and can pick out tweets like this: “2011 was interesting. I ended an engagement, got laid off, started a small biz, and it looks like I’ll be moving this year too. Whew!” (That’s an example the economists used in their paper, among those identified as “job loss” tweets.) Add all those up, figure out how tweets translate to jobless filings, and you have a formula for making a prediction. Twitter is somewhat more pessimistic than economists, who predict 320,000 people will file. About 311,000 filed the previous week. The even more interesting question — how many engagements were broken off last week? — remains unanswered by the paper. We’ll check in Thursday, after the official report, to see how the prediction fared and if Twitter was right that we should be pessimistic.

Weekly Initial Unemployment Claims increase to 326,000 -- The DOL reports: mIn the week ending March 29, the advance figure for seasonally adjusted initial claims was 326,000, an increase of 16,000 from the previous week's revised figure of 310,000. The 4-week moving average was 319,500, an increase of 250 from the previous week's revised average of 319,250.The previous week was revised down from 311,000.  The following graph shows the 4-week moving average of weekly claims since January 2000. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 319,500. This was above the consensus forecast of 320,000.  The 4-week average is close to normal levels during an expansion.

Initial Claims Miss By Most In 5 Weeks; Rise Most In 10 Weeks - Despite hope that this time is different, and after a few weeks of improvement that was extrapolated as back-to-the-status-quo for us all, initial jobless claims rose by their most week-over-week in 10 weeks, missed expectations, and hover just below the average of the last year. Not exactly the positive trend that so many would like to use to build their "so buy stocks" thesis. This follows ADP's miss and the ISM reports' internal jobs indices misses. Of course, a 'bad' claims data is great news for more un-tapering.. the bulls, let down by Draghi, now need Friday's payroll data to be truly dismal.

Survey: Small Businesses add more Jobs in March -- From NFIB: Small Business Job Creation Better Than February But...  “NFIB owners increased employment by an average of 0.18 workers per firm in March (seasonally adjusted), an improvement over February’s 0.11 reading and the sixth positive month in a row. Seasonally adjusted, 11 percent of the owners (down 1 point) reported adding an average of 2.6 workers per firm over the past few months. Offsetting that, 12 percent reduced employment (up 2 points) an average of 2.1 workers, producing the seasonally adjusted net gain of 0.18 workers per firm overall. While there could still be lingering winter effects in the data, some of the best job producing areas, the Southwest, West and Florida, did not have weather problems and still delivered mediocre growth ratings.This graph from NFIB shows the change in number of employees per firm. Small businesses have a larger percentage of real estate and retail related companies than the overall economy. With the high percentage of real estate (including small construction companies), I expect small business hiring to be slow to recover in this cycle.

ADP: Private Employment increased 191,000 in March - From ADP:  - Private sector employment increased by 191,000 jobs from February to March according to the March ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.... Mark Zandi, chief economist of Moody’s Analytics, said, "The job market is coming out from its deep winter slumber. Job gains are consistent with the pace prior to the brutal winter. The gains are broad based across industries and business size classes. Even better numbers are likely in coming months as the weather warms.” This was at the consensus forecast for 190,000 private sector jobs added in the ADP report.   Note: ADP hasn't been very useful in directly predicting the BLS report on a monthly basis, but it might provide a hint. The BLS report for March will be released on Friday.

Private-sector hiring breaks out of winter freeze (Reuters) - U.S. companies stepped up hiring in March for a second straight month, offering fresh evidence the economy was regaining momentum after a weather-driven lull over the winter. Private employers added 191,000 workers to payrolls last month and 39,000 more were added in February than previously believed, payrolls processor ADP said on Wednesday. The signs of solid hiring added to a steady stream of fairly upbeat data that suggests the economy started to accelerate as the grip of an unusually cold winter began to loosen and helps keep hopes alive that the U.S. economy's performance in 2014 will be its best since the recession ended almost five years ago. "Whatever impact the weather was having is starting to dissipate and we are starting to see the economy gain traction," The report, which is jointly developed with Moody's Analytics, was released ahead of the government's more comprehensive report on employment on Friday. That report is expected to show nonfarm payrolls rose by 200,000 in March, the largest gain in four months, according to a Reuters poll of economists. The poll was taken before the ADP data was released, but many economists said the ADP report did not shift their views. A separate report showed small business hiring increased for a sixth straight month in March. The National Federation of Independent Business said small business employment increased by an average of 0.18 worker per firm, up from 0.11 in February.

US job market healing  - We are seeing signs of significant improvements in US labor markets. The ADP report today was certainly an indication of recovery from the winter slowdown. ADP: - Mark Zandi, chief economist of Moody’s Analytics, said, "The job market is coming out from its deep winter slumber. Job gains are consistent with the pace prior to the brutal winter. The gains are broad based across industries and business size classes. Even better numbers are likely in coming months as the weather warms.” One area to watch in the ADP report is construction (see post), as construction payrolls have consistently increased each month over the past year. With demand for rental units remaining high, this sector could pick up quickly. But signs of improvement go beyond the ADP measures. Gallup's Job Creation Index for example rose to the highest level since 2008. Gallup: - U.S. workers in the private sector are reporting a more positive jobs situation where they work than at any point in the past six years. Combine this with state workers' record-high job creation reports and the year-over-year improvement from federal workers, and March's promising Job Creation Index reading would appear to be a positive sign in the long recovery from the 2007-2009 economic recession. Furthermore, the ISI's survey of permanent placement (recruiting) firms shows a surprisingly robust improvement in activity recently.

Vital Signs: Winter Skewed Who Hired in First Quarter -- One advantage the ADP jobs report has over the Labor Department‘s monthly nonfarm payrolls is that ADP breaks down private payrolls by size of firm. The latest numbers show that so far in 2014, job creation is more evenly distributed by firm size, but that might reflect the vagaries of this harsh winter. The more balanced mix of job growth is a change from 2013, when small businesses — those with 1-49 employees — carried the water when it came to hiring. Those companies accounted for 48% of new hires in 2013, while their payrolls have only a 42% share of all jobs according to ADP data. One reason could be the bounce-back in housing. Construction firms tend to fall into the small-business category. The mix was more equitable in 2014’s first quarter but only because the number of small business hires slowed much more than did job gains at medium (50-499 employees) and large (500-plus workers) firms did. The weather — and its drag on demand — might have caused small firms to rethink quickly their hiring plans. If so, small business hiring should pick up this spring once demand recovers.

Chart of the Day: Ignore ADP - ADP said private businesses added 191,000 jobs last month, a modest pace of hiring that should be a positive sign for the labor market. But historically uneven forecasting records prompted ADP a few years ago to revise the methodology behind how its data were calculated. In October 2012, ADP began collaborating with Moody’s Analytics on the newly reported data. At the time, the firms stressed that the ADP’s number would be highly correlated to the government’s final nonfarm payroll figures. For instance, the Labor Department reported the economy added 175,000 jobs in February. But that figure will get revised several times before a final number is reported. ADP has said it’s figures will track that last number, not the closely watched initial read. (For the record, ADP also revises each of its monthly figures). Despite the revised methodology, the firm’s forecasting skills have proven to be less than stellar. The chart below, which overlays ADP’s initial figures with the Labor Department’s initial and final monthly job numbers since October 2012, shows numbers that are all over the map.

US labour market emerges from winter blues - US economy added 192,000 jobs in March in a sign that underlying growth is strong and a winter slowdown really was due to bad weather. The report was a slight disappointment compared with market forecasts of 206,000. The unemployment rate held steady at 6.7 per cent when it had been expected to fall. But the overall message – with upward revisions of 37,000 jobs to earlier months – was that the US continues to record solid economic growth that will bring the unemployment rate down steadily. The data is roughly in line with US Federal Reserve forecasts and is likely to confirm its plans to keep tapering asset purchases while raising interest rates sometime in 2015. "Undoubtedly, there was some catch up in hiring following the inclement weather this winter,"  A pick-up in labour force participation was especially encouraging. The participation rate rose from 63 per cent to 63.2 per cent, the highest since last autumn. Workers dropping out of the labour force has been a big worry in the aftermath of the 2008-09 recession, but if there are now enough jobs available to draw them back, it may encourage the Fed to keep interest rates lower for longer. There was strong evidence of weather effects reversing themselves in data on hours worked and wages. Whereas February's data showed a falling work week and rising average wages – the pattern to expect if snowfalls kept some lower-paid workers at home – March showed the exact opposite. The average work week rose by 0.2 hours to 34.5 hours while average hourly earnings fell by a cent to $24.30. Most of the jobs growth came from services, with business services adding 57,000 jobs, health and education 34,000 positions, and the leisure sector 29,000. Construction created 19,000 positions, but manufacturing shed 1,000 and the government sector was flat.

March Employment Report: 192,000 Jobs, 6.7% Unemployment Rate - From the BLSTotal nonfarm payroll employment rose by 192,000 in March, and the unemployment rate was unchanged at 6.7 percent, the U.S. Bureau of Labor Statistics reported today. ... The change in total nonfarm payroll employment for January was revised from +129,000 to +144,000, and the change for February was revised from +175,000 to +197,000. With these revisions, employment gains in January and February were 37,000 higher than previously reported. The headline number was below expectations of 206,000 payroll jobs added. The first graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring. This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis. Employment is 0.3% below the pre-recession peak (437 thousand fewer total jobs). Private employment is now above the pre-recession peak by 110 thousand and at a new all time high. The third graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate was increased in March to 63.2%. This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although a significant portion of the recent decline is due to demographics. The Employment-Population ratio was increased in March at 58.9% (black line). The fourth graph shows the unemployment rate. The unemployment rate was unchanged in March at 6.7%. This was a solid employment report, and including revisions, in line with expectations.

Jobs Report: First Impression - A broadly positive jobs report just out for March shows that payrolls were up by 192,000 and both the labor force and weekly hours worked grew as well.  The jobless rate was unchanged at 6.7%, but the closely watched labor force participation rate popped up two-tenths to 63.2%, as about 500,000 entered the labor market.  Taken together, that’s actually a good sign implying more people are being pulled into an expanding labor market.With today’s report, private sector employment has finally regained its pre-recession peak.  Private payrolls peaked in January 2008, bottomed out in February 2010, and have added 8.9 million jobs since then.  That means it has taken more than six years (Jan08-Mar14) for private sector jobs to recover, an extremely stark reminder of the depth of the downturn and the weakness of what’s been a plodding labor market recovery.  And remember, simply getting the level of jobs back to where it was does not account for the growth of the working age population over this period.   This milestone, while welcome, only symbolizes repairing the damage.  Turning back to the March data, payroll gains of the prior two months were both revised up, adding a total of just under 40,000 jobs to the counts for Jan and Feb.  That means that the first quarter averaged payroll gains of 178,000 per month, slightly below the average for last year of 194,000. The uptick in weekly hours also indicates both some strengthening in labor demand and, if it sticks, should confirm suspicions that recent declines in weekly hours were driven partly by the distortionary impact of unusually cold weather on these data. Job growth was wide-spread across industries, though manufacturing disappointed, down 1,000 last month and up only 72,000 over the year.  While the sector accounts for about 9% of total employment, it only accounts for less than 4% of the job growth over the past year.  Strengthening the factory sector, particularly through focusing on improving net exports, should remain a key policy goal.

192K New Jobs in March, Employment Rate Unchanged at 6.7% -  Here are the lead paragraphs from the Employment Situation Summary released this morning by the Bureau of Labor Statistics: Total nonfarm payroll employment rose by 192,000 in March, and the unemployment rate was unchanged at 6.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment grew in professional and business services, in health care, and in mining and logging.  In March, the number of unemployed persons was essentially unchanged at 10.5 million, and the unemployment rate held at 6.7 percent. Both measures have shown little movement since December 2013. Over the year, the number of unemployed persons and the unemployment rate were down by 1.2 million and 0.8 percentage point, respectively. Today's report of 192K new nonfarm jobs was lower than the forecast of 200K. And the unemployment rate, unchanged at 6.7% is a tick above the expectation of 6.6%.  The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948.  The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. It dropped below 3% in April of last year, and last month's 2.4% is fractionally off the interim low of 2.3% in January.

Nonfarm Payrolls +192,000, Unemployment Rate Steady at 6.7%; Economy Poised to Accelerate? - Nonfarm Payrolls rose by 192,000 nearly matching the Bloomberg Consensus expectation of 200,000. Revisions to January and February added another 37,000 jobs. Private employment, which excludes government jobs, surpassed the pre-recession peak for the first time.  Beneath the surface, this was a solid report for a change as the household survey shows a strong gain in employment of 476,000. March BLS Jobs Statistics at a Glance:

  • Nonfarm Payroll: +192,000 - Establishment Survey
  • Employment: +476,000 - Household Survey
  • Unemployment: +27,000 - Household Survey
  • Involuntary Part-Time Work: +225,000 - Household Survey
  • Voluntary Part-Time Work: +189,000 - Household Survey
  • Baseline Unemployment Rate: +0.0 at 6.7% - Household Survey
  • U-6 unemployment: +0.1 to 12.7% - Household Survey
  • Civilian Non-institutional Population: +173,000
  • Civilian Labor Force: +503,000 - Household Survey
  • Not in Labor Force: -331,000 - Household Survey
  • Participation Rate: +0.2 at 63.2 - Household Survey

March Payrolls Miss 192K, Below 200K Expected, Unemployment Rate 6.7% Above 6.6% Expected - Here are the key numbers: March payrolls +192K, below the 200K expected (LaVorgna 275K). This was a drop from the upward revised February print of 197K. The unemployment rate was unchanged at 6.7%, and above the 6.6% expected. The participation rate rose modestly from 63.0% to 63.2% as the labor force rose by 500K to 156,226 while the people not in the labor force declined by over 300K to 91,030. Manufacturing jobs had the largest drop since July. The number of unemployed rose 27K to 10,486K.  Conclusion: it snowed in March too, but judging by the perfectly expected stock reaction, it snowed in a good way.

March employment report: slow but steady improvement (8 graphs) The establishment survey reports total non-farm employment increased 192,000 with all of it attributed to the private sector as the government sector showed no change over the month. Evidently, after two cold months depressed the labor market, employment gains look much as they have over the past twelve months or so, averaging 184,000 since February, 2013. Total employment is now near its level of December, 2007, just when the economy went into recession; and, private employment is slightly above its pre-recession peak.  Average weekly hours in the private sector also jumped up from 34.3 to 34.5. On the household side, both the number of unemployed (10.5 million) and the unemployment rate  (6.7%) remained essentially unchanged and have both moved little during 2014. The progress of the labor markets now seems highly dependent on the prospects for the long-term unemployed. Average unemployment duration remains remarkably high while initial claims have returned to pre-recession levels. The long term effects of the large number of long-term unemployed is a story that is yet to be told.  But, all of the initial research point to large permanent losses in income and mobility. The household survey also revealed that labor force participation has begun to inch up, a sign that prospective workers see more opportunities than they have.

Economy Adds 192,000 Jobs in March, Unemployment Rate Unchanged: The economy added 192,000 jobs in March, bringing the average over the last three months to 178,000. The unemployment rate was unchanged at 6.7 percent. This report answered several questions that had come up based on the prior two reports. First, it appears the weakness in prior months was in fact largely the result of the weather. The three month average of 178,000 is probably close to the economy's underlying trend at this point. It was also encouraging to see a jump of 0.2 hours in the length of the average workweek to 34.5 hours. This completely wipes out the decline in average hours worked that many were attributing to the Affordable Care Act (ACA) and other measures. The average hourly wage for production workers also fell slightly last month. While this is not good news, it does show that the concerns raised by many about a tight labor market leading to excessive wage growth, and that this would trigger inflation, were completely unfounded. There is some evidence in this report that the ACA is having its predicted impact on the labor market. The number of employed people over age 55 fell by 133,000 in March. Since August, employment among people in this age group has risen by just 125,000. It had risen by an average of 1,150,000 annually over the prior four years, accounting for almost all of employment growth over this period. It is possible that the ACA is allowing many of these workers to retire early now that they can get health care insurance outside of employment. Workers in the 25-34 age group seem to be filling the gap, with an increase in employment of over 680,000 (2.2 percent) over the last seven months. However these numbers are erratic, so it is too early to make too much of this pattern. The other area where we may be seeing the effect of the ACA is the rising number of people opting for part-time employment. The number of people who are voluntarily working part-time is up 415,000 (2.2 percent) from its year-ago level and is at its highest point since Lehman. (Involuntary part-time also rose, but is still below last fall’s levels.) At this point there is little evidence of more people opting for self-employment, as the number fell slightly in March, although it is still 262,000 (3.1 percent) above the year-ago level.

Most Details in Jobs Report Are Positive - The unemployment rate was unchanged in March. But it was the best possible variety of unchanged. Although the jobless rate didn’t budge from its 6.7 percent February level, the details behind that number are almost entirely positive. The number of people reporting that they were employed soared by 476,000, which normally would be enough to send the jobless rate falling. The reason it didn’t is that the labor force rose by a whopping 503,000. It is part of a trend that has been underway all year, with the labor force rising 523,000 in January and 264,000 in February. In other words, half a million people who had not been looking for work decided they indeed wanted a job, and simultaneously about that many people found a job. The result was a standstill in the overall jobless rate. A couple of the other details from the survey of households also point in a positive direction. The number of long-term unemployed — those without a job for more than 27 weeks — fell by 110,000. And the ratio of the population reporting they had a job ticked up to 58.9 percent from 58.8 percent. The trend toward a rising labor force in 2014 suggests that America is finally getting back to work. It follows a long, sharp contraction in the number of people with a job or looking for one. But it also could stand in the way of further progress toward lower unemployment. That’s a trade most people would take.

In March, the Unemployment Rate Masked Some Good News For Once -  The unemployment rate held steady in March, but in a departure from the usual story in this recovery, that masked some good news. The share of the working-age population with a job ticked up by one-tenth of a percent—and the share of the prime-age population with a job, which is my favorite measure of labor market trends in recent years—ticked up by two-tenths of a percent. If more people were finding work, why didn’t the unemployment rate go down?  Because more people came into the labor force. The labor force participation rate rose by two-tenths of a percent. The number of “missing workers”—workers who have left, or never entered, the labor force due to weak job opportunities—dropped from 5.7 million to 5.3 million. That is still a lot of missing workers (the unemployment rate would be 9.8% if they were counted as unemployed), and there is a great deal of month-to-month variability in the number of missing workers (meaning we can’t make too much of one’s month’s drop), but this is a step in the right direction. Interestingly, most of the decline in missing workers in March was due to the increase in labor force participation of men under age 25. Men under age 25 had seen a steep decline in labor force participation over the prior five months, and March’s increase almost entirely reverses that decline. There are still 580,000 missing men under age 25, but again, March’s drop was a step in the right direction.

Real Unemployment Rate Points in the Wrong Direction - The unemployment rate number people talk about and analyze every time the new jobs numbers come out — such as the 6.7 percent rate reported Friday morning — is not the “real” unemployment rate. And some policymakers are among them — which makes one line in particular in the report more interesting and important than usual. While some (we’re looking at you, Donald Trump) argue that joblessness is vastly higher than the Labor Department reports, a more routine critique is that it would be better to focus on one of the government’s own, broader measures of unemployment. It is known as U-6, the most widely defined form of unemployment out of six Bureau of Labor Statistics classifications. It was 12.7 percent in March, up from 12.6 percent in February but down from 13.8 percent a year ago.  The people who count as unemployed for purposes of U-6 include all those unemployed under the conventional definition, but also people who say they have given up looking for work out of frustration with the economy and people who are working at a part-time job but would prefer full-time work. It’s not necessarily more “real” than the regular unemployment rate; it’s just capturing different things.Dennis Lockhart, the Federal Reserve Bank of Atlanta president, argued this week that tracking U-6, though, could provide extra insight into whether the economy is healing. He told reporters that he would like to see the gap between U-6 and U-3 fall back to the range of 3 or 4 percentage points before the Fed raises interest rates.

The Jobs Report For March 2014: After A Long Winter, The Economy Plays Some Catchup - The usual seasonal spring rebuild in jobs was delayed a little this year due to the extended and severe winter. In March, some of this ground was recovered making it a particularly good month in seasonal terms. The labor force grew 600,000. This increase was comprised of a 956,000 rise in employment and a 356,000 drop in unemployment. What this means is that for each unemployed person who found work in March, two who were not counted in the labor force at all found work.  The labor force which had looked like it might be secularly plateauing at the end of last year has instead resumed its growth, indicating that the effects of Boomer retirements on it may be premature. The reason the official unemployment rate did not change from 6.7% is because this is a trendline number, not a seasonal one. In seasonal terms, unemployment describes a V this time of year. There is a major spike after Christmas and a decrease in the spring. The seasonal view describes both the increase and the decrease while the trend is a projection splitting the difference between the two. The ups and downs are where we live, but this has been almost completely forgotten in media reporting which cites the trendline number for March as if it were the actual number for March.  This same mistaking the trendline for the reality takes place on the jobs side as well. The trend increase in jobs was 192,000, but the actual increase, after a huge post-Christmas decrease, was 1.059 million. Unfortunately, these jobs are being created almost entirely in low wage sectors, like retail, business services, leisure and hospitality, and healthcare. American workers had more weekly take home pay on average this month. Unfortunately, their hourly wages declined slightly, meaning they worked longer hours for that increase in their weekly wage. This is another indicator of poorer quality jobs.  As I note below, a category to watch is voluntary part timers. This segment has been growing faster than expected recently. There is a lot of volatility in it but this is the group which contains those on Social Security but working for extra income. If a trend develops, this could partly negate the Boomer “retirement” effect on measures like the participation rate. That is not all Boomers are, or can, retire and leave the labor force. Some may be retiring and staying in the labor force.

3 reasons to worry about March’s jobs report CNN --  Private sector jobs finally surpassed their previous peak in 2008, according to March's jobs report.  But just because we've reached that milestone, and because the BLS announced Friday morning that the economy added a pretty healthy 192,000 jobs in March, doesn't mean the employment recovery has reached escape velocity. Going forward, here are three reasons to be concerned about the jobs picture:

  • 1. Average hourly wages fell in March: The best news in the February jobs report was that Americans saw a pretty big jump in their pay -- 9 cents per hour on average. If that trend had continued for a year, that would have resulted in a more than 4% annual increase in wages, well above expectations for inflation. Instead, this measure took a step backward in March with average hourly wages falling by one cent to $24.30 per hour. Rising wages will have to be a part of any meaningful, healthy recovery, as higher wages enable workers to spend more in an economy driven by consumer purchases.
  • 2. The unemployment rate(s) are stuck in neutral: After steadily falling throughout 2013, the standard measure of unemployment has remained stuck around 6.7% since December. The same goes for the broader measures of unemployment like the U-6 rate, which also includes folks who are working part-time but want a full-time job, and those who have given up looking for a job out of frustration. While that figure has also declined significantly from last year, it has been stagnant so far this year, and actually increased in March from 12.6% to 12.7%.
  • 3. There was no springtime bounce in the numbers: Economists had blamed a lot of the weak economic data that came in over the winter on unseasonably cold weather across much of the U.S. That's why they didn't fret too much over the sharp decline in job growth we saw in December and January. The reason why weather-related weakness isn't something that you should worry about, however, is that the data tends to overcompensate once the weather warms again. Folks might be kept home from work or delay big purchases because of the snow, but eventually they'll get back to business. But jobs numbers today didn't really show a bounce-back in data as much as a return to the previous trend. Therefore, the average job growth we've seen in 2014 (178,000 per month) trails the job growth we saw last year (194,000 per month).

Highlights from the March Jobs Report -- Employers added 192,000 jobs in March, coming in just below forecasts but showing more people are finding jobs in what has been a sluggish recovery for the labor market. Here are highlights from the Labor Department’s March employment report:

  • Private payrolls: All of the gains came from private companies, which added 192,000 jobs. The March gain means the private sector has regained all the positions lost in the recession. State, local and federal government hiring was unchanged from February.
  • Revisions: The Labor Department revised January and February’s job gains up by 37,000. Employers added 144,000 positions in January from an initially reported 129,000 jobs. February’s gains were revised up to 197,000 from 175,000. That brings the three-month average to 178,000 jobs added so far this year.
  • Weather Woes: The labor market appears to have shrugged off unusually cold and stormy March weather that kept many people out of work. Employers slowed the pace of hiring in December and January, when temperatures were coldest. Many parts of the country continued to face cooler temperatures in March.
  • Measuring Joblessness: The unemployment rate, which is obtained from a separate survey of households, remained at 6.7% in March. The number of unemployed Americans increased slightly, while the number of those with a job continued to rise. The civilian labor force, meanwhile, also expanded. That figure includes employed workers as well as those without a job but who are actively looking for work. A broader measure of joblessness, known as the “U-6” for its data classification, accounts for people who have stopped looking for work as well as people working part-time for economic reasons. That number ticked up to 12.7% from 12.6% in February, but is down from 13.8% in March 2013.
  • Earnings and Work Week: The average work week for private employees edged up to 34.5 hours, offsetting a net decline over the prior three months. Average hourly earnings for private employees fell by 1 cent to $24.30 from a month earlier. Over the year, average hourly earnings have risen by 49 cents, or 2.1%.

Still Needed: Millions of Jobs -- Imagine for a moment that the federal government wanted to maximize employment – wanted to make sure as many people as possible had jobs.  We were still a long way from that goal in March.

  • 1. There are, of course, the people the government counts as unemployed. About 4.2 percent of the adult population was included in this category in March.  Some unemployment is generally regarded as healthy. It means that people are changing jobs, and that employers have a ready supply of available labor. Before the recession, policymakers tried to keep about 3 percent of adults unemployed.
  • 2. There are also people working part-time who cannot find full-time jobs. Another 2.9 percent of the adult population fell into this category in March. As the chart shows, that share has not declined since the depths of the recession. These people are generally regarded as obvious beneficiaries of increased economic growth, because they clearly possess some kinds of marketable skills. Some economists, however, see evidence that at least some of these workers may be consigned to part-time work because of their shortcomings, or because of underlying changes in the economy, suggesting that this category, too, may remain larger than it was before the recession for the foreseeable future.
  • 3. Then there are the people who have left the labor market. We don’t know how many people of these people may start looking for work as the economy improves. The share of adults in the workforce fell sharply during the recession, but it is unlikely to return to its previous level because of demographic changes. The aging of the baby boom, and less immigration, means that a larger share of adults are beyond their working years. And some people who left the labor force, even among those in their prime working years, probably cannot be induced to return.

Comments on Employment Report - First, a milestone: Private payroll employment increased 192 thousand in March and private employment is now 110 thousand above the previous peak  (total employment is still 437 thousand below the peak in January 2008).   Of course the labor force has continued to increase over the last 6+ years, and there are still millions of workers unemployed - so the economy still has a long way to go.  Since the participation rate declined recently due to cyclical (recession) and demographic (aging population) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old. In the earlier period the employment-population ratio for this group was trending up as women joined the labor force. The ratio has been mostly moving sideways since the early '90s, with ups and downs related to the business cycle. The 25 to 54 participation rate was unchanged in March at 81.2%, and the 25 to 54 employment population ratio increased to 76.7%. As the recovery continues, I expect the participation rate for this group to increase. This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at maximum job losses. At the recent pace of improvement, it appears employment will be back to pre-recession levels mid-year (Of course this doesn't include population growth). The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed at 7.4 million in March. These individuals were working part time because their hours had been cut back or because they were unable to find full-time work. This suggests significantly slack in the labor market. These workers are included in the alternate measure of labor underutilization (U-6) that increased slightly to 12.7% in March from 12.6% in February. This graph shows the number of workers unemployed for 27 weeks or more. According to the BLS, there are 3.739 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 3.849 in February. This is trending down, but is still very high.

It’s Still Bad for the Long-Term Unemployed - At first blush, it’s great news. The number of long-term unemployed Americans – meaning those out of a job for more than six months – has dropped to 3.7 million in March from a high of 6.8 million in April 2010. The ranks of the long-term jobless have plummeted by 837,000 over the past year alone, helping to drive down the unemployment rate. But not so fast. The labor market has largely normalized in terms of short-term unemployment. But it gets worse and worse the longer you’ve been out of a job. As the chart that ran with a story I wrote today shows, short-term joblessness is actually well below its 2007 level. Long-term joblessness is still more than twice as high. So what’s happening to the long-term unemployed? Well, some of them are getting jobs. The problem is that often those jobs are part-time, or pay far less than the ones that workers had before. About 7.4 million Americans – up from 7.2 million as of November – are working part-time but would like to be working full-time. And new research by Alan B. Krueger, the former chairman of President Obama’s Council of Economic Advisers, and his co-authors shows that only one in 10 workers who counted themselves as long-term jobless in a given month between 2008 and 2012 had a full-time gig a year later.The federal government is offering less and less help to the long-term jobless. In January, an emergency program that pushed the maximum duration of jobless benefits up to as many as 73 weeks expired. Now, in most states, the maximum duration of payments is 26 weeks. Once those payments run out – along with the government requirement that a worker be looking for a job while receiving them – many among the long-term jobless accept a crummy job or simply give up.

Benefits Expired but the Labor Force Dropouts Haven’t Surged - The U.S. unemployment rate was unchanged at 6.7% and a broader measure of joblessness actually increased 0.1 percentage point to 12.7%. But there was some really good news under those numbers. The flat unemployment rate may seem strange since 476,000 more people were employed last month than in February, according to the household survey that the Labor Department uses to calculate the unemployment rate. Meanwhile, only 27,000 more people said they were unemployed. The main reason for the flat unemployment rate was a surge in the labor force – the number of people working or looking for work. The labor force jumped by more than half a million people in March, following a sizeable jump in February. After many months of people giving up the job search, that could be an indication more people are coming off the sidelines and back into the labor force. The development may be especially surprising given the expiration in extended unemployment benefits in late December. Some 1.3 million workers lost those benefits when the program expired, and many of them were expected to become discouraged and drop out of the labor force altogether. But there’s little indication of that happening. The number of people unemployed for more than 26 weeks dropped in March, but it’s still higher than it was at the end of the year. Sure, that could be due to people moving from 26 weeks to 27, but the labor market was pretty strong six months ago.  Meanwhile, the number of the unemployed flowing out of the labor force is averaging about 2.3 million so far this year. That may seem like a lot, but it’s the lowest average since 2008. Most people leave the labor force because they are retiring, having children or going to school. Only a small portion are giving up because they are discouraged.

No Signs of a Skill Mismatch in Today’s Jobs Report - In an update to last month’s post, the table below shows the March unemployment rate, the unemployment rate in 2007, and the ratio of the two, for a variety of demographic categories and by occupation and industry. Again we see that while (as per usual) there is considerable variation in unemployment rates across groups, the unemployment rate is substantially higher now than it was before the recession started for all groups. The unemployment rate is between 1.3 and 1.7 times as high now as it was six-plus years ago for all age, education, occupation, industry, gender, and racial and ethnic groups. Elevated unemployment across the board, like we see today, means that the weak labor market is due to employers not seeing demand for their goods and services pick up in a way that would require them to significantly ramp up hiring, not workers lacking the right skills or education for the occupations or industries where jobs are available. This commentary provides a more in-depth look at this issue.

Certainly No Sign in March of Excessive Wage Growth Which Would Trigger Inflation -- Average hourly wages of private sector workers and of production/nonsupervisory both dropped slightly in March. The chart shows year-over-year growth in hourly wages for both groups. Both are seeing growth rates far below what they were seeing before the recession started, and the “all private sector employees” series has seen no increase whatsoever in nearly three years. In recent months, many commentators have, perhaps surprisingly, raised concerns that our labor market may be tightening enough to be causing excessive wage growth that would trigger inflation. There is no sign of that here. Instead, today’s jobs report shows there remains a tremendous amount of slack in the labor market, which shifts bargaining power away from workers and keeps wages low. Employers do not have to pay substantial wage increases to get and keep the workers they need when workers lack outside options.

9 Of The Top 10 Occupations In America Pay An Average Wage Of Less Than $35,000 A Year - According to stunning new numbers just released by the federal government, that we detailed yesterday, nine of the top ten most commonly held jobs in the United States pay an average wage of less than $35,000 a year.  When you break that down, that means that most of these workers are making less than $3,000 a month before taxes.  And once you consider how we are being taxed into oblivion, things become even more frightening.  Can you pay a mortgage and support a family on just a couple grand a month?  Of course not.  In the old days, a single income would enable a family to live a very comfortable middle class lifestyle in most cases.  But now those days are long gone.

Part-Time Nation: Number Of High-Wage Jobs Added In March: +2,000 -- Curious why March hourly wages fell, and why the weekly number continues to trend at a near-recession level, and certainly one that does not support a 2% inflation growth case? Here's why: in March the best paying industry groups - information, financial activities and manufacturing (which actually saw a drop of 1,000 jobs in the past month) - added a cumulative total of... 2,000 jobs among them. Where was the bulk of the job gains? At the worst paying sectors of course.

Presenting America's 20 Best And Worst Paying Jobs - While we fail to see any occupations listed for "insider trading hedge fund managers" or "high frequency market manipulators" in the just released list by the BLS listing the number of workers and wages earned for all official US occupations, we supposed it will have to do, incomplete as it may be.  Below, sorted by average annual wage, are the Top 20 best paying jobs in the US including the average hourly wage and also showing the number of people the BLS believes are employed in each,  seasonally adjusted of course. And here are the bottom 20, or worst-paying, US jobs. It is here the the minimum-wage debate is most acute... As is the debate just how motivated the workers in these 20 occupations really are. Curious how many total workers are employed in the Top and Bottom 20 jobs? Here is the answer: What may be more surprising is that while there are 8 times as many workers in the worst paid bucket as best-paid, the total compensation paid to these two extreme groups is virtually identical.

For long-time unemployed, full-time work is elusive - Studies show that once a person is out of the job market for longer than six months, they face a slimmer chance of finding stable work. Only 11% of the long-term unemployed find permanent, full-time work a year later, according to a research paper by Alan Krueger and other economists from Princeton University. It’s more likely that those job seekers will find unsteady work, with 14% of job hunters finding part-time work and 11% landing temporary work more than a year after losing their jobs. ( Study: Are the Long-Term Unemployed on the Margins of the Labor Market? )  Some seven million people who are working part time would prefer to take on full-time work. That number is coming down — 8 million people were in that position at this time last year, according to data from the Bureau of Labor Statistics — but economists say it’s still stubbornly high for the current unemployment rate. During a speech in Chicago this week, Federal Reserve Chairwoman Janet Yellen called that figure “a sign that labor conditions are worse than indicated by the unemployment rate.”  For some job seekers, the decision to take on part-time work is spurred on by necessity — say, the threat of an eviction notice. Other workers think that by getting some kind of job experience they’ll have a leg up over the other job seekers they’re competing with. But it isn’t clear that those people who choose to take on any work over no work are better off than they would’ve been if they had continued on with their job search. People who had high-paying, mid-to-high level career jobs with benefits may face a bigger setback to their careers and their paychecks if they switch to part-time work, says Gary Burtless, a labor economist with the Brookings Institution. “It’s a very tricky problem,” he says. “It may pay you better to keep looking for a job than to take a job that is below your qualifications.”

Inequality and the Jobs Report - From a macroeconomic perspective, the March jobs report, which was released on Friday morning, wasn’t very thrilling. The headline payrolls number, which found a hundred and ninety-two thousand new jobs, was in line with expectations, and confirms what we already knew: the economy is expanding at a moderate pace, and it’s starting to shake off the impact of a harsh winter. So, rather than trying to further parse the payroll numbers, let’s look, for once, at the distributional data in the report, which shows that a great deal of variation and inequity are persisting, despite the over-all improvement. The recovery has been real for some groups, particularly those with college educations and whites who aren’t trapped in extended spells of unemployment. But, for other groups, including the long-term unemployed, African-Americans, and young adults who aren’t in college, finding work remains a formidable challenge, and finding a decent job is even harder. Among adults twenty-five and older who have a bachelor’s degree, which probably means most of you reading this article, the unemployment rate is just 3.4 per cent, about half the over-all rate. Despite all the talk about how the Great Recession affected college graduates—which it did—their unemployment rate never went above five per cent. At the other end of the educational spectrum, things were very different. For adults twenty-five and older without a high-school diploma, the jobless rate hit 15.6 per cent in 2010. Last month, it stood at 9.6 per cent.  The variation between racial groups is equally stark. Among white men aged twenty and over, the unemployment rate is now 5.3 per cent. For African-American men over twenty, it is 12.1 per cent. The gap between white and black females is also very large. According to the employment report, 5.3 per cent of white women aged twenty and over are out of work—the same as the rate for white men—but eleven per cent of black women in the same age group are jobless. Hispanics also have substantially higher rates of unemployment than whites, but the differences aren’t as large. Among Hispanic men aged twenty and over, the jobless rate in March was 6.9 per cent. Among Hispanic women aged twenty and over, the rate was 8.4 per cent.

Jobs and Skills and Zombies, by Paul Krugman - A few months ago, Jamie Dimon, the chief executive of JPMorgan Chase, and Marlene Seltzer, the chief executive of Jobs for the Future, published an article in Politico titled “Closing the Skills Gap.” They began portentously: “Today, nearly 11 million Americans are unemployed. Yet, at the same time, 4 million jobs sit unfilled” — supposedly demonstrating “the gulf between the skills job seekers currently have and the skills employers need.”  Actually, in an ever-changing economy there are always some positions unfilled even while some workers are unemployed, and the current ratio of vacancies to unemployed workers is far below normal. Meanwhile, multiple careful studies have found no support for claims that inadequate worker skills explain high unemployment. But the belief that America suffers from a severe “skills gap” is one of those things that everyone important knows must be true, because everyone they know says it’s true. It’s a prime example of a zombie idea — an idea that should have been killed by evidence, but refuses to die.  And it does a lot of harm. Before we get there, however, what do we actually know about skills and jobs? Think about what we would expect to find if there really were a skills shortage. Above all, we should see workers with the right skills doing well, while only those without those skills are doing badly. We don’t.

The Quit Rate, the Fed, and Braindead Employers - Dean Baker - The raise-interest-rates crew has lately been getting excited over a slight rise in the quit rate, the percentage of workers who voluntarily leave their jobs. The claim is that the labor market is now getting so tight that workers are able to get wage gains, which will be passed along in higher prices, which will soon mean accelerating inflation. It's a bit hard to see much of a case here. While the quit rate is above the troughs seen in 2009-2010 it is still lower than at any point in the 2001 recession and aftermath. Wages by most measures are pretty much rising at the same pace as they have been over the last three years, and inflation seems to be slowing rather than rising. But hey, if you want to slow the economy and throw people out of work, you can always find something. Anyhow, there are two sides to any quit decision. On the one hand, there is an unhappy worker. On the other hand there is an employer who has made this worker unhappy. This is worth thinking about. The business press has been full of stories of employers complaining that they can't find qualified workers. I and others have ridiculed these claims, since the obvious way to get qualified workers is to offer higher wages. This does not seem to be happening on any large scale, suggesting that employers really are not having trouble finding workers. Maybe employers really don't understand that if they offered higher wages they would get more workers applying for jobs.

A Union Aims at Pittsburgh’s Biggest Employer - For decades, United States Steel was this city’s dominant employer, but now the biggest employer is the University of Pittsburgh Medical Center, with its 22 hospitals and 62,000 workers.As if to highlight how the service sector has supplanted manufacturing, UPMC’s letters are emblazoned 20 feet high atop the city’s tallest building, the U.S. Steel Center Tower. And just as labor unions famously clashed with Andrew Carnegie, UPMC faces its own labor showdown. The Service Employees International Union is seeking to organize more than 10,000 of UPMC’s service workers, and demanding that the hospital system be a leader, much like U.S. Steel once was, in raising wages.The union is expert at making life unpleasant for employers, and it has not spared UPMC. The union staged a traffic-clogging protest outside UPMC’s headquarters and helped create community groups that accuse UPMC of paying poverty-level wages. The union repeatedly argues that the chief executive’s $6 million in compensation last year was out of line for a nonprofit, and it constantly jabs UPMC for leasing a $50 million corporate jet. Not stopping there, the union is backing Pittsburgh’s efforts to strip UPMC of $20 million in annual tax breaks on the grounds that it is a profit-seeking company. If it were a nonprofit, the union and city officials ask, why does UPMC, with $10.2 billion in revenues last year, run for-profit facilities in Italy, Ireland and Kazakhstan?

Who the Job Creators Really Are -- If you want to protect someone in Washington, call them a “job creator.” Such wonderful, rare creatures must be insulated from taxes, regulation, and especially unfriendly rhetoric. But it’s not clear who the job creators really are. Of course they’re employers who hire people, and bless ‘em for it. We want them brimming with confidence and animal spirits. But they’re not hiring people to save America. They’re doing so because if they didn’t, they wouldn’t be able to meet the demand for the goods or services they produce, and they’d be leaving profit on the table to be scooped up by a competitor. In this framing, as venture capitalist Nick Hanauer stresses, the job creator is the consumer or investor. They are the ones, by dint of their extra spending, who incentivize the employer to hire someone.  What about when many consumers are temporarily out of the picture, as in a sharp recession? Then the government and the Federal Reserve need to step in and boost consumer demand with fiscal and monetary stimulus, making them the job creators. One can continue to peel the onion in revealing ways here. You know what’s been the biggest job creator over the last few decades? Financial bubbles. The labor demand created by the dot-com bubble in the 1990s and the housing bubble of the 2000s created millions of jobs and sent the unemployment rate below 5 percent in both cases. Moreover, the standard Washington line is belied by recent statistics on profits, wages and jobs, which show a distinct lack of correlation between profitability and employment. The data in the table below start with compensation and after-tax profits, both as a share of national income, and figure out how much, in percentage points, those shares have changed over every post-war economic expansion that has lasted at least as long as this one — by now almost five years old. The last row of the table shows the percent growth in jobs for each expansion.

What Happens When "The Workers" Just Don't Care Anymore? -- One of the big problems in America today is that a lot of people simply do not seem to care about what they are doing anymore.  The level of sloth, laziness and apathy that we are witnessing in this country is absolutely mind-numbing.  Of course this is not true of everyone.  There are still many Americans that are extremely hard working.  But overall, it really appears that people are not taking as much pride in their work as they once did.  Some of the examples below are quite funny; others are more than just a little bit disturbing.  But they all have a common theme.  Americans from all walks of life are simply giving up.  Whether they are teachers, delivery people or fast food workers, the truth is that there are a whole lot of people out there that seem to have mentally checked out.

A Quick Note on Two Claims Re Productivity Growth - Productivity, or output per hour, is an especially useful metric called upon to answer many questions about an economy.  How efficient is production (i.e., how many widgets are we making per hour now versus before), how fast can living standards, wages, and incomes rise without generating inflation, is there evidence of technological advances boosting production?  It’s also tricky to measure, especially as we move from manufacturing to services, but the BLS series plotted below is widely accepted as a solid indicator of these sorts of questions. I’ve plotted the series in annual changes along with a smooth trend in order to help us think broadly about two assertions I hear often these days.  First, firms are so profitable—which they are (I’ve got a piece coming out on this on the NYT Economix blog next week)—because they’ve been squeezing more productivity out of their workforce.  Second, automation is displacing workers at a faster clip. Would not both of these show up as faster productivity growth?  And yet the trend has clearly decelerated (here’s Dean Baker on the automation question). I’m not saying this is the final word by a long shot.  From the mid-1980s to the mid-90s, economists said the same thing about computerization: if it’s so transformative, why isn’t it showing up in the productivity stats?  And then, in the mid-1990s, as you see in the figure, the series did in fact accelerate quite sharply.

Millennials Mired in Wealth Gap as Older Americans Gain: Economy - The damage inflicted on U.S. households by the collapse of the housing market and recession wasn’t evenly distributed. Just ask Jason and Jessica Alinen. The couple, who live near Seattle, declared bankruptcy in 2011 when the value of the house they then owned plunged to less than $200,000 from the $349,000 they paid for it four years earlier, just as the economic slump was about to start.  For households headed by someone 40 years old or younger, wealth adjusted for inflation remains 30 percent below 2007 levels on average, according to research by economists at the Federal Reserve Bank of St. Louis. Net worth for older Americans has already recouped the losses.  Such a generational divide has negative implications for consumer spending, which accounts for almost 70 percent of the economy. Younger households tend to spend a greater share of their incomes in furnishing new homes and buying automobiles, in contrast to their older counterparts who save more as they inch closer to retirement.  “These changes going on with individual balance sheets could have impacts on the whole economy,” said . “Maybe this is one of the reasons that it’s been so hard to understand this weak recovery. Not enough people are looking at these.”

Out of Work, Benefits, and Running Out of Options - Abe Gorelick has decades of marketing experience, an extensive contact list, an Ivy League undergraduate degree, a master’s in business from the University of Chicago, ideas about how to reach consumers young and old, experience working with businesses from start-ups to huge financial firms and an upbeat, effervescent way about him. What he does not have — and has not had for the last year — is a full-time job. Five years since the recession ended, it is a story still shared by millions. Mr. Gorelick, 57, lost his position at a large marketing firm last March. As he searched, taking on freelance and consulting work, his family’s finances slowly frayed. He is now working three jobs, driving a cab and picking up shifts at Lord & Taylor and Whole Foods. For people experiencing such long spells without appropriate work, it is a crisis. Often, it is also a conundrum: What should a worker who finds himself out of a job for six months or more do?  Should long-term jobless workers seek out career counseling? Should they accept far lower salaries? Should politicians revamp training programs? To those questions, and to many others, there are too few answers. In Washington, the plight of the long-term jobless has largely faded from the policy conversation. At the moment, the federal government offers virtually no help to the 3.8 million Americans who have been out of work for more than six months. The maximum duration of unemployment insurance payments fell from as long as 73 weeks to 26 weeks in most states in January.

The Desperation of the Vanishing Middle Class - I recently finished reading Pound Foolish, by Helaine Olen, which I discussed earlier (while one-third of the way through). The book is a condemnation of just almost every form of personal financial advice out there, from the personal finance gurus (Suze Orman, Dave Ramsey) to the variable annuity salespeople to the peddlers of real estate get-rich-quick schemes to Sesame Street‘s corporate-sponsored financial education programs.  A lot of what’s going on is just semi-sleazy entrepreneurs trying to make a buck, taking “advice” that is equal parts routine, wrong, and contradictory and packaging it into attractive-looking books, TV shows, and in-person events. A lot of the rest is marketing by the real financial industry, which either (a) wants to make a show of promoting financial education so people will think they are good or (b) wants to teach people that they need their products. (You pick.) The underlying problem with financial advice—besides the fact that most of it is wrong, conflicted (in the conflict of interest sense), or covert marketing—is that, even in the best case, it rarely works. The underlying financial problem that most Americans have is that they don’t make enough money to begin with,  This, as I’ve written before, is the fundamental reason why many people won’t be prepared for retirement. Olen has a similar viewpoint: the blind spot of the personal finance industry, she argues, is its refusal to even consider the macroeconomic factors that are the real problem.

Former fast-food managers admit to wage theft - Nine out of ten fast-food workers said they are the victims of wage theft, according to a nationwide poll released on Tuesday. The results come on the heels of a series of labor lawsuits and protests that put the industry under an uncomfortable spotlight and revealed widespread labor abuses in restaurants. The advocacy group Low Pay Is Not OK, commissioned the poll. The group also highlighted the experiences of two former MacDonald's managers who spoke about how they were pressured to boost profits by manipulating numbers in a central computer system keeping track of workers' pay. The managers said they inserted unpaid breaks in workers’ schedules, shaved hours from shifts and moved hours from one week to the next to avoid paying workers overtime. Kwanza Brooks, a former manager at McDonald’s restaurants in North Carolina and Maryland who is now an advocate with Low Pay Is Not OK, told Al Jazeera withholding pay from employees was an “unofficial policy” to keep labor expenses low and hit targets. “It’s like running a competition so to speak, an incentive. If you keep labor down, what is does is that it gives the account managers a bonus. That’s what their real target was.” Brooks said. Asterisks next to the names of employees who worked overtime helped store managers keep track of expensive outliers and, in the industry’s euphemism, “balance labor.”The survey poll of 1,088 fast-food workers in ten major cities across the United States, also found:

  1. — 92 percent of Burger King workers, 84 percent of McDonald’s workers and 82 percent of Wendy’s workers are victims of wage theft;
  2. — 60 percent of fast-food workers have experienced three or more different types of wage theft;
  3. — 60 percent of fast-food workers have been required to perform tasks before clocking in or after clocking out;
  4. — 26 percent of fast-food workers have not always been paid time-and-a-half for overtime hours they worked.

The Distributional Games - Robert Reich -- It’s true that history and policy point to overall benefits from expanded trade because all of us gain access to cheaper goods and services. But in recent years the biggest gains from trade have gone to investors and executives while the burdens have fallen disproportionately on those in the middle and below who have lost good-paying jobs. By the same token, most Americans are saying “no deal” to further tax cuts for the wealthy and corporations. In fact, some are now voting to raise taxes on the rich in order to pay for such things as better schools, as evidenced by the election of Bill de Blasio as mayor of New York. Conservatives say higher taxes on the rich will slow economic growth. But even if this argument contains a grain of truth, it’s a non-starter as long as 95 percent of the gains from growth continue to go to the top 1 percent – as they have since the start of the recovery in 2009. Why would people turn down a deal that made them better off simply because it made someone else far, far better off? Some might call this attitude envy or spite. That’s the conclusion of Arthur Brooks, president of the American Enterprise Institute, in a recent oped column for the New York Times. But he’s dead wrong. But Americans have never been prone to “kill the cow” type envy. When our neighbor gets the equivalent of new cow (or new car), we want one, too.  When I ask those of my students who refuse to accept even $200 in the distribution game why they did so, they rarely mention feelings of envy or spite. They talk instead about unfairness. “Why should she get so much?” they ask. “It’s unfair.”

Explainer: How economic "rents" affect inequality - Economist Thomas Piketty's book, "Capital in the Twenty-First Century," highlights the dangers of an economy dominated by inherited wealth -- an economy in which birth is more important than effort and ability. He provides evidence that the U.S. is headed in this direction -- toward what he calls "patrimonial capitalism" -- and Piketty recommends taking measures such as imposing high wealth and inheritance taxes to offset the accumulation of wealth that appears inherent to capitalist systems. One of his explanations for rising inequality in the U.S. and elsewhere around the world is what economists call "rent-seeking behavior." That refers to the ability of the wealthy and powerful to influence the political process, keep top tax rates low and increase their income at the expense of everyone else. The central question: Can the capture of "economic rents" by those at the top of the income distribution explain the rising inequality that fuels patrimonial capitalism?

Inequality is caused by ideology, not technology, by  John Quiggin: I’ve just had an article published at New Left Project, under the title Don’t Blame the Internet for Rising Inequality. Much of it will be familiar, but I want to stress a particular, and I think novel, critique of the idea that skill-intensive technology is responsible for rising inequality..The real gains over this period have gone to a subset of the top 1 per cent, dominated by CEOs, other senior managers and finance industry operators. This group has nearly quadrupled its real income over the past 30 years...This is a major problem for the Race Against the Machine hypothesis. Much of the growth in income share of the top 1 per cent occurred before 2000, when the stereotypical CEO was a technological illiterate who had his (sic) secretary print out his emails. Even today, the technology available to the typical senior manager—a PC with access to the Internet, and a corporate intranet with very limited capabilities—is no different to that of the average knowledge worker, and inferior to that of workers in tech-intensive specialties.  Nor does the ownership of capital explain much here. Even for tech-intensive jobs, the capital and telecomm requirements for an individual worker cost no more than $10,000 for a top-of-the-line computer setup (amortized over 3-5 years), and perhaps $1000 a year for a broadband internet connection. This is well within the capacity of self-employed professional workers to pay for themselves, and in fact many professionals have better equipment at home than at work. Advances in information and communications technology thus can’t explain the vast majority of the growth in inequality over the past three decades.

Measuring Wealth Inequality - The sharp rise in income inequality in the United States is well-established. But what about wealth inequality?  Wealth is as important as income for thinking about overall well-being. For example, wealth may be more important than income in predicting who can send their kids to an expensive college. And wealth also represents control. Corporations are controlled by shareholders. So a higher concentration of wealth naturally implies that fewer individuals control the decisions made by firms in the economy. Similarly, non-profit organizations (including universities) and political parties pay special attention to their wealthy donors. How has wealth inequality changed over the years?  Emmanuel Saez and Gabriel Zucman have preliminary work that approaches this question from a new angle. We want to emphasize that their work is preliminary research – and initial results may change as the researchers take a closer look. Here is the bottom line from the preliminary findings: the top 0.1% of the wealth distribution has seen a dramatic rise in the fraction of total wealth held, rising from a steady level of 10% from the 1940s to the 1970s, to over 20% in 2013. Here is the key chart:

The Wealth Gap in America Is Growing, Too --  It is, by now, well known that income inequality has increased in the United States. The top 10 percent of earners took more than half of the country’s overall income in 2012, the highest proportion recorded in a century of government record keeping. But wealth inequality has been increasing too, as a new study by Thomas Piketty of the Paris School of Economics and Gabriel Zucman of the University of California, Berkeley, shows. In a preliminary report, Mr. Zucman and Emmanuel Saez, also of Berkeley, find that at the very top, wealth is distributed as unevenly as it was in the early 20th century. And the wealthiest 0.1 percent, and especially the 0.01 percent, have left the rest of the 1 percent in the dust. When economists talk about income, they talk about the money a household or a person earns in a given year.. Your wealth is the value of your assets – your retirement accounts, your home, the unsold stocks – minus your debts, like your credit-card bill and your mortgage.  Numerous studies have shown income inequality growing since the late 1970s. Real earnings have fallen for many families, with globalization, the decline of unions and technological innovations eroding workers’ wages. But earnings have soared at the top, with corporate executives and families with significant income from investments making out especially well. Here’s a famuos U-shaped chart from Mr. Saez and his frequent co-author Mr. Piketty, showing that phenomenon:

The Shocking Rise of Wealth Inequality: Is it Worse Than We Thought? - America’s gap between the rich and the rest might be worse than we ever knew.  Economists Emmanuel Saez, of the University of California–Berkeley, and Gabriel Zucman, of the London School of Economics, are out with a new set of findings on American wealth inequality, and their numbers are startling. Wealth, for reference, is the value of what you own—assets like housing, stocks, and bonds, minus your debts. And while it certainly comes up from time to time, it has tended to play second fiddle to income in conversations about America’s widening class divide. In part, that’s because it’s a trickier conversation subject. Wealth has always been far more concentrated than income in the United States. Plus, research suggested that the top 1 percent of households had actually lost some of its share since the 1980s.  That might not really have been the case. Forget the 1 percent. The winners of this race, according to Zucman and Saez, have been the 0.1 percent. Since the 1960s, the richest one-thousandth of U.S. households, with a minimum net worth today above $20 million, have more than doubled their share of U.S. wealth, from around 10 percent to more than 20 percent. Take a moment to process that. One-thousandth of the country owns one-fifth of the wealth. By comparison, the entire top 1 percent of households takes in about 22 percent of U.S. income, counting capital gains.

Plutocracy without end: Why the 1 percent always defeats the middle class - I’ve been writing about what we politely call “inequality” since the mid-1990s, but one day about ten years ago, when I was traveling the country lecturing about the toxic curlicues of right-wing culture, it dawned on me that maybe I had been getting the entire story wrong. All the economic developments that I spent my days bemoaning—the obscene enrichment of the CEO class, the assault on the regulatory state, the ruination of average people—were very possibly not what I thought they were. When I talked about these things, I assumed they were an outrage, an affront to the affluent nation I still believed we were; once the scales fell from our eyes and Americans figured out what was happening, I argued, we would yell “stop,” bring this age of folly to a close, and get back to middle-class prosperity as usual. What hit me that day was the possibility that my happy, postwar middle-class world was the exception, and that the plutocracy we were gradually becoming was the norm. Today, of course, the situation has grown vastly worse. The subject of inequality is discussed everywhere; there are think tanks and academic conferences dedicated to it; it has become socially permissible for polite people to wonder about the obscene gorging of those at the top. Sooner or later the question that everyone asks, upon discovering just how much of what Americans produce goes to the imbeciles in the penthouses and executive suites, is this: How much further can this thing go?

Stop adding up the wealth of the poor - It’s the meme that refuses to die. It started, back in 2011, with the Waltons: six members of the family, we were repeatedly told, were worth as much as the bottom 30% of all Americans combined. I tried to address this silly stat back then, but now it’s gone global: back in January, Oxfam announced that the world’s 85 richest people had the same wealth as the bottom half of the global population. And now Forbes has come along to say that, actually, it’s not 85 people — it’s a mere 67. Oxfam does a pretty bad job of footnoting its report, but I did manage to finally track down how it arrived at this conclusion. The 85 (or 67) number is easy: you just start at the top of the Forbes billionaires list, and start counting up the combined wealth until you reach $1.7 trillion. The harder question is: where does the $1.7 trillion number come from? The answer is that it comes from a pair of tables in Credit Suisse’s 2013 Global Wealth Databook. The top 10% have 86% of the wealth; the next 10% have 7.8%, and so on.  All of which makes a certain amount of sense, until you start looking a bit closer. For instance, notice anything odd about this chart?  The weird thing is that triangle in the top left hand corner. If you look at the tables in the Credit Suisse datebook, China has zero people in the bottom 10% of the world population: everybody in China is in the top 90% of global wealth, and the vast majority of Chinese are in the top half of global wealth. India is on the list, though: if you’re looking for the poorest 10% of the world’s population, you’ll find 16.4% of them in India, and another 4.4% in Bangladesh. Pakistan has 2.6% of the world’s bottom 10%, while Nigeria has 3.9%. But there’s one unlikely country which has a whopping 7.5% of the poorest of the poor — second only to India. That country? The United States.

When Inequality Isn't - Plutarch argued over 1900 years ago that it was income inequality that lay at the heart of the failure of the Greek republics. Other writings of that period demonstrate that the leaders were worried about the distribution of wealth in society. The causes of unequal distribution have certainly changed over time, but it seems to be built into our DNA to obsess over what we have relative to what others have. That we are living in the most splendid golden age in the history of humanity – if by golden age we mean that for the world at large there is less hunger, longer lives, less poverty, better healthcare, better and more universal education, and a host of other factors that are manifestly superior as compared to 2000, 1000, 200, 100, 50, and even 20 years ago – is patently evident. We are far from the world Thomas Hobbes described in 1651 in Leviathan when he said “[T]he life of man [is] solitary, poor, nasty, brutish, and short.” He would be amazed at the relative abundance achieved by mankind in the last 263 years. And still, authority after authority the world over, in rich country and poor, from the President of the United States to the leaders of some of the most impoverished nations, describes income inequality as a fundamental injustice and the source of many problems . We have spent three letters (so far) dealing with the topic of income inequality. The topic is everywhere in our daily conversation and in economic research. I’ve dealt with many of the facts of income inequality in these three issues and will try to conclude the topic this week. We’ve discovered so far that income inequality is a fact; however, income mobility has remained roughly the same over the last 40 years. That is, a person’s chances of rising from a lower stratum of wealth distribution to a higher stratum is approximately the same as it was in 1975.

$2.13 an Hour? Why The Tipped Minimum Wage Has to Go -- The person who serves you lunch today may work for a minimum hourly wage that’s less than the price of your coffee. And no matter how generous your tip, at the end of the day, she'll take home much less in wages than what she deserves. Federal law has been exploiting workers like her for years, according to labor advocates, thanks to an ultra-low wage floor that systematically cheats servers, bartenders, hairdressers and others of a fair day’s pay. The minimum wage for tipped workers—known as the “tip credit” or “subminimum wage” system—is just $2.13 an hour, less than a third of the regular federal minimum of $7.25. This rate is based on the assumption that earnings from tips will make up the difference, so total pay will approximate that of other low-wage laborers. Now, as campaigns to raise state and federal minimum wages mushroom nationwide—and with campaigns under way for a $15 per hour wage in fast food joints—the base pay of their fellow workers in diners and cafes seems even more outrageous.  A unique economic relic, the base wage for tipped workers has eroded steadily since 1996, when it was unpegged from the already absurdly low federal minimum. The crumbling value of both wage tiers over the past decade, according to the calculation of advocacy group Restaurant Opportunities Center (ROC), amounts to a yawning gap between tipped workers’ earnings today and what they would have made had the wage rates been adjusted equitably. All in all, the gap represents a net “loss” of more than $20 billion.

Blueberry lies: WSJ spearheads disingenuous effort to keep exploiting farm workers - In August 2012, the U.S. Department of Labor invoked its “hot goods” authority and seized blueberry shipments from three Oregon farmers whose labor contractors paid 1,300 migrant workers sub-minimum wages. Worried the fruit would spoil, the growers agreed to pay $240,000 in back wages and fines. As part of the deal, they agreed not to appeal. The workers got paid, the farmers got their blueberries back and that should have been the end of the story. But instead of going after their contractors for the money, the growers, backed by the Oregon Farm Bureau, launched an aggressive campaign accusing the DOL of extortion.  The BlueberryGate backlash has been mighty: The recently-signed federal Farm Bill requires DOL to “consult” with the Department of Agriculture before invoking hot goods. Oregon lawmakers went a giant step further, introducing a bill in Congress to take away DOL’s use of hot-goods seizures for any perishable crops. Forbes is using the case to attack the nation’s bedrock labor protection: the Fair Labor Standards Act. The Wall Street Journal recently jumped into the fray, using the case to further arguments against an “overbearing regulatory state.”  On the contrary, the case shows the need for regulation, for without the DOL’s action, the pickers would have had little recourse. The industry is predominantly made up of migrant workers from Mexico, who toil in the fields for as little as 30 cents per pound of picked berries. The Oregon pickers were immigrants, mostly from Mexico, including migrant workers who came from California to work in the fields, and seasonal workers living in Oregon. It’s the rare instance that such workers can stand up for their rights. (In August, blueberry pickers in Washington walked off their jobs to protest low wages, harassment and squalid living conditions, but this is the exception to the rule.)

80 percent of U.S. adults face near-poverty, unemployment, survey finds - CBS News: Four out of 5 U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream. Survey data exclusive to The Associated Press points to an increasingly globalized U.S. economy, the widening gap between rich and poor, and the loss of good-paying manufacturing jobs as reasons for the trend. As nonwhites approach a numerical majority in the U.S., one question is how public programs to lift the disadvantaged should be best focused -- on the affirmative action that historically has tried to eliminate the racial barriers seen as the major impediment to economic equality, or simply on improving socioeconomic status for all, regardless of race. Hardship is particularly growing among whites, based on several measures. Pessimism among that racial group about their families' economic futures has climbed to the highest point since at least 1987. In the most recent AP-GfK poll, 63 percent of whites called the economy "poor."

Abused and Exploited Temp Workers May Finally Get a Break - California could become one of the first states in the nation to hold companies legally responsible for wage and safety violations by their subcontractors and temp agencies if a bill proposed Friday becomes law. The bill tackles the longstanding complaint of labor leaders that companies can often shirk responsibility for the abuse of workers by hiring them through agencies or contracting with smaller firms. A ProPublica investigation last year found that temp workers face high rates of wage violations and on-the-job injuries, but rarely have recourse against the brand-name companies whose products they move, pack or assemble. Typically, only the agencies or subcontractors that directly employ workers face fines when something goes wrong, even when fulfilling contracts with larger firms that indirectly control or influence the work conditions. Unions and other worker advocates say the bill would protect temps and subcontracted workers, such as building janitors, by holding the companies at the top of the supply chain accountable. “Current law is simply insufficient to protect workers’ rights in the shadows of the subcontracted economy,” Caitlin Vega of the California Labor Federation said in a letter supporting the bill. “This simple rule will incentivize the use of responsible contractors, rather than a race to the bottom.” California is at least the second state this year to take up bills to protect temporary and subcontracted workers. Earlier this month, a New Hampshire legislator introduced a bill to curb the practice of charging workers fees to be taken in temp agency vans to work for unknown companies. That bill would limit such fees and require agencies to tell workers in writing their wage, the name of the company, the location of the job and the workers’ compensation insurance carrier in case of injury.

Portraits of Food Stamp Recipients in the Wake of Program Cuts - The bipartisan Farm Bill that President Obama signed into law on Feb. 7 will cut $8 billion from the Supplemental Nutrition Assistance Program (SNAP) over the next 10 years. The cut is more like a snip when compared to the nearly $40 billion decrease in funding proposed by Republican lawmakers during the four years it took lawmakers to come to an agreement. For the subjects of this LightBox feature, however, and for the millions like them who depend on SNAP, every little bit that gets chipped away hurts. New York-based photographer Jeff Riedel spent days with each subject, capturing a glimpse into the lives of the 47 million people who depend on government assistance for food. “When you see that these are really beautiful people, good people doing as much as they can to get by and it’s still not enough,” Riedel said, “you realize that it is easy for the government in all of their callousness to look at things as statistics and as numbers. But when you get in and see the real life humans dealing with real life problems . . . it’s a different sort of process.”

Profiting from Hunger the JP Morgan Way - According to a September 2012 study by the Government Accountability Institute, three American institutions make a pretty decent profit from American's hunger.  In this posting, I will focus on one of those corporations..  The study noted that there are several streams of income for the aforementioned three companies from their participation in SNAP:

  • 1.) The Cost Per Case Month or CPCM:  Every month, the company is paid a fee for each individual enrolled in SNAP, ranging from $0.65 to $1.45 depending on the state.  The fee can be higher if the state government decides to have the contractor distribute multiple welfare services on a single EBT card (i.e. TANF and SNAP).  Basically, an expansion of the number of Americans receiving SNAP benefits translates directly into increased fees paid to JP Morgan et al.
  • 2.) ATM Fees: When an EBT card is used at an ATM machine, particularly a machine that is not within a company's network, a fee is charged for withdrawing TANF cash or making a balance inquiry.  In the case of Nevada, cardholders are charged $0.85 for each withdrawal at an out-of-network terminal.
  • 3.) Point of Sale (POS) Machines: States rent POS machines and pay a monthly fee to the EBT service provider.  In the case of Arizona, this fee is $14.95 per month per machine.
  • 4.) Card Replacement Fees:  Fees are charged for lost cards.
  • 5.) Customer Service Call Fees.

How much has all of this been worth to the providers?  Between 2004 and 2012, 18 of the 24 states that contracted with JP Morgan to provide welfare benefits have agreed to pay $560,492,596.02 in total.  New York alone has a seven-year contract worth $126.4 million.

If homeless people had a safe place to live, taxpayers could save millions - Researchers at the University of North Carolina–Charlotte's Department of Social Work have found that housing constructed specifically for homeless people saved the city millions. Providing housing at an 85-unit facility called Moore Place resulted in 447 fewer visits to emergency rooms and 372 fewer days spent in hospitals,  The Charlotte Observer reported. That alone saved the city $1.8 million—which makes plenty of sense. When people aren't exposed to danger from criminals or animals, and they don't get sick from sleeping in a doorway on a cold night, they're bound to be healthier.  Law enforcement costs were also reduced. Providing housing to Moore Place residents resulted in an incredible "78 percent drop in arrests and 84 percent fewer days spent in jail." Moore Place accommodates men and women who represent the millions of Americans affected by stubborn housing and employment problems that took hold during the Great Recession in 2007. They are folks who were living paycheck to paycheck, got laid off, couldn't find another position, and so lost their home. There are also residents who struggle with mental illness or drug and alcohol addictions.

Private charity can't replace government social programs - As often happens when the financial demands on government social programs rise, there's been a lot of talk lately about the need to return to the traditional American system of community and faith-based help for the needy: charity, not government handouts. One hears this most often from fiscal conservatives such as House Budget Committee Chairman Paul Ryan (R-Wis.), who spoke on the radio not long ago about how suburbanites shouldn't drive past blighted neighborhoods and say, "I'm paying my taxes, government's going to fix that." Instead, he advised, "You need to get involved yourself, whether it's through a mentor program or some religious charity … to make a difference." It's a common theme. Compared with government relief, private charity is supposed to be more responsive to individual need and less bureaucratic; more of a helping hand and less of an initiative-suppressing "hammock," the term Ryan uses to deride the effects of government programs. It's supposed to be more humane, too.  It's a common illusion, however — what Mike Konczal, a fellow at the Roosevelt Institute, recently described as "the voluntarism fantasy."The idea that community or faith-based charities were more efficient, effective and capable than the government of addressing economic stringency hasn't been true since the industrial revolution transformed the U.S. from an agrarian to an urban nation. To suggest that such organizations can effectively supplant government social programs is worse than a mere fantasy — it's a cynical and dangerous fantasy that serves only as a talking point to cut those programs. The truth is that private, communal and religious giving simply can't meet the needs that government programs handle. Let's examine why.

Did America Lose Its Libido in the Recession? -  The Census Bureau reported last week that the financial crisis, aside from wrecking the economy, also helped drive down U.S. fertility rates to levels not seen since the late 1990s. The number of births for every 1,000 women ages 15 to 44 years old has dropped, to 62.7 in 2013 from 69.3 in 2007. No shock there. Historical demographers have long recognized that when it comes to fertility, recessions are the equivalent of a cold shower. The best evidence for this comes from the mother of all financial crises: the Great Depression. One of the first studies to demonstrate the connection was the so-called “Indianapolis Study,” published in 1953. The researchers found that factory activity, which dipped in the 1930s, correlated with fertility levels during the interwar period.While other economic downturns led to fleeting declines in fertility, few can match the Great Depression, and to a lesser extent, our latest recession. But it’s not the high levels of unemployment that explain the drop in fertility, as the demographers Tomas Sobotka, Vegard Skirbekk and Dimiter Philipov pointed out in an article in Population and Development Review. Instead, it’s the “unexpected” and abrupt deterioration in economic conditions that is most decisive. As the authors noted, “the available evidence indicates that a change in unemployment or in consumer confidence matters more for fertility changes than the levels of those indicators.”

Detroit proposes deeper pension, bond cuts in debt plan - Detroit, the biggest U.S. city to seek bankruptcy protection, proposed deeper cuts for police and firefighter pensions, as well as for some bondholders, as it seeks approval of a plan to reduce its $18 billion in debt. The city on Monday filed a description of the debt-adjustment plan that differs in some details from what it submitted in February in U.S. Bankruptcy Court in Detroit. The disclosure statement, if approved by U.S. Bankruptcy Judge Steven Rhodes, will be consulted by creditors in deciding whether to back the plan. Detroit filed for bankruptcy in July, saying it couldn’t meet its financial obligations and still provide necessary services. The city has since been in negotiations over cuts with unions, retired workers and bond insurers. General obligation bondholders, who had been set to receive 20 cents on the dollar under February’s plan, are now projected to get 15 cents. Pensions for police and firefighters would be cut about 6 percent if they vote for the plan, 14 percent if they don’t. In February, those proposed cuts were 6 percent and 10 percent respectively. The office of Kevyn Orr, the city’s emergency financial manager, said in a statement today that the new numbers were included to offer “greater clarification for retirees on how much pension benefit reductions would be.” The statement didn’t say why the numbers had changed.

Governments Scale Back Spending on School Construction, Public Safety - Still-tight government budgets are weighing down the construction sector. Spending on building schools, police stations, highways and other government projects declined 1% from a year earlier in February, the Commerce Department said Tuesday. The drop extends into 2014 a four-year streak of shrinking public outlays on construction. Last year, construction spending by federal, state and local governments fell 2.7%, a slightly deeper decline than in 2012. The latest numbers show that even as tax revenues increase and the effects of across-the-board federal budget cuts fade, the hit to the construction industry lingers. Conversely, private builders have found their footing as the economy recovers. Private construction spending advanced 13% in February from a year earlier. State and local governments, which are funded in part by property taxes, took a hit when home values plummeted during the financial crisis. While home values have increased in recent years, public spending continues to be restrained. Spending on school building, which is largely funded locally, declined 8.7% over the past 12 months. Public safety outlays by governments at all levels are down 10.5% during that time, but highway and street spending is up 11.5%.

Why Did NYC’s Top Public High School Admit Only Seven Black Students This Year? - The Ides of March in New York City bring high school placement results for thousands of 8th graders. This year, Stuyvesant, the city’s most selective public high school, accepted only seven African-American students out of a class of 952. Last year, that number was nine.  In any case, however, the number is ridiculously low for a school system that’s majority Black and Hispanic.Every year, The New York Times writes about how ridiculously low this number is. This year is no exception. The difference this year is that NYC has a new mayor who based a big part of his election campaign on getting rid of the Specialized High Schools Admissions Test (SHSAT), the sole criterion used for deciding which students get into Stuyvesant, as well as the other seven specialized high schools (an eighth, LaGuardia a.k.a. the “Fame” school, requires an audition instead).

Water Runs Downhill, and School Is Boring -- Lately I've been reading everything I can on how people feel when they're in school.  The evidence is thin, but confirms the obvious: Most people find school super-boring.  The High School Survey of Student Engagement is probably the single best source.   HSSSE asks two direct questions about boredom: "Have you ever been bored in class in high school?" and "If you have been bored in class, why?"  Two out of three respondents (66%) in 2009 are bored at least every day in class in high school; nearly half of the students (49%) are bored every day and approximately one out of every six students (17%) are bored in every class. Only 2% report never being bored, and 4% report being bored "once or twice."  Responses to the second question provide insight into the sources of students' frequent boredom; students could mark as many reasons for their boredom as were applicable. Of those students who claimed they were ever bored (98%), the material being taught was an issue: more than four out of five noted a reason for their boredom as "Material wasn't interesting" (81%) and about two out of five students claimed that the lack of relevance of the material (42%) caused their boredom. The level of difficulty of the work was a source of boredom for a number of students: about one third of the students (33%) were bored because the "Work wasn't challenging enough" while just over one-fourth of the respondents were bored because the "Work was too difficult" (26%). Instructional interaction played a role in students' boredom as well: more than one third of respondents (35%) were bored due to "No interaction with teacher."

Wal-Mart has a lower acceptance rate than Harvard -- This year's Ivy League admissions totals are in. The 8.9 percent acceptance rate is impressively exclusive, but compared to landing a job at Wal-Mart, getting into the Ivy Leagues is a cakewalk. Last year when Wal-Mart came to D.C. there were over 23,000 applications for 600 jobs. That's an acceptance rate of 2.6%, twice as selective as Harvard's and over five times as choosy as Cornell. This isn't an anomaly - last year a Wegman's in Pennsylvania boasted an acceptance rate of 5%, while Google only has room for one half of one percent of its job applicants. Parents and students - particularly those from a certain socio-economic background - tend to obsess a lot over the college admissions process. The danger, of course, is that this single-minded focus on preparing kids for college - the extra-curriculars, test prep, admissions coaching, and the like - is coming at the expense of prepping them for the job market hurdles that come after.

The Myth of Working Your Way Through College - The economic cards are stacked such that today’s average college student, without support from financial aid and family resources, would need to complete 48 hours of minimum-wage work a week to pay for his courses—a feat that would require superhuman endurance, or maybe a time machine. To take a close look at the tuition history of almost any institution of higher education in America is to confront an unfair reality: Each year’s crop of college seniors paid a little bit more than the class that graduated before. The tuition crunch never fails to provide new fodder for ongoing analysis of the myths and realities of The American Dream. Last week, a graduate student named Randy Olson listened to his grandfather extol the virtues of putting oneself through college without family support. It may have been feasible 30 years ago, or even 15 years ago, but it's much harder now.  He later found some validation for these sentiments on Reddit, where one user had started a thread about the increasing cost per course at Michigan State University. 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:

The Ongoing Inflation of the Higher Education Bubble - How much has the average cost of attending college at four-year degree-granting institution in the U.S. risen since the 1969-1970 school year?  For an American student who enrolled in a four-year college in the fall of 1969, the average they paid for their tuition, required fees, room and board totaled $754, which when we adjust for inflation be be in terms of constant 2011 U.S. dollars, works out to be the near modern day equivalent of $4,619.  But a student enrolling in the same kind of institution in the fall of 2011 for the 2011-2012 school year would pay $13,608. Nearly three times as much.  To get a better sense of how affordable, or rather, unaffordable attending college has become, we next calculated the percentage that the average cost of tuition and fees for college would consume of the typical income earned by American households. In the chart above, we see that after holding basically flat from 1969 through 1982 at a range between 8.6% and 9.0% of the median American household income, the ratio of the cost of attending college with respect to that income began rising rapidly, with the cost of college having reached 26.7% of the American median household income in 2011-2012.  We also see that there would appear to be certain periods where the cost of attending college rose considerably faster than median household incomes, which we've shaded in the chart above.  Let's next look at how the cost of attending college has grown against median household incomes from 1969 through 2012:  Here, we see that there have been three major inflation phases for the cost of college: the first running from 1990 to 1994, the second from 2000 to 2003 and the third from 2007 through at least 2012 (and likely, the present).

Here's At Least 260,000 Reasons Why College Isn't Worth It --  Just last week we asked "Is college waste of time and money?" It appears, based on the latest data from the BLS, that for all too many, it absolutely is. As CNN Money reports, about 260,000 people who had a college or professional degree made at or below the federal minimum wage of $7.25 last year.  Via CNN Money, Experts point to shifts in the post-recession labor market as the reason for so many college graduates in low-paying jobs. "The only jobs that we're growing are low-wage jobs, and at the same time, wages across occupations, especially in low-wage jobs, are declining," Some 58% of the jobs created during the recent economic recovery have been low-wage positions like retail and food prep workers, according to a 2012 NELP report. These low-wage jobs had a median hourly wage of $13.83 or less.

Higher Education Financing Needs a Better Deal Than This -- The White House’s latest proposal for easing student-debt is a noble but ultimately bankrupt effort, which misses the forest for the trees. The plan includes an expansion of income-based repayment (IBR), makes the American Opportunity Tax Credit permanent past the current 2017 cut off, and places a cap on loan forgiveness for public sector workers. Yet like most college affordability proposals that have come out of Washington, the current plan offers Band-Aid “reforms” that fail to cut to the heart of the structural problems in how we finance higher education. Instead of trying to fix the debt, the conversation should center on solving why students should need to take out such massive debt in the first place, a discussion few in Washington are eager to have.  A common critique of debt forgiveness is that such policies encourage students to take on a heavier financial burden and leads to schools hiking tuition to compensate. On paper, tuition deferral methods like IBR coupled with loan forgiveness are sound. This method shifts the costs from the individual to the taxpayer, as they should if we still value higher education as a public good. Currently, students who demonstrate need can enroll in “Public Sector Loan Forgiveness” (PSLF) which is an IBR plan that forgives debt after ten years of public sector or non-profit employment. The new proposal lifts the needs-based eligibility requirement to allow larger numbers of individuals to sign up, but places a $57,500 cap on forgiveness for public sector workers and requires payments for twenty-five years instead of ten for any amount over that.

U.S. public pension gap widened to nearly $1 trillion in fiscal year 2012 - (Reuters) - The unfunded liabilities of public-employee pension plans rose by 10 percent in fiscal 2012 to a record $914 billion, hit by low investment returns, missed contributions and unfunded benefits, underscoring the pension funding crisis in U.S. states and cities, a report by the Pew Charitable Trusts said. Factoring in promises made by local governments to fund pension benefits for their employees, total pension debt climbed to over $1 trillion as of June 30, 2012, the end of the most recent budget year for which data is available. "Even though we've seen recent market gains and reforms, the funding gap has continued to grow for pensions," said David Draine, a senior researcher at the Pew Center on the States. Pew's study does not reflect the hefty gains in equity markets since the second half of 2012. Policymakers have grown increasingly concerned about the fiscal health of state and local government retirement systems since the financial crisis in 2008, when investment returns plummeted. Many states also short-changed worker pension funds, against recommendations by actuaries. In 2012, states missed an aggregated $20 billion in required payments, Pew found

Reuters Reports that CalPERS “Lawyered Up” in Response to Our Public Records Suit -- Yves Smith -- Reuters is keeping tabs on some of the developments in our ongoing dispute with the nation’s largest public pension fund, CalPERS.  By way of background, we have asked CalPERS to give us data about their private equity fund performance that they provided to two scholars at Oxford University. Their article stated repeatedly that substantial portions of their data has never been made public. Under California law, once a public record has been given to a member of the public, the agency can not refuse other requests for the same records. Even though CalPERS keeps claiming in its dealings with my attorney that it is cooperating with us, its actions scream otherwise. CalPERS has repeatedly bait and switched us, the latest instance being sending us records that fell well short of what they had supplied to the Oxford researchers. The latest move is to send the matter over to outside counsel two weeks ago, with the net result that everything has come to a screeching halt. People who have contacts within CalPERS tell us that the party line is that the law firm, Steptoe & Johnson, is trying to work something out with us. Let us just say that that is inconsistent with the conduct of the Steptoe partner towards my attorney.

CalPERS Tries Ineffective Mudslinging in Response to Our Ongoing Private Equity Investigation -  Yves Smith  - However, it was only yesterday that I learned of a press release that the California Public Employees’ Retirement Systems issued last Friday about our suit against the giant public pension fund. And as you’ll see, this document begged for a response.  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.  The latest development is their press release, which is revealing, and not at all in a good way.  So from what I can tell, CalPERS’ missive is not making the rounds. But the big surprise is how inept it is and how many falsehoods it contains. This is looks to be a classic case of an organization trying to believe its own PR, except in this case the PR is pretty poor.

New York Times Column Strikes Back, Obliquely, at Our CalPERS Private Equity Data Suit - Yves Smith - When I went to my inbox at the start of my day, one of the noteworthy e-mails in my inbox had the subject line: “NYT Column about You.” Its content: Though your fight is never mentioned, this column is clearly motivated by your dispute with CalPERS. This is an “Empire Strikes Back” piece: Venture Capital’s Need for Secrecy Collides With Public’s Right to Know Now I tend not to personalize things, particularly since the idea that New York Times Dealbook column would be a channel for taking issue with my lawsuit against the giant public pension fund CalPERS seems a bit grandiose. But several other observers read this column the same way, and on reflection, they are probably right.  There are two reasons to believe that this article by Jonathan Axelrad, a partner in the Silicon Valley office of Goodwin Proctor and co-head of its venture capital practice (keep in mind that venture capital is a subset of private equity; the other main type of strategy is “buyouts” which is the acquisition of mature companies). The first is that the nominal news hook for this piece is a much older struggle by reporters, in this case Reuters, with the University of California to obtain venture capital returns information.. The critical part is that Reuters won in lower court in October 2012 but lost on appeal in December 2013. Let’s see, this is April 2014. Someone felt motivated to write about an old news decision now? The second reason is that our case is getting more attention than we thought in the pension fund world, no doubt due to the reporting of Chris Witowsky at the Reuters publication peHUB, which has published two stories about our lawsuit.  “At any rate, they are now under scrutiny for this by what looks like the entire pension fund community, wondering just what’s up.”

Obamacare Makes Progress - As the first deadline for coverage in 2014 drew near, the Administration announced that the number of people who signed up had passed six million. That’s short of the original goal of seven million, owing largely to the disastrous launch of the federal Web site last fall. The methods for tallying beneficiaries, like everything else about the law, are being disputed, and regional disparities remain severe. Still, it’s clear that the law is helping a lot of Americans. Three million young people remain on their parents’ health-care plans; more than eight million uninsured people are eligible for Medicaid; and, according to the Department of Health and Human Services, more than a hundred million people have received preventive-care services, like mammograms and flu shots, at no cost. Those gains have been achieved amid a political controversy that has at times seemed almost unprecedented but which in many ways replicates the example of two of the law’s forerunners, Medicare and Medicaid. Those programs were born together in the summer of 1965, but their paths quickly diverged. Medicare, providing health insurance for all Americans over the age of sixty-five, proved popular almost immediately: after the rollout, about nineteen million people signed up, more than ninety per cent of those eligible. Medicaid, covering the poor of all ages, is financed jointly by the federal government and the states. The first year, only twenty-six states agreed to participate, and the program didn’t include all fifty until 1982, when Arizona, the final holdout, joined.

Obamacare, The Unknown Ideal - Paul Krugman - It’s not my ideal; in a better world I’d call for single-payer, and a significant role for the government in directly providing care. But Ross Douthat, in the course of realistically warning his fellow conservatives that Obamacare doesn’t seem to be collapsing, goes on to tell them that they’re going to have to come up with a serious alternative. But Obamacare IS the conservative alternative, and not just because it was originally devised at the Heritage Foundation. It’s what a health-care system that does what even conservatives say they want, like making sure that people with preexisting conditions can get coverage, has to look like if it isn’t single-payer. I don’t really think one more repetition of the logic will convince many people, but here we go again. Suppose you want preexisting conditions covered. Then you have to impose community rating — insurers must offer the same policies to people regardless of medical history. But just doing that causes a death spiral, because people wait until they’re sick to buy insurance. So you also have to have a mandate, requiring healthy people to join the risk pool. And to make buying insurance possible for people with lower incomes, you have to have subsidies.

Health Care Signups Reach Frenzy in Final Day to Enroll - — A frenzied last-minute scramble to sign up for health insurance overloaded phone lines and temporarily overwhelmed the website of the federal marketplace on Monday, as hundreds of thousands of people around the country raced to beat the deadline to obtain coverage under the Affordable Care Act.Administration officials, stepping up the push for enrollment in the final hours, said they were confident that they would reach their original goal of having seven million people sign up for private health plans through federal and state exchanges. But the end of the open enrollment period, which began six months ago with the disastrous debut of the federal website, starts a new phase likely to be defined by the economics of health insurance as well as by politics. Though, the federal website, performed markedly better on Monday than on the day it opened, many consumers still struggled to enroll. The site unexpectedly stopped taking applications for several hours early Monday because of a software problem discovered during scheduled maintenance overnight, said Aaron Albright, a spokesman at the Centers for Medicare and Medicaid Services, the agency running the site. For at least an hour at midday, the site again thwarted people trying to create accounts so they could buy insurance online.

Obamacare Enrollment Hits 7 Million, Putting Downward Pressure on 2015 Premiums; Word-of-Mouth Spreads the Truth  - Maggie Mahar at The Health Beat Blog has been keeping track of the progress made by people in enrolling in the PPACA.  As the “train wreck” called Obamacare pulls into the station it’s becoming clear that some 7 million Americans are signing up to purchase insurance in the Exchanges. Ten days ago I went out on a limb and predicted that we would hit 7 million, if not by March 31, by early summer. Now it appears that we’ll break through that target by midnight.  Seven million was the Congressional Budget Office’s (CBO’s) initial estimate, but when the roll-out proved rocky, the administration lowered its expectations to 6 million. Reform’s opponents groused that this still was too optimistic, and before long the consensus estimate fell to 4 to 5 million. (Conservatives, who had helped lower the consensus, then accused Democrats of moving the goal-post to make it easier to claim success.) Who are these last-minute shoppers? According to the Wall Street Journal,carriers are beginning to report that many are under 40. Today, more insurers confirmed the trend. This should come as no surprise.  We always knew that people in their 50s and 60s would join the Exchanges first. Healthy 20-somethings and 30-somethings who rarely see a doctor would be in no rush to sign up. Why begin paying premiums before you have to?

Seven Million - Paul Krugman - Many news reports are doing their best to somehow spin the final Obamacare surge as a negative story — yes, the website did go down a couple of times due to volume, which never, ever happens to commercial sites. The narrative of Obamacare-as-failure must not be challenged! But the narrative is getting really hard to sustain. Charles Gaba: There’s the usual yammering about “But how many have PAID???”, “But how many were ALREADY INSURED???”, “How many were YOUNG???” and “What METAL LEVEL did they get???” etc etc etc. All of these are reasonable questions for actuarials, accountants and so forth to ask, and the answers will indeed help shape our understanding of what the overall economic and health status of the population at large will be. For the moment, however, none of that matters. This is an outstanding number any way you slice it. Meanwhile, via Wonkbook, a guide to “unskewing” the numbers.

Medicaid Enrollments Bring Obamacare Enrollment to More Than 10 Million (Reuters) - Three million lower-income Americans have enrolled in the Medicaid program for the poor so far during the rollout of U.S. President Barack Obama's healthcare reform law, the administration announced on Friday. That brings to more than 10 million the number of people who have signed up for both public and private health coverage since the October 1 launch of the Patient Protection and Affordable Care Act, known as Obamacare. This week, the White House announced there were 7.1 million sign-ups as of March 31 for private health plans through new electronic insurance marketplaces now operating in all 50 states, a total that exceeded most expectations. Higher enrollment figures have given a boost to Obama and his Democratic allies against Republicans and other critics of healthcare reform by demonstrating stronger-than-expected demand for the benefits available under the new law. The latest data show for the first time actual enrollments in Medicaid and the Children's Health Insurance Program (CHIP) from October 1 through February 28 for 46 states that have reported statistics to the U.S. Department of Health and Human Services (HHS). Until now, HHS has been able to release only the number of people who have qualified for coverage.

More Good Obamacare News - Paul Krugman - Until just the other day, Obamacare was a total disaster; no way would it meet its first-year enrollment targets, or come anywhere close.  Now the opponents have retreated to their next line of defense: OK, people are signing up, but only because their existing policies were cancelled, so the program isn’t actually reducing the number of uninsured. Oops: Furthermore:These early estimates understate the full effects of the Affordable Care Act on the uninsured for two major reasons. First, the survey does not capture the enrollment surge that occurred at the end of the open enrollment period, because 80 percent of the responses to the March 2014 HRMS were provided by March 6, 2014. Second, these estimates do not reflect the effects of some important ACA provisions (such as the ability to keep dependents on health plans until age 26 and early state Medicaid expansions) that were implemented before 2013. Remember, this is just the first year. It has been assumed all along that it would take several years for the word to spread, and the law to have its full effect.

The Legality of Delaying Key Elements of the ACA —Under the Affordable Care Act (ACA), the employer mandate — the requirement that most employers offer health insurance to their workers or pay a tax penalty — was scheduled to go into effect on January 1, 2014. Last summer, however, the Obama administration announced that it was delaying the mandate for a year. The administration has now extended the delay for mid-size firms until 2016. The latest delay has spurred another round of accusations from critics of health care reform that the Obama administration has acted unlawfully in implementing the ACA. Similar accusations followed the announcement of a 1-year delay for some insurers of the ACA caps on out-of-pocket costs, as well as the decision to allow people to keep their preexisting health plans through 2016, even if the plans are out of compliance with the ACA (see table) Delays in Implementation of ACA Provisions.). A heated, confusing, and often ill-informed debate has now erupted over the legality of delaying portions of the health care reform law. In the administration's view, the delays are a routine exercise of the executive branch's traditional discretion to choose when and how to enforce the law. Yet the executive branch's authority to decline to enforce statutes is not limitless. The U.S. Constitution imposes a duty on the President, as head of the executive branch, to “take Care that the Laws be faithfully executed.” The President may decline to enforce a law, but ignoring it altogether would violate his constitutional duty.

Nursing-Home Netherworld: Putrefaction, pain and poop: I wretched. I couldn't help it. I wretched again. David, I'm sorry! He had asked me to remove his diaper and clean up the mess in his nursing-home bed. Feces extended from his mid-back, down his buttocks, to his knees. It was still pouring out and piling up, surge after steaming surge of porridge-textured poop. It was a nightmare, like "The Sorcerer's Apprentice." "Don't call anyone," David said. "I think they're mad that I keep doing this." I was up to my wrists in it, but it was all so slippery, and he is so massive, that I couldn't get the soiled diaper or drenched mattress protector moved, in order to wash him. I said, "David, I'll be right back." Then I went into the bathroom and vomited. I puked my brains out, but I did it quietly. He never knew. I felt ashamed, but there was no holding it back. I pulled myself together and returned to David's side with a glass of cold water and a straw (his throat was so parched he could hardly speak or breathe). I also brought some latex gloves and a stack of dry cotton towels so I could plunge in and take care of business. I was hot, nauseated and terrified. The smell wasn't merely malodorous. It seemed toxic. (As old as I am, I had never changed a diaper before. Now I realized that my avoidance maneuvers had been worth the effort.)

Study Questions Fat and Heart Disease Link - Many of us have long been told that saturated fat, the type found in meat, butter and cheese, causes heart disease. But a large and exhaustive new analysis by a team of international scientists found no evidence that eating saturated fat increased heart attacks and other cardiac events.The new findings are part of a growing body of research that has challenged the accepted wisdom that saturated fat is inherently bad for you and will continue the debate about what foods are best to eat.For decades, health officials have urged the public to avoid saturated fat as much as possible, saying it should be replaced with the unsaturated fats in foods like nuts, fish, seeds and vegetable oils.But the new research, published on Monday in the journal Annals of Internal Medicine, did not find that people who ate higher levels of saturated fat had more heart disease than those who ate less. Nor did it find less disease in those eating higher amounts of unsaturated fat, including monounsaturated fat like olive oil or polyunsaturated fat like corn oil.

Online Obituary Site is Doing it to Death -- He calls it capitalism. I call it identity theft. If one of your loved ones were to die, would you mind if an aggressive, profit-making corporation created an online obituary page for that person -- without your knowledge or consent -- which was designed to increase traffic to its site? Would it bother you that relatives and friends, who encountered  the listing in search results, would be asked to upgrade the page (for a fee, and after providing their email addresses) with memories, photos and condolences, by making an audio tribute, or by lighting a virtual candle?  Would it offend you if this site asked them, for its own financial gain, to send you food and flowers, mementos or e-cards, or to make a donation or plant a tree in your loved one's name? Does this feel a bit like grave-robbing to anyone besides me?, which "harvests" death notices from the Social Security Death Index, claims to have a listing for everyone who has died since 1936.    Its founder, who has turned his attention to launching a DJ talent agency, expects profits to "explode." It's a creepy industry, exploiting the grief of the family and the sympathy of friends.

Air Pollution: World's Biggest Health Hazard - The World Health Organization has just released estimates that 7 million people around the world died from air pollution in 2012, which is about one in eight of all deaths in the world that year, and "confirms that air pollution is now the world’s largest single environmental health risk." Most of the deaths are from heart disease, stroke, lung cancer, and for children, acute lower respiratory infections. A fact sheet titled "Burden of disease from Household Air Pollution for 2012" offers some details by region.  Perhaps surprisingly, more than half of the deaths from air pollution are from household air pollution (HAP), typically from low-income people who use solid fuels to cook indoors. Most of these deaths occur in poor areas of southeast Asia, the western Pacific,  and Africa.An accompanying feature story from WHO, called "Clean household energy can save people’s lives," offers some detail about cooking indoors in India: "Many women do not realize that the smoke emitted from the traditional clay or brick stoves called chulhas is putting their and their family members’ lives in danger. The solid fuels they use in these ovens include a mix of wood, coal, crop residue and cow-dung. Their smoke contains many dangerous pollutants such as fine particulate matter and carbon monoxide. “Having an open fire in your kitchen is like burning 400 cigarettes an hour,”

After more than a century, a jewel of ocean research targeted for closure - For more than a century, federal scientists have worked on Pivers Island near the historic town of Beaufort, N.C., and the beaches of Emerald Isle studying the ocean, and the fish, turtles and dolphins of its sea grass estuaries and rocky reefs.Surrounded by three university labs, it’s one of a handful of oceanography hubs in the nation and the only government research center between New Jersey and Miami studying Atlantic fish populations.So it came as a surprise recently that the federal government has proposed doing away with the ocean science laboratory, which opened in 1899.Tucked in President Barack Obama’s 218-page proposed budget for 2015 was a one-sentence mention of a plan to close one lab to save money. The National Oceanic and Atmospheric Administration subsequently identified it as North Carolina’s historic research station.

This new study shows that vegetarians have worse health… Diet-related health findings have been all over the news lately, particularly a new study of 1,320 Austrians published in Nutrition and Health. The provocative paper spewed some pretty damning findings about vegetarians, including that they’re more likely to have cancer, food allergies, and anxiety or depression. Vegetarians also take fewer vaccines and have fewer preventative check-ups, researchers noted, before throwing down some major smack-talk: Overall, our findings reveal that vegetarians report poorer health, follow medical treatment more frequently, have worse preventive health care practices, and have a lower quality of life. To temper that a bit, the study also notes that vegetarians had the lowest BMI, and a recent review of 39 studies found that vegetarians have lower blood pressure. (And there’s, you know, all of the climate- and resource-related benefits.)But the real message here is that this study shows correlation, not causation. No one can say for sure that going vegetarian will make you depressed, give you cancer, or kill you. As several Redditors suggest, maybe people with food allergies or cancer go vegetarian in an attempt to eat healthier (which would definitely skew the results)

Missouri Rep. Wants to Criminalize Finding Out Where Your Diseased Meat Came From - A bill has been proposed to the Missouri legislature that would make it illegal for anyone to obtain federal records about diseased cows, pigs, and other animals from all farms and factory meat producers in the state.   According to HB 2094, which was introduced by Rep. Jay Houghton, a Republican from Martinsburg, Freedom of Information Act or Missouri Sunshine requests pertaining to animal health or environmental protection data collected by state agencies under the federal Animal Traceability Program (ATP) would be legally denied.  The ATP was implemented by the USDA to facilitate tracking the origin of diseased animals and control the spread of any communicable threat by mandating state agencies collect a wide range of data, including health and location of movements, on farm animals that move between states for slaughter. This data is then sent to the USDA in hopes that when breakouts do occur, having the data will make it easier to isolate and eliminate threats. Houghton's bill would make it illegal for non-governmental organizations to obtain the ATP-collected data through FOIA or Sunshine requests. For example, if a disease breaks out in a factory farm, journalists would not be allowed access to data collected before or during the threat to report on how it happened.

Program Looks to Give Bees a Leg (or Six) Up - Here in California’s Central Valley, researchers are trying to find assortments of bee-friendly plants that local farmers and ranchers can easily grow, whether in unusable corners and borders of their land or on acreage set aside with government support.  Bees could certainly use the assist. Since 2006, the commercial beekeepers who raise honeybees and transport them across the country to pollinate crops have reported losing a third of their colonies each year, on average. Native species of bees, too, have been in decline. That is taking a toll on crops that rely on bees for pollination, including many nuts and fruits. The Department of Agriculture says that one of every three bites that Americans take is affected, directly or indirectly, by bees. They cause an estimated $15 billion increase in agricultural crop value each year.  The causes of the decline, known as colony collapse disorder, are still being studied. But they appear to be a combination of factors that include parasites, infection and insecticides. Underlying all of these problems is the loss of uncultivated fields with their broad assortment of pollen-rich plants that sustain bees. That land has been developed commercially or converted to farming corn, soybeans and other crops. The federal government has announced a new $3 million program to step up support for honeybees in five states in the Upper Midwest that will encourage farmers and ranchers to grow alfalfa, clover and other crops favored by bees and which serve a second purpose of being forage for livestock. Other proposed changes in practices include fencing property for managing grazing pastures in rotation so that they can replenish, leaving living plants for the bees.

Bananageddon: Millions face hunger as deadly fungus Panama disease decimates global banana crop - World Politics - World - The Independent: Scientists have warned that the world’s banana crop, worth £26 billion and a crucial part of the diet of more than 400 million people, is facing “disaster” from virulent diseases immune to pesticides or other forms of control.Alarm at the most potent threat – a fungus known as Panama disease tropical race 4 (TR4) – has risen dramatically after it was announced in recent weeks that it has jumped from South-east Asia, where it has already devastated export crops, to Mozambique and Jordan. A United Nations agency told The Independent that the spread of TR4 represents an “expanded threat to global banana production”. Experts said there is a risk that the fungus, for which there is currently no effective treatment, has also already made the leap to the world’s most important banana growing areas in Latin America, where the disease threatens to destroy vast plantations of the Cavendish variety. The variety accounts for 95 per cent of the bananas shipped to export markets including the United Kingdom, in a trade worth £5.4bn. The UN Food and Agriculture Organisation (FAO) will warn in the coming days that the presence of TR4 in the Middle East and Africa means “virtually all export banana plantations” are vulnerable unless its spread can be stopped and new resistant strains developed.

Crisis in Ukraine Pushes Food Prices to 10-Month High -  World food prices rose sharply for a second successive month in March, hitting their highest level since May 2013, after tensions in Crimea raised fears about disruption to grains shipments.  In its monthly Food Price Index the United Nations Food and Agriculture Organization said the rise was also influenced by unfavorable weather conditions in the U.S., where the lingering effects of the 2012 are still being felt in high meat and wheat prices, and in Brazil, where a lengthy spell of dry weather hurt development of the coffee and sugar-cane crops.  The FAO’s Food Price Index for March averaged 212.8. in increase of 4.8 points on February’s tweaked levels. The Index, which is based on the prices of a basket of internationally-traded food commodities, saw prices increase in all groups except dairy, which fell for the first time in four months (-2.5 percent). The greatest gains were seen in sugar (+7.9 percent) and cereals (+5.2 percent). But the FAO said any lingering fears over disruption to grains shipments from the Black Sea, due to the Crimea situation, have subsided since March

New Climate Change Report Outlines Challenges for Global Agriculture - Alright, we know climate change will hurt agriculture, but how, where and what farmers will it hit the hardest? This morning, the International Panel on Climate Change (IPCC) came out with a few answers.The release from Kyoto focuses on the impacts, adaptations and vulnerability of the world population to the consequences of climate change. It marks the second in a series of three working group reports that together make up the Fifth Assessment report (AR5) from the IPCC. The panel will cap the project with a synthesis report this October.The official version of the the Working Group II report can be found here on Monday morning, but a draft scientists prepared in October 2013 had already been leaked on the web. It provided an unofficial but telling look into how the world’s best scientists have assessed the main risks put to agriculture.  All together, the panel dropped many of the super-specific predictions that earned rebukes in the past like the claim that yields in some parts of Africa could drop as much as 50 percent by 2020. Instead, they struck a tone of well-founded risk assessment. This is a report for a savvy poker player — or maybe farm investor. It is not a piece of Biblical plague literature.Still, the challenge feeding a growing population in a warming world only appears more daunting compared to the last report in 2007. Here’s why and what the IPCC thinks we might be able to do about it:

Conservative Climate Panel Warns World Faces ‘Breakdown Of Food Systems’ And More Violent Conflict - Humanity’s choice (via IPCC): Aggressive climate action ASAP (left figure) minimizes future warming. Continued inaction (right figure) results in catastrophic levels of warming, 9°F over much of U.S. The U.N. Intergovernmental Panel on Climate Change (IPCC) has issued its second of four planned reports examining the state of climate science. This one summarizes what the scientific literature says about “Impacts, Adaptation, and Vulnerability” (big PDF here). As with every recent IPCC report, it is super-cautious to a fault and yet still incredibly alarming. It warns that we are doing a bad job of dealing with the climate change we’ve experienced to date: “Impacts from recent climate-related extremes, such as heat waves, droughts, floods, cyclones, and wildfires, reveal significant vulnerability and exposure of some ecosystems and many human systems to current climate variability.”  It warns of the dreaded RFCs (“reasons for concern” — I’m not making this acronym up), such as “breakdown of food systems linked to warming, drought, flooding, and precipitation variability and extremes.” You might call them RFAs (“reasons for alarm” or “reasons for action”). Indeed, in recent years, “several periods of rapid food and cereal price increases following climate extremes in key producing regions indicate a sensitivity of current markets to climate extremes among other factors.” So warming-driven drought and extreme weather have already begun to reduce food security. Now imagine adding another 2 billion people to feed while we are experiencing five times as much warming this century as we did last century! No surprise, then, that climate change will “prolong existing, and create new, poverty traps, the latter particularly in urban areas and emerging hotspots of hunger.” And it will “increase risks of violent conflicts in the form of civil war and inter-group violence” — though for some reason that doesn’t make the list of RFCs.  In short, “We’re all sitting ducks,” as IPCC author and Princeton Prof. Michael Oppenheimer put it to the AP.

Old Forecast of Famine May Yet Come True -  Might Thomas Malthus be vindicated in the end?  Two centuries ago — only 10 years after a hungry, angry populace had ushered in the French Revolution — the dour Englishman predicted that exponential population growth would condemn humanity to the edge of subsistence. This was, we now know, wrong. The gloomy forecast was soon buried under an avalanche of progress that spread from England around the world. Nonetheless, Malthus’s prediction was based on an eminently sensible premise: that the earth’s carrying capacity has a limit. On Monday, the United Nations Intergovernmental Panel on Climate Change provided a sharp-edged warning about how fast we are approaching this constraint.The list of present damages outlined by the United Nations panel — melting ice caps and rising sea levels, stressed water supplies, heat waves and heavy rains — underscored the risk if humanity does not figure out how to curb the use of fossil fuels that have provided the lifeblood for economic development since the time of Malthus. But what most stood out in the report from the panel, which gathers every few years to produce a synthesis of mainstream science’s take on climate change, was that it rolled straight into Malthus’s territory, providing its starkest warning yet about the challenge imposed by global warming on the world’s food supply. The new report is much more pessimistic about the prospect of extra grain production in the globe’s temperate zones, where more carbon dioxide in the atmosphere would increase the rate of photosynthesis, raising yields, and warmer weather would lengthen the growing season. Faster photosynthesis will help weeds more than cereal crops, while the accumulation of ozone and high temperatures would reduce yields of all the major grains, according to the report.

UN Scientific Panel Releases Report Sounding Alarm On Climate Change Dangers: If the world doesn't cut pollution of heat-trapping gases, the already noticeable harms of global warming could spiral "out of control," the head of a United Nations scientific panel warned Monday. And he's not alone. The Obama White House says it is taking this new report as a call for action, with Secretary of State John Kerry saying "the costs of inaction are catastrophic." Rajendra Pachauri, chairman of the Intergovernmental Panel on Climate Change that issued the 32-volume, 2,610-page report here early Monday, told The Associated Press: "it is a call for action." Without reductions in emissions, he said, impacts from warming "could get out of control." One of the study's authors, Maarten van Aalst, a top official at the International Federation of the Red Cross and Red Crescent Societies, said, "If we don't reduce greenhouse gases soon, risks will get out of hand. And the risks have already risen." Twenty-first century disasters such as killer heat waves in Europe, wildfires in the United States, droughts in Australia and deadly flooding in Mozambique, Thailand and Pakistan highlight how vulnerable humanity is to extreme weather, according to the report from the Nobel Prize-winning group of scientists. The dangers are going to worsen as the climate changes even more, the report's authors said. "We're now in an era where climate change isn't some kind of future hypothetical," said the overall lead author of the report, Chris Field of the Carnegie Institution for Science in California. "We live in an area where impacts from climate change are already widespread and consequential." Nobody is immune, Pachauri and other scientists said

4 takeaways from report reveal worsening impacts of climate change - The first installment of the Intergovernmental Panel on Climate Change’s (IPCC) Fifth Assessment Report (AR5)—released in September—confirmed the overwhelming scientific consensus that the world is warming, largely due to human activities. The Working Group II (WGII) report, released today, takes this finding a step further: Not only is climate change happening, but every continent on earth is now experiencing its impacts. Four major takeaways from the report showcase the impacts we’re already seeing, as well as those projected to occur if the world continues to warm. And more importantly, they reveal a critical message: As John P. Holdren, director of the White House Office of Science and Technology Policy, put it, the report “underscores the need for immediate action in order to avoid the most severe impacts of climate change.”

  • 1) Climate change now affects every part of the planet.
  • 2) Climate change will increase the frequency and severity of extreme weather.
  • 3) Meeting the scale of the challenge requires adaptation and mitigation.
  • 4) Rapid and steep reductions in greenhouse gas emissions can reduce risks and costs—and the timing matters.

The Worst Is Yet To Come [IPCC's most sobering report yet] - Climate change is already having sweeping effects on every continent and throughout the world’s oceans, scientists reported Monday, and they warned that the problem is likely to grow substantially worse unless greenhouse emissions are brought under control.  The report by the Intergovernmental Panel on Climate Change, a United Nations group that periodically summarizes climate science, concluded that ice caps are melting, sea ice in the Arctic is collapsing, water supplies are coming under stress, heat waves and heavy rains are intensifying, coral reefs are dying, and fish and many other creatures are migrating toward the poles or in some cases going extinct.  The oceans are rising at a pace that threatens coastal communities and are becoming more acidic as they absorb some of the carbon dioxide given off by cars and power plants, which is killing some creatures or stunting their growth, the report found. Organic matter frozen in Arctic soils since before civilization began is now melting, allowing it to decay into greenhouse gases that will cause further warming, the scientists said.

U.N. Report Raises Climate Change Warning, Points To Opportunities - "The effects of climate change are already occurring on all continents and across the oceans," and the world is mostly "ill-prepared" for the risks that the sweeping changes present, a new report from the U.N.'s Intergovernmental Panel on Climate Change concludes.The report also wastes no time in pointing a finger toward who is responsible: "Human interference with the climate system is occurring," reads the first sentence in the scientists' summary of their work. As NPR's Geoff Brumfiel tells our Newscast Desk, the panel "includes hundreds of scientists from around the world. Its past reports have made gloomy predictions about the impact of climate on humans. This time around, they're also trying to prepare us. Chris Field, the co-chair of the new report, says improving health systems, making transportation more efficient, and beefing up disaster response can make a difference.""Things we should be doing to build a better world are also things we should be doing to protect against climate change," Field says. In the summary of its findings and recommendations, for instance, the panel suggests that ongoing efforts to improve energy efficiency, switch to cleaner energy sources, make cities "greener" and reduce water consumption will make life better today and could help reduce mankind's effect on climate change in the future. While all people will continue to feel the effects of climate change, the report concludes that the world's poorest populations will suffer the most from rising temperatures and rising seas unless action is taken

BBC News - Climate impacts 'overwhelming' - The impacts of global warming are likely to be "severe, pervasive and irreversible", a major report by the UN has warned. Scientists and officials meeting in Japan say the document is the most comprehensive assessment to date of the impacts of climate change on the world. Some impacts of climate change include a higher risk of flooding and changes to crop yields and water availability. Humans may be able to adapt to some of these changes, but only within limits. An example of an adaptation strategy would be the construction of sea walls and levees to protect against flooding. Another might be introducing more efficient irrigation for farmers in areas where water is scarce. Natural systems are currently bearing the brunt of climatic changes, but a growing impact on humans is feared. Members of the UN's climate panel say it provides overwhelming evidence of the scale of these effects.  Our health, homes, food and safety are all likely to be threatened by rising temperatures, the summary says. The report was agreed after almost a week of intense discussions here in Yokohama, which included concerns among some authors about the tone of the evolving document.  This is the second of a series from the Intergovernmental Panel on Climate Change (IPCC) due out this year that outlines the causes, effects and solutions to global warming.

Climate inaction catastrophic - US: The costs of inaction on climate change will be "catastrophic", according to US Secretary of State John Kerry. Mr Kerry was responding to a major report by the UN which described the impacts of global warming as "severe, pervasive and irreversible". He said dramatic and swift action was required to tackle the threats posed by a rapidly changing climate. Our health, homes, food and safety are all likely to be threatened by rising temperatures, the report says. Scientists and officials meeting in Japan say the document is  the most comprehensive assessment to date of the impacts of climate change on the world. In a statement, Mr Kerry said: "Unless we act dramatically and quickly, science tells us our climate and our way of life are literally in jeopardy. Denial of the science is malpractice. "There are those who say we can't afford to act. But waiting is truly unaffordable. The costs of inaction are catastrophic."

Arctic Sea Ice Cover Was Fifth-Smallest On Record This Year: Just as much of the Northeast is beginning to emerge from one of the longest deep freezes in recent memory, in the Arctic, sea ice has finally reached its maximum extent for the year. The National Snow and Ice Data Center in Boulder, Colorado announced that on March 21, the total amount of ice cover for the Arctic peaked at 5.7 million square miles, or 282,000 square miles below the 1981-to-2010 average. This is the fifth-lowest winter ice cover extent since satellite records began in 1978. The lowest maximum extent recorded was in 2011 at 5.65 million square miles of ice cover. In September 2012 after the summer melt season, less ice covered the Arctic than had ever been recorded before — a shocking 18 percent less, prompting observers to predict that the Arctic might see an ice-free summer long before the end of the century. Ice cover in the Arctic varies considerably on a seasonal basis — growing in thickness and extent during the winter and shrinking in volume over the summer — as well as on a year-to-year basis. But Arctic sea ice extent has been trending downwards dramatically over the past four decades and the scientific consensus points squarely at human-caused climate change as the culprit. In the latest IPCC report, the world’s leading climate scientists confirmed that Arctic summer sea ice was declining at rates much faster than predicted by most models. This year’s relatively low maximum sea ice cover may have been affected by the overall milder winter experienced throughout the Arctic, as most of the coldest air moved south to Canada and the United States. In February, temperatures were 7.2° to 14.4°F above normal for much of the Arctic.

NASA: Arctic Melt Season Lengthening 5 days per decade - A new study by researchers from the National Snow and Ice Data Center (NSIDC) and NASA shows that the length of the melt season for Arctic sea ice is growing by several days each decade. An earlier start to the melt season is allowing the Arctic Ocean to absorb enough additional solar radiation in some places to melt as much as four feet of the Arctic ice cap’s thickness. "The Arctic is warming and this is causing the melt season to last longer," said Julienne Stroeve, a senior scientist at NSIDC, Boulder and lead author of the new study, which has been accepted for publication in Geophysical Research Letters. "The lengthening of the melt season is allowing for more of the sun’s energy to get stored in the ocean and increase ice melt during the summer, overall weakening the sea ice cover."

How Climate Change Could Cause an Ice Age in Europe - So far, the progress of global warming and climate change has been relatively smooth, a gradual decline in livability marked by a gradual increase in increasingly catastrophic events. Yes, catastrophic events — but a gradual increase in their number and degree. Key word, gradual. We assume, perhaps to comfort ourselves, that the (so far) slow and gradual decline in the livability of the planet will remain … slow and gradual.But there’s no reason to assume that there won’t be sudden collapses as well, sudden discontinuities, the way a steady dribble of small chunks of ice might fall from a Greenland glacier into the sea, then suddenly a piece the size of Ohio splits and floats away, lost, never to come back. A discontinuity, a break from the gradual.  Here’s another discontinuity. The Gulf Stream, the warm-water current that starts in the Gulf of Mexico and terminates in the Atlantic north of Scotland, also has collapse potential. Because of the Gulf Stream, northern Europe is moderate in climate. What if the Gulf Stream collapses and stops warming Europe? (To jump to the bottom line, click here. But you’ll be missing some interesting graphics.) As you’ll see in a minute, the current holds together as a “stream” because it’s both more salty (thus more dense) and more warm (thus staying on the surface) as it is driven north by the Trade Winds. When the Gulf Stream stops being more warm — because it’s now further north and has given up its heat to the air and the ocean — it’s still more salty (still more dense) than the Atlantic water around it, so the salt current sinks to the ocean floor, still as a current, and returns south as part of a giant chain of surface and submerged oceanic currents. At some point the global underwater currents warm, rise to the surface, enter the Gulf of Mexico and repeat the cycle. You can see the Gulf Stream part of this in the following three stills from the video’s animation. The first image shows the surface Gulf Stream current (taken from about 12:00 in the video). Note the cooler water entering the Gulf from the south, being warmed, and then driven north.

The Two Numbers Climate Economists Can’t Stand to See Together  So if we can work out the costs and benefits of reducing carbon emissions, we'll be able to decide on the cheapest course of action, right? Not so fast. The two numbers that you'd need to do that apparently shouldn't be compared, under penalty of lectures from either climate scientists or economists. Both numbers come from separate draft reports that are still being finalized by the Intergovernmental Panel on Climate Change.  Here’s what they are, and what they mean. The first number is a projection of how much global warming might cost in damages: from 0.2 percent to 2 percent of economic output, if temperatures rise 2.5 degrees Celsius (4.5 degrees Fahrenheit) from pre-industrial levels.  That’s from the "impacts, adaptation and vulnerability" working group of the IPCC, which will published its new report on Monday. There's no timeline given for the warming; for reference, temperatures have already risen about 0.85 of a degree since 1880.  The second is an estimate of how much of global GDP it might cost to prevent dangerous warming: as much as 4 percent by 2030. That’s from the "mitigation" working group, which looks at what tools we have to cut greenhouse gases, which comes out April 13. At first glance, the numbers suggest doing nothing to protect the climate may be cheaper than limiting fossil fuel emissions, even if extreme heat becomes normal and sea levels rise as scientists expect.

IPCC Accidentally Proves that “International Cooperation” on Climate Change is Dead​ ​​ - As you’ve been reading lately, there’s a new IPCC climate report out, the second of three. This report is from Working Group 2, responsible for studying “impacts, adaptation, and vulnerabilities.” In other words, what effect is climate change (“global warming”) having now, what impact will it have if we make certain choices, and where are we vulnerable? The 48-page “executive summary” (called the Summary for Policymakers or “SPM”) is available here (scribd) or here (pdf), and a number of us are studying it carefully, along with the full report. The full AR5 report from Working Group 2 is 2500 pages and available online here. But there’s a story behind the story of this document’s release, and it illustrates perfectly why we will never (never, ever) solve the climate crisis by working toward “international cooperation.” A great deal of the impact of global warming will be felt by the poorest nations on earth, for example, low-lying Bangladesh. Keep in mind that the poorest nations on earth never caused the crisis. The perps are rich Western nations, like the U.S. and Europe, with our high-consumption, high-waste lifestyles, and the emerging nations, like India and China, who are burning carbon as fast as they can, to catch up to us. The poor nations are just along for the ride in most cases. With that in mind, here’s all you need to know:

  • 1. Poor nations are innocent victims of climate change now, and will be even more victimized in the future.
  • 2. To fix their vulnerabilities, it will require a transfer of money from rich nations in the neighborhood of $100 billion per year, according to the World Bank.
  • 3. According to the large IPCC report (the 2500-page report), the first two statements above are included as part of the data for consideration.
  • 4. Those statements (1 and 2) also appeared in the SPM, the executive summary, up until the very last draft, which was discussed for final approval in Yokohama.
  • 5. At that meeting, the need for $100 billion in crisis funds to aid poor nations was removed from the 48-page Summary, the only document that will be read outside the scientific community.
  • 6. The U.S. led the push to remove the statement.

Australian government may ban environmental boycotts - Coalition MPs and industry groups are using a review of competition laws to push for a ban on campaigns against companies on the grounds that they are selling products that damage the environment, for example by using old-growth timber or overfished seafood. The parliamentary secretary for agriculture, Richard Colbeck, said the backbench rural committee and “quite a number in the ministry” want to use the review to remove an exemption for environmental groups from the consumer law ban on so-called “secondary boycotts”. “I do think there is an appetite in the government for changing these laws,” Colbeck said. The exemption also applies to campaigns related to “consumer protection” but Colbeck said he would not be seeking to change that provision. The government announced last week a “root and branch review” of competition policy headed by the economist Professor Ian Harper. Groups including the Australian Forest Products Association and parts of the seafood industry are also preparing submissions to the review arguing that environmental campaigns against companies selling products made from native timbers or “unsustainable” fishing amount to a “secondary boycott” and should be unlawful.

U.S. Tries To Stop India's Solar Policy While Pushing Fight Against Climate Change - The Obama administration talks a lot about the need to develop renewable energy around the world to curb climate change. But right now, it's trying to kill India's effort to boost its domestic solar industry.  The U.S. wants India to back off a policy that would require local sourcing for solar energy technology, and has sought World Trade Organization enforcement action. Representatives from the two nations reportedly met last week to try to settle the trade battle over India's rapidly developing solar industry, but reached no resolution. U.S. Trade Representative Michael Froman said in February that India's rules for locally made products for its solar power program "discriminate against U.S. exports" and break WTO rules. "We are determined to stand up for U.S. workers and businesses," he said. The U.S. and India have 60 days from last month's announcement of the enforcement action -- until April 11 -- to resolve the conflict before it goes to the WTO, which can impose sanctions. Last month, India indicated it would block WTO investigations into its trade policies, according to Reuters.  The U.S. objected to domestic sourcing requirements for the first phase of India's program, leading to WTO consultations in February 2013. Phase II, however, expands domestic sourcing requirements to include thin film solar technologies, which the U.S. exports to India.

Biofuels do more harm than good, UN warns - The United Nations will officially warn that growing crops to make “green” biofuel harms the environment and drives up food prices, The Telegraph can disclose. A leaked draft of a UN report condemns the widespread use of biofuels made from crops as a replacement for petrol and diesel. It says that biofuels, rather than combating the effects of global warming, could make them worse. The draft report represents a dramatic about-turn for the UN’s Intergovernmental Panel on Climate Change (IPCC). Its previous assessment on climate change, in 2007, was widely condemned by environmentalists for giving the green light to large-scale biofuel production. The latest report instead puts pressure on world leaders to scrap policies promoting the use of biofuel for transport. The summary for policymakers states: “Increasing bioenergy crop cultivation poses risks to ecosystems and biodiversity.”

Biomass Electricity More Polluting Than Coal  - Biomass electricity generation, a heavily subsidized form of “green” energy that relies primarily on the burning of wood, is more polluting and worse for the climate than coal, according to a new analysis of 88 pollution permits for biomass power plants in 25 states. The report found that although wood-burning power plants are often promoted as being good for the climate and carbon neutral, the low efficiency of plants means that they emit almost 50 percent more CO2 than coal per unit of energy produced.   Trees, Trash, and Toxics: How Biomass Energy Has Become the New Coal, released this week and delivered to the U.S. Environmental Protection Agency (EPA) by the Partnership for Policy Integrity (PFPI), concludes that biomass power plants across the country are permitted to emit more pollution than comparable coal plants or commercial waste incinerators, even as they are subsidized by state and federal renewable energy dollars. It contains detailed emissions and fuel specifications for a number of facilities, including plants in California, Connecticut, Florida, Georgia, Hawaii, Kentucky, Maine, Massachusetts, New Hampshire, New York, Oregon, Pennsylvania, South Carolina, Texas, Virginia and Washington. “The biomass power industry portrays their facilities as ‘clean,’" “But we found that even the newest biomass plants are allowed to pollute more than modern coal- and gas-fired plants, and that pollution from bioenergy is increasingly unregulated.”Biomass plants are dirty because they are markedly inefficient. The report found that per megawatt-hour, a biomass power plant employing “best available control technology” emits more nitrogen oxides, volatile organic compounds, particulate matter and carbon monoxide than a modern coal plant of the same size.

US Falling Emissions a Mirage: Offshoring and Fracking: America's emissions are not falling, as suggested by the US Energy Information Administration (EIA). The two main reasons are offshored goods and services and fracked natural gas. The EIA does two things that obscure reality when evaluating emissions. One is that it counts only emissions made in the United States. All those goods and services made in China or other developing nations don't count against US emissions. The other is the warming potential of other greenhouse gas emissions. The EIA counts only CO2 as a greenhouse gas. So the EIA's quote that US emissions are falling that has been spread across the media without regard to science, needs some explaining. "The decline in energy-related carbon dioxide emissions occurred while the US economy grew in 2012." . How did our economy grow while emissions fell? Consumption has continued to increase almost without a pause for the Great Recession, according to the Bureau of Economic Analysis. Other than offshored goods and services, several things have contributed to what appears to be falling emissions. Recent mild winters (pre-2013-14) have reduced electricity and oil demand (production) for residential emissions from electricity to 1998 levels and home heating oil has fallen to pre-1990 levels. Decreasing vehicular travel had reduced transportation emissions to 1998 levels by 2011, and personal driving behavior has continued to decrease.2 But the biggest factor is fracked gas. Cheap natural gas (methane-CH4) from the hydraulic fracturing boom has allowed energy producers to reduce their use of coal - which is now a more costly fuel than natural gas. From the EIA website: "The carbon intensity of the energy supply declined by 1 percent or more in four of the last five years, while in prior years since 2000 it either rose or declined only slightly. Increased use of natural gas for electricity generation in high-efficiency combined cycle plants has contributed to this decline."3

What Kills The Economy Kills The Planet Kills Us - Ilargi - The latest IPCC report is out, and as predictable as clockwork the reactions are the same old same old lip service, and only that. ‘There is no time to lose’, ‘if we don’t act now, we’re too late’, yada yada. Go do some digging and look for quotes from 10, 20, 40 years ago and you won’t be able to tell the difference. And just like back in those days, nothing real or serious will actually be done to stop the planet from going down the bottomless pit in a handbasket.  At some point, instead of insisting on repeating those same stale quotes over and over again, it may be a wise thing to try and figure out why we are, as a species, acting the way we are. I think that the essence is quite simple, though we might want to take the detour of noting that man is an expert at discounting the future and anything that lies far enough away into the future simply doesn’t attract our attention other than perhaps in theory. And since for any theory, as long as there’s a nanometer of doubt about it, there’s always an alternative, so it’s been remarkable simple for people from several different angles to cast doubt on the issue of climate change as a whole. But to get back to the essence: we destroy the planet because there’s a profit in it. The vast majority of people in the west have gotten a bit of that profit, while some have gotten a lot, and lately other parts of the world have gotten their taste of what has been labeled progress. Today, our entire societies have been firmly built on destroying the world they are based in. And the choice between a society and a planet is never going to be an easy one. Certainly not when the destruction of the planet is a slower process whose worst consequences are at least perceived as being relatively far into the future, and the further something is away, the more it is discounted. By everyone, mind you, not just by doubters or deniers; it’s a basic human quality, and that means you have it too.

Exxon to World: Drop Dead! - ExxonMobil released its carbon asset risk reports on Monday, in response to investor demand. “If you haven’t yet had the pleasure of reading these reports, let me offer you a shorter version: Exxon to World: Drop Dead,” said Stephen Kretzmann*, Executive Director of Oil Change International. Exxon’s report, “Energy and Carbon – Managing the Risks” flatly states “we do not anticipate society being able to supplant traditional carbon- based forms of energy with other energy forms, such as renewables, to the extent needed to meet this carbon budget.” Oil Change International Executive Director Stephen Kretzmann responded with the following: “ExxonMobil is saying it doesn’t believe governments will keep their internationally agreed commitments to limit climate change to safe levels. This should not come as any surprise. Of course they don’t believe governments are going to address climate change adequately — they are in fact betting billions on the failure of climate and clean energy policy.  And they’re shoring up their bet by buying politicians and spending millions to sow doubt and promote inaction. Still, these report represent the beginning of the next phase of the climate fight.  Exxon is no longer ignoring or denying climate science.  Now it is denying that the American people and people around the world have the will and the power to change our futures and save our children. They are wrong and we look forward to proving it to them.”

Carbon Delirium, The Last Stage of Fossil-Fuel Addiction and Its Hazardous Impact on American Foreign Policy - Of all the preposterous, irresponsible headlines that have appeared on the front page of the New York Times in recent years, few have exceeded the inanity of this one from early March: “U.S. Hopes Boom in Natural Gas Can Curb Putin.”  Forget that the United States currently lacks a capacity to export LNG to Europe, and will not be able to do so on a significant scale until the 2020s.  Forget that Ukraine lacks any LNG receiving facilities and is unlikely to acquire any, as its only coastline is on the Black Sea, in areas dominated by Russian speakers with loyalties to Moscow.  Forget as well that any future U.S. exports will be funneled into the international marketplace, and so will favor sales to Asia where gas prices are 50% higher than in Europe.  Just focus on the article’s central reportorial flaw: it fails to identify a single reason why future American LNG exports (which could wind up anywhere) would have any influence whatsoever on the Russian president’s behavior. The only way to understand the strangeness of this is to assume that the editors of the Times, like senior politicians in both parties, have become so intoxicated by the idea of an American surge in oil and gas production that they have lost their senses. As domestic output of oil and gas has increased in recent years -- largely through the use of fracking to exploit hitherto impenetrable shale deposits -- many policymakers have concluded that the United States is better positioned to throw its weight around in the world.  The impression one gets from all this balderdash is that increased oil and gas output -- like an extra dose of testosterone -- will somehow bolster the will and confidence of American officials when confronting their foreign counterparts. 

Two Months After Coal Ash Spill, Duke Cleaning Up The Dan River - Nearly two months after 39,000 tons of coal ash and 27,000 gallons of contaminated water leaked from a storage pond at Duke Energy’s shuttered Eden power plant in North Carolina, the slow process of cleaning the toxic sludge from the bottom of the Dan River has begun.  Duke announced on Monday that it is moving equipment into Abreu-Grogan Park in Danville, Virginia which will serve as the staging ground for the clean-up operation. Danville was the closest downstream community to the spill site. City officials maintained throughout the days following the spill that the water was still safe to drink, but the sludge that has settled at the bottom of the river is dangerous to aquatic life and residents have been warned not to swim in the water or eat fish from the area. The coal ash deposit slated for clean up is near the Schoolfield Dam on the north bank of the Dan River across from the park. According to Duke officials, the deposit is 350 yards by 20 yards and at least a foot deep — a total of 2,310 cubic yards, or 2,500 tons of sludge. It is the largest of four such deposits state and federal officials have identified. Clean up in Danville has been delayed for weeks by rough winter weather. Coal ash must also be cleaned from concrete tanks at the water treatment plant where it has been accumulating since the spill.

What Should Happen To Coal Ash Ponds? -  Coal ash: the second-largest form of waste generated in the United States, and no good place to put it. The main way America currently stores the polluted byproduct of coal-fired power production is in man-made “ponds” — big, black, sludgy, lakes of arsenic, lead, and mercury. It’s not known exactly how many of these ponds exist throughout the United States, though the EPA estimates there are around 600, storing coal ash for potential reuse in concrete, cement, or drywall, or for nothing at all.  Ash ponds are dangerous eyesores. They leach concentrated toxins into rivers, groundwater, and soil. As those who live in North Carolina can attest, an accident surrounding one of these ponds can be environmentally devastating.  Most people agree that coal ash ponds, for all intents and purposes, should be cleaned up and closed. But it’s not so easy. Like garbage, it has to go somewhere, and methods of closing them take time and money that energy companies are wary to spend. The challenges pose questions: How can state and federal authorities get companies to close these ponds? And what is the best way to close them?

How a Toxic Leak Made One Town the Subjects of a Live Human Experiment -- So little was known about MCHM—the chemical that had leaked into the water supply—that it was basically impossible to assess the risks. "We don't know anything about its chronic toxicity; we don't know anything about the dermal exposure—which is really important because people are not only exposed through ingestion but also skin absorption—and we don't know about inhalation," says Jennifer Sass, a senior scientist at the Natural Resources Defense Council who studies chemical regulation. "We don't know anything about the effects on developing infants or children or newborns, which is very critical because what it could cause in children could be different from adults. We don't know any chronic effects at all: disease, cancer, long-term disabilities, long-term development, neurotoxicity, immunotoxicity—we don't know any systemic or long-term effects." The site of the spill had once been a Pennzoil/Quaker State diesel terminal, but now the 60-year-old holding tanks on the banks of the Elk River stored chemicals, including MCHM, that are used to help wash coal. Freedom Industries, founded in 1986, was the company that held the MCHM. The most recent piece of federal legislation to deal with chemicals like MCHM was the Toxic Substances Control Act, a bill passed in 1976. TSCA effectively grandfathered in 62,000 chemicals—MCHM among them—when it was approved. Because these chemicals did not pose "unreasonable risk," they required no testing by government regulators. But thousands of new chemicals have since come on the market, and others that were used only in small amounts in 1976 are near-ubiquitous now. The only tests available on MCHM were performed on rats and were sponsored by the manufacturer of the substance, Eastman Chemical. The chemical's LD-50 on rats—the measure scientists use to determine the lethal dose required to kill half of the population of a study—is 825 mg/kg. As for other measures of potential harm—carcinogenicity, reproductive toxicity, specific target organ toxicity—the sheet says "no data available." It repeats that phrase 152 times.

Is The Energy Department Still Looking To A Give Coal-To-Liquid Plant A Loan Guarantee?  -- According to the Casper Star-Tribune, the Department of Energy (DOE) is reconsidering the loan guarantee application for a stalled coal to liquids (CTL) project in Wyoming. Worst.  Idea. Ever. By. Far. Seriously. Or, as one senior administration official told me, “we may be carrying this ‘all of the above’ strategy a bit too far.” The CTL process is a very old (and expensive) one used by the Germans in World War II and subsequently by the South Africans. Coal is the most carbon-intensive fuel. The more you burn, the worse for the climate — and making petrol out of coal generates almost twice as much total greenhouse gases as simply making diesel out of crude oil — unless you can find some way of capturing all of the carbon dioxide and storing it forever, in which case it’s only a little worse (see figure above from the NY Times). For this particular project, however, the DOE is requiring only that “the facility would capture at least 50 percent of the CO2.” So the resulting fuel will have more than 50 percent higher carbon pollution than normal petrol production. Also, “the CO2 stream” will be used for “enhanced oil recovery operations and geologic storage at a location to be determined.” In short, whatever CO2 is captured can be used to squeeze more uneconomic oil out of the ground — oil whose combustion will result in as much if not more CO2 being released into the atmosphere than was stored in the first place. Woo-hoo!

Ohio EPA adopts new rules to ease air pollution in oil and gas drilling - The Ohio EPA adopted new requirements aimed at lessening air pollution like methane from oil and gas drilling. The  rules make changes to permits required at oil and gas well sites and unpaved roadways and target “fugitive emissions” from leaking valves and other equipment at fracking sites, which have grown in spades in Ohio. Oil and gas operators will have to perform regular inspections to spot equipment leaks and fix them. The goal is to stop the emissions that can become smog and methane, says the Environmental Defense Fund, which applauded the EPA and Gov. John Kasich’s efforts.“It reflects a fast-growing recognition that, if we’re going to develop this resource, we have to do it right,” Fred Krupp, president of the Environmental Defense Fund, said in a statement. “It’s essential we maintain an unblinking vigilance in driving down harmful emissions.” Companies will have to scan well-site equipment quarterly using a device that can detect potential pollutants. An attempt to fix any leaks must be made within five days, and repair reports will be submitted to regulators. Colorado and Wyoming have adopted the policy in recent months, too.

Drilling Company Could Force Pennsylvania Landowners To Allow Fracking Under Their Land - An old state law in Pennsylvania could allow an energy company to force landowners to allow oil and gas drilling under their land, even if the landowners are opposed.  Oil and gas company Hilcorp is trying to use a 1961 Pennsylvania law that would allow the company to bundle properties of people who don’t sign drilling leases with their neighbors who do, meaning that even landowners who don’t sign leases will be forced to allow drilling under their land if enough of their neighbors sign leases. Hilcorp is seeking to use the law, which is known as the Oil and Gas Conservation Law and was tailored for the Utica shale formation rather than the Marcellus shale, to force four landowners in New Bedford, PA to open their properties up to drilling. The company says 99 percent of the property owners in the tract of land they’re looking to drill have signed leases.  This isn’t the first time Hilcorp has tried to use “forced pooling” to secure leases from holdout landowners, though. The company has been pushing since July to get permission to use the law, and it took legal action in October in an attempt to guarantee the law would be available for it to use on Pennsylvania residents. If the company succeeds in gaining permission to use the law to allow forced pooling, it will be the first time the law has been used in about 30 years. Landowners are split on the issue, with those who have signed leases opposed to the idea that neighbors who don’t want drilling could prevent them from getting the most monetary value out of their land. But among forced pooling’s opponents is Pennsylvania Gov. Tom Corbett, who in 2011 called using the 1961 law for forced pooling a case of “private eminent domain.”

50-year-old Law May Force Pennsylvania Landowners To Allow Fracking Under Their Properties: A Pennsylvania state law more than 50 years old could let an oil and gas company drill under privately owned land, even against the landowners' wishes. Energy company Hilcorp is trying to use a 1961 law that lets companies bundle properties of people who don’t sign drilling leases with those of their neighbors who do in what’s called “forced pooling,” the New York Times reported. If enough landowners sign the leases, even those opposed would have to allow drilling under their land. In this case, the drilling is the controversial hydraulic fracturing method used to extract natural gas from shale rock deep underground. Hilcorp is pointing to the Oil and Gas Conservation Law, crafted for geological formations beneath the Marcellus Shale, to force four landowners in New Bedford, near the Ohio border an hour north of Pittsburgh, to relinquish their underground minerals to drilling. Hilcorp says about 99 percent of the property owners in the 3,267-acre tract they want to drill have signed leases. The drilling would occur a mile or more underground. The company has pushed since July for permission to use the law and used it in October to argue for access to natural gas beneath a family farm in Lawrence County. A state environmental court ruled in November that Pennsylvania's Department of Environmental Protection must consider whether or not to allow Hillcorp to use forced pooling. The DEP set a hearing for last week but postponed it on Monday without setting a new date. If the company succeeds in using the law to force landowners to allow the drilling, it will be the first use of the law in about 30 years.

Colorado Investigates a Spike in Fetal Abnormalities Near Natural Gas Drilling Site - A prevalence of anomalies such as low birth weight and congenital heart defects are found within a 10 mile radius of a concentration of wells. The Colorado Department of Public Health and Environment (CDPHE) has  called in an epidemiologist to investigate a recent spike in fetal abnormalities in Garfield County on Colorado’s western slope. Stacey Gavrell, Director of Community Relations for Valley View Hospital in Glenwood Springs, said area prenatal care providers reported the increase in fetal abnormalities to the hospital, which then notified CDPHE. So far neither the hospital nor the state have released information about the numbers of cases reported, over what span of time, or the amount of the increase.  Gavrell said it is too early to speculate on the causes of the spike in abnormalities. The report comes shortly after the February, 2014 publication in Environmental Health Perspectives of a study that  found an association between the density of natural gas wells within a ten mile radius of expectant mothers’ homes and the prevalence of fetal anomalies such as low birth weight and congenital heart defects in their infants.The study examined a large cohort of babies over an extended period of time in rural Colorado, and specifically controlled for confounding factors that also emit air pollution, including traffic or other heavy industries. The abnormalities in infants in the study are associated with exposure to air pollutants like those emitted from natural gas wells, including volatile organic compounds and nitrogen dioxide.

FRACKING CANCER -- Fracking makes kids sick. As well as adults, animals, things like that. So says new research. Even in Texas. Four years ago state health officials dismissed concerns that there was a “cancer cluster” in Flower Mound caused by a carcinogen that’s coughed up by natural-gas drilling sites. Not so fast, says Rachael Rawlins, a lecturer at the University of Texas, who issued a study last week that says increased occurrences of childhood lymphoma are quite possibly the result of hydraulic fracturing and the release of benzene after all. The news caught Flower Mound officials by surprise. Rawlins’ study, which calls for better air monitoring in the Barnett Shale, appears in the new Virginia Environmental Law Journal. And immediately after its release, UT issued a press release that says the state “was too quick to dismiss the possibility of an association with toxic emissions.” Says the release, summarizing Rawlins’ findings, a reanalysis of the data discovered “with 95 percent certainty that rates of childhood leukemia and childhood lymphoma in Flower Mound are significantly higher than expected; there is only a 1 in 20 chance that the difference is random. In science, 95 percent certainty is considered the norm.” Monday afternoon, Flower Mound Town Manager Jimmy Stathatos issued a statement saying city officials hadn’t been made aware of Rawlins’ findings until the study was issued. They are, quite naturally, troubled by the findings and vowing to take quick action. “Unfortunately, the town was not made aware of the new findings until a news article was released,’ says the release. “Therefore, we are working to understand the re-analysis of the data as quickly as possible. The town will be treating this issue as a critical priority.”

Congress to EPA: Investigate and Address Water Contamination From Fracking - For the first time, members of Congress today called upon U.S. Environmental Protection Agency (EPA) Administrator Gina McCarthy to “investigate and address the water contamination” in Dimock, PA, in Parker County, TX, and in Pavillion, WY. In all three communities, the EPA has previously withdrawn investigations into water contamination and stopped providing affected residents with clean drinking water. Eight Representatives, led by Rep. Matt Cartwright (PA-17), made the request in a letter to Administrator McCarthy.   Responding to community requests in prior years, the EPA investigated alleged drilling and fracking-related oil and gas pollution of drinking water supplies in each of the three communities. In each case, the EPA’s preliminary results indicated oil and gas development was the cause of the drinking water pollution. In each case, the EPA withdrew before finalizing the results of the investigations.“Dimock, PA, Pavillion, WY, and Parker County, TX were grateful when the EPA stepped in to help deal with their water contamination issues, and disheartened when the EPA stopped their investigations, leaving them with polluted water and little explanation,” wrote the Representatives to Administrator McCarthy. They continued, “We are writing to urge you to take any and all steps within your power to help these communities.”

House Democrats Call On EPA To Investigate Fracking’s Link To Water Contamination In Three States - Eight members of Congress sent a letter to EPA Administrator Gina McCarthy Tuesday, asking her to reopen investigations into water contamination in the three states. The EPA investigations in Pavillion, WY, Dimock, PA and Parker County, TX were all called off between mid-2012 and mid-2013, before the agency determined for sure what had caused each region’s contamination.“The EPA was established to hold states accountable and guarantee baseline protection for the American public and shared environment, and these families deserve that protection,” the letter reads. “Members of these communities currently do not have safe, clean drinking water and need EPA’s help to address the ongoing water contamination issues in their homes.”In 2012, the EPA closed an investigation into contamination in Dimock, PA — a town that was featured in the documentary Gasland — after it determined that contamination levels were below the federal safety standards, but in 2013 a leaked document from the agency reported that fracking had caused “significant damage” to drinking water aquifers in Dimock. Also in 2012, the EPA dropped its claim that Range Resources Corp. had contaminated drinking water in Parker County, TX — but over a year later, the EPA Inspector General published a report saying the agency had been right to investigate possible causes of water contamination in Parker County. And this June, the Pavillion, WY investigation was turned over to the state of Wyoming, a pass-off that meant the investigation will furthermore be funded by EnCana, the drilling company whose natural gas wells may have been the ones responsible for the contamination. The EPA decided to hand off the study after it published test results in 2011 that found an aquifer in Pavillion tested positive for high levels of carcinogenic compounds and at least one chemical used in fracking.

Pennsylvania officials have no idea how to assess health threats of fracking -  An alarming new study by the Southwest Pennsylvania Environmental Health Project, published in the journal Reviews on Environmental Health, finds that current methods and tools used to measure harmful emissions from fracking wells don’t accurately assess health threats – not even close, in fact.Federal and state officials tend to measure and report emissions in big-picture terms – tons of methane released per year, for example. Another method is to track hourly emissions over a given day or week. These might not capture rapid and brief increases in chemical exposure, which can cause real harm to bodily systems. SPEHP reports that emissions near drilling sites can fluctuate wildly, and toxic chemical particles can reach high levels of concentration in the air in a very short period of time – as little as a minute or two – and then drop back down. This can occur repeatedly throughout drilling, but might not be captured by the tools or methods customarily used to measure emissions.SPEHP researchers collected data on levels of four toxic chemicals in 14 households near fracking sites in southwestern Pennsylvania, and found that contamination was concentrated at peak levels – three times the median level of concentration – about 30 percent of the time, but in spurts. These short blasts of contamination can go undetected by tools customarily used to measure emissions.Benzene, toluene, ethylbenzene, and xylene are all toxic substances released into the air from shale drilling. So, what can go wrong if one is exposed to peak levels of these chemicals? Glad you asked! The health effects can include “respiratory, neurologic, and dermal responses as well as vascular bleeding, abdominal pain, nausea, and vomiting.”

Gassing the ElectorateIn Pennsylvania, opponents of gas drilling say regulators are slow and unprepared in responding to air quality complaints. There are more than 6,000 active gas wells in Pennsylvania. And every week, those drilling sites generate scores of complaints from the state’s residents, including many about terrible odors and contaminated water.How the Pennsylvania Department of Environmental Protection handles those complaints has worsened the already raw and angry divide between fearful residents and the state regulators charged with overseeing the burgeoning gas drilling industry. For instance, the agency’s own manual for dealing with complaints is explicit about what to do if someone reports concerns about a noxious odor, but is not at that very moment experiencing the smell: “DO NOT REGISTER THE COMPLAINT.” When a resident does report a real-time alarm about the air quality in or around their home, the agency typically has two weeks to conduct an investigation. If no odor is detected when investigators arrive on the scene, the case is closed. Researchers at the Southwest Pennsylvania Environmental Health Project collected real-time readings of particulate matter — soot, dust and chemicals — in 14 homes in Washington County, a heavily drilled part of the state. They found repeated episodes during which measures of contaminated dust rose sharply, to dangerous levels in the course of a day. David Brown, the lead researcher on the study, said that a person in such circumstances could get what amounted to a full day’s exposure in half an hour.

State to Frack Babies: Frack Off  -- The State of New York has responded to a landowner’s suit by telling them – in no uncertain legal terms – to take a fracking hike. The gas industry has opposed any update in the state’s environmental regulations - literally for decades. When it came to time to comment on the proposed environmental regulations – none of the plaintiffs uttered a peep publicly – in contrast to the 220,000 comments the DEC got against fracking. Now they want to force the state to issue regulations that they did not bother to comment on – when the time period on the draft regulations have already lapsed – and the process has to be restarted. The only plaintiff that ever even bothered to apply for a HVHF well permit is in liquidation. None of its HVHF applications meet the required spacing unit size. So none of the plaintiffs have anything tangible that they are waiting on. No real live oil and gas company with a HVHF application in the queue could be recruited to participate in this fracking publicity stunt. My comments in bold:

Pipeline Packs Local Hearings With Fracking Fascists  -- Here’s The Stuart’s take on how the FERC pipeline hearings are dominated by Rent a Thugs – guys in orange tee shirts (so the bus drivers could recognize them ?) that were bussed in by the pipeline company to pose as locals – at the local hearings. So that they could shout down and bully pipeline opponents. On cue.   Williams again bussed in union workers from Rome and Newburgh to pack the room and dominate the speakers list.  Judging from their comments, most of which we’d already heard in Oneonta on the previous evening, none of them have actually read the DEIS that they were supposed to be commenting upon.  Most simply said that the DEIS was complete and adequate, and then moved on to fantasize about jobs and economic salvation for upstate NY. The region around Afton is dominated by gas-collaborators.  A couple of local elected officials spoke in favor of gas.  Anti-gas activists were outnumbered by 3 or 4 to one in both the audience and as speakers, and many of the anti’s did not appear to be local.  As you may recall from previous reports, union workers in orange t-shirts have been bussed in to each hearing this week.  They claim that their shirts and dinners and transportation expenses are all paid by their unions—of course one would never suspect that the pipeline company would be making contributions to unions to help cover these expenses, any more than they would try to bribe local fire departments, EMS squads, libraries, or even school districts with “grants” intended to demonstrate their strong ties to our communities.

Exxon Mobil to Reveal Fracking Data -- Exxon Mobil will begin releasing information about the environmental impact of hydraulic fracking in the coming months, following an agreement with the New York City Comptroller’s office. The agreement came at the behest of the city’s pension fund—which holds a $1.02 billion stake in Exxon—and 13 other co-filers who have been pushing the company to increase transparency over the practice of fracking for five years. Under the agreement, the company will report on what risk shale gas production operations, including fracking, have on environmental issues like wastewater, air pollution, and methane emissions. In a 2013 report, Exxon was ranked among the lowest out of 24 companies in regard to transparency on fracking operations. “We have seen the significant risks that come from hydraulic fracturing activities,” New York City Comptroller Scott Stringer said in a statement. “Corporate transparency in this arena is truly necessary for assessing risk and ensuring that all stakeholders have the information they need to make informed decisions.

Is New York’s Shale Worthless? On January 16th, 2014, the New York Society for Ethical Culture and a host of local electeds, plus community and environmental groups presented a panel of experts who had examined the well data coming out of Pennsylvania, and compared it to the geology. How deep was the shale? How thick? And how much gas did it produce? And how would that data predict New York State’s own potential for shale gas production? What they found was on a continuum with reports previously done by Deborah Rogers and Art Berman: That a very small portion of the shale play produced well (a “sweet spot”) but the majority of the wells produced far below industry’s overblown predictions. But it was how the production tied to geology that was most intriguing: Where the rock was thin and shallow, little gas was produced. As it happens, most of New York’s shale fits that same description–too shallow and too thin. It seems the possibilities for NYS drillionaires is nil. Is NY’s shale worthless? No, but it’s not worth very much, and it’s definitely not worth the risks. The speakers harped on those risks: wildcat drillers willing to take their chances; all the destruction and disruption of truck traffic; threats to aquifers and air quality; the pillaging of small town budgets–and worse–drillers looking at NY’s dead shale as good for disposal wells! Professor Anthony Ingraffea reemphasized the heavy risks versus the slim rewards in this radio interview with Alison Rose Levy. The firestorm that resulted from this statistical presentation was unexpected. We responded to those concerns in this earlier blog post. Now the videos of the event are available for you to judge for yourself.

Pipelines, Eminent Domain and Condemnation -- I read a circular from the “Pipeline Safety Coalition” about how to sell ROW to pipeline companies. Their advice  reads like the Landman’s Handbook on how to negotiate the sale/ purchase of Right of Way (ROW). An excerpt is given below. Simply put, a negotiated sale is less advantageous than a condemnation. But they do not advise landowners to opt for condemnation. Their most recent missive is entitled “Avoiding Eminent Domain.” Au contraire. From a negotiating standpoint, it is almost always better to force the pipeline company to condemn the property. That is the best, the most straightforward advice any real estate professional could give a landowner because, at a minimum, the landowner will have one of three good outcomes:

    • 1. The landowner will get more money for their land – on average, 80% more based on a recent university study, copy here:
    • 2. The pipeline will go somewhere else (if enough landowners resist, forcing condemnations)
    • 3. The pipeline project will be abandoned (if enough property owners refuse to sell)

In the real estate business, I participated in several ROW acquisitions - and we always forced a condemnation to get more money. The goal of ROW negotiations is to lure the pipeline company into condemnation proceedings – preferably en masse – along the length of the ROW. Not let the pipeline company pick off individual landowners one by one on negotiated sales. Everybody knows that.

‘Don’t Waste Ohio’ Coalition Says No to Fracking Wastewater Injection Wells -  A coalition of local, statewide and national groups concerned about toxic waste from fracking, gathered yesterday at the Ohio statehouse for “Don’t Waste Ohio” Legislator Accountability Day. The coalition called for an end to Ohio being used as a regional dumping ground for oil and gas waste. Participants attending the accountability day met with their legislators in the morning and attended a rally in the afternoon advocating for the passage of legislation in both the House and Senate that would ban fracking wastewater injection wells. In 2012, the City of Cincinnati banned facking wastewater injection wells within city limits. Following the unanimous vote on the ordinance, residents called on State Rep. Denise Driehaus (D-Cincinnati) to take action on the state level. Along with fellow co-sponsor Rep. Robert Hagan (D-Youngstown), Rep. Driehaus introduced House Bill 148, which would enact a statewide ban on the underground injection of fracking waste. Sen. Michael Skindell (D-Lakewood) followed suit by introducing the same legislation in the Senate.  “It’s like we have a sign on our backs here in Ohio for the industry saying ‘Dump your waste here,’ said Alison Auciello, an organizer with Food & Water Watch. "We don’t know what is in the waste or how radioactive it really is, and the leaders in the state legislature haven’t even allowed the legislation to be open for testimony from the public. We need to protect Ohio communities, not risk them for cheap, easy disposal of the oil and gas industry’s dirty leftovers.” In 2013, the fracking industry disposed of nearly 700 million gallons of fracking waste in Ohio by injecting it underground into Class II wells, an increase of 100 million gallons from the previous year. More than half of the wastewater injected each year in Ohio comes from out-of-state fracking operations. Ohio is home to more than 200 active injection well sites. Pennsylvania has five active injection wells.

Cleanup Company Warns Parts Of North Dakota Could Soon Become Radioactive Waste Sites - An official at a national radioactive waste cleanup company has put out a warning for North Dakota oil producers: Clean up your act, or risk turning parts of the state into Superfund sites.   Joe Weismann, the radiological operations manager for U.S. Ecology Inc., told the Bismark Tribune on Sunday that the oil boom in North Dakota’s Bakken shale is unintentionally causing more instances of illegal dumping of oil-related waste, much of which is radioactive. Wiesmann cited two recent discoveries of radioactive “oil filter socks,” one time hoarded in an abandoned gas station in Noonan, and another time spilling off of trailers outside Watford City.  The dumping of oil socks — radioactive nets that strain liquids during the oil production process — could result in extremely expensive cleanups from the Environmental Protection Agency, Weismann said, and might force the agency to deem the sites Superfunds under the Comprehensive Environmental Response, Compensation and Liability Act.

The Daily Show on the Benefits of Fracking  -- And the solution to fracking problems – pizzas.

After Peak Oil: Fossil Fuel End Times  - Shale oil and gas are the bottom of the hydrocarbon barrel. Once they’re gone, game over. And no, the world will not be able to frack its way to nirvana. In a new book, former oil geologist and government adviser on renewable energy, Dr. Jeremy Leggett, identifies five “global systemic risks directly connected to energy” which, he says, together “threaten capital markets and hence the global economy” in a way that could trigger a global crash sometime between 2015 and 2020. According to Leggett, a wide range of experts and insiders “from diverse sectors spanning academia, industry, the military and the oil industry itself, including until recently the International Energy Agency or, at least, key individuals or factions therein” are expecting an oil crunch “within a few years,” most likely “within a window from 2015 to 2020.” Despite its serious tone, The Energy of Nations: Risk Blindness and the Road to Renaissance, makes a compelling and ultimately hopeful case for the prospects of transitioning to a clean energy system in tandem with a new form of sustainable prosperity. The five risks he highlights cut across oil depletion, carbon emissions, carbon assets, shale gas, and the financial sector: “A market shock involving any one these would be capable of triggering a tsunami of economic and social problems, and, of course, there is no law of economics that says only one can hit at one time.”

Senate hears pleas for gas exports to Europe: Calls to begin U.S. natural gas exports to Europe to counter Russian influence across the continent grew louder last week amid concerns that Russia will move deeper into Ukraine. Lithuania’s energy minister, Jaroslav Neverovic, pleaded in emotional terms for U.S. help, saying his country is “100 percent” dependent on Russia for natural gas and has to pay 30 percent higher prices for it than other countries in Europe. . Lawmakers from both parties used the hearing to urge the Obama administration to speed up natural-gas exports as a hedge against the possibility that Russia could cut off its supply of gas to Ukraine and other countries. Four Central European nations — Hungary, Poland, Slovakia and the Czech Republic — made formal requests for U.S. exports as Moscow moved to annex part of the Ukraine. Concerns about energy security threaten the region’s residents on a daily basis, ambassadors to the four countries said in letters to House and Senate leaders. Sen. Mary Landrieu, D-La., the Senate committee’s new chairman, said U.S. exports of liquefied natural gas, or LNG, would be a “powerful geopolitical tool” to pressure Russian President Vladimir Putin to lower gas prices across Europe.  Landrieu’s energy-producing state is home to several proposed terminals to export LNG, including the only project that has won final approval. The terminal at Sabine Pass, La., is scheduled to begin operations late next year. Other proposed terminals would not begin sending fuel overseas until 2017 at the earliest.  Landrieu, House Speaker John Boehner, R-Ohio, and other lawmakers have been urging the Obama administration to clear the way for more exports amid a U.S. natural gas boom driven by improved drilling techniques, including hydraulic fracturing.

Fracking Exports Will Leave U.S. Communities in the Dark -- Last month, thirty Senate Democrats—members of the "climate caucus"—stayed Up All Night on the Senate floor to speak out about climate change.  Yet legislation authored by one of their own—Sen. Mark Udall (D-CO) and a House bill by Congressman Cory Gardner (R-CO), would tear down barriers to the export of LNG, potentially spurring a massive increase in fracking, exacerbating the problems the senators spoke out against. Ever since the crisis in Ukraine erupted, the oil and gas industry and its friends in Congress have been pushing exports of gas. But let's be clear about three things. First, this push for exports has nothing to do with the crisis in Ukraine. Even if LNG exports approvals are fast tracked, there is currently no infrastructure to export the gas until at least 2016. This push reflects an industry agenda that existed before the crisis erupted in Ukraine, and under no circumstances can LNG exports help alleviate it. Second, once the infrastructure is built, U.S. LNG exports will likely go to Asia, where industry can fetch the highest price, not to Europe. The legislation under discussion would deem all exports in the public interest if the gas is sent to a member nation of the WTO. This includes most countries in the world, including China, India, Japan, Brazil and, ironically, Russia. Third, exports will drive additional drilling and fracking and exacerbate climate change. Last fall, the IPCC found that methane is even worse for the climate than previously thought: Over a 100-year time scale, methane is 34 times more potent in the atmosphere than CO2; over 20 years, 86 times more potent. We know that methane is emitted during oil and gas drilling, fracking and distribution.  The energy policy of exporting U.S. fracked gas all over the world will further contribute to climate change.

The Absurdity of US Natural Gas Exports - Quiz: 1. How much natural gas is the United States currently extracting?
(a) Barely enough to meet its own needs
(b) Enough to allow lots of exports
(c) Enough to allow a bit of exports
(d) The United States is a natural gas importer
Answer: (d) The United States is a natural gas importer, and has been for many years. The EIA is forecasting that by 2017, we will finally be able to meet our own natural gas needs. In fact, this last year, with a cold winter, we have had a problem with excessively drawing down amounts in storage. There is even discussion that at the low level in storage and current rates of production, it may not be possible to fully replace the natural gas in storage before next fall.  2. How much natural gas is the United States talking about exporting?
(a) A tiny amount, less than 5% of what it is currently producing.
(b) About 20% of what it is currently producing.
(c) About 40% of what it is currently producing.
(d) Over 60% of what it is currently producing.
The correct answer is (d) Over 60% what it is currently producing. If we look at the applications for natural gas exports found on the Energy.Gov website, we find that applications for exports total 42 billion cubic feet a day, most of which has already been approved.* This compares to US 2013 natural gas production of 67 billion cubic feet a day.

Steve Horn: "Our Energy Moment": The Blue Engine Behind Fracked Gas Exports PR Blitz --Behind nearly every major corporate policy push there's an accompanying well-coordinated public relations and propaganda campaign. As it turns out, the oil and gas industry's push to export liquefied natural gas (LNG) obtained via hydraulic fracturing (“fracking”) plays the same game.  And so on February 5, “Our Energy Moment” was born. The PR blitz is described in a press release announcing the launch as a “new coalition dedicated to raising awareness and celebrating the many benefits of expanded markets for liquefied natural gas.” Its member list includes industry heavy hitters such as Cheniere Energy, Sempra Energy, Louisiana Oil and Gas Association and Freeport LNG.Since its launch, “Our Energy Moment” has disseminated press releases about the U.S. Department of Energy's (DOE) conditional approval of Jordan Cove LNG export facility in Coos Bay, Oregon and its conditional approval of Cameron LNG export facility in Hackberry, Louisiana.  But You have to read all the way to the bottom of the press releases to find what's perhaps the most interesting tidbit.  At the very bottom of “Our Energy Moment's” releases, a contact person named Tiffany Edwards is listed with an email address ending in If you visit you'll find the website for PR and advertising firm Blue Engine Message & Media. Further, a domain name search for reveals the website was registered by another PR and web development firm called Liberty Concepts by its founder and president Jonathan Karush. Karush registered the site on May 8, 2013, a full ten months before the campaign's official launch date. Who are these firms and why do they matter? That's where the fun begins.

Frigid relations with Russia could spur Europe's shale gas industry - - Europe, seeking to reduce its dependence on Russian natural gas, is encouraging political leaders to step up efforts to tap the region's shale gas deposits. Jose Manuel Barroso, president of the European Commission, the EU's executive body, said growing tension with Russia over its actions in Ukraine serve as a "very strong wake-up call for Europe" about energy issues."Europe is working very decisively to reduce its energy dependency," he said last week at an EU-U.S. summit in Brussels. Europe can pursue many long-term options such as ramping up renewable energy production and importing liquefied natural gas, both expensive propositions. But shale gas continues to be front of mind among energy ministers and policymakers. Accessing nearby shale gas resources would be cheaper than other options and could create up to one million jobs in the coming years, according to research commissioned by the International Association of Oil & Gas Producers. "The outlook [for shale] is undoubtedly brighter now than it was a year ago," said energy analysts at Eurasia Group.

Fear of Russia, fear of fracking -- With Russia menacing Ukraine and Europe with its natural gas heft, the cry has gone out from British Prime Minister David Cameron, the Wall Street Journal, and even (implicitly) U.S. President Barack Obama: more fracking! If only the EU would stop importing a third of its natural gas from Russia, the argument goes, it would be easier to impose sterner sanctions and go beyond grandly booting Russia from the G-8.Fracking sounds like a simple and smart solution. Not only can the United States export liquefied shale gas to Europe, but Europe can also help itself diversify by embracing a technology that taps homegrown reserves. "You cannot just rely on other people’s energy," Obama reportedly told EU leaders.The trouble, of course, is that much of Europe, especially the western half, doesn’t want to frack. France (which has considerable reserves) has banned it, Germany has effectively done the same, and Cameron’s enthusiasm has been slowed in the United Kingdom by not-in-my-backyard environmental protests. As Conservative MP Nick Herbert (who’s not reflexively against fracking) put it last year, fracking has sparked a "fear of the unknown."Ah, those pesky known unknowns! Herbert actually nailed the problem. So, here’s a way to help spread fracking: Banish the unknowns. There is still so much uncertainty and hence controversy surrounding fracking, even in the shale-crazed United States, that other countries inevitably have qualms about adopting the technology even as they hanker for its benefits.

Forget Russian Gas, Just Frack Europe: Obama - Speaking after a meeting with European leaders at the EU-US summit in Brussels on Wednesday, President Barack Obama suggested that the U.S. is open to exporting fracked shale gas, once promised as the source of American "energy independence," to the EU  and urged the EU to open up its own fracking reserves amid energy fears related to the crisis in Ukraine. Environmental groups have warned these policies will do nothing by way of energy security and everything for global environmental destruction and climate chaos. "Once we have a trade agreement in place," Obama said at a news conference in Brussels in reference to the Transatlantic Trade and Investment Partnership deal currently in the works, "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." While insisting that U.S gas exports could be done sometime in the future, Obama used more candid language to suggest EU leaders should first open up their own shale gas reserves to fracking—amongst other energy options such as increased nuclear power.  "Because the truth of the matter is, is that just as there’s no easy, free, simple way to defend ourselves, there’s no perfect, free, ideal, cheap energy sources.  Every possible energy source has some inconveniences or downsides. And I think that Europe collectively is going to need to examine, in light of what’s happened, their energy policies to find are there additional ways that they can diversify and accelerate energy independence."

Massive Explosion Rocks Washington State Natural Gas Plant - A liquefied natural gas pipeline plant suffered an explosion and fire at 8:19 a.m. PDT in Plymouth, Washington Monday morning. The Tri-Cities Herald reports that four people were injured. Williams Northwest Pipeline spokesperson Michele Swaner said one employee was injured from burns, but that he would recover.  The cause is still uncertain, but fire officials said that it began with an explosion in a building, and then a natural gas pipeline ruptured, which sent shrapnel into a “huge” storage tank, leading to a risk of a much larger explosion. People living three to six miles away from the plant said they could feel the first explosion, according to the local NBC and CBS affiliates.  These tanks are built with a double wall to insulate the liquefied gas, which must be kept at minus 260°F. Everyone within a two mile radius of the plant was evacuated and Swaner confirmed all employees had been accounted for at the plant. The Tri-Cities Herald said there was a “large cloud of fumes was floating in the area as the gas escaped into the air” — and those fumes were making emergency responders managing the evacuation feel ill.

Federal investigators looking at Jan. 16 emergency at Ohio oil well - Federal environmental regulators are investigating a January chemical emergency at an Ohio oil well and asking why an inventory of the facility's chemicals wasn't available to local authorities, according to a letter released Wednesday by a coalition of activists. The U.S. Environmental Protection Agency confirmed its investigation of the Jan. 16 incident near St. Marys in Auglaize County in an April 26 letter to the coalition. The alliance comprising the Center for Health, Environment & Justice, the Sierra Club, ProgressOhio and others said it received the letter May 31.  The groups had asked the federal EPA to review the St. Marys oil leak as well as alleged Clean Water Act violations in a separate Youngstown case to see if the Ohio Department of Natural Resources' oil and gas regulatory program is working effectively. The coalition proposes that the federal government take back its oversight responsibilities in the state. Its complaint alleged that Ohio has been out of compliance with the federal Emergency Planning and Community Right-to-Know Act, or EPCRA, under which chemical inventories are to be publicly available, since 2001. In that year, state lawmakers passed a law "that essentially exempts the oil and gas industry operating in this state from requirements (of the federal law)," the activists said. They pointed to the emergency near St. Marys to make their case. They said that when concentrated chemical odors were detected at the facility, local emergency responders were unable to access required chemical data that was supposed to be on file.

U.S. Regulators Say Oil Industry Withholding Data on Rail Crashes: Federal regulators said on March 28 that the oil industry was withholding key information related to the series of train derailments and explosions involving transporting crude oil. The Department of Transportation said that trade groups like the American Petroleum Institute vowed to share the results of tests on crude from the Bakken, but have thus far failed to do so. The Pipeline and Hazardous Materials Safety Administration (PHMSA) said in January that oil from the Bakken could be more volatile and dangerous than conventional crude oil found elsewhere. However, they said that they needed more data and the industry agreed to make the results of tests available. But, as of March 28, according to Reuters, Transportation officials are unhappy with the industry’s cooperation.

Tight oil making a difference - Oil produced from tight formations in the United States inaccessible before the days of horizontal fracturing is now accounting for 4.3% of total global crude oil production, according to new estimates released by the EIA last week. Most of the tight oil production is coming from the Bakken in North Dakota and Eagle Ford in Texas, though 340,000 b/d is now also being produced in Canada and 120,000 b/d in Russia. But this does not mean a flood of new oil is about to come on market. If it were not for the new tight oil, total world field production would be lower today than it was in 2005. And the new stuff is expensive. Chevron CEO John Watson last month said “Essentially, for a company like mine and many others, $100 a barrel is becoming the new $20 in our business”. And even with these elevated prices, Royal Dutch Shell; recently gave up on its large investments in Texan tight oil after concluding they couldn’t make a profit.  New production from tight formations drove the price of natural gas below the point at which it was profitable to produce. We’re still in the process of correcting that, and I expect natural gas prices to continue to rise from here. That same cycle of undershooting the sustainable price could replay in oil markets. We’re used to thinking of a technological advance as something that enables us to produce better products at a lower price. Accessing tight oil formations using fracking is an important technological advance. But it’s clearly a much inferior source of energy compared to the days when we could just drill a few hundred feet into the earth and the oil would come gushing out.

The ‘Crude Wall’ cometh - These two charts come from Citi’s commodities research team:  They’re important. The reason being…well, we may have become used to talking about Saudi America, but we haven’t yet figured out the longer term consequences of America’s oil production resurgence. According to the charts, not only is the shale revolution breaking down America’s dependence on foreign oil, it’s African crude — rather than Middle Eastern — that it’s displacing the most. This makes sense because African crudes such as Nigerian Bonny Light tend to be light sweet varieties which compete with both Brent and WTI. And that has implications:  All North Sea indicators point to an extremely weak market at present. The Brent market structure is in deep contango as refiners are in maintenance and arb opportunities to the Far East are scant ahead of peak Asian maintenance and thereafter terminal maintenance at the Forties VLCC loading point over May and June. Greater availability of Forties has coincided with weaker Urals differentials in NWE, triggering more intense competition and lower Forties prices, which were last assessed at discounts to the Brent forward strip. Brent in other words is coming under pressure.

Exxon: The world is never going to get over fossil fuels - Exxon Mobil, the nation’s biggest oil and gas company, is out with its much-anticipated report detailing the ways that climate change-related policies may threaten its assets and future profitability. Its conclusion: they won’t, because society is never going to get over its need for fossil fuels. “We know enough based on the research and science that the risk (of climate change) is real and appropriate steps should be taken to address that risk,” Ken Cohen, Exxon’s government affairs chief, said. And yet, the report reads: “We do not anticipate society being able to supplant traditional carbon- based forms of energy with other energy forms, such as renewables, to the extent needed to meet this carbon budget.” The report — the first ever for a major oil and gas company — came after investors put pressure on the company to be more transparent about its risk-management strategy. In its optimistic assessment of Exxon’s agreement to release the report, Grist argued that getting companies to acknowledge the perils of sticking to fossil fuels might help spur them toward renewables: “Getting these companies to look at the risk means they may diversify and move into new and cleaner processes, move into new energy sources,” Would’ve been nice. Instead, we got flat denial. “If you haven’t yet had the pleasure of reading these reports, let me offer you a shorter version,” said Stephen Kretzmann, the Executive Director of advocacy group Oil Change International, in a statement: ”Exxon to World: Drop Dead.”

Vital Signs: U.S. Oil Production Concentrated in Few States - Rising domestic oil production has enabled the U.S. to become more energy independent and has been a key reason why the trade deficit hasn’t skyrocketed in recent years. The smaller trade gap helps growth in the entire economy, but those oil rigs are located in a narrow section of the nation. Four states and the Gulf of Mexico account for three-quarters of U.S. oil production, according to preliminary data released by the U.S. Energy Information Administration. The EIA reported Texas, North Dakota, California, Alaska and the Federal Gulf of Mexico supplied 74% of oil produced in the U.S. in 2013. Texas alone accounts for almost 35% of all production, up from a 22% share in 2008. Oil, however, is no longer just Texas Tea. The latest oil boom has been in North Dakota. According to the EIA numbers, North Dakota has risen from a mere also-ran in 2008, to the second largest state producer. Thanks to drilling in its Bakken region, the Peace Garden State’s crude oil output has soared 177% in the latest three years.

Old Math Casts Doubt on Accuracy of Oil Reserve Estimates -  Jan Arps is the most influential oilman you’ve never heard of. In 1945, Arps, then a 33-year-old petroleum engineer for British-American Oil Producing Co., published a formula to predict how much crude a well will produce and when it will run dry. The Arps method has become one of the most widely used measures in the industry. Companies rely on it to predict the profitability of drilling, secure loans and report reserves to regulators. When Representative Ed Royce, a California Republican, said at a March 26 hearing in Washington that the U.S. should start exporting its oil to undermine Russian influence, his forecast of “increasing U.S. energy production” can be traced back to Arps. The problem is the Arps equation has been twisted to apply to shale technology, which didn’t exist when Arps died in 1976. John Lee, a University of Houston engineering professor and an authority on estimating reserves, said billions of barrels of untapped shale oil in the U.S. are counted by companies relying on limited drilling history and tweaks to Arps’s formula that exaggerate future production. That casts doubt on how close the U.S. will get to energy independence, a goal that’s nearer than at any time since 1985, according to data from the U.S. Energy Information Administration. “Things could turn out more pessimistic than people project,” said Lee. “The long-term production of some of those oil-rich wells may be overstated.”

Gazprom Raises Price of Gas for Ukraine 44%, Rationing Coming Up -- In an obvious move to pressure Ukraine, Gazprom Raises Gas Export PriceRussia’s natural-gas export monopoly raised prices for Ukraine 44 percent after a discount deal expired, heaping financial pressure on the government in Kiev as it negotiates international bailouts. OAO Gazprom (GAZP) said Ukraine is losing its right to pay less because it has piled up a debt of more than $1.7 billion since 2013. Ousted President Viktor Yanukovych won a lower price at the end of last year as he grappled with protests after ditching an association agreement with the European Union, on top of a previous discount in April 2010. That may also be overturned, according to Russia’s government. The move raises the prospect that state-run Gazprom may threaten to halt sales to Ukraine, which relies on Russia for about half its gas.  Ukraine has a “very low” 7.2 billion cubic meters of gas in underground storage, Andriy Kobolyev, chief executive officer of state-owned NAK Naftogaz Ukrainy, told reporters in Kiev today. Naftogaz has asked regional governors to limit utilities’ gas consumption this month, he said.  Notice how talk of sanctions is winding down. They didn't work and won't work. Russia has the upper hand.

Gazprom uses gas to tighten noose on Ukraine - Russia’s Gazprom has begun to tighten the noose on Ukraine, raising the cost of gas deliveries by 44pc and threatening to claw back billions of dollars of previous discounts. The move came as military tensions between NATO and Russia continued to escalate on several fronts, belying claims that the world's most serious geo-political clash since the Cold War is subsiding. Nato chief Anders Fogh Rasmussen denied claims by Moscow that Russia is withdrawing its 40,000 troops concentrated near the Ukrainian border. "This is not what we have seen. This massive military build-up can in no way contribute to a de-escalation of the situation, so I continue to urge Russia to pull back its troops," he said. The alliance suspended "all practical civilian and military cooperation" between NATO and Russia at a closed-door session in Brussels. Poland’s foreign minister, Radek Sikorski, called for two heavy brigades with 10,000 NATO troops to be sent to the Polish-Ukrainian border as a show of force. German fighter jets have been sent to Lithuania to bolster air defence in the Baltics, where tension is also high. Markets appear to operating in a parallel universe, betting that the worst is over. The RTS index of Russian equities has regained most of the ground lost at the outset of the crisis in late February, while yields on Russian dollar bonds have dropped 70 basis points to 4.82pc.

No threat to European gas supply from Ukraine situation: IGU chief - There is unlikely to be any major disruption to European gas supplies resulting from the political tensions in the Ukraine, International Gas Union President Jerome Ferrier told a media conference in Sydney Tuesday. "When you build long-term relationships between a reliable supplier and reliable consumers and buyers you can overcome difficult political situations," he said. "We don't see over the short term a particularly complicated situation for European [gas] supply." Ferrier added that Europe had shown in the past a capacity to overcome such crises and was now less dependent on the Ukrainian transit for Russian gas supplies. "Russian supply for Western Europe represents one third of their supplies, so less than in the past. Russian transit in Ukraine represents one third of that one third," Ferrier said.

Russia raises gas prices for Ukraine by 80 percent (Reuters) - Russia raised the gas price for Ukraine on Thursday for the second time this week, almost doubling it in three days and piling pressure on a neighbour on the brink of bankruptcy in the crisis over Crimea. The increase, announced in Moscow by Russian natural gas producer Gazprom, means Ukraine will pay 80 percent more for its gas than before the initial increase on Monday. Prime Minister Arseny Yatseniuk said the latest move, two weeks after Moscow annexed Ukraine's Crimea region, was unacceptable and warned that he expected Russia to increase pressure on Kiev by limiting supply to his country. "There is no reason why Russia would raise the gas price for Ukraine ... other than one - politics," Yatseniuk told Reuters in an interview in the Ukrainian capital Kiev. "We expect Russia to go further in terms of pressure on the gas front, including limiting gas supplies to Ukraine." Moscow has frequently used energy as a political weapon in dealing with its neighbours, and European customers are concerned Russia might again cut off deliveries in the worst East-West crisis since the Cold War.

Germany’s Russian energy dilemma - Once again, a passing comment by German Chancellor Angela Merkel has started a debate about Germany's energy dependence on Russia. "There will be a new look at energy policy as a whole," Merkel said on Thursday, March 27, after a meeting with the Canadian Prime Minister Stephen Harper in Berlin.  Her comments came as a surprise, since the European Union is currently more dependant on Russia for its energy supplies than on any other partner. So, do the chancellor's comments herald a change for European energy policy; a move away from Russian oil and gas supplies?  A glance at the facts, however, shows that it will be hard for Europe to turn its back on Russian energy - at least in the short term: 30 percent of the EU's natural gas imports are currently from Russia. When it comes to oil, 35 percent of the European Union's supplies are of Russian origin. And Germany's dependence on Moscow is even higher: the country sources 36 percent of its natural gas imports and 39 percent of its oil imports from Russian energy suppliers. Since the biggest transport route for Europe for Russian gas runs through Ukraine, a halt of exports to there would also have consequences for Western Europe. Half of Russian natural gas exports - around 160 Million cubic meters of gas - reach Europe via Ukraine.

What About The Dollar: Russia, Iran Announce $20 Billion Oil-For-Goods Deal -- More from Reuters: Iran and Russia have made progress towards an oil-for-goods deal sources said would be worth up to $20 billion, which would enable Tehran to boost vital energy exports in defiance of Western sanctions, people familiar with the negotiations told Reuters. In January Reuters reported Moscow and Tehran were discussing a barter deal that would see Moscow buy up to 500,000 barrels a day of Iranian oil in exchange for Russian equipment and goods.. The White House has said such a deal would raise "serious concerns" and would be inconsistent with the nuclear talks between world powers and Iran.  A Russian source said Moscow had "prepared all documents from its side", adding that completion of a deal was awaiting agreement on what oil price to lock in.  The source said the two sides were looking at a barter arrangement that would see Iranian oil being exchanged for industrial goods including metals and food, but said there was no military equipment involved. The source added that the deal was expected to reach $15 to $20 billion in total and would be done in stages with an initial $6 billion to $8 billion tranche.

Petro-aggression: How Russia’s oil makes war more likely - It’s fashionable in Washington to talk about the energy dimensions of the crisis in Ukraine, but much of the discussion misses the point.  The big risk is not that Russia turns off Europe’s natural gas; the long-term risk is that it keeps the taps turned on. The first is the natural gas that Russia sells to Ukraine at heavily subsidized prices, in exchange for letting additional natural gas flow through to European customers.  In 2006 and again in 2009, Russia’s Gazprom turned off the gas to try to force Ukraine’s behavior to change, which led to shortages in Ukraine and in Europe.  Would Russia try the same trick again? Probably not.  The gas disputes were just as damaging for Gazprom as they were for its customers.  So far, the threat of an energy embargo has played very little role in the Russia-Ukraine dispute, although the price of natural gas in Ukraine is going up. The second storyline is European dependence on Russian natural gas, and how that affects Europe’s response to the crisis.  Russia’s biggest customers, like Germany, are much more reluctant to apply strong sanctions on Russia than are other European countries (though the U.K. also resists, for separate reasons). The true impact of energy dependence is probably more psychological than based in a rational strategic assessment.  True, Germany and others would be inconvenienced if Russia shut off its gas.  But the winter has been mild in Europe and utilities have sizable reserve inventories of natural gas.  The real pain would be felt by Russia: It would lose income in the short term, and its reputation as a stable provider in the long term.  A Russian natural gas embargo is a trick that can probably only be pulled once (not unlike the 1973 oil embargo).  So in a sense, European dependence on Russian energy does not imply short-term vulnerability – except that European policymakers’ perceptions of vulnerability can become its own reality.

Commodity-Price Comovement and Global Economic Activity - From droughts in the American Midwest to labor strikes in the mines of South America to geopolitical instability in the Middle East, there are many potential sources of exogenous commodity-price fluctuations. Such changes in commodity prices can, in principle, have substantial macroeconomic effects and many have argued that shocks to commodity prices have indeed contributed significantly to global business cycles, such as those observed in the 1970s (Hamilton 1983; and Blinder and Rudd 2012) or more recently at the onset of the Great Recession (Hamilton 2009). But because commodity prices also respond to changes in global business cycle conditions, decomposing changes in commodity prices into those reflecting endogenous responses to global business cycles and those stemming from shocks originating in commodity markets has proven challenging. In a recent paper, we propose a new empirical strategy based on the theoretical predictions of a model of the comovement in non-energy commodity prices to identify the sources of historical commodity-price changes and their global macroeconomic implications (Alquist and Coibion 2014). The main conclusion of the paper is that commodity-related shocks have contributed modestly to global business cycle fluctuations, a finding in line with Kilian (2009) for oil markets.

Steel Defaults Seen by S&P as Yuan Ruins China Ore Loans - The Chinese steel industry’s ability to survive 1 billion yuan ($161 million) of losses per month without more defaults is under threat as a slump in iron ore and the yuan undermines a key source of financing. The currency has weakened 2.5 percent this year and a measure of exchange-rate swings reached a record, prompting Goldman Sachs Group Inc. to predict funding that uses the steelmaking ingredient as collateral will drop over the next two years due to foreign-exchange hedging costs. Iron ore prices fell 11 percent in the past five months as cash shortages at closely held mills prompted what Morgan Stanley says is panic selling. Chinese steelmakers, which account for almost half of the world’s production, can ill afford a funding squeeze as an industry association reported 43 percent of them made losses in January amid an 8.6 percent slump in demand from a year earlier. Nanjing Iron & Steel told investors on March 22 its bonds will be delisted, while Caixin magazine reported on March 25 that Shanxi-based Haixin Iron & Steel Group can’t repay loans.  “Private steelmakers will see very significant operational problems and funding issues this year, so we could see another default,” “Higher volatility of the currency is another negative factor in their financing in addition to volatile iron ore prices and weak demand.”

Tiger hunting on fiscal cliffs Your anti-corruption, anti-vice driven growth in Chinese government deposits from BofAML: The idea is that such deposit growth might also constitute a major part of China’s cyclical slowdown story, alongside slowing export growth in February, monetary and credit tightening, the dodgy property market, etc (our emphasis): There could be some elements of truth in the views above, but we believe the major drag is the contractionary fiscal policy as a consequence of Beijing’s anti- corruption and anti-vice campaign which was started at the beginning of last year and was significantly escalated this year. The strong evidence was the abnormally high growth of bank deposits of governments and quasi-government agencies (up 28.3% and 23.6% yoy in February 2014 respectively), a significant slowdown in retail sales growth, and some deceleration in FAI growth… The impact of anti-corruption and anti-vice campaigns on consumption is straightforward, but why could FAI be affected? First, the room for potential corruption might be greatly squeezed as a result of the anti-corruption campaign, so some officials are disincentivized from starting new projects. Second, even honest officials with clean hands might be discouraged from initiating new projects as they may be afraid of being perceived or even charged as being corrupt during the campaign. Inaction might be viewed as the safest way for self- protection amid a political movement….

China Accelerates Bad Debt Writeoffs; Anecdotes from China; Policies to Counter Economic Volatility  - Financial stress related to Ponzi financing and other bad debts in China is readily visible in numerous places. One result is China’s Big Banks Double Bad-Loan Write-OffsChina’s biggest banks more than doubled the level of bad loans they wrote off last year, in a sign that financial strains are mounting as growth in the world’s second-largest economy slows. The five biggest Chinese banks, which account for more than half of all loans in the country, removed Rmb59bn ($9.5bn) from their books in debts that could not be collected, according to their 2013 results. That was up 127 per cent from 2012, and the highest since the banks were rescued from insolvency, recapitalised and publicly listed over the past decade.  The sharp acceleration in write-offs is the latest indication of the turbulence now buffeting China’s financial system. The bond market suffered its first true default in March, two high-profile shadow bank investment products were spared from collapse by last-minute bailouts earlier this year, and a small rural lender suffered a brief bank run last week. Data also point to a deeper economic downturn in the first quarter than expected, putting China on track this year for its slowest growth since 1990.

Junk Bond Default a Sign Of China’s Slowing Growth - — China’s nascent market for domestic junk bonds has had its first default, a report in the state-run media said on Tuesday, just weeks after the country experienced its first default in the domestic corporate bond market.In a fresh sign that China’s slowing economic growth is causing real pain for the country’s companies and investors, Xuzhou Zhongsen Tonghao New Board Company, a manufacturer of construction materials, has been unable to meet the interest payments on 180 million renminbi, or $29 million, worth of bonds it sold last year, according to a report Tuesday in The 21st Century Business Herald, a financial newspaper based in Guangzhou. China established its domestic high-yield bond market two years ago in an effort to open a new financing channel for small and medium-size enterprises. Since then, dozens of companies have sold bonds via private placements to local investors. Such bonds, often referred to as junk because of the creditworthiness of the companies that sell them, pay higher yields to reward investors for the greater risk they take on.The default, which took place Friday, came after the company ran into financial difficulty and was unable to make a payment of 18 million renminbi on its high-yield bonds, which pay 10 percent interest annually, according to the report.Bondholders, who were not named in the article, are unlikely to recoup the payment or principal after the guarantor of the bonds, the Sino-Capital Guaranty Trust Company, said it would not offer compensation, citing restructuring problems at Xuzhou Zhongsen, according to the report.

China’s debts do not signal imminent implosion - That China has borrowed too much seems incontrovertible. Total debt to gross domestic product, a measure including public, consumer and corporate borrowing, has risen sharply to 230 per cent of GDP – much higher than before the global financial crisis, and comparable to levels that have led to severe problems elsewhere. Those who are bearish on China seize on this ratio as evidence that the country is heading for a crash, a debt-driven hard landing. They highlight the industrial overcapacity and excess of built infrastructure as the inevitable consequences of such debt-fuelled growth. They remark on the rapid increase and opacity of shadow banking. And they point to stresses in the interbank market, the recent default of a bond issued by a solar company and the weakness in the renminbi as warning signals of an imminent implosion. Yet to jump to the conclusion that such a crash is inevitable is wrong. Equating China’s debt problem with what occurred in the US and Europe before the crisis ignores some important differences. To start with, while China borrows a lot it also saves a lot. So it has largely been borrowing from itself. This is very different from being dependent on foreign creditors. Moreover, the increase in borrowing has largely been driven by companies rather than the government or consumers. Yet at the same time, and rather paradoxically, China’s businesses have also been accumulating significant savings. With little pressure to pay dividends or improve returns, they are recycling their money through the banks and shadow banks to lend to other companies. It is not an efficient way to allocate resources but it is more an indicator of the deficiencies of the capital markets than of systemic over-indebtedness. Furthermore, China has largely borrowed to fund investment. When you borrow to consume, as the US and Europe did before the crisis, you have little to show for it afterwards other than a slide in living standards when the party stops. When you borrow to invest, you may end up with some white elephants and overcapacity but you also gain some superb infrastructure, such as China’s high-speed rail network, and some world-class productive facilities.

How Much Bad Debt Can China Absorb? - China is coming under close scrutiny these days, as the leadership scurries to find new sources of economic growth and control its debt. Some analysts have reassured China watchers that the Chinese government can simply write off its bad debt, at least within the major banks, and pass it on to the asset management companies that handle that resale of distressed debt (or have it later purchased by the Ministry of Finance). Others have warned that some of the debt is serious, such as that incurred by local government financing vehicles, and are dubious about the sustainability of these entities. To worry or unwind? How much debt can China really absorb?  The central government can bear a small increase in bad debt, but as long as the deficit is kept in check, bailouts will replace policies that spur much-needed growth, trading future prosperity for past profligacy. The recent 3-year non-performing loan amount of just less than 1.5 trillion RMB (about 500 billion per year and growing) seems like a tidy sum compared to fiscal expenditures of 7 trillion RMB (in 2013). With mounting non-performing loans and declining revenue in the short run, the gap between these numbers will only narrow. Although the government can pay down the debt later, postponing the bailout, many new nonperforming loans would present a challenge to officials as to how to classify, recover, and ultimately relieve the financial system of this burden.

Stephen Roach: Forget China’s growth target -- - More rumours of imminent Chinese stimulus Friday. From Xinhua, via MNI reporting come comments from Premier Li Keqiang:

  • To selectively unveil measures after government report to parliament
  • Have the ability, conditions to keep economy in reasonable range
  • To repeat 2013 mini stimulus, focus on housing and railway investment
  • Financial sector must still raise support for real economy
  • China to study strategic new measures to improve trade

“We have gathered experience from successfully battling the economic downturn last year and we have policies in store to counter economic volatility for this year,” Li said. From Stephen Roach writing in the Jewish Business News:   “Isn’t it now time for China to abandon the concept of a growth target?” …I prefaced my question by underscoring the inherent contradiction between a target and a forecast in framing China’s major economic objectives. I argued that the former embodied the obsolete straitjacket of central planning, while the latter was far more consistent with market-based outcomes. A target perpetuates the image of the all-powerful state-directed Chinese growth machine – a government that will essentially stop at nothing to hit a predetermined number.

Is China the Next Lehman Brothers? -  In his column this week, Wolf asks, “Is China different? Or must its borrowing binge, like most others, end in tears?”  That the Middle Kingdom’s transformation from a Communist command economy is a great success story cannot be doubted; it’s one of the wonders of modern history. Since 1991, according to the World Bank’s database, its inflation-adjusted growth rate has averaged about ten per cent a year. Rapid growth has dragged hundreds of millions of people out of grinding poverty and turned China, according to some measures, into the world’s second largest economy.  In the past few years, however, China’s growth rate has slowed down a bit, and the country has racked up large debts. How large? Wolf provides a disturbing chart, based on figures from the International Monetary Fund, that shows overall debts rising from about a hundred and twenty-five per cent of G.D.P. in 2008 to two hundred per cent in 2013. That’s quite a leap. As anybody who has visited China recently can confirm, it has coincided with an enormous building boom, which has left many cities festooned with empty apartment buildings and shopping malls.  The worry is that large parts of China now resemble Arizona, Florida, and Nevada circa 2007, when the great Greenspan-Bernanke real-estate bubble was going “pop.” “Signs are mounting that the housing market in a number of cities is not just cooling but actually cracking,” Wei Jao, an economist at Société Générale, wrote recently. According to a lengthy report from China in Thursday’s F.T., which quoted Jao, developers are already slashing prices by up to forty per cent in selected areas. But that hasn’t been sufficient to prevent some of them from having trouble keeping up interest payments on the loans they took out to finance construction. And that, in turn, is raising concerns about the Chinese financial institutions that did much of the lending, such as banks, “shadow banks,” and trust companies.

Pettis: China is slowing successfully - I am, perhaps uncharacteristically, a lot more confident than many others that the PBoC will manage to meet its target deadline to liberalize the deposit cap. I think their timing makes complete sense and is in fact what I have been expecting. Remember that the best measure of the extent of financial repression is the gap between the nominal GDP growth rate – which in recent years has fallen from above 18% to below 10% – and the nominal lending rate. At this point the gap is probably around 200 basis points, far lower than the 1000 basis points or more most of this century. The gap should close further as long as the PBoC can resist pressure to lower the lending rate. Because I expect growth rates will continue to drop sharply in the next two years, and I think we are more likely to experience near-term disinflation rather than inflation, by 2016 it is very possible that nominal GDP will be around or below 8%. When this happens I would suggest two things: Financial repression will have been largely eliminated from the system. The PBoC can remove all interest rate caps and interest rates should barely budge. Of course this doesn’t mean that we won’t have the financial distress problems associated with surging interest rates. We will, but they will occur in the form of declining nominal GDP growth rather than soaring nominal interest rates. Large inefficient borrowers, in other words, and this includes many if not most SOEs, will suffer from high interest rates, but the suffering will not occur because debt-servicing costs have risen but rather because debt-servicing capacity will have declined. Borrowers will no longer be able to depend on high growth in nominal GDP to bail them out. Slowing growth and disinflation will allow the PBoC to accomplish the difficult task of eliminating the distortions caused by financial repression without seeming to do anything, but it will still be painful and will weigh heavily on SOE profits.

China: Size Matters - IMF Blog: A bigger but somewhat slower growing China of the future will contribute about as much to global demand as the smaller but faster growing China of before. This is arithmetic: An economy that is twice as big can grow by ½ as much and contribute the same to global demand. By the way, China today is more than twice as big as it was a decade ago. So, the good news is, even with slower growth, China will continue to be an engine of global output. Indeed, an even bigger engine than before.  China is the world’s second largest economy. Based on PPP exchange rates, China increased from 6 percent of global output in 1995, to 15 percent last year (see chart). Or, if you prefer using market exchange rates, the corresponding rise in China’s share of global GDP is from 2 percent in 1995 to 12 percent in 2013. When will China surpass the US? In 2018, based on PPP exchange rates. Later using market exchange rates—by 2019, the last year of our projections, China’s economy would be equivalent to about 64 percent of US GDP. China is the world’s most populous country. So per person, GDP in China is US$ 6,500, compared to US$53,100 in the US (see chart). Even the most developed cities in China do not approach the income levels of advanced economies. This underscores that China still has considerable room to grow. Indeed, as the IMF’s Managing Director noted in her recent address at the China Development Forum, China has its eyes fixed firmly on its next destination—aiming for “higher quality, more inclusive, and more sustainable” growth

Factory output points to stabilisation in Chinese economy - Chinese factory activity remained steady in March, a tentative sign that the economy is stabilising and easing pressure on the government to prop up growth. The official purchasing managers’ index for manufacturing, a survey that is seen as a leading indicator for industrial growth, edged up to 50.3 from 50.2 in February. A reading above 50 signals an expansion of activity, so factory growth appears to have improved moderately month on month. “This is the first time since November that the PMI has risen, indicating that our country’s manufacturing sector is steady overall and trending in a positive direction,” the national statistics bureau said. The Chinese economy has been sluggish this year, as tighter credit weighs on investment, property sales weaken and the government’s anti-corruption campaign takes a toll on consumption. Fears of a deeper slide have fuelled calls for Beijing to deploy a stimulus-style push to keep the economy on track, but the resilient PMI makes such intervention less urgent. The government has maintained a growth target of “about” 7.5 per cent this year, the same as 2013. Whereas China exceeded the target last year, notching up 7.7 per cent growth, it is expected to fall short this year. The consensus forecast of 7.4 per cent growth would be China’s weakest since 1990.

Economists React: China Manufacturing PMIs Reflect Slowing Growth - China’s official manufacturing purchasing managers’ index, a measure of conditions in the manufacturing sector published Tuesday, rose for the first time in six months, edging up to 50.3 in March from 50.2 a month earlier. Yet a competing survey from  HSBC and Markit Economics fell to 48.0 from 48.5. With any figure below 50 indicating contraction, that suggests the industry is slipping into recession. So what’s really going on? One likely reason for the divergence is that Markit appears to do a better job of adjusting for the usual seasonal rebound after Chinese New Year, which likely contributed to the rise in the official index…. A further explanation for the divergence is that conditions among large energy intensive firms, to which the official PMI is more heavily weighted, appear to have held up better than others.” – –”The pace of growth in March is slower than the historical average, which indicates that economic recovery is still weak. We expect the government to take more proactive fiscal measures to support the economy and create jobs… – –”Despite the slight increase in the March [official] PMI reading, it underperforms the normal seasonal pattern rather notably, suggesting that the underlying momentum in the manufacturing sector likely remains on the soft side… The only relatively bright spot seems to be the export sector, as the export order component for both the NBS and Markit manufacturing PMI readings rose in March.”

China Sees Sharpest Contraction of Output Since November 2011; Japan Returns to Growth but Business Sentiment Collapses -- It's a mixed bag but in my opinion an overall weak one in Asia today. Let's take a look at the data to see. The HSBC China Services PMI Shows Sharpest Contraction of Output Since November 2011. HSBC China Composite PMI signalled that business activity in China fell for the second month running in March. Though slight, the rate of contraction was still the sharpest since November 2011, with the HSBC Composite Output Index posting at 49.3 in March, down from 49.8 in February.Data for March signalled that the reduction in overall business activity was driven by the manufacturing sector, which posted its sharpest contraction of output since November 2011. Meanwhile, services activity growth strengthened to a four-month high, as signalled by the HSBC China Services Business Activity Index posting at 51.9 in March, up from 51.0 in February. However, growth remained subdued in the context of historical data.The Markit Japan Services PMI shows Japan Returns to Growth but Business Sentiment Collapses. Summary: Japanese service companies reported a rise in output in March following February’s fall. Meanwhile, new business improved for the eighth month running and employment increased again. However, business sentiment was the lowest since June 2012 as companies reported concerns around the effects on demand of the forthcoming sales tax rise. The headline seasonally adjusted Business Activity Index increased to a level of 52.2 from a reading of 49.3 reported in February.

HSBC China Composite PMI Tumbles To 28-Month Lows As Services Fell (& Rose) -- For the 4th month in a row, China's composite PMI fell (with new orders tumbling) - this time to the lowest levels since Nov 2011 and firmly in contractionary territory. However, in the exact antithesis of the manufacturing PMI data, tonight's non-manufacturing data saw the official government data miss expectations and drop (manufacturing rose) while HSBC's services PMI rose (HSBC's manufacturing dropped). This was enough (along with an Aussie retail data miss) to send AUDJPY into conniptions jerking lower then higher then lower as the algos just could not comprehend the levels of absurdity that was flooding their valves. Japanese PMI strolled along in its neither here nor there zone and Aussie PMI tumbled back into contraction after one month of exuberance. In the famous words of Frank Valli, oh what a night.

China Leans Toward More Stimulus Measures -— China’s leaders are issuing increasingly clear signals that they plan another round of economic stimulus programs, as evidence accumulates that the economy is slowing more than expected this year.A government-affiliated survey released Thursday of purchasing managers’ sentiment in nonmanufacturing sectors like construction, computer software and aviation showed a fairly sharp drop in March. The decline came with sentiment in the manufacturing sector bumping along at weak levels since January and with real estate prices beginning to rise less quickly and overall industrial activity starting to grow less briskly.The State Council, China’s cabinet, made clear its willingness to step in with a statement late Wednesday night, following a meeting that day.The statement described officials at the meeting as saying that China would “stimulate enterprises, expand domestic consumption and boost employment” this year.The government is also ready to adopt further fiscal measures if needed to help the economy “in coping with unexpected challenges,” the statement noted.

China, UK sign deal on RMB clearing bank -The United Kingdom and China signed an agreement on Monday to work on setting up a clearing and settlement service for renminbi transactions in London, following the signing of a similar agreement between Germany and China on Friday. The two agreements highlight fierce competition between European financial centers to take advantage of the renminbi's internationalization. "The agreements both Britain and Germany signed with China show that European powers are keen to engage in opportunities arising from the renminbi's internationalization," said Andrew Carmichael, a partner at the London-headquartered law firm Linklaters. Financial sector experts in London have welcomed the new memorandum of understanding signed between the Bank of England and the People's Bank of China, the nation's central bank, hailing it as a milestone in boosting London's advantage in becoming the premier Western hub for handling offshore renminbi transactions.

Yuan Passes Euro as 2nd-Most Used Trade-Finance Currency -  China’s yuan overtook the euro to become the second-most used currency in global trade finance after the dollar this year, according to the Society for Worldwide Interbank Financial Telecommunication.  China is seeking a greater role for its currency in global trade and investment as the state loosens controls on the exchange rate and borrowing costs in the world’s second-largest economy. People’s Bank of China Deputy Governor Yi Gang said Nov. 20 it is no longer in the nation’s interest to keep building up its foreign-exchange reserves, which totaled a record $3.66 trillion at the end of September The People’s Bank of China will “basically” end normal intervention in the foreign-exchange market and broaden the yuan’s daily trading limit, GovernorZhou Xiaochuan wrote in an article in a guidebook explaining reforms outlined following a Communist Party meeting that ended Nov. 12. 

Bundesbank, PBOC in Pact to Turn Frankfurt Into Renminbi Hub - Germany’s Bundesbank and the People’s Bank of China agreed to cooperate in the clearing and settling of payments in renminbi, paving the way for Frankfurt to corner a share of the offshore market. The central banks signed a memorandum of understanding in Berlin today, when Chinese President Xi Jinping met German Chancellor Angela Merkel, the Frankfurt-based Bundesbank said in an e-mailed statement. Germany’s financial capital prevailed over Paris and Luxembourg in a euro-area race to win trade in renminbi, which overtook the euro to become the second-most used currency in global trade finance in October, according to the Society for Worldwide Interbank Financial Telecommunication. The U.K. Treasury said on March 26 that the Bank of England would sign an initial agreement with the PBOC on March 31 to clear and settle yuan transactions in London. “Frankfurt is one of Europe’s foremost financial centers and home to two central banks, making it a particularly suitable location,” “Renminbi clearing will strengthen the close economic and financial ties between Germany and the People’s Republic of China.” China was Germany’s third-biggest foreign trade partner last year, with 140 billion euros in turnover passing between the two countries, according to the Federal Statistics Office in Wiesbaden. China ranks fifth among importers of German goods and is the second-biggest exporter to Germany. German companies including Siemens AG, the country’s biggest engineering company, and Volkswagen AG are embracing the renminbi internally as a third currency for cross-border trade settlements.

Bundesbank, PBOC Sign Accord to Make Frankfurt Yuan Hub - Germany’s Bundesbank and the People’s Bank of China agreed to cooperate in the clearing and settling of payments in renminbi, paving the way for Frankfurt to corner a share of the offshore market. The central banks signed a memorandum of understanding in Berlin today, when Chinese President Xi Jinping met German Chancellor Angela Merkel, the Frankfurt-based Bundesbank said in an e-mailed statement. Germany’s financial capital prevailed over Paris and Luxembourg in a euro-area race to win trade in renminbi, which overtook the euro to become the second-most used currency in global trade finance in October, according to the Society for Worldwide Interbank Financial Telecommunication. The U.K. Treasury said on March 26 that the Bank of England would sign an initial agreement with the PBOC on March 31 to clear and settle yuan transactions in London.

Britain Gains Renminbi Trading Deal - The Bank of England and the People’s Bank of China reached an agreement on Wednesday to allow the clearing and settlement of renminbi trades in London, the first such arrangement to be struck outside of Asia and another sign of the British government’s determination to make London a leading Western hub for Chinese trading.The central banks will sign a memorandum of understanding at the end of the month and a bank will be designated soon, according to the British Treasury.“Connecting Britain to the fastest-growing parts of the world is central to our economic plan,” said George Osborne, the chancellor of the Exchequer. “It’s why I’ve put such government effort over the last three years into making sure we’re the leading Western center for trading in the Chinese currency.”If clearing and settlement sounds a bit dull, it is part of the essential plumbing of finance. Clearing of payments is necessary to turn the promise of payment, like an electronic request, into the actual movement of money from one bank to another. For offshore renminbi clearing centers, like Hong Kong, Singapore and now London, a clearing bank acts as a settlement agent for interbank payments and can help with loans, trades in goods and services and financial instruments like foreign exchange.

How Can China Carve Out a Bigger Role for the Yuan? Try Political Reform -- Seeking to give the yuan a greater role on the world stage, China’s central bank is tirelessly promoting it as a tool for international trade and a future reserve currency. But experts say one necessary step toward making the yuan a global reserve currency is political reform — and that’s not on Beijing’s agenda. The People’s Bank of China has made impressive headway in its campaign to promote the yuan. The fast growth of China’s economy, coupled with policy support from the government, has allowed the yuan to grab a sizable share of China’s own trade, starting from zero less than five years ago. Standard Chartered Bank estimates the yuan could account for 28% of the nation’s trade by 2020 — double current levels — and become the fourth-largest global payment currency, ranking it behind the dollar, euro and pound sterling. A few global central banks – including those from Australia, Nigeria, Chile and Japan — have said they plan to put some of their reserves in Chinese currency. Many more have announced swap agreements with the PBOC, setting the stage for broader use of the yuan outside China’s borders. But more remains to be done. Speaking last week at a conference on the internationalization of the yuan, Masahiro Kawai, former dean and CEO of the Asian Development Bank Institute, the multilateral bank’s think tank, noted there’s a fairly long list of requirements to convince global investors that a currency is a safe place to store assets — one of which is an independent legal system.  “A one-party system has trouble ensuring this,” Mr. Kawai said.

Yuan mission accomplished for the PBOC? - From Bloomie: China is succeeding in making its currency less predictable. Investors are paying the price. Clients of U.S. commercial banks have lost about $2 billion this year on $332 billion of options betting the yuan would appreciate, while Chinese companies lost $3.5 billion on $150 billion wagered on a benchmark forwards contract, according to data compiled by Morgan Stanley and the Depository Trust & Clearing Corp. inWashington. These contracts, when including bearish bets, account for more than a third of global trading in the Chinese currency. After almost a decade of gains, speculators had come to regard the yuan as a one-way trade, leading to a surge in capital inflows that stands to leave the country vulnerable to a sudden shift in investor sentiment. Policy makers responded by selling the yuan and widening its trading band, encouraging a record 2.4 percent quarterly decline that was the biggest among Asian currencies. “The depreciation was engineered to burn the fingers of speculators,” “The People’s Bank of China wants two-way volatility embedded in the market.” The PBOC has fixed its rate at marginally higher levels over the past few days, including today with a reference rate at 6.1493 (vs. prior set at 6.1503) but the currency continues to trade at the upper end of the band suggesting ongoing capital withdrawal:

Global banks issue alerts on China carry trade as Fed tightens and yuan falls - Telegraph: Three of the world's largest banks have warned that the flood of "hot money" into China is at risk of sudden reversal as the yuan weakens and the US Federal Reserve brings forward plans to raise interest rates, with major implications for global finance. A new report by Citigroup told clients to brace for a second phase of the "taper tantrum" that rocked emerging markets last year, but this time with China at the eye of the storm. “There’s a dangerous scenario in which the combination of rising US short-term rates and a more volatile RMB (yuan) could lead to a rather large capital outflow from China,” said the report, by Guillermo Mondino and David Lubin. They argue that China's credit boom has become a "function" of external dollar funding, mostly through offshore lending in Hong Kong and Singapore to circumvent internal curbs. It is a powerful side-effect of super-loose policies by the Fed, which the Chinese have been unable to control. If so, this may snap back abruptly as dollar liquidity dries up and fickle money returns to the US. Bank lending to emerging markets has surged by $1.2 trillion (£720bn) over the last five years to $3.5 trillion. The banks have funded most of these loans from short-term sources, leaving the whole nexus extremely vulnerable as the US prepares to tighten. The Fed caught markets badly off guard earlier this month when it suggested that interest rates would jump from near-zero to 1pc next year and 2.25pc the year after, a much faster pace than expected.

Worst may be over for Chinese economy -- China's official purchasing manager's index for manufacturers, released Tuesday, improved slightly in March. Defaults by Chinese financial products and weak economic data in February fueled concerns about a hard landing for the country's economy. But for now, the picture has brightened. On the day the PMI was released, Chinese stocks closed higher on the Hong Kong and Shanghai markets. Some investors said that the worst appears to be over for China. The manufacturing index was up 0.1 point from the previous month to 50.3, exceeding the average market forecast by 0.1 point, according to data released by the China Federation of Logistics and Purchasing and China's National Bureau of Statistics. The index had been declining since hitting a recent high of 51.4 in October and November last year. Still, the figure turned higher for the first time in five months, and is above the boom-bust threshold of 50. Another focus of attention in the released data is the new export orders index. The reading rose to 50.1, from the previous 48.2 logged in February, showing the nation's export environment is improving. The new orders index stood at 50.6, up 0.1 point from the previous month, thanks to a recovery in export demand. The production index was 52.7, up 0.1 point from the previous month. Meanwhile, the employment person index failed to touch 50 for the 22nd straight month. The main raw material purchase price index sharply fell to 44.4, indicating weak demand. The reading on the final HSBC China Manufacturing PMI published Tuesday by Britain's financial information services provider Markit Group was 48, down 0.1 point from the preliminary report and also down 0.5 point from a month earlier. It was the lowest reading for the index in eight months. The HSBC index mainly covers small companies.

Report: China to Power Growth in World Tourism -- A new report by the Amadeus travel and consultancy group Oxford Economics says China and other emerging markets are the main forces that will drive the travel industry, which is expected to grow at a faster rate than the global economy over the next decade.  China will be the driving force behind a decade of growth in the global travel industry, according to a new report. The report, conducted for the travel agency Amadeus by the consultancy group Oxford Economics, found that the travel industry will grow at a faster rate than the global economy over the next 10 years, in large part thanks to China and other major emerging countries such as India, Indonesia, Russia and Brazil. “The global travel industry is poised for a period of sustained growth over the next decade, driven in part by China’s share of global outbound travel reaching as much as 20% by 2023,” Amadeus said in a statement.. The rapidly growing middle class in China will make the country overtake the U.S. as the world’s largest outbound-travel market this year and the biggest domestic travel market in 2017, the report said.

Tourism, Where China's Trade Deficit Grows  -- Tourism is one of if not the world's largest industry. It's certainly big money on a global basis, providing much employment to people in developed and developing nations alike and reportedly accounting for 9% of global GDP. So, let use consider the fate of China and its particular industry. As it opens up to the world, the exchange of travelers has quickened. There's interesting stuff in the Nikkei Asian Review--fast becoming one of my go-to sites for Asia-related news--on Chinese tourism. To be sure, tourism to China is big business since it the world's third most-visited country in terms of tourism arrivals after France and the United States. That said, there are more and more Chinese journeying out of their country than foreigners coming to visit it. Voila! Tourism is one of the few industries in which the PRC runs a trade deficit relative to the rest of the world. The bad news is exacerbated by the horrific images of pollution in Beijing as well as the gradually strengthening yuan that is making it more expensive to visit: Fewer foreign tourists are going to China these days, their numbers being dragged down by severe air pollution, a strengthening currency and food safety problems. According to the China National Tourism Administration, the number of overseas visitors who visited and stayed at least one night in mainland China, including tourists from Hong Kong and Macau, totaled 55.69 million in 2013, down 3.5% from the previous year. Actually, Chinese authorities have been trying to bolster tourism to China by granting transit permits for visitors. To date, however, various tourism-related businesses have not reported a substantial increase in their revenues from the program:

Exports Key to Overcoming Japan’s Sales-Tax Hump - Data out Monday showed surprising weakness in Japan’s industrial production, raising fears that the long-awaited rise in the country’s sales tax, which takes effect Tuesday, could choke off the economy’s fragile recovery. The sales-tax increase — a key element of Prime Minister Shinzo Abe’s economic program — is expected to have a chilling effect on domestic demand going forward, with some warning that consumers and businesses likely frontloaded purchases before the tax goes up to 8% from 5%. But Japanese firms aren’t expecting production to drop off much more after it already fell 2.3% on-month in February – which economists say mostly reflected bad weather and a rebound from January’s strong showing. Business are only expecting output to fall 0.6% on-month in April, the first month with the higher tax, according to a survey of firms included with Monday’s data. That’s because economists say a recovery in output doesn’t depend on consumers at home, but those abroad. A government official briefing reporters on Monday’s data said production was expected to drop by less than it did in 1997, when a previous rise in the sales tax had a chilling effect on growth. Back then, industrial production fell 2.6% on-month when the higher tax kicked in. But production didn’t stay down in 1997; it quickly bounced back. Economists say one big difference between then and now is the state of exports. “In 1997, exports were strong. That meant the drop-off in production only lasted one month, and then rebounded,”  “This time exports are weak, so it’s not certain how much production will rebound in May and June.”

Japan’s Firms Fret Over Tax Increase -- As Japan raises its sales tax today to 8% from 5%, the big question is whether the nascent economy is on  a sufficiently upward trajectory to withstand a pullback in consumption. Consumer spending has been the main driver of the growth recovery. To solidify those gains, economists say businesses need to deepen investment, hire more workers and raise wages.  But the sales-tax rise is denting business confidence, according to the latest tankan report, the Bank of Japan’s survey of over 10,000 companies. Here’s what you need to know on the report for March: Businesses are optimistic now, the tankan showed, with sentiment buoyed by last-minute purchases ahead of the sales tax. But the outlook for the future is dour, reflecting concern Japan’s recovery might run out of steam as consumer spending dwindles.Big manufacturers were more optimistic in the current survey than at any time since 2007; large non-manufacturers were at their most upbeat since 1991.Looking into the future, the picture reverses. Big companies from 27 of 30 industries surveyed expect conditions to worsen three months from here. They include all the 12 non-manufacturing industries. Goldman Sachs, in a note to clients, pointed out the scale of the pessimism for the future was worse than the market had anticipated.

Japan braces for era of higher taxes as costs of ageing society rise - Japan's sales tax climbs from 5 per cent to 8 per cent today, the first increase in 17 years. A further jump, to 10 per cent, is expected to be introduced in a year. Hosomura has replaced an old fridge, snapped up a new microwave and permitted her husband to upgrade their flat-screen television to a larger model. "It seemed a sensible idea because if we wait any longer, we will just have to pay more," The administration says the tax hike is needed to help cover soaring costs for pensions and health care as well as massive government stimulus spending meant to boost the economy. Japanese consumers were urged to spend with gusto ahead of the change. But the tax increase has not been popular with the public, and the strategy could backfire if the economy plunges again into recession. Analysts say that this key element of Prime Minister Shinzo Abe's drastic economic measures has put his political future, to a degree, on the line. "Abenomics" is based on a three-pronged approach of fiscal stimulus, monetary easing and structural reforms. To achieve those aims, the Abe administration has set an annual inflation target of 2 per cent, dampened the appreciation of the yen, set negative interest rates, imposed radical quantitative easing and stepped up public investment.

Japan raises sales tax, balancing debt, growth - Japan raised its sales tax Tuesday, moving to stabilize government finances but at the risk of undermining a shaky economic recovery. It’s a gamble the world’s No. 3 economy must take, given its soaring public debt.  Economists expect the sales tax hike, to 8 percent from 5 percent, to slow but not derail the recovery. It is the first such increase since 1997, when the combination of the tax hike, an unwinding of debt from Japan’s bubble economy days and the impact of a regional financial crisis plunged the country into recession. But recent data suggest the recovery may be less solid than Prime Minister Shinzo Abe had hoped for when he agreed to raise the tax last fall. A quarterly central bank survey of Japan’s major manufacturers released Tuesday, the “tankan,” showed business confidence rose slightly, but was well below forecasts. The outlook for coming months was less rosy, with many companies worried over a consumer backlash following the tax hike. The ‘Abenomics’ economic strategy aims to spur inflation and pull Japan out of its two-decade economic slump by getting consumers and businesses to make purchases sooner rather than later. But so far wages have not risen, and the rising cost of living seems to be triggering still more belt-tightening.

Is Abenomics Working? - A recent paper, part of the Brooking’s Papers on Economic Activity conference, by Joshua Hausman and Johannes Weiland argues that Abenomics has been successful in generating monetary regime change, and that this has lead to an increase in output — but much more work is left to be done. In particular, the authors point out that while the bank of Japan has made a formal commitment to 2 per cent inflation, markets have taken that commitment with a grain of salt:… confirming the basic insight from our other measures: that Abenomics raised long-term inflation expectations in Japan by roughly a percentage point. …While the change in inflation expectations is encouraging, the level of inflation forecast by professional forecasters, like inflation swap rates, suggests that the Bank of Japan’s target is not (yet) fully credible. As of October 2013, professional forecasters expected 1.4 percent annual inflation over the next ten years. (Recall that ten-year inflation swap yields are roughly 1.1 percent, figure 2(b).) Nonetheless, there has been a pronounced effect on output. The most striking graph from the paper is the one below

People Are Worried That It Might Be 1997 All Over Again In Japan  - Here's an important chart we've seen in various permutations recently. This particular version comes from Commonwealth Bank of Australia, and it shows the trajectory of current Japanese consumption vs. Japanese consumption in 1997, the last time there was a hike in the consumption tax. As has been well discussed, despite the inclination and desire to stimulate the economy, Japan recently late its consumption tax jump from 5 to 8%. So what happened last time? A big spike pre-jump (getting ahead of the hike) and then a violent tumbling in growth. Watch this in the coming months.

Double Data Whammy For Japan As PMI Tumbles & Industrial Production Misses By Most Since Abenomics  -- "It's always darkest before the dawn," we are sure will be the next idiotic (and wholly unsupported) bullshit line from various Japanese leaders about yet another round of disastrous Japanese data. Aside from June 2013, this is the biggest monthly drop in Industrial Production since the Tsunami - and biggest miss since Abenomics began. Good news right? More stimulus right? Not with inflation surging thanks to the collapsed currency. But wait, there's more 'great' news, Markit PMI just had its biggest 2-month drop in 20 months and is at its lowest in 6 months. For now, JPY is confused (and so is the Nikkei) but US futures aren't, they are rallying; because, well - why not, the casino is still open for now.

Worst. Recovery. Ever: Japan Regular Wages Decline For 21 Consecutive Months -  Japan's economic farce has gotten so bad it is becoming painful to even discuss it: first, every newspaper writes effusive, extended articles about how after nearly two years of consecutive declines in base pay praising Abenomics, and then the next month the "increase" is promptly revised lower in a footnote in some article which gets zero to no prominence, which however continues to reaffirm that Abenomics is an absolute, unmitigated disaster. Sure enough this is what happened today, when last month's bombastic "Japan Base Wages Rise for First Time in Nearly Two Years" can now be retracted and instead replaced with this: "regular pay slipped an annual 0.3 percent in February, falling for a 21st straight month after a 0.2 percent slip the previous month."

Monetary base hits record ¥219.8 tril. - The monetary base stood at a record ¥219.8 trillion at the end of March, up 7.4 percent from a month before, the Bank of Japan said Wednesday. The monetary base, or the combined balance of currency in circulation and commercial financial institutions’ current account deposits at the central bank, increased for the second consecutive month. The rise stemmed from the BOJ’s aggressive purchases of government bonds under its “quantitative and qualitative” easing policy launched in April last year, BOJ officials said. The balance rose also because of massive JGB redemptions in February, they said. Year on year, the end-of-March balance increased 50.6 percent. Under the ultraeasy policy, the BOJ is aiming to lift the monetary base to ¥270 trillion by the end of this year in order to achieve its 2 percent inflation target. The end-of-March balance of current account deposits rose 12.8 percent from a month before to ¥128.7 trillion. Bank notes in circulation were up 0.6 percent at ¥86.6 trillion. The daily average balance of the monetary base in March came to ¥208.6 trillion, up 54.8 percent from a year before, the BOJ said.

A New Japan First: Negative Rates - The Bank of Japan’s massive bond-buying binge is creating all sorts of market distortions. The latest: the rate in one funding market fell briefly below zero. In other words, debt has gotten so scarce for non-BOJ buyers that some investors are willing to pay for the privilege of holding government bonds.Last Friday, March 28, rates fell to negative 0.011% in the “repo market,” where banks and securities dealers can secure funding for a few days or months. Specifically, banks looking to hold Japanese government bonds overnight from March 31 to April 1, had to pay a small premium — of 0.011% — to get those bonds.It normally works the other way around: bondholders are supposed to get compensated with interest payments for floating a loan, since the cash they’re exchanging for JGBs is less risky than the bond itself. That was the first time rates on these kinds of agreements have gone negative since the figures became available in 2007, a milestone that even caught notice at the central bank.Yet with the Bank of Japan buying more than ¥7 trillion in JGBs each month, traders say it can be hard to find sufficient JGBs as collateral in the market. The dwindling supply made investors desperate enough for bonds that the interest on cash loans they charged dropped below zero, they said. Strategists and central bank officials said the sub-zero plunge was a temporary blip, the result of seasonal factors, and rates soon popped up to (slightly) above zero. On Thursday, the same rate was up to 0.069%

US attacks Japan’s stance on Trans-Pacific Partnership - The US has accused Japan of blocking progress on a trade deal between 12 countries on the Pacific Rim by not allowing open access to its markets for agricultural products and motor vehicles. In his most critical comments yet on Japan, Michael Froman, the top US trade official, said: “We can’t have one country feeling entitled to take off the table and exclude vast areas of market access while the other countries are all putting on the table more ambitious offers.” The 12-country trade deal known as the Trans-Pacific Partnership is often called the economic backbone of President Barack Obama’s “pivot” to Asia and is a centrepiece of the president’s trade agenda. But negotiations have stalled since last December owing to the failure of the US and Japan to agree on provisions that would make it easier for US businesses to sell their products in Japan. The two countries have been trying to bridge their differences before Mr Obama travels to Japan later this month, but Mr Froman’s comments indicate that they remain far apart. Japan wants to maintain – or phase out slowly – tariffs on five agricultural products including rice, beef, and pork that it has declared “sacred”. The two countries also disagree on what is needed for the three big US carmakers to compete on a level playing field with Toyota, Nissan and others. At a congressional hearing on Thursday, Mr Froman, the US trade representative, said he had told Japan that it was not living up to its commitment to help create a “high-standard, ambitious, comprehensive” agreement. “This isn’t an issue of us needing to be more flexible. We’re being plenty creative in trying to come up with ways to ensure comprehensive market access to Japan that addresses political sensitivities as well,” he said. “It’s time for Japan to step up to the plate. That’s not just our view it’s the view of all the TPP countries.” While US companies have also attacked Canada for resisting tariff cuts in sensitive sectors, Mr Froman said Canada was waiting to see what Japan would do. Asked if he expected to be able to complete the trade deal this year, he said: “Very much so. We’re focused on working around the clock to get this done as soon as possible.”

South Korea Needn’t Worry About Yen, IMF Says - The yen’s recent depreciation sparked public complaints from South Korea’s leaders, who feared losing export business to Japanese competitors, whose goods were becoming less expensive in overseas markets. A new paper from the International Monetary Fund argues South Korea need not have worried. The paper also contends that most of the gains South Korean exporters made during a period of won currency weakness between 2008 and 2012, especially compared to the yen, didn’t deliver a major blow to Japanese exporters. The piece is interesting as the specter of beggar-thy-neighbor currency wars hangs again over Asia. China’s government continues to guide the yuan lower and Japan is preparing for another monetary stimulus to weaken the yen. In January, the IMF told South Korea it should stop intervening in markets to push the won lower. Asian policy makers for long have devalued currencies to make their exporters’ goods cheaper in overseas nations. Japan and South Korea, who compete in markets for cars, chips and electrical equipment, watch their relative currency values closely. South Korea’s share of global exports rose to 3.1% in 2012 from 2.7% in 2008, according to the IMF, a period corresponding to won weakness. During the same timeframe, Japan’s share of global exports fell below 5%. The IMF paper found the yen’s strength played only a small role in this. True, South Korean manufacturers gained share in some areas – automobiles and electrical machinery – where Japan lost ground. The countries compete in a range of industries, and the won remains more sensitive to movements in the yen than other Asian currencies, it added.

India-China to collaborate on building semi-high speed rail - India and China would look at collaborations in semi-high speed rail and building world-class railway stations. This was decided at the strategic and economic dialogue between the two countries earlier this month when an Indian delegation, headed by Planning Commission deputy chairman Montek Singh Ahluwalia, had visited Beijing. "We have discussed participation for raising speed on existing tracks to about 160-200 kilometres per hour wherein they could provide technical support," said Arunendra Kumar, chairman of the Railway Board. "The other area where we could cooperate further is in building world-class stations. We have suggested that they could form a joint venture with our station development corporation. They will let us know if they would like to proceed with that," added Kumar, who was speaking along the sidelines of a PHD conference on railways. India will also receive training inputs for heavy haul operations. The Railways ministry also has plans to develop high-speed rail network, in which China has already seen success. However, collaboration is unlikely to be sought in this area. "We are already doing a study on high-speed rail with JICA so we will collaborate in areas that are open like upgrading speed in existing tracks," said Kumar. In November 2012, the two countries had signed a Memorandum of Understanding (MoU) on technical cooperation in the railways sector that would remain in force for 5 years. Under this MoU, both countries will enhance mutual cooperation across various areas of rail technology including high speed rail, heavy haulage and station development.

Goldman: If Only India Were More Like Gujarat -- If only India were more like its state of Gujarat: Tens of millions of Indians could get nice, new jobs. That’s one of the lessons from a Goldman Sachs report released Friday. Despite India’s red-hot growth streak for most of the past decade, the country has not been creating enough jobs for its people. Most of the world’s second-largest population in what has become Asia’s second-largest economy is still stuck doing relatively unproductive jobs in agriculture. The rapid urbanization of former farmers flocking to factories–which powered growth spurts and societal change in China, Japan and elsewhere across Asia—is not happening in India. “India’s well-known demographic dividend is yet to be reaped,” the Goldman report said. “Migration from rural agriculture to urban manufacturing is slow, thus reducing productivity gains.”Goldman, like many economists and executives, says that one of the main reasons India’s economic growth isn’t generating jobs is that companies get punished for hiring people. After growing to a certain number of employees—usually 50 or 100–Indian law makes it difficult to lay them off or even shut down a money-losing factory. The result is that entrepreneurs try to stay small, stay away from labor-intensive industries and use machines rather than hire people. The upshot is that job growth has been anemic compared to the country’s economic expansion and most of the jobs created are in the informal sector—tiny businesses with fewer than a handful of employees. When India should be creating more factory jobs, it is actually creating fewer. Five million manufacturing jobs disappeared in India between the fiscal year ending March 2005 and the fiscal year ending 2010, the Goldman report says.

Asia's Middle Class Isn't All About the Bling, Survey Says - Real Time Economics - WSJ: Asia’s explosively emerging middle class has received no shortage of attention in recent years, with consumer companies scrambling to get a foothold in places like China, where the market is nearly as big as the entire population of the U.S. Typically defined as people who spend between $2 and $20 a day, the emerging middle class population in all of Asia today stands at around 565 million. But buying habits are far different from middle class consumers in the West. On a budget of $2 a day, they’re not all buying cars and kitchen appliances. A recent study released by the Eden Strategy Institute in Singapore attempts to uncover the needs and spending behaviors of Asia’s middle class – a population it estimates will reach 3.5 billion by 2030, with 85% of the growth occurring in developing markets in China, India, Indonesia, Malaysia, Myanmar, the Philippines, Thailand and Vietnam. Through a series of questions related to household income and daily spending, it found a few interesting insights based on responses from people in Indonesia, India, the Philippines and Vietnam. Emerging middle class consumers in those countries, for example, value friendship more than their homes. But they would rather lose their savings than their houses. They are most afraid of losing their health, but more than 70% don’t have insurance plans. Although McDonald’s has just opened its first store in Vietnam, [link] where Internet and mobile penetration rates are high, more respondents there said they would rather live without mobile phones than fast food.

The Reserve Bank of Australia (RBA) needs to devalue the Australian dollar - I just read this. The Reserve Bank of Australia (RBA) needs to devalue the Australian dollar. One reason why Australian industry is losing out to Asian companies and corporations is NOT because they are somehow inefficient or uncompetitive, it's because many Asian nations deliberately keep their currencies low in order to boost their industry. Australia allows the Foreign Exchange (forex) market to determine the price of the Australian dollar, while nations like Singapore, China and Japan actively intervene to run current account surpluses and boost their industrial sector. The forex market is NOT operating the way a market should, and by allowing the Australian dollar to "float" has turned our country into a nation of consumers and borrowers, while our trading nations have turned into nations of producers and savers who desperately need us to borrow and consume more and more and more. To protect jobs and to protect the nation, the RBA needs to actively intervene in the forex market to devalue the Australian dollar. The goal of this should not be a pegging of the currency, but rather a balanced current account. The result will be higher inflation and higher interest rates, but it will protect jobs. People would rather be employed and for things to be a bit more expensive than be unemployed and be able to buy cheap stuff from Kmart.

US allows Boeing airplane component sales to Iran: The US Treasury has granted plane manufacturer Boeing a licence to export certain spare commercial parts to Iran, a company spokesman says. Boeing has had no public dealings with Tehran since 1979. In a statement, the US company said the licence had been granted for the safety of flight. The step is being seen as part of a temporary agreement to ease sanctions on Tehran that US Secretary of State John Kerry reached with Iran last year. Under the deal brokered in November, Iran agreed to curtail its nuclear activities for six months in exchange for sanctions relief from nations including Britain, China and the US. US company General Electric said late on Friday it had received US permission to overhaul 18 engines sold to Iran in the late 1970s. That work would be carried out at GE facilities or at German firm MTU Aero Engines, it said. Iran Air is still flying passenger planes bought before the 1979 hostage crisis, during which 52 Americans were held hostage in Tehran for 444 days. Iran has reportedly argued that sanctions imposed after the hostage ordeal have prevented Tehran from upgrading its plane fleet and reduced the safety of its aircraft. There have been more than 200 accidents involving Iranian planes in the past 25 years, leading to more than 2,000 deaths, reports say.

Baltic Dry Drops 9th Day In A Row; Worst Q1 In Over 10 Years - For a few weeks there, as the Baltic Dry Index rose, talking-heads were ignominous in their praise of the shipping index as a leading indicator of an awesome future ahead for the world economy. The last 9 days have smashed that 'hope' to smithereens (and yet the talking-heads have gone awkwardly silent, having moved on to some other bias-confirming meme). The Baltic Dry is down 25% in the last 2 weeks, back near post-crisis lows, and has just suffered the worst start to a year in over a decade. But apart from that, seems global trade is all-good and about to take off any minute now...

Emerging Markets Will Grow, Just Not at Such Stellar Pace, IMF Says -- Is the recent deceleration in emerging market growth permanent, or just a temporary lull? It’s transitory, says the International Monetary Fund in a paper published Thursday. But don’t expect a return to the stellar levels seen in recent years. Growth in emerging markets has waned in the last year, forcing a downward revision to global growth estimates. There are two competing theories on why. Some economists say the growth spurt was temporary, fueled by low borrowing costs and high commodity prices. “The extraordinary credit and commodity booms are over and many emerging economies are financially fragile,” “The hiatus is likely to last many years.”Others argue that the stellar performance of the last decade was forged through well-crafted economic policies that will continue to deliver robust returns in growth for years to come.The reality is likely somewhere in between, the IMF says in an analytical chapter of its new World Economic Outlook. (The full outlook, with updated economic forecasts, is due out Tuesday.)“Positive external conditions provided emerging market economies with the opportunity to strengthen their economic policies and reforms,” the fund said. But while growth may soften as those conditions unwind, it will remain strong,” the fund said. Why does it matter? Because emerging markets are now large enough to sway the fate of the global economy.

Credit markets open to Argentina for first time in years: ministry (Reuters) - Argentina has been approached by financial institutions offering it loans at favorable rates, the economy ministry said on Sunday, marking a tentative reopening of international credit markets for the first time in over a decade. The economy ministry issued a statement on Sunday, saying it had received offers of credit from abroad. It did not name the institutions. "In recent weeks ... various financial institutions have presented proposals of access to external financing with repayment timetables and interest rates similar to those offered to other countries in the region," it said. It would be the first time Argentina has received loans from international creditors since a massive default in 2002. The offers followed Argentina's $5 billion settlement with Spain's Repsol (REP.MC) over its expropriation of YPF and progress on talks to repay over the $9.5 billion Caracas owes the Paris Club creditor nations, said the ministry.

Venezuela Orders Landlords to List Homes for Sale - Forget rent control: Property owners in Venezuela are being squeezed by a new law requiring them to sell to longtime tenants. A decree published Monday gives landlords just 60 days to offer tenants who have rented for more than 20 years the chance to buy their apartment. Landlords who don't oblige face fines of more than $40,000 at the official exchange rate. The decree says landlords can charge only a "fair price" for an apartment. Paperwork outlining a home's price will have to be submitted to the government. The measure is part of the socialist government's effort to tackle a chronic housing shortage and comes on the heels of other initiatives to protect tenants from being evicted even if they stop paying rent. Property owners are outraged and say the measure will only further dampen investment in the rental market and fuel growth of an illegal black market for renting apartments.

Why Did BRICS Back Russia on Crimea? -- The BRICS grouping (Brazil, Russia, India, China, and South Africa) has unanimously and, in many ways, forcefully backed Russia’s position on Crimea. The Diplomat has reported on China’s cautious and India’s more enthusiastic backing of Russia before. However, the BRICS grouping as a whole has also stood by the Kremlin. Indeed, they made this quite clear during a BRICS foreign minister meeting that took place on the sidelines of the Nuclear Security Summit in The Hague last week. Just prior to the meeting, Australian Foreign Minister Julie Bishop suggested that Australia might ban Russia’s participation in the G20 summit it will be hosting later this year as a means of pressuring Vladimir Putin on Ukraine. The BRICS foreign ministers warned Australia against this course of action in the statement they released following their meeting last week. “The Ministers noted with concern the recent media statement on the forthcoming G20 Summit to be held in Brisbane in November 2014,” the statement said. “The custodianship of the G20 belongs to all Member States equally and no one Member State can unilaterally determine its nature and character.”

Ukraine a threat to global economy, warns IMF chief Christine Lagarde - - International Monetary Fund managing director Christine Lagarde has warned that the political crisis around Ukraine poses a danger to the broader world economy. In a speech in Washington, Ms Lagarde said global growth five years after the Great Recession "remains too slow and weak" and faces multiple threats. For one, low inflation, especially in Europe and Japan, are dangers for demand and output and consequently jobs, Ms Lagarde said. She said the European Central Bank should consider lowering interest rates further and using unconventional policies to support growth. A second key threat is high corporate leverage in emerging economies, which if not adequately addressed will be worsened by the turmoil from eventual monetary tightening in advanced economies, especially the US."The third obstacle is the rise of geopolitical tensions, which could cloud the global economic outlook," she said. "The situation in Ukraine is one which, if not well managed, could have broader spillover implications." In addition to Ukraine are other geopolitical problem areas, she added. "Resolving them requires not only good policies, but good politics. Both are essential to enable the global economy to move into a higher gear."

Attention Deficit Dystopia -- Kunstler -  Apparently someone at the US State Department put out the fire in John Kerry’s magnificent head of hair, because he has stopped declaiming (for now) on the urgent need to start World War Three over Russia’s annexation of the Crimean peninsula. In my lifetime, there has never been a more pointless and unnecessary international crisis than the current rumble over Ukraine, and it’s pretty much all our doing.   After all, we kicked it off by financing the overthrow of Ukraine’s elected government. How do you suppose the US would feel if Moscow engineered the overthrow of the Mexican government? Perhaps a little insecure? Perhaps even tempted to post some troops on the border?  Since the end of the Cold War, the US has engaged in a nonstop projection of power around the world with grievous results in every case except in the breakup of Yugoslavia. The latest adventures in Iraq and Afghanistan, have been the most expensive — at least a trillion dollars — and mayhem still rules in both places. In fact, news reports out of Kabul on NPR this morning raised doubts that the scheduled elections could take place later this week. The country’s so-called Independent Election Commission has been under rocket attack for days, the most popular hotel for foreign journalists was the site of a massacre two weeks ago, and the Taliban remains active slaughtering civilians in the lawless territory outside of the Afghan capital.   Of course, even those dreadful incidents raise the rather fundamental question as to why anything about Afghanistan really matters to the USA. How many years will it take for us to get over the fact that Osama bin Laden ran a training camp for jihadists there? Right now you can be sure that somewhere between Casablanca and East Timor there are training camps for religious maniacs and thousands more casual meet-ups among aggrieved young men with testosterone boiling in their brains. Are we going to invade every land where this goes on? The USA is exhibiting pretty severe signs of that sclerosis in the demented behavior of its leaders in episodes such as the current unnecessary manufactured fiasco over Ukraine to the physical deterioration of our towns, roads, bridges, and all the plastic crap we managed to smear over the mutilated landscape to the comportment of our demoralized, mentally inert, drugged-up, tattoo-bedizened populace of twerking slobs.

Measuring Global Bank Complexity - NY Fed - If we look at a given banking organization, we ought to be able to state whether it is more or less “complex.” And yet, such an approach hardly offers any guidance if one wants to understand the intricacies of global banks and to monitor and regulate them. What should be the appropriate metrics? It seems to us that there is not a consensus just yet on what complexity might mean in the context of banking. The global dimension of a bank adds many layers, so focusing on global banks is bound to yield a more comprehensive take on the issue than examining purely domestic banking entities. Therefore, in this piece, we view complexity through the lens of the operations of global banks.  In our recent research, we focus on three broad measures. The first is “organizational” complexity, indicating to what degree the organization is made up of separate affiliated entities. This concept is separate from what we define as “business” complexity, which refers to the type and variety of activities that are conducted within the walls of a given entity. Both are relevant concepts. Organizational complexity seems to fit more with concerns surrounding resolution, fragmentation, cross-border systemic risk, internal liquidity dynamics, managerial agency frictions, and "too big to fail." Business complexity concepts may speak more to the diversification and fragmentation of the type of production that is undertaken by organizations, with concerns surrounding efficiency. The third metric, “geographic” complexity, overlaps with both organizational and business complexity concerns, and refers to the dispersion of affiliated entities across borders internationally.

Where Are Real Interest Rates Headed? - IMF Blog - In the past few years, many borrowers with good credit ratings have enjoyed a cost of debt close to zero or even negative when it is adjusted for inflation. In other words, real interest rates, and, thus, the real cost of borrowing, have been about zero. The rate decline has been global—average global 10 year real rate declined from 6 percent in 1983 to almost zero in 2012 (see figure). Because the recent interest rate declines reflect, to a large extent, weak economic conditions in advanced economies after the global financial crisis, some reversals are likely as these economy returns to a more normal state. High and rising debt levels in advanced economies; population aging; monetary policy tapering; financial deepening in emerging market economies, which would reduce borrowing constraints and thereby net saving—these are all factors that would suggest a substantial increase in interest rates in the medium term. Other factors, however, would work in the opposite direction: long-lasting negative effects of the global crisis on economic activity; persistence of the “saving glut” in key emerging market economies; and renewed declines in the relative price of investment goods.  The forthcoming analytical chapter of the World Economic Outlook constructs a new dataset of real interest rates for a wide set of countries and provides a perspective on where real interest rates and, more generally, the cost of capital are heading.

French Unemployment At Record High: The number of registered unemployed in France rose to a new record high in February, the labor ministry showed Wednesday. Registered job seekers increased by 31,500 or 0.9 percent to a record 3.348 million in February. Compared with the same period of last year, unemployment climbed 4.7 percent. The number of jobseekers below the age of 25 increased 0.3 percent and that between 25 and 49 rose 1 percent. According to the statistical office, Insee, the ILO jobless rate for metropolitan France and overseas departments decreased to a seasonally adjusted 10.2 percent in the fourth quarter of 2013 from 10.3 percent a quarter ago. Data from labor ministry poses a big blow to President Francois Hollande's Socialist government during local elections. Hollande is likely to reshuffle his government and replace Prime Minister Jean-Marc Ayrault.

Spain Misses 2013 Budget Deficit Target in Spite of Massive Tax Increases; So Much Pain for Virtually No Reward -   The official results are in. Spain missed its budget deficit target considerably by reasonable reporting, barely by another. Via translation from Libre Mercado please consider Spain's Budget Deficit Only Two Tenths Lower in 2013 Despite Massive Tax Increase. Spain's budget deficit fell from 6.84% of GDP in 2012 to 6.62% of GDP last year. The budget goal was far less ambitious than previous, but still did not met the commitment to Brussels. The Government has published today the first official public deficit figure for the end of 2013, there will be new reviews in the coming months and a year, but Spain has deviated from the intended target. Specifically, the government recorded a hole of 6.62% of GDP in 2013 (67.755 billion euros), one tenth of a percentage point above the limit of 6.5% agreed with the European Commission, according to Finance Minister Cristobal Montoro, in a press conference after the Council of Ministers. However, the announced figure does not include the cost of financial aid reported last year (0.46%), so that the actual deficit stood at 7.08% of GDP.

Peaceful Indignation Turns to Violent Rage in Rajoy’s Spain: After years of predominantly peaceful demonstrations, things are beginning to turn decidedly ugly on the city squares, streets and avenues of austerity-hit Spain. On Saturday 22nd March, hundreds of thousands of protestors from all corners of the country converged on Madrid’s city centre to express their dissatisfaction with the current government. It was the first nationally coordinated grassroots response to the repressive social and economic policies and widespread corruption of Spain’s ruling political caste. “We are in a state of emergency, facing economic, political, ethical and moral circumstances of exceptional severity,” said Julio Anguita, one of the organisers of the movement. “And the people are growing weary, especially when they realize that there is no future under the current system.” However, what began as a peaceful march soon descended into uncontrolled violence. As the sun descended and the shadows grew on Madrid’s city streets, gangs of hooded youth began hurling stones, bricks and rocks at the windows of high street banks and big retail stores. Within no time hundreds of truncheon-wielding, rubber bullet-firing riot police had joined the mix, delivering their usual dose of indiscriminate law-and-order medicine.

Swiss Antitrust Regulator Probes Eight Banks Over FX-Rigging -  The Swiss Competition Commission said it’s investigating UBS AG (UBSN), Credit Suisse Group AG (CSGN) and six more banks as the probe into the alleged manipulation of foreign-exchange rates deepens. The authorities are examining whether firms colluded to fix foreign-exchange rates, the Bern-based watchdog, also known as Weko, said in a statement today. JPMorgan Chase & Co. (JPM), Citigroup (C) Inc., Barclays Plc (BARC) and Royal Bank of Scotland Group Plc are among the other firms being probed, along with Zuercher Kantonalbank and Julius Baer Group (BAER) Ltd., Weko said. More banks and brokers may have been involved, the regulator added. The competition commission, which began a preliminary investigation into currency trading in September, was among the first to probe manipulation in the $5.3 trillion-a-day currency market after Bloomberg News reported in June that traders colluded to rig the benchmark WM/Reuters rates. At least a dozen regulators around the world are now investigating.

French public debt at record high -  French public debt decreased in 2013, but is still higher than expected. Total debt continues to climb and fails to meet the Maastricht criteria. . EurActiv France reports; Despite austerity measures, France's public deficit did not meet its government targets for 2013. The French National Institute of Statistics and Economic Studies (INSEE) published figures showing that it currently stands at 4.3% of GDP. The French government expected this percentage to be 4.1%, whilst the European Commission predicted 4.2%. However timid, the reduction of public deficit from its previous level of 4.9%, in 2013, is still a significant improvement. Struggling with revenue On closer inspection, the statistics should worry the French government. Although expenses reached target reductions from 3% in 2012 to 2%¨in 2013, revenue is lower than expected. Revenue has decreased from 3.3% compared to 3.7% in 2012. The state has reduced its financial needs, but those of local administrations have increased. According to a press release from the French Ministry of Budget, Public Accounts and Civil Administration, “measures to restore public accounts recorded a historical 2.5 percentage points of GDP, whereas unfavourable economic conditions adversely affected revenues by 1.5 percentage points. The implementation of expenditure, consistent with expectations, proves the government’s ability to meet spending targets set by the parliament”.

France warned by EU on budget deficit: - The European Commission Tuesday warned France to bring its budget deficit in line with the European Union's limit of 3 percent of gross domestic product after its deficit was announced 4.3 percent for last year. The commission said it would give no more time for the country to meet the limit. According to the European Union single currency criteria, set out in the Treaty of Maastricht, member states’ national budget deficit must be at or below 3 percent of GDP. However, France, the second biggest economy in the EU after Germany, had a 4.3 percent deficit last year and 4.9 in 2012. This is despite austerity measures taken by the government such as expenditure cuts worth 50 billion euros until 2017. The Court of Account of France has warned many times in recent months that France must reform urgently to control its public finances. But the government, under the control of Socialist President Francois Hollande, faces domestic strains in making deeper cuts in spending to help businesses and reduce unemployment. On Monday, President Hollande hinted that they would ask to the European Commission, which has already granted Paris two extra years, more time to meet the limit. But Eurogroup president and Dutch finance minister, Jeroen Dijsselbloem, said on Tuesday: "France is well aware of its commitments. It's been given two years and there is obviously work to be done."

Eurozone unemployment stuck near record high -- The 18-country eurozone may have emerged from recession last year, but that has done little good to the jobs market, with unemployment stuck near a record high since then.A new report on Tuesday showed that while the number of jobless in the currency union dipped in February, the unemployment rate remained at 11.9 percent — where it has been since October after peaking at 12.1 percent earlier in the year.The figures, published by the Eurostat statistical agency, illustrate how long it will take for the continent's hardest-hit countries to return to economic health after years of financial upheaval."The figures suggest that the economic recovery is still too weak to make a significant dent in the high level of unemployment," said analyst Jonathan Loynes of Capital Economics.The situation varies wildly from country to country.While Germany continues to enjoy a low jobless rate of 5.1 percent, countries that had to make spending cuts to reduce debt are still suffering.Spain has the bloc's highest rate alongside Greece — at 25.6 percent, down only slightly from 25.8 percent in January. Italy's labor market is in fact worsening — unemployment rose to a record 13 percent from 12.9 percent a month before.Overall, the number of unemployed in the eurozone dropped, but only by 35,000, leaving almost 19 million still out of work.

Eurozone unemployment steady near record high - (AP) — The unemployment rate across the 18-country eurozone was steady near record highs in February, official data showed Tuesday, indicating the economic recovery is not sufficiently strong to create enough new jobs. While the number of jobless dropped slightly, the unemployment rate remained flat at 11.9 percent, where it has been since October, according to Eurostat, the European Union's statistical agency. It peaked at 12.1 percent last year. "The figures suggest that the economic recovery is still too weak to make a significant dent in the high level of unemployment," said analyst Jonathan Loynes of Capital Economics. The rate for the wider 28-nation EU — which includes members like Britain and Poland that don't use the euro currency — dipped to 10.6 percent from 10.7 percent in January. Some 65,000 people found new jobs during the month in the wider EU and 35,000 in the eurozone. The number of unemployed in the EU was down by 785,000 over the previous 12 months, during which time the economy emerged from recession and the recovery spread to the most crisis-hit economies in southern Europe.

European Inflation Slides To Lowest Since 2009 -- Back in October, when European inflation shocked market observers after it tumbled to a then (revised)low of 0.7%, the reaction by the ECB was to shock everyone and lower rates by 25 bps - a completely unexpected move. Earlier today, Europe shocked everyone once again after it reported that annual Eurozone consumer inflation in March tumbled from 0.7% to a paltry 0.5%, the lowest level since November 2009, below already the depressingly low 0.6% forecast, driven primarily by energy costs which tumbled 2.1% courtesy of Japan continuing to export deflation (where are energy costs soaring? Look at the price of natgas in Japan for a hint).

ECB: One Size Fits None - Eurostat just released its flash estimate for inflation in the Eurozone: 0.5% headline, and 0.8% core. We now await comments from ECB officials, ahead of next Thursday’s meeting, saying that everything is under control. Just this morning, Wolfgang Münchau in the Financial Times rightly said that EU central bankers should talk less and act more. Münchau also argues that quantitative easing is the only option. A bold one, I would add in light of todays’ deflation inflation data. Just a few months ago, in September 2013, Bruegel estimated the ECB interest rate to be broadly in line with Eurozone average macroeconomic conditions (though, interestingly, they also highlighted that it was unfit to most countries taken individually).  In just a few months, things changed drastically. While unemployment remained more or less constant since last July, inflation kept decelerating until today’s very worrisome levels. I very quickly extended the Bruegel exercise to encompass the latest data (they stopped at July 2013). I computed the target rate as they do. Using headline inflation, as the ECB often claims to be doing, would of course give even lower target rates. As official data on unemployment stop at January 2014, the two last points are computed with alternative hypotheses of unemployment: either at its January rate (12.6%) or at the average 2013 rate (12%). But these are just details… So, in addition to being unfit for individual countries, the ECB stance is now unfit to the Eurozone as a whole. And of course, a negative target rate can only mean, as Münchau forcefully argues, that the ECB needs to get its act together and put together a credible and significant quantitative easing program.

Why is the ECB hesitating on monetary easing? -- The Eurozone's unemployment rate is at 12% and holding while the area's youth unemployment is at staggering 24%. Private lending is still contracting (see post) and disinflationary pressures persist even within the "core" states (see chart). The price stability situation in the "periphery" is starting to look outright deflationary - see chart.  The euro is still at mulit-year highs, putting pressure on the area's export businesses. At the same time monetary conditions continue to tighten as the area's central banking system balance sheet approaches pre-LTRO levels.Given the situation, most central bankers would take action. A simple policy change for example could be to suspend the sterilization of securities already held by Eurosystem - see post. But the ECB is hesitating. Why? Here are some reasons:
1. This may upset some folks but the reality is that the ECB is notoriously indecisive as it is pulled into various directions by the member states. Many forget that the institution is relatively new (just over 15 years in existence) and the shock of the recent crisis had left the organization a bit paralyzed. It rarely takes a decisive action unless it's forced by the markets to do so.
2. The ECB is also somewhat distracted as it prepares to take on the massive task of regulating the area's banking system - a responsibility that was not initially part of the central bank's charter.
3. The ECB does not have the dual mandate of the Fed and is only focused on price stability. The central bank views the area's horrible unemployment problem as being outside of its "jurisdiction". While technically correct, many central bankers would regard this narrow interpretation of the rules as shortsighted.
4. The hawks at the ECB continue to view the disinflationary pressures in the euro area as transient.

Bundesbank’s Weidman Says Europe Not in Deflationary Spiral: (Reuters) – The euro zone is not in a deflationary cycle and the European Central Bank (ECB) should not overreact to a slowdown in inflation caused largely by cyclical factors which should prove temporary, Bundesbank President Jens Weidmann said on Saturday. The comments from the head of Germany’s central bank, also a member of the ECB’s governing council, follow remarks last week which investors interpreted as a softening of long-held German resistance to more radical action to support growth. The ECB is running official interest rates at a record low but unlike other major central banks has resisted calls to follow that move with outright “quantitative easing” to pump more money into the economy. Weidmann said that about two thirds of the falloff in euro zone inflation to 0.7 percent, the lowest since the economy was deep in recession in 2009, could be attributed to falls in energy and food prices. “Monetary policy should respond to such factors only in the event of second round effects,” he told a conference in Berlin, saying he would not talk about current monetary policy ahead of the ECB’s monthly policy meeting next Thursday. “With regard to the rate of inflation at the moment, the euro area is not in a self-enforcing downward spiral of price decreases, which is nominally the definition of deflation,” he said.

Deflation Dementia By William K. Black -- There must be some café in Brussels where all the most inept U.S. financial journalists meet with to get their take on eurozone deflation.  Regular readers know that I am a strong critic of much of what passes for financial journalism, but there are special qualities to the U.S. coverage of the topic of eurozone deflation.  It is so homogenous and its logic is so internally inconsistent that it is breathtaking that so many journalists can repeat the same demented “logic” no matter how many times we explain that it is facially nonsensical. The latest example of this genre is an AP story that has already been reproduced by elite media without even a scintilla of scrutiny.  Here’s how the AP begins its tale. After breaking out of recession and taming its financial crisis, Europe now faces a new kind of economic threat — deflation, a protracted drop in prices that can snuff out growth for years. New data released Monday showed the inflation rate fell in March to its lowest level since the 2008-2009 global financial crisis, a sign of economic weakness that piles fresh pressure on the European Central Bank to further ease its monetary policies this week. The key logical flaw is displayed in the phrase “Europe now faces a new kind of economic threat.”  No, the eurozone suffers the same reality that it has been the victim of since 2008 – grossly insufficient demand.  That is what caused both of its recessions, which largely “snuff[ed] out growth” for the last six years.  A recession has a technical meaning that often has little practical meaning.  If a country has even the most pathetic economic growth in a quarter, e.g., 0.1%, its recession is defined as finished.  It can have Great Depression levels of unemployment, but it “break[s] out of recession.”  The (insane) tone of the article is that the eurozone has just triumphed over recession by producing a positive growth so immaterial that unemployment went down a tiny amount primarily because many of the eurozone’s unemployed workers were so discouraged that they migrated to other nations.  That’s an economic failure, not a success.

Dr. Draghi Prescribes a Dose of Deflation for Spain as his latest Quack Cure - William K. Black -- I posted an article earlier today on the demented memes about eurozone deflation U.S. financial journalists parrot after talking to Brussels’ troika-trolls.  That article used the latest AP story to illustrate my points. I promised a second installment that used a New York Times article (not sourced to AP) that was posted last night to illustrate the meme.  The NYT article is simultaneously more complex and more alarmingly analytically awful than the AP piece.   This article discusses one sentence from last night’s NYT piece that notes the position on deflation of the head of the European Central Bank (Mario Draghi).  The NYT article misses the significance of the passage.  I show how the passage, particularly when read in conjunction with quotations from Draghi’s fellow troika-trolls in the articles about France and Italy, reveals the troika’s fanatical devotion to failed dogmas and the clueless nature of U.S. financial journalists covering the eurozone who continue to treat the trolls like savants. “Mr. Draghi has said low inflation is concentrated in crisis countries where falling prices are welcome and necessary to regain competitiveness on world export markets.” The NYT article is so clueless that its response to Draghi’s statement is this non sequitur. “But that argument becomes more difficult to make when countries like Germany, where unemployment is low and growth is solid, also have very low inflation.” Draghi’s statement is nonsensical and the NYT response is not to point out any of the reasons it is nonsensical but instead to double-down on nonsense.  It makes one cringe.

The New York Time’s Disgraceful Reporting about DeflationWilliam K. Black -- This is the third and final installment of a series of columns discussing the latest harmful policies and articles about eurozone deflation.  This column discusses the March 31, 2014 article in the New York Times entitled “Another Worrisome Drop in Euro Zone Inflation.”  I have already discussed the extraordinary sentence in the article in which the head of the European Central Bank (ECB), Mario Draghi, is cited as claiming that deflation is desirable for eurozone nations suffering Great Depression levels of unemployment.  Draghi claims that deflation will cause reductions in working class wages and prices that will lead to increased exports and economic recoveries.  I explained in prior columns that this is contrary to the ECB’s written policies and economic theories and the views of virtually all economists.  The NYT article does not report these facts.I noted in my first column that the NYT article is more sophisticated than the AP story on deflation, but is even more disturbing in its analytical failures. I noted in my second column that the NYT article does not contain the words “demand” or “fiscal.”That means the article does not discuss either causality or the effective options to counter the cause of the eurozone’s critical problems (including deflation) – grossly inadequate demand.  That’s an astonishing failure and it should be unacceptable for journalists.The article also uses the word “unemployment” only once and even that usage ignores the eurozone nations with Great Depression levels of unemployment and the resultant grotesque human misery that the troika has gratuitously inflicted upon these victims.  That too should be unacceptable for journalists.To sum it up to this point, the troika-trolls spoon feed the U.S. journalists supposedly covering Europe’s disastrous response to the financial crisis a narrative in which everything a reader needs to know is systematically removed from the articles.

ECBs deflation paralysis drives Italy, France and Spain into debt traps -  The European Central Bank has let it happen. Deflation has been running at an annual rate of -1.5pc in the eurozone over the past five months, when adjusted for austerity taxes. Prices have been falling at a pace of 6.5pc in Greece, 5.6pc in Italy, 4.7pc in Spain, 4pc in Portugal, 3pc in Slovenia and nearly 2pc in Holland since September, based on my rough calculations (annualised) of Eurostat monthly data. The rise of the euro against the dollar, yen, yuan and the currencies of Brazil, Turkey and developing Asia, account for some of this imported deflation. Euroland's trade-weighted index has risen 6pc in a year. But that is no excuse. It is the direct consequence of the ECB's own monetary policy. Frankfurt could force down the euro at any time by signalling a determination to do something about its predicament. It has chosen not to do so, hoping that a few dovish words spoken without conviction will somehow turn the global tide. It is hard to judge at what point deflation becomes embedded in the system. Factory gate prices have been slipping since mid-2012. The pace quickened to -1.7pc in February, the steepest decline since the Lehman crisis. But this time it is not the one-off effect of a financial crash. It is chronic, and more insidious.

Draghi Says Officials Debate QE to Fight Deflation Risk -- Mario Dragi said the European Central Bank is ready to move deeper into uncharted territory in the fight against deflation, with policy makers debating what form of quantitative easing they might need to use.  “There was a discussion about QE, it wasn’t neglected,” the ECB president said at a press conference in Frankfurt today after keeping the benchmark interest rate unchanged at a record-low 0.25 percent. “There are obviously different preferences about which QE would be more effective. We will continue working on that in the coming weeks.”  QE, or large-scale purchases of assets intended to bolster prices and economic growth, would be the ECB’s most ambitious measure yet as it grapples with inflation at just a quarter of the central bank’s goal. At the same time, the Governing Council faces substantial hurdles to develop a policy suitable for the 18-nation currency bloc.  “There’s been an evolution regarding QE, from a situation where there was clear, strong ideological opposition to it, to a situation now where there is support in the right circumstances. I take them at face value.”

ECB addresses the zero lower bound - Although the European Central Bank took no concrete action on Thursday in the face of a decline in consumer price inflation to only 0.5 per cent in March, president Mario Draghi’s statement contained new language which has moved the goalposts for future action by the bank. By stating that the governing council is now unanimously willing to adopt quantitative easing in order to cope with prolonged low inflation, the statement substantially alleviates the risk of secular “lowflation” that has been worrying investors for some time. On Thursday the president said that unconventional policies could indeed be used to cope with prolonged low inflation (ie, not outright deflation). He added that a situation of stagnation with prolonged low inflation was not only his main concern, but that he actually believed it was already happening. He also emphasised that the governing council was unanimously in support of this commitment. Having said all that, the governing council muddied its message by deciding to take no action whatsoever on Thursday. This leaves hanging the usual question: if not now, then when? One reading of Mr Draghi’s guidance would suggest that action will only be forthcoming if inflation projections are revised down further from here. Market sceptics will point out that Mr Draghi has been a man of many words and few actions in the past few months, and they will conclude that much of what he said today is bluster.

Banking Union Time Bomb: Eurocrats Authorize Bailouts AND Bail-Ins - Ellen Brown - European Union officials reached an historic agreement to create a single agency to handle failing banks. Media attention has focused on the agreement involving the single resolution mechanism (SRM), a uniform system for closing failed banks. But the real story for taxpayers and depositors is the heightened threat to their pocketbooks of a deal that now authorizes both bailouts and “bail-ins” – the confiscation of depositor funds. The deal involves multiple concessions to different countries and may be illegal under the rules of the EU Parliament; but it is being rushed through to lock taxpayer and depositor liability. The bail-in provisions were agreed to last summer. According to Bruno Waterfield, Under the deal, after 2018 bank shareholders will be first in line for assuming the losses of a failed bank before bondholders and certain large depositors. Insured deposits under £85,000 (€100,000) are exempt and, with specific exemptions, uninsured deposits of individuals and small companies are given preferred status in the bail-in pecking order for taking losses . . . Under the deal all unsecured bondholders must be hit for losses before a bank can be eligible to receive capital injections directly from the ESM, with no retrospective use of the fund before 2018. As noted in my earlier articles, the ESM (European Stability Mechanism) imposes an open-ended debt on EU member governments, putting taxpayers on the hook for whatever the Eurocrats (EU officials) demand. And it’s not just the EU that has bail-in plans for their troubled too-big-to-fail banks. It is also the US, UK, Canada, Australia, New Zealand and other G20 nations. Recall that a depositor is an unsecured creditor of a bank. When you deposit money in a bank, the bank “owns” the money and you have an IOU or promise to pay. Under the new EU banking union, before the taxpayer-financed single resolution fund can be deployed, shareholders and depositors will be “bailed in” for a significant portion of the losses. The bankers thus win both ways: they can tap up the taxpayers’ money and the depositors’ money.

Italian Bond Yields Tumble To Record Low As Spain Drops Below Treasuries |- Presented with little comment aside to ask, WTF?  It seems there is a lesson here for all... push your unemployment rate to record highs, loan delinquencies to record highs, and depress your people to record high suicide rates... and voila... low cost of funding is guaranteed (surely there is a recipe here for Ukraine or Turkey or...) Oh, and you absolutely must have a central banker with a 'promise pony'.

UK PMI Points To Moderating Growth, Inflation - A survey of purchasing managers released Tuesday indicates the U.K.’s economic recovery may be moderating. Coupled with low and falling inflation, that suggests the bank of England is unlikely to contemplate a rise in its benchmark interest rate for some time to come. Data firm Markit and the Chartered Institute of Purchasing & Supply’s manufacturing purchasing managers index slipped to 55.3 in March, well below expectations, and down from February’s 56.2. The slower pace of expansion was caused by fewer new export orders, with some firms indicating less demand from clients in the Asia-Pacific region, the survey showed. However, the long-run average manufacturing PMI is 51.4, and Markit said the March figures continue to imply that gross domestic product grew 0.7% in the first quarter of this year. Domestic orders remained healthy, while job creation rose for an eleventh straight month and at a similar pace to February’s three-year high.In a sign that inflationary pressures may be easing, manufacturers reported the first fall in the cost of raw materials in 18 months. That led to firms raising output prices at the slowest pace in seven months.

Financial Stability Board Warns Sharp Market Adjustments May Expose System Vulnerabilities - Large movements in interest rates could threaten the postcrisis economic peace, the Financial Stability Board said Monday. The world’s financial system is in better shape now than it has been in some time, thanks to the raft of overhauls that regulators have pushed through since the 2008 crisis. However, the FSB, which coordinates the global regulatory response to the crisis on behalf the Group of 20 largest industrial and emerging economies, warned that the system could again come under stress in the form of “sharp adjustments in interest and exchange rates.” “Some emerging markets may experience a combination of slower growth, capital outflows and higher borrowing costs which may expose vulnerabilities,” the FSB said in a press release after a plenary meeting in London. Although it didn’t spell out the source of such a shock, economists are concerned that the central banks of some major economies such as the U.S. and the U.K. may have to raise interest rates earlier than currently predicted as their recoveries gain momentum. FSB Chairman Mark Carney said the group had made good progress on the central plank of its policy agenda, ending the threat of banks that are “too-big-to-fail.” Progress on this issue has been slow, owing to the difficulty of persuading individual regulators to cooperate effectively in cleaning up a failed bank with business in multiple countries. The FSB is due to present a set of proposals to the G-20′s leaders at a summit in Brisbane in November. On the issue of how to treat derivatives in a cross-border resolution–a particularly thorny issue–Mr. Carney said the FSB would ask the financial industry to come up with a solution by September. Regulators have tried to persuade the International Swaps and Derivatives Association, or ISDA, to revise the terms of a master agreement governing derivatives contracts so as to suspend derivatives claims on a failed bank until it is clear how the institution can be resolved. ISDA argues that the idea is unworkable.

The Consumer Student -- The once highly-regarded British public university is not quite dead but it is in terminal care. After half a century of global success on public funding that amounted to less than 1.5% of Britain’s GDP, in the space of two years we’ve seen the partial withdrawal of the state from the sector, and it is expected that this is a precursor to full withdrawal followed by extensive privatisation. With the overnight tripling of tuition fees in 2010 (in the face of widespread protests) and with further rises in the offing, the student has been reframed as a consumer buying private goods in the form of a degree. Combine this with a mortgage and you have a large number of citizens who are unlikely to be debt-free at any point in their life. Formerly known as a university, the service provider of higher education is now to sink or swim in response to the pressures of competition, as degree-awarding corporations rather than sites of inquiry and learning. Ironically, however, it turns out that the new fees regime which David Willetts, the Universities Minister, keeps bizarrely insisting is fairer than the previous one, is actually costing the exchequer more, through the rising costs of subsidising student loans.

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