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

Saturday, May 31, 2014

week ending May 31

How the Fed may deal with its bloated balance sheet » The magnitude of the great recession prompted the Fed to use extraordinary measures to boost consumption growth and investments. The Fed has maintained the Fed funds rate near zero since 2009. Since the Fed couldn’t reduce the Fed funds rate any more, it started with the asset purchase program to provide additional liquidity to the markets. The current phase of the asset purchase program, QE3, started in October, 2012. Originally, the Fed purchased $85 billion worth of securities ($45 billion long-term Treasury securities and $40 billion mortgage-backed-securities) a month. Eventually, after seeing an improvement in the economy, the Fed tapered the asset purchase program four times since December, 2013, by $10 billion each time. The asset purchases currently stand at $45 billion a month. The taper is expected to continue at $10 billion a month. At the current pace, the taper should end this fall.The Fed’s balance sheet size has bloated to $4.3 trillion as on May 14, 2014, compared to pre-crisis level of $870 billion seen on August 1, 2007. This includes $2.4 trillion in U.S. Treasury securities (TLT) and $1.7 trillion in mortgage-backed-securities (MBB). As the asset purchase program winds down and the Fed readies for “normalization” in monetary policy, the biggest question would be “How will the Fed scale down the size of its balance sheet?” Dr. Dudley said that “the balance sheet will be set on auto pilot,” meaning the securities will go off the balance sheet once they mature. This means that the Treasury securities will go off the balance sheet at maturity and the mortgage-backed-securities will go off the Fed’s balance sheet as and when mortgages are paid off. There won’t be an outright sell-off of any security during the normalization process. As a result, adjusting the Fed funds rate would be the primary tool available with the Fed to tighten the monetary policy.

With Central Bank Balance Sheets, Big May Be Beautiful – The Federal Reserve’s ability to pay interest on money that banks park at the central bank changes the dynamics of monetary policy permanently, and in a good way, according to a new paper presented at a Stanford University conference on Fed policy. The Fed has kept its benchmark interest rate near zero since Dec. 2008. In addition, it has bought over $3 trillion in securities to keep long-term borrowing costs low, more than quintupling the size of its balance sheet–the sum of its holdings of bonds and other assets–to nearly $4.3 trillion. The Fed created new money to pay banks for the securities, but banks have parked much of it at the Fed. During the height of the financial crisis, Congress granted the central bank permission to pay interest on that money, called reserves. Many economists, including several at the Fed, worry the creation of so much money risks fueling excessive inflation when the economy picks up steam.  But John Cochrane, an economist at the University of Chicago’s Booth School of Business and the author of the paper, does not seem concerned about that possibility.“A huge balance sheet, with reserves that pay market interest, is a very desirable configuration of monetary affairs,” Mr. Cochrane said. One reason is that it creates another risk-free short-term investment for financial institutions that takes away the incentive for them to seek riskier, more run-prone forms of short-term funding. The Fed’s big balance sheet may bolster rather than damage financial stability by allowing the central bank to meet financial system liquidity needs more quickly in times of crisis, according to Mr. Cochrane. He takes issue with traditional monetary theory that holds that the quantity of money in the financial system is the ultimate determinant of inflation.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--May 29, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Liquidity hoarding and the end of QE -- Isn't this interesting?  Every time QE is announced, yields rise: when it ends, they fall.  Now of course there may be all manner of other explanations for this. Correlation doesn't indicate causation, ceteris is not necessarily paribus, and all that. Deutsche Bank came up with eleven reasons for falling US Treasury yields, none of which mentioned the taper, and David Ader of CRT Capital Group produced another eleven that didn't mention it either. And I am sure there are plenty more reasons that don't include tapering. But I have a theory. I think it IS at least partly due to the taper. And the reason is the effect that QE has on global liquidity. QE increases liquidity in the financial system, or rather in the regulated part of it*, by buying assets that carry some form of risk - usually duration risk and interest rate risk. This has the effect of moving risk from the financial system to the central bank's balance sheet. The consequence of this is that the financial system is absolutely awash with the safest form of safe asset, namely cash, and rather short of slightly more risky cash substitutes. Those who want safety have no reason to buy longer-dated treasuries when there is so much cash around, while those who want yield will still prefer riskier assets. Rather than depressing yields on longer-dated treasuries, therefore, QE actually raises them as investors substitute cash for treasuries**. When QE stops, whether suddenly or gradually, there is of course no immediate withdrawal of liquidity. But the sudden removal of the INCREASE in liquidity gives the impression of a drought. It's like someone washing their hands under a running tap instead of in the sink: when that tap is suddenly turned off, or the flow through it is restricted, the washer thinks they have run out of water, even though there is an entire sink full because of the previous flow. This is what is happening in financial markets. The Fed is turning off the QE tap.

QE reduction in time for next speculative kickoff - Real News Network interview & transcript -  It’s been about four years since the financial crash, and the Federal Reserve has been scaling back its program of monthly purchases of government and mortgage bonds. Each month, they’ve tapered off their purchases by $10 billion, and they’re on track for spending $45 billion this year, which is a big dip, considering they spent $85 billion last year. There are certainly a lot of numbers there and financial terms that we need to break down. And now joining us is our guest to give us that bottom line, Michael Hudson. He’s a distinguished research professor of economics at the University of Missouri-Kansas City.

Former Fed Official Calls for Decisions on Rate Hike Mechanics in Coming Months - Brian Sack, a top hedge fund economist and former senior Federal Reserve official, says the U.S. central bank should make some challenging decisions in the next few months about how it plans to implement monetary policy so markets have time to adjust to its evolving approach. Fed officials are in the middle of complex discussions about the plumbing of the monetary system. The Fed’s old interest rate target, an overnight bank lending rate called the federal funds rate, has become less effective because the Fed has flooded the banking system with money. The Fed is now experimenting with two alternative interest rates. One is a rate it pays to banks on the money they park at the central bank, called reserves. The other is a rate it pays market players such as money market funds on short-term bond trades called reverse repurchase agreements, or reverse repos.Officials are trying to decide how to manage these new rates ahead of expected short-term rate increases next year. Rates have been pinned near zero since December 2008. “In my view it would be most effective to reach those decisions over the next several [Fed policy] meetings and to let the market know what those decisions are so we can transition to this new regime during a time when interest rates aren’t very active,” Mr. Sack said in an interview. “This is a very good time actually to be transitioning to a new regime.”Earlier this year, he coauthored a paper with economist Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, recommending that the Fed shift away from targeting the fed funds rate. That rate shifts when the Fed alters the amount of bank reserves in the system. But with the banking system flooded with reserves, the fed funds market has dried up.

Esther George Says Fed Should Begin Rate Hikes ‘Shortly’ After Bond Buys End - The Federal Reserve should begin raising interest rates soon after it winds down its bond-buying program in order to rein in budding risks in the financial system, Kansas City Fed President Esther George said Thursday. Ms. George’s proposal runs counter to the Fed’s prevailing message, which is that it will continue to keep rates effectively near zero for a period after the end of asset purchases, which is expected sometime in the fourth quarter. Wall Street analysts see the Fed beginning to raise interest rates sometime in mid-2015. But Ms. George appears to want to move more rapidly. “I would like to see short-term interest rates move higher in response to improving economic conditions shortly after completion of the ‘taper,’” Ms. George told a conference sponsored by the Stanford University-based Hoover Institution. “Monetary policy makers … need to maintain a careful eye on the financial system and how interest-rate policy affects incentives for financial markets and institutions.” The Fed has been winding down its monthly bond buys by $10 billion per meeting, down to the current pace of $45 billion. In particular, Ms. George said she worries the Fed’s very low rates–and its promise to keep them there for a long time–have distorted incentives in financial markets.

Fed Still Short of Employment, Inflation Goals, Lockhart Says - The Federal Reserve must be patient before it considers raising interest rates even after the central bank winds down its bond-buying program and as the recovery picks up steam, Atlanta Fed President Dennis Lockhart said Tuesday. Mr. Lockhart, speaking in Baton Rouge, La., told an event sponsored by Louisiana State University that he was sticking to his 3% growth forecast for the remainder of the year despite a weak first quarter that he ascribed primarily to weather. At the same time, Mr. Lockhart said there were sufficient remaining signs of weakness in both the labor market and inflation that would allow the policy-setting Federal Open Market Committee to be patient before it begins raising interest rates, which have been effectively at zero since Dec. 2008. “When quantitative easing is done, anticipation of the next policy move will likely intensify,” Mr. Lockhart said. “A combination of a shortfall from full utilization of our nation’s labor resources and inflation below the FOMC’s longer-term objective would, in my view, justify patience in raising policy rates.” The official said “I continue to be comfortable with a projection of the second half of next year” as the most likely time in which the Fed will move to raise interest rates.

Fed Watch: Policy Induced Mediocrity? - Why did the Federal Reserve lean against their optimistic 2014 forecast? It seems that monetary policy over the past year can be summarized as a missed opportunity to supercharge the recovery, thereby locking the US economy into a suboptimal growth path. Last week's speech by New York Federal Reserve President William Dudley noted the reasons monetary policymakers expected the economy to improve this year: Since the downturn ended in mid-2009, real GDP growth has averaged only 2.2 percent per year despite a very accommodative monetary policy. This performance reflects three major factors—the significant headwinds resulting from the bursting of the housing bubble, the shift of fiscal policy from expansion toward restraint, especially in 2012 and 2013, and a series of shocks from abroad—most notably the European crisis. The good news is that all three of these factors have abated.   The Federal Reserve could have chosen to lean into this generally upbeat forecast. Yet instead they chose to lean against it by turning to tapering and setting the stage for interest rate hikes. And the data so far suggests that once again the turn toward policy normalization was premature. The weak first quarter report is more suggestive of holding the recent pace of growth over the next year rather than an acceleration of activity. What is remarkable is that the Federal Reserve understood that their forecasts have tended toward optimism.

In Grist for Fed’s Debate, Researchers Say Unemployment Rate isn’t Undercounting Slack -- New research from the Federal Reserve Bank of Richmond is getting attention from top Fed officials as they debate a critical question: how much slack really exists right now in the U.S. labor market? If policymakers think the job market has considerable slack, with many more available workers than available jobs, they might hold down short-term interest rates for longer to bolster the economic recovery. If they think the labor market is getting tight, they might raise rates sooner to head off inflation as wages rise.The official unemployment rate was 6.3% in April, but that’s just a starting place for the debate. Some economists, like Chairwoman Janet Yellen, have pointed to the large number of Americans out of work for more than six months as evidence of slack. Others, including Princeton University economist Alan Krueger, have said many of those long-term unemployed people are at the margins of the workforce and therefore don’t place as much downward pressure on wages.The Richmond Fed paper wades into the debate. Andreas Hornstein and Marianna Kudlyak, both economists at the regional reserve bank, and McGill University economist Fabian Lange compared the official jobless rate with a broader “non-employment index” that measures unemployed workers available for employment, both in and out of the labor force.The two measures follow roughly the same trend over time, and both now are about halfway back to their pre-recession levels. That similarity, they wrote, suggests the traditional unemployment rate isn’t unusually off base in terms of measuring slack. “In particular, our index does not suggest that the standard unemployment rate understates how much slack there is in the current labor market,” the economists wrote.

How the Liquidity Trap Keeps Inflation Low - St. Louis Fed -  Many reasons have been given for the persistently low inflation the U.S. has experienced for the past few years. A recent article in The Regional Economist examines an alternative reason: the liquidity trap. Typically, an increase in the money supply (such as the increase generated through the Federal Reserve’s large-scale asset purchases) causes inflation to rise as more money is chasing the same amount of goods. During normal times, inflation increases 0.54 percent for each 1 percent increase in the growth of money.1 However, Assistant Vice President and Economist Yi Wen and Research Associate Maria Arias, both of the Federal Reserve Bank of St. Louis, explain that, in a liquidity trap, investors choose to hoard the additional money resulting from an increase in the money supply rather than spend it because the opportunity cost of holding cash—the forgone earnings from interest—is zero when the nominal interest rate is zero. If this increase in money demand is proportional to the increase in the money supply, inflation will instead remain stable. If money demand increases more than proportionally to the increase in money supply, the price level falls.

Fed’s Pianalto: Fed Has Succeeded at Checking Inflation - In her final public appearance as leader of the Cleveland Fed, Sandra Pianalto said she was “very proud” of the U.S. central bank’s inflation-fighting record. Her remarks Friday capped a long career within the Federal Reserve system. Ms. Pianalto joined the Cleveland Fed in 1983, rising to become its president in 2003. She is being replaced by Loretta Mester, who will speak later Friday. Ms. Pianalto used her valedictory address to talk about inflation and its importance in the economy. “Price stability is a fundamental driver of economic growth,” the official said. She said the need to understand what’s happening with price dynamics has been a driving mission of the Cleveland Fed. Ms. Pianalto was very upbeat about how the Fed has managed price pressures. “The Federal Reserve has successfully fulfilled its mission to keep high and variable inflation in check,” she said. But the central banker added the performance of prices over the economic and financial difficulties of recent years has been bracing. She said she’d had the “unique but not fully welcome experience of seeing inflation as a two-sided threat,” adding “the problems associated with inflation that’s persistently low can be equally harmful.” She was referring to the very weak levels of inflation the Fed has been contending with for some time now. The Fed wants inflation to be at 2%. But even with extremely aggressive actions to drive up growth and lower unemployment, inflation has been coming in well below that 2% mark for an extended period. Fed officials have consistently expected inflation to move back toward their target, only to see those expectations dashed. On Friday, the government reported that the personal consumption expenditures price index, the Fed’s preferred price gauge, was up by 1.6% in April versus a year ago. That was the highest level since November 2012.

Inflation Overshoot May Be Needed - San Francisco Fed President John Williams weighs in this week with a new research paper on the interplay between long-term unemployment, inflation and monetary policy. His conclusion: The Fed may need to allow inflation to overshoot for a time in order to reduce the army of people out of work for long periods. The Fed’s debate about long-term unemployment is important and getting more interesting. There are two camps on long-term unemployment, defined as six months or more of joblessness. One camp of researchers find that the long-term unemployed are highly disengaged from the economy and therefore have little effect on wages or inflation. This camp finds that for the purposes of assessing the risk of inflation, policy makers should look narrowly at the unemployment rate for people out of work for shorter periods. Measuring just those unemployed for less than six months, the jobless rate was 4.1% in April. The other camp – which includes Fed Chairwoman Janet Yellen — finds the long-term unemployed are still engaged in the economy looking for work. As the economy strengthens and they find work, they will hold down wages and inflation, this camp argues. Including the 3.5 million long-term unemployed, the jobless rate was 6.3% in April.

PCE Price Index: Headline and Core Remain Below Target, But Rising -  The Personal Income and Outlays report for April was published this morning by the Bureau of Economic Analysis. The latest Headline PCE price index year-over-year (YoY) rate of 1.62% is a relatively large increase the previous month's 1.14% (a slight adjustment from 1.15%). The Core PCE index of 1.42% is up from 1.21% the previous month. As I've routinely observed, the general disinflationary trend in core PCE (the blue line in the charts below) must be quite troubling to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction. Since April of last year has hovered in a narrow YoY range of 1.21% to 1.10%, although the April data point has broken above the range. Is this the beginning of a major trend reversal? This will be a closely watched series by the ongoing inflation/deflation debate. The adjacent thumbnail gives us a close-up of the trend in Core PCE since January 2012. I've highlighted the narrow 12-month range that appears to have been breached to the upside in April. The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I've also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. I've highlighted 2 to 2.5 percent range. Two percent had generally been understood to be the Fed's target for core inflation. However, the December 2012 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place.

Inflation Creeps Higher But Undershoots Fed Target For Two Years - U.S. inflation is creeping back toward the Federal Reserve‘s target. The Commerce Department‘s price index for personal consumption expenditures–the Fed’s preferred gauge–climbed 1.6% in April from a year earlier. That was the fastest pace since November 2012, marking the latest sign U.S. inflation is lifting from historically low levels. Core prices, which exclude volatile food and energy components, rose 1.4% from the prior year, the fastest rate since March 2013, the Commerce Department said Friday. The report showed both overall prices and core prices rose 0.2% in April from March. Inflation is still undershooting the Fed’s annual target of 2%, which hasn’t been reached in two years. But Friday’s figures–along with other recent inflation measures–suggest prices are starting to pick up after a long period of dormancy. Fed officials are monitoring inflation signals as they wind down their monthly bond-buying program and debate when to raise short-term interest rates. Central bank officials consider 2% inflation a sign of a healthy economic growth. The persistently low inflation of the past two years has signaled weakness.

Fed’s Plosser: U.S. Inflation is on its Way Back Toward 2% Target -  U.S. inflation is on its way back toward the Federal Reserve‘s 2% target after a long stretch of sluggish price gains, Federal Reserve Bank of Philadelphia President Charles Plosser said Friday. “I’ve been saying for some time that we were going to drift back up toward the 2% goal, and the Fed’s been saying that in its statements,” Mr. Plosser said during an interview on CNBC. “We are drifting back in the right direction. That’s good.” His remarks came after the Commerce Department reported Friday that its price index for personal consumption expenditures, the Fed’s preferred inflation gauge, rose 1.6% in April from a year earlier, and was up 1.4% excluding food and energy. It was the 24th straight month that inflation undershot the Fed’s 2% goal, but an uptick from annual increases of 1.1% in March and 0.9% in February. Mr. Plosser also said Friday that the weak first quarter will “make a dent” in U.S. growth this year, which he had estimated would be 3%. Gross domestic product, the broadest measure of output across the economy, fell at a seasonally adjusted annual rate of 1% in the first three months of 2014, the Commerce Department said Thursday. But he said he expects growth at a 3% annual pace for the remainder of the year. “The weakness in the first quarter is something we’ve been anticipating for some time,” Mr. Plosser said. “The weather had very large effects, and a lot of forecasters–not just me, but a lot of forecasters are seeing a pretty strong rebound in the second quarter in response to the unwinding of those temporary and transitory effects.”

The inflation target orthodoxy has lasted too long - Back in the 1990s inflation targeting was all the rage. I was a sceptic. I recall asking a senior central banker at the time what he would do if faced with stagflation – high inflation, low growth. Would he raise interest rates and force the economy into recession just to meet the target? He said the situation would never arise. He was right. It did not. Inflation targeting became an improbable success. But it is failing now for reasons different from those I feared. Under inflation targeting, a central bank sets itself a target inflation rate, usually about 2 per cent. Armed with new-generation economic models, the bank produces a forecast for inflation and gross domestic product, and fine-tunes its interest rate policies in a way that is calculated to meet the inflation target, usually within two years. A central banker following this regime is supposed to let bygones be bygones. If you miss the target, for whatever reason, you do not have to make up for it next year. You just try to hit it next time. In an age when official interest rates are close to zero, this particular characteristic of inflation targeting has become a problem. Narayana Kocherlakota, president of the Minneapolis Federal Reserve, last week estimated that US inflation would stay below the Fed’s target for another four years. In the eurozone, the situation is worse. Core inflation – excluding food and energy – has been below 2 per cent for more than five years, and will remain low for several years to come. In Japan, by my calculations, the average inflation rate over the past 20 years was almost exactly zero. Once you are down there, it is hard to get up again. Why does inflation targeting not help? It has to do with averages. Take the perspective of a borrower who takes a 10-year fixed-rate loan. The real value of the debt repayments depends on future rates of inflation: the faster prices rise, the less consumption must be given up in order to pay off the loan. If inflation targeting works properly, there should be no surprises; when the loan is taken out, both borrower and lender have a pretty good idea of its real value. But now suppose that inflation undershoots the target in one year. The real value of the loan is therefore greater than expected. In a best-case scenario, inflation will gradually creep up over time. But even then, average annual inflation over the 10 years will be lower than the target rate.

Fed Officials Downplay Financial Stability Concerns - —Three top Federal Reserve officials said Friday worries about financial instability aren’t currently at the top of their list of concerns about the economic outlook. John Williams, president of the San Francisco Fed, said the central bank should be mindful of the possibility that low interest rates and large bond purchases could lead to excessive risk-taking in financial markets, laying the groundwork for possible asset bubbles. Mr. Williams said regulatory policy was best suited to deal with these issues, adding they weren’t currently a constraint on the Fed’s low-rates policy. “I don’t see that as a big constraint today,” Mr. Williams told reporters during a news conference following a two-day event sponsored by the Hoover Institution. His Philadelphia counterpart, Charles Plosser, said he was leery of creating an additional mandate for the Fed to maintain financial stability. But, he added: “I don’t want monetary policy to be the source of financial instability.” Jeffrey Lacker, president of the Richmond Fed, said the best contribution the Fed can make to financial stability is to keep inflation steady and close to its target. He worries that asking the central bank to spot and prick bubbles goes beyond the scope of its mission. “I don’t think you should look at the central bank to iron out all the wiggles,” Mr. Lacker said. The Fed has kept official interest rates at effectively zero since December 2008. It has also bought over $3 trillion in mortgage and Treasury securities in an effort to keep long-term borrowing costs down and support the economic recovery

Is It Time To Eliminate Paper Currency? - The answer is yes according to Ken Rogoff: Has the time come to consider phasing out anonymous paper currency, starting with large denomination notes? Getting rid of physical currency, and replacing it with electronic money, would kill two birds with one stone. First, it would eliminate the zero bound on policy interest rates that has handcuffed central banks since the financial crisis. At present, if central banks try setting rates too far below zero, people will start bailing out into cash. Second, phasing out currency would address the concern that a significant fraction, particularly of large denomination notes, appears to be used to facilitate tax evasion and illegal activity.  Not so fast. One can solve the zero lower bound (ZLB) problem without eliminating paper currency. All that is needed is to either (1) allow the exchange rate between deposits and paper currency to fluctuate or (2) have a systematic approach to monetary policy that is very aggressive when the treat of the ZLB is looming. The former would create a discount on paper notes during slumps so that the Fed could impose a negative nominal interest rate on deposits and get away with it. The latter would use a nominal GDP level target which would both raise money velocity via expectation management and commit the Fed to do whatever is necessary to hit the level target. Both approaches should take care of the ZLB problem. Miles Kimball has written extensively about the first approach and Scott Sumner done the same for second one. Read here for the details of these plans

Economy Shrinks for First Time Since 2011 - The U.S.' Gross Domestic Product contracted by 1 percent in the first quarter of 2014, marking the first contraction in years as government economists revised earlier figures by taking stock of additional glum measures. The U.S. economy shrunk by 1% in the first quarter of 2014, according to government data released Thursday, marking the first economic contraction in three years.The figure, from revised estimates released by the Commerce Department, was revised downwards from an earlier estimate of 0.1% growth in gross domestic product, as government economists took stock of additional glum measures. The Commerce Department noted that on top of a winter wallop to retail and construction, real GDP was dragged down further by a rise in imports and a marked decline in inventory growth. The last time real GDP contracted was in the first quarter of 2011 at the tail end of a punishing recession.Corporate profits also declined by an estimated 9.8%, the largest drop recorded by the Commerce Department since the fourth quarter of 2008.

US money slump flashes warnings as economy contracts - The US economy contracted sharply in the first quarter and bond yields have been falling at the fastest rate since the recession scare two years ago, in signs that bond tapering by the Federal Reserve is biting more than anticipated. The slowdown comes as a key indicator of the US money supply flashes slowdown warnings, though the picture remains murky after extreme weather conditions over the winter. Output fell at an annual rate of 1pc, led by a 7.5pc fall in business spending following the expiry of tax concessions. The tax rules had brought forward investment in 2012 and 2013, leading to a cliff-edge drop this year. “We think there is more to this than just weather. Our leading indicators were already weakening late last year,” said Lakshman Achuthan, from the Economic Cycle Research Institute (ECRI). “We may get a snap-back in the second quarter but I don’t see us reaching escape velocity. The economy is below stall-speed, according to the Fed’s own model,” he said. Chris Williamson, from Markit, said the GDP investment data are volatile and can be distorted by shifts in the oil and gas industry. He said the US manufacturing and services PMI index rose at the fastest pace for three years in May while unemployment claims have fallen to the lowest since 2007, pointing to a solid recovery. “The acid test of economic resilience will be how the data settle after the second quarter,” he said.

The Economy Actually Shrank In The First Quarter Of 2014 -  When the first estimate of the health of the nation’s economy was released last month, the news was quite disappointing. While the final quarter of 2013 had shown the economy in surprisingly strong shape, the Commerce Department reported that economic growth in the first three months of 2014 was an anemic 0.1 percent. As I noted at the time, that number would be subject to two revisions in May and June, and if the May revision is any indication the first quarter was even worse than initially thought: The Commerce Department said Thursday the economy shrank at an annual rate of 1 percent in the first quarter, revising its initial estimate last month that showed a very slight gain for the period. It is the first quarter in three years in which the nation’s output of goods and services has contracted. The bulk of the downward revision in gross domestic product was driven by reduced additions to inventories by businesses as well as a slightly weaker trade balance than first thought. The smaller stockpiles alone subtracted 1.6 percent from the growth rate. “The bad news is that the headline G.D.P. number is worse than consensus, but the good(ish) news is that almost all the hit is in the inventory component.” To be sure, lower additions to inventories by businesses in the first quarter suggest that factor won’t weigh on growth as much in the second quarter, when other economic indicators are expected to pick up. Most economists expect the growth rate to rise to 3 to 4 percent in the second quarter.

US economy shrinks 1% over harsh winter -  The US economy contracted for the first time in three years in early 2014 after a much worse performance than originally feared. Washington's commerce department said the world's biggest economy shrank at an annual rate of 1% during the first quarter – a period marked by an unusually harsh winter in some of the more populous states. Wall Street had been braced for the revised data to come in below the first estimate of 0.1% annualised growth between January and March but was surprised by the extent of the decline. Analysts are confident that growth will bounce back in the second quarter and pointed to the underlying strength of consumer spending during the period when the economy was contracting. ING's James Knightley said most of the downward revision to growth had been caused by companies running down their stocks and said the contraction was not as bad as it looked. Noting that many companies were likely to have run down inventories due to transport problems caused by the bad weather, Knightley added: "With demand indicators looking pretty good for the second quarter of 2014 we are expecting a much stronger outcome for GDP growth in the current quarter (4.5% annualised) with inventory rebuilding likely to play its part."  The official data leaves the US one quarter away from the technical definition of a recession – two consecutive quarters of falling output – but Ashworth said this was not going to happen.

Q1 GDP Revised Down to -1.0% Annual Rate, Weekly Initial Unemployment Claims decrease to 300,000 - From the BEA: Gross Domestic Product: First Quarter 2014 (Second Estimate) Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 1.0 percent in the first quarter according to the "second" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6 percent. ... The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, real GDP was estimated to have increased 0.1 percent. ... The second estimate of the first-quarter percent change in real GDP was revised down 1.1 percentage points, or $43.7 billion, from the advance estimate issued last month, primarily reflecting a downward revision to private inventory investment and an upward revision to imports that were partly offset by an upward revision to exports. Here is a Comparison of Second and Advance Estimates. PCE growth was revised up from 3.0% to 3.1%. The DOL reports: In the week ending May 24, the advance figure for seasonally adjusted initial claims was 300,000, a decrease of 27,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 326,000 to 327,000. The 4-week moving average was 311,500, a decrease of 11,250 from the previous week 's revised average. The following graph shows the 4-week moving average of weekly claims since January 1971.

A Dismal Q1 GDP Revision… - (graphs) The BEA announced in the advance estimate last month that real GDP increased at a s.a.a.r. of 0.1% for 2014 Q1…and the second estimate released this morning revised that down to -1.0%.   Is this just a pregnant pause or are we in danger of sinking into another contraction?  A close look at the details suggest that more likely than not it is just a pause.  Much of the decline was due to a large downward revision to estimates of inventory accumulation in the first quarter.  Inventory accumulation has been a source of strength for the past couple of quarters and the decline of inventories in the first quarter is the counterpart to that.   The revisions to most of the other components of GDP were relatively minor.Consumption was essentially unchanged compared to the first estimate.  Investment in equipment showed a smaller decline than in the first report and investment in  intellectual property increased significantly in this revision.  Investment in non-residential structures was revised downward significantly . The interesting question is what does all of this mean for the progress of the recovery?  It is a dismal set of revisions compared to what was already a dismal estimate of first quarter progress.  Is the economy going to be in a prolonged pause or pull itself out?  The only positive indication from this revision is that with inventories reduced firms will not have a big hangover of inventories that could hold back production in the second quarter. Many forecasters at the FED and elsewhere are looking for growth rates to climb back toward 3% in the coming quarters following two quarters of dismal growth. The second quarter GDP estimates (not due until July 30th) are going to be the first indicator we have of whether this is just wishful thinking or not.

Contracting GDP Is Rare Outside of Recessions  -- The U.S. economy contracted at a 1% seasonally adjusted annual pace in the first three months of the year, the Commerce Department said Thursday, marking only the second time since the recession that output declined during a quarter. That doesn’t mean the U.S. is in a new recession, at least according to the economists who make that determination. “Nobody thinks that there’s any significance to the first quarter being negative,” said Northwestern University economist Robert Gordon, a longtime member of the National Bureau of Economic Research’s business cycle dating committee, which is the nation’s semi-official arbiter of U.S. recessions. The U.S. economy has only contracted a handful of times since 1947 in any quarter outside of a recession, according to the Commerce Department’s Bureau of Economic Analysis, the agency that tracks GDP figures. Average two consecutive quarters together and there have been no declines when the economy wasn’t in a recession. Many economists blame an unusually cold weather for the first quarter’s decline, as storms and chilly temperatures kept shoppers indoors, transportation hubs closed and construction sites shuttered. But economic activity since March seems to have picked up. Macroeconomic Advisers before Thursday was forecasting a 3.8% growth rate for the second quarter this year. That would put GDP growth for the first half of 2014 well into positive territory, diminishing any concerns of a recession right now.

GDP Q1 Second Estimate Slumps to -1.0% -  The Second Estimate for Q1 GDP, to one decimal, came in at -1.0 percent, a downward revision from 0.1% in the Advance Estmate and a major drop from the 2.6 percent of Q4. The Second Estimate of the GDP deflator used to calculate real (inflation-adjusted) GDP remained unchanged at 1.3 percent. had forecast -0.5 percent for today's GDP estimate and the deflator to remain unchanged at 1.3 percent. The general consensus among economists was in line with the -0.5 percent. In advance of today's revision, most economists see the Q1 weakness as a transitory, weather-related dip that will be reversed by strong Q2 growth. For example, the mean forecast of the 32 economists surveyed by Bloomberg earlier this month is for a 3.5 percent expansion in Q2. It is unlikely that today's downward revision will change the mainstream view. Here is an excerpt from the Bureau of Economic Analysis news release: Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 1.0 percent in the first quarter according to the "second" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6 percent. The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, real GDP was estimated to have increased 0.1 percent. With this second estimate for the first quarter, the decline in private inventory investment was larger than previously estimated.  The decrease in real GDP in the first quarter primarily reflected negative contributions from private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment that were partly offset by a positive contribution from personal consumption expenditures. Imports, which are a subtraction in the calculation of GDP, increased. [Full Release] Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I've also included recessions, which are determined by the National Bureau of Economic Research (NBER).

BEA Revises 1st Quarter 2014 GDP Sharply Downward to Outright Contraction - In their second estimate of the US GDP for the first quarter of 2014, the Bureau of Economic Analysis (BEA) reported that the economy was contracting at a -0.99% annualized rate. When compared to prior quarters, the new measurement is down over 3.6% from the 2.64% growth rate reported for the 4th quarter of 2013, and it is now more than 5% lower than the 4.19% reported for the 3rd quarter of 2013.  The largest revisions to the headline number were from inventories (revised downward by -1.05%) and imports (down -0.36%), and although exports improved somewhat from the prior report, they still subtracted -0.83% from the headline. Fixed investments in both equipment and residential construction continued to contract. The contraction rate for government spending also deepened slightly, with the downward revisions primarily in state and local governmental infrastructure investment.  Consumer spending was not revised significantly in this report, although the reported household savings rates dropped once again. The previously reported quarterly growth in real annualized per-capita disposable income was revised downward to $95 (and that disposable income figure is now $227 per year lower than it was during the fourth quarter of 2012), while the household savings rate shrank again to 4.0% (down -0.9% from the 4.9% in the prior quarter and down -2.6% from the fourth quarter of 2012).  And lastly, for this report the BEA assumed annualized net aggregate inflation of 1.28%. During the first quarter (i.e., from January through March) the growth rate of the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) was over a half percent higher at a 1.80% (annualized) rate, and the price index reported by the Billion Prices Project (BPP -- which arguably reflected the real experiences of American households while recording sharply increasing consumer prices during the first quarter) was over two and a half percent higher at 3.91%. Under reported inflation will result in overly optimistic growth data, and if the BEA's numbers were corrected for inflation using the BLS CPI-U the economy would be reported to be contracting at a -1.52% annualized rate. If we were to use the BPP data to adjust for inflation, the first quarter's contraction rate would have been a staggering -3.64%.

Three Takeaways From the GDP Numbers - Parts of the blogosphere and Twitterverse lit up Thursday morning with the not-totally-unexpected news that U.S. gross domestic product shrank in the first three months of 2014. What should we make of this news? First, it’s true that the U.S. economy has almost certainly not reentered recession. The terrible first-quarter number was likely mostly a bad confluence of normal volatility, bad weather (though some have way overstated its impact), and probably some real drag stemming from the expiration of the bonus depreciation tax break at the end of 2013. It would shock most macroeconomists–even relatively bearish ones like me–if there is further contraction in coming quarters. Second, while we shouldn’t get too gloomy about the first-quarter numbers, we also shouldn’t be too comforted by reassurances that we’re not back in outright recession. The economic recovery from the Great Recession is pretty awful–with growth rates far too low to rapidly return the economy to full-employment anytime soon. Economic Policy Institute estimates suggest that roughly 7.1 million jobs need to be created just to return the labor market’s health to what it was in December 2007–which was hardly a utopia for American workers. Third, while the expiration of the temporary depreciation tax credit probably did drag on growth in the first quarter, this does not necessarily mean this provision should be extended. For one thing, its full effect was probably felt over the first quarter, and there is likely to be little additional drag the rest of the year. For another, we’ve already cut back on stimulus measure that are more effective and more progressive: extended unemployment insurance benefits and food stamps and even the temporary payroll taxcut.Given this, it seems odd to rush to extend a tax break that is less effective and that works mostly by boosting corporate profitability, particularly when corporate profitability has been the one source of roaring strength in the current recovery (at least before it was dragged down this past quarter by the depreciation break expiring).

Corporate Profits Take a Sharp Hit as Revised Numbers show a 1 Percent Annual Rate of Decrease in US GDP -- The second revision of the US national income accounts for the first quarter of 2014, released today by the Bureau of Economic Analysis, showed that real GDP fell at an annual rate of -1.0 percent. The advance report had shown an annual rate of increase of 0.1 percent. Today’s report also showed that corporate profits fell sharply in the quarter. As the following table shows, most of the change in the numbers between the advance and second estimates for the quarter came from a much faster rundown of inventories than had previously been reported. Inventory depletion contributed -1.62 percentage points to growth, compared with the advance estimate of -.57 percent. Fixed investment was marginally higher than previously reported.  Other sectors showed less change. Consumption was fractionally stronger than previously reported. Government spending decreased a bit more than reported earlier, with all the change due to a bigger decrease at the state and local government level. Exports decreased a bit less than previously estimated, but the decrease in net exports was slightly greater because imports rose, rather than decreasing slightly, as reported in the advance estimate. (Imports are entered in the national income accounts with a negative sign, so that a the positive 0.24 percentage points for the advance estimate shows a decrease while the -.12 points for the second estimate shows an increase.) Today’s data release included the first look at corporate profits for the first quarter. Profits, which have been at or near record highs for the past two years, fell precipitously. Corporate profits before tax with inventory valuation adjustment fell by 10 percent, while after tax profits fell by 14 percent. As a share of GDP, corporate profits were the lowest since 2010. However, as the following chart shows, after-tax profits still account for a larger share of GDP than they did even at the peak of the pre-recession boom, and before-tax profits also remain well above their historical averages.

A comment on GDP Revisions: No Worries -The BEA reported this morning that GDP declined at a 1.0% annual rate in Q1. This is disappointing, but not concerning looking forward.The key driver of the downward revision was a much larger negative change in private inventories (see table below that shows the contribution to GDP from each major category). In the advance release, change in private inventories subtracted 0.57 percentage points from GDP. With the 2nd release - based on more data - change in private inventories subtracted 1.61 percentage point. This was payback from the positive contribution in Q3 last year (change in private inventories tends to bounce around quarter-to-quarter).There were also downward revisions to investment in nonresidential structure, trade, and state and local government.  PCE was revised up from 3.0% to 3.1% in Q1 (annualized growth rate), and the contribution from PCE to GDP increased slightly. This weakness will not continue - growth has already picked up in Q2.  And I expect both residential investment and state and local governments to add to growth soon.  And even investment in nonresidential structures should turn positive. The growth story is intact.  No worries.

2014Q1 GDP Down 1%: Why It’s Not That Big a Deal - OK, I admit that just this AM I said I was less bullish on the current US economy than some people, but that doesn’t mean I’m going to defenestrate over the negative revision to 2014Q1 real GDP growth from about zero in the first report to -1% in the revision out this morning. Here’s why:

  • –First, OTEers well know to discount the bouncy quarterly changes.  The figure above plots these quarterly changes (the bars) against year-over-year changes (the line).  The line shows we’re still slogging it out at around trend growth (~2%).
  • –The crap weather in Q1 always gets mentioned as part of this story.  I agree, but weather didn’t suck 3 ppts off of growth (2-3=-1).  More important, though partially weather-related stories include: large inventory draw downs (that will likely bounce back), weak investment (residential and non-res), and the trade deficit.
  • –The leaves consumer spending, which was solid, contributing 2.1 points to growth in quarter.  Take out inventories and trade and the quarterly growth rate was 2% (that’s final sales of domestic product).

End of the day, what I wrote earlier this morning very much holds, at least as I see it, and next quarter will almost certainly bounce back somewhat from this lousy report.  But the problem isn’t the aberrant -1% quarterly change.  It’s the fact that US GDP got back to something like trend growth rate before making up the ground lost in the great recession.  I see no downturn on the horizon–I do see a continued slog.

Data Indicates 1Q USD GDP Contraction a Statistical Blip: Yesterday's -1% reading for 1Q US GDP growth has created concern that the economy may be entering a perod of slower growth. There are several reasons this concern is unfounded. First, consider the effects of winter weather on the 1Q reading. This was noted by Fed Chair Yellen in her latest testimony: "Although real GDP growth is currently estimated to have paused in the first quarter of this year, I see that pause as mostly reflecting transitory factors, including the effects of the unusually cold and snowy winter weather."  The most recent Beige Book also made reference to this in several spots. And finally, the anecdotal comments to several ISM manufacturing reports in the first quarter specifically mentioned winter weather as delaying delivery times. In short, there's a fair amount of evidence that the 1Q reading was transitory. Then there are the internals of the report itself. Personal consumption expenditures increased 3.3%, with durable goods increaing 1.4%. While the durables number was down from 2.4% in the 4th quarter it was still positive and was probably slowed as well by the weather (who wants to buy a car when you're waist deept in snow?). Outdoor economic activity such as nonresidential and residential investment both decreased as did equipment investment. However, intellectual property investment (an indoor activity) was up 5.1%. Exports did drop, but, again, these have to typically be delivered from the interior to a port. And then there's the four primary coincident US economic indicators: industrial production, personal income less transfer payments, manufacturing and trade sales and total employees. As this chart from the FRED data system show, all four are moving higher: And finally there's the leading economic index as published by the Conference Board which is still positive and rising:

Excluding Obamacare, US Economy Contracted By 2% In The First Quarter -- As if the official news that the US economy is just one quarter away from an official recession (and with just one month left in the second quarter that inventory restocking better be progressing at an epic pace) but don't worry - supposedly harsh weather somehow managed to wipe out $100 billion in economic growth from the initial forecast for Q1 GDP - here is some even worse news: if one excludes the artificial stimulus to the US economy generated from the Obamacare Q1 taxpayer-subsidized scramble, which resulted in a record surge in Healthcare services spending of $40 billion in the quarter, Q1 GDP would have contracted not by 1% but by 2%! The history of healthcare spending's contribution to GDP. The outlier needs no highlight:  And here is the breakdown of overall Q1 GDP and just the contribution from healthcare. In other words as the "favorable boost" to the economy from this most epic instance of capital misallocation fades, expect the drag to GDP to be even more acute, and will almost certainly offset the benefits of "unharsh weather."

The New Normal is Negative - At least 5 years into the alleged recovery, US GDP contracted by -1% in Q1 2014, down from last month’s estimate of a 0.1% growth. Why? It’s still the weather, say the “experts”. But worry not, because now the sun will shine and we will reach the promised land our deity and his high priests laid out before us. Bloomberg has gathered this bouquet of whatever: U.S. Economy Shrank for First Time Since 2011 A pickup in receipts at retailers, stronger manufacturing and faster job growth indicate the first-quarter setback will prove temporary as pent-up demand is unleashed. Federal Reserve policy makers said at their April meeting that the economy has strengthened after adverse weather took its toll. “We do have business investment picking up, the household sector is in pretty good shape with the labor market improving a bit,” Sam Coffin, an economist at UBS Securities LLC in New York, said before the report. “That combination of slightly braver businesses, slightly faster job growth, should add up to broader, better growth.” [..] Wait. A pick-up at retailers? Retail was down, way down in Q1, the most in 13 years. Faster job growth? Excuse me? Pent-up demand? Where? People spent their sparse cash on heating fuel. And no, the proper expression would be: “That combination of slightly braver businesses (Geez!), slightly faster job growth, should HAVE ADDED up to broader, better growth.” And it didn’t, did it? Companies boosted stockpiles by $49 billion in the first quarter, less than the $111.7 billion in the final three months of 2013. Inventories subtracted 1.62 percentage points from GDP from January to March, the most since the fourth quarter 2012. Slower inventory accumulation may encourage factories to step up production should demand accelerate. “Slower inventory accumulation may encourage factories to step up production should demand accelerate.” Or it may not, because retailers know demand is dead. Take your pick. What useless drivel.

Real GDP Per Capita Plunges to -1.60% -- Earlier today we learned that the Second Estimate for Q1 2014 real GDP came in at -1.0 percent, down from 0.1 percent in Advance Estimate and well below most forecasts, which were looking for a lesser contraction of -0.5 percent. Real GDP per capita was even lower at -1.60 percent. Here is a chart of real GDP per capita growth since 1960. For this analysis I've chained in today's dollar for the inflation adjustment. The per-capita calculation is based on quarterly aggregates of mid-month population estimates by the Bureau of Economic Analysis, which date from 1959 (hence my 1960 starting date for this chart, even though quarterly GDP has is available since 1947). The population data is available in the FRED series POPTHM. The logarithmic vertical axis ensures that the highlighted contractions have the same relative scale.  I've drawn an exponential regression through the data using the Excel GROWTH function to give us a sense of the historical trend. The regression illustrates the fact that the trend since the Great Recession has a visibly lower slope than long-term trend. In fact, the current GDP per-capita is 11.1% below the regression trend and at a post-recession low.  Here is another revealing snapshot of real GDP per capita, specifically illustrating the percent off the most recent peak across time, with recessions highlighted. The underlying calculation is to show peaks at 0% on the right axis. The callouts shows the percent off real GDP per-capita at significant troughs as well as the current reading for this metric at -0.40%.

Winter Inventory Drag Is Good News For Spring Outlook - The unexpectedly large contraction in first-quarter real gross domestic product reflected mainly a smaller addition in inventories. And while a certain amount of inventories is a good thing for businesses to have, the stockpile slowdown is a plus for economic growth going forward. On Thursday, the Commerce Department released its its revisions to real GDP that showed the economy contracted at a 1.0% annual rate last quarter, compared with the 0.1% gain initially estimated. Forecasters had expected negative GDP growth, with the data skewed by the harsh winter, but the revised rate was worse than the 0.6% drop projected. Revisions to the main demand sectors were minor. Consumer spending (skewed by estimates for health-care spending because of the Affordable Care Act) was revised slightly up. The declines in business fixed investment and housing were smaller than when Commerce took its first pass at the GDP numbers a months ago. The government and foreign trade sectors performed a bit worse than first thought. The biggest shift came in inventories. Businesses added to their inventories over the winter but at a far slower pace than first estimated. (In GDP math, it’s the change in the change of inventories that contributes or subtracts from top-line growth.) As a result of less stockpiling, the inventory sector subtracted 1.62 percentage points from GDP growth, versus the 0.57-point drag in the advance estimate. Companies entered the second quarter without a large overhang of supplies or merchandise to sell. At the end of March, U.S. businesses held enough inventory to last 1.3 months at the current sales level. That’s a slightly higher ratio than prevailed in 2012 and 2013, but not an alarming number. Lean inventories mean companies will have to order new goods and supplies to meet any increase in demand.

Fed’s Williams: U.S. Economy Should Snap Back in Second Quarter - The U.S. economy should rebound this spring following its winter downturn, but growth won’t be exceptionally robust going forward, Federal Reserve Bank of San Francisco President John Williams said Friday. “I do see a pretty good snapback in the second quarter and continuing good growth in the second half of this year, going into next year around 3%” Mr. Williams said during an interview on CNBC. “But the days of thinking we’re going to 4% or 5% growth as part of the recovery, we’ve put that behind us. Really, we’re thinking 2.5% to 3%.” Gross domestic product, the broadest measure of output across the economy, fell at a seasonally adjusted annual rate of 1% in the first three months of 2014,  the Commerce Department said Thursday. Mr. Williams joins other Fed officials, including Chairwoman Janet Yellen, in predicting a rebound for U.S. growth in lieu of a prolonged downturn. The Fed has kept short-term interest rates anchored near zero since December 2008. Mr. Williams said Friday he expects the Fed to begin raising rates next year, though he said they’ll still be relatively low by the end of 2015.

Goldman Boosts Q2 GDP Forecast Due To Weaker Than Expected Q1 GDP - Today is the day when economists weathermen everywhere jump the shark. Here's Goldman's Jan Hatzius.  GDP growth in Q1 was revised to -1.0% (vs. consensus -0.5%), from +0.1% initially reported. Almost all of the net revision was due to a larger drag from inventory investment, which contributed -1 percentage point (pp) to the revision. Inventory investment is now estimated to have reduced GDP growth by 1.6 pp in Q1. Net exports (-0.1pp) and government (-0.1pp) also subtracted, although business fixed investment (+0.1pp) and personal consumption expenditures (+0.1pp) provided partial offsets. Real final sales—GDP excluding inventory investment—was revised down only one-tenth to +0.6%. Real gross domestic income (GDI) for Q1—first reported in today's report—fell 2.3%, the worst performance since the recession. The core PCE price index rose at a 1.2% annualized rate in Q1, one-tenth lower than initially reported.  Because of weaker inventory investment in Q1, we increased our Q2 GDP tracking estimate by two-tenths to 3.9%.

Why the Correct Answer to “What Should we do About Slowing Growth?” is “Nothing.” - There has been a lot of agonizing lately about slowing economic growth. Some of it understandably laments the slow recovery from the Great Recession, but the more interesting part concerns long-term growth prospects. Brad DeLong has recently written a thorough review of the stagnation literature under the title “Is Economic Growth Getting Harder? If so, why, and what can we do about it?” DeLong is a little less pessimistic than some of the others. He thinks the growth of real GDP per capita will slow only by three-tenths of a percentage point from its historic norm of 2 percent. But, more importantly, he suggests an entirely different way of thinking about growth policy—one that changes the question from “What can we do about slow growth?” to What should we do about it?” If we follow DeLong’s reasoning to its logical conclusion, I think the correct answer is that we should do nothing. The rest of this post will highlight a couple of DeLong’s key themes and flesh out some of his generalizations with relevant data. The first point is that real GDP per capita, or per worker, is the wrong indicator. As DeLong puts it, “What we are really interested in is material well-being, what people want and need, and whether they actually obtain it. We are interested in material production as a springboard to human flourishing.” The point is hardly original, but it is important. Let me show why by using data from the Social Progress Index (SPI), which is the latest and most ambitious effort to attach specific numbers to the concept of “human flourishing.” The SPI is especially appropriate for our purposes because it explicitly treats GDP as an input to human welfare and asks how well various economies transform raw GDP into outputs such as health, education, rights, and opportunities.

Do Revisions to GDP Follow Patterns? - St. Louis Fed - Gross domestic product (GDP) is a quarterly economic indicator that reflects the amount of output produced in a country. In the U.S., the Bureau of Economic Analysis (BEA) releases two estimates of quarterly GDP, known as the advance and preliminary estimates, in the two months before the release of the final number:

  • The advance estimate of GDP is generally available in the first month after each quarter and is compiled from estimates of economic activity for some portion of the quarter (often two of the three months).
  • The preliminary estimate is released in the month following the advance estimate, accounts for revisions of the economic data from the months used to compile the advance estimate and incorporates new data.

In a recent Economic Synopses essay, we examined the pattern of revisions for payroll employment data. We found that the sign of the revision to payroll employment, released by the Bureau of Labor Statistics is more likely to be positive (revised up) during expansions and more likely to be negative (revised down) during recessions.  We wondered whether the same asymmetry occurred for the GDP releases—that is, whether there was a systematic difference between the final number and, say, the preliminary release. The figure below shows the difference between the final release and the preliminary release, with recessions shaded in gray.  While there are no obvious patterns, there are typically large negative revisions from the preliminary releases to the final releases at the beginning of recessions.

US Economy Poised to Accelerate? Bond Market in Disbelief - The US treasury market is not in sync with the widely held belief the economy is growing stronger. A single chart clearly shows what I mean.  The above chart shows end-of-month closing values except for the current month which is up-to-date. If the US economy was really strengthening, the long end of the yield curve ought to be rising strongly.  So why isn't it?    My take is the economy is poised to decelerate, not take off as most seem to think.

MMT on a Postcard  - I like to think that economics should be like plumbing, and if you had my house you’d see why I’d be happy if there were a Sveriges Riksbank Prize for the great plumbers of the world. Good plumbing is very important, as you know if you’ve ever had the pipes fail. Of course, I could never be a plumber, though some days I wish I could have been, because I don’t see very well and I’m all thumbs. However, I know enough about plumbing, and enough about my house, to find a good plumber when I need one. A plumber that will free up the pipes and get the job done. And I like to think of MMT as the kind of plumber I’d like to have work on the economy. I’m not an economist and didn’t go to that school. But I think I know enough about MMT, and enough about political economy, to pick my plumber.  My reasons are simple and pragmatic: I want people like me (working people) to have nice things — concrete material benefits. Lots of them. And I believe MMT — unlike other schools of thought, but especially neo-liberalism — can deliver on that promise, given the chance. But there are obstacles: MMT, like plumbing, isn’t all that simple, it’s not all that well-known, and it’s “heterodox,” where neo-liberalism is Orthodox with a capital O.  So I took on the project of putting “Why MMT” onto a postcard. That’s not the same as getting an entire textbook of MMT onto a postcard, but I hope to at least persuade you to put the postcard up on your fridge and keep it there. Here it is:

The Dangerous Lure of Austerity to Progressives Seeking to Reduce Pentagon Spending - William K. Black I spent today in Washington, DC presenting and attending a conference put together by Ralph Nader on left-right convergence.  The theme was that there were many issues on which large elements of the left and right agreed and could change existing policies if they worked together.   The disturbing aspect of the conference was on the left.  The irony is that the disturbing nature was hi-lighted by Grover Norquist’s talk.  Norquist’s theme was that the standard for such collaboration should not be compromise and quid pro quo agreements to create a winning coalition, but strong agreement by both sides on a common policy.  Both of the speakers from the “left” on cutting Pentagon spending emphasized the need to do so due to “the budget” and “the debt” crisis.  Several members of the audience who identified with the “left” expanded on that theme.  The representatives of the “right” eagerly pushed the same meme.  One added his supposed shock that younger Americans were not enraged by the crushing debt the baby boomers were supposedly bequeathing them.  No one on the “left” or “right” pushed back against these odes to austerity. I report this as a wake-up call about the extent to which the “left” has embraced economic myths and policies that have cost millions of Americans their jobs (including the millions who have become so discouraged that they have ceased looking for work) and ten million Europeans their jobs.  They ignored Norquist’s standard for convergence and the statements of earlier panelists about the critical need for jobs paying a living wage.  In their zeal to cut Pentagon spending, they championed austerity policies that cost millions of jobs and are designed to severely cut blue-collar wages.

A Do-Nothing Congress? Well, Pretty Close -  After a burst of legislative activity in the past decade, representatives in the House are now proposing fewer bills.This House is on track to produce the lowest number of legislative proposals since the Clinton administration. Through mid-May, representatives introduced 18 percent fewer bills compared with the same point in the previous Congress. That’s the largest drop between Congresses in the period beginning in 1995, when Republicans overturned decades of Democratic rule in the House. The number of lawmakers who have introduced at least 25 proposals has fallen by nearly two-thirds compared with the previous Congress. The number who have produced five or fewer pieces of legislation has jumped 81 percent.The representatives who have introduced little or no legislation come from both parties and are veterans and newcomers alike. Brad Sherman, a Democrat from California, has introduced two bills this Congress. In the previous six years he was responsible for 42. John Mica, a Florida Republican and a high-ranking member of committees with jurisdiction over transportation and government oversight, also has proposed two bills (and two amendments), none since last year. That’s down from 27 bills in the previous Congress.Political scientists and legislators have several theories on the slowdown. Kristin Kanthak, an associate professor of political science at the University of Pittsburgh, thinks it could be that politicians aren’t seeing any electoral benefit from introducing bills. “It might be that Congress is so unpopular that people are not even running on working in Congress as a reason to re-elect them,”

Stephen Roach Warns "The US Is Trapped In Perils Of Linear Thinking"-- The temptations of extrapolation are hard to resist. The trend exerts a powerful influence on markets, policymakers, households, and businesses. But discerning observers understand the limits of linear thinking, because they know that lines bend, or sometimes even break. That is the case today in assessing two key factors shaping the global economy: the risks associated with America’s policy gambit and the state of the Chinese economy. It is often said that a crisis should never be wasted: Politicians, policymakers, and regulators should embrace the moment of deep distress and take on the heavy burden of structural repair. China seems to be doing that; America is not. Codependency points to an unavoidable conclusion: The US is about to become trapped in the perils of linear thinking.

Taxes and the Public Purpose -  L. Randall Wray - In previous instalments we have established that “taxes drive money”. What we mean by that is that sovereign government chooses a money of account (Dollar in the USA), imposes obligations in that unit (taxes, fees, fines, tithes, tolls, or tribute), and issues the currency that can be used to “redeem” oneself in payments to the government. Currency is like the “Get Out of Jail Free” card in the game of Monopoly. Taxes create a demand for “that which is necessary to pay taxes” (and other obligations to the state), which allows the government to purchase resources to pursue the public purpose by spending the currency. Warren Mosler puts it this way: the purpose of the tax is to create unemployment. That might sound a bit strange, but if we define unemployment as a situation in which job seekers want to work for money wages, then government can hire them by offering its currency. The tax frees resources from private use so that government can employ them in public use. To greatly simplify, money is a measuring unit, originally created by rulers to value the fees, fines, and taxes owed. By putting the subjects or citizens into debt, real resources could be moved to serve the public purpose. Taxes drive money. So, money was created to give government command over socially created resources. As Warren puts it, taxes function first to create sellers of real goods and services, and have further consequences as well, including what falls under ‘social engineering’, which are political decisions—something we’ll discuss a bit more below. This is why money is linked to sovereign power—the power to command resources. That power is rarely absolute. It is contested, with other sovereigns but often more important is the contest with domestic creditors. Too much debt to private creditors reduces sovereign power—it destroys the balance of power needed to govern.

The Stiglitz Code: How Taxing Capital Can Counter Inequality - In recent years there have been countless calls to overhaul the tax code, but few have offered a robust set of objectives framed around providing and supporting public goods. The vision of active and effective government in support of the economic common good that President Franklin D. Roosevelt advanced through the New Deal is fading from sight. That changes with today’s release of “Reforming Taxation to Promote Growth and Equity” by  Joseph Stiglitz. In this transformative new white paper, the Nobel-winning economist who foresaw the economic crisis and the rise of the Occupy movement sets out to reshape the debate around the role of taxation in our society. The ideas proposed in the paper are premised on core economic principles – taxing bads, encouraging goods – on which the vast majority of economists agree.  The policy toolkit Stiglitz describes applies across the entire economic landscape. With growing wealth inequality and the political power of the top 1 percent in the spotlight thanks to the success of Thomas Piketty’s bestseller Capital in the 21st Century, Stiglitz calls for taxing capital as if it were regular income and boosting inheritance taxes. He overhauls corporate taxation for the age of globalization and international tax havens, bringing money back to where it was made. He also proposes taxes on negative externalities to ensure that those whose actions do harm, whether in the form of environmental pollution or a financial crisis, pay the price. The specifics are cogent and compelling. Stiglitz’s truly innovative idea is that we can raise tax revenue while also creating a better, more equal and just economy that works for all – the kind of economy that FDR believed in and fought for. Stiglitz makes the case that tax policy can and should counter some of the country’s biggest challenges: runaway inequality, the threat of climate change, and a business sector warped by bad incentives.

The FT Gets Piketty's Capital Argument Wrong - Chris Giles at the FT just wrote a critique of the data in Thomas Piketty's Capital. Many people will rightfully debate the empirics of what Giles has found, which he believes shows that inequality of the ownership of wealth - how much of wealth is held by the top 1% - isn't increasing, but it's important to understand how it fits into the larger argument. Giles writes: "The central theme of Prof Piketty’s work is that wealth inequalities are heading back up to levels last seen before the first world war." This is incorrect, or at least badly stated. Piketty's central theme is not that inequality of the ownership of wealth is going to skyrocket. . The central theme is that the 1% already owns a lot of the capital stock, and the capital stock is going to get gigantic relative to the rest of the economy. Inequality expert Branko Milan also tweeted this point, but let's go through it and break down the theory Piketty puts forward. I used three dominos in my Boston Review writeup, and I'm adding a fourth here to make Giles' critique explicit. Let's describe Piketty's argument as four dominos falling into each other:

  • 1. The return on capital is greater than the growth rate. The infamous "r > g" inequality. Meanwhile growth begins to slow, perhaps because of demographics.
  • 2. The amount of capital, or private wealth, relative to the size of the economy will begin to grow rapidly as growth slows. This is the “past tends to devour the future” line. The size and role of wealth of the past will take on a greater relevance to the everyday economy.
  • 3. If the rate of return doesn't fall, or doesn't fall that quickly, the capital share of income will increase. More of our economic pie will go to people who own capital.
  • 4. The ownership of capital is very concentrated, historically and across a wide variety of countries. It is unlikely to fall quickly, much less spontaneously democratize itself, in response to these trends. So the income and power of capital owners will skyrocket.

Piketty Debunked? Not So Fast - Jonathan Hopkin - Obviously, it couldn't last. Piketty's book was so universally lauded by such a chorus of great minds (Solow, Wolf, Krugman, even Summers with some reservations), and an even greater chorus of lesser minds (the journalists seduced by his 'rockstar' persona and Gallic charms), that is was only a matter of time before someone pushed back. And just as the book's original reception was probably overdone - it's a great book, but there are plenty of possible criticisms and counter-arguments - so the counter-offensive is similarly overcooked. Chris Giles in the FT takes issue with Piketty's data on rising wealth inequality, raising some interesting questions about how he fits together different data sources to create a two-century long series, and how this series compares to other available data. Not surprisingly, different sources give different numbers - indeed vastly different numbers. In particular, Giles was struck by the marked difference between the wealth figures used by Piketty for the UK, and those published recently by the UK Office for National Statistics, which suggest much lower levels of inequality. Intrigued, he dug further using Piketty's data, which is posted online (although I couldn't get it this afternoon - maybe he's checking the files?). Giles comes up with this chart: By adding the raw data from the UK Inland Revenue figures, used by Piketty and colleagues to extend the series, and the ONS data, which they did not use, Giles is able to throw doubt on the uptick in wealth inequality Piketty claims for the period since the 1970s. But this is misleading, because by throwing in new data that gives a lower figure in the same chart, the visual impact is of a different trend that is not really supported by the data.

Is Piketty All Wrong? - Paul Krugman - Great buzz in the blogosphere over Chris Giles’s attack on Thomas Piketty’s Capital in the 21st Century. Giles finds a few clear errors, although they don’t seem to matter much; more important, he questions some of the assumptions and imputations Piketty uses to deal with gaps in the data and the way he switches sources. Neil Irwin and Justin Wolfers have good discussions of the complaints; Piketty will have to answer these questions in detail, and we’ll see how well he does it. But is it possible that Piketty’s whole thesis of rising wealth inequality is wrong? Giles argues that it is. OK, that can’t be right — and the fact that Giles reaches that conclusion is a strong indicator that he himself is doing something wrong. I don’t know the European evidence too well, but the notion of stable wealth concentration in the United States is at odds with many sources of evidence. ... [discusses several sources]... The point is that Giles is proving too much; if his attempted reworking of Piketty leads to the conclusion that nothing has happened to wealth inequality, what that really shows is that he’s doing something wrong. None of this absolves Piketty from the need to respond to each of the individual questions. But anyone imagining that the whole notion of rising wealth inequality has been refuted is almost surely going to be disappointed.

Piketty and U.S. Wealth Inequality -- It seems crazy to have such a heated debate on facts that are so easily measurable. Here we use the SCF from 1992 to 2010 to show the pretty unambiguous rise in wealth inequality in the United States. The housing boom hid the rise in inequality to some degree, but the crash in house prices from 2007 to 2010 made inequality transparent.At the end of this post we tell you where to get the data and we give you the Stata code. We did this pretty quickly, so happy to be told if we’ve made some mistake. The SCF is not a huge sample, so we have chosen to look at the top 20% (80% to 100%) of the wealth distribution versus the middle 20% (40% to 60%) of the distribution every year. Below, we plot the ratio of wealth of the richest 20% versus the middle 20%. We took the averages within each of these quintiles.  The graph shows that the top 20% of the wealth distribution had 15x the wealth of the middle 20% of the distribution in 1992. In 2010, the richest 20% has more than 25x the wealth of the middle 20%. How is that not a substantial increase in wealth inequality? The pattern is especially stark if we exclude home equity. This is a useful exercise because we know from 2010 to 2013 financial assets have performed very well. Housing has performed decently as well, but much of the strong performance of housing is driven by investors who are likely part of the richest 20% of the distribution. We don’t yet have the 2013 SCF available.

Has Thomas Piketty Pulled a Reinhart and Rogoff? -- Well, a team at the FT under Chris Giles has claimed to have discovered serious errors in the data spreadsheets underlying Thomas Piketty’s work. A few housekeeping issues before I proceed. First of all, I do not have the time needed to go through the spreadsheets to confirm Giles’ findings; I am taking Giles’ data at its word. This is because Giles’ does not strike me as a hit piece at all. I think that him and his team have genuinely found what they claim to find. Secondly, I pointed out that Piketty’s use of data was suspect after reading just a few hundred pages of the book.  Reading Piketty’s book I found numerous highly contentious interpretations of the data. That said, I can appreciate that we will all have our own interpretations and that the first step is to all agree on the data we are using. The first thing to note is that Giles is dealing with the data on wealth inequality and not income inequality. The former is, and Piketty stressed this both in his book and in his response to the FT, far more uncertain than the latter. That said, some of the errors that Giles uncovers are pretty embarrassing. Take, for example, the issue of averaging in Europe. Giles writes, Prof. Piketty constructs time-series of wealth inequality relative for three European countries: France, Sweden and the UK. He then combines them to obtain a single European estimate. To do so, he uses a simple average. This decision (shown in the screen grab below) is questionable, as it gives every Swedish person roughly seven times the weight of every French or British person. Using an average weighted by population appears more sensible. I don’t know why on earth you would use a simple average in this regard. This does not strike me as being a simple ‘fat finger’ error. Piketty must have thought about what he was doing. That said, the reconstructions that Giles puts forward seem to me completely out of whack. Here is the chart that he provides for wealth inequality in the UK. The blue lines are Piketty’s estimates, the red lines are Giles’.

Nit-Piketty - Thomas Piketty’s heart is definitely in the right place. Capital in the Twenty First Century addresses the great question of our times: the phenomenon of persistent and rising inequality. Piketty has amassed data — both from a motley collection of sources and from his own empirical work — that shows how inequality has not just been high, but on the rise. Piketty purports to provide an integrated explanation of it all. Paul Krugman calls it “the unified field theory of inequality.” The tome has been approved — nay, embraced — by seemingly sensible economists and reviewers. It is written by a good economist whose intellectual acumen is undisputed (I have first-hand evidence for this). It unerringly asks the right questions. So the knee-jerk intellectuals are all a-Twitter, so to speak. Piketty’s very long opus, which would benefit not a little from severe compression to around half its size or perhaps less, can be viewed as having the following main components:
1. The empirical proposition that inequality has been historically high, and apart from some setbacks, has been growing steadily through the latter part of the twentieth century (with capital incomes at the heart of the upsurge), and
2. A theoretical apparatus that claims to explain this phenomenon, via the promulgation and application of three “Fundamental Laws of Capitalism.”
I begin with the empirics, but my main points will be about theory.

Thomas Piketty accuses Financial Times of dishonest criticism -- Thomas Piketty has accused the Financial Times of ridiculous and dishonest criticism of his economics book on inequality, which has become a publishing sensation. The French economist, whose 577-page tome Capital in the Twenty-First Century has become an unlikely must-read for business leaders and politicians alike, said it was ridiculous to suggest that his central thesis on rising inequality was incorrect.The controversy blew up when the FT accused Piketty of errors in transcribing numbers, as well as cherry-picking data or not using original sources.The newspaper concluded there was little evidence in Piketty's original sources to verify his theory that the richest were accumulating more wealth, widening the gap between the haves and the have-nots in Europe and the United States.In an interview with the Agence France-Presse news agency, the economist said: "The FT is being ridiculous because all of its contemporaries recognise that the biggest fortunes have grown faster." While the available data was imperfect, it did not undermine his central argument about widening inequality, he said. "Where the Financial Times is being dishonest is to suggest that this changes things in the conclusions I make, when in fact it changes nothing. More recent studies only support my conclusions, by using different sources."Writing to the FT before the AFP interview, Piketty said he had put all his data online to encourage an open and transparent debate."I have no doubt that my historical data series can be improved and will be improved in the future … But I would be very surprised if any of the substantive conclusions about the long-run evolution of wealth distributions were much affected by these improvements."

Capitalism Eating Its Children - Mark Carney, the Canadian governor of the Bank of England, lays into unfettered capitalism. “Just as any revolution eats its children,” he says, “unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself.”All ideologies, he continues, are prone to extremes. Belief in the power of the market entered “the realm of faith” before the 2008 meltdown. Market economies became market societies. They were characterized by “light-touch regulation” and “the belief that bubbles cannot be identified.”Carney pulls no punches. Big banks were too big to fail, operating in a “heads-I-win-tails-you-lose bubble.” Benchmarks were rigged for personal gain. Equity markets blatantly favored “the technologically empowered over the retail investor.” Mistrust grew — and persists.“Prosperity requires not just investment in economic capital, but investment in social capital,” Carney argues, having defined social capital as “the links, shared values and beliefs in a society which encourage individuals not only to take responsibility for themselves and their families but also to trust each other and work collaboratively to support each other.”A stirring through the hall, a focusing of gazes — Carney has the attention of the chief executives, bankers and investors gathered here for a conference on “Inclusive Capitalism.” His bluntness reflects the fact that, six years after the crisis, the core problem has not gone away: The deep unease and anger in developed countries about the ways globalization and technology magnify returns for the super-rich, operating in a world of low taxation and lax regulation where short-term gain becomes a guiding principle, even as societies become more unequal, offering diminished opportunities to the young, less community and a growing sense of unfairness.

Median CEO Pay Tops $10 Million For The First Time - Are you getting rich off the rising stock market? America's CEOs are.Median compensation for the chief executive of a Standard & Poor's 500 company was $10.8 million last year, according to a study by The Associated Press..That represents an 8.8 percent increase over 2012 and marks the first time that median compensation crossed the eight-figure mark.Much of the increase was due to performance cash bonuses, stock awards and options. The S&P 500 index rose 30 percent last year, while earnings per share increased by more than 5 percent, lifting CEO compensation, which is generally tied to such indicators.Bankers got the biggest raises, with total compensation on Wall Street rising 22 percent — matching the 22 percent they'd received a year earlier. Media industry CEOs also did nicely, with the top officials of CBS, Viacom, Walt Disney and Time Warner each pulling in more than $30 millionAll told, more than two-thirds of CEOs got a raise, according to the study, which AP and the executive pay research firm Equilar conducted using federal filing statements.Women CEOs made more than men — $11.7 million, compared to $10.5 million. But that applied only to the dozen women who were included in the sample, compared to 325 male CEOs

Where Have All the Fiduciaries Gone? Even Rich People Can’t Escape Being Screwed - Yves Smith  -- A lawsuit filed against Deutsche Bank by two former senior wealth management employees demonstrates a basic problem: even rich people find it difficult to get people to manage their money who won’t take advantage of them. Here, the former employees allege that Deutshce Bank repeatedly pressed account managers to violate their fiduciary duties and stuff discretionary accounts with risky products like start-up hedge funds, even when the customer was clear it wanted only low-risk products.  We’ll discuss lawsuit in some detail for it illustrates a both perverse and troubling trend, that the idea of “fiduciary duty” is becoming a dead letter in the US. Many types of financial relationship, and this was one, impose a fiduciary duty on the service provider. Under the law, a fiduciary duty is the highest standard of care; the professional is supposed to put his client’s interest before his own. Here’s one definition: An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. Now the increasing difficulties that the wealthy have in hiring honest help may seem a remote concern to Naked Capitalism readers. But this issue exposes a fundamental flaw of the entire neoliberal project: that markets are an efficient and fair way of allocating resources, so the more use of market mechanisms to address social issues, like how to provide for retirement or supply health care, the better. But if the rich, who should be hugely attractive customers with plenty of bargaining power, are abused despite having taken proper precautions, how can the rest of us expect to do any better?

Stress Test: The Indictment of Timothy Geithner- Dean Baker - Even if Geithner had never been officially employed by a bank, his attitudes and concerns clearly reflect those of the financial industry. This comes through in matters big and small. On the small side, Geithner tells us that Jamie Dimon, the CEO of J.P. Morgan, offered to have his staff draft the financial reform bill. He adds that Dimon later expressed his irritation to President Obama because Geithner would not take him up on this offer, explaining that Dimon apparently did not recognize that having the staff of the country’s largest bank draft financial reform legislation was not the message the administration wanted to send the public. Apart from the messaging issue, Geithner doesn’t seem to see a problem with having the largest firm in the industry deciding how it will be regulated.In the same vein Geithner tells us that Robert Rubin didn’t like the Volcker Rule. This is a surprise? The Volcker Rule was designed to be a substitute for Glass-Steagall, which Rubin helped repeal as Treasury Secretary. Rubin then went on to personally profit to the tune of more than $100 million as a top executive of Citigroup, the firm that benefitted the most directly from the repeal.

JPMorgan Lied To Fed, Did Not Report Losing Trades Whistleblower Charges - Long before Virtu was forced to pull its IPO due to the backlash against HFT frontrunners in party due to being stupid enough to post its perfect trading record of 1 trading day loss in 5 years which could only be the result of a grossly rigged market, we pointed out that another entity, one having little in common with your garden variety HFT parasite, namely JPMorgan, had a 2013 trading record which could be summed up on one word only: perfection. Yet while one could simply attribute the same kind of market rigging to JPM as one can (and should) to the average hi-freak, it seems there may be more here than meets the eye so used to seeing manipulation everywhere it looks. According to Australia's Sydney Morning Herald, "a technical support person who worked for JP Morgan in Australia claims the bank regularly misled its New York parent and the US Federal Reserve by failing to report losing trades." If nothing else, and if the whistleblower's allegations are proven true, it will certainly explain JPM's trading perfection: because when one excludes the "losing trades" from one trading record, it is rather easy to end up with nothing but trading wins.

Bill Black: OCC as Case Study of How Regulators Decide to Fail - The reason we have recurrent, intensifying financial crises is because we learn the wrong lessons from our prior crises and actively make things worse.  The consistent explanation for our making things worse is that dogmas lead to “doubling down” on failed faith-based policies.  The dominant ideologues in the U.S. and Europe on financial policies are theoclassical economists and their fellow choir members – neoclassical economists.  A small article in the Wall Street Journal provides a classic example of the continuing destruction driven by these dogmas. The WSJ article, of course, sees none of this.  It fails to distinguish between two very different concepts.  The Office of the Comptroller of the Currency (OCC) is supposed to regulate “national banks” – the largest banks. The first concept is where examiners’ offices are located.  The OCC uses “resident” examiners in the largest banks.  This means that hundreds of OCC (and Fed) examiners have offices in the huge banks.  Resident examiners are a terrible idea because they invariably “marry the natives.”  When the Fed “marries the natives” it constitutes incest because the NY Fed (which examines many of the largest bank holding companies) has traditionally been one branch of the inbred Wall Street family. The OCC, under Presidents Clinton and Bush, was nearly as bad because it was engaged in a “race to the bottom” with the Office of Thrift Supervision (OTS) to see which could “triumph” as the worst federal banking regulator. If the OCC proposal was to cut back dramatically on resident examiners in order to beef up normal examination frequency and scope that would a very good thing that we could applaud.  That would be the obvious fix that any effective supervisor would have implemented as soon as he or she was appointed.  This is the second concept that the OCC could have meant by its proposal.  It does not appear that the second concept is what the OCC’s leadership has in mind.  Their system has increasingly deemphasized examination in favor of off-site monitoring (analysts in government office buildings looking at their computers). The OCC has not announced that it adopting an increase in examination frequency or the scope of examinations as a result of its decision to reduce the number of resident examiners.

Long leading indicator corporate profits decline in Q1 2014: Along with the downward revision to Q1 GDP, which confirms for the upteenth time that most of the US had an unusually severe winter, the preliminary estimate for Q1 corporate profits was released. Corporate profits, particularly as adjusted by unit labor costs, are a long leading indicator for the economy, They typically decline by at least one year before the overall economy does, and sometimes make their high near mid-cycle. Unsurprisingly, given the rest of the GDP report, Q1 corporate profits, both unadjusted and as adjusted by unit labor costs, declined. Here is a graph of corporate profits adjusted by unit labor costs for the last 5 years. As you can see, this is quite a small decline. Several bigger declines were quickly reversed earlier in the cycle. At the same time, corporate profits generally appear to be decelerating, as shown in this representation of the same data on a YoY basis: Profits are only up 9% from 2 years ago. Still, if as many suspect, Q2 amounts to a strong positive reversal of Q1, then corporate profits are likely to also make a new adjusted high in three months as well. In the meantime, they are certainly consistent with the economy continuing to expand through the remainder of this year.

The Big Hoax Of The Wall Street Hype Machine - Wolf Richter - The S&P 500 index keeps bumbling from one all-time high to the next as corporations are issuing record amounts of debt to spend record amounts on buying back their own shares: $160 billion in the first quarter alone, according to CapitalIQ. Borrowing money to buy back shares and hyping it ceaselessly as “returning value to the shareholders” is the most effective way to manipulate up the stock, even if revenues are declining quarter after quarter. In this climate of ZIRP, any major corporation can do it. The heavy buying during these low-volume times pushes up shares, the hype surrounding the buybacks pushes up shares, expectation of more buyback announcements pushes up shares, the mere idea that shares are being pushed up pushes up shares…. And in the end, the buybacks lower the share count for the all-important EPS ratio.The game works wonderfully. Though a game is all it is. It’s not an investment in productive capacity, marketing, or expansion projects. It’s not an investment in people. It’s not an investment that will bring future revenues or earnings or efficiencies. It’s not an investment at all. It just blows a lot of cash on manipulating the one number that the entire world is focused on. But it’s not even actual earnings as reported under GAAP that is the focus of all attention. It’s an estimate of “forward,” ex-bad-items, adjusted, pro-forma “earnings,” so an entirely fictitious number, helpfully provided by the Wall Street hype machine through its analysts and eagerly disseminated by the media.

Try to Contain Your Laughter: Prince Charles and Lady de Rothschild Team Up to Talk About ‘Inclusive Capitalism’ -- Now that the worldwide Occupy Wall Street protest movement has been beaten, pepper-sprayed, mass-arrested and hog-tied into submission; now that assorted financial luminaries have exhorted corporate media to stop giving air time to people calling bankers evil; it’s now safe for the 1 percent to take over the debate – or so the thinking goes in London. Prince Charles, who lives in four mansions in England, Scotland and Wales, delivered the opening speech yesterday for a conference on “Inclusive Capitalism” hosted by Lady de Rothschild, wife of multi-billionaire Sir Evelyn Robert de Rothschild, in the heart of financial skulduggery, the City of London, Wall Street’s alter ego. Rounding out the day’s speakers were former President Bill Clinton, who repealed the depression era investor protection legislation known as the Glass-Steagall Act which deregulated Wall Street and is widely blamed for the 2008 financial collapse and for ushering in the greatest wealth inequality in America since the Gilded Age; and former Treasury Secretary Lawrence Summers who helped Clinton muscle through the deregulatory legislation. (You can see the full-day agenda here.)

New York Times’ New Editor Buries Important Story on Private Equity Fee Shenanigans on Holiday Weekend -  Yves Smith - Anyone in the political or public relations game knows that the best way to make a disclosure but minimize its impact is to do so on day before the long holiday weekend. If the government had the ability to make an announcement they’d rather not make during a major holiday break, they would. And the New York Times, which does have that luxury, looks to have done precisely that with an important article on private equity fee abuses by Pulitzer Prize winning reporter Gretchen Morgenson. As we’ll see shortly, this isn’t one of her 1000 or so word weekly “Fair Game” columns; this is substantial piece of original reporting discussing several types of private equity fee abuses.  So why would the Grey Lady bury an important article by running it on long weekend? Oh, and worse, that has anodyne headline, “The Deal’s Done. But Not the Fees,” which doesn’t flag who the perps are? One has to assume that the Times isn’t too keen about rocking the boat with powerful financiers, particularly since the incoming New York Times editor, Dean Baquet, who has a track record of avoiding controversial reporting. In addition, former Lehman Brothers partner and art world denizen Michael M. Thomas dates the beginning of the end of the New York Times as a journalistic institution from when Punch Sulzberger joined the board of the Metropolitan Museum. As Thomas remarked, “He needed to be dining with people he should be dining on.”  Make no bones about it, the Morgenson story, which comes on the heels of a Wall Street Journal exposing industry leader KKR’s far too clever and potentially impermissible dealings with its house consulting firm, KKR Capstone, discloses important new fee abuses, including getting paid for services never rendered.

SEC exams find bad behavior at variety of firms, not just ‘fringe’ shops: One of the narratives rolling around the private equity industry about the recent findings of assorted bad behavior by the U.S. Securities and Exchange Commission is that this stuff is likely only happening at small firms that no one has ever heard of. Let’s put that to rest right now. The SEC says its first wave of private equity examinations—about 150 so far—included firms of all shapes and sizes. And the questionable behavior found by the SEC occurred across the board and not just in “fringe” firms. “The idea that this is isolated to the fringe is not accurate,” Igor Rozenblit, co-head of the Private Funds Unit at the SEC’s Office of Compliance Inspections and Examinations, said in a recent interview with me and my colleague David Toll, editor of Buyouts. “It’s also not limited to small, medium or large private equity advisers; we’re seeing it across the industry,” added Jane Jarcho, national associate director of the Investment Adviser/Investment Company examination program in the Office of Compliance Inspections and Examinations

A Shadow Banking Schematic - As a starting point, think about how a plain vanilla ordinary bank functions in the economy, acting as a financial intermediary between savers and borrowers. Here's a schematic taken from Chapter 29 of my Principles of Economics textbook (and of course, I encourage those teaching intro econ next year to check it out.) Savers deposit money in banks. Banks lend those funds to borrowers. Borrowers repay the loans with interest, and the original savers are paid some of that interest, along with having the ability to withdraw their money as desired. But here's the potential problem. Once the money is loaned out, the borrowers are on a schedule to repay gradually over time. However, the original savers want the ability to withdraw their money any time they please. The assets of the bank (the loans it has made) are long-term, while the liabilities of the bank (the money it owes to savers) are potentially very short-term. In the textbook, I call this the "asset-liability time mismatch." Before the enactment of deposit insurance, if the original savers heard that their bank had made a lot of loans that might not pay off, they have an incentive to "run" on the bank, quickly withdrawing their deposits and bringing the bank to its knees. When the government started requiring deposit insurance, it knew that savers no longer had an incentive to monitor whether their bank was behaving prudently, and so the government also installed a system of bank regulation.

Credit Suisse Is Too Big To Jail - Credit Suisse has been convicted of a felony. It has pleaded guilty to “conspiring to aid tax evasion” and been fined $2.6bn. There are two interesting points to note here. Firstly, although we are used to thinking of investment banks as the “bad guys”, it is not Credit Suisse’s investment banking arm that is the felon. It is the private bank. And secondly, the tax fraud of which it has been convicted is not its own, but that of its customers. Among the Swiss bank’s customers are thousands of US citizens whom it has illegally been helping to evade US taxes. This is not “tax planning”, which is making the best legal use of existing tax reliefs to minimize tax liability. The US citizens concerned have committed the crime of tax evasion. Credit Suisse has committed the crime of helping them to do it.  Nor is this the first time Credit Suisse has been caught helping customers evade tax. It has a long history of investigations, out-of-court settlements and prosecutions of junior executives in several countries including the US. There seems little justification for letting it off lightly.

Bill Black On Robbing Banks (From The Inside): "The Weapon Of Choice Is Accounting" - William Black's no-nonsense simplification of the fraud that we call a financial system is both addictive in its clarity and stunningly concerning in its scale. Having exposed Tim Geithner as perhaps the worst Treasury secretary ever, and that "banks have blood on their hands," the following brief discussion of 'how to rob a bank - from the inside' is crucial to comprehend that nothing has changed and to make matters worse, after 2009's 'reforms', "the weapon of choice remains accounting" as no one knows what it occurring behind the scenes of the banks...

Unofficial Problem Bank list declines to 499 Institutions -  This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for May 23, 2014. Three removals this week lower the Unofficial Problem Bank List to 499 institutions with assets of $154.9 billion. A year ago the list held 767 institutions with assets of $283.7 billion. Actions were terminated against First Bank, Creve Coeur, MO ($5.8 billion) and Parke Bank, Sewell, NJ. Somewhat surprisingly in front of the Memorial Day holiday, the FDIC closed Columbia Savings Bank, Cincinnati, OH ($38 million), which had been operating under a formal enforcement action since 2007. The failure is the eight this year compared to 13 failures at the 20th week last year.Next week the FDIC is expected to release its enforcement action activity through April and release industry results and an updated Official Problem Bank List as of the first quarter. Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 499 (just under half the peak).

L.A. Sues JPMorgan Chase For Pushing Minorities Into Cruddy Mortgages -- After filing similar suits against Well Fargo, Citi, and Bank of America, the city of Los Angeles is now going after JPMorgan Chase for allegedly pushing minority loan applicants into riskier and less-affordable mortgages than they were eligible for.  The complaint [PDF], filed this morning in a federal court, alleges that Chase “has engaged in a continuous pattern and practice of mortgage discrimination in Los Angeles since at least 2004 by imposing different terms or conditions on a discriminatory and legally prohibited basis.” These sorts of allegations have dogged many of the nation’s largest lenders since we first reported on the practice back in 2008. These banks have been accused of systematically steering minority applicants into subprime loans that were not generally offered to white loan applicants. This process is known as redlining, wherein banks deny credits based on an applicant’s particular neighborhood or race; or reverse-redlining, in which lenders target certain neighborhoods and racial groups with subprime financial products.

Fannie Mae and Freddie Mac: Mortgage Serious Delinquency rate declined in April -- Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in April to 2.13% from 2.19% in March. The serious delinquency rate is down from 2.93% in April 2013, and this is the lowest level since November 2008.  The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%. Earlier Freddie Mac reported that the Single-Family serious delinquency rate declined in April to 2.15% from 2.20% in March. Freddie's rate is down from 2.91% in April 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".Both Fannie Mae and Freddie Mac serious delinquency rates have fallen about 0.8 percentage points over the last year, and at that pace the serious delinquency rates will probably be below 2% in a few months - and will be under 1% in late 2015.  Note: The "normal" serious delinquency rate is under 1%.

MBA: "Mortgage Applications Decrease Slightly in Latest MBA Weekly Survey"  - From the MBA: Mortgage Applications Decrease Slightly 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 May 23, 2014. ... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. .  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.31 percent, the lowest level since June 2013, from 4.33 percent, with points decreasing to 0.15 from 0.20 (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 (one year ago). As expected, with the mortgage rate increases, refinance activity is very low this year. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is down about 15% from a year ago.

Average 30 Year Fixed Mortgage Rates decline to 4.08% - I use the weekly Freddie Mac Primary Mortgage Market Survey® (PMMS®) to track mortgage rates. The PMMS series started in 1971, so there is a fairly long historical series. For daily rates, the Mortgage News Daily has a series that tracks the PMMS very well, and is usually updated daily around 3 PM ET. The MND data is based on actual lender rate sheets, and is mostly "the average no-point, no-origination rate for top-tier borrowers with flawless scenarios". (this tracks the Freddie Mac series). MND reports that average 30 Year fixed mortgage rates declined today to 4.08% from 4.16% yesterday. One year ago rates were at 3.81% and rising. If the current rate holds, mortgage rates will be down year-over-year in about 3 weeks. As MND told me "Many borrowers would be getting quoted the same rates a year ago today". Here is a table from Mortgage News Daily:

Lower mortgage rates unlikely to boost the housing market -  Housing in the US continues to lag the nation's overall economic expansion. Today's pending home sales report was quite disappointing (see chart), with month-over-month growth of 0.4% vs. the expectations of 1%. While the "post-winter" recovery has taken place across much of the US economy (see chart), it remains absent in the housing sector. To be sure, apartment construction and rental business is doing quite well. The single family unit market however continues to struggle. Mortgage rates have declined sharply recently, with the 30-year fixed rate approaching 4%. Jumbo rates are even lower. The question is whether this will provide some much needed boost to the housing sector.The markets however are dismissing any significant benefits from these reduced mortgage rates. Here are a couple of indicators: 

1. Shares of home-builders continue to underperform the broader market.
2. Moreover, lumber futures are touching fresh lows for the year, as markets point to expectations of persistent slack demand.
The reasons for this skepticism remain the same. Credit conditions have eased for auto and credit card financing but tightened for mortgages (particularly nonstandard loans). Furthermore, households remain uneasy about job stability and lack the conference to buy - even when they qualify for a loan. Family formation rates are still subdued, especially in the under-30 age group. And the "rent generation" culture has been firmly in control.

Weekly Update: Housing Tracker Existing Home Inventory up 8.3% year-over-year on May 26thHere 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 April).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014. In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year. In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays. Inventory in 2013 finished up 2.7% YoY compared to 2012. Inventory in 2014 (Red) is now 8.3% above the same week in 2013. Inventory is still very low - still below the level in 2012 (yellow) when prices started increasing - but this increase in inventory should slow house price increases. Note: One of the key questions for 2014 will be: How much will inventory increase? My guess is inventory will be up 10% to 15% year-over-year by the end of 2014 (inventory would still be below normal).

Case-Shiller: Comp 20 House Prices increased 12.4% year-over-year in March  - S&P/Case-Shiller released the monthly Home Price Indices for March ("March" is a 3 month average of January, February and March prices). This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities) and the Q1 National index. From S&P: Home Prices Rise in March According to the S&P/Case-Shiller Home Price Indices Data through March 2014, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices ... show the 10-City and 20-City Composite Indices gained 0.8% and 0.9% month-over-month. In the first quarter of 2014, the National Index gained 0.2%. Nineteen of the 20 cities showed positive returns in March – New York was the only city to decline. Dallas and Denver reached new index peaks. In March, the National and Composite Indices saw their annual rates of gain slow significantly. ... The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 10.3% gain in the first quarter of 2014 over the first quarter of 2013. The 10- and 20-City Composites posted year-over-year increases of 12.6% and 12.4% in March 2014.   “Annual price increases for the two Composites have slowed in the last four months and 13 cities saw annual price changes moderate in March. The National Index also showed decelerating gains in the last quarter. Among those markets seeing substantial slowdowns in price gains were some of the leading boom-bust markets including Las Vegas, Los Angeles, Phoenix, San Francisco and Tampa. The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The Composite 10 index is off 17.8% from the peak, and up 1.2% in March (SA). The Composite 10 is up 24.3% from the post bubble low set in Jan 2012 (SA). The Composite 20 index is off 17.0% from the peak, and up 1.2% (SA) in March. The Composite 20 is up 25.0% from the post-bubble low set in Jan 2012 (SA). The second graph shows the Year over year change in both indices. The Composite 10 SA is up 12.6% compared to March 2013. The Composite 20 SA is up 12.4% compared to March 2013. Prices increased (SA) in 18 of the 20 Case-Shiller cities in March seasonally adjusted. (Prices increased in 19 of the 20 cities NSA) Prices in Las Vegas are off 43.8% from the peak, and prices in Denver and Dallas are at new highs (SA).

March home price gains slow: Home prices continued to rise more slowly in March, according to a closely watched barometer of the housing market. The 20-city Standard & Poor's/Case-Shiller Index for March increased at an annual rate of 12.4% compared with 12.9% in February, S&P said Tuesday. Thirteen of the 20 cities showed lower annual gains in March. Gains were higher in Chicago, Cleveland, Detroit, Miami, Minneapolis and New York. Among the 20 cities, the two with the highest annual returns were Las Vegas and San Francisco, both at about 21% and slower than in prior months. Their post-crisis peak gains were 29.2% and 25.7%. Chicago showed its highest year-over-year gain since 1988 — 11.5%. Cleveland had the smallest annual gain at 3.9%. "Despite signs of decelerating prices, all cities were higher than a year ago, and all but New York were higher in March than in February," said David Blitzer, chairman of the index committee at S&P/Dow Jones Indices. But among the 20 cities in the index, only Denver and Dallas have set new post-crisis highs, and they peaked at lower levels than other cities, he said. Four cities are getting close to their previous highs: Boston; Charlotte; Portland, Ore.; and San Francisco. As of the first quarter, average home prices had returned to their spring 2004 levels, S&P said. In a separate report Tuesday, the Federal Housing Finance Agency said that U.S. house prices rose 1.3% during the first quarter of 2014, producing the eleventh consecutive quarterly price increase in the purchase-only, seasonally adjusted index.

Case-Shiller Home Prices End Four-Month Losing Streak, Rebound More Than Expected In March - Following the fourth consecutive decline in home prices as reported by Case Shiller (remember, it was the weather), it was inevitable that in the last month of Q1, when the weather warmed up and when Americans went on a spending spree that took their savings rate to the lowest since 2009, home prices, those tracked by the Case Shiller index, would post a rebound. Which they did: According to the just released Top 20 City Composite Index, home prices bounced by 0.88%, higher than expected, with the composite printing at 166.80, more than the 166.23 forecast, following fourth consecutive sequential declines. This represented a better than expected 12.37% annual price increase, even if the pace of annual price increases appears to be slowing: this was the lowest annual price increase since August.

Comment on House Prices: Real Prices, Price-to-Rent Ratio -- I've been expecting a slowdown in year-over-year prices as "For Sale" inventory slowly increases, and the slowdown might be starting, but this was a still very strong month-to-month increase.  The Case-Shiller Composite 20 index was up 1.2% in March 2014 seasonally adjusted (SA).  Not much of a slowdown!  In March 2013, the Composite 20 index was up an even stronger 1.7% month-to-month SA, so the year-over-year change was slightly lower in March than in February.   This is the fourth consecutive month with lower month-to-month changes than the same month last year.  So the year-over-year change has declined from 13.7% in November 2013 to a still very strong 12.4% in March 2014. It is likely the Case-Shiller Composite 20 index is overstating national price increases due to the inclusion of distressed sales, and the heavy weighting of coastal cities. Other indexes show less price appreciation than Case-Shiller (Black Knight, FNC), and Zillow indicated prices declined slightly in April.  So I expect a further decline in the year-over-year change in the Case-Shiller April index (this index is a 3 month average and tends to lag some other indexes).  Also, I've heard talk of a new "bubble" for house prices. And it does appear, by the measures below, that house prices are somewhat above the historical norm. However since there is little evidence of speculative buying, I wouldn't call this a bubble - although these double digit price increases are clearly unsustainable.

Zillow: Case-Shiller House Price Index expected to slow slightly year-over-year in April - Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.    It looks like the year-over-year change for Case-Shiller will continue to slow. From Zillow: Case-Shiller: Another Month of Strong Home Value Appreciation The Case-Shiller data for March 2014 came out [yesterday], and based on this information and the April 2014 Zillow Home Value Index (ZHVI, released May 20), we predict that next month’s Case-Shiller data (April 2014) will show that both the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 11.8 percent on a year-over-year basis, respectively. The seasonally adjusted (SA) month-over-month change from March to April will be 1.2 percent for the 20-City Composite Index and 1.1 percent for the 10-City Composite Home Price Index (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for April will not be released until Tuesday, June 24. The inclusion of foreclosure re-sales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed. However, as the prevalence of foreclosures and foreclosure re-sales is declining, so is the impact they have on the Case-Shiller indices. Moreover, the fact that Case-Shiller uses a three-month average is strongly diluting the impact of the most recent numbers and with that the showing of a slowdown. More on the difference between Case-Shiller and ZHVI can be found here.. Further details on our forecast of home values can be found here, and more on Zillow’s full April 2014 report can be found here.

New Home Sale Prices Fall for Second Time in 2014 - According to preliminary data released by the U.S. Census Bureau, for the second time in the past three months, the trailing twelve month average of new home sale prices declined.  In April 2014, the initially reported figure for the median new home sales price was $275,800, down from the revised figure of $281,700 in the previous month. More significantly, the trailing twelve month average of median new home sale prices, which allows us to minimize the effects of seasonality in the housing data, fell from $268,583 in March 2014 to $268,292 in April 2014.  The last time the trailing twelve month average of median new home sale prices declined was in June 2012, right before the second U.S. housing bubble began to inflate.  Historically, for the 605 months through April 2014 for which we have trailing twelve month data (or rather, from December 1963 through April 2014), there are 103 months in which the trailing year data for median new home sale prices fell from the preceding month. 42 of those months coincided with periods of outright economic contraction in the U.S.  The average economic growth rate for the 103 months of declining median new home sale prices is 1.0%. The average economic growth rate of the remaining 402 months is 3.5%.  According to the National Association of Home Builders, new housing construction (residential investment) typically makes up about 5% of GDP. Over the last four quarters, it has accounted for an average of 3.1% of the nation's GDP.

Housing Bubble 2 Already Collapsing for the 99%  -- Wolf Richter - This is precisely what shouldn’t have happened but was destined to happen: Sales of existing homes have gotten clobbered since last fall. At first, the Fiscal Cliff and the threat of a US government default – remember those zany times? – were blamed, then polar vortices were blamed even while home sales in California, where the weather had been gorgeous all winter, plunged more than elsewhere. Then it spread to new-home sales: in April, they dropped 4.7% from a year ago, after March’s year-over-year decline of 4.9%, and February’s 2.8%. Not a good sign: the April hit was worse than February’s, when it was the weather’s fault. Yet April should be the busiest month of the year (excellent brief video by Lee Adler on this debacle). We have already seen that in some markets, in California for example, sales have collapsed at the lower two-thirds of the price range, with the upper third thriving. People who earn median incomes are increasingly priced out of the market, and many potential first-time buyers have little chance of getting in. In San Diego, for example, sales of homes below $200,000 plunged 46% while the upper end is doing just fine. But the upper end is small, and they don’t like to buy median homes [read… Housing Bubble 2 Veers Elegantly Toward Housing Bust 2] Yet it’s going according to the Fed’s plan. Its policies – nearly free and unlimited amounts of capital for those with access to it – have created enormous wealth in a minuscule part of the population by inflating ferocious asset bubbles, including in housing. But now electronic real-estate broker Redfin has made it official: in 2014 through April, sales of the most expensive 1% of homes have soared 21.1% year over year, while sales in the lower 99% have dropped 7.6%.

Inequality and the Housing Market - I wrote the other day that there’s an important regional dimension to the recovery of the housing market, and that localities that are doing well “look to me to be the ones with more income and job growth.” Well, along comes the always interesting David Dayen with a post showing the growth in home sales broken out by the top 1% most expensive homes vs. the other 99%.  The results, from Redfin Research, corroborate my impression. Last year, home sales grew 36% for the most expensive 1% and 10% for the rest.  This year–through April–home sales of the bottom 99% are down 8%, while the top 1% of home are moving to the tune of 21%. Luxury sales are crushing it in pricey neighborhoods in LA and NY, but lagging where jobs, incomes, and wage growth remain weak and credit for most households remains tight (rising mortgage rates are a factor here as well).  And remember, there’s still a non-trivial share and number of underwater mortgages out there, specifically 17% (about 8 million).  That’s down from 25% in 2011, but it ain’t nothin.’  Home price appreciation will help get some of these mortgages back to the surface, but there’s a good rationale for not giving up on principal reduction policies.  Particularly important in this space is for the GSE’s to allow principal reduction on the home loans they back.

Housing News, What a Drag - Mainstream media headlines breathlessly reported a 6% gain in new home sales in April to a seasonally adjusted annual rate of 433,000. That beat the consensus expectation of 415,000. The seasonally adjusted, annualized headline number is fictitious. April’s actual new home sales totaled 41,000. Housing Starts Decline – Click to enlargeApril is normally the busiest month for new home sales. As always, it posted an increase versus March but the increase was just 2,000 units.That was the same as last April’s monthly bump. However, this April’s sales were 4.7% less than April 2013′s. Sales momentum is barely improved from March’s 4.9% annual decline and is worse than February, which dropped 2.8% year over year. That was in a month supposedly adversely impacted by the weather. The most recent 3 months combined totaled 4.1% less than the same 3 months last year. This is a sharp slowdown from the prior 3 months which had had a solid gain. Contrary to the headline indication, there’s no sign of a second wind to the housing “non recovery”. Sales in April were just 11,000 units more than the 30 year record low of 30,000 units set in April 2011. They remain 75,000 units less than the April record high of 116,000 set in 2005. Making matters worse, single family housing starts increased in April. Falling sales are worsening the supply demand gap that began to form in March when starts rose and sales fell. . If sales don’t increase sharply, the gap can only be closed by a reduction in housing starts. These are the type of conditions that normally lead to a slowdown in housing development activity. Housing could become a drag on the economy in the months ahead.

More Housing Bad News: Household Formation At 30 Year Lows -- If there is to be a real housing recovery, households have to be formed at a much faster pace. Alas, in recent years household formation has not made a "combeack", it has crashed. In fact, according to Census Bureau data, in Q1 the number of households formed each month was 189,000, down from 1,563,000 in 2013, dropping more or less in a straight line since the article's publication!

NAR: Pending Home Sales Index increases 0.4% in April, down 9.2% year-over-year --From the NAR: Pending Home Sales Edge Up in April - The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 0.4 percent to 97.8 in April from 97.4 in March, but is 9.2 percent below April 2013 when it was 107.7....The PHSI in the Northeast increased 0.6 percent to 79.3 in April, but is 12.0 percent below a year ago. In the Midwest the index rose 5.0 percent to 99.2 in April, but is 6.9 percent below April 2013. Pending home sales in the South slipped 0.6 percent to an index of 111.9 in April, and are 6.4 percent below a year ago. The index in the West declined 2.9 percent in April to 88.4, and is 15.0 percent below April 2013. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in May and June.

"Pent-Up" Pending Home Sales Demand Missing; Down 9.4% YoY -- But it's the weather... nope... NAR blames excess inventory as giving people too much choice and slowing their purchasing decisions for the notable miss on both MoM and YoY sales. This is the 7th month in a row of declining YoY sales. The 0.4% rise MoM missed expectations of 1.0% as the pent-up demand from a cold winter appears to be missing in action. Of Course NAR is optimistic (but even they are cautious), "an uptrend in closed sales is expected, although some months will encounter a modest setback."

Borrowers Tap Their Homes at a Hot Clip -  A rebound in house prices and near-record-low interest rates are prompting homeowners to borrow against their properties, marking the return of a practice that was all the rage before the financial crisis.  Home-equity lines of credit, or Helocs, and home-equity loans jumped 8% in the first quarter from a year earlier, industry newsletter Inside Mortgage Finance said Thursday. The $13 billion extended was the most for the start of a year since 2009. Inside Mortgage Finance noted the bulk of the home-equity originations were Helocs.While that is still far below the peak of $113 billion during the third quarter of 2006, this year's gains are the latest evidence that the tight credit conditions that have defined mortgage lending in recent years are starting to loosen.

Consumers Are Back to Paying Mortgages Ahead of Credit Cards - Americans are putting their mortgages ahead of their credit cards when they pay the bills, reversing an unusual pattern that had developed after the housing bust. As home values plunged during the downturn, consumers began to default on their mortgages while continuing to make credit card payments, according to research from TransUnion, reversing a long-standing hierarchy in which lenders expected mortgages to be paid first. New data from the credit-reporting firm reveal that the normal payment hierarchy returned at the end of last year, following around two years of rising home values. “People are paying their mortgages again ahead of their bank card,” said Steven Chaouki, a financial-services executive at TransUnion, though the payment relationship hasn’t returned entirely to pre-crisis levels. The data also show that before, during and after the crisis, Americans are most likely to make their car payments first.

Rising Household Debt: Increasing Demand or Increasing Supply? - New York Fed - Total consumer debt continued to increase in the first quarter of this year, marking the first time since the recession that aggregate debt had grown for three consecutive quarters, according to the May 2014 Quarterly Report on Household Debt and Credit. Is this increase in household debt driven by changes in supply or demand? The January 2014 and April 2014 Senior Loan Officer Opinion Surveys (SLOOS) show an increase in lenders’ willingness to make consumer loans over the last several quarters and an increase in the number of lenders reporting looser lending standards, which indicates that credit supply is increasing. To get a better sense of the underlying factors in the evolution of household credit conditions, in February we surveyed 1,110 respondents of the New York Fed’s Survey of Consumer Expectations (SCE) about their ability to obtain credit over the past twelve months and their expectations about future credit access.

Consumer Confidence Improves Slightly in May - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through May 14. The 83.0 reading matched the forecast of and was 1.3 above the April 81.7 (a downward revision from 82.3). This measure of confidence has risen from its interim low of 72.0 in November of last year and is the second highest (behind the March 83.9) since the end of the Financial Crisis. Here is an excerpt from the Conference Board press release. “Consumer confidence improved slightly in May, as consumers assessed current conditions, in particular the labor market, more favorably. Expectations regarding the short-term outlook for the economy, jobs, and personal finances were also more upbeat. In fact, the percentage of consumers expecting their incomes to grow over the next six months is the highest since December 2007 (20.2 percent). Thus, despite last month’s decline, consumers’ confidence appears to be growing.”  Consumers’ assessment of present-day conditions improved in May. Those stating business conditions are “good” decreased to 21.1 percent from 22.2 percent, while those stating business conditions are “bad” declined to 24.1 percent from 24.8 percent. Consumers’ assessment of the labor market was more favorable. Those claiming jobs are “plentiful” rose to 14.1 percent from 13.0 percent, while those claiming jobs are “hard to get” decreased slightly to 32.3 percent from 32.8 percent.   Consumers’ expectations increased slightly in May. The percentage of consumers expecting business conditions to improve over the next six months edged up to 17.5 percent from 17.2 percent, while those expecting business conditions to worsen decreased marginally to 10.2 percent from 10.5 percent.  Consumers were more positive about the outlook for the labor market. Those anticipating more jobs in the months ahead increased to 15.4 percent from 14.7 percent, while those anticipating fewer jobs edged up to 18.3 percent from 18.0 percent. The proportion of consumers expecting their incomes to grow increased to 18.3 percent from 16.8 percent, but those expecting a drop in their incomes also increased, to 14.5 percent from 12.9 percent.

Michigan Consumer Sentiment: A Disappointing 81.8 May Final - The final University of Michigan Consumer Sentiment for May came in at 81.9, a decline from the April final of 84.1 and little changed from the May preliminary reading of 81.8. Today's number came in below the forecast of 82.5. See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy. To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 4 percent below the average reading (arithmetic mean) and 3 percent below the geometric mean. The current index level is at the 38rd percentile of the 437 monthly data points in this series.The Michigan average since its inception is 85.1. During non-recessionary years the average is 87.4. The average during the five recessions is 69.3. So the latest sentiment number puts us 12.6 points above the average recession mindset and 5.5 points below the non-recession average. Note that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. The latest is a 2.2 point change. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average.

Real Median Household Income Fell 0.42% in April: The Sentier Research monthly median household income data series is now available for April. The nominal median household income was down $84 month-over-month and up only $1,420 year-over-year. Adjusted for inflation, it was down $222% MoM and only $409 YoY. The real numbers equate to a -0.42% MoM decline and a 0.78% YoY increase. In real dollar terms, the median annual income is 7.6% lower (about $4,383) than its interim high in January 2008. The first chart below is an overlay of the nominal values and real monthly values chained in January 2014 dollars. The red line illustrates the history of nominal median household, and the blue line shows the real (inflation-adjusted value). I've added callouts to show specific nominal and real monthly values for January 2000 start date and the peak and post-peak troughs. In the latest press release, Sentier Research spokesman Gordon Green summarizes the recent data: The lack of significant change in real median annual household income between March and April 2014 underscores the uneven trend in the series since the low-point reached in August 2011. Our time series charts clearly illustrate that although the economic recovery officially began in June 2009, the recovery in household income did not begin to emerge until after August 2011. While many of the month-to-month changes in median income since the low-point in August 2011 have not been statistically significant, an overall upward trend is evident.

Why Real Median Household Income is the most misused statistic in the econoblogosphere  -   Everyone seems to know that real median household income peaked in 1999, never surpassed that figure during the Bush years, took it on the chin during the Great Recession, and has barely budged since. So wages have plummeted. The problem is, what everyone seems to know is wrong.  Real median household income is compiled by the Census Bureau for all households headed by a person age 16 or older. NOT just wage/salary earners.  Households consisting of two retirees are included.  Households headed by somebody in college are included.  Households headed by one or two unemployed person are included. So, real median household income does not tell you what is happening with salaries and wages.  It is in no way "proof" that real wages and salaries have been declining.  In fact, real wages and salaries have been essentially stagnant since the turn of the Millenium.  We know that because that's what the BLS quarterly report on median weekly earnings shows.  Sentier Reseach uses the Census Bureau reports to create a monthly update on median household income, which blogger Doug Short uses to update graphically.  At my request, Doug (who creates some of the best economic graphs on the internet, and if you aren't  already, you should start reading him) put together two graphs comparing real usual weekly earnings with real median household income, and also to the employment to population ratio. Here is the resulting graph, dating from the onset of the Great Recession at the end of 2007:

Personal Income increased 0.3% in April, Spending decreased 0.1% -- The BEA released the Personal Income and Outlays report for April: Personal income increased $43.7 billion, or 0.3 percent ... in April, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $8.1 billion, or 0.1 percent. ...Real PCE -- PCE adjusted to remove price changes -- decreased 0.3 percent in April, in contrast to an increase of 0.8 percent in March. ... The price index for PCE increased 0.2 percent in April, the same increase as in March. The PCE price index, excluding food and energy, increased 0.2 percent in April, the same increase as in March. ... The April price index for PCE increased 1.6 percent from April a year ago. The April PCE price index, excluding food and energy, increased 1.4 percent from April a year ago. The following graph shows real Personal Consumption Expenditures (PCE) through April 2013 (2009 dollars). The dashed red lines are the quarterly levels for real PCE. This is just one month for Q2 - and the month-to-month decline in PCE was due to the surge in spending in March (following the severe winter).  

What Q2 GDP Surge? After March Spending Spree, Tapped Out Consumers Had Biggest Spending Drop Since 2009 - Last month, when we noted the massive surge in Personal Spending which was funded entirely by the depletion of personal savings, we said that "since spending was so much higher than income for one more month, at least according to the bean counters, the savings rate tumbled and at 3.8% (down from 4.2% in February), was the second lowest since before the Lehman failure with the only exception of January 2013 after the withholding tax rule changeover. So for all those sellside economists who are praying that the March spending spree, funded mostly from savings, will continue into Q2 (because remember March is in Q1, which as we already know had an abysmal 0.1% GDP growth rate), we have one question: where will the money come from to pay for this ongoing spending spree?" Turns out the answer was... nowhere.

The Latest on Real Disposable Income Per Capita - With this morning's release of the April Personal Incomes and Outlays we can now take a closer look at "Real" Disposable Personal Income Per Capita. The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator was significantly disrupted by the bizarre but predictable oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013. The April nominal 0.29% month-over-month increase shrinks to 0.10% when we adjust for inflation. The year-over-year metrics are 2.89% nominal and 1.25% real.  The BEA uses the average dollar value in 2009 for inflation adjustment. . For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000. Do you recall what you were doing on New Year's Eve at the turn of the millennium? Nominal disposable income is up 57.6% since then. But the real purchasing power of those dollars is up only 19.5%.Here is a closer look at the real series since 2007. Real disposable incomes are now fractionally above the interim high set in September of last year.

The Big Four Economic Indicators: Real Personal Income Less Transfer Payments -  The April Real Personal Income Less Transfer Payments data released this morning showed a small month-over-month increase of 0.15% and a year-over-year gain of 1.73%. Transfer Payments largely consist of retirement and disability insurance benefits, medical benefits, income maintenance benefits (more here). They constitute 17.4% of Personal Income, up from 12.5% at the turn of the century but down from the 18.6% peak at the end of the last recession in May 2009. The chart and table below illustrate the performance of the Big Four with an overlay of a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009. We now have all four indicator updates for the 58th month following the recession. The Big Four Average (gray line below) is showing a decline after two strong months, with most of the April downward pressure coming from Industrial Production, although the decline in Real Retail Sales is perhaps of more concern.

USDA warns of sticker shock on U.S. beef as grilling season starts -- The Department of Agriculture has warned of sticker shock facing home chefs on the eve of the Memorial Day holiday weekend, the unofficial start of the U.S. summer grilling season. The agency said conditions in California could have "large and lasting effects on U.S. fruit, vegetable, dairy and egg prices," as the most populous U.S. state struggles through what officials are calling a catastrophic drought. The consumer price index (CPI) for U.S. beef and veal is up almost 10 percent so far in 2014, reflecting the fastest increase in retail beef prices since the end of 2003. Prices, even after adjusting for inflation, are at record highs. "The drought in Texas and Oklahoma has worsened somewhat in the last month, providing further complications to the beef production industry," USDA said. Beef and veal prices for the whole of 2014 are now forecast to increase by 5.5 percent to 6.5 percent, a sharp advance from last month's forecast for a 3 to 4 percent rise. Pork prices are set to rise by 3 percent to 4 percent, up from a 2 to 3 percent advance expected a month ago. The USDA said overall U.S. food price inflation for 2014, including food bought at grocery stores and food bought at restaurants, would rise by 2.5 percent to 3.5 percent in 2014. That is up from 2013, when retail food prices were almost flat, but in line with historical norms and unchanged from April's forecast.

Growing grocery bill: Here's why food prices are on the climb -- After years of dire inflation forecasts that never amounted to anything, a California drought and rising corn prices have finally done what economic policy couldn’t. According to the USDA beef prices are up more than 11% since last year and pork has gone up 9.4%. It’s not much better in eggs (+9.3%) or fresh fruits (+7.8%). View gallery .It marks a vicious increase for consumers at a time when they’ll probably notice it most. in the attached video commodities trader Bill Baruch of iiTrader says much of the pain springs from corn and, oddly enough, the drought of 2011 and 2012. With demand moving higher because of ethanol mandates and supply limited, corn prices rose, creating a domino effect that is still working through the system. “The major use of corn is livestock and the cost of keeping livestock alive got more expensive,” notes Baruch. That led directly to rising prices for beef which increased demand for alternatives until the whole food chain, pardon the pun, cost more.

U.S. inflationary pressure continues to build, index shows - - In yet another sign U.S. inflation is rising, the government's PCE index rose in April to its highest annualized rate since late 2012, the government reported Friday. The personal consumption expenditure index rose 0.2% in April, as did the core rate that strips out food and energy. Over the past 12 months, the PCE index has climbed 1.6%, compared to just 1.1% in March and 0.9% in February. The last time the index was that high was in November 2012. The core PCE index, for its part, rose to a 1.4% rate in the period from April 2013 to April 2014. That's the highest 12-month rate since March 2013. The Federal Reserve has been trying to boost inflation closer to the 2% mark because the central bank believes it would be beneficial to the economy.

Gasoline Price Update: Little Changed - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular is up a penny and Premium is unchanged. Prices have been hovering in a narrow range for the past six weeks. Regular is up 48 cents and Premium 46 cents from their interim lows during the second week of November. According to, California and Hawaii remain the only states with regular above $4.00 per gallon, and only two states, Alaska and Connecticut, are averaging above $3.90. Arkansas has the cheapest regular at $3.38.

Bad Trend Breaking: Why Retail Results Are Not Better Than Expected, But Worse Than Ever! - David Stockman  - Needless to say, if central bank induced financial repression is carried on long enough the level of capital market deformation and main street malinvestment can become monumental. In fact, there are four bell-ringer statistics among the macro-economic data that dramatize perhaps the greatest of these central bank induced investment errors, but they are never published in the main street financial press—–probably because they explain far too much in one glance. The skunks in one of the nation’s greatest uneconomic woodpiles are: 100k, 1 million, 15 billion and 47 square feet. Those stats measure the collective girth of America’s shopping emporia, and designate, respectively, the number of shopping centers and strip malls across the land; the number of retail stores spread among them; the total retail space occupied by the nation’s shopping machinery; and the amount of space at present for every man, woman and child in the nation. It does not take much analysis to see that these bell ringers do not represent sustainable prosperity unfolding across the land. For example, around 1990 real median income was $56k per household and now, 25 years later, its just $51k—-meaning that main street living standards have plunged by about 9% during the last quarter century. But what has not dropped is the opportunity for Americans to drop shopping: square footage per capita during the same period more than doubled, rising from 19 square feet per capita at the earlier date to 47 at present.

How electricity auctions are rigged to favor industry - The latest major electricity auction demonstrates yet again how the industry, with help from Wall Street financial engineers, is gaming power markets, forcing customers to pay higher prices. You would not know that, however, from most news reports mentioning the auction. Absent disclosures by the secretive markets, investigation and reform, you should expect your monthly electricity bill to rise sharply in the next few years as electricity industry investors reap outsize profits. The auction last week was not for electricity itself, but for promises to maintain the capacity to generate power in future years. The so-called capacity auction was conducted by PJM, the electricity market in 11 states serving 61 million people from New Jersey to Illinois. Exelon informed investors that two Illinois nuclear plants and one New Jersey plant filed losing bids. The bids for these plants were higher than bids filed by other power plants owned by Exelon and other companies to provide the amount of generating capacity that PJM says will be needed for the 12 months beginning June 1, 2017. The capacity market is a so-called single-price or clearing-price auction. The highest bid needed to ensure capacity wins, with all those who bid less also getting the highest price. Those who bid above that price, like the two Exelon nuclear plants, get nothing.  Strange as it may seem, Exelon stands to make a lot more money because it made losing bids for about one-sixth of its generating capacity. The reason is that it will collect much bigger revenues on the 83 percent of its plants that filed winning bids. Therein lies one of the many problems with the electricity market rules.Exelon will get almost exactly double the capacity market payments than if it had placed winning bids for its entire fleet of generating plants

Don't buy the 'sharing economy' hype: Airbnb and Uber are facilitating rip-offs -- Dean Baker - The "sharing economy" – typified by companies like Airbnb or Uber, both of which now have market capitalizations in the billions – is the latest fashion craze among business writers. But in their exuberance over the next big thing, many boosters have overlooked the reality that this new business model is largely based on evading regulations and breaking the law.  This downside of the sharing needs to be taken seriously, but that doesn't mean the current tax and regulatory structure is perfect. Many existing regulations should be changed, as they were originally designed to serve narrow interests and/or have outlived their usefulness. But it doesn't make sense to essentially exempt entire classes of business from safety regulations or taxes just because they provide their services over the Internet.Going forward, we need to ensure that the regulatory structure allows for real innovation, but doesn't make scam-facilitators into billionaires. For example, rooms rented under Airbnb should be subject to the same taxes as hotels and motels pay. Uber drivers and cars should have to meet the same standards and carry the same level of insurance as commercial taxi fleets. If these services are still viable when operating on a level playing field they will be providing real value to the economy. As it stands, they are hugely rewarding a small number of people for finding a creative way to cheat the system.

Vehicle Sales Forecasts: Over 16 Million SAAR in May - The automakers will report May vehicle sales on Tuesday, June 3rd.  Sales in April were close to 16.0 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in May will be above 16 million (SAAR).  Here are a few forecasts:From WardsAuto: May Sales to Continue Upward Trend The projected 16.1 million-unit seasonally adjusted annual rate would be slightly higher than [in April].  From J.D. Power: J.D. Power and LMC Automotive Report: May New-Vehicle Retail Sales Continue Growth Trend; Strong Memorial Day Weekend Expected The strong retail performance is expected to lift total light-vehicle sales to 1.5 million units in May 2014 ... [16.1 million SAAR] From TrueCar: May SAAR to Hit 16.1 Million Vehicles, According to TrueCar; 2014 New Vehicle Sales Expected to be up 5.5 Percent Year-Over-Year Seasonally Adjusted Annualized Rate ("SAAR") of 16.1 million new vehicle sales is up 6 percent from May 2013 and up 1.1 percent over April 2014. The sales growth rate will probably slow this year and auto sales will contribute less to GDP growth in 2014 than the previous four years. Here is a table showing annual sales and the growth rate since 2000.

GM's Latest Flop: Dealers "Stuffed" With 725-Day Supply Of "Tesla Competitor" Cadillac ELR - Here is a verbal account of precisely what happens when domestic car-makers overestimate the purchasing power of the US, and clog channels to an epic extent. In this case, we refer to the recently launched GM Cadillac ELR, launched to much aplomb just five months ago as a competitor to the Tesla Model S for a $76,000 price point (above Tesla's $70,000), has been a complete disaster. And how is GM dealing with this latest sales disappointment (which struck even before all the recent recall scandals had hit)? Why by jamming dealers with an unprecedented 725-day supply, or exactly two years worth of cars!

DOT: Vehicle Miles Driven increased 0.2% year-over-year in March - The Department of Transportation (DOT) reported: Travel on all roads and streets changed by 0.2% (0.5 billion vehicle miles) for March 2014 as compared with March 2013. Travel for the month is estimated to be 249.1 billion vehicle miles. Cumulative Travel for 2014 changed by -0.6% (-4.2 billion vehicle miles). The following graph shows the rolling 12 month total vehicle miles driven.  The rolling 12 month total is still mostly moving sideways ...Currently miles driven has been below the previous peak for 76 months - 6+ years - and still counting. Currently miles driven (rolling 12 months) are about 2.5% below the previous peak. The second graph shows the year-over-year change from the same month in the previous year. In March 2014, gasoline averaged of $3.61 per gallon according to the EIA. That was down from March 2013 when prices averaged $3.78 per gallon. Note: In April, gasoline prices were higher in 2014 than in 2013 - and miles driven might be down again for April.

Vehicle Miles Driven: Another Population-Adjusted Low - The Department of Transportation's Federal Highway Commission has released the latest report on Traffic Volume Trends, data through March.  Travel on all roads and streets changed by 0.2% (0.5 billion vehicle miles) for March 2014 as compared with March 2013 (see report). However, if we factor in population growth, the civilian population-adjusted data (age 16-and-over) is at a another new post-Financial Crisis low, as is the total population-adjusted variant. Here is a chart that illustrates this data series from its inception in 1970. I'm plotting the "Moving 12-Month Total on ALL Roads," as the DOT terms it. See Figure 1 in the PDF report, which charts the data from 1990. My start date is 1971 because I'm incorporating all the available data from earlier DOT spreadsheets.  The rolling 12-month miles driven contracted from its all-time high for 39 months during the stagflation of the late 1970s to early 1980s, a double-dip recession era. The most recent decline has lasted for 76 months and counting — a new record, but the trough to date was in November 2011, 48 months from the all-time high.Total Miles Driven, however, is one of those metrics that should be adjusted for population growth to provide the most meaningful analysis, especially if we want to understand the historical context. We can do a quick adjustment of the data using an appropriate population group as the deflator. I use the Bureau of Labor Statistics' Civilian Noninstitutional Population Age 16 and Over (FRED series CNP16OV). The next chart incorporates that adjustment with the growth shown on the vertical axis as the percent change from 1971.

ATA Trucking Index increased in April - Here is a minor indicator that I follow, from ATA: ATA Truck Tonnage Index Increased 1.5% in April - The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index increased 1.5% in April, after rising 0.6% the previous month. In April, the index equaled 129.1 (2000=100) versus 127.2 in March. The all-time high was in November 2013 (131.0). Compared with April 2013, the SA index increased 4.8%, which is the largest year-over-year gain of 2014...“April was the third straight gain in tonnage totaling 4%,” said ATA Chief Economist Bob Costello. Tonnage is off 1.4% from the all-time high in November.“I’m pleased that tonnage has been making solid progress after falling a total of 5.2% in December and January,” he said. “And April’s nice gain was better than the contraction in industrial production and the lackluster retail sales during the same month.”  Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

Durable Goods Report: April Was a Mixed Bag - The May Advance Report on April Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders:New orders for manufactured durable goods in April increased $1.9 billion or 0.8 percent to $239.9 billion, the U.S. Census Bureau announced today. This increase, up three consecutive months, followed a 3.6 percent March increase. Excluding transportation, new orders increased 0.1 percent. Excluding defense, new orders decreased 0.8 percent.  Transportation equipment, also up three consecutive months, led the increase, $1.7 billion or 2.3 percent to $76.9 billion. Download full PDF  The latest new orders number came in at 0.8 percent month-over-month, which substantially beat the forecast of -0.5 percent. Year-over-year new orders are up 7.1 percent.If we exclude transportation, "core" durable goods came in at 0.1 percent MoM, below the forecast of 0.3 percent. The YoY core number was up 4.8 percent. If we exclude both transportation and defense, durable goods were down a disappointing 2.4 percent MoM and up only 1.6 percent YoY. The Core Capital Goods New Orders number (nondefense capital goods used in the production of goods or services, excluding aircraft) was also negative -- down 1.2 percent MoM. The YoY number was up 3.9 percent.The first chart is an overlay of durable goods new orders and the S&P 500.  An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.

April Durable Goods Bounce On Defense Orders; Machinery Goods Drop Most Since February 2013; CapEx Slides 1.2% - Another month, another indication that the spike in "harsh unweathering" took place in the last month of Q1 and momentum slowed down entering the balmy Q2.   Moments ago the Commerce Department released Durable Goods data which came in far stronger than expected, printing at a 0.8% sequential bounce on expectations of a -0.7% drop. However, indicating that there was more than meets the headline was the barely unchanged print in Durable goods Ex Transports, which rose just barely, printing at 0.1%, in line with the 0.0% expected. In other words, the headline spike was entirely due to volatile components and sure enough to the Commerce Dept, the Defense capital orders (perhaps because the world is preparing for war?) soared by 13.1%, the most since December 2012. Helping this was the 70 new airplane orders reported by Boeing, higher than expected but still lower than the 163 bumper orderbook from March. And now the bad news: Machinery orders, that real indicator of core economic activity, bumped by 2.9% - this was the biggest slide since February 2013.

Richmond Fed Manufacturing Composite: "A Steady Pace of Growth" The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to the nation's Central Bank. The complete data series behind the latest Richmond Fed manufacturing report (available here) dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components.The May update shows the manufacturing composite at 7, unchanged from last month. Numbers above zero indicate expanding activity. Today's composite number was above the forecast of 5.Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at 2.3, to facilitate the identification of trends. The May update shows the manufacturing composite at 7, unchanged from last month. Numbers above zero indicate expanding activity. Today's composite number was above the forecast of 5.  Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at 2.3, to facilitate the identification of trends. Here is a snapshot of the complete Richmond Fed Manufacturing Composite series.

Richmond and Dallas Fed: Manufacturing Actiivty Increases "Mildly" - Manufacturing activity in the Richmond region increased "mildly" at the same rate in May as in April, and activity increased in the Dallas region at a "slower pace" in May.  From the Richmond Fed: Manufacturing Sector Activity Increased Mildly; Hiring Continued to Strengthen Overall, manufacturing conditions improved. The composite index for manufacturing held steady at a reading of 7 during the past two months. The index for shipments gained four points, ending at 10, while the index for new orders softened seven points, finishing at a reading of 3. Manufacturing employment picked up this month; the May indicator advanced six points to a reading of 10. And from the Dallas Fed: Texas Manufacturing Grows but at a Slower Pace Texas factory activity increased again in May, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell from 24.7 to 11, indicating output grew but not strongly as in April.  The new orders index fell sharply to 3.8, hitting its lowest level this year. ... The general business activity index remained elevated but moved down from 11.7 to 8. ... Labor market indicators reflected a tapering of growth in employment levels and workweek length. The May employment index dropped to 2.9, its lowest reading in nearly a year. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Richmond & Dallas Fed Miss; Manufacturing Outlook Plunges -- With all eyes firmly focused on housing data that is adjusted beyond belief and a confidence print that merely met expectations, both the Richmond and Dallas Fed just missed expectations with some very concerning data under the hood. In no particular order - Dallas Fed outlook plunged from 14.5 to 11.8; Dallas employees plunged from 13.9 to 2.8 (and the workweek collapsed); New Orders and production also slumped as any post-weather bounce is buggered. For Richmond, new order volume plunged from 10 to 3 and capacity utilization dropped back below 0; and the outlook for shipments also slid to 3 month lows with employees expected to drop. In short - a total disaster...

Final May Consumer Sentiment at 81.9, Chicago PMI increases to 65.5 -- The final Reuters / University of Michigan consumer sentiment index for May decreased to 81.9 from the April reading of 84.1, and was up slightly from the preliminary May reading of 81.8. This was below the consensus forecast of 82.5. Sentiment has generally been improving following the recession - with plenty of ups and downs - and a big spike down when Congress threatened to "not pay the bills" in 2011, and another smaller spike down last October and November due to the government shutdown. Still waiting for sentiment to back at post-recession highs! Chicago PMI May 2014: Chicago Business Barometer Up 2.5 to 65.5 in May The Chicago Business Barometer increased to 65.5 in May from 63.0 in April, the highest since October, as demand strengthened and the economy continued to recover from a weather related slowdown in Q1. ...“It looks pretty clear now that the slowdown in Q1 was due to the poor weather, with activity now back to or exceeding the level seen in Q4. The rise in the Barometer to a seven month high in May suggests we’ll see a significant bounceback in GDP growth this quarter following the contraction in Q1.”This was above the consensus estimate of 61.0.

Chicago PMI Rises Above Highest Estimate Even As Employment Drops; Prices Paid Soar - March's miss in Chicago PMI is now a dim and distant aberation as April and now May's Purchasing Managers Index surged to 65.5 - just shy of its Oct 2013 highs. As champgen corks fly and the world celebrates "we're back baby" - we hesitate to burst that exuberant bubble and note that production fell, the employment sub-index fell below its 12-month average (but that doesn't matter, right) and prices paid surged by their most in 5 years (that awkward margin-consuming inflation stoking thing).

US Service PMI Surges Near Record High As Margin Pressures Appear - Markit's US Services PMI soared to 58.4 in April - blowing away the expectations of 55 - just shy of the record high 58.5 seen in March 2012 and early 2010. All sub-indices rose providing just enough comfirmation that all is well in the world.. but one has to ask whether the fastest rise in new work orders in 3 years is sustainable or simply a post-weather bounce. Input prices are up once again though even as output charges dropped - so much for the dream of ever-expanding margins. Is good news bad?  As Markit notes, Meanwhile, input price inflation picked up for the second month running and was the fastest since January. Higher cost burdens in turn led to another robust increase in prices charged by service providers during May. That said, the rate of output charge inflation eased since April

Concentrated Markets Take Big Toll on Economy - Nobody believes AT&T’s $48 billion shot at buying DirecTV will be the last attempt by the nation’s communications leviathans to get even bigger. Verizon will inevitably try to bulk up in response to Comcast’s $45 billion grab for Time Warner Cable. Sprint, the No. 3 wireless carrier, is lusting for No. 4 T-Mobile. Each of these deals, of course, is justified by the drive to compete. Yet three decades after the United States dismembered its telecom monopoly, the melee of mergers is reshaping the backbone of the information age — including telephone, cable television and broadband Internet — into an oligopoly where competitors are in short supply. Four airlines — United, Delta, American and Southwest — serve 71 percent of domestic air traffic in the United States, according to Severin Borenstein of the University of California, Berkeley. From 1980 to 2009 the share of the top four fluctuated around 55 percent.In agribusiness, Monsanto has a legal monopoly over key genetic traits of most of the soybeans and corn planted by farmers across the United States. The top five banks in the United States hold nearly half of its banking assets, up from less than 30 percent in 2000. So what is the concentration of so many markets doing to the American economy?“  I’m fairly convinced that things have gotten worse,” said Joseph E. Stiglitz, the Nobel-winning economist, who teaches at Columbia University. Technology companies have “been extraordinarily innovative in creating monopolistic innovations.” But, at the same time, policy has aided market concentration. “There are various ways,” Professor Stiglitz added, “that we undermine competition through rules and regulations.” The excess profits companies can extract from their customers when they face little or no competition — known to economists as “rents” — may be deepening income inequality, Professor Stiglitz and others have argued. The evidence shows up in fatter corporate bottom lines and a rising share of national income that goes to profits.

Middle-Skill Jobs Lost in Labor Market Polarization - Dallas Fed Economic Letter - Employment in the United States is becoming increasingly polarized, growing ever more concentrated in the highest- and lowest-paying occupations and creating growing income inequality. The causes and consequences of this trend are often considered in the context of what has been a relatively "jobless" recovery from the Great Recession. Market changes involving middle-skill jobs in the U.S. are hastening labor market polarization. The distribution of jobs by skill level has shifted dramatically since 1980 (Chart 1). The number of jobs requiring medium levels of skill has shrunk, while the number at both ends of the distribution—those requiring high and low skill levels—has expanded. This declining prominence of middle-skill jobs is not driven by changes in labor market institutions, such as declining unionization. Rather, an increase in automation of routine tasks, a relative scarcity of skilled workers and to a lesser extent, relocation of jobs outside the country have led to the relative expansion of two kinds of jobs in the U.S. The number of people performing low-skill, low-pay, manual labor tasks has grown along with the number undertaking high-skill, high-pay, nonroutine principally problem-solving jobs.

What STEM shortage? Electrical engineering lost 35,000 jobs last year: Despite an expanding use of electronics in products, the number of people working as electrical engineers in U.S. declined by 10.4% last year. The decline amounted to a loss of 35,000 jobs and increased the unemployment rate for electrical engineers from 3.4% in 2012 to 4.8% last year, an unusually high rate of job losses for this occupation. ----- The number of employed software developers, the largest IT occupation segment, increased by only 1.75%, to 1.1 million, a gain of 19,000. The unemployment rate for developers last year was 2.7%, which is still elevated, according to Hira. Jobs for computer systems analysts increased by 35,000, to 534,000, an increase of 7%, but Hira said it is the most common H-1B occupation and that nearly all those gains went to H-1B visa holders. IT hiring increase overall last year, according to labor analysts, but nearly all the increases were in IT services categories and consulting work. These are occupations more closely associated with offshore outsourcing, which may be one of the problems affecting electrical engineering.

New Jobless Claims Drop to 300K, Beating Forecasts - Here is the opening statement from the Department of Labor:In the week ending May 24, the advance figure for seasonally adjusted initial claims was 300,000, a decrease of 27,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 326,000 to 327,000. The 4-week moving average was 311,500, a decrease of 11,250 from the previous week's revised average. This is the lowest level for this average since August 11, 2007 when it was 311,250. The previous week's average was revised up by 250 from 322,500 to 322,750. There were no special factors impacting this week's initial claims. [See full report] Today's seasonally adjusted number at 300K was well below the forecast of 318K. Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the volatility in recent months.

The Slow, Quiet Death of Extended Unemployment Benefits - The Senate stumbled on a rare moment of bipartisan accord last month, when six Republicans joined Senate Democrats in passing an extension of unemployment insurance. Extended benefits for the long-term unemployed—measures enacted when the economy cratered at the start of the Great Recession—had expired at the start of the year, reverting back to the standard 26 weeks of assistance in most states. At that time, there were 1.3 million would-be workers left in the cold. Each week since then, on average, benefits have lapsed for another 70,000 people, raising the number to nearly 3 million people whose unemployment insurance have run out.   The Senate stumbled on a rare moment of bipartisan accord last month, when six Republicans joined Senate Democrats in passing an extension of unemployment insurance. Extended benefits for the long-term unemployed—measures enacted when the economy cratered at the start of the Great Recession—had expired at the start of the year, reverting back to the standard 26 weeks of assistance in most states. At that time, there were 1.3 million would-be workers left in the cold. Each week since then, on average, benefits have lapsed for another 70,000 people, raising the number to nearly 3 million people whose unemployment insurance have run out.

Michigan raises minimum wage to $9.25 -  The minimum wage has gotten a boost in Michigan, the latest in a growing number of states where lawmakers voted this year to raise the wage. The state's hourly minimum wage will increase in phases from $7.40 until it reaches $9.25 in 2018. The legislature passed the bill Tuesday and Republican Gov. Rick Snyder signed it into law.  "I commend my partners in the Legislature for finding common ground on a bill that will help Michigan workers and protect our state's growing economy," said Snyder.  The law will also tie the minimum wage to inflation, so that it will continue to gradually increase after 2018.  While setting minimum wage at $9.25 brings it well above the federal rate of $7.25 per hour, Michigan lawmakers did not go as far as those in some other states.

L.A. Times Reports Low-Paid Workers Don't Have Much Money Even After Increase in the Minimum Wage - Dean Baker - The Los Angeles Times had a news article telling readers that workers in Connecticut are still having a tough time making ends meet even after the minimum wage in the state was increased by 45 cents to $9.15 an hour at the start of 2014. The headline of the piece, which reflected the content of the article, read:"In Connecticut, some minimum-wage workers say raise has not helped much." The piece included comments from economists who have criticized the minimum wage, saying both that it would cost jobs and that it is an ineffective way to reduce poverty. The piece did not present the views of any of the large group of economists who have studied the minimum wage and found that it had little or impact on employment. Nor did it discuss the views of any economists whose research indicated the minimum wage could have a substantial effect in reducing poverty. The Congressional Budget Office agreed with this assessment in the analysis of the minimum wage it released earlier this year. The article instead touted increases in the Earned Income Tax Credit (EITC) as a preferred way to address poverty. The article ignored evidence that the EITC lowers wages for low-paid workers who do not qualify for the credit. The article tries to present a case that the minimum wage is already costing Connecticut workers jobs: Actually Connecticut has been lagging the country in employment growth throughout the recovery. The country as a whole had created jobs at a 1.1 percent annual rate from the end of the recession in June 2009 to December of 2013. Connecticut had created jobs at just a 0.7 percent annual rate.

7 Million People Earn America’s Other Minimum Wage: $23,660 - The U.S. has a minimum wage of $7.25 an hour for most types of work. Another, lesser known minimum-wage threshold is $23,660 a year. That’s the minimum an employer can pay workers and avoid requirements to pay them overtime. Perhaps not coincidentally, 7.08 million Americans earned between $23,000 to $25,000 in 2013. That’s the red bar in the chart above using data from the Tax Policy Center, a nonpartisan research organization. That’s more than any other $2,000 bucket. In March President Barack Obama issued an executive order calling for Labor Secretary Thomas Perez to update the regulations that define eligibility for overtime pay. That could affect wages for a large number of the 7 million Americans whose earnings are right around that wage threshold, and means the regulatory effort may bear watching because of the huge number of workers who could be affected. If each of those workers earning between $23,000 and $25,000 received a mere $2,000 wage increase, it would boost national income by $14.2 billion. A look at the broader data set shows some pronounced patterns in American wages. The most striking pattern is that Americans are extremely likely to be paid in round numbers. When divided into $1,000 buckets, the series spikes every $5,000.The most common salary is around $30,000. In fact, workers are five times more likely to earn $30,000 than either $29,000 or $31,000.

5 Alarming Facts About the Racial Wealth Gap -- A new report paints a disturbing picture of just how unjust our economy is for America's communities of color. "Beyond Broke: Why Closing the Racial Wealth Gap Is a Priority for National Economic Security," from the Center for Global Policy Solutions, used the most recently available data from the U.S. Census Bureau’s Survey of Income and Program Participation (SIPP) and the National Asset Scorecard in Communities of Color (NASCC) to illustrate the immense racial wealth gap.  Here are some key takeaways from the report.

  • 1. Eighty percent of black and Latino households have a net wealth less than the white median of $111,740. In addition, when net wealth is separated by income levels, blacks and Latinos still have only a fraction of whites’ median wealth. To look at it another way, whites have a median net worth 15 times that of blacks and 13 times that of Latinos.
  • 2. Whites have 100 times more liquid wealth than blacks, and 65 times more than Latinos. Liquid wealth consists of assets that can readily be turned into cash, usually for emergencies. It includes cash on hand, money in a checking account and government bonds and stocks. Blacks have a median liquid wealth of $200 and Latinos $340 compared to $23,000 held by whites.
  • 3. Twenty-one percent of blacks, 17 percent of Latinos, and 11 percent of Asians — compared to 6 percent of whites — have no tangible assets whatsoever.
  • 4. The net wealth of blacks decreased by 53 percent following the latest economic recession. Latinos' net wealth plummeted 65 percent and Asians lost 54 percent of their net wealth, while whites lost 16 percent of their net wealth.
  • 5. Blacks own six cents, and Latinos 7 cents, for every dollar possessed by whites in 2011.

You can be a beneficiary of racism even if you’re not a racist - The reaction to Ta-Nehisi Coates' magisterial essay on the lingering effects of American racism is polarized around people's reaction to the word "reparations." But much of the story he tells is about something simpler, and completely uncontroversial: the power of compound interest. What Coates shows is that white America has, for hundreds of years, used deadly force, racist laws, biased courts and housing segregation to wrest the power of compound interest for itself. The word he keeps coming back to is "plunder." White America built its wealth by stealing the work of African-Americans and then, when that became illegal, it added to its wealth by plundering from the work and young assets of African-Americans. And then, crucially, it let compound interest work its magic.Today, white America is one of the richest and most powerful populations the world has ever known. And it wonders why African Americans just can't seem to keep up. "In America," Coates writes, "there is a strange and powerful belief that if you stab a black person 10 times, the bleeding stops and the healing begins the moment the assailant drops the knife."Though the sums are gargantuan — using standard government calculations, the theft from slavery alone stretches into the quadrillions of dollars — it's relatively easy for people to think in terms of the compound interest that's accrued to the income stolen from African Americans. But the power of compound interest doesn't just apply to money. It also applies to education and families and neighborhoods and self-respect. And this is where Coates' piece is so devastating. America didn't just plunder what African-Americans earned, or what they had saved. By far the hardest part of the piece to read was this account of what slavery did to black families:

How much have white Americans benefited from slavery and its legacy?  -- Many people are talking about the Ta-Nehisi Coates essay on reparations.  Ezra Klein has a summary of the argument, which runs as follows: What Coates shows is that white America has, for hundreds of years, used deadly force, racist laws, biased courts and housing segregation to wrest the power of compound interest for itself. The word he keeps coming back to is “plunder.” White America built its wealth by stealing the work of African-Americans and then, when that became illegal, it added to its wealth by plundering from the work and young assets of African-Americans. And then, crucially, it let compound interest work its magic. I would suggest that most living white Americans would be wealthier had this nation not enslaved African-Americans and thus most whites have lost from slavery too, albeit much much less than blacks have lost.  For instance it is generally recognized that freer and fairer polities tend to be wealthier for most of their citizens.  (We may disagree about what “fair” means for many issues, but slavery and its legacy are obviously unfair.) More specifically, many American whites benefited from hiring African-American labor at discrimination-laden discounted market prices, but many others lost out because it was more costly to trade with African-Americans.  That meant fewer good customers, fewer eligible employees, fewer possible business partners, fewer innovators, and so on, all because of slavery and subsequent discrimination.  The wealth-destroying effects are surely much larger here, even counting whites alone.  And the longer the time horizon, the more likely the dynamic benefits from trade will outweigh the short-run benefits from discriminating against some class of others. Empirically, I do not think whites in slavery-heavy regions have had especially impressive per capita incomes.  And a lot of the economic catch-up of the American South came only when the region abandoned Jim Crow.

Leaving Homeless Person On The Streets: $31,065. Giving Them Housing: $10,051. - Late last week, the Central Florida Commission on Homelessness released a new study showing that, when accounting for a variety of public expenses, Florida residents pay $31,065 per chronically homeless person every year they live on the streets. The study, conducted by Creative Housing Solutions, an Oklahoma-based consultant group, tracked public expenses accrued by 107 chronically homeless individuals in central Florida. These ranged from criminalization and incarceration costs to medical treatment and emergency room intakes that the patient was unable to afford. Andrae Bailey, CEO of the commission that released the study, noted to the Orlando Sentinelthat most chronically homeless people have a physical or mental disability, such as post-traumatic stress disorder. “These are not people who are just going to pull themselves up by their bootstraps and get a job,” he said. “They’re never going to get off the streets on their own.” The most recent count found 1,577 chronically homeless individuals living in three central Florida counties — Osceola, Seminole, and Orange, which includes Orlando. As a result, the region is paying nearly $50 million annually to let homeless people languish on the streets. There is a far cheaper option though: giving homeless people housing and supportive services. The study found that it would cost taxpayers just $10,051 per homeless person to give them a permanent place to live and services like job training and health care. That figure is 68 percent less than the public currently spends by allowing homeless people to remain on the streets. If central Florida took the permanent supportive housing approach, it could save $350 million over the next decade.

The War on Private Citizens and Organizations Feeding the Homeless -- It has been the political right’s mantra of welfare and charity being best done by private organizations rather than be government sponsored. 50 years have passed since President Johnson declared war on poverty. It was declared an abject failure by the right as it did not make people independent nor did it make people want to get off of welfare. Accordingly, it could be only be through private organizations and then the poor would be able to succeed past welfare. One NBC article written not that long ago focused on a couple feeding the poor once a week in a park in Florida .  The police ticketed Jimenez, his wife and others for violating a local ordinance on feeding the poor in a restricted park area. The Jimenezs refused to pay the fines levied against them, the fines were ultimately forgiven by the Daytona police, and Jimenez was warned.  In  a follow-up article, “Food Feud: More Cities Block Meal-Sharing for Homeless; it was learned “33 cities have either adopted or are considering food–sharing restrictions. Raleigh, N.C.; Myrtle Beach, S.C.; Birmingham, Ala.; and Daytona Beach, Fla.;  have recently fined, removed, or threatened to jail private groups offering meals to the homeless instead of letting government-run service agencies care for those in need.” The idea of restricting food to the poor is the same as with wild animals; if you do not feed them, the poor will not come around looking for handouts and your neighborhood will remain untouched.

Unpaid water bills lead to thousands of liens that could result in more foreclosures - NY Daily News: The city is selling thousands of liens over unpaid water bills. The number of liens sold against two- and three-family homeowners rose 41% over the past five years, from 930 in 2008 to 1,307 in 2013, according to city records. Many homeowners say their bills unfairly increased when electronic water meters were installed in 2009. The city is soaking property owners by selling thousands of liens over unpaid water bills, which could result in more foreclosures, city records show. The number of liens sold against owners of two- and three-family homes and mixed-use properties has risen 41% over the past five years, from 930 in 2008 to 1,307 in 2013, according to records obtained via a Freedom of Information Law request. Housing advocates say the city needs to do more to protect middle-class homeowners struggling to pay water rates that have skyrocketed by 78% since 2005. “The system is inherently unfair to unsophisticated taxpayers who do not have the resources to fight the lien machine,” said housing lawyer Lorraine Paceleo. The total number of properties — including hotels, religious institutions and hospitals — with liens sold started going down in 2009, but then shot back up 68% last year, to 1,953, records show.

Water Cut Offs in Detroit Are a Violation of Human Rights - But the people of Detroit face another sinister enemy. Every day, thousands of them, in a city that is situated right by a body of water carrying one-fifth of the world’s water supply, are having their ‎water ruthlessly cut off by men working for the Detroit Water and Sewerage Department. Most of the residents are African American and two-thirds of the cut offs involve children, which means that in some cases, child welfare authorities are moving in to remove children from their homes as it is a requirement that there be working utilities in all homes housing children. People are given no warning and no time to fill buckets, sinks and tubs. Sick people are left without running water and running toilets. People recovering from surgery cannot wash and change bandages. Children cannot bathe and parents cannot cook. Is this a small number of victims? No. The water department has decreed that it will turn the water off to all 120,000 residences that owe ‎it money by the end of the summer although it has made no such threat to the many corporations and institutions that are in arrears on their bills as well. How did it come to this?

Detroit Urged to Tear Down 40,000 Buildings -  A task force convened by the Obama administration issued the most detailed study yet of blight in Detroit on Tuesday and recommended that the city spend at least $850 million to quickly tear down about 40,000 dilapidated buildings, demolish or restore tens of thousands more, and clear thousands of trash-packed lots.It also said that the hulking remains of factories that dot Detroit, crumbling reminders of the city’s manufacturing prowess, must be salvaged or demolished, which could cost as much as $1 billion more.If carried out, the recommendations by the Detroit Blight Removal Task Force would drastically alter the face of the nation’s largest bankrupt city. They would also cost significantly more than the approximately $450 million that the city already plans to spend on blight, raising questions about the feasibility of the vast cleanup effort, which is part of its larger campaign to emerge from bankruptcy by fall and begin remaking itself.

$2B needed to wipe out Detroit's blight in 5 years, task force says -- The task is immense, but the time is now. That was the message Tuesday as Mayor Mike Duggan joined leaders of the Detroit Blight Removal Task Force to release the most in-depth road map ever to eradicate eyesore houses and trash-strewn lots from the city, a crucial next step in rebuilding bankrupt Detroit. It will take $850 million to clean up residential neighborhoods and nearby retail strips over the next five years, and about $2 billion total when adding in huge commercial edifices such as the Packard Plant and the Michigan Central Station. About $456 million in federal money and from other sources has been identified, leaving a gap of about $394 million still needed to clean up the neighborhoods. That money could come from savings from the bankruptcy, officials said. The task force concluded that Detroit suffers with 84,641 blighted or nearly blighted structures and vacant lots, of which some 40,000 are so bad off they should be demolished and cleaned up immediately. Also, 93% of the tens of thousands of tax-foreclosed Detroit properties held by the city, county and state are in really bad shape and should be knocked down or cleaned up, the report said. The removal of blight is seen as a first, obvious way to improve the city’s image and spur development once Detroit exits Chapter 9 bankruptcy protection, possibly by the fall.

Jamie Dimon’s sinister P.R. ploy: What’s really behind JPMorgan’s Detroit investment -- Beware of big banks bearing gifts. That note should be attached to JPMorgan Chase’s much-hyped planned investment of $100 million in the City of Detroit. The move is mostly an effort to boost the embattled bank’s public image, in a part of the country where they have deep roots. But corporate philanthropy like this also hopes for a return on investment – often in the form of the privatization of public infrastructure, which JPMorgan Chase certainly has in its sights.The $100 million investment in Detroit, spread over a five-year period, comes out to about .1 percent of JPMorgan Chase’s quarterly profits. But it represents one of the more generous corporate commitments to the city, as it attempts to emerge from the nation’s largest municipal bankruptcy. The money, split between low-interest loans and grants, will go toward funding community development projects, documenting and eliminating urban blight, providing money for mortgages, training prospective workers and supporting small businesses.And if this were only about good corporate citizenship, there would be nothing to worry about. But there’s something far more sinister here. Buried within the commitments is $5.5 million for “strategic initiatives” that includes investing in the M-1 streetcar project, and “bringing the Global Cities Initiative to Detroit.” What is the Global Cities Initiative? Simply put, it’s a giant public relations project meant to encourage the privatization of public resources in cities like Detroit.

Let Kids Run Wild in the Woods - Taking home small souvenirs of the woods is just the beginning of things kids can’t do in nature. In many parks and other public lands, kids are told by rangers, parents, or teachers not to leave the trail, not to climb rocks or trees, not to whack trees with sticks, not to build forts or lean-tos, not to dig holes, not to move rocks from one place to another within the park, not to yell or even talk too loudly. Are we having fun yet?  Of course, not every kid or parent knows which flowers are widespread weeds and which are endangered. There are some heavily trafficked parks where “rogue trails” are a real problem. And yes, there are some very sensitive areas where flower picking and even removal of rocks would destroy the unique beauty and diversity for which they were protected in the first place. But there are 640 million acres of public land in the United States. Surely there’s room somewhere for a few lousy forts.

Is College Worth It? Clearly, New Data Say: Some newly minted college graduates struggle to find work. Others accept jobs for which they feel overqualified. Student debt, meanwhile, has topped $1 trillion. It’s enough to create a wave of questions about whether a college education is still worth it.A new set of income statistics answers those questions quite clearly: Yes, college is worth it, and it’s not even close. For all the struggles that many young college graduates face, a four-year degree has probably never been more valuable.The pay gap between college graduates and everyone else reached a record high last year, according to the new data, which is based on an analysis of Labor Department statistics by the Economic Policy Institute in Washington. Americans with four-year college degrees made 98 percent more an hour on average in 2013 than people without a degree. That’s up from 89 percent five years earlier, 85 percent a decade earlier and 64 percent in the early 1980s.There is nothing inevitable about this trend. If there were more college graduates than the economy needed, the pay gap would shrink. The gap’s recent growth is especially notable because it has come after a rise in the number of college graduates, partly because many people went back to school during the Great Recession. That the pay gap has nonetheless continued growing means that we’re still not producing enough of them.

College Is a Poor Solution to Income Inequality --New college grads may be facing dizzyingly high unemployment this commencement season, but MIT professor David Autor believes we still don’t have enough of them. The famed economist is out with a new paper in the journal Science that aims to remind the world that while much of the inequality debate has focused on the rise of the top 1 percent, the biggest—and arguably most important—change in America’s income distribution has been the widening gap between those with and without college degrees. “We have too few college graduates,” Autor told the New York Times’ David Leonhardt. If we had more, he argues, the income gap would shrink. Helping more Americans graduate from college is a worthwhile goal (emphasis on the word graduate; too many already attend and drop out). Everybody deserves their personal shot at a healthy career and financial life, and higher education is often the best path to those goals. But flooding the job market with graduates, as Autor seems to advocate, has always struck me as an odd and maybe counterproductive approach to tackling inequality as a broad economic issue.  As Autor writes, the relative value of a college degree rose over the past several decades thanks to a handful of trends. First, wages of high school–educated men collapsed, as inflation ate away at the minimum wage, factory jobs disappeared, and unions went into decline. At the same time, the growth of America’s college-educated population slowed down even as demand for graduates grew, thanks in part to the rise of high-tech industries and the digitization of the economy. As a result, wages jumped for bachelor’s degree holders.

BLS Forecast of Occupations with Most Job Growth Through 2022: How Many Require a College Degree?  - Inquiring minds are taking a look at BLS Occupation Forecast for 2022. The above table is by the BLS. In the following tables, I stripped out all the occupations that I believe do not require a college degree. Here are the results.Of the projected 15,628,000 jobs that will be filled by 2022, only 2,731,000 of the jobs in the first table should require a college degree. However, given the emphasis on getting a degree (and brutally overpaying for it), and given the sheer number of people with degrees who are jobless, many employers will only hire those with degrees simply because they have ability to be picky. But there is another gotcha for the unemployed. Other employers do not want overqualified applicants fearing they will leave at the first opportunity. Thus, applicants need to correctly figure out whether to dumb-down or trump-up their resume to improve their own chances even though overall chances for higher paying jobs is poor. Those who don't make good use of their college degree will be stuck competing for low-wage jobs as personal care aids, retail sales clerks, food prep workers, and various assistants.

The Share of Borrowers with High Student Loan Balances is Rising -- St. Louis Fed - It’s not just the total number of student loan borrowers that is going up. The average balance per borrower is going up as well. And, in particular, the fraction of borrowers with more than $10,000 in student debt is rising. In a recent Economic Synopses essay, Alexander Monge-Naranjo, research officer and economist with the Federal Reserve Bank of St. Louis, examined the recent growth in student loan debt in the U.S. over the period 2005-2012. As of March 2012, student loan debt stood at $870 billion and had surpassed total credit card debt ($693 billion) and total auto loan debt ($730 billion). In addition, Monge-Naranjo found that the distribution of student loans by debt levels had shifted, with the share of borrowers with loan balances in excess of $10,000 increasing. Increases were greater at higher levels of debt:

  • Only 3 percent of borrowers in 2005 owed more than $100,000. By 2012, that fraction reached 6.2 percent.
  • The share of borrowers who owed between $150,000 and $175,000 rose from 1.7 percent to 3.7 percent.
  • The share who owed between $175,000 and $200,000 went up from 0.6 percent to 1.5 percent.
  • The share of those owing more than $200,000 went up from 0.2 percent to 0.6 percent.

US Government Proposes To Ease Student Loan Standards Even Further - Because it worked so well for housing finance in the last bubble, the US government is poised to ease loan standards on this cycle's biggest bubble - student debt. It appears being punched in the face by over-leveraged, over-debted, over-priced housing finance was not enough and as Bloomberg reports, parents whose financial standing disqualify them from most loans will have an easier time borrowing to pay their children’s college costs under a U.S. government proposal to ease credit standards. Come on in - the debt-serf water is warm. With student loan delinquencies already soaring to record highs, some are actually questioning the government's sanity as consumer advotaes warn "a decent number of people are going to get in trouble."

Obama has the wrong answer to student loan crisis - Cathy O’Neil - Have you seen Obama’s going to rank colleges based on some criteria to be named later to decide whether a school deserves federal loans and grants. It’s a great example of a mathematical model solving the wrong problem. Now, I’m not saying there aren’t nasty leeches who are currently gaming the federal loan system. For example, take the University of Phoenix. It’s not a college system, it’s a business which extracts federal and private loan money from unsuspecting people who want desperately to get a good job some day. And I get why Obama might want to put an end to that gaming, and declare the University of Phoenix and its scummy competitors unfit for federal loans. I get it. But unfortunately it won’t fix the problem. Because the real problem is the federal loan system in the first place, which has grown a shitton since I was in school: and in the meantime, our state and private schools are getting more and more expensive relative to the available grants:  And state funding for public schools has decreased while tuition has increased especially since the financial crisis: The bottomline is that we – and especially our children – need more state school funding much more than we need a ranking algorithm. The best way to bring down tuition rates at private schools is to give them competition at good state schools.

Colleges Are Buying Stuff They Can't Afford and Making Students Pay for It - According to researchers with University of California–Berkeley’s Debt & Society Project, the a key factor in the rising cost of college is driven by expenditures largely unrelated to either the quality of the education, teaching or maintaining campus facilities. Rather, college is getting unimaginably expensive for both institutions and students because it costs so much to finance the business of education, thanks to Wall Street lenders. Even among graduates of public colleges, the average debt burden has more than doubled between 2001 and 2009, from about $9,440 to $21,100, mirroring the debt trendlines for graduates of private non-profit institutions. That means that for a typical poor single parent, the projected cost of her student loans may well have doubled in the years it takes to earn her degree as she juggles a job and night classes. And she’s likely facing other crushing debts on top of that: a recent Pew study links high student debt burdens among households of adults younger than 40 with higher total debt, including mortgage and credit card costs, which in turn aggravates the lifelong wealth gaps that higher education was supposed to help alleviate.But the more shocking findings of the study are on the institutional side, where “colleges and universities also have a debt problem,” the researchers say. Since 2002, both public and private nonprofit colleges and universities have seen their debts soar, in large part through municipal bonds, and interest payments on those debts nearly doubled to $11 billion in 2012. So the rising total cost of higher education stems not only from massive borrowing by low and middle-income students, who are largely doing so out of economic necessity, but from the heavy borrowing of colleges, often for questionable purposes.

As interest rates rise, students struggle to pay loans -- According to the Consumer Financial Protection Bureau, student loan debt has reached the $1.2 trillion mark and is the second largest source of household debt after mortgage. A new report released by the Congressional Budget Office early this month states that the government is set to raise interest rates again. According to Janet Lorin, a Bloomberg News higher education news reporter, the government pegged interest rates on most student loans to the 10-year Treasury note, meaning they are tied to the market, and on the rise. While interest rates are fixed for the life of an education loan, borrowers take out separate federal or private loans for each school year. For the 2014-2015  year, interest rates are said to be 5.1 percent for undergraduate Stafford loans, 6.6 percent for graduate Stafford loans, and 7.6 percent for PLUS loans. Private school loan rates currently range from 6 to 12 percent. With the threat of increasing interest rates, students who take out private school loans run the risk of owing the government even more money. “The whole infrastructure of college is a business,” Marable says. “From tuition, books, to student loans – it’s business. It’s unfortunate because college is already unaffordable and slapping interest rates on loans is wrong.”

Student borrowers assume too much risk - The burden of student debt has exploded over the past decade, and economists worry that it is holding back the recovery by depressing home-buying and spending among young adults. The federal government plays a major role in the student debt markets; 85 percent of all outstanding student loans are owed to the government. Policymakers are now debating reform of student loan programs, and their decisions will have an enormous impact on the manner in which students finance higher education. We believe they should recognize that the central problem with student loans is that they force graduates to bear a disproportionate amount of risk for circumstances completely outside their control. In October 2007, the unemployment rate among the previous spring’s college graduates was 8.5 percent. In October 2009, the unemployment rate for the comparable cadre of recent graduates jumped to almost 18 percent. This enormous rise was because of a nationwide economic shock — the Great Recession — that was beyond the control of any student.

College crunch: Student loans to rise for next decade: Interest rates on government-funded student loans are due to increase this summer and are projected to continue to rise for the next decade, according to a Congressional Budget Office analysis. College students who take out government-funded, tuition loans are likely to see the interest rates on their student loans increase by nearly 1 percent July 1, with rates by 2024 likely to be from 2 to 4 percent higher than current rates. The sharp rise stems from a change Congress mandated last year requiring the rate new borrowers pay for the term of the loan to be set each July 1. The rate for new student loans is to be adjusted based on the last auction in May for the 10-year Treasury rate. Congress mandated the change in July 2013 when Treasury was prepared to double the interest rates. Congress members panicked, realizing they faced a massive public relations problem, and responded with the current fix, which locks in interest rates to a formula for 10 years and establishes caps. Anticipating that the 10-year Treasury is only going to continue to rise over the next decade, Congress capped federal student loan rates at 8.25 percent for undergraduate Stafford loans, 9.5 percent for graduate Stafford loans and 10.5 percent for Direct PLUS loans.The CBO’s April baseline projections for the student loan program sees rates on the 10-year Treasury rising 1.23 percent this year and 3.19 percent by 2024.

Detroit defends bankruptcy plan to pay pensioners more than bondholders --The City of Detroit forcefully defended its bankruptcy restructuring plan in a court filing, arguing that pensioners deserve better treatment than unsecured financial creditors and that a plan to spin off the Detroit Institute of Arts is legal. With more than 600 official objections to Detroit’s plan of adjustment so far, the 256-page court filing offers a snapshot of an epic summer trial over whether the plan is fair, legal and feasible. Separately, the DIA argued in a court filing that its artwork is legally protected from the auction block and threatened a court battle if the city pursues a sale. It said it will support the city’s plan to allow the museum to spin off as an independent nonprofit, but its threat to block a sale sets up the museum as a potential obstacle for the city if the current restructuring proposal collapses. Judge Steven Rhodes will determine whether the restructuring plan should be implemented in a 17-day trial currently scheduled to start July 24.  Notably in the document filed late Monday, the city defended its plan to pay pensioners as much as 60 cents on the dollar for their unfunded liabilities, compared to 10 cents on the dollar for unsecured financial creditors

Regulator hits U.S. public pensions for 'misleading' practices  (Reuters) - Public pensions are misleading people about their true financial state and need major reforms, a top U.S. financial regulator said on Thursday, launching the latest strike in a long-running political battle. Since the 2007-2009 recession, political leaders and voters have worried about the ability of public pension funds to cover retirement promises made to government workers that are often protected by law. Most pensions have made reforms, but a recent report from Fitch Ratings indicated they still have a large funding gap. "Trillions of dollars in liabilities -- reflecting amounts promised to state and local government workers -- are not appropriately reflected on government books, thereby seriously misleading investors about the riskiness of their investments in municipal securities," said Daniel Gallagher, one of the five members of the Securities and Exchange Commission, which regulates U.S. financial markets. "In the private sector, the SEC would quickly bring fraud charges against any corporate issuer and its officers for playing such numbers games," he also said in a presentation to the Municipal Securities Rulemaking Board, which writes the rules for public sector debt that the SEC enforces. At the end of 2013, public pensions were $1.1 trillion short of the $5 trillion in benefits they had promised, according to Federal Reserve data.

VA says more veterans may use private medical services: Under pressure to improve care, the Department of Veterans Affairs will allow more veterans to use private medical services to meet growing demands for healthcare, the department announced Saturday. Veterans Affairs Secretary Eric K. Shinseki said in a brief statement that as part of an expansion of services, veterans will be able to seek care at private clinics and hospitals in areas where the department's capacity to expand is limited. In such situations, the VA "is increasing the care we acquire in the community through non-VA care," Shinseki said. The agency will provide more specifics on these options in the next few days, said Victoria Dillon, a department spokeswoman. It is unclear how much this service expansion will cost. The VA already spends about 10% of its budget on private care, which cost $4.8 billion last year. The new directive comes as Shinseki faces calls for his resignation amid allegations that VA employees have been covering up long wait times for medical care and falsified appointment records to hide the delays. A number of Republicans, at least two Democratic lawmakers and the commander of the American Legion have called for Shinseki to step down.

Treating veterans in private hospitals could ease pressure on VA facilities -- The Obama administration's decision to allow more veterans to get care at private hospitals, announced on Saturday, could take some pressure off backlogged Veterans Affairs facilities struggling to cope with new patients as well as old soldiers. Agreeing to recommendations from lawmakers, the White House said it will allow more veterans to obtain treatment at private hospitals and clinics, in an effort to improve care. On Sunday Representative Jeff Miller, a Florida Republican and chairman of the House veterans affairs committee, welcomed the announcement by the VA secretary, Eric Shinseki, but questioned why it took so long. Reports about the deaths of veterans awaiting treatment at a Phoenix VA hospital surfaced more than a month ago. "You've got an entrenched bureaucracy that exists out there that is not held accountable, that is shooting for goals, goals that are not helping the veterans," Miller said. Senator Bernie Sanders, an Independent from Vermont and chairman of the Senate veterans affairs committee, said: "I think it's unfair to blame Shinseki for all the problems. Can he do better? Yes." Shinseki, who has faced Republican calls for his resignation, also said on Saturday that VA facilities were enhancing capacity of their clinics so veterans could get care sooner. In cases where officials cannot expand capacity at VA centres the department is "increasing the care we acquire in the community through non-VA care," he said.

VA IG finds 'systemic' problems - At least 1,700 veterans waiting for health care at the Phoenix Veterans Affairs medical facility were not included on the facility’s wait list, and patients there waited an average of 115 days for their first appointments, according to a preliminary review by the Veterans Affairs inspector general. In the review, released Wednesday, the inspector general said it has “substantiated serious conditions” and has expanded its review to 42 VA facilities, more than the 26 initially planned. While the the interim IG report says the agency’s scheduling problems are “systemic,” it says it would be premature to link those delays to allegations that dozens of veterans died waiting for care. “We are finding that inappropriate scheduling practices are a systemic problem nationwide,” the report said, noting four different “scheduling schemes” used in VA facilities.

Doctor Shortage Is Cited in Delays at V.A. Hospitals -  In Washington, the number of lawmakers in Congress calling for the resignation of Eric Shinseki, the Veterans Affairs secretary, grew by late Thursday to nearly 100 — including almost a dozen Democrats — as President Obama prepared to receive an internal audit on Friday from Mr. Shinseki assessing the breadth of misconduct at veterans hospitals. At the heart of the falsified data in Phoenix, and possibly many other veterans hospitals, is an acute shortage of doctors, particularly primary care ones, to handle a patient population swelled both by aging veterans from the Vietnam War and younger ones who served in Iraq and Afghanistan, according to congressional officials, Veterans Affairs doctors and medical industry experts. The department says it is trying to fill 400 vacancies to add to its roster of primary care doctors, which last year numbered 5,100.“The doctors are good but they are overworked, and they feel inadequate in the face of the inordinate demands made on them,” said Senator Richard Blumenthal, Democrat of Connecticut and a member of the Senate Veterans Affairs Committee. “The exploding workload is suffocating them.” The inspector general’s report also pointed to another factor that may explain why hospital officials in Phoenix and elsewhere might have falsified wait-time data: pressures to excel in the annual performance reviews used to determine raises, bonuses, promotions and other benefits. Instituted widely 20 years ago to increase accountability for weak employees as well as reward strong ones, those reviews and their attendant benefits may have become perverse incentives for manipulating wait-time data, some lawmakers and experts say.

Thanks, But We Still Hate Obamacare! -  Greg Sargent gets a great nugget from Democratic pollster Celinda Lake, who “recently conducted a statewide poll in Kentucky for an unnamed client and found that Kynect polls very positively, in contrast to Obamacare, which is underwater.”   Kynect is the Kentucky version of the Affordable Care Act exchange. To the extent the polling is correct, these results are another example of people loving the ACA but hating Obamacare.   Which just isn’t very surprising. People still don’t really know what “Obamacare” is. Why should they? There’s nothing labeled “Obamacare” that anyone has to deal with; almost nothing labeled “Affordable Care Act;” and there aren’t even all that many noticeable parts of the new system. Of course, Kynect is one of those new things, but there’s no reason for anyone in Kentucky to know that it has anything to do with the national law.

Obamacare premiums to rise 13%, Ohio agency says -- Premiums would increase 13 percent next year for Ohioans who buy health coverage through the federally run insurance exchange, the Ohio Department of Insurance said yesterday. But supporters of the federally run insurance exchange, created under the Affordable Care Act, say such data are misleading. Premiums in 2015 for an individual would average $374.42 per month, compared with $332.58 per month for the same coverage this year, the department said in a prepared statement. For small businesses, proposed premiums would increase 11 percent on average, to $446.78 a month per employee. Sixteen companies filed to sell plans to individuals through the government-run exchange for 2015 coverage, up from 14 companies that sought to sell marketplace coverage this year. In a prepared statement, Lt. Gov. Mary Taylor, who also is director of the Department of Insurance, blamed the higher premiums on the Affordable Care Act. “It’s bad news, no doubt, but it’s what we expected and it’s what the research we did in advance predicted,” said Taylor, one of the state’s most prominent critics of President Barack Obama’s health-care plan. The premiums are still subject to state and federal review, and an official with the Obama administration said the premiums are subject to change. “This is just the opening bid for insurance companies,” the administration official said. “The rates that are posted today are very unlikely to be the rates that they (Ohioans) pay.”

New Costs From Health Law Snarl Union Contract Talks - Disputes between unions and employers over paying for new costs associated with the Affordable Care Act are roiling labor talks nationwide. Unions and employers are tussling over who will pick up the tab for new mandates, such as coverage for dependent children to age 26, as well as future costs, such as a tax on premium health plans starting in 2018. The question is poised to become a significant point of tension as tens of thousands of labor contracts covering millions of workers expire in the next several years, with ACA-related cost increases ranging from 5% to 12.5% in current talks. In Philadelphia, disagreement over how much workers should contribute to such health-plan cost increases has stalled talks between the region's transit system and its main union representing 5,000 workers as they try to renegotiate a contract that expired in March.Roughly 2,000 housekeepers, waiters and others at nine of 10 downtown Las Vegas casinos voted this month to go on strike June 1 if they don't reach agreements on a series of issues, the thorniest of which involve new ACA-related cost increases, according to the union. Flight attendants at Alaska Airlines voted down a tentative contract agreement with management in February, in part because it didn't provide enough protection against a possible surge in ACA-related costs, union members said. They are still without a new contract. Labor experts on both sides say the law doesn't take into account that health benefits have been negotiated by employers and unions over decades, and that rewriting plans to meet new requirements can affect wages and other labor terms.

I.R.S. Bars Employers From Dumping Workers Into Health Exchanges - Many employers had thought they could shift health costs to the government by sending their employees to a health insurance exchange with a tax-free contribution of cash to help pay premiums, but the Obama administration has squelched the idea in a new ruling. Such arrangements do not satisfy the health care law, the administration said, and employers may be subject to a tax penalty of $100 a day — or $36,500 a year — for each employee who goes into the individual marketplace.The ruling this month, by the Internal Revenue Service, blocks any wholesale move by employers to dump employees into the exchanges.Under a central provision of the health care law, larger employers are required to offer health coverage to full-time workers, or else the employers may be subject to penalties. Many employers — some that now offer coverage and some that do not — had concluded that it would be cheaper to provide each employee with a lump sum of money to buy insurance on an exchange, instead of providing coverage directly.But the Obama administration raised objections, contained in an authoritative question-and-answer document released by the Internal Revenue Service, in consultation with other agencies.

IRS says it will penalize employers dumping employees into Obamacare - Before the ink on the Affordable Care Act was dry, prudent employers were analyzing the law to identify ways to save money and avoid many of the punitive aspects of the law. One question which has repeatedly been asked of myself and other employment lawyers is whether it would be lawful for employers to simply “get out of the healthcare business,” i.e. allow employees to take the tax-free funds which would otherwise be spent by the employer, to use themselves in the healthcare exchanges to purchase their own insurance plans. This week, the Internal Revenue Service (IRS) answered that question with a resounding “No.” The IRS ruled that it would consider such a reimbursement plan to be a “health care plan” subject to all of the requirements of health care reform. Since those requirements would be impossible to meet, the plan would be subject to an excise tax of $100 per day per applicable employee (which is $36,500 per employee, per year). The IRS’ opinion on the matter can be found here.   The takeaway is that the IRS has effectively made it impossible to dump employees off an existing health care plan and instead offer pre-tax money towards purchasing health insurance on an exchange. Of course, an employer can always just pay employees higher wages, and discontinue insurance, but both the employer and employee will have to pay additional taxes. 

Gallup: Health Care Law Still Unpopular -- Now that the open enrollment period on the exchanges is over and the American people have gotten a chance to experience the Affordable Care Act the verdict is not good news for Democrats. While support is up slightly since the terrible rollout of, Gallup found a majority still disapprove of the law. The poll found 44 percent of Americans think the ACA will make our health care system worse, 37 percent think it will make it better and 16 percent think it will not make a real difference. Like with the overall approve question, these numbers haven’t changed much over the past year. If millions of people buying insurance on the exchanges didn’t have a noticeable impact on opinions about the law, it is unlikely approval of it will change significantly anytime in the near future. Politically, it should be noted that this is a poll of American adults. The electorate in the midterm tends to be older, whiter and more conservative than the population as a whole. That means approval of the law among likely 2014 voters is probably several points worse.

Obama’s ACA Delays — Breaking the Law or Making It Work? - NEJM -- As the Obama administration has over the past several months postponed implementation of various parts of the Affordable Care Act (ACA), the President's political opponents have charged that his decisions are “blatantly illegal,” that his administration is acting “as though it were not bound by law,” and that his decisions “raise grave concerns about [his] understanding” that, unlike medieval British monarchs, American presidents have under our Constitution a “duty, not a discretionary power” to “take care that the laws be faithfully executed.”1 Indeed, the House of Representatives has enacted, on a party-line vote, H.R. 4138, the “Enforce the Law Act,” purporting to create jurisdiction in the federal courts to allow a house of Congress to sue to force the President to enforce requirements of a federal law. The administration and its defenders have countered that its postponements are not refusals to enforce the ACA but temporary course corrections in the interest of effective implementation. But ACA opponents have kept the “illegality” meme before the public. Indeed, even ACA supporters may wonder whether there might be something to it, given the number of missed deadlines and the fact that implementation of some provisions has been delayed more than once. How should the administration's actions be understood?

Doctors Surveyed On First 120 Days With New Obamacare Patients --Last week the Medical Group Management Association (MGMA) published the results of their recent survey of clinical practices in treating new Obamacare patients. The survey included 728 practices (over 40,000 physicians) across all states except North Dakota, Rhode Island, West Virginia and Hawaii. The intent was to capture the practice perspective on seeing new Obamacare exchange patients over the course of the first 120 days (January 1 through April 30) of coverage. Close to 80% of the practices surveyed said they were committed to providing services to those covered under Obamacare and almost 94% of the survey respondents have already seen patients with Obamacare coverage. Among the key findings from the report (PDF online here) were these:

  • 56% reported no change in their practice’s patient population size through April
  • 24% reported a slight increase
  • 30% projected no change to their practice population size by the end of 2014
  • 44% predicted a slight increase

How Obamacare Will Screw Black Doctors - Imagine that you’re an optimistic third-year medical student walking into the ER. Your first patient says to you, “I don’t want any niggers touching me.” There you are in your brand new white coat—the apotheosis of your and your parents’ hopes and dreams—but still, to this patient, you’re a nigger. You try to ignore the sting in your eyes—the shame of it. You suck it up, say nothing, and move on. This kind of thing has happened to me from time to time—even as a studious, light-skinned offspring of a white father and black mother; even as a person who has “no discernable negro accent”; even as a person who was schooled since I was knee-high to respond to the question of what race I am by saying, “Homo sapiens sapiens because there is no such thing as race.”   But it turns out that to a lot of people, I’m still a nigger.  Yet, the influence of race was completely ignored when the government tied patient satisfaction scores to doctor’s pay. We have to ask: In what way will a doctor’s race be financially rewarded or penalized by our government? 

Why Not Ditch the Medical Device Excise Tax and Boost Cigarette Taxes? - Senate Republicans are insisting that the 2.3% excise tax on medical devices, enacted as part of the Affordable Care Act, be repealed as part of the package extending expired tax provisions. Democratic Senate Majority Leader Harry Reid says the proposal to chip away at part of Obamacare is not germane and has refused to allow a vote on the amendment. The stand-off has put the extenders bill in limbo. It’s easy to lampoon Republicans for voting, yet again, to repeal at least part of Obamacare—the House has voted for full or partial repeal more than 50 times—but they have a point. The medical device tax is dubious policy. And an obvious tax offset exists. Higher cigarette taxes would raise revenue and lower the costs of the Affordable Care Act over time by reducing tobacco-related illnesses. The tax is small and it exempts exports and direct sales to consumers (e.g., eyeglasses). Jane Gravelle and Sean Lowry of the Congressional Research Service concluded that the tax would mostly be passed on to consumers, having negligible effects on profits. The warnings of a massive exodus of US manufacturers in response to the tax are thus overblown.But taxes on intermediate production activities are economically inefficient. Compared with broad-based taxes on spending or income, they produce large distortions relative to the revenue collected. And CRS warns that since the tax is relatively small, administration and compliance costs are likely to be large relative to revenues—especially for small manufacturers.

When Hospital Systems Buy Health Insurers -- More typically, health insurance and health care delivery have been separate businesses — adversaries, even — in negotiating over prices. Why are the two sides getting cozy?  There are several reasons hospitals might want to be in the insurance business, or more closely aligned with insurers. By acting in cooperation, a unified organization might be able to better design incentives for higher-quality care. Or, by combining similar functions like human resources or tech support, the organization might cut costs. A joint provider-insurer may also be better able to adapt to — and make more money from — new Medicare payment models in the Affordable Care Act. Eventually, an organization that combines the functions of health care provision and health care insurance might have a leg up in the market, putting competitors at a disadvantage or driving them out. With less competition, of course, an organization would be in a good position to raise premiums.Wary of threats to competition and the effects on consumers and patients, health economists and antitrust regulators are watching these market dynamics with a concerned eye.

America's Obesity Epidemic Hits The Military: 1 in 5 Recruits "Too Fat To Fight" - Students consume almost 400 billion junk food calories at school per year, equal to almost 2 billion candy bars and while the epidemic of childhood obesity is not 'news' per se - for one big employer in America, it is a major problem. As Bloomberg Businessweek reports, the number one reason people can’t join the military is that they’re overweight or obese, and "still too fat to fight." The problem is large for active service members also with over 51% overweight (though better than the civilian population) as the DoD alone spends an estimated $1 billion per year for medical care associated with "weight-related health problems."

Military to fund brain chip for treating depression, PTSD: Treating mental illnesses across the USA is wrought with imperfections. Existing treatments like psychotherapy and medications aren't guaranteed to work, especially over time. The military's research arm is taking a different tact in funding a $26 million project to develop a chip implanted in the skull with the goal of stimulating the brain to treat psychiatric disorders including depression, addiction and post-traumatic stress disorder. The project aims to record the brain's activity and then develop technology to "correct it," said Edward Chang, neurosurgeon at the University of California San Francisco and team leader on the project, in a statement. The Defense Advanced Research Projects Agency (DARPA) is funding the five-year project led by UCSF and Massachusetts General Hospital.  "The brain is very different from all other organs because of its networking and adaptability," said Justin Sanchez, DARPA program manager, in a statement.. He added that an embeddable device would "allow us to move beyond the traditional static view of the brain and into a realm of precision therapy." The project is part of President Obama's Brain Initiative, a $100 million effort to research brain mapping that could lead to new ways of treating a wide range of brain disorders, including Alzheimer's, autism and traumatic brain injury.

‘Smart pills’ with chips, cameras and robotic parts raise legal, ethical questions - Each morning around 6, Mary Ellen Snodgrass swallows a computer chip. It’s embedded in one of her pills and roughly the size of a grain of sand. When it hits her stomach, it transmits a signal to her tablet computer indicating that she has successfully taken her heart and thyroid medications.  Snodgrass — a 91-year-old retired schoolteacher who has been trying out the smart pills at the behest of her son, an employee at the company that makes the technology — is at the forefront of what many predict will be a revolution in medicine powered by miniature chips, sensors, cameras and robots with the ability to access, analyze and manipulate your body from the inside.  Scientists are working on more advanced prototypes. Nano­sensors, for example, would live in the bloodstream and send messages to smartphones whenever they saw signs of an infection, an impending heart attack or another issue — essentially serving as early-warning beacons for disease. Armies of tiny robots with legs, propellers, cameras and wireless guidance systems are being developed to diagnose diseases, administer drugs in a targeted manner and even perform surgery.

American jails have become the new mental asylums – and you're paying the bill - Sheriff Thomas J Dart -- The man running the largest mental health institution in the United States is not a doctor. He did not major in psychiatry, nor did he spend his formative years studying bipolar disorder or working with schizophrenics. That man is me, a history major turned lawyer who went on to become the sheriff here. As sheriff, I run the Cook County Jail, the largest jail on a single site in the country with approximately 10,000 inmates on any given day – and approximately 30% of them suffering from a serious mental illness. With dramatic and continued cuts to mental health funding on the federal and local level, county jails and state prisons are where the majority of our mental health care is being administered today. According to the Treatment Advocacy Center, the largest mental health institutions in 44 of our 50 states are jails or prisons. And 10 times as many mentally ill individuals reside in jails and prisons than in state mental health hospitals, where they should. The conclusion is heartbreaking but no longer undeniable: we have criminalized mental illness in America, and you are paying for it. It is shameful. Deplorable. Immoral. Simply put, the mentally ill belong in treatment – not in jail. It would be cheaper that way, too.

Ads Implant False Memories -- A new study, published in The Journal of Consumer Research, helps explain both the success of this marketing strategy and my flawed nostalgia for Coke. It turns out that vivid commercials are incredibly good at tricking the hippocampus (a center of long-term memory in the brain) into believing that the scene we just watched on television actually happened. And it happened to us. The experiment went like this: 100 undergraduates were introduced to a new popcorn product called “Orville Redenbacher’s Gourmet Fresh Microwave Popcorn.” (No such product exists, but that’s the point.) Then, the students were randomly assigned to various advertisement conditions. Some subjects viewed low-imagery text ads, which described the delicious taste of this new snack food. Others watched a high-imagery commercial, in which they watched all sorts of happy people enjoying this popcorn in their living room. After viewing the ads, the students were then assigned to one of two rooms. In one room, they were given an unrelated survey. In the other room, however, they were given a sample of this fictional new popcorn to taste. (A different Orville Redenbacher popcorn was actually used.) One week later, all the subjects were quizzed about their memory of the product. Here’s where things get disturbing: While students who saw the low-imagery ad were extremely unlikely to report having tried the popcorn, those who watched the slick commercial were just as likely to have said they tried the popcorn as those who actually did. Furthermore, their ratings of the product were as favorable as those who sampled the salty, buttery treat. Most troubling, perhaps, is that these subjects were extremely confident in these made-up memories. The delusion felt true. They didn’t like the popcorn because they’d seen a good ad. They liked the popcorn because it was delicious.

Hazardous level of trace metals in Hong Kong’s air as scientists warn of health crisis - The air in China contains 10 to 20 times more fine metallic particles than in the United States, according to scientists studying samples of air pollutants collected across the country, including Hong Kong. The city's overall PM2.5 levels are lower than in most urban centres on the mainland, but it has a higher concentration of health-threatening trace metals, the scientists say. Nearly 20 per cent of PM2.5 particle samples collected in the city carried metals such as zinc, a hazardous element that can permanently damage DNA. While public attention is often focused on PM2.5 levels, scientists are more concerned with the particles' composition. PM2.5 particles, the smallest measured, lodge deep inside lungs and are the most dangerous to human health. Several teams of scientists have studied smog in China - including Hong Kong - and at least two detected heavy concentrations of trace metals. Excessive amounts of zinc and chromium are toxic and can lead to a wide range of problems, from premature ageing to cancer. In extreme cases, high concentrations of airborne trace metals can even damage human DNA, heightening the risk of genetic conditions that can be passed on to future generations.

Obese or Overweight People Top 2.1 Billion Worldwide - The estimated number of overweight or obese people almost tripled from 857 million in 1980, according to the analysis published today in The Lancet. The heaviest country was the U.S., accounting for about 13 percent of the world’s obese people, followed by China and India, which together represent 15 percent, according to the study funded by the Bill & Melinda Gates Foundation. “Since 1980, no country has made significant progress in reducing the rates of people being overweight or obese,” Christopher Murray, the study author, said in an e-mail. “Obesity is now a major public health epidemic in both the developed and the developing world.” Obesity can raise the risk of diabetes, osteoarthritis, heart disease and cancer, among other health-threatening conditions, according to the U.S. Centers for Disease Control and Prevention. Being overweight was estimated to have caused 3.4 million deaths worldwide, said Murray, director of the Institute for Health Metrics and Evaluation at the University of Washington in Seattle. “Countries need to be looking at how they communicate effectively both what people eat and how much they should be eating,” Murray said. “Because what we’ve been doing up until now isn’t working. Strategies to tackle obesity need to address both physical activity, total caloric intake and the different foods we eat.”

Weight of the world: 2.1 billion people obese or overweight (Reuters) - Obesity is imposing an increasingly heavy burden on the world's population in rich and poor nations alike, with almost 30 percent of people globally now either obese or overweight - a staggering 2.1 billion in all, researchers said on Wednesday. The researchers conducted what they called the most comprehensive assessment to date of one of the pressing public health dilemmas of our time, using data covering 188 nations from 1980 to 2013. Nations in the Middle East and North Africa, Central America and the Pacific and Caribbean islands reached staggeringly high obesity rates, the team at the University of Washington's Institute for Health Metrics and Evaluation in Seattle reported in the Lancet medical journal. true The biggest obesity rises among women came in Egypt, Saudi Arabia, Oman, Honduras and Bahrain. Among men, it was in New Zealand, Bahrain, Kuwait, Saudi Arabia and the United States. The richest country, the United States, was home to the biggest chunk of the planet's obese population - 13 percent - even though it claims less than 5 percent of its people. Obesity is a complex problem fueled by the availability of cheap, fatty, sugary, salty, high-calorie "junk food" and the rise of sedentary lifestyles. It is a major risk factor for heart disease and stroke, diabetes, arthritis and certain cancers. Chronic complications of weight kill about 3.4 million adults annually, the U.N. World Health Organization says.

The psychology of Soylent and the prison of first-world food choices - I’ve spilled a lot of virtual ink on Soylent over the past year—I count thirteen pieces, including the five-day experiment from last summer when I ate nothing but the stuff for a full week. This, though, is probably the last Soylent-specific piece that I’ll write for a while. It’s the piece that I’ve wanted to do all along. Here we're going to talk about how the final mass-produced Soylent product fits into my life, without any stunts or multi-day binges. More importantly, we're going to take a look at exactly what might drive someone in the most food-saturated culture in the world to bypass thousands of healthy, normal, human-food meal choices in favor of nutritive goop. It's something a lot of folks simply can't seem to wrap their heads around. Today it's relatively easy to make a healthy meal, so why in the hell would anyone pour Soylent down their throat?But if you're asking that question and genuinely can't see an answer, then you're demonstrating both a profound over-projection of your own cultural norms and also a stunning lack of empathy. Food is for some people a genuine struggle. Just because many in the first world have the ability to go to a grocery store and stock up on healthy stuff doesn't mean it's easy, or even possible, for everyone.

Why Are Food Prices so High? Because We're Eating Oil - Anyone who buys their own groceries (as opposed to having a full-time cook handle such mundane chores) knows that the cost of basic foods keeps rising, despite the official claims that inflation is essentially near-zero. Common-sense causes include severe weather and droughts than reduce crop yields, rising demand from the increasingly wealthy global middle class and money printing, which devalues the purchasing power of income. While these factors undoubtedly influence the cost of food, it turns out that food moves in virtual lockstep with the one master commodity in an industrialized global economy: oil. Courtesy of our friends at Market Daily Briefing, here is a chart of a basket of basic foodstuffs and Brent Crude Oil:In other words, regardless of what we eat, we’re actually eating oil. Not directly, of course, but indirectly, as the global production of tradable foods relies on mechanized farming, fertilizers derived from fossil fuel feedstocks, transport of the harvest to processing plants and from there, to final customers. Even more indirectly, it took enormous quantities of fossil-fuel energy to construct the aircraft that fly delicacies halfway around the world, the ships that carry cacao beans and grain, the trucks that transport produce and the roads that enable fast, reliable delivery of perishables.

Will New Federal Law Facilitate Privatization of U.S. Water? - A major piece of legislation funding the development and improvement of water-related infrastructure passed Congress last week for the first time in nearly a decade, and President Barack Obama is expected to sign the bill soon. Yet public interest groups warn that a key provision in the law would complicate public investment in drinking water and wastewater systems in big cities and small towns alike. The end result, they say, would be to strengthen privately-managed or -owned water systems while leaving the federal government to take on the risk of these investments—essentially subsidizing water privatization. “This law will facilitate the privatization of water systems and prioritize funding for privatized systems,” Mary Grant, a researcher for the water program at Food & Water Watch, a watchdog group here, told MintPress News. “The basic problem is that it will only fund up to 45 percent of project costs, but also stipulates that the rest cannot be made up through the use of tax-exempt bonds,” Grant continued. “Yet such bonds are the primary way in which local governments fund infrastructure projects, so why would they try to make use of this funding?”

The Thirsty West: 10 Percent of California’s Water Goes to Almond Farming - As I’ve already discussed in the Thirsty West series, city-dwelling Californians are a bit insulated from near-term water shortages thanks to the state’s intricate tentacles of aqueducts, pipelines, and canals that divert water from the snowcapped Sierras to the urban core along the coast. Rapid population growth looms ominously, but for now, you’ll still be able to brush your teeth in Oakland and Burbank. By all accounts the current water crisis is far more urgent in the sprawling fields of the Central Valley. And that’s bad news for those of us who enjoy eating daily. Two simple facts explain why: California is the most productive agricultural state in the union, and agriculture uses 80 percent of California’s water. In a year with practically none of the stuff, that’s enough to send ripple effects throughout the country. California is the nation’s leading producer of almonds, avocados, broccoli, carrots, cauliflower, grapes, lettuce, milk, onions, peppers, spinach, tomatoes, walnuts, and dozens of other commodities, according to a 2012 Department of Agriculture report (PDF). The state produces one-third of our vegetables and two-thirds of our nuts and fruits each year. While fields in iconic agricultural states like Iowa, Kansas, and Texas primarily produce grain (most of which is used to fatten animals), pretty much everything you think of as actual food is grown in California. Simply put: We can’t eat without California. But as climate change–fueled droughts continue to desiccate California, the short-term solution from farmers has been to double down on making money.

Dust Bowl Conditions Have Returned To Kansas, Oklahoma And North Texas -- When American explorers first traveled through north Texas, Oklahoma and Kansas, they referred to it as "the Great American Desert" and they doubted that anyone would ever be able to farm it.  But as history has shown, when that area gets plenty of precipitation the farming is actually quite good.  Unfortunately, the region is now in the midst of a devastating multi-year drought which never seems to end.  Right now, 56 percent of Texas, 64 percent of Oklahoma and 80 percent of Kansas are experiencing "severe drought", and the long range forecast for this upcoming summer is not good. In fact, some areas in the region are already drier than they were during the worst times of the 1930s.  And the relentless high winds that are plaguing that area of the country are kicking up some hellacious dust storms.  For example, some parts of Kansas experienced a two day dust storm last month.  And Lubbock, Texas was hit be a three day dust storm last month.  We are witnessing things that we have not seen since the depths of the Dust Bowl days, and unless the region starts getting a serious amount of rain, things are going to get a whole lot worse before they get any better. Over the past two months, very high winds and bone dry conditions have made the lives of ordinary farmers in the state of Kansas extraordinarily difficult. 

Ukraine Faces Hurdles in Restoring Its Farming Legacy -  After the breakup of the Soviet Union, farmland in newly independent Ukraine was divided among villagers, acre by acre, creating a patchwork of agricultural endeavors that are often inefficient or unprofitable. Some land is rented to fruit growers, grain operators or large-scale farming businesses. Some locals work small plots on their own. Some acreage sits fallow, stuck in legal limbo after the owner has died.Ukraine was once the breadbasket of the Soviet Union, known for its rich soil where grain, sunflowers and livestock flourished. But farming production dropped sharply in the chaotic decade after the collapse of communism, and recovery has come in fits and starts. Production is only now returning to peak levels of the 1990s, stymied by the corruption, red tape and inefficiencies that have plagued the broader Ukrainian economy for years and left the villagers living humble existences. Restoring Ukraine’s farming legacy will be crucial to the success of the country’s newly elected president, the billionaire businessman Petro O. Poroshenko. Such efforts would go a long way toward fixing Ukraine’s economy and reducing its dependence on Russia. Agriculture once accounted for nearly 20 percent of the gross domestic product; it is now roughly 10 percent.

Monsanto: the Toxic Face of Globalization - It is not only GM products, but the continuing economy of globalization, that Monsanto represents. Thanks to major seed companies and agricultural conglomerates like Monsanto and Cargill, the very definition of farmer has changed throughout the world—from a person or group of people in a given community who specialized in producing food to a corporate, land-owning entity comprised more of machines, technological assemblages, and inputs than of people who work the land. Thus, the target of protest is not only GMs, although GMs are a central aspect, but also the supply chain of multinational corporations that transforms food into a commodity that many throughout the world cannot afford. In the context of today’s historical epoch—the Global Land Grab, in which farmland is being grabbed by multinational corporations from vulnerable populations like small farmers, campesin@s, and Indigenous peoples throughout the world—the March Against Monsanto has taken on a particularly sharp edge. In Ethiopia, where Monsanto has taken up shop through the New Alliance for Food Security and Nutrition, reports have emerged of tens, if not hundreds of thousands of people flooding the streets of the capital city, Addis Ababa, to demonstrate against land grabbing. Monsanto has also ingrained itself in Mali since the US-backed coup of 2012, in spite of renewed fighting in the North that only yesterday claimed the lives of 50 soldiers. Malian cotton farmers, who have resisted Monsanto’s genetically modified Bt Cotton seeds since 2004, are being brushed to the side.  The biosafety law is to be removed, because it restricts the ability of researchers to run field tests.

These 7 States Are Running Out of Water: The United States is currently engulfed in one of the worst droughts in recent memory. More than 30% of the country experienced at least moderate drought as of last week’s data. In seven states drought conditions were so severe that each had more than half of its land area in severe drought. Severe drought is characterized by crop loss, frequent water shortages, and mandatory water use restrictions. Based on data from the U.S. Drought Monitor, 24/7 Wall St. reviewed the states with the highest levels of severe drought.In an interview, U.S. Department of Agriculture (USDA) meteorologist Brad Rippey, told 24/7 Wall St. that drought has been a long-running issue in parts of the country. “This drought has dragged on for three and a half years in some areas, particularly [in] North Texas,” Rippey said.While large portions of the seven states suffer from severe drought, in some parts of these states drought conditions are even worse. In six of the seven states with the highest levels of drought, more than 30% of each state was in extreme drought as of last week, a more severe level of drought characterized by major crop and pasture losses, as well as widespread water shortages. Additionally, in California and Oklahoma, 25% and 30% of the states, respectively, suffered from exceptional drought, the highest severity classification. Under exceptional drought, crop and pasture loss is widespread, and shortages of well and reservoir water can lead to water emergencies.

The Path To Peak Water - The Infographic - The overwhelming majority of global fresh water is locked up as ice or permanent snow cover, making it inaccessible and severely limiting our readily available supply. The average American uses 65 to 78 gallons of water per day, while the average person in the Republic of Gambia, Africa, uses just 1.17 gallons, barely above the minimum amount needed to survive.

Nascent El Nino threatens to leave some Asian economies parched - -- A Pacific weather pattern that spells trouble for agriculture-dependent Asian countries appears to be on its way. Signs that the El Nino phenomenon is developing for the first time in five years are spurring economists to mull the implications for certain economies and stock markets. El Nino is Spanish for "the boy." It can refer to the young Jesus Christ. The term was borrowed for the climate effect because it tends to set in around Christmas. Basically, unusual ocean warming off the Pacific coast of South America creates various ripple effects. These include exceptionally dry conditions in parts of Asia; farm-reliant India and the Philippines are considered particularly at risk of drought and poor crop yields.Last year, the Philippines was devastated by a monster typhoon. This year, the country is dealing with a serious drought. The dry spell has already caused 823 million pesos ($18.8 million) worth of damage to rice, corn and other crops, according to the Department of Agriculture. The department has decided to spend 1.6 billion pesos on measures to cope with the lack of rain. If the dryness drags on, however, inflationary pressure will grow. The Philippine central bank on May 8 raised its inflation forecast for 2014 to 4.3%, from 4.2%, citing higher food prices due to the drought.

El Niño 2014: Which crops it will help, and which it will hurt -- The El Nino weather phenomenon that is likely to strike in 2014 is expected to reduce world maize, rice and wheat yields but boost soybeans, according to a study that could help farmers plan what to grow. The Japanese-led report gave what it called a first global set of maps linking yields of major crops to El Nino, a warming of the surface of the tropical Pacific Ocean that can trigger downpours or droughts around the globe.The maps are meant to help farmers decide which crops or varieties to plant and may give governments a "famine early warning system", the study in the journal Nature Communications said. Most forecasts show an El Nino emerging in mid-2014, the U.N.'s World Meteorological Organization (WMO) said last month. El Nino - Spanish for 'the boy' - forms every two to seven years and warning signs emerge months in advance.Thursday's study said mean maize yields fell 2.3 percent in El Nino years compared to normal in 1984-2004, rice was down 0.4 percent and wheat 1.4 percent. Soybean yields rose 3.5 percent, with rainfall patterns favoring big U.S. and Brazilian harvests.In years with a La Nina event, the opposite of El Nino and cooling the Pacific surface, yields for all four dipped, according to the study by scientists in Japan, the United States, Britain, Australia and Denmark.

Can Rural Brooks Actually Pose A Threat To The Environment?: Researchers at the University of Wisconsin at Madison issued a paper on May 16 said those bubbles from freshwater brooks may finally answer the question about the volume of methane in the Earth’s atmosphere that is so far unaccounted for. Only human use of fossil fuels outstrips methane as a contributor to greenhouse gases. This finding could change how policy-makers and scientists address greenhouse gases, and could prompt a new look at the use of sulfur and nitrogen in modern farming, whose runoff could affect the production of methane in stream beds. In any event, there is growing evidence that freshwater lakes, rivers and streams are sources of plentiful amounts of methane, according to John Crawford, a University of Wisconsin-Madison graduate student who helped conduct the study. The source of methane in such environments are the byproducts of bacterial metabolism. These bacteria live in the beds of lakes, rivers and streams that contain little oxygen but much organic material. It’s long been known that wetlands generate methane. What’s new is that the waterways that drain them may also be responsible for the amount of the gas in Earth’s atmosphere. What’s still not known is how much these conduits contribute to the problem.

As mountain snow fails and glaciers melt, Pakistan faces water threats -  Farmers in the valleys of northern Pakistan fear for the survival of their summer crops after a short winter of low snowfall altered the flow patterns of mountain streams, potentially robbing the farmers of water they rely on to irrigate their fields. Experts at the Pakistan Meteorological Department (PMD) and senior weather observers posted at stations in Pakistan's Upper Indus Basin (UIB) say last winter's snowfall in most of the valleys of the Gilgit-Balistan province was as much as 70 percent below that of previous years. "Not only was snowfall abysmally low, but it also started late by over two months," said Mohammad Amin, meteorologist at PMD's observatory station in Skardu district, where the Shigar River joins the Indus River in the shadow of the Karakoram mountain range. "And it started to melt in March instead of late April in most of the valleys of Skardu."The early thaw meant the swelling of mountain streams months earlier than usual, said Musa Khan, head of the weather observatory station in Gupis in the northern Gilgit-Baltistan province. That could be devastating for farmers, who usually only start readying their lands for summer crops in May.

Northern hemisphere hits carbon dioxide milestone in April (Reuters) - Carbon dioxide levels throughout the northern hemisphere hit 400 parts per million (ppm) for the first time in human history in April, an ominous threshold for climate change, the World Meteorological Organization said on Monday. The 400 ppm level in the atmosphere, up 40 percent since wide use of fossil fuels began with the Industrial Revolution, is rapidly spreading southwards. First recorded in 2012 in the Arctic, it has since become the norm for the Arctic spring. The WMO expects the global annual average carbon dioxide concentration to be above 400 ppm in 2015 or 2016. Rising concentrations of the heat-trapping gas raise risks of more heatwaves, droughts and rising sea levels. "Time is running out," WMO Secretary-General Michel Jarraud said in a statement. "This should serve as yet another wake-up call about the constantly rising levels of greenhouse gases which are driving climate change. If we are to preserve our planet for future generations, we need urgent action to curb new emissions of these heat-trapping gases."

This ice sheet will unleash a global Superstorm Sandy that never ends - If you want to truly grasp the scale of Earth's polar ice sheets, you need some help from Isaac Newton. Newton taught us the universal law of gravitation, which states that all objects are attracted to one another in relation to their masses (and the distance between them). The ice sheets covering Antarctica and Greenland are incredibly massive—Antarctica's ice is more than two miles thick in places and 5.4 million square miles in extent. These ice sheets are so large, in fact, that gravitational attraction pulls the surrounding ocean toward them. The sea level therefore rises upward at an angle as you approach an ice sheet, and slopes downward and away as you leave its presence. This is not good news for humanity. As the ice sheets melt due to global warming, not only do they raise the sea level directly; they also exert a weaker gravitational pull on the surrounding ocean. So water sloshes back toward the continents, where we all live. "If Antarctica shrinks and puts that water in the ocean, the ocean raises around the world, but then Antarctica is pulling the ocean towards it less strongly," explains the celebrated Penn State University glaciologist Richard Alley on the latest installment of the Inquiring Minds podcast. "And as that extra water around Antarctica spreads around the world, we will get a little more sea level rise in the US than the global average."

Trillions of plastic pieces found in Arctic ice: Arctic Ocean ice may hold trillions of small pieces of plastic and other synthetic trash, and they are being released into the world's oceans as global warming melts the polar cap, researchers say. Though the finding is surprising and worrying, the possible harm to marine life is so far unknown, the authors concluded. Called microplastics, the pollutants come mostly from debris that has broken apart, as well as from cosmetics and fibers released from washing clothes, according to the study, which was published in the journal Earth's Future and first reported by Science magazine. At current melting trends, more than 1 trillion pieces 5 millimeters or smaller could wind up in the oceans during the coming decade, the authors estimate. The concentration of plastic debris is 1,000 times greater than that floating in the so-called Great Pacific Garbage Patch. The  researchers based their findings on core samples of ice taken during polar expeditions in 2005 and 2010. Rayon was the most common synthetic material discovered -- 54%. Though rayon is not a plastic (it's made from wood), the authors included it "because it is a manmade semi-synthetic that makes up a significant proportion of synthetic microparticles found in the marine environment." Rayon is used in cigarette filters, clothing and personal hygiene products.

Prince Charles stirs controversy with warning over climate: Prince Charles has warned business leaders to take action against climate change or watch the world continue on a path to destruction - the latest forthright comment from the heir to the British throne in a month when his views have caused political and diplomatic waves. Charles sparked a diplomatic spat last week by comparing Russian President Vladimir Putin to Adolf Hitler, with some MPs calling for the 65-year-old prince to keep his personal opinions private. But he showed on Tuesday he is determined to voice his opinions, calling on an audience of global business leaders to take tough choices over climate change and capitalism even if it made them unpopular. He said the world was at the mercy of people vociferously and aggressively denying the current operating model was accelerating climate change which could destroy the world. "We can choose to act now before it is finally too late, using all of the power and influence that each of you can bring to bear to create an inclusive, sustainable and resilient society," he said in a speech in London to a conference entitled Inclusive Capitalism.

Rising sea levels will be too much, too fast for Florida: It is amazing for me to see the very aggressive building boom underway in south Florida; on the beaches and barrier islands, throughout downtown and in the low western areas bordering the Everglades. They are building like there is no tomorrow. Unfortunately, they are right. The US National Oceanic and Atmospheric Administration (NOAA) published its assessment of sea level rise in 2012 as part of the National Climate Assessment. Including estimates based on limited and maximum melt of the Greenland and Antarctic ice sheets, it anticipated a raise of 4.1 to 6.6ft (1.25 to 2m) by 2100, reaching 2ft (0.6m) by around 2050 and 3ft (0.9m) by around 2075. This degree of sea level rise would make nearly all the barrier islands of the world uninhabitable, inundate a major portion of the world’s deltas, upon which hundreds of millions of people live, and leave low-lying coastal zones like southeast Florida increasingly difficult to maintain infrastructure services for and increasingly vulnerable to hurricanes and storms.

Buying Insurance Against Climate Change: The third National Climate Assessment report ... warns us about our hazardous future... We must face facts: There is a real risk of new kinds of climate-related disaster. ... We are taking major gambles with our environment... Expect surprises. In March, a United Nations report identified with “high confidence” a number of risks that will be visited on different people unequally. ... In short, we need to worry about the potential for greater-than-expected disasters, especially those that concentrate their fury on specific places or circumstances ... we cannot now predict. That’s why global warming needs to be addressed by the private institutions of risk management, such as insurance and securitization. They have deep experience in smoothing out disasters’ effects by sharing them among large numbers of people. The people or entities that are hit hardest are helped by those less badly damaged.But these institutions need ways to deal with such grand-scale issues. Governments should recognize that by giving these businesses a profit incentive to prepare for these unevenly distributed disasters.

Cheap Climate Protection - Paul Krugman - The U.S. Chamber of Commerce just came out with its preemptive strike against Obama administration regulations on power plants. What the Chamber wanted to do was show that the economic impact of the regulations would be devastating. And I was eager to see how they had fudged the numbers.But a funny thing happened on the way to the diatribe. The Chamber evidently made a decision that it wanted to preserve credibility, so it outsourced the analysis. And while it tries to spin the results, what it actually found was that dramatic action on greenhouse gases would have surprisingly small economic costs. The Chamber’s supposed scare headline is that regulations would cost the US economy $50.2 billion per year in constant dollars between now and 2030. That’s for a plan to reduce GHG emissions 40 percent from their 2005 level, so it’s for real action. So, is $50 billion a lot? Let’s look at the CBO’s long-term projections. These say that average annual US real GDP over the period 2014-2030 will be $21.5 trillion. So the Chamber is telling us that we can achieve major reductions in greenhouse gases at a cost of 0.2 percent of GDP. That’s cheap!

Cutting Back on Carbon, by Paul Krugman -  Next week the Environmental Protection Agency is expected to announce new rules designed to limit global warming. Although we don’t know the details yet, anti-environmental groups are already predicting vast costs and economic doom. Don’t believe them. Everything we know suggests that we can achieve large reductions in greenhouse gas emissions at little cost to the economy. Just ask the United States Chamber of Commerce. O.K., that’s not the message the Chamber of Commerce was trying to deliver in the report it put out Wednesday. It clearly meant to convey the impression that the E.P.A.’s new rules would wreak havoc. But if you focus on the report’s content rather than its rhetoric, you discover that ... the numbers are remarkably small.Specifically, the report considers a carbon-reduction program that’s probably considerably more ambitious than we’re actually going to see, and it concludes that between now and 2030 the program would cost $50.2 billion in constant dollars per year. That’s supposed to sound like a big deal. ... These days, it’s just not a lot of money. Remember, we have a $17 trillion economy..., and it’s going to grow over time. So what the Chamber of Commerce is actually saying is that we can take dramatic steps on climate ... while reducing our incomes by only one-fifth of 1 percent.

Explaining the Conflict between Obama’s Climate Policy and Obama’s Energy Policy – Pt. 1 - With the Obama Administration recently publishing a frightening report on the effects of climate change, the National Climate Assessment 2014, contradictions in Obama’s orientation on climate and energy are placed in higher relief.  As part of the publication of the NCA2014, Obama took the time to meet with regional weathermen to discuss the contents of the report.   Apparently, Obama did not think or did not want the public to think of him and his Administration as lightly skimming over the dire warnings in the report as an afterthought. In the meantime, we have experienced a pivotal moment in the discovery of the present and future effects of climate change, with current ice melting patterns ensuring with a high degree of certainty that the West Antarctic Ice shelf will detach and deliver anywhere from 1 to 3 meters rise in sea levels over a 200 to 500 year period or perhaps sooner.  So, talk of rising seas is, to those who heed the science, given much greater weight.  No one has worked out the policy implications of this still relatively distant future event, except that adaptation to climate change in or migration from the world’s very populous low-lying areas becomes a more concrete reality. At the same time, this is an Administration that has put up no significant barriers to the current rampant increase in fossil fuel exploration and infrastructure expansion: Obama celebrated once again at Wal-Mart the canard of “energy independence” as applied to domestic and North American fossil fuel production.  In comparison to the vastness of the climate issue and the pro-fossil fuel extraction policies of the Obama Administration, the new “green” initiatives are the equivalent of a thin, tin whistle.

Ohio Is Poised To Be The First State To Roll Back Its Renewable Energy Standard - The Ohio state legislature approved a bill on Wednesday that would make the Buckeye State the first in the nation to actually halt its renewable energy standard (RES).The State House voted 53-38 to pass SB 310, a bill freezing the RES at current levels for two years. It would also halt Ohio’s energy efficiency program. During those two years, a “study committee” would review the impact of the standard. This vote to gut the RES comes six years after the bill establishing it (SB 221) passed almost unanimously, with only one single dissenting vote in either state legislative chamber. Since then, the standards have been wildly popular, with a recent poll showing that 70 percent of Ohioans support them. According to the original legislation, the renewable energy standard in 2014 is 2.5 percent (including wind, hydro, and biomass), with that number bumping up a percentage point per year to 12.5 percent in 2025. By that point, 0.5 percent would have to come from solar — currently that requirement is 0.12 percent. The same step up to 12.5 percent would happen for “advanced” energy, like nuclear. The energy efficiency standard asks utilities to decrease customers’ energy use by 22 percent by 2025. Shortly after the Wednesday afternoon House vote, the Senate voted to adopt the House’s version 21-11, and the bill’s next stop is to be signed by the governor, so those yearly improvements in the state’s energy portfolio are in serious jeopardy.

Not Enough Wind To Fill U.S. Renewable Energy Sails -- The U.S. government has begun the process of planning wind energy developments off the southern coast of New York, but if the history of East Coast wind projects is any indication, the effort may face a long fight. The Bureau of Ocean Energy Management wants private sector and public input regarding plans for commercial wind energy leases for an area about 11 nautical miles off the southern coast of Long Beach, NY.  While there are no offshore wind farms yet in commercial service in the United States, that may change given recent developments with U.S. President Barack Obama's so-called "all-of-the-above" energy policy.  A 2012 report from the National Renewable Energy Laboratory estimates there may be four times more energy available in offshore wind power than there is currently on the U.S. electric grid. And while wind speeds off the East Coast are lower than those in the Pacific Ocean, the shallow Atlantic waters make it cheaper for developers.  Renewable energy company Deepwater Wind said on May 8 that it's on pace to launch the nation's first-ever offshore wind farm after getting the environmental permits necessary to start building its Block Island wind farm off the coast of Rhode Island.The facility, once it starts working in 2016, will be able to generate 30 megawatts of power at peak capacity. Its five turbines will spin fast enough to meet the annual energy demands of more than 17,000 households, though it has its opponents. At least one critic in Rhode Island says it’s a case of robbing Peter to pay Paul. While likely a good thing, environmentally speaking, it will wind up costing consumers hundreds of millions of dollars in electrical charges

Why Green Capitalism Will Fail -- You can’t keep doing the same thing and expect different results. We can’t shop our way out of global warming nor are there technological magic wands that will save us. There is no alternative to a dramatic change in the organization of the global economy and consumption patterns. Such a change will not come without costs — but the costs of doing nothing, of allowing global warming to precede is far greater. Therefore it is healthy to approach with a dose of skepticism the Intergovernmental Panel on Climate Change (IPCC) report that concludes the annual reduction in “consumption growth” on a global basis would be only 0.06 percent during the course of the 21st century. Almost nothing! The “Summary for Policymakers” supplement of the IPCC’s Climate Change 2014: Mitigation of Climate Change report, a dense 33-page document, estimates that the annualized reduction in consumption growth would be 0.04 to 0.16 percent, with the median value of various models at 0.06 percent. This estimate is based on projected global annual growth of 1.6 to 3.0 percent per year during the full course of the 21st century. [page 15]. In sum, what the IPCC panel is asserting is that the cost of bringing global warming under control will be negligible, no more than a blip noticed only by statisticians. And, best of all, there need be no fundamental change to the world’s economic structures — we can remain on the path of endless growth. We can have our cake and not only eat it but make more cakes and eat them, too. Alas, there are no free lunches nor limitless cakes.

The Impossibility of Growth - George Monbiot: To succeed is to destroy ourselves. To fail is to destroy ourselves. That is the bind we have created. Ignore if you must climate change, biodiversity collapse, the depletion of water, soil, minerals, oil; even if all these issues were miraculously to vanish, the mathematics of compound growth make continuity impossible. Economic growth is an artefact of the use of fossil fuels. Before large amounts of coal were extracted, every upswing in industrial production would be met with a downswing in agricultural production, as the charcoal or horse power required by industry reduced the land available for growing food. Every prior industrial revolution collapsed, as growth could not be sustained(3). But coal broke this cycle and enabled – for a few hundred years – the phenomenon we now call sustained growth. It was neither capitalism nor communism that made possible the progress and the pathologies (total war, the unprecedented concentration of global wealth, planetary destruction) of the modern age. It was coal, followed by oil and gas. The meta-trend, the mother narrative, is carbon-fuelled expansion. Our ideologies are mere subplots. Now, as the most accessible reserves have been exhausted, we must ransack the hidden corners of the planet to sustain our impossible proposition.

Why Is Puerto Rico Burning Oil to Generate Electricity? -- PREPA, the troubled Puerto Rico Electric Power Authority, is having difficulty coming up with the money to pay for its latest petroleum delivery. As Caribbean Business reported, the utility last week decided to take cash from its capital works fund—up to $100 million—to buy oil. Usually, PREPA would use existing lines of credit to make such purchases. But the recent downgrades of Puerto Rico’s public debt have made that more challenging. Puerto Rico has a host of problems. Its economy has been in recession since 2006, and investors are fretting that it may not be able to make good on its $70 billion in municipal bonds. In the scheme of things, borrowing from an infrastructure fund to pay for fuel oil seems like a drop in a very large bucket.Nonetheless, WTF? Why is Puerto Rico buying $100-per-barrel oil to make electricity? There are lots of ways to generate electricity. You can burn fossil fuels like coal, or natural gas, or oil. You can harness the power of rushing water, or the light of the sun, or the wind. You can burn biomass, or garbage waste. Or you can tap landfills for methane gas.  Among these many options, none possesses the lethal combination of high costs and deleterious environmental impact that torching petroleum does. According to the Environmental Protection Agency, burning oil to create electricity emits about 50 percent more carbon dioxide per megawatt-hour than natural gas and only about 25 percent less than coal, while producing nearly as much sulfur dioxide and nitrogen oxides as coal does. Meanwhile, with oil at $100 a barrel, shipping in oil over a long distance and then burning it is an extremely costly way of generating electricity.

Cat Litter Suspected In Leak At Nuclear Waste Dump - Cat litter is the focus of an inquiry into the release of radioactive material from a federal nuclear waste dump in New Mexico. Federal investigators told New Mexico officials on May 21 that the use of a new kind of cat litter to pack nuclear waste in might have caused the leak in an underground storage facility on Feb. 14 that contaminated 22 employees with low levels of radiation. As a result, the facility, the Waste Isolation Pilot Plant in Carlsbad, N.M., has been closed indefinitely.  The Los Alamos National Laboratory, a research facility for nuclear weapons that’s operated by the U.S. Department of Energy, runs the waste dump. Cat litter has been used for years to pack hazardous waste because it absorbs moisture and neutralizes the environment around the barrels containing the waste. Los Alamos used inorganic litter, which contains nitrate salts, until 2013 when it switched to organic litter, which does not use the salts. State officials say the litter in question was used to pack more than 500 barrels of waste at the Carlsbad dump in southeastern New Mexico, and may have been used at two other waste centers, one at Los Alamos’ facility in the northern part of the state, and one at a commercial dump in western Texas. All three sites pose an “imminent and substantial” threat to public health and to the environment, state officials say. Investigators theorize that there was a kind of chemical reaction between wastes packed with inorganic litter and waste packed with organic litter. They say they’re trying to determine who decided to switch to organic and how that transition was made. Crews that have inspected the storage facility say a barrel of waste appeared to have undergone an abrupt temperature change that burned the container’s exterior and popped its lid.

Japan to create underground ice wall at crippled Fukushima nuclear plant - Japan's nuclear regulator on Monday approved a plan to freeze the soil under the crippled Fukushima nuclear plant to try to slow the build-up of radioactive water, officials said. The Nuclear Regulation Authority examined plans by Tokyo Electric Power Co (TEPCO) to construct an underground ice wall at the Fukushima Daiichi nuclear plant starting in June, regulatory officials said. The wall is intended to block groundwater from nearby hillsides that has been flowing under the plant and mixing with polluted water used to cool reactors that went into meltdown after an earthquake and tsunami in March 2011. Under the plan, which is funded by the government, the firm will circulate a special refrigerant through pipes in the soil to create the 1.5-kilometre (0.9-mile)frozen wall that will stem the inflow of groundwater. "We had some concerns, including the possibility that part of the ground could sink," one official said on condition of anonymity. "But there were no major objections to the project during the meeting, and we concluded that TEPCO can go ahead with at least part of the project as proposed after going through further necessary procedures."

Up the River - Charleston residents are baffled— and indignant—that MCHM leached into their water so easily. But the spill in West Virginia was not a freak occurrence. The United States sees more than its share of industrial accidents. Consider the 2008 spill of 1 billion gallons of coal-ash slurry in Kingston, Tennessee, which coated the surrounding land in a 6-foot-deep layer of sludge that cost an estimated $1.2 billion to clean up. Or the 2013 ammonium nitrate explosion at a West, Texas, fertilizer plant. That catastrophe—at a facility that federal inspectors had not visited for 27 years—injured more than 300 people and claimed 15 lives. No single government agency is responsible for tracking and verifying chemical spills, so their exact number is unknown. But the National Oceanic and Atmospheric Administration (NOAA) puts the figure at “thousands” each year, while Bloomberg Businessweek counted 3,885 in 2013 and CBS identified more than 6,500 in 2010. When chemicals like MCHM are spilled, say experts, it adds to the stew of synthetic substances already polluting our environment. The CDC has found that on average, U.S. citizens have detectable levels of 212 synthetic chemicals in their blood or urine. Whether health problems are linked to accidents like the MCHM spill or to everyday exposure to pollution, experts say U.S. regulatory lapses are in part to blame. “This isn’t just about West Virginia,” says Rahul Gupta, head of the Kanawha-Charleston Health Department. “This is a national problem. From poor chemical storage to loose regulations, from aging infrastructure to lax water security, what happened in Charleston was a recipe for other health catastrophes that are also just waiting to happen.”

Kentucky Utility Has Been Discharging Coal Ash Into Ohio River On A Daily Basis, Lawsuit Alleges -- Two environmental groups are alleging that a Kentucky utility has been dumping coal ash into the Ohio River on an almost daily basis, based on time-lapse images that were taken over the course of a year.  The Sierra Club and Earthjustice filed a lawsuit Wednesday against Louisville Gas & Electric, claiming that the utility has violated the Clean Water Act and a state permit that allowed the utility’s Mill Creek Generating Station in Louisville an “occasional” discharge into the river. The lawsuit is based on time-lapse photos that were taken by a camera set up by Sierra Club members in front of the discharge site at the Mill Creek station. The photos documented a year’s worth of discharges, but the Sierra Club says Google Earth images prove the discharges may have started as early as 1993.  “As far as we can tell, it’s been going on since the beginning of Google Earth,” Thomas Pearce, Western Kentucky’s regional organizing representative for the Sierra Club, told ThinkProgress. “It’s millions of gallons a day — it’s constantly flowing, 24 hours a day in the Ohio River.” Pearce said the constant discharge likely means a host of chemicals — some of them harmful — are entering the river each day, including mercury, selenium, arsenic and lead. Those chemicals contribute to the stress Kentucky’s waterways are already under due to pollution, he said.

US LNG exports could help countries curb emissions - European and Asian countries can cut greenhouse gas emissions by burning imported American gas instead of coal to generate electricity, according to new research by US government scientists. The study, posted on the US energy department’s website on Thursday, is the most detailed attempt yet to assess the impact of the country’s planned exports of liquefied natural gas on climate change. It concludes that both Europe and Asia would probably cut total greenhouse gas emissions by switching from coal to LNG, although that relies on the US keeping down the rate at which gas escapes from wells and pipes. Gas creates only about half the carbon dioxide emissions of coal when it is burnt to generate power, but methane, the principal component of natural gas, is also a greenhouse gas that contributes to global warming when it escapes into the atmosphere. Some scientists and environmental campaigners argue that methane is leaking from natural gas production and transport that wipes out any advantage it has over coal. The US government’s Environmental Protection Agency and other researchers have rejected that view, however. The Department of Energy’s study, produced with researchers at the National Energy Technology Laboratory, concludes that US LNG is certain to cut greenhouse gas emissions when used instead of coal so long as the methane leakage rate is kept below 1.6 per cent for exports to Europe and 1.4 per cent for exports to Asia. The researchers’ expected rates of leakage are 1.4 per cent for shale gas from the Marcellus formation in Pennsylvania, and 1.3 per cent for conventional (non-shale) onshore gas.

Are Public Opinion Polls Always Right? Surveys Say ‘No’: A majority of Americans believes that increased natural gas exports would create U.S. jobs and stimulate the domestic economy, or at least that’s what a lobbying group for the energy industry would have you believe. But what people tell pollsters doesn't always reflect the lay of the land. The national poll of 1,000 registered voters was conducted by the American Petroleum Institute (API), whose members favor exports. In a press release to announce the results, the group’s chief economist, John Felmy, said the United State should use its position at the top of the natural gas heap to help stimulate the domestic economy.  In the telephone survey conducted for API by Harris Poll, 70 percent of registered voters said they agreed that exporting natural gas helps create jobs at home and 67 percent said they believed it would be a good thing for the U.S. economy. Should lawmakers listen? The fact is, polling data – the crack cocaine of the modern media and agenda setters -- can be biased or flat out wrong.

Fracking Does Not Gas Water. Frackers Do. -- Have been saying this for years – shale gas industrialization mobilizes gas from shallow formations – in this case, the Strawn – via the large open well bore, and the gaps in the completed well bore – long before any gas leaks out of the fracked lateral.   So when the press reports that “no gas came from fracking” they might be right – the gas came from the well bore tapping shallow deposits on the way to the shale. Did “fracking” put the gas in the water ?  Maybe, maybe not. Did the frackers ? Absolutely – they drilled the big hole that released the shallow gas deposits.  So who’s responsible for gassing the groundwater ? The frackers. How do they weasel out of it ? By claiming that the fracked formation did not gas the groundwater. So fracking what ? This is a “Guns don’t kill people, people kill people” issue. Fracking doesn’t (necessarily) gas water, frackers do. Some clever word-smithing by frackers and complicit regulators, and lack of technical understanding by fractavists have led to this apparent semantical and regulatory impasse. You heard it here last. The act of fracking does not necessarily gas groundwater, the frackers invariably do. A large bore shale gas well that does not eventually leak is the exception that proves the rule: over time, they all leak.

Department of Energy Production (DEP) -- Pennsylvania Department of Environmental Protection (DEP) recently spent some money producing a 7-minute video entitled “Regulating the Natural Gas Industry in Pennsylvania”. Published on May 7, 2014, DEP staff share their personal experiences conducting the important work of DEP’s Oil and Gas Program across Pennsylvania. Per the video on YouTube – “Comments are disabled for the video . “ What does that say about DEP wanting to hear from the public? It begins with April Weiland, Water Quality Specialist Supervisor for DEP. She states that she “loves helping the INDUSTRY as well as the environment, but there’s a misnomer out there when you say you WORK FOR OIL & GAS…”  In the first minute Weiland inadvertently confirms what we suspect – DEP works for the fossil fuel industry.  Some comments on FaceBook about the video have said DEP should have spent the money on hiring MORE inspectors instead of wasting money on a fluff video.   Possibly this is true, however, who would the additional inspectors be really working for?  Would they really be working to protect the environment and by extension would they be protection communities and people?  Or as inadvertently confirmed by Weiland, would they be working for Oil & Gas?

The great imaginary California oil boom: Over before it started -- It turns out that the oil industry has been pulling our collective leg. The pending 96 percent reduction in estimated deep shale oil resources in California revealed last week in the Los Angeles Times calls into question the oil industry's premise of a decades-long revival in U.S. oil production and the already implausible predictions of American energy independence. The reduction also appears to bolster the view of long-time skeptics that the U.S. shale oil boom--now centered in North Dakota and Texas--will likely be short-lived, petering out by the end of this decade. (I've been expressing my skepticism in writing about resource claims made for both shale gas and oil since 2008.) California has been abuzz for the past couple of years about the prospect of vast new oil wealth supposedly ready for the taking in the Monterey Shale thousands of feet below the state. The U.S. Energy Information Administration (EIA) had previously estimated that 15.4 billion barrels were technically recoverable, basing the number on a report from a contractor who relied heavily on oil industry presentations rather than independent data. But that was before the revelation by the Times that the EIA will reduce its estimate of technically recoverable oil in California's Monterey Shale by 96 percent--almost a complete wipeout--after taking a close look at actual data for wells drilled there already. The agency now believes that only about 600 million barrels are recoverable using existing technology. The 600 million barrels still sound like a lot, but those barrels would last the United States all of 40 days at the current rate of consumption. The firm hired to do the original estimates, INTEK Inc., was saying as recently as December that it planned to raise its estimate for the Monterey to 17 billion barrels, presumably based on representations made to it by the industry.The firm assumed, apparently without any justification, that the Monterey Shale would be just as productive as other shale deposits such as the Bakken in North Dakota and the Eagle Ford in Texas. But the geology of the Monterey is riddled with folds and far more complex than other U.S. shale deposits, something that wouldn't have been too hard to find out from existing geological studies and well logs.

Shakeout threatens U.S. shale patch as frackers go for broke -- The U.S. shale patch is facing a shakeout as drillers struggle to keep pace with the relentless spending needed to get oil and gas out of the ground. Shale debt has almost doubled over the last four years while revenue has gained just 5.6%, according to a Bloomberg News analysis of 61 shale drillers. A dozen of those wildcatters are spending at least 10% of their sales on interest compared with Exxon Mobil Corp.’s 0.1%. “The list of companies that are financially stressed is considerable,” said Benjamin Dell, managing partner of Kimmeridge Energy, a New York-based alternative asset manager focused on energy. “Not everyone is going to survive. We’ve seen it before.” Some investors are already bailing out. On May 23, Loews Corp., the holding company run by New York’s Tisch family, said it is weighing the sale of HighMount Exploration & Production LLC, its oil and natural gas subsidiary, at a loss. HighMount lost US$20-million in the first three months of the year, after being unprofitable in 2013 and 2012, Loews said it its financial reports. As with much of the industry, HighMount has shifted its focus to oil after natural gas prices plunged and has struggled to find sites worth developing, company records show.  Drillers are caught in a bind. They must keep borrowing to pay for exploration needed to offset the steep production declines typical of shale wells. At the same time, investors have been pushing companies to cut back. Spending tumbled at 26 of the 61 firms examined. For companies that can’t afford to keep drilling, less oil coming out means less money coming in, accelerating the financial tailspin.

Shale Boom Goes Bust As Costs Soar - "Traditionally we’ve been a financially conservative company," explains one fracking company, warning that "we’ve become more leveraged than we historically have been and we’ve become uncomfortable with that." This is the growing message from a shale boom that, as Bloomberg reports, is facing a shakeout as drillers struggle to keep pace with the relentless spending needed to get oil and gas out of the ground. As everyone chases the dream, well counts have soared and production per well has tumbled. "The list of companies that are financially stressed is considerable," warns one analyst as shale debt has almost doubled over the last four years while revenue has gained just 5.6% "not everyone is going to survive. We’ve seen it before." As Bloomberg reports, The U.S. shale patch is facing a shakeout as drillers struggle to keep pace with the relentless spending needed to get oil and gas out of the ground. Shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent, according to a Bloomberg News analysis of 61 shale drillers. A dozen of those wildcatters are spending at least 10 percent of their sales on interest compared with Exxon Mobil Corp.’s 0.1 percent. And here comes the vicious circle...Drillers are caught in a bind. They must keep borrowing to pay for exploration needed to offset the steep production declines typical of shale wells. At the same time, investors have been pushing companies to cut back. Spending tumbled at 26 of the 61 firms examined. For companies that can’t afford to keep drilling, less oil coming out means less money coming in, accelerating the financial tailspin.

Illinois Teed Up to Get Fracked - Illinois Fracking Fiasco in the Works - Yesterday, Memorial Day, in commemoration of our nation’s fallen and Chinese manufactured United States flag salesmen, and Illinois House panel voted 7 to 4 to work around the regulator process to get fracking on the New Albany shale. A more tempered write up can be found here.  Our nations oil and gas lobbyist, mouth breathing downstater politicians, and petroleum engineers from Oklahoma didn’t even pay for the subsurface investigation to find the sweet spot for fracking the New Albany shale. Our federal tax dollars seemed to have paid for a US Geological Survey (USGS) to do that. The wonderfully written geological ramblings can be found in this report, New Albany Shale. I’m guessing oil and gas hasn’t payed for subsurface geologic mapping since old man Koch built his refinery down in Wood River, Illinois – back in the day. Why buy the cow when the milk’s free? All that’s necessary for oil and gas to do is hire lawyers, dump a bag of cash at the door of lobbyists, and then stir up the downstate stupid about taxes, free market, gun rights, and energy security.

Fracking Sacrifice Zone Rejected by Illinois Residents - Illinois scored a victory this week against an attempt to sacrifice parts of the state to poorly regulated fracking. State Rep. John Bradley (D-Marion) introduced a bill to cut short the process of writing new regulation while also creating a fracking moratorium only in the Chicagoland area. The response showed that many Illinoisans are still opposed to fracking in our state. The fracking debate has many southern Illinois residents talking about the region being a sacrifice zone. Like the Hunger Game’s District 12, a sacrifice zone is where people are expected to shrug their shoulders with defeated acceptance as the cycle of boom and bust poverty and destruction continue generation after generation. Southern Illinois is sacrificed to an extraction economy that breeds poverty, offers dangerous jobs with high mortality rates while green jobs are created elsewhere, and exposes the public to deadly pollutants. Rep. Bradley’s bill is the first attempt to codify that sacrifice zone into law by exempting some parts of the state from fracking while rushing a badly regulated fracking crisis downstate. Thankfully, legislators announced today that Bradley’s bill doesn’t have the votes to pass. The push-back, including from the district he claims to represent, reveals that Illinoisans remain determined to stop fracking. Southern Illinois residents joined with groups from across the state at a press conference in the Capitol Tuesday to show that one year after the weak fracking law passed, we continue to fight against the impending fracking boom.

FastFrack Derailed in Illinois ! - Chomping At The Bit, Illinois Frackers Still Have To Follow The Rules Apparently Illinois Senate Bill SB0649 is dead. The bill proposed a bypass around existing oil and gas well fracking legislation. Specifically, permitting drillers to begin drilling and fracking in the New Albany shale of southern Illinois immediately upon its passage.  Ergo FastFrack.  Paid for with a few fat envelopes to their accomplices in the Illinois legislature. Nice try frackers.  SB0649 was proposed by John Bradley (D. Marion) and sponsored by representatives Michael Madigan (House) and William Haine (Senate). According to Chicago Tribune, the bill was killed because there wasn’t going to be enough votes. From the Tribune article: Legislators said the bill doesn’t have enough votes to pass. Industry didn’t support the bill, concerned that any kind of moratorium would set a bad precedent, even in an area that wasn’t likely to see fracking. SB0649 set out to amend the Illinois Hydraulic Fracturing Regulatory Act, signed into law by Governor Quinn in June 2013. The proposed bill included two key amendments. The first amendment proposed limiting Illinois Department of Natural Resources (IDNR) from making new rules and regulations for hydraulic fracturing.

Pro-Fracking Bill Flies Through North Carolina Legislature -- On Wednesday, the Republican-controlled North Carolina House of Representatives, voted 63-52 in a preliminary vote to allow fracking for natural gas to begin in the state next summer. A final House vote is scheduled for Thursday afternoon.  Democrats and environmental groups were astonished as, in less than 24 hours, the bill was rushed through two committees and onto the House floor without any prior public notice.   Critics of the bill complained that it was being fast-tracked through the legislative process before opponents can build a case or anyone can actually study the language.  The bill, known as the “Energy Modernization Act,” was sent over from the Senate where it passed 35-12 last Thursday. If the Senate agrees with House changes, the bill will head to Gov. Pat McCrory’s desk where it is expected to be signed. The Senate bill includes language that would make it a crime to disclose the chemicals used in fracking. Releasing fracking fluid composition “knowingly or negligently” would be considered a misdemeanor. The bill would also prevent local bans on fracking and reduce groundwater testing in fracking areas. Senate Republicans originally wanted to make it a felony to disclose this information, which would have meant violators could have ended up in jail.

Milking Dairy Farmers For Fracking Publicity Stunts -  There’s a cottage industry of Shale Shysters and Fracking Chicken Hawks that continue to milk landowners of donations – in hopes of getting fracked some decade soon. And then there are the frack-sniffing news letters, like Marcellus Drilled for Dummies. Here is their take on the Dryden /Middlefield Home Rule showdown at the Supremes in Albany next weekWhat we have in our favor: Four of the seven judges that will hear the case next Tuesday are appointees by (sic) former Republican Gov. George Pataki. That doesn’t mean it’s a shoo-in, but it does mean we’ll get a fair hearing. Implying that the eight (8) justices – some of whom are Republicans-  that have already heard these cases did not give it a “fair hearing” ?  Or that Home Rule – which is the law of the land in Texa –  is not recognized by Republicans; of which Texas has a few ? The fact that the Court of Appeals decided to hear the case at all is a good sign. The case has already come through two lower courts (and the appellate court and was referenced in Binghamton and Avon JLN) and was decided–convincingly–on behalf of the towns. Why would the high court decide to hear it unless they have something important to say about this issue? If they felt that it is obvious towns should have this “right,” why hear the case at all? They could have refused to hear the case and the decision would stand and it would be lights out for fracking. But instead, they decided to hear the case. They are probably hearing the case in order to settle what has become a politically contentious matter with state-wide implications – simply to put the matter to rest. Not because the lower courts erred.  Home Rule applies in most other states, including the top oil and gas producing states, and the “lights” are by no means “out” on fracking.

Radioactive Frack Sludge On Way to Shale Shill’s House -- After saying that he “did not see a problem with frack waste” a waste hauler has arranged to dump a load of toxic radioactive frack goo at State Senator Grisanti’s house -  evidently on the front lawn. If you know a shale shill or bought politician you’d like to send some frack goo to, contact Range Resources and give them the address. Delivery is free.  As is one large pizza and a Coke.  More Drilling Sites Found with Radioactive Frack Sludge / Pittsburgh Post-Gazette: Range Resources has confirmed that Marcellus Shale drilling sludge with radioactivity content too high for normal landfill disposal is stored at two more of its drilling pads in Washington County. Waste containing higher radioactivity levels is being temporarily held by Range at the Melechi pad and the MCC pad in Smith, near Mount Pleasant. Earlier this month, drilling sludge from Range Resources’ Carter drill pad and impoundment in Mount Pleasant was also found to have higher radioactivity readings. In March, Range trucked the drilling waste to the Arden Landfill in Chartiers, Washington County, but the landfill rejected the shipment after it set off alarms at the gate, indicating its higher radioactivity reading, Mr. Poister said.

BBC News - North Dakota oil boom: American Dream on ice - It's a busy Monday night at Whispers strip bar in the oil boomtown of Williston, North Dakota. A man in overalls drains his glass before showering money on a pole dancer. By the side of the stage, a half-nude woman is building a miniature house out of folded dollar bills. Strippers can earn $2,500 (£1,500) per shift here, says a bouncer. But one employee, who goes by the name of Alexis, isn't feeling especially motivated tonight. She's wearing a woolly sweater because whenever the front door opens an Arctic draught slashes at the pleather booths.  "I do this work back in Illinois," says the mother of two, sipping a Sprite. ."But the men here are 100% worse. It's horrible. They're animals. "I've only been here a week, but I'm done with Williston. I'm going home next weekend." Fortunately for Whispers, there's no lack of applicants eager to take her place. Crime has risen sharply in the area, Williams County Sheriff Scott Busching acknowledges. But he puts it down to urban growing pains.  Williston's population is estimated to have more than tripled from 12,000 residents half a decade ago. The number of fatal road collisions, drug arrests, physical and sexual assaults have all surged, says Sheriff Busching.

Sky Could Fall On North Dakota's Oil If We're Not Careful, Shale Boss Says - In overall production terms, there's not much going wrong in the Bakken play. Though this year's rough winter slowed things down, Adam Sieminski, the top official at the U.S. Energy Information Administration (EIA), said the slump would be erased in the next few months. But there are other problems needling away in the North Dakota oil patch.Last week, the FBI said it has only two agents working in the area and needs the industry's help because state law enforcement agencies can't keep up with the growing crime rate. There's even a non-profit group, 4her North Dakota, to combat sex trafficking now.On the legal margins, meanwhile, it's not just the male members of the oil industry in North Dakota striking it rich. Female strippers, on a good night, are bringing home the bacon to the tune of $2,500 per shift.Domestic violence and bar brawls are commonplace in parts of the state that boast an unemployment rate of next to zero, but a population boom creating a chronic housing shortage.  The oil sector itself is no stranger to problems. In September, about 20,000 barrels of crude oil spilled in rural Tioga, N.D., and state officials think it will take about two years to clean up the mess. Three months later, flames shot 100 feet in the air after an eastbound train carrying oil for BNSF Railway hit a westbound train carrying grain in Casselton, N.D. Though no injuries were reported, it was just one of a string of train accidents involving Bakken crude. A July train accident involving Bakken crude in Lac-Megantic, Quebec, left more than 40 people dead.

Utah Oil Spill Cleanup Continues After BLM’s False Claims of Containment (see slideshow) As rain poured on Utah land this past weekend pushing oil about five miles upstream into a wash adjacent to the Green River, it appeared that a Bureau of Land Management assessment of a leak was completely wrong. A BLM report released a week ago stated that a breached oil well had been contained after the May 21 leak. Now, the federal agency says “intense thundershower activity overcame prevention measures” and, as a result, the U.S. Environmental Protection Agency continues cleanup efforts that could take another week, the Salt Lake Tribune reported. “This pollution of the Green River could and should have been prevented,” said Zach Frankel, executive director of the Utah Rivers Council. “The fact that the BLM claimed it was contained before it went on to contaminate the Green River with carcinogens is disturbing.”  Initial BLM estimates indicated that the damaged well gushed 80 to 100 barrels of oil per hour for more than 30 hours. Groups like the Utah Rivers Council, the Sierra Club, Living Rivers and the Colorado Riverkeeper believe that amount equals 100,000 gallons of crude oil into a wash adjacent to the river. It is unknown how much of the oil entered the river, which is the largest tributary to the Colorado River, the main source of drinking water for about 35 million people. It is also the habitat of four endangered fish species.

Exxon, BP Defy White House; Extend Partnership with Russia -- Several of the largest oil companies in the world are doubling down in Russia despite moves by the West to isolate Russia and its economy. ExxonMobil and BP separately signed agreements with Rosneft – Russia’s state-owned oil company – to extend and deepen their relationships for energy exploration. The U.S. slapped sanctions on Rosneft’s CEO Igor Sechin in late April, freezing his assets and preventing him from obtaining visas. However, the sanctions do not extend to Rosneft itself, allowing Western companies to continue to do business with the Russian oil giant. ExxonMobil signed an agreement with Rosneft, extending its partnership to build a liquefied natural gas (LNG) terminal on Russia’s pacific coast. Known as the Far East LNG project, the export terminal will receive natural gas from Russia’s eastern fields as well as from Sakhalin-1, an island off Russia’s east coast. Rosneft announced the deal in a press release on its website on May 23. The following day, Rosneft and BP signed an agreement to jointly explore oil in the Volga-Urals region. It will consist of a pilot project in the Domanik formations, and if successful could lead to the development of shale oil in Russia. Rosneft will maintain a 51 percent ownership of the joint venture and BP will own 49 percent. By defying the White House, the oil majors salvaged what would have otherwise been an embarrassing event for the Kremlin. The absence of the world’s largest companies would have demonstrated Russia’s increasing isolation. Instead, Russia used the event to detail plans to expand its massive energy sector. “(They're) eager to continue work on projects in Russia,” Russia’s Energy Minister Alexander Novak said of ExxonMobil and Royal Dutch Shell

Russia joins global dash for shale in policy volte-face -  Russia is launching a strategic drive to unlock its shale oil wealth as crude output stagnates and reserves run low in the West Siberian fields, aiming to replicate America's technology leap in a near total reversal of policy. The Kremlin has launched an "action plan" to master fracking methods and lure investors into the Bazhenov prospective, a shale basin the size of France to the east of the Urals. Officials are no longer dismissing shale's promise as a mirage. "We are clearing away the administrative barriers to exploration. This is the urgent challenge we are now facing," said Kirill Molodtsov, the deputy energy minister.  The US Energy Department estimates that Russia has 75bn barrels of recoverable shale oil resources, the world's largest deposits. The Bazhenov field is 80 times bigger than the US Bakken field in North Dakota, which alone produces 1m barrels a day.  BP joined the scramble on Saturday by signing a deal to explore for shale in Volga Urals with Rosneft, even though Rosneft's chairman Igor Sechin is on the US sanctions list.

China’s Emerging Shale Industry Picks Up Speed - Although serious obstacles remain, China is finally making progress on tapping its vast shale gas reserves, which hold the promise of a new source of clean energy for the coal smoke-choked country. According to the U.S. Energy Information Administration, China holds the world’s largest reserves of technically recoverable shale gas in the world, 1,115 trillion cubic feet. That’s about 68 percent more than what the U.S. holds. But it has thus far been unable to unlock those reserves for a couple of reasons. First, it has taken time for Chinese oil and gas companies to acquire shale drilling expertise. And second, China’s shale is geologically different than what’s found in the U.S., which means China can’t easily use existing technology. Despite this, a new report from Bloomberg New Energy Finance finds that China may actually hit its 2015 shale gas production target, which the central government has mandated. Researchers analyzed the results of well data from the Fuling block in the Sichuan Basin, state-owned firm Sinopec is making substantial progress, and the national target of 6.5 billion cubic meters per year (480 million cubic feet per day) by 2015 could be within reach.  Hitting that goal would be a boon for a country that is desperate to find sources of energy other than coal, which is causing crisis-level air pollution. Earlier this year, China declared a “war on pollution” in an effort to cut back on the suffocating smog in many of its major cities. By 2017, China is aiming to lift natural gas consumption to 9 percent of total energy demand, up from 5.2 percent in 2013. China has already made some progress on that front, as natural gas only made up 4 percent of energy demand just two years ago (see chart).

Oil & Energy Insider - Pump Full of Geopolitics and Speculation -- Amid a natural gas boom in North America, consumers are obviously wondering why prices at the pump haven’t seemed to reflect this. But this is the century of artificial markets, and things are no longer dictated by existing supply and demand—rather by “futures”.  And predicting the future of futures is a tricky business that baffles the most astute economist. The best anyone can tell the US consumer is that it will be another summer of speculation. In the meantime, we can expect no reprieve from oil price-shaping incidents like the crises in Ukraine and Libya.  Pro-Russian separatists are taking over polling stations in Ukraine’s east ahead of 25 May presidential elections. Last night, at least 13 Ukrainian soldiers were killed by separatists at a military checkpoint in the eastern city of Donetsk. Amid this crisis, China has signed a 30-year, $400-billion gas deal with Russia’s Gazprom in an Asian gas coup that Moscow has been waiting on for years. Some analysts are concerned that this deal, which includes a massive new pipeline from Russia to China, will increase competition for natural gas beginning in 2018 and in turn lead to an increase in natural gas prices for the European Union.  The flip side of this equation is that it could finally provide Europe with the will and daring to seek alternative supplies in earnest—including liquefied natural gas (LNG). Even the crisis in Ukraine has not been enough to pressure Western Europe to take on the Russian gas bull.

Ukraine: The Real Energy Crisis Starts in June - Kiev is feeling emboldened by the successful election of a new Ukrainian president and a bloody surge against separatists in the east, but in just a few days, Russia says it will twist the gas spigot, and there’s very little Kiev can do to stop that. On June 3, Russia plans to reduce the gas supply to Ukraine — and hence, to Europe — if Kiev has failed to pay in advance for next month’s gas deliveries, the price for which has been doubled as a result of the political crisis. Interim Ukrainian Prime Minister Arseniy Yatsenyuk is trying to play hardball with Moscow, suggesting that gas talks cannot move forward until Russia addresses the issue of $1 billion in gas it stole when it annexed Crimea. Yatsenyuk may be riding high on the sense of stability the recent presidential election has brought, not to mention the unleashing of the Ukrainian military on pro-Russian separatists in Donetsk, but the “stolen gas” gambit is a losing one—a bunch of bluster that certainly won’t make Moscow go away. Ukraine owes $500 million just for May gas deliveries, on top of a whopping $3.5 billion in outstanding gas debt (according to Moscow). If at least part of this debt is not paid, there won’t be any negotiating over price. Gazprom says Ukraine had agreed to pay $2 billion of its debt this week, but Kiev is instead talking about stolen Crimea gas.

Ukraine makes part payment on Russian gas debt: Ukraine has paid part of its gas debt to Russia after talks between both sides and the European Union, says EU Energy Commissioner Guenther Oettinger. Reports suggest Ukraine has paid Gazprom $786m (£469m; 576m euros) of the $3.5bn Russia says it is owed. Russia announced negotiations would only continue once the money had arrived in Gazprom's account on Monday. Gazprom recently increased the price it charges Ukraine by 80%, leading to a stand-off between the two. Earlier this month, Russian President Vladimir Putin wrote an open letter demanding Ukraine pay for its gas in advance, starting from 1 June. Gazprom had previously said it may stop gas shipments to Ukraine unless the country paid in advance. 'No final deal' Following talks on Friday in Berlin to break the deadlock, Mr Oettinger said: "We don't have a final deal yet, but we have made progress". Russia said it would wait for the money to arrive before deciding what to do next. "Our Ukrainian partners said that they have transferred a certain part of the amount," said Prime Minister Dmitry Medvedev. "But the obligation is considered fulfilled - albeit partially - not at the moment of sending the money, but the moment it comes into the creditors account. That is into the account of the gas supplier Gazprom."

Russia, China sign important gas deal - May. 21, 2014: Russia has agreed to supply China with natural gas for 30 years from 2018 under a long-awaited deal struck Wednesday. The two sides had been working on a deal for a decade, but the agreement has gained significance with Europe looking to reduce its its dependence on Russian gas as relations with Moscow sour over the crisis in Ukraine. Russia's state-owned gas company, Gazprom, sealed the deal with the China National Petroleum Corporation (CNPC) during a visit by Russian President Vladimir Putin to Shanghai, CNPC and the Russian energy ministry said. Putin was keen to strike a deal before this week's annual Russian economic showcase in St. Petersburg, which has been overshadowed by Western sanctions imposed over the Ukraine crisis and canceled appearances by U.S. chief executives.  Under the deal, Gazprom will supply 38 billion cubic meters of gas to China each year, with the possibility of increasing shipments to 60 billion cubic meters per year. That is equivalent to about 10% of Gazprom's annual gas sales of 477 billion cubic meters to domestic and international customers. Revenue from those sales totaled $93 billion last year.

Russia and China join forces in "de-dollarization" of currency reserves - According to the statement made by Vladimir Putin during his recent visit to Shanghai, Russia and China have reached an unprecedented level of cooperation that encompasses aspects ranging from energy trading to military drills. Moreover, the Russian President suggests that the two countries are working together in order modify the existing practices regarding currency reserves management. Washington should be very concerned. On the sidelines of Saint Petersburg Economic Forum 2014, Vladimir Putin had a long meeting with the representatives of the biggest and most important global news agencies. Answering a question posed by Xinhua's Zhou Xisheng,he stressed that the cooperation and coordination between the two countries will tackle currency issues: “There is no secret that the People’s Republic of China and the Russian Federation have large foreign currency reserves. China ranks first globally in this respect. It is of utmost importance for us to ensure that these funds are placed rationally and safely. We must join efforts in finding ways and means to ensure that, especially bearing in mind the challenging global economic environment and market turbulence we are currently witnessing. We must ensure and guarantee that these reserves are safe and used rationally and efficiently. Using national currencies, the yuan and the ruble, in international settlements is another topic. We have made the first modest steps in this direction and we will continue exploring opportunities for working together in this segment.”

Vietnamese fed up with a lot more than China's oil rig -- An influx of Chinese workers into Vietnam has helped to fan the country's anti-China protests. Public anger boiled over last week at news of China deploying an oil rig in disputed South China Sea waters -- and protecting it with numerous warships. Although protesters have been mainly targeting Chinese businesses, many factories that belong to Taiwanese, South Korean and Japanese companies have also been vandalized. Foxconn, the big Taiwan-based contract manufacturer that assembles many of Apple's shiny gadgets, is suspending its Vietnam production over the weekend to ensure the safety of its staff. Reuters has reported that as many as 21 people have died in the anti-China rioting. It is expected that mass rallies will take place again on Sunday. Thomas Jandl, a longtime Vietnam watcher at American University in Washington, D.C., said Vietnamese workers have been simmering over the influx of illegal Chinese immigrants and the brutal way Vietnamese factory workers are treated by their foreign managers. Jandl said while residents in northern Vietnam can see that there is a growing presence of laborers in Vietnam with more and more Chinese staffing mines and marrying into Vietnamese families, local myth has probably exaggerated the numbers at the same time. "A trickle turns into a torrent in the local stories," he said, but the issue of foreign companies hiring Chinese workers "is definitely there."

No end in sight to Sino-Vietnamese maritime clash- -- Nearly a month into a row between China and Vietnam over a Chinese offshore oil rig, more than 100 ships are locked in a standoff from which Beijing is showing no sign of backing down. Vietnam wants the Chinese to stop drilling in a disputed part of the South China Sea. Hanoi is preparing to bring a case against China in an international court, a Vietnamese foreign ministry source said. At a cabinet meeting Thursday, Prime Minister Nguyen Tan Dung said legal measures would be considered "in due course," calling them "a peaceful response." Vietnam would likely seek an arbitral tribunal in accordance with the United Nations Convention on the Law of the Sea, as the Philippines has done over its own territorial dispute with China. But judgements in such cases can take one to two years, according to a lawyer versed in international law. Arbitration is thus unlikely to lead to a quick removal of the offending oil rig. But Vietnam could try to use the threat of legal action as a bargaining chip. Apart from that, Hanoi can appeal to the international community for support. The government has been quick to release video of Chinese ships ramming Vietnamese ones and spraying them with water cannon. The footage has drawn condemnation from the U.S., Japan and other countries. Leaders of members of the Association of Southeast Asian Nations expressed "serious concerns" over the South China Sea dispute in a recent statement.

Michael Klare: Energy Companies Persuade Emerging Economies To Embrace Environmental Destruction, Erm, Growth -  This assessment, explained Exxon CEO Rex Tillerson, will govern the company’s marketing plans in the years ahead.  “The global business environment continues to provide a mix of challenges and opportunities,” he told financial analysts at the New York Stock Exchange in March 2013.  While the demand for energy in the developed economies “remains relatively flat,” he noted, “energy demand for the economies of the non-OECD countries is expected to grow about 65% to support anticipated growth.” In recognition of this trend, Exxon has undertaken a wide variety of initiatives intended to boost its sales capacity in China, Southeast Asia, and other rapidly developing areas.  In Singapore, for example, the company is expanding a refinery and petrochemical facility that make up its “largest integrated manufacturing site in the world.”  The refinery is being modified to produce more diesel, so as to better service the growing fleets of trucks, buses, and other heavy vehicles in the region.  Meanwhile, the hydrocarbon processing facility at the chemical plant is being doubled to meet the rising demand for petrochemicals used in making plastics and other consumer goods, especially in China.  (“China alone is expected to represent over half of global demand growth” for these products, Tillerson observed last year.) To promote its products in China, Exxon has established a “strategic alliance” with the China Petroleum and Chemical Corporation (Sinopec), one of China’s state-owned energy giants.  A key goal of the alliance is the establishment of an “integrated world-scale refinery and petrochemical complex” in eastern China which, Exxon officials noted, is to “become a major marketer of petrochemicals throughout China and petroleum products throughout Fujian Province.”  A major component of this joint effort, the Fujian Refining and Ethylene Integrated Project, came on line in September 2009.

Fresh lows for industrial commodities, other indicators still point to persistent economic weakness in China - In spite of what appeared to be an improvement in China's manufacturing sector (see chart), China's economic picture remains cloudy. A number if indicators point to rising uncertainty and slowing industrial demand.   Volumes of unsold real estate are now at record levels and sales continue to slow. Nomura's researchers are convinced "that the property sector has passed a turning point and that there is a rising risk of a sharp correction". Of course since the authorities can easily intervene, the situation may not be as dire as Nomura predicts. Nevertheless, the nation's property markets continue to pose significant risks. . According to the ISI Group research, exports to and sales in China by US corporations have turned materially lower after remaining stable since early 2013 - indicating weakening demand. Anecdotal evidence suggests that a similar slowdown has also occurred for Japanese and euro area firms selling to China.The most worrying indicators however are the key industrial commodity prices. Futures on iron ore sold at China's ports fell below $100 for the first time in years.  And steel rebar futures on the Shanghai exchange are continuing to fall. Some of these declines are of course related to falling construction activity.   Once again, most economists do not expect a "hard landing" for PRC because the government has enormous resources to "backstop" the nation's economy. Nevertheless, a number of indicators from China still point to persistent risks to growth.

China To Send Millions Of Polluting Cars To The Dump - In the latest desperate bid to clean up China’s toxic skies, the government announced on Monday that over six million of the country’s oldest, most polluting cars are headed to the dump this year. Vehicles registered before 2005 that don’t meet national emissions standards will be “phased out” over the next year, according to a State Council document detailing emission reduction targets for a range of industries. Beijing will see about 330,000 vehicles leave the streets, while Shanghai will say good-bye to another 160,000 cars. In the capital city alone, vehicle emissions account for about 31 percent of air pollution. According to the Ministry of Environmental Protection, nearly eight percent of the cars on China’s roads don’t meet the most basic of emission standards and generate more than 35 percent of the country’s air pollution. China currently has 240 million cars on the roads.  “Strengthening controls on vehicle emissions will be a major agenda item for the country’s energy savings, emissions reductions, and low-carbon development during the next two years,” the action plan stated.  Gas stations in Beijing, Shanghai and other major cities are also being called on to switch to selling only the cleanest grades of gasoline and diesel.  This latest move to combat China’s epic air pollution comes after the State Council said the country had already fallen behind on pollution targets for 2011-2013.

As Asia Goes to Heck, Remember Factory Asia -  The system of production spread throughout East/Southeast Asia has been dubbed "Factory Asia" as we make goods for the rest of the world. In doing so, we (or is it MNCs more accurately speaking?) take advantage of our comparative advantages in splitting production activities country by country. At its apex is Japan which makes leading-edge componentry, closely followed by manufacturing-oriented Asian tigers Singapore, South Korea and Taiwan that are very nearly at the cutting edge technology-wise. Next up are China, Malaysia and Thailand--sites that combine technical expertise with lower labor costs, followed by locations whose attractions are mainly lower costs of production--Indonesia, the Philippines and Vietnam.   As with all good things however, I think "Factory Asia" as we know it is coming to an end as territorial disputes mean that politics disrupt economics. Witness Vietnamese rioters killing Chinese workers after the PRC's excursions in the Paracels. With Chinese roughhousing now blamed for the sinking of a Vietnamese fishing boat--it's amazing how Chinese "fishing boats" are used as paramilitary forces--I fear things will only get worse. The Philippines' case against Chinese territorial overreach further agitates the increasingly belligerent PRC. Meanwhile, other Southeast Asian nations with territorial disputes with China--namely, a majority of them--are becoming wary of PRC strong-arm tactics. On top of everything, Japan and China are locked into yet another territorial dispute over another set of rocks in the East China Sea. Being the two regional bigwigs, that one probably matters the most. In total, we may have reached the point of no return.

Emerging Asia's retarded service sectors: Asia's big emerging economies of China, India and Indonesia suffer from very high restrictions on their trade in services, according to a recent OECD study. These restrictions are often two to three times higher than in the advanced OECD countries. They are an important reason why service sector productivity in these countries is lower than in their manufacturing sectors, and also very much lower than in service sectors in OECD countries. Overall, these restrictions are holding back efforts to improve the lives of citizens in these countries. World class service sectors cannot be developed if isolated from best international practice and world class inputs.China's score for the services trade restrictiveness index (STRI) is well above the average of the 40 countries, in all the 18 sectors covered (in sharp contrast, the US is only above average in 5 sectors, meaning that overall policy is not very restrictive). The sectors with the highest STRI in China are courier services, broadcasting and air transport, while architecture, engineering and computer services are the least restricted. Indonesia also has a higher STRI score in all 18 sectors. Its highest scores are for motion pictures, legal services and air transport, while architecture, construction and computer services have the lowest scores. India is a case apart, in that services have been the country's leading export sector in recent years, especially from its well-renowned IT sector. Against that, India has suffered from a backward manufacturing sector.

The Dance Of The Central Banks - There has been a sort of trade war going on between the US and China for a long time. It surfaces briefly during election campaigns – remember Mitt Romney promising to end China’s “currency manipulation”? But the rest of the time it simmers coldly under the surface. The chief protagonists in this war are the two central banks – the Federal Reserve and the People’s Bank of China Bank of China (PBOC). And the principal weapons are US dollars and US Treasuries (USTs). China’s own currency, the yuan (renminbi) only plays a secondary role. As US dollars and USTs are central to this war, it would be easy to assume that the Fed, as the issuer of US dollars and buyer of last resort for USTs, holds the winning hand. And indeed superficially it does look like this. We talk about the US dollar’s reserve currency status. We recognise the primacy of USTs as global risk-free assets. We complain about the US’s “exorbitant privilege”, which enables it – as principal reserve currency issuer – to borrow without limit on the international market at lower rates than almost any other country. But in reality it’s nowhere near so simple. The influence of PBOC over world markets and therefore over the Fed is considerable. For the last twenty years, PBOC has used US dollars, mostly in the form of USTs (which are simply “frozen” dollars, or deferred dollar claims), to anchor its currency. Anchoring the currency to the US dollar has enabled PBOC to pursue a massively expansionary monetary policy without risking serious inflation. It’s perhaps not obvious exactly how this works, so let me explain.

Taiwan Data Suggest China, Rest of Asia Will Soon See Pickup -- As economists scramble for clues to predict when China will emerge from its recent slowdown, some of them are looking opposite the mainland: Taiwan. Taiwan’s economy is only 5% the size of China’s (based on 2013 nominal GDP), but the island’s trade data—particularly export orders—have long been on economists’ radar. That’s because about half the orders counted in the Taiwanese data are actually filled in factories in China, and thus count as Chinese exports when shipped. Historically, Taiwan’s export orders for overseas factories “picked up well the turning points in China’s exports, and tended to lead the evolution of China’s exports by around two months,” RBS economist Louis Kuijs wrote in a recent research report. April export orders rose 8.9% on-year – their fastest pace in 14 months – and showed growth to all regions. China’s exports have also shown signs of stabilizing, after a slow start to the year. The result “bodes well for a modest trade rebound” in the second quarter, Bank of America Merrill Lynch economist Marcella Chow wrote of the Taiwan export-order reading. It also “reinforces recent indications that a gradual recovery in the developed economies is gathering pace.”

In Australia, Mining Investment on a Swift Course Downward - Australia is facing what has been dubbed a “capital expenditure cliff,” which essentially marks the moment when the gentle decline in mining investment over the past year gathers sudden, alarming speed. Data on first-quarter investment, due Thursday, is expected to show total business investment fell 1.5% from the fourth quarter, according to a survey of 15 economists by the Wall Street Journal. That’s not so dire. But the report also will show how firms expect to invest for the year through June 30, 2015 – and that’s where the giddiness and hand-clenching begin. The decade-long frenzy of spending across Australia’s iron ore and coal fields, fanned by China’s appetite for raw materials, is in its final throes. Stephen Walters, chief economist at J.P. Morgan, Australia, forecasts a 16% plunge in investment in the 2014-‘15 fiscal year — mostly from miners due to finish building large projects. The completion of a number of big liquefied natural gas projects across northern Australia will leave behind the biggest vacuum in the next few years. Kieran Davies, chief Australia economist for Barclays Capital, expects an even steeper fall, of about 21%.

Philippine Officials Seek New Boost as First-Quarter Growth Disappoints - Philippine authorities are looking at ways to rev up reconstruction and rehabilitation from last year’s natural disasters after data Thursday showed the economy grew at its weakest pace since late 2011 in the first quarter. The Philippine economy expanded 5.7% on-year in the first quarter, well below the 6.4% expected and its slowest pace in nine quarters. Growth was well below the government’s 6.5%-7.5% target for 2014, though it was still among the fastest in Asia so far this year. The miss wasn’t entirely shocking, given the devastation wrought by natural disasters late last year — particularly November’s Typhoon Haiyan, which caused an estimated $13 billion in damages and losses to the archipelago’s $315 billion economy. Economic Planning Secretary Arsenio Balisacan said he and other economic managers would meet later Thursday with President Benigno Aquino III to identify projects that can be accelerated to cover the slack in agriculture, tourism and even private construction, which has been hurt by lending restrictions imposed late last year to head off a potential real-estate bubble. The governor of the country’s central bank, Amando Tetangco Jr., said monetary authorities are ready to adjust measures it adopted to limit banks’ exposure to the real-estate sector.

As Korea’s Reserves Grow, So Do Questions About FX Intervention --Are South Korean authorities intervening in the currency markets?The country’s foreign exchange reserves have risen for 11 straight months through April to reach $355.85 billion, a  jump of 8.23% from a year earlier. Data on May reserves is due June 5. Meanwhile, an increasing share of money flowing into the country is finding its way into the reserves. The year-to-date rise in reserves represents some 35% of the year-to-date rise in the surging current account surplus – which hit an April record of $7.12 billion, data Thursday showed – compared to 18% last year and 26% in 2012, according to an analysis by ING. The Korean won has risen 10.75% against the U.S. dollar over the past year, trading Thursday morning at 1021 to the dollar, near six-year highs. The question is, should it have risen more? The International Monetary Fund last month said the won could be  undervalued by as much as 8%, and called on Korean authorities not to interfere with its rise. Surveys from the Bank of Korea indicate that manufacturers are uneasy about the strengthening won. The issue is particularly sensitive given the sharp fall in the Japanese yen since late 2012, which could make Japanese products more competitive in many markets where Tokyo and Seoul go head-to-head. Traders frequently report that South Korean authorities are entering the market, often on days when the won has been rising quickly.

Korea's household debt reaches record high: The level of Korea's household debt has risen yet again to another record high. The Bank of Korea said Tuesday that the total amount of debt hanging over households amounted to 1 trillion U.S. dollars as of the end of March, up 3.3 billion dollars from three months earlier. The bank, however noted that the rate of growth had slowed from the 27 billion dollar increase recorded over the fourth quarter of last year. It attributed the slowdown in debt to a seasonal slowdown in mortgage loans and year-end bonuses.

Japan Remains World’s Largest Net Creditor, But China Catching Up  - Japan remained the world’s largest net creditor nation in 2013, but China made steady gains.That is little surprise, given Japan’s expanding trade deficits and low returns on foreign assets. China, on the other hand, runs large trade surpluses.At the end of 2013, Japan’s gross foreign assets totaled ¥797 trillion ($7.8 trillion), up 20.4% from the year before, according to Finance Ministry data released Tuesday. Much of the increase was due to the yen’s 22% fall against the dollar and 28% fall against the euro last year, lifting the value of Japan’s foreign assets when calculated in yen.Subtracting external liabilities–mostly Japanese corporate stocks and bonds owned by foreign investors–Japan’s net foreign assets came to ¥325 trillion, up 9.7%. That kept the country atop the list of the world’s net creditors for the 23rd straight year.China was the second-largest net creditor for the seventh straight year, with ¥208 trillion in net assets, according to the ministry. The difference with Japan, however, narrowed to ¥117 trillion from ¥146 trillion the year before. The government of Prime Minister Shinzo Abe has set a goal of reinvigorating returns on foreign assets, but this has produced few visible results so far. In 2013, Japan earned just 2.1% on its foreign assets, down from 3.1% in 2008. The decline was apparently due to low interest rates worldwide and slow global economic growth.

BOJ Must Move Delicately in Removing QE, John Taylor Says - Bank of Japan Gov. Haruhiko Kuroda expressed impatience with the pace of Japan’s structural reform in an interview last week with The Wall Street Journal. For Stanford economist John Taylor, Mr. Kuroda has the diagnosis right, but there’s not much he can do about it. Mr. Taylor has been a prominent critic of the U.S. Federal Reserve’s massive bond-buying program, an attempt to push down long-term interest rates and help growth. By his reckoning, the Fed risks provoking economic turbulence when it comes time to sell its bond portfolio, which could push up interest rates too sharply. In an interview in Singapore, Mr. Taylor said the Bank of Japan faces “similar risks” after it embarked last year on its own bond-buying enterprise, seeking to end more than a decade of deflation.The BOJ’s monetary stimulus has helped spark inflation in Japan and fueled the longest economic growth streak in four years. As the initial jolt to prices wears off and economic growth slows, the bank is now considering another round of asset purchases.Mr. Kuroda told the Journal that the gains from monetary policy could be underwhelming in the long run if the government doesn’t quickly push structural reforms – such as incentivizing more women to join the workforce – to underpin faster growth.Mr. Taylor agreed that Tokyo needs to deliver key structural reforms—what Mr. Abe calls the “third arrow” of his economic program, after monetary stimulus (the “first arrow”) and government spending –to sustain the recovery. “The third arrow is the most important one,” Mr. Taylor said on the sidelines of the inaugural Asian Monetary Policy Forum in Singapore. “You worry sometimes that the first arrow will distract from the third arrow. It’s very hard to get the third arrow moving.”

Bank of Japan, more confident about recovery, quietly eyes stimulus exit - The Bank of Japan has begun shifting its focus from supporting growth to ways of phasing out its massive stimulus, taking first tentative steps towards a potentially momentous move for the world economy. Current and former central bankers familiar with internal discussions say an informal debate is under way on how to prepare for an exit from the BOJ's 13-month-old "quantitative and qualitative monetary easing." The stimulus is a centerpiece of Prime Minister Shinzo Abe's campaign to end two decades of deflation and fitful growth, and BOJ Governor Haruhiko Kuroda has vowed to keep cheap cash flowing until his 2 percent inflation target is in plain sight. But with inflation now past the half-way mark and signs that the economy has weathered last month's sales tax increase, Japanese central bankers are already thinking about the next chapter. Whereas weeks or months ago that debate would center on the potential need for more easing, now there is a strong sense within the BOJ board that the stimulus so far has worked well and the next step, albeit distant, could be policy tightening, not further easing.

Japan Retail Sales Show Sales Tax Beginning to Bite - Japan’s higher sales tax began taking a bite out of consumption in April, as retail sales dived 13.7% on-month, the biggest fall under the current data series that began in 2002. Declines were broad-based but were starkest for consumer durables such as automobiles, televisions, refrigerators and air-conditioners, government data Thursday showed. Sales also fell sharply for expensive items such as designer-brand clothing and for semi-durable items such as shampoo and cosmetics. Sales of long-lasting and non-perishable food and beverages also suffered sharp falls. Some decrease was anticipated after the sales tax was raised to 8% from 5% on April 1, “but the size of decline was somewhat larger than expected,” J.P. Morgan economist Masamichi Adachi said in a research note. “It suggests that the underlying momentum of consumption is somewhat softer” than in 1997, the last time sales taxes were raised. Comprehensive data for May isn’t yet available, but the government’s preliminary data show on-year declines of more than 20% in appliance sales in the first and third weeks of the month. Food and beverage sales have fallen each week so far in May, according to the data.

Retail sales fall as Japan tax rise bites - Retail sales in Japan fell at a record pace in April, after the government pushed ahead with the first consumption tax rise in 17 years to repair its tattered finances. Preliminary figures released on Thursday by the ministry of economy, industry and trade showed that sales by retailers in April dropped 13.7 per cent from the previous month, on a seasonally-adjusted basis, after the tax was lifted from 5 per cent to 8 per cent on April 1. That marked a high in records dating back to 2000, topping an 8.4 per cent fall in the aftermath of the March 2011 earthquake. However, the fall came after a 6.4 per cent jump in March – also a record – as shoppers brought forward purchases to avoid the higher tax. Average sales over March and April were still up 0.9 per cent from the average in the fourth quarter last year, noted Masamichi Adachi, economist at JPMorgan. “We do not think the Bank of Japan and the government will take this reading as a decisive sign of weakness,” he said. Analysts say that economic data for the July to September quarter will provide a better guide for the government as it decides whether to press ahead with a second increase in consumption tax, to 10 per cent, effective in October 2015. That decision is expected in the autumn.

Japan tax hike lifts inflation to 23-year high - — Japan's consumer prices rose 3.2 percent from a year earlier in April to the highest level since 1991, the government said Friday, largely due to a sales tax increase that is expected to dent growth this quarter. Other April data for the world's third-largest economy were largely in line with forecasts. Industrial production fell 2.5 percent from a year earlier and household spending sank 4.6 percent. Unemployment was 3.6 percent, the same as in March. Prime Minister Shinzo Abe's policies aimed at ending a deflationary slump that has slowed growth for nearly two decades have made some headway, though the inflation rate remains well below the 2 percent target set by the central bank and government when the tax hike is factored out. Japan raised its sales tax to 8 percent in April from 5 percent. Japan's central bank estimates that 1.7 percentage points of the inflation rate in April could be attributed to the tax hike. The 3.2 percent figure is for the core consumer price index, which excludes fresh food. In its latest assessment of Japan's recovery, the International Monetary Fund said Friday that Japan appeared to be weathering the sales tax increase and exports are expected to begin picking up as demand overseas rebounds. It forecast that inflation would remain modest at 1.1 percent in 2014. But it cautioned that Japan needs deep, structural reforms to support growth.

Abenomics Suffers Crippling Blow: Economy Sputters As Inflation Soars, BOJ QE Delayed Indefinitely - Following last night's record plunge in Japanese retail sales, tonight was another slew of crushingly bad data for Abe and his motley crew of money printers to reflect on. First Household Spending cratered 4.6% YoY - its biggest drop since the Tsunami (and markedly worse than expectations which were bad enough due to the tax hike repurcussions). Then, Industrial Production tumbled 2.5% MoM - its biggest drop since the Tsunami (considerably worse than the 2.0% drop expected and the slowest YoY growth in 8 months). While this would typically be the kind of bad news that is great news for QQE-hopers, it was disastrously capped by a surge in Japanese CPI (well above BoJ target 2% levels) crushing moar-easing hopes as Barclays see no further easing in 2014 (and even Goldman pushes any hope off til October at the earliest).

BOJ official: Easing likely to continue for years - --The Bank of Japan will likely miss the deadline for its inflation target and have to continue with stimulus measures for a few more years, one its policy board members said Thursday, challenging the optimism of its governor, Haruhiko Kuroda. The remarks by Sayuri Shirai were the most specific yet by a board member on how long the BOJ will have to stick with its current easing program, and underscored skepticism toward Mr. Kuroda's view that inflation will reach the 2% target by spring next year. "It is highly likely" the inflation rate will reach 2% in the fiscal year ending March 2017, Ms. Shirai said at a news conference following a speech to business leaders in Okinawa, southern Japan. A former professor of policy studies, Ms. Shirai's outlook contrasts with the central bank's mainstream view, but isn't far from that held by many market participants. The BOJ plans to scale back its easing after "stable" 2% inflation is achieved. But Ms. Shirai said that judgment shouldn't be made until the impact of a sales tax increase planned for October 2015 is clear. She also said it could take a year before the effects of the increase to 10% from 8% subside, raising speculation about whether she would prefer to keep the easing measures in place until toward the end of 2016. She added that her price forecast assumes the easing policy will continue "during and beyond" the fiscal year ending March 2016.

REVEALED: The head of Omidyar Network in India had a secret second job… Helping elect Narendra Modi - Last weekend, India’s elections swept into power a hardline Hindu supremacist named Narendra Modi. And with that White House spokesman Jay Carney said the Obama administration “look[s] forward to working closely” with a man who has been on a US State Dept “visa blacklist” since 2005 for his role in the gruesome mass-killings and persecution of minority Muslims (and minority Christians). Modi leads India’s ultranationalist BJP party, which won a landslide majority of seats (though only 31% of the votes), meaning Modi will have the luxury of leading India’s first one-party government in 30 years. This is making a lot of people nervous: The last time the BJP party was in power, in 1998, they launched series of nuclear bomb test explosions, sparking a nuclear crisis with Pakistan and fears of all-out nuclear war. And that was when the BJP was led by a “moderate” ultranationalist — and tied down with meddling coalition partners. Modi is different. Not only will he rule alone, he’s promised to run India the way he ran the western state of Gujarat since 2001, which Booker Prize-winning author Arandhuti Roy described as “the petri dish in which Hindu fascism has been fomenting an elaborate political experiment.” Under Modi’s watch, an orgy of anti-Muslim violence led to up to 2000 killed and 250,000 internally displaced, and a lingering climate of fear, ghettoization, and extrajudicial executions by Gujarat death squads operating under Modi’s watch.

Will New Delhi Be Able to Translate Modi’s Gujarati Guidelines? - As India waits for prime minister-designate Narendra Modi to take charge in New Delhi, many are wondering whether he can reproduce the policies that powered growth in his home state of Gujarat. While the western state has long been one the richer states in the country thanks to a populace packed with entrepreneurs, it prospered even more than usual under Mr. Modi’s rule as chief minister for more than a decade. Companies say with his leadership the state has cut corruption and restrictions on doing business. Meanwhile its networks of roads, ports and power plants are among the best in India and have even convinced some companies to move operations from other states to Mr. Modi’s vibrant Gujarat. The source of power behind Mr. Modi’s magic is debatable but most agree it comes from his ability to simplify government and set deadlines as well as his facility to push through unpopular policies. Like he did in Gujarat, he is expected to streamline the number of departments and different ministries to make his entourage of key policymakers more nimble and powerful. In New Delhi, Mr. Modi will likely combine related ministries such as coal, renewable energy and petroleum for better policy implementation, said Mr. Singh. One of the biggest successes of Mr. Modi was in energy, which has made Gujarat one of the few states in India with a power surplus.Across India, power companies are often forced to give away power and depend on massive state subsidies. They are also hurt by theft during transmission and distribution. With little incentive or money to expand, the power generating and distributing companies have failed to keep up with demand. The resulting frequent power interruptions force other companies to set up their own expensive, captive power-generating units. Gujarat has been able to cut power subsidies where many states haven’t been able to muster the political will to do so. It separated the power supply lines for households and farmers, helping target power subsidies. This meant non-agricultural users had to pay higher tariffs but they received a more reliable power supply.

Investor Wish List for India’s New Finance Minister -  Investors have a long list of what the new head of the finance ministry needs to do to fix the Indian economy which has been struggling with a bout of self-doubt as growth has been stuck below 5% in recent quarters. Here are some of the top items on their wish list:

  • Manage Prices: The hundreds of millions of Indians that have to survive on less than $2 a day are hardest hit when the inflation rate soars. Bringing it down should be a top priority for the new finance minister.
  • Contain the Fiscal Deficit: Mr. Jaitley will have to walk a fine line in taking steps that boost the economy but don’t inflate the country’s large fiscal deficit.
  • Simplify Taxes: In recent years, oft-changing tax rules and years-long tax disputes between India and Vodafone Group and other big foreign investors, have hurt India’s image as a place to do business.
  • Reduce Bad Loans at State-Run Banks: Indian banks are reeling under the burden of bad loans.
  • Most of the bad debts are held by state-run banks, which have lent to companies involved in large infrastructure projects which didn’t take off because of delays in regulatory clearances.
  • Simplify Rules for Foreigner Investors:  Foreign investors would like Mr. Jaitley to take steps to make it easier for foreigners to buy Indian shares. At the moment, foreign entities that want to invest in Indian stocks need to follow a cumbersome and time-consuming process to register.

A ten-step program to tap India's great potential - Jim O‘Neill -- India scores poorly on indexes of economic variables that are critical for economic efficiency -- worse than Brazil, China and even Russia. To change that, it needs to do ten things:

  1. Improve its governance. This is probably the hardest and most important task -- the pre-condition for the rest. Modi is right: Whoever leads the next government in 2014, India needs maximum governance and minimum government. There is no point having the world’s largest democracy unless it leads to effective government.
  2. Fix primary and secondary education. There's been some progress here, but a huge number of young people still get little or no schooling.
  3. Improve colleges and universities. India has too few excellent institutions..
  4. Adopt an inflation target, and make it the center of a new macroeconomic policy framework.
  5. Introduce a medium to long-term fiscal-policy framework, perhaps with ceilings as in the Maastricht Treaty -- a deficit of less than 3 percent of GDP and debt of less than 60 percent of GDP.
  6. Increase trade with its neighbours. Indian exports to China could be close to $1 trillion by 2050, nearly the size of its entire GDP in 2008. But India has little trade with Bangladesh and Pakistan.
  7. Liberalize financial markets. India needs huge amounts of domestic and foreign capital to achieve its potential -- and a better-functioning capital market to allocate it wisely.
  8. Innovate in farming. Gujarat isn't a traditional agricultural producer but it's improved productivity with initiatives like its "white revolution" in milk production. The whole nation, still greatly dependent on farming, needs enormous improvements.
  9. Build more infrastructure.  Adopt some of that Chinese drive to invest in infrastructure.
  10. Protect the environment. India can't achieve 8.5 percent growth for the next 30-40 years unless it takes steps to safeguard environmental quality and use energy and other resources more efficiently.

I'll have a lot more to say about the details as this project moves forward. For now, suffice to say that India's potential is vast -- and given the will, it can be tapped.

RBI’s Rajan Worried End of Easy Money Policies Could Hurt Emerging Markets - While India may be back in favor with international investors thanks to hope a business-friendly government is now in charge in New Delhi, Reserve Bank of India Governor Raghuram Rajan says he is worried about what is happening outside of the country. Mr. Rajan remains concerned about how the pullback of unconventional global monetary policies, such as the massive bond-buying program of the U.S., will play out and impact markets like India.“The international rules of the game need to be revisited as the world has changed,” Mr. Rajan said Wednesday at a speech in Tokyo organized by the Bank of Japan. “I fear we are about to embark on the next leg of a wearisome cycle,” unless both advanced and emerging economies recognize the links between their monetary policies, he said. Mr. Rajan has long been worried about the impact of monetary policies of developed countries like the U.S., which have flooded the global financial system with cheap money in recent years. That money flowed into emerging markets and pushed up prices of assets including stocks and property. These assets then lost value last year when the U.S. said that it would cut back on its bond-buying program. The Indian rupee, for instance, lost as much as 20% of its value and hit a record low of 68.80 rupees to the dollar in August. The rupee has regained value in recent months as international investors have returned to emerging markets in search of higher returns. India’s benchmark S&P BSE Sensex is up nearly 16% this year.

India’s Muslims Aren’t All Skeptical of Modi and the BJP - The Bharatiya Janata Party (BJP) may have had more support from Muslims during India’s recently concluded election than previously expected. This may come as a surprise to some due to the BJP’s reputation as a Hindu nationalist party and the Muslim community’s wariness towards Prime Minister Narendra Modi given his alleged complicity in sectarian riots in Gujarat in 2002. Despite these expectations, the data don’t lie. First, the BJP won 71 out of 80 seats in the populous northern state of Uttar Pradesh, where Muslims are over a fifth of the population. This feat would have been mathematically impossible if all of the state’s Muslims voted for non-BJP candidates, even if their votes were split among several parties such as the Bahujan Samaj Party, the Samajwadi Party, and the Congress Party. According to BJP party spokesman Mukhtar Abbas Naqvi, around 14-15 percent of India’s Muslims voted for the BJP.  This is a vast improvement over the 2-3 percent garnered in previous elections.

Leaders of India and Pakistan Hold Rare Meeting - Pakistan’s prime minister, Nawaz Sharif, met on Tuesday with his new Indian counterpart, Narendra Modi, in a swiftly arranged bilateral session that caught many by surprise and offered some hope that the two countries may resume a tentative peace process after a year and a half of frosty silence.Mr. Sharif was one of seven leaders invited to Mr. Modi’s swearing-in on Monday because Pakistan is a member of the South Asian Association for Regional Cooperation, but the ceremony was overshadowed by his interactions with Mr. Modi, a Hindu nationalist who has little track record in foreign policy and used hard-line oratory on Pakistan during the parliamentary campaign.But Pakistani officials have expressed optimism about the prospects for peace, noting that the last burst of progress came in the late 1990s, when Mr. Sharif held power concurrently with Atal Bihari Vajpayee, the last prime minister from Mr. Modi’s party, Bharatiya Janata. “I intend taking up threads from where Vajpayee and I left off in 1999,” Mr. Sharif told a reporter from NDTV. Asked by a journalist what outcome he expected from his meeting with Mr. Modi, Mr. Sharif recited an Urdu couplet that translates as, “cling to the tree and hope, for spring is in sight.”

Sri Lanka’s Central Banker: Emerging Markets Should Be Prepared for Fed Tightening -- The time to have started preparing for the end of the Federal Reserve’s quantitative easing program was at the beginning of the Federal Reserve’s quantitative easing program. So says Ajith Nivard Cabraal, governor of the Central Bank of Sri Lanka. In an interview with the Wall Street Journal Thursday, Mr. Cabraal said he would not expect the Fed to take account of the impact its actions will have on some developing economies when the time comes for it to end its program of bond purchases, and then begin to raise its benchmark interest rate. “Every country will make their own decisions based on their own requirements,” he said. “As to whether it will be the most benign impact for other countries, I don’t think they have the luxury of contemplating. I think that’s something we all have to recognize and appreciate. If we understand that, and we build up our own cushions to deal with any kind of impact that follows such decisions, I think that’s the best way of handling these types of conditions.” In other words, it’s every central bank for itself, and that is unlikely to change. Mr. Cabraal’s view of the obligations central banks have to each other is at odds with that of Raghuram Rajan, the governor of the Reserve Bank of India, who Wednesday again called on the Fed and other developed country central banks to plan for a normalization of monetary policy “whose pace and timing is responsive, at least in part, to conditions they (emerging markets) face.” Hence Mr. Cabraal’s argument that the only way to have prepared for a withdrawal of foreign capital when the Fed begins to tighten is not to have allowed very much of it in to your country in the first place. “At the time QE commenced, we took a fairly calculated position that it would end at some stage,” he said. “We didn’t encourage huge inflows of capital. We didn’t change our limits on foreign investment. Our investors are there for the longer term.”

Worst Place to Work in Southeast Asia? Almost Everywhere - Several countries in Southeast Asia are among the world’s worst to work in, with workers suffering from regular rights violations, according to a new labor rights index. The International Trade Union Confederation’s Global Rights Index assesses where workers’ rights are best protected by evaluating 97 indicators, including the ability of workers to join unions, organize strikes and access legal protections. It then ranks them on a scale of 1 (best) to 5 (worst). Among the 139 countries surveyed, Southeast Asian countries came in at the bottom half of the index, with Cambodia, Malaysia, Laos and the Philippines scoring a 5. The trade union alliance said in its report that workers in those countries have no “guarantee of rights.”  Indonesia, Thailand and Myanmar, fared better with a rating of 4, an indication of “systematic violations,” with governments or companies engaged “in serious efforts to crush the collective voice of workers, putting fundamental rights under continuous threat.” The U.S. also scored a 4, which the report’s authors said was an illustration that a country’s level of economic development does not necessarily indicate its respect for rights that include decent working conditions or collective bargaining.

Argentine Industrial Activity Drops 4.2 Per Cent - Auto Industry Hit Lower Sales: -- After a decade of growth, the Argentine government faces this year a decline as industrial output falls and a high inflation rates hits consumer spending and new investment. The Argentine economy grew steadily recovering from a 2001-2003 debt crisis and expanded 3% last year but it stumbled in the fourth quarter and could slid into a recession at the start of this year. Industrial activity dropped 4.2% in April compared to the same month last year, according to the government's Indec stats office. The decline was largely due to a 20% fall in auto manufacturing as more than 15,000 workers have been suspended due to lower sales on the domestic market and fewer exports to Brazil, the main buyer of Argentina's production. A devaluation of the peso currency and a hike in interest rates in January weakened consumer spending, a pillar of the economy that had helped it withstand external shocks like the 2009 financial crisis. The consensus view now is that the economy will shrink around one percent, the first full-year contraction since the debt crisis, when Argentina defaulted on 100 billion sovereign debt

Brazil’s Lasting Inflation Raises Fears of Out-of-Control Prices - Brazil has an annual inflation target of 4.5% as measured by the official consumer price index known as IPCA. A variation of up to two percentage-points above or below that rate is allowed under the country’s policy. The last time Brazil met the goal was in 2009. Since then the IPCA has been at 6% to 6.5%, and economists forecast the index to remain at the targeted-range ceiling this year and in 2015. Still, 14 of 16 economists surveyed by The Wall Street Journal predicted the central bank would stop raising its benchmark Selic interest rate and leave it at 11% when its two-day policy meeting ends Wednesday. The bank has been raising borrowing costs since April 2013, when the Selic was at a historic low of 7.25%. Brazil has a history of high rates due to its efforts to leave behind years of extremely high inflation, when consumer prices could go up 80% in a single month. The Selic rate was 12.5% in October 2011, when the central bank said the global economy wasn’t favorable for growth and decided to cut the rate, which it did for months until it hit the historic low a year later.

Uruguay to sell marijuana tax-free to undercut drug traffickers: - Uruguay will exempt marijuana production and sales from taxes in a bid to ensure prices remain low enough to undercut competition from black market pot smuggled in from Paraguay, according to consultants advising the government on a legalization plan.Congress approved a law allowing the cultivation and sale of marijuana in December, making Uruguay the first country to do so, with the aim of wresting the business from criminals."The principal objective is not tax collection. Everything has to be geared toward undercutting the black market," said Felix Abadi, a contractor who is developing Uruguay's marijuana tax structure. "So we have to make sure the price is low."Uruguay will auction up to six licenses to produce cannabis legally in the next weeks. The government is also considering growing marijuana on a plot of land controlled by the military to avoid illegal trafficking of the crop.

Africa: Trade Within, Trade Beyond - It's common to talk about economic development "in Africa," and I've done so on this blog a few times (for some examples, here, here, here and here). But "Africa" includes 54 countries and 1.1 billion people, so does referring to it as a single unit make any economic sense? In my reading, one of the themes of the African Economic Outlook 2014, recently published by the African Development Bank Group, OECD, and the UN Development Programme, is that thinking about Africa as a whole does make some economic sense. The reason is that in the modern global economy, there are no examples of small stand-alone economies that have achieved a high standard of living. Instead, the high-income countries either have an enormous internal market (the US and Japan, for example) or have close economic ties to a number of other national economies (like the countries of the European Union), or both. If the national economies of Africa are going to build on their real if modest economic progress of the last decade or so, one of the big reasons will probably be that they bolster trade relationships within the countries of Africa, as well as tap into international flows of goods, services, people, and finance. To some extent, this change is already underway. Here's a figure comparing intra-Africa trade with other trading partners. A common pattern--say, if one looks at the EU or at North America--is that trade volumes are larger with those who are geographically close. But intra-African trade (the black dashed line) is similar trade between African nations and the US, and lags behind Africa's trade with China or especially the EU.

China’s rise meets America’s decline in Africa - Earlier this month, U.S. Secretary of State John Kerry visited Ethiopia, the Democratic Republic of Congo, Angola and South Sudan. Officials described his four-day tour of Africa as part of efforts “to encourage democratic development, promote respect for human rights [and] advance peace and security,” according to the State Department. As Kerry concluded his voyage, Chinese Premier Li Keqiang embarked on a similar mission to Ethiopia, Kenya, Angola and Nigeria, where he attended the Annual World Economic Forum on Africa. In recent years, buoyed by its tremendous economic growth, Africa has become an arena of contest between the United States and China and among emerging countries such as Turkey, Brazil and India. In Africa — once regarded as the byword for ethnic conflict, disease and natural disaster — hardly a month goes by before a high-level foreign delegation visits for trade, construction or natural resource deals. China’s upper hand In 2012 a new African Union headquarters, built with a $200 million gift from China, was opened in Addis Ababa, Ethiopia. It represented a real turning point in in China’s growing influence in the continent. After decades of being patronized by the West, most African leaders are now facing east — shorthand for working with China — as their default position. Western diplomats are often reminded that their countries are no longer the only game in town.

Western intervention will turn Nigeria into an African Afghanistan - It seems almost beyond belief that more than 200 girls can be kidnapped from a school in northern Nigeria, held by the terrorist group Boko Haram, and threatened on a video – shown worldwide – with being sold into slavery by their captors. The disbelief is compounded by today's news that, overnight, eight more girls have been kidnapped by suspected Boko Haram gunmen in north-east Nigeria.  There is rightly anger that so little has been done by the Nigerian government to find the girls, and that those who have demonstrated in huge numbers against President Goodluck Jonathan have themselves been accused of causing trouble or even temporarily arrested. But we should be wary of the narrative now emerging. This follows a wearily familiar pattern, one we have already seen in south Asia and the Middle East, but that is increasingly being applied to Africa as well. It is the refrain that something must be done and that "we" – the enlightened west – must be the people to do it.  The call has been for western intervention to help find the girls, and to help "stabilise" Nigeria in the aftermath of their kidnap. The British government has offered "practical help". Yet western intervention has time and again failed to deal with particular problems and – worse – has led to more deaths, displacements and atrocities than were originally faced. All too often it has been justified with reference to women's rights, claiming that enlightened military forces can create an atmosphere where women are free from violence and abuse. The evidence is that the opposite is the case.

Russia’s economic decline looms large over Central Asia -- With many sectors of the Russian economy in decline, recession is looming. The IMF believes that the country’s previous economic model – one based on rising oil prices and the use of reserve capacities – has exhausted itself. The faltering economic situation, combined with escalating geopolitical risks associated with current events in Ukraine, cannot but affect Russia’s neighbours. A multitude of important factors connect the countries of Central Asia to their former ruler, and economic cooperation between the two regions functions on all levels: from basic personal contact to international investment, macroeconomic impact and imported inflation. If the results of the 1998 Russian financial crisis were offset by the rapid growth of raw materials prices, then today – against a background of deteriorating global market indicators for raw materials and an overall withdrawal of investors from many emerging markets – the effects may be even more pronounced. Russia remains an extremely important trading partner for the countries of Central Asia, despite the fact that their foreign trade is oriented towards the export of raw materials, and towards countries outside Russia’s traditional ‘near abroad.’ China, for example, has become the number one trading partner for Central Asia thanks in large part to a particularly sizeable turnover with Kazakhstan. Indeed, in 2013, Sino-Kazakh trade accounted for more than half of China’s trade with Central Asia. Despite this, it is Russia that remains the most attractive market for goods from Central Asia, and, in the face of a severe economic downturn in Russia, the demand for imports from the region will inevitably decrease. This especially hurts Kyrgyzstan and Uzbekistan, which offer more diverse exports.

Russia’s new economic bloc with Kazakhstan, Belarus aims to challenge West - The presidents of Russia, Kazakhstan and Belarus signed a treaty on Thursday creating a vast trading bloc which they hope will challenge the economic might of the United States, the European Union and China. The treaty forging the Eurasian Economic Union will come into force on Jan. 1, once it has passed the formality of being approved by the three former Soviet republics’ parliaments. “Our meeting today of course has a special and, without exaggeration, an epoch-making significance,” Russian President Vladimir Putin said shortly before the treaty was signed in the Kazakh capital, Astana. Kazakh President Nursultan Nazarbayev said he saw the new union as “a bridge between the East and the West.” Putin, whose hopes of securing a place in history with the union have been dented by Ukraine’s refusal to join, denies the union is an attempt to recreate the Soviet empire which collapsed in 1991. The new union’s three countries have a combined population of more than 170 million people, and a gross domestic product between them of around $2.7-trillion. Kazakhstan and Russia are both oil producers. The treaty deepens the ties forged when the three countries took the initial step of creating a customs union in 2010. It will guarantee free transit of goods, services, capital and workforce and coordinate policy for major economic sectors.

IMF Lagarde Urges Tax Overhaul to Tackle Inequality - Inequality casts “a dark shadow” across the global economy and countries should consider overhauling their tax systems to tackle gulfs in incomes and wealth, according to Christine Lagarde, managing director of the International Monetary Fund. Ms. Lagarde made her remarks at a conference organized by the Inclusive Capitalism Initiative, an invitation-only event at London’s Mansion House attended by the Prince of Wales and a host of big names from the financial world. The event underscores how inequality has moved up the agenda after decades of being mostly ignored by policy makers. Recent IMF research  found that countries with greater inequality appeared to experience lower and less durable economic growth than their more egalitarian peers. Drawing on those findings, Ms. Lagarde said Tuesday that policy makers should take action. Excessive inequality prevents people–and by extension their economies–from reaching their full potential, she said. “A greater concentration of wealth could–if unchecked–even undermine the principles of meritocracy and democracy,” Ms. Lagarde said. She suggested governments consider reforming their tax systems to target property, or raise state payments to the working poor.

Putin cuts Western ties in shift to the East: Russian President Vladimir Putin's movement eastwards can no longer be in any doubt. Attending the St Petersburg Economic Forum, the annual meeting Putin set up in his hometown to rival Davos, last week, was almost more about who wasn't there than who was. While evening receptions hosted by Russian companies had opulence to rival the last days of the "ancien regime" at Versailles, the high-profile U.S. attendees of recent years -- like Lloyd Blankfein of Goldman Sachs -- were notably absent. The most high-profile foreign delegates were from China, like Vice Premier Li Yuanchao.Putin was eager to stress the importance of deals like Gazprom's recently inked 30-year gas supply contract with China, and the creation of a new "Eurasian Union" with Russia and some of the old Soviet states. He brushed off the effects of sanctions on Russia's economy, and those of his personal friends who have been targeted, and pledged to rely less on Western imports. Russia's central bank governor was adamant at one panel that it didn't need the support of the other member countries of the G-8 group of leading industrialized nations - which is useful, given that it has been suspended from the organization.

Even With Pullback, Russia Holds Huge Financial Sway Over Ukraine -- Russian President Vladimir Putin may be toning down his rhetoric toward Ukraine, but he still holds potent financial levers to keep Kiev from turning westward. First, Moscow can use the price it charges for natural gas supplies Ukraine relies on to fuel its economy, a power that gives it unprecedented to make or break the country’s finances. Ukraine’s turn to the West coincides with an escalation in the price dispute. The more Kiev looks to Europe as its future trade partner, the higher the natural gas bills seem to head. Second, Moscow may be able to use a special clause in the $3 billion in Ukrainian bonds Russia bought in December to trigger a system-wide debt meltdown, says a Georgetown University law professor and debt expert Anna Gelpern. That financial nuclear option could pressure Ukraine’s new pro-West government from embracing a full-fledged European integration and a turn away from its former Soviet masters. Ukraine’s newly-elected President Petro Poroshenko has already asked his European counterparts for more time to commit to a major economic and deal with the European Union. Financial levers are part of the broader battle being waged over Ukraine, says Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics. Mr. Putin not only wants the country’s strategic assets such as the Black Sea naval port in Crimea, but he also wants Ukraine to be part of a Eurasian trade bloc and to prevent the country from becoming another member of the North Atlantic Treaty Organization, analysts say. The country is in a particularly precarious economic position, even with an International Monetary Fund bailout.

Draghi Says Timing Key as ECB Watches for Negative Spiral - European Central Bank President Mario Draghi signaled policy makers are ready to take action in June should they see low inflation becoming entrenched. “What we need to be particularly watchful for at the moment is, in my view, the potential for a negative spiral to take hold between between low inflation, falling inflation expectations and credit, in particular in stressed countries,” Draghi said in a speech at an ECB conference in Sintra, Portugal. “The key issue today, however, is timing.” Draghi indicated that the ECB is focusing on liquidity measures it could deploy to help free up lending to companies and households. Officials have said they’re working on a package of possible measures for their next meeting, including interest-rate cuts and liquidity injections, while holding out the prospect of asset purchases as a more powerful option. The speech “seems to reinforce the view that the ECB is much more likely than not to deliver a package of stimulative measures at its June 5 policy meeting,” “This will likely include taking its deposit rate into negative territory and liquidity measures aimed at boosting bank lending to businesses, especially smaller ones.” Credit Mismatch Draghi said after the ECB’s May 8 policy meeting, when interest rates were kept on hold, that officials are “comfortable” with acting next time and willing to use unconventional instruments if needed. While he didn’t announce any new policy ideas today, he did say that liquidity tools are one option should banks need more funding sources to meet rising demand for credit as the economy expands.

The Bank That Nobody Wants To Buy - The Spanish government is currently engaged in a desperate bid to offload one of the country’s recently bailed out, nationalised, and supposedly now fully restored savings banks, Catalunya Caixa — the ill-fated offspring of the post-crisis merger of Caixa Catalunya with two smaller Catalonian saving banks, Caixa Terrassa and Caixa Manresa.The problem is that no one wants it. All three of Spain’s big banks (Santander, BBVA and Caixabank) have already turned their noses up at it — not once, not twice, but three times! The reason, according to a banker friend of mine, is that Catalunya Caixa is still filled to the gills with “impaired assets” (translation: worthless crap nobody in their right mind would ever want to touch, never mind own) — and this despite the billions of euros of taxpayer funds that have been spent on the entity and its supposed cleansing of toxic residues. Throw in the fact that almost all of the customers that once created value for the bank have long taken their business elsewhere and you begin to see why the bank’s last two auctions went completely bidless.

Europe’s Secret Success , by Paul Krugman -- Europe’s financial and macroeconomic woes have overshadowed its remarkable, unheralded longer-term success in an area in which it used to lag: job creation.  European economies, France in particular, get very bad press in America. Our political discourse is dominated by reverse Robin-Hoodism — the belief that economic success depends on being nice to the rich, who won’t create jobs if they are heavily taxed, and nasty to ordinary workers, who won’t accept jobs unless they have no alternative. And according to this ideology, Europe — with its high taxes and generous welfare states — does everything wrong. So Europe’s economic system must be collapsing, and a lot of reporting simply states the postulated collapse as a fact. The reality, however, is very different. Yes, Southern Europe is experiencing an economic crisis... But Northern European nations, France included, have done far better than most Americans realize. In particular, here’s a startling, little-known fact: French adults in their prime working years (25 to 54) are substantially more likely to have jobs than their U.S. counterparts. ... Other European nations with big welfare states, like Sweden and the Netherlands, do even better. .Oh, and for those who believe that out-of-work Americans, coddled by government benefits, just aren’t trying to find jobs, we’ve just performed a cruel experiment using the worst victims of our job crisis as subjects. At the end of last year Congress refused to renew extended jobless benefits... Did the long-term unemployed who were thereby placed in dire straits start finding jobs more rapidly than before? No — not at all. Somehow, it seems, the only thing we achieved by making the unemployed more desperate was deepening their desperation.

Krugman: How American Capitalism Fails—and Northern European 'Socialism' Succeeds—at Job Creation -- Paul Krugman wrote his column this morning in the New York Times from Europe, a place which—conservatives like Paul Ryan would like you to believe—demonstrates the complete failure of the welfare state. That's because, as Krugman points out, "Our political discourse is dominated by reverse Robin-Hoodism — the belief that economic success depends on being nice to the rich, who won’t create jobs if they are heavily taxed, and nasty to ordinary workers, who won’t accept jobs unless they have no alternative." France, a country that the American media and conservatives particularly love to bash, is having particular success in employment rates. Krugman reports this "startling, little-known fact: French adults in their prime working years (25 to 54) are substantially more likely to have jobs than their U.S. counterparts." Hmmm. There's a story you won't hear told in the mainstream media.

France’s far-right National Front projected to win European parliament elections in France: France’s far-right National Front was projected on Sunday to win European parliament elections in France with around 25% of the vote, with President François Hollande’s Socialists in third place behind the centre-right UMP, three exit polls showed. If the National Front score is confirmed, it will be the first time that the anti-immigrant, anti-EU party led by Marine Le Pen has won a national election. The UMP was projected to score around 21% while the ruling Socialists were seen scoring 14%, down from the 16.5% they won last time in 2009. Survey group Ifop said the abstention rate was 59%, lower than many pollsters had expected. From the beginning of the European election campaign Marine Le Pen was insistent that Sunday evening would finally see the Front National emerge “France’s number one party”. Election pundits scorned her pretentions; the opinion polls confirmed them.

France in shock --“THE National Front: first party of France”. With those words, the pre-printed posters pinned to the wall behind Marine Le Pen (pictured) on election night set the scene for both her triumph, and France’s shock. At voting for the European Parliament on May 25th, exit polls suggested that her populist National Front came out top with 26%—a historic score, which has shaken the mainstream political parties on both the left and the right. Ms Le Pen’s victory was spectacular on several counts. She pushed the centre-right UMP, supposed to be the main opposition party, into second place, with just 21%. She crushed President François Hollande’s governing Socialists, who emerged in third place with a humiliating 14%, their worst ever score at a European election. With this result, the National Front has also quadrupled the score it got at the 2009 elections, and bettered its own previous record at European elections of 12% in 1989, when the party was led by Ms Le Pen’s father, Jean-Marie. In the French north-west constituency where Ms Le Pen stood, and which includes the former mining town of Hénin-Beaumont captured by the party at municipal elections in March, the National Front this time round grabbed a stunning 33%. Faced with such a defeat, political leaders on both the left and right had no option but to acknowledge a disaster. Manuel Valls, the Socialist prime minister, called it “a shock, an “earthquake”. Jean-François Copé, looking strained on French television, spoke of a “great disappointment”.. What happens next? Ms Le Pen has called for the French National Assembly to be dissolved, and for fresh elections to be held in France. The National Front currently has only two deputies, and has struggled to make its voice heard in parliamentary debates. Its demand will most probably be briskly brushed aside by the government. Yet this will not hinder the party’s ability to set the agenda at home. The National Front’s clout stems far more from its growing support in opinion polls and election results, and its ability to impose questions such as immigration or the euro on the national debate, than from parliamentary power.

EU Protest Forces Surge Posing Threat From U.K. to Greece - Protest parties racked up gains across the 28-nation European Union in elections to the bloc’s Parliament, turning the assembly designed to unite Europe into an echo chamber for politicians who want to tear it apart. The wave hit hardest in France, Greece and the U.K., undermining the leaders of those countries and making it more difficult to steer the EU as a whole. In all, fringe parties won 31 percent of the Europe-wide vote, up from 20 percent in the current Parliament, according to official EU projections. Political forces suspicious of the U.S. made inroads across the continent, threatening to snag trans-Atlantic trade talks the EU hopes will spur an economy struggling with the after-effects of the euro debt crisis. The protest vote “will have a huge impact on the parties and policies back home,” said Pieter Cleppe, head of the Brussels office of U.K.-based think tank Open Europe. “They will make it harder to centralize powers in the EU, especially when it comes to managing the euro crisis.” United mainly by opposition to European unity, the anti-establishment movements show no signs of agreeing on a policy program. Instead, their aim was to make life harder for people who weren’t on the ballot: leaders of national governments.

Fun Night for the Eurosceptics: UKIP and Front National Storm Brussels; Infighting Begins - It was a fun night for the Eurosceptics.

  • Nigel Farage's UKIP was the top vote getter in the UK with about 29% of the vote
  • Marine Le Pen's Front National party was the top vote getter in France with 26% of the vote
  • The Danish People’s party is the largest party in Denmark with about 25% of the vote
  • Beppe Grillo's Five Star Movement is a likely second-place finisher in Italy 
  • Alexis Tsipras' Syriza part is the top vote getter in Greece with about 26% of the vote
The Financial Times reports Ukip Leads Populist Earthquake. The UK Independence party and France’s far-right Front National stormed to victory in European elections on Sunday night, as populist and nationalist parties across the continent dealt a heavy blow to the European project. Nigel Farage, Ukip leader, said the result represented an “earthquake”, while Marine Le Pen, the FN leader, said that there had been a “massive rejection of the EU”; mainstream politicians struggled to come to terms with what had happened.Manuel Valls, the French socialist prime minister, called the FN victory “a shock, an earthquake that all responsible leaders must respond to”, as President François Hollande prepared to convene his cabinet to discuss the result. In Britain, Labour was battling with Tories for second place , with the opposition party expected to just edge it. Nick Clegg, the pro-European Liberal Democrat leader who confronted Mr Farage in two televised debates on Europe, was set to lose most of his 12 MEPs. By 2am the Lib Dems had won just one seat, with London results delayed. Danny Alexander, Lib Dem Treasury minister, said the results were “pretty awful”.

European Voters Deliver the Revenge of the Nation-State - European elections are in the process of delivering huge swings extremes of the Left and Right extreme. From the Financial Times: France’s nationalist extreme right turned European politics upside down on Sunday, trouncing the governing Socialists and the mainstream conservatives in the European parliamentary elections which across the continent returned an unprecedented number of MEPs hostile to, or sceptical about, the European Union in a huge vote of no confidence in Europe‘s political elite. According to exit polls, the Front National of Marine Le Pen came first in France with more than 25% of the vote. The nationalist anti-immigrant Danish People’s party won by a similar margin in Denmark. In Austria, the far right Freedom Party took one fifth of the vote, according to projections, while on the hard left, Alexis Tsipras led Greece‘s Syriza movement to a watershed victory over the country’s two governing and traditional ruling parties, New Democracy conservatives and the Pasok social democrats.…In Britain, the Nigel Farage-led insurrection against Westminster was also tipped to unsettle the polticial mainstream by coming first or second in the election. The Tories, the biggest UK caucus in the parliament for 20 years, faced the prospect of being pushed into third place. In Germany, the most powerful EU state, Chancellor Angela Merkel’s Christian Democrats scored an expected easy victory, but Germany also returned its first eurosceptics in the form of the Alternative for Germany as well as its first neo-Nazi MEP from the Hitler apologists of the National Democratic Party of Germany, according to German TV projections.These results are enough to complicate but not derail the European project, for now.

European Elections Likely to Complicate Trade Talks With U.S. - This week’s European Union election results are likely to complicate the European push to negotiate a trade agreement with the U.S., according to people following the talks. The elections for the European Parliament showed gains for nationalist parties and politicians who want the EU to play a smaller role in the affairs of individual countries on the continent. The legislative body, which has gained greater clout in recent years, has to approve trade deals hammered out by EU officials in Brussels. The most vocal supporter of a trade deal with the U.S., the center-right European People’s Party, is expected to hold 213 seats in the new Parliament, down from 274 seats. In turn, a swell of new, largely unaffiliated lawmakers will join the body, many of them skeptical of the EU’s scope and powers. “The new members of the European Parliament will be more critical and demanding during the trade negotiations,” said the EU ambassador to the U.S., João Vale de Almeida. Regulations coming out of Brussels are a frequent target of so-called euroskeptic parties, and the broader regulations that EU officials are hoping to agree upon with their Washington may face similar resistance. Another risk is the rise of anti-American rhetoric from growing groups on the far right and left. Marine le Pen, the head of the National Front party that dominated the elections in France, called on President Francois Hollande this week to pull the country out of the talks to form an U.S.-E.U. trade bloc, known as the Trans-Atlantic Trade and Investment Partnership, or TTIP. The tone of the negotiations with the U.S. could be affected by which leaders are chosen for the EU’s executive body and the key trade commissioner positions in Brussels, observers say.

BBC News - EU elections: The European malaise: Europe's leaders gathered in Brussels knowing that there had been a huge protest vote against the European establishment. The number of MEPs from Eurosceptic parties had doubled. The election result has sapped confidence. That was apparent when they met for Tuesday's informal dinner. Most of the leaders gave rather cautious and coded comments. They were men and women who had lost some of their certainty. David Cameron arrived early with a prepared soundbite that Brussels had become "too big, too bossy and too interfering". He had his allies: the Dutch Prime Minister, Mark Rutte, said he thought the answer lay in "fewer rules and less fuss from Europe and for Europe to focus on where it can add value". More surprisingly, there was a similar tone from the French President Francois Hollande, who said the EU should "concentrate more on its priorities, show more efficiency where it is needed and not to add things where it is unnecessary". Hopes for recovery Such expressions are the easy part. Other leaders are wary of calls for "less Europe". In any event it will be very difficult to rein in Brussels. France is firmly against treaty change. The Elysee Palace believes it is a matter of "reorganising working methods and approach".

Greece: Anti-bailout party demands early election: — A Greek anti-bailout party on Monday formally requested an early general election after getting the most votes for European Parliament seats in balloting that also saw the extreme right Golden Dawn party come in third place. Final results announced late Monday showed the left-wing Syriza party winning with 26.6 percent of the vote. It was followed by the main party in the government coalition, the center-right New Democracy, with 22.71 percent. Golden Dawn got 9.38 percent. "There is a very large discrepancy between the people's will and the current makeup of parliament," Alexis Tsipras, the 39-year-old Syriza leader, said after visiting Greece's president to make the special election request. "It is clear that that there is no legitimacy to proceed with critical decisions that will bind the people and the country for years," Tsipras said. Tsipras has vowed to cancel bailout agreements that rescued Greece from bankruptcy but also imposed harsh austerity measures and spending cuts that produced a huge rise in poverty and unemployment. Midway through its four-year term, the government ruled out calling an early election shortly after polls closed over the weekend.

Tsipras Calls Farage Monstrosity Created by Austerity - Greece’s main opposition leader distanced his group from other protest parties that made gains in the European elections, calling the U.K. Independence Party and the National Front in France “monstrosities.” Alexis Tsipras, who rocked international markets when he emerged as the political force to counter now-Prime Minister Antonis Samaras in Greek elections two years ago, said on May 28 his Syriza party is “an oasis in this desert.” “We are a pro-European force that wants to change Europe, not dismantle it,” Tsipras, 39, said in his first interview since winning Greece’s European elections on May 25. “Austerity has led to the creation of political monstrosities.” Voters across Europe deserted the parties that held power during the economic crisis as unemployment across the 28-nation bloc increased to a record last year. While UKIP leader Nigel Farage and France’s nationalist leader Marine Le Pen want to roll back European powers to protect the interests of the British and the French, Tsipras said his Syriza party is focused on transforming EU policy.

Heads roll across Europe in wake of polls -- The aftershocks of EU elections that saw a surge in support for anti-establishment parties rippled across Europe on Monday with mainstream party leaders losing their posts and a battle building over the bloc’s top job. The struggle over the EU’s future is due to be joined on Tuesday, when EU leaders gather for dinner in Brussels to weigh the region’s new leadership. At least two prime ministers, Britain’s David Cameron and Hungary’s Viktor Orbán, were working to block the candidacy of veteran Brussels fixer Jean-Claude Juncker, frontrunner for the EU’s most high-profile post. José Manuel Barroso, the outgoing European Commission president, told a European Central Bank conference in Portugal that he was “extremely concerned” by the rise in support for anti-European parties in the elections, which he called “the biggest stress test ever for European institutions”. He also attacked mainstream parties in member states for pandering to anti-EU sentiment. “If you spend all week blaming Europe, you can’t ask people to vote for Europe on Sunday,” he said. French president Francois Hollande said in a television address on Monday that he would use an EU summit on Tuesday to call for a marked shift from austerity to growth to combat the populist surge. He said the EU had become “incomprehensible. “This cannot go on,” he said, adding it must be reformed to “be efficient where it needs to be and to withdraw from where it is not needed”.

One Extreme Europe? On the Parliamentary Election Results  - Yanis Varoufakis - For four years now, European institutions are the field on which incompetence and malice compete with one another, seemingly with an eye to winning the prize for the greatest damage done to the idea of shared European prosperity. The result has been a wholesale loss of trust in the institutions of the EU and the demise of the ‘assumption’ that European integration was an unstoppable, benign force. Naturally, the recent European Parliament elections reflected this mood.The international press has summed up the election outcome as a sign that the economic crisis plaguing Europe has caused voters to be lured by the two ‘extremes’, meaning the ultra right and the extreme left. This is a verdict that the European elites, whose shenanigans are responsible for Europe’s deconstruction, are comfortable with. They see it as evidence that, despite some errors, they are on the middle road, with some wayward voters straying off the ‘right’ path both to the left and to the right. They hope that, once growth picks up again, the ‘strays’ will return to the fold. This is a misrepresentation of the most recent electoral result. Europeans were not lured by the two extremes. They drifted to one extreme: that of the misanthropic, racist, xenophobic, anti-European right. Extreme, anti-European, leftwing parties saw no surge in their support anywhere in Europe. To portray SYRIZA as anti-European, or as extreme, is disingenuous. SYRIZA is a party that has its roots in the eurocommunist movement of the early 1970s, consistently arguing in favour of the EU (even of the Eurozone), and committed, to this day, and in spite of the catastrophic effects of EU policies on the Greek people, to seek a solution to the crisis within the EU and within the Eurozone.

European Green Lanterns - Paul Krugman - Sitting in a room listening to EU officials reacting to the European Parliament elections — and it seems to me that they’re deep in denial. Barroso just declared that the euro had nothing to do with the crisis, that it was all failed policies at the national level; a few minutes ago he said that Europe’s real problem is a lack of political will.This is quite amazing, in a really bad way. Sorry, but depression-level slumps didn’t happen in Europe before the coming of the euro. And we know very well what happened: first the creation of the euro encouraged massive capital flows to southern Europe, then the money dried up — and the absence of national currencies meant that the debtor countries had to go through an extremely painful process of deflation. How anyone could deny any role for the currency …And if there’s one thing Europe has, it’s political will. All across the southern tier, governments have dutifully imposed incredibly harsh austerity in the name of being good Europeans. What should they have done that they haven’t? I guess the notion is that if the Greeks, or the Portuguese, or the Spaniards really, truly committed their all-powerful wills to reform and adjustment, their economies would boom despite deflation and austerity. The possibility that things are so bad — and radicals have been empowered — because the policies are fundamentally misguided just doesn’t seem to be considered.

At ECB Conference, Krugman Attacks Inflation Target - Major central banks generally target annual inflation rates of around 2%. Princeton economist Paul Krugman thinks that’s far too low. And he took his case Tuesday to the central bank where keeping inflation just under 2% is sacrosanct: the European Central Bank. At a two-day ECB conference in Sintra, Portugal, Mr. Krugman dismissed what he called the “mysterious doctrine” of a 2% inflation target. “The case that 2% turns out to be too low a target is quite compelling,” Mr. Krugman said. One key argument is that when interest rates are near zero, falling inflation pushes up real interest rates, which depresses demand. In the case of the euro zone, excessively low inflation is making it harder for stressed countries in southern Europe and for Ireland to adjust their economies, in part because it is hard to achieve outright cuts in private-sector wages, he said, noting that Greece is the only country where this has occurred. And he’s worried that policymakers may grow complacent. Absent evidence that economies face a 1930s-style deflation trap, they may be ignoring the damaging effects of very low inflation, he said. “We are all facing something like Japan faced in the 1990s,” he said. “I don’t think Mario has fallen into this (complacency trap), but there’s a little bit of it,” Mr. Krugman said, referring to ECB President Mario Draghi, who was in the audience. “If you’re only compelled to do something” when faced with 1930s-style deflation, then “you’re going to be sitting there with an economy that’s persistently depressed because inflation is too low,” Mr. Krugman said.

Italian, Spanish inflation falls add to ECB fear - RTÉ News: Annual consumer inflation slowed in Italy and Spain in May, heightening concerns about deflation risks in the euro zone. The slowdown comes as the European Central Bank gears up for an expected growth-boosting shift in monetary policy next week. Italy's EU-harmonised inflation rate eased to a weaker than expected 0.4% year-on-year from 0.5% in April, statistics office ISTAT said in Rome. Corresponding inflation in Spain was 0.2%, down from 0.3%, data from the National Statistics Institute in Madrid showed. The subdued data from the euro zone's third and fourth largest economies, driven by lower food costs, is likely to feed into widespread expectations that the European Central Bank will ease monetary policy significantly at its meeting next Thursday. The ECB targets annual euro zone inflation of just under 2%, but it has been in the bank's "danger zone" of below 1% for seven months.Prices across the bloc rose just 0.7% in April and data due next week is expected to show that rate stayed unchanged in May, consensus forecasts show.

IMF: Spain may need monetary easing - The International Monetary Fund said Tuesday that Spain's economic recovery is likely to continue over the medium term, but further easing of monetary policy by the European Central Bank may be needed to support demand that remains fragile. "Stronger policies by Spain's European partners would help the recovery in both the euro area and Spain," the IMF said in the latest regular report issued by its mission in the country. The report joins a growing body of statements by international bodies, including the European Commission and the Organization for Economic Cooperation and Development, praising Spain's recent economic reforms. These have allowed the euro zone's fourth-largest economy to have one of the strongest recoveries of any in the monetary area after a recession stretching from 2008 to last year. But like the others bodies, the IMF said more efforts are needed to ensure that sky-high unemployment drops significantly. The IMF said a further decrease in borrowing costs for Spanish firms and households would support the recovery, and an easier ECB monetary policy would narrow spreads between such costs among euro-zone countries. The IMF also called for progress "toward a more ambitious banking union"--a long-cherished goal of Spain and other southern European countries, often resisted by Germany's government.

Spain should increase tax take, get debt down – IMF - (Reuters) – Spain needs to increase tax revenues to protect its public services and make further efforts to cut its budget deficit to ensure a lasting economic recovery, the International Monetary Fund said in a report on Tuesday. Spain has “turned the corner” after a deep recession, the IMF said, adding that private consumption and business investment were improving, as were labour market trends, in a country where one in four of the workforce is unemployed. “We expect the recovery to continue over the medium term,” the IMF said in its annual review of the Spanish economy. The IMF called on Spain to rein in its rising debt and large deficit, however, saying this was vital to a sustained turnaround. Spain’s government forecasts the country’s ratio of public debt to gross domestic product (GDP) will reach 99.5 percent by the end of 2014. Measures to whittle down the deficit should be gradual so as to not drag on growth, the IMF added. It recommended increasing indirect tax revenues, by raising environmental levies, for instance, and reducing preferential treatments on some areas of value-added tax (VAT).

Realty Investors Flock to Spain -- As one of the most moribund housing markets in Europe, Spain has become a magnet for global bargain hunters. Real estate prices are down as much as 50 percent from their peak during a housing bubble, and investors from Asia to the United States and Britain are flocking to Spain to try to catch the uptick.British Airways flights to Madrid are packed with London-based real estate executives. The hedge fund Baupost is buying shopping centers, Goldman Sachs and Blackstone are buying apartments in Madrid, and Paulson & Company and George Soros’s fund are anchor investors in a publicly listed Spanish real estate investment vehicle. Kohlberg Kravis Roberts just bought a stake in a Spanish amusement park complex. Big-name private equity firms and banks are teaming up with and competing against one another on huge loan portfolios with names like Project Hercules and Project Octopus. “It’s surreal,” said Dilip Khullar, a 25-year veteran of Spanish real estate investing and director of Cadena, an investment fund. “One day it’s the worst place in the world to buy real estate and the next, it’s the best.”

500% Rise In Very Long-Term Unemployment In Spain: 1.26m Spaniards Unemployed Since 2010  -- There are now 1.26 million Spaniards who have not had a job since 2010, and the total continues to rise, according to an adjunct report to the National Statistics Institute’s Active Population Survey published on May 23. “In 2013, there were 1.276 million unemployed people who lost their job three years ago or longer, 234,200 more people than in 2012″. The institute notes that this represents an increase of 22.5% on the figure for 2012, and that the very-long term unemployed now represent 23.1% of the total. Edward Hugh, an independent British economist in Barcelona, told The Spain Report that: “The cost of the crisis has been distributed very unequally in Spain. Some barely have noticed it, while a growing number of others have been out of work for more than three years. Many of these people are now “structurally unemployed”, and many of those over 50 may never work again. It’s a national disaster.”

France Budget Forecast "Wildly Inaccurate" Leaving €14 Billion Black Hole; Sharp Rise in French Unemployment  - French President Francois Hollande hiked income taxes, VAT and corporation tax following his election two years ago. Hollande estimated those tax hikes would raise €30 Billion in revenue.The BBC reports France Faces €14 Billion Budget Hole. The French government faces a 14bn-euro black hole in its public finances after overestimating tax income for the last financial year.French President Francois Hollande has raised income tax, VAT and corporation tax since he was elected two years ago.The Court of Auditors said receipts from all three taxes amounted to an extra 16bn euros in 2013. That was a little more than half the government's forecast of 30bn euros of extra tax income. Nor was there any surprise in this corner regarding French Unemployment. Via translation from Les Echos please note a Sharp Rise in French Unemployment The number of Class A job seekers reached 3,626,500 in April. At this rate, the threshold of half a million more unemployed since the election of François Hollande will be reached this summer.  According to official statistics released Wednesday, the number of unemployed has regained most of the beautiful growth last month.The balance was more negative in April when we also take into account the number of unemployed who worked in the month.No age group was spared in April, but older were the most affected. Unemployment has increased among youth by 0.2%, by 0.4% in age group 25-49 years, and by 0.7% among those older. The number of long-term unemployed also continued to rise.

Belgian data bad omen for euro-zone inflation - The latest data from Belgium isn’t encouraging. The first country in the euro zone to release inflation day for May, Belgium revealed Tuesday that growth in consumer prices plunged to the lowest in more than four years. The inflation rate ticked down to 0.36% in May \from 0.62% in April, marking the weakest level since December 2009. “If Belgium is any indication – and it normally is – then [euro-zone] inflation will notch down in May,” said Steen Jakobsen, chief investment officer at Saxo Bank, in a note. “[The] trend is clear.” Usually, economic stats from the 11-million-people nation don’t get much euro-zone wide attention, but this time it’s different. With the European Central Bank seemingly on the brink of further stimulating the region’s economy to fight off low inflation, everyone is looking for evidence to strengthen that case. On Monday, ECB President Mario  Draghi addressed the price concerns as well, saying the central bank needs to be “particularly watchful” for a negative spiral to take hold between low inflation, falling inflation expectations and credit. “We are not resigned to allowing inflation to remain too low for too long,” he said at an ECB conference in Portugal. The comments were seen as the latest sign the ECB will take fresh easing measures when it meets June 3 — next week — most likely by dumping deposit rates into negative territory and introducing tools aimed at booting bank lending to businesses.

Draghi says ECB aware of risks from low inflation - The European Central Bank is aware of the risks associated with too long a period of ultralow inflation, the bank's president Mario Draghi said Tuesday, though he said he was confident that the ECB has the tools to push consumer-price growth higher. "We are confident we will deliver the close to 2%, but below 2%, objective," Mr. Draghi said, referring to the ECB's medium-term target. He spoke at the conclusion of the ECB's two-day conference in Sintra, near Portugal's capital. Annual euro-zone inflation was just 0.7% in April, far below that target. The persistent weakness of inflation, combined with a sluggish economy and weak credit dynamics, has prompted speculation in financial markets that the ECB will cut interest rates and take other stimulus measures when it meets on June 5. Recent comments from Mr. Draghi have fanned these expectations. At a news conference after the ECB's last meeting on May 8, Mr. Draghi said officials would be "comfortable" with easing policy at its June meeting, after seeing updated growth and inflation forecasts from ECB staff economists. In comments Monday at the Sintra conference, Mr. Draghi warned: "There is a risk that disinflationary expectations take hold" and cause households and companies to delay purchases and investments "in a classic deflationary cycle."

Inflation targeting: It's even worse than you thought ---Wolfgang Munchau has a nice article in the Financial Times on inflation targeting. I agree with much of what he has to say, but will offer mild criticism of two points. Here's how Munchau begins: Back in the 1990s inflation targeting was all the rage. I was a sceptic. I recall asking a senior central banker at the time what he would do if faced with stagflation - high inflation, low growth. Would he raise interest rates and force the economy into recession just to meet the target? He said the situation would never arise.  He was right. It did not. Inflation targeting became an improbable success. But it is failing now for reasons different from those I feared. I believe Munchau is wrong in believing he was wrong. In fact, as far as I can tell his 1990s fears have proven accurate. Consider the following facts:

  • 1. In July 2008 the ECB tightened monetary policy because inflation was running above target. This was done despite very sluggish growth in the eurozone.
  • 2. In mid-2011 the ECB tightened monetary policy because inflation was slightly above target. This was done despite the fact that the inflation mostly represented VAT increases for austerity purposes, as well as rising prices of imported commodities due to fast growth in places like China. The prices received by European producers were not rising rapidly.

The German Court does Europe a favour - The German Constitutional Court has been widely criticized for questioning the legality of the European Central Bank’s Outright Monetary Transactions (OMT) program. The OMT was a promise by the ECB in August 2012 to buy unlimited quantities of bonds issued by distressed European sovereigns, and was widely credited with reducing risk premia on Italian and Spanish sovereign bonds—thereby taming the resurgent euro area crisis. To the supporters of the OMT, the activist Court is once again taking a narrowly-defined position in the German interest while disregarding the greater vision of European integration. But what if the German Court is doing Europe a favour? The Court’s unease arises from the culture of quick-fixes on offer since the crisis started. By referring the case to the European Court of Justice, the German Court has created an opening for a more durable political and economic solution, necessary for the euro to survive.  At issue is a matter central to the design of the euro area. The authors of the Lisbon Treaty—the legal basis for the European Union—chose to create a common currency shared among its Member States, while leaving fiscal sovereignty at the national level. Fiercely jealous of their fiscal authority, the Member States were, and remain, unwilling to cede that authority, even while knowing the economic risks this entails.

France's Hollande calls for EU to reduce role - French President Francois Hollande today called for the European Union to reduce its role "where it is not necessary" after Eurosceptic parties made sweeping electoral gains across the bloc. Reacting to the spectacular success of parties like France's own National Front and the UK Independence Party in yesterday's European elections, Hollande acknowledged that the EU had become "remote and incomprehensible" for many of its citizens. "This cannot continue. Europe has to be simple, clear, to be effective where it is needed and to withdraw from where it is not necessary," he said in a televised address to the nation. Hollande's comments will be greeted with delight by Eurosceptics who accuse Brussels of meddling in national affairs, and also by the likes of British Prime Minister David Cameron, who also advocates a scaling back of the powers currently vested in the European institutions. But the signal that France would consider a reversal of powers to national governments will cause concern among those, particularly in Germany, who believe European integration still has further to run.

Merkel blows open race for top Brussels job - Angela Merkel, the German chancellor, blew open the race for the European Union’s most high-profile job on Tuesday night, saying a “broad tableau” of candidates should be considered for the European Commission presidency. The declaration by Ms Merkel, made after nearly five hours of talks in Brussels, deals a serious blow to the presumptive frontrunner in the race, former Luxembourg prime minister Jean-Claude Juncker, who had been the top candidate, for Ms Merkel’s own centre-right grouping in Brussels, the European People’s party. Mr Juncker was nominated by the EPP as its candidate for the commission presidency with Ms Merkel’s backing just two months ago and the EPP emerged as the largest party in the new parliament after last week’s elections, with 213 of the chamber’s 751 seats. But Ms Merkel said “automaticity . . . is not in the letter and spirit of the [EU] treaties”, and said more candidates than just Mr Juncker should be considered.

Leaders agree to review EU agenda at Brussels summit: EU leaders have agreed to re-evaluate the bloc's agenda after voters "sent a strong message", European Council President Herman Van Rompuy has said. He said the 28 member state leaders had asked him to launch consultations over who would run the European Commission. . He was speaking after a meeting in Brussels to discuss big election gains by populist and far-right parties. The results of the European Parliament election led to calls for an EU rethink by those leaders who suffered defeats. But despite gains by anti-EU groups, pro-European parties still won most votes overall. Tuesday's summit was the first opportunity for leaders of all member states to discuss the way forward after last week's polls.

Ukip storms European elections - Telegraph: The UK Independence Party has won a national election for the first time, taking the most votes and seats in the European Parliament elections. The Ukip victory came as anti-establishment parties advanced across the European Union, with the racist National Front winning in France. The win for Ukip, which was only founded in 1993 and does not have a single MP or council leader, is the biggest challenge to Britain’s main parties for decades. Ukip gained ten new MEPs and finished taking 27.5 per cent of the vote and 23 MEPs. Labour won 25.4 per cent, narrowly ahead of the Conservatives on 24 per cent. Scotland and Northern Ireland are still to declare their results. Both parties have 18 MEPs so far. The result was the first time since 1910 that a national election was not won by either the Conservatives or Labour.

Europe has an even bigger crisis on its hands than British a exit - If Europe's policy elites could not quite believe it before, they must now know beyond much doubt that they have lost Britain. This island is no longer part of the European project in any meaningful sense. British defenders of the status quo were knouted on Sunday. UKIP won 27.5pc of the vote, or 29pc after adjusting for the negligence - or worse - of the Electoral Commission in allowing a spoiler party with much the same name to sow confusion. Margaret Thatcher's Tory children are scarcely more friendly to the EU enterprise. Britain's decision to stay out of monetary union at Maastricht sowed the seeds of separation, as pro-Europeans fully understood at the time, though almost nobody expected EMU officialdom to clinch the argument so emphatically by running the currency bloc into the ground with 1930s Gold Standard policies and youth unemployment levels above 50pc in Spain and Greece, and above 40pc in Italy. European leaders must henceforth calculate that the British people will vote to leave the EU altogether unless offered an entirely new dispensation: tariff-free access to the single market along lines already enjoyed by Turkey or Tunisia; and deliverance from half the Acquis Communautaire, that 170,000-page edifice of directives and regulations that drains away sovereignty, and is never repealed. Ideological hardliners would prefer to see Britain leave rather tolerating any reversal of the one-way Monnet Doctrine, and some talk of shutting British goods out of the European markets. They are fanatics. Others know that the EU's global credibility would be shattered if one of its largest states - and twin-leader in projecting military power - were to walk away in disgust, as Germany's Wolfgang Schauble has repeatedly warned.

Categorising the poor: I have been meaning to write this post for a long time. It's the history of what we might call a “British disease” - the desire to judge people's motives rather than addressing their needs. For centuries, successive British social systems have recognised that there are people who cannot work,whether because they are too young, too old, too ill or too infirm. These people need to be provided for by others – in the first instance families, but where family support networks break down, support must be provided by the wider community. And for centuries, successive British social systems have also recognised the existence of people who are perfectly capable of working but are not doing so. Most of these people are unemployed due to economic circumstances. But a small minority are not working because they don't want to. And an even smaller minority pretend to be ill, infirm or unfortunate in order to claim benefits, often while working on the sly.

Bank of England’s Carney Tells Bankers to Clean Up Their Acts - Bank of England Gov. Mark Carney said Tuesday the misdeeds of the financial sector risk undermining public support for free markets and called on bankers to radically improve their behavior, a sign of simmering frustration in policy circles over a string of misdemeanors. In a forthright speech, Mr. Carney said recent scandals in currency and commodity markets highlight “a malaise in corners of finance that must be remedied,” saying such “corruption” has hurt trust in modern capitalism, according to the text of his speech. His remarks echoed criticism of the financial sector earlier Tuesday by International Monetary Fund Managing Director Christine Lagarde, who accused banks of delaying much-needed reforms to the financial system, which were agreed to in the wake of the crisis that tipped the world into recession in 2009. The officials’ broadside, delivered at an event in the heart of London’s financial district, underscores anger in policy circles over financial-sector wrongdoing and ties in with deepening concerns about economic inequality. Mr. Carney said in a speech to the Inclusive Capitalism Initiative that public support for modern free-market capitalism is weakening as a consequence of widening gulfs in income and evidence that some supposedly free markets were in fact not: For instance, big banks received huge taxpayer bailouts during the crisis. Separately, a global probe into the possible manipulation of foreign-exchange markets has currently led to the suspension of more than 30 traders and at least one salesperson at top dealing banks in the $5.3 trillion-a-day industry.

Bank of England governor: capitalism doomed if ethics vanish -- Capitalism is at risk of destroying itself unless bankers realise they have an obligation to create a fairer society, the Bank of England governor has warned.Mark Carney said bankers had operated a "heads-I-win-tails-you-lose" system. He questioned whether traders met ethical standards and said that those who failed to meet high professional standards should face ostracism.Speaking at a City conference, the Bank's governor warned that there was a growing sense that the basic social contract at the heart of capitalism was breaking down amid rising inequality. "We simply cannot take the capitalist system, which produces such plenty and so many solutions, for granted. Prosperity requires not just investment in economic capital, but investment in social capital."In a strongly worded critique of City behaviour in the run-up to the financial crisis, Carney said market radicalism and light-touch regulation had eroded fair capitalism, while scandals such as the rigging of Libor markets had undermined trust in the financial system. "Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself. To counteract this tendency, individuals and their firms must have a sense of their responsibilities for the broader system."

Paper money is unfit for a world of high crime and low inflation - Rogoff - Has the time come to consider phasing out anonymous paper currency, starting with large-denomination notes? Getting rid of physical currency and replacing it with electronic money would kill two birds with one stone. First, it would eliminate the zero bound on policy interest rates that has handcuffed central banks since the financial crisis. At present, if central banks try setting rates too far below zero, people will start bailing out into cash. Second, phasing out currency would address the concern that a significant fraction, particularly of large-denomination notes, appears to be used to facilitate tax evasion and illegal activity. Yes, there are some important arguments in favour of the status quo. These include a likely loss of seigniorage revenue – the profit central banks make by printing money – even if anonymous paper currency is replaced with purportedly anonymous electronic government currency. Even though central bank “profits” are turned over to national treasuries, the ability to skim off expenses without having to beg can help insulate central banks from political pressures. But the real costs to governments would be much less than the loss of seigniorage revenues might indicate, because they would gain revenue by making tax evasion more difficult. There would also be savings from crime reduction. Another issue is that society may want to preserve the right for individuals to make anonymous payments in certain activities, even if it is desirable to strip away the cloak of anonymity from those engaged in tax evasion and crime. Anonymity, for example, facilitates experimentation at the fringes of society with activities that might ultimately become legal (buying marijuana, for instance). The idea of finding creative ways to get around the zero bound on interest rates has been championed for more than a decade by Willem Buiter, a former UK Monetary Policy Committee member. Phasing out paper currency is by far the simplest. With electronic payments mechanisms becoming increasingly prevalent even in small transactions, and with the supply of paper currency overwhelmingly top-heavy with large-denomination notes, the case for keeping the currency status quo has weakened.

How Britain Calculates Its Hooker "GDP Boost": 60,879 Prostitutes x 25 Clients Per Week x £67.16 Per Visit -- First it was Italy which, as we reported last week, had decided to "boost" its GDP by adding the estimated impact of cocaine and hookers. And now, riding on the coattails of this economics gimmick designed solely to make the economy appear more solvent, it is Britain's turn, whose Office for National Statistics will also add add up the "contribution" made by prostitutes and drug dealers. According to the Guardian "for the first time official statisticians are measuring the value to the UK economy of sex work and drug dealing – and they have discovered these unsavoury hidden-economy trades make roughly the same contribution as farming – and only slightly less than book and newspaper publishers added together."