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

Saturday, May 17, 2014

week ending May 17

FRB: H.4.1 Release--Factors Affecting Reserve Balances--May 15, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

How the Fed Cornered the Long BondFed Treasury Holdings 5-7-2014 The above link should take you to a PDF showing the Fed’s System Open Market Accounts holdings of Treasury Bonds and Notes which the second link will tell you comprise $2.224 trillion of the total $4.017 trillion of SOMA Holdings, with that total including $1.631 trillion of Fannie and Freddie Mac MBS’s. With the remainder in a variety of other Federal securities. In other words the ‘AFTER’ of three rounds of QE. The PDF is extracted from a formatted Excel worksheet and shows all Fed SOMA holdings of Notes (1 to 10 years) and Bonds (20 & 30) by Maturity Date, Issue No, Coupon Rate, Par Value, and % (of Issue) Outstanding. As you scroll through the PDF a particular relationship jumps out at you: the higher the Coupon Rate the higer the % of Outstanding actually held by the Fed SOMA with a top limit apparently set at 70%. This isn’t entirely fixed, there is an additional layering of Long Term over Short Term with the Fed holding small percentages of all issues before jumping up to the 44.3% of the 9.25% Feb 15, 2016 and then taking progressively higher chunks of the Long Bonds maturing after that until holding peak as a percentage of issue with the 70% of the 8.13% 8/15/2019. Which percentage holds steady until the 8.00% 11/15/21 but then varies downward with holdings ranging mostly in the 55-70% range for issues between 2021 and 2042.Feel free to prod at the numbers in this data table as you will. But would add one little fact nugget for your consideration: the Fed rebates all profits to Treasury. And to the extent that those profits are driven by those 8 and 9% interest payments on Bond issues where the Fed has holdings ranging up to 70% the end result is that a very large percentage of debt service on the Long Bond, a dollar amount that is recorded as an Outlay on the Federal Budget is effectively rebated back to Treasury.

Update on QE and the ZLB - Here are the graphs of the estimated escape from the zero lower bound, inferred from treasury yields.  The schedule of the escape continues apace, in the face of the taper, suggesting that we might finally be heading back to normalcy. The first graph is the expected date of the first short term rate increase on a stationary calendar.   The second graph is the expected date of the first short term rate increase, measured in number of years from present.  As hopeful as this looks, it's also a reminder that we are basically just getting back to where we were 3 years ago, when QE2 ended.  How much further into a recovery would we be today if QE2 had been maintained until sustainable inflation pressures were established?

Yellen’s First Job: Plumbing - Janet Yellen’s first big project as Federal Reserve chairwoman is rewriting the central bank’s out-of-date strategy for exiting its easy money policies. After the Fed’s last policy meeting, the contours of a new strategy are slowly coming into shape, but there are still big questions for central bank officials to answer. Under the old plan, laid out in the minutes of the Fed’s policy meeting in June 2011, the Fed would start the process of tightening credit conditions by allowing some of its bond holdings to mature, thus shrinking the portfolio. It would then use special new tools to drain the ocean of reserves from the banking system and raise the interest rate it pays on bank reserves to push up short-term rates. Later it would sell its holdings of mortgage-backed securities.Under the new plan taking shape, as described by officials in recent weeks, the Fed’s bond holdings are likely to stay large for longer. Sales of mortgage bonds are likely out and it isn’t clear when the Fed will begin allowing bond holdings to mature and shrink its portfolio. A new tool to raise interest rates, called overnight reverse repurchase agreements or reverse repos, will become an important feature of the Fed’s efforts to tighten credit outside of the banking system. Overnight reverse repos are trades the Fed conducts with money market funds and other non-banks, in which it uses its securities portfolio as collateral for overnight loans on which it sets the interest rate. Testing of the Fed’s new tools is already ramping up. On Friday the central bank said it was ramping up tests of a program to drain reserves from the banking system called term deposits. Overnight reverse repo tests are likely to get larger too, and along the way officials are making small adjustments to the interest rates they pay on these programs to see how the market reacts.

Diminishing usefulness of the Fed Funds rate - As the massive over-liquidity in the banking system reaches new highs, the the amount that banks to borrow from each other continues to decline. In the past some banks borrowed from other banks in order to meet their reserve requirements, but these days excess reserves are so large, the need for interbank financing has dramatically diminished.This presents a problem for the Fed. The central bank's main policy tool for setting short-term rates involves targeting the Fed Funds Rate - effectively the average rate at which banks lend to each other overnight. With such lending having declined so dramatically (chart below), the Fed needs other tools to impact short-term rates on a broader scale. Otherwise the central bank would be attempting to influence rates by targeting a very narrow set of transactions among a few banks.  There are two other tools the Fed can potentially use as it prepares to exit the zero-rate policy. One is the interest it pays on excess bank reserves, which is currently at 25bp. If that rate increases, banks would be expected to increase the rates at which they lend out short term funds.  The other tool is the Fed's experimental reverse repo facility (fixed rate full allotment reverse repo facility or FRFA) - see post. The advantage of this program is that it broadens the set of counterparties beyond the banking system (see full list here), making a rate increase more effective. In particular FRFA gives money market funds a good alternative to treasury bills (3-month treasury bill now yields 3 basis points). If money market funds can increase yields by lending to the Fed (via FRFA), depositors will be able to earn more on cash. And that in turn will force banks to increase rates on deposits to keep customers from switching from savings accounts into something like the Vanguard Federal Money Market Fund. This program also allows the Fed to drain some of the bloated excess reserves by taking cash out of the system overnight.

Lockhart Expects Fed to Use Reverse Repos During Stimulus Exit - Federal Reserve Bank of Atlanta President Dennis Lockhart said he expects the central bank will use a reverse-repurchase program when it eventually begins to tighten monetary policy. “I am confident reverse repos will be among our tool bag and will therefore may very well have a role in how we try to influence short-term interest rates,” Lockhart said to reporters yesterday after a speech in Dubai. He doesn’t vote on policy this year. The Fed since September has been testing an overnight fixed-rate reverse repo program in preparation for any future withdrawal of stimulus. In a reverse repo, the central bank lends securities for a set period, temporarily draining cash from the banking system. At maturity, the securities are returned to the Fed, and the cash to its counterparties. Lockhart predicted the U.S. central bank will start raising interest rates in the second half of 2015 and end a bond-buying program by the end of this year. The Fed is purchasing $45 billion in bonds per month to hold down long-term interest rates and fuel economic growth. The world’s biggest economy will expand about 3 percent this year, which will probably prompt the Fed to stop its bond purchases in October or December, Lockhart said in a speech in Dubai. Policy makers last month trimmed monthly bond buying by $10 billion for the fourth consecutive meeting. The purchases have expanded the Fed’s balance sheet to $4.3 trillion.

Vacancies Pose Threat to the Fed - The Federal Reserve governor Jeremy C. Stein is chairman both of the internal committee that monitors financial markets for signs of trouble and of the committee that watches the way banks treat their customers.He is also the only remaining member of those committees.Mr. Stein has said that on May 28 he will step down from the Fed.A string of departures from the Fed’s seven-member board over the last year has left the central bank on the verge of operating with just three governors for the first time in its hundred-year history. Three nominees are awaiting Senate confirmation, but so are scores of nominees to other offices, and Senate Democrats say there is a real chance no vote will be held before Mr. Stein departs. The dwindling of its board is straining the Fed’s ability to manage its complex responsibilities, which extend well beyond its enormous economic stimulus campaign and its lead role in the overhaul of financial regulation It is also shifting the balance of power on the Fed’s most important group, known as the Federal Open Market Committee, which sets monetary policy. The March and April meetings of that committee — which includes board members and presidents of the 12 regional reserve banks — represented just the third and fourth times in history that a majority of the votes were cast by the regional presidents, who are allocated five votes on the committee on a rotating basis.  Unlike the members of the Fed’s board, who are presidential appointees, those officials are selected by business leaders in each district, and are not subject to Senate confirmation.

Fed Policy, Inflation and the ‘New Normal’ - WSJ - A running argument among Fed watchers, investors and policymakers is when, if ever, the Fed will return to a “normal” policy.  One sign of impending normality is already here: the Fed’s gradual phase-out of its latest QE bond-buying program, which has been declining by $10 billion a month since the beginning of this year. Beyond that, there is no consensus of what the “new normal” will look like. Some want the Fed to stick to hard targets, such as its former 6.5% unemployment trigger for raising interest rates; others want some form of the “Taylor rule,” an equation with different weights on unemployment and inflation. Still others want to return to a policy centered on monetary aggregates based on Milton Friedman’s long-held theory that inflation is always a monetary phenomenon. While the markets seem to fret about every monthly report on any number of inflation measures, the Fed tries to stay at least a bit ahead of the game by focusing on possible canaries in the inflation coal mine. Labor costs account for roughly two-thirds of total output, so two such canaries that Federal Reserve Chairwoman Janet Yellen and her colleagues will be closely watching are a noticeable uptick in either or both the quit rate” of employees–workers don’t quit unless jobs at higher wages are readily available elsewhere–and a moving average in changes in unit labor costs (wage increases after taking account of productivity improvements) over several quarters, because such costs bump around a lot by quarter.  Quit rates have risen only modestly since the onset of the recession. As of the end of 2013, they still remained below 2008 levels across all industries and geographic regions, while unit labor costs have held steady so far since the recovery began in 2009.Don’t look for any hard-and-fast monetary rules, with specific economic targets or dates, like those used by the Fed to calm investors and markets during the sluggish years since the Great Recession. Monetary policy before the crisis was dependent on data and that’s what the new normal will look like too. But certain indicators are likely to be more important than others.

Why Inflation Matters in Setting Monetary Policy - St. Louis Fed -  The Federal Open Market Committee (FOMC) currently interprets its price stability mandate as 2 percent annual inflation, as measured by the personal consumption expenditures price index. The chart below displays annual inflation at a monthly frequency since January 2000. If we remove food and energy (the most volatile components in the price index), we get a smoother measure of inflation, often called core inflation. Focusing on core inflation gives us a better idea of the effects of monetary policy in the medium and long runs. The chart shows core inflation averaging about 2 percent annually until the end of 2008, right in the middle of the last recession. Since then, core inflation has been persistently below the 2 percent annual rate. More recently, since the beginning of 2012, core inflation has been steadily decreasing toward a 1 percent annual rate. (Note that the overall inflation rate, including all components, exhibits a similar trend.) This decline can be explained by a marked deceleration in the inflation rate of nondurable goods, which itself is arguably unrelated to recent developments in monetary policy.1 The successful implementation of an explicit inflation target relies on the credibility of a central bank’s ability to meet the announced target, at least on average over the medium run. In this sense, it is as problematic to let inflation run up persistently above the stated target as it is to let it run down. Thus, policymakers not only need to manage the supply of money, but also need to keep an eye on the demand for money. In particular, an understanding of underlying trends in the price level is necessary to effectively forecast inflation over the medium run, and thus, forecast monetary policy.

Already in the Lowflation Trap - Paul Krugman - Dean Baker, reacting to Neil Irwin, feels that he needs to make the perennial point that zero inflation is not some kind of economic Rubicon. Below-target inflation is already a problem, and a very serious problem if you don’t have an easy way to provide economic stimulus. Think about it. Suppose that you have a 2 percent inflation target, but you’ve cut interest rates close to zero and the inflation rate is 1 percent and falling. Then you’re already experiencing a cumulative process that will pull you deeper into the trap unless you get lucky. How so? Actually, a couple of mechanisms. As inflation falls, real interest rates will rise, tending to depress the economy further. Also, debtors will find their debt growing because inflation isn’t as high as they expected, so that you have a debt-deflation cycle even if you don’t yet have deflation. So Europe’s low and falling inflation isn’t a problem because it might turn into deflation — it’s a problem because of what it’s doing right now.

Key Inflation Measures Show Increase, but still Low year-over-year in April -  The year-over-year change increased in April, but it is important to note that CPI declined in April 2013 (and core CPI was essentially unchanged) - and April 2013 was dropped out of the calculation this month so some increase in the year-over-year change was expected. Looking forward, I think inflation (year-over-year) will increase a little this year as growth picks up, but too much inflation will not be a concern this year. The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:  According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.3% (3.2% annualized rate) in April. The 16% trimmed-mean Consumer Price Index also increased 0.2% (2.9% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.  Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.3% (3.2% annualized rate) in April. The CPI less food and energy increased 0.2% (2.9% annualized rate) on a seasonally adjusted basis. Note: The Cleveland Fed has the median CPI details for April here.

Cleveland Fed’s Expected Inflation Gauge Stirs Toward Higher Readings - While the path has been uneven, data from the Federal Reserve Bank of Cleveland are showing a modest uptick in inflation expectations in recent months. The bank said Thursday the public’s expected rate of annual inflation 10 years out was 1.87% during the month of May, down from 1.88% in April but up from 1.74% in March and 1.77% the month before.Those readings remain at less than the Fed’s 2% target and suggest that by and large, the public sees no imminent threat that inflation will shoot to more than that goal. But inflation expectations are drifting higher. Consider that in May 2013, expected inflation was 1.41%. The Cleveland Fed estimate of expected inflation is based on a formula using a number of different sources, including market measures drawing on real-money bets by traders and investors. The Cleveland Fed report was released the same day the Labor Department said its consumer-price index rose 2% in the 12 months ended in April. The Fed watches but doesn’t base its main inflation judgments on the CPI. Instead, officials prefer to look at the Commerce Department’s personal consumption expenditures price index. In its most recent reading, the March PCE price index was up a mere 1.1% from the same month in 2013.  In a speech in April, Chicago Fed President Charles Evans explained how he translates the difference between the CPI and PCE inflation readings. “The CPI tends to run about a quarter to a half of a percentage point higher on average than the PCE index because of its different market-basket composition and statistical construction. Accordingly, it is much more accurate to describe the Fed’s inflation objective in terms of the CPI to be roughly 2-1/2%,” he said. Still, given what happened with the CPI, some economists are becoming more watchful about the outlook for prices.

Cleveland Fed: Slow Economic Growth is Helping Hold Down U.S. Inflation - It’s one of the big questions hanging over the U.S. economy: Why is inflation so subdued? Prices and wages been have sluggish since the 2007-2009 recession, and especially so in the past couple of years. There are signs inflation could tick up soon, but it remains low. It undershot the Federal Reserve’s 2% target for the 23rd consecutive month in March according to the central bank’s preferred measure, the personal consumption expenditures price index. Economists at the Cleveland Fed have a theory. The current bout of low inflation is the product of multiple factors including slow economic growth, slack in the labor market and “unexpected, temporary events that are specific to inflation,” wrote Edward S. Knotek II and Todd E. Clark in an essay accompanying the regional bank’s annual report. They estimate about half the slowdown in inflation during 2012 and 2013 can be explained by slower-than-expected growth and stubbornly elevated unemployment that “put downward pressure on inflation.” A quarter of the fall can be pegged to “labor costs, import prices and energy prices.” The remaining 25% or so is due to temporary factors such as a sharp slowdown in health-care inflation. Inflation is likely to move up in the coming months and years, buoyed by stable expectations and an improving economy, according to Mr. Knotek and Mr. Clark. “The most likely outcome for inflation is not further disinflation or outright deflation, but rather a gradual increase in the rate of inflation,” they wrote. They said they are “reasonably confident” inflation will rise gradually over the next few years toward the Fed’s 2% target. “However, though the U.S. economy has begun to regain its footing, the inflation forecast could change if unexpected events occur. Our recent experience with very low inflation has highlighted the need to guard against inflation rates that are too low as vigilantly as we guard against inflation rates that are too high.”

Financial Market Outlook for Inflation - Fed Economic Letter - Prices of special financial instruments called inflation derivatives can provide valuable insight into investors’ views of future inflation. Projections from inflation swap rates suggest inflation will remain low for some time and return only slowly to levels consistent with the Federal Reserve’s notion of price stability. Inflation caps and floors give evidence that investors seem less uncertain about inflation forecasts than in recent years, and that they perceive a favorable inflation outcome as increasingly likely.

U.S. Economy Contracted In First Quarter, Latest Figures Show - A first-quarter contraction is looking more and more likely.  A couple weeks ago, the Commerce Department said U.S. economic output expanded at a seasonally adjusted annual rate of 0.1% in the first three months of the year. A near-stall for the economy, for sure, but at least it wasn’t worse. That initial estimate was the government’s best guess, using the data available at the time. Based on more up-to-date figures, including the March trade data released last week, private forecasters now expect gross domestic product contracted in the first quarter for the first time in three years. The latest evidence came Tuesday, when the Commerce Department released reports on retail sales and business inventories. Retail sales in February and March were revised up, but business inventories grew less in March than the agency had assumed in its GDP calculations.Incorporating the new data, J.P. Morgan Chase on Tuesday estimated GDP contracted at a 0.8% rate in the first quarter. Macroeconomic Advisers put the contraction at 0.7%. Barclays Capital predicted a 0.6% decline. Pierpont Securities estimated output fell at a 0.4% rate. Action Economics estimated a 0.2% decline.  Official word will come May 29, when the Commerce Department releases a second estimate for first-quarter GDP. A third estimate will come June 25, just days before the second quarter comes to an end.

Days After Hiking Its Q2 GDP Forecast To 3.9%, Goldman Cuts It To 3.5% -- It was just last Friday when we reported that "Humiliated On Its Q1 GDP Prediction, Goldman Doubles Down, Boosts Q2 Forecast To 3.9%."The primary catalyst revealed by Goldman, which previously had a 3.0% Q1 GDP forecast before it cut it to -0.5%, was that "Consumer spending will probably grow strongly. Q1 consumer spending rose at a solid pace, but on fairly low quality composition. Higher utilities spending due to colder weather and Affordable Care Act-related healthcare spending accounted for the majority of growth. However, the trajectory of spending heading into Q2 was positive, as March core retail sales rose a strong 0.8% and we forecast a solid 0.5% gain in April based on data currently in hand." Oops. So much for the "positive trajectory" following today's abysmal retail sales report which actually saw the control group print negative!  Sure enough, moments ago Goldman just cut its just recently boosted Q2 GDP from 3.9% to 3.5% - the first of many such cuts.  : April retail sales were a substantial disappointment, although upward revisions to March helped soften the surprise. Separately, import prices were lower than expected in April, reflecting declines in both food and energy prices. We reduced our Q2 GDP tracking estimate by four-tenths to 3.5%, and increased our Q1 past-quarter tracking estimate by two-tenths to -0.3%.

Quarterly GDP Consensus Estimates vs. Actual GDP 2009 to Present - They often say even a broken clock is right twice a day. In this case, that is exactly two more times being correct than an economist or investment firm trying to accurately predict GDP for the prior 21 quarters!  I am by no means advocating that it is an easy task trying to predict what the economy will do in the next quarter or over a fiscal year, but when the forecasts compared to reality are so wrong time and time again, why do we place so much emphasis on forward looking data that is just flat out incorrect? Over the last several years, I have followed and made notes of everything related to GDP because I am constantly perplexed as to how a broad range of economist (consensus) are constantly cutting and revising GDP estimates. For instance, just last Friday Goldman Sachs hiked Q2 GDP to 3.9%. This is on the heels of an awful Q1 that was blamed on everything from weather, deteriorating economic environment or even just a flat out surprise and getting caught flat footed. This morning, 2 business days later, they revised their Q2 GDP estimate to 3.5%. What changed in the last 2 days that would warrant a higher revision and then ultimately a lower one to 3.5%. If it's going to be wrong, then why not just stick with your original estimate and not continue to move the bar up and down? Let's take a look at the last 21 quarters to help illustrate my point. After looking at all of the consensus estimates and comparing them to reality, I found that every single quarter has been wrong. Not saying that one or two economists didn't get it right, but overall consensus has been flat out wrong! 21 quarters and 0-21. These are terrible statistics by any measure. In addition, the average miss in either direction has been $1.25 Billion dollars. All things considered, that is a huge miss from a percentage standpoint. I can't help but think that perhaps a better way to forecast GDP going forward is to throw darts at GDP estimates on a dart board. My point being, is that it can't be any worse than 0-21 over the last 5 years.

Putting the Dismal Back in Econ -- I’m hearing a fair bit of optimism re the current economy.  Many of the folks with whom I interact on this stuff are feeling better about where things are headed, with unemployment down, households looking pretty deleveraged, job growth at a decent clip, and the weather-beaten data flow improving. As Mark Zandi wrote in his (invaluable) monthly macro report: Awful winter weather, the expiration of the emergency unemployment insurance program, and slower inventory accumulation hurt growth at the start of the year. However, as their impact fades, the strength of the underlying economy is increasingly evident. OK, I can see that.  And I don’t want to be the skunk at the garden party.  But in the interest of contrarianism, this seems like a good time to list some downside risks.  Feel free to add your own in comments.

  • –“Secular stagnation” or the idea of persistently weak demand. 
  • –Speaking of that, the steady decline in the labor force is another risk, both at the micro (um…working-age people need paychecks) and macro level (output growth=productivity growth + labor force growth).
  • –Housing (which Zandi, who covers the sector closely, worries about as well in the report noted above) has slowed in recent months.  You can look at indicators like the huge slide in homeownership rates coming off the bubble or the historically low share of housing investment in GDP—around 3% versus an historical average a bit below 5%–and decide they’re poised to bounce back as there’s deep untapped demand for new household formation. 
  • –Fiscal headwinds are down but they’re not out, and Congress continues to block needed investment as well as help for the long-term unemployed.  In fact, the US Congress is a pretty worrisome economic risk factor.
  • –Wages remain weak as I’ve shown in various places and dis-inflation is also a concern.

Richard Alford: Not Only Are Economists in Policy Roles Bad at Forecasting, They Also Do a Poor Job of Allowing for Error - Forecasting is a necessary component of macroeconomic policy formation for the simple reason that macroeconomic policies act with “long and variable lags.” If policy is based upon a macroeconomic forecast that proves to be inaccurate, then the policy prescription will become inappropriate over the forecast horizon and degrade economic performance. Consequently, understanding the odds and possible impact of forecasting error should be a important element of policy design.   This post assesses the success of both private and official sources in forecasting turning points in the economy, which is one way to evaluate risks to the forecasts and policy. It concludes the macroeconomic record of forecasting turning points is poor, as illustrated in: “There Will Be Growth in the Spring”: How Well do Economists Predict Turning Points?. It then addresses whether this failure matters, that is, whether the ability to forecast turning points in the economy is a sound benchmark. The post closes with a number of implications of the inability to forecast turning points for macroeconomic policy.

Russia Dumps 20% Of Its Treasury Holdings As Mystery "Belgium" Buyer Adds Another Whopping $40 Billion - Back in mid-March, there was a brief scare after the start of the Ukraine conflict, when Fed custody holdings plunged by a record $104.5 billion (if promptly bouncing back the following week), leading many to believe that Russia may have dumped its Treasurys, or at least change its bond custodian. We noted that we wouldn't have a definitive answer until the May TIC number came out to know for sure how much Russia had sold, or if indeed, anything. Moments ago the May TIC numbers did come out, and as expected, Russia indeed dumped a record $26 billion, or some 20% of all of its holdings, bringing its post-March total to just over $100 billion - the lowest since the Lehman crisis. But as shocking as this largely pre-telegraphed dump was, it pales in comparison with what we first observed, is the country that has quietly and quite rapidly become the third largest holder of US paper: Belgium.

Treasury says debt payments could be prioritized in default scenario (Reuters) - The Treasury Department has admitted for the first time that the government is technically capable of prioritizing payments if Congress triggers a default crisis by failing to raise the country's borrowing authority. In a letter to Republican Congressman Jeb Hensarling, a senior aide to Treasury Secretary Jack Lew said the New York Federal Reserve, which pays the principal and interest on government debt, would be "technically capable" of continuing to make those payments while Treasury halted other payments if the United States was unable to borrow more money. The official stressed, however, that such a system is untested. Lew and other Treasury officials insisted during last October's debt limit crisis, when the U.S. came close to defaulting on some government obligations, that "prioritization" - a contingency strategy where bond payments are made while other outlays such as Social Security payments are halted - was not feasible. true In testimony to Congress, Lew said last October the government's payment systems weren't designed to decide who gets paid and who doesn't. "It would be chaos," Lew told Congress. During the debt ceiling crisis last year, when House Republicans threatened not to extend the country's borrowing authority, Obama administration officials were at pains to dismiss the idea of any contingencies, lest that encouraged enough lawmakers to take the country over the brink and into default.

When was the last time treasury yields were this low? - We've had an unprecedented compression in US (and global) government bond yields in a short period of time. Here is one surprising fact: Treasury yields are now at the level they were during the US government shutdown. The level of uncertainty has diminished dramatically since then and the employment picture continues to improve (see Twitter post). Yet here we are again. This time however it's the global chase for yield and expectations of ECB's monetary easing driving rates to new lows.

Debts, Deficits and Social Security  - With the release of Tim Geithner’s new autobiography the old quarrel about whether Social Security does or even can add to “the deficit” has cropped up again. So rather than weigh in let me start from a more neutral spot. CBO produces a document called the Montly Budget Review and in Nov 2013 it carried this title: Monthly Budget Review—Summary for Fiscal Year 2013 The introductory paragraph of the Summary of this Summary reads as follows: The federal government incurred a budget deficit of $680 billion in fiscal year 2013, which was $409 billion less than the deficit in fiscal year 2012. The fiscal year that just ended marked the first since 2008 that the deficit was under $1 trillion. As a share of the nation’s gross domestic product (GDP), the deficit declined from 6.8 percent in 2012 to 4.1 percent in 2013. (The deficit was 1.1 percent of GDP in 2007, prior to the recent recession.) and in turn was illustrated with the following graph: Fiscal Year Totals  Now in the normal course of reporting CBO gives figures for any number of ‘deficits’ including ‘on-budget deficit’, ‘off-budget deficit’, and ‘primary deficit’. But here they simply reference THE ‘deficit’ without qualification. So which of the three above adjectivally modified ‘deficits’ is CBO using in this Summary of its Summary of Fiscal Year 2013? Well none of them. Instead it is using a metric which by some measures no longer exists, at least under some readings of current law. Which has led to untold confusion. Confusion which I hope to unravel a bit under the fold. Defenders of Social Security generally claim that it does not ‘contribute’ to the deficit and indeed can not by law. And they make a fine case, certainly linguistically. Because you would think that the right way to measure THE ‘budget deficit’ would be to include the items that were ‘on budget’ and exclude the items that were ‘off budget’. Because otherwise why use the terms ‘on’ and ‘off’ in relation to the budget to start with? Now it turns out that under current law there are two federal programs that are ‘off budget’ – Social Security and the Post Office. So the case would seem to be open and shut “What part of off-budget don’t you understand?”

US taxes and inequality  - Included in CEA chair Jason Furman’s thoughtful speech on inequality was this assessment of US tax policy in the past five years: Since 2009 the United States has made three sets of permanent (or semi-permanent) changes to its tax code relative to the policies that were previously in effect:

    • (1) many of the high-income tax cuts that were initially passed in 2001 and 2003 were allowed to expire in 2013;
    • (2) a new 0.9 percent tax on earnings dedicated to Medicare, and a parallel 3.8 percent tax on unearned income, both for high-income households, went into effect in 2013; and
    • (3) tax credits for lower-income households with children and college students were expanded for 16 million households by an average of $900 (these expansions expire after 2017, but President Obama has proposed to make them permanent).

Taken together these policies will reduce the Gini coefficient, a standard measure of inequality, by 0.6 index points—the equivalent of about half a decade of increased inequality. The result doesn’t mean that the Gini coefficient has fallen by 0.6 index points (income inequality has declined) in absolute terms, only relative to the counterfactual of not having enacted these policies. In the meantime other forces have been pushing in the other direction.

Are skyrocketing rents and increased food prices behind the decrease in tax withholding?: Earlier today in my Weekly Indicator column I highlighted the anomaly of an outright YoY decline in tax withholding. The Treasury Department's daily tax withholding report isn't an estimate like nonfarm payrolls or GDP that is subject to substantial revision. It is bedrock hard data. And just by virtue of nominal average wage increases YoY, it should be up about 2%. Instead, since April 1, the daily reports have been consistently negative, and now the 20 day average has turned negative as well. Almost all of the other incoming weekly and monthly economic reports have been quite positive. For example, consumer spending has really picked up this spring. More particularly, April nonfarm payroll growth was nearly +300,000. So what's going on? It could be that the jobs numbers for the last couple of months are going to be revised downward. Big time. But we've also just hit a post-recession low in layoffs, via initial jobless claims. Has hiring really screeched to a stop? Here is my preliminary guess, and it is only a guess, but this story fits the data. One way to get a decrease in withholding taxes in the face of increasing jobs, is if workers decide to take more deductions. In essence workers would be trading less of a refund next year for more cash in the pocket now.

What are Taxes For? The MMT Approach - Randy Wray - Previously we have argued that “taxes drive money” in the sense that imposition of a tax that is payable in the national government’s own currency will create demand for that currency. Sovereign government does not really need revenue in its own currency in order to spend. This sounds shocking because we are so accustomed to thinking that “taxes pay for government spending”. This is true for local governments, provinces, and states that do not issue the currency. But in the case of a government that issues its own sovereign currency without a promise to convert at a fixed value to gold or foreign currency (that is, the government “floats” its currency), we need to think about the role of taxes in an entirely different way. Taxes are not needed to “pay for” government spending. Further, the logic is reversed: government must spend (or lend) the currency into the economy before taxpayers can pay taxes in the form of the currency. Spend first, tax later is the logical sequence. Some who hear this for the first time jump to the question: “Well, why not just eliminate taxes altogether?” There are several reasons. First—as we said last time–it is the tax that “drives” the currency. Further, the second reason to have taxes is to reduce aggregate demand. If we look at the United States today, the federal government spending is somewhat over 20% of GDP, while tax revenue is somewhat less—say 17%. The net injection coming from the federal government is thus about 3% of GDP. If we eliminated taxes (and held all else constant) the net injection might rise toward 20% of GDP. That is a huge increase of aggregate demand, and could cause inflation. Ideally, it is best if tax revenue moves countercyclically—increasing in expansion and falling in recession.  The third purpose is to discourage bad behavior: pollution of air and water, use of tobacco and alcohol, or to make imports more expensive through tariffs (essentially a tax to raise import costs and thereby encourage purchase of domestic output). These are often called “sin” taxes—whose purpose is to raise the cost of the “sins” of smoking, gambling, purchasing luxury goods, and so on.

Unemployment Extension Could Get Tied to Tax Cuts, Senator Says: Sen. Dean Heller may try to attach a long-stalled unemployment extension to an $85 billion package of corporate tax breaks Senate Democrats plan to bring to the floor next week. “Yes,” Heller said, when asked about whether he is considering trying to attach the five-month unemployment benefits extension to the tax extenders bill. “We are taking a look at favorable pieces of legislation out there that we can attach something to,” he continued. Heller, R-Nev., is the leading Republican backer of an unemployment extension that passed the Senate, but has been unable to convince Speaker John A. Boehner, R-Ohio, to take it up. The Senate is expected to take up the tax bill as soon as next week. The Finance Committee cleared the measure in early April.The extenders bill is considered a must-pass measure. The legislation resurrecting more than 60 expired corporate tax breaks has bipartisan support and could represent one of the best chances for the unemployment bill to make it to the president’s desk.

Report: The Big Money in Tax Breaks Continues: The federal tax code includes hundreds of tax breaks (called tax expenditures within the federal government) meant to encourage activities that lawmakers deem beneficial to society. From the perspective of the government, tax breaks are no different from any other kind of government spending. In both cases, the U.S. Treasury has less money, and a government activity – whether subsidies for home buying, repairs to an interstate highway, or tuition support to college students – receives funding. Big Spending, Little Oversight – with Trillions at Stake In 2013, the cost of tax breaks was equal to the entire U.S. discretionary budget [1]. However, the discretionary budget is subject to an annual appropriations process, where Congress debates the proposed spending. Tax breaks, on the other hand, remain on the books until lawmakers modify them. As a result, over a trillion dollars a year in lost revenue – more than 1.6 times the 2013 budget deficit – goes largely unnoticed.

Senate Blocks $85 Billion Tax Cut Bill Because It Would Have Helped Wind Energy -- An $85 billion tax package that included reviving a key subsidy to the wind energy industry was struck down by the Senate on Thursday, after Majority Leader Harry Reid refused to let Republicans offer an amendment to kill the wind subsidy altogether.  Only one Republican, Sen. Mark Kirk (R-IL), voted with Democrats to extend the tax package, which would have revived 50 tax subsidies for numerous industries after the Senate let them expire at the end of 2013. Among other things, Republicans had wanted to offer amendments to strike the Wind Production Tax Credit from the Senate package, a $13 billion tax break to the wind industry to help them compete with fossil fuels.  Reid, however, filed cloture on the bill Wednesday, using a procedural move that blocks the minority party’s ability to call up amendments. Republicans then blocked the entire bill from moving forward.“We have a tax bill here that members from both sides want to improve and support. Yet we don’t get a chance to amend it,” Senate Minority Leader Mitch McConnell (R-Ky) told The Hill.  “Republicans can’t take ‘yes’ for an answer — they just voted against the second bipartisan bill in less than a week,” Reid said. He suggested that Republicans might be hearing from “their friends down on K Street” about voting against tax cuts.

Congress moves to turn back taxes over to debt collectors - The Internal Revenue Service would be required to turn over millions of unpaid tax bills to private debt collectors under a measure before the Senate, reviving a program that has previously led to complaints of harassment and has not saved taxpayers money. The provision was tucked into a larger bill, aimed at renewing an array of expired tax breaks, at the request of Sen. Charles E. Schumer (D-N.Y.), whose state is home to two of the four private collection agencies that stand to benefit from the proposal.  It requires all “inactive tax receivables” to be assigned to private debt collectors if the IRS cannot locate the person who owes the money or if IRS agents are unable to make contact within a year. Some taxpayers would be spared the barrage of notices and phone calls, including innocent spouses, military members deployed to combat zones and people “identified as being deceased.”  But bereaved relatives could find themselves under siege for unpaid estate taxes under the proposal. So could people who incur a tax debt under the new Affordable Care Act — either because they owe a penalty for not buying health insurance or because the IRS was too generous in estimating the size of their health-care tax subsidy.

Billionaires Are Just Different From You and Me - My favorite story about billionaires is the one reported by David Cay Johnston about Sheldon Adelson. Adelson apparently owns two 747 jumbo jets, one of which has a skate ramp in it so his grandkids can skateboard while flying. But this story about Wall Street billionaire Steve Cohen and gambling billionaire Steve Wynn is pretty close. Page Six revealed he bought Picasso’s “Le Rêve” from casino mogul Steve Wynn last year for $155 million, after it was repaired following an accident in which Mr. Wynn put his elbow through the canvas. Money just means something different to these people. It’s not that they have more of it, it’s just that their problem is that they have too much of it. They want to dominate other people, but once you’ve run up the score by billions, where is there to go? Don’t answer that, I don’t want to know.

Piketty’s Wealth Tax is Real, and It Works - As the Piketty-train rolls on it leaves behind it a trail of confusion in economic circles about the proposition to reduce inequality via a global wealth tax. Economic thinking, it seems, floats on the political tide. The authors of this paper in 2006 noted that: …at present there appears to be little interest in the net wealth tax. In recent years this tax has been practically excluded from any discussion or doctrinal debate on tax reforms, and over time has fallen into disfavour. Eight years and one financial crisis later, the tide has turned dramatically in favour of using the tax system as a tool for creating a desirable wealth and income distribution. Many sceptics, however, argue that a wealth tax, either national or globally, is technically or politically infeasible. The basic reasoning is as follows:…it is impossible within the U.S., never mind the world, as the top 0.1% own the political machinery. Why would anyone who owns the political process agree to tax themselves? It’s a good question. But it merely suggests we look deeper at the heart of the matter. I like to use one of Matt Bruenig’s favourite lines, “imagine people did things they already do”, as a starting point. The point being that if the top 0.1% control the political system, then it should be impossible at all points in time to tax wealth. Unless you are Spain, and it’s 1977. Or France and it is 1981. Both these countries brought in annual taxes on wealth, with progressive scales just like income taxes. In France 1.5% of tax revenue came from their wealth tax in 2007, while in Spain around 0.5% of tax revenues are raised from such taxes.

What Piketty’s Neoliberal Critics Get Wrong  - [Part 2 to Geier’s earlier post, “What Piketty’s Conservative Critics Get Wrong,” here. – ed.] As a genre, the reviews of Thomas Piketty’s Capital in the Twenty-First Century have been fascinating in what they reveal about the status of the economic inequality debate in this country.  Conservative reviewers have made it clear that they believe that inequality is not a major problem in this country, and that anyone who worries that it might be is a freedom-hating Marxist. Liberals and leftists who reviewed the book, on the other hand, are unanimous in the view that inequality poses a grave threat—though a number of them part company with Piketty’s proposed policy solutions, and some have raised provocative questions about key questions that are under-analyzed in the book (such as what forces determine the rate of return on capital). Until recently, however, there was one major group that hadn’t visibly weighed in on Piketty’s brilliant and disturbing book, and that is the neoliberal policy elites that dominate the Democratic Party establishment.  Among the most important members of the neoliberal mafia are former Treasury Secretary Larry Summers, and Jason Furman, who is currently the chairman of President Obama’s Council of Economic Advisers. In the past week, both Furman and Summers have delivered substantive critiques of the book.

Has America’s Use of Finance as a Foreign Policy Tool Backfired? --  Yves Smith -  From the 1980s onward, one of the major aims of American foreign policy has been to make the world safer for US investment bankers. That might seem like an exaggeration until you look at the priorities of American economic policy as well as the actions of US-dominated international institutions like the World Bank and the IMF. The World Bank, though its International Finance Corporations, pushed emerging economies to set up capital markets. The posture was that more open markets were always better.  Now that we’ve had repeated tsunamis of hot money flows in and out of small economies wreak havoc with them, conventional wisdom among development economists is more along the lines of “protectionism in emerging economies is desirable so they can develop companies and/or export sectors that are capable of competing internationally, and also serve domestic markets, so that the economy isn’t too export dependent. Open capital markets produce too much volatility in interest and foreign exchange rates and thus undermine internal development.” Similarly, the US has pressed advanced economies for more open financial markets. America’s insistence that Japan deregulate its banking system was a prime driver of its 1980s bubble (I had a bird’s eye view of how the Japanese banks went full bore into all sorts of products and markets they didn’t understand and incurred huge losses as a result).

Geithner’s Other Ad Hominem Attacks on Barofsky - Bill Black -- In my first article on Timothy Geithner’s book entitled “Stress Test” I exposed the revealing and disgusting nature of his bizarre ad hominem attack on Neil Barofsky, the Special Inspector General for the Troubled Assets Relief Program (SIGTARP) for the great sin of providing his law enforcement officers (LEOs) with side arms and protective vests – an action any responsible leader of SIGTARP would make a priority.  In this second article I discuss very briefly his other two ad hominem attacks on Barofsky and his staff. This attack constitutes further proof of our family rule that it is impossible to compete with unintentional self-parody.  Geithner complains: “Barofsky’s desire to prevent perfidy was untainted by financial knowledge or experience.” The following passage is taken from Barofsky’s (out of date) speaker’s bio: “Prosecutorial Background. Prior to assuming his role as SIGTARP, Neil Barofskywas a federal prosecutor and the assistant United States attorney for the southern district of New York City. In that role he tried more than a dozen criminal cases and conducted myriad arguments. During his time as a prosecutor, he founded a new prosecutorial group devoted to the investigation and prosecution of mortgage-fraud-related crimes and acted as its senior trial counsel.

Charges of Lies Swirl Around Tim Geithner’s New Book, “Stress Test” -- Pam Martens - Tim Geithner, former head of the New York Fed during the lead up to the Wall Street melt down, then Secretary of the Treasury in President Obama’s first term, is undergoing his own version of a big bank stress test: does he have the capital to survive the storm he has stirred up with his new, revisionist history book, Stress Test: Reflections on Financial Crises. Geithner’s book has barely made it to the bookstore shelves (it’s slated for official release today) and already he’s been called a liar by R. Glenn Hubbard, Dean of the Columbia Business School; Geithner is effectively calling author Ron Suskind a liar in the book; and the book’s attack on Neil Barofsky, former Special Inspector General of the Troubled Asset Relief Program (TARP) has warranted a strong response from Barofsky where he says he doesn’t believe former Treasury Secretary Hank Paulson made the remarks that Geithner has attributed to him against Barofsky. Politico’s MJ Lee explains the ruckus between Hubbard and Geithner. Hubbard was the head of the Council of Economic Advisers during the presidency of George W. Bush and advisor to Mitt Romney during his 2012 campaign. Geithner says in the book that Hubbard told him “Well, of course we have to raise taxes — we just can’t say that now.” Hubbard told Politico this statement “just happens to be a lie.”

Private Equity Fraud: How Firms Are Ripping Off Their Investors -- When liberals talk about economic regulation, they often use eye-rolling abstractions like “accountability” and “transparency.” What do those things even mean? How are those objectives enforced, and what would this enforcement even look like? Luckily we have a real-time example of what it all means, courtesy of Dodd-Frank and the SEC. These results were unveiled last week when Andrew Bowden, the director of the SEC’s examinations office, gave a speech titled “Spreading Sunshine in Private Equity.” The big takeaway: Half of the SEC’s exams find corruption in the way fees and expenses are handled. Or as Bowden forcefully describes it: “When we have examined how fees and expenses are handled by advisers to private equity funds, we have identified what we believe are violations of law or material weaknesses in controls over 50 percent of the time.” As Bowden notes, the business model of private equity, which manages almost $3.5 trillion dollars of our nation’s assets, has unique conflicts of interest built into the structure. Private equity firms use their client’s money to do leveraged buyouts of companies. Since this gives them major operating control of both the investment and a pool of other’s investment money, there are significant opportunities to shift costs and otherwise skim off their investors. Bowden’s speech has numerous examples. One scam is to fire employees of the private equity firm and rehire them immediately as “consultants.” The investors are responsible for consultants’ salaries, where private equity employees are paid out of their own pockets. Another is taking what most private equity investors believe to be part of management fees, things like legal and compliance costs, and billing their investors for them without the investors properly knowing it. A third is private equity firms lying about the valuation methods they use to tell investors about the returns they make each year. All of these are ways for private equity firms to take money from their investors for themselves.

The Average Stock Is In A Bear Market - Business Insider: There are no perfect stock market indexes that'll give you a complete picture of the state of the market.  But the fact that the S&P 500 is down just 1% from its all-time high of 1,897 belies the fact that many stocks in the index and in the market as a whole are way down. The S&P 500 is cap-weighted, which means larger companies like Apple and ExxonMobil have a much larger impact on how the index moves. "High cap stocks influence the averages more thus can mask internal weakness," continued O'Hara. O'Hara's research found that the average S&P 1500 stock is down by more than 12% from their recent 52-week highs. The average stocks in the Russell 2000 and Nasdaq Composite are down by more than 20%, which means you can say they are in bear markets. "Historically, this sort of divergence does not bode well for the longevity of a market’s upward inertia," said O'Hara. "We went back and examined instances where the market made a new high and looked at where the median stock sat compare to its high. Our data suggests that the current breadth reading is very unhealthy. Not only are new highs diminishing but we are seeing many stocks making new lows. This breadth divergence is a major concern."

SEC Official Claims Over 50% Of Private Equity Audits Reveal Criminal Behavior - Last week, Yves Smith of Naked Capitalism penned a fantastic piece leveraging a talk by SEC official Drew Bowden. Mr. Bowden heads the SEC’s examinations unit, and at a private equity conference he explained that more than 50 percent of private equity firms it has audited have engaged in serious infractions of securities laws.” What is so incredible about the talk, is that while Bowden goes into details of shady practice after shady practice, he ultimately admits that the SEC isn’t being particularly aggressive with the private equity industry because “we believe that most people in the industry are trying to do the right thing, to help their clients, to grow their business, and to provide for their owners and employees.” What the SEC is basically admitting, is that private equity firms are also “too big to regulate” and, of course, “too big to jail.”

Security and Exchange Commission’s (SEC) “Neither Admit nor Deny” Settlements Continue to Draw Controversy -- Recently, Judge Harold Baer of the U.S. District Court for the Southern District of New York reluctantly approved the SEC’s “neither admit nor deny” insider trading settlement with Ronald Dennis, a former analyst with CR Intrinsic Investors, a hedge fund affiliated with S.A.C. Capital Advisors. See SEC v. Dennis, No. 14 Civ. 1746 (S.D.N.Y. Apr. 22, 2014). To settle the SEC’s charges, Dennis agreed, without admitting or denying the allegations regarding his misconduct, to a permanent bar from the securities industry and to pay $95,351 in disgorgement, $12,632 in prejudgment interest, and a civil penalty of $95,351. Notably, Dennis was not charged criminally.  In its recently filed complaint against Dennis, the SEC alleged that Dennis participated in the now-infamous insider trading scheme involving Dell securities. More specifically, the SEC alleged that from 2008 through 2009, an unnamed Dell insider provided material nonpublic information regarding Dell to Sandeep Goyal, a financial analyst and former Dell employee. Goyal then passed on the information to Jesse Tortora, a then-analyst at a hedge fund managed by Diamondback Capital. Tortora shared the information with a number of individuals, including others at Diamondback and Dennis. The SEC alleged that Dennis caused portfolio managers at CR Intrinsic and S.A.C. Capital to execute trades in Dell securities based on the Dell inside information he received from Tortora. The SEC alleged that Dennis’s information allowed CR Intrinsic and S.A.C. Capital to earn approximately $3.2 million in profits and losses avoided.

Credit Suisse nears $2.5 billion deal to end U.S. tax-evasion probe: sources - (Reuters) - Credit Suisse Group AG is expected to plead guilty and pay more than $2.5 billion to U.S. authorities to resolve charges that the Swiss bank helped Americans evade U.S. taxes, people familiar with the discussions said on Thursday. Related Stories [$$] Credit Suisse Nears Guilty Plea in $2.5 Billion Settlement The Wall Street Journal Credit Suisse in talks to pay $1.6 billion to resolve U.S. tax probe: source Reuters [$$] Swiss, U.S. to Discuss Tax Dodging The Wall Street Journal US attorney general talks tax evasion with Swiss counterpart AFP [$$] Credit Suisse Nears Record Tax Plea The Wall Street Journal Under the terms being discussed, about $2 billion would go to federal authorities, mainly the U.S. Justice Department. About $100 million would go to the Federal Reserve, the people said. The New York bank regulator, the Department of Financial Services, could get an additional $500 million or more, but those talks are ongoing, one of the sources said. Credit Suisse might be willing to pay a bit more than $2.5 billion in total, though the bank is worried if it goes much higher than that figure, it could undermine its credit rating, a second source said. Representatives of the agencies and of Credit Suisse declined comment.

Big Banks = Key Players In the Drug Trade -- It has become mainstream news that at least some of the big banks are  laundering staggering sums of drug money.  See this, this, this, this, this, this and and thisOfficial statistics show that huge sums of drug money are laundered every year:The United Nations Office on Drugs and Crime (UNODC) conducted a study to determine the magnitude of illicit funds generated by drug trafficking and organised crimes and to investigate to what extent these funds are laundered.  The report estimates that in 2009, criminal proceeds amounted to 3.6% of global GDP, with 2.7%  (or USD 1.6 trillion) being laundered.This falls within the widely quoted estimate by the International Monetary Fund, who stated in 1998 that the aggregate size of money laundering in the world could be somewhere between two and five percent of the world’s gross domestic product.  Using 1998 statistics, these percentages would indicate that money laundering ranged between USD 590 billion and USD 1.5 trillion. At the time, the lower figure was roughly equivalent to the value of the total output of an economy the size of Spain.Indeed, the head of the United Nations Office on Drugs and Crime says that drug dealers kept the banking system afloat during the depths of the 2008 financial crisis. This started a long time ago. For example, Citibank was caught laundering drug money for Mexican cartels in 2001.In the 1990s, earlier, Citibank apparently set up special client accounts for a big drug dealer:The big banks are still laundering staggering sums of drug money.   For example, NPR noted last month:  “Awash in cash, drug cartels rely on big banks to launder money“.And an HSBC employee who blew the whistle on that banks’ money laundering for terrorists and drug cartels says: “America is losing the drug war because our banks are [still] financing the cartels“, and “Banks financing drug cartels … affects every single American“.

William Black: How to rob a bank (from the inside, that is) - TED talk - William Black is a former bank regulator who’s seen firsthand how banking systems can be used to commit fraud — and how “liar's loans” and other tricky tactics led to the 2008 US banking crisis that threatened the international economy. In this engaging talk, Black, now an academic, reveals the best way to rob a bank — from the inside.

Are Banks Too Large? Maybe, Maybe Not | IMFdirect - Large banks were at the center of the recent financial crisis. The public dismay at costly but necessary bailouts of “too-big-to-fail” banks has triggered an active debate on the optimal size and range of activities of banks. But this debate remains inconclusive, in part because the economics of an “optimal” bank size is far from clear. Our recent study tries to fill this gap by summarizing what we know about large banks using data for a large cross-section of banking firms in 52 countries. We find that while large banks are riskier, and create most of the systemic risk in the financial system, it is difficult to determine an “optimal” bank size. In this setting, we find that the best policy option may not be outright restrictions on bank size, but capital—requiring  large banks to hold more capital—and better bank resolution and governance.

If Debt Caused the Last Crash, Boosting Risk for Lenders Might Soften the Next -- How do you avoid another severe recession? Figuring out what caused the last one might help. For economists Amir Sufi and Atif Mian, the culprit is clear: too much borrowing, particularly by those least able to pay up when the economy started to crumble in 2007. To avoid another such meltdown, they argue, lenders should have some skin in the game, earning more when home values climb and sharing the pain if they fall.  In their new book, “House of Debt,” the authors propose a radical overhaul of the financial system’s approach to lending—and suggest lenders and the government take a page from private-equity firms. When the housing bubble popped more than five years ago, the fallout was widespread and stark. Many households, after seeing the value of their main asset shrivel, abruptly dialed back spending, triggering huge macroeconomic consequences. “Our argument is that when real estate collapses in a world with a lot of debt, it concentrates the losses on people who are in some sense the most vulnerable to the shock,”

Bank Credit Momentum - April numbers are out in the Fed's H.8 report of bank balance sheets.  Bank credit is smokin'.  The engines are revving in this economy.  Seasonally adjusted annualized rates of growth are moving up across categories. (see graph)

Unofficial Problem Bank list unchanged at 509 Institutions  - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for May 9, 2014.  Changes and comments from surferdude808:  Very unusual week for the Unofficial Problem Bank List as there are no changes to report. So the total remains at 509 institutions with assets of $163.3 billion. While activity slows between the end of the month update of the FDIC and the mid-month update of the OCC, there normally is a news report of an action termination or an exit through merger or failure to report. This is only the fifth week since the publication of the list that no changes have occurred with the last being the week ending November 23, 2012. Next Friday, the OCC should release an update on its recent actions. By the end of the month, along with a release on its recent enforcement action activity, the FDIC should release Q1 industry results and updated Official Problem Bank figures. It has been ten weeks since the last release of the official figures and the difference between the unofficial (then 566, now 502) and official lists (467) has been reduced from 99 to 42 institutions.

Glenn Hubbard: Geithner Blocked Mortgage Refinancing -- Brad DeLong -- Glenn Hubbard: “I saw some of the excerpts about housing [in Geithner's Stress Test]… and I must say I split my side in laughter because Tim Geithner personally and actively opposed mortgage refinancing, constantly. And now he’s claiming this would have been a great idea in the country. I don’t know how much more ingenuous that is in the book, but that was just a real laugher.” I am with Glenn Hubbard on this. Periodically starting in 2008, I would ask people at the Treasury: “Why are we not offering every household in America a conforming-rate ReFi with equity kickers attached for those that breach the 80% loan-to-current-market-value ratio?” And I never got what I could regard as a reasonable answer. It would have done a lot of good. It would still do a lot of good now…

Regulator Extends Greater Shield to Lenders on Mortgage 'Put-Backs' - Fannie Mae and Freddie Mac will extend new waivers to lenders allowing them to avoid demands that have resulted in billions of dollars of so-called put-backs, in which banks are forced to repurchase defective mortgages sold to the loan giants. The changes are significant because some industry analysts and economists have said they could lay the groundwork for lenders to relax credit standards. Lenders and policy makers have faulted. The changes are significant because some industry analysts and economists have said they could lay the groundwork for lenders to relax credit standards. Lenders and policy makers have faulted ambiguous rules around mortgage put-backs for lending standards that they say are unnecessarily rigid....The FHFA's new director, Mel Watt, is set to make his first public speech on Tuesday in Washington.

Takeaways From Mel Watt’s Speech on Housing - Mel Watt, the director of the Federal Housing Finance Agency, outlined a broad shift in housing-finance policy during a speech at the Brookings Institution on Tuesday. The FHFA has extensive authority over the mortgage market because it controls loan giants Fannie Mae and Freddie Mac, which currently back around two in three new mortgages. Here’s a look at key policy issues Mr. Watt discussed in his first public speech since he was installed as the agency’s director in January:  Bipartisan legislation in the Senate to overhaul Fannie and Freddi appears likely to stall after clearing a vote in the banking committee this week. Mr. Watt said any long-term overhaul wasn’t on his radar. “My guess is that there were many people who expected that I would start talking about reform legislation the minute I got to FHFA,” he said.  The agency won’t go ahead with plans floated last fall to reduce the maximum loan amounts that are eligible for purchase by Fannie and Freddie, Mr. Watt said, citing concerns that the changes might hurt a fragile housing recovery.  Policymakers and lenders have said banks are making credit standards tighter than they’d otherwise be due to broad authorities by Fannie and Freddie to “put back” defaulted loans to the mortgage giants. The companies on Monday announced a series of steps designed to give lenders more certainty about when they would and wouldn’t face put-backs, which have cost lenders billions of dollars after the housing bust.Rather than focus on contracting the footprint of Fannie and Freddie, which was a top goal of the agency before he arrived in January, Mr. Watt said the companies would now focus on reducing taxpayer risk without necessarily shrinking the companies’ size. One way that could be accomplished, he said, would be to accelerate sales of certain securities that allow investors to buy non-guaranteed portions of mortgage bonds. Mr. Watt directed the companies to triple to $90 billion sales of those derivatives this year.

Don’t Restore Fannie Mae and Freddie Mac, Says Their Former Regulator - Mel Watt, the new director of the Federal Housing Finance Agency, signaled a clear pivot on housing-finance policy in his first public speech Tuesday morning. A few hours later, his predecessor, Edward DeMarco, offered some parting reflections on housing policy at a banking conference in Charlotte, N.C. Their views couldn’t have been more different. In his talk, Mr. DeMarco made an impassioned plea to abandon the housing-finance system dominated by Fannie Mae and Freddie Mac, the companies he oversaw as the FHFA’s acting director for the past five years. “Rather than striving to preserve a system that failed so spectacularly and in so many ways, we need to find our courage and our creativity to build a new system,” he said in prepared remarks. Mr. Watt, earlier in the day, said he wanted to broaden the role of Fannie and Freddie and labeled as “irresponsible” any move to wind them down without clear proof that private investors were poised to take their place. A little context: several bills have been introduced in Congress to replace Fannie and Freddie, but none of them appear capable of garnering enough votes to move anywhere fast. If these approaches flame out, the odds rise that lawmakers could eventually coalesce around restructuring Fannie and Freddie rather than crafting some wholesale replacement. Leaders of some consumer and industry groups, including the California Association of Realtors, have suggested that when it comes to housing-finance overhauls, smaller changes may trump big ones.Mr. DeMarco disagreed strongly with that view. “Restoring Fannie Mae and Freddie Mac is not the solution. They failed and their business model failed,” he said. “Going backwards to an obviously failed model cannot be dressed up with some promise of higher capital or explicit rather than implicit guarantees.”

Fannie, Freddie’s regulator won’t cut loan limits -- Mortgage-finance giants Fannie Mae and Freddie Mac won’t be directed to lower the limits for home loans that they back, the head of their federal regulator said Tuesday in a move aimed to avoid derailing the housing market’s recovery. In a departure from his predecessor, Mel Watt, director of the Federal Housing Finance Agency, is generally seen as favoring efforts to support borrowers’ access to credit, rather than focusing on winding down the government sponsored enterprises. “This decision is motivated by concerns about how such a reduction could adversely impact the health of the current housing-finance market,” Watt said at a Brookings Institution event. Watt is one of the most powerful figures in the U.S. housing market, as Congress continues to dither over moving forward with legislation to eventually eliminate mortgage-finance giants Fannie and Freddie. A Senate panel is scheduled to work on housing-reform legislation later this week, but analysts say there isn’t enough support among members to force the entire chamber to take up the measure.  Together Fannie and Freddie back about 60% of mortgages, and regulatory decisions over loan limits, fees and other areas can have a major impact on who can buy a home in the U.S. Watt’s speech signals that he is considering how best to support access to housing, including lower-income families. He announced a pilot program for a neighborhood stabilization initiative to help areas that were crippled by the downturn. The program, which will start in Detroit in the coming weeks, will work through loan modifications, among other strategies.

Fannie-Freddie Overseer Easing Loan Buybacks: Mortgages - Melvin L. Watt, the overseer of Fannie Mae (FNMA) and Freddie Mac, is loosening rules that have forced banks to buy back billions of dollars worth of flawed home loans in an effort to spur the housing market. Watt, who took over in January as head of the Federal Housing Finance Agency, will announce in a speech today a series of steps intended to stimulate lending. More than six years after the housing bubble burst, lenders remain cautious about making home loans to borrowers with less-than-perfect credit because they could end up absorbing losses if the loans default. The banks’ reticence has kept first-time homebuyers and others with weak credit out of the real-estate market and created a drag on the fragile housing recovery. Fannie Mae and Freddie Mac (FMCC) have forced banks to repurchase defaulted home loans with a balance of $81.2 billion between 2011 and 2013 alone. Lenders say that is a major reason they’re still requiring credit scores averaging about 740 on loans they sell to the government-owned mortgage companies, far above the sub-700 average before 2007. Banks “have history in the rear-view mirror, and they don’t want to ever repeat that,” David Stevens, president of the Mortgage Bankers Association, said in an interview.  With Fannie Mae and Freddie Mac now guaranteeing two-thirds of U.S. mortgages, their actions have a broad influence on lending. Banks say the companies’ campaigns to make them repurchase $81.2 billion in home loans between 2011 and 2013 alone is a major reason they’re still requiring credit scores averaging about 740 on loans they sell to Fannie Mae and Freddie Mac, far above the sub-700 average before 2007.

Why Do Regulators Want to Ease Mortgage Standards? - Wednesday’s Journal leads with a story noting how Washington is doing a U-turn on certain policies and regulations that have tightened mortgage-lending standards over the last few years. Here’s a look at some of the key questions and answers: First, most banks have been making loans in recent years that can be sold to government-supported companies Fannie Mae or Freddie Mac or to government agencies like the Federal Housing Administration. Fannie and Freddie have been forcing banks to repurchase tens of billions in defaulted mortgages that didn’t adhere to stated underwriting agreements. One reason banks say they’ve been cautious to extend credit to borrowers without perfect credit is because they don’t know when they may face a so-called “put-back.” On Tuesday, the new director of the regulator for Fannie and Freddie announced the first in a series of steps to provide greater clarity to lenders around put-backs, along with ways for them to limit their potential liability when loans are sold.One reason regulators have grown more cautious: banks face many other new regulations. Any of the rules by themselves would probably be manageable. But taken together, there’s a concern that credit might contract too much.  Many of the biggest problems during the subprime bubble stemmed from very badly designed products—adjustable-rate mortgages with teaser rates, for example, that reset to sharply higher payments. And then there were the so-called “liar’s loans” extended to borrowers who didn’t have to document their incomes. And those aren’t returning anytime soon.One concern is that the housing market isn’t going to recover unless more qualified homeowners who need mortgages can get them. Sure, some lenders say that tight mortgage lending standards aren’t as bad as they’re made out to be—after all, it is possible to get an FHA-backed mortgage with a 3.5% down payment and a low 600 credit score. But other figures tell a troubling story.

Mel Watt: Here’s How I’ll Run Fannie and Freddie -- Mel Watt became the top regulator of mortgage giants Fannie Mae and Freddie Mac in January and gave his first public speech this past week, outlining a turn in how he plans to run the companies. On Friday, Mr. Watt sat down for his first interview as director in a taping of C-SPAN’s “Newsmakers” program that will air Sunday. Mr. Watt, the director of the Federal Housing Finance Agency, discussed how he sees his responsibilities toward taxpayers and shareholders while operating the companies through a legal process known as conservatorship. He also clarified his view on what the agency should and shouldn’t be doing in the absence of legislation to overhaul the companies. A shortened and lightly edited transcript follows:

Vote Planned on Fannie, Freddie Reform Bill - The Senate Banking Committee plans to vote on a U.S. housing finance reform bill on Thursday in what could be the last effort this year to move forward with legislation to wind down mortgage firms Fannie Mae and Freddie Mac. Sen. Tim Johnson, the Democrat who chairs the committee, and the panel's top Republican, Sen. Mike Crapo, had previously delayed a scheduled vote to build more support for the plan, which would create an industry-financed backstop for mortgages.  Johnson has said he and Crapo have the votes to push their bill through the committee, but sources have said an effort to secure more support from Democrats has fallen short. Because of that, it appears unlikely that Senate Majority Leader Harry Reid will allow the measure to come up for a vote on the Senate floor. The committee said in a statement on Monday that the panel would meet to consider the legislation on Thursday at 10 a.m.

Fannie-Freddie Overhaul Bill Advances: What’s Next? - The Senate Banking Committee approved on Thursday a bipartisan measure to overhaul Fannie MaeFNMA -4.34% and Freddie MacFMCC -4.77% on a 13-9 vote, attracting nearly as many Republicans as Democrats.But analysts say that is short of the larger majority that would be needed to compel Senate Majority Leader Harry Reid (D., Nev.) to bring the bill up for a floor vote ahead of the November midterm elections. The bill, sponsored by Sen. Tim Johnson of South Dakota, the committee’s chairman, and Sen. Mike Crapo of Idaho, the panel’s top Republican, would construct a new market system in which private investors would take initial losses on mortgage securities that would carry government reinsurance. Fannie and Freddie don’t make loans but buy them from lenders and issue them as securities, providing guarantees to make bondholders whole when loans default. Their infrastructure has made the 30-year, fixed-rate mortgage widely available to American borrowers. A consensus emerged over the past year that the government would need to play a significant role to ensure the wide availability of the popular 30-year, fixed-rate mortgage. The White House supported the measure and worked behind the scenes to build a bigger coalition, focusing on liberal lawmakers and political groups that have expressed deep reservations that the bill could make it harder for borrowers without perfect credit or large down payments to afford mortgages.

Massachusetts AG threatens to sue FHFA over buyback law -- Less than one month into the job, and just one day after his first extensive public comments, Federal Housing Finance Agency Director Mel Watt has a serious problem in the form of Massachusetts Attorney General Martha Coakley.  Coakley directed a letter to Watt urging the FHFA’s director to allow buybacks or face legal action. “Our office is considering all available legal avenues, including litigation, to ensure compliance with Massachusetts law, should FHFA fail to promptly amend its policies to allow Fannie Mae and Freddie Mac to participate in credible buyback programs,” Coakley says in the letter to Watt.  According to Coakley’s letter, Fannie and Freddie have failed to comply with a Massachusetts law called “An Act to Prevent Unnecessary and Unreasonable Foreclosures.” The law was passed in August 2012 and “explicitly forbids banks from refusing to consider offers from legitimate buyback programs merely because the property will be resold to the former homeowner.”

MBA: "Delinquency and Foreclosure Rates Continue to Improve" in Q1 - From the MBA: Delinquency and Foreclosure Rates Continue to Improve The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 6.11 percent of all loans outstanding at the end of the first quarter of 2014, the lowest level since the fourth quarter of 2007. The delinquency rate decreased 28 basis points from the previous quarter, and 114 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the first quarter was 2.65 percent, down 21 basis points from the fourth quarter and 90 basis points lower than one year ago. This was the lowest foreclosure inventory rate seen since the first quarter of 2008. The percentage of loans on which foreclosure actions were started during the first quarter fell to 0.45 percent from 0.54 percent, a decrease of nine basis points, and the lowest level since the second quarter of 2006. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 5.04 percent, a decrease of 37 basis points from last quarter, and a decrease of 135 basis points from the fourth quarter of last year. Similar to the previous quarter, 75 percent of seriously delinquent loans were originated in 2007 and earlier, with another 20 percent originated between 2008 and 2010. Loans originated in 2011 and later only accounted for five percent of all seriously delinquent loans. This graph shows the percent of loans delinquent by days past due. Loans 30 days delinquent decreased to 2.70% from 2.89% in Q4. This is a normal level. Delinquent loans in the 60 day bucket decreased to 1.00% in Q1, from 1.06% in Q4. This is slightly above normal. The 90 day bucket decreased to 2.41% from 2.45%. This is still way above normal (just under 1.0% would be normal according to the MBA). The percent of loans in the foreclosure process decreased to 2.65% from 2.86% and is now at the lowest level since Q1 2008.

Quarterly Foreclosure Rate is Near Pre-Crisis Levels - The U.S. housing market’s recovery is still a work in progress, but the problem that got us here in the first place—waves of foreclosures that decimated prices and neighborhoods—is steadily fading into the rearview mirror.  According to the Mortgage Bankers Association’s quarterly delinquency report released Thursday, the share of loans on which foreclosures were initiated was right around its long-run average, coming in at 0.45% at the end of the first quarter of 2014 and down from 0.54% at the close of 2013. In other words: The level of new foreclosures are at mid-2006 levels—pretty much back to normal. This is to be expected. The economy and unemployment have improved, if not as fast as economists and policy makers have expected. Unlike the housing bubble years, banks are being choosy about who they lend to and demanding reams of paperwork to verify income, employment and other details. Home prices have risen around 10% over the past year, depending on which estimate you use, which could be helping “underwater” borrowers with home values worth less than their mortgage. And in another sign, the U.S. mortgage delinquency rate—the share of all loans that are at least a payment behind but aren’t yet in foreclosure—fell to 6.11% in the first quarter, down from 6.39% last quarter and the lowest level since mid-2007.

Are Foreclosure Cases Rigged? - In early 2006, as California's real estate bubble was beginning to burst, an elderly Los Angeles couple, Fannie Marie and Milton Gaines, fell behind on their mortgage payments and received a notice of default from their lender, Countrywide Home Loans. Hoping to avoid foreclosure, the couple agreed to a plan suggested by Countrywide: They would obtain a loan modification provided by a third party, a businessman named Joshua Tornberg. Tornberg scammed the elderly couple, recorded an altered deed, and extracted $240,000 from the property before walking away, according to court documents. The case was tied up in Los Angeles County Superior Court for six years as Countrywide and the other defendants filed counter-motions and stalled. Countrywide eventually reached a settlement with the Gaines family, but the company's actions, and the alleged fraud its employee initiated, remained central to the case against the other defendants. In August 2012, a superior court judge dismissed the case on a legal technicality: It had taken more than five years to come to trial. The Gaineses' lawyers appealed, but two Second Appellate District Court judges denied the appeal, tallying yet another victory for the banking industry.One of the appellate court judges on the three-judge panel that heard the case penned a dissenting opinion. "This case was one of hundreds, perhaps thousands of lawsuits that grew out of the financial meltdown," explained Justice Laurence Rubin. Writing that he would have reversed the superior court's ruling entirely, Rubin concluded, "[I]n my view the dismissal of this lawsuit under the circumstances described defeats the substantial ends of justice. Instead, it rewards parties who, it would appear, have played a major and unlawful role in the theft of someone's home."

Foreclosures May Raise Neighbors' Blood Pressure - -- The housing crash of the late 2000s lowered property values across the nation, but it may have increased something -- the blood pressure of folks living next to a foreclosed property. A new study has found that people who live within 100 meters (about 300 feet) of a foreclosed home tend to have slightly higher blood pressure than other people in the neighborhood. And each additional foreclosed property located in the 100-meter radius appeared to create extra increases in blood pressure, the researchers found. Such homes, if owned by a bank, can sit vacant for months or years, potentially deteriorating into a run-down eyesore. "This huge housing crisis is affecting our physiology," . "It's getting under our skin and affecting the function of our bodies." Home foreclosures spiked in the United States between 2007 and 2010, when more than 6 million homeowners fell behind on their mortgage payments and banks stepped in to seize their property. Previous research has found that being in foreclosure is linked to mental and physical health problems, but to date no one has examined how a foreclosure might affect the health of surrounding neighbors

Lawler: Preliminary Table of Distressed Sales and Cash buyers for Selected Cities in April - Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for several selected cities in April. Note: From Lawler:  While I don’t yet have enough report/data to produce a “decent” projection for April existing home sales as measured by the National Association of Realtors, the data I’ve seen so far seems to be consistent with a annualized seasonally adjusted sales pace of about 4.67 million. The NAR reported sales of 4.59 million SAAR in March, and 4.99 million SAAR in April 2013. On distressed: Total "distressed" share is down in all of these markets, mostly because of a sharp decline in short sales.  Foreclosures are down in most of these areas too, although foreclosures are up in the mid-Atlantic area and Las Vegas (there was a state law change that slowed foreclosures dramatically in Nevada at the end of 2011 - so it isn't a surprise that foreclosures are up a little year-over-year). The All Cash Share (last two columns) is mostly declining year-over-year.  As investors pull back, the share of all cash buyers will probably decline.  Omaha's cash share is up. In general it appears the housing market is slowly moving back to normal.

Lawler: Updated Table of Distressed Sales and Cash buyers for Selected Cities in April - Economist Tom Lawler sent me the updated table below of short sales, foreclosures and cash buyers for selected cities in April. Total "distressed" share is down in all of these markets, mostly because of a sharp decline in short sales.Foreclosures are down in most of these areas too, although foreclosures are up in the mid-Atlantic area, Orlando and Las Vegas (there was a state law change that slowed foreclosures dramatically in Nevada at the end of 2011 - so it isn't a surprise that foreclosures are up a little year-over-year).The All Cash Share (last two columns) is mostly declining year-over-year. This is the opposite of recent media reports that the cash share increased year-over-year (obviously doesn't fit this data).  In general it appears the housing market is slowly moving back to normal.

MBA: Applications for New Home Purchases Increased in April 2014 -- From the MBA: Applications for New Home Purchases Increased in April 2014  The Mortgage Bankers Association’s (MBA) Builder Application Survey (BAS) data for March 2014 shows mortgage applications for new home purchases increased by 5 percent relative to the previous month. This change does not include any adjustment for typical seasonal patterns. The MBA estimate of new single-family home sales were running at a seasonally adjusted annual rate of 419,000 units in April 2014, based on data from the BAS. The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors. The BAS market coverage was rebenchmarked this month to an estimate of over 30 percent of annual sales volume based on data from the Census Bureau. The seasonally adjusted estimate for April is an increase of five percent from the revised March pace of 400,000 units. A couple of comments:
1) So far the MBA Builder survey hasn't been helpful in predicting Census Bureau reports. As an example, last month the MBA estimated March new home sales at 479,000 on a seasonally adjusted annual rate basis (SAAR), and the Census Bureau reported sales of 384,000 SAAR. Not close.
2) Now the MBA has increased market coverage, so maybe the survey will be more useful. A 419,000 SAAR would be up from March, but down from 446,000 in April 2013.

MBA: Refinance Applications Increase in Latest Survey, Mortgage Rates lowest since last November --From the MBA: Refinance Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 3.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 9, 2014. ... The Refinance Index increased 7 percent from the previous week to its highest level since the week ending April 11, 2014. The seasonally adjusted Purchase Index decreased less than 1 percent from one week earlier. The unadjusted Purchase Index increased less than 1 percent compared with the previous week and was 12 percent lower than the same week one year ago. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.39 percent, the lowest rate since November 2013, from 4.43 percent, with points increasing to 0.22 from 0.21 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Weekly Update: Housing Tracker Existing Home Inventory up 9.4% year-over-year on May 12th - Here is another weekly update on housing inventory ...  There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer. The Realtor (NAR) data is monthly and released with a lag (the most recent data was for March).  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 9.4% 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. 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).

US housing sector stalling -  The US housing recovery continues to face headwinds. Here are the key factors contributing to weakness in the sector.
1. We've had a sharp decline in housing affordability due to higher prices and higher mortgage rates. The decline in mortgage rates recently should help somewhat, but buyers remain cautious. 
2. Banks have tightened lending standards. The important trend here is the tightening in the "nontraditional" mortgages (ignore the "subprime" component - it's not a meaningful portion of the market). If you don't fit into the traditional mortgage "box", getting a loan is now more difficult.
3. Household formations have stalled. It will be difficult to get the demand going until growth in households picks up again. This weakness in the housing sector is now reflected in the equity markets as shares of homebuilders underperform.

Why the Nation’s Hot Housing Market Is Cooling, Slightly -  The housing market showed signs of cooling in the first quarter as the supply of homes for sale expanded and lofty prices put a damper on demand in recent months. The median price of an existing U.S. home was $191,600 in this year’s first quarter, up 8.6% from a year earlier, according to the National Association of Realtors’ examination of multiple-listing service data in 170 metro areas. That compares to a 10.1% year-over-year gain in the fourth quarter and 12.5% in the third.A key driver of the price slowdown was an increase in the supply of existing homes listed for sale in the first quarter, which expanded by 3.1% from a year earlier to 2 million, the Realtors group said Monday. More sellers have listed their homes as rising prices in the past year have provided them enough positive equity to do so. Many economists and housing-market observers forecast that home-price increases will abate this year after posting strong gains since late 2012. That’s due partly to more listings of homes for sale, which increases competition for buyers. It’s also due to a decline in the number of foreclosed and otherwise distressed homes on the market, which often sell for low prices.Thomas Lawler, an independent housing economist, predicts prices gains will cool to low-single-digit advances by the end of this year. “One of the reasons that demand appears to be slowing is that the pace of previous home-price increases has negatively affected affordability,” Mr. Lawler said. “And some of the previous year-over-year gains were from depressed levels when there was a lot of distressed inventory on the market.”

Lawler on RealtyTrac and Cash Buyers -- In a report that got a huge amount of media coverage, RealtyTrac alleged that the all-cash share of home purchases hit a record 42.7% last quarter, up from 19.1% in the first quarter of 2013. This increase was “shockingly” large, and occurred despite a decline in the institutional investor share of home purchases. If correct, it is not surprising that this would be “big news.” In reality, however, they are not ...  Here is a chart from RealtyTrac. The blue line is the All-Cash Share. According to RealtyTrac’s tabulations, the all-cash share of home purchases surged in the third quarter of 2013, and has continued to increase, and last quarter it was more than double the year-earlier share. Data from other sources, in contrast, strongly indicate that the all-cash share of home purchases has been declining over the last year – not just MLS-based reports. The RealtyTrac data from 2011 through the second quarter of 2013 show a MASSIVELY lower all-cash share of home purchases than does CoreLogic, or that local MLS data would suggest. CoreLogic, e.g., estimated that the all-cash share of home purchases in the first quarter of 2013 was a tad over 40%, compared to RealtyTrac’s estimate of 19.1%. While I don’t have CoreLogic’s estimates for Q1 2014 yet, I’m pretty sure it will show a drop from the first quarter of 2013 of at least five percentage points. Below are some all-cash shares of home purchases for various areas – most based on MLS data, but some based on property records tabulated by Dataquick – for March of this year vs. March 2013. In looking at both these data and the CoreLogic estimates, how can it POSSIBLY be true that the all-cash share of home sales in the first quarter of 2013 was just 19.1%, or that the all-cash share of home sales in the first quarter of 2014 was more than double that of 2013? The simple answer is can’t.

FNC: Residential Property Values increased 9.1% year-over-year in March - FNC released their March index data. FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.6% from February to March (Composite 100 index, not seasonally adjusted). The other RPIs (10-MSA, 20-MSA, 30-MSA) increased between 0.2% and 0.4% in March. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales). The year-over-year change slowed slightly in March, with the 100-MSA composite up 9.1% compared to March 2013.  In February, the year-over-year increase was 9.2%.  The index is still down 22.2% from the peak in 2006. This graph shows the year-over-year change based on the FNC index (four composites) through March 2014. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals. There is still no clear evidence in the FNC index of a slowdown in price increases yet. The March Case-Shiller index will be released on Tuesday, May 27th, and I expect Case-Shiller to show a slowdown in price increases.

Quantifying "Affordability" According to the National Association of Realtors - The WSJ's Real Time Economics blog recently caught our attention with the following headline: Why the Nation's Hot Housing Market Is Cooling Slightly.  After wiping down our monitor after our initial spit-take, we found it to be a fairly decent article, summarizing much of what we've observed and reported upon in the nation's housing industry months ago. But then, we had to wipe down our monitor again as we read the following section: “One of the reasons that demand appears to be slowing is that the pace of previous home-price increases has negatively affected affordability,” Mr. Lawler said. “And some of the previous year-over-year gains were from depressed levels when there was a lot of distressed inventory on the market.”  However, the Realtors association argued Monday that homes remain affordable, noting that a buyer purchasing a home at the first-quarter median price with a 5% down payment would need an income of $44,200 to land a mortgage. With a 20% down payment, the necessary income is $37,200, the group said.  To understand why we needed to wipe down our monitor again, let's turn to Barry Ritholtz' classic unloading upon the lack of utility offered by the National Association of Realtor's Housing Affordability Index:  Going by the chart, the only time the National Association of Realtor's Housing Affordability Index ever suggested that housing prices were not "affordable" by their standards was in late 2005.

Consumers’ Home Price Expectations Fall for 4th Month: NY Fed Survey - U.S. consumers in April lowered their expectations for home price increases and earnings growth over the year ahead, according to a new survey from the Federal Reserve Bank of New York that provides fodder for Fed arguments in favor of keeping interest rates near zero. The survey found consumers’ median expectation—that is, half were higher and half were lower– was for home prices to rise just 3.77% over the coming year, down from 3.81% in March and the latest in a series of monthly declines from 4.64% in January, the New York Fed said in the report, released Monday. Consumers’ median expectation was for earnings to grow 2% over the year to come, the lowest rate this year. Employed respondents also lowered their average estimate of the likelihood of finding a job if they lost their current one, the New York Fed found.

Builder Survey: April New Home Sales Decline - Real Time Economics - WSJ: An early report of new-home sales in April indicates sales remained sluggish as the spring selling season continues to appear lackluster in comparison to a year ago.   A monthly survey of home builders by John Burns Real Estate Consulting Inc., the housing market analysis and consulting firm based in Irvine, Calif., found that respondents’ sales in April declined by 3% from March and by 12% from April 2013. Typically, Burns sees a 2% decline from March to April due to seasonal trends. The Burns survey measures sales on a per-community basis, meaning it compares sales in builders’ projects now as compared with a year ago, factoring out projects that opened in the past year. The Burns survey in April covered 220 respondents overseeing more than 1,900 housing communities in 77 U.S. metro areas. If other measures of April sales end up reflecting the results of the Burns survey, it will mean builders didn’t see a hoped-for rebound in April sales after harsh weather depressed sales in the first quarter. Many economists and builders blamed poor first-quarter sales on the bad weather, though most also acknowledged high prices and strict mortgage-qualification standards have hampered demand in recent months. The U.S. Census Bureau’s estimates for March sales were particularly bad, showing a 13.3% year-over-year decline to a seasonally adjusted annual rate of 384,000 sales. Many economists and housing analysts expect that the March number will be revised upward when Census releases its April sales estimates on May 23. Still, most also concede the spring season is shaping up as tepid in comparison to last spring, when prices were lower and demand greater.

Housing Starts at 1.072 Million Annual Rate in April -  From the Census Bureau: Permits, Starts and Completions Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1,072,000. This is 13.2 percent above the revised March estimate of 947,000 and is 26.4 percent above the April 2013 rate of 848,000. Single-family housing starts in April were at a rate of 649,000; this is 0.8 percent above the revised March figure of 644,000. The April rate for units in buildings with five units or more was 413,000. Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,080,000. This is 8.0 percent above the revised March rate of 1,000,000 and is 3.8 percent above the April 2013 estimate of  Single-family authorizations in April were at a rate of 602,000; this is 0.3 percent above the revised March figure of 600,000. Authorizations of units in buildings with five units or more were at a rate of 453,000 in April.The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) increased in April (Multi-family is volatile month-to-month). Single-family starts (blue) also increased in April. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and that housing starts have been increasing after moving sideways for about two years and a half years. This was above expectations of 980 thousand starts in April. Starts for February and March were revised up slightly.

Housing Starts, Permits Smash Expectations On Surge In Rental Construction -- The serial extrapolators will be pleased... and the talking heads will now proclaim this as clear evidence that the cold-weather dysphoria has abated and its blue skies for real estate from here... Housing Permits back over 1 million homes SAAR (and biggest jump in a year) to new 6 year highs and Housing Starts back above 1 million SAAR near last year's highs. However, there is one major caveat - almost the entire surge was led by an almost 40% spike in multi-family units as the 'rental nation' grows ever stronger. Multi-family accounted for almost 30% of all starts - the highest in over 4 years as single-family starts rose a dismal 0.8%. Not exactly the "but housing inventories are so low and they must builder more homes" kind of growth that the headlines will crow about...

A few comments on Housing Starts -- The Census Bureau reported that housing starts increased 26.4 percent year-over-year in April to a 1.072 million seasonally adjusted annual rate (SAAR). A few points:
1) This is just one month of data (the usual caveat).
2) Most of the month-to-month increase was due to multi-family starts (Multi-family is volatile month-to-month).
3) Some of the increase appears to be payback from the severe weather earlier this year.
4) This was an easy year-over-year comparison since starts in April last year were near the low for 2013 (see first graph below).
Most of the commentary today is focused on the increase in multi-family starts - and that single family starts have stalled.  Yes, but going forward I expect multi-family starts to mostly move sideways and for single family starts to pickup (the opposite of most of the commentary).There were 301 thousand total housing starts during the first four months of 2014 (not seasonally adjusted, NSA), up 6% from the 284 thousand during the same period of 2013.  Single family starts are up close to 2%, and multi-family starts up 17%.  The weak start to 2014 was due to several factors: severe weather, higher mortgage rates, higher prices and probably supply constraints in some areas. It is also important to note that Q1 was a difficult year-over-year comparison for housing starts.  There was a huge surge for housing starts in Q1 2013 (up 34% over Q1 2012).  Then starts softened a little over the next 7 months until November.

New Homes Grow Larger As Builders Target High-End Buyers -- Newly built homes in the U.S. continued to grow larger in the first quarter as more affluent buyers, who can meet stringent mortgage standards, dominated the market. The average size of a U.S. home that went under construction in the first quarter amounted to 2,736 square feet, up 3% from last year’s fourth quarter and up nearly 2% from the year-ago figure, according to Census Bureau figures released Friday. The story is similar for the median measures. The median size of a U.S. home started in the first quarter was 2,483 square feet, up nearly 1% from last year’s fourth quarter and up 0.4% from a year earlier, Census data show. New-home sizes have been skewing larger since 2011 and 2012 as stringent mortgage-qualification standards have kept many entry-level and first-time buyers on the sidelines. That has left the market to better-heeled buyers with good credit who can afford larger homes. Home builders have catered to that demand in the past three years, widening their profit margins by selling homes at increasingly higher prices and larger sizes. Consider that 22.2% of new homes sold in March were priced at $200,000 or lower, according to Census. That compares to 41.7% being in that price range in March 2010. Meanwhile, the share of homes sold at $400,000 or more has risen to 22.2% in March 2014 from 11.1% in March 2010.

Housing Is Recovering. Single-Family Homes Aren’t. - The headlines in the new report on home building activity — which is being closely watched, after many other kinds of data point to a softening in housing — are pretty terrific.The number of permits for new housing units soared 8 percent in April, the Census Bureau said on Friday, to an annualized 1.08 million. And the number of homes on which builders began construction rose a whopping 13 percent, to an annualized 1.07 million. If nothing else, the numbers help assuage fears that the housing industry is losing momentum. It now looks like the rough winter was indeed a major factor holding back home building activity so far this year, and there is now a spring thaw underway.But even in the good new numbers, there is a clear trend evident: The entirety of the improvement is coming from more building of housing in structures with five or more units, most commonly rental apartment buildings. The number of permits issued for single-family homes rose by a mere annualized 2,000 in April, whereas the number of units in so-called multifamily structures rose by 81,000. The same story applies for housing starts, where the number of single-family homes rose a measly 5,000, versus 124,000 for multifamily units.In other words, if you think that this housing recovery involves any meaningful increase in the number of traditional, suburban single-family homes with a yard and picket fence, you have it wrong. The number of single-family homes started is well below its level of late last year and still at February 2013 levels. Multifamily construction, meanwhile, has been soaring throughout the last five years.

Spring Thaw? The State of Housing in Five Charts -- Friday’s report on housing starts didn’t provide overwhelming evidence that the housing sector is recovering after a cold winter, but neither did it provide conclusive evidence that a stall was growing worse. Here’s a look at some key points from the report. Overall, construction of single-family homes rose 0.8% from April to a seasonally adjusted annual rate of 649,000 units, the fifth best reading in the last six years. This means most of the 13.2% gain in housing construction came from growth in rental apartment construction, which rose to a level of 413,000 units at a seasonally adjusted annual rate. That’s the highest monthly reading since January 2006 and the third highest since 1989, though this is an admittedly volatile monthly reading. In April, some 39% of new units under construction were on buildings with five or more units, returning to levels last seen during the multifamily boom of the 1980s. This phenomenon isn’t entirely new. Multifamily construction has been outpacing single-family construction for more than a year. Single-family construction is running 1.7% above last year’s levels through April. Last year, single-family construction was running 25.8% above 2012 levels through April. While some of that could be blamed on weather, new building permits also have slowed, and those are less likely to be stalled by weather. New single-family building permits so far this year are running 0.9% below last year’s levels.

Apartments are Driving the Housing Recovery, Not the Suburbs - U.S. home construction is surging back to pre-recession levels, but it’s not because people are building traditional suburban homes. It’s because apartment building is on the rise. Home builders began construction on 1.07 million homes in April at an annualized rate, up 13.2 percent from March, the Census Bureau said Friday. That’s the highest rate of home construction since November of last year, and the last time housing construction hovered consistently in the over 1 million homes-per-month annualized range was early 2008. But homebuilding looks very different than it did six years ago. Today, apartments and condominiums are driving construction, instead of all-American white picket fence homes. In April, construction on structures with 5 units or more increased 42.9 percent compared with the month before, while construction on a classic single-family homes rose a measly 0.8 percent. It’s part of a new trend of young people moving to cities and raising demand for apartment units and rentals. “It’s been a consistent story,” said Jed Kolko, chief economist with real estate firm Trulia. “Not only is multi-unit construction a larger share of overall starts than it was during and before the bubble, but a higher share of those multi-unit starts are intended for rent as opposed to condos.”

First-Time Homebuyers Struggling - Logan Mohtashami, senior loan manager at AMC Lending Group, says first-time homebuyers are struggling to buy homes because they have high debt levels and many of them cannot afford the 20% down payment that is now required. He says the first part of 2014 has been one of the worst times for this category of buyer that he has seen in 14 years. Mohtashami speaks with Bloomberg's Kathleen Hays, and guest host, Josh Rosner of Graham Fisher LLC, on Bloomberg Radio's "The Hays Advantage." Download the Bloomberg Interview

NAHB: Builder Confidence decreased slightly in May to 45 -- The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 45 in May, down from 46 in April. Any number below 50 indicates that more builders view sales conditions as poor than good. From the NAHB: Builder Confidence Remains in Holding Pattern Builder confidence in the market for newly built, single-family homes in May fell one point to 45 from a downwardly revised April reading of 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today....“Builders are waiting for consumers to feel more secure about their financial situation,” said NAHB Chief Economist David Crowe. “Once job growth becomes more consistent, consumers will return to the market in larger numbers and that will boost builder confidence.” Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Homebuilder Confidence Plunges To 12-Month Lows - For the 5th month in a row, homebuilder hope has missed expectations. At 45 (vs 49 expectations), this is the lowest the NAHB survey has been at since May 2013, catching down to the reality of home sales and mortgage applications. On the bright side, realtors can't help but feel thr turn is coming sometime soon - the "future" hope index rose to its highest since January as the "current" reality index drops to 12 month lows. The West region continues to tumble.

NY Fed: Household Debt increased in Q1 2014, Delinquency Rates Lowest Since Q3 2007 - Here is the Q1 report: Household Debt and Credit Report. From the NY Fed: In its Q1 2014 Household Debt and Credit Report, the Federal Reserve Bank of New York announced that outstanding household debt increased $129 billion from the previous quarter. The increase was led by rises in mortgage debt ($116 billion), student loan debt ($31 billion) and auto loan balances ($12 billion), slightly offset by a $27 billion declines in credit card and HELOC balances. Total household indebtedness stood at $11.65 trillion, 1.1 percent higher than the previous quarter. Overall household debt remains 8.1 percent below the peak of $12.68 trillion reached in Q3 2008. The report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data. Additionally, an update to a recent blog discussing the impact of student loan debt on housing and auto markets is available on our Liberty Street Economics Blog. “We’ve observed household debt increase three quarters in a row and delinquency rates at their lowest levels since 2008,” said Andy Haughwout, vice president and economist at the New York Fed. “However, the direction of future mortgage originations will have an important implication on the household financial outlook and we will continue to monitor it.” Here are two graphs from the report: The first graph shows aggregate consumer debt increased in Q1. This suggests households (in the aggregate) may be near the end of deleveraging. If so, this is a significant change that started mid-2013. The second graph shows the percent of debt in delinquency. The percent of delinquent debt is steadily declining, although there is still a large percent of debt 90+ days delinquent (Yellow, orange and red). The overall delinquency rate has declined to 6.61% in Q1, from 7.12% in Q4. This is the lowest rate since Q3 2007. The Severely Derogatory (red) rate has fallen to 2.34%, the lowest since Q1 2008. The 120+ days late (orange) rate has declined to 2.09%, the lowest since Q3 2008.

Just Released: Young Student Loan Borrowers Remained on the Sidelines of the Housing Market in 2013 -- NY Fed - Last year, our blog presented results from the FRBNY Consumer Credit Panel (CCP) indicating that, at a time of unprecedented growth in student debt, student borrowers were collectively retreating from housing and auto markets. In this post, we compare our 2012 findings to the news for 2013. Between 2012 and 2013, U.S. auto and housing markets recovered substantially. The CoreLogic national house price index rose by 11 percent from December 2012 to December 2013. According to the Los Angeles Times, “It was the [auto] industry’s best year since 2007.” Last summer, this blog post discussed the sources of the ongoing auto recovery. Here we pose two questions: What part have young borrowers, with and without student debt, played in the recent housing and auto market recoveries? And, have the housing and auto purchases of young student borrowers at last accelerated past those of nonstudent borrowers, to once again reflect their skill and earnings advantages? The share of twenty-five-year-olds with student debt continued to increase in 2013, as the group’s average student loan balance reached $20,926. For those twenty-five-year-olds with student loans, student debt now comprises 69 percent of the debt side of their balance sheets. Given the increased popularity of student loans, some have questioned how taking on extensive debt early in life has affected young workers’ post-schooling economic activity.  As in last year’s blog post, we address the association between student debt and subsequent economic activity by examining trends in homeownership, auto debt, and total borrowing at standard ages of entry into the housing and vehicle markets for U.S. workers. The first post-schooling economic activity we explore is homeownership. The chart below shows the trends in the rates of (inferred) homeownership over the last decade for thirty-year-olds with and without histories of student debt.

Student Loans Soar To Record $1.111 Trillion, Up 12% In Past Year - First, the good news: courtesy of ZIRP mortgage defaults and discharges tumbled in Q1, resulting in an increase in total mortgage debt balances of $8.17 billion, or an increase of $116 billion in the quarter.  Now, the bad news: the increase in total mortgage balances had nothing to do with a surge in mortgage demand. Quite the contrary, as we have been reporting and as bank mortgage origination bankers have felt first hand, for whatever reason mortgage origination as a business has virtually slammed shut. The Fed confirmed as much when it reported just $332 billion in originations in Q1: well below the $452 billion in Q4, and certainly below the $577 billion a year ago.  But that is not to say that consumers have no interest in increasing their debt load. Quite the contrary. Because when one excludes those two conventional methods of leveraging up, credit cards and mortgages, US households are on an epic spending spree funded by, what else, student loans. We have covered the topic of the student loan bubble extensively in the past so we won't waste more digital ink on where it comes from or what it means for the troubled US consumer, suffice to report that according to the Fed, in Q1 total Federal student loans rose by another $31 billion to a record $1.11 trillion, and up a whopping $125 billion, or 12% from this time last year.

Update: Framing Lumber Prices -- Here is another graph on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs. Then prices started to decline sharply, and prices declined over 25% from the highs by June. The price increases early last year were due to stronger demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online).  Prices didn't increase as much early in 2014 (more supply, smaller "surge" in demand), however prices haven't fallen as sharply either. This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through last week (via NAHB), and 2) CME framing futures. Right now Random Lengths prices are down about 2% from a year ago, and CME futures are up about 4% year-over-year.

Gasoline Price Update: Another Small Decline - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular is down two cents and Premium one cent, the second week of decline after 12 weeks of increases. Regular is up 47 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 one states, Connecticut, is averaging above $3.90. Montana has the cheapest regular at $3.35, down a penny from last week.

Why A Quirky April Could Make Annual Inflation Pop -- April’s inflation data may look stronger because last April’s was so weak. Many economists believe inflation is poised to rise this year. A look at month-over-month changes in the price measures, as we explained in Monday’s Outlook, shows one reason why. Economists tend to focus on annual price changes because they’re more relevant to many consumers and the Federal Reserve. The Fed targets a year-over-year increase of 2% on the Commerce Department’s personal consumption expenditures price index. The market for inflation-indexed government bonds is based off the Labor Department’s consumer price index. The annual change in the indexes is the sum of the previous 12 monthly changes. Currently, that’s April 2013 to March 2014. Yet April 2013 was a month of major price declines, driven in part by the temporary government budget cuts that crimped payments — especially in the health care system. By every key measure of inflation – for so-called core prices that exclude food and energy, and for headline prices that include all items – April 2013 was the weakest month. When inflation reports for April 2014 are released, beginning with the CPI on Thursday, April 2014 will replace April 2013 in the running 12 month tally. Simply because April 2013 was so bad, a moderate month of inflation in 2014 could make the numbers appear to pop.

US producer prices jumped 0.6 percent in April prices U.S. companies receive for their goods and services rose by the most in seven months in April, led by more expensive food and higher retail and wholesale profit margins. The Labor Department says the producer price index rose 0.6 percent last month, after a 0.5 percent increase in March. The gains suggest that inflation is picking up from very low levels: In the past 12 months, producer prices have increased 2.1 percent, the biggest 12-month gain in more than two years. That figure is just above the Federal Reserve’s 2 percent inflation target. The producer price index measures price changes before they reach the consumer. Food costs jumped 2.7 percent, the highest in more than three years, driven by an 8.4 percent increase in meat prices.

Producer Prices Surge Most In Over Four Years As BLS Discovers Food Inflation -- And just like that, the BLS is reacquainted with soaring food prices. Moments ago the US government reported that producer prices, as part of a newly reindexed PPI series, spiked by 2.1% from a year ago, or a whopping 0.6% surge in April, the biggest monthly jump since January 2010, and up from the 0.5% increase in March. So what caused this surge in producer prices? Why food costs of course, which in April soared by 2.7%.  Here is the explanation for the finished goods price surge: The broad-based increase was led by the index for finished consumer foods, which advanced 2.4 percent. Prices for finished goods less foods and energy and for finished consumer energy goods rose 0.3 percent and 0.5 percent, respectively. Within finished goods, higher prices for meats, gasoline, light motor trucks, residential electric power, processed poultry, and eggs for fresh use outweighed lower prices for residential natural gas, passenger cars, and soft drinks. It wasn't just finished goods that was burned by food prices. Processed goods by intermediate demand... In April, the index for processed eggs jumped 25.3 percent. Prices for ethanol, meats, gasoline, and commercial electric power also increased. Conversely, the index for jet fuel declined 5.3 percent. Prices for diesel fuel, primary basic organic chemicals, natural gas to electric utilities, and soybean cake and meal also fell.  Unprocessed goods too... The index for unprocessed goods for intermediate demand rose 0.4 percent in April after edging down 0.1 percent a month earlier. Leading the advance, prices for unprocessed foodstuffs and feedstuffs moved up 3.6 percent. In April, a 9.4-percent jump in prices for slaughter chickens led the advance in the index for unprocessed goods for intermediate demand. The indexes for slaughter hogs, corn, soybeans, carbon steel scrap, and crude petroleum also moved up.

Producer Price Index: Again Hotter than Forecast - Today's release of the April Producer Price Index (PPI) for Final Demand rose 0.6% month-over-month seasonally adjusted. Today's data point was higher than the 0.2% forecast. Core Final Demand also rose 0.6% from last month, topping the forecast of 0.2%.  The unadjusted year-over-year change in Final Demand is up 2.1%, the biggest YoY jump in in 25 months. Here is the essence of the news release on Finished Goods: The Producer Price Index for final demand advanced 0.6 percent in April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This increase followed a rise of 0.5 percent in March and a decline of 0.1 percent in February. On an unadjusted basis, the index for final demand moved up 2.1 percent for the 12 months ended in April, the largest 12-month advance since a 2.4-percent increase in March 2012.... In April, the 0.6-percent increase in final demand prices can be traced to the indexes for final demand services and final demand goods, both of which also advanced 0.6 percent. More… The BLS shifted its focus to its new "Final Demand" series earlier this year. Since my focus is on longer term trends, I continue to track the legacy Producer Price Index for Finished Goods, which the BLS also includes in their monthly updates.The April Headline Finished Goods rose 0.7% MoM and 3.08% YoY, the largest YoY jump in 26 months. Core Finished Goods rose 0.3% MoM and is up 1.84% YoY. Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, the YoY trend in Core PPI (the blue line) declined significantly during 2009 and stabilized in 2010, increased in 2011 and then eased during 2012 and most of 2013. This rise in recent months still leaves this indicator below the common 2% benchmark.

More signs of US inflation stabilizing - Since our last discussion on the issue (see post), more evidence has emerged that inflation in the US has bottomed out. While the treasury markets seem to be completely ignoring this inflection point, core PPI came in materially above expectations today. We know that food prices have been on the rise recently (see Twitter post), but this PPI measure excludes food and energy. Complacency about inflation seems to be rampant - both among fixed income investors as well as at the Fed. Reuters: - "We think a number of policymakers at the Fed and many market participants are overly complacent on the outlook for inflation," said John Ryding, chief economist at RDQ Economics. "We are not sounding an inflation alarm at this point but ... concerns about deflation or too low of an inflation rate seem quite misplaced at this point."

Consumer Prices Post Biggest Gain in 10 Months - U.S. consumer prices recorded their largest increase in 10 months in April, pointing to some inflation in the economy. The Labor Department said on Thursday its Consumer Price Index increased 0.3 percent last month as food prices rose for a fourth consecutive month and the cost of gasoline surged. That was the biggest rise since June last year and added to March's 0.2 percent rise. In the 12 months through April, consumer prices rose 2.0 percent after gaining 1.5 percent in March. That was the biggest increase since July last year and in part reflected prices coming off last year's low base when energy costs decreased. In the 12 months through April, the core CPI increased 1.8 percent. That was the biggest gain since August last year and followed a 1.7 percent rise in March.

Core Inflation Hits a 13-Month High - The Bureau of Labor Statistics released the April CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.95%, which the BLS rounds to 2.0%, up from 1.51% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.83% (rounded to 1.8%), up from the previous month's 1.66%.The YoY Headline number is at a nine-month high and YoY Core is at a 13-month high. Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.0 percent before seasonal adjustment.  The indexes for gasoline, shelter, and food all rose in April and contributed to the seasonally adjusted all items increase. The gasoline index rose 2.3 percent; this led to the first increase in the energy index since January, despite declines in the electricity and fuel oil indexes. The food index rose 0.4 percent for the third month in a row, as the index for meats rose sharply.  The index for all items less food and energy rose 0.2 percent in April, with most of its major components posting increases, including shelter, medical care, airline fares, new vehicles, used cars and trucks, and recreation. The indexes for apparel, household furnishings and operations, and personal care were all unchanged in April.  The all items index increased 2.0 percent over the last 12 months; this compares to a 1.5 percent increase for the 12 months ending March, and is the largest 12-month increase since July. The index for all items less food and energy has increased 1.8 percent over the last 12 months. The energy index has risen 3.3 percent, and the food index has advanced 1.9 percent over the span.   [More…] was looking for increases of 0.3% for Headline CPI and 0.1% for Core. Their year-over-year forecasts were and 2.0% for Headline and 1.7% for Core.The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

Food Prices Soar; CPI Posts Biggest Gain in 10 Months; Real Average Earnings Decline - The BLS released CPI for April this morning. Data shows prices ticking higher with food up substantially for the third month. The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in April on a seasonally adjusted basis, the U.S. Bureau  of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.0 percent before seasonal adjustment. The indexes for gasoline, shelter, and food all rose in April and contributed to the seasonally adjusted all items increase. The gasoline index rose 2.3 percent; this led to the first increase in the energy index since January, despite declines in the electricity and fuel oil indexes. The food index rose 0.4 percent for the third month in a row, as the index for meats rose sharply. Higher prices in this competitive environment generally lead to falling real wages. Sure enough, the BLS reports Real Average Hourly Earnings Fall 0.3 Percent in April  Real average hourly earnings for all employees decreased 0.3 percent from March to April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This decrease stems from unchanged average hourly earnings combined with a 0.3 percent increase in the Consumer Price Index for All Urban Consumers Real average weekly earnings fell 0.3 percent over the month due to the 0.3 percent decrease in real average hourly earnings combined with an unchanged average workweek.   Real average hourly earnings fell 0.1 percent, seasonally adjusted, from April 2013 to April 2014. The decrease in real average hourly earnings, combined with a 0.3 percent increase in the average workweek, resulted in a 0.2 percent increase in real average weekly earnings over this period. Real average hourly earnings for production and nonsupervisory employees fell 0.1 percent from March to April, seasonally adjusted. This decrease stems from a 0.1 percent increase in average hourly earnings combined with a 0.3 percent increase in the Consumer Price Index.

CPI Rises 2.0% From Year Earlier, Most Since June: Meat Prices Soar Most In Over A Decade --The CPI headline print of 0.3% for April came just as expected, rising from 0.2% in March and the highest sequential increase since June of 2013. It was also in line with expectations. The CPI ex-food and energy rose 0.2% and up 1.8% from a year ago, both just modestly higher than expected. Other details: "The food index rose 0.4 percent in April. The index for food at home, which rose 0.5 percent in both February and March, increased 0.4 percent in April. The index for meats, poultry, fish, and eggs rose 1.5 percent in April and has increased 3.9 percent over the last three months. The index for meats rose 2.9 percent, its largest increase since November 2003.  The rent index increased 0.3 percent, the index for owners’ equivalent rent advanced 0.2 percent, and the index for lodging away from home rose 0.4 percent. The medical care index rose 0.3 percent in April, with the indexes for medical care services and medical care commodities both increasing 0.3 percent."

Meat Prices Surge Most In 11 Years - Hardly surprising given the surge in beef and pork that we have been noting, but according to the latest inflation data from the BLS, meat prices spike by almost 3% in April - the most since November 2003 (this is also the 2nd biggest price spike in 34 years!) As we noted previously, this soaring food price inflation is not about to stop anytime soon... And just the monthly change: No hedonic meat adjustments here. The Fed 'meme' that low-flation is as dangerous as high-flation (thus providing them an excuse to keep priming the pump) is about to run into a problem as the hedonic manipulation of government-provided inflation data runs into the ugly reality of things that we need actually soaring in price...

Shocker: Cable TV prices went up four times the rate of inflation. - The Federal Communications Commission today issued a report on average cable TV prices in the US, and to the surprise of no one, it turns out they went up a lot."Basic cable service prices increased by 6.5 percent [to $22.63] for the 12 months ending January 1, 2013. Expanded basic cable prices increased by 5.1 percent [to $64.41] for those 12 months, and at a compound average annual rate of 6.1 percent over the 18-year period from 1995-2013," the FCC said.The basic cable increase was four times the rate of inflation as measured by the Consumer Price Index (CPI) for the 12-month period, and substantially above inflation for the 1995-2013 measurement. "These price increases compare to a 1.6 percent increase in general inflation as measured by the CPI (All Items) for the same one-year period," the FCC wrote. "The CPI’s compound average annual rate of growth over the 18-year period was 2.4 percent."

Retail Sales increased 0.1% in April -- On a monthly basis, retail sales increased 0.1% from March to April (seasonally adjusted), and sales were up 3.8% from April 2013. Sales in March were revised up from a 1.1% increase to a 1.5% increase. From the Census Bureau reportThe U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $434.6 billion, an increase of 0.1 percent from the previous month, and 4.0 percent above April 2013.This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-autos were unchanged. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 4.6% on a YoY basis (4.0% for all retail sales). The increase in April was well below consensus expectations - however sales in March were revised up.

April Advance Retail Sales: A Major Disappointment -  The Advance Retail Sales Report released this morning shows that sales in April rose 0.1% month-over-month, down from 1.5% in March, which was revised from 1.2%. Core Retail Sales (ex Autos) was a flat 0.0% in April, down from 1.0% in March, which was revised from 0.7%. Today's headline and core numbers were substantiallly below the forecasts, which were 0.4% for Headline and 0.6% for Core.  The first chart below is a log-scale snapshot of retail sales since the early 1990s. I've included an inset to show the trend in this indicator over the past several months. Here is the Core version, which excludes autos.  Here is a year-over-year snapshot of overall series. Here is the year-over-year performance of at Core Retail Sales. Here is an overlay of Headline and Core Sales since 2000.

No Unharsh Weather Rebound: Retail Sales Miss Across The Board - Having been revised up to a 1.5% growth for March (the most since March 2010), retail sales crumbled across the board in April as the promise of un-harsh weather rebounds evaporated into the reality of a one-off pent-up demand pop. All sub-series of retail sales missed expectations with Ex-Auto/Gas actually dropping 0.1%. The broad weakness was led by furniture (-0.6%) and electronics stores (-2.3%). The broadest measure of retail sales missed... and ex-autos/gas saw a drop of 0.1% and its 2nd biggest miss in over a year... The breakdown: after sliding 1.6% in March, electronics and appliances stores tumbled -2.3% in April. Adding insult to housing contraction injury, furniture and home furnishings stores saw a -0.6% drop in April also, while miscellaneous store sales tumbled by 2.3%. As for the retail sales control group, yup: that is a negative print from March.

Can The Top 10% Prop Up The Whole Economy?  - Is the top 10% up to the task of borrowing and blowing enough money to prop up a debt and bubble-dependent economy? Since the entire economy depends on consumption for its "growth," and discretionary consumption is financed with either cash or debt, that leads to two questions: 1) who has cash to spend on non-essentials and 2) who is credit-worthy enough to borrow money for non-essentials? What makes a household credit-worthy? A) disposable income, i.e. cash left over after servicing debt and paying for essentials, and B) assets that can act as collateral for loans. Since the top 10% take home 50% of all household income, it follows that this top slice has most of the discretionary cash: The top 10% is also the only slice whose income has exceeded inflation over the past four decades: In terms of assets that can serve as collateral, the top 5% own most of the nation's household wealth. So not only do the top 10% earn most of the income, they also own most of the assets that can serve as collateral for loans:

Michigan Consumer Sentiment: A Disappointing 81.8 May Preliminary -- The preliminary University of Michigan Consumer Sentiment for May came in at 81.8, a decline from the April final of 84.1. Today's number came in below the forecast of 84.5.  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 12.5 points above the average recession mindset and 5.6 points below the non-recession average. It's important to understand that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. The latest is a 2.3 point change. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average.

UMich Confidence Tumbles, Misses By Most In 8 Years - After April's confidence-inspiring reflexive rebound (thanks to hope for the future more than current perceptions) back near post-crisis highs, it seems the less-than-frigid-weather and record-er highs in stocks were not enough to maintain the status quo enhancing exuberance. UMich confidence dropped and missed expectations by the most since June 2006. Maybe its fears of El Nino? Maybe its concerns at the bond market signals? Or maybe - the reality is that the average joe is not as cock-a-hoop as the man-on-the-TV says he should be. Economic conditions dropped to their lowest since November. Higher highs in stocks and lower highs in confidence - not what the Fed wants.

One reason the US auto market has bounced back faster than housing - It’s only one of several reasons, of course, as housing is a much bigger source of wealth and collateral for households and was obviously devastated in the crisis (hurting the middle class and poorest Americans the hardest). But the simple point here is that both of these markets have had some favourable underlying demand-side pressures building in the last few years. Demographic trends indicate that more new households should have been formed by now, pushing up residential construction to accommodate them. Meanwhile the average age of cars on the street was rising, and they needed to be replaced. Yet access to car loans has been relatively less constrained than access to single-family mortgages, which is part of the explanation (again, only one part) for why auto sales have recovered like this (charts via Barcap)… … while single-family home sales have looked like this:

Federal Data: Americans keeping vehicles longer since start of recession -  Americans are keeping their vehicles longer despite an uptick in the average family income, according to federal data. The Bureau of Labor Statistics said in an analysis published this month that the average age of household autos increased from 10.1 years about 11.3 years between 2007 and 2012, while the average household income rose from $63,091 per year to $65,596 during the same period. The share of newer vehicles, or those less than 5 years old, dropped from 22 percent to 15 percent during that timeframe, while the proportion of older autos, or those manufactured at least 11 years ago, jumped from 34 percent to 42 percent. The numbers, which come from the agency’s Consumer Expenditure Survey, suggest Americans started holding onto vehicles longer after the start of the recession but have not reversed that trend since their incomes started to rebound.

Where the World's Unsold Cars Go To Die -- Above is just a few of the thousands upon thousands of unsold cars at Sheerness, United Kingdom. Please do see this on Google Maps....type in Sheerness, United Kingdom. Look to the west coast, below River Thames next to River Medway. Left of A249, Brielle Way. Timestamp: Friday, May 16th, 2014. There are hundreds of places like this in the world today and they keep on piling up... Houston...We have a problem!...Nobody is buying brand new cars anymore! Well they are, but not on the scale they once were. Millions of brand new unsold cars are just sitting redundant on runways and car parks around the world. There, they stay, slowly deteriorating without being maintained. Below is an image of a massive car park at Swindon, United Kingdom, with thousands upon thousands of unsold cars just sitting there with not a buyer in sight. The car manufacturers have to buy more and more land just to park their cars as they perpetually roll off the production line.

Fed: Industrial Production decreased 0.6% in April -- From the Fed: Industrial production and Capacity Utilization Industrial production decreased 0.6 percent in April 2014 after having risen about 1 percent in both February and March. In April, manufacturing output fell 0.4 percent. The index had increased substantially in February and March following a decrease in January; severe weather had restrained production early in the quarter. The output of utilities dropped 5.3 percent in April, as demand for heating returned toward normal levels. The production at mines increased 1.4 percent following a gain of 2.0 percent in March. At 102.7 percent of its 2007 average, total industrial production in April was 3.5 percent above its level of a year earlier. The capacity utilization rate for total industry decreased 0.7 percentage point in April to 78.6 percent, a rate that is 1.5 percentage points below its long-run (1972–2013) average.

Industrial Production Plunges By Most In 5 Years (Biggest Miss In 3 Years) - Uh-oh. While soft-survey-driven data shows sentiment rebounding after Americans hibernation, it appears the hard data on what they are actually producing - now that weather is behind us - is dismal. Industrial Production slumped by 0.6% - its biggest miss since April 2011 - after its March rebound. This drop is the lowest since June 2009... and this is after the post-weather rebound... Still wondering why bond yields are collapsing? Don't trust the signals of the bond market - stick with believing in the analysts - 80 out of 81 economists thought industrial production would have done something better in April.

Declining U.S. dynamism: Story, or non-story? - Everyone is talking about the new Brookings study that shows that the U.S. economy is becoming less "dynamic". The study echoes an earlier paper by Decker et al. Basically, there are two measures of "dynamism": 1. firm churn, and 2. job churn. Firm churn (a name I just made up) is how many businesses are replaced by new businesses, while job churn (a name I did not make up) is how many people move jobs. Both firm churn and job churn are decreasing. Here are the pretty graphs from Brookings: What's going on here? Before we start casting around for political explanations, let's think about how this could be a natural result of changing technology. One big thing that has happened in America over the last 35 years is the coming of large chain stores and restaurants. Mom-and-pop businesses have vanished as big-box retail, and later Amazon and other e-commerce sites, have taken over. That would tend to increase firm exit and decrease firm entry. Ryan Decker confirms that employment at large firms has been increasing since the early 80s.  Should we be worried about that? Many people over the years have bemoaned the death of the mom-and-pop store or the local restaurant, but I'm not sure we should be too concerned. Go visit a poor country, and you'll see that every other family has a food stand or little clothing stall, etc. That kind of "entrepreneurship" takes guts and ingenuity, but it's born out of hardship, not opportunity. The birth and death of small family businesses is one kind of "economic dynamism", but not really the kind that leads to increasing living standards or technological progress. In the U.S., it's not clear from Brookings' data how much high-growth entrepreneurship has changed.

Empire State Manufacturing Soars - This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions soared to 19.0, up from 1.3 last month. The forecast was for a reading of 5.0. The Empire State Manufacturing Index rates the relative level of general business conditions New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state. Here is the opening paragraph from the report. The May 2014 Empire State Manufacturing Survey indicates that business conditions improved significantly for New York manufacturers. The headline general business conditions index jumped eighteen points to 19.0, its highest level in nearly four years. The new orders and shipments indexes also posted sharp gains, rising to 10.4 and 17.4, respectively. The unfilled orders index rose to a level close to zero. Price indexes were slightly lower, suggesting a small degree of slowing in price increases, with the prices paid index falling three points to 19.8 and the prices received index falling four points to 6.6. Employment expanded significantly; although the average workweek index held steady at 2.2, the index for number of employees rose thirteen points to 20.9. Indexes for the six-month outlook were highly optimistic, with the future general business conditions index rising to 44.0, its highest level in more than two years.  Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Empire Manufacturing Rebounds To Best In 4 Years But Spending/Jobs Outlook Tumbles - After the biggest miss in over a year, Empire manufacturing rebounded phoenix-like to its biggest beat in 5 years and highest level in 4 years (at 19.0). The massive surge in the headline was matched by a huge jump in the number of employees - great news, except that the average work week was stable and proces received tumbled. What is more worrisome - and suggests this spike is entirely unsustainable is the outlook for capex and tech spending dropped, average workweek expectations shrank, and the number of employees is expected to fall.

Earlier: Philly and NY Fed Manufacturing Surveys suggest Solid Expansion in May - From the Philly Fed: May Manufacturing Survey The diffusion index of current general activity decreased slightly from a reading of 16.6 in April to 15.4 this month. The index has remained positive for three consecutive months, following the weather‐influenced negative reading in February.Indicators suggest slightly improved labor market conditions this month. The employment index remained positive for the 11th consecutive month but increased only 1 point [to 7.8]. This was above the consensus forecast of a reading of 12.5 for May. From the NY Fed: Empire State Manufacturing Survey Business conditions improved significantly for New York manufacturers, according to the May 2014 survey. On the heels of a rather weak reading of just 1.3 in April, the general business conditions index shot up eighteen points to 19.0, its highest level since mid-2010. ...Employment expanded significantly; although the average workweek index held steady at 2.2, the index for number of employees rose thirteen points to 20.9. Indexes for the six-month outlook were highly optimistic, with the future general business conditions index rising to 44.0, its highest level in more than two years.This was well above the consensus forecast of 5.0.

How Some Companies Are Bridging the Skills Gap -- More attention is being paid to labor shortages. A new survey by the Federal Reserve Bank of Philadelphia looks into what companies are doing about it. Lifting wages is only one solution.mEven in a very slack labor market, more companies complain about the difficulty of finding workers possessing certain skills and experience. The National Federation of Independent Business reported Tuesday that 41% of small-business owners say they are seeing few or no qualified applicants for their job openings. As a result, a cycle-high 24% say they have job positions they can’t fill right now.A separate study conducted by Dice Holdings shows job openings are staying empty for much longer this year than earlier in the recovery. For some industries and skilled positions, the vacancies last longer than even before the recession.The Philadelphia Fed, which does a monthly survey of local manufacturers, also noticed more concerns about skill shortages.Michael Trebing, a senior economist at the Philly Fed who oversees the monthly survey, said the most commonly cited shortages were skills to use certain machinery or tools, followed by the ability to run site-specific equipment, and supervisory and management skills.Given the growing need to find workers with the correct skills set, the Philly Fed asked businesses this month: what are you doing about it?Almost two-thirds of manufacturers say they are increasing their recruitment efforts, while 56% are training their existing staff. The third approach was to make use of local educational institutions. Mr. Trebing said talks with area manufacturers indicate companies are pairing up with area schools including junior colleges to align a school’s curriculum with a company’s skill needs. Higher wages only pop up in fourth place. About one-third, 34.3%, report increasing salaries.

How Finance Gutted Manufacturing -- In May 2013 shareholders voted to break up the Timken Company—a $5 billion Ohio manufacturer of tapered bearings, power transmissions, gears, and specialty steel—into two separate businesses. Their goal was to raise stock prices. The company, which makes complex and difficult products that cannot be easily outsourced, employs 20,000 people in the United States, China, and Romania. Ward “Tim” Timken, Jr., the Timken chairman whose family founded the business more than a hundred years ago, and James Griffith, Timken’s CEO, opposed the move. Timken management argued that making both materials and products enabled them to bring to market higher-quality goods that met customers’ needs: for example, their ultra-large bearings for windmill towers, which measure two meters in diameter, weigh four tons, and have to stand up to extreme wind and temperature conditions. Controlling the entire value chain, they said, allowed them to fine-tune the attributes of the steel in order to make superior products. Nonetheless, the financial calculation about how to maximize quarterly returns won out. Timken’s story is not only about stock prices and product quality. Since the 1980s financial market pressures have transformed U.S. corporate structure itself. The system was once dominated by a few dozen very large, vertically integrated firms in which most or all of the functions needed to take a new idea about a product or a service to market—from R&D, design, manufacturing, testing, and logistics through sales and after-market services—were contained within the four walls of a single corporation. Now even the big firms are smaller, leaner, and centered on “core competencies,” with much of their production outsourced and overseas. Those pressures have driven companies such as Timken to hive off activities that involve heavy capital outlays, require large workforces, or promise less profitability in the short term.

Spot The Goldman And Glencore Aluminum Warehouses - Across the 137 warehouses that the London Metal Exchange has begun tracking, 2 stand out. Having been at the center of allegations of manipulation of the metals markets - most notably Aluminum - thanks to monopolistic warehousing, the following report from the LME will not entirely shock that none other than Goldman Sachs (and Glencore) have simply incredible waiting times for delivery of the base metal. We discussed the monopolization (thanks to lax Fed regulation) here, here, here, and here and as Reuters reports lengthy logjams at warehouses monitored by the LME, the world's oldest and biggest market for industrial metals, prompted bitter criticism by consumers and sparked a wide-ranging reform program at the exchange. With nearly 2-year-waits for Aluminum delivery by Goldman - we are sure regulators will see nothing wrong at all.

Business inventories rise in March: U.S. business inventories rose in March, but a slowdown in retail stocks excluding automobiles was the latest indication that the economy contracted in the first quarter. The Commerce Department said on Tuesday inventories increased 0.4 in March after rising 0.5 percent in February. March's increase was in line with economists' expectations. Inventories are a key component of gross domestic product changes. Retail inventories, excluding autos, which go into the calculation of GDP, nudged up 0.1 percent. That was far less than the 1.1 percent increase in non-auto retail sales that the government had assumed in its advance first-quarter GDP report. The government reported last month that the economy grew at a 0.1 percent annual pace in the January-March period. However, March trade, construction spending and factory inventory data, which the government did not have in hand when it made its GDP growth estimate, suggested the economy actually contracted in the first quarter. Economists estimate first-quarter GDP will be revised later this month to show output fell at a pace of around 0.6 percent.

U.S. Business Inventories Rise In Line With Estimates In March: Business inventories in the U.S. rose in line with economist estimates in the month of March, according to a report released by the Commerce Department on Tuesday, with the report also showing a notable increase in business sales. The Commerce Department said business inventories rose by 0.4 percent in March following an upwardly revised 0.5 percent increase in February. The increase in inventories matched economist estimates. The report showed a significant increase in inventories at merchant wholesalers, which jumped by 1.1 percent in March after climbing by 0.7 percent in February. Inventories at manufacturers edged up by a more modest 0.1 percent in March after rising by 0.7 percent in February, while retail inventories were unchanged after dipping by 0.1 percent in the previous month. Additionally, the report showed that business sales surged up by 1.0 percent in March after advancing by 0.9 percent in February. Sales by retailers and merchant wholesalers jumped by 1.5 percent and 1.4 percent, respectively, after both rose by 0.9 percent in the previous month. Sales by manufacturers edged up by 0.3 percent. With inventories and sales both rising, the business inventories/sales ratio for March came in unchanged compared to the previous month at 1.30. The ratio came in at 1.29 in the same month a year ago.

NFIB: Small Business Optimism Index increases in April, Highest since 2007 - From the National Federation of Independent Business (NFIB) earlier this morning: NFIB: Optimism Improves, But Don't Get Too Excited April’s Small Business Optimism Index rose 1.8 points to a post-recession high of 95.2. The economy continues to perform modestly and April’s index followed suit as it crossed the 95 marker for the first time since 2007. ... . NFIB owners increased employment by an average of 0.07 workers per firm in April (seasonally adjusted), weaker than March but the seventh positive month in a row and the best string of gains since 2006.

Small Business Sentiment Hits a Level Last Seen in October 2007 - The latest issue of the NFIB Small Business Economic Trends is out today. The May update for April came in at 95.2, up 1.8 points from the previous month's 93.4. Today's headline number is at the 26.1 percentile in this series and the highest level since October 2007, two months before the Great Recession. Here is the opening summary of the news release. "April's Index did pass the 95 mark that seemed to block any progress in optimism for the past five years. However, the Index is still 5 points below the average reading from 1973 to 2008, and far from what is considered expansion levels. This reading can only be characterized as a high end recession reading," said NFIB chief economist Bill Dunkelberg. "Small business confidence rising is always a good thing, but it's tough to be excited by meager growth in an otherwise tepid economy. Washington remains in a state of policy paralysis. From the small business perspective there continues to be no progress on their top problems: cost of health insurance, uncertainty about economic conditions, energy costs, uncertainty about government actions, unreasonable regulation and red tape, and the tax code. So while the improvement is welcome, as long as small business owners continue to have negative views owners about the future, the 95 number may fade." (Link to news release).  The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis.

Weekly Initial Unemployment Claims decrease to 297,000, CPI increases 0.3% -- From the BLS on CPI: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. .... The index for all items less food and energy rose 0.2 percent in April ... The all items index increased 2.0 percent over the last 12 months; this compares to a 1.5 percent increase for the 12 months ending March, and is the largest 12-month increase since July. The index for all items less food and energy has increased 1.8 percent over the last 12 months.  The consensus was for a 0.3% increase in CPI in April and for core CPI to increase 0.1%. I'll have more later on inflation. The DOL reports: In the week ending May 10, the advance figure for seasonally adjusted initial claims was 297,000, a decrease of 24,000 from the previous week's revised level. This is the lowest level for initial claims since May 12, 2007 when they were 297,000. The previous week's level was revised up by 2,000 from 319,000 to 321,000. The 4-week moving average was 323,250, a decrease of 2,000 from the previous week's revised average. The previous week's average was revised up by 500 from 324,750 to 325,250.

Initial Claims Plunge To Lowest Since May 2007 - "Mission Accomplished"... At 297k this is the lowest initial claims print since May 2007 (beating expectations of 318k by the most in 8 months). This rebound jump lower in claims reflects on many of the most recent indicators bouncing back from weather-effects but the question is its sustainability - and extrapolatibility (which we are sure is a word being used by the sell-side strategists expecting 4% GDP growth in Q2). Total benefits dropped 9k to 2.67 million - the lowest since Dec 2007. All things considered - America is fixed... so why are bond yields collapsing and GDP so piss-poor? Just like Japanese GDP however, good news appears to be bad news as the US equity market did not flinch on this record-setting jobs print.

New Jobless Claims at a Seven-Year Low - Here is the opening statement from the Department of Labor:In the week ending May 10, the advance figure for seasonally adjusted initial claims was 297,000, a decrease of 24,000 from the previous week's revised level. This is the lowest level for initial claims since May 12, 2007 when they were 297,000. The previous week's level was revised up by 2,000 from 319,000 to 321,000. The 4-week moving average was 323,250, a decrease of 2,000 from the previous week's revised average. The previous week's average was revised up by 500 from 324,750 to 325,250.  There were no special factors impacting this week's initial claims. [See full report] Today's seasonally adjusted number at 297K was well below the forecast of 320K. 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.

 Cloudy, With a Chance of Unemployment - Should U.S. agencies take a page from weather forecasters when reporting economic indicators? Charles Manski, an econometrician at Northwestern, thinks so. By presenting a single estimate—and not a range—for key benchmarks of the nation’s economic health, federal agencies risk misleading the public into taking those figures as gospel, Mr. Manski argues in a new paper. Instead of issuing one figure, such as 6.3% for the unemployment rate, he recommends that agencies provide a range of estimates, along with the probabilities in the range. That’s where meteorologists have something to teach the Census Bureau, the Bureau of Labor Statistics, the Bureau of Economic Analysis and others, Mr. Manski says. People are “totally comfortable with having a probability of rain,” he said. “The weather guy says there’s a 40% to 60% chance of rain…That’s much more informative than if he says it’s going to rain today or it’s not going to rain today.” In his paper, “Communicating Uncertainty in Official Economic Statistics,” Mr. Manski studied gross domestic product, household income and unemployment—areas that he believes need more emphasis on the uncertainty in official estimates as well as the magnitude of that uncertainty. In the monthly jobs report, the Labor Department spells out that statistics based on the surveys used to count new jobs and determine the unemployment rate “are subject to both sampling and nonsampling error.” He worries that that uncertainty isn’t getting communicated to the public. “What bothers me about this is that … it makes things look more precise than they really are,” he said. “Even a sophisticated person doesn’t necessarily know how far off the numbers may be.”

Accounting for Discouraged Workers in the Unemployment Rate - St. Louis Fed - A few weeks ago, we examined facts about discouraged workers, which have received increasing attention in the past few years as the unemployment rate has decreased. Today, we’ll look at an alternative measure of unemployment which counts some discouraged workers, but not all. Discouraged workers are defined as those who want a job but are not actively searching for one because they believe there are no jobs available for them. These workers are not counted as unemployed or as part of the labor force. They are, however, included in the Bureau of Labor Statistics’ U-4 rate. More specifically:

  • The official unemployment rate is defined as unemployed workers as a percent of the labor force.
  • The U-4 rate is defined as unemployed workers plus discouraged workers as a percent of the labor force plus discouraged workers.

These two measures constitute an all-or-nothing approach regarding discouraged workers and measuring unemployment: The unemployment rate counts no discouraged workers, while the U-4 rate counts all discouraged workers. In an Economic Synopses essay, Vice President and Economist B. Ravikumar and Technical Research Associate Lin Shao, both with the St. Louis Fed, construct a measure of “potential labor market participants” based on discouraged workers who might be expected to re-enter the workforce. Since December 2007, about 40 percent of discouraged workers, on average, re-enter the workforce every month. Ravikumar and Shao then calculate a new unemployment rate including these potential labor market participants.

BLS: "State unemployment rates were generally lower in April"  - From the BLS: Regional and State Employment and Unemployment Summary Regional and state unemployment rates were generally lower in April. Forty-three states had unemployment rate decreases, two states had increases, and five states and the District of Columbia had no change, the U.S. Bureau of Labor Statistics reported today... Rhode Island had the highest unemployment rate among the states in April, 8.3 percent. North Dakota again had the lowest jobless rate, 2.6 percent.This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession. The size of the blue bar indicates the amount of improvement. The states are ranked by the highest current unemployment rate. No state has double digit or even a 9% unemployment rate. Only Rhode Island (8.3%) and Nevada are at or above 8%. The second graph shows the number of states with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 10 states with an unemployment rate at or above 11% (red). Currently no state has an unemployment rate at or above 9% (purple), 2 states are at or above 8% (light blue), and 9 states are at or above 7% (blue).

Unemployment Declines in Carolinas Far Outpace U.S. - The Carolinas continue to lead the nation in lowering their unemployment rates. Whether it’s due to a booming labor market is another matter.  In April, South Carolina’s jobless rate fell to a seasonally adjusted 5.3%, down 2.6 percentage points from a year earlier and a full point below the latest national rate, the Labor Department said Friday. North Carolina declined to 6.2%, down 2.2 points from a year earlier. Indiana, Nevada and Tennessee also saw declines in their jobless rates of at least two percentage points over the course of a year. The national jobless rate in April was 6.3%, down 1.2 percentage points from a year earlier. Nineteen states had unemployment rates significantly lower than the national rate in April.  In total, 43 states saw unemployment rates drop from March to April, the Labor Department said. Jobless rates rose in only two states, South Dakota and Alabama, according to the latest report. North Carolina and South Carolina have seen their unemployment declines far outpace the rest of the nation, a development that appears to be driven partly by labor-force dropouts.  North Carolina also ended its program for extended unemployment benefits last July, six months before the rest of the nation did. Overall, nonfarm payroll jobs increased in 39 states during the latest month. Over the last year, nonfarm employment increased in 48 states. The largest over-the-year percentage increase came in North Dakota, continuing a trend largely propelled by the state’s booming natural gas industry.

Labor Market Seems Dented, Not Broken  - There are two schools of thought about the longer-term prospects for the labor market. The darker view is that the Great Recession wrought permanent damage: The jobs that disappeared aren’t easily replaced, and the skills of the jobless are a poor match for the jobs that remain. ... The sunnier view is that this is not a permanent shift, but rather the natural course of a recession... It’s a sunnier view because it suggests that a continuing recovery will largely solve our unemployment problem..., leaving no lasting mark. The past two years have been kind to this more optimistic interpretation. ... It is surely too early to draw strong conclusions, but continued movements in this direction would suggest that the Great Recession hasn’t done lasting damage, and that it’s possible for the unemployment rate to head back toward 5 percent without the emergence of hiring bottlenecks.

More Than Half a Million Jobs Are at Risk Due to Unfair Trade in the U.S. Steel Industry -  Earlier this week, I estimated that up to half million (583,600) U.S. jobs are at risk due to surging imports of unfairly traded steel. A recent post by blogger Tim Worstall suggests that the number can’t possibly be that large because the steel industry employs only 150,000 people. But this misses the point—the risk to the steel industry goes far beyond the steel companies themselves, and the workers they employ. It also includes workers in iron ore and coal mines, in other manufacturing industries that support steel production, as well as lawyers, accountants, managers and other workers who supply services to the steel industry. All these jobs, 583,600 in total, are threatened by the flood of steel imports. Half of the 46 top steel companies in the world were government-owned, and they accounted for 38 percent of global production. Illegally dumped and subsidized steel products are stealing market share and jobs from domestic producers. Worstall claims that we should ignore unfair import competition because, “if we get cheaper steel then this makes us all richer.” He concludes that “the market price is the fair price” for imports. Responding to a similar question from a reporter this week, Ohio Senator Sherrod Brown said that this is “like arguing it’s OK to buy stolen TVs because they are cheaper.” Even a market economy needs rules to prevent cheating and unfair trade.

Young American Workers -  The past 5 years have been rather disastrous for America's workers but one group has suffered more than others, particularly over the period between 2000 and 2010.  A recent study by Andrew Sum et al at the Brookings Institute sheds light at the predicament shared by millions of unemployed and underemployed Americans during the "Lost Decade" when, for the first time since World War II, the economy had less jobs at the beginning of the decade than it had at the end.  The authors of the study used data from the monthly Current Population Survey (CPS) provided by the U.S. Census Bureau, the annual March CPS supplements and the American Community Surveys which provide the demographic variables that can be used to predict the probability of an individual's employment status.  The data for the country's 100 largest metropolitan areas was used to produce labor market outcomes in both 2000 and 2011.  Here are some of the key findings of the study starting with teenagers between the ages of 16 and 19 and comparing them to the rest of the population:

  • 1.) Overall, individuals under 54 years of age were less likely to be working in 2011 than they were in 2000 and individuals 55 years of age and older were more likely to be working in 2011 than they were in 2000.  The sharpest declines in those working were among teens and young adults between the ages of 16 to 19 and 20 to 24 respectively as shown on this graph: In the case of 16 to 19 year olds, employment rates fell from 45 percent in 2000 to 26 percent in 2011, a 19 percentage point decline.  In the case of 20 to 24 year olds, employment rates fell from 72 percent in 2000 to 61 percent in 2011.  In contrast, employment rates for workers 55 years and older rose by between 2 and 6 percentage points depending on age.
  • 2.) Teen unemployment and underemployment was far higher in 2011 than it was in 2000.  The unemployment rate for teens doubled from 13 to 25 percent over the period and under-utilization rose from 25 to 43 percent.  As shown on this pie chart, underemployed (i.e those who are working part-time but would prefer full-time employment) and hidden unemployed (i.e. those who want work but aren't actively looking) teens make up just over half of the 1.8 million under-utilized teens living in the 100 largest urban centres in the United States: 

Vital Signs: Businesses Are Taking Longer To Fill Job Vacancies - The Federal Reserve is looking for signs that labor markets are falling into better balance, and some clues may come from how long and intensely a company looks to fill a job opening. New data out from Dice Holdings, a provider of specialized career websites show the duration of the average job vacancy has risen since the recession ended. The Dice-DFH duration index shows that so far this year on average a business takes 22.5 days to fill a job, up from 16.7 days in 2009 and just above 21.7 days in 2006. The longest hiring times are for skilled labor, such as software developers and oil-and-gas engineers. That’s a sign of the skills mismatch that has plagued this recovery.But another reason for longer vacancy times is that businesses are not as engaged in finding workers as they were before the recession. The Dice-DFH recruiting intensity index, which measures how intensely businesses are trying to fill a vacancy, remains about 10% below its 2006 average. That may suggest management sees the high level of unemployment and thinks it will not be very difficult to find qualified workers.  Mr. Davis cautions the new data are only two measures of labor markets. One suggests tightening labor markets while the other points to lingering weakness. “The overall story is one of mixed signals about labor market slack,” he says.

Despite Falling Revenues, Walmart Increases Pay for Top Execs - Sometimes the effects of our social and income inequality are easy to see, but hard to measure.  But not in this case: despite falling revenues, and despite only reluctantly paying minimum wage to its workers, Walmart increased the pay for its top executives. The people who do the labor get little. The people who make the decisions that can cause falling revenues get more (and more and…) Could it be any clearer what is going on? This is what Thomas Piketty’s theories look like in practice. Economist Thomas Piketty’s new bestseller, Capital in the Twenty-First Century makes clear there has been a significant increase in income inequality in America. Our inequality rate is higher than it ever has been in our own history, is growing, and is higher than in countries in Western Europe and Canada. In the United States, the top one percent own 35 percent of all capital, and the top ten percent of wealth holders own roughly 70 percent. The bottom 50 percent have roughly five percent. Note also that until slavery was ended in the United States, human beings were also considered capital. By owning more and more of every thing (capital), rich people have a mechanism to keep getting richer, because the rate of return on investment is a higher percentage than the rate of economic growth. This is expressed in Piketty’s now-famous equation R > G. The author claims the top of layer of wealth distribution is rising at 6-7 percent a year, more than three times faster than the size of the economy.  At the same time, wages for middle and lower income people are sinking, driven by factors largely in control of the wealthy, such as technology employed to eliminate human jobs, unions being crushed and decline in the inflation-adjusted minimum wage more and more Americans now depend on for their survival.

The Bed-Pan Economy - Data portrayed in the “Employment in Total Non-Farm” payroll (NFP) chart is used by central bankers and Wall Street strategists to assert economic strength. They either think the trend demonstrates morning in America, or, they know otherwise, but cannot fashion anything better. The Federal Reserve chairman, probably any Fedhead for that matter, whip off cheerleading spiels supported by numbers that make no reference to historical comparison. For that matter, they use numbers that make no reference other numbers, and numbers without reference have no meaning. Fed chair Yellen recklessly disregarded context in her March 31, 2014 speech in Chicago: “Since the unemployment rate peaked at 10 percent in October 2009, the economy has added more than 7-1/2 million jobs and the unemployment rate has fallen more than 3 percentage points to 6.7 percent. That progress has been gradual but remarkably steady – February [2014] was the 41st consecutive month of payroll growth, one of the longest stretches ever.” Yellen’s data, in reference, offers no promise of recovery. There have been no jobs “added” since the unemployment bottom in 2009. Yellen is spoken of as a “great labor economist.” She either knows her statement is misleading, or, she is demonstrating how little economists know.

No Raises For Anyone: Real Hourly Wages Decline For The First Time Since 2012 -  In order to justify the US "recovery", one of the recurring themes has been that wages of US workers are going up.... any minute now. And since any minute now has been the common refrain for about five years now, some are getting skeptical. Not us: we have known since 2009 that the Fed's "plan" of making billionaires trillionaires fixing the economy won't work from the start, but we are always willing to be convinced otherwise. So for all those who keep warning that wage inflation is just around the corner (you know who you are), please point out on the chart below - which shows that real hourly wages just had their first annual decline since October 2012 - where this wage inflation is so stubbornly hiding?

A Possible Path to Closing the Pay Gap - It’s 2014, and women are still paid less than men. Does this suggest that a gender pay gap is an unfortunately permanent fixture? Will it still be with us in 50 years? I would predict yes. But by that point, it will be men who will be earning less than women.My forecast is based on evidence from schools, where it has been easier to work toward a level playing field than in the workplace. Academically, girls have not merely caught up with boys in performance: they have overtaken them. In a study issued last year, and using data from 2000 to 2009, economists found that 20.7 percent of female high school seniors had an “A” grade-point average, versus 14.7 percent of boys. In 2012, more than 70 percent of high school valedictorians were girls. The trend extends into college. One study of Florida public colleges, covering the years 2002 to 2005, found that women had higher grade-point averages and were also more likely to stay in school. And the Harvard economists also show in their book, “The Race Between Education and Technology,” how times have changed. They report that by the age of 30, a man born in 1945 was roughly 50 percent more likely than a woman to have completed college — but that men born from 1960 to 1975 were less likely to complete college than women. For the group born in 1975, the gap was nearly 25 percent.

The odds you’ll join the ranks of the long-term unemployed - Long-term unemployment is a terrifying trap that, even in the best of times, is difficult to escape. And it's a trap that you can get stuck in for no reason other than bad luck. Today, there are still almost 3.5 million people who have been out of work for six months or longer and are looking for work. There isn't a more urgent crisis, and there are three things you should keep in mind about it.

  • 1. As former CEA Chair Alan Krueger found, the long-term unemployed aren't much different from the short-term unemployed. They're a little older and more of them are African-Americans, but they're just about as educated and work in the same industries as everyone else who's trying to find a job.
  • 2. The long-term unemployed have a hard time getting companies to even look at their job applications, let alone hire them. Rand Ghayad, a labor economist at Northeastern University, has tested this: he sent out thousands of fictitious resumés that were basically identical except for how long they said they'd been unemployed and what field they'd been in before. The results? Employers preferred people without any relevant experience but who'd been unemployed less than six months to people with experience who'd been unemployed longer than that.
  • 3.There's never been this much long-term unemployment before, at least not since they started keeping records in 1948. Right now, 35 percent of all unemployed people have been out of work for at least six months. That's actually down from the all-time high of 48 percent in 2010, but it's still well above the pre-Great Recession one of 28 percent in 1983.

Life, liberty and the pursuit of property - It is a general rule, if not a law, of the modern business cycle that the working class is the last to gain from the boom and the first to lose from the bust. A recent report by Demos, a progressive think tank, finds that most of the job gains are not only in low-wage industries but in highly unequal ones. The report found that in 2012 fast-food CEOs were earning more than 1,200 times what the average fast-food worker made, and that over the next eight years, some 421,900 jobs will be created in the highly unequal food preparation and serving industry, which includes the fast-food industry. Bosses in these industries often victimize employees, stealing their wages, firing them without cause and subjecting them to brutal and unpredictable schedules. Workers are often misclassified and thereby denied legal benefits, and they make too little to pay their bills and therefore rely on credit card debt and payday lenders. Turnover rates are high, and workers are frequently subject to the vicissitudes of an unforgiving labor market. Worker militancy, long ago banished by anti-unionization efforts and terror over the possibility of unemployment, has already shown nascent signs of return. The fast-food strikes in 150 U.S. cities and 30 other countries on Thursday, following those across more than 100 cities last December, highlight the increasing plight of workers and their desire for change. And companies are taking notice. In its most recent SEC filing, McDonald’s worried about risks including “campaigns by labor organizations and activists” and “reputational harm as a result of perceptions about our workplace practices.”

The Minimum Wage Loophole That's Screwing Over Waiters and Waitresses - As Republicans stonewall President Obama's initiative to raise the federal minimum wage from $7.25 an hour to $10.10 an hour by 2016, some state lawmakers have taken the matter into their own hands, passing legislation that increases the salaries for America's most vulnerable workers. But there's one group that is still largely left out of the minimum wage battle: people who work for tips. As it stands, only seven states require employers to pay tipped workers the same minimum wage as nontipped workers. The federal minimum wage for the latter is $7.25, but the federal minimum wage for tipped workers has remained stagnate at $2.13 since 1991, with no adjustment for inflation. Employers are supposed to make up the difference if tipped workers aren't earning the regular minimum wage through their tips, but it doesn't always happen. The Economic Policy Institute, a left-leaning think tank, found in 2011 that tipped workers are more than twice as likely as other workers to fall under the federal poverty line. The Minimum Wage Fairness Act, which Obama endorsed, would have gradually raised tipped workers' minimum wage to 70 percent of the regular minimum wage. But the bill has faced steep opposition from Republicans and the restaurant lobby. According to Open Secrets, the National Restaurant Association, which opposed the minimum-wage hike, spent more than $2.2 million on lobbying last year.

Vermont to set highest state minimum wage in the U.S. - - While Congress remains deadlocked over a proposal to raise the federal minimum wage to $10.10, yet another state has taken the matter into its own hands. Earlier this week, Vermont’s legislature voted to raise the state’s minimum wage to $10.50, the highest state-level minimum wage in the country.Gov. Peter Shumlin, a Democrat, has not yet signed the law but said in a statement that he would be “proud” to do so. Vermont’s minimum wage is currently $8.73, and the new increase would be gradually phased in over the next four years. The Green Mountain State is only the latest in a wave of blue states to hike base wages over $10 in 2014, following Connecticut, Maryland and Hawaii. Several municipal governments have raised their minimum wages even higher, and Seattle appears poised to go all the way to $15 per hour.

Michigan Senate Moves to Block $10.10 Wage By Pushing Smaller Increase - A Michigan GOP effort to quash a ballot initiative raising the minimum wage to $10.10 an hour could result in the first Republican-controlled state raising its pay floor this year. Five states have approved minimum-wage increases in 2014. In every case, the measures emerged from Democratic-controlled legislatures and were signed into law by Democratic governors, heeding President Barack Obama’s call to lift the minimum wage nationwide. In Michigan, Republican Senate Majority Leader Randy Richardville championed a bill that passed his chamber this week to raise the state’s minimum wage to $9.20 an hour by 2017 from the current $7.40 rate. The wage would then be indexed to inflation. The inspiration for the bill is to block what Mr. Richardville described as a more crippling proposal to quickly raise the wage to $10.10 an hour. The measure could appear on the statewide ballot in November, at the same time Republican Gov. Rick Snyder faces reelection. Mr. Richardville’s bill would repeal and replace Michigan’s existing minimum-wage law. The move would render the ballot proposal moot because the proposal seeks to amend the current law, he said. The key difference between the two proposals — other than 90 cents – is the amount guaranteed to workers who earn tips. The ballot proposal would eventually put wait staff and similar employees on par with other workers, potentially creating the highest tipped minimum wage in the country. Mr. Richardville’s bill raises the tipped rate to $3.50 an hour from $2.65.

The Inequality Puzzle - Summers - Once in a great while, a heavy academic tome dominates for a time the policy debate and, despite bristling with footnotes, shows up on the best-seller list. Thomas Piketty’s Capital in the Twenty-First Century is such a volume. As with Paul Kennedy’s The Rise and Fall of the Great Powers, which came out at the end of the Reagan Administration and hit a nerve by arguing the case against imperial overreach through an extensive examination of European history, Piketty’s treatment of inequality is perfectly matched to its moment. Like Kennedy a generation ago, Piketty has emerged as a rock star of the policy-intellectual world. His book was for a time Amazon’s bestseller. Every pundit has expressed a view on his argument, almost always wildly favorable if the pundit is progressive and harshly critical if the pundit is conservative. Piketty’s tome seems to be drawn on a dozen times for every time it is read.  This should not be surprising. At a moment when our politics seem to be defined by a surly middle class and the President has made inequality his central economic issue, how could a book documenting the pervasive and increasing concentration of wealth and income among the top 1, .1, and .01 percent of households not attract great attention? Especially when it exudes erudition from each of its nearly 700 pages, drips with literary references, and goes on to propose easily understood laws of capitalism that suggest that the trend toward greater concentration is inherent in the market system and will persist absent the adoption of radical new tax policies.

How to Shrink Inequality --Robert Reich - Some inequality of income and wealth is inevitable, if not necessary. If an economy is to function well, people need incentives to work hard and innovate. The pertinent question is ... at what point do these inequalities become so great as to pose a serious threat to our economy, our ideal of equal opportunity and our democracy. We are near or have already reached that tipping point. ...But a return to the Gilded Age is not inevitable. ... There is no single solution for reversing widening inequality. ... Here are ten initiatives that could reverse the trends..:
1) Make work pay. ... [Min wage, EITC, etc.]
2) Unionize low-wage workers. ...
3) Invest in education. ...
4) Invest in infrastructure. ...
5) Pay for these investments with higher taxes on the wealthy. ...
6) Make the payroll tax progressive. ...
7) Raise the estate tax and eliminate the “stepped-up basis” for determining capital gains at death. ...
8) Constrain Wall Street. ...
9) Give all Americans a share in future economic gains. ... [Diversified index of stocks and bonds given to all at birth]
10) Get big money out of politics. ...

Drop in Food Stamp Enrollment Picks Up Steam -- The number of Americans receiving food stamps is now falling at a faster clip, with more than 1.2 million people moving out of the program between October and February, according to federal data. As of February, the most recent data available, 46.2 million Americans received Supplemental Nutrition Assistance Program benefits. That’s the lowest level since August 2011 and down from the March 2013 peak of 47.7 million people. The $5.8 billion in benefits paid out in February was the lowest level since at least 2010. SNAP enrollment ballooned after the financial crisis and continued growing for several years, in part because of high levels of unemployment, expanded eligibility rules, and an aggressive government outreach effort to sign up more Americans. Just 28.2 million Americans received the benefits in 2008, but almost 20 million more joined the program in the next few years. A person’s benefits depends on family size and income levels, among other things. The rapid rise of SNAP enrollment has drawn numerous political fights, becoming a hotly debated topic during the 2012 presidential election and beyond. GOP candidate Newt Gingrich famously called President Barack Obama “the best food-stamp president in American history.” And this past February, former Vice President Dick Cheney said in response to proposed cuts in military spending that Mr. Obama “would much rather spend the money on food stamps than he would on a strong military or support for our troops.”

Food Stamps and Failed Economic Policies - Can we blame the Obama Administration for the sharp rise in food stamp usage?  Let’s take a look. The rise in food stamp usage during and after the Great Recession is stunning. From 2006 to 2010, the number of Americans receiving food stamp support increased sharply, and it remained elevated in 2013.Why exactly has there been such a sharp rise in food stamp usage? Is it general economic weakness? Failed economic policies? What do the data say?The USDA provides state-level information on food stamp usage, so we can see exactly where food stamp program enrollment increased the most. Here is the growth in food stamp usage from 2006 to 2009, with darker red states those that had the largest increase:The four states with the largest increase in food stamp usage during the Great Recession were Arizona, Florida, Idaho, and Nevada. Those four states also saw steep declines in house prices. Is this a systematic pattern? The following map shows the decline in house prices across the United States, with states in darker red where house prices crashed the most: Looking closely at the two maps, you can see that the rise in food stamp usage was largest in states that had experienced the sharpest decline in house prices: Arizona, Nevada, and Florida, for example. How robust is this correlation? Here is the scatter-plot relating these two variables. It plots house price growth from 2006 to 2009 on the x-axis, and the growth in people using food stamps from 2006 to 2009 on the y-axis.

The Neediest Americans Are Getting The Least Government Assistance -- A forthcoming paper from Robert A. Moffitt, a professor of economics at Johns Hopkins University, finds that spending on the 15 largest social safety net programs increased by 74 percent, adjusted for inflation, between 1975 and 2007. But much of that money shifted from the very poorest, those with incomes at 50 percent of the poverty line, to the more well off, such as those making 200 percent of the poverty line. This means that today, a family of four that makes under $12,000 a year likely got less assistance than a similar family making $47,700. Meanwhile, single parents, who often struggle more financially than married ones, are also getting less while married ones get more. Single parents who weren’t disabled or under the age of 62 got 20 percent less aid in 2004 than in 1983. And even among that group, the least well off saw the biggest drop: single parent families living at 50 percent of the poverty line saw their assistance fall by 35 percent, while those with incomes above that level actually saw an increase of 73 percent.There was also a shift in benefits to those who Americans tend to see as the “deserving” poor. Moffitt said he found that the public and the government have preferred that aid go to those who work, are married, and who have kids, and that more assistance is also going to the elderly and disabled rather than the young and able bodied. The elderly got 20 percent more assistance in 2004 than in 1983. The programs with the most growth were those that serve specific groups: the Earned income Tax Credit (EITC), which is only available to working people, the Child Tax Credit for families with children, and Supplemental Security Income (SSI) that helps the elderly, blind, and disabled.

The Politics of Income Inequality - The United States has come a long way over the last century. Still, it remains a strikingly similar place in a couple of important respects. The income of a typical American family has barely risen since the 1970s. The share of national income captured by the richest 1 percent of Americans is even higher than it was at the dawn of the 20th century.  The parallel offers valuable insight into one of the most important questions posed by the nation’s lopsided development: Can democracy stop inequality from rising? Despite the gains of the Progressive Era, the answer echoing down the halls of history is not encouraging. Basic models of political economy hold that inequality self-corrects. As income concentrates among a smaller group of voters, majorities will vote for more redistribution. But that isn’t quite how the world works. For starters, the poor vote less than the rich. And they don’t vote exclusively based on their economic self-interest. Many Americans, rich or poor, mistrust government. They support free-market capitalism and view the distribution of the nation’s economic fruits as roughly fair. The growing concentration of income can, in fact, make inequality more difficult to correct, as the wealthy bring their wealth to bear on the political process to maintain their privilege. What’s more, disparities in income seem to produce political polarization and gridlock, which tend to favor those who receive a better deal from the prevailing rules

Mapping Three Decades of Rising Income Inequality, State by State -- Income inequality has risen considerably in the United States and across the entire advanced world. Most research has focused on growing inequality within and across nations. What’s less clear is to what degree income inequality has grown across different parts of the U.S. With the help of my Martin Prosperity Institute (MPI) colleagues Charlotta Mellander and Karen King, I examined the change in income inequality across the 50 states between 1979 and 2012. We used U.S. Census data to track the Gini coefficient, the standard measure of income inequality that measures the distribution of income across a population on a scale of 0 to 1. Across the nation as a whole, the Gini coefficient increased by roughly 15 percent (from .415 in 1979 to .476 in 2012). The map below, by MPI’s Zara Matheson with support from the geospatial mapping team at ESRI, visualizes the change in income inequality over this three-decade period for each of the 50 states. (A larger map with even more functionality is available on the MPI website.)

Getting past economic development subsidy hype - It’s a familiar situation: business and government officials are promoting a new economic development deal which naturally includes subsidies for the investor. They may be touting a consultant’s study touting massive ripple effects and fantastic taxpayer return on investment. Should you believe them? Of course not. Consultants, whether they technically are working for the company or the government, don’t get paid to say deals don’t make sense. Or at least they don’t if they want future contracts with the company or city/state/province/country paying them. What’s a taxpayer to do? First, you need to know that uncontrolled subsidy competition like we have here in the United States is going to systematically provide higher subsidies than will a rules-based system like that of the European Union. The EU’s state aid rules guarantee transparency, restrict location subsidies to the poorest regions, and cap the amount of subsidy a project can receive. Realistically, though, we are a long way away politically from having rules like the EU’s. Right now, we’re making progress on transparency but not so much on substantive rules, not even anti-piracy agreements. What do we do to evaluate investment incentives now? The goal in bargaining is to get the most benefits for the least cost. How do we know if the cost is high or low? This is where the Good Jobs First Megadeals database comes in. We can use it to compare the cost with similar deals made elsewhere in the United States. You can use Subsidy Tracker if you want to look at smaller deals, but for my purposes in this post I can’t deal with a quarter of a million projects, so I am sticking with Megadeals.

The Privatization Scam - “Privatization” and  “public-private-partnerships” for infrastructure and other public assets are scams driven by private greed and public cowardice. Americans have been burned by these scams. Last month the Atlantic ran a nice piece on the growing privatization backlash. Unfortunately, as governments at the city, state and federal level continue to lack the political will to raise taxes or cut spending, as our infrastructure continues to deteriorate, and as political leaders such as President Obama and Congress peddle the idea, the pressure to privatize public goods will continue to rise. Indeed, it’s no longer companies like Deloitte offering to do deals; we’ve reached the point where the Motley Fool is pitching retail investors. It’s a topic I’ve given a lot of thought to, because in my role as Legislative Advocate for NJPIRG, I played a meaningful role in defeating then-New Jersey Governor, nee Goldman Sachs Jon Corzine’s push to privatize New Jersey’s ‘three big roads’–the Turnpike, the Garden State Parkway, and the Atlantic City Expressway.As you read the NJ story and our cheat sheet for judging proposed deals, consider what’s at stake– the level of traffic congestion and air pollution, the safety and quality of roads, and even the availability of high-quality affordable mass transit alternatives.

Median Household Income by State: A Sobering Look at the Data -  The historical trend in US household incomes is one of my favorite research topics. However, until recently I've never systematically analyzed the data for individual states. That changed last week when a reader emailed me a question about the median income for his state.  I've now compiled a few tables for the 50 states and DC based on the Current Population Survey, a joint undertaking of the Census Bureau and Bureau of Labor Statistics, which includes annual data from 1984 to 2012. The details are fascinating and rather sobering. First, some context. The median US income in 2012 was $51,017, up from $22,415 in 1984 -- a 127.6% rise over the 28-year timeframe. However, if we adjust for inflation chained in 2012 dollars, the 1984 median is $47,181, and the increase drops to 18.7%, that's an annualized growth rate less than 0.5%. The peak annual median income for the US, adjusted for inflation, was in 1999. The latest data point, thirteen years later -- after two recessions and two market crashes -- is down 9%. Here is a alphabetically sorted table showing the data for the 50 states and DC along with the US median data.  The alphabetical listing above makes it easy to find individual states, but for some additional insight, let's sort the data based on the decline from the peak year.  It probably comes as no surprise that the nation's capital would be at a record high. But why is Wyoming the only state with this distinction? It's quite an unusual state: It is the least populated (0.58 million) with a 93.1% White population (compared to 77.9% for the US). Wyoming receives more federal tax dollars per capita in aid than any other state except Alaska. The economy is primarily based on the mineral extraction industry along with travel and tourism. The latest unemployment rate is 4.0%.

Welcome to the Third World, Part 13: Suburbs Become Ghettos - Not so long ago, a reasonably-presentable American could live an hour outside of a city and commute in for a government or banking job, thus getting the best of both worlds: city-level wages and a 3,000 square foot house with a big yard for the kids. But then municipal governments ran out of money and started laying off, while banks, traumatized by their 2009 near-death experience, cut back on mortgage and consumer lending and fired the related staff. The only other jobs available were in service industries like food and retail that paid next to nothing and didn’t offer benefits. Meanwhile, the cost of living in and commuting from suburbia has been rising. The chart below shows the average price of a gallon of gas, a pretty good proxy for the cost of a daily commute, up by nearly 50% since 2005. At about $3.60 a gallon, the current national average price is 7 cents higher than it was a year ago, with no letup in sight.  All of a sudden our hypothetical suburbanites find themselves with barely enough income to cover their mortgage or rent, let alone their health care, food (which is also way up lately) and gas. And now the kids are about to go off to college…The result: millions of formerly middle class families living in nice suburban houses or expensive apartments are slowly going broke. The New York Times just published a long, fascinating but very depressing article on the morphing of suburbia to ghetto in California’s Inland Empire. An excerpt follows; the full article is here:

Moody's downgrades NJ debt as Christie's budget problems grow -- Moody’s Investors Service downgraded the state’s debt on Tuesday night, the latest Wall Street credit-rating agency to sound the alarm this year about New Jersey’s finances. Following downgrades by Fitch Ratings earlier this month and Standard & Poor’s in April, Moody’s lowered its credit rating for New Jersey by one step, from Aa3 to A1. The ratings cut, two weeks after Gov. Chris Christie’s administration disclosed an $807 million shortfall in the state budget, was the latest sign that New Jersey’s ailing fiscal condition is taking a turn for the worse. Analysts at the Wall Street agency said the state was in a “weakened financial position resulting from recurring revenue shortfalls,” noting that Christie had racked up “three consecutive years of weak budget-to-actual performance.” Covering up those shortfalls with one-shot moves, instead of finding stable sources of revenue, doesn’t help, Moody’s added. Moody’s said it expects more strain in the coming year. “With the ongoing pressure of … pension contribution increases and lagging economic performance, the state will be challenged to improve its weak liquidity position,” the analysts wrote.

Florida Trims Debt Most in 30 Years as Schools Age: Muni Credit - When Florida Governor Rick Scott visited Miami last week, he touted his record of shrinking state debt the most in 30 years. Nearby Miami Dade College, the nation’s largest community college, prepared for another year with broken elevators and decaying buildings. The 61-year-old Republican won his seat in 2010 after vowing to rein in debt in a state he compared with cash-strapped Greece. As Scott campaigns for re-election, he has slowed bonding for schools, roads and environmental projects such as buying land for Everglades conservation. Schools account for most of Florida’s debt, and local officials have struggled with the borrowing reduction, which has sapped budgets even as the state logs a $1.2 billion surplus. Miami Dade College, with 175,000 students, said it needs about $1 billion to repair buildings and start postponed expansion work. “There’s a political aspect” to the debt slowdown, said Burt Mulford, who helps oversee $1.9 billion of municipal bonds at Eagle Asset Management in St. Petersburg, Florida. “We’re coming up to the midterm elections, and you’ve got the governorships that are up as well.”

These four hedge fund guys out-earned every kindergarten teacher in America - Here's a great point a reader flagged for me about the top 25 hedge fund managers. If you ignore the bottom 22 and just focus on the top three, it turns out that David Tepper, John Paulson, and Steven Cohen earned a combined $8.2 billion last year.By contrast the BLS reports that there were 157,800 kindergarten teachers earning an average of $52,840 per year. That comes out to about $8.34 billion. That's a bit more. Then throw in the #4 hedgie and it looks like James Simons made $2.2 billion. In other words the earnings of just four guys absolutely dwarf the combined salaries of all 157,800 kindergarten teachers.

Schooled - Cory Booker, Chris Christie, and Mark Zuckerberg had a plan to reform Newark’s schools. They got an education. Christie, during his campaign, had made an issue of urban schools. “We’re paying caviar prices for failure,” he’d said, referring to the billion-dollar annual budget of the Newark public schools, three-quarters of which came from the state. “We have to grab this system by the roots and yank it out and start over. It’s outrageous.” Booker had been a champion of vouchers and charter schools for Newark since he was elected to the city council, in 1998, and now he wanted to overhaul the school district. He would need Christie’s help. The Newark schools had been run by the state since 1995, when a judge ended local control, citing corruption and neglect. A state investigation had concluded, “Evidence shows that the longer children remain in the Newark public schools, the less likely they are to succeed academically.” Fifteen years later, the state had its own record of mismanagement, and student achievement had barely budged.Booker proposed that he and Christie work together to transform education in Newark. They later recalled sharing a laugh at the prospect of confounding the political establishment with an alliance between a white suburban Republican and a black urban Democrat. Booker warned that they would face a brutal battle with unions and machine politicians. With seven thousand people on the payroll, the school district was the biggest public employer in a city of roughly two hundred and seventy thousand. As if spoiling for the fight, Christie replied, “Heck, I got maybe six votes in Newark. Why not do the right thing?” Almost four years later, Newark has fifty new principals, four new public high schools, a new teachers’ contract that ties pay to performance, and an agreement by most charter schools to serve their share of the neediest students. But residents only recently learned that the overhaul would require thousands of students to move to other schools, and a thousand teachers and more than eight hundred support staff to be laid off within three years. In mid-April, seventy-seven members of the clergy signed a letter to Christie requesting a moratorium on the plan, citing “venomous” public anger and “the moral imperative” that people have power over their own destiny.

Wyoming Is First State To Reject Science Standards: Wyoming, the nation’s top coal-producing state, is the first to reject new K-12 science standards proposed by national education groups mainly because of global warming components. The Wyoming Board of Education decided recently that the Next Generation Science Standards need more review after questions were raised about the treatment of man-made global warming.Popular Among Subscribers Vladimir Putin’s WarSubscribe Thomas Piketty: Marx 2.0 10 Questions with Barry GibbBoard President Ron Micheli said the review will look into whether “we can’t get some standards that are Wyoming standards and standards we all can be proud of.”Others see the decision as a blow to science education in Wyoming.“The science standards are acknowledged to be the best to prepare our kids for the future, and they are evidence based, peer reviewed, etc. Why would we want anything less for Wyoming?” Marguerite Herman, a proponent of the standards, said.

What if We Got Serious About Education? - Despite decades of effort, the United States has made little progress on improving the quality of K-12 education. Stagnation in student outcomes is clear. Last week, educators announced the latest results from the National Assessment of Educational Progress (NEAP) tests, which are given to a sample of high school seniors every four years. The latest results showed no change in students’ reading or math skill levels. More important, less than 40 percent of students were proficient in reading and only 26 percent were proficient in math..  What can we do to increase K-12 performance? The solution is not money. Over the past two decades, real spending on per-pupil primary and secondary education has increased by over 37 percent in real terms. Nor is technology alone the answer. Without significant changes in the structure of education, technology is unlikely to have much of an impact on educational achievement. Dramatic productivity improvements (doing more with less) require significant structural changes because they necessitate doing things in much different ways. First, the most innovative, transformative systems are likely to be found through experimentation. What works can be kept and built upon, and lessons can be learned from what does not. Complicating matters, different students are likely to excel in different environments.  Offering each family a variety of choices is the second way to drive K-12 educational success. Despite the current opposition to educational vouchers, choice is the only way to ensure effective schools thrive and bad schools close.

The New York Public Library Comes Around - Last week, the Times reported that the New York Public Library, in a surprising about-face, has given up on its plan to tear seven stories of bookshelves out of its white-marble flagship building, on Forty-second Street and Fifth Avenue. The bookshelves, usually referred to as “the stacks,” literally hold up the palatial reading room on the library’s third floor, and, in 2008, when the plan to remove them was first announced, they contained the heart of the library’s research collection. Under that plan, administrators hoped to move a portion of the books in the stacks to an existing facility underneath Bryant Park, which is next door to the library, and to ship the rest to an off-site storage facility in New Jersey. They also hoped to build a brand-new circulating library in the hollow. The demolition and construction, which the library originally estimated would cost two hundred and fifty million dollars, was to be paid for with a hundred and fifty million dollars from city taxpayers and the proceeds from the sale of two library properties nearby, one of which, the mid-Manhattan branch, would be replaced by the new circulating library.

The State of U.S. High School Education in Economics - Every two years the Council on Economic Education publishes "Survey of the States: Economic and Personal Finance Education in our Nation’s Schools."  With two high-schoolers and a middle-schooler in my own family, I'm well aware that class-time is tight, and it is impractical to just keep adding subjects and material.  Also, I have some qualms about how economics is sometimes taught at the high school level as a sort of watered-down intro college course, rather than as a subject with practical skills and lessons for everyday life as a consumer, worker, borrower and saver, insurance purchaser, manager, citizen, and voter. But it also seems to me that high school students face some genuine financial dangers in this world of credit cards and payday loans, rental agreements and lease-to-buy deals, choices among insurance policies with different deductibles, student loans and car loans--and these dangers that can seriously undermine their financial start as young adults. Thus, I do think it's worth finding some ways to squeeze in some additional learning about economics and financial health. What are the US states generally up to along these lines?

Only Rich Kids Should Go to College: The evidence keeps mounting: college loans are holding back young Americans in unprecedented numbers.  Should only rich kids go to college? It seems like an absurd question. Yet evidence keeps mounting that, financially speaking, if you must borrow to pay for college you might be just as well off skipping higher education and going straight to work.Some 37% of American households headed by an adult under the age of 40 have student loans outstanding—the highest share ever, according to a new report from the Pew Research Center. Their median student debt: $13,000. College loans in total run about $1 trillion and the Pew findings show that this burden weighs heavily on the finances of young Americans. Households headed by a young college graduate with student loans outstanding have a typical net worth of just $8,700—a pittance compared to the typical $64,700 net worth of similar households only with no student loans outstanding. But that’s just the start. Those with student loans have total debts of $137,010—nearly double the typical $73,250 indebtedness of those without student debt outstanding. These differences are far greater than the value of the student loans outstanding and speak to the snowball effect that debt has on many households. The findings suggest that, for many, their debt spiral can be traced to their first student loan. “It may be the case that the burden of student debt makes it more difficult for young adults to gain financial traction in other areas of their lives,” the researchers noted.

Who Gets To Graduate? - There are thousands of students like Vanessa at the University of Texas, and millions like her throughout the country — high-achieving students from low-income families who want desperately to earn a four-year degree but who run into trouble along the way. Many are derailed before they ever set foot on a campus, tripped up by complicated financial-aid forms or held back by the powerful tug of family obligations. Some don’t know how to choose the right college, so they drift into a mediocre school that produces more dropouts than graduates. Many are overwhelmed by expenses or take on too many loans. And some do what Vanessa was on the verge of doing: They get to a good college and encounter what should be a minor obstacle, and they freak out. They don’t want to ask for help, or they don’t know how. Things spiral, and before they know it, they’re back at home, resentful, demoralized and in debt.When you look at the national statistics on college graduation rates, there are two big trends that stand out right away. The first is that there are a whole lot of students who make it to college — who show up on campus and enroll in classes — but never get their degrees. More than 40 percent of American students who start at four-year colleges haven’t earned a degree after six years. If you include community-college students in the tabulation, the dropout rate is more than half, worse than any other country except Hungary.The second trend is that whether a student graduates or not seems to depend today almost entirely on just one factor — how much money his or her parents make. To put it in blunt terms: Rich kids graduate; poor and working-class kids don’t. Or to put it more statistically: About a quarter of college freshmen born into the bottom half of the income distribution will manage to collect a bachelor’s degree by age 24, while almost 90 percent of freshmen born into families in the top income quartile will go on to finish their degree.

Students face mounting debt as loan rates on the rise - - Bad news for college students taking out loans. New interest rates are in and they are higher. MOREAdditional Links It's an expensive reality that was on the minds of some Duke graduates as they considered their future. Stephanie Jones took out loans to attend college, and she said she'll take out more to attend medical school later in the year. "It's very concerning," she said. "Especially when I'm looking at doing a professional degree in something that's very important because medical school is so expensive. Loans are a very, very important part of pursuing that goal." The rate increase is expected to impact approximately 7 million undergraduates who took out subsidized loans for the 2013-14 school years. The new rates are up nearly one point. That means Stafford Loan borrowers will pay about $46 more per year for each $10,000 borrowed. Undergraduates will now be paying 4.66 percent (up from 3.86 percent). Graduate students will pay 6.21 percent (up from 5.41 percent). Plus loans have risen to 7.21 percent (up from 6.41 percent). "Last year congress actually tied the rates for student loans to the U.S. Treasury," said Asset Protectors and Advisors President and CEO Tom McDermott. "So the U.S. Treasuries are effected by the market. So as the U.S. Treasury goes up, so will your student loan cost. And where do we all expect interest rates to go in the future, but higher?"

Student debt is going up. Graduates' incomes aren't. -  Today the New York Fed released its quarterly report on household debt, and as has become the norm, the student debt figures were the most compelling figures in the whole report. Americans had $1.1 trillion in student debt in the first quarter, compared to $659 billion in credit card debt. As recently as 2010, credit card debt exceeded student loan debt. Watching total student debt levels and delinquencies continue to rise, even while other areas of household debt heal from the recession has a slow-motion trainwreck feel to it; it's fascinating but horrifying. And even more horrifying is that young college grads' wages aren't keeping up with the trend. Below is a look at average student loan debt for 25-year-olds with student debt over recent years. So student loan debt has climbed by more than 50 percent over the course of a decade, and that even takes inflation into account. In addition, the share of 25-year-old graduates with debt has grown from around 25 percent to nearly 45 percent over that period.But annual pay does not appear to have kept up for bachelor's-degree holders. Below is a look at median pay for 25- to 34-year-olds with bachelor's degrees:

Student debt increases to $1.1 trillion, borrowers lagging in home and auto buying -- Student debt increased by $31 billion to a record $1.1 trillion in the first quarter of 2014, the Federal Reserve Bank of New York reported Tuesday. Total consumer debt stood at $11.65 trillion in the quarter, still 8 percent below its 2008 peak, according to the New York Fed data. In recent months, student debt has eclipsed other kinds of consumer credit other than mortgages, including credit card debt and auto loans. In a separate analysis released Thursday, New York Fed researchers noted that student borrowers continue to lag in home and auto purchases, even though both housing and auto sales improved significantly over the course of 2013. Analysts noted that the share of 25-year-olds with student debt continued to increase in 2013, and the group's average student loan balance also rose, to $20,926 — nearly 70 percent of all their debts.  .Although historically people with student loans are more likely to take out a mortgage than those who do not have student debt, "student loan holders were still less likely to invest in houses than nonholders in 2013, despite the marked improvements in the aggregate housing market," the researchers wrote.

More Polite Handwringing About Student Debt Mess -- Yves Smith - I don’t mean to point fingers at a perfectly unobjectionable article by Neil Irwin at the New York Times’ Upshot feature. It gives a compact, highly readable summary of some new information on student debt in the latest report on household debt from the New York Fed, and a related post on its Liberty Street Economics website. However, readers who have been following burgeoning student debt problems are likely to find the anodyne tone of the Times article and the underlying New York Fed work a tad aggravating.  The New York Fed has endeavored to determine whether student debt is undermining the recovery. One element that has a lot of commentators concerned is the low level of household formation and homebuying among the young. It’s not hard to see that a terrible job market for college grads is a big culprit. But the New York Fed fingers that student debt is clearly playing a role, as one might expect. If jobs are hard to find and generally not as well paid as before the crisis, it’s going to make all but the high fliers or those with rich parents cautious about making a commitment like buying a house. And those with debt they can’t discharge in bankruptcy are already burdened and in less of a position to take risks.  This is the chart that supports that intuition: Prior to the crisis, those with student debt on average were still more likely than those without student debt to own a home by age 30. That was indirect proof of the belief that getting a college or graduate degree was an investment that paid off via access to better paid jobs. But now, the hostile job market and still-rising education costs have upended that picture. The Fed researchers also point out that young people may be less keen about homeownership than their elders were. Again, in an uncertain job market, a house is a huge impediment to mobility. Transaction costs are usually 5-7%, unless you are in a hot market and can sell without using a broker. That’s significant relative to a 20% down payment.

Congratulations to Class of 2014, the Most Indebted Ever -  As college graduates in the Class of 2014 prepare to shift their tassels and accept their diplomas, they leave school with one discouraging distinction: they’re the most indebted class ever. The average Class of 2014 graduate with student-loan debt has to pay back some $33,000, according to an analysis of government data by Mark Kantrowitz, publisher at student-marketing company Edvisors. Even after adjusting for inflation that’s nearly double the amount borrowers had to pay back 20 years ago. Meanwhile, a greater share of students is taking on debt to finance higher education. A little over 70% of this year’s bachelor’s degree recipients are leaving school with student loans, up from less than half of graduates in the Class of 1994. The good news for the Class of 2014 is that they likely won’t hold the title of “Most Indebted Ever” very long. Just as they took it over from the Class of 2013, the Class of 2015 will probably take it from them. But as the debt burden of college graduates continues to rise faster than inflation, it begins to complicate the question of whether a bachelor’s degree is worth the expense. So far, that answer is a firm “yes.” College graduates have a lower unemployment rate and make more money than their contemporaries without a degree. Of course, some majors pay more than others, but in just about every industry workers with college diplomas are paid more than their counterparts without one. And the more education a person has, the greater the pay advantage becomes.

Student debt hurts household wealth for decades - Newly minted college graduates, about to exchange their caps and gowns for (if they’re lucky) workplace attire, are about to encounter a stark division that will follow them for a good part of their adult lives. A new report from the Pew Research Center underscores the stronger financial footing of young college-educated Americans who don’t have any student debt compared to the position of their peers with student debt. On average, households headed by young Americans (which Pew defines as under 40) without student debt have about seven times the net worth ($64,700) as those with student debt ($8,700).  There’s virtually no difference in income between these two groups of college-educated Americans. But the relative size of an apartment, or the kinds of vacations that are affordable, sometimes has little to do with the numbers on a paycheck in those early years and a lot to do with how much of that paycheck gets pocketed (not to mention extra, familial sources of wealth). As the only kind of debt that rose throughout the Great Recession, student debt became second only to mortgages as the largest type of debt owed by American households by the end of 2009. Nearly 40 percent of households headed by a young adult had student debt in 2010. What they owe, of course, ranges, but the median level left to be paid off is around $13,000. In 2001, only 22 percent of households headed by young adults had outstanding student debt.

What Is Social Insurance? Take Two - More than a year ago I wrote a post titled “What Is Social Insurance?” about a passage in President Obama’s second inaugural address defending “the commitments we make to each other – through Medicare, and Medicaid, and Social Security.” In that post, I more or less took the mainstream progressive view: programs like Social Security are risk-spreading programs that provide insurance against common risks like disability, living too long, poor health in old age, and so on.  Since then, I undertook to write a chapter on social insurance for a forthcoming Research Handbook in the Law and Economics of Insurance,. In writing the chapter, I decided that things were somewhat more complicated. In brief, I still think that social insurance programs—or, rather, the programs that are generally thought of as social insurance, since there is no good definition of them out there—provide risk-spreading insurance when viewed over a long time horizon. So from a lifetime perspective, the insurance function means that most people are made better off, even though a program as a whole may be a zero-sum game in dollar terms. But in the short term, it’s pretty clear that Social Security and programs like it are largely redistributive rather than risk-spreading, because in the short term I have no chance of collecting retirement benefits and little chance of collecting disability benefits. In other words, I think a crucial feature of social insurance is that it is redistributive in the short term but risk-spreading in the long term. I happen to think that the world would be a better place if we considered the long term and, therefore, decided to maintain these programs. But I don’t think it’s obviously true that a lifetime perspective is correct and a one-year perspective is incorrect.

Another conservative governor finds a way to expand Medicaid: It looks as if Indiana is about to join the list of red states signing up for Obamacare's Medicaid expansion. Republican Gov. Mike Pence, after months of discussions with the Obama administration, is offering a new plan Thursday morning to expand coverage to low-income uninsured Hoosiers. As expected, he's doing it through an existing state insurance program for adults that's been championed by some conservatives. About two dozen states still haven't joined the Affordable Care Act Medicaid expansion, which extends coverage to low-income adults earning up to 138 percent of the federal poverty level. Some states like Texas and Louisiana seem pretty entrenched in their opposition to major elements of Obamacare. Other red states, however, are still looking for alternative ways to accept hundreds of millions, and even billions, in federal dollars to expand coverage — all while trying to maintain some rhetorical and policy distance from the Medicaid expansion envisioned by the ACA. The White House is pushing reluctant states to expand Medicaid to close an unintentional coverage gap created by the Supreme Court's 2012 decision on the health-care law. Among the states that haven't expanded, there are about 5 million poor adults who don't earn enough to qualify for federal subsidies on the Obamacare health insurance marketplaces.

A sneaky lie that left 750,000 Floridians without health coverage -  In short, your state leaders lied when they told you they would come up with an alternative to Medicaid expansion. You remember that, right? Back when Gov. Rick Scott said he couldn't in good conscience deny health care to uninsured residents during the three years the federal government was footing the entire bill? Back when the Senate came up with a plan to use Medicaid funds to purchase private insurance for the poorest of poor among us? Back when the House rejected federal funds of any kind? "If we're going to say 'no' to Medicaid expansion, let's say "yes' to something,'' Sen. Joe Negron, R-Stuart, said more than a year ago. "There's a desire to do the right thing and try to find a way to provide a safety net for this population that works,'' Rep. Richard Corcoran, R-Land O'Lakes, said around the same time. "There's all kinds of things we can look at.'' "We will stand up to their inflexible plan and we'll work on our own solution, one that better reflects the needs and priorities of our state,'' Rep. Will Weatherford, R-Wesley Chapel, said in a speech some 13 months ago. Yet the House and Senate made it through the entire 2013 legislative session without a solution. And with the 2014 session soon to end, they'll be on a two-year useless streak.

ObamaCare Post-Victory Lap Cooldown - The captains and the kings depart, the tumult and the shouting dies, and we and the press have weeks ago moved on from the days of Democratic triumphalism over ObamaCare’s 8 million sign-ups; from ObamaCare’s exhortation that Democrats be “proud” that the ranks of the insured are now about 2% below pre-depression levels. So now is the time to start framing questions for how successful ObamaCare is as policy, now that the original — and absurdly lowballed — metric for success has been met. (That the press was helpfully complicit in accepting sign-ups as a metric for success is one of Obama’s many public relations triumphs.) And absurdly — pathetically — lowballed ObamaCare’s initial triumph has been. Here’s what CBO projected for sign-ups in 2012: CBO and JCT now estimate that the ACA, in comparison with prior law before the enactment of the ACA, will reduce the number of nonelderly people without health insurance coverage by 14 million in 2014 and by 29 million or 30 million in the latter part of the coming decade, leaving 30 million nonelderly residents uninsured by the end of the period (see Table 3, at the end of this report). Before the Supreme Court’s decision, the latter number had been 27 million.  Does 14 look like 8 to you? Did I not get the memo? (Now, you can get to 14 million if you also count those who bought private insurance before the deadline, but (1) that’s not how CBO did its calculations, and (2) that says nothing good about the quality of ObamaCare’s site(s) or its policies.)

Obamacare premiums for 2015 begin to roll out: The first suggested Obamacare premium prices for 2015 don't look so scary, but a few states could soon be in for some nasty sticker shock. Health insurers that are still processing enrollments from Obamacare signups are at the same time setting their premiums for 2015 individual policies—and setting the stage for more debate about the Affordable Care Act. Virginia and Washington state have disclosed proposed premium rate increases for insurers for 2015, and more states could be following suit this week, according to media reports. Trends from those two states, while not a guarantee of what will happen elsewhere, suggest that fears of double-digit average increases for Obamacare plans nationally may be overblown. Anthem HealthKeepers—which insures about 110,000 people in Virginia—told the state that its premiums would jump an average of 8.5 percent there, The Wall Street Journal reported Monday.   But there was a wide range of price jumps that individual buyers of Anthem HealthKeepers policies will actually see. While some customers may have rate hikes of just 0.5 percent, others will be faced with a bill that is 16.6 percent higher, the Journal said.

UnitedHealth Leads Plan to Reveal Health Prices to Consumers - UnitedHealth Group (UNH) Inc., the largest U.S. health insurer, will lead an industry effort to throw a spotlight on the prices paid for health-care services, making their costs available to consumers on the Internet. The effort, announced today and organized by a nonprofit called the Health Care Cost Institute, builds on steps the Obama administration has taken to shed light on prices charged by health-care providers. Medicare, the program for the elderly and disabled, released databases in 2013 and this year that revealed what it paid hospitals and physicians, over the objections of both industries. The new initiative is more constrained, offering consumers a “reference price” for health services in their communities, based on aggregated data from insurers, said David Newman, the executive director of the Washington-based institute. Customers of the insurers will get more precise information about prices, including how much they’ll have to pay out of pocket. “The public has been clamoring for this,” Newman said in a telephone interview. “This was the next natural step for us as an institute to evolve to.”

Should health care be rationed? It already is -- Opponents of universal health care often claim that in order to afford it we will have to ration health care. My response to that old shibboleth is that we already pay more than enough to cover everybody, and that we already ration health care, as we must in a world of finite financial and real resources. The real question is not, “Should we ration health care?” but rather, “What’s the fairest way to do it?” In all other wealthy countries, where everybody has a right to health care, rationing is done on the basis of medical need. The more urgent the need, the sooner care is provided. Urgent care is provided promptly, and less urgent care may be put off for awhile.  In many cases, delaying care is actually a good thing. There is a growing recognition that in the U.S. some types of care are too accessible, resulting in costly and risky overuse of many tests and treatments that have little or no value, and others that may actually do more harm than good. In exchange for restricting access to some tests or treatments of little or no value, we could reduce overall health care costs significantly and largely eliminate cost as a factor in deciding who receives medical care and what kind of care they receive. In most other wealthy countries, the ability to pay does not enter into the thinking of either the patient or the doctor.

$1.2 Billion Obamacare Contract Pays Workers to Do Nothing - Check out this video of Obamacare contractors paid to do nothing, literally. An employee of Serco, a company with a $1.2 billion government contract to handle paper healthcare applications has some rather interesting, and believable claims.  "There are some weeks that a data entry person would not process an application. The main thing is the data entry side does not have hardly any work to do. They're told to sit at their computers and hit the refresh button no more than every 10 minutes. They're monitored, to hopefully look for an application. Their goals are to process 2 applications a month, and some people are not even able to do that. There are centers in Missouri, Kentucky, and Oklahoma. 1,800 people trying to get 1 of 30 application that pop up. Serco, gets paid for the number of people they employ. So they want us there even if we are not doing anything."

Nearly a third of all California hospital admissions linked to diabetes -  Patients with diabetes account for nearly one in three hospitalizations in California, according to a new study on the prevalence of diabetes in hospitals and its impact on providers and health care costs. The study of hospital discharge records, conducted by the UCLA Center for Health Policy Research with support from the California Center for Public Health Advocacy, finds that among all hospitalized California patients aged 35 or older — the age group that accounts for most hospitalizations — 31 percent had diabetes. Although diabetes may not be the initial reason for the hospitalizations, the disproportionate share of patients with diabetes highlights the impact this disease is having on California’s health care costs, says the report. The research also showcases the percent of hospitalizations of patients with diabetes and related costs by county. “If you have diabetes, you are more likely to be hospitalized, and your stay will cost more,” says Ying-Ying Meng, lead author of the study and a researcher at the UCLA Center for Health Policy Research. “There is now overwhelming evidence to show that diabetes is devastating not just to patients and families but to the whole health care system.” Diabetes is one of the nation’s fastest-growing diseases and one of the most costly. It adds an extra $1.6 billion dollars every year to hospitalization costs in California, with hospital stays for patients with diabetes costing nearly $2,200 more than stays for non-diabetic patients, according to the study. Three-quarters of that care is paid through Medicare and Medi-Cal, the study authors found, including $254 million in costs that are paid by Medi-Cal alone.

Nurses Launch New Campaign to Alert Public to Dangers of Medical Technology and Erosion of Care Standards -- Sweeping changes underway in the nation's health care delivery system that expose hundreds of thousands of patients to severe risk of harm are the focus of a major new national campaign by the nation's largest organization of nurses announced today. An unchecked proliferation of unproven medical technology and sharp erosion of care standards are rapidly spreading through the health care system, far outside the media spotlight but frighteningly apparent to nurses and patients, says National Nurses United. Hospitals and other healthcare industry giants are spending billions of dollars on medical technology sold to the public as the cure for everything from medical errors to cutting costs. But the reality is proving to be far different, warns NNU. Bedside computers that diagnose and dictate treatment for patients, based on generic population trends not the health status or care needs of that individual patient, increasingly supplant the professional assessment and judgment of experienced nurses and doctors exposing patients to misdiagnosis, mistreatment, and life-threatening mistakes. Computerized electronic health records systems too often fail, leaving doctors and nurses in the dark without access to medical histories or medical orders. The Office of the Inspector General for the Health and Human Services Department has reported widespread flaws in the heavily promoted systems. Telemedicine and robotics marketed as improved care deprive patients of individualized care so essential to the therapeutic process central to healing.

Former Head of Glaxo in China Is Accused of Bribery - — Chinese authorities sent a strong warning to the pharmaceutical industry on Wednesday, implicating a top Western executive at GlaxoSmithKline in a long-running bribery scheme.While major pharmaceuticals have faced increased scrutiny of their marketing practices from governments around the world, China’s actions go significantly further by singling out a foreign national, a move that could potentially prompt drug companies to rethink their strategy in the fast-growing market.On Wednesday, Chinese police accused Mark Reilly, the former head of Glaxo’s China operations, of ordering his subordinates to form a “massive bribery network” that resulted in higher drug prices and illegal revenue of more than $150 million. As part of that scheme, Mr. Reilly, a Briton, and two Chinese-born Glaxo executives, Zhang Guowei and Zhao Hongyan, had even arranged to bribe government officials in Beijing and Shanghai, authorities said at a news conference in Beijing.  Such accusations are an escalation in the case and increase the pressure on Glaxo and other industry players in China. Major American and European drug makers have spent the last several years bolstering their presence in the country, hiring sales agents and opening research centers in the hope of gaining a foothold in what many think will soon be the world’s second-largest pharmaceutical market, ahead of Japan and behind the United States.

Venezuela Public Health Crisis: Nation Short On HIV-AIDS Virus Treatment: Venezuela is amidst an internal struggles, as the nation's citizens have been rallying against President Nicolás Maduro's government since February of 2014. According to a new survey from the polling group Datanálisis, the majority of the Venezuelan public (59.2 percent) disapproves of Maduro's performance as the leader of the South American nation after he succeeded Hugo Chávez and in light of the protests. Now there's more bad news for Venezuelans and Maduro's government, as a potential public health crisis could be looming over the South American country. The nation -- which is notorious for its shortages of basic essentials -- is reportedly running low of the medicines that treat the HIV-AIDS virus. This shortage will directly impact the 50,000-some Venezuelans that are taking the antiretroviral medicines, which prevent the HIV virus from transitioning into AIDS. In fact, local non-profit groups claim that thousands are currently living without their medications already.

Saudi Arabia warns of MERS risk from camels as cases rise (Reuters) - Saudi Arabia said people handling camels should wear masks and gloves to prevent spreading Middle East Respiratory Syndrome (MERS), issuing such a warning for the first time as cases of the potentially fatal virus neared 500 in the kingdom. Health experts say camels are the most likely animal source of infection for the disease, which the Saudi Health Ministry said on Sunday three more people had caught and four had died from. First reported two years ago in Saudi Arabia, MERS is a coronavirus like SARS, which originated in animals and killed around 800 people worldwide after first appearing in China in 2002. There is no vaccine or anti-viral treatment against it. Around a third of the 483 diagnosed with MERS in Saudi Arabia have died. Saudi Arabia is still the focal point of the outbreak, although cases have been reported in other Middle Eastern countries, in Europe and in the United States, which had its first confirmed case last month. The link between human cases and camels - which have a special place in Saudi society - is the subject of extensive study among scientists abroad. But it has been relatively absent from much of the official domestic debate.

MERS virus threat “significantly increased” --The World Health Organization issued a more urgent warning Wednesday about the spread of the potentially deadly Middle East respiratory syndrome, or MERS. 18 countries, including the United States, are now reporting cases. Experts say there are some possible ways to detect the virus. Health officials say hundreds of people may have been exposed to the MERS virus by flying on planes, within the United States, with two MERS patients who are now in Florida and Indiana. They’re both healthcare workers who came to the U.S. after being infected in Saudi Arabia. One woman who flew on the same flight as a sick MERS patient told CNN affiliate WKMG, she was informed by her state health agency of her potential exposure. “They informed me that there was a confirmed case of the MERS virus from my flight from Atlanta to Orlando. I was really scared.”   Experts say it does take sustained, close contact with a patient, to get it, but they also say- MERS, like ‘SARS,’ is worrisome. “With SARS, it spread so far because people carrying the disease from Asia went to many different parts of the world and unfortunately when they got sick and went into hospitals or were taken care of by family members, they were able to infect people who were at close range.”

How "Hyperpalatable" Foods Could Turn You Into A Food Addict - Over a third of the global population is now overweight, and the percentages are increasing. Some neuroscientists have suggested that the rise of so-called "hyperpalatable foods" may partially explain the unprecedented rates of obesity. Our food environment has changed dramatically over the years, most notably through the introduction of so-called "hyperpalatable" foods. These foods are deliberately engineered in such a way that they surpass the reward properties of traditional foods, such as vegetables, fruits, and nuts. Food chemists achieve this by suffusing products with increased levels of fat, sugar, flavors, and food additives. David A. Kessler, former head of the FDA, claims that the food industry has combined and created foods in a way that taps into our brain circuitry, thus stimulating our desire for more. On their own, these ingredients aren't particularly potent, but when combined in specific ways, they tap into the brain's reward system, creating a feedback loop that stimulates our desire to eat and leaves us wanting more — even when we're full.

The Toxic Brew in Our Yards - IN much of the country, it’s time to go outside, clean up the ravages of winter and start planting. Many of us will be using chemicals like glyphosate, carbaryl, malathion and 2,4-D. But they can end up in drinking water, and in some cases these compounds or their breakdown products are linked to an increased risk for cancer and hormonal disruption.Some of those chemicals are also used by farmworkers, and there is a growing recognition that they can be hazardous. The Environmental Protection Agency is proposing regulations that will limit farmworkers’ exposure to dangerous pesticides and is accepting comments on these changes through June 17. These new rules are meant to reduce the incidence of diseases associated with pesticide exposure, including non-Hodgkin’s lymphoma, prostate cancer, Parkinson’s disease and lung cancer.Homeowners who use these toxins on their yards and gardens are exposing themselves to the same risks. They aren’t necessary. We don’t need them to have pleasant environments. Together we can make a substantial improvement in our water quality simply by refraining from using synthetic pesticides, weedkillers and fertilizers on a routine basis. Occasional localized use to deal with an otherwise uncontainable infestation, or to deal mindfully with an invasive species, is not the problem, but routine, frequent and widespread use is.The United States Fish and Wildlife Service says homeowners use up to 10 times more chemicals per acre than farmers do. Some of these chemicals rub off on children or pets, but most are washed with rainwater into our streams, lakes and rivers or are absorbed into our groundwater. These are the sources of our drinking water, and tests show these chemicals are indeed contaminating our water supply.

Young Children Are Getting Sick Working on U.S. Tobacco Farms: Children as young as 7 years old are suffering serious health problem from toiling long hours in tobacco fields to harvest pesticide-laced leaves for major cigarette brands, according to a report released Wednesday.New York City–based advocacy group Human Rights Watch (HRW) interviewed more than 140 youngsters working on tobacco farms in North Carolina, Kentucky, Tennessee and Virginia, where most American tobacco is sourced.They reported nausea, vomiting, headaches and other health problems associated with nicotine poisoning, known colloquially as green tobacco sickness, which is common among agricultural workers who absorb the toxic substance through their skin.“The U.S. has failed America’s families by not meaningfully protecting child farmworkers from dangers to their health and safety, including on tobacco farms,” said Margaret Wurth, HRW children’s-rights researcher and co-author of the report.“Farming is hard work anyway, but children working on tobacco farms get so sick that they throw up, get covered by pesticides and have no real protective gear.”Much of what HRW documented remains legal. While strict provisions govern child labor in industrial environments, U.S. agriculture labor laws are much looser, allowing 12-year-olds to labor for unlimited hours outside of school on any size of farm. On small farms, there is no minimum age set for child workers.

Monsanto Meets its Match in the Birthplace of Maize - On April 21, a Mexican judge dealt a blow to the efforts of agricultural behemoth Monsanto and other biotech companies to open the country to the commercial cultivation of genetically modified (GM) maize. The ruling upheld the injunction issued last October that put a halt to further testing or commercial planting of the crop, citing “the risk of imminent harm to the environment.” In a fitting tribute to Mexican surrealism, Monsanto had accused the judge who upheld the injunction of failing to be “impartial.” I had just arrived in Mexico to look at the GM controversy, and I could tell it was going to be quite a visit. The original injunction came last October as the result of a class action suit filed by 53 citizen plaintiffs, including farmers, environmentalists, and consumers. They claimed the Mexican government’s approval of permits for planting genetically modified maize violated the country’s laws guaranteeing the protection of native varieties. The legal case is complex, but the core issue couldn’t be simpler. Mexico is recognized as the “center of origin” for maize, and is home to many diverse strains of the crop’s seeds. Each of these core strains—known as landraces—evolved over thousands of years in Mexico to adapt to both local environmental conditions and human tastes and desires. Each landrace has evolved further into a rich array of local varieties. Southern and central Mexico have long been known as the homes of maize biodiversity. Every year, indigenous communities there select their best seeds for planting the next crop cycle. That simple process, and the free exchange of seeds with other farmers, has produced the complex diversity that we find today.

Climate change making food crops less nutritious, research finds Rising carbon dioxide emissions are set to make the world's staple food crops less nutritious, according to new scientific research, worsening the serious ill health already suffered by billions of malnourished people. The surprise consequence of fossil fuel burning is linked directly to the rise in CO2 levels which, unlike some of the predicted impacts of climate change, are undisputed. The field trials of wheat, rice, maize and soybeans showed that higher CO2 levels significantly reduced the levels of the essential nutrients iron and zinc, as well as cutting protein levels. "We found rising levels of CO2 are affecting human nutrition by reducing levels of very important nutrients in very important food crops,"  "From a health viewpoint, iron and zinc are hugely important."Myers said 2 billion people already suffer iron and zinc deficiencies around the world. This causes serious harm, in particular to developing babies and pregnant women, and currently causes the loss of 63m years of life annually. "Fundamentally the concern is that there is already an enormous public health problem and rising CO2 in the atmosphere will exacerbate that problem further." While wheat, rice, maize and soybeans are relatively low in iron and zinc, in poorer societies where meat is rarely eaten they are a major source of the nutrients. About 2.4bn people currently get at least 60% of their zinc and iron from these staples and it is over 75% in Bangladesh, Iraq and Algeria.

Climate Change Will Strengthen Pests, Weaken Crops, Studies Say -- Count weeds and insect pests among the beneficiaries of climate change. Meanwhile, the crops we need will have fewer nutrients that make them beneficial, scientists revealed this week. At the root of the problem: Rising carbon dioxide levels, warming temperatures and more frequent extreme weather events do not treat all plants, insects and soil nutrients equally, according to a new federal climate report and a Harvard University study. "Weeds are going to be winners under any climate change scenario that we anticipate," said Lewis Ziska, a plant physiologist at the U.S. Department of Agriculture's crop systems and global change program, and co-author of the National Climate Assessment. Crop-devouring insects, too, are predicted to win. Ultimately, the biggest losers may be us. April was the first month in human history when carbon dioxide levels averaged greater than 400 parts per million in the atmosphere. It's an arbitrary but ominous milestone, according to experts, who forecast concentrations of the greenhouse gas will surpass 550 parts per million within the next 40 years. Both food crops and their weedy nemeses thrive on carbon dioxide. It's the core ingredient of photosynthesis, the process by which a plant coverts energy from the sun into sugar to grow. Yet some plants turn the gas into a competitive edge more efficiently than others.  "A lot of our worst weeds benefit the most from high carbon dioxide,"

Fed survey: 23% of bee colonies died this winter - — Nearly one out of four American honeybee colonies died this winter — a loss that's not quite as bad as recent years, says a new U.S. Department of Agriculture survey of beekeepers. Under siege from parasites, disease, pesticide use, nutrition problems and a mysterious sudden die-off, 23 percent of bee colonies failed and experts say that's considerably less than the previous year or the eight-year average of 30 percent losses. "It's better news than it could have been," said Dennis van Engelsdorp, a University of Maryland entomology professor who led the survey. "It's not good news." Before a parasitic mite — just one of a handful of problems attacking the crucial-for-pollination honeybees — started killing bees in 1987, beekeepers would be embarrassed if they lost more than 5 or 10 percent of their colonies over the winter. Now they see a 23 percent loss as a bit of a break, said survey co-author Jeff Pettis, USDA's bee research chief. "It's encouraging that if anything it's not a steady downward trend," said University of Illinois entomology professor May Berenbaum, who wasn't part of the survey of 7,200 beekeepers. David Mendes, a North Fort Myers beekeeper and past president of the American Beekeeping Federation, thinks the numbers are lower than reality. His losses were around 30 percent, he said. And then earlier this year there was a massive die-off in the California almond fields, where "probably 100,000 hives got nailed,"

USDA Reports Honeybee Death Rate Too High for Long-Term Survival - Honeybees in the U.S. are dying at a rate too high to ensure their long-term survival, according to a new report from the U.S. Department of Agriculture (USDA). This chart shows the total losses (red bars) of managed honeybee colonies in the U.S. over the past eight winters. The acceptable loss range (blue bars) is the average percentage of acceptable loss declared by honeybee colony managers for each of the eight winters. Credit: U.S. Department of Agriculture Over the past winter—a season when honeybee hives are most vulnerable—the U.S. lost 23.2 percent of its hive honeybee population. That is lower than the previous winter’s 30.5 percent death rate, but the cumulative impact on honeybee populations over the past eight years poses a major threat to their long-term survival, as well as the country’s agricultural productivity, the USDA said. Roughly one-quarter of U.S. crops depend on honeybees for pollination. “Yearly fluctuations in the rate of losses like these only demonstrate how complicated the whole issue of honey bee heath has become,” said a USDA researcher, citing factors such as viruses, pathogens, and pesticides.

Even Tiny Amounts of Radioactive Food Made Caterpillars Become Abnormal Butterflies -- It's no surprise that radiation is bad for animals, but how much is too much? Researchers in Japan decided to put this question to the test for the pale grass blue butterfly, a species commonly found around the remains of the Fukushima Daiichi Nuclear Power Plant. And, they discovered, even a small amount of radiation is too much. Rather than study butterflies in the environment, the researchers performed meticulous lab experiments on specimens collected in Okinawa, far from any radioactive contamination. The scientists collected plant material from around Fukushima and fed it to pale grass blue butterfly caterpillars. When the caterpillars turned into butterflies, they suffered from mutations and were more likely to die early than ones that had not eaten radioactive plants. This finding applied even to those butterflies had only eaten a small amount of artificial caesium as caterpillars. "We conclude that the risk of ingesting a polluted diet is realistic, at least for this butterfly, and likely for certain other organisms living in the polluted area," the team concludes. In other words, things don't look good for the animals living around Fukushima.

All of Calif. in severe drought for 1st time this century: Today, for the first time this century, the entire state of California is in a severe drought -- or worse. That's according to the U.S. Drought Monitor, a federal website that has tracked drought across the country since 2000. The level of drought in California is "unprecedented" during the 14-year-history of the monitor, according to climatologist Mark Svoboda of the National Drought Mitigation Center in Lincoln, Neb. The three worst levels of drought are severe, extreme and exceptional: 100% of the state is now in one of those three categories: (23.31% severe, 51.92.% extreme and 24.77% exceptional.) Exceptional drought encompasses central parts of the state, including the entire San Francisco Bay Area. San Diego and Los Angeles -- where wildfires have scorched 14 square miles this week -- are both under "extreme" drought conditions. So far this year, San Diego has received only 2.8 inches of rain, less than half of average, according to the National Weather Service. Svoboda calls the current drought once in a generation; the most comparable recent one would be the drought of 1976-77. But the impacts today are more intense because the state's population has doubled since then while the state's water supply has remained fixed, he said. Svoboda said the only other California drought similar to today's was during the 1920s. But the state's population then was 1/10th of what it is now.

Big Water -- The rain is hard here in California, when it comes. It is not like rain in the East or in any part of Europe I’ve been, including the Mediterranean. And while it is not harder than a tropical thunderstorm or one of those billowing mountains of black that sweep across the Plains states, it pounds at the ground with a driving consistency that can last for days, as out of Pacific-driven clouds fall billions and billions of gallons of water.But all this water is an illusion, one that has given rise to modern California as much as the sunshine, rich soil, and cool sea breezes. Even as the Laguna de Santa Rosa—the wetland that my new hometown of Sebastopol is built on the edge of—widens into a lake after a winter storm, and even as feet of snow fall in the mountains just a few hours away, it is not real. The green grass on the burnt hills is not real and neither are the budding grape vines stretching to the horizon. None of them are real in today’s California, which is built to use so much more water than could ever fall from the sky in one day, week, or month, in order to fulfill not just one messianic dream but several—of feeding the world, of supporting tens of millions of people, and of doing this all in a natural setting that is supposed to fill the soul with wonder.

Depletion Of California’s Groundwater Is Triggering Earthquakes, Study Finds -- A study published in the journal Nature on Wednesday found that the depletion of groundwater in California’s San Joaquin Valley is putting pressure on the San Andreas Fault, which could be increasing the risk of earthquakes in the region. Colin Amos, Assistant Professor at Western Washington University and lead author of the study, said he was “absolutely” surprised by the results of the study — the researchers hadn’t started out looking into whether groundwater removal affected earthquake activity, but when they looked at the GPS data for the region, they noticed tectonic activity was clustered around the region where groundwater was being lost.  “The upward portion of the earth behaves elastically — if you push on it and remove that force, it snaps back,” Amos said. He said that the the rocks underneath California are loaded by the weight of groundwater, and if that groundwater is removed, the rocks rise slightly. Because there are faults in those rocks, the faults experience a stress change while the rocks shift upwards. Amos and his team hypothesize that this change in stress could be responsible for changes in earthquake activity in the region. Amos said linking earthquakes to groundwater removal isn’t unprecedented — one study found a 2011 magnitude 5.1 earthquake in Lorca, Spain may have been triggered by groundwater extraction in the region. Other human activities have been tied to quakes — Amos said filling up or draining large reservoirs can also trigger fault activity, and scientists have linked wastewater injection from fracking operations to clusters of small earthquakes in regions that previously had had little tectonic activity.

As Population Surges, Harsh Climate Of Southwest Will Only Get Harsher - A new report from several hundred scientists underpins the impacts already being felt across the Southwest as a crippling drought grips California and states across the region struggle to allocate water to meet the demand of communities, industries and ecosystems. “Just think of this year’s California drought — the type of hot, snowless, severe drought that we expect more of in the future,” Gregg Garfin, a lead author of the Southwest portion of the National Climate Assessment said. A harsh climate is nothing new for the Southwest, even before it was exacerbated by climate change.  The Southwest is as hot and dry as ever, but the traditional challenges are compounded by an abundance of urban dwellers flocking to the region for the year-round sun and outdoorsy lifestyle. The Congressionally-mandated assessment from over 300 climate scientists and experts shows how climate change could undercut this quintessentially American settling of the West — a trend that’s reached a boiling point after several hundred years of steady buildup. The Southwest portion of the National Climate Assessment reads like a warning for future travelers to the region:  The Southwest is the hottest and driest region in the United States, where the availability of water has defined its landscapes, history of human settlement, and modern economy. Climate changes pose challenges for an already parched region that is expected to get hotter and, in its southern half, significantly drier. The introduction actually notes that tourism and recreation will be significantly “affected by reduced streamflow and a shorter snow season, influencing everything from the ski industry to lake and river recreation.” All the while, the population of the area is expected to increase from 56 million people to 94 million people by mid-century, an increase of more than two-thirds.

How 'Big Corn' lost the ethanol battle to Philadelphia refiners: - Six months ago the U.S. oil industry scored a surprise win against farm groups when the Obama administration proposed slashing the amount of ethanol refiners must blend into gasoline, a move that could save them billions of dollars. Stunned by the reversal, producers of the corn-based biofuel and their supporters are now fighting back ahead of a June deadline for the Environmental Protection Agency (EPA) to make a final decision on the cut. The clash has been portrayed as a battle between "Big Oil" and "Big Corn," two powerful and deep-pocketed lobbies. But a Reuters review of public records and interviews with lawmakers, lobbyists and executives reveals a more complex picture. A private equity firm and an airline helped convince the Obama administration to backtrack, at least temporarily, on a policy it has supported for years: requiring steadily-rising volumes of ethanol to be blended into gasoline each year, a key to shifting U.S. energy consumption toward renewable sources. More coverage Brady: 'We fixed it' The ethanol industry, blindsided by the proposed cut, has said it was orchestrated by "Big Oil." However, some of the most effective players in the fight weren't traditional oil majors but rather The Carlyle Group and Delta Air Lines, owners of two Philadelphia-area refiners.

‘Methane backpacks’ capture cow farts, turn them into green fuel - It’s common knowledge that certain types of organic waste can be harnessed as energy sources, with UK firm 2OC even recently turning huge greaseballs found in the country’s sewers into power for local homes. Now Argentina’s INTA governmental research body has developed cow backpacks that trap the methane they produce in order to turn it into green energy.According to the Environmental Protection Agency, methane accounts for nine percent of all greenhouse gas emissions in the US, and the agriculture sector is the primary source of these emissions. Recognizing that methane released into the atmosphere is damaging to the environment, but valuable as an energy resource when captured, scientists at INTA developed a system that places a cannula tube into the digestion tract of cattle in order to directly collect any methane produced. The tube runs from the cows’ rumen into an inflatable bag secured to their back. Each sac gets filled with the 1,200 liters of various gases emitted each day, which is then taken to a lab to separate the 250 to 300 liters of methane contained inside. The gas can then be compressed and stored in containers, ready for use to power a fridge or even a car.

Last Month Was The Second Warmest April Ever Recorded - We may not have felt it in the United States, but last month was the second-warmest April worldwide since scientists began recording temperature data, according to a preliminary report from NASA.  Around the planet, April temperatures averaged 58.5°F, which is 1.3°F above average temperatures. This is only a tad lower than than the warmest April ever recorded, a milestone hit in 2010 when NASA calculated global temperatures of 1.44°F above average, according to the data sheet.  The data announcement also marks this April as the 350th month in a row where the globe has experienced above-average temperatures, a phenomenon that scientists agree is largely caused by increases of man-made greenhouse gases emitted into the atmosphere. Incidentally, April 2014 also marked the first month in human history when average carbon dioxide levels in the atmosphere reached above 400 parts per million.

Crazy Climate Economics, by Paul Krugman -- Until now, the right’s climate craziness has mainly been focused on attacking the science. And it has been quite a spectacle: At this point almost all card-carrying conservatives endorse the view that climate change is a gigantic hoax, that thousands of research papers showing a warming planet — 97 percent of the literature — are the product of a vast international conspiracy. But as the Obama administration moves toward actually doing something based on that science, crazy climate economics will come into its own.  You can already get a taste of what’s coming in the dissenting opinions from a recent Supreme Court ruling on power-plant pollution. A majority of the justices agreed that the E.P.A. has the right to regulate smog from coal-fired power plants, which drifts across state lines. But Justice Scalia didn’t just dissent; he suggested that the E.P.A.’s proposed rule — which would tie the size of required smog reductions to cost — reflected the Marxist concept of “from each according to his ability.” Taking cost into consideration is Marxist? Who knew? And you can just imagine what will happen when the E.P.A., buoyed by the smog ruling, moves on to regulation of greenhouse gas emissions.  First, we’ll see any effort to limit pollution denounced as a tyrannical act. Second, we’ll see claims that any effort to limit emissions will have what Senator Marco Rubio is already calling “a devastating impact on our economy.”

Dire outlook for climate impacts, new report says - The most dire government warning yet about climate change says that people are feeling the effects of warming here and now in the United States.  The National Climate Assessment, produced every four years by the U.S. Global Change Research Program, is the third report in the current series that outlines the present and ongoing effects of climate change on the country. Citing record temperatures in the last decade, heavy rainfall and flooding in some places and drought in others, more frequent and stronger hurricanes, as well as winter storms, the report states: "Global climate is changing and this is apparent across the United States in a wide range of observations. The global warming of the past 50 years is primarily due to human activities, predominantly the burning of fossil fuels." "Climate change is not a distant threat; it's already affecting every region of the country and economy," Looking to future climate, the report states that temperatures will continue to rise over the next several decades, given the climate-changing gases that are in Earth's atmosphere. How much they will rise after that depends on how much humans curtail the release of the gases that cause climate change. If emissions can be kept in check, temperatures could rise as much as 6 degrees Fahrenheit in parts of the United States in the last few decades of the century. If emissions rise, the nation starts to look very hot, with much of the country -- especially the interior -- roasting under 8 to 9 degree rises in average heat levels.

The Oceans Warmed up Sharply in 2013: We're Going to Need a Bigger Graph - Because the oceans cover some 71% of the Earth's surface and are capable of retainingheat around a thousand times that of the atmosphere, the oceans are where most of the energy from global warming is going - 93.4% over recent decades. So greenhouse gases emitted by human industrial activity not only cause more heat to become trapped in the atmosphere, they also cause more of the sun's energy to accumulate in the oceans.Long-term the oceans have been gaining heat at a rate equivalent to about 2 Hiroshima bombs per second, although this has increased over the last 16 or so years to around 4 per second. In 2013 ocean warming rapidly escalated, rising to a rate in excess of 12 Hiroshima bombs per second - over three times the recent trend. This doesn't necessarily mean we are entering a period of greatly accelerated ocean warming, as there is substantial year-to-year variation in heat uptake by the oceans. It does, however, once again dispel the persistent myth of a pause in global warming, because the Earth has actually continued to warm faster in the last 16 years than it did in the preceding 16 years.As can be seen in Figure 1 below, the global oceans have warmed so quickly in 2013 that the National Oceanographic Data Center (NODC) is going to need a bigger graph.        

West Antarctic Ice Sheet's Collapse Triggers Sea Level Warning - Two teams of scientists say the long-feared collapse of the West Antarctic Ice Sheet has begun, kicking off what's likely to be a centuries-long process that could raise sea levels by as much as 15 feet. "There's been a lot of speculation about the stability of marine ice sheets, and many scientists suspected that this kind of behavior is under way," Ian Joughin, a glaciologist at the University of Washington in Seattle, said in a news release about one of the studies released Monday. "This study provides a more qualitative idea of the rates at which the collapse could take place." The findings from Joughin and his colleagues, published in the journal Science, indicate that in some places, Antarctica's Thwaites Glacier is losing tens of feet, or several meters, of ice elevation every year. They estimate that Thwaites Glacier would probably disappear entirely in somewhere between 200 and 1,000 years. That loss would raise global sea levels by nearly 2 feet (60 centimeters). The glacier serves as a linchpin for the rest of the West Antarctic Ice sheet, which has enough frozen mass to cause another 10 to 13 feet (3 to 4 meters) of sea level rise. A second study, published in Geophysical Research Letters, reports the widespread retreat of Thwaites and other glaciers on the West Antarctic Ice Sheet — and says the retreat can't help but continue. "It has passed the point of no return,"

Antarctic Glacier Loss Is 'Unstoppable,' Study Says -- New data has scientists at the University of California and NASA convinced we've "passed the point of no return" with a slab of ice that makes up 10% of Antarctica's total land ice volume, enough to raise the global sea level by 15 feet if it melts.  The West Antarctic Ice Sheet is one of the keys to global sea level rise. Running up against the Amundsen Sea, it contains an estimated 527,808 cu. miles (2.2 million cu. km) of ice, about 10% of Antarctica’s total land ice volume. That’s enough ice to raise global sea level by more than 15 ft. (4.6 m) were it all to melt, collapse and flow into the ocean, which in turn would swamp coastal cities as far inland as Washington, D.C. And according to new research, that’s exactly what’s beginning to happen. Researchers from the University of California, Irvine, and NASA’s Jet Propulsion Laboratory have found that the group of six glaciers on the ice sheet directly draining into the Amundsen Sea are rapidly melting, as warming ocean water eats away at the base of the ice shelf. That’s making the ice around the West Antarctic Ice Sheet increasingly unstable—and the researchers could find no clear geographical obstacle that would slow down the retreat of the glaciers. Essentially, that means these glaciers—which collectively hold enough ice to boost sea levels by 4 ft (1.2 m)—”have passed the point of no return,” Eric Rignot, a glaciologist with UC-Irvine and NASA and the lead author on the paper, said in a statement. “The retreat of this ice seems to be unstoppable.” Another new study in the journal Science by researchers at the University of Washington gives us an idea of how long that irreversible decline might take—and the news isn’t good. The researchers estimate that the Thwaites Glacier—one of the six Antarctic glaciers also studied in the NASA paper—could collapse within 200 to 500 years. And the collapse of the Thwaites and its bordering glaciers could lead to the loss of the entire West Antarctic Ice Sheet, like removing the keystone from a bridge.

West Antarctic Ice Sheet Melt Past 'Point of No Return,' NASA Says: A glacial region of western Antarctica that’s already melting rapidly has passed “the point of no return,” according to the National Aeronautics and Space Administration. “The collapse of this sector of West Antarctica appears to be unstoppable,” Eric Rignot, a glaciologist at NASA’s Jet Propulsion Laboratory and the University of California, Irvine said today in an e-mailed statement. NASA estimates the glaciers, in the Amundsen Sea region, contain enough water to raise global sea levels by 4 feet (1.2 meters). United Nations researchers in September said sea levels have risen by 19 centimeters (7.5 inches) since the Industrial Revolution, and may rise an additional 26 centimeters to 98 centimeters by 2100. “This sector will be a major contributor to sea level rise in the decades and centuries to come,” Rignot said in the statement. “A conservative estimate is it could take several centuries for all of the ice to flow into the sea.” Rignot is lead author of a study that has been accepted for publication in the journal Geophysical Research Letters, NASA said. The team used radar observations from the two European Earth Remote Sensing satellites, ERS-1 and ERS-2, to track the movement of the “grounding lines,” the place where the floating portion of glacier meets land.

‘Point of no return’: NASA says the ice sheet collapse in West Antarctica is ‘unstoppable’: Ice is melting in the western Antarctic at an “unstoppable” pace, scientists said Monday, warning that the discovery holds major consequences for global sea level rise in the coming decades. The speedy melting means that prior calculations of sea level rise worldwide made by the Intergovernmental Panel on Climate Change will have to be adjusted upwards, scientists told reporters. “A large sector of the West Antarctic ice sheet has gone into a state of irreversible retreat. It has passed the point of no return,” said Eric Rignot, professor of Earth system science at the University of California Irvine. “The retreat of ice is unstoppable,” he said, noting that surveys have shown there is no large hill at the back of these glaciers that could hold back the melting ice. Scientists have been warning about this so-called weak underbelly of western Antarctic for decades, but only since the 1990s have scientists been able to gather detailed information on this remote area. The results are included in pair of published studies that document observational changes in the Antarctic in recent years, and predict the future behavior of the melting ice through computer models.

Scientists Warn of Rising Oceans From Polar Melt - A large section of the mighty West Antarctica ice sheet has begun falling apart and its continued melting now appears to be unstoppable, two groups of scientists reported on Monday. If the findings hold up, they suggest that the melting could destabilize neighboring parts of the ice sheet and a rise in sea level of 10 feet or more may be unavoidable in coming centuries.Global warming caused by the human-driven release of greenhouse gases has helped to destabilize the ice sheet, though other factors may also be involved, the scientists said.The rise of the sea is likely to continue to be relatively slow for the rest of the 21st century, the scientists added, but in the more distant future it may accelerate markedly, potentially throwing society into crisis.Continue reading the main story  Thomas P. Wagner, who runs NASA’s programs on polar ice and helped oversee some of the research, said in an interview. “There’s nothing to stop it now. But you are still limited by the physics of how fast the ice can flow.”Two scientific papers released on Monday by the journals Science and Geophysical Research Letters came to similar conclusions by different means. Both groups of scientists found that West Antarctic glaciers had retreated far enough to set off an inherent instability in the ice sheet, one that experts have feared for decades. NASA called a telephone news conference Monday to highlight the urgency of the findings.

Climate Change Deemed Growing Security Threat by Military Researchers - The accelerating rate of climate change poses a severe risk to national security and acts as a catalyst for global political conflict, a report published Tuesday by a leading government-funded military research organization concluded. The CNA Corporation Military Advisory Board found that climate change-induced drought in the Middle East and Africa is leading to conflicts over food and water and escalating longstanding regional and ethnic tensions into violent clashes. The report also found that rising sea levels are putting people and food supplies in vulnerable coastal regions like eastern India, Bangladesh and the Mekong Delta in Vietnam at risk and could lead to a new wave of refugees. In addition, the report predicted that an increase in catastrophic weather events around the world will create more demand for American troops, even as flooding and extreme weather events at home could damage naval ports and military bases.  In an interview, Secretary of State John Kerry signaled that the report’s findings would influence American foreign policy. “Tribes are killing each other over water today,” Mr. Kerry said. “Think of what happens if you have massive dislocation, or the drying up of the waters of the Nile, of the major rivers in China and India. The intelligence community takes it seriously, and it’s translated into action.”

Stopping Climate Change ‘Almost Impossible’ If China Can’t Quit Coal, Report Says - If China doesn’t begin to limit its coal consumption by 2030, it will be “almost impossible” for the world avoid a situation where global warming stays below 2°C, a new study released Monday found. The study, led by the U.K.’s Center for Climate Change Economics and Policy, recommends China put a cap on greenhouse gas emissions from coal by 2020, and then swiftly reduce its dependency on the fossil fuel. The reductions would not only increase public health and wellness and decrease climate change, but could also “have a major positive effect on the global dynamics of climate cooperation,” the report said.  “The actions China takes in the next decade will be critical for the future of China and the world,” the study said. “Whether China moves onto an innovative, sustainable and low-carbon growth path this decade will more or less determine both China’s longer-term economic prospects in a natural resource-constrained world, … and the world’s prospects of cutting greenhouse gas emissions sufficiently to manage the grave risks of climate change.” In 2011, one-fifth of the world’s total fossil fuel carbon dioxide emissions came solely from China’s coal, and coal was responsible for more than 80 percent of the country’s 8 gigatons of fossil fuel emissions that year.

How eager is China to limit environmental damage from climate change? - They already have ruined the environment here, beyond what most people are willing to believe.  And for a long time to come.  Preventing further environmental damage by limiting climate change seems to the Chinese leadership like a small gain in comparison to the losses which already have been incurred.  Furthermore as Chinese environmental damage accumulates, in relative terms the climate change issue may loom smaller rather than larger. This simple point is not well understood.  Consult the framework from Charles Karelis’s The Persistence of Poverty.  People here talk about the environment more than any place I have been — ever — but they are not talking about climate change.

China, India, US & Pol Eco of Pollution Statistics - We've been conditioned to believe that Chinese cities are the world's most polluted. After all, what would you expect from an authoritarian regime that brooks no dissent--especially about how damaged the environment is? With China becoming the world's factory--it seems every other consumer good is made there nowadays--this expectation is further reinforced. We all know who the environment's bad guys are...or do we, really? Well surprise, surprise: actually, the country with the dubious distinction of having the most polluted cities in the world in terms of air quality is India, not China. Yes, precisely--the world's largest democracy that supposedly focuses on "clean" services like business process outsourcing is numero uno globally. The World Health Organization stats speak for themselves after I chart the concentration of particulate matter 2.5 micrometers or smaller in the air of these cities (PM2.5) that are particularly dangerous since they can penetrate deeply into our lungs. The top 15 are:As per the country's travel campaign, it's incredible India although not in the manner intended. There's not even a contest going by this measure since Beijing, China ranks 77th worldwide among WHO monitoring stations (a PM2.5 of 56). As you can see, it's almost a lockout for the Indian subcontinent save for Qatar and Iran. What, then, explains popular beliefs that China is the world's most polluted country? There is likely a political economy of statistics at play. The United States--a large democracy and service-oriented economy just like India--would of course prefer that a communist and authoritarian system be blamed for intolerably high pollution. CCP authorities hide how bad the situation is, etc. Hence the American Embassy in Beijing providing its own air quality stats to "embarrass" Chinese authorities over their environmental destruction:

178 Groups Demand Answers About TTIP’s Climate Impact - Will the U.S. and Europe consider the climate and environment during their next round of Transatlantic Trade and Investment Partnership (TTIP) negotiations? Nearly 200 civil society organizations hope so, and wrote about their concerns in a letter to trade representatives from the U.S. and Europe. The Center for International Environmental Law led the group of 178 organizations to request answers regarding the potential of an agreement weakening various protections for the environment, health and consumers in order to expedite the passage of an international trade agreement.  “The vast majority of estimates for TTIP’s economic benefits are hypothesized to come from tackling “non-tariff” or “technical barriers” to trade,” the letter reads. “These perceived barriers are also the laws that protect people, the environment and the integrity of our respective economies.” Earthjustice, Friends of the Earth, Clean Water Action, BlueGreen Alliance and Both ENDS are among the global group organizations that signed the letter. Among other things, they are concerned that the top-down approach set forth in some proposals could preempt standards at the state, regional and national level, especially when a response is needed for emerging technologies, new scientific information or crises.

Consumers to be big winners in solar/storage revolution : Renew Economy: Last week we wrote that some utilities in Australia – particularly those in regional areas – accepted that the future would bring big changes to the way energy was produced and delivered, and that communities would use local renewable energy sources and storage to look after their own needs. But what if that change came quicker than even these utilities expected? And if that extended into big towns and the suburbs of major cities? And what if it resulted in a reduction in electricity prices for nearly all consumers? That is the scenario being painted to network operators and the utilities industry by global consulting firm PwC, which says the sector is about to go an unprecedented and rapid transition as dramatic as that which affected other industries. Electricity utilities, it says, are about to face their “Kodak moment” and the key is the emergence of rooftop solar, and its ability provide a cheap source of electricity, as well other “enabling” technologies such as storage and smart software. This, says Mark Coughlin, the power utilities leader for PwC, will fundamentally change the nature of the relationship between utility and the consumer. It will effectively shift the power from the utility to the customer, be they households or businesses, and will challenge the very “right to survive” of the traditional utility.

Taxing the sun: The Koch brothers find a tax they like - The much-maligned fossil fuel titans, the Koch brothers, were in the news last week after their legislative stalking horse, the innocuously named American Legislative Exchange Council (ALEC), was discovered pushing legislation in the states that would establish fees (read: taxes) for hooking solar panels to the existing grid. (Yes, I know it's not exactly a tax because the utilities who are also lobbying for it collect it. Again, very convenient.) Now these are the same Koch brothers who say they hate taxes and anything that looks like a tax and certainly anyone who wants to raise taxes. But taxing solar panel owners is essentially what they are doing in an attempt to make increasingly competitive electricity from solar less competitive with fossil fuels. If they or their surrogates were true to their libertarian principles, they would be fighting to repeal all energy subsidies embedded in federal and state policy including those for fossil fuels. But, of course, they aren't. When they say it's about principle, you can be almost 100 percent certain that it's really just about power--the power to impede an energy transition that is both necessary and inevitable. What's changed the landscape so dramatically is the swiftly falling price of solar energy--so swift, that those in the fossil fuel industry who said solar would never be competitive with fossil fuels are very worried. And, many believe the downward price trend will continue.

UK "needs more home-grown energy": In just over five years Britain will have run out of oil, coal and gas, researchers have warned. A report by the Global Sustainability Institute said shortages would increase dependency on Norway, Qatar and Russia. There should be a "Europe-wide drive" towards wind, tidal, solar and other sources of renewable power, the institute's Prof Victor Anderson said. The government says complete energy independence is unnecessary, says BBC environment analyst Roger Harrabin. The report says Russia has more than 50 years of oil, more than 100 years of gas and more than 500 years of coal left, on current consumption. 'Decisive action' By contrast, Britain has just 5.2 years of oil, 4.5 years of coal and three years of its own gas remaining. France fares even worse, according to the report, with less than year to go before it runs out of all three fossil fuels.

The New Joke Defining the Supercharged Version of ChutzpahWilliam K. Black - The old joke about how to answer the question: “what does chutzpah mean?” – has been rendered woefully inadequate by events. The two variants of the new answer to the question of what chutzpah means are:

  • Chutzpah is when a foreign corporation that commits tens of thousands of criminal acts that sicken and kill humans and animals and pollute the environment demands that a Kangaroo (faux) court order the government of the nation whose citizens were ravaged by those crimes issue an unconstitutional order to its courts ordering them not to hear the victims’ lawsuits seeking compensation for those crimes and demands that fines for billions of dollars be issues against the Nation (i.e., the victims) for refusing to implement that unconstitutional and unconscionable demand of the Kangaroos.”
  • Chutzpah is when a foreign corporation selling cigarettes to the citizens of another nation – for the banal and grotesque purpose of becoming wealthy through the sale of a product it knows to be lethal and addictive – demands that the Kangaroos fine the Nation for the high crime of trying to protect the life and health of its citizens by discoursing smoking.”

(An “also ran” update of the old joke is: “Chutzpah is when the financial elites who grow wealthy through leading the ‘control frauds’ that drove the financial crisis that cost us $21 trillion in lost GDP and 10 million American jobs compare any criticism of them – much less suing or prosecuting them – to Kristallnacht.”)

$1 Trillion in Fossil Fuel Projects Threatened from Climate Action: A new report from the Carbon Tracker Initiative (CTI) finds that there is $1 trillion worth of fossil fuel projects expected over the next decade that could be thrown into doubt if governments begin to take action to curb greenhouse gas emissions. The concept known as the “carbon bubble,” largely put forward by CTI, is based on the notion that in order for the world to avoid the worst effects of climate change, global greenhouse gas emissions will have to be cut back significantly. If action is indeed taken – say through carbon pricing – investors stand to lose billions if not trillions in misallocated capital expenditures. Previous research from CTI found that about two-thirds of the booked reserves from the world’s largest fossil fuel companies – reserves that these companies expect to produce – cannot be burned. The latest report puts a dollar figure on that amount – an estimated $1 trillion over the next decade. By 2050, that figure balloons to $21 trillion. CTI found that the most at-risk region in the world was Alberta, with its abundant reserves of oil sands. Canada is expected to see $400 billion worth of investment through 2025, much of which could be put at risk if the world constrains carbon. Other areas include ultra-deepwater projects such as offshore Brazil or the Arctic.  It is far from clear that countries will actually find the resolve to enact strict limits on carbon pollution, but CTI argues that fossil fuel companies have a lot at stake in ensuring that they do not. ExxonMobil recently said that it was “highly unlikely” that the world would cut emissions significantly. “We are confident that none of our hydrocarbon reserves are now or will become ‘stranded,’” the company wrote in a report this year on risks to its business.

The Tragedy of the Soma Mine-Workers: A Crime of Peripheral Capitalism Unleashed - Yves here. This post explains how the horrific mine explosion in Western Turkey, which has officially claimed nearly 300 lives as the death count continues to rise, was not an accident but the direct result of privatization and circumvention of safety standards. And unlike the West, where industrial and mining accidents are met with short-term sympathy but little if any real change in working conditions, protests have broken out, not just in the mine town of Soma but also in major cities. As Mark Ames has pointed out, American has airbrushed out much of the history of labor’s struggles for safe workplaces and better pay. Violence against efforts to organize workers was common. Henry Ford had a private army of thugs for just this purpose. The tragedy in Turkey should serve as a reminder of what has been won, and how fragile those gains are.

Cleanest Fossil Fuel is Wall Street Bet on Climate Change - Wall Street’s idea of investing in climate change means investors are piling into natural gas, the least polluting fossil fuel.  Energy accounted for almost two-thirds of the $8 billion of inflows into sector-based exchange-traded funds this year, according to data compiled by Bloomberg. In the absence of federal mandates for renewables such as wind and solar, much of that money is going into funds that invest in natural gas drillers.The fuel that produces less pollution than coal and oil is the most obvious beneficiary of global warming, which a White House advisory panel said on May 6 is already blighting the U.S. with coastal flooding, heavier rainstorms and more intense wildfires. The potential for hotter summers and colder winters will raise energy demand, and that suggests higher gas prices.“They’re predicting more weather extremes,”  “Weather extremes are good for the energy business. More energy use, better for the earnings.” Climate change is proving to be a boon for energy investment. On the day the National Climate Assessment report was issued, the 44-company Standard & Poor’s Energy Index reached a record, and $322 million of cash flowed into exchange-traded funds that specialize in energy.

"2 + 2 = 0" – Whitewashing the potential health effects of shale gas - This article is a review of my recent, 95 page critical review of PHE's report available in the ecolonomics journalLast October, Public Health England (PHE) released their "draft" report on the  health impacts of shale gas[1]. They looked at all the evidence on the likely effects of shale gas extraction on public health – evidence of  hazardous environmental impacts[2], gender-bending chemicals disrupting our metabolism[3], and of toxic and radioactive contamination of the air, soil and water[4] – and concluded that: Public Health England anticipates a low risk to public health from direct releases of chemicals and radioactive material if shale gas extraction is properly operated and regulated. The difficulty for PHE is that there is no rational way in which this conclusion could be drawn from the evidence they reviewed in their report. As stated in an editorial in the British Medical Journal[5] last month:Yet, in a leap of faith unsubstantiated by scientific evidence, its authors suggest that many of the environmental and public health problems experienced in the US would probably not apply to the UK. Unfortunately, the conclusion that shale gas operations present a low risk to public health is not substantiated by the literature. If you want to understand how this conclusion was reached, you have to look at how Public Health England used a selective method, and even more selective quoting

Shale Gas Radioactivity - From The Rachel – a compendium of articles and reports on radioactivity in shale gas and shale gas drilling waste.   The most radioactive waste material are the drill cuttings from the horizontal (shale) section of a well. Since the shale is the most radioactive sedimentary layer, the horizontal section basically mines radioactive material.
Radioactivity in Shale Gas and Gas Drilling Waste:
Landfill Wastewater Showing Elevated Radioactivity, Environmental Leader, April 22, 2014. “Radioactivity is showing up in wastewater from gas field landfills in West Virginia that serve as disposal sites for Marcellus Shale natural gas drilling cuttings.”
Marcellus Waste Radioactivity In Water Leaching From Landfills, Public News Service – WV, April 21, 2014  “Tons of drill cuttings from Marcellus natural gas wells are going to municipal landfills in West Virginia, and radioactivity from the waste is leaching into surface water.”

House panel trims Kasich’s fracking tax -The Columbus Dispatch: After making changes that would reduce what drillers would pay, a House committee today narrowly passed a new severance tax on shale fracking that Gov. John Kasich says doesn’t go far enough. In fact, the latest bill may not even raise as much severance-tax money as current law and could leave nothing for an income-tax cut proposed by Kasich, according to estimates by the nonpartisan Legislative Service Commission. “I just think that the argument about our tax rate having an impact on the competitiveness in the oil and gas industry is just folly,” said Rep. Mike Fokey, D-Cleveland. “If the stuff is down there, people are going to come and drill for it. If this is our stuff in the ground, we should be benefiting from it as much as possible.” The bill sets the tax rate at 2.5 percent, compared with the 2.75 percent proposed by Kasich, though the House version allows for more deductions and credits than Kasich’s. Democrats unsuccessfully tried to push the rate to 5 percent. The current tax on a barrel of oil is 10 cents, while natural gas is taxed 2.5 cents per MCF, which equals 1,000 cubic feet of natural gas.

Ohio House plans vote on tax hike for gas drillers - Houston Chronicle: The Ohio House is preparing to vote on legislation raising Ohio's tax on oil and gas drilling. The measure cleared a committee by a single vote despite objections from Democrats and anti-tax Republicans. The full House is expected to vote Wednesday. The bill imposes a 2.5-percent severance tax on horizontal wells, including those extracting resources through hydraulic fracturing, or fracking. That tax is less than the 4 percent Republican Gov. John Kasich (KAY'-sik) wanted but more than the industry would've liked. The 15 percent of tax proceeds that go to local communities has divided lawmakers. After state local-government and library funds are restored, 25 percent of the remaining allotment goes to county budgets. That's down from 50 percent proposed earlier. Opponents say that's not enough to fund needed infrastructure improvements.

Ohio House OKs fracking-tax measure | The Columbus Dispatch - A fracking-tax bill that supporters say will provide long-term clarity for companies coming to Ohio to drill in the state’s shale regions passed a divided Ohio House yesterday. The bill sets a new 2.5 percent severance tax on shale fracking, a rate Democrats decried as a giveaway to the oil and gas industry, and as an overall tax shift because much of the revenue will go for an annual income-tax cut that, they argue, favors the wealthy. “We think it’s OK to be fooled by the oil and gas industry,” said Rep. Robert F. Hagan, D-Youngstown. “Why are we so afraid to make them pay their fair share?” The bill would raise up to $173 million a year by 2019, based on estimates by the nonpartisan Legislative Service Commission. At the high end, the estimated revenue is about $96 million more than current law — 10 cents per barrel of oil and 2.5 cents per MCF, which is 1,000 cubic feet of natural gas. At the low end, current law would raise about $21 million more than the new tax. The 2.5 percent rate is lower than the 2.75 percent proposed by Gov. John Kasich, and the House version allows for more deductions and credits, such as allowing drillers to deduct commercial-activity tax payments from their severance-tax liability.The bill also exempts the first $10 million in gross receipts from a well, so companies can recover costs from drilling the well, said Rep. Matt Huffman, R-Lima. The bill also reduces the current severance tax on traditional vertical wells.

In Fracking Hotbed, a Muted Approach to Regulation - Ohio annually processes thousands of tons of radioactive waste from hydraulic-fracturing, sending it through treatment facilities, injecting it into its old and unused gas wells and dumping it in landfills. Historically, the handling and disposal of that waste was barely regulated, with few requirements for how its potential contamination would be gauged, or how and where it could be transported and stored. With the business of fracking waste only growing, legislators in 2013 had the chance to decide how best to monitor the state’s vast amounts of toxic material, much of it being trucked into Ohio from neighboring states. But despite calls to require that the waste be rigorously tested for contamination, Gov. John Kasich and the state legislature signed off on measures that require just a fraction of the waste to be subjected to such oversight. The great majority of the byproducts creating during the drilling process 2013 the water and rock unearthed 2013 still do not have to be tested at all. As well, the legislature, lobbied by the fracking industry, undid the governor’s bid to have the testing of the waste done by the state’s Department of Health 2014 the agency acknowledged by many to possess the most expertise with radioactive material. The testing is now the responsibility of the Department of Natural Resources, the agency that oversees the permitting and inspection of oil and gas drilling sites, but that has no track record for dealing with radioactive waste. The legislators acted with little in the way of public debate, and the new regulations they adopted appeared deep inside a 4,000-page state budget bill. As a result, both the measures first proposed by Kasich and those ultimately signed into law have infuriated environmentalists and residents with concerns about the risks of fracking in their state.

Fracking Regulations Weak and Scarce Despite Natural Gas Bonanza - Scientific American: Ohio annually processes thousands of tons of radioactive waste from hydraulic-fracturing, sending it through treatment facilities, injecting it into its old and unused gas wells and dumping it in landfills. Historically, the handling and disposal of that waste was barely regulated, with few requirements for how its potential contamination would be gauged, or how and where it could be transported and stored.With the business of fracking waste only growing, legislators in 2013 had the chance to decide how best to monitor the state's vast amounts of toxic material, much of it being trucked into Ohio from neighboring states. But despite calls to require that the waste be rigorously tested for contamination, Gov. John Kasich and the state legislature signed off on measures that require just a fraction of the waste to be subjected to such oversight. The great majority of the byproducts creating during the drilling process – the water and rock unearthed – still do not have to be tested at all. As well, the legislature, lobbied by the fracking industry, undid the governor's bid to have the testing of the waste done by the state's Department of Health — the agency acknowledged by many to possess the most expertise with radioactive material. The testing is now the responsibility of the Department of Natural Resources, the agency that oversees the permitting and inspection of oil and gas drilling sites, but that has no track record for dealing with radioactive waste.

New Jersey Senate Passes Fracking Waste Ban -  The New Jersey Senate’s members are on the same page when it comes to the disposal and treatment of fracking waste. Now, it’s time to see where the state’s general assembly stands. The senate on Monday passed a ban on the disposal, treatment and discharge of toxic waste from fracking by a 33-4 count. The state Assembly Environment Committee needs to act on the bill before the general assembly gets a chance. Time is running thin, as the legislature goes on recess in late June. Still, it’s a veto-proof vote and one that had environmental groups raving Monday afternoon. “Dumping fracking waste in New Jersey waterways is still legal, and that’s why today’s bipartisan Senate majority to ban fracking waste is so needed,” said Doug O’Malley, director of Environment New Jersey. “We urge the State Assembly to move quickly to ban fracking waste, and send this bill to Gov. [Chris] Christie’s desk.” The bill deals with waste from out of state, as there are no fracking operations in New Jersey, according to the Associated Press. Christie vetoed a similar measure during the last legislature, saying that it violated the interstate commerce clause of the U.S. Constitution.

A Confidential Fracking Well Named Ron Burgundy Is Leaking In North Dakota - An oil well near Tioga, ND hasn’t stopped leaking oil since local emergency officials were notified of the spill on Friday. But because the well is under a confidentiality agreement that makes some of the well’s information a secret, details such as the spill’s aren’t being released to the public.  The well, which is named Ron Burgundy (yes, really — specifically, Ron Burgundy 3-23-14H, as it’s one of three Ron Burgundy wells owned by the same company) is owned by Denver-based Emerald Oil. The spill has been contained with berms and, as the AP reports, trucks are bringing the excess spilled liquid to disposal sites. Alison Ritter, spokesperson for the North Dakota Department of Mineral Resources, told ThinkProgress that because of the well’s confidentiality, only a few things about the well could be released to the public: the well’s operator, name, file and identification number, location (in coordinates), and the date that the company’s confidentiality agreement lifts. In Ron Burgundy’s case, it’s August 4, 2014. On that date, Ritter said, information about the size of the spill can be released to the public.

Company Drilling Near Everglades Claims Not To Be Fracking, Just Acid Fracking --  Fracking, short for hydraulic fracturing, is both a fractious term and a fractious process. Stakeholders across the country ranging from environmentalists to landowners have voiced repeated concerns of the impact of fracking on local health, water supplies and even earthquake frequency. At the same time, what exactly is involved in the fracking process is often shrouded in mystery as companies are resistant to releasing the exact chemical composition of the mix they inject into the ground along with water and sand to open fissures in the rock and draw out oil or natural gas. In Florida, the Everglades are on the front lines of this debate as companies become anxious to get at any fossil fuels surrounding this ecological wonder. In an effort to keep the process going, one oil and gas company has even gone as far as denying that what they’re doing actually amounts to fracking. In December and January, Dan A. Hughes Co. of Beeville, Texas undertook, for the first time in the state, an “enhanced extraction procedure” during exploratory drilling, which according to the Florida Department of Environmental Protection (DEP) is consistent with the EPA’s description of hydraulic fracturing. Furthermore, the company did so without a permit and in defiance of a cease-and-desist order to stop the practice.  “The company denies that the new practice amounts to fracking because it uses an acidic solution instead of the usual fracking chemicals and a ‘modest volume’ of water and sand,” reported the Orlando Sentinel.

Earthquakes and the Texas Miracle - Through November and December, sometimes they experienced several a day. Sometimes a few days would pass in between, and all the while, the unlucky ones would trace lengthening cracks in their walls. Keding Yin, a retired coal mine engineer from northern China, bought his little piece of Texas next to Hull, and a few goats, too. He’d come here with his wife, Jie Chen, in 2001 to be near their daughter, Mingshu. “The first one, Daddy didn’t know what happened,” Mingshu says. “He thinks it’s a bomb and called 911. Police came and said, ‘What’s going on?’ ”  She had lived through the bucking and rolling of earthquakes in Los Angeles. This felt altogether different, like a single, violent dislocation. Mingshu, a GIS analyst at an engineering company, pulled up USGS’ website and was struck by the shallow epicenters it detected near her parents’ home. “A natural quake is like 10 miles down,” Mingshu says. “This is three kilometers.” As the country west of Eagle Mountain Lake trembled with stunning regularity, Yin watched the damage accumulate. He found a rafter in the attic split right down the middle. A sliding-glass shower door shattered during one of the 3.6s. In the kitchen, the ceiling separated from the wall. And outside, a fracture splintered through brick and mortar alike, from roof to foundation. Every door in the house facing north and south wouldn’t close. Yin knew his sewer pipe had ruptured when the scent of human waste wafted up through the floor. He and his wife stayed with Mingshu in McKinney, their home temporarily uninhabitable.

Texas Legislature Starts Talking ‘Frackquakes’ While Oklahomans Get Quake Insurance -- On Monday, lawmakers in Texas, for the first time, formally addressed the recent rash of earthquakes that rocked northern Texas this winter. At the first hearing of the newly created Seismic Activity Subcommittee in the Texas House, lawmakers heard testimony from local leaders, scientists and the Texas Railroad Commission, about the effects of the recent surge in seismic activity and its possible links to the state’s booming oil and gas industry.  “Our school district now conducts earthquake drills,” Azle Mayor Alan Brundrette said at the hearing — something schools in the area have never before had to worry about. Residents have also been complaining about cracking foundations and breaking water pipes.  According to the U.S. Geological Survey (USGS), since November 1, 2013, at least 27 earthquakes with magnitudes between 2.1 and 3.7 have struck near the border of Parker and Tarrant counties in and around the towns of Azle and Reno in northern Texas. The affected area sits atop the Barnett Shale, one of the nation’s most productive natural gas fields.  For decades, there have been concerns that fracking operations could trigger tremors. While fracking itself has only been definitively linked to quakes in a handful of cases, including most recently, in Ohio, it is the injection of fracking wastewater deep into the earth that is believed to trigger most fracking-related tremors. The fluid increases underground pressure and acts as a lubricant on faults. Texas is home to nearly 3,600 active disposal wells. Arkansas has already imposed a moratorium on new injection wells in areas that have recently experienced unusual seismicity, as has Ohio. But Monday’s testimony from the Texas Railroad Commission, which oversees oil and gas operations in the state, suggests that the Lone Star State is in no hurry to act.  “A knee-jerk reaction could have a negative impact on our economy because of the large role the oil and gas industry plays here,”

Fracking Tie to Earthquakes Raises Question of Liability - NBC News: Earthquakes like the one that woke residents from their beds on March 10 in Poland Township, Ohio, might become a more frequent occurrence in areas where fracking is becoming big business. Scientists are reporting mounting evidence that tremors can be tied to the much-debated drilling technique and related activities. What's not clear is who might be held responsible for the quakes. Fracking refers to the method the petroleum industry uses to break apart chunks of shale rock deep within the earth to free trapped oil and gas. Geologists in Ohio established a "probable connection" between fracking and the magnitude 3.0 quake on March 10. In Oklahoma, geologists report a spike in earthquakes associated with injecting into deep underground wells the wastewater generated during fracking operations. The heightened awareness of seismic activity associated with fracking and wastewater injection raises the question of who is responsible should an earthquake occur that causes damage to people or their property. From the industry's perspective, the question "is purely hypothetical because the very few seismic events that have occurred haven't caused any damage whatsoever," "You can't just assume that there will be further damaging earthquakes when there is just no evidence that supports that."  Oil and gas companies have nevertheless likely "gone out and covered themselves through commercial policies" in case their activity causes a damaging earthquake, Mike Barry, a spokesman for the Insurance Information Institute in New York, told NBC News. Several major insurance brokers and consultants for the energy industry asked about the availability of such policies declined to comment.

In North Dakota, there will be blood - Life is cheap in North Dakota, where a new study (PDF) finds that workers are being killed on the job at five times the national rate.  Deaths on the job in North Dakota more than doubled from 2007 to 2012, rising from 25 to 65, as reported by Al Jazeera America’s Renee Lewis. The reasons for this are deeply disturbing for what they say not only about industrial workplace safety, but about politics in 21st century America and how capital is favored over workers. The increase in deaths tracks the frenzied efforts to extract oil and natural gas from the rich Bakken fields, believed to hold more than $1 trillion in carbon-based fuels. There is so much money to be made quickly that companies are not even waiting for adequate infrastructure to move all the natural gas to market. At night North Dakota glows almost as brightly as Chicago as gas from more than 9,000 wells is just burned off, NASA satellite photos show. A third of the natural gas gets wasted this way, according to Ceres, a nonprofit that tracks the environmental records of companies. If companies are willing to waste $1.2 billion of natural gas per year, imagine the calculus on job safety.

US failed to inspect thousands of at-risk oil and gas wells, report finds -- The government has failed to inspect thousands of oil and gas wells it considers potentially high risks for water contamination and other environmental damage, congressional investigators say. The report, obtained by the Associated Press before its public release, highlights substantial gaps in oversight by the agency that manages oil and gas development on federal and Indian lands. Investigators said weak control by the Interior Department's Bureau of Land Management (BLM) resulted from policies based on outdated science and from incomplete monitoring data. The findings, from the Government Accountability Office, come amid an energy boom in the country and the increasing use of hydraulic fracturing, or fracking. That process involves pumping huge volumes of water, sand and chemicals underground to split open rocks to allow oil and gas to flow. It has produced major economic benefits, but also raised fears that the chemicals could spread to water supplies. The audit also said the BLM did not co-ordinate effectively with state regulators in New Mexico, North Dakota, Oklahoma and Utah. To industry groups opposed to government regulations related to oil and gas drilling, the BLM has become a symbol of federal overreach. Environmental groups say the Obama administration needs to do more to guard against environmental damage. The report said the agency "cannot accurately and efficiently identify whether federal and Indian resources are properly protected or that federal and Indian resources are at risk of being extracted without agency approval”.

Carpet Bombed With Frackquake Swarms -- The frackers have a new weapon in their war against the environment, people, houses, what have you:  carpet bombing large areas with frackquake swarms.  So that’s what they do – induce frackquakes by injecting millions of gallons of slick water residue down disposal wells. Then drive away and let the frackquakes commence. Are they fined for this ?  Nope. Not even a fracking pizza. Because fracking means you never have to say you’re sorry. Below is a link to a 30 second animation of recent OK injection quakes by the USGS.

Frack Oil Bomb Train Bound For Albany Stopped ! - A tanker train overloaded with fracked oil that was on track to explode in downtown Albany, New York was derailed in Colorado. The citizens of New York, Governor Cuomo, and Senator Schumer wish to thank the good people of Colorado for thwarting what could have been a frackastrophe in New York. Fracked Oil Bomb Train Derails on Way to New York -  The train, loaded in Windsor with Niobrara crude bound for New York, derailed around 8 a.m. according to Union Pacific Spokesman Mark Davis. State and local emergency officials determined that one car of the 100-car train was leaking after the 8 a.m. derailment near LaSalle, about 45 miles north of Denver.The cause of the derailment was under investigation, said Micki Trost, a spokeswoman for the Colorado Division of Emergency Management. Crews had contained the spill to a ditch away from any waterways, Trost said.The amount of oil spilled wasn’t immediately known, but a vacuum truck was brought in to suck up the spill. Tanker trucks lined up nearby to transfer the oil.

6 cars of oil crude train derail in Colorado -- — Crews from Union Pacific Railroad worked to clear a six-car oil train derailment that leaked some crude into a ditch Friday in northern Colorado. State and local emergency officials determined that one car of the 100-car train was leaking after the 8 a.m. derailment near LaSalle, about 45 miles north of Denver. The cause of the derailment was under investigation, said Micki Trost, a spokeswoman for the Colorado Division of Emergency Management. Crews had contained the spill to a ditch away from any waterways, Trost said. The amount of oil spilled wasn't immediately known, but a vacuum truck was brought in to suck up the spill. Tanker trucks lined up nearby to transfer the oil. According to The Greeley Tribune ( ), the train was loaded in nearby Windsor with Niobrara crude and was bound for New York. Niobrara oil comes from the Niobrara shale formation in Colorado, Wyoming and Kansas. It's not considered as volatile as Bakken crude from North Dakota and eastern Montana. Public and political pressure to make oil trains safer began last summer when a runaway oil train carrying Bakken crude derailed and exploded in Lac-Megantic, Quebec, killing 47 people and incinerating much of the town. Other trains carrying Bakken crude have derailed and caught fire since then in Alabama, North Dakota, Virginia and New Brunswick, Canada.

Oil Spills on Los Angeles Streets - The Los Angeles Fire Department says a ruptured oil pipe near the suburb of Glendale has spilled about 50,000 gallons of crude oil onto streets. According to a Fire Department news release, the leak from a 20-inch pipe was reported at about 12:15 a.m. in Atwater Village and the oil line was remotely shut off. No injuries were reported. Oil spilled over about half a mile and is knee-high in some areas. Hazardous materials crews are on the scene. A handful of commercial businesses are affected, including a strip club that was evacuated.

Massive Pipeline Rupture Coats Streets of Los Angeles in ‘Knee-High’ Crude Oil -- Residents in Atwater Village in northeast Los Angeles woke up Thursday morning to find crude oil flowing down their streets. A 20 inch wide, above-ground oil line ruptured around 1 a.m., sending a geyser of oil 20 feet into the air according to local reports. The oil has coated a half-square-mile area of the mostly industrial neighborhood. Oil in some areas was reported to be knee-high. According to current estimates, 10,000 gallons of crude oil poured onto the streets before the line could be remotely turned off. Two people were sent to the hospital after they reported feeling nauseous. People at the scene said that the smell of oil was very strong. The Fire Department and a hazardous materials team remain on the scene. Several businesses — including a nearby strip club, which was evacuated during the spill — have reported damages. The exterior of the strip club was coated in oil from the spewing pipe. Cars parked near the site of the spill have also been affected. Although the pipeline was shut off within 10 minutes of emergency crews reaching the scene, oil continued to flow for 45 minutes.

Ruptured Pipeline Coats L.A. Streets In ‘Knee-High’ Crude Oil -- Residents in Atwater Village in northeast Los Angeles woke up Thursday morning to find crude oil flowing down their streets. A 20 inch wide, above-ground oil line ruptured around 1 a.m., sending a geyser of oil 30 feet into the air according to local reports. The oil has coated a half-square-mile area of the mostly industrial neighborhood.   Oil in some areas is reported to be knee-high. According to current estimates, 10,000 gallons of crude oil poured onto the streets before the line could be remotely turned off. No injuries have been reported so far and the Fire Department and a hazardous materials team remain on the scene. Several businesses — including a nearby nightclub, which was evacuated during the spill — have reported damages. Cars parked near the site of the spill, 5175 W. San Fernando Rd. have also been affected. The AP reported that Fire Department spokesman Erik Scott says there is no “visible evidence” that the oil has made its way down storm drains, but that it was possible that oil had gotten under manhole covers. If oil does end up in the storm water system, the oil will soon appear in the Los Angeles River, and soon after that in the Pacific Ocean. According to the L.A. Times, emergency teams are using sand to try and keep the oil from spreading.

America’s Oil And Gas Industry Averaged At Least 20 Spills Per Day In 2013 - Despite missing data from one of the largest natural gas-producing states in the nation, an EnergyWire analysis released Monday found that the U.S. oil and gas industry was responsible for at least 7,662 spills, blowouts, and leaks in 2013 — an average of about 20 spills per day. The figure represents an 18 percent increase in the number of spills EnergyWire counted in 2012, when 6,546 accidents were tallied. Though most of the spills were small, their combined volume added up to more than 26 million gallons of oil, gas, hydraulic fracturing fluid, and other substances, the report said. The increase in drilling accidents since 2012 is particularly jarring because the United States has not actually seen an increase in drilling sites. According to January data from the American Petroleum institute, the total number of wells in the country in 2013 stayed largely the same, actually decreasing one percent since 2012.

Joe Biden’s Son to Frack Ukraine --- After Joe went to the Ukraine to promote fracking, his son has signed onto the board of the largest local gas producer. How convenient.  And no, I’m not making this up. A family that fracks together stays together.  Burisma Holdings, Ukraine’s largest private gas producer, has expanded its Board of Directors by bringing on Mr. R Hunter Biden as a new director.

“No Turning Back:” Mexico’s Looming Fracking and Offshore Oil and Gas Bonanza - After generations of state control, Mexico’s vast oil and gas reserves will soon open for business to the international market. In December 2013, Mexico’s Congress voted to break up the longstanding monopoly held by the state-owned oil giant Petroleos Mexicanos — commonly called Pemex — and to open the nation’s oil and gas reserves to foreign companies. The constitutional reforms appear likely to kickstart a historic hydraulic fracturing (“fracking”) and deepwater offshore oil and gas drilling bonanza off the Gulf of Mexico. What does this mean for the oil and gas industry in Mexico? And for the workers and those who live above these oil and gas plays or along the pipeline routes that will funnel the liquids to refineries? And how about for the Earth’s atmosphere? Can Mexico’s fossil fuel infrastructure handle the boom? Can the country spare the precious freshwater supplies needed for thirsty fracking operations in an era of increasingly severe droughts and drinking water shortages? Can environmental, safety and public health regulations possibly keep up with this industrial boom?  DeSmogBlog will examine all these issues and more as Mexico opens its fossil fuel reserves to international exploitation in the weeks and months ahead. But, first, an overview of the state of play in Mexico’s energy reforms.

New Report Names Alberta Oilsands as Highest Cost, Highest Risk Investment in Oil Sector -- A total of $1.1 trillion USD earmarked for risky carbon-intensive oil sector investments need to be challenged by investors, according to a new report released today by the Carbon Tracker Initiative. The research identifies oil reserves in the Arctic, oilsands and in deepwater deposits at the high end of the carbon/capital cost curve. Projects in this category “make neither economic nor climate sense” and won’t fit into a carbon-constrained world looking to limit oil-related emissions, Carbon Tracker states in a press release.The report highlights the high risk of Alberta oilsands investment, noting the reserves “remain the prime candidate for avoiding high cost projects” due to the region’s landlocked position and limited access to market. “The isolated nature of the [oilsands] market with uncertainty over export routes and cost inflation brings risk.”Oilsands major Canadian Natural Resources Limited (CNRL), the company responsible for the mysterious series of leaks at the Cold Lake oilsands deposit, has the largest total exposure to high-cost and high-risk oil investments, valued at a potential of more than $38 billion between now and 2025.

Environmental emergency declared in Galapagos Islands - Ecuador has declared an environmental emergency in the Galapagos Islands after a freighter carrying pollutants ran aground last week. The measure will free up resources to remove the ship and mitigate its impact in the face of "possible environmental damage that could unleash a disaster" said the Directorate of the Galapagos National Park (DPNG). The vessel, which ran aground off the Baquerizo Moreno port on the island of San Cristobal on Friday, was carrying 19,000 gallons of cargo fuel that has already been removed. But highly polluting motor oil and cleaning products remain in the ship's airtight holds, yet to leak out. At the request of Galapagos authorities, Ecuador's Environmental Minister Lorena Tapia issued the environmental emergency.  The measure aims at protecting the archipelago's marine reserve, specifically the "area affected by the stranding and possible sinking of the cargo ship 'Galapaface I'" DPNG said in a statement. The Ecuadoran-owned Galapagos Islands, located in the Pacific Ocean around 620 miles off the coast of Ecuador, are classified as a UNESCO world heritage site.

OPEC Questions Sustainability Of North American Oil Boom -- OPEC Secretary-General Abdalla el-Badri said oil supplies from North America “will play an important role in the coming few years,” but he cast doubt on their sustainability over the long term. Speaking May 15 in Moscow, el-Badri acknowledged that oil supply from producers outside of OPEC are expected to increase by more than 4 million barrels per day (bpd) between 2013 and 2018, with much of that coming from North America. But he cautioned that the addition of non-OPEC oil supplies to the global market “should be viewed as a periodic shift. "Tight oil adds depth and diversity to the market," he said. "But questions remain over its sustainability in the long-term."  Much of the North American oil production will come from shale, known as “tight oil.” The U.S. Energy Information Administration (EIA) said in its monthly market report for May that total U.S. crude oil production, which averaged 7.4 million barrels per day (bpd) in 2013, is expected to increase to 8.5 million bpd in 2014 and 9.2 million bpd in 2015 -- the highest annual average level of production since 1972. Despite talk of a North American shale revolution, el-Badri said, the global marketplace should be careful about what that really means. "It is essential that we put things into some context, and examine the market over all timeframes," he said. Although North American production is expected to increase through 2018, a decline is expected after that. El-Badri said that drop off in production is already being felt. “Many tight oil wells are experiencing sharp decline rates, which means that operators need to drill, drill, drill just to maintain production.” The EIA has also raised its expectations for global oil demand growth, predicting that world consumption should grow by 1.2 million bpd for both 2014 and 2015. Global consumption averaged 90.4 million bpd last year.

Egypt's debt to foreign oil firms up at $5.9 billion-paper (Reuters) - Egypt's debt to foreign oil companies operating in the Arab country was $5.9 billion by the end of April, the head of the state-run oil company said in remarks published on Wednesday. Money owed to foreign oil majors including BP and BG Group totalled $4.9 billion in December, indicating Cairo's debts to the firms continue to mount despite efforts to restore investor confidence by paying down the arrears. "BG Group is owed the biggest debt," Tarek El Molla, chairman of Egyptian General Petroleum Corp, told al-Shorouq newspaper, without elaborating. Egypt has delayed payments to oil and gas firms as its economy has been hammered by almost three years of instability since a popular uprising ousted autocrat Hosni Mubarak in 2011. Some of the debts were incurred before the revolt. Egypt paid back $1.5 billion at the end of last year, a signal that the government is trying to get firms investing again in extraction and exploration, badly needed to help address a severe energy crunch. Oil Minister Sherif Ismail said in February the government hoped to schedule repayments of around $3.5 billion that will be completed by 2016. Energy prices in Egypt are among the lowest in the world, and the cash-strapped government spends more than a fifth of its budget on keeping them down. Artificially low prices provide little incentive for Egyptians to curb consumption.

Gazprom Threatens to Halt Gas Shipments to Ukraine on June 3 -  Tomorrow, OAO Gazprom (GAZP) will send Ukraine a bill for June, Chief Executive Officer Alexey Miller said today at a meeting with Russian Prime Minister Dmitry Medvedev. If the bill isn’t paid by June 2 the neighboring country won’t receive any Russian gas from 10 a.m. the next morning, Miller said. “It’s time to stop coddling them, notify them tomorrow and move them to pre-payments,” Medvedev said during the meeting. “I think that all possible ways to settle this situation -- one way or another -- were undertaken by Gazprom.”  Stopping shipments to Ukraine may have a knock-on impact on the rest of Europe because about 15 percent of the region’s gas travels through the country’s Soviet-era pipeline system.    Russia is moving Ukraine to prepayments because it owes $3.51 billion for fuel delivered in 2013 and through April this year, Miller said today. The neighboring country hasn’t paid for 9.42 billion cubic meters of Russian fuel, which is equivalent to Poland’s annual consumption.Ukraine has the opportunity to pay as it received the first $3.2 billion of an international aid package last week, Medvedev said. While it’s able to start paying off the debt to show its desire to settle the problem, Russia doesn’t see any willingness of that, he said.

Russia’s Gazprom Increases Economic Pressure On Ukraine - A senior Russian energy official said May 12 that Moscow would cease negotiations with Ukraine on natural gas deliveries until Kiev pays the Russian gas monopoly Gazprom what it already owes on last month’s deliveries.  Russia also said Ukraine must pay in advance for future gas deliveries by June 1.  “To continue talks, the debt should be paid," Deputy Russian Energy Minister Anatoly Yanovsky told reporters in Moscow. The Russian government, which owns a slight majority of Gazprom, says Ukraine has not paid the $3.51 billion it owes for gas received in April. Russian Energy Minister Alexander Novak issued a statement on May 8 saying that under Gazprom’s contract with Ukraine’s gas company, Naftogaz, “failure of obligations automatically leads to a switch to prepayment for gas deliveries.” European nations rely on Gazprom for about 30 percent of their gas, and about half of that amount is shipped through Ukraine.

Russia gives Ukraine gas payment deadline - Gazprom has again threatened to cut off Ukraine’s gas supplies after setting a new deadline for the crisis-ridden east European state to pay the $3.5bn (£2.8bn) the energy giant says it is owed. The warning to pay by June 2 follows pressure from the Russian government on Gazprom to test the West’s commitment to protect the vital gas route for supplies into Europe. Dimitry Medvedev, Russia’s prime minister, wanted Gazprom to go further and set a deadline of Tuesday but Alexey Miller, Gazprom’s chief executive, decided to give Ukraine more time. He said: “In case Ukraine does not pay, Gazprom will notify the Ukrainian side before 10am on June 3 and the volume of gas will be supplied to Ukraine in accordance with the advanced payments.” Mr Medvedev said it was “time to stop nursing” Ukraine, adding it had the money available after an International Monetary Fund bail-out and said there were “alarming” signals from Ukraine politicians that they would not guarantee delivering gas to Europe.

Gazprom Bills Ukraine $1.7 Billion as June Deadline Looms - Gazprom (OGZD), Russia’s natural-gas exporter, sent Ukraine a bill for an estimated $1.7 billion of imports next month, saying it will cut off supplies if the neighboring country doesn’t start paying in advance. Ukraine’s June bill was based on average deliveries of 114 million cubic meters a day, at the second-quarter price of $485 per 1,000 cubic meters, Sergei Kupriyanov, a spokesman for Gazprom in Moscow, said today. Payment is due by June 2, and starting from the following day, Ukraine will only get what it pays for, Kupriyanov said. “Russia is to stop to use natural gas as a new type of Russian weapon,” Ukrainian Prime Minister Arseniy Yatsenyuk said today in Brussels. “We are ready for the market-based approach.” Ukraine depends on Russia for about half its gas, making energy a battleground in the wider struggle between the two countries. Because 15 percent of the European Union’s gas passes through the Ukrainian pipeline network, a cutoff could disrupt shipments to the rest of the region.

Ukraine Stops Water Supply to Crimea - The North Crimean canal has stopped supplying water to the unrecognized Republic of Crimea, reads a statement made by the State Water Resources Agency. “The North Crimean canal is currently operating in a mode that has been adjusted to meet the needs of the Kherson Oblast’s water users due to the absence of constructive proposals to establish contractual relations for providing the Autonomous Republic of Crimea with water resources for domestic water supply and irrigation,” said the statement of May 8. The question of Crimea repaying its 2013 1.7 mln UAH debt for water consumption to the canal’s administration still remains.

What Does Russia Really Want -  As Ukraine continues the downward descent into violent crisis this week, Russian President Vladimir Putin continues to baffle the world’s leaders. On 7 May, Putin spoke publicly about Ukraine, leaving everyone guessing at his intentions in urging pro-Russian separatists in Ukraine’s east to postpone referendums they were planning to hold this weekend. There is a purposeful confusion coming out of Moscow, as Putin openly supported upcoming presidential elections in Ukraine to be held on 25 May, while the Russian foreign minister has harshly criticized the elections. There is no foreign leader today who can go to mental bat with Putin. On Thursday,’s special guest contributor, Ukraine oil and gas expert Robert Bensh, gave a televised interview to CNBC, stating: “Throughout the crisis, Russia has sought to mask its intentions and has been engaged in a sophisticated PR campaign, often saying one thing while doing and preparing for another.” So what does Russia really want? According to Bensh, Moscow wants—and needs—control of the pipeline system. “[…]If you have control of the pipeline system and you are able to bring your product into Europe, you have a compliant Europe, you have a compliant Ukraine. And this is what Putin is going after.”

White House On Biden's Son Joining Ukraine Gas Giant - No Ethical Issues Here - Yesterday we were the first to report that none other than Vice President Joe Biden's son was joining the board of Ukraine's largest gas producer. It appears to have signaled peak crony capitalist as the new went viral with almost complete disdain. There was one defender though... as The Washington Examiner reports, The White House brushed off questions about any ethical issues as Jay Carney snapped "Hunter Biden and other members of the Biden family are obviously private citizens, and where they work does not reflect an endorsement by the administration or by the vice-president or president."

Fast Destruction and Slow Reconstruction - Underlying many of the projections of future energy supply that are now being made there are, as mentioned earlier, a lot of assumptions that are beginning to appear more questionable as time passes. Much of the concern has to focus on the instability in the Middle East and North African nations (MENA) that are now increasingly unsettled by civil conflict.  Sadly there is also the history of Gazprom, which now also suggests that rosy visions of the future are only that, and what is coming is likely to be much grimmer.  Considering first Libya, once the infrastructure of an oilfield and its links to the outside world, and the operators that run it have been destroyed, seriously damaged or dissuaded from being there, then, particularly where conflict continues over time, restoration of pre-conflict volumes can take more than a decade. Once combatants become embittered by the realities of civil war, so their willingness to subsume the hatreds and other burdens brought on by loss becomes more difficult to engage, and conflict drags on with its continued losses for society. Libya is a sad example of how rapidly production can collapse.  The country has now reached as low a rate of daily production (around 240 kbd) as it has seen in recent years.  For some time the powers that be have continued to hope and even project that Libyan production can return to levels of around a million bd, but those hopes seem dubious at best.

US plans nearly $1 billion arms deal with Iraq - The United States plans to sell nearly $1 billion worth of warplanes, armored vehicles and surveillance aerostats to Iraq. The deal includes 24 AT-6C Texan II light-attack aircraft, a turboprop plane manufactured by Beechcraft that has .50 caliber machine guns, advanced avionics and can carry precision-guided bombs, the Pentagon said. The aircraft and related equipment and services are valued at $790 million. The Pentagon's Defense Security Cooperation Agency informed Congress on Tuesday of the planned sale, which will go ahead unless lawmakers block the deal. "The proposed sale of these aircraft, equipment and support will enhance the ability of the Iraqi forces to sustain themselves in their efforts to bring stability to Iraq and to prevent overflow of unrest into neighboring countries," the agency said in a notice. The sale is the latest in a series of US weapons deals with Iraq as Baghdad seeks to bolster its armed forces amid rising violence linked to Al-Qaeda militants and sectarian divisions between the Shiite-led government and disgruntled Sunnis. Iraq has previously agreed to purchase 36 US F-16 fighter jets.

Nuclear Talks Will Confront Iran’s Future Capability to Enrich Uranium - — As Iran and six world powers meet this week in Vienna to begin drafting language to resolve their nuclear standoff, negotiators say they are finally confronting a crucial sticking point to a permanent agreement — the size and shape of the nuclear fuel production capability that Iran will be permitted to retain.It is a subject that, at least in public, the Obama administration steps around, acutely aware that Israel and members of Congress who are highly suspicious of the negotiations will say that Iran must be kept years from being able to develop a weapon, and that opponents of the deal in Tehran will argue that no restraints at all should be imposed. Both the Iranians and the Western powers have said their talks so far have been productive, with little of the drama, the ultimatums and the entrenched positions that have marked previous efforts. But until now, there has been no formal discussion of how much nuclear infrastructure the United States and its allies would demand that Iran dismantle in return for the gradual easing of sanctions. “This is the sticker-shock conversation, and we haven’t had it yet,” one senior administration official said.

Asia at Risk of Oil Supply Disruption: Asia is more at risk from a disruption in oil supplies than either Europe or the United States. That is according to a new report from Chatham House, which found that China and India are poorly positioned to handle such a supply crisis. The paper looked at what would happen in the event of a major supply disruption, such as the loss of 10 million barrels per day through the Strait of Hormuz. More than 40% of Asia’s crude oil supplies transits through the narrow strait in the Persian Gulf. How would Asian countries handle such a calamity?  The obvious surge in oil prices would be the biggest threat, as opposed to a shortage of oil. High oil prices would inflict more damage on energy hungry nations of China and India, whereas the United States and Europe have improved fuel efficiency significantly.  IEA member countries, which include the U.S., the EU, as well as South Korea and Japan, have all agreed to store 90 days’ worth of oil supply in strategic reserves, which would be deployed in the event of a supply shortage. China, although not a member, has developed its own reserve. India, on the other hand, has not, and thus would be severely impacted. Moreover, the response by Asian governments would be unpredictable, adding a risk premium to the price of oil. For example, if India decided to ban exports of refined products in an attempt to conserve supplies for domestic consumption, it would lead to shortages elsewhere in Asia, pushing up prices further.

China Deploys Submarine Near Vietnam Oil Rig, 86 Vessels Now Present - With the additional deployment of a submarine and a missile ship, there are now 86 Chinese vessels accompanying the oil rig's installation in Vietnam's Exclusive Economic Zone (EEZ). Local news reports that 3 Chinese military ships are surrounding a Vietnamese marine police vessel this morning and water cannon use continues against Vietnamese ships. We addressed the who, what, where, when and how of China’s HD-981 oil rig foray into Vietnamese waters here but, as we discuss below, the enduring question, as with many of China’s recently provocative actions in the Asia-Pacific, remains why?  The latest regulatory U-turn shouldn’t come as too much of a surprise, then.

Vietnam-China Dispute Complicates Budding Business Ties - China’s growing commercial relationship with Vietnam adds a layer of complication to an angry territorial dispute between the two nations. Tensions have flared over China’s recent anchoring of an oil rig in a region of the South China Sea that is claimed by both nations. The dispute tipped over into violent protests in Vietnam on Wednesday, in which protesters burnt Chinese-owned businesses. A Vietnamese worker and a Chinese contractor died in the violence, local officials said. (Protesters also attacked Taiwanese factories, despite Taiwan not playing any role in the current row.) It was unclear whether the protests were organized. And it wasn’t immediately known if those rioting were workers with other grievances about pay and conditions. There’s long been wariness in Vietnam over China, a larger, more powerful and richer neighbor. China’s increasingly strident territorial claims in the South China Sea have caused unease in Vietnam. At the same time, business ties between the countries have strengthened in recent years. Chinese Premier Li Keqiang visited Hanoi in October to promote two-way trade, which is now over $50 billion annually. Last year, China pledged to invest $2.28 billion in Vietnam, the second largest amount behind South Korea, and much higher than promises of $302.2 million in 2012 and $599.8 million in 2011.

Xi Says China Must Adapt to ‘New Normal’ of Slower Growth - Chinese President Xi Jinping said the nation needs to adapt to a “new normal” in the pace of economic growth and remain “cool-minded” amid a slowdown that analysts forecast will lead to the weakest expansion since 1990. China’s growth fundamentals haven’t changed and the country is still in a “significant period of strategic opportunity,” Xi said, according to a Xinhua News Agency report on the central government website on May 10. At the same time, the government must prevent risks and take “timely countermeasures to reduce potential negative effects,” he said. Policy makers are trying to keep economic expansion from slipping below Premier Li Keqiang’s 2014 target of about 7.5 percent while reining in a credit boom that a central bank official said threatens to undermine the financial system. The government has so far limited its support to tax breaks, and speeding up infrastructure and social housing investment, with Li saying last week the focus remains on the quality of growth and on changing the structure of the economy. “Xi’s comment showed that the Chinese government is reluctant to roll out large stimulus now,” . “At the same time, economic weakness remains and pressure from the property market is rising. The government has to gradually step up policy easing, especially on the monetary policy side.”

China Debt Rises to 226 Percent of Annual GDP – Liu Shiyu, Deputy Governor of the People’s Bank of China, warned yesterday of the continuing perils of shadow banking and urged further efforts to control China’s rising debt. Commenting that China’s shadow banking sector was created using a “gambling mind set” directed only at short-term investments, he stated that the practice is pushing up costs for the real economy while making zero contributions to labor productivity. As the Chinese economy slows down, the nation’s shadow banking industry—estimated by J.P. Morgan at US$7.5 trillion—is making it harder for the government to rein in credit and protect state-owned banks from default. The State Council also warned yesterday that China’s capital markets remain immature, containing organizational and systematic problems.Recently, the Chinese Banking Regulatory Commission (CBRC) has stepped up supervision of the trust industry by tightening the approval process for financial companies seeking to enter new business fields and offer new financial products. It has also instructed smaller banks to limit their investments in assets that are not trading on exchanges using proprietary or interbank funds. Lastly, practices such as moving interbank lending off bank balance sheets are now banned. Last year, China’s total debt, including government, corporate, financial institutions and households was about 226 percent of its total annual GDP according to Credit Agricole, and this is expected to rise to 265 percent by 2016. This compares with a ratio of 105 percent in 2000 and 187 percent in 2012. These numbers have triggered concern over their similarities to the debt surges that pre-empted the Asian Financial Crisis in 1997.

China presses housing panic button - Here it comes! From Reuters: China’s central bank has asked commercial banks to quicken the pace of extending home mortgages and to set mortgage rates at reasonable levels, four sources told Reuters on Tuesday, underlining efforts to support the cooling property market. The sources said the request came at a meeting between the People’s Bank of China and some commercial banks on Monday.Tight mortgages are considered one of reasons for the cooling of property market this year, as banks have raised mortgage rates for first-time home buyers or slowed the pace of extending mortgages due to tighter liquidity. And from MNI: The Chinese banking regulator has told the country’s banks to continue extending mortgage loans amid growing fears that the property market is heading for a fall. It’s not an outright about turn by the looks of things (no RRR cut for example) but given this will combine with supply fears in the short term, taking profits on iron ore shorts might be prudent.

China’s Sizzling Real Estate Market Cools - After almost two decades of nearly unceasing increases in real estate prices and construction across China, one of the world’s longest-running bull markets finally seems to be stalling, with broad consequences for the country’s economy and possibly its politics.Prices are falling for both new and old apartments. The volume of deals is drying up. And developers are pulling back, furloughing workers and delaying new projects. In the latest sign, housing starts plummeted 25 percent in April from a year ago, the Chinese government announced on Tuesday.It is a severe blow for a country where real estate sales offices have become ubiquitous and tower cranes are jokingly described as the national bird.  . The question is how much further the real estate market will slow, and whether its troubles will spill into other sectors of the economy, notably the banking system. Any weakness in the great Chinese economic engine could reverberate through the global markets.

China reverts to credit as property slump threatens to drag down economy - China's authorities are becoming increasingly nervous as the country’s property market flirts with full-blown bust, threatening to set off a sharp economic slowdown and a worrying erosion of tax revenues. New housing starts fell by 15pc in April from a year earlier, with effects rippling through the steel and cement industries. The growth of industrial production slipped yet again to 8.7pc and has been almost flat in recent months. Land sales fell by 20pc, eating into government income. The Chinese state depends on land sales and property taxes to fund 39pc of total revenues. “We really think this year is a tipping point for the industry,” Wang Yan, from Hong Kong brokers CLSA, told Caixin magazine. “From 2013 to 2020, we expect the sales volume of the country’s property market to shrink by 36pc. They can keep on building but no one will buy.” The Chinese central bank has ordered 15 commercial banks to boost loans to first-time buyers and “expedite the approval and disbursement of mortgage loans”, the latest sign that it is backing away from monetary tightening. The authorities are now in an analogous position to Western central banks following years of stimulus: reliant on an asset boom to keep growth going. Each attempt to rein in China’s $25 trillion credit bubble seems to trigger wider tremors, and soon has to be reversed.

Chinese Bad Loans Rise to Five-Year High as Economy Weakens -  Chinese banks bad loans rose for the 10th straight quarter to the highest level since September 2008 as the slowing economy hurts lenders’ asset quality. Nonperforming loans rose by 54 billion yuan ($8.7 billion) in the three months through March, the biggest quarterly gain since 2005, to 646.1 billion yuan, according to data released by the China Banking Regulatory Commission today. Bad loans accounted for 1.04 percent of total lending, up from 1 percent three months earlier. The increase in defaults adds to concern banks’ profitability may slip as they build buffers to cover loan losses. Policy makers have also been cracking down on financing to weaker borrowers to rein in total debt that has climbed to more than double the nation’s gross domestic product. Chinese banks had 1.8 trillion yuan of loan-loss reserves at the end of March, accounting for 274 percent of their nonperforming loans, according to the CBRC. That fell from 282.7 percent as of December. Lending in China is slowing as the government discourages credit to overextended industries and local governments as it cracks down on activity outside the formal banking system. The nation’s broadest measure of new credit shrank 9 percent in the first quarter and money supply in March grew at the slowest pace on record, underscoring risks of a deeper slowdown.

Chinese economy in “outright deterioration”  -- Find below the new Westpac-BREE China and resources mega-almanac the introduction to which is sounding very gloomy indeed: The Chinese economy grew at a rate somewhat below its potential early in 2014. The general impression left by the flow of data since the previous edition of CRQ has been one of outright deterioration. The respectable performance observed in the second half of last year, which at the time we suspected would be the peak for growth momentum in the current cycle phase, has been confirmed as such by the weak March quarter. Growth in heavy industrial capacity slowed in early 2014, having managed to stabilise in the second half of 2013. Outlays on utilities projects have been disappointing in the year to date, given such spending looked somewhat underdone across the previous year. Countering that, investment in transport infrastructure was resilient in the March quarter, counter to expectations of a decline in growth. Real estate investment has been weaker than anticipated so far this year. Housing starts ended 2013 with some momentum, which promptly evaporated in early 2014. Developers have been hurt by weaker sales. This has hindered their ability to move stock and control their liquidity in the tighter monetary environment. Housing prices and sales turnover have both been under downward pressure. The secondary dwelling market has shown the most obvious strains, but the market for new dwellings has not been able to stand completely aloof.

Follow the Money, China-Style -  Since China introduced a floating exchange rate on July 21, 2005, the Chinese yuan has consistently risen in value against the United States dollar, from a low of 8.28 yuan to the dollar in July 2005 to a high of 6.06 in January of this year. But the appreciation of the yuan has failed to convince ordinary Chinese people that their money buys more; on the contrary, they feel it’s worth less.For the last nine years, while the yuan has appreciated in relation to other currencies, it has steadily lost value at home. Many attribute this to excess printing of currency by the central bank. The excess of China’s money supply (known as “M2”) at the end of 2013 totaled 110.65 trillion yuan ($17.77 trillion), four times greater than the figure 10 years earlier, when it stood at 22.1 trillion yuan ($3.55 trillion, at today’s rate).The basic tenets of monetary policy say that for every 1 yuan rise in the value of the economy, the central bank should add 1 yuan in currency. Any supply of currency above that rate is excess. Today, the value of Chinese currency in circulation compared with gross domestic product is at a ratio close to 2:1 (in 2013, China’s G.D.P. amounted to 56.88 trillion yuan, or $9.31 trillion).Because China’s economic growth relies chiefly on investment, it requires major injections of capital. In the past 30 years, we have used excessive money supply to rapidly advance our economy.” In most economies, that would lead to rampant inflation, but if we look at the rise in China’s Consumer Price Index over the last two years, it’s usually been in the range of 2 to 3 percent, and only occasionally above 3 percent. During the last decade, there have been only two occasions when prices rose sharply: in 2008, when the increase topped 8 percent, and in 2011, when it peaked at about 6 percent.

Blogs review: China's GDP (PPP) to surpass the United States? -- What’s at stake: Many news outlets picked up the release of new “purchasing power parity” estimates by the International Comparison Program, emphasizing that China’s economy is likely to surpass the U.S. in size sometimes this year according to this measure. While noticeable, this was not the most interesting aspect of these revised estimates. The World Bank releases its new estimates of PPP. Kaushik Basu writes that a fascinating feature of purchasing power parity (PPP) is more people hold an opinion on it than know what it means. This was in ample display when the Global Office of the International Comparison Program (ICP), hosted by the World Bank, announced the latest PPP data for the world, pertaining to 2011

Screw Asian Dev't Bank: PRC's Asian Ifra Invsmt Bank - What's a country to do with (nearly) $4 trillion in FX reserves? To paraphrase Captain Kirk, China has boldly gone where no other country has gone before in accumulating them since Japan at full pomp "only" had slightly over $1 trillion; Japan now has about $1.3 trillion. Obviously, buying friends and subsidizing people is on the agenda--witness China in Africa--but this approach has its drawbacks. First, precisely because they are viewed as PRC-only endeavors, others are suspicious of its motives. Second, there is limited interaction with international institutions China seeks to be more influential with in going it alone. Hence, China's recently mooted plans to set up an Asian Infrastructure Investment Bank (AIIB) to address both these points. The PRC has made limited inroads at the region's multilateral lending institution, the Asian Development Bank (ADB).  After all, the ADB cast of characters aren't Japan's natural allies: the largest shareholders in the ADB are Japan and the United States. Meanwhile, it is headquartered in the Philippines, the nation that has taken China to  court over its, how should I put this, expansive territorial claims over warnings not to "internationalize" the dispute. So if you can't join 'em, beat 'em by setting up your own regional lender. As for the present ADB ownership structure: As of 31 December 2013, ADB’s five largest shareholders are Japan (with 15.7% of total shares), the United States (US) (15.6%), People’s Republic of China (6.5%), India (6.4%), and Australia (5.8%). ADB members who are also members of OECD hold 64.6% of total subscribed capital and 58.5% of total voting power.This Bloomberg article makes much of China having territorial disputes with India, but then again, it has them with a lot of folks--add Brunei, Indonesia, Japan, Malaysia, the Philippines "Taipei," Vietnam and so forth. To ensure this bank is not viewed as someone's pet project--it is, but similar criticisms can be leveled against the ADB--the supposed plan is for China to provide half the $50B over a period of five years with other Asian nations contributing the rest:

China’s $50 Billion Asia Bank Snubs Japan, India - On the first evening of the Asian Development Bank’s annual meeting, China’s Finance Minister Lou Jiwei led discussions about the creation of the new $50 billion Asian Infrastructure Investment Bank, to be mostly funded by China. Left out from the feast, however, were regional rivals Japan and India, as well as the U.S. China’s proposal is viewed privately by officials and diplomats as a challenge to the regional role of the ADB, a Manila-based multilateral lender founded in 1966 that is dominated by the U.S. and Japan. It’s one of a number of moves by China to promote its influence in the region, from the suggestion of a “mega free-trade area” in Asia to promoting a regional security summit hosted by President Xi Jinping this month with at least 14 state or government leaders attending, including Russian President Vladimir Putin. Japan and the U.S. are observers to the 24-member body. “China wants to play a more pivotal role in these kinds of organizations -- so the best way is to establish an organization by itself,”  China is seeking a more assertive international role as it tussles with neighbors such as Japan over maritime territory, and faces a U.S. that is shoring up its alliances in the region. The Chinese government is embroiled in disputes with the Philippines, which arrested Chinese fishermen near the disputed Spratly Islands, and Vietnam, with which it traded accusations after boats from the two countries collided near the site of a Chinese exploration rig in contested waters.  The new bank, put forward by Xi during his visit to Indonesia in October, will initially be less than a third of the size of ADB, which has $174 billion in total capital, according to its 2013 report. The ADB is rated AAA by Standard & Poor’s, its top credit rating, compared with the AA- the company gives to China’s sovereign government.

In Asia, Policy Makers Take Aim at Housing Bubbles - Policy makers around Asia increasingly are turning to targeted measures to take the froth out of housing and credit markets, without resorting to interest-rate increases that might dampen economic activity more generally. In Singapore and Hong Kong, so-called macroprudential measures – such as limits on loan-to-value ratios, transaction taxes and the like — are proving effective at cooling red-hot housing markets, and especially at restraining speculative buying. In New Zealand, early evidence suggests that a cap imposed last October on highly leveraged mortgage loans already is bearing fruit: Data this week showed house prices declined in April and the number of residential properties sold fell more than 20% from a year earlier. Several factors have been behind the growing use of macrorprudential measures. Ultra-loose monetary policy in the United States since the global financial crisis has depressed interest rates worldwide and led to an explosion of credit in Asia, where overall debt levels have soared from 149% of gross domestic product in 2007 to an estimated 211% in 2013, according to Morgan Stanley. Economists have begun to worry that levels of household debt in some parts of Asia – notably Thailand, Malaysia, Singapore and Hong Kong – are rising at speeds that historically have ended in crashes.

How China Is Eclipsing Japan in Asia — An IMF Snapshot -- China’s latest tangle with Vietnam plays into Japan’s bid to ramp up influence in Asia, as Tokyo offers leadership to counter Beijing’s saber-rattling. (Here, here and here.) A new International Monetary Fund report offers a sobering reminder of the limits of Japanese clout, highlighting the growing reliance of regional economies on China, and the declining economic importance of Japan, as shown in the accompanying graphs. In the latest Regional Economic Outlook for Asia and Pacific, the IMF compared how much 11 export-dependent Asian economies depended on Japan and China, first in 1995 and then in 2012. In the mid-90s, all 11 relied more on Japan than China as an export market. Less than two decades later, 10 of those countries were more dependent on China, most by wide margins. The one exception: Indonesia, which still sold somewhat more to Japan. The numbers reflect both Japan’s dramatic decline in importance over nearly 20 years of stagnation, and China’s rapid rise. The IMF doesn’t look at raw exports, but a country’s “value added embodied” in exports. That’s the portion of an exported product made in a country, stripping out the value of components imported from elsewhere included in that product. By that measure, Malaysia sent nearly one-quarter of its exports to Japan in 1995 — and just 6% in 2012. At the same time, its reliance on China doubled, to 10%. Back then, Australia was about six times more dependent on Japan. Now, it’s nearly twice as dependent on China. The data was part of a broader study looking at how economies in the region are becoming more integrated . “China is at the core of this, both as an assembly hub, and, increasingly, as a source of final demand,” said Romaine Duval, an IMF economist specializing in Asia, in an interview. “By contrast, Japan’s role, which was very crucial in the 1990s, is declining very rapidly.”

China's Southeast Asia Strategy Tested by Violent Protests in Vietnam - China’s efforts to head off a united Southeast Asia bloc against its pursuit of control of the South China Sea faces a backlash as President Xi Jinping considers how to respond to Vietnam’s fury over Chinese moves. Vietnam’s Prime Minister Nguyen Tan Dung called for support from neighboring nations in his country’s attempt to force China to withdraw an oil rig it placed in waters claimed by both nations. Vietnamese ire over the issue spurred attacks on Chinese workers in the country that left two dead. The tensions with Vietnam risk undermining the policy Xi has crafted since consolidating power last year -- of tightening ties with some Southeast Asian countries while taking a tough stance with those challenging China’s maritime claims. Any spiral of violence may enhance the incentive of the region aligning, and deepening relations with the U.S. or Japan. “If they continue to antagonize the smaller countries they are in for trouble because it is going to create hard feelings about being trampled by a giant,”

The Chronic Exporters’ Curse? -  Yves Smith -- Mercantilist trade strategies have been the rage among most countries, save the US, whose trade policies have been oriented towards making the world safe for American multinationals and investment banks. And one can see why. Sustained trade surpluses allow exporters to leech off other nations’ demand, allowing them to enjoy higher employment levels and/or better paid laborers than they’d have otherwise. It also allows exporters to enjoy both high domestic savings rate and budget surpluses. This is important because, it means the government isn’t playing a role that businesses find unappealing to reach full (or closer to full) employment. Put more simply, running trade deficits finesses the contentious political issues that arise when governments have to step in to provide for an adequate level of demand by running trade deficits. While many instinctively reject the notion that government deficits are desirable except when the economy is at full employment, the reality is that private investors demand a rate of return that would otherwise result in underinvestment (see Andrew Haldane and Richard Davies for one of many confirmations; you can also see it in rampant short-termism among investors). As a result, we’ve been in a protracted period (including before the crisis) where businesses around the world have been underinvesting. The so-called “savings glut” is a misnomer; it’s more accurately called a “corporate savings glut” or better yet, an “investment drought”.  But the general point remains: being an exporter confers a lot of advantages. So most countries jockey to try to attain and maintain that position. But when you’ve gotten there, is it all that it’s cracked up to be? If you are a small country, say Nordic-scale, the answer is probably yes. But if you are large, the equation over time becomes more complicated.

Japan’s Expected Consumption Fall ‘Not a Big Deal’ - The Japanese economy is likely to ride out an expected fall in consumption over the coming months, says Adam Posen, president of the Peterson Institute for International Economics. Private consumption, accounting for 60% of Japan’s gross domestic product, is seen slumping following April’s sales tax increase and is expected to weigh on the economy following stellar quarterly growth in the first quarter.. But Japan should be able to weather the weakness this time, unlike in 1997 when Japan previously raised the sales levy, said Mr. Posen, a long-time scholar of Japanese economic policy. Mr. Posen, the head of the think tank for international economic policy and a former Bank of England policy maker, regularly discusses monetary policy with central bankers around the world. While Japan’s gross domestic product grew at a real annualized rate of 5.9% in the first three months of the year it was fueled by a surge in purchasing ahead of the sales tax increase. The front-loading of personal consumption in the first quarter prepared the ground for a pullback in the second. But the situation is quite different from 1997, Mr. Posen said in an interview. Back then the Japanese financial system was weak and monetary policy was tight. Now Japan has an “activist, positive” monetary policy and “a very stable, well-capitalized” banking system, he said. “You’re going to have shortfall in consumption this next couple quarters. But it doesn’t necessarily throw off the fundamental path of the economy. It’s not that big of a deal,” he said

Japan Balance Of Payments Current Account Collapses To Record Deficit - Any day, week, month, quarter, year now... that J-Curve 'recovery' will come bounding over the horizon and save the Japanese economy from its inevitable death spiral... for now, presented with little comment aside for historical confirmation (as even Goldman Sachs has now given up on hope of a bounce), Japan's largest (seasonally-adjusted) Balance of Payment Trade Deficit ever... As Bloomberg notes, this seems related to the tax hike... Consumers splurged on items such as refrigerators and computers in March before the 3 percentage point tax rise, boosting imports already climbing due to a weaker yen and nuclear plant closures pushing up energy costs. A slide into a sustained deficit could make Japan more reliant on overseas funding to service the world’s biggest debt burden. But... don't worry... “It’d be a problem if the government fails to demonstrate a clear path for budget consolidation should Japan fall into a structural current account deficit,” Tsutomu Saito, an economist at Daiwa Institute of Research in Tokyo

Japan to Sell Inflation-Linked Bonds to Individuals Amid Rising Inflation - - Japan will allow individuals to own inflation-linked bonds from next year in response to growing demand for protection against rising prices as the Bank of Japan continues its ultra-easy monetary policy, the government said Tuesday. The move is also meant to complement the government's policy of encouraging individual ownership of Japanese government bonds amid concerns that domestic institutional investors alone may not be able to carry Japan's massive debt, the largest among industrialized countries. The Finance Ministry said bonds reaching maturity in 2016 or later will be eligible for individual ownership. Inflation-linked bond issuance was resumed last year after a five-year hiatus, as appetite revived for inflation protection following the BOJ's introduction of an inflation target.  The outstanding balance of such bonds is expected to reach Y3.6 trillion in the year ending March 2015, including Y1.6 trillion to be issued during the year.  Individuals currently own only 2.2% of outstanding JGBs totaling Y744 trillion. The government expects that greater individual ownership will help stabilize the JGB market.

Japan Current Account Surplus Smallest on Record.  Japan posted its smallest current account surplus on record in the fiscal year that ended in March as structural changes in the economy undermine Prime Minister Shinzo Abe's efforts to achieve growth through exports. The ¥789.9 billion ($7.76 billion) surplus in the broadest measure of a nation's trade with the rest of the world was sharply lower than the ¥4.2 trillion surplus registered a year earlier, data from the Ministry of Finance showed Monday. Until recently, the country routinely produced a surplus in excess of ¥10 trillion a year. When Mr. Abe came to power 17 months ago, he introduced an inflation target and called for aggressive monetary easing. That helped weaken the yen's export-crippling strength. But to his surprise, exports have yet to catch fire. So far the weaker yen has merely made imports more expensive at a time when the nation is more reliant on fossil fuel from other countries. A current account deficit means a nation is spending more than it earns from trade and investment. A country that builds up liabilities with foreign creditors through chronic current account deficits could face funding problems if investors decide to withdraw their financing.

Weak Japan exports, not tax hike, could shake BOJ (Reuters) - The Bank of Japan is increasingly confident that the economy is weathering a recent tax increase and on its way out of deflation, but another threat to that optimistic scenario is lurking - weak exports. If shipments abroad continue to fall short of the central bank's forecasts, the recovery in the world's third-biggest economy could stall and the BOJ might be forced to ease policy again in the coming months. Growth has returned to Japan, helped greatly by massive monetary stimulus unleashed 13 months ago when Haruhiko Kuroda took the helm at the BOJ. Early signs support the bank's view that last month's increase in the national sales tax will not derail the recovery or drag Japan back into deflation. But the BOJ has been notably wrong about exports. Weak yen was supposed to boost overseas shipments in time to take up the slack when consumption took a hit from the April 1 tax increase to 8 percent from 5 percent. "The BOJ's main scenario is for exports to gradually pick up. But it's true that exports remain the biggest risk to the outlook," said an official familiar with the BOJ's thinking. The central bank still forecasts export growth will accelerate and Kuroda's assurances that prices are on track to hit his 2 percent inflation target have prompted investors to scale back expectations of further easing later this year. But Kuroda is always careful to say the BOJ will not hesitate to ease again if its price goal is threatened.

Questions Mount About Japan’s Export Competitiveness - Japan’s seasonally-adjusted current account deficit, a broad measure of trade and money flows with the rest of the world, widened in March. That would appear to add to the argument that Japan is developing a structural deficit, yet more evidence that Japan is no longer an export powerhouse. But many economists expect the account to return to surplus later this year as Japanese consumers react to an April 1 sales-tax increase by cutting back on imports. Still, questions over Japan’s export competitiveness remain.The current-account balance in March came to a surplus of Y116.4 billion ($1.14 billion), much smaller than market expectations of Y294 billion. Adjusted for seasonal factors, the current account notched a deficit of Y782.9 billion, the largest in the current data series dating back to 1996. In the fiscal year ended in March, the surplus was just Y0.8 trillion. Capital Economics, in a note, said the big deficit is partly explained by strong local demand ahead of the sales-tax hike. Japanese consumers brought forward purchases of big ticket items ahead of the tax, spurring imports. That demand is likely to fall back from April onward.

Japan Privately Questioning ECB’s Currency Rhetoric - Japanese officials are privately voicing their frustration at Europe’s attempts to talk the euro down against other currencies, a move some of them see as hypocritical.Europe has been among the most formidable opponents of Tokyo’s past efforts to stabilize the yen, whose rapid rise between 2007-2011 dealt a critical blow to Japan’s export industry and thwarted policy efforts to overcome deflation.In February last year, the European Union and the U.S. made Japan sign a joint pledge to use monetary policy only for domestic purposes and not to target exchange rates. European Central Bank Vice President Vitor Constancio declared around the time that it was essential to keep “verbal discipline” on exchange rates as well.But as the risk of deflation in the 18-nation euro zone becomes increasingly real, the ECB has altered its stance and has sharply stepped up its verbal interventions to lower the euro in recent weeks.“The exchange rate is not a policy target, but it’s a serious concern for our objective of price stability and therefore this concern will have to be addressed,” ECB President Mario Draghi said on May 8. “Europe has been critical of us, so what they are doing is unreasonable,” a senior Japanese government official recently told The Wall Street Journal. “This is a matter of principle.”

Japan’s Growth Picks Up Sharply - Japan’s economy regained momentum in the first quarter of this year, despite sluggish growth in the global economy, as domestic demand fired on all cylinders before a major consumption tax rise and employment improved. Gross domestic product, the broadest measure of goods and services in the economy, grew at a seasonally adjusted annual rate of 5.9% in the first quarter, the Cabinet Office said Thursday. That marked a rebound in growth, which slowed sharply toward the end of last year. It was also evidence that consumers have retained generally positive views about their economic situation 17 months after Prime Minister Shinzo Abe came to power. A rush in purchasing ahead of the April 1 sales tax increase to tackle the nation’s fiscal woes–the first major tax raise in 17 years–fueled the growth of personal consumption expenditures. That in turn prompted businesses to increase production and capital spending, creating jobs and increasing overtime pay. “Rush purchases pushed up GDP in the first quarter as expected,” said Economy Minister Akira Amari at a news conference after the data came out. “Consumption expenditures were particularly strong for durable items.”

Japan Is Desperate to Rescue Its Economy from an Early Grave - Japan’s battle against gray hairs took an unusual turn this week when the Ministry of Commerce set the very lowest acceptable bound for its aging population: 100 million people. Beyond this point, there lays a “crisis.” Or so warned Akio Mimura, head of Japan’s Chamber of Commerce and Industry. Mimura urged the government to make 100 million the official population target, backed by policies that would promote childrearing. “If we don’t do anything, an extremely difficult future will be waiting for us,” Mimura said. His concerns are well founded. Japan has one of the lowest fertility rates in the world, with each woman bearing an average of 1.4 children. At that rate, demographers project a plunge from 127 million people today to 87 million by 2060, sapping the workforce of its vital young workers and putting an enormous strain on state finances.The shrinkage has already begun. In 2013, Japan’s population declined by a record-breaking 244,000 people. All of which has led to some rather creative policy proposals from the Chamber of Commerce, such as retaining 70-year-old’s in the workforce, doubling government expenditures on childcare and encouraging men to ask working women out on a date. But once again, policymakers dodged the quickest fix, namely to import workers from abroad. The island nation has an outstandingly small number of immigrants. They form less than 2% of the population, compared with a wealthy country average of 11%. Japan could triple the number of foreigners and still not approach the norm among wealthy nations.

Japan Hopes Offer to Cut Tariffs Will Boost TPP Talks - Japan has told the United States it will make deep cuts in protection for two agricultural sectors it had previously regarded as “sacred,” a move it hopes will invigorate efforts to create a free trade zone across the Pacific.Japan’s shift is raising hopes that the stalemate can be broken on four-year-old negotiations to form a 12-nation Trans-Pacific Partnership, a key goal of U.S. President Barack Obama. Trade ministers from the countries negotiating the TPP will meet in Singapore next week.  No deal is expected at that meeting, but negotiators hope enough progress can be made that a broad agreement can be reached before U.S. congressional elections in November. But it’s not clear if Japan’s concessions will be enough to satisfy the U.S., which has called for the complete elimination of tariffs, without exceptions. “Failure to reach a bilateral deal this year could put the entire TPP negotiations at risk of drifting,” Japanese Economy Minister Akira Amari said Monday. He called on countries involved to redouble efforts to reach a deal. Aimed at creating a massive free-trade zone among countries that account for some 40% of global economic output, the TPP is meant to be an ambitious agenda. A disagreement between the U.S. and Japan, the two largest economies in the proposed zone, over tariffs on farm products has hindered negotiations until now. According to a government estimate, the boost to trade from tariff cuts could lift Japan’s economic growth by as much as 0.7%. But Tokyo sees the TPP as more than just an economic pact: It would symbolize the strength of the partnership between the United States and Japan at a time when China has taken an increasingly assertive approach toward the rest of the region

TPP Is Another Upward Transfer of Wealth - Those at the top have never done better,” President Obama ruefully acknowledged in his January 28 State of the Union speech. “But average wages have barely budged. Inequality has deepened.” Yet, moments later, Obama heartily endorsed the Trans-Pacific Partnership (TPP), which as drafted directly reflects the demands of “those at the top” and would, if passed, severely intensify the very inequality spotlighted by the president. The TPP would provide transnational corporations with easier access to cheap labor in Pacific Rim nations and new power to trump public-interest protections—on labor, food safety, drug prices, financial regulation, domestic procurement laws, and a host of others—established over the last century by democratic governments. The nations currently negotiating the TPP—which together comprise nearly 40%of the world economy—include the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Among them, Malaysia, Brunei, Mexico, Singapore, and Vietnam, are all notorious violators of labor rights The TPP’s labor provisions are far too weak to begin uplifting wages, conditions, and rights for workers in these nations.As with NAFTA, the TPP will benefit U.S. companies relocating jobs to low-wage, high-repression nations, argues economist Mark Weisbrot, co-director of the Center for Economic and Policy Research (CEPR). This would also exert strong downward pressures on the pay of U.S. workers, “Most U.S. workers are likely to lose out from the TPP,” Weisbrot says. “This may come as no surprise after 20 years of NAFTA and an even-longer period of trade policy designed to put lower- and middle-class workers in direct competition with low-paid workers in the developing world.”

Will the United States Benefit from the Trans-Pacific Partnership? - NY Fed - U.S. involvement in what could be one of the world’s largest free trade agreements, the Trans-Pacific Partnership (TPP), has garnered a lot of attention, especially since the entry of Japan into negotiations last year. The proposed free trade agreement (FTA) encompasses twelve countries, which combined account for 45 percent of U.S. exports and 37 percent of U.S. imports. This broad coverage of U.S. trade seems to suggest large potential gains for the U.S. from the agreement. However, three quarters of this trade is already within the U.S. free trade agreement with Canada and Mexico (the North American Free Trade Agreement (NAFTA)), making the assessment of potential gains to the TPP less clear cut. In this post, we investigate some implications of TPP for U.S. international trade, with a focus on identifying areas with the greatest potential for liberalization and, hence, benefits to U.S. exporters and consumers.   We find that while the potential gain from tariff reduction on the typical U.S. export or import is small (that is, for the average trading relationship across all products and countries), potential gains for a small subset of products and partners may be quite large. We highlight the role of agricultural products and the inclusion of Japan under a potential TPP deal for their outsized potential benefits. We also note that the extent of agricultural liberalization in the United States and Japan is highly uncertain. Reduction of agricultural subsidies and tariffs in advanced economies is a politically charged issue, and one credited for multiple derailments of the World Trade Organization (WTO) Doha round of multilateral negotiations prior to the recent deal. Therefore, given the lopsided distribution of tariff barriers and the complex political economy of agricultural industries in the United States and Japan, the expected value of the deal for U.S. trade arising from lowering import tariffs is correspondingly uncertain.

Forex reserves: why following China won’t work for India - Reserve Bank of India Governor Raghuram Rajan recently stated that India’s economy cannot be said to be insulated from external shocks unless the country’s foreign exchange reserves rise to the levels of China’s. ‘I think, if you focus only on reserves, there is really no point at which you feel safe … 400, 500, 600 … any level of reserves, until you get to Chinese level, it is probably not enough’, he said. Recent research, however, suggests that the myth of a ‘comfortable level of reserves’ is, at best, doubtful, at worst, misleading. The elusive comfortable level of reserves depends on the level of reserves of your reference group (the ‘keeping up with the Joneses’ effect). Having deeper reserves than your neighbour may signal that your neighbour is the better target for foreign-currency speculative runs. Alternatively, this may be the outcome of hoarding in attempts to delay real appreciations that may hurt relative competitiveness, leading to ‘hoarding wars’ between exporters, attempting to keep their export market shares in overseas countries. South Korea presumed prior to the global financial crisis that having international reserves at about 35 per cent of GDP was ‘comfortable’. Yet, they found in 2008–09 that it was not enough to abate financial panic — it took the unprecedented US Federal Reserve swap extended to South Korea to mitigate the panic. The lesson: South Korea overlooked the key importance of balance sheet exposures. At times of panic and flight to quality, the provision of (preferably elastic) swap lines by the supplier of global liquidity acting as the ‘buffer of last resort’ is the ultimate stabiliser. The outcome was that South Korea adopted prudential regulations (in line with economists Valentina Bruno and Hyun Song Shin’s recommendations).

Is This the ‘Gujarat Model’ India Needs? - Elections in India are almost at their end, with May 12 being the last day for polling. The overwhelming favorite to win the race is the Bharatiya Janata Party (BJP) coalition whose campaign is being single-handedly spearheaded by Narendra Modi, Chief Minister of Gujarat. If opinion polls and mainstream media coverage are to be believed, the BJP leader’s anointment as the Prime Minister of India after May 16, the day results are announced, is a mere formality. However, there are many in India and abroad who nurture deep-seated doubts about Modi, a hardcore Hindu nationalist leader, whose claim to infamy is the 2002 Gujarat riots that claimed the lives of hundreds of minority Muslims. The media and large swathes of society have been quite oblivious to the Gujarat CM’s track record in his state, and there have been few questions about the BJP leader’s attitude towards the Muslim minority in his own state. In a recent article in The New York Times, “Being Muslim Under Narendra Modi,” Basharat Peer, after visiting Ahmedabad, writes that “judging by the evidence in Gujarat, where Mr. Modi has been chief minister since 2001, a B.J.P. victory in the general election would increase marginalization and vulnerability among India’s 165 million Muslims.” Writing about his experiences of visiting Muslim-dominated areas in one of the prominent cities of Gujarat, Peer says that “Ahmedabad, Gujarat’s largest city, has become a wealthy metropolis of about six million people and three million private vehicles. But Ahmedabad ceases to swagger in Juhapura, a southwestern neighborhood and the city’s largest Muslim ghetto, with about 400,000 people.” There is a valid anger among the 13 percent of India that is Muslim. “He (Modi) should have been disqualified a long time ago. It’s deplorable that he should have grown to such proportions with such a past. I feel angry from the sense of justice being not merely denied but injustice being actively perpetrated with the state machinery’s complicity,” says Aateka Khan, an assistant professor in Delhi University.  Does India need this kind of “Gujarat model?”

India's new government set to inherit wobbly economy (Reuters) - India is on the cusp of political change that is widely expected to infuse a new life into an economy that is struggling to break away from a tale of weak growth and high inflation. But data due this week will probably show no improvement yet to its economic woes, as industrial output is expected to contract for a second straight month while inflation is forecast to pick up. Asia's third-largest economy is battling the worst slowdown since the 1980s as GDP growth has almost halved to under 5 percent in the past two years. true Output from mines, utilities and factories in March probably fell 1.5 percent from a year earlier, according to a Reuters poll of economists. If the forecast materializes, it would mark the fifth fall in industrial production in six months, reflecting the rut gripping the economy from weak consumer and investment demand. Meanwhile, consumer inflation is estimated to have quickened to 8.48 percent in April from 8.31 percent in March, the poll showed. Wholesale prices for the month are forecast to rise 5.73 percent compared with a 5.70 percent annual gain in March.

Special Report: In Modi's India, a case of rule and divide: Husain embodies the paradox of Gujarat: the state's pro-business leadership has created opportunities for entrepreneurs of all creeds; yet religious prejudice and segregation are deeply, and even legally, engrained. If a Muslim enquires about a property in a new development, often the response is: "Why are you even asking?" said Husain, speaking at his home in the Muslim neighborhood of Juhapura, where filthy slum streets rub against smart new apartment blocks and enclaves. Separation of communities is common across India. Nowhere is it as systematized as it has become in Gujarat. That matters because the state's chief minister, Narendra Modi, could soon run the country. Exit polls show that when results of a general election are announced on May 16, Modi's Bharatiya Janata Party (BJP) and its allies will win a majority in parliament, almost certainly making him India's next prime minister. The 63-year-old Hindu nationalist has ruled the western state of Gujarat since 2001. He has surrounded himself with technocrats - and also ministers and advisers who promote "Hindutva", a belief in the supremacy of Hinduism. As prime minister, Modi would lead not just 975 million Hindus but 175 million Muslims, around 15 percent of India's population and the third-largest Muslim population in the world.

Modinomics: Myth or Magic? - India is on the verge of announcing the results of its general election and even the most pessimistic polls predict a victory for Narendra Modi, the Chief Minister of Gujarat and nominee for the right-wing Bharatiya Janata Party (BJP). A major survey carried out by the University of Pennsylvania, serialized by the Times of India in March, found that economic growth was the issue at the heart of India’s elections. More than half of India’s population are below the age of 26, GDP growth has stagnated at the 5 percent mark, and India’s central bank has failed to tie a leash around inflation. Modi has projected himself as an administrative wizard: his muscular leadership has boosted the state’s infrastructure and his business savvy has attracted investment from global megabrands including Ford and Colgate. Gujarat boasts the world’s largest oil refinery, a thriving agricultural sector, and 24-hour electricity – a remarkable achievement when we remember that only a few years ago India’s rudimentary grid fizzed out for days, leaving as many as 700 million people without electricity. It is this, the shining “Gujarat model,” that Modi promises to replicate across India as prime minister. But Modi’s brand of corporatist capitalism – dubbed “Modinomics” – quickly frays under scrutiny. A lot, it seems, rests on the counterfactual: would Gujarat have performed as well as it has without Modi? The answer: Probably. Geographically the state enjoys several boons. Its extensive coastline has made it an export hub and vast tracts of arid land serve as ready sites for factories. Historically, however the statistics are cut, Gujarat’s growth rate has also long out-paced India’s national average. . Given this record, a more appropriate question might instead be: Why has Gujarat not performed better?

Narendra Modi's difficult road ahead - The outcome has given Modi a strong mandate to govern. During his election campaign, the BJP repeatedly trumpeted its PM nominee's track record in the economic development of his native state of Gujarat - where he has served as chief minister since 2001 - promising to repeat the performance nationwide, if voted to power.  Now that he has won an overwhelming majority, "he will be expected to deliver a quick economic turn-around," said Vaishnav in a DW interview. Michael Kugelman, a South Asia expert at the Washington-based Woodrow Wilson International Center for Scholars, points out that despite the BJP's poll triumph, it will have a "very difficult road ahead" in leading the nation through the immense challenges it faces. "The BJP has been praised for constructing massive infrastructure and development projects in the state of Gujarat, and it will want to do this across India. Yet this will be a huge challenge due to India's stumbling economy," Kugelman told DW. This view is shared by political analyst Vaishnav who believes "it will be extremely difficult, if not impossible, for Modi to implement the 'Gujarat model' at a national level because of New Delhi's limited levers of power over the states, the sprawling central bureaucracy and the need to forge coalitions."

India Election: What Narendra Modi’s Victory Means for the U.S. Economy -- Narendra Modi’s victory in the Indian election is expected to improve trade ties between New Delhi and Washington and could eventually lift U.S. exports in industries ranging from pharmaceutical products to heavy infrastructure, U.S. officials and business leaders say. But the prospects for greater economic ties, which suffered in recent years under India’s ruling Indian National Congress, depend at least partly on relaxing U.S. diplomatic tensions with Mr. Modi. The Hindu nationalist politician has been blamed for mass violence against Muslims while he was governor of Gujarat, an issue that has made him ineligible for travel to the U.S. and prevented high-level contact with the U.S. State Department until earlier this year. Mr. Modi has said his government did its best to stop the violence against Muslims in 2002. On Friday Mr. Modi, whose pro-business credentials during Gujarat’s rapid economic expansion have already lifted India’s stock market, led his Bharatiya Janata Party toward an apparent victory that could make him prime minister later this month. Depending on which officials join his government, U.S. companies could benefit from a relaxing of recent policies that promoted Indian manufacturing and intellectual property at the expense of international rivals, U.S. business groups say.

Could RBI Governor Rajan Be Ousted By a New Government? - As India appears to be on the threshold of political change, some economists, executives and investors are wondering whether a new government would dare to try to push out the country’s hawkish central bank governor Raghuram Rajan. The Reserve Bank of India governor is appointed by the government, and can technically be fired by the government as well. While some leaders of the Bharatiya Janata Party—which exit polls suggest could form the next government–don’t agree with Mr. Rajan’s inflation-fighting tactics, it is unlikely they will try to oust him should they come to power. Mr. Rajan, a former chief economist of the International Monetary Fund, was appointed RBI governor by the ruling Congress government in September. He is now loved by many market players but loathed by some business leaders.Mr. Rajan has shown his resolve to fight inflation by raising India’s benchmark interest rate three times in his eight-month tenure. He seems to have helped make some headway in reining in India’s inflation as well as the country’s chronic current account deficit. That has helped allow the rupee and Indian stocks to rebound from last year’s lows.His tightening bias has also earned him the ire of some trade associations and businesses who want lower interest rates so that they can borrow money more cheaply. Mr. Rajan, in a speech Friday in Switzerland, tried to dismiss the speculation. “The government can fire me, but the government doesn’t set the monetary policy,” he said according to local news reports.

Pranab launches RuPay, India’s own card payment network - The Hindu: President Pranab Mukherjee on Thursday dedicated to the nation indigenous card payment network called RuPay taking on the global players like Visa and MasterCard. The new payment network developed by the National Payments Corporation of India (NPCI), a not-for-profit company envisioned by the Reserve Bank of India (RBI) and created by the banking industry, covers all the automated teller machines (ATMs) and most of the retail and e-commerce platforms. RuPay is the coinage of two terms Rupee and Payment. “Dedication of RuPay to the nation is symbolic of the maturity of the payment system development in India,” Mukherjee said after formally launching the card at a function at Rashtrapati Bhavan. He pointed out that with the launch of new system, India has now ranked among the “few countries in the world to have such a network built domestically to meet the card-based payment system needs of the country.” RuPay cards are accepted at all ATMs, more than 90 per cent of ‘Point of Sale’ (POS) terminals and more than 10,000 e-commerce merchants across the country.

Being A School Teacher Is Glorious And Needs To Be A Mainstream Career Option; Here's Why: – Shruti Singh - If you were born in the 90’s and early 2000’s then you would perhaps relate to what I am about to write. Consider this as a trip down memory lane. Better still, once you’ve read this, take initiative and do something about it. For those who are still in school and reading this, you’re part of the larger hope pool.There is an acute demand and supply deficit when it comes to skilled and qualified teachers in Indian schools. One of the highlights of the Right to Education Act was that the teacher-pupil ratio should be maintained at 1:30. For every 30 student, there should be one teacher. Is this being translated into classroom reality? That’s debatable. In a 2010 report, the UNESCO Institute of Statistics mentioned that the country will need 20 lakh new teachers by 2015. Do we have enough B. Ed enrolments to support this demand? The Central Institute of Education, Delhi University has about 200 students in its current batch of B. Ed, and not everybody goes on to become school teachers. They are attracted by administrative jobs in the government. Those who carry on with their jobs in schools, primarily women, soon leave due to maintaining married life, family planning, etc.

India has the Lowest Prices in The World Says Deutsche Bank - What’s the world’s most expensive city for a pint of beer? How about a pair of jeans? Or a date? Sadly for French beer quaffers, Swiss fashionistas, and romantically-inclined Brits—the answers are Paris, Zurich, and London. Deutsche Bank has compared the price of everything, everywhere (OK, not quite), so you don’t have to. And for a third year in a row, the priciest country in the world is Australia (that’s of the 19 countries included in the survey).  If you’re looking for the lowest prices overall, head to India. A weaker rupee has helped it remain the least expensive major economy despite persistently high inflation. Among developed countries, the U.S. is easiest on the wallet. Brazil is costly by emerging-world standards. But the overall rankings mask some sharp differences for individual products. A day’s car rental in China costs $31.90, a mere 26% of the price in the U.S. But Levi’s jeans, Adidas trainers, or an iPhone 5 are all cheaper in the States. Moscow’s five-star hotel rooms are ruinous—at $905.60 a night, more than double the New York equivalent—and it’s the costliest city for a weekend getaway. But public transport in the Russian capital is a snip. The survey also tracks the cost of living in major cities. Tokyo, by far the most expensive back in 2001, is now cheaper than a number of cities including Melbourne, Geneva, Oslo and Caracas. Zurich deserves another mention for the eye-watering cost of its hairdressers—at $60.47, a haircut there is 15 times pricier than in Mumbai. Indian cities are also the cheapest for a date.

Singapore’s Export Surprise Signals Rise in Western Demand - Singapore’s exports logged only a small rise in April, but they may be sending an important signal about the revival of Western demand. Exports of goods made in Singapore rose 0.9% in April from a year earlier, after falling 6.6% in March, government data showed Friday. Economists were expecting a decline of 2.5%. Compared with the previous month, exports rose 9.0% in seasonally adjusted terms, after contracting 8.9% on-month in March. That adds to evidence from other key Asian exporters such as South Korea and Taiwan that suggests the recovery in the West is finally stoking demand from Asia. Even China, whose economy has generally been decelerating this year, saw a bounce in exports in April. The data suggest that “Singapore is starting to see a lift from the recovery” in developed nations, Barclays Capital economist Wai Ho Leong wrote in a note to clients. Together with four straight months of  improvement in Singapore’s manufacturing purchasing managers’ index, the strength in exports may drive an upward revision in gross domestic product next week.

In Emerging Asia, Political Risk is Back on the Agenda - After years in which Asia was seen as an island of relative stability in the emerging world, political risks are returning to the fore – though markets don’t much seem to mind. China’s increasing aggressiveness in the South China Sea, anti-foreigner riots in Vietnam and Thailand’s political suicide all threaten to weigh on growth in a region that has been the world’s most dynamic over the past decade.  Moreover, elections in India and Indonesia that seem likely to bring opposition candidates to power raise questions – and hopes — about the future policy course in two of Asia’s most important economies. “Political risk is structurally rising across EMs,” . “The problem is that while upside risks are limited, many countries’ downside risks are larger than investors appreciate.”  Take the South China Sea, where China’s claims on virtually the entire waterway – including resource-rich areas well within its neighbors’ exclusive economic zones – have been steadily ratcheting up tensions. In the past week that has resulted in confrontations after China parked an oil rig off the Vietnamese coast, and over Chinese poaching of endangered turtles near the Philippine island of Palawan. The standoff with Vietnam exploded this week into riots against foreign-owned businesses – including many with no ties to China whatsoever – that threaten to reverse years of progress in attracting foreign manufacturing to Vietnam. In Thailand, one of Southeast Asia’s most promising economies is once again tearing itself apart in internecine political struggles — a ritual it has re-enacted every two or three years for nearly a decade. This week, Thailand’s Election Commission said the situation was too unstable for July elections to be held as planned. Looming in the background is the country’s military, which has assiduously stayed out of the current crisis but – with no resolution in sight – hinted Thursday it might finally need to step in.

Dynamic effects of microcredit in Bangladesh - By Khandker and Samad, there is now a new study of microcredit and it has a much longer time horizon — twenty years — than the previous “gold standard” studies.  It also finds more positive effects than many of the other treatments:  The paper makes the following observations:

  • Group-based credit programs have significant positive effects in raising household welfare including per capita consumption, household non-land assets and net worth;
  • Microfinance increases income and expenditure, the labor supply of males and females, non-land asset and net worth as well as boys’ and girls’ schooling;
  • Microfinance, especially female credit, reduces poverty;
  • Past credit has a higher impact on income and expenditure than current credit;
  • With higher village-level aggregate current male borrowing, the marginal effect of male borrowing on per capita income gets lower.

The paper concludes that the current microfinance policy of credit expansion alone may not be enough to boost income and productivity, and, hence, sustained poverty reduction. There is a useful write-up of the paper from The Economist.  In sum, we should up our estimate of the efficacy of microcredit

Australia aims to nearly halve budget deficit - Yahoo News: (AP) — Australia's government said Tuesday it will nearly halve its fiscal deficit as part of a tough budget that includes tax hikes, less welfare and the layoff of more than 16,000 state employees. Related Stories Australian government promises tough first budget Associated Press Australian PM works to sell harsh budget AFP Australian prime minister won't rule out new levy Associated Press Egypt sees deficit at 14-14.5 percent of GDP next fiscal year Reuters Australia to spend $84 mln on Malaysian jet search Associated Press The financial blueprint for the fiscal year starting July 1 is forecast to reduce the budget deficit to 29.8 billion Australia dollars ($27.8 billion) from AU$49.9 billion in the current fiscal year. Defense spending has been quarantined from the cuts, with specific money allocated for the ongoing search for the missing Malaysian airliner. Growth in the foreign aid budget will be slowed to save AU$7.9 billion over five years. The Australia Network, a television service broadcast into Asia as a soft diplomacy measure, will be axed to save AU$77 million. Over five years, the government also plans to spend AU$11.6 billion on infrastructure such as roads, railways and a new Sydney airport to fill the economic void left by the end of Australia's mine construction boom.

Currency Cold War is starting to heat up - The last round of “currency wars” ended a year ago in an uneasy truce, when G20 finance ministers agreed not to target their exchange rates for competitive purposes. Fears of a round of competitive devaluations evaporated soon afterwards. The US Federal Reserve announced plans to taper its emergency stimulus and many emerging markets have instead been battling to prop up their currencies. Now, though, central banks are again stepping up the rhetoric on exchange rates. The talk in markets is of a “cold” currency war and of tensions growing beneath the surface of G20 unity. With the Fed giving no hints as yet on when it might start to tighten monetary policy, a weak dollar has left other major currencies at uncomfortably high levels. Low volatility has stoked a revival of so-called “carry” trades in higher-yielding emerging market currencies. Policy makers in Australia, Canada and New Zealand have been threatening action to weaken their currencies for some time. The euro’s strength, already a big political issue, is now a “serious concern” for the European Central Bank, Mario Draghi said last week, signalling that the ECB could ease policy in June to tackle low inflation. Even the Bank of England is starting to voice concerns that a strong pound, if it persists, could threaten the balance of the UK recovery. Emerging markets are also entering the fray. Traders believe the Bank of Korea has stepped up dollar purchases to curb strength in the won - the only Asian currency still above its level last May, when the first hints of Fed tapering began to unsettle markets.

Putin's Export Machine Rolls Right Over Sanctions, Outcry - Vladimir Putin’s incursion into Ukraine and the international condemnation that followed haven’t put a dent in Russia’s exports of gas and raw materials. The world’s largest energy producer shipped 2 percent more gas to Europe in the first three months of 2014 than it did in the same period last year, government data show. Diesel output for export increased, while cargoes of grains, palladium and nickel either climbed or were about the same. Russia’s crude oil exports fell 0.2 percent from last year. Economic sanctions from the U.S. and European Union haven’t dimmed demand for what Russia can sell even as price increases betray investors’ anxiety over future supplies. Any plan to pinch the country’s trade to punish Putin for his March annexation of Ukraine’s Crimea peninsula would have to overcome Europe’s dependence on Russian gas and China’s appetite for the country’s metals. “Investors are paying more for those commodities where there’s perceived to be a greater risk of supply disruption,” Last year, Russia produced 42 percent of the world’s palladium, used in pollution-control devices in cars, and was the second-largest source of refined nickel, a component in stainless steel. At the same time, China was the world’s biggest metal importer.

The EU's ties to Russia rules out any serious sanctions -  Many were outraged recently when the trade data showed Russian exports actually rising in the face of the so-called "sanctions". Bloomberg: - The world’s largest energy producer shipped 2 percent more gas to Europe in the first three months of 2014 than it did in the same period last year, government data show.But the reality on the ground is that the EU has no appetite for any real sanctions against Russia. Here are some reasons:
1. It's well known that in the post-Soviet era, the EU had developed an unprecedented dependence on Russian energy.Given the vulnerability of the Eurozone's economy, there is zero appetite for an energy disruption at this point.Bloomberg: - Russia’s energy shipments are unlikely to be curbed because the country and its Western buyers are too dependent on each other for there to be an interruption ... Europe imports about 30 percent of its gas from Russia, half of which crosses Ukraine.
2. The EU's exports to Russia are worth some $246bn per year. There is no chance the Europeans will want to risk disrupting this gravy train. In contrast, the US exports only about $11bn worth of goods per year to Russia.
3. An even more important factor is the European banking system's exposure to Russia. If Russian companies are told to stop servicing debt to Western banks (in retaliation for example), it will send the European banking system into a tailspin. And as discussed before (see post), the Russian authorities have enormous control over the nation's corporations.

As Ukrainian separatists claim victory in self-rule vote, fears of all-out civil war mount - Separatists in eastern Ukraine proclaimed the birth of two new “sovereign” republics Monday after asserting victory in controversial self-rule referendums, and one of the regions promptly asked to join Russia. Leaders of the self-declared Donetsk People’s Republic also demanded that Ukrainian security forces leave the separatists’ territory. The statements represented a hardening of positions that could drag Ukraine closer to all-out civil war and is likely to intensify tensions between Russia and the West.

Russia will cut off US access to the International Space Station over Ukraine sanctions - Russia will reject a US request to use the International Space Station after 2020 in retaliation for trade sanctions imposed over Russia's aggressive annexation of Crimea, its deputy prime minister announced today. The space station is maintained by both American and Russian crews. But because NASA's shuttle program was decommissioned in 2011, the only way to get there is on board Russian spacecraft. The US currently pays Russia $60 million per person to ferry its astronauts to the space station, and had planned to continue working on it until 2024."The Russian segment can exist independently from the American one. The US one cannot," Russian deputy prime minister Dmitry Rogozin said today.  The move comes after NASA announced it was cutting off contact with Russia because of the Ukraine crisis, with the exception of the space station. At the time, critics said the move was a ploy by NASA to get more funding from the US government. Russia's announcement, however, seems genuinely motivated by the Ukraine fallout.

Sorry America, Ukraine isn’t all about you -- As the Ukraine crisis tips further into full-scale bloodbath and civil war, we seem to be getting more clueless than we were before this crisis started. That’s a pretty low bar to measure against, and the consequences of our cluelessness about what’s driving the various sides could be catastrophic for everyone. One of the biggest problems is that everyone who riffs on Putin and Ukraine frames their analysis through a very narrow, Americanized lens, as if the only thing on everyone’s minds out there is us, America. Either Putin is behaving evilly because he fears America’s empire of liberty and freedom; or Putin is behaving perfectly rationally because the evil American empire has bullied Putin into a corner, forcing him to annex Crimea and support pro-Russian separatists. Other Anglo-American “experts” frame Putin’s actions as if we’re all playing a sophisticated version of Risk. In this framing either Putin is driven by some genetic need to revive old Russian imperialism, conquering lost territory because he’s been so pained all these years, like a man reaching for a missing limb; or conversely, Putin apologists say he’s legitimately securing a buffer region to protect Russian interests from American-Western encroachment. All of these versions have truth to them, but they all share one huge blind spot: What role does domestic Russian politics play in Putin’s policies in Ukraine? For that matter, how does domestic Ukrainian politics inform interim leader Turchynov’s or Yarosh’s moves.

They’re lying about Ukraine, again: Primitive prejudice, stupidity and the reflexive compliance of the New York Times - However Ukrainians settle their drastic differences — and they can, providing all sides find the will to do so — a large and welcome consequence of this crisis falls to Americans. This is summed up in a single word. Ukraine gives us the gift of revelation. We Americans are destined to discover who we are in this century, as opposed to who we tell ourselves and others we are. The great dodge of the American century, chiseled in granite with Woodrow Wilson’s famous line, “The world must be made safe for democracy,” will lose its power to propel. This was a fairly easy call long before the events of the past six months on Russia’s southwest border. In Ukraine we start to see how this will occur, what forms it may take, and what we will find when we look. I did not see this coming, to be honest. It was Victoria Nuland’s famous-but-not-to-be-mentioned “‘F’ the EU” appearance on YouTube. We have since had full-frontal porn of an American subversion op, the ensuing coverup, then the media’s supine cooperation in the coverup, then the full-frontal of everybody in the bedroom. Even the coverup is not covered up. American-sponsored coups have flopped before, goodness knows. The list is long. But this failure takes us further than ever before up the creek that smells,

Ukraine Needs $4.2 Billion or More in Bank Boost, Kubiv Says - Ukraine’s banks need at least 50 billion hryvnia ($4.2 billion) to 60 billion hryvnia in fresh capital, central bank Governor Stepan Kubiv said, giving a more downbeat view than the country’s biggest foreign lender. The monetary authority seeks to maintain the solvency of the banking system after Russia’s annexation of Crimea and a war against pro-Russian separatists in the east drove off foreign investors and shut bank branches in areas wracked by violence. The economy may shrink 7 percent this year, the European Bank for Reconstruction & Development said this week. The hryvnia extended the world’s biggest slump today. Ukraine’s banking system will probably see a year or two of losses as local and foreign-owned lenders “freeze operations” until they get more clarity on the country’s future, analysts at Raiffeisen Bank International (RBI) AG, including Gunter Deuber in Vienna, wrote yesterday. Raiffeisen, the biggest foreign bank in the country, sees recapitalization needs between $3 billion and $5 billion in the coming 18 months as the hryvnia’s devaluation curbs banks’ capital adequacy.

Russia dumps a fifth of its US Treasuries - Russia has offloaded a fifth of its holdings of US Treasury debt in March at a time of heightened speculation that its assets would be frozen as part of sanctions over the crisis in Ukraine. It was the largest seller during the month while Belgium extended its big buying streak, according to US Treasury International Capital data released on Thursday.  A decline of $25.8bn in Russia’s Treasury holdings to $100.4bn involved the selling of short-term bills. But the large drop in Russia’s holdings does not explain a record weekly $105bn drop in US government debt held at the US Federal Reserve on behalf of official foreign institutions back in March. At the time, many in the bond market thought Russia may have shifted to a new custodian rather than run the risk of having its assets in the US frozen due to sanctions over Ukraine. “The Tic data suggests it wasn’t entirely a Russian story,” Russia’s Treasury holdings have declined over the past five months from $149.9bn. In contrast, Treasury holdings for Belgium continued to expand sharply. The country added a further $40.2bn during march and its holdings have more than doubled in the past year to $381.4bn, making Belgium the third largest foreign holder of US government debt after China and Japan.

Russia Holds “De-Dollarization Meeting”: China, Iran Willing To Drop USD From Bilateral Trade. That Russia has been pushing for trade arrangements that minimize the participation (and influence) of the US dollar ever since the onset of the Ukraine crisis (and before) is no secret: this has been covered extensively on these pages before (see Gazprom Prepares "Symbolic" Bond Issue In Chinese Yuan; Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China; Russia And China About To Sign "Holy Grail" Gas Deal; 40 Central Banks Are Betting This Will Be The Next Reserve Currency; From the Petrodollar to the Gas-o-yuan and so on).  But until now much of this was in the realm of hearsay and general wishful thinking. After all, surely it is "ridiculous" that a country can seriously contemplate to exist outside the ideological and religious confines of the Petrodollar... because if one can do it, all can do it, and next thing you know the US has hyperinflation, social collapse, civil war and all those other features prominently featured in other socialist banana republics like Venezuela which alas do not have a global reserve currency to kick around.

Russian GDP Growth Slows as Investment Sags on Sanctions - Russia’s first-quarter economic growth slowed to the weakest in a year as the standoff against the U.S. and its allies over Ukraine shrivels up investment. Gross domestic product advanced 0.9 percent in January-March from a year earlier after a 2 percent gain in the previous quarter, the Moscow-based Federal Statistics Service said in an e-mailed statement, providing its first estimate of first-quarter GDP. That was above the 0.7 percent median estimate of 19 economists in a Bloomberg survey. The Economy Ministry had projected that output expanded 0.8 percent. President Vladimir Putin’s move to absorb Crimea in March prompted U.S. and European Union sanctions, bringing the already slowing $2 trillion economy to a near standstill. The International Monetary Fund said April 30 that Russia is already in recession as U.S. and EU leaders warn that they are ready to take further measures if Ukraine’s May 25 presidential election is disrupted. “Clearly the general trend is slowing economic growth,” Vladimir Bragin, head of research at Alfa Capital Partners Ltd. in Moscow, said by e-mail. “It’s evident in consumption, including through slower lending, and in investment, which has decelerated after the completion of large investment projects by state companies, as well as the completion of construction in Sochi.”

Italy’s Beppe Grillo battles to sustain anti-establishment message - Beppe Grillo, the crowd-pulling leader of Italy’s protest Five Star Movement, revels in his black humour and rouses supporters at a campaign rally in Sicily with a warning to the Eurocrats of Brussels that a plague will soon be upon them. “Did you know the black death that halved the population of Europe in the medieval ages began in Sicily?” Then the comic-turned-activist from the northern city of Genoa delivers the punchline – “And it was carried to Europe by a Genoese ship.” The anti-establishment movement’s campaign for European parliamentary elections on May 25 is in full swing. Ahead of the poll, the Financial Times is examining Europe’s leading protest parties and how they are challenging the continent’s political landscape. For the grassroots Five Star Movement this means turning the vote into a referendum on Matteo Renzi, Italy’s unelected prime minister who came to office in February by ousting his predecessor, Enrico Letta, in a party coup. To do this Mr Grillo must keep riding the wave of social discontent and anger at the political elite that made his movement Italy’s most voted party in national elections in early 2013 and in Sicily’s regional polls in 2012. Yet judging from the mood on the streets of the Sicilian capital of Palermo, support for Five Star Movement is seriously eroding. In the eyes of some previous devotees, Mr Grillo, who has not stood for election, has been exposed as a demagogue who brooks no internal dissent or dialogue with others. There is disappointment that the movement has lost a dozen of its senators in expulsions and resignations. His plight is a reminder of the challenges faced by populist politicians, who tend to feed on public frustration, as they seek to sustain the passions of alienated voters. For Five Star Movement, there is the added challenge that Italy is an unusually crowded market for populists, including the far-right Northern League.

Whose Client State?  -  Kunstler - My country can cry all it likes about yesterday’s referendum vote in eastern Ukraine, but we set the process in motion by sponsoring the overthrow of an elected Kiev government that was tilting toward Russia and away from NATO overtures. The president elected in 2010, Viktor Yanukovych, might have been a grifter and a scoundrel, but so was his opponent, the billionaire gas oligarch Yulia Tymoshenko. The main lesson that US authorities have consistently failed to learn in more than a decade of central Asian misadventures: when you set events in motion in distant lands, events, not policy planners at the State Department, end up in the driver’s seat. And so now they’ve had the referendum vote and the result is about 87 percent of the voters in eastern Ukraine would prefer to align politically with Russia rather than the failing Ukraine state governed out of Kiev. It’s easy to understand why. First, there’s the ethnic divide at the Dnieper River: majority Russian-speakers to the east. Second, the Kiev government, as per above, shows all the signs of a failing state — that is, a state that can’t manage any basic responsibilities starting with covering the costs of maintaining infrastructure and institutions. The Kiev government is broke. Of course, so are most other nations these days, but unlike, say, the USA or France, Ukraine doesn’t have an important enough currency or powerful enough central bank to play the kind of accounting games that allow bigger nations to pretend they’re solvent.

The Failure of Austerity: Greece: I want to finish out this series on the failure of austerity by looking at the poster child of failed austerity policies: Greece. Like the other countries, Greece has cut government spending: This massive cut in spending has caused a huge and consistent drop in the annual rate of GDP growth: As the chart above shows, the average annual GDP growth rate for Greece has been negative for the last 5 years. This has led to a huge drop in nominal GDP: The annual total GDP figures listed above show a drop on 27% in nominal GDP. And the drop is not just in the nominal rate: And the problem austerity was supposed to cure -- an increasing debt/gdp ratio -- has actually gotten worse: And just like the other countries that have implemented this policy, unemployment has skyrocketed: So, the cut in government spending led to a massive drop in overall GDP growth, worsening the problem austerity was supposed to cure -- a spike in the government debt/GDP ratio. Put more bluntly, the cure is far worse than the disease.

ECB Constancio: Inflation Expectations Key -  Medium-term expectations for inflation will be the main criteria for any decision taken by the European Central Bank when it meets next month, ECB Vice President Vitor Constancio said Monday. While policy makers expect a gradual pickup in the pace of economic growth to raise the annual rate of inflation closer to their target over the next two years, that might not happen if businesses, consumers and investors grow to view very low rates of inflation as normal, and a feature of the euro zone over coming years. His comments come days after the ECB’s governing council met and left key interest rates unchanged at record lows. At the news conference following the meeting, ECB President Mario Draghi said the council might act next month as its members were “dissatisfied” with the prospect of a long period of low inflation. What actions the governing council may take beyond lowering rates, if any, is unclear. The euro’s strong exchange rate and its effect on inflation is another factor the ECB governing council is looking at although there is no target exchange rate, Mr. Constancio said. The effects of the strong euro on inflation are “very relevant when the inflation rate is so low,” he said. The euro’s exchange rate couldn’t be ignored, but “is not and cannot be a target of our policy,” he said.

They saved the eurozone; they just forgot to save the people - Remember the eurozone crisis? You don't hear much about it anymore, which could easily lead you to the conclusion that the problems have been solved. And to an extent they have been. Nobody thinks the eurozone is going to collapse anymore, and nobody thinks there will be a worldwide banking panic. The only problem is vast swathes of the continent remain an economic disaster area. They saved the eurozone, but not the economies that it comprises or the people who live there.  The eurozone has ten countries — including big ones like France, Italy, and Spain — that are doing worse than Rhode Island. Greece has 11 million people — making it more than 10 times the size of Rhode Island — and an unemployment rate of almost 27 percent. So what happened? Well,  it became clear that contrary to the hopes of international investors, the German government had no interest in guaranteeing southern Europe's debts. .In stepped Mario Draghi, chief of the European Central Bank, with a speech and a plan. The plan was called Outright Monetary Transactions and the speech said Draghi would do "whatever it takes" to prevent a eurozone government from being forced into default or out of the eurozone.What it meant in practice was that as long as a national government was committed to a fiscal austerity plan — tax hikes plus spending cuts — the ECB would commit to potentially unlimited levels of bond-buying in order to prevent its interest rates from spiking. In one of those magical moments of monetary policy, the existence of the commitment meant Draghi never really had to test it. Speculators stopped betting on default and collapse, governments wrote austerity budgets, and interest rates steadily declined. The result was that banks that owned eurozone government debt were saved, and so were institutions around the world that relied on the European banking system not collapsing. All in all, a job well done. Meanwhile, politicians got to take credit for keeping their countries in the Eurozone and for falling interest rates while pushing the blame for unpopular austerity policies on Draghi and German Chancellor Angela Merkel.

Bundesbank ready to back ‘significant’ ECB easing - Germany’s central bank is willing to back an array of stimulus measures from the European Central Bank next month, including a negative rate on bank deposits and purchases of packaged bank loans, if needed to keep inflation from staying too low, a person familiar with the matter said. ECB staff inflation projections for 2016, which are due in early June, will be central to the Bundesbank’s appetite for additional easing steps, the person told The Wall Street Journal.   This marks the clearest signal yet that the Bundesbank, which has for years been defined by its conservative opposition to the ECB’s emergency measures to combat the euro zone’s debt crisis, is fully engaged in the fight against super-low inflation in the euro zone using monetary policy tools. The news sent the euro sliding to a fresh one-month low of just over $1.37 against the dollar. The Bundesbank’s stance could provide critical support for ECB President Mario Draghi, particularly in Germany, when the ECB meets next month to weigh interest-rate cuts and other stimulus measures. Draghi put financial markets on notice last week that additional easing was possible against a backdrop of weak annual inflation which, at 0.7% in the euro zone, is far below the ECB’s target of just under 2% over the medium term.

Markets expect action from the ECB in June -  Economic sentiment in Germany showed another decline this month, as measured by the Centre for European Economic Research (ZEW) Index. This is a widely watched indicator and it strengthened the expectations of additional ECB monetary easing action.Moreover, rumors are circulating that Bundesbank, which in the past resisted additional monetary stimulus, may now in fact support such an action by the ECB. The euro, which started declining after Draghi's speech on May 8th (see post), traded lower.  Reuters: - Selling of the euro accelerated on Tuesday after a report from Dow Jones, citing a person familiar with the matter, said the Bundesbank, Germany's central bank, was willing to back an array of stimulus measures from the European Central Bank next month.  The measures could include backing a negative interest rate on bank deposits and ECB purchases of packaged bank loans if needed to boost inflation.  German government yields also fell to lows not seen in about a year, with the market now pricing in some form of an easing action from the ECB next month.Now the ECB is under the gun to come up with something in June to maintain its credibility. The risk of course is that if we hear the same old "wait and see" approach, yields across the euro area will back up violently.

Pondering QE - Atlanta Fed's macroblog - Today’s news brings another indication that low inflation rates in the euro area have the attention of the European Central Bank. From the Wall Street Journal: Germany's central bank is willing to back an array of stimulus measures from the European Central Bank next month, including a negative rate on bank deposits and purchases of packaged bank loans if needed to keep inflation from staying too low, a person familiar with the matter said... This marks the clearest signal yet that the Bundesbank, which has for years been defined by its conservative opposition to the ECB's emergency measures to combat the euro zone's debt crisis, is fully engaged in the fight against super-low inflation in the euro zone using monetary policy tools... Notably, these tools apparently do not include Fed-style quantitative easing: But the Bundesbank's backing has limits. It remains resistant to large-scale purchases of public and private debt, known as quantitative easing, the person said. The Bundesbank has discussed this option internally but has concluded that with government and corporate bond yields already quite low in Europe, the purchases wouldn't do much good and could instead create financial stability risks.  Should we conclude that there is now a global conclusion about the value and wisdom of large-scale asset purchases, a.k.a. QE? We certainly have quite a bit of experience with large-scale purchases now. But I think it is also fair to say that that experience has yet to yield firm consensus.

Portugal Laden With $293 Billion Debt Exits Bailout Plan - Bloomberg: Portugal exits its international bailout program tomorrow, regaining the economic sovereignty the nation lost after the European debt crisis erupted while facing enduring challenges to its finances. The Iberian country’s 214 billion euros ($293 billion) of debt is the third highest in the euro region as a percentage of gross domestic product. The economy is about 4 percent smaller than in 2010, a year before the government had to ask for an international rescue. Borrowing costs based on 10-year bond yields are almost twice those of France and all three major ratings companies consider the country non-investment grade. “There will now be two or three decades of lean times for the state, which will have to purge that debt burden,”  “The debt burden is sustainable, but it’s heavy.” Portugal decided to mimic Ireland in exiting the bailout without the safety of a precautionary credit line after last month auctioning bonds for the first time since requesting the 78 billion-euro rescue package. While the country has emerged from its longest recession in at least 25 years, Prime Minister Pedro Passos Coelho’s government must trim spending this year and next to meet deficit targets.

Italian GDP Unexpectedly Falls Threatening Recession Exit --  Italy’s economy unexpectedly contracted last quarter, signaling the country’s failure to sustain a pullout from its longest recession on record. Gross domestic product in the three months through March decreased 0.1 percent from the fourth quarter, when it rose 0.1 percent, the national statistics institute Istat said in a preliminary report in Rome today. The decrease contrasts with the median forecast of a 0.2 percent expansion in a Bloomberg survey of 21 economists. From a year earlier, output shrank 0.5 percent. “Italy GDP surprised on the downside,” said Annalisa Piazza, a fixed-income strategist at Newedge Group in London. “Italian activity continues to contract and the already ample output gap keeps widening.” An unexpected decline in Italy’s industrial production in March prompted concerns about the recovery’s sustainability in the months ahead. Earlier today in Paris, national statistics office INSEE said French GDP was unchanged in the three months through March, while the German statistics office said Europe’s largest economy expanded 0.8 percent in the same period.

The Italian Disaster - In this setting, one country is widely viewed as the most acute of all cases of European dysfunction. Since the introduction of the single currency, Italy has posted the worst economic record of any state in the Union: twenty years of virtually unbroken stagnation, at a growth rate well below that of Greece or Spain. Its public debt is over 130 per cent of GDP. Yet this is not a country of small or medium size in the recently acquired periphery of the Union. It is a founder member of the Six, with a population comparable to that of Britain, and an economy half as large again as that of Spain. After Germany, its manufacturing base is the second biggest in Europe, where it is runner-up too in the export of capital goods. Its treasury issues form the third largest sovereign bond market in the world. Nearly half of its public debt is held abroad: the comparable figure for Japan is under 10 per cent. In its combination of weight and fragility, Italy is the real weak link in the EU, at which it could theoretically break.  So far it is also, not coincidentally, the one country where disillusionment with the voiding of democratic forms has produced, not just numbed indifference, but an active revolt that has shaken its establishment to the core, transforming the political landscape. Protest movements of one kind or another have emerged in other states of the Union, but hitherto none approaches the novelty or the success of the Five Star wave in Italy as a rebellion at the polls. So too, in turn, Italy offers the most familiar spectacle of all the continent’s theatres of corruption, and its most celebrated embodiment in the billionaire who has ruled the country for nearly half the life of the Second Republic, about whom more words have been spilt than about all his competitors put together. Reflections on the pass Italy has reached inevitably start with Silvio Berlusconi. That he stands out among his peers in the interlocking of power and money is beyond question. But the way in which he has done so can be obscured by the clamour of the foreign press in pursuit of him, thunderous denunciations from the Economist and Financial Times in the lead.

Euro-Zone Economy Shows Weaker-Than-Expected Expansion - —The euro zone’s economy expanded at a weak pace last quarter despite a strong recovery in Germany, putting added pressure on the European Central Bank to enact fresh easing measures to prevent the region from sliding into a lengthy period of low inflation and economic stagnation. Gross domestic product grew 0.2% in the euro zone during the first quarter compared with the final three months of 2013, the European Union’s statistics agency Eurostat said Thursday, well short of the 0.4% quarterly gain expected by economists. Last quarter’s rise translates into growth of 0.8% in annualized terms, little changed from the fourth quarter. That masked a deepening divergence among the 18-member euro zone. Of the 13 euro members reporting GDP Thursday, only six expanded and some of those were small economies such as Latvia, Slovakia and Belgium. The report “is a major disappointment, as it suggests that the euro zone is still far away from reaching the escape velocity required for a sustainable recovery,”  The euro weakened Thursday on hopes for ECB action, trading at around $1.366 midday in Europe, down 0.4% on the day. “We are determined to act swiftly if required and don’t rule out further monetary policy easing,” ECB Vice President Vitor Constancio said Thursday in Berlin. ECB President Mario Draghi put financial markets on notice last week that new stimulus measures are likely next month, an expectation supported by the GDP figures, which analysts said are far from what is needed to bring annual inflation, which was 0.7% in April, closer to the ECB’s target of just below 2%.

Euro zone first-quarter growth disappoints, puts pressure on ECB to act -  (Reuters) - The euro zone economy grew much less than expected at the start of the year and inflation remained locked in the 'danger zone' below 1 percent, increasing pressure on the European Central Bank to ease monetary policy at its next meeting in June. The 9.5 trillion euro economy expanded only 0.2 percent quarter-on-quarter in the first three months of 2014, the same as the downwardly revised rate in the last quarter of 2013, while economists had expected 0.4 percent growth. The first quarter figure stayed positive mainly thanks to strong growth in the biggest economy Germany, which compensated for stagnation in France and shrinking output in Italy, the Netherlands, Portugal and Finland. "Today's figure is a major disappointment, as it suggests that the euro zone is still far away from reaching the escape velocity required for a sustainable recovery," With growth so weak and consumer price growth well below the ECB target, the bank is preparing a package of measures for its June meeting, including cuts in all its interest rates and steps to fight the risks of deflation."The package...the ECB appears to be preparing is welcome... but the overall steps are likely to be too small to make a real difference,"

Not On The Mend - Paul Krugman - There have been many proclamations that the euro crisis is over, that Europe’s economy is on the mend. Behind these proclamations lie something very real — a huge convergence in interest rates, thanks to the ECB’s support and growing belief that the political risks to the euro have receded — and something more dubious — a modest uptick in debtor-country growth.So it’s worth saying that the latest GDP numbers are really disappointing.It’s not just that overall growth remains slow — although after an extended slump economies are supposed to have a period of above-average growth as they return to trend, and 0.9 percent at an annual rate doesn’t cut it. It’s also that the growth is in the wrong places. We need to see convergence between the austerity-ravaged peripheral countries and the core; in fact, Germany is the main source of growth, with the periphery falling further behind. Oh, and has anyone noticed that the Baltic miracles are looking a bit less miraculous now? Estonia is actually down on the year, and Latvia is growing no faster than the US. The European story remains one of deeply destructive economic policies, which have inflicted vast harm — but have not led to unraveling, because the political cohesion of the euro is stronger than people like me realized. The cohesion is a good thing, I guess, but the policies still aren’t working.

Secular Stagnation in the Euro Area - Paul Krugman - Most discussion about the possibility of secular stagnation has focused on US data, partly because most of the new secular stagnationists are American, partly because the data are easier to work with. But as Izabella Kaminska and James Mackintosh point out, the euro area seems closer to Japanification than the US. So are there structural changes in Europe that arguably will lead to persistently lower demand unless offset by policy? Indeed there are. Start with demography: a falling rate of growth in the working-age population leads, other things equal, to lower investment as a share of GDP, because there is less need to equip workers with new factories, office buildings, houses, etc. And if we look at working-age population for the US, the euro area (EA), and Japan we see that Europe is now where Japan was around 1998, when I and other Japan worriers started talking in earnest about liquidity traps:Add to this the end of ever-increasing leverage. In the US we focus on how ever-growing household debt was a major source of demand before 2008, which won’t come back; in Europe much the same was going on, but it also makes sense to focus on a different measure, large capital flows to peripheral countries, which won’t come back even if the woes of austerity abate. And these flows were a big part of overall European demand before the crisis:

British Consumers On A High - U.K. consumers flocked to the high street at levels not seen for three years in April, highlighting the return of confidence among Britons as the economy continues to grow rapidly, creating new jobs. The British Retail Consortium and KPMG’s monthly retail sales monitor showed total retail sales grew 5.7% on the year in April, having fallen 0.3% in the year to March. It was the strongest increase since April 2011. Same-store sales, which only measure business at stores that have been open for 12 months or longer, grew by 4.2%, also the highest annual increase in three years. “Strong April sales figures may have benefited from Easter falling late this year but it is clear that the effects of the wider economic recovery are feeding through to the retail sector,” While the distortion of the Easter holiday flattered sales in April– the seasonal holiday fell in March last year–the strength of the survey is further evidence that U.K. consumers are feeling more upbeat about the economy and their own personal finances. Britons are emerging from a five-year squeeze on incomes, which saw their wages rise at a slower pace than inflation. The latest official earnings and inflation data showed the difference between the two narrowed to just 0.2 percentage points in March, and expectations are for earnings to at least match inflation in April, if not outpace it.  Add to that the expected growth in employment and projections for gross domestic product growth in excess of 3% this year and it’s easy to see why Britons are more inclined to spend.

'Rich List' counts more than 100 UK billionaires: The number of billionaires living in the UK has risen to more than 100 for the first time, according to the 2014 Sunday Times Rich List. There are now 104 billionaires based in the UK with a combined wealth of more than £301bn, the list says. That means the UK has more billionaires per head of population than any other country. London has more billionaires than any other city in the world with 72 - far ahead of nearest rival Moscow with 48. The Indian-born brothers Sri and Gopie Hinduja - who run the conglomerate Hinduja Group - top the list with a fortune of £11.9bn. Arsenal shareholder and Russian business magnate Alisher Usmanov fell to second after his estimated fortune dropped to £10.65bn.

UK Survey Finds High Levels of Depression and Desperation Among the Young Yves Smith - If you’ve been keeping half an eye on economic news, the UK has of late been looking pretty spiffy relative to its advanced economy peers, with 2014 growth forecast at 3%. Even though unemployment in the UK is at its lowest level in five years, the young and the long-term unemployed haven’t benefitted to the same degree.  One issue that doesn’t get the attention that it merits is the destructive psychological impact of being out of work. Work doesn’t just provide money, as critical as that is. It provides a way of organizing your time, social interaction, and a place in society, even if that place is not really where you’d like to be. Being unanchored is extremely taxing. Recall that the Japanese get people to quit by giving them a desk and nothing to do. The lack of legitimacy, the implicit shaming of being isolated is sufficiently punitive as to induce workers to give up their pay and being able to tell their families they have a job. The BBC reports on the results of a survey by the Prince’s Trust called the Macquarie Youth Index, which is based on a survey of roughly 2200 16 to 25 year olds. 13% were what the survey called Neet: not in employment, education, or training.  The survey found high levels of suicidal thoughts and self harm among this group, and high levels of stress among the young generally. Key excerpts from the article:

    • The report found 9% of all respondents agreed with the statement: “I have nothing to live for”…
    • Among those respondents classified as Neet, the percentage of those agreeing with the statement rose to 21%.
    • One in three (32%) had contemplated suicide, while one in four (24%) had self-harmed.
    • The report found 40% of jobless young people had faced symptoms of mental illness, including suicidal thoughts, feelings of self-loathing and panic attacks, as a direct result of unemployment.
    • Three quarters of long-term unemployed young people (72%) did not have someone to confide in, the study found.

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