week ending July 19

Fed's Balance Sheet 16 July 2014 Up Again -- Fed's Balance Sheet week ending balance sheet was $4.355 trillion - up from the record $4.340 last week. The complete balance sheet data and graphical breakdown of the cumulative and weekly changes follows. Read more >>

FRB: H.4.1 Release--Factors Affecting Reserve Balances--July 17, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

More clarity from FOMC on the mechanics of liftoff - The latest FOMC minutes provided some clarification on the approach the Fed is expected to take as it begins normalizing short term rates in the US. Here is a quick overview of the Fed's strategy and potential implications. The Fed has chosen the interest rate on excess reserves (IOER) as the primary tool to control interest rates during the normalization process. While working with IOER is certainly more effective than the Fed Funds rate, there are a some of drawbacks. As banks pay nearly nothing on deposits and earn an increasingly higher rate on reserves, the Fed will be criticised for providing banks with more riskless profits (on some $2.5 trillion of excess reserves). To mitigate this thorny issue, the Fed will also rely on the reverse repo program (RRP). The FOMC now views RRP as playing a "supporting role" of providing a floor on repo rates. Keeping repo rates from getting too low will allow money market funds to offer higher rates to their clients. At least in theory that is supposed to provide competition for deposits, forcing banks to raise deposit rates and limiting the deposit-to-reserves arbitrage. The FOMC wants to see the spread between IOER and RRP at around 20bp or higher. Fed Minutes: - The appropriate size of the spread between the IOER and ON [overnight] RRP rates was discussed, with many participants judging that a relatively wide spread--perhaps near or above the current level of 20 basis points--would support trading in the federal funds market and provide adequate control over market interest rates. Several participants noted that the spread might be adjusted during the normalization process.

What the Fed Really Meant to Say --The gap between what the Federal Reserve says about monetary policy and what investors think it's saying would be funny if it weren't so important. Most of this gap is the listeners' fault -- but not all. The Fed could do a better job of explaining itself. Last week, for instance, commentators pored over the minutes of June's meeting of the Fed's policy-making committee and decided that the Fed had, for the first time, committed itself to end its quantitative easing program in October. Moreover, some concluded, this would hasten a rise in interest rates that investors had not been expecting until next year. As binding commitments go, and remembering that the economy rarely evolves as anyone expects, that's pretty weak. By the way, the minutes also noted that most participants thought the decision about the last installment of QE had "no substantive macroeconomic consequences" and no bearing on the decision about when to raise interest rates. This disconnect between plain words and the zeal to unearth their author's true intent is a problem. If investors get too settled on a particular idea of what will happen and when, then the Fed may feel obliged to validate that forecast, despite its better judgment. It knows that if it chooses not to, this might come as a shock and could have bad results. What should the Fed say to make it even clearer that it's running monetary policy not on a schedule but with its eyes on changing conditions in the economy? It tried to do just this when it began including a threshold for unemployment in its announcements in 2012. But that experiment in greater clarity was short-lived because the unemployment figures haven't behaved as expected. They're no longer seen as a reliable indicator of economic conditions.

Fed Watch: Yellen Testimony -- Fed Reserve Chair Janet Yellen testified before the Senate today, presenting remarks generally perceived as consistent with current expectations for a long period of fairly low interest rates. Binyamin Applebaum of the New York Times notes:  Ms. Yellen’s testimony is likely to reinforce a sense of complacency among investors who regard the Fed as convinced of its forecast and committed to its policy course. She reiterated the Fed’s view that the economy will continue to grow at a moderate pace, and that the Fed is in no hurry to start increasing short-term interest rates. A key reason that Yellen is in no hurry to tighten is her clear belief that an accommodative monetary policy is warranted given the persistent damage done by the recession:  Although the economy continues to improve, the recovery is not yet complete. Even with the recent declines, the unemployment rate remains above Federal Open Market Committee (FOMC) participants' estimates of its longer-run normal level. Labor force participation appears weaker than one would expect based on the aging of the population and the level of unemployment. These and other indications that significant slack remains in labor markets are corroborated by the continued slow pace of growth in most measures of hourly compensation. Another reminder to watch compensation numbers. Without an acceleration in wage growth, sustained higher inflation is unlikely and hence the Fed sees little need to remove accommodation prior to reaching its policy objectives. The only vaguely more hawkish tone was that identified by Applebaum: But Ms. Yellen added that the Fed was ready to respond if it concluded that it had overestimated the slack in the labor market, a more substantial acknowledgment of the views of her critics than she has made in other recent remarks.

Janet Yellen, Semiannual Monetary Policy Report to the Congress -  Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C. July 15, 2014 (text)

Yellen says economy still needs Fed support --  Federal Reserve Chair Janet Yellen said Tuesday that the economic recovery is not yet complete and for that reason the Fed intends to keep providing significant support to boost growth and improve labor market conditions. In delivering the Fed's semi-annual economic report to Congress, Yellen said the Fed's future actions will depend on how well the economy performs. She says if labor market conditions continue to improve more quickly than anticipated, the Fed could raise its key short-term interest rate sooner than currently projected. But she said weaker conditions will mean a longer period of low rates. Many economists believe the federal funds rate, which has been at a record low near zero since December 2008, will not be increased until next summer. Yellen said current monthly bond purchases will likely end in October. Those bond purchases have been trimmed five times, taking them from $85 billion per month down to $35 billion per month currently. Yellen said if the economy keeps improving, the Fed will keep reducing the bond purchases at upcoming meetings with the final move being a $15 billion reduction at the October meeting

A word of caution about a tech bubble from Janet Yellen -  Binyamin Appelbaum, the New York Times’ ace Federal Reserve reporter, spotted an interesting little nugget in the new Monetary Policy Report released by the Fed Tuesday morning. Nevertheless, valuation metrics in some sectors do appear substantially stretched — particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year. Applebaum labeled the passage “Fed sees a tech bubble.” Some of his followers responded dismissively: “No, it sees evidence of excess at the margins which they may consider to be normal,” wrote one.

Yellen, Fed Still Worried About Slowdown in Housing Recovery - The Federal Reserve remains concerned about the U.S. housing recovery–which began to slow down last year when mortgage rates spiked–and has so far has failed to regain much traction, Chairwoman Janet Yellen said Tuesday. “The housing sector…has shown little recent progress,” Ms. Yellen said in remarks prepared for delivery before the Senate Banking Committee. “While this sector has recovered notably from its earlier trough, housing activity leveled off in the wake of last year’s increase in mortgage rates, and readings this year have, overall, continued to be disappointing.” Her comment Tuesday reinforced a warning she offered when testifying before lawmakers more than two months ago. On May 7, Ms. Yellen told the Joint Economic Committee that “readings on housing activity–a sector that has been recovering since 2011–have remained disappointing so far this year and will bear watching.” Several broad gauges of housing-market activity stumbled last year after mortgage interest rates rose when the Fed began discussing the end of its bond-buying program, which now is on track to end later this year. The average interest rate on a 30-year fixed rate mortgage rose from 3.35% in early May 2013 to 4.51% in mid-July 2013, according to Freddie Mac. Rates have come down since then, to an average of 4.15% last week. But while the rise in rates is “the most obvious explanation for the weakness in the housing market over the past year,” it “seems unlikely that interest rates are the whole story,” according to the Fed’s semiannual Monetary Policy Report, also released on Tuesday. “Historical correlations between mortgage rates and residential investment suggest that the effects of last year’s run-up should have begun to fade by now, but housing activity has yet to pick up.”

Fed’s George: Economy ‘Best Served’ By Fed Raising Rates -  –Federal Reserve Bank of Kansas City leader Esther George said Tuesday the economy would be “best served” by a steady and gradual campaign of short-term interest rate increases by the U.S. central bank. “Today’s economy, with a strengthening labor market and rising inflation, is ready for a more normal rate environment,” Ms. George said. “Waiting too long may allow certain risks to build that if realized, could harm economic activity without room to adjust rates in response,” she said. “Getting interest rates off zero relatively soon is not only appropriate in terms of current economic conditions, but also will allow the Fed room to maneuver in the future should economic activity slow,” the official said. She added, “I think no one wants to see rates rise rapidly,” but even so, the Fed must start preparing to end its easy-money policy stance. Ms. George’s comments came from the text of a speech prepared for delivery before a conference held by her bank in Kansas City. Ms. George’s speech followed congressional testimony given earlier in the day by the Fed’s leader, Janet Yellen. In her remarks, Ms. Yellen again said that while the economy appears to be picking up speed, uncertainty and the lingering effects of the financial crisis continue to argue in favor of the Fed keeping monetary policy in a highly supportive stance for some time to come.

Fed’s Fisher: Raise Rates in Early 2015 or Even Sooner - Federal Reserve Bank of Dallas President Richard Fisher said Wednesday that mounting signs of financial-market excess and continued economic growth mean the U.S. central bank will need to raise interest rates by early next year “or potentially sooner.” “Given the rapidly improving employment picture, developments on the inflationary front, and my own background as a banker, and investment and hedge-fund manager, I am finding myself increasingly at odds” with those at the Fed and elsewhere who still want central bank policy to maintain an ultraeasy monetary policy well into the future, Mr. Fisher said. “I believe we need an adjustment to the stance of monetary policy,” he said, meaning the Fed needs to start preparing markets for increases in interest rates to more historically normal levels. The Fed has held its benchmark short-term interest rate near zero since late 2008 to encourage borrowing in hopes of generating stronger economic growth. In his remarks, Mr. Fisher repeated that he is alarmed by what he sees as excessive risk taking and heady pricing throughout financial markets. “In my view the markets are overshooting. By how much is very difficult to quantify,” he said after the speech in response to questions. He said the Fed is among the drivers of the problem.

WSJ Survey: Economists Worry the Fed Will Keep Rates Low Too Long -- Many more economists worry the Federal Reserve will wait too long to raise interest rates than think it will tighten policy too quickly, according to The Wall Street Journal’s latest survey. Some 79% of the 42 economists who answered the question said the greater risk is that the Fed will raise rates too late, versus 21% who said the greater risk is that the Fed will raise rates too soon. The survey of business and academic economists was conducted July 11-15, with 48 responding, though not all responded to every question.The Fed has kept short-term borrowing rates pinned near zero since December 2008 to bolster the U.S. economy through a financial crisis, a recession and a sluggish five-year recovery. The central bank is winding down its bond-buying program, which is expected to end after the Fed’s October policy meeting. The Fed has pledged to keep rates near zero for a “considerable time” after its bond purchases end.“Although the economy continues to improve, the recovery is not yet complete,” Fed Chairwoman Janet Yellen told lawmakers this week. She said that “a high degree of monetary policy accommodation remains appropriate.”Some Fed policymakers, however, may seek to move more rapidly to tighten policy. “I believe we are at risk of doing what the Fed has too often done: overstaying our welcome by staying too loose too long,” Dallas Fed President Richard Fisher said in a speech Wednesday. He predicted the Fed will need to raise rates by early 2015 “or potentially sooner.

Fed’s Plosser Says U.S. Policymakers Conflicted Over Risk Taking - Federal Reserve Bank of Philadelphia President Charles Plosser said on Friday that the nation’s policymakers are deeply conflicted about how much risk taking they want in the economy. Mr. Plosser was moderating a panel as part of a conference held by the Global Interdependence Center. He didn’t comment on monetary policy in his brief remarks. “You’ve got this tug of war going on right now in our society” about how much risk is appropriate, Mr. Plosser said. “You have the Fed saying at times we want people to take risks” but other parts of government are at the same time discouraging risk taking. Taken together, it’s creating an uncertain climate for sort of companies that have some of the best potential to drive better levels of growth, Mr. Plosser said.

JPMorgan Blows Up The Fed's "We Can 'Control' The Crash With Reverse Repo" Plan -- This is a big deal. On the heels of our pointing out the surge in Treasury fails (following extensive detailing of the market's massive collateral shortage at the hands of the unmerciful Fed's buying programs), various 'strategists' wrote thinly-veiled attempts to calm market concerns that the repo market (the glue that holds risk assets together) was FUBAR. Even the Fed itself sent missives opining that their cunning Reverse-Repo facility would solve the problems and everyone should go back to the important business of BTFATHing... They are wrong - all of them - as yet again the Fed shows its ignorance of how the world works (just as it did in 2007/8 with the same shadow markets). As JPMorgan warns "the Fed’s reverse repo facility does little to alleviate the UST scarcity induced by the Federal Reserves’ QE programs coupled with a declining government deficit." The end result, they note, is "higher susceptibility of the repo market to collateral shortages" and thus dramatically higher financial fragility - the opposite of what the Fed 'hopes' for.

Fed kicks off global dollar squeeze as Janet Yellen turns hawkish - The US Federal Reserve has begun to pivot. Monetary tightening is coming sooner than the world expected, with sober implications for overheated bourses, and for those in Asia, eastern Europe and Latin America that drank deepest from the draught of dollar liquidity. We can expect a blistering dollar rally, perhaps akin to the early 1980s or the mid-1990s. It is fortuitous that the BRICS quintet of Brazil, Russia, India, China and South Africa have just launched their $100bn monetary fund to defend each other's currencies. Some of them may need it. America's unemployment rate has fallen from 7.5pc to 6.1pc in 12 months. The country has been adding 230,000 jobs a month in the first half of this year. Since Fed chief Janet Yellen targets jobs above all else, this was bound to force capitulation by the Fed before long. It happened this week in her testimony to Congress. "If the labour market continues to improve more quickly than anticipated, then increases in the federal funds rate likely would occur sooner and be more rapid than currently envisioned," she said.This is a policy shift. Mrs Yellen has admitted that the Fed misjudged the pace of jobs recovery. The staff did not expect unemployment to fall this low until late next year. The inflexion point has come 15 months early.

Yellen Tells Whoppers to the New Yorker-  Yves Smith - A Nicholas Lehmann profile of Janet Yellen in the New Yorker, based on interviews with her, is creating quite a stir, and for many of the wrong reasons. The article verges on fawning, but even after you scrape off the treacle, it's not hard to see how aggressively and consistently the Fed chair hits her big talking point, that's she's on the side of the little guy. As correspondent Lee put it:  She's simultaneously Mother Teresa (spent her whole life caring about the poor without actually meeting any poor people) and Forrest Gump (present when all bad deregulatory polcies were made, but miraculously untainted by them). Puh-lease! She's Bernanke in a granny package, without the history lessons.  In fact, as we'll discuss, Yellen's record before and at the Fed shows she's either aligned herself with banking/elite interests or played two-handed economist to sit out important policy fights. Even if she actually harbors concern for ordinary citizens, she's never been willing to risk an ounce of career capital on it.

Yellen Uncomfortable With Proposed GOP Legislation for Fed - Federal Reserve Chairwoman Janet Yellen Tuesday voiced her opposition to two new Republican proposals for legislation that would change the central bank’s operations. Ms. Yellen said she would welcome having a community banker on the central bank’s board, but added she does not believe new legislation is needed to ensure one is included. Ms. Yellen, testifying before the Senate Banking Committee, was addressing a new effort by Sen. David Vitter (R., La.), a member of the Senate panel. This week, Mr. Vitter offered an amendment to an unrelated bill on the Senate floor that would require the Fed’s Board of Governors to have at least one member with community-banking experience. “I am very positive on the idea of having a community banker appointed the board,” Ms. Yellen said. “That said, I don’t support requiring it via legislation.” Ms. Yellen was also very critical of a separate proposal that would force the Fed to adopt mechanical monetary policy rules and explain any deviations from them to Congress. “I would think it would be a terrible mistake to ask the Federal Reserve to specify a mathematical rule,” Ms. Yellen said. She added that the economic slump of 2007-2009 could have been much worse if the Fed had followed official policy rulebooks.

Shackling the Fed with the Taylor Rule - One of the most notable aspects of the response of western democracies to the cataclysmic economic events of the past decade has been the absence of any attempt to restrict the powers of the central banks. Far from it. With little political controversy, they have been allowed to increase their balance sheets by over 20 per cent of GDP, enormously widen their regulatory role, and profoundly alter the distribution of wealth in our societies. Cynics will say that it is easy for politicians to approve of central banks when they choose voluntarily to pursue unprecedentedly easy monetary policy. It is when this is reversed that political problems would normally be expected to arise. But, in the US, we are now seeing signs that some members of Congress are seeking to shackle the Fed, not because policy has been too tight, but because they think it has been too accommodative. Draft legislation has been published by two Republican members of the House, under which the Fed would be required to publish a formal rule that would specify the relationship between the Fed Funds rate and economic variables like GDP and inflation [1].The central bank would be required to justify any differences between its rule and the well known Taylor Rule, and also to explain any deviations between its chosen rule and the actual policy it adopts. The process would be subject to audit by the Government Accountability Office, followed if necessary by examination of the Fed Chair by Congressional committees. This is important for markets, because at present John Taylor says that his rule would set the Fed Funds rate at least 1.25 per cent higher than the FOMC has chosen. Supporters of a rule based framework for monetary policy claim that this would have produced a better outcome for inflation and unemployment in the past than discretionary policy. An academic conference at the Hoover Institution in June, chaired by John Taylor, published some new research papers in support of his Rule, basically arguing that an auto pilot for the Fed would have worked better than human judgment.

Understanding the Crank Epidemic - Paul Krugman -- James Pethokoukis and Ramesh Ponnuru are frustrated. They’ve been trying to convert Republicans to market monetarism, but the right’s favorite intellectuals keep turning to cranks peddling conspiracy theories about inflation. Three years ago it was Niall Ferguson, citing a bogus source. Ferguson was widely ridiculed, by moderate conservatives as well as liberals — but here comes Amity Shlaes, making the same argument and citing the same source. The “reform conservatives” have made no headway at all. Why this lack of progress?  The answer is that inflation paranoia isn’t a simple misunderstanding that can be corrected by pointing to evidence. It’s deeply embedded in the modern conservative psyche. Government action must, by definition, have disastrous results; and whatever market monetarists may try to say, their political comrades will continue to lump monetary policy in with fiscal stimulus and Obamacare. And fiat money can’t work — Francisco D’Anconia said so, and it must be true. So it’s always the 70s, if not Weimar, and if the numbers say otherwise, they must be cooked. Evidence has a well-known liberal bias.

Addicted to Inflation, by Paul Krugman - The first step toward recovery is admitting that you have a problem. That goes for political movements as well as individuals. So I have some advice for so-called reform conservatives trying to rebuild the intellectual vitality of the right: You need to start by facing up to the fact that your movement is in the grip of some uncontrollable urges. In particular, it’s addicted to inflation — not the thing itself, but the claim that runaway inflation is either happening or about to happen. ... Yet despite being consistently wrong for more than five years,... at best, the inflation-is-coming crowd admits that it hasn’t happened yet, but attributes the delay to unforeseeable circumstances. ... At worst, inflationistas resort to conspiracy theories: Inflation is already high, but the government is covering it up. The ... inflation conspiracy theorists have faced well-deserved ridicule even from fellow conservatives. Yet the conspiracy theory keeps resurfacing. It has, predictably, been rolled out to defend Mr. Santelli.  All of this is very frustrating to those reform conservatives. If you ask what new ideas they have to offer, they often mention “market monetarism,” which translates under current circumstances to the notion that the Fed should be doing more, not less. ... But this idea has achieved no traction at all with the rest of American conservatism, which is still obsessed with the phantom menace of runaway inflation.

The Meme is Out There, by Paul Krugman: I just answered some questions for Princeton magazine, and among them was this: Please comment on how artificially low interest rates have impacted the current value of baby boomers’ retirement portfolios and should this be a consideration of the Federal Reserve?  I don’t blame the editor, who after all isn’t supposed to be an economist. But what this must reflect is what people are hearing on the financial news; I’m pretty sure that a lot of people think that all the experts regard interest rates as “artificially low”, and have no idea that to the extent that such a notion makes any sense at all — which is to say in terms of the Wicksellian natural rate — interest rates are too high, not too low.

We Read It So You Don’t Have To: 12 Beige Book Gems -  The Federal Reserve’s “beige book” report, out Wednesday, offers a snapshot of economic activity across the country in recent weeks based on anecdotes gathered from the central bank’s 12 districts from late May through early July. Despite its bland title, there are often lots of interesting nuggets tucked within. Here are excerpts:

Conference Board Leading Economic Index: Fifth Monthly Increase - The Latest Conference Board Leading Economic Index (LEI) for June is now available. The index rose 0.3 percent to 102.2 percent. May was revised upward from 101.4 to 1.07 percent (2004 = 100). The latest number came in slightly below the 0.5 percent forecast by Investing.com.Here is an overview from the LEI technical notes:The Conference Board LEI for the U.S. increased for the fifth consecutive month in June. The positive contributions from the financial and new orders components more than offset declines in building permits and the labor market indicators. In the first half of this year, the leading economic index increased 2.7 percent (about a 5.5 percent annual rate), slower than the growth of 3.5 percent (about a 7.2 percent annual rate) during the second half of 2013. In addition, the strengths among the leading indicators continue to be more widespread than the weaknesses. [Full notes in PDF]  Here is a chart of the LEI series with documented recessions as identified by the NBER.

Monthly GDP - After the shocker of -2.9% growth (SAAR) in 2014Q1, all eyes have been on Q2. Macroeconomic Advisers released its estimate for May — a 0.2% increase on April (2% on an annualized basis).  Figure 1 presents the Macroeconomic Advisers and e-forecasting estimates, as well as the BEA official figures (3rd release). Figure 1: GDP from NIPA 3rd release for 2014Q1 (blue bars), Macroeconomic Advisers (red line), and e-forecasting (green line), all SAAR, in billions of Ch.2009$. NBER defined recession dates shaded gray. Source: BEA, Macroeconomic Advisers (7/16), e-forecasting (7/11), and NBER. Macroeconomic Advisers’ nowcast for the quarter is 2.9% (SAAR). The Atlanta Fed’s nowcast as of information available on 7/15 is 2.7%.

US Economy On Target For Better 2Q Growth: The huge revision to 1Q US GDP growth took everyone by surprise. While most analysts (including myslelf) attributed the miss to weather related issues, others voiced the opinion that the number indicated the economy was clearly slowing. However, looking at the data released over the last few months indicates the US is on track to print a better 2Q GDP report. Let's start by looking at the four main coincident indicators -- industrial production, total non-farm employees, trade and manufacturing sales and income less transfer payments. I've made the trough of the recession the "100" for all of the main coincident indicators. As the chart shows, all have been solidly rising since that time. There have been no major collapses in any of the numbers over the last 5 years. Let's turn to the two ISM reports which cover the breadth of economic activity (manufacturing and service).  On these reports, the "50" level divides activity between expansion and contraction.  Both of these data series dropped to just above 50 at the beginning of the year, largely reflecting the negative effects of the harsh winter conditions.  But since that time, both have rebounded to 55-56 levels.  Above are two scatter plots that show the relationship between the the ISM manufacturing number and Y/Y GDP growth (top chart) and the ISM non-manufacturing number and Y/Y GDP growth (bottom chart). Both show a positive correlation, indicating we can expect a Y/Y GDP growth rate around the 2% level, based only on the ISM data. Above is a table from the Conference Board's monthly release of the US leading economic indicator. The month to month data has been rising since February, and the 6 month rate of change is still positive.

US Treasury Admits Collateral Problem In Bond Market; Considers Issuing Ultra Long-Dated Bonds -- We noted yesterday once again that The Fed was out en masse demanding investors sell their bonds because "bonds are in a bubble" but not stocks. The reason - as we have explained in great detail - is the repo market is broken due to massive collateral shortages (thanks to the Fed). Today, the Fed admitted it has a problem...The bottom line is - The Treasury wants to know why all the dealers are so short bonds (even as it urges 'investors' to sell). Furthermore, it is surveying dealers over the need to issue bonds of greater maturity than 30 years in order to fulfill collateral needs.

CBO Releases 2014 Long Term Budget Outlook -- The CBO released their 2014 Long-Term Budget Outlook today. Here are a couple highlights:

• Federal spending is projected to slowly increase over the next 25 years from 20.4 percent of GDP in 2014 to 25.9 percent of GDP in 2039.
• Federal revenue collections is expected to increase over the same timeframe, from 17.6 percent of GDP in 2014 to 19.4 percent of GDP in 2039.
• Over the same timeframe, marginal effective tax rates on labor are projected to increase from 29 percent to 34 percent and marginal effective tax rates on capital are projected to increase from 18 percent to 19 percent.
• Federal spending will increase more rapidly than federal revenues, which will increase the budget deficit.
• The federal debt held by the public has doubled since 2008, due to large deficits in the aftermath of the recession.
• Federal debt held by the public is project to exceed 100 percent of GDP in the next 25 years.

CBO Releases 2014 Long Term Budget Outlook -- 2014 Long Term Budget Outlook (pdf 64pp) - While we are still waiting on the 2014 Social Security Report we do have today the release of CBO’s annual Budget Outlook which among other parts does include a chapter on Social Security. I plan to extract and post some Tables from it but in the meantime people can have their own look and draw their own conclusions. Key pieces: p. 10 Table 1-1. Projected Spending and Revenues in Selected Years Under CBO’s Extended Baseline.  Note that under CBO’s 10 year window (the one used to score legislation) non-interest spending is projected to drop from 19.1% of GDP to 18.8%. Or essentially flat, and BTW this includes spending on Social Security and Medicare. On the other hand TOTAL spending INCLUDING interest is projected to increase from 20.4% to 22.1%. With the entire difference being made up by interest payments rising from 1.3% of GDP to 3.3%. I for one would be interested in seeing and discussing the interest rate assumptions that go into that increase, perhaps it just represents some reversion of 10 year Bond Rates to the mean. Please chime in in comments.p. 25-44 Chapter 2: The Long-Term Outlook for Major Federal Health Care Programs. Lots and lots of good stuff here. I haven’t even started sampling yet. Bon appetit!

U.S. risks fiscal crisis from rising debt: CBO - — The U.S. risks a fiscal crisis if it doesn’t get large and continuously growing federal debt under control, the Congressional Budget Office said Tuesday. In its new long-term budget outlook, the nonpartisan CBO said federal debt held by the public is now 74% of the economy and will rise to 106% of gross domestic product by 2039 if current laws remain unchanged. . In its last long-term budget outlook in September 2013, CBO said debt held by the public was 73% of GDP and projected debt would be 102% of GDP in 2039. The stark warning from the CBO comes as deficits have recently been falling. For the current fiscal year, for example, the CBO is projecting a deficit of $492 billion, which would be 2.8% of gross domestic product. The deficit in fiscal 2013 was $680 billion, the first shortfall below $1 trillion of Barack Obama’s presidency. The deficit hit a record of $1.4 trillion in 2009. But the agency expects deficits to rise in coming years as costs related to Social Security, Medicare and interest payments swell. And if federal debt grows faster than GDP, that path is ultimately “unsustainable” for the economy and risks a crisis where investors would begin to doubt the government’s willingness or ability to pay its debt obligations, CBO said

Six Takeaways from CBO’s New Long-Term Budget Outlook -- The newest Congressional Budget Office long-term budget outlook, released today, is more evidence that the long-term federal budget problem may be forgotten, but it is not gone.Here are six takeaways.

• 1. The size of the budget deficit today isn’t a problem, and it’s not much of a problem for the next few years either.
• 2. The federal debt, measured as a percentage of GDP, is a historically high 74 percent today. It’ll rise to 106 percent of GDP over the next 25 years, which would be tied for the highest in U.S. history, the level attained as a result of World War II.
• 3. There is significant uncertainty around these long-term projections, but that is not a reason to ignore them.
• 4. The magnitude of the changes in policy needed to ensure that the debt-GDP ratio in 2039 returns to its historical average over the last 40 years – around 39 percent – depends on when corrective policies are initiated.
• 5. All of these numbers are based on what CBO calls its “extended baseline,” which is predicated on a number of “optimistic” assumptions
• 6. In an “alternative” scenario that adjusts for these assumptions, one might term it a more realistic view of current policies, CBO finds that the debt-GDP ratio would rise to 163 percent by 2039 – and to 183 percent if the economic ill effects of very high government borrowing is factored in.

CBO: Slowing health-care costs yield big savings, but not enough to bring down our big debt - The fastest-growing part of the federal budget -- spending on health-care programs -- has slowed sharply in recent years. And while no one knows quite why that's happening, the Congressional Budget Office is predicting substantial savings. For the 10-year period beginning in 2010, the estimated cost of Medicare and Medicaid -- the government health programs for the elderly and the poor -- has dropped by $1.23 trillion, according to revised CBO projections. In its latest look at the nation's long-term finances, released Tuesday, CBO predicts that the savings will grow by 2039  to 1.5 percent of the economy -- or, in today's dollars, roughly $250 billion a year. That's real money by any measure. But it's not enough to brighten the CBO's otherwise gloomy forecast for the next 25 years. While annual deficits are "shrinking noticeably," the CBO said, "the long-term budget outlook is much less positive," with the portion of the national debt held by public investors forecast to climb from 74 percent of the economy today to 106 percent in 2039. Outside World War II, the nation has never carried such a heavy debt load. Spending on health care remains the biggest driver, due primarily to huge numbers of being added to government health-care rolls. This year, the CBO projects that the federal government will spend nearly $1 trillion -- almost a third of the entire $3.5 trillion federal budget -- on Medicare, Medicaid and insurance subsidies under the Affordable Care Act. That's more than the government will spend in any other category, including Social Security and national defense. And by 2039, the cost of health-care programs will rise sharply, growing from about 4.8 percent of GDP today to about 8 percent of GDP in 2039.

CBO: Don’t Fear the Near-Term Debt Reaper -- This morning, the Congressional Budget Office released its latest long-term budget outlook. While CBO projects the federal debt to begin increasing sharply in future decades, the main takeaway is that, with the debt stable for the remainder of this decade relative to the size of the economy, Congress should not see these projections as a reason to double down on economy-stunting austerity. Instead, policymakers should take advantage of our fiscal health to make the investments necessary to help boost our demand-starved economy and our still-flagging labor market.  CBO expects annual deficits to range from 2.8 to 3.5 percent of GDP through 2020—down from a peak of 10 percent of the economy in 2009—and not to reach 4.5 percent again until 2027. Yes, says CBO, over the long run our debt is a problem, especially as health care costs truly escalate in coming decades. And yes, CBO assumes that certain tax and spending policies will lapse when they will in all likelihood be extended, meaning today’s projections of future deficits are too low. But while our recent political past is strewn with the carcasses of failed grand bargains, fiscal commissions, and super committees, this near-term picture shows us that our deficit hysteria has calmed for good reason—there is no near-term deficit problem.

US deficit continues to shrink -- Bolstered by a strengthening economy and job market, the U.S. budget deficit has continued to shrink, reaching its lowest level for the fiscal year to date since 2008. The deficit declined to $366 billion for the period from October 2013 through June 2014, according to the Treasury Department. That’s 28% percent lower than the deficit for the same nine months last year. The government had a small monthly surplus of $71 billion in June. The recovery has helped lower the deficit by bolstering tax revenues and reducing the need for social programs, says Gus Faucher, senior economist for the PNC Financial Services Group. “This is more a reflection of the improving economy than anything else.” The falling deficit is also linked to the discretionary spending cuts that Congress and the White House have passed since 2011, along with a handful of tax increases. Those cuts have concerned some policy experts who believe that such deficit-reduction measures were poorly timed and have hampered the overall pace of the recovery. At the same time, deficit hawks warn that Washington’s recent budget reforms – which barely affect entitlements or the vast majority of the tax code – do little to change the nation’s long-term deficit outlook.

Sequestration’s Impact on Military Spending, 2013 – 2014 - Sequestration began on March 1, 2013. While the Budget Control Act originally slated a $54.6 billion cut to defense accounts, that number was reduced by the American Taxpayer Relief Act (ATRA), also known as the fiscal cliff deal. The ATRA and other adjustments to the defense sequester reduced cuts down to $37.2 billion for fiscal 2013. In addition, the Pentagon was granted flexibility to apply part of these cuts to funds from previous budgets that had not yet been spent; these funds are known officially as “prior year unobligated balances.” Accounting for these adjustments to the defense sequester, the cuts ultimately amounted to a 5.7 percent reduction to projected pre-sequester spending in fiscal 2013, as the following table summarizes. In fiscal 2014, the Budget Control Act once again mandated a $54.6 billion sequester cut to defense accounts. However, in December 2013, the Bipartisan Budget Act reduced the cuts by more than $20 billion, down to $34 billion. Sequestration applies only to the Pentagon’s “base” budget – that is, its regular operational budget, excluding war funding. War funding is known officially as “Overseas Contingency Operations” (OCO). According to analysis by Todd Harrison of the Center for Strategic and Budgetary Assessments, the Pentagon included an estimated $20 billion in non-war funding to the OCO budget when it prepared its 2014 budget proposal, thereby mitigating the effects of sequestration. Furthermore, when congressional appropriators wrote 2014 war funding into law they added an additional $10.8 billion of non-war funding – widely referred to as a slush fund – to the budget, as Winslow Wheeler of the Project on Government Oversight has shown.

Key GOP lawmakers collectively balk at White House request for border funds: (Reuters) – Leading Republican lawmakers balked on Sunday at supporting a White House spending request aimed at bolstering the U.S. border with Mexico, where thousands of children have crossed recently, while calling for changes in the law to allow faster deportations. The White House has asked for $3.7 billion in emergency funds to help pay for border security, temporary detention centers and additional immigration court judges to process asylum cases. The Obama administration warned lawmakers on Thursday that border security agencies would run out of money this summer if the request was not approved.

Officials From Both Parties Call for Congress to Consider Raising Gas Tax to Ensure More Stable Revenue for Roads -- Governors from both parties voiced incredulity over an impasse in Washington that has jeopardized spending on roads and bridges, calling on lawmakers to come up with the sort of long-term solution that was commonplace in less partisan times.Some governors at their summer meeting here, both Democrats and Republicans, said Congress should consider increasing the gas tax to provide a more reliable revenue stream for the Highway Trust Fund. They also called for finding ways to ensure that electric and fuel-efficient vehicles help pay the costs of maintaining the nation's roads.  The trust fund is financed mostly by diesel and gasoline taxes that haven't increased since 1993 even as fuel economy has improved for most new vehicles, leaving the government without enough money to cover its share of spending on road repairs and highway construction.

House Votes to Pay for Roads With Underfunded Pensions - The House overwhelmingly passed an unpopular proposal to use revenues from underfunded pensions to pay for one year of funding for the Highway Trust Fund. According to NBC News, the House bill will pay for a 10-month funding extension for road and infrastructure projects "using pension tax changes, customs fees and a transfer from the Leaking Underground Storage Tank Trust Fund." Despite threats from conservative groups Club for Growth and Heritage Action, only 45 Republicans voted against the bill.  Both Democrats and Republicans have criticized the bill for being a short fix, but Senate Majority Leader Harry Reid said the Senate would likely pass the bill before the August recess. The Department of Transportation has said the fund will run dry by the end of August, and plans to limit payments starting next month.  As we've explained in the past, the Highway Trust Fund is currently funded by fuel taxes that haven't risen since 1993. That, along with the rise of vehicle fuel efficiency, is why the fund has been underfunded for years. Instead of raising the fuel tax or finding a long-term solution to the funding problem, Congress has come up with short-term fixes like the one voted on by the House today. It's a terrible idea. As Josh Barro at The Upshot explained: If you change corporate pension funding rules to let companies set aside less money today to pay for future benefits, they will report higher taxable profits. And if they have higher taxable profits, they will pay more in taxes over the 10-year budget window that Congress uses to write laws. Those added taxes can be diverted to the Federal Highway Trust Fund...

Nothing New Under the Sun: The Sad History of the Tax Extenders. -- Nice piece by Tax Notes reporter Lindsey McPherson describing the recent history of the tax extenders. Four take-aways:  There is always last-minute drama over bringing them back, most are repeatedly extended, they are almost never paid for, and they are frequently rolled into a bigger bill. In 2004, 2006, 2008, 2010, and 2012 the subsidies were not extended until October or later. Of the 55 expired provisions currently being debated, 39 have been have been renewed at least three times. Congress has never fully paid to extend (or restore) the tax breaks: There were no offsets at all in 2004, 2006, and 2010, and only partial offsets in 2008. The American Tax Relief Act (ATRA) of 2012 did include some revenue raisers, but they were supposed to pay for delaying sequestration not for the tax cuts. In sum, if the current debate over the expired tax provisions seems familiar, that’s because it is.

No, cutting corporate taxes won’t help the middle class - Earlier this week, I testified in front of the Joint Economic Committee on the topic of assessing the recovery after five years (the current economic expansion officially began in the second half of 2009, as per the National Bureau of Economic Research Business Cycle Dating Committee—now there’s a group you want at your next house party!). As you can imagine, congressional testimony can be pretty frustrating these days for members of the fact-based community, but I thought this one covered a lot of useful ground with substantive disagreements as to the way forward. One exception, however, was the part of the discussion that veered into the fantasy that you could help the recovery reach more people by cutting the corporate tax rate. Let me be quite clear that our corporate code is a mess, fraught with loopholes and incentives to engage in deep tax avoidance, which is precisely what many firms do — at least the ones who can afford it, like GE, which employs 975 tax avoiders analysts. I’m a big advocate of cleaning out the code, and am even willing join the general consensus to achieve revenue-neutral reform through broadening the base and lowering the rate (I’d rather corporate tax reform be revenue positive than revenue neutral, but that’s different debate). But don’t kid yourself, as too many members of the congressional panel seemed to do, that lowering the marginal rate on corporate taxation would somehow help the middle class.

U.S. Drug Firms Seek Inversion Deals to Evade Taxes - Health care companies, like many big American corporations, have a long list of complaints: regulation, global competition and, chief of all, taxes.But increasingly, drug makers and medical device companies have found a way to self-medicate.By buying a smaller overseas competitor and reincorporating abroad — a maneuver called inversion — health care companies are extricating themselves from the American tax regimen. Their new international domiciles also give companies easier access to overseas cash and make additional inversions more attractive.Though nothing about the industry makes it more suitable for inversions than, say, food or technology, a number of factors have combined to make health care the focus of the inversion wave that is sweeping corporate America and annoying regulators in Washington.A thoroughly international market for drugs means that health care companies are already global enterprises. An abundance of European drug makers means there are plenty of suitable targets. And as some health care companies strike inversion deals, others feel pressure to follow suit to avoid higher tax rates than their competitors.On Monday alone, two multibillion-dollar health care inversions appeared to be sealed.

Stop the tax inversions of free-riding corporations - David Cay Johnston -- Walgreens, Pfizer, Medtronic and some other big American companies are working on a tax trick known as inversion. By acquiring or merging with a foreign company — the inversion — big companies can reduce or eliminate federal and state taxes on profits in the U.S. The latest inversions have drawn a lot of criticism, even from sources usually considered cheerleaders for big business. “Positively Un-American,” declared Fortune magazine’s latest cover, while its story inside expressed revulsion at these moves. Inversions, if not stopped, will spread. When Congress last enacted laws to thwart these moves in 2002, in part because of my reporting on an earlier round of inversions, I warned that the new laws included loopholes. As predicted, the inversion problem is back and could cause serious damage to both our economy and the rule of law.

The Inverted World of Mobile Capital - Laura Tyson – A growing number of American companies are seeking to move their legal headquarters abroad by acquiring or merging with foreign companies. In the latest case, Medtronics plans to acquire Irish-based Covidien, a much smaller company spun off by US-based Tyco, and move its legal headquarters to low-tax Ireland, culminating in the largest ever “inversion” or “redomiciliation” of a US company. Walgreens is reportedly considering moving its headquarters to the United Kingdom by acquiring the remaining public shares of Alliance Boots, the Swiss-based pharmacy giant. Such deals reflect the deep flaws in the United States’ corporate tax system. The US has the highest statutory corporate tax rate among developed countries and is the only G-7 country clinging to an outmoded worldwide tax system under which the foreign profits earned by US-headquartered companies incur additional domestic taxes when they are repatriated. By contrast, all other G-7 countries have adopted “territorial” systems that impose little or no domestic tax on the repatriated earnings of their global companies. This difference puts US-headquartered multinationals at a disadvantage relative to their foreign competitors in foreign locations. To offset this, US multinationals take advantage of a deferral option in US tax law. Deferral allows them to postpone – potentially indefinitely – the payment of US corporate tax on their foreign earnings until they are repatriated. Not surprisingly, as their foreign earnings have grown as a share of total earnings, and as foreign corporate tax rates have plummeted, US companies’ stock of foreign earnings held abroad has soared, now topping $2 trillion.

Junior traders offered immunity in forex probe - FT.com: US prosecutors are offering immunity deals to junior traders in London as they try to gather evidence against banks and more senior staff in the investigation into alleged currency market manipulation. US Department of Justice staff have flown to the UK in recent weeks to interview foreign exchange traders, who have been offered partial immunity in exchange for volunteering information about superiors, people familiar with the situation said. Such “proffer agreements” allow individuals to give authorities information about crimes with some assurances they will be protected against prosecution, as long as they do not lie. The move marks another step in the global investigation into collusion and market-rigging in the $5.3tn a day currency market by at least 15 regulators and prosecutors. They are investigating allegations that bank traders and sales staff used chat rooms and other means of communication to share client information and manipulate daily currency benchmarks. Most authorities initially gave banks free rein to conduct their own probes, prompting the suspension, placing on leave or firing of so far almost three dozen staff at 10 banks and the Bank of England, where one official has been suspended. One senior lawyer said the DoJ probe was well-advanced. The DoJ declined to comment. Referring to general criminal activity, Leslie Caldwell, its criminal division chief since May, told the FT last week that the authority would be “appropriately aggressive” and seek to bring “timely” cases against financial institutions.

Three New JPMorgan IT Deaths Include Alleged Murder-Suicide - Since December of last year, JPMorgan Chase has been experiencing tragic, sudden deaths of workers on a scale which sets it alarmingly apart from other Wall Street mega banks. Adding to the concern generated by the deaths is the recent revelation that JPMorgan has an estimated $180 billion of life insurance in force on its current and former workers.  Making worldwide news last week was the violent deaths of JPMorgan technology executive Julian Knott and his wife, Alita, ages 45 and 47, respectively, in Jefferson Township, New Jersey. However, two other recent, sudden deaths of technology workers at JPMorgan have gone unreported by the media. The bodies of the Knott couple, who have a teenage daughter and two teenage sons, were discovered by police on July 6, 2014 at approximately 1:12 a.m.    According to a press release issued by the Morris County Prosecutor’s office, Jefferson Township Police Officers Tim Hecht and Dave Wroblewski responded to the Knott home located in the Lake Hopatcong section following a “report of two unconscious adults.” Who made the call to police and whether the children were home at the time has not been announced by the police or the prosecutor’s office. Knott’s years at JPMorgan in London overlapped with those of Gabriel Magee, a JPMorgan Vice President who worked in computer infrastructure. Magee, aged 39, is alleged to have leaped from the rooftop of the 33-story JPMorgan London headquarters at 25 Bank Street on the evening of January 27, 2014.   Just 13 days before Julian and Alita Knott were found dead in their home, Richard Gravino, age 49, died at his home in Riverview, Florida. The Hillsborough County Medical Examiner’s office said the cause of death is “pending” with toxicology tests not expected back for 8 to 12 weeks. In the month prior to Gravino’s death, on May 7, 2014, Thomas James Schenkman, age 42, died suddenly in Connecticut.

Edward Jones: The Dr. Jekyll and Mr. Hyde of the Financial Services Industry -- There is a charming, cozy enclave of the American psyche in which places such as Lake Wobegon, Mayberry and the Smuckers' family home repose. It's that halcyon world where Father Knows Best, and a man's word is his bond. It is this realm in which financial services firm Edward Jones has chosen to position itself, and it has been brilliant in cultivating its "neighbors helping neighbors" persona. Unlike the industry as a whole -- which has a sleek, metropolitan, high-rise, high-tech, high-roller image -- Edward Jones has thousands of modest storefront offices throughout the heartland. In each, there is one advisor, who is humbly, compassionately at your service. But the birthday card he sends you -- and the pumpkin pie at Thanksgiving, and the new Norman Rockwell calendar every January -- are all part of the firm's scrupulously crafted "Our Town" facade. Everything from the advisor's regular, "just checking in" phone call every few weeks ("Is your cat feeling better?") to his investment advice, is ruthlessly stage-managed by a vast, extremely profitable, expansionistic headquarters. Some of the firm's financial advisors refer to it as a cult -- they call it "Jonestown" -- and hundreds quit every year, because they "can't drink the green Kool Aid any longer."

Fed Tries New Role as Lines Judge for Markets - When Federal Reserve leaders speak out about the economy and interest rate policy, markets all over the world often flutter. On Tuesday, however, it was just biotech, social media and small-company stocks caught in the central bank buzz saw. A 55-page report accompanying Fed chairwoman Janet Yellen’s semiannual testimony to Congress noted in two places that valuations in those sectors were stretched. Investors sold shares in those sectors in response. The movement brought back memories of Alan Greenspan’s 1996 warning of irrational exuberance in stock markets. But the consensus then was that central bankers are in no position to identify bubbles, much less deal with them once affirming they exist. Mr. Greenspan’s famous comment was actually a question: “How do we know when irrational exuberance has unduly escalated asset values?” And he added this question for good measure: “Where do we draw the line on what prices matter?” Tuesday’s market turbulence highlights the difficult challenge that central bank leaders face in the post-financial-crisis economy in which that consensus no longer exists. Like it or not, central bankers have taken on the new role of lines judge for the world’s markets – sitting above the action and trying to decipher where markets have gone out of bounds. The Fed now has a team of economists in an Office of Financial Stability searching daily for excess. In addition to biotech and social media, the judges are raising flags on corporate junk bonds and leveraged loans.

Fed Warns Junk Debt Excess May Lead to Higher Defaults -  The Federal Reserve warned that froth in the riskiest parts of debt markets may lead to more defaults. “Signs of excesses that could lead to higher future defaults and losses have emerged in some sectors, including for speculative-grade corporate bonds and leveraged loans,” according to a report published today by the central bank as part of Chair Janet Yellen’s semi-annual testimony to the Senate Banking Committee. A boom in the market for junk-rated loans has drawn the attention of the Fed and the Office of the Comptroller of the Currency, who have been urging banks since last year to curb risky lending. While issuance has been robust, “underwriting standards have loosened,” according to today’s report. The central bank said it’s working with other federal regulators to “enhance compliance with previous guidance on issuance, pricing and underwriting standards.” There have been $222.7 billion of new loans arranged in the U.S. this year after a record $357.9 billion in 2013, according to data compiled by Bloomberg. Loans helped finance some of the biggest leveraged buyouts during the last credit boom. The Fed, the Federal Deposit Insurance Corp. and the OCC released leveraged-lending guidelines in March 2013 that describes expectations for sound risk management of leveraged-lending activities. The Fed and the OCC followed up with letters starting in September that said banks should establish clear policies that deter the origination of loans classified as having a deficiency that might lead to a loss.

Financial Interconnectedness and Systemic Risk: New Fed Report Flags 7 Behemoths - Yves here. This post addresses a topic near and dear to my heart: the importance of financial interconnectedness, or what Richard Bookstaber called “tight coupling” in his book A Demon of Our Own Design. Tight coupling occurs when the processes in a system are so closely linked that when certain types of activities begin, they propagate through the system and cannot be halted.  And there’s been perilous little interest in addressing the problem of interconnectedness after the crisis. Yes, some activities are being moved to centralized clearing. Yet as this post explains, only recently has the Fed started capturing and publishing data on interconnectedness. While this is a welcome step, why has it been so slow in coming? This new data source gives us an unprecedented level of detail on intra-financial links and other aspects of systemic risk. These data suggest that high levels of intra-financial assets are held by the very largest banks. Other banks appear to hold relatively low levels of intra-financial assets. In fact, 26 of the 33 institutions in question held relatively low amounts of intra-financial assets that ranged from 1.5 to 44 billion dollars. But seven of the largest banks held very large amounts of intra-financial assets and therefore are also the most interconnected. These seven institutions—J.P. Morgan, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon—have become household names in the narrative of the financial crisis and bailout. These data give an unprecedented picture on their intra-financial connections. The figure below shows, using intra-financial assets as a share of each bank’s total assets, the most interconnected banks. The figures range from 10% of total assets to a whopping 65% by Morgan Stanley; almost 40% of Goldman Sachs’ assets were intra-financial assets.

Fed Wants Better Compliance on Leveraged Loan Guidelines, Report Says - The Federal Reserve is keeping a close watch on what it sees as potentially excessive risk-taking in the market for leveraged loans. In its semi-annual report to Congress on monetary policy, the Fed downplayed the possibility that its policies of ultra-low interest rates could be fueling asset bubbles. However, it also flagged certain corners of financial markets, such as lower rated corporate debt, as showing looser underwriting standards. “The Federal Reserve continues to closely monitor developments in the leveraged lending market and, in conjunction with other federal agencies, is working to enhance compliance with previous guidance on issuance, pricing, and underwriting standards,” the report said. The report also cited concerns about the technology sector. “Equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched, with ratios of prices to forward earnings remaining high relative to historical norms.”

SEC commissioner attacks mild financial reforms as a "firing squad on capitalism" - Set up by the Dodd-Frank financial reform act of 2010, the Financial Stability Oversight Council (FSOC) is a coordinating body of various financial regulators charged with monitoring large, "systemically important" financial institutions and identifying potential risks arising from them. It has come in for a considerable amount of (often justified) criticism since its creation. As Mike Konczal noted as the bill was being written, the FSOC has a de facto veto over the Consumer Financial Protection Bureau, weakening that agency. Current and former Fed vice chairs Stanley Fischer and Donald Kohn (respectively) have both argued that FSOC is insufficiently strong and independent to adequately improve financial stability. Both the financial sector and financial reform advocates have knocked the council for excessive secrecy. But I've got to say, SEC commissioner Michael Piwowar's criticisms of FSOC at an American Enterprise Institute event yesterday aren't ones I've heard before:In preparing for this speech, I thought a lot about what moniker I could use to best describe the FSOC. The Firing Squad On Capitalism. The Vast Left Wing Conspiracy to Hinder Capital Formation. The Bully Pulpit of Failed Prudential Regulators. The Dodd-Frank Politburo. The Modern-Day Star Chamber. You get the point. There are countless terms I could use that are appropriately pejorative and at the same time entirely accurate. For the sake of clarity, I will stick with references to the two official nicknames of the FSOC – the "Council" or the "Unaccountable Capital Markets Death Panel."

TBTF Strike Back! SEC Commissioner Calls FSOC “Vast Left Wing Conspiracy” - - Yves Smith - One of the favored practices of the banking industry in recent years has been to engage in not merely shameless, but truly deranged hyperbole when anyone dares voice so much as an itty bitty threat against their prerogatives. For instance, venture capitalist Tom Perkins had a meltdown in the op-ed section of the Wall Street Journal, conflating criticism of rentier behavior among the 0.1% as an incipient Kristallnacht. Jamie Dimon in March 2009 (yes, you have the date right) had the temerity to complain about the “vilification” of Corporate America over the financial crisis. Even the weak restrictions on executive pay in the TARP produced outcries and desperate efforts to repay the TARP quickly (and the cronyistic Treasury acceded, rather than requiring TBTF banks to get their capital levels higher first). We witnessed a new outburst of Banking Industry Persecution Complex yesterday from SEC Commissioner Michael Piwowar, who was speaking before an assembly of fellow inmates at the American Enterprise Institute. Piwowar has made it clear in previous speeches that he is opposed to provisions of Dodd Frank that call for the designation of systemically important financial institutions known in the trade as SIFIs, or among the laity, TBTF. He’s also tried claiming the Financial Stability Oversight Council is a threat to the SEC’s power. This is particularly ludicrous since the SEC has never been a banking regulator and its power is vastly less than that of the Fed and Treasury, and even less than that of the FDIC and OCC, which aren’t subject to Congressional appropriations. As former SEC chairman Arthur Levitt wrote in considerable detail in his memoir, Take on the Street, he’d regularly have Congresscritters, particularly Joe Lieberman, threaten to cut the SEC’s budget every time he tried getting serious about regulations. So Piwowar’s claims about the SEC’s power are either disingenuous or unhinged.

Warren, McCain: Rein in 'too big to fail' banks - CNN.com: More than five years after the bankruptcy of Lehman Brothers and the beginning of the most severe economic downturn since the Great Depression, lawmakers should ask themselves whether they have done enough to reduce the risk of another financial crisis. In our view, the answer is no. The chances of another financial crisis will remain unacceptably high as long as there are financial institutions that are "too big to fail" -- entities that are deemed so important to the overall health and functioning of the markets that their collapse would bring down the entire financial system. But over five years after the crash, the big banks are more concentrated and more interconnected and their appetite for excessively risky behavior is unchanged. The biggest banks are substantially bigger than they were in 2008. In fact, the five biggest banks now control more than half the nation's total banking assets.Despite a marked increase in banks' overall stability since 2008, the risk of systemic failure continues to exist. In 2012, JPMorgan Chase suffered a $6.2 billion loss because of the so-called "London Whale" trades. The bank's senior management, board of directors, and internal risk controls failed to stem the rapidly expanding losses. That episode was yet another reminder that banks continue to engage in risky conduct and that regulators continue to lack the tools and willingness to stop such conduct before it happens.That's why we co-sponsored the 21st Century Glass-Steagall Act. The Act, which we first introduced a year ago last week, would separate traditional banks that offer checking and savings accounts from riskier financial services, such as investment banking and swaps dealing. It would encourage financial institutions to shrink to manageable sizes and eliminate their ability to rely on federal depository insurance as a backstop for high-risk activities. It would make banks smaller and less complex.

The Big Lie at the Core of Pete Peterson’s Attack on the Baby Boomers -- William Black has an interesting commentary on a seminar being offered by Bank of America in conjunction with Kahn Academy to educate Millennials. Millennials took a big hit in financial fraud, The Great Recession, and are still taking that hit with a lack of jobs. As a result of the economic hard times brought on by The Great Recession, there is no love lost for financial firms and banks which are being ranked amongst the “least favorable brands as measured by Viacom.”Not only did banks make up four of their top 10 most hated brands; but, Millennials increasingly viewed these financial institutions as irrelevant.  An in-house unit of Viacom, Scratch did a three-year study finding that a third of Millennials believed they’ll be able to live a bank-free existence in the future. In the age of Simple, Square, and Bitcoin; Millennials (defined as those born between 1981 and 2000) overwhelmingly believed that the way they access money and pay for things will be completely different in five years.”

- 33% of Millennials say they will not need a bank.
- 53% of Millennials do not believe their bank offers anything different than other banks.
- 68% of Millennials say in 5 years, the way we access money will be different.
- 70% of Millennials say in 5 years, the way we pay for things will be different.
- 71% of Millennials would rather go to the dentist than listen to what their banks are saying

“The Millennials cohort is larger than the Baby Boomers and when it comes to wealth transfer they are expected to inherit more than $30 Trillion in the future. One thing that makes banks, financial advisors and brokerage firms very nervous is money changing hands because it usually doesn’t stay. A disconnect with Millennials puts financial brands at a great disadvantage and potentially missing the boat.”

Payday Lender ACE Trained Employees on How to Trap its Clients in Debt -On July 10th, the Consumer Financial Protection Bureau (CFPB) issued an enforcement action against ACE Cash Express. The CFPB found that ACE used illegal debt collection tactics to pressure borrowers to take out more loans. The illegal tactics include harassment, false threats of lawsuits, and false threats of criminal prosecution. But perhaps most egregious of all, the CFPB action released part of ACE’s 2011 training materials, which provides a diagram with explicit instructions to new hires in their collections department on how to create a debt trap. The CFPB has ordered ACE to give $5 million in refunds and pay a $5 million penalty for these violations. Earlier this year, the CFPB released a study that showed that four out of five payday loans are rolled over or renewed within 14 days, creating a cycle of debt for borrowers. According to the CFPB:"ACE would encourage overdue borrowers to temporarily pay off their loans and then quickly re-borrow from ACE. Even after consumers explained to ACE that they could not afford to repay the loan, ACE would continue to pressure them into taking on more debt. Borrowers would pay new fees each time they took out another payday loan from ACE.." You can read the CFPB’s press release on the enforcement action here, or read their entire consent order here.

Operation Choke Point: Payday Lending, Porn Stars, and the ACH System - Pop quiz:  what do payday lenders have in common with on-line gun shops, escort services, pornography websites, on-line gambling and the purveyors of drug paraphrenalia or racist materials?   You can read my testimony for this Thursday's House Judiciary Committee, Subcommittee on Regulatory Reform, Commercial, and Antitrust Law's hearing on Operation Choke Point to find out. Or you can just keep reading here.   What all of these businesses have in common is that they are considered high-risk customers by banks. What makes these industries high-risk for banks? Many of their payments are disputed. Sometimes the issue is consumer fraud, sometimes merchant fraud:  happily married men vehemently deny subscribing to porn sites or having paid for an escort service. Or a payday lenders might demand an ACH payment without authorization.  All of this matters to banks because banks make various warranties when they transmit or demand payments within the payment system. If a payment isn't authorized, the bank can be stuck with the loss.

Unofficial Problem Bank list unchanged at 465 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for July 10, 2014. For the second time this year, there are no changes to the Unofficial Problem Bank List to report. So the list remains unchanged at 465 institutions with assets of $147.6 billion. For comparison purposes, a year ago the list held 742 institutions with assets of $271.3 billion. Next week there will be some changes to report as the OCC should be issuing an update on its enforcement action activity on Friday. CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 465.

Citigroup to pay $7 billion to settle U.S. mortgage probe (Reuters) - Citigroup Inc has agreed to pay $7 billion to resolve claims it misled investors about shoddy mortgage-backed securities in the run-up to the financial crisis, in a deal that includes the largest civil fraud penalty ever levied by the U.S. Justice Department. The settlement, announced on Monday, is more than twice what many analysts expected but less than the $12 billion the government sought in negotiations with Citi C.N, the third largest U.S. bank. The accord came roughly six years after the height of the financial crisis. It is one of several Justice Department probes into the packaging and sale of risky home loans. Many of the securities were marketed as safe, even though the banks knew they were destined to collapse. The widespread implosion of the securities fueled the 2007-2009 financial crisis. Bank of America Corp BAC.N has been negotiating with the Justice Department over similar claims, though those talks have stalled in recent weeks amid a multibillion dollar difference in proposed penalties.

Citigroup: Another week, another settlement -- BY NOW the pattern is familiar: a settlement of a mind-boggling size, paid by a large bank, justified by prosecutors as sending a message and by the bank as ending a distraction. In this case it was Citicorp’s turn: early on July 14th it preempted the government’s usual self-congratulatory announcement by disclosing a $7 billion payment to settle fraud charges linked to its sale of residential mortgage-backed securities between 2003 and 2008. Among the most important facets of the case was the release of a statement of facts that provided some details of Citi’s underwriting activities in 2006 and 2007. During this period the bank sold securities which included mortgages that violated standards either because the underlying properties were already worth less than the mortgage or because the income of the borrower was insufficient to make required payments. “I would not be surprised if half of these loans went down,” a Citigroup trader is quoted in the statement. But the statement is brief and does not assign culpability to any individuals. Predictably, it has prompted outrage. Dennis Kelleher of Better Markets, an advocacy group critical of recent settlements, said that the “amount is meaningless without disclosure of the key information about how many billions of dollars Citigroup made, how many tens of billions investors lost, how many billions in bonuses were pocketed, which executives were involved and what positions they now have with the bank”.

Citigroup's $7 Billion Fraud Deal: The Clique's Still Clicking in DC --Pop quiz: Which bank is widely considered too big to fail, needed (and got) a $45 billion government loan during the financial crisis, recently failed a stress test performed by the Federal Reserve -- and has enjoyed a revolving-door relationship with both the Clinton and Obama administrations? If you answered Citigroup, congratulations. Citigroup is back in the headlines as the result of a new settlement with the Justice Department over its mortgage fraud, reportedly for the sum of $7 billion. This deal is being trumpeted as a major win for the American people. It's not. The money's not enough (and some of it probably won't be paid out), the wrong people are paying, and there will be no prosecutions for criminal behavior. From a moral perspective, the lack of prosecutions is probably the most troubling aspect of this deal, and it keeps happening. Somehow the Justice Department is able to reach one billion-dollar settlement after another to resolve charges of massive criminality without indicting a single criminal.

Citigroup Settles with DOJ for $7 billion, and it’s a Raw Deal - On July 14th, 2014, the Department of Justice and the Attorney Generals of New York, Delaware, Illinois and Massachusetts arrived at a $7 billion settlement with Citigroup—the same bank that received almost half a trillion dollars in government assistance in the wake of the crisis. The settlement ends investigations into whether or not Citigroup violated federal laws in the way they packaged, sold, structured and issued mortgage securities. In layman’s terms, Citigroup allegedly lied about the quality of crappy products they sold to clients—products Citigroup themselves knew were crappy. As Politico reported, the investigation unearthed one email from a Citigroup trader that shows how crappy Citigroup knew these products to be:"One trader said in an email obtained by investigators that he ‘went thru the Diligence Reports and think that we should start praying…I would not be surprised if half of these loans went down.’” Perhaps the nickname Citigroup enjoys across Wall Street (“Shitigroup”) is deserved after all.

$7 Billion Citigroup Settlement: About Those 25 Million Missing Documents - Yesterday, the U.S. Department of Justice announced its long anticipated $7 billion settlement with Wall Street mega bank, Citigroup, over its sale of toxic mortgage-backed bonds to investors, which included pensions, charities, cities, states, hospitals and FDIC-insured banks and others. The Justice Department informed us that it had collected “nearly 25 million documents” for this one investigation. The material facts the Department of Justice released to the public in its skimpy 9-page Statement of Facts (SOF) set a new low for bare bones disclosures. Instead of Appendix 1 being filled with incriminating emails or whistleblower letters proving Citigroup’s intent to defraud, it was instead a meaningless listing of deal names which tell the public absolutely nothing. Why would a serious law enforcement agency release such a worthless document to the public? To grasp exactly what is going on here, one need look no further than the evidentiary record produced for public benefit by the U.S. Senate’s Permanent Subcommittee on Investigations in the matter of JPMorgan’s London Whale derivative bets gone bad with depositors’ money. The public was presented with a 306-page report, 98 pages of meaningful exhibits including internal emails with names, and two volumes of testimony under oath. Adding further insult to public sensibilities, the Justice Department correctly summed up the impact of the wrongdoing by Citigroup, writing: “…our teams found that the misconduct in Citigroup’s deals devastated the nation and the world’s economies, touching everyone.” And yet, all the devastated nation gets from those 25 million documents is one snippet from one internal email with no name included.

Latest Citi “Let Bank Off Easy” Mortgage Settlement Shows Administration Disconnect  - Yves Smith - It hasn’t been hard to notice that the Administration has been engaged in a series of bank settlements with multibillion dollar numbers attached. As we’ve argued, the sudden show of a smidge more seriousness is undoubtedly meant to impress voters in the runup to the Congressional midterms as to the Democratic party’s bona fides in the “tough on banks” category. The latest pact, a nominally $7 billion mortgage settlement over misrepresented residential mortgage backed securities, falls into the predictable pattern of first, there being much less there than meets they eye, and two, as a result, the agreement being a gimmie for the bank and its executives. We’ll go over that briefly in a bit. But the Citi mortgage settlement was so obviously defective in other respects that Litigation Daily roused itself to shellack it. As Susan Beck wrote, the deal had some particularly unsavory features. One was that it was structured so as to avoid court review. Clearly, no one wanted to risk Judge Rakoff-styple probings, particularly of the factual basis for the settlement. And as Beck notes, there was clearly pointed effort to say squat about what exactly Citi had done: If you read the government’s statement of facts, evidence of Citi’s actions, strong or otherwise, is hard to find. This document, which should contain the meat of the case, is all of nine pages long. It’s shockingly thin on details, largely relying on boilerplate to describe what most people who follow these cases already know: Citi sold RMBS that it knew were backed by subpar loans. And it doesn’t contain a single word about Citi’s massive CDO operation. This raises the question of whether the government agreed to keep quiet about some of the most damaging evidence against Citi and its officers in exchange for $7 billion. Or perhaps the government had a weak case, but Citi still felt it was too risky to fight.

Did the Banks Have to Commit Fraud?  - Dean Baker - Floyd Norris has an interesting piece discussing Citigroup's $7 billion settlement for misrepresenting the quality of the mortgages in the mortgage backed securities it marketed in the housing bubble. Norris notes that the bank had consultants who warned that many of the mortgages did not meet its standards and therefore should not have been included the securities. Towards the end of the piece Norris comments: "And it may well be true that actions like Citigroup’s were necessary for any bank that wanted to stay in what then appeared to be a highly profitable business. Imagine for a minute what would have happened in 2006 if Citigroup had listened to its consultants and canceled the offerings. The business would have gone to less scrupulous competitors."This raises the question of what purpose is served by this sort of settlement. Undoubtedly Norris' statement is true. However, the market dynamic might be different if this settlement were different. Based on the information Norris presents here, Citigroup's top management essentially knew that the bank was engaging in large-scale fraud by passing along billions of dollars worth of bad mortgages. If these people were now facing years of prison as a result of criminal prosecution then it may well affect how bank executives think about these situations in the future. While it will always be true that they do not want to turn away business, they would probably rather sacrifice some of their yearly bonus than risk spending a decade of their life behind bars. Citigroup's settlement will not change the tradeoffs from what Citigroup's top management saw in 2006. As a result, in the future bankers are likely to make the same decisions that they did in 2006.

Punishing Wall Street Institutions Instead of People -- When a company finds itself seven billion dollars poorer, it’s normally a big deal. Yet when the Justice Department announced Monday that Citigroup had agreed to pay seven billion dollars (four billion of which will be in hard cash, and most of the rest in what are called “soft dollars”—mortgage modifications, financing of rental housing) to settle charges relating to its marketing of bad mortgages, the general reaction was muted, to say the least. Citigroup’s stock, buoyed by its announcement of better earnings, actually ended the day higher. And while the Justice Department trumpeted the fact that this was the biggest cash penalty ever levied against a company, it’d be hard to find anyone who felt that the deal was going to have any impact on Wall Street’s behavior in the future. There’s a simple reason for that: punishing institutions, rather than individuals, doesn’t get at the root of the problem. Bank shareholders (who are the ones effectively paying the fine) certainly deserve blame for tolerating—and, in some cases, arguably encouraging—banks’ risky and dubious lending practices during the housing bubble.  More to the point, if you really want to punish and, perhaps more important, deter bad corporate acts, you have to penalize the individuals who committed them. Instead, at least so far, the people who made the decisions to securitize and market loans that they knew were almost certain to go bad have gone untouched. Set aside the question of criminal prosecution. They haven’t even been forced to give up their bonuses or the salaries they got as a reward for putting together these ridiculous, and often corrupt, deals. They’ve been able to keep gains that were, by any measure, ill-gotten.

What’s missing in mortgage settlements?  - The Department of Justice just completed a settlement with Citigroup related to soured mortgage securities sold by the bank, while negotiations with Bank of America continue. Similar to the JPMorgan Chase settlement, the Citigroup deal includes money dedicated to homeowner relief. While the Citibank agreement references certain relief being targeted for hardest hit communities, we remain concerned that too much discretion is left to the bank to determine how to meet these obligations, and it’s also unclear what type of data the bank will release about these efforts. The lack of transparency has not been good for homeowners, in fact, the Home Defenders League visited U.S. attorney offices last week, asking where the relief from the Chase settlement has gone. We believe the Department of Justice can and should address this problem through these settlements.A simple way to create greater access and transparency would be to require banks to publicly disclose data about which communities and homeowners are helped under a settlement. Banks should report on the census tract, race and ethnicity of homeowners who asked for help, and what type of relief the banks provided — or didn’t provide — similar to data required to be collected and reported for mortgage lending, pursuant to the federal Home Mortgage Disclosure Act.  This transparency is important because while some of the most predatory mortgages were targeted to poorer neighborhoods and communities of color, the homeowners in these communities are now receiving less help to avoid foreclosure.

Whoa! Big Banks Hit with Monster $250 Billion Lawsuit for Fraud in Housing Crisis -- For years, homeowners have been battling Wall Street in an attempt to recover some portion of their massive losses from the housing Ponzi scheme. But progress has been slow, as they have been outgunned and out-spent by the banking titans.  In June, however, the banks may have met their match, as some equally powerful titans strode onto the stage.  Investors led by BlackRock, the world’s largest asset manager, and PIMCO, the world’s largest bond-fund manager, have sued some of the world’s largest banks for breach of fiduciary duty as trustees of their investment funds. The investors are seeking damages for losses surpassing $250 billion. That is the equivalent of one million homeowners with $250,000 in damages suing at one time.  The defendants are the so-called trust banks that oversee payments and enforce terms on more than $2 trillion in residential mortgage securities. They include units of Deutsche Bank AG, U.S. Bank, Wells Fargo, Citigroup, HSBC Holdings PLC, and Bank of New York Mellon Corp.  Why the investors are only now suing is complicated, but it involves a recent court decision on the statute of limitations. Why the trust banks failed to sue the lenders evidently involves the cozy relationship between lenders and trustees. The trustees also securitized loans in pools where they were not trustees. If they had started filing suit demanding repurchases, they might wind up suedon other deals in retaliation. Better to ignore the repurchase provisions of the pooling and servicing agreements and let the investors take the losses—better, at least, until they sued.

Courts Finally Waking Up to Bogus Allonges and “Ta Dah” Foreclosure Documents - Yves Smith - Long standing readers of this site will recall the hard-fought battles during the foreclosure crisis and robosigning scandal over the use of dubious and often clearly fabricated documents in foreclosures. We’ve embedded a gratifying, short appellate court decision that reverses a lower court ruling in favor of a trustee, US Bank. Here, the amusing but depressingly common issue was not only did US Bank submit new documents (in this case, the usual “ta dah” allonge) but they didn’t do it correctly, as in the doctored documents were undated and thus failed to establish that US Bank had the right to foreclose when it started foreclosure proceedings against the borrowers, the LaFrances. Of course, it might well be that faking the documents correctly would clearly be a fraud on the court, and it would likely be possible to establish that via forensics. In other words, the foreclosure attorneys may have been incompetent, or they may have been willing to go only so far in how much sanctions risk they were willing to take.  Now this ruling does not mean the LaFrances win, since the case has been sent back to lower court. But US Bank has painted itself in a real corner by twice having presented documents that failed to establish its right to foreclose. If they try submitting new “originals” again, that would almost certainly open the case up for appeal, and this appeals court seems to be on to bank tricks.

Colorado Attorney General Files “Massive” Lawsuit Against Foreclosure Mills, Paving Way for Suits in Other States - Yves Smith  - It’s not hard to notice the contrast between the posture of a Republican state attorney general in Colorado, John Suthers, who opened up an investigation when the Denver Post exposed pervasive overbilling by foreclosure mills, versus the conduct of a Federal task force dedicated to pursuing foreclosure fraud. The Colorado case filed on Tuesday (embedded below) gives a detailed account of how the two largest foreclosure law firms in the state colluded to set prices on various services well above permissible levels, garnering as much as $97 million in ill-gotten gains since 2006. By contrast, as we discussed at length yesterday, the latest Department of Justice foreclosure settlement, this with Citigroup for $4.5 billion in cash, managed the difficult task of taking a full nine pages to say almost nothing about what the giant bank actually did.The Colorado filing is a thing of beauty in its specificity, even as it describes brazen misconduct. As the case explains, Fannie and Freddie set caps on the fees that law firms can charge, which is $1225 or $1250. In addition to that, the firm can also pass on costs to be reimbursed. Those costs are required by contract to be both reasonable and market rate. So the firms systematically inflated costs and colluded with other firms so that everyone would put in more or less the same exaggerated charges to avoid detection. Of the two firms sued, The Castle Law Group and Aronowitz & Mecklenburg, the owners of Aronowitz, which is the second largest firm, moved quickly to settle for $10 million and either wind down or sell the business. Castle Group is fighting.

How Property Tax Lenders Prey on the State’s Most Vulnerable Homeowners - The Acostas were evicted in May, following years of financial turmoil. Like hundreds of other Texans, they lost their home after defaulting on a property tax loan that had initially seemed like a financial lifeline. Joel and Estela were both working when they took out their $20,000 loan in 2007, but when Joel later lost his construction job, the couple struggled to pay the loan back and support their family on just one paycheck. The Spanish-speaking Acostas soon fell behind on their loan payments, and though they tried to catch up—in 2010 they managed a lump-sum payment of $9,000—they found it difficult to understand exactly how much they owed. They had a hard time decoding the complicated loan documents, written in English. They didn’t realize they’d walked into a trap.  The lending company, Rio Tax, now owns the house and has secured it with a padlocked chain-link fence and a sign reading “private property” in large red letters. An old armchair the Acostas couldn’t take with them is still visible on the front porch. In their neighborhood alone, two other families have been threatened with foreclosure by Rio Tax. And across Texas, thousands of borrowers find themselves mired in debt from loans that were supposed to help them find a way out. These high-interest loans are part of a multibillion-dollar industry native only to Texas and Nevada. The thriving business involves some of Texas’ most reputable entrepreneurs and large institutional investors. Propel Financial Services, the parent company of Rio Tax, controls about half of the Texas market. Backed by San Antonio billionaire Red McCombs, Propel claims in its financial disclosures to have never lost money on a loan.

DataQuick: "California Foreclosure Starts Lowest Since 2005" - From DataQuick: California Foreclosure Starts Lowest Since 2005 A total of 17,524 Notices of Default (NoDs) were recorded at county recorders offices during the April-through-June period. That was down 8.8 percent from 19,215 in the prior quarter, and down 31.9 percent from 25,747 in second-quarter 2013, according to DataQuick, which is owned by Irvine-based CoreLogic, a leading global property information, analytics and data-enabled services provider.Last quarter's NoD tally was the lowest since fourth-quarter 2005, when 15,337 NoDs were recorded. NoD filings peaked in first-quarter 2009 at 135,431. DataQuick's NoD statistics go back to 1992. In first quarter 2013 California saw 18,568 NoDs filed. In last year's second quarter the number was 25,747. In third quarter 2013 it was 20,314. Fourth quarter was 18,120. In first quarter 2014 the tally was 19,215, and last quarter it was 17,524. "The relatively high NoD tally in second quarter last year reflected a one-time bump because of deferred activity and policy change. Otherwise the quarterly flow of NoDs since early last year has been remarkably flat, and probably doesn't reflect any meaningful changes in trends. The overall trend is that homeowner distress continues to decline because of a stronger economy and rising home prices," Most of the loans going into default are still from the 2005-2007 period.This graph shows the number of Notices of Default (NoD) filed in California each year.   2014 is in red (Q1 plus Q2 times 2). Last year was the lowest year for foreclosure starts since 2005, and 2013 was also below the levels in 1997 through 2000 when prices were rising following the much smaller late '80s housing bubble / early '90s bust in California.

MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey -  From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 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 July 11, 2014. The previous week’s results included an adjustment for the July 4th holiday. ... The Refinance Index decreased 0.1 percent from the previous week. The seasonally adjusted Purchase Index decreased 8 percent from one week earlier to the lowest level since February 2014. ... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.33 percent from 4.32 percent, with points increasing to 0.20 from 0.16 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.    The first graph shows the refinance index. The refinance index is down 75% from the levels in May 2013. As expected, refinance activity is very low this year. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is down about 17% from a year ago.

Weekly Update: Housing Tracker Existing Home Inventory up 13.1% YoY on July 14th  - 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 released was for May).  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 13.1% above the same week in 2013. (Note: There are differences in how the data is collected between Housing Tracker and the NAR). Inventory is also about 0.9% above the same week in 2012. This increase in inventory should slow price increases, and might lead to price declines in some areas.

Chinese All-Cash Buyers In US Housing - China became the largest international buyer of U.S. homes (in dollar value) last year, according to a report from NAR, taking over from Canada. In terms of volume of transactions, Canadians still represented the largest foreign buyers. Over the 12 months ended March 2014, Chinese buyers bought about $22 billion worth of properties in the U.S., accounting for about 25% of total international sales. What's more, 76% of sales were all-cash purchases, while 24% required mortgage financing. But what exactly were Chinese buyers looking for and where were they looking? California, Washington, and New York were the biggest markets for Chinese buyers. The median price of homes they purchases was $523,148. 39% of properties purchased were intended to be used as primary residence and 49% were for vacation homes or to rent. Here's a look at where Chinese homebuyers are snatching up the most properties in the U.S. and the types of properties they're looking for.

Phoenix Housing Market Hit By Unprecedented Plunge In Demand - The Phoenix housing market has a special place in the heart of housing bubble watchers: together with Las Vegas and various California MSAs, this is the place where the last housing bubble was born and subsequently died a gruesome death which nearly brought down the entire financial system. Which is why the monthly WP Carey report on the Greater Phoenix Housing Market is of peculiar interest for those who want to catch a leading glimpse into the overall state of the bubble US housing market. As hoped, this month's letter does not disappoint. What we find is that while equilibrium prices have been largely flat month over month, and are up 6% on an average square foot basis from a year ago, something very bad is happening with a key component of the pricing calculation: demand has fallen off a cliff.

Forecast Says U.S. Home Prices Are Overvalued, Will Peak In 2016 -The U.S. home price rebound has nearly run its course, and Americans should prepare for several years of home prices that don’t increase much, if they rise at all, according to a report published by bond strategists at Bank of America Merrill Lynch. Most economists expect home prices to rise around 5% this year, before rising at around 3% over the next few years. Home price increases in recent years have been driven primarily by supply shortages, and some economists have said that prices could continue to outpace income or rent growth if more homes aren’t made available for sale.To be sure, U.S. home prices have been especially difficult to predict in recent years. Many analysts prematurely called a bottom in 2008 or 2009, and others called for continued declines in 2012, after prices had started rising. Analysts Chris Flanagan and Gregory Fitter concede that their view is “well out of consensus.” They say that U.S. home prices, after being undervalued relative to household incomes by around 6% at the end of 2011, have now rebounded to levels that are 9.7% overvalued. Their model uses the S&P/Case-Shiller home-price index. They estimate that home prices will rise another 3% annually in each of the next two years, well below the 9.5% annualized growth rate since the end of 2011, when the market hit bottom. That would leave prices around 12% above the “fair value” level implied by household incomes. The model then forecasts modest declines in the following years, resulting in net annualized home-price gains that are flat through the middle of 2022.

 Daughter Of Mortgage Bankers Association CEO Has Lost Faith In American Homeownership Dream - "The world has changed," explains the 27-year old daughter of David Stevens - CEO of the Mortgage Bankers Association. Despite her father's constant 30-year pitch of the merits of homeownership - and knowing full well that rates are low, rents are high, and owning a home 'builds wealth' - Sara Stevens is not buying. After watching "cousins and other family members go through pretty tough situations in 2008 and 2009," her skepticism is broad-based as Bloomberg reports, t’s more than the weight of student loans, an iffy job market and tight credit -- even those who can buy are hesitant. As Bloomberg so eloquently concludes, when even the cheerleader-in-chief for housing can’t get a rah-rah out of his daughter, you know this time is different.

All in the Family Home: Record 57 Million Americans Living in Multi-Generational Households - Driven by young adults, the share of Americans living in multi-generational households continues to climb, a new report released Thursday finds, a trend that accelerated during the recession but has extended beyond it. A record 57 million Americans—or 18.1% of the population—lived in multi-generational households in 2012, according to an analysis of Census data by the Pew Research Center, a think tank. The rate, up from 17.8% in 2011, has been on a steady march upward since its post-World War 11 low in 1980, when just 12.1% of the population utilized these arrangements. “After three decades of steady but measured growth, the arrangement of having multiple generations together under one roof spiked during the Great Recession of 2007-2009 and has kept on growing in the post-recession period, albeit at a slower pace,” Pew found. The 2012 rate is still lower than it was in 1940, when one in four Americans lived in a multi-generational home. At that time, multigenerational households were driven by older people living with their children. But improvements in the health of elderly Americans, rising incomes and the establishment of Social Security and private pensions allowed more older people to live on their own. In 1900, 57% of adults ages 65 and older lived in a multi-generational household. By 1980, it was just 17%. Pew defines a multigenerational household as one with at least two adult generations, such as adult children and their parents. The definition also includes homes with a skipped generation, such as grandparents and their grandchildren.

Young adults drive record U.S. trend of multi-generational homes (Reuters) - A record 57 million Americans, or 18.1 percent of the U.S. population, lived in households with two or more generations in 2012, with young adults leading the trend, a report said on Thursday. The number of Americans living in multi-generational households has doubled since 1980. The figure spiked during the 2007-2009 recession and has moved higher since then, the analysis by the Pew Research Center said. "The increase in multi-generational living since 2010 is apparent across genders and among most racial and ethnic groups," the report said. true About 24 percent of young adults, or those ages 25 to 34, lived in multiple generation households in 2012, more than double the percentage in 1980, the report said. Historically, Americans over 85 are those most likely to be living in households with more than one family generation. But they trail young adults, at 23 percent. Among adults 25 to 34, men are more likely than women to be living in multi-generational households, at 26 percent to 21 percent, the report showed. Young people living with parents or grandparents may be another sign of delayed entry into adulthood, along with marrying later and staying in school longer, the Pew report said.

The Homeownership Rate for Millennials Has Hit Bottom - More millennials became homeowners last year, a sign that the homeownership rate among America’s young adults may have hit bottom, according to a new analysis of Census data published Wednesday. While still historically very low, homeownership among 18-to-34-year-olds increased last year, even as it declined for 35-to-54 year-olds, according to a report by Jed Kolko, chief economist at Trulia Inc., the online real-estate information company. Mr. Kolko’s analysis also says demographic changes among young adults, including delaying marriage and parenthood, account for nearly all of the declines in homeownership among young adults. Many of those changes, he says, were well underway even before the recession hit. This undercuts the popular narrative that millennials have been irrevocably scarred by the housing bust. Rather, it suggests the subprime-mortgage bubble of the past decade fueled purchases that otherwise wouldn’t have taken place due to demographic changes that were already well underway. The analysis, meanwhile, shows that homeownership rates for 35-to-54 year-olds remains at new post-crisis lows, even after adjusting for demographic changes.

Housing Starts decline to 893 thousand Annual Rate in June - From the Census Bureau: Permits, Starts and Completions Privately-owned housing starts in June were at a seasonally adjusted annual rate of 893,000. This is 9.3 percent below the revised May estimate of 985,000, but is 7.5 percent above the June 2013 rate of 831,000.Single-family housing starts in June were at a rate of 575,000; this is 9.0 percent below the revised May figure of 632,000. The June rate for units in buildings with five units or more was 305,000.Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 963,000. This is 4.2 percent below the revised May rate of 1,005,000, but is 2.7 percent above the June 2013 estimate of 938,000. Single-family authorizations in June were at a rate of 631,000; this is 2.6 percent above the revised May figure of 615,000. Authorizations of units in buildings with five units or more were at a rate of 301,000 in June. The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased in June (Multi-family is volatile month-to-month). Single-family starts (blue) also decreased in June. 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.

Housing Starts Tumble, Miss Most Since January 2007; Permits Have Biggest Two-Month Plunge Since Lehman - "Epic disaster." Those two words best explain what just happened with US housing starts and permits in June. Those who want a slightly more detailed narrative of what the Department of Commerce just reported here it is: in June housing starts were expected to print at a solid 1020K, to validate the sustainable "recovery." Instead, what happened was that the May downward revised number of 985K, which was a consensus beating 1001K last month, crashed to 893K, a drop of 92K which was the biggest since the January "polar vortex" effect, the biggest miss to permaoptimistic expectations since January 2007, and which brought the total number of starts to the lowest level since September 2013. Was it the harsh weather's fault this time too? Biggest miss since January 2007! The reason for the collapse: a plunge in both single and multi-family starts, so one can't blame the end of Wall Street's distressed buying frenzy for this one. In fact, single-family starts cratered to 575K - the lowest since November 2012! But where things got really ugly was in the permits data, which plunged from 1005K to 963K, far below the expected increase to 1035K. This too was the weakest print since the polar vortex low of January when permits were a measly 939K.

A few comments on June Housing Starts  - This was a weak report for housing starts in June. There were 479 thousand total housing starts during the first half of 2014 (not seasonally adjusted, NSA), up 6.0% from the 452 thousand during the same period of 2013.  Single family starts are up 1%, and multi-family starts up 18%.  The key weakness is in single family starts. The weak growth so far in 2014 is due to several factors: severe weather early in the year, higher mortgage rates (although rates are now down year-over-year), higher prices and probably supply constraints in some areas.  And some judicial foreclosure states are still working through a backlog of distressed homes that depress new construction. Starts were up 7.5% year-over-year in June, but the year-over-year comparison for housing starts is easier now than in Q1 (see first graph).  There was a huge surge in housing starts early in 2013, and then a lull - and finally more starts at the end of the year. This graph shows the month to month comparison between 2013 (blue) and 2014 (red). Starts in Q1 averaged 925 thousand SAAR, and starts in Q2 averaged 980 thousand SAAR (up 6% from Q1). This year, I expect starts to increase (Q1 will probably be the weakest quarter, and Q2 the second weakest). Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

NAHB: Builder Confidence increased to 53 in July, Highest in Six Months - The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 53 in July, up from 49 in June. Any number above 50 indicates that more builders view sales conditions as good than poor. From the NAHB: Builder Confidence Surpasses Key Benchmark in July Builder confidence in the market for newly-built single-family homes reached an important milestone in July, rising four points to a reading of 53 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. Any reading over 50 indicates that more builders view sales conditions as good than poor.  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.

Retail Sales increased 0.2% in June -  On a monthly basis, retail sales increased 0.2% from May to June (seasonally adjusted), and sales were up 4.3% from June 2013. Sales in May were revised up from a 0.3% increase to a 0.5% increase. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $439.9 billion, an increase of 0.2 percent from the previous month, and 4.3 percent above June 2013. ... The April to May 2014 percent change was revised from +0.3 percent to +0.5 percent.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 up 0.4%. 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 (4.3% for all retail sales). The increase in June was well below consensus expectations of a 0.6% increase - however sales in April and May were revised up (so total sales in June were actually above expectations, but the increase was below expectations due to the upward revisions to prior months).

June Retail Sales Disappoint, Weak Autos Sales to Blame - The Advance Retail Sales Report released this morning shows that sales in June rose 0.2% month-over-month, down from 0.5% in May, which was an upward revision from 0.3%. Core Retail Sales (ex Autos) rose 0.4% in June, the same as May, which was an upward revision from 0.1%. The major culprit in today's disappointing numbers was the -0.3% for the Motor Vehicle & Parts Dealers category, with new vehicle sales posting a -0.24%. Today's headline and core numbers were below the Investing.com forecasts, which were 0.6% for Headline and 0.5% for Core.  The two charts below are log-scale snapshots of retail sales since the early 1990s. Both include an inset to show the trend over the past several months. The one on the left illustrates the "Headline" number. On the right is the "Core" version, which excludes motor vehicles and parts (commonly referred to as "ex autos"). Click on either thumbnail for a larger version. The year-over-year percent change provides a better idea of trends. Here is the headline series.  Here is the year-over-year version of Core Retail Sales.

June Retail Sales Miss Across The Board, May Revised Higher - Following disappointing retail sales number for both April and May, or two thirds of Q2, there was hope that June would finally be the month retail sales would soar. Alas, that would not be the case, following the release of the latest retail sales data by the Department of Commerce which reported that in June retail sales rose just 0.2%, well below the 0.6% expected and matching the lowest end of the forecast expectations (from 0.2% to 1.1%). Misses were also reported for retail sales ex-autos (0.4%, Exp. 0.5%) and ex-autos and gas (0.4%, Exp. 0.5%). Perhaps the only saving grace was the upward revision of May data from 0.3% to 0.5% for the headline number and from 0.0% to 0.3% for the ex-autos and gas. If anything, however, today's retail sales increase which was the slowest in 5 months confirms that the trend we warned about in April, namely that the US consumer tapped out in March to fund that month's mad spending spree, and the spending trend has been deteriorating ever since.

Census Bureau Revisions to Retail Sales - Earlier today I posted my monthly update on Retail Sales. Those of us who routinely track this series know that the Advance Estimate will be followed by a second estimate next month and a third estimate the month after. How big are those revisions? Are they big enough to warrant skepticism about the Advance Estimate?  See for yourself. Here is a visualization of the cumulative change from the first to third estimates from January 2007 through April 2014, the most recent month for which we have three data points.  As we see, revisions abound, and they move in either direction, although mostly downward during the last recession. For a better sense of the magnitude of the revisions, the next chart shows the percent change from the first (advance estimate) to third (second revision). During this timeframe there were 40 upward revisions and 48 downward revisions. The absolute mean (average) revision was 0.36%, which comprises a 0.28% average for the upward adjustments and -0.42% for the downward adjustments.  The Census Bureau's latest Advance Monthly Retail Trade and Food Services reported a 0.2% month-over-month improvement. The CB adds a parenthetical (±0.5%)* for that MoM advance estimate. The asterisk points to the following explanation:

CFPB: Let Consumers Make Their Complaints Public; All Rejoice - This week the CFPB announced it's seeking public comments on a proposed policy that would allow consumers who file a complaint with the agency to share all of the (non-personally identifying) details of that complaint with the public as part of its Consumer Complaint Database. (Right now the database only identifies the financial product complained about, name of the company, and a category identifying the topic of the complaint).  As a researcher, I am beyond thrilled at the possibility of being able to drill down into the details of complaints. This might allow us to go even further than the CFPB or Ian Ayres and others did last year in analyzing the complaint database.  Good players in the consumer finance space should be thrilled too: more data will allow us to really separate those who are doing right by consumers from those who aren't. It would allow the public or researchers to decide for themselves whether someone was making a mountain out of a molehill or if was identifying a real problem in their complaint. The fact that we currently don't have transparecy into complaints is a common (and justified) complaint by the debt collection industry. The CFPB is also proposing to make public the institution's response to the complaint (at their option). Anyone could then evaluate whether they think particular industries/institutions are responding appropriately to complaints.

Preliminary July 2014 Michigan Consumer Sentiment at Four-Month Low - The preliminary University of Michigan Consumer Sentiment for July came in at 81.3, a decline from the June final of 82.5 and the lowest reading since March. Today's number came in below the Investing.com forecast of 83.0.See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy. To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 4 percent below the average reading (arithmetic mean) and 3 percent below the geometric mean. The current index level is at the 37th percentile of the 439 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 12.0 points above the average recession mindset and 6.1 points below the non-recession average. Note that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. The latest 1.2 point change is relatively small. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average.

Consumer Confidence Slumps To 4 Month Lows, Biggest Miss Since Dec 2012 - This won't help the animal-spirity, growth-is-here, stocks-are-at-all-time-highs-so-that-must-mean-we're-doing-awesome meme that is so often propagandized to the world. UMich consumer confidence for July tumbled to 81.3 (missing expectations of a resurgent 82.9 by the most since Dec 2012) - its lowest since March. Current conditions improved modestly but more worrying is the 3rd month in a row of dropping hope for the future. The Fed may be particularly concerned as 1-year ahead inflation expectations are hovering at highs since Aug 2012.

LA area Port Traffic: Imports increasing - Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for June since LA area ports handle about 40% of the nation's container port traffic. Note: This is for the month before the recent trucker strike. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was up 1.0% compared to the rolling 12 months ending in May. Outbound traffic was up 0.5% compared to 12 months ending in May. Inbound traffic has been increasing, and outbound traffic has been moving up a little recently after moving sideways. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year). Imports were up 13% year-over-year in June, exports were up 7% year-over-year. Imports were 4% below the all time high for June (set in June 2007), and it is possible that imports will be at a record high later this year.

US Port Strike Threat Highlights Supply Chain Risk -  Yves Smith  - One issue we've raise over the year is the ways that the corporate fetish for offshoring and outsourcing greatly increases business risk. Even when savings are realized (and as we've discussed, in many cases, the main result is a transfer from factory/lower level workers to managers and executives), they are seldom weighed properly against the increased fragility of the operation, and the resulting exposure to big losses. For instance, extended supply chains entail more communications across the chain, longer production cycles, more shipping, all of which increase the odds of writeoffs via having too much inventory or inventory in the wrong place, and those occasional losses can swamp the savings over time. Those supply chain risks have come into focus, as the Financial Times reminds us, as the possibility of West Coast port strikes looms.

WTO Calls Out U.S. On Chinese Solar Tariffs But The Real Issue Is Manufactured Back Home -- On Monday the World Trade Organization (WTO) found the United States guilty of violating global trade rules when it imposed punitive import duties in 2012 on a number of Chinese products, including solar panels. In the $7.2 billion case, the 3-member WTO panel found that the U.S. was unjustifiably imposing countervailing duties as a response to the alleged subsidies that the Chinese government was providing to exporting firms.  U.S. Trade Representative Michael Froman called the outcome a “mixed result” since the panel also rejected some of the Chinese arguments against the U.S. countervailing duties, saying that the U.S. “will take all appropriate steps to ensure that U.S. remedies against unfair subsidies remain strong and effective.”   The bulk of the domestic solar community is in favor of the decision and against protectionist tariffs, however SolarWorld, the largest manufacturer of solar panels in the U.S., is leading the charge for more punitive duties. The decision is also only one in a string of important trade disputes impacting the industry. The U.S. Department of Commerce recently imposed new tariffs on solar modules from China ranging from 18.56 to 35.21 percent. Research from Greentech Media found that these tariffs could lead to an average overall price increase of 14 percent on modules shipped into the U.S. by Chinese suppliers. The WTO decision may also take a long time to have any direct impact, if it has a noticeable one at all.

Producer Price Index Rises Above Expectations - Today's release of the June Producer Price Index (PPI) for Final Demand rose 0.4% month-over-month seasonally adjusted. Core Final Demand was up 0.2% from last month. The headline number was well above the Investing.com expectation, which was for a 0.2% increase for both numbers.  The unadjusted year-over-year change in Final Demand is up 1.9%, little changed from last month's YoY of 2.0%.  Here is the essence of the news release on Finished Goods: The Producer Price Index for final demand rose 0.4 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This increase followed a 0.2-percent decline in May and a 0.6-percent advance in April. On an unadjusted basis, the index for final demand moved up 1.9 percent for the 12 months ended in June....  In June, the 0.4-percent increase in final demand prices can be traced to a 0.5-percent advance in the index for final demand goods and a 0.3-percent rise in prices for final demand services. More… The June Headline Finished Goods rose a surprising 0.70% MoM and is up 2.75% YoY, up slightly from last month's 2.45%. Core Finished Goods rose 0.21% MoM and is up 1.89% 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, falling as low as 1.15% last August. It shot up in the early winter near the 2% benchmark and has hovered below that level for the past six months.

Producer Prices Rise Double Expected Rate As Fuel Price "Noise" Won't Go Away -- PPI Final Demand rose 1.9% year-over-year (tied for 3rd highest in a year) as it appears Janet Yellen's transitory "noise" just won't go quietly into the night (though has fallen for 2 months in a row). While the headline print was not helped by a 2.1% surge in fuel prices, Core PPI (ex Food and Energy) rose more than expected (at 1.8% vs 1.7% expected) holding near its highest since Dec 2012. On a sequential basis, the headline 0.4% increase was double the 0.2% expected, while the core M/M rise of 0.2% was in line with expectations.

Gasoline Price Update: Down Four Cents, Premium Under $4 -- It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium both dropped four cents, and Premium is now fractionally below $4 for after 12 weeks above that benchmark. Regular is up 44 cents and Premium 43 cents from their interim lows during the second week of last November. According to GasBuddy.com, three states (Hawaii, Alaska, and California) have Regular above $4.00 per gallon, down from four states last week, and three states (Washington, Oregon and Connecticut) are averaging above $3.90. South Carolina has the cheapest Regular at $3.31. How far are we from the interim high prices of 2011 and the all-time highs of 2008? Here's a visual answer.

Higher Prices on Staples Could Crimp Back-to-School Shopping - That budget squeeze shows up in a survey released last Friday by Gallup: 45% of Americans say they are spending more than they did a year ago–but much of the increased spending is on household essentials. The Gallup poll shows nearly three out of five households are spending more on groceries and gasoline, 45% say they are shelling out more on utilities, and 42% are spending more on health care. At the same time, a large share report spending less on nonessential items such as travel, dining out and consumer electronics. Households have had to choose between staples and splurges because personal income has grown at such a weak pace in this recovery.“Data on jobs and wages suggest real growth in consumer spending has been and remains pretty much dependent on the expansion of employment, not wages,” As a result, he says, the growth in income so far in this recovery lags well behind gains in past upturns that lasted this long.

A Former Comcast Employee Explains That Horrifying Customer Service Call - Comcast says it’s "embarrassed" by the recording of a customer service rep desperately refusing to cancel a subscriber’s account that had the entire Internet gawking in horror yesterday. However, the company would like to assure us all that this was simply a case of a single, misguided employee leaping over the edge. The line might be more believable if so many cable customers didn’t have their own frustrating stories about trying to close their accounts. According to former Comcast employee and Reddit user txmadison, there’s good reason why the company’s reps push back so hard against would-be cord-cutters and service-switchers: Their pay really does depend on it. Here’s the meat of his post: When you call in to disconnect, you get routed to the Retention department; their job is to try to keep you. First of all these guys have a low hourly rate. In the states I've worked in they start at about 10.50-12$/hr. The actual money that they make comes from their metrics for the month, which depends on the department they're in. In sales this is obvious: the more sales you make the better you do. In retention, the more products you save per customer the better you do, and the more products you disconnect the worst you do (if a customer with a triple play disconnects, you get hit as losing every one of those lines of business, not just losing one customer). These guys fight tooth and nail to keep every customer because if they don't meet their numbers they don't get paid.

The Recovery for U.S. Heavy Truck Sales - Just a quick graph ... heavy truck sales really collapsed during the recession, falling to a low of 181 thousand in April 2009 on a seasonally adjusted annual rate (SAAR) from a peak of 555 thousand in February 2006.  Sales were above 382 thousand (SAAR) in June (after increasing to over 400 thousand SAAR in April for the first time since 2007).  This graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is current estimated sales rate. The recovery for heavy truck has slowed, but as construction for both residential and commercial picks up, heavy truck sales will probably increase further.

Fed: Industrial Production increased 0.2% in June - From the Fed: Industrial production and Capacity Utilization - Industrial production increased 0.2 percent in June and advanced at an annual rate of 5.5 percent for the second quarter of 2014. In June, manufacturing output edged up 0.1 percent for its fifth consecutive monthly gain, while the production at mines moved up 0.8 percent and the output of utilities declined 0.3 percent. For the second quarter as a whole, manufacturing production rose at an annual rate of 6.7 percent, while mining output increased at an annual rate of 18.8 percent because of gains in the extraction of oil and gas; by contrast, the output of utilities fell at an annual rate of 21.4 percent following a weather-related increase of 15.6 percent in the first quarter. At 103.9 percent of its 2007 average, total industrial production in June was 4.3 percent above its level of a year earlier. The capacity utilization rate for total industry was unchanged in June at 79.1 percent, a rate that is 1.0 percentage point below its long-run (1972–2013) average. This graph shows Capacity Utilization. This series is up 12.2 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 79.1% is 1.0 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007.  The second graph shows industrial production since 1967. Industrial production increased 0.2% in June to 103.9. This is 24.1% above the recession low, and 3.1% above the pre-recession peak. The monthly change for both Industrial Production and Capacity Utilization were below expectations.

Industrial Production Drops, Misses By Most Since January - For the 3rd month in a row, Industrial Production missed expectations as hopes and dreams of follow through in Q2 remain dashed on the shores of hard data. IP rose 0.2% (missing the 0.3% expectation) and May's jump was downwardly revised to 0.5%. What is stunning is that Industrial Production has slowed its gains from the polar-vortex Q1 into a much more economically frigid Q2. Capacity Utilization also missed expectations. Perhaps most worrying is the manufacturing industry's mere 0.1% gain in June - the slowest increase since January.

Just Released: July Empire State Manufacturing Survey Shows Strength - The July 2014 Empire State Manufacturing Survey, released today, points to some notable strengthening in New York’s manufacturing sector. The survey’s headline general business conditions index and the new orders and shipments indexes all climbed to their highest levels in more than four years. The employment measure also moved up in July and is close to the three-year high set in April. Because the survey’s diffusion indexes measure the breadth of change for their respective indicators, greater values tend to indicate not just higher levels of activity, but also a faster pace of growth, so today’s report is quite encouraging. This month’s Empire Survey suggests a fundamental improvement in New York State’s manufacturing climate that has now persisted for three months—a break from the winter doldrums of February, March, and April, when there were few signs of any growth at all. Some of the improvement over the past few months may reflect a bounce-back from the weak winter, but we are now getting past the point where this is likely to be the predominant factor. This provides a hopeful sign that we may see some of these positive trends reflected in hard data on statewide manufacturing employment, which looked quite weak during the first part of 2014.

Empire State Manufacturing Continues to Show Strength - This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions continues to show strength, now at 25.6, up from 19.3 last month and at a multi-year high. The Investing.com forecast was for a reading of 17.0. 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 July 2014 Empire State Manufacturing Survey indicates that business conditions improved significantly for a third consecutive month for New York manufacturers. The headline general business conditions index climbed six points to 25.6, its highest level in more than four years. The new orders index was little changed at 18.8, while the shipments index rose nine points to 23.6; both indexes were at multiyear highs. The unfilled orders index fell six points to -6.8. The indexes for both prices paid and prices received were higher this month, indicating a pickup in the pace of price increases. Labor market conditions continued to improve, with indexes pointing to a solid increase in employment levels and a slight increase in hours worked. Although many of the indexes for the six-month outlook were significantly lower, conditions overall were expected to continue improving in the months ahead. Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Empire State Manufacturing Survey at 4 Year High in July - From the NY Fed: Empire State Manufacturing Survey Business conditions improved significantly for a third consecutive month for New York manufacturers, according to the July 2014 survey. The general business conditions index advanced six points to 25.6, a four-year high. ... Labor market conditions continued to improve. The index for number of employees climbed six points to 17.0, a level which indicated a solid increase in employment levels. The average workweek index retreated seven points to 2.3, and pointed to a slight increase in hours worked. A solid report.

Empire Fed Soars To 4-Year Highs But Outlook Collapses Most In 3 Years To 13-Month Lows -- The exuberant reaction in stocks at the Empire Fed's 3rd beat in a row soaring to its highest since April 2010 is perhaps missing a much more critical point - looking forward, survey respondents are their least positive about future business conditions in 13 months. This is the biggest MoM drop in over 3 years with a big drop in new orders expected along with less employees (the worst in 2014) and notably lower capex.

Philly Fed Manufacturing Survey highest since March 2011 - From the Philly Fed: July Manufacturing Survey The diffusion index of current general activity increased from a reading of 17.8 in June to 23.9 this month. The index has remained positive for five consecutive months and is at its highest reading since March 2011. The current new orders [at 34.2] and shipments indexes increased notably this month, increasing 17 points and 19 points, respectively... The current indicators for labor market conditions also suggest improved conditions this month. The employment index remained positive, and, although it increased less than 1 point [to 12.2], it has improved for four consecutive months. This was above the consensus forecast of a reading of 15.5 for July.

Philly Fed Soars To 3 Year Highs As Capex Investment Plans Tumble -- By the magic of hopes and dreams, Philly Fed's headline index soared to cycle highs at 23.9. Smashing the 16.25 expectation, this is the highest since March 2011 (and almost the highest in the recovery cycle). This is a 4-standard deviation beat. While most of the 'current' subindices improved with new orders exploding to their highest in 10 years (really!?). Great news right? Well no - the outlook 6-months forward sees employment drop, workweek drop, and capex investment plans drop to its lowest since January

Skeptics Question Wal-Mart’s Love Affair with U.S. Manufacturing - Wal-Mart Stores, the world’s largest retailer, last year announced it would spend $250 billion more over the next decade on U.S.-made goods and rallied suppliers with revival-style meetings that emphasized the importance of creating good-paying jobs at American factories. The The initiative has already put U.S.-made bikes, light bulbs, and even televisions on Wal-Mart shelves.  “I’d be more impressed by a bigger number,” says Scott N. Paul, president of the Alliance for American Manufacturing, which advocates for U.S. producers. The $250 billion goal means the company will spend an average $25 billion more each year—which works out to about 1% of the company’s $279 billion in annual U.S. sales. Mr. Paul says it’s possible that normal growth in their business could mean that Wal-Mart spends that much more on U.S. made products and still expands imports in coming years. He would rather see them set a goal of lowering the share of imported items in their stores. Another problem, says Mr. Paul, is that more than half of Wal-Mart’s sales come from groceries—and could end up meeting part of its goal by spending more on fresh foods that normally aren’t imported anyway.

Q1 Productivity Collapsed Most In Over 60 Years; Goldman Fears Consequences - The official measure of Q1 productivity growth currently looks likely to be revised down to almost -6% (annualized) - the worst in almost 70 years. As Goldman points out, even on a longer-term basis, the 4-, 8-, and 12-quarter trends are all in a 0.2%-0.6% range when the Q1 estimates are included, dramatically below consensus 2% estimates of the long-term trend. While Goldman notes productivity is a very noisy series, because it is calculated as the difference between noisy GDP numbers and noisy hours worked numbers; if these numbers are an accurate representation of the long-term trend, the implications for the long-term growth in US living standards would be very negative.

June Unemployment Review - With the June employment report, we are now 26 weeks past the end of EUI.  As I mentioned last month, the faster exit rates of the cohorts of workers newly unemployed since the normalization of unemployment insurance have now worked their way through all of the shorter duration categories, so that the remaining decline in unemployment will come from the ">26 weeks" category - both from the continuing extension of the more normally behaving unemployment cohorts into the longer durations and from the continued slow decline in the number of very long duration unemployed workers who had timed out of EUI. This evolution is apparent in this month's numbers.  Here is a graph of the numbers of unemployed, by duration.  The arrival of the post-EUI cohorts in the ">26 weeks" category has accelerated the decline in this category in the last couple of months while the declines of the lower duration categories started accelerating last fall and have now leveled off.My measure of the percentage of long term unemployed workers (15 weeks +) who exit unemployment over the following three months also continued to improve in June, jumping to 43%. This measure has persistant cyclical behavior, and if this levels off at 45% between now and December, this should correspond to a drop of 0.4% in the ">26 week" category by December. So, this indicator also points to a mid-5% range rate by year end, simply from inertia in employment trends. Here is a graph of actual ">26 weeks" unemployment (blue) and the predicted level of long term unemployment, modeled as a linear combination of lagged short term unemployment durations. We can see here the continued expected decline of long term unemployment to healthy levels (as cohorts with faster exit rates extend through the longer durations) as well as the convergence of actual long term unemployment to the expected level (as very long term unemployed workers continue to exit unemployment).

WSJ Survey: Jobless Rate Is Falling Faster Than Expected - At the start of 2014, economists surveyed by the Wall Street Journal didn’t think the unemployment rate would have a 5-handle until sometime in the second half of 2015. In July, however, the consensus view calls for the rate to end 2014 at 5.9%. Certainly, the job-market progress in the first half of 2014 is driving the more upbeat outlook. The latest available jobless rate (for December) was 6.7% at the time the January 2014 survey was taken. By June, the rate had dropped to 6.1%. But economists also think the burst in job growth seen in the first half will continue through the rest of 2014. How does the view from private economists compare with those at the Fed? The private forecasters see the slack in the labor markets diminishing much more quickly that policymakers do. (One difference: The WSJ survey asks for a December rate while the Fed asks for the fourth quarter average.) According to the Fed’s June economic projections, Fed officials expect the unemployment rate to end 2014 between 6.0% and 6.1% and 5.4% to 5.7% in 2015.

U.S. Jobless Rate Closing in on Nairu Estimate - The U.S. unemployment rate is getting closer to the Federal Reserve’s estimate of the non-accelerating inflation rate of unemployment, or Nairu–a rate that is happily low, but not so low that the economy and job market risk overheating and causing inflation. It is impossible to know exactly where this theoretical jobless rate stands, and it could change over time, depending on trends in worker productivity and other measures of labor-market slack. Fed officials estimate it to help guide their interest-rate-policy decisions. Many Fed officials put it in the 5.2% to 5.5% range. Some think it might be as high as 6% or as low as 5%. The trick for the Fed is to help guide unemployment into this comfort zone with interest rate policies and keep it there. When the economy is soft, the Fed encourages borrowing and spending with low rates, and when it is too strong, it does the reverse. At 6.1% in June, the jobless rate was getting closer to where some officials put Nairu. Its quick approach to this level helps explain why some regional Fed bank presidents are talking about interest rate increases. Fed Chairwoman Janet Yellen, who testifies before Congress on Tuesday and Wednesday on the economic outlook, has argued that hidden forms of labor-market slack, such as people taking part-time jobs when they want full-time jobs, gives the Fed extra room to maneuver.

New Jobless Claims at a Nine-Week Low - Here is the opening statement from the Department of Labor: In the week ending July 12, the advance figure for seasonally adjusted initial claims was 302,000, a decrease of 3,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 304,000 to 305,000. The 4-week moving average was 309,000, a decrease of 3,000 from the previous week's revised average. This is the lowest level for this average since June 2, 2007 when it was 307,500. The previous week's average was revised up by 500 from 311,500 to 312,000. There were no special factors impacting this week's initial claims. [See full report]Today's seasonally adjusted number at 302K was lower than the Investing.com forecast of 310K. Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the volatility in recent months.

Weekly Initial Unemployment Claims decrease to 302,000, 4-Week Average Lowest since June 2007 -- The DOL reports: In the week ending July 12, the advance figure for seasonally adjusted initial claims was 302,000, a decrease of 3,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 304,000 to 305,000. The 4-week moving average was 309,000, a decrease of 3,000 from the previous week's revised average. This is the lowest level for this average since June 2, 2007 when it was 307,500. The previous week's average was revised up by 500 from 311,500 to 312,000. There were no special factors impacting this week's initial claims. The previous week was revised up to 305,000. The following graph shows the 4-week moving average of weekly claims since January 1971.

White House Economists See Few Labor Force Dropouts Returning -- The American labor force, as a share of the overall population, has been shrinking for more than a decade. A detailed new report from the White House Council of Economic Advisers estimates the majority of that decline has been driven by the retirement of the Baby Boom generation and that only one-sixth of the decline is clearly attributable to the weak economy. The so-called labor force participation rate, which tracks the share of the population either working or currently looking for work, climbed from around 60% in the late 1960s to over 67% in the year 2000, driven largely by a strong economy and by the increasing number of working women. Beginning in 2000, however, the labor force began to shrink and the decline has accelerated since the recession that began in 2007.  The decline has sparked a divide among economists, some of whom have attributed most of the gains to the simple fact that the Baby Boomers, who were born after World War II, are now reaching retirement age. Other economists, however, have argued the Baby Boomers explain a small part of the decline and the reason the labor force has fallen so much is that the economy has been historically weak and unprecedented numbers of Americans have lost their jobs and given up hunting for another one. (Research from different arms of the Federal Reserve, such as this paper from a Boston Fed conference and this paper from the Philadelphia Fed, have reached contradicting conclusions.) The CEA’s paper lands in the middle of this debate, saying that of the 3.1 percentage point drop in labor force participation since 2007, 1.6 percentage points can be explained by demographics. About 0.5 percentage point can be explained by the historical pattern that some people in a weak economy are more likely to give up on the labor force. The CEA says the remaining 1 percentage point drop results from “other factors, which may include trends that pre-date the Great Recession and consequences of the unique severity of the Great Recession.”

Understanding Hiring Difficulty: It’s Not that Complicated | Brookings Institution:  Hiring difficulty is increasing in the United States. This is good for workers, because it signifies rising demand from employers. Yet the notion that companies are not immediately filling their vacancies—at a time when many are still unemployed—is generating confusion and even opprobrium directed at corporate America. But in reality, the recent economic recovery has simply returned the labor market to its pre-recession state: a long-run shortage of skilled workers in fields requiring high levels of education or STEM knowledge.There are two clear trends in hiring difficulty over the course of the recession and recovery. Job vacancies became much easier to fill during the recession, but started becoming harder as the economy rebounded. New evidence shows that this phenomenon is especially pronounced for high-skill jobs, for which hiring difficulty is most severe. The broad trend can be seen in the figure below, which plots an index of hiring difficulty based on the number of vacancies last month divided by new hires this month—using data from Job Openings and Labor Turnover Survey(JOLTS).

Is the U.S. Labor Market Getting Less Dynamic? - Declining churn in the labor market may be holding back people’s careers and the entire economy. One of the key questions about this phenomenon is whether it’s the temporary result of an especially severe recession, or if some sort of structural changes in the U.S. economy are making the labor market permanently less dynamic. David Mericle, an economist at Goldman Sachs, shares the following chart that tracks the overall dynamism of the U.S. labor market, by combining into a single index a range of dynamism measures from several different economics reports: the Job Openings and Labor Turnover survey, known as JOLTS, the Business Employment Dynamics data, and data from the Labor Department’s Current Population Survey on job transitions. The labor market clearly gets less dynamic during recessions. That’s no surprise. There’s less hiring and less voluntary quitting that go on when the economy is bad. But there’s another trend in this data over the last 15 years: Even when the economy is in recovery periods and adding jobs at a brisk clip, dynamism just hasn’t picked up very much.(Remember, total job growth of 200,000 could result from 300,000 hires and 100,000 separations. Or it could result from 1.2 million hires and 1 million separations. Both have the same net job growth, but the latter example would obviously be a more dynamic economy.)Mr. Mericle’s report highlighted research from the Census Bureau that concluded structural change in the economy accounts for “relatively little” of the decline. But most measures of dynamism are relatively new (the JOLTS report, for example, has been conducted for only a little more than a decade) and it’s an area of economics that researchers are still struggling to understand. One thing that’s clear, the decline is very broad-based. At all education levels, workers are getting less likely to switch jobs.

The Effects of Extending Unemployment Insurance Benefits - St. Louis Fed - The Emergency Unemployment Compensation (EUC) program, which provided additional weeks of unemployment insurance (UI) benefits to long-term unemployed workers, expired at the end of 2013. Researchers at the Federal Reserve Bank of St. Louis examined what the effect would have been if the program had expired earlier. In a recent Economic Synopses essay, Economist Maria Canon and Senior Research Associate Yang Liu, both with the St. Louis Fed, computed unemployment rates as if the extended benefits had expired earlier and compared the behavior of workers whose UI benefits were ending in 2008 with the behavior of workers whose UI benefits were ending in 2013.¹ When making their comparisons, Canon and Liu assumed that workers facing a loss of benefits in 2013 would have adjusted their job search intensity the same way workers did in 2008.² They found that, had the EUC program expired earlier in 2013, workers with 46 or more weeks of continuous unemployment would have been 1.2 to 2.1 percentage points more likely to become re-employed. Similarly, the long-term unemployed would have been 0.4 to 0.5 percentage points more likely to exit the labor force entirely. The increases in these two probabilities result in a drop of 1.7 to 2.5 percentage points in the probability these workers would remain unemployed. Regarding the effect on the unemployment rate, Canon and Liu found that an early expiration of the EUC program would have resulted in a drop of 0.03 to 0.05 percentage points in the observed unemployment rate in late 2013. Canon and Liu concluded, “We find that the extension of unemployment benefits affected the labor market status of long-term unemployed workers in late 2013. Without extended UI benefits, these unemployed workers would have been more likely to be employed, more likely to exit the labor force, and on average 1.9 percent less likely to remain unemployed in the following period.”

The 10 Most Endangered Jobs (Or, Why You Are Reading This Online) - Want some job security in the future? Avoid any career involving paper — and that includes newspapers. A new study released Tuesday by job-search site CareerCast.com, lists the 10 top endangered jobs in the U.S. Using data on 200 jobs from the Bureau of Labor Statistics, CareerCast projected the least promising career paths in terms of future employment growth, income potential and existing unemployment in the job field. Topping the list is mail carriers. Although postal workers in the tight labor markets of North Dakota received hefty pay raises last spring, CareerCast forecasts the number of postal workers will shrink by 28% by 2022. Instead of snail mail, consumers are using Facebook and Twitter to keep in touch and are paying bills on-line. Other at-risk jobs include lumberjacks, printing workers and newspaper reporters. “The common theme in these jobs is paper,” says Tony Lee, publisher of CareerCast. “Consumers are not eschewing reading the news or the latest bestseller, but rather are consuming their information online and not in print,” the report said. (You’re reading this online, aren’t you?) Less hard-copy product means less work at printing companies and less demand for wood pulp that lumberjacks help provide. Other professions are at risk because advances in technology have eroded demand for each particular service.

Restaurant CEOs Make More Money in Half a Day Than Their Employees Make in a Year --  Last year, according to a new analysis from the Economic Policy Institute (EPI), the CEOs of America's top 25 restaurant corporations, including McDonald's, Burger King, the Cheesecake Factory, Chipotle, and Jack in the Box, took home an average of 721 times the money minimum-wage workers did, and 194 times the take-home pay of the typical American worker in a production or nonsupervisory job. Restaurants and food services employ nearly half of all American workers who earn the federal minimum wage of $7.25 per hour (or less). "While CEOs make millions of dollars in profits, we still can't afford to pay our rent or buy clothes for our children," says Delesline, whose hourly pay is $7.35. "It's a picture of uncontrolled greed," EPI vice president Ross Eisenbrey says. "How can it be that the CEOs are making more in half a day than many of their workers are making in an entire year—and yet they can't afford to raise the pay of those workers?" CEO pay has been out of control across all business sectors since at least the late-1980s, he adds. From 1978 to 2013, for instance, average CEO compensation, adjusted for inflation, soared nearly 1,000 percent, while the typical worker's pay increased by just over 10 percent. Roughly 1 in 10 American workers are employed by restaurants, according to the National Restaurant Association. The industry, the trade group predicts, will see $683 billion in sales this year—up 17 percent over 2010. But a greater share of those revenues has been flowing to top executives. As this interactive graph shows, CEO compensation at America's top restaurant chains has ballooned since 2008, while the annual take of their lowest-paid workers has largely flatlined. (This analysis assumes tipped workers reach the federal minimum wage through base pay and tips, although that isn't always the case, as we've reported previously.)

Part-Time for Economic Reasons: A Cross-Industry Comparison - Atlanta Fed's macroblog -- With employment trends having turned solidly positive in recent months, attention has focused on the quality of the jobs created. See, for example, the different perspectives of Mortimer Zuckerman in the Wall Street Journal and Derek Thompson in the Atlantic. Zuckerman highlights the persistently elevated level of part-time employment—a legacy of the cutbacks firms made during the recession—whereas Thompson points out that most employment growth on net since the end of the recession has come in the form of full-time jobs. In measuring labor market slack, the part-time issue boils down to how much of the elevated level of part-time employment represents underutilized labor resources. The U-6 measure of unemployment, produced by the U.S. Bureau of Labor Statistics, counts as unemployed people who say they want to and are able to work a full-time schedule but are working part-time because of slack work or business conditions, or because they could find only part-time work. These individuals are usually referred to as working part-time for economic reasons (PTER). Other part-time workers are classified as working part-time for non-economic reasons (PTNER). Policymakers have been talking a lot about U-6 recently. See for example, here and here.  The "lollipop" chart below sheds some light on the diversity of the share of employment that is PTER and PTNER across industries. The "lolly" end of the lollipop denotes the average mix of employment that is PTER and PTNER in 2013 within each industry, and the size of the lolly represents the size of the industry. The bottom of the "stem" of each lollipop is the average PTER/PTNER mix in 2007. The red square lollipop is the percent of all employment that is PTER and PTNER for the United States as a whole. (Note that the industry classification is based on the worker's main job. Part-time is defined as less than 35 hours a week.)

A Push to Give Steadier Shifts to Part-Timers - As more workers find their lives upended and their paychecks reduced by ever-changing, on-call schedules, government officials are trying to put limits on the harshest of those scheduling practices. The actions reflect a growing national movement — fueled by women’s and labor groups — to curb practices that affect millions of families, like assigning just one or two days of work a week or requiring employees to work unpredictable hours that wreak havoc with everyday routines like college and child care. The recent, rapid spread of on-call employment to retail and other sectors has prompted proposals that would require companies to pay employees extra for on-call work and to give two weeks’ notice of a work schedule. Vermont and San Francisco have adopted laws giving workers the right to request flexible or predictable schedules to make it easier to take care of children or aging parents. Scott M. Stringer, the New York City comptroller, is pressing the City Council to take up such legislation. And last month, President Obama ordered federal agencies to give the “right to request” to two million federal workers.

Part-Time Schedules, Full-Time Headaches - A worker at an apparel store at Woodbury Common, an outlet mall north of New York City, said that even though some part-time employees clamored for more hours, the store had hired more part-timers and cut many workers’ hours to 10 a week from 20. As soon as a nurse in Illinois arrived for her scheduled 3-to-11 p.m. shift one Christmas Day, hospital officials told her to go home because the patient “census” was low. They also ordered her to remain on call for the next four hours — all unpaid. An employee at a specialty store in California said his 25-hour-a-week job with wildly fluctuating hours wasn’t enough to live on. But when he asked the store to schedule him between 9 a.m. and 2 p.m. so he could find a second job, the store cut him to 12 hours a week. These are among the experiences related by New York Times readers in more than 440 responses to an article published in Wednesday’s paper about a fledgling movement in which some states and cities are seeking to limit the harshest effects of increasingly unpredictable and on-call work schedules. Many readers voiced dismay with the volatility of Americans’ work schedules and the inability of many part-timers to cobble together enough hours to support their families. In a comment that was the most highly recommended by others — 307 of them — a reader going by “pedigrees” wrote that workers were often reviled for not working hard enough or not being educated enough. “How can they work more jobs or commit to a degree program if they don’t know what their work schedule will be next week, much less next month?”

The Rise of the Non-Working Rich - Robert Reich - In a new Pew poll, more than three quarters of self-described conservatives believe “poor people have it easy because they can get government benefits without doing anything.” In reality, most of America’s poor work hard, often in two or more jobs. The real non-workers are the wealthy who inherit their fortunes. And their ranks are growing.  In fact, we’re on the cusp of the largest inter-generational wealth transfer in history.The wealth is coming from those who over the last three decades earned huge amounts on Wall Street, in corporate boardrooms, or as high-tech entrepreneurs.It’s going to their children, who did nothing except be born into the right family. The “self-made” man or woman, the symbol of American meritocracy, is disappearing. Six of today’s ten wealthiest Americans are heirs to prominent fortunes. Just six Walmart heirs have more wealth than the bottom 42 percent of Americans combined (up from 30 percent in 2007).  The U.S. Trust bank just released a poll of Americans with more than $3 million of investable assets. Nearly three-quarters of those over age 69, and 61 per cent of boomers (between the ages of 50 and 68), were the first in their generation to accumulate significant wealth. But the bank found inherited wealth far more common among rich millennials under age 35.

Immigration Surges to Number One Issue With Americans - The media coverage of thousands of youth migrants/refugees from Central America has dramatically raised the public’s concern about immigration issues in general. The issue went from barely registering a few months ago to now being seen as the most important problem among a plurality of Americans. From Gallup:  Whether a gridlocked Congress will actually manage to do anything productive about it in the the last few weeks before they disappear for the summer recess is yet to be seen, but the public concern about immigration is the highest since President Obama took office.

Robert Reich: Children fleeing to the U.S. are ‘refugees of the drug war we created’: Robert Reich, President Bill Clinton’s former Secretary of Labor, recently put the so-called immigration crisis in perspective by reminding Americans that the women and children who were escaping to the U.S. were “refugees of the drug war we’ve created.” “I’ve been watching media coverage of angry Americans at our southern border waiving signs and yelling slogans, insisting that the children – most of whom are refugees of the drug war we’ve created — ‘go home’ to the violence and death that war has created, and I wonder who these angry Americans are,” Reich wrote on Facebook over the weekend.  The former Labor Secretary explained in a July 14 post post why the “United States is not a detached, innocent bystander” when it came to the refugee crisis. For decades, U.S. governments supported unspeakably brutal regimes and poured billions into maintaining them ($5 billion in El Salvador alone). Implacable opposition to communism—often defined as virtually any reformer—gave these regimes a blank check. The result is a legacy of dealing with opponents through extreme violence and a culture of impunity. Judicial systems remain weak, corrupt, and often completely dysfunctional. After the cold war ended, the United States lost interest in these countries. What was left was destruction, tens of thousands dead, and massive population displacement. The percentage of people living below the poverty line is 54 percent for Guatemala, 36 percent for El Salvador,and 60 percent for Honduras. More recently gangs, organized crime, and drug cartels feeding the US market have become part of this unholy mix.

Economic Inclusion and the Global Common Good - On July 11 and 12, Pope Francis met with a group of policymakers, economists, and other influential thinkers at a conference called “The Global Common Good: Towards a More Inclusive Economy.” The conference was sponsored by the Pontifical Council for Justice and Peace and held at the Pontifical Academy of Science in Vatican City. Pope Francis spoke out against "anthropological reductionism" in the economy, echoing a tradition of Catholic social teaching that links economic inclusion to human dignity. The 1986 pastoral letter Economic Justice for All says:"Every economic decision and institution must be judged in light of whether it protects or undermines the dignity of the human person...We judge any economic system by what it does for and to people and by how it permits all to participate in it. The economy should serve people, not the other way around...  All people have a right to participate in the economic life of society. Basic justice demands that people be assured a minimum level of participation in the economy. It is wrong for a person or group to be excluded unfairly or to be unable to participate or contribute to the economy. For example, people who are both able and willing, but cannot get a job are deprived of the participation that is so vital to human development.

BNSF, labor union reach tentative deal to allow train operations with 1 employee - One of the largest U.S. railroads and one of the largest labor organizations representing railroad workers have reached a tentative agreement to allow one person to operate a train on routes protected by a new collision-avoidance system required by Congress in 2008. A BNSF Railway spokeswoman confirmed the agreeement with the International Association of Sheet Metal, Air, Rail and Transportation Workers. If ratified by union members, it would cover 60 percent of the BNSF system. Under the agreement, a sole engineer would operate most trains with the support of a remotely based “master conductor” on routes equipped with Positive Train Control.

Why Volkswagen agreed to UAW local at its U.S. plant: – In a move that's unusual but not unprecedented, the United Auto Workers union has sidestepped its loss in a worker vote in February and created a local union to represent workers at the Volkswagen plant in Tennessee. And what's surprising, considering decades of fierce anti-union efforts from the other foreign transplant automakers in the South, this time the union had the tacit approval of Volkswagen itself. "We have a consensus agreement with Volkswagen management to form the local and be recognized when we get a majority of the workers to join," said UAW International Secretary-Treasurer Gary Casteel of Ashland City, who has been overseeing the union's organizing drives at the Southern auto plants for the past several years – unsuccessfully, until now. The union's move also creates some uncertainly over Volkswagen's continuing negotiations with the state of Tennessee on a proposed $300 million incentives package to persuade the world's largest automaker to to build a new crossover utility vehicle in Chattanooga, a move that could brings hundreds of millions in new investment and creates hundreds more jobs.

BLS: No State with Unemployment Rate at or above 8% in June, First Time since mid-2008 - From the BLS: Regional and State Employment and Unemployment Summary Regional and state unemployment rates were generally little changed in June. Twenty-two states and the District of Columbia had unemployment rate decreases from May, 14 states had increases, and 14 states had no change, the U.S. Bureau of Labor Statistics reported today. Forty-nine states and the District of Columbia had unemployment rate decreases from a year earlier and one state had an increase.... Mississippi and Rhode Island had the highest unemployment rates among the states in June, 7.9 percent each. North Dakota again had the lowest jobless rate, 2.7 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. Rhode Island and Mississippi had the highest unemployment rates in June at 7.9%. 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). For the first time since mid-2008, no state has an unemployment rate at or above 8% (light blue), although 9 states are still at or above 7% (dark blue). Star

Five Years into Recovery, State Jobs Picture Improves Across the Country, Though Many States still Have a Long Way to Go -  The Regional and State Employment and Unemployment Summary, released this morning by the Bureau of Labor Statistics, showed the same general improvement in state labor market conditions that we’ve seen in most states over the past year. While this is good news and echoes this month’s strong national jobs report, there are still reasons for concern, as the labor force shrank in many states, and the majority of states have still not reached their pre-recession employment levels.  In the three month period from March 2014 to June 2014, 41 states (plus the District of Columbia) saw job growth, with the largest percentage gains occurring in Delaware (+1.3 percent), Texas (+1.2 percent), and the District of Columbia (+1.2 percent). Nine states lost jobs, with the largest percentage declines occurring in Vermont (-0.9 percent), Wyoming (-0.9 percent), and Alaska (-0.8 percent). Importantly, all of the four major regions and nine Census divisions of the country experienced strong job growth over this period, with the oil and gas boom fueling the largest growth (+1.0 percent) in the West South Central division that contains Texas, Oklahoma, Arkansas, and Louisiana.Over the same timeframe, the unemployment rate fell in 34 states (plus the District of Columbia). The largest decreases occurred in Illinois (-1.3 percent), Massachusetts (-0.8 percent), Nevada (-0.8 percent), and Rhode Island (-0.8 percent). While these declines are generally good news, the labor force shrank in three of these top four states (Illinois, Massachusetts, and Nevada), and in 21 states overall, suggesting that not all of the improvement in state unemployment rates was due to job seekers finding jobs. The unemployment rate increased in 12 states, led by Louisiana (+0.5 percent), Georgia (+0.4 percent), and Virginia (+0.4 percent). Four states saw no change.

California Finally Regains Prerecession Jobs High Amid an Uneven National Recovery - Most U.S. states in June still hadn’t regained all the jobs lost in the recession that ended five years earlier, the latest reminder of the recovery’s unevenness.But one particularly important state reached that milestone last month: California, the nation’s largest labor market accounting for about 11% all of U.S. jobs, finally topped its July 2007 peak for nonfarm employment.The Golden State was hit hard by the recession and the housing downturn, but has added more than 1.35 million jobs since bottoming out in February 2010. Its 7.4% jobless rate in June was down from a high of 12.4% for much of 2010.In all, public and private employment in 18 states plus the District of Columbia last month was higher than its peak before or during the 2007-2009 recession, according to an analysis of Labor Department data released Friday. In 32 states plus Puerto Rico and the Virgin Islands, total seasonally adjusted nonfarm payrolls continued to lag.That’s a slight improvement from May, when 34 states had yet to regain all the  jobs lost in the downturn, based on revised state-level employment data.Along with California, Maryland also moved into the positive column in June, topping its February 2008 peak for nonfarm employment. The U.S. as a whole finally regained all the jobs it lost in the recession in May, though that didn’t make up for population growth in the intervening years.

Interactive View: How the Job Market Differs by State - When it comes to unemployment, it’s clear that all states aren’t performing equally. North Dakota’s jobless rate stands at just 2.6%, for example, while more than 8% of Nevadans in the labor market can’t find work. Each state also has subtle differences in its employment sectors — a fact that’s clear in a new interactive graphic by statistician and author Nathan Yau. Yau, who runs the data visualization and statistics blog FlowingData.com, recently created an interactive “treemap“ to illustrate each state’s different job categories and wages. Users can select states and watch the graphic change depending on the proportion of each job type and each profession’s median income. Here’s the national view, for example, with larger boxes representing the respective size of each job category (and its various subcategories inside) and the yellow color representing jobs that come with a median salary at or above $40,000.  Nationally, office and administrative support jobs are most common. Notice the size of the “construction and extraction” box, too:

Stopping Job Piracy in Dayton, Denver,… and maybe even Kansas City - As I have reported before, job piracy is a big problem in metropolitan areas like New York City and Kansas City. Giving subsidies to relocate existing facilities is a net loss for the country and for the region as well. The flip side is that the existence of job piracy makes it possible for companies to threaten to leave their current location unless they get a subsidy, as Sears has done twice in Illinois. I showed in my book Competing for Capital that several multi-state agreements to end job piracy have been total failures. A new study by Good Jobs First, “Ending Job Piracy, Building Regional Prosperity,” reports on a couple of success stories. Notably, these have not involved state governments, but take place in two metropolitan areas, in Dayton, Ohio, and in Denver. The study also reports on failed regional efforts in Minneapolis/St. Paul and Kansas City (but see more below). The oldest of these successes is the Metro Denver Economic Development Corporation, created in the late 1980s. Its aim is to promote the entire metropolitan area as a single region, using transparency and information exchange among municipalities to prevent site selection consultants from playing different cities off against one another. All members sign a Code of Ethics committing themselves to these goals. As the Good Jobs First report points out, dispute resolution has only been invoked three times in the 26 years the agreement has been in effect, and no Economic Development Corporation member has had to be expelled, the strongest sanction available for violating the Code of Ethics.

Puerto Rico Utility May Default on January Interest Payment -  The Puerto Rico Electric Power Authority may miss a January interest payment to investors, according to Municipal Market Advisors, potentially triggering the largest restructuring ever of state and local debt. The agency, called Prepa, used $41.6 million of reserve funds to help make a $417.6 million payment to bondholders on July 1. With the reserve now depleted by about 10 percent, “we expect the bond trustee is unlikely to make any more distributions to bondholders, reserving cash for likely litigation expenses,” Matt Fabian, a managing director at Concord, Massachusetts-based MMA wrote today in a report. The next payment is due Jan. 1, according to Fabian. Unless the utility replenishes the reserve, investors in uninsured Prepa bonds “have likely seen their last cash in awhile,” wrote Fabian, who’s been analyzing the municipal-debt market for 18 years.

Update: The California Budget Surplus -- Controller Releases June Cash Update - State Controller John Chiang today released his monthly cash report for the month of June, and announced that the state's General Fund -- the primary account from which California funds its day-to-day operations and programs -- ended the fiscal year with a positive cash balance for the first time since June 30, 2007. A positive cash balance means that the state had funds available to meet all of its payment obligations without needing to borrow from Wall Street or the $23.8 billion available in its more than 700 internal special funds and accounts. .. According to the monthly report covering California's cash balance, receipts and disbursements in June 2014, the General Fund had $1.9 billion in cash on June 30, marking the first time it has ended the fiscal year in the black since 2007, when it ended the year with $2.5 billion in the bank. For the 2013-14 fiscal year, revenues came in at $101.6 billion, or $2.1 billion (2.1 percent) more than projected in the Governor’s budget released in January. This is just one state, but I've been expecting local and state governments (in the aggregate) to add to both GDP and employment in 2014. This graph shows total state and government payroll employment since January 2007. State and local governments lost jobs for four straight years. In June 2014, state and local governments added 24,000 jobs.  State and local government employment is now up 138,000 from the bottom, but still 606,000 below the peak. It is pretty clear that state and local employment is now increasing.

Interactive Maps: Comparing Road, Bridge Quality by State -- The nation’s infrastructure is a key priority for President Barack Obama this week, as Congress debates whether, and for how long, to fund the Highway Trust Fund — the federal program that disburses gas taxes to states for road and mass transit construction projects. Federal transportation officials have warned the fund could become insolvent within weeks, potentially delaying ongoing repair and construction efforts across the country. Transportation Secretary Anthony Foxx, for example, recently sent letters to states warning their funding is in jeopardy. The president has traveled around the nation highlighting what the administration says is an aging network of roads, highways and bridges that need repair and expansion. As part of that effort to pressure Congress, the White House released a report saying many of those roads and bridges need work. (The House on July 15 added $10.8 billion to the fund, an amount expected to keep it solvent for 10 months, and the Senate is expected to consider a similar amount later this month. But the long-term fate of the fund remains unclear). These maps detail the findings in the report, which examines more than 4 million miles of public roads and 600,000 bridges. The report says 14% of roads nationally are in poor condition — and one in four bridges is either “structurally deficient” or “functionally obsolete”.

Police Department Reduces Costs By Using Same Evidence For Every Investigation - —Noting that the new procedure is far more efficient and has completely streamlined the investigative process, representatives from the Jacksonville Police Department confirmed Wednesday they have been able to sharply reduce costs by reusing the same evidence in every case they handle. “Our department used to spend considerable time and manpower scouring crime scenes for clues, obtaining search warrants, interrogating suspects, and interviewing witnesses, but since we started using the same gun and DNA swab for every crime, we’ve been able to breeze through investigations in no time,” said police chief Alec McCarthy, who stated that the Jacksonville police have been able to close every case that has come up since the new protocol was enacted as well as make a significant dent in the department’s accumulated backlog of unsolved crimes. “Homicide investigations would often drag on for weeks, but now we’re in and out in two hours. We knocked out a triple murder, four breaking and enterings, and two aggravated assaults with a deadly weapon just this morning, and we’re on track to wrap up a couple of old child abduction cold cases by the end of the day.” Citing the success of the new program, the department said it is considering reusing the same signed confession for each case as well.

Detroit Workers Plead for End to Bankruptcy Pain -  Detroit’s current and retired employees pleaded with the judge overseeing the city’s bankruptcy to limit the financial suffering they face from a reorganization plan that imposes $7.4 billion in cuts on them and other creditors. “I know that some sacrifices have to be made, but I never thought I would be struggling to get health care,” Jesse Florence, a retired city bus driver, told U.S. Bankruptcy Judge Steven Rhodes today in Detroit federal court. Florence’s health-care premiums jumped from $152 a month to $1,026, he told Rhodes. “This is devastating.” At the hearing, Rhodes heard from city creditors who aren’t represented by lawyers in Detroit’s record $18 billion bankruptcy. Active and retired city workers, as well as investors, would be forced to take less than the $10.4 billion they are owed if Rhodes approves Detroit’s plan. Rhodes is to take their comments into consideration when he holds a trial next month on whether to approve the plan. Remaining opponents include bond insurer Syncora Guarantee Inc., which may have to cover losses imposed on bond investors, with some facing a recovery of as little as 11 percent.

No Water for Motown: Why Detroit Is Denying Its Citizens This Basic Human Right -- Detroit residents are running out of running water. They’re also running into city and state bureaucracies that, alarmingly, don’t seem to care. In March, when the winter freeze finally began to thaw, Detroit Water and Sewerage Department (DWSD), the city’s public utility, announced that it would resume shutting off water to delinquent customers, at a rate of 1,500 to 3,000 per week. As a result, some 40 percent of DWSD customers will lose their water supply by the end of the summer; 70,000 of these customers are residential, which means that 200,000 to 300,000 Detroiters could be directly affected. This is, to be sure, a public health crisis. The city would have an easier time explaining itself if it were being at all consistent in its treatment of delinquent customers. In a New York Times op-ed, journalist Anna Clark noted that Joe Louis Arena, home of the National Hockey League’s Red Wings, was $82,255 in arrears on its water bill as of last April; Ford Field, where the NFL’s Detroit Lions play, owes more than $55,000; and city-owned golf courses owe more than $400,000. No date has been set to give these commercial customers their shut-off notices. Meanwhile, Clark writes, “the city is going after any customers who are more than sixty days late and owe at least $150.”

Thousands March in Detroit Against ‘Heartless’ Water Shut-Offs --Thousands of people are expected to rally in Detroit Friday afternoon to demand a moratorium on the city's mass shut-offs of water to households, which they say has unleashed a public health emergency.  Dozens of local, national, and international organizations and unions are backing the march, which will call for an immediate renewal of water services to thousands of residences that have already been disconnected, with tens of thousands more slated to be next. "The more attention we can bring to this moment, the more likely we are to get action to alleviate a crisis that doesn't have to happen," Shea Howell of the communications working group for Detroiters Resisting Emergency Management and the People's Water Board told Common Dreams. The Detroit Water and Sewerage Department (DWSD) announced last month it is implementing a plan to escalate the disconnection of water to households that have fallen behind on their bills to 3,000 a month. Nearly half of all residents are behind on their water payments—a pool that is likely to expand further as the city continues to increase its water rates and cut public services, including welfare and public pensions.

Children aren’t worth very much—that’s why we no longer make many – The nineteenth and twentieth centuries have been characterized by a massive decline in fertility, beginning in rich western countries and spreading all over the world. It is a transformation that is still underway in poor countries today.Technological advances have, over the same period, radically decreased child mortality and increased life span. Modern parents need not have many children to ensure that one or two survive; almost all children survive to reproductive age. But Darwinian genetic interests cannot explain the modern decline in fertility (if Darwinian interests dominated, fertility should increase with increased survival, as observed in many historical elites). Rather, the fertility decline to present levels is mostly an economic response to the changing value of children, and to the changing economic relationship of parents and children. The economic transformation is not spontaneous, but the product of cultural transformation through education.The economic value of children has decreased, but this is not the most important cause of the fertility decline. The transformation of countries from predominantly agricultural to predominantly urban reduced the value of children, especially where the industrial employment of children was restricted. Each child’s labor contributed positive value to a family farm or cottage industry, but in an urban setting, children began to have negative economic value. Indeed, the fertility decline correlates somewhat—though not perfectly—with the transformation from agrarian to city life.

Thinking Dangerously in an Age of Political Betrayal -- Thinking has become dangerous in the United States. As Paul Stoller observes, the symptoms are everywhere including a Texas GOP Party platform that states, "We oppose teaching of Higher order Thinking Skills [because they] have the purpose of challenging the student's fixed beliefs and undermining parental control" to a Tennessee bill that "allows the teaching of creationism in state's classrooms."  At a time when anti-intellectualism runs rampant throughout popular culture and the political landscape, it seems imperative to once again remind ourselves of how important critical thought as a crucible for thinking analytically can be both a resource and an indispensable tool. If critical thought, sometimes disparaged as theory, gets a bad name, it is not because it is inherently dogmatic, jargonistic or rigidly specialized, but because it is often abused or because it becomes a tool of irrelevancy - a form of theoreticism in which theory becomes an end in itself. This abuse of critical thought appears to have a particularly strong hold in the humanities, especially among many graduate students in English departments who often succumb to surrendering their own voices to class projects and dissertations filled with obtuse jargon associated with the most fashionable theorists of the moment. Such work is largely rewarded less for its originality than the fact that it threatens no one.

Are More Young Adults Falling Through the Cracks? -  It’s summertime, and the livin’ is easy for many young Americans—unless, that is, they’re not working, not in school and feeling incredibly anxious about looking lazy. As it turns out, they’re not alone. Young adults ages 20 to 24 are more likely to be neither working nor enrolled in school than their counterparts two decades ago, according to a wide-ranging report on U.S. youth by the Federal Interagency Forum on Child and Family Statistics, which compiles numbers from 22 federal-government agencies. Roughly 19% of 20-to-24-year-olds were neither enrolled nor working last year, up from 18% in 2012 and 17% in 2005, the report said. And the figures suggest this isn’t purely a recession effect. In 2000—well before the 2007-09 downturn—this figure was only 15%. In 1990, it was 17%. The trend is gripping young adults at all education levels. For 20-to-24-year-olds who have completed high school, the percentage neither enrolled nor working has risen to 31%, from 21% in 1990. But for those with a bachelor’s degree or higher, it’s also up significantly, to 9% last year from just 5% in 1990. What’s the big deal?  The numbers are worrying because people in their early twenties are at a critical juncture in their lives. The questions they’re tackling—What should I do for a living? Should I get a degree in this or that? How can I land a good first job?—will shape the rest of their lives. The longer these kids are detached from both school and work—and by extension, their peers—the more they run the risk of harming their future prospects, and society’s.

Flunking Out, at a Price - For years, federal and state regulators have done little as dubious operators of for-profit colleges and trade schools have pocketed tuitions funded by taxpayer-backed loans. Many students left these colleges with questionable educations and onerous debt loads that cannot be erased in bankruptcy. Regulators have finally woken up to this ugly reality. And, once again, taxpayers and borrowers will pay the price of regulatory failures.Last week, after years of being on the financial precipice and facing accusations of improper recruiting practices by authorities in several states, Corinthian Colleges, a for-profit education company with 74,000 students in more than 100 locations around the country, began to wind down its operations. In an agreement with the federal Department of Education, Corinthian said it would halt admissions and try to sell 85 of its campuses.At another 12 Corinthian campuses, students can continue their studies until they graduate. Certain students who choose to stop attending classes will receive refunds, the company said.Even as the company’s fortunes faded in recent years, Corinthian’s five top executives piled up real money: Over the last three years, they’ve shared $12.5 million in salaries and cash bonuses. But taxpayers and Corinthian students — a vast majority of whom have borrowed to finance their educations — will be the biggest losers. When Corinthian eventually vanishes, its graduates will be left holding degrees from a defunct institution. This will make it even tougher for them to get jobs, resulting in higher default rates on their federal student loans.

Companies That Offer Help With Student Loans Are Often Predatory, Officials Say - Student loan debt hovers at more than $1 trillion, a threefold surge from a decade ago, and a record number of college students who graduated as the financial system nearly imploded have an average debt load of more than $20,000.More than half of recent graduates are unemployed. And if they do have a job, it is probably a low-paying one that does not require that expensive college degree. Some Americans, including baby boomers whose savings were devastated by the financial crisis, are still struggling to pay off their student loans well into their 50s.For the debt settlement industry, all this means a tantalizing gold mine of new customers.“Your entire student loan can be forgiven,” Broadsword Student Advantage of Carrollton, Tex., boasts in radio ads.   Debt settlement companies, which offer to help borrowers lower their monthly loan payments for a hefty upfront fee, have long been fraught with problems. But federal and state regulators are spotting new instances of abuse as the companies shift away from their traditional targets — credit card and mortgage debt — to zero in on student loans. The companies are coming under fire for potentially questionable tactics. On Monday, Illinois is expected to become the first state to bring legal action against debt settlement companies in connection with their student loan practices, contending in two separate lawsuits that Broadsword Student Advantage and First American Tax Defense duped vulnerable borrowers into paying for help that never arrived.

First State Sues Over Student Loan Fraud -- On Monday, Illinois became the first state to sue so-called debt settlement companies for fraudulent student loan practices. The New York Times reports that two companies, Broadsword Student Advantage and First American Tax Defense, were sued for charging customers for debt assistance they never received. Debt settlement companies, which consumers pay for help consolidating their loans and decreasing their monthly payments, have long had a reputation for taking advantage of desperate borrowers eager for a quick fix. With Americans now holding $1.2 trillion in outstanding student loans, college grads appear to be an increasingly attractive target. According to court documents, the typical scam involves offering debtors a variety of services—some non-existent, some that are already offered free through federal programs—in exchange for money up front. First American even made up fake government relief initiatives—like the “Obama Forgiveness Program”— to entice customers, and feigned affiliation with the Department of Education..The most frustrating part of debt relief fraud is that a legitimate version of the services offered by scammers are usually available at no cost to borrowers. Common student loan scams include offering to consolidate student loan payments (putting multiple loans under one lower monthly fee), debt forgiveness, or lower monthly payments. All of these services are offered free of charge by the Department of Education to eligible borrowers.

Pa. pension costs pull from school districts, college students, turnpike -- Soaring costs for Pennsylvania's public employee pensions are draining money from school district taxpayers, college students and Pennsylvania Turnpike motorists. The cost to taxpayers of funding pensions for government and school employees is raising the price tag of everything from social services to prisons, but the squeeze is most apparent at agencies that rely on tuition, property taxes and tolls to help underwrite the increases. The state's $1.6 billion in contributions to its two pension funds last year will grow to $2.2 billion this year as officials attempt to fill a $50 billion hole in the funds stemming from years of market losses and legislative underfunding. “You will see (public pension cost increases) this year and for years to come,” said Sue Menditto, director of accounting policy for the National Association of College and University Business Officers. She likened it to the spike in heating costs that families pay during a severe winter. “It's almost like a bad winter coming for the next 15 years,” she said.

Flint manager warns of bankruptcy over retiree costs -- Flint may be Michigan’s second city to plunge into bankruptcy unless retirees accept cuts in health benefits that threaten to unravel a balanced budget, Emergency Manager Darnell Earley said. “If Flint were to go to bankruptcy, that would highlight that this legacy-cost problem has to be addressed more globally,” said Eric Scorsone, a Michigan State University economist. “Flint’s at the forefront, but a lot of cities are on the same train, and that train is headed for the cliff.” The specter intensifies the conflict over finances in the city of 100,000, which twice has been under state control. Like Detroit, which a year ago this week filed the largest U.S. municipal bankruptcy, Flint has struggled with loss of population, jobs and revenue. The birthplace of General Motors Co. has only half its population of 1960. “If we have no ability to mitigate the cost of retiree health care, that’s going to make it very difficult for the city to remain financially stable over the next few years,” Earley said in an interview at City Hall. Without changes, retiree pension and health expenses would consume 32 percent of the $55 million general fund. As Detroit draws worldwide attention for its record $18 billion bankruptcy, Flint demonstrates the plight of U.S. cities where unfunded post-retirement costs rival or exceed pension liabilities. In Michigan alone in 2011, municipalities had nearly $13 billion in health-care liabilities for retirees, compared with about $3 billion for pensions. Flint is among 17 cities and school districts under some form of state control.

CalPERS Private Equity Returns: Good, But Not Good Enough - As we noted in a recent post:Private equity investors are flush with cash distributions. Now that money is finally rolling in, many seem blithely unaware that the typical PE fund launched since 2005 has failed to beat the stock market. Investors would have been better off putting their money in an index fund that tracked the market than in these PE funds – and would have had less risk and more liquidity to boot. Yet PE investors are ploughing cash back into new PE funds. According to private equity data research firm PitchBook, 2013 was the best year for private equity fundraising since the financial crisis struck in 2008, and the pace has continued into 2014. CalPERS, the largest public pension fund in the U.S. with more than 1.6 million members in its retirement system, just announced its preliminary returns for the 2013-2014 fiscal year that ended on June 30. Comparing the performance results for CalPERS’ investments in private equity with the performance of its investments in the stock market illustrates the point:

Social Security: CBO tells it like it is. . . mostly - For some time now the Social Security Trustees have been reporting in the “media” using scare tactics like this: “Social Security Going Broke Sooner Than We Thought! Faces [fill in the blank] Trillion Dollar Deficit!” And I have tried to explain that what those numbers mean is that we need to raise the amount of money we save for our Social Security pensions by about eighty cents per week each year in order to pay for our longer life expectancy. Now, the Congressional Budget Office has replied to a request from Senator Orrin Hatch for some numbers that would show the effect of different proposed payroll tax increases, and the effect of different increases in the tax “cap” [the level above which payroll taxes are not assessed, on the theory that Social Security is insurance for which "enough is enough"]. The CBO numbers are the same numbers I have been telling you, except that they do not contemplate the effect of increasing the tax gradually. Raising the tax immediately by 2.8% would pay for all “scheduled” Old Age and Survivors benefits for the next seventy five years. Paying for Disability Insurance over the same time would require another 0.7%, for a total increase of 3.5% But, and this is the part CBO leaves out, it is not necessary to raise the tax the full 3.5% “immediately.” By raising the tax one tenth of one percent per year…. about eighty cents per week per year…. not only would the tax raise be too small to notice each year, but the gradually increasing tax rate would fall more heavily on those taxpayer- beneficiaries many years from now who will be making more money than we are today, and who are expected to live longer than we will. This would be the fairest way to make the needed increase. While this CBO report is refreshingly straightforward, it does stray into “misleading statistics” by describing the tax increases as “28%.” It is 3.5% of your wages with most people seeing only a 1.75% increase in the tax with their employer paying the other 1.75%

Fixing the Border Crisis and Social Security in One Go --Stay with me here. Because I am almost serious about this proposal. The Border Crisis: tens of thousands of unaccompanied minors crossing the U.S. border.Social Security ‘Crisis’: per ‘Reformers’ one that is driven by pure demography – too few future workers to support longer living large cohorts of retireees.Solution? Keep the kids while excluding the parents. That is launch a campaign in Central America with the following messages: One. It is very dangerous to send your kids to El Norte. Many of them might die on the way, almost all will be abused and exploited in one way or another, and all at the cost of your life savings and borrowings. Two. If they manage to make it alive the U.S. will allow them to stay. But will not grant them any rights to sponsor their parents until they are adult citizens who are both financially secure enough to be sponsors and having undergone the naturalization process. Congratulations! Your kids are Americans now. But you may never see them again. Turning to Social Security. One of the major contradictions in Social Security projections is that in the face of a declining worker/retiree ratio the Office of the Chief Actuary has consistently projected a drop in immigration in both absolute and relative terms from its peak. But unless you are an outright Nativist this makes little long term sense at all. After all if we need future workers to take care of increasingly aged Boomers where better to find them than overseas? Or better among the pool of new workers graduating from American high schools who arrrived here as unaccompanied children?

Social Security: What do Americans Want - The above is an extract from a 2012 National Academy of Social Insurance publication entitled Social Security: What do Americans Want. There is much to see and read in this publication and I urge people to take a look at this longish PDF of 57 pages and many Tables, of which this is just one. But one that tests the simple question of whether Americans would agree either to pay more for Social Security themselves and/or to have wealthy Americans pay more. And I think rather amazingly there is a broad consensus for one, raising Social Security revenues, and two, an across the board burden sharing. That is Workers are not ALL about “Tax the Rich” and the Wealthy are not AT ALL about “Not MY problem”. Instead Americans from all Generations, Income Levels and even Parties think Social Security is important enough to pay for. Important enough to have EVERYONE pay for it. Intergenerational Warfare? Where? and By Whom on Whom? Because it doesn’t show in the numbers.

Assessing Failure: The Death Spiral Revisited  -  Susan of Texas - Let us take an analytical look at the death of Obamacare, from the point of view of an expert on failure. Mrs. Megan McArdle, author or The Up Side Of Down: Why Looking Down On The Poor Cheers Me Up, has written approximately 95 posts since September of last year on why Obamacare would be a complete and utter falure. She has written 0 posts on Obamacare recently, which is odd since McArdle surely wants to compare her predictions to tentative results. Some of those predictions, carefully hedged, were: 1. Obamacare will limit your choices when it forces insurers to leave the market.
2. The poor website rollout "could destroy Obamacare -- and possibly, the rest of the private insurance market."
3. Obamacare was in a "death spiral."
4. Obamacare was like Three Mile Island because it was doomed to fail from the start.
5. Obamacare was "dying of old age"; young people would not sign up.
6. Obamacare will "pull the plug" on medical innovation. Yes, she is still making this claim. 7. Obama destroyed Obamacare.
8. Obamacare won't lower costs.
9. Young people aren't signing up and won't sign up later.
10. A slowdown in health spending is due to the recession, not Obamacare.
11. "Watch Obamacare make Health Care Costs Soar"

Obamacare Fails to Fail, by Paul Krugman - How many Americans know how health reform is going? For that matter, how many people in the news media are following the positive developments?I suspect that the answer to the first question is “Not many,” while the answer to the second is “Possibly even fewer”... And if I’m right, it’s a remarkable thing — an immense policy success is improving the lives of millions of Americans, but it’s largely slipping under the radar.How is that possible? Think relentless negativity without accountability. The Affordable Care Act has faced nonstop attacks from partisans and right-wing media, with mainstream news also tending to harp on the act’s troubles. Many of the attacks have involved predictions of disaster, none of which have come true. But absence of disaster doesn’t make a compelling headline, and the people who falsely predicted doom just keep coming back with dire new warnings. ... Yes, there are losers from Obamacare. If you’re young, healthy, and affluent enough that you don’t qualify for a subsidy (and don’t get insurance from your employer), your premium probably did rise. And if you’re rich enough to pay the extra taxes that finance those subsidies, you have taken a financial hit. But it’s telling that even reform’s opponents aren’t trying to highlight these stories. Instead, they keep looking for older, sicker, middle-class victims, and keep failing to find them.

The Global Slowdown in Medical Costs : We tend to think of health care as a local good. Most people use the doctor or hospital in their neighborhood. China does not export medical care. Health and life spans differ from country to country, even county to county.But when it comes to health care spending, the picture is starting to look more global. After decades when health spending in the United States grew much faster than it did in other Western countries, a new pattern has emerged in the last two decades. And it has become particularly pronounced since the economic crisis. The rate of health cost growth has slowed substantially since 2000 in every high-income country, including the United States, Canada, Britain, France, Germany and Switzerland, according to data from the Organization for Economic Cooperation and Development. The world’s health-care systems are also converging in important ways. New drugs and medical advances, which were once adopted locally and spread more slowly, are now experiencing international launches. Medical technology companies are increasingly global, and seeing regulatory approval in many markets at once. Strategies that can reduce the need for expensive hospital stays, such as performing surgeries in outpatient clinics, are expanding around the world. Two recent papers highlighted the trend. One in The Journal of the American Medical Association compared the United States with countries in the O.E.C.D. Its author, David Squires of the Commonwealth Fund, a New York health care research group, concluded that the similarities in spending growth suggested that “the factors that stimulated the slowdown in the United States also affected other industrialized countries.” The other paper, from the O.E.C.D.’s own economists, made a similar point, highlighting that what really differentiates the United States from other countries is the high prices we have long paid for medical care, not big differences in how doctors are treating their patients.

Some Hospitals Are a Big Source of Bad Medical Advice -- Like other businesses, hospitals rely on promotions to generate customers. But when the customer is buying health care, an ill-advised promotion can do irreparable harm.   Public Citizen, a consumer advocacy organization, has embarked on a campaign to stop 20 different 20 hospital systems from partnering with companies that offer low-cost screenings for heart disease and stroke risk because the exams can do more harm than good, which the advocates say is “unethical.”  We, too, have advised against hospitals hooking up with mobile screening operations because the branding opportunity for them too often makes people who aren’t ill afraid of getting ill.Public Citizen sent letters to hospitals in eight states and Washington, D.C., seeking to stop their screening promotions. Hospitals pair up with testing outfits to raise their profiles and boost referrals, but that’s not what they tell consumers. That message is that, for a reasonable cost, you, too, will benefit because you can find out if you have a higher risk for heart problems or stroke in time to make changes and seek treatment to reduce your risks! According to Public Citizen, as reported by KaiserHealthNews.org, “the promotions rely on fear mongering and erroneously suggest that for most adults in the general population, these screening tests are useful in the prevention of several potentially life-threatening cardiovascular illnesses.”

FedEx Faces U.S. Criminal Charges Over Online Pharmacies - — FedEx Corp was indicted on Thursday for shipping packages from illegal online pharmacies despite repeated warnings from U.S. drug enforcement officials, according to a court filing.The 15-count indictment, handed down by a federal grand jury in San Francisco, includes charges for conspiracy to distribute controlled substances. FedEx allegedly gained at least $820 million from the conspiracy, the filing said, and could be fined up to twice that amount.FedEx reported $11.8 billion in total revenue for the quarter ended in May.In a statement, FedEx Senior Vice President Patrick Fitzgerald said the company is innocent and will plead not guilty. U.S. prosecutors are asking that the company assume responsibility for the legality of millions of packages a day, he said. "We are a transportation company. We are not law enforcement," he said.Beginning in 2004, the indictment said, FedEx was warned "on no less than six different occasions" that illegal Internet pharmacies were using its services to distribute prescription drugs. Senior managers were among those who received warnings, the filing said.

Researchers: Decriminalized Prostitution in Rhode Island Led to Fewer Rape, Gonorrhea Cases - A loophole in Rhode Island law that effectively decriminalized indoor prostitution in 2003 also led to significant decreases in rape and gonorrhea in the state, according to a new analysis published by the National Bureau of Economic Research. “The results suggest that decriminalization could have potentially large social benefits for the population at large – not just sex market participants,” wrote economists in a working paper issued this month.. A 1980 change to state law dealing with street solicitation also deleted the ban on prostitution itself, in effect making the act legal if it took place indoors. The loophole apparently went unnoticed until a 2003 court decision, and remained open until indoor prostitution was banned again in 2009.As you might expect, the economists found that decriminalizing indoor prostitution was a boon to the sex business. “Decriminalization decreased prostitute arrests, increased indoor prostitution advertising and expanded the size of the indoor prostitution market itself,” they wrote. Rhode Island also saw “a large decrease in rapes” after 2003, while other crimes saw no such trend in the state, they wrote. There also was “a large reduction in gonorrhea incidence post-2003 for women and men,” they wrote. The economists then used several economic models to track the decriminalization’s effects versus other possible causes. They found “robust evidence across all models that decriminalization caused rape offenses and gonorrhea incidence to decrease.” One model estimated a 31% decrease in per-capita rape offenses and a 39% decrease in per-capita female gonorrhea cases due to the decriminalization of indoor prostitution.

Do Trans Fat Bans Save Lives? - Artificial trans fat is omnipresent in the global food chain, but the medical consensus is that it increases the risk of developing cardiovascular diseases such as heart disease and stroke. Between 2007 and 2011, New York City and six other county health departments implemented bans on trans fat in restaurants. This column presents the first evaluation of the effect of these bans on cardiovascular disease mortality rates.

Axed scientists join petition against creation of highly pathogenic strains of flu -- Senior American scientists have been abruptly dismissed from a US Government advisory board on dangerous biological agents, amid growing disquiet within the academic community about laboratory research creating more dangerous forms of flu virus.Four of the 11 researchers, who were dismissed on Sunday night, have since signed a petition calling for a limit on what laboratory experiments should be done on highly pathogenic strains of flu. They had been long-standing members of the US National Science Advisory Board for Biosecurity (NSABB), which advises the US health department on so-called “dual use” research that could endanger public health. They were effectively sacked from their advisory roles by the US National Institutes  of Health (NIH), which has funded some of the most contentious research on flu viruses as well as the high-security laboratories that have been involved in recent mishaps over anthrax, smallpox and avian flu. The researchers were simply told their terms of service had ended.

How to Ignore a Plague --In the doorway of an Ebola isolation facility in Kenema, Sierra Leone, stood a group of 10 or so patients. Inside the isolation wards were dozens of people who had tested positive for the rampaging hemorrhagic fever, including at least five nurses. They had apparently been infected by patients who had not been suspected of carrying the virus. Until recently, health workers didn’t use protective gloves unless they knew they were treating a confirmed case of Ebola—even though the virus is hard to diagnose, easily transmitted through bodily fluids, and Sierra Leone is in the middle of an outbreak that has stricken more than 300 and killed 92. One of the nurses died a few days ago. Her name was Sarah, and she got married last December. She was a few weeks pregnant.  Despite the danger facing these medical workers, they are being blamed for the disease by the public—a public so poorly informed about Ebola that many didn’t know of its existence before the outbreak began.any patients there fled after one of the nurses tested positive, headed for who knows where. And a couple of days after I visited, a colleague of mine watched relatives of Ebola patients pelt the hospital itself with stones. Confirmed Ebola cases are quarantined, and the attackers accused the nurses of sorcery and demanded their sick relatives be released to them — if they were dead, they said, they wanted the bodies to bury themselves.

Ebola Spreads to Sierra Leone Capital of Freetown as Deaths Rise - The worst outbreak of Ebola moved to Sierra Leone’s capital of Freetown where an Egyptian was found with the city’s first confirmed case of the disease. The unidentified Egyptian national had traveled from Kenema, the largest city in the nation’s Eastern Province, and checked into a clinic east of Freetown, Sidie Yahya Tunis, director of Information, Communication and Technology at the Ministry of Health and Sanitation, said by phone today. The person was moved back to the Ebola center in Kenema, he said. “The Ebola disease usually spreads to other places when suspected or confirmed cases in one community move to another, they abandon treatment centers to stay with relatives or they seek treatment outside the Ebola centers,” Tunis said. There have been 99 Ebola deaths in Sierra Leone out of 315 laboratory-confirmed cases, the ministry said in an e-mailed statement today. The ministry said yesterday that 92 people had died out of 305 cases. Cases of the hemorrhagic fever have killed more than 540 people in Guinea, Sierra Leone and Liberia in an outbreak that according to the World Health Organization may last another three to four months.

Our Bees, Ourselves - — AROUND the world, honeybee colonies are dying in huge numbers: About one-third of hives collapse each year, a pattern going back a decade. For bees and the plants they pollinate — as well as for beekeepers, farmers, honey lovers and everyone else who appreciates this marvelous social insect — this is a catastrophe.But in the midst of crisis can come learning. Honeybee collapse has much to teach us about how humans can avoid a similar fate, brought on by the increasingly severe environmental perturbations that challenge modern society.Honeybee collapse has been particularly vexing because there is no one cause, but rather a thousand little cuts. The main elements include the compounding impact of pesticides applied to fields, as well as pesticides applied directly into hives to control mites; fungal, bacterial and viral pests and diseases; nutritional deficiencies caused by vast acreages of single-crop fields that lack diverse flowering plants; and, in the United States, commercial beekeeping itself, which disrupts colonies by moving most bees around the country multiple times each year to pollinate crops. The real issue, though, is not the volume of problems, but the interactions among them. Here we find a core lesson from the bees that we ignore at our peril: the concept of synergy, where one plus one equals three, or four, or more. A typical honeybee colony contains residue from more than 120 pesticides. Alone, each represents a benign dose. But together they form a toxic soup of chemicals whose interplay can substantially reduce the effectiveness of bees’ immune systems, making them more susceptible to diseases.

Australia slams 'extremist' PETA for sheep abuse video -- Australian Agriculture Minister Barnaby Joyce has described animal rights group PETA as “extremist” and questioned their methods after the release of footage showing sheep being beaten by shearers. Joyce said Australia “does not condone the mistreatment of animals” but added that the violence shown in the PETA video should have been reported immediately. “An emotional response without full investigation, including why it has taken so long for PETA to release the footage, does not result in better husbandry practices,” Joyce said in a statement late Friday. “It just reinforces the belief that PETA is an extremist group that wants to end livestock production and to irreparably damage the economy and the reputation of Australian farmers.” The video released Thursday showed shearers beating and throwing the animals, stamping on their necks and stitching wounds apparently without anaesthetic.

Parched Texas Town Turns to Treated Sewage as Emergency Drinking Water Source - —Wichita Falls officials began blending 5 million gallons a day of treated wastewater into their municipal water system this week, launching one of the biggest so-called direct reuse programs in the country. While some residents in this city of about 105,000 are concerned about drinking water from a sewage treatment plant, city officials and business leaders say it was the only way to adapt to an unprecedented dry spell. The lakes that supply the city have dropped below 25 percent of their capacity. It's just one of the hard choices facing the second-biggest U.S. state as it confronts a tightening drought, a population boom and the long-term effects of climate change. Voters approved $2 billion in a November election to fund water projects around the state, and other cities are considering the same direct reuse of wastewater as Wichita Falls. Water officials in the Dallas-Fort Worth metropolitan area are considering a $3.4 billion plan to build a new reservoir, after efforts to import water from Oklahoma were shot down. "We believe the rest of the state is watching what we're doing, and this may be a viable water source,"

For First Time, California Gets Ready For Mandatory Water Restrictions -- On Tuesday the State Water Resources Control Board in California is expected to institute statewide mandatory water restrictions for the first time. All of California is in some type of drought and reservoirs are precariously low in many places. The nation’s largest reservoir, Lake Mead in Nevada, recently reached an all-time low. So now the impact of the enduring drought has extended beyond warning. “Many urban Californians don’t realize how bad a drought the state is in,” board chair Felicia Marcus said last week. “It is a mistake to think that they are not at risk. What these regulations propose is not that everyone kill off their lawns, but that at a minimum, people don’t over-water.”The restrictions would ban wasteful outdoor watering, such as sprinkler water that runs onto the sidewalk or street. Hosing down sidewalks and driveways would also be banned and washing a car would require a shut-off nozzle on the hose. Maximum penalties could reach up to $500, enforceable by any public employee empowered to enforce laws, including local water agencies. Warnings and escalating fines would likely be the more moderated approach. If the restrictions prove ineffective or the drought worsens, tougher restrictions could be considered.  The board estimates that the proposed restrictions could save enough water to supply more than 3.5 million people for a year, about nine percent of the state’s population.

California Wells Could Run Dry in One Year: Study - Farmers in pockets of California hardest hit by the drought could begin to see their wells run dry a year from now if rain and snow remain scarce in the agriculturally rich state, according to a study released Tuesday. Richard Howitt, a University of California, Davis professor emeritus of agriculture and resource economics, urged farmers to take the lead in managing groundwater to irrigate crops and sustain California's $44.7 billion farming industry. Farmers are accustomed to having a seeming endless supply, Howitt said. "My message to farmers is treat groundwater like you treat your retirement account," Howitt said in an interview with the Associated Press. "Know how much water's in it and how fast it's being used.'' The study released by the University of California, Davis, Center for Watershed Sciences, used computer modeling, NASA satellite data and estimates provided by state and federal water agencies to examine the impact on California if the next two years continue to be abnormally dry.

America’s largest reservoir is hitting new record lows every day -- The drought that’s afflicting much of the American West has hoovered out a record-breaking amount of water from the reservoir that’s held in place by the Hoover Dam.Water levels in Lake Mead, the nation’s largest reservoir, have fallen to a point not seen since the reservoir was created during the 1930s to store water from the Colorado River. . The Las Vegas Review-Journal reports that the surface of the reservoir dipped below 1,082 feet above sea level last week: The past 15 years have been especially hard on the nation’s largest man-made reservoir. Lake Mead has seen its surface drop by more than 130 feet amid stubborn drought in the mountains that feed the Colorado River. The unusually dry conditions have exacerbated a fundamental math problem for the river, which now sustains 30 million people and several billion dollars worth of farm production across the West but has been over-appropriated since before Hoover Dam was built.The latest low water mark comes less than four years after the previous record of 1,081.85 was set on Nov. 27, 2010. Experts expect the water level to continue to fall during the coming weeks. Because the ways we’re using water in the American West during a widespread drought are simply unsustainable.

20 Signs The Terrible Drought In The Western US Is Starting To Become Catastrophic - When scientists start using phrases such as "the worst drought" and "as bad as you can imagine" to describe what is going on in the western half of the country, you know that things are bad.  Thanks to an epic drought that never seems to end, we are witnessing the beginning of a water crisis that most people never even dreamed was possible in this day and age.  The state of California is getting ready to ban people from watering their lawns and washing their cars, but if this drought persists we will eventually see far more extreme water conservation measures than that.  And the fact that nearly half of all of the produce in America comes out of the state of California means that ultimately this drought is going to deeply affect all of us.  Food prices have already been rising at an alarming rate, and the longer this drought goes on the higher they will go.   Let us hope and pray that this drought is permanently broken at some point, because otherwise we could very well be entering an era of extreme water rationing, gigantic dust storms and crippling food prices.

Hottest March-June On Record Globally, Reports Japan Meteorological Agency -- You may recall that the Japan Meteorological Agency (JMA) reported last month that March-May was the hottest in more than 120 years of record-keeping. Well, the JMA reported Monday that last month was the hottest June in more than 120 years of record-keeping. That makes 3 straight record-breaking months for JMA — the hottest second quarter on record. It also means we had the hottest March-June on record. And these records occurred despite the fact we’re still waiting for the start of El Niño. It is usually the combination of the underlying long-term warming trend and the regional El Niño warming pattern that leads to new global temperature records. The JMA is a World Meteorological Organization Regional Climate Center of excellence. This week, NASA reported fairly similar observations. In the NASA dataset, last month was the third warmest June on record — and the second quarter of 2010 just edged out the second quarter of this year for hottest on record. It seems all but certain more records will be broken in the coming months, as global warming combines with an emerging El Niño — whose chance of forming NOAA puts at “about 70% during the Northern Hemisphere summer” and “close to 80% during the fall and early winter.”

Exclusive: Coastal flooding has surged in U.S., Reuters finds (Reuters) - Coastal flooding along the densely populated Eastern Seaboard of the United States has surged in recent years, a Reuters analysis has found. During the past four decades, the number of days a year that tidal waters reached or exceeded National Oceanic and Atmospheric Administration flood thresholds more than tripled in many places, the analysis found. At flood threshold, water can begin to pool on streets. As it rises farther, it can close roads, damage property and overwhelm drainage systems. Since 2001, water has reached flood levels an average of 20 days or more a year in Annapolis, Maryland; Wilmington, North Carolina; Washington, D.C.; Atlantic City, New Jersey; Sandy Hook, New Jersey; and Charleston, South Carolina. Before 1971, none of those locations averaged more than five days a year. Annapolis had the highest average number of days a year above flood thresholds since 2001, at 34. The analysis was undertaken as part of a broader examination of rising sea levels Reuters plans to publish later this year. As many Americans question the causes and even the reality of climate change, increased flooding is already posing a major challenge for local governments in much of the United States. “Chronic flooding is a problem our coastal managers are dealing with every day,” said Mary Munson, executive director of the Coastal States Organization, a Washington nonprofit representing 35 states and territories. “Flooding causes the quality of life in these communities to decrease along with the property values, while the flood insurance rates go up.”

The Largest Landfill On Earth: Plastic Garbage In The Oceans? - Americans throw away over 30 million tons of plastic every year, of which only about 25 percent is recycled. The rest goes to landfills. Unfortunately, the largest “landfill” on Earth is actually in the North Pacific Ocean.  The “Great Pacific Garbage Patch” is estimated to be anywhere from 3,100 square miles to twice the size of Texas.  You may be wondering how garbage dumped on land can make it to the ocean. Well, first of all, some garbage is directly dumped into the ocean. Secondly, as Scripps Institution marine biologist Miriam Goldstein puts it, “the ocean is downhill from everywhere;” if someone in Iowa throws a bottle into a river, it will eventually end up in the ocean. Finally, about 20 percent of the debris in the garbage patch comes from sea-going vessels and oil platforms.  The garbage patch forms in the North Pacific gyre, one of five main ocean gyres worldwide: North Pacific, South Pacific, North Atlantic, South Atlantic and Indian Ocean. These gyres are created when the jet stream goes one way and the trade winds go the opposite way – creating a huge, gently swirling circle. On the outside of the circle, the currents move around, but the inside remains calm, making it the perfect place for debris to accumulate. In the case of the North Pacific gyre, pretty much everything that falls off the west coast of North America and the east coast of Asia will most likely end up in there. While the North Pacific garbage patch is the largest, each of the five gyres has its own accumulation. In fact, the trash from all five gyres put together covers 40 percent of the world’s oceans.

Every single ocean has a massive swirling plastic garbage patch - Vox: What happens to our plastic bottles and lids and containers after we throw them out? This turns out to be something of a scientific mystery. We know that the vast majority of plastic trash ends up in landfills, just sitting there and taking thousands of years to degrade. A smaller fraction gets recycled (about 9 percent in the United States).  But another large portion finds its way into the oceans, either by people chucking litter directly into the sea or by storm-water runoff carrying plastic debris to the coasts. One conservative estimate suggests that at least 1 million tons of plastic has entered the ocean since the 1970s.Now here's the catch: We still don't know where all that ocean plastic actually went. Scientists have recently identified massive swirling garbage patches in each of the world's oceans that contain up 35,000 tons of plastic. But those patches account for less than 1 percent of the plastic thought to be in the oceans — and no one quite knows where the other 99 percent went. One possibility is that fish are eating the rest of the plastic and it's somehow entering the food chain. But no one quite knows for sure.

First-of-its-Kind Map Details Extent of Plastic in Five Ocean Gyres -- When a research team set sail on a nine-month, worldwide expedition in 2010 to study the impact of global warming on Earth’s oceans, one of their projects was to locate the accumulations of plastic. They found plenty. They explored the five huge gyres, which collectively contain tens of thousands of tons of plastic. The result was the creation of a compelling, first-of-its-kind map of this debris.

Environmentalists Denounce Repeal of Australia’s Carbon Tax — Opposition politicians and environmentalists in Australia reacted with dismay Thursday to the country’s repeal of laws requiring large companies to pay for carbon emissions, saying that it made Australia the first country to reverse progress on fighting climate change.The Senate voted 39 to 32 on Thursday to repeal the so-called carbon tax after Prime Minister Tony Abbott’s conservative government secured the support of a number of independent senators. The House of Representatives had voted earlier in the week to repeal the unpopular measure, which has been a highly contentious issue in Australian politics for seven years.The tax was devised to penalize hundreds of Australia’s biggest producers of carbon emissions, setting a price of 23 Australian dollars, or $21.50, per metric ton of carbon dioxide when it was put into effect in 2012 under then-Prime Minister Julia Gillard of the Labor Party, which is now in the opposition. The price rose to 25 Australian dollars this month.Mr. Abbott, of the conservative Liberal Party, who took office in September, made repealing the tax a central pledge of his election campaign, arguing that ending it would reduce electricity prices and enhance economic growth. But he struggled twice to get the measure through the Senate before the vote Thursday. The government now plans to introduce a range of measures that it says will encourage business to reduce pollution, rather than penalizing polluters.After the vote Thursday, Mr. Abbott characterized the tax as a “useless, destructive tax, which damaged jobs, which hurt families’ cost of living and which didn’t actually help the environment.”

"How Stringent Are the US EPA’s Proposed Carbon Pollution Standards for New Power Plants?"-  In the absence of legislation for a US national climate policy, regulatory responsibility has fallen to the US Environmental Protection Agency (EPA). In March 2012, the EPA announced a proposed carbon pollution standard for new power plants. Then in September 2013, the EPA withdrew the proposal upon issuing a revision as part of President Obama’s Climate Action Plan. This article analyzes the stringency of the proposed emission standards for new electricity generating units relative to the emission rates of existing, recently constructed, and proposed units in the United States. No coal-fired units would come close to the emission targets unless there are future innovations in carbon capture and storage. While natural gas units designed to meet peak demand are effectively exempt, very few of them would comply on an annual basis. For the baseload natural gas units—that is, combined-cycle gas turbine units—we find that between 90 and 95 percent of the units that began operating in 2006 or later would already meet the proposed targets. Finally, we discuss differences among states regarding the characteristics of recently constructed and planned units as they relate to the proposed standards.

A Mysterious Hole at the End of the World -- The wilderness of Siberia has just gotten a lot more mysterious.Helicopter pilots flying over the Yamal Peninsula have discovered a giant crater-like hole in the Siberian tundra. The hole is reportedly large enough to fit "several" of the very helicopters that discovered it.The hole, estimated to be 150 to 250 feet across, appears to have been made by some sort of blast, and is thought to be around two years old. It's also about 30 miles from one of the Yamal Peninsula's largest natural gas fields. The Yamal Peninsula is Russia's main production area for gas.The Russian internet is ablaze with speculation about the origin of the giant hole, from a UFO drilling experiment, to a massive meteor impact. But one of the more plausible explanations for the giant hole comes from Anna Kurchatova, from the Sub-Arctic Scientific Research Centre in Russia. She told The Siberian Times that the crater was likely formed by a water-salt and gas mixture that caused an underground explosion.That gas that she is referring to is methane.

Fukushima "Cleanup" Has Contaminated Rice Crops 20 Kilometers Away - Remember when Japan and Tepco lied it was in control of the Fukushima disaster recovery, when it lied radiation exposure was manageable (when concerned about radiation exposure, just raise the minimum safe dosage), or when it lied that it had any clue what it was doing when it proposed building an "ice wall" to freeze the radioactive ground water below the damanged plant? Turns out it also lied about the impact of Fukushima's radiation not only on locally produced food (which was served to a government official to "prove" its safety), but also on food as far as 20 kilometers away. According to Japan's Asahi, cleanup work at the Fukushima Dai-Ichi nuclear plant in summer last year "may have" contaminated rice harvested from 14 locations in Minamisoma city, more than 20km north of the reactors.

Storage of Radioactive Spent Fuel Rods Still Haunts Nuclear Industry -- Long-term employment is hard to find these days, but one career that can be guaranteed to last a lifetime is dealing with nuclear waste.  The problem and how to solve it is becoming critical. Dozens of nuclear power stations in the U.S., Russia, Japan and across Europe and Central Asia are nearing the end of their lives. And when these stations close, the spent fuel has to be taken out, safely stored or disposed of, and then the pressure vessels and the mountains of concrete that make up the reactors have to be dismantled. This can take between 30 and 100 years, depending on the policies adopted. In the rush to build stations in the last century, little thought was given to how to take them apart 40 years later. It was an age of optimism that science would always find a solution when one was needed, but the reality is that little effort was put into dealing with the waste problem. It is now coming back to haunt the industry.

People who claim to worry about climate change use more electricity - People who claim to worry about climate change use more electricity than those who do not, a Government study has found. Those who say they are concerned about the prospect of climate change consume more energy than those who say it is “too far into the future to worry about,” the study commissioned by the Department for Energy and Climate Change found. That is in part due to age, as people over 65 are more frugal with electricity but much less concerned about global warming. However, even when pensioners are discounted, there is only a “weak trend” to show that people who profess to care about climate change do much to cut their energy use. The findings were based on the Household Electricity Survey, which closely monitored the electricity use and views of 250 families over a year. The report, by experts from Loughborough University and Cambridge Architectural Research, was commissioned and published by DECC.

Hungry U.S. Power Plant Turns to Russia for Coal Shipment - When New Hampshire’s largest utility needed to rebuild coal supplies after the past frigid winter, it turned to Russia rather than Appalachia in the U.S. Northeast or Wyoming’s Powder River Basin. The Doric Victory, a bulk carrier the length of two football fields, transported the fuel almost 4,000 miles (6,436 kilometers) from Riga, Latvia, last month to Public Service of New Hampshire’s Schiller power plant in Portsmouth, a 150-megawatt facility that’s produced electricity since 1952. Utilities in the U.S. are scrambling for coal, on pace to increase imports 26 percent this year, as railroad bottlenecks slow deliveries and electricity demand climbs with an improving economy. Russia, the world’s third-largest exporter of the fuel, will boost shipments 3.9 percent to 106 million metric tons this year, IHS Energy forecasts, part of President Vladimir Putin’s plan to expand Russia’s role in the global coal market.

Book takes on fracking 'myths' - Vindicator - While oil and gas development has slowed in the Mahoning Valley, arguments over the practice have continued unabated. Greg Kozera wrote “Just the Fracks, Ma’am,” in which he takes on what he contends are the biggest myths about the fracking process and talks about his experience in the oil and gas industry. Kozera is an engineer with a master’s degree in environmental engineering with more than 35 years of experience in the natural gas and oil industry. He also is the president of the Virginia Oil and Gas Association. “I want to replace the unfounded fears people have about fracking with facts. This is simply too important an issue for so many people to make decisions based on misinformation,” Kozera said.

Tressel tasked with building academics at YSU to support oil and gas industry -  Vindicator - The board of directors at Youngstown State University turned a negative into a positive and, following the untimely departure of President Randy Dunn, landed a national sports figure and hometown hero as its new university president. President Jim “Coach” Tressel may increase enrollment, raise money and project a motivating view of the university for years to come. With an academically strong support staff, Tressel seems to possess toughness capable of addressing the challenges that face the university.The new president will find the following changes on campus after his time away: the construction of new campus buildings, the demolition of many blighted buildings surrounding campus, the creation of a STEM pro- gram, the university’s affiliation to the additive manufacturing and defense industry, the new and improved neigh- boring downtown Youngstown, which includes a world-class business incubator program, and, last but not least, the regional expansion of the oil and natural-gas industry in the Mahoning Valley and beyond.The oil and natural-gas industry has shown that it brings not only additional service, transportation, manufacturing and construction jobs, such as those provided by Vallourec Star, but also environmental challenges that have subtle, yet powerful, impacts on the world’s view of YSU as an institution of higher learning with a quality campus life. With enrollment down 15 percent since 2010, student attraction amid this boom will be integral to the university’s future success. Certain aspects of the oil and naturalgas boom in eastern Ohio and western Pennsylvania will complement academic growth and campus life at YSU. The oil and natural-gas industry will need advanced metallurgic, civil, electrical and even radiological engineers if infrastructure is built in the Mahoning Valley to supply and support regional shale drilling.

In rare effort, Ohio scientist to test water before fracking soars - McClatchy DC: As the shale gas boom was making its way into Ohio in 2012, University of Cincinnati scientist Amy Townsend-Small began testing private water wells in Carroll County, the epicenter of the Utica Shale. Her project, which includes samples of more than 100 wells, is one of the few sustained efforts in the nation to evaluate drinking water quality before, during and after gas drilling.Although it will likely be another year before Townsend-Small releases the results, her work offers a template for other communities worried about how drilling, fracking and producing unconventional natural gas might contaminate groundwater supplies.Most residents test their water only after they suspect it has been polluted; few have the resources or foresight to conduct baseline testing prior to the drilling.The tests cost hundreds of dollars, "so it's not something everybody can afford to do regularly," said Townsend-Small, an assistant professor in the geology department.Once her sampling results are published, the data points won't be matched with specific locations, in order to protect residents' privacy and to avoid affecting property values.Townsend-Small's team offers free water testing about four times a year to interested landowners in and around Carroll County. She uses drilling reports the industry files with Ohio regulators to determine which water samples were taken near active gas wells.

Ohio town grapples with fracking: housing troubles, rent gouging - CARROLLTON, Ohio - Concerned citizens crowded into a local church here July 10 for a town hall style meeting. They were there to hear Cody Coleman-Chrisman, founder and executive director of Ohio Valley Renters Advocates (OVRA), with a panel of experts who came to advise on fracking's latest but not least harmful effect on our eastern Ohio communities: housing shortages and the rent-gouging that followed. This meeting had been organized by OVRA and Caitlin Johnson of the Ohio Organizing Collaborative. When most people think of fracking, they either anticipate the economic opportunities promised by the energy companies or they are apprehensive about fracturing's impact on the environment, including the very water they drink and the air they breathe.Many wage-earners in our area have already found the promise of well-paying jobs (for them) to be illusory as they watched pickup trucks with out-of-state license plates invade their communities and take the new jobs they thought would be theirs. They have come to realize that there may indeed be more jobs but, for most of them, those will be low-wage jobs (in food service, hotels, etc.). Others worry about reports from other communities, ahead of them in fracking, that tell of burning water taps, poisoned water-tables, drinking water that is no longer fit to drink, disposal of the irreparably contaminated water used in the fracking process, ripped-up local roads, gas well explosions, and even earthquakes.

Two drilling companies sue Broadview Heights over ban on oil and gas wells - – Two drilling companies with natural gas and oil wells in Broadview Heights have sued the city over its prohibition against future wells. Bass Energy Co. Inc., of Fairlawn, and Ohio Valley Energy, of Austintown, said the state of Ohio, not Broadview Heights, has sole authority to permit or deny drilling and to regulate wells."Any effort by Broadview Heights to prohibit or regulate the location, drilling or operation of oil and gas wells is thus preempted by state law and of no force or effect," the companies said in the lawsuit, filed June 10 in Cuyahoga County Common Pleas Court.  On Friday, Mothers Against Drilling in Our Neighborhoods – the nonprofit citizens group that initiated a campaign to ban drilling in Broadview Heights – filed a motion to intervene in the lawsuit.MADION said there is "considerable doubt" that the city will vigorously defend the lawsuit."Both the mayor of Broadview Heights, Samuel Alai, and its law director, Vincenzo Ruffa, have made public statements expressing doubt as to the enforceability of the (drilling ban)," MADION said in its motion.MADION said Alai more than once has warned that companies would sue the city over the drilling ban, and that taxpayer money would be spent to defend the suits. In April, Ruffa said the city is "stuck" with state law, regardless of the city's drilling ban, MADION said.

Petrol panel says it won't change mind about denying well appeal - The Ohio Oil and Gas Commission has declined to reconsider its decision to deny an appeal by a local anti-fracking group opposed to a Torch area drilling-waste injection well in eastern Athens County. The matter is now heading to a Franklin County court.The Athens County Fracking Action Network filed an appeal of what's known as the K&H2 well in eastern Athens County earlier this year, with the Ohio Department of Natural Resources disputing the standing of the group to make such an appeal. The well in question is one of two injection wells owned by K&H Partners of West Virginia at the site.  In June, the Oil and Gas Commission granted the ODNR's motion to dismiss the appeal, siding with the state agency and K&H in arguing that the commission did not have the authority to consider the appeal. State law designates ODNR as Ohio's sole oil and gas regulatory authority. ACFAN had asked the Oil and Gas Commission to reconsider its decision, but last week this request was declined.  In its decision, the commission said it found no cause to reconsider, stating that it had correctly concluded that the panel lacks jurisdiction to entertain ACFAN's appeal. In the filing with Franklin County, ACFAN attorney Sahli requests the court find the dismissal from the commission "unlawful and unreasonable" and to overrule the dismissal, remanding the matter to the commission to hold a hearing.

Wet gas means more profits for Ohio, says state | Midwest Energy News: Controversy continues over the rapid growth of high volume oil and gas operations made possible by horizontal hydraulic fracturing, or fracking. But at its “State of the Play” event at Stark State College, officials with the Ohio Department of Natural Resources (ODNR) had only enthusiasm for the state’s growing shale gas industry. The state’s natural gas production nearly doubled last year, mostly as a result of horizontal wells in the Utica Shale in eastern Ohio. Market shifts have made that formation’s “wet gas” particularly profitable. Such wet gas has a relatively high proportion of other light hydrocarbons in addition to methane. Those other hydrocarbons can be separated out, processed and sold to make plastics and other petrochemical products. “These are very valuable products,” said Rick Simmers, Chief of ODNR’s Division of Oil & Gas Resources. “And they make the Utica unique among shale plays in the entire nation and, for that matter, in the world.”

Fracking wastewater is big business in Ohio -- The oil and gas boom made possible by hydraulic fracturing, or fracking, of horizontal wells has also led to dramatic growth in Ohio’s injection well disposal industry. The state now has more than 200 active injection wells for oil and gas waste, as shown on an updated map released this month by the Ohio Department of Natural Resources (ODNR). Over 16 million barrels of wastewater were pumped into Ohio rock formations in 2013 — an increase of more than 2 million barrels from the previous year. In the oil and gas industry one barrel equals 42 gallons.In contrast, only seven injection wells were active in neighboring Pennsylvania, which sends millions of gallons of its fracked wells’ wastewater to Ohio. Besides bringing in revenue for companies, the growing industry produced nearly $2 million in fees for ODNR last year. According to agency spokesperson Mark Bruce, that money supports the agency’s regulatory program. Yet environmental groups have questions and concerns. Drilling, fracking, and operating fracked wells produces massive amounts of wastewater. Wastewater from drilling is known as pit water. Flowback is fluid that comes back to the surface during the initial period after fracking. Produced water comes up with oil and gas while the well is in operation. Although some water is reused for fracking operations, all the wastewater must eventually go somewhere. Wastewater from fracking is very salty. It also contains substantial amounts of heavy metals, along with dissolved radioactive materials, such as radium. “It’s a hazardous material, so you don’t want to leave it sitting around on the surface,” “You don’t want to be spreading it on roads for dust control.”

Ohio fracking water reuse questioned -  Since January, Ohio has approved operating permits for 27 centers that take drilling mud, radioactive rocks and wastewater from fracking wells and store or “clean” it before sending it on to landfills or injection wells. The Ohio Department of Natural Resources has approved every permit — considered temporary until the state writes rules that regulate the centers — without any public notification or input. That worries critics, who say there is little oversight to ensure that the environment and people who live near the facilities are safe. At least 12 facilities are operating. Some operated before a law was enacted in January that brings them under the state’s authority. State officials say recycling centers clean otherwise dirty byproducts of fracking and divert some of the millions of gallons of wastewater that is pumped deep underground in injection wells. “They need a place to put (the waste), and they need a place to test it,” said Mark Bruce, an ODNR spokesman. “You don’t want a container of oil-field waste just sitting somewhere.” The temporary permits expire six months after the department creates rules. Those are still being drafted, according to the agency.

Citizens' group asks US EPA to regulate Ohio fracking waste -  A Toledo-based grass-roots group opposed to horizontal shale drilling — also known as fracking — has asked the U.S. Environmental Protection Agency to take over enforcement of the Clean Water Act in Ohio, saying that the state EPA “is no longer fit” to do the job. Terry Lodge, attorney for the FreshWater Accountability Project, sent a letter to the U.S. EPA on Friday, outlining what the group says is Ohio’s “insufficient regulation” of oil and gas industry waste. “Sadly, the (Ohio) EPA has been stripped of its protective role while the gas industry has erected its own self-regulatory facade through powerful lobbying,” Lodge wrote in a letter to U.S. EPA Administrator Gina McCarthy. “It’s time to unmask this charade and restore U.S. EPA authority over water effluent in Ohio, which has been contaminated with radioactive and chemical wastes.” In his letter, Lodge said the Ohio General Assembly has assigned sole responsibility for all environmental permitting for all aspects of the oil and gas industry to the Ohio Department of Natural Resources. Lea Harper, managing director of the FreshWater Accountability Project, said her group is asking the federal agency to revoke nearly two dozen ODNR “chief’s orders,” which are temporary authorizations that have been issued to 23 facilities in the state, including several in the Tuscarawas Valley. (see list)

Each fracking site needs list of chemicals - The Columbus Dispatch -- If it hadn’t been for residents’ efforts, the Monroe County Emergency Management Agency might not have had even the meager list of chemicals it had when 16 fracking trucks caught fire on June 29 (“State agency: Fracking fire likely fouled creek,” Dispatch article, July 1). Until September 2013, the federal Emergency Planning and Community Right to Know Act of 1986 hadn’t been enforced for the oil and gas industry in nearly 12 years. The U.S. Environmental Protection Agency worked with Ohio’s State Emergency Response Commission and the oil and gas industry to begin sending lists of hazardous chemicals to fire departments and emergency-planning committees last September, largely due to citizens’ action. Ohio law still exempts oil and gas operators from the same emergency-safety standards that every other industry in Ohio follows, and confuses how oil and gas drillers report hazardous chemicals to emergency responders. We need further improvements to federal standards, too, so that hazardous chemicals are reported to emergency responders as soon as they’re brought to a site, rather than within 30 to 90 days, as rules currently allow.

New York Shale Gas Situation in 4 Maps -

• 1. NY Bans/Moratoria (Edelstein) http://www.fractracker.org/map/ny-moratoria/
• 2. NY “Frack Us First” resolutions (Edelstein) http://www.fractracker.org/map/ny-moratoria/
• 3: Shale Gas potential in NY (Acton/Northrup/Allstadt/Brock) http://www.nofrackingway.us/wp-content/uploads/2014/01/Slide1.jpg  
• 4: Composite showing the NY Bans/Moratoria and the Pro-gas resolutions vs the towns where the greatest shale gas potential is:

Court dismisses challenges to NY's lengthy fracking review (AP) -- A judge has dismissed two lawsuits challenging the state's delay in finishing its health and environmental analysis of the potential impact of shale gas development in New York, state Attorney General Eric Schneiderman said Monday. The lawsuits were filed on behalf of the Joint Landowners Coalition of New York, claiming 70,000 members, and the trustee of bankrupt Norse Energy. State Supreme Court Justice Roger McDonough dismissed both lawsuits, saying the petitioners did not have standing to sue Gov. Andrew Cuomo, the Department of Environmental Conservation and the Health Department to compel completion of the review. Shale gas development using horizontal drilling and high-volume hydraulic fracturing, or fracking, has been on hold in New York since the environmental impact review was launched in July 2008. Schneiderman called the decision "an important victory in our effort to ensure all New Yorkers have safe water to drink and a clean, healthy environment." The lawsuits claimed the Department of Environmental Conservation had abused its discretion in delaying completion of its environmental review so the Democratic governor could avoid making the politically complicated decision to allow or ban fracking.  Scott Kurkoski, attorney for the landowners' coalition, said an appeal is likely.

New York Supreme Court Dismisses Pro-Fracking Lawsuits -- The State of New York won’t be rushed by the fracking industry, its supporters or their lawsuits.  A state Supreme Court judge dismissed two lawsuits Monday that sought to stop the state’s review of fracking’s health and environmental impacts, according to the Associated Press. State Supreme Court Justice Roger McDonough said the Joint Landowners Coalition of New York and the trustee of Norse Energy had no grounds to sue Gov. Andrew Cuomo, the Department of Environmental Conservation and the Health Department in hopes of a swift end to the years-long fracking review. The fracking review began back in 2008. Last month, the New York Assembly overwhelmingly passed a three-year moratorium on oil and natural gas drilling permits. The lawsuits charged that the Department of Environmental Conservation, in particular, abused its power and dragged its feet regarding the completion of the review. The Joint Landowners Coalition represents 70,000 members.

The gas company that says it can take your backyard | Al Jazeera America: The Coxes built their home in 2001, and they’ve paid to maintain their enviable slice of exurban Pennsylvania. When Ronald, a financial adviser at Prudential, grew fed up with the way his wraparound backyard deck shifted every time he sat down for an evening drink, he spent around $30,000 to rip it out and replace it. You could probably land a plane on the new one, he jokes. “This is my house, it’s my safe zone; nobody’s going to bother me,” he says. “It was worth it for the peace of mind.” But in late 2012, someone bothered the Coxes. A representative of oil and gas transporter Sunoco Logistics Partners — a “landsman” sent by the company to scout and buy access to their property — came to their front door and told them that Sunoco was going to dig a pipeline under their woods. “And I went: ‘No you’re not,’” Cox says.After he refused, a lawyer for Sunoco sent a letter that said the company had the power of eminent domain, including the right to survey their property and condemn it to build their pipeline. Sunoco hired a realty company to appraise the land, valuing the 23 acres at $352,000 and estimating the damage of constructing a pipeline at $2,700. Representatives offered the Coxes $6,000. They said it was better to sign an agreement immediately, since the company would gain the right to the property anyway. “I kind of thought, ‘If we resist enough, they’re going to go away.’ But they didn’t,” Cox says. The Coxes didn’t know it then, but their dream home lay in the path of a metastasizing controversy that involves not only Sunoco’s bid for eminent domain but an attempt by the company to circumvent local zoning laws, all aimed at swiftly completing a sprawling, multi-year project to exploit a boom in the byproducts of the Marcellus Shale.

Expert: Pa. didn't address fracking health impacts: (AP) - Pennsylvania's former health secretary says the state has failed to seriously study the potential health impacts of one of the nation's biggest natural gas drilling booms. Dr. Eli Avila also says the state's current strategy is a disservice to people and even to the industry itself because health officials need to be proactive in protecting the public. "The lack of any action speaks volumes," said Avila, who is now the public health commissioner for Orange County, New York. "Don't BS the public. Their health comes first." Avila told The Associated Press that he believes senior political advisers did a "disservice" to Republican Gov. Tom Corbett by putting a study of health effects on the back burner three years ago. That has led to a cycle of public fear and confusion, Avila said. "What are you so afraid that we're going to uncover?" Avila said of industry leaders, adding that it would be better to clearly tell people what is or isn't a problem. "It's not that I'm against fracking. I'm sure it's helping many individuals financially." The gas drilling industry has said hydraulic fracturing, or fracking, is safe and there's no evidence of serious health problems from it.

Compendium of Fracking Risks -  Executive Summary from the Compendium of Fracking Risks Three notable features: First, the compendium is top-heavy with data from recent sources. That’s because, as we discovered in our research, science is now beginning to catch up to the last decade’s surge in unconventional oil and gas extraction.  As stated in the introduction: “A growing body of peer-reviewed studies, accident reports, and investigative articles is now confirming specific, quantifiable evidence of harm and has revealed fundamental problems with the drilling and fracking. Industry studies as well as independent analyses indicate inherent engineering problems including well casing and cement impairments that cannot be prevented.” Indeed, more than half of the peer-reviewed papers in the medical and scientific literature on the health impacts of fracking have been published in the last 18 months. Second, the compendium not only compiles findings from the medical and scientific literature but also includes evidence from other credible sources, including government reports, investigative reportage by news organizations, and Form 10-K reports that gas and oil companies use to disclose risks of their operations to their investors. We chose this tack because institutional secrecy, federal exemptions from key provisions of environmental laws, gag orders, and non-disclosure agreements between industry and landowners make population-based environmental health science research, as traditionally practiced, extremely challenging.Third, the compendium is interdisciplinary. With an appreciation for the many social determinants of health, we looked at crime statistics, traffic accident rates, stress, noise and light pollution, and changing economic indicators, as well as more conventional environmental health issues, such air pollution and drinking water contamination.

Denton could become 1st Texas city to ban fracking -  A North Texas community that sits on what’s believed to hold one of the biggest natural gas reserves in the U.S. could become the first city in the state to ban hydraulic fracturing, with Denton City Council members set to vote Tuesday night on a citizen-led petition. Industry groups and state regulators warn that such a ban ban could be followed by litigation and a severe hit to the city economy. The City Council is holding a public hearing Tuesday night, with a vote to follow. If the council rejections the petition, it would likely still go to Denton’s voters in November. Under the proposed ban, operators would be allowed to continue extracting energy from the 275 wells in Denton that have already undergone hydraulic fracturing, or fracking, but not reinitiate the process on old wells.

Texas City Blocks Fracking Ban, But Voters Get Their Say In November --Denton, Texas blew its opportunity to become the first community in the state to ban hydraulic fracturing but will get a second chance for the title at the ballot box in November. After an emotional eight-hour public hearing on Tuesday, the city council in the north Texas community voted 5-2 against a citizen proposal to stop issuing permits for hydraulic fracturing, or fracking, operations. A temporary ban instituted in May will expire in September, but city fathers sent the proposal for a permanent ban to the November election. Denton, a city of about 125,000 residents that is about 35 miles northwest of Dallas, is located on the Barnett shale gas field. The city has some 275 wells that have already been fracked and would have been allowed to continue producing under the proposed ban.

As Fracking Expands, So Does Opposition – Even In Texas --Public opposition to hydraulic fracturing – better known as “fracking” -- is nothing new. The 2010 documentary “Gasland” energized the nascent anti-fracking movement, with its depiction of tap water that caught on fire and once-healthy people who became chronically ill after fracking operations began nearby.  Back then, most of the opposition tended to be concentrated in Pennsylvania, where the most intensive shale gas drilling was taking place. But as drilling operations for shale gas have spread across the country, so have movements to stop them.  Fracking began in the Marcellus Shale, which stretches from West Virginia, through Ohio and Pennsylvania to New York, as well as in the Barnett and Haynesville Shales in Texas and Louisiana.  But it has since spread to Ohio, North Dakota, Montana, and Colorado, in addition to other states. And while some places have been more welcoming to the industry than others, most communities experience mixed effects when fracking moves in. In rural communities, some farmers have been able to pay down debt and even hold onto their multigenerational farms by allowing drillers on their land.  But in others, companies have strong armed landowners into giving up mineral rights against their will. Then there is the truck traffic, noise, and air and water pollution that opponents say cause environmental and health problems. That’s why it’s no surprise that groups opposed to fracking have sprung up in disparate parts of the country, as more shale is fracked.  Perhaps the most surprising place that’s being considered is in the politically conservative, drilling-friendly state of Texas. The city of Denton, which is located on top of the natural gas-rich Barnett Shale, is considering a fracking ban. Supporters of a ban decry the environmental effects of drilling, and the fact that some well pads have been set up as close as 100 yards from people’s homes.

LAW: Age-old legal tool poses modern threat for oil and gas -- When a Texas jury handed down a $3 million verdict this year for a family affected by natural gas drilling, Dan Raichel saw a pattern coming into focus. Environmentalists had for years sought to slow the breakneck pace of shale development, but sophisticated attempts to challenge regulations or prove contamination had fallen short. And yet, down in Texas, a driller was thwarted by something as simple as nuisance law. The case centered on Bob and Lisa Parr, who lived atop the Barnett Shale and said they suffered health problems from the air emissions of nearby well sites. The jury found that the emissions disturbed the Parrs' property and constituted a private nuisance (EnergyWire, June 16). "Nuisance affects the whole fracking debate in a lot of ways," said Raichel, an attorney for the Natural Resources Defense Council. "In a colloquial sense, it's pretty clear that fracking is a nuisance in a lot of these communities." In a legal sense, nuisance claims cropping up around the country may prove surprisingly effective at reeling in development. The high-dollar Texas verdict -- which dealt not specifically with fracking but with broader oil and gas operations -- serves as a harbinger of a very litigious future.

Extreme Drought in CA Triggers Halting of Fracking Waste Injection to Avoid Aquifer Contamination  - The state’s Division of Oil and Gas and Geothermal Resources on July 7 issued cease and desist orders to seven energy companies warning that they may be injecting their waste into aquifers that could be a source of drinking water, and stating that their waste disposal “poses danger to life, health, property and natural resources.” The orders were first reported by the Bakersfield Californian, and the state has confirmed with ProPublica that its investigation is expanding to look at additional wells.  The action comes as California’s agriculture industry copes with a drought crisis that has emptied reservoirs and cost the state $2.2 billion this year alone. The lack of water has forced farmers across the state to supplement their water supply from underground aquifers, according to a study released this week by the University of California Davis. The problem is that at least 100 of the state’s aquifers were presumed to be useless for drinking and farming because the water was either of poor quality, or too deep underground to easily access. Years ago, the state exempted them from environmental protection and allowed the oil and gas industry to intentionally pollute them. But not all aquifers are exempted, and the system amounts to a patchwork of protected and unprotected water resources deep underground. Now, according to the cease and desist orders issued by the state, it appears that at least seven injection wells are likely pumping waste into fresh water aquifers protected by the law, and not other aquifers sacrificed by the state long ago.

Poisoning the Well: How the Feds Let Industry Pollute the Nation’s Underground Water Supply - ProPublica: Federal officials have given energy and mining companies permission to pollute aquifers in more than 1,500 places across the country, releasing toxic material into underground reservoirs that help supply more than half of the nation's drinking water. In many cases, the Environmental Protection Agency has granted these so-called aquifer exemptions in Western states now stricken by drought and increasingly desperate for water. EPA records show that portions of at least 100 drinking water aquifers have been written off because exemptions have allowed them to be used as dumping grounds. "You are sacrificing these aquifers," said Mark Williams, a hydrologist at the University of Colorado and a member of a National Science Foundation team studying the effects of energy development on the environment. "By definition, you are putting pollution into them. ... If you are looking 50 to 100 years down the road, this is not a good way to go." As part of an investigation into the threat to water supplies from underground injection of waste, ProPublica set out to identify which aquifers have been polluted. We found the EPA has not even kept track of exactly how many exemptions it has issued, where they are, or whom they might affect. What records the agency was able to supply under the Freedom of Information Act show that exemptions are often issued in apparent conflict with the EPA's mandate to protect waters that may be used for drinking.

Answers on link between injection wells and quakes - States where hydraulic fracturing is taking place have seen a surge in earthquake activity, raising suspicions that the unconventional drilling method could be to blame, especially the wells where the industry disposes of its wastewater. Fracking generates vast amounts of wastewater, far more than traditional drilling methods. The water is pumped into injection wells, which send the waste thousands of feet underground. No one knows for certain exactly what happens to the liquids after that. Scientists wonder whether they could trigger quakes by increasing underground pressures and lubricating faults. Oklahoma has recorded nearly 250 small-to-medium earthquakes since January, according to statistics kept by the U.S. Geological Survey. That's close to half of all the magnitude 3 or higher earthquakes recorded this year in the continental United States. A study published earlier this month in the journal Science suggests that just four wells injecting massive amounts of drilling wastewater into the ground are probably shaking up much of the state, accounting for one out of every five quakes from the eastern border of Colorado to the Atlantic coast. Another concern is whether injection well operators could be pumping either too much water into the ground or pumping it at exceedingly high pressures. Most of the quakes in areas where injection wells are clustered are too weak to cause serious damage or endanger lives. Yet they've led some states, including Ohio, Oklahoma and California, to introduce new rules compelling drillers to measure the volumes and pressures of their injection wells as well as to monitor seismicity during fracking operations. Here are some answers to key questions about the phenomenon:

North Carolina lifts fracking moratorium - North Carolina Gov. Pat McCrory (R) signed into law a bill ending the Tarheel State’s moratorium on energy production via hydraulic fracturing. The governor’s action ends a 2012 moratorium on hydraulic fracturing—also known as fracking—that was imposed to provide time for fracking-specific regulations to be drafted. It also terminates a decade-old fracking ban. The North Carolina Mining and Energy Commission continues to work on fracking regulations, which are scheduled to be finalized by January 1, 2015. They would go into effect in March 2015, with the first drilling permits becoming available on July 1, 2015.

Colorado governor lacking support for fracking bill - Colorado Governor John Hickenlooper and business leaders vowed to do “whatever it takes” to defeat initiatives proposed for the fall ballot that would restrict oil and gas drilling generating $30 billion a year for the state economy. “These measures risk thousands and thousands of jobs and billions in investment and hundreds of millions of dollars in state tax revenue,” said the first-term Democrat at a press conference yesterday at the Denver Metro Chamber of Commerce. The proposals, which are circulating for signatures, would amend the state constitution to require wells to be set back 2,000 feet from structures and provide communities with more control over where drilling takes place. The debate over hydraulic fracturing, or fracking, in which water, chemicals and sand are injected below ground to bring oil and gas to the surface, has escalated in Colorado as drilling moved closer to suburbs, raising concerns about water and air contamination. Five communities in the state have voted to ban or put a moratorium on such activity. Hickenlooper, who is running for re-election, has worked with energy companies, lawmakers and business groups since May to broker a compromise and appease activists pushing for restrictions on fracking. He sought to head off the ballot measure that would prohibit drilling within 2,000 feet of structures -- a step energy companies say would effectively ban fracking in the state.

Most Coloradans Want Voters To Decide Whether Their Community Is Opened Up For Fracking - Colorado’s political establishment has been working overtime to thwart an election day showdown over proposals to give communities the power to control oil and gas drilling, but local opposition appears to be gaining strength. In a poll taken in May, but not released until this past weekend by supporters of two proposed ballot measures, Colorado voters strongly supported requiring oil and gas wells to be set back at least a half mile from residences and giving cities and towns the ability to enact stricter controls on oil and gas development than the state allows.The setback proposal was supported 64 percent to 21 percent, and even by 56-35 after respondents were read arguments against the measure. The local control measure, which establishes a so-called environmental bill of rights, was supported 64-27 and then 52-34 after arguments against it were presented. The poll results were released as a furious battle is being waged in Colorado over whether the festering issue of local control of fracking and drilling will be decided at the ballot box in November, a battle that is being waged in Colorado neighborhoods and on the airwaves. A handful of Colorado communities have already approved bans or moratoria on fracking, and their ability to do so is likely to be decided in court. With that backdrop, supporters of local control are aiming to amend the state constitution in the November election.

1 mn gallons of oil-drilling byproducts leaked into N. Dakota drinking water — A North Dakota pipeline has hemorrhaged about 1 million gallons of oil-drilling saltwater into the ground of a native Indian reservation, with some of the byproduct suspected to have leaked into a lake that provides drinking water. The spill of a toxic byproduct of oil and natural gas production at the Fort Berthold Indian Reservation was discovered on Tuesday. The cleanup is expected to last for weeks, according to Miranda Jones, vice president of environmental safety at Crestwood Midstream Partners LP. A subsidiary of Crestwood - Arrow Pipeline LLC - owns the underground pipeline. Jones believes the leak started over the Fourth of July weekend, but was only detected when the company was sorting through production loss reports, according to AP.  Karolin Rockvoy, a McKenzie County emergency manager, visited the site of the leak and said, based on the amount of devastation done to local vegetation, the spill had probably gone undetected for some time. The pipeline was not equipped with technology that alerts operators of a leak, Jones said. Last year, the state legislature rejected legislation mandating pipeline flow meters and cutoff switches.

Huge North Dakota Wastewater Spill Prompts Calls For Fracking Regs - Beaver dams have so far prevented about 1 million gallons of fracking wastewater discovered spilled July 8 from a rural North Dakota pipeline from spreading too far. But area residents, environmentalists and even a Republican state legislator all want more reliable measures. The spill of the toxic saltwater, a byproduct of hydraulic fracturing, came from gas extraction operations at the Fort Berthold Indian Reservation and occurred days before it was discovered.  The federal Environmental Protection Agency said the underground pipeline spilled about 24,000 barrels, or 1 million gallon, in North Dakota’s thriving oil and gas region. The water, which can be 10 times saltier than seawater and contains salt and fossil fuel condensates, was being piped away from fuel extraction sites for safe disposal. The EPA said most of the saltwater had pooled near where it had spilled and that beaver dams in the area had kept it from spreading. As a result, the EPA said, the local soil has simply been absorbing the spill.That’s a bit too fortuitous for Wayde Schafer, a spokesman for the Sierra Club in North Dakota. He said there have been four other spills in the region recently, including three caused by lightning strikes and a fourth attributed to a cow that rubbed against a tank valve.  In 2013 alone, there were 74 pipeline leaks that spilled 22,000 barrels of saltwater. Yet that same year, the North Dakota Legislature voted 86 to 4 against a bill that would have mandated flow meters and cutoff switches on wastewater-disposal pipelines. Energy companies protested the cost of such measures, and even state regulators argued they wouldn’t detect small leaks.

'Saltwater' From Fracking Spill Is Not What's Found in the Ocean - Bloomberg: -- In early July, a million gallons of salty drilling waste spilled from a pipeline onto a steep hillside in western North Dakota's Fort Berthold Reservation. The waste—a byproduct of oil and gas production—has now reached a tributary of Lake Sakakawea, which provides drinking water to the reservation. The oil industry called the accident a "saltwater" spill. But the liquid that entered the lake bears little resemblance to what's found in the ocean. The industry's wastewater is five to eight times saltier than seawater, said Bill Kappel, a hydrogeologist emeritus at the U.S. Geological Survey. It's salty enough to sting the human tongue, and contains heavy metals in concentrations that might not meet drinking water standards. The briny mix can also include radioactive material. Heavy metals and radioactive materials are toxic at certain concentrations. "You don't want to be drinking this stuff," Kappel said. The North Dakota spill has killed vegetation and contaminated the soil, and cleanup crews are working on remediation and monitoring. Confusion persists over the wastewater's environmental and health effects because little is known about the composition of the spilled waste. The compounds it contains vary widely depending on local geology and drilling practices. And there are inconsistencies even within the industry over the definition of "saltwater," which may or may not contain hydraulic fracturing (fracking) fluids. Jim Ladlee, associate director of the Penn State Marcellus Center for Outreach and Research, said oilfield definitions vary by company, and the same operator may use different words for the same waste product in different parts of the country.

Protestors Say No to Fracked Gas Export Expansion Plan - (video interview & transcript) The European Union really wants U.S. natural gas. That's according to a leaked document obtained by The Washington Post. The document reveals that part of the Transatlantic Trade and Investment Partnership, which is a $4.7 trillion trade deal currently being negotiated between the U.S. and the E.U., will make the export of U.S. oil and gas legally binding. But if such a deal went through, that would mean real consequences for us here in Maryland and the Chesapeake Bay. There's a proposed massive expansion of Maryland's Cove Point facility. That's where natural gas is liquefied and then exported. Here to discuss Cove Point and an upcoming July 13 rally in Washington, D.C., against this expansion are our two guests. There you see Shilpa Joshi. She is the Maryland field organizer for the Chesapeake Climate Action Network. She's also one of the organizers of the rally in D.C. And also joining us is Josh Tulkin. He's the director of the Maryland Sierra Club. Thank you both for joining us.

Sardonicky: The Mapping of the Terror Trains - Look a-yonder what's coming down that railroad track. It's the Oil Bombin' Special, and while it's not bringing your baby back, it is most definitely bringing the Bakken. Crude, that is: millions of gallons of highly flammable fracked Bakken oil and Alberta tar sands product are sloshing at breakneck speed through thousands of North American towns, every single day. Towns like Lac-Megantic, Quebec where one year ago this month an oil train derailed and exploded, killing 47 people and incinerating the central business district.  If you live within half a mile of railroad tracks, chances are that you are among the 25 million people living within a blast zone. But since railroad and oil companies are afraid they'll lose money if you are actually informed that you are in harm's way, the government has not seen fit to issue color-coded terror threat alerts to vulnerable populations. People might protest, or otherwise interfere with deregulated late capitalism. But thanks to the efforts of environmental groups, information on routes and deadly cargo is slowly dribbling out anyway. One group, ForestEthics, has even devised a simple tool whereby you can type in your locale to instantly discover how at-risk you and your loved ones really are:  For the first time ForestEthics has brought Google mapping capabilities together with railroad industry data on oil train routes across the US and Canada. The tool uses US Department of Transportation guidance for emergency response, identifying the one mile evacuation zone in the case of an oil train fire or a half mile in the case of a spill. The group used census data to estimate the number of Americans living in the one mile blast zone, but the map also shows schools, sports stadiums, town halls, and landmarks across the country within the danger zone.

Obama Administration Opens Eastern Seaboard To Oil Drilling Surveys - On Friday, the U.S. Bureau of Ocean Energy Management (BOEM) approved the use of seismic airguns to explore the seabed from Cape May to Cape Canaveral for oil and gas.These sonic cannons are compressed airguns that get towed behind ships, using dynamite-like blasts to produce sound waves 100,000 times louder than a jet engine underwater every ten seconds. The waves travel through the water and through the ocean floor, bouncing back up at different rates to provide prospective drillers and researchers a better sense of where oil, gas, minerals, and sand lie beneath the waves.  It’s not a surprise that this is dangerous: even BOEM estimates that this practice will disrupt, injure, or kill millions of marine animals, including the most endangered whale species on the planet. It is less surprising that this risky tactic would be approved in large part to ferret out another source of fossil fuels, risking another BP disaster and emitting more pollution that causes global warming. It’s more surprising that this gambit is being entertained in an area that may not even have that much oil or gas.

Obama opens East Coast to oil search, sonic cannons -- The Obama administration is reopening the Eastern Seaboard to offshore oil and gas exploration, announcing final approval Friday of sonic cannons that can pinpoint energy deposits deep beneath the ocean floor. The decision promises to create plenty of jobs and thrills the oil industry, but dismays environmentalists worried about the immediate impact as well as the long-term implications of oil development. The cannons fill waters shared by whales and turtles with sound waves 100 times louder than a jet engine. Saving endangered species was the environmental groups' best hope of extending a ban against offshore drilling off the U.S. Atlantic coast. The U.S. Bureau of Ocean Energy Management disclosed its final approval first to The Associated Press ahead of an announcement later Friday. The approval opens the outer continental shelf from Delaware to Florida to exploration by energy companies preparing to apply for drilling leases in 2018, when current congressional limits are set to expire. The bureau is moving ahead despite acknowledging that thousands of sea creatures will be harmed.

White House Opens Door to Exploring Atlantic for Oil - NYTimes.com: The Obama administration approved guidelines on Friday for seismic searches for oil and gas deposits in the Atlantic Ocean, handing the petroleum industry a significant victory in a bitter dispute with environmental groups over the searches’ impact on marine life.The decision opens the way for companies to seek permits to look for oil in a stretch of the Atlantic from Delaware to Florida, using compressed-air guns that blast the ocean bottom with thousands of sound pulses as loud as a howitzer. The pulses bounce off geologic formations deep in the earth, giving geologists hints of where oil and gas deposits may lie.The new rules do not permit actual drilling for oil, and the only previous exploration in the area produced 51 dry holes before ending in the 1980s. But experts have said that a decision to allow exploration sends a clear signal that allowing offshore drilling rigs would be approved as well.A congressional ban on offshore Atlantic production expires in 2017. The oil industry is pressing for exploration to begin as soon as next year. Environmental groups say the seismic pulses will destroy some marine creatures and disrupt feeding, migration and other crucial habits of whales and dolphins, some of them already endangered species. The oil exploration industry argues that years of seismic exploration elsewhere have produced little if any evidence that the technique causes serious harm.

Obama approves sonic cannons for use in east coast gas and oil exploration -- The Obama administration has approved the use of sonic cannons to explore for oil and gas off the Eastern Shore. The Bureau of Ocean Energy Management on Friday formally approved guidelines for using air cannons in the Atlantic Ocean from Florida to Delaware. Energy companies could buy new oil and gas leases and begin drilling in 2018 if they find profitable reserves. The guidelines are meant to protect endangered whales and other creatures from the loud noises and increased vessel traffic, but the government's environmental impact study estimates that more than 138,000 sea creatures could be harmed. The decision opens an area of the eastern seaboard larger than two Californias to exploration for the first time in decades.

‘Terrifying’ oil skills shortage delays projects and raises risks - FT.com: The skills shortage in the oil patch is frequently cited as one of the biggest challenges facing the industry. In what has been called the “Great Crew Change”, the older generation of geoscientists and petroleum engineers who were hired before the sweeping lay-offs of the 1980s are now approaching retirement age and will soon leave the world of work. But it is still unclear who will replace them. The pool of potential talent is too small, and companies are scrambling to cope with the crunch. A 2011 survey by Schlumberger Business Consulting (SBC) highlights the problem. It said more than 22,000 senior “petrotechnical professionals” would quit the industry by 2015 – equating to a net loss of more than 5,500 people. Recruitment of new graduates would offset this reduction in the total number of oil workers, but “will not fill the experience gap”, it noted. SBC’s 2012 survey delivers an even starker message: by 2016, it said, the shortage of experienced oil industry professionals will reach 20 per cent of the talent pool. “The demographics are terrifying,” says Greg Lettington, director of engineering at Hays, the recruitment consultant. A recent survey by Hays found that skills shortages were by far the main concern for oil and gas employers worldwide, outstripping factors such as economic instability, and worries about security or safety regulations by a wide margin. The skills gap reflects the cyclical nature of the industry. Oil companies have tended to shed staff whenever the oil price dips and the economics of crude production weaken: attrition was particularly high during the 1990s, when oil prices bounced around at $20 a barrel. “Companies made lots of people redundant and those people left the industry for good,” says Ms Christopherson. Recruitment and training virtually stopped. As demand for new engineers and geoscientists waned, so did students’ interest in oil-related courses. Universities responded by closing down their geosciences and geology departments. Ms Christopherson says that only three UK universities now offer courses in petroleum engineering.

Global oil giants face a fight to lure local talent - FT.com: Oil and gas groups whose operations are spread around the world are struggling to attract staff and those they do hire command increasingly lofty salaries even as some of the oilfields they work in are running dry. The end of “easy oil” in maturing basins such as the North Sea is demanding more work to lift remaining reserves, which has led to wage inflation in countries such as Norway and the UK even as production declines. Meanwhile some affluent countries blessed with a glut of energy projects – Australia in particular – have seen tight labour market conditions bid up salaries and threaten the viability of some developments. Elsewhere, poorer countries, such as Brazil, Russia, Angola and Nigeria, have been keen to use multibillion-dollar budgets for new oil and gas projects as a lever to develop desperately needed domestic employment and supply chain opportunities. Gary Ward, oil and gas sector recruitment specialist at Hays, says: “In Latin America and the Middle East, people are putting a lot of effort into training their own people. In countries such as Brazil and Colombia, because of the mineral wealth in oil and gas, their futures are partly determined by how much effort they put into these sectors.”

BP’s Latest Estimate Says World’s Oil Will Last 53.3 Years -- BP’s annual report on proved global oil reserves says that as of the end of 2013, Earth has nearly 1.688 trillion barrels of crude, which will last 53.3 years at current rates of extraction. This figure is 1.1 percent higher than that of the previous year. In fact, during the past 10 years proven reserves have risen by 27 percent, or more than 350 billion barrels.  The increased amount of oil in the report include 900 million barrels detected in Russia and 800 million barrels in Venezuela. OPEC nations continue to lead the world by having a large majority of the planet’s reserves, or 71.9 percent.As for the United States, which lately has been ramping up oil extraction through horizontal drilling and hydraulic fracturing, or fracking, BP says its proven oil reserves are 44.2 billion barrels, 26 percent higher than in BP’s previous report. This is more than reported most recently by the U.S. Energy Information Administration, which had raised its own estimate by 15 percent to 33.4 billion barrels.  That means shale-oil extraction enterprises in the United States have more to offer than many first believed. The sources include the Bakken formation spanning Canadian and U.S. territory in the West, the Eagle Ford formation in East Texas and the super-rich Permian Basin in West Texas, which alon holds 75 billion barrels of recoverable fossil fuels. And though Eagle Ford and Bakken seem to hold far less oil, EOG Resources, which has been working Eagle Ford, has increased its estimates of the site’s reserves. The Motley Fool reports that its latest estimate of recoverable fuel is 3.2 billion barrels, more than the nearly 1 billion barrels expected in 2010.

Orwellian Newspeak and the oil industry's fake abundance story - The oil industry's fake abundance story is so full of verbal legerdemain that it has become a sort of lexicon of Newspeak for oil. The public relations firms and fake think tanks behind this Newspeak have already achieved a notable goal, one styled as "doublethink" in Orwell's 1984.  We now have nearly an entire population in the United States and nearly an entire media establishment that believes that oil is abundant--not because of the objective facts, but because of the oil industry's highly successful public relations campaign, a campaign that is still underway. The reason it is still underway is that it is essential to repeat the fake abundance story again and again in order to drown out any possibility that contrary facts will make their way into the public mind. Just to assure you that there are contrary facts, let me list two key ones:

1. Growth in world oil production (defined as crude plus lease condensate) in the eight years from the end of 1997 to the end of 2005 was 10.1 percent according to the U.S. Energy Information Administration (EIA). During the eight-year period from the end of 2005 (an important inflection point) through 2013 that growth was 3.0 percent. The dramatic slowdown in the rate of growth occurred despite the wide deployment of new technology (such as high-volume slickwater hydraulic fracturing), record average daily prices (based on the world benchmark Brent Crude) and record oil industry spending on exploration and development. All of these things would have dramatically increased production if we weren't facing limits on what is cost-effective to extract.
2. From its secular low of $9.10 per barrel on December 10, 1998, the Brent Crude spot price has leapt to $107.51 as of the close on Friday. That's a 1,081 percent increase in the last 15 years. The average daily spot price of Brent Crude reached two successive records in 2011 ($111.26) and 2012 ($111.63) before dipping slightly in 2013 ($108.56). So far in 2014 through July 7, the average daily price has been $108.95. All this price data (except the Friday close) is available here from the EIA. The price of commodities that are abundant tend to fall, not rise sharply. The sharp rise indicates that buyers are competing vigorously for constrained supplies.

Who Are The World’s Richest Oil Barons?  -- Charles and David Koch ($68 billion jointly)The bogeymen of the Democratic Party inherited their fortunes, along with the family business, from their father, Fred. But they’ve since shown a keen entrepreneurial spirit. Koch Industries’ claim to fame initially was a proprietary oil refining technique, but the brothers soon diversified the product portfolio to encompass refineries, pipelines, and the manufacturing of chemicals, polymers and fibers. This wide swathe of business interests is still focused on oil, but Koch Industries has now become America’s second largest private company, behind Cargill. Its main oil and gas subsidiary, Flint Hills Resources, processes well over 300 million barrels of oil a year. That figure is one reason the Kochs are vilified by environmentalists: Combined, their companies emit more than 300 million tons of greenhouse gasses a year, the equivalent of over 5 percent of the U.S. carbon footprint.  But the reputations of Charles and David Koch are less based on their business success than on their staunch support of the Republican Party. The Koch’s political action committee is consistently the largest oil- and gas-money contributor to the Republican Party.

I.S.I.S. and the Western media: Groping each other in public like a Kardashian Thanksgiving - The war in Iraq is going pretty much like I predicted it would. The three factions—Kurds, Sunni Arabs, and Shia Arabs—are holding their own, consolidating their turf, not trying very hard to occupy the other groups’ territories. The Sunni militias, led by I.S.I.S., the Caliphate of Loud-Talking, has been making ridiculous noises about “liberating” not just all of Iraq but Rome and Spain. Both those claims are laughable, but at least Spain makes sense in a lame way. Spain is the one big chunk of the world Islam lost, after conquering and holding it for centuries, and that still annoys some people in the Ummah, mostly the ones who don’t have anything going on in their own lives—pretty much the way, when you meet somebody who spends a lot of time brooding over why America gave the Panama Canal back to those ungrateful Latin Americans, you’re dealing with somebody who’s behind in his alimony and spends a lot of time trolling lib’ruls online. You can’t really blame the I.S.I.S. leadership or publicity apparatus for pushing this stuff. They have funding to get and recruits to attract, like any major college football program, and that means hyping their chances next season. I.S.I.S. draws its funding from fat old rich guys in Saudi and the Gulf who want to believe that their hick dreams of a world caliphate will come true any day.

U.S. Sees Risks in Assisting a Compromised Iraqi Force - — A classified military assessment of Iraq’s security forces concludes that many units are so deeply infiltrated by either Sunni extremist informants or Shiite personnel backed by Iran that any Americans assigned to advise Baghdad’s forces could face risks to their safety, according to United States officials.The report concludes that only about half of Iraq’s operational units are capable enough for American commandos to advise them if the White House decides to help roll back the advances made by Sunni militants in northern and western Iraq over the past month.Adding to the administration’s dilemma is the assessment’s conclusion that Iraqi forces loyal to Prime Minister Nuri Kamal al-Maliki are now heavily dependent on Shiite militias — many of which were trained in Iran — as well as on advisers from Iran’s paramilitary Quds Force.  Shiite militias fought American troops after the United States invaded Iraq and might again present a danger to American advisers. But without an American-led effort to rebuild Iraq’s security forces, there may be no hope of reducing the Iraqi government’s dependence on those Iranian-backed militias, officials caution.

“Iraq Has Already Disintegrated”: ISIS Expands Stronghold as Leaks Expose US Doubts on Iraqi Forces Democracy Now. (video & transcript) Iraq remains on the verge of splintering into three separate states as Sunni militants expand their stronghold in the north and west of Iraq. The Islamic State of Iraq and Syria (ISIS) declared itself a caliphate last month and now controls large parts of northern and western Iraq and much of eastern Syria. Recent advances by ISIS, including in the city of Tikrit, come amidst leaks revealing extensive Pentagon concerns over its effort to advise the Iraqi military. Iraqi politicians, meanwhile, are scrambling to form a power-sharing government in an effort to save Iraq from splintering into separate Shiite, Sunni and Kurdish states. We are joined by two guests: Reporting live from Baghdad is Hannah Allam, foreign affairs correspondent for McClatchy Newspapers, and joining us from London is Patrick Cockburn, Middle East correspondent for The Independent and author of the forthcoming book, "The Jihadis Return: ISIS and the New Sunni Uprising."

Obama Likely to Seek Additional Time for Nuclear Negotiations With Iran - — President Obama said on Wednesday that he believed the United States had “a credible way forward” in its nuclear negotiations with Iran, and strongly suggested that after consultations with Congress, which has been threatening additional sanctions, he would seek an extension of the talks beyond Sunday’s deadline.“There are still some significant gaps between the international community and Iran,” he said in the White House press room, before announcing additional sanctions on Russia, “and we have more work to do.”Iran has already signaled that it wants more time to negotiate, but Mr. Obama is almost certain to run into opposition on Capitol Hill if he agrees to it. Republicans and even some Democrats have argued that Tehran is simply stalling. It is unclear whether Iran will demand more sanctions relief in return for an extension. But in Vienna over the past two weeks, as Iran and the West began to define what a deal might look like, Mr. Obama’s aides have debated a question that no longer seems theoretical: How much risk is the United States willing to take to reach a deal that will almost certainly leave Iran with some potential, over the long term, to make a nuclear weapon?

America's Biggest Arms Sale Of 2014 Is To A Country With Fewer Than 300,000 Citizens -- Qatar is purchasing $11 billion in Patriot missile batteries and Apache attack helicopters from the United States, according to AFP. It's the largest single sale of U.S. weaponry in 2014, and it's to a country with only 278,000 citizens (and about 1.5 million expatriates).  With this purchase, Qatar might be swapping soft power for military might. The gas-rich emirate gambled on the region-wide success of the Muslim Brotherhood in the years after the "Arab Spring" protests. But its strategy toppled with the military coup that removed Mohammed Morsi in Egypt. Qatar's neighbors also became increasingly suspicious of its support for Islamist movements throughout the Middle East, leading to one of the biggest diplomatic crises in the history of the Gulf monarchies.  Qatar's been unable to insulate itself from regional chaos through its diplomatic outreach, which has had substantial blowback. But Patriot missiles will do just fine: They're perhaps the most advanced projectile of their type, and have the ability to intercept incoming missiles and destroy enemy tanks and planes.

Funding War: U.S. Companies Disclose Conflict Mineral Use -- The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which mainly focused on strengthening the U.S. banking and financial system in the wake of the Great Recession, included a lesser-known provision.  The ‘conflict mineral’ provision required companies to conduct due diligence in their supply chains and certify whether their products incorporated tungsten, tin, gold, or tantalum and if so, whether these minerals were sourced from the Democratic Republic of the Congo (DRC) or neighboring states. These four minerals all played a role in helping finance militias involved in the long-running internal conflict in the DRC, a particularly ugly struggle marked by widespread human rights abuses. An April 2014, a U.S. appeals court ruling modified the rule’s impact, decreeing that a requirement for companies to positively ascertain whether their supply chains were “conflict free” was an unconstitutional violation of freedom of speech rights. Nonetheless, publicly listed U.S. firms were still required to demonstrate that they had conducted an appropriate investigation, with the initial reporting requirements for the 2013 calendar year due at the beginning of this past June. Approximately 1,300 companies (out of an estimated 6,000 companies required to do so) have filed reports with the U.S. Securities and Exchange Commission (SEC). Here are three key takeaways from the reports filed so far:

The Fatal Bargain: Oil and Blood in a Burning World: Israel’s disproportionate and increasingly pernicious role in American politics and policies is well-known. But Washington’s decades-long collusion of corruption with the repressive, retrograde regime of Saudi Arabia has if anything been even more disastrous for the world. Historians of the next millennium will look back on the fatal bargain that humanity has made with fossil fuels as one of the great wrong turnings in the history of homo sapiens. By the end of this century it will have burned or drowned vast portions of the planet and plunged billions of people into ruin and suffering. The benefits that arose from our oil-based civilization cannot be denied — yes, I too am glad that an ambulance can get me quickly to the hospital or fly me across the ocean to see my children — but the cost of these benefits has been immense, and there is far worse to come in the years ahead … not least for those same beloved children. One of the most deleterious effects of fossil-fuelled civilization has been the prominence that geographical happenstance has given to Saudi Arabia. Its vast reserves of oil has meant that governments of every stripe have overlooked its horrendous oppression and its global propagation of one of the most narrow and ignorant perversions of Islam. This is particularly striking given the fact that for the past 30 years, “Islamic extremism” has been the chief bugbear and bloody shirt waved by Western powers seeking to maintain and extend their dominance of world affairs. All of these powers — Washington especially — have always known that the greatest backing, financing and arming of “Islamic extremism” have come from the elite of Saudi Arabia … the same elite that the Western powers have cravenly courted, decade after decade.

China’s Steel Industry Still Overproducing - Steel production last month grew at the fastest pace so far this year to a record average daily output of 2.31 million metric tons, adding to signs that China’s efforts to streamline the industry are faltering. China’s top leaders have pledged to reduce industrial overproduction, especially in steelmaking, which adds to pollution and wasteful investment.. But local officials have resisted the push, fearing for jobs and local business interests. Government stimulus policies aimed at supporting economic growth, which includes infrastructure projects, also have kept steel production humming. A fall in the price of raw materials for steel, especially iron ore, is an added impetus for more production. China produces nearly half the world’s steel, and its output appetite is a key factor for global prices. The latest data for May shows that crude steel production rose 4.5% on year in June to 69.29 million tons, up from 2.6% growth in May, according to National Statistics Bureau data released Wednesday. The rate has risen sharply since posting a contraction in January. Production was up 3% in the first six months rose to 411.91 million tons. While this is slower than the pace of growth last year, steel output is still growing strongly. Government moves to ease curbs on the property sector last month signaled that policy would remain supportive toward steel demand, analysts say. China’s northern city of Shenyang scrapped some curbs on home purchases, while smaller cities have also begun to fine-tune measures that would allow more people to buy second or more homes.

China’s Economy Continues to Defy Gravity. That May Not Be a Good Thing - China announced its GDP figures for the second quarter on Wednesday and — surprise, surprise — they were better than expected. Growth clocked in at 7.5% — which just so happens to be the government’s official target. The statistics will likely give a boost to sentiment globally. Investors have been worried that a slowing China would hit the entire world economy. More buoyant Chinese growth will probably calm those jitters.  Yet China is also something of a puzzle. Somehow the economy continues to power through all sorts of issues that should be slowing it down. The all-important property sector, which accounts for some 16% of its GDP, is undergoing a major downturn. For most of the year, the government has tried to control dangerous levels of debt in the economy and clamp down on “shadow banking,” which encompasses alternative financial networks and lending practices. Tighter credit should translate into slower growth. Beijing is also supposedly on a mission to streamline bloated industries like steel by eliminating excess capacity, which, though healthy for the future prospects of the economy, should also act as a drag on short-term growth. So should President Xi Jinping’s ongoing anticorruptioncampaign, which in theory should be disrupting policymaking and creating uncertainty. So how is China defying gravity once again? There is always the perennial suspicion that the numbers are inflated. Capital Economics looks at statistics that aren’t as easily manipulated as GDP, such as freight shipments and electricity output, to gauge the economy’s performance, and figures GDP has probably been expanding more like 6% in recent quarters. But economists are crediting the latest growth rate to government stimulus, carefully targeted at infrastructure and public housing, both investments the economy still needs.

200% and counting - Fears of a property crash, corporate defaults and austerity in the age of anti-corruption all came to naught. China’s growth sped up in the second quarter, climbing to 7.5% year-on-year, smack in line with the government’s official target.  Easier credit conditions provided fuel for the rebound. But they also led to a rise in Chinese debt levels. China’s stock of credit reached a dubious milestone in the second quarter: it is now equivalent to exactly 200% of GDP, having risen steeply over the past five years. Here is a chart showing China’s credit-to-GDP ratio since 2002:

China's Local Governments Pile On Stimulus Undeterred by $3 Trillion Debt - China’s regional governments are starting to pull out their own stimulus cards to shore up growth as central authorities limit aid for the economy. Northern Hebei province, whose 4.2 percent first-quarter expansion pace was less than half that of a year earlier, will invest 1.2 trillion yuan ($193 billion) in areas including railways, energy and housing. Heilongjiang province in the northeast, with 2.9 percent growth that was China’s lowest in the first quarter, will spend more than 300 billion yuan over two years in areas including infrastructure and mining. Any borrowing to fund the investment risks exacerbating financial dangers from local-government debt that swelled to about $3 trillion as of June 2013. While Premier Li Keqiang is trying to expedite spending from existing budgets and avoid broad stimulus, provinces such as Hebei are facing bigger shortfalls on their own growth goals than the national government, which has a target of about 7.5 percent. “The motivation is there -- currently GDP is still the key performance indicator for local officials,”

China and the cost of stimulus -- Compare and contrast time. First Nomura, on China’s June credit and money growth data which grew at their fastest pace in three months in June: M2 growth rose more than expected to 14.7% y-o-y from 13.4% on policy easing, and new total social financing also rose strongly to higher-than-expected RMB1.97trn in June from RMB1.40trn, largely led by off-balance sheet credit. Stronger money and credit data are positive for short-term growth, but the renewed pick up in off-balance sheet credit raises a longer-term concern – if this is the start of another major upswing in TSF led by a less regulated shadow financing sector, it raises the risk of a sharper slowdown further out. We continue to expect real GDP growth to stay at 7.4% y-o-y in Q2, unchanged from Q1, and also expect government to ease policies further in Q3, which should help growth to rebound slightly to 7.5% y-o-y in Q3 and 7.6% in Q4. Then Peking University’s Michael Pettis, in his latest note: Beijing can manage a rapidly declining pace of credit creation, which must inevitably result in much slower although healthier GDP growth. Or Beijing can allow enough credit growth to prevent a further slowdown but, once the perpetual rolling-over of bad loans absorbs most of the country’s loan creation capacity, it will lose control of growth altogether and growth will collapse. The choice, in other words, is not between hard landing and soft landing. China will either choose a “long landing”, in which growth rates drop sharply but in a controlled way such that unemployment remains reasonable even as GDP growth drops to 3% or less, or it will choose what analysts will at first hail as a soft landing – a few years of continued growth of 6-7% – followed by a collapse in growth and soaring unemployment.

PBoC follows other central banks in suppressing volatility --Staying with the theme of central banks dampening market volatility, China's central bank (the PBoC) has learned this game as well. China's short term rates had experienced enormous volatility last year, and the PBoC has been focused on suppressing these fluctuations. Reuters: - China's decision to ease rules used to calculate loan-to-deposit ratios for Chinese banks (LDR) will moderate spikes in seasonal cash demand from regulatory requirements and thus help stabilise money market rates, traders say. Regulators have been moving to stabilise money market rate volatility after a severe market squeeze in June last year rattled markets around the world, who misread a short-duration rise as a harbinger of money tightening.  It worked. The 7-day repo rate, which represents a fairly active secured lending market in yuan, has seen a substantial decline in volatility.

China Home Prices Fall in Record Number of Cities on Price Cuts - China’s new-home prices fell in a record number of cities tracked by the government as developers cut prices to boost sales volume, signaling curbs will be relaxed in more cities. Prices fell in 55 of the 70 cities last month from May, the National Bureau of Statistics said in a statement today, the most since January 2011 when the government changed the way it compiles the statistics. Prices inShanghai and the southern city of Guangzhou fell 0.6 percent each from May, the biggest drop since January 2011, while they declined 0.4 percent in Shenzhen. Prices fell 1.7 percent in the eastern city of Hangzhou, the largest monthly decline among all the cities. “The current biggest problem of China’s property industry is that the housing inventories are too high,” “But the declines are still not very big. With more cities relaxing curbs and the economy stabilizing, the property market will gradually stabilize.”

"China Is Fixed" GDP & Industrial Production Beat As Retail Sales Miss & Home Prices Tumble - Having glimpsed the ugly reality of the under-belly of the Chinese economy last week, and the divergence between that and the government's PMI survey fallacy, it is no surprise that by the magic of excel, GDP and Industrial Production modestly beat expectations (+7.5% YoY vs 7.4% exp and +9.2% YoY vs +9.0% exp respectuvely). However, despite epic credit injections, home prices tumbled 9.2% YoY and Retail Sales missed expectations rising only 12.4% YoY. Even as it is self-evident that re-flating the next chosen bubble, or attempting to socialize losses, is not sustainable in the long-run, it is clear (given the surge in deposit creation in recent months) that China has chosen the path of short-term easy-street as opposed to the reform-based hard-street they had promised.

Chinese Recovery On Paper - The National Bureau of Statistics in Beijing announced on Wednesday that economic growth climbed 7.5 percent in the second quarter, compared with a year earlier. But independent surveys of businesses across China show that in sector after sector, sales and confidence are still deteriorating. “All of them are pointing in the opposite direction from this supposed G.D.P. number,” said Leland Miller, the president of China Beige Book International, a New York data service that surveys 2,200 private businesses across China each quarter to gauge economic activity. One of the biggest engines of Chinese economic growth in recent years — construction and other investment in the private sector — is sputtering, while exports have only begun to recover from a weak winter and retail sales growth is leveling off. That leaves government investment and spending, which are running strong, propelled by redoubled lending this spring by the state-controlled banking system to the national railroad system, local governments and state-owned enterprises. The result has been frenzied spending on the construction of railroad lines — up 32.1 percent in June from a year earlier — and subsidized housing. Steel output in China is setting records by tonnage as a result, even as the number of housing starts in the private sector is falling steeply. Total lending has now risen faster than economic output, even before adjusting for inflation, in every quarter since late 2011. Lending accelerated further in June, according to figures released on Tuesday by the central bank, the People’s Bank of China. Yet Mr. Miller’s survey and others show that private businesses are becoming less and less interested in borrowing money because they see few opportunities to invest it profitably.

Pain Spreads From China’s Excess Production - China’s problem with bloated production is ricocheting around the world. China is producing too much steel, plate glass, chemicals, solar panels and other goods for the domestic market, and usually exports the excess at cut-rate prices. That creates big problems for China’s competitors, who have to cut their prices to compete, slashing profits for everyone. Back in China, producers find cheap loans to keep producing and exporting. That risks inflating China’s credit bubble further – making China’s economy ever-more vulnerable to downturns – and adds even more manufacturing capacity. There are winners here, of course: consumers, like car and appliance buyers, who may benefit from the lower costs of steel, glass and chemicals used to build consumer goods. But for producers and policymakers, it means tough decisions about how to keep the pain from spreading and putting more companies – and free trade – at risk. “China is creating a glut of supply and hurting the profitability of the global industry,”  “It also may be displacing more efficient producers” outside China who can’t compete with subsidized Chinese production, he adds, and go bust. Faced with such a challenge, many nations resort to trade sanctions, tacking huge charges on Chinese imports. China’s vast excess capacity makes it the biggest target of such sanctions. Global Trade Alert, a trade research group headquartered in London, looked for The Wall Street Journal at six sectors marked by excess capacity in China: steel, aluminum, cement, plate glass, wind turbines and solar energy components. Of all the trade sanctions cases brought since Jan. 2009 in these industries, China was the sanctions-target 75% of the time.  Overall, China was the target of global sanctions about 46% of the time during the same period, Global Trade Alert found. The U.S. was dinged 34% of the time and the European Union 43%. (The numbers add up to more than 100% because trade sanctions often target multiple countries.)

What to Fear If China Crashes -  Few moments in modern financial history were scarier than the week of Sept. 15, 2008, when first Lehman Brothers and then American International Group collapsed.   Yet a Chinese crash might make 2008 look like a garden party. As the risks of one increase, it's worth exploring how it might look. After all, China is now the world's biggest trading nation, the second-biggest economy and holder of some $4 trillion of foreign-currency reserves. If China does experience a true credit crisis, it would be felt around the world. "The example of how the global financial crisis began in one poorly-understood financial market and spread dramatically from there illustrates the capacity for misjudging contagion risk," Adam Slater wrote in a July 14 Oxford Economics report. Lehman and AIG, remember, were just two financial firms out of dozens. Opaque dealings and off-balance-sheet investment vehicles made it virtually impossible even for the managers of those companies to understand their vulnerabilities -- and those of the broader financial system. The term "shadow banking system" soon became shorthand for potential instability and contagion risk in world markets. Well, China is that and more.

Secret Path Revealed for Chinese Billions Overseas -  For years, wealthy Chinese have been transferring billions worth of their money overseas, snapping up pricey real estate in markets including New York, Sydney and Vancouver despite their country’s currency restrictions. Now, one way they could be doing it is clearer. Last week, when China Central Television leveled money-laundering allegations against Bank of China Ltd., the state-run broadcaster’s report prompted the revelation of a previously unannounced government program that enables individuals to transfer their yuan and convert it into dollars or other currencies overseas. Offered by some banks in the southern province of Guangdong, across the border from Hong Kong, the trial program was introduced in 2011 for overseas property purchases and emigration and doesn’t constitute money laundering, Bank of China said in a July 9 statement. The transfers were allowed by regulators and reported to them, the bank said. “What it shows is the government has been trying to internationalize the renminbi for a lot longer than we thought,” . “I’m rather encouraged by this news because this is the way they need to go.”

China Warns US To Stay Out Of South China Sea Dispute - Since the US is apparently unable to take a hint to stay out of China's back year, it was is up to China to explain again, just where it stands. Which it did earlier today when it warned the United States, in no uncertain terms, to stay out of disputes over the South China Sea and leave countries in the region to resolve problems themselves, after Washington said it wanted a freeze on stoking tension. China's Foreign Ministry repeated that it had irrefutable sovereignty over the Spratly Islands, where most of the competing claims overlap, and that China continued to demand the immediate withdrawal of personnel and equipment of countries which were "illegally occupying" China's islands. "What is regretful is that certain countries have in recent years have strengthened their illegal presence through construction and increased arms build up," the ministry said in a statement.

Japanese Prime Minister Abe Vows to Conclude TransPacific Partnership by Year End. Should We Worry? -  Yves Smith  - Last week, I came across an article in Japan Times which gave the impression that the TransPacific Partnership was being revived from the dead. From the article:  Prime Minister Shinzo Abe has a “strong intention” to conclude the Trans-Pacific Partnership talks by the end of the year, TPP minister Akira Amari said Friday as the U.S. pork lobby pressured Japan to make concessions, but added that the free trade deal cannot be struck without a commitment from all sides. Prime Minister Shinzo Abe has a “strong intention” to conclude the Trans-Pacific Partnership talks by the end of the year, TPP minister Akira Amari said Friday as the U.S. pork lobby pressured Japan to make concessions, but added that the free trade deal cannot be struck without a commitment from all sides. But is this a real commitment, or mere Japanese conflict-avoidance?

Japan TPP Negotiator Wonders Why Pact Excludes Monetary Policy - With an ultimate goal of stimulating economic growth, hopes are high that the proposed Trans-Pacific Partnership free trade agreement will lead to a spike in cross-border business deals among member countries. Assuming that’s the case, Japan’s chief TPP negotiator posed an interesting question: why does the pact sidestep a key factor that affects practically all international business activity? “Why aren’t monetary and fiscal policies subject to economic partnership agreements?” Koji Tsuruoka rhetorically asked at a Tokyo symposium Tuesday. “Is it because there is a coalition of financial services regulators and they don’t want anyone to intervene in their world?” Mr. Tsuruoka, who just returned from a 10 day meeting of TPP senior negotiators in Ottawa, noted “this is a question we may be asked as negotiators in the future.” The TPP’s 12 countries, including the U.S. and Japan, are negotiating to conclude most of the talks by the end of the year. While free trade agreements typically focus on tariff and labor issues, how a country guides its currency and controls its lending rates are two variables that could have significant influence over the cost of cross-border trade. In Japan’s case, the central bank’s recent aggressive monetary easing brought about a 20% fall in the yen’s value against the dollar. While that allowed domestic exporters to pocket more revenue and profits in yen-denominated terms, it also had the reverse effect of siphoning off the profits of overseas companies selling goods in Japan.

Aiming at freer trade - ONE of the trickiest targets for Shinzo Abe’s third arrow of structural reform was always going to be opening Japan’s agriculture sector up to international competition. Japanese farmers have a powerful political presence, and have long been heavily protected from trade with tariffs upwards of 100%.  Indeed, in the lead up to the Trans-Pacific Partnership (TPP) negotiations Mr Abe himself promised to protect five “sacred” commodities from the elimination of tariff barriers: rice, wheat, beef, dairy products and sugar. Will Mr Abe’s reformist resolve survive a confrontation with the farm lobby?  An early indicator of who might win this battle came last week with the signing of a bilateral trade deal between Japan and Australia. Australia is a major producer of beef, wheat, and sugar and already exports a significant amount to Japan. As such the deal represented an opportunity for Mr Abe to show his reformist zeal and liberalise Japan’s agriculture sector.  The results, however, are disappointing. Tariffs on beef, Australia’s third largest export to Japan, will be cut by less than half, from their current level of 38.5%, with the reductions rolled out slowly over the next 20 years. Even then, they will remain at an eye-wateringly high 20%. Wheat, sugar and dairy products saw only marginal concessions which are unlikely to help free up trade between the two nations. Rice tariffs were completely untouched. In short, it seems that Japanese consumers will have to continue to put up with uncompetitive food prices.  Australia for its part also failed to fully grasp the opportunity to liberalise, maintaining their prohibitively high tariffs on used cars. Given the recent announcement of the closure of Australia’s domestic car industry, the preservation of these trade barriers seems particularly perverse. Automobiles currently make up more than half of Japan’s exports to Australia and this figure is sure to rise as domestic production shuts down. Given this lack of liberalisation then it is perhaps apt that the deal was labelled an "economic partnership" rather than a free-trade agreement.

Singapore GDP Shows Economic Shift - Singapore’s economy is suffering in the short term as the country moves to higher-value-added industries and attempts to raise productivity, but is unable to escape from its reliance on cheap mass production. The island state is trying to move away from low-end industries, particularly in manufacturing, to focus on value-added sectors such as biotechnology and pharmaceuticals. As it makes the transition, growth is slowing and tepid external demand remains a drag. Data released Monday showed the economy contracted 0.8% on a seasonally-adjusted annualized basis, compared with a 9.9% expansion in the previous quarter. On-year, gross domestic product grew 2.2%, well shy of the 3% expected by economists. Singapore’s data is typically volatile but economists said the numbers showed the difficulties of reshaping the economy.

India’s Great Invisible Workforce -- According to census data released this month, a whopping 160 million women in India, 88 percent of who are of working age (15 to 59 years), are confined to their homes performing ‘household duties’ rather than gainfully employed in the formal job sector. Dubbed India’s ‘great invisible workforce’, this demographic is primarily involved in rearing families within the four walls of their homes. This asymmetry in the workforce, experts say, reflects illiberal economic policies as well as complex social dynamics, which scupper the chances of women in the world’s so-called ‘largest democracy’ to realise their full income-generating potential. The odds are heavily stacked against women in this vast country of 1.2 billion. Though more women are going out to work, India primarily remains a nation of stay-at-home wives who play a pivotal role in keeping families together in a country with virtually no government-aided social security. Small wonder, then, that India ranks an abysmal 101st in a 136-nation survey  titled ‘The Global Gender Gap Report’, released by the World Economic Forum in 2013, which tracks international progress in bridging the gender gap worldwide.

Anti-Dollar Alliance Prepares Launch Of BRICS Bank -- Three months ago we discussed in detail the growing anti-dollar hegemony alliances that were building across the BRICS countries (Brazil, Russia, India, China and South Africa). Their efforts at the time, to create a structure that would serve as an alternative to the IMF and the World Bank (which are dominated by the U.S. and the EU), appear to be nearing completion. As AP reports, Brazil's President Dilma Rousseff and Russia's Vladimir Putin have discussed the creation of a development bank to promote growth across the BRICS and hope to produce an agreement on the proposed institution at this week's BRICS Summit. As Rousseff concluded (rather ominously), the five countries "are among the largest in the world and cannot content themselves in the middle of the 21st century with any kind of dependency."

BRICS to launch World Bank and IMF rivals - The leaders of Brazil and Russia have expressed support for a plan to launch a new development bank and emergency reserves fund, an ambitious challenge to the Western-run multilaterals that shape global finances. Brazilian President Dilma Rousseff received Russia's Vladimir Putin in the presidential palace in Brasilia on Monday, a day before leaders of the five emerging BRICS nations meet in the northeastern city of Fortaleza. Speaking to reporters following the meeting, Rousseff said the proposed bank would top the summit's agenda and she hoped the proposed institution would be approved there. After two years of negotiations, Brazil, China, India, Russia and South Africa,the so-called BRICS countries are due to sign off on the new institutions on Tuesday. At a summit that runs until Thursday in Brazil, the five countries are expected to unveil a $100bn fund to fight financial crises, their version of the IMF. They will also launch a World Bank alternative, a new bank that will make loans for infrastructure projects across the developing world. The BRICS will pool an initial $50bn in the bank, with each country contributing an equal amount.

Emerging economies to launch development bank --  A new international development bank and multi-billion emergency lending pool are set to be launched by Brazil, Russia, India, China and South Africa. The move comes at a summit meeting of BRICS leaders in Brazil. The "New Development Bank" (NDB) is intended to compete with the World Bank and its private lending arm, the International Finance Corporation (IFC), by making it easier and quicker for developing countries to gain access to large-scale financing for infrastructure projects. The BRICS will also set up a $100 billion (73.5 billion euros) joint US dollar currency reserve pool called the Contingent Reserve Arrangement (CRA), in order to provide emergency cash to BRICS countries faced with short-term currency crises or balance-of-payments problems, Russian Finance Minister Anton Siluanov has told reporters in Moscow. The two new BRICS institutions are intended to provide developing countries with alternatives to the World Bank and International Monetary Fund (IMF), which are headquartered politically as well as physically in the US capital. When the IMF or World Bank lend money, strings are invariably attached, and those strings tend to reflect the values and interests of Washington and its allies, in Sussex, UK. The BRICS are trying to free themselves and other developing countries from US dominance. Building new shared institutions is a key aspect of that effort.

BRICS Announce $100 Billion Reserve To Bypass Fed, Developed World Central Banks - "We are pleased to announce the signing of the Treaty for the establishment of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$ 100 billion. This arrangement will have a positive precautionary effect, help countries forestall short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements. We appreciate the work undertaken by our Finance Ministers and Central Bank Governors. The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures." - The BRICS

Move Over, IMF: BRICS Bank Aims to Rewrite the Rules of Development - On July 15, the action in Fortaleza will shift from the football pitch to the political high table. The Brazilian seaside city that has hosted many of this year's FIFA World Cup games is scheduled to hold the 2014 BRICS Summit, where leaders from Brazil, Russia, India, China, and South Africa will meet to establish a long-awaited development bank that aims to balance the influence of the IMF and World Bank.  Called "New Development Bank," the BRICS bank is expected to foster greater financial and development cooperation among emerging markets. The plans have yet to be finalized, but reports say each of the BRICS countries may contribute $10 billion in initial capital to the entity, which will have a maximum value of $100 billion. The bank will also establish a $100 billion reserve fund, with China contributing $41 billion, Brazil, Russia and India giving $18 billion each, and South Africa contributing $5 billion.  The term "BRIC" was coined in 2001, essentially as a marketing term for Goldman Sachs, and the group has long been derided for its lack of a coherent stance on major economic and political issues. But the establishment of the development bank, a historic challenge to the Western-dominated international system, shows the five emerging economies are taking their partnership seriously. The accomplishment appears that much more significant when viewed against the backdrop of the United States' continued failure to endorse IMF reforms.  The BRICS -- a group that represents more than 40 percent of the world's population, about a quarter of global output, and nearly all of the world's current growth -- looks set to regain its geopolitical "mojo."

Emerging Nations Plan Their Own World Bank, IMF - Fed up with U.S. dominance of the global financial system, five emerging market powers this week will launch their own versions of the World Bank and the International Monetary Fund. Brazil, Russia, India, China and South Africa —the so-called BRICS countries — are seeking "alternatives to the existing world order," said Harold Trinkunas, director of the Latin America Initiative at the Brookings Institution. At a summit Tuesday through Thursday in Brazil, the five countries will unveil a $100 billion fund to fight financial crises, their version of the IMF. They will also launch a World Bank alternative, a new bank that will make loans for infrastructure projects across the developing world. The five countries will invest equally in the lender, tentatively called the New Development Bank. Other countries may join later. The BRICS powers are still jousting over the location of the bank's headquarters — Shanghai, Moscow, New Delhi or Johannesburg. The headquarters skirmish is part of a larger struggle to keep China, the world's second-biggest economy, from dominating the new bank the way the United States has dominated the World Bank.

When You See This Happen, You Know It's Game Over For The Dollar -- This week, 70 years after Bretton Woods, leaders from China, Russia, India, Brazil, South Africa, and several other nations are hard at work in Fortaleza, Brazil creating a new development bank that will compete against the US-controlled World Bank. This is a major step in an obvious trend towards a new financial system. Every shred of objective data is screaming for this to happen. It’s a different world. Everyone realizes it except for the US government, which is still living in the past where they’re #1 and get to call all the shots.

New World Order? BRICS "New Development Bank" - Grand plans to supplant the (American-designed) postwar global financial architecture lie thick on the ground. As I noted in 2007, poor countries have championed the G-77, Non-Aligned Movement (NAM), New International Economic Order (NIEO), and UN Conference on Trade and Development (UNCTAD) as alternatives giving poor countries a larger voice in global economic governance. Interestingly enough, the BRICs grouping which was formed out of Goldman Sachs' Jim O'Neill acronyms has had regular meetings discussing reform of the world's financial architecture. (South Africa has been included in these discussions, hence BRICS instead of BRICs.) Wouldn't it be nice if poor countries could look out for one another instead of having to bow to Western-led interests as prescribed by the World Bank and IMF?In the most recent BRICS meeting in Fortoleza, Brazil, participants have upped the (rhetorical) ante in proposing alternatives to not one but both Bretton Woods institutions the World Bank and the IMF. In place of the World Bank, consider this description of the supposedly forthcoming, Shanghai-based New Development Bank:The New Development Bank, as it will be called, is intended to finance infrastructure projects in the founding members of Brazil, Russia, India, China and South Africa, and in other emerging-market countries as well. The NDB still needs approval from each Brics countries' lawmakers, which could take years.

Michael Hudson and Leo Panitch on BRICS Development Bank Salvo v. the Dollar - - Yves Smith (video) Yves here. I’ve refrained from saying much about the announcement of the plan to establish a $100 billion development bank by the BRICs nations (Brazil, Russia, India, and China) because the hype is ahead of the reality. Yes, it is true that the US has been abusing its role as steward of the reserve currency. QE has been a huge bone of contention in all emerging markets, since hot money has flooded in, while the Fed has, in an insult to the collective intelligence of the leaders of these countries, tried claiming that it has nothing to do with the influx.   The US’ efforts to use sanctions to punish Russia have also focused the minds of these countries. However, the formation of a development banks falls vastly short of the infrastructure needed for any country’s currency (or a basket of currencies) to displace the dollar. This measure doesn’t come close to representing a threat. It is at most a statement of intent to get more serious. But setting up any kind of basket takes international cooperation (and not among the BRICs alone) when this group can’t even settle their petty differences and agree on candidates for leadership of international agencies. In addition, a reserve currency replacement candidate needs to run consistent trade deficits to get its currency into international circulation. None of these nations are prepared to hurt workers by sending demand offshore to do that. A deep bond market is another requirement, and none of the BRICs have that either.  The US could lose reserve currency status through a catastrophe that severely damages its economy, like a massive natural disaster or unforeseen consequences of having its aggressions escalate into a hot war. But the actions the BRICs are taking don’t rise to any kind of threat, and unless they take vastly more concerted actions, are unlikely to displace the dollar in the next ten years.  An interesting aspect of this talk is the difference of views between Michael Hudson and Leo Panitch. Hudson is bullish on the BRICs plans, Pantich much less so.

Stiglitz Interview - Stiglitz Hails New BRICS Bank Challenging U.S.-Dominated World Bank & IMF (video) Transcript - Part 1 Joseph Stiglitz on TPP, Cracking Down on Corporate Tax Dodgers Transcript Part 2 

Faced With Western Freeze-Out, BRICS Bank Is a Coup for Russia - Top of the agenda at the sixth summit of the BRICS developing nations beginning Tuesday is the founding of two multilateral financial institutions designed to erode the dominance of the World Bank and International Monetary Fund as arbiters of the global economic system. For Russia, the creation of a $100 billion BRICS development bank and a reserve currency fund worth another $100 billion is a political coup. Just as the West freezes Russia out of its own economic system as punishment for its politics in Ukraine, Russia is tying itself into the financial superstructure of the next generation of economic heavyweights: India, Brazil, China and South Africa. The World Bank and the IMF have come under criticism from the rapidly developing BRICS, who together account for 20 percent of global GDP and 40 percent of the world's population. In their view, the two financial institutions are dominated by the rich nations of the G7 and attach stringent conditions to their lending that impinge on the economic sovereignty of its members. Far from assuaging their complaints, efforts to reform the 70-year-old institutions have stalled. Proposed updates to the IMF that would grant increased influence to developing economies have been languishing in the U.S. Congress since 2010 and were blocked once again in April.  If the framework agreements due to be signed at the BRICS summit in Fortaleza, Brazil, are ratified at home, the new bank and the reserve fund could ease some problems for the BRICS countries. U.S. tightening of the dollar supply starting last year has caused a wave of crises in developing nations as the cash inflows of the past decade begin to reverse themselves.

What central banks should do to deal with bubbles - FT.com: The world has conducted two controlled experiments on how to fight financial bubbles in the past decade. Both failed. The first was to ignore the bubble and to mop up later. The idea seemed plausible to a lot of people. But it was based on the false premise that the costs of mopping up would be bearable.  The second experiment has just concluded in Sweden, also with calamitous results. There, the central bank did the exact opposite. It had previously raised interest rates to rein in a domestic housing bubble. In doing so, it generated deflation and raised unemployment. It recently corrected that policy error by cutting the interest rate back to 0.25 per cent. These two experiments present the opposite ends of our thinking: either ignore bubbles or ignore everything else. What should central banks do? The consensus view is that they should rely on macroprudential regulation. The Hong Kong Monetary Authority, for example, imposed restrictions on loan-to-value ratios for mortgages. The Bank of England recently placed caps on mortgages with very high income multiples. Central bankers love macroprudential tools because they are in thrall to an old idea that is simultaneously true and useless. The Tinbergen rule, named after a Dutch economist, states that you need one policy instrument for each policy target. If you have two targets – price stability and financial stability – you need two instruments. Monetary policy deals with prices, macroprudential regulation takes care of bubbles. Problem solved. Or is it? For a start, the instruments are not entirely separate. Monetary policy affects not only retail prices but also the prices of financial assets. If a central bank commits to keeping interest rates at zero for the foreseeable future, it sets a benchmark for the price of risk-free securities directly and other securities indirectly. Central bankers are fooling themselves if they think macroprudential regulation is a potent independent monetary policy tool. It is a useful supplementary tool, nothing more, nothing less.

Bank for International Settlements fears fresh Lehman crisis from worldwide debt surge - The world economy is just as vulnerable to a financial crisis as it was in 2007, with the added danger that debt ratios are now far higher and emerging markets have been drawn into the fire as well, the Bank for International Settlements has warned. Jaime Caruana, head of the Swiss-based financial watchdog, said investors were ignoring the risk of monetary tightening in their voracious hunt for yield. “Markets seem to be considering only a very narrow spectrum of potential outcomes. They have become convinced that monetary conditions will remain easy for a very long time, and may be taking more assurance than central banks wish to give,” he told The Telegraph. Mr Caruana said the international system is in many ways more fragile than it was in the build-up to the Lehman crisis. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since then. Credit spreads have fallen to to wafer-thin levels. Companies are borrowing heavily to buy back their own shares. The BIS said 40pc of syndicated loans are to sub-investment grade borrowers, a higher ratio than in 2007, with ever fewer protection covenants for creditors.The disturbing twist in this cycle is that China, Brazil, Turkey and other emerging economies have succumbed to private credit booms of their own, partly as a spill-over from quantitative easing in the West.

World Cup of Default: Argentina at T-Minus 19 - Despite its tremendous natural wealth, Argentina has long been the poster child of underdevelopment. Aside from the sporting conquests of its racing car drivers and footballers, it's better known in economic circles for lurching into crises with some regularity. To make a long story short, Argentina has nineteen days to sort out how it will make interest payments to its creditors, or it will default when August comes around."Bang on schedule" some say as the country has a crisis of some sort every decade. This time, though, impending default is not entirely its fault. True, retro-socialist policies have sunk it into the mire of recession--what else is new? All that fudging of the books--the IMF wanted to show it a football-esque "red card" for inappropriate conduct--has not concealed its state of penury from anyone.  Chaotic finances aside, Argentina's current situation has been exacerbated by the legal machinations of American hedge funds (characterized as "vulture funds" by the Argentine government). After defaulting on about $95 billion in debt at face value in 2001, Argentina renegotiated $62.3 billion worth of outstanding debt in 2005 down to a value of $35.2 billion with private creditors. In financial lingo, the creditors received a "haircut." In 2010, another $12.4 billion worth of private debt was renegotiated along similar terms.Together they represented 93% of all creditors. That left Argentina with a touch under $10 billion worth of debt to holdouts. (The rest was sovereign debt AKA "Paris Club".)

China lends Argentina $7.5 billion for power, rail projects (Reuters) - Argentina signed deals on Friday to borrow $7.5 billion from China at a time when the Latin American country cannot tap global capital markets because of disputes over unpaid debt. Among the deals signed, Argentine President Cristina Fernandez and her Chinese counterpart, Xi Jinping, agreed on a loan for $4.7 billion from the China Development Bank for the construction of two hydroelectric dams in Patagonia. China Gezhouba Group Corp 600068.SS and Argentina's Electroingenieria SA won contracts last year to build the two dams, which will have a combined generating capacity of 1,740 megawatts. The Chinese bank also granted a $2.1 billion loan to help finance a long-delayed railway project that would make it more efficient to transport grains from Argentina's agricultural plains to its ports. true "It's a day we can define as foundational in the relations between our two countries," Fernandez said after signing the deals. China is Argentina's second-largest trading partner after neighbor Brazil. In 2013, Argentina's trade deficit with the Asian country increased more than 20 percent to $5.8 billion. Argentina is the world's third-largest exporter of soy and corn. China is the main buyer of its soybeans.

In Canada, a Case of the Missing U.S. Exports --  It has been one of the big mysteries of Canada’s economic recovery: roughly 50 billion Canadian dollars ($46.58 billion) of exports, mostly to the U.S., have gone missing. When the U.S. recovery started to pick up steam, Canadian economists expected nonenergy exports to the U.S., which accounted for three-quarters of Canada’s C$480 billion in annual exports last year, would rebound as well. If Canada’s sales of goods ranging from auto parts to oats had behaved as economists had expected, they would have rebounded by an additional C$40 to C$50 billion. But that didn’t happen, and instead, economists at the Bank of Canada and elsewhere have been left wondering what happened to the missing sales of Canadian goods to the U.S. As U.S. imports have grown, Canada’s share of that increasing demand is shrinking, by about 6% since 2000—to 11.4% of U.S. imports in 2013. Almost one-third of that decline has come since 2008, according to Bank of Canada research. Bank of Canada Gov. Stephen Poloz calls the gap between Canada’s predicted and actual export levels “the export wedge,” and has tasked economists at the central bank to do “deeper and deeper cuts” into 31 subcategories of exports to try and find more answers. That research included talking to companies to better understand their challenges, he says. Their findings: The overall export wedge is masking an uneven recovery that has seen some Canadian exporters rebound sharply, and other subsectors stymied by growing global competition. About 10 subsectors, including machinery, equipment, building materials and aircraft, have in fact recovered as expected, or are doing even better. But 21 others, including the auto sector, food and beverage suppliers and chemical makers, are no longer as competitive as they were before the recession when they take their goods to market in the U.S.

US Kicks The Growling Bear, Issues More Russian Sanctions; Restricts Debt Market Access -- Just as they promised (and acting unilaterally as Europe declined to go along with The White House), President Obama has unleashed a set of 'sectoral' sanctions to wreak havoc in Russia. The sanctions include the standard travel bans but adds rules that block several of Russia's largest firms from American debt markets. The plan - to restrict funding availability for Russian firms to under 90-days - is however, dead-on-arrival. As we explained here, Russian companies, facing $115 billion of debt due over the next 12 months, will have the funds even if bond markets shut as "the amount of cash on balance sheets of Russian companies, committed credit lines from banks and the operating cash flows they will get is sufficient for the companies to comfortably service their liabilities." This will do nothing but raise Putin's ire even more.

The Risk of Tougher Sanctions on Russia -- Energy politics underlie the explosive Ukraine crisis, as Europeans weigh U.S. calls for tougher sanctions against the ability of Russia to disrupt gas supplies this winter. The dilemma for European governments increased this week, as the Obama administration announced strong new penalties against the Russian energy and financial sectors. Europe's initial response was tepid, in a sign that many of its governments fear Moscow's energy leverage more than U.S. displeasure. The Russians turned up the pressure valve, too. Prime Minister Dmitry Medvedev called the U.S. sanctions "evil" on Thursday and warned: "We may go back to the 1980s in our relations with the states that are declaring these sanctions." The catastrophic risks of the Ukraine confrontation were highlighted Thursday by the shoot-down of a Malaysia Airlines passenger plane flying near the Russia-Ukraine border. Ukrainian government officials and pro-Russian separatists initially traded blame for the disaster, which showed the potentially devastating consequences as the Ukraine confrontation escalates. Russia's dominance as an energy supplier to Europe is its economic trump card in this fight, at least in the short run. European governments may be willing to squeeze Moscow, but not so tightly that they risk a severe shortage of gas supplies.

U.S. Sanctions On Russia Are Financial Warfare - On June 17^th, the US announced further sanctions against Russia because of its support for rebels in the Ukrainian civil war. The new sanctions are widely considered to be tough. But they are also difficult to understand. The extent of their legal and practical application is by no means clear. Yet – they are very clever. However they are interpreted, they are bad news for Russia. Here is the first part of Treasury Executive Order 13662, outlining the nature, purpose and application of the sanctions.  WASHINGTON – In response to Russia’s continued attempts to destabilize eastern Ukraine and its ongoing occupation of Crimea, the U.S. Department of the Treasury today imposed a broad-based package of sanctions on entities in the financial services, energy, and arms or related materiel sectors of Russia, and on those undermining Ukraine’s sovereignty or misappropriating Ukrainian property.  More specifically: Treasury imposed sanctions that prohibit U.S. persons from providing new financing to two major Russian financial institutions (Gazprombank OAO and VEB) and two Russian energy firms (OAO Novatek Novatek and Rosneft Rosneft), limiting their access to  U.S. capital markets;

Putin Responds: "US Sanctions Will Boomerang And Cause Very Serious Damage" - "Sanctions have a boomerang effect and without any doubt they will push U.S.-Russian relations into a dead end, and cause very serious damage, and it undermines the long term security interests of the US State and its people."  "This means that U.S. companies willing to work in Russia will lose their competitiveness next to other global energy companies." Putin said the sanctions will hurt Exxon Mobil Corp which has been given the opportunity to operate in Russia. "So, do they not want it to work there? They are causing damage to their major energy companies." Putin said the sanctions will hurt Exxon Mobil Corp which has been given the opportunity to operate in Russia. "So, do they not want it to work there? They are causing damage to their major energy companies."

Russian Sanctions Retaliation Escalates: Dumps Intel/AMD And Now Foreign Cars -- Ignoring for one second yesterday disastrous air crash in Ukraine, the 'boomerang' of sanctions continues to be thrown back and forth between the US and Russia. Having restricted Russian firm's access to USD funding, Putin has come out swinging. His first act was to demand that state departments and state-run companies will no longer purchase PCs built around Intel or AMD processors (which might explain AMD's slashing their outlook); but now he has hit out at the heart of what has made America great (in the eyes of some) - banning the use of foreign cars for officials in favour of home-produced cars.

Russia wipes out Cuban debt --Russian President Vladimir Putin gave final approval on Friday to a measure that wrote off 90 percent of the more than $30 billion in Soviet-era debt Cuba owed Russia. The move came just hours before Putin touched ground in Havana, where he kicked off a six-day tour of Latin America aimed at boosting trade and ties in the region.Russia's State Duma approved a deal last week to forgive 90 percent of Cuba's debt, or almost $32 billion, most of it originating from Soviet loans to a fellow communist state. The remaining 10 percent will be spent by Havana on local investment projects selected with Russian input, the Associated Press reported. Putin's visit will feature commercial agreements, including a deal for Russian state oil companies Rosneft and Zarubezhneft to explore offshore oil. Zarubezhneft has been involved in offshore exploration in Cuba in the past, and currently helps the country extract oil from onshore wells. Cuba believes there may be 20 billion barrels of oil in its waters, although the U.S. Geological Survey has a more modest estimate of 4.6 billion barrels. A number of foreign companies, including Spain's Repsol SA, Malaysia's Petronas Bhd and Venezuela's PDVSA SA have drilled in Cuba without success.

Carmakers Are Central Voice in U.S.-Europe Trade Talks - — It’s a task that makes sense only by the logic of international trade strictures — which is why negotiators for the European Union and the United States are eager to change the rule book.Here, in a corrugated metal warehouse next to a barge terminal, crews toil two shifts a day on brand-new Mercedes-Benz and Freightliner cargo vans, fresh from assembly lines a few miles away. With the dexterity of thieves stripping a vehicle for parts, they remove each van’s engine, bumpers, tires, drive shaft, fuel tank and the exhaust system.Next, the crews pack everything into steel freight containers, which begin a journey by river barge and cargo ship to Ladson, S.C., near the port of Charleston. There, American teams put the vans back together again. Only then can the vehicles be sent onward to Mercedes and Freightliner dealers around the United States.It would be more efficient to ship the vans in one piece, of course. But with current trade rules, efficiency is seldom the goal. That is why European and American automakers are some of the biggest corporate proponents of a new trans-Atlantic trade pact, even as some other industries oppose disrupting the status quo. Negotiations for that pact, which have struggled to gain momentum for more than a year, resumed Monday in Brussels.

Germany Bucking Toxic, Nation-State Eroding Transatlantic Trade and Investment Partnership - Yves Smith  - We've inveighed against the dangers of two Orwellianlly-branded "trade" deals, the TransPacific Partnership and its ugly twin, the Transatlantic Trade and Investment Partnership. Both negotiations have been shrouded in a deeply troubling level of secrecy, with their draft terms being given classified status and Congressmen kept largely in the dark as to their content. The business press in the US has tended to amplify Administration messaging, that both deals are moving forward. In fact, as we've covered in some detail, the TransPacific Partnership is in quite a lot of trouble, and as we'll discuss below, the Transatlantic Trade and Investment Partnership is also going pear shaped.  Even though no one has seen the exact language of the text, since it is being kept under wraps, both deals are believed to strengthen and extend investor rights, which means give them easier access to the courts. Consider this description from a July presentation by Public Citizen:

• • Absolute tribunal discretion to set damages, compound interest, allocate costs
  • • No limit to amount of money tribunals can order govts to pay corps/investors
    • Compound interest starting date if violation new norm ( compound interest ordered by tribunal doubles Occidental v. Ecuador $1.7B award to $3B plus
  • • Rulings not bound by precedent. No outside appeal. Annulment for limited errors.

And that’s alarming in light of some of the cases already brought before these panels in existing trade agreements like NAFTA. For instance: Eli Lilly is suing the Canadian government for not having the same extremely pro-drug-company patent rules.  Vattenfal, a Swedish company, is a serial trade pact litigant against Germany. In 2011, Der Spiegel reported on how it was suing for expected €1 billion plus losses due to Germany’s program to phase out nuclear power: That has brought the issue of the investor panels to the attention of the press and public. In the Huffington Post, Larry Cohen describes the widespread opposition to the Transatlantic Trade and Investment Partnership in Germany:As negotiations move forward on the Transatlantic Trade and Investment Partnership (TTIP), a wide range of German elected and civic leaders are in disbelief that the U.S. remains serious about including Investor-State Dispute Settlement (ISDS). From the German perspective, that’s a failed 20th century approach….By most benchmarks, Germany is the most successful large economy in the world, with a rising standard of living, an educational system that creates real opportunity to move from school to work, a deep economic safety net, and worker participation in economic decision making….Much more could be said about the divergent paths of our two nations in the past 60 years. But thanks to a suit brought by the Swedish energy firm Vattenfall against the German government, opposition to ISDS is nearly universal…

Six million Italians in total poverty, says Istat - - Some 10 million Italians, or 16.6% of the population, live in relative poverty, Istat national statistics bureau said Monday. Of these, 6,020,000 or 9.9% of the total population live in absolute poverty, that is, they can't afford to buy enough goods and services to live a dignified life, Istat said in its Poverty in Italy report. While the rate of relative household poverty was stable between 2012 (12.7%) and 2013 (12.6%), the rate of absolute poverty increased especially in the south, where the number of the absolute poor rose from 2,347,000 in 2012 to 3,072,000 in 2013, Istat said. Meantime, Italy's public debt in May rose by 20 billion euros over the previous month to hit a record high of 2.166 trillion euros, the Bank of Italy made known Monday. Public debt rose by 96 billion euros or 4.7% since the beginning of the year, the central bank said. (ANSAmed).

Spain's 2020 debt target 'unfeasible', new watchdog says - report (Reuters) - Spain's debt reduction targets to 2020 are unfeasible, the country's newly-created independent fiscal authority (AIReF) believes, newspaper El Mundo reported on Monday. Spain aims to cut its public debt from 96.8 percent of gross domestic product at the end of March to 60 percent by 2020. The gap soared from 36.3 percent in 2007, partly due to the cost of bailing out banks hit by the bursting of a property bubble. The deadline was "not feasible" given the government's admission to Brussels that it was set to miss its 2016 target and would finish 2017 with debt-to-GDP ratio of 97 percent, the newspaper quoted the authority as saying in a draft report. The watchdog and treasury ministry both declined to comment.

Greece Seen Needing Third Bailout as Bonds Insufficient - Greece’s return to bond markets after a four-year exile hasn’t convinced economists it can avoid a third bailout. Six out of 10 economists in a Bloomberg News survey said Greece will need to top up the 240 billion euros ($325 billion) of loans received from Europe and theInternational Monetary Fund since 2010, when it lost access to bond markets. The IMF forecasts Greece will have a 12.6 billion-euro financing gap next year. “Greece’s ability to generate sufficient funds to cover that is not sufficient,” . “Eventually the European partners will have to come up with something to basically bridge the funding needs that Greece has from now to the time in which it can establish a regular and sizable market access.” Greek bonds have rallied since the country undertook the biggest sovereign debt restructuring in history and came close to leaving the euro. That allowed the government to tap markets twice this year, raising 4.5 billion euros in three- and five-year bonds. The yield on the 10-year benchmark fell as low as 5.59 percent last month, compared with a historic high of 44.21 percent in March 2012, on the eve of the restructuring. Yields have since ticked higher as missed debt payments by two companies in Portugal’s Espirito Santo group strained confidence in Europe’s peripheral markets. The yield on Greece’s 10-year bond was 6.22 percent at 10:21 a.m. in London.

Triple Whammy for German Economy -- I have a guest post this morning from Saxo Bank chief economist Steen Jakobsen regarding the slowing German economy. Steen says the German economy is decelerating too quick for comfort and faces a triple whammy from Asian rebalancing, the US economy, and bad a bad energy policy. Germany May Have Won the World Cup, but Its Economy is Cooling Fast.  We need to congratulate Germany on its World Cup win. It was a victory for organisation and science, but unfortunately the Germany economy is slowing fast — and too fast for comfort when we look at Eurozone GDP. I have long argued this slowdown was coming based on Asia rebalancing (reducing imports of capital goods and turning more domestically-based); Bad energy policy (being dependent on Putin and his Russian gas rather than German nuclear energy — not exactly perfect substitution); A new minimum wage and a coalition government that has either reversed or halted a lot of the progress that had been made in the labour market. Unlike its football team, Germany became complacent and the switch to a reliance on green energy is now at risk as growth collapses. A few charts to illustrate my old argument ...

Needing Skilled Workers, a Booming Germany Woos Immigrants - Like most wealthy countries, Germany has deep concerns about immigration, fueled by racial and cultural tensions, costs and evolving definitions of national identity. But more than the rest of Europe, its healthy economy needs additional workers, especially for jobs requiring high levels of training and education, a problem likely to be exacerbated in the long run by its low birthrate. Right now Germany is trying to fill 117,000 jobs in science, technology and engineering, a gap that may widen to as many as one million by 2020, according to the Cologne Institute for Economic Research.So Germany, once a relatively homogeneous society that long struggled to assimilate immigrants and refugees from Turkey and other relatively poor countries, is competing more aggressively with the United States, Britain and other nations to attract and keep educated people from abroad who can help crucial industries. Since 2005, but especially over the past three to five years, Germany has eased rules recognizing foreign qualifications, granting residence permits for skilled foreigners and in depicting Germany as a land of migration.

Technology Displacing Jobs: The European Case - Yves here. Some technology enthusiasts predict that as many as 47% of current jobs will be displaced in the next decade. Candidates include not only trucking and bus driving (to be eliminated by self-driving vehicles) but more and more white collar work, as computer get better at the sort of information scanning and analysis that is now done by entry and low-level workers. This post examines different scenarios for how that might play out in Europe. Of course, the elimination of more and more analytical jobs raises the question of how will professionals learn a craft? This has been a complaint on Slashdot for years, that there are comparatively few entry level information technology jobs in the US, and that we are ceding the IT industry to China and India because we won’t be replacing the current crop of seasoned professionals. What happens when yeoman roles no longer exist. We also have the problem that economists like to worry about: where do the jobs come from? As we’ve said before, if you have a system in which people must sell their labor as a condition of survival and you don’t provide enough opportunities to do that, you have sown the conditions for revolt.

Draghi Seen Handing $1 Trillion to Banks in ECB Offer - Mario Draghi’s newest stimulus tool will hand banks more than 700 billion euros ($950 billion) of cheap funding, economists say. The European Central Bank president’s targeted lending program for banks will boost credit for the real economy as planned, and at the same time help keep the financial system flush with cash, according to the Bloomberg Monthly Survey of 45 economists. Draghi highlighted the measure in testimony to lawmakers today in Strasbourg, saying that it has “strong incentives” built in to spur lending. The ECB has identified loans to companies and households as a key weakness in the euro area’s fragile recovery. The so-called TLTRO program, part of a wider package of measures announced in June, offers as much as four years of low-cost funding tied to bank lending that Draghi said this month could ultimately provide as much as 1 trillion euros.

Two EU Finance Ministers Throw Their Bosses and Nations Under the Bus - Bill Black - The finance ministers of Italy and Serbia have just publicly thrown their heads of state and their nations under the bus.  In a testament to the crippling effect of the belief that “there is no alternative” (TINA) to austerity, these finance ministers have insisted on bleeding economies that are in desperate need of fiscal stimulus.  Their pursuit of economic malpractice is so determined that they eagerly sought out opportunities to embarrass the democratically elected head of state in Serbia when he dared to support competent economic policies. In response to severe unemployment caused by inadequate demand, Serbia’s finance minister demanded that Serbia drastically cut demand further through self-destructive austerity. Serbian Finance Minister Lazar Krstic stepped down after he and Premier Aleksandar Vucic failed to agree on the extent of cuts in wages, pensions and public-sector jobs.  Italy too is suffering Great Depression levels of unemployment.  Its attempts to recover have been hamstrung by German demands for austerity.  Prime Minister Renzi (who was not elected by the public to that position) is attempting to avoid these demands to bleed the economy. European Union finance ministers clashed over how to interpret the bloc’s budget rules amid criticism of Italian Prime Minister Matteo Renzi’s proposal to exempt spending on digital infrastructure. Renzi is trying to game an EU budget system that exemplifies economic malpractice.  The simultaneously hilarious and nasty response of the EU proposal was: Even Italian Finance Minister Pier Carlo Padoan backed away from the [Renzi] plan, speaking to reporters at the start of Italy’s six months holding the EU presidency. Echoing [European Commission Vice President Siim] Kallas, Padoan said “spending is spending, period” and talks are just beginning on how the EU can balance its need to boost growth measures against its fiscal safeguards.

​‘BOE Carney Sees BIS Disconnect From ‘Reality’ -  Bank of England Governor Mark Carney on Tuesday dismissed a call from the Bank of International Settlements for a quick return to more normal interest rates as being the product of an organization that is out of touch with reality. Mr. Carney’s response was the most robust rejection yet of an analysis by the BIS, a central bankers’ forum based in Switzerland, arguing that low interest rates have become dangerous for the global economy. The BOE has signaled that it will likely increase its benchmark interest rate from the record low later this year or early next. But policy makers have said that future rises will be gradual and to a level from 2% to 3%, well below the 5% average over the BOE’s 320-year existence. In its annual report, the BIS last month argued that kind of forward guidance, which has also been adopted by the U.S. Federal Reserve and the European Central Bank, has helped create a dangerous disconnect between investors and the world in which they operate, spurring them to take on too much risk. Both Fed Chairwoman Janet Yellen and ECB President Mario Draghi have said they will for now to confront threats to financial stability through the use of supervisory and regulatory tools that work on the asset markets and institutions under threat, rather than by raising their benchmark interest rates, which would affect the broader economy.

Don't blame Superpound for Britain's export woes: Official figures a few days ago for industrial production in Britain produced a surprise. And, for once, it was not a pleasant one. Overall industrial output fell by 0.7% between April and May and within that manufacturing recorded a hefty 1.3% drop. It was not the only disappointment. Britain’s trade deficit widened from £2.1bn in April to £2.4bn in May on the back of a meagre £0.1bn monthly rise in exports, more than offset by a bigger rise in imports. In the latest three months exports of goods have risen by just 0.1% to £72.6bn, while imports are up 0.5% to £98.9bn. The industrial figures appear to be an aberration and are at odds with much stronger survey evidence. Manufacturing output in the latest three months was up by 1.1% on the previous three and, this – annual growth of around 4% - is a better guide to what remains a pretty robust industrial recovery. But the trade figures tell a familiar and more believable story, which is that the great export revival that was going to be an important driver of growth and rebalance the economy, is still eluding us.  The question is whether this is due to the strength of the pound. Sterling Is flavour of the month among currency traders, At $1.71 it is more than 20 cents up on where it was a year ago, and at more than €1.25, it has gained roughly 10 euro cents. Why is the pound so strong, will it last, and is it the thing holding back our exporters?  Exports depend on whether markets are growing or stagnant and having the right products, services and trade support. They depend on quality, reliability and timely delivery and, as Cable pointed out, British industry raising its productivity game. We should not blame the pound, which is not in the grand scheme of things particularly strong, for a disappointing export performance.