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

Saturday, July 26, 2014

week ending July 26

Fed Balance Sheet July 24, 2014 -  For the July 24 week, the Fed balance sheet increased $12.5 billion after expanding $14.8 billion the prior week. Mortgage-backed securities gained $7.3 billion while Treasuries grew $2.48 billion. Total assets for the July 16 week were at $4.411 trillion. Reserve Bank credit for the July 24 week rose $14.7 billion, following a gain of $12.3 billion the July 16 week. The Fed's balance sheet is a report showing factors supplying reserves into the banking system and factors absorbing (using) reserve funds. Essentially, the balance sheet shows the various Fed programs for injecting liquidity into the economy and how much the Fed has used each for adding or withdrawing reserves.

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

IMF Lays Out Own Fed Exit Strategy - The International Monetary Fund has plenty of advice for the Federal Reserve ahead of its policy meeting next Tuesday and Wednesday. Fed officials are expected to continue discussions about what combination of interest-rate tools to use when they decide it’s time to raise borrowing costs across the economy, and the IMF this week offered a few suggestions. To start, the IMF suggests the Fed should think twice before relegating its traditional policy tool, the federal funds rate, to a supporting role. Minutes of the Fed’s June meeting showed central bank officials agreed they will use a newer interest rate—the rate it pays banks to park their reserves at the central bank overnight—as their primary tool for raising short-term rates broadly. The Fed has held the fed funds rate near zero since late 2008 in an effort to spur stronger growth. For more than two decades, the Fed has used this rate as its key benchmark.  But Fed officials now believe the fed funds rate won’t be as effective as in the past. The IMF, however, urged the Fed to stick with the fed funds rate as its top tool. “The fed funds rate should remain as the operational target during most (if not all) of the” period in which the Fed is raising rates, according to the IMF’s July country report for the United States. The IMF also says it might be a good idea to stick to a single interest rate rather than adopting a system based on several rates, including the rate on banks’ excess reserves and another experimental Fed rate on reverse repurchase agreements between the central bank and financial firms. “There seems no clear benefit in moving away from the fed funds target, while there could be risks in doing so,” the report said.

The Federal Reserve's Risky Reverse Repurchase Scheme - Sheila Bair - Four years after the passage of Dodd-Frank, we are still discussing whether the law has made the financial system more stable. These discussions are important, yet too little attention is being paid to a Federal Reserve program called the Overnight Reverse Repurchase Facility, also referred to as ON RRP. This program, while well-intentioned, could be a new source of financial instability. It needs a closer look. The mere existence of this facility could exacerbate liquidity runs during times of market stress. Borrowers in the short-term debt markets will have to compete with it for investment dollars and all, to varying degrees, will be viewed as higher risk than lending to the Fed. Even a relatively minor market event could encourage a massive flow of funds to the Fed while contributing to a flow away from other short-term borrowers. Nonfinancial companies could find themselves unable to find buyers for their commercial paper. Banks could confront a sudden outflow of deposits, particularly those which are uninsured. Even the U.S. Treasury—traditionally viewed as the safest harbor—could see its borrowing costs spike as investors decide that the Fed is even safer. Ironically, faced with a more acute liquidity crisis, the Fed would likely have to use the funds it is borrowing through reverse repos to provide a lifeline to the very markets that suffered. For investors seeking safety, the Fed would become the borrower of first resort. For borrowers affected by the resulting diversion of funding, the Fed would become the backstop lender. The reverse repurchase facility also seems to be at cross-purposes with Congress’s efforts to contain the government safety net. After many years of consideration, Congress in 2008 reluctantly gave the Fed authority to pay banks interest on the money they keep on deposit with it. The reverse repurchase facility essentially gives large nonbank financial institutions the routine ability to place money in the functional equivalent of an overnight deposit with the Fed and receive interest.

Fed Worries About Effects of Its New Interest Rate Tool on Markets - When the Federal Reserve started tests late last year of its so-called reverse repo facility, some officials hoped it would play a starring role in the campaign to raise interest rates when the time comes. But now the Fed thinks the new tool will play no more than a “useful supporting role,” largely because of rising concerns about its potential effects on the financial system, according to the meeting minutes of the Fed’s June policy meeting and recent comments by Fed officials (who spoke before the week-long blackout period preceding their next meeting July 29-30). “More and more people are expressing reservations” about the reverse-repurchase agreement facility, said Philadelphia Fed President Charles Plosser in an interview. As the program is currently designed, “there’s a lot of things that might happen to the plumbing of the money markets, and people have gotten…concerned that there’s a lot we don’t know” about how this will all work when put to the test, he said. Together, the minutes and officials’ remarks shed light on the Fed’s continuing internal debate over how to raise short-term interest rates from near zero, where they have been since late 2008. Officials are still weighing which tools to use and in what combination. The discussions are prompted by worries their traditional main lever for influencing borrowing costs, the federal funds rate, will be less effective than in the past. The officials agreed at the June meeting that the fed funds rate, an overnight rate on loans between banks, “should continue to play a role” while a newer rate the Fed pays banks on the reserves they park at the bank “should play a central role,” the minutes said. And while the reverse repos would be used as well, officials did not expect them to become a permanent part of their long-run operations.

The Fed’s intervention in biotech and internet stocks - The Federal Reserve broke new ground last week when its Monetary Policy Report to Congress specifically warned that the valuations of smaller firms, especially in the biotech and social media sectors of the US equity market, seem “substantially stretched”. Although there was no sign that the Fed planned to take any action to bring down valuations in these sectors, this remark naturally led to a sharp sell-off in shares. The Fed’s overall message on asset prices last week was a little more bearish than previously. They once again said that overall equity market valuations are “generally in line with historical norms“, but they warned that extremely low implied volatility in the options market possibly reflected “reach for yield” behaviour among some investors. They also commented that “issuance of speculative-grade corporate bonds and leveraged loans has been very robust, and underwriting standards have loosened.” It is in the leveraged loan market that the Fed is clearly determined to take meaningful action, promising to “enhance compliance with previous guidance on issuance, pricing, and underwriting standards”. Market participants report this is now having a large effect on standards in the market. It is a very good thing that the Fed is prepared to take action to cool excessive risk taking on a macro level.  But they need to be careful that they do not interfere too much in the market’s role in the allocation of capital among growth sectors in the economy. It is not clear that they need to have any view at all about the valuations of the biotech and internet sectors of the stockmarket. Together, these sectors account for under 6 per cent of US market capitalisation, so it is hard to see how they can be affecting the macro-economy or financial stability.

The Most Transparent Central Bank in the World? - At a hearing before the House Financial Services Committee on Wednesday, Federal Reserve Chair Janet Yellen called the Fed the "the most transparent central bank to my knowledge in the world.” I'll try to evaluate her claim in this post. For context, the hearing focused on legislation proposed by House Republicans called the Federal Reserve Accountability and Transparency Act, which would require the Fed to choose and disclose a rule for making policy decisions. Alan Blinder explains: "A 'rule' in this context means a precise set of instructions—often a mathematical formula—that tells the Fed how to set monetary policy. Strictly speaking, with such a rule in place, you don't need a committee to make decisions—or even a human being. A handheld calculator will do."  Blinder, who has long advocated central bank transparency, calls FRAT an "unneccessary fix" for the Fed. Discretion by an independent Fed needs not impede or preclude transparency, and the imposition of rules-based policy would not guarantee improved accountability and transparency.

Monetary policy: Overruled - The Economist - REPUBLICANS renewed their assault on the Federal Reserve recently, as they debated legislation to curtail the Fed's freedom to set monetary policy as it sees fit. The legislation would require the Federal Reserve to set interest rates according to a Taylor rule: a formula which adjusts interest rates according to inflation and the output gap. John Taylor, the inventor of the concept, suggested to Congress a rule which would target inflation at 2%, the Federal Reserve’s current objective. However, Mr Taylor’s plan is not a popular one among economists; in a recent poll the economists surveyed overwhelmingly opposed the plan. Why is it such a bad idea?  A Taylor rule sets interest rates based on only a couple of variables, in this case the output gap and inflation. However, while these data series provide valuable information about the state of the economy, they also contain random noise. For example, consider the most recent estimate of GDP for the first quarter of 2014, which showed a decline at an annual rate of 2.9%. A fall of this magnitude usually betokens a deep downturn, and under Mr Taylor's proposal would have resulted in a 50 basis point fall in interest rates. But in this case the drop in output is thought to have been largely caused by the unseasonably cold weather in February—a one off shock, unrelated to aggregate demand.  A rule with dozens of variables could reduce the influence of noisy data series. But such a rule would be impossible to calibrate even for economists, let alone politicians, and it would have none of the transparency that Republicans supposedly yearn for.

If the Fed followed the House GOP’s proposed policy rule, it might need to slash rates - Republicans, generally, seem very worried about the Fed’s low-interest rate policy, not to mention its bond buying. So this is their response: Several House Republicans are embracing Stanford University economist John B. Taylor’s call for the Federal Reserve to adopt a mathematical rule for determining interest rates, stepping into a long-running debate among central bankers about how to set monetary policy. But what if the Fed suddenly — today! — adopted such a rule. What would the Fed do? It would raise rates, unless it cut them. Deutsche Bank: Monetary policy by discretion or equation? . Consider the Taylor rule’s three variables for example: the equilibrium real interest rate and both the deviation of inflation from target and output from potential. The long-run real rate was generally accepted as 2 per cent before the crisis. Janet Yellen’s assurances of a lower terminal funds rate suggest it should be half that while secular stagnationists believe it is negative. Similarly some reckon headline unemployment underestimates America’s output gap due to discouraged workers. Meanwhile others contend that labour markets are tight given low short-term unemployment. Feeding this range of inputs into a Taylor rule spits out a 50 basis point raise or cut next Fed meeting. Central banker discretion is hard to dispense with.

Fed Hubris: Central Bank Ignores That It is on Thin Political Ice - - Yves Smith -- A shot across the Fed’s bow from Simon Johnson, former IMF chief economist and bank critic, on the surface looks to be a good bit of news. Johnson, in a recent Project Syndicate article, warns that the notoriously cloistered central bank is overly confident about its political position. Although Johnson is constrained by both space limits and Project Syndicate’s anodyne style, his warning is clear: the Fed is more powerful than ever despite having been wretchedly incompetent in the runup to the crisis. Many would say it has compounded its incompetence by going into “if the only tool I have is a hammer, ever problem looks like a nail” mode with ZIRP and QE. The Fed was not only silent when its input would have mattered a great deal, in the fiscal stimulus fight of 2009, but Bernanke called for deficit cutting in 2012, even as he had his foot firmly on the not-very-effective QE accelerator. The result is a flaccid economy, bubbles in many financial assets and destabilizing hot money flows sloshing through developing economies. As a result of this misrule, Johnson contends the central bank is much closer than it recognizes to losing its vaunted independence. Johnson points out that the right wing is keen about restricting the Fed’s freedom of action, and that they are a much more serious threat than the Fed appears to understand. What happens if the Republicans gain a majority in the Senate in the midterms?

CPI Remains Stubbornly High as Yellen's "Noise" Won't Go Away - Consumer Price Inflation was 2.1% in June (as expected) remaining above the Fed's mandate levels and worryingly for all those who see the Fed as omniscient... refusing to go "noisily" down. Core CPI fell very modestly to 1.9% year-over-year but the jump in gasoline prices accounted for two-thirds of the overall rise in June CPI (seems like the Fed needs to print some more world peace to brings prices down). How many months of 'high' inflation does it take before Yellen admits it is not 'noise'?

Key Measures Show Inflation mostly at or below Fed's Target in June - The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.0% annualized rate) in June. The 16% trimmed-mean Consumer Price Index also increased 0.1% (1.8% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report. Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.3% (3.1% annualized rate) in June. The CPI less food and energy increased 0.1% (1.6% annualized rate) on a seasonally adjusted basis. Note: The Cleveland Fed has the median CPI details for June here. Motor fuel was up sharply in June.This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.3%, the trimmed-mean CPI rose 1.9%, and the CPI less food and energy rose 1.9%. Core PCE is for May and increased just 1.5% year-over-year. On a monthly basis, median CPI was at 2.0% annualized, trimmed-mean CPI was at 1.8% annualized, and core CPI increased 1.6% annualized. There key measures of inflation have moved up over the last few months, but on a year-over-year basis these measures suggest inflation remains at or below the Fed's target of 2%. 

The Fed Still Has Little Reason to Worry About Inflation - Inflation chatter is heating up again among Wall Street economists. Wage pressures, some analysts argue, may be right around the corner as the unemployment rate falls and job growth picks up. While a sluggish economic recovery has proven inflation hawks wrong time and again, that has not stopped some forecasters from predicting that price increases will accelerate someday because of the Federal Reserve’s unconventional policies of holding short-term interest rates near zero for years and buying bonds to lower long-term rates. The Labor Department’s latest consumer price index report suggests concerns about inflation pressures may again be premature. U.S. consumer inflation firmed last month but largely decelerated outside a jump in gasoline prices, and food costs in particular slowed after surging in recent months. . Indeed, the Fed’s preferred measure of inflation—the Commerce Department’s personal consumption expenditures index–has been undershooting the central bank’s 2% target for two years. Any reading that finally approaches 2% – and even one that surpasses it slightly – is likely to be welcomed rather than feared by Fed Chairwoman Janet Yellen and many of her colleagues.

Which Wage Measure Best Captures Inflation Pressures? - Federal Reserve Chairwoman Janet Yellen has made clear that her perceptions of a healthy labor market hinge on more than just the unemployment rate or the strength of recent job gains. Also high up on her labor-market dashboard is wage growth. As labor markets tighten, workers should be able to bargain for bigger raises. Wage growth  is a sign of labor market health but also spills into the Fed’s other mandate: price stability. Labor costs are the driver of costs for most businesses overall. Bigger pay gains push businesses to mark up their own selling prices, leading to higher inflation overall. Already, there are isolated cases of businesses raising pay to attract certain skilled workers, but one measure of pay, the average hourly wage, has maintained a yearly growth rate of just 2% in this recovery. That puts pay raises barely ahead of inflation.  Economists at J.P. Morgan took a look at the issues in a note to clients, which they called “a field guide to wage-watching.”The Labor Department measures wages and salaries in many different forms.  J.P. Morgan took a look at six measures:

Always Inflation Somewhere - Paul Krugman  - Whenever you point out that the hyperinflation the usual suspects have been predicting for the past 6 years hasn’t materialized, you get a rash of comments declaring that yes it has, the government is just lying about the statistics. One answer — aside from come on, how do you think that works? — is that independent measures, like the Billion Price Index, aren’t very different from the official index. Still, people will point to the price of something that has gone up as evidence that we have lots of inflation. Not that I think such people can be budged, but it is important to realize that relative prices are always shifting around, and that some prices inevitably go up more than the average. As the figure shows, if you go back to the beginning of the Great Recession, food prices have risen more than the overall CPI (although hyperinflation it isn’t), but car prices have risen more slowly (and high-tech stuff has, of course, gotten much cheaper).  And what about Shadowstats, which claims that inflation is much higher than the government lets on? A subscription costs $175 — the same as 8 years ago.

Dear inflation truthers: This is how averages work - Call it Amity's Law. As a debate with an inflation truther grows longer, the probability of them asking how inflation could be low when some prices are rising faster than the average of all prices approaches one. Okay, that isn't exactly how they'll put it. Instead, inflation truthers will darkly note that the costs of stamps, coffee, haircuts, movie tickets, summer cottages, college tuition, and, of course, gasoline are all increasing more than the overall inflation rate. And they won't mention anything that's increasing less, let alone things that are falling in price. (You know, like your computer-telephone-camera-camcorder-GPS-music player-calculator-alarm clock-flashlight—aka your smartphone). In other words, they'll say that, if you only look at the highest-rising prices, inflation is higher than the official numbers says it is. Cue the spooky music.Then they'll triumphantly raise an eyebrow from beneath their tinfoil hats, because they're right: some prices really are increasing faster than average. And they'll tell you that you can learn all about this shocking fact, along with the rest of the government's plot to hide this secret inflation, from the internet. If, that is, you're willing to pay $175 to subscribe to "unskewed" statistics from a guy who keeps predicting hyperinflation, but never increases his subscription prices.

Chicago Fed: "Index shows economic growth decelerated slightly in June" - The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth decelerated slightly in JuneLed by slower growth in production-related indicators, the Chicago Fed National Activity Index (CFNAI) edged down to +0.12 in June from +0.16 in May. Two of the four broad categories of indicators that make up the index made nonpositive contributions to the index in June, but two of the four categories increased from May. The index’s three-month moving average, CFNAI-MA3, decreased to +0.13 in June from +0.28 in May, marking its fourth consecutive reading above zero. June’s CFNAI-MA3 suggests that growth in national economic activity was somewhat above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year. This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed: Economic Growth Decelerated Slightly in June -  "Index shows economic growth decelerated slightly in June": This is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report:Led by slower growth in production-related indicators, the Chicago Fed National Activity Index (CFNAI) edged down to +0.12 in June from +0.16 in May. Two of the four broad categories of indicators that make up the index made nonpositive contributions to the index in June, but two of the four categories increased from May. The index’s three-month moving average, CFNAI-MA3, decreased to +0.13 in June from +0.28 in May, marking its fourth consecutive reading above zero. June’s CFNAI-MA3 suggests that growth in national economic activity was somewhat above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year. The CFNAI Diffusion Index, which is also a three-month moving average, decreased to +0.18 in June from +0.33 in May. Forty-four of the 85 individual indicators made positive contributions to the CFNAI in June, while 41 made negative contributions. Forty indicators improved from May to June, while 43 indicators deteriorated and two were unchanged. Of the indicators that improved, 12 made negative contributions. [Download PDF News Release] was looking for a headline index increase to 0.18.

GDP Growth: Will We Find a Higher Gear? -  Atlanta Fed's macroblog -- We are still more than a week away from receiving the advance report for U.S. gross domestic product (GDP) from April through June. Based on what we know to date, second-quarter growth will be a large improvement over the dismal performance seen during the first three months of this year. As of today, our GDPNow model is reading an annualized second-quarter growth rate at 2.7 percent. Given that the economy declined by 2.9 percent in the first quarter, the prospects for the anticipated near-3 percent growth for 2014 as a whole look pretty dim.The first-quarter performance was dominated, of course, by unusual circumstances that we don't expect to repeat: bad weather, a large inventory adjustment, a decline in real exports, and (especially) an unexpected decline in health services expenditures. Though those factors may mean a disappointing growth performance for the year as a whole, we will likely be willing to write the first quarter off as just one of those things if we can maintain the hoped-for 3 percent pace for the balance of the year. Do the data support a case for optimism? We have been tracking the six-month trends in four key series that we believe to be especially important for assessing the underlying momentum in the economy: consumer spending (real personal consumption expenditures, or real PCE) excluding medical services, payroll employment, manufacturing production, and real nondefense capital goods shipments excluding aircraft. The following charts give some sense of how things are stacking up. We will save the details for those who are interested, but the idea is to place the recent performance of each series, given its average growth rate and variability since 1990, in the context of GDP growth and its variability over that same period.

IMF Cuts US and Global Growth Forecasts for 2014 -  The International Monetary Fund foresees the global economy expanding less than it had previously forecast, slowed by weaker growth in the United States, Russia and developing economies. The lending organization predicted Thursday that global growth will be 3.4 percent in 2014, below its April forecast of 3.7 percent. But the fund still expects the growth of the world's economy to accelerate a bit to 4 percent in 2015. The downgrade of this year's estimate for the global economy reflects much slower growth in the United States. The IMF now expects just 1.7 percent U.S. growth in 2014, which would be the weakest since the recession officially ended five years ago. That's down from its April prediction of 2.8 percent, mostly because of a sharp weather-related contraction in the first quarter. The U.S. economy shrank at an annual rate of 2.9 percent in the first three months of the year. But the IMF thinks the U.S. economy rebounded in the April-June quarter at a healthy 3.5 percent annual rate. Growth should remain above 3 percent in the second half of the year, it said in a separate report Wednesday. And it should be 3 percent for all of 2015. Olivier Blanchard, the IMF's chief economist, said the U.S. economy's recent weakness is in "the past, to a large extent." "Looking forward, growth in the U.S. is reasonably strong," Blanchard added.

IMF sees US growth at weakest since recession: (AP) — U.S. economic growth this year will likely be at the weakest pace since the Great Recession ended, the International Monetary Fund said, mostly because of a sharp, weather-related contraction in the first quarter. But the global lending organization said Wednesday that it still expects growth resumed in the April-June quarter and will remain healthy in the second half of this year and next. In its annual report on the U.S. economy, the IMF projects growth will be just 1.7 percent this year, down from a 2 percent estimate in June. That's below last year's 1.9 percent pace and would be the slowest annual rate since the recession ended in June 2009. The IMF's outlook is more pessimistic than that of the Federal Reserve, which expects growth of at least 2.1 percent. But it is in line with most other private economists. The IMF says growth will rebound in the April-June quarter to a healthy 3 percent to 3.5 percent and remain in that range for the rest of this year. It also projects the economy will expand 3 percent in 2015, which would be the best showing since 2005. "Behind that pessimistic number, we do see a relatively optimistic view of the economy going forward," said Nigel Chalk, deputy director of the IMF's Western Hemisphere department. At the same time, the IMF expects unemployment to remain elevated for a longer period than the Fed does. That's partly because the IMF calculates that up to a third of those who have stopped looking for work since the recession will resume their job searches. Not all will immediately get hired, however.

Economist who predicted busted housing bubble says another recession is coming -  -- Just as the U.S. economy is strengthening, other countries are threatening to drag it down. Employers in the U.S. are creating jobs at the fastest pace since the late 1990s and the economy finally looks ready to expand at a healthy rate. But sluggish growth in France, Italy, Russia, Brazil and China suggests that the old truism, "When the U.S. sneezes, the rest of the world catches a cold," may need to be flipped. Maybe the rest of the world will sneeze this time, and the U.S. will get sick. That's the view of David Levy, who oversees the Levy Forecast, a newsletter analyzing the economy that his family started in 1949 and one with an enviable record. Nearly a decade ago, the now-59-year-old economist warned that U.S. housing was a bubble set to burst, and that the damage would push the country into a recession so severe the Federal Reserve would have no choice but to slash short-term borrowing rates to their lowest levels ever to stimulate the economy. That's exactly what happened. Now, Levy says the United States is likely to fall into a recession next year triggered by downturns in other countries, the first time in modern history. "The recession for the rest of the world ... will be worse than the last one," says Levy, whose grandfather called the 1929 stock crash and whose father won praise over decades for anticipating turns in the business cycle, often against conventional wisdom.

How big can the U.S. current account stay? — In the past few years, the U.S. current account deficit has shrunk from over 6% of GDP in mid-2006 to less than 3% today. Since these current account deficits reflect capital account surpluses, many people view them as a symptom of the problems that led to the crisis. That is, funds from abroad were fueling the credit boom in the United States, which in turn fed the boom in housing prices, etc. As you can see in the chart below, over the past three decades the U.S current account has been in surplus only briefly in the first half of 1990. Since then, it has been continuously in deficit. How is it that the United States can keep borrowing without a collapse in the currency or a surge in borrowing costs? Is there some sort of limit? One possible answer is that because the world runs on U.S. dollars, everyone needs U.S. dollar-denominated securities. Countries use these both to transact and to insure themselves against foreigners’ suddenly deciding to withdraw assets – a capital flow reversal. These needs result in the “exorbitant privilege” that accrues to the United States as the issuer of the reserve currency.  So, meeting this demand for U.S. dollar instruments means that – other things equal – the United States will run a capital account surplus. That, in turn, means a current account deficit. But how big a deficit? To get a rough answer, we introduce a few definitions and some algebra.

CBO—Still Out of Paradigm after All These Years -- The Congressional Budget Office (CBO) published its long-term deficit and national debt projections last week.  These are the projections most widely cited in policy discussions about long-term “sustainability” of the national debt and entitlement programs.  In this post I focus on a small but very important part of the report—the CBO’s discussion of the “Consequences of a Large and Growing Debt,” which can be found on pages 13-15.  This section can be found in past reports going back several years, and hasn’t change much if it has changed at all during this time.  It is also consistent with the thinking of most economists on these issues.  As readers of this blog will recognize, the CBO’s analysis is “out of paradigm” in that it is inapplicable to a sovereign, currency-currency issuing government operating under flexible exchange rates such as the US, Japan, Canada, UK, Australia, etc. CBO presents four consequences of a large and growing national debt.  I discuss each in turn.

CBO – Still Pushing Deficit Scaremongering Propaganda - Yves here. We’ve written from time to time about the shameless partisan role that the Congressional Budget Office plays in stoking misguided and destructive concern about budget deficits. It’s important to recognize the CBO’s openly partisan stance on this issue, because it is supposed to make independent, apolitical budget forecasts and is widely and mistakenly seen as “objective”. In fact, the CBO’s regularly takes stances that put them in the same camp as billionaires like Pete Peterson and Stan Druckenmiller, who want to slash Social Security and other social safety nets.  In fact, as we detailed in a 2012 post, the CBO departed wildly from clearly stipulated procedures for preparing long-term budget analyses to cook up projections that showed Medicare costs continuing to grow markedly faster than is remotely plausible. This mattered because health care cost increases are the driver of long-term budget worries. The CBO’s analysis was so dubious that two budgetary experts at the Fed published a devastating paper on the CBO analysis.

The Fiscal Fizzle, by Paul Krugman -- For much of the past five years readers of the political and economic news were left in little doubt that budget deficits and rising debt were the most important issue facing America. Serious people constantly issued dire warnings that the United States risked turning into another Greece ... I’m not sure whether most readers realize just how thoroughly the great fiscal panic has fizzled... In short, the debt apocalypse has been called off. Wait — what about the risk of a crisis of confidence? There have been many warnings that such a crisis was imminent, some of them coupled with surprisingly frank admissions of disappointment that it hadn’t happened yet. For example, Alan Greenspan warned of the “Greece analogy,” and declared that it was “regrettable” that U.S. interest rates and inflation hadn’t yet soared. But that was more than four years ago, and both inflation and interest rates remain low. Maybe the United States, which among other things borrows in its own currency and therefore can’t run out of cash, isn’t much like Greece after all.In fact, even within Europe the severity of the debt crisis diminished rapidly once the European Central Bank began doing its job, making it clear that it would do “whatever it takes” to avoid cash crises in nations that have given up their own currencies and adopted the euro. Did you know that Italy, which remains deep in debt and suffers much more from the burden of an aging population than we do, can now borrow long term at an interest rate of only 2.78 percent? Did you know that France, which is the subject of constant negative reporting, pays only 1.57 percent? So we don’t have a debt crisis, and never did.

Congress and pensions: Highway to hell | The Economist - SO THE US Congress has agreed on a way of funding the highway trust fund, the scheme that fixes the potholes and the bridges (and should be funded by a tax on petrol, but Congress refuses to increase that tax). The "money" is to come from a technique known as "pension smoothing"; companies will have longer to repair their pension deficits. Since companies' pensions contributions are tax-deductible, lower contributions means more tax revenue for the government; this will fund the highways. As critics have been quick to point out, this is a highly dodgy accounting gimmick. If companies pay lower contributions now, they will pay higher contributions later, on which more tax relief will be claimed; no new tax revenue will be raised at all. And it is not as if this strategy is without risk. When companies go bust with underfunded pension scheme, the PBGC (Pension Benefit Guaranty Corporation) steps in; any measure that stops pensions from being properly funded makes life more risky for the PBGC, which already has a deficit of around $36 billion. But this is not the only way Congress has mucked about with pension funding. As David Zion, the Credit Suisse analyst who seems to follow this issue most closely, remarks: all of the smoothing mechanisms in pension accounting can cause pension costs to be disconnected from what’s actually happening to the pension plan and result in a lack of comparability (two companies with the exact same pension plan can report completely different pension costs).

The Odds of an IRS Cover Up - What are the odds that IRS employees deliberately targeted President Barack Obama's political opposition and have attempted to cover it up? On 31 May 2013, the U.S. Internal Revenue Service (IRS) told Congressional investigators that they had identified at least 88 IRS employees and supervisors who were involved in targeting groups opposed to various aspects of President Barack Obama's political agenda. At that time, the IRS ordered these employees to preserve all the "responsive documents" related to the scandal on their personal computers, which would apply to documents going back as far as 2010. On 21 July 2014, in written testimony before the U.S. Congress, IRS Deputy Associate Chief Counsel Thomas Kane indicated that the hard drives of up to as many as 20 of these IRS employees had experienced crashes, making e-mails and other documents stored on them inaccessible in explaining why the agency would not deliver the information that it had been ordered to provide to Congressional investigators. What are the odds of that happening? Fortunately, we have an app for that! You just need to enter the relevant data, which we have below, or adjust it as you might like, and we'll figure out the odds of so many members of such a small group of IRS employees and supervisors going through the experience of their hard drive crashing so bad that no information related to potentially unlawful activities would ever be retrieved from them.

Corporate “inverstions” shift the tax burden to us - Corporate “inversions” are back in the news again, as multinational corporations try every “creative” way they can to get out of paying their fair share of taxes for being located in the United States. With inversions, the idea is to pretend to be a foreign company even though it is physically located and the majority of its shareholders are in the U.S. “What’s that?” you say. At its base, what happens with an inversion is that a U.S. corporation claims that its head office is really in Ireland, the Cayman Islands, Jersey, etc. Originally, all you had to do was say that your headquarters was abroad. Literally. Now, the rules require you to have at least 20% foreign ownership to make this claim, but companies as diverse as Pfizer, AbbVie, and Walgreen’s are set to run rings around this low hurdle. The basic idea is that you take over a smaller foreign company and pay for it partly with your own company’s stock to give the shareholders of the foreign takeover target at least a 20% ownership stake in your company. As David Cay Johnston points out, even some staunch business advocates like Fortune magazine are calling this tax dodge “positively un-American.” Further, as he notes, Walgreen’s wants to still benefit from filling Medicare and Medicaid prescriptions even if it ceases to pay much in U.S. corporate income tax. In other words, it will get all the benefits of being in the U.S., including lucrative government contracts, without paying for the costs of government. As I told The Fiscal Times, if companies like these get their tax burden reduced, there are only three possible reactions that can occur: someone else (i.e., you and me) will pay more taxes; the government must run a higher deficit; or government programs must be cut. Of course, there is a limitless number of combinations of these three changes that can result, but one or more of them has to happen.

GOP: Tax Evasion as a Back Door Strategy - My CBPP colleague Chuck Marr flags something important from a recent press release by Rep. Dave Camp, the Republican Chair of the tax writing committee in the House. In regard to their bill to patch the Highway Trust Fund through next May, Rep. Camp writes: I certainly do not support permanent tax increases to pay for just 10 months of highway programs.  Furthermore, it is inconceivable that the House would, as the Senate proposes to do, grant the IRS additional authority to audit and investigate taxpayers simply so Washington can spend more money. In just a few words, the Congressman manages to make some truly scary assertions. First, while it’s true that we don’t need a permanent tax increase to support temporary spending, why would Congress fund critical national infrastructure with patched, temporary, gimmicky spending bills like this one?  In fact, we precisely need a permanent tax increase, specifically in the federal gas tax—stuck at 18.4 cents/gallon since 1994!—to avoid these temporary fiscal patches, which by definition just create a new fiscal cliff a few miles down the pothole-infested road, in this case in May 2015. This is fiscal policy malpractice, rhetorically disguised as some kind of fiscal rectitude: “How dare you ask us to raise the resources needed to fund critical infrastructure in perpetuity, when we can fake a temporary patch?”  It’s Alice-in-Wonderland budgeting, where fiscal responsibility is cast as irresponsible.

Senate Report: Hedge Funds Used Basket Options to Save Billions in Taxes -- Yves Smith The Senate Permanent Subcommittee on Investigations released a report today that found that hedge funds have been using basket options to save billion in taxes. And when we say “billions,” the report indicates it’s more like tens of billions, since the paper estimates that the tax reduction achieved at one hedge fund, Renaissance Technologies, operated by the famed James Simons, was $6.8 billion. Basket options were sold by Wall Street firms, in particular Barclays and Deutsche Bank, as a way to convert what would otherwise have been labor income into capital gains income. The bone of contention is that the IRS wrote a memo in 2010 telling players involved to cut it out, and they didn’t. From the Wall Street Journal: Hedge funds used a tax avoidance technique offered by Wall Street banks for years to skirt federal leverage trading limits… Companies involved in the practice have pushed back against the Internal Revenue Service, which warned in a 2010 memo against claiming a tax break based on the use of financial products known as basket options. The companies said use of the products to claim lower long-term capital gains tax treatment for trading activity is legal and doesn’t violate tax rules or leverage limits under current law…

Senate: Renaissance Hedge Fund Avoided $6 Billion in Taxes in Bogus Scheme With Banks - Only one word comes to mind to describe the testimony taking place before the U.S. Senate’s Permanent Subcommittee on Investigations this morning: Machiavellian. The criminal minds on Wall Street have twisted banking and securities laws into such a pretzel of hubris that neither Congress, Federal Regulators or even the General Accountability Office can say with any confidence if the U.S. financial system is an over-leveraged house of cards. They just don’t know. According to a copious report released last evening, here’s what hedge funds have been doing for more than a decade with the intimate involvement of global banks: the hedge fund makes a deposit of cash into an account at the bank which has been established so that the hedge fund can engage in high frequency trading of stocks. The account is not in the hedge fund’s name but in the bank’s name. The bank then deposits $9 for every one dollar the hedge fund deposits into the same account. Some times, the leverage reaches as high as 20 to 1. The hedge fund proceeds to trade the hell out of the account, generating tens of thousands of trades a day using their own high frequency trading program and algorithms. Many of the trades last no more than minutes. The bank charges the hedge fund fees for the trade executions and interest on the money loaned. Based on a written side agreement, preposterously called a “basket option,” the hedge fund will collect all the profits made in the account in the bank’s name after a year or longer and then characterize millions of trades which were held for less than a year, many for just minutes, as long-term capital gains (which by law require a holding period of a year or longer). Long term capital gains are taxed at almost half the tax rate of the top rate on short term gains.

Top lawmaker wants corporate tax loophole 'plugged now' (Reuters) - Immediate government action is needed to stop U.S. corporations from avoiding federal taxes by shifting their tax domiciles overseas through deals known as inversions, the head of the U.S. Senate Finance Committee said on Tuesday. Nine inversion deals have been agreed to this year by companies ranging from banana distributor Chiquita Brands International Inc to drugmaker AbbVie Inc and more are being considered. The transactions are setting a record pace since the first inversion was done 32 years ago. Washington is increasingly concerned about this. "Let's work together to immediately cool down the inversion fever ... The inversion loophole needs to be plugged now," said Democratic Senator Ron Wyden, finance committee chairman, at a hearing. true Several Democrats have offered bills to curb inversions, which let companies cut their taxes primarily by putting foreign earnings out of the reach of the Internal Revenue Service.

Have We Created a Two-Tiered Tax System—One for the Powerful and One for the Rest of Us? --  Unlike the rest of us, many high-income, influential people and organizations have close to a free hand when it comes to their taxes. Already underfunded and understaffed, the IRS seems incapable of stopping many aggressive or even abusive interpretations of the tax laws, often by hedge funds or politically-motivated tax-exempt organizations. Over the past few weeks, two powerful examples of this bifurcated system have bubbled to the surface.Last night, the Senate Permanent Subcommittee on Investigations issued a report on how some hedge funds and banks use derivatives to turn short-term capital gains into long-term gains and, thus, save billions of dollars in taxes. According to the committee staff, the partners of just one fund, Renaissance Technology Corp., used these transactions to avoid $6.8 billion in taxes from 2000 to 2013. One hedge fund. $6.8 billion.The IRS has known about tax avoidance through these derivatives (called “barrier options” or “basket options”) for six years, according to testimony by Renaissance officials. Yet my Tax Policy Center colleague Steve Rosenthal—a tax lawyer who specialized in complex financial transactions when he was in private practice– believes that claiming long-term gains through derivative transactions such as those used by Renaissance is already against the law. The IRS doesn’t need any new legal authority to stop this activity, yet it can’t seem to do it. Then, there is the matter of those 501(c)(4) tax exempt social welfare organizations. These were once community groups whose jurisdiction resided in a sleepy corner of the IRS. But since the Supreme Court’s Citizen United decision, they have become the go-to vehicle for the wealthy and powerful to contribute anonymously to political candidates. In 2013, according to the Center for Public Integrity, these organizations distributed $256 million in dark money to favored politicians.

President Obama Hits 'Corporate Deserters' in Populist L.A. Speech - Tearing into companies he dubbed “corporate deserters,” President Obama on Thursday launched an election-year push to make it harder for U.S. companies to avoid paying taxes.Obama issued a damning assessment of a “small but growing” group of companies taking advantage of a “loophole” in corporate tax law by reorganizing overseas, often in low-tax countries.  Obama accused the companies of “renouncing their U.S. citizenship” and “fleeing the country” while sticking U.S. taxpayers “with the tab.” “You shouldn’t get to call yourself an American company only when you want a handout from the American taxpayer,” Obama told a crowd gathered at the Los Angeles Trade-Technical College. The speech capped a three-day West Coast trip primarily focused on raising money for Democrats ahead of the midterm elections. Obama’s target on Thursday was so-called inversion transactions, a practice that allows U.S. companies to reincorporate overseas, either through a merger or purchase of a foreign entity, and thus avoid paying U.S. taxes on its foreign earnings.

Obama Seeks to Close Loophole That Firms Use to Shield Profits Abroad - — President Obama on Thursday called for Congress to strip away tax advantages that have encouraged a rush of mergers and acquisitions that give companies an overseas base while they maintain their presence in the United States.In an appearance at a technical college that was intended to focus on job training, the president used unusually harsh language to describe American companies that acquire overseas companies to relocate for tax reasons, known as inversions. He said they were renouncing their American citizenship by “cherry-picking” the nation’s tax laws at the expense of ordinary taxpayers.“These companies are cherry-picking the rules, and it damages the country’s finances,” Mr. Obama said. “It adds to the deficit. It sticks you with the tab to make up for what they are stashing offshore.”“I don’t care if it’s legal — it’s wrong,” he said, prompting the audience to boo the companies taking advantage of the practice.There is growing consensus on Capitol Hill that the rush of inversions should be stopped. Lawmakers from both parties worry that the more companies move their headquarters to countries like Ireland and the Netherlands, the more the American tax base is being compromised.

The Fed’s Financial Repression At Work: How Big Blue Was Turned Into A Wall Street Slush Fund -- David Stockman -- IBM is a poster child for the ill-effects of the Fed’s financial repression. In effect, the Fed’s zero interest rate policies are telling big companies to issue truckloads of debt and use the proceeds to buyback shares hand-over-fist. That way fast money speculators on Wall Street are appeased by the resulting share price lift, and top executives collect bigger winnings on their stock options. In its recently completed quarter, IBM again repurchased nearly $4 billion of stock—which amounted to about 93% of its net income for Q2. Likewise, IBM also reported lower sales versus prior year for the ninth quarter in a row This juxtaposition should not be surprising. For more than a decade now, IBM has been eating its seed corn. Since the beginning of fiscal 2004, Big Blue has posted $131 billion in cumulative net income, but saw fit to reinvest fully $124 billion or 95% of its earnings in its own balance sheet, which is to say, in buying back its own stock. At the same time, it also paid out nearly $30 billion in dividends. In combination, therefore, it disgorged $153 billion in buybacks and dividends—-or 117% of its net income! And this wasn’t a temporary maneuver: These figures represent the results of IBMs last 42 quarters. In short, IBM has become a stock price inflation machine, driven by the pressures and opportunities emanating from the Wall Street casino fostered by the Fed. During that same period, IBM invested a mere $45 billion in CapEx, and that was hardly 90% of its charges for depreciation and amortization of existing capital assets. Given the fact that Capex is measured in current dollars, and D&A allowances are expressed in historical dollars, it is evident that in real terms IBM has been drastically underinvesting in its capital base.

Loan Yielding 8 Percent Drown Out Fed’s Junk Debt Warning - The prospect of 8 percent yields can drown out a lot of warnings when central bankers keep talking up the need for easy-money policies to spur the economy. That’s what investors in the junk-rated loan market were offered by Formula One, two days after theFederal Reserve said lax underwriting standards are setting up buyers of the debt for losses due to higher defaults. In exchange, investors of the CVC Capital Partners Ltd.-controlled racing company’s loans would accept a lesser claim on assets and weaker protections that may lead to greater losses if Formula One ever defaults. While the Fed is trying to contain the risk-taking unleashed by its own extraordinary stimulus, investors are showing an increased willingness to sacrifice safeguards for higher returns as benchmark interest rates remain close to zero for a sixth year. That’s allowed some of the least-creditworthy borrowers to raise $20.6 billion of the junior-ranked debt known as second-lien loans this year, eclipsing 2013’s record pace. “When the Fed tells me they are concerned about it, I know it’s

Insurers ‘dispute half of business claims’ - Insurers dispute almost half of claims made by businesses and typically take three years to reach settlements, according to a study that will put pressure on government to take further action against what it calls “systemic problems” in the industry. Research to be published this week by insurance governance specialists Mactavish will say that nine out of every 20 claims described as “large” or “strategically significant” by the company making the claim have been contested by insurers since 2008. The research lends weight to complaints from companies that insurers dodge legitimate claims and that the law gives them inadequate protection, and comes after the Treasury unveiled plans to revamp the 100-year-old legal regime that governs business insurance contracts. A measure recommended by the Law Commission but dropped by the Treasury would have entitled companies to seek damages from their insurer if their claims were delayed. Mactavish found insurers take an average of 35 months to settle disputed claims, often through arbitration proceedings with gagging clauses and for a fraction of the sums sought. Among the most frequent reasons for claims being denied were supposed breaches in conditions attached to the policies or inadequate information disclosure. Claims for complex policies such as business interruption, professional indemnity and product liability were especially problematic.

Another Wall Street Inside Job?: Stock Buybacks Carried Out in Dark Pools: The U.S. stock market looks more and more like that box of pasta on the grocer’s shelf. There’s less of it but it costs more. According to data from Birinyi Associates, for calendar years 2006 through 2013, corporations authorized $4.14 trillion in buybacks of their own publicly traded stock in the U.S. That should be good, right? Earnings are boosted on a per share basis because of fewer shares, making corporate prospects look brighter. Unfortunately, according to Standard and Poor’s, net equity issuance (the difference between buybacks, leveraged buyouts, etc. and Initial Public Offerings or secondary offerings) has been shrinking as corporate debt has been rising to fund those stock buybacks. In 2013 alone, corporations authorized $754.8 billion in stock buybacks while simultaneously borrowing $782.5 billion from credit markets. Jeffrey Kleintop, Chief Market Strategist for LPL Financial reports that corporations are now the single largest buying source for all U.S. stocks and the swift pace of buybacks has continued into this year with Standard and Poor’s 500 companies buying back approximately $160 billion in the first quarter. In addition to concerns over taking on corporate debt for reasons other than growing the franchise, investing in innovation, upgrading technology, etc. – there are also growing concerns over the use of dark pools to conduct these gargantuan share buybacks. A dark pool is a private, unregulated trading venue that functions like a stock exchange by matching buyers with sellers – but it does so in the dark, without showing its bids and offers on stocks to the public. That has the potential for a great deal of price manipulation.

Lawsuit Stunner: Half of Futures Trades in Chicago Are Illegal Wash Trades -- America has been learning some very uncomfortable truths about the tilted playing field against the public stock investor. No one has been more adamant than Terrence (Terry) Duffy, the Executive Chairman and President of the CME Group, which operates the largest futures exchange in the world in Chicago, that the charges made by Lewis about the stock market have nothing to do with his market. The futures markets are pristine, according to testimony Duffy gave before the U.S. Senate Agriculture Committee on May 13. On Tuesday of this week, Duffy’s credibility and the honesty of the futures exchanges he runs came into serious question when lawyers for three traders filed a Second Amended Complaint in Federal Court against Duffy, the Chicago Mercantile Exchange, the Chicago Board of Trade and other individuals involved in leadership roles at the CME Group.The conduct alleged in the lawsuit, backed by very specific examples, reads more like an organized crime rap sheet than the conduct of what is thought by the public to be a highly regulated futures exchange in the U.S. The lawyers for the traders begin, correctly, by informing the court of the “vital public function” that is supposed to be played by these exchanges in “providing price discovery and risk transfer.” They then methodically show how that public purpose has been disfigured beyond recognition through secret deals and “clandestine” side agreements made with the knowledge of Duffy and his management team. The most stunning allegation in the lawsuit is that an estimated 50 percent of all trading on the Chicago Mercantile Exchange is derived from illegal wash trades.

NY Fed Slams Deutsche Bank (And Its €55 Trillion In Derivatives): Accuses It Of "Significant Operational Risk" - First it was French BNP that was punished with a $9 billion legal fee after France refused to cancel the Mistral warship shipment to Russia (which promptly led to French National Bank head Christian Noyer to warn that the days of the USD as a reserve currency are numbered), and now moments ago, none other than the 150x-levered NY Fed tapped Angela Merkel on the shoulder with a polite reminder to vote "Yes" on the next, "Level-3" round of Russia sanctions when it revealed, via the WSJ, that "Deutsche Bank's giant U.S. operations suffer from a litany of serious problems, including shoddy financial reporting, inadequate auditing and oversight and weak technology systems." The shortcomings amount to a "systemic breakdown" and "expose the firm to significant operational risk and misstated regulatory reports," said the letter from Daniel Muccia, a New York Fed senior vice president responsible for supervising Deutsche Bank.

Dodd-Frank Reforms Are Finally Paying Off - As the Dodd-Frank financial reforms celebrate a fourth birthday this week, the story being told is one of regulators spinning their wheels. “Only half done,” sighs CNN Money. “Dodd-Frank's Four Years of Doing Nothing,” claims Bloomberg View. Reason’s Peter Suderman writes, “Dodd-Frank is not a law that was passed to do any specific thing, or even several specific things ... [I]t's hard not to conclude that the legislators behind the law did not really know what it was supposed to do at all.” Don’t believe them. This past year has seen significant advances on key issues of financial reform, with at least four major wins. And crucially, the battles that still remain are coming clearly into focus. First, banks are now required by regulators to hold higher levels of capital than had been expected. Banks hold capital to protect themselves from losses, to stay solvent during a crisis, and to make a bank failure more manageable. Though capital requirements aren’t as high as they could or should be, the consensus has distinctly moved toward high capital requirements being a central tool for putting guard rails in the financial system.  Last fall, the Commodity Futures Trading Commission oversaw the launch of the exchanges for trading derivatives. Former CFTC chairperson Brooksley Born was shoved out of government during the Clinton years, by Robert Rubin and Larry Summers, for proposing the idea, and now it is the reality of the financial markets.  Another win was the ruling on the Volcker Rule, which separates hedge fund trading from banking activities. The rule, which had stalled throughout 2011 and 2012 as a result of internal fighting and intensive lobbying, finally was unveiled in December of last year.

Four years after passage, House keeps trying to kill Dodd-Frank | Center for Public Integrity: Even now, on the fourth anniversary of President Obama’s signing of Dodd-Frank into law, bank lobbyists and a core group of lawmakers dubbed by the Center for Public Integrity in April as the “banking caucus,” have made it clear that there is still time left on the clock to undermine key provisions in the financial reform law. Rep. Jeb Hensarling, R-Texas, named by the Center’s April as the “banking caucus,” have made it clear that there is still time left on the clock to undermine key provisions in the financial reform law. Rep. Jeb Hensarling, R-Texas, named by the Center’s April report as the captain of the banking caucus, offered what might serve as a pep talk on July 16.“We can never, ever accept a Dodd-Frank world, nor should we,” he said at a conference organized by the Mercatus Center and the Cato Institute. Hensarling, chairman of the House Financial Services Committee, and the 10 other members of Congress featured in the Center’s investigation, have done their best to derail Dodd-Frank. At least 30 bills have been proposed to the House during the 113th Congress, aimed at chipping away at aspects of Dodd-Frank. Members of the banking caucus sponsored or cosponsored 20 of those laws. At least 16 have been referred to the House Financial Services Committee and three have been passed to the Senate.

Banks Scapegoat Regulations for More Costly Loans Post Crisis - Yves Smith - Banks and their allies have been using every opportunity possible to blame regulations for changes in their business models after the crisis, particular if they can make it sound like the broader public, as opposed to their bottom lines, is what is suffering. Normally this messaging effort stays at the background noise level, but sometimes the lobbyists succeed in getting their message treated as a story in its own right.  A recent example is a Financial Times story early this week: “Dodd-Frank has made banks safer but slowed economy, data show.” An alert reader could easily use this story as a “Where’s Waldo” test for finding how many bogus arguments are packed in a single piece. Let me give you a few.

    • 1. The story line comes from a single source, the faux objective “Goldman Sachs Global Markets Institute, a public policy research unit.”
    • 2. The article, and therefore presumably the Goldman paper, does not out the claim that regulations hurt the economy. It contends that mortgages and other investments are more costly than before the crisis. The unstated argument is that people would borrow more if credit were cheaper. But as Richard Koo has pointed out, in a balance sheet recession, consumers and businesses prioritize paying down debt. And the weak job market is enough to make anyone think twice about borrowing much. Similarly, small business loan demand has been weak due to (*gasp*) not so hot conditions in a lot of markets.
    • 3. Let’s get to the big howler. What’s the basis for comparison for credit pricing to consumers and small businesses? 2007, the peak of the credit bubble, when the world was awash in liquidity. An average of years over the pre-crisis period would have been a more convincing basis for any analysis. Why does the FT assume, following Goldman, that these pricing increases are the result of evil regulation, as opposed to lenders being in a period where they are actually making sensible loans most of the time?

Some Money Market Funds Will Have to Be Honest With You -- The basic deal of a money market fund is that you give it your money, it invests it in stuff, it pays you a little bit of interest, and whenever you want you can take your money back out. (This is the basic deal of a bank account, too.) The basic problem is that, if your money market fund has $1,000 of your money, and $99,000 of other people's money, and invests it in $100,000 worth of stuff, every so often that stuff ends up being worth, like, $98,000. And then the fund has a problem when you go to it and ask for your $1,000 back. It's a weird empirical fact that this problem rarely occurs, and almost always gets solved somehow when it does.1 But every once in a long while it doesn't, and people lose money. And they're not supposed to lose money, because a money market fund is where you put the money you don't want to lose. (There are plenty of other places to put the money you want to lose, and they all pay more interest than money market funds.)So the prospect of losing money is scary. So if you think your money market fund is on the way to being worth only $98,000, you might want to go and demand your $1,000 back right now. They'll probably just give it to you. I mean, there'll still be $97,000 left over. And you don't want to be the guy holding the bag when 98 other people have asked for their money back and there's no money left. But everyone thinks the same way, so everyone takes their money out, so the money market fund has to sell all its stuff, so the price of the stuff drops, so everyone loses money. This is called a "bank run," only it's a money market fund, so it's mostly just called a "run."

Becoming More Alike? Comparing Bank and Federal Reserve Stress Test Results » NY Fed - Stress tests have become an important method of assessing whether financial institutions have enough capital to operate in bad economic conditions. Under the provisions of the Dodd-Frank Act, both the Federal Reserve and large U.S. bank holding companies (BHCs) are required to do annual stress tests and to disclose these results to the public. While the BHCs’ and the Federal Reserve’s projections are made under the same macroeconomic scenario, the results differ, primarily because of differences in the models used to make the projections. In this post, we look at the 2014 stress test projections made by the eighteen largest U.S. BHCs and by the Federal Reserve and compare them to similar numbers from 2013. We are particularly interested in the question of whether the BHCs’ and the Federal Reserve’s results are converging over time, since such convergence could indicate decreased diversity of stress testing approaches in the banking industry.

Forget too big to fail. Banks bro-down to borrow, and it may cause a new crash -- Wednesday's exercise in Washington illuminated our troubling national obsession with talking about "too big to fail" instead of doing something about it: we have admitted that we’re powerless over the financial system, that we have given up on improving banks and focused, instead, on what we should serve at the wake. The conversation about the financial crisis now centers around the funeral rites of banking – government bailouts and wind-downs, bankruptcies and living wills. As a result, what we call financial reform is becoming a death cult around banks. We can turn this conversation around. What we talk about when we talk about financial reform should be how banks live: the best regulations and the most efficient ways to move money around the country, from bankers to people to companies, without destroying anything along the way. Too big to fail is not a real problem. Banks are too interconnected to fail. They aren't so vulnerable to panics and crises because bankers and traders are reckless, cocaine-brained cowboys destroying whatever stands in the way of a great bonus. (Although that’s clearly an issue for some.) One real problem is called short-term funding, and it's really what we should be talking about if we want to get past the bedtime stories about mortgage derivatives. Here's the issue: Banks don't work in a vacuum. They borrow from each other every day. They have to: banks, by their nature, lend money on long-term projects and securities, and the money isn’t always in the bank at the end of every day. It's also cheaper to borrow money and securities for short periods of time; the interest rate is lower that way, like how a short-term car loan has lower interest rates than a 30-year mortgage loan. So banks borrow, overnight, from each other, to settle accounts and save themselves some money.

Unofficial Problem Bank list declines to 463 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for July 18, 2014: Surprisingly there were few changes to the Unofficial Problem Bank List this week given that the OCC released an update of its enforcement action activity this Friday. There were two removals this week that push the list count down to 463 institutions with assets of $147.4 billion. A year ago, the list held 734 institutions with assets of $267.2 billion.Removals this week include the OCC terminating an action against Commerce National Bank & Trust, Winter Park, FL ($77 billion). The other removal was the failed Eastside Commercial Bank, Conyers, GA ($169 million), which was the 13th failure this year. This is the first failure in Georgia since Sunrise Bank failed more than a year ago on May 10, 2013. Still, there have now been an astonishing 88 failures of Georgia-based institutions with aggregate assets of $33.4 billion since the on-set of the Great Recession. So 17.5 percent of the 503 institutions that have failed in this crisis were headquartered in Georgia. Next week we anticipate the FDIC will provide an update on its enforcement action activity.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 463.

Residential Mortgage-Backed Securities Are Heading Over a Cliff: Although downgrades of sub-prime tranches have been massive since the collapse, don’t think for a minute that these downgrades are winding down. The June 2014 Mortgage Market Monitor from TCW reported that 34% of all securitized subprime mortgages were either seriously delinquent, in default, in bankruptcy, or already repossessed by the servicing bank. It was only because 46% of all subprime mortgages have been modified that this serious delinquency percentage was not substantially higher. In April 2013, S & P published a new “US RMBS Recovery Analytics” report. Applying its new rating criteria from the previous year which I just reviewed, the report revealed that of the 7,111 pre-2009 tranches rated AAA in 2012, a mere 1,119 remained at this level. Incredible! Nearly 85% of these tranches have been downgraded. One out of five was downgraded to BBB or lower. It gets worse. More than 10% of them lost their rating completely. Downgrades by rating agencies continue this year. On May 14, Moody’s reported that it had downgraded $216 million of RMBS tranches holding sub-prime mortgages originated in 2003. All eleven tranches had previously been downgraded either in 2011 or 2012. A Moody’s press release described the reason for the new downgrade as “a result of deteriorating performance and/or structural features resulting in higher expected losses for the bonds than previously anticipated.” That sounds like S & P’s warning from August 2012. Moody’s warned that ratings in the US RMBS sector “remain exposed to the high level of macroeconomic uncertainty, and in particular the unemployment rate.” Good luck figuring out what that means. This downgrade of sub-prime tranches is very troubling. Loans issued in 2003 – even subprime mortgages – had much higher underwriting standards than those originated in 2005 and 2006. If performance of these loans is “deteriorating” as Moody’s puts it, what does that suggest about the worst-of-the-worst mortgages originated in 2006 and early 2007?

Black Knight: Mortgage Loans in Foreclosure Process Lowest since May 2008 - According to Black Knight's First Look report for June, the percent of loans delinquent increased slightly in June compared to May, and declined by 15.0% year-over-year. Also the percent of loans in the foreclosure process declined further in June and were down 36% over the last year.  Foreclosure inventory was at the lowest level since May 2008. Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.70% in June, up seasonally from 5.62% in May. The normal rate for delinquencies is around 4.5% to 5%. The increase in delinquencies was in the 'less than 90 days' bucket. The percent of loans in the foreclosure process declined to 1.88% in June from 1.91% in May.    The number of delinquent properties, but not in foreclosure, is down 445,000 properties year-over-year, and the number of properties in the foreclosure process is down 507,000 properties year-over-year. Black Knight will release the complete mortgage monitor for June in early August.

The Foreclosure Fade, and What it Means for the Housing Market - The U.S. housing market appears to be finding its footing after a sharp rise in mortgage rates last summer, on top of some big price gains, deflated sales. The National Association of Realtors reported on Tuesday that sales of previously owned homes rose 2.6% in June to a seasonally adjusted annual rate of 5.04 million units. That’s the third straight monthly gain and the highest level since last October. Housing became less affordable last summer after rates jumped from around 3.5% in May 2013 to 4.5% by July 2013. Since then, however, rates have drifted a little lower, and buyers and sellers have had time to readjust their expectations. Inventories of homes have stopped falling after several years of declines, but they haven’t risen much, either. This has kept supply and demand fairly balanced, and it’s one reason why prices have continued to rise. The Federal Housing Finance Agency said on Tuesday that home prices in May rose 0.4% from the prior month and were 5.5% above their level of May 2013. At June’s pace of sales, there was a 5.5 month supply of homes for sale. The Realtors’ group considers a 6-month supply to be a balanced market. Higher supplies favor buyers and lower supplies favor sellers.

Why you may be paying for someone else’s mortgage relief -  In recent years, banks have agreed to spend billions of dollars to help struggling homeowners as part of settlements with the government related to the lenders' alleged misconduct during the housing crisis. If all works as planned, the relief should end up helping many people who are struggling to keep up with their mortgage payments. But it may not work out as well for investors who purchased the mortgages that these homeowners took out. Who are the investors? They include unions, pension funds, 401K savings plans and mutual fund shareholders, not just Wall Street firms, according to the Association of Mortgage Investors. In other words, they're the general public, as AMI likes to put it. And recent multibillion-dollar government settlements with JPMorgan Chase, Citigroup and others hurts those investors, the group says. The settlements call on the banks to grant various forms of relief, such as modifying the mortgages of "underwater" borrowers by reducing the size of their loans.  When that type of debt forgiveness takes place, whoever owns the loan takes a hit because they don’t get paid as much as was promised. In some cases, the banks own the loans. But in others, the banks have bundled the loans into securities and sold them to investors, which means the investors (and the firms that manage their money) get burned when a loan is modified. That’s why AMI is calling foul. “If they want to settle and help consumers who need help, terrific,” “If you want to take the investors’ money to settle, that’s where I have a problem. The investors are not the bad actors here.”

Standards are Tighter, Sure. But is It Really That Hard to Get A Mortgage? - It has become a common refrain: “It’s too hard to get a mortgage.” But is it true? An analysis from economists at Goldman Sachs GS -0.12%tries to shed some light on the question by measuring credit availability along several different dimensions, including common underwriting measures such as credit scores and loan-to-value ratios. The analysis also incorporates indirect measures, such as the share of homes being purchased with cash and the share of loans that aren’t government backed. The conclusion: Along almost every dimension, mortgage credit is tighter than during the 2000-2002 period, before lenders really relaxed their standards. This is a potential problem for the housing market because the “next phase of the housing recovery depends crucially on mortgage credit availability,” . This also explains why the Obama administration wants banks to ease standards—a position that’s at odds with some lenders, such as J.P. Morgan Chase & Co., which are smarting over legal bills for crisis-era loans. The Goldman analysis finds that mortgage credit standards have eased a touch over the last two years, but compared to the normal level observed in 2000-2002, “mortgage credit supply is still significantly limited,” Only in one of the seven categories does Goldman find that credit standards are less restrictive than before the bubble: Average loan-to-value ratios, which are primarily a function of a borrower’s down payment, are slightly higher. While no-money-down lending programs have largely disappeared, the Federal Housing Administration will insure mortgages in which borrowers have made just 3.5% down payments, and those programs have been incredibly popular in recent years.

Weekly Update: Housing Tracker Existing Home Inventory up 15.0% YoY on July 21st - Here is another weekly update on housing inventory ...  There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer. The Realtor (NAR) data is monthly and released with a lag (the most recent data released was for May and indicated inventory was up 6.0% year-over-year).   Existing home sales for June will be released tomorrow. Fortunately Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data, for 54 metro areas, for the last several years.

Existing Home Sales in June: 5.04 million SAAR, Inventory up 6.5% Year-over-year --The NAR reports: Existing-Home Sales Up in June, Unsold Inventory Shows Continued Progress Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, climbed 2.6 percent to a seasonally adjusted annual rate of 5.04 million in June from an upwardly-revised 4.91 million in May. Sales are at the highest pace since October 2013 (5.13 million), but remain 2.3 percent below the 5.16 million-unit level a year ago. ... Total housing inventory at the end of June rose 2.2 percent to 2.30 million existing homes available for sale, which represents a 5.5-month supply at the current sales pace, unchanged from May. Unsold inventory is 6.5 percent higher than a year ago, when there were 2.16 million existing homes available for sale.  This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in June (5.04 million SAAR) were 2.6% higher than last month, but were 2.3% below the June 2013 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 2.30 million in June from 2.25 million in May. Headline inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory. Inventory increased 6.5% year-over-year in June compared to June 2013.    Months of supply was at 5.5 months in June. This was above expectations of sales of 4.99 million.  For existing home sales, the key number is inventory - and inventory is still low, but up solidly year-over-year.

A Few Comments on Existing Home Sales - The most important number in the NAR report each month is inventory.   This morning the NAR reported that inventory was up 6.5% year-over-year in June.   This is a smaller increase than other sources suggest (Housing Tracker shows inventory up 15% year-over-year in July), and it is important to note that the NAR inventory data is "noisy" and difficult to forecast based on other data.   The headline NAR inventory number is not seasonally adjusted, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko has sent me the seasonally adjusted inventory. NOTE: The NAR does provide a seasonally adjusted months-of-supply, although that is in the supplemental data. This shows that inventory bottomed in January 2013 (on a seasonally adjusted basis), and inventory is now up about 10.9% from the bottom. On a seasonally adjusted basis, inventory was up 1.8% in June compared to May.Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, many "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.Another key point: The NAR reported total sales were down 2.3% from June 2013, but normal equity sales were probably up from June 2013, and distressed sales down sharply.  The NAR reported that 11% of sales were distressed in May (from a survey that is far from perfect):

Housing Inventory: NAR and Housing Tracker  - I've been using weekly inventory numbers from Housing Tracker ("DeptofNumbers") to track changes in listed inventory and it might be useful to compared the Housing Tracker numbers to the Realtor (NAR) numbers for inventory. According to Housing Tracker for (54 metro areas), inventory is up 15.0% compared to the same week last year.  However the NAR reported yesterday that inventory in June was only up 6.5% year-over-year.  Some of the difference could be because of coverage (Housing Tracker is only for the largest 54 metro areas), and some of the difference could be because of timing and methodology. This graph shows the NAR estimate of existing home inventory through June (left axis) and the HousingTracker data for the 54 metro areas through July.  In general - over time - Housing Tracker and the NAR reports of inventory move together.Both reports suggest inventory is increasing, and that overall inventory is still fairly low. The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker. This year-over-year increase in inventory is a significant story.  This increase should slow house price increases (maybe even lead to price declines in some areas).

The Real State of America's Residential Housing Market - While some aspects of the United States housing market are returning to "normal", at least according to the mainstream media, as you will see, certain key aspects are nowhere near what would be expected this far into the post-recessional "recovery", particularly when one puts the current data into a long-term historical perspective.  Here is a graph showing the number of new single family homes sold in the United States by month, seasonally adjusted to an annual rate, since 1963 when baby boomers were still wearing short pants: The current rate of 504,000 is around the level last seen in October 1991 when the population of the United States was 64.1 million people smaller than it is now.  You'll also notice on the graph that after the recessions of 1970, 1974, 1981, 1991 and 2001, the new single family home market recovered to its pre-recession level within a matter of a few months at most.  While we can argue that the housing bubble and its subsequent bursting are responsible for the lengthy period of depressed new home sales since the end of the Great Recession, it is interesting to see that at the beginning of the Great Recession in December 2007, annualized new home sales were at the 619,000 level, 115,000 or 22.8 percent higher than now. As you can see on this graph, the number of new single family homes for sale in the United States is at almost the lowest level since before Neil Armstrong took his first steps on the surface of the moon: The current level of 189,000 units is very slightly above the 181,000 level in August 1967, back when the population of the United States was 37 percent lower than today.  Prior to the Great Recession, the U.S. housing market was positively flooded with new single family homes for sale; at the peak in July 2006, there were 572,000 new single family homes with for sale signs in the front yard, three times the level seen in mid-2014.  The buildup of the housing bubble created a situation that resulted a real estate market that has a glut of single family homes as buyers lined up to buy more than one home, speculating on a market that seemed to be forever on an upward ride.

When It Comes to Housing, Maybe Millennials Aren’t so Different After All -  Millennials get flack for postponing marriage, living with parents and shying away from homeownership. But what’s less discussed is how, to some extent, they’re just responding rationally to their local housing markets. Nearly half of Americans between the ages of 23 and 34 who lived in metro areas with “ideal housing conditions” in 2012 were married (46.1%), versus around a third who lived in “unfavorable” housing conditions, according to a new study by demographer Jonathan Vespa and others in the U.S. Census Bureau’s Social, Economic and Housing Statistics Division. (“Ideal housing conditions” are defined as low costs, high availability/low competition, lots of detached homes, more rooms and low unemployment.) So how about living alone, versus shacking up with parents? Vespa found roughly 10% of millennials live alone when housing conditions are easy, compared with around 6% when housing-market conditions are tough. “It’s easier to move out when apartments are cheap and there are a lot of them,” Mr. Vespa says. “It’s a basic relationship we often overlook. The housing market is going to condition the types of choices young adults have about who to live with.” To be sure, millennials are different from their elders in many important ways, whether it’s their lack of trust in social institutions, their racial diversity, their liberal attitudes about race and homosexuality, their student debts, or their preference for play-lists over rock albums. In a separate study last week, Jed Kolko, chief economist at Trulia Inc., the online real-estate information company, argued that demographic changes, such as delaying marriage and parenthood, account for nearly all of the declines in homeownership among young adults.

New Home Sales decrease to 406,000 Annual Rate in June -- The Census Bureau reports New Home Sales in June were at a seasonally adjusted annual rate (SAAR) of 406 thousand.  May sales were revised down from 504 thousand to 442 thousand, and April sales were revised down from 425 thousand to 408 thousand. Sales of new single-family houses in June 2014 were at a seasonally adjusted annual rate of 406,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.1 percent below the revised May rate of 442,000 and is 11.5 percent below the June 2013 estimate of 459,000. The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales over the previous two years, new home sales are still close to the bottom for previous recessions. The second graph shows New Home Months of Supply. The months of supply increased in June to 5.8 months from 5.2 months in May. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal). The third graph shows the three categories of inventory starting in 1973. The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low. The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate). In June 2014 (red column), 38 thousand new homes were sold (NSA). Last year 43 thousand homes were also sold in June. The high for June was 115 thousand in 2005, and the low for June was 28 thousand in 2010 and 2011.

New Home Sales Collapse 20% From May To Dec 2012 Levels; Biggest Miss In A Year -- New Home Sales in June plunged to 406k vs 504k in May... (remember that 504k print was the catalyst for 'weather' is over and the market to surge 10%) Now that has soaked in, consider this is equal lowest sales print since September 2013 (and Dec 2012) and the biggest miss since July 2013.The last 3 months of exuberance have all been revised significantly lower (most especially May's apparently make-believe number). What is even more troubling in the "survey" vs "reality" world is this collapse in sales when NAHB Sentiment surged to near cycle highs.  For context, this is a 5-standard-deviation miss from economists' expectations, below the lowest guess and a massive miss from almost highest estimate Joe Lavorgna's 510k.

Comments on the New Home Sales report --  The new home sales report for June - combined with the downward revisions for previous months - was very weak. The Census Bureau reported that new home sales this year, through June, were 225,000, Not seasonally adjusted (NSA). That is down 4.3% from 235,000 during the first half of 2013 (NSA). Maybe sales will move sideways for a little longer, but remember early 2013 was a difficult comparison period. Annual sales in 2013 were up 16.3% from 2012, but sales in the first four months of 2013 were up 26% from the same period in 2012! This graph shows new home sales for 2013 and 2014 by month (Seasonally Adjusted Annual Rate). The comparisons to last year will be a little easier in Q3, and I still expect to see year-over-year growth later this year. And here is another update to the "distressing gap" graph that I first started posting several years ago to show the emerging gap caused by distressed sales. Now I'm looking for the gap to close over the next few years. The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through June 2014. This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. I expect existing home sales to decline or move sideways (distressed sales will slowly decline and be partially offset by more conventional / equity sales). And I expect this gap to slowly close, mostly from an increase in new home sales.

AIA: Architecture Billings Index increased in June -- Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From AIA: Momentum Increasing for Architecture Billings Index The Architecture Billings Index (ABI) is signaling improving conditions for the overall design and construction industry. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the June ABI score was 53.5, up from a mark of 52.6 in May. This score reflects an increase in design activity (any score above 50 indicates an increase in billings). The new projects inquiry index was 66.4, up noticeably from the reading of 63.2 the previous month and its highest level in a calendar year.The score for design contracts in June was 55.7 – the highest mark since that indicator starting being measured in October 2010.

CoStar: Commercial Real Estate prices increased more than 11% year-over-year in May - Here is a price index for commercial real estate that I follow.   From CoStar: Value-Weighted U.S. Composite Price Index Approaches Prerecession Peak Levels The two broadest measures of aggregate pricing for commercial properties within the CCRSI—the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index—increased by 0.9% and 1.2%, respectively, in the month of May 2014, and 11.4% and 11.7% respectively, year over year, reflecting a broad improvement in market fundamentals seen across all property types. The value-weighted U.S. Composite Index, which is heavily influenced by core property transactions, has now risen within 1% of its prerecession peak level reached in 2007, while its equal-weighted counterpart, which is more influenced by smaller non-core property sales, has recovered to within 20% of its 2007 high water mark. The percentage of commercial transactions involving distressed assets has declined to 10.5% in May 2014 from over 17% one year earlier. In the multifamily and industrial sectors, the distress share of total sales fell into the single digits, while it remains comparatively high at 11% in the retail sector and 17% in the office sector, suggesting there is more room for pricing appreciation. The share of distress trades in late-recovery markets such as Chicago, Atlanta, and Detroit remain near 20%, while in the early-recovery, coastal markets of Los Angeles, San Francisco and San Jose, distress levels are nearly non-existent. This graph from CoStar shows the the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index indexes. The value weighted index is almost back to the pre-recession peak, however the equal weighted index is about 20% below the pre-recession peak. The second graph shows the percent of distressed "pairs". The distressed share is down from over 30% at the peak, to 10.5% in May.

NMHC Survey: Apartment Market Conditions Tighter in Q2 2014 - From the National Multi Housing Council (NMHC): Apartment Markets Continue Expansion in July NMHC Quarterly Survey Apartment markets continued to expand in the second quarter of 2014, as growth accelerated in all four indexes in the National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. The market tightness (68), sales volume (56), equity financing (58) and debt financing (68) indexes all improved from the first quarter this year and marked the second quarter in a row with all above the breakeven level of 50. The survey also asked about urban vs. suburban development. Four in ten (43 percent) reported an increased share of urban development relative to suburban in the last six months, compared to one quarter (27 percent) reporting an increased share of suburban development. Of the suburban development taking place, more than half (54 percent) reported more town center-style developments, with 39 percent reporting no appreciable change and 7 percent reporting more garden-style developments. The Market Tightness Index rose from 56 to 68. The percentage of respondents who saw looser conditions continued to decline, down from 20 percent to 15 percent. While this improvement is partly seasonal, the index is higher than the average for the July quarter since the survey began 15 years ago.This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tighter conditions from the previous quarter. This indicates tighter market conditions. 

Hotels: Record High Occupancy Rate for Week Ending July 19th -- From STR: US hotel results for week ending 19 July In year-over-year measurements, the industry’s occupancy rate rose 2.9 percent to 77.1 percent. Average daily rate increased 4.1 percent to finish the week at US$117.57. Revenue per available room for the week was up 7.1 percent to finish at US$90.68. Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room. This is the highest occupancy rate for any week since at least January 2000.  The previous high was 77.0% in late July 2000. And from June US hotel occupancy best of this century Just how good is the current state of demand? Take a bite of this juicy nugget: June occupancy of 71.7% is the highest of any June this century. The average occupancy for U.S. hotels is now higher than the previous peak recorded in June 2007 (71.1%).As of June, demand growth (12-month moving average) was up 3.2%, according to STR data. Supply growth? Only 0.8%.  June ADR (12-month moving average) was $112, up 3.9%. The result is revenue per available room of $71, which represents growth of 6.4%.Both those ADR and RevPAR numbers represent all-time highs for the U.S. hotel industry. The following graph shows the seasonal pattern for the hotel occupancy rate for the last 15 years using the four week average.

Federal regulators let utilities gouge customers --   David Cay Johnston -  The profit margins that federal regulators set for utilities should be decreasing, given the long downward drift of interest rates and the shrinking cost of capital. Bizarrely, the opposite is happening: Utilities are raking in stunning profits at the expense of consumers. Now the first in a raft of cases asserting that the Federal Energy Regulatory Commission (FERC) is letting utilities gouge customers by setting egregiously high rates of return may finally get a hearing.  Since utilities are legal monopolies with no market to discipline their pricing, only the vigilance of regulators stops them from causing irreparable economic harm by stifling growth, draining wealth from customers and distorting investment. Court rulings say FERC commissioners must “guard the consumer against excessive rates.” The legal standard for setting utility rates is known as “just and reasonable.” Profits and prices are supposed to be balanced so both investors and customers get fair treatment. FERC commissioners, however, disregard the just and reasonable standard, routinely ignore evidence and act more as agents of utilities than fair-minded regulators.

What Does the Consumer Price Index Measure? Inflation or Cost of Living? What’s the Difference? - On Tuesday, the Bureau of Labor Statistics announced that the US Consumer Price Index (CPI) rose at a seasonally adjusted annual rate of 3.13 percent in June. What does such a figure really mean? Is it a measure of inflation or of the change in the cost of living? Until recently, I would have answered that there was no difference, but a recent series of posts by Mike Bryan on the Atlanta Fed’s Macroblog has made me think again. As Bryan explains it, the cost-of-living concept arises from the role of money as a medium of exchange. When we say the cost of living increases, we mean that it gets harder to maintain a given standard of living on a given income. On the other hand, we can best understand inflation as a change in the value of our unit of account, the dollar. There are two other important differences between inflation and changes in the cost of living. First, although they are both harmful, they are harmful in different ways. An increase in the cost of living hurts people because it makes them poorer. The harm from inflation is more subtle. Inflation makes it harder to plan for the future, so it discourages investment. It erodes the real value of cash and other assets that have fixed nominal values, so it discourages saving. Second, the effects of inflation are the same for everyone, but changes in the cost of living vary from place to place and from person to person. If inflation shrinks the unit of account by 3 percent, then the real values of anything with a fixed nominal value—a paycheck, of a Treasury bond, or of a contract to deliver goods—all fall by 3 percent. In contrast, a change in the a broad index like the CPI affects people’s cost of living differently according to which components change.

June Inflation Largely Attributable to Gasoline Prices - The Bureau of Labor Statistics released the June CPI data this morning. Year-over-year unadjusted Headline CPI came in at 2.07%, which the BLS rounds to 2.1%, essentially unchanged from 2.13% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.96% (rounded to 2.0%), up from the previous month's 1.83%. Of particular interest is the fact that month-over-month Core CPI (less food and energy) rose only 0.05% (rounded to 1.0). The headline MoM increase was largely driven by higher gasoline prices (which have dropped eight cents per gallon over the last two weeks). Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in June on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.1 percent before seasonal adjustment.  In contrast to the broad-based increase last month, the June seasonally adjusted increase in the all items index was primarily driven by the gasoline index. It rose 3.3 percent and accounted for two-thirds of the all items increase. Other energy indexes were mixed, with the electricity index rising, but the indexes for natural gas and fuel oil declining. The food index decelerated in June, rising only slightly, with the food at home index flat after recent increases.  [More…] The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since the turn of the century. I've highlighted 2 to 2.5 percent range, which the Federal Reserve currently targets for the CPI's cousin index, the BEA's Personal Consumptions Expenditures (PCE) price index.

Food Prices reflect Energy Prices and Inflation - U.S. food price inflation has trended downward since the 1970s. On average, food price inflation in the United States has been falling over the past several decades. Since 2010, food prices have risen by an average of 2.1 percent a year. By contrast, the 1970s saw the all-food Consumer Price Index (CPI) increase by an average of 8.1 percent annually, led by increases of 14.5 and 14.3 percent in 1973 and 1974, respectively.  The 1970s were a time of high energy prices and high inflation for consumer goods, including food. In the 1980s, the all-food CPI increased by an average of 4.6 percent per year, and food prices rose 2 to 3 percent per year in the following two decades. Advancements in agricultural productivity contributed to falling inflation-adjusted prices for agricultural commodities during the 1980s and 1990s. In addition, enhanced agricultural trade has allowed the U.S. food supply to better respond to supply shocks.

Inflating the Big Mac One Calorie at a Time: Continuing our research into using the Big Mac as a gauge of inflation, we build on past posts but use our own research to draw conclusions. In previous articles, we have relied solely on The Economist’s calculation of the Big Mac price. The Economist has been conducting the research sporadically since 1986. However, it was not until a few years ago that they began regular updates to their research in both January and July. Believing this span is too great, we have compiled our own look at the price of the Big Mac in the United States. Thanks to my assistant Geraldine Garcia, we have surveyed 30 McDonald’s restaurants throughout the nation to obtain the average price and compare that to the trend. From our research, we have determined that the average price of a Big Mac is $4.57 (the range was $3.91 to $5.57), an increase of $0.12, or an increase in 2.7% from what we obtained in March. During the last 12 months, this represents an increase of 4.3% from 12 months ago when the price of a Big Mac was $4.38. As stated in previous posts, I believe that the Big Mac provides a better indication of price movements than the government compiled CPI. Many of us can neither follow nor actually experience what the CPI means or how it moves. Conversely, the Big Mac is consumed constantly, and we shell out hard-earned dollars to purchase the sandwich. Thus, it is a real-time metric of our economy. The Consumer Price Index (CPI) was reported to have increased 1.8% during the past 12 months. The Big Mac increased significantly more. This under-reporting of inflation impacts savers, investors, retirees, and those who receive Social Security, just to name a few.

Meat Prices Rising More Than Fresh Fruits and Vegetables - It’s a good time to be a vegan. Meat prices are up 9.4% in June from a year earlier, and pork, fish and eggs are more expensive, too.Prices for the food Americans buy in grocery stores were flat in June and up 2.4% from a year ago, the Labor Department said Tuesday. But that comes after a run-up in prices earlier this year, when what Americans pay for food at home rose between 0.4% and 0.7% over the past six months. “In general, we are still seeing higher inflation among the foods located in the peripheral of the grocery store — meats, produce, dairy, etc.,” Food prices have been ticking higher after a series of factors that, when taken together, dramatically reduce supply.So far this year, a drought in Oklahoma and Texas has driven up cattle prices. A virus has killed millions of piglets and pushed up pork costs. Most of the shrimp eaten in the U.S. comes from Southeast Asia, where a bacterial infection has devastated inventory. A disease known as citrus greening is killing Florida’s orange and grapefruit trees.Beef and veal prices were up 10.4% in June from a year ago, and prices for pork chops alone rose 14.3%, the largest increase since December 1990. Seafood-lovers paid 9.1% more for fresh fish and seafood from a year ago. And egg prices rose 8.6% over the year. Vegetarian-friendly foods rose as well, but less than the prices for omnivores. Overall fresh fruit and vegetable prices rose 3% in June from a year earlier, driven by a 12.2% gain in citrus fruits. (Prices are falling for orange juice, however, but that is likely because Americans are drinking more exotic juices and flavored waters.)

Gasoline Price Update: Down Another Four Cents - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium both dropped another four cents, matching last week's decline. Regular is up 40 cents and Premium 39 cents from their interim lows during the second week of last November. According to, three states (Hawaii, Alaska, and California) have Regular above $4.00 per gallon, unchanged from last week, and three states (Oregon, Washington and Connecticut) are averaging above $3.90, unchanged from last week.

Vehicle Sales Forecasts: Over 16 Million SAAR again in July - The automakers will report July vehicle sales next Friday, August 1st.  Sales in June were at 16.92 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in July will be above 16 million SAAR again.  The analyst consensus is for July sales of 16.8 million SAAR.Note:  There were 26 selling days in July this year compared to 25 last year.   Here are a few forecasts:From J.D. Power: U.S. auto sales seen rising 9 percent in July: JD Power-LMC U.S. auto sales in July will be the strongest for the month since 2006, and rise 9 percent from last year, automotive industry consultants J.D. Power and LMC Automotive predicted on Thursday.LMC raised its full-year 2014 forecast for new auto sales to 16.3 million, from 16.2 million. From TrueCar: New Vehicle Sales Continue to Sizzle in July; TrueCar Increases 2014 Annual Sales Forecast to 16.35M Seasonally Adjusted Annualized Rate ("SAAR") of 16.7 million new vehicle sales is up 6.8 percent from July 2013.From Kelley Blue Book: New-Car Sales to Jump 11.6 Percent Year-Over-Year in JulyThe seasonally adjusted annual rate (SAAR) for July 2014 is estimated to be 16.6 million, up from 15.7 million in July 2013 and down from 16.9 million in June 2014.

AutoNation's Jackson warns of excessive inventory levels in 2014: -- AutoNation Inc. CEO Mike Jackson is warning manufacturers to slow production in 2014. Jackson said the auto industry is unlikely to grow in 2014 at the same rate it has been growing in the past few years. That means inventory levels must be contained to avoid heavy incentive programs. "2014 is going to be a test, the first real test after four easy years of a million units of growth," said Jackson during a speech here at the Automotive News World Congress today. "It will test do we really have the discipline to run this business in a rational way for the long term? It's the beginning of a test." Jackson predicts a 3 percent to 5 percent growth rate over last year's light-vehicle retail and fleet sales of 15.6 million units. That creates a problem with stock on the ground as automakers have been building vehicles to support double digit growth to rebuild retail inventory during the past few years, Jackson said. Overproduction? He said retail inventory is about 3.5 million units, or about $100 billion worth of goods, which is more like a 90- to 120-day supply instead of the industry-accepted 60-day supply. Jackson criticized the 60-day inventory figure, saying it includes fleet sales. "We're not pushing back because the cost of money is free, but is this any way to run a business? Is this where we want it to end up again?" Jackson said.

In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates -  This is the face of the new subprime boom. Mr. Durham is one of millions of Americans with shoddy credit who are easily obtaining auto loans from used-car dealers, including some who fabricate or ignore borrowers’ abilities to repay. The loans often come with terms that take advantage of the most desperate, least financially sophisticated customers. The surge in lending and the lack of caution resemble the frenzied subprime mortgage market before its implosion set off the 2008 financial crisis.Auto loans to people with tarnished credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime — people with credit scores at or below 640.The explosive growth is being driven by some of the same dynamics that were at work in subprime mortgages. A wave of money is pouring into subprime autos, as the high rates and steady profits of the loans attract investors. Just as Wall Street stoked the boom in mortgages, some of the nation’s biggest banks and private equity firms are feeding the growth in subprime auto loans by investing in lenders and making money available for loans.And, like subprime mortgages before the financial crisis, many subprime auto loans are bundled into complex bonds and sold as securities by banks to insurance companies, mutual funds and public pension funds — a process that creates ever-greater demand for loans. The New York Times examined more than 100 bankruptcy court cases, dozens of civil lawsuits against lenders and hundreds of loan documents and found that subprime auto loans can come with interest rates that can exceed 23 percent. The loans were typically at least twice the size of the value of the used cars purchased, including dozens of battered vehicles with mechanical defects hidden from borrowers. Such loans can thrust already vulnerable borrowers further into debt, even propelling some into bankruptcy, according to the court records, as well as interviews with borrowers and lawyers in 19 states.

A bubble in deceptive, abusive subprime auto lending? - In a long story in today's edition, the New York Times is reporting a bubble in often deceptive and abusive subprime auto lending on unaffordable terms, including very high rates of interest.  Although not quite the threat to the overall economy that the subprime mortgage bubble created eight or nine years ago, this apparent new bubble in lending for used vehicles has some similar features (targeting vulnerable consumers, lax underwriting, securitization, investors seeking high returns) and is causing significant pain for low income and unsophisticated borrowers.  A few regulators are mentioned in the story, but oversight so far seems to have been lax.

GM Announces Another 718K Recalls, Bringing 2014 Total To Nearly 30 Million - It had been almost a month without a GM recall announcement of some sort. So, as many knew was long overdue three weeks into the second half, GM just did what it truly excels in (aside from being bailed out by taxpayers at a massive loss): admit that it had skimped on the quality control and safety check of  another 717,950 cars, all of which were new models bult 2010 and later including Camaro, Equinox, Caprice, Regal, Malibu and so on. In other words, all cars built after GM emerged from bankruptcy. This bring the total number of recalls year to date to a ludicrous 29.2 million around the globe, or well over three time the total number of cars sold in the past three years.

Are auto insurance companies red-lining poor, urban drivers? -  It has long been government policy to root out overt discrimination based on race, sex, age, religious and, increasingly, sexual orientation. But in America, it remains politically correct and (in most states) legally permissible to profile based on postal code. They are routinely used by local governments to apportion tax dollars for public education – and by banks to deny or charge extra for loans to households in lower-income or working-class neighborhoods. Nowhere is zip code profiling more obvious, and in no area does it more obviously violate basic notions of merit, than in auto insurance rating pricing. Where one lives – rather than how one drives – is in fact the primary determinant for how much you can save (or will be legally forced to spend) on auto insurance. Insurers' most common defense is that pricing by zip code is just a simple way to take into account secondary risk factors of neighborhood – including accident and crime location statistics. Yet, research by UCLA sociologists Michael Stoll and Paul Ong shows that, even when such factors are explicitly taken into consideration, price differences by zip code are still not fully explained. Instead, good old-fashioned redlining – when a specific geographic area, usually an urban or minority neighborhood, is either excluded or charged higher rates for a loan, insurance or another financial service – explains more of the gap. Postal Code Profiling, it seems, may well be one of the last vestiges of acceptable discrimination in America.

OMB Should Withdraw Proposed Revisions to U.S. Manufacturing and Trade Statistics - On May 22, 2014, the Office of Management and Budget solicited comments on a proposal for changes to the North American Industry Classification System (NAICS) that would take effect in a 2017 revision. The revision would reclassify factoryless goods producers (FGPs) such as Apple and Nike, most of which are now in wholesaling or management of companies, as manufacturers, and move trade by manufacturing service providers (MSPs), such as China’s Foxconn (which builds Apple products) into services. In What is manufacturing and where does it happen?, I show that this proposal would artificially inflate U.S. manufacturing production and employment and deflate U.S goods trade deficits with many countries. It would also irrevocably change U.S. balance of payments accounting. NAICS is used by the myriad federal statistical agencies that collect, analyze, and publish economic data, including data on trade. The OMB proposal was developed to respond to the rapid growth of establishments that design products but outsource most or all of the production process. The NAICS 2017 proposal—which is part of a broader, international, behind-the-scenes effort to redefine and recalculate U.S. and international trade accounts—would artificially inflate measures of U.S. manufacturing production and employment by arbitrarily moving wholesalers such as Apple and Nike into manufacturing, and changing substantial quantities of the goods we import into services. This would reduce our reported trade deficit in goods (on a balance of payments basis), with no change in our underlying balance of trade. And it would make it appear that U.S. manufacturing output has increased when, in fact, much of the actual manufacturing production has been offshored.

Administration Plans Orwellian Statistics Fudge to Make Offshored Production Look Like US Made--  Yves Smith - I normally refrain from simply running sections of a press release as the basis of a post, but this proposed statistics-based exercise in propagandizing is so-ham-handed that it’s not hard to grok what is at issue. Mind you, not only is there a proud American tradition of fudging official data releases to make the incumbent Administration’s performance look better than it really is, but this issue was actually a hot topic in the econoblogosphere in 2007. It’s died down in part because the Bureau of Labor Statistics did an effective messaging campaign against John Williams, the publisher of ShadowStats. Now to the latest offense on the statistics front. The Administration has released a proposal to change the classification of American firms that send production offshore as “factoryless goods” producers, which would also make them manufacturers. Representatives Rosa DeLauro and George Miller are issuing letters to the OMB and the Census Bureau challenging this scheme. From their press release:If the factoryless goods proposal were to be implemented, the value of U.S. brand-name products made outside of the United States and imported here would be counted as manufacturing “services” imports, not imported goods. Furthermore under the Administration’s broad trade data reclassification proposal, white-collar workers at firms that have offshored their production would be counted as manufacturing workers. DeLauro, Miller and other members of Congress rely on official data when formulating public policy and the new proposal would severely hamper their ability to write laws that help working and middle class Americans. In their letter, the representatives note that “OMB acknowledges the enormous effects our data classifications systems can have, yet at the same time claims that fact will have no bearing on any revisions.”

Obama Manufacturing Jobs Proposal Slammed By Unions - A decade ago, as the United States hemorrhaged manufacturing jobs, the federal government considered reclassifying fast food as a manufacturing industry. Sound ludicrous? Today, with the manufacturing sector still ailing, the federal government wants to take something called "factoryless goods" and categorize the firms that make them as manufacturers. As part of the plan, the government could also classify some foreign-manufactured goods as U.S. exports.  Now, as the White House seeks to portray its domestic manufacturing initiatives as successful, the administration has proposed a rule change to classify "factoryless goods producers" as domestic manufacturers, even if the manufacturing jobs associated with those producers are offshore. A 2013 Study by Dartmouth Business School researchers found that had that rule been in place, it would have officially increased U.S. manufacturing employment figures by 595,000 jobs in 2002 and 431,000 jobs in 2007. In response, labor unions and consumer groups this week announced they organized more than 26,000 public comments against the proposed change. They charge that the reclassification could undermine the Buy America Act, which requires government purchasers to give preference to U.S.-made goods.  They also argue that such a reclassification would artificially and inaccurately inflate the number of domestic manufacturing jobs reported by the government and would hide the true economic cost of trade proposals, such as the pending Trans Pacific Partnership.

The Furor Over “Factoryless” Manufacturers - Manufacturers, by definition, make things. But is that definition outdated? That’s the question behind a move among federal government agencies to reclassify as “manufacturers” companies like Apple which controls every aspect of the iPhones and other products it sells–except their actual fabrication. Production is done by Chinese contractor Foxconn. There are many companies like Apple. And in a twist only a government bureaucrat could love, the formal term for them is “factoryless goods producers.” But should they be counted as manufacturers in government statistics? A proposal to do just that was published in the Federal Register in May and has sparked howls of criticism from labor unions and others who say it would gloss over the erosion of domestic manufacturing. The filing points out that companies like Apple “bear the overall responsibility and risk for bringing together all processes necessary for the production of a good in the manufacturing sector, even if the actual transformation is 100 percent outsourced.” A group of labor and trade groups issued a press release this week, noting their members have lodged at least 26,000 comments objecting to the move so far. “This Orwellian proposal would disguise the offshoring incentivized by past trade pacts,” says Ben Beachy, research director at Public Citizen’s Global Trade Watch.

The FCC wants to let cities build their own broadband. House Republicans disagree. - This week, the House of Representatives approved legislation from Rep. Marsha Blackburn (R-TN) that would make it harder for cities to build publicly-owned broadband networks. The proposal is a shot at Federal Communications Commission chairman Tom Wheeler, who wants to remove state-level restrictions on municipal networks; Blackburn's legislation would forbid the FCC from removing those restrictions. This is the latest escalation of a long-running war between municipal broadband supporters and incumbent broadband companies that have relentlessly opposed municipal broadband proposals. Right now, only a few communities have municipal networks. But supporters argue that they provide a model that could give more of us faster and more affordable internet access in the future. How does municipal broadband work? And why has it become so controversial? Read on to find out.

The Evidence Is In: Patent Trolls Do Hurt Innovation - Over the last two years, much has been written about patent trolls, firms that make their money asserting patents against other companies, but do not make a useful product of their own. Both the White House and Congressional leaders have called for patent reform to fix the underlying problems that give rise to patent troll lawsuits. Not so fast, say Stephen Haber and Ross Levine in a Wall Street Journal Op-Ed (“The Myth of the Wicked Patent Troll”). We shouldn’t reform the patent system, they say, because there is no evidence that trolls are hindering innovation; these calls are being driven just by a few large companies who don’t want to pay inventors. But there is evidence of significant harm. The White House and the Congressional Research Service both cited many research studies suggesting that patent litigation harms innovation. And three new empirical studies provide strong confirmation that patent litigation is reducing venture capital investment in startups and is reducing R&D spending, especially in small firms.

Durable Goods Report: June Rebound Beat - The July Advance Report on June Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders: New orders for manufactured durable goods in June increased $1.8 billion or 0.7 percent to $239.9 billion, the U.S. Census Bureau announced today. This increase, up four of the last five months, followed a 1.0 percent May decrease. Excluding transportation, new orders increased 0.8 percent. Excluding defense, new orders increased 0.7 percent. Machinery, up following two consecutive monthly decreases, led the increase, $0.9 billion or 2.4 percent to $37.3 billion. Download full PDF  The latest new orders number came in at 0.7 percent month-over-month, above the forecast of 0.5 percent. However, year-over-year new orders for this highly volatile series is negative -1.6 percent. If we exclude transportation, "core" durable goods came in at 0.8 percent MoM, higher than the forecast of 0.6 percent. Without the volatile transportation series, the YoY core number was up 4.9 percent.If we exclude both transportation and defense for an even more fundamental "core", durable goods were up 0.7 percent MoM and up 5.9 percent YoY. The Core Capital Goods New Orders number (nondefense capital goods used in the production of goods or services, excluding aircraft) is another highly volatile series. It was up 1.4 percent MoM, but the YoY number was up only 1.9 percent. The first chart is an overlay of durable goods new orders and the S&P 500.

Q2 Closes With A Durable Goods Whimper And 1.6% Y/Y Drop; Core Capex Orders Revised Much Lower; Shipments Tumble - Q2 manufacturing is now in the books, and despite all those euphoric manufacturing surveys, it was a big dud. And as it goes, so does that CapEx rebound that is always just around the corner, but never actually here. Bring on the latest round of downward Q2 GDP revisions... Excluding volatile transportation, Durable Goods rose by 0.8%, also beating the expected 0.5% print, and higher than last month's 0.1%. Still, the Y/Y change in the category is hardly indicative of sustainable growth in manufacturing production, and certainly smashes any of the ISM and Markit PMI manufacturing surveys indicating an epic renaissance in US production. There was some modest good news in the core capex orders, aka the Capital Goods Shipments non-defense ex air, which rose 1.4%, beating expectations of 0.5%, however, this was at the expense of a major downward revision to the May number which initially had risen 0.7% and now is said to have declined 1.2%, i.e. a more than complete wash.

The Impact of Macroeconomic Changes on Consumer Durable Goods Orders -- While certain aspects of the economy appear to be "normal", some are clearly lagging the pack.  In one case, the long-term sector growth has been pitiful at best. Durable goods, goods that are defined as those that don't wear out quickly like household appliances, sports equipment, toys and firearms can reflect the health of the economy as a whole.   When economic conditions are poor, consumers will refrain from spending money on durable goods, preferring to save rather than spend.  This was particularly the case during and after the Great Recession as shown on this graph: Just before the Great Recession, new orders for durable goods were around $36 billion in the months of July and August 2007 just before the beginning of the Great Recession.  From there, they dropped rapidly to $19.6 billion in June 2009, a drop of 45.6 percent.  Since then, durable goods orders have risen slowly and steadily, reaching a high of $39.2 billion in November 2013 and settling at $37.5 billion in May 2014.  However, as you can see on this graph, durable goods orders have grown very little in the year since early 2013 when they hit $36.2 billion as shown on this graph (with the exception of the outlying November 2013 data point):

Something New for U.S. Manufacturing: Stability - Has the number of American factories finally stopped its long, painful decline? One economist thinks so. Daniel Meckstroth, chief economist at the Manufacturers Alliance for Productivity and Innovation, a research group in Arlington, Va., regularly does his own calculation of the number of plants based on data from the Bureau of Labor Statistics that tracks factory openings and closings. Even in the darkest days of manufacturing’s long slide, there were factories being built—but their number was far outweighed by the rush to shutter operations. Millions of jobs were lost in the process. But Mr. Meckstroth says he thinks we’re at an inflection point. “After a steady decline that continued for over ten years, we’ve finally flattened out,” he says. From the peak in 1998—when there were 376,000 factories sprinkled across the U.S.—the number fell steadily until about two years ago. However, since late 2012, the number has hovered around 304,000. That’s by far the longest period of stability since before the sector fell on hard times. Mr. Meckstroth thinks the overall number will soon start to drift up again. “But we’re not going to have a renaissance,” he adds, “in the sense of getting manufacturing back up to the share of the economy it was in the mid-1990s,” unless there’s progress made on reducing the trade deficit in goods. “You just can’t continue to run higher and higher deficits and think the industry is going to be in any kind of a renaissance,” he says.

Richmond Fed Manufacturing Growth Expands in July 2014: Of the three regional Federal Reserve surveys released to date, all show manufacturing expanding in July 2014. A complete summary follows. The market expected this survey index at 3 to 10 (consensus 5.5) versus the 7 actual [note that values above zero represent expansion]. Follow up: Fifth District manufacturing activity grew moderately in July, according to the most recent survey by the Federal Reserve Bank of Richmond.* The volume of new orders was flat compared to June, and shipments grew on pace with a month ago. Manufacturing employment picked up, while growth in the average workweek slowed slightly and wages rose more quickly in comparison to last month. Manufacturers were optimistic about future business conditions. Firms expected faster growth in shipments and new orders in the six months ahead. Additionally, producers looked for backlogs to build more quickly and anticipated faster growth in capacity utilization. Expectations were for shorter vendor lead times. Survey participants expected faster growth in the number of employees along with solid growth in wages and a pickup in the average workweek. Prices of raw materials and finished goods rose at a somewhat faster pace in July compared to last month. Additionally, manufacturers expected slightly faster growth in prices paid and prices received over the next six months than they anticipated a month ago. Current Activity Overall, manufacturing conditions strengthened. The composite index for manufacturing moved up to a reading of 7 following last month's reading of 4. The index for shipments gained one point, ending at 3. New orders grew at the same pace as a month ago, with that index finishing at a reading of 5. Manufacturing employment picked up this month; the July indicator advanced nine points to a reading of 13.

Kansas City Fed: Regional Manufacturing "Activity Edged Higher" in July - From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Edged Higher The Federal Reserve Bank of Kansas City released the July Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity edged higher, and producers’ optimism for future activity increased. The month-over-month composite index was 9 in July, up from 6 in June but slightly lower than 10 in May. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. ... The production index climbed from 2 to 11, and the shipments, new orders [to 12], and employment indexes [from 1 to 8] also rose considerably.The last regional Fed manufacturing survey for July will be released on Monday, July 28th (the Dallas Fed). All of the regional surveys so far have indicated stronger growth in July than in June and - in general - the strongest growth in several years.

US Manufacturing PMI Drops, Biggest Miss On Record -- But, but, but... the rest of the world's PMIs are soaring as soft-survey data trumps any hard data facts. US Manufacturing dropped from 57.3 to 56.3 despite analysts that were convinced it should rise further to 57.5. This is the biggest miss on record, and the 2nd miss in a row. In spite of soaring markets proving the recoverty is just picking up and accelerating, new export orders weakened, manufacturing production fell, input costs surged, and employment tumbled to 10-month lows. But, stocks are surging on this dismal news...A gentle reminder from BofA of the uselessness of the soft survey based PMI data...  the US data mills churn out a lot of surveys. Since the last FOMC meeting, there have been four new ISM readings and a bunch of regional releases. A popular view is that these surveys are better than hard data.  In our view, however, these data get way too much air time. They give a timely, rough read on the economy, but should get little weight once hard data are released.

Businesses Need to Spend More. The Future of the Economy Depends on It. -- Five years into the economic recovery, businesses still aren’t plowing much money into big-ticket investments for the future. Nonresidential fixed investment — what businesses spend on equipment, software, buildings and intellectual property — still hasn’t bounced back to its pre-crisis share of the economy, let alone made up for lost ground from the record lows of 2009. As Justin Lahart notes in The Wall Street Journal, equipment spending in particular has averaged 5.2 percent of the economy over the last five years, down from 6.5 percent over the previous half-century. If firms increased their spending enough to close that gap, it would mean an extra $220 billion in annual economic activity and perhaps a couple of million more jobs. But there may be even more important and lasting consequences for this lack of spending by businesses.Capital spending improves worker productivity. And worker productivity improves living standards. Less capital spending by businesses means less investment in the kinds of equipment, software and intellectual property that will make the economy more competitive over the long haul.

Obama Shifts to Urge Private Investment in Roads, Bridges - Stymied by Congress in passing a multiyear solution for transportation funding, President Barack Obama is looking to private-sector companies to help fix roads. Speaking beside a project to repair a closed interstate highway bridge in Wilmington, Delaware, Obama called for making it easier for states and local governments to access private capital for roads, bridges and other infrastructure. “So far Congress has refused to act,” said Obama, who criticized lawmakers for failing to fully fund federal infrastructure projects through the Highway Trust Fund . “I’m going to do whatever I can to create jobs rebuilding American on my own.” The focus on private money for road projects marks a shift for the administration, which had previously resisted efforts to seek commercial resources for highways and other pieces of the country’s transportation system. The result may be more tolls for drivers as companies look to make profits by operating roads and bridges.

The Bring Jobs Home Act Won’t - The Bring Jobs Home Act is a classic message bill. Its Democratic sponsors have no interest in making it law, they merely see it as a way to boost the party’s Senate candidates in part by forcing Republicans to vote against something that sounds like a good idea. After all, who could be against bringing jobs home? Trouble is, this bill would do almost nothing to “bring jobs home.” It combines two ineffectual ideas into a single bill, and the whole is no more than the sum of its exceedingly modest parts. The measure aims to do two things: Reward U.S. firms with a 20 percent tax credit for relocating business units from overseas to the U.S. and punishing firms by denying a tax deduction for the cost of relocating operations from the U.S. to foreign countries. “It protects American jobs and encourages future job creation within our borders,” Senate Majority Leader Harry Reid said on Tuesday. Actually, it wouldn’t. The ideas in this bill, or variations on their themes, have been floating around the policy world for years and have rarely gotten traction. At first glance the measure looks a bit like an employment subsidy, and its title certainly implies that it is. But look closely, and this bill is quite different. It doesn’t subsidize firms that create U.S. jobs at all. Rather, it rewards them for merely moving business units to the U.S.

White House Puts Fresh Focus on Federal Job Training Efforts  -- President Barack Obama is again taking aim at the “skills gap” separating many unemployed workers from the companies that could hire them. Mr. Obama, in his State of the Union address on Jan. 28, said he had asked Vice President Joe Biden ”to lead an across-the-board reform of America’s training programs to make sure they have one mission: Train Americans with the skills employers need, and match them to good jobs that need to be filled right now.” Mr. Biden’s report is being released Tuesday, the same day the White House says Mr. Obama will sign into law the Workforce Innovation and Opportunity Act, bipartisan legislation that passed the Senate and the House this summer by wide margins. ”The mission here is very simple, and it goes back to the central economic vision that has guided us since our first day in office: building a strong and thriving middle class,” Mr. Biden wrote in the 76-page White House report, “Ready to Work: Job-Driven Training and American Opportunity.”

Weekly Initial Unemployment Claims decrease to 284,000, 4-Week Average Lowest since May 2007 - The DOL reports: In the week ending July 19, the advance figure for seasonally adjusted initial claims was 284,000, a decrease of 19,000 from the previous week's revised level. This is the lowest level for initial claims since February 18, 2006 when they were 283,000. The previous week's level was revised up by 1,000 from 302,000 to 303,000. The 4-week moving average was 302,000, a decrease of 7,250 from the previous week's revised average. This is the lowest level for this average since May 19, 2007 when it was 302,000. The previous week's average was revised up by 250 from 309,000 to 309,250. There were no special factors impacting this week's initial claims. The previous week was revised up to 303,000.The following graph shows the 4-week moving average of weekly claims since January 1971.

New Jobless Claims at Lowest Since February 2006 - Here is the opening statement from the Department of Labor: In the week ending July 19, the advance figure for seasonally adjusted initial claims was 284,000, a decrease of 19,000 from the previous week's revised level. This is the lowest level for initial claims since February 18, 2006 when they were 283,000. The previous week's level was revised up by 1,000 from 302,000 to 303,000. The 4-week moving average was 302,000, a decrease of 7,250 from the previous week's revised average. This is the lowest level for this average since May 19, 2007 when it was 302,000. The previous week's average was revised up by 250 from 309,000 to 309,250. There were no special factors impacting this week's initial claims. [See full report]Today's seasonally adjusted number at 284K was well below the forecast of 308K.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.

Is the Employment Situation Really Improving?: Over the past several years, Americans have been told that the labor situation in the United States is improving. The evidence used to back this up is the unemployment rate published by the Bureau of Labor Statistics, which has been steadily declining. It has gotten to the point where we are seeing headlines that indicate that the job losses relating to the economic crisis of 2007-2009 are behind us, and that the economy is nearly back to full employment. But despite these headlines, a look at the specifics regarding unemployment and labor reveals a far more daunting picture: fewer people are working, and if it weren’t for the BLS playing statistical games, the unemployment rate would be rising, not falling. Here’s why. According to the St. Louis Fed, which collects an enormous amount of data on this subject and on dozens of others, the labor participation rate is at a multi-decade low. The labor participation rate is the percentage of people who are eligible to work (e.g. those who aren’t children or retired) who work or who are actively looking for jobs. The labor participation rate peaked at a little over 67 percent in the year 2000, and it has been declining ever since. It is now 62.8 percent, which is the lowest level since 1978, and it has been declining especially rapidly since the financial crisis when it was about 66 percent. What this means is that the declining unemployment rate is calculated using a shrinking denominator, and this means that the headline unemployment figure is misleading.

Unemployment and LF Participation: Revisiting the Puzzle - To investigate these issues, the Council of Economic Advisers has just published "The Labor Force Participation Rate Since 2007: Causes and Policy Implications." The rise in the labor force participation rate from about 1960 up through the mid-1990s was driven both by the baby boom generation reaching working age, and the dramatic entry of women into the (paid) labor force. The decline since about 2000 is largely because the rising proportion of women in the labor force levelled off, and the aging of the baby boom generation is raising the number of retirees. Here's a figure from the report showing the labor force participation rate for men and women separately. The CEA also notes that during every recession, the labor force participation rate tends to fall a little, as some people give up looking for jobs and thus aren't counted as officially "unemployed." After presenting its own analysis, and showing that it fits fairly well with previous studies of the subject, the CEA notes: "Up until the beginning of 2012 the [labor force] participation rate was generally slightly higher than would have been predicted based on the aging trend and the standard business cycle effects. But in the last two years, the participation rate has continued to fall at about the same rate even though the unemployment rate has been declining rapidly."

Unemployment and JOLTS, with demographic adjustments - I've done quite a few posts on the significant distortions that the baby boomer lifecycle is causing in comparative labor statistics.  There are so many places where we are using time series to assess the state of the economy, and we are using measures that have stable names but that are measuring something whose fundamental character is changing.  In broad terms, for instance, we think we are measuring "Quits" or "Unemployment Rate", a stable set of data regarding an economy over time.  But, really, we are kind of measuring "Quits or Unemployment among a lot of 50 year olds" today compared to "Quits or Unemployment among a lot of 35 year olds" 15 years ago.  We think we are comparing changes in our economy, ceteris paribus, but in some cases, we are being fooled.  The economy is the "ceteris paribus" and we are just measuring how 50 year olds are different than 35 year olds.Last December, I tried to adjust the Quits rate from the JOLTS survey to account for age demographics.  I haven't revisited the adjustments since then.  Today I thought I'd update this and see where things stand.  The red line in this graph is where we would expect Quits to be if demographics had remained constant.  The trend lines in this graph are parallel.  Growth in Quits has more or less followed the trend from 2003 to 2006, except for the period from the summer of 2011 to the fall of 2012, where it leveled out.  Here is a graph of all of the JOLTS indicators, with this demographically adjusted Quits level added.  Note that, with this adjustment, Quits is back to the same level of early 2004, when the Unemployment Rate was at 5.7%.

Rising Wages Where? Real Wages Post First Annual Decline Since 2012 - For all the talk about "noisy inflation" this and "rising prices are good for the economy" that, what the Fed's cheerleading squad continues to ignore is the one most important inflation the US economy needs in order to actually have a sustainable recovery instead of centrally-planned stagflation: wage inflation. And while bullish pundits keep reffering to some mythical CEO survey promising wage will increase any day now, just not today, the BLS released its most recent real wage (adjusted for inflation) report today showing that not only did the average real hourly wage remain flat for the second month in a row at $10.29, the lowest level since September 2013, but posted the first annual decline since October 2012.

What Disposable Income Looks Like: With And Without Government Handouts -- While it is now undisputed by even the Federal Reserve itself, that all the "benefits" of QE have accrued exclusively to the wealthiest segment of society, those 0.01% whose wealth is mostly invested in financial assets which have inflated in direct proportion with the Fed's balance sheet, some have tried to suggest that because the disposable income of the average American has also increased in the past few years, then QE has been a success. There is one problem with that statement: it isn't true. As Eric Sprott points out in his latest letter, "if one looks past headline figures, things are not really getting better. As shown in Figure 1, real disposable income per capita in the U.S. has increased only modestly since the Great Recession. However, all of this increase is due to Government Transfers, not from an improvement in the real economy. If we exclude those transfers from the numbers, disposable income per capita is actually lower than it was at the end of 2005 and has been painfully flat since 2011. Also, those numbers assume that the headline Consumer Price Index (CPI) accurately represents people’s purchasing power." Presenting our chart of the day: disposable income with and without government transfers.

America’s economy: Jobs are not enough | The Economist: AMERICAN workers have had no news this good for years. In June employers added 288,000 jobs, bringing the total for the year to 1.4m, the best six-month stretch since 2006. Unemployment has sunk to 6.1%, the lowest rate in almost six years. It could hit levels long regarded as “full employment” within a year. Help-wanted signs are proliferating, with vacancies up by 20% since January. Such an ebullient labour market is usually the token of a booming economy. Not now. In the first quarter gross domestic product fell by 2.9% at an annual rate, the worst showing since the recession. This was a result in part of bad weather. Yet the second quarter will only be strong enough to make up the ground lost in the first. Economists had thought 2014 would be the best year since the recession; with growth in the first half of around zero, it is shaping up to be the worst. The recent divergence between America’s employment and output suggests the country faces not just deficient demand but also enfeebled supply, as more people working without more output means lower productivity. That is bad news for all Americans since their standard of living depends on productivity. It is also a headache for the Federal Reserve, since inflation emerges more quickly when economic capacity is expanding more slowly. Thus it could mean interest rates rising sooner than might otherwise be expected. If so, though, it would also mean they might not rise that high; in a slower-growing economy, there is less demand for capital.

U.S. Unemployment Demands New Ideas - - The U.S. labor market is still a long way from healed. The unemployment rate of 6.1 percent, down from 10 percent in 2009, is misleading: Long-term unemployment accounts for a much bigger share of the total than usual. Millions who would like full-time jobs are having to work part time. And millions more have given up looking for work and are no longer part of the count.   That's an awful toll of disappointment and distress. What can be done?  Lack of demand remains the chief problem. The Federal Reserve's power to make up the shortfall seems to have reached its limit -- politically, even if not for economic reasons -- and a paralyzed Washington has said no to further fiscal stimulus. One neglected avenue remains, however: helping to connect the unemployed to companies that are doing well and looking to hire.  Those firms do exist, despite flagging overall demand. The unemployment rate varies widely from state to state -- from 7.9 percent in Mississippi to 2.7 percent in North Dakota to 3.5 percent in Nebraska, Utah and Vermont. This shows what's possible, but at the same time, it's a puzzle: If labor markets are tight in some places and slack in others, why don't the unemployed move? This is where policy could usefully focus.

The future of work - Mathbabe - People who celebrate the monthly jobs report getting better nowadays often forget to mention a few facts:

  • the new jobs are often temporary or part-time, with low wages
  • the old lost jobs, which we lose each month, were often full-time with higher wages

I could go on, and I have, and mention the usual complaints about the definition of the unemployment rate. But instead I’ll take a turn into a thought experiment I’ve been having lately. Namely, what is the future of work? It’s important to realize that in some sense we’ve been here before. When all the farming equipment got super efficient and we lost agricultural jobs by the thousands, people swarmed to the cities and we started building things with manufacturing. So if before we had “the age of the farm,” we then entered into “the age of stuff.” And I don’t know about you but I have LOTS of stuff. Now that all the robots have been trained and are being trained to build our stuff for us, what’s next? What age are we entering? I kind of want to complain at this point that economists are kind of useless when it comes to questions like this. I mean, aren’t they in charge of understanding the economy? Shouldn’t they have the answer here? I don’t think they have explained it if they do. Instead, I’m pretty much left considering various science fiction plots I’ve heard about and read about over the years. And my conclusion is that we’re entering “the age of service.”

Part time work and Obamacare: Why some Americans hate the Democrats right now -- The New York Times has an article on the perils of part time work this morning.  In short, employers expect people to be on call all of the time with very unpredictable hours.  If you ask for more consistent hours, you might find your hours cut even further.  Just go read it.  It’s a nightmare. Couple that with Obamacare.  You HAVE to have an insurance policy or pay a penalty.  But if you don’t have a consistent income from week to week, you don’t have the money to pay for the policy.  And if you don’t make enough money, you don’t get a subsidy, as I found out earlier this year.  So, to recap, the precariat worker is doubly screwed, triply screwed if they live in a state that doesn’t expand Medicaid. So, to all of you lefties out there who just can’t understand why the working class is not enamored with the expensive, low coverage plans that they can’t afford anyway, wake up before it’s too late.  This is a disaster in the making.  Stop blaming the victims for being insufficiently grateful.

Full-Time Employment May Give Way to a Free Agent Economy (video) The CEO of employment firm Kelly Services speculates that in 20 years, less than a third of the American workforce will be directly employed by corporations or governments. Rather, the majority of the population will work as free agents. Kelly Services placed 540,000 temporary employees in 2013, and can serve as a model for human resources firms of the future. In place of government or full-time employers, firms like Kelly Services will become the purveyor of social services on behalf of the freelancers they represent, including insurance, education, and retirement benefits.

The Last Hope for Extending Long-Term Unemployment Insurance May Have Just Gone Poof -- It's been seven months since Congress let long-term unemployment insurance benefits lapse, but last week only brought more bad news for the job seekers hoping that House Republicans might relent and allow a vote on extending benefits. When the House passed a temporary patch to the Highway Trust Fund on Tuesday, they tapped into an idea called pension smoothing to pay for the cost—an accounting trick that changes the formula companies use for contributing to pensions, but a necessary measure since Republicans in the House have refused to approve spending unless it's offset by new revenue. The only problem? That was the same mechanism Democrats had planned to use to pay for an unemployment insurance bill, leaving liberals at a loss for how to convince the GOP to get on board with an extension of unemployment benefits.

The Implications of Flat or Declining Real Wages for Inequality - A recent Policy Note published by the Levy Economics Institute of Bard College shows that what we thought had been a decade of essentially flat real wages (since 2002) has actually been a decade of declining real wages. Replicating the second figure in that Policy Note, Chart 1 shows that holding experience (i.e., age) and education fixed at their levels in 1994, real wages per hour are at levels not seen since 1997. In other words, growth in experience and education within the workforce during the past decade has propped up wages. The implication for inequality of this growth in education and experience was only touched on in the Policy Note that Levy published. In this post, we investigate more fully what contribution growth in educational attainment has made to the growth in wage inequality since 1994. The Gini coefficient is a common statistic used to measure the degree of inequality in income or wages within a population. The Gini ranges between 0 and 100, with a value of zero reflecting perfect equality and a value of 100 reflecting perfect inequality. The Gini is preferred to other, simpler indices, like the 90/10 ratio, which is simply the income in the 90th percentile divided by the income in the 10th percentile, because the Gini captures information along the entire distribution rather than merely information in the tails. Chart 2 plots the Gini coefficient calculated for the actual real hourly wage distribution in the United States in each year between 1994 and 2013 and for the counterfactual wage distribution, holding education and/or age fixed at their 1994 levels in order to assess how much changes in age and education over the same period account for growth in wage inequality. 

What Corporate Media and Corporate Latino Politicians Won't Tell You About Central American Child Refugees - Black Agenda Report: What neither corporate media nor US Latino politicians will point out is that none of the current wave of refugees are coming from Nicaragua, although it has a similar history to Guatemala, Hondruas and El Salvador, and its just as poor. Why? According to NicaNet.Org, a project of the Nicaragua Solidary Committee. “...Nicaragua’s homicide rate dropped to 8.7 per 100,000 inhabitants. Honduras, with 92 homicides per 100,000 inhabitants, has the highest murder rate in the world. El Salvador has 69, Guatemala 39, Panama 14.9 and Costa Rica 10.3 homicides per 100,000 inhabitants... “The problem of the children migrants is blowback from US policy in the 1980s when our government trained and funded Salvadoran and Guatemalan military and police to prevent popular revolutions and more recently when the US supported the coup against President Manuel Zelaya in Honduras. Those countries were left with brutal, corrupt armies and police forces whereas Nicaragua, with its successful 1979 revolution, got rid of Somoza's brutal National Guard and formed a new army and a new police made up of upstanding citizens. “Who consumes all those drugs that arecausing all that violence and corruption in Latin America? Who has militarized the Drug War and is funding and training repressive militaries and police in the countries from which the children are fleeing? In both cases it is the United States.”

How Every U.S. State Has Fared Since The Recession, In 1 Graph -- This spring, the U.S. finally gained back all the jobs that were lost during the recession. In other words, the number of jobs in the country is now higher than it was back in January 2008, at the beginning of the recession.But the jobs are different — and they're in different places. In a handful of states, there are lots more jobs than there used to be. But in many others, there are still far fewer jobs than there were before the recession.What's going on in North Dakota and Texas? These two states have seen a boom in oil and natural gas and related industries. "That spills over into lots of other service, professional and construction jobs," says Pia M. Orrenius, an economist at the Federal Reserve Bank of Dallas.Texas alone now has nearly 1 million more jobs than it did at the start of the recession.At the other end of the spectrum are Arizona and Nevada — two states that had particularly large real estate bubbles during the boom. A massive decline in construction jobs accounts for more than half of the job losses in both states.

State’s job growth defies predictions after tax increases - David Cay Johnston - Dire predictions about jobs being destroyed spread across California in 2012 as voters debated whether to enact the sales and, for those near the top of the income ladder, stiff income tax increases in Proposition 30. Million-dollar-plus earners face a 3 percentage-point increase on each additional dollar. “It hurts small business and kills jobs,” warned the Sacramento Taxpayers Association, the National Federation of Independent Business/California, and Joel Fox, president of the Small Business Action Committee. So what happened after voters approved the tax increases, which took effect at the start of 2013? Last year California added 410,418 jobs, an increase of 2.8 percent over 2012, significantly better than the 1.8 percent national increase in jobs. California is home to 12 percent of Americans, but last year it accounted for 17.5 percent of new jobs, Bureau of Labor Statistics data shows. America has more than 3,100 counties and what demographers call county equivalents. Eleven California counties, including Sacramento, accounted for almost 1 in every 7 new jobs in the U.S. last year. The Central Valley is home to nine of the nation’s 335 largest counties. The data show that all nine counties enjoyed better job growth overall than the rest of America. Sacramento County experienced a 2.7 percent increase, 50 percent better than the national average, as 15,425 jobs were added last year. Only three California counties lost jobs, a total of 126 fewer positions in sparsely populated Amador, Mariposa and Trinity counties.

The Bad Boss Tax -  Can you name the worst job you’ve ever had? For Cliff Martin, that’s not an easy question. All three of his current jobs—delivering newspapers, delivering magazines and working as a janitor—are strong contenders. Taken together, they pay so poorly that the 20-year-old Northfield, Minnesota, native relies on MNsure, the state Medicaid plan, for healthcare and lives at home with his father to save money. But what if Martin’s bosses had to fork over a fee to the state for paying him so badly? That money, in turn, could be used to help support Martin and his fellow low-wage workers in a variety of ways, from direct subsidies for food and housing to social programs such as Medicaid or public transportation. TakeAction Minnesota, a network that promotes economic and racial justice in the state, wants to make that fee a reality. It’s developing the framework for a bill that it hopes will be introduced in 2015 by state legislators who have worked with the network in the past. As conceived, the “bad business fee” legislation would require companies to disclose how many of their employees are receiving public assistance from the state or federal government. Companies would then pay a fine based on the de facto subsidies they receive by externalizing labor costs onto taxpayers.

Nearly one quarter of US children in poverty - Nearly one in four children in the United States lives in a family below the federal poverty line, according to figures presented in a new report by the Annie E. Casey Foundation. A total of 16.3 million children live in poverty, and 45 percent of children in the US live in households whose incomes fall below 200 percent of the federal poverty line. The annual report, titled the Kids Count Data Book, compiles data on children’s economic well-being, education, health, and family support. It concludes that, “inequities among children remain deep and stubbornly persistent.” The report is an indictment of the state of American society nearly six years after the onset of the financial crisis in 2008. While the Obama administration and the media have proclaimed an economic “recovery,” conditions of life for the vast majority of the population continue to deteriorate.The report notes that the percentage of children in poverty hit 23 percent in 2012, up sharply from 16 percent in 2000. Some states are much worse. For almost the entire American South, the share of children in poverty is higher than 25 percent.These conditions are the product of a ruthless class policy pursued at all levels of government. While trillions of dollars have been made available to Wall Street, sending both the stock markets and corporate profits to record highs, economic growth has stagnated, social programs have been slashed, and public services decimated, while prices of many basic items are on the rise. Jobs that have been “created” are overwhelmingly part-time or low-wage.

Devolution Number Nine --  Rep. Paul Ryan (R-Crazy) has a new plan to fight poverty. There is actually a chapter on criminal justice that is worth some attention. Why is there a piece on criminal justice in an anti-poverty report? C’mon, you know! Also there are pieces on job training, regulation, and education. My interest is in the chapters on the Earned Income Tax Credit and the safety net, but the common theme throughout the report is to convert Federal programs into block grants. A block grant is a fixed pot of money provided to a state or local government for broadly-defined purposes. Ryan’s report is at pains to assert that the conversion would not entail spending cuts. This could not be further from the truth. The short version is that a program or programs converted to a block grant is being set up to wither away. Block grants are designed through formulas to grow slowly or not at all, despite the likelihood that whatever the included programs were aimed at typically costs more to deal with every year. There are also two malignant political dynamics at work. One is that Congress doesn’t like to spend money without a say in what happens to the money. Block grants transfer control to state governments. They have the fun of spending the money, Congress has the fun of raising the taxes to pay for it.

Paul Ryan’s poverty plan attacks the wrong problem and comes up with the wrong solution - The main problem faced by the American poor is not that there’s something fundamentally wrong with the safety net.  It’s that they lack the employment and earnings opportunities necessary to work their way out of poverty. Rep. Paul Ryan, in an interesting anti-poverty plan he outlines Thursday, one with a notable improvement over all his earlier work in this area, fails to understand this basic fact, and thus his plan widely misses the mark. In doing so, it creates deep and unnecessary risks, not to mention a huge new anti-poverty bureaucracy. First, the notable change: For holding anti-poverty spending at current levels, I give Ryan (R-Wis.) credit for stepping back from his past proposals as chairman of the House Budget Committee to slash and burn low-income spending in ways that would have been sure to increase poverty. In fact, there are more spending cuts in this plan than meet the eye, but as he showed in his budget work with Sen. Patty Murray (D-Wash.), which replaced some of the damaging sequestration spending cuts, he’s got a practical side that’s a lot better than his visionary side. Yet his new poverty plan, based on what he calls the Opportunity Grant, is misguided. “It consolidates up to 11 federal programs into one stream of funding to participating states. The idea would be to let states try different ways of providing aid and then to test the results. … Each state that wanted to participate would submit a plan to the federal government. That plan would lay out in detail the state’s proposed alternative. If everything passed muster, the federal government would give the green light. And the state would get more flexibility to combine things such as food stamps, housing subsidies, child care assistance and cash welfare.”

Ezra Klein Asks the Wrong Question - Paul Krugman -- He asks, Why should anyone trust Paul Ryan’s poverty plan? That’s easy: nobody should. This has been another edition of simple answers to simple questions. In case you want the longer answer, however, there are multiple reasons to distrust Ryan. It’s not just that this plan is completely inconsistent with his budget proposals, and that he has given no indication of how he would resolve this inconsistency. It’s not just that the methods he proposes, especially block-granting, have in the past simply been back-door ways to slash aid to the poor — which is what his budgets involve, after all. And it’s not just that everything he has said about the causes of and cures for poverty is all wrong. No, it’s also the fact that Ryan’s previous proposals — all of them — were con jobs. It’s four years since he was challenged to explain the magic asterisk in his original budget proposal — how he could slash tax rates for the wealthy and corporations without reducing revenue. He has never explained it; all he’s done is put in more magic asterisks on discretionary spending and more.  So the question isn’t why or even whether you should trust him — you shouldn’t, period.  No, the real question is why so many people in the news media still want to find reasons to praise this con man.

Deep Poverty Among Children Worsened in Welfare Law’s First Decade — Center on Budget and Policy Priorities: Since the mid-1990s, when policymakers made major changes in the public assistance system, the proportion of children living in poverty has declined, but the harshest extremes of child poverty have increased. After correcting for the well-known underreporting of safety net benefits in the Census data, we estimate that the share of children in deep poverty — with family income below half of the poverty line — rose from 2.1 percent to 3.0 percent between 1995 and 2005. The number of children in deep poverty climbed from 1.5 million to 2.2 million. The bulk of the evidence suggests that while many parents moved from welfare to work and child poverty declined overall, the number and percentage of children in deep or severe poverty, with family income below half the poverty line or even lower, increased.  The evidence of this increase includes the following:

  • Early welfare-to-work programs increased deep poverty even as they reduced overall poverty..
  • Measured carefully, deep poverty rose nationwide.  Between 1993 and 2004, even as the overall poverty rate fell, the percentage of Americans living in deep poverty rose markedly, according to a study published in the 2012 Oxford Handbook of the Economics of Poverty.[4]
  • More families are living on less than $2 per person per day.  The number of households with children with monthly cash incomes equivalent to less than $2 per person per day — a standard of poverty more associated with third-world countries — has more than doubled since 1996, rising 159 percent to 1.6 million households in 2011

The inequality snowball effect - --"Initially I was thinking about high-end goods, like Ferraris, Lamborghinis, that you must pay workers a lot more for building them," Wilmers says. "Which is not where the paper ended up." Where he ended up in a working paper published today, though, is far more interesting: The idea that as the wealthy people who buy high-end sports cars start to account for more and more consumer spending in certain industries, they tend to pay exorbitant prices for the most sought after professionals within those industries, while everyone else has a hard time getting by. It's a disturbing find -- the rich are getting richer, and their preferences drive wages to polarize even further, creating a self-perpetuating cycle of inequality. Say, for example, you need some legal defense or advice. If you have lots of money, the marginal proficiency of a lawyer will matter a lot more to you, because you've got more money on the line -- and since you've got the money to burn, you're willing to pay exorbitant rates for the very best, or those that convey the highest status. Same goes for a real estate agent, investment banker, or even a household servant: The most sought-after people get bid up in price to a degree that exceeds how much better they actually are than everyone else. Those who don't fall into that category, however, are consigned to earning lower wages in service of an increasingly strapped middle class.

Tax inversions allow firms to avoid state taxes: American companies that merge with foreign competitors to lower their federal taxes also cut their state taxes, leaving states to mostly watch helplessly as their tax revenue drains away. There has been a rash of companies buying up foreign competitors and then moving their "parent" company to the foreign site, a tactic known as "tax inversion." The maneuver, which has become particularly popular among health care companies, puts pressure on other corporations to follow suit or be left at a competitive disadvantage. In one recent high-profile "tax inversion," Medtronic, a venerable Minneapolis-based medical device manufacturer, agreed last month to buy rival medical-device maker Covidien PLC for $42.9 billion. Covidien has its "headquarters" in Massachusetts but is "domiciled" in Ireland, which has some of the lowest corporate tax rates in the world at 12.5 percent. The U.S. corporate income tax rate is 35 percent, the highest in the world. "When you invert, it makes it easy to strip income out of the U.S. and put it into a tax haven," said Martin Sullivan, chief economist at Tax Analysts, which provides analysis of tax laws and current events for tax professionals and the business community. "U.S. tax rules treat U.S. income and foreign income differently. When that is the case, the states would almost certainly lose revenue because when income is stripped out of the U.S. federal tax base, it is also being stripped out of the state tax base."

1 In 25 New Yorkers Is A Millionaire - New York "has the second largest millionaire and largest billionaire population of any global city," according to analysis by Spear's magazine, but as LA Times reports, walk down the streets of The Big Apple and 1 in every 25 New Yorkers you bump into is a millionaire. But if you really want to rub shoulders with the rich... almost 1 in 3 Monaco residents are millionaires) and likely billionaires too... As LA Times reports, The Big Apple ranks fourth in a listing of the top 20 global cities based on the portion of their populations whose net worth, excluding primary residence, tops $1 million. Altogether, 4.63% of New Yorkers, or 389,100 people, are millionaires, according to the analysis by Spear's magazine and consulting firm WealthInsight. “New York has long been the bastion of wealth not only in America, but the world," said Oliver Williams, an analyst at WealthInsight. "It has the second largest millionaire and largest billionaire population of any global city." Monaco, Zurich and Geneva claimed the first three spots. Nearly 3 in 10 people in Monaco are millionaires

NYC gives the green light to the building of apartments with a 'poor door' -- The City of New York approved a proposal by one of the largest real estate developers in the city to build in a 'poor door', or a separate door for residents living in affordable housing to enter their building.According to a Saturday report from the New York Post, the city approved the application of Extell, one of the most prominent developers in New York, to install this separate set of doors into a high-rise located on 40 Riverside Boulevard, a location situated next to the Hudson River.Extell's proposal allows them to force affordable housing tenants to walk through an entrance located in a back alley behind the building to enter, leaving the more prominent front entrance for tenants paying for nicer apartments.Under the Inclusionary Housing Program, for which the city approved Nextell's application, larger properties are allowed to be built as long as they include a portion of affordable housing units.For the 40 Riverside Boulevard location, 55 units will be designated as affordable housing, all units facing the street. Another 219 units will face the river.A spokesman for the NYC Department of Housing Preservation and Development confirmed that the agency had approved Extell’s application for the Inclusionary Housing Program.

Puerto Rico debt crisis headed for U.S.-style bankruptcy resolution - (Reuters) - Momentum is building toward a deal that would make painful losses inevitable for investors holding about $20 billion in bonds issued by Puerto Rico's highway, water and electricity authorities even as some big U.S. mutual funds launch a legal battle to squelch a new law that authorizes a restructuring. The Puerto Rican government and most of its creditors have hired U.S.-based bankruptcy experts to advise them through the Caribbean island's efforts to solve its debt problem, and the resolution figures to look a lot like a U.S.-style bankruptcy. The crisis came to a head late last month when Governor Alejandro Garcia Padilla pushed through the Public Corporations Debt Enforcement and Recovery Act to create a bankruptcy-like process for restructuring the debt of commonwealth-run corporations. That's caused prices on some of the bonds of the electric utility, known as PREPA, to fall to 40 cents on the dollar or below. PREPA is widely viewed to be in the weakest condition of the agencies.

Detroit's Water War: a tap shut-off that could impact 300,000 people -- It was six in the morning when city contractors showed up unannounced at Charity Hicks' house. Since spring, up to 3000 Detroit households per week have been getting their water shut-off – for owing as little as $150 or two months in bills. Now it was the turn of Charity's block – and the contractor wouldn't stand to wait an hour for her pregnant neighbour to fill up some jugs. "Where's your water termination notice?" Charity demanded, after staggering to the contractor's truck. A widely-respected African-American community leader, she has been at the forefront of campaigns to ensure Detroiters' right to public, accessible water. The contractor's answer was to drive away, knocking Charity over and injuring her leg. Two white policemen soon arrived – not to take her report, but to arrest her. Mocking Charity for questioning the water shut-offs, they brought her to jail, where she spent two days before being released without charge. Welcome to Detroit's water war – in which upward of 150,000 customers, late on bills that have increased 119 percent in the last decade, are now threatened with shut-offs. Local activists estimate this could impact nearly half of Detroit's mostly poor and black population – between 200,000 and 300,000 people. "There are people who can't cook, can't clean, people coming off surgery who can't wash. This is an affront to human dignity," Charity said in an interview with Kate Levy. To make matters worse, children risk being taken by welfare authorities from any home without running water.

Other Cities Poach Police From Detroit's Low-Wage Force : "We've had food drives where the community comes up to the precinct," he says. "They'll give us baskets of food. Two, three years now, we've had officers depend on Goodfellow packages."For years, police in the city of Detroit have dealt with low wages, a lack of new equipment and one of the nation's highest crime rates. Now, as the city moves through bankruptcy, there's talk of eventually raising police officers' pay.But police departments outside of the city are increasingly trying to recruit Detroit's finest to come work for them instead.  Detroit police saw their paychecks cut by 10 percent two years ago. Now the police union is negotiating a new contract with the city, whose bankruptcy exit strategy calls for increasing the size of the force by more than 12 percent over the next decade.The force lost roughly 400 rank-and-file officers in the past half-dozen years because of budget cuts, attrition and early retirement.The officers who remain are valuable, battle-tested professionals, says Mark Diaz, head of the Detroit Police Officers Association.

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.

Children from Central America Surge Across Our Border: Congress Must Now Decide Whether to Change the Immigration Law that George W. Bush Signed in 2008 -- If you think fertilized eggs are people but refugee kids aren’t, you’re going to have to stop pretending your concerns are religious– News reports have been filled with conflicting theories explaining why tens of thousands of unaccompanied children from Honduras, El Salvador and Guatemala, have been streaming into the U.S.  Some observers say that their parents are sending them here, so that they can take advantage of the social services and free education available in the U.S. Others argue that they are not coming here willingly, but that they have been forced to flee gang violence in their home countries that ranges from murder to rape. Still others charge that President Obama’s lax immigration policy has drawn these migrants to the U.S. Unfortunately many of the reports circulating in the media and the blogosphere are not backed up by evidence. Even worse, the American Immigration Council  (AIC) says, “some are intentionally aimed at derailing the eventual overhaul of our broken immigration system.” I have been fact-checking those reports for more than two weeks.  Below, a summary of you need to know as we debate this tangled story.

Maine Gov. LePage complains: Housing eight immigrant kids is a ‘huge burden’: (Reuters) – Maine Governor Paul LePage blasted the White House on Tuesday for placing in his state eight children who tried to cross the border illegally. The administration of U.S. President Barack Obama has been struggling to find shelter for the wave of unaccompanied child immigrants from Guatemala, El Salvador and Honduras that have been arriving at the Mexican border, which is expected to reach 90,000 people by September. “It is wrong for the federal government to force a higher burden on the people of Maine to pay for those who come to our country illegally,” the Republican governor said in a statement. “We cannot become a state that encourages illegal immigration. We simply cannot afford it.”

Rick Perry to Send 1,000 Troops to Border to Fight Migrant Children and Families - Texas Governor Rick Perry announced on Tuesday that he is sending 1,000 National Guard troops to the U.S.-Mexico border to stem the tide of children and families attempting to emigrate from several Central American countries. Adj. Gen. John Nichols, commander of the Texas National Guard, said the troops would be "referring and deterring" people who are intercepted at the border, although the National Guard does have the authority under state law to make arrests. Human rights groups and Democrats said the move was politically motivated and served to further militarize the border, rather than help children who are seeking refuge in the U.S. Terri Burke, executive director of ACLU Texas, stated, "These are children who are running into the arms of the Border Patrol agents. They aren’t sneaking in... They have come to escape the violence and crime in their own countries. Yet Governor Perry insists on needlessly further militarizing our border for what can only be interpreted as a political stunt."

Central American leaders meet Barack Obama to criticise US border policy -- Three Central American leaders met President Obama on Friday to tell him that billions of dollars poured into attempting to prevent migrant children crossing the US border would be better spent addressing the root causes of the crisis in their countries. The presidents of Guatemala, Honduras and El Salvador urged the US administration to do more to combat the armed gangs and drug cartels responsible for the violence driving emigration that has seen more than 57,000 unaccompanied children from their countries arrive at the Texas border in recent months. The three leaders – Juan Orlando Hernández of Honduras, Otto Pérez Molina of Guatemala and Salvador Sánchez Cerén of El Salvador – urged the Obama administration to do more to address the destabilisation caused by cartels shipping narcotics to the American market, and to invest in more rapid economic development to relieve widespread poverty. But in comments after the meeting, Obama stuck to Washington's emphasis on a campaign to discourage what the White House called "irregular migration" with publicity campaigns and the pursuit of people smugglers. "I emphasised that the American people and my administration have great compassion for these children," he said. "But I also emphasised to my friends that we have to deter a continuing influx of children putting themselves at risk."

We’re Arresting Poor Mothers for Our Own Failures - You’ve probably heard the name Shanesha Taylor at this point. She’s the Arizona mother who was arrested for leaving her children in the car while she went to a job interview. Her story went viral thanks likely to a truly heart-wrenching, tear-stained mugshot. Taylor, who was homeless, says her babysitter flaked on her and she didn’t know what else to do while she went to a job interview for a position that would have significantly improved her family’s financial situation. You may also have heard the name Debra Harrell. She’s the South Carolina mother arrested for letting her 9-year-old daughter play in a park alone while she worked her shifts at McDonalds. Neither of these are ideal situations for children.  Whose fault is it that these children were put in these situations to begin with? These weren’t mothers doing drugs or other dangerous activities and neglecting their children; they were both mothers trying to hold down jobs to provide for their children while stuck swirling in a Catch-22. Can’t work or interview without childcare, but can’t afford childcare without a job that pays enough to cover the ever-increasing cost. Taylor and Harrell are both holding up their end of the deal: don’t rely on public assistance, go out and get work to provide for your children. Our country has reneged on its end of that deal: we’ll help you pay for someone to watch your children if you go to work.

Groups blast CPS budget as 'shortsighted,' based on gimmicks -- On the eve of the approval of Chicago Public Schools’ $5.76 billion budget for 2015, two advocacy groups on Tuesday blasted the budget in their own analyses as unsustainable, shortsighted and based on a gimmick. Both the Civic Federation, which promotes responsible government spending, and Access Living, which advocates for the disabled, said they cannot support the schools budget because it doesn’t address CPS’ structural deficit and patches over an $876 million budget hole with what the Federation called “an accounting gimmick.” “This is a shortsighted, it’s another stopgap measure, it feels like they’re playing from the State of Illinois playbook, and that’s a really dangerous place to be. They’re using gimmicks,” Civic Federation Vice President Sarah Wetmore said by telephone Tuesday. “The problem is, they don’t have access to the same broad base of revenues the state of Illinois does.”

CPS acknowledges budget issues, blames state funding, pensions - Chicago Public Schools officials today acknowledged problems with a $5.8 billion budget that relies on a one-time accounting maneuver to make ends meet, but continued to blame state funding and lack of pension reform for the district’s financial woes. Board of Education member Henry Bienen said one time fixes to close the district’s deficit of nearly $900 million could hurt the district’s bond rating and lead to higher interest rates for any bonds CPS might issue. He called the spending plan the board is expected to approve at its meeting today a “stop-gap budget.” Under questioning from board member Andrea Zopp, Chief Financial Officer Ginger Ostro acknowledged the decision to use two extra months of revenue to balance the budget for 2015 could lead to cash flow problems later in the fiscal year.

Why Poor Schools Can’t Win at Standardized Testing - This is a story about what happened when I tried to use big data to help repair my local public schools. I failed. And the reasons why I failed have everything to do with why the American system of standardized testing will never succeed. A few years ago, I started having trouble helping my son with his first-grade homework. I’m a data-journalism professor at Temple University, and when my son asked me for help on a worksheet one day, I ran into an epistemological dilemma. My own general knowledge (and the Internet) told me there were many possible “correct” answers. However, only one of these answers would get him full credit on the assignment. “I need to write down natural resources,” he told me. “Air, water, oil, gas, coal,” I replied. “I already put down air and water,” he said. “Oil and gas and coal aren’t natural resources.” “Of course they are,” I said. “They’re non-renewable natural resources, but they’re still natural resources.” “But they weren’t on the list the teacher gave in class.”

NRA’s ‘Everyone Gets A Gun’ plan: Kids must pass shooting tests to advance in school: NRA commentator Billy Johnson this week proposed that children be forced to learn shooting skills in order to graduate as part of a plan to enact “gun-required zones” in the United States, and use taxpayer money to subsidize firearm purchases. In a video titled “Everyone Gets A Gun” that was released on Monday, Johnson complains that U.S. gun policy was focused on limiting access to firearms. “As a country we have an education policy. Imagine if that policy was about limiting who has access to public education,” he argued. “I mean, let’s be honest, the danger in educating people to think is that they might actually start to think for themselves. Perhaps we should think seriously about who we give access to knowledge. They could use it to do a lot of damage.”

Buffalo Teachers Federation Backs Zephyr Teachout for Governor - -- The Buffalo Teachers Federation is backing Democrat Zephyr Teachout in this year's gubernatorial election. The union hosted a gathering for Teachout Monday night at Templeton Landing Restaurant. "I believe in New York state. I believe that New York state can have the best public schools in the country. I believe we can have an economy and democracy that works for all of us," Teachout said. Teachout is a constitutional law professor at Fordham University. That background in education has caught the union's attention. Union President Phil Rumore said many teachers in the union are upset with Gov. Andrew Cuomo's education policies. "He's taken some pretty bad advice,” Rumore said. “For example, he's pro-charter school which drains money out of the district, and allows kids, when they get kicked out of charter schools, they come back to the Buffalo public schools." Teachout said a lawyer with ties to Cuomo filed general objections to her ballot Monday, but she doesn't anticipate any issues. "We are fully ready for the challenge,” Teachout said. “We have over three times as many ballot signatures as we need, many of them from Buffalo."

Don't Send Your Kid to the Ivy League - Our system of elite education manufactures young people who are smart and talented and driven, yes, but also anxious, timid, and lost, with little intellectual curiosity and a stunted sense of purpose: trapped in a bubble of privilege, heading meekly in the same direction, great at what they’re doing but with no idea why they’re doing it. MAP: America's 10 Richest Universities Match These Countries' GDPs When I speak of elite education, I mean prestigious institutions like Harvard or Stanford or Williams as well as the larger universe of second-tier selective schools, but I also mean everything that leads up to and away from them—the private and affluent public high schools; the ever-growing industry of tutors and consultants and test-prep courses; the admissions process itself, squatting like a dragon at the entrance to adulthood; the brand-name graduate schools and employment opportunities that come after the B.A.; and the parents and communities, largely upper-middle class, who push their children into the maw of this machine. In short, our entire system of elite education. I should say that this subject is very personal for me. Like so many kids today, I went off to college like a sleepwalker. You chose the most prestigious place that let you in; up ahead were vaguely understood objectives: status, wealth—“success.” What it meant to actually get an education and why you might want one—all this was off the table. It was only after 24 years in the Ivy League—college and a Ph.D. at Columbia, ten years on the faculty at Yale—that I started to think about what this system does to kids and how they can escape from it, what it does to our society and how we can dismantle it.

The Wage Growth Gap for Recent College Grads -  SF Fed Economic Letter: Starting wages of recent college graduates have essentially been flat since the onset of the Great Recession in 2007. Median weekly earnings for full-time workers who graduated from college in the year just before the recession, between May 2006 and April 2007, were $653. Over the 12 months ending in April 2014, the earnings of recent college graduates had risen to $692 a week, only 6% higher than seven years ago. The lackluster increases in starting wages for college graduates stand in stark contrast to growth in median weekly earnings for all full-time workers. These earnings have increased 15% from $678 in 2007 to $780 in 2014. This has created a substantial gap between wage growth for new college graduates and workers overall. In this Economic Letter we put the wage growth gap in a historical context and consider what is at its heart. In particular, we find that the gap does not reflect a switch in the types of jobs that college graduates are able to find. Rather we find that wage growth has been weak across a wide range of occupations for this group of employees, a result of the lingering weak labor market recovery.

New college grads hit by slow wage growth: Fed study: New college graduates have seen their wages rise more slowly than the rest of the U.S. workforce since the Great Recession, new research from the San Francisco Federal Reserve Bank shows, a trend that reflects continued weakness in the economy. Getty Images"While this post-recession pattern was also present after the 2001 recession, earnings growth following the most recent recession has been held down longer than in the past, which reflects the depth and severity of the recession,'' wrote San Francisco Fed researchers Bart Hobijn and Lisa Benagali in the regional Fed bank's latest Economic Letter.  Employers can set the hiring conditions and wages of new workers with more freedom than they can change the wages of existing workers, the researchers argued, making the wages of recent college graduates a better indicator of the true price of labor and the underlying strength of the labor market. "Other signs of the continued weakness in the labor market are the shares of recent graduates not in the labor force, unemployed or working part-time, which are still elevated compared with the start of the recession,'' they wrote.

Recent College Graduates Have Seen Especially Sluggish Wage Growth - Recent college graduates are paying a price for entering the workforce in the shadow of a deep recession: Their wages are growing far more slowly than the U.S. average. “The wage growth gap points to continued weakness in the overall labor market,” wrote San Francisco Fed economists in an Economic Letter released Monday by the regional reserve bank. College graduates typically earn more and enjoy more job security than workers without a degree. The unemployment rate in June for workers over the age of 25 with a bachelor’s degree or higher was 3.3%, compared with 5% for all workers 25 years and older and 6.1% for all workers 16 and older, according to the Labor Department.But economists know that having the bad luck to graduate during a recession can have long-lasting consequences, including lower earnings for years to come. That’s what happened with the recession that began in December 2007 and ended in June 2009. Mr. Hobijn and Ms. Bengali analyzed median weekly earnings for recent college graduates, defined as workers with a college degree between the ages of 21 and 25. They looked at wage growth in the years since 2007, rejiggering the calendar year to match the academic year at most colleges (so 2014 is May 2013 to April 2014). From 2007 to 2014, the median weekly earnings of full-time U.S. workers rose 15%. Over the same period, the earnings of recent college graduates with full-time jobs rose just 5.9%. Both figures are unadjusted for inflation.

Record Student-Loan Debt Prompts Treasury Push to Stem Defaults -- The U.S. Treasury, which finances more than 90 percent of new student loans, is exploring ways to make repayment more affordable as defaults by almost 7 million Americans and other strapped borrowers restrain economic growth. Leading the effort is Deputy Secretary Sarah Bloom Raskin, who became the department’s No. 2 official in March after more than three years as a Federal Reserve governor. As higher-education debt swells to a record $1.2 trillion, Raskin, 53, is alert to parallels to the mortgage crisis. Back then, “we would see signs on telephones polls with 1-800 numbers urging homeowners to call to stop foreclosures. People generally got into more trouble when they used those services,” she said in an interview. Driving past the same telephone poles recently, she saw signs “urging people to call a 1-800 number for helping paying student loans.” Raskin has reason to worry: Most of those loans are backed by the federal government. In addition to trying to facilitate stronger growth, she’s focusing on the impact such debt has on government’s financing needs and ways to improve servicing and collection.

Detriot retirees back pension cuts in a landslide vote — A year after filing for bankruptcy, Detroit is building momentum to get out, especially after workers and retirees voted in favor of major pension changes just a few weeks before a judge holds a crucial trial that could end the largest public filing in U.S. history. Pension cuts were approved in a landslide, according to results filed shortly before midnight Monday. The tally from 60 days of voting gives the city a boost as Judge Steven Rhodes determines whether Detroit's overall strategy to eliminate or reduce $18 billion in long-term debt is fair and feasible to all creditors. Trial starts Aug. 14. "I want to thank city retirees and active employees who voted for casting aside the rhetoric and making an informed, positive decision about their future and the future of the city," said Kevyn Orr, the state-appointed emergency manager who has been handling Detroit's finances since March 2013. General retirees would get a 4.5 percent pension cut and lose annual inflation adjustments. They accepted the changes with 73 percent of ballots in favor. Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise. Eighty-two percent in that class voted "yes."

Detroit, Other Cash-Strapped US Cities, States Slashing Pension Benefits While Subsidizing Professional Sports Stadiums -- As U.S. states and cities grapple with budget and pension shortfalls, many are betting big on an unproven formula: Slash public employee pension benefits and public services while diverting the savings into lucrative subsidies for professional sports teams. Detroit on Monday made itself the most prominent example of this trend. Officials in the financially devastated city announced that current and future municipal retirees had blessed a plan that will slash their pension benefits. On the same day, the billionaire owners of the Detroit Red Wings, the Ilitch family, unveiled details of an already approved taxpayer-financed stadium for the professional hockey team. Many retirees now face a 4.5 percent cut in their previously negotiated cost-of-living adjustments, which is part of a larger plan to cut $7 billion of the city’s debt. At the same time, the public is on the hook for $283 million toward the new stadium after giving the Ilitches key parcels of land for $1. The budget maneuvers in Michigan are part of a larger trend across the country. As Pacific Standard reports, "Over the past 20 years, 101 new sports facilities have opened in the United States — a 90-percent replacement rate — and almost all of them have received direct public funding." Now, many of those subsidies are being effectively financed by the savings accrued from pension cuts. The officials promoting these twin policies argue that boosting stadium development effectively promotes broad economic growth. But many calculations rely on controversial and dubious assumptions that have been widely challenged.

Coming to a shore town near you? Inside New Jersey's pension crisis: Gov. Chris Christie (R) says the Garden State's pension system—which is expected to hit more than $54 billion in unfunded liabilities by fiscal year 2018—needs to be fixed because it's unsustainable long-term. Christie's office now has launched a public relations campaign to raise awareness about the looming financial crisis, unless something is done. Nationwide, dozens of cities and states are facing pension problems, according to a recent report from the Pew Center. But Detroit, Michigan and New Jersey are front and center on the debate. New Jersey's crisis, in fact, goes back decades, and the situation only has worsened in recent years. This despite the enactment of several laws to reform New Jersey's system in 2010, including requiring public workers and taxpayers to chip in more. New Jersey this year faced an $807 million budget shortfall. State Democrats had proposed raising taxes on high-income earners and businesses to fill the gap. But Christie chose to cut two legally required pension payments to a combined level of $1.38 billion from $3.8 billion. Those cuts aren't enough though, according to Christie, so he has promised to introduce more reforms later this year. Christie told a radio audience in June that the state is meeting its current obligations, but won't be able to meet the state's pension and health-care commitments to its 700,000 active enrollees and retirees long term. He said his promise of reform is to avoid the same problems that have plagued Detroit, which is working to exit Chapter 9 bankruptcy.

First Look at 2015 Cost-Of-Living Adjustments and Maximum Contribution Base - The BLS reported this morning: The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.0 percent over the last 12 months to an index level of 234.702 (1982-84=100). For the month, the index rose 0.2 percent prior to seasonal adjustment. CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA). Since the highest Q3 average was last year (Q3 2013), at 230.327, we only have to compare to last year.  This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year. Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year). CPI-W was up 2.0% year-over-year in June, and although this is very early - we need the data for July, August and September - my current guess is COLA will be higher than the previous two years, and will probably be a little over 2% this year.

White House 'Quietly' Exempts 4.5 Million People In 5 "Territories" From Obamacare -- As WSJ reports, last week's geopolitical chaos and distraction was ideal for a news dump, and the White House didn't disappoint: On no legal basis, all 4.5 million residents of the five U.S. territories were quietly released from ObamaCare. It seems the costs of healthcare soared in these five territories due to uneconomic mandates - which woul dhave been a disaster PR-wise for the administration and so, under cover of catastrophe, WSJ reports all of a sudden last week HHS discovered new powers after "a careful review of this situation and the relevant statutory language," that enabled them to 'selectively exempt' American Samoa, Guam, Puerto Rico, Northern Mariana Islands, and Virgin Islands from Obamacare. And all while vacationing...

Even After Open Enrollment, Activity Remains Unexpectedly High on Federal Health Insurance Exchange - For months, journalists and politicians fixated on the number of people signing up for health insurance through the federal exchange created as part of the Affordable Care Act. It turned out that more than 5 million people signed up using by April 19, the end of the open-enrollment period. But perhaps more surprising is that, according to federal data released Wednesday to ProPublica, there have been nearly 1 million transactions on the exchange since then. People are allowed to sign up and switch plans after certain life events, such as job changes, moves, the birth of a baby, marriages and divorces. The volume of these transactions was a jolt even for those who have watched the rollout of the ACA most closely. "There are a lot of people who qualify for special enrollment, but my assumption has been that few of them would actually sign up."  Even though open enrollment has ended, enrollment and plan changes continue on the federal health insurance exchange, which covers 36 states. Before enrollment deadline After enrollment deadline Note: This data covers health insurance transactions on the federal exchange through July 15. It includes both new enrollments, cancellations and plan changes. The open enrollment cycle drew to a close on April 19. Source: Centers for Medicare and Medicaid ServicesThe impact of the new numbers isn't clear because the Obama administration has not released details of how many consumers failed to pay their premiums and thus were dropped by their health plans. All told, between the federal exchange and 14 state exchanges, more than 8 million people signed up for coverage. A big question is whether new members will offset attrition.

Appeals Court Strikes Down Federal Exchange Subsidies for Obamacare - A federal appeals court panel in the District struck down a major part of the 2010 health-care law Tuesday, ruling that the tax subsidies that are central to the program may not be provided in at least half of the states. The ruling, if upheld, could potentially be more damaging to the law than last month’s Supreme Court decision on contraceptives. The three-judge panel of the D.C. Circuit Court of Appeals sided with plaintiffs who argued that the language of the law barred the government from giving subsidies to people in states that chose not to set up their own insurance marketplaces. Twenty-seven states, most with Republican leaders who oppose the law, decided against setting up marketplaces, and another nine states partially opted out. Related: Court Challenges to Subsidies Threaten Obamacare The government could request an “en banc” hearing, putting the case before the entire appeals court, and the question ultimately may end up at the Supreme Court. But if subsidies for half the states are barred, it represents a potentially crippling blow to the health-care law, which relies on the subsidies to make insurance affordable for millions of low- and middle-income Americans.

In Potentially "Lethal Blow" For Obamacare, US Appeals Court Finds Insurance Subsidies Invalid In Most States - Moments ago, in what NBC classified as a "potentially lethal blow to Obamacare" a federal appeals court has ruled that the federal government may not subsidize health insurance plans bought by people in states that decided not to set up their own marketplaces under Obamacare. The law clearly says that states are to set up the exchanges. But 34 states opted not to, and the federal government took over in those states. The court ruled that federal government may not pay subsidies for insurance plans in those states. As the Hill reports further, the D.C. Circuit Court of Appeals said the Affordable Care Act does not permit the IRS to distribute premium subsidies in the federal ObamaCare exchange, meaning those consumers must bear the  full cost of their insurance.

Courts Issue Conflicting Rulings on Health Care Law. Two federal appeals court panels issued conflicting rulings Tuesday on whether the government could subsidize health insurance premiums for people in three dozen states that use the federal insurance exchange. The decisions are the latest in a series of legal challenges to central components of President Obama’s health care law. The United States Court of Appeals for the Fourth Circuit, in Richmond, upheld the subsidies, saying that a rule issued by the Internal Revenue Service was “a permissible exercise of the agency’s discretion.” The ruling came within hours of a 2-to-1 ruling by a panel of the United States Court of Appeals for the District of Columbia Circuit, which said that the government could not subsidize insurance for people in states that use the federal exchange. That decision could potentially cut off financial assistance for more than 4.5 million people who were found eligible for subsidized insurance in the federal exchange, or marketplace. Under the Affordable Care Act, the appeals court here said, subsidies are available only to people who obtained insurance through exchanges established by states. The law “does not authorize the Internal Revenue Service to provide tax credits for insurance purchased on federal exchanges,” said the ruling, by a three-judge panel in Washington. The law, it said, “plainly makes subsidies available only on exchanges established by states.”

New Questions on Health Law as Rulings on Subsidies Differ - Two federal appeals court panels issued conflicting rulings Tuesday on whether the government could subsidize health insurance premiums for millions of Americans, raising yet more questions about the future of the health care law four years after it was signed by President Obama.The contradictory rulings will apparently have no immediate impact on consumers. But they could inject uncertainty, confusion and turmoil into health insurance markets as the administration firms up plans for another open enrollment season starting in November.  By a vote of 2 to 1, a panel of the United States Court of Appeals for the District of Columbia Circuit struck down a regulation issued by the Internal Revenue Service that authorizes the payment of premium subsidies in states that rely on the federal insurance exchange. If it stands, the ruling could cut off financial assistance for more than 4.5 million people who were found eligible for subsidized insurance in the federal exchange, or marketplace. It could also undercut enforcement of the requirement for most Americans to have insurance and the requirement for larger employers to offer it to their full-time employees. Critics of the law, who said the ruling in Washington vindicated their opposition to it, did not have much time to celebrate. Within hours, a unanimous three-judge panel of the United States Court of Appeals for the Fourth Circuit, in Richmond, Va., issued a ruling that came to the opposite conclusion. The Fourth Circuit panel upheld the subsidies, saying the I.R.S. rule was “a permissible exercise of the agency’s discretion.” The language of the Affordable Care Act on this point is “ambiguous and subject to multiple interpretations,” the Fourth Circuit panel said, so it gave deference to the tax agency.

Still confused about the latest Obamacare lawsuits? Let Jon Stewart explain. - Jon Stewart nails the absurdity of Tuesday's federal court ruling that Obamacare subsidies are illegal in 36 states. In order to arrive at that conclusion, you need to strip a few words of text away from the rest of the law, examine them hyper-literally and in isolation, and never, ever consider the overwhelming evidence provided by every other word in the statute: Stewart commended the justices on getting past stop signs the morning of the decision. "Until the law expressly provides a 'go' sign, we can in no way ascertain the intent of the framers of the sign. Surely the people honking behind me appreciate the rigor of my judicial acumen." Stewart is correct when he says that the opinions in the two courts split cleanly across partisan lines. In the D.C. Circuit, two Republican-appointed judges ruled that subsidies are illegal, and the lone Democrat-appointed judge on that panel dissented from the decision. The Fourth Circuit upheld subsidies, and — not coincidentally — all three judges on that panel were appointed by Democrats.

Rewriting History on Doctor Shortages: Protectionists Bury the Bodies -- Dean Baker -- Earlier in the week the NYT had an editorial decrying the shortage of doctors and proposing routes to address it. (Strangely, bringing in more foreign doctors was not on the list.) Today the paper ran a number of letters responding to the editorial including one from president of the American Medical Association (A.M.A.) discussing its heroic efforts to alleviate the doctor shortage. This is opposite to the reality.  The A.M.A has long supported measures to restrict the number of doctors in order to ensure that the overwhelming majority earn salaries that put them in the top 1-2 percent of workers. This fact can be discovered simply by reading through past New York Times articles. For example, a 1997 article carried the headline "Doctors Assert There are Too Many of Them." This article reported on the complaints of doctors' organizations: "'The United States is on the verge of a serious oversupply of physicians,' the A.M.A. and five other medical groups said in a joint statement. 'The current rate of physician supply -- the number of physicians entering the work force each year -- is clearly excessive.' "The number of medical residents, now 25,000, should be much lower, the groups said. While they did not endorse a specific number, they suggested that 18,700 might be appropriate." Another article, headlined "U.S. to Pay New York Hospitals not to Train Doctors, Easing Glut," told readers of a plan:"Just as the Federal Government for many years paid corn farmers to let fields lie fallow, 41 of New York's teaching hospitals will be paid $400 million to not cultivate so many new doctors, their main cash crop.

A Dearth of Investment in Much-Needed Drugs - NYT -- There is clearly something wrong with pharmaceutical innovation. Antibiotic-resistant infections sicken more than two million Americans every year and kill at least 23,000. The World Health Organization has warned that a “post-antibiotic era” may be upon us, when “common infections and minor injuries can kill.” Even the world’s tycoons consider the proliferation of antibiotic-resistant bacteria one of the crucial global risks of our times, according to a survey by the World Economic Forum. Yet the enthusiasm of the pharmaceutical industry for developing drugs to combat such a potential disaster might be best characterized as a big collective “meh".   No major new type of antibiotic has been developed since the late 1980s, according to the W.H.O. From 2011 to 2013, the Food and Drug Administration approved o nly three new molecular entities to combat bacterial diseases — the lowest rate since the 1940s. “No sane company will develop the next antibiotic,” said Michael S. Kinch, who led a team at the Yale Center for Molecular Discovery tracking the evolution of pharmaceutical innovation over the last two centuries. And this is hardly the drug industry’s only problem. Antibiotics, Professor Kinch told me, “are the canary in the coal mine.” So far this decade, the F.D.A. has approved drugs at a pace second only to the 1990s. In 2012, the FDA approved 37 new drugs, the most in 15 years. But the economics of the drug development, argues Professor Kinch, who in July was appointed associate vice chancellor of the University of Washington in St. Louis, are not conducive to creating the highest levels of public health.

Possible Epidemic? The Chikungunya Virus Is Starting To Spread In America -  Cases of the chikungunya virus are appearing in the United States at a level that is far higher than anything health officials have seen in recent years, and now there are two confirmed cases of people that have not even traveled out of the country getting the virus. That means that the chikungunya virus is starting to spread in America, and once it starts spreading it is really hard to stop. Fortunately, the U.S. has not really been affected by this disease in recent years, but an epidemic has already been declared in Puerto Rico, and some experts are now saying that it is only a matter of time before we see one in the United States.  You do not want to get the chikungunya virus.  According to Slate, the name of this virus “comes from a Makonde word meaning ‘that which bends up,’ referring to the contortions sufferers put themselves through due to intense joint pain.”  That does not sound fun at all.

Ebola Victim On The Run In West Africa Capital - It's gone from bad (Mapping Africa's "Totally Out Of Control" Ebola Epidemic)  to worse, (Head Doctor Fighting Africa's "Out Of Control" Ebola Epidemic Contracts The Virus), to much worse (Liberian Man Tested For Ebola In World's Fourth Most Populous City), to having run out of comparaitves - although we are leery of using a superlative just yet as we have a feeling Africa's Ebola's epidemic will deteriorate before it gets better. But the latest news is bad enough: as Reuters reported moments ago, Sierra Leone officials appealed for help on Friday to trace the first known resident in the capital with Ebola whose family forcibly removed her from a Freetown hospital after testing positive for the deadly disease.

China Seals Off Yumen City After Outbreak Of Bubonic Plague - With Colorado suffering from pneumonic plague, and the dreadfully sad report of Sierra Leone's chief Ebola doctor contracting the virus, it appears China is taking no chances. As Yahoo reports, Chinese officials have blocked off parts of Yumen, a city in northwest China, preventing about 30,000 of the city's people from leaving after one resident died from bubonic plague. About 150 people who had contact with the plague victim have been placed under quarantine but US experts are perplexed at the response, "there's something here that we don't know, because this seems a very expansive response to just one case."

Two-Thirds Of Chinese Consumers No Longer Trust Western Fast-Food As "Meat Scandal" Spreads Across Asia -- As if the Chinese meat scandal was not a big enough concern for Western fast-food firms, The WSJ reports that the crisis is spreading across Asia as Yum Brands and McDonalds sever links with US-owned Shanghai Husi Food Company, which is accused of selling expired beef and chicken, pulling supplies of chicken from restaurants in Japan. Perhaps even more worrisome for American fast-food companies who have expanded aggressively and over-hyped the growth opportunities in China, a second Sina survey started yesterday, featuring 25,000 respondents, found 77% believed the restaurant brands affected had been aware of Husi’s faulty practices, while 69% said they would no longer dine at the restaurants run by the Western companies.

Court Rules Rampant Misuse of Antibiotics on Factory Farms Can Continue -- Despite U.S. Food and Drug Administration (FDA) scientific findings that the misuse of antibiotics in farm animals threatens human health from “superbugs,” business will continue as usual. Yesterday, in a 2-1 decision, the U.S. Second Circuit Court of Appeals ruled that the FDA does not need to consider banning the routine feeding of antibiotics to healthy animals despite the agency’s findings that this misuse of antibiotics fundamentally threatens the effectiveness of medicines in both humans and animals. “This decision allows dangerous practices known to threaten human health to continue,” said Avinash Kar, attorney with Natural Resources Defense Council (NRDC). “Adding antibiotics to farm animals’ feed, day after day, is not what the doctor ordered and should not be allowed.”The court’s ruling overturned two 2012 district court rulings in cases brought by NRDC, Center for Science in the Public Interest, Food Animal Concerns Trust, Public Citizen and Union of Concerned Scientists. The earlier rulings directed the FDA to halt the regular use of penicillin and tetracyclines in animal feed for healthy animals until drug manufacturers could prove the safety of this practice.

Bee Killing Insecticides Widespread in Upper Midwest - Insecticides similar to nicotine, known as neonicotinoids, were found commonly in streams throughout the Midwest, according to a new USGS study. This is the first broad-scale investigation of neonicotinoid insecticides in the Midwestern United States and one of the first conducted within the United States. Effective in killing a broad range of insect pests, use of neonicotinoid insecticides has dramatically increased over the last decade across the United States, particularly in the Midwest.  The use of clothianidin, one of the chemicals studied, on corn in Iowa alone has almost doubled between 2011 and 2013. “Neonicotinoid insecticides are receiving increased attention by scientists as we explore the possible links between pesticides, nutrition, infectious disease, and other stress factors in the environment possibly associated with honeybee dieoffs.” said USGS scientist Kathryn Kuivila, the research team leader. Neonicotinoid insecticides dissolve easily in water, but do not break down quickly in the environment. This means they are likely to be transported away in runoff from the fields where they were first applied to nearby surface water and groundwater bodies. In all, 9 rivers and streams, including the Mississippi and Missouri Rivers, were included in the study. The rivers studied drain most of Iowa, and parts of Minnesota, Montana, Nebraska, North Dakota, South Dakota, and Wisconsin. These states have the highest use of neonicotinoid insecticides in the Nation, and the chemicals were found in all 9 rivers and streams.

When McDonalds China Can't Serve Burgers...'s like Amazon without books to sell. A colleague in China posted the picture above to his social media account in the wake of Chinese food supplier Shanghai Husi being found to have relabeled the expiration date of its meat products. Upping the visibility and impact of its food safety violations, it sold these products to several major Western food chains. We usually believe that tampering with food products is common among PRC firms and not Western ones who would think more carefully about tarnishing their reputations for a bit more profit, but this instance depicts the opposite: Shanghai Husi is a subsidiary of the OSI Group of America, a private meat processing concern headquartered in Aurora, Illinois of Wayne's World fame. You can't get more American than that.  With an already lengthy history of food scares, there was no other option for the Chinese authorities other than to disrupt the food supply chain to these chains:  Authorities suspended operations at Shanghai Husi, a unit of Aurora, Illinois-based OSI Group, after the local Dragon TV channel reported on July 20 its workers repackaged and sold chicken and beef past the sell-by date. The probe may affect chains such as McDonald’s, Yum’s KFC and Pizza Hut, Papa John’s International Inc. (PZZA) and Burger King Worldwide Inc. (BKW), which said they had bought and have since removed items from the supplier.

Shake-Up on Opium Island - Now is the sowing season for opium poppies in the Australian state of Tasmania. . By November, the fields will be carpeted in pink flowers with an occasional splash of white or mauve. Then the flowers will drop away, leaving behind distinctive, cup-shaped pods packed with tiny poppy seeds along with the opium latex that surrounds them. When the latex dries two months later, the pods are harvested and hauled to factories, where machinery separates the seeds and grinds up the rest to extract the valuable narcotic alkaloids. Tasmania, an island off Australia’s southern coast, is the start of a global supply chain that encompasses the biggest drug companies and produces $12 billion a year of opiate painkillers.  Nearly a half-century of assiduous plant breeding, a gentle climate and tight regulations have given Tasmania a hammerlock on production of one of the pharmaceutical industry’s most important raw materials. Tasmania, which is about the size of West Virginia, grows about 85 percent of the world’s thebaine, an opium poppy extract used to make OxyContin and a family of similarly powerful prescription drugs that have transformed pain management over the last two decades. It produces all of the world’s oripavine, another extract, which is used to treat heroin overdoses and shows promise in controlling other addictions. Tasmania also accounts for a quarter of the world’s morphine and codeine, two older painkillers from opium poppies that are still widely used, particularly outside North America.

Europe faces cereals crop crash from drought and higher temperatures  - Two new studies raise concerns that Europe’s wheat and barley yields could be heading for a serious fall as a result of temperature rise and an increase in extreme weather.  Harvests of wheat and barley across Europe could be 20% lower by 2040 as average temperatures rise by 2 °C. And by 2060, European farmers could be facing very serious losses. As the likelihood of weather extremes increases with temperature, the consequences of lower yields will be felt around the world. Europe produces, for example, 29% of the world’s wheat. Two consecutive studies in Nature Climate Change examine the challenges faced by the farmers − the first of the reports being by a team led by Miroslav Trnka, of the Czech Global Change Research Centre in Brno.  They considered the impact of changing conditions in 14 very different wheat growing zones − from the Alpine north to the southern Mediterranean, from the great plains of Northern Europe to the baking uplands of the Iberian peninsula, and from the Baltic seascapes of Denmark to the fertile flood plains of the Danube. It is a given that farmers are at the mercy of the weather, and that crops are vulnerable to unseasonal conditions. But a rise in average temperatures of 2 °C is likely to increase the frequency of unfavourable conditions.

The World is Drowning in Corn – Kay McDonald - Again and again we see that in agricultural commodities like corn, the best cure for high prices is high prices. The U.S.’s rapid ramp up in ethanol production created a sudden demand for corn, but now five to six years out, we, along with the rest of the world, have responded by producing more corn to cash in on the high corn prices of recent years. Now, with low corn prices, ethanol producers will be more profitable and even Brazil, the king of sugar cane ethanol production, is considering turning more of their corn crop into corn ethanol.  Global corn stocks are forecast to rise to the highest level in 15 years by the end of 2014/15 (September/August), leading to downward pressure on U.S. and global corn prices. Stocks fell to relatively low levels during 2003/04-2006/07, prior to the 2008 spike in world commodity prices, but are now forecast to reach 188.1 million tons in 2014/15, just 3 percent below the recent high of 194.4 million tons in 1999/2000. Since 2008/09, world corn production has exceeded total consumption in 5 out of 7 years.  In addition to the United States and China—the two largest global producers and consumers of corn—production and stocks have been generally rising in Brazil, Russia, and Ukraine—countries that are also playing an expanding role as corn exporters. With a second consecutive above trend U.S. corn harvest forecast for 2014/15, the United States is expected to account for most of the 8-percent increase in global corn stocks forecast in 2014/15.

Kudzu That Ate U.S. South Heads North as Climate Changes -- As the climate warms, the vine that ate the U.S. South is starting to gnaw at parts of the North, too. Kudzu, a three-leafed weed first planted in the U.S. more than 100 years ago for the beauty of its purple blossoms, has beenspotted in every county in Georgia,Alabama and North Carolina. It chokes young trees, brings down power lines and infests abandoned homes. Now the plant, which can grow as fast as a foot (30 cm) per day, is creeping northward, wrapping itself around smokestacks in Ohio, overwhelmingIllinois backyards and even jumping Lake Erie to establish a beachhead in Ontario,Canada. The invasive plant costs U.S. property owners about $50 million per year in eradication, according to the Nature Conservancy. Other estimates are 10 times higher. Agronomists and landscapers fear what the U.S. Department of Agriculture’s Lewis Ziska calls the star of “a bad 1950s science-fiction plant movie” will continue to expand its role, making a nuisance and carrying a disease devastating to soybeans. Climate change is partly to blame, Ziska said, with the average U.S. temperature rising as much as 1.9 degrees Fahrenheit since 1895, most of that since 1970, according to the National Climate Assessment issued by the White House in May. “The one thing that’s kept these invasives in check has always been cold weather,” said Ziska, a plant physiologist at the USDA’s Agricultural Research Service in Beltsville, Maryland. “As the winters warm as a result of a changing climate, that more or less opens up a Pandora’s box of where these invasives can show up in the future.”

NOAA: Global temperature reaches record high in June, following record warmth in May - According to NOAA scientists, the globally averaged temperature over land and ocean surfaces for June 2014 was the highest for June since record keeping began in 1880. It also marked the 38th consecutive June and 352nd consecutive month with a global temperature above the 20th century average. The last below-average global temperature for June was in 1976 and the last below-average global temperature for any month was February 1985. Most of the world experienced warmer-than-average monthly temperatures, with record warmth across part of southeastern Greenland, parts of northern South America, areas in eastern and central Africa, and sections of southern and southeastern Asia. Similar to May, scattered sections across every major ocean basin were also record warm. Notably, large parts of the western equatorial and northeastern Pacific Ocean and most of the Indian Ocean were record warm or much warmer than average for the month. A few areas in North America, Far East Russia, and small parts of central and northeastern Europe were cooler or much cooler than average. This monthly summary from NOAA's National Climatic Data Center in Asheville, NC, is part of the suite of climate services NOAA provides to government, the business sector, academia and the public to support informed decision making.

Planet’s Hottest June On Record Follows Hottest May -- Last month was the warmest June since records began being kept in 1880, the National Oceanic and Atmospheric Administration (NOAA) reported Monday. That follows the warmest May on record.  As the map shows, the oceans were particularly warm. In fact, NOAA reports: The June global sea surface temperature was 0.64°C (1.15°F) above the 20th century average of 16.4°C (61.5°F), the highest for June on record and the highest departure from average for any month. Another worrisome piece of news from NOAA: “Parts of Greenland were record warm during June. According to the Danish Meteorological Institute (DMI), Kangerlussuaq in southwestern Greenland recorded its record highest maximum June temperature of 23.2°C (73.8°F) on June 15.” If we don’t reverse emissions trends ASAP, then it’s a question of when, not if, the Greenland ice sheet passes the point of no return for catastrophic, irreversible melt. NOAA’s report matches that of the Japan Meteorological Agency (JMA) which said that last month was the hottest June on record. They had previously reported it was the hottest May on record. NASA has reported it was the third warmest June on record in their dataset, but the hottest May on record. These records all 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.

Six Months In and Sizzling California Sets Record - California just finished the hottest first half year on record, a period going back 120 years, according to the national climate overview for June released by the National Oceanic and Atmospheric Administration (NOAA). The statewide average temperature for the period was 58°F, or 4.8°F above the 20th century average. That bests the previous warmest January-June in 1934 by 1.1°F — a substantial difference, said Jake Crouch, a climate scientist with NOAA’s National Climatic Data Center.The record exemplifies a temperature pattern that has held across the country for much of the year, with above-average temperatures in the West and below average in the East. The pattern has kept monthly average temperatures for the entire U.S. -- as well as the average temperature for the year-to-date -- in the middle of the pack record-wise, but has contributed to the stunning drought that has propagated across California.And though temperatures across the U.S. as a whole haven’t set any records this year, the global average has been a different story. The year through May was the fifth warmest on record, according to NOAA data, which ranked May as the warmest on record, as did NASA and the Japan Meteorological Agency (JMA). Preliminary NASA data suggests that June 2014 will come in as the third warmest June on record, while the JMA ranks it as the warmest in their temperature records. (Different agencies process temperature data using slightly different methods, but the differences between rankings are very small.)

California's Drought Turning the State Brown, NASA Images Show -The long-term drought cutting off California's water supply continues to parch the state, and even NASA can see it now. With the entire state now in severe drought, NASA's Aqua satellite took a picture of California to compare the terrain with a similar image taken on July 2, 2011. In the image above, you can first see the picture acquired June 24, then the 2011 shot. In 119 years of records, 2013 was the driest calendar year for California, and the drought has only worsened in 2014, according to NASA.  “The American West and Southwest are definitely on the ropes,” said Bill Patzert, climatologist at NASA’s Jet Propulsion Laboratory, in the NASA report. “Even with a possible El Niño lurking in the tropical Pacific, there is no quick fix to this drought. It will take years of above-average rainfall to recover, and dramatic restrictions on water usage to maintain California’s economy. The time to tighten our water conservation belts is now.” In the animated image, California's Central Valley appears to have lost much of its plant life, as the green portion in the middle of the image has thinned in the last three years. Also, it's important to note how much of the brown shading in western California has turned a lighter shade – likely signifying dried-out lakes and parched soil.

Calif. OKs $500 fines for wasting water: California water regulators Tuesday approved fines for washing cars, watering lawns or hosing down sidewalks after revised figures showed that residents have increased consumption despite calls for big cutbacks amid the state's severe drought. They are the first emergency conservation measures passed to try to force Californians to wake up to the three-year-long dry spell, the worst in decades. Though Gov. Jerry Brown had urged a voluntary 20% reduction in water use, figures released last month indicated a drop of only 5% statewide for the year. But the State Water Resources Control Board on Tuesday updated the monthly survey from water districts to show that consumption had increased 1% in May compared with a year ago. Based on the initial figures, the board last week proposed banning watering lawns, washing cars or sidewalks and running fountains, with violators facing fines up to $500 a day. On Tuesday evening, the board adopted those measures. Police will have the authority to ticket water-wasters. "Not everybody in California understands how bad this drought is ... and how bad it could be,"  "There are communities in danger of running out of water all over the state." Should the restrictions and fines prove inadequate, Marcus said, other steps could include even tighter rules for landscaping and possibly higher rates for wasteful consumers. Water agencies may also be required to fix their leaking pipes, which waste about 10% of all water used.

Food Inflation Watch: California Farmers' Water Costs Surge 700% After Government Cuts Supply -- When we reported on the government's decisiosn to withhold irrigation water to California for the first time in 54 years, we warned there would be consequences: farmers are hit hardest as "they're all on pins and needles trying to figure out how they're going to get through this." Fields will go unplanted (supply lower mean food prices higher), or farmers will pay top dollar for water that's on the market (and those costs can only be passed on via higher food prices). Sure enough, as Bloomberg reports, farmers in California’s Central Valley, the world’s most productive agricultural region, are paying as much as 10 times more for water than they did before the state’s record drought cut supply.

Lake Mead Before and After the Epic Drought - A new study jointly released Thursday by NASA and the University of California at Irvine paints a shocking picture for the future of Western water. Using a satellite designed to track changes in groundwater, the research team found that the Colorado River basin—which supplies water to 40 million people in seven states—lost 15.6 cubic miles of freshwater in the last 10 years. More than 75 percent of that loss came due to excessive groundwater pumping. It’s the first study to quantify just how big a role the overuse of groundwater plays in dwindling water resources out West. An accompanying map shows the striking impact of long-term drought in the fastest growing part of the United States. From Texas to California, the new research backs increasingly pressing efforts to limit groundwater pumping and renegotiate water rights in an era of global warming. "We don't know exactly how much groundwater we have left, so we don't know when we're going to run out," said Stephanie Castle of UCI, the study's lead author, in a press release. "This is a lot of water to lose. We thought that the picture could be pretty bad, but this was shocking."  Nowhere is the drop in the Colorado River more apparent than in the Hoover Dam’s Lake Mead. Earlier this month, Lake Mead set a new all-time record low. To memorialize the event, photographer Ethan Miller set out to take a series of “after” photos to complement pictures he took in July 2007. When you compare the two sets, the result is nothing short of stunning.

Groundwater Disappearing Much Faster Than Lake Mead in Colorado River Basin -- The mineral-stained canyon walls and the plunging water levels at Lake Mead, the nation’s largest reservoir, are the most visible signs of the driest 14-year period in the Colorado River Basin’s historical record. But the receding shorelines at the Basin’s major reservoirs—including Lake Mead, which fell to a record-low level this month, and Lake Powell, the second largest reservoir on the Colorado, 290 kilometers (180 miles) upstream from Mead—are an insignificant hydrological change compared to the monumental disruption taking place underground. Satellite data show that in the last nine years, as a powerful drought held fast and river flows plummeted, the majority of the freshwater losses in the Basin—nearly 80 percent—came from water pumped out of aquifers. The decrease in groundwater reserves is a volume of water equivalent to one and a half times the amount held in a full Lake Mead, according to a study published today in the journal Geophysical Research Letters.

USGS: Groundwater pumping depleting aquifer below Albuquerque metropolitan area  — Groundwater pumping has produced significant changes in water levels below some parts of the Albuquerque metropolitan area, according to two new reports published by the U.S. Geological Survey.  For many decades, the water supply requirements of the Albuquerque metropolitan area in central New Mexico were met almost exclusively by groundwater withdrawal from the Santa Fe Group aquifer system.  Reliance on groundwater led to variable responses in groundwater levels across the area, with declines in some areas exceeding 120 feet below predevelopment water level conditions.  “We observed that over time the way groundwater moved and where it was present changed significantly,” said USGS hydrologist Rachel Powell, lead author of the report Estimated 2012 groundwater potentiometric surface and drawdown from predevelopment to 2012 in the Santa Fe Group aquifer system in the Albuquerque metropolitan area, central New Mexico.  “Groundwater used to flow roughly parallel to the Rio Grande valley, but now it moves away from the Rio Grande and towards clusters of water supply wells in the east, north, and west parts of the metropolitan area.”

Drought drains critical US water supply - A huge volume of fresh water has disappeared from the drought-struck south west of the US in the past decade in what researchers say is a startling sign of the fragility of one of the country’s most important water supplies. Almost 65 cubic kilometres of water has been lost since late 2004 from the Colorado River Basin, an area roughly the size of France that is a vital but heavily used source of water for more than 30m people and 4m acres of farmland. The amount lost was nearly double the volume of the Colorado River’s Lake Mead, the largest man-made reservoir in the US, according to a study by scientists using data from Nasa satellites that can measure changes in water levels. “This is a lot of water to lose. We thought that the picture could be pretty bad, but this was shocking,” said the study’s lead author, Stephanie Castle, a water resources specialist at the University of California, Irvine. More than 75 per cent of the loss was due to the rapid depletion of groundwater from underground aquifers that many farmers depend on for irrigation, especially during droughts like the one that has afflicted parts of the south west for the last 14 years. The researchers found the rate of decline of groundwater, much of which is non-renewable and poorly managed, was roughly six times greater than the losses in Lake Mead and Lake Powell, another large reservoir further upstream on the Colorado River. “Groundwater is already being used to supplement the gap between surface water supply and basin water demands,”

Satellite study indicates groundwater losses putting Southwest supply in jeopardy  – A new study based on NASA satellite measurements reveals what researchers called a shocking loss of groundwater in the Southwest's largest river basin. The study released Thursday by NASA and the University of California, Irvine says the Colorado Basin has lost enough water since 2004 to supply more than 50 million households for a year. It says more than 75 percent of that loss is groundwater.  The basin supplies water to about 40 million people in seven states as well as people in Mexico. Lead author Stephanie Castle and fellow researchers say the losses raise further questions about the long-term sustainability of the basin's water supplies to the Southwest and Mexico. The basin encompasses parts of California, Arizona, Colorado, New Mexico, Nevada, Utah, and Wyoming.

'Shocking' underground water loss in US drought  -- A major drought across the western United States has sapped underground water resources, posing a greater threat to the water supply than previously understood, scientists said Thursday. The study involves seven western states—including Arizona, Colorado, Utah, Wyoming, California, New Mexico and Nevada—in an area known as the Colorado River Basin. Since 2000, the region has seen the driest 14-year period in a century, and researchers now say three quarters of the water loss has come from underground. The total amount of water loss is almost double the volume of the nation's largest reservoir, Nevada's Lake Mead, said the study in the journal Geophysical Research Letters. From 2004 to 2013, satellite data has shown that the basin lost nearly 53 million acre feet (65 cubic kilometers) of freshwater, it said. "This is a lot of water to lose. We thought that the picture could be pretty bad, but this was shocking," said lead study author Stephanie Castle, a water resources specialist at the University of California, Irvine. "We don't know exactly how much groundwater we have left, so we don't know when we're going to run out," added Castle.

Water reserves in western US being drained underground – NASA study — As droughts have ravaged the western US for over a decade, much of the water loss has come from underground resources in the Colorado River Basin, a new study has found. The water loss may pose a greater threat to the West than previously thought. The study by NASA and the University of California, Irvine found that more than 75 percent of the water loss in the drought-stricken Colorado River Basin since late 2004 came from underground resources. It is the first time researchers have quantified the amount that groundwater contributes to the water needs of western states, NASA said. The research team measured the change in water mass monthly from December 2004 to November 2013, using data from NASA's Gravity Recovery and Climate Experiment (GRACE) satellite mission to track changes in the mass of the Colorado River Basin. Changes in water mass are related to changes in water amount on and below the surface. Image by University of California Center for Hydrologic ModelingIn the nine-year study, the basin – which covers Wyoming, Utah, Colorado, New Mexico, Nevada, Arizona and California – lost nearly 53 million acre feet (65 cubic kilometers) of freshwater, almost double the volume of the nation's largest reservoir, Nevada's Lake Mead. More than three-quarters of the total – about 41 million acre feet (50 cubic kilometers) – was from groundwater, according to a statement by NASA on the project. "We don't know exactly how much groundwater we have left, so we don't know when we're going to run out,"

States, Cities Get Creative About Recycling Water: Overwhelmed by severe drought, the Oklahoma legislature passed a law this year to help communities make the most of their water resources by treating and reusing wastewater. As drought spread over 80 percent of the state, Oklahoma cities expressed interest in reusing water but lacked clear guidance from the Department of Environmental Quality on how to do it. A bill signed by Republican Gov. Mary Fallin at the end of May directs the state agency to design a process for creating water reuse projects and to establish rules and permitting requirements. “Oklahoma is challenged, not just today but looking down the road,” said state Sen. Rob Standridge, who sponsored the bill along with fellow Republican Rep. Scott Martin. “Water is turning into an extremely important natural resource. It’s hard to envision a plan that doesn’t require some type of reuse.” Oklahoma is one of many states reusing wastewater to address water shortages. The practice isn’t new — California began reusing wastewater in the early 1900s — but it is increasingly popular as huge swaths of the U.S. struggle with drought.

Australia drying caused by greenhouse gases, study shows --  NOAA scientists have developed a new high-resolution climate model that shows southwestern Australia's long-term decline in fall and winter rainfall is caused by increases in humanmade greenhouse gas emissions and ozone depletion, according to research published today in Nature Geoscience. NOAA researchers conducted several climate simulations using this global climate model to study long-term changes in rainfall in various regions across the globe. One of the most striking signals of change emerged over Australia, where a long-term decline in fall and winter rainfall has been observed over parts of southern Australia. Simulating natural and humanmade climate drivers, scientists showed that the decline in rainfall is primarily a response to humanmade increases in greenhouse gases as well as a thinning of the ozone caused by humanmade aerosol emissions. Several natural causes were tested with the model, including volcano eruptions and changes in the sun's radiation. But none of these natural climate drivers reproduced the long-term observed drying, indicating this trend is due to human activity.

Troubled waters: the Mekong River crisis -  People have always fought over water. The word “rival” comes from the Latin rivalis, or someone using the same stream as another. But conflict is a rising concern today as the United Nations warns that demand for fresh water is on track to outstrip supply by as much as 40 per cent within 16 years. That means co-operation between countries sharing the same river is likely to become even more imperative. Collaboration has long been difficult along the Mekong, where countries are recovering from years of bitter conflict. Now, it seems even more distant as the economic gap between those nations widens.On one side there is China, an economic giant that is home to nearly 40 major rivers running through more than a dozen neighbours and has a dazzling capacity to tame its waterways. Since the 1950s, a small army of trained hydro-engineers, including former president Hu Jintao and former premier Li Peng, has blocked, straightened and diverted its rivers as part of an accelerating industrialisation drive that has turned China into the world’s second-largest economy and lifted more than 500m people out of poverty. Because China has nearly 20 per cent of the world’s people but only about 6 per cent of its fresh water, it sometimes wants to simply shift water to where it isn’t. Hence its immense south-north diversion scheme to transfer huge volumes of water from wetter to drier regions. At the same time, its hunger for electricity has made China a hydropower dam builder like no other, with an estimated 22,000 large dams, almost half the global total. As its cities choke on coal-fired power plants, China has put even more dams on the drawing board, including some in Yunnan, part of another bold engineering effort to transfer electricity to power-hungry factories hundreds of kilometres further east. But downstream lie five southeast Asian countries where poverty and unemployment are still widespread and Chinese investment is important. The Mekong is a gigantic fish factory and crop irrigator that acts as an economic lifeline for tens of millions of people in these countries. People here eat around 46kg of fish a year, nearly double the global average. Half of Vietnam’s rice crop comes from the Mekong Delta.

Armed bandits demand water in dry northern India (AP) — Armed bandits in drought-stricken northern India are threatening to kill hundreds of villagers unless they deliver 35 buckets of water each day to the outlaws in their rural hideouts.Since the threats were delivered last week, 28 villages have been obeying the order, taking turns handing over what the bandits are calling a daily "water tax," police said Monday."Water itself is very scarce in this region. Villagers can hardly meet their demand," officer Suresh Kumar Singh said by telephone from Banda, a city on the southern border of central Uttar Pradesh state and caught within what is known in India as bandit country.Though the number of bandits has declined drastically in recent decades, they are still common in the hard-to-reach forests and mountains of the Bundelkhand region. Banditry dates back some 800 years in India to when emperors still ruled. The area is cut off from supply lines, leaving the bandits reliant on surrounding villages. Since 2007, it has been starved for rain, with the yearly monsoon bringing only half the usual number of 52 rainy days a year. "A few bandits are still active in the ravines," Singh said. "They ask for water, food and shelter from the villages."

Latest State of the Climate: Yup, Still Getting Hotter … - The annual State of the Climate is in, and for readers looking forward to cracking a beer and diving into the 275-page report, read no further. Spoiler Alert: The planet is still getting hotter.The U.S. National Oceanic and Atmospheric Association issues a report each year compiling the latest data collected by scientists from around the world. Here’s a review, in six charts, of some of the climate highlights from 2013. Four independent datasets show that for surface ocean temperatures, last year was among the 10 warmest years on record. The North Pacific set a new record. The global mean sea level continued to rise, keeping pace with a trend of 3.2 millimeters per year over the last two decades. Preliminary data from the U.S., Canada, Norway, Austria, Nepal and New Zealand show that last year was likely the 24th straight year of glacier ice loss worldwide. The consistent worldwide retreat of mountain glaciers is considered one of the clearest signals of global warming. Carbon dioxide, the most important greenhouse gas, reached a concentration of 400 parts per million parts of air for the first time in May 2013. The data shown is from the Mauna Loa Observatory in Hawaii. Data collection was started there by C. David Keeling of the Scripps Institution of Oceanography in March 1958. This chart is commonly referred to as the Keeling curve. Four independent datasets show last year was among the warmest in modern record keeping. It ranked between second and sixth, depending on the dataset. The map above shows temperature departure from the norm. Australia had its warmest year on record.This chart shows temperature extremes -- when daily high temperatures max out above the 90th percentile and nightly lows fall below the lowest 10th percentile. Globally, last year had the sixth-highest number of warm days on record and the eighth-fewest cool nights. Together, that put last year in the top 10 most extreme on record.

Climate Scientists See 'Very Rapid Declines' in Annual NOAA Report -- Leading climate scientists on Thursday issued their annual physical of Earth, comparing the planet in 2013 to a patient that's only getting worse and highlighting problems with key vital signs: from record warmth in Australia and China to sea levels that continue to rise and Arctic sea ice in continued decline.The vital signs reflect "the largest changes that we've been able to witness in the historical record," said Tom Karl, director of the National Climatic Data Center, part of the National Oceanic and Atmospheric Administration. "The planet is changing more rapidly … than in any time of modern civilization." The report, titled the "State of the Climate in 2013", was led by the NOAA and incorporated input from 425 researchers around the world. Among the 2013 vital signs highlighted by NOAA:

  • All major greenhouse gas emissions increased to new records.
  • Air temperature was among the warmest on record, with 2013 ranking between second and sixth depending upon the dataset used. Australia saw its warmest overall year, China its warmest Summer.
  • Sea surface temperatures were among the 10 warmest on record.
  • Sea level continued to rise by about an eighth of an inch each year.
  • The Arctic continued to warm.

Faux Pause 3: More Evidence Global Surface Temperatures Poised To Rise Rapidly - A new study finds that when climate models factor in the temporary warming and cooling impact of El Niño and La Niña, they accurately predict recent global warming. And that is consistent with recent studies that led one climatologist to say, “Global temperatures look set to rise rapidly.”A study last year found that global warming has accelerated in the past 15 years, especially in the ocean. As scientists had predicted, 90 percent of that warming ended up in the oceans. And we reported that Greenland’s ice melt increased five-fold since the mid-1990s. Another study that month found “sea level rising 60% faster than projected.” And yet much of the media believes climate change isn’t what gets measured and reported by scientists, but is somehow a dialectic or a debate between scientists and deniers. So while 2010 was the hottest year on record and the 2000s the hottest decade on record, even prestigious media outlets like the New York Times keep pushing the meme that global warming has paused or inexplicably slowed down a great deal. As RealClimate explained in its post “Global Warming Since 1997 Underestimated by Half”: A new study by British and Canadian researchers shows that the global temperature rise of the past 15 years has been greatly underestimated. The reason is the data gaps in the weather station network, especially in the Arctic. If you fill these data gaps using satellite measurements, the warming trend is more than doubled in the widely used HadCRUT4 data, and the much-discussed “warming pause” has virtually disappeared.

Biodiversity Hotspots Get Hotter (and That’s Not Good) -- Biodiversity hotspots are golden places on earth where the number and diversity of animals and plants is exceptional. Environmentalists say that hotspots are the most critical of all places to protect against the ill effects of human development and climate change. The term does not mean that hotter temperatures are helpful, however. And it turns out that the biggest rises in temperature will occur where hotspots are most concentrated.Last year a team of scientists led by Camilo Mora at the University of Hawaii published a map showing in incredible detail the year in which mean annual air temperature will rise completely out of the normal range established from 1860 to 2005. Even a cool year, then, will be hotter than a hot year from the past. That extreme will be reached by 2047 in many regions if nations continue to emit carbon dioxide at current rates. But the “new abnormal” will arise even sooner in the tropics. Unfortunately, that’s where many hotspots exist. And that’s where animals are least able to adapt to a change in temperature, because they have existed for so long in a climate that has been extremely stable. The group created eight maps that show the global hotpots for mammals, birds, reptiles, amphibians and fishes, on land and at sea—and laid those maps on top of the map that shows future temperature change. The darker reds in the map below show the regions where temperatures will reach abnormal levels earliest, and the red outlines show the hotspots for terrestrial mammals. The overlap is alarming.

Vanishing Fauna  -The journal Science has published a special issue called Vanishing Fauna (aka. The Sixth Extinction). You can read the introduction to the issue here. Let's look at some of the abstracts. This first one gives a succinct statemate of the problem. An animal-rich future The rate at which animals are vanishing from this planet is one of the signatures of this age, as sure a sign of human dominance as our impact on Earth's nitrogen, phosphorus, and carbon cycles. This disappearance of animals from the world's ecosystems is generally a by-product of human activity, not an intentional act.Animals do matter to people, but on balance, they matter less than food, jobs, energy, money, and development. As long as we continue to view animals in ecosystems as irrelevant to these basic demands, animals will lose.Animals do matter, but not nearly as much as economic growth does.  And what about extinctions being "generally a by-product of human activity, not an intentional act?" The empty forest Much of Asia, Africa, and Latin America suffers from overhunting. Lambir Hills National Park in western Borneo, one of the most diverse forests in the world, is a key case study in how the forest fares when it loses the herbivores that once thinned saplings and the fruit eaters that dispersed seeds. At Lambir, saplings became more crowded, raising the risk that the plants would get sick, and the number of species has fallen.

Great Barrier Reef 'in worst state since records began' -- The Great Barrier Reef is in the worst state it's been in since records began and will be "pretty ugly" within 40 years, Australian scientists say. A Senate committee is investigating how the Australian and Queensland governments have managed the reef, with Unesco to decide next year whether to list it as a world heritage site in danger. Scientists have told the committee the reef is facing threats from coastal development, such as a massive port-related dredging project at Abbot Point, farm runoff and poor water quality. The reef cannot rejuvenate after times of stress as it once did, the scientists say. The Australian Coral Reef Society – the oldest organisation in the world that studies coral reefs – says coral cover has halved since the 1980s, when the reef was listed as a world heritage asset. By 2050 there will be fewer fish and large swaths of seaweed where complex coral structures once thrived, society president Peter Mumby said. "It will be really pretty ugly," Mumby told the committee. "And the ability to earn a livelihood will be vastly diminished. "The reef is in the worse state it's ever been in since records began. There is so much scope to improve governance."

How ignoring climate change could sink the U.S. economy -  Robert Rubin: ...When it comes to the economy, much of the debate about climate change ... is framed as a trade-off between environmental protection and economic prosperity. Many people argue that moving away from fossil fuels and reducing carbon emissions will impede economic growth, hurt business and hamper job creation.But from an economic perspective, that’s precisely the wrong way to look at it. The real question should be: What is the cost of inaction? In my view — and in the view of a growing group of business people, economists, and other financial and market experts — the cost of inaction over the long term is far greater than the cost of action.I recently participated in a bipartisan effort to measure the economic risks of unchecked climate change in the United States. We commissioned an independent analysis, led by a highly respected group of economists and climate scientists, and our inaugural report, “Risky Business,” was released in June. The report’s conclusions demonstrated the ... U.S. economy faces enormous risks from unmitigated climate change. .. We do not face a choice between protecting our environment or protecting our economy. We face a choice between protecting our economy by protecting our environment — or allowing environmental havoc to create economic havoc.

Deep Decarbonization: Truly facing the climate challenge - On July 8, 2014, an International group of experts presented the United Nations with an interim report on “Deep Decarbonization” [1]. This study is important because it takes seriously the commitment to keep the Earth’s temperature from rising more than 2 Celsius degrees from preindustrial times, a goal that the world’s major countries accepted in 2009 in Copenhagen. It then carries through an analysis of the technical potential for radically reducing emissions by 2050 in 15 major countries necessary to stay under that warming limit. What the Deep Carbonization report finds should not be surprising to serious students of the climate problem [2], and it’s consonant with what leading analysts have known about this issue since the late 1980s [3]. The report concludes that

  • Allowing business-as-usual emissions trends to continue endangers the future orderly development of human civilization in the 21st century.
  • Achieving a low emissions world and fostering sustainable development go hand in hand.
  • Meeting the 2 C degree warming limit will require drastic reductions in greenhouse gas emissions in the next few decades, but few countries have analyzed the implications of such reductions for their economies, and few politicians have fully understood those implications.
  • Capturing substantial emissions reductions is possible using existing technologies, but achieving climate stabilization will require new technologies to be developed and deployed.
  • Solving the climate problem requires international commitments, because any one of the major emitting countries or regions could by themselves emit enough to make climate stabilization impossible.

The Dark Snow team investigates the source of soot that's accelerating Greenland ice melt - The crowd-funded Dark Snow Project is trying to figure out where Greenland soot is coming from. Around the planet, wildfires are becoming larger and more destructive. This summer, a series of wildfires enveloped large areas of Canada’s Boreal forest, blanketing western North America with smoke. One key question is, do these fires have an effect on climate by darkening Arctic ice with layers of soot, causing more sunlight to be absorbed by the ice? For the second year, the Dark Snow Project science team has taken to the ice on Greenland to investigate the forces driving Greenland's ice loss. They are looking at the causes of surface darkening on the ice sheet that's been observed over the last decade.  The Dark Snow Project is a collaborative effort between a multidisciplinary, international group of experts. The driving questions are, what's causing the steady darkening of the Greenland Ice Sheet that has been observed in the past decade? Is it an important cause of ice melt? Does it represent yet another climate "feedback" which is accelerating global change?

With 92% of Coal Ash Still Coating North Carolina River Bed, Duke Energy Declares Cleanup Complete - Last February, around 39,000 tons of toxic coal slurry gushed into a major North Carolina river. Now, having cleaned up around 3,000 tons worth, the company behind the spill and state regulators say their work is done. With 92 percent of the original heavy metal-laden and possibly radioactive coal ash still coating 70 miles of river bottom, river advocates are frustrated.  “This stuff is not just going to go to the bottom and stay there and not harm the environment,” Brian Williams of the Dan River Basin Association told the Charlotte Observer. “It will be an issue for many, many years to come.” Duke Energy and state regulators say they will continue to patrol the river to find and test deposits of sediment and ash, but that it could “do more damage trying to remove all the ash than leaving it in place,” said Dianne Reid, water sciences chief for the NC Division of Water Resources, told the Observer. Continuing to dredge the river would stir up the sediment on the bottom, risking the release of more preexisting toxins, like mercury and PCBs, into the water column, the state argues. The situation highlights the difficulty of remediation in river environments--once a spill happens, rehabilitating the environment is a delicate and arduous task.

Cleanup sent 1 trillion becquerels of cesium into atmosphere last summer: Tepco - Up to 1.12 trillion becquerels of cesium was dispersed last summer as debris was removed from the battered building of reactor 3 at the Fukushima No. 1 nuclear plant, with tainted rice later being found in Miniamisoma, Fukushima Prefecture, according to Tokyo Electric. Last Aug. 19, radiation-tainted dirt and dust was stirred up while the debris was removed from the unit, which was gutted by an explosion during the March 2011 meltdown crisis, Tokyo Electric Power Co. said Wednesday at a review meeting of the Nuclear Regulation Authority. By Tepco’s estimate, up to 280 billion becquerels per hour of radiation were released into the environment over four hours. That’s 2,800 times the 10 billion becquerels per hour usually discharged from buildings at the crippled plant. The work set off an warning alarm for airborne radiation at the plant and the cesium-tainted rice was found in paddies about 20 km north of the plant. A southeast wind was blowing at the time of the removal work.

Nuclear Waste Not Want Not - This article started out as a piece about the 10 countries that generate the most nuclear waste annually. Unfortunately, the most recent data is from 1997 (Ukraine, United Kingdom, France, United States, Canada, Germany, India, Lithuania, Italy and Bulgaria).  Approaching the question from the other end -- which countries generate the most nuclear power? – might get us closer to an answer. Business Insider analyzed data from the United Nations’ International Atomic Energy Agency and came up with a top 10 list: United States, France, Russia, South Korea, Germany, China, Canada, Ukraine, United Kingdom and Sweden.  But those nuclear power powerhouses aren’t necessarily the biggest nuclear waste producers. That’s because some of them -- France, the United Kingdom and the United States included -- recycle their nuclear waste. Surprised to hear that nuclear waste is recyclable? Not only can the waste be re-used to create energy, but doing so greatly reduces the half-life of the elements involved. Depending on the method, the waste could go from being toxic to humans for hundreds of thousands of years to just a few decades, according to GE Hitachi Nuclear Energy’s technology chief Eric Loewen.  Recycling more fuel could go a long way toward changing people’s negative attitudes toward nuclear power.

Energy From Biofuels Can Match Crude Oil Levels: The beauty of biofuels is that they don’t pollute. After that things can get ugly. First, biofuel, an oil made from plant tissues, doesn’t generate as much energy as an equal amount of crude oil. And the oil is difficult to refine because it contains too much water and is acidic. That’s about to change. Researchers at the University of Twente in the Netherlands report that they’ve developed a way to improve the quality of the oil even before it reaches a refinery. As a result, they say, biofuels can pack even more punch than crude oil and rivals the energy found in diesel fuel. The Twente researchers say they’ve developed a catalyst of sodium carbonate on a sheet of aluminum oxide crystals. They add this catalyst to the biomass oil that’s been heated in nitrogen to 500 degrees Celsius (932 degrees Fahrenheit). This can nearly double the biofuel’s energy content from 20 million joules to between 33 and 37 million joules per kilogram. The fuel can be improved further with the addition of cesium, an alkaline metal element, and sodium carbonate. “By doing so, we can, for instance, also reduce the aromatics, which are harmful when inhaled,” Seshan said.

Concerned Health Professionals of NY » Compendium of Scientific, Medical, and Media Findings Demonstrating Risks and Harms Of Fracking (Unconventional Gas And Oil Extraction) -- Horizontal drilling combined with high-volume hydraulic fracturing and clustered multi-well pads are recently combined technologies for extracting oil and natural gas from shale bedrock. As this unconventional extraction method (collectively known as “fracking”) has pushed into more densely populated areas of the United States, and as fracking operations have increased in frequency and intensity, a significant body of evidence has emerged to demonstrate that these activities are inherently dangerous to people and their communities. Risks include adverse impacts on water, air, agriculture, public health and safety, property values, climate stability and economic vitality. Researching these complex, large-scale industrialized activities—and the ancillary infrastructure that supports them—takes time and has been hindered by institutional secrecy. Nonetheless, research is gradually catching up to the last decade’s surge in unconventional oil and gas extraction from shale. 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. Earlier scientific predictions and anecdotal evidence are now bolstered by empirical data, confirming that the public health risks from unconventional gas and oil extraction are real, the range of adverse impacts significant, and the negative economic consequences considerable. Our examination of the peer-reviewed medical and public health literature uncovered no evidence that fracking can be practiced in a manner that does not threaten human health.

How to Frack a California Tomato - Or grape, orange, almond, you name it. Irrigate it with frackwater. The frackers have been conducting an un-controlled experiment on California’s aquifers by injecting then with Mystery Fluids, frack flowback, frack filth and whatever waste products they can pump into the ground. State’s drought has forced farmers to rely on groundwater, even as California aquifers have been intentionally polluted due to exemptions for oil industry. California officials have ordered an emergency shut-down of 11 oil and gas waste injection sites and a review more than 100 others in the state’s drought-wracked Central Valley out of fear that companies may have been pumping fracking fluids and other toxic waste into drinking water aquifers there.   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.

Colorado faces oil boom "death sentence" for soil, eyes microbe fix - Colorado's intensifying oil and gas boom is taking a toll on soil — 200 gallons spilled per day seeping into once-fertile ground — that experts say could be ruinous. The state's approach has been to try to compel companies to excavate and haul the worst muck to landfills. But with support from state regulators, oil companies increasingly are proposing to clean contaminated soil on site using mixing machinery and microbes. This may be cheaper for the industry — and could save and restore soil. But it is not proven. At least 716,982 gallons (45 percent) of the petroleum chemicals spilled during the past decade have stayed in the ground after initial cleanup — contaminating soil, sometimes spreading into groundwater, a Denver Post analysis of COGCC data found.That's about one gallon of toxic liquid every eight minutes penetrating soil. In addition, drillers churn up 135 to 500 tons of dirt with every new well, some of it soaked with hydrocarbons and laced with potentially toxic minerals and salts. And heavy trucks crush soil, suffocating the delicate subsurface ecosystems that traditionally made Colorado's Front Range suitable for farming. The overall impact of the oil and gas boom "is like a death sentence for soil," said Eugene Kelly, chief of soil and crop science at Colorado State University.A fracking problem for Dems -- Republicans love fracking in Colorado — and it could help them flip a critical Senate seat this fall. The onslaught against Democratic Sen. Mark Udall (Colo.) reached a fever pitch this week when Colorado Gov. John Hickenlooper (D) had to cancel a special legislative session meant to keep two hydraulic fracturing initiatives backed by Rep. Jared Polis (D-Colo.) off the November ballot. Udall, who had stayed out of the fray on the two measures, was forced to take a side much to the GOP's glee. Now, with Colorado as one of the top natural gas producing states in the nation, the fracking controversy could be the issue that gives Rep. Cory Gardner (R-Colo.) the boost he needs in the tight-knit race of high importance in the battle for Senate control.   Udall came out against the two measures along with Hickenlooper, also up for reelection, essentially creating a rift within the state’s Democratic party. The Polis-backed measures would set tighter restrictions on hydraulic fracturing operations for oil and natural gas in the state. One would extend the setback for hydraulic fracturing wells to 2,000 feet from schools, hospitals, and the like. The other would establish an "environmental bill of rights" giving local governments precedence when its laws conflict with the state's. But the progressive Poils, who is known for flying solo on issues and not bending a knee to the party, is unlikely to pull the measures, which Colorado environmentalists fiercely support.

Colorado Fracking Confusion - Control of the state legislature and Governor Frackenlooper was bought years ago by the frackers, so no help from that lot. Coloradans are faced with two  ballot initiatives on fracking – neither of which simply restores local control – one imposes a 2,000 foot setback from housing, the other is a Green Tea Party manifesto – either of which is better than what Colorado has now: Frack Anywhere. Call it the Casino Effect – once casinos are approved, they easily take over the legislative agenda. Same with frackers – once they have unilaterally disarmed local municipalities of zoning – they can buy enough key legislators to keep it that way.  Ergo, depending on the state legislature to give up a power the state has: Frack Anywhere, is not an inspired strategy – they won’t give it up, Local Control has to be taken back.  Both of the ballot initiatives are better than what Colorado has now – the frackers in control of Gov. Frackenlooper and the legislature.  Local control bill in the can, politicians scramble on fracking. Oil and gas advocates, local control groups, more divided than ever. Without a legislative solution, expensive and controversial ballot initiatives on oil and gas drilling are almost unavoidable on November’s ballot. While a measure that would have given citizens the power to limit the rights of oil and gas developers has already been pulled due to lack of support, two more fracking initiatives, funded mainly by Boulder Congressman Jared Polis, are still in the pipes.

Judge Sides With Oil Industry To Overturn Colorado Town’s Ban On Fracking - A Colorado town’s voter-approved ban on fracking in residential areas was shot down on Thursday, after a judge sided with an industry lawsuit claiming only the state government has that kind of authority over oil and gas operations. Colorado District Court Judge D.D. Mallard agreed with the Colorado Oil & Gas Association’s lawsuit against the town of Longmont, Colorado. That lawsuit argued that if local governments were able to have control over whether fracking occurred in their neighborhoods, it would be unfair to those who already owned oil and gas underneath those towns. “The city’s prohibition will have an extraterritorial effect on the development and production of oil and gas,” assistant attorney general Jake Matter wrote when the lawsuit was originally filed in 2012. “The city ban affects the ability of owners of oil and gas that underlie the city’s residential areas … to obtain an equitable share of production profits.”

Colorado Judge Strikes Down Longmont’s Fracking Ban in Favor of ‘State’s Interest’ in Oil and Gas - One thing is for sure—you can’t accuse Boulder County District Court Judge D.D. Mallard of being dishonest. Her decision Thursday regarding Longmont, CO’s fracking ban includes no ambiguity. Instead it clearly states that concerns about health risks to residents don’t quite stack up against Colorado’s stake in the oil and gas industries. “While the court appreciates the Longmont citizens’ sincerely held beliefs about risks to their health and safety, the court does not find this is sufficient to completely devalue the state’s interest,” Mallard wrote in the decision, the decision, uploaded to Scribd by the Denver Post. Voters approved the ban in 2012, but the Colorado Oil and Gas Association never stopped fighting to overturn it. Earthworks, the Sierra Club, Our Health, Our Future, Our Longmontand the other environmental groups listed as defendants plan on appealing the decision. The judge ruled that the ban can remain in place while an appeal is considered.

Fracked Anywhere in Colorado ? - The trial court’s decision was based on a 1992 court ruling  that predates shale fracking.  So this is a glaring example of where the case law and the legislation have not kept up with the technology. The Colorado law assumes that oil and gas is extracted from a “pool” of porous permeable rock – and that such a reservoir can be tapped underneath a neighboring political boundary. Such is not the case with fracking – the extent of the area tapped is a function of the length of the lateral – beyond which little or no gas is extracted. So the “pool extending beyond political boundaries” premise in the law does not apply.  A shale gas well in one town is not going to drain from under another town – unless the lateral goes under the other town.  Secondly, the negative impacts of fracking shale are night and day from the wells drilled in 1992. This is no secret but it was  evidently something that the trial judge could not deal with – except to note that it was something she could not deal with given the case law and Colorado statute – that implies that the state’s ability to promote fracking completely negates a town’s right to prohibit it.

Eco-groups to appeal ruling on Longmont, Colo., fracking ban - - In a ruling issued today, a Colorado state court invalidated a local ban on hydraulic fracturing, or fracking, but left the door open for the City of Longmont and environmental groups to file an appeal to overturn a state policy that places the interests of the oil and gas industry over the health and safety of local citizens. In her 17 page ruling granting the industry and the state summary judgment in their challenge to Longmont’s democratically enacted 2012 fracking ban, the judge determined that her hands were tied by a series of decades-old state court rulings, stating that “[w]hether public policy should be changed in that manner is a question for the legislature or a different court.” “While we respectfully disagree with the Court’s final decision, she was correct that we were asking this Court, in part, to place protection from the health, safety, and environmental risks from fracking over the development of mineral resources,” stated Kaye Fissinger, President of Our Health, Our Future, Our Longmont. “It’s tragic that the judge views the current law in Colorado is one in which fracking is more important than public health; reversing that backwards priority is a long-term battle that we’re determined to continue.” In its decision the Court determined that Longmont’s ban conflicted with the states interests in oil and gas development, ignoring the fact that the state legislature requires oil and gas development to be done in a way that is protective of public health and the environment. “Despite the Court’s ruling, we continue to believe that a fracking ban is entirely compatible with the state's responsibility to safeguard our communities and our natural resources,” stated Sam Schabacker, Western Region Director with Food & Water Watch. “Fracking is an inherently harmful practice that has no place near our towns, homes and recreational areas.”

Fracking activists are the Tea Party of the Left?: Let’s recap:  Of course people figured out this dirty industry really only accounts for a tiny 1 percent of Colorado’s jobs and that with hundreds of billions of dollars worth of hydrocarbons under our state, the industry was never going to take their jobs and go home as promised. Then the industry and its political and media helpers told us those who were concerned about all that drilling in their neighborhoods and next to their children’s schools were just ignorant alarmists because Colorado had the toughest laws in the land when it comes to oil and gas extraction. Again, not so much. Turns out that Colorado, like the other states, has virtually no control whatsoever over health-threatening, oil-and-gas-industry wastes because the federal government has either exempted the industry completely as in the Resource Conservation and Recovery Act (RCRA) Subtitle C or given it “special provisions” that allow it to bypass important parts of other laws designed to protect our air and water like the Clean Water Act, the Clean Air Act and the Safe Drinking Water Act. And that brings us to more recent times, which I’ll just refer to as the great Colorado “media buy.” It’s a term that can be read two ways and both are accurate. Tens of millions of dollars are being spent with television and newspaper companies to buy everything from the fake, pro-fracking “Energy and Environment” section in The Denver Post to the daily onslaught of deceptive TV ads that claim fracking and apple pie are really one and the same thing or more recently that people who want local control over the oil and gas industry’s industrial practices in their towns are simply stupid. The size of this ad spend is unprecedented in Colorado history and it comes at a time when the mainstream media is otherwise struggling economically.

Can your town ban fracking? Depends on the state - Anti-fracking activists in Colorado are shifting their focus to statewide ballot initiatives later this year, after a district judge overturned Thursday a voter-approved local ban on hydraulic fracturing, a controversial oil and gas extraction technique. The ruling is a win for the region’s supporters of expanded energy production, but both sides are gearing up for a debate that extends well beyond Colorado’s borders. Across the country – from California to New York, and Ohio to Texas – state courts are determining whether or not local fracking bans are legitimate. Thursday’s ruling underscores the bind that can arise when a state rules one way on fracking, and a city or town leans the other way. Traditionally, permitting and regulating of oil and gas development occur at the state level in the US, meaning the feasibility of a fracking ban can vary drastically across state lines. It becomes even more of an issue as the US shale boom spreads closer to suburban – and even urban – areas, where residents have no history with energy extraction. “These bans are springing up all over the place,” says David Spence, a professor of law, politics, and regulation at the University of Texas at Austin, in a telephone interview Friday. “All of them will bring the same kinds of legal challenges.”

University of Colorado Boulder Scientists Link 10,800-Foot-Deep Fracking Wastewater Well to More Than 200 Earthquakes -- When the Colorado Oil and Gas Conservation Commission ordered NGL Water Solutions to stop fracking wastewater injection operations a month ago, a team of University of Colorado Boulder researchers began conducting its own investigation.NGL, formerly known as High Sierra Water Services, was given permission to resume its activities at a 10,800-foot-deep well a few weeks later, but the CU findings suggest that shouldn’t have happened. Anne Sheehan and her team found that the well is linked to more than 200 earthquakes, the geophysics professor in the CU Department of Geological Sciences told Boulder County Business Report. She said the group found “quite a few” earthquakes with epicenters within two miles of the well. Two earthquakes—with magnitudes of 3.4 and 2.6—took place within mere miles of the well. Shemin Ge and Matthew Weingarten, also of CU, also found that activity within fracking wastewater injection wells likely caused earthquakes in central Oklahoma. NGL operates 11 of the 29 fracking wastewater injection wells in Weld County, CO. When the Colorado Oil and Gas Conservation Commission allowed NGL to resume activities, it began injecting 7,500 barrels per day at maximum pressure.

Texas Town Fights Frackers  -- Denton, Texas is more than a suburb of Dallas and Fort Worth, it’s a metropolitan enclave, home to North Texas University, which has one of the finest music programs in the country and Texas Womens’ University. Not a town to frack with. Nor does fracking fit in this heavily suburbanized area. So Denton is proposing to ban it – and the frackers are fighting back with a Koch-paid petition gatherers who tell people their petition is “anti-fracking.”Who do the frackers say is “behind” this local grass-roots effort to ban fracking ? Gazprom.  Of course. That’s enough to make anyone vote for a ban. Call it the Anti-Lunacy Vote.  Texas Frack Fight Saturday, July 19, 2014 Depantsing the Fracking Propaganda about Denton’s Frack Ban On November 4th, Denton could ban fracking, forever ridding its neighborhoods of a poisonous specter. Ever since we got the signatures to put the ban on the ballot, support has been growing like a tidal wave.  The frackers have taken out full page color ads in the local paper accusing fractavist of being “unpatriotic.” The head of the Texas Railroad Commission, a man whose campaigns are 80% funded by the very industry he supposedly oversees, insinuated that Russia is behind the ban (I’m still waiting for my check from the Kremlin, but when it arrives, the first round of vodka is on me).

Oilprice Intelligence Report: To Frack or Not to Frack: A recent ruling by the New York Supreme Court, gave small towns in the state the right to ban the combination of hydraulic fracturing and horizontal drilling known as fracking. This ruling may apply to local governments across the state, but it is likely to spread nationally as many local governments fight to slow or ban the national shift toward gas production in the U.S. This ruling could seriously impact natural gas supplies in the short-term, but so far the market hasn’t reflected any major concerns. The long-term impact is still being studied. Currently, states like Montana, North Dakota, Ohio, Oklahoma, Pennsylvania, Texas, Utah and Wyoming are benefiting the most from the natural gas boom. But a handful of states currently have legislation on the table that could ban or limit fracking and the disposal of fracking waste. These states include California, Colorado, Florida, Michigan and North Carolina. Even a few of the states enjoying the economic benefits of fracking like Ohio and Pennsylvania have a few activist groups fighting to control the amount of fracking taking place. While environmentalist´s claim that fracking can cause groundwater contamination, soil contamination, sickness, and disease, those in favor of fracking cite the economic benefits to the states and local governments in terms of greater tax revenue. Consumers are also benefitting from the high natural gas supply in the form of lower heating and cooling costs. The natural gas industry estimates that over 1.7 million jobs are in some way related to the fracking industry. Some are even predicting if the current trend stays the course, another 600,000 jobs will be created by the end of the decade.

Pennsylvania's Auditor General Faults Oversight of Natural Gas Industry - Environmental officials in Pennsylvania have failed to adequately regulate the state’s booming natural gas industry, a state report said, reflecting what critics say is weak oversight of the oil and gas industry at a time when drilling is spreading across the United States. Pennsylvania’s auditor general, Eugene DePasquale, said Pennsylvania’s Department of Environmental Protection has been unable to keep up with the workload placed on it by a proliferation of shale gas wells in the last five years, and has failed to respond adequately to many public complaints about water and air contamination resulting from gas development. Mr. DePasquale, in the report issued this week, accused the department of failing to require most gas companies to restore drinking water supplies if they are found to have contaminated them, as required by Act 13, a 2012 state law that regulates many aspects of the natural gas industry. Out of 15 contamination cases between 2009 and 2012, the department issued only one order for the operator to restore or replace the water supply, the auditor’s report said. In Pennsylvania, where Gov. Tom Corbett, a Republican, is a strong supporter of the gas industry, the department encourages energy companies to reach voluntary agreements with affected homeowners, and so has weakened its own effectiveness, the auditor’s report said.

Pennsylvania Regulator Faulted for Lax Role in Fracking --Pennsylvania regulators were unprepared for the fracking-fueled boom in natural gas production during the past decade, putting drinking water supplies at risk, the state’s watchdog said. The state’s Department of Environmental Protection failed to order drillers to clean or replace tainted water supplies, or to act quickly on residents’ complaints of contamination, Auditor General Eugene DePasquale said today. It also used a 25-year-old inspection policy. “Shale gas development offers significant benefits to our commonwealth and nation, but these benefits cannot come at the expense of the public’s trust, health and well being,” DePasquale, a Democrat, said in a letter to Governor Tom Corbett that accompanied a report with 29 recommendations. “DEP needs assistance. It is underfunded, understaffed, and does not have the infrastructure in place to to meet the continuing demands” of the gas boom. Pennsylvania is the nation’s fastest-growing natural gas producer as hydraulic fracturing, or fracking, was used to tap gas trapped in rock that’s part of the Marcellus Shale formation, one of the world’s richest such formations. The rapid development has led to scrutiny of the practice, with the woes of homeowners in Dimock highlighted in the 2010 documentary “Gasland.” In that case the state determined that Cabot Oil & Gas Corp. was responsible for the methane in the water, although the company contests the allegation.

Fracking Limbo -- The oldest trick in the fracking book is to list a well as “inactive” and then walk away from it to avoid plugging liabilities. Then sell the lease. This removes the liability of plugging & abandoning the well, and is what happen to the plurality of old wells. Some states allow wells to remain on the “inactive” list for years. But, as a practical matter, it only has to remain on the list long enough to be transferred to a shell entity that has no money to plug it. Laurie Barr ExplainsThe bonding that Pennsylvania requires oil and gas operators to post does not cover plugging and reclamation of the wells they drill and operate. Required bond simply wasn’t set high enough in 1984 when the Oil and Gas act was enacted to encourage plugging.* Not much has changed since. Some operators plug, some operators abandon and others choose door number 3.What’s Behind Door Number 3?One of the oil and gas regulator’s dirtiest little secrets, “inactive” well status.  One well at a time, year after year the inactive well inventory grows. According to the department’s online database, many conventional operators have accrued massive inventories of “inactive” wells. And as more of their wells dry up, their number of producing wells shrinks and the number of depleted wells proportionally grows. “Inactive” well status provides a safe haven for Pennsylvania’s independent oil and gas operators. Some simply can’t afford to plug their wells. A large number of these wells will never be placed back into production, remaining idle as their seals deteriorate, leaking oil, natural gas and other fluids.  Oil patch workers often scavenge parts from abandoned oil fields to keep operations going. Well sites have been dismantled. Metal casings, gathering lines and other related well-site infrastructure has been removed and sold for scrap. Where scavengers have removed the entire well-site infrastructure, wells are often difficult and costly to locate. Many wells can only be located with sophisticated equipment such as ground penetrating radar. Scavenged oil and gas fields pose a greater risk to the public’s safety.

SNL: Pa. landowners scramble to learn how pipeline projects affect insurance coverage - Natural gas pipeline companies are playing catch-up with the surge in shale gas production. In the Mid-Atlantic region, pipeline companies are working particularly hard, racing to build new infrastructure that will give natural gas extracted from the prolific Marcellus Shale a way out the region. But as pipeline project filings make their way through the regulatory process at FERC, people who live along the proposed routes are forced to quickly get up to speed and learn how the new gas transportation systems will affect them. Residents in the impacted communities are asking many of the same questions about pipeline projects that people raised when shale gas producers began moving into the Marcellus region almost a decade ago. Residents not only are concerned about the environmental impact of interstate pipeline projects, some also are worried that pipeline projects will harm property values and drive up home insurance premiums. mIn Lancaster County, Pa., residents are targeting the Central Penn Line South project, a greenfield pipeline project proposed by Williams Cos. Inc. subsidiary Transcontinental Gas Pipe Line Co. LLC to move gas out of the Marcellus Shale to markets along the East Coast. .Dan Forry, a lifelong Lancaster County resident, is among the local residents opposed to the Central Penn Line South project. Forry's insurance company said his policy would not be canceled as a result of the pipeline right of way but that insurance coverage related to the pipeline would be excluded from his farm policy. "They won't cancel my policy, but if I want to have any protection, I need to pay an additional fee," he said

How Chesapeake Scams Landowners $1.25+ mcf - Perhaps the most outrageous scam is when the frackers charge landowners (royalty owners) downstream, post production costs – the costs to get the gas to market. And no fracking scammer is better (worse ?) at this than Chinapeake Energy - America’s Biggest Fracking Gashole, who is hell bent on getting as much of America’s 100 Year Supply of Natural Gas to China as soon as fracking possible.The chart below highlights how much Chesapeake scams landowners for per mcf = about $1.25 on “transportation costs” alone. The average transport costs is about $.25 mcf from the Marcellus based on the latest frackers’ financial reports. But Chesapeake reports $1.50 mcf – because they are dunning the leaseholders for most of that inflated cost – which goes to a Wall Street group that is bailing Chesapeake out - as detailed here. For every mcf of gas produced in Pennsylvania, Chesapeake is crooking landowers something north of $1.25 mcf. And these are the same fracketeers that Colorado Governor Frackenlooper shills for. Like his paycheck depended on it.

Fracking Crooks – New York’s Rogue Gallery  - A few fat envelopes in New York have enabled fracking lobbyist anything that’s not nailed to the wall.  The frackers wrote the state’s Compulsory Integration Law- the worst in the country, and the Legislature passed it unanimously. The frackers wrote the draft fracking regulations- and handed the draft to their accomplices in the Division of Mineral Resources. The frackers have New York teed up to get fracked.  After losing in court, they now plan to try to gut Home Rule in the Legislature – with a handful of fat envelopes in Albany.  Good fracking luck.

EPA report shows agency waited 5 days to discover Ohio spill chemical contents - A fracking company made federal and state agencies that oversee drinking-water safety wait days before it shared a list of toxic chemicals that spilled from a drilling site into a tributary of the Ohio River. Although the spill following a fire on June 28 at the Statoil North America well pad in Monroe County stretched 5 miles along the creek and killed more than 70,000 fish and wildlife, state officials said they do not believe drinking water was affected. But environmental advocacy groups said they wonder how the state can be sure. A U.S. Environmental Protection Agency report obtained by The Dispatch shows that the federal and state EPA officials had to wait five days before they were given a full list of the fracking chemicals the drilling company used at the site. Halliburton, the company hired by Statoil to frack the horizontal well, provided a partial list up front that included most of the chemicals. Others, which are protected by Ohio’s trade-secrets law, were omitted.

ODNR comes under fire for its handling of major well fire in Monroe County -- The Ohio Department of Natural Resources was strangely absent in the wake of a major natural gas well fire on June 28 in southeast Ohio, critics say. The agency’s lack of involvement in the well fire in Monroe County was called “quite alarming” by attorney Nathan Johnson of the Ohio Environmental Council in a Wednesday teleconference. “Where was ODNR’s Division of Oil and Gas Resources Management in this situation?” he asked. “It’s not clear where they were and what they were doing.” An 11-page report by the U.S. Environmental Protection Agency indicates that the state agency was not actively involved in the fire until July 1, three days after the well pad near Clarington went up in flames, and the agency was involved sporadically after July 1. Those are “shocking findings,” said OEC spokeswoman Melanie Houston. The parties initially involved were the Ohio Environmental Protection Agency, the U.S. EPA and Statoil, the report says. It took ODNR two days before it requested information on what proprietary chemicals had been used by Statoil North America, the Norway-based company that is developing the well, and it cannot share that information with other parties under Ohio law, Johnson said.  Such behavior by the state agency given sole authority over drilling in Ohio is troubling, Johnson said.

Ohio Fracking Spill Highlights Problems with State Disclosure Laws -- NRDC: After tens of thousands of gallons of fracking chemicals flowed into a creek last month in Ohio, officials with the state and federal environmental protection agencies, who oversee the safety of drinking water, were forced to wait for five days before learning the identity of some chemicals, according to a preliminary EPA report. The incident occurred after a fire started at the well site, triggering multiple explosions and forcing the evacuation of about 25 homes. Fuel, fracking chemicals, and radioactive elements were all being stored onsite and were lost during the incident. The spill flowed into a tributary of Opossum Creek about five miles upstream of where the Creek flows into the Ohio River. Less than two miles downstream from there, an intake for a public drinking water supply pulls water from the River. Two days after the spill, state officials reported that they had found an estimated 70,000 dead fish along the five-mile stretch leading to the River. But Halliburton, the company hired to frack the well, withheld information on some of the chemicals at the site until five days after the accident occurred. Video coverage of the accident and the problems encountered by the local fire department from a local news station is available here:

First Responders Weigh In On Well Pad Fire (news video)

Halliburton Fracking Spill Mystery: What Chemicals Polluted an Ohio Waterway? -- On the morning of June 28, a fire broke out at a Halliburton fracking site in Monroe County, Ohio. As flames engulfed the area, trucks began exploding and thousands of gallons of toxic chemicals spilled into a tributary of the Ohio River, which supplies drinking water for millions of residents. More than 70,000 fish died. Nevertheless, it took five days for the Environmental Protection Agency and its Ohio counterpart to get a full list of the chemicals polluting the waterway. "We knew there was something toxic in the water," says an environmental official who was on the scene. "But we had no way of assessing whether it was a threat to human health or how best to protect the public." This episode highlights a glaring gap in fracking safety standards. In Ohio, as in most other states, fracking companies are allowed to withhold some information about the chemical stew they pump into the ground to break up rocks and release trapped natural gas. The oil and gas industry and its allies at the American Legislative exchange Council (ALEC), a pro-business outfit that has played a major role in shaping fracking regulation, argue that the formulas are trade secrets that merit protection. But environmental groups say the lack of transparency makes it difficult to track fracking-related drinking water contamination and can hobble the government response to emergencies, such as the Halliburton spill in Ohio.

AEP benefitting from fracking in Ohio’s Utica shale region -- The fracking boom continues to drive industrial power use at American Electric Power Company Inc., especially in Ohio’s Utica shale region. The Columbus-based utility reported even bigger growth in industrial sales in shale regions for the second quarter than before. Oil and gas companies require a lot of electricity to power their fracking and related operations, which are faster-moving than typical industrial users, Dan Recker, AEP’s managing director of transmission engineering, told me earlier this year. Year-to-year sales were up 39 percent in shale-gas counties and down 1.6 percent in non-shale counties, AEP reported Friday. That’s up from a 30 percent growth in shale areas and 1.7 percent drop in non-shale areas the company reported in its first quarter. Again, growth in the Utica shale in eastern Ohio leads the way for AEP. Industrial sales are up more than 50 percent in Ohio’s shale region compared to a year ago.

Quakes & Frack Waste - Five years ago, Oklahoma averaged just two magnitude 3 or greater earthquakes a year. Last year there were 109. As of early July, this year’s count is already over 230 - and that’s just the magnitude 3 and above, temblors big enough to knock dishes off shelves and crack foundations. There are hundreds more low magnitude quakes, say state geologists. Why all the quakes? They're due to increased injection of gas- and oil drilling waste fluids into disposal wells, says Cornell researcher Katie Keranen. Earlier this month she and her colleagues published a paper in the journal Sciencethat links injection wells to tremors. Their research also demonstrates that those quakes can occur up to 30 miles from the original injection well site. Keranen got interested in the relationship between drilling and tremors after the Prague, Oklahoma quake in 2011. That 5.6-magnitude quake was centered just 45 miles northeast of Oklahoma City and was felt as far away as Texas, Arkansas, Kansas, and Missouri. Her research led her to study swarms of quakes originating near the town of that same name. "These seismic events didn’t match the tectonic sequence," she told me in an interview last week. As she explained it, a normal sequence looks like this: after one earthquake there may be subsequent tremors, but they’re in the same plane below the surface and tend to follow a linear streak. In the Jones swarm, and other gas-field related swarms, the quakes are more scattered over a broad area. And that piqued her curiosity. The Jones swarm began within13 miles of the highest-rate waste fluid disposal wells in Oklahoma. So the first question Keranen asked was whether the number of injection wells had increased dramatically. They hadn’t. The increase in number of injection wells was gradual. “The thing that has changed significantly is the volume of waste fluids pumped into the disposal wells,”she says.

Why scientists have started connecting earthquakes to fracking » Market Realist:  A few studies and other empirical evidence have tied seismic activity to fracking over the past few years.  The process generates huge amounts of wastewater. The wastewater comes back to the surface and is disposed of by injecting it into disposal wells deep under ground. As the water accumulates, the pressure builds and starts to spread away from the wells. Increased seismic activity The U.S. Geological Survey (or USGS) analyzed earthquake data since 1970. It found that injecting wastewater in disposable wells in places like Texas, Ohio, and Oklahoma coincided with increased seismic activity. According to USGS, South Texas experienced a magnitude-4.8 earthquake in October 2011 near the Eagle Ford Shale Play. There have also been many other earthquakes linked to injection wells in the Dallas–Fort Worth area since 2008. The most recent quake was 3.0 magnitude in January this year. Oil exploration companies in Texas include ConocoPhillips (COP) and ExxonMobil (XOM). The quakes aren’t limited to Texas. Ohio experienced a magnitude-4.0 earthquake earlier in April this year. Ohio is home to major oil and gas companies like Marathon Oil Corp. (MRO) and Williams Companies Inc. (WMB). Ohio stores much of Pennsylvania’s fracking waste in its disposable wells.

Risk of earthquake increased for one-third of US  (AP) - A new federal earthquake map dials up the shaking hazard just a bit for about one-third of the United States and lowers it for one-tenth.The U.S. Geological Survey on Thursday updated its national seismic hazard maps for the first time since 2008, taking into account research from the devastating 2011 earthquake and tsunami off the Japanese coast and the surprise 2011 Virginia temblor.The maps are used for building codes and insurance purposes and they calculate just how much shaking an area probably will have in the biggest quake likely over a building's lifetime.The highest risk places have a 2% chance of experiencing "very intense shaking" over a 50-year lifespan, USGS project chief Mark Petersen said. Those with lower hazard ratings would experience less intense swaying measured in gravitational force."These maps are refining our views of what the actual shaking is," Petersen said. "Almost any place in the United States can have an earthquake."Parts of 16 states have the highest risk for earthquakes: Alaska, Hawaii, California, Oregon, Washington, Nevada, Utah, Idaho, Montana, Wyoming, Missouri, Arkansas, Tennessee, Illinois, Kentucky and South Carolina. With the update, new high-risk areas were added to some of those states.Also, Colorado and Oklahoma saw increased risk in some parts and moved up to the second of the seven hazard classifications, he said.

Race for North Dakota's agriculture commissioner is all about oil (Reuters) - North Dakota's biggest oil producers have picked a side and put money into an obscure election for the state's agriculture commissioner, hoping to ward off a rising Democratic challenger who could limit development of new wells and pipelines. With a legislature that meets only every two years, North Dakota has given an unusual amount of power to the agriculture commissioner and two other members of the state's Industrial Commission, charging the triumvirate with oversight of permitting and other issues critical to the oil industry, which hopes to drill 35,000 new wells within 15 years. North Dakota produces 1 million barrels of oil each day - more than any state except Texas and even some OPEC members - affording Agriculture Commissioner Doug Goehring, a Republican, outsized influence over energy development thanks to his seat on the commission alongside the governor and attorney general. true Now, Goehring, armed with donations from executives and political action committees at Continental Resources Inc, Whiting Petroleum Corp, Marathon Oil Corp and other companies active in the state's Bakken shale oil formation, is in the fight of his political life. His opponent in the November election, Ryan Taylor, is a rancher and former Democratic state senator who threatens to impose stiffer regulations on an industry used to operating with little intervention in what is typically a conservative state. "We want the oil, but we also want productive land when it's all done,"

North Dakota’s Oil Bonanza Is Unsustainable - Between 2004 and 2008, North Dakota’s oil production doubled. Then it doubled again. And again. This month, the Energy Information Administration said North Dakota produced 30 million barrels of oil in April — as much as it had in all of 2004.  That kind of growth is nearly unprecedented in the modern oil industry. It’s also unsustainable. If North Dakota continued its recent pattern of exponential growth, the state would be producing more than 400 million barrels of oil per month a decade from now — more than what the entire U.S. produces today. Even at a linear rate of growth, monthly production would top 100 million barrels within the next decade, more than what Texas — a state with 2.5 times the total oil reserves — produces now. Growth has to slow eventually. The question is when.  The issue isn’t whether North Dakota will run out of oil. There’s little doubt that the Bakken Shale, North Dakota’s main oil-producing reservoir, contains billions of barrels of crude. The question is about getting it out. A well’s production rate — how much oil it pumps in a given amount of time — falls quickly, and wells drilled into shale rock like the Bakken decline especially fast, as much as 70 percent in the first year. That means oil production is a treadmill: Companies have to keep drilling just to keep production flat. The more they produce, the more they have to drill to keep up. In theory, forecasting an oil field’s production requires knowing just three variables: how many wells will be drilled, how much the average well will produce when it first comes online, and how fast that production will decline. But all of those variables are highly uncertain, particularly early in a field’s productive life. Moreover, errors tend to amplify one another: If wells perform worse than expected, they’ll be less profitable and companies won’t drill as many of them.

Report Exposes European Lobby Groups Who Ensure Expansion of Shale Gas - The shuffling of lobby dollars that keeps fossil fuel-friendly policies on the books for the benefit of huge corporations and their legislative pals isn’t specific to the U.S. A new report from Friends of the Earth Europe aims to expose Shell, Total and ExxonMobil, along with groups like BusinessEurope and OGP, to reveal what it calls a “thick web of lobbying activity.” The report says public relations and law firms, paid-for scientific reports, and even members of Parliament have all been used to advance fracking for shale gas around the continent. “The legislative process has been taken hostage by private interests,” Antoine Simon, a shale gas campaigner for Friends of the Earth Europe, said in a statement. “They have created a climate of industry-funded misinformation that sells shale gas as a responsible resource—this could not be further from reality. The European Commission needs to put the interest of people and planet before the profits of big oil companies, by re-opening the debate on shale gas regulation.”  The report hopes to reignite the discussion of stronger shale gas industry regulation within the European Commission and increased lobbying transparency. At the very least, FOE Europe hopes for a moratorium on fracking, similar to those passed in the U.S. by the New York Assembly and in cities like Los Angeles.

Company In Which Joe Biden's Son Is Director Prepares To Drill Shale Gas In East Ukraine -- Recall what we said earlier today: the proxy war Ukraine conflict, just like that in Syria preceding it, "is all about energy." Recall also the following chart showing Ukraine's shale gas deposits, keeping in mind that the Dnieper-Donets basin which lies in the hotly contested eastern part of the nation and where as everyone knows by now a bloody civil war is raging, is the major oil and gas producing region of Ukraine accounting for approximately 90 per cent of Ukrainian production and according to EIA may have 42 tcf of shale gas resources technically recoverable from 197 tcf of risked shale gas in place. Finally, recall our story from May that Joe Biden's son, Hunter, just joined the board of the largest Ukraine gas producer Burisma Holdings. Now put it all together and you will like figure out what will happen next.

This map shows Europe’s dependence on Russian gas -- Even after the crash of MH17, Europe has been slow to impose more sanctions on Russia for its involvement in the Ukraine crisis — particularly against the energy exports that make up such a huge chunk of Russia's economy.  This map of European gas pipelines, from The Economist, helps explain why:  Europe is still heavily reliant on Russian gas. Germany, arguably the most powerful player in the European Union, got 37 percent of its gas in 2012 from Russia. The European Union as a whole used Russian exports for 24 percent of its gas.  Germany's reliance on Russian gas is one of the reasons why, as Vox's Matt Yglesias explains, Europe is having a tough time agreeing to new sanctions. The UK, which doesn't import Russian gas, wants to sanction Russia's gas exports. Germany disagrees, preferring a ban on military exports from Europe. France, which takes in Russian gas (but less than Germany) and plans to sell naval ships to Russia, would rather the UK seize Russian assets stored in London. All of that disagreement between major European powers has led to slow, messy negotiations.

Oil trains, born of U.S. energy boom, face test in new safety rules (Reuters) - North Dakota's Bakken oil patch has thrived thanks in large part to the once-niche business of hauling fuel on U.S. rail tracks. New safety rules may now test the oil train model. Within weeks, the Obama Administration is due to unveil a suite of reforms that will rewrite standards conceived long before the rise of the shale oil renaissance, at a time when crude rarely moved by rail and few Americans had ever seen the mile-long oil trains that now crisscross the nation. Taken separately, the changes appear incremental - a question of a fraction of an inch of steel in tank cars, a few miles an hour of speed or rerouting trains; stripping explosive gases out of the oil would be costly but not complex. But refiners, oil producers, traders and even railroads have become so reliant on such shipments that the reforms, taken together, could upend a practice that has bolstered bottom lines across a wide swathe of industrial America. It may also complicate shipments of one-tenth of U.S. crude to refineries. Executives have met formally with regulators and the White House more than a dozen times this year, often to resist anticipated reforms or propose alternatives - typically ones that put the onus on a different industry.

Landmark Decision Approves Seismic Airgun Testing for Oil & Gas Drilling Off Atlantic Coast -- In a landmark decision last week, the federal government approved seismic exploration for oil and gas drilling on the Atlantic coast. The Bureau of Ocean Energy Management will allow extensive seismic airgun testing off the Mid- and South Atlantic coasts. Seismic testing could cause major impacts to marine wildlife and the ocean ecosystem, and pave the way for offshore drilling off the Atlantic coast. “Seismic airgun testing will cause catastrophic impacts to the marine ecosystem, including injury or death to hundreds of thousands of whales and dolphins,” said Surfrider Foundation in a statement. “It will also set the stage for offshore drilling off the Atlantic coast, a dirty and dangerous practice that threatens the health of our oceans and coastal communities. The Surfrider Foundation, including our 25 local chapters from Maine to Florida, is deeply dismayed by the federal government’s decision and will continue to fight the expansion of drilling off the Atlantic coast.”“The use of seismic airguns is the first step to expanding dirty and dangerous offshore drilling to the Atlantic Ocean, bringing us one step closer to another disaster like the BP Deepwater Horizon oil spill,” Oceana said in a blog post. “During this process, our government will jeopardize the health of large numbers of dolphins and whales as well as commercial and recreational fisheries, tourism, and coastal recreation—putting more than 730,000 jobs in the blast zone at risk.”

Fracking Whales -- Not content with fracking trout, livestock or people, the Feds are now going after bigger game: whales. And dolphins and other marine mammals that use sound waves as sonar for navigation and communication. The Feds weapon of choice ? Sonic cannons used to shoot seismic in the ocean floor. And basically deafen whales and dolphins in the process. Yesterday, the Obama Administration released a “record of decision” that will allow seismic blasting in an area of the East Coast twice the size of California—the same dynamite-like blasts that are predicted to injure and possibly kill up to 138,200 marine mammals, as well as harm commercial and recreational fisheries, tourism and coastal recreation–putting more than 730,000 jobs in the blast zone at risk.  There are two questions to answer: Why did they do this? And how can we stop it?  Why? Because frackers have millions of dollars to throw around, appearing to buy favors and spread lies about mythical funds that will go to coastal communities. But coastal communities and leaders are smarter than that. 16 coastal towns and 78 local coastal elected officials already have spoken out against seismic off their shores.So what now? No blasting will happen without specific permits being approved. Today’s decision only begins that process. We need to tell the Obama Administration today that we know their record of decision is severely flawed and, more importantly, we’re going to be there every step of the way to stop all permits that threaten treasured marine animals and coastal livelihoods. (To say nothing of the whale’s livelihood)

White House To Propose New Rules For Crude Oil Rail Shipments - Bloomberg reports the Obama Administration will propose new rules for transporting crude oil by rail Wednesday, aimed at reducing speeds and requiring sturdier tanker cars. The rules are a reaction to a spate of derailments and explosions that have plagued the rail transportation of crude oil in North America recently, as the drilling and tracking boom has driven the amount of crude oil hauled by train to new heights. While the specifics remain unknown, two unnamed sources told Bloomberg that the rules will include slower speed limits for trains to reduce accidents, and thicker hulls for the tanker cars to provide more protection should a derailment occur. Members of the industry itself are split on what form the new rules should take. Railroad operators agreed in February to slow down their speeds in urban areas to 40mph, which is 10mph slower than the previous speed limit. Rail executives fear the White House may decide to lower that ceiling further to 30mph, which they argue will impede shipping, create bottlenecks and raise costs. But a letter from Union Tank Car Co. — a tank car manufacturer owned by Warren Buffett — argued this month that most of the recent accidents were due to rail operations or infrastructure. So rail operations, including speed limits, needed to be updated.“The quickest and most meaningful way to improve crude-by-rail safety is to approve new regulations regarding railroad operating procedures and classification and testing of flammable liquids,” the letter said.

Obama Administration Proposes Stricter Rules for Crude Oil Trains to Halt Derailments -  The U.S. Department of Transportation (DOT) announced details Wednesday of a proposal to make crude oil transportation safer, in a bid to prevent more derailments and the threats that accompany them. The proposal would phase out older DOT 111 tank cars that ship packing group I flammable liquids, a category that includes most Bakken crude oil. Retrofitting the tank cars to comply with new standards is the only way that wouldn’t be phased out. Other elements of the proposal include braking controls, lower speed laws and a testing program for mined gases and liquids. The proposal is subject to 60 days of public comment. The proposal is based on an Advanced Notice of Proposed Rulemaking published by the Pipeline and Hazardous Materials Safety Administration in September that received more than 150,000 comments. Here are some highlights of Wednesday’s proposal:

Norfolk Southern sues to block disclosure of crude oil shipments - -- A major hauler of crude oil by rail has sued the state of Maryland to stop the public release of information about the shipments, according to court documents. The suit was filed Wednesday, the same day the U.S. Department of Transportation announced proposed rules to improve the safety of crude oil shipments by rail. Several serious oil train accidents resulting in spills, fires and fatalities have increased scrutiny on the industry. Rail companies prefer to keep details about crude oil shipments confidential and some states have agreed, but others have decided that the records can be made public. Several states _ including California, Washington, Illinois and Florida _ have fulfilled open records requests from news organizations and others. Though rail companies didn’t want the information made public, none had pursued a legal challenge to block its release. The Maryland suit, triggered by a state Public Information Act request from McClatchy and the Associated Press, appears to be the first time a railroad has gone to court over the issue.

Rick Scott Had Stake In Company Whose 474-Mile Natural Gas Pipeline Could Run Through Florida = A 474-mile natural gas pipeline could run from Alabama through Georgia and into Florida as early as 2017, and Florida Gov. Rick Scott owned stock in the company that’s set to build it. revealed this week that a review of Scott’s financial records show investments of several million dollars “in the securities of more than two-dozen entities that produce and/or transport natural gas” including in Spectra Energy, the company in charge of building the Sabal Trail Transmission Pipeline — as well as other companies with ties to Florida. His stake in Spectra, according to the financial records, was worth $53,000. Scott’s office says the governor didn’t know of the investment because it was part of a blind trust — so even though the investments go against Florida’s ethics laws, Florida’s “qualified blind trust” statute protects public officials from conflicts of interests if they invest their money through them. As reports, the five Scott-appointed members of the Florida Public Service Commission unanimously approved the $3 billion Sabal Trail pipeline, which is slated to transport up to 1.1 billion cubic feet of natural gas each day to a Florida Power and Light plant in South Florida in late 2013. But in order for the pipeline to be built, Spectra must still submit proposals to the Federal Energy Regulatory Commission (FERC) and the Florida Department of Environmental Protection for approval. The pipeline has raised concerns among environmental groups and residents along the proposed path.

Another Export Route for Oil Sands Blocked -- A city council in Maine took action on June 21 that all but blocks off another export route for Canada’s oil sands. The South Portland City Council voted 6-1 to block the export of oil from its waterfront, citing concerns about local air and water pollution.  The vote potentially kills off a larger plan by the oil industry to connect Alberta’s oil sands to the Atlantic Coast. South Portland, Maine is a key piece of the puzzle because it is home to the end of a pipeline that runs between the coast and Montreal. The pipeline currently only runs in one direction – it accepts oil imports and sends it northwest to Montreal. Although plans were in the preliminary stages, the owner of the pipeline, Portland Pipe Line Corporation, had been considering a proposal to reverse the flow. This would allow oil sands to flow east to the coast. But if completed, the project would require the construction of two large smokestacks, which would be needed to burn off toxic chemicals before the oil could be loaded onto ships. The combustion stacks would emit benzene, a carcinogen, and other harmful air pollutants into South Portland communities.  The prospect of a mini-surge of industrialization on the South Portland waterfront led to strong local opposition. A few hundred residents packed a June 21 town meeting that saw the city council vote on legislation that forbids the bulk loading of oil onto ships. When the legislation was approved, those in attendance erupted into applause.Portland Pipe Line Corporation said the council’s move “would clearly be preempted by federal and state law,” and that it was an “illegal ordinance.” Supporters, including members of the council, are confident the ban will withstand legal scrutiny.

South Portland, Maine: The Mouse That Roared on Canadian Tar Sands - Yves here. The article below illustrates how local communities are throwing spanners in the works of various North American energy plays. For instance, New York State’s highest court (confusingly called the Court of Appeals) ruled that towns have the authority to ban fracking via local ordinance, a decision that sent shivers down the spine of natural gas developers. Another development that is causing some consternation to energy industry incumbents is an ordinance passed by the city council of South Portland, Maine, which put in place new zoning rules that would prohibit the export of Canadian tar sands through the port. Key sections of the Portland Press Herald account: The City Council gave final approval Monday night to controversial zoning changes that are expected to block the potential export of Canadian tar sands oil from the city’s waterfront… The Planning Board voted 6-1 last week to recommend the zoning proposal, which aims to prevent the bulk loading of crude oil, including tar sands, onto marine tank vessels and block construction or expansion of terminals and other facilities for that purpose…In developing its follow-up proposal, the ordinance committee found that loading crude oil onto a ship could increase air pollution, and that the vapor combustion facilities needed to mitigate the problem would have a negative visual impact on the waterfront.

U.S. Becomes Biggest Oil Producer After Overtaking Saudi Arabia  - Is President Obama’s “all of the above” energy policy a success? Or a climate failure? A report issued recently by Bank of America declared the U.S. has now surpassed Saudi Arabia as the world’s largest oil producer. The daily output average for the first quarter of 2104 exceeded 11 million barrels, a significant increase from the previous quarters’ (Sept-Dec 2013) average of 7 million barrels, according to the International Energy Agency. The expansion of domestic oil production in the U.S. has been significant under President Obama, supported by his “all of the above”—or rather the American Petroleum Institute’s “all of the above”—energy strategy which has overseen a four-fold increase in drilling rigs under his administration. News of the surge in U.S. oil production was reported almost concurrently with the release of another news item: global climate scientists have again reported historically high levels of atmospheric carbon. As reported by Climate Central, June 2014 was the third month in a row in which carbon dioxide levels in our atmosphere topped an average of 400 parts per million—a level not seen on Earth in at least 800,000 years.

Keeping oil production from falling | Econbrowser: Production flows from a given oil field naturally decline over time, but we keep trying harder and technology keeps improving. Which force is winning the race? An oil reservoir is a pool of hydrocarbons embedded and trapped under pressure in porous rock. As oil is taken out, the pressure decreases and the annual rate of flow necessarily declines. A recent study of every well drilled in Texas over 1990-2007 by Anderson, Kellogg, and Salant (2014) documents very clearly that production flows from existing wells fall at a very predictable rate that is quite unresponsive to any incentives based on fluctuations in oil prices.  .If you want to produce more oil, you have to drill a new well, and in contrast to production from existing wells, drilling effort clearly does respond to price incentives.  When a given region is found to be promising, more wells are drilled, and production initially increases. But eventually the force of declining pressure takes over, and we see a broad decline in oil production from a given producing region that additional effort and price incentives can do little to reverse. For example, production from the North Sea and Mexico, which had been quite important in the world total in 2000, have been declining steadily for the last decade despite a huge increase in the price of oil.  Another perspective on the U.S. trends comes from looking at broader categories of production. The red area in the graph below summarizes field production of conventional crude oil from the lower 48 U.S. states. This peaked in 1970, and today is 5.5 mb/d below the value achieved then. Factors temporarily slowing the trend of declining production were development of offshore oil (in dark blue) and Alaska (in light blue). But the combined contribution of all three of these has nevertheless been falling steadily for the last 20 years. That downward trend was dramatically reversed over the last few years with the advent of horizontal drilling and fracturing to get oil out of tighter geologic formations, as seen in the green region in the graph above. But it’s also worth noting that as we moved through the succession of colors in the graph above we have been turning to increasingly more expensive sources of oil. Today’s frackers would all be put out of business if we were to return to the oil prices of a decade ago.

Oil and natural gas sales accounted for 68% of Russia’s total export revenues in 2013 - - (EIA): Russia is a major exporter of crude oil, petroleum products, and natural gas. Sales of these fuels accounted for 68% of Russia's total export revenues in 2013, based on data from Russia's Federal Customs Service. Russia received almost four times as much revenue from exports of crude oil and petroleum products as from natural gas. Crude oil exports alone were greater in value than the value of all non-oil and natural gas exports. Europe, including Turkey, receives most of Russia's exports of crude oil and products, as well as virtually all exports of natural gas. Asia (especially China) receives substantial volumes of crude oil and some liquefied natural gas (LNG) from Russia. Recently, Russia finalized a 30-year, $400 billion deal to supply China with natural gas from fields in Eastern Siberia, which will further increase Russian export revenues. North America imports some Russian petroleum products, particularly unfinished oils used in refineries. Although Russia exports less crude oil and less natural gas than it consumes domestically, domestic sales of crude oil and natural gas are much lower in value than exports because of vertical integration of the oil and natural gas industry and subsidized domestic prices. Many Russian oil firms are vertically integrated, owning both the oil fields and refineries that process crude oil. These firms can sell crude oil directly to their own refineries at low prices. Domestic natural gas prices are also subsidized, forcing Russian companies like Gazprom to use export revenue to fund investment in new infrastructure and projects. EIA estimates that Russian domestic sales of natural gas and crude oil were about $20 billion in 2013, based on data from IHS Energy.

With ISIS Now Controlling 35% Of Syria And Most Of Its Oil Fields, Iraq Issues An Ultimatum To The US - Remember when the extremist Al Qaeda spinoff ISIS (or, now known as Islamic State following the formation of its own caliphate in the middle of Iraq and Syria) was still a "thing" two weeks ago? In this case out of sight does not mean out of mind, and while the world has found a new story line to follow in the middle east with the war between Israel and Gaza, now in its 14th day - whenever it is not busy responding to emotional appeals about the MH 17 crash - ISIS has continued to expand and as Al Arabiya reports it "is now in control of 35 percent of the Syrian territory following a string of victories, the London-based Syrian Observatory for Human Rights said Friday."... Perhaps sensing the fact that the tide of war may be shifting for the worse, Iraq has become increasingly more vocal in demanding US assistance and a few hours ago went as far as to issue an ultimatum on the US - help us now or we will find another bigger borther - one who will actually help us.

Iraqi Oil In Context: 60% Of OPEC Growth Expectations -- While Iraqi crude represents about 4.4% of world production, or around 3.4 mmbd (5th largest in the world); enabling investors to shrug at any fears that ISIS will spread to the South and interrupt this supply (since it will be 'contained'); what many do not comprehend is that in such a tight oil market as we currently have, Goldman warns that as much as 60% of OPEC’s expected capacity growth over the next five years to come from Iraq. Production losses so far have been fairly small, and have only been felt domestically. However, the larger impact of the conflict potentially lies in the medium to long term.

America's Oil Consumption Is Rising, Not Falling, Outpacing China's -- U.S. oil demand reversed course in dramatic fashion in 2013, as the nation's growth in crude consumption outpaced perennial leader China for the first time since 1999, according to oil company BP's annual compendium of world energy statistics.The U.S. increase follows two years of declines, and dampens hopes that the world's largest oil guzzler was permanently reining in its appetite for crude. The nation's oil use rose by 400,000 barrels per day to a daily draw of 18.9 million barrels; China's oil consumption grew by 390,000 barrels a day, to 10.8 million barrels a day, according to the BP figures released last month."Are these data points a harbinger of things to come or just an aberration?" Rühl said the rise in U.S. oil demand stemmed from industrial users of petrochemicals and other oil byproducts, a trend triggered more by a flood of cheap domestic oil supplies than by overall economic growth.Motorists also played a role in the rise, however. In 2013, the nation's demand for gasoline rose for the first time since 2007, ticking up to 8.8 million barrels per day—despite government efforts to cut gasoline use by mixing more ethanol into every gallon of the fuel, data from the Energy Information Administration show. While the 2013 figures are well below the nation's peak oil and gasoline demand levels, the return to higher consumption is discouraging for those looking for lower U.S. oil use and a reduction in carbon emissions.

Vietnam Says China Backing Down In Oil Rig Dispute -- A leading Vietnamese military officer said July 16 that China’s decision to remove a huge oil rig from waters claimed by both countries shows that it is backing down in a dispute that has raged since May. Luong dismissed a suggestion by the Voice of Vietnam, a state run news agency, that the rig was being moved to protect it from the approaching Typhoon Rammasun. The general called that “just an excuse." With majorities in nine of the 11 major Asian countries fearing military conflict, “It could be a face-saving way to end the over two-month-long standoff with Vietnam," one analyst noted.

Whose Oil Will Quench China’s Thirst? - As the heir-in-waiting to the title of world’s largest economy, China finds itself in a strange position in terms of its oil consumption.  In September 2013, China became the biggest net importer of crude, beating out the U.S. for the first time. This came as no surprise, given how rapidly China’s thirst for oil has grown, although landing in top place happened a little ahead of U.S. Energy Information Agency (EIA) predictions that it would take place in 2014. However, where the U.S. has been shoring up its own internal production, China has lagged behind. Between 2011 and 2014, U.S. oil production rose by 31 percent, as opposed to China, which saw its own production increase by a little more than 5 percent over that time. This leaves China utterly dependent on oil imports, a vulnerable position to be in at a time when its economy is beginning to wobble.  China’s demand for black gold is only set to increase, causing it to spend a staggering $500 billion a year on imports by 2020, according to Wood Mackenzie. This increase is being fueled largely by an explosion in car ownership. But who will be the faithful bartender, refusing to cut China off?  In the first six months of 2014, Iran’s oil exports to China shot up by 48 percent over 2013, reaching 630,000 barrels a day (bbl/d). This might represent only 10 percent of the country’s international crude imports, but it sends a clear message. Unburdened by the need to look tough against unsavory regimes, China has made it clear that it will continue to rely on Tehran for the foreseeable future. This is a stunning reversal from 2010-2011, when China tried in vain to fight sanctions on Iran at the United Nations’ Security Council. It ultimately relented under pressure from Russia, when even Moscow could no longer deny the seriousness of Iran refusing to provide guarantees about its nuclear program.

China is a Major Importer of Distillers Grains DDGS | Big Picture Agriculture: This graph will show you what rising incomes and more meat consumption in China mean for the U.S. agricultural export market. China’s demand for imported grains, much of it from the United States, has surged recently, with imports of cereal grains rising to 16 million tons in 2012 and 18 million in 2013. Imports in 2013 included 3 million tons of corn and 4 million tons of DDGS (distillers dried grains with solubles; a co-product of U.S. corn ethanol production used for feed) from the United States. In 2013, the United States supplied 70 percent of China’s wheat imports and, for the first time, China became a major market for U.S. sorghum. China’s demand for feed grains appears to have reached a turning point, as a tightening labor supply and rising feed costs force structural change in China’s livestock sector. Labor scarcity, animal disease pressures, and rising living standards are prompting rural households to abandon “backyard” livestock production and shift more production to specialized farm enterprises that rely more heavily on commercial feed. Because of this, China has switched from being a corn exporter to importing 3-5 million tons annually since 2009.

China Manufacturing PMI Explodes To 18-Month High, Employment Drops 9th Straight Month -- Having shown 11 awkward-to-explain charts of the Chinese economy, exposed the liquidity crisis that still lingers just under the surface, and exposed the "discrepancies that abound" in China's data, it was only right and proper in this new topsy-turvy normal that HSBC China Manufacturing PMI - after 8 months of missed expectations (but a very recent surge to the highest levels in 2014) - should smash expectations and surge to 52.0, its highest sicne Jan 2012 (and 2nd highest since the recovery began). Despite this exuberant data, employment fell for the 9th straight month.

China debt tops 250% of national income - China’s total debt load has climbed to more than two and a half times the size of its economy, underscoring the difficult challenge facing Beijing as it seeks to spur growth without sowing the seeds of a financial crisis. The total debt-to-gross domestic product ratio in the world’s second-largest economy reached 251 per cent at the end of June, up from just 147 per cent at the end of 2008, according to a new estimate from Standard Chartered bank. Such a rapid build-up is far more of a concern than the absolute level of debt, since increases of that magnitude in such a short period have almost always been followed by financial turmoil in other economies. While calculations of the ratio vary depending on exactly what types of credit are included, several other economists agreed with the new figure. Even those with slightly different calculations said the general trend was clear. “China’s current level of debt is already very high by emerging markets standards and the few economies with higher debt ratios are all high-income ones,” said Chen Long, China economist at Gavekal Dragonomics, a research advisory. “In other words China has become indebted before it has become rich.” By comparison, the US had a total debt-to-GDP ratio of about 260 per cent by the end of last year, while the UK’s ratio was at 277 per cent. Japan topped the world table at 415 per cent, according to Standard Chartered calculations.

China’s Total Debt Surges To 251% Of GDP -- China's total debt (financial credit) burden hit 251% of GDP at the end of June, according to Stephen Green at Standard Chartered.  By comparison, the US had a 260% total-debt-to-GDP ratio in 2013 and Japan has 415%, according to the FT.  On the face of it this doesn't look as bad. And the argument typically goes that because a lot of this is domestic, not external debt, China has no reason to worry.  But the concern with China has centered on the rapid rise in debt (financial credit) to GDP from 2009 on.  This financial credit or debt number cited by Green looks at "total social financing (TSF) numbers published by the People's Bank of China,  offshore cross-border bank borrowing and bond issuance, as well as official Ministry of Finance (MoF) debt."  And if you recall China's back on a credit binge. TSF surged to 1.98 trillion yuan in June, from 1.40 trillion yuan in May, and beat expectations for 1.42 trillion yuan. That prompted Bloomberg economist Tom Orlik to tweet that growth has become Beijing's top priority again.

China’s terrifying debt ratios poised to breeze past US levels – The China-US sorpasso is looming. I do not mean the much-exaggerated moment when China’s GDP will overtake America's GDP – which may not happen in the lifetime of anybody reading this blog post – as China slows to more pedestrian growth rates (an objective of premier Li Keqiang.) The sorpasso may instead be the ominous moment when China’s debt ratios overtake the arch-debtor itself. I had presumed that this inflection point was still a very long way off, but a new report from Stephen Green at Standard Chartered argues that China’s aggregate debt level has reached 251 per cent of GDP, as of June. This is up 20 percentage points of GDP since late 2013. The total is much higher than normal estimates, though it tallies with what I have heard privately from officials at the IMF and the BIS. This is up 20 percentage points of GDP since late 2013. The total is much higher than normal estimates, though it tallies with what I have heard privately from officials at the IMF and the BIS. The ratio has risen by 100 percentage points of GDP over the last five years. As Fitch has argued out in the past, this is more than double the rise seen in Japan over the five years before the Nikkei bubble burst in 1990, or in the US before subprime blew up in 2007, or in Korea before the Asian financial crisis.

How bad is Chinese debt really? - China’s total debt load has climbed to more than two and a half times the size of its economy, underscoring the difficult challenge facing Beijing as it seeks to spur growth without sowing the seeds of a financial crisis. The total debt-to-gross domestic product ratio in the world’s second-largest economy reached 251 per cent at the end of June, up from just 147 per cent at the end of 2008, according to a new estimate from Standard Chartered bank. Such a rapid build-up is far more of a concern than the absolute level of debt, since increases of that magnitude in such a short period have almost always been followed by financial turmoil in other economies. While calculations of the ratio vary depending on exactly what types of credit are included, several other economists agreed with the new figure. Even those with slightly different calculations said the general trend was clear.…“China’s current level of debt is already very high by emerging markets standards and the few economies with higher debt ratios are all high-income ones,” . “In other words China has become indebted before it has become rich.” The U.S. total debt-to-gdp ratio is now about 260 percent.  From the FT, there is more here. I also would like to see an estimate of the Chinese wealth-to-income ratio, relative to the U.S. ratio.  I would expect a higher ratio for the United States, which would militate in favor of greater sustainability for American debt, but of course that is why we wish to have the actual numbers.

China bank regulator warns on realty risks - The China Banking Regulatory Commission’s (CBRC) Shanghai office is two for two in its previous warnings on the dangers of steel firm borrowing and copper borrowing.Now Yicai is reporting that it’s the real estate sector’s turn. The CBRC’s Shanghai office is warning banks about risks in the real estate market, specifically in cities such as Changzhou and Wuxi. Changzhou is NW of Wuxi, which is NW of Suzhou (all in Jiangsu province). The Shanghai office is warning local banks, but if this problem exists here, it likely exists in many parts of the country. The regulator warns that the project cycle is taking longer, there is downward pressure on prices and the risk situation is not optimistic. Growth is slowing in second tier cities near Shanghai and there is greater differentiation between projects. Additionally, credit risk is highly correlated with economic trends.Although Changzhou and Wuxi’s real estate markets are still considered stable, prices are falling. The regulator warns that there is considerably large hidden risk and warrants the full attention of commercial banks. Specifically, longer project cycles may exceed the length of a loan and worse, sales may not cover the principal and interest. These projects will require support from the parent company or shareholders, and if they are nervous, the funding chain could be broken, leaving bank loans at risk.

Xi bolsters Latin America ties with string of lucrative deals - China’s President Xi Jinping wrapped up a four-country tour of Latin America this week after signing a string of lucrative deals, further challenging the United States’ long-running economic dominance in the region. The eight-day trip – which also took in Brazil, Argentina and Venezuela – marked a concerted effort to boost trade and strengthen ties between China and several strategic economic partners in the region. The visit was Xi’s first to these countries since taking office — a 2013 trip focused on Central America and Mexico. The region is a key market for China, which saw two-way trade with Latin America increase to $262 billion last year. Xi arrived in Brazil for the BRICS conference on July 15, where the leaders of the five BRICS nations — Brazil, Russia, India, China and South Africa — met with South American heads of state to discuss economic policy, trade and development. The leaders also announced the creation of the New Development Bank, a fund aimed at counterbalancing the U.S.- and Europe-dominated World Bank and International Monetary Fund. Following the summit, Xi met with President Dilma Rousseff to sign a number of finance, energy and business agreements, including one for the sale of 60 passengers jets to China and another that will provide $7.5 billion of financing for a Brazilian mining company. The two nations are also studying the possibility of building a railroad that would connect Brazil’s Atlantic coast with the Pacific coast in Peru. China is Brazil’s largest trading partner, with trade between the two countries reaching $83.3 billion in 2013.

Singapore Seeking to Move Up Value Chain - Singapore’s industrial production for June tells an interesting story. Output grew 0.4%, surprising analysts who expected a contraction. But electronics production continued to fall heavily, by 4.8% on year after a 4% fall in May. Biomedical production was up 1.6%.This data shows a conscious effort by Singapore to move into more value-added industries and away from lower-margin businesses, such as electronics assembly and the like. Singapore’s leaders want the country to be more competitive in service sectors, such as design of products, and biomedical research, while leaving manufacturing to nations with lower wages like Malaysia.  ANZ said in a note that Singapore’s economy is suffering now because of this restructuring. But in the long term it’s the right choice. Other nations with cheaper workers will eventually eat this business anyway.As you can see in the chart, manufacturing’s share of Singapore’s economy has fallen in recent years, while business services’ portion has grown.

Australian Inflation Muddies Rate Cut Scenario - Last year, Australia’s central bank cut rates to a record low 2.5% to help boost flagging growth as a mining boom slowed. While that extreme measure has driven house prices to record highs in major cities, it’s doing little for the real economy. The strong property boom had traders convinced the next move in interest rates would likely be up. Now, weak data due to the end of a mining boom and the government’s worry about a strong dollar has put a rate cut back on the table, some think. Futures markets Wednesday were pricing in a near 50% likelihood that the next move in rates will be down by the first quarter of 2015. “The market has swung to pricing in the risk of lower interest rates over the next six months or so, but we still think that the RBA will keep the cash rate on hold at 2.5% this year and raise them modestly next year as the economy improves,” said Kieran Davies, chief economist at Barclays in Australia. Price pressures are complicating the picture. Consumer prices rose 0.5% in the second quarter from the first and were up 3.0% from a year earlier, the Australian Bureau of Statistics said Wednesday. Core inflation, which strips out extraordinary events such as the price effects of extreme weather or new taxes, rose by an average of 0.7% on quarter, up from an expect rise of 0.6%. This measure rose 2.8% from a year earlier, putting it close to the top of the 2% to 3% band that RBA policymakers target. That makes it harder to envisage a further cut taking place any time soon.

Japan cuts growth outlook for fiscal year: Japan has cut its fiscal year growth forecast for the world's number three economy, blaming weak exports and rising imports as well as the impact of April's sales tax hike on consumer spending and business confidence. The Cabinet Office said on Tuesday it now expects expansion of 1.2 per cent in the year to March, compared with a previous estimate of 1.4 per cent. The announcement comes a week after the Bank of Japan (BoJ) also lowered its outlook to 1.0 per cent from an earlier 1.1 per cent. Japan has seen widening trade imbalances since the Fukushima nuclear crisis in March 2011 forced it to switch off its atomic reactors and turn to pricey fossil fuel imports to plug the energy gap. 'The latest forecast was based on weak demand overseas and stronger-than-expected imports,' a Cabinet Office official said of the downward revision.

Japanese Inflation Holds Near 23 Year Highs As Food, Energy, & TV Costs Soar - Japanese CPI printed 3.6% in June, modestly down from May's 3.7% YoY, but hotter than the expected 3.5% YoY analysts predicted. If you don't eat food or use energy then inflation merely bit 2.3% of your income this year but if you did then you may have noticed that energy costs are 9.1% higher YoY, TVs +8.0%, and Food +4.1% (both showing no signs of making Japan's Misery Index any less, well, miserable). PPI also printed at 3.6% (23 year highs). So when the Japanese politicians say "Abenomics is well on its way to achieving its goals..." they must mean 'of lowering living standards for all Japanese people'.

Japan June exports slide in warning sign for economic outlook (Reuters) - Japan's exports unexpectedly fell in June for a second straight month, weighed down by a drop in shipments to Asia and the United States, signalling that weak external demand may require bolder measures from policymakers to sustain the country's economic recovery. Exports fell 2.0 percent in June from a year earlier, compared with a 1.0 percent increase expected by economists in a Reuters poll, data from the Ministry of Finance showed on Thursday. That followed a 2.7 percent decline in the prior month, which was the first annual drop in 15 months. Sluggish exports, a weak spot in the world's third-largest economy, have been a concern for policymakers who hoped that a recovery in external demand would help offset the pain from a sales tax hike in April. Analysts say weak exports alone may not prompt the Bank of Japan to expand its massive quantitative and qualitative monetary easing policy, but if domestic demand fails to convincingly recover, it could raise expectations for additional monetary expansion. Those expectations had subsided in recent weeks in the face of the BOJ's dogged confidence that it will meet its goal to push inflation to 2 percent by next year. The target is a core element in the government's "Abenomics" strategy to pull the long-moribund economy from two decades of deflation. "This raises more concern about how the economy will do after the sales tax hike and makes the government less likely to proceed with the next tax hike scheduled for next year,"

Japan Trade Deficit at Record $75B in First Half - Japan's trade deficit surged to a record 7.6 trillion yen ($74.9 billion) in the first half of the year as exports failed to keep pace with surging imports, the Finance Ministry reported Thursday. Japan's bulging import bill was partly due to a jump in demand as businesses and consumers stepped up purchases ahead of an April 1 increase in the sales tax to 8 percent from 5 percent. Imports for the six months jumped 10 percent to 42.6 trillion yen ($420 billion) while exports rose 3.2 percent to 35.1 trillion yen ($346 billion), the preliminary data show. Imports from China including industrial machinery, consumer products and food jumped 14 percent, leaving Japan with a 2.92 trillion deficit with China for the first half. Japan maintained a surplus with the U.S. in the first half of the year, at 2.8 trillion yen ($27.6 billion), as exports rose 4 percent while imports climbed 12 percent. The deficit in June alone more than tripled from the year before to a higher-than-expected 822.2 billion yen ($8.1 billion). Imports surged 8.4 percent year-on-year to 6.76 trillion yen ($66.6 billion), while exports fell 2 percent to 5.94 trillion yen ($58.5 billion), the ministry said.

Japan Trade Data: Bad But Not Worrying - Japanese trade data for June, released Thursday, may not have encouraged analysts looking for a pickup in exports to end a two-year streak of trade deficits. Yet the figures are not all cause for concern, some economists say. True, there are worrying signs. Exports remain lackluster, even though U.S. growth is picking up, suggesting a lack of competitiveness. Meanwhile imports of electrical machinery are soaring. Japan’s trade balance looks likely to stay in the red. Yet The seasonally unadjusted trade deficit has narrowed to Y822.2 billion in June from a peak of Y2.8 trillion in January. Mr. Thieliant sees further narrowing ahead as export demand picks up. Falling global energy prices and a restart of Japan’s nuclear reactors will also reduce the nation’s import bill, he adds. Those that worry about Japan’s developing a structural trade deficit say it will make the nation dependent on foreign creditors – a risk given Japan’s huge public debt. The large deficit helped push Japan’s current account – which includes trade and other income flows – into the red in late 2013. More recently, the current account has returned to surplus.   If Japan becomes a net capital importer, it will have to rely more on foreigners buying Japanese government bonds to finance its public debts.Economists say that as Japan has over a quadrillion yen of debt outstanding, there is no way foreign investors will accept Japan’s low yields. As foreigners demand higher returns to compensate them for holding JGBs, the government’s debt financing costs will rise, potentially causing fiscal havoc.

No US-Japan TPP framework seen until fall- -- Despite a growing sense of urgency, the U.S. and Japan will likely not reach an overall agreement on the Trans-Pacific Partnership free trade pact until at least autumn. The mood was strained at times during negotiations Tuesday in Washington, and differences remain, but both sides agreed to work toward an early agreement, fearing that delays could derail the wider talks. They decided to resume working-level discussions early next month. The U.S. midterm elections to be held on Nov. 4 pose a high hurdle. If Tokyo and Washington reach an accord before then, the U.S. agriculture industry could criticize the administration for folding to Japan. Accusations of weakness by the opposition Republican Party could become a drag on the Democratic Party's prospects in an already difficult election. These political issues are a major reason why the next TPP ministers' meeting has not yet been scheduled. It is generally expected to be held in conjunction with the Asia-Pacific Economic Cooperation summit on Nov. 10-11, after the U.S. midterms. "Our hope is, that by the time we see each other again in November when I travel to Asia, that we should have something that we have consulted with Congress about that the public can take a look at," U.S. President Barack Obama said last month at a meeting with New Zealand Prime Minister John Key. Some are skeptical that a framework can be arranged within the year. Obama has not been given the authority to fast-track the agreement, leaving other countries to wonder whether they will end up needing to rehash the same issues.

The TPP and Japanese Agriculture - In a meeting with his economic advisers on April 2, 2013, Japanese Prime Minister Abe clarified his definition of economic restructuring – the “third arrow” of his much-vaunted Abenomics – explaining that he wished to “eliminate bottlenecks and facilitate more business activity and investments.” Yet Abe is currently undermining his stated goal by balking on lifting agricultural import quotas as part of the Trans-Pacific Partnership (TPP) negotiations, despite joining the TPP talks with the understanding that the end goal was a comprehensive free trade deal. Japan’s behavior at the twelve-nation Ottawa meeting last week led New Zealand to suggest that Japan should be eliminated from the TPP if it does not open its markets to more farm imports. Despite  boasting a majority in the Upper and Lower Houses of the Japanese Diet, it appears that Abe’s Liberal Democratic Party (LDP)-New Komeito coalition remains beholden to Japan’s agricultural interests. But even though agriculture’s influence seems to be holding steady, in the long run, Japanese farmers’ influence on Japan’s foreign policymaking will only dwindle as they increasingly lose clout in Japan’s domestic political process.

Explainer: India’s Battle With the WTO - India is on the verge of torpedoing another trade pact, and at issue yet again are the country’s massive government programs to help both farmers and the millions of poor households who buy the food they grow.  Those subsidies are already controversial within India: They weigh heavily on the government’s finances and have been blamed for keeping food inflation high. But why exactly do they have the Geneva-based World Trade Organization in such a tizzy? To ensure that all Indians have reliable access to food, the government buys wheat and rice from farmers and distributes it to state-run shops across the country, where the grains and other staple goods are sold at cut-rate prices. At the beginning of July, the government’s total stockpile of wheat and rice was more than 61 million metric tons, more than double the recommended ”buffer level” of 27 million tons. But it’s not the size of India’s stockpile per se that has gotten it in trouble with the WTO; it’s the way the government accumulates those stocks. By paying Indian farmers above-market prices for their harvests, government food procurement amounts, allegedly, to giving them an unfair advantage relative to foreign producers. Specifically, WTO rules allow countries to keep food reserves as long as they don’t “have the effect of providing price support to producers.” And when the government sells those stocks, it can’t do so at below the domestic market price.Unless these conditions are met, a country’s food-stockpiling measures count toward its total “aggregate measures of support,” or AMS, which is the dollar value of all of its price supports and subsidies. Countries that rack up AMS are supposed to reduce the total value of this support on a fixed schedule—or face potential punitive sanctions. There is a ceiling on agricultural subsidies, in short, but not a blanket prohibition. India and other developing countries want to do away with that ceiling.

Will the WTO Fast-Track Trade at the Expense of Food Security? --Yves here. This blog has been focusing on pending trade deals, namely the TransPacific Partnership, the Transatlantic Trade and Investemnt Partnership, and the even more secret Trade in Services Agreement. It’s important to keep in mind that the most heinous feature of those three deals, which is the weakening of national sovereignity through the use of investor panels (which allow foreign investors to sue governments for losses of POTENTIAL profits due to regulations) aren’t new feature in trade pacts. But the ugly trio would considerably extend the reach of these panels.  This article highlights another ugly feature of the current trade regime under the WTO, and how it operates to the disadvantage of the poorest in poor countries on a bedrock issue: food security. The General Council of the World Trade Organization begins a two-day meeting in Geneva today, with India and other developing countries threatening to block implementation of an agreement on trade facilitation. They would be justified in doing so. The potential gains from that agreement, reached last December in Bali, Indonesia, are vastly overstated, and they flow primarily to rich countries and private sector traders. India has threatened to withhold its support for trade facilitation, which would effectively scuttle the deal in the WTO’s consensus-based process. The Indian government charges that there has been no serious movement on a re-tabled proposal from the so-called G-33 group of developing countries (which now includes 46 nations) to renegotiate parts of the WTO’s agreement on agriculture so that government efforts to buy and distribute food to the poor are not treated as illegal agricultural subsidies.

In defence of cows as safe assets - You’ll remember this from last year, we’re sure: Our main finding is that, on average, [rural Indian] households earn negative returns on their investments in cows and buffaloes if labor is valued at market wages: we estimate average returns of negative 64% and negative 39% for cows and buffaloes respectively. If we value the household’s own labor at zero, estimated average returns increase, to negative 6% for cows and positive 13% for buffaloes… if cows and buffaloes earn such low, even negative, economic returns, why would rural Indian households continue to invest in them?  BUT whether those are sufficient explanations for the willingness to hold such negative returning assets (and the suspicion had to be they weren’t, and not just because buffaloes also came up negative) may be an oversimplified question. From a recently released paper — Holy cows or cash cows? In computing the return on cows and buffaloes, the authors used data from a single time period. They considered 300 cows and 384 buffaloes in two districts of the region of Uttar Pradesh, India in 2007. While each individual cow and buffalo is, arguably, a single asset, averaging across the returns of many of them in a single year does not yield the average return on cows and buffaloes. Cows and buffaloes are assets whose return varies through time. Moreover, the return on different cows and buffaloes is strongly correlated over time. In drought years, when fodder is scarce and more expensive, milk production is lower and profits are low. In non-drought years, when fodder is abundant and cheaper, milk production is higher and profits can be considerably higher. Therefore, the return on cows and buffaloes, like that of many stocks traded on Wall Street, is positive in some years and negative in others.

The Slow Recovery Continues - iMFdirect  By Olivier Blanchard - The recovery continues, but it remains weak, indeed a bit weaker than we forecast in April. We have revised our forecast for world growth in 2014 from 3.7 percent in April to 3.4 percent today. This headline number makes things look worse than they really are. To a large extent, it reflects something that has already happened, namely the large negative US growth rate in the first quarter.  But it is not all due to that.  It also reflects a number of small downward revisions, both in advanced and in emerging economies. The overall story remains largely the same as before: Advanced economies are still confronted with high levels of public and private debt, which act as brakes on the recovery.  These brakes are coming off, but at different rates across countries. Emerging markets are slowing down from pre-crisis growth rates.  They have to address some of their underlying structural problems, and take on structural reforms.   At the same time, they have to deal with the implications of monetary policy normalization in the US. Let me take you on the usual tour of the world.

IMF fears ultra-low rates are fuelling asset bubbles - Ultra-low interest rates around the world are fuelling financial bubbles and pushing investors into overvalued assets, the International Monetary Fund has warned in a marked shift of policy. “Financial markets have been very optimistic in recent months. Frankly, we’re seeing some prices that are very high compared with what is happening the real economy,” said Gian Maria Milesi-Ferretti, the fund’s deputy director. “We don’t think there is a generalised bubble but this is something we have to watch closely. In a world of very low interest rates there is an incentive to take on risk and hunt for yield, and that can lead to excesses,” he said. Olivier Blanchard, the IMF’s chief economist, said the fund is now watching financial markets “like a hawk” but said the world economy is still too fragile to withstand the introduction of tighter monetary policy. “The first line of defence should be macro-prudential tools; slowing down the housing market for example. The recovery is not very strong and really needs to be nurtured,” he said. The IMF cut its global growth forecast for 2014 from 3.7pc to 3.4pc in the latest update to its World Economic Outlook, warning that the advanced economies are still being weighed on by high levels of debt.

Income Inequality Is Not Rising Globally. It's Falling. - Tyler Cowen -  Income inequality has surged as a political and economic issue, but the numbers don’t show that inequality is rising from a global perspective. Yes, the problem has become more acute within most individual nations, yet income inequality for the world as a whole has been falling for most of the last 20 years. It’s a fact that hasn’t been noted often enough.  The finding comes from a recent investigation by Christoph Lakner, a consultant at the World Bank, and Branko Milanovic, senior scholar at the Luxembourg Income Study Center. And while such a framing may sound startling at first, it should be intuitive upon reflection. The economic surges of China, India and some other nations have been among the most egalitarian developments in history.   Of course, no one should use this observation as an excuse to stop helping the less fortunate. But it can help us see that higher income inequality is not always the most relevant problem, even for strict egalitarians. Policies on immigration and free trade, for example, sometimes increase inequality within a nation, yet can make the world a better place and often decrease inequality on the planet as a whole. International trade has drastically reduced poverty within developing nations, as evidenced by the export-led growth of China and other countries. Yet contrary to what many economists had promised, there is now good evidence that the rise of Chinese exports has held down the wages of some parts of the American middle class. This was demonstrated in a recent paper by the economists David H. Autor of the Massachusetts Institute of Technology, David Dorn of the Center for Monetary and Financial Studies in Madrid, and Gordon H. Hanson of the University of California, San Diego.

Tyler Cowen on global inequality -- Tyler Cowen sounds a bit like Voltaire's Pangloss when he argues, as the New York Times headline puts it, that we are living "all in all, [in] a more egalitarian world" (link). Cowen acknowledges what most people concerned about inequalities believe: "the problem [of inequality] has become more acute within most individual nations"; but he shrugs this off by saying that "income inequality for the world as a whole has been falling for most of the last 20 years." The implication is that we should not be concerned about the first fact because of the encouraging trend in the second fact.Cowen bases his case on what seems on its face paradoxical but is in fact correct: it is possible for a set of 100 countries to each experience increasing income inequality and yet the aggregate of those populations to experience falling inequality. And this is precisely what he thinks is happening. Incomes in (some of) the poorest countries are rising, and the gap between the top and the bottom has fallen. So the gap between the richest and the poorest citizens of planet Earth has declined. The economic growth in developing countries in the past twenty years, principally China, has led to rapid per capita growth in several of those countries. This helps the distribution of income globally -- even as it worsens China's income distribution. But this isn't what most people are concerned about when they express criticisms of rising inequalities, either nationally or internationally. They are concerned about the fact that our economies have very systematically increased the percentage of income and wealth flowing to the top 1, 5, and 10 percent, while allowing the bottom 40% to stagnate. And this concentration of wealth and income is widespread across the globe. (Branko Milanovic does a nice job of analyzing the different meanings we might attach to "global inequality" in this World Bank working paper; link.)

Junk Sales Soaring 92% as Fed Pledge Spurs Deluge  -- Mexico’s riskiest companies have almost doubled their bond sales abroad this year as surging demand for junk debt sends borrowing costs to a record low. Lender Unifin Financiera SAPI’s offering last week pushed sales of speculative-grade dollar notes from the country to $3.5 billion, a 92 percent increase from the same period last year and the most since 2011, data compiled by Bloomberg show. As the Federal Reserve pledges to keep interest rates near zero, companies in developing countries including Mexico are turning to debt markets to exploit global demand for higher-yielding assets. Yields on junk-rated Mexico corporate debt have tumbled 0.76 percentage point this year and touched an unprecedented 5.23 percent this month, Bank of America Corp. indexes show. Average yields in emerging markets have dropped 0.65 percentage point in the same span. “With rates staying this low, reaching down for yield is the new sport,”

Argentina "Determined to Default" Second Time - Background: Argentina defaulted on bonds following a debt crisis in 2001-2002. 92% of the investors agreed to haircuts, but a vulture fund picked up an 8% share at rock bottom prices and refused to negotiate.  In June, the US Supreme Court ruled that Argentina Cannot Selectively Default on the small group of hold-outs. The problem with the ruling is that if Argentina pays the vulture fund full value, it will have to pay all the bondholders full value, and that would wreck the country again.  For now, and as a direct consequence of the court ruling, Argentina "Appears Determined to Default", for the second time, on everyone.  A lead holdout investor in the Argentine debt dispute said on Friday that Argentina still refused to meet with it and negotiate a settlement before a July 30 deadline, after which the country faces a new default. "The Argentine government appears determined to default. We hope it chooses to avoid this dead-end path," The Dead-End Path is failure to negotiate.  NML Ltd. put Argentina in a position where it would lose either way. Argentina now attempts (and I hope it finds a way), to pay the 92% while defaulting totally on the 8% so they never get a cent ever. Unfortunately, all Argentina's efforts to circumvent the ruling eventually went through US banks or through other banks that will not accept payments only to the 92%. At this point Argentina is stuck and will default on everyone.

Long-term damage of the US court’s Argentinian debt ruling -- The US court ruling forcing Argentina to pay its hold-out creditors has big implications. This column argues that some of them are particularly worrying. The court ruling undermines the possibility of negotiated re-structuring of unsustainable debt burdens in future crises. In the future, it will not be not enough for the debtor and 92% of creditors to reach an agreement, if holdouts and a New York judge can block it. This will make both debtors and creditors worse-off.

Argentine default in balance as government refuses to capitulate - Argentine President Cristina Fernandez's unflinching poker face in the battle against "holdout" investors suing the country is increasing the odds that her government will default for a second time in 12 years at the end of this month. She has refused to budge from her stance that Argentina cannot pay out in full to the holdout hedge funds, which snapped up bonds on the cheap after its $100 billion default in 2002. That is despite indirect talks aimed at cutting a deal. Fernandez last week told leaders of the BRICS emerging economies that it was "impossible" to pay holdouts the full face value of the debt they hold. The funds, she said, could enter a bond swap matching the terms of restructuring deals in 2005 and 2010, which saw creditors accept large writedowns. true It is an old offer the holdouts have previously scoffed at and they have no reason to take it now given that U.S. courts have ruled in their favor and put Argentina on the verge of default. While it is part of Fernandez's negotiating position and she still has time to cut a deal behind closed doors, her aggressive tone has repeatedly angered holdouts and the U.S. judge at the center of the case, making it more difficult to cut a deal. A default risks more economic pain for Latin America's No. 3 economy which is in recession and grappling with one of the world's fastest rates of inflation.

U.S. judge orders Argentina, creditors to meet until deal reached (Reuters) - A U.S. judge ordered Argentina and investors who did not participate in the country's past debt restructurings to meet "continuously" with a court-appointed mediator until a settlement is reached, warning of the threat of a new default. U.S. District Judge Thomas Griesa in New York told Argentina and lawyers for investors who declined to restructure their bonds after the country defaulted on about $100 billion in 2002 that time was running out to reach a deal and avert a fresh default. "That is about the worst thing I can envision. I don't want that to happen," the judge said. Jonathan Blackman, a lawyer for Argentina, Latin America's No. 3 economy, said even with around-the-clock talks, it would be "unlikely, if not impossible, to result in settlement." "It simply can't be done by the end of the month," he said. Griesa ordered the parties to meet with Daniel Pollack, a New York lawyer appointed to oversee settlement talks, "continuously until a settlement is reached." Pollack scheduled a meeting Wednesday at 10 a.m. EDT (1400 GMT). Pollack, who was appointed June 23 as a mediator, has been holding meetings with the parties, publicly acknowledging talking twice with Argentine officials. The Argentine economy ministry did not respond to requests for comment after the hearing.

Debt deal is impossible, says Argentina - A settlement between Argentina and holders of its defaulted debt by the end of the month was not possible, lawyers for the South American nation said on Tuesday. With a week remaining for Argentina to reach a deal with so-called holdout creditors, scant progress in negotiations may see it default on its debt for the eighth time in its history.  Lawyers for Argentina said at a hearing in New York that a settlement with the holdouts to allow it to make interest payments by July 30 “was not possible, even with round-the-clock talks”. On Monday, Argentina again asked a US court to put on hold an order to pay the holdouts – a group of hedge funds that refused to participate in the country’s debt restructurings after its 2001 default. Judge Thomas Griesa, who is overseeing the long-running debt dispute, rejected the request. “In my view, every single problem you’ve described is susceptible to be handled in a settlement . . . if we don’t, there will be a default, and that is the worst thing,” Mr Griesa told Argentine lawyers. Judge Griesa ordered Argentine negotiators and holdout creditors to meet a court-appointed mediator “continuously until a solution is reached”. He postponed making a ruling on Argentina’s payments to holders of its non-US law bonds.

US Courts Defend Rights of Vulture Funds Over Argentina - Yves here. This Real News Network interview on the state of play with vulture fund NML’s highly profitable battle with Argentina features one of NC’s favorite guest writers, Michael Hudson, as well as James Henry, who is best known as an expert on tax havens.

Argentina: The RUFO Crazy - Kudos to Joseph Cotterill at FTAlphaville for an excellent post on the obsession with the Rights-Upon-Future-Offers (RUFO) clause in Argentina's restructured bonds, which seems to be driving Argentina to a payment default on those very bonds. Judge Griesa is not buying it, though --  at a hearing on July 22, he again denied the Republic's request for a stay of his orders blocking restructured bond payments, unless Argentina pays the holdouts pro rata. He also deferred the hugely consequential decisions on paying creditors under English and Argentine-law bonds; that mess is for another post. RUFO is basically a close cousin of the pari passu monster. It is a promise by Argentina to the restructured bondholders that, should it give holdouts more favorable terms, the restructured bondholders would get the same. So if NML and friends get 100 cents plus exorbitant past-due interest on the defaulted 1994 bonds, the restructured bondholders get to claim the same for themselves. The ever-un-dramatic Argentine press has done the math, and came up with a $500 billion bill. Meanwhile, some distressed investors holding the restructured bonds are gleefully rattling the RUFO sabers (classier than a lottery ticket!) ... while concerned citizens in Argentina are threatening to sue government officials for saddling the state with $500 in new debt.

Argentina Debt "Mediation" Goes Surreal As Neither Side Turns Up For Meeting, Black-Market Peso Tumbles - Despite Judge Griesa's demands that the holdouts and the Argentinian government hold "continuous" mediation until the debt conflict is resolved "or fear the worst," this morning's headlines are somewhat surreal:*NEITHER SIDE IN ARGENTINE DEBT CONFLICT HAS ARRIVED TO MEETING. Argentina decided not to send the economy minister (just a 'delegation') as BTG analysts warn that "all the music from the Argentine government indicates default," and judging by the tumble in Argentina's black-market Peso (Dolar Blue) the last few days, that risk is starting to rise.

Exclusive: Holdouts not asking to suspend Argentine debt order - Aurelius (Reuters) - Argentine debt holdout investor Mark Brodsky refuted a story in Argentina's La Nacion newspaper suggesting his group, which is negotiating a settlement with the government, will ask a U.S. judge to suspend his payment order ahead of a July 30 deadline. Brodsky is the chairman of Aurelius Capital Management, one of the lead holdout investors in the case which awarded them $1.33 billion plus accrued interest. Argentina was ordered to pay the holdouts at the same time it paid bondholders who accepted an exchange, or restructuring, of defaulted debt in 2005 and 2010. "The story is utter fiction," Brodsky said in a statement. La Nacion reported that the other lead holdout in the case, NML Capital Ltd, a division of Elliott Management Corp, could call for U.S. District Judge Thomas Griesa in New York to temporarily suspend, or stay, his order that Argentina pay holdout creditors. Argentina says the order is pushing it toward default.

The Trial of the Century? - Now fast forward to the “Argentina vs. Vulture Funds” litigation and the unfortunate high-profile involvement of the US judiciary in what the Financial Times has coined “the trial of the century”. Such spectacular denomination surely obeys to the fact that we have now passed from previous UN-enforceability of sovereign debt (by definition) to potent help freely offered to rogue creditors (vulture funds) which will bring about negative consequences world-wide (of course). As University of Georgia Prof. Tim Samples has exquisitely put it, the current situation establishes “… a radical departure from the traditional unenforceability of sovereign debt in favor of the opposite extreme: potent injunctive remedies applicable to third parties… a landmark case in a trend that threatens destabilizing consequences for sovereign debt restructuring — a major concern for sovereigns as well as their creditors — and creates serious uncertainties for financial institutions”. The term “sovereign” is mentioned three times. The world’s global sovereign debt is close to USD 55 Trillion (three times larger than US GDP) and thus has enormous impact on financial markets and everyday economics, political stability and even national security. Credit Default Swaps (CDS), otherwise known as “insurance in case of default” leverage such impact with unfathomable counterparty risk worldwide.

You Say Poignant, I Say Depressing -- As Anna points out, there are indeed moments of poignancy in the pari passu litigation, largely having to do with the fact that, days from a major sovereign default induced in no small part by their rulings, the US courts only now seem to be discovering basic facts about the case. The transcript of the most recent hearing before the district court contains passages that might have been appropriate two years ago, but are depressing to encounter now. For example, the court was initially willing to let Citibank Argentina pass along payments it received on USD-denominated, Argentine-law bonds, despite the fact that the injunction doesn't seem to distinguish these payments from those made to other bondholders. But then it turned out the judge was assuming that (i) the relevant bonds were not issued in exchange for defaulted debt (transcript, p. 5), (ii) were held by folks in Argentina who didn't need to be "dragged into this overall difficulty" (p.7), and (iii) in any event comprised only a "minute exception" to the injunction because the amount of money was small (p. 10). Upon learning that each of these assumptions was false, the judge lamented: "There is a lot to do today." Perhaps the most depressing part of the hearing was how ad hoc many important decisions seem to be. Consider the exchange over whether Bank of New York Mellon should retain or return payments it has already received from Argentina:

IMF sees substantial costs of an Argentina default -The IMF's chief economist warned Thursday that a default by Argentina in its battle with holders of its defaulted debt may hurt its economy and the global financial system. "If it goes into default and doesn't pay the holdouts, there might be substantial costs, being basically unable to access markets for some time," said Olivier Blanchard, head of the International Monetary Fund's team of economists. Blanchard, speaking at a news conference on the latest IMF growth forecasts for the global economy, also emphasized that "there's a cost to the world in the sense that we need resolution systems which work well when countries are in trouble." Under a US court order, Argentina has until next Wednesday to either pay certain hedge funds demanding full payment on defaulted bonds or risk being declared in default. Blanchard said the Argentina case means "there's much more uncertainty as to how we'll be able to restructure debt for others countries in the future. "So this really tells us that we need to work on improving resolution mechanisms." The IMF proposed an international debt restructuring mechanism in 2003 but the plan was abandoned under pressure from the United States, the institution's largest stakeholder, and the major emerging-market economies. Argentina continues to face the fallout of its 2001 debt default, which plunged the country into an economic crisis it is still battling to overcome.

Brazil injects $20bn into banking sector - Brazil is freeing up more than $20bn in its banking system as Latin America’s largest economy struggles to escape the grip of “stagflation” ahead of presidential elections in October. While economists say Brazil could end the year with inflation above the upper limit of the target for the first time in a decade, the country is expected to grow less than 1 per cent. Data next month may show the economy even slipped into recession in the first half of this year. With little leeway to change interest rates, the central bank announced a series of measures on Friday to ease banks’ reserve requirements, and changed the risk calculation for some loans, injecting an estimated total of R$45bn ($20.2bn) into the economy. Under the new rules, banks will be allowed to use up to half of their reserve requirements on term deposits to boost credit operations or to purchase loan portfolios from eligible financial institutions. The central bank also nearly tripled the number of institutions eligible under that programme to 134 from 58 previously and, in a separate announcement, adjusted minimal capital requirements for retail credit operations. It said the move was designed to “improve the distribution of liquidity in the economy” and was largely seen by economists as a way to unwind the so-called macroprudential measures introduced from 2010 onwards to rein in the country’s credit boom.

Russia vastly outgunned in economic showdown with West - The economic showdown unfolding between Russia and the West is almost entirely one-sided. The US has the power to bring Russia to its knees through hegemonic control over the world’s banking system, using an array of lethal financial weapons developed by a cell at the US Treasury, and already deployed against Iran and North Korea. Richard Christopher Granville, from Trusted Sources, said the US “crossed the Rubicon” last week even before the apparent missile strike against Malaysia Airlines flight 17, imposing sanctions that effectively shut the energy trio of Rosneft, Novatek, and Gazprombank out of international finance. “The Americans have the power to throttle Russia unilaterally because no European or Western bank of any importance is going to defy the US after the fines imposed on BNP Paribas,” he said. “What has been holding them back is fear of a damaging split between the US and Europe, since it is Europe that suffers the full blow-back from sanctions. This issue has been blown away completely by the crash. Europe’s leaders now have a duty to their own citizens to be tough,” he said.

Global Banks Appear to Cut Russia, Ukraine Exposure, But Not By Much - Bankers tend to abhor risk. Especially geopolitical conflicts involving a nuclear power. So risk managers around the world probably smiled Wednesday when the numbers came out showing their exposure to Russian creditors fell significantly in the first quarter, while Ukraine was facing the loss of its Crimea region and an escalating battle against pro-Russian fighters on its eastern border. Internationally active banks reduced their outstanding lending to Russia to $209 billion at the end of March, from $225 billion at the end of 2013, according to the Bank for International Settlements. In the same period, international lending to Ukraine fell to $22 billion from $25 billion on an “ultimate risk” basis, according to the Basel-based institution.But there’s a catch: Most of the decline in lending exposure to Russia in dollar terms was due to the collapse of the ruble against the dollar. The currency faced a massive exodus on the prospect of escalating sanctions and overall geopolitical risk.According to another set of statistics from the BIS that adjusts for exchange rates, international claims on Russian borrowers barely budged at all in the first quarter, slipping by just $300 million. And that could be a problem. The drop in the Russian ruble means companies that sell to Russian consumers, and others that get their revenue in rubles, will have a harder time paying back the loans that foreign banks extended in (increasingly expensive) dollars and euros.

Kiev Government Breaks Up as EU Mulls Fresh Russia Sanctions --Ukraine’s premier Arseniy Yatseniuk tendered his resignation on Thursday, clearing the way for early elections aimed at producing a more reform-minded parliament in Kiev but also risking a short-term political vacuum. Two parties quit the country’s governing coalition earlier in the day and President Petro Poroshenko backed the idea of an early parliamentary poll. New elections would be likely to reduce the number of pro-Russian MPs and supporters of ousted president Viktor Yanukovich.   Mr Yatseniuk rebuked the existing parliament for putting Ukraine’s future at risk and betraying the ideals of the protests that toppled Mr Yanukovich in February, by failing to pass vital laws on energy and army financing. The Ukrainian government break-up came as EU ambassadors in Brussels met behind closed doors for more than eight hours debating whether to take the first step towards sweeping sanctions against the Kremlin over its support for pro-Russian separatists in Ukraine. These would target entire sectors of the Russian economy.

The Baltic Dry Index Collapses To 18-Month Lows; Worst July Since 1986 -- The bulls will ignore it, shrugging that it's merely over-supply of ships that the resurgent world economy will quickly soak up as it 'recovers'... However, World GDP growth expectations are collapsing, trade volumes are slowing, and the Baltic Dry Index has continued to slump to its lowest since the start of January 2013 (a holiday period). For some context, this is the lowest July level for the Baltic Dry since 1986... "noise"

The Transatlantic Trade and Investment Partnership: Review of Economic Blogs - Yves Smith - This post from VoxEU gives a partial answer to a question many US readers have been asking: what are the prospects for the Transatlantic Trade and Investment Partnership? As we’ve written, the Transatlantic Trade and Investment Partnership’s evil twin, the TransPacific Partnership, looks to be in trouble. Both the Senate and the House are opposed, and Obama wants them to give him “fast track” approval to facilitate completing the accord. Our resident Japan commentator Clive says the Japanese press is treating the deal as dead, absent major changes in US posture that no one expects to happen. The Wikileaks publication of two draft chapters showed that all of the proposed parties to the agreement have significant objections to many of the provisions. But much less is known about the state of play of the Transatlantic Trade and Investment Partnership. Many commentators have assumed it is moving forward simply due to positive messaging by the US Trade Representative’s office, the assumption that Europe and the US have generally common interests, and the lack of negative press. But as we wrote recently, sentiment in Germany is strongly against the Transatlantic Trade and Investment Partnership. With Germany already reconsidering its relationship with the US as a result of US spying, pushing back against the investors panels, which is the part that Germans and people not in the pocket of multinationals find most offensive, is far more likely than if US/German relations were on a better footing. The VoxEU post recaps commentary among economists on the Transatlantic Trade and Investment Partnership. What is striking is the level of objections, and that if you look carefully, most of the economists who are supportive of the TTIP and TPP are American, while most of the Europeans (and Dean Baker) are opposed or (like Pascal Lamy) approve of the liberalization of trade but object to the investor panels. The European economists’ reactions likely represent a considerable swathe of official views.

More Challenges to “More ‘Free Trade’ is Always Better” Orthodoxy -- Yves Smith -  One way to induce a Pavlovian reflex in mainstream economists is to invoke the expression “free trade”. Conventional wisdom holds that more trade is always better; only Luddites and protectionists are against it. That’s one big reason why the toxic TransPacific Partnership and its evil twin, the Transatlantic Trade and Investment Partnership, have gotten virtually no critical scrutiny, save from more free-thinking economists like Dean Baker. They have been sold as “free trade” deals and no Serious Economist wants to besmirch his reputation by appearing to be opposed to more liberalized trade. But these criticisms have been treated as fringe phenomena. What is noteworthy, however, that it is suddenly acceptable to question the ‘free trade’ orthodoxy, although the critics take great care to distance themselves from any populist or labor-favoring taint.   We took note of one last week, of a hand-wringing piece in that bastion of correct economic thinking, Project Syndicate, in which Ian Goldin lamented that globalization had increased systemic risk on numerous fronts: environmental, financial, political, technological. Goldin wasn’t willing to buck conventional wisdom and use his observation to suggest that “free trade” may have gone past its point of maximum advantage. But the fact that the only solution he could envision was the pipe-dream of better governance was telling.  A fresh article, again at Project Syndicate, has the former head of the FSA, Adair Turner, making a more direct, but short of head-on, challenge to “free trade” orthodoxy. Turner’s point is that trade is unlikely to do much to drive further growth, and economists and policymakers have much better focuses for their energies. He also points out that to the extent that further liberalization of trade does increase GDP, it is likely to come at a cost.

Eurozone public debt surges -- Public debt in the 18-member eurozone soared to a record high in the first quarter of 2014. The embattled economies of southern European nations accounted for much of the increase. The collective debt of countries sharing the euro currency edged up in the first three months of the year, following half-year gains along the bloc's weaker periphery, the European Union's statistical office, Eurostat, reported Tuesday. Public debt in the euro area climbed 1.2 percentage points from 92.7 percent of gross domestic product (GDP) in the final quarter of 2013 to 93.9 percent in the first three months of 2014. Eurostat indicated that first-quarter debt levels in the eurozone had for the first time surpassed the 9 trillion euro ($12.2 trillion) threshold.  Responsible for the overall increase in public debt were the bloc's weaker members Italy, Spain, Portugal and Greece. The highest ratio of public debt-to-GDP was registered in Greece, where austerity measures have exacerbated the country's debt burden. Eurostat said Athens had logged a whopping 174.1 percent ratio.

S&P warns Europe debt market near pre-crash levels -- European corporate debt markets have become "intoxicated" by monetary stimulus from central banks and "aggressive" transactions are in danger of reaching the excesses seen before the global financial crisis, ratings agency Standard & Poor's has warned."Artificially low interest rates not only encourage an inefficient allocation of capital but create the incentive for excessive speculation in financial markets that ultimately risk doing more harm than good when boom turns to bust," "The greater use of leverage and a growing number of aggressively structured transactions in the European leveraged finance market is reminiscent of some of the excesses of the 2006-2007 boom period." Concerns are centered on whether the right companies are benefiting from cheaply generating debt and whether they are using it in the most productive way. S&P believes that business confidence in Europe remains low, which is pushing companies to issue more debt at record-low rates than spending money on capital investment.  Because companies are opting to borrow rather than invest, central bank policy is helpless in triggering a self-sustaining recovery in the region, the ratings agency added. Instead, S&P says that both the U.S. and Europe are showing trends of surging merger and acquisition volumes, high debt issuance and more leveraged buyouts. This points to an erosion of market discipline and a greater reliance on financial engineering to generate returns rather than fundamental growth. S&P adds that this to magnifies the risks in the financial world and says that the problems are even more pronounced in the U.S.

Greek sovereign debt at 174.1 percent of GDP in first quarter: Eurozone public debt rose to 93.9 percent of economic output in the first quarter of this year, approaching the peak it is expected to reach later in 2014, official data showed on Tuesday. Government debt of the 18 countries sharing the euro stood at 9.055 trillion euros ($12.21 trillion) in the first three months of this year, compared to 8.905 trillion euros in the last quarter of 2013, the EU's statistics office Eurostat said. The EU's executive arm - the European Commission - expects the debt to peak at 96.0 percent of gross domestic product this year and then ease to 95.4 percent of GDP in 2015. Nearly 80 percent of the bloc's debt is in bonds and treasury bills. Loans account for 17.9 percent of the debt. Twice bailed-out Greece was the eurozone's most indebted country with sovereign debt of 174.1 percent of GDP, followed by the bloc's third-biggest economy Italy, with debt equivalent to 135.6 percent of GDP in the first quarter. Only two countries - Germany and Luxembourg - saw their debt fall compared with the last quarter of 2014 and the first quarter of 2013.

Greece tops eurozone poverty rate: Greece ranks first in the eurozone and fourth among the 28 members of the European Union for the percentage of its citizens living on or below the poverty line, according to a new report. The study, conducted by the Foundation for Economic and Industrial Research (IOBE), found that just over a third (34.6%) of Greeks – some 3,795,100 individuals – were living on less than 60% of the national median income in 2013. This percentage has risen steadily since 2010, when the country began implementing austerity measures, increasing from 27.6% in 2010 to 27.7% the following year, 31% in 2012 and 34.6% in 2013. The publication of the study, which is based on Hellenic Statistical Authority (Elstat) data, coincided with the 40th anniversary of the effective ending of military rule in 1974. Elstat’s data showed that the risk of poverty has increased significantly in Greece since 2010 and the percentage of relative poverty increased by 17.3%, or 3.4 percentage points. In the same period, the poverty gap increased by 24.1% and the risk of poverty and social exclusion by seven points, or 25.4%. In the EU, Bulgaria (49.3%), Romania (41.7%) and Latvia (36.2%) have the highest percentages of people living in relative poverty. Greece's poverty rate also outstripped other EU countries that have entered austerity programmes. In Ireland, the rate is 30% in Ireland, in Spain 28.2%, in Cyprus 27.1% and Portugal 25.3%.

Number of Unemployed in France Hits New High - The number of unemployed people in France has hit a new high as the country grapples with the fallout of the financial crisis and a sluggish eurozone recovery, the Labour Department reported Friday. At the end of June, there were 3.398 million people who were registered as being without a job in the eurozone‘s second-largest economy - 0.3 per cent more than in the previous month. Compared to June of last year, the number of jobless was up 4 per cent. In a glimmer of positive news, the number of unemployed youth was down compared to last year: those under 25 without a job decreased by 3.1 per cent to 535,000. France‘s 10.1-per-cent unemployment rate is nearly twice as high as in neighbouring Germany, which registers a 5.1-per-cent rate.

Euro Area: An Unbalanced Rebalancing? - IMF Blog - Since the financial crisis, the euro area current account, made up mostly of the trade balances of the individual countries, has moved from rough balance into a clear surplus. But the underlying rebalancing across economies within the euro area has been highly asymmetric, with some debtors, like Greece, Ireland, and Spain, seeing large current account improvements (sometimes into surplus), while creditors, like Germany and the Netherlands, have basically maintained their surpluses (Chart 1). A set of new staff papers look at the drivers of the improvements in debtor current accounts and the persistence of creditor current accounts, and whether these developments are a cause for concern. Many debtor economies have seen their unit labor costs decline, improving competitiveness and boosting their current accounts. We looked in detail at recent competitiveness gains in euro area debtor economies, finding them to be largely driven by declining unit labor costs (Tressel and others, 2014 and Tressel and Wang, 2014). But Greece and Ireland’s labor cost declines have been due to a roughly equal mix of declining wages and employment, while Spain’s has been due to declining employment (Chart 2). In other words, the bulk of competitiveness improvements in debtor economies has been accompanied by declining domestic demand and rising unemployment. This raises questions about the durability of the current account improvements in these economies: when domestic demand recovers in these economies, will current account deficits re-emerge?

Have central banks been breaking the law? - The best way to destroy the capitalist system, the Russian revolutionary leader Vladimir Lenin is reputed to have said, is to debauch the currency. The world’s major central banks have certainly been having a fair old go at it. In the six years since the financial crisis first broke, they’ve been printing money like there is no tomorrow. Fortunately, they have not yet managed to bring down the free market system. On the other hand, they have succeeded in putting a rocket under asset prices and, in so doing, they have greatly exaggerated the wealth divide. In a number of cases, including the US and the UK, they have also significantly assisted governments in financing burgeoning fiscal deficits. To the extent that quantitative easing (QE) has had any effect at all, it is asset prices and governments that have been the prime beneficiaries. This might seem something of an old issue now; the Bank of England stopped buying assets more than two years ago, while the US Federal Reserve is “tapering” fast. For the US and Britain, the age of “unconventional monetary policy” seems to be largely over. Elsewhere, however, QE remains very much a work in progress. In Japan it’s continuing at heroic pace, while on the Continent the European Central Bank is being urged by the International Monetary Fund to stop dilly-dallying in the face of deflationary pressures and get on with it.

QE is fiscal policy - A new paper by Johnston and Pugh of the legal department of the University of Sheffield discusses the legality and the effectiveness of QE and its relatives, including the ECB's OMT "whatever it takes" promise. The background to this is the German Constitutional Court's ruling that OMT amounts to monetary financing of government deficits and is therefore unlawful. Although the European Court of Justice is still to give its judgment in this matter - and is widely expected to dissent - the ECB is evidently doing its best to avoid outright QE, quite possibly because of questions over its legitimacy. The ECB has stated that in its opinion QE is legal, but then it said that about OMT too. The truth is that it is by no means clear that QE is legal in the Eurozone. So the University of Sheffield's legal eagles have had a good look at the legality of both OMT and QE with respect to the Lisbon Treaty. And they concur with the German Constitutional Court. OMT does indeed amount to monetary financing of governments. So does QE. Both are therefore illegal under Article 123 of the Lisbon Treaty.

UK deficit widens as government fails to reduce borrowing - George Osborne is on course to miss his goal of trimming Britain’s deficit this fiscal year after figures showed public borrowing climbed 7.3pc in the first quarter. The Government borrowed £11.4bn in June, just £100m less than the same month last year, and well above analysts’ forecasts of a deficit of £10.7bn. Last month’s borrowing increased the 2014/15 deficit to £36.1bn, up from £33.7bn at the same point a year ago. It also brought total public sector net debt to a record £1.305 trillion in June, equivalent to 77.3pc of GDP. The figures, which exclude the effects of financial interventions and other one-off factors, underline the magnitude of the task facing Mr Osborne. The Chancellor is aiming to cut the deficit to 5.5pc of GDP in the 2014/15 fiscal year, from 6.5pc last year, to meet targets set by the Government’s forecaster, the Office for Budget Responsibility (OBR).

Why not worker control?: "Workplace autonomy plays an important causal role in determining well-being" conclude Alex Coad and Martin Binder in a new paper. This is consistent with research by Alois Stutzer which shows that procedural utility matters; people care not just about outcomes but about having control, which is why the self-employed tend to be happier than employees. This implies that a government that is concerned to increase happiness - as David Cameron claims to be - should have as one of its aims a rise in worker control of the workplace.  This is especially the case because research shows that the cliche is true - a happy worker really is a productive worker. For this reason, it shouldn't be a surprise that there's a large (pdf) body of research which shows that worker coops can be at least as productive and successful as hierarchical firms. ...[examples]... Greater worker control, therefore, might increase well-being directly and also raise productivity. Which poses the question: why, then, is it so firmly off of the political agenda? It's not because it's a loony lefty policy. ... Nor do I think it good enough to claim that there's no voter demand...

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