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

Saturday, July 5, 2014

week ending July 5

Fed's Balance Sheet 02 July 2014 Up Marginally: Fed's Balance Sheet week ending balance sheet was $4.334 trillion - up from the record $4.325 two weeks ago. The complete balance sheet data and graphical breakdown of the cumulative and weekly changes follows. Read more >> (graphs)

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

Fed must not linger too long on QE exit - It has been a good six months for borrowers in the high yield market who raised a record $180bn in the period. Two-thirds of that has gone to refinance debt at ever lower yields, and another 16 per cent to help finance new mergers and acquisitions. Still, although there is virtually no sign that the Federal Reserve has any intention of exiting its easy money policy any time soon, the congenitally pessimistic denizens of the bond markets are already fretting that when rates rise, the process will be far more painful than in the past as investors all decide to hit the sell button at the same time. Many hedge funds hold short futures positions in a bet that rates will rise in the middle of 2015. Demand for credit has grown far faster than equities, according to analysts. Indeed, since the end of 2008, the three fastest growing asset classes have been fixed income exchange traded funds, emerging market corporate debt that is dollar denominated, and US high yield. Meanwhile, spreads to Treasuries continue to grind tighter. All this makes these asset classes, and high yield debt in particular, more vulnerable to outflows with even a small move up in rates. In other words, the longer easy money continues, the trickier the exit and more dire the consequences in the eyes of the debt markets. That is, of course, partly because the banks are no longer making two-way markets as robustly as they used to do as a result of constraints imposed upon them (by the same people bringing them easy money). No regulated financial institution wants, or is, allowed to take the risk of taking the other side. That suggests that prices of illiquid corporate bonds – whether in the US or outside – will gap down when the appetite for risk goes into reverse with the eventual end of easy money. In April, the International Organisation of Securities Commissions warned of the liquidity risk bond market investors face. And two weeks ago JPMorgan’s market strategist entitled his weekly outlook “From leverage risk to liquidity risk”, to underscore the dangers inherent in the process.

BIS Warns About Destabilizing Low Interest Rates  -  Yves Smith - The financial media is all atwitter over the Bank of International Settlement’s just released annual report, since it shook a stern finger at central banks for keeping super low interest rates and warned them about the difficulty of renormalizing without kicking up a lot of upheaval.   It’s hardly news that getting out of the corner that the Fed and ECB have painted themselves in won’t be easy, as the taper tantrum of last year demonstrated. But the BIS implicitly endorses austerity, when it’s austerity that has led to the perverse mechanism of falling back on a protracted period of super low interest rates to keep banks and through the confidence fairy, economies chugging along despite that. We can see how well that is working in the US and Europe. The US “recovery” is running just above stall speed, and Europe’s is a technical recovery. So while some of the BIS’ warnings are valid, it chooses to ignore that the reason these low interest rates were implemented in the first place was due to poor criss responses, a fact set it omits.  So on the one hand, the BIS correctly warns about the risk of overheating financial markets as a result of super low interest rates. As the Financial Times put it:While the global economy is struggling to escape the shadow of the crisis of 2007-09, capital markets are “extraordinarily buoyant”, the Basel-based bank said, in part because of the ultra-low monetary policy being pursued around the world. Leading central banks should not fall into the trap of raising rates “too slowly and too late”, the BIS said, calling for policy makers to halt the steady rise in debt burdens around the world and embark on reforms to boost productivity. Some related discussion from the report proper: Financial markets have been acutely sensitive to monetary policy, both actual and anticipated. Throughout the year, accommodative monetary conditions kept volatility low and fostered a search for yield. High valuations on equities, narrow credit spreads, low volatility and abundant corporate bond issuance all signalled astrong appetite for risk on the part of investors... Overall, it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally…

The BIS Wants to Put the Cart Before the Horse. -- The Bank for International Setttlements (BIS) released its annual report today. It calls for central banks in advanced economies to begin tightening monetary policy to ward off the buildup of financial imbalances. This is great advice if it were 2002. But it is 2013 and advanced economies are still fragile. Raising interest rates now, as Ryan Avent notes, would choke off the feeble recovery and create the very financial instability the BIS fears. This tension between what the BIS wants monetary authorities to do and the consequences of doing so is evident in the annual report. For example, observe the contraction between these two excerpts from chapter five of the report (my bold): Over the past 12 months, nominal and real policy rates remained very low globally, and central bank balance sheets continued to expand up to year-end 2013...This extraordinary policy ease has now been in place for about six years... [...]Effectiveness [of monetary policy] has been limited...the zero lower bound constrains the central banks’ ability to reduce policy rates and boost demand.  The first paragraph says monetary policy has been extraordinarily easy while the second paragraph implies the opposite. In fact, the whole point of the ZLB is that the market-clearing or 'natural' interest rate has become negative while the nominal target interest rate is stuck at zero percent. The Fed, in other words, has been forced to keep interest rates high relative to where market forces would naturally push them. This is not the definition of extraordinarily easy monetary policy. It is the definition of tight monetary policy. The BIS policy prescription is to have the Fed raise interest rates even higher above the natural interest rate. That is a sure recipe for financial instability.

Fed has grown complacent on credit market risk - “High-yield bonds have certainly caught our attention,” Janet Yellen, Federal Reserve’s chairwoman, remarked after the US central bank’s June policy meeting. “There is some evidence of ‘reach for yield’ behaviour.” Yet, the Fed’s broader message to investors was clear: we are not concerned and we will keep interest rates low; keep on dancing. I believe this is a policy error. The Fed is underestimating a build-up of risk in credit markets which is threatening financial stability. The International Monetary Fund warned in its last assessment of the US economy that bond markets were becoming vulnerable to a sell-off. “Longer-term treasury yields and the term premia have been compressed to very low levels,” it noted. The IMF cited increased risk-taking by mutual funds and credit exchange traded funds, which are exposed to daily redemptions but invest in illiquid assets (junk bonds or loans), as well as worsening credit standards and low secondary market liquidity. The European Central Bank and Bank of England have also raised red flags. The worry is that a combination of complacency and illiquidity could turn a snowball into an avalanche when “low-for-long” interest rates come to an end. With US unemployment falling and the Fed’s asset purchase “tapering” ending in the fourth quarter, this moment is getting closer. Markets are unprepared. To prevent excess risk-taking and prepare investors for its exit strategy, the Fed has adopted two policies: clear communication and macroprudential regulation. Both are ineffective. First, providing certainty about the low path of interest rates is self-defeating. It gives an even stronger green light to investors and companies engaged in risk taking. US firms are adding record debt through mergers and acquisitions and share buybacks. Second, macroprudential policy making has a dubious record and may not work. Most existing prudential tools target mortgage lending. In financial markets, investors can generally invent new structures to take risks – and elude regulation. Before leaving the Fed, Jeremy Stein warned policy makers needed to “be realistic” about the limits of regulation. Only monetary policy “gets in all the cracks” of the financial system, he said.

Fed Chair Yellen: "Pockets of increased risk-taking" - From Fed Chair Janet Yellen: Monetary Policy and Financial Stability. A few excerpts:  [M]onetary policy has powerful effects on risk taking. Indeed, the accommodative policy stance of recent years has supported the recovery, in part, by providing increased incentives for households and businesses to take on the risk of potentially productive investments. But such risk-taking can go too far, thereby contributing to fragility in the financial system. This possibility does not obviate the need for monetary policy to focus primarily on price stability and full employment--the costs to society in terms of deviations from price stability and full employment that would arise would likely be significant.  In recent years, accommodative monetary policy has contributed to low interest rates, a flat yield curve, improved financial conditions more broadly, and a stronger labor market. These effects have contributed to balance sheet repair among households, improved financial conditions among businesses, and hence a strengthening in the health of the financial sector. Moreover, the improvements in household and business balance sheets have been accompanied by the increased safety of the financial sector associated with the macroprudential efforts I have outlined. Taking all of these factors into consideration, I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns. That said, I do see pockets of increased risk-taking across the financial system, and an acceleration or broadening of these concerns could necessitate a more robust macroprudential approach.

Yellen: Monetary Policy Faces 'Significant Limitations' - Monetary policy faces "significant limitations" as a tool to address financial stability risks, and would have caused major economic damage if it had been used to head off the U.S. housing bubble, Federal Reserve Chair Janet Yellen said on Wednesday. Weighing in a global central banking debate, Yellen reiterated her view that regulatory policy needs to play the lead role in combating excessive financial risk-taking. She said, however, that an increased focus on financial stability in monetary policy deliberations was appropriate, but that central banks should only shift interest rates to combat risks to stability in rare circumstances. "The potential cost ... is likely to be too great to give financial stability risks a central role in monetary policy discussions," Yellen said at an event sponsored by the International Monetary Fund. The U.S. stock and bond markets have soared on the back of the Fed's extremely accommodative monetary policy, prompting warnings from some analysts and economists that new bubbles may be forming. Yellen played down those concerns. "I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment," she said.

Yellen drives wedge between monetary policy, financial bubbles - (Reuters) - Monetary policy faces "significant limitations" as a tool to counter financial stability risks, Federal Reserve Chair Janet Yellen said on Wednesday, adding that heading off the U.S. housing bubble with higher interest rates would have caused major economic damage. Weighing in on a global debate, Yellen reiterated her view that regulation - not rate policy - needs to play the lead role in combating excessive financial risk-taking. "The potential cost ... is likely to be too great to give financial stability risks a central role in monetary policy discussions," Yellen said at an event sponsored by the International Monetary Fund. true She didn't close the door entirely, however, and she cited some areas that bore monitoring with an eye toward a possible tightening of regulation. Analysts said Yellen was pushing back against some Fed officials who believe financial stability should be given a more prominent place in formulating monetary policy.

Yellen Leery of Using Rates to Deal With Risk - Janet Yellen pushed back strongly against the notion the central bank should consider raising interest rates to avoid fueling future financial crises, in her most detailed and forceful comments on financial stability since taking the Federal Reserve's helm in February.  Ms. Yellen said Wednesday she favors relying first on regulation and supervision to make the financial system more resilient to occasional bouts of turbulence, though she didn't rule out applying the monetary brakes if those tools fail. "I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns," the Fed chairwoman said. The remarks come as central bankers around the world debate whether very low interest rates, adopted in many advanced economies since the 2008 financial crisis to spur stronger recoveries, are feeding market bubbles that could burst and cause new financial turmoil. The Fed has held short-term rates near zero since late 2008 and is winding down a bond- buying program aimed at lowering long-term rates. Ms. Yellen's speech assured investors and the public that the Fed won't raise interest rates abruptly simply because some markets may look bubbly. The Fed has taken pains to reassure investors that rates will remain low even as the economic recovery picks up.

Yellen at IMF: Fed Not in the Bubble Popping Business -- If you think stocks are in a bubble and the Fed should start raising rates, well, the last two speeches from Fed Chair Yellen certainly paint a different view. Speaking on June 18th at the most recent FOMC press conference, Yellen first made it clear that rates would be kept near zero for a “considerable time” (see story).Then just recently, speaking at the IMF, Yellen also pushed back against calls that the Fed should ultimately raise rates to prevent unstable bubbles from forming. Here she says:“[M]onetary policy faces significant limitations as a tool to promote financial stability: Its effects on financial vulnerabilities, such as excessive leverage and maturity transformation, are not well understood and are less direct than a regulatory or supervisory approach; in addition, efforts to promote financial stability through adjustments in interest rates would increase the volatility of inflation and employment.”Not only did Yellen argue against using interest rates as a first line of defense against bubbles, but also pointed to a range of studies that conclude tighter monetary policy wouldn’t have prevented the last bubble either. Instead, she says, “macroprudential policies, such as regulatory limits on leverage and short-term funding, as well as stronger underwriting standards, represent far more direct and likely more effective methods…” After putting to rest the idea that raising rates in the past, present, or future is the best way to fight bubbles, she then goes on to say that this also represents the consensus view of most central banks around the globe. Put simply, the Fed is unlikely to raise rates if there's another stock market or housing bubble UNLESS doing so won't damage their more important goals of employment and inflation.

Central Bankers Appear to Line Up their Defenses - Looks like there has been some international coordination of monetary policy rhetoric lately.  At the beginning of the week, the central bankers’ central bank — the Bank for International Settlements in Basel — warned loudly of the risks of moving “too slowly and too late” to raise interest rates back toward normal. As it did before the global financial crisis, the BIS emphasized the need to act early to avoid the booms-and-busts in financial markets and offered all sorts of reasons why today’s very low inflation shouldn’t be the primary concern of central bankers. Central bankers appear to have agreed on a common response. In the past couple of days, Federal Reserve Chairwoman Janet Yellen, European Central Bank President Mario Draghi and Bank of England deputy governor Jon Cunliffe have used the same phrases to say: Fuggedaboutit! With price and wage inflation not a concern right now, we aren’t going to raise interest rates and throw at lot of people out of work to avoid excesses in financial markets or to head off possible asset bubbles, they said. “I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns,” Ms. Yellen said Wednesday at the International Monetary Fund.Then, responding to questions from IMF chief Christine Lagarde, she added, “Macroprudential policies should be the main line of defense.” At his press conference Thursday, Mr. Draghi said: “The first line of defense should be the macroprudential tools. I don’t think people would agree with raising interest rates now.”

Fed’s Williams Upbeat on Growth, But Sees No Rush on Rates - The Federal Reserve needs to be cautious about removing its support for the economy too quickly despite forecasts for stronger growth and an improving labor market, San Francisco Fed President John Williams said Monday. Mr. Williams took issue with critics who say the central bank has continued its low-rates and bond-buying policies for too long, saying the economic recovery has remained too weak for Fed policy makers to let down their guard. “When you break a leg, you don’t just snap the pieces back into place — you leave the cast on until the bone heals,” Mr. Williams told a conference sponsored by the Montana & Utah Bankers Associations. “And in this case, the economy wasn’t ready to walk on its own.” U.S. economic growth has averaged around 2% in recent years, too weak to ensure that the recession’s deep negative impact on the job market can be fully reversed. Mr. Williams said he was optimistic that, despite a stunning 2.9% first-quarter contraction, he expects gross domestic product to expand at a rate above 3% for the remainder of the year. That would allow figures on job creation, which Mr. Williams dubbed “outright encouraging” to continue posting solid gains. Still, Mr. Williams warned that, at 6.3%, the U.S. jobless rate is still far above what he considers full employment, which would be closer to a rate around 5.25%. Given that backdrop and still-weak inflation readings, Mr. Williams suggested the central bank is on the right policy path as it continues winding down its bond-buying program and then takes a fresh look at the economy with an eye to potential interest rate increases next year.

Fed’s Williams hits back at critics like Stanford’s Taylor - — San Francisco Federal Reserve President John Williams hit back at critics, like Stanford University economics professor John Taylor, who have argued the central bank’s is giving the economy medicine it no longer needs. In a speech to bankers meeting in Sun Valley, Idaho on Monday, Williams said the Fed’s bond buying and low interest rates were like a cast on a broken leg. “When you break a leg, you don’t just snap the pieces back into place; you leave the cast on until the bone heals. Otherwise, you risk doing even greater damage,” said Williams, a close ally of Federal Reserve Chairwoman Janet Yellen who becomes a voting member next year. Taylor has said that the Fed should have already hiked short-term interest rates and ended bond purchases. In a recent interview with the Wall Street Journal, Taylor said Fed policy is holding the economy back. Williams meanwhile said the Fed is already taking steps towards the exit and its easy policy is not permanent. Although the Fed won’t raise interest rates for some time, “we’re moving towards normalization, and as the economy continues to improve, we’ll take off the cast; when it’s able to move on its own, we’ll take away the walking stick,” he said.

The Federal Reserve Needs to Fulfill Its Global Role: The Federal Reserve these days is focusing well-nigh completely on the state of the US economy. It is broadly happy with its policies. I am not happy with its policies, not even from a narrow domestic demand-management perspective. Since mid 2007 policy has been and remains insufficiently expansionary: behind the curve. The policy most likely to succeed right now would be one of a shift in régime–analogous to what was carried out by Paul Volker in the U.S. 1979, and is being carried out by Shinzo Abe today. But those of us who hold to my position and fear that the Federal Reserve’s failure to match the curve has not just greatly deepened the Lesser Depression but is also turning our cyclical unemployment into permanent long-term structural non-employment have lost the domestic monetary policy argument. However, there is another policy argument that needs to be joined. The Federal Reserve is not just the central bank of the United States: it is the central bank for the world.The United States is not just another large open economy in a world of flexible exchange rates capable of following its own monetary policy. The United States is a global hegemon. The Federal Reserve is thus a global central bank: the central bank for the world as well as the United States. It has a responsibility not just to stabilize output, employment, and inflation and ensure financial stability in the United States. It has a responsibility to successfully manage the world economy in its entirety: that means crafting policy in the interest of the world as a whole, and that means that its policy should take into account and compensate for market, institutional, governance, and policy failures elsewhere. One such ares of concern is the health and stability of growth in emerging markets as they attempt to (a) gain the benefits of capital inflows for development, (b) satisfy North Atlantic demands for open financial markets, and yet (c) manage the resulting instability created by “hot money”, the carry trade, irrational exuberance, and overshooting.

The Rise of Monetary Cranks and Fixing What Ain’t Broke - Randy Wray - In the aftermath of the Great Recession, we all wax “desperate with imagination”, looking for explanation. For solution. For retribution! The financial system is rotten. Our banking regulators and supervisors failed us in the run-up to the crisis, they failed us in the response to the crisis, and they are failing us in the reform that we expected in the aftermath of the crisis. Heaven will not save us, either. The Invisible Hand is impotent. Just wait for Scene 5! In times like these, we thrash about, desperate for ideas, for imagination, for leadership. There’s nothing unusual about that. Read the entry, monetary cranks, by David Clark in The New Palgrave: A Dictionary of Economics,  You’ll find many of the same proffered reforms bandied about now. Many of them make sense, or at least partial sense. I’ve always used that entry in my money and banking courses as an example of sensible ideas being rejected by the mainstream, labeled “crank” to discredit them. When I use the term monetary cranks, I use it as a term of endearment. We need some cranky ideas because all the respectable ones failed us. There is nothing, and I mean literally nothing, that will come out of the mainstream that will be of use. However, the crank can be taken too far. Some—even the FT’s Martin Wolf??—are not talking about carving out a tiny part of the financial system, but rather are talking about lock-stock-and-barrel replacing it with narrow banks. (See the great critique by Ann Pettifor, Out of thin air – Why banks must be allowed to create money, Now that is cranky.

San Francisco Fed: U.S. Inflation Will Likely Remain Low Through 2015 -- U.S. inflation should remain well below the Federal Reserve’s 2% target through the end of 2015, two economists at the Federal Reserve Bank of San Francisco said Monday in a new research paper.But if public expectations for inflation remain well-anchored at the Fed’s goal and if the inflation effects of the long-term unemployed are excluded, core prices will rise “at a relatively fast pace, surpassing 2% by the end of 2015,”.  The Fed’s preferred measure, the Commerce Department’s personal consumption expenditures price index, rose 1.8% in May from a year earlier, its highest level in more than a year and a half.The two San Francisco Fed economists, who have predicted persistently low U.S. inflation before, used a model known as the Phillips curve. They assumed the unemployment rate will decline steadily from 6.3% in May to 5.55% at the end of 2015, the average prediction by Fed policy makers in their official economic projections.The model “implies inflation is very persistent” and that core inflation, as measured by the PCE index, “will remain below 2% through the end of 2015.” Inflation would rise more swiftly, they wrote, if they assume public expectations about the future course of inflation remain well-anchored around the Fed’s 2% goal. It also would rise more quickly if they only include the short-term unemployed in their calculation of slack in the labor market, and exclude any downward effect on wages of the 3.4 million Americans who have been unemployed more than six months and who may be at the margins of the labor force.

The Fed's Inflation Survey That The Fed Would Rather Not Hear - U.S. consumers think one-year domestic price inflation will run 50-100% higher than the current headline Consumer Price Index that Wall Street uses to value financial assets. That surprising finding doesn’t come from the fringe "Inflation is nigh, repent!" camp; as ConvergEx's NBick Colas points out, it is the central observation of the New York Federal Reserve’s Survey of Consumer Expectations. This relatively new but rigorously designed monthly dataset polls 1,200 American households on a range of financial questions, from inflation expectations to household finances and labor market conditions. The news The Fed is hearing from the survey must be a bit tough to hear. Inflation expectations are significantly higher than their "Target" of 2% already, meaning any acceleration in prices will "Feel" higher than the central bank’s notional goals.

US Government Commits History’s Greatest Fraud With CPI Methodology - The US Government has committed massive fraud in measuring inflation since 1983.   Lee Adler discusses why that means the Fed won’t just be behind the curve, it will drive us off the road and over a cliff. He also looks at the issue of whether record tax collections mean peak financial engineering and the approaching end of the bubble. Subscribers may right click here to open or download this video and play in your media player at the correct resolution.  To listen to audio only, click here.

Things have never been more negative for the dollar: John Williams “The government has to address its long-term solvency issues if it’s going to survive, if it’s going to have any credibility in the rest of the world…We have ahead of us here probably the worst fundamentals ever facing the dollar…I don’t think things have ever been more negative.” “And what happened was the federal government, the Federal Reserve, they did everything that they could, everything that they had to. They created whatever money was needed. They bailed out large firms. Whatever was needed to prevent collapse of the financial system was undertaken, irrespective of the long term implications of those actions. And what they did was that they didn’t resolve the problem. They pushed all the issues into the future. We’re in the future now. We’re still sitting in a circumstance that we could see the issues, in fact will see the issues of the panic of 2008 resurface here. The economy still is in trouble. The banks are still in trouble and as the economy deepens we’re now seeing that happen as the downturn deepens. We’re now seeing in the first quarter the U.S. GDP showing a reasonably large decline now despite the hype and optimism on Wall Street about the 2nd quarter that we’re going to see a 2nd quarter contraction in official reporting. That would give you a new recession as most people would define it. That’s a factor that could trigger massive selling against the dollar.”

Revisions for Q1 Show Biggest Drop in US GDP in Five Years - The third estimate of U.S. real GDP for Q1 2014, released this week by the Bureau of Economic Analysis, showed that the economy contracted at a 2.9 percent annual rate in the quarter. That was the fastest rate of contraction since the recovery began five years ago. The second estimate, released in May, had indicated a rate of contraction of just 1 percent. The pause in the economic expansion had several causes. Unusually severe winter weather hurt the economy across the board. Exports, which had been a positive factor through most of the recovery, slowed sharply in the first quarter. A decrease in inventories adversely affected investment. Finally, although personal consumption continued to grow, the rate was slower than previously estimated, in part because of technical changes in the measurement of spending on healthcare. The third revision confirmed a sharp decrease in corporate profits that had been reported previously. Profits fell by more than 9 percent before taxes, and nearly as much after taxes. Despite the drop, after-tax profits, which had been running at record levels in recent years, are still higher than the peak reached during the prerecession boom. Observers believe that many of the factors leading to the first quarter decline in GDP are temporary. Relatively strong labor market performance during April and May make it very likely that growth will resume in Q2. Still, the weakness early in the year has caused the Federal Reserve to reduce its forecast of growth for the full year from a range of 2.8 to 3.0 percent down to a range of 2.1 to 2.3 percent.

Q2 Economic "Hope" Misses The Point - As individuals, it is entirely acceptable to be "optimistic" about the future. However, "optimism" and "pessimism" are emotional biases that tend to obfuscate the critical thinking required to effectively assess the "risks". The current "hope" that Q1 was simply a "weather related" anomaly is also an emotionally driven skew. The underlying data suggests that while "weather" did play a role in the sluggishness of the economy, it was also just a reflection of the continued "boom bust" cycle that has existed since the end of the financial crisis. The current downturn in real final sales suggests that the underlying strength in the economy remains extremely fragile.  More importantly, with final sales below levels normally associated with the onset of recessions, it suggests that the current rebound in activity from the sharp decline in Q1 could be transient.

Fed’s Bullard: Markets Right to Play Down Gloomy GDP Report - Federal Reserve Bank of St. Louis President James Bullard said markets are correct in looking past the “shockingly negative” estimate of first-quarter economic growth reported this past week amid other signs that the economy is improving. “I think it’s right to set aside the first quarter and look forward from here,” said Mr. Bullard, in an interview that aired Sunday on the Fox News program “Sunday Morning Futures.” Gross domestic product, the broadest measure of goods and services produced across the economy, fell at a seasonally adjusted annual rate of 2.9% in the first quarter, the Commerce Department said on Wednesday. That was a sharp downward revision from a prior estimate that output fell at an annual rate of 1%. It was also the largest recorded drop since the end of World War II that wasn’t part of a recession. Mr. Bullard said he expected that the economy would grow at around 3% for the rest of the year, and that unemployment would fall below 6% in the second half. He also said that the Fed’s preferred measure of inflation could approach its 2% target by year-end. Regarding the overall health of the economy, Mr. Bullard said, “Both financial markets and the public at large doesn’t realize how close we are to normal, compared to postwar history.” Those conditions would support an increase in short-term interest rates at the end of the first quarter in 2015, said Mr. Bullard, though he added that the assessment would put him ahead of many other members of the Federal Open Markets Committee.

ADS Perspective on the First-Quarter Contraction: Following on my last post about the first-quarter GDP contraction, now look at the FRB Philadelphia's Aruoba-Diebold-Scotti (ADS) Index. 2014Q1 is the rightmost downward blip. It's due mostly to the huge drop in expenditure-side GDP (GDP_E), which is one of the indicators in the ADS index. But it's just a blip, nothing to be too worried about. [Perhaps one of these days we'll get around to working with FRB Philadelphia to replace GDP_E with GDPplus in the ADS Index, or simply to include income-side GDP (GDP_I) directly as an additional indicator in the ADS Index.] One might wonder why the huge drop in measured GDP_E didn't cause a bigger drop in the ADS Index. The reason is that all real activity indicators are noisy (GDP_E is just one), and by averaging across them, as in ADS, we can eliminate much of the noise, and most of the other ADS component indicators fared much better. (See the component indicator plots.) Note well the important lesson: both the ADS Index (designed for real-time analysis of broad real activity) and GDPplus (designed mostly for historical analysis of real GDP, an important part of real activity) reduce, if not eliminate, measurement error by "averaging it out." All told, ADS paints a clear picture: conditional on the underlying indicator data available now, real growth appears to be typical (ADS is constructed so that 0 corresponds to average growth) -- not especially strong, but simultaneously, not especially weak.

GDP is Down, But What Do Payrolls Say About A New Recession Risk? -- U.S. gross domestic product shrank by 2.9% in the first quarter of 2014, by far the worst quarter since the recovery began in mid-2009. But GDP is only one indicator to monitor if the U.S. is slipping into renewed recession. So far the monthly jobs report is one of the key pieces of evidence that the expansion will continue. One thing to watch: job gains tend to deteriorate even before recession begins, providing a warning signal that recession may be ahead. The annual change in jobs shows this trend clearly. Job growth begins slipping before the recession. It is a leading, rather than coincident, indicator. The National Bureau of Economic Research serves as the semi-official arbiter of U.S. recessions, and in making the determination of when recessions begin and end, they pay close attention to the jobs report. (They also watch wholesale and retail sales,  industrial production, and personal income.) The U.S. will get a major update on the employment situation with the Labor Department‘s July 3 release of the jobs report. The regularity of jobs growth slowing before recession starts has persisted almost without fail since World War II. The decline in job growth prior to the 2007-2009 should have caused many economists to be more pessimistic than they were.  So far in 2014, however, the annual change in job growth has continued to hold up. Since 2012 the economy has consistently added between 2 million and 2.4 million jobs per year and it would be highly unusual for recession to begin without any deterioration in this metric. In the most recent jobs report, the year-over-year change was 2.38 million.

Glass half full for the US economy -- The revised data for US real GDP that were published last week would ordinarily have caused a major shock in global markets. The latest estimate shows an annualised decline of -2.9 per cent in Q1, down from a previous estimate of -1.0 per cent. If confirmed in future releases, this would be the weakest quarter for US real GDP outside a recession since the Second World War. The markets largely ignored this piece of news because investors still seem convinced that the first quarter was hit by a series of temporary shocks to GDP. The extreme weather was clearly the main such shock, but there was also an outsized downward revision to the official estimate of consumers’ expenditure on health services. This alone knocked 1.2 percentage points off the GDP growth outcome for the quarter. It is a mystery why this has occurred, given that the launch of the Affordable Care Act (Obamacare) in January was expected to boost health expenditure considerably. There is chance that the official data have been severely under-recorded in this area, but nobody knows quite why.Another reason why the markets are ignoring any recession risk in the US is that the GDP data are at odds with many other sources of information on the underlying growth rate in the American economy, including the improving employment data, buoyant business surveys, and robust manufacturing and durable goods reports. These data series can be used to derive up-to-date “nowcasts” for US activity which provide a complement to the GDP data in assessing the growth rate. Normally, the nowcasts are useful because they are available well before the GDP data are published, but they can also provide guidance on whether past GDP data are likely to be accurate indicators of underlying economic activity.

GDP: Seasons and revisions - Growth from the fourth quarter of 2013 to the first quarter of 2014, originally thought to have been about +0.1% in April, was revised last week to –2.9%. That’s at a seasonally-adjusted, annualized rate (SAAR) – the way the U.S. Bureau of Economic Analysis (BEA) usually reports real GDP growth. News reports varied between shock and concern. Was the anemic recovery over? Or, was it just that this winter was especially harsh? In reality, these headline growth numbers simply don’t contain all that much information for real-time business cycle analysis. There are many reasons, but two deserve special attention: (1) the statistical noise created by seasonality; and (2) the propensity to revise GDP many years after the period being measured. Seasonality in GDP is enormous. The chart below shows the annualized growth rates for the seasonally adjusted (red) and unadjusted data (blue) from 1980 to 2004 – when the BEA stopped reporting unadjusted data to save money. The seasonal adjustments swamp the small changes in the adjusted growth rates. If you looked only at unadjusted data, you could say that the U.S. economy goes through a depression in the first quarter of every year, as the level of output plunges on average by 18 percent!Even more important, the first-quarter seasonal factor (the percentage gap between the raw data and the adjusted readings) varies considerably. In the 1980-2004 sample, it ranged from a low of 15 percentage points to a high of 25 percentage points, with a standard deviation of 2.5 percentage points. The variability of the seasonal factor in the first quarter reflects in part the climatic variation that occurs across U.S. winters (just think of how much worse 2014 was than 2013). As one of us has discussed in the past, other countries have interesting seasonal patterns as well, with northern Europe basically shutting down in June and southern Europe doing the same in August. The point is that it is difficult to extract the useful signal – the SAAR economic growth rate that we care about – from the noisy unadjusted GDP data. When the seasonal factor is large and variable, as it is in the first quarter of every year in the United States, it is heroic to draw inferences from a percentage point here or there.

Our Economic Growth Is a Mystery. Obamacare Is the Reason -- The United States has overhauled its health care system, which accounts for one-sixth of the engine of the economy. But President Obama’s health reform legislation has two sets of goals. It aims to expand health coverage to millions of Americans without insurance. And it aims to make the American health care system more efficient, to force doctors and hospitals to deliver care in a more cost-effective way.  As it turns out, the question of which of those efforts is more successful will have an outsize impact on the overall growth rate of the economy. That was one of the big lessons from new revisions to gross domestic product data earlier this week, which showed a surprise drop in health care spending; earlier releases of the first-quarter data showed a large gain. That swing was a major reason the economy shrank at a 2.9 percent annual rate in the first three months of the year, its worst performance in five years.But what it really shows is how the implementation of health reform is going to cloud our understanding of the economy for some time to come. In normal times, health spending is the boring part of the G.D.P. report. It almost always grows: The first-quarter contraction was only the fourth quarterly decline in the last 80 quarters (that’s going back to 1994). Health spending reduced overall G.D.P. growth by only 0.16 of a percentage point. That isn’t that much in the scheme of things, but it was the most the health sector had subtracted from overall growth since the start of 1982. But until the dust settles from Obamacare implementation, that has changed. The uncertainty around how the health law will affect spending patterns means that we may be in a period where quarter-to-quarter volatility in economic growth is driven by the micro details of how the health insurance law is working on the ground, rather than any broad momentum (or lack thereof) in the economy.

Pricing Power and Lower Potential GDP: One of the results of the Great Recession has been a severe downward revision in potential GDP across many countries. Laurence Ball just had a Vox post on this..., finding that potential GDP is lower by 8.4% on average across the OECD, and up to 30% lower in places like Greece. This is similar to Fernald’s recent finding that potential GDP is lower in the U.S., the only difference being that Fernald finds the slowdown in potential GDP started before 2007. Potential GDP is growing more slowly than previously because of slower capital accumulation, slowing (or falling) labor force participation, and/or lower growth in total factor productivity (TFP).One interpretation of slowing TFP growth is that we are actively getting worse at innovating and/or bringing innovations to market. For Fernald, the burst of innovations coming from the IT revolution are running out. In a recent Brookings report, new firms are not starting up as quickly, possibly reducing the rate at which new innovations are brought on board. Ball doesn’t really take a stand on what is happening, but the implication is that the Great Recession did something that is pulling down productivity levels. The point I want to make here is that declining measures of TFP do not necessarily imply that our ability to innovate or bring innovations to market is declining. Measured aggregate TFP can decline, or grow more slowly, even though firms are just as technically productive as before, and are innovating at the same rate as before. Instead, measured TFP growth may be slowing down because of changes in the market power of firms during the recession.

Silly Wabbit, Tricks Is for Kids! (Would You Believe (-)10.5% Yearly Growth? Well, How About . . . (-)9.8%?) - The government originally said that the US economy as measured by the GDP shrank at 0.1% in the first quarter of 2014. And that was due to abnormally cold weather probably because Global Warming had been hiding at the bottom of the oceans. Now we are told the US economy actually contracted at 2.9%. This is starting to sound serious. Maybe we can coax that Global Warming to rise up out of the oceans. But Dr John Williams at Shadow Stats keeps much more reliable statistics on the cost of living and inflation. He says that prices are going up at 8.9% which makes sense because food prices alone are soaring upwards at 22%. If we used his figure of an 8.9% increase in the cost of living, then the real GDP after being deflated for inflation is contracting at 9.8%. Those are Depression level numbers. The first quarter of 2014 was the fifth quarter in a row of a contracting US economy. Even the Greek economy only contracted 6.2%. The Greeks have 55% youth unemployment and riots every week. That 9.8% annual decline was worse than the 1929-1933 decline of 30% over 4 years in GDP. We are talking about a rate of decline greater than that of the harshest period of life in 20th century America. Millions of Americans starved to death in the Great Depression. And yet we are declining faster and harder now than then.We could argue that the US economy is declining at an even faster rate than 9.8%. How so? The other factor is GDP per person. More important to you than how much money is flowing through the economy is just how much is in your hands. The US population has been increasing at a little over .72% per year. That means GDP per capita declined at 10.5% not 9.8%. But that was before President Obama organized this Amnesty rush of illegal aliens. The contraction in GDP per capita for the second quarter of 2014 ought to be above 11% if you factor in both rising prices and the sudden influx of new arrivals at the border and the airports.

JPM Cuts Its Original 2014 GDP Forecast In Half, Sees Slowest Full Year Growth Since 2009 -- It was precisely 6 months ago, on January 3, when JPM, blissfully unaware of the powerful snowstorms that were raging outside its office, a condition which would later be branded with the technical economic term "harsh weather", predicted that the US economy would grow by 2.5% in the first half and 3.0% in the second, leading to a solid 2.8% annualized growth for 2014, a growth rate which would mean the US economy would grow at the fastest pace since 2005.  Fast forward exactly six months later, when on July 3, "harsh weather" firmly in the rear view mirror (but blissfully unaware of the record drought slamming California, the monsoons about to crush India, and El Nino set to ravage the US in the fall, not to mention two regional civil wars, a China whose housing bubble has popped and whose rehypothecation scandal means Chinese GDP is about to fall off a cliff, and global trade generally grinding to a halt), JPM has just followed with a revised GDP forecast. Its latest (and certainly not least) prophecy for the full year GDP: precisely one half of what it expected 6 months ago, or just 1.4%, following a cut to Q2 GDP to 2.5% from 3.0% (which means negative growth for the entire first half, something in a less insane world would be called a recession), while keeping Q3 and Q4 GDP miraculously at 3.0% for both quarters.

Bad policy is making the recession’s damage permanent - Don't blame the Great Recession for making us permanently poorer. Blame our policymakers for letting it. This concept is called hysteresis, and it's the idea that a long enough slump can maim the economy's long-run potential. That's because 1) too little investment today can keep us from growing as much tomorrow, and 2) too few jobs can make the long-term unemployed give up hope of ever finding work again. In other words, it means that we might never undo all the damage the financial crisis has done. And that would leave us with a lot of damage still. How much exactly? Well, Johns Hopkins professor Larry Ball has tried to answer that by comparing how much the OECD thought rich countries could grow in 2007 with how much it thinks they can grow now. The depressing result: aside from Australia and Switzerland, all of those country's prospects look much worse today. Specifically, the OECD thinks that the Great Recession has cost the advanced world 8.4 percent of its pre-crisis potential. Now, the good news is that these economic scars don't have to be as permanent as they might seem. The way we try to calculate potential output can underestimate it by mistaking a long slump for a never-ending one. That's why, as Paul Krugman has noted, these economic models of potential output can be too conservative -- they would have told us that the U.S. had fully recovered from the Great Depression in 1935, double-digit unemployment notwithstanding. But the bad news is that today, unlike the Great Depression, we aren't going to get the policies we need to get rid of these scars. Instead, we're going to get more of the same—less government spending and less inflation—that, at least in the aftermath of the crisis, have already hurt our productive capacity so much.

President Obama’s FY 2015 Budget -- When President Obama proposed his 2015 budget last March, he vowed to cut taxes for working class Americans while making sure high income households pay their “fair share.” New Tax Policy Center estimates show that, like it or not, Obama would do pretty much as he promised. Low-income households would enjoy a tax cut while those at the top of the income distribution would pay more.  In 2015, for example, the president’s tax plan would boost after-tax income for the poorest 20 percent of households by about 0.7 percent while those in the top 20 percent would lose about 1.2 percent and the top 1 percent would see their income drop nearly 3 percent (blue bars in figure). Low-income workers would benefit from a substantial increase in the earned income tax credit (EITC) for childless workers and an additional child and dependent care credit for families with children under age 5. High-income families would get hit by proposed limits on tax breaks—the “Buffett Rule” and the 28-percent cap on the value of certain tax deductions and exclusions. Overall, taxes would claim an additional 0.6 percent of after-tax income that year. The tax increase would grow slowly over time, generally at the expense of higher-income households. By 2023, average after-tax income would be 0.7 percent lower than under current law (red bars in figure). In contrast, the poorest households would get almost 2 percent more income after taxes that year, in large part because the president would make permanent the expanded refundability of the child tax credit and the increased EITC for larger families that were enacted as part of the 2009 economic stimulus legislation. Those provisions are currently set to expire in 2018. Most of the president’s tax proposals have appeared in previous budgets, but he added four new ones this year. TPC delves into those additions in a separate analysis that accompanies the distributional estimates.

Deficits Are Scary, But Spending Cuts Are Even Scarier | Brookings Institution  It has been clear for at least a year that the focus of the nation on reducing the federal debt has vanished. The speeches of policymakers, the House and Senate legislative agendas, the content of the nation's debate forums, and the rhetoric of President Obama are all virtually silent on the nation's debt. You would think that the debt problem had been solved. But perhaps the most remarkable aspect of the intense, three-year focus on the debt that featured bitter inter-party battles and closing of the federal government while producing several laws that reduced the nation's debt in the short-term, was that almost nothing was achieved that will reduce the long-term debt. At most, the rate at which debt is accumulating was somewhat reduced and the moment of reckoning postponed for a few years. One thing the struggle did produce was a broad understanding that the two major causes of the long-term debt are the growth of federal health care programs - especially Medicare - and interest on the federal debt. Between 2010 and 2035, as a percentage of the Gross Domestic Product, federal medical expenditures will increase by 85 percent to10 percent of GDP or about $2.75 trillion. Meanwhile, primarily because of the growth of health programs, the nation will be forced to borrow huge sums of money, thereby greatly increasing net interest payments on the federal debt. At some point, as the history of excessive borrowing by many nations shows, there will be a crisis.

“Debt-Free Money” – A Non Sequitur in Search of a Policy - (article by Randy Wray) Yves here. I must confess that I am at a loss to understand the deep emotional reactions some readers have to MMT. It’s like raging at a thermometer because it shows you your body temperature. Virtually all of the complaints about MMT are based on a failure to understand what it says about how money works. MMT is descriptive of our current system, and it also has a message that progressives (the real kind, not the Democratic fauxgressive kind) ought to welcome, that the Federal government as a sovereign does not need to run a balance budget, and that a balanced budget is in fact destructive when the economy is as slack as it is now. That means the government not only can but should spend more, which is in contrast to all those barmy arguments about how we can’t spend to [fill in your priorities, have national health care, improve our infrastructure, feed low income kids in school, etc.]. If you don’t like the Federal government directing that much spending, there’s a remedy for that too: revenue sharing, which was instituted under that great liberal Richard Nixon, who though the Federal government raised revenues more efficiently than state and local governments, but state and local government were better at setting spending priorities.MMT provides a basis for rejecting neoliberalism and austerity, and people who ought to embrace it are instead being told falsehoods about it and are becoming skeptical. That assures that the current crop of looters can continue their work unperturbed. However, MMT does require that you turn the conventional stories about money inside-out. It takes some mental rewiring to understand it, and that degree of reorientation seems to be a big reason for the heated reactions.

Congress dithers on the economy - When the latest sign of a troubled economy emerged last week, Congress had a ready response: Nothing. The same week that new data came out showing the U.S. economy shrank nearly 3 percent in the first quarter, Speaker John Boehner (R-Ohio) announced plans to sue President Barack Obama for abusing his executive authority. Senate Majority Leader Harry Reid (D-Nev.), meanwhile, garnered headlines for denouncing the name of Washington’s football team. Both chambers then went into an 11-day recess.The reaction at the White House wasn’t much stronger. Officials there bashed Republicans, and then argued the overall economy is doing just fine now. The collective shrug highlights Washington’s inability — or unwillingness — to make bipartisan deals that would assist Americans still struggling to recover from the 2008 economic collapse. That inertia will be on display again Thursday when the June unemployment numbers are released, statistics that could underscore the failure of congressional leaders to revive expired jobless benefits for millions of people who have gone years without work. Lawmakers from both parties are disgusted by the congressional inaction, which has been largely in place since Congress voted to raise the U.S. debt ceiling February and shows no sign of relenting soon. “Congress isn’t moving fast enough on any issues, particularly on economic issues,” said Sen. Mary Landrieu (D-La.), who is locked in a tough reelection fight. “Unfortunately, there doesn’t seem to a way out of this because the political parties have gone to their corners and the few of us that are left in the middle are just shadow-boxing with ourselves.”

The Great Disinvestment - Krugman -  Here’s total public spending on construction, adjusted for the price level (GDP deflator) and population growth;  And if no deal is made on the federal highway fund, it will soon plunge even further.It’s important here not to get caught up too much in the details. Yes, it’s absurd that the federal gasoline tax has been flat in nominal terms since 1993, which means that in real terms it has fallen 40 percent. But highways don’t have to be paid for with gas taxes — the fund could be (and has been) topped up with transfers from general revenue. And federal borrowing costs remain incredibly low by historical standards.So the highway issue should be seen as part of the larger craziness of infrastructure policy, in which spending has crashed at a time when by any reasonable criterion we should have been building much more.

Building Stuff Is Better Than Nothing - I think we’re starting to understand the political economy of stimulus itself -- when it is and isn’t feasible. Basically, when output is collapsing -- in the first few scary days of a recession -- we always do some kind of stimulus. Bush did it, Obama did it. As legendary macroeconomist Robert Lucas put it: “I guess everyone’s a Keynesian in the foxhole.” But once the economy is out of the foxhole, support for Keynesian spending dries up -- witness the failure of Clinton’s attempt at stimulus in 1993 (two years after the end of the 1991 recession). Also, observe that despite repeated calls for new stimulus by Paul Krugman and Larry Summers -- almost certainly the world’s two most famous academic economists -- the Obama administration has given no sign of listening. So whether Cochrane or Krugman is right, stimulus of the pure Keynesian kind just ain’t happenin’. We need to think about what can be done to pull the economy out of its slump. Cochrane and his fellow-travelers propose a sweeping program of deregulation and dismantling of the welfare state, but that is also politically unlikely. One measure they endorse -- the ending of extended unemployment benefits -- has already been done, but so far doesn't seem to have forced many people back to work.  So what to do? Well, there is one idea that has the potential to appeal to both Keynesians and structuralists: repair our infrastructure. This is what Larry Summers is pushing for right now:

Build We Won’t, by Paul Krugman - You often find people talking about our economic difficulties as if they were complicated and mysterious, with no obvious solution. ... The basic story of what went wrong is, in fact, almost absurdly simple: We had an immense housing bubble, and, when the bubble burst, it left a huge hole in spending. Everything else is footnotes. And the appropriate policy response was simple, too: Fill that hole in demand. In particular, the aftermath of the bursting bubble was (and still is) a very good time to invest in infrastructure. ... Since 2008 our economy has been awash in unemployed workers and capital with no place to go (which is why government borrowing costs are at historic lows). Putting those idle resources to work building useful stuff should have been a no-brainer. ut what actually happened was exactly the opposite: an unprecedented plunge in infrastructure spending. ... In policy terms, this represents an almost surreally awful wrong turn; we’ve managed to weaken the economy in the short run even as we undermine its prospects for the long run. Well played! And it’s about to get even worse. The federal highway trust fund ... is almost exhausted. Unless Congress agrees to top up the fund..., road work all across the country will have to be scaled back just a few weeks from now. If this were to happen, it would quickly cost us hundreds of thousands of jobs, which might derail the employment recovery that finally seems to be gaining steam. And it would also reduce long-run economic potential.

Clinton: Export-Bank Fight Latest Example of Washington’s Drag on Growth -- The economy would be doing better if the two parties in Washington could figure out a way to get along, said former President Bill Clinton in an interview that aired Sunday on NBC’s “Meet the Press.”  ““I believe if the two branches had been working smoothly together and taken advantage of this time when interest rates were lower than inflation–to cut long-term spending liabilities but invest now in modern infrastructure–we would be in a lot better shape,” Mr. Clinton said. “Median wages would be going up. Poverty would be going down.” Mr. Clinton blamed Republicans for too aggressive a focus on spending cuts. Without saying who else might be at fault, he added, “I’m not blaming them entirely.”  The former president pointed to the recent dustup over the reauthorization of the Export-Import Bank, an agency created during the Great Depression that finances exports by guaranteeing loans. Conservative Republicans, particularly those affiliated with the tea party movement, have labeled the bank an example of “cronyism” and oppose its authorization, which expires on Sept. 30.  Mr. Clinton said Mr. McCarthy’s stance on the Ex-Im Bank was a sign of what’s wrong with Washington. “What’s the very first thing he does after he becomes the No. 2 guy in the House leadership? He changes his position” on the bank, said Mr. Clinton. Mr. Clinton rejected the view that the bank, which funds around 2% of all exports, is a “Wall Street crony capitalism deal.” He said it is a “financing device that allows us to compete with the 60 other countries in the world who are trying to save jobs in their countries.”

Yet More on the Gas Tax: We Ought to Be In This One Together - OK, perhaps I’m the slightest bit obsessed by the issue of the federal gas tax and the shrinking Highway Trust Fund.  But I’ve got my reasons: policy, political, and personal.  On the policy side, raise your hand if you think we can maintain a safe and productive transportation infrastructure on the back of a federal gas tax that has held fast at 18.4 cents/gallon for over twenty years.  (Anyone who raised their hand, use that hand to smack yourself in the head until you’ve changed your mind.)   It’s not been raised for inflation, for better mileage of the fleet on the road, nor for the fact that people are driving less and using more mass transit (about 15% of the fund supports mass transit). On the personal side, every morning when I drive to work in DC for the past five or six months, I and everyone else swerves around this pothole in the 3rd Street Tunnel, about two blocks from the Capitol building.  Actually, it started out as two potholes but they’ve gotten married and are probably about to start a family.  And that just really irks me. Finally, there’s the political, upon which I’d like to dwell a bit.  In an earlier piece, I criticized the White House for rejecting a bipartisan proposal to replenish the trust fund in perpetuity by raising the federal gas tax by 12 cents over two years and then indexing it to inflation.  It’s not a perfect proposal, but it’s an excellent place to start the debate.  So I was quite disappointed when the administration appeared to shoot it down.

A Payroll Tax Math Error Adds $5 Billion To The Deficit -Nothing gets lawmakers and pundits more outraged than government’s proverbial waste, fraud, and abuse. Nearly always, these stories involve spending. But taxes are hardly immune. One case of pure waste involves a simple math mistake that will cost the Treasury $5 billion in lost revenue over the next decade.Much of this windfall goes to the highest income workers. A new report by my Tax Policy Center colleague Jim Nunns finds that a few of the very highest-paid business owners are enjoying a tax bonanza that exceeds $20,000-a-year. And worst of all, Congress has known about the problem for decades and never bothered to fix it. Congress created this mess when it applied the wrong formula to the Social Security and Medicare payroll tax paid by sole proprietors and partners in law firms, private equity firms, and the like. The SECA (Self-Employment Contributions Act) tax is supposed to exactly parallel the better-known FICA tax, which is applied to employees. But, as it turns out, it doesn’t. And the result is that self-employed business owners pay less in payroll tax than employees earning exactly the same amount of money.In an article first published in Tax Notes, Jim calculated this boondoggle reduces payroll taxes by about $100-a-year for a self-employed person making $100,000, about $500 for one making $300,000, and about $900 for a business owner making $500,000. If you pay yourself $1 million, you can save nearly $2,100 and if you’re getting $10 million, you pay $23,000 less in payroll tax than you should. That payroll tax savings is roughly half the median household income. All because Congress made a simple math error.

Misguided Expansion of the Child Tax Credit - Congresswoman Lynn Jenkins (R-KN) wants to expand the child tax credit (CTC) with the Child Tax Credit Improvement Act of 2014. She’s on the right track, but her proposed expansions are ill-targeted and fail to address the credit’s biggest looming issue: the change in refundability that will hit the poorest recipients after 2017. Jenkins’s plan would index the credit for inflation and extend the credit to higher-income married couples­­­. There are better alternatives. A much cheaper option would simply continue today’s relatively generous version of the program after 2017. An even better solution would make the credit refundable for all families, starting at the first dollar of earnings. Such a change would cost about as much as Jenkins’s plan but would target assistance to the neediest workers rather than higher-income households, as she would. The CTC provides a credit of up to $1,000 per child. The basic credit is not refundable—that is, it can only offset income tax you would otherwise owe—but the “additional child tax credit” is. Parents can receive 15 cents for every dollar of earnings above $3,000 – until they reach the maximum credit. Without that refundability, families that owe no income tax would not benefit. But after 2017, that $3,000 refundability threshold is scheduled to jump to around $15,000 and rise with inflation going forward.

U.S. offshore tax evaders facing new scrutiny starting July 1: US tax evaders will find it harder to hide money abroad from Tuesday, when a law comes into effect requiring foreign banks to report their offshore accounts. Banking centers like Switzerland and Luxembourg that agreed to the US Foreign Account Tax Compliance Act (FATCA) will have to begin turning over account names and other data to US financial authorities so that they can tax unreported income. The US Treasury has spent much of the past several years pressing the issue on some of the world’s most powerful and secret banking centers with threats of punitive action if they do not join in. That means Americans will have far fewer options to stash their cash offshore away from the eyes and hands of the US tax agency, the Internal Revenue Service. And the effort to track down tax evaders has already pushed thousands of US expatriates to give up their citizenship in order to escape the IRS’s claims. But it is also having a big impact on the business of offshore banking centers, which have long marketed account secrecy to depositors from around the world.

Why Are the Super-Rich So Angry? - Stephen Schwarzman, the chairman and C.E.O. of the Blackstone Group, relies on borrowed money, has benefitted from low interest rates, and the stock-market boom has given his firm great opportunities to cash out investments. Schwarzman is now worth more than ten billion dollars. You wouldn’t think he’d have much to complain about. But, to hear him tell it, he’s beset by a meddlesome, tax-happy government and a whiny, envious populace. He recently grumbled that the U.S. middle class has taken to “blaming wealthy people” for its problems. Previously, he has said that it might be good to raise income taxes on the poor so they had “skin in the game,” and that proposals to repeal the carried-interest tax loophole—from which he personally benefits—were akin to the German invasion of Poland. Schwarzman isn’t alone. In the past year, the venture capitalist Tom Perkins and Kenneth Langone, the co-founder of Home Depot, both compared populist attacks on the wealthy to the Nazis’ attacks on the Jews. All three eventually apologized, but the basic sentiment is surprisingly common. Although the Obama years have been boom times for America’s super-rich—recent work by the economists Emmanuel Saez and Thomas Piketty showed that ninety-five per cent of income gains in the first three years of the recovery went to the top one per cent—a lot of them believe that they’re a persecuted minority. , “These guys think, We’re the job creators, we keep the markets running, and yet the public doesn’t like us. How can that be?” Business leaders were upset at the criticism that followed the financial crisis and, for many of them, it’s an article of faith that people succeed or fail because that’s what they deserve. Schwarzman recently said that Americans “always like to blame somebody other than themselves for a failure.” If you believe that net worth is a reflection of merit, then any attempt to curb inequality looks unfair.

The pitchforks are coming for us - To My Fellow Zillionaires: You probably don’t know me, but like you I am one of those .01%ers, a proud and unapologetic capitalist. I have founded, co-founded and funded more than 30 companies across a range of industries—from itsy-bitsy ones like the night club I started in my 20s to giant ones like, for which I was the first nonfamily investor. Then I founded aQuantive, an Internet advertising company that was sold to Microsoft in 2007 for $6.4 billion. In cash. My friends and I own a bank. I tell you all this to demonstrate that in many ways I’m no different from you. But let’s speak frankly to each other. I’m not the smartest guy you’ve ever met, or the hardest-working. I was a mediocre student. I’m not technical at all—I can’t write a word of code. What sets me apart, I think, is a tolerance for risk and an intuition about what will happen in the future. Seeing where things are headed is the essence of entrepreneurship. And what do I see in our future now? I see pitchforks. At the same time that people like you and me are thriving beyond the dreams of any plutocrats in history, the rest of the country—the 99.99 percent—is lagging far behind. The divide between the haves and have-nots is getting worse really, really fast. In 1980, the top 1 percent controlled about 8 percent of U.S. national income. The bottom 50 percent shared about 18 percent. Today the top 1 percent share about 20 percent; the bottom 50 percent, just 12 percent. But the problem isn’t that we have inequality. Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day. Our country is rapidly becoming less a capitalist society and more a feudal society. Unless our policies change dramatically, the middle class will disappear, and we will be back to late 18th-century France. Before the revolution.

Crushing Occupy Wall Street: It Was All About the Pitchforks - You know there is something different in the air when Rand Paul is railing against “fat cats” and a fat cat is worrying aloud about pitchforks in Politico Magazine.  It all harkens back to a messy, tarp-filled outpost in Zuccotti Park in lower Manhattan, the message of enforced inequality via the 99 percent brand was plastered across posters, hand-made t-shirts, street puppets, and even flashed onto skyscrapers in a creative blend of marketing savvy and social activism. This was creative destruction at its finest: calling out a failed system of crony capitalism that was only working for the 1 percent while creatively protesting for change in the streets. Capitalists supposedly love creative destruction where failed systems and business models are meant to collapse in order to be replaced with more efficient, innovative ones. But Occupy Wall Street was crushed with the brutality of a wrecking ball and the collaboration of a vast surveillance network.The Department of Homeland Security funded a high-tech, joint spy center in the heart of Wall Street where the New York Federal Reserve, Goldman Sachs, JPMorgan Chase and other Wall Street mega banks had their own personnel working alongside NYPD officers to spy on the activities of Occupy Wall Street protesters as well as law abiding citizens on the streets. Thanks to the Freedom of Information Act (FOIA) demands made by the Partnership for Civil Justice Fund (PCJF), we learned that the Department of Homeland Security obsessed over the social media savvy of the protesters and  evaluated daily the media coverage being given to the movement. Manhattan, of course, has one of the greatest concentrations of the one percent in the world and one of their own, billionaire Michael Bloomberg, was serving as Mayor at the time of the Occupy encampment in Zuccotti Park. The fear of the peaceful movement quickly turning into an exponentially mushrooming mob branding pitchforks was on the minds of the billionaires.

Ethics Panel Reverses Itself on Travel Finance Disclosure Rule -  The House Ethics Committee on Thursday reversed its earlier decision to streamline lawmakers’ disclosure of privately-financed travel information after the change ignited a flurry of criticism on Capitol Hill this week. Lawmakers had denounced the panel’s Tuesday action as a move away from transparency after the committee committee quietly ended a requirement that members of Congress and their aides list on yearly financial disclosure forms trips paid for by companies and nonprofits. Officials are already required to make detailed information public about their trips within 15 days of the trip’s conclusion. The committee defended its rationale Thursday in a two-page news release and five pages answering frequently-asked questions. The change to eliminate the “duplicative” reporting had been made at the recommendation of its nonpartisan, professional staff and didn’t change any of the rules regarding what types of private travel are permitted, the panel noted. “To be clear, absolutely nothing was changed regarding the requirement that all Members and all House staff must file detailed, publicly available reports of privately sponsored travel within 15 days of the trip,” the committee wrote. Still, the panel said it would return to its previous procedure.

House Hypocrisy on Insider Trading - NYTimes editorial -  It was quite the ballyhooed reform of Capitol Hill ethics — an explicit ban on insider trading by members of Congress and their aides enacted two years ago in a bipartisan wave of approval by the Senate and House.Now comes the hard part: enforcement. A legitimate attempt by the Securities and Exchange Commission has been rebuffed by the House with elaborate constitutional contentions. “Repugnant to public policy” is how the chamber’s legal office huffily described the commission’s reasonable subpoenas seeking information from the House Ways and Means Committee and a staff member.This is more than strange, considering lawmakers’ proud orations when the ban was passed that the public could be confident that federal laws against insider trading would indeed cover lawmakers and their staffs.Not surprisingly, the commission appealed, and a federal judge in New York has ordered a hearing this week for an explanation from the committee and the staff member suspected of leaking to a lobbyist nonpublic information he heard last year about pending Medicare rate increases. According to the commission, the lobbyist passed this valuable word along to a health care brokerage firm that quickly issued a private alert to clients. A suspicious spike in trading of shares profitable to the clients occurred before the government made its Medicare decision public.This is clearly a case worth pursuing if the law known as the Stock (Stop Trading on Congressional Knowledge) Act is to be a credible tool against corruption on Capitol Hill and in numerous executive agencies also covered. The House should be embracing a law that members themselves fervidly vowed to uphold. The court should stand by the commission, which has a duty to subpoena records in this case. Otherwise the act will go down as the latest monument to congressional hypocrisy.

IRS Rejects Non-Profit Status For Open Source Organization, Because Private Companies Might Use The Software - Last year, as the IRS scandal blossomed over the IRS supposedly targeting "conservative" groups for extra attention concerning their non-profit status, we noted that the IRS had also been told to examine "open source software" projects more closely as well. We found that to be a bit disturbing -- and it appears that for all that focus on the scandal, the IRS hasn't quite given up on unfairly targeting open source projects. The Yorba Foundation, which makes a number of Linux apps for GNOME, has been trying to get declared a 501(c)(3) non-profit for over four years now... and just had that request rejected by the IRS for reasons that don't make any sense at all. Basically, the IRS appears to argue that because there might be some "non-charitable" uses of the software, the Foundation doesn't deserve non-profit status, which would make it exempt from certain taxes (and make donations tax deductible). Here was the key reason given:  You have a substantial nonexempt purpose because you develop software published under open source compatible licenses that authorize use by any person for any purpose, including nonexempt purposes such as commercial, recreational, or personal purposes, including campaign intervention and lobbying.

Why is Washington still protecting the secret political power of corporations? | Alexis Goldstein  - In post-Citizens United America, there is growing concern that the ability for corporations to anonymously funnel money into politics – with no need to disclose these donations to voters, election officials or their own shareholders – will corrupt the political process. Democrats have previously tried and failed to pass the Disclose Act, which would require greater disclosure of donors – but with a divided Congress, many in Washington see bringing meaningful transparency to campaign finance an utterly impossible task. Still, there is another way to achieve the disclosure of corporate political donations that doesn't require Congress at all: the administration could simply propose new regulations under its existing authority. Unfortunately, despite having a Democratic chair – Mary Jo White – the Securities and Exchange Commission, which could mandate such disclosures, is either too intimidated (or too captured) to act.Despite congressional shenanigans, blame for regulatory inaction on the issue sits squarely on the shoulders of the Democrat-led SEC. After adding a political disclosure rule to its 2013 agenda, the agency quietly dropped the rule for this year. SEC spokesman John Nester implied it was a capacity issue, noting that the agenda is its "best estimate as to what would be ready for Commission consideration by fall of 2014". But we're already halfway through the year and the agency has made time for other "discretionary" activities: a pilot program to allow some stocks to trade in 5-cent increments rather than pennies, and a roundtable considering new regulations for the companies that advise institutional investors (a priority of the pro-business Chamber of Commerce).

Google purges negative press coverage of former Wall Street CEO from search results: If Google is given the responsibility for judging whether a 16-year-old home auction notice in the newspaper should disappear from its search results, what’s Google’s approach going to be when businesses demand that critical news reports or bad reviews need to be excised? How does Google decide who is a public figure and who isn’t? The potential for conflicts of interest is infinite. And sure enough, just a month and a half later, we have a report from BBC News economics editor Robert Peston alerting us to a recently received “notification” from Google pertaining to a seven-year-old post by Peston. Peston says that the post in question, “Merrill’s Mess,” names only one person, Stan O’Neal, the former CEO of Merrill Lynch, who was ousted in 2007 after the revelation that the investment bank had suffered huge losses from subprime derivatives trading. The implication being that O’Neal, or his lawyers, are taking advantage of the “right to be forgotten” law to scrub Google’s search results of any links to stories that might be critical of him.  The odd part about this story is that a close reading of Peston’s original post doesn’t reveal anything particularly damning re O’Neal. The first paragraph is about the worst it gets: All weekend, wave after wave of schadenfreude has been crashing on the head of Stan O’Neal, the chairman of Merrill Lynch. After Merrill announced those colossal losses on inventories of sub-prime loans reprocessed into noxious collateralised debt obligations, O’Neal could not survive. It was certainly not the intent of the European Court of Justice that public figures like Stan O’Neal would be able to modify Google’s search results so that posts that hurt their feelings disappeared. And one has to wonder, if O’Neal requested that this particular post be removed, what else has he sought to erase?

Google removal of BBC article raises censorship fears - A seven-year-old article criticising a former Merrill Lynch chief executive is set to be removed from Google’s search results, in a move that will heighten concerns over the fallout over the EU’s ruling on the “right to be forgotten”. Titled “Merrill’s mess”, the 2007 blog post by Robert Peston, now the BBC’s economics editor, describes how Stan O’Neal left the US investment bank after it suffered huge losses on risky investments. Mr Peston received a “notice of removal” from the search company on Wednesday, informing him that his article would no longer appear in the results of some searches. In May the European Court of Justice, the EU’s highest court, ruled that individuals had the right to request the removal of search results linking to “inadequate, irrelevant or no longer relevant” personal data – even if the information had been published legally. Google – which opposed the court decision – responded by introducing an online form giving visitors to its European sites a formal route to make removal requests. In the first four days after uploading the form, Google received more than 41,000 requests. Mr Peston conceded that he could simply be “the victim of teething problems” as the search company begins to implement the rules. He added, however: “There is an argument that in removing the blog, Google is confirming the fears of many in the industry that the ‘right to be forgotten’ will be abused to curb freedom of expression and to suppress legitimate journalism that is in the public interest.”

By "Punishing" France, The US Just Accelerated The Demise Of The Dollar - Not even we anticipated this particular "unintended consequence" as a result of the US multi-billion dollar fine on BNP (which France took very much to heart). Moments ago, in a lengthy interview given to French magazine Investir, none other than the governor of the French National Bank Christian Noyer and member of the ECB's governing board, said this stunner at the very end, via Bloomberg: NOYER: BNP case will encourage 'diversification' from the dollar. In other words, the head of the French central bank, and ECB member, Christian Noyer, just issued a direct threat to the world's reserve currency (for now), the US Dollar. And, the biggest irony of all is that in "punishing" France for dealing with Russia, that core country of the Eurasian alliance of Russia and China, the US merely accelerated the graviation of France (and all of Europe) precisely toward Eurasia, toward a multi-polar (sorry fanatic believers in a one world SDR-based currency) and away from the greenback.

The U.S. should use its economic clout responsibly - It’s a scandal! It’s a conspiracy! It’s economic warfare!No, not the crimes the U.S. government is punishing the French bank BNP Paribas for perpetrating, but the punishment itself.So say French politicians, at least. On Monday, BNP Paribas pleaded guilty to violating U.S. economic sanctions against Sudan, Iran and Cuba. As part of the settlement, it agreed to pay nearly $9 billion and temporarily suspend some of its valuable dollar-clearing services. The magnitude of the penalties — the largest imposed on a financial institution for U.S. sanctions violations — reflect not only the astounding volume of forbidden transactions routed through the U.S. financial system but also the lengths the bank went to to hoodwink authorities. Internal documents revealed that BNP officials falsified records and obscured the countries involved, even as they privately recognized that some of the entities they served were party to a “humanitarian catastrophe” and directly supported terrorists.  In other words, BNP officials knew all along that they were behaving badly, from both a moral and a legal standpoint. But no matter. The real problem, French politicians have asserted for the past few months, is that the Unit ed States shouldn’t be sticking its nose into BNP’s business.  Last month, French President Francois Hollande confronted President Obama over “l’affaire BNP” at a D-Day event, insisting that Obama intervene to ease the proposed fine. Hollande also took up the cause with German Chancellor Angela Merkel and other European governments, according to the Financial Times. U.S. regulators, after all, are still investigating other foreign banks — including, reportedly, Germany’s Deutsche Bank and Commerzbank, Italy’s UniCredit and France’s Credit Agricole and Societe Generale – that may have also violated our trade embargoes. The penalties in those cases could be similarly onerous.

Bill Black on Real News: BNP Paribas Fine Shows Financial Crime Still Pays - Yves Smith - This Real News Network interview with Bill Black provides a good high-level overview of what is right and (mainly) wrong with the $8.9 billion settlement with BNP Paribas over money-laundering charges. Black stresses that financial crime remains a very attractive activity for both the enterprise and its employees. As usual, no executives were charged or even fined, although thanks to the intervention of New York financial services superintendent Benjamin Lawsky, eleven employees of the French bank lost their jobs.

Profiteering on Banker Deaths: Regulator Says Public Has No Right to Details -- A man with a long history of keeping big bank secrets safe from the public’s prying eyes has denied the appeal filed by Wall Street On Parade to obtain specifics about the worker deaths upon which JPMorgan Chase pockets the life insurance money each year.According to its financial filings, as of December 31, 2013, JPMorgan held $17.9 billion in Bank-Owned Life Insurance (BOLI) assets, a dark corner of the insurance market that allows banks to take out life insurance policies on their workers, secretly pocket the death benefits, and receive generous tax perks subsidized by the U.S. taxpayer. According to experts, JPMorgan could potentially hold upwards of $179 billion of life insurance in force on its current and former workers, based on the size of its BOLI assets. The man who denied Wall Street On Parade’s appeal is Daniel P. Stipano, who told us by letter on June 20, 2014 that he had 450 pages of responsive material but it was not going to be released to us or the public. Stipano is, by title, the Deputy Chief Counsel of the Office of the Comptroller of the Currency (OCC), the U.S. regulator of national banks, including those that were at the center of the 2008 financial collapse, mortgage and foreclosure frauds,  and which continue to violate the nation’s laws with regularity.

US cash managers struggling with weak supply of high grade product -- The amount of cash in circulation in the US is growing at over 10% per year, and with it the need for short term fixed income product outside of bank deposits. At the same time, treasury bills outstanding hit a new multi-year low this month.Recently issued floating rate treasury notes (see discussion) provide an alternative for bills, but the amount hitting the market is immaterial to make a dent at this stage. Money market funds also jumped into the Fed's RRP program (see discussion), but the supply of that experimental product is also limited for now. Private repo, one of the most common places for parking short-term cash outside of bank deposits, has been somewhat problematic as well. The supply of treasury collateral, large portions of which remain trapped on Fed's balance sheet, has often been insufficient. The recent rise in treasury settlement fails (failure to deliver) is an indication of such shortage.Investors looking to park cash outside of bank deposits can also buy bank commercial paper (CP), which is what most "prime" money markets have been doing. But banks do not like to rely on commercial paper for funding because many found themselves unable to roll it during the financial crisis. The volumes of bank CP therefore remain subdued (with rates declining as well).

High Yield Bond Issuance Hits Record In June, As Yields Reach New Lows - Issuance hit a record in June as yields hit new lows, leading more opportunistic issuers to come out to take advantage of attractive rates and ongoing demand. The yield-to-worst on the S&P U.S. Issued High Yield Corporate Bond Index reached a 13-month low of 4.77% in late June, as the yield on the 10-year Treasury held in a 2.52-2.64% range for the month. Volume for June topped out at $29.27 billion from 60 issuers, the most for any June on record, according to LCD. For reference, last June saw just $12.86 billion in volume from 31 issuers. June also follows the two busiest months of this year, with April and May pulling in $39 billion and $37 billion, respectively, for a record quarter of $105 billion, LCD’s largest recorded quarterly volume. Bankers are not expecting issuance in the coming quarter to reach this amount. However, the record-low rates and ongoing demand for speculative-grade product will keep high-yield issuance steady, with bankers predicting $125-150 billion for the rest of the year, split roughly evenly between quarters. This is slower than the first half’s pro forma $180 billion, which represents a 5% gain versus last year’s pace, but accounts for quiet periods surrounding Labor Day and the end of the year. Estimates for July are around $20-25 billion, bankers say.

 Central Bankers Issue Strong Warning on Asset Bubbles -- An organization representing the world’s main central banks warned on Sunday that dangerous new asset bubbles were forming even before the global economy has finished recovering from the last round of financial excess.  Investors, desperate to earn returns when official interest rates are at or near record lows, have been driving up the prices of stocks and other assets with little regard for risk, the Bank for International Settlements in Basel, Switzerland, said in its annual report published on Sunday. Recovery from the financial crisis that began in 2007 could take several more years, Jaime Caruana, the general manager of the B.I.S., said at the organization’s annual meeting in Basel on Sunday. The recovery could be especially slow in Europe, he said, because debt levels remain high.  “During the boom, resources were misallocated on a huge scale,” Mr. Caruana said, according to a text of his speech, “and it will take time to move them to new and more productive uses.” The B.I.S. provides financial services to national central banks and also acts as a setting where central bankers can discuss monetary policy and other issues like financial stability or bank regulation. The board of directors includes Janet L. Yellen, chairwoman of the Federal Reserve; Mario Draghi, president of the European Central Bank; and the heads of central banks from Japan, China, India and many other countries. The organization, which reflects a widespread view among central bankers that they are bearing more than their share of the burden of fixing the global economy, often uses its annual reports to send a message to political leaders, commercial bankers and investors. But the B.I.S.’s language in the 2014 edition was unusually direct, as was its warning that the world could be hurtling toward a new crisis.

Federal Regulator Details Crazy Risk-Taking By Banks, Blames Fed -  Banks are again taking big risks, the same risks that helped trigger the financial crisis, and they’re understating these risks. It wasn’t an edgy blogger but a bank regulator of the Federal Government – the Office of the Comptroller of the Currency – that issued this warning. And it explicitly blamed the Fed’s monetary policy. The report fingered the stock market’s “fear index,” the VIX, which measures near-term volatility of S&P 500 index options; and it fingered the bond market’s “fear index,” the Merrill Option Volatility Estimate (MOVE), which measures volatility of Treasury options. They have been flirting with, or hit all-time lows. VIX levels below 20, “and especially below 15” – it’s now below 12 – “suggest complacency in the stock market, which often has led to sustained increases in risk appetite and subsequent market instability.” First the culprit: the Fed’s “unprecedented monetary policy easing has resulted in sharply lower interest rates, higher stock prices, and lower market volatility.” That volatility is a “key factor” in how banks compute risk measures. When volatility is very low, something happens to the Value at Risk models that banks use to measure and disclose the risk of their trading activities: Aggregate VaR has dropped significantly since the end of the financial crisis at the five largest U.S. banking companies with trading operations. While some of the VaR decline is a result of lower client activity and reduced bank trading risk appetite, the low-volatility environment is the primary cause of lower VaR. In a more normal volatility environment, one without sustained monetary policy accommodation by the Federal Reserve, bank VaR would be meaningfully higher. Thus, current VaR calculations may understate trading risk in the banking system..

Proportion of 6x and higher LBO leverage hits 64%, a record - Strong demand for senior loans is allowing some US corporations to push leverage to new highs. While the average leveraged buyout (LBO) transaction total leverage is just below the 2007 peak, the average leverage through the first-lien debt hit an all-time record this quarter.  Similarly, even though we don’t see as many 7x or 8x leverage LBOs as we did in 2007, the proportion of LBO’s with 6x and greater hit a new record of 64%. So much for the Guidance on Leveraged Lending (see post).  The Fed can attempt to limit the supply of such leverage by going after the banks who arrange this financing. But banks don’t hold much of this debt on their balance sheets and instead syndicate it to funds and CLOs. Therefore an attempt to reign in high risk lending should start by taming the demand. The demand however comes from the lack of yield in fixed income, and only when rates begin to rise will we see a slowdown in high risk financing. Of course the longer it takes to get there the more painful the adjustment will become.

Window dressing with Fed's reverse repo program - If you are a bank or even a money market fund, you probably want your financials to show the maximum amount of your overnight liquidity placed with the Fed's RRP rather than with other banks. Your balance sheet looks less "risky" this way. And since most financial reporting is done at quarter end (with mid-year and year-end being the most important dates), you want to place your cash with the Fed on the last day of the quarter for one night and then take it out. And that’s exactly what’s taking place currently.  Why not leave your liquidity with the Fed for a longer period? Because the Fed's current RRP rate pays 5 basis points, while the private repo market is paying about double that. Of course as cash is pulled out of the repo markets for quarter-end and moved to the Fed or elsewhere, rates in the private markets rise. Once the cash comes back to the private markets at the start of the new quarter, the rates return to normal. The larger the RRP program becomes, the stronger this quarter-end effect will be. Welcome to the wonderful world of window dressing.

Chase’s fraudulent foreclosure: Court says executive falsified documents - JPMorgan Chase (JPM) created and recorded false documentation that showed the bank owned the mortgage of two California residents in order to foreclose on their home, the California Court of Appeals stated in a ruling Monday. In Jan and Rosalind Kalicki obtained a mortgage loan from Headlands Mortgage Company for a home in San Marcos, California. Headlands originated the loan and Washington Mutual became the servicer of the loan. When WaMu was placed in receivership in 2008, Chase purchased “certain interests” of WaMu in the Kalicki’s loan, according to court documents. The Kalickis sued WaMu in 2009, alleging that the bank wrongfully foreclosed on their property in 2008. In 2010, Chase was granted a motion to intervene because it had purchased WaMu’s assets and held the interests in the loan. The Kalickis amended their complaint to add Chase as a defendant and dismissed WaMu from the suit. In the complaint, the Kalickis alleged that Chase claimed ownership of their loan based on fraudulent documents. In September 2012, a trial court in California ruled in favor of the Kalickis, stating that they owned the property and quieted the title in their favor. The court also found that Chase had executed and recorded false documentation that showed that the ownership of the Kalickis' mortgage was transferred to Chase. The court also ruled that a Chase executive created a document that “fraudulently represented that a prior assignment had been lost and that Chase owned the Kalickis' mortgage.”

MERS Gets a Beatdown in Pennsylvania Federal Court -- What exciting news! Just reading the two-page Order was enough to send chills down my spine! Oh … don’t worry. MERS and its parent MERSCORP are arrogant enough to appeal this decision because it involves some huge repercussions for them in the State of Pennsylvania. I could just hug County Register of Deeds Nancy Becker for this one! She’s the public official who stood up to the electronic database and its owner who continue to make a self-righteous mockery of the county recording systems across America! Well … at least not in Pennsylvania according to Judge Curtis Joyner. You see, Pennsylvania has some interesting statutes (which it appears MERS and its parent think they can ignore): §351. Failure to record conveyance: (statute) So Judge Joyner succinctly, as paraphrased, put it to them both like this (my comments are in italics): AND NOW, this 30th Day of June, 2014, upon consideration of the Motion for Summary Judgment of Defandants, MERSCORP, Inc. Mortgage Electronic Registration Systems, Inc.  (the Judge appears confused even about the name of the parent) and Plaintiff’s Cross-Motion for Partial Summary Judgment and the parties’ further Memoranda of Law in Support and in Opposition, it is hereby ORDERED that Defendant’s Motion is DENIED in its entirety (smack down!) and Plaintiff’s Motion is GRANTED IN PART as outlined in the preceding Memorandum Opinion.

Fannie Mae: Mortgage Serious Delinquency rate declined in May, Lowest since October 2008 - Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in May to 2.08% from 2.13% in April. The serious delinquency rate is down from 2.83% in May 2013, and this is the lowest level since October 2008. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.Last week, Freddie Mac reported that the Single-Family serious delinquency rate declined in May to 2.10% from 2.15% in April. Freddie's rate is down from 2.85% in May 2013, and is at the lowest level since January 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Black Knight releases Mortgage Monitor for May - Black Knight Financial Services (BKFS, formerly the LPS Data & Analytics division) released their Mortgage Monitor report for May today. According to BKFS, 5.62% of mortgages were delinquent in May, unchanged from April. BKFS reports that 1.91% of mortgages were in the foreclosure process, down from 3.05% in May 2013. This gives a total of 7.53% delinquent or in foreclosure. It breaks down as:
• 1,670,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,169,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 966,000 loans in foreclosure process.
For a total of ​​3,805,000 loans delinquent or in foreclosure in May. This is down from 4,569,000 in May 2013.This graph from BKFS shows percent of loans delinquent and in the foreclosure process over time. Delinquencies and foreclosures are moving down - and might be back to normal levels in a couple of years. The second graph from BKFS shows the mortgage origination activity for both refinance and purchase loans. From Black Knight: Though refinance activity is still down significantly from the levels seen in 2012 and early last year, it has increased 21 percent since January 2014. Black Knight also found that seasonal purchase activity has picked up, with approximately 897,000 purchase originations through April, a level on par with 2013 (898,000 over the same period), and better than 2012 (847,000). Overall, credit standards do not seem to be easing, as both average loan-to-value (LTV) ratios and credit scores on both purchase and refinance originations remain relatively strict and essentially unchanged.

In Home Loans, Subprime Fades as a Dirty Word - She had gone through a foreclosure after losing her job, and he was finishing his M.B.A. and had not yet found his current position. But they had managed to put together a down payment of more than $550,000, or three-quarters of the asking price for a four-bedroom house in Los Gatos, and thought they would find a bank willing to lend the rest. They didn’t.So the Arroyos found an alternative: a subprime mortgage.Despite the notoriety that subprime loans gained as a prime cause of the financial crisis, they are re-emerging, under much more careful control, as one answer to the tight lending standards that have shut out millions of would-be homeowners.“We call it the sane subprime,” said Brian O’Shaughnessy, chief executive of the Athas Capital Group, which gave the Arroyos their loan.Subprime loans, which accounted for about 15 percent of all new home loans in 2005 and 2006, are now a tiny sliver of the mortgage market. Only a handful of lenders are offering them, at interest rates from 8 to 13 percent (compared with about 4 percent for conventional loans to highly rated borrowers).According to the Athas rate sheet, borrowers with low credit scores, between 550 and 600, must put at least 35 percent down and will get an interest rate ranging from 8.99 to 12.99 percent. Subprime loans have a thoroughly unsavory reputation — for good reason. But the loans started out with a legitimate purpose: giving people with less-than-stellar credit the ability to buy a home, as long as they paid a premium to compensate for the higher risk.

How Private Equity Firms Manipulate the Buy-to-Rent Housing Racket - Wolf Richter: Private equity firms are the ultimate smart money on Wall Street; they know how to wring out the last dime from their own clients, such as pension funds and rich individuals, through hidden fees, obscure expenses, elaborate expense shifting, lackadaisical disclosure, and “zombie advisers,” to the point where SEC Inspection Chief Andrew Bowden singled them out in a speech in May. Now the lawyers are circling. And these private equity firms invented a whole new business: buying vacant homes out of foreclosure and from banks and renting them out. Flush with the Fed’s nearly free money, Blackstone Group ended up spending $8.6 billion in two years on 45,000 homes, spread helter-skelter across 14 cities. Another PE product, American Homes 4 Rent, which went public last summer as a highly leveraged REIT, bought 25,000 homes. Firms sprouted like mushrooms, spending $50 billion to acquire 386,000 homes.And home prices soared. Year-over-year increases of over 20% suddenly appeared in the data. Housing Bubble 2 was born. That’s how the Fed “healed” the housing market. Yet numerous economists claimed that buying 386,000 homes over two years in a market where about 5 million existing homes change owners every year could not possibly have had much impact on price. Turns out, that meme is awfully close to propaganda. The Smart Money on Wall Street – Private Equity Firms – Had a Goal.  And a system – aided and abetted by the banks. Homebuyers today are, literally, paying the price. The goal was to progressively drive up home prices to book near-instant paper profits on the units they had already bought. According to a source at one of the GSEs (Government Sponsored Enterprise), whose work is focused on residential real estate, they did it by constantly laddering their purchases. And in some markets, like Las Vegas, they achieved price increases of 100%. The multiplier effect.

MBA: Mortgage Applications Decrease Slightly in Latest MBA Weekly Survey -- From the MBA: Mortgage Applications Decrease Slightly in Latest MBA Weekly Survey Mortgage applications decreased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 27, 2014. ... The Refinance Index increased 0.1 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. ... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.28 percent from 4.33 percent, with points decreasing to 0.14 from 0.18 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index is down 75% from the levels in May 2013. As expected, refinance activity is very low this year. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is down about 16% from a year ago.

Weekly Update: Housing Tracker Existing Home Inventory up 14.0% YoY on June 30th, Above June 30, 2012 Level -- Here is another weekly update on housing inventory ... There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer. The Realtor (NAR) data is monthly and released with a lag (the most recent data released was for May).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014. In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year. In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays. Inventory in 2013 finished up 2.7% YoY compared to 2012. Inventory in 2014 (Red) is now 14.0% above the same week in 2013. (Note: There are differences in how the data is collected between Housing Tracker and the NAR). Also inventory is now above the same week in 2012. This increase in inventory should slow price increases, and might lead to price declines in some areas.

CoreLogic: House Prices up 8.8% Year-over-year in May -- The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).From CoreLogic: CoreLogic Reports Home Prices Rose by 8.8 Percent Year Over Year in May Home prices nationwide, including distressed sales, increased 8.8 percent in May 2014 compared to May 2013. This change represents 27 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased 1.4 percent in May 2014 compared to April 2014.Excluding distressed sales, home prices nationally increased 8.1 percent in May 2014 compared to May 2013 and 1.2 percent month over month compared to April 2014. ... Distressed sales include short sales and real estate owned (REO) transactions. . “May's 8.8 percent year-over-year growth rate is down almost three percentage points from just three months ago. The influences of modestly rising inventory and less-than-expected demand are causing price growth to moderate toward our forecasted expectations.” This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 1.4% in May, and is up 8.8% over the last year. This index is not seasonally adjusted, so a strong month-to-month gain was expected for May. The second graph is from CoreLogic. The year-over-year comparison has been positive for twenty seven consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

The Slow Down in the House Price Indexes  - We are finally seeing the slowdown in the year-over-year (YoY) housing price indexes that many of us have been expecting based on supply and demand.  With inventory increasing steadily - and by one measure now above 2012 levels for the same week - the price slowdown will probably continue (and we may see price index declines in some areas).Note: on inventory, the NAR data for May indicated inventory was up 6.0% YoY, but still down 7.6% compared to May 2012.  Comparing to 2012 is interesting because prices started to increase in early 2012 (my bottom call in February 2012: The Housing Bottom is Here).As an example, the CoreLogic index released this morning showed an 8.8% YoY increase in May; a fairly large increase, but the smallest year-over-year increase since late 2012 - and down from a 11.8% YoY increase a few months ago.This slowdown in the house price indexes (even though expected) is a key story for 2014.  The next question is how much prices will slow.  Zillow is forecasting their index will increase 2.9% over the next 12 months. This will be a key story for the rest of the year and in 2015. Here is a table of several indexes through April and May.

Some thoughts on slowing house price appreciation in the US -- As discussed earlier (see post), home price increases in the US are slowing. One of the reasons for the slowdown is the continuing weakness in wage growth. The latest data seem to indicate that in spite of the overall improvements in job creation, wage growth remains subdued - hovering around 2% per year over the past 3 years or so.  And wage growth is a key determinant in home price valuation. Merrill Lynch for example shows that current home prices may already be above where they should be, based on Merrill's "fair value" index. The other issue holding back home prices from accelerating is that credit conditions for mortgages remain relatively tight. In fact for non-traditional mortgages credit conditions have worsened. Of course this is the situation for the nation as a whole. Underneath all this we have quite a bit of variability. Skilled workers are more likely to have higher paying jobs, are able to get mortgages, and are buying homes. House prices in certain areas are rising much faster than what we see in the national averages. In many cases there are simply not enough homes. Yet in other areas however the situation remains stagnant in terms of wages, credit, and the housing market. This divergence, though not visible at the national level, is growing.

The state of the housing market, May 2014: As I wrote last week in discussing existing home sales at, the housing market tends to cycle in a regular order: 1st, interest rates turn 2nd, permits, starts, and sales turn 3rd, prices turn 4th, inventory turns Now that we are half the way through 2014, let's look at where each of those points in the cycle stands. Interest rates First, here is a graph, covering the last 30 years, of the YoY% mortgage rates (inverted so that higher rates give a lower value, blue) vs. housing permits, YoY change in 100,000's (red): Interest rates on mortgages went up about 1.4% between May and July of last year. On 16 of 19 occasions since the end of World War 2, that big a change led to a YoY decline of at least -100,000 in permits. In this case, housing permits have gone sideways, with small YoY% declines in several months, including May, since the beginning of this year. Second, here is a graph of the change, in thousands, YoY of starts (blue), permits (red), new home sales (green), and existing home sales (orange) (note that the St. Louis FRED does not track pending home sales): Next, here is the YoY% change in the same four statistics: Both of these graphs show the clear deceleration in the housing market through 2013 and through March 2014. Whether the spike in starts and new home sales in April and May means the trend has bottomed, or whether these are payback for particularly bad winter season reports, remains to be seen. Finally, it is worth noting that the same deceleration is also showing up in the data at Depatment of Numbers Housing Tracker. I used this database of asking prices, which is updated weekly, to call in real time both the top of the housing boom in 2006, and the bottom of the housing bust in 2012.  What is particularly noteworthy is that in 2006, it was the asking prices for houses in the 75th percentile (more expensive homes) which turned first.  Now prices for those same more expensive houses are showing the most deceleration of all, as shown in this table, which shows the YoY% change for each percentile of houses for sale nationwide:

Housing Improving but Rental Crisis Looms: The U.S. housing recovery should regain its footing, but also faces a number of challenges. Tight credit, still elevated unemployment, and mounting student loan debt among young Americans are responsible for moderating growth and keeping millennials and other first-time homebuyers out of the market according to the latest edition of The State of the Nation's Housing released today by the Harvard Joint Center for Housing Studies. "The housing recovery is following the path of the broader economy," says Chris Herbert, the Center's research director. "As long as the economy remains on the path of slow, but steady improvement, housing should follow suit." The report takes an in depth look at the housing markets and their demographic drivers, homeownership, rental housing, and finally the challenges facing housing. We will briefly summarize the report's findings here then report on each of the above categories in greater detail over the next few days. The report notes that even though housing started out 2013 with a bang the market slowed noticeably in the second half of the year as home starts and sales of both new and existing homes slowed. Higher interest rates following the Federal Reserve announcement that it was considering tapering its purchases of long-term and mortgage-backed securities was partially to blame as were the retreat of investors from the market, limited inventories of homes for sale and affordability issues following rapid home price increases. But the report says the slow recovery of single-family housing largely reflects the steady but unspectacular return of jobs.

Pending Home Sales Jump In May; Drop YoY For 8th Month In A Row -- Pending home sales surged by 6.1% MoM in May; this is the largest jump since April 2010 (when first-time buyers scrambled to sign contracts before tax credits expired. However, exuberant spike aside, this is the 8th month in a row of a year-over-year drop in home sales. NAR is ever-optimistic suggesting "sales should exceed an annual pace of five million homes," amid low rates, inventory and job creation (goldilocks?). The sales, unsurprisingly, are all high-end: "The flourishing stock market the last few years has propelled sales in the higher price brackets," as lower-cost home sales plunge.

NAR: Pending Home Sales Index increased 6.1% in May, down 5.2% year-over-year -  From the NAR: Pending Home Sales Surge in May Pending home sales rose sharply in May, with lower mortgage rates and increased inventory accelerating the market, according to the National Association of Realtors®. All four regions of the country saw increases in pending sales, with the Northeast and West experiencing the largest gains. The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 6.1 percent to 103.9 in May from 97.9 in April, but still remains 5.2 percent below May 2013 (109.6).  The PHSI in the Northeast jumped 8.8 percent to 86.3 in May, and is now 0.2 percent above a year ago. In the Midwest the index rose 6.3 percent to 105.4 in May, but is still 6.6 percent below May 2013. Pending home sales in the South advanced 4.4 percent to an index of 117.0 in May, and is 2.9 percent below a year ago. The index in the West rose 7.6 percent in May to 95.4, but remains 11.1 percent below May 2013. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in June and July.

Construction Spending increased slightly in May -  The Census Bureau reported that overall construction spending increased in May: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during May 2014 was estimated at a seasonally adjusted annual rate of $956.1 billion, 0.1 percent above the revised April estimate of $955.1 billion. The May figure is 6.6 percent above the May 2013 estimate of $896.6 billion. Private spending declined and public spending increased in May: Spending on private construction was at a seasonally adjusted annual rate of $682.8 billion, 0.3 percent below the revised April estimate of $684.6 billion. Residential construction was at a seasonally adjusted annual rate of $354.8 billion in May, 1.5 percent below the revised April estimate of $360.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $328.0 billion in May, 1.1 percent above the revised April estimate of $324.5 billion. ... In May, the estimated seasonally adjusted annual rate of public construction spending was $273.3 billion, 1.0 percent above the revised April estimate of $270.5 billion.  This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted. Private residential spending is 48% below the peak in early 2006, and up 55% from the post-bubble low. Non-residential spending is 21% below the peak in January 2008, and up about 45% from the recent low. Public construction spending is now 16% below the peak in March 2009 and about 5% above the post-recession low. The second graph shows the year-over-year change in construction spending. On a year-over-year basis, private residential construction spending is now up 7%. Non-residential spending is up 11% year-over-year. Public spending is up 1% year-over-year.

For Sale: Vacant Lots On Chicago Blocks, Just $1 Each -- Chicago is practically giving away land: vacant lots for just $1 each. The catch? To buy one, you must already own a home on the same block. Like many U.S. cities, Chicago has struggled with what to do with a growing number of empty lots in the wake of the foreclosure crisis. Efforts to develop affordable housing or urban farms have had some mixed results. So Chicago officials and community development advocates hope the vacant lot program can help spark a renewal in some of the city's most blighted areas.The City of Chicago owns close to 5,000 vacant lots in the greater Englewood area alone, and is supposed to clean up, mow and maintain them. But residents such as Asiaha Butler say the city doesn't always stay on top of the job.

Reis: Apartment Vacancy Rate unchanged in Q2 2014 at 4.1% - Reis reported that the apartment vacancy rate was unchanged in Q2 at 4.1%. In Q2 2013 (a year ago) the vacancy rate was at 4.3%, and the rate peaked at 8.0% at the end of 2009.  Vacancy was unchanged during the second quarter at 4.1%, a slight worsening versus last quarter. Over the last twelve months the national vacancy rate has declined by 20 basis points, slightly below the pace of the last few quarters. . The national vacancy rate now stands 390 basis points below the cyclical peak of 8.0% observed right after the recession concluded in late 2009. However, at 4.1%, the national vacancy rate remains low by historical standards. Demand remained relatively strong during the second quarter, as the sector absorbed 35,102 units. This is down slightly versus last quarter's 40,853 units absorbed but was the largest figure for a second quarter since 2011. Year to date, net absorption is tracking ahead of last year's pace, indicating that demand remains resilient even after more than four years of an apartment market recovery.  Completions during the second quarter totaled 33,210 units. This is a rebound from the first quarter, when construction activity was likely muted by severe winter weather. The overall trend in construction is clearly upward. Despite first quarter's severe winter weather, new construction is already ahead of last year's pace. The market remains on track to deliver the highest level of new completions since 1999 when the economy was growing at a far faster pace than it is today. Asking and effective rents both grew by 0.8% during the second quarter. This is an increase from growth during the first quarter which now appears to be just a temporary slow down, likely due to seasonal factors. Rent growth, though weak by historical standards given such a low vacancy rate, continues to accelerate.

Reis: Office Vacancy Rate unchanged in Q2 at 16.8% -m Reis released their Q2 2014 Office Vacancy survey this morning. Reis reported that the office vacancy rate was unchanged in Q2 compared to Q1 at 16.8%. This is down slightly from 17.0% in Q2 2013, and down from the cycle peak of 17.6%.  The national vacancy rate was unchanged during the first quarter at 16.8%. This reflects the pattern in vacancy rate movement that we have seen since the market began recovering during the first quarter of 2011. Quarters of slightly declining vacancy have often been followed by quarters with no change in the vacancy rate. During that interval we have not had a quarter with a vacancy compression greater than 10 basis points. Over the last twelve months, the vacancy rate is down just 20 basis points, on par with last quarter, indicating that in aggregate we are not yet seeing an acceleration in the recovery in the office market.  Net absorption increased by 2.759 million square feet during the second quarter. This is the lowest quarterly figure since the fourth quarter of 2010, the last time net absorption was negative in the US. Last quarter, net absorption was the highest quarterly figure since before the recession so that is a stark reversal in only one quarter. Net absorption averaged roughly 8.2 million square feet over the last four quarters so this represents a significant change from recent performance in the market.Asking and effective rents both grew by 0.7%, respectively, during the second quarter. These figures are essentially the same as last quarter. Asking and effective rents have now risen for fifteen consecutive quarters. . Asking rent growth was 1.6% during 2011, 1.8% during 2012, and 2.1% in 2013, and 2.2% over the prior 12 months during the first quarter. During the second quarter, the 12‐month change in asking rent increased to 2.5

Reis: Strip Mall Vacancy Rate declined slightly in Q2, Regional Malls Unchanged  - Reis reported that the vacancy rate for regional malls was unchanged at 7.9% in Q2 2014. This is down from a cycle peak of 9.4% in Q3 2011. For Neighborhood and Community malls (strip malls), the vacancy rate declined slightly to 10.3% from 10.4% in Q1. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011. [Strip Malls] The national vacancy rate for neighborhood and community shopping centers declined by 10 basis points to 10.3% during the second quarter. This was a marginal improvement over the first quarter when the national vacancy rate did not change. The national vacancy is now down 80 basis points from its historical peak during the third quarter of 2011. However, that translates into a less than 10 basis points per quarter compression in the vacancy rate.... [Regional] Vacancy during the second quarter was 7.9%, unchanged from the first quarter and down 40 basis points from the second quarter of 2013. Vacancy is also down 150 basis points from the historical‐high level of 9.4% reached during the third quarter of 2011. Asking rents grew by 0.4% in the second quarter and 1.8% during the last twelve months. This is the thirteenth consecutive quarter of rent increases at the national level for regional malls. This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

Real Median Household Income Rose 0.45% in May: The Sentier Research monthly median household income data series is now available for May. The nominal median household income was up $426 month-over-month but up only $1,777 year-over-year. Adjusted for inflation, it was up $240 MoM and only $674 YoY. The real numbers equate to a 0.45% MoM increase and a 1.28% YoY increase. While the monthly rise is welcome news, it merely offsets the previous month's 0.42% decline. In real dollar terms, the median annual income is 7.2% lower (about $4,159) than its interim high in January 2008. The first chart below is an overlay of the nominal values and real monthly values chained in May 2014 dollars. The red line illustrates the history of nominal median household, and the blue line shows the real (inflation-adjusted value). I've added callouts to show specific nominal and real monthly values for January 2000 start date and the peak and post-peak troughs. In the latest press release, Sentier Research spokesman Gordon Green summarizes the recent data: The lack of significant change in real median annual household income between April and May 2014 underscores the uneven trend in the series since the low-point reached in August 2011. Our time series charts clearly illustrate that although the economic recovery officially began in June 2009, the recovery in household income did not begin to emerge until after August 2011. While many of the month-to-month changes in median income since the low-point in August 2011 have not been statistically significant, an overall upward trend is still clearly evident.

Where Disposable Income Goes To Die: Since 1990 Real Rents Are Up 15% While Median Incomes Are Unchanged - To the Fed's Janet Yellen, runaway inflation - at least that which can not be "hedonised" away by the BLS like iPad and LCD TV prices - may be simply "noise", which probably explains why she doesn't rent. But for the record number of Americans who are forced to rent as house prices are too high for the vast majority of the population while mortgage origination has tumbled to record lows (as banks can generate far higher returns on reserve by buying stocks than lending out said money), inflation is going from bad to worse. Case in point: as the WSJ shows, since 1990 asking rents - in real terms i.e., adjusted for inflation - have increased a whopping 15%. The change in median income over the same period? 0%.

Gasoline Prices Are Headed to $4 Per Gallon… and Here's Why -- Thanks to the growing Sunni insurrection and the rapid unraveling of the Shiite government in Baghdad, you can bet that prices for both crude and gasoline will be making the headlines over the next two months. In fact, when it comes to oil, some bankers are now openly questioning the ability of the market to meet global demand a year out. Now prices further out on the futures curve are rising much more quickly than anticipated. As the next-month rates (August 2014) fell in yesterday’s trade, oil prices as far out as December 2018 began to spike. Here’s why: yesterday’s drop in prices is just the pause before the storm…  There’s a reason why Iraq figures so prominently in this discussion. Everybody’s estimates now suggest that global oil demand will accelerate to 94 million barrels a day by the end of this year. That will place a greater reliance on expanding the existing sources of supply. Previously, when in the same situation, the Saudis would bail us out since they have the ability to put 12 to 12.5 million barrels a day on line in a matter of a few hours. In the past, that provided a reliable cushion, restraining a real breakout in prices to the upside. Well, this time that’s just not so. The projected demand spike will flat out exceed the ability of Saudi Aramco to deliver. That means relying even more on other OPEC members. The problem is that consistent overall production increases have been muted, with Iran and Venezuela actually posting declines.

Gasoline prices in perspective - Many reporters have been pushing the meme that:Consumers will pay the highest Fourth of July gasoline prices in six years. That’s true, though as the EIA noted today: Although this is the highest average heading into the Fourth of July holiday since 2008, gasoline prices in 2014 have remained well below the spring peaks reached in each of the previous three years. Oil prices have actually moved lower over the last three weeks, meaning that as long as the situation in Iraq does not deteriorate further, U.S. retail gasoline prices are likely headed down, not up over the next few weeks. But we wouldn’t want to let the facts get in the way of trying to make a story sound more interesting, would we?

U.S. Light Vehicle Sales increase to 16.9 million annual rate in June, Highest since July 2006 - Based on an WardsAuto estimate, light vehicle sales were at a 16.9 million SAAR in June. That is up 7% from June 2013, and up 1% from the 16.7 million annual sales rate last month. This was above the consensus forecast of 16.4 million SAAR (seasonally adjusted annual rate). This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for June (red, light vehicle sales of 16.9 million SAAR from WardsAuto). Severe weather clearly impacted sales in January and February.  Since then vehicle sales have been very strong. The second graph shows light vehicle sales since the BEA started keeping data in 1967.  Unlike residential investment, auto sales bounced back fairly quickly following the recession and were a key driver of the recovery.   

US Auto Sales Reach Highest In 8 Years -  US auto makers just printed an annualized 16.98 million sales - dramatically beating expectations for the 2nd month in a row and the highest since July 2006. As we warned earlier, the reason is clear (massive extension of credit to the lowest credit quality sector of the market). With the government also taking major fleet sales and sponsoring the subprime purchasers, what more do you expect? We can only imagine the mal-investment boom that this unsustainable burst will create in the next few months - and right as the Fed's taper comes to an end.

Subprime 2.0 Spreads To Cars: OCC Warns Of Auto-Loan Risks - It would appear that the exuberance over today's better-than-expected car sales data should be tempered significantly. Confirming our warnings, as the Office of the Comptroller of the Currency (OCC) explains, across the industry, auto lenders are pursuing growth by lengthening terms, increasing advance rates, and originating loans to borrowers with lower credit scores. With average loan-to-value rates above 100%, they have an ominous warning: "risk in auto-lending is beginning to emerge." We are sure this will be dismissed (just as the BIS' warning has been), but with surging charge-offs and increased repackaging (CLOs), and banks holding a lot of this debt, this 'bubble-financing' has all the ingredients for subprime 2.0 contagion.

Here Are The 28.5 Million Cars Recalled By GM In The First Half Of 2014 - One could say things about what is now without doubt the biggest company joke in the history of the US - maybe global - automotive sector, putting even East Germany's infamous Trabant to shame.   Things like following the just announced latest recall of another 7.6 million cars across models from 1997 to 2014, and another 800K+ cars thrown in just because, GM has recalled more cars in the first 6 months of 2014 than it has sold in all of 2011, 2012 and 2013. Which incidentally would be true as the chart below shows.

All the Cars GM Has Recalled This Year Would Wrap the Earth 4 Times - And other amazing GM recall facts  World If you’re wondering why it seems that there have been more car recalls than ever in recent months, it’s because there actually have been — Before this year, 2004 held the honors for the most number of vehicles recalled in a single year, at 33.01 million. Now, 2014 holds that record, with 39.85 million recalls already. And we’re still six months away from Dec. 31.While many automakers have announced major recalls this year, General Motors has contributed to nearly three-fourths of the 2014 figure. This year, GM has recalled over 28.5 million vehicles worldwide. Its latest recall involved over 7.6 million cars in the U.S., and over 8.45 million in North America.Here’s seven things you could do with the 28,580,353 cars GM has recalled worldwide this year.1. The recalled vehicles could wrap around the Earth more than four times.Most of the recalled GM vehicles are over 170 inches long. Using that as an underestimate, if you lined up the cars bumper to bumper — the world’s longest traffic jam — they’d stretch for over 160,000 km. The Earth’s circumference is 40,075 km. A Long Line of Cars indeed, Cake.

Factory Orders Drop Most Since Jan; Inventories Surge Most Since Oct 2011The post-weather rebound is over. Factory Orders, which were expected to fall modestly, dropped 0.5% - the biggest drop and biggest miss since January. Notably defense-spending dropped 30% as it seems we didn't need 10 new submarines in May (and this is with Ex-Im bank still funding growth). On the flip side, if you were wondering where the recent data (survey) exuberance has come from, wonder no more - inventories in May rose 0.8% - the biggest rise since Oct 2011. More malinvestment-driven exuberance - if only wages were up? Surely subprime credit is soaring so that will take care of it.

New Orders for Manufactured Goods Down More than Expected, Inventories Up 18 of 19 Months, Highest Since 1992  -- The Department of Commerce report on Manufacturer's Shipments, Inventories, and Orders released today shows new orders for manufactured goods were down following three consecutive increases, while inventories were up for the 18th time in 19 months. Report Highlights:

  • New orders for manufactured goods in May, down following three consecutive monthly increases, decreased $2.6 billion or 0.5 percent to $497.7 billion.
  • Excluding transportation, new orders decreased 0.1 percent.
  • Shipments, up four consecutive months, increased $0.3 billion or 0.1 percent to $498.3 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.4 percent April increase.
  • Unfilled orders, up thirteen of the last fourteen months, increased $6.7 billion or 0.6 percent to $1,087.4 billion. This was also at the highest level since the series was first published on a NAICS basis and followed a 0.9 percent April increase.
  • Inventories, up eighteen of the last nineteen months, increased $5.0 billion or 0.8 percent to $651.5 billion. This was also at the highest level since the series was first published on a NAICS basis and followed a 0.5 percent April increase. 
  • The inventories-to-shipments ratio was 1.31, up from 1.30 in April.
  • Inventories of manufactured durable goods in May, up thirteen of the last fourteen months, increased $3.6 billion or 0.9 percent to $397.5 billion, revised from the previously published 1.0 percent increase. This was at the highest level since the series was first published on a NAICS basis and followed a 0.2 percent April increase.
  • Inventories, shipments, and unfilled orders are highest levels ever, dating to 1992.

US Trade Deficit Drops to $44.4 Billion in May -  The U.S. trade deficit fell in May as U.S. exports hit an all-time high, helped by a jump in exports of petroleum products. Imports dipped slightly. The trade deficit narrowed 5.6 percent in May to $44.4 billion after hitting a two-year high of $47 billion in April, the Commerce Department reported Thursday. Exports of goods and services rose 1 percent to a record $195.5 billion in May while imports fell a slight 0.3 percent to $239.8 billion. A lower trade deficit boosts overall economic growth when it shows U.S. companies are earning more in their overseas sales. Economists are looking for a smaller trade deficit in the April-June quarter which will mean less of a drag on overall growth than in the first quarter, when the economy shrank at an annual rate of 2.9 percent. Many analysts are looking for overall growth to rebound to a healthy rate between 3 percent and 3.5 percent in the second quarter. In 2013, the trade deficit declined 11.3 percent to $476.4 billion. That reflected in part a boom in U.S. energy production that cut into America's dependence on foreign oil while boosting U.S. petroleum exports to a record high. The larger trade gap in the first three months of this year, compared to the fourth quarter, shaved 1.5 percentage points from growth. That was a big factor in helping to push the economy into reverse. In addition to a higher trade deficit, the economy was held back by severe winter which dampened consumer spending.

Even With Sanctions, U.S. Sales to Russia Hit New High - U.S. efforts to penalize Russia for its actions in Ukraine appear to have done little to stem exports of U.S. goods to the country. The U.S. announced targeted sanctions against several Russian companies and individuals in March, but U.S. trade data published Thursday shows exports to the country were the highest on record at $1.2 billion in May. The sanctions, organized with Europe and other major industrialized nations over Moscow’s alleged actions to destabilize its former client state, sparked investor flight out of Russia, led the ruble to tumble and pushed the economy into a recession. Russian markets have since recovered somewhat, but investors have been wary of an escalation in the sanctions battle. Demand for U.S. products apparently hasn’t been hit, however, and in fact jumped 21% from the previous month. The data also showed signs that demand is picking up in two of America’s largest export markets, Europe and China, where weak growth has hobbled the U.S. and global recoveries. Exports to the European Union were up nearly 4%, driven by a surge in buying from the U.K., the Netherlands, Spain and Ireland. Sales to China, where economists fear growth could continue to decelerate, were up more than 2% to $9.2 billion.

Trade Deficit decreased in May to $44.4 Billion - Catching up ... the Department of Commerce reported this morning: [T]otal May exports of $195.5 billion and imports of $239.8 billion resulted in a goods and services deficit of $44.4 billion, down from $47.0 billion in April, revised. May exports were $2.0 billion more than April exports of $193.5 billion. May imports were $0.7 billion less than April imports of $240.5 billion. The trade deficit was smaller than the consensus forecast of $45.1 billion. The first graph shows the monthly U.S. exports and imports in dollars through April 2014. Imports decreased and exports increased in May. Exports are 18% above the pre-recession peak and up 4% compared to May 2013; imports are about 4% above the pre-recession peak, and up about 3% compared to May 2013. The second graph shows the U.S. trade deficit, with and without petroleum, through May. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil imports averaged $96.12 in May, up from $95.48 in April, and down from $96.74 in May 2013. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China increased to $28.8 billion in May, from $27.9 billion in May 2013.

Excluding Oil, The US Trade Deficit Has Never Been Worse -  What this chart shows is that when it comes to core manufacturing and service trade, that which excludes petroleum, the US trade deficit hit some $49 billion dollars in the month of May, the highest real trade deficit ever recorded! In other words, far from doubling US exports, Obama is on pace to make the export segment of the US economy the weakest it has ever been, leading to millions of export-producing jobs gone for ever (but fear not, they will be promptly replaced by part-time jobs). It also means that the collapse in Q1 GDP, much of which was driven by tumbling net exports, will continue as America appear largely unable to pull itself out of its international trade funk, much less doubling its exports. What's perhaps just as bad, is that the chart above shows that global trade continues to collapse: just recall the near standstill in Chinese trade, both exports and imports, that took place earlier this year. We wonder: is the fact that the world is trading with each other at the slowest pace since the Lehman collapse also due to harsh winter weather? Yet while core trade is the worst ever, overall US trade is not all that bad. Why? Because of the shale revolution of course, and the fact that net US petroleum imports have plunged.

Q2 Rebound Fail: Chicago PMI Drops, Misses By Most Since March -- Following last month's "see, the Q2 rebound is a real thing"  exuberance, Chicago PMI re-tumbled in June to 62.5, its biggest miss in 3 months. This is the biggest headline drop since March as inventories rose, order backlogs fell, and new orders fell. On the bright side (despite the fall in new orders, employment rose). It seems the hopes and dreams of Q2 are fading.

U.S. ISM manufacturing PMI falls to 55.3 in June Manufacturing activity in the U.S. expanded at a slower rate than expected in June, dampening optimism over the health of the economy, industry data showed on Tuesday.  In a report, the Institute for Supply Management said its index of purchasing managers fell to 55.3 last month from a reading of 55.4 in May. Analysts had expected the manufacturing PMI to increase to 55.8 in June. The New Orders Index registered 58.9, an increase of 2.0 points from the 56.9 reading in May, indicating growth in new orders for the 13th consecutive month. The Production Index registered 60.0, 1.0 point below the May reading of 61.0. Employment grew for the 12th consecutive month, registering 52.8, the same level of growth as reported in May. On the index, a reading above 50.0 indicates industry expansion, below indicates contraction.

ISM Manufacturing index declined slightly in June to 55.3 - The ISM manufacturing index suggests slightly slower expansion in June than in May. The PMI was at 55.3% in June, down from 55.4% in May. The employment index was at 52.8%, unchanged from 52.8% in May, and the new orders index was at 58.9%, up from 56.9% in May. From the Institute for Supply Management: June 2014 Manufacturing ISM® Report On Business® Economic activity in the manufacturing sector expanded in June for the 13th consecutive month, and the overall economy grew for the 61st consecutive month, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®. "The June PMI® registered 55.3 percent, a decrease of 0.1 percentage point from May's reading of 55.4 percent, indicating expansion in manufacturing for the 13th consecutive month. The New Orders Index registered 58.9 percent, an increase of 2 percentage points from the 56.9 percent reading in May, indicating growth in new orders for the 13th consecutive month. The Production Index registered 60 percent, 1 percentage point below the May reading of 61 percent. Employment grew for the 12th consecutive month, registering 52.8 percent, the same level of growth as reported in May. Inventories of raw materials remained at 53 percent, the same reading as reported in both May and April. The price of raw materials grew at a slower rate in June, registering 58 percent, down 2 percentage points from May." Here is a long term graph of the ISM manufacturing index.

ISM Manufacturing Index: Moderate Growth Continues - Today the Institute for Supply Management published its May Manufacturing Report. The latest headline PMI at 55.3 came in virtually unchanged from last month's 55.4 percent and slightly below the forecast of 55.8.Here is the key analysis from the report: Economic activity in the manufacturing sector expanded in May for the 12th consecutive month, and the overall economy grew for the 60th consecutive month, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.  "The June PMI® registered 55.3 percent, a decrease of 0.1 percentage point from May's reading of 55.4 percent, indicating expansion in manufacturing for the 13th consecutive month. The New Orders Index registered 58.9 percent, an increase of 2 percentage points from the 56.9 percent reading in May, indicating growth in new orders for the 13th consecutive month. The Production Index registered 60 percent, 1 percentage point below the May reading of 61 percent. Employment grew for the 12th consecutive month, registering 52.8 percent, the same level of growth as reported in May. Inventories of raw materials remained at 53 percent, the same reading as reported in both May and April. The price of raw materials grew at a slower rate in June, registering 58 percent, down 2 percentage points from May."  Here is the table of PMI components.

ISM Manufacturing Drops, Misses By Most Since January - On the heels of Markit's US PMI missing expectations but rising to its highest since May 2010 (with notable inflation signals and domianted by weakness in small business) despite new export orders tumbling; ISM printed at 55.3, down from May and missing expectations. Only 50% of survey respondent s expect to increase jobs - the lowest number in 2014. New export orders also fell in ISM. Following last month's utter SNAFU, we are not exactly sure whether this is real yet. So far the market reaction is positive to this bad news so we do not expect a revision... Notably, medium-sized manufacturers (100- 499 employees) saw the strongest improvement in business conditions during June, while small-sized manufacturers (1-99 employees) recorded the least marked upturn in overall operating conditions.

Fooling All The Experts With Seasonal Adjustments, All Of The Time - What the ISM does is ask respondents to comment on how they are seeing any given query category as performing in the current month. The response options are simple: better, same, or worse. The ISM then takes the percentage of "better" responses and adds half the percentage of "same" (ignoring the worse answers) for any of the following categories:

  • New Orders (58.9 in June)
  • Production (60.0)
  • Employment (52.8)
  • Delivery Time (51.9)
  • Inventories (53.0)

Then it simply takes the equal-weighted average of these 5 series and gets the final number (in the case of June 55.3 down from May's adjusted 55.4). However, before the final tabulation, the ISM also applies a little-known seasonal adjustment factor to the actual unadjusted survey reponse result before getting a seasonally adjusted number that feeds into the above calculation. Why a survey needs to be seasonally adjusted - considering it merely captures sentiment which already reflects the periodicity of the seasons when it is, well, experienced - is beyond the scope of this article, and/or logic. What adds to the confusion is that for some unknown reason, in June of 2013 the seasonal adjustment factor (1.051) actually subtracted from the unadjusted number (converting 54.5 into 51.9), while in June of 2014 the factor (0.976) managed to add to the unadjusted number of 57.5, making it appear the abovementioned highest for 2014 print of 58.9. Was June of 2014 more "seasonal" than the June from a year earlier?

Dallas Fed: Manufacturing Activty Increases "Picks Up Pace" in June - From the Dallas Fed: Texas Manufacturing Activity Picks Up Pace Texas factory activity increased again in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 11 to 15.5, indicating output grew at a faster pace than in May.  Other measures of current manufacturing activity also reflected growth in June. The new orders index rose from 3.8 to 6.5 but remained below the levels seen earlier in the year. The capacity utilization index held steady at 9.2. The shipments index came in at 10.3, similar to its May level, with nearly a third of manufacturers noting an increase in volumes. Perceptions of broader business conditions were more optimistic this month. The general business activity index rose from 8 to 11.4.  Labor market indicators reflected stronger employment growth and longer workweeks. The June employment index rebounded to 13.1 after dipping to 2.9 in May.
Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Fracking Boom Has Provided Only a Modest Boost to U.S. Manufacturers - The fracking boom has driven down natural-gas prices but is having a “relatively small” impact on U.S. manufacturers, on the order of a 2% to 3% boost in activity across the sector, according to new research from the Federal Reserve. “Although a few industries are expanding, as of yet there does not appear to be a large effect across the entire manufacturing sector,” Fracking techniques in recent years have boosted domestic energy production, driving down natural-gas prices. Cheaper natural gas and electricity, in turn, should encourage investment in energy-intensive manufacturing activities, though it likely wouldn’t drive construction of many new plants on its own.Mr. Melick analyzed data from the Energy and Commerce departments to track the effects of cheaper natural gas on the U.S. manufacturing sector since 2006. He found that “capital expenditure, industrial production, and employment have increased with the drop in the relative price of natural gas, and these increases are statistically significant.”The effect was large in the most energy-intensive fields, such as production of nitrogen-based fertilizers. But “across the manufacturing sector as a whole, represented by the weighted average responses, the effects are quite modest, with capital expenditure increasing no more than 10 percent, production increasing less than 3 percent, and employment increasing less than 2 percent,” he wrote. Outside of the heaviest energy users, the effects were “not trivial but by no means overwhelming,” with the overall manufacturing sector set to see “a relatively small impact” from the energy boom, Mr. Melick concluded.

ISM Non-Manufacturing: June Composite Falls Slightly - Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 56.0 percent, down slightly from last month's 56.3 percent. Today's number came in below the forecast of 56.3.Here is the report summary: "The NMI® registered 56 percent in June, 0.3 percentage point lower than the May reading of 56.3 percent. This represents continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 57.5 percent, which is 4.6 percentage points lower than the May reading of 62.1 percent, reflecting growth for the 59th consecutive month at a slower rate. The New Orders Index registered 61.2 percent, 0.7 percentage point higher than the reading of 60.5 percent registered in May. The Employment Index increased 2 percentage points to 54.4 percent from the May reading of 52.4 percent and indicates growth for the fourth consecutive month and at a faster rate. The Prices Index decreased 0.2 percentage point from the May reading of 61.4 percent to 61.2 percent, indicating prices increased at a slightly slower rate in June when compared to May. According to the NMI®, 14 non-manufacturing industries reported growth in June. Respondents' comments vary by industry and company; however, the majority indicate that steady economic growth is continuing." Like its much older kin, the ISM Manufacturing Series, I have been reluctant to focus on this collection of diffusion indexes. For one thing, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

ISM Non-Manufacturing Index declines to 56.0% - The June ISM Non-manufacturing index was at 56.0%, down from 56.3% in May. The employment index increased in June to 54.4%, up from 52.4% in May. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: June 2014 Non-Manufacturing ISM Report On Business®   The NMI® registered 56 percent in June, 0.3 percentage point lower than the May reading of 56.3 percent. This represents continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 57.5 percent, which is 4.6 percentage points lower than the May reading of 62.1 percent, reflecting growth for the 59th consecutive month at a slower rate. The New Orders Index registered 61.2 percent, 0.7 percentage point higher than the reading of 60.5 percent registered in May. The Employment Index increased 2 percentage points to 54.4 percent from the May reading of 52.4 percent and indicates growth for the fourth consecutive month and at a faster rate. The Prices Index decreased 0.2 percentage point from the May reading of 61.4 percent to 61.2 percent, indicating prices increased at a slightly slower rate in June when compared to May. According to the NMI®, 14 non-manufacturing industries reported growth in June. Respondents' comments vary by industry and company; however, the majority indicate that steady economic growth is continuing." This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

Services PMI Business Optimism Tumbles As ISM Drops; Misses Most Since January -- Markit's Services PMI soared to record highs in June at 61.0 (though notably dropped back from its 61.2 flash print which suggest slight softening in the latter half of the month) but oustanding business fell and once again margins are under pressure as prices charged dropped but prices paid rose. Perhaps most worrisome - business optimism tumbled. Then ISM Services hit and disappointed dropping from 56.3 to 56.0 and missing expectations by the most since January as business activity dropped to its lowest since March. Sentiment for inventory builds (the key for GDP) is at Dec 2013 lows. Under the surface, these reports suggest anything but the Q2 rebound so often crowed about.

Economists Haven’t Been This Upbeat About Jobs Since 2010 - Optimism ahead of this week’s jobs report is at one of the highest levels since the financial crisis. Economists polled by The Wall Street Journal predict the economy added 218,000 jobs in June. During the five-year economic recovery, the only time that the consensus estimate was higher was in May 2010, a month in which figures were sharply inflated by the temporary hiring of census workers. With the June jobs report due Thursday (a day earlier than usual due to the Fourth of July holiday), market watchers are hoping job growth will be able to sustain its recent momentum. The labor market is in the midst of its first four-month stretch of job creation above 200,000 since the late 1990s. And the economy last month put the finishing touches on clawing back all the jobs lost since the recession hit in 2007. The jobs report is set to come after a week of disappointing economic data. First-quarter GDP figures showed the U.S. economy contracted at 2.9%, a significantly worse pace than previously estimated. Consumer-spending data for May also came in on the light side, suggesting continued struggles in the economy. “The firing side of the jobs equation continues to trend lower,” “This is enough to keep payroll growth above potential for the time being.

New Jobless Claims at 315K, Close to Forecast - Here is the opening statement from the Department of Labor: In the week ending June 28, the advance figure for seasonally adjusted initial claims was 315,000, an increase of 2,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 312,000 to 313,000. The 4-week moving average was 315,000, an increase of 500 from the previous week's revised average. The previous week's average was revised up by 250 from 314,250 to 314,500.  There were no special factors impacting this week's initial claims. [See full report] Today's seasonally adjusted number at 315K just a tad higher than the Investing.comforecast of 314K. The less volatile four-week moving average is now 4,500 above its nearly seven-year interim low set four weeks ago. 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.

Initial Jobless Claims Misses For 5th Week As Trade Deficit Improves Modestly (Thanks To Saudi Arabia) - Q2 GDP hope remains as a significant surge in exports of automotive vehicles, parts, and engines stalled the collapsing trade balance for a very modest beat (still a $44.4 billion deficit). This is the 2nd biggest trade deficit since November 2012 as imports dropped $0.7bn and exports rose $2.0 billion. Saudi Arabia, interestingly, was largely responsible for the improvement in the trade balance as the deficit dropped from $4bn to $2.3bn. Hope springs eternal but the deficit is still considerably more of a drag on Q2 GDP than it was on Q1 GDP. Initial jobless claims continue to go nowhere but missed for the 5th week in a row).

Survey: US companies added 281,000 jobs in June - — A private survey shows U.S. business hiring surged in June, a sign of stronger economic growth. Payroll processer ADP said Wednesday that private employers added 281,000 jobs last month, up from 179,000 in the previous month. The figure suggests the government's jobs report, to be released Thursday, could also show a significant gain from May's tally of 217,000 jobs. But the ADP numbers cover only private businesses and often diverge from the government's more comprehensive report. Recent economic data suggests that the economy has shifted into a higher gear. Autos sold at an annual rate of 16.9 million in June, the highest rate since January 2006. New orders for manufacturers are at a six-month peak, according to the Institute for Supply Management. "The job market is strong and it feels like it is getting stronger," said Mark Zandi, chief economist at Moody's Analytics, which calculated the job gains for ADP. The improvement in the ADP figures occurred mostly in professional and business services, a category that includes many higher-paying jobs such as accountants and engineers, but also lower-paid temporary workers. That category gained 77,000 jobs.

US private sector creates 281,000 new jobs in June, vs. estimate of 200,000: Private sector job creation surged in June, with companies adding a much larger than expected 281,000 new positions, according to a report Wednesday from ADP. Economists surveyed by Reuters expected the National Employment Report to show 200,000 new jobs as the U.S. economy seeks to regain traction following a brutal winter. That's up from an initially reported 179,000, which was unchanged. As has been the trend, the service sector and small businesses led the way. Service-providing companies added 230,000 new positions, while goods producers contributed 51,000. Professional and business services was the top industry, with 77,000 jobs, while trade/transportation and utilities added 50,000 and there were 36,000 new construction positions. The news comes a day ahead of Thursday's nonfarm payrolls report, which is expected to show 215,000 new positions overall counting government jobs. ADP's numbers, which are reported in tandem with Moody's Analytics, could cause economists to ramp up their projections.

ADP: Private Employment increased 281,000 in June - From ADP: Private sector employment increased by 281,000 jobs from May to June according to the June ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis....Mark Zandi, chief economist of Moody’s Analytics, said, "The job market is steadily improving. Job gains are broad based across all industries and company sizes. Judging from the job market, the economic recovery remains fully intact and is gaining momentum.”This was above the consensus forecast for 210,000 private sector jobs added in the ADP report. 

ADP Joins List of Better Job Reports - In the run-up to Thursday’s payrolls report, payroll processor Automatic Data Processing said Wednesday that private employers added 281,000 jobs in June. That number blew past the expectations of a 210,000 gain and is the strongest ADP number since late 2012 when Moody’s Analytics began calculating the numbers. Economists are wary that the payrolls data will show as much muscle as ADP. While ADP is a good guidepost for the number compiled by the Bureau of Labor Statistics, the absolute miss between the ADP and the BLS initial numbers has averaged about 43,000 since Moody’s took over.Consequently, economists are sticking with a median forecast of 215,000 total new jobs created in June. But the odds of an upside surprise are now greater than chances the payrolls number will come in below 200,000. Equally important, ADP joins the list of better-looking labor data of late. Better doesn’t mean a surging economy, but after five years of inconsistent growth, the pick-up in payrolls is welcome news.Some plusses for labor markets: Job claims have been trending down all year, regularly down to prerecession levels. The National Federation of Independent Business continues to report that more small businesses are hiring workers than are laying them off, resulting in net positive job growth among small firms. The NFIB survey also shows plans to add more workers in coming months remain solid.The latest Job Opening and Labor Turnover survey showed a good gain in job openings in April, while the Conference Board‘s tally of online job openings in June increased strongly.

ADP Employment Surges To Best Since Nov 2012 - Today's epic catch-up in ADP jobs data (nicely extrapolated off the back of last month's NFP) is the biggest beat since Dec 2012 and biggest gain in jobs since Nov 2012, printing at 281K, up from 179K, and smashing expectations of 205K - in fact the number came above the highest estimate of 250K. While ISMs and PMIs are missing expectations - and notably small businesses in those surveys saying they are not seeing benefits - ADP claims that small businesses gained the most jobs. Of course, we assume the seasonal adjustments had nothing to do with that: from biggest miss in 4 months to biggest beat in 21 months, which is supposedly, normal.

Surge In Government Job Creation, Most Since August 2008, Offset By Private Jobs Decline Adds To ADP Confusion --  Moments after the outlier ADP private payrolls jobs number, the highest since November 2012, was released Gallup offered its own poll-based take on the US jobs market with the release of its monthly US Jobs Creation Index. To some this useful datapoint may explain the ADP-reported surge in hiring, although a more nuanced read simply add to the confusion. According to the headling job creation index, June saw a +27 print, the same as May, and tying the highest score of job creation in the six year history of the index. Here is how the index measures "job creation":Gallup's Job Creation Index is a measure of net hiring activity in the U.S., with the monthly average based on a nationally representative sample of more than 16,000 full- and part-time workers in June. As was the case in May, June's +27 index score is based on 40% of employees saying their employer is hiring workers and expanding the size of its workforce and 13% saying their employer is letting workers go and reducing the size of its workforce. Another 41% report no change in staffing.

Peak Optimism, or Peak Propaganda? - Oh yeah, sure, optimism is oozing from every single one of America’s pores. Or so they’ll have you believe. 281,000 new jobs says the ADP report, most since December 2012. Of which small business added 117,000 and medium sized business 115,000. And the media are just besides themselves with joy.  One might be inclined to think US small and medium business owners were so busy hiring those new employees that they had no time to read last month that US GDP plunged that -2.96% in Q1. But maybe that’s not quite true, because three weeks ago, the National Federation of Independent Business issued this news release: NFIB Optimism Index rose 1.4 points in May to 96.6, the highest reading since September 2007. However, while May is the third up month in a row, the Index is still far below readings that have normally accompanied an expansion and there have been similar gains in the past that haven’t panned out in this recovery period. Five Index components improved, one was unchanged and four fell, although not by much. “May’s numbers bring the Index to it’s highest level since September 2007. However, the four components most closely related to GDP and employment growth (job openings, job creation plans, inventory and capital spending plans) collectively fell 1 point in May. So the entire gain in optimism was driven by soft components such as expectations about sales and business conditions,”  “With prices being raised more frequently in response to rising labor and higher energy costs it is clear that small businesses are unwilling to invest in an uncertain future. As long as this is the case the economy will continue to be “bifurcated”, with the small business sector not pulling its historical weight in the GDP numbers.”

June Employment Report: 288,000 Jobs, 6.1% Unemployment Rate - From the BLSTotal nonfarm payroll employment increased by 288,000 in June, and the unemployment rate declined to 6.1 percent, the U.S. Bureau of Labor Statistics reported today.... The change in total nonfarm payroll employment for April was revised from +282,000 to +304,000, and the change for May was revised from +217,000 to +224,000. With these revisions, employment gains in April and May were 29,000 higher than previously reported. The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes).  This was the fifth month in a row with more than 200 thousand jobs added, and employment is now up 2.495 million year-over-year. Total employment is now 415 thousand above the pre-recession peak.The second graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate was unchanged in June at 62.8%. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio increased in June to 59.0% (black line). I'll  The third graph shows the unemployment rate. The unemployment rate declined in June to 6.1%. This was another solid employment report, and 2014 is on pace to be the best year for employment gains since 1999.

June Payrolls Surge 288K, Above Expectations, Unemployment Rate Tumbles To 6.1% -- For once the ADP was actually spot on: in June the US economy added 288K nonfarm payrolls, far above the 215K expected, and above the upward revised 224K from June. Further, May jobs were revised from 282K to 204K. This was the fifth consecutive month of job gains over 200K. The unemployment rate tumbled to 6.1%, well below the 6.3% expected. The brth/death adjustment added 121K jobs, compared to 205K previously, and a total of 452K so far in 2014.But perhaps far more importantly, average weekly earnings rose just 2.0% Y/Y, down from 2.1% in May, and effectively declining once again on a real basis, which means that for three months in a row now US workers have seen their wages drop adjusted for inflation.

Nonfarm Payrolls +288,000, Unemployment Rate 6.1%; Voluntary Part-Time Employment +840,000; Full-Time Employment -523,000  --On the surface, this appeared to be a very strong jobs report from both the household survey and establishment survey perspective. The establishment survey reported a gain of 288,000 jobs while the household survey sported a gain in employment of 407,000. In addition, May was revised up from +217,000 to + 224,000, and April revised up from +282,000 to +304,000. Digging deeper into the details, strength was entirely part-time (and then some). Voluntary part-time employment rose by a whopping 840,000 and involuntary part-time employment rose by 275,000. Compared to a total gain of employment of 407,000, the gain in total part-time employment was 1,115,000. One cannot directly subtract those numbers because of seasonal reporting. However, one can compare full-time employment this month to last month. Doing so shows a decline in full-time employment of 523,000! May BLS Jobs Statistics at a Glance

  • Nonfarm Payroll: +288,000 - Establishment Survey
  • Employment: +407,000 - Household Survey
  • Unemployment: -325,000 - Household Survey
  • Involuntary Part-Time Work: +275,000 - Household Survey
  • Voluntary Part-Time Work: +840,000 - Household Survey
  • Baseline Unemployment Rate: -0.2 at 6.1% - Household Survey
  • U-6 unemployment: -0.1 to 12.1% - Household Survey
  • Civilian Non-institutional Population: +192,000
  • Civilian Labor Force: +81,000 - Household Survey
  • Not in Labor Force: +111,000 - Household Survey
  • Participation Rate: +0.0 at 62.8 - Household Survey

June Employment Report (6 graphs) The BLS reported solid numbers for the labor market in June, although there may be somewhat less acceleration than meets the eye. On net, the ongoing rapid fall in the unemployment rate nudges forward my expectation of when the Fed makes history and begins to lift rates from the zero bound. Still, there does not appear to be sufficient reason yet to believe the Fed will steepen the pace of increases. Nonfarm payrolls rose by 288k, ahead of expectations for 211k. Job growth was broad-based and earlier months were revised higher. The three-month average for job growth is at its highest since 2011 while the 12-month average is slowly crawling up and now stands above 200k: It is worth remembering that in order to maintain constant percentage changes over time, the absolute change has to increase. Indeed, the acceleration in percentage terms over the past year looks less than impressive:Still somewhat below that experienced at the height of the housing bubble, clearly weaker then the late 1990s, and note in particular the acceleration in the early 1990's. It was that kind of acceleration that caught the Fed's attention. We are not seeing anything like that yet.Also note that while hours worked has recovered from the winter doldrums, it too is not growing at some blockbuster pace:In short, in some sense the excitement over the recent improvement in absolute job growth says less about an acceleration in actual activty and more about our diminished expectations for this recovery.The persistent decline in the unemployment rate will undoubtedly cause consternation among the more hawkish FOMC members:

Jobs Report, First Impressions: A Strong June for the Job Market - Payrolls were up 288,000 and the unemployment rate ticked down to a near six-year low of 6.1% last month, according to today’s employment report from the BLS (a rare Thursday edition due to the holiday weekend).  It’s an unquestionably strong report, with industries across the economy posting job gains.  Adding to the positive news, job growth estimates for the prior two reports were revised up by 29,000, implying an underlying average growth pace of 272,000 for payrolls in the second quarter of the year.  Unlike some prior months when the jobless rate came down, June’s unemployment rate fell for the “right reasons:” not more people leaving the labor force, but more people getting jobs.The only negative I’m seeing at first glance is the 275,000 increase in the number of involuntary part-timers (part-time workers who’d rather have full-time jobs).  But this is a volatile monthly number and is down 650,000 over the past year.  I say more about this group below.Importantly, wage growth as measured by the annual change in nominal average hourly earnings is up 2% over the past year, precisely the same pace as recent months, and about the rate of inflation.  So by that important metric, there’s no evidence that accelerated job growth is creating wage pressures that might raise eyebrows down the street at the Fed. Below is this month’s version of my “smoother chart,” showing average monthly job growth over the past three, six, and twelve months—a useful way of pulling recent trends out of the bouncy monthly data.The underlying pace of payroll job growth has clearly accelerated.  The year-long average is about 210K, six months is about 230K, and the last quarter, about 270K.  This suggests an underlying improvement in the pace of employment growth that may be more durable than some of the “head fakes” we’ve seen earlier in the recovery.

June 2014 jobs report: excellent headline, meh internals, and still not good enough - HEADLINES:

  • Not in Labor Force, but Want a Job Now: down 323,000 to 6.115 million
  • Employment/population ratio ages 25-54: up from 76.4% to 76.7% equalling its recent high
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up +0.2% or $.04 to $20.58, Up 2.0% YoY

In June 288,000 jobs were added to the US economy.  The unemployment rate declined 0.2% to 6.1%.  April was revised upward by 22,000 to 304,000. May was also revised upward by 7,000 to 224,000. The headlines numbers were very good. But since we knew the general range of job growth and unemployment, I want to focus on the 3 above headline numbers as to "real" unemployment and wages.  Two of these three numbers for June have basically gone sideways since the beginning of the year, indicating that little headway has been made as to the chronic problem of stagnant wages.  The relative  bright spot is that we have a significant rebound in the employment population ratio in the prime working age group.Those who want a job now, but weren't even counted in the workforce were 4.3 million at the height of the tech boom, and were at 7.0 million a couple of years ago.   This month declinled, but was still above February's and last November's number.  This is almost certainly due to the cutoff in extended unemployment benefits by Congress at the end of last year.After inflation, real hourly wages for nonsupervisory employees were probably essentially flat from May to June, The YoY change in average hourly earnings is +2.0%.The more leading numbers in the report tell us about where the economy is likely to be a few months from now.

Strong Job Growth, but Still a Ways to Go - This morning’s jobs report—which marks the five-year anniversary of the official end of the Great Recession (and start of the recovery)—showed the labor market added 288,000 jobs and the unemployment rate dropped two-tenths of a percent to 6.1 percent. Importantly, the unemployment rate dropped largely for good reasons, with the labor force participation rate holding steady and the share of the working age population with a job rising by one-tenth of a percent. Average  hourly wages grew by 6 cents, bringing wage growth over the last year to 2.0 percent. All-in-all, this is a strong report. But it’s important to keep in mind that we still face a huge hole in the labor market, and even if we saw June’s rate of job growth every month from here on out, we still wouldn’t get back to health in the labor market for another two and a half years.

Highlights from the June U.S. Jobs Report -- U.S. employers went on a hiring spree in June, adding a seasonally adjusted 288,000 jobs – the fifth consecutive month that nonfarm payrolls grew by more than 200,000, a streak unmatched since the end of the 1990s. The unemployment rate was 6.1% in June, down from 6.3% the prior month. Here are highlights from the Labor Department’s employment report, released Thursday morning:

  • Jobs, Jobs, Jobs: U.S. nonfarm employers added 288,000 positions in June. The average monthly gain in the second quarter of 2014 was a robust 272,000, up from an average of 201,000 in the 12 months that ended in May. April and May’s payroll gains were revised up, as well, to 304,000 and 224,000, respectively.
  • Gains Were Widespread: Job gains were widespread across the economy, with retailers adding 40,000 jobs, health-care payrolls growing by 21,000, manufacturers adding 16,000 jobs and professional and business services jobs growing by 67,000. Even government payrolls grew by 26,000, led by local-government hiring.
  • Fewer Long-Term Unemployed: The labor-force participation rate was unchanged at 62.8% in June. That number has fallen in recent years, in part because unemployed workers have been unable to find jobs and have dropped out of the labor force entirely. There were 3.1 million Americans in June who had been out of work for more than six months. The ranks of the long-term unemployed were down 1.2 million from a year earlier.
  • Unemployment Down, Narrowly and Broadly: The national employment rate dropped to 6.1% in June, its lowest level since September 2008. A broader measure of unemployment known as the U-6, which counts discouraged workers and people working part-time jobs because they can’t find full-time work, ticked down to 12.1% in June, its lowest level since October 2008.
  • Earnings Still Sluggish: The average hourly wage of U.S. nonfarm workers in June was $24.45, up six cents from May and rising 2% from a year earlier to basically keep pace with overall price inflation. The average hourly workweek was 34.5 hours in June for the fourth consecutive month.

Hiring Pickup Aided By Rare Source of Strength: Governments -- The recent hiring spurt—one of the best stretches since the late 1990s—has gotten a surprising lift by a major sector: government. In June, all levels of government added a seasonally adjusted 26,000 employees. That gain outpaced the manufacturing and construction sectors — combined. Rising government employment not only adds to the total hiring figure, it also represents growth in a relatively well-paying field. Public-sector employment grew by 54,000 so far this year. While that’s a modest fraction of the 1.4 million workers added to payrolls in 2014, it comes after five straight years of shrinking in the government workforce. Government workers tend to be paid better than those in the fast-growing fields of retail and food service, and they typically receive health and retirement benefits. Well-compensated workers could support stronger spending and faster economic growth. Municipal governments, which include public schools, have led the recent gains. Last month, local governments added 22,000 workers, while federal and state workforces grew by just 2,000 each. The numbers likely reflect a stabilization in municipal finances, which are largely tied to home values and related property taxes. Crashing home prices during the financial crisis caused municipal tax revenue to fall, pushing employment down.

June Full-Time Jobs Plunge By Over Half A Million, Part-Time Jobs Surge By 800K, Most Since 1993 Is this the reason for the blowout, on the surface, payroll number? In June the BLS reports that the number of full-time jobs tumbled by 523K to 118.2 million while part-time jobs soared by 799K to over 28 million! Looking at the breakdown of full and part-time jobs so far in 2014, we find that 926K full-time jobs were added to the US economy. The offset: 646K part-time jobs. Something tells us that the fact that the BLS just reported June part-time jobs rose by just shy of 800,000 the biggest monthly jump since 1993, will hardly get much airplay today. Because remember: when it comes to jobs, it is only the quantity that matters, never the quality. ... just in case there is any confusion why there is zero real wage growth (for two months in a row now), and why it will take a few more months before experts start tossing the word stagflation a little more casually.

US Job Market Shows Strong Gains, but How to Understand Uptick in Part-Time Work? - With improvement in all the headline indicators, today’s report on the US employment situation was one of the strongest of the recovery. The unemployment rate fell 6.1 percent, a new low for the recovery. Payroll jobs rose by 288,000 in June. The broad unemployment rate and long-term unemployment also fell to new lows. At the same time, though, the number of people working part-time rose sharply. How should we understand the increase in part-time work even as the job market improves? The monthly survey of business establishments showed gains in payroll jobs throughout the economy. The main goods-producing sectors–mining, construction, and manufacturing—all added jobs. In the service sector, retail trade and healthcare showed the largest gains. Government employment, which has been on a downward trend throughout most of the recovery, added 26,000 jobs, with local government, especially education, accounting for most of them.  The data for unemployment rates, which come from a separate monthly survey of households, showed that the civilian labor force grew by 81,000 and the number of employed workers by 407,000. (Job gains from the household and establishment surveys differ, in part, because the household survey includes self-employed and farm workers, in part because of the treatment of multiple jobholders, and in part because of sampling error.) The number of unemployed workers fell by 325,000. The standard unemployment rate, U-3, decreased to 6.1 percent, the lowest level since 2008. The broad rate, U-6, which takes discouraged workers and involuntary part-time work into account, also fell to a new low for the recovery. At the same time that the headline numbers showed broad improvement, the share of the labor force working part time (fewer than 35 hours per week) rose sharply in June, reaching its highest level in more than two years. People who equate part time jobs with bad jobs will view that as a negative development, but the reality, as I discussed in a post a few months ago, is more complex. Here are some things to keep in mind in trying to understand the significance of the rise in part-time work.

People Not In Labor Force Rise To New Record, Participation Rate Remains At 35 Year Lows -- Those following the labor force participation rate (which as even the Census Bureau showed is declining not so much due to demographics but due to older people working longer and pushing younger people out of the labor force as we showed yesterday) will hardly be surprised to learn that alongside today's impressive NFP print, the reason why the unemployment rate took another big step lower from 6.3% to 6.1%, was once again as a result of the number of people not in the labor force, which in June rose to a fresh record high of 92,120K, up 111K from June.

African Americans and Latinos Reap Most of June’s Job Gains -  By nearly all accounts, the June 2014 jobs report is a strong one.  The economy added 288,000 jobs in June, marking the five year anniversary of the recovery and the fifth consecutive month of job growth over 200,000 – a pattern we’ve not seen since the late 1990s.  Also, the unemployment rate dropped from 6.3 percent to 6.1 percent, as the labor force participation rate held steady, and the share of the working age (16 or older) population with a job increased by one-tenth of a percent. Another indication of the strength of this report is the large gains in employment for African Americans and Latinos.  The share of working age African Americans with a job has increased 1.3 percentage points since January 2014 and the increase for Latinos has been six-tenths of a percent, compared to an increase of one-tenth of a percent for whites.  The June employment growth account for over half of this increase for African Americans and all of the gains for Latinos and whites.  These gains also bring the black-white unemployment gap to the lowest level this year at a ratio of 2-to-1. This is important because of the convention that people of color are often the “first fired and last hired.”  The fact that employment is now growing more strongly for African Americans and Latinos demonstrates how critical continued strong job growth will be to further reducing unemployment for people of color and narrowing racial unemployment gaps.

Comments on Employment Report -- Earlier: June Employment Report: 288,000 Jobs, 6.1% Unemployment Rate. Total employment increased 288,000 from May to June, and is now 415,000 above the previous peak. Private payroll employment increased 262,000 from May to June, and private employment is now 895,000 above the previous peak (the unprecedented large number of government layoffs has held back total employment).Through the first half of 2014, the economy has added 1,385,000 payroll jobs - up from 1,221,000 added during the same period in 2013 - even with the severe weather early this year.   My expectation at the beginning of the year was the economy would add between 2.4 and 2.7 million payroll jobs this year, and that still looks about right. Hopefully - now that the unemployment rate has fallen to 6.1% - wage growth will start to pick up. Overall this was another solid employment report.  Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old. In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate has mostly moved sideways (with a downward drift started around '00) - and with ups and downs related to the business cycle. The 25 to 54 participation rate increased in June to 80.9%, and the 25 to 54 employment population ratio increased to 76.7% from 76.4%. As the recovery continues, I expect the participation rate for this group to increase. Year-over-year Change in Employment This graph shows the year-over-year change in total non-farm employment since 1968. The number of persons working part time for economic reasons increased in June to 7.544 million from 7.269 million in May. This suggests significantly slack still in the labor market. These workers are included in the alternate measure of labor underutilization (U-6) that decreased to 12.1% in June from 12.2% in May. This is the lowest level for U-6 since October 2008. Unemployed over 26 Weeks This graph shows the number of workers unemployed for 27 weeks or more. According to the BLS, there are 3.081 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 3.374 in May. This is trending down, but is still very high. This is the lowest level for long term unemployed since February 2009.

Congress, PLEASE don’t screw up today’s great news on jobs - Today’s jobs report not only showed strong job creation in June, with payrolls up 288,000, it also showed real acceleration in the pace of job growth, something we’ve not seen for a while. True, we’ve had head fakes before in this recovery, but if this recent pace of job creation sticks, it has the potential to really squeeze some slack out of the job market.Which is why it would be downright political malpractice if Congress undermined these gains by failing to replenish the fading Highway Trust Fund, which is threatening to generate layoffs this summer. States depend on the trust fund to support about half of their spending on roads, bridges and mass transit, and that’s an average. In poorer states, the federal share can go up to 70 percent and higher. More than 100,000 road projects are currently financed by the fund.Transportation Secretary Anthony Foxx estimates that states could see a 28 percent drop in federal support starting later this summer if the trust fund isn’t quickly replenished, Damian Paletta of the Wall Street Journal reports. A loss of that magnitude could easily translate into hundreds of thousands of lost jobs and put the brakes on a jobs recovery that may finally be taking hold. As MIT economics professor Frank Levy told me: “If you want to stop the recovery in its tracks, this is a terrific way to start.”

The REAL "real unemployment rate" for June 2014: 9.6% - Before we leave today's employment report, here is one more item of interest, which I overlooked this morning. The unemployment rate declined for the right reason:  fewer people were unemployed, even though  more people entered the labor force.  This is very good.  Additionally, the people not counted in the unemployment rate because they were so discouraged they didn't look at all - but would like a job now - also decreased.  the total decrease of over 600,000 in a labor force of 150 million or so, means that the "real" unemployment rate dropped by -0.4% to 9.6%, as shown below:Comparing apples to apples, this is only 0.1% higher than 1995, and 0.5% higher than 2003.  Not "good," but definitely moving in the right direction.This is the right way to account for discouraged workers.  Any other calculation you read that extrapolates estimates from a decade ago, or assumes no Baby Boom, is a waste of math.

Why Have Economists Been Wrong About Falling Unemployment Rates? -- For the third month in a row, the U.S. unemployment rate has been lower than economists were expecting. That’s mostly good news, but the reason they have been wrong could be worrying for the long-term unemployed. The unemployment rate is calculated by dividing the number of people who are unemployed by the total number of people working or looking for work. The best way for the rate to fall is for the number of unemployed to drop because more people found a job. But it can also decline when people give up looking for work altogether. For the most part, it looks like the unemployment rate in June fell for the right reasons. There were 325,000 fewer people unemployed and 407,000 more people were working last month than in May. But that number masks the much larger moves of people through the labor force. Yes, a total of 325,000 fewer people were unemployed, but every month millions of people flow into and out of unemployment for all sorts of reasons. That number is just the net result of all those moves. Some 2.15 million people moved from unemployment to employment last month, but an even larger number of unemployed — 2.35 million — dropped out of the labor force. In all but two months since December 2008, more unemployed have dropped out than found jobs. That has brought the share of people working or looking for work — known as the labor force participation rate — to 62.8%, matching a 30-year low. And that’s at the heart of why economists have been wrong about the unemployment rate lately. They keep expecting people who have become discouraged during the recession and slow recovery to start looking for work again. When someone starts looking for work after having given up, they are counted as unemployed, and that can lead the unemployment rate to increase. But that hasn’t happened. In fact, the number of unemployed who were re-entering the labor market actually fell in June.

What About the Jobless Who Aren’t Looking? - The labor market remains much weaker than the last time the unemployment rate stood at 6.1 percent, just before Lehman Brothers collapsed in September 2008. The difference is “shadow unemployment,” to borrow a term Janet Yellen, the Federal Reserve chairwoman, used at her June press conference.The government counted 3.8 percent of the adult population as unemployed last month. (The official unemployment rate of 6.1 percent is measured as a share of the labor force rather than a share of the working-age population.) By this measure, unemployment is getting close to pre-recession levels. In December 2007, 3.0 percent of the adult population was unemployed. But hold the celebrations. Another 3 percent of the adult population reported that they are working part-time because they cannot find full-time jobs. This figure remains far above the December 2007 level of about 1.8 percent. In fact, part-time jobs accounted for two-thirds of all new jobs in June. Some economists expect employers to draw on this pool of partially employed workers as the economy continues to expand. Others, however, argue that at least some of these workers will not be able to find full-time work because of their shortcomings or because the economy is shifting toward part-time jobs.Finally, we have the people who are not counted as unemployed because they are not actively seeking work. We don’t know how many of these people might return to the labor market as the economy improves. One simple measure: In June, the government reported that 2.7 percent of American adults said they were not actively looking for work, but they would still like a job now. About 2 percent of adults were in that category in December 2007.

The best measure yet of labor utilization? - I think I have found a better measure of labor utilization than Paul Krugman's employment to population ratio of people aged 25-54. It is also a measure which fully responds to the one notable weak point in today's employment repart. ZH and a few Doomer dead-enders have touted the increase in involuntary part time jobs and the decline in full time jobs in the more volatile Household Survey.  There is an easy rejoinder to this, and that is to take a more granular look by examining the aggregate hours worked in the economy, which I've indexed to 100 at its December 2007 maximum in this graph: More hours were worked in the economy in June vs. May. As usual, in the real world DOOM has failed to appear. Now let's take out demographics (mainly Boomer retirements). Here's the number of persons in the age group 15-64, normally thought to be the ages of employment: Now, we divide the aggregate hours in the economy by the working age demographic group: This tells us the number of working hours available in the economy to those in what is usually thought of as the working age demographic. It clearly shows that the economy was at its best ever in the 1960s, and had its biggest boom in the last 40 years during the tech boom of the late 1990's. It also shows that the worst times for labor were in the 1973-74, 1981-82, 1990, and the 2008-09 tecessions. Interestingly, this shows just how significant an impact on the employment population there has been by Boomers working past age 65, shown in this graph:  The number and percentage of people over 65 staying in the labor force force past age 65 has been increasing for 20 years, showing the effects of increasing healthy longevity. This even affects Krugman's preferred metric of the employment to population ratio of those ages 25-54, because the longer Boomers stay in the work force, the fewer job openings there are for members of Gen X and the Millennials.

U.S. Could Face High Unemployment Through 2030, Consultancy Says - The U.S. is one of the world’s few economies that could struggle with high unemployment through 2030, according to an analysis The Boston Consulting Group will release Wednesday. Based on forecasts for labor supply and demand in 25 large developed and developing countries, BCG calculated the U.S. could have a worker surplus equal to between 10% and 13% of its labor force in 2020 and of 4% to 11% in 2030. It calculated Germany will have worker shortages in both years, while China could move from a surplus in 2020 to a shortage in 2030. BCG noted that its calculations of worker surpluses don’t easily translate into official unemployment rates. According to the Labor Department’s most closely watched measure of U.S. unemployment, 6.3% of the labor force wanted jobs and was looking for work as of May. A broader gauge that includes people who want full-time employment but have given up looking or are stuck in part-time jobs stood at 12.2%. The consultancy based its calculations on United Nations forecasts for population growth and labor force participation rates. To estimate future labor demand, it calculated how many workers countries would be needed to maintain rates of growth for gross domestic product and productivity from the past 10 years and from the past 20 years. Here’s how the results for 2030 break down:

The Root Cause of America's Stubborn Unemployment Problem -- I have written on the subject of job losses in the American manufacturing sector on many occasions.  The apparently permanent loss of millions of jobs in what used to be one of America's strongest sectors, in large part, the sector that made America into a global economic powerhouse, has made it very difficult for the economy to recover at normal post-recessional rates since the end of the Great Recession. Here is a graph showing the gutting of America's manufacturing sector: Since November 2000 when there were 17.203 million workers employed in manufacturing, the number of workers has dropped to 12.099 million, just off its low of 11.453 million in February 2010Over the nearly 14 year period, 30 percent of American manufacturing jobs vanished into thin air.    What has caused this and why did it seem to occur right around the beginning of the new millennium?  A paper by Robert E. Scott at the Economic Policy Institute provides us with some insight.  The author suggests that the increase in the U.S. trade deficit with China is largely to blame.  Here is a graph showing the growing U.S. - China trade deficit since the beginning of the 2000s:Since 2001, the U.S. - China trade deficit has grown by an average of 13.6 percent annually.  This all began in December 2001 when China entered the World Trade Organization and protected its economy against its trading partners, particularly the United States.  While there was great excitement at the time, once again, we have a prime example of unintended consequences, at least on the part of the United States.

How Americans Can Work Less - We know by now that Americans are seriously overworked—often putting in more than 65 hours at work each week. And too many of us aren’t taking any vacation time. Most aren’t even able to get that time off, let alone sick leave or maternity and paternity leave. So what can we do about it? Policy solutions start with paid leave—plans that most developed countries wouldn’t consider radical. The United States, Oman, and Papua New Guinea are the only countries out of 185 that don’t guarantee some form of paid maternity leave, and 78 of those countries also offer paid paternity leave. . American workers also aren’t guaranteed a paid day off if they or their family members get sick, unlike in 22 developed peers. Guaranteeing these days could also happen without hurting businesses or the economy. In Connecticut, San Francisco, Seattle, and Washington, D.C.—places that have instituted such leave—employers report few, if any, costs, plus increases in productivity, reductions in turnover, and normal growth  The United States is also an outlier among developed countries in not mandating that workers get some paid vacation and holiday time. The other 20 richest countries require at least ten vacation days, as in Canada and Japan. Thirteen of them also require a certain number of paid holidays. Taking time off doesn’t just boost productivity, but also economic growth. If American workers who get paid vacations actually took all of their days—we leave about three days on the table on average—and if just some of them traveled, it would add $227 billion to the economy.

Demographics: Prime and Near-Prime Population and Labor Force  -- Earlier this week, I posted some demographic data for the U.S., see: Census Bureau: Largest 5-year Population Cohort is now the "20 to 24" Age Group and The Future is still Bright! I pointed out that "even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics). The good news is that will change soon." Here are a couple more graphs making this point. The first shows prime and near-prime working age population in the U.S. since 1948 (this is population, not labor force). There was a huge surge in the prime working age population in the '70s, '80s and '90s - and the prime age population has been mostly flat recently (even declined a little).The near-prime group has been growing - especially the 55 to 64 age group. The good news is the prime working age group will start growing again by 2020, and this should boost economic activity.

Slamming The Door Shut On The "Plunging Labor Force Participation Rate" Debate Once And For All -- And to think we have none other than the US Commerce Department to thank for issuing the one report which not only refutes all wrong "explanations" of the collapsing labor force participation rate, propagated by the Bureau of Labor Statistics and the Fed itself. that blame said plunge on demographics, but once and for all slams the door shut on any future debate about just the New Normal secular shifts within the aging US population truly are. From: "65+ in the United States: 2010" On the one hand, the recession forced some workers to retire sooner than planned. On the other hand, the declines in housing and financial asset prices pushed many workers to delay retirement. The decision of when to retire was being influenced by opposing factors: (1) the decline in stock market prices and lowered housing values supported retirement delays, and (2) the rise in unemployment and greater difficulty among older adults in finding another job supported earlier retirement (Hurd and Rohwedder, 2010b). Among those nearing retirement age (age 50 to 61), 63 percent reported pushing back their expected retirement date as a result of economic conditions

May 2014 Jobless Rates Down Over the Year in 357 of 372 Metro Areas; Payroll Jobs Up in 295: Unemployment rates were lower in May than a year earlier in 357 of the 372 metropolitan areas, higher in 11 areas, and unchanged in 4 areas, the U.S. Bureau of Labor Statistics reported today. Twelve areas had jobless rates of at least 10.0 percent and 93 areas had rates of less than 5.0 percent. Nonfarm payroll employment increased over the year in 295 metropolitan areas, decreased in 68 areas, and was unchanged in 9 areas. The national unemployment rate in May was 6.1 percent, not seasonally adjusted, down from 7.3 percent a year earlier.Yuma, Ariz., and El Centro, Calif., had the highest unemployment rates in May, 26.5 percent and 21.1 percent, respectively. Bismarck, N.D., had the lowest unemployment rate, 2.2 percent. A total of 204 areas had May unemployment rates below the U.S. figure of 6.1 percent, 156 areas had rates above it, and 12 areas had rates equal to that of the nation. (See table 1.) New Bedford, Mass., had the largest over-the-year unemployment rate decrease in May (-2.8 percentage points). Thirty-seven other areas had rate declines of at least 2.0 percentage points, and an additional 201 areas had declines of at least 1.0 point. Florence-Muscle Shoals, Ala., had the largest over-the-year jobless rate increase (+0.4 percentage point). Of the 49 metropolitan areas with a Census 2000 population of 1 million or more, Detroit-Warren-Livonia, Mich.; Providence-Fall River-Warwick, R.I.-Mass.; and Riverside-San Bernardino-Ontario, Calif., had the highest unemployment rates in May, 8.0 percent each. Minneapolis-St. Paul-Bloomington, Minn.-Wis., had the lowest jobless rate among the large areas, 4.0 percent, followed by Austin-Round Rock-San Marcos, Texas, 4.1 percent. Forty-eight of the large areas had over-the-year unemployment rate decreases, while one had an increase. The largest unemployment rate decline occurred in Las Vegas-Paradise, Nev. (-2.1 percentage points). Birmingham-Hoover, Ala., had the only jobless rate increase (+0.1 percentage point).

The Implications of Flat or Declining Real Wages for Inequality  - Atlanta Fed's macroblog --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.  There is little debate about whether income inequality has been rising in the United States for some time, and more dramatically recently. The degree to which education has exacerbated inequality or has the potential to reduce inequality, however, offers a more robust debate. We intend this post to add to the evidence that growing educational attainment has contributed to rising inequality. This assertion is not meant to imply that education has been the only source of the rise in inequality or that educational attainment is undesirable. The message is that growth in educational attainment is clearly associated with growing inequality, and understanding that association will be central to the understanding the overall growth in inequality in the United States.

100% of U.S. Employment Growth Since 2000 Went to Immigrants -- The Center for Immigration Studies reports All Employment Growth Since 2000 Went to Immigrants.   Actually, greater than 100% of jobs went to immigrants because the number of non-immigrants holding a job is  negative, and the total must equal 100%.  On a population adjusted basis, the numbers look horrific. Population-wise, native US citizens account for two-thirds of the working-age population growth, yet fewer work today.  Here's the harsh reality: 17 million working-age native US citizens were not working in the first quarter of 2014 than in 2000.  Let's dive into the interesting 29 page report by Steven A. Camarota and Karen Zeigler. Here are some items of interest from the report.

  • Government data show that since 2000 all of the net gain in the number of working-age (16 to 65) people holding a job has gone to immigrants (legal and illegal). This is remarkable given that native-born Americans accounted for two-thirds of the growth in the total working-age population. Though there has been some recovery from the Great Recession, there were still fewer working-age natives holding a job in the first quarter of 2014 than in 2000, while the number of immigrants with a job was 5.7 million above the 2000 level.
  • With 58 million working-age natives not working, the Schumer-Rubio bill (S.744) and similar House measures that would substantially increase the number of foreign workers allowed in the country seem out of touch with the realities of the U.S. labor market.
  • The trends since 2000 challenge the argument that immigration on balance increases job opportunities for natives. Over 17 million immigrants arrived in the country in the last 14 years, yet native employment has deteriorated significantly.
  • The total number of working-age (16 to 65) immigrants (legal and illegal) holding a job increased 5.7 million from the first quarter of 2000 to the first quarter of 2014, while declining 127,000 for natives.
  • In the first quarter of 2000, there were 114.8 million working-age natives holding a job; in the first quarter of 2014 it was 114.7 million.

White House seeks new deportation powers  The White House is preparing an emergency request to Congress for additional powers to enable the fast-track deportation of tens of thousands of unaccompanied children from Central America who are crossing the US border illegally, a move that could bypass protections introduced by the the Bush administration.President Barack Obama has called the surge of minors pouring across Mexico border and into the Rio Grande Valley a “humanitarian crisis” and has ordered officials to open emergency shelters on military bases and increase the number of border agents. But in a significant toughening of the president's stance, to be announced formally on Monday, the administration will request the authority to immediately repatriate children from Guatemala, Honduras and El Salvador – the Central American countries from which most of the child migrants are travelling A White House official told the Guardian the administration is planning to ask Congress to provide the department of homeland security with “additional authority to exercise discretion” in dealing with children from those countries. The request has been drafted in a letter to Congress that will be sent on Monday, the official said.More than 52,000 unaccompanied children have been apprehended on the border since October. Administration officials have been particularly alarmed by the increase in children, many of them girls, under the age of 13. Border officials have reported finding some children as young as four or five or travelling alone. However, the the administration has been hampered by anti-trafficking laws passed under George W Bush, which set out strict protocols for handling unaccompanied minors, which in turn delay the deportation process.

Supreme Court rules against home care workers unions -  The Supreme Court's decision in Harris v. Quinn, the case challenging fair share fees for unionized home care workers, is bad, but it could have been worse. The case involved the significant danger that the Court would take the chance to eviscerate all public employee unions by forcing unions to provide services for non-union workers for free; currently non-union workers covered by union contracts must pay a fair share fee to cover the costs of the representation they personally receive. However, the decision authored by Justice Samuel Alito is limited to undercutting home care workers specifically: The Court recognizes a category of "partial public employees" that cannot be required to contribute union bargaining fees. [...]  It remains possible that in a later case the Court will overturn its prior precedent and forbid requiring public employees to contribute to union bargaining. But today it has refused to go that far. The unions have lost a tool to expand their reach. But they have dodged a major challenge to their very existence. This means that teachers and fire fighters and the like maintain their existing union rights, but many of the most vulnerable workers have lost a tool for building power. The Economic Policy Institute's Ross Eisenbrey explained the stakes last month: No one needs a strong, effective, well-funded union more than home care workers, who have long been at the bottom of the ladder in terms of wages, benefits, and respect at work. Historically, their wages were so low—minimum wage or less—they had nowhere to go but up. And beginning in the 1990’s, when they began to join unions, the result has been improved wages, benefits, and working conditions.

SCOTUS and the Unions: “Come On and Take a Free Ride!” - The Supreme Court’s majority opinion out today in Harris v. Quinn represents an important defeat for the “hundreds of thousands of home care and child care workers who have managed to improve their work lives through collective bargaining” as EPI’s Ross Eisenbrey wrote earlier today.  The Court majority ruled that these health-care workers cannot be required to contribute to a union, even if they benefit from its collective bargaining. Sticking with Ross’s take: Thanks to union contracts that include anti-free-rider provisions, this almost entirely female workforce has made huge improvements in wages and benefits, in training, and in respect in the states that provide for collective bargaining. The Court gives this no value and says the right of the free riders to have the benefits of union contracts without having to pay anything for them is the preeminent constitutional value. I’ll leave the legal analysis to others (though I’ll get back to that a bit below), but let’s look at the political economy of what I think is going on here.  Start from the presumption that a long-term goal of conservative policy is to weaken unions and a potentially effective way of doing so is repealing the anti-free-rider provisions Ross notes above.  Now, look at the figure below. Private sector unions have consistently declined to the point where they now represent less than 7% of the workforce.  Part of that is a function of our shifting industrial structure away from manufacturing—a sector with high union density—to services.  But that’s not the whole story.  Over the last 30 years, the share of workers in manufacturing fell from around 20% to 10%.  But even within the factory sector, the unionization rate fell from 27% to 10%, an even larger decline than that of manufacturing’s share of the workforce.

Study: Right to Work States Booming, Forced Unionization States Busting -- Right to work laws have led to skyrocketing manufacturing growth in the auto industry, according to a new study. The National Institute of Labors Relations Research, an employment policy think tank, found that the auto industry’s flight from coercive unionization has produced a boom in right to work states, such as Tennessee. The institute traced federal labor statistics from 2002 to 2010 and discovered a dramatic shift in where the nation’s cars are being built.“Considering just the 22 states that had Right to Work laws from 2002 to 2012, the Right to Work share of nationwide automotive manufacturing output grew from 36% to 52% over the decade,” NILRR researcher Stan Greer wrote on the institute’s website. “Real manufacturing GDP in these 22 Right to Work states grew by 87% from 2002 to 2012, but fell by 2% in forced-unionism states.”Foreign carmakers, such as Toyota, Honda, and Volkswagen have established factories in right to work states, as well as non-union shops in Kentucky. Additionally, Ford, GM, and Chrysler have shifted jobs and supplier contracts from forced unionization states to right to work states. “As recently as 2002, just 21% of the total U.S. output in automotive manufacturing took place in Right to Work states,” Greer found. That gap will likely widen when the U.S. Commerce Department’s Bureau of Economic Analysis release manufacturing data for 2013 later this year.

Conservatives say the U.S. has done enough to create equality for blacks. Young liberals agree. One last dip into a big Pew survey we've been discussing about on the politics and policy views of Americans. Pew surveyed more than 10,000 adults earlier this year on topics ranging from their views of Hillary Rodham Clinton to taking the bus, and the report divides their responses along a set of political typologies that group respondents into generally coherent categories across the range of policy issues: i.e., the "business conservative," the "solid liberal," the young "next generation left." Across that spectrum, there is not surprisingly wide disagreement on racial progress in America and the steps government still must take to achieve it. Most of the results on this chart are fairly predictable: Conservatives broadly believe that the government much done all it needs to to ensure equal rights for blacks. Liberals, with one striking exception, overwhelmingly disagree:  The views of young, affluent liberals stand out. In fact, they align more closely with conservatives than other liberal groups. So what's going on here? Are younger liberals so far removed from the Civil Rights era that they've become disconnected from the memory of overt discrimination it sought to end?

The Myth of America’s Golden Age - Joseph Stiglitz -- I hadn’t realized when I was growing up in Gary, Indiana, an industrial town on the southern shore of Lake Michigan plagued by discrimination, poverty and bouts of high unemployment, that I was living in the golden era of capitalism. It was a company town, named after the chairman of the board of U.S. Steel. It had the world’s largest integrated steel mill and a progressive school system designed to turn Gary into a melting pot fed by migrants from all over Europe. But by the time I was born in 1943, cracks in the pot were already appearing. To break strikes—to ensure that workers did not fully share in the productivity gains being driven by modern technology—the big steel companies brought African-American workers up from the South who lived in impoverished, separate neighborhoods. Smokestacks poured poisons into the air. Periodic layoffs left many families living hand to mouth. Even as a kid, it seemed clear to me that the free market as we knew it was hardly a formula for sustaining a prosperous, happy and healthy society. So when I went off to college to study economics, I was astonished by what I read. The standard economic texts of the time said that the market led to the best of all possible worlds. But if that were the case, I decided, I wanted to live in a different world. While other economists were obsessed with extolling the virtues of the market economy, I focused a lot of my work on why markets fail, and I devoted much of my Ph.D. thesis at MIT to understanding the causes of inequality. Nearly half a century later, the problem of inequality has reached crisis proportions. It turns out today that almost all of us now are in the same boat—the one that holds the bottom 99 percent. It is a far different boat, one marked by more poverty at the bottom and a hollowing out of the middle class, than the one occupied by the top 1 percent. For Richest, For Poorest Economic inequality in the United States is at its highest since before the Great Depression, but where does it hurt most?  Most disturbing is the realization that the American dream—the notion that we are living in the land of opportunity—is a myth. The life chances of a young American today are more dependent on the income and education of his parents than in many other advanced countries, including “old Europe.”

U.S. Census Bureau Shows More People Living in Poverty - A U.S. Census Bureau report released on Monday revealsthat the proportion of people living in areas of poverty increased by 7.7 percentage points from 2000 to 2010. Latest figures collected by the American Community Survey from 2008 to 2012 showed that 1 in 4 U.S. residents lived in areas with a poverty rate of at least 20%. The report, Changes in Areas With Concentrated Poverty: 2000 to 2010, compares new data with that collected in the 2000 Census Bureau to track income changes throughout the country. According to latest figures, 30% of the population lived in areas of poverty in the District of Columbia and 14 states — an increase from only four states and the District of Columbia in 2000. States that had experienced the greatest increase included Tennessee, Oregon, Arkansas and North Carolina.  Data also showed that the entire country was affected by the increase in poverty, regardless of race. Although the report indicated that minorities and households headed by single mothers were at the greatest risk of living in poverty, whites living in poor areas had the greatest proportional increase — from 11.3% in 2000 to 20.3% in 2008 to 2012.

Poverty statistics: The Census reports that one-quarter of Americans now live in "poverty areas." -- You don’t have to be poor for your life to be touched by poverty. People are shaped by their neighborhoods. And areas heavy on low-income households suffer from worse schools, worse public services, worse crime, and a host of other problems that affect families who live well above the official poverty line. Researchers argue that middle-class black children suffer from more downward economic mobility than whites, for instance, in large part because they’re more likely to be raised in impoverished communities. Keep that in mind while taking a look at these maps from a new report by the Census Bureau on the growth of concentrated poverty in the U.S. In 2010, the overall U.S. poverty rate was about 15 percent. However, about a quarter of all Americans lived in a so-called “poverty area”—defined as a census tract where more than 20 percent of the population lived below the poverty line. For our purposes, we can just call these places poor neighborhoods, even though the term is a little more accurate in an urban context than a rural one. The problem was especially severe in Appalachia and across the South and Southwest, where in most states 30 percent or more of all residents lived in these communities.

“How the South is becoming a solid band of poverty” - The number of Americans living in poor neighborhoods has skyrocketed in the last decade - and nowhere is the trend more prominent than in the South, where more than 30percent of the population is concentrated in an area with high poverty. A grim new report from the U.S. Census Bureau shows a solid band of high poverty neighborhoods - running from Arizona east to North Carolina. Only Florida and Virginia are spared from the trend. The data show that poverty in the United States isn't just growing, it's becoming more concentrated - which can exacerbate social problems and lower the chances of social mobility. The Census report points out that the number of people living under the federal poverty line - less than $24,000 a year for a family of four - has increased between 2000 and 2010. The number of Americans living in poverty climbed 45percent to 45million.

Let Them Eat Cash - A CHINESE millionaire tried to give $300 (and lunch) to homeless men and women in New York last week. This didn’t sit well with the nonprofit New York City Rescue Mission. The Rescue Mission offered to help with lunch, but wouldn’t cooperate in handing out cash. So midway through a meal of sesame-crusted tuna and filet of beef, some 200 homeless people discovered that they would not be getting money. Instead, the Rescue Mission would accept $90,000 on their behalf. You can imagine the anger and humiliation. The executive director of Rescue Mission said he was worried that people might spend the handout on drugs or alcohol. This pessimism (and paternalism) is common and understandable. But evidence from other countries suggests we should be more optimistic. Globally, cash is a major tool to fight extreme poverty. The United Nations is handing out ATM cards to Syrian refugees alongside sacks of grain. The evidence suggests these cash programs work. There have been randomized trials of cash grants to poor Mexican families, Kenyan villagers, Malawian schoolgirls and many others. The results show that sometimes people just eat better or live in better homes. Often, though, they start businesses and earn more. In Uganda, my colleagues and I worked with a nonprofit that offered $150 and five days of business planning to 900 of the poorest women in the world. After 18 months, the women had twice the incomes of a random control group.

What Americans Think of the Poor -- The Pew Research Center has released one of their periodic Political Typology studies, and as usual it contains a wealth of fascinating data on what people think about a whole range of issues. One of the most useful things about it is that instead of just asking people whether they consider themselves liberals or conservatives, it constructs a typology based on a series of questions, enabling them to divide people in a more fine-grained way that doesn't rely solely on self-identification (they divide Americans into two strongly conservative groups, one mostly conservative group, one mostly liberal group, and three more strongly liberal groups). When I went through the survey, one question jumped out at me, the one represented here:  I think it's important to know why people believe what they do and not to settle into comforting but ridiculous caricatures of your opponents.  But the belief that "poor people have it easy" is just insane. It serves a psychological function—if you can convince yourself that poor people are living it up, then you can assuage whatever pangs of conscience you might feel for advocating that we cut food stamps or keep the minimum wage low or move heaven and earth to keep them from getting health insurance. It's one thing to say that poverty in America today isn't quite as miserable as in years past, because even if you're poor you probably still have running water, a fridge, and a TV (this is a common argument conservatives make). But to actually believe they have it easy? What kind of person would agree to that?

Charlatans, Cranks and Kansas, by Paul Krugman --  Two years ago Kansas embarked on a remarkable fiscal experiment: It sharply slashed income taxes without any clear idea of what would replace the lost revenue. Sam Brownback, the governor, proposed the legislation — in percentage terms, the largest tax cut in one year any state has ever enacted — in close consultation with the economist Arthur Laffer. And Mr. Brownback predicted that the cuts would jump-start an economic boom... But Kansas isn’t booming — in fact, its economy is lagging both neighboring states and America as a whole. Meanwhile, the state’s budget has plunged deep into deficit, provoking a Moody’s downgrade of its debt.  There’s an important lesson here — but it’s not what you think. Yes, the Kansas debacle shows that tax cuts don’t have magical powers, but we already knew that. The real lesson from Kansas is the enduring power of bad ideas, as long as those ideas serve the interests of the right people. ... For the Brownback tax cuts didn’t emerge out of thin air. They closely followed a blueprint laid out by the American Legislative Exchange Council, or ALEC, which has also supported a series of economic studies purporting to show that tax cuts for corporations and the wealthy will promote rapid economic growth.   It’s a secretive group, financed by major corporations, that drafts model legislation for conservative state-level politicians.... And most of ALEC’s efforts are directed, not surprisingly, at privatization, deregulation, and tax cuts for corporations and the wealthy. And I do mean for the wealthy. ...ALEC supports cutting taxes at the top while actually increasing taxes at the bottom, as well as cutting social services.

Illinois governor signs FY 2015 budget, vows to cut more (Reuters) - Illinois Governor Pat Quinn signed the state's $35.7 billion operating budget for fiscal 2015 on Monday, vowing to continue to chisel away at spending approved by the legislature. The General Assembly's budget is peppered with one-time measures after House Democrats in May could not muster enough votes to make a temporary income tax hike permanent. Higher personal and corporate income tax rates, which were passed in 2011 during one of the state's budget pinches, are set to partially expire on Jan. 1, causing an estimated $2 billion revenue decline in the fiscal year that begins on Tuesday. The new budget keeps most spending at fiscal 2014 levels despite the revenue drop. The Democratic governor, who pushed for making the tax rates permanent, said he will do the budget cutting that lawmakers failed to do. true “Reducing the budget and identifying additional efficiencies will help minimize the impact of cuts in vital services and maintain our hard-won fiscal gains," Quinn said in a statement. .The governor said he canceled $250 million for state capitol renovations and directed state agencies to identify additional efficiencies, including selling nearly half the state's aircraft. Last week he announced plans to save $55 million by cutting the amount of property leased by the Illinois government and also called for a reduction in the amount of state-paid parking for workers.

Kentucky road projects delayed by federal shortfall: Kentucky transportation officials have delayed $185 million worth of road construction projects — including a project to widen a dangerous stretch of I-65 — because of a looming shortfall in the federal Highway Trust Fund. The trust fund is the main way states pay for most major construction projects. The money comes from the federal gas tax drivers pay at the pump — 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel fuel. That gas tax has not increased since 1993, and the fund has slowly been running out of money. Congress has had to transfer money into the fund to keep it solvent. U.S. Transportation Secretary Anthony Foxx joined Democratic Gov. Steve Beshear at the state Capitol on Wednesday to urge federal lawmakers to fix the problem by Aug. 1 or else states will begin to see cuts of at least 28 percent. For Kentucky, that could mean losing more than $180 million per year. Beshear said the state has already delayed projects as a precaution, including a project to widen a stretch of I-65 near Elizabethtown. The road has been the scene of several high profile fatal crashes, including a wreck that killed a groom returning from his wedding in 2011 and a crash that killed a family of six from Wisconsin in 2013.

U.S. bond funds sue Puerto Rico, worried about bankruptcy threat (Reuters) - U.S. mutual funds holding about $1.7 billion in Puerto Rico debt have sued the cash-strapped commonwealth, accusing the Caribbean island of passing an act modeled after the U.S. bankruptcy code in what could be a potential threat to American investors. Passage of the act has spooked the $3.7 trillion U.S. municipal bond market, sending down prices of revenue bonds issued by Puerto Rico's electric authority. U.S. municipal bonds funds are the largest holders of the island's debt because it is tax-exempt in every state. Puerto Rico is one of the largest issuers of debt in the U.S. municipal bond market. Under its constitution, Puerto Rico doesn't have the power to enact a bankruptcy law for the adjustment of its debts. The complaint contends Puerto Rico passed an act modeled after title 11 of the U.S. Bankruptcy code, which is used by U.S. corporations to reorganize. true Bond funds run by OppenheimerFunds, a unit of insurer MassMutual Financial Group, and Franklin Templeton, filed an amended complaint against the commonwealth on Sunday in U.S. District Court in Puerto Rico. The two fund groups are among the largest investors in the beat-up electric revenue bonds. The funds are asking a federal judge to declare that Puerto Rico's recently passed Public Corporation Debt Enforcement and Recovery Act violates the U.S. Constitution. "The Act purports to offer to certain public corporations within the Commonwealth the ability, among other things, to invoke protections from creditors and modify debts," the funds said in the amended complaint. "The Act is expressly modeled on title 11 of the United States Code."

Michigan has higher incarceration rate than Cuba, Russia and Iran -- If Michigan were a country, it would put people in prison more often than Russia does. That's one of the takeaways from a new analysis of incarceration rates by the Prison Policy Initiative that breaks the U.S. rate out by all 50 states. The U.S. leads the world in the percentage of citizens behind bars as a whole, but some states are far above that mark. The U.S. imprisons people at a rate of 716 people per 100,000 of population, but 22 states actually exceed that rate, with Louisiana's rate being the highest at 1,341 people per 100,000. Michigan's rate is below the national rate, at 628 inmates per 100,000, but that's still high enough to exceed every other country in the world.

Here Are the 43,634 Properties in Detroit That Were on the Brink of Foreclosure This Year - New York Times - This mosaic, created with images from Google Maps Street View, shows one of the many enormous challenges facing Detroit as it tries to climb out of debt. As of January, the owners of these properties collectively owed the county more than $328 million in unpaid taxes and fees. Since then, some have paid their debts, entered in payment plans or qualified for assistance. But 26,038 properties, shown with a yellow triangle, remain in jeopardy, and many are headed for public auction.

District defends kindergartner's sexual misconduct discipline -- An assistant superintendent for the Dysart Unified School District defends calling a kindergartner's actions "sexual misconduct." Five-year-old Eric Lopez pulled his pants down on the playground at Ashton Ranch Elementary School last Spring and received a punishment of detention for what the school has deemed sexual misconduct. Eric now has a note that will remain in his permanent file for the duration he attends Dysart schools. His mother was not notified of the incident or the note her son signed in the assistant principal's office until after the fact.

With Teacher Tenure Threatened, Trouble in Every Direction for Public Education - On June 10, 2014, Judge Rolf M. Treu of Los Angeles Superior Court ruled that current teacher tenure laws deprive students of their right to an education under California's constitution.Vergara v. California was cast as a group of poor kids suing the state to get rid of bad teachers under the banner of an advocacy group called Students Matter, a nonprofit founded by Silicon Valley billionaire David Welch in order to employ the most aggressive hired guns from the white shoes law firms and bankroll this multimillion-dollar lawsuit. Vergara was immediately hailed by Secretary of Education Arne Duncan as an opportunity and "a mandate to fix these problems." Give Arne Duncan credit for consistency: he called Hurricane Katrina "the best thing that happened to the education system in New Orleans" because it swept the slate clean and folks could just start over (never mind those black bodies piled in the corner), . called the California decision a "conservative's dream-come-true victory" over the unions, and cheered Welch and his supporters as "a long-time coalition of educational free-market supporters and privatization philanthropists, including the Gates Foundation, Los Angeles billionaire Eli Broad and Walmart's Walton Family Foundation." Karen Lewis, fiery leader of the Chicago Teachers Union, responded that the ruling had "the moguls drinking champagne."

Acceptance rates at US medical schools in 2013 reveal racial profiling and affirmative discrimination for blacks, Hispanics - The table above (click to enlarge) is an update of one I’ve posted several times before, here’s a link to the most recent CD post on this topic from April 2013. These posts in the past have generated a lot of interest and comments, so I thought it was time to do an update now that 2013 data are available. The table displays acceptance rates to US medical schools for Asians, whites, Hispanics and blacks with various combinations of MCAT scores and GPAs for 2013, based on data from the Association of American Medical Colleges (AAMC). For 2013, the average GPA of all students applying to medical schools was 3.54 and the average MCAT score was 28.4 (data here). The highlighted blue column in the middle of the table displays the acceptance rates of four racial groups for applicants to US medical schools with GPAs that fall in the 3.40-3.59 range containing the average GPA, and with MCAT scores in the range between 27-29 that contains the average score of 28.4. Acceptance rates for students with slightly higher and slightly lower than average GPAs and test scores are displayed in the other columns. In other words, the table displays acceptance rates by race and ethnicity for students applying to US medical schools with average academic credentials, and just slightly above and slightly below average credentials.

Americans Think We Have the World’s Best Colleges. We Don’t - Americans have a split vision of education. Conventional wisdom has long held that our K-12 schools are mediocre or worse, while our colleges and universities are world class. While policy wonks hotly debate K-12 reform ideas like vouchers and the Common Core state standards, higher education is largely left to its own devices. Many families are worried about how to get into and pay for increasingly expensive colleges. But the stellar quality of those institutions is assumed. Yet a recent multinational study of adult literacy and numeracy skills suggests that this view is wrong. America’s schools and colleges are actually far more alike than people believe — and not in a good way.  The standard negative view of American K-12 schools has been highly influenced by international comparisons. The Organization for Economic Cooperation and Development, for example, periodically administers an exam called PISA to 15-year-olds in 69 countries. While results vary somewhat depending on the subject and grade level, America never looks very good. The same is true of other international tests. In PISA’s math test, the United States battles it out for last place among developed countries, along with Hungary and Lithuania.  America’s perceived international dominance of higher education, by contrast, rests largely on global rankings of top universities. According to a recent ranking by the London-based Times Higher Education, 18 of the world’s top 25 universities are American. But there is a problem with this way of thinking. When President Obama has said, “We have the best universities,” he has not meant: “Our universities are, on average, the best” — even though that’s what many people hear. He means, “Of the best universities, most are ours.” The distinction is important.

The Economics of Fake Degrees -- It’s surprising how many house pets hold advanced degrees. Last year a dog received his MBA from the American University of London, a non-accredited distance-learning institution. It feels as if I should add “not to be confused with the American University in London,” but getting people to confuse them seems like a pretty basic feature of the whole AUOL marketing strategy. The dog, identified as “Peter Smith” on his diploma, goes by Pete. He was granted his degree on the basis of “previous experiential learning,” along with payment of 4,500 pounds ($7,723). The funds were provided by a BBC news program, which also helped Pete fill out the paperwork. The American University of London required that Pete submit evidence of his qualifications as well as a photograph. The applicant submitted neither, as the BBC website explains, “since the qualifications did not exist and the applicant was a dog.” Inside Higher Ed reports on diploma mills and fake degrees from time to time but can’t possibly cover every revelation that some professor or state official has a bogus degree, or that a “university” turns out to be run by a convicted felon from his prison cell. Even a blog dedicated to the topic, Diploma Mill News, links to just a fraction of the stories out there. Keeping up with every case is just too much; nobody has that much Schaudenfreude in him.

Starting Today Interest On New Student Loans Rises By 20% - While the new quarter has started with a bang for the capital markets and those 1% who actually benefit from one after another record high courtesy of the Fed's "fairy dust", July 1 is an important date for another group of Americans: students. However, instead of more wealth, America's aspiring intelligentsia has something far less pleasant to look forward to, namely more debt, because today is when higher interest rates for education loans kick in. Starting July 1 all new loans for the 2013/2014 student year will increase from 3.86% to 4.66%, a 20% increase.

Student loan interest rates rise, worrying some experts - Student loan debt, which has risen 20 percent to $1.2 trillion between 2011 and 2013 -- surpassing every other form of non-mortgage debt -- is becoming increasingly expensive. Because the U.S. Congress failed to take action, interest rates on undergraduate Stafford loans rose today to 4.66 percent from 3.86 percent last year on both subsidized and unsubsidized borrowing. Graduate students who take out unsubsidized Stafford loans saw their borrowing costs increase to 6.21 percent from 5.41 percent. PLUS loans, which are available to graduate students and parents of college students, will increase to 7.21 percent to 6.41 percent. None of these increases, which could be negated if Congress takes action after the Fourth of July holiday, apply to existing loans. Lauren Asher, president of The Institute on College Access and Success (TICAS), for one is worried that the increased rates may cause people to take out more risky private loans, which don't have flexible, income-based repayment and the ability for the debt to be discharged if the schools close. According to the Associated Press, the increase isn't going to hurt most borrowers. For every $10,000 borrowed, it will an additional $4 per month in payments

Student loan debt at all time high -  Student loan debt is at an all-time high and the costs continue to rise. Federal student loan interest rates are set to increase Tuesday. Loans for undergraduates will rise 1 percent from last year. Loan rates for graduate students will rise just under 1 percent. The average student in Michigan graduates with just under $29,000 in loans. With the increase that comes to about $300 more per year. Many college students leave campus with a weight of student debt. Now that weight is about to get even heavier. "Well, what's happening with the Stafford loan, if you take a 10-year loan rate, they're going to pay about $46 more a year for that loan,"  Federal student loans for undergraduates will be rising one percent from last year. Grad students will see an increase in interest rates from 5.4 to 6.21 and loans taken out in parents names will shoot from 6.41 percent to 7.21. "We see interest rates increase, it's just getting tougher and tougher for these students to pay off debt, get out of debt, or even plan on going to college"

The Misguided Freakout About Basement-Dwelling Millennials -- More than ever, young people are living in their parents' basements. You've surely heard that one before. The Washington Post, the New York Times, the New Republic, Salon, and others have repeated it over and over in the last few years. More than 15.3 million twentysomethings—and half of young people under 25—live "in their parents’ home," according to official Census statistics. There's just one problem with those official statistics. They're criminally misleading. When you read the full Census reports, you often come upon this crucial sentence:It is important to note that the Current Population Survey counts students living in dormitories as living in their parents' home.If you want to get histrionic about demographic household arrangements, at least be accurate. This observation, for example, is true: "In 1968, young people between 18 and 31 were almost twice as likely to be married than to live at home with their parents, according to the Census; now they're more likely to live with their parents than be married." Definitional issues aside, the share of young people living "at home" is at a half-century high. The question is: Why?

Pa. bolsters pension system amid deficit concerns— Pennsylvania will raise payments into the state's pension systems by $600 million in the new budget year, but experts caution it won't be enough to pay down the deficit. House and Senate lawmakers didn't vote on Gov. Tom Corbett's proposal to make the pension contributions lower than guidelines outlined in a 2010 law. Other pension reform proposals are pending. The House could vote before recessing for the summer on Thursday, said Stephen Miskin, a House Republican spokesman. A budget proposal to which legislative leaders agreed would increase payments into the retirement funds by $600 million and contribute $2 billion to combined pension systems for state employees and school workers. Pennsylvania has $47 billion in unfunded liability in pension obligations, analysts say. That liability has prompted warnings from credit rating agencies and raised concern that Pennsylvania could be subject to higher interest rates. The problem is more than a decade in the making and intensified with losses on investments during the Great Recession, actuaries have pointed out.

The Illogic of Employer-Sponsored Health Insurance - Imagine yourself in a bar where a pickpocket takes money out of your wallet and with it buys you a glass of chardonnay. Although you would have preferred a pinot noir, you decide not to look that gift horse in the mouth and thank the stranger profusely for the kindness, assuming he paid for it. You might feel differently, of course, if you knew that you actually had paid for it yourself. Persuaded by both theory and empirical research, most economists believe that employer-based health insurance is an analogue of this bar scene. The argument is that the premiums ostensibly paid by employers to buy health insurance coverage for their employees are actually part of the employee’s total pay package – the price of labor, in economic parlance – and that the cost of that fringe benefit is recovered from employees through commensurate reductions in take-home pay. Evidently the majority of Supreme Court justices who just ruled in Burwell v. Hobby Lobby case do not buy the economists’ theory. These justices seem to believe that the owners of “closely held” business firms buy health insurance for their employees out of the kindness of their hearts and with the owners’ money. On that belief, they accord these owners the right to impose some of their personal preferences – in this case their religious beliefs — on their employee’s health insurance.

The best way to fix the employer mandate -- The employer mandate is likely to be the first big issue in the Affordable Care Act (ACA) that actually gets a bipartisan makeover. But right now, the odds are that a fix will go in the wrong direction. It doesn't have to. There's a simple reform to the employer mandate that would address its immediate shortcomings and be a good solution for the long-term changes we need in the way we pay for healthcare. The Obama administration first delayed and then decided to phase in the employer mandate, which requires firms with more than 50 employees — only 5 percent of all businesses — to pay a portion of health coverage for employees who work 30 hours a week, or pay a fine.  Numerous bills introduced by Republicans in both houses would repeal or delay the employer mandate. Recently the Urban Institute, a liberal think tank, weighed in on the side of eliminating the mandate. The Urban Institute calculated that doing so would have only a small impact on the number of people who are uninsured — between 200,000 and 500,000 — as Medicaid and individual coverage would enroll many of those who would not gain employer coverage under a mandate. But the 10-year cost would be $130 billion — not chump change.  There are two big problems with eliminating the mandate, or allowing employers to cover even fewer workers. One, doing so flies in the face of the evolving changes in the labor force, where most new jobs are being created in the low-wage industries, which are now most likely to not offer coverage. As a result, eliminating the mandate will over time impact a growing portion of the labor force. Two, eliminating the mandate shifts more of the cost of paying for coverage to government and individuals, letting employers off the hook.

Obamacare data errors could jeopardize coverage for millions - The Obama administration has been struggling to clear up data discrepancies that could potentially jeopardize coverage for millions under the health overhaul, the government’s health care fraud watchdog reported Tuesday. The Health and Human Services inspector general said the administration was not able to resolve 2.6 million so-called “inconsistencies” out of a total of 2.9 million such problems in the federal insurance exchange from October through December 2013. Of the roughly 330,000 cases that could be straightened out, the administration had only actually resolved about 10,000 during the period of the inspector general’s audit. That worked out to less than 1 percent of the total. Several states running their own insurance markets also were having problems clearing up data discrepancies. Most of the issues dealt with citizenship and income information supplied by consumers that conflicted with what the federal government has on record, the report said. It marked the first independent look at a festering behind-the-scenes issue that could turn into another health law headache for the White House.

Vaccine Costs Soaring and Paying till it hurts -- Vaccination prices have gone from single digits to sometimes triple digits in the last two decades, creating dilemmas for doctors and their patients as well as straining public health budgets. Here in San Antonio and elsewhere, some doctors have stopped offering immunizations because they say they cannot afford to buy these potentially lifesaving preventive treatments that insurers often reimburse poorly, sometimes even at a loss. Old vaccines have beenreformulated with higher costs. New ones have entered the market at once-unthinkable prices. Together, since 1986, they have pushed up the average cost to fully vaccinate a child with private insurance to the age of 18 to $2,192 from $100, according to data from the Centers for Disease Control and Prevention. Even with deep discounts, the costs for the federal government, which buys half of all vaccines for the nation’s children, have increased 15-fold during that period. The most expensive shot for young children in Dr. Irvin’s refrigerator is Prevnar 13, which prevents diseases caused by pneumococcal bacteria, from ear infections to pneumonia. Like many vaccines, Prevnar requires multiple jabs. Each shot is priced at $136, and every child in the United States is required to get four doses before entering school. Pfizer, the sole manufacturer, had revenues of nearly $4 billion from its Prevnar vaccine line last year, about double what it made from high-profile drugs like Lipitor and Viagra, which now face generic competitors.

Anti-vaxx insanity: New study highlights the dangers of science denialism -  We are breaking a new record in the U.S., and it is not one we want to break: According to the Centers for Disease Control and Prevention, measles cases are at a 20-year high. As of May 23, more than 288 cases have been reported this year. To put that in perspective, only 37 cases were reported in all of 2004. In 2002, measles had been declared eliminated in the Americas.The CDC reports that most Americans have either contracted measles in the past, and are now immune, or have received the measles-mumps-rubella vaccine, among the most effective vaccinations available. Yet, measles is now an epidemic in Minnesota, where a 2.5-year-old child was identified by the science journal Pediatrics last month as patient zero, ultimately responsible for exposing more than 3,000 people in its community to the disease. The child had traveled with family to Kenya and there came in contact with measles, subsequently spreading it to a family member and three other toddlers in daycare. The child had not been vaccinated, as the parents believed vaccines to be dangerous, having bought into the same misinformation that has spread far and wide across America.

The Vast Majority of Baby Boomers Are Overweight Or Obese -- Aging baby boomers are smoking and drinking less, but overweight and obesity are on the rise, according to a new report from the U.S. Census Bureau. That’s especially concerning when you consider the many other diseases and disabilities—including arthritis, type-2 diabetes, heart disease and hindered mobility—that can come with excess body weight.   The percentage of overweight and obese Americans 65 and older has grown: 72% of older men and 67% of older women are now overweight or obese. Baby boomers started reaching age 65 in 2011, and the report, which was funded by the National Institutes of Health, also shows many of these older Americans are not financially prepared to pay for long-term care in nursing homes. That’s concerning, since America’s aging population, which is now around 40 million, is estimated to double by 2050.

Recruits' Ineligibility Tests the Military - WSJ: More than two-thirds of America's youth would fail to qualify for military service because of physical, behavioral or educational shortcomings, posing challenges to building the next generation of soldiers even as the U.S. draws down troops from conflict zones. The military deems many youngsters ineligible due to obesity, lack of a high-school diploma, felony convictions and prescription-drug use for attention-deficit hyperactivity disorder. But others are now also running afoul of standards for appearance amid the growing popularity of large-scale tattoos and devices called ear gauges that create large holes in earlobes.   The military services don't keep figures on how many people they turn away. But the Defense Department estimates 71% of the roughly 34 million 17- to 24-year-olds in the U.S. would fail to qualify to enlist in the military if they tried, a figure that doesn't even include those turned away for tattoos or other cosmetic issues. Meanwhile, only about 1% of youths are both "eligible and inclined to have a conversation with us" about military service, according to Major Gen. Allen Batschelet, commanding general of U.S. Army Recruiting Command.

Chronic Health Conditions Plague Half of All American Adults, CDC reports -- According to the US Centers for Disease Control and Prevention, half of all American adults - approximately 117 million people - suffer from one or more chronic health conditions. This troubling statistic is perhaps one reason why health care costs are soaring. In May, the CDC released an update on the nation's current struggles with chronic diseases, including obesity, heart disease, stroke, cancer, diabetes, arthritis, and others. On top of finding that half of US adults suffer from a chronic disease, they also discovered that 25% suffer from two or more chronic conditions. These ailments are common, but costly. More importantly, they are preventable.Today, researchers from the government agency published a paper in The Lancet entitled, "Prevention of chronic disease in the 21st century: elimination of the leading preventable causes of premature death and disability in the USA." The research examines the causes of the most commonly suffered chronic diseases as well as the risk factors that are associated with them. Tobacco use, poor diet, physical inactivity, excessive alcohol consumption, poorly treated high blood pressure, and high cholesterol were all listed as behaviors within one's control that can reduce such diseases. "With non-communicable conditions accounting for nearly two-thirds of deaths worldwide, the emergence of chronic diseases as the predominant challenge to global health is undisputed," the researchers noted in their summary. "In the USA, chronic diseases are the main causes of poor health, disability, and death, and account for most of health-care expenditures."

One in 10 deaths among working-age adults in U.S. due to excessive drinking, report finds -- Excessive alcohol use accounts for one in 10 deaths among working-age adults ages 20-64 years in the United States, according to a report from the Centers for Disease Control and Prevention published June 26 in Preventing Chronic Disease. Excessive alcohol use led to approximately 88,000 deaths per year from 2006 to 2010, and shortened the lives of those who died by about 30 years. These deaths were due to health effects from drinking too much over time, such as breast cancer, liver disease, and heart disease; and health effects from drinking too much in a short period of time, such as violence, alcohol poisoning, and motor vehicle crashes. In total, there were 2.5 million years of potential life lost each year due to excessive alcohol use. Nearly 70 percent of deaths due to excessive drinking involved working-age adults, and about 70 percent of the deaths involved males. About 5 percent of the deaths involved people under age 21. The highest death rate due to excessive drinking was in New Mexico (51 deaths per 100,000 population), and the lowest was in New Jersey (19.1 per 100,000).

The Crapification of Biomedical Research – Yves Smith - Lambert flagged an extremely important article at PNAS, the Proceedings of the National Academy of Sciences, on what it describes as systemic flaws in biomedical research. I strongly urge you to read the article in full. It shows how US biomedical research is going down the tubes, with researchers spending far more time writing grant proposals than doing investigations, and with research increasingly focused on what amount to applications, or “instrumentalist” studies, rather than more fundamental work with higher payoffs. The underlying problem is a huge mismatch between the supply of scientists and the research dollars now on offer. The PNAS account should put paid to the idea that the US has a broad based STEM crisis, as in a lack of people with sufficient training. Instead, the big problem is that universities and scientists expected the funds committed to biomedical research to continue to increase, and that combined with exciting new tools and technologies, made biomedical research seem like a promising career choice. But National Institutes of Health funding has fallen by at least 25% in real dollar terms since 2003 while the cost of studies has increased.  Here is the PNAS overview: In the context of such progress, it is remarkable that even the most successful scientists and most promising trainees are increasingly pessimistic about the future of their chosen career. Based on extensive observations and discussions, we believe that these concerns are justified and that the biomedical research enterprise in the United States is on an unsustainable path. One of the drivers is what amounts to a Ponzi scheme, that established scientists teach and leverage students well in excess of replacement levels. This is not unlike the law or consulting firm model, with one senior person who has a number of junior staffers working for him.  But in the biomedical research community overall, there simply aren’t enough job opportunities for all the scientists that have been trained:

This Disease You’ve Never Heard Of Is Spreading Like Wildfire Across The Caribbean -- What a difference a year makes. Last summer, chikungunya fever was virtually unknown in the Western Hemisphere. Since then, over a quarter of a million people in the Caribbean have contracted the mosquito-borne disease and the CDC reports that 112 people have brought the illness into 27 states in the U.S. So far, no locally acquired cases of the disease have been reported within the United States, but experts warn that it is only a matter of time before the cripplingly painful disease establishes a foothold in the country. That’s in part because climate change has vastly expanded the range and season of the Asian tiger mosquito which spreads the disease.  Chikungunya fever was first identified in Tanzania in the 1950s. The Swahili name means “walking bent over,” a reference to the debilitating joint pain caused by the illness. Sufferers report barely being able to walk and struggling to use their hands. The pain usually only last for a few weeks, but in some cases can linger for months or even years. The paralyzing pain is accompanied by headache, rash, and fever. There is no vaccine or treatment for the disease, and patients are usually told to just ride out the infection with the help of pain killers and fluids. Chikungunya is rarely fatal, but has claimed 21 lives so far in the Caribbean according to the Pan American Health Organization (PAHO).

Agent Orange Legacy Scourges Vietnam Decades after the Vietnam War, victims wither away with scant efforts being made to tackle the deadly chemicals - Roughly three million people including 150,000 children born with birth defects have been affected by Agent Orange, according to the Vietnam Red Cross.  As a result, the country’s rate of birth defects has quadrupled after the controversial war. From 1961 to 1971, the U.S. military sprayed almost 20 million gallons of Agent Orange and similar noxious chemicals over almost a quarter of southern Vietnam to strip foliage and deny communist fighters cover. Activists claim it was the largest chemical warfare campaign ever conducted. “The consequences that it left behind are the most severe in the history of mankind,”  Dioxin, a key ingredient in the herbicides, is linked to a myriad of reproductive and development issues as well as other severe health problems in Vietnamese people and U.S. veterans who served in the war.  The deadly substance can have a lifespan of more than 100 years and still pollutes food and water sources, researchers say.

Exclusive: Controversial US scientist creates deadly new flu strain for pandemic research - A controversial scientist who carried out provocative research on making influenza viruses more infectious has completed his most dangerous experiment to date by deliberately creating a pandemic strain of flu that can evade the human immune system.   Yoshihiro Kawaoka of the University of Wisconsin-Madison has genetically manipulated the 2009 strain of pandemic flu in order for it to “escape” the control of the immune system’s neutralising antibodies, effectively making the human population defenceless against its reemergence. Most of the world today has developed some level of immunity to the 2009 pandemic flu virus, which means that it can now be treated as less dangerous “seasonal flu”. However, The Independent understands that Professor Kawaoka intentionally set out to see if it was possible to convert it to a pre-pandemic state in order to analyse the genetic changes involved. The study is not published, however some scientists who are aware of it are horrified that Dr Kawaoka was allowed to deliberately remove the only defence against a strain of flu virus that has already demonstrated its ability to create a deadly pandemic that killed as many as 500,000 people in the first year of its emergence.

How Fast Food Providers Beat Inflation - Add Wood Pulp To Burgers --  On Monday, Quartz published an titled, There is a Secret Ingredient in Your Burgers: Wood Pulp. Given the headline and people’s already present suspicion regarding all of the shady and potentially dangerous ingredients hidden in food items, the article gained a lot of traction. In subsequent days, most journalists and bloggers have focused on the dangers of this additive (unclear) and whether or not it is pervasive throughout the food chain as opposed to just fast food (it appears to be). The one angle that has not been explored as much is the overall trend. Let’s go ahead and assume that wood pulp is a safe thing to consume, it certainly seems to have no nutritional value whatsoever. So why are companies inserting it into food items? To mask inflation and earn more profits most likely. The Quartz article notes that: There may be more fiber in your food than you realized. Burger King, McDonald’s and other fast food companies list in the ingredients of several of their foods, microcrystalline cellulose (MCC) or “powdered cellulose” as components of their menu items. Or, in plain English, wood pulp. The emulsion-stabilizing, cling-improving, anti-caking substance operates under multiple aliases, ranging from powdered cellulose to cellulose powder to methylcellulose to cellulose gum. The entrance of this non-absorbable fiber into fast food ingredients has been stealthy, yet widespread: The compound can now be found in buns, cheeses, sauces, cakes, shakes, rolls, fries, onion rings, smoothies, meats—basically everything.

Virus Plagues the Pork Industry, and Environmentalists - A deadly virus, porcine epidemic diarrhea, or PEDv, is estimated to have killed, on average, more than 100,000 piglets and young hogs each week since it first showed up in Iowa in May 2013, wreaking havoc on the pork industry.The number of hogs slaughtered this year is down 4.2 percent, according to the United States Agriculture Department, to roughly 50 million from more than 52 million in the same period in 2013.That drop drove up the price of bacon and center-cut pork chops sold in the United States by more than 12 percent in May, compared with the same period a year ago, according to the Bureau of Labor Statistics. Prices for bacon rose more than 15 percent, and pork chops were up almost 13 percent.“I’ve been a vet since 1981, and there is no precedent for this,” said Paul Sundberg, vice president for science and technology at the National Pork Board. “It is devastatingly virulent.” The fatality numbers are so staggering that environmentalists have grown worried about the effects of state laws requiring the burial of so many carcasses, and what that will do to the groundwater.“We know there is a lot of mortality from this disease, and we’re seeing evidence of burial in areas with shallow groundwater that a lot of people rely on for drinking water and recreation,” said Kelly Foster, senior lawyer at the Waterkeeper Alliance, an environmental group.

FDA May Be Seeking to Use Untested Technology in Livestock Feed --The U.S. Food and Drug Administration (FDA) may be looking to use emerging technology in products for livestock that could make animals on factory farms gain weight and absorb medications faster. The technology in question is nanotechnology, the process of manipulating or creating matter at the molecular level. While there are a range of uses for nanotechnology, including the development of clothing and cosmetics, it has become particularly prevalent in the commercial food sector. Nestle, Heinz, Kraft, and other companies have cumulatively invested billions of dollars into the industry. FDA told Reuters last week that it is "particularly interested" in using nanotechnology to change the chemical, physical, or biological makeup of livestock feed and drugs. The agency has a history of using dangerous or untested technology and additives, often keeping products on the market even after they have been proven as unsafe for human and animal consumption. "We know far too little about the human health and environmental effects of this technology to allow it to slip into our food without rigorous assessment," said Jaydee Hanson, senior policy analyst for Center for Food Safety. FDA released a series of guidances last week on the use of nanotechnology in food products, stating that the agency is not making "broad, general assumptions" about its safety. The documents "encourage" manufacturers to consult with the FDA on the safety of their products before rolling them out to the public, as the agency does not have enough data about potential safety issues of nanotechnology in food products for humans or animals.

Environmental Groups Fear EPA Could Approve Dow Pesticide for GMO Crops -  Nine environmental groups combined to collect 500,000 signatures in an attempt to sway the U.S. Environmental Protection Agency from approving a new Dow Chemical Co. pesticide, but that effort might not be enough. The coalition, which includes Food & Water Watch, the Center for Food Safety and the Pesticide Action Network, fears that the EPA will approve Dow’s registration for its new version of the pesticide 2,4-D, which the company wants to use with corn and soybeans. The groups say it could harm plants, animals, nearby farms that don’t grow genetically engineered crops and, ultimately, the end-consumer.Nine environmental groups fear that the EPA could prioritize Dow profits over the health people and the planet with a key decision expected later this summer. Photo courtesy of Shutterstock  If approved, Dow AgroSciences’ Enlist package would include the Enlist Duo herbicide, which includes 2,4-D and glyphosate that will be used with Enlist 2,4-D and glyphosate-tolerant corn and soybeans. While Dow maintains that the new pesticide will help farmers fight herbicide-resistant weeds, the groups say that’s a shortsighted view that fails to prioritize the planet and people.  “This will only address the glyphosate-resistant weed problem until weeds become resistant to 2,4-D. The minimal benefits of this expanded use of 2,4-D will very quickly be outweighed by its myriad negative impacts. Susceptible plants and animals will be exposed to this dangerous herbicide, and organic and non-GMO farms situated near farms growing Enlist crops may be affected through drift..”

Monsanto and Foreign Aid: Forcing El Salvador’s Hand - U.S. foreign aid is expected to promote poverty alleviation and facilitate developmental growth in impoverished countries. Yet, corporations and special interest groups have permeated even the most well-intended of U.S. policies. El Salvador is a recent example of corporate domination in U.S. foreign aid. The United States will withhold the Millennium Challenge Compact aid deal, approximately $277 million in aid, unless El Salvador purchases genetically-modified seeds from biotech giant, Monsanto.[1] The Millennium Challenge Corporation is “a U.S. foreign aid agency that was created by the U.S. Congress in January 2004,”[2] according to Sustainable Pulse, and serves as a conduit for foreign aid funds. MCC’s unethical aid conditions would force El Salvador to purchase controversial seeds from the American biotech corporation instead of purchasing non-GMO seeds from the country’s local farmers[3] – an action that would have negative effects on El Salvador’s agricultural industry in addition to presenting serious health and environmental risks.

Virginia Is Now Paying Residents to Become Beekeepers --Virginia is so concerned about the dire state of our pollinators that it is now offering grants to state residents to take up beekeeping: The State of Virginia is now willing to pay for you to take up beekeeping. The Virginia General Assembly created the Beehive Grant Fund to promote the establishment of new beehives. Under the program, people can apply for a grant from the fund to cover the cost of purchasing a new hive or materials to construct a new hive. The grant will pay for the actual expenses incurred up to $200 per hive, not exceeding $2,400 per person, per year. You can find out more about the grant by clicking here. Norfolk Beekeepers Association President Frank Walker thinks the new grant will encourage more people to keep beehives. “The goal is to try and encourage more people to buy beekeeping equipment and get involved in bee keeping because it’s vital – the honey bee is one of our greatest natural resources,” Walker explained.

Changing farming practices could cut the intensity of heat waves -- As the Earth's climate continues to warm, the elevated temperatures can put a strain on agriculture. Although an increase in the average temperature can harm crops, it's the details obscured by that average that can cause the biggest problems: more—and more extended—periods of extreme temperatures often harm crops far more than raising the typical temperature a fraction of a degree. Fortunately, as a team of Swiss and French researchers have determined, the opposite may also be true. They've identified a simple agricultural practice that does little to alter the average temperature of farming areas. But it does have a strong effect on extreme temperatures, lowering them by nearly 2°C. That should be enough to keep existing crops viable for longer in the face of future climate change. The technique in question is called "no-till farming," and it simply involves leaving the debris from previous crops on the surface of the fields rather than plowing the fields and exposing the soil underneath. Observations of test agricultural fields indicate that no-till practices have several effects. To begin with, the debris tends to retain moisture, which limits evaporation; since evaporation cools the surface, this tends to have a warming effect. But this warming is extremely limited on the hottest days, when the intense heat drives evaporation even when plant debris is present.

California drought blankets entire state; El Niño forecast dims: Not too long ago in this season of California’s massive and extended drought, climate experts saw a small glimmer of hope on the horizon: Predictions for a wet El Niño season coming in the winter that would bring badly needed rain and relief to a parched state. Now that glimmer is fading fast, and the drought has gotten even worse. One hundred percent of California is in a severe drought, 77 percent is in an extreme drought and 33 percent is in an exceptional drought, according to a report released last week by the National Drought Mitigation Center in Lincoln, Neb. “Those are remarkable numbers,” said Mark Svoboda, a climatologist and the center’s monitoring program leader. The drought monitoring team in Lincoln has never seen an exceptional drought since it started keeping detailed data in 1999. The D4 category — a foreboding maroon color on a California drought map — extends from Sacramento and the Bay Area through the Central Valley, Santa Barbara and Ventura counties. Los Angeles County and counties south and east register a D3 for extreme drought, mostly because the region has more reservoirs filled to the brim to fight the drought, now in its third year, Svoboda said. Predictions for a much-anticipated wet 2014-15 winter are waning. “The El Niño had a very promising, dramatic surge in January, February and March, but now as we enter summer, all of a sudden it is disappearing,”

Water Fetches Record Prices in Dry California - Throughout California’s desperately dry Central Valley, those with water to spare are cashing in. As a third parched summer forces farmers to fallow fields and lay off workers, two water districts and a pair of landowners in the heart of the state’s farmland are making millions of dollars by auctioning off their private caches. Nearly 40 others also are seeking to sell their surplus water this year, according to state and federal records.Economists say it’s been decades since the water market has been this hot. In the last five years alone, the price has grown tenfold to as much as $2,200 an acre-foot — enough to cover a football field with a foot of water.Unlike the previous drought in 2009, the state has been hands-off, letting the market set the price even though severe shortages prompted a statewide drought emergency declaration this year.The price spike comes after repeated calls from scientists that global warming will worsen droughts and increase the cost of maintaining California’s strained water supply systems.  Some water economists have called for more regulations to keep aquifers from being depleted and ensure the market is not subject to manipulation such as that seen in the energy crisis of summer 2001, when the state was besieged by rolling blackoutsIn California, the sellers include those who hold claims on water that date back a century, private firms who are extracting groundwater and landowners who stored water when it was plentiful in underground caverns known as water banks.

California tightens water regulations as drought continues: California on Wednesday made it easier for regulators to enforce drought-related pumping restrictions in slow-moving creeks and lakes, prompting worry among farmers as the state enters the dry summer season. The move by the State Water Resources Control Board comes during worsening drought conditions and political gridlock that has stalled progress on efforts to raise money to build new reservoirs and other methods for storing water in the future. The rules, the subject of a day-long hearing on Tuesday and a vote Wednesday, would require water districts, farmers and others whose right to pump water has been restricted to attest within a week that they have stopped using water from affected streams, under penalty of perjury. The rules also give water regulators the right to issue a cease-and-desist order against water rights holders suspected of illegally using water without going through the usual hearing process. They drew opposition from farmers and winery operators, who worried the stepped-up enforcement would unfairly harm their businesses.

Californians Keep Up With Joneses’ Water Use - In five months since the drought emergency was declared, Californians have cut their water consumption only 5 percent compared with recent years, according to state officials — a far cry from the 20 percent that Gov. Jerry Brown called for in January.So, faced with apparent indifference to stern warnings from state leaders and media alarms, cities across California have encouraged residents to tattle on their neighbors for wasting water — and the residents have responded in droves. Sacramento, for instance, has received more than 6,000 reports of water waste this year, up twentyfold from last year. It does get personal. Some drought-conscious Californians have turned not only to tattling, but also to an age-old strategy to persuade friends and neighbors to cut back: shaming. On Twitter, radio shows and elsewhere, Californians are indulging in such sports as shower-shaming (trying to embarrass a neighbor or relative who takes a leisurely wash), car-wash-shaming and lawn-shaming.Continue reading the main story “Is washing the sidewalk with water a good idea in a drought @sfgov?” Sahand Mirzahossein, a 32-year-old management consultant, posted on Twitter, along with a picture of a San Francisco city employee cleaning the sidewalk with a hose. (He said he hoped a city official would respond to his post, but he never heard back.)Drought-shaming may sound like a petty, vindictive strategy, and officials at water agencies all denied wanting to shame anyone, preferring to call it “education” or “competition.” But there are signs that pitting residents against one another can pay dividends.In Los Angeles, water officials will soon offer residents door hangers, which they are encouraged to slip anonymously around the doorknobs of neighbors whose sprinklers are watering the sidewalk. The notices offer a prim reminder of the local water rules and the drought.

"It's Either Do It, Or You Die" California Regulators Clamp Down On Water Waste - While Las Vegas faces an existential crisis (and appears to be ignoring it), California regulators are starting to clamp down on water waste. As WSJ reports, about 60 California cities and agencies have imposed mandatory water-use cutbacks, some as high as 50%. In many cases, the rules are enforced by charging higher fees for excess usage. In others, inspectors are deployed to crack down on scofflaws. Sacramento - the state's capital - is among the worst offenders and most heavily 'policed' as a team of 40 inspectors have handed out 2,444 notices year-to-date, with fines of up to $1,000 for repeat offenders. Neighbors are encouraged to whistleblow - there has been 7,604 water-use complaints; but not everyone is embracing the change as lawn repair is down 40% - "The propaganda dictates we haven't much choice... It's either do it or you die."

Thirsty West: Oregon may be California’s agricultural future. - There surely is enough water for urban dwellers to survive out West, even with increasing numbers. The problem lies in using water in ridiculous ways. The future of water issues in the West will be decided by agriculture. Whether it’s the perplexing persistence of wasteful urban agriculture (grass lawns) in Los Angeles and Las Vegas or our country’s dependence on growing huge quantities of food in California’s reclaimed Central Valley desert, agriculture is the beginning and end of any discussion of Western water. For years, we’ve been told by corporate farms from Kansas to California that they’re “feeding the world,” so they deserve every drop of water currently coming their way, global warming and dwindling aquifers be damned. After driving through the West for a month—including California’s Central Valley, the belly of America’s agribusiness beast—I think they’re right. Farmers deserve to keep getting the majority of our water. But just not the way they’re currently running things, which is skewed by huge subsidies at odds with public health.Here’s a snapshot at how we currently use our agricultural land in this country:  That’s right: We use 200 times the land on commodity agriculture (think: high-fructose corn syrup and hamburgers) as we do on all vegetables combined. The world needs much more than just ethanol and cheap grain for livestock feed. To get there, we’ll need massive changes in the way we do agriculture in this country. These misplaced priorities are helping to overwhelmingly subsidize meat, dairy, and grains, while leaving vegetables, nuts, and fruit to increase in relative price and making it hard for small farmers to compete.

The race to stop Las Vegas from running dry -  Outside Las Vegas’s Bellagio hotel tourists gasp in amazement as fountains shoot 500ft into the air, performing a spectacular dance in time to the music of Frank Sinatra.  But, as with many things in Sin City, the apparently endless supply of water is an illusion. America’s most decadent destination has been engaged in a potentially catastrophic gamble with nature and now, 14 years into a devastating drought, it is on the verge of losing it all. “The situation is as bad as you can imagine,” said Tim Barnett, a climate scientist at the Scripps Institution of Oceanography. “It’s just going to be screwed. And relatively quickly. Unless it can find a way to get more water from somewhere Las Vegas is out of business. Yet they’re still building, which is stupid.” The crisis stems from the Las Vegas’s complete reliance on Lake Mead, America’s largest reservoir, which was created by the Hoover Dam in 1936 - after which it took six years to fill completely. It is located 25 miles outside the city and supplies 90 per cent of its water. But over the last decade, as Las Vegas’s population has grown by 400,000 to two million, Lake Mead has slowly been drained of four trillion gallons of water and is now well under half full. Mr Barnett predicts it may be a “dead pool” that provides no water by about 2036.

Global warming makes drought come on earlier, faster, and harder --- Droughts, one of the most intensely studied climate events, are a perfect example of an effect with both human and natural influences. Separating the relative strengths of the influences is a challenge for scientists. But, when we deal with drought, with its large social and economic costs, it is a challenge we must undertake.A very recent study tries to do just this. Published in the Journal of Climate, authors Richard Seager and Martin Hoerling cleverly used climate models forced by sea surface temperatures to separate how much of the past century’s North American droughts have been caused by ocean temperatures, natural variability, and humans. What they found was expected (all three of these influence drought), but it's the details that are exciting. Furthermore, the methodology can be applied to other climate phenomena at other locations around the globe. Droughts can be caused by a variety of isolated or interacting phenomena. At its root, drought results from lowered precipitation and sometimes higher temperatures (which increase evaporation rates). The onset of drought can often be linked to variations in ocean temperatures. For instance, La Niña events in the Pacific Ocean as well as elevated Atlantic Ocean temperatures have coincided with United States droughts. In fact the authors state that the three mid-to-late 19th century droughts, the Dust Bowl, and the drought in the 1950s all depended on persistent La Niña conditions. The authors, therefore, wanted to move beyond a simplistic association of La Niña episodes and warm Atlantic Ocean waters with the occurrence of drought. They asked what other causes might there be and how will things change in the coming years and decades?

Climate Change to Profoundly Alter Great Lakes Region, Summary Report Says: Intense rainstorms, floods and heat waves will become more common in the Great Lakes region due to climate change in the coming decades, and ice-cover declines will lengthen the commercial navigation season on the lakes, according to a new summary report released today at the start of a three-day climate-adaptation conference at the University of Michigan. In the next few decades, longer growing seasons and rising carbon dioxide levels will increase some crop yields in the region, but those benefits will be progressively offset by extreme weather events, according to the report prepared by the Great Lakes Integrated Sciences and Assessments Center (GLISA), a federally funded collaboration between the University of Michigan and Michigan State University. GLISA's 13-page "synthesis report" summarizes the key Great Lakes-region impacts of climate change detailed in the latest U.S. National Climate Assessment, which was released last month by the federal government. The 840-page national assessment is widely regarded as the most comprehensive evaluation of current and future impacts of climate change on the United States.

Creeping up on unsuspecting shores: The Great Lakes - Like a slowly draining bathtub, this sparkling inlet of Lake Michigan had seen its clear, cool waters recede for years. Piers that once easily reached the water had gone high and dry. Fishermen did not dare venture into the shallow water looking for smallmouth bass, lest their propellers scrape bottom. And residents of Ephraim, a village on a peninsula that juts into Lake Michigan, were so alarmed that the county paper asked in a headline in April of last year, “Will the Great Lakes Rise Again?”  But after reaching historic lows in 2013, water levels in the Great Lakes are now abruptly on the rise, a development that has startled scientists and thrilled just about everybody with a stake in the waterfront, including owners of beach houses, retailers in tourist areas and dockmasters who run marinas on the lakeshore. Lakes Michigan, Huron and Superior are at least a foot higher than they were a year ago, and are expected to rise 3 more inches over the next month. Lake Ontario and Lake Erie are 7 to 9 inches higher than a year ago.  Scientists say the reversal of fortunes for the lakes is partly a result of the most bone-chilling winter in memory for many Midwesterners. The thick and long-lasting ice cover on the lakes kept the water colder and slowed evaporation. Heavy snowfall and a rainy spring allowed the lakes to make even more gains. The International Joint Commission, a group with members from the United States and Canada that advises on water resources, completed a five-year study in April 2013 concluding that water levels in the lakes were likely to drop even farther, in part because of the lack of precipitation in recent years brought on by climate change. The low lake levels in the past decade or more caused a host of frustrating and expensive problems: shoreline erosion, parched wetlands and disruptions to marinas along the Great Lakes.

Rising Temperatures Drive People to Relocate - Scientific American: Scientists have long conjectured that climate change would spur families in poor countries to migrate as ever-fiercer storms, floods and other disasters made rural life unbearable. But understanding what specific weather elements would cause people to leave has remained elusive. Until now. A small but growing body of evidence is finally pointing to rising temperatures—and not headline-grabbing natural disasters—as the main environmental force permanently ousting people from their homes. A new study published this week in the Proceedings of the National Academy of Sciences follows more than 7,000 households in Indonesia over 15 years to conclude that sudden disasters in fact have a much smaller impact on provincial migration than heat stress. Rainfall, it finds, also affects decisions to move, but far less so than rising temperatures. Indonesia was chosen in part because the country is the world's largest archipelago and is exposed to both geologic and climatic hazards. It also is densely populated with 40 percent of the labor force engaged in agriculture and more than 60 percent living in coastal areas—factors that contribute to Indonesia's climate vulnerability. Oppenheimer said the analysis shows for the first time that when researchers looked at the same group of households over time, permanent moves to new locations "tended to be among the people responding to long-term climate changes, particularly temperature." He and others noted that declining crop yields resulting from the heat were likely a major cause of moving.

China Flirts With Water Scarcity Disaster - A new report details an absurdity that could have enormous implications for China’s food and energy security in the coming years: The country is growing water-intensive crops in its drier provinces, and then shipping that food to wetter regions for consumption. The BBC reports: “Because arable land is available mainly in the water-scarce north, irrigation has become widespread, covering 45% of the country’s agricultural land and accounting for 65% of national water withdrawal,” [wrote an international team of researchers.] They concluded: “China’s domestic food trade is efficient in terms of rainwater but inefficient regarding irrigation, meaning that dry, irrigation-intensive provinces tend to export to wetter, less irrigation-intensive ones. Water scarcity isn’t a new headache for Beijing, but it’s fast becoming more like a migraine as Party leadership tries to sustain the country’s rapid growth and development. China has not shied away from exerting its will in international water disputes, leading some to fear that water wars will break out in the future. And China doesn’t need water only for consumption and agriculture; the country also needs it in order to frack its massive shale gas reserves, estimated to be the largest in the world.

ISIS, water scarcity: Is climate change destabilizing Iraq? - A punishing drought hit most of Syria and northern Iraq during what’s normally the wettest time of the year. In the mountains of eastern Turkey, which form the headwaters of the Tigris and Euphrates rivers, snow and rain were less than half of normal. The region has seen one of the worst droughts in decades. Drought is becoming a fixture in the parched landscape, due to a drying trend of the Mediterranean and Middle East region fueled by global warming. The last major drought in this region (2006-2010) finished only a few years ago. When taken in combination with other complex drivers, increasing temperatures and drying of agricultural land is widely seen as assisting in the destabilization of Syria under the regime of Bashar al-Assad. Before civil war broke out there, farmers abandoned their desiccated fields and flooded the cities with protests. A series of U.N. reports released earlier this year found that global warming is already destabilizing nation states around the world, and Syria has been no exception. With the ongoing crisis in Iraq seemingly devolving by the day, it’s not a stretch to think something similar could already be underway just next door.

Will Climate Change Spark Conflict in Bangladesh? -- In May, scientists announced that a large portion of Antarctica had begun to collapse. It is the largest and most catastrophic Antarctic cleaving to date – taken as a sign that extreme changes to the global environment are imminent and inevitable. The nation facing the greatest calamity is literally half a world away from western Antarctica: Bangladesh. Predictions of looming environmental catastrophe have lingered over Bangladesh for decades. Many predictions of the small, densely populated, impoverished nation’s fate have involved Malthus’ famous theory, which posits that exponential population growth will outstrip linear increases in crop yields, provoking mass hunger and social breakdown. So far, Bangladesh has proven neo-Malthusian doomsayers wrong. Poverty and malnutrition are in decline, and the nation of 160 million is self-sufficient in the production of rice and wheat, its staple foods. The risk is not overpopulation, but rather myriad adverse changes induced by rising temperatures and global changes. The combined risk of rising sea levels, droughts, and chaotic storms lands the country at number one on the global Climate Change Vulnerability Index. The impact may soon provoke the violent social breakdown long feared. The country’s geography makes environmental vulnerability inescapable. Bangladesh is a flat country surrounded on three sides by India and on the fourth by the Bay of Bengal. It’s a delta, a massive drain for three mighty rivers that flow through the Indian subcontinent (the Ganges, Brahmaputra, and Meghna), for the Himalayan glacial melt, and for the area’s annual monsoon rains.  But the waterlogged land loses 18-75 percent of its area to temporary flooding each year – which kills some 5,000 Bangladeshis annually, causes homelessness for many more, and disrupts the lives of the rural-dwelling majority. Rising waters will mean losing habitable land. . Just one meter of sea level rise – a rise now forecast as inevitable within current lifetimes – will displace millions of Bangladeshis from their land. It would be sufficient to reduce Bangladesh’s land mass by 17.5 percent,

One Small Pacific Island Nation Just Bought Part Of Another Island To Escape Climate Change - The president of Kiribati, an island nation in the Pacific ocean, recently purchased eight square miles of land about 1,200 miles away on Vanua Levu, Fiji’s second-largest island. Like other Pacific Island nations, including Tuvalu and the Maldives, Kiribati is highly vulnerable to the impacts of climate change — especially sea level rise. In certain areas around these islands sea level is rising by 1.2 centimeters a year, about four times more than the global average. Within decades significant chunks risk submersion.  Kiribati president Anote Tong is well aware of this, saying of the purchase, “we would hope not to put everyone on [this] one piece of land, but if it became absolutely necessary, yes, we could do it.” With just over 100,000 people scattered across 33 low-lying coral atolls totaling about 313 square miles, the land purchase provides some guaranteed high ground to escape to if sea level rise renders the country mostly uninhabitable. The Church of England owned the land, which is mainly covered in forest, and sold it to Kiribati for $8.77 million. Barring imminent relocation, it will be used primarily for agriculture and aquatic farming to ensure Kiribati’s food security. With sea level rise contaminating groundwater and climate change causing devastating coral bleaching, the nation’s food supply is also in jeopardy.

The Amount Of Carbon Dioxide In Our Air Just Reached A New Record, And Scientists Are Worried - On Monday, scientists at the National Oceanic and Atmospheric Administration’s Mauna Loa observatory in Hawaii told Climate Central that June would be be the third month in a row where, for the entire month, average levels of carbon dioxide were above 400 parts per million (ppm). In other words, that’s the longest time in recorded history that this much carbon dioxide has been in the atmosphere.The finding is troubling to climate scientists, several of whom told ThinkProgress on Monday that the levels are a reminder that humans are still pumping too much carbon dioxide into the sky. If the trend continues, some said, carbon levels will soon surpass 450 ppm — a level that many scientists agree would create a level of global warming that would be too difficult for some humans to adapt to.“CO2 levels continue to increase, the amount of heat in the climate system continues to increase, ice continues to melt, and the seas continue to rise,” said Ken Caldeira, an atmospheric scientist at the Carnegie Institution for Science’s Department of Global Ecology. “We will continue to break through threshold after threshold — unless we stop using the sky as a waste dump soon.”We will continue to break through threshold after threshold unless we stop using the sky as a waste dump soon.  Reaching the 400 ppm level of carbon dioxide has largely been considered symbolic among watchers of climate change — sort of like the temperature reaching 100°F on a hot day. It really isn’t much hotter than 99°F, but somehow it feels more like a landmark of a true scorcher.

The Disaster We’ve Wrought on the World’s Oceans May Be Irrevocable - The Spaniards eat more fish than anyone else in Europe. The effect of changing ocean chemistry on fish health, longevity and reproduction is not yet certain. But even now, many species on the Boqueria stalls are also on one or more European “at-risk” lists: under threat because of overfishing or changes in the chain of foods that supply them, or from the bigger threat of the changing ocean biogeochemistry. The last is the least understood of these phenomena. Along the coasts and out in the deep, huge “dead zones” have been multiplying. They are the emptiest places on the planet, where there’s little oxygen and sometimes no life at all, almost entirely restricted to some unicellular organisms like bacteria. Vast blooms of algae—organisms that thrive in more acid (and less alkaline) seawater and are fed by pollution—have already rendered parts of the Baltic Sea pretty much dead. A third of the marine life in that sea, which once fed all of Northern Europe, is gone and may already be beyond hope of recovery. “There’s a profound game-changing event going on in the life of the sea,” says Callum Roberts, a professor of marine conservation at the University of York, England. “The fact is that changes in alkalinity are going to cause massive reorganization of marine life, impacts on marine food webs, productivity, all sorts of things. We’re heading for a car crash here.”Many of these risks are caused by one of the world’s most pressing problems: climate change. Rising greenhouse gases in the atmosphere are causing global temperatures to rise, which is leading to the melting of the polar ice caps, which in turn has resulted in rising sea levels and a host of ecological issues.It’s also causing the chemical makeup of the world’s oceans to change so rapidly. Carbon dioxide, one of the key perpetrators in the lineup of man-made greenhouse gases, is absorbed by seawater, causing a chemical reaction near the ocean surface that results in lowered pH levels. And about one-third of all the man-made carbon dioxide released into the atmosphere ends up absorbed by the oceans.

Dr. Natalia Shakhova interviewed by Nick Breeze on recent studies of destabilized subsea permafrost off the coast of northern Siberia - June 20, 2014, Dr. Natalia Shakhova interview by Nick Breeze:
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Ice sheets may have already passed point of no returnTHE cracks are beginning to show. Greenland's ice sheets slid into the sea 400,000 years ago, when Earth was only a little warmer than it is today. That could mean we are set for a repeat performance. The finding, along with data from Antarctica, suggests both of Earth's big ice sheets may have already passed a crucial tipping point, condemning them to collapse – either melting, or sliding into the ocean. That will mean sea levels rising by as much as 13 metres, leading to massive coastal flooding. So how fast will the ice collapse, and can we stop it? Rising seas are an inevitable consequence of global warming as warmer water expands. But the big risk comes from the ice sheets of Greenland and Antarctica, which contain enough ice to force the oceans up by tens of metres if they melt completely. The Intergovernmental Panel on Climate Change has estimated that sea levels could rise by a metre this century, and that will just be the start. The obvious danger is that low-lying coastal areas will be gradually swamped. That includes many major cities, such as New York, London and Rio de Janeiro. In the long run, we will have to choose between protecting them with elaborate sea defences or abandoning them to move inland. But long before that, rising seas will make coastal flooding worse. The deluge that swept through New York when superstorm Sandy struck in 2012 was worsened by sea level rise, as were the floods caused by typhoon Haiyan in the Philippines last year.

Giving Up Fossil Fuels to Save the Climate: The $28 Trillion Writedown - “We’re not going to be able to burn it all.” With those 10 words, Barack Obama uttered one of the most stunning, far-reaching statements ever made by a U.S. president. He also completely contradicted his own energy policy. Yet no one seemed to notice.  In an interview that Showtime television’s climate documentary series Years of Living Dangerously aired on June 9—which also ran in the New York Times—Obama was asked about the international goal of limiting global temperature rise to 2 degrees Celsius (3.6F) since the start of the industrial era. Going past 2 degrees, noted the interviewer, columnist Thomas Friedman, would “cross into some really dangerous, unstable territory: Arctic melting, massive sea-level rise, disruptive storms.” The International Energy Agency has concluded that meeting the 2C target will require leaving two-thirds of the earth’s known reserves of oil, gas, and coal underground, unburned, Friedman said. Did Obama agree with that conclusion?  “Well, science is science,” the president replied. “And there is no doubt that if we burned all the fossil fuel that’s in the ground right now, that the planet’s going to get too hot and the consequences could be dire.” “So we can’t burn it all?” Friedman asked. Obama agreed, effectively affirming the two-thirds estimate, before adding, “I very much believe in keeping that 2 degrees Celsius target as a goal.”  This new scientific imperative—to leave the bulk of earth’s fossil fuels in the ground—has not yet penetrated most government or private-sector policy discussions, much less mainstream media coverage or public awareness. Its political and economic implications, however, are huge.

Climate Misconception #1: Climate change is a pollution problem - When we think of environmental problems, we think of pollution.  The mental framework we invoke is that there is some specific environmental resource—the air, the water, the soil, our own bodies—that is being harmed by an overload of substances that have polluted it.  Air pollution is caused by chemicals going up smokestacks or out of tailpipes.  Water pollution can be traced to industrial discharges, agricultural runoff and other sources.  People watched with morbid curiosity as the radioactive emissions from Fukushima first contaminated parts of Japan, then spilled into its coastal waters and now (in much lighter concentrations) disperse through air and ocean currents.  Pollution is about harmful substances moving from point A (where they were confined or under control) to point B (the resource that is damaged by them).  For every instance of pollution there is an identifiable polluter, the individual, business or government that is responsible for causing this substance to go where it shouldn’t. It’s entirely natural that we would come to think about climate change as a pollution problem—natural but wrong.  The difference is the carbon cycle.   The flows will be different in quantity and timing, but it’s simply wrong to isolate a single action within the carbon cycle, like cutting down a tree, from the complete operation of the cycle itself.  The pollution model, with its simple assumption that the impact of an act can be determined from a one-time transportation of a pollutant from location A to location B, doesn’t apply.

The Dirty Truth About Clean Energy - Media coverage of the energy industry often makes the players seem like the cast of a Hollywood Western. Coal and oil companies are the bad guys, ruining the environment and abusing the villagers for a quick buck. They are winning until wind and solar developers ride into town like the cavalry, their turbines and solar panels providing cheap, clean, and renewable electricity for all.  Well, not quite. But in places like China, Ireland and Mexico, the villagers have become wary of the cavalry for good reason. The high expense of installing solar technology has made cheap, mass-produced Chinese panels commonplace, with seven of the world’s top 10 panel makers hailing from the country. But new research has shown how the severely polluting processes used to manufacture PV panels in China are outweighing the environmental benefits these panels provide.  It has become increasingly clear that in order to maintain their competitiveness, certain Chinese suppliers are cutting corners that create risks for their employees, clients, and people who live near their plants.  In a survey of 50 Chinese factories from 2011 to 2013, SolarBuyer found defect rates for solar panels ranging from 5.5 to 22 percent. Many of these stem from the use of cheap, sub-standard coating materials that save money but have been shown to be a fire hazard. An investigation by PV Evolution Labs in California found industry leaders subcontracting production to small Chinese plants where they had no real control. Given that the manufacturing of PV panels involves the use of the most potent greenhouse gas in existence, sulphur hexafluoride, as well as carcinogenic chemicals like cadmium, lead and cadmium VI, any lapses in standards can have costly results.

Workplace secrecy agreements appear to violate federal whistleblower laws - In November 2012, the U.S. Department of Energy asked contract employees at the Hanford plutonium processing plant in Washington state to take an unusual oath.The DOE wanted them to sign nondisclosure agreements that prevented them from reporting wrongdoing at the nation’s most contaminated nuclear facility without getting approval from an agency supervisor. The agreements also barred them from using any information for financial gain, a possible violation of federal whistleblower laws, which allow employees to collect reward money for reporting wrongdoing.Donna Busche reluctantly signed the agreement. “It was a gag order,” said Busche, 51, who served as the manager of environmental and nuclear safety at the Hanford waste treatment facility for a federal contractor until she was fired in February after raising safety concerns. “The message was pretty clear: ‘Don’t say anything to anyone, or else.’ ” Lawyers who represent whistleblowers like Busche say they are seeing a rise in the use of overly restrictive nondisclosure agreements, which prevent employees from reporting fraud, even to government investigators. The agreements incorporate language that goes beyond those that had traditionally protected proprietary information, the attorneys said.  An Energy spokesman denied that the nondisclosure agreements violated federal law. “The DOE fully complies with the law,” Brendan Daly said. “We not only encourage but require contractors to report waste, fraud and abuse, with no retaliation.”

China’s Hurdle to Fast Action on Climate Change - When the Environmental Protection Agency published in June its new rules to combat carbon emissions from power plants, the American political class lit up in debates over what this meant for the country’s carbon emissions, its coal industry and its economic growth.But a more relevant discussion was taking place some 7,000 miles away. In Beijing, He Jiankun, an academic and deputy director of China’s Advisory Committee on Climate Change, told a conference that China, the world’s largest greenhouse gas polluter, would for the first time put “an absolute cap” on its emissions.His comments, and the brief flurry set off over whether they represented government policy, highlight a little-appreciated feature of the long-running, often acrimonious debate over how to slow climate change. The most pressing issue is not whether the United States will manage to wean itself from coal, or even about how quickly the American economy can reduce its reliance on fossil fuels.The most pressing issue is to what extent and under which conditions China will participate in the global effort to combat climate change. Any hopes that American commitments to cut carbon emissions will have a decisive impact on climate change rely on the assumption that China will reciprocate and deliver aggressive emission cuts of its own.

The Giant Methane Monster Lurking: There's something lurking deep under the frozen Arctic Ocean, and if it gets released, it could spell disaster for our planet. That something is methane. Methane is one of the strongest of the natural greenhouse gases, about 80 times more potent than CO2, and while it may not get as much attention as its cousin CO2, it certainly can do as much, if not more, damage to our planet. That's because methane is a far more potent greenhouse gas than carbon dioxide, and there are trillions of tons of it embedded in a kind of ice slurry called methane hydrate or methane clathrate crystals in the Arctic and in the seas around the continental shelves all around the world. If enough of this methane is released quickly enough, it won't just produce the same old global warming. It could produce an extinction of species on a wide scale, an extinction that could even include the human race. If there is a "ticking time bomb" on our planet that could lead to a global warming so rapid and sudden that we would have no way of dealing with it, it's methane. Right now, estimates suggest that there's over 1,000 gigatons - that's a thousand billion tons - of carbon in methane form trapped just under the Arctic ice. And if stays trapped under the ice, we might have a chance.  But, thanks to the global warming that's already occurring, Arctic sea ice is melting at unprecedented rates.

Stuxnet-Like Malware From Russia Is Attacking U.S. Power Plants:  Security researchers confirmed on Monday that a vicious new cyberattack has compromised the computer systems of over 1,000 organizations in 84 countries. Dubbed "Energetic Bear," the Stuxnet-like malware is largely targeting energy and utility companies. It's almost certainly from Russia.   Not only has the attack been going on for 18 months, it appears to be focused on targets in the United States and Europe. According to the Financial Times, the malware "allows its operators to monitor energy consumption in real time, or to cripple physical systems such as wind turbines, gas pipelines and power plants at will." This is exactly the type of attack that the government's been (very vocally) worried about lately. The malware's capabilities give us more reasons to be worried. The two main components of the attack include the use of remote access tool type malware that gives the attackers the ability to access information on the victim's computer networks as well as to steal data, collect passwords, take screenshots, and even download and run files. In effect, it sounds like they could take control over entire utility systems. Symantec, the makers of the Norton suite, says the malware's "main motive appears to be cyberespionage" but doesn't mention any major shutdowns. The company now has fixes in place for its customers. It gets worse, though. Symantec says that the attackers—who they call Dragonfly—is almost certainly "based in eastern Europe and has all the markings of being state-sponsored." Markers in the malware, like timestamps and Cyrillic, suggest that it originated in Russia.… [Symantec, FT]

Arctic Seafloor Methane Release is Double Earlier Estimates -- Gaius Publius - One of the greenhouse gases (GHGs) that Obama’s EPA Clean Power Plan doesn’t count is methane from leaks, for example, fracking leaks, fuel line leaks, transportation leaks, and so on. Yet methane (CH4) is one of the most powerful greenhouse gases known, though very short-lived (most atmospheric methane disappears in about 12 years, becoming CO2 and water vapor). And one of the cornerstones of the idea that mankind still has a “carbon budget” — that we can still release even more CO2 and other greenhouse gases like methane, though a “limited” amount — is the idea that we can do a good job of modeling climate-changing feedbacks.  Which brings us back to methane — in particular, frozen methane. By most accounts, there’s more than 1,000 GtC — a thousand billion (“giga”) tons of carbon — locked into the tundra and the peat bogs, and frozen at the bottom of the ocean in the Arctic region. As noted, methane is a short-lived but powerful GHG. “Greenhouse warming potential” (GWP) is a comparison of the warming effect of a substance relative to CO2 (which is assigned a GWP of 1). Here’s what methane’s GWP looks like over time:The key questions about methane are — how fast is it leaking back into the atmosphere, and will that rate be stable? The answer to the first question is, by many accounts, not fast. In 2007, methane release from the vast, shallow East Siberian Arctic Shelf (ESAS) — one of several sources of methane — was put at 0.5 MtC per year. That’s half a megaton (a half-million tons) of carbon. Compare that to today’s rate of carbon emissions in CO2 form — 10 GtC per year.There is a small group of researchers who think we could be near a methane tipping point. In that group is the Russian research team of Natalia Shakhova and her husband Igor Semiletov, researchers at the University of Alaska Fairbanks (UAF) International Arctic Research Center. Here’s what they found recently:  The seafloor off the coast of Northern Siberia is releasing more than twice the amount of methane as previously estimated, according to new research results published in the Nov. 24 [2013] edition of the journal Nature Geoscience.

In Newest Climate Push, EPA Proposes To Limit Methane Pollution From Trash Dumps --As part of President Obama’s Climate Action Plan, the Environmental Protection Agency on Tuesday announced its intention to make massive trash dumps across the country reduce their emissions of methane — a powerful greenhouse gas that causes at least 25 times more global warming than carbon dioxide. The plan, which the EPA drew up using its authority to regulate greenhouse gases under the Clean Air Act, includes proposed regulations for new landfills, and a call for suggestions on whether the agency should issue regulations for existing landfills. The EPA said the regulations are needed not only to reduce climate change, but to reduce air pollution that winds up harming public health. Landfills produce air pollution from the sheer volume of solid waste that sits in them. As the waste sits, it begins to break down, releasing what’s commonly known as “landfill gas” — a mixture of a variety of air toxins, including carbon dioxide. Landfill gas is mostly, however, made up of methane — so much that 18 percent of all methane emissions come from landfills. That’s the third-largest source of methane emissions in the country, behind agriculture and natural gas production.

Why the EPA Power Plant Rules Don’t Include Methane  - The Kate sets the record straight on why the EPA’s proposed power plant CO2 emissions go easy on methane. Because power plant rules  per se don’t address methane. . . they address power plants. “On June 2nd, EPA released highly publicized proposed new rules to regulate carbon dioxide emissions from fossil fuel-fired power plants. While many touted the rules as a crucial step in addressing the climate change crisis, others criticized them for not being aggressive enough. One particular question that has been raised is why the rules focus only on emissions of carbon dioxide and do not include methane – a much more potent greenhouse gas and one which is emitted in substantial amounts through the oil and gas production and distribution processes? The answer is actually pretty straightforward. Under the Clean Air Act, EPA is authorized to regulate emissions of pollutants from different sectors of the economy. The proposed rules released on June 2nd would regulate emissions from the power plant sector – from which methane is not emitted to any meaningful extent. Simply put, there is no place in these rules to tackle emissions from so-called “upstream” production of oil and gas. There is, however, another vehicle for doing so, which is via EPA’s rules that regulate pollutant emissions from the oil and gas sector (the sector in which those fuels are produced, as opposed to the power plant sector, where they get burned). Although EPA currently regulates emissions from that sector, its rules do not include methane. This past spring, EPA released a series of white papers as the first step in the agency’s process for deciding how to cut the huge amounts of methane pollution coming from the oil and gas sector, a process announced in March by President Obama in his Climate Action Plan (of which the power plant rules are a second major component). We and our partners have submitted substantial on the white papers, urging the Administration to move forward immediately with strong methane-curbing standards for the oil and gas sector.

Leaky Methane Makes Natural Gas Bad for Global Warming - Scientific American: Natural gas fields globally may be leaking enough methane, a potent greenhouse gas, to make the fuel as polluting as coal for the climate over the next few decades, according to a pair of studies published last week. An even worse finding for the United States in terms of greenhouse gases is that some of its oil and gas fields are emitting more methane than the industry does, on average, in the rest of the world, the research suggests. "I would have thought that emissions in the U.S. should be relatively low compared to the global average," said Stefan Schwietzke, a researcher at the National Oceanic and Atmospheric Administration's Earth Systems Research Laboratory in Boulder, Colo., and lead author of the studies. "It is an industrialized country, probably using good technology, so why are emissions so high?" The natural gas industry globally was leaking between 2 and 4 percent of the gas produced between 2006 and 2011, the studies found. Leakage above 3 percent is enough to negate the climate benefits of natural gas over coal, so the findings indicate there is probably room for the industry to lower emissions.

Fracking Study Finds New Gas Wells Leak More - In Pennsylvania's gas drilling boom, newer and unconventional wells leak far more often than older and traditional ones, according to a study of state inspection reports for 41,000 wells.  The results suggest that leaks of methane could be a problem for drilling across the nation, said study lead author Cornell University engineering professor Anthony Ingraffea, who heads an environmental activist group that helped pay for the study.The Marcellus shale formation of plentiful but previously hard-to-extract trapped natural gas stretches over Pennsylvania, West Virginia and New York. The study was published Monday by the Proceedings of the National Academy of Sciences. A team of four scientists analyzed more than 75,000 state inspections of gas wells done in Pennsylvania since 2000.  Overall, older wells — those drilled before 2009 — had a leak rate of about 1 percent. Most were traditional wells, drilling straight down. Unconventional wells — those drilled horizontally and commonly referred to as fracking — didn't come on the scene until 2006 and quickly took over.Newer traditional wells drilled after 2009 had a leak rate of about 2 percent; the rate for unconventional wells was about 6 percent, the study found. The leak rate reached as high as nearly 10 percent horizontally drilled wells for before and after 2009 in the northeastern part of the state, where drilling is hot and heavy.

Four of 10 wells forecast to fail in northeastern Pa. -- About 40 percent of the oil and gas wells in parts of the Marcellus shale region will probably be leaking methane into the groundwater or into the atmosphere, concludes a Cornell-led research team that examined the records of more than 41,000 such wells in Pennsylvania. In research published today (June 30) in the journal Proceedings of the National Academy of Sciences, the researchers examined Pennsylvania Department of Environmental Protection inspection records that show compromised cement and/or casing integrity in more than 6 percent of the active gas wells drilled in the Marcellus region of Pennsylvania. This study shows up to a 2.7-fold higher risk for unconventional wells – relative to conventional wells – drilled since 2009 in the northeastern region of the Marcellus in Pennsylvania.“These results, particularly in light of numerous contamination complaints and explosions nationally in areas with high concentrations of unconventional oil and gas development and the increased awareness of the role of methane in ... climate change, should be cause for concern,” The researchers examined 75,505 publicly available compliance reports for 41,381 oil and gas wells in Pennsylvania from 2000 to 2012 to determine whether the well casing or the cement used was impaired. The shale gas wells were six times more likely to leak, compared with conventional wells.

Four Of 10 Fracked Wells In Pennsylvania Are Projected To Fail, Spewing Methane Into Air And Water --A major new study finds that, as suspected, it is new, unconventional gas wells that are far more likely to leak heat-trapping — and tap-water igniting — methane than older, conventional wells. After examining the publicly available compliance records of more than 41,000 wells in northeastern Pennsylvania, the Cornell-led researchers have dropped this bombshell: About 40 percent of the oil and gas wells in parts of the Marcellus shale region will probably be leaking methane into the groundwater or into the atmosphere…. This study shows up to a 2.7-fold higher risk for unconventional wells — relative to conventional wells — drilled since 2009. Study after study has found consistently higher methane leakage rates from natural gas production and distribution than reported by either the industry or EPA (which uses industry self-reported data). The key point is that natural gas is mostly methane, (CH4), a super-potent greenhouse gas, which traps 86 times as much heat as CO2 over a 20-year period. So the leaks in the natural gas production and delivery system that have now been observed are enough to gut the entire benefit of switching from coal-fired power to gas for many, many decades.  Writing this week in the journal Proceedings of the National Academy of Sciences, the researchers explain:“These results, particularly in light of numerous contamination complaints and explosions nationally in areas with high concentrations of unconventional oil and gas development and the increased awareness of the role of methane in … climate change, should be cause for concern.” This study comes just two weeks after Princeton research found “Methane emissions from abandoned oil and gas [AOG] wells appear to be a significant source of methane emissions to the atmosphere.” That research found up to 970,000 AOG wells in Pennsylvania!

Fracking’s methane problem: Study finds new, unconventional wells leak more than old ones - Fracking in Pennsylvania’s natural gas-rich Marcellus shale has a major methane problem, a new study finds. Analyzing the data from more than 75,000 state inspections going back to 2000, a team of four researchers concluded that gas wells are leaking the chemical, a potent greenhouse gas with a long-term effect on global warming greater even than CO2′s, at an alarming rate. The research, published in the journal Proceedings of the National Academy of Sciences, was led by Cornell University’s Anthony Ingraffea, a vocal opponent of fracking. The leaks, according to the study, might be due to problems in the wells’ cement casings. Basically, explained Ingraffea, “Something is coming out of it that shouldn’t, in a place that it shouldn’t.”The crux of his findings, via the Associated Press:Overall, older wells — those drilled before 2009 — had a leak rate of about 1 percent. Most were traditional wells, drilling straight down. Unconventional wells — those drilled horizontally and commonly referred to as fracking — didn’t come on the scene until 2006 and quickly took over.Newer traditional wells drilled after 2009 had a leak rate of about 2 percent; the rate for unconventional wells was about 6 percent, the study found. The leak rate reached as high as nearly 10 percent horizontally drilled wells for before and after 2009 in the northeastern part of the state, where drilling is hot and heavy.

Pennsylvania Fracking Company Offers Residents Cash To Buy Protection From Claims Of Harm - For the last eight years, Pennsylvania has been riding the natural gas boom, with companies drilling and fracking thousands of wells across the state. And in a little corner of Washington County, some 20 miles outside of Pittsburgh, EQT Corporation has been busy – drilling close to a dozen new wells on one site. It didn't take long for the residents of Finleyville who lived near the fracking operations to complain – about the noise and air quality, and what they regarded as threats to their health and quality of life. Initially, EQT, one of the largest producers of natural gas in Pennsylvania, tried to allay concerns with promises of noise studies and offers of vouchers so residents could stay in hotels to avoid the noise and fumes. But then, in what experts say was a rare tactic, the company got more aggressive: it offered all of the households along Cardox Road $50,000 in cash if they would agree to release the company from any legal liability, for current operations as well as those to be carried out in the future. It covered potential health problems and property damage, and gave the company blanket protection from any kind of claim over noise, dust, light, smoke, odors, fumes, soot, air pollution or vibrations. An initial version of the proposed standard agreement listed 30 Finleyville residents and required that they all sign the agreements in order to receive the $50,000. When the residents refused, EQT modified the agreement such that the compensation was not contingent on all landowners signing it.  The agreement also defined the company's operations as not only including drilling activity but the construction of pipelines, power lines, roads, tanks, ponds, pits, compressor stations, houses and buildings.

How a Fracking Company Tried to Buy Pennsylvania Residents’ Approval For $50,000 - The health risks of living near a fracking site aren’t lost on energy companies who participate in the practice, and neither is the pushback from nearby residents. Still, the earning potential is far too enticing for companies to cave in. That might be why EQT Corp. attempted to buy approval from the residents of Finleyville, a small town near Pittsburgh where the company is increasing its hold by drilling nearly a dozen new wells. According to an investigation by ProPublica,  the company offered $50,000 in cash to residents on Cardox Road if they absolved of EQT of legal liability for health issues, property damage and the impacts from noise, dust, light, smoke, odors, fumes, soot, air pollution and vibrations. “I was insulted,” Gary Baumgardner, a resident who was offered the money in January, told the nonprofit news organizaiton. “We’re being pushed out of our home and they want to insult us with this offer.”  EQT’s offer is not unlike the nuisance easements offered to residents near airports, landfills and even wind farms. However, Pennsylvania gas lease attorney Doug Clark says such an offer is rare in the oil and gas sector. Clark finds EQT’s conditions to be rare, too. For $50,000, the company also wanted liability protection for things it might do in the future, including constructing pipelines, power lines, roads, tanks, ponds, pits, compressor stations, houses and buildings.

Letter of Dr. Jerome Paulson to PA-DEP on Fracking Impacts on Children -  I am writing in regard to decisions that your office will be making about unconventional natural gas extraction (UGE). Some of these decisions may relate specifically to children, such as decisions about setbacks between UGE sites and schools. Other decisions may relate to UGE in a broader sense. As a physician with significant expertise in environmental health*, I want to point out that there is no information in the medical or public health literature to indicate that UGE can be implemented with a minimum of risk to human health. In this very new area of research, there are very few articles in the public or peer-reviewed literature that do indicate that there are health problems and there are a number of other pieces of data that suggest that UGE is fraught with negative health outcomes. Elaine Hill at Cornell University compared pregnancy outcomes from a group of mothers who lived in proximity to active wells to outcomes in mothers who lived near wells currently under permit but not yet developed. The results showed an association between shale gas development and incidence of low birth weight and small for gestational age (25% and 18% increased risk). McKenzie and colleagues looked at the relationship between proximity and density of gas wells to maternal address and birth defects, preterm birth and fetal growth. Two approximately even exposure groups were formed for births in rural Colorado between 1996 and 2009: zero wells within ten miles and one or more wells within ten miles. For women residing with one or more wells within ten miles, women were then categorized into three groups of increasing number of wells within ten miles. Women in the highest exposure group, with greater than 125 wells per mile, had an elevated risk of births with congenital heart disease (CHD) and neural tube defects (NTD). A risk for both CHD and NTD increased with increasing number of wells. The authors cited chemicals such as benzene, solvents and air pollutants as previously established associations between maternal exposure and CHDs and NTDs.

New York Towns Can Ban Fracking, State’s Top Court Rules - (Bloomberg) --New York’s cities and towns can block hydraulic fracturing within their borders, the state’s highest court ruled, dealing a blow to an industry awaiting Governor Andrew Cuomo’s decision on whether to uphold a six-year-old statewide moratorium. The Court of Appeals in Albany today upheld rulings dismissing lawsuits that challenged bans enacted in the upstate towns of Dryden and Middlefield. The ruling may lead the oil and gas industry to abandon fracking in New York as Cuomo considers whether to lift a statewide moratorium instituted in 2008 that he inherited when he took office. Fracking in states from North Dakota to Pennsylvania has helped push U.S. natural gas production to new highs in each of the past seven years, according to the U.S. Energy Information Administration, while the practice has come under increasing scrutiny from environmental advocates.  Parts of New York sit above the Marcellus Shale, a rock formation that the Energy Information Administration estimates may hold enough natural gas to meet U.S. consumption for almost six years.

BREAKING: Court Rules That New York Towns Can Ban Fracking And Drilling - New York towns and cities are allowed to pass bans on oil and gas drilling and fracking, the state’s highest court ruled Monday. The New York Court of Appeals upheld the ruling of a lower court that local governments have the authority to decide how land is used, which includes deciding whether or not fracking and drilling should be allowed on that land. The Court of Appeals heard arguments on two cases challenging local bans on fracking in June. The plaintiffs in those lawsuits argued that New York’s oil, gas and mining law takes precedence over local zoning laws, but in rulings both by a lower court and now the Court of Appeals, that claim was overturned.  Two New York towns — Middlefield and Dryden — that previously banned fracking were the focus of the lawsuits, but the ruling means that now other municipalities in New York can pass laws that ban fracking and drilling. So far, activists say, 170 towns and cities in New York have passed fracking bans or moratoria.  “Today the Court stood with the people of Dryden and the people of New York to protect their right to self determination. It is clear that people, not corporations, have the right to decide how their community develops,” Dryden Deputy Supervisor Jason Leifer said in a statement. In the majority opinion, Associate Judge Victoria Graffeo wrote that the ruling wasn’t about whether or not fracking was good for New York — it was about the balance of power between state and local government.

N.Y. towns can ban fracking, state court rules: -- New York's towns are able to use zoning laws to ban hydraulic fracturing within their borders, the state's top court ruled Monday. In a precedent-setting ruling that could have wide implications on the future of shale-gas drilling in New York and possibly elsewhere, the state Court of Appeals ruled 5-2 in favor of the towns of Dryden and Middlefield. The towns had been embroiled in separate, three-year-long legal disputes over the validity of their local fracking bans. An oil-and-gas company and a Middlefield dairy farm had challenged the bans, arguing that New York law gives full power to the state to regulate the industry. "We are asked in these two appeals whether towns may ban oil and gas production activities, including hydrofracking, within municipal boundaries through the adoption of local zoning laws," Associate Judge Victoria Graffeo wrote in the majority opinion. "We conclude that they may because the supersession clause in the statewide Oil, Gas and Solution Mining Law does not preempt the home rule authority vested in municipalities to regulate land use." The decision Monday affirms the rulings of the lower courts, which had ruled in favor of the towns.

New York top court OKs local gas-drilling bans - — New York’s top court handed a victory to opponents of hydraulic fracturing for natural gas Monday by affirming the right of municipalities to ban the practice within their borders. The state Court of Appeals affirmed a midlevel appeals court ruling from last year that said the state oil and gas law doesn’t trump the authority of local governments to control land use through zoning. The two “fracking” cases from two central New York towns have been closely watched by drillers hoping to tap into the state’s piece of the Marcellus Shale formation and by environmentalists who fear water and air pollution. Both sides are still waiting to see whether a statewide moratorium on fracking in effect since July 2008 will be lifted. The court in a 5-2 decision stressed that it did not consider the merits of fracking, but only the “home rule” authority of municipalities to regulate their land use. The court said the towns of Dryden and Middlefield both acted properly. “The towns both studied the issue and acted within their home rule powers in determining that gas drilling would permanently alter and adversely affect the deliberately-cultivated, small-town character of their communities,” according to the majority ruling by Judge Victoria Graffeo.

Landmark Decision for Local Control – Major Setback for Fracking Supporters -  Towns across New York State and as far away as Texas and Colorado may soon feel the aftershocks of a landmark decision June 30 by the highest court in New York that towns have the authority to ban drilling for natural gas. The 5-2 ruling by the state Court of Appeals has emboldened opponents of high-volume hydraulic fracturing, for fracking, and they hope to make the most of it. “Any town that has held off banning fracking for fear of getting sued by the frackers just got a neon green light to proceed with a ban,” said Chip Northrup, an energy investor turned anti-drilling activist from Cooperstown. “While they are at it, they should ban frack waste, since most New York towns are more liable to being dumped on than fracked.”  In Texas, the Denton City Council is expected to consider a petition for a local ban on fracking at its next regular meeting, July 15. Denton has 270 gas wells within its city limits, but 2,000 residents have signed the petition to ban more. And Texas law is deferential to local authority over land use. In Colorado, on the other hand, the state’s highest court now says local bans cannot pre-empt gas development. But the state legislature could still step into the long tug of war between local and state authority over drilling rights that has pitted the towns of Lafayette and Fort Collins against the governor and triggered a statewide voter initiative. Meanwhile, more than 100 small and medium-sized communities in western New York have enacted bans or moratoriums on fracking, and former New York City Mayor Michael Bloomberg quietly obtained a special exemption from state regulators on fracking in the city’s watershed. Supporters of drilling had been counting on the court to sweep away the local bans, if not the city’s. They were deeply disappointed.

New York Towns Tell Energy Companies to Keep the Frack Out -- The New York Court of Appeals has ruled that local governments can say no to energy companies that want to establish fracking operations within its land. The ruling upheld those of the state’s lower courts in the towns of Middlefield and Dryden. Middlefield and Dryden had banned fracking operations from taking place within the towns’ incorporated limits. The ruling is the first of its kind as the state of New York allows fracking, but has now ruled to ultimately leave it up to the townships and communities of New York state to determine whether or not energy companies can drill within its borders. These disputes began in 2011 when an energy company that obtained gas and oil leases in Dryden and Middlefield filed legal complaints after the townspeople took initiative and amended their zoning laws to ban fracking. The energy company argued that state oil and gas laws trump the towns’ amendments. However, the energy company, and subsequently any energy company that had might have zeroed in on New York for fracking, received an unexpected slap in the face yesterday. The New York State Court of Appeals ruled, in a 5-2 decision, that local ordinances could restrict the expansion of fracking.

New York ruling on fracking bans might send tremors across US - -- New York state’s highest court ruled Monday that cities and towns have the power to ban fracking, a decision that comes as local governments across the nation are increasingly trying to use zoning laws to stop the contentious spread of drilling.“I hope our victory serves as an inspiration to people in Pennsylvania, Ohio, Texas, Colorado, New Mexico, Florida, North Carolina, California and elsewhere,” said Mary Ann Sumner, the town supervisor of Dryden, N.Y.The towns of Dryden, in Tompkins County, and Middlefield, in Otsego County, changed their zoning laws to ban fracking in recent years after energy companies started acquiring local leases to drill. The companies, Norse Energy and Cooperstown Holstein, filed lawsuits and argued that only the state had the authority to decide whether to prohibit oil and gas activities, not individual cities and towns. The New York State Supreme Court disagreed Monday. It decided in a 5-2 judgment to uphold the opinion of a lower state court that found cities and towns do have the power to ban fracking. "The towns both studied the issue and acted within their home rule powers in determining that gas drilling would permanently alter and adversely affect the deliberately cultivated, small-town character of their communities,” the New York State Supreme Court found.

Fracking Ruling In New York May Curtail Some Drilling In Other States - New York state’s highest court ruled Monday that towns and cities can ban fracking, a decision closely watched by the energy industry as local governments across the U.S. are considering using zoning laws to stop oil and gas drilling. New York has a statewide moratorium on fracking for the state to study its impacts, but the ruling may further discourage oil and gas companies from investing in New York and encourage other states’ local governments to push for fracking bans.“This sends a really strong and clear message to the gas companies who have tried to buy their way into the state that these community concerns have to be addressed,” Katherine Nadeau, policy director for Environmental Advocates of New York, an anti-fracking group, told Bloomberg. “This will empower more communities nationwide.”Another attempt to ban fracking within city limits happened in Ohio, when Beck Energy Corp. began drilling on private properties in Munroe Falls in 2011 with a permit from the Ohio Department of Natural Resources. The city filed a lawsuit, joined by another half-dozen communities. Ohio’s legislature gave the state’s natural resources department sole authority in 2004 to regulate permitting, location and spacing oil and gas wells, but that law could be overturned soon. The case has reached Ohio’s Supreme Court, whose decision (to be announced soon at an unspecified date) will determine what authority if any Ohio cities have over oil and gas drilling and whether they can ban fracking.

Read Court of Appeals decision upholding fracking bans -- Environmental groups are ecstatic over the Court of Appeals decision Monday to uphold local fracking bans. The ruling, which upheld a lower court’s determination that the bans were proper, involved two lawsuits challenging the fracking bans approved by the towns of Middlefield and Dryden. Property owners and the drilling industry insisted that state law handed exclusive power to state agencies to oversee drilling and mining.  From the conclusion of the decision, which was written by Judge Victoria Graffeo, an appointee of former Gov. George Pataki: At the heart of these cases lies the relationship between the State and its local government subdivisions, and their respective exercise of legislative power. These appeals are not about whether hydrofracking is beneficial or detrimental to the economy, environment or energy needs of New York, and we pass no judgment on its merits. These are major policy questions for the coordinate branches of government to resolve. The discrete issue before us, and the only one we resolve today, is whether the State Legislature eliminated the home rule capacity of municipalities to pass zoning laws that exclude oil, gas and hydrofracking activities in order to preserve the existing character of their communities. There is no dispute that the State Legislature has this right if it chooses to exercise it. But in light of ECL 23-0303′s plain language, its place within the OGSML’s framework and the legislative background, we cannot say that the supersession clause — added long before the current debate over high-volume hydrofracking and horizontal drilling ignited — evinces a clear expression of preemptive intent. The zoning laws of Dryden and Middlefield are therefore valid.

Meme with Wings: Are Western Anti-Fracking Activists Funded by Putin’s Russia? - At a June 19 speaking event at London's Chatham House, North Atlantic Treaty Organization (NATO) secretary-general Anders Fogh Rasmussen claimed the Russian government is covertly working to discredit hydraulic fracturing (“fracking”) in the west from afar. But Rasmussen left out some key context from his presentation, which he said “is my interpretation” and did not further elaborate on his “disinformation operations” comments.    That is, while powerful actors have claimed on multiple occasions that western-based anti-fracking activists are funded by the Kremlin, no one has ever documented such a relationship in the form of a money paper trail.Rasmussen's allegation that western “fracktivists” are or might be funded by the Kremlin is a meme with wings.   In a June 2010 email revealed by Wikileaks, private intelligence firm Stratfor (shorthand for Strategic Forecasting, Inc.) speculated that Josh Fox, director of “Gasland” and “Gasland: Part II”, might be funded by the Russian government or the coal industry. According to a January 2010 email, Stratfor's “biggest client” is the American Petroleum Institute.  Stratfor published a white paper titled “Shale Gas Activism,” an analysis of anti-fracking opposition groups and leaders, in December 2009. Emails show Stratfor sent the white paper to Stanley Sokul, then-ExxonMobil corporate issues senior advisor and now XTO Energy's manager of public and government affairs. Sokul formerly served as chief of staff and general counsel for the White House Office of Science and Technology Policy under President George W. Bush.  Further, in the industry-funded documentary film “FrackNation,” climate change denier James Delingpole also stated that anti-fracking activists are likely funded by the Kremlin (beginning at 2:30 in video below).

Oklahoma's earthquake epidemic linked to fracking wastewater disposal - Vox: Oklahoma has unexpectedly become the earthquake capital of the United States — with some 240 small earthquakes magnitude 3.0 or more already this year. That's about twice as many as California has gotten.  And in a new study in Science, researchers say they've pinpointed the culprit: the wastewater disposal wells used by the fracking industry. Back in 2008, energy companies began ramping up the use of fracking for oil and gas in Oklahoma. The fracking process typically involves injecting water, chemicals, and sand underground at high pressures to crack open shale rock and unlock the oil and gas inside. Fracking itself doesn't seem to be causing many earthquakes at all. However, after the well is fracked, all that wastewater needs to be pumped back out and disposed of somewhere. Since it's often laced with chemicals and difficult to treat, companies will often pump the wastewater back underground into separate disposal wells. Wastewater injection comes with a catch, however: The process both pushes the crust in the region downward and increases pressure in cracks along the faults. That makes the faults more prone to slippages and earthquakes. And as it happens, Oklahoma has seen a sharp rise in earthquakes since 2009. (Before then, magnitude 3.0 earthquakes were extremely rare):

Oklahoma earthquake surge tied to energy industry activity: study (Reuters) - A dramatic jump in the number of earthquakes in Oklahoma to a rate never seen there by scientists before, appears to be caused by a small number of wells where wastewater associated with oil and gas production is injected into the ground, a study released on Thursday said. Just a few of these so-called disposal wells, operating at very high volumes, "create substantial anthropogenic seismic hazard," according to findings from Cornell University researchers published in the journal Science. Earthquake activity in Oklahoma has skyrocketed in recent years, and the U.S. Geological Survey recently warned that the state faces increasing risk of more potentially damaging earth-shaking activity. Through the end of June, the number of potentially damaging earthquakes - magnitude 3.0 or larger - was up more than 120 percent compared to all of last year, according to state officials. "There is an awful lot of smoke here," said Matt Skinner, spokesman for the Oklahoma Corporations Commission, which oversees oil and gas activities in the state. "We are examining the study very, very carefully. If this is an issue, this is a risk we will manage properly." And while most earthquakes occur naturally, some scientists openly worry that pressurized injections of wastewater from natural gas and petroleum production deep into wells can trigger earthquakes. Oklahoma has 4,597 such disposal wells. The Oklahoma Independent Petroleum Association said because oil and gas activity is so prevalent in the state, seismic activity is likely to occur near industry operations, but that does not prove a correlation.

BBC News - Wastewater from energy extraction 'triggers US quake surge': Massive injections of wastewater from the oil and gas industry are likely to have triggered a sharp rise in earthquakes in the state of Oklahoma. Researchers say there has been a forty-fold increase in the rate of quakes in the US state between 2008-13. The scientists found that the disposal of water in four high-volume wells could be responsible for a swarm of tremors up to 35km away. Their research has been published in the journal, Science. Sudden swarm There has been increasing evidence of links between the process of oil and gas extraction and earthquakes in states like Arkansas, Texas, Ohio and Oklahoma in recent years.  In 2011, a small number of people were injured and 14 houses were destroyed in the town of Prague, Oklahoma by a 5.7 tremor. Investigators linked it to the injection of wastewater from the oil industry.  The US Geological Survey (USGS) has also reported on the question of seismicity induced by wastewater disposal. This new research goes further, linking a large swarm of Oklahoma tremors with a number of specific water wells, distantly located. More than 2,500 earthquakes greater than magnitude 3.0 have occurred around the small town of Jones since 2008. This represents about 20% of the total in the central and western US in this period. Researchers have now linked this increase to a near doubling in the volumes of wastewater disposed of in the central Oklahoma region between 2004 and 2008.

Study links disposing of wastewater to Oklahoma earthquakes -The dramatic increase in earthquakes in central Oklahoma since 2009 is likely attributable to subsurface wastewater injection at just a handful of disposal wells, finds a new study to be published in the journal Science on July 3, 2014. The research team was led by Katie Keranen, professor of geophysics at Cornell University, who says Oklahoma earthquakes constitute nearly half of all central and eastern U.S. seismicity from 2008 to 2013, many occurring in areas of high-rate water disposal."Induced seismicity is one of the primary challenges for expanded shale gas and unconventional hydrocarbon development. Our results provide insight into the process by which the earthquakes are induced and suggest that adherence to standard best practices may substantially reduce the risk of inducing seismicity," said Keranen. "The best practices include avoiding wastewater disposal near major faults and the use of appropriate monitoring and mitigation strategies."The study also concluded:

  • Four of the highest-volume disposal wells in Oklahoma (~0.05% of wells) are capable of triggering ~20% of recent central U.S. earthquakes in a swarm covering nearly 2,000 square kilometers, as shown by analysis of modeled pore pressure increase at relocated earthquake hypocenters.
  • Earthquakes are induced at distances over 30 km from the disposal wells. These distances are far beyond existing criteria of 5 km from the well for diagnosis of induced earthquakes.
  • The area of increased pressure related to these wells continually expands, increasing the probability of encountering a larger fault and thus increasing the risk of triggering a higher-magnitude earthquake.

Texas Set To Overtake Iraq In Oil Production -  America’s increasing reliance on hydraulic fracturing to recover energy trapped in shale will soon lead Texas to generate more oil than Iraq, OPEC’s No. 2 producer. Texas produced just over 3 million barrels a day in April for the first time in nearly four decades, according to a new report by the U.S. Energy Information Administration (EIA). That accounted for 36 percent of the United States’ total production for the month -- 8.4 billion barrels per day. Iraq, meanwhile, produced an estimated 3.2 million barrels a day in April. The EIA report said Texas’ output has more than doubled overall in the past three years and has risen every month since 2011. Therefore, the report concluded, Texas is soon expected to out produce Iraq. The EIA attributed the increased production to the Eagle Ford Shale in West Texas. There, it said, “drilling has increasingly targeted oil-rich areas, and multiple reservoirs within the Permian Basin in West Texas that have seen a significant increase in horizontal, oil-directed drilling.” Another reason, of course, is hydraulic fracturing, or fracking. The United States was the first country to exploit the practice to extract both gas and oil from shale. As a result, U.S. energy production now makes up more than 10 percent of total world production, according to the EIA.

Boom Meets Bust in Texas: Atop Sea of Oil, Poverty Digs In -  An estimated 500,000 people live in about 2,300 colonias in Texas, along its 1,200-mile border with Mexico. Many colonias have benefited from infrastructure improvements in recent years. Others remain institutionalized shantytowns without basic services like water and sewers. At least in part because of the oil economy, Gardendale is one of the better-off colonias. The Federal Reserve Bank of Dallas found in a report to be released this year that 42 percent of the population of colonias in six Texas border counties — not including La Salle — lived below the poverty line, compared with 14.3 percent nationally. The median annual household income was $29,000. In La Salle County, other studies have shown that 39 percent of children live in poverty. The boom has both given and taken away. School officials bought 1,300 iPads, one for every student in the district. And there are jobs — well paid in the oil fields for some, marginal in fast food joints and cheap motels for others. But oil and gas have brought a new set of problems, including environmental concerns. During the peak ozone season in 2012, Eagle Ford operations in La Salle County daily emitted 12.8 tons of nitrogen oxides and 28 tons of volatile organic compounds — pollutants that produce smog and can cause health problems — according to a report prepared by the Alamo Area Council of Governments. There have been 11 motor vehicle fatalities in La Salle County this year, up from two in 2007, which officials blame in part on a population boom and increased traffic from the oil and gas activity. Rents have skyrocketed. Newly hired teachers had such a hard time finding housing they could afford that the Cotulla school district opened its own trailer park for them.

ODNR says fracking production jumps in Ohio in 1Q 2014 - The Ohio Department of Natural Resources trumpeted a near doubling of natural gas production in the state thanks to horizontal drilling last year, but at the multiple-agency pep where it made the announcement, more recent numbers also came out showing production data from the first quarter of this year.Like the yearly data, the gains are comparatively large. That should come as no surprise, as a year is a long time for oil and gas producers to zero in on best practices. There’s also more pipeline and other infrastructure capacity now.Ohio’s Utica shale region recorded 67.3 billion cubic feet of natural gas in the first three months of this year, up from 8.3 billion a year ago. Oil production increased to 1.9 million barrels, up from 328,000 barrels, the ODNR said. While the companies drilling in eastern Ohio have experience extracting oil and gas in other states, every shale formation is different. It takes years for companies to determine the right methods to efficiently get the natural resource out of the ground and into cars, homes and various products. It took an average of 35 days to drill a well in 2010; now, that’s halved to 17.

State officials say natural gas, oil production booming in Ohio’s Utica shale - Production numbers from the Utica shale in Ohio are soaring. Oil production from shale grew by 470 percent from 2012 to 2013 and natural gas production from shale climbed by 680 percent in that time, state officials said on Wednesday. “History is being made as we speak,” said Ohio Department of Natural Resources Director James Zehringer at Stark State College. In the first quarter of this year, Ohio had 418 Utica wells that produced 67 billion cubic feet of natural gas and 1.9 million barrels of oil. By comparison in 2013, Ohio had 352 shale wells that produced nearly 3.7 million barrels of oil and 100.1 billion cubic feet of natural gas. Production grew by about 65 percent from quarter to quarter. In 2012, Ohio had 85 shale wells that produced nearly 636,000 barrels of oil and more than 12.8 billion cubic feet of natural gas. In 2013, Ohio’s 352 horizontal wells produced more natural gas than Ohio’s 51,000 vertical-only wells. Ohio’s horizontal Utica wells now produce 58 percent of the state’s natural gas and 45 percent of its oil. Overall, Ohio’s natural gas production from both horizontal and vertical-only wells nearly doubled from 2012 to 2013. It jumped to 171.6 billion cubic feet of natural gas. Oil production grew to nearly 8.1 million barrels. Ohio’s total oil production increased by 62 percent from 2012 and the natural gas production increased by 97 percent, ODNR said. The one-year increase in natural gas production is the biggest in Ohio history and the most natural gas that Ohio has produced since 1982, state officials said.

State says Utica shale fracking has helped nearly double natural gas production in Ohio | The Columbus Dispatch: — Fracking wells in the Utica shale in eastern Ohio helped to nearly double the state’s natural gas production from 2012 to 2013, state officials reported today. Ohio Department of Natural Resources Director James Zehringer said this morning that compared to 2012, the state’s total oil production increased by 62 percent and natural gas production increased by 97 percent. Zehringer led a discussion at Stark State College in North Canton about the state of oil and gas production tied to drilling in the Utica and Marcellus shale. He said that in 2012, the shale produced 16 percent of the natural gas in Ohio. Last year, that grew to slightly more than 60 percent. “The Utica play is the real deal,” Zehringer said. Last year, there were 352 hydraulic fracturing, or fracking, wells producing oil and gas, department statistics showed. Ohio Environmental Protection Agency Director Craig Butler, JobsOhio senior managing director David Mustine, State Fire Marshal Larry Flowers and others also spoke at the event. The overriding message delivered by each agency is that Ohio is experiencing unprecedented growth in drilling in the Utica shale and that the departments are working together to make it easy for companies to drill while ensuring the safety of Ohioans and protecting the environment.

Pipeline owners want to ship natural gas from Ohio back west -- The operators of one of the longest west-to-east-flowing pipelines in the United States want to begin moving natural gas from Ohio back west, a clear signal that shale deposits here are paying off for some companies. The owners of the Rockies Express Pipeline, which starts in northwestern Colorado and runs underground nearly 1,700 miles to eastern Ohio, have for the past five years used the pipeline to move gas from the Rocky Mountains to the Midwest. It ends in Clarington, Ohio, a small village in Monroe County on the eastern edge of Ohio. The companies have filed an application to reverse the flow with the Federal Energy Regulatory Commission. Clarington is in the middle of the Utica shale and at the edge of the Marcellus shale. Both formations have prompted a boom in drilling for oil and gas in this part of the United States. Both have made it unnecessary to ship natural gas from the west.

'Glitch sparks smoky fire at gas well | The Columbus Dispatch: A Monroe County shale-well site still was smoldering last night, and some residents were sheltered at a nearby high school, after an explosive fire yesterday morning. Officials said yesterday that the fire at the Eisenbarth well pad was caused by a mechanical malfunction in hydraulic tubing and that it was limited to the equipment on the surface of the well pad, which is the area that surrounds the natural-gas wells. Flames spread from the tubing to 20 trucks that were lined up on the well pad, causing explosions and thick, black smoke that stayed for hours. None of the 45 workers on site was hurt, state and oil-company officials said yesterday. One firefighter was treated for smoke inhalation. “All of the people are accounted for, and we’re not aware of any injuries reported. There probably are people being subject to examination, but it seems to be OK,” said Bjorn Otto Sverdrup, spokesman for Statoil North America, which operates the wells. The trucks that caught fire are used in hydraulic fracturing, commonly called fracking. There are eight wells on the pad, including five that have been fracked and two that are being actively worked on, said Bethany McCorkle, spokeswoman for the Ohio Department of Natural Resources. One had been fracked and has since been closed.

Fire at natural-gas well site in Monroe County forces evacuations | The Columbus Dispatch: A natural gas well site operated by Statoil in Monroe County has been on fire since at least 9 a.m. today, and at least some nearby residents have been evacuated. Statoil USA Onshore Properties, Inc. said in a news release that the fire at the Eisenbarth well pad in Ohio Township in that county — in eastern Ohio along the West Virginia border — is limited to the surface and is not burning in any actual wells. The wells on the site either have been, or are expected to be, hydraulically fractured, or fracked. The company said in the news release that no one was injured, but residents close to the well site have been evacuated. It isn’t clear how many were told to leave their homes or how far the evacuation zone extends. The Monroe County sheriff’s office would not comment. Personnel from several agencies are assisting. No one from the Ohio Environmental Protection Agency or the Ohio Department of Natural Resources was immediately available for comment. The Ohio EPA deals with potential hazards to the state’s water supply and responds in cases of spills or explosions that endanger the environment. The natural resources agency is responsible for oversight of the state’s oil and gas industry. The site has eight wells; one formerly producing well has been plugged and the rest are being fracked. “We are coordinating closely with local first responders,” the company said in its statement. The fire site appears to be about 125 miles east of Columbus.

Fish kill in eastern Ohio might be linked to fire at fracking well - The state is investigating a fish kill in an eastern Ohio creek near where a fire occurred at a shale-well fracking site on Saturday. The Ohio Department of Natural Resources learned yesterday of the fish kill in Possum Creek in Monroe County, said Jason Fallon, an agency spokesman. Fallon said he did not have details about the extent of the kill.  Phillip Keevert, director of the Monroe County Emergency Management Agency, said Division of Wildlife agents were inspecting the creek yesterday and confirmed that a kill occurred. The Eisenbarth well pad caught fire on Saturday because of a malfunction in hydraulic tubing, authorities said. Fire spread to about 20 trucks lined up on the well pad, triggering explosions that spewed clouds of black smoke.The trucks that caught fire are used in hydraulic fracturing, commonly known as fracking. Statoil North America operates eight wells on the pad.At the height of the fire, 20 to 25 families that live within a mile of the site were evacuated. They were allowed to return home on Saturday evening.A number of area residents reported the fish kill yesterday. Jack Shaner, deputy director of the Ohio Environmental Council, said he has been told that the kill stretched for a few miles. Shaner said he suspects that chemicals used in fracking ran into the creek when firefighters extinguished the blaze.

State agency: Fracking fire likely fouled eastern Ohio creek - Columbus Dispatch - A fire last weekend at a Monroe County fracking well likely sent contaminants into a nearby creek, killing crayfish, minnows and smallmouth bass as far as 5 miles away from the site, state officials said yesterday. Officials of the Ohio Department of Natural Resources said crews fighting the fire flooded the area with water on Saturday, likely sending fracking chemicals into the creek, which feeds into the Ohio River.The agency and the Ohio Environmental Protection Agency are investigating the fire and fish kill at the site, about 130 miles east of Columbus.Bethany McCorkle, spokeswoman for the Department of Natural Resources, said she did not know whether contaminants had reached the Ohio. The EPA said it doesn’t know yet whether area drinking water has been tainted.

North Dakota's Latest Fracking Problem - WSJ: -- "It's been flaring for nearly a year," she said. "It's absolutely ridiculous to be so wasteful," "They're flaring gas and using diesel to fuel the pumps—it's like something Homer Simpson would do." The well is one of thousands dotting the landscape and producing gas as a byproduct of hydraulic fracturing and horizontal drilling for oil in the Bakken Shale. Because North Dakota lacks adequate infrastructure, drillers are forced to burn off whatever they can't capture and ship to market. In April alone, such wells burned 10.3 billion cubic feet of natural gas, according to the state, valued at nearly $50 million. As flaring wells spread like a prairie fire, North Dakota's regulations have struggled to keep pace. Beyond being an eyesore, burning off natural gas degrades air quality. Critics also say producers aren't paying all the royalties and taxes owed on the gas that is flared. Energy companies lose out on gas revenue, too, but that is offset by what they generate from Bakken crude oil. "It's a failure of regulation. There was an opportunity to do this the right way, but you can't unring the bell," said Matt J. Kelly, a lawyer at a Bozeman, Mont., law firm representing Bakken mineral-rights owners claiming unpaid royalties for flared gas. Stung by criticism that it has allowed oil producers to flare wells indefinitely, the North Dakota Industrial Commission on June 1 adopted rules requiring that gas-capture plans be submitted for companies to get a new drilling permits. The rules require producers to identify gas-processing plants and proposed connection points for gas lines but don't affect permits that already had been issued. The commission, which promotes as well as regulates the drilling industry, on Tuesday is expected to announce measures to limit flaring of existing wells. The federal government also is considering new limits on flaring.

More Oil Means More Environmental Concerns, With Good Reason - North Dakota Gov. Jack Dalrymple says he wants to vastly expand the oil pipeline capacity in his state.  With oil production churning along at 1 million barrels per day, the boom may spark concerns about pipeline spills. The state’s Department of Mineral Resources said total output in North Dakota averaged just over one million barrels per day in April -- the most recent data available – which is an all-time high for the state and marks the first time that production has topped the 1 million bpd mark.  That’s more than the state pipeline capacity, which now stands at 780,000 bpd. Darymple says he wants it to be 1.4 million bpd by 2016.But more oil inevitably brings more environmental worries. Right now, rail is making up for the lack of sufficient pipeline capacity to deal with the glut of oil from shale. But rail's safety record has been brought into serious question after several derailments, including last year’s deadly oil train accident in Lac-Megantic, Quebec. Regulators in Canada and the United States are imposing tough new regulations on rail transport.Friends of the Headwaters, a grassroots group established to keep tabs on North Dakota pipelines, say that, by a factor of 10 to 1, they've found pipelines spill more oil than rail and truck combined. And while both rail and pipeline companies say they're putting safety first, the group says safety standards may be set too low.

Shale Drillers Explore for Answers to Mounting Debt: Video - - Bloomberg’s Alix Steel and Asjylyn Loder examine growing debt in the shale gas industry as some companies fight to find profits. They speak in “On The Markets” on Bloomberg Television’s “In The Loop.”

Out with Keystone XL, In with Enbridge Northern Gateway -- Claiming it could no longer abide the Obama administration’s five-year refusal to approve construction of the Keystone XL pipeline designed to bring 830,000 barrels a day of much-needed Alberta shale oil to U.S. refineries, the Canadian government recently approved plans for a huge new pipeline and port project to ship that oil to Asia instead. When completed, the $7.9 billion Enbridge Northern Gateway Project, approved by Canada’s federal government on June 17, will consist of an environmentally safe, 730-mile oil pipeline. It will be capable of moving 600,000 barrels a day of Alberta oil to the pacific coast town of Kitimat, British Columbia, where a new state-of-the-art super tanker port facility will be built to ship the oil to thirsty Asian ports. It was initially hoped that recent discoveries of massive new Canadian oil and gas reserves could benefit both Canada and the United States by building a safe and reliable pipeline to bring the oil to U.S. refineries in Louisiana and Texas. Building the proposed 1,179-mile Keystone pipeline promised, not just a huge new supply of reliable, clean, and affordable oil to U.S. markets, but the creation of up to 20,000 high-paying construction jobs. An additional 22,000 jobs economists predicted would have resulted from the broader economic stimulus the project would have generated. Rather than purchasing crude from a friendly and allied neighbor, the United States will most likely need to continue its reliance upon hostile sources like Venezuela.

For Oil-By-Rail, a Battle Between “Right to Know” and “Need to Know” - Since the first major oil-by-rail explosion occurred on July 6, 2013, in Lac-Mégantic, Quebec, citizens in communities across the U.S. have risen up when they've learned their communities are destinations for volatile oil obtained from hydraulic fracturing (“fracking”) in North Dakota’s Bakken Shale basin.   As the old adage goes, ignorance is bliss. It's also one of the keys to how massive oil-by-rail infrastructure was built in just a few short years — the public simply didn't know about it. Often, oil companies are only required to get state-level air quality permits to open a new oil-by-rail facility. Terry Wechsler, an environmental attorney in Washington, recently explained to Reuters why there was no opposition to the first three oil-by-rail facilities in the area.“There was no opposition to the other three proposals only because we weren't aware they were in formal permitting,” he said The same thing unfolded in Albany, N.Y., where there is an ongoing battle over expansion of the major oil-by-rail facility set to process tar sands crude sent by rail from Alberta. The initial permits for the oil rail transfer facility, which would allow two companies to bring in billions of gallons of oil a year, were approved with no public comment.  Oil and rail companies know well that they can proceed with their planned expansions more easily if communities remain unaware of their plans.  And now that some states — including North Dakota — have defied their efforts to keep the public in the dark about the crude-carrying trains, the public will have a much clearer idea of what's going on. A case in point, DeSmogBlog recently revealed crude-by-rail giant Burlington Northern Santa Fe (BNSF) moves up to 45 trains a week in some North Dakota counties and up to three dozen in others.

Rail Workers Raise Doubts About Safety Culture As Oil Trains Roll On  — Curtis Rookaird thinks BNSF Railway fired himbecause he took the time to test his train’s brakes.  The rail yard in Blaine, Washington, was on heightened security that day, he remembers, because of the 2010 Winter Olympics underway just across border in Vancouver, B.C. The black, cylindrical tank cars held hazardous materials like propane, butane and carbon monoxide. The plan was to move the train just more than two miles through three public crossings and onto the main track.Rookaird and the other two crew members were convinced the train first needed a test of its air brakes to guard against a derailment. But that kind of test can take hours. A BNSF trainmaster overheard Rookaird talking over the radio about the testing. He questioned if it was necessary. The crew was already behind schedule that day.  Rookaird stood firm.“If you don’t have brakes the cars roll away from you,” Rookaird would later say. “You don’t have control of the train, you can crash into things.”The trainmaster replied by saying he didn’t intend to argue. They’d talk about it later. Then he phoned their boss. Minutes later, managers had a crew ready to replace Rookaird’s. Within a month, after Rookaird got federal investigators involved, he received a letter from BNSF informing him his employment had been terminated.

BP seeks to wrest back Gulf of Mexico compensation: BP has asked a US court to order a "vast number" of businesses to repay part of the compensation awards they were paid in the wake of the 2010 Gulf of Mexico oil spill. The oil firm said the administrator in charge of processing the claims allowed businesses to inflate their losses. Last year a US court agreed the process was unfair but now the British company wants the money back with interest. BP has fought a long legal battle in US courts to limit the compensation bill. In a court filing on Friday, BP asked a US judge to order the businesses to repay the overpayments plus interest, and requested an injunction to prevent firms spending what it called their "windfall".

Peru now has a ‘licence to kill’ environmental protestors - Some of the recent media coverage about the fact that more than 50 people in Peru – the vast majority of them indigenous – are on trial following protests and fatal conflict in the Amazon over five years ago missed a crucial point.   Following a blockade of a highway near a town called Bagua – and an agreement that the protestors would break up and go home, reached the day before – early on 5 June the police moved to clear it and started shooting. In the ensuing conflict, 10 police officers, five indigenous people and five non-indigenous civilians were killed, more than 200 injured – at least 80 of whom were shot – and, elsewhere in the Bagua region, a further 11 police officers were killed after being taken hostage. “So far only protesters have been brought to trial,” said Amnesty International in a statement marking five years since the conflict and pointing out that human rights lawyers have said there is no serious evidence linking the accused to the crimes they are being prosecuted for – which include homicide and rebellion. Does this desperate failure of justice not effectively constitute a “licence to kill” for the police? Maybe, maybe not, but whatever the answer Peru has now formalised that licence by emitting a law that, as the Dublin-based NGO Front Line Defenders (FLD) puts it, grants: . . . members of the armed forces and the national police exemption from criminal responsibility if they cause injury or death, including through the use of guns or other weapons, while on duty. Human rights groups, both nationally and internationally, the Human Rights Ombudsman (Defensoria del Pueblo) as well as the UN High Commissioner for Human Rights all expressed deep concern about the law. In the words of the [Lima-based] Instituto Libertad y Democracia [IDL], the law equates, in practice, to a “licence to kill.”

Russian Hackers Targeting Oil and Gas Companies - — Russian hackers have been systematically targeting hundreds of Western oil and gas companies, as well as energy investment firms, according to private cybersecurity researchers.The motive behind the attacks appears to be industrial espionage — a natural conclusion given the importance of Russia’s oil and gas industry, the researchers said.The manner in which the Russian hackers are targeting the companies also gives them the opportunity to seize control of industrial control systems from afar, in much the same way the United States and Israel were able to use the Stuxnet computer worm in 2009 to take control of an Iranian nuclear facility’s computer systems and destroy a fifth of the country’s uranium supply, the researchers said.   The Russian attacks, which have affected over 1,000 organizations in more than 84 countries, were first discovered in August 2012 by researchers at CrowdStrike, a security company in Irvine, Calif. The company noticed an unusually sophisticated and aggressive Russian group targeting the energy sector, in addition to health care, governments and defense contractors. The group was named “Energetic Bear” because the vast majority of its victims were oil and gas companies. And CrowdStrike’s researchers believed the hackers were backed by the Russian government given their apparent resources and sophistication and because the attacks occurred during Moscow working hours.A report released Monday by Symantec, a computer security company based in Mountain View, Calif., detailed similar conclusions and added a new element — the Stuxnet-like remote control capability.

Sunni rebels declare new 'Islamic caliphate' - A Sunni armed group which controls large areas of Iraq and Syria has announced the establishment of a "caliphate" straddling the two countries, urging other groups to pledge allegiance. In an audio recording released on Sunday, the group formerly known as the Islamic State of Iraq and the Levant declared its chief, Abu Bakr al-Baghdadi, "the caliph" and "leader for Muslims everywhere". "The legality of all emirates, groups, states and organisations becomes null by the expansion of the caliph's authority and the arrival of its troops to their areas," said the group's spokesman Abu Mohamed al-Adnani. "Listen to your caliph and obey him. Support your state, which grows every day.'' The group announced that it was now called the "Islamic State". According to the statement, the new caliphate stretches from Iraq's Diyala province to Syria's Aleppo."The Shura [council] of the Islamic State met and discussed this issue [of the caliphate] ... the Islamic State decided to establish an Islamic caliphate and to designate a caliph for the state of the Muslims, said Adani."The words 'Iraq' and 'the Levant' have been removed from the name of the Islamic State in official papers and documents." An official document was also released, in English and several other languages.

Oil Prices Soar as Iraq Tumbles Into Chaos - (news video) The harrowing situation in Iraq meant gains for some U.S. investors in the energy marketAs the conflict in Iraq escalates, oil prices are skyrocketing — the benchmark price of Brent Crude oil stood at more than $115 a barrel Wednesday, approaching a nine-month high according to Bloomberg. And some investors are maximizing on short-term business opportunities couched within the rising costs.Stocks at Chevron, BP and ExxonMobil have reached record highs, in part because higher energy prices translate to larger revenue for producers, and because growing tensions abroad have made U.S.-based production companies more appealing, CNN reports.

Voila: World War Three - Kunstler - Whoever really runs things these days for the semi-mummified royal administration down in Saudi Arabia must be leaving skid-marks in his small-clothes thinking about Abu Bakr al-Baghdadi and his ISIS army of psychopathic killers sweeping hither and thither through what is again being quaintly called “the Levant.” ISIS just concluded an orgy of crucifixions up in Syria over the weekend, the victims being other Islamic militants who were not radical enough, or who had dallied with US support. Crucifixion sends an interesting and complex message to various parties around this systemically fracturing globe. It’s a step back from the disabling horror of video beheadings, but it still packs a punch. For the Christian West, it re-awakens a certain central cultural narrative that had gone somnolent there for a century or so. ISIS’s message: If you thought the Romans were bad…. Among the human race, you see, the memories linger. More to the point, the press (another quaint term, I suppose) is not paying any attention whatsoever to what goes down with ISIS and the other states besides Iraq and Syria in the region. I aver to Saudi Arabia especially because Americans seem to regard it as an impregnable bastion against the bloodthirsty craziness spreading over the rest of the Muslim world. Saudi Arabia has had the distinction of remaining stable through all the escalating tumult of recent decades, reliably pumping out its roughly 10 million barrels a day like Bossy the cow in America’s oil import barn. Or seeming to remain stable, I should say, because the Saud family royal administration of mummified rulers and senile princes looks more and more like a Potemkin monarchy every month. 90-year-old King Abdullah has been rumored to be on life support lo these last two years, his successor brothers already dead and gone, and other powerful Arabian clans with leaders who can walk across a room and speak itching to kick this zombie Saud family off the throne. To make matters worse, the Sauds have also managed to sponsor much of the organized Sunni terrorism in the region (around the world, really) in their role as the chief enemy of the Shia ­— as represented by the politicized clergy of Iran.

Chinese bulldozers fall silent -- Phat Dragon takes more than a passing interest in the monthly industrial (manufacturing, mining and utilities) profits release. This is where one ought to look for signs of balance sheet stress on a sector by sector basis. In terms of the headline measures profit growth slowed marginally to 9.8%ytd in May from 10.0%ytd in April. Revenues softened from 8.4%ytd to 8.1%, a rate of increase basically consistent with the last print on nominal GDP growth. Margins were slightly wider however, edging up 0.07ppts to 5.47%, a result which hides significant divergences at a sectoral level. Mining sector margins deteriorated further, while heavy industry saw a slight improvement from suppressed levels. Coal mining margins reflect the worst trading conditions for the industry since the darkest days of the tech wreck. Ferrous metal miners do not have things quite as bad as that, but at just above 8% their margins are the slimmest since the GFC. Metal smelting firms – ferrous and non-ferrous – continue to live life on the razor’s edge, with average margins below 2%.  Another segment of the economy that Phat Dragon spends time observing in isolation is heavy machinery. On the ground intell from Changsha, Hunan, China’s heavy machinery capital, indicates that Q2 sales volumes have failed to build on somewhat more promising early year activity. Demand for smaller diggers used for trenches is strong – a function of the large amount of investment in water/sewerage projects. Demand for equipment used in transport and mining is contracting. Hard data from the industry association shows that unit sales of excavators, bulldozers and cranes are down by 31%, 25% and 5% respectively form a year ago in May.

China manufacturing expands at fastest pace this year -  Chinese manufacturing activity expanded at its fastest pace this year in June, an official survey showed Tuesday, in a sign that Beijing's attempts to tackle slowing growth in the world's number two economy are gaining traction. The official purchasing managers index (PMI) hit 51.0 last month, the National Bureau of Statistics said in a statement. The figure is up from 50.8 in May and the best since a similar reading of 51.0 in December. The index tracks manufacturing activity in China's factories and workshops and is a closely watched indicator of the health of the economy. A reading above 50 indicates growth, while anything below points to contraction. The result, however, was marginally below the median 51.1 forecast in a survey of eight economists by Dow Jones. Separately, a private survey published by British bank HSBC put China's PMI at 50.7 in June - slightly below the preliminary reading of 50.8 released last month but well above May's 49.4. The expansion was the survey's first since December.

Top North American CFOs Are Getting Bearish On China - Chief financial officers feel pretty good about North America. It’s Europe and, increasingly, China where they see storm clouds, according to a new survey of CFOs. Growth expectations weren’t much improved from the first quarter, but CFOs see prospects looking brighter in North America, according to Deloitte LLP’s second-quarter survey of CFOs. Some 40% described the North American economy as good, down from 42% last quarter. Some 60% believe it will look better in a year. By contrast, just 24% of CFOs said China’s economy looks good, down from 37% last quarter. And just 21% think it will be better in a year. Only 7% said Europe’s economy looks good, and 27% expect it will be better in a year. Sales growth expectations rose to their highest level in two years and earnings and capital spending expectations rose to their highest level in a year. Meanwhile, domestic hiring expectations rose to 1.6% this quarter after 1% last quarter. “Net optimism is holding steady, but lower earnings and capital spending growth expectations suggest U.S. CFOs are factoring bumps that were not on their radar screens three months ago,”

Biggest Risk to China’s Economy? Look to the Shadows, Bankers Say - Economists at Chinese state banks say shadows are keeping them awake at night. Lian Ping, chief economist for China’s Bank of Communications 601328.SH +0.77%, said Thursday that defaults in the nation’s loosely regulated “shadow banking” sector are among the economy’s greatest risks. In particular, analysts view China’s trust companies, part of the country’s shadow banking system, with growing concern. Such trust companies make large loans to cash-strapped sectors such as coal mining and real estate—and while local governments have been bailing out troubled trusts, analysts including Mr. Lian predict such aid won’t stop more trust products from defaulting in the future as credit gets squeezed and resource and property prices decline. “Local governments have so far made a lot of efforts to limit the effects [of trust defaults], which is why some of the problems haven’t been fully visible yet,” said Mr. Lian, who made his remarks at a presentation on China’s economic outlook. “But the risk is rising.” Some 5.3 trillion yuan ($853 billion) worth of trust products mature this year in China, up from 3.5 trillion yuan last year, according to Eastspring Investment, an asset management company. Bank of China chief economist Cao Yuanzheng said that high debt levels are the greatest threat to China’s economy.

Can China Fix Its Financial System Without Derailing Its Economy? - China can weather the storm. So says Paul Gruenwald, chief economist of Standard & Poor’s Rating Services’ Asia Pacific region. One of economists’ biggest fears is whether China’s credit boom will end in a U.S.-style financial crisis, sending shockwaves across the global economy. But Mr. Gruenwald says China has built up sufficient buffers to protect against a collapse in the country’s financial system, pointing to the $4 trillion in foreign-exchange reserves and the big banks’ cash stockpiles. “They’ve got cushions in there that are going to help to mitigate any downturn,” he said in an interview. “That doesn’t mean it’s painless, but I think it means that it’s probably more manageable.” That isn’t to say there won’t be troubles. The financial system could see an avalanche of bad loans from wealth-management products created outside the banking system. “If those go bad, that’s the unknown,” said Mr. Gruenwald. One of China’s major economic challenges is trying to introduce credit risk into the financial system, but without slamming the brakes on its credit-fueled growth. Slowing credit too fast could kill growth. At the same time, if everyone thinks the government is implicitly guaranteeing the whole financial system, that is likely to continue to push cash into questionable investments. That is why authorities have allowed a small number of defaults—helping to introduce risk into the market—and interest rates at some banks are slowly rising.

Record Bond Sales Show Li Focused on GDP Over Debt: China Credit - China’s Premier Li Keqiang has promised to cut credit while also meeting a 7.5 percent economic growth target. Record bond sales last quarter show which pledge he’s prioritizing. Issuance jumped 54 percent from the previous three months to 1.55 trillion yuan ($250 billion), the most in data compiled by Bloomberg. Yields on two-year AAA rated corporate notes have dropped 137 basis points this year to near a 10-month low of 4.86 percent, as authorities eased after tightening that had sparked credit crunches in 2013. When Premier Li took office last year he stressed the need for painful reforms to pare the influence of the state, wean industries with overcapacity from debt and ease access to funds for smaller enterprises. The latest filings of more than 4,000 publicly traded non-financial Chinese companies show $2.05 trillion of obligations, up from $1.8 trillion at the end of 2012, with the 10 biggest state-owned borrowers accounting for 18 percent of the liabilities.

External debt grows to $883.9 billion - China's outstanding foreign debt reached 5.44 trillion yuan ($883.9 billion) by the end of March this year, the country's foreign exchange regulator said Thursday. The figure is about 3.3 percent, or 175.1 billion yuan, more than that at the end of last year. Most of the external debt was in the form of short-term borrowing, which came in at 4.25 trillion yuan, while long- and medium-term foreign debt stood at just 1.19 trillion yuan, according to the data released by the State Administration of Foreign Exchange (SAFE) on its official website. In terms of currency structure, debt in US dollars accounted for 81.32 percent of the outstanding external debt, and euro-denominated foreign debt and debt in Japanese yen accounted for 5.26 percent and 4.46 percent, respectively, according to the SAFE.

Hub for Yuan: Korea Looking to become Yuan Hub in Asia -- It is expected that Korea and China will allow direct transactions between the won and the yuan after the bilateral summit meeting on July 3. In addition, the two parties are discussing the establishment of a yuan clearing bank in Korea for this purpose. If the plans turn out well, Korea can have a vantage point in turning itself into a yuan hub. According to government sources, President Park Geun-hye and President Xi Jinping are going to announce economic cooperation measures, including the yuan plans, during the summit meeting. If the direct transactions are allowed, Korean companies do not have to change money for trade with China, and they can save a lot on transaction costs such as exchange commissions. According to Standard Chartered Bank Korea, Chinese importers have saved 3 to 5 percent of their transaction costs by using the yuan as the settlement currency instead of the U.S. dollar. The size of the trade between Korea and China amounted to US$230 billion as of the end of last year, and 99 percent of it was based on the currencies of third countries. The Bank of Korea and the Ministry of Strategy & Finance explained that Korea’s dependency on the U.S. dollar can be decreased, and the instability in the forex market due to foreign exchange fluctuations can be eased as well with direct transactions.

Boosting Japan’s Growth: Some Low-Hanging Fruit - Many parts of Prime Minister Shinzo Abe’s new growth strategy will be difficult to implement. That’s why he has called himself a “drill bit” poised to “break through the solid rock of vested interests.” It’s why some of the most significant proposals were, to mix metaphors, watered down before announcement. If it were easy to remove the impediments to Japanese growth, it would have been done long ago.But there are actually a number of quick bureaucratic reforms the government could enact that could make a big difference for Japanese commerce. For example, “elimination of the requirement for company seal and judicial scrivener to complete the registration procedure” to start a new business “can be done without changing any existing law,” says a new working paper from Stanford University’s Japan Studies Program. “Moreover, these reforms are not likely to face much political resistance because the benefactors of the regulations (seal makers and judicial scriveners in this example) are not known for their political clout.” The study, offers a detailed examination of one part of Mr. Abe’s program: a pledge to boost Japan’s position in the World Bank’s “Doing Business Ranking,” which assesses the “ease of doing business” in various countries around the world. Japan currently ranks 15th among 31 high-income countries in the Organization for Economic Cooperation and Development. Mr. Abe’s goal is to hit the top three by 2020. The authors identify 27 changes, mainly fairly narrow, that could get him there.

Japan's monetary base at record high in June: BOJ - Japan's monetary base increased to a record 233.25 trillion yen in June, up 42.6 percent from a year earlier, the Bank of Japan said Wednesday, as the central bank attempts to boost the economy by providing huge amounts of money. The average daily balance of liquidity that the BOJ injects, including cash in circulation and the balance of current account deposits held by financial institutions at the BOJ, grew for the 26th straight month, reaching a new record for the 16th month in a row. The monetary base stood at 243.43 trillion yen at the end of June, the largest among comparable data available since July 1996. The balance of current account deposits, or the sum of money that commercial lenders can use freely, grew 87.8 percent to 143.00 trillion yen on average for the reporting month. In its unprecedented monetary easing, started in April 2013, the BOJ aims to achieve an inflation rate of 2 percent within around two years, pledging to double the monetary base in two years and purchasing massive amounts of Japanese government bonds and other financial assets from banks.

The tipping over of TPP - vox  - The Trans-Pacific Partnership (TPP) is taking a long time to conclude. This column argues that the TPP agenda, unlike the Doha round, is more ambitious and controversial. Many see it as skewed in favour of one country – the US. There are fears that even the US may lose interest in the Partnership without the fast-track authority given by the current Congress. The only useful way forward is for countries to take matters in their own hands.

India’s economic rise: It could do for the 2010s what China did at the turn of the millennium.: In the coming weeks, the new government of Indian Prime Minister Narendra Modi—elected with a huge mandate and parliamentary majority in May—will release its first budget. Modi campaigned on a program of radically reforming the Indian economy, and this budget—and indeed his entire economic program—is hotly anticipated. Modi has been a controversial figure in India. His party, the BJP, emerged as a Hindu nationalist institution, and Modi will have to show that he means to govern as a secular leader.* That said, if he succeeds in restructuring the Indian economy and integrating India more deeply into the global economic system, India might well do for the next decade what China did for the global system in the years after 2000. India has an immense population (1.2 billion, just about where China was in 2000) and has an economy that’s been touted as the next new thing, only to halt and sputter.  For many years, there have been serious concerns about long-term growth in India. Led by a rickety Congress Party coalition, the previous government couldn’t break the cycle of subpar economic performance and part the thickets of bureaucracy and corruption precluding reform. These failures were prime reasons for Modi’s victory. Even with Modi’s win, expectations for India haven’t been radically adjusted: India’s economy is still expected to grow 5.5 percent this year and a bit over 6 percent next year, according to the World Bank. India currently has a per capita gross domestic product of about $1,500 a year in nominal dollars and about $5,400 in purchasing power; by comparison, China today is $6,800 in nominal terms and $11,900 in terms of purchasing power. But in 2000, the gap was much narrower; in purchasing power terms, China was at about $2,800 while India was at $2,000. 

'70% of India Has Yet to Be Built' -  Three hundred million Indians are expected to move to urban areas over the next 20 years, Sankhe noted during a panel discussion at the Aspen Ideas Festival, which means India will be 40-percent urban by 2030 (more than 60 million Indians already live in slums). McKinsey All this, in turn, is going to put a premium on developing urban infrastructure. In a 2010 McKinsey report he co-authored, Sankhe estimated that rapid urbanization in the country will require the construction of 700 to 900 million square meters of commercial and residential space, or "a new Chicago every year." As the study put it, "70 to 80 percent of the India of 2030 is yet to be built."  "Seventy percent of almost everything: the water systems, the houses.... Sixty percent of Mumbai, for example, live in slums, so their houses are not yet built. The transportation networks: Mumbai has finished only one corridor, it requires 15 corridors of metro. So 14 corridors are not yet built.... Not the population—the population is there. Everything related to climate change, everything related to energy sufficiency, a lot of things are not yet built. So we have a rare chance of designing it right."

Not Just Indonesia: Asia’s Creaky Road to Infrastructure Funding -- Whoever wins Indonesia’s presidential elections next week will eventually face a puzzle that eluded his predecessor for his entire decade in office: how to build a railway 20 miles across the gridlocked capital to its overcrowded international airport. Jakarta’s long-stalled airport railway is just one of dozens of vital infrastructure projects awaiting the attention of the new president. Both candidates, former general Prabowo Subianto and Jakarta Gov. Joko Widodo, have promised to improve Indonesia’s creaking infrastructure. But so did the man leaving office, President Susilo Bambang Yudhoyono, even organizing an “infrastructure summit” in 2005 to lure investment. His government expanded the country’s largest port, built the first modern railway running between Indonesia’s two largest cities and the country’s second-largest international airport, in North Sumatra, but other planned projects worth billions of dollars never got off the ground. The World Bank warned last month that infrastructure investment in Indonesia remains stuck at roughly half what it was before the Asian financial crisis in 1997 and 1998, a slump that is cutting as much as a percentage point off economic growth every year. Foreign companies say poor infrastructure has dissuaded them from boosting investment in Indonesia. Indonesia isn’t alone, though. Stunted infrastructure development is a worsening problem across Asia, the Asian Development Bank warns, placing a growing drag on Asia’s economic growth

After Losing Vote, U.S.-EU Threaten to Undermine Treaty --The United States and the 28-member European Union (EU) have assiduously promoted – and vigourously preached – one of the basic tenets of Western multi-party democracy: majority rules.  But at the United Nations, the 29 member states have frequently abandoned that principle when it insists on “consensus” on crucial decisions relating to the U.N. budget – or when it is clearly outvoted in the 193-member General Assembly or its committee rooms.  That’s exactly what happened Thursday at the U.N. Human Rights Council (UNHRC) in Geneva which adopted, by majority vote, a proposal to negotiate a legally-binding treaty to prevent human rights abuses by transnational corporations (TNCs) and the world’s business conglomerates. But following the vote, the United States and the EU, have warned they would not cooperate with an intergovernmental working group (IGWG) which is to be established to lay down ground rules for negotiating the proposed treaty. Stephen Townley, the U.S. representative in the HRC, told delegates: “The United States will not participate in this IGWG, and we encourage others to do the same.”

Why the secrecy on Canadian trade talks? Because there's something to hide - Trade agreements have emerged in recent years as one of the federal government’s most frequently touted accomplishments. Having concluded (or nearly concluded) free trade deals with the likes of the European Union and South Korea, senior government ministers such as International Trade Minister Ed Fast and Industry Minister James Moore have held dozens of events and press conferences across the country promoting the trade agenda. The next major agreement on the government’s docket is the Trans Pacific Partnership, a massive proposed trade deal that includes the United States, Australia, Mexico, Malaysia, Singapore, New Zealand, Vietnam, Japan, Peru, and Chile. While other trade talks occupy a prominent place in the government’s promotional plans, the TPP remains largely hidden from view. Indeed, most Canadians would be surprised to learn that Canada is hosting the latest round of TPP negotiations this week in Ottawa. The secrecy associated with the TPP — the draft text of the treaty has still not been formally released, the precise location of the Ottawa negotiations has not been disclosed, and even the existence of talks was only confirmed after media leaks — suggests that the Canadian government has something to hide when it comes to the TPP.

Argentina at brink of default as $539 million payout blocked -- Argentina is poised to miss a bond payment today, putting the country on the brink of its second default in 13 years, after a U.S. court blocked the cash from being distributed until the government settles with creditors from the previous debt debacle. The nation has a 30-day grace period after missing the $539 million debt payment to seek an accord with a group of defaulted bondholders led by billionaire Paul Singer's NML Capital Ltd. and prevent a default on its $28.7 billion of performing global dollar bonds. Both Argentina and NML have said that they're open to talks. A decade-long battle between Argentina and holdout creditors from the country's $95 billion default in 2001 is coming to a head. The U.S. Supreme Court on June 16 left intact a ruling requiring the country pay about $1.5 billion to holders of defaulted debt at the same time it makes payments on restructured bonds. Argentina last week transferred funds to its bond trustee to pay the restructured notes, only to have U.S. District Court Judge Thomas Griesa order the payment sent back while the parties negotiate. The judge's decision "closes Argentina's options to finally force it to negotiate," said Jorge Mariscal, the chief investment officer for emerging markets at UBS Wealth Management, which oversees $1 trillion. "Argentina should now stop using these delay tactics and get serious."

Argentina Hits Debt Deadline, but Not yet Default - Argentina will likely miss a bond payment on Monday, setting it on a course for a possible catastrophic default. Argentina owes an interest payment to the majority of its creditors, but the government has a 30-day grace period after Monday to avoid going into its second default in 13 years. The U.S. Supreme Court recently turned down Argentina's attempt to block a lower court ruling that it must pay hedge funds that own bonds left over from its record $100 billion default in 2001. U.S. District Judge Thomas Griesa urged Argentina on Friday to continue negotiating with the funds that refused to participate in debt swaps in 2005 and 2010. The judge also said it would be illegal for Argentina to make a payment to the majority of its bondholders without also paying more than $1.5 billion to the holdouts. Griesa appointed a special master last week to facilitate talks because Argentina indicated through its lawyers that it planned to negotiate for the first time with the U.S. bondholders. President Cristina Fernandez has long refused to negotiate with the plaintiffs led by New York billionaire Paul Singer's NML Capital Ltd., who spent more than a decade litigating for payment in full rather than agreeing to provide Argentina with debt relief. But Fernandez has been backed into a corner by NML Capital's payment plan. The holdout creditors accused Argentina on Monday of refusing to begin talks.

Emerging-Market Issuers Vulnerable on $2 Trillion Debt Binge - Emerging-market companies that took on more than $2 trillion of foreign borrowing since 2008 are vulnerable to an evaporation of funding at the first sign of trouble, according to the Bank for International Settlements. Bond investors willing to lend generously when conditions are good can pull out in a crisis or when central banks tighten monetary policy, analysts led by Claudio Borio, head of the monetary and economic department, wrote in the BIS annual report. Emerging-market companies that lose access to external debt markets may then be forced to withdraw bank deposits, depriving domestic lenders of funding as well, they said. Low interest rates and central bank stimulus in developed nations, combined with a retreat in global bank lending, have encouraged emerging-market borrowers to raise debt abroad, according to the Basel, Switzerland-based BIS, which hosts the Basel Committee on Banking Supervision that sets global capital standards. Demand for higher-yielding securities also helped suppress borrowing costs for riskier issuers. “Like an elephant in a paddling pool, the huge size disparity between global investor portfolios and recipient markets can amplify distortions,” the analysts wrote. “It is far from reassuring that these flows have swelled on the back of an aggressive search for yield: strongly pro-cyclical, they surge and reverse as conditions and sentiment change.”

Russia more than doubles domestic debt plans to fund deficit - Russia, which scrapped a $7 billion Eurobond sale this year, plans to more than double its annual domestic borrowing program in the next three years from the current level to finance the budget deficit. The government will borrow 1 trillion rubles ($29 billion) to 1.1 trillion rubles a year on the local market, up from the 450 billion rubles now planned for 2014, Finance Minister Anton Siluanov told reporters in Moscow after a government meeting today. The government largely backed the ministry's proposals for the 2015-2017 budget, he said. Russia, which in May cut its domestic debt target by 358 billion rubles, is counting on increased investor appetite after demand for ruble assets suffered amid a plunge in the ruble on concern over Ukraine-related sanctions, as well as the central bank's unwillingness to lower interest rates because of accelerating inflation. "We see domestic borrowing as the main source of financing the budget deficit next year," Siluanov said. "The state's presence on the debt market will increase significantly."

IMF sees Russia close to recession as Ukraine sanctions bite -- Sanctions imposed on Russia over Ukraine have substantially slowed growth and will have a 'chilling effect' on investment, the International Monetary Fund has said. As a result, Russia could face a recession. Even before a renewed confrontation with the West emerged over influence in Ukraine, the Russian economy was facing prolonged uncertainty and a deterioration of confidence, the International Monetary Fund (IMF) said in a report released on Tuesday.According to the IMF, the consequences of the crisis could include lower consumption, weaker investment, greater exchange rate pressure, and capital outflows. The IMF estimated that Russian GDP growth would come in at just 0.2 percent for the whole of 2014, or about 1 percent lower than it had predicted in a pre-crisis estimate.

Michael Hudson: EU Association Agreement with Ukraine Is a Gift to Kleptocrats -  Yves Smith - This video is a great, accessible discussion by Michael Hudson on the Real News Network about how the widely-touted EU deal with the Ukraine is actually an exercise in looting by kleptocrats. Hudson explains that unlike earlier pacts, the EU is making no investment in Ukraine, nor is it allowing Ukraine, which has an agricultural producing region, to have the benefits of the CAP that French farmers enjoy. Hudson point out that the supposed benefit of Ukraine having access to the EU for exports is a smokescreen, since Ukraine is going to lose its main export market, Russia, and the Europeans don't want to buy Ukraine's products. Hudson contends that this deal is a de facto takeover, with kleptocrats to be installed in key governmental positions. He anticipates that the result will be mass unemployment and unrest.

Central Banks Face Bumpy Road to Emergency-Policy Exit, BIS Says - -- Central banks shouldn’t delay an exit from emergency policy measures even as the path may be rough, the Bank for International Settlements said. “It will be difficult to ensure a smooth normalization,” the BIS said in its annual report released yesterday. “The prospects for a bumpy exit together with other factors suggest that the predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly.” The warning comes after Bank of England Governor Mark Carney rowed back from earlier indications that he would raise interest rates in 2015, saying labor-market slack and weak wage growth weigh against an increase soon. In the U.S., Federal Reserve Chair Janet Yellen said this month the Fed doesn’t intend “to signal any imminent change” in policy and that the balance sheet will remain large “for some time.” The transition “from extraordinary monetary ease to more normal policy settings” will “require deft timing and skillful navigation of economic, financial and political factors,” the BIS said. “Navigating the transition is likely to be complex and bumpy, regardless of communication efforts.” The Basel, Switzerland-based organization, which comprises 60 central banks as members, defines itself as a bank for central banks and the world’s oldest international financial organization. It aims at promoting monetary and financial stability and acts as a forum for cooperation among central banks and the financial community.Part of this year’s BIS report focuses on the central banks’ forward-guidance strategies and the benefits and risks attached. While forward guidance has succeeded in influencing markets “over certain horizons,” it can also give rise to financial risks, the bank said.

Bad advice from Basel’s Jeremiah - I admire the Bank for International Settlements. It takes courage to accuse its owners – the world’s main central banks – of incompetence. Yet this is what it has done, most recently in its latest annual report. It would be easy to dismiss this as the rantings of a prophet of doom. That would be a mistake. Whether or not one agrees with its pre-1930s view of macroeconomic policy, the BIS raises big questions. Contrariness adds value. One can divide the BIS analysis into three parts: what caused the crisis; where we are now on the way out of it; and what we should do. It is on the third point – what is to be done – that the BIS turns into a prophet from the Old Testament: it demands austerity now. In countries that have experienced a financial crisis it recommends balance sheet repair and structural reform – deregulation, improved labour flexibility and “trimming public sector bloat”. It demands fiscal retrenchment. But unlike, say, George Osborne, the UK chancellor of the exchequer, the BIS wants to see monetary stimulus withdrawn, too, emphasising the risks of “exiting too late and too gradually”. It plays down both risks and costs of deflation, despite the huge overhang of debt that it also stresses. Even Jens Weidmann, the Bundesbank president, does not do that. Being more hawkish than the Bundesbank is quite something. Meanwhile, in countries that have experienced financial booms (the report points to Brazil, China and Turkey), it recommends pre-emptive monetary tightening and imposition of macroprudential restraints. To me, then, this is a blend of the wise, the foolish and the doubtful. Start The BIS is right to emphasise the enormous costs of credit-driven booms. But it ignores the context in which policy makers allowed these to occur. In particular, it ignores the evidence of a global savings glut shown in low pre-crisis long-term real interest rates and huge net flows of capital from countries with good investment opportunities to countries with far worse ones. Similarly, it ignores the impact of adverse shifts in the distribution of income and in business behaviour on propensities to save and invest.

Stability or Sadomonetarism? - Paul Krugman - Simon Wren-Lewis is harsh about the current tight-money crowd, exemplified by the Bank for International Settlements, who are urging tight money despite weak economies, for fear that investors will take excessive risks. But he’s not harsh enough. He’s right that it’s more or less insane to argue that the economy must be kept persistently depressed for fear that investors will be too exuberant — and at the same time to argue against fiscal expansion or anything else that might offset rising rates. What he doesn’t note, however, is that while the BIS has argued for raising interest rates at least since 2010, it keeps changing its reasoning. Here’s what it said in 2011 (pdf): Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks. It is also crucial if central banks are to preserve their hard-won inflation fighting credibility, which is particularly important now, when high public and private sector debt may be perceived as constraining the ability of central banks to maintain price stability. Central banks may have to be prepared to raise policy rates at a faster pace than in previous tightening episodes. And it praised the ECB for what we now know was a terrible decision to raise rates. So, that was three years ago, and Europe in particular is struggling with dangerously low inflation. Has the BIS changed its prescriptions? No, it’s just changed the reason for demanding the same thing.

Central Bankers Appear to Line Up their Defenses - Looks like there has been some international coordination of monetary policy rhetoric lately.  At the beginning of the week, the central bankers’ central bank — the Bank for International Settlements in Basel — warned loudly of the risks of moving “too slowly and too late” to raise interest rates back toward normal. As it did before the global financial crisis, the BIS emphasized the need to act early to avoid the booms-and-busts in financial markets and offered all sorts of reasons why today’s very low inflation shouldn’t be the primary concern of central bankers. Central bankers appear to have agreed on a common response. In the past couple of days, Federal Reserve Chairwoman Janet Yellen, European Central Bank President Mario Draghi and Bank of England deputy governor Jon Cunliffe have used the same phrases to say: Fuggedaboutit! With price and wage inflation not a concern right now, we aren’t going to raise interest rates and throw at lot of people out of work to avoid excesses in financial markets or to head off possible asset bubbles, they said. “I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns,” Ms. Yellen said Wednesday at the International Monetary Fund.Then, responding to questions from IMF chief Christine Lagarde, she added, “Macroprudential policies should be the main line of defense.” At his press conference Thursday, Mr. Draghi said: “The first line of defense should be the macroprudential tools. I don’t think people would agree with raising interest rates now.”

The case against maxing out monetary policy --CENTRAL banks in the developed world continue to keep monetary policy as loose as possible for as long as possible in order to facilitate a stronger recovery from the painfully weak upturn after the financial crisis and the “great recession”. America’s Federal Reserve may be phasing out its programme of asset purchases but it is determined to delay any rise in interest rates. The Bank of England is closer to a rate increase, but to the extent that any clear message can be deciphered from its confused communications such a move may still be some time off even though the base rate has been at a three-centuries low for over five years. In Japan quantitative easing carries on apace. And in the euro area the European Central Bank (ECB) has become the first big central bank to introduce negative interest rates and will lend funds to banks at rock-bottom rates fixed for as long as four years in a bid to ease credit conditions for firms in southern Europe. The new monetary-policy orthodoxy bears a disconcerting resemblance to someone maxing out their credit card but its proponents have an array of respectable arguments to justify their loose stance, such as continuing reserves of spare capacity in most advanced economies and surprisingly weak inflation.  Central banks may muster such arguments to back their new doctrine, but it would be naïve not to recognise that powerful interests, both private and public, have a stake in easy money stretching as long as the eye can see. Investors have profited hugely from the soaring asset markets that have been the one undisputable consequence of quantitative easing. Politicians have benefited, too, as central banks have ridden to the economic rescue. Paradoxically, they have gained by handing the keys of monetary policy to central bankers, who have been able to take bolder steps than elected politicians could have contemplated. Quite how independent the central banks really are in practice is an open question, not least since their policies have indirectly bailed out states as well as economies.

Negative Nominal Interest Rates: Highway to a Cashless, Statist Hell - Mario Draghi, chief psychopath of the European Central Bank went full-stupid on June 5th and announced mandated NEGATIVE INTEREST RATES on the excess reserves of European banks held and the European Central Bank  (which is the equivalent of the Federal Reserve Bank in the U.S.).  What does this mean?  It means that when a European commercial bank deposits excess cash reserves with the ECB, the commercial bank must PAY the ECB to store that money.  The commercial bank does not earn any interest income on that money, it in fact has a percentage of its deposit CONFISCATED from its account every month by the ECB. As you can see in the article linked above and countless others, the publicly stated rationale behind this negative interest rate paradigm is “stimulus”.  If the banks have to pay to store cash, they will instead lend their excess cash out to customers rather than have a percentage  confiscated every month.  This is utter bee-ess on multiple levels.  These top-tier central bankers know that negative interest rates have NOTHING to do with stimulus, and will, in fact, lead to exactly the opposite.  In fact, they know that the inevitable outcome of negative interest rates is the complete nationalization of the banking sector and total governmental control of all capital flows – which means today a CASHLESS ECONOMY.  Yup.  If you’re interested, I’ll walk you through the chain of events and differentiate between the propaganda that will be used to justify this evil and the reality of how the world actually works.

In Europe, Meager Inflation Feeds Japan Talk -Today’s euro-zone data on inflation and loans to businesses look weak again, and will add more fuel to the debate about whether European Central Bank, and euro-zone policy makers more generally, need to do more to prevent the bloc’s $13 trillion economy from getting stuck in a low-growth, low-inflation rut.The meager strength of the euro zone’s recovery so far — gross domestic product has expanded by a grand total of 1% in the four quarters since recession ended, while inflation has slipped well below 1% — is leading to a debate about whether Europe is turning into the next Japan. Inflation in the year to June was only 0.5%, the same as in May, disappointing hopes that the reading might rise. Inflation shows no sign of rising to the ECB’s target of nearly 2% any time soon. ECB officials tend to blame energy and other commodity prices for the below-target inflation, but core inflation was also weak in the year to June, at 0.8%. Bank loans to businesses, which play a larger role in the European economy than in the U.S., fell further in May. Many European banks are trying to clean up their balance sheets ahead of ECB stress tests later this year, leading to business complaints that lenders are rationing credit. Also, continued problems of high debt and weak growth in much the euro zone make lending to financially fragile small businesses unattractive. The ECB has already announced a program of long-term loans for banks that’s conditional on more lending to businesses. At the press conference after this Thursday’s monthly ECB meeting, President Mario Draghi will probably be quizzed about whether the ECB is any closer to a program of purchasing asset-backed securities, which many analysts think is the nearest the euro zone will get to Fed-style QE.

Mini Tax Havens – How Europe’s 1% Gets to Pay Only 1%  - A SICAV is an open-ended collective investment scheme that is common throughout Western Europe, especially in Luxembourg, Switzerland, Italy, Spain, Belgium, Malta, France and the Czech Republic. In all of those countries SICAVs receive preferential tax treatment. In Spain, for example, investors must pool together a minimum of 2.4 million euros and pay only 1 percent tax on annual returns. Meanwhile, in banker-friendly Luxembourg – where the EU-sponsored SICAV just happens to be based – the funds are taxed at a measly 0.05 percent rate.. According to the financial daily El Confidencial, a total of 39 Members of the Spanish Parliament, MEPs, and government ministers signed up to the SICAV. They include Spain’s current finance minister, Cristobal Montoro, the man who over the past two years has hiked direct and indirect taxes on both workers and small businesses to confiscatory levels.Thanks to lax legislation and limp enforcement, SICAVs have effectively become mini-tax havens allowing many of the country’s best-heeled individuals and families to avoid paying almost any tax on their investment earnings. One way they do that is by not cashing in their dividends or selling their shares in the funds, since that would accrue taxes of 19 percent and 21 percent respectively. Instead, what they do is execute regular draw-downs on their capital investment. By withdrawing just part – rather than all – of their initial investment, they pay just 1 percent tax on their earnings. What’s more, by law each SICAV must have a minimum of 100 stockholders. Most funds avoid this rule, however, by naming a series of straw-man investors, commonly known as “mariachis,” so that each SICAV is effectively controlled by only one person or one family.

French debt reaches 93.6% of GDP in first quarter - --France's public debt rose 45.5 billion euros ($61.0 billion) in the first quarter of 2014 bringing the country's total public debt to 93.6% of economic output, statistics agency Insee said Monday. Public debt in the euro zone's second-largest economy reached EUR1.96 trillion in the first quarter, mainly due to an increase in the central state's debt, the statistics agency said. The state auditor the Cour des Comptes said earlier in June that France's public debt will rise to over EUR2 trillion this year, even if the government succeeds in delivering on its deficit reduction plans.

Portugal’s sovereign debt totals 132.9 pct of GDP at the end of 1st quarter -- Portugal’s sovereign debt totalled 132.9 percent of Gross Domestic Product (GDP) at the end of March, according to figures from the Budget Support Technical Unit (UTAO), which brings together independent technical experts to support the Portuguese parliament. In a statement the UTAO said that at the end of the first quarter of 2014 Portuguese public debt was 4 percentage point higher than the figure for 2013 and “exceeded the target set in the 2014-2018 Budget Strategy Document by 2.7 percentage points.” The estimate from the UTAO is higher than the figure published in May by the Bank of Portugal, which said that Portuguese public debt had reached 132.4 percent of GDP at the end of the first quarter of 2014. The UTAO noted that the annual target for the budget deficit, of 4 percent of GDP, included expenditure cuts that were vetoed by he Constitutional Court, which “will have a direct impact on the deficit in the second quarter.” In a letter sent to international creditors on 12 June, the government reiterated that it “maintains the target of achieving a deficit of 4 percent of GDP this year and 2.5 percent in 2015, in line with the recommendations of the Council to move away from a situation of excessive debt.”

Euro zone unemployment stable, recovery creates few jobs (Reuters) - Euro zone unemployment was stable for the second consecutive month in May at 11.6 percent, official data showed on Tuesday, underlining that the recovery in the bloc is far from strong enough to spur solid job creation in all countries. Around 18.5 million people were without a job in May in the 18 countries sharing the euro, although that was 28,000 fewer than in April, the EU's statistics office Eurostat said. "A mild recovery continues but it is still leaving many people behind," European Commissioner for Employment Laszlo Andor said. "We can only really speak of a proper recovery when Europe's economy creates new jobs in hundreds of thousands every month on a sustained basis," Andor said, adding member countries need to take further action to support job creation. Joblessness in the single currency area, which remains close to the record high of 12 percent seen last year, is expected to fall very slowly from current levels to 11.4 percent next year, the European Commission says. The April reading was revised to 11.6 percent from the previously reported 11.7 percent.

Euro zone unemployment stuck, recovery stalls: The euro zone's unemployment rate held steady in May, at 11.6 percent, in a further sign that the region's bumpy recovery is struggling to take hold. It followed separate data which revealed that manufacturing activity in the euro zone slid to a seven-month low in June. Some 18.55 million people were unemployed across the currency bloc in May, according to Eurostat data published Tuesday, a fall of 28,000 from April. However this reduction in joblessness was not enough to drive the unemployment rate lower. The lowest unemployment rates were recorded in Austria and Germany, at around 5 percent. However joblessness remained worryingly high in Greece (26.8 percent in March 2014) and Spain (25.1 percent). The youth unemployment rate, meanwhile, came in at 23.3 percent for the euro zone in May. Joblessness among the under-25s was a particular issue in Greece, Spain and Croatia where the most recent figures put youth unemployment at 57.7 percent, 54 percent and 48.7 percent respectively

Which Options for Mr. Renzi to Revive Italy and Save the Euro? - Since 2008, Italy’s industrial production has shrunk 25 per cent. In the last quarter of 2013, while exports reached back to almost the same level as in 2007, household consumption was down by about 8 per cent and investment by 26 per cent, with a capacity loss in manufacturing hovering around 15 per cent. Between 2007-2013 employment fell by more than a million, and the unemployment rate more than doubled (Banca d’Italia 2014a).Last year the budget deficit remained stable at 3 per cent of GDP, while the 2.2 per cent primary surplus was the largest in the Eurozone, along with Germany’s. Yet public debt rose from 127.0 to 132.6 per cent of GDP (Banca d’Italia 2014b). In practice, Italy has to borrow even if it does not run any net-of-interest deficit. In broad numbers, every year it spends 800 billion euros a year, borrows 50 billions to cover deficits due to 85 billions in interest on a 2 trillion debt, and borrows 400 billions to roll over its maturing debt. By raising taxes to cut the deficit, Italy’s GDP has stopped growing in nominal terms six years ago, while debt has kept growing since. Even if this situation were financially sustainable, it makes it impossible for Italy to grow out of its problems. The economy is straightjacketed. Creating new jobs and reabsorbing mass unemployment will not be achieved only through modest improvements in exports and timid jumps in expectations. Structural reforms (such as in justice, education, governance, and doing business), while necessary to modernize the country and improve the economic environment, won’t jumpstart any recovery any time soon, if at all. Which policy options are available for the country to exit stagnation and accelerate recovery?

Economists React: Riksbank Rate Cut Catches Economists Off Guard - Sweden’s central bank caught economists by surprise on Thursday, as it made an unexpectedly large cut to its main interest rate, sending Sweden’s krona plummeting against both the euro and dollar. The Riksbank–the world’s oldest central bank–cut its main repo rate to 0.25% from 0.75%, in an effort to boost Sweden’s sagging inflation rate which has long fallen short of the central bank’s 2% target. All analysts polled by the Wall Street Journal had expected a cut to 0.5%.  Anna Raman at Denmark’s Nykredit said the 50 basis point rate cut and the lower path for future interest rates indicated by the central bank shows that the Riksbank has entered “panic mode,” and added that it’s remarkable that the Riksbank Governor Stefan Ingves and Deputy Governor Kerstin af Jochnick were outvoted. The decision marked the first time that the Riksbank Governor has been outvoted in a rate call since the policy-setting board became independent in 1999. Ms. Raman added that the probability of further rate cuts is slim, and noted that apart from inflation, the Swedish economy and the labour market is on the right track. “We anticipate that the Riksbank will revise its rate path higher during autumn and winter,” she said. “The first rate hike will come in summer 2015 at the earliest – but the split monetary policy board is causing uncertainty.”

IMF warns of negative spiral in France as recession looms again - France is on the cusp of a fresh recession as services contract sharply and the country braces for yet another round of austerity cuts, with record jobless levels likely to bedevil Francois Hollande’s presidency for years to come. Markit’s PMI services gauge for France fell for the third month to 48.2 in June, pointing to an outright fall in GDP following zero growth in the first quarter. The International Monetary Fund cut its growth forecast this year from 1pc to 0.7pc, warning that there would be no “appreciable decline” in French unemployment until 2016. “Volatile and uneven leading indicators point to the risk of a stalled recovery,” it said. The IMF said public debt should peak at 95pc of GDP next year but a “growth shock” would push it to 103pc by 2016. The Fund warned of a “negative spiral of low growth and falling inflation” that is pushing up real borrowing costs and further choking investment, already dismally weak. Core inflation was 0.3pc in May. The economic relapse is a political disaster for Mr Hollande, already the least popular leader in modern times with a poll rating of 23pc, and reeling from a crushing defeat by the far-Right Front National in European elections.

German Manufacturing Orders Decline on Geopolitical Risks - German factory orders fell more than economists expected in May as geopolitical risks weighed on confidence in the strength of Europe’s largest economy. Orders, adjusted for seasonal swings and inflation, fell 1.7 percent from April, when they rose a revised 3.4 percent, the Economy Ministry in Berlin said today. Economists forecast a decline of 1.1 percent, according to the median of 30 estimates in a Bloomberg News survey. While recent surveys suggest that the pace of Germany’s economic expansion is cooling and tensions between Russia and Ukraine have increased uncertainty, the nation remains the driving force for the subdued recovery in the euro area, its largest trading partner. The Bundesbank has said Germany’s outlook remains positive and the European Central Bank is relying on unprecedented stimulus to fuel growth and inflation in the 18-nation currency bloc. “The decline is mostly due to the strong rebound in April, which was quite surprising,” said Johannes Gareis, an economist at Natixis in Frankfurt. “We are still well above the first-quarter average and this suggests the underlying trend of the German industrial sector, and of the German economy, is intact.”

Mario Draghi shakes up ECB deliberations - The European Central Bank is to shake up the way it conducts monetary policy, moving its monthly meetings to a six-week cycle and publishing regular accounts of its deliberations from January 2015. The publication of the minutes brings the ECB into line with other big central banks, including the Bank of England, the US Federal Reserve and the Bank of Japan. It constitutes a major about-turn for policy makers in Frankfurt, who have long worried that revealing what happened during their monetary policy meetings could increase pressure on them to act on national lines. Mario Draghi, ECB president, said it would hold “dry runs” over the next six month to decide issues such as whether to reveal how individual policy makers vote. The ECB’s governing council on Thursday left its main refinancing rate at 0.15 per cent. It continues to charge a fee of 0.1 per cent on banks’ deposits above a certain threshold parked in its coffers. The rate decision was widely expected after the central bank in June unveiled a extraordinary measures to counter the threat of deflation in the eurozone. At 0.5 per cent, inflation is still just over a quarter of the central bank’s target of below but close to 2 per cent. There are also signs that the bloc’s recovery is weakening, with activity slowing both in the manufacturing and services sectors. In the press conference, Mr Draghi revealed more details of the offer of cheap loans that the central bank made to eurozone’s lenders in June.

Bundesbank Chief Supports ECB’s Bold Measures - - Bundesbank President Jens Weidmann underscored his support for a bold array of measures that the ECB agreed to last month, signaling that they are very different in nature to bond-buying programs, which Mr. Weidmann publicly denounced. In remarks published Thursday, Mr. Weidmann, who also sits on the ECB’s Governing Council, said that the decisions the ECB reached at its June meeting “are for me not synonymous with the crisis measures from two or three years ago. The current measures do not foresee taking the liability risks of individual countries onto the balance sheet of the Eurosystem,” said Mr. Weidmann, making a clear reference to bond-buying programs. Three years ago the ECB re-launched a bond-buying program to prop up Spain and Italy and two years ago, the ECB announced a new, stronger bond-buying program, which it has yet to use and which experts think it might never actually employ. Mr. Weidmann vigorously objected to both programs. “Today, the point is to prevent a phase of inflation that is too low for too long, as this could cripple the economy in the euro zone,” he said. At its meeting in early June, the ECB decided to cut all of its interest rates, including making its deposit rate negative, thus putting a tax on banks’ excess reserves. It also announced targeted loans for banks, which allow banks to borrow more if they increase lending to the real economy and it laid the groundwork for purchases of asset-backed securities. The ECB announced more details about its targeted longer-term refinancing operations, or TLTROs, at its meeting Thursday.

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