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

Saturday, August 16, 2014

week ending Aug 16

Fed's Balance Sheet 13 August 2014 - Another Record - Fed's Balance Sheet week ending balance sheet was $4.389 trillion - up from the record $4.368 for week ending 23 July 2014. The complete balance sheet data and graphical breakdown of the cumulative and weekly changes follows  Read more >>

FRB: H.4.1 Release--Factors Affecting Reserve Balances--August 14, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Are We There Yet? - Atlanta Fed's macroblog - When will the economy finally look like it is satisfying the Federal Open Market Committee’s (FOMC) dual mandate of price stability and full employment? The answer varies somewhat across the FOMC participants. The difference in perspectives on the distance still to travel is implicit in the range of implied liftoff dates for the FOMC’s short-term interest-rate tool in the Summary of Economic Projections (SEP). So how might we go about assessing how close the economy truly is to meeting the FOMC’s objectives of price stability and full employment? In a speech on July 17, President James Bullard of the St. Louis Fed laid out a straightforward approach, as outlined in a press release accompanying the speech:  To measure the distance of the economy from the FOMC’s goals, Bullard used a simple function that depends on the distance of inflation from the FOMC’s long-run target and on the distance of the unemployment rate from its long-run average. This version puts equal weight on inflation and unemployment and is sometimes used to evaluate various policy options, Bullard explained. We think that President Bullard’s quadratic-loss-function approach is a reasonable one. Chart 1 shows what you get using this approach, assuming a goal of year-over-year personal consumption expenditure inflation at 2 percent, and the headline U-3 measure of the unemployment rate at 5.4 percent. (As the U.S. Bureau of Labor Statistics defines unemployment, U-3 measures the total unemployed as a percent of the labor force.) This rate is about the midpoint of the central tendency of the FOMC’s longer-run estimate for unemployment from the June SEP.

Bullard: Fed Getting Close to Policy Goals - Falling unemployment and rising inflation are bringing the Federal Reserve closer to its goals more rapidly than policy makers had foreseen, and may justify raising interest rates as early as the end of the first quarter of 2015, St. Louis Fed President James Bullard said Thursday. A rebound in U.S. economic growth in the second quarter following a drop in output in the first three months of the year confirmed the dismal first quarter was an anomaly in an otherwise improving trend, Mr. Bullard told The Wall Street Journal in a telephone interview. Hiring has also shown consistent strength, he said. “Basically we’re way ahead of schedule for labor-market improvement,” Mr. Bullard said. He noted that former Fed Chairman Ben Bernanke said last summer the unemployment rate would likely be around 7% when the Fed wrapped up its bond-buying program. Instead, it was 6.2% in July, and “could go below 6% by the time we end bond buys,” Mr. Bullard said. The Fed has indicated it will end the controversial asset purchases in October, and has said it will wait a “considerable time” after that to begin raising interest rates from near zero. The bond purchases are aimed at lowering long-term interest rates to spur spending, hiring and investment. Many investors expect the Fed to start raising its benchmark short-term interest rate, the federal funds rate, sometime next summer, a view encouraged by some Fed officials. But Mr. Bullard thinks that might be waiting a little too long. 

Kocherlakota Says Fed Still Missing Inflation, Jobs Goals - - U.S. inflation has remained consistently below the Federal Reserve‘s 2% inflation target and is forecast to continue doing so, while the broader economy is still “some way” from full employment, Minneapolis Fed President Narayana Kocherlakota said Friday. In a speech primarily focused on community banking, Mr. Kocherlakota nonetheless offered some flavor of the economic views that have turned him into one of the most dovish members of the central bank’s policy-setting Federal Open Market Committee. While he did not speak to his desired path for monetary policy specifically, his discussion of the Fed’s missed objectives made it clear he supports keeping official borrowing costs near zero, where they have stood since December 2008, for the foreseeable future. “The FOMC is still a long way from meeting its targeted goal of price stability,” Mr.. “I see labor markets as remaining some way from meeting the FOMC’s goal of full employment.” Unemployment has fallen sharply from a post-recession peak of 10% in October 2009 to 6.2% last month. However, that is still well above the Fed’s long-run forecast range of 5.2% to 5.5%. The Fed’s preferred inflation measure, Mr. Kocherlakota noted, has averaged just 1.6% since the start of the recession. “A persistently below-target inflation rate is a signal that the U.S. economy is not taking advantage of all of its available resources,” Mr. Kocherlakota said. “If demand were sufficiently high to generate 2% inflation, the underutilized resources would be put to work.”

Why The Federal Reserve Will Never Be Able To Get Out Of QE - The Fed has increased its balance sheet by an unprecedented $3.5t since 2008. They accomplished this by purchasing Treasuries and MBS from banks in exchange for Fed credit. A credit from the Federal Reserve is a nuanced way of saying "new money". This new money is transferred as a credit to the banks with the idea that the Fed can and will reverse this transaction at its discretion. Like an army releases reserves, the Fed (with the help of private banks) has marched many of these new dollars into the economy to "save us" from deflation. Once the job is done, the Fed intends to call these dollars back and shrink its balance sheet back to pre-crisis levels. This all sounds great in theory, but as we will soon see, the practical applications of shrinking the Fed's massive Balance Sheet has become impossible without creating a monetary depression.

Fears of Renewed Instability as Fed Ends Stimulus - “There’s no real precedent for ending anything of this magnitude,” said Jeremy Stein, who left the Fed’s Board of Governors at the end of May to return to Harvard’s economics department, where I caught up with him last month on the day of the Dow’s big drop. As the Fed feels its way, he said, investors may have to prepare for greater volatility. In April, in his last speech as a Fed board member, Mr. Stein warned that monetary policy should be “less aggressive” when credit risk premiums were extremely low, as they were then, and they’ve gotten even lower since. “To be clear, we are not necessarily talking about once-in-a-generation financial crises here, with major financial institutions teetering on the brink of failure,” he said in a speech to the International Monetary Fund. “Nevertheless, the evidence suggests that even more modest capital market disruptions may have consequences that are large enough to warrant consideration when formulating monetary policy.” Mr. Stein’s concerns have been gaining traction. They’re expected to be a major topic at next week’s annual gathering of Fed officials, policy makers and economists at Jackson Hole, Wyo. This week, former Treasury Secretary Robert Rubin and Martin Feldstein, a former chairman of the Council of Economic Advisers and a Harvard professor, sounded similar themes in an op-ed article in The Wall Street Journal, warning that the Fed-induced low rates “have led to reaching for yield in many ways and in very large magnitudes.” They added, “The risk of excesses and the consequent instability have increased substantially.”

Fed Exit Fears Overstated, S&P Economist Says - Worries that the Federal Reserve’s attempt to unwind extraordinary monetary support for the U.S. economy will go awry — because the central bank is in uncharted territory — are excessively alarmist, Standard & Poor’s chief global economist Paul Sheard says in a new report. The Fed has kept official borrowing costs near zero since December 2008, and bought more than $3 trillion in mortgage and Treasury bonds in an effort to jump-start the weakest economic recovery in decades. Growth has been sustained but soft, and the bond purchases have remained controversial. Unemployment has come down from a crisis peak of 10% to 6.2%, but remains elevated for historical standards. Some economists, including a vocal minority of top Fed officials, fear the large amount of excess reserves in the banking system created by the bond purchases could spark inflation more quickly than in the past. This could complicate the process of increasing rates, critics of the program say, and potentially raise the costs of a policy error. But Mr. Sheard offers a much more sanguine view. “As the U.S. Federal Reserve continues its stated process of reducing the amount of its monthly bond purchases, the warnings about impending disaster are growing ever louder,” he writes. “They create the impression among the wider public, and particularly among investors, that central banks have blithely paddled into treacherous waters from which they have no realistic hope of escape.” Yet that’s simply not the case, Mr. Sheard argues. Instead, the Fed’s unconventional steps were well-advised considering the deep economic malaise facing the country, he says. And despite the relatively untested nature of bond buys, Fed policy makers have already shown they have plenty of tools to withdraw liquidity from the financial system when the time comes.

More Signs of Labor Momentum As Fed Officials Head to Mountains -- The Federal Reserve’s Jackson Hole meetings are almost a week away. The theme of this year’s event is the economy’s damaged labor markets, but officials will have a growing collection of good news to consider during their three-day sojourn in the Wyoming mountains. The unemployment rate, at 6.2% in July, is down from 7.3% a year ago. Business payrolls are up 2.57 million from a year ago, the largest 12-month gain since April 2006. And the latest Job Opening and Labor Turnover Survey (JOLTS), released by the Labor Department Tuesday, showed growing dynamism in labor markets. Monthly hiring in June was up 9.0% from a year ago. The number of job openings at U.S. firms in June was up 19.2% from a year ago. The number of Americans quitting their jobs – a sign of their willingness to venture out and take risks – was up 15.0% from a year ago. Because the recession was so deep, there are still signs of slack in labor markets – for instance high levels of part-time workers who want full-time jobs and the long-term unemployed. But the underlying theme of the latest data is that the economy has begun the second half of 2014 with clear momentum in labor markets. That’s good news for Americans which will present challenges for Fed officials as they consider when to raise short-term interest rates from very low levels.

Why Gross, Rubin and Feldstein Are Fighting the Fed -- Messrs. Rubin and Feldstein co-authored an op-ed appearing in today's Wall Street Journal entitled, "The Fed's Systemic-Risk Balancing Act." I shared the following excerpt this morning on Surveillance as my morning must-read: "The combination of extremely low 10-year yields, low volatility and the reaching for yield elsewhere by investors and lenders suggest the risk of excesses and the instability have increased substantially beyond the banking system." We recognize Dr. Feldstein has argued for deficit reduction since his days advising then-President Ronald Reagan as chairman of the Council of Economic Advisors, so his opposition to Fed liquidity comes as no surprise. Curiously though, the understated Mr. Rubin chose this as the moment to re-emerge from the sidelines, so many years after having been hailed by former President Bill Clinton as "the greatest Secretary of the Treasury since Alexander Hamilton." Mr. Rubin clearly has an opinion. And so does the man dubbed the "Bond King." Bill Gross has effectively begun trading against the Fed, reducing holdings of U.S. Treasury Securities in his $223-billion Total Return Fund. This is somewhat surprising, because he's written extensively about a "New Neutral" of sub-3 percent gross domestic product growth and indefinitely low interest rates. Clearly, something has changed. His actions suggest preparation for a world of higher rates, and perhaps higher redemptions as the investors follow suit.

Fed's Fischer calls U.S. and global recoveries disappointing (Reuters) - The U.S. and global recoveries have been "disappointing" so far and may point to a permanent downshift in economic potential, U.S. Federal Reserve Vice Chair Stanley Fischer said on Monday. In an overview of the years since the 2007-2009 financial crisis and recession, Fischer said a slowing of U.S. productivity, declining labor force participation and other factors may have scarred the United States' ability to generate economic growth. The same thing may be happening for different reasons in Europe, major emerging economies like China, and elsewhere, he said, forcing central bankers to recast their understanding of inflation, employment and growth in general. true "The global recovery has been disappointing," Fischer said in prepared remarks for a speech to an economic conference in Sweden. Long-run annual growth in the United States may now be perhaps as low as 2 percent, a full percentage point below the estimate of Fed policymakers as recently as 2009, he said. Some of that may represent temporary factors that will change if, for example, the U.S. housing market improves. "But it is also possible that the underperformance reflects a more structural, longer-term shift in the global economy," Fischer said.

All About Zero - Paul Krugman - Way back in 2008 I (and many others) argued that the financial crisis had pushed us into a liquidity trap, comparable to the situation Japan has faced since the mid-1990s — a situation in which the Fed and its counterparts elsewhere couldn’t restore full employment even by reducing short-term interest rates all the way to zero. We can argue about what else central banks can do by way of buying longer term and/or risky assets, trying to change expectations, and so on, but in practice the zero lower bound has huge adverse effects on policy effectiveness. It also drastically changes the rules as long as it’s binding; as I said very early in the crisis, virtue becomes vice and prudence is folly. We want less saving, higher expected inflation, and more.And let me simply point out that liquidity-trap analysis has been overwhelmingly successful in its predictions: massive deficits didn’t drive up interest rates, enormous increases in the monetary base didn’t cause inflation, and fiscal austerity was associated with large declines in output and employment.  What secular stagnation adds to the mix is the strong possibility that this Alice-through-the-looking-glass world is the new normal, or at least is going to be the way the world looks a lot of the time. Do we know that secular stagnation is here? No. But the case is strong enough that it should color almost every policy discussion.

Secular Stagnation: The Book - Paul Krugman -- Ebook, actually: the invaluable VoxEU has a new ebook with contributions from a lot of good people — and also one from me — which is must-reading for anyone trying to keep up with current debates about our economic prospects.  For those new to or confused by the term, secular stagnation is the claim that underlying changes in the economy, such as slowing growth in the working-age population, have made episodes like the past five years in Europe and the US, and the last 20 years in Japan, likely to happen often. That is, we will often find ourselves facing persistent shortfalls of demand, which can’t be overcome even with near-zero interest rates. Secular stagnation is not the same thing as the argument, associated in particular with Bob Gordon (who’s also in the book), that the growth of economic potential is slowing, although slowing potential might contribute to secular stagnation by reducing investment demand. It’s a demand-side, not a supply-side concept. And it has some seriously unconventional implications for policy. Anyway, go thou and download. You need to read this.

The Secular Stagnation Bug is Spreading at the Fed -- Speaking of secular stagnation, it appears to be catching on at the Fed. Here is CNBC's Alex RosenbergIs there something seriously wrong with the economy?   It's a scary prospect, and a concern that's gotten louder and louder over the past year. In economic circles, it goes by the alliterative name of "secular stagnation." And it's a phrase that Fed watchers are likely to hear more and more in the months ahead. Recent comments by the vice chairman of the Federal Reserve, Stanley Fischer, indicate questions within the central bank about whether the slow growth that has followed the recent recession could reflect, or at least could potentially morph into, longer-term issues within the economy. And while Fischer avoided the phrase "secular stagnation" in his Monday speech, Minneapolis Fed President Narayana Kocherlakota is planning to host a November symposium that directly addresses the issue of secular stagnation by name, CNBC has learned. Actually, it is worse than Rosenberg reports. The FOMC projections that are available show a pronounced downward trend in the "longer run" forecast of the federal funds rate. This projection is the expected average value of the federal funds rate over the long run. In short, its the expected long-run netural federal funds rate. Its declining trend can be seen in the figure below which shows the average of each member's FOMC "longer-run"forecast for each meeting where projections are available:  I have a hard time believing the fundamentals warrant this downward revision in the long-run neutral interest rate.

Fed’s Fischer Skeptical U.S. Growth Slowdown Is Permanent - Federal Reserve Vice Chairman Stanley Fischer said Monday the jury was still out on whether the Great Recession had permanently damaged U.S. economic growth, suggesting he still sees a strong role for monetary policy to support the American recovery. In his first remarks focused primarily on the economy since taking up the central bank’s No. 2 role in June, Mr. Fischer noted disappointing rebounds across advanced economies had led many observers, including the Fed itself, to trim their long-term expectations for America’s growth potential. “Year after year we have had to explain from mid-year on why the global growth rate has been lower than predicted as little as two quarters back,” said Mr. Fischer, who was previously Governor of the Bank of Israel, said in prepared remarks for delivery at a conference in Stockholm. “These disappointments in output performance have not only led to repeated downward revisions of forecasts for short-term growth, but also to a general reassessment of longer-run growth.” Mr. Fischer acknowledged a shrinking labor force and weak investment trends might lend some support to the thesis, espoused by Harvard economist Lawrence Summers and others, that the U.S. economy has undergone a permanent downward shift or “secular” slowdown. However, he seemed to be more optimistic. “It is unwise to underestimate human ingenuity,” Mr. Fischer said in the prepared remarks.

Investment slumps - Econbrowser: I was interested to take a look at our recent weak economic performance from a longer-term perspective. The graph below plots private domestic fixed investment as a fraction of GDP for the United States going back to 1929, along with the median value for this fraction over the whole period. We always see investment fall as a fraction of GDP during an economic downturn. And in prolonged economic slumps– the Great Depression and its aftermath in the 1930s, and more recently the Great Recession and its aftermath– investment as a fraction of GDP remains significantly below normal for a prolonged period.  Clearly the feedback runs in both directions. When the economy is doing badly, nobody wants to invest, and when investment is low, there’s that much less spending to contribute to GDP. Interestingly we see the same pattern in Japan. Japan’s anemic economy over the last two decades has been characterized as a prolonged period of below-normal investment spending. It’s interesting also to look at the individual components of investment. They each exhibit the same broad comovements with output, but with some idiosyncrasies. Notably, residential fixed investment accounted for almost all of the gain in investment as a fraction of GDP in the years just prior to the Great Recession. And in 2013, residential investment was still below normal as a fraction of GDP, and is the primary reason that investment overall remains lower than normal.

Demographics and US GDP growth -- Credit Suisse’s global demographics research team came out with a new note on Friday featuring some enlightening charts about the US economy. It provides a handy way of evaluating the country’s lackluster performance since 2000, as well as a few longer-term trends. As the CS team notes, GDP growth can be decomposed into three distinct forces: growth in the population of working-age people, growth in the number of hours worked by each working-aged person, and productivity growth. Here is their illustration of how each of these forces has contributed to total output growth in each decade since 1950: A few things stand out. Perhaps most obvious is the sharp slowdown in the average annual rate of productivity growth since 1970, which has been pored over by many scholars and commentators. There has also been a significant slowdown in the growth rate of the working-age population (15-64 year olds) since 1980. Together, these trends have shaved about 1 percentage point off of the long run GDP growth rate, although there was a temporary upsurge in both during the 1990s. The unusual blip is particularly noticeable in the growth rate of the working-age population: At the same time, we see there has been a lot more variation in the number of hours worked per person of working age since 1980. Initially, this was positive for GDP, as women entered the workforce in large numbers, particularly as full-time employees. (For more on this, see Noah Smith’s excellent post from this weekend.)

The economy: How long will the expansion last? - The Economist - NEWS that America’s economy grew at a brisk annualised rate of 4% in the second quarter was greeted with relief. After a puzzling first-quarter contraction, growth has returned, though the recovery remains the weakest since the second world war. As of June, the expansion is now five years old, longer than the post-war average of 58 months (see chart 1). The next recession could in theory be around the corner. But unlike people, business expansions don’t die of old age: they are killed by an unpredictable shock, says Bob Hall, an economist at Stanford University and chairman of the academic panel that dates American business cycles: “The next recession will come out of the blue, just like all of its predecessors. Recessions have become rarer in recent decades. The three expansions preceding the 2008 crisis lasted on average for 95 months. If that pattern holds, the current expansion should have plenty of life left in it. Inflation is actually lower than the Fed’s target of 2%. The huge hit sustained during the crisis has a positive side: it has given the economy plenty of running room. JPMorgan reckons that adding a percentage point to the output gap at the start of an expansion adds two quarters to its lifespan. This suggests the current expansion has at least two more years to run; the economy is still operating some 5% below its potential (see chart 2). Better yet, the previous three expansions have ended around three years after unemployment fell to its “natural” rate, likely between 5% and 5.5%. By that yardstick, JPMorgan reckons the expansion could last until 2018, which would make it one of the longest on record.

So long to that 4% GDP report in the second quarter? - In the 1980 and 1990s, the US economy generated nearly 40 quarters where GDP was 4% or higher. But there have been just seven of these “hypergrowth” quarters in the 2000s. Actually, make that six. It no longer looks like the US economy grew by 4.0% in the second quarter of this year. JP Morgan: Nominal business inventories increased 0.4% in June. The new data in today’s report related to 2Q GDP tracking (non auto retail inventories) came out weaker than the related assumptions from the BEA’s advance 2Q GDP report and, as a result, we are lowering our tracking estimate of 2Q real GDP growth from 3.8% to 3.6%. And RDQ Economics: Inventories rose in June by less than the Commerce Department’s assumptions in the advance release of second-quarter GDP.  This was only partly offset by a narrower trade gap and points to a downward revision to the change in second-quarter real GDP to 3.7% from an initially reported 4.0% gain.  From a bigger picture perspective, the inventory-to-sales ratio has been very stable at a relatively low level indicating that inventories remained well contained at the end of the second quarter.

The Failure of Demand Management Policy since 2007...    Suppose you had told the Federal Reserve back in mid-2007: you are about to be hit by the biggest adverse-demand and credit-channel shock in history, which will create the largest overhang of undesired risky debt ever. Would anyone at it then have said: “Good! Let’s lower the price level seven years from now by 5% relative to expected trend, and lower nominal GDP seven years from now by 12% relative to currently-expected trend!”? In the five years after the Great Depression trough in 1933 nominal GDP grew by 52%. In the five years since the Lesser Depression trough in 2009 nominal GDP has only grown by 18%. And the response from my friends in the Fed, the Treasury, and the White House is: “we did everything we could” and “everybody else has done worse”…

How Much U.S. Debt Does China Hold? The U.S. Isn’t Sure - China’s buying of U.S. debt is so murky, even the U.S. doesn’t know exactly how much Beijing owns. Each month, the Treasury Department releases its Treasury International Capital report detailing data on capital flows across U.S. borders. That report attempts to tally transactions and foreign ownership of U.S. debt and other assets. It gives Treasury a rough picture, gleaned from reports it receives from banks and other financial houses on a monthly and annual basis. But it’s still just an educated guess, given that not every financial institution around the world, including China’s own People’s Bank of China, fesses up to all the details of its transactions. Take, for example, June data published Friday. If you add China’s $372 million in net purchases of Treasury bills from one table (column 9) to its $23.6 billion in net buying of bonds and notes in Treasury’s long-term table, it appears Beijing added a net $24 billion to its portfolio.But Treasury’s table for the holdings of major foreign holders shows a net reduction in China’s portfolio of $2.5 billion.

Treasury: Budget Deficit declined in July 2014 compared to July 2013 -- The Treasury released the July Monthly Treasury Statement today. The Treasury reported a $94 billion deficit in July 2014, down from $97 billion in July 2013. For fiscal year 2014 through July, the deficit was $460 billion compared to $607 billion for the same period in fiscal 2013 (the fiscal year end in September). In April, the Congressional Budget Office (CBO) released their new Updated Budget Projections: 2014 to 2024. The projected budget deficits were reduced for each of the next ten years, and the projected deficit for 2014 was revised down from 3.0% to 2.8%.  Based on the Treasury release today, I expect the deficit for fiscal 2014 to be close to the current CBO projection. The CBO will publish new budget projections this month.

U.S. July budget deficit $94.6 billion: Treasury - The U.S. budget deficit was $94.6 billion in July, the Treasury Department reported Tuesday. That is a decrease of $3 billion, or 3%, from the shortfall posted in July 2013. Receipts increased 5% in the month, to $11 billion, while spending rose 3% to $8 billion. For the first ten months of the 2014 fiscal year, the deficit has fallen 24% mostly thanks to receipts, which are up 8% compared to the same period a year ago. Spending has risen 1%.

The US budget deficit continues to shrivel --A huge economic story that seems unable to get through the filter. Barclays:The US federal government posted a budget deficit of $94.6bn in July, in line with our forecast (-$96.0bn) and consensus estimates (-$96.0bn). This brings the deficit to $460.5bn for FY 14, a 24.2% improvement over the same period a year ago.This narrowing was driven mainly by an improvement in revenues, with total receipts in July of $201bn standing 5.3% above year-ago levels and total receipts on a fiscal year-to-date basis up 8.0%, to $2.469bn. Total spending on the month was up a modest 2.5% y/y, to $305bn, although spending on a fiscal year-to-date basis is up only 1.2%, to $2.929bn, versus last year.Overall, we see trends in line with our view that the federal budget balance in percent of GDP will average 2.8% this year, down from 4.1% in 2013 and 6.8% in 2012. And down from 9.8% in 2009! The Barclays forecast matches that of the CBO. It is worth noting, of course, that according to the CBO the deficit as a share of GDP will bottom next year and then begin its long-term ascent thanks to rising interest rates (and thus debt expense) and rising entitlement spending.

The Supply-Side Case for Government Redistribution - Alan Blinder --You hear a lot of talk these days about the ill-effects of income inequality in the United States. Even Standard & Poor's got into the act earlier this month with a well-publicized report on "How Increasing Income Inequality is Dampening U.S. Economic Growth." It's most unlikely that the current Congress will do anything to reduce inequality—or do anything constructive, period. But recognizing that you have a problem is a necessary first step toward solving it. Why is high and rising inequality a problem?The fundamental case against high inequality begins—and for some people ends—with an ethical judgment. On the left, people tend to believe that greater equality is a goal that government should pursue per se; it makes for a better, more just society. On the right, people tend to see the distribution of income as determined by the impersonal forces of the market; they often oppose using government power to equalize that distribution. I've recently heard claims in the media that rising inequality slows the growth of consumer spending because—isn't it obvious?—the rich spend less of their incomes than the poor. So, as more and more of the nation's income accrues to the upper echelons, the fraction spent declines. The deduction is logical. But the premise is not true. Research by me and others decades ago found that, contrary to the common assumption, more inequality does not lead to less spending; and history has since given that finding an acid test. Regardless of how you measure it, income inequality has surged since about 1979. If rising inequality reduced spending, American consumers as a group would now be spending less of their aggregate income than they did then. In fact, they are spending more.

How Washington Would Respond to an Economic Jolt From Overseas Tensions - What could go wrong? U.S. economic policy makers have that question on their minds these days as escalating tensions in the Middle East and Eastern Europe threaten to restrain a mounting U.S. recovery.  It’s hardly a new risk to the current economic expansion. Disruptions to oil supplies and broader worries about a fragile global economy have weighed on the U.S. recovery repeatedly over the past five years.  Here are some key risks to the U.S. economy and how Washington policy makers might respond:

  • 1. A spike in oil prices is perhaps the most plausible threat to the global economy from the latest Middle East turmoil. A moderate supply shortfall due to trouble spreading throughout Iraq or Libya could be met by spare production in major producers such as Saudi Arabia. The U.S. response here would be straightforward. The nation’s 727-million-barrel Strategic Petroleum Reserve was last tapped in June 2011 alongside a release by the International Energy Agency,  when supply from Libya was disrupted. That’s the quickest and most effective way for the Obama administration to deal with a short-term pullback in the global oil market. 
  • 2. Broader risk aversion in financial markets would be harder to counteract. U.S. stock markets are already showing signs of nervousness, with a slight pickup in volatility in recent weeks, though equities sit at lofty levels. Central bankers around the world are on high alert for signs of trouble. ”There is no doubt that if you look at the world today, you see the geopolitical risks have increased all over the world,”
  • 3. Fear among consumers and businesses would be perhaps the toughest force for U.S. policy makers to offset. Words won’t have much affect if conditions overseas grow substantially uglier. The room for either sweeping new measures in monetary policy or fiscal policy (say, stimulus checks to goose Americans’ shopping) is limited.  Congress hasn’t been able to agree on much when it comes to spending or taxes. That will remain the case at least until the November elections.

How Do You Solve a Problem Like Inversions? -- How do you catch a tax and pin it down? Can governments make corporations “stay and listen to all they say?” Treasury Secretary Jack Lew in his Washington Post op-ed called on Congress to immediately stop corporations from lowering taxes by incorporating overseas. Former Treasury official Steve Shay suggests the Administration doesn’t need to wait for Congress. He says Treasury already has the legal authority to curb key tax incentives for US companies already reincorporated overseas, including interest deductions for firms that load debt on their US business units. Australia is pursuing a comparable strategy.  But if you really want to say “so long” and “farewell” to inversions… TPC’s Eric Toder breaks it down in his Wall Street Journal MarketWatch essay. He suggests two alternatives he and his American Enterprise Institute co-author Alan Viard proposed several months ago. The US could work with other advanced economies to share taxable profits of multinationals by formula. Or, the US could ditch the corporate tax, and instead tax shareholders directly on business profits. Income would be taxed as earned by publicly-traded corporations, rather than as gains when a shareholder sells stock. But, for now, Washington is arguing over corporate tax Band-Aids, when major surgery is needed.

A Corporate Tax Break That’s Closer to Home - Rage is rising over American corporations that chop their tax bills by acquiring entities in lower-tax countries. Medtronic, AbbVie and Mylan have all announced such plans — known as inversions — in recent months. And Walgreen was poised to relocate to Switzerland after it completes its purchase of Alliance Boots, but did an about-face last week in the face of widespread denunciation. Some in Congress have proposed legislation to shut the door on this tax-savings tactic. But across town at the Internal Revenue Service, officials have recently opened the window to another. They did so in a ruling disclosed late last month by Windstream Holdings, a telecommunications company based in Little Rock, Ark.  The ruling allows Windstream to spin off its copper and fiber network into a real estate investment trust, or REIT. That sounds pretty ho-hum until you realize it means that Windstream won’t have to pay hundreds of millions of dollars in taxes.

I Can’t Tolerate the Nonsense on Corporate Tax Reform Any More - Corporations are adopting a new tactic to lower their taxes—renouncing their U.S. “citizenship” and adopting headquarters where there are lower tax rates. These are called “inversions.” Nothing changes in the corporations’ operations, but the “paper changes” result in lower taxes. Inversions are threatening to erode corporate taxation even further than has already occurred, which is a lot. Corporate spokespeople would have you believe that the real problem is our corporate tax code, which they claim is in real need of “reform.” This is a total distraction, and also total nonsense.I’m not a tax expert but it’s so easy to detect the mountains of nonsense being thrown around here. What is this corporate tax reform that is so necessary? The claim is that the statutory 35 percent rate is too high, even though the current average effective tax rate (what is paid on average, after taking all the various loopholes into account) of 27.1 percent (as of 2008, according to the Congressional Research Service) is comparable to the effective rates in other OECD countries (27.7 percent, weighted by GDP). The proposed corporate tax reform is supposed to be revenue neutral, which means that statutory rates can be lowered only if loopholes are closed to offset the revenue losses (this is called “broadening the base”). Revenue-neutral reform necessarily means that some firms will pay more while others pay less.

New Rules Near on Credit-Ratings Firms —Credit-ratings firms may soon face tougher restrictions aimed at preventing a repeat of the financial crisis. The Securities and Exchange Commission is expected as early as this month to finalize new rules meant to better police the industry, according to people familiar with the process. The effort follows criticism that ratings firms failed to adequately sound alarms about flawed mortgage securities ahead of the housing... The rules, expected to be somewhat tougher than those proposed more than three years ago, will take additional steps to ensure that the firms' interest in winning business doesn't affect ratings analysis, said the people familiar with the process. Credit raters have been lambasted by critics and lawmakers over their actions in the run-up to the 2008 financial crisis. A 2011 U.S. congressional report cited widespread and sudden downgrades of mortgage-related bonds as being perhaps "more than any other single event ... the immediate trigger for the financial crisis." The bonds had previously been given top-notch ratings by the firms.

Quelle Surprise! SEC Goes Easy on Big Political Donors - Yves Smith David Sirota at the International Business Times wrote up a study by Maria Correira of the London Business School that examined how often firms that corrected their financial statements from 1996 to 2006 were subject to SEC enforcement actions. It should come as no surprise that big political donors get off easy. From Sirota’s account:Correira found that “politically connected firms are on average less likely to be involved in an SEC enforcement action and face lower penalties if they are prosecuted by the SEC.” Specifically, Correira discovered that firms that increased their PAC contributions by $1 million over five years ended up halving their probability of being prosecuted. Correira’s report shows that this revolving door also influences financial prosecutions, as companies that employ lobbyists who once worked for the SEC “experience a larger reduction in the probability of enforcement and in penalties than those that do not.”Correira theorizes that the correlation between campaign contributions and a lack of prosecution has to do with the SEC’s perception of political consequences for itself and its budget in choosing targets. As the theory goes, the more political donations a particular firm makes to key lawmakers and the higher profile a firm’s relationship is with those lawmakers, the more likely it may be that those lawmakers pressure the SEC to avoid prosecuting those firms — and the more likely those lawmakers are to try to reduce the SEC’s budget if a prosecution goes forward.

The SEC’s Mary Jo White: A Failure, or Doing Her Real Job? -  Yves Smith -- Your humble blogger has to confess to having called Mary Jo White's appointment incorrectly, based on enthusiastic readings on her from people who'd worked with her as a prosecutor, such as Neil Barofksy. But the default assumption for Obama appointees, that he'd never give anyone who's rock the status quo a serious role, was the right assessment. White's ten years in the private sector at Debevoise seems to have reinforced habits that aren't serving her well, even in her role as Potemkin fixer-upper of an agency that is widely seen as timid and floundering. Not only is she failing to move regulatory measures forward quickly enough, but she's also engaged in an unseemly amount of turf warfare with other agencies.

JPMorgan Joins Goldman in Designing Derivatives for a New Generation -  Derivatives that helped inflate the 2007 credit bubble are being remade for a new generation. JPMorgan Chase & Co. is offering a swap contract tied to a speculative-grade loan index that makes it easier for investors to wager on the debt. Goldman Sachs Group Inc. is planning as much as 10 billion euros ($13.4 billion) of structured investments that bundle debt into top-rated securities, while ProShares last week started offering exchange-traded funds backed by credit-default swaps on company debt. Wall Street is starting to return to the financial innovation that helped extend the debt rally seven years ago before exacerbating the worst financial crisis since the Great Depression. The instruments are springing back to life as investors seek new ways to boost returns that are being suppressed by central bank stimulus. At the same time, they’re allowing hedge funds and other investors to bet more cheaply on a plunge after a 145 percent rally in junk bonds since 2008. Defusing Derivatives“The true sign of a top is when you have these new structures piling up,”  “At the top of the market in 2007, there were these types of innovation and many investors didn’t realize about it at that time. These products are a clear risk indicator.”

Hidden Financial Bombs: Margin Calls Hit Hedge Funds Speculating in Freddie/Fannie Bonds With High Repo Leverage David Stockman - Markets are more dangerous than ever before because six years of radical financial repression by the central banks have planted booby-traps everywhere. Ground zero consists of massive and reckless speculation in newly invented “structured finance” products which were designed to quench the market’s insatiable thirst for yield in the Fed’s whacky world of ZIRP. So below is news of margin calls on hedge funds that had piled into a 12 month old product called “risk sharing RMBS bonds”. It seems that Wall Street dealers had provided 80% leverage on these new fangled securities issued by the nation’s accomplished market wreckers—Fannie and Freddie. Various tranches of this new variant of synthetic CDOs—-that is, the Wall Street created toxic waste that blew-up in 2007-2008—- offered yields of 200-700 basis points over LIBOR, but so great was the demand for an alternative to the Bernanke-Yellen ukase of zero return that prices of the first Freddie Mac issue were driven up by 30% over the past year.  Now imagine that. Speculators purchased newly invented and unseasoned securities from proven financial malefactors on 80% leverage and then saw their price rise by 30% in 12 months, meaning that the return on their own invested equity was a cool 150%. Stated differently, the scramble for yield got so frenzied that securities originally issued at a yield premium of 7.15% over LIBOR last summer had soared to the point that they yielded only 2.5% over LIBOR before the market broke a few weeks ago. A recent WSJ article captured the thought that irrational exuberance had indeed erupted in this newly invented “asset class”:

Banks Withdrawing from Repo Market - Yves Smith -- The Wall Street Journal reports that banks have become much less active participants in the repo market, which is a critical source of short-term liquidity for big investors.  Repo was a major focus of concern during the crisis. The Fed halted a run on the repo market when it provided guarantees to money market funds in September 2008 after the Reserve Fund “broke the buck,” leading customers to pull funds out of other money market funds. For newbies, large investors use repo rather than park funds with banks. Deposits are guaranteed only up to $250,000 per account, and even though there are services that will break up deposits and distribute them among small banks, those can handle wealthy individuals, not major institutional players.  With “repo,” which is short for “sale with agreement to repurchase,” an investor with securities can turn them into cash on a short-term basis by selling them (say overnight or for a week) with the said agreement to buy them back at a higher price, which amounts to getting a short-term loan, with the bonds pledged as collateral. The reason this arrangements appeals to lenders like money market funds is that they see the loan with collateral (a high quality bond, ideally Treasuries) as more secure than an deposit at a bank in excess of the guaranteed level. The graphic from the Wall Street Journal gives a simplified idea of how this arrangement normally works:

Boston Fed Chief Rosengren Calls for Overhaul of Repo Market - Since the crisis, some steps have been taken to shore up the potentially unstable debt market, known as the repo market. But on Wednesday, Eric S. Rosengren, president of the Federal Reserve Bank of Boston, became the latest prominent regulator to call for a more ambitious overhaul of the repo market. In particular, he suggested that financial institutions making large use of repo borrowing should maintain higher levels of capital. “Broker-dealers can experience significant funding problems during times of financial stress,” he said on Wednesday in remarks for a conference at the Federal Reserve Bank of New York. “Unfortunately that potential for problems has not been fully addressed.” The Dodd-Frank Act of 2010 and international regulatory agreements have introduced many new rules since the crisis that are aimed at making the financial system stronger. Still, some regulators, including Janet L. Yellen, the Fed chairwoman, and Daniel K. Tarullo, the Fed governor who oversees regulation, are still concerned about Wall Street’s heavy use of short-term debt markets to finance their operations.Most of the concern centers on repurchase agreements, known in the banking world as repos. These allow broker-dealers to borrow at low rates for short periods against collateral, usually bonds. The market turned treacherous in 2008 as broker-dealers like Lehman Brothers encountered severe financial trouble, causing the repo market to seize and prompting the Fed to make billions of dollars of emergency loans across Wall Street to keep the market functioning and prevent a failure of the system.“The collapse of Lehman was not an isolated failure of a single broker-dealer, but rather one of a string of crises for multiple broker-dealers,” Mr. Rosengren said in his speech.

Leaky repo deals present new concerns - US Treasury bonds are supposed to be some of the easiest assets to buy and sell - yet all is not well in one of the world’s biggest and most liquid markets. The smooth functioning of the $12tn US Treasury market depends on the health of its underlying machinery, in particular the repurchase, or “repo”, market. This is where government securities are regularly lent out and borrowed between various investors and dealers. Such short-term transactions ease trading across the Treasury market, helping investors looking to sell bonds in anticipation of yields rising. Lately, the process of borrowing certain Treasury securities has been marked by a pronounced jump in “fails”. A fail occurs when a borrowed Treasury is not returned on time and thus triggers settlement issues across the market as repo transactions usually consist of a chain of investors and banks who have borrowed and lent the same bond. While this surge in repo fails is shy of the peak reached during 2011, according to Federal Reserve data, the matter troubles regulators and investors. The big worry is how repo fails are rising when overall activity has been subdued, raising the spectre that settlement problems could accelerate once interest rates start moving sharply higher. In turn, a larger rise in repo fails could impair capital for many repo players, such as banks, sparking greater market turmoil.

Letter to the CFTC on Position Limits and Aggregation Proposals (pdf) Occupy the SEC.

2,061 of Citigroup’s Subsidiaries Go Missing - Meet the new, slimmed down, less complex, more manageable Citigroup. Or not. Figuring out what Citigroup owns and what it has sold is getting harder by the day as a vast number of its subsidiaries in the 160 countries in which it operates have up and vanished from its public filings but do not actually appear to have been sold in many cases. One can understand why the global bank’s Federal regulators have thrown up their hands in despair and sent it back to the drawing board on its capital plans and so-called “living will” measures to unwind itself should its future insolvency threaten the financial system as it did in 2008. According to Citigroup’s annual 10K filing with the Securities and Exchange Commission, the number of Citigroup’s subsidiaries have shrunk by a whopping 91.8 percent since December 31, 2008. Or not. Take the case of Automated Trading Desk (ATD). One could certainly see why Citigroup would like to forget it owns that company. Citigroup paid $680 million for the company when it bought it in 2007. Five years later, it paid another $590 million to settle a class action lawsuit by ATD’s key shareholders who alleged they had been defrauded.

When She Talks, Banks Shudder - Bankers are nearly unanimous on the subject of Anat R. Admati, the Stanford finance professor and persistent industry gadfly: Her ideas are wildly impractical, bad for the American economy and not to be taken seriously. But after years of quixotic advocacy, Ms. Admati is reaching some very prominent ears. Last month, President Obama invited her and five other economists to a private lunch to discuss their ideas. She left him with a copy of “The Bankers’ New Clothes: What’s Wrong With Banking and What to Do About It,” a 2013 book she co-authored. A few weeks later, she testified for the first time before the Senate Banking Committee. And, in a recent speech, Stanley Fischer, vice chairman of the Federal Reserve, praised her “vigorous campaign.”   Ms. Admati’s simple message is that the government is overlooking the best way to strengthen the financial system. Regulators, she says, need to worry less about what banks do with their money, and more about where the money comes from. Companies other than banks get money mostly by selling shares to investors or by reinvesting profits. Banks, by contrast, can rely almost entirely on borrowed funds, including the money they get from depositors. Ms. Admati argues that banks are taking larger risks than other kinds of companies because they use other people’s money, and the results are that they keep crashing the economy. Her solution is to make banks behave more like other companies by forcing them to reduce sharply their reliance on borrowed money. That would likely make the banking industry more stodgy and less profitable — reducing the economic risks, the executive bonuses and, for shareholders, both the risks and the profits.

The most dangerous woman in America — and why conservatives should listen to her -- What Anat Admati, a Stanford University finance professor, is saying about megabanks shouldn’t be controversial: make these institutions less likely to (again) implode and crash the US economy by making them less reliant on borrowed money for lending. Or to flip it around, megabanks should have to raise six times as much of their funding in the form of equity as they currently do. Now as Admati told New York Times reporter Binyamin Appelbaum, her 30% equity target isn’t a hard number: She freely concedes that there is no particular science behind her 30 percent equity figure. The point, she says, is that 5 percent is the wrong ballpark. The proper baseline, in her view, is what the market imposes on other kinds of companies. “We have too much belief that we can be precise,” she said. “I don’t mean 20 percent. I don’t mean 30 percent. I mean add a digit. I mean a lot more.”  The megabanks are no fans of this idea. They argue “holding” more equity capital would increase funding costs, lower return on equity, and force them to cut back on lending. But imagine how much stronger the US economy would be today if we had avoided the Great Recession. As Charles Calomiris and Allan Meltzer note in a Wall Street Journal op-ed earlier this year, all the big New York banks with 15% equity or more made it through the Great Depression, and that the “losses suffered by major banks in the recent crisis would not have wiped out their equity if it had been equal to 15% of their assets.”  Anyway, Admati and Martin Hellwig counter all the common objections in their “The Bankers’ New Clothes: What’s Wrong With Banking and What to Do About It.” And a paper from which the book is derives offers this chart:

The Wall Street Hype Machine Suddenly Breaks Down The stock manipulation game on Wall Street has been honed to perfection. Everyone is playing along with it, has to play along with it as part of their job, whether on Wall Street or in the financial media, and it must not be doubted or disparaged in any way. Best of all, it performs miracles.  Or rather, it did work. Because now suddenly, the system is inexplicably broken. Wall Street analysts issue sky-high earnings growth expectations for distant quarters, based on pro-forma, ex-bad-items, adjusted earnings for the companies they follow. These earnings growth expectations are then bandied about to drive up the stock. Hapless souls who dare to point at reality as measured by GAAP-based financial statements are ridiculed; you don’t want to be backward-looking; oh no, you want to be forward-looking. And since no one knows the future, they just make it up.Market participants eagerly swallow this hook, line, and sinker – there’s nothing secret about it. As that distant quarter moves closer to reality, analysts start lowering their earnings growth expectations, and just before the company actually reports, those expectations are so low that the company’s financially engineered – via share buybacks and other schemes – pro-forma, ex-bad-items, adjusted EPS can most often beat it, even if it looks dreary under GAAP. This system benefits the stock price in two ways: at first via the sky-high growth estimates that rationalize the stock price; and then when the company beats the much lowered estimates. Companies that somehow fail to beat them get slapped on the wrist for a day or two. It works so well that stocks have done practically nothing but go up.

JPMorgan to Sell 50% of Buyout Portfolio to Two Buyers - JPMorgan Chase & Co. (JPM), which last year said its private-equity unit would become independent, agreed to sell half of its $4.5 billion in buyout holdings to Carlyle Group LP (CG)’s AlpInvest Partners BV and Lexington Partners Inc. Dealmakers at One Equity Partners LLC will form OEP Capital Advisors LP, an investment firm independent from New York-based JPMorgan, when the transaction is completed, which is expected by year-end, according to a statement today. OEP will manage the rest of the portfolio, JPMorgan said. Financial terms of the agreement weren’t disclosed. Wall Street firms are unloading parts of their businesses as regulations require that they bolster capital and reduce investments made with their own money. JPMorgan, whose Chief Executive Officer Jamie Dimon said in December he’s “pruning” divisions the bank doesn’t need, last month agreed to sell about $1.3 billion of loans and securities to Bain Capital LLC’s Sankaty Advisors LLC.

U.S. Banks Have Reached Near-Record Profit Levels, Study Says - Six years after the financial crisis, profits at U.S. banks have reached near-record levels, according to a new study.Income at U.S. banks reached$40.24 billion in the quarter of 2014 that ended June 30, according to research firm SNL Financial. That’s the second-highest quarterly level for the banking industry since SNL began collecting banking profitability data in 1991.“The second quarter was an inflection point in the profitability story for banks,” SunTrust analyst Eric Wasserstrom told the Wall StreetJournal. “The bad is starting to bottom out, the good is starting to gain momentum.”The only more profitable period for American banks was during the first three months of 2013, when net income reached $40.36 billion. The third most profitable period was at the end of the real estate and mortgage boom during the last quarter of 2006, when banks made $40.21 billion.

“A Financial Casino Would Be a Step Up From What We Have”--  Yves Smith --This is a terrific and very accessible interview with Boston College professor Ed Kane, who is a long-standing critic of the failure to rein in financial firms that feed at the taxpayer trough. At one point in the talk, Kane and his interviewer Marshall Auerback discuss how casinos are well aware of the fact that the house can lose and they monitor gamblers intensively to make sure that no one is engaging is sleight of hand. Thus if we treated our banking system like the financial casino that it has become, we’d be much better off than we are now.I hope you’ll send this video to people who wonder what if anything happened with financial regulatory reform. They’ll get some answers, even if they are ones they might not have wanted to hear.  Kane describes how little regulation has changed things: banks are still in the business of dumping tail risk on the public, and the changes in some rules and procedures haven’t changed their basic incentives. Provocatively, Kane calls for prosecuting a bank holding company as a way to force a dismemberment/downsizing, as well as pour décourager les autres. He also discusses how regulatory changes will shift activity to London, but the US will still wind up bailing out the messes that result.

Rather Than Prosecutions, Fed Pressuring Banks to Pay Miscreants Less -- Yves Smith - Your humble blogger must confess to being partly wrong about the Fed’s recent realization that banksters had learned the right lesson from the crisis: crime pays. We were incredulous that the central bank had missed the fact that financial firm employees were unrepentant and their executives saw no reason to make real changes (hence all the howling about reform measures that are pretty minor relative to the damage done). In fact, the Fed is not wrong to focus on compensation, as well as promotions (which were not mentioned). Anyone who has lived in an organization will tell you that who moves ahead (and money and rank are the key indicators) tells you what the company really values, not what it professes to value.  And as the American public knows well, another way to influence bank behavior would have been prosecutions, or at least heavy fines of executives. Again using Citi as an example, the CFO Gary Crittenden was fined a mere $125,000 for keeping $40 billion of CDOs off the balance sheet. Huh? And that’s before the fact that just about no one save one former Countrywide exec was roughed up at all for all of the subprime lending fraud. And the officialdom has been so desperate to cover up chain of title issues that it has had even less interest in pursuing widespread foreclosure-related misconduct. So even if the Fed thinks it is now being serious, its blinkered view of what rises to the level of being an abuse, plus its timidity about roughing up top bankers means its interventions fall short. But it is surprise to outsiders that Fed remains so badly captured that it is unable to recognize how much change is really needed.

New York Prosecutors Charge Payday Loan Firms With Usury - A trail of money that began with triple-digit loans to troubled New Yorkers and wound through companies owned by a former used-car salesman in Tennessee led New York prosecutors on a yearlong hunt through the shadowy world of payday lending.On Monday, that investigation culminated with state prosecutors in Manhattan bringing criminal charges against a dozen companies and their owner, Carey Vaughn Brown, accusing them of enabling payday loans that flouted the state’s limits on interest rates in loans to New Yorkers.Such charges are rare. The case is a harbinger of others that may be brought to rein in payday lenders that offer quick cash, backed by borrowers’ paychecks, to people desperate for money, according to several people with knowledge of the investigations.In the indictment, prosecutors outline how Mr. Brown assembled “a payday syndicate” that controlled every facet of the loan process — from extending the loans to processing payments to collecting from borrowers behind on their bills. The authorities argue that Mr. Brown, along with Ronald Beaver, who was the chief operating officer for several companies within the syndicate, and Joanna Temple, who provided legal advice, “carefully crafted their corporate entities to obscure ownership and secure increasing profits.” Beneath the dizzying corporate structure, prosecutors said, was a simple goal: make expensive loans even in states that outlawed them. To do that, Mr. Brown incorporated the online payday lending arm,, in the West Indies, a tactic that prosecutors say was intended to try to put the company beyond the reach of American authorities. Other subsidiaries, owned by Mr. Brown, were incorporated in states like Nevada, which were chosen for their light regulatory touch and modest corporate record-keeping requirements, prosecutors said.

US loan growth rate the highest since the recession - US credit growth continues to accelerate, reaching the highest year-over-year pace since the Great Recession.  In 2012 the growth was primarily driven by corporate debt (chart below) as banks remained cautious on real estate and consumer lending. While corporate loan growth remains strong - at around 11% per year - other sectors are now experiencing faster credit expansion. In a complete contrast to the situation in the Eurozone, both real estate (particularly commercial) and consumer credit growth rates have improved materially this year. Consumer credit is no longer just driven by autos, with credit card debt picking up as well. The only major headwinds for this trend currently are some of the geopolitical risks (Iraq, Russia, etc.). Consumers, companies, and banks are still fairly jittery and it won't take much to dampen the supply of and/or the demand for credit.

What the Slow Recovery in Business Lending Tells the Fed - In the continuing debate over when the Federal Reserve should begin more tightening–it has already been doing so through declining bond purchases–primacy should be given to labor market conditions, particularly when wage inflation surfaces. But the Fed and Fed watchers should also be looking at business loan conditions. One of the best known indicators is the Senior Loan Officer Opinion Survey; conducted at about a hundred commercial banks, it measures demand and underwriting standards for loans of all sizes. By that indicator, loans have been gradually easier to get since the financial crisis. Likewise, the total volume of commercial and industrial loans has been increasing, and it now tops pre-recession levels (as eventually it should, as the economy is larger than it was then). Yet another indicator–the spread of interest rates charged on loans over the federal funds rate–is also important. By this measure, according to research by Simon Kwan of the Federal Reserve Bank of San Francisco, business loan conditions still have not returned to their pre-recession levels. Small-business loans (those of $50,000 or less) still carry interest rates about four percentage points higher than the Fed funds rate, compared with 3.5% before the crisis. And even large borrowers are paying more than before the crisis, about 1.5% vs. 1%.Sure, the time is approaching when the Fed will have to tighten. But for business borrowers, the loan market is still not back to where things stood about eight years ago.

Unofficial Problem Bank list declines to 449 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Aug 8, 2014. Two removals lowered the number of institutions on the Unofficial Problem Bank List to 449. Assets declined by $3.0 billion to $142.7 billion. A year earlier, the list held 723 institutions with assets of $255 billion. Enforcement actions were terminated against MetaBank, Storm Lake, IA ($1.9 billion Ticker: CASH) and First American Bank, Fort Dodge, IA ($1.1 billion). Next Friday, we anticipate the OCC to provide an update on its enforcement action activities.CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 449.

Why a $16 Billion Fine Is Chicken Scratch for a Big Bank -- Preliminary reports say that a $16 to $17 billion settlement will soon be announced between the Justice Department and Bank of America. That would break the record for the largest bank settlement in history, set less than a year ago by a $13 billion agreement between Justice and JPMorgan Chase. The numbers that accompany these deal announcements always seem impressive. But how large are they, really? That depends on your point of view.  Bankers fraudulently inflated a housing bubble. They became extremely wealthy as a result, but the U.S. housing market lost $6.3 trillion in value when the bubble burst. It had only recovered 44 percent of that lost value by of the end of 2013, according to  Zillow's data. That's more than $3 trillion still missing from American households. As of the first quarter of this year,  9.1 million residences - 17 percent of mortgaged homes - were still "seriously underwater," which means that homeowners owed at least 25 percent more on the home than it was worth. And homeowners weren't the only ones hurt by banker misdeeds. When the bubble burst, it took the economy with it. Unemployment and underemployment remain at record levels, even as the stock market surges and corporations enjoy record profits. Compared to the wealth that bank fraud has taken from American households, these settlements are a drop in the ocean.

Dodd-Frank creates a drag on residential mortgage growth - Staying with the theme of credit expansion, one area where growth has been more constrained lately is residential mortgage lending. And one potential culprit seems to be the Consumer Financial Protection Bureau's Ability-to-Repay and Qualified Mortgage Standards Under the Truth in Lending Act (ATR/QM rule). These rules are part of the Dodd-Frank Act. In their zeal to avoid a repeat of the subprime crisis, politicians and regulators have made it tougher (and more complex) for banks to lend to anyone who either doesn't have a stellar credit or seeking a loan that is larger than the "conforming" limit (a "jumbo" loan). Banks, particularly smaller ones, are reporting that the ATR/QM rule has negatively impacted the likelihood of them approving such a loan. Here are the results of the latest survey from the Fed:
1.  For loans that are of "conforming" size but with the borrower's FICO credit score below 680, almost 36% of all banks and half of small banks report "lower" or "somewhat lower" approval rate due to the rule.
2. For jumbo mortgages the number is a whopping 52% (and 57% for smaller banks).
But what's particularly surprising is that even for conforming loans the number is 31% for all banks and 44% for smaller banks. That means that even agency-eligible loans are impacted by ATR/QM. As a result, it seems that at least in part, these new regulations have materially reduced production of new loans, completely halting net new agency (Fannie, Freddie) MBS securities issuance.  Deutsche Bank: - Since January 10, banks have had to originate loans according to the Consumer Financial Protection Bureau’s Ability-to-Repay (ATR) and Qualified Mortgage (QM) rules. The Fed survey suggests that the rules have put a drag on all mortgage production. Since the rules went into effect shortly before net production tumbled, the possibility of a link is worth considering. The ATR/QM rule has certainly not helped the housing market and may have created a drag on the US GDP. Welcome to the world of unintended consequences.

Lawler: Table of Distressed Sales and Cash buyers for Selected Cities in July - Economist Tom Lawler sent me the table below of short sales, foreclosures and cash buyers for several selected cities in July.  Tom Lawler has been sending me this table every month for several years. I think it is very useful for looking at the trend for distressed sales and cash buyers in these areas. I sincerely appreciate Tom sharing this data with us! On distressed: Total "distressed" share is down in all of these markets, mostly because of a sharp decline in short sales.   Short sales are down in all of these areas.  Foreclosures are down in most of these areas too, although foreclosures are up a little in few areas like Nevada, Sacramento and the Mid-Atlantic. The All Cash Share (last two columns) is mostly declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.

MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly SurveyMortgage applications decreased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 8, 2014. ...The Refinance Index decreased 4 percent from the previous week to the lowest level since May 2014. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier to the lowest level since February 2014. ....The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.35 percent, with points unchanged at 0.22 (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 10% from a year ago.

The Housing Recovery Continues Apace - Mortgage Apps At 14-Year Low - How much longer can the myth of a housing recovery remain alive in the mainstream media's narrative? The smoothed average of Mortgage Applications in the US fell to its lowest since September 2000 this week. Mortgage applications have slumped for 9 months... as mortgage rates have declined notably... but still we are told 'rates are just too high'. And yet, bullish market protagonists are convinced rates are due to rise (and the bond market is wrong) - one can only imagine the slump if that should occur...

‘Weekly Update: Housing Tracker Existing Home Inventory up 13.3% YoY on Aug 11th - 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 June and indicated inventory was up 6.5% year-over-year).    Fortunately Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data, for 54 metro areas, 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 2014 (Red) is now 13.3% above the same week in 2013. Inventory is also about 3.2% above the same week in 2012. According to several of the house price indexes, house prices bottomed in early 2012, and low inventories were a key reason for the subsequent price increases. Now that inventory is back above 2012 levels, I expect house price increases to slow (and possibly decline in some areas).

FNC: Residential Property Values increased 8.0% year-over-year in June - In addition to Case-Shiller, CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes.   FNC released their June index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.8% from May to June (Composite 100 index, not seasonally adjusted). The other RPIs (10-MSA, 20-MSA, 30-MSA) increased between 0.8% and 0.9% in June. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).  The year-over-year (YoY) change slowed in May, with the 100-MSA composite up 8.0% compared to June 2013.   For FNC, the YoY increase has been slowing since peaking in February at 9.4%.  The index is still down 20.0% from the peak in 2006.

Recent Owners’ Equivalent Rent Inflation Is Probably Not a Blip - Cleveland Fed --Recently, the overall rate of inflation has risen, owing partly to inflation in Owners’ Equivalent Rent (OER). But many wonder if the current rate of OER inflation, which is now at levels not seen since 2009, is simply a blip. We apply a forecasting approach to estimate whether OER inflation will continue to be elevated going forward, or whether it will revert back to the lower levels that have been more typical over the last several years. We find that OER inflation is likely to remain elevated over the next year. OER is used in the US and in many other countries to estimate inflation in homeowner housing costs. At its core, OER captures the implicit rent that a homeowner would have to pay if he or she were to rent instead of own the same home (or equivalently, the funds that the homeowner is sacrificing by living in the home instead of renting it to someone else). OER plays a prominent role in both the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) price index because of how heavily it is weighted when all the individual components are aggregated into each index. In the CPI, it accounts for roughly 25 percent of the total index. In the PCE price index—the preferred inflation indicator of the Federal Open Market Committee—it accounts for approximately 12 percent. In core inflation measures, OER accounts for an even larger share. With such a large weight, the OER component can affect the overall rate of inflation significantly. As for what is causing OER to rise, a number of factors have been proposed.  Proponents of the rental-housing-shortage view point to historically low ratios of completed privately-owned housing units to population and a low ratio of private construction investment to GDP. However, if rental housing were in short supply, one would expect to see historically low rental vacancy rates. Still, it is possible that declining vacancy rates could prompt some rent inflation. It is also possible that some cities could be experiencing historically low vacancy rates, though this is not true of the five cities we examine below.

Higher Housing Costs Aren’t Likely to Fade Soon, Cleveland Fed Study Says -- Is a recent uptick in housing inflation a fluke? Not really, say researchers at the Cleveland Fed. Inflation has been rising on the back of higher housing costs for American households over the past few months, and the recent jump in the main reading of such shelter costs isn’t a blip, according to researchers.  The consumer-price index, which is a leading arbiter of overall U.S. inflation, hasn’t included home prices since 1983. Instead, the Labor Department calculates “owners’ equivalent rent” to measure shelter’s impact on inflation. It blends actual rents with what homeowners might fetch for their homes if they were rented. OER makes up about a quarter of the consumer-price index. In June, OER was up 2.6% from a year earlier, compared to gains of 2.2% in June 2013 and 2.0% in June 2012. Mr. Verbrugge and Ms. Higgins devised a forecasting model that they say indicates OER inflation is likely to stay high over the next year, as opposed to reverting back to its levels of the past few years. The WSJ takes a look Monday at how cities such as Nashville, Tenn., and Raleigh, N.C., have witnessed some of the largest apartment-rent increases over the past year. Economists have said three main factors could help explain a temporary rise in OER: First, some say a shortage of rental housing could be to blame, but vacancy rates remain close to levels from 1995, before home prices accelerated noticeably. Second, big declines in unemployment rates could be contributing to rent inflation, the authors say.  Third, rents could rise because home prices are rising again.

First-Time Buyers Shut Out of Expanding U.S. Home Supply - The four-bedroom house that Ilia Nielsen-Dembe purchased in west Denver earlier this year wasn’t her top choice. The first-time buyer had to settle on a home in a neighborhood with a high crime rate after losing out on bids for five properties in more desirable areas.  “I definitely sacrificed in terms of location,” said Nielsen-Dembe, 33, who lives with her husband and two daughters in the house she bought in April for $184,500.   In Denver, entry-level listings in June were down 51 percent from a year earlier, while the upper-end supply was up 4 percent, according to Redfin. Austin, Texas, inventory jumped 14 percent in the top third of the market and fell 34 percent at the bottom. In Atlanta, where Wall Street-backed investors descended to buy homes to turn into rentals, low-end supply declined 13 percent. Top-third listings rose 18 percent.  Sharlene Hensrud, a Realtor with Re/Max Results in Plymouth, Minnesota, said buyers of cheaper homes have had to adjust expectations because the bargains have been picked over. She recently took a couple on a tour of homes for about $140,000 and said they were quickly discouraged that a one-bedroom, one-bath house with no garage was all they could afford. A few years ago, a three-bedroom property would have been in their range, Hensrud said.  Some properties aren’t available because homebuyers are taking advantage of the strong rental market and leasing out their previous homes.  Others who want to list their houses can’t. Owners of inexpensive houses are three times more likely than those with costly homes to owe more than their property is worth, according to Zillow (Z) Inc.

That Financial Times study on US income inequality and housing totally misses the point - A new Financial Times analysis blames income inequality for the weak housing recovery: The income gap between America’s richest and poorest metropolitan regions has reached its widest on record, shaping an uneven housing recovery that threatens to hold back the broader revival of the world’s largest economy. The gap has narrowed and widened in past cycles, but the rebound from the most recent financial crisis has seen the ratio hit its most unequal since data collection began 45 years ago, fueling policy makers’ concerns. US Commerce and Labor Department data for the 100 largest metropolitan areas by population, analysed for the Financial Times by property website Trulia, found the income disparity between the 10th most expensive region and the 90th by home prices in 2013 hit its widest since records began in 1969. The research shows Boston – ranked at 10 – reporting a per-capita income 1.61 times that of Cincinnati ranked at 90. At its low point in 1976, the gap was 1.36 times, between San Francisco and El Paso.  Right. Some geographic areas are doing better than others and thus so are their housing markets. But why? The focus on income inequality distracts rather than enlightens. Three of the top-performing cities mentioned in the FT piece — Austin, Boston, and San Francisco — are all what economist Enrico Moretti calls “brain hubs.” These are places with a high density of smart workers employed by lots of innovative technology companies. (Moretti’s research suggests that these tech jobs have a demand multiplier affect with each hiring of a Google software engineer creating five new job openings in local services from lawyers and nurses to waiters and security guards.) The resulting urban ecosystem then serves as a magnet for more educated workers and cutting-edge firms. Cities that have this ecosystem do better and better. Cities that don’t fall further behind.

As "Housing Recovery" Fizzles A New Scheme Emerges: Boost FICO Scores By Changing The Definition -- Now that the the fourth dead cat bounce in US housing since the Lehman crisis is rapidly fading, and laundered Chinese "hot money" transfers into US luxury real estate no longer provides a firm base to the ultra-luxury segment, the US government is scrambling to find ways to boost that all important - and missing - aspect of any US recovery: the housing market. This is further amplified by the recent admission by the Fed that it is in fact encouraging asset bubbles, not only in stocks but certainly in all assets, such as houses. Well, the government may have just stumbled on the solution to kick the can yet again and force yet another credit-driven housing bubble, a solution so simple we are shocked some bureaucrat didn't think of it earlier: changing the definition of the all important FICO score, the most important number at the base of every mortgage application. According to the WSJ, in what is a desperate attempt to boost the pool of eligible, credit-worthy mortgage recipients, Fair Isaac, the company behind the crucial FICO score that determines every consumer's credit rating, "will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency."In doing so, it will "make it easier for tens of millions of Americans to get loans."

The Counterintuitive Conundrum in Housing -- Soberlook had a recent post on housing rent that serves as a great starting point into the problem of conceptualizing the conundrum of the housing market in the current context.   They point out that household formation continues to be slow, along with recovery in home building, and the problem appears to be a supply problem, as rent continues to outpace wages, pricing renters out of the housing market:  The tricky thing to think about here is, how do we increase supply? By paying the builders to build more homes. How do we do that? Well, the clear bottleneck right now is the real estate credit market, which has flat-lined for 7 years. Housing supply will rise when housing credit comes back. And this will likely coincide with a significant increase in home prices. So, to make houses more affordable, we need to make them more expensive. I doubt I'll be winning any elections with that slogan, but I'd be happy to have someone explain to me how it's wrong. If anyone wants to try, please keep in mind that prices of durable assets have denominators. Here is a graph, using the Federal Reserve's measure of 30 year mortgage rates, the median price of new homes, and the median household income, to estimate the mortgage payments over time, relative to income. They are currently at the bottom of the long-term range. I have argued that when the real portion of long term interest rates declines, this should actually make the equilibrium mortgage payment go up. So, if rates increase due to an increasing inflation premium, we should justifiably be at the top of the range. And, keep in mind that, ignoring any changes in the inflation premium, real long term rates can go up more than a percentage point and still be at historically very low levels.

Number of the Week: Housing Affordability Hits Six-Year Low - 16.3%: The mortgage payment for a median-priced U.S. home in June as a share of median household income Housing affordability hit its lowest level in nearly six years in June as home prices continued to climb, according to a report this past week from the National Association Realtors. The Realtors’ group produces a simple measure of affordability that takes a typical mortgage payment for the median priced home and compares it to median household incomes. In June, the average mortgage payment represented 16.3% of household income, which was the highest since 2008. Excluding the last six years, it is lower than any time since at least 1989. Since most Americans take out a mortgage to buy a home, affordability is a function of both prices and interest rates. Home prices have rebounded sharply over the past three years amid a decline in the supply of homes being offered for sale, particularly at the low end of the market. The median home price of $223,300 in June was the highest August 2007. Mortgage rates averaged 4.2% in June, up from 3.7% one year earlier. The drop in affordability helps explain why housing demand has been weaker so far this year. Job growth has picked up, but incomes aren’t rising briskly, even as prices have rebounded strongly. Sales of new and previously owned homes are running around 5% below last year’s levels.

NY Fed: Household Debt decreased Slightly in Q2 2014, Delinquency Rates Lowest Since Q3 2007 - Here is the Q2 report: Household Debt and Credit Report. From the NY Fed: Aggregate consumer debt was roughly flat in the 2nd quarter of 2014, showing a minor decrease of $18 billion. As of June 30, 2014, total consumer indebtedness was $11.63 trillion, down by 0.2% from its level in the first quarter of 2014. Overall consumer debt still remains 8.2% below its 2008Q3 peak of $12.68 trillion.  Mortgages, the largest component of household debt, decreased by 0.8%. Mortgage balances shown on consumer credit reports stand at $8.10 trillion, down by $69 billion from their level in the first quarter. Balances on home equity lines of credit (HELOC) also dropped by $5 billion (1.0%) in the second quarter and now stand at $521 billion. Non-housing debt balances increased by 1.9 %, boosted by gains in all categories. Auto loan balances increased by $30 billion; student loan balances increased by $7 billion; credit card balances increased by $10 billion; and other non-housing balances increased by $9 billion. Delinquency rates improved across the board in 2014Q2. As of June 30, 6.2% of outstanding debt was in some stage of delinquency, compared with 6.6% in 2014Q1. About $724 billion of debt is delinquent, with $521 billion seriously delinquent (at least 90 days late or “severely derogatory”).Here are two graphs from the report: The first graph shows aggregate consumer debt was flat in Q2. Even though debt was down slightly in Q2, the recent increase in debt suggests households (in the aggregate) may be near the end of deleveraging. The second graph shows the percent of debt in delinquency. The percent of delinquent debt is steadily declining, although there is still a large percent of debt 90+ days delinquent (Yellow, orange and red). The overall delinquency rate declined to 6.2% in Q2, from 6.6% in Q1. This is the lowest rate since Q3 2007. The Severely Derogatory (red) rate has fallen to 2.28%, the lowest since Q1 2008. The 120+ days late (orange) rate has declined to 1.90%, the lowest since Q3 2008.

Just Released: Looking under the Hood of the Subprime Auto Lending Market--  Today, the New York Fed released the Quarterly Report on Household Debt and Credit for the second quarter of 2014. Aggregate debt was relatively flat in the second quarter as housing-related debt shrank, held down by sluggish mortgage originations. But non-housing debt balances increased across the board, with especially strong gains in auto loans. Auto loan balances, which include leases, have increased for thirteen straight quarters, and originations have not been this high since the third quarter of 2006. The Quarterly Report and the following analysis are based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data. Once again, news reports are pointing to a boom in subprime auto lending, and the concerns raised by such a boom and its associated risks have prompted a Justice Department investigation. Last year, amid similar stories, we published the post “Who Is Driving the Auto Lending Recovery?” which showed that 23 percent of auto loans were originated by borrowers with credit scores below 620. This share, though significant, is still lower than the 25 to 30 percent share seen during the years preceding the Great Recession. We’ve now revisited these statistics, and find again that the share has increased only slightly since 2010 (see our interactive charts).  So what has all the fuss been about? The small increase in the share masks the fact that the subprime auto lending market has grown substantially over the last several years, as the chart below shows.

Even the Upper-Middle Class Struggles to Save - Last week the Federal Reserve released a disturbing report (PDF) on the financial state of U.S. households. The report’s main findings, that Americans don’t save very much, weren’t that surprising. For the last few decades middle- and lower-middle-class families have been pinched by stagnant incomes and higher spending. But even the many members of the upper middle class are hardly saving. Low or no savings leaves them, and everyone else, in a risky position. Just 45 percent of upper-middle-class households (income from $75,000 to $99,999) saved anything in 2012, according to the Fed study. That means the other 55 percent didn’t save for a house, retirement, or education. About 16 percent spent more than they earned and went further into debt. The report highlights the consequences of these hand-to-mouth habits: Only half of these households had enough savings to finance three months of living expenses if they lost their job or couldn’t work. A $400 emergency would force about 20 percent of them into months of debt..The upper middle class may be less vulnerable than lower earners, because of their access to credit—or at least, they feel safer. Even though only half have saved enough to finance three months of unemployment, most higher earners (about 70 percent) feel confident they could get by if they borrowed, often with a credit card. Counting on debt may be fine for the occasional emergency. But it’s a lousy way to finance a long spell of unemployment or a major health-care disaster.  The low rate of saving and thin emergency cushion wouldn’t be so worrying if it were just a hangover from the Great Recession. Households normally cut back on saving when someone in their household loses their job or takes a pay cut. It can take several years to make it up. But the low-saving trend predates the recession. The chart below shows the percent of upper-middle-class nonsaving households over the last 20 years:

20 Percent in 20 Years: Middle Class Wealth Is Evaporating  -- If you’re one of the millions of those in the middle class who can’t shake the feeling that you’re somehow getting left behind, you’re not alone. A common narrative is that the middle class is dying, rapidly growing levels of inequality are polarizing America to the point where the country will be unrecognizable from an economic standpoint in a number of years.  That one actually has some merit to it, although it might be a bit hyperbolic. But the fact that rampant inequality has taken America hostage is not an idea that is lost on the majority of U.S. citizens. As the economy has seen recovery over the past six years following the devastating financial crisis and subsequent recession, most people have had to sit back and watch almost all of the spoils go to the top few percent. For the rich, stock prices have gone up and executive compensation continues to skyrocket, all giving a nice feeling of confidence in the future of the American economy.  But for everybody else, a still-suffering housing market, stagnating wages, and rising debts are still heavy burdens on the middle and lower classes. In fact, according to The Washington Post, the middle class is no better off than it was twenty years ago. Somehow, actually, it’s 20 percent poorer.

Fed: Typical American Family Doesn't Have $400 On Hand: -- A new survey says 40 percent of American households are showing signs of financial stress. And, five years after the recession, many are still struggling with tight credit, debt and retirement issues. The Federal Reserve survey shows a typical American household cannot raise $400 without borrowing money or selling possessions. LSU Economist, Dr. Jim Richardson, says that's a big problem. "If they lose their job, they're in big trouble. If their income falls for any reason, they're in big trouble. If there's any unexpected expenditure, they're in big trouble." According to the report, nearly two-thirds of those under 45 have not set funds aside to cover their expenses for a three-month period. Richardson says that's not a surprise. "Most people don't do that. Most people live paycheck to paycheck." In fact, the fed says a typical American household cannot raise $400 without borrowing money or selling possessions.

EUI, Homeownership, and Wages -Here is a graph I have shown before.  This has been hidden by low levels of inflation and the broad tendency to view wages as a moral indicator, with higher always being better.  But, in this recession, wages have been very high, considering the level of unemployment we have had.  Since 1967, there has never been a sustained deviation from the trend like this.  This is problematic because unemployment in a recession is, in part, a product of inflexible nominal wages.  Employment would recover more quickly if wages were more flexible, which we normally alleviate through moderate inflation, which allows real wages to moderate without causing nominal wages to moderate as much.  So, some of this may be a product of tight monetary policy, which has allowed inflation to remain very low. These graphs might help to highlight some of the potential tradeoffs of this policy.  Of course, we would hope that monetary policy would allow the economy to proceed without having to make these nominal adjustments.  But given the monetary policy we have, it seems to be adding insult to injury to create policies that explicitly create wage rigidity. This seems like an important problem for economists to discuss, but, at least out here in the blogosphere, we've got left-wing economists who would find it difficult to accept a framing that has a possible conclusion that wages are too high, and right-wing economists who would question a framing that says the central bank is too tight.  Because of these constraints, the topic seems generally ignored.  Here is an article on the effect of homeownership on unemployment duration.   They find that homeowners with mortgages have unemployment behavior more similar to non-homeowners.  The extended duration and the tendency to exit the labor force come from homeowners with high equity ownership.  Yet, oddly, they seem to stick with the explanation that homeowners are less mobile and are tied to limited labor markets. To me, this finding obviously comes from the fact that high equity home owners have more savings, more discretion, and more flexibility about how to re-enter employment or about making work-leisure trade offs.  I don't see any mention of this obvious factor in the paper.  We all know people who have discretion in their labor force decisions.  Why do they disappear when we start thinking about the big picture?

Update: Framing Lumber Prices - Here is another graph on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs. Then prices declined over 25% from the highs by mid-year 2013. The price increases in early 2013 were due to a surge in demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online). Prices didn't increase as much early in 2014 (more supply, smaller "surge" in demand), however prices haven't fallen as sharply either. This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through last week (via NAHB), and 2) CME framing futures.  Right now Random Lengths prices are up about 8% from a year ago, and CME futures are up about 7% year-over-year.

CPI component volatility | FRED Blog: Most people recognize the CPI (consumer price index) as a common measure of U.S. inflation. But the CPI sometimes seems at odds with the personal experiences of some consumers, who often point out that particular goods have become more expensive than the CPI seems to imply. This incongruity occurs mostly because the CPI is an index that covers many products; the variations in prices are averaged out when forming the aggregate CPI. Case in point: We show here how price fluctuations increase as the range of products narrows. The graph shows the inflation rate for the CPI covering all items (blue line), which is quite stable. But compare this with energy prices (red line), which fluctuate wildly. Narrow down energy prices to just gasoline (green line) and you find even more volatility. CPI data even include particular types of gasoline for particular regions, which display even more volatility (purple line). It is true that the volatility of energy prices is most stark, but similar trends do appear for other categories as well.

Gasoline Price Update: Down for the Sixth Consecutive Week - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular dropped a penny and Premium two, the sixth week of price declines. Regular is up 31 cents and Premium 30 cents from their interim lows during the second week of last November.  According to, two states (Hawaii and Alaska) have Regular above $4.00 per gallon, unchanged from last week, and no states are averaging above $3.90, down from three last week. South Carolina has the cheapest Regular at $3.16.

Retail Sales unchanged in July -- On a monthly basis, retail sales were unchanged from June to July (seasonally adjusted), and sales were up 3.7% from July 2013. Sales in June were unrevised at a 0.2%. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for July, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $439.8 billion, virtually unchanged from the previous month, and 3.7 percent above July 2013. ... The May to June 2014 percent change was unrevised from +0.2 percent. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-autos were up 0.1%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 4.4% on a YoY basis (3.7% for all retail sales). The increase in July was below consensus expectations of a 0.2% increase.

July Retail Sales: Another Month of Disappointing Data - The Advance Retail Sales Report released this morning shows that sales in July were flat month-over-month, down from 0.2% in June. Core Retail Sales (ex Autos) rose 0.1% in July, down from 0.4% in June. This was the second month of disappointing data.Today's headline and core numbers were well below the forecasts, which were 0.2% for Headline and 0.4% for Core.  The two charts below are log-scale snapshots of retail sales since the early 1990s. Both include an inset to show the trend over the past 12 months. The one on the left illustrates the "Headline" number. On the right is the "Core" version, which excludes motor vehicles and parts (commonly referred to as "ex autos"). Click on either thumbnail for a larger version.  The year-over-year percent change provides a better idea of trends. Here is the headline series.   The next chart illustrates retail sales "Control" purchases, which is an even more "Core" view of retail sales. This series excludes Motor Vehicles & Parts, Gasoline, Building Materials as well as Food Services & Drinking Places. I've highlighted the values at the start of the two recessions since the inception of this series in the early 1990s.

Retail Sales Miss For Third Month In A Row, Worst Print Since January   Retail sales missed expectations for the 3rd month in a row (after the weather rebound was supposed to kick in?) with an unchanged 0.0% print in July (against expectations of a 0.2% rise). This is dramaticaly off the 1.5% growth rate seen in March. Across the board, retail sales were weak with Ex Auto & Gas up only 0.1% against expectations of a 0.4% gain. Department Store sales fell 0.7% MoM. So much for pent-up demand. And while "harsh weather" was the spin for weak H1 retail sales, now it is the lack of wage growth's fault, or precisely what we have been saying all along. From Bloomberg: Retail sales were little changed in July, the worst performance in six months, as car demand slowed and tepid wage growth restrained U.S. consumers.The slowdown in purchases followed a 0.2 percent advance in June, the Commerce Department reported today in Washington. The median forecast of 82 economists surveyed by Bloomberg called for a 0.2 percent gain. Excluding (RSTAXMOM) cars, sales rose 0.1 percent. Job growth has yet to stoke the type of wage gains needed to boost household purchases, a sign the economic expansion will probably not sustain the second-quarter pickup into the end of the year. Some retailers must rely on promotions and discounts to entice customers, whose spending accounts for about 70 percent of the economy

Retail Sales Disappoint: What Did We Buy in July? -- U.S. retail sales were basically flat last month, disappointing economists expecting a gain.Sales declined in some of the big segments of the retail world, including motor vehicle and parts dealers, general merchandise stores and nonstore retailers, a category that includes Internet sales.This graphic shows the size of the sectors and whether their sales rose or fell in July. Click through for an interactive version.

Retail Sales flat implies Capital Income is consuming less - From an article posted at ABC News, US Retail Sales Flat in July… “U.S. retail sales were essentially flat in July, providing evidence that consumers have yet to shed their doubts about the economy despite recent job gains. The Commerce Department said Wednesday that seasonally adjusted retail sales were unchanged in July compared with the prior month. Total sales rose a statistically insignificant $161 million from $439.6 billion in June. The figures suggest that Americans are hesitant to spend, which could limit growth for the economy.” As I have written before, many economists expect the economy to grow upon job gains. However, they underestimate the capacity of capital income to reduce its own spending as the stock markets and other asset markets stall out. So retail sales being flat was something I foresaw. The significance of this though is that economic growth will be muted, even as labor seems to be increasing its income. The problem is that capital income obtained a high level of consumption after the recovery. And capital income tends to reduce spending toward the end of a business cycle to protect their gains. Their reduction in consumption is now sufficient enough to neutralize much of the consumption gains by labor.

U.S. retail sales pause, seen rebounding in months ahead - (Reuters) - U.S. retail sales unexpectedly stalled in July, pointing to some loss of momentum in the economy early in the third quarter. But with job growth holding sturdy, sales activity was likely to rebound in the coming months, economists said. The Commerce Department said on Wednesday that retail sales, which had increased 0.2 percent in June, were in part held back by a second straight month of declines in receipts at auto dealers. July's reading was the weakest since January. "Given the strong gains in labor market activity, along with other indications of strengthening domestic growth momentum, we expect this slowdown to be short-lived and we look for consumer spending to rebound strongly in the coming months," said Millan Mulraine, deputy chief economist at TD Securities in New York. Economists had forecast sales, which account for a third of consumer spending, increasing 0.2 percent last month. The economy has experienced six consecutive months of job growth above 200,000. Layoffs and job openings are back to their pre-recession levels. Data on manufacturing and services sectors have suggested the economy was growing solidly. Still, the pause in retail sales could give the Federal Reserve ammunition to maintain its very easy monetary policy stance for a while.

August Michigan Consumer Sentiment at a Nine-Month Low - The Preliminary University of Michigan Consumer Sentiment for August came in at 79.2, a decline from the July final of 81.8 and the lowest reading since November of last year. Today's number came in below the forecast of 82.5. See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy. To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 7 percent below the average reading (arithmetic mean) and 6 percent below the geometric mean. The current index level is at the 33rd percentile of the 440 monthly data points in this series.The Michigan average since its inception is 85.1. During non-recessionary years the average is 87.4. The average during the five recessions is 69.3. So the latest sentiment number puts us 9.9 points above the average recession mindset and 8.2 points below the non-recession average. Note that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. The latest month is a somewhat smaller 2.6 point change. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average.

Geopolitical risks hit US consumer -  Today's University of Michigan consumer sentiment report demonstrated how the current geopolitical uncertainty is impacting US consumers. The "Current Conditions" subindex is now at the highest level since the recession (beating forecasts), while the "Expectations" subindex declined sharply (worse than forecast). US consumers are feeling better about their current situation but have become increasingly jittery about the future. Apologies for the different time scales - it's the only data that was available ( While the current events in Eastern Europe and the Middle East are likely to have a smaller impact on the US than the EU, Americans have certainly become more cautious. It remains to be seen how much of this decline in sentiment will translate into weaker consumer spending. In the post-recession economic climate it doesn't take much for US households to pull back spending.

Producer Price Index for July Comes in as Expected - Today's release of the July Producer Price Index (PPI) for Final Demand rose 0.1% month-over-month seasonally adjusted. Core Final Demand was up 0.2% from last month. Both numbers matched the forecast.  The unadjusted year-over-year change in Final Demand is up 1.7%, down from last month's YoY of 1.9%. Here is the essence of the news release on Finished Goods:The Producer Price Index for final demand rose 0.1 percent in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This increase followed a 0.4-percent advance in June and a 0.2-percent decline in May. On an unadjusted basis, the index for final demand climbed 1.7 percent for the 12 months ended in July.... In July, the 0.1-percent increase in final demand prices can be traced to the index for final demand services, which also rose 0.1 percent. Prices for final demand goods were unchanged. More… The July Headline Finished Goods rose 0.15% MoM (which the BLS rounds to 0.1%) and is up 2.90% YoY, up slightly from last month's 2.75%. Core Finished Goods rose 0.11% MoM and is up 1.89% YoY. Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, the YoY trend in Core PPI (the blue line) declined significantly during 2009 and stabilized in 2010, increased in 2011 and then eased during 2012 and most of 2013, falling as low as 1.15% last August. It shot up in the early winter near the 2% benchmark and has hovered below that level for the past six months.

Producer Prices Slide Driven By Biggest Plunge In Energy Since November 2013, Core PPI Rises Most Since May - Following another monthly surge in the June PPI print, when it rose by 0.4%, or the second highest amount in a year, the July headline reading was a far tamer 0.1%. This was driven entirely by the plunge in energy prices (supposedly due to the Iraq military incursion and the "de-escalation" of the Ukraine civil war), which resulted in a -0.6% plunge in energy costs, which was the biggest monthly drop in over a year, matching the decline recorded in November of 2013. Offsetting the energy drop was a 0.4% increase in food prices, following two months of -0.2% decline. When stripping the volatile, and easily manipulated asset prices linked to brent, crude and the like, core PPI ex food and energy rose by 0.2%: the highest since March.

Import Prices Have First Drop Since April; Price Of Imported Cars Plunges Most Since 1992 - In July, the rest of the world once again succeeded in exporting its deflation to the US, confirmed by a -0.2% drop in the Import Price Index, its first decline since April following a 0.1% increase in June, if just a fraction better than than the -0.3% consensus.This was also a 0.8% increase Y/Y, suggesting June may have been a Y/Y top following 5 consecutive months of annual increases. The key drivers for the decline: Fuel imports as well as car prices. To wit: the price index for import automotive vehicles declined 0.8 percent in July, the first monthly decrease for the index since a 0.1-percent decline in February and the largest 1-month drop since the index fell 1.1 percent in December 1992. Why? Because foreign car sellers have no choice but to slash prices to compete with the US subprime flood making domestic car prices effectively "free."

Traders Profit as Power Grid Is Overworked -  As the temperatures climbed toward the 90s here and air-conditioners turned on, the electric grid struggled to meet the demand. By midafternoon, the wholesale price of electricity had jumped nearly 550 percent.What no one here knew that day, May 30, 2013, was that the investment company, DC Energy, was reaping rewards from the swelter. Within 48 hours the firm, based in Vienna, Va., had made more than $1.5 million by cashing in on so-called congestion contracts, complex financial instruments that gain value when the grid becomes overburdened, according to an analysis of trading data by The New York Times.Those profits are a small fraction of the fortune that traders at DC Energy and elsewhere have pocketed because of maneuvers involving the nation’s congested grid. Over the last decade, DC Energy has made about $180 million in New York State alone, The Times found. Across the nation, investment funds and major banks are wagering billions on similar trades using computer algorithms and teams of Ph.D.s, as they chase profits in an arcane arena that rarely attracts attention.Congestion occurs when demand for electricity outstrips the immediate supply, sending prices higher as the grid strains to deliver power from distant and often more expensive locations to meet the demand.

Fed: Industrial Production increased 0.4% in July - From the Fed: Industrial production and Capacity Utilization - Industrial production increased 0.4 percent in July for its sixth consecutive monthly gain. Manufacturing output advanced 1.0 percent in July, its largest increase since February. The production of motor vehicles and parts jumped 10.1 percent, while output in the rest of the manufacturing sector rose 0.4 percent. The production at mines moved up 0.3 percent, its ninth consecutive monthly increase. The output of utilities dropped 3.4 percent, as weather that was milder than usual for July reduced demand for air conditioning. At 104.4 percent of its 2007 average, total industrial production in July was 5.0 percent above its year-earlier level. Capacity utilization for total industry edged up 0.1 percentage point to 79.2 percent in July, a rate 1.7 percentage points above its level of a year earlier and 0.9 percentage point below its long-run (1972–2013) average. This graph shows Capacity Utilization. This series is up 12.3 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 79.2% is 0.9 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007. The second graph shows industrial production since 1967. Industrial production increased 0.4% in July to 104.4. This is 24.7% above the recession low, and 3.6% above the pre-recession peak. The monthly change for Industrial Production was slightly above expectations.

Industrial production and nonfarm payrolls: As Good as It Gets, Millennium edition - The index of industrial production has grown at nearly a 5% rate in the past year (blue in the graph below), which is as good as it has been since the turn of the Millennium with the brief exception of 2010 vs. the 2009 depths of the recession: Similarly, nonfarm payroll growth (red), at about 1.9% YoY, is also as good as it has been since the turn of the Millennium. In other words, where we have been over the last 12 months is what passes for the economy firing on all cylinders at any point in the last 15 years. Just to put that in perspective, here is the same data going back to 1983: You can see that the last 15 years have been pathetic compared to the 15 years before that (and the 1980s and 1990s weren't as good as the 1960s and 1970s).

Subprime Car Loans Are The New "Cash For Clunkers" - Auto Production Soars Most Since July 2009 The subprime auto-lending credit bubble, whose reappearance has been dulynoted here in previous articles, which even the mainstream media is now following closely (with Bloomberg recently observing a "sudden jump in late payments"), which last week saw the a DOJ appearance after the justice department subpoeaned GM over subprime auto loans, and which even the NY Fed is keeping a close eye on with yesterday's "Looking under the Hood of the Subprime Auto Lending Market", is not all bad. In fact, as the Fed reported moments ago, the latest manifestation of a subprime bubble is actually quite good, because of the 0.4% increase in Industrial Production in July, and 1.0% surge in Manufacutring in July, the vast majority of that was due to Auto Production. To wit, from the just released Industrial Production report:

  • The production of motor vehicles and parts jumped 10.1 percent, while output in the rest of the manufacturing sector rose 0.4 percent.

The punchline:

  • In July, the gain in durables was led by an increase of 10.1 percent in the index for motor vehicles and parts, which was the largest since the index jumped 26.9 percent in July 2009.

NY Fed: Empire State Manufacturing Survey indicates "business conditions continued to improve" in AugustEmpire State Manufacturing Survey The August 2014 Empire State Manufacturing Survey indicates that business conditions continued to improve for New York manufacturers, but the improvement was less wide-spread than in the previous month. The headline general business conditions index retreated eleven points to 14.7, after reaching a four-year high in July. The new orders index slipped almost five points to 14.1, while the shipments index edged up a point to 24.6—a multiyear high. ...Labor market conditions were mixed but continued to improve overall. The index for number of employees slipped three points to 13.6, suggesting a slight pullback in the pace of hiring. However, the average workweek index rose six points to 8.0, signaling a slight increase in hours worked. Despite the pullback in most of the survey’s indexes for current conditions, optimism about the near-term outlook grew increasingly widespread. The index for future general business conditions climbed eighteen points to 46.8—its highest level in two-and-a-half years.

Empire State Manufacturing Improves, But a Bit More Slowly - This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions continues to show improvement, although the headline number is is now at 14.7, down from 25.6 last month. The forecast was for a reading of 20.0. The Empire State Manufacturing Index rates the relative level of general business conditions New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state. Here is the opening paragraph from the report: The August 2014 Empire State Manufacturing Survey indicates that business conditions continued to improve for New York manufacturers, but the improvement was less widespread than in the previous month. The headline general business conditions index retreated eleven points to 14.7, after reaching a four-year high in July. The new orders index slipped almost five points to 14.1, while the shipments index edged up a point to 24.6—a multiyear high. The unfilled orders index inched down one point to -8.0. The indexes for both prices paid and prices received were up slightly, indicating a marginal pickup in the pace of price increases. Labor market conditions were mixed, with the employment index declining slightly but the index for hours worked rising modestly. Most of the indexes for the six-month outlook rebounded sharply, after slipping in the July survey; a number of them reached multiyear highs, signaling increasingly widespread optimism about the near-term outlook.  Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Empire Manufacturing Tumbles Most In 2 Years, Biggest Miss In 4 Months - Despite serial extrapolators expectation that last month's 4-year high Empire Manufacturing data would continue to rise, it didn't - instead falling by the most since June 2012 to 14.69 (from 25.6). This is the biggest miss in 4 months. The number of employees and new orders tumbled as inventories collapsed. Of course, when current sentiment plunges, hope comes alive... the surge in 'hope' for 6 months from now to its highest since January 2012.

The US manufacturing base is surprisingly strong - A careful look at the most recent and detailed data shows that despite falling employment, the US manufacturing base is growing larger, more productive, and more competitive. The results of our empirical analysis show that the expansion of operations abroad by US manufacturing multinationals leads to particularly strong increases in economic activity – including creation of greater numbers of hi gh-paying manufacturing jobs – by those same firms in the US domestic economy. The policy implications are clear – any measures that the US might take to hinder or dis-incentivise outward expansion by US firms would lead to less robust economic activity – and fewer good US jobs at home, not more.

GM: Park your SUV outside in case it catches fire (CBS News) -- General Motors' (GM) troubles with safety recalls have surfaced in another case, this time with the company recalling a group of SUVs for a third time to fix power window switches that can catch fire. The problem, revealed in documents posted by federal safety regulators this week, is so serious that GM is telling customers to park the SUVs outdoors until they are repaired because they could catch fire when left unattended. The vehicles will be left outside for a while. Parts won't be ready until October at the earliest, according to GM. The automaker also has ordered its dealers to stop selling the SUVs as used cars until they are fixed. The recall covers about 189,000 vehicles in North America, mainly from the 2006 and 2007 model years. Models affected include the Chevrolet TrailBlazer, GMC Envoy, Buick Rainier, Isuzu Ascender and Saab 97-X. The recall was one of six announced by GM on June 30 that covered 7.6 million vehicles. Letters notifying owners about the SUV recall should be mailed soon. Owners will get a second letter sometime from October to December telling them when parts are available to fix the vehicles.

(What’s Left of) Our Economy: New Trade Figures Show Monthly Gains but Longer-Term Deterioration -- Although the new monthly June trade figures revealed improvements in most trade flows heavily affected by free trade deals and other trade policies (e.g., non-oil goods, manufacturing, high tech products, Korea), they also showed American competitiveness faltering longer term in all these measures – along with China trade. Until these U.S. policy-influenced trade deficits start falling, and thus boosting the recovery on net rather than slowing it, Congress should deny President Obama renewed authority to negotiate new trade deals. Here are the highlights of this morning’s Census Bureau report:

  • >The headline monthly trade deficit in June fell 6.99 percent, from an upwardly revised $44.66 billion to $41.54 billion – the second lowest total this year.
  • >The inflation-adjusted deficit in goods other than oil – the trade account most affected by U.S. trade policies – shrank in June from $49.04 billion to $46.73 billion, or 4.71 percent. But when released last month, the May total represented an all-time U.S. record, and has been revised even higher in the latest figures.
  • >Year-to-date, this real non-oil goods deficit – which also helps comprise the headline gross domestic product number – has risen 13.62 percent, from $237.7 billion to $270.17 billion.
  • >Consistent with this pattern, although the overall current-dollar June trade deficit fell on a monthly basis, the total brought the year-to-date figure to $260.05 billion – 4.97 percent higher than the January-to-June, 2013 deficit. During the same period from 2012 to 2013, this trade shortfall had plunged by 14.07 percent.
  • >Total pre-inflation goods and services exports rose by 0.13 percent in June, to a new monthly record of $195.86 billion, and so far are up more on a year-to-date basis this year (2.77 percent) than last (2.36 percent).
  • >But although combined pre-inflation goods and services imports fell by 1.19 percent in June on a monthly basis (to $237.40 billion), year-to-date they have grown by 3.54 percent, after decreasing by 0.99 percent between the first half of 2012 and the first half of 2013.

NFIB: Small Business Optimism Index increases in July - From the National Federation of Independent Business (NFIB): Small Business Optimism Ticks Up Slightly July’s Optimism Index technically rose 0.7 points to a reading of 95.7. ...  NFIB owners increased employment by an average of 0.01 workers per firm in July (seasonally adjusted), the tenth positive month in a row and the best string of gains since 2006. Hiring plans increased to 13, the highest since 2007. And in another good sign, the percent of firms reporting "poor sales" as the single most important problem has fallen to 13, down from 16 last year - and "taxes" and "regulations" are the top problems at 22 (taxes are usually reported as the top problem during good times). This graph shows the small business optimism index since 1986. The index increased to 95.7 in July from 95.0 in June.

Proof of a Structural Change in the U.S. Workforce -- Yesterday Federal Reserve Vice Chairman Stanley Fischer gave a speech entitled The Great Recession: Moving Ahead. A key topic is the question of long-term structural changes to the economy -- whether we're experiencing economic weakness with deeper roots than the cyclical effect of the last recession. Despite Mr. Fischer's ambivalence toward, as he put it, "the relative importance of cyclical (short-term) versus structural (long-term) factors", I believe there is profound evidence that the U.S. workforce has undergone structural changes more fundamental than the cyclical impact of a recession -- even that of the Great Recession. The headline unemployment rate is one of the most watched economic numbers. It is a calculation of the percentage of the Civilian Labor Force, age 16 and older, currently unemployed. The first chart below illustrates this monthly data point since 1990. Today's Civilian Employed would require 2.8 million additional job holders to match its interim low in 2007, and we would need 3.7 million to match the lowest rate in 2000.  A wildcard in the two snapshots above is the volatility of the Civilian Labor Force -- most notably the subset of people who move in and out of the workforce for various reasons, not least of which is discouragement during business cycle downturns. The chart below continues to focus on our 25-54 core cohort with a broader measure: The Labor Force Participation Rate (LFPR). The LFPR is calculated as the Civilian Labor Force divided by the Civilian Noninstitutional Population (i.e., not in the military or institutionalized). Because of the extreme volatility of the metric, I've included a 12-month moving average. Based on the moving average, today's age 25-54 cohort would require 2.8 million additional people in the labor force to match its interim peak participation rate in 2008 and 4.1 million to match the peak rate around the turn of the century. Why are so many more labor force participants needed for a complete LFPR recovery? When the economy is going gangbusters, as in the late 1990s, jobs are abundant, which encourages the population on the workforce sidelines to join the ranks of the employed. Today's economy doesn't offer that sort of encouragement.The final chart below, again focused on our ages 25-54 cohort, is calculated as the Civilian Employed divided by the Civilian Noninstitutional Population. Again I've included a 12-month moving average. A significant feature of the Employment-to-Population Ratio is that isn't affected by the volatility of labor force participants who, for various reasons, are unemployed.

The Skills Gap is Most Evident in Retail Trade and Restaurants -- Dean Baker -  Floyd Norris has an interesting column comparing the numbers of job openings, hirings, and quits from 2007 with the most recent three months in 2014. The most striking part of the story is that reporting openings are up by 2.1 percent from 2007, while hirings are still down by 7.5 percent.  While Norris doesn't make this point, some readers may see this disparity as evidence of a skills gap, where workers simply don't have the skills for the jobs that are available. If this is really a skills gap story then it seems that it is showing up most sharply in the retail and restaurant sectors. (Data are available here.) Job openings in the retail sector are up by 14.6 percent from their 2007 level, but hires are down by 0.7 percent. Job opening in the leisure and hospitality sector are up by 17.0 percent, while hiring is down by 7.4 percent.  If the disparity between patterns in job openings and hires is really evidence that workers lack the skills for available jobs then perhaps we need to train more people to be clerks at convenience stores and to wait tables.

BLS: Jobs Openings increased to 4.7 million in June, Highest since 2001 - From the BLS: Job Openings and Labor Turnover Summary There were 4.7 million job openings on the last business day of June, little changed from 4.6 million in May, the U.S. Bureau of Labor Statistics reported today. ... ...Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits (not seasonally adjusted) increased over the 12 months ending in June for total nonfarm and total private. The number of quits was little changed for government.The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings increased in June to 4.671 million from 4.577 million in May. This is the highest level since February 2001. The number of job openings (yellow) are up 18% year-over-year compared to June 2013. Quits are up 15% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

U.S. Job Openings Hit 13-Year High - The number of job openings across the U.S. economy reached a 13-year high in June and workers showed increasing willingness to quit, signaling steady improvement in the labor market. U.S. employers had 4.7 million job openings on the last business day of June, up from 4.6 million a month earlier, the Labor Department said Tuesday. That marked the highest number of openings since February 2001. The number of workers hired ticked up to 4.8 million from May’s 4.7 million. Meanwhile, 2.53 million Americans quit a job in June, up from 2.49 million in May and the highest level since June 2008, when the U.S. economy was in recession. Tuesday’s report, known as the Job Openings and Labor Turnover Survey, suggests mounting strength and more flexibility in the U.S. labor market. Companies posting more job openings and stepping up hires typically reflects stronger sales and an improved outlook for the U.S. economy. And when more workers voluntarily quit jobs, that’s usually a sign they are confident enough they’ll find other—often better-paying—jobs. The latest figures suggest “there is little slack remaining in labor markets and that wage growth will pick up more quickly than it did at similar levels of the unemployment rate in past cycles,” Barclays economist Michael Gapen said in a note to clients. A pickup in wages could influence when the Federal Reserve raises short-term interest rates, which have been near zero since late 2008. Fed officials have signaled they wouldn’t raise rates until some time in 2015, as long as the economy and labor market improves at the pace they currently project. Fed Chairwoman Janet Yellen has pointed to the so-called Jolts report as a key measure to assess the health of the jobs market. “The number of people who voluntarily quit their jobs is noticeably below levels before the recession; that is an indicator that people are reluctant to risk leaving their jobs because they worry that it will be hard to find another,” Ms. Yellen said in a March speech.

Fed Watch: Heading Into Jackson Hole - Kansas City Federal Reserve's annual Jackson Hole conference is next week, and all eyes are looking for signs that Fed Chair Janet Yellen will continue to chart a dovish path for monetary policy well into next year. Indeed, the conference title itself - "Re-Evaluating Labor Market Dynamics" - points in that direction, as it emphasizes a topic that is near and dear to Yellen's heart. My expectation is that no hawkish surprises emerge next week.  Today we received the June JOLTS report, a lagging, previously second-tier report elevated to mythic status by Yellen's interest in the data. The report revealed another gain in job openings, leading to further speculation that labor slack is quickly diminishing:Anecdotally, firms are squealing that they can't find qualified workers. Empirically, though, they aren't willing to raise wages. Neil Irwin of the New York Times reports on the trucking industry as a microcosm of the US economy: Yet the idea that there is a huge shortage of truck drivers flies in the face of a jobless rate of more than 6 percent, not to mention Economics 101. The most basic of economic theories would suggest that when supply isn’t enough to meet demand, it’s because the price — in this case, truckers’ wages — is too low. Raise wages, and an ample supply of workers should follow. The numbers are revealing: Even as trucking companies and their trade association bemoan the driver shortage, truckers — or as the Bureau of Labor Statistics calls them, heavy and tractor-trailer truck drivers — were paid 6 percent less, on average, in 2013 than a decade earlier, adjusted for inflation. It takes a peculiar form of logic to cut pay steadily and then be shocked that fewer people want to do the job.

Chart of the day: US job openings hit 13-year high in June - Based on the BLS report this morning on Job Openings and Labor Turnover, the number of total job openings in the US reached their highest level in June (4.671 million) since early 2001 (see blue line in chart above). Private job openings in June (4.2 million) were the highest since March 2007 (see red line in chart).In other labor market news today, the American Staffing Association (ASA) reported that its Staffing Index, a weekly measure of changes in temporary and contract employment, increased to 99.44 for the week ending August 3. That represents a 3.9% increase from the same week last year, and is the highest reading ever for Week 31 going back to the ASA index’s start in 2006.   More evidence today indicating that the US labor market is gradually improving, and more support for the idea expressed recently in a Bloomberg report that we’ve entered a new virtuous cycle where the “balance of power in the job market is shifting slowly toward employees from employers.”

By Any Measure, The Job Market Is Getting Better - U.S. employers listed 4.7 million available jobs at the end of June, 700,000 more than a year earlier and the most since 2001, according to new data released Tuesday. Meanwhile, the number of unemployed workers has been falling steadily and is now below 10 million. As a result, the remaining job seekers face their best prospects of the recovery: There are now two unemployed workers for every job opening, down from about seven at the height of the unemployment crisis. But wait. That chart only includes people who are officially unemployed, and as regular readers know, the government’s definition of unemployment includes only people who are actively looking for work. What about the millions of Americans who have given up? The government tries to count them in a separate measure that includes people who aren’t actively searching for work but who want a job, are available to work and have looked for work within the past year. There were about 2 million so-called marginally attached workers in June. Add them to the officially unemployed, and the ratio of available workers per job opening rises — but the trend of improvement stays the same. But even that definition of “available workers” might be too narrow. Some people have likely become so discouraged that they haven’t looked for work in the past year. Others might have taken on family responsibilities or gone back to school, meaning they aren’t available for work right away. To capture such people, we can look at an even broader group: everyone who reports that they want a job, regardless of when they last looked or whether they’re immediately available. Once again, the ratio rises but the overall trend looks the same.

Economy Gets JOLTS But What’s Wrong With This Picture? -- The BLS’s Job Openings and Labor Turnover survey is reportedly Janet Yellen’s favorite indicator. Yesterday the news reports on job openings in June were all crazy bullish. And it’s no wonder. Posted job openings really are soaring. May and June both rose by 19% year to year. A 19% year to year increase is nothing to sneeze at. It’s the hottest growth since May 2012. June job openings exceeded the number of openings in June 2006, at the peak of the housing bubble. The numbers should encourage Mrs. Akerloff to continue to gradually remove the Fed’s stimulus. Here’s what the data looks like.  But alas, the devil is in the details, as always. The first issue is that there are millions more workers today than in 2007, so that, while job openings have grown to peak bubble levels, there’s been a greater increase in potential workers. On that basis, there’s no new record in job openings. With the workforce growing faster than job openings, there still aren’t enough openings to employ all those willing to work. At the same time, the number of openings per million of total population is at a higher level than at the top of the housing bubble in 2006.  A bigger problem lies in the new hiring data. The BLS counts new hires throughout the month and reports the total for the month at the end of the month. And new hires did indeed surge in June, but they remain BELOW the level of 2004. They have barely exceeded the June 2002 level, which was during the pits of a recession.

Weekly Initial Unemployment Claims increase to 311,000 - The DOL reports: In the week ending August 9, the advance figure for seasonally adjusted initial claims was 311,000, an increase of 21,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 289,000 to 290,000. The 4-week moving average was 295,750, an increase of 2,000 from the previous week's revised average. The previous week's average was revised up by 250 from 293,500 to 293,750.  There were no special factors impacting this week's initial claims. The previous week was revised up to 290,000. The following graph shows the 4-week moving average of weekly claims since January 1971.

New Jobless Claims: Highest in Six Weeks - Here is the opening statement from the Department of Labor: In the week ending August 9, the advance figure for seasonally adjusted initial claims was 311,000, an increase of 21,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 289,000 to 290,000. The 4-week moving average was 295,750, an increase of 2,000 from the previous week's revised average. The previous week's average was revised up by 250 from 293,500 to 293,750.  There were no special factors impacting this week's initial claims. [See full report] Today's seasonally adjusted number at 311K was well above the forecast of 295K. This indicator is now at a six-week high. Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the volatility in recent months.

The Jobs Added In Today's Economy Pay A Quarter Less Than The Ones We Lost In The Recession - The jobs that have been added to the economy during the recovery pay 23 percent less, on average, than those that were lost in the recession, according to a report from The U.S. Conference of Mayors (USCM). The report examined the sectors where jobs were added between 2009 and 2014 and weighted them by how many each gained, finding that their average wage was $47,171 a year. By contrast, the 8.7 million jobs lost in 2008 and 2009 paid an average of $61,637, representing a 23 percent gap between the two.  This trend was driven by the sectors that saw the highest losses and those that have bounced back. The manufacturing and construction industries bled jobs during the recession, and each pay $63,000 and $58,000, respectively, relatively high wages. On the other hand, the biggest job gains during the recovery have come in sectors like hospitality and food services, which pays $20,955, health care, which pays $47,000, administrative support, which pays $37,000, and retail, which pays $29,322. Something similar happened in the most recent downturn before the Great Recession, the recession between 2000 and 2003. In that time, the jobs lost paid an average of $43,950, while those added afterward paid 12 percent less. But that gap is not nearly as large as the one in today’s economy.

U.S. Wages Down 23% Since 2008: U.S. jobs pay an average 23% less today than they did before the 2008 recession, according to a new report released on Monday by the United States Conference of Mayors. In total, the report found $93 billion in lost wages. Jobs lost during the recession paid an average $61,637. As of 2014, jobs in the same sectors paid an average of $47,171 annually. "Under a similar analysis conducted by the Conference of Mayors during the 2001-2002 recession, the wage gap was only 12% compared to the current 23%--meaning the wage gap has nearly doubled from one recession to the next,"  stated the Conference of Mayors in a statement.   The report also found that 73% of metro area households earn salaries of less than $35,000 a year. President Barack Obama, who is on a two-week vacation at Martha's Vineyard, has yet to comment on the dour economic findings.

US homeowners stay unemployed for longer - Unemployed homeowners are slower to find work because they are limited to local job opportunities, according to research by #LindauEcon14 participant Ahmet Ali Taskin In a study with Firat Yaman, we investigate the effect of homeownership on the length of time that Americans spend in unemployment. We find that since homeowners are less flexible in the labour market, it is harder for them to find jobs when they are unemployed.But we also find that having a mortgage on the house mitigates the effect of homeownership on unemployment duration. Compared with renters with similar characteristics, unemployed homeowners without any outstanding mortgage debt (outright owners) have a 20% lower probability of finding a job. What’s more, outright owners have about a 20% greater likelihood of leaving the labour force. Our results suggest that policies to promote homeownership need to be re-evaluated in the light of its detrimental implications for the labour market.

Working Anything but 9 to 5 - In contrast to the joyless work she had done at a Dollar Tree store and a KFC franchise, the $9-an-hour Starbucks job gave Ms. Navarro, the daughter of a drug addict and an absentee father, the hope of forward motion.  Newly off public assistance, she was just a few credits shy of an associate degree in business and talked of getting a master’s degree as some of her co-workers were. Her take-home pay rarely topped $400 to $500 every two weeks; since starting in November, she had set aside $900 toward a car — her next step toward stability and independence for herself and her 4-year-old son, Gavin. But Ms. Navarro’s fluctuating hours, combined with her limited resources, had also turned their lives into a chronic crisis over the clock. She rarely learned her schedule more than three days before the start of a workweek, plunging her into urgent logistical puzzles over who would watch the boy. Months after starting the job she moved out of her aunt’s home, in part because of mounting friction over the erratic schedule, which the aunt felt was also holding her family captive. Ms. Navarro’s degree was on indefinite pause because her shifting hours left her unable to commit to classes. She needed to work all she could, sometimes counting on dimes from the tip jar to make the bus fare home. If she dared ask for more stable hours, she feared, she would get fewer work hours over all.

Starbucks to Revise Policies to End Irregular Schedules for Its 130,000 Baristas - Starbucks announced revisions on Thursday to the way the company schedules its 130,000 baristas, saying it wanted to improve “stability and consistency” in work hours week to week. The company intends to curb the much-loathed practice of “clopening,” or workers closing the store late at night and returning just a few hours later to reopen, wrote Cliff Burrows, the group president in charge of American stores, in an email to baristas across the country.  He specified that all work hours must be posted at least one week in advance, a policy that has been only loosely followed in the past. Baristas with more than an hour’s commute will be given the option to transfer to more convenient locations, he wrote, adding that scheduling software will be revised to allow more input from managers.  The changes came in response to an article on Wednesday in The New York Times about a single mother struggling to keep up with erratic hours set by automated software.

Pew report: “Sex robots will become commonplace” -- Earlier this week, Pew released a massive report called “AI, Robotics, and the Future of Jobs.” The goal of the report was to determine just how much disruption artificial intelligence programs will cause to workplaces over the next decade. The report surveyed 1,896 experts and found that, while they agreed that “automation and intelligent digital agents” will permeate our daily lives by 2025, the respondents were split over how many workers will be displaced:Half of these experts (48%) envision a future in which robots and digital agents have displaced significant numbers of both blue- and white-collar workers—with many expressing concern that this will lead to vast increases in income inequality, masses of people who are effectively unemployable, and breakdowns in the social order.The other half of the experts who responded to this survey (52%) expect that technology will not displace more jobs than it creates by 2025. To be sure, this group anticipates that many jobs currently performed by humans will be substantially taken over by robots or digital agents by 2025. But they have faith that human ingenuity will create new jobs, industries, and ways to make a living, just as it has been doing since the dawn of the Industrial Revolution. My favorite line, however, comes from GigaOM Research head Stowe Boyd, who writes, “Robotic sex partners will become commonplace, although the source of scorn and division, the way that critics today bemoan selfies as an indicator of all that’s wrong with the world.”

Part-Time Worker Levels Remain a Concern - St. Louis Fed - Workers working part time for economic reasons (PTER)1 have been examined as a measure of labor underutilization. One of the recent concerns is that while the number of unemployed individuals and marginally attached individuals2 has been decreasing since 2009, the number of individuals who are working PTER has remained elevated (almost 7.5 million workers in April 2014). In a recent joint article with Marianna Kudlyak and Marisa Reed, both with the Federal Reserve Bank of Richmond, we found that indeed the ratio of individuals working PTER to unemployed workers has been higher during the Great Recession than in the 2001 recession. The dynamics however have not been different: The ratio increases at the business cycle trough and reaches its highest point at the business cycle peak. However, the dynamics of the ratio of individuals working PTER to unemployed have not followed a common pattern across all demographic groups. Breaking the data by age groups, we find that the ratio of young workers (ages 16-24) working PTER to unemployed increased significantly from 1994 to 2014, from 50 percent to 62.3 percent. Similarly, the ratio of female workers working PTER to unemployed increased almost 19 percentage points between 1994 and 2014. While the ratio of men working PTER to unemployed decreased 10 percentage points between 2008 and 2010, that ratio was relatively constant for women.

‘Slack’ in Job Market Hurts Wage Growth, Chicago Fed Paper Says -  The U.S. labor market still has plenty of unused capacity or “slack,” and that hurts workers at the bottom of the income ladder the most, according to a paper released Friday by two economists from the Federal Reserve Bank of Chicago. They say labor market conditions have “yet to revert fully to prerecessionary levels.”  If job market conditions prevalent in 2005 through 2007, before the recession started, had been restored by this summer, the authors estimate, then average real wage growth, adjusted for inflation, would have been 0.5 percentage point to 1 percentage point higher. “Real wage growth remains disappointing,” writes Daniel Aaronson and Andrew Jordan of the Chicago Fed. “The impact of slack labor market conditions on real wage growth is stronger for those at the bottom of the wage distribution.” In another measure of weak wage growth, the authors say that the historical relationship between the drop in the unemployment rate and an increase in wages “broke down over the past five years.” The U.S. jobless rate has fallen from a peak during the recent recession of 10% in October 2009 to 6.2% in July. The historical relationship between the unemployment rate and real wages would have predicted real wage growth 3.6 percentage points higher by mid-2014, the authors estimate, using Labor Department data. “Instead, wage growth has been relatively flat over the past few years,” they write.

Surprise! North Carolina Cuts to Jobless Benefits Did Not Help Workers: A full six months before Congress allowed these federal UI extensions to expire (in December 2013), the state of North Carolina disqualified its unemployed workers from receiving federal UI extensions by simultaneously cutting duration from twenty-six to nineteen weeks and cutting the amount of weekly benefits (without receiving a waiver from the federal government). The justification for this decision was that by making UI benefits less generous, unemployed workers would have more incentive to take available jobs, and employment levels in the state would rise. If North Carolina’s drastic cuts in UI benefits were an effective policy tool for increasing employment, we would expect to see a very different employment trajectory in North Carolina consistent with the timing of the policy change as compared with nearby states likely experiencing similar macroeconomic conditions. The graph above shows the month-by-month prime-age employment-to-population ratio (EPOP), which is the percentage of the working age population that is employed, for North Carolina and five nearby southern states, from the start of 2012 through the end of 2013. The prime-age EPOP excludes people who are younger than 25 or older than 54, so it is less likely to be affected by people who voluntarily choose not to work because they are enrolled in school or retired.

EPI and AEI Agree: Cutting Jobless Benefits Did Not Boost Employment - Perhaps Hell has not frozen over, but it appears that someone down there may have leaned on the thermostat. That’s right, the Economic Policy Institute and the American Enterprise Institute are in lock-step agreement on an important fiscal policy matter. During the Great Recession and its aftermath, the federal government acted to help victims of the severe downturn by funding programs that extended unemployment benefits—to up to 99 weeks in some cases, up from the standard 26 weeks. As the economic recovery continued, weak as it was for many in the working class, many lawmakers on the right began to believe that these extended benefits were a drag on employment—the theory being that government checks reduced the incentive for recipients to find a job, and that cutting off this lifeline would compel unemployed workers to look harder for work and perhaps take jobs they may not have accepted if the benefits had continued. Relying on this premise, Congress allowed the federally-funded Emergency Unemployment Compensation program to lapse last December. Now, more than seven months later, data are available to test this idea. Coming from perspectives that diverge greatly along the ideological spectrum, scholars at both AEI and EPI have come to the conclusion that this “bootstraps” theory is incorrect—curtailing jobless benefits did not boost employment. Because unemployment benefits are contingent upon the people who receive them proving that they are looking for a job, receiving jobless benefits appears to make recipients at least just as likely, and certainly not less likely, to rejoin the ranks of the employed.

Minimum wages aren't just for lowest wage workers - An extraordinary shift in wages paid to American workers took place from 2000 to 2012, a change that holds powerful lessons about the minimum wage, government policy and unions. The lowest-paid workers — those making less than $20,000 a year — saw their average pay rise by more than the rate of inflation. There were nearly 61 million workers in this group in 2012, and they averaged $8,255 in wages annually. Compared with the year 2000, that was a real increase of $95, or 1.2 percent. That’s not much, but it’s better than what happened to workers just above them, those earning $20,000 to $40,000. Their 2012 average wage slipped a tad, down $104, to $29,420, from 2000. Many factors are at work in this shift, but one appears crucial: minimum wage laws. Workers at the bottom enjoyed on average a real pay raise despite a surplus of unemployed people and a weak economy. These bottom-of-the-wage-ladder workers, generally unrepresented by unions, are powerless. In this case the wage hike was signed by none other than President George W. Bush, helped by 82 House Republicans and all but four Senate Republicans.In 2007, Bush signed into law increases in the minimum wage that took effect in 2007, 2008 and 2009. Each raised the minimum by 70 cents, lifting it to $7.25 an hour. Before Bush signed the increases into law, minimum wage workers had gone a decade with no increase. By 2007, inflation had reduced the value of their hourly pay to 77 cents on the 1997 dollar.

Libertarian Fantasies - Krugman - Robert Draper’s long magazine piece about the possibility of a “libertarian moment” has drawn a fair bit of commentary; much of it involves questioning the supposed polling evidence. As Jonathan Chait points out, independent polling — as opposed to surveys conducted by libertarians seeking to boost their own profile — suggests that young Americans are actually much more pro-government than their elders. More to the point, however, the libertarian vision of the society we actually have bears little resemblance to reality. Mike Konczal takes on a specific example: the currently trendy idea among libertarians that we can make things much better by replacing the welfare state with a basic guaranteed income. As Mike says, this notion rests on the belief that the welfare state is a crazily complicated mess of inefficient programs, and that simplification would save enough money to pay for universal grants that are neither means-tested nor conditional on misfortune. But the reality is nothing like that. The great bulk of welfare-state spending comes from a handful of major programs, and these programs are fairly efficient, with low administrative costs.  Actually, the cost of bureaucracy is in general vastly overestimated. Compensation of workers accounts for only around 6 percent of non defense federal spending, and only a fraction of that compensation goes to people you could reasonably call bureaucrats.

Basic Income is good because it's basic - Mike Konczal has a post attacking the libertarian support for Basic Income. Paul Krugman approves. Basically, Konczal argues that the mix of programs we have now works just fine. I think Konczal is wrong, for a one, er, basic reason. Basic Income, unlike the programs we have now, will be politically easy to raise once it's in place. Redistribution programs (the good ones anyway) are designed to help a lot of people and hurt a few. But this means that the constituency opposing redistribution is much more concentrated and focused than the constituency in support of it. As Mancur Olson might tell you, this makes redistribution a tough sell politically.But if you have one big, high-profile redistribution program, you can get enough popular support to overcome the concentrated opposition of the rich people footing the bill. As an example, look at the minimum wage, which gets big popular support. The Democrats can go back to the minimum wage again and again as a populist issue. But that's not true for the whole array of redistribution programs we currently have. If the Democrats want to increase the strength of the safety net as a whole, they have to mount a populist campaign for each one of its components. That's hard to do. So a lot of the components of the safety net get left behind, or killed by Republicans when no one is looking. Such a fate would never befall a Basic Income. It would be in the spotlight all the time.

Unions That Used to Strike -- The six-year collective bargaining agreement between the Longshore and Clerks division of the International Longshore and Warehouse Union (ILWU) and the employers’ Pacific Maritime Association (PMA) had expired by July 1, 2014. As talks extended into overtime, this once mighty union appeared more vulnerable than at any other point in its history, its capacity to defend its members’ living standards and working conditions at an all-time low. The ILWU leadership had entered negotiations reeling from a run of humiliating setbacks, with the precedent-setting contract between the giant multinational grain combine Export Grain Terminal (EGT) and Local 21 in Longview, Washington, the obvious turning point. By this agreement, finalized on February 10, 2012, the union agreed to historic concessions, giving up its fight for the standard ILWU contract – won through decades of struggle — that prevailed with the four giant corporations of the Pacific Northwest Grain Handlers Association (PNGHA). Control of the hiring hall, long the cornerstone of its power, was relinquished. Won in the great West Coast maritime strike of 1934 and sustained by strike action in 1948 in defiance of the Taft Hartley Act’s ban on the closed shop, the hiring hall gave the union unparalleled leverage. The ILWU was able to control the companies’ labor pool by confining it to those who were already ILWU members, as well as by determining which members will be dispatched when employers call to fill positions. The ILWU leadership ceded to management other hard-won rights and powers, especially to stop work and to set up picket lines without company reprisal, that had previously enabled members to defend their work rules and maintain safe conditions on the dock. The outcome was to hand over untrammeled control of the labor process to EGT, who now has the sole authority to hire and fire and even to bring in scabs in case of strike action.

The mayors report in on Income Inequality (and miss the conclusion). - Yesterday the Conference of Mayors and the Council on Metro Economies and the New American City released a report prepared by IHS Global Insight that is a repeat and thus update of a similar study performed after the 2001 – 2002 recession.  Income and Wage Gaps Across the US.  There are 357 metro areas reported on in the index pages. Even Providence RI is noted. So look yours up. The report looks at the jobs being created and the wages they are generating.  The trend since the 2001/02 recession is that jobs lost in the recession are replaced by jobs producing lessor wages. No surprise as we have been hearing such for a while. However, this study documents that the difference in the wages is even greater this time. After the 01/02 recession it was a 12% difference or $23 billion in annual wage loss. After this current recession it is a 23% difference! $93 billion! Yes, it is because manufacturing and construction jobs are being replaced by hospitality, health care and administration jobs.“Extensive job losses in high-wage manufacturing ($63K) and construction ($58K) sectors were replaced by jobs in the lower wage sectors of hospitality ($21K), health care ($47K), and administrative support ($37K).” Nothing too new there as with some other facts noted early in the report. However they do something I have not seen and I believe does a better job of presenting income distribution change in this nation. The cry we are hearing regards the decline of the middle class. But then the numbers are presented as blocks of 20%. In this report they divide the income distribution into thirds. Thus, you have a middle third…the middle class?

Elites Finally Starting to Get that Inequality is Messing Up Growth - Yves Smith - Even though there has been a big uptick in news stories on rising economic inequality, and more chatter among economists about the idea that high levels of inequality are associated with lower growth, much of the messaging has come from the Democrats desperate to use the one dog whistle that might rally their badly abused base. Even though inequality has risen under Obama, thanks to policies that favored rescuing banks and enriching the medical-industrial complex over helping ordinary citizens, the Democrats are all too willing to rely on their perceived lesser-evilism relative to the Republicans. After all, it was only Romney's billionaire warts that kept Obama from what would otherwise have been a well-deserved 2012 defeat. But while the Administration has been pushing inequality as a useful campaign theme (the signal was inviting Thomas Piketty to meet with Treasury Secretary Jack Lew), in parallel, it also appears that some of the expressions of concern about inequality among the policy classes are genuine.

Paul Ryan's magical poverty tour -  Despite billions of dollars spent fighting it, the poverty rate in the United States is almost as high now as it was 50 years ago when President Lyndon B. Johnson launched the War on Poverty. What can we do to end this embarrassing conflict that the richest country on earth cannot seem to win? Rep. Paul Ryan, R-Wis., claims to have an answer: retreat from the battle and concede defeat. After all, didn’t Jesus say that the poor would always be with us? In a Congress not known for deep thinking, Ryan is touted as a man of ideas. A fiscal hawk, compassionate Catholic and devoted family man, he professes he has struggled with reconciling the burdensome costs of poverty programs against the needs of deserving recipients. On Aug. 19, he will begin a tour to launch his book, “The Way Forward.” In it he lays out his complaints about progressive social programs and the disservice he claims they do to low-income workers. Ryan’s take on poverty has been on display since earlier this year. In March he rolled out his theory that poverty is caused by faulty work ethics and bad family values. Although short on policy recommendations, he claimed he wanted to start a conversation about the cultural causes of long-term poverty. However, his use of “ghetto” examples injected race into the conversation and dampened it considerably. His most recent attempt at an anti-poverty plan, Expanding Opportunity in America (PDF), has, since its release last month, garnered mixed reviews. But make no mistake: The policies he proposes are a prescription for dismantling the federal anti-poverty effort and replacing it with state-determined programs that rely on a steadily declining funding base.

Why Is It So Controversial to Help Poor Mothers Afford Diapers? -- Imagine you’re a single mother working a minimum-wage job with a toddler at home. You don’t make enough to cover all of your family’s necessities (a minimum-wage income isn’t enough to even afford rent), so you have the Supplemental Nutrition Assistance Program and WIC to help you afford food.. So when your diaper supply also runs out mid-month, where can you turn to help you afford that incredibly basic necessity? Not SNAP, nor WIC, nor most other programs. They won’t let you spend benefits on diapers. Your daycare center won’t take your toddler without some, so you’re forced to stay home with him. A lawmaker in California wants to change that and has penned the first-ever bill to address diaper need, which would give families on welfare with children under two $80 a month to cover diapers. That would mean mothers who can’t afford diapers—30 percent of women across incomes and demographics say they’ve faced this problem at some point—won’t have to resort to stretching dirty diapers, risking infections and rashes, or go hat in hand to friends and family.

Here’s Why Stealing Cars Went Out of Fashion : Auto theft isn’t much of a problem anymore in New York City. In 1990, the city had 147,000 reported auto thefts, one for every 50 residents; last year, there were just 7,400, or one per 1,100. That’s a 96 percent drop in the rate of car theft.  So, why did this happen? All crime has fallen, nationally and especially in New York. But there has also been a big shift in the economics of auto theft: Stealing cars is harder than it used to be, less lucrative and more likely to land you in jail. As such, people have found other things to do.The most important factor is a technological advance: engine immobilizer systems, adopted by manufacturers in the late 1990s and early 2000s. These make it essentially impossible to start a car without the ignition key, which contains a microchip uniquely programmed by the dealer to match the car.Criminals generally have not been able to circumvent the technology or make counterfeit keys. “It’s very difficult; not just your average perpetrator on the street is going to be able to steal those cars,” said Capt. Don Boller, who leads the New York Police Department’s auto crime division. Instead, criminals have stuck to stealing older cars.You can see this in the pattern of thefts of America’s most stolen car, the Honda Accord. About 54,000 Accords were stolen in 2013, 84 percent of them from model years 1997 or earlier.

Sentencing, by the Numbers - — IN a recent letter to the United States Sentencing Commission, Attorney General Eric H. Holder Jr. sharply criticized the growing trend of evidence-based sentencing, in which courts use data-driven predictions of defendants’ future crime risk to shape sentences. Mr. Holder is swimming against a powerful current. At least 20 states have implemented this practice, including some that require risk scores to be considered in every sentencing decision. Many more are considering it, as is Congress, in pending sentencing-reform bills.Risk-assessment advocates say it’s a no-brainer: Who could oppose “smarter” sentencing? But Mr. Holder is right to pick this fight. As currently used, the practice is deeply unfair, and almost certainly unconstitutional. It contravenes the principle that punishment should depend on what a defendant did, not on who he is or how much money he has.The basic problem is that the risk scores are not based on the defendant’s crime. They are primarily or wholly based on prior characteristics: criminal history (a legitimate criterion), but also factors unrelated to conduct. Specifics vary across states, but common factors include unemployment, marital status, age, education, finances, neighborhood, and family background, including family members’ criminal history. Such factors are usually considered inappropriate for sentencing; if anything, some might be mitigating circumstances. But in the new, profiling-based sentencing regimen, markers of socioeconomic disadvantage increase a defendant’s risk score, and most likely his sentence.Advocates of punishment profiling argue that it gives sentencing a scientific foundation, allowing better tailoring to crime-prevention goals. Many hope it can reduce incarceration by helping judges identify offenders who can safely be diverted from prison. While well intentioned, this approach is misguided.

Which states have the highest levels of homelessness? -  On a given day in 2013, more than 600,000 Americans were homeless. The U.S. Department of Housing and Urban Development provides state-level estimations of homelessness every year and also collects data on many metropolitan areas. By official measures, the U.S. has seen a 9 percent decline in homeless population since 2007, from about 672,000 to 610,000 last year. In the U.S., about 195 of every 100,000 people were homeless in 2013. Colorado, with a rate of 193 per 100,000, is the closest to that average. The worst in terms of homelessness is the District of Columbia with a rate of 1,133 per 100,000 people. Because D.C. is a metropolitan area, its count is far above states, which aren’t comparable in this scenario. For example, New York City is at 768 per 100,000, a lower rate than D.C., but nearly 10 times the homeless population. For this data, it’s unfair to include D.C. as the “worst state” in terms of homelessness. States with high and low homeless rates are all over the country. The highest rates of homelessness among states are in Hawaii (465 per 100,000), followed by New York (399) and California (367). The lowest homeless counts per capita come in Mississippi (81 per 100,000), Indiana (94) and Kansas (94).

More Middle-Aged Women Are Having Kids Out of Marriage - New data from the Centers for Disease Control and Prevention show that birth rates among unmarried women in the U.S. between the ages of 35 and 39 shot up 48% between 2002 and 2012. For older women between 40 and 44 years old, this rate—while very low—rose 29% between 2007 and 2012.That means for every 1,000 women 35 to 39 years old who are not married, there were 31 births in 2012, compared with 29 births in 2007 and 21 births in 2002. For unmarried women 40 to 44, this figure edged up from seven births in 2007 to nine births in 2012. U.S. women are much more likely to have children out of wedlock than they used to. Roughly four in 10 U.S. births are to unmarried women, a figure that peaked in 2009 and hasn’t budged much since, according to the CDC.The rise of the unmarried mom in America has stirred concern for years. Married parents tend to be more stable and have higher household incomes, which benefit children. And a gap is growing between America’s married parents, who tend to be better-educated and higher-earning, and unmarried parents, who are likelier to be less-educated and lower-earning. This so-called marriage divide could fuel social and economic inequality. But the CDC’s latest findings show that trends related to unmarried moms vary greatly by age: It’s becoming much more common for middle-aged, unmarried women to have kids, as taboos ease. At the same time, younger women are delaying having children, to pursue career opportunities. Unwanted teen births, meanwhile, have plummeted, especially among black and Hispanic women.

Pity the Children: 'War on Drugs' Fuels Asylum Seekers - I am not sure if there is a moral to recent events, but the number of children seeking asylum in the United States from gang warfare-torn countries El Salvador, Guatemala and Honduras has dropped in the last month. What to do with these young people has given rise to a fierce debate Stateside on an issue Obama would likely prefer not to deal with domestically at this point in time: immigration reform. With an ever-growing Latino population, the stakes are high for center-left politicians like him. Even so, the Tea Party brigade is hung up on antiquated notions of perpetuating white majority rule despite demographic trends showing they will be less than half the population by mid-century. In the meantime, however, stricter enforcement coupled with disabusing would-be migrants of the delusional idea that the US was granting asylum have played their part in staunching arrivals. From the Arizona Republic: The number of children and families apprehended by the Border Patrol in July crossing the U.S.-Mexican border illegally fell by more than half from June, according to Customs and Border Protection. The significant drop reverses the recent surge in unaccompanied children and families fleeing north from Central America, and analysts cited a combination of reasons including tougher anti-smuggling measures.The decline is much sharper than the fall in overall Border Patrol apprehensions from June to July. And it is steeper than in past years — suggesting that it's not just hotter weather that is drying up the flow of migrants coming primarily from Honduras, Guatemala and El Salvador. "I don't think this is a seasonal shift," said Doris Meissner, a senior fellow at the Migration Policy Institute, a nonpartisan Washington think tank that deals with migration and refugee policies.

Flipping Schools: The Hidden Forces Behind New Jersey Education Reform - Half a year after Newark Public Schools launched an "agenda to ensure all students are in excellent schools," the plan has come under a federal civil rights investigation to determine whether it "discriminates against black students." The investigation centers on a cluster of school closings in Newark's predominantly black South Ward. Absent a consistent reason why the district targeted these schools - such as poor academics or declining enrollment - activists alleged discrimination. The "One Newark" reform plan, they wrote, would "continue a pattern of shuttering public schools in communities of color." This investigation could illuminate the structural forces behind Newark school reforms. Though there's been ample media coverage of the city's noisy school politics - from Mark Zuckerberg's $100 million gift to this year's contentious mayoral election - so far, these structural forces remain opaque. But an in-depth look into the district's ultimately unsuccessful attempt to close one South Ward school reveals how real estate concerns and facilities funding increasingly drive neighborhood school closings and the expansion of privately managed charter schools. By allocating millions of dollars in little-known bonds exclusively to charters while imposing austerity on public facilities, the state has quietly stacked the deck for charters, leaving neighborhood schools to molder in decline.

Why Hoboken is Throwing Away All of its Student Laptops - WNYC: Despite tight budgets, superintendents and principals around the country are cobbling together whatever dollars they can to buy more computers for their classrooms. This year alone, schools are projected to spend almost $10 billion on education technology, a $240-million increase from 2013, according to the Center for Digital Education. Educational technology holds the promise of individualizing instruction, and some school systems, like Mooresville, N.C., and Cullman, Ala., have shown impressive student learning gains. But districts like Los Angeles and Fort Bend, Texas, which jumped on the tech trend without careful planning, had problems when they gave a laptop or tablet to every student and are scrapping them, too. By the time Jerry Crocamo, a computer network engineer, arrived in Hoboken’s school system in 2011, every seventh, eighth and ninth grader had a laptop. Each year, a new crop of seventh graders were outfitted. Crocamo’s small tech staff was quickly overwhelmed with repairs. We had “half a dozen kids in a day, on a regular basis, bringing laptops down, going ‘my books fell on top of it, somebody sat on it, I dropped it,’ ” said Crocamo. Screens cracked. Batteries died. Keys popped off. Viruses attacked.  Hoboken school officials were also worried they couldn’t control which websites students would visit. Crocamo installed software to block pornography, gaming sites and Facebook. He disabled the built-in web cameras. He even installed software to block students from undoing these controls. But Crocamo says students found forums on the Internet that showed them how to access everything. “There is no more determined hacker, so to speak, than a 12-year-old who has a computer,” said Crocamo.

120 American Charter Schools and One Secretive Turkish Cleric -- It reads like something out of a John Le Carre novel: The charismatic Sunni imam Fethullah Gülen, leader of a politically powerful Turkish religious movement likened by The Guardian to an “Islamic Opus Dei,” occasionally webcasts sermons from self-imposed exile in the Poconos while his organization quickly grows to head the largest chain of charter schools in America. It might sound quite foreboding—and it should, but not for the reasons you might think.  You can be excused if you’ve never heard of Fethullah Gülen or his eponymous movement. He isn’t known for his openness, despite the size of his organization, which is rumored to have between 1 and 8 million adherents. It’s difficult to estimate the depth of its bench, however, without an official roster of membership. Known informally in Turkey as Hizmet, or “the service”, the Gülen movement prides itself on being a pacifist, internationalist, modern, and moderate alternative to more extreme derivations of Sunni Islam. The group does emphasize the importance of interfaith dialogue, education, and a kind of cosmopolitanism. One prominent sociologist described it as “the world’s most global movement.”

N.Y. schools hit with 7.8 percent rise in pension costs: – Pension costs for school districts in New York will soar again. The districts' bills due in fall 2015 to the state Teachers Retirement System will grow 7.8 percent, the system said this week. The increase is the same as the projections the retirement system made in February. The tab will mark the fifth straight year of rising retirement costs as schools manage limited tax revenue and growing expenses. But the system indicated at its board meeting last month that costs are likely to drop in the 2015-16 school year, which starts July 1. An estimate of that rate will be announced in November. "It'll be another challenge for the school districts because it's going to be another rising cost," said Al Marlin, spokesman for the state School Boards Association. "But based on the board meeting that TRS had, we see that there is a light at the end of the tunnel." Pension costs have skyrocketed as the $107 billion system, which has 277,000 active members and 150,000 retirees, has sought to make up for losses on Wall Street during the recession. Also, the retirement system maintains a lofty anticipated rate of return of 8 percent, making the climb out of the recession that much tougher. The state pension system for 1 million local and state workers has a rate of return of 7.5 percent, and it's seeing a small decrease in contribution rates next year.

Pennsylvania's public school staffing at 10-year low - The number of public school teachers and support staffers employed in Pennsylvania began falling the year before Gov. Tom Corbett took office and passed his first budget, according to state employment figures that show school staffing is at its lowest point in a decade. An attack ad this week by Democratic gubernatorial candidate Tom Wolf blames Corbett for cutting state education funding, and his website says those cuts “removed 20,000 teachers from the classroom,” but neither notes the downward trend was under way. “Corbett cut a billion dollars from education,” Wolf tells the camera. “Now almost 80 percent of school districts plan to raise property taxes.” The Republican Party of Pennsylvania shot back, deriding the statement as a lie and telling Wolf to remove the ad. Billy Pitman, Corbett's campaign spokesman, said stimulus funding “artificially propped up” school budgets. “Pension costs need to be addressed for school districts, not only to have more resources to put directly into the classroom but to provide, in the long term, some kind of property tax relief,” Pitman said. Pennsylvania lost about 11,200 teachers and staff during Corbett's term, according to state data.

Education Alone Is Not the Answer to Income Inequality and Slow Recovery: Our economy is now five years into an economic recovery, yet the wages of most Americans are flat. For the entire period between 1979 and 2013, median worker wages rose by just 7.9 percent while the economy’s growth and productivity rose 64.9 percent. The top one percent has made off with nearly all of the economy’s gains since 2000. Is there nothing that can be done to improve this picture? To hear a lot of economists tell the story, the remedy is mostly education. It’s true that better-educated people command higher earnings. But it’s also the case that the relative premium paid to college graduates has been declining in recent years. If everyone in America got a PhD, the job market would not be transformed. Mainly, we’d have a lot of frustrated, over-educated people. The current period of widening inequality, after all, is one during which more and more Americans have been going to college. Conversely, the era of broadly distributed prosperity in the three decades after World War II was a time when many in the blue-collar middle class hadn’t graduated from high school. I’m not disparaging education—it’s good for both the economy and the society to have a well-educated population. But the sources of equality and prosperity mainly lie elsewhere.

Women must undergo pap smears and virginity tests to teach in Brazil - Good luck getting a teaching job in São Paulo if you’re a woman who doesn’t want to undergo a pap smear or have a doctor certify your virginity in a written note. As outlined by a 2012 law that might well have been written decades (or even centuries) earlier, women who wish to become teachers in Brazil’s most populous state must undergo invasive gynecological exams to test for a variety of cancers, ostensibly to determine if the candidates pose a risk of taking extended absences to cope with an illness.  Given that a woman can get out of the requirements by disclosing whether or not she’s sexually active — despite the fact that having an intact hymen does not preclude developing reproductive cancers — it’s clear the law has at least as much to do with monitoring women’s sexual behavior as with protecting worker health. Women’s rights activists have condemned the measure as a complete violation of privacy.

Student Debt Threatens the Safety Net for Elderly Americans -- Until his Social Security check arrived nearly $300 lighter last June, Eric Merklein, 67, had no idea that he was carrying outstanding student debt. Merklein eventually learned that the government was taking money from his Social Security payments to repay loans he took out roughly four decades ago; he had thought they were paid. Merklein was unemployed, and the garnishment amounted to one-sixth of his total monthly income. Merklein is one of a growing number of Americans aged 50 and older who haven’t finished paying their student loans. Student debt is growing faster for seniors than for any other age group, according to the latest data gathered by the Federal Reserve Bank of New York. Lingering student loan debt is part of a broader and, many elder-care lawyers say, devastating accumulation of debt among older Americans. While people aged 50 and older hold only 17 percent of all U.S. student debt, this group has nearly three times as much debt as it did in 2005, according to the New York Fed data. By comparison, student debt for people under 40 is about one and a half times as high it was then.  The numbers don’t distinguish between older Americans who took out loans to finance their education and those who did so to put their children through college. A Gallup report released this month showed that people who took out loans decades ago are more likely to report low levels of health and financial well-being than their debt-free peers are.

Kentucky's Teacher Retirement System May Become One of The Worst-Funded In The U.S. -- New pension accounting standards could place Kentucky's teachers' retirement system among the worst-funded in the U.S. The new standard from the Governmental Accounting Standards Board, set to go into effect this year, will take a more holistic approach to government pension accounting. As a result, the state will be required to provide a more accurate accounting of its various pensions' liabilities. As a result, the new standards will place the funding ratio of the KTRS pension to about 40-percent funded, said Chris Tobe, a Democratic candidate for state treasurer and former Kentucky Retirement Systems board member. The current unfunded liability of the Kentucky Teachers Retirement System stands at 51.9 percent, which works out to about $14 billion in unfunded retirement moneys. Under the new standards, that liability will increase to about $22 billion, said KTRS legal counsel Beau Barnes. The new standards will also require KTRS to significantly lower investment returns that reflect the updated state of its books. Barnes said that could mean KTRS' return on investments dropping from 7.5 percent to about 5 percent. That could escalate the fund's overall liabilities because the majority of its funding—over 70 percent—is based on investment return.

SEC Charges Kansas With Failing to Disclose Pension Risks - Bloomberg: The U.S. Securities and Exchange Commission charged Kansas with failing to disclose a “multibillion-dollar” pension liability to bond investors. Documents for eight bond offerings in 2009 and 2010 by the state’s Development Finance Authority didn’t tell investors that a study had pegged Kansas’s public-employee pension as the second-most underfunded in the nation. Kansas, which didn’t admit or deny the findings, put in place new disclosure policies and agreed to settle the case. “Kansas failed to adequately disclose its multibillion-dollar pension liability in bond offering documents, leaving investors with an incomplete picture of the state’s finances and its ability to repay the bonds amid competing strains on the state budget,” LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division’s Securities and Public Pension Unit, said in a statement from Washington. The SEC has been cracking down on faulty disclosure by states and localities that borrow in the $3.7 trillion municipal-bond market. It settled a similar case with New Jersey in 2010, the first time the regulator targeted a state. Last year, Illinois became the second state to settle with the SEC over charges it misled investors about a growing shortfall in its employee pension funds as it sold $2.2 billion in bonds.

The coming storm: Unfunded pension liabilities - It’s the elephant in the room that will affect each one of us: Pension plans in private and public institutions that are not fully funded. Accounting practices that do not reflect reality, laws that perpetuate fantasy and promises that cannot be kept will eventually bring disappointment and devastation, not only to individual retirees, but to our entire national economy. By law, employers must contribute a certain percentage of money into retirement accounts and show on the books that the program will be solvent for a certain number of years. The less money they have to allocate and the more they can capitalize on investment returns, the better it is for employers. It’s easy, then, to understand that fund managers have incentive to project a minimum of expenses and maximum returns. This is where laws, regulations and accounting practices deviate from reality. For example, a fund manager may figure expenses (what they’ll have to pay to retirees) five years out based on current salaries — not accounting for any additional hires or raises that will occur during that period and omitting any cost of living increases. Additionally, the manager may use an investment return figure of say, 8 percent, even though the S&P 500 is performing at 5 percent. When the five-year mark rolls around, actual expenses are found to be higher than projected, revenues lower, and the liability, or difference in the amount owed and funds available to pay, is substantial.

The Truth About Retirement for Baby Boomers - One of the biggest changes in the U.S. labor market over the past two decades has been the increasing number of people working over the age of 55. From the end of World War II until the early 1990s, a smaller and smaller share remained in the labor force but since the 1990s that trend reversed. In 1993, only 29% of people that age were in the labor force. The vast majority were retired. But participation has been rising and by 2012 more than 41% of that age group were still in the labor force, the highest since the early 1960s. Clearly, something has changed about people’s attitudes toward retirement. A survey from the Federal Reserve last week provided some clues. Around 21% of people said their plan for retirement is simply “to work as long as possible” and the number of people giving this response increases by age. Conversely, the traditional way to retire – working full-time in a career until ceasing work altogether – is the plan for 35% of people in their 20s. But by the time they reach their 60s, only 15% say it will be their route. For at least some Americans, the rise in labor force participation at old age signals that retirement is simply out of reach. Surveys from Gallup have found that people who believe they can afford to retire generally tend to do so the earliest. The wealthy businessmen or distinguished town doctors who are in good health and just enjoy their work too much to ever step aside are the exception, not the rule.

Myths About Social Security - EPI - In honor of Social Security’s 79th birthday, here’s an update to a 2011 blog post refuting Social Security myths spread by critics of the program.

  1. Social Security costs are escalating out of control. No. Costs are projected to rise from roughly five to six percent of GDP before leveling off.
  2. Americans want benefits but aren’t willing to pay for them. Wrong again. Americans across political and demographic lines support paying Social Security taxes and prefer raising taxes over cutting benefits as a way to close the projected shortfall.
  3. Our children and grandchildren will drown in debt if we don’t cut the social safety net. No, future generations will drown in debt if we don’t address health cost inflation. Though the Affordable Care Act and other factors have slowed costs considerably, this isn’t enough—we need to get costs closer in line with those in Europe and Canada.
  4. The Baby Boomers will sink us. On the contrary. We saw them coming. Social Security began building up a trust fund in the early 1980s in anticipation of the Boomer retirement.
  5. We’re living longer, so we need to work longer. No—only some of us are living longer, and most of us are already working longer. Gains in life expectancy have been concentrated among people with higher incomes and more education, especially men.
  6. We just need to save more for retirement. That’s a reason to expand Social Security, not shrink it. The average household has a retirement income deficit of $90,000, a conservative measure of how far behind they are in saving and accumulating benefits for retirement—and that’s without further cuts to Social Security. 
  7. Seniors are greedy. No, they’re struggling to make ends meet.

Debunking the Myth that An Aging Society and a Falling Birth Rate is Bad for the Young - Yves Smith - One widely accepted nostrum is that falling birth rates, particularly when accompanied by rising life spans, are bad for economic growth and therefore bad generally. The assumption is that a shrinking pool of 20 to 65 year olds will be forced to support a larger and larger cohort of unproductive citizens, namely, the aged. That vision, of young people hostage to parasitic elders, is also one of the foundations of boomer hate, which is actively stoked by major Republican party funder Stan Druckenmiller, who has been touring college campuses to sell the false notion that Social Security and other social safety nets for the elderly are bad for them. There has been some opposition to this idea from those with environmental concerns, who argue that we are running up against resource limits. They contend we need to learn to live with low or no growth and also need to learn to manage the social challenges of a stagnant or declining population. Adair Turner, in Project Syndicate, argues that the falling birth rate/aging population alarmists are all wet. Their forecasts are inconsistent with what is actually happening in aging advanced economies. I urge you to read the entire essay. Here are the critical parts of his case for what he calls “demographic stabliazation”:

GOP States Give Up $423 Billion By Rejecting Medicaid Expansion: The 24 states which refused to expand Medicaid under Obamacare are poised to give up $423.6 billion in federal funds over a decade and keep 6.7 million residents uninsured, according to a new study by the Urban Institute and Robert Wood Johnson Foundation. "In the 24 states that have not expanded Medicaid, 6.7 million residents are projected to remain uninsured in 2016 as a result. These states are foregoing $423.6 billion in federal Medicaid funds from 2013 to 2022, which will lessen economic activity and job growth," the authors wrote. This chart comes via the Urban/RWJF study: The non-expansion states -- which include high-population Texas and Florida -- feature Republican governors or legislators (or both) who blocked the federal funds. The expansion, initially required by Obamacare, was made optional by the Supreme Court. It covers residents up to 133 percent of the federal poverty line with a low price for states; Washington pays the full cost for the first three years and 90 percent thereafter.

Another argument against the Medicaid expansion just got weaker - We learned late last week that the decision by 24 states to reject Obamacare's Medicaid expansion comes as a startling cost —$423.6 billion in lost federal funds from 2013 to 2022, according to researchers at the Urban Institute. So how are states justifying their decisions to leave that much federal money on the table? One of their main arguments is that the federal government will eventually renege on its generous funding commitment to the Medicaid expansion. But based on the 49-year history of the Medicaid program, that claim doesn't hold up, according to Urban Institute researchers in a finding that hasn't received as much attention. Here's how Medicaid funding works: The federal government on average pays 57 percent of the traditional Medicaid program's costs, while the states finance the rest (though the federal reimbursement rate varies by state). The federal match just for the Medicaid expansion population, however, is significantly more generous. The feds pay 100 percent of those costs through 2016, and the federal match rate is gradually lowered to 90 percent by 2020 and is supposed to stay there. States opposing the Affordable Care Act have expressed skepticism that the federal government will be able to maintain such a high funding level amid future budget pressures. But the Urban researchers found that of the 100-plus cuts the federal government has actually made to the Medicaid program since 1980, lawmakers just once reduced the federal share of Medicaid financing — and that was in 1981. Other federal cuts have been to services, payments to providers, or in program eligibility.

Many Big Employers Plan To Offer Skimpy Health Options Despite Law   -- Nearly 1 in 6 companies plans to offer health coverage that doesn't meet the Affordable Care Act's requirements for value and affordability, a national survey of employers finds.Many thought such skimpy coverage would be history once the health law was fully implemented this year. Instead, 16 percent of large employers in a survey released Wednesday by the National Business Group on Health said they will offer in 2015 these so-called skinny plans along with at least one insurance option that does qualify under ACA standards.The results weren't entirely unexpected. Last year, it became clear that ACA regulations would allow skinny plans and even make them attractive for some employers. But this survey gives one of the first looks at how many companies followed through. "It "It would be interesting to know what sectors of the economy these employers are in." Low-benefit plans traditionally have been offered by hotels, restaurant chains and other lower-wage industries, Jost said, "but this may be spreading."The survey compiled responses from 136 large employers but didn't specify which industries made up the 16 percent offering low-benefit plans."My guess is that they are probably in those industries with low-wage employees where they have historically not been attracted to taking a lot of their paycheck for coverage and wanted something smaller,"

Obamacare: Complexity and Crapification Mean Rescission Abuses Are Alive and Well - Yves Smith - Yves here. Obamacare is proving to be a graduate-level course in the study of craponomics. What distinguished good old fashioned mere shoddiness from crapification is that crapification is institutionalized and on its way to becoming systemic. And as this discussion illustrates, one often-used ploy is unnecessary product complexity, so that what Elizabeth Warren called "tricks and traps" can be characterized as consumer neglect and error, meaning they and not the sneaky, misleading vendor are at fault. We were early to point out that Obamacare would do nothing to eliminate the widespread practice by insurers of canceling coverage when policy-holders submit large claims, meaning when they expect the insurance to act like insurance. The reason was that it continues to allow insurers to cancel policies for fraud, and the definition of fraud is astonishingly broad.

Getting Sucked into ObamaCare is a Lot Like Being on Probation - Yves Smith -  Lambert, in his relentless Obamacare skullduggery, has unearthed yet another ugly feature of this Rube Goldberg contraption for enriching health insurers: unprecedented levels of required reporting to the Federal government. Your humble blogger had already flagged one, that Obamacare is designed with the bizarre assumption that everyone in America has a steady paycheck. You are supposed to be able to estimate your income. How can people who are part-time workers, with employers who ratchet up and down how much time they need, supposed to comply? Or even worse, how about self-employed people, who have variable and unpredictable income and expenses, as well as the occasional collection issue. But Obamacare policyholders are ALSO required to report on a raft of "lifestyle changes" including when you become pregnant (which means you also need to report if you have a change in that "status" via miscarriage or abortion), or a change in "household size". One assumes that means "household" from an IRS standpoint, but could it mean from a Census perspective? Do renters have to report if they take on a roommate? And even better, as Lambert discusses in detail, HHS also makes it hard to prove that you've made the required updates. Charming.

Obamacare premiums mask the real cost of Affordable Care Act coverage: Analysis -- Here's one for "Obamacare" critics, supporters and wonks. You may have read that Ohio's insurance department declared that premiums on the Affordable Care Act marketplace will go up by 12 percent in 2015 – and you may have read my analysis that said the figure is misleading and too high. This prompted an insurance industry source to send a note observing that actually, these rates are artificially low.   The premium prices are artificially suppressed through the ACA's fee structure and design, masking the true costs. Is this true? In a way, it is. The subject of ACA taxes and fees has received coverage. But putting it in the context of premiums makes it more understandable and deserves mention, so let's deal specifically with that angle.  The ACA declared that no one could be turned down for coverage or charged more because of poor health. It set up a system of computerized marketplaces, or exchanges, for buying this insurance. It offered subsidies to help customers pay, based on their incomes. But when you take people who don't have insurance and suddenly give them coverage, you create a risk. What if a lot of people who were sick and delayed treatment suddenly crowded the medical system as they became insured? What if an insurer got an unusually high share of such clients? How could insurers price their policies to cover these unknown risks without cherry-picking customers or charging premiums so high as to defeat the "affordable" part of the ACA?

Thousands might lose health insurance over missing documents -- Some 310,000 people with inconsistencies in their citizenship and immigration materials might lose their federal marketplace health coverage Sept. 30 unless they provide proper supporting documents by Sept. 5, the Obama administration announced Tuesday.  In May, the Department of Health and Human Services began contacting about 2 million people about discrepancies or errors in the personal information they’d provided in their insurance applications. The problems stem, in part, from an administration policy that allowed applicants to self-report information about their incomes, citizenship and household size, all of which contribute to determining their eligibility for tax credits to help pay for coverage.The self-reporting system was adopted because the federal marketplace technology to verify all applicant information wasn’t fully functional. For the first year of operation, the federal exchange used a scientific sampling process to weed out applications that understated household income.About 970,000 people had information about their citizenship or immigration status on their applications that didn’t match data in government records.

West Virginia sues Obama over the “like it, keep it” fix - Remember the “like it, keep it” fiasco and the Obama administration’s effort to fix it? West Virginia certainly does. Two weeks ago, it filed a lawsuit challenging the legality of the administrative fix.Here’s the background. The ACA imposes a bunch of new rules on insurers. Among other things, they can’t decline to cover you or charge you more because you have a preexisting condition. That’s great news for those who’d been priced out of the insurance markets because of poor health. But it’s not such good news for those who had really cheap health plans before the ACA took effect. Those plans were so cheap in large part because insurers could refuse to cover unhealthy people. The ACA prohibited the sale of these non-compliant plans as of January 1, 2014. The preceding fall, insurers began sending out cancelation notices to people with non-compliant plans. The cancelations clashed with the President’s public commitment that, “If you like your health plan, you can keep your health plan.” Under intense political pressure, the administration released a letter to state insurance commissioners encouraging them to decline to enforce the ACA’s new insurance rules for a year (now extended to three years). That gave state insurance commissioners a choice about whether to allow insurers to re-issue their recently canceled, noncompliant plans. About two-thirds of the states said that insurers could re-issue noncompliant plans; the other third declined the administration’s invitation. West Virginia fell in the first camp. But it’s apparently not pleased that it had to make the choice at all. So West Virginia sued, arguing that the President has violated his constitutional duty to “take Care that the Laws be faithfully executed.”

Racial discrimination alive and well in reproductive healthcare - This week, U.S. experts from the Center for Reproductive Rights (CRR) and SisterSong Women of Color Reproductive Justice Collective will testify before the United Nations' Committee to End Racial Discrimination in Geneva, sharing a report that describes the experiences of American women of color and immigrant women who pay with their health and even their lives for the race and gender discrimination that tirelessly persists in our health system. The meeting is part of the U.N.'s periodic review process that evaluates how signatories to the International Convention on the Elimination of All Forms of Racial Discrimination (ICERD) are progressing in addressing and dismantling racism. The United States ratified ICERD in 1994 and during its last review in 2008, the U.N. committee expressed concern about the continued disparities in sexual and reproductive health. Unfortunately, not much has changed in the last six years.

For Aging Inmates, Care Outside Prison Walls - Kaiser - Providing health care to an aging prison population is a large and growing cost for states. Not only do inmates develop debilitating conditions at a younger age than people who are not incarcerated, but caring for them in the harsh environment of prisons is far more expensive than it is on the outside.  Of the 2.3 million adults in state and federal prisons, about 246,000 are 50 or older, according to the National Institute of Corrections. The U.S. currently spends more than $16 billion annually caring for these aging inmates, and their numbers are projected to grow dramatically in the next 15 years. “In a couple of years,” said Donna Strugar-Fritsch, a consultant with Health Management Associates, “this is the only thing people are going to be talking about. It’s getting worse by the minute.” In the last five years, a handful of states have tried to contract with private nursing homes to care for some of their elderly and disabled inmates under so-called “medical parole” programs that allow prisoners to receive care outside of a prison while remaining in state custody. But few private facilities have been willing to accept them. Likewise, courts and communities have tended to resist so-called “compassionate release,” which cuts short the sentences of elderly or dying inmates so they can spend their last days on the outside.

Feds Quietly Stop Reporting Some Hospital Errors :: DC Medical Malpractice & Patient Safety Blog: We’ve long advised medical consumers to research hospitals they’re considering using for the kind and frequency of errors they make. But according to a story on, suddenly that’s more difficult than it used to be. “The federal government this month quietly stopped publicly reporting when hospitals leave foreign objects in patients' bodies or make a host of other life-threatening mistakes,” the paper reports. That’s contrary to what the Centers for Medicare and Medicaid Services (CMS) is supposed to do, which is making available to the public data on hospital-acquired conditions (HACs). Last year, according to USA Today, the CMS denied changing its data-reporting practice. But as of this month, the data for eight of these avoidable “conditions” no longer are being supplied. So where is current information about hospitals with high rates of serious errors, including embolisms (obstruction of a blood vessel by blood clot or air bubble) and transfusions with the wrong blood type? Hospital Compare is the CMS’ website for consumers to research hospital performance — you determine the nature of the search, either by location or hospital name. The site used to list how often many HACs occurred at thousands of hospitals that accepted patients with severe injuries or illnesses and/or while recovering from surgery. Now, says USA Today, CMS still reports the rate of occurrence for 13 conditions, including infections such as MRSA and sepsis after surgery, but has dropped others.

Low salt diets associated with death? Screw you guys! I’m going home. - Holy f*@$*#g s@#t. “Urinary Sodium and Potassium Excretion, Mortality, and Cardiovascular Events“ - Researchers got more than 100,000 people in 17 countries to pee in a cup. Then they checked the levels of potassium and sodium in it, as a measure of how much salt they were eating. Then they looked at a whole bunch of outcomes. Another study in the same journal looked at blood pressure. Yes, salt intake was associated with higher blood pressures. For each 1g (not mg, mind you, but grams) of salt intake, systolic blood pressure went up 2.1 mm Hg and diastolic went up 0.8 mm Hg. Statistically significant, but I’m not sure about clinically. But this study looked at death and cardiovascular events like stroke, heart attack, or heart failure . The average sodium excretion was 4.9 g per day, and posassium was 2.1 g. They followed people for 3.7 years on average. They used people excreting 4 to 5.99 g of sodium a day as the baseline for comparison. Compared to them, people with a higher excretion (more than 7 g a day) had significantly higher rates of death or cardiovascular events (odds ratio 1.15). Ok, so far so good. This association was even stronger if people had high blood pressure. So really high salt intake is a bad idea, especially if you have hypertension. But here’s where things go off the rails. Compared to those who excreted the baseline amount, those who had low excretion (below 3 g per day) also had an increased risk of death and cardiovascular events (odds ratio 1.3). In fact, this association appeared even stronger. In other words, people who consume between 3 g and 6 g of sodium per day had a lower risk of death or cardiovascular events than people who eat a low salt diet.

Pharmacies Turn Drugs Into Profits, Pitting Insurers vs. Compounders - It may be the biggest thing in diaper rash treatment, a custom-made product to soothe a baby’s bottom at the eye-popping price of $1,600. This is no Desitin or Balmex, or any other brand found in stores. This cream is blended to order in a pharmacist’s lab. Does it work better than the common treatments? There is little evidence either way. But the sky-high prices commanded by such compounded medicines are drawing the ire of health insurance companies that must pick up the bill. They say the industry is profiteering at their expense. Compounded medicines are the Savile Row suits of the pharmacy, made to order when common treatments will not suffice. Pharmacists say it is the doctors who decide what to prescribe. But many pharmacies have standard formulations and some promise six-figure incomes to sales representatives who call on doctors. Besides the $1,600 ointment to treat diaper rash, there was the $8,500 cream to reduce scarring and the $2,300 salve to relieve pain recently billed to Catamaran, a pharmacy benefits manager. Alarmed that its spending on compounded drugs has quintupled in just two years, Catamaran has begun to review such claims more carefully

America's prescription painkiller problem, in one map - Over the past 15 years, the number of Americans dying from prescription painkiller and heroin overdoses has risen. This map from shows the rise of America's opiate problem through data from the Centers for Disease Control and Prevention and federal surveys: The map tracks all opiate deaths, but most of the deaths are linked to prescription painkillers in particular. Based on the latest CDC data, prescription painkiller overdoses killed more people in 2010 than all other types of drug overdoses, including those from heroin and cocaine, combined. The problem, drug and medical experts argue, is that doctors are prescribing painkillers much more than they did in the past — sometimes unnecessarily. This led more people to get addicted to the drugs, exposing them to more deadly overdoses as they try to get their fix.Federal and state officials have responded to the increase by cracking down on so-called pill mills and other medical providers that leniently prescribe painkillers. The drawback with this response, according to a recent study published in JAMA Psychiatry, is that it's effectively pushing opioid addicts from prescription painkillers to heroin, because the crackdown made the legal opiates less accessible and affordable than their illicit counterpart.

Study: Popular, Ineffective Antibacterial Chemical Found In 100% Of Pregnant Women, May Interfere With Fetal Development – Consumerist: That “antibacterial” hand soap sitting next to your sink? The chemical that supposedly makes it work is called triclosan, and it’s in tons of products. A new study also finds that it’s in tons of our bodies — and in the bodies of pregnant women, it might be interfering with fetal development. Researchers looking at pregnant women in New York found that 100% of them had triclosan in their urine, HealthDay reports. They also found triclocarban, another antibacterial chemical, in over 85% of the women. Triclosan also was found in over 50% of the samples of umbilical cord blood taken from the women, which indicates that the chemical can be transmitted to developing fetuses. Studies of triclosan in animals have found that it may interfere with fetal development at the hormonal level. Called endocrine disruption, such interference has been tied to deformation in mice, rats, and frogs. The antibacterial agent is currently under review by the FDA, which in 40 years has never formally found it to be either safe or unsafe. Triclosan isn’t just used in hand soaps and shower gels. It’s in about 2000 consumer products overall, including rugs, pet-care products, and school supplies — basically, anything you buy that claims to have antibacterial properties has probably got triclosan in it. And it’s in some places you might not expect it at all, like toothpaste.

Germ-Killing Chemicals Used in 2,000+ Consumer Products Found in Pregnant Women, Newborns - Half of newborns in a Brooklyn-based study were exposed in the womb to triclosan, a germ-killing chemical widely used in consumer products, researchers reported Sunday at an annual meeting of chemists.“Our study suggests that expectant mothers may be highly exposed to these compounds, which have endocrine-disrupting capabilities,” said study coauthor Laura Geer, an environmental health scientist at SUNY-Downstate Medical Center in New York. In addition to triclosan, about one-quarter of the newborns were exposed to traces of triclocarban, another germ-killing chemical in some bar soaps. The researchers also reported that pregnant women with higher levels of butylparaben, a cosmetics germ-killing preservative, gave birth to shorter babies than women with lower levels. It’s not clear what health effects, if any, the shorter lengths would have on a child, Geer said. Those findings are preliminary and have not yet been published, so Geer declined to reveal details on the length differences. “Shifts in birth size may be an indication of endocrine disruption,” she said. “We hope to address the question of adverse health outcomes associated with these chemicals in future research.”  Studies have reported that triclosan and triclocarban may add to the spread of antibiotic-resistant bacteria, disrupt development of the brain and reproductive system and accumulate in plants and animals. Parabens, identified as estrogen mimics, have been linked to reproductive problems in lab animals, as well as allergies and skin irritation.

BPA-Free Plastic Containers May Be Just as Hazardous - In 2012 the U.S. Food and Drug Administration banned the sale of baby bottles that contain bisphenol A (BPA), a compound frequently found in plastics. The ban came after manufacturers’ responded to consumer concerns of BPA's safety after several studies found the chemical mimics estrogen and could harm brain and reproductive development in fetuses, infants and children.* Since then store shelves have been lined with BPA-free bottles for babies and adults alike. Yet, recent research reveals that a common BPA replacement, bisphenol S (BPS), may be just as harmful. BPA is the starting material for making polycarbonate plastics. Any leftover BPA that is not consumed in the reaction used to make a plastic container can leach into its contents. From there it can enter the body. BPS was a favored replacement because it was thought to be more resistant to leaching. If people consumed less of the chemical, the idea went, it would not cause any or only minimal harm. Yet BPS is getting out. Nearly 81 percent of Americans have detectable levels of BPS in their urine. And once it enters the body it can affect cells in ways that parallel BPA. A 2013 study by Cheryl Watson at The University of Texas Medical Branch at Galveston found that even picomolar concentrations (less than one part per trillion) of BPS can disrupt a cell’s normal functioning, which could potentially lead to metabolic disorders such as diabetes and obesity, asthma, birth defects or even cancer.

Alarming MIT Technology Report Concerning “Gene Drive” Technology | Big Picture Agriculture: I want to call readers attention to this rather alarming article from MIT Technology Review (referencing a Science journal article). What’s going on here is that gene editing techniques that weren’t as worrisome a decade ago have become greatly concerning to scientists because they have made such huge advances. Gene altering procedures are becoming simple and quick. These scientists, asking for help, are admitting that the technology has outpaced the safety and want integrated risk management, which for now is missing. —Kay M. Scientists working at the cutting-edge of genetics say one possible application of a powerful new technology called genome editing has the potential to cause ecological mayhem and needs attention from regulators. The technique, referred to as a “gene drive,” would cause chosen genes, including man-made ones, to quickly spread through a species as its members reproduce. While gene drives may have commercial and public health uses, 10 scientists published an editorial in the journal Science calling for more public discussion, and also more scrutiny by regulators.

Ebola and the weak link of public health - It has long been my contention that one of the chief symptoms of the age of constraints we have now entered would be the decline of public health systems globally. This comes at a time when our vulnerability to a worldwide epidemic is increasing because of widespread international travel, the proliferation of densely populated megacities and the general trend toward urban living. Of course, urban environments are ideal for spreading disease because of the proximity of the residents.  The sudden re-emergence of the deadly Ebola virus is testing whether public health systems are adequate to the job of containing such threats. While we know that there is a link between the general health of a population and public health expenditures, it is difficult to find statistics on expenditures worldwide by country to assess the direction of public health spending. We do have evidence that declining health spending in Greece in the aftermath of the financial crisis there was followed by demonstrably worse outcomes. And, the medical community thinks the United States is spending too little on public health, just $251 per person (in 2012). Keep in mind that this is distinct from spending on medical care which totaled $8,086 per person.

Tracing Ebola’s Breakout to an African 2-Year-Old -  Patient Zero in the Ebola outbreak, researchers suspect, was a 2-year-old boy who died on Dec. 6, just a few days after falling ill in a village in Guéckédou, in southeastern Guinea. Bordering Sierra Leone and Liberia, Guéckédou is at the intersection of three nations, where the disease found an easy entry point to the region.A week later, it killed the boy’s mother, then his 3-year-old sister, then his grandmother. All had fever, vomiting and diarrhea, but no one knew what had sickened them. Two mourners at the grandmother’s funeral took the virus home to their village. A health worker carried it to still another, where he died, as did his doctor. They both infected relatives from other towns. By the time Ebola was recognized, in March, dozens of people had died in eight Guinean communities, and suspected cases were popping up in Liberia and Sierra Leone — three of the world’s poorest countries, recovering from years of political dysfunction and civil war. Now, with 1,779 cases, including 961 deaths and a small cluster in Nigeria, the outbreak is out of control and still getting worse. Not only is it the largest ever, but it also seems likely to surpass all two dozen previous known Ebola outbreaks combined. Epidemiologists predict it will take months to control, perhaps many months, and a spokesman for the World Health Organization said thousands more health workers were needed to fight it. Past Ebola outbreaks have been snuffed out, often within a few months. How, then, did this one spin so far out of control? It is partly a consequence of modernization in Africa, and perhaps a warning that future outbreaks, which are inevitable, will pose tougher challenges. Unlike most previous outbreaks, which occurred in remote, localized spots, this one began in a border region where roads have been improved and people travel a lot. In this case, the disease was on the move before health officials even knew it had struck.

At Heart of Ebola Outbreak, a Village Frozen by Fear and Death - The signs of a deadly struggle remain: Scattered around the houses of the Ebola dead lie empty pill packages, their plastic casings punched through. Nearby in the mud are used packets of oral rehydration salts. The pills did not work, and the hurried trip to the hospital, if there was one, came too late. Inside house after house, Ebola has claimed its victims: Here, 10 people died; over there, four, including three children. A few yards away, an old man lives alone, his wife now dead. In another, seven people are dead, the village teacher said. In a long low house nearby, 16 died, all from the same family. Outside yet another, two tiny girls, one age 6 and her sister, 7, sit pensively in front, their parents gone.  There are still people here, but the village appears frozen. Inside the darkened houses, the scant belongings of the victims — ragged clothing, sandals, a rare radio — sit untouched weeks later. No new cases have surfaced here in nearly a month, but fear that the deadly virus still lurks has kept everything in place. Nothing appears to have moved since the deadly tide swept through.The Sierra Leone government, desperate to contain an epidemic that has claimed about 300 lives in this nation alone, has effectively cordoned off this part of the country, deploying troops and setting up roadblocks in the hardest-hit areas. Two districts here in the east — an area with about one million people — were put under quarantine by the government late last week, shutting down much of the traffic on the muddy road cutting through the Ebola zone. Now, a region roughly the size of Jamaica has been cut off from the rest of the country because of the roadblocks, warned a local leader, David Keili-Coomber, the paramount chief — raising worries that if the epidemic does not decimate the region, a subsequent shortage of food, trade and supplies will.

Priest With Ebola Dies In Spanish Hospital As Eight Chinese Workers Quarantined -- Sadly, the Spanish missionary priest who became infected with Ebola treating patients in Liberia has died in hospital in Madrid. As AP reports, Father Miguel Pajares died despite receiving the experimental drug ZMapp, and is one of 3 patients to receive it (the American doctors in Atlanta being the other 2). This morning the WHO confirmed the use of "experimental, unproven" Ebola drugs such as ZMapp was ethical in this situation, as the death toll tops 1000 in what WHO called the "most severe and most complex outbreak of Ebola virus disease in history." Perhaps most concerning of all this morning is news that China is quarantining 8 of its West African nurses (as the death toll among health workers surges).

The One Question About Ebola That Nobody Can Seem To Answer - How in the world is it possible that more than 170 health workers have been infected by the Ebola virus? That is the one question about Ebola that nobody can seem to answer. The World Health Organization is reporting this as a fact, but no explanation is given as to why this is happening. We are just assured that Ebola “is not airborne” and that getting infected “requires close contact with the bodily fluids of an infected person”. If this is true, then how have more than 170 health workers caught the disease? These workers are dressed head to toe in suits that are specifically designed to prevent the spread of the virus. So how is this happening?

Using a Tactic Unseen in a Century, Countries Cordon Off Ebola-Racked Areas - The Ebola outbreak in West Africa is so out of control that governments there have revived a disease-fighting tactic not used in nearly a century: the “cordon sanitaire,” in which a line is drawn around the infected area and no one is allowed out.Cordons, common in the medieval era of the Black Death, have not been seen since the border between Poland and Russia was closed in 1918 to stop typhus from spreading west. They have the potential to become brutal and inhumane. Centuries ago, in their most extreme form, everyone within the boundaries was left to die or survive, until the outbreak ended.Plans for the new cordon were announced on Aug. 1 at an emergency meeting in Conakry, Guinea, of the Mano River Union, a regional association of Guinea, Sierra Leone and Liberia, the three countries hardest hit by Ebola, according to Agence France-Presse. The plan was to isolate a triangular area where the three countries meet, separated only by porous borders, and where 70 percent of the cases known at that time had been found.Troops began closing internal roads in Liberia and Sierra Leone last week. The epidemic began in southern Guinea in December, but new cases there have slowed to a trickle. In the other two countries, the number of new cases is still rapidly rising. As of Monday, the region had seen 1,848 cases and 1,013 deaths, according to the World Health Organization, although many experts think that the real count is much higher because families in remote villages are avoiding hospitals and hiding victims.

Nigeria's Lagos now has 10 Ebola cases: health minister (Reuters) - Nigeria's commercial capital Lagos has 10 confirmed cases of Ebola, up from seven at the last count, and two patients have died, including the Liberian who brought the virus in, the health minister said on Monday. All were people who had had direct contact with Patrick Sawyer, who collapsed on arrival at Lagos airport on July 25 and later died, Health Minister Onyebuchi Chukwu said. A nurse who had treated Sawyer without knowing what he had and did not therefore wear protective gear, also died. true Nigeria on Friday declared a national emergency over the Ebola outbreak. "As at today, 77 primary and secondary contacts of the index case have been placed under surveillance or isolation," Chukwu told a news conference. The latest case was also a nurse, who had had primary contact with Sawyer, a Liberian-American. "When she got ill, we then brought her into isolation. We just tested her over the weekend." She had been at home with her husband, who was also now under surveillance,  Sawyer has faced fierce criticism for traveling to Nigeria despite being ill and being under surveillance by Liberian authorities because his sister had died of Ebola.

Ebola Outbreak Vastly Underestimated: WHO: (Reuters) - Staff with the World Health Organisation battling an Ebola outbreak in West Africa see evidence the numbers of reported cases and deaths vastly underestimates the scale of the outbreak, the U.N. agency said on its website on Thursday. The death toll from the world's worst outbreak of Ebola stood on Wednesday at 1,069 from 1,975 confirmed, probable and suspected cases, the agency said. The majority were in Guinea, Sierra Leone and Liberia, while four people have died in Nigeria. The agency's apparent acknowledgement the situation is worse than previously thought could spur governments and aid organisations to take stronger measures against the virus.  "Staff at the outbreak sites see evidence that the numbers of reported cases and deaths vastly underestimate the magnitude of the outbreak," the organisation said on its website.  International agencies are looking into emergency food drops and truck convoys to reach hungry people in Liberia and Sierra Leone cordoned off from the outside world to halt the spread of the virus, a top World Bank official said.

Ebola Centers Fill Faster Than They Can Be Opened - ABC News: The World Health Organization says beds in Ebola treatment centers in West Africa are filling up faster than they can be provided. Spokesman Gregory Hartl said in Geneva Friday that the flood of patients to newly opened treatment centers shows that the outbreak's size is far larger than official counts show. WHO said Thursday that recorded death and case tolls may "vastly underestimate the magnitude of the outbreak." Hartl said that an 80-bed treatment center opened in Liberia's capital in recent days filled up immediately. The next day, dozens more people showed up to be treated. According to WHO figures, the outbreak, which began in Guinea and has spread to Liberia, Sierra Leone and Nigeria, has killed more than 1,060 people and sickened nearly 2,000.

Ebola Cases Surge At Record Pace As Death Toll Hits 1,145  -- Is it any wonder that both the WHO and Doctors Without Borders appear in full panic mode, explaining that the outbreak is "moving faster" than they can manage it? As WHO reports, the death toll in West Africa has jumped to 1,145 (2,127 infections) with 76 new deaths in the last 2 days and a record-breaking pace of reported new cases (152 in the last 2 days). New cases... (graphs) and deaths...  Source: Ecologically Oriented blog

Ebola "moving faster" than MSF can handle - The Ebola outbreak that has already claimed more than 1,000 lives in west Africa is moving faster than aid organisations can handle, the medical charity MSF said on Friday (Aug 15). The warning came just a day the World Health Organization said the scale of the epidemic had been vastly underestimated and that "extraordinary measures" were needed to contain the killer disease. The UN health agency said the death toll from the worst outbreak of the disease in four decades had now climbed to 1,069 in four afflicted countries, Guinea, Liberia, Nigeria and Sierra Leone. "It is deteriorating faster, and moving faster, than we can respond to," MSF (Doctors Without Borders) chief Joanne Liu told reporters in Geneva, saying it could take six months to get the upper hand. "It is like wartime," she said a day after returning from the region where she met political leaders and visited clinics.WHO said Thursday it was coordinating "a massive scaling up of the international response" to the epidemic. "Staff at the outbreak sites see evidence that the numbers of reported cases and deaths vastly underestimate the magnitude of the outbreak," it said. The latest epidemic erupted in the forested zone straddling the borders of Guinea, Sierra Leone and Liberia, and later spread to Nigeria. WHO declared a global health emergency last week - far too late, according to MSF, which months ago warned that the outbreak was out of control.

You Are Not Nearly Scared Enough About Ebola -  You just don't get it.  You think there are magic bullets in some rich country's freezers that will instantly stop the relentless spread of the Ebola virus in West Africa? You think airport security guards in Los Angeles can look a traveler in the eyes and see infection, blocking that jet passenger's entry into La-la-land? You believe novelist Dan Brown's utterly absurd description of a World Health Organization that has a private C5-A military transport jet and disease SWAT team that can swoop into outbreaks, saving the world from contagion?  Wake up, fools. What's going on in West Africa now isn't Brown's silly Inferno scenario -- it's Steven Soderbergh's movie Contagion, though without a modicum of its high-tech capacity.   Last week, my brilliant Council on Foreign Relations colleague John Campbell, former U.S. ambassador to Nigeria, warned that spread of the virus inside Lagos -- which has a population of 22 million -- would instantly transform this situation into a worldwide crisis, thanks to the chaos, size, density, and mobility of not only that city but dozens of others in the enormous, oil-rich nation. Add to the Nigerian scenario civil war, national elections, Boko Haram terrorists, and a countrywide doctors' strike -- all of which are real and current -- and you have a scenario so overwrought and frightening that I could not have concocted it even when I advised screenwriter Scott Burns on his Contagion script.

Ebola is an Economic Black Swan – Ebola is inflicting an accumulating economic toll of West Africa. More and more miners are curtailing operations, one of them Australian: Australian mining firm Tawana Resources has suspended all non-essential field activities at its iron ore project in Liberia because of the risk from the Ebola virus outbreak. The company’s Mofe Creek project, with first phase output of 2mn t of iron ore, will suspend its drilling programme temporarily but continue all other activities associated with its pre-feasibility study not requiring direct field work. Indian: Steel and mining company ArcelorMittal on Friday announced force majeure on a project that is planned to triple its iron ore production in Liberia because of the Ebola epidemic sweeping West Africa. Canadian: Toronto-based Aureus Mining Inc granted leave to non-essential staff at its New Liberty gold deposit in Liberia.…Canadian Overseas Petroleum Ltd, ExxonMobil Corp’s partner in a venture to explore the Block LB-13 project off the coast of Liberia, has said that drilling will be delayed due to the “reduced presence of expatriates”.Here is what is happening to the Liberian economy, from France 24:The economic impact of Ebola on Liberia will be truly one of the most devastating and, I predict, lasting consequences of the virus. Over a decade since the end of conflict, Liberia and the government have made great strides towards renewing their image. The government has renewed many concessions, driving foreign direct investment into the country’s most abundant resource sectors. Additionally, a variety of very strong organizations, such as the BSC (Business Start-up Center), have made large investments to develop human capital capacity and to support small businesses and entrepreneurs.

Farming practices and climate change at root of Toledo water pollution --The toxins that contaminated the water supply of the city of Toledo – leaving 400,000 people without access to safe drinking water for two days – were produced by a massive algae boom. But this is not a natural disaster. Water problems in the Great Lakes – the world’s largest freshwater system – have spiked in the last three years, largely because of agricultural pollution.  The current bloom of microcystis is concentrated in Maumee Bay in Lake Erie’s western basin, according to the National Oceanic and Atmospheric Administration (NOAA). A second, smaller bloom has appeared in Sandusky Bay.The main cause for such algal blooms is an overload of phosphorus, which washes into lakes from commercial fertiliser used by farming operations as well as urban water-treatment centres. Hotter and longer summers also promote the spread of the blue-green scum.The US government banned phosphorus in laundry detergents in 1988. That stopped the algal blooms for some time. But they came back to the Great Lakes in force in 2011 – forming a green scum that covered 5,000 square kilometres (1,900 sq miles) of water at its biggest extent – in the worst algal bloom in recorded history. Scientists attribute the comeback in large part to changes in farming practices, including larger farms and different fertiliser practices, which send heavier loads of phosphorus into the lakes.

Toledo Told in Advance of Threat to Water - WSJ: The state of Ohio expressed deep concerns about the safety of Toledo's water supply in the months before a two-day restriction on drinking the water that was caused by a toxin suspected from a Lake Erie algal bloom. The city's water-treatment plant was "vulnerable to potential failures that could severely impact the city's ability to provide adequate quantities of safe water to its citizens," Ohio Environmental Protection Agency Director Craig W. Butler wrote in a June 9 letter to Toledo Mayor D. Michael Collins. Later in the letter, Mr. Butler wrote, "I cannot underscore boldly enough the precarious condition of Toledo's drinking water system and the imminent vulnerability to failure." The state also criticized the city's readiness for a crisis like the one last weekend. At a press conference Friday afternoon, city officials acknowledged some communications failures in their response to the crisis, but said there was no direct connection between the state's June letter about plant deficiencies and the toxin that caused officials to recommend that residents stop drinking tap water. Officials also said they are attempting to shrink what had been a 20-year plan to improve the plant into five years. The northern Ohio city drew national attention last Saturday when Mr. Collins issued a "do-not-drink" advisory for 500,000 in the city and its suburbs served by the Collins Park treatment plant.

The Toxic Algae Are Not Done With Toledo. Not By a Long Stretch. - Last weekend, Toledo's 400,000 residents were sent scrambling for bottled water because the stuff from the tap had gone toxic—so toxic that city officials warned people against bathing their children or washing their dishes in it. The likely cause: a toxic blue-green algae bloom that floated over the city's municipal water intake in Lake Erie. On Monday morning, the city called off the don't-drink-the-water warning, claiming that levels of the contaminant in the water had fallen back to safe levels. Is their nightmare over? I put the question to Jeffrey Reutter at Ohio State University, a researcher who monitors Lake Erie's annual algae blooms. He said he could "almost guarantee" that the conditions that caused the crisis, i.e., a toxic bloom floating over the intake, would recur this summer. But it's "pretty unlikely" that toxins will make it into the city's drinking water. That's because after the weekend's fiasco, a whole crew of public agencies, from the Ohio Environmental Protection Agency to the US Environmental Protection Agency to the City of Toledo, have been scrambling to implement new procedures to keep the toxins out.  Reutter added that he "anticipated" that the new system for protecting Toledo's drinking water would be more expensive than the current one. Back in January, local paper the Blade reported that Toledo "has spent $3 million a year battling algae toxins in recent years, [and] spent $4 million in 2013." And those hard realities highlight a hard fact about our way of farming: It manages to displace the costs of dealing with its messes onto people who don't directly benefit from it. The ties between Big Ag and Toledo's rough weekend are easy to tease out. "The Maumee River drains more than four million acres of agricultural land and dumps it into Lake Erie at the Port of Toledo," the Wall Street Journal reports. More than 80 percent of the Maumeee River watershed is devoted to agriculture, mainly the corn-soy duopoly that carpets the Midwest. Fertilizer and manure runoff from the region's farms feed blue-green algae blooms in the southwest corner of Lake Erie, from which Toledo draws its water. 

Phosphorus and Freedom, by Paul Krugman - In the latest Times Magazine, Robert Draper profiled youngish libertarians ... and asked whether we might be heading for a “libertarian moment.” Well, probably not. Polling suggests that young Americans tend, if anything, to be more supportive of the case for a bigger government than their elders. But I’d like to ask a different question: Is libertarian economics at all realistic?The answer is no. And the reason can be summed up in one word: phosphorus. As you’ve probably heard, Toledo recently warned its residents not to drink the water. Why? Contamination from toxic algae blooms in Lake Erie, largely caused by the runoff of phosphorus from farms.  When I read about that, it rang a bell. Last week many Republican heavy hitters spoke at a conference sponsored by the blog Red State... A few years back, Erick Erickson, the blog’s founder ... suggested that oppressive government regulation had reached the point where citizens might want to “march down to their state legislator’s house, pull him outside, and beat him to a bloody pulp.” And the source of his rage? A ban on phosphates in dishwasher detergent. After all, why would government officials want to do such a thing?

First Nation Will Evict Mining Company After Massive Spill Contaminated Area Water - Earlier this month, hundreds of Canadians were unable to use their water after 1.3 billion gallons of slurry from an open pit mine in British Columbia spilled into nearby lakes, rivers and creeks. Now, a B.C. First Nation plans to evict the company, Imperial Metals Corp., over another project on their territory, CBC News reported.  Neskonlith Chief Judy Wilson said she intended to hand-deliver the notice to Imperial Metals on Thursday, directing the company to steer clear of the site of its proposed Ruddock Creek zinc and lead mine. If the mine is approved, it would be located at the headwaters of an important sockeye salmon run.  “We do not want the mine developing or operating in that sacred headwaters,” Wilson told the CBC. “Our elders have stated very clearly that they do not want anything poisoning our water or our salmon.”  While the Neskonlith were opposed to the mine long before the recent spill, Wilson said the incident shows that the mining industry cannot ensure the environment will be protected from their operations. “The industry has proven at Mount Polley that they can’t regulate all of that,” she said.

L.A. Faces $15 Billion Bill as Pipes Spring Leaks: Cities - Los Angeles is showing its age, and city officials don’t have plans for financing the facelift. From buckling sidewalks to potholed thoroughfares to storm drains that can’t handle a little rain, the infrastructure that holds the second-largest U.S. city together is suffering from years of deferred maintenance. Bringing pipes that deliver water to 3.9 million people up to snuff could cost $4 billion -- more than half the city’s annual operating budget. The bill for repaving streets will be almost that much, according to estimates from a city consultant, and patching or replacing cracked sidewalks will require $640 million. City Council members recently gave up on a proposal to ask voters for a sales-tax increase to finance street and sidewalk repairs, and Mayor Eric Garcetti has ruled out raising water rates anytime soon to upgrade pipelines. “We’re in trouble,” said Jack Humphreville, the budget advocate for L.A.’s advisory neighborhood councils. His estimate, based on figures provided by the city, is that getting public works into good shape will take $10 billion to $15 billion. “This is no different from debt.” A 30-foot geyser that spewed some 20 million gallons of water from a ruptured trunk line under Sunset Boulevard on July 29 brought renewed attention to the decay. The council called on the Department of Water and Power to scrutinize pipelines and other parts of the system, but didn’t discuss ways of finding money to fix what might be broken.

Sunnyvale Schools, Homes Sit on Toxic Groundwater: EPA -- The Environmental Protection Agency is examining homes and schools in Sunnyvale after toxic groundwater was discovered in the area. Tech companies Advanced Micro Devices Inc, Northrop Grumman Systems Corporation and Philips are believed to be responsible for the pollution, EPA officials said. "Unfortunately, some of the companies are dragging their feet and the public needs to get involved to make sure they do the right thing," said Lenny Siegel, Center for Public Environmental Oversight's executive director. The chemicals have been underground for up to 30 years, officials said. The groundwater in the affected area tested positive for a chemical compound called TCE, a solvent left behind by the electronic manufacturers. "The risk for pregnant women is that their babies will be born with cardiac birth defects," Siegel said.

More Bad News About Ethanol. It Causes Corrosion and Leakage of Underground Fuel Storage Tanks. | Big Picture Agriculture: We all know that ethanol is contaminating groundwater by way of nitrogen fertilizer pollution in corn growing regions, but now we are learning that it may be contributing to leakage of underground fuel storage tanks. Furthermore, a São Paulo study suggests that ethanol increases ozone air pollution. A few weeks ago, NIST held a two day workshop here in Boulder to study how the combination of certain microbes with ethanol may be accelerating the corrosion of steel underground storage tanks of gasoline containing 10 percent ethanol. The industry is studying whether certain diesel tanks are now leaking because they previously held gasoline mixed with ethanol. The ethanol people will probably tell you this is yet another conspiracy by big oil against them. The oil people, on the other hand, will tell you how expensive it is to replace tanks and pipes and fittings and replace them with fiberglass ones to accommodate this product that is government mandated.

Genetically Modified Seed Use is Up in the U.S. -- K. Mcdonald - (see infographic) The United States Department of Agriculture has released a new report on the adoption of herbicide tolerant and insect resistant crops since their introduction in 1996. According to the report, the percentage of genetically modified (GM) seed within the U.S. corn crop nearly doubled over the past 10 years, from less than half of the total planted corn acres in 2004 to 93 percent this year, up from 90 percent last year. The report includes these three stats:

· GE soybean is 94 percent of soybean hectarage in the US in 2014 from 93 percent in 2013.
· GE corn is 93 percent of all corn planted in the US, up from 90 percent in 2013.
· GE cotton is 96 percent of all cotton grown in the US, up from 90 percent in 2013.

New Wave of GMO Crops Poised for Approval Despite Public Outcry - Despite its own admission that it will cause an up to seven-fold increase in chemical pesticide use, the U.S. Department of Agriculture (USDA) is poised to approve a new type of genetically engineered seed built to resist one of the most toxic weedkillers on the market.Now, total approval hinges on the U.S. Environmental Protection Agency. If that federal body approves the new genetically modified organism (GMO), farmers will be free to plant corn and soy seeds genetically manipulated to live through sprayings of Dow’s Enlist Duo herbicide, a chemical cocktail containing both glyphosate and the antiquated, toxic chemical 2,4-D. Ironically, in the ’90s, chemical companies said the development of GMOs would eliminate the need to use older, more dangerous chemicals like 2,4-D. But as GMO use ramped up over the last few decades, chemical use increased, and many weeds are no longer responding to glyphosate, the main ingredient in Roundup, and the current chemical of choice for GMO farmers. This has created a “superweed” crisis, creating millions of acres of U.S. fields infested with hard-to-kill weeds.With this week’s USDA final Environmental Impact Statement (EIS) suggesting approval of the new GMO, many public food and safety experts say the American public faces unprecedented risks. After all, current chemical use is so high that foods now actually contain “extreme” levels of glyphosate. Because it’s systemic, it actually winds up inside of food. Adding 2,4-D to the mix is even more concerning, given its ties to cancer.

Farmers and who gets the money -  Vis the NYT comes this look at the economics of small scale farming:   Don’t let your children grow up to be farmers - AT a farm-to-table dinner recently, I sat huddled in a corner with some other farmers, out of earshot of the foodies happily eating kale and freshly shucked oysters. We were comparing business models and profit margins, and it quickly became clear that all of us were working in the red. The dirty secret of the food movement is that the much-celebrated small-scale farmer isn’t making a living. After the tools are put away, we head out to second and third jobs to keep our farms afloat. Ninety-one percent of all farm households rely on multiple sources of income. Health care, paying for our kids’ college, preparing for retirement? Not happening. With the overwhelming majority of American farmers operating at a loss — the median farm income was negative $1,453 in 2012 — farmers can barely keep the chickens fed and the lights on. Steve King’s stunning subsidies but wants to shrink other people’s government. $9.17 billion in subsidies 1995-2012. $8.06 billion in commodity subsidies. $897 million in conservation subsidies. $211 million in disaster subsidies.  Brad DeLong points us to another stunning set of subsidies, this example for Congressman Tim Huelskamp: Halloween on the Prairie: Congressman Tim Huelskamp Is the Most Frightening Thing I Will See All DayCongressman Tim Huelskamp: “I’m from a district that pretty much ignores Washington. If you say government is going to shut down, they say, ‘OK, which part can we shut down?’” Farm subsidies! Shut down farm subsidies! Move farm subsidies from the “mandatory entitlements” to the “discretionary appropriations” side of the budget…

40 million people depend on the Colorado River. Now it's drying up. - Science papers don't generate much in the way of headlines, so you'll be forgiven if you haven't heard of one called "Groundwater Depletion During Drought Threatens Future Water Security of the Colorado River Basin," recently published by University of California-Irvine and NASA researchers. But the "water security of the Colorado River basin" is an important concept, if you are one of the 40 million people who rely on the Colorado River for drinking water, a group that includes residents of Las Vegas, Los Angeles, Phoenix, Tucson, and San Diego. Or if you enjoy eating vegetables like broccoli, cauliflower, and spinach during the winter. We've known for a while that the river's ability to meet such demands has become increasingly strained. Climate change means less snowmelt in the Rockies, the river's source, and a 14-year drought in the Southwest has further impeded its flow, while adding to the demand on it. "The once broad and blue river has in many places dwindled to a murky brown trickle," the New York Times reported in January. "Reservoirs have shrunk to less than half their capacities, the canyon walls around them ringed with white mineral deposits where water once lapped." But the new paper suggests that the situation is even worse than we previously knew. In addition to rapidly drawing down Lake Mead, the region's thirst for water has extended underground: to the region's aquifers. For a project called the Gravity Recovery and Climate Experiment, or GRACE, NASA satellites circle the Earth and carefully measure its mass. "Because changes in water storage result in changes in mass, GRACE provides fairly accurate estimates of water depletion over time," Postel explains.

Southwest braces as Lake Mead water levels drop - — Once-teeming Lake Mead marinas are idle as a 14-year drought steadily drops water levels to historic lows. Officials from nearby Las Vegas are pushing conservation, but are also drilling a new pipeline to keep drawing water from the lake. Hundreds of miles away, farmers who receive water from the lake behind Hoover Dam are preparing for the worst. The receding shoreline at one of the main reservoirs in the vast Colorado River water system is raising concerns about the future of a network serving a perennially parched region home to 40 million people and 4 million acres of farmland. Marina operators, water managers and farmers who for decades have chased every drop of water across the booming Southwest and part of Mexico are closely tracking the reservoir water level already at its lowest point since it was first filled in the 1930s. "We just hope for snow and rain up in Colorado, so it'll come our way," . By 2016, continued drought could trigger cuts in water deliveries to both states. While water authorities say they've been saving water for potential dry days, the prospect of the first cuts is already prompting action.

Las Vegas Will Go Dry If Water Levels Drop 7% Further - Lake Mead Hits Record Lows --- Six weeks ago we highlighted how "screwed" Las Vegas is as the ongoing 14-year drought weighs on water levels. Today, AP reports, Lake Mead - the main source of fresh water for Las Vegas and its 40 million visitors - just hit record low levels at 1080 feet. Most concerning - at 1,000 feet, drinking water intakes will no longer function and Las Vegas will go dry. As analysts concluded previously, "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."

On Top Of Withering Drought, California Smashes Heat Records - Caught in a withering drought, California is also shattering a 120-year-old record for heat. For the first half of 2014, the state has been an average of 4.6 degrees Fahrenheit warmer than normal, and 1 degree warmer than the previous record set in 1934, according to the National Climatic Data Center.“In the business of climate science, this is a shattering of a record,” said Jonathan Overpeck, of the University of Arizona’s Institute of the Environment. As for what’s driving this unprecedented heat, Overpeck told the Palm Springs Desert Sun, “We are fairly certain that the unusual warmth is mostly due to human-caused global warming.” California’s current drought, Overpeck added, is a “global warming drought” and a harbinger of things to come. “I’m just ‘Wow,’ looking at these trends,” Richard Heim, a drought expert with the National Climatic Data Center in Asheville, North Carolina, told USA Today regarding the records being broken in California. “Can it get any worse? Well, the models say yeah. But how much more can we take as a society, as individual people. And how much more of this can the infrastructure and policies that have been put in place to deal with this at the state level, federal level, local level, how much more of this can you guys take?”  Unfortunately for California, it appears the best prospect for easing the brutal drought — a strong El Niño — seems less and less likely. Last week, NOAA’s Climate Prediction Center (CPC) reduced the chance of El Niño to 65 percent. “And if we do see one, it’s likely to be either weak or moderate,” Joe Romm noted.

Amid drought, California Democrats seek Republican votes on water plan (Reuters) - California Democrats scrambled on Tuesday to win Republican support for a plan to improve water supplies that has been mired in regional and party politics for a year, even as the state suffers from a three-year drought that shows no sign of ending. A day after voting for a two-day extension to put a proposal on November's ballot to pay for reservoirs and other projects by selling bonds, Democratic lawmakers enlisted the support and negotiating clout of Democratic Governor Jerry Brown, a fiscal moderate who said previous plans were too expensive. California is in the throes of a devastating drought that is expected to cost its economy $2.2 billion in lost crops, jobs and other damage. Lawmakers from both parties say this may be the only year that tax-averse voters, aware of the drought's impact, would be willing to pay for new water projects, yet they continue to fight over which ones to include. An $11 billion plan negotiated under Republican former governor Arnold Schwarzenegger in 2009 is set to go before voters in November, but Democrats, who now control both houses of the legislature and all statewide elected offices, say it is too expensive and full of pork.

California drought holds steady amid summer storms, experts say (Reuters) - As California lawmakers moved a nearly $7.6 billion water bond to the November ballot, federal meteorologists said on Thursday that the state's ongoing drought has appeared to level off, though conditions remain "extreme" in 80 percent of the state. "Areas of dryness and drought remained unchanged," according to the National Drought Mitigation Center, based at the University of Nebraska, despite epic storms that have intermittently lashed parts of both Northern and Southern California. Torrential rains early this month triggered lethal mudslides and flash floods in the San Gabriel Mountains near Los Angeles, and thunderstorms both eased and complicated the work of firefighters battling wildfires this week in Northern California. true But those storms "were pretty much a drop in the bucket," said Richard Tinker, a drought expert with the federal government's Climate Prediction Center. "Any rain this time of year - while a bonus - doesn't really have much of an effect on the drought," Tinker said. Nearly 82 percent of the state is experiencing "extreme" drought, according to the latest U.S. Drought Monitor map, which is updated weekly by the center. Fifty-eight percent of the state, meanwhile, is withering under "exceptional" drought, which is the most severe measure on the center's scale. The figures, while sobering, indicated a pause in what had been a seemingly inexorable expansion of the drought across the nation’s most populous state and most important agricultural producer. The percentage of the state gripped by the drought has been relatively unchanged for the past couple of weeks.

Will it Rain in California this Winter? -- High on my list of: THINGS THAT COULD GO VERY WRONG, is the drought in the west coast. The three year run of below average rain has already had a big toll. Agricultural production is way off, fires are burning in all of the affected states, and there has been some curbs on water consumption by individuals. But there has been no real crisis as of yet as the major reservoirs are not completely dry. My question is: What if there is another year of below average rainfall? Over the past six months there has been some evidence that a normal rainfall pattern was coming to Cali this fall. But as of today, the forecast of fall/winter rain is now in doubt. The folks at NOAA (and a lot of other scientific types) believe that Pacific Coast rain is driven by the El Nino/La Nina cycles in the Pacific ocean. When there are La Nina conditions rainfall is low (yellow) during El Nino conditions rainfall is higher (blue). The west coast drought is now in its third year. It’s no coincidence that there has been no El Ninos during this period: Earlier this year there was a water temperature “anomaly” that lead a few weather folks to predict that a “Super El Nino” was coming to Cali. More charts: This was a very big anomaly ‘bump’. The media picked up on it: But the bump went away, and with it went the expectation for a strong El Nino (lots of rain). NOAA has kept up its forecast of an El Nino this fall/winter. However, as of today NOAA downgraded the outlook(Link):

Climate scientists dub this year’s El Niño “a real enigma”-  Last month, forecasters were predicting with 90 per cent certainty we'd see an El Niño by the end of the year, driving severe weather patterns worldwide. But with little sign so far of the ocean and atmospheric changes scientists expected, those odds have dropped off quite a bit. We'll probably still see an El Niño before the year's out but it's unlikely to be a strong one, scientists are saying.  Since the last El Niño in 2009/2010 the Pacific has been in either a neutral or La Niña phase. Most of 2012 and all of 2013 saw neutral conditions - and we're still in neutral phase now.  Earlier this year, the ocean looked to be primed for an El Niño, with above average temperatures in the eastern Pacific lasting throughout March and May.  But the atmosphere has "largely failed to respond" to sea surface temperatures and scientists' confidence in an El Nino developing in 2014 has eased a bit, says the Australian Bureau of Meteorology, whose climate models now put the chances of this happening at about 50 per cent.The US National Oceanic and Atmospheric Administration (NOAA) suggests higher odds. Its latest predictions suggest a 70 per cent chance of an El Niño in Summer and 80 per cent during autumn or winter.  You can see in the graph below how climate models forecast sea surface temperatures in the Pacific will evolve in the next few months. Each colour is a different model.

Odds of El Niño Drop; Still Expected to Form - The El Niño that seems to be trying to form in the tropical Pacific Ocean is looking a little less likely now, though the chances of it developing are still double the normal odds, forecasters said in the latest monthly update on the cyclical climate phenomenon, released Thursday. That update lowered the odds of an El Niño occurring in fall and early winter to 65 percent, down from 80 percent last month. But “we’re still fairly confident that El Niño will come,” said Michelle L’Heureux a meteorologist with the National Oceanic and Atmospheric Administration’s Climate Prediction Center, who puts out the El Niño forecasts along with the International Research Institute for Climate and Society at Columbia University. If and when the El Niño forms, it would influence weather and climate patterns in particular regions around the globe, for example, tamping down on hurricane activity in the Atlantic Ocean. Depending on its strength, it could also drive up global temperatures enough on top of the rise from human-induced warming to send 2015 into the record books. While above-normal sea surface temperatures in the far eastern tropical Pacific — a hallmark of an El Niño event — have persisted, the warmth in other key surface regions and below the surface has ebbed. The shifts in atmospheric patterns that accompany an El Niño also have yet to materialize. These factors combined caused forecasters to lower the odds.

Heavy Downpours Increasing: Scientists - Islip, New York, has received an astounding 13.27 inches of rain in 24 hours, breaking a record set during tropical storm Irene back in 2011, according to the National Weather Service.  In Michigan, parts of major highways near Detroit are still shut down after six inches of rain fell Monday in a matter of hours. Record-breaking rain storms like the ones this week, climate scientists say, are something people should get used to as they continue to warm the planet. It doesn’t take much warming to have a significant impact on rain storms. For every one degree of temperature rise, the atmosphere can hold 7 percent more evaporated moisture, say scientists.  Heavy downpours have already increased significantly across the U.S. since 1958, researchers say, especially in the Northeast and Midwest. The graphic here shows the observed increases in rain falling in “very heavy events” from 1958 to 2012. The most dramatic increase, 71 percent, is in the Northeast according to the latest U.S. National Climate Assessment report released in May. What’s the future hold? As long as humans keep increasing the output of heat-trapping greenhouse gases into the atmosphere, climate models project that torrential rains will increase significantly. “Heavy precipitation events that historically occurred once in 20 years are projected to occur as frequently as every 5 to 15 years by late this century,” according to the climate report.

Global Warming is increasing moisture in Earth’s atmosphere driving Mother of all Feedback Loops -- This study was based on satellite data that measures the heat the earth is radiating back into space. That level has been dropping as the earth traps more of the sun's heat. This new study confirms what climate scientists have suspected, that a very large driver of Global Warming, water vapor in Upper-Troposphere in indeed increasing just as predicted. Global warming is moistening the atmosphere - Human-caused global warming is causing the upper troposphere to become wetter   We have long suspected that greenhouse gases which cause the Earth to warm would lead to a wetter atmosphere. The latest research published by Eul-Seok Chung, Brian Soden, and colleagues provides new insight into what was thought to be an old problem. In doing so, they experimentally verified what climate models have been predicting. The models got it right… again.  The authors show that the long-term increase in water vapor in the upper troposphere cannot have resulted from natural causes – it is clearly human caused. This conclusion is stated in the abstract, Our analysis demonstrates that the upper-tropospheric moistening observed over the period 1979–2005 cannot be explained by natural causes and results principally from an anthropogenic warming of the climate. By attributing the observed increase directly to human activities, this study verifies the presence of the largest known feedback mechanism for amplifying anthropogenic climate change.

Feeding everyone with a minimum of carbon emissions - Agriculture has an enormous footprint—by some estimates, it accounts for more than 90 percent of humanity's water use. One of the other areas where its footprint is felt is in carbon emissions. Converting land to agriculture disrupts the existing soil ecosystem, releasing carbon stored there into the atmosphere; a large fraction of humanity's collective carbon emissions fall under the category of "land use change." In the developed world, the intensification of agriculture has actually allowed some formerly farmed areas to revert to something akin to their original state. But it's unclear whether there are limits to that intensification that will eventually force us to bring more agricultural land into use. Even if we don't run into limits, population growth means that it will have to scale quickly, as global food demand is expected to increase by at least 70 percent by the middle of the century. A new paper in this week's PNAS examines whether there are ways to add significant new agricultural land without causing a huge boost in carbon emissions. It finds that it's possible to greatly expand farmed land while avoiding billions of metric tons of carbon emissions, but doing so would require a level of international cooperation that would be unprecedented.

Kellogg announces new climate change commitments -  The Kellogg Company today unveiled new commitments to address actions by itself and its suppliers that affect climate change. General Mills on July 28 had announced similar initiatives. From Kellogg's statement (.pdf) today: As stated in our Kellogg Global Supplier Code of Conduct, we expect suppliers to support our corporate responsibility commitments by implementing sustainable operating and farming practices, and agricultural production systems. Suppliers must strive to reduce or optimize agricultural inputs; reduce greenhouse gas emissions, energy and water use; and minimize water pollution and waste, including food waste and landfill usage.The anti-hunger organization Oxfam International had been encouraging leading food manufacturers to make such commitments. Oxfam's recent report, Standing on the Sidelines, had argued that food and beverage companies need to do more. Today, Oxfam praised Kellogg's announcement: “We welcome Kellogg’s efforts to become an industry leader in the fight against climate change and the damage it is causing to people everywhere,” said Monique van Zijl, campaign manager for Oxfam’s Behind the Brands campaign. “Kellogg’s new commitments add momentum to calls on governments and the wider food and agriculture industry to recognize that climate change is real, it’s happening now, and we need to tackle it.”

Which Ocean Species Will Outlast the Rising Acidity of Seawater? - The third in a series. To see the first two parts, click here and here. Many of the projected effects of climate change on the world's oceans are already visible, such as melting polar ice caps and rising sea levels. But invisible changes may be the most threatening to human food sources, beginning with the tiny species like plankton that inhabit the bottom of the oceans' food chain. As emissions from human activities increase atmospheric carbon dioxide, they, in turn, are modifying the chemical structure of global waters, making them more acidic. Many researchers have speculated that most aquatic species won't be able to adapt in time to survive the acidification that has already begun, but there are some who are more optimistic. One of them is Jennifer Sunday, a postdoctoral ecologist and evolutionary biologist at Canada's Simon Fraser University. "You hear people say species aren't going to adapt in time," she explained in an interview, "but I just knew that we don't really know that. This really motivated me to start thinking about a study to test this. We can and did put some science and data to this question."

A Relentless Rise in Global Sea Level - Key Points

  • One of several confounding influences on global sea-level rise is natural multi-year, and decadal-scale, variation in water mass exchange between the oceans and land. This is due to weather patterns which affect the amount of rainfall and snow falling over the oceans and land surfaces. Weather-related variations in precipitation alter the volume of water in the ocean, but they are only temporary.
  • Global sea level continues to rise, but in the last decade the rate of this rise has been slower than that of the previous decade.This slowdown has occurred despite an increase in the amount of heat entering the ocean, and a growing contribution of glacial meltwater from disintegrating land-based ice - creating an apparent paradox.
  • A recent study, Cazenave et al (2014), reveals that sea level over the last two decades has in fact risen at an almost constant rate, but that this has been obscured by the temporary effect of smaller-than-average continental water mass storage from 1994-2002, and greater-than-average continental water mass storage from 2003-2011.

Antarctica could raise sea level faster than previously thought: Ice discharge from Antarctica could contribute up to 37 centimeters to the global sea level rise within this century, a new study shows. For the first time, an international team of scientists provide a comprehensive estimate on the full range of Antarctica's potential contribution to global sea level rise based on physical computer simulations. Led by the Potsdam Institute for Climate Impact Research, the study combines a whole set of state-of-the-art climate models and observational data with various ice models. The results reproduce Antarctica's recent contribution to sea level rise as observed by satellites in the last two decades and show that the ice continent could become the largest contributor to sea level rise much sooner than previously thought. "If greenhouse gases continue to rise as before, ice discharge from Antarctica could raise the global ocean by an additional 1 to 37 centimeters in this century already," says lead author Anders Levermann. "Now this is a big range – which is exactly why we call it a risk: Science needs to be clear about the uncertainty, so that decision makers at the coast and in coastal megacities like Shanghai or New York can consider the potential implications in their planning processes," says Levermann.

Arctic warming causing quasi-stationary blocking patterns and extreme weather becoming more common - Extreme weather like the drought currently scorching the western US and the devastating floods in Pakistan in 2010 is becoming much more common, according to new scientific research. The work shows so-called “blocking patterns,” where hot or wet weather remains stuck over a region for weeks causing heatwaves or floods, have more than doubled in summers over the last decade. The new study may also demonstrate a link between the UK’s recent flood-drenched winter and climate change. Climate scientists in Germany noticed that since 2000 there have been an “exceptional number of summer weather extremes, some causing massive damage to society.” So they examined the huge meanders in the high-level jet stream winds that dominate the weather at mid-latitudes, by analysing 35 years of wind data amassed from satellites, ships, weather stations and meteorological balloons. They found that blocking patterns, which occur when these meanders slow down, have happened far more frequently.“Since 2000, we have seen a cluster of these events. When these high-altitude waves become quasi-stationary, then we see more extreme weather at the surface,” . “It is especially noticeable for heat extremes.” The intense heatwaves in Russia in 2010, which saw 50,000 people die and the wheat harvest hit hard, and in western Europe in 2003, which saw 30,000 deaths, were both the result of blocking patterns.

SWERUS-C3: First observations of methane release from Arctic Ocean hydrates: Just a week into the sampling program and SWERUS-C3 scientists have discovered vast methane plumes escaping from the seafloor of the Laptev continental slope. These early glimpses of what may be in store for a warming Arctic Ocean could help scientists project the future releases of the strong greenhouse gas methane from the Arctic Ocean. ”This was somewhat of a surprise,” writes chief scientist Örjan Gustafsson, Stockholm University, in his latest blog entry. He speculates that the leaking methane from the seafloor of the continental slope may have its origins in collapsing “methane hydrates,” clusters of methane trapped in frozen water due to high pressure and low temperature. The discovery was made while the icebreaker Oden crosscut the Laptev Sea along a depth gradient from 1000m to just 100m following the continental slope upward to reach the shallow waters of the outer Laptev Sea Shelf. By use of acoustic techniques and geochemical analyses of water samples, the scientists found vast methane plumes escaping from the seafloor at depths between 500 m and 150 m. At several places, the methane “bubbles“ even rose to the ocean surface. What’s more, results of preliminary analyses of seawater samples pointed towards levels of dissolved methane 10–50 times higher than background levels.

Arctic Emergency: Scientists Speak Up - This film brings you the voices of climate scientists -- in their own words. Rising temperatures in the Arctic are contributing the melting sea ice, thawing permafrost, and destabilization of a system that has been called "Earth's Air Conditioner." Global warming is here and is impacting weather patterns, natural systems, and human life around the world -- and the Arctic is central to these impacts. Scientists featured in the film include:

  • Jennifer Francis, PhD, Atmospheric Sciences, Institute of Marine and Coastal Sciences, Rutgers University.
  • Jeff Masters, PhD, Meteorology, Director, Weather Underground
  • Ron Prinn, PhD, Chemistry, TEPCO Professor of Atmospheric Science, Massachusetts Institute of Technology.
  • Kevin Schaefer, PhD, Research Scientist, National Snow and Ice Data Center.
  • Natalia Shakhova, PhD, Marine Geology, International Arctic Research Center, University of Alaska-Fairbanks.
  • Stephen J. Vavrus, PhD, Atmospheric Sciences, Center for Climatic Research, University of Wisconsin-Madison
  • Jorien Vonk, PhD, Applied Environmental Sciences, Faculty of Geosciences, Utrecht University
  • Nikita Zimov, Northeast Science Station, Russian Academy of Sciences.

Peter Wadhams on the Arctic problem - Peter Wadhams is Professor of Ocean Physics in the University of Cambridge, and is an oceanographer and glaciologist involved in polar oceanographic and sea ice research and concerned with climate change processes in the polar regions. He leads the Polar Ocean Physics group studying the effects of global warming on sea ice, icebergs and the polar oceans. This involves work in the Arctic and Antarctic from nuclear submarines, autonomous underwater vehicles (AUVs), icebreakers, aircraft and drifting ice camps. He has led over 40 polar field expeditions.

Deep emissions cuts needed by 2050 to limit warming-UN draft: - Deep cuts in greenhouse gas emissions of 40 to 70 percent by mid-century will be needed to avert the worst of global warming that is already harming all continents, a draft U.N. report showed. The 26-page draft, obtained by Reuters on Thursday, sums up three U.N. scientific reports published over the past year as a guide for almost 200 governments which are due to agree a deal to combat climate change at a summit in Paris in late 2015. It says existing national pledges to restrict greenhouse gas emissions are insufficient to limit warming to 2 degrees Celsius (3.6 Fahrenheit) above pre-industrial times, a U.N. ceiling set in 2010 to limit heatwaves, floods, storms and rising seas. Average global surface temperatures have already risen by about 0.8 C (1.4 F) since the Industrial Revolution, the draft said. "Deep cuts in greenhouse gas emissions to limit warming to 2 degrees C ... remain possible, yet will entail substantial technological, economic, institutional, and behavioural challenges," according to the draft due for publication in Copenhagen on Nov. 2 after rounds of editing. Cuts in greenhouse gases, mainly from burning fossil fuels, of between 40 and 70 percent by 2050 would be needed from 2010 levels to give a good chance of staying below 2C, according to the Intergovernmental Panel on Climate Change (IPCC) draft.

Science And Journalism Groups Accuse EPA Of Stopping Science Advisers From Talking To Press  -- A group of scientific and journalism organizations, including the Society of Professional Journalists and American Geophysical Union, criticized the Environmental Protection Agency (EPA) on Tuesday for limiting its independent scientific advisers from speaking directly to the press.  “The new policy undermines EPA’s efforts to increase transparency. It also contradicts the EPA’s new scientific integrity policy as well as the Science Advisory Board’s handbook,” the groups said in a letter sent to EPA head Gina McCarthy. “In addition, the new policy only reinforces any perception that the agency prioritizes message control over the ability of scientists who advise the agency to share their expertise with the public.” The letter points specifically to a memorandum sent in April by the agency’s chief of staff to members of the EPA Science Advisory Board (SAB) and the twenty other EPA science advisory committees discouraging them from responding directly to requests from the press and public. Instead, the memo reads, “it is important that unsolicited contacts from outside entities be appropriately managed” by referring them to designated federal officers, who will then pass the request on to the Office of Public Affairs. Policies such as this effectively muzzle science advisers from communicating with the press and the public on key issues, the groups argue, particularly considering “the EPA relies on independent advisory boards to weigh complex scientific information and to advise the agency on policy, such as setting new standards for air pollutants,” as the Associated Press noted.

Rules prevent solar panels in many states with abundant sunlight: But while Florida advertises itself as the Sunshine State, power company executives and regulators have worked successfully to keep most Floridians from using that sunshine to generate their own power. Wilkerson discovered the paradox when she set out to harness sunlight into electricity for the vintage cottages she rents out at Indian Rocks Beach. She would have had an easier time installing solar panels, she found, if she had put the homes on a flatbed and transported them to chilly Massachusetts. "My husband and I are looking at each other and saying, 'This is absurd,'" said Wilkerson, whose property is so sunny that a European guest under doctor's orders to treat sunlight deprivation returns every year. The guest, who has solar panels on his home in Germany, is bewildered by their scarcity in a place with such abundant light. Florida is one of several states, mostly in the Southeast, that combine copious sunshine with extensive rules designed to block its use by homeowners to generate power.

Wind Farm Powering A Million Homes Nears Approval Deep In Coal Country - A massive wind farm in Wyoming is getting closer to reality. Last week Wyoming’s Industrial Siting Council voted unanimously to approve a permit to construct and operate the Chokecherry and Sierra Madre Wind Energy Project, which could eventually generate 3,000 megawatts of energy — enough to power nearly one million households. The $5 billion project, which could include up to 1,000 wind turbines, is being undertaken by Power Company of Wyoming. The Power Company is a wholly-owned affiliate of Denver billionaire Phil Anschutz’s The Anschutz Corp, which also has holdings in oil and gas infrastructure and electricity transmission.  The permit is the last major non-federal permit needed to move the project forward, however the U.S. Bureau of Land Management is still working on two environmental assessments to be released in the near future. This includes the issuance of rights-of-way grants. The company has also applied for an eagle take permit from the U.S. Fish and Wildlife Service which would allow the project to kill a certain number of raptors in exchange for implementing conservation measures.  The turbines stand 328-feet tall and have 200-foot-long blades. However, the energy from the project is anticipated to be exported to utility customers in California, Arizona, and Nevada — with none of it remaining in Wyoming. The company is still negotiating power purchase agreements with utilities.

US wants to link power pacts with climate change agreement --A visiting US team has told Indian negotiators it would link pacts on the power sector to the agreement the two countries draw on climate change and one would not happen without the other. This message was conveyed by the US team to India in a meeting held with the power ministry on Wednesday. Power Minister Piyush Goyal and other ministry officials attended the meeting. The US team, headed by Todd Stern, the US special envoy on climate change, also called on Environment, Forests and Climate Change Minister Prakash Javadekar in its bid to stitch an agreement on various climate change issues.Sources said the meeting with the environment ministry focused on areas where the two countries could sign pacts for cooperation; these included air pollution abatement and developing baseline data on carbon emissions from forestry sector and smart grids. With the power ministry, the US asked for a better investment environment in India. The Indian side in return asked the US to suggest specific projects and areas where it would like to bring in technology. Energy efficiency and investing in smart cities are two areas of convergence that the delegations are expected to firm up deliverable projects on under Indo-US agreements. While India has conveyed that it was not ready to accept a binding target on energy efficiency in the building sector - a demand the US has made often at various forums - it is keen to work with the US on a programmes in the sector that do not force greenhouse gas emission reduction commitments.

As Radioactive Water Accumulates, TEPCO Eyes Pacific Ocean As Dumping Ground  - Tokyo Electric Power Company (TEPCO), the embattled owner of Japan’s crippled nuclear reactors, has said it is running out of space to store water contaminated with radioactive materials and is proposing to treat the water and dump it in the Pacific Ocean. Up until now, TEPCO has been storing radioactive water in giant storage tanks on the site of its Fukushima reactor. But groundwater continually flowing into the reactor site becomes contaminated as it does so. Containing and storing an ever-increasing volume of contaminated water is a bit like running on a treadmill – new groundwater becomes contaminated just as TEPCO succeeds in removing previously contaminated water. Meanwhile, the storage tanks multiply around the reactor complex.  In June, TEPCO began construction on what it hoped would be a more permanent solution – an “ice wall.” This is how it is supposed to work: TEPCO would insert 1,500 pipes into the ground around the damaged reactors. It would then flow liquid through the pipes at -30 degrees Celsius, which would freeze the soil. That way, as groundwater rushed downhill towards the complex, the ice wall would block the water from flowing underneath the plant.  Separately, TEPCO is trying to freeze the contaminated water that has leaked directly from the reactor buildings into underground trenches. In total, a staggering 11,000 metric tons of water containing substances like uranium and plutonium has accumulated. TEPCO has thus far failed to freeze the contaminated water, and had to resort to dumping ice onto the site in an effort to freeze the area.

The Ice-Wall Go-eth - Japan Scraps Fukushima Freezing Plan - On the heels of our previous aggregation of all things Fukushima, we were 'shocked' to see the flashing red headline tear across the Bloomberg exclaiming that "The Japanese government has decided to abandon the 'frozen water wall' solution to Fukushima's meltdown." When they unveiled this "Game of Thrones"-esque 1.4km long ice-wall a year ago, we snarkily wished them luck, questioning their sanity. Of course, we got a hint when 2 months ago, TEPCO admitted that "we have yet to form an ice plug because we can’t get the temperature low enough to freeze the water." For now, there is no Plan B - though we 'wasting' JPY 32 billion on so far is helping GDP.

Japan Prepares To Release Thousands Of Tons Of Fukushima Groundwater Into The Pacific - A few days ago, with over a three year delay, Japan finally admitted what was clear to most from day one: the consequences of the Fukushima disaster have been far, far worse than officials had reported, and not only is the containment effort out of control, but that more nuclear fuel had melted at the Fukushima nuclear reactor than previously reported, suggesting that neither TEPCO nor the government have had any success in mitigating what is now the worst - and ongoing - nuclear disaster in history. So now, perhaps to celebrate its truth-telling ways, TEPCO has announced that it is planning to release thousands of tons of radioactive groundwater from the Fukushima disaster site into the ocean. Actually scratch that: officially the water dumped into the Pacific will be "decontaminated", because TEPCO has that rare habit of "telling the truth." It will also do so only after getting permission from local fishermen, who apparently have a choice: whether to catch five-eyed tuna after giving TEPCO "yes" for an answer, or merely catching five-eyed tuna, period.

We've Opened the Gates of Hell - The American media hasn’t covered Fukushima for a long time. But that doesn’t mean there hasn’t been any news. It just means that the  U.S. and Japanese governments have worked hard to cover it up.  Here’s a roundup of recent news (links to EneNews; click through to see original source material …

Coal Country Politics and the Soviet Union - As a teenager raised under the Soviet Union I truly believed that America is the perfect country where everyone cares for their environment and uses all their natural resources wisely. However, my opinion changed radically when I came to Western Maryland and then West Virginia to study. I could not understand why some of the streams are so suspiciously orange and without any fish or aquatic plants; but soon I learned that this “suspicious color” comes from the acidic drainage of old coal mines. I was surprised to learn Appalachia was plagued by a wide range of environmental issues and problems which have never been properly addressed. Failing to learn from history, the region loses its iconic ridges to mountaintop removal strip mining and suffers from a resurgence of black lung disease while disasters keep repeating year after year: from the Upper Big Branch Mine disaster that claimed 29 lives in 2010 to the Elk River chemical spill in 2014 that poisoned the water supply of 300,000 people in nine counties. The question arises why people in coal-producing states are so supportive of this industry despite the fact that coal does not create as many jobs as it claims? As a political scientist I could suggest that this support of the coal industry is related with the strong legacy of natural resource extraction or big industries lobbying influential politicians. However, I believe that the tendency to hold onto the past is much stronger than the actual legacy of natural resource extraction.

Wind farm 'needs 700 times more land than fracking site' -  A wind farm requires 700 times more land to produce the same amount of energy as a fracking site, according to analysis by the energy department’s recently-departed chief scientific advisor. Prof David MacKay, who stood down from the Government role at the end of July, published analysis putting shale gas extraction “in perspective”, showing it was far less intrusive on the landscape than wind or solar energy. His intervention was welcomed by fracking groups, who are battling to win public support amid claims from green groups and other critics that shale gas extraction will require the “industrialisation” of the countryside. Hundreds of anti-fracking protesters on Thursday occupied a field near Blackpool neighbouring a proposed fracking site for energy firm Cuadrilla. Prof MacKay said that a shale gas site uses less land and “creates the least visual intrusion”, compared with a wind farm or solar farm capable of producing the equivalent amount of energy over 25 years.

Anti-fracking charter issue will litter city ballot — again - Youngstown Vindicator  -- Given that Utica shale exploration is virtually nonexistent in Mahoning County, what purpose does the pretentious Community Bill of Rights proposed amendment to the Youngstown charter serve? The proposed charter amendment to ban hydraulic fracturing was unenforceable when it was written, it would have been unenforceable had the voters approved it over the past 15 months, and it will be unenforceable if, by some outside chance, it passes in November. As we’ve argued ad nauseam, the amendment will not give Youngstown city government any of the rights detailed in the 1,300-word tome. On the key issue of hydraulic fracturing — fracking in common parlance — the Ohio General Assembly years ago gave the state Department of Natural Resources sole authority to oversee the process used to extract oil and gas from shale formations deep beneath the earth’s surface. The Ohio Constitution, which supersedes the Youngstown Home Rule Charter, gives the Legislature the authority to act on issues of statewide importance. That authority has been upheld by the Ohio Supreme Court. The Community Bill of Rights would place the city of Youngstown outside the reach of both the Ohio Constitution and the U.S. Constitution.It should also be pointed out that every time the charter amendment issue is on the ballot, it costs money (public dollars). And yet, individuals who claim to be so concerned about the welfare of Youngstown residents have no qualms about taking money out of the public treasury in pursuit of an issue they concede will end up in the courts. If the amendment is adopted in November, city government will be required to enforce it. And the first time it attempts to do that, there will be a lawsuit challenging the constitutionality of the Community Bill of Rights. And that means a further drain of the public treasury. As we’ve said before, “Enough’s enough.”

Ohio's Utica Region now included in EIA's monthly Drilling Productivity Report - Today in Energy - U.S. Energy Information Administration (EIA) -- The Utica Region in eastern Ohio, one of the fastest growing natural gas production areas in the United States, has been added to the Drilling Productivity Report (DPR). Total natural gas production in the Utica Region, which includes production from the Utica and Point Pleasant formations as well as legacy production from conventional reservoirs, has increased from 155 million cubic feet per day (MMcf/d) in January 2012 to an estimated 1.3 billion cubic feet per day (Bcf/d) in September 2014.  Utica formation drilling activity has been primarily focused in eastern Ohio since mid-2012, although the geologic formation extends into Maryland, New York, Pennsylvania, and West Virginia. Some producers are successfully targeting the Utica formation in northern West Virginia, but these wells fall within the existing DPR Marcellus Region. The DPR analyzes all drilling and production within geographic areas in order to capture total production volumes supplied to the market and is not limited to the formation name used for the region.

ODNR data: Ohio’s Utica shale play home to 1,004 drilled horizontal wells - Looks Like We Made It could be the song du jour Tuesday, when Ohio recorded its 1,000th horizontal well drilled into the ground. To be precise, it was well No. 1,004, according to data from the Ohio Department of Natural Resources.   The Utica play is approaching another milestone, too, with 1,431 drilling permits, just 69 shy of 1,500. Well No. 1,000 is a nice round number, but it’s notable nonetheless for an area that the federal Energy Information Administration recently called “one of the fastest-growing natural gas production areas in the United States.”   The state recorded seven new drilled wells since last week, when the Utica field in Ohio was three short of No. 1,000.

Ohio Shale Production Up Ten Fold Since 2012 » WOSU News: A new federal report says that natural gas production in Ohio’s Utica Shale region is growing rapidly. The report issued Monday found that production from the Utica region in eastern Ohio increased by more than 10 times over the last two years, from 115 million cubic feet per day in 2012 to an estimated 1.3 billion cubic feet per day by September 2014. The U.S. Energy Information Administration says the Utica is one of the fastest growing natural gas production areas in the United States. Utica oil production has also increased to about 40,000 barrels per day. But the Utica production numbers are still far smaller than leading regions such as the Marcellus in Pennsylvania, the Bakken in North Dakota, or the Eagle Ford in Texas.

Second natural gas pipeline planned to cross Stark - The CantonRep - A second interstate pipeline is being planned to ship natural gas from the Utica and Marcellus shale regions across Stark County. Energy Transfer’s planned Rover Pipeline would carry up to 3.25 billion cubic feet of natural gas per day from West Virginia, Pennsylvania and Ohio, according to the project website. The main pipeline would leave the gas-processing plant in Leesville, cut across the northeastern edge of Tuscarawas County, then head west across southern Stark and Wayne counties on its way to the Midwest Hub in Defiance, according to a project map. From there, more pipeline would be built to take natural gas to Michigan and Canada. In total, the Rover mainline will include 380 miles of 36-inch and 42-inch diameter pipe and five compressor stations, plus 197 miles of supply laterals ranging in diameter from 24 to 42 inches, according to the project website. If approved by the Federal Energy Regulatory Commission, the mainline from Leesville to Defiance is expected to open by December 2016. The section between Defiance and the Union Gas Hub in Canada would begin serving the Michigan and Ontario markets in June 2017.

API analyst says Ohio just getting started with Utica, - Ohio only has seen the tip of the iceberg when it comes to developing the Utica Shale, said Rayola Dougher, senior economic adviser for the American Petroleum Institute. Across the county, shale oil development is reducing the nation’s dependence on foreign oil and fueling the economy, said Dougher, who is one of several speakers slated for the Utica Summit II program Oct. 14 at University Center on the Kent State University Stark Campus. Utica Shale drilling — currently focused in a half dozen southeastern Ohio counties — should complement Ohio’s existing manufacturing base, especially the steel and chemical industries, Dougher said. “It’s just only the beginning of the journey,” she said. Utica Summit II has been organized by the Canton Regional Chamber of Commerce, Shale Directories and The Repository. Dougher and other speakers will lead discussions on what Utica Shale development can mean for manufacturing, transportation, job creation and more. Shale drilling has been evolving for several years as companies improve techniques for horizontal drilling and hydraulic fracturing, also called fracking. Horizontal drilling lets companies cut through a shale rock vein. Fracking, is a process where a slurry of water, sand and chemicals are forced into the well to break the rock and release trapped oil and gas. Companies began drilling the Utica Shale in southeastern Ohio late in 2010. Now more than 1,000 horizontal wells have been drilled in shale formations, with more than 500 wells listed as producing. The Utica Shale is one of the newest areas being drilled. Shale formations in Texas, Oklahoma, Arkansas, North Dakota and Pennsylvania are where horizontal drilling and fracking techniques have been refined.

Project helping Ohio communities avert bust after shale boom -  Boom, then bust. It’s a scenario often played out in local economies heavily reliant on one type of industry, especially in the energy sector. And it’s an underlying concern for Ohio communities experiencing a boom in shale oil and gas development. But the cycle isn’t inescapable, say community development specialists with Ohio State University Extension. They have received funding to help eastern Ohio communities examine how shale development, also known as fracking, is affecting their economies, environmental conditions and social structures and to create plans for long-term viability. With $200,000 in funding for a three-year project from the U.S. Department of Commerce’s Economic Development Administration, OSU Extension has joined forces with four regional economic development districts representing 25 eastern Ohio counties. “We are trying to help the communities in the region position themselves for sustainable economic development that leverages the shale play and prevents the bust that inevitably would happen,” said Nancy Bowen-Ellzey, an OSU Extension field specialist in community economics and one of the project’s principal investigators.

Ohio Supreme Court to hear mineral rights cases that affect landowners, drillers - The Ohio Supreme Court will hear two cases next week on a law that has caused mass confusion among Ohio oil and gas landowners and drillers. Ohio’s Dormant Mineral Act has been the focus of many lawsuits since production began a few years ago in the state’s Utica shale play as land and mineral-rights owners dispute ownership of valuable underground minerals. Earlier this month, I wrote about the court approving another mineral-act related case, separate from the two being heard next week.  That case and next Wednesday’s could wind up redirecting tens of millions of exploration dollars to landowners from drillers. It’s been common since the 19th century for mineral rights underneath the ground to be split from surface rights.  But mineral rights can be fragmented on big parcels and mineral rights owners could be heirs who are oblivious to a long-deceased relative’s ownership. It can make determining ownership difficult.  Ohio’s law, adopted in 1989, can be simply described as “use-it-or-lose-it.” If a certain action isn’t made on the minerals in a 20-year period, those rights float to the surface owner. In 2006, the state legislature amended the law demanding a surface owner tell a mineral owner of his intention to declare the mineral interest abandoned. The amendment also clarified the 20-year rule. Now, a surface owner’s claim for mineral surrender starts 20 years before they declare the minerals abandoned. So, if a surface owner today tried to declare mineral rights abandoned, there couldn’t have been mineral activity on the land since 1994. But Utica exploration began in 2010, so that claim likely would lose. Drillers have signed contracts worth millions, so the decisions the court makes can wind up shifting loads of money.

Editorial: EPA, Ohio lawmakers must reconsider self-reporting rules for private companies -  The Canton Repository - The Ohio Environmental Protection Agency and the federal EPA must think twice about allowing private companies to self-report spills and chemical leaks that threaten not only the environment but public health. While the state and federal arms of the agency claim “there are tremendous penalties for incorrect reporting,” we seriously doubt fines of several thousand dollars provide a serious-enough deterrent to multibillion dollar companies and are likely written off as the cost of doing business. When companies, such as Dover Chemical Co., are dealing with probable carcinogens and are located within an arm’s length of Tuscarawas County’s drinking supply, it’s imperative that adequate checks and balances are in place. Meanwhile, residents in both Stark and Tuscarawas counties must worry about waste products from horizontal shale drilling — also known as fracking. And while both communities have benefited from gas and oil exploration and all the ancillary businesses that support this industry, it’s important that laws are in place to provide for timely reporting. After all, these companies are part of our communities, they are our neighbors and like good neighbors we have an expectation they will balance their business interests with the best interests of their communities. Our children attend the same schools, we shop in the same stores and drink the same water — the quality of which could be at risk. In July, The Columbus Dispatch reported a fracking company — Halliburton — waited five days before it released to federal and state EPA officials a list of toxic chemicals that spilled from a drilling site into a tributary of the Ohio River. The spill, which occurred after a fire on a well pad in Monroe County, killed more than 70,000 fish and wildlife, state officials said. Did it affect drinking water? Environmental advocacy groups say the state can’t be sure

Report: Too few safeguards for drinking water near fracking wells - Federal and state governments do not do enough to safeguard drinking water around the nearly 200,000 wells where fracking wastewater is injected deep underground, according to a federal report. The U.S. Government Accountability Office investigation found that existing regulations do not adequately protect against contamination that could occur after earthquakes, which is increasingly a concern at injection wells and fracking sites in Ohio and out west. In some states, the U.S. Environmental Protection Agency oversees injection wells. On others, state agencies, such as the Ohio Department of Natural Resources, regulates oil and gas drilling. Julia Ortiz, a spokeswoman for the U.S. EPA, said the agency is reviewing the report, but generally agrees with the findings. Bob Worstall, an oil and gas resources management deputy chief with the Ohio Department of Natural Resources, said that after earthquakes connected with an injection well rolled through Mahoning County in 2011, ODNR started requiring seismic monitoring near injection wells. Additional earthquakes occurred this year in Northeast Ohio near fracking sites. “Our experience has been — and I think the results will bear it out — that if the well is constructed properly, the likelihood of any issues down the road are greatly diminished,” he said.

Fracking's threat to drinking water is getting little EPA scrutiny, studies find - Two new reports on fracking's potential threat to American aquifers suggest that drinking-water contamination is significantly more likely than energy producers, and regulators, have been willing to acknowledge. Neither has gained much attention in the national press — and none locally that I can detect.  A two-year audit by the Government Accountability Office, made public two weeks ago, concluded that the U.S. Environmental Protection Agency is doing a poor job of protecting drinking-water supplies from the many fracking-related activities that fall outside the so-called "Halliburton loophole." Since 2006, most injection of hydraulic fracturing fluids done to directly produce oil and natural gas has been exempt from EPA oversight. But other phases of the fracking operations — injection of wastes or returned water for long-term storage — are supposed to be regulated by EPA or state agencies to which it delegates the responsibility.There are now some 172,000 such wells across the U.S., and though at least some of these are known to have contaminated drinking water sources, the GAO found that no long-term monitoring is being done, and short-term oversight is deficient in many respects as well.  The second report was delivered earlier this week to the national conference of the American Chemical Society by Stanford scientist Rob Jackson, of whom I have written before.

EPA must step in after WV's repeated failure to protect drinking water from oil and gas waste -- Today NRDC sent a letter to U.S. EPA calling on them to crack down on the state of West Virginia’s lax oversight of oil and gas and fracking wastewater disposal wells—that is putting drinking water at risk of contamination, and could trigger man-made earthquakes.  The West Virginia Surface Owners’ Rights Organization, which works to protect landowners from abuses by the oil and gas industry, joined us in sending the letter.  The oil and gas industry creates an enormous amount of wastewater – more than 2 billion gallons per day.  This wastewater includes the “flowback” that comes up the wellbore after fracking is completed, as well as “produced water” that was trapped in oil and gas formations.  The wastewater is often toxic and can contain chemicals used in fracking and naturally occurring substances, including heavy metals like arsenic and lead, and radioactive materials.  Over 90% of this wastewater generated by the industry is disposed of by pumping it underground via “injection wells.”  But there is mounting evidence that the underground injection of this waste is risking the safety of drinking water. A recent report by the U.S. Government Accountability Office (GAO), a federal watchdog agency, found that EPA was not doing enough to ensure state oil and gas waste injection programs are not contaminating underground drinking water supplies, risking earthquakes, or causing  “overpressurization,” in which pressures build up to unsafe levels and waste can spill onto the surface.

New Jersey Governor Vetoes Fracking Waste Ban Despite Bipartisan Support - If New Jersey Governor Chris Christie, whose presidential potential is still being touted by some supporters despite a series of scandals surrounding him, is trying to demonstrate that he’s on the far right fringe of his own party when it comes to the environment, he’s doing a good job of it.  Last week, he vetoed a bill dubbed the Frack Waste Ban Bill which would have barred the disposal, treatment, storage and discharge of fracking waste in the state. It’s the second time he’s done so; he vetoed a similar bill in 2012. And he’s done so despite overwhelming support of the measure in the New Jersey legislature from both parties. The bill had four dozen sponsors, both Republicans and Democrats. The vote in the N.J. Senate was 33-4. In the state Assembly it was 62-16-1. Currently, no fracking is going on in New Jersey, but there’s plenty in neighboring Pennsylvania, which is already bringing some of its waste to New Jersey for disposal. When he previously vetoed the bill, Christie claimed it violated the interstate commerce clause of the U.S. Constitution. However, New Jersey’s nonpartisan legislative Office of Legislative Services,  says it doesn’t because it would treat in-state and out-of-state waste equally.

Pennsylvania Town Votes To Allow 6 Fracking Wells Within 3,000 Feet Of School Buildings - The Geyer farm, where as many as six unconventional gas wells are waiting to be placed by Rex Energy, sits just half a mile from the Mars School District, a campus of 3,200 children. If Rex Energy’s permits for the wells are approved by the Pennsylvania Department of Environmental Protection, residents say the school buildings could be within the radius of a possible explosion.At a township public meeting Wednesday night, Rex Energy came one step closer to having those permits approved. Middlesex supervisors Michael Spreng, Donald P. Marshall, and James Evans voted unanimously to approve changes to the town’s zoning laws that would legally open up residential and agricultural lands for drilling, despite the protests of concerned parents and residents. In essence, the ordinance opens up most of the township to drilling. That zoning law change has wider implications for the town in the long run, but at the moment, it has everything to do with the schools. “In essence, the ordinance opens up most of the township to drilling,” said John Neuhror, communications director at Keystone Progress, who also lives in a development adjacent to the well site. “But it’s pretty clear to an objective observer that the ordinance was written to make it very clear that the Geyer farm’s wells are allowed in the township.”

DEP gets 2nd dour report on gas well oversight - The issuance last week of a second report detailing myriad shortcomings in the state Department of Environmental Protection’s oversight and enforcement of Marcellus Shale gas development might have the agency feeling like a pinata after a party. The latest report, which Earthworks, a Washington, D.C.-based environmental organization, released Thursday, reviewed and analyzed DEP Marcellus Shale gas well drilling files and conducted its own air and water testing to detail how the DEP’s enforcement of shale gas regulations has been less than transparent or effective in controlling the exposure of Pennsylvania residents to unhealthy air and water. Three weeks ago, state Auditor General Eugene DePasquale issued a highly critical performance audit of the DEP’s shale gas industry oversight, including its failure to consistently pursue citizen complaints about drinking water degradation or issue enforcement orders for regulatory violations as the state oil and gas law requires. Among its 25 findings, the 70-page Earthworks report alleges that the DEP’s oil and gas office:

  • ■ has failed to consider the cumulative health impacts from shale gas development;
  • ■ keeps incomplete permitting and enforcement records that make it impossible for residents to assess their exposure to air and water emissions;
  • ■ has increased inspections, but they still don’t meet even the voluntary goals the department set;
  • ■ poorly tracks, records and responds to citizen complaints;
  • ■ puts a higher premium on speedy permitting than enforcement.

Drillers did not report half of spills that led to fines - Half the spills at Marcellus Shale well sites that resulted in fines weren’t spotted by gas companies, which are required by state law to look for and report spills of drilling-related fluids. That is one of the main conclusions of a Pittsburgh Post-Gazette review of hundreds of thousands of state and company documents for every incident at a Marcellus well site that led to a fine against a driller through the end of 2012. The documentation showing that companies often failed to detect spills on their own sites offers a look at self-regulation in the shale gas industry. State regulation of the industry was the subject of a withering state auditor general review of the Department of Environmental Protection’s oversight issued July 22. The audit detailed the agency’s shortcomings, including failing to consistently issue enforcement orders to drilling companies after regulators determined that gas operations had damaged water supplies, even though the state’s oil and gas law requires it. The Post-Gazette investigation using well permit file documents and other DEP data focused on 425 incidents involving 48 companies that resulted in nearly $4.4 million in fines. Of those 425 fines, 137 were due to spills at or near a well site. They ranged from relatively small incidents involving a couple of gallons of diesel fuel on a well pad to larger accidents involving thousands of gallons of hydraulic fracturing flowback fluid that killed vegetation or fish.

Study raises red flags on fracking fluids - - A new study on the contents of the fluids utilized in the gas and oil drilling process known as hydraulic fracturing, or fracking, raises concerns about several ingredients. Scientists presenting the work Wednesday at the 248th National Meeting & Exposition of the American Chemical Society (ACS) say that out of nearly 200 commonly used compounds, there's very little known about the potential health risks of about one-third, and eight are toxic to mammals. William Stringfellow, Ph.D., says he conducted the review of fracking contents to help resolve the public debate over the controversial drilling practice.“The industrial side was saying, ‘We're just using food additives, basically making ice cream here,'” Stringfellow says. “On the other side, there's talk about the injection of thousands of toxic chemicals. As scientists, we looked at the debate and asked, ‘What's the real story?'”  To find out, Stringfellow's team at Lawrence Berkeley National Laboratory scoured databases and reports to compile a list of substances commonly used in fracking. What their analysis revealed was a little truth to both sides' stories — with big caveats. Fracking fluids do contain many nontoxic and food-grade materials, as the industry asserts. But if something is edible or biodegradable, it doesn't automatically mean it can be easily disposed of, Stringfellow notes.  “You can't take a truckload of ice cream and dump it down the storm drain,” he says, building on the industry's analogy.

The Science Against Fracking -- Three or four years ago, the chief environmental concern about fracking involved the contamination of drinking water through the fracking process—blasting water, sand, and chemicals underground in vast quantities and at extreme pressures to force open shale layers deep beneath the Earth, and release natural gas. But the science was still pretty ambiguous, and a great deal turned on how “fracking” was defined. The entire mega-process of “unconventional” gas drilling had clearly caused instances of groundwater contamination, due to spills and leaks from improperly cased wells. But technically, “fracking” only refers to the water and chemical blast, not the drilling, the disposal of waste, or the huge industrial operations that accompany it all. Nowadays, explains Cornell University engineering professor Anthony Ingraffea on the latest installment of the Inquiring Minds podcast (stream above), the scientific argument against fracking and unconventional gas drilling is more extensive. It involves not simply groundwater contamination, but also at least two other major problems: earthquake generation and the accidental emissions of methane, a potent greenhouse gas.

EIP investigation finds continued use of diesel in fracking -- The illegal injection of diesel fuel during hydraulic fracturing has continued over the last four years, despite repeated denials by the drilling industry, according to a report by the Environmental Integrity Project (EIP). In its investigation, EIP also found troubling evidence that drilling companies have been changing and eliminating their disclosures of past diesel use from the industry self-disclosure database of chemicals used in hydraulic fracturing, called FracFocus. Injecting diesel fuel into the ground to fracture shale and extract gas or oil is a potential threat to drinking water supplies and public health because diesel contains toxic chemicals, such as benzene, that cause cancer or other serious health problems, even at low doses. EIP’s report, “Fracking Beyond The Law,” uses self-reported data from drilling companies and federal records to document at least 33 companies fracking at least 351 wells across 12 states with fluids containing diesel from 2010 through early August 2014. Diesel fuels were used to frack wells in Texas, Colorado, North Dakota, Arkansas, Oklahoma, Wyoming, New Mexico, Utah, Kansas, Pennsylvania, West Virginia, and Montana without required Safe Drinking Water Act permits. “We urge EPA and the states to exercise their legal authority by immediately investigating the compliance status of these 351 wells and taking all necessary steps to make sure they are properly permitted. Companies that inject diesel without permits should be fined for ignoring the law.”  EIP’s investigation also revealed that some oil and gas companies have been changing their disclosures submitted to FracFocus, the privately-run fracking chemical disclosure registry, in a manner that removes any and all indication of past injection of diesel. FracFocus, which was created by industry as an alternative to mandatory disclosure to federal or state governments, allows operators to change or replace previous disclosures, at any time, without leaving any record of or justification for the change.

Diesel Used To Frack Oil And Gas Wells Without Permit, Report Finds - A new report has found that since 2010 fossil fuel companies have used more than 30,000 gallons of diesel fuel across the country to frack for oil and gas without obtaining the required federal permits. The report, called, “Fracking Beyond The Law,” by the Environmental Integrity Project, a D.C. nonprofit established by environmental attorneys, found that at least 33 companies fracked at least 351 wells across 12 states with fluids containing diesel.  The passing of the 2005 Energy Policy Act by Congress established what is commonly known as the “Halliburton Loophole” in which the EPA was stripped of its authority to regulate a number of fracking fluids that could reveal the companies’ trade secrets. However diesel fuels, which contain high levels of benzene, ethylbenzene, toluene, or xylene — known carcinogens and neurotoxins — remain under the jurisdiction of the EPA as part of the Safe Drinking Water Act. The industry has repeatedly asserted the the use of diesel fuel in fracking no longer occurs and those denials along with the release of this report. The industry groups say that companies are phasing out diesel, which as of earlier this year was used in around two percent of wells, and that companies were using kerosene, which wasn’t listed as a diesel fuel until February. The industry group Energy in Depth also pointed out that the 351 wells the project cited as using diesel make up less than 0.5 percent of the 77,000 wells registered on FracFocus.  The EIP investigation asserts that the 351 wells they found using diesel is likely an underestimate as some oil and gas companies have been changing their FracFocus disclosures to remove indication of past diesel injections.

North Carolina Frack Study: Don’t Ask Don’t Tell -  North Carolina’s governor has decided he wants the state to get fracked. Whether it’s safe or not.  One thing we know for sure, the shale there is really shallow, so if they hit gas anywhere during the drilling or fracking – up she comes. Turning Tar Heels into Tar Balls. Duke Scientists’ Fracking Warnings Fall on Deaf Ears: Robert Jackson and Avner Vengosh of Duke University’s esteemed Nicholas School are viewed by some in the oil and gas industry as enemies. At Duke, they’ve done studies with compelling evidence that shale gas extraction, fracking, causes drinking water problems in other states. The industry, which got North Carolina to lift its moratorium on fracking with drilling next year, has long made the case that drilling is absolutely safe. Jackson and Vengosh have serious doubts about that, and given that the Nicholas School in the field of environmental science is considered among the elite in the county, it would be logical to assume that state officials developing rules to govern shale gas exploration would want to hear from them. But the N.C. Mining and Energy Commission did not invite either Jackson or Vengosh to offer any views while commission members were in the process of determining the rules.“With all due respect to Avner Vengosh,” said recently resigned commission Chairman James Womack, “he’s not interested in drilling. His studies are all aimed at the downside of oil and gas development.” (Which is normally how you make regulations . . . )Vengosh says instead that he’s all about science. And Vengosh and Jackson, who’s taking a job at Stanford University, have some pretty strong science behind their belief that fracking causes contamination of drinking water, among other problems.

Busting the Bureau of Land Management’s Frackopoly -- BLM-managed land like near Moab Valley, Arches National Park, Canyonlands National Park and so many others in the U.S., may be at risk from nearby fracking. President Obama’s BLM controls access to more than 700 million acres of federally owned mineral rights, some of which sit adjacent to public parks. Some 38 million acres of that land is currently leased, and over the past three years, the oil and gas industry has drilled over three thousand new wells, 90 percent of which have been (or will be) fracked. In fact, existing and proposed drilling and fracking operations overseen by the BLM threaten public lands, nearby watersheds, air quality and the health and safety of surrounding communities in 27 states.  The mission of the BLM, according to its own website, is “to sustain the health, diversity and productivity of America’s lands for the use and enjoyment of present and future generations.” But how can future generations be expected to enjoy lands that sit adjacent to hardcore industrial activity?

Poll Shows Californians Oppose Dumping Fracking Chemicals Into Ocean -- A poll commissioned by the Center for Biological Diversity and conducted by Public Policy Polling (PPP), surveying 500 California voters, found that a majority of Californians opposed fracking in their state and an even larger number support a ban on dumping fracking chemicals in the ocean.  In response to the question “Do you favor or oppose increased use of hydraulic fracturing in California, which is also known as fracking, a drilling method that extracts oil and natural gas from underground using a high-pressure mixture of water, sand and assorted chemicals?,” 36 percent said they favored increased fracking, while 56 percent opposed it and 8 percent were not sure. In response to “The federal government currently allows oil companies to dispose of fracking fluid with wastewater into the ocean. Do you support or oppose a ban on dumping fracking chemicals into the water off California’s coast?,” 65 percent supported such a ban, 25 percent opposed it and 9 percent were not sure. When presented with the choice of two viewpoints—one offering fracking as a danger to the environment which should be banned and the other saying it will create jobs and reduce energy prices and should therefore remain legal,” 55 percent agreed it was a threat to the environment, 35 percent agreed it was a job-creator and 10 percent were not sure.

Fracking Waste Disposal Fuels Opposition in U.S. and Abroad - A poll taken by Public Policy Polling revealed this week that 65 percent of California residents oppose dumping fracking waste in the ocean. The actions of fracking companies in both the U.S. and England, the eagerness of many government bodies and officials to cater to them, and the obfuscation around the disposal of the waste show they have reason to be concerned. Ban Michigan Fracking reports that 12 tons of radioactive fracking waste is heading for a hazardous waste facility in the Detroit area from Pennsylvania. The facility, Wayne Disposal Inc., is one of only two in the country that accepts this waste (the other is in Idaho), which was already rejected by a West Virginia facility for its high level of radioactivity. The lack of places to dump fracking waste is emerging as one of the industry’s biggest problems. Recently, for the second time, the New Jersey legislature voted by an overwhelming bipartisan majority to prohibit the treatment, storing and disposal of fracking waste water in that state  And last week it was vetoed for the second time by Governor Chris Christie, angering environmentalists, as well as legislators.

Oil and gas company debt soars to danger levels to cover shortfall in cash - The world’s leading oil and gas companies are taking on debt and selling assets on an unprecedented scale to cover a shortfall in cash, calling into question the long-term viability of large parts of the industry. The US Energy Information Administration (EIA) said a review of 127 companies across the globe found that they had increased net debt by $106bn in the year to March, in order to cover the surging costs of machinery and exploration, while still paying generous dividends at the same time. They also sold off a net $73bn of assets. This is a major departure from historical trends. Such a shortfall typically happens only in or just after recessions. For it to occur five years into an economic expansion points to a deep structural malaise. The EIA said revenues from oil and gas sales have reached a plateau since 2011, stagnating at $568bn over the last year as oil hovers near $100 a barrel. Yet costs have continued to rise relentlessly. Companies have exhausted the low-hanging fruit and are being forced to explore fields in ever more difficult regions. The EIA said the shortfall between cash earnings from operations and expenditure -- mostly CAPEX and dividends -- has widened from $18bn in 2010 to $110bn during the past three years. Companies appear to have been borrowing heavily both to keep dividends steady and to buy back their own shares, spending an average of $39bn on repurchases since 2011.

EIA Corroborates the Work of Energy Policy Forum -- Over a year ago, on 19 June, 2013, Energy Policy Forum (EPF) wrote a post exposing the explosion of capital expenditure by shale operators to drill and complete wells and the concomitant lack of free cash flow. Unless operations can produce sufficient cash, the exercise is obviously unsustainable. At some point a company simply hits the proverbial financial wall.  Now EIA, the forecasting arm of the US Department of Energy has corroborated EPF’s work. EIA states: “Based on data compiled from quarterly reports, for the year ending March 31, 2014, cash from operations for 127 major oil and natural gas companies totaled $568 billion, and major uses of cash totaled $677 billion, a difference of almost $110 billion. This shortfall was filled through a $106 billion net increase in debt and $73 billion from sales of assets, which increased the overall cash balance.” EIA went on to say: “The gap between cash from operations and major uses of cash has widened in recent years from a low of $18 billion in 2010 to $100 billion to $120 billion during the past three years.”

Wall Street's Shale 'Fraud' Exposed - U.S. energy independence, we're told, is at our fingertips thanks to the so-called “shale revolution”. Offsetting declines in conventional oil and gas production, shale gas and tight oil (shale oil) are being heralded as the means by which the U.S. will become energy independent – a net exporter of natural gas and once again the world’s largest oil producing nation. But two new reports by Post Carbon Institute and Energy Policy Forum show that the hype simply doesn’t stand up to scrutiny.


  • High productivity shale gas plays are not ubiquitous: Just six plays account for 88% of total production.
  • Individual well decline rates range from 80-95% after 36 months in the top five U.S. plays.
  • Overall field declines require from 30-50% of production to be replaced annually with more drilling – roughly 7,200 new wells a year simply to maintain production.
  • Dry shale gas plays require $42 billion/year in capital investment to offset declines. This investment is not covered by sales: in 2012, U.S. shale gas generated just $33 billion, although some of the wells also produced liquids, which improved economics.


  • More than 80 percent of tight oil production is from two unique plays: the Bakken and the Eagle Ford.
  • Well decline rates are steep – between 81 and 90 percent in the first 24 months.
  • Overall field decline rates are such that 40 percent of production must be replaced annually to maintain production.
  • Together the Bakken and Eagle Ford plays may yield a little over 5 billion barrels – less than 10 months of U.S. consumption.

Rail CEOs to Investors: “Bomb Trains” Safe At Almost Any Speed -- Burlington Northern Santa Fe (BNSF) recently said it would proceed with plans to increase speeds for oil-by-rail unit trains in Devil’s Lake, N.D. to 60 MPH from 30 MPH, despite opposition from local officials. BNSF’s announcement came merely a week after the Obama Administration announced its proposed regulations for trains carrying oil obtained via hydraulic fracturing (“fracking”) from North Dakota's Bakken Shale basin.  The rail industry’s position on speed limits for “bomb trains” is simple: they continuously claim velocity has nothing to do with oil-by-rail accidents or safety.For example, Big Rail — as revealed by DeSmogBlog — lobbied against all proposed oil train speed reductions in its dozen or so private meetings at the Obama White House before the unveiling of the proposed oil-by-rail regulations.  Recent statements by rail industry CEOs during investor calls put the heads of many companies on record opposing oil-by-rail speed limits for the first time.

New Study Says U.S. Underestimated Keystone XL Emissions - Yves Smith - Yves here. Some advocates greenhouse gas reduction policies argue that the fight against the Keystone XL pipeline is misguided, since it represented a lot of political capital spent against a not-terribly-significant target. However, this post does reveal an important coda: that of the Administration’s characteristic dishonesty, in this case around climate change issues. Other examples, chronicled at length here and here, is Obama’s pro-fracking climate change headfake, which conveniently fails to include methane emissions in his new carbon containment policies. Originally published at Oil Price.A new report says the U.S. government dramatically underestimated the level of greenhouse gas emissions that would result if the controversial proposed Keystone XL pipeline becomes a reality. The study, by the Stockholm Environmental Institute, found that building the pipeline, which would connect Canada’s oil-rich tar sands to refineries in the Gulf of Mexico, would produce greenhouse gas emissions at least four times higher than the U.S. State Department’s official estimate. The study’s authors said that the U.S. officials did not take into account the fact that, by providing an outlet for Canada’s tar sands to reach international buyers, global oil supplies would increase, resulting in a moderate price decline of about $3 per barrel, according to the study. Basic economic theory dictates that lower prices would lead to greater consumption. More specifically, the study estimates that global oil consumption increases by 0.6 barrels for every barrel of oil added to global supply. The study finds that global greenhouse gas emissions would increase by 121 million tons of carbon dioxide a year. The study was published in the journal Nature Climate Change.

Oil Sands are Biggest Losers From Low Crude Prices: Study - ConocoPhillips and Royal Dutch Shell are among global oil companies needing crude prices as high as $150 a barrel to turn a profit from Canada’s oil sands, the costliest petroleum projects in the world, according to a study. The next most-expensive crude projects are in the deep waters off the coasts of Africa and Brazil, with each venture needing prices between $115 and $127 a barrel, said Carbon Tracker Initiative, a London-based think tank and environmental advocacy group, in a report today. As the U.S. shale drilling boom floods the world’s biggest crude market with supply, explorers are at greater risk of a price collapse that would turn some investments into money losers. Energy explorers are willing to invest in high-cost oil-sands developments because once they are up and running, they produce crude for decades longer than other ventures such as deepwater wells, said David McColl, an analyst at Morningstar Inc. in Chicago. “Where else can you get 10 to 30 years of predictable cash flow?” said McColl, who estimated new oil sands projects require $60 to $100 crude to make sense. “The returns may not be stellar compared to some other projects but they are steady.” In May, Carbon Tracker released a report that said the oil industry was at risk of wasting $1.1 trillion of investors’ cash on expensive developments in the Arctic, oil sands and deep oceans. That figure represents the amount explorers may spend on oilfields that need crude prices of $95 a barrel or more, the group said three months ago.  Oil companies face growing pressure from shareholders to rein in costs after two decades of bigger spending have failed to boost production or profitability

Oilprice Intelligence Report: Yes to Mexico, No to Ukraine, Maybe to Offshore Fracking - As Ukraine ushers through tax legislation designed to prop up political-business elite and alienate outside investors, Mexico finally passes secondary legislation to implement sweeping oil sector reforms and open up the sector to foreign investors.  On 6 August, the Mexican Senate voted 90-27 to pass the delayed secondary rules that will make energy sector reform a reality and end the 76-year state monopoly on oil and gas held by Pemex.Now Mexico is looking at a possible $1 trillion in outside investment, which at the end of the day could significantly reshape the oil and gas picture in North America. At the same time, Ukraine moved on 1 August to ensure that new foreign investment is crippled by a tax code that doubles tax rates for private gas producers and benefits certain local political-business elite at the expense of the state and the need to develop more resources, as reported yesterday.Meanwhile, Reuters reports that wars, unrest, sabotage and sanctions are keeping some 3.3 million barrels of oil per day out of the market. This represents 4% of global supply, with the intensifying conflict in Iraq and the enduring chaos in Libya promising more “offline” oil.Amid the conflict and chaos, however, exports of crude oil from the US in June reached their highest level since the 1950s, putting the US ahead of Ecuador, the smallest member of OPEC. Exports spiked 35% from May to 389,000 barrels per day in June—most of it heading to the Canadian market, media cited the US Census Bureau as saying on 6 August. The figures reflect allowable shipments of US crude oil to Canada and re-exports of foreign oil; however, we could soon seem more light-processed crude, or condensate, added to the export mix as companies find loopholes to get around the ban on crude oil exports. With the good news in Mexico and stellar US production figures, attention is now turning—or returning—to the Gulf of Mexico, where advances in drilling technology are being put to use offshore, in the shallow waters. There has been a lot of news this week about squeezing more out of the older fields of the Gulf of Mexico, piggy-backing on advances in onshore drilling technology that have resulted in the shale boom.

Mexico Opens Oil Fields, Expects Rush Of International Companies Across The Border -- On Wednesday, Mexico outlined long-anticipated updates to its fossil fuel sector that are designed to usher in an energy boom led by the arrival of international companies with extraction expertise and financial savvy. The government made final the announcement that for the first time since 1938 private companies will be allowed to bid on prospective oil and gas resources, thus ending state-run Pemex’s monopoly.  Mexico’s oil production has been declining for the last decade, and has dropped about one million barrels a day to 2.5 million bpd — and even this number might be exaggerated due to water being included in its oil output. Under the new laws, Pemex will maintain 83 percent of Mexico’s proven and probable reserves, around 20 billion barrels of crude oil equivalent, while it will only keep a fifth of prospective resources, including yet-to-be-discovered resources. The rest will be made available to international companies, which are especially keen to start developing offshore resources in the Gulf of Mexico, an area that has yielded serious output from the U.S. side but is yet to be tapped in Mexico. Pemex has become associated with bloated bureaucracy and corrupt practices and the arrival of international companies is meant to bring efficiency, expertise, reduced costs, and deep pockets to the country’s oil sector. The government has identified 109 blocks for the first round of bids and expects investments of around $50 billion over the next four years, including partnerships with Pemex. Officials hope to raise national production to three million barrels a day by 2018.

How much oil do we have left? - - The year 1981 just called and said that we are out of oil. Well, according to estimates from the time, we should be. Back then the world consumed just under 60 million barrels per day, and global proved reserves for oil stood at almost 700 billion barrels. At that rate, the world should have exhausted all its proved reserves sometime in December 2013. But instead of the last drop of oil being squeezed out of the Earth, global production has increased by 46%, and global reserves now stand 1 trillion barrels higher than they did 33 years ago. Did some geological miracle more than double the amount of oil we have produced in the past three-plus decades? No. It's more of a disconnect between how much oil is physically left in the world and how data related to oil reserves is reported. Let's look at why these numbers have been misleading for so long and why today's current projection of 53 years of oil remaining -- based on recent numbers from BP -- is likely wrong as well. There are a multitude of ways to describe the amount of oil remaining, but the most common is known as proved reserves. When you divide proved reserves by total production, you get the reserves-to-production ratio. This is where the 53-year estimate comes from and where that 32-year estimate originated in 1981. While the number is easy to understand, it's a red herring because it assumes production will remain constant forever and that the current proved reserves estimates represent all the oil left. As we all know, this simply isn't the case. The problem with the term "proved reserves" is that many assume it describes a physical limitation on oil, but it is actually a calculated economic limitation. Every country has a slightly different way of calculating the amount, but the basic gist is that proved reserve estimates are what companies assume they can pull from the ground using existing technology while still generating a profit, which is based on the price of oil or gas over the past year.

US oil production keeps surging, so why haven’t oil and gasoline prices fallen? - One question that I hear all the time on this topic is this: With the huge increases in US crude oil output from the shale revolution, why is oil still around $100 per barrel and why is gasoline so expensive? The answer is pretty straightforward: Oil is a global commodity whose market price is largely determined by two important market-based factors: a) global oil supply and b) global oil demand. The chart below helps to explain. Updated with Nominal GDP: Between 2004 and 2013, the world oil supply has increased only 4.6% from 72.58 million barrels per day to 75.94 million barrels per day last year (EIA data here), while world real GDP has increased by 24.2% from $44.52 trillion to $55.3 trillion (in 2005 dollars, USDA data here) and world nominal GDP increased by almost 64% from $43.1 trillion to $70.6 trillion. Bottom Line: The significant increases in US crude oil output over the last ten years haven’t increased the world supply of oil nearly enough to impact world oil production enough to offset the significant 24.2% increase in global economic activity. World demand for oil and energy is up significantly, while the supply of oil has barely increased. Therefore, oil prices and US gas prices haven’t come down much. We should probably be thankful though because without the significant increases in US oil production, oil and gas prices would probably be higher than they are today.

New Tax Threatens to Destroy Gas Production in Ukraine: Independent gas producers in Ukraine are joining forces to pressure the government in Kiev to re-think its new gas tax before everyone makes a run for the border in search of new assets in a more stable environment. Private producers have compiled a draft letter to Ukrainian Prime Minister Arseniy Yatsenyuk, criticizing the government’s doubling of taxes for gas producers, which was justified through the use of “wrong and misleading” data about private companies.  They also warn that their time in Ukraine will be over if the tax is extended beyond the end of this year—and there will be no further foreign investment in the country’s beleaguered gas sector. In an open letter to Yatsenyuk--an advance copy of which was obtained by on August 10--independent gas producers in Ukraine pointed out that the cost of gas production by private companies in Ukraine exceeds the capital costs of public companies, which enjoy the advantage of development well researched and more easily profitable areas. “Therefore, any estimates by the Ministry of Finance as to the cost of gas on the basis of the financial performance of public companies cannot be used to determine the profitability of private company projects, which may be 10 times higher,” the letter said.

Before the fear of war, fear of fracking in Ukraine -- Locals seemed to have consensus on who’s at war: the U.S. and Russia over control of Ukraine, they all agreed. The people of the Donbass, the country’s gritty industrial region in the east, were not naive. They realized that gas pipelines crossing the border with Russia and the shale gas fields near Slovyansk — with a potential reserve of about 3 trillion cubic meters of gas — were the cause of constant tension between Russia and Ukraine. But with pipes in their backyards or running right next to their homes, with their feet firmly on ground that stands over a vast shale deposit, they knew the struggle was not really over Ukraine itself. They were in the middle of a war about energy. Depending on the political winds blowing between Kiev and Moscow, the Russian gas giant Gazprom cut off natural gas to Ukraine or turned it on again. The shale gas is an important potential source for Ukraine and possibly southeastern Europe. If it proves possible to tap, Ukraine hopes this supply would undercut Gazprom’s monopoly, a move that could change Europe’s energy map and its political contours as well. “If you asked me last month, I would tell you right away that gas was the real reason for our hate for Kiev and for this war,’’ said Ivan Vailyevich, a pensioner from the building on Bulvarnaya Avenue when recalled how he participated in mass street protests in February and March. “We’d kill and die but never allow production of shale gas here,” he said. “That would poison our land.” Now he doesn’t know what to say. “After our house was bombed this month, we realized that shale gas was not as scary as shells.”

Ukraine Quickly Backs Off Threat Of Halting Russian Gas Transit After Europe Screams - A few short days after Ukraine's always entertaining puppet government, whose very existence is to benefit its western overlords and certainly Victoria Nuland's superiors, briefly forgot it has absolutely zero leverage should it alienate not only Russia but also Europe (read Angela Merkel) and announced it may halt Russian energy transits through the country (i.e., Russian gas deliveries for Germany) without obtaining Angela Merkel's preapproval to such a ridiculous threat, Europe - suffering a major flashback to early 2009 and realizing winter is just around the corner - promptly reminded Kiev just who is in control and advised its puppets that it opposes any Ukrainian cut-off of Russian gas, Bloomberg reports citing an EU official."Different parts" of the Ukrainian government are “actively considering” a cut-off of Russian natural gas in transit through Ukraine as part of possible sanctions against Russia, a European Union official says. The EU would oppose such a step by the Ukrainian government, which is drawing up legislation to allow sanctions against Russia because of its encroachment in eastern Ukraine, the EU official tells reporters in Brussels on the condition of anonymity"The secure supply of energy through Ukraine must be maintained,’’ the official says.  Translation: sorry Ukraine, but when Europe has to choose between you and Russian gas, the gas wins every time.

Ukraine Passes Russian Sanctions Law: Gas Transit Halt Seems Imminent - The Ukrainian parliament approved a law on Thursday to impose sanctions on Russian companies and individuals "for financing terrorism." As Reuters reports, Prime Minister Arseny Yatseniuk told parliament that "by approving the law on sanctions, we showed that the country is able to protect itself." The first 'threat' though - that European energy companies would have to agree major contract revisions when purchasing Russian natural gas, potentially disrupting supplies in the coming winter months - seems suicidal... and EU leaders are not happy. Slovak Premier Robert Fico asked rhetorically, "Isn't it strange that a country, which has signed an association agreement, a country, which we are all trying to help, is taking steps that jeopardize the interests of individual EU members?"

3rd 'Gas War' Looming Between Russia, Ukraine, EU - Weather forecasters promise 32 degrees Celsius in Kiev on Thursday — which makes the near-citywide absence of hot water due to a shortage of Russian gas more bearable. But things could get much uglier in winter, when a "humanitarian catastrophe" looms, if the confrontation between Moscow and Kiev over Ukraine's rebellious eastern regions remains unresolved and Russia turns off the gas tap, analysts said. While political pundits say the ongoing pro-Russian insurgency in Ukraine is Moscow's last remaining leverage against Kiev, the Kremlin still has a "gas truncheon" at its disposal. Ukraine is entirely dependent on Russian gas supplies, and half of Russia's gas exports to Europe flow through its pipelines. The gas weapon is ineffective in the summer, but a new "gas war" between Russia and Ukraine — which would be the third so far — is waiting to happen this fall, when the energy- and cash-strapped Ukraine will have to provide for its citizens and factories, experts said. The worst case scenario is a season-long halt to Russian gas supplies to Ukraine and the European Union, which, while not leaving populations to freeze, would ground Ukraine's industrial output and cause supply disruptions in the European countries beyond.

Putin’s Pipeline Bypassing Ukraine Is at Risk Amid Conflict - Vladimir Putin’s dream of a new pipeline to deliver Russian natural gas to the European Union without passing through Ukraine is fading amid escalating tit-for-tat economic sanctions. The $46 billion South Stream project, spearheaded by OAO Gazprom, is on hold and will probably remain in limbo for years as Russia continues to foment armed conflict in eastern Ukraine and the EU retaliates with bans, Eurasia Group said. That means the war-torn country will remain a key transit point for about half of Gazprom’s shipments to Europe, according to the New York-based risk research group. The EU previously had mixed positions on South Stream. With Russian troops massing near the Ukraine border, the bloc now has little choice but to stand united in opposition. A Snapshot of Ukraine's Past and Future“There’s no way Europe is going to put South Stream negotiations back on the table now, given the larger geopolitical context of the Ukraine crisis,” “That, combined with a number of regulatory disputes about the pipeline and gas deliveries will push back the timeline a number of years.”

Russian oil giant seeks funds earmarked for pensions (Reuters) - Russia's Rosneft, which produces more oil than Iraq or Iran, is seeking a $42 billion loan from a fund earmarked for Russian pensions to help it weather Western sanctions imposed over Moscow's role in Ukraine. Analysts expected the Russian government to turn down the proposal by the world's largest listed oil producer, one fifth owned by BP (BP.L) and run by a close ally of President Vladimir Putin, unless political pressure is brought to bear. It was one of the most stunning of several proposals for the Russian state to help firms hit by U.S. and European sanctions over Moscow's annexation of Crimea in March and role in subsequent fighting in eastern Ukraine. true A government source said Rosneft had asked the National Wealth Fund to buy 1.5 trillion roubles ($41.6 billion) of its bonds to cover its net debt. Deputy Prime Minister Arkady Dvorkovich told Russian news agencies it would take the government two weeks to come up with an answer. Rosneft declined to comment.

Putin challenges dollar by calling for the ruble to be used globally for energy - On Aug. 13, Russian President Vladimir Putin announced that the old petrodollar system of using a singular currency for global energy sales is damaging the economy, and that he intends to pursue using the rouble as an alternative form of currency through which nations can buy oil from the Eurasian power. In his brief statement to the press, Putin emphasized that the continuing use of the dollar as a global standard allows the United States to inflict damage to countries throughout the world, especially as the central bank continues to devalue the dollar through Quantitative Easing and unlimited money printing. Additionally, Putin in the past has recognized that the use of the dollar as the sole medium for global transactions is a hindrance to free trade by forcing nations to have to buy dollars first before purchasing oil, food, and other commodities on the global market, even if those purchases are being made with nations outside of the U.S. This restrictive system has led to the formation of an alternative trade coalition known as the BRICS, and the establishment of a BRICS bank, along with the recreation of the Silk Road via the Eurasian Trade Zone

Fracking ISIS : Send in the Drones - Read the report in the New York Times about American’s “humanitarian” response to the latest civil war in the Mideast. This time taking sides with the good Shiites against some bad Sunni thugs in Toyotas named after an ancient Egyptian pagan goddess. The United States launched a series of airstrikes against Sunni militants in northern Iraq on Friday, using Predator drones and Navy F-18 fighter jets to destroy rebel positions around the city of Erbil, the American military said Friday. The strikes were aimed at halting the advance of militants with the Islamic State in Iraq and Syria toward Erbil, the Kurdish capital, which is home to a United States Consulate and thousands of Americans.” “Thousands of Americans” in town called Gerbil ? Anybody want to guess what thousands of American civilians are doing in Gerbil ? Lutheran missionaries to the good Shiites perhaps ? Scouting locations for Krispy Kremes ? Give up ? Here’s some clues: It starts with an “O” and it ends with an “L” and it has an “I” in the middle. The Navy fighters launched from the aircraft carrier George H. W. Bush, which has been deployed in the Arabian Sea.” The good ole’ George Fracking Bush ! Holy irony ! Bush Cheney lives. Bush bombs ‘em and Cheney fracks ‘em. Saddle up. Just like old times !The Times have lots of nifty graphics and bitchin’ videos of high-tech warplanes flaming Shittes (or Sunni’s ?) riding around in Toyota pickups in the desert, and a great 3D map that lays it all out. But what’s missing from the videos, the reporting and the map ? Exxon ‘s oil fields. Which is what of course this is really all about –  The start of the 5th Oil War of the 21st Century.  As not reported by the New York Times.

The US Bombing Its Own Guns Perfectly Sums Up America’s Total failure in Iraq - In the decade since the 2003 US-led Iraq invasion, the US has spent a fortune training and arming the Iraqi army in the hopes of readying it to secure the country once America left. That meant arming the Iraqi army with high-tech and extremely expensive American-made guns, tanks, jeeps, artillery, and more.   But the Iraqi army has been largely a failure. When ISIS invaded northern Iraq from Syria in June, the Iraqi forces deserted or retreated en masse. Many of them abandoned their American equipment. ISIS scooped it up themselves and are now using it to rampage across Iraq, seizing whole cities, terrorizing minorities, and finally pushing into even once-secure Kurdish territory. All with shiny American military equipment. So the US air strikes against ISIS are in part to destroy US military equipment, such as the artillery ISIS has been using against Kurdish forces. The absurdity runs deep: America is using American military equipment to bomb other pieces of American military equipment halfway around the world. The American weapons the US gave the Iraqi army totally failed at making Iraq secure and have become tools of terror used by an offshoot of al-Qaeda to terrorize the Iraqis that the US supposedly liberated a decade ago. And so now the US has to use American weaponry to destroy the American weaponry it gave Iraqis to make Iraqis safer, in order to make Iraqis safer.

The U.S. Airstrikes In Northern Iraq Are All About Oil -- This week, President Barack Obama announced that he was authorizing American airstrikes in Iraq. He described his intervention as a “humanitarian effort to help save thousands of Iraqi civilians who are trapped on a mountain” and as an effort “to protect our American personnel.” One word that he didn’t mention is “oil,” but it lies near the center of American motives for intervention. The United States is conducting airdrops to aid the Yazidis who have fled the advance of Islamic State militants, but it is conducting airstrikes around Erbil, which is to the east. There are American consular personnel in Erbil, but they could be evacuated if necessary. What Obama left unsaid was that Erbil, a city of 1.5 million, is the capital of the Kurdish regional government and the administrative center of its oil industry, which accounts for about a quarter of Iraq’s oil. The Kurds claim that if they were to become an independent state, they would have the ninth-largest oil reserves in the world. And oil wells are near Erbil.

Ilargi: Follow The Money All The Way To The Next War - Yves Smith  - The prospect of unnecessary war has focused Ilargi’s mind. He starts with an important article in Handlesblatt that a record number of NC readers flagged, then turns to an issue we’ve focused on: what is the evidence behind US claims of Russian responsibility for the downing of MH17? After Colin Powell’s Iraq WMD canard, it’s remarkable that anyone accepts “trust me” from American officials, but remarkably, that’s where things stand.  One excuse offered for the failure of the US to support its claims is that the military apparatus does not want to expose its information-gathering capabilities. But there’s another, more obvious reason. The officialdom does not want to establish the precedent of being required to deliver the goods in order to foment war. That would mean they’d be expected to do so in the future, and the failure to be forthcoming would be seen as a sign that the officialdom was making stuff up. Needing to establish the legitimacy of their case would constrain their game.

ISIS And The Coming Escalation In Iraq -- ISIS has attracted an entire generation of radicalized Sunni militants to the region. If one watches interviews with their enemies such as e.g. Peshmerga fighters, one topic that is occasionally mentioned is that they don't seem to fear death much. Combined with their well-known brutality, this undoubtedly makes them a formidable fighting force. However, there is evidently far more to ISIS than that. All of the above suggests that it will be exceedingly difficult to effectively destroy ISIS. It seems to us that if the goals the president has announced in recent days are to be achieved, nothing short of a full-scale invasion of Iraq (as well as of Syria for good measure) is likely to suffice – and even then, success is by no means guaranteed.

The Empire Reaps the Jihadist Whirlwind -- The rise of the Islamic Caliphate in Iraq and Syria has flipped the script on U.S. proxy war policies in the region, and may ultimately bring down the royal oil states whose survival is indispensable to American hegemony in the world. At the foot soldier level, the imperial proxy strategy has already collapsed with the disintegration of the (always ephemeral) “moderate” armed opposition to the Syrian government and the defection to the Caliphate of formerly U.S.-financed Sunni fighters in Iraq. The $500 million President Obama has requested for Syria has been rendered moot by the Caliphate’s stunning political and military victories; no amount of money can create an army out of phantoms. The most active Syrian insurgents have flocked to the self-proclaimed Islamic State formerly known as ISIS, whose leader, Abu Bakr al-Baghdadi, served notice on Washington: “You should know, you defender of the cross, that getting others to fight on your behalf will not do for you in Syria as it will not do for you in Iraq.” The U.S. corporate media were more interested in the rest of al-Baghdadi’s message, in which he warned Washington that “soon enough, you will be in direct confrontation – forced to do so, God willing. And the sons of Islam have prepared themselves for this day. So wait, and we will be waiting, too.” For most self-obsessed Americans, this was received as a threat to attack “the Homeland.” However, downtown Manhattan is not on the Caliphate leader’s map. Al-Baghdadi meant that the American strategy of financing Muslim muppets to fight imperialism’s wars is kaput, and that the Pentagon will soon have to do its own dirty work, dressed in “Crusader” uniform.

Crude Prices Ease Despite Conflicts In Key Energy Countries: OPEC member countries produced generous amounts of crude during July, causing a “glut” in the supply of oil, despite conflicts involving oil countries that have led to concerns of possible disruptions, the International Energy Agency (IEA) reports. The cost of Brent crude on Aug. 12 fell to its lowest level since Nov. 8, 2013, and another benchmark, West Texas Intermediate, was also down. Meanwhile, OPEC output climbed to its highest level in five months, and the IEA slashed its estimates for the growth in demand for oil for 2014 and 2015. The IEA, based in Paris, advises 29 nations on energy policy. “The IEA report knocked the market pretty hard today,” Bill Baruch, a senior market strategist at in Chicago, told Bloomberg News. “Demand worry has really been moving the market.”He said only a major supply disruption could lift oil prices in this environment. In its report, the IEA reduced its calculations for the growth of worldwide demand for oil by 180,000 barrels a day for 2014 and by 90,000 barrels a day in 2015. It said the yearly growth in fuel consumption fell to 700,000 barrels a day in the second quarter of 2014, the lowest since early 2012.The agency said fighting in countries linked to oil production was putting the supply of crude “more at risk than ever,” yet oil producers seemed to be shrugging off these conflicts. “Despite armed conflict in Libya, Iraq and Ukraine,” it said, “the oil market today looks better supplied than expected, with an oil glut even reported in the Atlantic Basin.”

Exxon Starts ‘Most Controversial Oil Rig in the World” - After years of preparation, on Saturday ExxonMobil began drilling a $700 million well in the Kara Sea in Russia’s Arctic. It is Russia’s most northerly well.  In doing so, the oil giant has ignored growing concerns over Russia’s role in the Ukrainian conflict, and the sanctions imposed on its business partner, Rosneft, which is run by a close associate of Putin, Igor Sechin, who is also personally blacklisted.  Indeed, the go ahead shows just how ineffectual the sanctions against Russia really are. Exxon’s excuse is that the contract to hire the rig was signed before sanctions were announced, but the oil giant is still working with Putin’s blacklisted inner circle.  Exxon has also ignored huge questions over whether an oil spill in the region could be contained. And of course it has totally disregarded the issue of climate change and the need to disinvest from fossil fuels in the most ecologically sensitive areas, such as the Arctic.

Exxon, Rosneft in joint Arctic oil project despite sanctions on Russia | South China Morning Post --  US oil giant Exxon Mobil began drilling for oil in the Russian Arctic yesterday with local partner Rosneft, despite sanctions imposed on the Russian company by Washington over the crisis in Ukraine. Russian President Vladimir Putin praised the US$700 million joint project as an example of cooperation. Although US sanctions are not designed to halt such joint projects, they nevertheless aim to starve Rosneft of dollar financing and stop it accessing modern technology. "Today, commercial success is driven by efficient international cooperation," Putin, speaking from his Black Sea residence, told Rosneft CEO Igor Sechin, who is subject to US sanctions, and Glenn Waller, Exxon Mobil's lead manager in Russia. The European Union imposed a third round of sanctions last month, restricting the export of equipment used for offshore oil production to Russia after its relations with Europe and the US deteriorated to the lowest point since the cold war over the Ukraine conflict. That has not stopped Exxon because the contract to hire the rig was signed before sanctions were announced. "In the area of oil, the sanctions are more symbolic perhaps at this stage, but if they remain in place for a long period then they will have some significant consequences,"

ExxonMobil And Russia Began Drilling For Oil In The Arctic On Saturday - ExxonMobil began drilling in the Russian Arctic on Saturday, defying both the spirit of recent U.S. sanctions and environmental opposition to oil exploration in the region.According to Fuel Fix, the well is a joint $700 million project between ExxonMobil and Rosneft, Russia’s state-owned oil producer. Drilling is anticipated to take about 70 days, and will target the Universitetskaya — a geologic formation under the ocean floor that’s roughly the size of the city of Moscow. Rosneft estimates the formation could contain up to 9 billion barrels of oil, making it a major target for Russian oil exploration. Energy provides half the Russian state’s revenue, and the country has so far maintained its oil production at a post-Soviet high of over 10 million barrels per day.ExxonMobil’s output fell to a five-year low in the second quarter, so discovering new reserves in the Universitetskaya would also be a major boost. . It’s apparently the first of as many as 40 wells Rosneft plans to drill by 2018 to explore the potential of the Arctic Ocean for oil production. Gazprom, another Russian state-owned fossil fuel company, already has active wells in the Arctic Circle off Russia’s northern coast.

Oil and the prospect of a Chinese shale boom - Russia geopolitical risk? Check. Middle East geopolitical risk? Check. But commodity prices, and in particular oil prices, are doing nothing: From the charts it increasingly looks like somebody somewhere is enforcing an unofficial trading band, capped on the top-end by SPR releases or Opec production hikes, and propped up on the bottom-end by monetary policy and strategic supply cuts. But the weirdest thing of all is that the prospect of supply disruption isn’t doing much to prices at all. More than that, our old friend contango is threatening to make a significant come back in the Brent market.The culprit? Plentiful supply amid a surplus of barrels from West Africa and the Atlantic Basin despite all the escalating conflicts in Iraq, Libya and Ukraine.Though, as the analysts at JBC Energy observe, it’s probably significant that China — the key driver for oil markets over the last decade — has begun to implement an energy strategy which foresees greater use of natural gas.  While Beijing expects the new regime to bring positive results in terms of supply, the country’s shale gas ambitions have suffered a major blow. China has just slashed its national target for shale gas output to 30 bcm by 2020 from the previously estimated 60-100 bcm after early exploration efforts for unconventional fuel proved to be challenging. China is believed to hold the world’s largest technically recoverable shale resources, but complex geology, lack of expertise and infrastructure as well as high costs of production are making it difficult to replicate the success story of the US.

Chinese Power Consumption Crashes: Lowest Growth In 16 Months, Tumbles 10% In Shanghai, As Much As 22% Elsewhere -- When it comes to Chinese (or any other in these centrally-planned, fabricated days) economic data, there is GDP and then there is reality. And as the current premier of China himself has admitted, there is no more accurate indicator of real, not bullshit "growth", than China's monthly power consumption. It is here that another rather massive divergence from China's official data (which has the world believe China GDP rose 7.5% in Q2) has appeared. According to Economic Information Daily, power consumption in Shanghai and Jiangsu fell by more than 10% y/y in July, compared with double-digit growth a year ago, sources said. And it gets worse: other provinces, including Zhejiang, Anhui, Hubei, Hunan and Guizhou, reported a power consumption declines of up to 22 percentage pointsOne could almost say the Ukraine ministry of YouTube clips has been put in charge of China's GDP calculation.

The Wonders Of The Modern World: China's Amazing Tower Of Garbage - When it comes to ancient wonders of the world, there is the tower of Babel, and to a lesser extent, the leaning tower of Pisa. Sadly, modern wonders leave something to be desired: case in point, this 30 metres high garbage mountain at the crossroad of Huanghe avenue and Zhufeng street of Shijiazhuang, central China's Hebei province. The garbage mountain has been piled up as high as a 9-story Building in the last 30 years. The local village committee now is dealing with these wastes: best of luck. And to think all it took were several trillion in non-performing loans...

How China’s Trying to Boost Its Economy: ‘Qualitative Easing’ - To describe the nature of China’s current monetary policy and to differentiate from that of the U.S. Fed, one economist has coined a new term: “qualitative easing.” Professor Willem Buiter, chief economist at Citigroup, came up with the phrase to distinguish the Chinese central bank’s recent moves from the much better-known quantitative easing program by its U.S. counterpart. Quantitative easing, which was adopted by the Federal Reserve as a powerful weapon to combat the global financial crisis, refers to an unconventional monetary policy to stimulate the economy when standard monetary policy becomes ineffective, especially when short-term interest rates have reached or are close to zero. A central bank implements quantitative easing by buying specified amounts of financial assets from the market—chiefly U.S. government bonds in Fed’s case—to inject much-needed cash into an otherwise stressed financial system. According to Mr. Buiter, China’s “qualitative easing,” on the other hand, occurs when a central bank adds riskier assets to its balance sheet without increasing the latter’s size, Citigroup economists wrote in a research note. In China’s context, such so-called qualitative easing happens when the People’s Bank of China adds riskier assets to its balance sheet—such as by relending to the agriculture sector and small businesses and offering cheap loans for low-return infrastructure projects—while maintaining a normal pace of balance-sheet expansion.

China Loosens Monetary Conditions in Test of Credit Power - China loosened monetary conditions last quarter at the fastest pace in almost two years, a Bloomberg LP gauge showed, testing the waning effectiveness of credit in supporting economic growth. Bloomberg’s new China Monetary Conditions Index -- a weighted average of loan growth, real interest rates and China’s real effective exchange rate -- rose 6.71 points to 82.81 in the second quarter from the previous three months. That’s the biggest jump since the July-September period of 2012, with May and June's numbers the first back-to-back readings above 80 since January 2012. New yuan loans in July will be a record high for that month, according to a Bloomberg News survey of analysts before data due by Aug. 15, suggesting officials are keeping the credit spigot open even as debt risks mount. While consumer inflation below the government’s goal allows room for more easing, economic data will determine how far policy makers go. “The central bank worries more about inflation and financial risks, but the government is worried more about growth and employment,” . “Growth will rebound in the second half, so that will give the central bank some support in not expanding credit and liquidity further.”

Loose policies from Beijing help pump the credit bubble - If you read most media reports on People's Bank of China's latest monetary policy direction, it would seem that the central bank has only been focused on some targeted stimulus initiatives. Want China Times: - China's central bank said on Wednesday that it will continue to implement a targeted approach in monetary policy in the second half of 2014 and shore up weak links in the economy. More financial support will be provided to rural areas and small businesses to reduce their financing costs, according to a statement on the website of the People's Bank of China. But are the central bank's initiatives truly as limited in scope as these stories would make us believe? Recently the PBoC has been experimenting with some unconventional policy tools that make it rather difficult to assess how loose the overall policy has been.Xinhua: - The People's Bank of China has developed two or three monetary tools to guide short- and medium-term interest rates via an effective monetary policy transmission mechanism, said PBOC Governor Zhou Xiaochuan. Pledged supplementary lending [PSL], a lending instrument backed by collateral, is a new monetary tool to guide medium-term interest rates.... "The PBOC is becoming increasingly reliant on innovative monetary tools. It's trying not to adjust interest rates or the reserve requirement ratio, because these aren't good measures to control the direction of capital flows. So the central bank is putting greater emphasis on targeted adjustment by using tools like re-lending and PSL," Zhu said.

China Credit Growth Declines Sharply - China's credit growth dropped sharply in July after surging a month earlier, reflecting Beijing's concern over a rapid buildup of debt in the world's second-largest economy. The growth of both bank loans and total aggregate credit hit their lowest single-month levels in over four years, although the decline in credit seemed to reflect moves by the central bank to rein in June's steep credit rise. Some economists suggested that it also reflected lower appetite for risk among banks.  In an unusual move, China's central bank released a statement following the data's release. July's slower credit growth is still within "a reasonable range," it said, adding that it would maintain steady credit growth in the coming months. Stock markets in China and Hong Kong fell on the surprisingly weak data.  The sharp decline in total credit was due to slower growth in bank loans as well as a decline in nonbank financing activities such as trust financing as Beijing cracks down on the country's ballooning shadow banking activities.  "If such slow credit growth continues over the next months, it will definitely affect the economy," However, the credit growth in June and July combined didn't fall far from historical levels, suggesting that July's weak level may represent a correction from the previous month's strong credit growth.

New Yuan Loans and Shadow Banking Collapse in China; Record Bank Deposit Slump - A major alarm bell just rang in China with the release of July credit figures according Macro Business Australia. Chinese Credit Just Collapsed and shadow banking with it. Here are a couple of charts. Yuan Loans New yuan loans were 385.2 bn versus 780.0 bn expected and and prior was 1080. Shadow Banking Aggregate social financing was 273 bn yuan versus 1500.0 bn expected and prior was 1970 bn implying that shadow banking credit contracted 112 bn in the month. Bloomberg reports China Record Bank-Deposit Slump in July Erodes Lending Capacity. China’s local-currency bank deposits fell by a record in July, eroding lenders’ capacity to extend new credit just as the world’s second-biggest economy shows signs of faltering. Yuan-denominated deposits fell by 1.98 trillion yuan ($321 billion) to 111.62 trillion yuan from the previous month, the central bank said today. That’s the biggest monthly decline in figures dating back to 2000.  A plunge in China’s broadest measure of new credit last month and new yuan lending that was less than half of the median analyst estimate underscored risks of a deeper economic slowdown as a property slump bites.

British Banks Most Exposed to China -  New disclosures from two of Asia’s largest lenders provide a glimpse of global banks’ rising exposure to China’s fast-growing foreign debt. HSBC Holdings said in its latest financial report that outstanding loans in China grew 12% in the year ended June 30, to $36.2 billion. Standard Chartered said in its interim statement for the same period that its overall exposure to Chinese customers rose 30% to $58.3 billion.  Both disclosures offer insight into a recent surge in foreign lending to China as tighter lending conditions there and low global interest rates push more Chinese companies to borrow offshore. According to the latest data from the Bank for International Settlements, outstanding foreign loans to China rose 38% on year in the first quarter of 2014 to a record $795.7 billion, a fourfold increase since 2010. Of the 25 countries whose banks report lending data to BIS, the biggest surge in new loans in the year ended March 31 — $50 billion — came from banks based in the United Kingdom, a group that includes HSBC and Standard Chartered, both British-domiciled banks with most of their assets in Asia. French banks were the second-largest source of new credit, extending $20.6 billion in new loans to China. Japanese banks were third, raising their exposure by $15.8 billion over the same period. The rapid growth in credit to China left British banks as China’s largest foreign lenders, with a record $221.2 billion in outstanding loans to China. U.S. banks were second with a record $86.5 billion and Japanese banks third, with a record $77.4 billion.

China’s shocking data has a message -- The bizarre under reaction to China’s terrible data output yesterday rolls on, making no appearance in the Australian media today and, more to the point, triggering a global after party! Just in case you missed it, here are the charts: I know all of the arguments. A sudden stop in credit in China is combatable because the government owns the banks. It’s true. But the government does not own the shadow banking system quite so much. And that is where the real problem is: Let’s be clear, such a shadow bank contraction is rare. One of this magnitude is unprecedented. In the midst of falling house prices and an increasingly intense shakeout among developers, it is alarming. Yet UBS sees it as a rogue number, via FTAlphaville: China’s July credit data came in sharply weaker than expected. July new RMB lending declined to 385 billion from 1.1 trillion in June. More importantly, new total social financing (TSF) was only RMB 273 billion, led by the drop in new bank lending and a 400 billion shrinkage of bank bill acceptances. As a result, credit growth slowed visibly and our credit impulse plummeted (Figure 1). Given recent signs of further policy easing and persistently low interbank rates, the market has been expecting additional monetary and credit support. Today’s credit data are therefore a negative surprise. However, we do not believe these data reflect a credit tightening by the PBC – as evidenced by recent policy intentions expressed by the Politburo and the central bank, as well as ample interbank liquidity and strong credit growth in June which surprised on the upside.

China's Plan on Full Yuan Convertibility in 2015 --  It's kind of hard to relinquish on Stalinesque, iron-fisted control once you get used to it: Around 2011, PRC official sources made some noises giving tacit support to the idea that their currency the yuan (RMB) would be fully convertible by 2015. Through fits and starts the yuan has gradually appreciated since then, but now the People's Bank of China (PBOC) has come to an important fork in the road of monetary development: to become fully convertible or not? That is the question that needs to be resolved before 2015 rolls around.Just like an anxious bride-to-be antsy about leaving the familiar past for an uncertain future, the PBOC is showing second thoughts about leaving behind a monetary system that has proven relatively stable during China's transition to becoming the world's second-largest economy: China is quietly pushing back its loose timetable to make the yuan freely convertible, policy insiders say, as authorities fear removing capital controls too soon could unleash damaging speculative flows that will make it harder to reshape the economy. There has never been a hard target date for a freely traded yuan, although the central bank had outlined a goal of making it 'basically convertible' by 2015. That rhetoric has been toned down recently, and now analysts are looking to 2020, a deadline implied by the government's reform agenda set out last November

Occupy Central protest 'would need 20,000 participants for effective blockade' | South China Morning Post: Organisers of the Occupy Central protest will need either to mobilise more than 20,000 protesters or strategically place participants at key junctions if they are to succeed in blockading the city's financial district, the South China Morning Post has found. Occupy Central organisers have previously said their aim is to rally 10,000 people and use non-violent means in an effort to paralyse the district to pressure authorities here and in Beijing over political reform. But a Post study found it would take more than 11,000 people just to occupy Chater Road. The number is based on protesters locking arms, as they did in a July 2 sit-in protest on Chater Road. That protest required two adults for each square metre

Currency Preference: Balance of Yuan-denominated Deposits Hits New High in South Korea: The balance of dollar-denominated deposits is at a record low due to a rising preference for the yuan. According to the Bank of Korea, the dollar-denominated deposits in resident accounts totaled US$40.27 billion, 64.5 percent of all foreign currency deposits, as of the end of July. The percentage was as high as 83.1 percent a year ago, 74.1 percent late last year, 73.7 percent in March this year, and 69.0 percent in June. Meanwhile, the ratio of yuan-denominated deposits has skyrocketed from 0.8 percent to 25.9 percent between July 2013 and July 2014. The amount increased 56-fold from US$290 million to US$16.19 billion during the same period. US$4.22 billion was added to the total in July 2014 alone to reach new highs in amount and ratio alike. The rapid surge can be attributed to some Chinese banks’ upward adjustment of the deposit interest rate to 3.8 percent. Korean banks provide an annual interest rate of 2.68 percent for won-denominated deposits with a maturity of one year. With the interest rate gap widening, both institutional investors and residents in Korea increased their deposits in Chinese banks to a large extent. As of the end of last month, the total foreign currency deposit increased by US$3.5 billion month on month to US$62.45 billion.

China Damps Asia’s Export Rebound - - Asia’s exports to the U.S. and Europe are finally picking up. But the region’s increasing dependence on China, where growth is moderating, is muting any recovery in exports. While combined exports from seven of the region’s top export economies — China, Japan, South Korea, Hong Kong, Singapore, Taiwan and Thailand – grew 12% to Europe in the second quarter on year and 6% to the U.S., their overall exports rose just 3.2%. South Korea’s exports to the U.S. rose 13% in the second quarter and climbed 17% to Europe, but fell 3% to China, the country’s largest export market. Korea’s overall exports climbed just 3%. The divergence underscores how, in the past two decades, China has not only taken over as the world’s factory for finished products to the West, but emerged as a major customer in its own right. As China took over the manufacture of finished products following its entry into the World Trade Organization in 2001, Asia’s smaller exporters gradually slipped into China’s supply chain, feeding it commodities, components and machinery. Asia thus remained vulnerable to rising and falling demand in the West, since most of its exports to China were only passing through. The hope was that China’s growing economy would gradually absorb more Asian exports and help the region’s economies “decouple” from the West. Now that appears to be happening. China is consuming more of what it imports at home.

China’s Role in Australia’s Rate Quandary - Gloomy job numbers from Australia last week sparked speculation that the central bank would have to cut interest rates. But a housing boom may keep it from doing anything. And China may be to blame. Statistics released last Thursday showed that Australia’s unemployment rate climbed in July to 6.4%, its highest in 12 years. The worse-than-expected number led to speculation that the Reserve Bank of Australia might need to push its policy rate, now at a record low 2.5%, even lower. China’s slowing economic growth has cooled demand for Australian minerals, with Australian exports to China expanding 9% on year in the second quarter of 2014, from nearly 12% in the first three months. That has hastened an end to Australia’s mining-investment boom and prompted miners to scale back or scratch plans to expand or build new mines. That means fewer jobs.On the other hand, however, there’s China’s role in housing. Housing is so hot that, until last week’s employment numbers, many economists were convinced the RBA would have to raise rates as a booming housing market revived growth and pushed up inflation. Mortgage rates are at record lows, according to HSBC, and housing loan approvals at record highs. Inflation, now at 3%, has been running above the RBA’s cash rate since the beginning of the year. The housing boom is being driven at least in part by demand from China. In its most recent annual report, Australia’s Foreign Investment Review Board said Chinese investors had bought A$5.9 billion ($5.48 billion) in real estate, making China the largest source of foreign property investment.

Japan GDP set to fall sharply; may increase stimulus expectations (Reuters) - Japan's economy likely shrank sharply in the second quarter, which would be bad news for Prime Minister Shinzo Abe's growth policies, but it could raise market expectations of further stimulus. Data due at 8:50 a.m. Wednesday Japan time (2350 GMT on Tuesday) will show gross domestic product contracted at a 7.1 percent annual rate from the previous three months as a sales-tax hike battered consumption, economists forecast in a Reuters poll. The deepest slide since the global financial crisis and the first in nearly two years could call into question Abe's programme of ending 15 years of deflation and tepid growth with massive monetary easing, hefty government spending and structural reforms. "It's going to be hard for the economy to regain momentum, given weak exports and a decline in real income, which weighs on private consumption," said Takeshi Minami, chief economist at the Norinchukin Research Institute. true "The economy will rebound in July-September but growth is likely to stay modest in October-December." Markets are poised for a downside surprise, and investors in the near term could be cheered by a bad result if they think it puts pressure on the Bank of Japan to increase its asset purchases, or on Abe not to raise the sales tax again, market participants say. "If GDP undershoots, the BOJ will likely be forced to change its assessment of consumption,"

Japan's economy shrinks after sales tax rise: Japan's economy contracted by an annualised 6.8% in the second quarter of the year, the biggest fall since 2011 when it was devastated by an earthquake and tsunami. The official gross domestic product (GDP) figure though was smaller than the 7.1% drop economists expected. The shrinkage was largely in response to a government sales tax, which held back consumer spending. Japan's sales tax rose from 5% to 8% in April. On a quarterly basis, the economy contracted 1.7% in the second quarter after a 1.5% rise in the first three months. Private consumption, which makes up 60% of economic activity, was 5% down on the previous quarter. The economy grew at an annualised rate of 6.1% in the first quarter of this year. Recent retail sales and factory output figures both indicated a negative impact from the sales tax rise. Marcel Thieliant, Japan economist at Capital Economics, said a rebound was expected in the coming months: "The collapse in economic activity last quarter was largely a result of the higher sales tax, and we still believe that the recovery will resume in the second half of the year. "Consumers had brought forward spending ahead of April's increase in the consumption tax."

Japan GDP Plunges 6.8%, Consumption Down 19.2%, Private Investment Down 9.7% - In the wake of an inane sales tax hike Japan’s GDP Shrinks 6.8%, Most Since 2011 - Gross domestic product shrank an annualized 6.8 percent in the three months through June, the Cabinet Office said. That was less than the median estimate of 37 economists surveyed by Bloomberg News for a 7 percent drop. Unadjusted for price changes, GDP declined 0.4 percent. “The probability is high that the July-September quarter will see a rebound,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo. “But the fall in real incomes and weakness in production could weigh on the recovery.”The contraction followed a surge in growth in the three months through March when consumers and companies rushed to make purchases before the tax rose. Abe is striving to sustain a recovery after initial success in fighting off two decades of economic stagnation.Household consumption plummeted at an annualized pace of 19.2 percent from the previous quarter, while private investment sank 9.7 percent, highlighting the damage to demand by the 3 percentage point increase in the levy.The higher sales tax hit consumers who’ve seen little growth in incomes and rising costs of living as the Bank of Japan stokes inflation with unprecedented easing. Consumer prices rose 3.6 percent in June from a year earlier -- nine times the increase in total cash earnings -- with food prices climbing 5.1 percent. Imports tumbled an annualized 20.5 percent while exports fell 1.8 percent. That’s sapping the manufacturing sector and shows the yen’s 16 percent drop against the dollar over Abe’s term has yet to drive outbound shipments.

Japan suffers biggest economic slump since 2011 quake as tax hike bites (Reuters) - A sales tax hike last quarter drove Japan's economy into its biggest contraction since the March 2011 earthquake and tsunami, Cabinet Office data showed on Wednesday, keeping policymakers under pressure to expand fiscal and monetary stimulus should recovery falter again. The April 1 sales tax hike took a heavy toll on household spending, shrinking the world's third-largest economy by an annualised 6.8 percent from April through June, and wiping out growth of 6.1 percent seen in January-March as consumers went on a shopping spree to avoid the higher tax. The median market forecast was for a 7.1 percent drop. Seeing the slump as temporary, however, the Bank of Japan remains publicly convinced the economy is on course for a moderate recovery and has no plans to expand stimulus any time soon. The soft data, though, could compel the central bank into trimming its rosy fiscal year economic projections when it reviews them in October. If third quarter growth proves weak the BOJ may also come under pressure to add stimulus - particularly before Prime Minister Shinzo Abe decides later this year whether to implement a second sales tax hike from 8 to 10 percent in October next year, analysts say.

Slump in Japanese GDP stirs talk of more stimulus - --A sharp second-quarter slowdown in Japan raised discussion among economists about further stimulus, but the economy minister said he didn't think extra steps were needed now. Gross domestic product shrank 6.8% on an annualized basis in the April-June quarter, after rising 6.1% in the first quarter of the year. It was the biggest fall since the March 2011 earthquake and tsunami. The main reason was a sharp pullback by consumers after the national sales tax rose on April 1 to 8% from 5%. The growth number, released Wednesday, was generally in line with expectations, and many economists kept up their view that the fall would be temporary. "Consumption in May and June rose compared to April, and I think that the possibility of a rebound is high," said Tomo Kinoshita, chief economist at Nomura Securities. "There's no reason to just look at this figure and be pessimistic." Investors also took the news in stride, with the Nikkei Stock Average rising 52.32 points, or 0.35%, to 15213.63. Yet aspects of the data, including a rise in inventories, led some economists to talk about additional public spending to boost the economy. "The latest data will likely have an impact on policy debate, adding a lot of fuel to calls for additional economic stimulus measures,"

Modi Says India Blocked Trade Deal to Serve the Poor -- India’s big veto at the World Trade Organization last month keeps reverberating. Prime Minister Narendra Modi said over the weekend that his government blocked ratification of a WTO pact because India’s demands for more leeway to stockpile food are essential for safeguarding the country’s farmers. “There are efforts to isolate India over WTO,” Mr. Modi told a meeting of his Bharatiya Janata Party’s national council in New Delhi, according to his official Twitter account. “But tell me: Do we choose feeding our poor or getting good press world-wide?” India and a few other countries refused to sign off on the WTO deal, which is aimed at streamlining customs procedures world-wide and which the WTO’s member governments approved unanimously at a meeting in Bali in December, until the Geneva-based body makes faster progress on changing rules that limit farm subsidies. Talks went down to the wire but ultimately fell apart on the July 31 deadline for ratification. WTO negotiators meet again in September. Mr. Modi cast the government’s veto as a rebuke to the stance of his Congress-party predecessors. “Those who asked for votes in the name of food security deviated from their agenda,” Mr. Modi said, according to his official website. “We chose to serve the poor. And the WTO agreement deviates from this purpose.”

Indian Central Banker Urges Cash for Poor to Dilute Power of Oligarchs - Indian central bank Governor Raghuram Rajan urged the government to directly transfer cash to the poor instead of offering public services, saying the money would liberate millions from corrupt middlemen and politicians. Cash would empower the poor to choose where to buy goods, providing an alternative to government-run monopolies and creating competition in the private sector, Rajan said in a speech in Mumbai yesterday. Prime Minister Narendra Modi’s plan to bring bank accounts to the poor -- set to be unveiled this week -- would facilitate the transfers, Rajan said. “One of the greatest dangers to the growth of developing countries is the middle income trap, where crony capitalism creates oligarchies that slow down growth,” Rajan said. “To avoid this trap, and to strengthen the independent democracy our leaders won for us 67 years ago, we have to improve public services, especially those targeted at the poor.” Overhauling subsidies that have risen fivefold over the past decade would help Modi narrow the budget deficit and aid Rajan’s fight against Asia’s second-fastest inflation. Only about half of public spending on basic services reaches the people because of inefficiencies in governance and execution, McKinsey & Co. said in a report earlier this year. India last year allocated 1.25 trillion rupees ($20.4 billion) for its food distribution program, the world’s largest. Even so, graft, wastage and theft have prevented record harvests from reaching the hungriest people.

Unlike China: India's Civil Approach to Territorial Disputes - This Southeast Asian is rather tired of intrusions by would-be imperialists into our waters: China and the United States are similarly bullying presences, with the former coming more and more into the focus as the latter embarks on the road to nowhere fast. In the study of international relations, there is the so-called "power transition theory" which is frequently invoked to explain how Southeast Asia is being caught in the crossfire between these rival powers:  One by-product of differential growth is the high potential for conflict when a challenger [China] and a preeminent or dominant nation [the United States] reaches the stage of relative equivalence of power, and specifically when the challenger is dissatisfied with the status quo. Understanding the interaction of the structural and dynamic components of power transition theory provides a probabilistic tool by which to measure these changes, and to forecast likely events in future rounds of change. The trouble with China with regard to the so-called South China Sea is that, having asserted time and again to its citizens that it is an inseparable part of China, moves to moderate its position and accommodate its smaller neighbors the Philippines and Vietnam will not likely happen. It cannot lose face. Nevermind that China does not respect international law--the law of the sea--but they've learned from the United States that might makes right since the US isn't even a signatory to this law. Imagine, however, an alternate parallel universe where China did not adapt inflexibly totalitarian positions on territorial questions. It may, in this case, be more like India. Recently, India coming into compliance with a ruling against it at the International Tribunal on the Law of the Sea (ITLOS) meant it giving in to Bangladesh--hardly a scary threat to it:

It's The Population, Stupid - The Times of India recently reported, not without a certain self-congratulatory air, that: "The latest wealth index by New World Wealth that looks at multimillionaires — an individual with net assets of at least $10 million — has ranked India eighth in the global rich list, below countries such as the US, China, Germany and the UK but above Singapore and Canada."   This has certainly sent Indian cyberspace into a little tizzy. A common celebratory headline: "India has more multimillionaires than Australia, Russia and France!” And given that the largest number of the world’s poor also live in India, a common admonitory reaction is: "See? Told you so! India is just a corrupt society."   This isn't the first time we've been gobsmacked by the sort of numbers India can generate. Recently, farmer suicides did the rounds, with the already large numbers (around 300,000 since 1995) helped along by the Indian numbering system: read here for why some participants in a recent BBC debate had it wrong by a factor of 10 . All quite understandable: India is so large that nobody has a real sense of the numbers anyway. Which is why the following handy little motto should always bye clutched close to heart and brain: When confronted by a Large Indian Statistic, consider dividing by the population.  We learn from the same source (New World Wealth) that the world has 495,000 multimillionaires, and India has 14,800 of them. Divide: India has just 3% of the world's multimillionaires. It has, however, 17% of the world's people. Suddenly India is looking like it does not have its “fair share” of multimillionaires.

The Global Economy’s Groundhog Day - In the movie “Groundhog Day,” a television weatherman, played by Bill Murray, awakes every morning at 6:00 to relive the same day. A similar sense of déjà vu has pervaded economic forecasting since the global economic crisis began a half-decade ago. Yet policymakers remain convinced that the economic-growth model that prevailed during the pre-crisis years is still their best guide, at least in the near future.  Consider the mid-year update of the International Monetary Fund’s World Economic Outlook, which has told the same story every year since 2011: “Oops! The world economy did not perform as well as we expected.” The reports go on to blame unanticipated factors – such as the Tōhoku earthquake and tsunami in Japan, uncertainty about America’s exit from expansionary monetary policy, a “one-time” re-pricing of risk, and severe weather in the United States – for the inaccuracies. Emphasizing the temporary nature of these factors, the reports insist that, though world GDP growth amounted to roughly 3% during the first half of the year, it will pick up in the second half. Driven by this new momentum, growth will finally reach the long-elusive 4% rate next year. When it does not, the IMF publishes another rendition of the same claims.  This serial misjudgment highlights the need to think differently. Perhaps the focus on the disruptions caused by the global financial crisis is obscuring a natural shift in developed economies to a lower gear following years of pumped-up growth. Moreover, though emerging economies are also experiencing acute growth slowdowns, their share of the global economic pie will continue to grow. In short, tougher economic competition, slower growth, and low inflation may be here to stay.

Argentina's blue dollar market hits 60% premium to official rate - In the face of inflation running at 25-30% - one of the highest rates in the world - Argentina unexpectedly decided to cut interest rates yesterday. It is difficult to say how the government justifies this madness, but here we are. Combined with the nation's recent default and no settlement on the horizon, the rate decision sent the nation's currency to record lows. WSJ: - The decision to cut rates will likely be seen as a sign that Economy Minister Axel Kicillof's plans to stimulate the economy are prevailing over central bank Governor Juan Carlos Fabrega's effort to curb inflation, analysts said. ... Argentina's peso weakened to 13.15 to the dollar on the black market Wednesday, breaking the previous record of 13.10 in January when the government devalued the peso 20%, according to newspaper El Cronista, which tracks black-market exchange rates. The peso was stable at 8.2730 on the regulated exchange market. .. The dollar has been especially coveted for the last three years, given rampant government spending that has fueled one of the highest rates of inflation in the world. Currency controls were imposed almost three years ago to prevent foreigners and locals from depleting the central bank's reserves by changing their pesos into dollars.  The black market peso continued to slide this afternoon, with quotes hitting 13.3 pesos per one dollar. The so-called "blue dollar" is the unofficial market for US dollars in Argentina (there is also the "blue euro" market).

Argentina dubs holdouts an 'international mafia' as deal hopes fade (Reuters) - Argentina branded the hedge funds suing the country over their debt holdings an "international mafia" on Thursday after talks to bring a swift end to its latest default collapsed and sent Argentine bond prices tumbling. A group of international banks had appeared to be nearing a deal to buy a chunk of the debt held by holdout creditors whose legal battle against Argentina tipped Latin America's No. 3 economy into default on July 31. But holdout fund Aurelius Capital Ltd said on Wednesday there was "no realistic prospect" of a private solution, dealing a heft blow to market optimism Argentina's second default in little over a decade could be swiftly cured. true Argentine bonds extended losses in local over-the-counter trading. "Today we are in the hands of an international financial power comprised of small, voracious interests that form a real international mafia," Argentine Cabinet Chief Jorge Capitanich, told reporters.

Why has the Bank of Canada "done nothing" for 4 years? - Nick Rowe - On the face of it, the Bank of Canada has done absolutely nothing for nearly 4 years now, and most people think it won't do anything until sometime next year. The target of the overnight rate has stayed at 1% for a very long time. This is very puzzling. I do not understand it. But maybe the Bank of Canada has not been doing nothing for the last 4 years. Maybe it has been actively managing monetary policy by varying the length of its commitment to do nothing. It is very puzzling when we compare it to historical experience, during the modern era of targeting 2% inflation. The Bank of Canada usually adjusts the overnight rate much more frequently than once every 4 years.It is very puzzling when we compare it to what theory says the Bank of Canada should be doing. Theory says the Bank of Canada needs to adjust the overnight rate in response to the information on inflation, unemployment, and lots of other things, to keep inflation at 2%.Maybe it's just a sheer fluke. If nothing had happened for 4 years, or if the things that did happen all just cancelled out by sheer chance, then the Bank of Canada wouldn't have needed to change its target for the overnight rate, and so didn't change it. We can't rule that out. But it would be a fluke. Maybe the Bank of Canada just got lazy. It should have been doing something, but there was some special reason why it didn't like change. And so the economy wandered away from the path it should have been following and would have been following if the Bank of Canada had been doing what it should have been doing.

The Neoliberal Mind at Work: Brad DeLong’s Muddled Defense of NAFTA - Brad DeLong recently criticized an op-ed I wrote about the negative impact of the twenty-year-old North American Free Trade Agreement on American workers. The stakes here are higher and more immediate than the rehash of an old ideological dispute. This is not so much about the past as about the future. Corporate lobbyists are pushing President Obama and congressional Republicans to pass the NAFTA-like eleven-country Trans-Pacific Partnership” (TPP)—right after the November election.  Since it took effect in 1994, NAFTA has been the template for the subsequent series of trade agreements that have accelerated the globalization of the U.S. economy. But its failure to deliver as promised has soured the public and many in Congress on so-called “free trade.” Getting lawmakers to swallow the TPP will be easier if its promoters can somehow make lemonade out of the NAFTA lemon. To start with, DeLong fails to tell the reader that he is evaluating a law he helped to produce. He worked on NAFTA when he was a deputy assistant secretary in Bill Clinton’s Treasury Department. There are two parts to DeLong’s critique. One is his attempt to prove NAFTA was a success. The other is a series of gratuitous remarks about me and what he calls the “American left” that he sprinkles from his lofty pinnacle of ignorance about both.

U.S. can’t deliver on FATCA promises: The U.S. government’s assertion of authority over the global financial sector has redirected tens of billions of dollars away from productive pursuits and towards compliance efforts. So complex are the demands imposed by FATCA that the law, as originally passed, was almost assured to fail. There was simply little chance that thousands of individual financial institutions would be able to both comply with FATCA’s demands and continue to operate within the legal requirements of their host nations, particularly when it comes to protection of privacy rights. To circumvent the issue of conflicting local laws, the U.S. Treasury Department conjured for itself powers and responsibilities not part of the actual legislation. Namely, they developed intergovernmental agreements (IGAs) to allow foreign governments to first collect information on American taxpayers before sending it to the IRS. Because institutions are sharing the information with their own governments rather than directly with U.S. authorities, and those governments are updating their laws accordingly, the IGAs allow for compliance with local privacy laws as well as FATCA. As would be imagined, not every government has been thrilled by the prospect of upending their laws to placate U.S. fiscal imperialism. To entice skeptical foreign governments to sign the IGAs – without which the law would fail – Treasury promised to share similar information on any of their citizens investing in U.S. markets. Now, however, it’s becoming increasingly clear such reciprocation may never occur, throwing FATCA’s viability back into question.

800 Finnish Dairy Workers Furloughed Due to Russia Sanctions, Others Fired; Brussels to Buy Fruit with Public Money  -- It's a "small price to pay" for 800 Finnish Dairy Workers Furloughed Due to Russia Sanctions"Valio, the largest Finish producer of dairy products, will involuntarily furlough part of its workforce from its factories that produce exports to Russia.  This was stated in a company press release.Please consider the behavior of Spanish peach and nectarine growers, completely unwilling to pay a "small price" for the sake of international peace.No doubt you you will be totally disgusted with the extremely unpatriotic behavior of Spanish farmers who demanded and received an offer from Brussels to Buy Fruit with Public Money After the Russian Embargo. Spanish farmers, especially peach and nectarine growers have reason for optimism. After last Thursday's announcement of a Russian embargo of fresh produce from the EU, USA, Canada and Australia Union, Brussels has announced that apply exceptional measures for these sectors. In a statement, the European Commission announced that it will "introduce measures to support sectors of peach and nectarine EU, in particular by increasing the volumes of fruit eligible for withdrawals and free distribution."

Finland President Heads to Russia to Meet Putin; Phone Rings in Switzerland Over Cheese -- In a welcome development (except for warmongers and sanction lovers) Kremlin news reports President of Finland to Visit Russia on a Working VisitThe Heads of State will discuss the state and prospects of bilateral cooperation between Russia and Finland. Have in mind to pay attention and international issues. Among the issues - promoting peaceful settlement of acute political crisis in Ukraine deal with the humanitarian disaster. Apparently Finland has decided its "small price" is too large. This is a step in the right direction. Hopefully all the sanctions collapse in a month or two with president Obama and senator McCain caught in the "fool's spotlight". In the sanctions winners and losers category, a clear winner has emerged. The Sydney Morning Herald reports Cheese-loving Russians turn to Emmental as Swiss dodge embargo At Intercheese AG's headquarters in Switzerland, the phone barely stops ringing these days. A Russian voice is usually at the other end. Since August 7, when Vladimir Putin's government banned many food imports from nations supporting sanctions due to Russia's role in the Ukraine crisis, at least 14 Russian importers have contacted Intercheese. The reason for the surge in business: Switzerland hasn't joined the European Union, the US, Canada, Australia and Norway in penalizing Russia.

China to start direct sales of fruit and vegetables to Russia — China will start selling fruit and vegetables directly to Russia, and Baorong company plans to set up a special logistics center in Dongning on the border with Russia’s Far East to do it. The 70,000 square meter wholesale market and 30,000 square meter warehouse, fitted out with refrigerators and other equipment, will be in a special cross-border customs zone, ITAR-TASS cites the head of the Association of Applied Economy of the Heilongjiang Province Zhang Chunjiao. “Direct export of fruit and vegetables to Russia will be organized from it," she said. It will cost $9.7 million to construct. Customs clearance times will be reduced, and there will be no need to double-check the cargo because of video surveillance in the warehouse. A Chinese company Dili, also intends to create a similar cross-border trade zone by the end of 2014, Zhang Chunjiao added. The announcement comes after Russia introduced a 1-year ban on imports of some agricultural products from the EU, US, Australia, Canada, Australia and Norway last week. If it lasts, it could cost European Union members $16 billion, Vygaudas Usackas, the EU ambassador to Russia, estimated. On Thursday the EU is holding a meeting to assess the possible effect of Russia’s sanctions on its farmers. Member states have already complained their economies would be hit hard, with Germany and Poland losing the most trade with Russia, and the Baltic states – Lithuania, Latvia and Estonia – seeing their shares of GDP falling even sharper.

"US Sanctions On Russia May Sink The Dollar," Ron Paul Fears "Grave Mistake" - The US government's decision to apply more sanctions on Russia is a grave mistake and will only escalate an already tense situation, ultimately harming the US economy itself. While the effect of sanctions on the dollar may not be appreciated in the short term, in the long run these sanctions are just another step toward the dollar's eventual demise as the world's reserve currency. Not only is the US sanctioning Russian banks and companies, but it also is trying to strong-arm European banks into enacting harsh sanctions against Russia as well. Given the amount of business that European banks do with Russia, European sanctions could hurt Europe at least as much as Russia. At the same time the US expects cooperation from European banks, it is also prosecuting those same banks and fining them billions of dollars for violating existing US sanctions. It is not difficult to imagine that European banks will increasingly become fed up with having to act as the US government's unpaid policemen, while having to pay billions of dollars in fines every time they engage in business that Washington doesn't like.

Russia Won't Pay for French Mistral Warships Until Second Delivered - Moscow will not deliver the final payment for two French-built Mistral-class warships until the second vessel is delivered to the Russian navy, the head of Russia's state arms import and export agency told ITAR-Tass. "The final payment on the contract will be made in November 2015, after the delivery of the second ship,"   French President Francois Hollande said in July that the decision on whether to deliver the second Mistral would "depend on Russia's attitude," alluding to Moscow's widely censured policy in eastern Ukraine, Reuters reported. Washington and several of its NATO allies continue to pressure France into canceling its delivery of the first of two Mistral-class warships later this year, which the alliance fears would further enable Russian aggression, but Paris is wary of reneging on the high-profile 1.2 billion euro ($1.6 billion) contract. Russia has repeatedly insisted that France honor its commitments while downplaying speculation that Paris is warming up to the idea of canceling delivery of the second Mistral.

Russia launches China UnionPay credit card — Forget Visa and MasterCard. After the two American credit system payment companies froze accounts without notice in March, Russia has been looking for an alternative in China UnionPay. China UnionPay plans to have 2 million cards in Russia in the next three years. Instead of seeing the small Visa and MasterCard logo on credits cards, ATMs, and retail outlets, Russians will start to see the three words “China. Union. Pay.” China UnionPay first emerged in 2002 on the domestic Chinese market as an alternative to Visa and MasterCard, but quickly expanded internationally, and now is already number one in terms of quantity of cards in the world. Russia’s biggest banks - VTB- Gazprombank, Promsvyazbank, Alfa Bank, MTS, and Rosbank- are already making technical preparations, running tests on Union Bank cards.

Up to 1Mln Ukrainian Refugees May Flee to Russia During Donetsk, Luhansk Assault > Russia may see up to one million Ukrainian refugees at once if Ukrainian special forces launch a full-scale assault on Donetsk and Luhansk, Russian Civil Chamber member Georgy Fyodorov said Monday. "The biggest problem will arise, in my view, if a full-scale assault on Donetsk and Luhansk takes place. In the course of several days, we could get from 500,000 to one million people instantaneously crossing our border," . Fyodorov said Russia may already be hosting up to one million forced immigrants from Ukraine. According to UN data, 730,000 people have left Ukraine for Russia since the beginning of the conflict between independence supporters and Kiev’s Special Forces, but some may not have been registered, yet, Fyodorov said. Russia’s Federal Migration Service said earlier in the day that it plans to close all temporary shelters for Ukrainian refugees by September 1 and arrange to transport them to the country’s regions.

Meanwhile, in Europe - Paul Krugman - Japanification is well underway. Not quite deflation yet, but headline at 0.4 percent, core at 0.8 percent. In the U.S. the Fed is, rightly in my view, focused on slow wage growth as an indication of slack; in the euro area annual growth in labor costs is sliding:  The good news is that the ECB does, I think, understand the problem. The bad news is that it has limited options. Europe needs something like Abenomics as badly as Japan does; but the political and institutional setting is not favorable.

German Yields Falling Toward 1% Shows Japan-Style Risks Building - Germany is on the brink of joining an exclusive club of nations able to borrow for a decade at less than 1 percent. For strategists predicting such a scenario, that’s because the European Central Bank isn’t doing enough to prevent a Japanese-style deflationary spiral from taking hold. Investors are snapping up Europe’s benchmark securities as they judge the ECB’s stimulus measures insufficient to boost an inflation rate that’s less than half its target. Even after the central bank cut its refinancing rate to a record, introduced a negative deposit rate and announced targeted lending in June, market gauges of inflation expectations are falling. A report today showed German investor confidence declined this month to the lowest level since December 2012. “There’s general disbelief that the ECB’s policies can reflate the euro-zone economy and achieve sustainable growth momentum,” "The road to a sub-1 percent 10-year bund yield is wide open.”

Crisis stalks Europe again as deflation deepens, Germany stalls - Portugal has crashed into deep deflation and Italy’s inflation rate has fallen to zero as the eurozone flirts with recession, automatically pushing these countries further towards a debt compound spiral. The slide comes amid signs of a deepening slowdown in the eurozone core, with even Germany flirting with possible recession. Germany’s ZEW index of investor confidence plunged from 27.1 to 8.6 in July, the sharpest fall since June 2012, during the European sovereign debt crisis. “The European Central Bank has to act now,” said Andrew Roberts, credit chief at RBS. Markets were stunned by the sudden fall in Portugal’s HICP inflation to -0.7 in July, from -0.2pc the month before. Spain’s provisional estimate is for a fall of 0.3pc. The risk is that this cause inflation expectations to become unhinged and extremely difficult to reverse. “The latest inflation figures call for the ultimate bazooka from the ECB. We’re seeing the Japanification of Europe,” . “Deflation pushes up the debt ratios in the southern countries and makes their task even more insurmountable.” The ECB is waiting to see whether its new four-year loans for banks (TLTROs) will stop the relentless contraction of credit and stave off the threat of a Japanese-style deflation trap, but the auctions will not take place until September and December. “Europe could be in deflation before the TLTROs have even begun. They cannot wait until February or March to start thinking about quantitative easing,”

Germany’s wake-up call for the ECB - The stream of weak economic data coming out of Germany, the eurozone’s economic locomotive, lends considerable support to the view that the European Central Bank is now seriously behind the policy curve. For those data confirm that geopolitical uncertainties emanating from both Ukraine and the Middle East are now exacting a very much bigger toll on the German economy than was officially anticipated. Compounding matters is the fact that the marked slowing in the German economy is coinciding with France and Italy appearing to have slipped back into recession as well as, with increased signs that the European economic periphery is now experiencing outright price deflation. Following strong economic growth of 0.8% in the first quarter of the year, the Germany economy is widely estimated to have stagnated in the second quarter. More troubling yet are indications from high frequency data that this slowing might not be a transitory phenomenon. Since those indicators suggest that German industrial production is now contracting and that German investor confidence has now slumped to end-2012 levels.

Stagnating France heads towards fiscal targets miss - France's top officials are preparing the ground for another failure to meet fiscal targets, using weak growth and inflation to seek leniency from European partners. The government has promised to come clean on the state of the economy after the publication of second quarter GDP data on Thursday, which are expected to register barely any growth. Record-high jobless numbers, 16-year low housing starts and waning industrial output: most indicators already give a bleak image of the economy in the second quarter, with higher consumer spending a rare and insufficient bright spot. Warning of tough economic times ahead, the government has broken away from a months-long "recovery-is-there" narrative to emphasise the difficulties, eyeing EU rules that allow the possibility of exemptions from targets if growth deteriorates. Finance Minister Michel Sapin will "tell the French the truth, face reality without hiding anything" after the data is released, Prime Minister Manuel Valls said when asked if the time had come for the government to revise deficit targets. While officials say the timing and detail of the announcement is still being discussed, economists are convinced this week's data will show France cannot meet its existing targets to bring its public deficit to 3.8 percent of GDP this year and down to the EU's cap of 3 percent of GDP in 2015.

Something's got to give in Italy: better it be Draghi with a bag of cheap loans -- European Central bank boss Mario Draghi came to London last month to criticise his fellow Italians. Draghi is one of many senior European policymakers who believe that southern European governments are lazy and corrupted by easy credit. It's a view he shares with Germany's finance minister Wolfgang Schäuble – Brussels' paymaster. Without making a direct reference to Italian prime minister Matteo Renzi's administration, Draghi said austerity and reform forced nations to grow up and realise they must work for a living and stop relying on loans to pay the bills. He and Schäuble want Renzi to stick to plan A.  "To unwind the consolidation that has been achieved, and in doing so, divest the rules of credibility, would be self-defeating for all countries," he said.The speech came only a few months after Renzi's elevation to the premiership and his pitch to Brussels for greater flexibility. Renzi wants the commission to give him longer to institute reforms while he attempts to balance the books.Then, last Thursday, Draghi told journalists at his monthly press conference that eurozone interest rates would be staying low for a long time to help the eurozone recover. Appearing doveish and conciliatory, he added that he was prepared to make credit cheaper still with a version of quantitative easing (QE) but, switching to a more hawkish tone, he added that the time for flooding the banking system with cash, Bank of England-style, had yet to arrive. He is wrong. Italy, France and the Netherlands are already in trouble. They need cheap loans to ameliorate the worst effects of difficult reforms.

Has Italy Really “Gone Back Into Recession”? - Italians and the world have now been told that their economy slipped back into recession in the first half of 2014.  This characterization is based on the criterion for recession that is standard in Europe and most countries:  two successive quarters of negative growth.  But if the criteria for determining recessions in European countries were similar to those used in the United States, this new downturn would be a continuation of the 2012 recession in Italy, not a new one.  A common-sense look at the graph below suggests the same conclusion: the 2013 “recovery” is barely visible. Worse, Italy under U.S. standards would probably be treated as having been in the same horrific six-year recession ever since the shock of the global financial crisis in 2008:  the recovery in 2010-11 was so tepid that the level of Italian economic output had barely risen one-third the way off the floor, before a new downturn set in during 2012.  And the two earlier downturns were severe:  Italy’s GDP remains 9% below the level of 2008. What is the difference in criteria?   Economists in general define a recession as a period of declining economic activity.   European countries, like most, use a simple rule of thumb:  a recession is defined as two consecutive quarters of falling GDP.    In the United States, the arbiter of when recessions begin and end is the NBER Business Cycle Dating Committee.  The Committee does not use that rule of thumb, nor any other quantifiable rule, when it declares the peaks and troughs of the US economy.   When it makes its judgments it looks beyond the most recently reported GDP numbers to include a variety other indicators, in part because output measures are subject to errors and revisions.

Spanish public debt tops €1 trillion-mark -   The nation's accumulated public debt mushroomed to €1.007 trillion at the end of June from €996 billion a month earlier, the Bank of Spain said in a report. Prime Minister Mariano Rajoy's government has struggled to contain annual deficits by raising taxes, freezing public salaries and curbing spending on services such as education and health care despite angry street protests. Though the annual deficits are on the decline, they continue to push up the sovereign debt of the eurozone's fourth-largest economy. The public debt figure includes the cost of a €41 billion banking rescue in 2012 financed by Spain's eurozone partners. The trillion-euro public debt figure is equal to 98.5 percent of Spain's 2013 gross domestic product, a calculation by the news agency AFP showed. The Bank of Spain has yet to release final GDP figures for the second quarter of 2014. Spain enjoyed a relatively low debt ratio, equal to 36.3 per cent of GDP, in 2007. But the public debt soared after the implosion of a decade-long property bubble, which tipped the economy into a double-dip recession. Spain's economy emerged from the latest two-year downturn in mid-2013 and grew in the second quarter of 2014 at a faster-than-expected quarterly rate of 0.6 per cent. The unemployment rate dipped below 25.0 per cent in the April-June period but still remains painfully high at 24.47 per cent. Spain's public debt is expected to top 100 per cent of GDP next year – far above the 60 percent ceiling agreed among European Union members.

Spain Cranks Up Political Repression - As the European Dream continues its slow descent into dystopic nightmare, leaving millions of economically disenfranchised Europeans languishing in the gutter of misery, public anger is growing. Nowhere is this more evident than in austerity-ridden Spain, where political protests have been a constant thorn in the side of the country’s knee-jerk authoritarian government. Yesterday that government hit back with a declaration that evoked chilling echoes of Spain’s not-so-distant past. In response to a query by a member of parliament, the Ministry of Interior announced that during a public demonstration the police can confiscate any filming device if officers have reason to believe that it could be used to “commit an illegal act.” That illegal act, one assumes, is the filming of the police as they “execute” their duties. That’s right: Spain could soon become the first supposedly democratic nation to outlaw the filming of police officers. It is one of a raft of new offenses included in the decidedly Orwellian-termed “Citizens’ Security” law, more popularly known as the “Gag Law” (Ley Mordaza). The new law proposes fines of up to €30,000 for using slogans against the country, the King or State, and up to €600,000 for organizing unauthorized street protests.

Euro-zone industrial production falls again - Industrial production in the 18 countries that share the euro fell for a second straight month in June, an indication that the currency area's economic recovery may have faltered again in the second quarter. The European Union's statistics agency Wednesday said output from factories, mines and utilities fell 0.3% from May, and was unchanged compared with June 2013. That was a surprise, with 21 economists surveyed by The Wall Street Journal last week estimating the production rose by 0.3% during the month. Eurostat will Thursday release its measure of economic growth during the second quarter. Economists expect the agency to record a second straight quarter of slowing growth, with gross domestic product having risen by just 0.1% from the three months to March. The weakness of industrial production will likely cement those expectations. The euro zone's economy has struggled to grow in the years since the 2008 financial crisis, and in particular has lagged behind other parts of the world economy since its interlinked government debt and banking crises erupted in late 2009. But with the worst appearing to have passed last year, policy makers had hoped for a gradual acceleration in the rate of growth as 2014 advanced. Instead, the first quarter marked a slowdown from the final three months of 2013, and hopes for a significant rebound in gross domestic product during the second quarter have faded with every data release. Without higher rates of growth, the currency area will struggle to reduce its high levels of debt and unemployment.

Construction is Major Weakness in French Stagnation - France’s construction sector is among the more visible victims of the country’s wider economic stagnation.  Economic growth in the euro zone’s second largest economy has proved elusive so far this year, statistics showed Thursday. The depth of France’s economic problems has prompted President François Hollande’s government to slash its growth forecasts and rethink its entire economic and fiscal program.The breakdown of figures released by statistics agency Insee showed that construction—which accounts for around 7% of employment in France—is in trouble. Production in the sector fell 1.5% in the second quarter and investment in construction dropped further still, down 2.1%. During more than 33 years in the home building industry, Mr. Liébus says he has never seen such a deep and prolonged crisis, with the number of housing starts in France falling by over 19% in the second quarter from a year earlier. The crisis has already forced him to cut his staff from nine to six by not replacing retirees and not taking on apprentices at the end of their training.Some of France’s largest companies are also feeling the pinch. Construction and concession giant Vinci SA said earlier this month it will record a slight decrease in revenue this year as it warned the upturn in France’s building market “has not yet materialized.”

Germany Contracts and France Stagnates in Second Quarter - The data from the currency bloc’s two largest economies came as the embattled French government said the disappointing growth meant it would miss its budget deficit this year and halved its gross domestic product forecast for 2014.  Germany’s economy, which provides more than a quarter of the euro area’s output, shrank 0.2 per cent between April and June, according to official figures. Both figures missed forecasts and, with Italy back in recession, none of the region’s three largest economies grew at all in the spring. French finance minister Michel Sapin said that economic growth this year would now be 0.5 per cent, half of the previous official estimate of 1 per cent. That would also mean missing its budget-deficit target of 3.8 per cent of economic output this year, a level it had set as a necessary stepping stone to achieving the EU’s ceiling of 3 per cent of output by 2015. Teeing up what will doubtless turn into a feisty debate with Brussels in the coming weeks, Mr Sapin said that France would now cut its deficit “at an appropriate pace” given the bleaker outlook.

Eurozone Recovery Stalls, With Weakness in Germany and France - — Economic growth in the eurozone sputtered to a halt in the second quarter, official data showed on Thursday, as Germany contracted and France stagnated again.  The gross domestic product of the 18 nations that share the euro did not expand at all from the first quarter of this year, when it grew 0.2 percent, according to Eurostat, the European Union’s statistics agency in Luxembourg.The latest quarterly figure equates to a barely perceptible 0.2 percent annual rate, Eurostat said, compared with the 0.8 percent annualized rate from the first quarter. The figures fall far short of what the eurozone needs to lift more than 18 million people out of unemployment and to stop the slide of consumer prices into outright deflation. The data also indicated that Europe was beginning to falter even before uncertainty among businesses intensified amid the latest round of tit-for-tat sanctions with Russia over Ukraine.

German GDP down 0.2% as French economy stagnates -  Germany's economy contracted while France's stagnated in the second quarter, indicating the euro zone's yearlong recovery lost momentum, and likely pressuring policy makers to come up with some new ideas for boosting growth. The euro zone's largest economy contracted 0.2% in the three months to June, Germany's federal statistics office said. Economists polled by The Wall Street Journal last week said they expected the economy to shrink 0.1% on the quarter and grow 1.4% in annual terms. Destatis said that net trade was a drag on growth, as import growth outpaced export growth. Construction investment declined, but Destatis explained this was due to projects being pushed forward because of the unusually mild winter. Both private and public consumption rose compared with the first quarter, Destatis said. Earlier, figures from France's statistics agency showed the euro zone's second-largest economy failed to record any growth for the second quarter in a row in the period April through June. Economists polled by The Wall Street Journal had expected a 0.1% GDP expansion in the second quarter from the first. Compared with the same period of 2013, gross domestic product was up just 0.1%. Figures published previously showed Italy's economy also contracted in the second quarter, by 0.2%. The data released Thursday mean that none of the euro zone's three largest economies expanded in the three months to June, making it unlikely that the euro zone as a whole managed to generate any growth.

Here Comes The European Triple-Dip: Negative German GDP Sends Bunds Under 1% For The First Time Ever -- The hammer finally hit for Europe when overnight both Germany and France reported Q2 GDP prints that missed expectations, the first actually contracting at a 0.2% rate with consensus looking for -0.1%, while France remained flat vs expectations for a tiny 0.1% rise. As a reminder, this GDP is the revised one, which already includes the estimated contribution of drugs and prostitution, suggesting the actual underlying economic growth is far worse than even reported. Then again, this is hardly surprising considering all the abysmal data out of Europe and the rest of the world in recent weeks, and with the Russian trade war sure to trim even more growth, look for all of Europe to join Italy in its first upcoming triple-dip recession in history.

What's the Matter With Europe? - Paul Krugman - Just a few months ago Europe’s austerians were busy congratulating themselves, declaring that a modest upturn in southern Europe vindicated all their actions. But now the news is looking grim, with industrial production stalling out and good reason to fear yet another slide into recession:Photo Credit This comes as many though not all US data points are suggesting stronger growth. So why has Europe done so badly? I’m actually not too committed to any one story here; there are arguably several factors.First, there is fiscal austerity, which has been a very big drag. It’s important to realize, however, that the US has also had quite a lot of de facto austerity via the sequester and all that at the federal level, and state and local cutbacks. If we use the IMF’s measure of structural balances, Europe has indeed tightened relative to the United States:  But it’s not as big a difference as you might think — maybe 2 1/2 points of potential GDP.You can also argue that Europe’s fundamentals are considerably worse. If you’re worried that secular stagnation might be depressing the natural real rate of interest — the rate consistent with full employment — and you think that demography is a big factor, Europe looks really terrible, indeed full-on Japanese:  This says that Europe really, really needs to keep inflation expectations from sliding — in fact, it almost surely needs expected inflation higher than 2 percent. In fact, however, the ECB has been much less successful than the Fed at keeping expected inflation from declining.

The Forever Slump, by Paul Krugman - It’s hard to believe, but almost six years have passed since the fall of Lehman Brothers ushered in the worst economic crisis since the 1930s. ... Recovery is far from complete, and the wrong policies could still turn economic weakness into a more or less permanent depression. In fact, that’s what seems to be happening in Europe as we speak. And the rest of us should learn from Europe’s experience. ...European officials eagerly embraced now-discredited doctrines that allegedly justified fiscal austerity even in depressed economies (although America has de facto done a lot of austerity, too, thanks to the sequester and cuts at the state and local level). And the European Central Bank, or E.C.B., not only failed to match the Fed’s asset purchases, it actually raised interest rates back in 2011 to head off the imaginary risk of inflation. The E.C.B. reversed course when Europe slid back into recession, and, as I’ve already mentioned, under Mario Draghi’s leadership, it did a lot to alleviate the European debt crisis. But this wasn’t enough. ... And now growth has stalled, while inflation has fallen far below the E.C.B.’s target of 2 percent, and prices are actually falling in debtor nations. It’s really a dismal picture. ... Europe will arguably be lucky if all it experiences is one lost decade.

Europe’s Greater Depression is worse than the 1930s - Europe hasn't recovered, because it hasn't let itself. Too much fiscal austerity and too little monetary stimulus have, instead, put it more than halfway to a lost decade that's already worse than the 1930s.It's a greater depression. And as the latest GDP numbers show, it's not getting any less so. Indeed, the eurozone as a whole didn't grow at all in the second quarter. Neither did France, whose economy has actually been flat for a year now. Germany's economy fell 0.2 percent from the previous quarter—and that after revisions revealed it had quietly gone through a double-dip recession in early 2013. Though that's still much better than Italy: Its GDP also fell 0.2 percent, but its triple-dip recession has now wiped out all growth since 2000. The closest thing approximating good news was that Spain's dead-cat bounce recovery continued with 0.6 percent growth. But it still has 24.5 percent unemployment. Here's a bit of perspective: it's been six-and-a-half years, and eurozone GDP is still 1.9 percent lower than it was before the Great Recession began. It "only" took the U.S. economy seven years to get back to where it'd been before the Great Depression hit. But it's a little misleading to just call this a depression. It's worse than that. Europe is turning Japanese. The combination of zombie banks, a rapidly aging population and, most importantly, too-tight money have pushed it into a "lowflationary" trap that makes it hard to grow, and is even harder to escape from. That's what happened to Japan in the 1990s, and now, 20 years later, its nominal GDP is actually smaller than it was then. Now, Europe isn't that far gone, but it's getting there.

Is the West Risking Financial Blowback From Sanctions on Russia? - Yves Smith -  A Financial Times overview: This year was supposed to be the year the eurozone recovery took root – gathering enough pace to create jobs and spur investment. Instead, growth stalled between April and June, leaving the currency area lagging behind other advanced economies and raising doubts about whether policy makers have done enough to stamp out the twin threats of stagnation and deflation. The economy is still far smaller than six years ago, unemployment is in double figures and debt burdens in some areas are high.  Naked Capitalism readers will not be surprised at this outcome. We’ve said consistently that austerity would backfire and lead the contraction imposed on the periphery to infect the core. Indeed, Germany registered a small contraction in GDP in the second quarter and France was at stall speed. The results were so troubling that Bloomberg’s editors cleared their throats: All three of the euro area’s biggest economies — Germany, France and Italy — are failing. Germany’s output actually fell in the second quarter. So did Italy’s, for the second consecutive quarter. With inflation in the euro area running at 0.4 percent — way below the ECB’s target of less than but close to 2 percent, and far too close to outright deflation — why isn’t the ECB trying harder to ease monetary policy? Its official answer is that it adopted new measures in June, including an expanded program of support for bank lending. These, it says, should be given time to work. The problem is that the editors then call for more aggressive action by the ECB. Monetary stimulus is simply not remotely an adequate substitute for government spending. Even the austerian IMF has been forced to acknowledge that fiscal multipliers are almost always greater than one, meaning that government spending produces GDP growth greater than the spending rise.  And remember, these faltering results came in before the so called Tier Three economic sanctions against Russia went into effect. A new article from Marcel Fratzscher at Project Syndicate argues that if they prove to be effective, as in they damage Russia in a meaningful way, the blowback to Europe will be even worse.

France Rebels Against Austerity as Europe's Recovery Collapses - Eurozone strategy is in tatters after economic recovery ground to a halt across the region and France demanded a radical shift in policy, warning that austerity overkill is driving Europe into a depression.Growth slumped to zero in the second quarter, with Germany contracting by 0.2pc and France once again stuck at zero. Italy is already in a triple-dip recession. Michel Sapin, France’s finance minister, sent tremors through European capitals with a defiant warning that his country would no longer try to meet its deficit targets and would not inflict further damage on its economy by tightening into the downturn. “I refuse to raise taxes to close any budget gaps,” he said. Growth is too weak in Europe and inflation is too low. We must therefore stop reinforcing the causes of this depression,” he told RTL television.  “We must face the figures in front of us with realism. The truth is that, contrary to the forecasts of the International Monetary Fund and the [European] Commission, growth has broken down, both in France and in Europe.”

Eurozone banks hold record amounts if sovereign paper - The Eurozone financial regulatory framework, combined with the ECB's monetary policy, has created an environment in which holding sovereign bonds is the optimal outcome for many of the area's banks. This has two major consequences:
1. Government bonds crowd out private sector credit, limiting loan growth in a number of countries.
2. Banks are becoming more intertwined with their central governments - something that was part of the cause of the debt crisis. Governments depend on banks for cheap funding and banks depend on their governments for support (bailout) in case of a liquidity crunch.

What should the European Central Bank actually do? – Tyler Cohen - As parts of the eurozone seem to be creeping into deflation, a number of you have written  and asked me what I think the ECB should be doing.  Here are my views on three options:

  • 1. Quantitative easing.  People mean different things by this, but I am not sure that a complicated answer would be much better than a simpler one.  I view it as better than nothing, but there is a risk it amounts to little more than a short- vs. long-term asset swap, which is hardly a solution.
  • 2. Nominal gdp targeting.  In general I like this idea, but which ngdp gets targeted?  Eurozone ngdp, presumably.  But when you have multiple countries, individual countries can end up with insufficient nominal gdp even if the eurozone meets a well-specified target overall.  There is another issue with ngdp targeting for the ECB, and that is markets simply might not believe it.  If that were the case, what then should the ECB actually do to see through the promise?  That brings us to #3:
  • 3. A new and different inflation target. My current wish would be a new ECB mandate specifying a minimum core inflation rate of three percent for each of the largest countries in the eurozone, say France, Germany, Italy, and Spain.  If any of these four countries seemed to be coming in under three percent inflation, the ECB would have to do more.  And if need be, you could extend this rule through to more countries, with Malta and Cyprus probably at the end of that list.

Of course that is also why this is unlikely to happen.  We’ll probably get some form of ineffective QE as a cop-out but better-than-nothing attempt.

Libor to FX Cases Drive Surge in Teamwork With Regulators - Britain’s financial markets regulator saw requests for assistance from agencies around the world jump 14 percent last year as investigations are increasingly global, according to a law firm study. The Financial Conduct Authority received more than 1,000 requests for help in 2013 and nearly one in four came from the U.S., London-based law firm RPC LLP said based on data obtained through a Freedom of Information Act disclosure. Regulators and prosecutors around the world are relying more on each other as they probe allegations that benchmarks including the London interbank offered rate, or Libor, and foreign-exchange rates are being manipulated. They’re also resolving cases together, as seen with a number of joint settlements on Libor such as the 226 million-pound ($380 million) accord Lloyds Banking Group Plc (LLOY) reached with U.S. and U.K. authorities last month. “As financial services become ever more globalized, regulators are finding that their work is increasingly turning up some sort of link to other countries,” Richard Burger, an RPC lawyer, said in the report. “Since the U.K. is a leading financial hub, the FCA is often an important port of call, whether that’s just to clarify a routine inquiry or for its input into more in-depth, complex matters.”

UK economy grows at fastest annual pace in over six years in second quarter (Reuters) - Britain’s economy kept up its strong growth in the second quarter of 2014 and its yearly pace of expansion was revised up to 3.2 percent, its best performance in more than six years, official data showed on Friday. Gross domestic product expanded by 0.8 percent in the April-June period, as reported in preliminary data last month and the same pace as in the first three months of the year. Compared with the second quarter of last year, the economy expanded by 3.2 percent, up slightly from an estimate of 3.1 percent in the preliminary reading. That was the fastest yearly growth since the end of 2007, the Office for National Statistics said. Economists in a Reuters poll had expected quarterly growth of 0.8 percent and a yearly expansion of 3.1 percent. The ONS said the upward revision of the yearly growth rate was due to a performance by the construction sector that was stronger than assumed at the time of the preliminary estimate.

Europe’s Green Energy Rules Cost U.K. $156 Billion -  European Union laws that reduce pollution and ensure energy security may have cost the U.K. as much as 93.2 billion pounds ($156.5 billion), a group campaigning to renegotiate membership in the bloc said. Business for Britain calculated the impact as a range starting at 86.6 billion pounds and said the rules are threatening jobs and driving companies to nations with lower power prices. The rules account for about 9 percent of the cost of energy for the biggest users such as ceramics and glass makers. European energy prices are among the highest in the developed world. Some industrial consumers pay about 20 percent more for electricity than companies in China, about 65 percent more than in India and twice as much as in the U.S. and Russia, the report said. Rising prices in the U.K. are threatening as many as 1.5 million jobs, it said. Europe is aiming for 20 percent of its energy to come from clean sources by 2020. The commission in January proposed that the 28-nation bloc adopt a binding goal to cut greenhouse gases by 40 percent by 2030 and it also recommended an EU-wide target to boost the share of renewables in energy consumption to 27 percent. The lobby group said Europe should set one target and member states should be free to decide how they meet that.

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