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

Saturday, September 13, 2014

week ending Sept 13

Fed's Balance Sheet 10 September 2013 - Little Change from Last Week: Fed's Balance Sheet week ending balance sheet was $4.379 trillion - well below the record $4.389 for week ending 13 August 2014 and the $4.373 trillion last week. The complete balance sheet data and graphical breakdown of the cumulative and weekly changes follows…Read more >>

FRB: H.4.1 Release--Factors Affecting Reserve Balances--September 11, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Federal Reserve to debate new language on interest rates - The US Federal Reserve’s forward guidance on future interest rates has come up for debate after a stream of central bank officials declared the current wording needs to change. In the past few days, officials from every part of the rate-setting Federal Open Market Committee – hawks and doves, regional presidents and Washington governors – have called for new language. Their remarks could mean a move at the September FOMC meeting in 10 days, although there is little consensus yet on new wording, so a shift might have to wait until next month. A particular issue is the Fed’s guidance of low rates for a “considerable time” after it stops buying assets in October. A chunk of the FOMC feels that is a dangerous hostage to fortune, after steady economic progress that could yet require rate rises early next year. “Significant parts of the FOMC statement need to change,” said Jerome Powell, a Fed governor, in a question-and-answer session on Thursday evening. “I believe it is . . . time for the Committee to reformulate its forward guidance,” said Loretta Mester, president of the Cleveland Fed, in a speech earlier the same day. Mr Powell and Ms Mester are two of the four members of a new Fed subcommittee on communications policy. Their concern about forward guidance is reflected across the spectrum of hawks and doves on the FOMC. “I actually hold the view that as we approach levels of unemployment that many consider ‘full employment’, the Fed should no longer issue guidance on the approximate timing of any monetary policy changes,” said Eric Rosengren of the Boston Fed, a strong advocate of Fed stimulus, in a speech on Friday. His opposite number, the hawkish Charles Plosser of the Philadelphia Fed, dissented in July because of “considerable time”.

Fed’s Plosser: Fed Should Raise Rates ‘Sooner Rather Than Later’ -  Federal Reserve Bank of Philadelphia leader Charles Plosser said Saturday the U.S. central bank will likely need to raise rates “sooner rather than later” to keep the economy running smoothly. “I am not suggesting that rates should necessarily be increased now,” Mr. Plosser said in the text of a speech to be given in Amelia Island, Fla. That said, preparing to raise interest rates sooner than many now expect “may allow us to increase rates more gradually as the data improve, rather than face the prospect of a more abrupt increase in rates to catch up with market forces, which could be the outcome of a prolonged delay in our willingness to act,” the official said. Mr. Plosser is a voting member of the monetary policy setting Federal Open Market Committee. The official dissented at the central bank’s last gathering in late July, believing the institution needed to stop committing to keep rates very low for well into the future. He wanted the central bank to make the outlook for policy more contingent on incoming data. Mr. Plosser reiterated his case for this change in his speech. “We have moved much closer to our goals since last December, and, as we do so, the stance of monetary policy should reflect such progress and begin to gradually adjust. That is the essence of being data dependent,” Mr. Plosser said. “Our first task is to change the language in a way that allows for liftoff sooner than many now anticipate and sooner than suggested by our current guidance,” Mr. Plosser said.

Fed Watch: Forward Guidance Heading for a Change - The lackluster August employment report clearly defied expectations (including my own) for a strong number to round out the generally positive pattern of recent data. That said, one number does not make a trend, and the monthly change in nonfarm payrolls is notoriously volatile. The underlying pattern of improvement remains in tact, and thus the employment report did not alleviate the need to adjust the Fed's forward guidance, allow there is a less pressing need to do so at the next meeting. In any event, the days of the "considerable time" language are numbered. Arguably the only trend that is markedly different is the more rapid decline in long-term unemployment, a positive cyclical indicator. Labor force participation remains subdued, although the Fed increasing views that as a structural issue. Average wage growth remained flat while wages for production workers accelerated slightly to 2.53% over the past year. A postive development to be sure, but too early to declare a sustained trend.The notable absence of any bad news in the labor report leaves the door open to changing the forward guidance at the next FOMC meeting. As Robin Harding at the Financial Times notes, many Fed officials, including both doves and hawks, have taken issue with the current language, particularly the seemingly calendar dependent "considerable time" phrase. Officials would like to move toward guidance that is more clearly data dependent. The trick is to change the language without suggesting the timing of the first rate hike is necessarily moving forward. The benefit of the next meeting is that it includes updated projections and a press conference. Stable policy expectations in those projections would create a nice opportunity to change the language. Moreover, Yellen would be able to to further explain any changes at that time. This also helps set the stage for the end of asset purchases in October. A shift in the guidance next week has a lot to offer.

Fewer Economists See Fed Rate Hikes Starting Before Next Summer -- Fewer economists expect the Federal Reserve will begin raising interest rates early next year, according to a survey by The Wall Street Journal in recent days, after the Labor Department released a disappointing August employment report. A third of the business and academic economists who responded to the survey, conducted Friday through Tuesday, said they expected the Fed will begin raising rates sometime before June 2015. That’s down from 45% in the survey conducted Aug. 1-5. Next June was seen as the most likely month for the Fed to begin raising short-term interest rates, which have been pinned near zero since December 2008. Three in 10 economists, both in August and September, picked June as the month for liftoff.  Fewer economists in the latest survey saw rates beginning to rise in March or April, 24% compared with 35% in the August poll. More forecasters saw the first hike coming in July or September: 26%, compared with 18% a month earlier. Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida, pushed his prediction for the first rate hike to September from April. He cited “the general sense that we’re not approaching full employment, despite what the headline indicators suggest.” Susan Sterne, president of Economic Analysis Associates, said she’s “expecting some softer than consensus data for awhile.” She moved her prediction for the first rate hike from March to June. The central bank has pledged to keep its benchmark interest rate near zero for a “considerable time” after its bond-buying program ends, presumably this fall.

Market Expects Fed to be more Accommodative  - The San Francisco Fed has a paper, Assessing Expectations of Monetary Policy, where they make a case that the market expects monetary policy to be more accommodative than the Fed is projecting. How could that be when the Fed has been so aggressively accommodative until now? Shouldn’t they tighten already? In my view, the market does not see the economy being able to expand as needed over the next two years. They see economic opportunities dwindling. They see profit rates stalling and becoming more competitive. They see wages subdued. They see demand subdued. They see weaknesses in Europe and China. They see stock markets unable to continue hitting records. They see fatigue settling into stock traders. In short, the market sees an economy that grows slowly over the next two years… so slowly, that the Fed will have to maintain its accommodative policy. The economy is hitting the effective demand limit, and businesses are seeing the effects. The current growth in the US economy is projected to continue for years. One hears that the economy is finally taking off. However, now is a good time to use low nominal rates to increase production and gain market share in a more competitive atmosphere. The accelerated growth we see now could generally be a temporary attempt by firms to hedge against a tighter Fed policy next year. It could be like runners surging with a sprint toward the finish line, but of course they do not intend to continue sprinting beyond the finish line. And in this analogy, the finish line is projected tightening of Fed policy which will have tightening effects globally. So the SF Fed paper is showing us that firms are not optimistic about the economy over the next two years. Yet firms are accelerating operations now to position themselves in an uncertain market.

Hilsenrath’s Take: Fed Frets About Market Rate Expectations - A San Francisco Fed study on market expectations for short-term interest rates is notable because it underscores a concern that has become prevalent among many Federal Reserve officials: They have laid out their expected path for rates during the next two years, and investors just don’t seem to believe them. According to the study – which analyzes the behavior of overnight index swap contracts — investors put a 31% probability on the federal funds rate reaching 1% by the fourth quarter of 2015, which is the median projection laid out by Fed officials laid out in their June Summary of Economic Projections. Investors put a 27% probability of the funds rate reaching the Fed’s median projection of 2.5% by the fourth quarter of 2016. “The public seems to expect more accommodative monetary policy than the SEP suggests,” the study concludes. There are two explanations for this disconnect. The first is that investors expect a weaker economy and lower inflation than Fed officials expect. Thus they might be betting the Fed won’t follow through on its own rate projections because the economy won’t justify rates at higher levels in the next two years.  The alternative explanation is that investors are complacent about Fed rate increases. Fed officials see the job market improving and inflation returning to normal, but investors don’t think the central bank will respond to it. Fed officials worry about this explanation, because if they do follow through on these rate plans, the market could get caught off guard. That’s what happened last year when the Fed started talking about pulling back its bond-purchase program and long-term rates shot higher because investors didn’t see it coming. Fed Chairwoman Janet Yellen has been warning since June that the Fed could raise rates sooner and more aggressively than expected if the economy performs well in the next few months. The subdued market response makes you wonder if Ms. Yellen will try another shot across the bow when she holds a quarterly press conference next week.

Can The Fed Drop “Considerable Time” Without Spooking Markets? - As the Wall Street Journal reported Friday, a growing number of Federal Reserve officials want to move further away from the forward guidance on interest rates that has been a staple of their post-crisis monetary policy. With interest rates pinned at zero and unable to move lower to stimulate a limp economy, officials have chosen assurances rates would stay low as another way to boost financial conditions. The promises have shifted frequently from time-oriented commitments – “extended period” – to commitments tied to the economy – “as long as the unemployment rate remains above 6-1/2 percent” – and back to time-oriented – “for a considerable time after the asset purchase program ends.” As the economy nears their goals of full employment and 2% inflation, the promises become less necessary and, officials hope, less binding. Here is the challenge they face as they prepare for their policy meeting next week: investors tend to see the world in black and white. They might look at the removal of the “considerable time” language as a sign that interest rate increases are imminent, like a starter’s gun going off before a race. In January 2004 the Fed removed an assurance that rates would remain low for a “considerable period” and started hiking by June. That’s not a signal they want to send just yet. This time, Fed officials want to move away from these commitments, but they want more evidence on the economy’s performance before they decide when to raise rates. After months of surprisingly strong job reports, the latest data went limp in August. Can Fed officials craft a message that frees them from the commitment without appearing to the market to be binding themselves to the beginning of a new rate hike cycle? They could change considerable time and leave other low-rate cues in their statement – such as the judgment that there remains significant slack in labor markets. Moreover, Chairwoman Janet Yellen has a tool that Alan Greenspan didn’t have in 2004 – a press conference to explain the central bank’s views. It’s a venue she has tended to use effectively during her first six months as Fed chairwoman, clarifying rather than confounding.

Fed Eyes Significant Underutilization of Labor Resources - The Federal Reserve said in its July policy statement that officials saw “significant underutilization of labor resources.” The unemployment rate at the time was 6.1%. The number of Americans working part-time who wanted full-time work was 7.5 million. A broader “U6″ measure of unemployment that included part-time, marginally attached and discouraged workers was 12.1%. Average hourly earnings were up 1.9% from a year earlier. This matters because well before the Fed moves toward raising short-term interest rates, officials will make a determination that the labor market is no longer burdened by “significant underutilization” of resources. To make that determination, the jobless rate, U6, part-time employment, wages and other measures need to improve relative to where they were in July when the Fed made its last statement. Fed officials are likely to engage in a lively debate at their Sept. 16-17 policy meeting about whether their assessment of labor slack still stands. Where they come down will depend in large part on the data released by the Labor Department Friday. To move from their July stance, Fed officials will likely need to see more than a small improvement in these indicators.

Homeward Bound? ECB Paper Finds Some Regional Bias at Fed -  A pair of European Central Bank economists looked across the Atlantic to raise an interesting question for central bank officials and watchers: Are Federal Reserve district bank presidents influenced by conditions in their local economies rather than by trends in the U.S. as a whole? The answer, in a paper published Wednesday by the ECB, is yes in some cases—particularly for the Dallas and San Francisco Fed banks—though the “regional bias” impact is relatively small. “There are several reasons to suspect that the Federal Reserve Bank Presidents of the U.S. Federal Reserve System have a regional bias in their interest rate preferences,” ECB economists wrote. The idea behind the regional bias is that an individual Fed bank president may, for example, vote for looser monetary policy because unemployment is higher in his or her district, even if better national numbers point to tighter policy. If this touches too many central bankers, the end result may be bad monetary policy decisions. Fed policy makers—like those at other major central banks—set interest rates and other policies for the economy as a whole, even though local developments provide useful information. Still, “although there is an undisputed need for a regional dimension to monetary policy decision-making in a federal central banking system, the presence of a regional bias in the interest rate preferences of policy makers can lead to suboptimal monetary policy outcomes,” the authors wrote.

The Fed Fails, Um, Does Irony - In a speech in 2002, Bernanke said that the Fed would prevent the US from experiencing a Japan-like outcome. However, the US has experienced a pattern of economic and policy developments that parallels developments in Japan. Japan experienced a financial bubble and crisis. The Japanese authorities took actions to support asset prices and prevent insolvent businesses from failing. The growth of the Japanese economy remains so anemic that almost two decades after their financial crisis, the authorities are still introducing new simulative measures and packages. The US has also experienced a financial bubble, a crisis, a recession and a very slow recovery. The Fed and the Treasury took unprecedented measures to support asset prices and have prevented or helped to prevent the failure of insolvent firms. Despite the Fed’s opportunity to learn from the Japanese experience and all Fed’s efforts to promote the growth, per capita growth in the US has been slower than in Japan. In short the US economy has experienced exactly what Bernanke said the Fed could and would prevent, save outright deflation.

Who's Afraid of Deflation? -- Everyone knows that deflation is bad. Bad, bad, bad. Why is it bad? Well, we learned it in school. We learned it from the pundits on the news. The Great Depression. Japan. What, are you crazy? It's bad. Here, let Ed Castranova explain it to you (Wildcat Currency, pp.160-61): Deflation means that all prices are falling and the currency is gaining in value. Why is this a disaster? ... If you hold paper money and see that it is actually gaining in value, it may occur to you that you can increase your purchasing power--make a profit--by not spending it...But if many people hold on to their money, this can dramatically reduce real economic activity and growth... In this post, I want to report some data that may lead people to question this common narrative. Note, I am not saying that there is no element of truth in the interpretation (maybe there is, maybe there isn't). And I do not want to question the likely bad effects that come about owing to a large unexpected deflation (or inflation).  What I want to question is whether a period of prolonged moderate (and presumably expected) deflation is necessarily associated with periods of depressed economic activity. Most people certainly seem to think so. But why?

The Inflation Cult, by Paul Krugman - Earlier this week, Jesse Eisinger, writing on The Times’s DealBook blog, compared people who keep predicting runaway inflation to “true believers whose faith in a predicted apocalypse persists even after it fails to materialize.”   And the remarkable thing is that these always-wrong, never-in-doubt pundits continue to have large public and political influence. There’s something happening here. What it is ain’t exactly clear. But as regular readers know, I’ve been trying to figure it out, because I think it’s important to understand the persistence and power of the inflation cult. Whom are we talking about? Not just the shouting heads on CNBC, although they’re certainly part of it. Rick Santelli, famous for his 2009 Tea Party rant, also spent much of that year yelling that runaway inflation was coming. It wasn’t, but his line never changed. Just two months ago, he told viewers that the Federal Reserve is “preparing for hyperinflation.” You might dismiss the likes of Mr. Santelli, saying that they’re basically in the entertainment business. But many investors didn’t get that memo. I’ve had money managers — that is, professional investors — tell me that the quiescence of inflation surprised them, because “all the experts” predicted that it would surge.You find the same Groundhog Day story when you look at the pronouncements of seemingly reputable economists. So what’s going on here?  I’ve written before about how the wealthy tend to oppose easy money, perceiving it as being against their interests. But that doesn’t explain the broad appeal of prophets whose prophecies keep failing.

You Missed $1 Trillion Return Agreeing With Fed Naysayers - If you agreed with all the academics, billionaires and politicians who denounced Federal Reserve monetary policy since the financial crisis, you missed $1 trillion of investment returns from buying and holding U.S. Treasuries. That’s how much the government bonds have earned for investors since the end of 2008, when the Fed dropped interest rates close to zero and embarked on the first of three rounds of debt purchases to resuscitate an economy crippled by the worst recession since the Great Depression. The resilience of Treasuries represents a rebuke to the chorus of skeptics from Stanford University’s John Taylor to billionaire hedge fund manager Paul Singer and U.S. House Speaker John Boehner, who predicted the Fed’s unprecedented stimulus would lead to runaway inflation and spell doom for the bond market. It also suggests investors see few signs the five-year-old expansion will produce the kind of price pressures that would compel Fed Chair Janet Yellen to side with the central bank’s hawkish officials as they consider when to raise rates. “The doves continue to have the upper hand,” “There is a bias in the market that interest rates need to be higher. But that just isn’t based on sound analysis. Betting against the consensus on Treasuries has been a winning strategy.”

Other perspectives on the new bond market conundrum -- Last week I commented on a puzzling phenomenon in bond markets this year– long-term rates have been falling at the same time that nearer-term rates have been rising. Bruegel has a review of some of the discussion of this around the web. The same shifts are seen in both the nominal yield curves (above) and the real yield curves (below). The interpretation I offered is that the higher near-term rates reflect the perception that the time when the Fed begins raising short-term rates (likely some time next year) is now less far away that it was in January, while growing pessimism about longer term growth prospects may account for falling longer term yields. However, this interpretation is difficult to reconcile with this year’s strong stock market.  My interpretation assumed that the changing yield curve largely reflects changing expectations about future rates. But we know that another important component of the yield curve is the term premium, an added compensation you can expect to receive if you are willing to tie up your money long term. I provided a simple correction for term premia in my discussion last week. David Beckworth looked at some more sophisticated estimates of term premia developed by Adrian, Crump, and Moench. These suggest that term premia on all bonds have fallen significantly this year, with the changing 5-year 10-year differential largely explained by the fact that term premium on the 10-year bond has fallen more than that on the 5. However, this basically just passes the puzzle over to the unanswered question of why the term premium on longer-term bonds should have fallen so much more than that on short-term securities at the same time that the Fed is winding down its purchases of longer-term securities. Below I plot the contribution of term premia to the yield on each security as inferred by their methodology.

Treasuries Taper Tantrum Ruled Out by BofA Seeing Japan Buying - Japan is likely to replace China and U.S. banks as the lead supporter of Treasuries as the Federal Reserve moves toward ending bond buying, according to Bank of America Merrill Lynch. Policy makers who next meet Sept. 16-17 have cut purchases of government debt and mortgage-backed securities to $25 billion a month from $85 billion starting last year. Buying by U.S. banks driven by rules limiting risk-taking and China more than offset the Fed’s tapering, keeping long-term interest rates low, said David Woo, head of global rates and currencies at Bank of America in New York. This is the Fed’s third round of purchases, or quantitative easing, to drive down borrowing costs. “Effectively, there has been no tapering whatsoever so far,” Woo said at a round table in Tokyo on Sept. 8. “As the Fed was trying to unwind QE3, U.S. banks and China started a secret QE4.” China held $1.27 trillion of U.S. notes and bonds at the end of June, compared with Japan’s $1.22 trillion, Treasury Department data show. Belgium more than doubled holdings in the past year to be the third-largest owner with $364 billion. Belgium is home to Euroclear Bank SA, a provider of securities settlements for foreign lenders, and probably serves as a custodial holder for China, Woo said. He estimates the Asian nation increased purchases by about $130 billion in the first quarter, or $560 billion at an annual rate. China’s currency reserves rose to a record at the end of June.

The US recovery looks sustainable this time - Next week will see the sixth anniversary of the collapse of Lehman Brothers. No single financial event in the post-war period has cast such a long shadow. Until now, the scars of the financial crash have dominated the economic landscape. The utilisation of labour and capital resources in the economy has remained far below normal, the growth rate of GDP has been unable to sustain any respectable recovery by past standards, and the overhang of debt has continued to erode household confidence. Optimistic forecasts about the recovery have been repeatedly thwarted. But the US growth rate may finally be able to sustain a normal, healthy recovery, albeit with the level of GDP still tracking far below previous long term trends.  A genuine improvement in American economic conditions seems to have taken hold in the past 12 months. This was interrupted by the extreme weather conditions last winter, but “nowcasts” suggest that the last two quarters have seen a return to robust, above trend growth rates in the US, in sharp contrast to the depressed state of the economy in the euro area. Latest activity data show the US expansion touching 4 per cent, despite the disappointing jobs data released on Friday. The key question is whether this apparently healthy recovery in growth rates can be maintained this time. This needs to be tackled from both the demand and supply sides of the economy.

Is Another Health-Care Spending Shakeup Coming for U.S. GDP? - GDP could get shaken up this week by the far more obscure abbreviation QSS.The Commerce Department’s Quarterly Services Survey estimates revenues at service-providing companies. It keeps a fairly low profile in the world of economic indicators, but plays an important role in the calculation of gross domestic product because it provides hard data on services spending. When the QSS report for the first quarter  came out in June, it forced a big downward revision to GDP. Government economists had assumed the rollout of the Affordable Care Act would lead to a big surge in health-care spending. Instead, there was a decline from the fourth quarter. Could a similar big downgrade for second-quarter GDP – estimated last month to have risen at a 4.2% seasonally adjusted annual rate – come after the QSS report for the second quarter comes out Thursday morning?Probably not, according to J.P. Morgan Chase economist Daniel Silver. The Commerce Department had assumed a surge in healthcare spending at a 9.1% annual rate in its initial estimates for first-quarter GDP, then had to revise it down to a 1.4% decline. For the second quarter, the agency has made a more conservative estimate – positive growth at a 0.5% pace. “There’s less room for a big miss on that assumption,” Mr. Silver said. There could be an upward revision. The Centers for Medicare and Medicaid Services last week projected a 5.6% increase this year in health spending, up from 3.4% growth in 2013. And Mr. Silver, in a note to clients last week, said doctor’s office visits “perked up noticeably over the most recent few months through July,” which suggests “that health care consumption should bounce back following the decline” in the first quarter.

Expect another upward revision of Q2 GDP: over 4.5%? - You may remember 3 months ago when Q1 GDP was revised all the way down to -2.9%, from an initial report of +0.1%, the main culprit was a sudden and unexpected decline in health care costs.  The BEA acknowledged that this came from exactly one report:  the Census Bureau's Quarterly Services Report.  I wrote a post confirming something Dean Baker (?) had written:  namely, that the same thing had occurred 50 years ago when Medicare was inaugurated.  There was a one quarter sudden and anomalous decline in GDP.  But then it was followed by a surge in the next quarter. Well, this morning the Quarterly Services Report for the 2nd quarter was released, and it shows a similar surge in Q2 compared with Q1.  Hospital services, which unexpectedly declined -1.3% seasonally adjusted from Q4 2013 to Q1 2014, rose by +2.6% in Q2 2014.  The larger aggregate of health care services, which isn't seasonally adjusted in the report, rose +3.0% in the 2nd Quarter, after declining -2.0% in the 1st. In comparison, the Q1 to Q2 change in 2013 for health services was about 2.2%, and added .4% to GDP.  While I am no maven of the minutiae of how GDP is calculated, nevertheless since 2nd quarter 2014 GDP as presently revised only shows a +.05% contribution by health care, it appears that at very least 2Q 2014 GDP is likely to be revided upward to 4.5% or better. Even if so, the bad news is that the combined GDP for the first half of 2014 would still only be about +1.2%.

Health-Care Revenue Rebound Could Boost U.S. Economic Growth - Revenues at U.S. hospitals and medical offices rebounded last quarter, a potential boost to economic growth after Americans’ health-care spending unexpectedly declined earlier this year. Total revenue at health care and social assistance firms rose 3% in the second quarter from the first three months of the year, the Commerce Department said Thursday in its Quarterly Services Survey report. Hospital revenues rose 2.8% from the first quarter, and revenue at physician offices jumped 4.1%. From a year earlier, health care and social assistance revenue rose 3.7% last quarter, up from 2.9% annual growth in the first quarter. Those figures were not adjusted for seasonal variation or price changes. Consumer spending, including the money Americans spend on health-care services, generates more than two-thirds of U.S. economic output. The Commerce Department has estimated that gross domestic product expanded in the second quarter at a 4.2% seasonally adjusted annual rate, a projection that estimated inflation-adjusted health-care spending rose at a 0.5% pace. The Commerce Department’s Bureau of Economic Analysis will revise that spending estimate using data from the QSS report. The agency will release a new reading for second-quarter GDP on Sept. 26. J.P. Morgan Chase on Thursday raised its forecast for second-quarter GDP to 4.7% from 4.5%. “We now think both services consumption and intellectual property products investment will be revised higher once the BEA incorporates the QSS data,” economist Daniel Silver said in a note to clients.

Goldman Sachs Revises Q2 GDP estimate to 4.7% - From Brett LoGiurato at Business Insider: Goldman Is Now Saying That Q2 GDP Growth Was Absolutely Massive Goldman Sachs revised its estimate of second-quarter GDP growth to 4.7% on Thursday, based on new data from the Census Bureau's Quarterly Services Survey (QSS). Stronger-than-expected healthcare spending growth led to the revised Goldman estimate of 4.7%, which was up 0.5% from the Bureau of Economic Analysis' second advance-estimate of 4.2%. Here is the Q2 Quarterly Services Press Release Health care and social assistance The estimate of U.S. health care and social assistance revenue for the second quarter of 2014, not adjusted for seasonal variation, or price changes, was $565.6 billion, an increase of 3.0 percent (± 0.9%) from the first quarter of 2014 and up 3.7 percent (± 0.9%) from the second quarter of 2013. The fourth quarter of 2013 to first quarter of 2014 percent change was not revised from -2.0 percent (± 0.8%). The third estimate of Q2 GDP will be released on Friday, September 26th. Some of the Q2 GDP increase was a bounce back from the weather impacted Q1.

Where the US economy stands at this very moment -- Great summary from MKM economist Mike Darda: Retail sales were in line with expectations in August, but upward revisions pushed the six-month annual rate of increase above 7%. We believe the pickup in sales is sustainable due to three bullish forces colliding: improving labor market conditions, rising confidence levels and a sharp fall in gasoline prices (positive supply side shock).  As the business cycle picks up steam and the recovery matures, the demand for risk free liquid assets / money should ease. This should allow the Fed to tighten policy / slow liquid asset growth without tipping over the business cycle, at least in the early innings of this process. Markets are already discounting such an eventuality with two-year note yields (which are the most sensitive to changes in short rate expectations) rising to three year highs. The flattening yield curve also is a sign that the growth rate of liquid assets will begin to slow as the Fed begins to tighten policy next year.  Moreover, stable inflation expectations near the Fed’s target are a sign that the expected path of Fed policy is about right, despite widespread perceptions to the contrary from the financial punditry. Looking further ahead, there should be at least several years left before this business cycle heads for the graveyard. Expansions don’t die of old age, they are terminated by the Fed. And it will likely still be several years before labor markets are tight enough to generate the kind of wage pressures that would be associated with recession-inducing Fed tightening, in our view.

Effects of Income Tax Changes on Economic Growth | Brookings Institution: This paper examines how changes to the individual income tax affect long-term economic growth. The structure and financing of a tax change are critical to achieving economic growth. Tax rate cuts may encourage individuals to work, save, and invest, but if the tax cuts are not financed by immediate spending cuts they will likely also result in an increased federal budget deficit, which in the long-term will reduce national saving and raise interest rates. The net impact on growth is uncertain, but many estimates suggest it is either small or negative. Base-broadening measures can eliminate the effect of tax rate cuts on budget deficits, but at the same time they also reduce the impact on labor supply, saving, and investment and thus reduce the direct impact on growth. However, they also reallocate resources across sectors toward their highest-value economic use, resulting in increased efficiency and potentially raising the overall size of the economy. The results suggest that not all tax changes will have the same impact on growth. Reforms that improve incentives, reduce existing subsidies, avoid windfall gains, and avoid deficit financing will have more auspicious effects on the long-term size of the economy, but may also create trade-offs between equity and efficiency.

Bold reform is the only answer to secular stagnation - --  Larry Summers - Almost a year ago I invoked the concept of secular stagnation in response to the observation that five years after financial hemorrhaging had been staunched, the business cycle was cycling back to what had been previously thought of as normal levels of output. Secular stagnation in my version, like that of Alvin Hansen, the economist who coined the term in the 1930s, has emphasized the difficulty of maintaining sufficient demand to permit normal levels of output. But with a high propensity to save, a low propensity to invest and low inflation, this has been impossible. Nominal interest rates cannot fall below zero, as they would have to for real interest rates to be low enough to enable saving and investment to be equated with the economy producing at its full potential. Furthermore, even if potential output can be attained, it would require interest rates so low that they risk financial instability. Given the factors operating to reduce natural interest rates – rising inequality, lower capital costs, slowing population growth, foreign reserve accumulation, and greater costs of financial intermediation – it seems unlikely that the American economy is capable of demanding 10 per cent more output than it does now, at interest rates consistent with financial stability. So demand-side secular stagnation remains an important economic problem. To achieve growth of even 2 per cent over the next decade, active support for demand will be necessary but not sufficient. Structural reform is essential to increase the productivity of both workers and capital, and to increase growth in the number of people able and willing to work productively. Infrastructure investment, immigration reform, policies to promote family-friendly work, support for exploitation of energy resources, and business tax reform become ever more important policy imperatives.

Larry Summers adds concerns about insufficient supply to those about inadequate demand…to which I ask, “why go there?” -  In a WaPo oped today, Larry Summers takes a pretty gloomy view of the growth prospects of the US economy, and he throws Europe and Japan in there too for good measure. Larry’s always worth listening to on such matters, so let’s take a brief, closer look. Larry’s been righteously worrying about the economy’s demand side for a while now, including as a participant in our full employment project, wherein he co-authored this important paper with Larry Ball and Brad DeLong advocating better–as in “more responsive to slack”–fiscal policy. And, of course, his “secular stagnation” hypothesis, as he noted today, “…has emphasized the difficulty in maintaining sufficient economic demand to permit normal levels of output.”  But in this piece he adds concerns about constraints on the supply side of the economy. It’s a serious concern and one which points toward potentially lower growth, weaker labor supply (Summers’ main focus), and slower productivity growth. Basically, Larry figures that the job market is already tightening up, and given the underlying pace of monthly job growth–something north of 200K–and the stagnant-at-best trend in the labor force participation rate, we’re likely to hit labor supply constraints at some point. I guess…but that seems like an awfully high class problem to have, and I don’t see what good it does worrying about it now. To the contrary, such a focus risks sharpening the talons of inflation hawks who would pre-empt the expansion from the demand side well before Larry would like, I’m sure.

U.S. Gets Unexpected Bounty From Slow Growth Abroad -  The world’s pain is America’s gain. Weak economic growth in Europe and the rest of the world is leading to lower energy prices and interest rates in the U.S. Gasoline prices nationwide have dropped 24 cents per gallon since the start of June on ample oil supplies worldwide. The yield on 10-year U.S. Treasury notes, meanwhile, was 2.54 percent yesterday compared with 3.03 percent at the start of the year, dragged down by falling rates in Europe. “The U.S. looks golden,” said Allen Sinai, chief executive officer of Decision Economics Inc. in New York. He sees the economy expanding by about 3.5 percent in the year ending June 30, 2015, and the Standard & Poor’s 500 Index rising to 2,100 by the end of this year. The stock gauge was 1,995.69 (SPX) as of 4 p.m. in New York yesterday. Sinai, who has been tracking the U.S. and world economies for four decades, likened today’s situation to that of the late 1990s. Back then, “a wave of investments washed over into the U.S.” and energy prices plunged as rolling financial crises throughout Asia undercut global economic expansion. The current tailwind from overseas is a plus for Federal Reserve Chair Janet Yellen and her colleagues at the central bank. Falling global oil prices will help hold down inflation in the U.S., while lower Treasury yields will aid in boosting growth and reducing unemployment.

Yet Another United States Debt Record - The United States has reached yet another debt landmark.  For the first time, at the end of June 2014, foreign countries owned more than $6 trillion worth of Treasuries, in fact, they owned $6.013 trillion worth.  This is up from $5.595 trillion on June 30, 2013, an increase of 7.5 percent on a year-over-year basis as shown here: Here is a graph showing how foreign ownership of American debt has increased since 2000:  Since 2000, the amount of American federal debt owned by foreign countries has increased by 567 percent.  Here are the top three foreign owners of U.S. Treasuries:

  • China - $1.268 trillion
  • Japan - $1.219 trillion
  • Belgium - $364 billion

If we go back to June 2007, we find that Japan was the largest holder of U.S. Treasuries at $622.9 billion followed by China at $477.3 billion and the Oil Exporters (i.e. OPEC nations) at $133.2 billion.  Here's a graph that shows how China's Treasury ownership rose rapidly during the first decade of the new millennium and how it has levelled off since 2010:

How Much Is A Trillion? - One trillion is a big number. In this short clip, we try to help you get a sense for just how big; but the reality is simply that the human brain can't really suitably comprehend magnitudes this large. Which is why we should be concerned that the US' money supply has ballooned to over $12 trillion dollars over the past decade. And that its outstanding debts and liabilities are many multiples that amount. We are living in an era where our leaders are making decisions at orders of magnitude that they simply can’t truly understand. And many politicians have less expertise in math, economics or business than most of you reading this. When they vote for the next trillion-dollar bailout, raise the debt level by another trillion, or pressure the Federal Reserve for another trillion-dollar stimulus program – they don’t have any real sense of what the implications will be. No one can. We have reached the point where we’re operating in territory beyond our neural programming. As a result, unintended consequences to our current policies are guaranteed.

US CBO Estimates $129b Aug Govt Deficit Vs $148b Deficit Aug'13 -- The following are excerpts from the Congressional Budget Office's Monthly Budget Review For August released late Monday: CBO estimates that the federal government incurred a deficit of $129 billion in August 2014 - $19 billion less than the shortfall in August 2013. Because September 1 fell on a weekend in 2013 and September 1, 2014, was the Labor Day holiday, in both years certain payments that ordinarily would have been made in September were instead made in August. Without those shifts in the timing of payments, the deficit for August 2014 would have been $3 billion smaller than it was in August a year ago, CBO estimates. By CBO's estimates, receipts in August 2014 totaled $194 billion - $8 billion (or 5 percent) more than those in the same month last year. A $6 billion (or 4 percent) increase in amounts withheld from workers' paychecks accounted for the largest part of that gain. Total spending in August 2014 was $322 billion, CBO estimates - $11 billion (or 3 percent) less than outlays in the same month of 2013. However, outlays would have been $6 billion (or 2 percent) higher than they were during August 2013 if not for the effects of timing shifts. Among the larger changes in outlays this August, compared with those last August (with adjustments, when applicable, to account for the timing shifts), were the following:

  • - Outlays for unemployment benefits declined by $2 billion (or 42 percent).
  • - Spending for Social Security rose by $3 billion (or 4 percent).
  • - Outlays for net interest in the public debt rose by $1 billion (or 6 percent).
  • - Outlays for Medicare (net of offsetting receipts) increased by $1 billion (or 3 percent).

U.S. defense spending compared to other countries - We currently spend more on defense than the next 8 countries combined. Defense spending accounts for about 20 percent of all federal spending — nearly as much as Social Security, or the combined spending for Medicare and Medicaid. The sheer size of the defense budget suggests that it should be part of any serious effort to address America's long-term fiscal challenges. National security threats have evolved over the past 50 years, changing the nature of U.S. commitments around the world. We need a defense budget that matches these new security challenges, not the threats of the last century. We should also recognize that a strong economy is essential for providing the resources to meet future threats, and addressing our long-term structural debts will keep our economy strong. Indeed, as Admiral Mike Mullen, the past Chairman of the Joint Chiefs of Staff, has said: "The single greatest threat to our national security is our debt."Image | PDF | More Charts

Guess How Many Times Per Month a Stealth Bomber Pilot Actually Flies -  Some of the U.S. Air Force’s B-2 stealth bomber pilots fly their multi-billion-dollar warplanes just once a month. That’s one of the startling details in Jamie Hunter’s feature in the latest issue of Combat Aircraft magazine.. The Air Force possesses 20 B-2s, which Northrop Grumman developed and built in the 1980s and 1990s at a cost of no less than $2 billion apiece—more if you count ongoing upgrades. There used to be 21 of the radar-evading, batwing bombers, but one crashed in Guam in 2008, fortunately sparing its two-man crew. The B-2s boast special shaping and coatings to help them avoid detection. They have dropped bombs during U.S. operations in Kosovo, Afghanistan, Iraq and Libya—sometimes flying non-stop from their main base in Missouri. But the B-2s’ pilots—there have been only around 600—don’t get much practice. Their planes are complex, unreliable and too expensive to risk in everyday training.

The Pentagon’s $800-Billion Real Estate Problem -- The U.S. Department of Defense owns more than half a million properties worth in excess of $800 billion dollars. The military’s real estate holdings span the globe and, all together, sprawl across 30 million acres. Pentagon auditors can’t explain what half the properties are for—and doesn’t have a plan for finding out. All this according to a Sept. 8 report from the Government Accountability Office. The nearly trillion-dollar real estate glut is merely another example of egregious military waste. Way back in 1997, the GAO identified the Pentagon’s real estate record-keeping as a “high risk” problem. The Defense Department could sell unused facilities and save billions. It just needed to figure out exactly what buildings it owned and how it used them all. But military bureaucrats made only passing attempts to find out. The Defense Department is probably still sitting on billions of dollars worth of properties it has no use for, despite 17 years of GAO goading. “We found in September 2011 that DoD was limited in its ability to reduce excess inventory because DoD did not maintain accurate and complete data regarding the utilization of its facilities,” the GAO states in its new report. The Pentagon won’t sell off facilities because it has no idea what’s going on in many of them. Nobody’s keeping good, centralized records. Individual property managers aren’t performing mandatory audits—and the Pentagon isn’t holding them accountable.

Did Corruption in the Construction Trades Blunt the Impact of Obama’s Stimulus Package? -- McClatchy has published an impressive multi-part, multi-newsroom investigative report, “Misclassified: Contract to cheat,” covering construction spending in seven states paid for by Obama’s stimulus package. While there has been controversy over the size of the package, and over how Larry Summers structured Obama’s options for decision-making, there has been little mainstream coverage of how Obama’s stimulus package played out in the real economy, except in terms of its results, which were mediocre at best[1]. McClatchy’s series has changed that, or should. The key concept is “misclassification.” The series explains: A review of public records in 28 states uncovered widespread cheating by construction companies that listed workers as contractors instead of employees in order to beat competitors and cut costs. … The problem known as misclassification is so well-understood in the U.S. economy that government has vowed to fix it for years. Federal investigators have hammered private companies doing private work, collecting millions in back wages from restaurateurs, nail salon owners and maid services. To over-simplify: If you’re filling out a 1099 when you should be filling out a 1040, that’s misclassification. There are regulations to detect misclassification, and it is, in fact, illegal, as we see.

Blockbuster Report on Construction Industry Tax and Wage Cheating - For 12 months, McClatchy reporters have been carefully digging into a pit of corruption, gathering payroll records in 28 states and interviewing hundreds of workers and business owners about an epidemic of tax cheating, wage theft, and exploitation in the construction industry. The extraordinary report of their investigation was published Thursday, and it’s hair-raising. More than one-third of the employees working on federally-funded projects in Texas and Florida, overseen by public housing authorities and monitored by the U.S. Department of Labor, were improperly classified as independent contractors. The contractors misclassified them in order to escape paying worker’s compensation premiums, unemployment insurance taxes, and FICA taxes, to avoid complying with immigration document requirements, and to avoid liability for labor law violations. In just Florida, Texas, and North Carolina, McClatchy estimates that half a million workers were misclassified, and that the state and federal governments were cheated out of approximately $2 billion in taxes as result. The stories make the damage this does to the labor market utterly clear. Construction wages were lower in 2012 than they were in 1980, despite rising productivity and huge profits in the industry. Even skilled tradesmen like plumbers and electricians earned 12 to 14 percent less than thirty years ago. Labor law offers no protection to independent contractors, who are not entitled to the minimum wage, overtime pay, or the right to join a union and bargain collectively. Exploited workers—many of them undocumented immigrants who live in fear of deportation—work without adequate safety protections, sometimes receive far less than the pay they were promised, and are deprived of the safety net’s protections if they lose their jobs, are injured or disabled, or reach retirement age. They often live in slum conditions, even while working on luxurious and glitzy new housing.

Stimulus bill enabled billions in waste, exploitation of employees «- When Barack Obama and the Democrats on Capitol Hill forced the $800 billion stimulus bill into law, they insisted that waste, fraud, and abuse would not be tolerated. They put “Sheriff” Joe Biden on the case in March 2009, with Obama warning stimulus recipients that “around the White House, we call him the Sheriff — because if you’re misusing taxpayer money, you’ll have to answer to him.” The Department of Transportation employees gathered for the speech laughed at that statement, according to the White House transcript — and well they should have. An in-depth report from McClatchy and ProPublica shows that the ARRA lost billions of dollars to employment fraud, and that government agencies collaborated in the effort rather than crack down on it:The largest government infusion of cash into the U.S. economy in generations – the 2009 stimulus – was riddled with a massive labor scheme that harmed workers and cheated unsuspecting American taxpayers.At the time, government regulators watched as money slipped out the door and into the hands of companies that rob state and federal treasuries of billions of dollars each year on stimulus projects and other construction jobs across the country, a yearlong McClatchy investigation found. A review of public records in 28 states uncovered widespread cheating by construction companies that listed workers as contractors instead of employees in order to beat competitors and cut costs. The federal government, while cracking down on the practice in private industry, let it happen in stimulus projects in the rush to pump money into the economy at a time of crisis. Companies across the country avoided state and federal taxes and undercut law-abiding competitors. They exploited workers desperate for jobs, depriving them of unemployment benefits and often workers’ compensation insurance.

U.S. groups leery of fast-track trade deals demand transparency (Reuters) - More than 500 U.S. organizations on Wednesday urged the Obama administration to ditch the system of congressional authority to fast-track trade negotiations, demanding a more transparent method of handling trade negotiations. In a letter to U.S. Senate Finance Committee Chairman Ron Wyden, the organizations said that Trade Promotion Authority, or TPA, was outdated and undercuts congressional and public oversight. The groups, led by the Sierra Club, AFL-CIO, the Communications Workers of America, the Citizens Trade Campaign, and Public Citizen, said TPA should be replaced with a new system that gives both Congress and the public a louder voice in trade negotiations. "Fast track is the wrong track for Americans who care about the health of our families and access to clean air, clean water, and land," Sierra Club executive director Michael Brune said in a statement. "We need a new model of trade - one that protects communities and the environment while keeping the public engaged in the policy-making process." true Wyden, an Oregon Democrat, has been working on a potential TPA bill during the summer. It is unclear when his bill will be presented. The Obama administration wants Congress to quickly pass TPA as it attempts to complete two huge sweeping deals - the Trans-Pacific Partnership (TPP) with 11 other Pacific Rim countries, and the Transatlantic Trade and Investment Partnership (TTIP) with the European Union.

What Is the Ex-Im Bank Hiding? | Ken Blackwell: It seems the Export-Import Bank of the United States is once again putting up walls to keep the duly-elected representatives of the American people from getting a look at their inner workings. Ex-Im Chairman Fred Hochberg recently dashed off a letter to U.S. House Financial Services Committee Chairman Jeb Hensarling and Oversight Subcommittee Chairman Patrick McHenry in which he dismissed the committee's request to interview Ex-Im officials, shying away from what he called "the inherently adversarial nature of transcribed interviews." The Ex-Im Chairman also defended the Bank's practice of making heavy redactions to the documents they have deigned to turn over to the committee. He did, however, offer to provide "additional information if you have questions about particular redactions." This, apparently, is a man who thinks having committee staff pick out every single blacked-out word or phrase is a good use of their taxpayer-funded time. Or maybe, because he knows how prevalent these redactions are - as Chairman Hensarling put it, "more redactions than answers" - this is simply another attempt to slow-walk any investigation into the Ex-Im Bank's affairs.

IRS Releases More Detail on EITC Over-Payments - One of the major issues with the Earned Income Tax Credit is that is suffers from a high amount of payment error. In any given year, the error can amount to approximately 25% of total payments and cost $14 billion dollars. It is usually not clear exactly why these errors occur. There are two common stories behind them. The first story is about plain fraud. Taxpayers, or the preparers that help them file taxes, are purposefully misrepresenting their information in order to receive the EITC, or increase their EITC. The second story is that EITC filers, which are typically lower-income individuals with lower levels of education, are making a high number of mistakes when filing. For instance, they may claim their child as a dependent (which leads to a much larger EITC), but their ex-spouse may have claimed their child as well. The result being that one parent is non-compliant. Recently, the IRS released an update to a study it did in 1999 on the EITC and source of its high errors. The 2006-2008 EITC compliance study uses tax audit data to study the source of EITC non-compliance. While it doesn’t really answer the above questions about whether errors are fraud or mistakes, it has a few important data points that we should keep in mind

Lew says tax inverters threaten US budget - Jack Lew, the US Treasury secretary, has warned that recent cuts to the US’s $492bn budget deficit are being put at risk by American companies rushing to slash their tax bills by doing foreign takeovers. Mr Lew raised the spectre of so-called tax inversions causing fiscal harm as he reiterated the Obama administration’s determination to take executive action to discourage them “in the very near future”. The deals have sparked political outrage by enabling US companies to shift their tax domicile to a country with lower tax rates by acquiring a foreign rival. “If we allow the incentives to pursue these deals to remain in place we run the risk of undoing the progress we’ve made to reduce our federal budget deficit,” Mr Lew said on Monday. Thirteen inversion deals worth $178bn have been announced since the start of 2013, according to Dealogic, and bankers and politicians say more are in the works. “By effectively renouncing their citizenship but remaining here these companies are eroding America’s corporate tax base,” Mr Lew said in a speech in Washington. “That means that all other taxpayers, including small businesses and hardworking Americans, will have to shoulder more of the responsibility for maintaining core public functions.”

Policy Responses to Corporate Inversions: Close the Barn Door Before the Horse Bolts  - The U.S. corporate tax base is slowly leaking out of the country. U.S. multinational corporations have increasingly begun to merge with much smaller foreign corporations so as to move the corporation to a lower-tax country—a maneuver known as a corporate inversion. In essence, the corporations are giving up U.S. “citizenship” to avoid paying U.S. taxes. A number of firms have been in the news recently for pursuing inversions, including Medtronic, a Minnesota firm, which wants to become an Irish firm; AbbVie, a Chicago-based firm, which wants to become a U.K. firm;1 and Mylan, a Pittsburgh firm, which wants to become a Dutch firm. Walgreens toyed with the idea of becoming a Swiss firm, but ultimately decided against the move, almost surely in part because of the public outcry that ensued. This report examines some of the issues and policy options regarding corporate inversions. It explains what corporate inversions are, explores common tax features of proposed inversions, analyzes why many corporations are now pursuing inversions, and assesses various policy options to prevent inversions.

Corporate Deadbeats: How Companies Get Rich Off Of Taxes: You and your wallet have a big stake in huge tax-dodging deals being crafted by big American companies, like Burger King merging with Tim Hortons, the Canadian coffee and doughnut chain.Burger King is looking to swap the 35 percent corporate tax rate in the U.S. for Canada’s 15 percent rate, even though its working headquarters will remain in Miami. The little people—the millions of us who pay our taxes week to week—will pick up some of the tax burden Burger King and other multinationals shirk through these so-called inversions, in which they move their headquarters, on paper, to escape taxes while continuing to enjoy all the benefits of doing business in America.It’s just one of several ways multinationals don’t pay their fair share, and they get away with it because the federal government encourages such behavior. If Congress taxed you the way it taxes multinational corporations, you would have a much fatter wallet. If you were Apple, General Electric, Google or Microsoft, taxes would not be a burden at all. Instead, taxes would help you prosper. How can a tax burden become a boon? Simple. Congress lets multinationals earn profits today but pay their taxes by-and-by. In effect, Uncle Sam is loaning these companies all that money they do not immediately turn over as taxes. And all of these loans come with the same attractive interest rate: zero. Imagine how your bank statement would look if, instead of having taxes taken out of your weekly paycheck, Congress let you keep that dough in return for your promise to pay your taxes years or decades from now—and sometimes, never. That’s the extraordinary deal Congress gives many big American companies now sitting on hundreds of billions of dollars of what are, essentially, interest-free loans.

U.S. corporate tax code to blame for inversion trend -  Mark Zandi - What do Burger King, Chiquita, the Eaton Corp., and generic drug maker Mylan have in common? They no longer are or want to be American companies. They have acquired or are acquiring smaller foreign firms, and moving their headquarters abroad. What gives? Why have so many companies renounced or considered giving up American citizenship? Is it high labor costs, inadequate infrastructure, or regulatory red tape? The answer is the U.S. corporate tax code. It is a mess. Some companies pay little tax because of loopholes in the code designed just for them. Financial institutions, energy companies, and some manufacturers make out very well. But less favored companies pay a lot, at least compared with what they would if they were headquartered overseas. The top federal corporate tax rate is 35 percent, and after state and local taxes are added, the rate rises to almost 40 percent. The average corporate tax rate in other developed countries — our competitors — is closer to 25 percent. U.S. firms also pay higher taxes on profits they earn overseas when they bring that income home. This is unique: Other developed nations allow their companies to pay the prevailing tax rate in the countries where they earn profits. Since U.S. multinationals don’t want to pay the high U.S. tax rate on their overseas earnings, they park that money abroad. More than $2 trillion in untaxed U.S. corporate profits now resides in foreign bank accounts.

Why Are So Many U.S. Corporations Trying to Invert? - On an almost weekly basis, a U.S. corporation announces that it is merging with a small foreign firm and re-incorporating in the foreign country, in what is known as a corporate inversion. Corporate executives and their apologists argue that the main cause of corporate inversions is the anti-competitive U.S. tax environment. For proof, they point out that, at 39.1 percent, the United States has the highest statutory corporate tax rate in the developed world. The average statutory rate for 16 other economically advanced countries (weighted by their relative economic importance) is 29.6 percent.  Defenders of inversions, however, conveniently ignore all the other features of the tax code that affect how much a corporation actually pays in corporate income taxes, such as deductions, exemptions, and tax credits. What is important to a taxpayer is how much they pay in taxes, not just the statutory tax rate they might face. The effective tax rate—the tax rate that firms actually pay—is lower than the statutory tax rate. As the figure shows, due to loopholes and tax breaks, the average effective U.S. corporate tax rate is 27.7 percent. This is not different from the average of 16 similar, economically advanced countries. (Like the United States, these countries are long time democracies with reasonably well developed legal protections.) The bottom line is U.S. corporations are not inverting because the United States has a high statutory corporate tax rate. They are inverting to get tax-free access to their stash of tax-deferred offshore earnings—in other words, they do not want to pay taxes they already owe. As explained in the new EPI report Policy Responses to Corporate Inversions: Close the Barn Door Before the Horse Bolts, the recent uptick in inversions is threatening to cost the American taxpayer billions in lost revenue.

Treasury’s Lew Says Anti-Inversion Decision Will Come Soon, But Offers No Hints About What Or When - In a speech today at the Tax Policy Center, Treasury Secretary Jack Lew said the agency will decide “in the very very near future” how it will respond to the recent wave of tax-motivated corporate inversions.  Lew strongly urged Congress to curb the practice on its own, but suggested Treasury might move administratively if lawmakers did not act. He gave few hints about what that response would be, however. Lew said a legislative fix should be retroactive to last May and urged Congress to act quickly, as the White House has said throughout the summer. But, he added, “The administration is clear-eyed about the possibility that Congress may not move as quickly as necessary to respond to the growing wave of inversions.  Given that, the Treasury Department is completing an evaluation of what we can do to make these deals less economically appealing.” After his presentation, a panel of tax and regulatory experts debated whether Treasury has the authority to act administratively against inversions and, if so, whether it should take such a step. Not surprisingly, the panelists disagreed. Three– Harvard law professor Steve Shay, TPC’s Steve Rosenthal , and NYU law professor Sally Katzen– suggested Treasury does have broad power to act. “There is no doubt,” said Shay. “Of course, Treasury has the authority,” said Rosenthal.

Goldman Warns "Something Has To Give" On Tax Inversions - Treasury Secretary Lew's comments on tax reform yesterday indicate that in the absence of legislative activity to address the expatriation of US-based companies, the Treasury will lay out its own plans "in the very near future." Goldman interprets this to mean an announcement in the next couple of weeks. While the substance of the Treasury's forthcoming announcement is still unknown, Lew's comments seemed consistent with Jan Hatzius' expectation that the steps the Treasury will announce will be incremental and not enough to fundamentally alter the outlook for these transactions.

Durbin-Schumer Inversion Proposal: Bernie Becker reports on an interesting proposal in the Senate:Schumer’s bill takes aim at a maneuver known as earnings stripping, a process by which U.S. subsidiaries can take tax deductions on interest stemming from loans from a foreign parent. The measure comes as Democrats continue to criticize companies, like Burger King, that have sought to shift their legal address abroad … Schumer’s bill would cut in half the amount of interest deduction that companies can claim, from 50 percent to 25 percent. It also seeks to limit companies that have already inverted from claiming the deduction in future years, requiring IRS on certain transactions between a foreign parent and U.S. company for a decade. Had Walgreen decided to move its tax domicile to Switzerland, this proposal would limit the amount of income shifting that might take place after the inversion. But consider companies like Burger King and AbbVie. They are already sourcing the vast majority of their profits overseas. The reason that the effective tax rates are about 20 percent and not in the teens is that they have to pay taxes on repatriated earnings. An inversion would still eliminate the repatriation taxes and alas the horse has left the barn as far these two companies and their aggressive transfer pricing. The proposal is a very good one but Congress should still encourage the IRS to conduct transfer pricing reviews of what companies such as these have done in the past.

Taxes and Growth - William Gale and Andy Samwick have a new Brookings paper out on the relationship of tax rates and economic growth in the U.S.  Short answer, there is no relationship. They do not identify any change in the trend growth rate of real GDP per capita with changes in marginal income tax rates, capital gains tax rates, or any changes in federal tax rules.  One of the first pieces of evidence they show is from a paper by Stokey and Rebelo (1995). This plots taxes as a percent of GDP in the top panel, and the growth rate of GDP per capita in the lower one. You can see that the introduction of very high tax rates during WWII, which effectively became permanent features of the economy after that, did not change the trend growth rate of GDP per capita in the slightest. The only difference after 1940 in the lower panel is that the fluctuations in the economy are less severe that in the prior period. Taxes as a percent of GDP don’t appear to have any relevant relationship to growth rates.

Meet The Puppetmasters: Here Are The 25 Most Politically Influential Billionaires In The US -- It has been said, correctly, if only by those who see beyond the false "left-right" paradigm, that those who call the shots in US politics, and thus American socio-economics, are not so much America's lobbying corporations, but the people behind the corporations - i.e., those who have the money... all of it. Obviously, nobody has more money than America's billionaires. So who are the true puppetmasters who determine America's fate? For one answer we turn to Brookings Institution Governance Studies Director Darrell West in whose upcoming book "Billionaires: Reflections on the Upper Crust" ranks the 25 most influential American billionaires.

They’re Coming for Your Accounts -- Nearly all of us grew up thinking that we registered ourselves to prove that we were safe and responsible. We advertised our services as “registered” or “licensed,” and we never thought about it beyond that point. After all, that was the way things were done, and we knew that it would help our customers trust us. There is, however, another side to registration, one that’s about to bite a lot of decent people… and hard.  What did we do when we registered with a government agency? We gave them our name, address, birthdate, and so on. If we thought about it at all, we thought that they were acting as some kind of guarantor of our services. But what really happened was that we told them how to find us and hurt us. Registration involves making ourselves easy to find by enforcers, and placing ourselves at their mercy. Yes, I know that we did it ignorantly (I know I certainly did) and out of necessity, but we did hand our best “how to find me” information to enforcement agencies. Now, what I’ve described above involves commercial and professional registrations. Unfortunately, the same thing applies to bank accounts and retirement accounts. When you register those with a government, you’re telling them where your money is and making it very easy for them to seize it.

Finally, Wall Street gets put on trial: We can still hold the 0.1 percent responsible for tanking the economy - Obama’s Department of Justice has thus far shown virtually no interest in holding leading bankers criminally accountable for what went on in the last decade. That is ruled out not only by the Too Big to Jail doctrine that top-ranking Obama officials have hinted at, but also by the same logic that inspires certain conservative thinkers—that financiers simply could not have committed fraud, since you would expect fraud to result in riches and instead so many banks went out of business. “Benjamin Wagner, a U.S. Attorney who is actively prosecuting mortgage fraud cases in Sacramento, Calif., points out that banks lose money when a loan turns out to be fraudulent,” reported a now-famous 2010 story in the Huffington Post. “But convincing a jury that executives intended to make fraudulent loans, and thus should be held criminally responsible, may be too difficult of a hurdle for prosecutors. ‘It doesn’t make any sense to me that they would be deliberately defrauding themselves,’ Wagner said.” So forget those thousands of hours of Congressional investigation and those thousands of pages of journalism on the crisis. It doesn’t make any sense to the man in charge. No jury would be convinced. Case closed. As it happens, a trial just ended in Sacramento in which a jury was convinced that “executives intended to make fraudulent loans.” Here’s the thing, though: It wasn’t the government that made the case against the financiers; it was the defendants.

SEC Faces Renewed Pressure to Consider a Corporate Disclosure Rule -- The campaign to lift the veil on secret corporate campaign donations hit a milestone on Thursday. More than 1 million comments have been submitted to the US Securities and Exchange Commission calling for a requirement that corporations disclose political spending to their shareholders—ten times more than for any other rule-making petition to the SEC, according to the Corporate Reform Coalition. “Investors want to know how their money is being spent,” Tim Smith, director of shareholder engagement at the firm Walden Asset Management, said at a press conference outside the SEC in Washington. A sign over his right shoulder read, “Your money is being invested in secret. Why is the SEC doing nothing?” Campaign finance reformers have long been pushing for the rule, which the SEC was slated to consider in 2013. But Mary Jo White, who took over as head of the agency that year, removed the proposal from the SEC’s agenda. The agency claims to be swamped with other regulations related to the 2010 Dodd-Frank Wall Street Reform Act and other legislation. But shelving the corporate disclosure rule was a win for business groups like the Chamber of Commerce and Republicans, who’d strongly opposed it.

Nomi Prins on the Credit Derivatives Systemic Risk Bomb - Yves Smith  -(video) Yves here. Former Goldman managing director turned journalist Nomi Prins spoke on RT about unresolved systemic risk issues, most importantly, credit derivatives, which for the most part means credit default swaps. Prins stresses the interconnectedness problem, which was earlier identified by Richard Bookstaber in his book A Demon of Our Own Design as “tight coupling.” Processes can spiral out of control when they are so tightly connected that they move through a series of steps so rapidly that they cannot be interrupted. The systemic risk version of that problem is when a failure to perform on certain contracts leads to cascading defaults at other counterparties, quickly turning into an avalanche of failures. It’s also worth noting that the CDS market is already under scrutiny for alleged price fixing. If these charges hold up, it could be another Libor-level scandal. From Reuters:   A Manhattan federal judge said on Thursday that investors may pursue a lawsuit accusing 12 major banks of violating antitrust law by fixing prices and restraining competition in the roughly $21 trillion market for credit default swaps. This RT segment starts with a short update on Scottish secession, focusing on the issue of whether Scotland creates its own currency. England says it can’t continue to use the pound. The discussion of systemic risk and credit derivatives starts at 3:20.

SIPC Insurance Scam from Fraud Street - Professor Laurence Kotlikoff: Renowned economics professor Laurence Kotlikoff says SIPC (Securities Investor Protection Corporation) is an insurance scam from Fraud Street. Dr. Kotlikoff contends, “If you look at the history of their response as it’s been discovered, they (SIPC) have been fighting tooth and nail never to pay a dollar. So, the situation is not that we don’t have any insurance for your brokerage account, it’s far worse. . . . There’s a Ponzi scheme discovered every four days, according to a recent New York Times article. So, they can declare a fraud very easily.” As an example, Dr. Kotlikoff gives someone who lost $2 million and is expecting to get back at least the SIPC insurance claim of $500,000, the maximum payout. Instead of getting money back, SIPC expects money back from you! Dr. Kotlikoff explains, “So, you are at double jeopardy here. It’s not just that you can get totally screwed by a brokerage firm, which is happening every four days because a Ponzi scheme is being discovered, you can also be at great jeopardy by SIPC itself.” Meaning, SIPC cannot only deny your claim, but it can sue you for any profits you made beyond your original investment if there are losses because of a fraudulent brokerage. Dr. Kotlikoff adds, “So, they are running a complete insurance scam. It’s a disgrace. There is a bill in front of Congress that would correct this, but so far, members of Congress have not pushed it through.”

Main St’s subprime lenders hit headwinds - the ads on the windows of Conn’s appeal to a slightly different area of conspicuous consumption – “zero per cent interest for 36 months” on loans used for furniture purchases, plus instant credit approval. For five decades, Conn’s has conducted a business best described as subprime lending paired with the selling of home goods and appliances. The company says it caters primarily to “blue-collar workers” with “low disposable incomes” by providing loans which enable them to buy everything from mattress sets to flatscreen TVs.  With interest rates held low by the Federal Reserve, Conn’s has been able to tap into a cheap floating-rate credit facility – provided by more than a dozen banks – to expand its financing capacity, enabling its customers to buy more of its goods. This cheap credit has allowed Conn’s profits and share price to explode – net income has jumped from $7.7m in 2010 to $93.4m in the latest fiscal year. Shares have climbed from a low of $3.39 in 2010 to a high of $77.63 at the start of 2014. Conn’s is illustrative of a widespread trend in today’s markets. The kind of subprime home mortgage lending that fuelled the financial crisis has largely diminished, but pockets of subprime consumer lending undertaken by speciality non-bank companies have been booming. Easily available corporate credit and buoyant bond markets spurred by yield-hungry investors have helped give rise to a new crop of lenders willing to extend money to those with less than pristine credit histories. Subprime auto lenders are a well-known example, with additional players regularly entering the market to extend auto financing to consumers with low credit scores.

Warren Faults Banking Regulators for Lack of Criminal Prosecutions -- Lawmakers criticized the Federal Reserve and other government agencies for failing to hold individuals accountable for the actions that led to the financial crisis despite reaching record settlements with some of Wall Street’s biggest banks over mortgage misdeeds. The questions prompted Fed Gov. Daniel Tarullo, the regulatory point man at the central bank, to suggest the Fed could ban individuals at large banks from working again in the industry even if the bank reached a legal settlement with the government over misdeeds. Mr. Tarullo said during a Senate Banking Committee hearing Tuesday the Fed was “conducting investigations” to that effect, but didn’t elaborate. “You are supposed to refer cases to the Justice Department when you think individuals should be prosecuted,” Sen. Elizabeth Warren (D., Mass.) told Mr. Tarullo and other regulators Tuesday, adding that hundreds of individuals were prosecuted after the savings and loan crisis in the 1980s. “Without criminal prosecutions, the message for every Wall Street banker is loud and clear. If you break the law, you are not going to jail but you might end up with a much bigger paycheck.” Sen. Richard Shelby (R., Ala.), who could take the gavel of the committee should Republicans re-take the Senate in the November elections, said he agreed with Ms. Warren’s outrage over the lack of jail time for bankers – a noteworthy statement since the two don’t often agree on policy. Mr. Shelby however laid the blame on the U.S. Justice Department rather than banking regulators who don’t have the power to bring criminal charges against bank executives. No one in the financial sector or elsewhere should be “able to buy their way out from culpability when it’s so strong it defies rationality – I agree with her on that,” Mr. Shelby said. “Ultimately, it seems like the Justice Department seems bent on money rather than justice and that’s a mistake.”

Jamie Dimon Gets a Personal Call from the Prez; Seniors Get Garnished --  Sometimes we have to pinch ourselves to make sure we are not sleepwalking in a Dickensian dream. Earlier this week we heard Senator Elizabeth Warren tell a Senate Banking session how JPMorgan’s CEO, Jamie Dimon, got a $8.5 million raise after craftily negotiating away all of the bank’s crimes with the payment of billions in shareholders’ money. (Two of those crimes, by the way, were felony counts for aiding and abetting Bernie Madoff in his Ponzi scheme – also craftily settled under a deferred prosecution agreement with the Justice Department, which effectively puts the bank on probation for two years.) Last night, the Wall Street Journal informed the public that, apparently, none of this criminal activity at JPMorgan has dulled President Obama’s fondness for its CEO Jamie Dimon, who has recently been undergoing treatments for throat cancer.  The Journal reported: “During one of his earliest treatments, Mr. Dimon received a call on his cellphone from President Barack Obama, who wished him a healthy recovery, the bank confirmed.” One day before the news of the President’s phone call to Dimon emerged, we learned from the U.S. Senate’s Special Committee on Aging and the Government Accountability Office (GAO) that some senior citizens are having their Social Security payments garnished over unpaid student loan debt, forcing them below the poverty threshold. The GAO’s study, derived from the Survey of Consumer Finances, found that 706,000 households headed by those 65 or older still carry student loan debt. Stunningly, the outstanding federal student debt for this age group grew from approximately $2.8 billion in 2005 to an estimated $18.2 billion in 2013.  For persons of all ages, Federal student loan debt has risen from $400 billion to more than $1 trillion during the same period.

Apple Pay and the CFPB - Apple Pay has been getting a lot of attention, and I hope to do a longer post on it, but for now let me highlight one possible issue that does not seem to have gotten any attention. I think Apple may have just become a regulated financial institution, unwittingly. Basically, I think Apple is now a "service provider" for purposes of the Consumer Financial Protection Act, which means Apple is subject to CFPB examination and UDAAP. Here's the argument. Be warned:  this is a romp through some legal definitions.  The CFPB has authority over two classes of people:  "covered persons" and "service providers".  The CFPB has authority over these classes to the extent they are offering a "financial product or service."  Apple does not currently fit within the definition of "covered person" because it is not offering a "financial product or service".  Apple Pay does not actually transmit funds (they way, say PayPal does); that's why Apple doesn't have a MSB license (as far as I'm aware). But even if one isn't a "covered person," one can still be a "service provider" to a covered person. I think there's a reasonable case that Apple is a "service provider" by virtue of Apple Pay. A "service provider" must provide "a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service".  Card issuers are covered persons, and Apple is providing a material service in connection with a consumer financial product--a credit card. 

Has Apple Pay Just Put Apple in the CFPB’s Crosshairs? - Yves Smith  - I strongly suggest you read Georgetown law professor Adam Levitin’s new post on why he believes Apple’s newly announced Apple Pay service puts Apple under the CFPB’s jurisdiction but virtue of having made itself a regulated financial institution. And Levitin means all of Apple’s consumer services, not just Apple Pay. He believes that Apple is now a “service provider” under the Consumer Financial Protection Act. That makes Apple subject to CFPB examination and UDAAP. Levitin makes clear that his reading is preliminary. My gut is that he’s correct, but that the CFPB will choose to use its powers narrowly rather than expansively. But that may not save Apple from the attentions of state-level enforcers.  Here is the guts of Levitin’s analysis:The CFPB has authority over two classes of people: “covered persons” and “service providers”. The CFPB has authority over these classes to the extent they are offering a “financial product or service.” Apple does not currently fit within the definition of “covered person” because it is not offering a “financial product or service”. Apple Pay does not actually transmit funds (they way, say PayPal does); that’s why Apple doesn’t have a MSB license (as far as I’m aware). But even if one isn’t a “covered person,” one can still be a “service provider” to a covered person. I think there’s a reasonable case that Apple is a “service provider” by virtue of Apple Pay. A “service provider” must provide “a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service”. Card issuers are covered persons, and Apple is providing a material service in connection with a consumer financial product–a credit card.  The “service provider” definition explicitly includes those anyone who “participates in designing, operating, or maintaining the consumer financial product or service”.

Federal Reserve Signals Intent to Pressure Largest Banks to Slim Down -  The Federal Reserve, mindful that some banks are still so big that their failure could weigh on the wider economy, said on Monday that it planned to increase the pressure on large financial firms to shrink.Daniel K. Tarullo, the Fed governor who oversees regulatory policies, signaled the central bank’s intent in testimony that he is scheduled to give before the Senate Banking Committee on Tuesday. In particular, Mr. Tarullo said that the Fed would propose special capital requirements for the largest banks that will be even higher than those demanded under international banking regulations.“We intend to improve the resiliency of these firms,” Mr. Tarullo said. “This measure might also create incentives for them to reduce their systemic footprint and risk profile.”The speech sets out to update Congress on how much progress regulators have made with the Dodd-Frank Act, which was passed in 2010 to overhaul the financial system.The part of his remarks that could unsettle large Wall Street firms has to do with capital. When regulators increase capital requirements, it forces banks to borrow less money to finance their lending and trading. The theory is that banks that rely less on borrowing are more stable because they are getting more of their financing from shareholder funds, which do not have to be repaid at short notice when turbulence hits.

Unofficial Problem Bank list declines to 437 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Sept 5, 2014.  The Federal Reserve terminating two actions were the only changes to the Unofficial Problem Bank List this week. After removal, the list holds 437 institutions with assets of $138.9 billion. A year ago, the list held 704 institutions with assets of $249.8 billion. The Fed terminated actions against Commercial Bank, Harrogate, TN ($771 million) and American Bank, Bozeman, MT ($313 million). With these terminations, there are only 44 or 5.1 percent of the 858 banks supervised by the Fed operating under a formal enforcement action. In comparison, 6.2 percent of the state non-member banks supervised by the FDIC and 10.5 percent of the national banks supervised by the OCC are operating under a formal agreement. Next week should be as quiet as the OCC will likely not provide an update on its enforcement action activity until September 19th.

Time to End Ethnic Profiling in Prosecuting Mortgage Fraud - --  William K. Black -- I am returning to my series of articles about the pathologies that have caused the Department of Justice (DOJ) to suffer a strategic failure in prosecuting the banksters that led the three fraud epidemics that caused the financial crisis and the Great Recession.  I have been inspired by Tom Frank’s column in Salon covering our successful defense of a mortgage fraud case in Sacramento.  This column addresses the single most offensive thing I learned in the course of that case.  Under U.S. Attorney Ben Wagner’s leadership the Eastern District of California has begun targeting immigrants of Russian descent for mortgage fraud prosecutions.  The links are all broken because the Sacramento Bee does not preserve its links, but the spoor of those links shows that the paper has repeatedly written that Wagner’s mortgage fraud prosecutions now target dozens of Russian-Americans.  This should be immediately suspicious, for mortgage fraud was, according to Wagner’s theories, committed by over three million Americans in 2006 alone.  The incidence of fraud in “liar’s” loans, in the study relied upon by the federal government, including key members of DOJ’s task forces against mortgage fraud, was 90 percent.  By 2006, roughly 40 percent of all home mortgage loans originated – well over two million – were liar’s loans.  That means that there were over two million fraudulent mortgage loans, and over three million borrowers signing the notes on those loans.  Far from being an “ethnic” crime, mortgage fraud was ubiquitous in the United States and the United Kingdom (where 45% of all the loans made in 2006 were liar’s loans).I was preparing to excoriate Wagner for his selective prosecutions of a disfavored minority when, to my horror, I found that the FBI is also promoting mortgage fraud as an ethnic crime.

Loan Forgiveness Isn’t the Best Use of Government Resources, Paper Says - A new paper says that government policies to fund mortgage debt reduction for underwater homeowners, while helpful, are a less efficient use of government resources than other types of mortgage relief, including refinancing. Rather than reduce overall debt, the first order of business in a housing crisis should be to reduce monthly mortgage payments for cash-strapped borrowers, which would help avoid immediate foreclosures and the associated drop in consumer spending. The paper is being presented Thursday at a conference hosted by the Brookings Institution. Ms. Eberly, who served as the chief economist at the Treasury Department from 2011 to 2013, played a key role shaping the retooling of the government’s loan-modification programs over that time. The paper is noteworthy because the Obama administration has sustained heavy criticism for not doing more to reduce mortgage debt for troubled borrowers, including this year with the publication of House of Debt, a book by Amir Sufi of the University of Chicago and Atif Mian of Princeton University. Messrs. Sufi and Mian have said failing to cut loan balances for heavily indebted homeowners has been one of the main shortcomings of the Obama administration’s financial-crisis response.

How Unemployment Insurance Helps Prevent Foreclosures - An updated tally by Moody’s Analytics shows that 6.5 million homeowners have lost their homes in the housing bust so far. And for most of them, the proximate cause of foreclosure was unemployment. Losing a job meant losing the income to pay the mortgage, while depressed house values meant that struggling homeowners could not tap their equity to help cover their monthly expenses or sell at a price high enough to pay off their mortgage.Many unemployed homeowners, however, managed to hang on. A new study explains how.The study, undertaken by researchers at the Federal Reserve Board of Governors and Northwestern University and summarized here by the Times’s Lisa Prevost, found that from July 2008 through December 2012, $250 billion in federally funded unemployment benefits helped homeowners avoid an estimated 1.4 million foreclosures. That eclipses the 800,000 foreclosures that were prevented as of 2013 by the government’s main anti-foreclosure program, Home Affordable Modification Program, or HAMP. At its outset in 2009, HAMP was touted as a way to help 4 million people avoid foreclosure, but the effort was doomed by its poor design and chaotic execution.The study also found that by preventing foreclosures, the $250 billion in federal jobless benefits saved the government $46 billion it would otherwise have lost on government-backed mortgages and avoided $70 billion in deadweight losses from foreclosures, including the decline in value of nearby properties and the destruction of value in deteriorating vacant homes.

MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey, Refinance Activity Lowest since 2008 -  From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey - Mortgage applications decreased 7.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 5, 2014. This week’s results included an adjustment for the Labor Day holiday. ... The Refinance Index decreased 11 percent from the previous week, to the lowest level since November 2008. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier, to the lowest level since February 2014. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.27 percent, the first increase in four weeks, from 4.25 percent, with points increasing to 0.25 from 0.24 (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 76% from the levels in May 2013 and at the lowest level since 2008. 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 12% from a year ago. Star

U.S. mortgage applications fall to lowest since Dec 2000: MBA (Reuters) - Applications for U.S. home mortgages fell last week to the lowest since December 2000 as interest rates rose for the first time in four weeks, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 7.2 percent in the week ended Sept. 5. The MBA's seasonally adjusted index of refinancing applications dropped 10.7 percent to the lowest since November 2008, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 2.6 percent. true Fixed 30-year mortgage rates averaged 4.27 percent in the week, up from 4.25 percent the week before. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

Mortgage applications plummet, down 7.2% -  Mortgage applications decreased 7.2% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending September 5, 2014. This week’s results included an adjustment for the Labor Day holiday. The Market Composite Index, a measure of mortgage loan application volume, decreased 7.2% on a seasonally adjusted basis from one week earlier, to the lowest level since December 2000. On an unadjusted basis, the Index decreased 17% compared with the previous week. The Refinance Index decreased 11% from the previous week, to the lowest level since November 2008. The seasonally adjusted Purchase Index decreased 3% from one week earlier, to the lowest level since February 2014. The unadjusted Purchase Index decreased 14% compared with the previous week and was 12% lower than the same week one year ago. The refinance share of mortgage activity decreased to 55% of total applications from 57% the previous week. The adjustable-rate mortgage share of activity decreased to 7.5% of total applications from 7.8% the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.27%, the first increase in four weeks, from 4.25%, with points increasing to 0.25 from 0.24 (including the origination fee) for 80% loan-to-value ratio loans. The effective rate increased from last week.

Trulia: Asking House Prices up 7.8% year-over-year in August -- From Trulia chief economist Jed Kolko: Slow and Steady Now Winning the Home-Price Race Nationally, the month-over-month increase in asking home prices rose to 1.0% in August, up a bit from 0.7% in July. Asking prices rose 7.8% year-over-year, slower than one year ago, in August 2013, when asking prices were up 9.9% year-over-year. At the local level, asking prices rose year-over-year in 96 of the 100 largest U.S. metros. ...Foreclosures have shaped where and when home prices have recovered. Foreclosed homes tend to depress neighboring home values and sell at a discount. But once most of the foreclosures in a market are sold, then overall inventory tightens – especially at the low end – giving home prices a boost. In states with a “non-judicial” foreclosure process (such as California, Michigan, and Texas), foreclosures don’t have to go through the courts. That means homes in non-judicial states are foreclosed and sold more quickly than in states with a “judicial” process (such as Florida, Illinois, and New York). As a result, the foreclosure wave cleared sooner and faster in non-judicial states, and housing markets in those states got an earlier and sharper price boost. In five of the 25 largest rental markets, rents rose more than 10% year-over-year. Three of these five are in northern California: Sacramento, San Francisco, and Oakland have the highest rent increases in the country, followed by Denver and Miami. Rents rose faster year-over-year in August than three months ago, in May, in 20 of the 25 largest rental markets. In August compared to May, rents accelerated most in Sacramento while cooling in San Diego. Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases over the next few months on a seasonally adjusted basis.

FNC: Residential Property Values increased 7.4% year-over-year in July -- FNC released their July index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.6% from June to July (Composite 100 index, not seasonally adjusted). The other RPIs (10-MSA, 20-MSA, 30-MSA) increased between 0.4% and 0.6% in July. 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 July, with the 100-MSA composite up 7.4% compared to July 2013.   For FNC, the YoY increase has been slowing since peaking in February at 9.4%. The index is still down 19.5% from the peak in 2006.This graph shows the year-over-year change based on the FNC index (four composites) through July 2014. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.  All of the price indexes are now showing a slowdown in price increases.

‘Wealth Effect’ Kicks in – Luxury Homes Are Hot, Rest of Housing Market Gets Hosed -  Wolf Richter - Home sales have been declining since last fall and in some cases steeply, with memories of bidding wars early last year triggering wistful sighs. The sales decline continued into the summer, and indications are that they’re dragging into September as well. But the median sale price continued to rise, if at a slower rate, and in many areas has moved out of reach for the median-income household.  Unsold inventories are rising. This has hit new homes the hardest. Otherwise exuberant homebuilders – they’re licking their chops about the sky-high asking prices – are complaining about foot traffic just as inventories have reached 6 months’ supply [Drowning in Unsold New Homes?]. Home sellers have gotten nervous, and 24% of them across the country lowered their listing prices in July to entice potential buyers to show up. And home flippers are finding their business model – buy low and sell high – under pressure [Home-Flipping Collapses in San Francisco, Losses Spread ].  But hey – no worries at the upper end. In the luxury housing market, it has always been a long drawn-out process to sell a home. There aren’t that many people around with the means to buy these properties, and sellers usually aren’t that desperate and don’t have to sell and thus can hang on to their homes for years. In that rarefied air, the housing market is booming, and the time it takes for a luxury home to sell is dropping.

Decelerating Growth for New Home Sale Prices - Evidence continues to mount that all is not well for the new home sales market in the United States. Now that we're armed with the most recent data available for median new home sale prices and median household income through the month of July 2014, let's update the picture of where things stand for the consumers of new homes being built throughout the United States:  We observe a scenario in today's new housing market that very much echoes the early phases of the topping out of the first U.S. housing bubble after September 2005. Here, after a very robust period of growth during the major inflation phase of the first bubble, where the median sale prices of new homes in the U.S. were rising on average by $21 for every $1 increase in median household income, the rate at which new home sale prices were escalating began to slow significantly before flattening out through November 2007, then crashing as the U.S. economy began to contract in a major recession. Today, we see that the major inflation phase for the second U.S. housing bubble ran from July 2012 through July 2013, as median new home sale prices rose by $25 for every $1 that median household income increased during that period. Since then, that pace of growth would appear to be decelerating and, since January 2014, to increasingly be flattening out. We're also increasingly seeing the situation where new home builders are boosting the incentives offered to new home buyers without boosting prices, which once again reflects what happened during the topping out or stagnation phase of the first U.S. housing bubble.

Housing price cuts point to a shift in Southland market - The latest sign that buyers are gaining leverage in Southern California's housing market: Price cuts are back. The number of homes with reduced asking prices has risen sharply in recent months ... In Orange County, the region's priciest market, about one-third of sellers have been forced to cut prices, according to data from real estate firm Redfin. ... These trends have been building all year. But home sellers -- often the last to see market shifts -- are finally getting the message, said Paul Reid, a Redfin agent in Temecula."A lot of what we've seen over the last six or eight weeks is people lowering their prices to get buyers in the door," Reid said.

There Goes The "Housing Recovery": Record Few Americans Think "Now Is A Good Time To Buy A Home" - When one thinks "recovery", some of the images envisioned include a healthy labor market (not one saturated by part-time, low wage jobs), rising earnings (not wages that have stagnated for years and in real terms are at Lehman levels) and a vibrant housing market in which new home buyers enter with confidence, and where mortgage loans are abundant and available to qualified creditors. One certainly does not imagine a housing "market" dominated by Chinese, Russian and Arab monely-laundering oligarchs, where half of all transactions are "all cash", and where, as Fannie Mae just reported, the number of Americans who said "now is a good time to buy a home" plunging to 64% - the lowest print in survey history!

Why Aren’t More Renters Becoming Homeowners? - NY Fed - Recent activity in the U.S. housing market has been widely perceived as disappointing. For instance, sales of both new and existing homes were about 5 percent lower over the first half of 2014 than over the first half of 2013. From a longer-term perspective, a striking statistic is that the homeownership rate in the United States has fallen from 69 percent in 2005 to 65 percent in the first quarter of 2014. This decrease in homeownership is particularly pronounced for younger households, implying that many of them are remaining renters for longer than in the past. In this post, we use survey evidence to shed some light on what is driving this sluggish transition from renting to homeownership.  Understanding the rate at which renters enter homeownership is important for several reasons. One, first-time homebuyers (mostly former renters) generally account for a substantial portion of home sales. (The share going to first-time buyers has historically amounted to 30 to 50 percent of all home sales.) Two, in the time series, renter-to-owner transition flows tend to lead the business cycle and house price growth.     What could be inhibiting the flow of renters into homeownership? Is it that renters today simply do not want to own because of changed attitudes toward housing, as sometimes hypothesized in the popular press? Or are they prevented from entering homeownership by fundamental factors, such as low incomes and weak personal finances, coupled with difficult access to mortgage credit? To help answer these questions, we use data from a special module on housing-related issues in the New York Fed’s Survey of Consumer Expectations, fielded in February 2014 to 867 homeowners and 344 renters. For more information on the survey, see our earlier post.

Why More Renters Aren’t Buying (Hint: Weak Incomes, Savings) - A new survey says that younger workers and other renters aren’t turning away from homeownership because they lack the desire to own homes. Instead, they’re staying on the sidelines because they lack the capacity to purchase. The analysis from the New York Federal Reserve Bank comes via their survey of consumer expectations in February. It polled 867 homeowners and 344 renters on their attitudes toward homeownership and their plans to move. One popular trend cited frequently in the press is that millennials and other renters have permanently turned away from owning homes after watching their parents’ generation take it on the chin during the housing bust.  But the New York Fed researchers say their survey points to a different conclusion: borrowers want to buy, but they can’t cut it financially. Conservative mortgage lending standards are only likely to exacerbate this problem. Their summary offers three takeaways. First, a majority of renters opt against owning because their incomes or savings are too low, or their debts too high, to handle homeownership. Around 40%, moreover, say their credit isn’t good enough. Second, the research shows that renters, on balance, think it’s hard to get a mortgage. And the findings suggest that the perceived ease of credit access is tied to the probability of buying.  Third, the research shows that psychological damage from the housing-price collapse may be overstated. It wouldn’t be a shock for renters to look at the collapse in home prices between 2005 and 2008 and conclude that owning a home is a bad financial deal. But the New York Fed survey doesn’t find a lot of evidence to back up that idea.

NYC Building Selling 10 Parking Spots For $1 Million Each Because Obviously - There you are, sitting in the midst of all those piles of cash, having bought all the things you’ve ever dreamed of buying (an end to student loan debt, a cheese cave for every home and a yacht named The Aaron Rodgers) and the garbage bin is entirely full. But how will you throw your money away now? Perhaps you’d be interested in owning one of 10 million-dollar parking spots in New York City.  Yes, in The City That Never Sleeps Because It’s Too Busy Spending Money On More Stuff, there are 10 underground bits of real estate in SoHo that cost more per square foot than the apartments upstairs, reports the New York Times.The new development is offering the spots on a first-come, first-served basis to anyone who buys one of the units in the luxury apartment building. As the NYT puts it — “instead of a 5,000-square-foot house with a wine cellar in Dallas or a 3,500-square-foot abode with a sauna in Seattle, you could choose 150 square feet in the basement” of the new condo. The spots go for $5,000 and $6,000 each, as some will be about 150 square feet and others up to 200 square feet. That’s compared to the approximately $3,170 per square foot price of the three-bedroom units in the building. And after all that, shelling out a cool million for a parking spot doesn’t mean the buyer actually owns it — it’s just a 99-year-long parking space license that allows whoever holds the spot to use it as long as they live there.

For 90% Of Americans: There Has Been No Recovery: Every three years the Federal Reserve releases a survey of consumer finances that is a stockpile of data on everything from household net worth to incomes. The 2013 survey confirms statements I have made previously regarding the Fed's monetary interventions leaving the majority of Americans behind: "While the ongoing interventions by the Federal Reserve have certainly boosted asset prices higher, the only real accomplishment has been a widening of the wealth gap between the top 10% of individuals that have dollars invested in the financial markets and everyone else. What monetary interventions have failed to accomplish is an increase in production to foster higher levels of economic activity. With the average American still living well beyond their means, the reality is that economic growth will remain mired at lower levels as savings continue to be diverted from productive investment into debt service. The issue, of course, is not just a central theme to the U.S. but to the global economy as well. After five years of excessive monetary interventions, global debt levels have yet to be resolved." The full report can be found here.. I have selected a few of the more important charts for the purpose of this post.

Effects of age, the unemployment rate, and asset holdings on household income and wealth - Last Thursday the Federal Reserve came out with its Report on Consumer Finances for 2013.  This is the most in-depth cross-sectional look at the state of America's household balance sheets, so it is going to get a lot of play. Some of that discussion is going to be on point, and some of it will be misleading at best. So I thought in addition to giving you some value-added, that you probably won't read about elsewhere, I'd discuss a few ways the report is likely to be misinterpreted. Before I begin in earnest, let me point out one important limitation of the study.  You are probably going to read a lot of analysis couched in the present progressive tense, as in, "income is declining."  That's not a true statement.  Because this survey is only conducted once every 3 years, the only comparison is between 1 year ago and 4 years ago.  The survey is unlikely to pick up a turning point that took place in 2012.  For that, we'll have to wait for the 2016 report which will be published in 2017!  So you can see that this survey, while thorough, is badly lagging.  So far what I have read hits the two biggest points:

  • 1. Median income and wealth both declined compared with 2010 across cross sections
  • 2. the divide between haves and have-nots is increasing.  Somewhere between the 50th and 75th percentile of income, a rift is developing. Balance sheets are improving roughly for the top 1/3 of Americans, and the higher the income percentile from there, the greater is the improvement. For roughly the bottom 2/3 of Americans, their incomes and wealth are declining.

For example, Digby highlighted the graph showing that the share of overall wealth owned by the top 3% grew. That for the next 7% is flat, and that for the bottom 90% shrank. That wouldn't necessarily be so bad.  For example I'd rather own 9% of a $120 pie than 10% of a $100 pie.  The bigger problem is that, as shown in the graph below (2010 is left column, 2013 on right):

Compared With Earlier Generations, Young Americans Now Far More Saddled With Debt - Today’s young Americans are burdened by debt at a far greater rate than prior generations, new research shows. More than a third of Americans age 24 to 28—or 35%—have debts that exceed their assets, according to research from Dartmouth College assistant professor Jason Houle. That’s roughly double the proportion of their peers in the late 1980s and mid-1970s. Mr. Houle, in an article published in the academic journal Social Problems, compares Americans between ages 24 and 28 across three generations: those from today, which he calls Generation Y; early baby boomers, who were that age in the mid-1970s; and late baby boomers from the late 1980s. He finds the share of young Americans with debt—if not the overall dollar amount—has actually fallen from prior generations. Today, 75% of young Americans have debt, compared with 76.5% of late baby boomers at the same age and 78.2% of early baby boomers. But big shifts in the types of debt held by the groups have led to far different experiences. Younger Americans today are taking on far less mortgage debt and far more student and credit-card debt than the early and late boomers did at the same age, according to Mr. Houle’s research, which relied on Labor Department data. Only 19.8% of today’s young Americans have home-related debt, down from 29.9% of their peers in the late 1980s and 43.1% of those in the mid-1970s. Conversely, 22.4% of young Americans today have education debt, compared with 5.1% among late baby boomers and none among early boomers.

Government Debt Isn't the Problem—Private Debt Is - The 2008 collapse was predictable. And, more generally, major financial crises of this type can be seen well in advance—and prevented—if you know what to look for. In fact, there’s a fairly simple formula that predicts such crises with a high amount of confidence. And it suggests that the world economy remains in more peril than is generally appreciated. This conclusion comes from an examination of financial crises around the world, dating back to the 19th century, that I conducted with my colleagues and summarize in my new book The Next Economic Disaster. The logic behind our conclusion can be seen in the diagrams below.   Take a look at this graph:  Note that, in the years prior to the crisis, the line representing federal government debt roughly parallels the line representing GDP; federal debt wasn’t growing dramatically as a fraction of GDP. So the big post-crisis standoff between Democrats and Republicans over the federal debt wasn’t focused on the big problem.  What was the big problem? Look at the line representing private debt. It clearly is not parallel to the GDP line and, indeed, reflects a rapid growth of private debt relative to GDP. What’s alarming is that, of the two ingredients for an economic crisis—high private debt and rapid private-debt growth—one is still with us even after the 2008 collapse. By itself this isn’t shocking. We all know that a growth in home mortgages preceded the crash, and home mortgages are one kind of private debt—along with other consumer borrowing and borrowing by businesses. What’s more surprising is what we found when we looked at lots of other financial crises around the world, dating back to the 19th century: Though most of these crises aren’t thought of as being fundamentally caused by excessive private debt, the fact is that they were preceded by the same kind of runup in private debt that the U.S. saw prior to 2008.

A look at the debt of families in the bottom quartile - The triennial Survey of Consumer Finances was recently release by the Fed. Over at Bloomberg, Mark Whitehouse gathers together some of the data from the report on US families’ debts. Despite the “overall improvement in the state of U.S. household finances,” it turns out that by some measures the least wealthy families “are in worse shape than ever.” Whitehouse writes: As of 2013, the debts of the quarter of families with the lowest net worth stood at about 156 percent of pretax income, according to the Fed data. That’s more than in 2007, before the financial crisis hit…. The poorest quartile of families is the only group that owes more than it owns. Yikes. There also has been a pretty steady increase in installment debt, “a category that includes both student and auto loans — areas that have recently seen a lot of questionable lending to lower-income borrowers.” Whitehouse concludes: Whatever the drivers, the data suggest that the 2008 crisis and subsequent economic malaise have left a troubling legacy: A group of the poorest families, numbering roughly 14 million, whose precarious finances make them vulnerable to shocks and limit their ability to contribute to future growth. That’s hardly a strong foundation for a healthy recovery.

The Great Recession Casts a Long Shadow on Family Finances - St. Louis Fed - The income and wealth of the typical American family declined between 2010 and 2013, according to the Federal Reserve’s latest Survey of Consumer Finances.1 ... These declines reduced the median real (inflation-adjusted) family income and net worth in the U.S. in 2013 to $46,668 (from $49,022 in 2010) and to $81,400 (from $82,521 in 2010), respectively. ...Combined with significant declines between 2007 and 2010 on both measures, the cumulative decline in median real family income between 2007 and 2013 was 12.1 percent, while median real net worth declined 40.1 percent. The financial impact of the Great Recession was so severe that all the gains achieved during the 1990s and 2000s were wiped out. Median real family income was 1.0 percent lower in 2013 than in 1989, while median real net worth in 2013 was 4.3 percent below its 1989 level. As discouraging as these declines are, several economically vulnerable groups have fared even worse..., the median real income among families headed by someone under 40 has fallen from 96 percent of the overall median income in 1989 to only 87 percent in 2013. The median income of families headed by an African-American or someone of Hispanic origin (of any race) reached only 67 percent of the overall median in 2013, down from 70 percent in 2007. Among families headed by someone without a high-school degree, the median real income in 2013 was only 48 percent of the overall median, down from 51 percent three years earlier

Americans Earned Less, Spent Less in 2013 — But Spent More on Health Care and Housing - - If you measure the strength of the economy by how much people spend, then the new report from the Department of Labor on consumer expenditures isis bad news. Consumers cut spending in 2013 as their incomes fell, according to Tuesday’s report, and that included less spending for most of the major categories tracked by the Consumer Expenditure Survey. After climbing by 3.5% in 2012, overall spending fell 0.7% last year. Spending dropped 7.6% on apparel and by 4.7% on entertainment. Decreases were also recorded for alcoholic beverages, personal care products and restaurants. Meanwhile, spending continued to increase for health care and housing. Housing was the only major category to increase more quickly in 2013 than in 2012. The data paint a grim picture of the health of the American consumer, with the average “consumer unit” (which includes families, single persons living alone, or couples who share expenses) reporting less income in 2013 than 2012. The data also add to evidence that many Americans are being squeezed by rising costs of health care and housing. The squeeze is painful for consumers and also for charities and religious organizations, according to the survey. Donations declined by 9.1% to charities and 4.8% to churches in 2013.

Consumer Borrowing Accelerated in July as Credit-Card Borrowing Rose - Consumer borrowing accelerated in July as Americans took on more credit-card debt and other loans. Total outstanding consumer credit, excluding loans secured by real estate like home mortgages, rose at a seasonally adjusted annual rate of 9.7% in July from the prior month to $3.238 trillion, the Federal Reserve said Monday. That was up from growth of 7.1% in June and 7.3% in May. Outstanding revolving credit, mostly credit-card debt, rose at a 7.4% pace in July to $880.54 billion, the fastest growth rate since April. Outstanding nonrevolving credit, a category that includes car and student loans, rose at a 10.6% rate to $2.357 trillion, its fastest monthly pace since February 2013.Consumer spending generates more than two-thirds of U.S. economic output. A surge in spending on durable goods like automobiles boosted economic growth during the second quarter, and stronger consumption fueled in part by borrowing could lead to stronger overall growth in the second half of the year.“We interpret the positive readings in the revolving consumer credit data to indicate that consumers’ sense of job and income security are strengthening, which would make them more comfortable pulling out their credit cards for purchases,” Credit Suisse economist Dana Saporta said in a note to clients. But oddly, July’s jump in credit-card borrowing wasn’t accompanied by a spike in household spending. Sales at retailers and restaurants were flat from June, and overall consumer spending fell 0.1% in July, according to the Commerce Department.

U.S. consumer credit soars in July with biggest gain since '01 (Reuters) - U.S. consumer credit soared in July, posting its biggest jump since November 2001, driven in part by demand for auto loans and student borrowings. Total consumer credit increased $26.01 billion to $3.24 trillion in July, the Federal Reserve said on Monday. June's consumer credit figure was revised up to show an $18.81 billion increase from $17.26 billion. Economists polled by Reuters had expected consumer credit to increase $17.35 billion in July. Chris Low, chief economist at FTN Financial, said the credit growth is being driven by auto loans, though he added that signs of loose standards and spikes in default rates are showing. "The only thing we have to worry about is there is excessive risk-taking in the auto sector," said Low. "But it's still a good thing for the economy at least in the short term. Car sales are back to where they were before the financial crisis, which is remarkable." The previous record was an increase of around $28 billion recorded in November 2001, according to a Fed spokesman. That occurred shortly after the Sept. 11, 2001 attacks when big automakers were offering zero-percent financing and other incentives to lure consumers back to their showrooms. Revolving credit, which mostly measures credit-card use, increased $5.34 billion to $880.5 billion, after an upwardly revised $1.81 billion increase in June. Non-revolving credit, which includes auto loans as well as student loans made by the government, increased $20.65 billion in July to $2.36 trillion after an upwardly revised $16.99 billion increase in June.

Consumer Credit Surges Most In Three Years -- If you like living beyond your means, you can keep on living beyond your means. US Consumer credit grew by over $26 billion in July - smashing expectations of $17.35bn - and rising by the most since 2011. As usual, the leap was led by non-revolving credit (rising $20.6 billion) as auto and student loans continue to surge. Consumer credit grew at its fastest pace in three years. As non-revolving credit (Auto loans and student loan dominated) surged fastest since 2011. And here is how much student and car loans Americans have raked up each month since 2011. In a nutshell: in 2014 alone there has been some $117 billion in non-revolving debt. This compares to just $23 billion in revolving credit being issued to US consumers.

American credit-card debt hits a post-recession high - Americans added $28.2 billion to their credit cards in the second quarter of 2014, the largest amount in the last six years and nearly 200% more than in the second quarter of 2009, when the economy emerged from the depths of the Great Recession, according to new research from personal finance website After paying off $32.5 billion owed during the first quarter of 2014, consumers ran up roughly 86% more debt during the following quarter. The average household’s credit-card balance now stands at $6,802, up slightly from $6,628 in the first quarter, but still down from $8,431 at the end of 2008. By the end of the year, this figure is expected to exceed $7,000, reaching levels not seen since the end of 2010. U.S. consumers will be roughly $1,300 away from the credit card debt “tipping point,” where minimum payments become unsustainable and delinquencies skyrocket, the report says.  Experts say that consumer spending accounts for more than two-thirds of U.S. economic output, and credit-card spending in particular shows that people are feeling more confident about their job security and the economic recovery. Earlier this week, the U.S. Federal Reserve said that outstanding revolving credit, which is mostly made up by credit-card debt, increased by 7.4% in July to $880.54 billion, and has been gradually rising since falling to $840 billion in 2010.

Young Adults Have Basically No Clue How Credit Cards Work -- Almost two-thirds of young adults today don’t have a credit card, but maybe that’s for the best, given their sweeping lack of know-how about this common financial tool.Although Americans of all ages are less reliant on debt since the recession, millennials are far and away the most credit-averse age group. Bankrate finds that, among adults 30 years old and older, only about a third don’t have any credit cards at all. New research from finds that 63% of millennials, defined as adults under the age of 30, don’t have any credit cards. Among those who do, 60% revolve balances from month to month, and 3% say they don’t bother to pay at all — more than any other age group.There’s a good possibility that these young adults aren’t irresponsible, though, just misinformed. BMO Harris Bank recently conducted a survey that found almost four in 10 adults under the age of 35 think carrying a balance improves your credit score (it doesn’t). And roughly one out of four say they don’t check their credit score more than once every few years. Perhaps that’s because a third of them think checking your credit score hurts your credit (again, it doesn’t). BMO found that 25% of young adults don’t know even know what their credit score is.

Auto-Loan Boom in U.S. Bringing More Bad Debt: Chart of the Day - Auto loans are in the midst of a U.S. boom that is coming to “the end of the road,” according to Pierre Lapointe, head of global strategy and research at Pavilion Global Markets. The CHART OF THE DAY shows the dollar value of motor-vehicle loans and year-to-year percentage changes, based on figures compiled quarterly by the Federal Reserve. The amount borrowed has climbed for 15 consecutive quarters, the longest streak since 2005. The second quarter’s increase, 9.2 percent, was the biggest since 2002. “Credit quality is now deteriorating” as historically low interest rates and competition among lenders spur borrowing for car and truck purchases, Lapointe and a colleague, Alex Bellefleur, wrote in a report yesterday. Delinquent auto loans totaled $15.1 billion as of June 30, according to data compiled by the New York Fed. The amount rose 16 percent from a year earlier. The average U.S. rate for 48-month loans on new cars was 3.22 percent as of Sept. 9, less than half the cost when the economy’s current expansion began in 2009, according to

Vehicle Sales: Fleet Turnover Ratio - Here is an update to the U.S. fleet turnover graph. This graph shows the total number of registered vehicles in the U.S. divided by the sales rate through August 2014 - and gives a turnover ratio for the U.S. fleet (this doesn't tell you the age or the composition of the fleet).  Note: the number of registered vehicles is estimated for 2012 through 2014. The wild swings in 2009 were due to the "cash for clunkers" program. The estimated ratio for August was just over 14 years - back to a more normal level. The second graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is current estimated sales rate. The current sales rate is now near the top (excluding one month spikes) of the '98/'06 auto boom. Light vehicle sales were at a 17.45 million seasonally adjusted annual rate (SAAR) in August. I now expect vehicle sales to mostly move sideways over the next few years.

Gasoline Price Update: Unchanged for the Second Week - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium were unchanged again. This leveling off comes after eight weeks of price declines. Regular is up 26 cents and Premium 25 cents from their interim lows during the second week of last November.  According to, only one state (Hawaii) has Regular above $4.00 per gallon, unchanged from last week, and one state (Alaska) is averaging above $3.90. South Carolina has the cheapest Regular at $3.15.

Hotels: Occupancy up 4.5%, RevPAR up 10.6% Year-over-Year  - From STR: US results for week ending 6 September The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 31 August through 6 September 2014, according to data from STR.In year-over-year measurements, the industry’s occupancy rate rose 4.5 percent to 59.0 percent. Average daily rate increased 5.9 percent to finish the week at US$108.87. Revenue per available room for the week was up 10.6 percent to finish at US$64.20. Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average. There is always a dip in occupancy after the summer (less leisure travel), and business travel should pick up soon.

September Michigan Consumer Sentiment Beats Expectations -- The Preliminary University of Michigan Consumer Sentiment for September came in at 84.6, up from the 82.5 August final reading and its highest level since July of last year, 14 months ago. Today's number beat the forecast of 83.3.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 1 percent below the average reading (arithmetic mean) and 1 percent above the geometric mean. The current index level is at the 44th percentile of the 441 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 15.3 points above the average recession mindset and 2.8 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 2.1 point change. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average.

Schrodinger's Confidence: US Consumers Both More And Less Confident At The Same Time - Despite Gallup's poll showing consumer confidence going nowhere this year, and Bloomberg's consumer comfort level for high-income earners collapsing, the government's UMich Consumer Sentiment measure has soared to its highest since last July's exuberance (at 84.6). Take your pick which data you trust...

Retail Sales increased 0.6% in August -- On a monthly basis, retail sales increased 0.6% from July to August (seasonally adjusted), and sales were up 5.0% from August 2013. Sales in July were revised up to a 0.3% increase from unchanged.  Sales in June were also revised up. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $444.4 billion, an increase of 0.6 percent from the previous month, and 5.0 percent (±0.9%) above August 2013. ... The June to July 2014 percent change was revised from virtually unchanged to 0.3 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 0.3%. 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 5.5% on a YoY basis (5.0% for all retail sales). The increase in August was above consensus expectations of a 0.4% increase. Including the upward revisions to June and July, this was a strong report.

August Retail Sales Bounce Back - The Advance Retail Sales Report released this morning shows that sales in August rose 0.6% (0.58% at two decimals) month-over-month, up from 0.3% in July (an upward revision from 0.0%). Core Retail Sales (ex Autos) rose 0.3%, up from 0.1% in July. This was the largest increase since April's 0.62%.  Today's headline and core numbers matched the forecasts. Expectations for strong August retail sales were "fueled" by a significant drop in gasoline prices (see the details here).  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.  Here is the year-over-year version of Core Retail Sales.  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. For a better sense of the reduced volatility of the "Control" series, here is a YoY overlay with the headline retail sales.

Retail Sales "Ex-Autos" Growth Slowest Since January -- Retail Sales rose 0.6% in August - precisely as expected - with July revised from 0.0% to +0.3% but Ex-Autos the +0.3% growth, which matched the revised July number, was the slowest since January's "harsh weather" impact. The 'control group' (ex food, auto dealers, and building materials) missed expectations at +0.4% vs +0.5% exp slipping to its slowest growth in 3 months. Under the surface it appears the gains in sales are driven mostly by a 1.5% rise in auto sales - as more subprime credit is loaded onto the US consumer.

Census Bureau Revisions to Retail Sales -- Earlier today I posted my monthly update on Retail Sales. Those of us who routinely track this series know that the Advance Estimate will be followed by a second estimate next month and a third estimate the month after. How big are those revisions? Are they big enough to warrant skepticism about the Advance Estimate? See for yourself. Here is a visualization of the cumulative change from the first to third estimates from January 2007 through June 2014, the most recent month for which we have all three data points. As we see, revisions abound, and they move in either direction, although mostly downward during the last recession. For a better sense of the magnitude of the revisions, the next chart shows the percent change from the first (advance estimate) to third (second revision). During this timeframe there were 42 upward revisions and 48 downward revisions. The absolute mean (average) revision was 0.35%, which comprises a 0.28% average for the upward adjustments and -0.42% for the downward adjustments. The Census Bureau's latest Advance Monthly Retail Trade and Food Services reported a 0.0% month-over-month change. The CB adds a parenthetical (±0.5%)* for that MoM advance estimate. The asterisk points to the following explanation:* The 90 percent confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different than zero. [PDF source] Bob Bronson of Bronson Capital Markets Research has shared some interesting observations: Note that when revisions are as much as +0.5%, as they were in the June data, they have always been revised lower the next month, and four of the last seven times those follow-on revisions were negative, eliminating (on average) the previous upward revision. The Census Bureau's ARIMA X-13 seasonal adjustment formula has the most difficulty with highly seasonal data like retail sales.

McDonald’s Sees Biggest Sales Drop in a Decade -- McDonald’s posted its worst monthly sales decline in more than a decade in August, according to new figures the company released Tuesday, as same-store sales dropped precipitously in Asia and ebbed across the rest of the world.  Asia Pacific, Middle East and Africa led the downturn, with a 14.5% drop in sales in August. The overall sales drop of 3.7% was the worst since February of 2003, the Wall Street Journal reports. Sales fell fastest in China and Japan, after news broke of a supplier in Shanghai attempting to pass off expired meat to its customers, most prominently, McDonald’s.   Sales across Europe slipped by 0.7%. A rare bright spot of growth in the United Kingdom was offset by store closures in Russia due to official allegations of “sanitary violations,” which the company hasappealed and critics have said might be political retaliation for western sanctions against Russia.  Rounding out the global slump was a 2.8% drop in U.S. sales, which the company attributed to an increasingly competitive marketplace.

U.S. Import Prices Fall in August on Cheaper Oil -Import prices fell 0.9% from July, matching the biggest decline since June 2012, the Labor Department said Friday. The drop fell in line with the forecast of economists surveyed by The Wall Street Journal. Compared to a year earlier, prices fell 0.4%, ending three months of year-over-year gains. Import prices have dropped for two straight months largely due to a global glut of oil and weak economic demand that has brought down petroleum prices. Crude-oil prices have eased after a run-up earlier this summer linked to turmoil in the Middle East. The price of imported petroleum fell 4.4% last month, the biggest drop since November. Excluding petroleum, prices fell 0.1% but were up 0.8% from a year earlier. That marked the largest 12-month advance since the year ended in March 2012. The drop in fuel prices has led to falling gasoline prices, which could give consumers more money to spend on other items. That could boost the nation's retailers. Car import prices climbed 0.1% in August from July. Food prices rose 0.6%. Capital and consumer goods prices were flat. Meanwhile, natural gas prices fell 11.6% and have fallen 13% over the past three months but were still up sharply over the past year. Prices for industrial supplies fell. Friday's report is the latest sign inflation in the U.S. remains tame, reflecting sluggish economic growth. Weak price growth is likely to reassure the Federal Reserve as it winds down its bond-purchasing program and plots when to raise short-term interest rates.

There Goes GDP: Wholesale Inventories Miss, Weakest Since May 2013 - With GDP now basically an exercise in inventory expansion and contraction (Q2 inventory estimate amounted to 40% of GDP), this 'miss' in July Wholesale Inventories provides a worrying glimpse into Q3 GDP.  Against expectations on a 0.5% rise MoM, inventories rose only 0.1% (and June was revised lower) to the weakest inventory build since May 2013. This is the 3rd miss in a row.

U.S. business inventories, sales rise in July (Reuters) - U.S. business inventories rose in July, but probably not enough to change views that stock accumulation could be a minor drag on economic growth in the third quarter.The Commerce Department said on Friday inventories increased 0.4 percent after an unrevised 0.4 percent gain in June. Economists polled by Reuters had forecast inventories, which are a key component of gross domestic product changes, climbing 0.4 percent. Retail inventories excluding autos, which go into the calculation of GDP, rose 0.4 percent after increasing 0.3 true percent in June. Inventories added 1.4 percentage points to GDP growth in the second quarter. Data on wholesale and manufacturing inventories released earlier this month suggested restocking would probably not contribute to growth in the third quarter. In July, business sales rose 0.8 percent after increasing 0.6 percent in the prior month. At July's sales pace, it would take 1.29 months for businesses to clear shelves, unchanged from June.

NFIB: Small Business Optimism Index increases in August - From the National Federation of Independent Business (NFIB): NFIB SBET Sees Slight Bump in August August’s Optimism Index rose 0.4 points to 96.1 making it the second highest reading since October, 2007. ...NFIB owners increased employment by an average of 0.02 workers per firm in August (seasonally adjusted), the eleventh positive month in a row but basically a “zero” net gain.  Hiring plans decreased to 10. And in a positive sign, the percent of firms reporting "poor sales" as the single most important problem has fallen to 13, down from 17 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 96.1 in August from 95.7 in July. Note: There is high percentage of real estate related businesses in the "small business" survey - and this has held down over all optimism.

U.S. Hiring Hits Highest Level Since 2007 in July -- The number of hires by U.S. employers in July reached the highest level since 2007 and job openings hovered near their highest level in 13 years, the latest sign of improvement in U.S. labor markets.   Employers hired some 4.9 million workers in July, the highest level since December 2007, the Labor Department said Tuesday. Employers reported 4.7 million openings in July, roughly the same as in June, which was at a 13-year high.  In July, there were around 2.1 unemployed workers for every job opening, up slightly from two in June, but down from three workers per opening one year earlier. There were nearly 6.5 unemployed workers for every opening at the depth of the recession in 2009. Between 2004 and 2006, the ratio of unemployed workers to job openings averaged around 1.9. Tuesday’s report, known as the Job Openings and Labor Turnover Survey, offers the latest sign of how job markets have firmed up more than five years after the official end of the 2007-09 recession. It tracks the millions of Americans who are laid off from, hired for or quit a job every month. The survey supplements the Labor Department’s monthly employment report, which last week showed that the unemployment rate in August fell to 6.1%, matching the lowest level since September 2008. The report showed that the number of Americans looking for work fell slightly, dropping the labor force participation rate to 62.8%, matching a 36-year low.  The report showed that the level of workers who quit their jobs was up slightly in July to a six-year high. The share of workers that have voluntarily quit their jobs has hovered at 1.8% for six consecutive months. The hires rate, at 3.5% in July, matched its highest level in six years. The number of job openings in July stood around 8% above the level from December 2007, when the last recession was deemed to have officially began. But the number of employees hired was still 3% below that level and the number of employees who voluntarily quit was 11% below the December 2007 mark.

BLS: Jobs Openings at 4.7 million in July, Up 22% Year-over-year - From the BLS: Job Openings and Labor Turnover Summary There were 4.7 million job openings on the last business day of July, little changed from June, 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 was little changed in July at 2.5 million.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.  Note: 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 decreased slightly in July to 4.673 million from 4.675 million in June. The number of job openings (yellow) are up 22% year-over-year compared to July 2013. Quits are up 9% year-over-year and are at the highest level since 2008. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

Labor Market Unchanged According to July Job Openings Data  -- The July Job Openings and Labor Turnover Survey (JOLTS) data release this morning from the Bureau of Labor Statistics was essentially unchanged from the May and June reports. All top line measures—the rate of job openings, the hires rate, the layoffs rate, and the quits rate—have remained flat for two months in a row. In fact, the rate of layoffs has been flat since December 2013 and the quits rate has been flat since February of this year. Figure A shows the hires rate, the quits rate, and the layoffs rate. The first thing to note is that layoffs, which shot up during the recession, recovered quickly once the recession officially ended. Layoffs have been at prerecession levels for more than three years. This makes sense; the economy is in a recovery and businesses are no longer shedding workers at an elevated rate. But for a full recovery in the labor market to occur, two key things need to happen: Layoffs need to come down, and hiring needs to pick up. Hiring is the side of that equation that, while generally improving, has not yet come close to a full recovery. The hires rate remains well below its prerecession level. Another piece of the puzzle is voluntary quits (shown by the quits rate in Figure A). A larger number of people voluntarily quitting their job indicate a labor market in which hiring is prevalent and workers are able to leave jobs that are not right for them and find new ones. Voluntary quits, flat for the last six months, are also nowhere near a full recovery. There are 15 percent fewer voluntary quits each month than there were before the recession began, and the quits rate is the same as it was last October. Low voluntary quits indicate that there are a large number of workers who are locked into jobs that they would leave if they could. In July, the total number of job openings was 4.7 million, unchanged from June. In July, there were 9.7 million job seekers (unemployment data are from the Current Population Survey), meaning that there were 2.1 times as many job seekers as job openings. Put another way: Job seekers so outnumbered job openings that just over half of the unemployed were not going to find a job in July no matter what they did. In a labor market with strong job opportunities, there would be roughly as many job openings as job seekers. The job seekers to job openings ratio of 2.1 represents a break in trend, an increase from 2.0 in June (Figure B). The ratio was steadily coming down, falling from 3.0 over the last year. Taken together with the lower than expected employment number in August, it is enough to give us pause about what to expect in the future.

Weekly Initial Unemployment Claims increase to 315,000  -- The DOL reports: In the week ending September 6, the advance figure for seasonally adjusted initial claims was 315,000, an increase of 11,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 302,000 to 304,000. The 4-week moving average was 304,000, an increase of 750 from the previous week's revised average. The previous week's average was revised up by 500 from 302,750 to 303,250.  There were no special factors impacting this week's initial claims.  The previous week was revised up to 304,000. The following graph shows the 4-week moving average of weekly claims since January 1971.

Initial Jobless Claims Surge Most Since June - For the 2nd week in a row, initial claims missed expectations and on the heels of last week's dismal payrolls data (which was "unbelievable" according to the smartest people in the room) it surged to 315k - the highest since June. Perhaps most critically, on both an adjusted and unadjusted basis, initial claims are highher year-over-year (SA 315k vs 307k, NSA 234k vs 229k respectively). Is this noise? It has been 7 weeks now from the mid-July lows... and the 4-week-average many look at, has risen for 4 of the last 5 weeks.

Monthly U.S. Jobs Report: A Story Told by Numbers, With a Twist (or Two) - The first Friday of most months brings a new chapter in the U.S. government’s running chronicle of economic health: The monthly jobs report. It’s a list of numbers that calls forth so many widely varying responses that it can seem like a nerd’s Rorschach test. Stock and bond markets gyrate in response to it. Central bankers parse it for policymaking guidance. It even provokes the occasional political brawl. In many months, different parts of the data seem to support contradictory points of view. To understand the statistics it helps to know why and how each number is compiled. But even then it may be useful to keep more than a few grains of salt handy when you hear huge conclusions being drawn.  The first Friday of most months brings a new chapter in the U.S. government’s running chronicle of economic health: The monthly jobs report. It’s a list of numbers that calls forth so many widely varying responses that it can seem like a nerd’s Rorschach test. Stock and bond markets gyrate in response to it. Central bankers parse it for policymaking guidance. It even provokes the occasional political brawl. In many months, different parts of the data seem to support contradictory points of view. To understand the statistics it helps to know why and how each number is compiled. But even then it may be useful to keep more than a few grains of salt handy when you hear huge conclusions being drawn.

Turmoil at New England’s Market Basket Dragged Down August Jobs Numbers - A management fight and worker revolt at a New England grocery store chain helped drag down U.S. payrolls during the month of August, the Labor Department said Friday. Though it’s not named in the closely watched jobs report, the company almost certainly is Tewksbury, Mass.-based Market Basket, a family-owned chain that operates 71 stores  across Massachusetts and New Hampshire. The June dismissal of popular chief executive Arthur T. Demoulas, amid a long-running battle with his cousin Arthur S. Demoulas, led to weeks of turmoil as workers demanded his return, a battle covered in detail by the Boston Globe. At one point in August, thousands of part-time workers had their hours cut, some to zero.Erica Groshen, commissioner of the Bureau of Labor Statistics, noted Friday that employment in August at U.S. food and beverage stores fell by a seasonally adjusted 17,000. “This industry was impacted by employment disruptions at a grocery store chain in New England,” Groshen said in a statement. Those disruptions likely will fade by the next jobs report. Arthur T. Demoulas reached a deal in late August to buy the company from his cousin and other relatives, the Globe reported.

In which I politely disagree with Dean Baker about the employment report - Last Friday Dean Baker wrote that Economists who understand economics didn't see the August Jobs Report as an Outlier, saying: Actually, the numbers match the market very well. The economy grew at a 1.1 percent annual rate in the first half of the year. Faster growth in the second half of the year might bring the rate for the whole year to 2.0 percent. If we assume that productivity growth is 1.5 percent, this would imply an increase in the demand for labor of 0.5 percent. That translates into 700,000 jobs for the year or roughly 60,000 a month. Let me state right here that, like Bill McBride a/k/a Calculated Risk, I think it most likely that August is simply an outlier.  As Jeff Miller pointed out on Sunday, the standard error in this series runs up to 100,000 a month, and as Bill pointed out, even in the best years for job growth, there has always been at least one faceplant. You can probably see the issue here right off the bat:  If Dean is correct that August wasn't an outlier -- that if anything it was above trend at 142,000 -- then what about the last 7 months, in which 1.4 million jobs, or over 200,000 a month were added?  Were they all outliers?  In a row?  In fact, what about the last 3 1/2 years, as I'll show below. To begin with, if we go back 65 years, all the way to 1948, when we can track both GDP and jobs, there have been 266 quarters in total.  When we compare real annualized job growth vs. real annualized GDP growth over those 266 quarters, the median difference is about 1.5%, meaning that in about half of those quarters, real GDP growth exceeded job growth by 1.5%, and in the other half real GDP growth was less than 1.5% higher than job growth.   Here's the graph - you'll just have to trust me on the count, unless you want to do it yourself!:

The Real Reason Jobs Are So Slow to Come Back -- Jobs growth has been frustratingly slow in this recovery. The headline unemployment rate is down to 6.1%, but there’s still a lot of slack in the labor market. Wages are stagnant, long-term unemployment is strikingly high, and an unusually large number of Americans are so discouraged about their prospects that they’ve stopped looking for work.So what’s holding us back from a full recovery? Maybe taxes are too high. Or perhaps regulation is holding us back. Or too many people are going on disability. Or maybe—this theory is especially popular now—there’s something wrong with the workforce we have. Too many liberal arts majors, not enough welders and truckers and computer scientists.The problem with those theories is that they are way too local. The jobs shortfall isn’t just an American thing—it’s global. Earlier this week, the World Bank released a report on jobs in the “G20″ group of major world economies. Missing jobs and stagnant wages is a story all around the world. Here’s a snapshot from the report, showing how far below the pre-crisis trend jobs growth has been: So what is it that’s holding almost everyone back? The World Bank chalks it up to a weak “aggregate demand”—but that only gets us halfway to an answer. What’s harder and more controversial is figuring out why demand for goods and services, which is what ultimately convinces employers to hire, has been so sluggish. One possibility is that consumers are too nervous to kick-start a virtuous cycle, where they buy more and thus spur more production and more hiring. The report notes that consumers around the world found themselves mired in debt after the crash, and that the growth in their income has been disappointing. In advanced economies, the share of GDP that goes to employee pay and benefits has declined substantially.

Why has job growth outperformed GDP growth? - In my last post, I politely took issue with Dean Baker's claim that August's mediocre jobs number was not an outlier.  Rather, I pointed out, for the last 3 /12 years we have had an unusually strong trend in job growth compared with GDP growth. The YoY percentage of jobs added since World War Two  has been about -1.5% less than the YoY percentage growth of real GDP.  In other words, if GDP is about 2%, about half of the time there has only been  0.5% job growth or more, and about half the time there has been less than 0.5% growth.  Since the beginning of 2011, however, GDP has grown gernerally between 1.5% and 2.5% a year, but job growth has also ben about 1.5% a year -- about 1% higher than that median historical trend. Here's the graph of YoY jobs - YoY GDP adjusted by 1.5%, so that the long term median is 0, for the last 30 years: So why have jobs, relatively speaking, so significantly outperformed GDP? Here's my working hypothesis. Here is a graph you've seen a number of times before. This is a graph of initial jobless claims as a percentage of the entire civilian labor force, plus those who are not in the labor force but want a job now: What this adjustment does is tell us what percentage of people who hold a job, or want a job, are laid off in any particular week. In this way it takes into account demographics and in particular, the large cohort of Boomers over 55 years old who are retiring in droves. What you can clearly see is that this ratio is extremely low. Relatively speaking, the rate of layoffs is equal to the lowest in the last 50 years. Another way of looking at this data is that employers are running particularly tight ships. Compared with the entire post-WW2 era, they have pared the number of workers they need down to the absolute minimum for the current level of work. The next graph is the percentage of all jobs that are temporary jobs:

More than Half of Workers Have New Jobs Since the End of the Recession - Many people continue to call for greater inflation to solve our current economic problems. A classic argument for why inflation can help is downward nominal wage rigidity. It is difficult to believe that nominal wage rigidity is important now, years after the end of the recession. The main reason nominal wages don’t fall is that wages are an anchor around which expectations and understandings are built and when wages are cut workers get angry and upset. But when a worker begins a new job with a new employer it’s anchors away! New job, new wage and no feelings of loss even if the wage is less than what some other person earned sometime in the past for doing something sort of similar. Now here is an important fact: the median number of years that current wage and salary workers have been with their current employer is about four and a half. In other words, more than half of current workers have jobs that are new since the end of the recession. A majority of workers have new jobs, some workers have wages that are increasing (and thus a fortiori not downwardly rigid) and quite a few workers have flexible wages due to piece rates, commissions, bonuses and so forth. Not all of these categories perfectly overlap. Thus, the scope for nominal wage rigidity as an explanation for current problems appears to be small. Moreover, here’s an interesting test. If nominal wage rigidity explains unemployment and if wages are more rigid at old jobs than at new jobs then we ought to see a positive correlation between unemployment rates and job tenure. Instead, we see the exact opposite, unemployment rates are lowest in the industries with the higher tenure. Of course, this is a raw correlation not a causal estimate. Nevertheless, some of the points are striking.

Update: Prime Working-Age Population Growing Again - This is an update to a previous post through August. Earlier this year, I posted some demographic data for the U.S., see: Census Bureau: Largest 5-year Population Cohort is now the "20 to 24" Age Group and The Future is still Bright!  I pointed out that "even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics). The good news is that will change soon."  Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story in coming years. Here is a graph of the prime working age population (this is population, not the labor force) from 1948 through August 2014.

The Core Workforce Part-Time Employment Ratio Continues to Improve - Let's take a close look at last week's employment report numbers on Full and Part-Time Employment. Buried near the bottom of Table A-9 of the government's Employment Situation Summary are the numbers for Full- and Part-Time Workers, with 35-or-more hours as the arbitrary divide between the two categories. The focus is on total hours worked: Full-time status may result from multiple part-time jobs. The Labor Department has been collecting this since 1968, a time when only 13.5% of US employees were part-timers. That number peaked at 20.1% in January 2010. The latest data point, four-and-a-half years later, is only modestly lower at 19.0% last month, although this is a new interim low. Here is a visualization of the trend in the 21st century, with the percentage of full-time employed on the left axis and the part-time employed on the right.  Here is a closer look since 2007. The reversal began in 2008, but it accelerated in the Fall of that year following the September 15th bankruptcy of Lehmann Brothers. In this seasonally adjusted data the reversal peaked in January of 2010. The two charts above are seasonally adjusted and include the entire workforce, which the CPS defines as age 16 and over. A problem inherent in using this broadest of cohorts is that it includes the population that adds substantial summertime volatility to the full-time/part-time ratio, namely, high school and college students. Also the 55-plus cohort includes a subset of employees that opt for part-time employment during the decade following the historical peak spending years (ages 45-54) and as a transition toward retirement.The next chart better illustrates summertime volatility by focusing on the cumulative change since 2007 in full- and part-time employment for the 25-54 workforce. Note that the government's full-time/part-time data for this cohort is only available as non-seasonally adjusted. To help us recognize the summer seasonality, I've used a lighter color for the June-July-August markers, which are the most subject to temporary shifts from part-time to 35-plus hours of employment. I've also included 12-month moving averages for the two series to help us identify the slope of the trend in recent years.

STILL 1.4 Million Fewer Full-Time Jobs Than in 2008 - Let’s cut to the chase: There were 1,446,000 fewer people working full time in August 2014 than in August 2008, according to the Bureau of Labor Statistics household survey (CPS).  That’s after an increase of 210,000 full-time jobs in August. That’s the actual count, not the seasonally adjusted abstraction. So we have to compare that with past Augusts to get an idea if its any good or not. August is a swing month, sometimes up, sometimes down. The average change over the prior 10 years, which included a couple of ugly years in the recession, was -63,000. So this number wasn’t bad. It was slightly better than August of last year and 2012, but come on….  It’s still 1.4 million below 2008? In 2008, the economy was in full collapse mode. The Fed has expanded its balance sheet by $3.7 trillion since August 2008 and there are fewer full-time jobs now than then? Remind me again what that $3.7 trillion has bought! Since August 2009, near the bottom of the recession, the US economy has added 6.25 million full-time jobs, a 5.5% increase. That amounts to $588,000 in Fed QE per added full time job. But that’s ok. It’s been great for bankers, securities brokers, and hedge funds. While the number of full time jobs increased 5.5%, stock prices soared 175%. It’s all good! Or not. I have argued for a long time that the Fed’s policies have rewarded financial engineering at the expense of job creation. The Fed has made it profitable for corporations to borrow free money to buy back the stock options that they issue to their executives rather than investing in expanding their businesses and creating jobs. The Fed’s policies have enabled corporate executives and their financial enablers to conduct a massive skimming of the US economy and wealth transfer at the expense of everybody else. By promoting this behavior, not only has Fed policy been ineffective in stimulating real growth, it has been a moral outrage, decimating the middle class and robbing the elderly of their life savings as they’re forced to consume principal.

The Worst Job Stat Continues To Get Even Worse. Amid all the focus on boosting the minimum wage and legislating living wages, virtually no one seems to have noticed what is happening to the workweek in low-wage industries. Since December 2012, private industries paying up to about $14.50 an hour have added, on net, 972,000 nonsupervisory jobs with an average workweek of a mere 17.7 hours, an IBD analysis finds. That doesn't mean new employees are being hired for such few hours. Rather, it reflects a combination of reduced hours in existing jobs and short workweeks for newly created jobs. Overall, in these low-wage industries which employ 30 million rank-and-file workers, the average workweek shrank to 27.3 hours per week in July, an IBD analysis shows. That's the shortest workweek on record, except for this past February, when mid-month blizzards wreaked havoc during the Bureau of Labor Statistics survey week. The conventional wisdom among economists is that there's been no apparent shift to part-time work and that ObamaCare's employer mandate hasn't led to shorter workweeks. But shorter hours clocked by nonmanagers in low-wage industries are being obscured because the rest of the workforce is now clocking a longer average workweek than even before the recession started. For low-wage industry workers, on the other hand, the recovery in the workweek from a then-record low 27.5 hours in mid-2009 began to reverse in the latter half of 2012, and it's been pretty much all downhill since then.

Research: Much of Recent Decline in Labor Force Participation Rate due to "ongoing structural influences" - For several years, I've been arguing that "most of the recent decline in the participation rate" was due to demographics and other long term structural trends (like more education). This is an important issue because if most of the decline had been due to cyclical weakness, then we'd expect a significant increase in participation as the economy improved. If the decline was due to demographics and other long term trends, then the participation rate might keep falling (or flatten out) as the economy improves. Note: So far this year, the participation rate has moved sideways at 62.8% - probably because demographics and other long term factors are being offset by people returning to the labor force this year.  However, looking forward, the participation rate should continue to decline for the next couple of decades.  From Federal Reserve researchers: Labor Force Participation: Recent Developments and Future Prospects The evidence we present in this paper suggests that much of the steep decline in the labor force participation rate since 2007 owes to ongoing structural influences that are pushing down the participation rate rather than a pronounced cyclical weakness related to potential jobseekers’ discouragement about the weak state of the labor market – in many ways a similar message as was conveyed in the 2006 Brookings Paper. Most prominently, the ongoing aging of the babyboom generation into ages with traditionally lower attachment to the labor force can, by itself, account for nearly half of the decline. In addition, estimates from our model, as well as the supplementary evidence on which we report, show persistent declines in participation rates for some specific age/sex categories that appear to have their roots in longer-run changes in the labor market that pre-date the financial crisis by a decade or more.

Despite Tasci and Ice, I Still See an Increase in Structural Unemployment - Back in 2010, there was a jump in US job openings (from an extremely low level) that was not accompanied by a commensurate decline in the unemployment rate.  Some saw this pattern as an indication of increased structural unemployment, with job openings becoming harder to fill from a given pool of unemployed.  At the time, I argued that it was not so:  job openings arise, and it takes time for them to reduce the unemployment rate; necessarily, there is a period when the unemployment rate remains higher than what would earlier have been associated with that number of job openings.   Then in 2012, I changed my mind.  A closer look at the data, including the additional two years that had passed, showed that, for a given number of job openings, the amount of hiring had declined.  Recently some research has come out of the Cleveland Fed (cited approvingly by Paul Krugman) purporting to show that I was right the first time.  Specifically, Murat Tasci and Jessica Ice conclude that “there is no shift” in the Beveridge curve (the empirical relationship between job openings and unemployment).  They show that, in the years since that initial jump in job openings, the unemployment rate has fallen faster, and vacancies (job openings) have risen more slowly, ostensibly leading them back to the relation they had before the apparent shift in 2010. I must say, first of all, that I don’t quite see their charts even appearing to show what they claim.  It’s true that, in vacancy-unemployment space, the point for 2014Q2 is very close to the point for 2008Q3; so, in a sense, any shift that was purported to have happened after 2008Q3 would now seem to have been an illusion.  But when I look at their chart, it looks like the shift actually happened between 2008Q2 and 2008Q3, when the unemployment rate rose and the vacancy rate failed to fall.  For the first two quarters of 2008, the not-yet-Great Recession looked much like the previous recession; then in 2008Q3 it appeared to shift to a new locus.  That apparent shift has not been reversed.

Fed economists: America’s missing workers are not coming back - A paper by Federal Reserve staff that will be discussed at the Brookings Institution on Friday possibly hints at the central bank's thinking on interest rates and employment in advance of a consequential Fed meeting next week. The findings support hawks on the Federal Open Market Committee, who feel that the Fed needs to prepare to raise rates sooner than expected, although the results are still being debated and might not persuade the committee's more dovish members. The paper discusses the number of people who consider themselves part of the workforce -- including both people who have a job and those who are looking for work. It is a measure of the total manpower available in the U.S. economy. This number, the labor force participation rate, has been decreasing steadily since 2000. Americans who can't find work have been leaving the workforce, as have more and more retirees as the population ages. The question now is whether there is anything that the Fed can do to slow the decline. In theory, interest rates near zero, as they have been since the financial crisis, should lead to rising prices and wages and more openings. In turn, people who are thinking of retiring might continue working, while others who retired early or just gave up on working might be coaxed back into the rat race. That might not work, suggest the authors of the paper, who include William Wascher, a senior member of the bank's economic staff. They argue that the number of people who aren't working but would be if economic conditions were better is relatively small. In other words, America's missing workers aren't coming back. America's labor force has shrunk, the researchers find, largely because of an aging workforce and other, larger trends, not just because of a bad job market.

Skills Gap Bumps Up Against Vocational Taboo - —The Obama administration and governors from Michigan to South Carolina have a solution for some of the U.S. manufacturing sector's woes: German-style apprenticeship programs. But their success is proving to be unusually one-sided, mostly drawing firms based in Germany and other non-U.S. countries. In South Carolina, "Apprenticeship 2000," a program combining classroom work and on-the-job training, has drawn numerous German companies but so far only two U.S. firms, Ameritech Die & Mold Inc. and Timken Co. In Michigan, where Republican Gov. Rick Snyder promised last year to "Americanize" the German model in his state, almost three-fourths of the participants are firms based overseas, mostly in Germany. Both the White House and governors are trying to fight a so-called skills gap among U.S. workers that many businesses blame for the slow labor-market recovery. Although plenty of Americans are looking for work, employers often lament a lack of qualified workers—particularly young people. Germany, in contrast, has a long record of finding a stronger fit between employees' skills and employers' demands. The success is reflected in a youth unemployment below 8%, the lowest of any advanced country and about half of the U.S. level. The apprenticeship system is credited as a leading driver of what many European economists call the German labor-market "miracle."  Unlike in the U.S., where workers are largely hired and then trained for a company's particular needs, German vocational training normally takes three years and is supposed to give apprentices a broader qualification beyond a single employer's needs.

Demographic Trends in the 50-and-Older Work Force -- In my earlier update on demographic trends in employment, I included a chart illustrating the growth (or shrinkage) in six age cohorts since the turn of the century. In this commentary we'll zoom in on the age 50 and older Labor Force Participation Rate (LFPR).  But first, let's review the big picture. The overall LFPR is a simple computation: You take the Civilian Labor Force (people age 16 and over employed or seeking employment) and divide it by the Civilian Noninstitutional Population (those 16 and over not in the military and or committed to an institution). The result is the participation rate expressed as a percent.  For the larger context, here is a snapshot of the monthly LFPR for age 16 and over stretching back to the Bureau of Labor Statistics' starting point in 1948, the blue line in the chart below, along with the unemployment rate. The overall LFPR peaked in early 2000 at 67.3% and gradually began falling. The rate leveled out from 2004 to 2007, but in 2008, with onset of the Great Recession, the rate began to accelerate. The latest rate is 62.8%, back to a level first seen in 1978. The demography of our aging workforce has been a major contributor to this trend. The oldest Baby Boomers, those born between 1946 and 1964, began becoming eligible for reduced Social Security benefits in 2008 and full benefits in 2012. Job cuts during the Great Recession certainly strengthened the trend. It might seem intuitive that the participation rate for the older workers would have declined the fastest. But exactly the opposite has been the case. The chart below illustrates the growth of the LFPR for six age 50-plus cohorts since the turn of the century. I've divided them into five-year cohorts from ages 50 through 74 and an open-ended age 75 and older. The pattern is clear: The older the cohort, the greater the growth.

A win-win approach to increase the future labor force - The Washington Post: Other than supply and demand, the U.S. economy is doing fine. The problems on the demand side are well known. Though the job market is definitely improving, over five years into an economic expansion, there’s still considerable slack, as Fed Chair Janet Yellen rightfully and frequently highlights. But there’s an even longer-term challenge confronting the U.S. economy having to do with the supply of inputs that are just as essential to economic growth as nutritional inputs are to physical growth. And we think we have a way to help. At the heart of this supply-side challenge is the declining US labor force.  It’s no mystery as to why so many of these workers are dropping out. The decline in labor force activity has been greatest among our least-educated workers and more concentrated among men than women. Less-educated men — those with little schooling beyond high school — experienced the largest increases in unemployment during the downturn and the largest long-term declines in real wages. This unforgiving combination of job and wage losses contributes to poverty and rising inequality, as well as slower growth. It also begs the central question: Just how unreachable are these people? Both for their own well-being and for that of the macro-economy, could strong job creation and the right set of human capital policies bring at least some of them back in from the cold? We think so.In the short term, expanding a range of work-based learning models like apprenticeships would improve both the employment rates and the earnings potential of young and less-educated workers, giving them the credentials and work experience they have trouble getting right now. Apprenticeships cost very little public money, as employers are directly paying workers for their output while they gain needed skills. The employees tend to be highly motivated to successfully complete their training, as they are being paid while they learn.

Want to Fix the Jobs Crisis? Build a Federally Funded Worker Education Infrastructure: With unemployment still high, and millions discouraged from even looking for work, there is considerable interest in ways to connect people to jobs. Certainly stimulating the economy is essential to creating more opportunity. But what can we do to help people make the connections to employers who are looking for workers? Job training programs would seem to be a logical answer, a key step in moving someone from unemployment, or underemployment due to obsolete skills, into well-paying work. But there is much skepticism that training programs perform well. Reports of scandals surrounding proprietary schools with low placement and high debt feed this doubt. But focusing on these failures misses the larger point. Best-practice models exist, and are slowly diffusing. The challenge lies not in ignorance about what works, but how to reach scale in delivering quality programs. In Texas, a network of programs affiliated with the Texas Interfaith Education Fund works with employers to identify openings, provide accelerated remediation to prepare people for community college credit courses, cooperate with community colleges to create flexible scheduling, and offer ongoing counseling and support to the enrollees. The payoff to this is substantial: Independent evaluations place earnings gains at between $5,000 and $10,000 per enrollee.Cooperative Home Care Associates in New York, a worker cooperative of some of the lowest-paid workers in America, trains home health aides more extensively than is typical for those in these jobs, which in turn leads to higher wages and lower turnover. In Boston, Jewish Vocational Services works with area hospitals to build career ladders for low-wage employees, creating opportunities for local residents who otherwise would not qualify for employment in a teaching hospital.

Worker Compensation Stalls in Second Quarter - Growth in worker compensation nearly stalled this spring as wages stagnated and health benefits fell. Private employers in the U.S. spent an average of $30.11 per hour worked for total compensation in June, the Labor Department said in a report Wednesday. That was up just 0.4% from March, a sharp slowdown from its 1.2% gain in the first three months of the year. Total compensation rose by 1.4% in the final three months of 2013, the fastest rate of the recovery. Growth of private-sector wages slowed to 0.3% between March and June, down from a 1% rate in the prior three months. Wages account for 70% of total compensation. Expenditure on health benefits fell 0.4% between March and June after jumping 2.6% in the first three months of the year. Health benefits are the second largest element of employee compensation behind wages, accounting for 7.8% of total expenditure. Economists are closely following measures of employee compensation for clues on labor market health and on the strength of price pressures throughout the economy. Stagnant wage growth during the economic recovery has signaled a high level of unemployment and tame inflation. Employer costs for employee compensation is one of two gauges that capture both wages and benefits. Several narrower gauges focus on wages. The most closely followed of these is the Labor Department’s measure of average hourly earnings, part of the agency’s monthly Employment Situation report.  Similarly, economists and policy makers are closely following gauges of health-care expenditures after important parts of the Affordable Care Act came into effect at the beginning of this year. The financial impact of the new law on corporate America has been the subject of much debate.

Some Retail Workers Find Better Deals With Unions -- By now, the hardships endured by retail workers at clothing stores across New York City are achingly familiar: the frantic scramble to get assigned enough hours to earn a living on painfully low wages; the ever-changing, on-call schedules that upend child care arrangements, college schedules and desperate efforts to find second jobs. Ms. Smith is a 26-year-old single mother of two who loves working in retail. She loves clothes. She loves dressing customers. But her unpredictable work schedule and the relentless struggle to get enough hours wreak constant havoc on her life.  Some weeks, she is assigned 24 hours of work; other weeks, she gets only 16. There is never a guaranteed minimum and there are never enough hours to get close to full time. “At work, all I’m thinking about is: How am I going to pay the rent for the month?” said Ms. Smith, who earns $11 an hour. “How am I going to pay the person who is caring for my kids today?” For more than two decades, Ms. Ryan has guided shoppers in the hunt for bedroom décor, helping them choose between medium-weight and lightweight comforters, goose-down and synthetic pillows, and sheets and blankets in a kaleidoscope of colors. But here is what’s truly remarkable, given the current environment in retail: Ms. Ryan knows her schedule three weeks in advance. She works full time and her hours are guaranteed. She has never been sent home without pay because the weather was bad or too few customers showed up for a Labor Day sale on 300-thread-count sheets. This is no fantasy. This is real life, in the heart of New York. “I’m able to pay my rent, thank God, and go on vacation, at least once a year,” Ms. Ryan said. “There’s a sense of security.”

Obama to Delay Executive Action on Immigration - President Barack Obama will delay executive action on immigration until after the midterm elections, White House officials said Saturday, a bow to political pressure from Democrats in tough Senate races who had complained the action could hurt their campaigns. The delay breaks Obama’s promise, broadcast from the Rose Garden in June, that he would act on his own by summer’s end to fix as many problems of the immigration system as the law allows.  Now, White House officials say the president will act by the end of the year.  The official added: “The president is confident in his authority to act, and he will before the end of the year. The executive action had been widely expected to ratchet back deportations and possibly offer work permits to people in the U.S. illegally, perhaps millions. It might also include administrative changes pushed by companies that would produce more legal visas for people seeking to work in the U.S.

Minimum-Wage Fights Create Rift Among Cheerleaders - National Football League cheerleaders pushing for fair wages won an initial victory last week, but not all of their former colleagues are rooting them on. The Oakland Raiders struck a tentative $1.25 million settlement with 90 Raiderettes in a deal that resolves a lawsuit in which the women alleged they weren’t paid minimum wage for their work. Some aggrieved former cheerleaders heralded the victory as a breakthrough. “I never dreamed that my decision to find a lawyer and file a lawsuit would lead to the kind of sweeping changes we are now seeing for the women of the NFL,” said former Raiderette Lacy T. in statement. The cheerleaders’ last names in the Raiders’ case were withheld from court papers. In addition to the Raiders, similar suits were filed against the Buffalo Bills, Cincinnati Bengals, New York Jets and Tampa Bay Buccaneers. After the suits were filed this spring, the Bills disbanded their squad, the Jills. Some former cheerleaders, though, are not as happy about the changing landscape. The lawsuits “ruined it for the rest of the girls,” said Lori Marino, a former cheerleader and now president of the Buffalo Jills Alumni Association. “They were well informed going into tryouts that the cheerleader squad wasn’t a paid job. It wasn’t a job at all. It was a sport to be enjoyed.” Some of the cheerleaders who filed the suits said their love of football and the excitement of the crowd drew them to try out for the team. But that opportunity doesn’t mean they shouldn’t be paid fairly, they said.

Widening gap between US rich and poor is unsustainable, says study -  The widening gap between America’s wealthiest and its middle and lower classes is “unsustainable”, but is unlikely to improve any time soon, according to a Harvard Business School study released on Monday. The study, titled An Economy Doing Half its Job, said American companies – particularly big ones – were showing some signs of recovering their competitive edge on the world stage since the financial crisis, but that workers would likely keep struggling to demand better pay and benefits. “We argue that such a divergence is unsustainable,” according to the report, which was based on a survey of 1,947 of Harvard Business School alumni around the globe, and which highlighted problems with the US education system, transport infrastructure, and the effectiveness of the political system. Some 47% of respondents in the survey said that over the next three years they expected US companies to be both less competitive internationally and less able to pay higher wages and benefits, versus 33% who thought the opposite. The results marked an improvement from a 2012 Harvard Business School survey of its alumni showing 58% of respondents expecting a decline in US competitiveness, according to the survey. But Harvard wrote, respondents of the 2014 survey “were much more hopeful about the future competitive success of America’s firms than they were about the future pay of America’s workers”.

Life on $2 a Day - A fast-growing group of people in the United States, households with children, are living on $2.00 or less per person per day. This shocking condition in a wealthy country such as the US is formally labeled “extreme poverty” by a World Bank metric that gauges poverty “based on the standards of the world’s poorest countries.” Since poor Americans live in a rich country, they have traditionally been excluded from this official estimate of dire poverty in the world.  In a study that applied the World Bank metric to the US for the first time to show that in mid-2011 and based on cash income, about 1.65 million households, with 3.5 million children, lived in extreme poverty. Since the official poverty level is considered to be $17.00 per person per day, this extent of extreme poverty implies that millions of Americans are subsisting on less than 12 percent of the poverty-line income. Contrary to popular perceptions, the authors further found, based on a measure of cash income, that about one half of the extremely poor heads of households were white and almost one half were married. Children have suffered most: between 1996 and 2011, their numbers in extreme poverty increased by 156 percent. How did the social safety nets in the US shrink to allow such a catastrophe? The authors single out two main factors: the Clinton administration’s welfare reform of 1996, combined with the Great Recession of 2008. The 1996 welfare reform ended the only cash entitlement program for poor families with children and replaced it with a program that provides only time-limited cash assistance, with a requirement that “able bodied” recipients promptly rejoin the work force. Consequently, cash assistance fell from 12 million recipient families per month in 1996 to 4.5 million families by December 2011.  In effect, the working poor were assisted, while those who had become chronically unemployed and desperate were left to fend for themselves. It is astonishing that nearly 50 million Americans — mostly children — currently depend on food stamps to survive.

Race and the Wealth Gap - Yves Smith - This Real News Network segment with law professor John Powell, Director of the Haas Institute for a Fair and Inclusive Society at Berkeley, discussed the widening wealth gap between whites and other races and the underlying forces producing these shifts. Powell describes the pre-Nixon era policies and institutions that helped give the poor and minorities upward mobility and flattened income disparity. But new Fed data shows that the top 10% of whites possess over 65% of all US wealth.

Gambling and Tourism Won't Save the Economy - The most surprising thing about the recent announcement that one-quarter of the casinos in Atlantic City are shutting down is that anyone is really surprised by it. The article from I just linked provides the following explanation: Since 2006, Atlantic City's casino revenue has plunged from a high of $5.2 billion to $2.86 billion last year. It has been beset by competition from Pennsylvania, which has surpassed it as the nation's No. 2 casino market after Nevada, and suffered further losses with additional casinos coming online in New York and Maryland. "We know that the oversupply of gaming product is a regional issue, as we're seeing the effects of the pressure all around Atlantic City," he said.So in other words, when every state and jurisdiction opens a casino to draw out-of-town visitors who'll spend the money that will then replace jobs and tax revenues being lost in other sectors, sooner or later they stop being an advantage for everybody. I'm not really sure just how dumb you have to be not to see that obvious fact, but the articles states that economists predicted this inevitable occurrence as if it were some sort of blinding revelation.  This simple truism about gambling can also be applied to tourism in general. Many depressed locales have tried to reinvent themselves as prime tourist destinations, such as Cleveland did by landing the Rock'n'Roll Hall of Fame, handing out hundreds of millions of dollars to billionaire sports team owners for new stadiums and sprucing up its downtown area so visitors would feel safe walking the streets at night. So how did all of the that work out for Cleveland? Well, beyond the downtown's glitzy bright lights it is still almost as big a shit hole as Detroit--the kind of place where just being born there tags you as someone who has no hope of a future even remotely resembling the pie-in-the-sky American Dream.

Civil forfeiture cash seizures - Under the federal Equitable Sharing Program, police have seized $2.5 billion since 2001 from people who were not charged with a crime and without a warrant being issued. Police reasoned that the money was crime-related. About $1.7 billion was sent back to law enforcement agencies for their use.  Often the cash is seized from motorists (carrying costs now exceed liquidity premium, I suppose).  There is this too:

  • Only a sixth of the seizures were legally challenged, in part because of the costs of legal action against the government. But in 41 percent of cases — 4,455 — where there was a challenge, the government agreed to return money. The appeals process took more than a year in 40 percent of those cases and often required owners of the cash to sign agreements not to sue police over the seizures.
  • Hundreds of state and local departments and drug task forces appear to rely on seized cash, despite a federal ban on the money to pay salaries or otherwise support budgets. The Post found that 298 departments and 210 task forces have seized the equivalent of 20 percent or more of their annual budgets since 2008.

There is much more here, by Michael Sallah, Robert O’Harrow Jr., and Steven Rich at The Washington Post, give them a Pulitzer.

War on Cash: Wash Post series on police seizures of millions of dollars in cash from Americans not charged with crimes - The Washington Post has just published the first article of a three-part series (including videos and interactive maps) on the disturbing increase in civil forfeitures and cash seizures that are part of the “spread of an aggressive brand of policing that has spurred the seizure of hundreds of millions of dollars in cash from motorists and others not charged with crimes.” The Washington Post filed Freedom of Information Act requests with the Department of Justice to compile a database detailing 212,000 cash seizures since 1996 through the federal government’s largest asset forfeiture effort — Here’s an excerpt below from today’s first article in the three-part series, “Stop and seize: Aggressive police take hundreds of millions of dollars from motorists not charged with crimes.There have been 61,998 cash seizures made on highways and elsewhere since 9/11 without search warrants or indictments through the Equitable Sharing Program, totaling more than $2.5 billion. State and local authorities kept more than $1.7 billion of that while Justice, Homeland Security and other federal agencies received $800 million. Half of the seizures were below $8,800. Only a sixth of the seizures were legally challenged, in part because of the costs of legal action against the government. But in 41 percent of cases — 4,455 — where there was a challenge, the government agreed to return money. The appeals process took more than a year in 40 percent of those cases and often required owners of the cash to sign agreements not to sue police over the seizures.  Hundreds of state and local departments and drug task forces appear to rely on seized cash, despite a federal ban on the money to pay salaries or otherwise support budgets. The Post found that 298 departments and 210 task forces have seized the equivalent of 20 percent or more of their annual budgets since 2008.

Roving Bandits - Yesterday, Tyler linked to an important report from the Washington Post showing how “aggressive police take hundreds of millions of dollars from motorists not charged with crimes.” The report and video are shocking. The aggressive tactics documented by the Post have mostly been deployed against motorists who are unlucky enough to be stopped for a moving violation. An apparently leaked document, however, shows that these programs are likely to expand far beyond motorists.

Will the government stop using the poor as a piggy bank? - Kyle DeWitt was sentenced to three days in jail after he couldn’t afford to pay a fine for catching a fish out of season in Michigan. Nicole Bolden spent a day in a Missouri jail after failing to appear in court for traffic violations she couldn’t pay, either. Now public officials are finally beginning to reconsider the policies that have essentially punished ordinary Americans like DeWitt and Bolden for being poor. The deep resentment and mistrust of law enforcement in Ferguson stemmed in part from the Missouri town’s heavy use of traffic fines to prop up an ailing municipal budget. But Ferguson isn’t alone. Court fees and fines have been on the rise nationwide on the state level and in some municipalities as government officials have cobbled together budgets in an era of budget cuts and growing resistance to tax hikes. The housing crisis dealt another blow as depressed property values and lower sales receipts reduced local revenue during the recession.The types of charges and their enforcement also varies wildly from place to place depending on decisions made by state officials, local city councils, and individual judges who have the discretion to set court fines. As the impact of these schemes has drawn greater attention and controversy, there have been some signs of change as well.

The Lost Generation – Millennials -- In the Open Thread, I pointed to the The Millennial Disruption Index and Millennials as a cohort which will be bigger then Baby-Boomers and are also the cohort which has suffered the most since 2001 when jobs started to disappear and wages crashed. The families at 35 years of age are struggling the most with median incomes of ~$35,000. Yet neither political party is attempting to harvest the potential of this cohort and they appear to have a didain for Wall Street and TBTF.  538 Blog had this to say “Economic Inequality Continued To Rise In The U.S. After The Great Recession”:Young people were hit especially hard. Thursday’s report provided yet more evidence that today’s young people risk becoming a “lost generation” economically. The median family headed by someone under 35 earned $35,300 in 2013, down 6 percent from 2010 and down nearly 20 percent from 2001. Those figures may understate the magnitude of the problem: Many young people are living with their parents because they can’t afford to strike out on their own; they aren’t included in the Fed’s figures because they don’t count as their own households. Young people have also become less likely to own their own homes (35.6 percent listed their primary residence as an asset in 2013, down from 40.6 percent in 2007) and much more likely to have student debt (41.7 percent in 2013, up from 33.8 percent in 2007). Whether by choice or by necessity, young people are also taking fewer financial risks, holding more of their assets in cash and less in stocks.

Jerry Brown signs bill requiring employers to give paid sick leave - Gov. Jerry Brown signed legislation Wednesday entitling most California workers to three paid sick days a year, a sweeping measure that Democrats and labor advocates have been seeking for years. The legislation affects about 40 percent of California’s workforce, about 6.5 million people who currently are not paid if they stay home when sick. Brown said at a signing ceremony that the bill is “modest.” For millions of low-wage workers, he said, “This is the least we can do, and there’s more in the coming years.” “This is a real step forward,” the governor said. “It helps people, whether it’s a person working at a car wash or McDonald’s or 7-Eleven. These are real people. We all take advantage of their labor, and they ought to have basic decency, basic wages, basic benefits.” California is the second state in the nation, after Connecticut, to enact a statewide sick leave guarantee – long a source of controversy in statehouses across the country.

Preparing To Asset-strip Local Government? The Fed’s Bizarre New Rules - In an inscrutable move that has alarmed state treasurers, the Federal Reserve, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, just changed the liquidity requirements for the nation’s largest banks. Municipal bonds, long considered safe liquid investments, have been eliminated from the list of high-quality liquid collateral. assets (HQLA). That means banks that are the largest holders of munis are liable to start dumping them in favor of the Treasuries and corporate bonds that do satisfy the requirement. Muni bonds fund the nation’s critical infrastructure, and they are subject to the whims of the market: as demand goes down, interest rates must be raised to attract buyers. State and local governments could find themselves in the position of cash-strapped Eurozone states, subject to crippling interest rates. The starkest example is Greece, where rates went as high as 30% when investors feared the government’s insolvency. Sky-high interest rates, in turn, are the fast track to insolvency. Greece wound up stripped of its assets, which were privatized at fire sale prices in a futile attempt to keep up with the bills. The first major hit to US municipal bonds occurred with the downgrade of two major monoline insurers in January 2008. The fault was with the insurers, but the taxpayers footed the bill.  The downgrade signaled a simultaneous downgrade of bonds from over 100,000 municipalities and institutions, totaling more than $500 billion. The Fed’s latest rule change could be the final nail in the municipal bond coffin, another misguided move by regulators that not only does not hit its mark but results in serious collateral damage to local governments – maybe serious enough to finally propel them into bankruptcy

The Worst Governments in America Are Local -- When the town of Ferguson, Missouri, exploded last month, there was an effervescent moment when right and left agreed on the problem. The problem, Democrats and Republicans concurred, was militarized police. It was the perfect trans-ideological nightmare, combining the right’s fear of centralized authority with the left’s fear of excessive military force. In point of fact, police militarization bore only the faintest responsibility for the tragedy in Ferguson. At worst, the weaponry at the disposal of the town’s cops made them more aggressive in responding to protesters. But old-fashioned policing tools were all the Ferguson police needed to engage in years of discriminatory treatment, to murder Michael Brown, and to rough up journalists covering the ensuing protests. Police militarization was a largely unrelated problem that happened to be on bright display. Over the ensuing days, it grew apparent that demilitarizing the police might save the government some money but would not address the crisis’s underlying cause, and the momentary consensus evaporated. The shame of it is Ferguson has exposed a genuine opening for thinking about public life in a way that cuts across traditional ideological lines. The problem is what you might call Big Small Government.

Detroit Clears Crucial Hurdle on Bankruptcy - The fiercest opponent to Detroit’s blueprint for erasing its debts and investing in city services has reached an “agreement in principle” with city officials, court documents filed Tuesday evening showed, clearing the way to end the city’s court fight over its future and emerge from bankruptcy far more quickly and smoothly than expected.The tentative settlement with Syncora Guarantee, a bond insurer that said its exposure in Detroit amounted to hundreds of millions of dollars, came suddenly, a week into a trial aimed at allowing Detroit, the largest American city ever to file for bankruptcy, to remake its finances and start over.For months, as the city reached deals with other creditors, including city employees and retirees, Syncora had been the most forceful and public critic, and its legal objections to the city’s plan for eliminating $7 billion in debts threatened to keep Detroit in litigation for months, even years. In one indication of the significance of the deal, representatives from Syncora and Detroit called for an immediate two-day adjournment in the trial, which began Sept. 2 and was expected to run well into October. The pause was needed, the new court filings said, to work out conditions and logistics of the deal, adding that “if this agreement is finalized within this time period as we expect, it will profoundly alter the course of the proceeding and the litigation plans of the remaining parties.”

In D.C., a 13-year-old piano prodigy is treated as a truant instead of a star student - Avery Gagliano is a commanding young pianist who attacks Chopin with the focused diligence of a master craftsman and the grace of a ballet dancer. The prodigy, who just turned 13, was one of 12 musicians selected from across the globe to play at a prestigious event in Munich last year and has won competitions and headlined with orchestras nationwide. But to the D.C. public school system, the eighth-grader from Mount Pleasant is also a truant. Yes, you read that right. Avery’s amazing talent and straight-A grades at Alice Deal Middle School earned her no slack from school officials, despite her parents’ begging and pleading for an exception. “As I shared during our phone conversation this morning, DCPS is unable to excuse Avery’s absences due to her piano travels, performances, rehearsals, etc.,” Jemea Goso, attendance specialist with the school system’s Office of Youth Engagement, wrote in an e-mail to Avery’s parents, Drew Gagliano and Ying Lam, last year before she left to perform in Munich. Although administrators at Deal were supportive of Avery’s budding career and her new role as an ambassador for an international music foundation, the question of whether her absences violated the District’s truancy rules and law had to be kicked up to the main office. And despite requests, no one from the school system wanted to go on the record explaining its refusal to consider her performance-related absences as excused instead of unexcused.

Do High-School Students With Jobs Make More Money Later in Life? -  Remember the job you had in high school? Scooping ice cream at Baskin Robbins, babysitting for a neighbor, or a cashier at the mall? For me, it was a receptionist job at my friend’s dad’s place—a doctor’s office. Such drudgery has always been thought to come with a hidden bonus: The promise of higher future earnings. But, unfortunately for today's working high-school students, it seems that that effect may be waning. A recent paper from economists Charles Baum and Christopher Ruhm found that for a cohort of kids who had jobs in the late 1970s, working for 20 hours a week in the senior year of high school yielded an 8.3 percent wage boost over their non-working high school buddies. For those who had jobs two decades later, in the late 90s, the boost was only 4.4 percent. This was true even when the researchers controlled for family background characteristics and student ability. The most painful part: “Senior-year employment was predicted to decrease the probability of subsequently working in the relatively low-paid service sector for the 1979 cohort but to increase it for the 1997 cohort,” they write. They also found that the wage boost in the earlier cohort was largely limited to women, for reasons they could not determine.

Top Colleges That Enroll Rich, Middle Class and Poor - Vassar has taken steps to hold down spending on faculty and staff. Amherst and the University of Florida have raised new money specifically to spend on financial aid for low-income students. American University reallocated scholarships from well-off students to needy ones. Grinnell set a floor on the share of every freshman class – 15 percent – whose parents didn’t go to college. Over the last decade, dozens of colleges have proclaimed that recruiting a more economically diverse student body was a top priority. Many of those colleges have not matched their words with actions. But some have. These colleges have changed policies and made compromises elsewhere to recruit the kind of talented poor students who have traditionally excelled in high school but not gone to top colleges. A surprising number of such students never graduate from any college. This education gap is a problem not only for the teenagers on the wrong end of it. It’s a problem for the American economy. The economic differences between college graduates and everyone else have reached record levels. Yet for many low-income children – even many who get A’s in high school and do well on the SAT – college remains out of reach. No wonder that upward mobility is less common in the United States than in many other rich countries.

Making Top Colleges Less Aristocratic and More Meritocratic - Education is supposed to be America’s primary engine for social mobility, but growing economic inequality is vividly reflected in our nation’s top colleges. At the nation’s most selective 193 colleges and universities, affluent students (those from the richest socioeconomic quarter of the population) outnumber economically disadvantaged students (those from the bottom quarter) by 14 to 1. To shine light on this issue, The New York Times recently published a new index of selective colleges, measuring their commitment to socioeconomic diversity. Some colleges, such as Amherst and Harvard, have made considerable progress in opening their doors to low-income students, while others have done less well. Of course, Amherst and Harvard are wealthy colleges, substantially richer than even many other elite colleges. Administrators at some of these other colleges point this out when asked about their own socioeconomic diversity: Wealthy universities can afford to increase socioeconomic diversity, the argument runs, but not everyone has the endowment to do so. There is, however, a fair way to measure how committed a college is to promoting economic diversity: by considering the share of students who receive the need-based federal scholarship known as the Pell grant in the context of an institution’s endowment per student. (The endowment per student figure is derived by dividing an institution’s endowment by its total number of students.)Along with its story, The Times published a scatterplot chart comparing endowment and Pell representation. The message was clear. Some colleges do a much better job than others of opening doors to disadvantaged students even though they have roughly equal endowments per student. Indeed, some of the richest universities and colleges invest few of their resources in this goal, while some less moneyed institutions pour more of their limited resources into pursuing socioeconomic opportunity.

Ken Braun: Has betting on college football become a better bet than betting on college? -- If a gambler zips off to Vegas and slaps down $9,000 on any college football team to beat the point spread, his or her chance of doubling the money to $18,000 is (more or less) 50 percent. Dropping that pile of cash on a degree at one of those colleges is supposed to be a safer investment with a higher likelihood of return. But a new report released last week by the New York Federal Reserve Bank questions the assumption that the financial reward of college spending outweighs the risk. The report, “Do the Benefits of College Still Outweigh the Costs?,” confirms the oft-told statistic that the typical university graduate earns substantially more than a non-graduate. But not all graduates are typical, and not every student plunking down big tuition dollars becomes a graduate.   Begin with the non-graduates, and there’s a lot of them. The Center for College Affordability and Productivity noted in 2012 that 45 percent of public university students had failed to obtain a degree six years after starting school. So for every 100 new students, just 55 are graduating. What has historically happened to graduates? The Fed report reveals that the income of 25 percent of all Americans with a four-year degree is roughly the same as the average for those with just a high school diploma. This suggests, say the authors, “that the economic benefit of a college education is relatively small for at least a quarter of those graduating with a bachelor’s degree.” They’re talking about 14 of the aforementioned 55 graduates.

A Simple Equation: More Education = More Income -- Between 1979 and 2012, the gap between the wages of a family of two college graduates and a family of high school graduates grew by some $30,000, after inflation.This clever calculation by Lawrence Katz, a labor economist from Harvard, amounts to a powerful counterargument to anybody who doubts the importance of education in the battle against the nation’s entrenched inequality.But in the American education system, inequality is winning, gumming up the mobility that broad-based prosperity requires. On Tuesday, the Organization for Economic Cooperation and Development released its annual collection of education statistics from around the industrialized world showing that the United States trails nearly all other industrialized nations when it comes to educational equality. The United States once led the world in educating large numbers of its citizens, but that is no longer true. Compared with most other advanced industrial nations, the United States ranks near the bottom in the share of its working-age citizens who surpass the educational attainment of their parents. Educational attainment of 25 to 64-year-olds who have finished school, compared with that of their parents  Barely 30 percent of American adults have achieved a higher level of education than their parents did. Only Austria, Germany and the Czech Republic do worse. In Finland more than 50 percent of adults are more educated than their parents. And matters are getting worse, not better. Among 25- to 34-year olds, only 20 percent of men out of school and 27 percent of women have achieved a higher level of education than their parents. It’s even bleaker at the bottom: Only one in 20 Americans aged 25 to 34 whose parents didn’t finish high school has a college degree. The average across 20 rich countries in the O.E.C.D. analysis is almost one in four.

Most university undergrads now taught by poorly paid part-timers - Hale is 51 years old, and a single mother with two kids. She is what her university calls a CAS (contract academic staff). Other schools use titles such as sessional lecturers and adjunct faculty. That means that despite her 16 years of service, she has no job security. She still needs to apply to teach her courses every semester. She gets none of the perks that a full time professor gets; generous benefits and pension, sabbaticals, money for travel and research, and job security in the form of tenure that most workers can only dream about. And then there’s the money. A full course load for professors teaching at most Canadian universities is four courses a year. Depending on the faculty, their salary will range between $80,000 and $150,000 a year. A contract faculty person teaching those same four courses will earn about $28,000. Full time faculty are also required to research, publish, and serve on committees, but many contract staff do that as well in the hope of one day moving up the academic ladder. The difference is they have to do it on their own time and on their own dime.

The Boys' Club: How Men Ruin Everything -  Back in those golden days of yesteryear, universities had this very quaint and charming notion that their purpose was to fill the minds of young people with knowledge. They provided a brief refuge from the tumult of the everyday world, so students could acquire an intellectual foundation that would enlighten the rest of their lives. Somebody has really, REALLY messed things up, and I think you know who you are, gentlemen. My solution is draconian -- even perverse -- but drastic measures are justified. The Male Imperative is corrupting homo sapiens' every institution and endeavor, and it's killing the planet in the process. The quiet but profound interchange between students and those who regard teaching as the noblest of endeavors doesn’t seem to interest the He Men who now run institutions of higher learning, in the same way that they run everything else. What they want is way more grand than that. This Brave New Breed of university leaders is not scholarly -- that’s so Old School! They are technocrats, money men, Power Point people with their business-school jargon and their cold, conceited concept of "success."  They are so busy marching with muscled loins toward grand new horizons of empire building that they tend to forget about that rather boring little distraction -- you know -- the kids in the classrooms. As a result, the students, who pay ever-more-exorbitant fees to go to school, have gone from being the center of the university universe to being way, way out there, like tiny, plaintive asterisks.

40 million Americans now have student loan debt - Carrying tens of thousands of dollars in student loan debt has become the new normal. Thanks to climbing tuition and inadequate college savings, 40 million Americans now have at least one outstanding student loan, according to new analysis from credit bureau Experian. That's up from 29 million consumers in 2008. On average, borrowers are carrying roughly four student loans each, up from less than three in 2008. Meanwhile, the average balance has increased to $29,000 from $23,000.  That has helped to push nationwide student loan debt to an all-time record of $1.2 trillion, an 84% jump since the recession. Unlike other kinds of debt, student lenders are continuing to dish out loans to borrowers so young they don't have proven financial track records or substantial credit histories.  "Student loans are the only credit vehicle where a lender continues to extend credit year after year without knowing the person's ability, or even willingness, to pay," said Michele Raneri, vice president of analytics at Experian.

155,000 Americans Had Social Security Benefits Cut in 2013 Because of Student Debt - The U.S. government is increasingly garnishing the Social Security checks of older and disabled Americans who have fallen behind on their student-loan payments. Some 155,000 Americans had their Social Security benefits reduced in the federal fiscal year 2013 after defaulting on federal student loans, according to a report Wednesday from the Government Accountability Office, a research arm of Congress. The figure has steadily risen each year since 2002, when 31,000 Americans had retirement, disability and survivor benefits cut because of student debt. The report, released in advance of a hearing Wednesday before the Senate Special Committee on Aging, says most of the Americans affected are above 50 years old, and a rising share are age 65 and older. Last year, 36,000 Americans age 65 and older had benefits cut. A vast majority of all those with benefits garnished—71%–were receiving disability income, the GAO reported. Adults of any age are eligible to receive Social Security disability payments. Sandy Baum, a senior fellow at the Urban Institute, a Washington, D.C., think tank, questioned the government going after people who have demonstrated they lack the ability to work. “It just doesn’t really make any sense” to go after disabled Americans, Ms. Baum said. “We should not try to get the money from them and should focus on people who actually have earnings.”

Student Debt Collections Are Leaving the Elderly in Poverty -- Elderly Americans have more student loan debt than ever and are more likely to become chronically unable to make payments than younger borrowers. Those findings from a new report by the Government Accountability Office took center stage at Wednesday’s Senate hearing on how seniors deal with unprecedented education debt. Federal student debt among Americans 65 and older increased sixfold since 2005, reaching $18.2 billion in 2013, according to the report. Over 80 percent of elderly borrowers were still struggling to pay off loans they took out to pay for their education, which suggests that the debt ballooned, in part, due to interest. Seniors hold a small minority of all student debt in the country, but their fate is a cautionary tale for today’s students taking out more and bigger loans. It is also a sign of financial stress to come for people who are heading toward retirement. Some 31 percent of the student loans held by Americans aged 65 and older were in default last year. That makes the elderly about twice as likely to hold defaulted loans as Americans under the age of 50. Defaulting on student loans is bad for anyone: It can harm your credit and multiply your debt by adding fees. For older Americans, the consequences can be especially dire.More elderly Americans are seeing retirement benefits cut to order to repay education debt, as Bloomberg Businessweek reported last month. The government reduced the Social Security payments or other retirement benefits of 155,000 people last year to pay off student loans, according to the new GAO report, up from just 31,000 in 2002.

This Is What an Aging Population Looks Like - “Procter & Gamble Co. is getting back into a business it exited more than a decade ago—making products for adults suffering from incontinence—as it takes aim at the growing ranks of aging Americans. Births peaked in the U.S. at 4.32 million in 2007 and declined for five years before leveling off recently. Some 3.96 million babies were born in the U.S. last year, according to preliminary data from the Centers for Diseases Control and Prevention. The number was up slightly from 2012, but the country’s fertility rate dropped to a record low of 62.9 births per 1,000 women of childbearing age. Meanwhile, over 3 million Americans are now turning 65 each year, according to the Pew Research Center

Northeastern US states seek to cut public worker pensions - The progressive shift from “defined benefit,” or traditional pensions, which were once the norm, to “defined contribution,” or 401(k)-like schemes, has been unfolding for decades in the private sector. By 2011, only 35 percent of Fortune 1000 corporations had active defined benefit plans, while most public workers still had such plans. However, according to the National Institute on Retirement Security, 45 percent of working-age households own no retirement account assets of any kind.A recent report by Moody’s indicates that public pension funds have significantly higher “risks” than those of private corporations. In other words, governments lag behind corporations in their assault on worker pensions, a process known as “derisking,” i.e., shifting retirement costs entirely to the workers.The Center for American Progress concludes that, “the typical 401(k) fees—adding up to a modest-sounding 1 percent a year—would erase $70,000 from an average worker’s account over a four-decade career compared with lower-cost options.” The cumulative effect of derisking by private employers and increasingly by public employers will be a return to conditions similar to those of the 19th century, when workers had little or no economic security in their old age. According to the Center for Retirement Research, half of all US households will be unable to maintain their standard of living in retirement.

Is New Jersey Fudging Its Pension Fund Results to Deflect a Christie Scandal? – Yves Smith - You cannot make stuff like this up. New Jersey, in its attempt to diffuse a pension fund scandal that implicates Chris Christie (it roused him to respond in public), looks to have committed the classic crisis management blunder of a cover-up worse than the original crime.  International Business Times reporter David Sirota has been putting questionable relationships between state pension funds and Wall Street under the hot lights. One of the objects of his scrutiny has been the New Jersey pension fund, which is seriously underfunded. A recent tally puts it at number 43 out of 50 states in the level of its pension funding, with only 60% of its commitments funded. The New Jersey shortfall is the result of a series of classic blunders, starting with a decision to starve the pension system in the 1990s under governor Christine Todd Whitman. New Jersey dug its hole even deeper during the crisis, by taking risky bets right before the markets unraveled, including investing in Lehman shortly before its collapse.  This bad situation was made worse under Christie. Sirota showed how Christie shifted fund allocations to managers of “alternative assets” like hedge funds and private equity funds, which charge vastly more in the way of fees than simple stock and bond funds. It should be no surprise that hedge and private fund managers are heavyweight political donors. The result was more fees to the managers and underperformance for New Jersey. As Sirota wroteGov. Chris Christie’s administration openly acknowledged that more New Jersey taxpayer dollars were going to land in the coffers of major financial institutions. It was 2010, and Christie had just installed a longtime private equity executive, Robert Grady, to manage the state’s pension money. Grady promoted a plan to put more of those funds into riskier investments managed by Wall Street firms. Though this would entail higher fees, Grady said the strategy would “maximize returns while appropriately managing risk.”

Nearly a quarter of Fortune 500 companies still offer pensions to new hires - About one in four large employers still offer some sort of pension to new hires, according to a study released Thursday. That may sound like a fair amount of companies, especially at a time when most people starting new jobs only hear of pensions as a thing of the past. But a closer look at the numbers from professional services company Towers Watson shows that companies are still scaling back the generosity of what they offer. For starters, fewer companies are still offering pensions, with the share of Fortune 500 companies that provide them to new hires falling to 24 percent at the end of 2013 from 60 percent in 1998. Alan Glickstein, a senior retirement consultant at Towers Watson, says the drop in the number of employers offering pensions is stabilizing. “There’s a move away from pensions, that’s nothing new,” he says. “But the move is slowing.”

Who Really Benefits from Social Security’s Cost-of-Living Index? Depends How Long You Live - Budget battles in recent years have thrust politicians and budget wonks into heated debates over how to adjust Social Security benefits for inflation. This may seem a dry matter, but once the initial level of monthly benefits is determined, the inflation index then becomes the key determinant of whether America’s retirees get a raise. Now Matthew Weinzierl, an economist at Harvard, has a new paper arguing that the tradeoffs in switching Social Security indexes are more complex than commonly appreciated, because it has different implications depending on how long one lives.  Many proposals to balance the federal budget have included a provision that would switch the inflation index used to calculate Social Security. Instead of the current index known as the consumer price index for urban wage earners and clerical workers (or CPI-W), the government would instead use an index known as the Chained CPI. What’s relevant in budget negotiations is that the annual change in the Chained CPI tends to be about 0.3 percentage points lower than the current CPI-W. Since 2001, the Chained CPI has averaged 2.1% and the CPI-W has averaged 2.4%.  At first, this sounds like small potatoes. Imagine someone receiving $1,000 a month in Social Security benefits. After one year, her benefit would rise to $1,021 a month using the Chained CPI or $1,024 a month using the CPI-W. But over time, this gap compounds. After 10 years, the gap is $36 a month. By year 20, the retiree under the Chained CPI is earning $90 less each month — more than $1,000 less each year. Spread this across tens of millions of retirees, and the switch to the lower inflation index reduces Social Security expenditures by billions a year

A Note on the Dynamics of Misinformation - Paul Krugman - I posted about the surprisingly good news, at least so far, on Obamacare premiums for 2015 — and as usual was met with a wall of rage from the right. The idea that this thing might be working inspires a level of anger nothing else (except maybe climate science) matches. No news there. Nor is it news that such people know things that ain’t so. But there’s something I’ve noticed from the combination of reactions to what I write and researching past coverage of Obamacare. It goes like this: a lot of the untrue beliefs people have about Obamacare come not so much from outright false reporting as from selective reporting. Every suggestion of bad news gets highlighted — especially, of course, but not only by Fox, the WSJ, etc.. But when it turns out that the news wasn’t really that bad, these sources just move on. There are claims that millions of people are losing coverage — headlines! When it turns out not to be true — crickets! Some experts claim that premiums will rise by double digits — big news! Actual premium numbers come in and they’re surprisingly low — not mentioned. The result is that most news consumers — who form impressions rather than trying to work out details — have the sense that it’s been all bad news. This is true even for people who don’t rely on Fox — I get asked about the scary premium hikes by people on the Upper West Side! And of course for those who do get their news from Fox, well, they know, just know, that Obamacare has reduced the number of Americans with insurance and caused premiums to double or something, even though even their favorite news source isn’t saying such things. We need a term for beliefs based on reports that have been superseded; maybe fossils instead of zombies. Anyway, it’s striking.

Cost of Employer Health Coverage Shows Muted Growth - The cost of employer health coverage continued its muted growth this year with a 3% increase that pushed the average annual premium for a family plan to $16,834, according to a major survey.The increase was slightly less than the 4% seen last year, according to the annual poll of employers performed by the nonprofit Kaiser Family Foundation along with the Health Research & Educational Trust, a nonprofit affiliated with the American Hospital Association. The share of the family-plan premium borne by employees was $4,823, or 29% of the total, the same percentage as last year. The total annual cost of employer coverage for an individual was $6,025 in the 2014 survey, up 2%, a difference that wasn't statistically significant.

Employer Insurance Premiums: Kaiser-HRET Survey Shows No Big Increase -  We have new information about what we’re paying for health insurance these days. And like most of the news we’ve been getting related to health care Obamacare lately, it’s good—with a catch. The data is about the premiums for employer-sponsored insurance—that is, coverage that you get through your job. That’s still the way that most working-age Americans get insurance, even though it gets far less attention than coverage in the new insurance exchanges. The information comes from the annual Kaiser/HRET survey of employers, which is pretty much the authority on these issues. Its main finding: This year, the average annual price of a single person’s coverage is $6,025 and the average annual price for a family policy is $16,834. (Those are the full prices for coverage, including the portion that employers pay directly.) That’s a lot of money, obviously. But the cost of the family policy is only 3 percent higher than it was last year, and the cost of the single policy rose by even less. That’s pretty close to increases in wages and prices, which is another way of saying that, relative to living standards, employer-sponsored insurance didn’t actually get more expensive last year. That’s pretty remarkable, given how quickly these premiums sometimes went up in the past. From a press release accompanying the report: This year’s increase continues a recent trend of moderate premium growth. Premiums increased more slowly over the past five years than the preceding five years … and well below the annual double digit increases recorded in the late 1990s and early 2000s.

Employer health plan deductibles see big 5-year jump: A report out today puts numbers behind what hit many workers when they signed up for health insurance during open enrollment last year: deductible shock. Premiums for employer-paid insurance are up 3% this year, but deductibles are up nearly 50% since 2009, the report by the Kaiser Family Foundation shows. The average deductible this year is $1,217, up from $826 five years ago, Nearly 20% of workers overall have to pay at least $2,000 before their insurance kicks in, while workers at firms with 199 or fewer employees are feeling the pain of out-of-pocket costs even more: A third of these employees at small companies pay at least $2,000 deductibles. "Skin-in-the-game insurance" is becoming the norm,says Kaiser Family Foundation CEO Drew Altman, referring to the higher percentage of health care costs employees have to share. Deductibles will keep going up as companies try to keep their own health care costs down by raising the amount of cost-sharing workers have to bear, says Gary Claxton, a Kaiser Family Foundation vice president who co-authored the annual study.

250,000 in Virginia face loss of health insurance - After a year’s reprieve, up to 250,000 Virginians will receive notice by the end of November that their health insurance plans will be canceled because the plans do not comply with the Affordable Care Act and accompanying state law. The affected policyholders were allowed to renew their old plans late last year, even though the plans did not provide all of the benefits required under the health care law, but they won’t have that option when the policies expire this year. Doug Gray, executive director of the Virginia Association of Health Plans, said the notices will give policyholders the option to buy health plans with similar coverage that comply with federal and state insurance law. “I don’t call that cancellation — I call that an adjustment to the new law,” Gray said Thursday. But the pending notices, revealed during a meeting of a new legislative commission, immediately rekindled partisan political debate over the effect of the health care law that President Barack Obama signed in 2010. “This law is causing untold heartache and genuine hardships for thousands of Virginians,” Del. Kathy Byron, R-Campbell County, chairman of the Virginia Health Insurance Reform Commission, said Wednesday. “It is becoming increasingly clear that the best option would be to repeal this poorly crafted law and start over.”

Measuring the impact of states’ Obamacare decisions -  The early story of the Affordable Care Act can be challenging to generalize sometimes because so much of it depends on decisions made at the state level — both before and during implementation of the ACA. Did states defer to a federal-run exchange, or did they set up their own? In the states that built their own insurance marketplaces, did the Web site actually work? Did they expand Medicaid programs to low-income adults? Did they temporarily let people keep their old health plans? Those decisions made across 50 states and the District of Columbia came with measurable consequences, according to new research from the Brookings Institution, published as part of the twice-annual Brookings Papers on Economic Activity. The paper examines coverage levels, insurance premiums and insurers' costs in the individual health insurance market during the first two quarters of the coverage expansion that took effect in January, and it tries to answer whether healthier people are signing up for coverage as hoped. In the five states most resistant to Obamacare implementation — Alabama, Missouri, Oklahoma, Texas and Wyoming — those purchasing their own health insurance were $245 worse off on an annual basis when compared to enrollees in all other states' individual markets, according to findings from Yale University health economist Amanda Kowalski. These "direct enforcement" states, as Kowalski labels them, saw smaller coverage increases over this time. Even though premiums in these states started out lower, they almost caught up by the end of the second quarter of 2014. And though the average cost per enrollee started much lower in direct enforcement states, the costs exceeded all other states by the end of the second quarter.

Obamacare Participants Worse Off, But Don’t Blame Washington — Blame States, Paper Says -The president’s health-care law has made participants in most states worse off, but the result may reflect decisions made in state capitals, not the broader policy, a new study from a Yale University economist found. The average enrollee in a health plan made available under the Affordable Care Act saw individual welfare decline in 35 states, according to the study Amanda Kowalski  is to present Thursday at Brookings Institution in Washington. The report found the majority of those states either handed over at least part of the rollout to the federal government or were crippled by technology glitches. The average welfare improved in six of the eight states that successfully rolled out their own insurance exchanges and expanded Medicaid coverage. That includes New York, where the average enrollee’s welfare is estimated to have improved by $1,164 annually, the study found. The measure of welfare is determined by a formula based on enrollment figures, changes to premiums and changes to the cost of providing care. States that set up their own exchanges may have done a better job attracting more healthy participants to plans than states that took a handsoff approach, Dr. Kowalski said. Healthier participants help to lower costs per enrollee. Average welfare declined most in Oregon, falling by an annualized $852. That was one of five states Dr. Kowalski identified as experiencing “severe technology glitches” in setting up their own exchanges. On average, participants in those states were worse off by $750 compared with those in other states. States such as Alabama and Texas that ceded all enforcement of the Affordable Care Act to the federal government were worse off by $245 per participant on an annualized basis, compared with all other states.

Stop the Anti-Obamacare Shenanigans - SO far, opponents of the Affordable Care Act have lost every major battle to repeal or invalidate it. Some of them are now urging the courts to interpret the health reform law in a way that would guarantee its failure. This is a significant threat — potentially as grave as the previous main legal challenge to the law, which the Supreme Court rejected, 5 to 4, in 2012. If the new effort succeeds, it would create total chaos. Having failed to undo the individual mandate to buy health insurance, opponents now claim that, under the law, subsidies for low- and moderate-income Americans to buy insurance may be paid only in those states — currently 14 — that have set up their own online insurance exchanges. This would torpedo a central goal of the law: the expansion of coverage. At first, those of us who support Obamacare thought these claims were a joke. On July 22, the federal appellate court in Richmond, Va., rejected one such claim, but the same day, astonishingly, the federal appellate court for the District of Columbia Circuit ruled, 2 to 1, in favor of the plaintiff in a similar case, Halbig v. Burwell. Similar challenges are working their way through courts in two other circuits. Last Thursday, the entire United States Court of Appeals for the District of Columbia Circuit put aside that 2-1 ruling, agreeing to hear the case “en banc” on Dec. 17. But now the opponents of Obamacare are asking the Supreme Court to immediately hear an appeal of the Richmond decision, and to pre-empt the full District of Columbia court from hearing the case.

To improve ‘Obamacare,’ reconsider the original House bill -The Affordable Care Act (ACA), or “Obamacare,” has survived its first year, and to the dismay of conservative fear-mongers who assumed it would fail, the law appears to be achieving exactly what it sought: the growth of health care costs is slowing down, and millions more Americans have coverage. Liberals are rightfully celebrating. Yet liberals should not be too self-righteous. Few people remember, but there was another, more ambitious health care bill passed by the House in November 2009 that could have become law, had there not been a last-minute scramble to get legislation across the finish line. This bill contained a public option, stronger price regulations, a national exchange, and a better way of approaching an employer mandate. These features would have placed the ACA on even steadier footing than where it stands right now, and liberals who want to build on the achievements already made need to understand why the stronger bill was better. Before proceeding, it’s worth recapping what ACA does, and how it came to be. A popular metaphor for the ACA is that it is a three-legged stool: It creates a regulated exchange for people to buy insurance that ignores preexisting conditions; there’s an individual mandate requiring all people to sign up for insurance; and to make sure everyone can afford insurance, there are subsidies available for households with low incomes.

Where the ACA Should Go Next?  On Tue, Sep 9, 2014 at 1:47 PM, Dan emailed: Rortybomb, New Piece on Where the ACA Should Go Next Rorty touts the 2009 House Bill which calls for a Public Option and described here To improve ‘Obamacare,’ reconsider the original House bill. Maggie Mahar replies:  Originally I favored a public option, but in fact, at the time, no one really spelled out who would run the public option–or how it would be run. One of the best things about the ACA is that lets both HHS and CMS make end-runs around Congress. I would never want a public option that was run by Congress. Here is the comment I just posted in reply to the post “Where the ACA Should Go Next” I would need to know far more about the public option—and how it would be different from Medicare– before voting for it. Medicare is extraordinarily wasteful– 1/3 of Medicare dollars are squandered on unnecessary treatments that provide no benefit to the patient. Why? Because Congress is Medicare’s board of directors, and lobbyists representing various specialist’ groups, hospitals, device-makers and drug-makers control Congress.

What should we infer from Obamacare rate increases? -- Robert Laszewski writes: The 2015 rate increases have been largely modest. Does that prove Obamacare is sustainable? No. You might recall that on this blog months ago my 2015 rate increase prediction was for increases of 9.9%. You might also recall my reason for predicting such a modest increase. With almost no valid claims data yet and the “3Rs” Obamacare reinsurance program, insurers have little if any useful information yet on which to base 2015 rates and the reinsurance program virtually protects the carrier from losing any money through 2016. I’ve actually had reports of actuarial consultants going around to the plans that failed to gain substantial market share suggesting they lower their rates in order to grab market share because they have nothing to lose with the now unlimited (the administration took the lid on payments off this summer) Obamacare reinsurance program covering their losses. We won’t know what the real Obamacare rates will be until we see the 2017 rates––when there will be plenty of valid claim data and the Obamacare reinsurance program, now propping the rates up, will have ended. The post has other interesting points.

The chart that shows not just how, but why other countries spend less on health care than we do -  Though it’s getting better, the U.S. health-care system is uniquely inefficient. We spend far more than other countries on everything from hospital stays to MRIs to prescriptions to end-of-life care. It’s also the case that private-sector spending makes up a much larger share of health spending here than it does in other advanced economies. Are these two facts causally related? The figure below — well known to health-care economists but still worth trotting out — plots their intersection, with the public share of health spending on the Y-axis and the GDP share on the X-axis. Each dot is a country. The U.S. position in the figure — highest on health spending/GDP; lowest on public share —presents us with the very picture of an outlier. Correlation not being causation, you are within your rights to argue that this doesn’t prove that more private sector means less efficient health care. It could be that people here demand more health care than in those other economies, and because its consumption is not so tightly controlled by the state, they can get it. It’s certainly true that we in the United States consume more health care, though for all we spend, we don’t have better health outcomes than those in other advanced economies, all of whom spend less per capita (it’s not that we see the doctor more; it’s that when we do, our treatment is more extensive). The sources of our higher costs are well known, and there’s a decent case to be made that they relate to our disproportionate private-spending share.

Can We Have a Fact-Based Conversation About End-of-Life Planning? - Dealing with health care needs at the end of life is a difficult but unavoidable issue in an aging society with rising health care costs like ours. After a failed attempt to deal with the issue as part of the Affordable Care Act, it may again be returning to the policy agenda. Can we avoid another catastrophic bout of misinformation?   The debate over end-of-life planning has largely been dormant since 2009, when the former Alaska governor Sarah Palin’s false claim that President Obama’s health care plan included a “death panel” spelled the end of a proposal for Medicare to reimburse doctors for voluntary end-of-life consultations with patients. The Obama administration briefly issued and then withdrew a regulation that would have added end-of-life consultation coverage to Medicare in early 2011, but is likely to revisit the issue after receiving a recommendation from an influential American Medical Association panel. Unfortunately, the lesson from the “death panel” controversy is that this issue is vulnerable to demagoguery if it becomes linked to people’s partisanship or feelings about controversial political figures and issues. The “death panel” belief has persisted in the years since Ms. Palin’s comments. Though the wording of the question is imperfect, polling data from the Kaiser Family Foundation shows that approximately one-third of Americans still believe in the myth — a proportion that has remained relatively stable since 2010. (Similarly, a 2012 academic survey using different wording found that one in two Americans endorsed the myth and only about one in six knew with high certainly that it was false.) This persistence may be the reason that the Obama administration has avoided the issue until now.

New Study Shows US Adult Obesity Rates Exceed 20% in Every State - Rates of adult obesity increased in six US states and fell in none last year, and in more states than ever – 20 – at least 30% of adults are obese, according to an analysis released on Thursday. The conclusions were reported by the Trust for America’s Health and the Robert Wood Johnson Foundation and were based on federal government data. They suggest the problem may be worsening despite widespread publicity about the nation’s obesity epidemic, from First Lady Michelle Obama and many others, plus countless programs to address it.From 2011 to 2012, by comparison, the rate of obesity increased in only one state. The 2013 adult obesity rate exceeds 20% in every state, while 42 have rates above 25%. For the first time two states, Mississippi and West Virginia, rose above 35%. The year before, 13 states were above 30% and 41 had rates of at least 25%. Adult obesity rates increased last year in Alaska, Delaware, Idaho, New Jersey, Tennessee and Wyoming. Obesity is defined as a body mass index (BMI) of 30 or more, where BMI is calculated by dividing weight (in kilograms) by height (in meters) squared. Overweight is defined as a BMI of 25 to 29.9.

Surgery Often Doesn’t Work on Worn Out Knees -- As they age, a lot of people have knee pain from osteoarthritis, and a lot of them undergo arthroscopic surgery to relieve it. But several studies find that the procedure offers neither improved function nor less pain for many. A meta-analysis — one in which the data from many different studies are crunched — published in the journal CMAJ looked at how effective the surgery is to repair degenerative meniscal tears in patients with mild knee osteoarthritis. As explained by, many patients with knee osteoarthritis (OA) also have degenerative meniscal tears. Previous studies have shown that arthroscopic surgery offers little benefit for people with severe arthritis, but what it does, or doesn’t do, for people with milder cases was unclear. Arthroscopic surgery is less invasive than traditional surgery. It both diagnoses and treats problems. It uses smaller incisions and introduces a slender “scope” to view the damage and repair it. Traditional surgery involves larger incisions and more disruptive tools. Arthroscopic surgery offers less risk for complication (such as infection) and a faster recovery time. But, of course, all surgery has some risk.

Brain Trauma to Affect One in Three Players, N.F.L. Agrees -  The National Football League, which for years disputed evidence that its players had a high rate of severe brain damage, has stated in federal court documents that it expects nearly a third of retired players to develop long-term cognitive problems and that the conditions are likely to emerge at “notably younger ages” than in the general population. The findings are a result of data prepared by actuaries hired by the league and provided to the United States District Court judge presiding over the settlement between the N.F.L. and 5,000 former players who sued the league, alleging that it had hidden the dangers of concussions from them.“Thus, our assumptions result in prevalence rates by age group that are materially higher than those expected in the general population,” said the report, prepared by the Segal Group for the N.F.L. “Furthermore, the model forecasts that players will develop these diagnoses at notably younger ages than the generation population.” The statements are the league’s most unvarnished admission yet that the sport’s professional participants sustain severe brain injuries at far higher rates than the general population. They also appear to confirm what scientists have said for years: that playing football increases the risk of developing neurological conditions like chronic traumatic encephalopathy, a degenerative brain disease that can be identified only in an autopsy.

You're full of it, lady - Sylvia Kronstadt -- Are you a woman, or a luscious, silken, fragrant heap of toxic chemicals? Blueberry fingers and cantaloupe toes. How could I have lived so long without longing for, and demanding,  such sweet treats? I was flushed with anticipation as I explored a large display of beautifully bottled liquid soaps at Big Lots last month. They were on sale for a dollar. (I later learned that they cost $10 at Kohl's and $5 on Ebay.) Their labels were artful depictions of  Lavender, Peach Mango, Lemon Citrus, Cherry Vanilla and Grapefruit Daisy, among others. It wasn't until I'd been using these exquisite products for several days that I idly turned the bottle around, and read the ingredients.   Oops, I did it again. I got taken in by hype and imagery, which readily shut down the part of my brain that knew the truth. These products were a shocking brew of creepy chemicals, which can zoom straight through your pores into your bloodstream. It wasn't a "simple pleasure" -- it was a complex poison.No fruits were harmed in the making of all this fruitiness.  "THIS IS NOT FOOD. DO NOT EAT," the label warned. "Do not use near eyes. Do not use near lips."   “Most people believe that products sold in major stores are tested for safety, but consumers need to know that they could be doused with a cancer-causing chemical every time they shower or shampoo or wash their hands,” Michael Green, executive director of the Center for Environmental Health, said last year.

Miscarriage Isn’t Illegal, But It’s Increasingly Treated With Suspicion -  Yes, even though spontaneous miscarriages occur in 10 to 20 percent of known pregnancies, paranoia and anger about the ones deliberately induced by abortion is making it unsafe for all women to go through this natural and common life process. As RH Reality Check‘s Nina Liss-Schultz reports, a fetus was discovered in the bathroom at Woodrow Wilson High School in Dallas last Friday. The aforementioned high rate of miscarriage suggests a likely explanation: A student miscarried in the bathroom and, unable to figure out what to do, just left the results there and tried to pretend nothing happened. (In fact, that’s what officials eventually determined to be the case.) Since neither being pregnant in high school nor miscarriage are classified as crimes—not yet, anyway—the situation called for a muted and calm reaction. Instead, however, administrators summoned local police. And, even though miscarriage is not a crime, officers opened up an investigation and “called for help in identifying a ‘suspect,’” as Liss-Schultz reported. Soon, the high school was swarming with cops, leaving students and parents to panic as at least one police helicopter buzzed overhead—all to look for a girl who experienced something that is an expected outcome for 10 to 20 percent of pregnancies. In Indiana a woman named Purvi Patel is facing a possible sentence of decades in prison for not producing a live baby. Patel admitted to taking abortion-causing pills, which induced labor; she was caught when she went to the emergency room to get help for the bleeding. The fetus was found dead in a dumpster. The messed-up thing about the situation is that the State of Indiana is so determined to put Patel in prison that they’ve hit her with two conflicting charges. If they determine that the baby was born alive, they’re going to prosecute her for “neglect.” But if she successfully terminated the pregnancy, she’s getting hit with “fetal murder of an unborn child.”

Numbers, Fertility, and Life Expectancy for the Human Race - Each year the Department of Economic and Social Affairs at the United Nations publishes a "Concise Report on the World Population Situation."  The 2014 report is a chance for a quick check on the numbers, fertility, of the human race. As a starting point, here are global population projections through 2050. The high-fertility estimate is when women have on average a half-child more, and the low-fertility estimate is when women have on average a half-child less. As your eye shows, the rate of increase in population is slowing a bit over time. Here's a figure breaking down the average population growth rates for the world and by by region. For the world, population growth rates are projected to fall from 2% in 1970 to 0.5% by 2050. For Europe, population growth rates are at zero percent now, and slated to fall lower. A number of other regions are headed that way as well, with population growth in Africa the clear outlier. The report notes: "[T]the annual increase in that populationhas been declining since the late 1960s. By 2050, it is expected that the world’s population will be growing by 49 million people per year, more than half of whom will live in the least developed countries. Currently, of the 82 million people added to the world’s population every year, 54 per cent are in Asia and 33 per cent in Africa. By 2050, however, more than 80 per cent of the global increase will take place in Africa, with only 12 per cent in Asia."  These lower rates of population growth are reflected in lower fertility rates. Back in 1970, only Europe and Northern America had fewer than three births per woman. Now the world average is less than  three births per woman, although Africa's rate remains higher. Still, Africa's birthrate per woman roughly matches where Latin America and Asia were in the late 1970s, and fertility rates can in some cases shift quite rapidly.

Virus hospitalizes hundreds of kids in Midwest and South - Preston Sheldon’s mother said he seemed fine when she took him to preschool on Tuesday. Minutes later, according to according to News Channel 4, the Kansas City mom got a call that her 3-year-old was having trouble breathing.“You could see his ribs and his stomach was pushing out really hard. I thought it was an asthma attack,” Pam Sheldon told the station. Jennifer Cornejo of Lone Tree in Colorado told News7 in Denver her 13-year-old son William had cold symptoms that developed overnight into a life-threatening respiratory illness. “He was in really bad shape,” she said. “He came really close to death. He was unconscious at our house and white as a ghost with blue lips — he just passed out.” “My head started hurting,” William said. “And after that my lungs started closing up. It felt different.” Hospitals in Colorado, Missouri and potentially eight other states are admitting hundreds of children for treatment of an uncommon but severe respiratory virus. The virus, called Enterovirus D68, causes similar symptoms to a summer cold or asthma: a runny nose, fever, coughing and difficulty breathing. But the illness can quickly escalate, and there are no vaccines or antiviral medications to prevent or treat it.

What is the respiratory disease Enterovirus EV-D68? - A respiratory virus that has sent hundreds of children to hospitals in Missouri is causing alarm across the Midwest and beyond. Ten states have contacted the Centers for Disease Control and Prevention for help investigating clusters of the virus that's being blamed for the illness. Health officials say they're still figuring out what's going on. The bug that appears to be causing most of the concern has a typically arcane name -- Enterovirus EV-D68 -- but many of its symptoms are very common. Here's what you need to know about the virus. What are enteroviruses? Enteroviruses, which bring on symptoms like a very intense cold, aren't unusual. They're actually very common. When you have a bad summer cold, often what you have is an enterovirus, said Mark Pallansch, a virologist and director of the Centers for Disease Control and Prevention's Division of Viral Diseases.There are more than 100 types of enteroviruses causing about 10 to 15 million infections in the United States each year, according to the CDC. They are carried in the intestinal tract and often spread to other parts of the body. The season often hits its peak in September, as summer ends and fall begins. So why all the concern now? What's unusual at the moment is the high number of hospitalizations. The virus has sent more than 30 children a day to a Kansas City, Missouri, hospital, where about 15% of the youngsters were placed in intensive care, officials said. "It's worse in terms of scope of critically ill children who require intensive care. I would call it unprecedented," said Dr. Mary Anne Jackson, a director for infectious diseases at Children's Mercy Hospital, where about 475 children were recently treated. "I've practiced for 30 years in pediatrics, and I've never seen anything quite like this," she said.

Rare Outbreak of Dengue Fever in Japan - Japan’s health minister on Friday urged the public not to panic after a popular park in central Tokyo was closed because of a rare outbreak of dengue fever. The Ministry of Health said that 70 people had been found infected with the dengue virus in the past week, in what it called the first outbreak in Japan since 1945. Dengue, which causes fevers and in rare cases death, is common in tropical climates, but not in temperate Japan. Officials said global warming might be playing a role in the spread of dengue to places like Tokyo. This year, Japan had an unusually hot and humid summer. The ministry said most of the people found infected had spent time in or near Yoyogi Park, where they were most likely bitten by mosquitoes that carried the disease. On Friday, health workers sprayed pesticides in the park to kill the insects. No one has died in the outbreak.

Ebola could arrive in US as soon as this month, study says -- Dr. Rick Sacra, the third American to contract Ebola, landed in Nebraska last week and will be moved to the Nebraska Medical Center in Omaha for treatment.  Experts insist there is no risk to the public, NBC News reports, but a new study in PLOS Currents finds that Ebola could soon make its way inside U.S. borders on its own. The study looked at global flight patterns and passenger screening and found that the chance of at least one case arriving in the country by Sept. 22 was as high as 18 percent, NPR reports. "What is happening in West Africa is going to get here. We can't escape that at this point," the study's lead author says, adding it would likely occur in "small clusters of cases, between one and three." The study also points to a 25 percent to 28 percent chance of the virus reaching the United Kingdom and a 50 percent chance of it spreading to Ghana before the month is over. If the virus isn't contained, the likelihood of its spread will "increase consistently," the study notes.

4th American with Ebola to be flown to US for care - (AP) — A fourth American who contracted Ebola in West Africa was expected to arrive in the U.S. for care Tuesday and will be treated at an Atlanta hospital where two other aid workers successfully recovered from the disease, the hospital said Monday. Air Force spokesman Lt. Col. James Wilson said the patient, as in past cases, would be flown into Dobbins Air Reserve Base outside Atlanta. Emory University Hospital said in a news release that the patient would be treated in its isolation unit but cited confidentiality in not releasing more information about the person. The World Health Organization, however, said one of its doctors working in an Ebola treatment center in Sierra Leone has tested positive for the disease. It said the doctor was in stable condition Monday in Freetown and will be evacuated. The State Department said the doctor was from the U.S. Last month, two aid workers who contracted Ebola while working in Liberia were treated successfully at Emory. A third patient, an American doctor, who is being treated in Nebraska, appeared to be better tolerating his experimental treatments Monday, but his recovery remains uncertain.

Liberia: Ebola Hits Liberian Police, 1 Infected, 18 Quarantined At Depot: — The deadly Ebola virus is spreading in Monrovia and beyond, touching the security sector as 18 Police officers have been quarantined in Bloc C at the Police Barracks in Monrovia. According to sources, one Police officer serving the Police Support Unit (PSU) contracted the virus and is currently undergoing treatment at the ELWA Ebola center. One senior Police source confirmed to FrontPageAfrica that the officer is in critical condition at the Ebola treatment center. The Police officer is said to have contracted the virus from his wife who is a nurse, who transferred the virus to her husband after also getting infested from work. The health of the PSU officer prompted the quarantining of Bloc C of the Police barracks where accordingly the 18 Police officers are residing. Located at the intersection of Camp Johnson Road and Capitol By-pass the Police Barracks is home to several Police officers and their dependents. United States based Centers for Disease Control has warned that up to 20,000 people will get infested with the virus before it is brought under control, but it seems the Liberian government does not agree with such prediction as President Ellen Johnson Sirleaf has publicly declared disagreement with the CDC's prediction.

Ebola Hits Seat of Liberian Presidency; 1 Dead; 1 Quarantined: - Liberia’s Ministry of Foreign Affairs, which is also the seat of the Liberian presidency, has been hit by the deadly Ebola virus, FrontPageAfrica has learned. On Monday, the Administrative Assistant to Foreign Minister Augustine Ngafuan reportedly died from what sources say is a suspected case of the deadly virus. Her husband, a staffer in the office of President Ellen Johnson-Sirleaf, is currently under quarantine. FrontPageAfrica is withholding the names of the officials because the government has not officially notified the public about the cases, so close to the Liberian presidency. Minister Ngafuan's office is two floors below the floor now being used as the President's office. The wife of the President’s office staffer reportedly died on Monday and may have gotten the virus from a sister, who had previously died. A praying woman who reportedly had sessions and laid hands on the sister of the deceased Administrative Assistant, has also died.

Deadly Disappointment Awaits at Ebola Clinics Due to Lack of Space - WSJ: Milton Mulbon arrived in a taxi at the gates of an Ebola clinic in Liberia's capital, Monrovia, with his 24-year-old daughter, Patience, bleeding in the back seat. Guards turned them away. "They're telling me no space?" he protested, the taxi parked nearby. "She's lying down in there almost at the point of death!" Taxis, ambulances, and even men pushing their sick in wheelbarrows are crisscrossing Monrovia, looking for an open bed in West Africa's overbooked Ebola clinics, health-care workers say. Sometimes they get in, through persistence and good timing. Mostly they don't. Liberia, Sierra Leone, and Guinea—the three nations bearing the brunt of the outbreak—need at least 1,515 hospital beds for the more than 20,000 people who could be infected before the outbreak can be curtailed, according to World Health Organization estimates. At present, there are only a few hundred beds. International support has been slow to come and is just beginning to address this specific problem, with the U.S. promising 1,000 additional beds in a new aid package. The shortage is so dire that ambulances have picked up people raging with the symptoms of Ebola, driven them around for hours, then dropped them back at home, medical workers say. The odds of surviving Ebola at home, without intravenous hydration, are slim. Along the way, the sick often infect their families. That is creating ever more Ebola patients arriving at the gates of overcrowded clinics. Some, like Mr. Mulbon, collect a bag of sanitary products and painkillers. His daughter, the mother of two boys, died within hours of receiving it. "She was helpless," Mr. Mulbon said.

Map: How the Ebola Outbreak Spread through Africa - Never before has the world seen an Ebola outbreak like the one currently spreading across Africa. Thousands have died, even more have become infected, and with no cure and limited resources at their disposal, health officials are struggling to keep up. From Patient Zero to today, here is a look back at how the outbreak became the worst on record.

Obama: U.S. military to provide equipment, resources to battle Ebola epidemic in Africa - President Obama said Sunday that the U.S. military will begin aiding what has been a chaotic and ineffective response to the Ebola epidemic in West Africa, arguing that it represents a serious national security concern. The move significantly ramps up the U.S. response and comes as the already strained military is likely to be called upon further to address militant threats in the Middle East. The decision to involve the military in providing equipment and other assistance for international health workers in Africa comes after mounting calls from some unlikely groups — most prominently the international medical organization Doctors Without Borders — demonstrating to the White House the urgency of the issue. The epidemic, which has killed at least 2,100 people in five African countries, is unlikely to spread to the United States in the short term, Obama said Sunday on NBC’s “Meet the Press.” But if the United States and other countries do not send needed equipment, public health workers and other supplies to the region, that situation could change and the virus could mutate to become more transmissible, he said. “And then it could be a serious danger to the United States,” Obama said. “We’re going to have to get U.S. military assets just to set up, for example, isolation units and equipment there,” he said, “to provide security for public health workers surging from around the world.”

GOP House guts White House’s request for funds to fight and contain Ebola: House Republicans have gutted a White House-sponsored bill that would direct funding to the fight to contain the hemorrhagic fever Ebola, which is raging out of control in multiple African countries. The Hill blog reported that a source familiar with the budget negotiations confirmed that House Appropriations Committee Chairman Hal Rogers (R-KY) will agree to provide only $40 million of the $88 million the Obama administration asked for in its 2015 budget. Twenty-five million dollars of the $40 million would go to the Centers for Disease Control and Prevention (CDC) and $15 to the Biological Advanced Research and Development Authority (BARDA) in order to speed up production of an experimental anti-Ebola drug. The Obama administration originally asked for $58 million for BARDA, a division of the Department of Health and Human Services. The agency is tasked with coordinating the nation’s response to public health crises, including medical testing, vaccines, drug development and other products and services associated with “public health and medical consequences of chemical, biological, radiological, and nuclear (CBRN) accidents, incidents and attacks, pandemic influenza, and emerging infectious diseases.”

As Ebola grows out of control, WHO pleads for more health workers (Reuters) - The number of new Ebola cases in West Africa is growing faster than authorities can manage them, the World Health Organization (WHO) said on Friday, renewing a call for health workers from around the world to go to the region to help. As the death toll rose to more than 2,400 people out of 4,784 cases, WHO director general Margaret Chan told a news conference in Geneva the vast nature of the outbreak -- particularly in the three hardest-hit countries of Guinea, Liberia and Sierra Leone -- required a massive emergency response. Sarah Crowe, a spokeswoman for UNICEF, said the U.N. children's agency was using innovative ways to tackle the epidemic, including telling people to "use whatever means they have, such as plastic bags, to cover themselves if they have to deal with sick members of their family". true "The Ebola treatment centers are full, there are only three in the country. Families need help in finding new ways to deal with this and deal with their loved ones and give them care without exposing themselves to this infection," she said via phone from Monrovia. "It is quite surreal and everywhere there is a sense of this virus taking over the whole country," Crowe said. "We do not have enough partners on the ground. Many Liberians say they feel abandoned."

Ebola outbreak: Sierra Leone volunteers to visit every home to track down virus cases, remove bodies -  More than 20,000 volunteers will go door-to-door as part of a three-day curfew to identify Ebola victims and remove bodies  Volunteers in Sierra Leone are to visit every home in the country of 6 million to track down people with Ebola and remove dead bodies. Steven Ngaoja, the head of the country's Ebola Emergency Operations Centre, said more than 20,000 volunteers would go door-to-door as part of a three-day curfew. He said every house in the country would be visited from September 19 to 21. "About 21,400 trained volunteers will be involved in the house-to-house sensitisation activity," he said. "Likely Ebola cases will be identified or dead bodies will be referred to contact tracing, referral or burial teams." The worst-ever outbreak of Ebola has claimed 491 lives in Sierra Leone, one of three countries at the epicentre of the epidemic which has so far killed more than 2,000 people.

What We’re Afraid to Say About Ebola - THE Ebola epidemic in West Africa has the potential to alter history as much as any plague has ever done. There have been more than 4,300 cases and 2,300 deaths over the past six months. Last week, the World Health Organization warned that, by early October, there may be thousands of new cases per week in Liberia, Sierra Leone, Guinea and Nigeria. What is not getting said publicly, despite briefings and discussions in the inner circles of the world’s public health agencies, is that we are in totally uncharted waters and that Mother Nature is the only force in charge of the crisis at this time. There are two possible future chapters to this story that should keep us up at night. The first possibility is that the Ebola virus spreads from West Africa to megacities in other regions of the developing world. This outbreak is very different from the 19 that have occurred in Africa over the past 40 years. It is much easier to control Ebola infections in isolated villages. What happens when an infected person yet to become ill travels by plane to Lagos, Nairobi, Kinshasa or Mogadishu — or even Karachi, Jakarta, Mexico City or Dhaka?  The second possibility is one that virologists are loath to discuss openly but are definitely considering in private: that an Ebola virus could mutate to become transmissible through the air. You can now get Ebola only through direct contact with bodily fluids. But viruses like Ebola are notoriously sloppy in replicating, meaning the virus entering one person may be genetically different from the virus entering the next. The current Ebola virus’s hyper-evolution is unprecedented; there has been more human-to-human transmission in the past four months than most likely occurred in the last 500 to 1,000 years. Each new infection represents trillions of throws of the genetic dice. If certain mutations occurred, it would mean that just breathing would put one at risk of contracting Ebola. Infections could spread quickly to every part of the globe, as the H1N1 influenza virus did in 2009, after its birth in Mexico. Why are public officials afraid to discuss this?

Healthy Body, Unhealthy World? - The U.S. government’s guidelines to healthy eating are at odds with a healthy environment, according to a new report by researchers at the University of Michigan. In fact, it says, agricultural production of recommended foods could increase the emissions of greenhouse gases. The study by Martin Heller and Gregory Keoleian of the university’s Center for Sustainable Systems focused on emissions from the production of about 100 foods, as well as the likely effects of persuading Americans to adhere more closely to a diet recommended by the U.S. Department of Agriculture.  If the population accepted the USDA’s “Dietary Guidelines for Americans, 2010,” but consumed the same number of calories they do now, about 2,500 a day, greenhouse gas emissions would rise by 12 percent. If Americans cut their daily caloric intake to 2,000, as recommended by the USDA, emissions would rise by 11 percent, according to their report in the Journal of Industrial Ecology. “The take-home message is that health and environmental agendas are not aligned in the current dietary recommendations,” Heller concluded. In an interview with the university’s news service, he also notes that the publication of the paper comes at a time when the USDA Dietary Guidelines Advisory Committee is considering aligning food sustainability with dietary recommendations.

Drought Forces Closure of Water Wells in Santa Clarita Valley -- The severe California drought has led to a water crisis so critical that three wells in one Southern California city have recently shut down. Mauricio Guardado runs a water utility that serves 120,000 people in the Santa Clarita Valley. Three wells in the area have been shut for the last six weeks because of limited water supply. "We couldn't extract any more water. The groundwater table is just too low, so it wouldn't produce anything,” Guardado said.  Dirks Marks manages the wholesale water agency that provides 50 percent of the water used in the Santa Clarita Valley to Guardado and three other retailers. Rainwater Capture Seen as Benefit of Greening Alleys "On the imported supplies we've been cut to only 5 percent of our State Water Project allocation which is our main source of imported water," Marks said.

America's Urban Water Crisis  -  Someone smart said that in the game of life, only Mother Nature is undefeated. But while we have little control over Mother Nature’s whims, we do control the network that moves one of her resources ­— water — to where it’s needed. America was built on top of water and wastewater pipes and tunnels. And today, that foundation is crumbling right under our feet. Last year, the American Society of Civil Engineers said U.S. water and wastewater systems are close to failing. It’s now estimated we’ll need to spend $4.8 trillion over the next 20 years to fix these systems and maintain the country’s current water service levels, according to the U.S. Conference of Mayors. Despite this, the federal government continues to ignore the problem. In fact, federal spending on water infrastructure is down more than 30 percent since fiscal year 2012. Doctors think a person can survive without water for about three days. If our water infrastructure fails, how long could the American economy survive?  Water, which is used to cool power plants and extract and process fuels, is also at the core of ongoing efforts to increase domestic energy production and lower our reliance on foreign energy sources: Equipment manufacturer GE reports a tripling in demand for water for energy production since 1995.

Danish wheat quality at an all-time low - The quality of Danish wheat has never been worse, according to analyses of samples from this year’s harvest. Studies carried out by the Danish Pig Research Centre (Videncentret for Svineproduktion) show that the grain protein content, wheat’s most important quality indicator, has dropped to 8.4 percent. That represents the lowest protein content ever. According to the Danish Agriculture and Food Council (Landbrug & Fødevarer), the quality of Danish wheat has been on a steady decline since the introduction of fertiliser limits in the 1990s. “The Danish rules mean that we can’t give the grain the amount of fertiliser that the plants actually need. That results in a gradual depletion of the ground’s nitrogen reserves, thus impoverishing the soil. As a consequence, the quality gets lower and lower,” council spokesman Torben Hansen told Jyllands-Posten. The council points out that while the protein content in Danish wheat has dropped from around 11 percent before the introduction of fertiliser limits to the current 8.4 percent, across the border in Germany protein contents have remained unchanged and yields are up.

Almost Half Of North American Bird Species Are Threatened By Climate Change - Nearly half the bird species in North America are threatened by climate change, according to a new report.  The report, published Monday by the National Audubon Society, found that as the the climate of North America changes, 126 bird species will lose more than half — with some at risk of losing 100 percent — of their current ranges by 2050, and will have no possibility of colonizing new areas if warming continues unabated. That’s about 21 percent of North America’s 650 or so bird species. On top of that, 188 species are also threatened by a 50 percent or more loss in their ranges by 2080, but may be able to find new areas to colonize.  “The greatest threat our birds face today is global warming,” Audubon Chief Scientist and report’s lead researcher Gary Langham said in a statement. “That’s our unequivocal conclusion after seven years of painstakingly careful and thorough research. Global warming threatens the basic fabric of life on which birds — and the rest of us — depend, and we have to act quickly and decisively if we are going to avoid catastrophe for them and for us.”

From Pine Beetles to Disappearing Glaciers, NASA Scientists Tell of “Dramatic” Planetary Changes Until very recently, popular thinking assumed that anthropogenic climate disruption (ACD) was in a "slow" period. However, last year, a study published in Geophysical Research Letters showed that the planet had experienced more overall warming in the 15 years leading up to March 2013 than it had in the 15 years before that. In case there was any doubt that the planet is warming more quickly than previously thought, a study published in the August 22, 2014 issue of Science has verified this. Another study from July addressed how regional climate systems were synchronizing, after which "the researchers detected wild variability that amplified the changes and accelerated into an abrupt warming event of several degrees within a few decades." Shortly thereafter, yet another study showed that rapid warming of the Atlantic waters, most likely due to ACD, has "turbocharged" the Pacific Equatorial trade winds. Whenever that phenomenon stops, it is highly likely we will witness very rapid changes across the globe, including a sudden acceleration of the average surface temperature of the planet. The vast majority of the myriad studies generating our present data on ACD paint a dire picture of what our CO2 emissions, and now massive methane releases, have done to the climate of Earth. Truthout recently spoke with several NASA-affiliated scientists about what they are seeing.

Trees Are Dying From ‘No Obvious Cause’ In Rocky Mountains, Report Says - The Rocky Mountain forests that traverse the West are under unprecedented danger from climate-related impacts according to a new report from the Union of Concerned Scientists (UCS) and the Rocky Mountain Climate Organization. The Rockies include national parks like Yellowstone, Grand Teton, and Glacier National Park, and are facing a “triple assault — tree-killing insects, wildfires, and heat and drought — that could fundamentally alter these forests as we know them.” According to the report, titled “Rocky Mountain Forests at Risk,” many western trees are dying from “no obvious cause” like the bark beetle epidemic or increasing threat of wildfire, with scientists suggesting that these deaths are due simply to the hotter and drier conditions associated with climate change. The mortality rate for old-growth trees in undisturbed forests has doubled recently, with a sharp increase in recent years, and there’s been no compensating increase in the number of seedlings.   According to National Climate Assessment figures in the report, given very low future carbon emissions, average temperatures in the six Rocky Mountain states could rise to about 3°F above 1971–2000 levels by mid-century. However if emissions remain unchecked, this number could double or triple. In all scenarios, bark beetle infestations are likely to increase, larger wildfires are expected, and early snowmelt and reduced snow cover would lead to water stress.

Brazil says rate of Amazon deforestation up for first time in years - The deforestation of the Amazon in Brazil increased by 29% in the last recorded year, according to figures released Wednesday by the country's National Institute for Space Research (INPE). According to the study, carried out by satellite imaging, the Brazilian region of the world's largest rain forest lost 2,275 square miles, nearly five times the area of the city of Los Angeles, from August 2012 through July 2013. “The result indicates there is effectiveness in combating deforestation, particularly since the 2004 creation of the Action Plan for the Prevention and Control of Deforestation in the Legal Amazon,” the report says.  But despite a relative slowing of the speed of destruction in the last decade, the Amazon has continued to shrink every year. Some of its trees are cleared for timber, but more are cleared to create grazing land for agriculture. The rate of deforestation increased recently most quickly in the states of Mato Grosso, in the middle of Brazil's soy boom, and Maranhao, where armed indigenous residents recently captured and expelled illegal loggers from their land.

Four Peruvian anti-logging activists murdered: Four Peruvian tribal leaders have been killed on their way to a meeting to discuss ways to stop illegal logging. The men from the Ashaninka community were attempting to travel to Brazil when they were murdered, Campaigners say the men had received several death threats from illegal loggers, who are suspected of being behind the killings. Correspondents say indigenous people have felt under increasing threat from deforestation in recent years. The men included the outspoken anti-logging activist Edwin Chota. Mr Chota and three others were killed near Saweto on the border with Brazil, Peruvian officials said. Officials said that they are believed to have been killed over a week ago as they attempted to travel to a meeting in Brazil. A 2012 World Bank report estimates that 80% of Peruvian timber export stems from illegal logging.

Carbon dioxide accumulates as seas and forests struggle to absorb -  Carbon dioxide is being accumulated in the atmosphere at the fastest rate since records began, as scientists warn that the oceans and forests may have absorbed so much CO2 that their crucial function as “carbon sinks” is now severely threatened.  The jump in atmospheric CO2 is partly the result of rising carbon emissions as the world burns ever-more fossil fuels, according to the latest World Meteorological Organisation report, which finds the concentration of carbon increased by nearly three parts per million (ppm) to 396ppm last year. But, crucially, preliminary data in the report indicates that the jump could also be attributed to “reduced CO2 uptake by the Earth’s biosphere” – the first time the effectiveness of the world’s great carbon sinks has been scientifically called into question. Scientists said they were puzzled and extremely concerned by prospect of reduced absorption of the world’s oceans and plants, which they cannot explain and which threatens to accelerate the build-up of heat-trapping greenhouse gases in the atmosphere if the trend continues.

Offer highlights tuna plight - As unlikely as it sounds, the fate of the South Pacific's dangerously over-fished and lucrative tuna stocks may depend on a 24-year-old woman called Li Li. She fronts a shadowy company flying the Chinese flag over a massive and sophisticated expansion of fishing in our neighbouring waters, a fishery worth around $5 billion a year. The company is even counting on the fact that when it exceeds official tuna quotas, Beijing will do nothing about it. China Tuna also quietly celebrates that no environment groups seem to have noticed it. Li wholly controls China Tuna Industry Group Holdings Ltd which, despite its name, is registered in the Cayman Islands. The chairman of the board is her father Li Zhenyu, 49. It claims a fleet of 24 high technology boats flying the Chinese flag, taking big-eye tuna across the South Pacific. With the help of Frankfurt headquartered Deutsche Bank AG, China Tuna launched a US$100-$200 million (NZ$120-$240 million) public share offering on the Hong Kong Stock Exchange to fund expansion. Paperwork for that offering reveals China's casual disregard for any attempts by Pacific nations, including New Zealand, to control the tuna fishery.

Rising Ocean Temperature: Is the Pacific Ocean Calling the Shots? - Key Points:

  • Even though the ocean has warmed strongly, global 'surface' warming in the 21st century has been slower than previous decades. One of the prime suspects for this has been an increase in trade winds which help to mix heat into the subsurface ocean - part of a natural oscillation known as the Interdecadal Pacific Oscillation (IPO).
  • A recently published research paper, Chen & Tung (2014), claim that changes in the saltiness (salinity) of seawater in the North Atlantic is responsible for the decadal-scale variation in ocean heat uptake, rather than the IPO, as increased saltiness makes surface water denser and therefore facilitates the sinking of water transported poleward.
  • Chen & Tung's  own analysis, however, shows that North Atlantic Ocean warming peaked in 2006 and has declined since that time whereas deep ocean warming, as a whole, has not. 
  • This new research affirms earlier work (Meehl et [2011] & Meehl et al [2013]) implicating the increased, albeit likely temporary, mixing of heat down into deeper ocean layers as a key contributor to the slower rate of surface warming in the 21st century.

NASA-UCI Study Indicates Loss of West Antarctic Glaciers Appears Unstoppable | NASA: A new study by researchers at NASA and the University of California, Irvine, finds a rapidly melting section of the West Antarctic Ice Sheet appears to be in an irreversible state of decline, with nothing to stop the glaciers in this area from melting into the sea. The study presents multiple lines of evidence, incorporating 40 years of observations that indicate the glaciers in the Amundsen Sea sector of West Antarctica "have passed the point of no return," according to glaciologist and lead author Eric Rignot, of UC Irvine and NASA's Jet Propulsion Laboratory (JPL) in Pasadena, California. The new study has been accepted for publication in the journal Geophysical Research Letters. These glaciers already contribute significantly to sea level rise, releasing almost as much ice into the ocean annually as the entire Greenland Ice Sheet. They contain enough ice to raise global sea level by 4 feet (1.2 meters) and are melting faster than most scientists had expected. Rignot said these findings will require an upward revision to current predictions of sea level rise. "This sector will be a major contributor to sea level rise in the decades and centuries to come," Rignot said. "A conservative estimate is it could take several centuries for all of the ice to flow into the sea." Three major lines of evidence point to the glaciers' eventual demise: the changes in their flow speeds, how much of each glacier floats on seawater, and the slope of the terrain they are flowing over and its depth below sea level. In a paper in April, Rignot’s research group discussed the steadily increasing flow speeds of these glaciers over the past 40 years. This new study examines the other two lines of evidence.

U.N. Scientists See Largest CO2 Increase In 30 Years: ‘We Are Running Out Of Time’ -- More carbon dioxide was emitted into our atmosphere between 2012 and 2013 than in any other year since 1984, putting humans on the fast track toward irreversible global warming, the United Nation’s weather agency said in a report released Tuesday. The World Meteorological Organization’s (WMO) annual Greenhouse Gas Bulletin showed that the increase of atmospheric CO2 from 2012 to 2013 was 2.9 parts per million (ppm), the largest year-to-year increase in 30 years. Because of that growth, the average amount of CO2 in the atmosphere reached 396 ppm — just 9 ppm away from an average level some scientists believe could cause enough sea level rise, drought, and severe weather to significantly harm human populations across the globe.“The Greenhouse Gas Bulletin shows that, far from falling, the concentration of carbon dioxide in the atmosphere actually increased last year at the fastest rate for nearly 30 years,” WMO Secretary General Michel Jarraud said in a statement. “We must reverse this trend by cutting emissions of CO2 and other greenhouse gases across the board. We are running out of time.”International climate negotiations generally center around preventing global average temperatures to rise 2°C above preindustrial levels, a threshold that U.N. scientists say dangerously increases the risks of severe weather, sea level rise and extermination of species. Some scientists say the 2°C increase could happen if average carbon concentrations reach 405 ppm, while others say closer to 450 ppm. At our current average of 396 ppm, temperatures have already risen 0.8°C. According to the WMO’s report, though, methane concentrations are also on the rise. Atmospheric methane reached a record high of about 1824 parts per billion (ppb) in 2013, the report said, due to increased emissions from humans. Most human-caused methane emissions come from natural gas production, followed closely by industrial agriculture.

Greenhouse gas levels rising at fastest rate since 1984: A surge in atmospheric CO2 saw levels of greenhouse gases reach record levels in 2013, according to new figures. Concentrations of carbon dioxide in the atmosphere between 2012 and 2013 grew at their fastest rate since 1984. The World Meteorological Organisation (WMO) says that it highlights the need for a global climate treaty. But the UK's energy secretary Ed Davey said that any such agreement might not contain legally binding emissions cuts, as has been previously envisaged. The WMO's annual Greenhouse Gas Bulletin doesn't measure emissions from power station smokestacks but instead records how much of the warming gases remain in the atmosphere after the complex interactions that take place between the air, the land and the oceans. WMO About half of all emissions are taken up by the seas, trees and living things. According to the bulletin, the globally averaged amount of carbon dioxide in the atmosphere reached 396 parts per million (ppm) in 2013, an increase of almost 3ppm over the previous year. "The Greenhouse Gas Bulletin shows that, far from falling, the concentration of carbon dioxide in the atmosphere actually increased last year at the fastest rate for nearly 30 years," said Michel Jarraud, secretary general of the WMO. "We must reverse this trend by cutting emissions of CO2 and other greenhouse gases across the board," he said. "We are running out of time."

CO2 surge drove greenhouse gas levels to new high in 2013 - WMO (Reuters) - Atmospheric volumes of greenhouse hit a record in 2013 as carbon dioxide concentrations grew at the fastest rate since reliable global records began, the World Meteorological Organization said on Tuesday. "We know without any doubt that our climate is changing and our weather is becoming more extreme due to human activities such as the burning of fossil fuels," said WMO Secretary-General Michel Jarraud in a statement accompanying the WMO's annual Greenhouse Gas Bulletin. "Past, present and future CO2 emissions will have a cumulative impact on both global warming and ocean acidification. The laws of physics are non-negotiable," Jarraud said. "We are running out of time." true The volume of carbon dioxide, or CO2, the primary greenhouse gas emitted by human activities, was 396.0 parts per million (ppm) in 2013, 2.9 ppm higher than in 2012, the largest year-to-year increase since 1984, when reliable global records began. The second most important greenhouse gas, methane, continued to grow at a similar rate to the last five years, reaching a global average of 1824 parts per billion (ppb). The other main contributor, nitrous oxide, reached 325.9 ppb, growing at a rate comparable to the average over the past decade. The world has the knowledge and tools to keep global

The Wall Street Journal Parade of Climate Lies - Jeff Sachs - That Rupert Murdoch governs over a criminal media empire has been made clear enough in the UK courts in recent years. That the Wall Street Journal op-ed pages, the latest victim of Murdoch's lawless greed, are little more than naked propaganda is perhaps less appreciated. The Journal runs one absurd op-ed after another purporting to unmask climate change science, but only succeeds in unmasking the crudeness and ignorance of Murdoch's henchmen. Yesterday's (September 5) op-ed by Matt Ridley is a case in point. Ridley's "smoking gun" is a paper last week in Science Magazine by two scientists Xianyao Chen and Ka-Kit Tung, which Ridley somehow believes refutes all previous climate science. Ridley quotes a sentence fragment from the press release suggesting that roughly half of the global warming in the last three decades of the past century (1970-2000) was due to global warming and half to a natural Atlantic Ocean cycle. He then states that "the man-made warming of the past 20 years has been so feeble that a shifting current in one ocean was enough to wipe it out altogether," and "That to put the icing on the case of good news, Xianyao Chen and Ka-Kit Tung think the Atlantic Ocean may continue to prevent any warming for the next two decades." The Wall Street Journal editors don't give a hoot about the nonsense they publish if it serves their cause of fighting measures to limit human-induced climate change. If they had simply gone online to read the actual paper, they would have found that the paper's conclusions are the very opposite of Ridley's. ...

The more uncertain we are, the more careful we should be - It is a staple of apologists for the chemical and fossil fuel industries to say, "We have no proof that what you are talking about is dangerous." Let me restate that in probabilistic terms: "We are highly uncertain about the harm of what you are talking about." When stated in probabilistic terms, uncertainty about harm becomes much more alarming. Nassim Nicholas Taleb has added to a working paper which I discussed last week entitled "The Precautionary Principle: Fragility and Black Swans from Policy Actions." As I suggested in last week's piece, climate change is an obvious candidate for the precautionary principle because climate change involves the risk of systemic ruin. In his addendum Taleb explains that climate change deniers who criticize climate models for their uncertainty don't have the slightest clue what that implies. Rather than suggesting that we should ignore such models, the uncertainty suggests that we should be even more diligent about mitigating climate change since the high uncertainty means, probabilistically speaking, that we have larger exposure to catastrophic outcomes. Statistically, this is explained as an increase in the scale of the distribution which leads to an increase in the size of the tails associated with the probability curve. It means that the system we are dealing with is MORE fragile and thus more subject to catastrophic outcomes. Tails represent rare, but highly impactful events and in this case, a ruinous result. If rare becomes a lot less rare (fat tails), then the risk of ruin is greatly increased.

Are Advanced Economies Mature Enough to Handle No Growth?Yves Smith Economists occasionally point out that societies generally move to the right during periods of sustained low growth and economic stress. Yet left-leaning advocates of low or even no growth policies rarely acknowledge the conflict between their antipathy towards growth and the sort of social values they like to see prevail. While some “the end of growth is nigh” types are simply expressing doubt that 20th century rates of increase can be attained in an era of resource scarcity, others see a low-growth future as attractive, even virtuous, with smaller, more autonomous, more cohesive communities.  Perhaps they should be careful what they wish for. Robert Shiller, in Parallels to 1937 at Project Syndicate (hat tip David L), argues for easing up on sanctions against Russia because low growth might have spurred the conflict in the first place. Shiller warns: The other term that suddenly became prominent around 1937 was “underconsumptionism” – the theory that fearful people may want to save too much for difficult times ahead.. As a result, the desire to save will not add to aggregate saving to start new businesses, construct and sell new buildings, and so forth. Though investors may bid up prices of existing capital assets, their attempts to save only slow down the economy. “Secular stagnation” and “underconsumptionism” are terms that betray an underlying pessimism, which, by discouraging spending, not only reinforces a weak economy, but also generates anger, intolerance, and a potential for violence. Friedman showed many examples of declining economic growth giving rise – with variable and sometimes long lags – to intolerance, aggressive nationalism, and war. He concluded that, “The value of a rising standard of living lies not just in the concrete improvements it brings to how individuals live but in how it shapes the social, political, and ultimately the moral character of a people.”

Fifteen Governors Think EPA’s Carbon Rule For Old Power Plants Is Illegal  - As far as fifteen Republican governors are concerned, federal efforts to cut carbon emissions from power plants aren’t just unwise — they’re illegal.That was the gist of a letter the group of governors sent to the White House on Wednesday, which argues that the Environmental Protection Agency’s proposed rule to cut down on the carbon dioxide from the nation’s power plants goes beyond the scope of power given to it in the Clean Air Act.Five of the states represented by those governors — Alabama, Indiana, Oklahoma, South Carolina, and Wyoming — are also part of a lawsuit filed back in August against the agency, which seeks to overturn the new power plant rules on similar grounds. Nine of the governors have gone on record denying the scientific validity of human-caused global warming, and the other six have striven to avoid the issue while doing little to promote green energy in their states — despite polling that shows that everyday residents of most of their states are on board with placing federal limits on greenhouse gas emissions. The substantive content of the governors’ complaint is twofold: “The unambiguous language of the [Clean Air Act] expressly prohibits EPA from using Section 111(d) to regulate power plants because EPA already regulates these sources under another section of the CAA,” the letter said. “Moreover, even if the Agency did have legal authority to regulate power plants under 111(d), it overstepped this hypothetical authority when it acted to coerce states to adopt compliance measures that do not reduce emissions at the entities EPA has set out to regulate. Under federal law, EPA has the authority to regulate emissions from specific sources, but that authority does not extend outside the physical boundaries of such sources (i.e., ‘outside the fence’).”

Fracking Away the Climate Crisis -- Today the front page of the New York Times tells us about an industrial comeback in the America's heartland. Sounds like good news, right?  "Boom in Energy Spurs Industry in the Rust Belt" reads the headline, over a story about a factory in Youngstown, Ohio, that is alive…thanks to fracking: The turnaround is part of a transformation spreading across the heartland of the nation, driven by a surge in domestic oil and gas production that is changing the economic calculus for old industries and downtrodden cities alike. It's not that fracking or oil drilling aren't controversial; the Times' Nelson Schwartz notes that the "environmental consequences of the American energy boom…are being fiercely debated nationwide." But Ohio isn't like other parts of the country where opposition to fracking is intense, "because residents are so desperate for the kind of economic growth that fracking can bring, whatever the risks." The Times piece is just the latest example of journalism that pits "the environment" against the "economy"–protecting water is one thing, but creating jobs provides something more tangible. And on the latter score, the Times is here to present the strongest case: "A 2013 McKinsey study…estimated that production of shale gas and so-called tight oil from shale could help create up to 1.7 million jobs nationally." But there are some problems with this picture. For one, as economist Dean Baker (Beat the Press, 9/9/14) points out, it appears that supposed hiring boom in Youngstown is oversold: The Bureau of Labor Statistics shows that manufacturing employment in Youngstown is still down by more than 12 percent from its pre-recession level…. There is a comparable story with Canton. While fracking jobs may have helped bring these areas up from the troughs they experienced at the bottom of the downturn, employment in both metropolitan areas is still far below 2007 levels. No one thought either city was booming at that time.

Natural gas, solar, and wind lead power plant capacity additions in first-half 2014 - Today in Energy - U.S. Energy Information Administration (EIA): -- In the first six months of 2014, 4,350 megawatts (MW) of new utility-scale generating capacity came online, according to preliminary data from the U.S. Energy Information Administration's Electric Power Monthly. Natural gas plants, almost all combined-cycle plants, made up more than half of the additions, while solar plants contributed more than a quarter and wind plants around one-sixth. Utility-scale capacity additions in the first half of 2014 were 40% less than the capacity additions in the same period last year. Natural gas additions were down by about half, while solar additions were up by nearly 70%. Wind additions in the first half of 2014 were more than double the level in the first half of 2013. Of the states, Florida added the most capacity (1,210 MW), all of it natural gas combined-cycle capacity. California, with the second-largest level of additions, added just under 1,100 MW, of which about 77% was solar and 21% was wind, with the remaining additions from natural gas and other sources. Utah and Texas combined for another 1,000 MW, nearly all of it natural gas combined-cycle capacity with some solar and wind capacity in Texas.

How the Shale Gas Revolution Could Save Almost 2 Million Lives Per Year -  While fracking is not a perfect process, it is far better than the alternative, which right now for many nations is coal. For example, according to the Energy Information Administration, 50% of U.S. power in 2013 came from coal. Things are even worse in China, which derives 79% of its power from coal, has tripled its coal consumption since 2000 and now consumes more coal than the rest of the world combined. For those worried about climate change, this is a very serious situation, since China is the world's largest emitter of CO2, ahead of the U.S. and India. The situation is set to get worse, as 1,200 more coal plants are being built, 75% of them in China and India. In fact, China and India alone are building 208 coal-fired power plants per year. China's coal ambitions alone will result in a 59% increase in such plants. Natural gas power plants not only emit 50%-70% less CO2, but the material is also far less deadly than coal. According to the World Health Organization (WHO), coal kills 40 times more people per terawatt hour than gas, a number that soars to 68 times in China. In the U.S., where coal is just four times deadlier than gas, coal kills 10,000 people per year; in China, the number is 500,000. If the U.S. were to entirely switch from coal to gas it would save 7,500 lives per year. The WHO estimates that air pollution kills 7 million people per year. Of that, 1.9635 million people are killed by coal; compared to 18,480 for gas. Therefore, up to 1.945 million lives per year could be saved if the world switched from coal to gas. Ultimately, what many of fracking's staunchest opponents fail to see is that stoking (often exaggerated) claims of earthquakes and water contamination might hinder a practice that could actually help slow climate change and perhaps save over a million lives per year.

Anti-fracking bill of rights will be on Gates Mills November ballot after city officials change stance — Voters will decide in November whether to ban future gas and oil wells in the village. A group called Citizens for the Preservation of Gates Mills began collecting signatures on a petition in August to have the anti-fracking bill of rights placed on the ballot. It's a measure other cities have tried, though it's unclear whether it will protect them from unwanted gas and oil wells. The group formed when Mayor Shawn Riley announced his plans in January for villagers to pool their land to prepare for industrial gas wells in the village. They fear the plan invites drillers, and they prefer a solution that prohibits them. City officials refused to work with the residents to find a plan both were comfortable with, according to the group's spokesman Bob Andreano. "Nobody really wants fracking in the village, it's just about how are we going to prevent it, and from their perspective they thought, 'We aren't going to prevent it' so how can we control it," Andreano said. "You're not necessarily going to be able to tell the oil companies when and where they can drill, so to put this trust together, I don't think they are going to fall for that."

Ohio man to take down billboards critical of fracking - An Ohio man with anti-fracking billboards will take them down. Underground injection well company Buckeye Brine had sued Michael Boals earlier this year, accusing the Coshocton man’s billboards of false and defamatory language. Boals told the Associated Press that the billboard’s owners would terminate his three-month agreement after only two months unless he changed the wording. Boals won’t, so the billboards will go. The billboards are critical of underground wells, including one that says “DEATH may come,” the AP reports. Such wells hold used wastewater, or brine, caused by oil and gas drilling, including hydraulic fracturing. Waste is stored deep underground, and Ohio is a popular spot for the wells, especially compared to its next-door neighbor Pennsylvania, despite that state’s much-higher natural gas drilling activity.

Anti-fracking billboards in Ohio coming down - The Galveston County Daily News — An Ohio man who uses a biblical reference and a statement against "poisoned waters" in billboards opposing the disposal of gas-drilling wastewater says the messages will come down Tuesday. Michael Boals, of Coshocton east of Columbus, told The Associated Press the billboards' owners were ending his three-month verbal agreement after two months unless he agreed to change the text. Well-owner Buckeye Brine, of Austin, Texas, filed a lawsuit in July over the ads, contending the signs contain false and defamatory attacks. The company and the well's local operator, Rodney Adams, objected to statements on the two billboards along U.S. Route 36, including a sign that quoted says "DEATH may come." They defend the wells as safe, legal and compliant with all state regulations. Buckeye Brine spokeswoman Jen Detwiler said the company took its concerns both to Boals and to sign-owner Robert Schlabach and his wife. "I can't speak to the billboard owner's motivations," she said in an email. Messages were left Monday for the Schlabachs and their attorney.

U.S. Oil Boom Revitalizing Rust Belt Economy -- The American Midwest is enjoying a one-two punch of an economic boom thanks to hydraulic fracturing. The relatively new – and still controversial -- technique is not only generating more energy, it’s also sparking a revitalization of old industries and boosting economically depressed cities and regions. In whole swaths of Ohio, for example -- from the state’s industrial northeast to its agricultural center – oil and gas fracking is helping to reawaken other sectors of the economy, including manufacturing, real estate and hotels.  Fracking – which involves injecting chemical-laced fluids into deep shale deposits to provide access to oil and gas deposits -- has plenty of opponents who raise legitimate environmental and health concerns. Yet in Ohio, concern is more muted. The state has become a symbol of the Rust Belt, where heavy industry was once the engine of local economies but which has been in a steep decline for decades. Now the region is beginning to shine again. The French multinational Vallourec, which specializes in serving the energy and transportation industries, has just finished construction of a $1.1 billion plant in Youngstown, Ohio, to make steel pipes for the energy industry. The million-square-foot facility soon will be paired with an $80 million Vallourec plant that makes pipe connectors. And all those facilities need workers. The unemployment rate in Ohio was just 5.7 percent in July, a nearly five point drop from four years ago, when its jobless rate was 10.6 percent. The current national unemployment rate is 6.1 percent.

Fracking hasn’t restored the Rust Belt’s lost jobs - A little while back, Nelson Schwartz, a standout economic reporter for the New York Times, visited a humming factory complex in Youngstown, Ohio. He found a feel-good story of Rust Belt revival, powered by hydraulic fracturing. Katy George, the head of the global manufacturing practice at McKinsey, told Schwartz that new energy development  is “a real game-changer in terms of the U.S. economy.” Schwartz described the effect in Youngstown and the Rust Belt in his story this week: “The turnaround is part of a transformation spreading across the heartland of the nation, driven by a surge in domestic oil and gas production that is changing the economic calculus for old industries and downtrodden cities alike. “Here in Ohio, in an arc stretching south from Youngstown past Canton and into the rural parts of the state where much of the natural gas is being drawn from shale deep underground, entire sectors like manufacturing, hotels, real estate and even law are being reshaped. A series of recent economic indicators, including factory hiring, shows momentum building nationally in the manufacturing sector.” I also used to drop in on Youngstown from time to time, first as a politics reporter for the Blade in Toledo, and then as a Washington reporter for the Chicago Tribune. I was there in 2008, when I visited a shuttered factory, and I described Youngstown as “a city that doesn’t work nearly as much as it used to.” Oddly enough, in February 2008, there were 13,000 more jobs in the Youngstown metro area than there were this summer stats for the region, which resemble a 20-year free fall landing on a rather small trampoline:

New York Times visits Youngstown, discovers huge and nonexistent transformation - Dan Fejes - On Monday the New York Times ran a piece by Nelson D. Schwartz titled “Boom in Energy Spurs Industry in the Rust Belt.” As straight news articles go, it’s not very straight. For some reason, the Times likes to give the occasional sloppy, um, kiss to the fracking industry, and this seems to be the latest in the series.Near the start is a “correlation equals causation” argument: Fracking is big in northeast Ohio; factory hiring has ticked up in northeast Ohio; therefore fracking has led to the uptick:  Here in Ohio, in an arc stretching south from Youngstown past Canton and into the rural parts of the state where much of the natural gas is being drawn from shale deep underground, entire sectors like manufacturing, hotels, real estate and even law are being reshaped. A series of recent economic indicators, including factory hiring, shows momentum building nationally in the manufacturing sector. Schwartz provides one example of actual causation, a pipe mill that employs 350 workers. That’s definitely good news for those employed there, but is it an example of the kind of region-transforming development that would justify the expansive tone? He notes the site used to house a mill that employed 1,400 people when it closed in 1979. And even though 1,400 dwarfs the number now working there, it only represents the last gasp of a dying industry. If you want to compare it to a “good old days” picture you need to go back a couple of years - to before Sept. 19, 1977, Black Monday, when 5,000 people were laid off. If you really want to talk about a reshaping, those are the kind of employment numbers you need to see. (Towards the end of the article Schwartz calls it a “nascent renaissance,” which is a considerably scaled down vision from the top of the piece.) An anecdote is not data, and the data is out there for those who want to find it. Dean Baker looked at manufacturing employment in Youngstown and found that it is still way down from before the recession. As for fracking’s contribution to the employment picture, a study earlier this summer found: “Since the beginning of the recession, the mining and logging sector, which includes the shale gas industry, has only created 1,300 jobs.” So even when bundled with the numbers of a larger sector, its employment contribution is tiny.

State officials close down Weathersfield injection wells because of possible earthquake link: For the third time since the beginning of 2012, the Ohio Department of Natural Resources has ordered the shutdown of wells associated with gas and oil in the Youngstown-Warren area, this time closing the American Water Management Services injection wells just north of Niles. Late Friday, ODNR issued a press release saying AWMS had cooperated with its order to shut down its two brine injection wells on state Route 169 after a 2.1- magnitude earthquake Sunday evening. ODNR issued the closure order Wednesday for the wells, saying seismic-monitoring equipment in place near the injection wells allowed ODNR “to determine that possible evidence exists linking the [AWMS] injection operation to a recent 2.1 seismic event.” ODNR added that the earthquake was “a relatively minor event,” but ODNR was shutting down the injection wells “out of an abundance of caution ... while a full investigation takes place.” The statement added, “We will continue to evaluate all the data to determine what exactly happened and will share more information as it is available,” the ODNR statement said. The earthquake was at 5:34 p.m. and had an epicenter on the AWMS property, though initial reports from the U.S. Geological Survey located the epicenter about a mile northwest of there. Additional data allowed the USGS to better locate the epicenter by Tuesday, a USGS geophysicist told The Vindicator.

Youngstown News, ODNR reports 2nd quarter for fracking production: Mahoning County’s largest oil-producing fracking well was the Grenamyer well owned by Halcon Operating Co. Inc. in Jackson township. It produced 5,451 barrels of oil with 64,638 Mcf of gas produced in 85 days, according to data from the Ohio Department of Natural Resources. Mcf equals the volume of 1,000 cubic feet (cf) of natural gas. The data come from the second-quarter report of horizontal-fracking production released Monday by ODNR. Ohio’s horizontal shale wells produced more than 2.4 million barrels of oil and 88 billion Mcf of natural gas. In Trumbull County, the Kibler well, also owned by Halcon, produced 5,203 barrels of oil and 101,326 Mcf of natural gas in 91 days. In Columbiana County, the Roy D 31-15-3 well owned by Chesapeake Exploration LLC in Salem Township produced 4,269.03 barrels of oil and 244,789 Mcf of gas in 88 days. The highest-producing oil well in Ohio was the Antero Resources Myron well in Noble County at 78,309 barrels of oil in 91 days of production. The highest-producing natural-gas well was the Hall Drilling Hercher North well in Monroe County at 1.4 billion Mcf during 91 days of production. The report lists 504 reported wells that were in production. There also were 58 wells reporting no production as they are waiting on pipeline infrastructure. Of the 504 wells reporting production, the average amount of oil produced was 4,895 barrels.

Critics: Ohio not doing enough to protect habitat from drilling -- Conservation experts say fracking and other shale gas activities can add to the dangers faced by Ohio’s rare species. Yet as the Ohio Department of Natural Resources (ODNR) allows more and more natural gas activities in the state, its natural heritage program remains dramatically scaled back. That limits ODNR’s ability to identify and protect important habitats in sparsely surveyed areas. Additionally, Ohio law exempts oil and natural gas activities from certain environmental requirements. It also allows massive water withdrawals for fracking and other activities. These and other factors can compound conservation threats. Last Friday, experts at the Cleveland Museum of Natural History’s annual conservation symposium spoke about a wide range of threats faced by birds, bats, butterflies, mussels and amphibians — one hundred years after the last known passenger pigeon died in Ohio.Why worry? When Chesapeake Energy wanted to lease thousands of acres for possible shale gas development, Jim Bissell said no. Bissell is Curator of Botany at the Cleveland Museum of Natural History. And the land parcels were preserves in the museum’s Natural Areas Program, which Bissell directs. As Bissell sees it, disrupting the areas for drilling, pipelines or related activities would clash with the very reason the museum had acquired the properties in the first place — conservation. “When we buy something, we want to keep it that way,” Bissell said in an extended interview before the symposium. “We go after the best of the best,” Bissell explained. “We want to find and protect as many different kinds of wetlands, forest types, bogs and fens and river bottoms” as possible.

STD rates are up in shale country – Carroll County among areas experiencing 'spike' in cases - News - The CantonRep - Doctors, politicians and media reports have linked the unconventional shale drilling and fracking booms in North Dakota, Pennsylvania and Texas to a range of social disruptions, including higher rates of sexually transmitted diseases. Last month a reporter for a Rochester, New York, newspaper wrote that Carroll County had seen a “spike” in STD cases. Ohio has had more than 1,000 Utica and Marcellus shale wells drilled since 2010, and the rates of chlamydia and gonorrhea have increased more in the state’s eastern shale counties than in the state as a whole, according to statistics collected by the Ohio Department of Health. Chlamydia and gonorrhea are two common sexually transmitted diseases, and are tracked by the Ohio Department of Health’s STD Surveillance Program. Last year, Ohio had 53,331 chlamydia cases and 16,669 gonorrhea cases. Between 2009 and 2013, the rates of gonorrhea and chlamydia in 11 of Ohio’s eastern shale counties rose faster than the statewide rate. That’s not the only trend that appeared in a GateHouse Ohio Media analysis of ODH data:

Activists want Columbus to have environmental ‘bill of rights’ | The Columbus Dispatch - No one is fracking in Columbus, and no one is injecting fracking wastewater into the ground here. But some grass-roots environmental activists are taking no chances. A group is collecting signatures to get a Community Bill of Rights on the Columbus ballot in May. If it passes, the bill would change Columbus’ city charter to block activities that could pollute drinking water and air. It’s a legal tactic that some communities across the nation have used to block fracking and other work that affects the environment. In Ohio, similar bills have passed in Broadview Heights and Oberlin and failed three times in Youngstown. Kent voters will decide the fate of one in November, and Athens activists are trying to get one on the ballot in May. Carolyn Harding, the organizer behind the Columbus Bill of Rights, said she’s primarily concerned about injection wells.  Fracking chemicals include ethylene glycol, which can damage kidneys; formaldehyde, a known cancer risk; and naphthalene, considered a possible carcinogen. The waste that bubbles up also includes radioactive material. According to the government, at least 2 billion gallons of wastewater are injected every day into wells throughout the country.

Activists Continue Push to Limit Ohio Oil, Gas Development -  Natural Gas Intelligence: Ohio activists are continuing to push for referendums to amend city charters that would ban horizontal hydraulic fracturing (fracking) and injection wells, even in areas where little or no oil and gas activity is taking place. The latest effort is in Columbus, the state capital, where a group is gathering signatures for a May ballot issue on a community bill of rights that would amend the city's charter to ban future oil and gas activity. There are no injection wells or plans for drilling in the central Ohio city, many miles away from the Utica Shale boom in the eastern part of the state. The group needs 10,000 signatures to place the measure before voters. The Columbus group is not alone in its efforts. For a fourth time, FrackFree Mahoning Valley earlier this month was certified by local election officials to land a similar charter amendment on Youngstown’s November ballot after securing 2,058 signatures. It has tried and failed three times to get the measure passed, most recently losing in May by a margin of 54-46% (see Shale Daily, May 7). Activists in Athens, OH, are also trying to land a similar referendum on the May ballot. Already, Cleveland suburb Broadview Heights and the college community of Oberlin, west of Cleveland, have passed charter amendments banning injection wells or fracking. Mansfield, OH, more than 60 miles north of Columbus, also has passed a similar amendment. Those opposed to drilling also are making gains at the local government level. Last month, the Kent city council unanimously approved placing a charter amendment on the November ballot after the Kent Environmental Rights Group submitted 92 petitions with 2,509 signatures concerning local control over the energy industry.

Pennsylvania Residents Challenge “Frack You” Zoning Variances -More Pennsylvania residents are waking up to the fact that local land use laws are designed to keep residents from being fracked out of their houses. And that town boards cannot willy nilly grant variances to frackers to frack neighborhoods. Six Robinson Township residents are challenging the validity of the township’s zoning amendment, passed last month, which opened up more areas to drilling companies.  The challenge, filed Thursday with the township, will require Robinson’s zoning hearing board to review the validity of the amendment and make a determination. If the hearing board rules against the residents, they can take the matter to court. Robinson supervisors approved an amendment to the zoning ordinance in a 2-1 vote Aug. 7. The amendment replaced the special exception process for considering oil and gas applications with a permitted use or conditional use process, depending on the zoning district.  As long as oil and gas companies meet a list of uniform requirements outlined by the township, they can drill land in the interchange business development, industrial, rural residential and agricultural zoning districts. A conditional use process, which involves a hearing before the board of supervisors, will be used for applications in commercial and special conservation districts.

Pa. residents like natural-gas drilling, also want to tax it: A majority of Pennsylvanians, 54 percent, support the extraction of shale natural gas, while just 29 percent of New Yorkers do, according to a new University of Michigan poll of two states that share a chunk of the massive Marcellus Shale deposit. Despite positive views of hydraulic fracking for shale gas in their state, 47 percent of Pennsylvanians disapprove of the way Gov. Tom Corbett (R) is handling the issue, compared to 19 percent who approve – likely a factor in his troubled re-election campaign. “Some of it is a reflection of generally negative views about Tom Corbett right now,” said pollster Christopher Borick of Muhlenberg College, who conducted the survey. “But his handling of the issue has been politically questionable in a lot of ways. Clearly he has paid a cost in terms of his reticence on an extraction tax. It’s become a liability for him.” Sixty-two percent of Pennsylvania respondents support the state imposing on tax on the extraction of natural gas, and 57 percent said that doing so would not cause drillers to leave the state. That is a key argument Corbett has cited in opposition to a severance tax. (Pennsylvania does impose a local impact fee to compensate municipalities that host drilling.)

Inside the Halls of Government, Gas Industry Makes its Pitch - Greg Vitali has been a state representative for more than 20 years. He saw the rise of the natural gas industry in Pennsylvania mainly through the lens of the state Capitol. About five or six years ago, he says, lobbyists for the industry began showing up. And they’ve never left. “Drillers have this constant presence in Harrisburg You go to any committee meeting, related to drilling, you see representatives from American Petroleum Institute, you see lobbyists from Range Resources,” Vitali says. “They’re just always here.” The oil and gas industry has spent heavily on campaign donations and lobbying in Pennsylvania since the state’s natural gas boom began. An investigation by the Allegheny Front and 90.5 WESA found the industry spent $34 million on lobbying since 2007. This concerns Vitali, a suburban Philadelphia Democrat and frequent critic of the drilling industry. Vitali thinks all this lobbying has weighted the way the legislature approaches gas drilling. “The most current example, frustrating example, is a very reasonable bill by Garth Everett,” Vitali says. House Bill 1684, sponsored by Republican State Rep. Garth Everett, of Lycoming County would ensure that owners of mineral rights get a minimum of 12.5 percent of the royalties from the gas pulled from their land. “What is happening now is, that some companies -- not all ---- some are deducting post-production costs and really taking what they’re getting way down,” says Vitali. In some cases, mineral owners are getting basically nothing in royalties. Despite public outcry over the issue, the bill has stalled.

Water testing cannot explain dirty well water for Susquehanna County woman - — A series of water tests by private and government laboratories show Gerri Kane’s well water is safe to drink, but what comes out of the tap tells a different story. Nestled in an isolated rural Susquehanna County town, Kane has watched natural gas development unfurl into a boom since 2008. There are six well pads within walking distance from her doorstep where she lives with her longtime partner, Kenny Macialek, in the home he bought in 2002. Up until around 2011, Kane, 61, and Macialek, 56, could drink, bathe in and clean with the water, unfiltered, from the tap. “It was so icy cold and pure,” Kane said. “We had friends come by just to get the water.” Kane believes a surge of activity following drilling at one of perhaps three wells near their home has stirred up contaminants in the water table below. A trio of filters now intercepts the water as it enters their home, filters that must be changed or cleaned weekly. There’s an initial catch tank, a simple two-foot tall vat that retains solids as water passes through it. The water then goes through a fiber mesh filter. It costs about $7 for a pair of them, and Kane said they must be changed weekly. Next is a carbon filter, used to catch any dissolved metals. They cost about $10 for two. Those last about a week each, as well.

Standard water testing sought in shale industry -- State environmental regulators will participate in a gas industry-funded study aimed at developing standards for testing groundwater near drilling sites for the presence of methane. The study will examine how a dozen laboratories — including the Department of Environmental Protection's lab — analyze water samples and whether their methods might skew results when comparing water samples before and after drilling. The issue is important in Pennsylvania, where concerns have been raised about potential contamination of water supplies by the gas drilling boom. About 1.5 million people in the state rely on groundwater supplies and another 2 million have individual water wells — although not all of them in drilling areas. “The goal is really to hone in on developing a standard methodology for analyzing these samples. In Pennsylvania, with the microscope we're under, we want to make sure the standard is buttoned up,” Loren Anderson, strategic projects manager for the Marcellus Shale Coalition, said on Monday. The North Fayette-based lobbyist is paying an unspecified amount for Environmental Standards Inc. to coordinate the study.

Study Finds Six Chemicals in Fracking Wastewater at Levels Unsafe to Drink: A pair of researchers at Rice University have produced a study that comprehensively analyzes the content of fracking wastewater for the first time. Other studies have analyzed some of the chemicals found in the chemical-laden “produced water” that is one of the byproducts of fracking, but the Rice study goes much further. Environmental Science: Processes and Impacts published the peer-reviewed study which analyzed water samples from three major shale plays in Texas, Pennsylvania and New Mexico. They found that although this byproduct of the fracking process is less toxic than produced water from coalbed methane mining, it shouldn’t be allowed anywhere near the drinking water supply. The study also revealed how the contents of this wastewater differs dramatically in the three states. These results could fuel the controversy about fracking near rivers, lakes, aquifers and wells, as well as the disposal of the wastewater. While the details of the study are comprehensible mostly by chemists, Inside Climate News simplified the take-away: Previous studies have examined the salinity of this waste and even some of the inorganic chemicals. Building from that, the Rice researchers identified 25 inorganic chemicals in the waste. Of those, at least six were found at levels that would make the water unsafe to drink—barium, chromium, copper, mercury, arsenic and antimony. Depending on the chemical, consuming it at high levels can cause high blood pressure, skin damage, liver or kidney damage, stomach issues or cancer.

A New Study Clarifies Treatment Needs for Water from Fracked Gas and Oil Wells - A good post on InsideClimate News last week explored a new study of organic compounds and other constituents in the briny water that emerges from gas or oil wells created using the high-pressure process called hydraulic fracturing, or fracking. (This “produced water” is a mix of fracturing fluid and water from the rock layers being drilled.) Here’s a key line:  This peer-reviewed study by a pair of researchers at Rice University in Houston shows that while fracking-produced water shouldn’t be allowed near drinking water, it’s less toxic than similar waste from coal-bed methane mining. It also revealed how the contents of this waste differ dramatically across three major shale plays: Texas’ Eagle Ford, New Mexico’s Barnett and Pennsylvania’s Marcellus. The paper, “Organic compounds in produced waters from shale gas wells,” was to identify the most appropriate treatment processes for this water, which is increasingly being reused. In a Rice University news release, the authors note that the wrong treatment processes could actually make things worse: The researchers found that produced water contained potentially toxic chlorocarbons and organobromides, probably formed from interactions between high levels of bacteria in the water and salts or chemical treatments used in fracking fluids. Barron said industry sometimes uses chlorine dioxide or hypochlorite treatments to recycle produced water for reuse, but these treatments can actually enhance bacteria’s ability to convert naturally occurring hydrocarbons to chlorocarbons and organobromides. We believe the industry needs to investigate alternative, nonchemical treatments to avoid the formation of compounds that don’t occur in nature,”

People near 'fracking' wells report health woes: People living near natural-gas wells were more than twice as likely to report upper-respiratory and skin problems than those farther away, says a major study Wednesday on the potential health effects of fracking. Nearly two of every five, or 39%, of those living less than a kilometer (or two-thirds of a mile) from a well reported upper respiratory symptoms, compared to 18% living more than 2 kilometers away, according to a Yale University-led random survey of 492 people in 180 households with ground-fed water wells in southwestern Pennsylvania. The disparity was even greater for skin irritation. While 13% of those within a kilometer of a well said they had rashes and other skin symptoms, only 3% of those beyond 2 kilometers said the same. "This is the largest study to look at the overall health of people living near the wells," says lead author and University of Washington environmental health professor Peter Rabinowitz, who did the research while at Yale. The study focused on Washington County, part of the Marcellus Shale where hydraulic fracturing, or fracking, is widely used to extract natural gas. "It suggests there may be more health problems in people living closer to natural gas wells," but it doesn't prove that the wells caused their symptoms, he says, adding more research is needed.

Residents living nearer natural gas wells report more health symptoms, Yale study says --- People who live closer to natural gas wells, including those that were drilled using "fracking," or hydraulic fracturing, report more health symptoms than those who live farther away, according to a study reported today by Yale University researchers. The study, which drew strong negative reaction from the oil and gas industry, was published online in Environmental Health Perspectives, a journal of the National Institutes of Health. It surveyed 492 people in 180 households with ground-fed water wells in southwestern Pennsylvania, where the concentration of natural gas extraction is very high. Respondents, who were not asked about fracking, reported more upper respiratory and dermal (skin) symptoms over the past year when they lived less than a kilometer from a gas well, and fewer such symptoms when they lived more than two kilometers from a well. There was no such difference in other health symptoms reported in the survey, which included heart, gastrointestinal and neurological complaints, among others. "The result stood even when we controlled for a lot of other things, so it wasn't just a simple correlation," said Meredith Stowe, senior author on the paper and an associate research scientist and epidemiologist at the Yale Occupational and Environmental Medicine Program. Researchers controlled for the survey respondents' age, gender, smoking status, education level, and awareness of environmental risk factors in the study. "It's a very well-conducted study," said Dr. Karen Mulloy, an associate professor in the department of environmental health sciences at Case Western Reserve University School of Medicine, who was not involved with the study. Mulloy is an expert in occupational health and has written and spoken about the health impacts of oil and gas drilling.

Fracking Literally Makes People Sick, New Study Finds -- A new study provided more ammunition for what public health experts and environmental activists have been saying since fracking became widespread in the last half decade: chemicals used in the natural gas drilling process can be hazardous to health. The study “Proximity to Natural Gas Wells and Reported  Health Status: Results of a Household Survey in Washington County, Pennsylvania,” published yesterday in Environmental Health Perspectives, found that people who live near fracking sites have more health problems than those who don’t. The Yale-based research team that produced the study looked at families in southwestern Pennsylvania’s Marcellus shale region who use ground-fed water wells. Surveying 492 individuals in 180 households, researchers found a significantly greater number of skin and respiratory problems among those who lived within one kilometer of a natural gas well than those who lived two kilometers away. Washington County has 624 active gas wells with 95 percent of those fracked. “Despite assurances by the drilling industry and numerous government officials that fracking chemicals do not pose a risk to nearby populations, scientists and environmentalists have repeatedly voiced concern over the high volume of chemicals used in the process and the potential for both groundwater and airborne contamination,”

Fracking exposes workers to benzene - The Columbus Dispatch: Oil and natural-gas workers on fracking sites are exposed to potentially unsafe levels of benzene, a colorless gas that can cause cancer, according to a case study by a federal agency. The study, first published at the end of August in the Journal of Occupational and Environmental Hygiene, found that workers on oil and gas sites were most likely to be exposed to the chemical when they opened hatches during a phase of fracking known as “flowback.” The study by the National Institute for Occupational Safety and Health, part of the Centers for Disease Control and Prevention, is preliminary, but it is part of an effort by the institute to understand the health risks of fracking. The technique is being used increasingly to extract oil and gas from shale that’s deep underground. “It was more or less to demonstrate that even though you’re outside, there is still a potential” for exposure, said John Snawder, a toxicologist with the CDC in Cincinnati and a co-author of the study. Benzene, a chemical that occurs naturally in oil and gasoline, attacks cells that affect blood and bone marrow. It can cause leukemia and anemia. Flowback happens after a well is drilled.. After the shale is fractured, water, fracking fluid, sand, oil and gas flow back up the well to the surface, where the parts are separated. Wastewater frequently gets pumped into injection wells for disposal, fracking fluid gets reused if possible, and oil and gas are separated to be used for energy.

Fracking workers exposed to dangerous amounts of benzene, study says — Some workers at oil and gas sites where fracking occurs are routinely exposed to high levels of benzene, a colorless gas that can cause cancer, according to a study by the National Institute for Occupational Health and Safety.The agency, which is part of the Centers for Disease Control and Prevention, recommends that people limit their benzene exposure to an average of 0.1 of a part per million during their shift. But when NIOSH researchers measured the amount of airborne benzene that oil and gas workers were exposed to when they opened hatches atop tanks at well sites, 15 out of 17 samples were over that amount. Workers must open these hatches to inspect the contents of these tanks, which could include oil, waste water or chemicals used in high-volume hydraulic fracturing, or fracking. The real-time readings taken by researchers show that benzene levels at the wells “reached concentrations that, depending on the length of exposure, potentially pose health risks for workers,” the researchers reported in the Journal of Occupational and Environmental Hygiene.

Stanford-led study assesses the environmental costs and benefits of fracking: The environmental costs – and benefits – from "fracking," which requires blasting huge amounts of water, sand and chemicals deep into underground rock formations, are the subject of new research that synthesizes 165 academic studies and government databases. The survey covers not only greenhouse gas impacts but also fracking's influence on local air pollution, earthquakes and, especially, supplies of clean water. The authors are seven environmental scientists who underscore the real consequences of policy decisions on people who live near the wells, as well as some important remaining questions. "Society is certain to extract more gas and oil due to fracking," said Stanford environmental scientist Robert Jackson, who led the new study. "The key is to reduce the environmental costs as much as possible, while making the most of the environmental benefits." Fracking's consumption of water is rising quickly at a time when much of the United States is suffering from drought, but extracting natural gas with hydraulic fracturing and horizontal drilling compares well with conventional energy sources, the study finds. Fracking requires more water than conventional gas drilling; but when natural gas is used in place of coal or nuclear fuel to generate electricity, it saves water. From mining to generation, coal power consumes more than twice the water per megawatt-hour generated than unconventional gas does. Unconventional drilling's water demand can be better or worse than alternative energy sources, the study finds. Photovoltaic solar and wind power use almost no water and emit no greenhouse gas, but cheap, abundant natural gas may limit their deployment as new sources of electricity. On the other hand, fracked gas requires less than a hundredth the water of corn ethanol per unit of energy.

Frack Water Shell Game: Frackademics Publish Paper Reviewed by Fellow Frackademics - Shale fracking is a textbook way to introduce contaminated water into the biosphere. Billions of gallons of it. Most of the contaminated water – residual frack fluid and frack flowback comes back to the surface, where it ends up contaminated surface water or is re-injected to cause frackquakes. Of the frack water left in the formation, a new paper addresses the likelihood of it getting back into the water supply. A new paper looks into the mechanisms for frack water to stay in the ground. But since most of the frack water comes back to the surface, focusing on the fluid left in the formation ignores the majority of the problem. It is an elaborate shell game, a distraction. The paper was authored by 400 Tcf Terry Engelder and Lawrence Cathies, two notorious frackademics, and reviewed (rubber stamped ?) by an editorial board consisting of the following frackademics:

  • J. Y Wang  Editor in Chief, Journal of Unconventional Oil and Gas Resources
  • D. Barlow, Sklar Exploration Company L.L.C., Boulder, Colorado, USA
  • B. Dindoruk,  Shell International Exploration and Production Inc., Houston, Texas, USA
  • D. Elsworth, Penn State University, University Park, Pennsylvania, USA
  • Q Feng,  China University of Petroleum (Beijing), Beijing, China
  • T. Johns, Pennsylvania State University, Pennsylvania, USA

Industry says job numbers show need for urgency on fracking -- Petroleum backers say a new job survey makes the case for why Illinois should be doing more to expand drilling, particularly fracking, in the state. The oil and gas industry has created 263,700 jobs in Illinois, according to a study released by the American Petroleum Institute Tuesday that lists direct, indirect and induced jobs created, as well as vendors with contracts with the industry, in each state. In Illinois, 932 businesses are part of the oil and gas supply chain, the study says, supporting $33.3 billion, or five percent, of the state’s economy. American Petroleum Institute senior economic adviser Rayola Dougher and Illinois Petroleum Council executive director Jim Watson said the study shows why state regulators should be doing more to facilitate the launch of high volume hydraulic fracturing, or fracking.Specifically, they are upset with the revised draft rules for fracking that the Illinois Department of Natural Resources released August 29 after considering about 30,000 comments filed on a previous version of the rules. “If you look at what industry wants or needs, it’s a long-term projection to make a play on a well,” said Watson. “If you use the process to change the rules that were negotiated, that’s sending some bad signals. Do we want to nurture this industry for the better good or not? It’s really that simple.”

State backs off plans to test for WNC natural gas potential -- The N.C. Department of Environment and Natural Resources recently decided not to conduct rock tests this fall in seven mountain counties looking at the potential for natural gas deposits, as initially planned. State geologists were going to pull rock samples, primarily along roadways, in Clay, Cherokee, Graham, Haywood, Jackson, Macon and Swain counties. Those samples would then be analyzed for total organic carbon, an indication of natural gas potential. After reviewing legislation that set aside $250,000 for testing, "and determining our budget limitations, we have decided to put plans for rock sampling on hold for western and eastern North Carolina," said DENR Spokesman Jamie Kritzer. Instead, DENR will focus its exploration efforts on three geologic basins in the central part of the state: the Deep River, Dan River and Cumberland–Marlboro basins. Those include portions of some of the state's most populated counties, including Durham, Wake, Rockingham and Wayne. "These are the areas where the geologic studies and past industry exploration in recent decades have revealed the most potential for oil and gas in North Carolina," Kritzer said.

If You Read Only One Story On Health And Fracking, Read This One | Wyoming Public Media: Industry representatives will tell you that 99.5 percent of frac fluid is just water and sand, and the rest is common household chemicals. To prove it’s safe, they’ll even drink it. Here’s a video of natural gas executive Peter Dea:  But anti-fracking activists, sometimes in song, will tell you about the hundreds of scary-sounding chemicals in frac fluid. Here’s Joel Kalma: Both sides are right. But, according to scientists, the truth is somewhere in the middle. Lisa McKenzie, an epidemiologist at the Colorado School of Public Health, said, “That other 0.5% is important from a health perspective.” Why? “Chemicals can have very negative effects in extremely small quantities,” McKenzie said. And while the long list of chemicals contained in most frac fluids may be intimidating, “The fact that we’ve got 1,000 shouldn’t alarm people,” said Joe Ryan, a professor in engineering at the University of Colorado who studies how drilling affects groundwater. To figure out what chemicals we need to worry about, Ryan looked at three main factors: toxicity, mobility, and persistence. That means how dangerous those chemicals are to humans, how likely they are to move through the soil and water, and how long they stay in the environment before they degrade. Using those factors, Ryan said, “We take a list of 1000 and get down to a list of a couple dozen,” Ryan said. “We should be watching for these chemicals, because they could actually show up somewhere.” And they might make someone sick.

Fracking or drinking water? That may become the choice -- Fracking for oil and natural gas—or having enough water to drink.  That's the possible dilemma facing a number of countries including the United States, according to a new report released by the World Resources Institute last week—though experts disagree on the real implications of the report and what should be done about it. Forty percent of countries with shale-rich deposits—the types where hydraulic fracturing or "fracking" is used to extract natural gas and oil—face water scarcity in and around the shale deposits, according to the WRI report. That's significant because water is a key component in fracking. And many of these countries, like the U.S., are suffering from ongoing severe drought conditions and other causes of dwindling water supplies.  "This is a warning signal for the energy industry and governments around the globe," said Paul Reig, an associate with the water program at WRI and lead author of the report. "We're not taking a pro or anti position on fracking, but we're saying that the scarcity of water where fracking's used could cause major problems when it comes to water supplies from agriculture to drinking it."

In shadow of oil boom, North Dakota farmers fight contamination -- Last summer Mike Artz and his two neighbors discovered that a ruptured pipeline was spewing contaminated wastewater into his crop fields. “We saw all this oil on the low area, and all this salt water spread out beyond it,” “The water ran out into the wetland.” It was August, and all across Artz’s farm the barley crop was just reaching maturity. But near the spill, the dead stalks had undeveloped kernels, which, the farmers knew, meant that the barley had been contaminated weeks earlier. Soon after, state testing of the wetlands showed that chloride levels were so high, they exceeded the range of the test strips. The North Dakota Department of Health estimated that between 400 to 600 barrels of wastewater, the equivalent of 16,800 to 25,200 gallons, had seeped into the ground.  Far saltier than ocean water, this wastewater is toxic enough to sterilize land and poison animals that mistakenly drink it. “You never see a saltwater spill produce again,” Artz said, referring to the land affected by the contamination.” Artz is far from being the only farmer in his area, or even in his family, to be forced to cope with the environmental and financial costs of wastewater. His brother Pete recently testified before the state legislature’s Energy Development and Transmission Committee that he lost five cattle after they drank contaminated water from a reserve pit left from two wells drilled on his property in 2009. His other brother, Bob, had a spill that sent wastewater pouring down the road and across his land in late July. In fact, farmers and landowners all across Bottineau County are struggling with the compounding effects of both new and decades-old water contamination. While the boom has brought wealth, the rapid pace of extraction has sparked fears among the state’s farmers and ranchers about the long-term costs and consequences of land and water contamination, especially because hydraulic fracturing, known as fracking, produces far more wastewater than past drilling techniques.

Fracking and Earthquakes: The Risk Is Clear. Who Pays Is Not - DailyFinance: The energy industry in the U.S. has surged in the past decade thanks to advances in technology that have allowed companies to extract vast quantities of oil and natural gas from sources once deemed too difficult or expensive to exploit. Yet as unconventional drilling methods like hydraulic fracturing have become more common, scientists have noticed a disturbing pattern that seems to follow their use: a sharp rise in the number of earthquakes in areas where fracking is used. With many shale oil and gas deposits far from the parts of the country where residents usually expect earthquakes, homeowners are becoming increasingly concerned about the threat of fracking-induced temblors damaging their homes -- and also wondering whether they're insured against the danger. Until the recent energy boom, few people thought of Oklahoma as being a potential hotbed for earthquakes. No major fault lines run through it, so residents and the government saw little risk. Now, though, all that has changed. In May, the USGS issued an earthquake warning for Oklahoma, the first time it had ever done so for a state east of the Rocky Mountains. Researchers from the USGS and the Oklahoma Geological Survey specifically mentioned the possibility of hydraulic fracturing contributing to quakes. As a result, Oklahoma has gone from having no more than a dozen magnitude 3 earthquakes each year from 1990 to 2008 to suffering hundreds since 2009. Similar concerns have arisen in other areas of new energy production, including Ohio and Colorado. And while the impact on the energy industry hasn't been substantial yet, residents of states where fracking activity has caused damaging tremors are now learning what residents of California have long known: Typical homeowners insurance doesn't cover foundation and structural damage from earthquakes.

Drillers Piling Up More Debt Than Oil Hunting Fortunes in Shale -  Halcon spent $3.40 for every dollar it earned from operations in the 12 months through June 30. That’s more than all but six of the 60 U.S.-listed companies in the Bloomberg Intelligence North America Independent E&P Valuation Peers index. The company lost $1.4 billion in those 12 months. Halcon’s debt was almost $3.2 billion as of Sept. 5, or $23 for every barrel of proved reserves, more than any of its competitors. ‘Uh-Uh’ Wilson is undeterred. “What do you do if you’re wrong? You go home and cry?” he asks. He shakes his head. “Uh-uh.” A decade into a shale boom that has made fracking a household word and Wilson a rich man, drillers are propping up the dream of U.S. energy independence with a mountain of debt. As oil production hits a 28-year high, investors and politicians are buying into the vision of a domestic energy renaissance.  Companies are paying a steep price for the gains. Like Halcon, most are spending money faster than they make it, an average of $1.17 for every dollar earned in the 12 months ended on June 30. Only seven of the U.S.-listed firms in Bloomberg Intelligence’s E&P index made more money in that time than it cost them to keep drilling.   These companies are plugging cash shortfalls with junk-rated debt. They owed $190.2 billion at the end of June, up from $140.2 billion at the end of 2011. (Six of the 60 companies that didn’t have records available for the full period weren’t included.) Standard & Poor’s rates the debt of 41 of the companies, including Halcon’s, below investment grade, meaning some pension funds and insurance companies aren’t allowed to invest in them. S&P grades Halcon’s bonds CCC+, which the rating company describes as vulnerable to nonpayment.

Landfill taking radioactive waste has history of violations, leaks, fires -- Despite assurances that a Belleville landfill and its partner facility in Van Buren Township that accept radioactive fracking waste are safe, they have been cited for at least 15 violations in the last decade and fined more than $471,000, a Free Press review of state and federal records shows. Wayne Disposal’s owner, USEcology, cited its record of “safe, secure and compliant disposal” as a reason why it’s an appropriate site for out-of-state, radioactive fracking waste. But violations cited by regulators from the Michigan Department of Environmental Quality and the U.S. Environmental Protection Agency, revealed incidents including a leak in the hazardous waste landfill’s primary protective liner; toxic leachate spills into surface water; improper venting and monitoring of stored underground hazardous waste; disposing of hazardous waste in nonhazardous landfill locations, and failing to control chemical reactions during processing that caused fires on-site. DEQ records show at least nine fires have started in Michigan Disposal’s processing facility in the past nine years as a result of toxic chemicals reacting with each other during treatment.

There's Not Enough Sand To Satisfy America's Insatiable Fracking Demand -- American oil and gas companies are running out of sand. In a new note, Morgan Stanley's Ole Slorer, Benjamin Swomley, and Connor Lynagh write that exploration and production (E&P) companies have discovered that if they use more sand when they frack unconventional shale plays, they are able to increase the amount of reserves they can extract from the ground. The sand helps prop open the rock, allowing the hydrocarbons to flow more freely. MS forecasts sand demand growth 0f 96% in 2016 from 2013, compared with just 76% of sand capacity growth. Here's the chart:  As E&P operators seek to optimize well results, they are using significantly more frac sand per well and experimenting with different types of proppants," they write. "In particular, the trend toward higher frac sand volume completions has accelerated frac sand demand YTD, and we believe the industry now sits on the verge of a prolonged frac sand supply shortage." Right now, the country's top 10 sand users pump approximately two times more sand than other operators on average, and three- to four times more sand in their leading edge wells, they say. But that gap is likely to close as larger but slower-moving drillers realize the efficiencies that can be gained from higher sand volumes. The market will further be constrained by the lack of rail available to transport sand from places like Wisconsin, Minnesota, and Pennsylvania; and by potentially longer lead times as local opposition mounts to opening new mines. "Sand could become stranded thousands of miles away from O&G basins," they write.

When fracking and free speech collide - - What started as a short YouTube video and a couple of local news interviews about a Texas landowner being able to light his water on fire has ballooned into a free speech fight that’s being closely watched by anti-fracking activists across the country. Steve Lipsky has complained for years that fracking company Range Resources polluted his drinking water and streams that run through his property. The company sued him in 2011 for defaming its reputation for environmental stewardship. Now Lipsky will have a chance to argue his case in front of the Texas Supreme Court, The Texas Tribune reported this week. The court will decide whether his right to free speech renders Range’s defamation case moot. If the court rules in his favor, the company’s lawsuit will be thrown out. If that doesn’t happen, he may be on the hook for $3 million. The case won’t be heard until December, but environmentalists are already drawing parallels between it and other incidents across the U.S. in which hydraulic fracturing companies and anti-fracking activists have butted heads. Lipsky’s supporters say his case adds to a growing list of instances that show governments and courts are too quick to kowtow to industry demands. But if he wins, they say, it could embolden the anti-fracking movement across the country by letting activists know they’re free to badmouth fracking companies without fear of retribution.

Oilprice Intelligence Report: Oil Taxes, Earthquakes, Private Equity Deals & More…  A new real estate law in Egypt will require companies to pay taxes on oil fields. The law was amended in late August, but criteria are still being developed by the relevant ministries and there is a three-month deadline for this before implementation, though the Finance Ministry is hoping to speed up the process.  Oil fields have been tentatively included in the new tax under the justification that the screw conveyors used to extract oil and gas should be considered as “property”. However, there has been a lot of pushback on this and as of last week, it appears that the Finance Ministry is undecided, with leaks from the Ministry suggesting there is still a chance the property tax may not be enforced for petroleum companies and oil fields. If it is enforced, we may possibly see some exemptions for oil companies and oil fields proposed.  The Texas Railroad Commission has proposed tightening regulations for injection wells as scientists explore a potential link between high-pressure wastewater disposal and the earthquakes rattling North Texas. Seismologists say that earthquakes are regularly recorded, though at magnitudes too small to be felt, but that existing rules for injection wells were designed to protect against groundwater contamination and not seismic activity. The commission is now proposing that applications for drilling permits include information from the United States Geological Survey and injection well operators, in some cases, be required to disclose daily injection volumes and pressures.

The Arguments for and Against Shale Oil and Gas Developments - The energy debate is full of controversy. Whether it is about the pros and cons of renewable energy, nuclear power or fossil fuels (FF) there are a range of arguments made on either side. If it was clear cut which arguments were best, there would be no controversy to discuss. And so it is the case with shale developments, some strongly in favour, some violently opposed.  So what are these public concerns in Europe?  And where does a country like Australia stand? Concerns come under five main headings:

  • 1. Seismic activity associated with fracking appears to be a reality and actually halted activity on one of the UK’s first wells before it could be completed. I believe that individuals who live above and perhaps own property on land above fracking operations have a right to be concerned if the fracking sets off minor earth tremors. To what extent tremors represent a real risk to life and property is hard to judge.
  • 2. Ground water contamination is another legitimate concern that again needs to be evaluated on a case by case basis. Contamination concerns arise from drilling operations and from “fugitive gas” that is mobilised by fracking operations. In the Marcellus Shale play in Pennsylvania, one study has shown higher methane concentrations in drinking water wells that lie close to fracked wells [4].  3. Disposal of drilling and fracking fluids that may contain a range of chemical substances is a further source of environmental concern. Dealing with this issue has become routine in the USA and can be dealt with appropriately in other countries, so long as an appropriate regulatory regime is in place.
  • 4. Disruption during drilling and pipe laying activities is a further source of concern. In large parts of the USA, that are sparsely populated wide open spaces, this concern has tended to be less relevant but in more densely populated areas like Pennsylvania and rural England larger numbers of people become impacted by hundreds of truckloads of materials and the influx of workers.
  • 5. Fugitive methane from fracking operations adding to atmospheric greenhouse gasses. Fracking is designed to release methane or liquid hydrocarbons from tight rock. The idea is oil or gas may flow through fractures into the wells drilled to produce them. But they may also be released into natural fault zones that connect to the surface and be released to the atmosphere instead.

US should export fracked oil, gas, Brookings report says - The Brookings Institution favors the United States exporting fracked crude oil and natural gas. The research group said:in a new report that "Lifting the ban on crude oil exports from the United States will boost U.S. economic growth, wages, employment, trade and overall welfare." " ... increasing crude oil exports in any fashion will have positive economic effects both in the United States and in the world oil market. At the same time, world energy security will be enhanced by increasing the diversification of oil supply available globally, while also increasing U.S. energy security. Lifting the ban generates paramount foreign policy benefits, increases U.S. GDP and welfare and reduces unemployment." Read the whole thing here.

Oil: No Price is RightYves Smith -- The IEA dropped a little bombshell yesterday by ‘fessing up that the economic prospects for Europe and China are so crappy that the outlook for oil prices is less than robust, even with the US bristling to go after its new favorite Middle Eastern nemesis, ISIS. The Financial Times was blunt: International Energy Agency notes ‘remarkable’ oil demand growth fall. From its article: In its widely followed monthly report, the west’s energy watchdog said on Thursday that global oil demand growth had slowed to below 500,000 barrels a day in the three months to June – the first time it has reached this level in two-and-a-half years. Slowing demand and plentiful supplies – in spite of conflicts raging in countries such as Iraq and Libya – have together pushed down the price of Brent crude, the international oil marker… OilPrice provides more detail: Brent crude has now dipped below $100 per barrel, for the first time in over a year. WTI is trading around $92 per barrel, a 16-month lowThe glut of supplies and weak demand is causing problems for OPEC, according to the cartel’s monthly report. OPEC lowered its demand projection for 2015 by 200,000 and in August, Saudi Arabia cut production by 400,000 bpd in an effort to stem oversupply. As noted by Steve LeVine in Quartz, cheaper oil could present problems for oil producing countries, which generally rely on high prices to keep their national budgets in the black.  It isn’t just some of the West’s favorite baddies, as well as the Saudis, that have a problem with weaker oil prices. It exposes the conflict that $100 a barrel for oil may be the minimum ongoing price that works for the majors, but even that price is too high for economies that are struggling to generate what they deem to be adequate levels of growth. Joe Costello, author of Of, By, For, explains via e-mail: The real question is how low could it go. If you remember in 2009 during money crisis, oil prices dropped to high $30s before the producers were able to catch it and bring it up to the mid $60s. Second and now even more important, the last year the oil companies have come out saying they can’t find and produce new oil profitably at $100 and the shale people, and the hour gets later every day on that boom, haven’t shown they can make a profit at $100, so certainly not on $90 or less. The one thing for sure the longer it stays below $100 the more pain the industry is going to feel, and if it gets much below $90 for any length of time, it’s going to pop the shale bubble.

The End of Fracking Is Closer Than You Think -- Canadian geologist David Hughes has some sober news for the Kool-Aid-drinking boosters of the United States' newfound eminence in fossil fuel production: it's going to go bust sooner rather than later. Working with the Post Carbon Institute, a sustainability think-tank, Hughes meticulously analyzed industry data from 65,000 US shale oil and natural gas wells that use the much-ballyhooed extraction method of hydraulic fracturing, colloquially known as fracking. The process involves drilling horizontally as well as vertically, and then pumping a toxic cocktail of pressurized water, sand, and chemicals deep underground in order to break apart the rock formations that hold deposits of oil and gas. Hughes found that the production rates at these wells decline, on average, 85 percent over three years. "Typically, in the first year there may be a 70 percent decline," Hughes told VICE News. "Second year, maybe 40 percent; third year, 30 percent. So the decline rate is a hyperbolic curve. But nonetheless, by the time you get to three years, you're talking 80 or 85 percent decline for most of these wells." His conclusion calls into question the viability of developing a long-term national energy policy on the assumption that fossil fuel extraction will continue at current levels. Several new natural gas export terminals are under consideration across the country, and the energy industry is pushing for the reversal of a 1970s Congressional ban on crude oil exports. Calls to approve the Keystone XL pipeline and allow for greater transportation of oil and gas over the nation's rail lines are also based on the revolution in domestic energy production.

Judge Green-Lights Shipments of Explosive Crude Oil in Richmond -- Opponents of shipping crude oil by rail chained themselves to the gates of Richmond’s Kinder-Morgan rail yard on September 4, blocking oil tanker trucks from entering or leaving the facility for more than two hours. The following day, however, they suffered a setback when a San Francisco County Superior Court judge threw out a lawsuit filed by four environmental organizations against the Bay Area Air Quality Management District. The suit charged that the air district acted illegally when it approved Kinder-Morgan’s plan to bring in highly explosive Bakken crude oil without public notice or environmental review. The community did not learn of the presence of Bakken crude until eight months after the air district gave its secret approval to Kinder-Morgan’s plan. A bill recently passed by the legislature, however, seeks to prevent this kind of under-the-radar shipment in the future by requiring that railroad companies notify state and local officials about crude oil and other hazardous materials coming through their communities.

Trains carrying hazardous crude oil crisscross Kentucky on weekly basis — Freight trains loaded with volatile crude oil crisscross seven Kentucky counties on a weekly basis, carrying loads that emergency management officials in the state know little about.As many as five CSX Corp. trains carry oil from the upper Great Plains' Bakken shale fields into Boyd and Greenup counties in northeastern Kentucky. A similar number rolls through Henderson, Webster, Hopkins, Christian and Todd counties in the western part of the state. In all, CSX sends the trains along more than 200 miles of track in Kentucky.WDRB-TV in Louisville reported ( that the trains bypass the state's largest cities but skirt areas along the Ohio River near the Ohio and West Virginia borders and pass directly through Henderson, Hopkinsville and other cities in western Kentucky.Until earlier this year, railroads had no obligation to notify communities where large quantities of that oil rumbled past their schools, homes and businesses. The limited disclosures shed some light on the routes of trains carrying flammable oil extracted through hydraulic fracturing, or "fracking," of rock formations in North Dakota."They don't tell us what days, what cars — other than it's going to be a million gallons," said Larry Koerber, Henderson County's emergency management director. "And they're only doing it because they're required by law."

House hearing examines volatility of Bakken crude oil: – A Republican lawmaker accused the Obama administration Tuesday of using "global warming theory" to advance new safety regulations for transporting Bakken crude oil. The proposal outlines three options for a new generation of tankers and several areas where lower speed limits would be imposed for trains with 20 or more tankers carrying crude oil or ethanol. Transportation Secretary Anthony Foxx said his agency's tests found that "Bakken crude oil is on the high end of volatility compared to other crude oils." Republicans at Tuesday's hearing before the House Science, Space and Technology Committee cited recent scientific studies classifying Bakken crude as similar to other light sweet crudes. There's no question, however, that light crudes are more volatile and flammable than heavy crude oil.

Congressman Thinks Oil Train Regulations Are A ‘Facade’ To Control America’s Oil Use - Since the start of 2013, North America has seen a string of disasters involving oil-laden trains. But at least one federal lawmaker thinks government efforts to address the issue are “a facade” to cut Americans’ fossil fuel use. The Transportation Department has begun implementing new rules to slow down trains and improve safety methodology in response to the incidents. So on Tuesday, Rep. Dana Rohrabacher (R-CA) suggested at a House Science Committee hearing that the new rules are “perhaps a facade to obtain what we clearly have as a goal of this administration, which is to reduce America’s use of fossil fuel, even though it is now being presented to us as something about safety.” As National Journal reported, Rohrabacher went on to accuse Timothy Butters, the Transportation Department’s Pipeline and Hazardous Materials Safety Administration, of not being forthright because of his agency’s supposed ulterior motive. “You just won’t answer anything,” Rohrabacher went on. “Because the agency may be involved in a play based on global-warming theory, trying to, again, suppress the usage and the use and availability of fossil fuels, and letting that be in the background, forcing situations and forcing people like you to have to go through those verbal acrobatics not to answer a question.” Rohrabacher has dismissed global warming as a “total fraud” in previous statements, and claimed federal efforts to tackle the problem are aimed at creating “global government to control all of our lives.”

Goldman Sachs Warns Investors to Avoid Oil-By-Rail, While Investing in Oil-By-Rail - In 2009, Matt Taibbi wrote a  piece in Rolling Stone in which he described the investment bank Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”   Apparently tar sands oil smells like money. And thus the vampire squid has  found another target. As Reuters reported on August 29:  A Goldman Sachs-led rail terminal operator, USD Group LLC, announced on Friday plans to form a Master-Limited Partnership that will be based around a  tar sands rail loading facility in Hardisty, Alberta. That is the same place where the proposed Keystone XL pipeline would begin. USD Group already owns a crude-by-rail terminal in the town, with capacity to load two 120-car unit trains per day.  And with the success of this first phase of development, the company has  announced plans to double the capacity of the terminal, which would allow it to load 280,000 barrels per day (bpd). The company has also announced plans to add another 70,000 bpd, which would bring its capacity to 350,000 bpd, or roughly half the proposed capacity of TransCanada’s Keystone XL pipeline.  There is an interesting twist to this story. In June 2013, at the same time that USD Group was beginning to construct its tar sands-by-rail loading facility in Hardisty, Goldman Sachs released a report, titled  Getting Oil Out of Canada, about tar sands logistics, which outlines the reasons why moving tar sands by rail would be difficult. This report was  widely cited by environmental groups to show why stopping the Keystone XL pipeline is vitally important.  Saying one thing while doing another is something Goldman has had success with in the past. During the housing crisis, Goldman was selling its own clients mortgage-backed securities that Goldman knew were doomed and then they were  intentionally betting against those same securities with Goldman’s internal funds. It was a strategy that proved to be very lucrative.

Environmental Groups Sue Government Over Use Of Dangerous Rail Cars For Shipping Oil -- Three environmental groups are suing the U.S. Department of Transportation for continuing to allow crude oil shipments in older, more puncture-prone rail cars.   The Sierra Club, Earthjustice and ForestEthics filed a lawsuit against the DOT Thursday after the department didn’t respond to a to a legal petition on the rail cars that the groups filed in July. The petition called on the DOT to ban shipments of crude oil in DOT-111 tank cars, which the groups say were “put into service decades ago” and lack “safeguards added to improve crashworthiness.” “DOT has yet to restrict the shipment of volatile crude oil in the unsafe DOT-111 tank cars,” the groups wrote in the petition. “This omission is inexcusable given the long string of findings by the National Transportation Safety Board (‘NTSB’) that the legacy DOT-111 tank cars are extremely vulnerable to puncture, spilling oil, and precipitating explosions and fires in train accidents.” These are the same type of tank cars that were used in the train that derailed and exploded in the small Quebec town of Lac-Mégantic last July, killing 47 people and destroying the town’s center. In the U.S., about 69 percent of the total rail fleet is made up of DOT-111 tank cars. As the AP pointed out in 2012, the NTSB has known about the safety concerns relating to the DOT-111 tank car — including a thin, puncture-prone shell, ends that are vulnerable to being torn and valves and fittings that are vulnerable to breaks during rollovers — since 1991.

Blocked On All Other Sides, Tar Sands Could Cross The Arctic -- With routes to the east, west, and south currently blocked, tar sands producers are considering shipping oil north, across the Arctic. A new study (PDF) commissioned by the the oil company Canatec and the Canadian province of Alberta says it would be “feasible” to build a 2,400-kilometer “Arctic Gateway Pipeline.” The pipeline would take advantage of the “unprecedented retreat of Arctic sea-ice” caused by climate change to make shipping easier in the Arctic, while also contributing to more climate change by helping spur more tar sands development.  Fort McMurray, Alberta, the center of tar sands production, is landlocked in central Canada and looking to get its oil to the international market. But it’s facing long delays and potential rejection of the Keystone XL pipeline that would transport the oil south, significant opposition to the Northern Gateway pipeline that would transport oil west, and South Portland, Maine took action in July to block a plan to ship tar sands oil from the East Coast. Keith Stewart, a researcher with Greenpeace Canada, said in a phone interview that the Arctic Gateway plans were more of a bargaining chip than a real proposal. It’s more like, “if you don’t let us build the pipeline that’s a bad idea,” he said, “we’ll build a pipeline that’s a really terrible idea.”  Stewart pointed to the fact that the pipeline would be partially constructed on permafrost, which hasn’t been very permanent lately. The remoteness of the Arctic Circle also means “there’s no possible way you could clean up an oil spill in that environment,” Stewart said, and “the Arctic environment is very fragile.”

Former Obama Economic Adviser Larry Summers Calls To Lift Oil-Export Ban -  A former top economic adviser to President Barack Obama threw his support behind lifting the decades-old ban on oil exports, saying such a move would bring about a host of positive economic and geopolitical benefits to the U.S., including lower gasoline prices. “Permitting the exports of oil will actually reduce the price of gasoline,” said Larry Summers, who was the director of the White House’s National Economic Council for the first two years of Mr. Obama’s presidency, in a speech at the Brookings Institution on Tuesday. Mr. Summers’ speech, more than 40 minutes, touched on his positions on climate change, which he says is a “profoundly important problem” but wouldn’t be influenced by oil exports; the Keystone XL pipeline, which he cautiously backed; and a host of economic and geopolitical arguments for why his former boss should unilaterally allow oil exports if Congress won’t act. “The president has spoken often of his commitment to act if Congress will not and his determination to use executive authority to the fullest extent,” Mr. Summers said. “If necessary, it should be used to remove restrictions on the export of oil.” Mr. Summers is one of the most high-profile former Obama administration officials to express support for lifting the oil-exports ban since this issue emerged in Washington less than a year ago. David Goldwyn, who worked on energy issues at the State Department during Mr. Obama’s first term and advises some companies that would benefit from exports, also supports exporting oil.

UK Wants U.S. Supreme Court To Limit BP Liability For Deepwater Horizon - The British government is urging the U.S. Supreme Court to limit payments by BP, the UK’s second-largest oil producer, to some victims of the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, arguing that rulings by lower courts undermine confidence in judicial fairness. In a “friend-of-the-court” brief dated Sept. 4, the government contended that decisions so far to pay compensations to individuals who had not been hurt by the spill undermines “confidence in the vigorous and fair resolution of disputes.” BP wants the court to limit compensation payments that were mandated in 2012 by a U.S. District Court judge in New Orleans and later upheld by an appeals court. The oil company says many of the payments were ordered for individuals whose businesses could not have been affected by the spill. In its brief, the UK government agreed, saying the rulings by the lower courts have broadened BP’s liability “far beyond anything that would seem to be appropriate under our shared common-law traditions or that anyone would reasonably expect.”

Oil Price Plunge? It's The Global Economy, Stupid! - The decline in the price of oil - in the face of surging geopolitical pandemonium - has been lauded as indicative of both US' awesomeness in energy independence and a tax cut for Americans... but, as the following chart suggests, there may be another - much more realistic - explanation for why oil is plunging... demand! World GDP expectations for 2014 just tumbled to their lowest since estimates started... Maybe - just maybe - that explains the price of oil...

Iraq Pursues New Tack in Bid to Seize Tanker Off Texas -  Iraq’s Oil Ministry has asked a U.S. judge for permission to change its legal arguments in a bid to seize $100 million in Kurdish crude waiting in a tanker off Texas since late July. Stymied by the judge’s ruling last month that he didn’t have jurisdiction under admiralty law, the nation has come back with claims under maritime and Texas statutes. U.S. District Judge Gray Miller in Houston threw out an arrest warrant that gave federal agents authority to take the 1 million-barrel cargo and store it, at Iraq’s expense, if the tanker entered U.S. waters. Miller said he had no authority to intervene in a foreign ownership dispute under U.S. laws governing property stolen on the high seas. Iraq cited those laws as the basis for to recover crude exported from wells in the northern Iraqi region of Kurdistan without permission. Iraq’s Oil Ministry has now revised its complaint, citing different statutes to obtain a new arrest warrant aimed at preventing the Kurdistan Regional Government, or KRG, from selling the cargo in the U.S. Iraq now cites the Foreign Sovereign Immunities Act and state law governing stolen property.

Why Does the U.S. Support Saudi Arabia, Sponsor of Islamic Terrorism? --Why Does the U.S. Support a Country which was FOUNDED With Terrorism … and Is Still the MAIN SOURCE of Islamic Terrorism Today? America Has Sold Its Soul for Oil A U.S. congressman for 6 years, who is now a talking head on MSNBC (Joe Scarborough) says that – even if the Saudi government backed the 9/11 attacks – Saudi oil is too important to do anything about it: This is not an isolated incident. It is a microcosm of U.S.-Saudi relations. By way of background, former MI6 agent Alastair Crooke notes that Saudi Arabia was founded with terrorism: Muhammad ibn ʿAbd al-Wahhab (the founder of Wahhabism), and the use to which his radical, exclusionist puritanism was put by Ibn Saud.*** Abd al-Wahhab demanded conformity — a conformity that was to be demonstrated in physical and tangible ways. He argued that all Muslims must individually pledge their allegiance to a single Muslim leader (a Caliph, if there were one). Those who would not conform to this view should be killed, their wives and daughters violated, and their possessions confiscated, he wrote. The list of apostates meriting death included the Shiite, Sufis and other Muslim denominations, whom Abd al-Wahhab did not consider to be Muslim at all.

Islamic State's Ultimate Goal: Saudi Arabia's Oil Wells -- Islamic State -- which has its origins in al-Qaeda – knows fully well that in order to sustain itself as a viable and lasting religious, political, economic and military entity in the region, it has to follow the same objectives established by al-Qaeda when Osama bin Laden broke off his relations with the Saudi monarchy and vowed to bring down the House of Saud. Bin Laden’s ire at the Saudi monarchy stemmed from the fact that Saudi King Fahd bin Abdulaziz Al Saud invited the American military to use Saudi Arabia as a staging area to build up forces to take on the then Iraqi leader Saddam Hussein after Iraqi troops occupied Kuwait in August of 1990. Bin Laden objected to the presence of “infidels” in the land of the two holy mosques, and asked the king to allow his outfit to tackle Saddam Hussein’s troops. Similarly, IS knows that it will only feel secure once Saudi Arabia is part of the Caliphate, and its oil fields are under IS control -- which is why the group has two logical next steps. First, to capture and secure the most important country in the Muslim world: Saudi Arabia. If the battle for Syria and Iraq attracted tens of hundreds, (some say tens of thousands) of young Muslims, the battle for control of Islam’s two holiest sites, Mecca and Medina, are very likely to attract many more fighters into the ranks of the Islamic State.

Obama strategy to beat Islamic State likely to draw U.S. into years of conflict --The U.S.-led international strategy to combat the Islamic State that President Barack Obama sketched out Friday is likely to require years of thorny diplomacy and deeper U.S. military involvement in conflicts that he’s struggled to avoid.Obama’s remarks at the end of a NATO summit in Wales offered the administration’s most in-depth explanation to date of how it plans to fight the Islamic State, the transnational extremist group that has seized control of an area as large as Jordan straddling the dividing line between Syria and Iraq.The nascent strategy calls for working with European and Arab allies to confront the group not only in Iraq, where the U.S. is conducting airstrikes to assist government-aligned fighters, but also in Syria, where the United States has failed to fulfill its years-long promise to help build a moderate rebel force.

What Petrodollar: Russia, China To Create SWIFT Alternative - If, when in February Victoria Nuland infamously launched a (not so) covert campaign to replace the ruling Ukraine president oblivious to the human casualties, resulting in a civil war in east Ukraine, NATO encroachment along the borders of Russia, and a near-terminal escalation in hostilities between Ukraine, Russian, and various regional NATO members, the US intention was to provoke the Kremlin so hard that the nation with the world's largest reserves of mineral and energy resources would jettison the US Dollar and in the process begin the unraveling of the USD reserve currency status (as much as Jared Bernstein desires just such an outcome) it succeeded and then some. Because in the end it may have pushed not just Russia into the anti-petrodollar camp... it appears to have forced China in it as well. According to Itar-Tass, Russia and China are discussing setting up a system of interbank transactions which will become an analogue to International banking transaction system SWIFT, First Deputy Prime Minister Igor Shuvalov told PRIME on Wednesday after negotiations in Beijing. "Yes, we have discussed and we have approved this idea," he said.

Russia, China agree to settle more trade in yuan and rouble (Reuters) - Russia and China pledged on Tuesday to settle more bilateral trade in rouble and yuan and to enhance cooperation between banks, Russia's First Deputy Prime Minister Igor Shuvalov said, as Moscow seeks to cushion the effects of Western economic sanctions. Shuvalov told reporters in Beijing that he had agreed an economic cooperation pact with China's Vice Premier Zhang Gaoli that included boosting use of the rouble and yuan for trade transactions. The pact also lets Russian banks set up accounts with Chinese banks, and makes provisions for Russian companies to seek loans from Chinese firms. true "We are not going to break old contracts, most of which were denominated in dollars," Shuvalov said through an interpreter. "But, we're going to encourage companies from the two countries to settle more in local currencies, to avoid using a currency from a third country."

China Daily: "Western Sanctions Will Make Moscow Back The Chinese Yuan Against The Dollar" -- "The apparently long-term rupture of Russia's relations with the West offers an opportunity to the Chinese leadership to enhance its already close relationship with the Kremlin and thus turn the global geopolitical balance in its favor - not unlike former US president Richard Nixon and former secretary of state Henry Kissinger who reached out to Chairman Mao Zedong in 1972. The Russians, angry with Washington, are now more amenable to giving China wider access to their energy riches and their advanced military technology. The Western sanctions pushing Russia out of the international financial system are also making Moscow more ready and willing to back the Chinese yuan against the US dollar." - China Daily

China’s Copper Imports Slow Due to Probe - China’s commodity imports in August mostly softened, led by a 12% decline in the volume of copper shipments from a year earlier due to the fallout from a government probe into metal financing at Chinese ports. Copper imports fell to 340,000 metric tons, according to customs data Monday. Chinese authorities earlier this year launched investigations into alleged fraud involving aluminum and copper stocks used as collateral for loans in China. Commodity-backed financing has fueled imports of copper in recent years, but this appears to be ebbing due to the investigations. “Banks became much more cautious” after the probe, said OCBC economist Xie Dongming. “They don’t want to give financing with that sort of collateral anymore.” There were other factors at play. Local copper processing mills that had shut down for maintenance or due to breakdowns restarted operations in August, adding to local supply and reducing the demand for imports. These included Jinchuan Group’s 400,000-ton Gansu province smelter and Dongying Fangyuan Co.’s in Shandong province. Still, copper import volumes were largely unchanged in August from the previous month. Demand will likely be underpinned in the second half of 2014 by China’s spending on its power grid, a top demand source for copper, according to Barclays Research. In the longer run, tight supply globally could lend support for copper prices despite China’s anemic demand, analysts said. Barclays pointed to supply disruptions in Indonesia, which has put bans on the export of unprocessed copper.

World Growth vs. Copper with 3-Month Lag; Iron Sinks to 5-Year Low; US Will Not Decouple - Copper is frequently cited as a leading indicator of economic activity because if its widespread use in many sectors of the economy, from homes and factories, to electronics and power generation and transmission. For that reason, some call it "Dr. Copper". Inquiring minds may be wondering what copper has to say about future economic growth. The following charts will explain. The above charts courtesy of Steen Jakobsen, chief economist at Saxo Bank.  China is slowing and its property bubble is under severe pressure. But it's not just copper that is under pressure.  Iron has taken a big hit, and iron producers are under severe stress. Reuters reports Iron Ore Price Plunge Claims First Australian CasualtyPlunging iron ore prices have dealt their first blow in Australia, sending fledgling miner Western Desert Resources Ltd into administration after it failed to reach a deal with bankers over its debt.Western Desert was caught out by a move by the world's top four iron ore producers to flood the market with low-cost supply, outpacing Chinese demand growth for the steel-making ingredient and slashing iron ore prices by 38 percent this year.

China’s Military Gets More Bang for the Buck -- Whenever anyone brings up the rising military power of China, Russia and other U.S. rivals, some pundit usually pops up to remind us that America is still overwhelmingly dominant both in terms of military capability and spending. The pundit will generally offer you a chart like this one, which shows American military spending dwarfing everyone else’s. The message, of course, is that the U.S. outspends all its rivals, ensuring its continued military dominance. But there are several problems with this perennial talking point. The first is that these dollar numbers aren't adjusted for the cost of anything that any of these militaries buy. The lowest-paid U.S. soldiers earn about $18,000 a year. In comparison, in 2009, an equivalent Chinese soldier was paid about a ninth as much. In other words, in 2009, you could hire about nine Chinese soldiers for the cost of one U.S. soldier. Even that figure doesn't account for health care and veterans’ benefits. These are much higher in the U.S. than in China, though precise figures are hard to obtain. This is due to higher U.S. prices for health care, to higher prices in general, and because the U.S. is more generous than China in terms of what it pays its soldiers. Salaries and benefits, combined, account for a significant percentage of military expenditure. But labor costs aren't the only thing that is cheaper in China. Notice that China’s gross domestic product at market exchange rates is only two-thirds of its GDP at purchasing power parity. This means that, as a developing country, China simply pays lower prices for a lot of things. Some military inputs -- oil, for example, or copper -- will be bought on world markets, and PPP won't matter. For others, like complicated machinery, costs are pretty similar. But other things -- food or domestically manufactured products -- will be much cheaper for the U.S.’s developing rivals than for the U.S.

The Yin and the Yang of Shadow Banking in China — By almost any measure, China saves more than virtually any country in the world. Over the past decade, gross national savings has amounted to about one-half of GDP. And that phenomenal rate continues: only Qatar and Macau save more (see chart). There are many good reasons to save. At the top of the list in China has been the high marginal return on capital that naturally accompanies rapid economic growth.   Despite this, households in China until recently have had few attractive avenues for saving. In particular, regulatory caps severely limit deposit rates to a level far below the growth rate of the economy. This was part of a strategy whereby the government – through the large state-controlled banks – funneled an outsized proportion of savings to favored borrowers, typically state-owned enterprises (SOEs), at low interest rates (again, relative to the pace of economic growth). Chinese authorities could count on households to save due to powerful precautionary motives: as the "iron rice bowl" of welfare and employment guarantees eroded, households faced increased income volatility along with prospective new spending needs for education, health care, housing, and retirement.To see the size of the distortion, we can compare the one-year deposit and lending rates in China and United States with their respective nominal GDP growth rates since 2000 (see table). On average, Chinese banks earned a spread over deposit rates of 3.3 percentage points, or roughly twice that of U.S. lenders. Nevertheless, the ultimate borrowers in China, typically SOEs, could obtain loans at a cost less than half the country’s average growth rate! That’s a huge wedge. Even relatively weak firms could earn a sizable profit if they borrowed and invested a lot.

Majority in China Expect War with Japan - China and Japan are heading towards military conflict, according to a majority of Chinese surveyed on ties between the Asian powers in a Sino-Japanese poll. The Genron/China Daily survey found that 53 per cent of Chinese respondents – and 29 per cent of the Japanese polled – expect their nations to go to war. The poll was released ahead of the second anniversary of Japan’s move to nationalise some of the contested Senkaku Islands in the East China Sea. Relations between Japan and China have soured since Japan bought three of the tiny islands – which China claims and calls the Diaoyu – in 2012. Japan defended the move as an effort to thwart a plan by the anti-China governor of Tokyo to buy them, but China accused it of breaching an unwritten deal to keep the status quo.  According to the poll, 38 per cent of Japanese think war will be avoided, but that marked a nine point drop from 2013. It also found that a record 93 per cent of Japanese have an unfavourable view of their Chinese neighbours, while the number of Chinese who view Japanese unfavourably fell 6 points to 87 per cent.

China faces Japan-style debt woes -- China's government is facing many problems Japan experienced before its 1990s financial crisis, according to BofA Merrill Lynch. Here is the thesis, in charts. The Japanese government waited a decade to properly recognise the soured loans that had built up in the banking system following years of exuberant lending and government stimulus, Merrill strategists Naoki Kamiyama and David Cui write.  They add that Beijing, which flooded the Chinese economy with credit from 2009 to insulate it against the global recession:  Is still a few years away from taking this decisive step.  Although Chinese banks are still reporting very benign levels of bad loans, the Merrill team's diagnosis of the economy reads: China's development unfortunately has largely followed the script written by Japan some 30 years ago. Like Japan, China's... government resorted to stimulus including loose monetary policy and supportive housing policy, to hold up growth; however, this unintentionally caused a property asset inflation, often funded by debt; partly to dampen the asset inflation and partly to curtail debt growth, the central bank jacked up interbank rates, and the property market may be tipping over.  The Chinese government is currently conducting mini-stimulus to hold up growth, while allowing bad debt in the financial system to worsen. The below charts illustrate various similarities between 1980s-early 1990s Japan and China today, including a heady build-up of money in the financial system, elevated land prices and heavy investment in fixed assets such as new roads and bridges.

Global banks retreat as the US and China tighten in lockstep - The world financial system is at an inflection point as the US and China both switch off monetary stimulus, a form of synchronized tightening by "G2" superpowers. Bank of America has warned clients that the glory days of "maximum liquidity" we have enjoyed in the post-Lehman era are coming to an end, with sweeping implications for asset markets across the world. The yield on 10-year US Treasuries - the benchmark price of global money - has already jumped 20 basis points to 2.54pc since mid-August as it becomes clear that the US economy has survived its Winter wobble and is moving into an incipient boom. Growth reached 4.2pc in the second quarter, with the ISM manufacturing gauge near 30-year peaks. Bank of America expects yields to jump to 3.1pc this year, and 3.75pc by the end of 2015 as the Federal Reserve raises interest rates in earnest. This implies a torrid rally in the US dollar akin to the Fed tightening cycles of the early 1980s and the mid-1990s, a stress test for the vast edifice of dollar debt in Asia and the developing world.

Australia to be Hit as Chinese Economy Unravels - Speaking at a conference on Thursday, the federal government's former top resources forecaster Quentin Grafton said the iron ore price was unlikely to recover quickly, leading to a painful downturn in the Australian economy in 2015. "This isn't about doom and gloom, it's about looking at the risk and numbers. It's a clear and present danger," Mr Grafton said.He said the Reserve Bank of Australia should prepare for a difficult ride as the overpriced property market and high dollar created a challenging economic environment as coal and iron ore prices dropped.Mr Grafton's comments join an increasingly vociferous choir of concern about the Chinese economy, with investor fears stoked by a Chinese residential property market that is experiencing its worst slump on record. The average price of new homes has been falling in China for months, with the rate of decline accelerating from June (0.5 per cent) to July (0.8 per cent), sending tremors through the economy. It dropped another 0.6 per cent in August, bringing the average to $US1737 per square metre. Property market issues are of critical concern for the Chinese economy and global investment community, as the property sector is a key economic driver that contributed 15 per cent of China's 2013 gross domestic product.

Japan's current-account surplus misses forecast - --Japan marked a surplus in its current account in July, the Ministry of Finance said Monday, as firm income from investments overseas outweighed a trade deficit. The surplus in the current account, the broadest measure of Japan's trade with the rest of the world, was Y416.7 billion in July before seasonal adjustment. That was 30.6% narrower on year, and compared with a Y447 billion surplus forecast by economists surveyed by the Nikkei and The Wall Street Journal. Japan's current account balance has slipped in and out of the red in recent months on a string of trade-balance shortfalls, despite a weakening in the yen against the dollar since late 2012. Economists expected the weaker currency would jumpstart demand for Japanese goods overseas, bolstering Japan's trade position. That has raised concerns about the current account falling permanently into deficit. Some economists fear a sustained current account deficit could force Japan to rely on foreign capital to finance its debts, potentially pushing government bond yields up as foreign investors demand a higher premium to hold Japanese debt. That could cause fiscal havoc as the government is forced to pay more interest on the public debt pile, worth more than twice the size of Japan's economy. The current account measures trade in goods, services, tourism and investment. It is calculated by determining the difference between Japan's income from foreign sources against payments on foreign obligations and excludes net capital investment.

Japan Says Economy Contracted 7.1 Percent in 2Q - Japan's economy shrank more sharply in the second quarter than first estimated and the latest indicators suggest only a modest bounce back since then. The world's third-largest economy contracted at an annualized rate of 7.1 percent in the April-June quarter, according to updated government figures Monday. The initial estimate released earlier this month said the economy contracted 6.8 percent. Business investment fell more than twice as much as first estimated. The economy's contraction was expected after Japan increased its sales tax from 5 percent to 8 percent on April 1. So far, data for the current July-September quarter suggest any rebound in growth is likely to be modest and slow in materializing. A government survey of "economy watchers" released Monday showed confidence in the economy's prospects deteriorated in August. Business activity surged early in the year, with the economy growing 6 percent in January-March, as consumers and businesses stepped up purchases to avoid paying more tax. Prime Minister Shinzo Abe has championed an aggressive stimulus program aimed at ending chronic deflation that has discouraged corporate investment and dragged on growth. A sustainable recovery will require strong corporate and private spending, since exports and public spending have so far done little to lift growth. Abe will be watching data from the current quarter as he decides later in the year whether to go ahead with a further 2 point increase in the sales tax to 10 percent in 2015.

Japan GDP: Economy Shrinks at Fastest Pace in More Than Five Years - —Japan's economy contracted in the second quarter at the fastest pace since 2009, dealing a blow to Prime Minister Shinzo Abe's efforts to re-energize the economy with pro-growth steps. Revised data released Monday showed that the country's gross domestic product contracted an annualized 7.1% in the April to June quarter from the previous three-month period as businesses as well as consumers retrenched after the government raised the sales tax. Preliminary figures showed a 6.8% decline.. While purchases of big-ticket items such as homes, cars and TVs soared in the run-up to the first sales tax rise in 17 years, they plummeted once the higher levy took effect on April 1. The revised data showed that second quarter consumption dropped 5.1% with business spending falling by the same percentage. Even with the negative impact of the higher sales tax making a sharp fall in the GDP almost a foregone conclusion, analysts still expressed concern."While the headline figure was in line with expectations, the details were rather discouraging," said Capital Economics, a London-based research firm, noting that capital spending in the quarter was revised down and that there was a jump in corporate inventories—a sign unsold goods are piling up on store shelves. Mr. Abe's pro-growth policies have boosted corporate profits and lifted Japanese stock prices, prompting policy makers to think that the economy would be strong enough to endure the sales tax increase. But Monday's data showed that the much hoped-for trickle-down of corporate profits to the household sector has yet to materialize in the form of consumer spending power.

Japan Q2 GDP Revised Down To -7.1%; Capex Weaker Than Expected - Japan's economic slump in Q2, the first contraction in two quarters, was revised down slightly to -1.8% (annualized -7.1%) from the initial reading of -1.7% (annualized -6.8%) as largely expected, with business investment coming in weaker than previously reported. The Q2 GDP drop was triggered by the pullback in consumption after the April sales tax hike. It was the largest contraction since January-March 2011, when GDP plunged 1.8%, or an annualized 6.9%, in the wake of the earthquake and Fukushima meltdown. Business investment was revised down to a 5.1% fall on quarter from a preliminary reading of -2.5%, compared with the MNI median economist forecast of -3.0%. Capex's contribution to Q2 GDP was revised down to -0.7 percentage points from the initial -0.4 point. Private consumption fell 5.1% on quarter in April-June, revised down slightly from a preliminary 5.0% slump. Its contribution to Q2 growth was -3.2 percentage point, instead of -3.1 point. The contribution of private inventories was revised up to +1.4 percentage points from +1.0 % point vs. the MNI median forecast of +1.1 points. It partly offset the downward revisions in capex and consumption but higher inventories means the tax hike dampened demand for durable goods. Public investment, which posted the second straight quarterly drop in Q2, was unrevised at -0.5% q/q.

OMGodzilla! Japanese Macro Data Revisions Even More Disastrous Than Expected - If the US equity market's reaction to the worst jobs data of 2014 is anything to go on; Japanese stocks should be a double overnight given the catastrophe that just printed. While the initial prints for the post-tax-hike period were bad enough (record worst levels in most cases), the revsions are even worse. Drum roll please: 1) Trade balance miss, worst in 4 months; 2) GDP -7.1% miss, revised down, worst since Q1 2009; 3) Business Spending/Capex -5.1% miss, revised down, worst since Q2 2009; and 4) Consumer Spending -5.3% miss, revised down, worst on record. But apart from that, as the Japanese leaders noted last week, "the recovery is heading in the right direction."

Bad News Piles up for Japan’s Economy -  Monday’s revelation that the Japanese economy more than previously reported in the three months through June is showing how a sales-tax hike in April is taking a greater toll than at first hoped. The government raised the tax to 8% from 5% on April 1 to help pare the nation’s large public debt. Prime Minister Shinzo Abe was hoping the economy would contract by a manageable amount in the second quarter after the sales tax increase and then rebound in the three months through end-September as consumers and business got over the shock of higher prices. The revised data for second-quarter gross domestic product, released Monday, detail how the sales tax had a sharper negative impact than earlier figures showed. The 7.1% revised contraction and the 6.8% initial reported don’t sound very different. But that masks a massive downward revision in capital expenditure to an annualized 18.8% contraction from 9.7% in the earlier figures. Inventories were also revised up. This paints a picture of a corporate sector that is ratcheting back on spending and building up stockpiles amid weak consumer demand after the sales tax hike. Consumers are reeling from higher prices and wage growth that hasn’t kept pace, a signal that companies are unsure whether “Abenomics” – last year’s dual monetary and fiscal stimulus – will deliver long-run growth.

Can Japan raise sales tax again as economy splutters?-  Revised gross domestic product figures for the April-June quarter, which were released Monday, are worrisome for Prime Minister Shinzo Abe, who faces a decision on another consumption tax hike in December. . The Japanese economy is in a bad way. Revised data showed that the nation's real GDP shrank at an annualized pace of 7.1% in the April-June quarter, compared with the initial estimate of a 6.8% decline, made in August. Corporate capital investment was revised downward, while inventory investment was revised upward. The Japanese government currently estimates the nation's real GDP will grow 1.2% in fiscal 2014, which started April 1, from the previous fiscal year. It will inevitably be forced to downgrade this estimate. Annualized real GDPs in the four quarters of fiscal 2013 averaged 528.9 trillion yen ($4.94 trillion). A growth rate of 1.2% means that real GDP will rise to 535.2 trillion yen in fiscal 2014. But annualized real GDP in the April-June quarter shrank to 525.3 trillion yen. That means the estimate for fiscal 2014 can only be realized if annualized real GDPs in the remaining three quarters of the fiscal year average 538.6 trillion yen.  GDP figures for the July-September quarter will be a key factor that the government of Prime Minister Abe will take into account when making a decision in December on whether to further raise the sales tax to 10% in October 2015, as currently planned. The tax was raised from 5% to 8% in April.

Japanese Now World’s Least Optimistic: Pew Survey - In a world plagued by the financial blues, the Japanese stand out for their particularly dour outlook, according to a new survey of global economic attitudes by the Pew Research Center. That underscores the challenge facing policy makers trying to pull the country of its long slump, a campaign that rests as much on psychology — on erasing the “deflationary mindset” and persuading people things are getting better — as on hard economic data. “Optimism about the economy over the next 12 months has nosedived in Japan, where just 15% foresee their economy improving, down from 40% who were hopeful a year ago,” the report says. That makes the Japanese the least optimistic of the 44 countries surveyed by Pew, a particularly noteworthy nugget in a document titled “Global Public Downbeat about Economy: Many Wary of the Future.” The Chinese bucked the trend, with 80% seeing a brighter year ahead. The U.S. was the most optimistic of the advanced economies, with 45% seeing improvement on the horizon.Just above Japan on the grumpy scale: only 17% of French see things improving, 18% of Polish, and 19% of Greeks.

Survey Shows Japan Inc. Optimistic Despite Sales Tax Punch -- When Japanese Prime Minister Shinzo Abe looks at the latest economic data to determine whether to raise the national sales tax again, he may scratch his head. While gross domestic product and monthly household spending figures point to economic turmoil, robust corporate profits and a tight job market suggest his policies are bearing fruit. Adding credence to the argument that Japan Inc. has moved past the sales tax increase that took effect in April, a quarterly survey released by the Ministry of Finance showed that domestic companies say they are sticking to their plan to boost capex.Firms plan to increase spending by 5.7% in the fiscal year that started in April, the survey showed. In the previous June survey, companies predicted a 4.5% increase for the year.The survey came out a day after data showed that machinery orders–a key gauge of business spending–increased for the second month in a row in July.Having grown 2.7% in the previous fiscal year, capex tumbled 5.1% in April to June, as firms adjusted to a sharp pullback in household spending following the April 1 sales tax rise–the first in 17 years. The MOF survey also showed increasing optimism among the roughly 13,000 firms surveyed. The survey’s confidence index, which is calculated by subtracting the percentage of firms reporting deteriorating business conditions from those observing improvements, rose to +11.1 from the previous quarter’s -14.6.

IMF’s Lagarde To Japan On Women: Good Work, But Not Enough - One of the world’s most influential women, International Monetary Fund Managing Director Christine Lagarde, applauded Japan’s effort to get more women working, but said the country still has a ways to go. “I know that some efforts are underway here, but I believe there is scope to go further,” Ms. Lagarde said Friday at the World Assembly for Women, which the Japanese government calls the biggest conference on women’s issues it has ever held.  Mrs. Lagarde said efforts to improve the situation for women should include immigration, a subject even more sticky in Japan than rallying women to the workplace. Getting more women to work will require workers to care for children and the elderly, a role skilled immigrants could fill, Ms. Lagarde said.“We all know Japan is renowned across the world for the kindness and hospitality of its people,” she said. “If it extends the welcoming spirit by opening its doors and its borders in an appropriate way, then everybody wins.”Like many private economists, Ms. Lagarde also stressed that the contribution of more working women to actual GDP won’t be enough to achieve the long-term growth that Prime Minister Shinzo Abe wants. Measures to empower women could add 0.25 percentage point to growth each year, “if implemented aggressively,” but that “falls short of the 1% boost to growth that Japan needs for Abenomics to succeed with flying colors,” she noted.

Big-picture reforms in India may take some time, says Rajan -- India’s new government may take some time to unveil “grand, big-picture reforms” as it is currently focusing on implementation of stalled projects worth $50-70 billion that will pay dividends in the short run by helping on the inflation and income fronts, Reserve Bank of India (RBI) Governor Raghuram Rajan has said during a speech on India and the global economy at an event organised in Chicago on Friday by the Chicago Council on Global Affairs. “In India, if you are looking for grand, big-picture reforms it may take some time coming... but in terms of decentralising, in terms of doing the small stuff which adds up to the big stuff, I think that is already happening,” Rajan said. He said people had been expecting “major changes very quickly” from the new government and harboured the belief that it will be moving fast on a “number of dimensions that the people want them to move on”. Rajan said the new Modi government had “stuck to the path the old government laid out” to show that there was continuity and this had benefited India in the eyes of the international investors. “I think the government has essentially focused on implementation because that is really the need of the hour.

Asia Less Vulnerable to Taper Tantrum, But Risks Remain - As American policymakers intensify their debate on when to raise interest rates, their Asian counterparts nervously wonder whether the next round of Federal Reserve tightening will trigger more market turmoil across the Pacific, like last year.  Calm down, says a new report from Goldman Sachs (Asia) L.L.C.  Countries that saw a rout in currencies and stocks last summer have since moved to insulate themselves from further shocks — though Indonesia, and, to a lesser extent, India, remain susceptible. “Solid current account surpluses will help temper vulnerabilities which could emerge if foreign investors choose to sell Asian assets,”  Overseas capital has flowed back into emerging markets, with foreigners holding 37% of the bond market in Indonesia and 48% in Malaysia, and about 20% of the equity markets in the Philippines, Thailand, and India, the Goldman Sachs report says.Shifts in Fed policy can whipsaw emerging markets highly dependent on foreign capital. When investors see rates, and returns, rising in the U.S., they tend to shift their money into American assets, drawing down holdings in riskier developing economies. That is particularly problematic for countries with high current account deficits — meaning economies highly dependent on borrowing from abroad, especially cheap funds made possible by the Fed’s now-evaporating massive money-printing operation.When Fed officials started talking about tapering last summer, Indonesia and India, became part of the “fragile five” emerging markets hit hardest, along with Brazil, South Africa and Turkey. Southeast Asia, including Thailand and Malaysia, also suffered. Things have changed over the past year. “Current account positions across the region have broadly improved,” the Goldman Sachs report says. It notes that India’s deficit has fallen from more than 6% of gross domestic product to 1.4%. Thailand has moved from deficit to surplus, while Malaysia’s surplus has gone from shrinking to growing.

Counting Illicit Outflows from Brazil, 1960-2012 - A Reuters news article points us to a new study from Global Financial Integrity (GFI) on the level of illicit outflows from Brazil. GFI has produced reports for several other developing countries, but Brazil is of particular importance as a Latin American bellwether. Given the uncertainties surrounding developing countries in this region, questionable capital flows are of some interest:The Brazilian economy lost at least US$401.6 billion in illicit financial outflows from 1960 to 2012. These outflows represent the proceeds of crime, corruption, and tax evasion, and have serious negative consequences for Brazil. Outflows were found to drain resources from the Brazilian economy, to drive the underground economy, and to exacerbate inequality. Furthermore, the report found that illicit outflows are growing.  Annual average illicit outflows increased from US$310 million in the 1960s to US$14.7 billion in the first decade of the twenty first century before jumping to US$33.7 billion over the last three years of the study, 2010-2012.  On average, Brazil’s illicit outflows are equivalent to 1.5% of the country’s official GDP. What I find curious with this and other GFI studies is that most outflows are attributed to trade misinvoicing. That is, the value of imports or exports is misreported by under- or over-invoicing their value. Through this channel money flows overseas since it is a way to work around foreign exchange and capital controls:  Trade misinvoicing is the major conduit of illicit financial flows from Brazil.  The report reveals that the vast majority of Brazil’s illicit outflows—92.7%, or US$372.3 billion of the US$401.6 billion in total outflows—were channeled through the misinvoicing of trade transactions. The remaining US$29.4 billion in the illicit outflows detected by GFI occurred via hot money outflows, such as unrecorded wire transfers.

Restructuring Debt Restructuring by Barry Eichengreen - Sometimes the worst intentions yield the best results. So it is, unexpectedly, with Argentine debt. The story begins with Argentina’s financial crisis in 2001-2002. There is no question that the crisis left the country unable to service its debts. But Argentina made no friends by waiting four years to negotiate with its creditors and then offering settlement terms that were stingy by the standards of previous debt restructurings. Still, the terms were acceptable to the vast majority of the country’s creditors, who exchanged their old claims for new ones worth 30 cents on the dollar. All, that is, except for a few holdouts who bought up the remaining bonds on the cheap and went to court, specifically to the US District Court of the Southern District of New York, asking to be paid in full. This quixotic strategy met with unexpected success when Federal Judge Thomas Griesa ruled in the holdouts’ favor. Griesa idiosyncratically reinterpreted the pari passu, or equal treatment, clause in the debt contracts to mean that “vulture” funds refusing to participate in the earlier debt exchange should receive not 30 but 100 cents on the dollar. Griesa’s ruling threatened to hold the Bank of New York Mellon, the Argentine government’s agent, in contempt if it paid other bondholders without also paying the vultures. Effectively barred from servicing its debt on the renegotiated terms, Argentina had little choice but to default again.

Argentina right to seek global debt restructuring: Stiglitz  (Reuters) - Argentina is right to fight the U.S. court ruling that pushed it into default in July, Nobel prize-winning economist Joseph Stiglitz said on Tuesday as the United Nations agreed to move ahead on a multilateral plan for handling bond restructurings. Its economy shrinking and currency hitting record lows, Argentina is in a punishing legal feud with hedge funds that rejected the country's 2005 and 2010 debt restructurings. The case has implications far beyond the South American country. Court rulings in favor of the funds could wreck the chances of other countries that need to revamp defaulted bonds unless an international framework is adopted, Stiglitz said in a telephone interview. true Prompted by Argentina and its ally Bolivia, the U.N. General Assembly voted 124 to 11 to negotiate and adopt a multilateral legal framework for sovereign restructurings. Buenos Aires says this is needed to keep judges from overstepping their bounds, as it says U.S. District Judge Thomas Griesa did when he ruled in favor of the funds. Stiglitz agreed. "The current situation is unsustainable and all Argentina is saying is we need an international convention for sovereign debt restructuring to resolve these issues," he said.

De-Dollarization Continues: China-Argentina Agree Currency Swap, Will Trade In Yuan - It appears there is another nation on planet Earth that is becoming isolated. One by one, Russia and China appear to be finding allies willing to 'de-dollarize'; and the latest to join this trend is serial-defaulter Argentina. As Reuters reports, China and Argentina's central banks have agreed a multi-billion dollar currency swap operation "to bolster Argentina's foreign reserves" or "pay for Chinese imports with Yuan," as Argentina's USD reserves dwindle. In addition, Argentina claims China supports the nation's plans in the defaulted bondholder dispute.

Canadian Household-Debt Ratio Nears Record on Mortgages - Canada’s ratio of household debt to disposable income approached a record high between April and June, underscoring the central bank’s concern about imbalances in consumer finances. Credit-market debt such as mortgages rose to 163.6 percent of disposable income, from a revised 163.1 percent in the first quarter, Statistics Canada said today in Ottawa. The measure reached a record 164.1 percent in the third quarter of last year, and has averaged 119.7 percent since 1990. Bank of Canada Governor Stephen Poloz last week said that “risks associated with household imbalances have not diminished” after saying in July they were “evolving in a constructive way.” Poloz and Finance Minister Joe Oliver have focused their concern on a condominium boom in Toronto and Vancouver, along with rising home prices and higher consumer debt loads.

World Bank warns of global jobs crisis - The world is facing a global jobs crisis that is hurting the chances of reigniting economic growth, and there is no magic bullet to solve the problem, the World Bank warned on Tuesday. In a study released at a G20 Labour and Employment Ministerial Meeting in Australia, the Bank said an extra 600 million jobs needed to be created worldwide by 2030 just to cope with the expanding population. "There's little doubt there is a global jobs crisis," said the World Bank's senior director for jobs, Nigel Twose. "As this report makes clear, there is a shortage of jobs — and quality jobs. "And equally disturbingly, we're also seeing wage and income inequality widening within many G20 countries, although progress has been made in a few emerging economies, like Brazil and South Africa." He said that overall emerging market economies had done better than advanced G20 countries in job creation, driven primarily by countries like China and Brazil, but the outlook was bleak. "Current projections are dim. Challenging times loom large," Twose said.

Low Wage Growth, High Long-Term Unemployment Recognized as International Problem -- Yves Smith -- When the OECD, World Bank, and the International Labor Organization agree on something, it’s a sign something serious is afoot. In this case, the three groups have issued a joint paper, G20 labour markets: outlook, key challenges and policy responses, which despite the anodyne title, gives a grim account of the prospects for workers in major economies.  The general outline of findings won’t come as much of a surprise to the cognoscenti. What is novel is having such authoritative bodies state in such an unvarnished manner how bad things are. For instance: The deep global financial and economic crisis and slow recovery in many G20 countries has resulted not only in higher unemployment but also in slow and fragile wage gains for G20 workers… The stagnation in wages cannot be explained solely by weak economic growth. This trend also reflects a widening gap between growth in wages and labour productivity. In the advanced G20 economies, the gap began before the crisis and has not narrowed since, apart from a short reversal during the depth of the crisis in 2008. The gap has grown wider since 2010, as wages in many advanced economies continue to stagnate while productivity has recovered in the group as a whole.  Real wage gains have been tepid in advanced economies:

The OECD’s latest report is burdened by economic myths -  The Organization for Economic Cooperation and Development (OECD) recently released a report that seeks to deal with “underlying global trends relating to growth, trade, inequality and environmental pressures” over the next half-century. Titled “Policy Challenges for the Next 50 Years,” it is ambitious in its scope. But it is nevertheless weighed down with the conventional wisdom of yesteryear. It recognizes the new problems that are facing many economies around the world but insists on viewing them through old, largely discredited theories. The report makes two faulty assumptions. The first is the idea that national economies, left to themselves for long enough, will automatically rebalance and generate full employment. The second is that current government debt levels are somehow causing economic problems and are in some sense unsustainable. These myths blind the OECD and other international economic organizations to the real solutions needed to improve the global economic outlook. Although the report raises the problem of unemployment, it does not appear to be a key focus. The OECD assumes that as long as central banks maintain low interest rates, unemployment should disappear in the coming years even if governments engage in austerity. The evidence simply does not bear this out. In Europe, for example, interest rates have been extremely low since mid-2009, and yet according to Eurostat figures, unemployment rates rose from 9.5 percent of the workforce in 2009 to 12 percent in 2013. Low interests rates, when combined with austerity, have clearly failed to improve the employment situation. It is surprising that the OECD report misses this. The report repeatedly warns that current debt levels are unsustainable. It states that governments must have a debt of no more than 60 percent of GDP but provides no reason they should target this particular number or why larger debts are unsustainable.

Michael Hudson: Losing Credibility – The IMF’s New Cold War Loan to Ukraine - In April 2014, fresh from riots against the kleptocrats in Maidan Square and the February 22 coup, and less than a month before the May 2 massacre in Odessa, the IMF approved a $17 billion loan program to Ukraine’s junta. Normal IMF practice is to lend only up to twice a country’s quota in one year. This was eight times as high. Four months later, on August 29, just as Kiev began losing its attempt at ethnic cleansing against the eastern Donbas region, the IMF signed off on the first loan ever to a side engaged in a civil war, not to mention being rife with insider capital flight and a collapsing balance of payments. Based on fictitiously trouble-free projections of the ability to pay, the loan supported Ukraine’s currency, the hryvnia, long enough to enable the oligarchs’ banks to move the money quickly into Western hard-currency accounts before the hryvnia plunged further and was worth even fewer euros and dollars. This loan demonstrates the degree to which the IMF is an arm of U.S. Cold War politics. The loan terms imposed the usual budget austerity, as if this would stabilize the war-torn country’s finances. The financings obviously were devoted mainly to rebuilding the army. The war-torn East can expect to receive nothing even nothing even though its basic infrastructure has been destroyed for power generation water, and hospitals. Civilian housing areas that bore the brunt of the attack are also unlikely to profit from the IMF’s uncharacteristic generosity.

New EU Sanctions to Stop Fundraising by 3 Russian Oil Giants - New European Union sanctions on Russia will expand the number of Russian companies unable to raise money in the bloc's capital markets to include three state-owned oil companies, according to documents seen by The Wall Street Journal. The documents show the EU seeking to hit Russian oil companies, but leaving unscathed those involved in gas production and export, which are critical to many European countries' energy supplies.  Under a modest expansion of sanctions introduced in late July, the three oil companies — Gazpromneft, the oil-production and refining subsidiary of OAO Gazprom, oil transportation company Transneft, and oil giant Rosneft — will be forbidden from raising funds of longer than 30 days' maturity. Three companies involved in military production — Oboronprom, United Aircraft Corp., and Uralvagonzavod — will be barred from future EU fundraising. The sanctions will also bar new contracts for services needed for oil exploration and production in deep water, the Arctic or shale-oil projects.

Europe Goes "All In": Will Sanction Rosneft, Gazprom Neft And Transneft - Until this moment, the main reason why everyone mostly dismissed Europe's sanctions against Russia is that despite all its pompous rhetoric, Europe consistently refused to hit Russia where it would hurt: its energy titans Gazprom, Rosneft And Transfneft. The reason is simple: by imposing sanctions on these core energy exporters, Europe would directly threaten the stability of its own energy imports (Russia accounts for up to 30% of German gas imports), and as winter approaches with every passing day, playing with the energy status quo would seem like economic suicide. This all appears to have changed last Friday, when as the FT reports from a leaked copy, Europe's latest sanctions round will boldly go where Europe has never dared to go before, and impose sanctions on the big three: Rosneft, Gazprom Neft and Transneft.

Russia hints at flight ban in response to new sanctions -  (Reuters) - Russia signalled on Monday it might ban Western airlines from flying over its territory as part of an "asymmetrical" response to new European Union sanctions over the Ukraine crisis. Blaming the West for damaging the Russian economy by triggering "stupid" sanctions, Prime Minister Dmitry Medvedev said Moscow would press on with measures to reduce reliance on imports, starting with increasing output of domestic aircraft. Medvedev suggested Russia should have hit back harder over the action by the United States and European Union to punish Moscow for its role in Ukraine, saying it had been too patient in the worst confrontation with the West since the Cold War. "If there are sanctions related to the energy sector, or further restrictions on Russia's financial sector, we will have to respond asymmetrically," he told Russian daily Vedomosti, adding the airlines of "friendly countries" were allowed to fly over Russia. "If Western carriers have to bypass our airspace, this could drive many struggling airlines into bankruptcy. This is not the way to go. We just hope our partners realise this at some point," he said in the interview published on Monday.

Russia aims to choke off gas re-exports to Ukraine - Moscow is seeking to prevent its European customers re-exporting Russian gas to Ukraine, threatening to choke off a crucial lifeline for Kiev and deepen the energy crunch it faces this winter. The threats come as EU ambassadors finally approved new sanctions against Russia on Monday night that are expected to target the country’s largest state-owned energy companies. But following concerns raised by new Finnish prime minister Alex Stubb, the sanctions will not become official for a “few days” giving Brussels time to assess whether last week’s ceasefire can take hold. “This will leave time for an assessment of the implementation of the ceasefire agreement and the peace plan,” Herman Van Rompuy, president of the European Council, said in a statement. “Depending on the situation on the ground, the EU stands ready to review the agreed sanctions in whole or in part.” The EU sanctions are against three state-controlled Russian energy companies – Rosneft, Gazpromneft and Transneft – that will sharply limit their access to western financial markets. Russia severed gas exports to Ukraine in June in a dispute over prices and the country faces severe energy shortages this winter if the EU cannot broker a supply deal between Moscow and Kiev. Talks are due to resume this month. In an effort to offset lost volumes from Russia, Ukraine has sought to secure more gas from the EU, principally through “reverse flows” – re-exports of Russian gas via countries such as Poland, Hungary and Slovakia. But Gazprom, Russia’s state gas company, has long complained about the re-exports, with Alexei Miller, its chief executive, denouncing them as a “semi-fraudulent mechanism”.

Here Is Why Europe Just Launched The "Nuclear Option" Against Russia - Europe's leaders, we assume under pressure from Washington, appear to be making a big weather-related bet with their taxpayers' lives this winter.  As they unleash funding sanctions on Russia's big energy producers, Europe has pumped a record volume of natural gas into underground inventories in an effort to 'outlast' Russia and mitigate any Napoleonic "Winter War" scenario. The plan appears to be to starve Russian energy firms of cashflow - as flows to Europe are already plunging - and remove their funding ability, potentially forcing severe hardship on Russia's key economic drivers. There appears to be 3 potential problems with this plan...

  • 1) What if the weather is considerably colder than normal this winter? (i.e. they need more supply)
  • 2) Russia has already committed to supporting the sanctioned firms (and we would hardly be shocked if China chipped in)
  • 3) What happens in Spring? German industrials need energy?

Russia faces new U.S., EU sanctions over Ukraine crisis (Reuters) - European Union governments agreed on Thursday to begin their new sanctions against Russia over the Ukraine crisis on Friday but could lift them next month if Moscow abides by a fragile truce, while the United States prepared its own fresh sanctions. The steps are the latest by the United States and the EU following Russia's annexation of Crimea in March and what the West sees as an effort since then to further destabilize Ukraine by backing pro-Russian separatists with troops and arms. President Barack Obama said he will provide details on the new U.S. sanctions on Friday. The United States plans to sanction Sberbank, Russia's largest bank, and to further limit other Russian banks' access to U.S. capital, sources familiar with the matter said on Thursday. true The 28 governments of EU member states last week agreed on the new sanctions against Russia but spent several days wrangling over their announcement and implementation. Russia's foreign ministry said the approval of the new EU penalties showed the European Union had "made its choice against" the current peace road map aimed at ending the worst confrontation between Moscow and the West since the Cold War.

West pushes crippling sanctions on Russia's oil industry despite Ukraine ceasefire -  Europe and the US are to press ahead with fresh economic sanctions against Russia despite the ceasefire in eastern Ukraine, aiming to choke off credit and technology vitally needed to arrest the decline of Russia’s oil industry. The EU is to ban loans to five state-owned banks and three energy companies from Saturday, targeting new oil ventures the Arctic and the Siberia shale basin rather than gas operations. US President Barack Obama said his country will “deepen and broaden” its own array of measures. These are aimed directly at the Russian oil industry, threatening to paralyse Exxon’s $3.2bn joint venture in the Arctic with Rosneft. The sanctions may force BP to shelve its plans for shale development with Rosneft in the Volga Urals. The rouble fell to a record low of 37.53 against the dollar. The MICEX index of stocks dipped 1.3pc yet it remains far above levels seen earlier this year, suggesting investors are starting to treat each wave of sanctions as political theatre. “This has all taken on a ritual flavour,” . “EU bureaucrats have taken so long to come up with their list and push this through that the whole dispute has already moved on.”

Gazprom, Lukoil Hit in New Round of Sanctions - The US dramatically expanded its sanctions against Russia on Friday by adding Gazprom, Europe’s leading energy provider, to the list of targeted companies, as it sought to ratchet up pressure on Moscow to step back from the war in Ukraine.  The latest measures targeting energy, financial services and defence industries also included Lukoil, the privately owned oil group, and Sberbank, Russia’s largest bank. In addition to blocking most major state-owned groups from western capital markets, the US has also tightened restrictions on some of Russia’s largest energy projects, a key engine of its future economic growth. One in particular – ExxonMobil’s high-profile exploration partnership with the state-controlled Russian oil group Rosneft in the Russian arctic – is looking increasingly under threat. The two companies began drilling in the Kara Sea last month, but industry analysts question whether their joint venture can survive under the intensifying sanctions regime. There was also surprise that the US had decided to sanction Lukoil, the first private Russian company to be penalised in this way. The oil producer is not tied to President Putin and has played no role in the Ukraine conflict.

Russia retaliates by threatening caps to car and clothing imports -- Russia has threatened to put a cap on imports of automobiles and clothing from the west as it retaliates against incoming new sanctions. The warning from the Kremlin came after leaders from the European Union broke a week long deadlock to agree to block the country’s largest state owned oil companies from accessing capital markets in Europe. The agreement, which also includes barring European energy services from joining oil exploration projects in Russia, was reached after NATO revealed that Russian troops moved into Ukraine’s eastern borders during August. A ceasefire signed between the government of Ukrainian President Petro Poroshenko and Russia’s Vladimir Putin had initially made some EU members hesitant in pushing through with additional sanctions. As a result, measures which were supposed to take effect on Monday were put on hold as countries assessed the reliability and effectiveness of the ceasefire. European Council President Herman Van Rompuy’s conference call with leaders European G7 leaders convinced the organization to finalize the measures on Thursday. Participants of the meeting included Chancellor Angela Merkel from Germany, President Francois Hollande from France, Prime Minister David Cameron from the UK, and Prime Minister Matteo Renzi from Italy. Following the resolution, the US announced that it will follow the stance of the EU and impose their own sanctions on the country’s energy, financial, and defense sectors.

Poland Cuts Off Gas Supplies To Ukraine After 'Warning' From Russia: Poland has suspended deliveries of gas to Eastern neighbour Ukraine following a “warning signal” reduction of gas deliveries into Europe from Russia, cutting supplies by up to 45 percent over the past couple of days. The squeeze on gas, on which Europe depends for electricity and heating, has come against the backdrop of German Chancellor Angela Merkel calling for tough new sanctions against Russia for its perceived role in the Ukraine crisis, reports The Times. Poland reported reductions by 20 percent on Monday, and then another 24 percent on Tuesday. Slovakia had its deliveries reduced by 10 percent, and Germany has also seen an unspecified reduction. Concerns over European reserves of gas, which will be absolutely crucial in the coming winter months means Poland have been forced to keep the little gas they are now receiving from Russia instead of sending surplus to Ukraine. Russian energy giant Gazprom stopped the supply of gas to Ukraine after they stopped paying their bills in April this year, at which point they owed Russia $4.5 billion for gas received. This prompted EU nations Germany, Poland and Slovakia to enhance ‘return flows’ in the gas network. This change in piping infrastructure allowed the redirection of their own deliveries of Russian gas back to the Ukraine, who before the war got over half its gas from the Russians.

Poland Says Russian Gas Deliveries Tumble By 45%; Europe To Launch Sanctions On Friday, Russia Will Retaliate -- Yesterday, when Gazprom was supposedly "troubleshooting its systems", we reported that in what was the first salvo of Europe's latest cold (quite literally, with winter just around the corner) war, Poland complained that up to 25% of its usual gas deliveries from Russia had been cut. Russia indirectly hinted that this was also a result of Ukraine using "reverse flow" to meet its demands, with Europe allowing Kiev to syphon off whatever gas it needs without paying Gazprome for it. It also led Poland to promptly admit it would halt reverse flow to the civil-war ridden country. Fast forward to today when Polish financial website Biznes reports that things are going from bad to worse in Russia's energy retaliation war, after Poland claimed a 45% shortfall in Russian natgas imports as of Wednesday.

Poland's Turn to Experience Russian Gas Pains - Energy geopolitics between Russia and its European "customers" are fascinating to watch. On one hand, Russia has no marketing concept whatsoever about "fulfilling the contract" and other niceties in dealing with Western and Central Europeans it treats with utter contempt. Take that, NATO members! On the other hand, those Europeans are not exactly spoiled for choice when it comes to other sources of energy, so they must grin and bear Russia using energy as a weapon. Those Germans couldn't have picked a worse time to discontinue nuclear power, for instance.  Today's case in point is Poland. With 60% of its natural gas supplies coming from Russia, its energy profile is no different from many other dependent European "customers." A few days ago, it declared wholehearted support for beefing up NATO forces in Eastern Europe in the wake of the Ukraine crisis: Speaking to journalists at the end of the first day of the NATO summit in Newport, Wales, Bronislaw Komorowski told journalists that alliance leaders will announce on Friday plans to beef up defences in eastern Europe following the crisis in Ukraine. Though conceding that there will be no permanent NATO deployment in the region – as Poland and the Baltic states had been pushing for – he welcomed the construction of airbases and fuel and ammunition depots which would be used by a rapid reaction force, of around 4,000 troops, which could use the facilities at a moments notice.Russia being the land of hardball, the Poles had it coming: all of a sudden, gas supplies from Russia are experiencing disruption. Russia claims technical difficulties, but most would suspect otherwise given the timing. Also consider that Poland has been re-exporting gas to Ukraine to make up for that lost through Russian export bans and you can put things together for yourselves. Just in time for the coming winter; fancy that:

Gazprom Says Kiev Should Blame Warsaw For Gas Supply Cut -- No one disputes that the amount of Russian gas being piped through Ukraine has been cut by at least 20 percent. But who’s responsible?  Poland said Sept. 10 that the amount of gas coming from the Kremlin-run gas monopoly Gazprom was down by at least one-fifth, feeding a growing suspicion in much of Europe that Moscow is using energy as leverage in its continuing dispute with the West over its actions in Ukraine.  Poland’s state-controlled gas company PGNiG says gas deliveries from Gazprom through Ukraine and neighboring Belarus were down by 20 percent on Sept. 8 and by 24 percent on Sept. 9. It says it’s investigating the shortfall.  Meanwhile, Ukrtranzgaz, Ukraine’s pipeline monopoly, said Gazprom was reducing shipments to Poland to prevent “reverse flows” of gas, where Warsaw diverts 4 million cubic meters of gas daily headed for Western Europe southward to serve Ukrainian homes and businesses.  Uktransgaz CEO Igor Prokopiv said Russia is trying to “derail” this reverse-flow agreement. Ukraine is getting no gas directly from Russia in a dispute over outstanding debt for previous gas deliveries. Gazprom says its flow of gas hasn’t changed and that if there is a reduction, it’s Poland’s fault, not Russia’s. “Reports by news agencies on the reduction of volumes of gas supplies by Gazprom to Poland’s PGNiG are incorrect,” Gazprom spokesman Sergey Kupriyanov said, according to RT, quoting Itar-Tass. “The same volume of gas as in previous days – 23 million cubic meters a day – is being supplied to Poland now.”

Putin Oil Deals With Exxon, Shell Imperiled by Sanctions - The U.S. and European Union are poised to halt billions of dollars in oil exploration in Russia by the world’s largest energy companies in sanctions that would cut deeper than previously disclosed. The new sanctions over Ukraine would prohibit U.S. and European cooperation in searching Russia’s Arctic, deep seas or shale formations for crude, according to three U.S. officials who spoke on condition of anonymity because the measures haven’t been made public. If implemented, they would affect companies from Dallas to London, including Exxon Mobil Corp. and BP Plc. EU ambassadors met today and will resume deliberations tomorrow in Brussels on whether to trigger added sanctions or wait longer to see if a cease-fire holds between Ukraine and pro-Russian separatists and if Russia backs moves toward a longer-term agreement. Once the EU implemented the new ban on sharing energy technology and services, the U.S. would follow suit with a similar package, including barring the export of U.S. gear and expertise for the specialized exploration that the Russians are unequipped to pursue on their own, the U.S. officials said.

What impact could this round of Russian retaliatory sanctions have on Europe? - In our continuing effort to bring increased transparency to the murky issue of sanctions we’ve compiled some initial thoughts on the likely Russian retaliatory response to the EU’s latest sanctions – published in full here and which we already analysed in detail here. There are a few key measures which Russia is said to be considering:

  1. Banning or limiting the import of cars (and possibly all automobiles) from Europe.
  2. Banning or limiting the import of certain manufactured goods.
  3. Banning or limiting the import of certain types of clothing manufactured in Europe.
  4. Restricting the access of European flights to Russia airspace, probably over Siberia.

With the previous round of Russian retaliation we saw uproar from the industries involved and some questionable claims for compensation – a process which now looks to have been halted. The response also seemed to weigh on the minds of certain countries, such as Finland and Czech Republic, which in turn played a role in delaying the latest round of sanctions. With that in mind its worth delving into what impact these mooted measures could have.

Outrage as EU blocks democratic challenge to US trade deal: There is something rotten in the state of Europe when an unelected, unaccountable EU body can glibly inform millions of us that we no longer have the right to question its most dangerous and unpopular policies. This is exactly what has just happened, as the European Commission has announced that it will not allow a European Citizens' Initiative (ECI) to challenge the secret trade talks it is holding with the US government, supposedly on our behalf. The ruling is a slap in the face for the 230 civil society organisations from across Europe that have lined up behind the initiative, and the millions of European citizens they represent. The ECI is the only vehicle available to us to challenge the shadowy bureaucrats of the European Commission. Now even this seems to be too much scrutiny for them.  The negotiations on the Transatlantic Trade and Investment Partnership (TTIP) have become one of the hottest political topics across Europe. TTIP is effectively a new bill of rights for multinational corporations, granting them unprecedented powers and undermining vital labour, environmental and food safety standards in the name of 'free' trade. TTIP is also a direct threat to our democracy, as the European Commission seeks to allow companies to challenge future policies introduced anywhere in Europe that could jeopardise their bottom line. The ECI, by contrast, was a fully democratic response. And the Commission has blocked it.

US bans Europol from releasing its own documents to European officials — The United States has instructed Europol, the European Union’s police agency, to withhold its own annual internal data-protection review from EU lawmakers because the report was written without the US Treasury Department’s permission. Europol drafted the data-protection report “without prior written authorisation from the information owner (in this case the Treasury Department),” according to the US, violating “security protocols” that could “undermine the relationship of trust needed to share sensitive information between enforcement agencies.” The report, drafted by Europol’s Joint Supervisory Body, outlines how data concerning EU citizens and residents is transferred to the US, according to the EUobserver. The document is mainly known to monitor implementation of the EU-US Terrorist Finance Tracking Program, or TFTP. Basically, the US Treasury Department is quite territorial about how the TFTP is adhering to European data protection compliance.

The IMF and Sovereign Debt - The continuing inability of the Eurozone economies to break out of their current impasse means that any optimistic projections of declining debt to GDP ratios are unlikely to be achieved. As long as European governments continue to raise funds in the financial markets on favorable terms, the current situation remains sustainable.  But the IMF is thinking ahead to the day when there is a change in the financial climate, and is proposing a change in the rules governing its ability to lend to governments that may need its assistance if they are to continue repaying their debt. The Fund’s rethinking has been prompted by its concerns over its lending to Greece. The IMF, as part of a “troika” with the European Commission and the European Central Bank, participated in a loan arrangement in May 2010. The IMF’s contribution consisted of a $40 billion Stand-By Arrangement. The Fund had a problem, however: this amount far exceeded the normal amount of credit that the IMF normally provided to its members. Exceptions were allowed, but there were criteria to govern when “exceptional access” was permitted. One of these was a high probability that a government’s public debt was sustainable in the medium term. It was difficult to claim that was true for Greece in 2010, so an alternative criterion was established: exceptional access could also be provided if there was a “high risk of international systemic spillover effects.” This was used as grounds to justify the lending arrangement to Greece.

JPMorgan Stunner: "The Current Episode Of Excess Liquidity Is The Most Extreme Ever" -- "The ECB's quantitative expansion is hitting the financial system at a time when broad liquidity is also very high. The rise in excess liquidity, i.e. the residual in the model of Figure 3, is supportive of all assets outside cash, i.e. bonds, equities and real estate. The current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of its magnitude and the ECB actions have the potential to make it even more extreme, in our view.... These liquidity boosts are not without risks. We note that they risk creating asset bubbles which when they burst can destroy wealth leading to adverse economic outcomes. Asset yields are mean reverting over long periods of time and thus historically low levels of yields in bonds, equities and real estate are unlikely to be sustained forever."-

Yanis Varoufakis: Can Europe Escape Its Crisis Without Turning Into an Iron Cage? - This article is a sequel to an earlier piece entitled ‘Why is Europe not coming together in response to the Euro Crisis?’ and is best read in conjunction with this article (co-authored with James K. Galbraith) that compares our Modest Proposal for Resolving the Euro Crisis with alternative proposals for defeating the Euro Crisis. In what follows below , I argue that, as things stand, ‘political union’, ‘more Europe’, calls for a ‘Eurozone economic government’, or for a ‘Euro Chamber’ within the European Parliament, are not preludes to a democratic federal Europe. Instead, they are steps towards a postmodern European feudalism that is, in fact, the very antithesis of a democratic federation. The article concludes with an analysis of why our Modest Proposal offers Europe a rare chance to prevent the creation of a European iron cage in which what is left of our democracies must suffocate. Unlike all moves that are currently heralded as ‘baby-steps’ towards federalism, the Modest Proposal’s emphasis on ‘Europeanised Decentralisation’ is perhaps Europe’s best shot at a future consistent with the basic principles of a constitutional democracy.

ECB Alone Can’t Solve Eurozone’s Problems, Nowotny Says -  The European Central Bank‘s decision Thursday to cut interest rates and introduce two new programs cannot by itself solve the economic challenges in the eurozone, a member of the ECBs Governing Council said late Monday. The ECB’s decision has led to a weakening of the euro, “which is positive,” and this will help head off the danger of deflation in the eurozone, Ewald Nowotny said in a speech at the University of Zurich. A weaker euro makes exports from the eurozone cheaper and helps exporters become more competitive in global markets. “However, ECB monetary policy alone can’t solve all the eurozone’s problems, and fiscal policies (by individual countries) are also important,” said Mr. Nowotny, who is also governor of Austria’s central bank. The ECB on Thursday cut its main refinancing rate to an all-time low of 0.05%, from 0.15%, and its deposit rate to -0.2%, from -0.1%. The ECB also said it would purchase private-sector assets. The Frankfurt-based central bank hopes that by purchasing asset-back securities and covered bonds, it can pump money into the economy and take loans off banks’ balance sheets. That, in turn, could induce banks to step up lending to the private sector. Asked whether the ECB would consider a quantitative easing program through the purchase of government bonds, Mr. Nowotny said the central bank has to concentrate on the programs already in place.

Economists point to emerging ‘Draghinomics’ - (video) Eurozone officials attending the Ambrosetti forum over the weekend welcomed the European Central Bank’s moves to cut interest rates and signal forthcoming purchases of asset-backed securities, with some private-sector economists suggesting this could herald a new policy mix. Even though the ECB’s long-term forecasts of moderate recovery remain unchanged, the bank’s board members have grown increasingly worried about the recent downward pressure on prices and the softening of consumer confidence. Its latest moves are designed to stave off deflation and jolt the sluggish eurozone economy back to life. Nouriel Roubini, professor of economics at New York University, said ECB president Mario Draghi’s remarks at the Jackson Hole meeting of central bankers signalled an important evolution of thinking. Mr Draghi said at the symposium that monetary policy should be supported by increased spending by countries with strong fiscal positions and structural reforms in economies such as France and Italy. Mr Roubini labelled the emerging policy mix “Draghinomics” because of its similarity to the three arrows of Abenomics in Japan. “Abenomics has three arrows: monetary and fiscal easing and structural reforms. The eurozone is in near deflation and the recovery is not happening. Monetary and fiscal easing cannot resolve the problem on their own. The ECB has recognised that structural and supply-side reforms are fundamental,” Mr Roubini told the Financial Times. Jyrki Katainen, the European Commission’s vice-president for economic and monetary affairs, said that member states needed to stick to the fiscal discipline that had helped stabilise the currency bloc. But in an interview with the Financial Times, he suggested there was some “fiscal space” in the eurozone as a whole to increase public investment spending. The commission would put renewed emphasis on structural reforms.

The Structural Fetish - Paul Krugman - The FT has a pretty decent article on the emerging doctrine of “Draghinomics”, which looks a lot like Blanchardnomics, which looks a lot like Krugmanomics — hey, we all studied macro at MIT in the mid 1970s. But I was struck by this bit: One other senior eurozone official attending the Italian forum which gathers together policy makers, business people and academics said: “Structural reforms are key. Those countries that have made these efforts are performing better: Ireland, Spain and Portugal. Italy and France should think a little bit about this.” Yep, Spain offers a useful lesson for France: For those of us not part of the structural reform cult, the story of Spain is this: the country experienced a full-scale depression when its housing bubble burst; this depression has led to a gradual, painful “internal devaluation” as labor costs come down, making Spain more competitive within Europe; and as a result, Spain is finally starting a slight recovery, with its growth rate in recent quarters (but only in recent quarters) higher than France. To see this as a triumph of structural reform requires preconceptions so strong it’s hard to see why you would even bother looking at data.

Draghi Says Government Spending Could Help Eurozone Economy -  Mario Draghi, the president of the European Central Bank, on Thursday stepped up pressure on countries like Italy to improve the climate for business. But he also said there was room for governments to use public spending to reinvigorate the stalled eurozone economy. Mr. Draghi both amplified and clarified themes he raised last month during a speech in Jackson Hole, Wyo., in which he surprised many Europeans by appearing to step back from the E.C.B.’s longtime insistence that countries focus above all on reducing budget deficits and debt. According to a text of the speech, Mr. Draghi said government stimulus should come in the form of lower taxes, financed by cuts in “unproductive” government spending. Countries should remain within the deficit and spending limits that are a condition for eurozone membership, Mr. Draghi said. He made no mention of the French government’s admission this week that it will not meet its budget targets until 2017. But Mr. Draghi also suggested that countries that can afford it should consider higher spending. “It may be useful to have a discussion on the overall fiscal stance of the euro area,” he said, “with the view to raising public investment where there is fiscal space to do so.” The call for more spending was probably aimed at Germany, which has a balanced government budget but which critics say has not invested enough in transportation networks and other public infrastructure. In addition, Mr. Draghi said, governments should consider offering guarantees to encourage lending to small businesses. Specifically, he said, they should consider support for asset-backed securities, bundles of bank loans that are resold to investors. By packaging and selling their loans, banks free up money for more lending.  In recent weeks Mr. Draghi has increasingly pushed for countries to roll back work rules and other regulations that he said stymie business investment and job creation. Monetary policy, he has stressed, will not be effective unless it is accompanied by such changes.

Steve Keen: The ECB’s Eurozone Medicine is Nonsense -- You’ve just made your morning coffee, and look up in horror as you realise that the gas burner has set your kitchen ablaze. So you take decisive action: you pour your coffee on the floor.  Such is the real impact of the European Central Bank’s latest attempt to revive the European economy, which cut rates a whopping 0.1 per cent (from 0.15 per cent to 0.05 per cent), and increased the negative interest rate imposed on bank reserve deposits from a huge -0.1 per cent to a gargantuan -0.2 per cent. Forgive my sarcasm. But the mystery that should occur to everyone — and it probably does to most people who haven’t been given a £9000 lobotomy (as Aditya Chakrabortty recently described an economics degree) — is why an economist might think that such apparently trivial measures would have any impact on the disaster that is the eurozone economy. Ah, but an economist can tell you why. It’s because of the ‘money multiplier’! This potent force will turn that allegorical puddle into a proverbial sea that will drown the flame of 25 per cent-plus unemployment in southern Europe. The fable theory goes like this. Banks lend by taking money deposited by one customer (say €100), hanging on to a certain fraction of it (say 10 per cent, which is €10), which they add to their reserve assets. They then lend the rest (€90) out to another customer. That customer then spends that €90, and the people who get it put that in their own banks, who also hang on to 10 per cent (€9), and lend out the rest (€81). The process repeats indefinitely, at the end of which time the initial deposit of €100 has been turned into €1000 of new money and new spending along the way.

European ‘Project’ Not Irreversible, New Paper Says - There is still a modest risk that a weak economy and rising political dissatisfaction could unravel Europe’s currency union, despite gradual, halting progress toward further integration there, according to new research. In what the authors dub the eurozone’s Catch-22, they say widespread support for the euro itself masks a lack of momentum toward further political cohesion among the 18 states that use the currency. “There is no desire to go backward, no interest in going forward, but it is economically unsustainable to stay still,” write Luigi Guiso, Paola Sapienza and Luigi Zingales in a paper to be presented at this week’s Brookings Institution conference. “Not only [is] the European project losing support as a result of the crisis, but it is losing even more support among the younger generations,” they say. While the worst of the eurozone’s financial crisis receded following a string of sovereign debt bailouts, economic growth effectively stalled in the second quarter and inflation remains very low.

Italy PM Renzi says growth will be around zero this year  (Reuters) – Italian Prime Minister Matteo Renzi said on Tuesday that the country’s economic growth would be about “zero” this year, a sign the euro zone’s third-biggest economy is struggling to climb out of its third recession in six years. Renzi’s forecast is far lower than the government’s previous prediction for a 0.8 percent increase. Renzi also signalled that Spending Review Commissioner Carlo Cottarelli would likely be leaving his post soon. The 39-year-old Renzi, who took office in February, has pledged to turn the economy around by tackling stifling red tape and corruption, cutting taxes and reforming inefficient labour market rules while keeping a tight grip on public finances. Italy needs to slash 20 billion euros (16 billion pounds) in spending next year to keep its deficit at or below the EU deficit limit of 3 percent of output while making labour-tax cuts and maintaining recent income-tax reductions.

Italy industrial output falls unexpectedly in July - --Italy's industrial production fell unexpectedly in July, as output of all products contracted, led by the consumer goods sector. Industrial output in the eurozone's third-largest economy fell 1.0% on the month in seasonally adjusted terms, national statistics institute Istat said Friday. An average forecast of seven economists polled by Dow Jones Newswires had forecast the output to be unchanged on the month. The fall was led by a 2.4% contraction in consumer goods, seen as a key driver of Italy's economic recovery, followed by a 2.1% decrease in investment goods, Istat said. Energy fell 0.8% in July, while intermediate goods fell by 0.6%, Istat data showed. Italian industrial production contracted 1.8% on the year in July in workday-adjusted terms, Istat said. Italy slipped back into recession for the third time since 2008 in the second quarter, quashing expectations of an even mild recovery this year.

Why does Italy not grow? - In April this year, the Italian debt-to-GDP ratio was expected to peak by year-end at 135 percent of GDP. That projection assumed a real GDP growth rate of 0.6 percent and inflation of about 0.7 percent. The projected decline in the debt ratio starting 2015 required a step up in growth and inflation along with historically large primary budget surpluses. However, at this point in 2014 (in September), the prospects for Italian growth and inflation have weakened considerably—they may well be close to zero for the year. By U.S. criteria, as Frankel (2014) points out, Italy is now in a six-year-long recession. Indeed, the Italian economy has barely grown since it joined the euro area in 1999. The stakes are high. With the government committed to an austerity mode for several years, growth and inflation are likely to be held back. And households facing tougher times are unlikely to open their pockets and start spending. The public debt ratio could rise relentlessly. An urgent search is on for a restart to Italian growth. Italy has been technologically and physically aging for some decades. It has been unable to keep pace with the technological demands of a competitive global economy. The Italian technological lag reflects a falling behind in educational standards: low growth and weak investment in technology and human capital have reinforced each other. The aging population has made reversing these trends a formidable task.

Far-Right Nationalist Le Pen Takes Lead In French Presidental Poll - It's not just Scotland... or Catalan. As The Guardian reports, polls out in the past few days in France have shown far-right Front National (FN) leader Marine Le Pen topping a presidential poll for the first time. Alongside this surge in support for FN is the utter collapse in the French people's faith in Hollande. Less than 20% of voters now approve of the French president and stunningly more than half the nation's card-holding-socialists have given up on him. An unprecedented 85% of French voters don't think Hollande should seek a second term. One word - guillotine?

Labour Costs: Who is the Outlier? - Spain is today the new model, together with Germany of course, for policy makers in Italy and France. A strange model indeed, but this is not my point here. The conventional wisdom, as usual, almost impossible to eradicate, states that Spain is growing because it implemented serious structural reforms that reduced labour costs and increased competitiveness. A few laggards (in particular Italy and France) stubbornly refuse to do the same, thus hampering recovery across the eurozone. The argument is usually supported by a figure like this:  And in fact, it is evident from the figure that all peripheral countries diverged from the benchmark, Germany, and that since 2008-09 all of them but France and Italy have cut their labour costs significantly. Was it costly? Yes. Could convergence have made easier by higher inflation and wage growth in Germany, avoiding deflationary policies in the periphery? Once again, yes. It remains true, claims the conventional wisdom,  that all countries in crisis have undergone a painful and necessary adjustment. Italy and France should therefore also be brave and join the herd. Think again. What if we zoom out, and we add a few lines to the figure? From the same dataset (OECD. Productivity and ULC By Main Economic Activity) we obtain this:  The PIIGS lines (and France) are now indistinguishable from other OECD countries, including the US. In fact the only line that is clearly visible is the dotted one, Germany, that stands as the exception. Actually no, it was beaten by deflation-struck Japan. The figure shows the difference between change in labour costs in a given country, and the change in Germany (from 1999 to 2007). labour costs in OECD economies increased 14% more than in Germany. In the US, they increased 19% more, like in France, and slightly better than in virtuous Netherlands or Finland. Not only Japan (hardly a model) is the only country doing “better” than Germany. But second best performers (Israel, Austria and Estonia) had labour costs increase 7-8% more than in Germany.

Catalans stage mass protest in Barcelona to back referendum -- The Catalan independence movement held a mass rally in Barcelona on Thursday as part of an intensifying campaign in support of a planned November referendum on the region’s future political status.Dressed in red and yellow, the colours of the Catalan flag, hundreds of thousands of protesters assembled on Gran Via and Avenida Diagonal, two of the city’s main arteries. Seen from the air, the rally formed the shape of a giant V, described by organisers as a symbol of Catalonia’s desire to vote. The Catalan demonstration was staged a week before Scotland’s independence referendum, and less than two months before the planned plebiscite in the Spanish region. The Spanish government has said repeatedly that it will not allow the Catalan vote to go ahead, arguing that the country’s constitution allows no space for regional self-determination. The constitutional court is set to rule on the issue in the weeks ahead, and is widely expected to side with Madrid. Catalan leaders will then have to decide whether to press ahead with their ballot or comply with the court ruling and develop an alternative strategy.

Scots, What the Heck?, by Paul Krugman - Next week Scotland will hold a referendum on whether to leave the United Kingdom. And polling suggests that support for independence has surged over the past few months, largely because pro-independence campaigners have managed to reduce the “fear factor” — that is, concern about the economic risks of going it alone. At this point the outcome looks like a tossup. Well, I have a message for the Scots: Be afraid, be very afraid. The risks of going it alone are huge. You may think that Scotland can become another Canada, but it’s all too likely that it would end up becoming Spain without the sunshine.Canada has its own currency, which means that its government can’t run out of money, that it can bail out its own banks if necessary, and more. An independent Scotland wouldn’t. And that makes a huge difference.  Could Scotland have its own currency? Maybe, although Scotland’s economy is even more tightly integrated with that of the rest of Britain than Canada’s is with the United States, so that trying to maintain a separate currency would be hard. It’s a moot point, however: The Scottish independence movement has been very clear that it intends to keep the pound as the national currency. And the combination of political independence with a shared currency is a recipe for disaster. Which is where the cautionary tale of Spain comes in.

Britain faces storm as giant global investors awaken to break-up dangers - Powerful investors across the world have woken up to the possibility that Scotland may vote to break up the United Kingdom, with some already preparing defensive action that risks a potentially dangerous flight from sterling and Britain’s bond market. Japan’s biggest bank, Nomura, has advised clients to slash financial exposure to the UK and brace for a possible collapse of the pound after polls showed the independence campaign running neck and neck, warning that the separation of England and Scotland after more than 300 years would be a “cataclysmic shock”. “The 'fast money’ funds started moving a week ago but now we are seeing 'real money’ clients acting,” said Jordan Rochester, the bank’s foreign exchange strategist. “The risks are suddenly seen as much greater for Japanese pension funds.” Nomura advised investors to take out protection on British banks, insurers and pension funds through the market for credit default swaps (CDS). It recommended “short” positions on UK banks as well as Gilts with a maturity of three to five years, a market segment owned heavily by foreign investors. “We could see a lot of money being pulled out of UK investments. Sterling could fall at least 15pc in a worst case scenario. These are scary times,” Mr Rochester added.

Scotland and the Euro Omen - Paul Krugman - Let me restate and possibly clarify the points from yesterday’s column: Declaring Scotland independent would mean a big disruption of existing economic and financial arrangements. As Simon Wren-Lewis says, the preponderance of professional economic opinion is that this disruption would leave Scotland worse off, but that is a point we can argue. However, that is not the argument the independence movement is making; what they have been telling voters is that there would be no disruption — in particular, that Scots could continue using the pound, and that this would pose no problem. This is an astonishing claim to make at this point in history. Economists (starting with my late colleague and friend Peter Kenen) have long argued that sharing a currency without fiscal integration is problematic; the creation of the euro put that theory to the test. And the results have been far worse than even the harshest critics of the euro imagined, with euro Europe doing worse at this point than Western Europe did in the 1930s: And an independent Scotland using the British pound would arguably be in even worse shape. Europe has somewhat stabilized recently thanks to Mario Draghi’s support for debtor countries — but Draghi is able to do this, in large part, because he is answerable to the whole euro area, not just Germany. An independent Scotland would be dependent on the kindness of the Bank of, um, England, with no say whatsoever in that bank’s policy.

Mark Carney warns Scotland over pound: Bank of England governor Mark Carney has told trade unions that currency union in the event of Scottish independence would be "incompatible with sovereignty". Mr Carney told the TUC conference that a currency required a centralised bank and shared banking regulations. Common taxation and spending were also needed, he said. The SNP said currency union was "in the best interests of both an independent Scotland and the rest of the UK". It added that currency union plans had been considered in detail. For their part, pro-union campaigners said a shared currency would be "bad for Scotland". The Scottish National Party (SNP), which wants to keep the pound in the event of independence, said that its plans had been "considered in detail" by the Fiscal Commission, a working group of the Scottish government. An SNP spokesperson for Scottish finance minister John Swinney said: "Successful independent countries such as France, Germany, Finland and Austria all share a currency - and they are in charge of 100% of their tax revenues, as an independent Scotland would be. At present under devolution, Scotland controls only 7% of our revenues."

Ilargi: The Black Swan Of Scotland - Got a mail from a friend in Scotland late last night that got me thinking. “Unfortunately, using Ireland as a model of fracture, we may start blowing up each other.” I’ve been reading a lot lately, in between all the other things, about Scotland, as should be obvious from my essay (Jim Kunstler tells me I can use that word) yesterday, Please Scotland, Blow Up The EU, and sometime today a thought crept up on me that has me wondering how ugly this thing is going to get. I think it can get very bad.What I get from it all is that if anything is going to win this for the independence side, it must be the arrogance the London government has exhibited. That alone could seal the deal. But now of course London has belatedly woken up. Even David Cameron is scheduled to – finally – visit Scotland in the course of the contest. And if push comes to shove, they’ll throw in a royal baby. Or a Queen. Mark my words. Cameron’s visit is funny in that he never thought it necessary until now because he thought he would win no matter what until a few days ago, and also funny because he must easily be the least popular person in all of Scotland, so a visit is a substantial risk. He had his bellboy Alistair King do a TV debate recently, and King flunked that thing so badly he may have single-handedly propelled the Yes side into the lead.  The knifes are being sharpened and soon they will be drawn – there’s only 9 days left. Question is, who will end up hurt? Bank of England Governor Mark Carney picked today of all days, 9 days before the referendum, to at last get more specific about his rate hike plan: it’s going to be early 2015. Because the UK economy is doing so great…

Britain faces storm as giant global investors awaken to break-up dangers - Telegraph: Powerful investors across the world have woken up to the possibility that Scotland may vote to break up the United Kingdom, with some already preparing defensive action that risks a potentially dangerous flight from sterling and Britain’s bond market. Japan’s biggest bank, Nomura, has advised clients to slash financial exposure to the UK and brace for a possible collapse of the pound after polls showed the independence campaign running neck and neck, warning that the separation of England and Scotland after more than 300 years would be a “cataclysmic shock”. “The 'fast money’ funds started moving a week ago but now we are seeing 'real money’ clients acting,” said Jordan Rochester, the bank’s foreign exchange strategist. “The risks are suddenly seen as much greater for Japanese pension funds.” Nomura advised investors to take out protection on British banks, insurers and pension funds through the market for credit default swaps (CDS). It recommended “short” positions on UK banks as well as Gilts with a maturity of three to five years, a market segment owned heavily by foreign investors. “We could see a lot of money being pulled out of UK investments. Sterling could fall at least 15pc in a worst case scenario. These are scary times,”

Credit Suisse warns of grave deflationary shock for Scotland -- Here is the Credit Suisse note this morning on the shock in store for Scotland if it chooses to break up our Union, and if Britain declines to come to the rescue. It expects: recession; deposit flight; 20pc devaluation; 5/10pc cut in wages. Just so you know, it is written by a mix of nationalities. In our opinion Scotland would fall into a deep recession. We believe deposit flight is both highly likely and highly problematic (with banks assets of 12x GDP) and should the Bank of England move to guarantee Scottish deposits, we expect it to extract a high fiscal and regulatory price (probably insisting on a primary budget surplus). The re-domiciling of the financial sector and UK public service jobs, as well as a legal dispute over North Sea oil, would further accelerate any downturn. In our opinion, as North Sea oil production slows, we estimate that the non-oil economy would need a 10% to 20% devaluation to restore competitiveness. This would require a 5% to 10% fall in wages, driven by a steep rise in unemployment.

RBS and Lloyds will leave Scotland if it votes for independence - Royal Bank of Scotland and Lloyds Banking Group will move their operations south of the border if Scotland votes for independence next week, it emerged on Wednesday night. The taxpayer-backed banking giants have made contingency plans to shift their registered offices from Edinburgh to London, in the most high-profile rebellion against Alex Salmond’s Yes campaign so far. The Treasury, which has been contacted by both lenders, said the plans were “understandable”. Lloyds, which owns Bank of Scotland, said last night that it had taken the decision after an increase in the number of inquiries from customers unsure about what would happen following the Scottish vote on September 18.“Lloyds Banking Group has seen an increased level of inquiries from our customers, colleagues and other stakeholders about our plans post the Scottish referendum on Thursday, September 18,” the bank said in a statement last night. “While the scale of potential change is currently unclear, we have contingency plans in place, which include the establishment of new legal entities in England. This is a legal procedure and there would be no immediate changes or issues which could affect our business or our customers.”

The Economic Advantages of an Independent Scotland - If its voters choose independence next week, Scotland will join the ranks of the world’s small, affluent countries. Over the past couple of decades, that’s been a good club to belong to. As Gideon Rachman put it in the FT in 2007: This is the age of the small state. Look at almost any league table of national welfare and small countries dominate.  Things have gotten a little more complicated since then. (Rachman in 2009: “Big is beautiful again.”) Several small nations suffered brutally from the financial crisis and subsequent Euro mess: Greece, Iceland, Ireland, Portugal.  Still, several of the emerging bigs (Brazil, India, Russia) have since run into economic headwinds too. And small countries remain overrepresented near the top of lists of the world’s most affluent, most competitive, healthiest, and smartest nations. So it’s not crazy to think that Scotland, which on its own would be a country of 5.3 million people with a GDP per capita ranking between Finland’s and Belgium’s (that’s counting offshore oil revenue), could be an economic success. But it’s not guaranteed, either.

Maastricht in a Kilt - Paul Krugman - Simon Wren-Lewis says more clearly what I’ve been trying to get at with regard to the economics of Scottish independence. It would be one thing to make the sober case that independence is worth it despite the economic costs and risks; but the SNP has been claiming that there are no costs and risks, which is just wrong. As he says, the obvious parallel is the push for the euro; in pursuit of the political vision of European unity, leaders waved away the obvious economic problems. I don’t know how many times I encountered arguments along the lines of “You Americans are only raising these objections because you don’t want a competitor to the dollar”, which wasn’t the point at all. And sure enough, the euro has turned into one of the great economic disasters of history, dealing a devastating blow to the very cause of European unity it was supposed to serve.  It so happens that some of the economic issues involving Scottish independence are the same: euro enthusiasts insisted that there would be no problem in creating a unified currency without a unified government, the SNP is insisting that there is no problem with maintaining a unified currency while breaking up the United Kingdom. But there is even less excuse this time around, since we have the euro experience to enlighten us. If Scottish voters won’t support independence unless they can keep the pound, then a Yes vote next week will have been won on false pretenses. Don’t go there!

Forecasted North Sea Oil Production - How much can an independent Scotland rely upon?  The U.S. Energy Information Administration has just released its 2014 International Energy Outlook.  EIA does not report forecasts of the UK share of North Sea production. UK production accounted for about 33% of total Norway and UK production in 2013, down from 80% in 1982 (the EIA statistics only go back to 1980). See this Economist article for a graph of UK oil-equivalent production extending back to 1970. Obviously, the revenue implications depend on the price of oil as much as the production levels. However, declining quantity of production seems the be in the cards, and in any case, production levels will be substantially below where they have been.

UK pension deficit doubles in year to August -  (Reuters) - A funding shortfall in Britain's private sector defined benefit pension schemes has more than doubled over the past year to reach 170.6 billion pounds at the end of August, the Pension Protection Fund (PPF) said on Tuesday. The funding gap at the same point last year was 80.3 billion pounds, according to the PPF, created in 2005 to take over the assets and liabilities of UK-based defined benefit pension schemes if an employer goes bust. The shortfall at the end of August was also up sharply from 122.7 billion pounds at the end of July. Private sector pension plans have faced a shortfall for more than three years now, the data showed, with three quarters of the 6,150 schemes tracked by PPF in deficit, the watchdog said. In August, total assets of the schemes rose by 2.9 percent to 1.2 trillion pounds. Liabilities rose faster at 6.3 percent to 1.38 trillion pounds over the same period. This is mainly due to falling gilt or British government bond yields which have been at low levels partly due to action taken by central banks since the financial crisis to spur economic growth.

BOE’s Miles: No ‘Urgency’ for Rate Increase - - Bank of England Monetary Policy Committee member David Miles said Wednesday that he sees more slack in the labor market than many of his eight colleagues, and no “immediate urgency” for a rise in the U.K. central bank’s benchmark interest rate. BOE Governor Mark Carney signaled Tuesday that the benchmark rate is likely to rise in early 2015, but two members of the MPC voted in August for an increase from the 0.5% record low that has prevailed since March 2009. Ian McCafferty and Martin Weale likely voted similarly in September, and minutes of this month’s meeting of the MPC to be released Sept. 17 will show whether the two dissenters have attracted any additional support. In his annual report to lawmakers on the House of Commons’ Treasury Committee—which scrutinizes economic policy—Mr. Miles made it clear he is unlikely to soon join the rate-raising faction on the committee. “Because the inflation outlook is benign, with both cost pressures on firms and inflation expectations of households relatively subdued, I do not think there is immediate urgency about starting on the welcome path to a more normal setting for monetary policy,” Mr. Miles wrote. In his written testimony, Mr. Miles said that when the benchmark rate does rise, it will do so gradually. “This process of normalisation will not be bad news, unlike most interest rate rises in the past,” he wrote. “In recent British history, rising interest rates have generally been painful for two reasons: they often started because inflation had got out of control and, partly as a result of that, they were often eye-wateringly sharp. Today inflation is just under 2% and it is likely that it will remain subdued for some time to come. “

“Volunteerland” is Bigger Than China, Says BOE’s Haldane - Volunteering—unpaid, non-compulsory work, according to the International Labor Organization– is big business. Andrew Haldane, the Bank of England’s chief economist, has taken a stab at estimating just how big and his conclusions are striking. Mr. Haldane helped found an outfit in the U.K. called Pro Bono Economics that matches community-minded economists with charities seeking to measure the impact of their actions. A lecture delivered to fellow economists Sept. 9 was part sales pitch to persuade his audience to sign up and part exploration of the value to society of volunteering. A 2012 survey in the U.K. found 44% of respondents had done some unpaid work in the previous 12 months and around a third volunteered more than once a month. That adds up to 2 billion hours a year spent volunteering. Add in informal volunteering—driving your neighbor to hospital, for example—and the number of hours worked more than doubles, Mr. Haldane calculates. Volunteering is popular in many other countries, too. Tot up the global economy’s army of volunteers and the workforce of “Volunteerland” is about 971 million people, second only to China’s 1 billion workers.

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