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

Saturday, September 27, 2014

week ending Sept 27

Fed's Balance Sheet 24 September 2013 - New Record Level - Fed’s Balance Sheet week ending balance sheet was $4.417 trillion – above the record $4.408 last week.  As you can see from the above curve, the rate of growth is slowing. 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 25, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed’s Bullard Still Looks to 1st Quarter 2015 Fed Rate Increase -Federal Reserve Bank of St. Louis President James Bullard said Tuesday that he still sees the U.S. central bank raising interest rates some time early next year. “The data I’ve seen are basically on track with our projections” and continue to point to the Fed raising interest rates at the end of the first quarter as a “reasonable judgment,” Mr. Bullard said. But he emphasized that his outlook for central bank policy is not calendar based, saying what happens “depends on how the economy evolves.” Mr. Bullard made his comments to reporters at a conference on banking held by his institution. It was the official’s first comments on the economy since last week’s gathering of the monetary-policy setting Federal Open Market Committee. Then, the Fed reaffirmed its collective expectation that its easy-money policies will be sticking around for a while. While the central bank continued to wind down its bond-buying stimulus program, officials again indicated their expectation that short-term interest rates will stay near zero for some time to come. Most on the Fed expect the first central bank interest rate hike to come some time next year, with core officials favoring an increase to come around mid-year. In recent comments, Mr. Bullard has said he’d like to see the first increase in rates come near the end of the first quarter of 2015. But he’s also said that if the economy, and most notably the job market, continues to improve around its current pace, he would be willing to entertain raising rates sooner. Mr. Bullard told reporters the Fed made the right move last week when it maintained language that said it would be a “considerable time” before it raised interest rates. He said it made sense to do this because the Fed’s bond buying program, slated to end next month, is ongoing. Mr. Bullard believes the Fed can revisit the language of its forward guidance when it next meets on Oct. 28

NY Fed’s Dudley Says Would Be ‘Very Happy’ To Raise Rates Some Time In 2015 - Federal Reserve Bank of New York President William Dudley said Monday that he strongly hopes the central bank can begin to increase interest rates next year. “I would love to be able to raise interest rates during in my tenure,” Mr. Dudley said. “I’m not going to do something to interest rates just for the sake of doing something to interest rates, but it would be nice to see some sufficient progress in terms of the economy , the labor market and inflation to be able to raise interest rates in 2015. That would make me very happy,” he said. Mr. Dudley made his comments at an event held by Bloomberg in New York. They were his first comments since last week’s monetary-policy setting Federal Open Market Committee meeting. Then, the Fed continued to say what are currently near zero short-term interest rates will remain very low well into the future. The central bank also said it would continue to wind down its bond-buying stimulus effort, while making public a revised plan to raise interest rates when officials decide it’s time to act. Most central bankers continue to believe that the Fed won’t raise interest rates until the middle of next year, in a view shared by many investors. But some Fed officials have warned that unexpectedly strong gains in the job market, if they can be maintained, could move forward the timing of interest rate increases.

Push joblessness down, N.Y. Fed President William Dudley says - Inflation running below the Federal Reserve’s target argues for patience on interest-rate increases and may require letting the economy run “a little hot,” New York Fed President William Dudley said. “Depending on where inflation is, I can certainly imagine a scenario where the unemployment rate dips a little below” what the Fed considers maximum employment, he said Monday. “We really need the economy to run a little hot for at least some period of time” to push inflation back up to the 2 percent objective. Dudley’s comments highlight an unusual feature of the Fed’s most recent economic forecasts: Several policymakers figure the jobless rate will have to dip below their estimate of full employment to push prices back toward the goal Fed officials missed for more than two years. “You really do want to push the unemployment rate down toward your objective,” Dudley said at the Bloomberg Markets Most Influential Summit in New York.

Fed Should Be ‘Exceptionally Patient’ on Rate Hikes, Evans Says - The Federal Reserve should wait until it is positively certain the economic recovery will be sustained before raising interest rates, Chicago Fed President Charles Evans said Wednesday. Mr. Evans, one of the central bank’s more vocal advocates for aggressive monetary policy actions to reduce joblessness, said that despite recent improvement, the unemployment rate remains too high and broader measures of the labor market show plenty of room for improvement. In addition, he said, inflation has long hovered and still remains well below the central bank’s 2% target. “Before the Fed raises rates, we should have a great deal of confidence that we won’t be forced to backtrack on our moves and face another painful period at the zero lower bound,” Mr. Evans said, referring to the fact that official interest rates have been at effectively zero since December 2008. “We should be exceptionally patient in adjusting the stance of U.S. monetary policy — even to the point of allowing a modest overshooting of our inflation target to appropriately balance the risks to our policy objectives,” he told a conference on the labor market sponsored by the Peterson Institution for International Economics, a think tank in Washington.

Fed’s Mester Upbeat on Economy, Wants Fed Policy Clearly Data Driven - Federal Reserve Bank of Cleveland President Loretta Mester said Wednesday that she still believes the central bank needs to revise how it describes the likely path for interest rate increases. The Fed’s guidance about the timing and pace of short-term rate rises should be “reformulated” because its ongoing commitment to keep rates very low for a “considerable time” may be sending the wrong signal about what will actually happen with policy, Ms. Mester said in a speech in Cleveland. “Monetary policy must be dependent on the realized and expected evolutions of the economy,” she said.  Ms. Mester said she wants to make sure that observers understand that “a faster-than-expected pace of progress toward our goals would argue for a faster return to normal” on short-term interest rates. Meanwhile, “a more subdued pace would argue for a slower return,” she said. Speaking to reporters after her public remarks, Ms. Mester said current Fed guidance may “unduly focuses the public on time” for action, and takes policy away from being responsive to changing events. The official declined to say when she’d like to see the Fed raise rates, although most central bankers continue to favor an increase coming some time in 2015. She noted “we still need an accommodative monetary policy” and even modest rate hikes will leave the Fed very supportive of economic activity.

Fed Watch: Hawkish Undertone - The Fed continuous to moves toward policy normalization. Slowly. Very slowly. They believe they are making every effort to avoid a premature withdrawal of accommodation. Every step is sequenced. And that sequencing did not allow for the removal of the considerable period language just yet. That said, Federal Reserve Chair Janet Yellen noted in the associated press conference that, considerable period or not, the statement does not represent a promise to maintain a particular policy path. Moreover, the ambiguous definition of "considerable time" gives the Fed sufficient flexibility without breaking a promise in any event. Assuming asset prices end in October as the Fed expects, even a rate hike as early as March could still be considered a "considerable period." So too arguably would be a hike as early as January. It seems then that the considerable period language could survive longer than I anticipated. Of course, if the statement is not a promise and "considerable period" has no fixed meaning, then the path of policy is strictly data dependent. And that is the idea now emphasized repeatedly by Yellen and Co. If the economy performs better than expected, rates hikes will come sooner and faster currently anticipated. If worse, the withdrawal of monetary accommodation will be delayed. This is where the dot-plot comes into play. If we combine the midpoint of the economic estimates with the median of the rate expectations, you see the central tendency of the FOMC is to still expect a considerable period of time until rate normalization:

United States: Fed asset purchase program nears completion, still no clear timeline for interest rate hike - The Federal Reserve’s asset purchase program is nearing its end. Completion of the program will mark an important milestone in the government’s management of the economic crisis and will likely boost confidence in the markets. At its 16–17 September policy meeting, the Fed’s Federal Open Market Committee (FOMC) announced, “a further measured reduction in the pace of its asset purchases.” Starting in October, the Fed will conduct purchases of USD 10 billion in long-term Treasury securities and USD 5 billion in mortgage-backed securities per month, which is down from USD 15 billion and USD 10 billion respectively. The Fed’s decision comes as the result of, “cumulative progress towards maximum employment and the improvement in the outlook for labor conditions.” The amount of monthly purchases has been tapered substantially during the year and the purchase program will end at the following meeting. However, the Fed’s balance sheet has reached a record USD 4.4 trillion and many questions are emerging about how to manage the accumulated assets.

Fed Has Window to Alter Guidance at Next Meeting - The Federal Reserve may have little choice but to change its forward guidance on interest rates next month, at least a little. Last week, the central bank again said it would keep interest rates near zero for a “considerable time” after the end of its bond-buying program. It also said bond purchases are likely to end in October. This suggests that sentence is likely to be tweaked at the next meeting, Oct. 28-29.  Chicago Fed President Charles Evans, during a briefing with reporters Wednesday, highlighted the need to alter the statement next month. He is clearly in the camp of officials who would like to wait considerably longer—until 2016 in his case—before raising rates. Mr. Evans appeared to be putting forth his own suggested language by saying in his speech that the Fed could be “exceptionally patient” about removing its support for the economy. That followed New York Fed President William Dudley’s comment Monday that current economic conditions argue in favor of being “patient” with monetary policy. Minneapolis Fed President Narayana Kocherlakota, another advocate of holding rates very low, said this week central bank should be “very cautious about removing stimulus.” But that’s just one side of the policy spectrum, leaving Fed Chairwoman Janet Yellen to craft a delicate compromise. St. Louis Fed President James Bullard has said he expects to see a rate increase as early as March, sooner than prevailing market expectations that the central bank will wait at least until summer to begin tightening. Esther George, his counterpart at the Kansas City Fed, said last month the Fed should end its easy-money policies “sooner rather than later…so that the economy has time to adjust to moving off of negative real interest rates.”

The Fed’s Exit Plan is Still a Work in Progress - In a story that ran in Saturday’s Wall Street Journal, my colleague Michael Derby and I wrote about challenges the Federal Reserve might face managing short-term interest rates under a new framework laid out by the central bank last week. Research released over the weekend amplifies this point. The Fed wants to keep its benchmark interest rate – the federal funds rate – in a quarter percentage point range for the foreseeable future. Right now it is between zero and 0.25%. When the Fed starts raising rates it will raise the lower and upper bounds of that range, keeping the gap at a quarter percent. One big challenge is that the Fed is wary of using a new tool – overnight reverse repo trades – to maintain the lower end of the range. The Fed said Wednesday it would impose a $300 billion cap on the volume of reverse repo trades it would conduct to set the lower bound of its interest rate range. That cap could work when the lower bound is zero and rates can’t go any lower. But in a commentary Sunday, Wrightson ICAP money market analyst Lou Crandall said the cap could become an obstacle to maintaining rates in the Fed’s target range when the central bank actually wants to start raising rates. At $300 billion, its cap on reverse repo trades is equal to a tenth of the $3 trillion in reserves the Fed has placed in the financial system through its bond buying programs – a metaphorical finger in the dike the Fed will need to control money flows when rates rise. Other parts of its program face challenges. Domestic banks are reluctant to hold reserves because of costly new liquidity and capital regulatory rules, Mr. Crandall noted. That means using interest payments on reserves to control rates – which the Fed also plans to do – could face constraints. Reserves will face a continued gravitational pull outside of the banking system into other areas of the financial marketplace like money market funds. The reverse repo program is designed to capture these other parts of the market, but if it is limited in size by a cap, the Fed could find rates drifting below its desired target range. “We think the Fed may ultimately be forced to provide $1 trillion or more of (reverse repo) investment capacity to nonbank institutions after liftoff if it wants to put a reasonably firm floor under market rates,” Mr. Crandall writes. “If that’s what it takes, that’s what the Fed will do – in one form or another. The key point here is that the Fed’s overriding operational goal after liftoff will be to raise the level of market rates.”

Fed to Keep Refining Exit Tools as It Tightens Policy - The Federal Reserve has all the tools it needs to raise borrowing costs when it decides the economy is strong enough to take it, but will keep adjusting its new policy arsenal as it exits an unprecedented monetary stimulus program, a top central bank official said. Simon Potter, who as head of the New York Fed’s Markets Group oversees the day-to-day implementation of interest rate policy, reiterated the central bank’s intention to rely most heavily on the interest it pays on bank reserves parked overnight at the Fed as a way to push the benchmark federal funds rate higher. “The operating tools that the Federal Reserve has developed will allow us to tighten monetary policy when the FOMC determines it is appropriate to do so, but I have no doubt that we will continue to learn more about how these tools interact as we normalize policy and make adjustments over time, just as we have done in the past,” Mr. Potter said, referring to the Federal Open Market Committee, the Fed’s policy-setting arm. “We will also learn from and share our experiences with other central banks that are undergoing similar transitions,”

Connecting “the Dots”: Disagreement in the Federal Open Market Committee -- In January 2012, the FOMC began reporting participants’ FFR projections in the Summary of Economic Projections (SEP). Market participants colloquially refer to these projections as “the dots” (see the second chart on page 3 of the September 2014 SEP for an example). In particular, the dispersion of the dots represents disagreement among FOMC members about the future path of the policy rate.  People disagree, and so do the members of the Federal Open Market Committee (FOMC). How much do they disagree? Why do they disagree? We look at the FOMC’s projections of the federal funds rate (FFR) and other variables and compare them with those in the New York Fed’s Survey of Primary Dealers (SPD). We show that the members of the FOMC tend to disagree more than the primary dealers and offer some potential explanations.

American elites have completely failed to understand what the Fed should be doing right now - Here are a few questions I’d like you to consider, and you don’t need to be an economist to give a valid responses. In fact, it’s better if you’re not. Which do you think is a bigger problem facing the U.S. economy right now: a) inflation, or b) unemployment? Do you think wages are growing: a) too quickly, or b) too slowly? Which is the bigger threat to the economy: a) that it overheats, or b) is undercooked? I’m going to make the bold assumption that most of you answered “b” on all of the above. And in a moment, I’ll provide the data to confirm your gut. What’s unsettling, and in need of explanation, is why so many influential voices, from the punditry to the markets, answer “a.” The answer, I believe, is that America lacks a substantial political movement in support of progressive macroeconomics. The debates over full employment and Federal Reserve policy are generally dominated by the interests of the minority who worry more about inflation and asset values than those who worry about jobs and paychecks.

Instead of QE, the Fed Could Have Given $56,000 to Every Household in America - The Federal Reserve has been conducting a grand experiment since the U.S. economy tumbled into the Great Recession. After the housing market collapsed in 2008, the Federal Reserve lowered interest rates to rock bottom levels in hopes of boosting borrowing and spending. It also went a step further, buying trillions of dollars in Treasury bonds and mortgage-backed securities with the hope of boosting the housing market and therefore the economy.  The Fed acknowledged Wednesday that, as the economic recovery slowly builds, the grand experiment is now coming to an end. The Fed’s program of monthly bond purchases is now set to end next month and policymakers are looking ahead to raising interest rates for the first time since 2006. But in an intriguing piece just published in Foreign Affairs, Brown University political economist Mark Blyth and London-based hedge fund manager Eric Lonergan argue the Fed could have done better by pursuing a far different type of grand policy experiment. "Instead of trying to drag down the top, governments should boost the bottom," they write in an article titled: "Print Less But Transfer More: Why Central Banks Should Give Money Directly to the People."

Fed Watch: Fisher on Wages -- Dallas Federal Reserve President Richard Fisher said Friday the US economy was threatened by higher wages. Via Reuters: Fisher said on Friday he worries that further declines in unemployment nationally could lead to broader wage inflation. To head that off, and also to address what he called rising excesses in financial markets, Fisher said he prefers to raise rates by springtime, sooner than many investors currently anticipate. After a snarky tweet, I wondered if he was not misquoted or misinterpreted. But he definitely warns that wage growth is set to accelerate in his Fox News interview (begin at the 3:50 mark). The crux of his argument is that wage growth accelerates when unemployment hits 6.1% and he uses strong wage growth in Texas as an example. He seems genuinely concerned that wage growth is negative outcome - that wage growth in Texas is a precursor to a terrible outcome for the US economy as a whole. His entire tone is odd, and I feel compelled to clean up his argument, at least as much as is possible. Fisher says that he presented evidence at the last FOMC meeting that 6.1% was the tipping point for wage acceleration. I can't disagree - I said as much this past March. The updated chart:  It is reasonable to expect that wage growth will accelerate as unemployment moves below 6%. I believe this is something of a test of the hypothesis that alternative measures of under-utilization more accurately convey information about the degree of slack. If that hypothesis is correct, then wage growth should not accelerate. That said, why should Fisher fear wage growth? I don't see how one can expect real wages to rise in the absence of nominal wage growth in excess of inflation. And once you accept the possibility of real wage growth, you recognize the link between wage growth and inflation could be very weak. And so it is:

It Really Seems as Though Dallas Fed President Richard Fisher Doesn’t Want Real Wages to Increase, or Doesn’t Believe Real Wages Can Increase, or Something - Brad DeLong  - Tim Duy: Fisher on Wages: "Richard Fisher said Friday the US economy was higher wages. Via Reuters:Fisher said on Friday he worries that further declines in unemployment nationally could lead to broader wage inflation. To head that off, and also to address what he called rising excesses in financial markets, Fisher said he prefers to raise rates by springtime, sooner than many investors currently anticipate....I wondered if he was not misquoted or misinterpreted. But he definitely warns that wage growth is set to accelerate in his Fox News interview.... READ MOAR  The crux of his argument is that wage growth accelerates when unemployment hits 6.1%.... He seems genuinely concerned that wage growth is negative outcome--that wage growth in Texas is a precursor to a terrible outcome for the US economy as a whole. His entire tone is odd, and I feel compelled to clean up his argument.... It is reasonable to expect that wage growth will accelerate as unemployment moves below 6%... [although] this is... a test of... [whether] alternative measures of under-utilization more accurately... [measure] slack.... That said, why should Fisher fear wage growth? I don't see how one can expect real wages to rise in the absence of nominal wage growth in excess of inflation. And once you accept the possibility of real wage growth, you recognize the link between wage growth and inflation could be very weak. And so it is....

Fed Economist Calls for ‘Urgency’ in Addressing Unemployment - The U.S. job market remains far from full health despite recent progress, and requires active efforts by policy makers to help it heal, a Federal Reserve economist said Wednesday. Andrew Levin, currently on leave from the central bank while working at the International Monetary Fund, downplayed the idea that much of the weakness in the job market is due to demographic trends that are not amenable to policy solutions. “Rather than focusing on econometric models we should focus on the problems of real people,” “When we talk about people who are underemployed, we’re talking about, say, a single mother who’s maybe relying on food stamps and Medicaid. There’s an urgency for those people.” Mr. Levin’s message countered that of Fed staff economist William Wascher, co-author of a recent paper that found the decline in the share of Americans holding or seeking jobs is largely the product of demographic factors, such as a rising number of retirees, rather than weak demand in the aftermath of a particularly awful recession. Mr. Levin cited signs, including weak wages and survey evidence, suggesting many workers would return to the job market if better opportunities became available, even those who have been out of work for a long time. “As the sluggishness of this recovery following a deep recession has dragged on and on, I worry that when we just do statistical analysis with cohort effects and time effects and all the fancy methods we have as econometricians, first of all we lose track that there’s real people and secondly we just forget to ask those people,” Mr. Levin said.

Asymmetric Monetary Risks - Paul Krugman -- How much slack is there in the U.S. labor market? Good question. The measured unemployment rate is fairly low, but labor force participation also seems low, and I have doubts about studies purporting to say that it’s overwhelmingly long-term demographics. Wage gains are still slow. My guess is that there’s considerably more slack than the unemployment number might lead you to suspect, but the truth is that I don’t know.  But here’s the thing: you don’t know either. Neither does Janet Yellen, or Charles Plosser, or anyone else; anyone who thinks he or she knows for sure is suffering from the Dunning-Kruger effect.So let’s hear it for Charles Evans, who gets it exactly right: we need to focus on the asymmetry of risks.If it turns out that there’s less slack than our best guess, inflation may overshoot before the Fed can react. That would be unpleasant. But it’s manageable: if there’s one thing the Fed knows, it’s how to tighten.But if it turns out that there’s more slack than we guess, and the Fed tightens too soon, the result can be tragedy: we can end up back in the liquidity trap, facing years of below-target inflation (maybe even deflation) and economic stagnation. As Evans says, we’ve seen this movie — in fact, several remakes: Japan in the early 2000s, the ECB in 2010, the Riksbank in Sweden. The prudent course is to wait for clear evidence of overheating. Damn the inflationistas and financial-stability-istas who want to torpedo recovery; full speed ahead.

Now It’s Explicit: Fighting Inflation Is a War to Ensure That Real Wages for the Vast Majority Never Grow - Remember that episode of The West Wing when Josh Lyman announced a secret plan to fight inflation?  Turns out that Dallas Federal Reserve Bank President Richard Fisher has a secret paper telling us how to fight inflation: stop progress in reducing unemployment so that nominal wages never grow fast enough to actually boost living standards (or, never grow fast enough to boost real wages).  Last week, Fisher argued that a so-far unpublished (i.e. secret) paper by his staff showed that “declines in the unemployment rate below 6.1 percent exert significantly higher wage pressures than if the rate is above 6.1 percent.”  In the interview, Fisher mostly characterized this as a Phillips curve that is flat at unemployment rates higher than 6.1 percent, but which starts to have a negative slope below this rate, meaning that future declines in unemployment should be associated with higher rates of wage-growth. However, if you’re really thinking in terms of a stable Phillips Curve, this means that we can simply choose what unemployment/wage-inflation combination we’d like without worrying about accelerating inflation. Currently, nominal wage-growth is running around 2-2.5 percent. But as we’ve shown before, even the Fed’s too-conservative 2 percent inflation target is consistent with nominal wage growth of closer to 4 percent. So we have plenty of room to move “up” Fisher’s Phillips Curve before hitting even conservative inflation targets.

Fed Must Be Cautious About Rate Increases With Inflation Low, Kocherlakota Says - The Federal Reserve must not be overly confident that inflation will return to its 2% target and be extra careful about raising interest rates given the economy’s disappointing performance, Minneapolis Fed President Narayana Kocherlakota said Monday. “We want to make sure inflation is on the path back to 2%,” he told the Economic Club of Marquette County. “We don’t want to create more risk. You have to be very cautious about removing stimulus.” Mr. Kocherlakota, a voter this year on the Federal Open Market Committee and arguably the committee’s strongest advocate for continued support for the economy, offered several prescriptions for getting growth and jobs back to full health more quickly. First, Fed officials should be more proactive about ensuring U.S. inflation hits its 2% target, since undershooting that goal as the central bank has been doing recently endangers economic growth They could do this by making clear their 2% inflation goal is “symmetric” in that policy makers will be equally preoccupied about falling short of target as they are about exceeding it. Otherwise, Mr. Kocherlakota warns, the public and markets will no longer believe the Fed’s target is credible.

Fed's Kocherlakota calls for clarity on inflation target (Reuters) - The U.S. Federal Reserve should make it clear that it is just as keen to fight too-low inflation as too-high inflation, and should rewrite its long-run goals to reflect that commitment, a top Fed official said on Monday. The Fed should also consider imposing a two-year deadline for meeting its 2-percent inflation goal, and be clear that financial stability is a factor in monetary policy decisions, Minneapolis Fed President Narayana Kocherlakota said in remarks prepared for delivery at the Economic Club of Marquette County in Michigan's Upper Peninsula. That said, he added, he does not see financial stability risks as a problem currently. The Fed first embraced an overt 2-percent goal for inflation in January 2012 as part of a two-page statement on monetary policy strategy. But despite buying more than $1 trillion in bonds since then to lower long-term borrowing costs and boost the economy, inflation has remained stubbornly below that goal. Kocherlakota has said he believes the Fed should allow inflation to rise above 2 percent in order to bring down unemployment faster, and on Monday called for explicitly including that view in the Fed's policy framework as it revisits the strategy document in coming months. Unemployment, now at 6.1 percent, could be as low as 5 percent without creating unwanted upward pressure on prices, Kocherlakota said. "The time is right to consider sharpening the (Fed)’s statement of its objectives," Kocherlakota said.

The Terrible Two - Paul Krugman -- Jared Bernstein asks why the Fed (and just about all of its counterparts abroad) targets 2 percent inflation. I did some digging on this very issue in my paper for last spring’s ECB conference, and found that 2 was a convenient round number that seemed to provide a reasonable resolution to the conflict between the price stability crowd and economists worried about the two zeroes.The price stability thing is obvious: there have always been a number of economists who view the purchasing power of money as a sort of sacred trust, the preservation of the unit of account as critical, etc.. They wanted an inflation target of zero, so that a dollar would be a dollar forever.On the other side, realists pointed out that there were two troubling forms of downward stickiness: interest rates can’t go negative, and neither workers nor employers are happy with nominal wage cuts. These considerations argued for a positive inflation target, to provide room to cut real rates below zero in a downturn and to adjust relative wages without any actual cuts. So why a 2 percent target? It was low enough that the price stability types could be persuaded, or were willing to concede as a possibility, that true inflation — taking account of quality changes — was really zero. Meanwhile, as of the mid 1990s modeling efforts suggested that 2 percent was enough to make sustained periods at the zero lower bound unlikely and to lubricate the labor market sufficiently that downward wage stickiness would have minor effects. So 2 percent it was, and this rough guess acquired force as a focal point, a respectable place that wouldn’t get you in trouble.

How Much Do Medicare Cuts Reduce Inflation? | Federal Reserve Bank San Francisco : Because the health sector makes up a large share of the U.S. economy, widespread price changes for medical services can impact overall inflation significantly. Cuts to public health-care spending spill over directly and indirectly to private spending. A recent estimate suggests the full effect of the Medicare payment cuts from the 2011 Budget Control Act resulted in a decline of 0.24 percentage point in the overall personal consumption expenditures price index. This is over twice the expected drop if private-sector spillovers are not included.

Explaining Why U.S. Rates Have Suddenly Gone Negative -- As my colleagues Min Zeng and Katy Burne report in today’s Wall Street Journal, rates on short-term U.S. Treasury bills have suddenly gone negative, opening a window onto challenges the Federal Reserve could face in the years ahead keeping short-term rates in a prescribed, quarter-percentage-point band. Rates on a bill maturing Oct. 2 yield -0.01%, meaning investors who are buying it get a bit less at maturity than they paid for it. The familiar flight-to-safety-amidst-a-world-in-turmoil is part of the story here. A bigger factor appears to be regulated financial institutions loading up on low-risk assets before quarter end, to make their portfolios look safer to their supervisors. As Sept. 30 approaches, that seems to be a big part what is happening. “Everyone expects a really painful squeeze on Sept. 30,” How does the Fed fit in? The Fed wants short-term rates in a range between zero and 0.25%. In a story on Saturday, my colleague Michael Derby and I looked at challenges the Fed will face in the years ahead keeping rates from falling through the low-end of its range, especially at quarter-end periods against a tougher regulatory backdrop. The Fed has flooded the financial system with funds through its bond purchase programs, which puts extreme downward pressure on short-term rates. It has a tool called overnight reverse repo trades which it can use to soak up some of these funds and put a floor under rates. Moreover, as a low-risk asset held by banks, the reverse repo trade would meet the regulatory needs of many institutions.

Interpreting the Yield Curve: Some Pictures - Recently Jim highlighted the odd behavior of the various Treasury term premia. Here are some additional thoughts. From “Debt market goes off script” in the WSJ: Yields on short-term U.S. Treasury debt maturing in two to five years hit the highest level since 2011, …At the same time, yields on government debt maturing in 10 or more years have risen only modestly this week and remain well below their levels at the start of 2014, a year that many analysts forecast would include rising long-term interest rates and falling bond prices. …The softness of longer-term yields highlights concerns shared by many analysts and policy makers about the uneven growth of the U.S. economy and falling expectations for inflation. Investors broadly expect the Fed to raise the fed funds rate next year for the first time since 2006. A competing hypothesis was laid out in “US bonds are tracking ECB policy” in the Financial Times:The link between US monetary policy and US bond yields has fallen apart this year, showing how fears of deflation in Europe are driving global financial markets.According to analysis by the Financial Times, the correlation between five- and ten-year Treasury yields has fallen to its lowest level on record, with US bonds appearing to track European monetary policy instead. Should we worry about imminent recession? There’s been some discussion of the age of the recovery and hence the anxiety. [0] [1] While spreads — both nominal and real — have indeed narrowed, they are still generally positive. As Chinn and Kucko note (blogpost), while spreads do not have extremely high explanatory power for recessions and growth, they do contain some information.

Chicago Fed: "Index shows economic growth decelerated in August" The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth decelerated in AugustLed by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to –0.21 in August from +0.26 in July. Two of the four broad categories of indicators that make up the index decreased from July, and two of the four categories made negative contributions to the index in August.The index’s three-month moving average, CFNAI-MA3, decreased to +0.07 in August from +0.20 in July, marking its sixth consecutive reading above zero. August’s CFNAI-MA3 suggests that growth in national economic activity was somewhat above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year. This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed: Economic Growth Decelerated in August - "Index shows economic growth decelerated in August": This is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report:  Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to –0.21 in August from +0.26 in July. Two of the four broad categories of indicators that make up the index decreased from July, and two of the four categories made negative contributions to the index in August. The index’s three-month moving average, CFNAI-MA3, decreased to +0.07 in August from +0.20 in July, marking its sixth consecutive reading above zero. August’s CFNAI-MA3 suggests that growth in national economic activity was somewhat above its historical trend. The eco- nomic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.  The CFNAI Diffusion Index, which is also a three-month moving average, decreased to +0.14 in August from +0.23 in July. Forty-five of the 85 individual indicators made positive contri- butions to the CFNAI in August, while 40 made negative contributions. Forty-two indicators improved from July to August, while 43 indicators deteriorated. Of the indicators that improved, 12 made negative contributions. [Download PDF News Release] The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity. I've added a high-low channel for the MA3 data since 2010. After hitting the top of the channel in April, it has slipped to the upper mid-range.

U.S. Growth Quickest in Two and a Half Years on Business Spending, Exports - — The U.S. economy grew at its fastest pace in 2-1/2 years in the second quarter with all sectors contributing to the jump in output in a bullish signal for the remainder of the year.The Commerce Department on Friday raised its estimate of gross domestic product to show the economy expanded at a 4.6 percent annual rate. That was in line with Wall Street's expectations. The best performance since the fourth quarter of 2011 reflected a faster pace of business spending and sturdier export growth than previously estimated. But consumer spending, which accounts for more than two-thirds of U.S. economic activity, was unrevised as stronger healthcare outlays were offset by weaknesses in recreation and durable goods spending. With domestic demand increasing at its fastest pace since 2010, the economic recovery appeared more durable after growth slumped in the first quarter because of an unusually cold winter. So far, economic data such as manufacturing, trade and housing suggest that much of the second-quarter momentum spilled over into the third quarter. Growth estimates for the July-September quarter range as high as a 3.6 percent pace. Second-quarter GDP was previously estimated to have advanced at a 4.2 percent rate. The economy contracted at a 2.1 percent pace in the first quarter.

Q2 GDP Revised Up to 4.6% Annual Rate - From the BEA: Gross Domestic Product: Second Quarter 2014 (Third Estimate) Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 4.6 percent in the second quarter of 2014, according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 2.1 percent. The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 4.2 percent. With the third estimate for the second quarter, the general picture of economic growth remains the same; increases in nonresidential fixed investment and in exports were larger than previously estimated ... The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased. Real GDP increased 4.6 percent in the second quarter, after decreasing 2.1 percent in the first. This upturn in the percent change in real GDP primarily reflected upturns in exports and in private inventory investment, accelerations in nonresidential fixed investment and in PCE, and upturns in state and local government spending and in residential fixed investment that were partly offset by an acceleration in imports. Here is a Comparison of Third and Second Estimates.

Q2 GDP Rises to 4.6% in the Third Estimate, Matching Expectations - The Third Estimate for Q2 GDP, to one decimal, came in at 4.6 percent, an upward revision from the Second Estimate of 4.2 percent. The GDP deflator used to calculate real (inflation-adjusted) GDP slipped to 2.1 percent, a downward revision from the Second Estimate of 2.2 percent. correctly forecast both numbers.Here is an excerpt from the Bureau of Economic Analysis news release:Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 4.6 percent in the second quarter of 2014, according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 2.1 percent. The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 4.2 percent. With the third estimate for the second quarter, the general picture of economic growth remains the same; increases in nonresidential fixed investment and in exports were larger than previously estimated (for more information, see "Revisions" on page 3).  The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.  Real GDP increased 4.6 percent in the second quarter, after decreasing 2.1 percent in the first. This upturn in the percent change in real GDP primarily reflected upturns in exports and in private inventory investment, accelerations in nonresidential fixed investment and in PCE, and upturns in state and local government spending and in residential fixed investment that were partly offset by an acceleration in imports. [Full Release]  Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I've also included recessions, which are determined by the National Bureau of Economic Research (NBER).

Economy Grew At 4.6% In Second Quarter - The final revision to Second Quarter G.D.P. was released today, and it shows that the economy bounced back for the slowdown in the First Quarter that actually saw economic growth contract far stronger than originally reported:Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 4.6 percent in the second quarter of 2014, according to the “third” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 2.1 percent. The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 4.2 percent. With the third estimate for the second quarter, the general picture of economic growth remains the same; increases in nonresidential fixed investment and in exports were larger than previously estimated.The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased. As The New York Times reports, this strong performance by the economy has caused most analysts to revise their forecasts for the remainder of the year upward: m The U.S. economy’s bounce-back last quarter from a dismal winter was even faster than previously thought, a sign that growth will likely remain solid for rest of the year. The economy as measured by gross domestic product grew at a 4.6 percent annual rate in the April-June quarter, the Commerce Department said Friday. It was the fastest pace in more than two years and higher than the government’s previous estimate of 4.2 percent.The upward revision reflected stronger-than-expected business investment and exports last quarter.

As Exports Soar, US Economy Closes in on Fed’s Targets -- Revised data released today by the Bureau of Economic Analysis show that the US economy grew at a 4.6 percent annual rate in the second quarter of 2014, even faster than the 4.2 percent previously estimated. That was the most rapid quarterly growth since Q4 2010.  Much of the upward revision was due to the growth of exports, which also turned in their best performance in four years. The strong performance of the export sector is especially noteworthy in view of slow growth or recession in many US trading partners and the strong dollar, which had not yet begun to weaken in Q2. The BEA also made an upward revision, but not as large, to the growth of imports. As the following table shows, personal consumption expenditures also grew faster than previously reported, with durable goods accounting for more than half of total growth for that sector. Fixed investment was also significantly stronger than previously reported. The contribution to GDP growth from government consumption expenditures and gross investment was a little stronger than in the second estimate. All of the growth of the government sector came at the state and local levels. The contribution to growth from the federal level was negative, as it has been in 11 of the past 12 quarters.  Today’s report also included revised estimates for inflation, as measured by the national income and product accounts. The broadest measure of inflation, the GDP deflator, was revised downward from an annual rate of 2.1 percent to 1.7 percent. The rate of increase of the deflator for personal consumption expenditure (PCE) was unchanged at 2.3 percent.  The PCE deflator is especially significant because of its role in the decisions of the Federal Reserve. The Fed defines its dual policy targets as 2 percent inflation, as measured by the PCE deflator, and a range of 5.25 to 5.75 percent unemployment. The unemployment rate stood at 6.1 percent at the end of Q2. As the following “bullseye” chart shows, the economy is now closing in on the Fed’s targets. By midyear, performance of both indicators fell within the inner ring of plus or minus one percent of the targets.

Final Q2 GDP Surges 4.6% Thanks To Profit Definition Change; Personal Consumption Weaker Than Expected - The good news in the just released final Q2 GDP estimate soared by 4.6%, just as Wall Street expected, which was the biggest quarterly jump since 2011 Q4 2011, driven by gains in business spending, where mandatory forced Obamacare outlays led to a $17.5 billion chained-dollars increase in Healthcare spending to $1815.9 billion. Also helping were corporate profits which rose 8.4% in Q2, the most since Q3 2010, once again courtesy of adjustment in definitions (recall the IVA vs CCAdj change we discussed previously). Obviously, this bounce was a much needed rebound from the -2.1% drop reported in Q1 due to "harsh weather", yet one wonders what new and improved changes in definitions and/or mandatory government wealth redistribution programs the BEA will reveal in coming quarter to keep the pro-forma economic growth steady. The bad news is that, once again, the much anticipated US consumer renaissance, has been delayed, with Personal Consumption, which was supposed to rise 2.9%, instead printed at a final number of 2.5%. In fact the 1.75% (as a percentage of the final total 4.6% Q2 annualized increase) was barely above the 1.5% average from the LTM period as of Q1. So with Q2 in the books, and with both Obamacare, and the profit definition kitchen sinks already thrown in, we sit back and look forward to how the upcoming "harsh winter" crushes Q1 GDP once again, because the New Normal may be different, but snow sure rhymes.

The BEA's Q2 GDP Third Estimate: A Deeper Analysis  -- In their third estimate of the US GDP for the second quarter of 2014, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a +4.59% annualized rate, up about a half a percent yet again from their previous estimate. When compared to the prior quarter, the new measurement is now up 6.7% from a -2.11% contraction rate for the 1st quarter of 2014. This level of quarter to quarter improvement in GDP growth is truly rare; this is the best since the 2nd quarter of 2000, and the second best since the 2nd quarter of 1982. The positive revisions to the growth contributions during the 2nd quarter growth were in commercial fixed investments (+0.20%), exports (+0.12%), consumer expenditures (+0.05%), governmental expenditures (+0.04%) and inventories (+0.03%). The only downside revision was to imports (-0.03%). The "real final sales of domestic product" growth improved by about a half percent to +3.17%Real annualized per-capita disposable income was reported to be $37,494 -- up $13 per year from the previous estimate, but still down $375 from the 4th quarter of 2012. As mentioned last month, a significant portion of that increased disposable income went into savings, with the savings rate increasing to 5.4% -- the highest savings level since 4Q-2012. Among the notable items in the report:

  • The headline contribution of consumer expenditures for goods was 1.33% (up +0.03% from the previous report).
  • The contribution made by consumer services spending increased to 0.42% (up +0.02% from the 0.40% reported last month). The combined contribution to the headline number by consumers was 1.75%, up +0.05 from the prior report.
  • Commercial private fixed investments provided 1.45% of the headline number (up +0.20% from the 1.25% in the earlier estimate), and this uptick continues to be mostly in non-residential construction.
  • Inventories growth added 1.42% to the headline number (up +0.03% from the second estimate).
  • Governmental spending was up +0.04%, now adding 0.31% to the headline. The improvement was all at a state and local level, in spending on infrastructure investment.
  • Exports are now reported to be adding 1.43% to the headline growth rate (up +0.12% from last month's estimate).

One Good Sign the Economy Is Staying Strong: Your Payroll Tax Withholdings - The U.S. economy grew at a 4.6% annual rate in the second quarter, according to the latest report from the Commerce Department. But leaves are turning brown now and this morning’s report describes what happened from April to June. How has the overall economy performed since then? Here’s some evidence the strength has continued. One gauge of economic activity goes all the way through this week: payroll tax withholdings. Every day the U.S. Treasury reports the amount of revenue received from withholdings. This creates a handy, real-time gauge of the economy because the tax payment is typically collected from each paycheck. When people get raises, payroll-tax revenue rises the moment an increase goes into effect (and, of course, vice versa). “If you can figure out a way to correctly interpret the data, it’s never going to get revised and it’s real because nobody pays this tax on income that wasn’t earned,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. Mr. LaVorgna takes the 60-day moving average of payroll tax receipts, averaging roughly a quarter’s worth of revenue, and compares it to the same period from a year earlier. That method shows payroll taxes are bringing in about 5% more revenue than a year ago. Over time this data has often done a decent job of tracking nominal GDP, especially when not distorted by changes in the tax code. In the recession, withholdings fell faster than GDP, but they subsequently bounced upward more quickly.

"In theory GDP growth could continue indefinitely – if it weren't linked to something real."  -- William Rees, who along with Mathis Wackernagel developed Ecological Footprint analysis, commented on Paul Krugman's flippant slur on "degrowth" as an odd bedfellow of "the prophets of climate despair." The bottom line for Rees is that it is not really a choice between growth or degrowth but between planned, orderly degrowth or painful, chaotic degrowth imposed by nature. Growth in GDP could, "in theory," go on indefinitely ONLY if it wasn't linked to the biophysical world, which historically and currently it is. With permission, I reproduce Bill's comments below: First, any analysis of this type should be based on available data, not mere assertion of preferences or beliefs. Second, we should clarify what we are talking about and what we are not talking about. Here I am not talking about increases/decreases in income or GDP per se. Income growth or GDP/growth per capita is a money measure with no physical dimensions. Money is mere abstraction – in fact, most money today is mere 'number money' or electronic money that exists only in computers and whether the number is $1 or $1,000,000,000 makes no difference to the planet whatsoever. In theory, then, GDP growth could continue indefinitely – if it weren't linked to something real. But it is linked to something real, the biophysical world.  Consequently, global material and energy throughput is generally increasing in both per capita and gross terms. Remember too that, from a biophysical perspective, all economic production is mostly consumption—a vastly larger quantity of available energy/matter is processed or consumed than is contained in the products produced (and the ratio is deteriorating because of diminishing returns). And herein lies the problem. Energy and material production and consumption has material consequences for ecosystems that are vital for sustainability, i.e., survival. Consider just one fact: all food and fibre flows through the economy are produced by ecosystems and all the wastes of both our bio-metabolism and industrial metabolism must be assimilated and neutralized by ecosystems.

Charlatans and Cranks Forever - Paul Krugman -- Back when Paul Ryan released his first big-splash budget — the one that had the commentariat cooing over its “seriousness” — it included a link to an absurd Heritage Foundation analysis claiming, among other things, that the plan would drive the unemployment rate down to 2.8 percent. (Heritage then tried, unsuccessfully, to send its nonsense down the memory hole and pretend it never happened.) Ryan defenders tried to claim that the plan didn’t actually rely on that Heritage stuff; but as some of us tried to explain, the plan actually didn’t add up, relying on a multi-trillion-dollar magic asterisk on tax receipts. And we predicted that sooner or later Ryan would embrace magical theories about how tax cuts increase revenue. And here we are. One disturbing effect if Republicans take the Senate, by the way, may be that the Congressional Budget Office becomes a purely partisan operation — effectively a department of Heritage

Summers Urges ‘Major’ Spending Plan to Fix U.S. Infrastructure -  Former U.S. Treasury Secretary Lawrence Summers called for a “major” plan to boost the country’s economic growth and said borrowing to fix aging infrastructure would help lower the jobless rate. “What we need in the United States is a comprehensive growth strategy to get that rate from a struggling 2 percent to a 3 percent,” Summers said in an interview broadcast today on the Fox News program “Sunday Morning Futures With Maria Bartiromo.” “Over time, that would be transforming of job opportunities for millions of Americans.” Summers, a Harvard University professor, cited the need for repairs to New York’s John F. Kennedy International Airport as a way to help create jobs. His comments echo calls from Treasury Secretary Jacob J. Lew for infrastructure spending in the U.S. and for other nations to take such steps to strengthen demand. “We could invest in infrastructure in a major way in this country,” Summers said. While the unemployment rate nationwide was 6.1 percent in August, Summers said it’s higher in the construction industry. “We can borrow money for the long term in a currency we print ourselves at just about 2.5 percent,” he said. “If now is not the time to repair our infrastructure, I don’t know when that time will come.” The yield on 10-year Treasury notes was 2.57 percent at the end of last week, according to Bloomberg Bond Trader data.

U.S. Ramping Up Major Renewal in Nuclear Arms - KANSAS CITY, Mo. — A sprawling new plant here in a former soybean field makes the mechanical guts of America’s atomic warheads. Bigger than the Pentagon, full of futuristic gear and thousands of workers, the plant, dedicated last month, modernizes the aging weapons that the United States can fire from missiles, bombers and submarines.  It is part of a nationwide wave of atomic revitalization that includes plans for a new generation of weapon carriers. A recent federal study put the collective price tag, over the next three decades, at up to a trillion dollars.This expansion comes under a president who campaigned for “a nuclear-free world” and made disarmament a main goal of American defense policy. The original idea was that modest rebuilding of the nation’s crumbling nuclear complex would speed arms refurbishment, raising confidence in the arsenal’s reliability and paving the way for new treaties that would significantly cut the number of warheads.  Instead, because of political deals and geopolitical crises, the Obama administration is engaging in extensive atomic rebuilding while getting only modest arms reductions in return.

Washington is For Sale and the Defense Industry is Buying - There is a strong profit motive to war, even the limited engagement currently taking place in Syria - Iraq against ISIS.  In this posting, I'd like to examine the role of the defense industry in Washington politics, particularly, the use of their profits to sway policy.   According to Open Secrets, while the defense industry is not one of the largest contributors to politicians, it is one of the most powerful sectors with individuals and political action committees associated with the defense sector contributing more than $27 million to political candidates during the 2012 Presidential Election Cycle.  Since 1990, the sector has contributed $213.756 million to politicians with 57 percent of the contributions going to Republican candidates and 43 percent going to Democratic candidates.  Here is a list showing which sectors of the economy are the most active contributors to the federal political process in 2013 - 2014: Note that defense comes in thirteenth place, spending a tiny fraction of what is donated by the finance, law and health sectors. On the lobbying side, the defense industry has spent far more than they have spent on donations to specific candidates; in each year from 2005 to 2013, defense has spent over $100 million on getting Washington to see things their way as you will see later in this posting. Let's look at more details on the contribution side first.  Here is a graphic showing the top defense corporate contributors for 2013 - 2014:

First U.S. Stealth Jet Attack on Syria Cost More Than Indian Mission to Mars - Fears of a potent Syrian air defense system drove the U.S. Air Force to send its silver bullet force of F-22 Raptor stealth fighters into battle for the first time ever. The Pentagon confirmed on Sept. 23 that the $150 million jets had struck an ISIS command and control facility in Raqqah, Syria with a satellite-guided bomb. That was right after an initial wave of U.S. Navy Tomahawk cruise missiles hit their targets around Aleppo and Raqqah. But the Raptors’ first mission wasn’t cheap. Together, the missiles and airstrikes cost at least $79 million to pull off, according to a Daily Beast tally. That's more expensive than India's mission to Mars, which was successfully completed Wednesday at a cost of just $74 million. The U.S. government told the Bashar al-Assad regime about the incoming attacks shortly before they happened. But the Pentagon did not trust the Syrian military to leave American warplanes alone as they struck ISIS and another Al Qaida-affiliated terrorist group called Khorasan. That’s why the Air Force needed assets like the blisteringly fast, high-flying Raptor which could operate inside heavily defended airspace with relative impunity.

America’s dark economic secret: How a giant gimmick has wages and jobs hanging by a thread - Treasury Secretary Jack Lew’s announcement of a series of new rules to reduce the financial incentives behind corporate inversions tells you a lot about where our economy sits right now. Productivity and growth scarcely matter as much as what I would call the “gimmick economy.” Companies now spend an inordinate amount of time figuring out not how to beat their competition, but how to prosper from tricks and loopholes their accountants find buried in the law. Every corporation has become, at the root, a financial company, adept at moving money around on paper and little else. And the government has to scramble in a never-ending race to keep up with the innovations. To start with, understand what a corporate inversion is: an on-paper transaction involving a merger between a larger U.S. company and a smaller counterpart abroad. No worker moves overseas as a result of the merger. No production facilities or corporate offices transfer. Instead, the address on the corporate masthead changes from America to the low-tax alternative where the overseas company is headquartered. It’s a completely fictitious pretension, no different than if I used a handicapped placard to park in good spots everywhere I went, and then limped around after getting out of the car. CEOs claim that America’s burdensome 35 percent corporate tax rate forces them to be creative, and in absence of fundamental tax reform, they must reluctantly renounce their corporate citizenship to stay competitive with their overseas counterparts. First of all, in actuality, corporate taxes are not much of a burden; thanks to all the loopholes and credits, corporations pay on average a 12.6 percent tax rate, according to a 2013 Government Accountability Office paper. Second, by that logic, if I think a bank vault unfairly denies me access to lots of money, I should be allowed to use creative strategies to bust it open.

Obama Administration Unveils New Rules to Fight Tax Inversions -- The U.S. Treasury Departmentsaid Monday it will take steps to curb the practice of companies moving their headquarters overseas by trimming the tax benefits of those transactions — known as corporate tax inversions — and, in some cases, stopping them entirely. “Inversion transactions erode our corporate tax base, unfairly placing a larger burden on all other taxpayers, including small businesses and hard-working Americans,” Treasury Secretary Jacob Lew said. “It’s critical that this unfair loophole be closed.”Lew told reporters on a conference call that he believes the best way to curb a practice that is increasingly popular with corporations, which can generate millions of dollars in tax savings, is through comprehensive tax reform with anti-inversion provisions and he also urged Congress to pass new legislation to tackle the issue.“Now that it’s clear that Congress won’t act before the lame-duck session, we’re taking initial steps that we believe will make companies think twice before undertaking an inversion to try to avoid U.S. taxes,” Lew said. Lew announced a new set of measures meant to make inversions less appealing to U.S. companies, including by eliminating some of the ways those companies gain access to deferred earnings of foreign subsidiaries without incurring associated taxes. The Treasury will also require that owners of U.S. companies own less than 80% of a newly combined entity, thus making it more difficult for them to invert in the first place.

Treasury Announces Rules to Help Curb Benefits of Inversions : The Treasury Department announced new rules Monday afternoon seeking to make corporate inversions less economically attractive. The announcement comes two weeks after Treasury Secretary Jack Lew said administrative action on slowing the tide of corporate inversions was coming soon. Corporate inversions, where a U.S. company buys a smaller foreign company and moves its headquarters for tax purposes to lower-tax countries, have skyrocketed in the last year, with hundreds of billions of dollars of either announced or completed deals. President Obama has pointedly criticized the deals, calling them unpatriotic, and Democrats in Congress have proposed bills that would make the deals less profitable or more difficult to do. Lew said on a call with reporters that the rule changes will make it so that some inversions “will no longer make sense.” Lew said the moves were only a first step and that it was “incumbent on Congress to pass anti-inversion legislation,” but that the rule changes will “make inversions substantially less appealing.” The new rules will not ban inversions and do not deal with one of the main ways comapnies can reduce their tax bills following a move overseas: loading up U.S.-based subsidiaries with debt that can then be deducted from their taxes.

US Treasury Cracks Down On Tax Inversions - "Today, Treasury is taking action to reduce the tax benefits of — and when possible, stop — corporate tax inversions. This action will significantly diminish the ability of inverted companies to escape U.S. taxation.  For some companies considering mergers, today’s action will mean that inversions no longer make economic sense." And yet, to think: the US government would have spared itself so much jawboning effort and fake work if all the Treasury did was promise that the 10 largest shareholders of the "unpatriotic inversion offender" would get the "tea party" treatment by the IRS. Then watch as inversions end with a thud, never to be heard of again...

Obama Administration Targets Corporate Inversions with Regulation Changes - The Obama Administration announced this week that it would clamp down on corporate inversions by altering existing regulations dictating the treatment of foreign earnings and foreign controlled corporations. These rule changes will seek to reduce the incentive for a company to invert by reducing its financial benefit. These rule changes will undoubtedly reduce the incentive to invert. However, the rule changes are equivalent to giving a patient with pneumonia cough syrup: it treats the symptom, not the disease. The real problem of inversions is the uncompetitive nature of our tax code. Even more, a true reform that would move to a territorial system would make these rule changes unnecessary and would make inversions a non-issue. The first set of rule changes make it harder to invert in the first place. Under Section 7874, a U.S. corporation can invert (become a foreign corporation) when the foreign corporation owns at least 21 percent of the new combined foreign corporation. The rule change would disregard certain passive assets in this calculation. This means that it will be harder for a foreign company to reach the 21 percent threshold. The second change redefines certain transactions between an inverted firm and another foreign firm to be taxable under U.S. law. Under current law, the United States taxes any foreign corporate income that is repatriated (brought back) to the United States as a dividend payment. For example, if a U.S. corporation earns $100 in a foreign country and then moves that money back to the United States, it triggers a U.S. tax liability. However, if that income remains outside of the United States and is reinvested in ongoing activities, tax is deferred. In order to prevent possible circumvention of U.S. tax liability, the U.S. also deems payments for stocks or loans to the parent company as repatriated income.

Why the U.S.’s biggest business group thinks new Obama anti-inversion rules are a sham - The Chamber of Commerce, the nation’s largest business group, has launched a barrage of attacks against new White House rules aimed at stopping companies from moving abroad to lower their U.S. taxes. The chamber’s president and chief economist argue that the rules to fight corporate inversions are not only ineffective, but are more likely to harm the economy in the long run. The group has even put out ads in big newspapers and cable stations suggesting that the new rules will cost American jobs.  In an interview with MarketWatch, chamber chief economist Martin Regalia says corporation inversions have increased because of a decrepit U.S. tax code. The statutory tax rate on companies — what they are supposed to pay — is the highest in the industrialized world and the U.S. is one of the few nations that taxes worldwide profits of domestic companies. Most nations use a territorial system that only taxes what domestic-owned companies earn in their home country. Here are excerpts from the interview. The interview has been edited for length.

Pfizer Seeking Inversions Shows Companies Unfazed by Lew - Pfizer Inc. has approached Actavis Plc to express its interest in an acquisition that could allow the U.S. drugmaker to move overseas and reduce taxes, in a sign the Obama administration’s efforts to curtail such deals could fall short. Pfizer made its approach before the U.S. Treasury Department announced new rules Sept. 22 to make such deals -- called tax inversions -- more difficult, people with knowledge of the matter said. Those changes won’t deter Pfizer, even if they are a complication, one of the people said, asking not to be identified discussing private information. Another high profile inversion deal, Burger King Worldwide Inc.’s purchase of Tim Hortons Inc., will proceed, the Canadian company said after the rule changes were revealed. While Treasury Secretary Jacob J. Lew could take further steps, he steered clear of putting an end to a key benefit of inversions, which allow companies to lower their U.S. earnings by shifting profits overseas using a technique known as earnings stripping.

The new inversion rules are a fine start, but the business tax code needs serious attention. - Now that the dust has settled a bit on the Treasury’s exciting announcement of their new inversions rules, let’s kick back and cogitate a bit more on a few of the many remaining issues in the US corporate code. The Treasury has thus far created but a speed bump on the international tax avoidance highway. As I read it, they’ve made it harder for newly merged corporations to make their deferred earnings—profits the former US parent company was holding abroad to avoid US taxation—appear to be property of the new foreign firm. (Treasury: “Today’s notice removes benefits of these “hopscotch” loans by providing that such loans are considered “U.S. property” for purposes of applying the anti-avoidance rule.”) I suspect that changes the marginal calculus for some firms considering inversions—most analysts view this issue of distributing foreign holdings tax free as the main motivator for many an inverter—but no one who follows this sees it as a game changer.  CEA chair Jason Furman just presented a paper on corporate tax reform, mostly reviving ideas that the administration put forth a few years ago—lower rate, broader base, minimum tax on deferred foreign earnings. In the process, he updated two charts of which you should be aware.  Since interest is a deductible expense, the marginal tax rate for debt financing in the corporate sector is negative 60%; for equity, it’s +37%. Jason notes that the “…United States has the lowest tax rate on debt-financed investment in the OECD and the largest debt-equity disparity in the OECD.” The solution, likely not coming anytime soon to a tax reform near you, is to reduce this huge tilt by limiting the amount of interest that can be deducted...this next chart won’t surprise you, but the magnitudes are still worth observing. It shows the ratio of offshored US corporate profits relative to the GDP of the countries where these dollars reside. In Bermuda, the British Virgin Islands, and the Cayman’s, that ratio is over 1,000%. I hope you’ll allow me to speculate that such location decisions are not the result of corporations answering the question, “in terms of growth, innovation, and productivity, where’s the best place for us to invest our profits?”

Everything That’s Wrong with the US Tax System in One Chart - Last week the Tax Foundation released its annual International Tax Competitiveness Index for 2014. The United States ranked 32 out of 34 OECD countries surveyed. Only Portugal and France got lower competitiveness scores, and not by much. As if that were not bad enough, the competitiveness score is only half the story. When you put it together with other data, the US tax system looks like even more of a mess. First a bit about the Tax Foundation and its competitiveness index. The foundation invites  journalists to describe it as “a non-partisan research think tank, based in Washington, DC,” but not all agree. For example, Dan Crawford, writing for Angry Bear, says, “Its work is aimed at one purpose–convincing Americans that they pay too much in taxes and that government is too big.” Others point out contributions from the Koch Family foundations and ties to other conservative groups as signs of partisan bias. Paul Krugman says flat-out that “knowledgeable people don’t trust the Tax Foundation.” In an important way, though, the Tax Foundation’s conservative ties only reinforce its credibility as a monitor of tax system features that are perceived as burdensome by its corporate friends. The foundation is entirely up front about what the Tax Competitiveness Index tries to measure:  When the foundation gives the United States a low competitiveness score, then, it is simply saying that there are a lot of things about our tax system that corporate businesses don’t like—the kinds of things they consider when they decide where to locate, how to operate, and where to find funds for their investments.

The Rule of Law is Vastly Under-Priced: When people prattle-on about tax, it is mostly made from ground-level, with a focus on tax rates. When my most rabid libertarian friends weigh in on the subject, discussion extends to the moral realm. Some of these debates are constructive, a few downright stimulating, though most such arguments descend into demagoguery that take kernels of truthy-sounding platitudes about freedom, and the morality of taxation's coercive nature, profoundly at odds with the sensibility and logic of the entente that secures from the hordes the very property from which they derive their benefits. Those benefitting most from the secure property rights might be forgiven for conceptual ignorance - introspection being a scarce commodity amongst the wealthy - but the vociferous and cynical denial of the asymmetric benefits of securing property rights, both intra- or inter-generationally, whether due to some combination of attribution bias, feigned religious belief, or simple greed is less excusable. In a new gilded age, the idea that the rule of law is vastly underpriced by those who benefit most should be anything but contentious. Few doubt we humans are animals. Few outside the most fundamentally-religious wing-nuts would doubt that our social, political, and economic structures as well as our mores, values, responsibilities to others are, for the most part, man (and woman) made. We have done so NOT out of altruism, but out of BOTH necessity and expediency, whether collectively agreed or imposed by force. They have evolved hand-in-hand with the ascent of civilization. And they have contributed handsomely to the progress and advancement of the species. So why is it so seemingly difficult for the uber-beneficiaries of the rule of law to reconcile their (mostly fiscal) responsibilities to the entente with The People which is the very fount that allows them, and increasingly one might argue, their less-deserving progeny, to maintain a position in the stratosphere of power and control, with a recognition that the very legitimacy of their reign is conferred by The People through the rule of law?

Ordinary People Bear Economic Risks, Donald Trump Doesn't - Robert Reich - Last week, the Trump Plaza folded and the Trump Taj Mahal filed for bankruptcy, leaving some 1,000 employees without jobs. Trump, meanwhile, was on twitter claiming he had “nothing to do with Atlantic City,” and praising himself for his “great timing” in getting out of the investment. In America, people with lots of money can easily avoid the consequences of bad bets and big losses by cashing out at the first sign of trouble. The laws protect them through limited liability and bankruptcy. But workers who move to a place like Atlantic City for a job, invest in a home there, and build their skills, have no such protection. Jobs vanish, skills are suddenly irrelevant, and home values plummet. They’re stuck with the mess. Bankruptcy was designed so people could start over. But these days, the only ones starting over are big corporations, wealthy moguls, and Wall Street.

The Rich Are Getting Richer, Part the Millionth -- It's not easy finding new and interesting ways to illustrate the growth of income inequality over the past few decades. But here are a couple of related ones. The first is from "Survival of the Richest" in the current issue of Mother Jones, and it shows how much of our total national income growth gets hoovered up by the top 1 percent during economic recoveries. The super-rich got 45 percent of total income growth during the dotcom years; 65 percent during the housing bubble years; and a stunning 95 percent during the current recovery. It's good to be rich. But there's more! The next chart, via Ryan Cooper, shows this trend even more explicitly. It comes from Pavlina Tcherneva, an economics professor at Bard College, and it also shows the distribution of national income growth during economic expansions. The difference is that it shows the share of the top 10 percent, and it shows it for every single expansion since World War II. It's a pretty stunning chart. The precise numbers (from Piketty and Saez) can always be argued with, but the basic trend is hard to deny. After the end of each recession, the well-off have pocketed an ever greater share of the income growth from the subsequent expansion. Unsurprisingly, there's an especially big bump after 1975, but this is basically a secular trend that's been showing a steady rise toward nosebleed territory for more than half a century. Welcome to the 21st century.

“The Most Remarkable Chart I’ve Seen in Some Time”: Rich Gain More Ground in Every US Expansion -- Yves Smith -- If you had any doubt the US economy had been rearchitected to favor the haves versus the have-lesses, this chart by Pavlina Tcherneva should settle it. Justin Wolfers, hardly a raging liberal, just tweeted:While the overall trend is dramatic enough, you can also see two major shifts: the big change with the Reagan era, with its higher-income and capital-favoring tax cuts, of the top 10% suddenly reaping vastly disproportionate gains relative to the rest of the distribution. The Bush Administration, with even more changed in taxes that shifted income to the rich, is another big ratchet. But arguably the most dramatic change is under the Obama Adminstration, where the top echelon’s gains came in part at the expense of everyone else. Matt Stoller was early to notice this change. As he wrote in 2012: A better puzzle to wrestle with is why President Obama is able to continue to speak as if his administration has not presided over a significant expansion of income redistribution upward.  The data on inequality shows that his policies are not incrementally better than those of his predecessor, or that we’re making progress too slowly, as liberal Democrats like to argue.  It doesn’t even show that the outcome is the same as Bush’s.  No, look at this table, from Emmanuel Saez (h/t Ian Welsh).  Check out those two red circles I added.

The Benefits of Economic Expansions Are Increasingly Going to the Richest Americans -- Economic expansions are supposed to be the good times, the periods in which incomes and living standards improve. And that’s still true, at least for some of us. But who benefits from rising incomes in an expansion has changed drastically over the last 60 years. Pavlina R. Tcherneva, an economist at Bard College, created a chart that vividly shows how. (The chart appears in print in the Fall 2014 edition of the Journal of Post Keynesian Economics, in her article “Reorienting fiscal policy: A bottom-up approach.”) Back in the 1940s, '50s and '60s, most of the income gains experienced during expansions — the periods from the trough of one recession until the onset of another — accrued to most of the people. That is to say, the bottom 90 percent of earners captured at least a majority of the rise in income.With each expansion in sequence, however, the bottom 90 percent captured a smaller share of income gains and the top 10 percent captured more. Fast-forward to the 1990s and early 2000s expansions, and a new pattern emerged, with the huge majority of income gains going to the top 10 percent, leaving pocket change for everybody else. From 2001 to 2007, 98 percent of income gains accrued to the top 10 percent of earners, Ms. Tcherneva found, basing her analysis on data from Thomas Piketty and Emmanuel Saez, the academics who have made a speciality in documenting the rise of income inequality around the world. (As a point of reference, an American needed a 2011 adjusted gross income of $120,136 to be in the top 10 percent of earners that year, according to I.R.S. data.)

How the 0.00003 Percent Lives -- Meet your friendly neighborhood billionaire. He’s a 63-year-old married guy. He’s got just over $3 billion in the bank, including $600 million in cash. He made his own money on Wall Street. He went to Penn. He loves sports. That basic composite comes from Wealth-X and UBS’s new “census” of the world’s 2,325 billionaires, giving a rare view into how the 0.00003 percent lives. And they live very, very well.  Their ranks are growing, their fortunes swelling. They now control about 4 percent of the world’s wealth. That’s $7.3 trillion, enough to take Apple private twelve times over, say, or to pay off the entirety of the United States’ debt to China.   Our representative American billionaire made the bulk of his money in his 40s and 50s in finance. About half of his money is in private investments, like equity in his own firm. He keeps about 20 percent in cash, and a delicious 5 percent in real estate and “luxury assets,” presumably tamed jaguars and yachts with helicopter landing pads. He owns four houses, each worth about $20 million.  His wealth has grown in the past year, but he has not beaten the overall market. In part, that is because he holds so much cash, given that interest rates are so low and questions about the strength of the recovery remain. But there are other reasons, too.  When not toiling in the mines, our billionaire loves hobnobbing with other billionaires. “Generally speaking, billionaires form bonds and relationships with individuals who share their interests and abilities,” the census solemnly reports. That class of billionaires cares nothing for the nation-state, by the way. Most of them live in megacities like New York, Hong Kong, and London, hopscotching from “city to city, not country to country.”  He’s a philanthropic guy, but less so than you might think. Over his lifetime, he’ll probably give away a cool hundred million, but that’s just pennies on his many dollars. Where will the money go? Straight back to Penn. Billionaires love giving away money to schools, with one in three naming education as their top philanthropic cause.. He might have already started bequeathing his assets to his children and grandchildren, helping to kick of an enormous intergenerational transfer of wealth. In other words, get ready for the princelings — the class of billionaire that is growing fastest is the class whose money comes both from inheritances and elbow grease.

The Next Crisis - Part two - A manifesto for the supremacy of the 1% -- The present crisis is not yet over and yet we are already overdue for the next. In Part One I suggested that not only are the 1% well aware of this but that while they have been telling us how we must ‘save’ the present system and assuring us that any radical break with the policies of the past will result in catastrophe, they have in fact been working hard to engineer very radical changes. We have all seen the decline in living standards and are all acutely aware of the changes which directly effect us. But I wonder if the true significance of the changes, when taken together, has largely gone unnoticed? Certainly the Over Class has not made clear their real intentions. Why would they? I believe the 1% know that to protect their wealth and power next time will require radical political dismantling of what is left of our democracy. Necessarily much of what follows is speculative. But the speculation is, I think, rooted in and extrapolated from what we can already see happening today. Some things about the present system must be maintained, others expanded and some new ones added. Taken together the changes, I think, amount to the beginnings of a Manifesto for the 1%. So here are some of the things, I think, our global Over Class would like to achieve and how they intend to achieve them.

CEOs Get Paid Too Much, According to Pretty Much Everyone in the World -  It turns out that most people, regardless of nationality or set of beliefs, share similar sentiments about how much CEOs should be paid — and, for the most part, these estimates are markedly lower than the amounts company leaders actually earn. Using data from the International Social Survey Programme (ISSP) from December 2012, in which respondents were asked to both “estimate how much a chairman of a national company (CEO), a cabinet minister in a national government, and an unskilled factory worker actually earn” and how much each person should earn, the researchers calculated the median ratios for the full sample and for 40 countries separately. For the countries combined, the ideal pay ratio for CEOs to unskilled workers was 4.6 to 1; the estimated ratio was about double, at 10 to 1. But there were some differences country to country. People in Denmark, for example, estimated the ratio to be 3.7 to 1, with an ideal ratio being 2 to 1. In South Korea, the estimated gap was much larger at 41.7 to 1. The ideal gap in Taiwan was particularly high, at 20 to 1. This is what the breakdown looks like, country by country:

Financial Criminals Have Been Fined Billions, but They Rarely Pay - After pleading guilty to fraud and money laundering, Belfort was ordered in 2003 to pay out about $110 million to those he wronged. Since then, he’s only paid $11.8 million. He was also sentenced to four years in federal prison, but he only ended up serving just shy of two years. Meanwhile, he’s thriving as a motivational speaker, and has made some money from selling the film rights to his life story. In a testimonial for his speaking services, Leonardo DiCaprio called Belfort “a shining example of the transformative qualities of ambition and hard work.”  Belfort’s relatively consequence-free story is only one of the more prominent ones in a parade of aggravating numbers reported on earlier this week by The Wall Street Journal. There’s still $97 billion out there in penalties that the Justice Department has failed to recover, and between September 2012 and September 2013, the department collected only 22 percent of penalties doled out. One particularly demoralizing figure was that the Commodity Futures Trading Commission had collected about a tenth of a percent of the $3.7 billion

The SEC Coverup for Private Equity: Worse Than for TBTF Banks -- Yves Smith -- In a mere four months, the SEC has gone from calling out widespread abuses in the private equity industry to not just walking back its detailed criticisms, but actually enabling a coverup. Readers may recall that in May, SEC inspection chief Andrew Bowden gave what was by regulatory standards a blistering speech describing widespread misconduct in the private equity industry. His detailed account followed SEC Chairman Mary Jo White setting forth uncharacteristically clear-cut details of private equity abuses in testimony to Congress.  Bowden was specific about the extent of the abuses by general partners, which included what amounts to theft, as in taking funds they weren’t entitled to. Bowden categorically stated that the bad acts implicated over half the firms they’d examined. Moreover, he described in considerable detail the types of grifting they’d found so far. Privately, the SEC has made clear that the abuses weren’t concentrated at small fry but were across the spectrum of firms, including the very top players. Within weeks of the Bowden speech, powerful support came in the form of Wall Street Journal articles by seasoned reporter Mark Maremont describing KKR’s far too clever and potentially impermissible dealings with its house consulting firm, KKR Capstone (and yes, sports fans, KKR Capstone is an affiliate of KKR, as we explained here). Gretchen Morgenson provided more confirmation of the SEC’s charges, describing how private equity general partners paid themselves for services never rendered. Morgenson followed up in July with an even bigger and more obvious abuse that the SEC is apparently ignoring, the failure of private equity firms to register as broker-dealers.

Carmen Segarra: Secretly Tape Recorded Goldman and New York Fed - Jake Bernstein has a financial blockbuster up today at ProPublica on the secret tape recordings made inside the New York Fed and Goldman Sachs by bank examiner turned whistleblower, Carmen Segarra, who was fired by the New York Fed after she refused to change her examination findings on Goldman Sachs.  Segarra is one gutsy bank examiner and lawyer: according to the article, she went to the Spy Store, bought a tiny microphone, and proceeded to tape record two of the most powerful financial institutions in the world — 46 hours worth of tapes. Read our past coverage of the Carmen Segarra story and the deeply conflicted New York Fed at these links:

Fired by the New York Fed for refusing to change results of Goldman Sachs conflict-of-interest investigation: Sacked regulator sues-- - A former employee has sued the Federal Reserve Bank of New York, saying she was wrongfully terminated because she refused to change the results of her investigation into Goldman Sachs.Carmen Segarra, 41, filed her federal lawsuit against the New York Fed Thursday in Manhattan.Segarra's lawsuit said the New York Fed interfered with her examination of Goldman Sach's legal and compliance divisions and directed her to change her findings. She said she refused and was fired three days later, in May 2012.The Harvard, Columbia, Sorbonne and Cornell University-educated compliance officer said that in her seven months of examining Goldman, she found the bank did not have policies to prevent conflicts of interest as required by regulation.The firing caused Segarra’s career in banking to be ‘irreparably damaged,’ stated her lawsuit, which seeks her reinstatement to her position as senior bank examiner, back pay, compensation for lost benefits, compensatory damages, attorney's fees and other expenses.Segarra's finding led to the New York Fed's Legal and Compliance risk team to approve downgrading Goldman's annual rating pertaining to policies and procedures, the lawsuit said.

N.Y. Fed Staff Afraid to Speak Up, Secret Review Found - The Federal Reserve Bank of New York commissioned a secret internal investigation of itself in 2009, uncovering a culture of suppression that discouraged regulatory staffers from voicing worries about the banks they supervised. The review found a highly bureaucratic structure that discouraged staffers from offering their honest opinions. The report called for “a sustained effort to overcome excessive risk-aversion and get people to speak up when they have concerns, disagreements or useful ideas.” The probe recommended the New York Fed “encourage a culture of critical dialogue and continuous questioning.” The review was first reported by ProPublica and This American Life of the radio station WBEZ Chicago. The investigation, conducted by Columbia University finance professor David Beim, was initially confidential but was later released by the Financial Crisis Inquiry Commission. Mr. Beim’s report called on the New York Fed to demand that its regulatory staffers maintain a “more distanced, high-level and skeptical view” of how the banks they oversee make money. Mr. Beim didn’t immediately respond to a request for comment on the report.

OMG! — The Fed Is Corrupt!   -- When I woke up this morning, nursing a hangover, you can't blame me for thinking I was dreaming when I turned the radio on and heard NPR talking about "regulatory capture" at the Federal Reserve. In the six years that have passed since the Financial Crisis, I never once heard NPR discuss corruption in the United States. I later confirmed that I was wide awake when I read Michael Lewis' The Secret Goldman Sachs Tapes (Bloomberg View, September 26, 2014). Now that I think about it, I don't think I've ever heard NPR talk about corruption in the United States. And do you know why? Because these compliant assholes broadcast from Inside the Beltway, so their values reflect the values of the elites that operate there. For example, they've been talking about ISIS and terrorist threats for weeks now, practically non-stop!  Like the Fed, NPR itself is corrupt, and they don't even know it  Fortunately, Carmen Segarra taped her meetings with representatives of Goldman Sachs, which she was supposed to regulate. And since she was actually trying to regulate The Beast (the Antichrist, 666, etc.), the Fed fired her for trying to do her job. Here's Lewis, summing up. You sort of knew that the regulators were more or less controlled by the banks. Now you know. The only reason you know is that one woman, Carmen Segarra, has been brave enough to fight the system. She has paid a great price to inform us all of the obvious. She has lost her job, undermined her career, and will no doubt also endure a lifetime of lawsuits and slander.So what are you going to do about it? At this moment the Fed is probably telling itself that, like the financial crisis, this, too, will blow over. It shouldn't.

Sen. Warren Wants Hearings Over New York Fed’s Relationship With Banks - U.S. Senator Elizabeth Warren (D., Mass.) on Friday called for a congressional hearing into allegations that regulators at the Federal Reserve Bank of New York were too close to the banks they supervised.  “Congress must hold oversight hearings on the disturbing issues raised by today’s whistleblower report when it returns in November, because it’s our job to make sure our financial regulators are doing their jobs,” Ms. Warren said. A report by non-profit news organization ProPublica and the “This American Life” program of radio station WBEZ Chicago brought to light a secret internal review commissioned by the New York Fed in 2009.  The review found a highly bureaucratic structure that discouraged staffers from offering their honest opinions. It called for “a sustained effort to overcome excessive risk-aversion and get people to speak up when they have concerns, disagreements or useful ideas.”“When regulators care more about protecting big banks from accountability than they do about protecting the American people from risky and illegal behavior on Wall Street, it threatens our whole economy. We learned this the hard way in 2008,” Ms. Warren said in a statement.

Why the Fed Is So Wimpy - Regulatory capture — when regulators come to act mainly in the interest of the industries they regulate — is a phenomenon that economists, political scientists, and legal scholars have been writing about for decades.  Bank regulators in particular have been depicted as captives for years, and have even taken to describing themselves as such.  Actually witnessing capture in the wild is different, though, and the new This American Life episode with secret recordings of bank examiners at the Federal Reserve Bank of New York going about their jobs is going to focus a lot more attention on the phenomenon. It’s really well done, and you should listen to it, read the transcript, and/or read the story by ProPublica reporter Jake Bernstein.  Still, there is some context that’s inevitably missing, and as a former banking-regulation reporter for the American Banker, I feel called to fill some of it in. Much of it has to do with the structure of bank regulation in the U.S., which actually seems designed to encourage capture. But to start, there are a couple of revelations about Goldman Sachs in the story that are treated as smoking guns. One seems to have fired a blank, while the other may be even more explosive than it’s made out to be.

Bank of America using three intelligence firms to attack WikiLeaks - You would almost need to be disconnected from the Internet to not know about Aaron Barr, the CEO of HBGary Federal, feeling the wrath of Anonymous after Barr told of his intentions to expose the leaders of Anonymous at an upcoming Security B-Sides conference. But today, WikiLeaks published a document called "The WikiLeaks Threat" [PDF] which revealed two other intelligence firms, besides HBGary, were working to develop a strategic plan of attack against WikiLeaks on the behalf of Bank of America. "The WikiLeaks Threat" outlines a plan by three private data intelligence firms, Palantir Technologies, HBGary Federal, and Berico Technologies, which were hired to effectively combat and attack WikiLeaks. The intel firms were "acting upon request from Hunton and Williams, a law firm working for Bank of America." The Bank of America drama started when The New York Times wrote that Assange said he planned to "take down" a major American bank and use data off an executive's hard drive to reveal an "ecosystem of corruption." At that point, Bank of America began an internal investigation with the help of consulting firm Booz Allen Hamilton, "scouring thousands of documents," and looking for any systems that had been compromised. The NYTimes reported that the Bank of America "has also sought advice from several top law firms about legal problems that could arise from a disclosure, including the bank's potential liability if private information was disclosed about clients." The "The WikiLeaks Threat" proposal published today on WikiLeaks begins with an overview of WikiLeaks, including history and profile of Julian Assange and an organizational chart with names of staff and volunteers. 

Is Obama Going Easy On Banks That Break the Law? - A few months ago, in a press conference about the felony conviction of Credit Suisse, Attorney General Eric Holder said, “This case shows that no financial institution, no matter its size or global reach, is above the law.” Yet earlier this month, the Obama administration announced its proposal to waive some of the possible sanctions against Credit Suisse. The little-noticed waiver, which was outlined in the Federal Register, comes amid criticism that the Obama administration has gone too easy on major financial institutions that break the law. In its announcement outlining the waiver, the Department of Labor notes that Credit Suisse “operated an illegal cross-border banking business that knowingly and willfully aided and assisted thousands of U.S. clients in opening and maintaining undeclared accounts” and in “using sham entities” to hide money. Under existing Department of Labor rules, the conviction could prevent Credit Suisse from being designated a Qualified Professional Asset Manager. That designation exempts firms from other federal laws, giving them the special status required to do business with many pension funds. The Obama administration is proposing to waive those anti-criminal sanctions against Credit Suisse, thereby allowing Credit Suisse to get the QPAM designation needed to continue its pension business. The waiver proposal follows a larger pattern. In June, Bloomberg News reported that federal prosecutors have successfully pushed U.S. government agencies to allow Credit Suisse to avoid many regulatory sanctions that could have accompanied its criminal conviction.

Fed Said to Warn Banks on Capital Charges on Leveraged Loans - Federal Reserve officials are warning banks that rising levels of high-risk, high-yield loans on their balance sheets may require more capital held against them, according to a person familiar with the conversations.Regulators have beefed up scrutiny of the market after guidance issued in 2013 by the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. didn’t slow deal volume or declining credit standards. Banks have arranged about $411 billion of leveraged loans sold to investors such as mutual funds this year, compared with a record $696 billion in all of 2013, according to data compiled by Bloomberg. “Covenant-lite” loans, which lack requirements that can help protect lenders, are on pace to exceed 70 percent of total issuance this year, according to a Barclays Plc research report dated Sept. 5. “It appears that many banks have not fully implemented standards set forth in the interagency guidance,” Todd Vermilyea, senior associate director for banking supervision and regulation at the Fed Board, said in May.

5 U.S. Banks Each Have More Than 40 Trillion Dollars In Exposure To Derivatives -- When is the U.S. banking system going to crash?  I can sum it up in three words.  Watch the derivatives.  It used to be only four, but now there are five "too big to fail" banks in the United States that each have more than 40 trillion dollars in exposure to derivatives.  Today, the U.S. national debt is sitting at a grand total of about 17.7 trillion dollars, so when we are talking about 40 trillion dollars we are talking about an amount of money that is almost unimaginable.  And unlike stocks and bonds, these derivatives do not represent "investments" in anything.  They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future.  The truth is that derivatives trading is not too different from betting on baseball or football games.  Trading in derivatives is basically just a form of legalized gambling, and the "too big to fail" banks have transformed Wall Street into the largest casino in the history of the planet.  When this derivatives bubble bursts (and as surely as I am writing this it will), the pain that it will cause the global economy will be greater than words can describe.

Unofficial Problem Bank list unchanged at 435 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Sept 19, 2014.  Only one addition and deletion to report this week to the Unofficial Problem Bank List. So the list count stays steady at 435 institutions but assets move down slightly to $137.4 billion. A year ago, the list held 692 institutions with assets of $242.9 billion. This is the fourth time since November 2012 the weekly list count has gone unchanged otherwise the week-to-week list count has been declining since August 10, 2012. Next week, we anticipate the FDIC will provide an update on its enforcement action activities.  Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 435.

Black Knight: Mortgage Delinquencies increased in August - According to Black Knight's First Look report for August, the percent of loans delinquent increased in August compared to July - mostly due to an increase in short term delinquencies - and declined by 5% year-over-year. Note: Usually delinquencies increase seasonally in September, but this might have moved to August this year. The increase was mostly in the 30 day bucket. Also the percent of loans in the foreclosure process declined further in August and were down 32% over the last year.  Foreclosure inventory was at the lowest level since March 2008. Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.90% in August, up from 5.64% in July. The normal rate for delinquencies is around 4.5% to 5%.  The percent of loans in the foreclosure process declined to 1.80% in August from 1.85% in July.    The number of delinquent properties, but not in foreclosure, is down 129,000 properties year-over-year, and the number of properties in the foreclosure process is down 428,000 properties year-over-year.

Housing Early Warning Stress Indicator On Rise -- A chart in the latest Black Knight Mortgage Monitor Release caught my eye. For five months, the number of properties and the percentage of properties 30-days delinquent has been on the rise (arrows added).Key Indicators

  • The mortgage delinquency rate jumped nearly 5% in August, reaching its highest point since February.
  • The year-over-year change in 30-day delinquencies is a negative 4.8%. Another month like August would nearly reverse the year-over-year downtrend in delinquencies.
  • The inventory of  30-day delinquent homes rose by 146,000. Another month like August would reverse the year-over-year change.
  • 90-day delinquencies do not show the same ominous trend as 3-day delinquencies, but 90-day delinquencies first require 30-day delinquency then 60-day delinquency.

So far, the 90-day stats have not rolled over, but with the 30-day uptrend this long, it likely will.

CoreLogic: "Nearly 950,000 homes returned to positive equity in the second quarter of 2014" - From CoreLogic: CoreLogic Reports 946,000 Residential Properties Regained $1 Trillion in Total Equity in Q2 2014: CoreLogic ... today released new analysis showing nearly 950,000 homes returned to positive equity in the second quarter of 2014, bringing the total number of mortgaged residential properties with equity in the U.S. to more than 44 million. Nationwide, borrower equity increased year over year by approximately $1 trillion in Q2 2014. The CoreLogic analysis indicates that approximately 5.3 million homes, or 10.7 percent of all residential properties with a mortgage, were still in negative equity as of Q2 2014 compared to 6.3 million homes, or 12.7 percent, for Q1 2014. This compares to a negative equity share of 14.9 percent, or 7.2 million homes, in Q2 2013, representing a year-over-year decrease in the number of homes underwater by almost 2 million (1,962,435), or 4.2 percent. ... Of the 44 million residential properties with positive equity, approximately 9 million, or 19 percent, have less than 20-percent equity (referred to as “under-equitied”) and 1.3 million of those have less than 5 percent (referred to as near-negative equity). Borrowers who are “under-equitied” may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of moving into negative equity if home prices fall. In contrast, if home prices rose by as little as 5 percent, an additional 1 million homeowners now in negative equity would regain equity. ...

Five Takeaways: Mortgage Lending Hit Six-Year High in 2013, But … - The number of mortgages made to purchase homes for owner occupants hit a six-year high last year. But don’t celebrate. Purchase loans for owner occupants were still below their 1993 level. The Home Mortgage Disclosure Act requires mortgage lenders to disclose a range of data around every mortgage application that they take in a given year. The Federal Reserve on Monday released its summary of the previous year’s data. Here are five broad findings:  Even though purchase lending was up 13% last year for the second straight year, loans for owner-occupied homes were still below every year from 1993 through 2007. . And despite the good news that purchase lending increased last year, the gains were heavily concentrated among the most affluent borrowers, leading to pronounced disparities along racial and ethnic lines. Loans to Asian and high-income borrowers grew 42% and 50%, respectively, from 2011 to 2013. Loans to African-American borrowers were up just 12%, and loans to low- and moderate-income borrowers rose just 7%. The share of lending to low- and moderate-income borrowers dropped last year. Those borrowers accounted for 28% of purchase loans, down from 33% in 2012. Census tracts that are considered low- and moderate-income neighborhoods saw purchase-mortgage lending tick down slightly after an increase in 2012.

US tries to revive mortgage bond market - The US Treasury has called banks and investors to meetings in an attempt to create a large-sized mortgage bond in a new attempt to revive the moribund market for private-label mortgage securitisations. Private-label mortgage securitisations are where home loans are packaged into bonds that are sold to big investors without the backing of government-guaranteed mortgage giants, such as Fannie Mae or Freddie Mac. Authorities are having to walk a fine line between encouraging private capital back into the mortgage market while ensuring availability of credit to less-than-pristine borrowers and simultaneously avoiding a repeat of the subprime bubble that brought the financial system to its knees in 2008. The US government currently guarantees about 80 per cent of new home loans and investors remain wary of buying private-label mortgage-backed securities (MBS) given fallout from the crisis and uncertainty over housing reform. Banks have also been holding more loans on their balance sheets, further impeding the market’s revival. Sales of private-label MBS total just $4.5bn so far this year, compared with $17bn sold last year. Some $726bn worth of private-label MBS was sold in 2007, at the height of the subprime mortgage bubble. But sales collapsed after heavy losses during the subprime crisis.

Should Mortgage Lending Standards Ease? - Easy lending standards have helped set postrecession records for new-car sales. New-home building is barely rising, due in part to much tighter standards among mortgage lenders.  This disparity underscores the divergent paths the two sectors have taken in the years since the financial crisis.  So is it time to loosen up on mortgage lending?... Easy credit fueled the home-price bubble of the past decade, which spurred overbuilding of homes and boosted consumer spending on everything from cars to college educations. Mortgage investors suffered huge losses after prices collapsed, and private lending markets have struggled to revive. Banks now are sharply limiting their mortgage offerings. Subprime auto lending, by comparison, contracted sharply during the recession but has roared back—at a pace nearly four times that of prime lending over the past four years. Auto lending has rebounded in part because investors didn't take the drubbing that mortgage investors did. Loans are smaller, cars can be repossessed faster than homes when borrowers default, and the collateral is easier to value. Car sales have also been fueled by an aging fleet that has resulted in pent-up demand.

MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey -- From the MBA: Mortgage Applications Decrease in Latest MBA Weekly SurveyMortgage applications decreased 4.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 19, 2014. ... The Refinance Index decreased 7 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.3 percent from one week earlier. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.39 percent, the highest rate since May 2014, from 4.36 percent, with points increasing to 0.35 from 0.20 (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. As expected, refinance activity is very low this year. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is down about 16% from a year ago. Star

Mortgage News Daily: Mortgage Rates at 4.22%, Down from 4.45% Last September  - I use the weekly Freddie Mac Primary Mortgage Market Survey® (PMMS®) to track mortgage rates. The PMMS series started in 1971, so there is a fairly long historical series.  For daily rates, the Mortgage News Daily has a series that tracks the PMMS very well, and is usually updated daily around 3 PM ET. The MND data is based on actual lender rate sheets, and is mostly "the average no-point, no-origination rate for top-tier borrowers with flawless scenarios". (this tracks the Freddie Mac series).MND reports that average 30 Year fixed mortgage rates decreased today to 4.22% from 4.24% on Friday. One year ago, on Sept 22, 2013, rates were at 4.45%.   In 2013, mortgage rates increased rapidly in June, and that led to slower existing home sales later in the year. Sales were still high in July and August - following the rate increase - because borrowers had locked in mortgage rates. This year, rates have been mostly moving sideways over the last few months - so sales probably won't be negatively impacted by mortgage rates like last year - and existing home sales will probably be up a little year-over-year later this year. Here is a table from Mortgage News Daily:

Fix housing finance, fix the economy? - Oscar Jorda, Moritz Schularick, and Alan Taylor have just come out with a paper on the increasingly important role that real estate, particularly residential real estate, has come to play in the financial systems of rich countries. The trio previously collaborated on a comprehensive study of every rich-world business cycle since 1870, which found that the rate of private credit growth during an economic expansion helped predict the likelihood of financial crisis and directly corresponded to the severity of the subsequent downturn even in cases when there was no financial crisis ... The new paper covers a slightly longer period and somewhat larger set of countries, but the biggest improvement is its distinction of different types of credit and different categories of borrowers. Their basic finding is that it was mortgage lending rather than lending to businesses or consumer credit that can explain the enormous increase in total bank credit (a decent proxy for overall financialisation) over the past 35 years ...

FHFA: House Prices increase 0.1% in July, Up 4.4% Year-over-year --This house price index is only for houses with Fannie or Freddie mortgages. Note: There is also a quarterly expanded index that was up 5.8% year-over-year in Q2. From the FHFA: FHFA House Price Index Rises in July.  U.S. house prices rose in July, up 0.1 percent on a seasonally adjusted basis from the previous month, according to the Federal Housing Finance Agency (FHFA) monthly House Price Index (HPI). The previously reported 0.4 percent increase in June was revised to reflect a 0.3 percent increase. The FHFA HPI is calculated using home sales price information from mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac. From July 2013 to July 2014, house prices were up 4.4 percent. The U.S. index is 6.4 percent below its April 2007 peak and is roughly the same as the July 2005 index level. This is the eighth consecutive monthly house price increase. For the nine census divisions, seasonally adjusted monthly price changes from June 2014 to July 2014 ranged from -0.5 percent in the Middle Atlantic division to +0.4 percent in the East North Central division. The 12-month changes were all positive ranging from +1.6 percent in the Middle Atlantic division to +7.2 percent in the Pacific division.

U.S. Home Prices Are Now Just 6.4% Below All-Time High -- The pace at which U.S. home prices are rising has slowed down, but a new report Tuesday shows that home prices have retraced much of the ground they lost after the 2008 crash. Prices rose 0.1% in July after adjusting for seasonal factors, according to an index maintained by the Federal Housing Finance Agency. The index is calculated using prices on mortgages backed by Fannie Mae and Freddie Mac. That was down from increases of 0.3% in June and 0.2% in May, but it represents the eighth straight monthly gain. With the latest increase, home prices are now up 4.4% over the past year. What’s more surprising is that the index shows U.S. prices now standing just 6.4% below their previous peak in April 2007.The S&P/Case-Shiller index is a separate tool used to measure home prices. It showed a bigger home price boom—and a bigger accompanying bust—in part because it included more expensive homes with loans that weren’t eligible for purchase by Fannie and Freddie. It also didn’t include loans financed by subprime mortgage lenders that weren’t selling loans to Fannie and Freddie. Also, the FHFA index is unit-weighted, meaning all sales count equally. The Case-Shiller index is value-weighted, which means price changes in more expensive properties receive greater emphasis. The Case-Shiller national index, which is set to report its own measure of July home prices next Tuesday, showed that home prices in June were 9.9% below their 2006 peak.

Existing Home Sales in August: 5.05 million SAAR, Inventory up 4.5% Year-over-year -  The NAR reports: Existing-Home Sales Slightly Lose Momentum in August as Investor Activity Declines Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 1.8 percent to a seasonally adjusted annual rate of 5.05 million in August from a slight downwardly-revised 5.14 million in July. Sales are at the second-highest pace of 2014, but remain 5.3 percent below the 5.33 million-unit level from last August, which was also the second-highest sales level of 2013. ... Total housing inventory at the end of August declined 1.7 percent to 2.31 million existing homes available for sale, which represents a 5.5-month supply at the current sales pace. However, unsold inventory is 4.5 percent higher than a year ago, when there were 2.21 million existing homes available for sale.This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in August (5.05 million SAAR) were 1.8% lower than last month, and were 5.3% below the August 2013 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory decreased to 2.31 million in August from 2.35 million in July. Headline inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Cash Home Sales, While High, Are Falling - The share of homes being purchased without a mortgage remains high, historically speaking, but it is beginning to edge down. One-third of homes sold in July were all-cash deals, according to data from CoreLogic, a real estate data firm. The all-cash share of sales tends to fall in the spring and summer, when traditional, mortgage-dependent buyers tend to account for a higher share of sales. But even after taking those seasonal factors into account, the all-cash share of sales has normally accounted for around a quarter of all home sales. Over the past year, all-cash sales have accounted for around 37% of all sales, down from a peak of around 43% in late 2011 and early 2012, when home prices reached bottom. Federal policy makers are concerned  that mortgage lending standards have been too tight, potentially shutting qualified borrowers out of the market. Amid a tighter lending environment, investors have accounted for a much higher share of sales. Many investors have been able to outbid mortgage-dependent buyers by offering sellers a guaranteed, quick closing. The high share of cash buyers is a sign that “a lot of folks are avoiding the hassle of our industry,”

Existing Home Sales Drop Most Since Jan; Biggest Miss Since Nov 2013 -- After 4 straight months of bounce-back exuberance that 'confirms' the hope that NAHB sentiment appears to present, existing home sales dropped 1.1% in August (against expectations of a 1.0% rise) and previous growth was revised lower. This is the biggest miss since November 2013. The South and West saw the biggest drops as inventory fell. First-time homebuyers remain sidelined with only 29% of total sales. The National Association of Realtors blames the drop on "investors stepping away from the market," and notes distressed sales are the lowest since October 2008.

U.S. Home Sales Falter as Investors Pull Back - WSJ: U.S. home sales slumped in August as investors continued to pull away, raising doubts about the market's underlying strength. Sales of previously owned homes fell 1.8% from July to an annual rate of 5.05 million, the National Association of Realtors said. That ended four months of gains and pushed sales down 5.3% from a year earlier. The decline reflected fewer purchases by investors, who helped fuel the housing-market rebound. The share of overall sales that went to investors fell to 12% last month, the lowest level since late 2009. Investors accounted for as much as 23% of sales in early 2012 as they bought up properties, many in foreclosure, at bargain prices. Lawrence Yun, the NAR's chief economist, said investors may be getting skittish about the prospect of higher interest rates as the Federal Reserve winds down a bond-buying program that was designed to pump up the economy. There are also fewer "distressed" properties for investors to quickly snap up. The pullback means that the market will increasingly rely on demand from traditional home buyers who typically need a mortgage, including first-time buyers, Mr. Yun said. But lenders are still imposing tight credit underwriting standards, preventing many families from obtaining a home loan, he said.

A Few Comments on August Existing Home Sales -  The most important number in the NAR report each month is inventory.   This morning the NAR reported that inventory was up 4.5% year-over-year in August.   It is important to note that the NAR inventory data is "noisy" and difficult to forecast based on other data.   The headline NAR inventory number is not seasonally adjusted, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko has sent me the seasonally adjusted inventory. NOTE: The NAR does provide a seasonally adjusted months-of-supply, although that is in the supplemental data. This shows that inventory bottomed in January 2013 (on a seasonally adjusted basis), and inventory is now up about 9.7% from the bottom. On a seasonally adjusted basis, inventory was down 0.1% in August compared to July. The NAR reports active listings, and although there is some variability across the country in what is considered active, many "contingent short sales" are not included. And it appears investor buying is declining. From the NAR: All-cash sales were 23 percent of transactions in August, dropping for the second consecutive month (29 percent in July) and representing the lowest overall share since December 2009 (22 percent). Individual investors, who account for many cash sales, purchased 12 percent of homes in August, down from 16 percent last month and 17 percent in August 2013. Sixty-four percent of investors paid cash in August. And another key point: The NAR reported total sales were down 5.3% from August 2013, but normal equity sales were probably up from July 2013, and distressed sales down sharply. Last year in August the NAR reported that 12% of sales were distressed sales. The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Lawler: Existing Home Sales Eased in August; NAR Bogusly Blames Monthly Dip on “Retreat” by “All Cash” Investors - From housing economist Tom Lawler: In today’s existing home sales report, the National Association of Realtors estimated that US existing home sales ran at a seasonally adjusted annual rate of 5.05 million, down 1.8% from July’s downwardly-revised (to 5.14 million from 5.15 million), and down 5.3% from last August’s pace. The NAR’s estimate was slightly lower than my below-consensus projection based on regional tracking. The NAR also estimated that the number of existing homes for sale at the end of August was 2.31 million, down 1.7% from July’s downwardly-revised (to 2.35 million from 2.37 million) but up 4.5% from last August. The NAR’s inventory estimate was also slightly lower than my projection based on regional tracking. Finally, the NAR estimated that the median existing home sales price last month was $219,800, up 4.8% from last August, and that the median existing SF home sales price was $220,600, up 5.2% from a year ago. This YOY increase was higher than my projection based on regional tracking. In what I thought was a “strange” press release, the NAR attributed the drop in sales last month to a retreat from the market by “investors paying in cash.” This attribution was based on the results of the NAR’s monthly survey of a relatively small number (in terms of respondents1) of realtors, who are asked about the characteristics of the buyer for the realtor’s last transaction in a month. The results of this survey often do not match trends in the market as a whole. Here are some selected results of the August survey compared to the July survey and last August’s survey. In the first quarter of 2014 the NAR survey suggested that the all-cash share of home sales was noticeably higher than in the first quarter of 2013, even though other reports (based on property records) and local realtor/MLS reports suggested otherwise. While these other reports do suggest that the all-cash share of sales over the last few months is down significantly from a year ago, they don’t suggest that the all-cash share plunged in August relative to July (first table below). The survey’s distressed-sales share also looks way too low (second table below).

After Mucking up Housing Market, Investors Flee -- Wolf Richter - Ballooning home prices have made it tough for investors to work out their equations. These investors were everyone from the couple living down the street to giant private equity funds and REITs that, stuffed to gills with unlimited funds from Wall Street, have been buying vacant single-family homes by the thousands. They’ve been chasing their luck in the now teetering buy-to-rent scheme.Part of that scheme – encouraged by the Fed – was a concerted effort by these players to push up prices by waves of purchases that would ripple through the larger housing market via the multiplier effect. It would reward them with near-instant paper gains. And they’ve succeeded so well in pushing up home prices over the course of two short years that their own business model no longer works.Another class of investors has also been hit. Flippers, who buy homes in the hopes that with some trimming, painting, and rehabbing, they can resell them for a profit a few months later, must buy low – below market prices! – and sell at least at market rates for their equation to work. But buying low has been getting tough, and now price increases have slowed – and flippers have been curtailing their buying as well [Home-Flipping Collapses in San Francisco, Losses Spread]. The National Association of Realtors (NAR) keeps confirming these trends on a monthly basis, as both “cash sales” – many of which by investors – and “sales to investors” have been dropping, or rather plunging since late 2013.Every month since late last year, existing home sales have been below their year-ago levels. The culprit, among others, are the same folks who drove up sales starting in late 2011 through mid-2013, and who have now walked away: investors. The share of sales to investors has plunged to 12%, down from over 20%, and as high as 23%, during the investor spree in 2012 and early 2013. By the looks of it, it’s not over.

New Home Sales increase to 504,000 Annual Rate in August, Highest Sales Rate since May 2008 -  The Census Bureau reports New Home Sales in August were at a seasonally adjusted annual rate (SAAR) of 504 thousand.  July sales were revised up from 412 thousand to 427 thousand, and June sales were revised down from 422 thousand to 419 thousand. "Sales of new single-family houses in August 2014 were at a seasonally adjusted annual rate of 504,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 18.0 percent above the revised July rate of 427,000 and is 33.0 percent above the August 2013 estimate of 379,000."The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales over the previous two years, new home sales are still close to the bottom for previous recessions. The second graph shows New Home Months of Supply. The months of supply decreased in August to 4.8 months from 5.6 months in July. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal). "The seasonally adjusted estimate of new houses for sale at the end of August was 203,000. This represents a supply of 4.8 months at the current sales rate." Starting in 1973 the Census Bureau broke inventory down into three categories: Not Started, Under Construction, and Completed. The third graph shows the three categories of inventory starting in 1973. The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

New Home Sales Explode Higher Thanks To... Record High Average New Home Prices? -- New Home Sales rose a magnificent (seasonally-adjusted annualized rate) 18% in August - the biggest monthly rise since January 1992 albeit with a 16.3 90% confidence interval, meaning the final number may well be +1.7%. At 504k, new home sales are back at May 2008 levels (though obviously massively below the 1.4 million homes sold at the peak in 2005). As a reminder, May's 504K new home sales print was later revieed later to 458K. But even more stunning, new home sales in The West rose a mind-numbing 50% in August (and up 84.4% YoY - nearly double).  And just to confuse matters, the average new home sale price rose to a new record high of $347,900. So as existing home sales are sliding (and prices dropping), new home sales are surging (to new record highs) - makes perfect sense. We await the extrapolations for how great this move is. (or the realization that it is entirely seasonal-adjustment-biased and unsustainable given the realities of mortgage applications).

About that blowout new home sales report: restrain your enthusiasm, we've been here before: Don't get too excited about this morning's new home sales number. It'll probably get revised away. New home sales are notoriously volatile, often rising or falling 10% a month on an seasonally adjusted annualized basis. An already twice this year, we've had bing outliers, one positive, and one negative, that subsequently were revised, as I pointed out several months ago: As I noted a month ago, May new home sales were as big an outlier to the upside as March was originally reported to the downside, so a significant revision was very possible. March was subsequently revised about 10% higher, and May has now been revised over 10% lower than as originally reported. In fact, the May number was also reported at 504,000, exactly today's number. It subsequently became 478,000, much more in line with trend. Here's what the absolute value of today's number looks like compared with recent trends: And even more tellingly, here's what it looks like in comparison with the YoY trend: If this number does not get revised substantially lower, closer to trend, I will be shocked. With lower interest rates now that one year ago, I expect housing sales to improve moderatly. But not Boom.

Comments on New Home Sales - The new home sales report for August was above expectations at 504 thousand on a seasonally adjusted annual rate basis (SAAR).  This was the highest sales rate since May 2008.  However, we need to remember this was just one month of data. Also sales for the previous three months were revised up a combined 16,000 sales SAAR. The Census Bureau reported that new home sales this year, through August, were 307,000, Not seasonally adjusted (NSA). That is up 2.7% from 299,000 during the same period of 2013 (NSA). Not much of a gain from last year.  Right now it looks like sales will barely be up this year (maybe 3% or so for the year). Sales were up 33.0% year-over-year in August - however sales declined sharply in Q3 2013 as mortgage rates increased - so this was an easy comparison.  The comparison for September will be pretty easy too. This graph shows new home sales for 2013 and 2014 by month (Seasonally Adjusted Annual Rate). The comparisons to last year are easy right now, and I expect to see year-over-year growth for the 2nd half of 2014. And here is another update to the "distressing gap" graph that I first started posting several years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next few years.

Not So August: Builders, Economists Still See Mediocre New-Home Sales in 2014 - New-home sales in August reached the highest annualized pace since 2008. But many builders and economists still expect sales for this year to underwhelm, ultimately either matching or only slightly exceeding last year’s level. The reason lies in the difference between the volatility of monthly home-sales figures from the Commerce Department and the underlying trajectory of the market established over the past year. The latter shows a pace, on average, of sluggish but steady growth. Meanwhile, the frothy gain in August new-home sales reported Wednesday by the Commerce Department can be attributed partly to quirks such as a high number of weekend days last month in comparison to July and August 2013. Looking beyond the monthly swings, various housing forecasters predict this year will grind out a small gain from last year. The National Association of Home Builders predicts 2014 new-home sales of 441,000, up only 2.8% from the 2013 tally. Brad Hunter, chief economist at home-building research firm Metrostudy, sees this year’s home-construction starts amounting to a 2% gain from last year.

Low-Income Home Buyers Left Behind - The home-buying market picked up sharply in 2013, but it looks as if much of the pickup came from those with the highest incomes. Overall, the number of mortgages made to buy homes in 2013 rose 13% from 2012 to 3.1 million, according to a report by Federal Reserve researchers based on home-lender data submitted under the Home Mortgage Disclosure Act. However, the share of such loans made to low and moderate-income buyers fell sharply. In 2013, about 28% of loans to buy homes went to such borrowers, versus 33% in 2012. The proportion to middle-income borrowers stayed steady at 25%, and that of high-income buyers rose nearly 5 percentage points to 45%, according to the report released Monday. Because many blacks and Hispanics have lower incomes, that’s had the follow-on effect of restricting their borrowing. In theory, prospective buyers with low incomes or relatively poor credit scores should be able to get a loan through the Federal Housing Administration. The buyers pay for FHA insurance and the FHA agrees to take a loss if a borrower defaults. Despite that, lenders haven’t been willing to grant FHA mortgages to borrowers with the lowest scores. Even if they did, FHA insurance has become much more expensive, effectively pricing out many low-income buyers.

Housing Prices, "Real" Interest Rates, and the "Real" CPI --With housing prices still rising, albeit more slowly, inquiring minds might be wondering about "Real" interest rates and the "Real" CPI?  I believe the CPI is hugely distorted, but not for the same reasons as everyone else. Home prices used to be in the CPI but the BLS now uses OER (Owners' Equivalent Rent). OER is a measure of actual rental prices as well as fiction.   The BLS determines OER from a measure of rental prices and also by asking the question “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”If you find that preposterous, You are not the only one. Regardless, rental prices are simply not a valid measure of home prices. OER has the single largest weight of any component in the CPI, at 23.957%. Let's play "What If?" Specifically, "What if the BLS used actual home prices instead of OER in calculating the CPI?"  Periodically, Black Knight Financial Services provides the actual data behind their HPI (Home Price Index), a measure of actual prices. We can use that data to see what the CPI would look like if we put actual home prices in the CPI instead of OER.  I passed on an Excel spreadsheet of the Black Knight HPI aggregate housing prices to Doug Short at Advisor Perspectives and we produced the charts below. Let's start with a look at the rate of increase in home prices vs. the rate of increases in OER. The bubble is clearly visible but neither the Greenspan nor the Bernanke Fed spotted it. The Fed was more concerned with rents as a measure of inflation rather than speculative housing prices.The above chart shows the effect when housing prices replace OER in the CPI. In mid-2004, the CPI was 3.27%, the HPI-CPI was 5.93% and the Fed Funds Rate was a mere 1%. By my preferred measure of price inflation, real interest rates were -4.93%. Speculation in the housing bubble was rampant.

AIA: "Architecture Billings Index Exhibits Continued Strength" in August - Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From AIA: Architecture Billings Index Exhibits Continued Strength On the heels of recording its strongest pace of growth since 2007, there continues to be an increasing level of demand for design services signaled in the latest Architecture Billings Index (ABI). As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the August ABI score was 53.0, down from a mark of 55.8 in July. This score reflects an increase in design activity (any score above 50 indicates an increase in billings). The new projects inquiry index was 62.6, following a very strong mark of 66.0 the previous month.The AIA has added a new indicator measuring the trends in new design contracts at architecture firms that can provide a strong signal of the direction of future architecture billings. The score for design contracts in August was 56.9.  • Regional averages: Northeast (58.1) , South (55.1), West (52.5), Midwest (51.0) [three month average]. This graph shows the Architecture Billings Index since 1996. The index was at 53.0 in August, down from 55.8 in July. Anything above 50 indicates expansion in demand for architects' services.  Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

Household Net Worth Just Hit A Record High: Here Is Who Benefited - If the US economy had boosted everyone's income by $1.4 trillion in the past quarter, USD GDP would now be growing at a double digit pace. It did not. So to get a sense of just whose net worth rose by the noted amount, we go to Stone McCarthy which answers the question who benefited from holding stocks directly. Bottom line: the gains in net worth associated with holding stocks directly have been concentrated among a relatively small number of households.

Delinquency Rate on Credit Card Loans at Historical Low | St. Louis Fed On the Economy: It is well known that labor markets have been improving slowly but steadily since the end of the recession. A similar trend, perhaps less noticed, is observed in delinquent loans (those past due 30 days or more and still accruing interest as well as those in nonaccrual status) measured as a percentage of end-of-period loans, or the delinquency rate. The figure below presents the delinquency rate from the first quarter of 1991 (when data became available) through the second quarter of 2014. During the Great Recession, the delinquency rate reached a record high of almost 7 percent. Since 2010, however, it has decreased continuously, reaching its prerecession level in the third quarter of 2010 and its historical low of 2.3 percent in the second quarter of 2014, the latest available data period. Delinquencies on credit card loans usually occurs when households suffer from unfavorable economic shocks such as unemployment. Since the incidence of those shocks increases during recessions, the delinquency rate on credit card loans shown above increases during recessions (which are signified by the chart’s shaded areas). Thus, a natural candidate to account for the declining trend in the delinquency rate is the improvement in labor markets. However, since the labor market was arguably better in 2004-06 when the delinquency rate was significantly higher than today, there must be another reason for the current record low rate. The deleveraging of U.S. households since the start of the recession is probably part of the answer . While the mean credit card balance of all U.S. households at the beginning of the recession was $3,538, it was only $2,791 (21 percent) at the end of it.

Michigan Consumer Sentiment Remains at a 14-Month High - The Final University of Michigan Consumer Sentiment for September came in at 84.6, unchanged from the September Preliminary reading but up from the 82.5 August final. This is the highest level since July of last year, 14 months ago. Today's number was a tick below the forecast of 84.7. 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.

Canada Warns Its Citizens Not To Take Cash To The USA -- The Canadian government has had to warn its citizens not to carry cash to the USA because the USA does not presume innocence but guilt when it comes to money. Over $2.5 billion has been confiscated from Canadians traveling to the USA, funding the police who grab it. If you are bringing cash to the land of the free, you will find that that saying really means they are FREE to seize all your money under the pretense you are engaged in drugs with no evidence or other charges. It costs more money in legal fees to try to get it back so it is a boom business for unethical lawyers to such an extent than only one in sixth people ever try to get their money back and the cops just pocket it. That’s right. Money confiscated is usually allowed to be kept by the department who confiscated it. This is strangely working its way into funding police and pensions.

Despite 'Record' Opening Weekend, Goldman Fears "The iPhone Effect" On Retail Sales May Disappoint -- The exuberant images this weekend of lines-around-the-block at Apple stores were met with triumphant flashing red headlines this morning when Apple announced the sale of more than 10 million iPhone 6 and 6 Plus models (more than expected). Typically, new product launches do not move the needle on aggregate US economic data. Apple’s iPhone has been the most notable exception, with past launches occasionally having a substantial effect on core retail sales. However, Goldman notes, with the launch of the new iPhone 6/6+ this month, estimates (based on historical data) of a 0.1 to 0.7ppt boost to September core retail sales is highly uncertain due to seasonal adjustments that have been highly erratic, and could easily take a big bite out of the Apple effect.

Vehicle Sales Forecasts: Over 16 Million SAAR again in September -- The automakers will report September vehicle sales on Wednesday, Oct 1st. Sales in August were at 17.45 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in September will be solidly above 16 million SAAR again.  There were 24 selling days in September this year compared to 23 last year.Here are a few forecasts: From J.D. Power: Summer Sizzle Continues as New-Vehicle Sales in August Forecast to Hit Highest Levels of the Year New-vehicle retail sales in September 2014 are projected to come in at 1.0 million units, a 94,000-unit increase from September 2013 and 6 percent growth on a selling-day adjusted basis The retail seasonally adjusted annualized rate (SAAR) in September is expected to be 13.5 million units—which is 1.2 million units more than in September 2013—marking the seventh consecutive month in which the SAAR has exceeded 13 million units. Retail transactions are the most accurate measure of true underlying consumer demand for new vehicles.From Kelley Blue Book: New-Vehicle Sales To Climb 9 Percent In September; Kelley Blue Book Adjusts 2014 Forecast To 16.4 Million New-vehicle sales are expected to increase 9.1 percent year-over-year to a total of 1.24 million units, resulting in an estimated 16.4 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book ... "Following an extraordinarily strong month of sales in August, with the industry above 17 million SAAR for the first time in eight years, Kelley Blue Book expects sales to level out in September," said Alec Gutierrez, senior analyst for Kelley Blue Book. "Sales will remain strong and show healthy year-over-year improvement. Rising incentive spend in recent months has been more than offset by increasing retail transaction prices, signaling continued consumer demand."

Why Fears of a Subprime Auto Bubble Are Overblown—For Now - Subprime lending has roared back in the auto sector over the last four years, raising concerns about another debt-fueled bubble. Vox weighed in Tuesday, saying the uptick in lending to borrowers with weaker credit amounted to “a disaster.” Let’s take a deep breath and look at the facts:

  • 1.  There is no subprime auto loan bubble right now. The magnitude of the increase in subprime lending over the past four years looks shocking in part because the collapse was equally severe. Taking a longer view helps. While lending to prime borrowers has returned to its pre-recession highs, lending to subprime borrowers is still around 25% below its 2006 peak. One way to identify trouble would be if subprime borrowers were accounting for a growing share of overall lending. So far, they’re not, according to a report from Equifax, the credit-reporting firm. Because the share of subprime lending contracted sharply in 2009, the rebound since then has been just that—a rebound. The share of loans going to borrowers with subprime credit has remained at around one-third of total auto lending in 2012, 2013, and 2014. Loan delinquencies offer another potential warning sign. In its report, Equifax said there is “no evidence” to suggest higher delinquency rates or increased charge-offs by lenders.
  • 2.  Cars are not houses. One reason there was a mortgage bubble, of course, was because there was a housing bubble. Prices rose unsustainably as speculators bought more homes with easy debt, flipping those homes to other buyers. Eventually, flippers ran out of buyers, and when prices stopped rising, borrowers defaulted on loans that they could barely afford. Is the same thing happening in cars today? Car sales have returned to an all-time high, reaching an annual pace of 17.2 million in August. Economists point to heavy pent-up demand for cars as more Americans deferred purchases or upgrades during the recession. The average age of a registered car on American roads is 11.4 years, up from 9.8 in 2005 and 8.9 in 2000. “People are keeping cars longer and driving cars longer,” says Amy Crews Cutts, chief economist at Equifax. “You don’t flip cars the way you flip houses.”

Gasoline Price Update: Down Another Nickel -- It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium both fell five cents for the second consecutive week and are now at their lowest averages since early February. Regular is up 16 cents and Premium 16 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 no states are averaging above $3.90.

Hedge Funds Make Record Bet on Lower U.S. Diesel Prices - Speculators are making their biggest-ever bet on lower U.S. diesel costs after expanding stockpiles drove prices to a two-year low. Hedge funds increased net-short wagers on ultra-low sulfur diesel for a fourth week, to the most in U.S. Commodity Futures Trading Commission data that begins in 2006. Prices retreated 17 percent since reaching this year’s high on Jan. 31. U.S. inventories of distillate fuels, which include diesel, are the biggest in almost a year as refineries operated at 93 percent of capacity this quarter, the highest level since 2005. Supply is at a three-year high at the main storage and trading hub in Europe, the second-largest importer of U.S. fuel, threatening to reduce demand for shipments. “Refineries aren’t scaling back,” “When we see the refinery rate drop back below 90 percent, diesel prices are going to find some strength.”Refineries have been running at more than 90 percent of capacity since June. They used 16.3 million barrels a day of crude oil in the week ended Sept. 12, the most for this time of year in data going back to 1989. Distillate fuel demand in the U.S. averaged 3.71 million barrels a day in the four weeks ended Sept. 12, the weakest level since March, according to the EIA.  The drop in consumption comes as exports to Europe are set to decline. Six tankers were chartered or expected to be booked to ship fuel from Houston to Amsterdam in the next two weeks, according to a Bloomberg survey on Sept. 18. That’s down from 10 in a survey a week earlier. Europe imported about 400,000 barrels a day from the U.S. last year, trailing only Latin America.

ATA Trucking Index increased 1.6% in August - Here is a minor indicator that I follow, from ATA: ATA Truck Tonnage Index Increased 1.6% in August to New Record High American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index increased 1.6% in August, following a gain of 1.5% the previous month. In August, the index equaled 132.6 (2000=100) versus 130.5 in July. August’s index is the highest on record, surpassing November 2013 (131.0). Compared with August 2013, the SA index increased 4.5%, up from July’s 3.7% year-over-year gain. The latest year-over-year increase was the largest this year. Year-to-date, compared with the same period last year, tonnage is up 3.1%. ...“After a strong July, factory production and housing starts fell in August on a month-to-month basis,” said ATA Chief Economist Bob Costello. “Truck tonnage actually did the opposite. Not only did it increase, it accelerated.”  Costello stated that tonnage is up 3.1% over the last two months alone and has surged 6.8% since hitting a recent low in January. “I’m optimistic about the second half of the year for the economy, which means truck tonnage should do well too,” he said.

DOT: Vehicle Miles Driven increased 1.5% year-over-year in July -- The Department of Transportation (DOT) reported: Travel on all roads and streets changed by 1.5% (4.0 billion vehicle miles) for July 2014 as compared with July 2013. Travel for the month is estimated to be 266.8 billion vehicle miles. Cumulative Travel for 2014 changed by 0.6% (10.1 billion vehicle miles). The following graph shows the rolling 12 month total vehicle miles driven. The rolling 12 month total is still mostly moving sideways ... Currently miles driven has been below the previous peak for 80 months - almost 7 years - and still counting. Currently miles driven (rolling 12 months) are about 2.0% below the previous peak. The second graph shows the year-over-year change from the same month in the previous year. In July 2014, gasoline averaged of $3.75 per gallon according to the EIA.  That was up from July 2013 when prices averaged $3.67 per gallon.  Of course gasoline prices are just part of the story.  The lack of growth in miles driven over the last 6+ years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.

Hotels: Occupancy up 4.5%, RevPAR up 11.8% Year-over-Year - From STR: US results for week ending 13 September The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 7-13 September 2014, according to data from STR. In year-over-year measurements, the industry’s occupancy rate rose 4.5 percent to 68.0 percent. Average daily rate increased 6.9 percent to finish the week at US$117.73. Revenue per available room for the week was up 11.8 percent to finish at US$80.04. 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.

Chemical Activity Barometer "Pace of Growth Slows for Leading Economic Indicator" -- Here is a new indicator that I'm following that appears to be a leading indicator for industrial production. From the American Chemistry Council: Pace of Growth Slows for Leading Economic Indicator for Second Consecutive MonthThe Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), continued to see an easing of growth this month, with a 0.1 percent gain over August as measured on a three-month moving average (3MMA). Growth for the third quarter stands at an average monthly gain of 0.2 percent compared to the strong 0.5 percent monthly average during the first half of the year. Despite the softening pace, the September CAB marked a string of consecutive gains going back to July 2012. Though the pace of growth has slowed, current gains have the CAB up a healthy 3.9 percent over this time last year, and the barometer remains at its highest level since January 2008. ...Though the production indicator was flat in September, construction-related coatings, pigments and other performance chemistries remained strong, despite last week’s weak housing report. Chemical equities were up sharply this month, continuing to outpace the broader market. New orders and inventories improved in September but at a slower pace than earlier months.

U.S. Durable Goods Orders Fall 18.2% in August - WSJ —Orders for long-lasting manufactured goods tumbled last month as aircraft purchases pulled back from July's record high, but a pickup in demand for machinery and other big-ticket equipment could point to stronger business investment in the coming months. New orders for durable goods—products such as refrigerators and cars that are designed to last at least three years—plunged 18.2% in August from the prior month to a seasonally adjusted $245.43 billion, the Commerce Department said Thursday.Economists surveyed by The Wall Street Journal had expected durable-goods orders would fall 17.5% from July, when orders surged a revised 22.5% from June thanks to a spike in civilian aircraft orders. But excluding the volatile transportation category, orders rose 0.7% in August after falling 0.5% the prior month. Factory shipments, excluding transportation equipment, ticked up 0.1% last month after rising 1.9% in July. "Stripping out the aircraft-related volatility, the underlying strength in capital goods orders and shipments in August indicates that business investment in equipment continues to expand at a healthy pace in the third quarter," Capital Economics chief U.S. economist Paul Ashworth said in a note to clients. Airplanes drove orders sky-high in July and brought them down to earth last month. The Commerce Department said orders for nondefense airplanes and parts dropped 74.3% in August after spiking 315.6% in July. Boeing Co. reported 324 orders in July, but just 107 in August.

Durable Goods Report: Up 0.7% Excluding Volatile Transportation Orders - The September Advance Report on August Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders: New orders for manufactured durable goods in August decreased $54.5 billion or 18.2 percent to $245.4 billion, the U.S. Census Bureau announced today. This decrease, down following two consecutive monthly increases, followed a 22.5 percent July increase. Excluding transportation, new orders increased 0.7 percent. Excluding defense, new orders decreased 19.0 percent.  Transportation equipment, also down following two consecutive monthly increases, drove the decrease, $55.6 billion or 42.0 percent to $76.8 billion. Download full PDF  The latest new orders number came in at -18.2 percent month-over-month, close to the forecast of -18.2 percent. The big negative was an expected drop following July's record surge, which was the result of international aircraft orders. If we exclude transportation, "core" durable goods came in at 0.7 percent MoM, spot on the forecast. Without the volatile transportation series, the YoY core number was up 7.3 percent.If we exclude both transportation and defense for an even more fundamental "core", durable goods were up 0.5 percent MoM and up 7.6 percent YoY. The Core Capital Goods New Orders number (nondefense capital goods used in the production of goods or services, excluding aircraft) is another highly volatile series. It was up 0.6 percent MoM, and the YoY number was up 7.5 percent. The first chart is an overlay of durable goods new orders and the S&P 500. An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.

Record Durables Drop Follows Record Boeing-Driven Surge; Ex-Transports In Line - What goes up must come down. The saying applies not only to aircraft, but aircraft orders. As a reminder, last month the volatile nondefense aircraft order category soared by 318%, leading to a 22.6% increase in headline Durable Goods, a record monthly swing courtesy of Boeing conducting its own "subprime for flying clunkers" program which sent airplane orders to an all time high. And now that the bumper airplane order month is over, with all orders purchased on credit gobbled up by yield-starved investors of course, the anticipated drop took place, with durable goods sliding by a record 18.2%, a fraction worse than the -18.0% expected.

Richmond Fed: "Manufacturing conditions strengthened in September" - From the Richmond Fed: Manufacturing Sector Activity Grew Moderately; Employment Improved, Average Wages Edged Down; Overall, manufacturing conditions strengthened in September. The composite index for manufacturing moved to a reading of 14 following last month's reading of 12. The index for shipments edged up one point, ending at 11, while the index for new orders also gained one point, finishing at a reading of 14. ...Manufacturing employment picked up this month; the September index advanced six points ending at 17. The average workweek lengthened, moving the index up two points to end at 10. However, average wages slowed somewhat compared to a month ago, with that index ending two points below the previous month at 9.  Producers remained positive about business conditions for the six months ahead. They expected solid growth in shipments and in the volume of new orders. The indexes for expected shipments and new orders ended at readings of 41 and 37, respectively, slightly below their outlook of a month ago.

Richmond Fed Manufacturing Composite: "Continued to Grow at a Moderate Pace in September" - The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to the nation's Central Bank.The complete data series behind the latest Richmond Fed manufacturing report (available here) dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components.The September update shows the manufacturing composite at 14, up from 12 last month. Numbers above zero indicate expanding activity. Today's composite number was above the forecast of 10. Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at 11.0, to facilitate the identification of trends. Here is a snapshot of the complete Richmond Fed Manufacturing Composite series.

Kansas City Fed: Regional Manufacturing "Activity Edged Higher" in September - From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Edged Higher The Federal Reserve Bank of Kansas City released the September Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity edged higher, and producers’ expectations for future activity maintained their recent solid levels.“We saw slightly faster growth this month after a sizable easing in August,” Wilkerson said. “This is despite continued sluggish activity in our important food processing segment, driven in part by higher beef costs this year.”The month-over-month composite index was 6 in September, slightly higher than 3 in August but lower than 9 in July. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. ... The production index increased from 4 to 12, and the shipment index also grew from a reading of 2 in August to 14. The employment index increased significantly from -4 in the last survey period to 7 in September. The last regional Fed manufacturing survey for September will be released on Monday, Sept 29th (the Dallas Fed). All of the regional surveys so far have indicated solid growth in September (three out of four higher than in August), and this suggests another strong reading for the ISM manufacturing survey.

Mid-year Export Trends – Chicago Fed -- Recently released data on U.S. foreign trade for July from the U.S. Census Bureau and U.S. Bureau of Economic Analysis (BEA) show an improvement in exports of U.S. goods. On a month-over-month basis, exports increased $1.8 billion, to $138.6 billion. This rise in exports—which helps to narrow the trade deficit—points to a stronger pace of U.S. gross domestic product (GDP) growth for the third quarter of 2014 relative to earlier this year. July’s improvement in trade performance also bodes well for the economy of the Seventh Federal Reserve District. As seen below, exported manufactured goods make up a greater percentage of District production than of national production. Moreover, each District state’s ratio of manufactured export value to annual state output meets or surpasses the nation’s ratio of manufactured export value to GDP (7.1%). Notably, by this measure, Indiana and Michigan significantly exceed the nation as a whole, owing to their strong industry concentrations in transportation equipment (cars and trucks). Looking more closely at July’s performance, one can see that the composition of July’s U.S. export growth favored District industries. As the Census/BEA trade report states: “The June to July increase in exports of goods reflected increases in automotive vehicles, parts, and engines ($1.7 billion); industrial supplies and materials ($1.3 billion); and capital goods ($0.4 billion).” In addition to the District economy’s high concentration in the export of transportation equipment, several District states also export significant amounts of capital goods: machinery and equipment such as agriculture, construction, and mining equipment, as well as computers and electronic equipment (see below). Moreover, several District states export chemicals, including both industrial chemicals and pharmaceuticals.

Weekly Initial Unemployment Claims increase to 293,000  - The DOL reports: In the week ending September 20, the advance figure for seasonally adjusted initial claims was 293,000, an increase of 12,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 280,000 to 281,000. The 4-week moving average was 298,500, a decrease of 1,250 from the previous week's revised average. The previous week's average was revised up by 250 from 299,500 to 299,750.  There were no special factors impacting this week's initial claims.  The previous week was revised up to 281,000. The following graph shows the 4-week moving average of weekly claims since January 1971.

One in Five U.S. Workers Laid Off in Last Five Years, Report Says -  One in five U.S. workers, nearly 30 million people, say they were laid off from their jobs in the last five years, according to a new survey that highlights lasting scars from the spike in U.S. long-term unemployment following the last recession. While the the extent of long-term joblessness has been discussed widely, including by top Federal Reserve officials, the survey from the John J. Heldrich Center for Workforce Development at Rutgers University could add fuel to the debate over how much of the problem can be dealt with through better economic policy. The report finds that losing one’s job, even for a short period, can be more than just a temporary setback. “Laid-off workers who found another job seldom improved their financial situation,” the report said. “Two-thirds said their new jobs either paid less than their previous one (46%) or paid the same (21%).” Just a quarter of laid-off workers say their next job was a step up from their last. One in five workers laid off during the preceding five-year period never found another job. And some two-thirds of adults in the Rutgers survey, including those who kept their jobs, said the recession a negative impact on their standard of living. This deterioration in household finances has led to a broad reassessment of how long Americans will need to keep working in order to survive as they get older. Half of 45- to 59-year olds said they now expect to retire later than they had planned.

Obama Adviser Says Policy Can Boost Workforce Participation -   The share of U.S. adults holding or seeking jobs was already declining before the recession, although some of the pullback was linked to the downturn and can be redressed by economic policies, a top adviser to President Barack Obama said Wednesday. Betsey Stevenson, a member of the president’s Council of Economic Advisers, said the administration is working to enhance labor force participation, which has fallen to multi-decade lows, in part by increasing the incentives for discouraged workers to again enter the market. In addition, she cited policies targeted directly at helping disadvantaged members of minorities, who have much higher unemployment rates than the general population. “The declining participation rate does reduce our potential economic growth and exacerbates our future fiscal challenges,” Ms. Stevenson told a conference sponsored by the Peterson Institute for International Economics, a Washington think tank. Labor force participation rate was at 62.8%, essentially flat since April but down significantly from 66% when the recession began in December 2007 and a peak of 67.3% in early 2000. Economic policy makers, including Federal Reserve officials, have spent a lot of time in recent years trying to determine how much of the decline in participation is due to demographic factors, such as retiring baby boomers, and how much is a result of weak demand and other aftershocks from the deep recession. The latter problem is seen as more amenable to support from low interest rates aimed at spurring stronger economic growth.

Guess Who’s Leading on Paid Leave? (Hint: Not Us) - Labor Secretary Tom Perez -  After sitting down with my G20 counterparts and learning more about their policies relating to work and workplaces, my main takeaway is that the United States is distressingly behind the curve on paid family leave It’s incomprehensible to me that we’re the only industrialized nation without a national paid leave law of any kind. How can we say we’re for family values when so many women in the United States have to jeopardize their livelihood to take a few weeks off from work after giving birth? Should a man have to sacrifice his economic security to take care of his sick mother or his wife returning wounded from active duty? Our global partners have figured this out, building a solid consensus around these issues. They’ve taken partisanship and ideology out of the debate to recognize this for what it is – a 21st century economic imperative. They’ve discovered that paid leave, child care and similar policies increase our human capital by bringing more women into the labor force. They know it’s possible to have a growing economy, thriving businesses and family-friendly workplaces. They’ve realized we have to give people the tools to be productive employees and attentive parents – the two aren’t mutually exclusive, they go hand-in-hand.

Long-term unemployed struggle as economy improves, Rutgers study finds - While the unemployment rate for people out of work for six months or less has returned to prerecession levels, the levels of unemployment for workers who remain jobless for more than six months is among the most persistent, negative effects of the Great Recession, according to a new national study at Rutgers. In fact, one in five workers laid off from a job during the last five years are still unemployed and looking for work, researchers from the John J. Heldrich Center for Workforce Development found.  Among the key findings of "Left Behind: The Long-term Unemployed Struggle in an Improving Economy":

  • Approximately half of the laid-off workers who found work were paid less in their new positions; one in four say their new job was only temporary.
  • Only one in five of the long-term unemployed received help from a government agency when looking for a job; only 22 percent enrolled in a training program to develop skills for a new job; and 60 percent received no government assistance beyond unemployment benefits.
  • Nearly two-thirds of Americans support increasing funds for long-term education and training programs, and greater spending on roads and highways in order to assist unemployed workers.

As of last August, 3 million Americans, nearly one in three unemployed workers, have been unemployed for more than six months and more than 2 million Americans have been out of work for more than a year, the researchers said. While the percentage of the long-term unemployed (workers who have been unemployed for more than six months) has declined from 46 percent in 2010, it is still above the 26 percent level experienced in the worst previous recession in 1983. The survey also found that:

  • More than seven in 10 long-term unemployed say they have less in savings and income than they did five years ago.
  • More than eight in 10 of the long-term unemployed rate their personal financial situation negatively as only fair or poor.
  • More than six in 10 unemployed and long-term unemployed say they experienced stress in family relationships and close friendships during their time without a job.
  • Fifty-five percent of the long-term unemployed say they will need to retire later than planned because of the recession, while 5 percent say the weak economy forced them into early retirement.
  • Nearly half of the long-term unemployed say it will take three to 10 years for their families to recover financially. Another one in five say it will take longer than that or that they will never recover.

Cartoon: Unemployment isn't a bug -- it's a feature - Tom the Dancing Bug

Those Lazy Jobless, by Paul Krugman -- Last week John Boehner, the speaker of the House, explained to an audience at the American Enterprise Institute what’s holding back employment in America: laziness. People, he said, have “this idea” that “I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around.” Holy 47 percent, Batman!  It’s hardly the first time a prominent conservative has said something along these lines. And the urge to blame the victims of a depressed economy has proved impervious to logic and evidence. But it’s still amazing — and revealing — to hear this line being repeated now. For the blame-the-victim crowd has gotten everything it wanted: Benefits, especially for the long-term unemployed, have been slashed or eliminated. So now we have rants against the bums on welfare when they aren’t bums — they never were — and there’s no welfare. Why? ... Is it race? That’s always a hypothesis worth considering in American politics. It’s true that most of the unemployed are white, and they make up an even larger share of those receiving unemployment benefits. But conservatives may not know this, treating the unemployed as part of a vaguely defined, dark-skinned crowd of “takers.” My guess, however, is that it’s mainly about the closed information loop of the modern right. In a nation where the Republican base gets what it thinks are facts from Fox News and Rush Limbaugh, where the party’s elite gets what it imagines to be policy analysis from the American Enterprise Institute or the Heritage Foundation, the right lives in its own intellectual universe, aware of neither the reality of unemployment nor what life is like for the jobless. You might think that personal experience — almost everyone has acquaintances or relatives who can’t find work — would still break through, but apparently not.

Return of the Bums on Welfare - Paul Krugman - Thinking some more about John Boehner’s resurrection of the notion that we’re suffering weak job growth because people are living the good life on government benefits, and don’t want to work. It has long seemed to me that the issue of unemployment benefits is where the debate over economic policy in a depression reaches its purest essence. If you’r on the right, you believe — you more or less have to believe — that unemployment benefits hurt job creation, because you’re “paying people not to work.”  But there’s something remarkable about seeing these claims made now — because even if you believed that expanded unemployment benefits were somehow a cause rather than an effect of the economic crisis, those expanded benefits are long gone. Here’s unemployment benefits as a percentage of GDP: They’re back down to their level at the height of the “Bush boom”. And here, from Josh Bivens, is the recipiency rate — the percentage of the unemployed receiving any benefits at all: It’s at a record low, and as Bivens says, the pullback in benefits is one main reason economic expansion isn’t reducing poverty. So basically the right is railing against the bums on welfare not only when there aren’t any bums, but when there isn’t any welfare.

A Tale of Two States—Bringing Back Productivity Growth - IMFdirect - What do Oregon and New Mexico have in common?  One link is these two states have the highest share of computer and electronic production in the entire United States. Think Intel in the Silicon Forest or Los Alamos. They also rank similarly in information technology usage by their businesses. Despite this advantage in cutting edge science, in recent work we show these two states at polar ends in terms of productivity performance over the past decades. Businesses in these two states have had a very different experience in translating their passion for tech into productivity. To illustrate, between 2005 and 2010, a $100 investment in capital and labor in Oregon would have yielded a $25 payback, while a similar investment in New Mexico would have paid only $5. How can this be possible? We find that the moderation in total factor productivity growth has been widespread across U.S. states, but the degree to which it has happened has varied greatly. The decline ranges from over 3 percentage points in New Mexico and South Dakota to below 1 percentage point in states like Washington, Oregon, Nebraska, and Maryland (see Chart 2). The Oregon and New Mexico comparison tells us that the reasons for this different performance must go well beyond the winding down of the tech boom. If it were just a tech story, we should have seen a closer relationship between the states’ productivity performance and specialization in information technology. Instead, we see almost no relationship between the extent to which states either produce or use information technology and the change in productivity growth.

Los Angeles City Council Votes to Raise Wages for Thousands of Workers Yesterday’s vote by the Los Angeles City Council to raise the wages of hotel workers to $15.37 is an historic move and strikes a blow for workers everywhere. Raising the wage floor is an important way of giving workers more bargaining power and raising wages across the board. The Leisure and Hospitality industry has some of the lowest wages in the country, and the highest disparity between CEO and worker pay—Leisure and Hospitality CEOs made 370 times what their workers were paid in 2013. The legislation also covers tipped workers who, research has shown, are much better off when they are paid the full minimum wage.  My hope is that Congress will step up and pass legislation to raise the minimum wage nationwide. In the meantime, it’s heartening that the city of Los Angeles has joined other states and municipalities to make sure its workers are earning the wages they need to get by.

LA Hotel Workers Win $15.37 Minimum Wage: a New Day for Labor in the United States? -- The Los Angeles City Council’s vote to raise the minimum wage for hotel workers is another herald of big changes coming in the way the United States deals with low wages and inequality. The Council voted 12 to 3 to raise the minimum wage for workers at large hotels to $15.37 an hour by 2017, which is more than the national median wage for women ($15.10 in 2013). Mayor Eric Garcetti will sign the bill after it receives a confirming second vote next week. The LA County AFL-CIO, UNITE HERE Local 11 (the LA area union of hospitality workers), and the Los Angeles Alliance for a New Economy, which led the campaign, don’t intend to rest on their laurels and will push for an across-the-board minimum wage increase to $13.25 an hour, far above the national minimum wage of $7.25 an hour. Mayor Garcetti strongly supports that bill, too. As in Seattle, where a union-led coalition won a $15 minimum wage, the people of Los Angeles realize that many businesses will not share revenues fairly with their workers unless they are required to do so. Even businesses that want to pay their employees a living wage feel constrained by their competitors: How can they compete with a competitor paying its workers $5.00 an hour less? The only way to break through these constraints is to reset labor standards to a level that provides a decent living.

Middle-class squeeze: From day care to health care - — Three years ago, Jason Prosser was stunned to discover the cost of child care for his newborn son — so much so that he and his wife postponed having a second child.  He and his wife are among legions of middle-class families who are straining under the weight of accelerating costs for a range of essential services from day care to health care. And now a study by the Center for American Progress shows just how heavy the burden has grown: For a typical married couple with two children, the combined cost of child care, housing, health care, and savings for college and retirement jumped 32 percent from 2000 to 2012 — and that’s after adjusting for inflation. Compounding the pain is that average pay for Americans is barely topping inflation. The figures help explain why many Americans feel stressed even as the economy has strengthened — and why some feel bewildered to hear that overall inflation in the United States is, if anything, too low. From TVs, computers, and cellphones to clothing and cars, many goods have fallen in price in the past decade. Those declining prices have helped keep overall inflation historically low — even lower than the 2 percent the Federal Reserve thinks is ideal. Yet when you consider that average health care and college costs soared more than 80 percent from 2000 to 2012, it’s easier to understand why many families feel they are struggling. ‘‘An overseas colleague characterized the situation well: America is a place where the luxuries are cheap and the necessities are expensive,’’

Median Household Income Began to Stagnate in 1980, not 2000 - Dean Baker - Thomas Edsall has a good discussion of the shift of income from labor to capital in the years since 2000. His piece puts the blame largely on the way the United States has structured global trade to put downward pressure on the wages of ordinary workers.  While Edsall's discussion of the period since 2000 is largely on target (it does miss the impact of macroeconomic fluctuations and the fact that we have been well below full employment for most of this period), it errs in telling readers: "Until 1999, median household income (as distinct from wealth) rose in tandem with national economic growth. That year, household income abruptly stopped keeping pace with economic growth and has fallen steadily behind then." While median household income did keep pace with economic growth from 1993 to 1999, it actually lagged far behind in the years from 1978 to 1993. Over this period real per capital income rose by 30.0 percent, while median household income barely changed. This divergence of median income from growth was associated with an upward redistribution of wage income, with high end earners (e.g. Wall Street types, CEOs, and doctors) gaining at the expense of most workers. In this period, most college graduates (@ 25 percent of the workforce at the time) were among the winners. By contrast, in the period since 2000 only workers at the very top of the income distribution and owners of capital have been winners.

Economic security and “the great disturbing factors of life” -  Steve Randy Waldman of the interfluidity blog pulls me back into Universal Basic Income (UBI) land. I appreciate the compliments, but let’s get to the cheddar. I share his foreboding of a political future without a labor movement. It’s unpleasant to imagine how bad things could get, even aside from that whole destruction of the planet thing. In troubled times, there is a natural conflict between trying to preserve old, embattled forms of social protection and casting about for new, more viable ones.In general I have no problem with providing unconditional cash money to the poor rather than in-kind benefits. The problem of course is that we have in-kind benefits for food and housing because of the historic, political weakness of free-standing cash assistance. So we need a political environment that would be conducive to some kind of conversion. The Supplemental Nutrition Assistance Program (SNAP), formerly known as “Food Stamps,” got its political boost from agri-business interests, support which is waning. Rep. Ryan wants to turn SNAP into a block grant, a type of death sentence. Not the sort of conversion we want. (With the advent of payment cards, SNAP benefits are more like cash.) By contrast, there is a very good reason for in-kind benefits in the form of health insurance. You don’t want to cast people into an individual market with some kind of voucher. I’m puzzled by SRW’s suggestion that public provision of health care has become infeasible, though later he seems to say it isn’t. I believe SRW’s characterization of the libertarian impulse is wrong. At its root I would say is not some desire for minimal bureaucracy and free choice, but a drive to drown a whittled-down welfare state in the bathtub. If you don’t like bureaucracy, try not to spend much time dealing with private health insurance companies.

Why Wall Street Cares About Inequality - First, it was Standard & Poor’s. Now, Morgan Stanley weighs in on income inequality in a new report. Why are these Wall Street institutions, normally focused on macroeconomic issues directly related to gross domestic product forecasts, suddenly chiming in on the issue? Because both firms find U.S. inequality is holding back economic growth. Morgan Stanley’s research suggests weaker-than-usual consumption at the lower end of the income ladder helps explain why this economic recovery has been particularly anemic. “It has taken more than five years for U.S. households to ‘feel’ like they are in recovery,” write economists Ellen Zentner and Paula Campbell in the report, entitled “Inequality and Consumption.” Before the recession, they say, “the expansion of credit simply delayed the day of reckoning from declining incomes and rising inequality.”

Sense on Stilts: Eight Graphs Showing a Quarter-Century of Wealth Inequality and Age Inequality - Scott Sumner made a very important point a while back (and repeatedly since) in a post wherein he makes a bunch of other (IMO) not very good points: Income and wealth inequality data: Nonsense on stilts.  His crucial (and I think true) point, in my words: you can’t think coherently about inequality — especially wealth inequality — if you don’t think about age. Older households have more wealth, because they’ve had more time to accrue wealth. There’s always gonna be wealth inequality based on that alone. It’s inevitable, and to a greater or lesser extent (warning: normative claim here), that’s as it should be. I’ve been pondering this dynamic ever since, trying to figure out how to portray it in ways that let us think clearly about it. I’ve searched for presentations and studies, but — perhaps my Google skills need work — I’ve come up with almost nothing. Matt Bruenig’s recent post is a notable exception. The September 4 release of the Fed’s  latest (2013) Survey of Consumer Finance data finally prompted me to dig into it. We now have nine triennial SCF samples starting in 1989, encompassing 24 years — most of the period following the Reagan Revolution. What kind of changes and trends have we seen over that quarter century? How did the wealth/age dynamic look in 1989? What does it look like today? How has it changed?

What happens to families on housing assistance when the assistance goes away? - Housing constitutes the largest expense that most of us bear every month, as well as the most essential. And yet of all of the forms of aid we offer the poor — food stamps, income support, school lunch, health care — housing assistance can be the most precarious. Only about a quarter of all families who qualify for public housing or vouchers ever receive the help, creating long backlogs and year-long waits. And families who do receive it may lose the aid for several reasons, both seemingly good (a marriage or raise made them ineligible) or bad (a rules violation got them evicted). Here is one woman, from a new Urban Institute study of housing assistance recipients, describing her deep fear of losing housing assistance: You have to go through hell and high water to get housing. And I thought, what if I can’t afford full rent? Where will my kids be, in a shelter? So you get scared because it takes so long to get housing. You know what I mean? It’s like a trap. It’s hard to get in, and because of that, you’re scared to get out. Despite this shaky picture, we actually don't know a lot about what happens to families as they transition off (or get evicted from) housing assistance. But the answer is more important than ever as local housing agencies, facing shrinking budgets and rising demand, look for ways to stretch their resources further. If we were to set time limits on housing aid, what would happen to families when their time is up? Does housing aid offer a "springboard to better outcomes" or a safety net without which families will fall into homelessness? In short, are people better off when they leave these programs?

More Americans Forgo Marriage as Economic Difficulties Hit Home -  As long-term financial security becomes a pipe dream for more Americans, a growing share is giving up on marriage. One in five U.S. adults aged 25 or older had never been married in 2012, a record high, according to a new report by the Pew Research Center that analyzed Census data. In 1960, the number was one in ten. According to an accompanying survey Pew conducted this May and June, only 53% of all never-married adults said they would like to marry eventually, down from 61% in 2010. Around 32% said they were not sure, up from 27% in 2010. The figures in the Census data are more striking for African-Americans. Some 36% of blacks aged 25 and up had not been married in 2012, compared to 25% in 1990 and 9% in 1960. For whites, the share of never-married was 16% in 2012, up from 11% in 1990 and 8% in 1960.

Hispanics Were the Only Major Group to See Poverty Drop Last Year - Last week’s news that the official U.S. poverty rate fell for the first time in seven years to 14.5% from 15% was greeted lukewarmly—and for good reason. The poverty rate remains well above its prerecession level of 12.5% in 2007. Also, most economists quibble with how the rate is calculated. (To address this, Census also releases a more comprehensive “supplemental” poverty measure, one that accounts for things such as antipoverty programs and regional differences in housing costs. This supplemental measure was stuck at 16% in 2012, and a new reading comes in mid-October.) But one more major reason to downplay last week’s news was that improvements weren’t broadly felt. Hispanics were the only major racial or ethnic group to see poverty decline, experts at the Pew Research Center note. Poverty among Hispanics—who comprise about 17% of the U.S. population—fell from 25.6% in 2012 to 23.5% in 2013 as this group’s median income rose an inflation-adjusted 3.5%. That allowed the overall U.S. poverty rate to decline. While poverty reduction among Hispanics is good news, it’s notable that no other major racial or ethnic group saw a statistically significant drop.

Detroit Residents: Restore Our Water - --In this bedeviled city struggling to convince residents to pay their bills, a slash of blue spray paint on front lawns serves as a kind of scarlet letter of debt. "I was really embarrassed. I started to cry," Carol Ann Bogden, a 68-year-old retired emergency-room nurse told a federal judge Monday, describing how city water department officials marked her home before shutting off service in July. She said her husband died eight years ago and she helps support her ailing son. She told the judge that she fell behind in her payments and now owes more than $1,100. Most days, she said she buys her water from the Dollar Tree store. During the last two years, the city's water and sewerage department has put its mark on tens of thousands of residences. With the help of advocacy groups, some homeowners are suing to restore service and stop future residential shut-offs for at least six months. On Monday, Judge Steven Rhodes heard testimony from several residents who described their water woes, including one who has a bill that tops $8,000. They argue that the city didn't give them proper notice, targeted residential customers over commercial ones and ignored the inability of many poor people to pay their rising bills. For Detroit, it is a conundrum: How to get residents to pay their taxes and other bills after years of substandard services in a city under bankruptcy protection with $18 billion in debt?

Hungry Children in America: One child in five in the United States lives in a "food insecure" household. ("Childhood Food Insecurity in the U.S.: Trends, Causes, and Policy Options,") ...Unsurprisingly, families that are poor are more likely to experience food insecurity. But perhaps more surprisingly, the connection from poverty to food insecurity is by no means ironclad. After all, the U.S. spends over $100 billion on food-related programs for the poor, including food stamps, school lunches and breakfasts and others. As the authors write: Clearly, the risk for child food insecurity drops quickly with income. But even at incomes two and three times the poverty level, food insecurity is quite high. Moreover, almost 60 percent of children in households close to the poverty line are in foodsecure households. This suggests that income is only part of the story and that other factors also contribute to children’s food security.As the authors dig into the data on children living in food-insecure households, the theme that keeps emerging is the quality of parenting the children receive. ...The takeaway lesson, at least for me, is that food stamps and school lunches do help to reduce food insecurity, as do programs that provide income support to those with low incomes. But when the adults in a household are having trouble managing their own lives, children end up suffering.  As I have argued before on this website, for many children, the parenting gap they experience may be limiting their development even from a very young age.

How Rich Old White Men Are Taking Lunch Money Away From Inner-City Black Kids -- Cuts to Head Start and the Supplemental Nutrition Assistance Program have taken food away from schoolchildren. The cuts are directly related to the dramatic dropoff in federal corporate tax revenue. Tax avoidance is just as bad at the state level, which is a much greater source of K-12 educational funding. Both individuals and corporations are paying less state taxes than ever before. As a result, our public schools, the most important expression of a society working together to secure future generations, are being defunded and dismantled and left to decay. It may be the ugliest extreme of inequality in our country -- tax avoidance by the rich vs. broken-down schools. According to a Standard and Poor's analysis, average annual state tax revenue fell from 10% to 5% between 1980 and 2011, even as the share of total income for the top 1% of earners doubled. The top 10% and the top 500 CEOs are predominately white males. Our country's missing tax revenue can be found in their growing stock portfolios.

Homelessness on the rise among school-age children: The number of homeless school children is rising in U.S. schools. New Education Department statistics say 1.3 million homeless children were enrolled in U.S. schools in the 2012-2013 school year. That's an 8 percent increase from the previous school year. School districts reported that nearly 76,000 of these students were living on their own. A vast majority of all the homeless children were living in "doubled-up" quarters, meaning multiple families were living together not by choice. About 70,000 were identified as living in a hotel or motel. The statistics likely underestimate the true number of homeless kids. The numbers don't include homeless infants, toddlers, young children not enrolled in public preschool programs or homeless children not identified by school officials.

Student homelessness hits another record high -- Approximately 1.3 million students enrolled in U.S. public preschools, elementary schools, middle schools and high schools schools were homeless during the 2012-13 school year. That's up 8% from the prior year, and the highest number on record, according to the National Center for Homeless Education, funded by the Department of Education. A lack of affordable housing is a big reason, forcing many families to live in the streets, shelters, motels or to double up with other families, said Jeremy Rosen, director of advocacy at the National Law Center on Homelessness & Poverty. "This problem continues to get worse because in terms of government programs and support for homelessness, budgets have been cut in recent years, and there's less affordable housing available," said Rosen. Another reason for the big jump: Improvements in how the homeless are counted, said Rosen. Homelessness is an extremely difficult thing to quantify, and in this case, it's up to school employees -- from teachers to bus drivers -- to identify students who are homeless. Many children who are homeless don't want anyone to know about their situation -- out of embarrassment or fright that they will be taken from their parents -- so the actual number could be a lot higher. Even without a concrete number, however, it's clear to homeless advocates through the conversations they have with struggling families every day that the problem is only growing and that the economic recovery is still lagging for many of the people who were impacted the most during the downturn.

In Texas Textbooks, Moses Is a Founding Father -- Four years ago, the Texas State Board of Education (SBOE) adopted new standards, known as TEKS (Texas Essential Knowledge and Skills), for social studies textbooks in the state’s schools. The process ignited an international media storm. Now the SBOE is considering what textbook publishers have produced in response to the TEKS requirements. As a result, how students learn history in the Lone Star State is back in the news.  In June, in response to the Fordham Institute’s criticisms and to the incoherent, ideologically-driven TEKS requirements, the Texas Freedom Network, a nonpartisan watchdog organization, commissioned three Ph.D. scholars, including myself, and seven University of Texas doctoral students to study the special Texas editions of 43 social-studies online texts proposed for middle and high school adoption. After a summer of painstaking work, our analysis was released by TFN on September 10, and since then the story has gotten legs. We agreed on two big points. First, most of the publishers had tried hard to deal with the situation that TEKS presented. Second, however, dealing with TEKS at all means distortion, or worse.  The stakes are high: A Texas state adoption of a textbook means a very lucrative sale. In the case of print editions, that can mean sales outside of Texas, though electronic texts mean that what Texas wants presents less of a problem elsewhere than it used to do. Almost all the publishers submitted electronic editions crafted for Texas specifically. But even just the Lone Star market is enormous.

Huntsville schools say call from NSA led to monitoring students online -- A secret program to monitor students' online activities began quietly in Huntsville schools, following a phone call from the NSA, school officials say. Huntsville schools Superintendent Casey Wardynski says the system began monitoring social media sites 18 months ago, after the National Security Agency tipped the school district to a student making violent threats on Facebook.  The NSA, a U.S. agency responsible for foreign intelligence, this week said it has no record of a call to Huntsville and does not make calls to school systems. Regardless of how the program started, Huntsville City Schools began scanning Facebook and other sites for signs of gang activity, watching for photos of guns, photos of gang signs and threats of violence. The Huntsville monitoring program is called SAFe, or Students Against Fear. School board members said they did not know about the program when contacted last week. Internal documents explaining the program, obtained by, show examples of four different students posing on Facebook with handguns. None are on school grounds. Three are listed as expelled. One was referred for counseling.

Hundreds of Colorado students protest history curriculum changes that would promote patriotism – Hundreds of students walked out of classrooms around suburban Denver on Tuesday in protest over a conservative-led school board proposal to focus history education on topics that promote citizenship, patriotism and respect for authority, in a show of civil disobedience that the new standards would aim to downplay. The youth protest in the state's second-largest school district follows a sick-out from teachers that shut down two high schools in the politically and economically diverse area that has become a key political battleground. AStudent participants said their demonstration was organized by word of mouth and social media. Many waved American flags and carried signs, including messages that read "There is nothing more patriotic than protest." "I don't think my education should be censored. We should be able to know what happened in our past," said Tori Leu, a 17-year-old student who protested at Ralston Valley High School in Arvada. The school board proposal that triggered the walkouts in Jefferson County calls of instructional materials that present positive aspects of the nation and its heritage. It would establish a committee to regularly review texts and course plans, starting with Advanced Placement history, to make sure materials "promote citizenship, patriotism, essentials and benefits of the free-market system, respect for authority and respect for individual rights" and don't "encourage or condone civil disorder, social strike or disregard of the law."

Why Federal College Ratings Won’t Rein In Tuition -   College costs have been rising for decades. Slowing — or even better, reversing — that trend would get more people into college and help reduce student debt. The Obama administration is working on an ambitious plan intended to rein in college costs, and it deserves credit for tackling this tough job.Unfortunately, I don’t think it’s going to work, at least not in controlling tuition at public colleges, which enroll a vast majority of students.  The program is an attempt to rate colleges according to practical measures like dropout rates, earnings of graduates and affordability. The aim is to improve the quality of higher education while also bringing down costs. First, consider public colleges (attended by about 80 percent of undergraduates), where tuition has grown faster than inflation for decades. From 1988 to 2013, average tuition at four-year public colleges more than doubled, even after adjusting for inflation.Yet here is a surprising fact: Public colleges are collecting about the same revenue per student today as they were 25 years ago. In 1988, educational revenue per full-time-equivalent student at public colleges was $11,300; in 2013, it was $11,500.  That’s just a 3 percent increase. How can this be? If tuition has doubled, shouldn’t public colleges be getting double the revenue? To reconcile this paradox, we need some background on college finances. Public colleges depend on two sources of revenue for educating undergraduates: tuition from students and appropriations from their state legislatures. In 1988, state legislatures gave their public colleges an average of $8,600 a student. Students contributed an additional $2,700 in tuition, which gets us to a total of $11,300. By 2013, states were kicking in just $6,100, while students were contributing $5,400; this gets us to a total of $11,500. As far as students are concerned, public tuition has doubled. As far as public colleges are concerned, funding is flat.

Why Poor Students Struggle - The effort to increase the number of low-income students who graduate from four-year colleges, especially elite colleges, has recently been front-page news. But when I think about my students, and my own story, I wonder whether the barriers, seen and unseen, have changed at all. In spite of our collective belief that education is the engine for climbing the socioeconomic ladder — the heart of the “American dream” myth — colleges now are more divided by wealth than ever. When lower-income students start college, they often struggle to finish for many reasons, but social isolation and alienation can be big factors. In “Rewarding Strivers: Helping Low-Income Students Succeed in College,” Anthony P. Carnevale and Jeff Strohl analyzed federal data collected by Michael Bastedo and Ozan Jaquette of the University of Michigan School of Education; they found that at the 193 most selective colleges, only 14 percent of students were from the bottom 50 percent of Americans in terms of socioeconomic status. Just 5 percent of students were from the lowest quartile.

Professors on Food Stamps: The Shocking Exploitation of Toilers in the Ivory Tower - You’ve probably heard the old stereotypes about professors in their ivory tower lecturing about Kafka while clad in a tweed jacket. But for many professors today, the reality is quite different: being so poorly paid and treated, that they’re more likely to be found bargain-hunting at day-old bread stores. This is academia in 2014. “The most shocking thing is that many of us don’t even earn the federal minimum wage,” said Miranda Merklein, an adjunct professor from Santa Fe who started teaching in 2008. “Our students didn’t know that professors with PhDs aren’t even earning as much as an entry-level fast food worker. We’re not calling for the $15 minimum wage. We don’t even make minimum wage. And we have no benefits and no job security.” Over three quarters of college professors are adjunct. Legally, adjunct positions are part-time, at-will employment. Universities pay adjunct professors by the course,  anywhere between $1,000 to $5,000. So if a professor teaches three courses in both the fall and spring semesters at a rate of $3000 per course, they’ll make $18,000 dollars. The average full-time barista  makes the same yearly wage.  However, a full-time adjunct works more than 40 hours a week. They’re not paid for most of those hours. “If it’s a three credit course, you’re paid for your time in the classroom only,” said Merklein. “So everything else you do is by donation. If you hold office hours, those you’re doing for free. Your grading you do for free. … Anything we do with the student where we sit down and explain what happened when the student was absent, that’s also free labor. Some would call it wage theft because these are things we have to do in order to keep our jobs. We have to do things we’re not getting paid for. It’s not optional.”

Study: Online classes really do work | MIT News Office: It’s been two years since a New York Times article declared the “year of the MOOC” —short for “massive open online courses.” Now, for the first time, researchers have carried out a detailed study that shows that these classes really can teach at least as effectively as traditional classroom courses — and they found that this is true regardless of how much preparation and knowledge students start out with. The findings have just been published in the International Review of Research in Open and Distance Learning, in a paper by David Pritchard, MIT’s Cecil and Ida Green Professor of Physics, along with three other researchers at MIT and one each from Harvard University and China’s Tsinghua University. “It’s an issue that has been very controversial,” Pritchard says. “A number of well-known educators have said there isn’t going to be much learning in MOOCs, or if there is, it will be for people who are already well-educated.” But after thorough before-and-after testing of students taking the MITx physics class 8.MReVx (Mechanics Review) online, and similar testing of those taking the same class in its traditional form, Pritchard and his team found quite the contrary: The study showed that in the MITx course, “the amount learned is somewhat greater than in the traditional lecture-based course,” Pritchard says.

For-Profit Colleges as Factories of Debt -- Yves here. The American higher education system has been sucking more and more of the economic life out of the children that supposedly represent our best and brightest, the ones with intelligence and self-discipline to do well enough to be accepted at college. But even though the press has given some attention to how young adults, and sometimes their hapless parent/grandparent co-signers, can wind up carrying huge millstones of debt, there's been comparatively less focus on the for-profit segment of the market. While their students constitute only 13% of the total college population, they account for 31% of student loans. Why such a disproportionately high debt load? As this post explains, the for-profit colleges are master predators, seeking out vulnerable targets like single mothers who will do what they think it takes to set themselves up to land a middle class job. This is the new American lower-class version of P.T. Barnum's "a sucker is born every minute." These social aspirants are easy to exploit because they haven't gotten the memo that the American Dream is dead.

The lessons of student debt - A decade ago, one of the biggest problems hanging over American consumers was their addiction to consumer and mortgage debt. But since the 2008 crisis, something striking has happened: the level of overall credit-card loans has slowly drifted down, to a point where it is now hovering near its lowest level for a decade. And mortgage borrowing has also been more subdued, bucking the pre-crisis trend. But overall debt levels are still quite high by international standards. Second, there is one area where borrowing continues to explode: student debt. Most notably, as Warren observed, the total volume of outstanding student loans in the US has tripled over the past decade towards $1,300bn, to a point where it has now outstripped that credit-card debt, and auto loans. The reason for this is not hard to find. Not only are student loans widely available, due to government lending programmes, but the cost of education has spiralled upwards at a startling pace (partly, it should be stressed, because of that availability). This has brutal consequences for income inequality, given the degree to which a university education is now considered essential for skilled jobs. But what really upsets Warren right now is another detail: the loans that have been extended to students via government-backed institutions carry fixed interest rates that cannot be refinanced in line with market rates. That means they create implicit subsidies for the government – a practice that Warren wants to end by cutting the rate from about 7 per cent to nearer 3 per cent. “The 2007-2012 loans are on target to produce $60bn of profit for the US government. I think that is fundamentally wrong,” she thundered, arguing that the rising cost of education is shattering the American dream. “Why can we spend billions of dollars to preserve tax loopholes for billionaires … but not [change] this?”

Student Loan Defaults Vary Wildly by State - Across the U.S., the share of Americans defaulting on their student loans shortly after leaving school fell in the past year. But the performance of borrowers varied greatly among the states. Some 13.7% of borrowers defaulted on student loans within three years of leaving college or graduate school in fiscal year 2011. That was down from 14.7% for the prior year. The government defines default when a borrower has made no payments in 360 days.But even with the decline, the rate is still high because many Americans aren’t finding well-paying jobs after college by the time payments come due. Among those who left school in fiscal year 2011, more than 18% of borrowers in New Mexico, Arizona and West Virginia had defaulted on their loans within three years, according to data released by the Education Department. Those were among the highest rates across the country. Those states also had more people out of work who were looking for a job than the national average.Meanwhile, the lowest default rates were in North Dakota and Nebraska, where fewer than 8% of students couldn’t pay their loans. North Dakota, where an oil-fueled expansion has boosted the number of jobs available, had the lowest unemployment rate in the country last month at 2.8%. Nebraska had the second-lowest rate at 3.6%, matching that for South Dakota and Utah.

Obama Administration Again Sides With Abusive Loan Servicers, This Time on Student Loans - Yves Smith -- A corrosive development is the ease with which lenders steal extract income which is not properly theirs from borrowers through what is at best incompetence and in far too many cases is fraud. This pattern has repeats itself again and again: in mortgage servicing, with debt collection, and more and more with student loan servicing.   A big part of why servicers, who are less supposedly disreputable than kneecapping debt collectors, keep getting away with misconduct is that most borrowers are too broke to fight bogus charges and the cascading damage that results, often from interest rates ratcheting into default levels. And even when borrowers go to court, judges are often unwilling to side with consumers against large, legitimate-looking loan servicers. But even worse is that the Obama Administration has repeatedly thrown its weight behind predatory servicers.  As a new story by Shahien Nasiripour in the Huffington Post tells us, the Administration is now giving student loan servicers the “too big to fail” kid gloves treatment. The apparent justification is that correcting the records of borrowers who may have gone into default through not fault of their own would lead schools with bad servicers to lose access to Federal student aid, which could prove to be crippling to them. So understand what that means: the law was set up to inflict draconian punishments on schools that used servicers that screw up and/or cheat on a regular basis, presumably because the consequences to borrowers were so serious. But rather than enforce the law, which would have such dire consequences for bad actors as to serve as a wake-up call for everyone else, the Administration has thrown its weight fully behind the education-extraction complex.

Slamming A Door On Hedge Funds - Looking for better returns, public pension funds in recent years have been socking away money in those lightly regulated vehicles. Some pension overseers have criticized this trend, but they have been few in number and have often been drowned out by hedge fund proponents. Those overseers’ arguments, however, are sound: Hedge funds, with their high fees, secrecy and recent underperformance, are inappropriate investments for most funds charged with providing retirement and other benefits to former workers.Last week, those critics received a big boost when the California Public Employees’ Retirement System, or Calpers, said it would divest itself of its entire $4 billion portfolio of hedge funds over the next year. Citing high costs and complexity associated with its holdings in 24 hedge funds and six so-called funds of funds, Calpers said the investments were “no longer warranted.” Hedge funds typically charge 2 percent of the assets they manage and an additional 20 percent of any profits they generate. Investors in funds-of-funds pay even more: 3 percent and 30 percent.In its announcement, Calpers said nothing about the performance of the hedge fund investments, but it was probably dismal. As the stock market has roared to new highs, most hedge fund managers have been unable to keep up. According to Preqin Ltd., a research firm, hedge funds have vastly underperformed the Standard & Poor’s 500-stock index over the last one, three and five years. Other indexes show them lagging on a 10-year basis, too. Fund-of-funds performance is even worse.

Stop risking public pensions on hedge funds - Managers of the nation’s largest public-employee pension fund, the California Public Employees’ Retirement System (CalPERS), are closing out their investments with hedge funds. Taxpayers everywhere should applaud the move — and then ask their state and local politicians when they will do the same as CalPERS. The hedge fund industry has shrugged, noting that it manages more than $2.3 trillion in assets while the CalPERS hedge fund investments amounted to about $4 billion. But that reaction misses the point entirely. The move is really about public workers and taxpayers, not the industry. The reason to applaud the CalPERS withdrawal is not that all hedge funds are bad investments, though they can be. Overall, the roughly 5,000 hedge funds have underperformed the market in the last decade while charging very high fees; the base charge can be 40 times the cost of index fund management, whose aim is to earn the average market return. Rather it’s because hedge funds are not suited to the risk-averse investing that public workers and taxpayers should expect.

N.J. Panel Says Full Pension Fix Would Cost $12,000 Per Home - It would cost each of New Jersey’s households about $12,000 to close the $37 billion pension gap, according to a 10-member panel named by Governor Chris Christie. In an interim report today, the panel said the state’s combined liabilities in pensions and retiree health-care costs are about $90 billion. Elected officials widened the gap by skipping payments as they increased benefits, and employees who enrolled in “platinum” health plans exacerbated the situation, according to the report. New Jersey’s pension system is the fourth-worst-funded in the U.S., the report found. “The unfunded liability of the state plans reflects a long-term disconnect between the willingness to provide employees with benefits and the willingness to pay for them,” the report said.

Public Pension Funds Face $2 Trillion Shortfall, Moodys Warns -- "Despite the robust investment returns since 2004, annual growth in unfunded pension liabilities has outstripped these returns," Moody's warns in its latest report on the state of public pension systems. As Bloomberg reports, the 25 biggest systems by assets averaged a 7.45% return from 2004 to 2013, but liabilities tripled over the same period leaving them facing a $2 trillion shortfall as investment returns can’t keep up with ballooning obligations. The top 25 funds account for 40% of the entire US public pension system with Illinois, Kentucky, Connecticut, and Louisiana at the top of the 'most underfunded' list.

U.S. public pension gap at least $2 trillion -Moody's  (Reuters) - The U.S. public pension gap has tripled to at least $2 trillion in less than a decade, Moody's Investors Service said in a report on Thursday. Moody's measured the unfunded liabilities for the 25 biggest public retirement systems between 2004 and 2012. The total future shortfall is more than half the size of the $3.7 trillion municipal bond market, which comprises all the outstanding debt issued by U.S. states and cities. The gap has widened in spite of the fact that average investment returns over about the same period were 7.45 percent, roughly in line with targets, according to the Wall Street credit rating agency. "Part of the problem for the level of overall funding is that it is inherently difficult to recover an overall asset position after the double-digit losses seen during the recession," Al Medioli, a Moody's vice president, said in a statement. true In fiscal years 2008 and 2009, at the depth of the economic downturn, the plans' assets dropped nearly 22 percent cumulatively on average, Moody's said. Other contributing factors include inadequate contributions from plan sponsors and the burden of an aging population across the country.

Billing for rape: Louisiana sex assault victims often face hefty bills for medical care - She was questioned, prodded and photographed over the course of six hours. Nurses collected samples of tissue and fluid from her mouth and her body. They took her urine, drew her blood and bagged her clothes. They offered her drugs to prevent pregnancy, HIV and other sexually transmitted diseases. Then, they led her to a private shower and sent her home. Her life, she felt, was now divided into two eras: Pre-rape and post-rape. Eight days into the shock of this new reality, she received a letter she couldn't comprehend. The cost of some of the medical services she received totaled nearly $2,000, it said. Insurance would pay $1,400. She would owe the remaining $600 -- for her share of the cost of two HIV drugs and two other medications designed to stave off side-effects of those drugs. She folded the papers, stuffed them in her purse and tried to calm down. A few days later, another bill would arrive, showing an additional $1,700 in charges for her care, including an $860 fee for her visit to the emergency room. "You never really think, 'Is rape covered by insurance?'" the New Orleans woman said. The letter from the hospital was no aberration. In Louisiana, victims of sex crimes often face paralyzing bills for forensic medical exams and related care, even though state and federal guidelines require that many of these services be provided at no cost to the victim. And there's little continuity in how rape victims are treated from parish to parish and hospital to hospital.

Medicare does “NOT PAY FOR ITSELF”  - In the comments section of an earlier post 1/3 of Medicare Spending is Wasted, I had stated to everyone, “Medicare does NOT PAY FOR ITSELF.” This is what I meant by that comment:“For more than a decade the the federal government has borrowed to pay for the rising cost of Medicare. Debt-financing of Medicare will increase sharply as the population over 65 doubles from 2010 to 2030 and the number of beneficiaries over 85—with the greatest medical needs—triple.” Note, using borrowed money to finance Medicare is not something that will happen in the future. It began more than a decade ago. Yet, as the article notes: “Members of Congress are reluctant to argue with constituents who sincerely believe that they have ‘paid for’ Medicare with payroll taxes and premiums. Most find it more convenient to tiptoe around the minefield of Medicare financings.” So the charade continues even today.   People who believe that they have paid for their Medicare with payroll taxes and premiums are terribly naïve and do not realize how much Medicare actually costs or how much “Medicare for all” would cost.

How to Discriminate Against Pre-Existing Conditions in Two Easy Tiers -- ProPublica, here's an editorial published yesterday in the American Journal of Managed Care:  For many years, most insurers had formularies that consisted of only 3 tiers: Tier 1 was for generic drugs (lowest co-pay), Tier 2 was for branded drugs that were designated “preferred” (higher co- pay), and Tier 3 was for “nonpreferred” branded drugs (highest co-pay)....Now, however, a number of insurers have split their all-generics tier into a bottom tier consisting of “preferred” generics, and a second tier consisting of “non-preferred” generics.  Hmmm. What's going on here? In some cases, this new non-preferred tier is reserved for higher-priced medicines. That's pretty easy to understand: insurers are trying to motivate their patients to choose cheaper drugs when they're available. That's the same reason copays are lower for generics compared to brand name drugs. But it turns out that sometimes all the generic drugs for a particular disease are non-preferred and therefore have high copays. What are insurance companies trying to motivate in these cases? Charles Ornstein takes a guess: Specifically, the complaint contended that the plans placed all of their H.I.V. medications, including generics, in their highest of five cost tiers, meaning that patients had to pay 40 percent of the cost after paying a deductible. The complaint is pending. "It seems that the plans are trying to find this wiggle room to design their benefits to prevent people who have high health needs from enrolling,"

No, there’s not evidence that the uninsured rate has increased since 2013 --Joseph Antos of the American Enterprise Institute recently highlighted some findings from the Census Bureau. In a report released last week, the Current Population Survey found that 13.4% of Americans were uninsured in 2013. Furthermore, Antos notes: A day after the two main reports were issued, the CDC quietly placed another table on its website. The new table compares estimates from the NHIS and the CPS for the early months of 2014. It reports the NHIS result that 13.1 percent of the population lacked health insurance when they were interviewed in the January through March time period of 2014. But it also reports the CPS estimate that 13.8 percent were uninsured during the February through April interview period. Ergo, Antos concludes, the number of uninsured would appear to be higher in the first quarter of 2014 than in 2013, by CPS measures. The story has since been republished on Forbes and picked up by other conservative outlets, including Townhall and the National Center for Public Policy Research. I have a lot of respect for Antos as a conservative commentator on health policy, but his observation glosses over a crucial point. The 2013 statistic is for the number of people who were uninsured for the duration of 2013. That is to say, anyone who had health insurance at any point during 2013 is classified among the 86.6% “insured.” The 2014 measure is the number of people who were uninsured at the time of the interview. We shouldn’t compare longitudinal observations against point-in-time estimates.

Your employer could be considering a health plan with no hospital benefits -- Lance Shnider is confident Obamacare regulators knew exactly what they were doing when they created an online calculator that gives a green light to new employer coverage without hospital benefits. “There’s not a glitch in this system,” said Shnider, president of Voluntary Benefits Agency, an Ohio firm working with some 100 employers to implement such plans. “This is the way the calculator was designed.”As companies prepare to offer medical coverage for 2015, debate has grown over government software that critics say can trap workers in inadequate plans while barring them from subsidies to buy fuller coverage on their own. At the center of contention is the calculator — an online spreadsheet to certify whether plans meet the Affordable Care Act’s toughest standard for large employers, the “minimum value” test for adequate benefits. The software is used by large, self-insured employers that pay their own medical claims but often outsource the plan design and administration. Offering a calculator-certified plan shields employers from penalties of up to $3,120 per worker next year. Many insurance professionals were surprised to learn from a recent Kaiser Health News story that the calculator approves plans lacking hospital benefits and that numerous large, low-wage employers are considering them.

Obamacare Website Costs Exceed $2 Billion, Study Finds - The federal government’s Obamacare enrollment system has cost about $2.1 billion so far, according to a Bloomberg Government analysis of contracts related to the project. Spending for and related programs, including at the Internal Revenue Service and other federal agencies, exceeds cost estimates provided by the Obama administration, the analysis found. The government’s most recent estimate, limited to spending on computer systems by the agency that runs the site, through February, is $834 million. and its associated programs are the main portal for millions of Americans to sign up for coverage under the Patient Protection and Affordable Care Act known as Obamacare. Spending for the system has been a matter of dispute between the administration and Republican opponents in Congress, who have tried to block funding for the law.

Obamacare Website Costs Top $2 Billion, Almost Triple Government Estimates -- What's the opposite of government efficiency? In a double-take-instigating headline, the federal government’s Obamacare enrollment system has cost about $2.1 billion so far, according to a Bloomberg Government analysis of contracts related to the project. BGOV’s analysis shows that costs for both and the broader reform effort are far greater than anything publicly discussed. However, that pales into insignificance when considering health reform has cost American taxpayers $73 billion in the last four years... and counting.

Obamacare Architect Says Society Would Be Better Off If People Died At 75 -- Dr. Ezekiel Emanuel, brother of Rahm Emanuel, says that society would be far better off if people quit trying to live past age 75.  His new article entitled “Why I Hope To Die At 75” has the following very creepy subtitle: “An argument that society and families—and you - will be better off if nature takes its course swiftly and promptly”.  In the article, Emanuel forcefully argues that the quality of life for most people is significantly diminished past the age of 75 and that once we get to that age we should refuse any more medical care that will extend our lifespans.  This is quite chilling to read, considering the fact that this is coming from one of the key architects of Obamacare.  Of course he never uses the term “death panels” in his article, but that is obviously what Emanuel would want in a perfect world.  To Emanuel, it is inefficient to waste medical resources on those that do not have a high “quality of life”.  So he says that “75 is a pretty good age to aim to stop”.

The Unaffordable Cost of Being the Fattest Country on Earth -- A recent report cited that the single biggest reason families go bankrupt in the United States is because they get wiped out by medical bills. What a nightmare. God bless those families that have to spend all of their household savings, and more, to help a loved one. But here’s something that few American citizens know: Just like those families, the U.S. could also go broke, because the country is being wiped out by medical costs. The nation’s healthcare costs have grown to $2.8 trillion, or nearly $9,000 per person, which is more than double what comparable countries pay per person. And health spending is projected to grow at an average rate of 6% through 2022 – much faster than the expected average annual GDP growth. With these staggeringly high, growing costs that are increasing faster than our economy will grow, we’re on an unsustainable path to national bankruptcy. Sure, a country can’t get foreclosed on or have its car taken away, like what can happen to a family. But a country can lose its economy, its growth, its jobs, its security -- its very way of life. Gallup and Healthways just released our State of Global Well-Being report. I wish I could say the findings are encouraging on the healthcare front, but they’re not. The U.S. ranks 25th globally in physical well-being, with 57% of our citizens struggling, 11% suffering, and only 32% thriving in this element. But here’s a truly alarming -- and revealing -- fact: The U.S. is the most obese country in the world.

Shrooms and Smoking, Adult Drug Abuse, and Ebola: Healthcare Triage News -  Dr Aaron Carroll (video) - Shrooms to quit smoking, who’s using drugs, and a clarification on Ebola:

US Hospitals Not Prepared to Dispose Waste from Treating Ebola Patients - Biosafety experts are concerned about how U.S. hospitals will dispose of any of the infectious waste that would generate after these facilities treat Ebola-infected patients. The experts state that these hospitals are not prepared which could jeopardize the safety of the community.According to the experts, waste management companies are unwilling to take any soiled sheets or protective gear that might be contaminated with the virus. The companies stated, reported in Reuters, that the federal government demands that any waste associated with treating Ebola needs to be disposed of via special packaging, which has to be done by professionals with hazardous material training.   Waste disposal was initially a huge issue for Emory University Hospital located in Atlanta, GA. This hospital treated the first two Ebola-infected American patients who were transported from West Africa where they got the virus. Emory's waste handler, Stericycle, had initially refused to haul away any Ebola-related waste, which forced the hospital to go and purchase 32-gallon rubber waste containers with lids. They kept the waste in the containers within a containment area for six days until Stericycle agreed to take it. The U.S. Centers for Disease Control and Prevention (CDC) had worked out an agreement with the waste company. "At its peak, we were up to 40 bags a day of medical waste, which took a huge tax on our waste management system,"

Lockdown Begins in Sierra Leone to Battle Ebola - — The most ambitious and aggressive government campaign against the Ebola epidemic gripping parts of West Africa began on Friday when Sierra Leone ordered everyone in the country to remain indoors for three days, suspending commerce, emptying the streets and halting this beleaguered nation in its tracks in an attempt stop the disease from spreading. Calling the struggle against Ebola a matter of life or death, the government mustered police officers, soldiers and nearly 30,000 volunteers to go house to house, hoping to educate the country about the dangers of Ebola and identify people who might pass the disease to those around them. “Some of the things we are asking you to do are difficult, but life is better than these difficulties,” President Ernest Bai Koroma said in an extraordinary radio address on Thursday night explaining the national lockdown. From the start, the limits of the government campaign were evident. The warnings, mobilization and exhortations quickly clashed with the reality that cases here are surging and the infrastructure to deal with them hardly exists. There is no large-scale treatment center for Ebola patients in the capital, Freetown, so many patients have to be placed in a holding center until they can be transported to a facility hours away — that is, if an ambulance can be found to pick them up and if those packed facilities have room. The countrywide lockdown showed the desperation among West African governments — particularly in the three hardest-hit countries, Guinea, Liberia and Sierra Leone — as they grapple with an epidemic that has already killed more than 2,600 people and shows no signs of slowing down.

Sierra Leone records 130 new Ebola cases during 3-day lockdown (Reuters) - Sierra Leone recorded 130 new cases of the Ebola virus during a three-day lockdown and it is waiting for test results on a further 39 suspected cases, Stephen Gaojia, head of the Ebola Emergency Operations Centre, said on Monday. The country had ordered its six million citizens to stay indoors until Sunday night in the most extreme strategy employed by a West African nation since the start of an epidemic that has infected 5,762 people since March and killed 2,793 of those. "The exercise has been largely successful ... The outreach was just overwhelming. There was massive awareness of the disease," Gaojia said, noting that authorities reached more than 80 percent of the households they had intended to target. true Sierra Leone now needs to focus on treatment and case management and it urgently needs treatment centres in all its 14 districts as well as "foot soldiers" in clinics and hospitals, he said. "We need clinicians, epidemiologists, lab technicians, infection-control practitioners and nurses," he said.

Ebola outbreak: Sierra Leone lockdown declared 'success': A three-day curfew aimed at containing the Ebola outbreak in Sierra Leone has been declared a success by authorities. They say more than a million households were surveyed and 130 new cases discovered. Sierra Leone is one of the countries worst affected by the outbreak, with nearly 600 of the almost 2,800 total deaths recorded so far. Some health groups have criticised the lockdown, saying it would destroy trust between patients and doctors. Nearly all of the deaths in the world's worst Ebola outbreak have been recorded in Guinea, Liberia and Sierra Leone. The World Health Organization (WHO) says the situations in Senegal and Nigeria have now been "pretty much contained". According to the UN agency, the number of overall deaths from Ebola has risen to 2,793 and the disease remains "a public health emergency of international concern". The deadly virus is transmitted through sweat, blood and saliva, and there is no proven cure.

Ebola Outlook Grim as Study Predicts 21,000 Cases by Nov. - The outlook for the Ebola epidemic in West Africa is bleak, according to a new forecast predicting there could be almost 21,000 cases of the virus by November if control efforts in Western Africa aren’t quickly increased. The estimate, made by the World Health Organization’s Ebola response team, was published in the New England Journal of Medicine today. Presuming no additional aid, the model forecasts 9,939 cases in Liberia, 5,925 cases Guinea, and 5,063 in Sierra Leone by Nov. 2, more than three times the current total. “Without drastic improvements in control measures, the number of cases of and deaths from Ebola virus disease are expected to continue increasing from hundreds to thousands per week in the coming months,” the researchers said in the study.  The report joins a chorus of dire predictions by researchers warning the outbreak could spiral out of control. The U.S. Centers for Disease Control and Prevention is working on a worst-case forecast that predicts 550,000 cases by the end of January without improved containment.

WHO: 21,000 Ebola cases by November if no changes: (AP) — New estimates from the World Health Organization warn the number of Ebola cases could hit 21,000 in six weeks unless efforts to curb the outbreak are ramped up. Since the first cases were reported six months ago, the tally of cases in West Africa has reached an estimated 5,800 illnesses. WHO officials say cases are continuing to increase exponentially and Ebola could sicken people for years to come without better control measures. In recent weeks, health officials worldwide have stepped up efforts to provide aid but the virus is still spreading. There aren't enough hospital beds, health workers or even soap and water in the hardest-hit West African countries: Guinea, Sierra Leone and Liberia. EBOLA: Doctor says border controls critical Last week, the U.S. announced it would build more than a dozen medical centers in Liberia and send 3,000 troops to help. Britain and France have also pledged to build treatment centers in Sierra Leone and Guinea and the World Bank and UNICEF have sent more than $1 million worth of supplies to the region. "We're beginning to see some signs in the response that gives us hope this increase in cases won't happen," said Christopher Dye, WHO's director of strategy and study co-author, who acknowledged the predictions come with a lot of uncertainties. "This is a bit like weather forecasting. We can do it a few days in advance, but looking a few weeks or months ahead is very difficult." They also calculated the death rate to be about 70 percent among hospitalized patients but noted many Ebola cases were only identified after they died. So far, about 2,800 deaths have been attributed to Ebola. Dye said there was no proof Ebola was more infectious or deadly than in previous outbreaks.

Fresh Graves Point to Undercount of Ebola Toll - — The gravedigger hacked at the cemetery’s dense undergrowth, clearing space for the day’s Ebola victims. A burial team, in protective suits torn with gaping holes, arrived with fresh bodies.Bodies were dumped in new graves, and a worker in a short-sleeve shirt carried away the stretcher, wearing only plastic bags over his hands as protection. The outlook for the day at King Tom Cemetery was busy. “We will need much more space,” . The Ebola epidemic is spreading rapidly in Sierra Leone’s densely packed capital — and it may already be far worse than the authorities acknowledge. Since the beginning of the outbreak more than six months ago, the Sierra Leone Health Ministry reported only 10 confirmed Ebola deaths here in Freetown, the capital of more than one million people, and its suburbs as of Sunday — a hopeful sign that this city, unlike the capital of neighboring Liberia, had been relatively spared the ravages of the outbreak.But the bodies pouring in to the graveyard tell a different story. In the last eight days alone, 110 Ebola victims have been buried at King Tom Cemetery, according to the supervisor, Abdul Rahman Parker, suggesting an outbreak that is much more deadly than either the government or international health officials have announced.

CDC: Ebola cases could reach 550,000 by January - -- The number of Ebola cases in Liberia and Sierra Leone could rise to between 550,000 and 1.4 million by January if there are no "additional interventions or changes in community behavior," the Centers for Disease Control and Prevention said in a report Tuesday. The estimate was derived from a new forecasting tool developed by the CDC. The range of estimated cases -- from 550,000 to 1.4 million -- is wide because experts suspect the current count is highly under-reported. The official death toll from Ebola in West Africa has climbed to more than 2,800 in six months, with 5,800 cases confirmed as of Monday, the World Health Organization said. But the CDC estimates that if 70% of people with Ebola are properly cared for in medical facilities, the epidemic could decrease and eventually end. In a press conference Tuesday,  CDC Director Tom Frieden cautioned that this model is based on older data from August. The numbers are not projections, but "scenarios."   A separate nine-month assessment published by WHO experts in The New England Journal of Medicine on Tuesday says the fatality rate of this outbreak in West Africa is 71% and that the "current epidemiologic outlook is bleak." It also warns that without "drastic improvements" in measures to control its spread, the number of cases and deaths from Ebola is expected to continue climbing from hundreds to thousands per week in the coming months. The cumulative number of cases could exceed 20,000 by November 2, the assessment said.

C.D.C. Projects Best and Worst Outcomes for Ebola -  Yet another set of ominous projections about the Ebola epidemic in West Africa was released Tuesday, in a report from the Centers for Disease Control and Prevention that gave worst- and best-case estimates for Liberia and Sierra Leone based on computer modeling.  In the worst-case scenario, the two countries could have 21,000 total cases of Ebola by Sept. 30 and 1.4 million cases by Jan. 20 if the disease keeps spreading without effective methods to contain it. These figures take into account the fact that many cases go undetected, and estimate that there are actually 2.5 times as many as reported.In the best-case model, the epidemic in both countries would be “almost ended” by Jan. 20, the report said. Success would require safe funerals at which no one touches the bodies, and treating 70 percent of patients in settings that reduce the risk of transmission. The report said the proportion of patients now in such settings was about 18 percent in Liberia and 40 percent in Sierra Leone. The caseload projections are based on data from August, but Dr. Thomas R. Frieden, the C.D.C. director, said the situation appeared to have improved since then because more aid had begun to reach the region.

CDC "Taking Precautions In US", Fears 1.4 Million Africa Ebola Cases By January -- While WHO Director Thomas Frieden's "gut" says the worst-case scenario won't come to pass (thanks to the actions that are being taken), the CDC is about to release its Ebola-epidemic scenario tool that suggests up to 1.4 million infections by mid-January. As The NY Times reports, these figures take into account the fact that many cases go undetected, and estimate that there are actually 2.5 times as many as reported. In the best-case model, the epidemic in both countries would be "almost ended" by Jan. 20, the report said. Perhaps more worrying is the WHO report also, for the first time, raised the possibility that the disease would not be stopped but would become endemic in West Africa, meaning that it could become a constant presence there. Aid group Samaritan’s Purse is gravely concerned at the spread of the disease, fearing "it's too late. Nobody's going to build 100,000 beds."

CDC: Ebola could infect 1.4 million in Liberia and Sierra Leone by end of January - The Ebola epidemic in West Africa, already ghastly, could get worse by orders of magnitude, killing hundreds of thousands of people and embedding itself in the human population for years to come, according to two worst-case scenarios from scientists studying the historic outbreak. The virus could potentially infect 1.4 million people in Liberia and Sierra Leone by the end of January, according to a statistical forecast by the U.S. Centers for Disease Control and Prevention published Tuesday. That number came just hours after a report in the New England Journal of Medicine warned that the epidemic might never be fully controlled and that the virus could become endemic, crippling civic life in the affected countries and presenting an ongoing threat of spreading elsewhere. These dire scenarios from highly respected medical sources were framed, however, by optimism from U.S. officials that an accelerated response can and will contain the outbreak in the weeks and months ahead. CDC Director Tom Frieden cautioned that the estimates in the new report from his agency do not take into account the actions taken, or planned, since August by the United States and the international community. Help is on the way, and it will make a difference, he said — but time is of the essence. “A surge now can break the back of the epidemic, but delay is extremely costly,” Frieden said.

By the numbers: 1.4 million cases of Ebola forecast by January
The Ebola outbreak could skyrocket to between 550,000 cases and 1.4 million cases by 2015 if there is no large-scale intervention, according to data from the Centers for Disease Control and Prevention on Tuesday.  An outbreak in the U.S. is unlikely, but CDC warns the epidemic in West Africa could drag on for years if a response isn’t immediate. Here are the latest figures on the largest Ebola outbreak in modern history.

  • 1.4 million: The estimated number of Ebola cases in Liberia and Sierra Leone by the end of January if virus continues to spread.
  • 20,000: The number of Ebola cases forecast by early November if outbreak isn’t contained.
  • 2,800: The number of Ebola-related deaths in five West African countries this year.
  • 5,800: The number of people who have been infected with the virus this year.
  • $500 million: The amount the Pentagon is seeking from Congress to fight Ebola on top of the $500,000 already requested.
  • $809 million: The estimated financial toll on the economies of Guinea, Liberia and Sierra Leone by the end of next year if the virus keeps spreading, according to the World Bank.
  • $1 billion: The amount the U.N. is requesting from the international community to contain the Ebola outbreak.
  • 70%: The fatality rate for the current epidemic.

World Bank Says Ebola’s Spread May Have Catastrophic Cost -  The World Bank warned that the economic costs of the Ebola outbreak in West Africa will escalate to “catastrophic” proportions if the virus spreads, while Ghanaian President John Dramani Mahama criticized the international response to the disease. “If other countries in the vicinity in the subregion of West Africa fail to do what Nigeria and Senegal have done -- which is to keep things under control -- then the costs will become much much larger,” Francisco Ferreira, World Bank chief economist for Africa, said in a Sept. 19 interview in Lusaka, Zambia’s capital. The spread of the virus may cost Guinea, Liberia and Sierra Leone, the three nations where most infections have taken place, as much as $809 million, the World Bank said on Sept. 17. Early findings of the lender’s research into the economic risks of the disease spreading to other countries show the damage could be more severe, he said.  Mahama said in an interview in New York yesterday that the Ebola outbreak may reduce gross domestic product in the region by about 3.6 percent. Funds pledged by international donors haven’t yet flowed in and a “panic response” by closing borders and airlines canceling flights are further damaging the worst-hit economies, he said. “These resources should be fast-tracked so that the countries have the resources to be able to fight the disease,” he said.

Are Bees Back Up on Their Knees? - IN 2006, beekeepers in Pennsylvania’s apple country noticed the first sign of many bad things to come. Once thriving beehives were suddenly empty, devoid of nearly all worker bees, but with an apparently healthy, if lonely, queen remaining in place. Over a period of just three months, tens of thousands of honeybees were totally gone. Multiply this across millions of beehives in millions of apiaries in the more than 22 states that were soon affected, and suddenly we faced a huge, tragic mystery. Up to 24 percent of American apiaries were experiencing colony collapse disorder (C.C.D.). We still don’t really know why C.C.D. was happening, but it looks as if we are turning the corner: Scientists I’ve spoken to in both academia and government have strong reason to believe that C.C.D. is essentially over. This finding is based on data from the past three years — or perhaps, more accurately, the lack thereof. There have been no conclusively documented cases of C.C.D. in the strict sense. Perhaps C.C.D. will one day seem like yet another blip on the millennium-plus timeline of unexplained bee die-offs. Luckily, the dauntless efforts of beekeepers have brought bee populations back each time. While this is undoubtedly good news, we cannot let it blind us to a hard truth. Bees are still dying; it’s just that we’re finding the dead bodies now, whereas with C.C.D., they were vanishing. Bees are still threatened by at least three major enemies: diseases, chemicals (pesticides, fungicides, herbicides, etc.) and habitat loss.

How Bees Are Being Used In Place Of Fungicides In Australia -- The future of fungus-free crops may depend not on fungicides, but on a few fuzzy insects, if a method used by Australian researchers can be successfully replicated. The researchers are using bees as “flying doctors” to deliver a biological control agent that prevents a debilitating fungus to the blossoms of the cherry trees they pollinate. The agent — which contains spores of another fungus that prevents brown rot, a blight that’s prevalent among cherries and other stone fruit — is sprinkled into dispensers on the front of the bees’ hives. The spores cling to the bees when they leave the hive, and then rub off on the flowers the bees land on to gather nectar and pollen.“Normally growers spray once or twice during flowering to prevent brown rot in cherries later in the season” Katja Hogendoorn, project leader for the bees-as-fungus-fighters project, said. “Because they are spraying flowers, and bees go to flowers, we can use bees to deliver the control instead.”The technique works in place of spraying fungicide on the trees to protect them from brown rot, which can cause extensive losses if it infects cherry trees. That makes it a more environmentally sound way of preventing brown rot on cherry trees, which can be pollinated by bumblebees or honeybees.  “The bees deliver control on target, every day,” Hogendoorn, said. “There is no spray drift or run-off into the environment, less use of heavy equipment, water, labor and fuel.”

Fukushima radiation still poisoning insects - Eating food contaminated with radioactive particles may be more perilous than thought—at least for insects. Butterfly larvae fed even slightly tainted leaves collected near the Fukushima Daiichi Nuclear Power Station were more likely to suffer physical abnormalities and low survival rates than those fed uncontaminated foliage, a new study finds. The research suggests that the environment in the Fukushima region, particularly in areas off-limits to humans because of safety concerns, will remain dangerous for wildlife for some time. The 2011 Fukushima Daiichi Nuclear Power Station disaster released massive amounts of radiation, much of which drifted out to sea. Humans were evacuated to safety and their exposure to radiation was minimal. But local wildlife were exposed both externally to radiation in the environment and internally from contaminated food sources. Joji Otaki, a biologist at University of the Ryukyus in Nishihara, Japan, and his colleagues have been conducting field studies and lab experiments on how such radiation affected the pale grass blue butterfly (Zizeeria maha), a species found throughout most of Japan.  Larvae that dined on the radiation-drenched leaves had low survival rates and high incidences of physical abnormalities such as unusually small forewings. These results corroborated field surveys by others that turned up fewer butterflies in contaminated areas than would normally be expected.

Monsanto GMO wheat contamination discovered in Montana — Monsanto’s experimental genetically modified wheat has been discovered growing in the second US field in Montana, about a year after the discovery of the company’s unapproved crop growing in Oregon disrupted US wheat exports. The plants were discovered at a test site at Montana State University, where back in 2000-2003 Monsanto was conducting field trials of its wheat, genetically modified to tolerate Roundup herbicide. Although the government believes the wheat never reached market, it has still opened an investigation into finding the rogue plants at a site that was not supposed to host any tests after 2003, USDA's Department of Agriculture’s Animal & Plant Health Inspection Service announced on Friday. “We’ve now opened an investigation into this regulatory compliance issue,” said Bernadette Juarez, director of investigative and enforcement services for APHIS, adding however that “there are no safety issues with this wheat.” The last such discovery in Oregon led to several international customers postponing US wheat deliveries, but this time exports should not be affected, US officials believe. “We remain confident that the wheat exports will continue without disruption,” Juarez said.

Cargill fires first shot in legal battle over GMO trade responsibility (Reuters) - Cargill Inc's lawsuit against Syngenta over rejections of genetically modified U.S. corn by China may be just the start of legal challenges against global seed makers over trade with one of the world's biggest markets. Trading giant Cargill said in court documents on Friday that it had lost more than $90 million because Syngenta sold Agrisure Viptera corn, known as MIR 162, to U.S. farmers without first obtaining import approval from China, which has turned away boatloads of U.S. crops containing the variety over the past year. The lawsuit will be a test case of who is ultimately responsible for such rejections that damage international trade: the seed companies that develop unapproved GMO traits or the merchants who sell grain that may be contaminated with it. Cargill filed its case as U.S. farmers are preparing to harvest their first crop of another GMO variety of Syngenta corn called Duracade, which China has not approved for import. Nearly 90 percent of corn in the United States, the world's top grains producer, is now genetically engineered, according to the U.S. Department of Agriculture, as farmers embrace technology that helps kill weeds and fight pests.

Forget GMOs. The Future of Food Is Data—Mountains of It - Inside a squat building on San Francisco’s 10th Street, packed into a space that looks a lot like a high school chem lab, Hampton Creek is redesigning the food you eat. Mixing and matching proteins found in the world’s plants, the tiny startup already has created a reasonable facsimile of the chicken egg—an imitation of the morning staple that’s significantly cheaper, safer, and possibly healthier than the real thing—and now it’s working to overhaul other foods in much the same way. At the back of the room, spread across the long stainless steel science desks, among the centrifuges, scales, bottles, and beakers, biochemists systematically extract proteins from plants like the Canadian yellow pea to analyze their makeup and behavior. Beside them, food scientists combine these proteins in new ways, mixing them with other natural substances to create something that looks, feels, and tastes like the foods we know today. In the next row over, chefs—including Chris Jones and Ben Roche, recruited from Chicago’s celebrated gastromolecular eatery, Moto—strive to turn these creations into something you could serve to your family: an omelet or some french toast or a chocolate chip cookie. But if you walk up a set of stairs at the front of the building, ducking under a sign displaying a high-minded quote from Buckminster Fuller on the nature of change, you’ll find a different kind of scientist. There, seated at a row of desktop computers with flat-panel displays, a team of recently hired mathematicians is building an online database that one day could catalog the behavior of practically every plant protein on earth—a collection of digital information that could allow Hampton Creek to model the creation of new foods using computer software.

Forest Service says media needs photography permit in wilderness areas, alarming First Amendment advocates -  The U.S. Forest Service has tightened restrictions on media coverage in vast swaths of the country's wild lands, requiring reporters to pay for a permit and get permission before shooting a photo or video in federally designated wilderness areas. Under rules being finalized in November, a reporter who met a biologist, wildlife advocate or whistleblower alleging neglect in any of the nation's 100 million acres of wilderness would first need special approval to shoot photos or videos even on an iPhone. Permits cost up to $1,500, says Forest Service spokesman Larry Chambers, and reporters who don't get a permit could face fines up to $1,000. First Amendment advocates say the rules ignore press freedoms and are so vague they'd allow the Forest Service to grant permits only to favored reporters shooting videos for positive stories.

California Or Ethiopia? "Families Dream Every Night About Water" -- It's worst and getting worst-er. Hundreds of domestic wells in California's drought-parched Central Valley farming region have run dry, according to AP, leaving many residents to rely on donated bottles of drinking water to get by. With government set to regulate deeper drilling, hope is plunging that a solution to California's drought will come anytime soon as groundwater levels plunge. The stories of struggle are simply stunning, especially given they are coming from America with Governor Brown signing an executive order that provides money to buy drinking water for residents statewide whose wells have dried up. "We need water like we need air," exclaimed one charity leader trying to raise money for water tanks, "Families every night dream about water," said another. And ripped from the famine-headlines of East Africa, "every day [Californians] thinking about how they're going to deal with water."

Wholesale Water Supplier To Half California’s Population Quickly Running Through Supplies As Drought Drags On — The giant wholesaler that provides drinking water for half the California population has run through two-thirds of its stored supplies as the state contends with a punishing drought.That’s according to Jeffrey Kightlinger, the general manager of the Metropolitan Water District of Southern California.Without plentiful rain and snow in coming months, Kightlinger said in a speech in Los Angeles Monday that the water agency could consider cutbacks to its regional distributors next year.If such limits are approved, that could lead to rationing or cuts for households in portions of Southern California.At the current rate, billions of gallons in remaining agency reserves could be drained in about 18 months.Gov. Jerry Brown is urging residents to voluntarily reduce water use.

Zero Percent Water - Before we get to what this drought means — the anger and paranoia, the heartbreak and bitterness — it’s important to remember the Central Valley isn’t just any valley. It’s one of the most productive agricultural regions in the world. Our country’s breadbasket. Our primary source for tomatoes, almonds, grapes, cotton, and dozens of other products. I’m scheduled to see all of it, on what I’m told will be a “tour of destruction.” I expect the farmers I meet on this trip to be blighted and sorrowful, a bunch of Tom Joads just trying to make ends meet. But these guys are irreverent and cocksure. Tired, maybe. Clearly they listen to a lot of talk radio. I also expect ceaseless talk of the weather. Having grown up in farm country, I know every farmer looks helplessly to the sky hoping the weather gods will be kind. Even in the best of years, the weather is a weight. But in this current catastrophic cycle — three years of near-record rainfall deficits putting most of California at least one full year of normal rainfall behind recovery, some areas closer to two years, all while record breaking heat has currently left 58% of the state in “exceptional drought” conditions — I’m thinking I’ll hear nothing short of the lament of the forsaken. Instead, a man named Jeff Yarbro hammers on about who they see as enemy #1: environmentalists. As Yarbro has it, these particular environmentalists have fought to make sure whatever precious water is released from the state’s reservoirs goes first to facilitating salmon runs. The problem is that most of this water heads out into the ocean with no attempt to reuse it. “They want this valley all jackrabbits and sage brush,” he says, meaning the environmentalists. “They don’t believe we should be here. They’d like to turn the valley like it was a hundred years ago. And for us to go elsewhere.”

No rain for decades: Stand by for the ‘megadroughts’, scientists warn - Climate change is set to unleash a series of decades-long “megadroughts” this century, according to research to be published this week.  Experts warn the droughts could be even more severe than the prolonged water shortage currently afflicting California, where residents have resorted to stealing from fire hydrants amid mass crop failures and regular wildfires. Megadroughts – which are generally defined as lasting 35 years or more – will become considerably more frequent as global warming increases temperatures and reduces rainfall in regions already susceptible, warns Cornell University’s Dr Toby Ault, the author of the new report. Megadroughts are also likely to be hotter and last longer than in the past, he claimed. His peer-reviewed research – to be published in the American Meterological Society’s Journal of Climate – is the first to scientifically establish that climate change exacerbates the threat. “We can now explicitly add megadroughts to the list of risks that are being intensified by climate change. Without climate change there would be a 5 to 15 per cent risk of a megadrought in the south-west of the US this century. With it, the probability jumps to between 20 per cent and 50 per cent, with the southernmost part of the country particularly at risk,” Dr Ault told The Independent. The threat megadroughts pose is so great they could decimate the world’s economy and food supply, inflicting a humanitarian crisis, experts warned. “Global warming will make droughts evermore severe and devastating in the future. The south-west of the US, southern Europe, much of Africa, India, Australia and much of Central and South America could all have a drought that lasts decades,”

2014 on Track to be Hottest Year on Record -- Just days after NASA data showed that August 2014 was the warmest August on record, the National Oceanic and Atmospheric Administration confirmed the ranking and raised the ante: There’s a good chance 2014 could become the warmest year on record.  “If we continue a consistent departure from average for the rest of 2014, we will edge out 2010 as the warmest year on record,” said Jake Crouch, a climatologist with NOAA’s National Climatic Data Center, during a press briefing Thursday.  Specifically, if each of the remaining months of the year ranks among the top five warmest, 2014 will take the top spot, he said. For the year-to-date, the globe has measured 1.22°F above the 20th century average of 57.3°F, which makes January-August 2014 the third warmest such period since records began in 1880. The record-hot August marks the 38th consecutive August and the 354th consecutive month with a global average temperature above the 20th century average, according to the NCDC.

Today, 310,000 people took to the streets of New York City to call for climate action - Today, 310,000 people took to the streets of New York City to call for climate action -- the largest climate march in history. And we were joined by hundreds of thousands of others around the world at over 2646 events in 156 countries. And on Tuesday, the world’s politicians will gather in New York to talk about climate action -- 125 heads of state in total. They’ll be gathering with the knowledge that more people than ever are demanding action, not just words, and that their political future is on the line -- as well as the future of the planet. We will bring that message to the top leadership of the UN inside Tuesday’s summit, with a hand-delivered message to top UN climate negotiators. If you stand with the hundreds of thousands of people who marched today around the world, tell world leaders that you mean business:

Photos: 400,000 Protesters March To Prevent Annihilation By Global Warming - Socialists, grandmothers, Baptists, babies, domestic workers, veterans, anarchists, and Leonardo Di Caprio all rallied to save the human species from itself during the People's Climate March on Sunday, in what one of the organizers called "the largest political gathering about anything in America in at least a decade." The "final" head count from the march's officials stood at 400,000, though there is no magic number that triggers the world leaders meeting to discuss climate change at the UN on Tuesday to actually do something about it. For Emma Suzuki-Jones and Holly Fuchigami, two college students who had recently moved to the city from Hawaii, New York's biggest demonstration since the 2004 RNC protests was also their first.   Suzuki-Jones said that she was most concerned about rising sea levels. "It's just weird to think that a lot of places in Hawaii are going to be underwater in 50 years." We didn't have the heart to point out that her adopted home would be underwater too.

Entire Climate March Video in 4 Minutes

"7.1 Billion Demonstrate In Favor Of Global Warming" -  -- In an overwhelming show of support for dangerously escalating temperatures, 7.1 billion people from nearly every nation on earth staged massive demonstrations yesterday in favor of global warming. “Whether they were sitting in their living rooms, watching football at a bar, or just driving somewhere, a sizable portion of the world let its support for climate change be heard loud and clear,” said environmental policy expert Janet Purvis, adding that the protest that began in the morning never lost steam at any point throughout the day. “This should serve as a wake-up call to officials around the world that the factors contributing to global warming are real, important, and must be protected at any cost.” At press time, the 7.1 billion protesters were reportedly making plans to stage similar rallies every day for the foreseeable future.

#OccupyAndOrFloodWallStreetForClimateChange Takes On NYSE TV Studio - Live Feed -- It has been several years since the disjointed, confused, and extremely disorganized Occupy Wall Street movement made any headlines. Alas, in the interim, the career prospects of those who comprise its up prime age demographic have gone nowhere but down while inversely impacting the nominal free time of said cohort, which is why we were somewhat surprised it took as long as it did for the same individuals, best known for camping out in Zucotti Park (until it started snowing of course), to stage a daring comeback. Which they did today, following a weekend in which New York City was overrun with "The People's Climate March", protesting against climate change by... leaving behind them tons of non-biodegradable garbage. It is this same group that has once again made its way all the way down into the Financial district, and specifically in front of the TV studio formerly known as the NYSE.

‘Flood Wall Street’ Protesters Say Root Cause Of Climate Change Is Unchecked Capitalism  — On Monday, a day after nearly 400,000 marchers gathered for the largest climate march in history, activists and protesters turned their attention to the many links between capitalism and climate change by flooding Wall Street with supporters.By early afternoon Monday, several thousand people were gathered just down the street from Wall Street around the iconic Charging Bull statue. They waved flags, chanted, and sat down on the street to draw attention to what they consider to be the primary cause of climate change.  The scene was far more tense than that of the previous day; two people were reportedly arrested for trying to cross a police barricade and several journalists and activists reported on Twitter that the NYPD used pepper spray on protesters rushing a barricade.  “We talk a lot about climate change and the root problems of climate change, but not many people are willing to say that the root problem of climate change is capitalism,” Sam Neubauer, 19, who came to the protest from Minnesota, told ThinkProgress. “Large corporations profit from capitalism by extracting oil and burning that oil and we need to call that out explicitly.”

102 Arrested at Flood Wall Street -- Shortly after the New York Stock Exchange 4 p.m. closing bell and hours after the protest began, New York City police arrested 102 people who were part of the Flood Wall Street protest yesterday, including several individuals in wheelchairs and one dressed as a polar bear.  A day after the historic People’s Climate March in New York City, which attracted around 400,000 people, thousands of environmental activists dressed in blue flooded into the lower Manhattan Financial District. It started with speakers like Naomi Klein, Chris Hedges and Rebecca Solnit as demonstrators assembled in Battery Park for the march and nonviolent sit-in which began around Noon. The demonstration and sit-in were peaceful and festive, although they clogged the streets, blocking normal traffic flow through the district and police presence was heavy throughout the day.

Rockefellers join anti-fossil fuel drive - A grass-roots movement against fossil fuels has secured its highest profile convert, as the family foundation built on the riches of John D Rockefeller’s Standard Oil announced plans to cuts its oil and coal investments. The Rockefeller Brothers Fund joins some 800 institutions and individuals, responsible for $50bn of investment, that have pledged to sell some or all of their fossil fuel holdings. The effort to make oil, gas and coal investments as unpopular as tobacco stocks or investments in apartheid-era South Africa gathered momentum in advance of Tuesday’s New York climate summit organised by Ban Ki-moon, the UN secretary-general. “Stay away from this fossil fuel-based investment. Do much more on renewable energy,” Mr Ban told business and government leaders on Monday. The Rockefeller fund said it would sell its investments in the coal and Canadian oil sands industries and review its remaining fossil fuel holdings for possible sale in one or two years Stephen Heintz, the fund’s president, suggested that the oilman who founded Standard Oil in 1870 would approve and would be “leading the charge” into renewable energy if he were alive today. “He was an innovative, forward-looking businessman,” Mr Heintz said. “He would recognise that clean energy technology is the business of the future.”

Only $1 Trillion: Annual Investment Goal Puts Climate Solutions Within Reach -- A two-year-old number is changing the way governments, companies and investors approach the fight against climate change: $1 trillion. That is roughly the amount of additional investment needed worldwide each year for the next 36 years to stave off the worst effects of global warming and keep the Earth habitable, according to the International Energy Agency. The Paris-based organization of 29 developed countries calculated the cost in 2012 and raised its estimates this year. Ceres, a Boston-based nonprofit investor group that advocates environmental sustainability, framed it as the "Clean Trillion" in an investment campaign that has become a rallying cry. While $1 trillion sounds like a lot, knowing the figure is good news, according to climate activists, investment experts and United Nations organizers of the next round of global climate talks. Worldwide, almost $4 trillion a year will need to be invested over that time anyway in electric grids, power plants and energy efficiency, the IEA says. In a global economy of $75 trillion, $1 trillion works out to 1.3 percent of the world's annual output of goods and services, or about $140 a person. The calculation also focuses the discussion on investment—suggesting the potential for returns and profits—rather than on costs for disaster response and losses to rising oceans.

Obama Urged to Plug Methane Leaks to Meet Climate Goal - Environmental groups are asking the Obama administration to beef up its climate plan by targeting methane leaks in the web of valves, pipes and pumps drillers use to produce and deliver natural gas. While companies have a vested interest in keeping methane bottled up on its way to customers, some gas inevitably seeps out. That’s worrisome because methane -- the primary component of gas -- is 25 times more potent than carbon at trapping heat. The administration has embraced gas as a cleaner alternative to coal because it produces about half the carbon dioxide when burned to generate electricity. Conrad Schneider, advocacy director for the Clean Air Task Force, a Boston-based environmental group, said the U.S. won’t meet its own climate commitment to reduce greenhouse gases by 17 percent from 2005 levels by 2020 without targeting methane. “It’s a very potent global warming pollutant,” he said. Regulating methane “could be the great capstone to their climate efforts,” Schneider said in an interview.

The Benefits of Easing Climate Change - On Tuesday, more than 100 world leaders gathered at the United Nations to open a climate summit meeting that Secretary General Ban Ki-moon hopes will provide momentum to a new round of negotiations toward a global environmental agreement to be signed in Paris next year. You’re forgiven if you hold your applause. World leaders have been trying without success to cut such a deal for almost two decades, crashing time and again into the fear that slowing the emissions of carbon that are inexorably changing the climate carries an economic cost that few are willing to bear.This time, though, advocates come armed with a trump card: All things considered, the cost of curbing carbon emissions may be considerably cheaper than earlier estimates had suggested. For all the fears that climate change mitigation would put the brakes on growth, it might actually enhance it.   Whether this can tip the balance toward the global grand bargain that has eluded world leaders so many times depends on a couple of things. The first is to what extent it is true. The second is whether this is, in fact, the issue that matters most to the people making the decisions. The most recent salvo came in “The New Climate Economy,” a report issued last week by an international commission appointed by a handful of rich and poor countries to take a new look at the economics of climate change.“There is now huge scope for action which can both enhance growth and reduce climate risk,” it reads. Efficient investments could deliver at least half of the emission cuts needed by 2030 to keep global temperatures in check. And they could do so while delivering extra economic gains on the side.

Is stopping climate change a free lunch? - We’re again seeing the return of magical thinking in the economics profession and elsewhere.  Limiting climate change is indeed worth doing, but it is not close to a free lunch.  Eduardo Porter makes the relevant point quite nicely:“If the Chinese and the Indians found it much more economically efficient to build out solar, nuclear and wind, why are they still building all these coal plants?” asked Ted Nordhaus, chairman of the Breakthrough Institute, a think tank focused on development and the environment.China’s CO2 emissions increased 4.2 percent last year, according to the Global Carbon Project, helping drive a global increase of 2.3 percent. China now accounts for 28 percent of the world’s total emissions, more than the United States and the European Union combined.“I don’t think the Chinese and the Indians are stupid,” Mr. Nordhaus told me. “They are looking at their indigenous energy resources and energy demand and making fairly reasonable decisions.”For them, combating climate change does not look at all like a free lunch.Note that doing something about air pollution and doing something about carbon emissions are two distinct issues.  America did a great deal to clean up its air, for instance when it comes to the dangerous Total Particulate Matter, but has done much less to lower its carbon emissions.  It is no accident that the former is a national public good, the latter is mainly a global public good.  China, India, and other developing nations may well go a similar route and simply keep emitting carbon at high and perhaps even growing rates.   If you lump everything together into a general “the benefits of getting rid of air pollution,” you will be missing that nations can and probably will make targeted clean-up attempts that leave carbon emissions largely intact.

U.N. Climate Summit: Staged Parade or Reality Show? - - The much-ballyhooed one-day Climate Summit next week is being hyped as one of the major political-environmental events at the United Nations this year.Secretary-General Ban Ki-moon has urged over 120 of the world’s political and business leaders, who are expected to participate in the talk-fest, to announce significant and substantial initiatives, including funding commitments, “to help move the world towards a path that will limit global warming.”  And, according to the United Nations, the summit will mark the first time in five years that world leaders will gather to discuss what is described as an ecological disaster: climate change. The United Nations says the negative impact of global warming includes a rise in sea levels, extreme weather patterns, ocean acidification, melting of glaciers, extinction of biodiversity species and threats to world food security. But what really can one expect from a one-day event lasting probably over 12 hours of talk time, come Sep. 23? “A one-day event was never going to solve everything about climate change, but it could have been a turning point by demonstrating renewed political will to act,” Timothy Gore, head of policy, advocacy and research for the GROW Campaign at Oxfam International, told IPS. Some political leaders, he pointed out, will still use the opportunity to do that, “but too many look set to stay out of the limelight or steer clear of the kind of really transformational new commitments needed.”

Despite Rising Voice of Climate Movement, Global Leaders Dither - The largest ever gathering for climate action took place in New York on Sept. 21, just two days ahead of a major negotiations on a climate treaty between global leaders at the United Nations.  The “People’s Climate March” attracted an estimated 400,000 people and the message to the political class was clear: stop dithering – it’s time for meaningful action to reduce global carbon emissions. Despite the impassioned plea, most protestors are placing little faith in the UN process, as each summit seemingly ends in vague commitments and empty promises to slow the burning of fossil fuels. The 2014 meeting is intended to lay the major groundwork for an ultimate agreement in Paris next year, but few analysts are expecting a breakthrough. As the traditional UN pathway to agreement has proven intractable and largely ineffective, the climate movement has grown louder and more aggressive. Voices within the environmental movement that eschew incremental progress and partnerships with corporations have risen to the forefront. They criticize centrist environmental groups for selling out and helping big polluters “greenwash” their operations.

U.N. climate summit is high-profile, but some of world’s most important leaders will skip it -  This week, the United Nations will host a huge and well-publicized one-day summit on climate change.  It comes just days after thousands of people in New York and around the world took to the streets, demanding more political action to help fight global warming. The climate summit's organizer, U.N. Secretary General Ban Ki-moon, took part in the New York march, and for Tuesday's event, he is promising to bring together some of the most powerful people in the world with a common purpose. "I have invited leaders from government, business, finance and civil society to present their vision, make bold announcements and forge new partnerships that will support the transformative change the world needs," wrote in a blog post on the summit for the Huffington Post. It's certainly true that the climate summit has an impressive guest list: More than 120 world leaders are heading to the United Nations in New York for the event, including President Obama and many big names from the private sphere. Actor Leonardo DiCaprio will give one of the opening speeches. But as impressive as that guest list is, what's more interesting is who is missing. Notably, Chinese President Xi Jinping and Indian Prime Minister Narendra Modi are skipping the event. In empirical terms, it's hard to think of two more important leaders in the world right now: Together they lead more than 2.5 billion people, more than a third of the world's population. And the two countries are not only the first and second most populous countries on Earth; research shows they also were the first- and third-biggest producers of carbon dioxide emissions (the United States holds the No. 2 spot). That figure can only partly be explained away by their huge populations: One study showed that per capita emissions from China recently surpassed that of the European Union, and India is predicted to follow suit in five years.Xi and Modi are not the only notable world leaders missing the summit. Russia is the 10th-most-populous country in the world and the fourth-largest producers of carbon dioxide emissions, yet President Vladimir Putin won't be in attendance.

At U.N., Obama Calls Climate Change a ‘Global Threat’ - In a forceful appeal for international cooperation on limiting carbon pollution, President Barack Obama warned starkly on Tuesday that the globe's climate is changing faster than efforts to address it. "Nobody gets a pass," he declared. "We have to raise our collective ambition."  Speaking at a United Nations summit, Obama said the United States is doing its part and that it will meet its goal to cut carbon pollution 17 percent from 2005 levels by 2020. He also announced modest new U.S. commitments to address climate change overseas. The summit aims to galvanize support for a global climate treaty to be finalized next year. But Obama's strongest comments came as he sought to unify the international conclave behind actions to reduce global warming."The alarm bells keep ringing, our citizens keep marching," he said. "We can't pretend we can't hear them. We need to answer the call. We need to cut carbon emission in our countries to prevent worse effects, adapt and work together as global community to tackle this global threat before it is too late." He said the U.S. and China as the largest polluters have a responsibility to lead. But, Obama added, "No nation can meet this global threat alone."

US will not commit to climate change aid for poor nations at UN summit -- Barack Obama will not be pledging any cash to a near-empty fund for poor countries at a United Nations summit on climate change next week, the UN special climate change envoy said on Friday. The UN secretary general, Ban Ki-moon, has challenged the 125 world leaders attending the 23 September summit to make “bold pledges” to the fund, intended to help poor countries cope with climate change. The UN has been pressing rich countries to come up with pledges of between $10bn and $15bn. “We are putting a lot of pressure for them to do it at the summit on the 23rd,” the UN envoy and former Irish president, Mary Robinson, told the Guardian on the sidelines of a US Agency for International Development meeting. But she added: “I know the United States is not going to commit because I’ve asked.”

We Need A Global Carbon Tax -- Despite my suspicions of the neoliberal tenor of the organizers and my post-Occupy reservations about marches without explicit political demands, I’m going to the People’s Climate March this morning. But if we were mobilizing around just one demand today, we could do worse than a global carbon tax, with revenues redistributed directly back to people through a global universal basic income. The policy is both politically infeasible and economically inferior to more complex and radical policy packages. But it is so blunt, and so revealing of the twin issues of inequality and climate change, that it is still a “useful utopia.” One of the many things I admire about Thomas Piketty’s Capital in the Twenty-First Century is that it examines capital and inequality through an international lens. His proposed solution is thus global in scope — the institutions and political alliances needed to make any progress must to operate at the same level as (or higher than) other global regulatory, diplomatic, and public goods arrangements. Wealth inequality across the global population is a problem just as inequality between current and future generations is a problem, one that must be addressed at a transnational level.  I want to make the connection between some of Piketty’s arguments about climate policy and environmental economics concrete, just as people like Naomi Klein and Christian Parenti have linked climate issues to redistribution and inequality.

At Summit, China Says It Will Peak Emissions ‘As Early As Possible’ But Bold Pledges Come Later -- As Tuesday’s United Nations summit wrapped up, there were an array of pledges to reduce carbon emissions and help fund green programs, but what did the world’s largest GHG emitter — China — have to say? Already expectations had been lowered due to the fact that President Xi Jinping sent Vice Premier Zhang Gaoli as his special envoy rather than going himself.  Speaking at the summit before Zhang, President Obama specifically said that the United States and China — the world’s two largest economies and largest carbon polluters — bear a “special responsibility to lead,” saying “that’s what big nations have to do.” “Nobody gets a pass,” Obama said. “We will do our part, and we’ll help developing nations do theirs.”  When it was his turn to speak, Zhang told the United Nations gathering that China will “try” to achieve a peak in its carbon emissions “as early as possible.” He did not provide further information on the timeline for that peak. He also pledged to provide $6 million for efforts by the U.N. to promote South-South cooperation on climate change among developing countries.  “As a responsible major developing country, China will make an even greater effort to address climate change and take on international responsibilities that are commensurate with our national conditions,” said Zhang.

China, the Climate and the Fate of the Planet -- The problem for China, in a word, is coal: About 70 percent of the country's electrical power comes from burning dirty rocks. The Chinese consumed nearly 4 billion tons in 2012, almost as much as the rest of the world combined. Like the oil industry in the U.S., the coal industry has enormous sway in China, making it all the more difficult to kick the habit. But as the rising power of the 21st century, China is under enormous political pressure to behave responsibly, lest it be seen as a pariah like Russia. "The choices that Chinese leaders make in the next decade will be absolutely pivotal to solving the climate crisis," says former Vice President Al Gore. And for China's economic and social stability, the consequences couldn't be higher. "Politically, it's very difficult to be fingered as the one most responsible for a looming catastrophe," Gore continues. Or, as Harvard's Stavins says, "If it's your century, you don't obstruct – you lead."On a more human level, there's also a lot of nervousness about China's notorious difficulty as a negotiating partner. "China has a very top-down culture – you have to speak to people right at the top," one of Kerry's top advisers tells me. "And they are very motivated on climate, due to air-pollution issues. But it's hard to get China to do hard things, in part because, unlike other Asian countries, doing things for the greater good is not a big motivation for them."

India's Push for Renewable Energy: Is It Enough? -- Indian Prime Minister Narendra Modi will skip the United Nations climate summit happening in New York City next week just ahead of his first official U.S. visit. But India still faces steadfast international pressure to deliver action on climate change, even as Modi promises to bolster the energy supply in a country where more than 300 million people lack access to electricity. Growing economies like China and India, which are set to contribute more than half of the global increase in carbon emissions in the next 25 years, will play a critical role in any effort to address climate change. Shortly after Modi took office in May, one of his party officials made a sweeping promise: India would develop enough solar power to run at least one light bulb every home by 2019. The goal is part of a larger push to boost renewables in India, where energy demand is projected to double over the next 20 years. But even with a drastic boost of renewable energy, India faces a formidable challenge in weaning itself from coal, which accounts for 59 percent of its electric capacity. That dependence on fossil fuels is why India ranks fourth behind China, the United States, and the European Union in global greenhouse gas emissions.

Emissions From India Will Increase, Official Says - In a blow to American hopes of reaching an international deal to fight global warming, India’s new environment minister said Wednesday that his country would not offer a plan to cut its greenhouse gas emissions ahead of a climate summit next year in Paris.The minister, Prakash Javadekar, said in an interview that his government’s first priority was to alleviate poverty and improve the nation’s economy, which he said would necessarily involve an increase in emissions through new coal-powered electricity and transportation. He placed responsibility for what scientists call a coming climate crisis on the United States, the world’s largest historic greenhouse gas polluter, and dismissed the idea that India would make cuts to carbon emissions. “What cuts?” Mr. Javadekar said. “That’s for more developed countries. The moral principle of historic responsibility cannot be washed away.” Mr. Javadekar was referring to an argument frequently made by developing economies — that developed economies, chiefly the United States, which spent the last century building their economies while pumping warming emissions into the atmosphere — bear the greatest responsibility for cutting pollution.Mr. Javadekar said that government agencies in New Delhi were preparing plans for India’s domestic actions on climate change, but he said they would lead only to a lower rate of increase in carbon emissions. It would be at least 30 years, he said, before India would likely see a downturn. “India’s first task is eradication of poverty,” Mr. Javadekar said, speaking in a New York hotel suite a day after a United Nations climate summit. “Twenty percent of our population doesn’t have access to electricity, and that’s our top priority. We will grow faster, and our emissions will rise.”

Seeking an easy win on carbon emissions? Cut global trade --The Obama administration has proposed several ad hoc multi-country economic agreements, and in doing so has abandoned de facto the World Trade Organization (WTO) as insufficiently malleable to its interests. The two most important of these are the Trans-Pacific Partnership (TPP) and the more recent Transatlantic Trade and Investment Partnership (TTIP). Even as the latter was being negotiated by US and EU officials, the World Meteorological Organization (WMO) reported that the increase in greenhouse gases is more rapid than expected. The organisation’s secretary-general warned that humankind is “running out of time” to reverse rising levels of carbon dioxide that drive climate change.These two items, agreements to increase world trade and rapidly rising greenhouse gases, call for a bit of “linked up thinking”. Trade itself is the problem.The US trade and investment initiatives have come under considerable attack for handing too much power over public services to private corporations, for reducing employment rights and for harming national sovereignty. Whatever the validity of these objections, there is a more fundamental problem. The purpose of the TPP and the TTIP is to increase the volume of trade among countries, and that is inherently bad for humankind because of its environmental effects. The charts below show why. The two countries with the most exports in 2012 are the US and China, with Germany and Japan considerably further back (both the US and China over US$2 trillion, Germany at just over 1.5). By no accident, China and the United States are at the top of the pollution list, with Japan fifth and Germany sixth. “

Climate Realities -  ON Tuesday, world leaders will converge at United Nations headquarters in New York for a summit meeting on the climate that will set the stage for global negotiations next year to reduce greenhouse gas emissions and the threat of global climate change. The summit is titled “Catalyzing Action,” a decidedly hopeful characterization.I wish I were so hopeful.It is true that, in theory, we can avoid the worst consequences of climate change with an intensive global effort over the next several decades. But given real-world economic and, in particular, political realities, that seems unlikely.There are emerging hints of a positive path ahead, but first let’s look at the sobering reality.  The world is now on track to more than double current greenhouse gas concentrations in the atmosphere by the end of the century. This would push up average global temperatures by three to eight degrees Celsius and could mean the disappearance of glaciers, droughts in the mid-to-low latitudes, decreased crop productivity, increased sea levels and flooding, vanishing islands and coastal wetlands, greater storm frequency and intensity, the risk of species extinction and a significant spread of infectious disease. The United Nations has set a goal of keeping global temperatures from rising by no more than two degrees Celsius above preindustrial levels. (The average global temperature has increased by about 0.8 degrees Celsius since 1880, with two-thirds of the warming occurring since 1975.) Meeting this goal would require a worldwide reduction in greenhouse gas emissions of 40 to 70 percent by midcentury, according to the Intergovernmental Panel on Climate Change. That’s an immense challenge. The reality is that 300 years of economic growth in the industrialized countries have been fueled by the combustion of fossil fuels — coal, petroleum and natural gas. We still depend on these. And the large emerging economies of China, India, Brazil, South Korea, Mexico and South Africa are rapidly putting in place new infrastructure that is also dependent on burning fossil fuels.

Capitalism vs. The Climate: Stephen Colbert Talks To Naomi Klein - Lobbing her softballs in the form of affable iterations of stock climate denier statements like “I don’t deny climate change, it’s happening I just don’t know if we need to do anything about it,” and “I fly over the country all the time, it’s green out there, there’s lakes, there’s rivers, it’s a beautiful world—it’s all cyclical,” Colbert provided her openings to explain her book’s thesis—that capitalism, with its demands for constant growth to fuel profit, must be scrapped to reverse climate change. “I haven’t finished reading the book,” said Colbert. “I don’t want to know who wins, capitalism or the climate. But I assume it’s capitalism because the book costs $30 and it’s printed on dead trees.”

Radical Ideas for Radical Times - Capitalism is again in the cross hairs of global climate activists. To save the earth, declare young activists, we need earth-shaking change going beyond the narrow constraints of a system that unapologetically prioritizes profits over people. The clock is ticking with scientists warning that substantial changes must be made in this century or our environment will suffer irreparable damage. As a result, more and more people are becoming less and less patient with an unresponsive power structure saturated with dollars. For example, popular author and social activist Naomi Klein, doesn’t mince words in her most recent best seller that unabashedly identifies the problem upfront in her title – Capitalism vs. the Climate. Such a frank discussion of how private ownership of our natural resources poisons the earth below and pollutes the atmosphere above needs to shift to economics as well. In this realm, one of the most renown figures of modern economics, John Maynard Keynes, describes best the pitfalls of our privately-owned economy by colorfully putting it this way: “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.” To get out from under this wickedness, I argue that we need to go beyond Keynesian reforms that normally propose massive government stimulus creating more jobs. Of course, any and all reforms that offer even temporary relief should be fully supported.

Leonardo DiCaprio: We already knew there is a climate crisis. What most people don’t know is that it could rapidly accelerate because of the thaw and release of methane in the Arctic.- “We already knew there is a climate crisis. What most people don’t know is that it could rapidly accelerate because of the thaw and release of methane in the Arctic. We need immediate action to reverse this trend before it’s too late.” - Leonardo DiCaprio, narrator of Green World Rising, a series of episodes on the state of climate and solutions to the climate crisis. 
Episode 1 - CARBON shows how we can keep carbon in the ground through putting a price on carbon.
Episode 2 - LAST HOURS - the real threat of the release of methane from the melting arctic, thus triggering an extreme climate change event.
Episode 3 - Green World Rising shows our pathway forward through renewable technology that decentralizes the current power grid.
Episode 4 - Restoration discusses how the earth's natural ecosystems deal with climate and how we can work with nature to turn the tide.

Arctic sea ice helps remove CO2 from the atmosphere: Due to global warming, larger and larger areas of sea ice melt in the summer and when sea ice freezes over in the winter it is thinner and more reduced. As the Arctic summers are getting warmer we may see an acceleration of global warming, because reduced sea ice in the Arctic will remove less CO2 from the atmosphere, Danish scientists report. "If our results are representative, then sea ice plays a greater role than expected, and we should take this into account in future global CO2 budgets", says Dorte Haubjerg Søgaard, PhD Fellow, Nordic Center for Earth Evolution, University of Southern Denmark and the Greenland Institute of Natural Resources, Nuuk. Only recently scientists have realized that sea ice has an impact on the planet's CO2 balance. "We have long known that the Earth's oceans are able to absorb huge amounts of CO2. But we also thought that this did not apply to ocean areas covered by ice, because the ice was considered impenetrable. However, this is not true: New research shows that sea ice in the Arctic draws large amounts of CO2 from the atmosphere into the ocean", "The chemical removal of CO2 in sea ice occurs in two phases. First crystals of calcium carbonate are formed in sea ice in winter. During this formation CO2 splits off and is dissolved in a heavy cold brine, which gets squeezed out of the ice and sinks into the deeper parts of the ocean. Calcium carbonate cannot move as freely as CO2 and therefore it stays in the sea ice. In summer, when the sea ice melts, calcium carbonate dissolves, and CO2 is needed for this process. Thus, CO2 gets drawn from the atmosphere into the ocean - and therefore CO2 gets removed from the atmosphere", explains Dorte Haubjerg Søgaard. The biological removal of CO2 is done by algae binding of carbon in organic material.

Record sea ice around Antarctica due to global warming, -- The extent of the sea ice around Antarctica has hit a record high – for the third year running. Counter-intuitively, global warming is responsible.  Since satellite records began in 1979, the winter maximum sea ice cover around Antarctica has been growing at 1.5 per cent per decade. This year has long been on track for a new annual record, with 150 daily records already set.The record was finally broken on 15 September and sea ice extent has increased since, according to data from the US National Snow and Ice Data Center analysed by Australia's Bureau of Meteorology in Hobart. More sea ice may seem odd in a warmer world, but new records are expected every few years, says Jan Lieser of the Antarctic Climate and Ecosystems Cooperative Research Centre in Hobart. That's because the southern hemisphere warms more slowly than the north, as it has less landmass, boosting the winds that circle Antarctica and pulling cold air onto the sea ice. The melting of ice on the Antarctic mainland may also be creating more sea ice, by dumping easily frozen fresh water into the ocean, says Nerilie Abram of the Australian National University in Canberra.

Technology revolution in nuclear power could slash costs below coal - The cost of conventional nuclear power has spiralled to levels that can no longer be justified. All the reactors being built across the world are variants of mid-20th century technology, inherently dirty and dangerous, requiring exorbitant safety controls. This is a failure of wit and will. Scientists in Britain, France, Canada, the US, China and Japan have already designed better reactors based on molten salt technology that promise to slash costs by half or more, and may even undercut coal. They are much safer, and consume nuclear waste rather than creating more. What stands in the way is a fortress of vested interests. The World Nuclear Industry Status Report for 2014 found that 49 of the 66 reactors under construction - mostly in Asia - are plagued with delays, and are blowing through their budgets. Average costs have risen from $1,000 per installed kilowatt to around $8,000/kW over the past decade for new nuclear, which is why Britain could not persuade anybody to build its two reactors at Hinkley Point without fat subsidies and a "strike price" for electricity that is double current levels. All five new reactors in the US are behind schedule. Finland's giant EPR reactor at Olkiluoto has been delayed again. It will not be up and running until 2018, nine years late. It was supposed to cost €3.2bn. Analysts now think it will be €8.5bn. It is the same story with France's Flamanville reactor. We have reached the end of the road for pressurised water reactors of any kind, whatever new features they boast. The business is not viable - even leaving aside the clean-up costs - and it makes little sense to persist in building them. A report by UBS said the latest reactors will be obsolete by within 10 to 20 years, yet Britain is locking in prices until 2060.

Nuclear Shutdowns Put Belgians and Britons on Blackout Alert - IEEE Spectrum: A bad year for nuclear power producers has Belgians and Britons shivering more vigorously as summer heat fades into fall. Multiple reactor shutdowns in both countries have heightened concern about the security of power supplies when demand spikes this winter. In Belgium, rolling blackouts are already part of this winter's forecast because three of the country's largest reactors—reactors that normally provide one-quarter of Belgian electricity—are shut down. Belgium's troubles started brewing two years ago during inspections at the country's seven nuclear reactors, all operated by Belgian utility Electrabel. Ultrasound inspection of the reactor pressure vessels at the utility's Doel power station near Antwerp revealed previously unrecognized defects at its 1,000-megawatt reactor #3. Prior tests looked only for aging of the welds between a pressure vessels' steel plates, but this time broader inspections at Doel 3 detected thousands of tiny cracks in the plates themselves. The cracks were most likely created when the plates were originally forged. In response, Electrabel shut down the 1,000-MW reactor #2 at its Tihange power station in eastern Belgium, because its pressure vessel was forged by the same Dutch shipyard as Doel 3's. Once it was shutdown, the company found similar microcracks.

Nuclear Plants Across Emerging Nations Defy Japan Concern -  Three years after Japan closed all of its nuclear plants in the wake of the Fukushima meltdown and Germany decided to shut its industry, developing countries are leading the biggest construction boom in more than two decades. Almost two-thirds of the 70 reactors currently under construction worldwide, the most since 1989, are located in China, India, and the rest of the Asia-Pacific region. Countries including Egypt, Bangladesh, Jordan and Vietnam are considering plans to build their first nuclear plants, according to Bloomberg New Energy Finance in London. Developed countries are building nine plants, 13 percent of the total. Power is needed as the economies of China and India grow more than twice as fast as the U.S. Electricity output from reactors amounted to 2,461 terawatt-hours last year, or 11 percent of all global power generation, according to data from the Organization for Economic Cooperation and Development and the International Energy Agency. That’s the lowest share since 1982, the data show. China’s electricity consumption is forecast to jump 63 percent by 2020 to 7,295 terawatt-hours from 4,476 terawatt-hours in 2011, while India’s demand is predicted to grow by 45 percent from 2010 through 2020, according to the U.S. Energy Information Administration. Over the same period, demand growth in 22 European members of the OECD is forecast to be 3.6 percent.

Some Fracking Idiots Remain Skeptical of Climate Change - A climate-change march that organizers claim was the largest on record is nevertheless unlikely to change the minds of idiots, a survey of America’s idiots reveals. Despite bringing attention to a position that is embraced by more than ninety per cent of the world’s scientists, the People’s Climate March, which took place on Sunday in New York City, left a broad majority of the nation’s idiots unconvinced. “Look, if hundreds of thousands of people want to march about something, it’s a free country,” said Carol Foyler, an idiot from Kenosha, Wisconsin. “But let me ask them something: if the climate is really getting warmer, why was it so cold up here last winter?” Harland Dorrinson, an idiot from Hollywood, Florida, was also unmoved by the message of Sunday’s march. “What these marchers don’t realize is that the planet goes through natural cycles of heating and cooling,” he said. “Blaming people for global warming is like blaming dinosaurs for the ice age.” Skepticism about scientists characterized many of the idiots’ remarks, including those of Tracy Klugian, of Albuquerque, New Mexico. “Those marchers are holding signs that say ‘Scientists this, scientists that,’ ” he said. “Well, how can scientists be sure that the Earth was colder thousands of years ago, when no one had invented a thermometer?” Klugian said he was confident that, despite the impressive numbers for Sunday’s march, idiots would prevail in the ongoing climate-change debate. “At the end of the day, there are more people like us in Congress,” he said.

Memo To Obama: Expanded Natural Gas Use Worsens Climate Change -- A new study confirms that “increased natural gas use for electricity will not substantially reduce US GHG [greenhouse gas] emissions, and by delaying deployment of renewable energy technologies, may actually exacerbate the climate change problem in the long term.”  This Environmental Research Letters study should be sobering to fans of expanded gas use who care about global warming — such as the Environmental Defense Fund and President Obama — because it is true even if methane leakage from gas production and delivery could somehow miraculously be reduced to zero. “Natural gas has been presented as a bridge to a low-carbon future, but what we see is that it’s actually a major detour,” explained lead author Christine Shearer in the news release. “We find that the only effective paths to reducing greenhouse gases are a regulatory cap or a carbon tax.”  Although many fracking advocates pretend otherwise, this is not a new finding. Indeed, most claims that shale gas will significantly reduce U.S. carbon emissions in the future are based on little more than hand-waving and wishful thinking, as the literature makes clear. That’s because — even if we ignore methane leaks — those claims assume natural gas is replacing coal only, rather than replacing some combination of coal, renewables, nuclear power, and energy efficiency, which is what is happening in the real world.

Natural gas won’t save us from global warming, study confirms -  In his January State of the Union address, President Obama said that natural gas could be a low-emission "bridge fuel" that could allow the U.S. to help slow global warming. Demonstrators at Sunday's climate protest in New York apparently didn't get the talking points memo from the White House -- many carried signs calling for an end to fracking. The reality is that shale gas probably won't have much effect on climate change either way, according to a new studypublished Wednesday. "If you increase the use of gas, that will actually delay the deployment of renewable energy," said Christine Shearer of the University of California, Irvine, one of the authors of the study. Shearer and her colleagues modeled how the consequences for the climate in the next forty years would differ depending on how big the gas boom gets, how quickly solar technology develops, and what policies the federal government adopts to slow global warming. Their forecasts showed that the more natural gas is available, the less the energy sector will rely on renewable resources, and that the supply of natural gas will not have much effect on greenhouse gas emissions. Abundant gas reserves will lower electricity bills and encourage people and businesses to burn more electricity, the authors find. Also, cheap energy from gas will make building new solar panels and wind turbines less attractive to investors. The paper predicts that a larger supply of gas might reduce or add to emissions slightly, depending on how well companies can keep gas from leaking.

Ohio Community Protests Fracking Wastewater Zoning: As natural gas production continues to spread across the country, some citizens are trying to fend off drilling rigs and waste sites in their backyards. While gas companies say they already face tough state regulations, that oversight doesn’t always ease residents’ fears. As Ohio quickly becomes a go-to destination for the nation's frackwaste, some people worry about earthquakes and water contamination, and argue the state has taken away their authority to decide whether oil and gas waste should be allowed in their backyards. Julie Grant reports for the public radio program the Allegheny Front, and has this story from a rural county that’s the biggest dumping ground in Ohio. [INDUSTRIAL NOISE]  This is the sound of dirty water flowing from a big, industrial truck into storage tanks. We’re in the countryside in Portage County, Ohio, in the midst of cornfields and a horse farm. When you drive in further, you see the large green storage tanks, the pump house, and the wellhead.  He’s just about unloaded there. See the hose shaking? That means that hundred barrel of water is in the system now. [INDUSTRIAL NOISE] Randy Ile operates this well for a Texas company, Stallion Oilfield Holdings. He says the water was trucked here from Pennsylvania. It’s wastewater from an oil and gas well.

Thirsty wells: Fracking consumes billions of gallons of water - Drillers in Ohio have used more than 4 billion gallons of water to frack horizontal shale wells since 2011. That’s a lot of water. Enough to fill one two-liter soda bottle for every person on the planet; or in terms that motorists in shale country can relate to, 800,000 tanker-loads of water.  The state surpassed the thousand-well mark in August. A Repository review of water usage reported by drillers to FracFocus, a national fracking-chemical registry, as of Sept. 12, shows:

    • • Of the first 1,031 Utica and Marcellus shale wells drilled, FracFocus listed the amount of water used to frack 662.
    • • Water use for all 1,031 wells could approach 6.7 billion gallons, based on average water-use rates per county.
    • • Chesapeake Energy used 2 billion gallons on 411 reported wells.
    • • Three wells in Ohio topped 17 million gallons.
    • • Average water usage was 6.1 million gallons.
    • • Fracking could consume more than 10 billion gallons of water if all current well permits are drilled.
    • • Some wells used more water than what drillers estimated on permit applications.

Ohio is cited in GAO report for fracking waste disposal - Drilling – Ohio -- Only Ohio allows fracking waste disposal without advance disclosure of chemical contaminants COLUMBUS, OHIO: The federal Government Accountability Office (“GAO”) released a new report ( ) disclosing that Ohio alone of eight states studied allows contaminated waste fluids from oil and gas wells to be disposed without advance disclosure of the contaminants it contains. The report had been requested by members of U.S. Senate and House environment committees to disclose the level of disclosure on the nature and toxicity of such wastes since “fracking” of deep shale rock layers to unlock oil and natural gas deposits has become common. The report concluded that of the eight states studied (California, Colorado, Kentucky, North Dakota, Ohio, Oklahoma, Pennsylvania and Texas), each state - with the sole exception of Ohio - required waste disposal companies to provide information on the characteristics of the waste to be disposed before they could receive a permit to “inject” the waste. The primary disposal method for these wastes are injection wells, which inject the waste fluids, frequently under high pressure, into deep rock formations where, in theory, it cannot contaminate sources of drinking water. The report acknowledges that the amount of oil and gas well wastes has increased dramatically since the advent of hydraulic fracturing or “fracking” and that at least 2 billion gallons of contaminated wastes are disposed in injection wells daily; this water is also laced with a variety of chemicals, many toxic and many whose nature is undisclosed, to fracture the rock so the oil and gas it contains can be mobilized. Much of the contaminated fluid injected in this fashion is then forced back to the surface where it is collected and trucked off site for disposal at an injection well.The report reveals that many of the states studied have elaborate requirements to confirm the nature of this waste fluid before it can be approved for disposal. In stark contrast, Ohio requires no disclosure of the characteristics of the waste fluid either before, or after, an injection well permit is issued by the Ohio Department of Natural Resources (ODNR). 

'Crippling penalties' urged for drillers hiding fracking chemical lists - Some big, diverse names are speaking out on proposed EPA rules that could require oil and gas drillers to disclose the chemicals they use in fracking. Comments from the New York Attorney General and commissioners in Portage County, Ohio, plea for federal regulation, while oilfield services giant Halliburton Co. and the governor of Wyoming want the EPA to butt out. The commenting deadline was Sept. 18. Drillers generally oppose such regulations. They say their mix of chemicals used to get gas and oil out of shale is a trade secret. Other groups are in favor, because when accidents happen it’s imperative to know what emergency responders are dealing with. Plus, nearby residents should know what’s being pumped beneath them.  Rules differ by state, as I reported. At least 20 states have some sort of rule about chemical disclosure. Ohio requires companies to post chemicals concoctions to FracFocus, a website operated by the Ground Water Protection Council and the Interstate Oil and Gas Compact Commission. Eighty-three percent of registered Ohio wells invoked an exemption based on trade-secret claims. Commissioners in Portage County, which is just west of some of the big Utica shale counties in eastern Ohio, say they’re concerned about nondisclosure. The county has 18 active underground injection wells and eight more permitted. Ohio hosts 205 injection wells, where drillers in the Utica and Marcellus shale plays dispose fracking-related waste. “In short, chemicals should be disclosed, completely, from cradle to grave. Regulations should be strict, and penalties should be crippling so that companies are brought into line as soon as possible,” the board recommended.

Learning from the Marcellus to drill the Utica: “They’re a village of about 2,000 people, and they get all of their drinking water from two public water supply wells.” Because of that concern, the Garrettsville board hired Mr. Dick, director of the Natural Gas and Water Resources Institute at Youngstown State University, to conduct a groundwater baseline study on about 20 wells in the surrounding area that supply water. The study was funded by tax dollars, Mr. Dick said. It began in 2012 and is ongoing. Mr. Dick monitors the well water twice a year, in spring and fall. So far his research has found traces of chemicals associated with conventional oil and gas activity in the groundwater such as chloride, barium and methane, but they are not above the maximum concentration limits imposed by the Ohio Environmental Protection Agency. “What we found was evidence that oil and gas wells, not Utica wells, may have leaked materials,” Mr. Dick said. Parts of eastern Ohio, including Portage County where Garrettsville is located, used to be hot spots for traditional drilling activity, which could explain the chemicals found in the water, Mr. Dick said. “In order to determine the exact cause of it, it would take considerably more effort, but we did determine there has been leakage,” he added.

Pa. system for tracking compliance at Marcellus Shale well sites in disrepair: Six years into the Marcellus Shale natural gas boom, the state Department of Environmental Protection’s online data on Pennsylvania well sites is a study in incomplete data and inaccurate information. The DEP acknowledges that the online Compliance Report, which was supposed to provide clear and accessible information on everything from spills to driller performance, is so error-ridden that it is virtually impossible to get an accurate picture of how drilling is being regulated. The Post-Gazette analyzed every paper record for every Marcellus well incident that resulted in fines through June 1, 2014, and compared those to the information on the online Compliance Report. It found vast discrepancies between the field reports of the incidents and the electronic accounting of them. Among the findings:

  • • Of the 568 incidents at a Marcellus well that resulted in a fine, only 380 are listed online.
  • • Of those 380 listed incidents, a comparison with paper records showed that in 48 cases at least one violation was obscured because a generic code was used, in 44 cases an incorrect code was used, and in 102 cases at least one violation was completely dropped.
  • • In all, 256 violations were dropped. For example, in a Washington County case, Rice Energy was fined $85,000 for 10 violations, but the online record showed only one violation.
  • • Of the 188 fines not found online, 172 were for less serious administrative violations of filing late well records (149) and failing to obtain a state permit (23). Sixteen were for spills, sediment-laden water running off a site, or other potentially serious incidents that could directly impact the environment.

Treated Fracking Wastewater is Still Potentially Harmful - Concerns that fluids from hydraulic fracturing, or “fracking,” are contaminating drinking water abound. Now, scientists are bringing to light another angle that adds to the controversy. A new study, appearing in the ACS journal Environmental Science & Technology, has found that discharge of fracking wastewaters to rivers, even after passage through wastewater treatment plants, could be putting the drinking water supplies of downstream cities at risk. William Mitch and colleagues point out that the disposal of fracking wastewater poses a major challenge for the companies that use the technique, which involves injecting millions of gallons of fluids into shale rock formations to release oil and gas. The resulting wastewater is highly radioactive and contains high levels of heavy metals and salts called halides (bromide, chloride and iodide). One approach to dealing with this wastewater is to treat it in municipal or commercial treatment plants and then release it into rivers and other surface waters. The problem is these plants don’t do a good job at removing halides. Researchers have raised concern that halide-contaminated surface water subsequently treated for drinking purposes with conventional methods, such as chlorination or ozonation, could lead to the formation of toxic byproducts.

Scientists: Fracking Wastewater Poses Threat To Drinking Water - Every year, hundreds of billions of gallons of wastewater are produced by fracking operations across America. Some of that water gets stored in manmade ponds, some of it is injected underground, and some of it is treated and put back into rivers. For the people whose drinking water systems are downstream of those rivers, scientists have some bad news. New peer-reviewed research from Stanford and Duke University scientists shows that even when fracking wastewater goes through water treatment plants, and is disposed of in rivers that are not drinking water systems, the treated water still risks contaminating human drinking water. That’s because there are generally drinking water systems downstream of those rivers, and treatment plants aren’t doing a good job of removing contaminants called halides, which have the potential to harm human health. The scientists say halides — which are salts like bromide, chloride, and iodide — are often found in fracking wastewater, and the concern about them is that their presence in the water can promote the formation of something called “disinfection byproducts,” or DBPs. These chemicals — trihalomethanes, haloacetic acids, bromate, and chlorite — are formed when the disinfectants used in water treatment plants react with halides, according to the Environmental Protection Agency. Published in the journal Environmental Science and Technology and released by the American Chemical Society on Wednesday, the research showed that toxic compounds formed in water even when fracking wastewater made up only 0.01 to 0.1 percent of the waters’ volume. To prevent this from happening, the researchers recommended that fracking wastewater should not be discharged into surface waters, even when it is treated.

Frackers Rebranding Fracking - When a product or corporation takes a hit in public opinion, one of the steps that will be taken is to change their name or roll out a rebranding campaign. Led by their front group, the Marcellus Shale Coalition (MSC), frackers are rebranding fracking. Or to put it another way, they are putting a pretty red bow on a pile of poop.How much are they spending on this fracking rebranding campaign? They won’t say. It’s proprietary, hush hush, in the same fashion as the super-double secret ingredients in the chemicals used in fracking.With the blessings of the Heritage Foundation, a right wing think tank, the fracking ad campaign feature actors , including a little girl, saying “ Fracking’s a good word”, “Fracking Rocks” and “Fracking: Rock Solid for PA” .The astroturf industry group, United Shale Advocates has the ad up on their youtube channel titled Rock Solid Facts. Not surprising, the ad is a rerun of the same pile of talking point poop the industry has been promoting all along.A few years ago, the industry shied away from the word “Fracking”. They thought it was obscene.  People agreed, fracking is obscene.Today they are embracing the obscene word as much as they have embraced the obscene practice of drilling, fracking and extraction of fossil fuels, while neglecting to mention the consequences this has on real people.

Facing tough budget picture, West Virginia to let companies frack under Ohio River — Facing another tough budget scenario, West Virginia is ready to let companies drill for oil and natural gas deep beneath 14 miles of the Ohio River. On Friday, state commerce officials opened bids to drill under the northern West Virginia section of the river, which serves as a natural border with Ohio. Officials said other river tracts could be next, and a wildlife management area is under consideration. Leasing state land for a drilling technique called hydraulic fracturing, commonly called fracking, is a new venture for West Virginia, and could produce plenty of money during uncertain budget times. A bid by Triad Hunter, for instance, would yield the state $17.8 million up front for a five-year lease, plus 18 percent in royalties from what's extracted. "It creates what could be a substantial revenue stream at a time when budgets are very tight," said state Commerce Secretary Keith Burdette. The state used $100 million from its Rainy Day Fund to balance this year's budget, and Gov. Earl Ray Tomblin's administration expects to need another $100 million to help shore up next year's budget.

West Virginia DNR opens bids for oil and gas drilling rights under Ohio River - The West Virginia Department of Commerce opened four bids Sept. 26 for period for drilling rights on state-owned land under 22 miles of the Ohio River in Pleasants, Marshall and Wetzel counties. The Division of Natural Resources, which is under the Department of Commerce, opened the bidding period on Aug. 13, and required a minimum bid of at least 20 percent worth of production royalties and a per-acre least payment. The Department received a bid for drilling rights from river mile markers 106 to 116 in Marshall County for a 20 percent royalty payment and $211.11 per acre cash bonus from Houston-based Noble Energy; a bid for rights from mile 124 to 125 in Wetzel County for a 20 percent royalty payment and $8,125 per acre cash bonus from Houston-based Statoil USA Onshore Properties; a bid for rights from mile markers 108 to 116 in Marshall County, 121 to 125 in Wetzel County, and 145-147 in Pleasants and Tyler counties for a royalty payment of about 18 percent and a $7,100 per acre cash bonus from Marietta, Ohio-based Triad Hunter LLC; and a bid for rights under mile markers 121 to 123 in Marshall and Wetzel counties for a 20 percent royalty payment and $3,500 per acre cash bonus from Gastar Exploration, which is also based in Houston. Although DNR required a minimum 20 percent royalty payment, Josh. Jarrell, the Department's deputy secretary and general counsel, said he wouldn't yet “disqualify” Triad Hunter for choosing a royalty payment of less than 20 percent. “We're going evaluate everything,” Jarrell said, adding that the team choosing the winner will be “examining to determine the highest competitive, responsible bid.”

Four Bids Submitted to Drill for Oil and Natural Gas Under Ohio - Four bids are in and the Department of Natural Resources is reviewing them to see who will be fracking in the Ohio River. People appear to be split on Governor Earl Ray Tomblin's plan. While some believe that it could be damaging to the environment, others think it'll be great for the economy. Governor Tomblin believes West Virginia should continue to capitalize on the benefits of its natural resources, even if that means drilling in the river. According to the West Virginia Department of Commerce, frackers will give the state at least 20 percent worth of production royalties. "This is step one of a much larger process, obviously; we own the mineral rights, we manage those mineral rights. This isn't even the first drill, mineral, along the Ohio River, under the Ohio River," West Virginia Commerce Secretary Keith Burdette said. The plan would affect 22 miles under the Ohio River, going through Marshall, Wetzel and Pleasants Counties. Burdette said they're not at the permitting process just yet. "We do not issue permits, so this is not the permitting process. This will be regulated by the Department of Environmental Protection as they do all other drilling; they'll have to make sure that the permit meets all the safety requirements of the law."

For Oil and Gas Companies, Rigging Seems to Involve Wages, Too - A ProPublica review of U.S. Department of Labor investigations shows that oil and gas workers – men and women often performing high-risk jobs – are routinely being underpaid, and the companies hiring them often are using accounting techniques to deny workers benefits such as medical leave or unemployment insurance. The DOL investigations have centered on what is known as worker "misclassification," an accounting gambit whereby companies treat full time employees as independent contractors paid hourly wages, and then fail to make good on their obligations. The technique, investigators and experts say, has become ever more common as small companies seek to gain contracts in an intensely competitive market by holding labor costs down. In the complex, rapidly expanding oil and gas industry, much of the day to day work done on oil rigs and gas wells is sub-contracted out to smaller companies. For instance, on one gas rig alone, the operator might hire one company to construct the well pad, another to drill the well, a third company to provide hydraulic fracking services and yet another to truck water and chemicals for disposal.  As of August this year, the DOL has conducted 435 investigations resulting in over $13 million in back wages found due for more than 9,100 workers. ProPublica obtained data for 350 of those cases from the agency. In over a fifth of the investigations, companies in violation paid more than $10,000 in back wages.

ProPublica: Oil, gas workers underpaid for high-risk jobs - A ProPublica review of U.S. Department of Labor investigations has found that oil and gas workers are routinely being underpaid for their high-risk jobs and often denied benefits such as medical leave or unemployment insurance, Naveena Sadasivam writes.. The DOL investigations have centered on worker "misclassification," an accounting gambit whereby companies treat full-time employees as independent contractors paid hourly wages, and then fail to make good on their obligations. The technique has become ever more common as small companies seek to gain contracts in an intensely competitive market by holding labor costs down. Sadasivam goes on to note: Over the last decade, the oil and gas industry has seen tremendous growth, even as average employment in all U.S. industries has fallen. At the same time, the industry has seen an increase in fatalities and injuries on the job -- risks often associated with inadequate training or overworked laborers. As of August this year, the DOL has conducted 435 investigations resulting in over $13 million in back wages found due for more than 9,100 workers in the fracking industry and its related industries. Labor lawyers specializing in wage disputes say the governing law -- the Fair Labor Standards Act -- is not easy to understand, interpret and comply with. As a result, they say employers can be unintentionally violating wage laws. But several investigations by the DOL show there are companies willfully dodging their responsibilities as well.

Living Death: The Real Costs of Fracking - The first animal to die wasn't a horse, but a young, beloved boxer named Mr. Higgins. A veterinarian diagnosed kidney failure. One of Mr. Higgins' lymph nodes was enlarged; a New York State veterinarian named Michelle Bamberger, who was interviewing Pennsylvania residents for a book she was writing with Cornell University molecular medicine professor Robert Oswald, advised a needle biopsy to rule out lymphoma (common in this breed).  The needle biopsy was never done - even though Josie brought Mr. Higgins to a specialty clinic, she "declined further diagnostics and opted for euthanasia," not being able to bear watching him suffer any longer. Next in the death march was a horse named Amy, pronounced healthy by a veterinarian several months after Mr. Higgins died, but who, a few weeks after that, stopped eating, lost weight and appeared to lose her balance and coordination. A vet came to treat Amy for what he assumed was a neurological disease (equine protozoal myeloencephalitis) and took blood for testing. Two days later Amy's back legs became so weak she couldn't stand. She sank in her stall and began convulsing. Again distraught, Josie had Amy euthanized. The blood results indicated liver failure due to toxicity - the vet suspected poisoning from heavy metals (these are present in fracking wastewater) - but the illness was never diagnosed. Josie couldn't afford the necropsy and further testing that might have concluded the diagnosis. Moreover, representatives of the drilling company came soon after the euthanasia and offered a "neighborly thing": carting Amy's body off to be incinerated.

Shale gas extraction issues go beyond fracking: Ask oil and gas industry advocates, environmentalists and regulators about the biggest issues facing shale gas development, and none are likely to cite the possibility of fracking fluids traveling up thousands of feet of rock into groundwater aquifers as their top concern. There’s surface spills, transportation accidents, leaks in holding tanks and impoundments — all of these have much more potential to pollute groundwater. Yet blaming — or exonerating — fracking for this method of groundwater pollution seems to lead reports of new shale studies, even if those studies say little about actual fracking. “Faulty well integrity, not hydraulic fracturing deep underground, is the primary cause of drinking water contamination from shale gas extraction in parts of Pennsylvania and Texas, according to a new study by researchers from five universities,” began a press release last week from Duke University, former home of Rob Jackson, one of the scientists involved in the study. The study, one of several for Mr. Jackson dealing with groundwater contamination from shale development, used noble gases and more traditional gas fingerprinting techniques to trace the origin and pathways of methane traveling into groundwater. It suggested that leaks in either the steel pipes that carry gas to the surface or in the cement that envelopes those pipes allowed methane to escape into shallower depths, causing changes to well water supplies in Pennsylvania and Texas. The study did not examine whether the pressure exerted on the well’s layers during hydraulic fracturing contributed to or caused the casing to become compromised.

Frack Spill du Jour - The good news:
1) The two spill sites impacted a small creek (Little Mingo Creek) which does not flow into the scenic Mingo Creek passing through Mingo Park.
2) Bentonite clay (at least by itself) is basically considered ‘non-toxic.’

The bad news:

  • 1) Bentonite is a very fine gray clay which has serious impacts on aquatic life. “When released in large amounts it can coat the bottom of a stream, smothering spawning gravels and killing the insects on which fish feed. Even diluted amounts of bentonite in a stream are a considerable risk to the function of an ecosystem. The ecological ramifications of a bentonite spill are NOT minor and may affect aquatic ecology far downstream from the spill site.”
  • 2) Several miles of small streams and creeks were impacted, so Sunoco Logistics’ subcontractor Precision Pipeline was hosing out 2 miles of the most impacted creek beds.
  • 3) This sort of spill has occurred multiple times in our county over the past few years, and with pipeline construction still ramping up, more impacts to creeks are a near certainty.
  • Video of Scene:

Tribe bans fracking: The Eastern Band of Cherokee Indians has joined a growing number of local governments opposing the state legislature’s decision to allow hydraulic fracturing, called fracking, in North Carolina. Earlier this month, tribal council passed a resolution outlawing the practice on tribal lands, a force of authority stronger than what county and municipal governments possess. The June legislation that lifted the state’s moratorium on fracking included a clause keeping local governments from outlawing the practice in their jurisdiction, so their resolutions are an expression of opinion rather than an act of law. But the Eastern Band is a sovereign nation, so the tribal council is able to completely prevent drilling on Cherokee land. “The State of North Carolina is without legal authority to permit hydraulic fracturing on Tribal Trust lands,” the resolution reads, later continuing, “The Eastern Band of Cherokee Indians will not permit or authorize any person, corporation or other legal entity to engage in hydraulic fracturing on Tribal Trust lands.” Though Councilmember Perry Shell says he understands the economic benefits of producing natural gas, he’s not convinced that it can be done without harming the land.

Fracking's environmental impacts scrutinized —Greenhouse gas emissions from the production and use of shale gas would be comparable to conventional natural gas, but the controversial energy source actually faired better than renewables on some environmental impacts, according to new research. The UK holds enough shale gas to supply its entire gas demand for 470 years, promising to solve the country's energy crisis and end its reliance on fossil-fuel imports from unstable markets. But for many, including climate scientists and environmental groups, shale gas exploitation is viewed as environmentally dangerous and would result in the UK reneging on its greenhouse gas reduction obligations under the Climate Change Act. University of Manchester scientists have now conducted one of the most thorough examinations of the likely environmental impacts of shale gas exploitation in the UK in a bid to inform the debate. Their research has just been published in the leading academic journal Applied Energy and study lead author, Professor Adisa Azapagic, will outline the findings at the Labour Party Conference in Manchester on Monday (22 September). "While exploration is currently ongoing in the UK, commercial extraction of shale gas has not yet begun, yet its potential has stirred controversy over its environmental impacts, its safety and the difficulty of justifying its use to a nation conscious of climate change,"

With 38% of Global Shale Gas Located in Regions of Water Stress, More Oversight of Fracking is Urgently Needed -- As more data emerge, shale gas increasingly appears to be in the cross-hairs of the water-energy nexus, and far too little is being done to defuse impending conflicts. While hydraulic fracturing (or “fracking”), the process used to unleash natural gas from shale deposits, has raised serious concerns about groundwater contamination, less attention has been given to the added competition for limited water supplies the process can bring. Each fracking well can require up to 25 million liters (6.6 million gallons) of water. A new study by the World Resources Institute (WRI), a research group based in Washington, DC, attempts to fill this knowledge gap by overlaying known recoverable resources, or “plays,” of shale gas onto maps of water stress.   The results raise concerns. The WRI team found that 38% of shale gas resources worldwide reside in areas that are either naturally arid, and so have limited water overall, or in areas with high to extremely high levels of water stress, which means that competition for water is already keen if not intense. With some 386 million people living atop these shale-gas regions and agriculture the dominant water user in 40 percent of them, the stage is set for rising tensions as shale gas production competes with farmers and city dwellers for limited water.  Of the 20 countries with the largest shale gas resources believed to be technically recoverable, 8 are either in arid zones or already face high water-stress in the regions where those resources are located: Algeria, China, Egypt, India, Libya, Mexico, Pakistan and South Africa.

Is the Shale Revolution a ‘Ponzi Scheme’ or the End of Peak Oil?  -- A lot of folks are fervently forecasting that shale gas and oil production is a bubble about to pop, possibly producing an economic collapse similar to the one in 2008. Earlier this week, the left-leaning Center for Research on Globalization in Montreal dismissed the shale revolution as a “Ponzi scheme” and “this decade’s version of the Dotcom bubble.” In a column last year for The Guardian, Nafeez Ahmed of the Institute for Policy Research and Development cited studies predicting that U.S. shale gas production will likely peak in 2015 and oil production in 2017. A month later, Richard Heinberg of the Post Carbon Institute said, “It turns out there are only a few ‘plays’ or geological formations in the US from which shale gas is being produced; in virtually all of them, except the Marcellus (in Pennsylvania and West Virginia), production rates are already either in plateau or decline.” So was President Barack Obama wrong in 2012, when he claimed, “We have a supply of natural gas that can last America nearly 100 years”? Perhaps not. The renaissance of oil and gas production in the United States has largely been the result of applying the technique of hydraulic fracturing (fracking), which releases vast quantities of hydrocarbons trapped in tight shale formations. The bubble theorists make much of the fact that production tends to drop more rapidly in fracked wells than in conventional ones, forcing the frackers to drill more holes just to keep up. They overlook the fact that drillers are working ever faster and cheaper and that newer wells tend to be more productive than earlier wells.  .So what about Heinberg’s claim that “production rates are already either in plateau or decline”? He’s just wrong. The September drilling productivity report from the federal Energy Information Administration (EIA) notes that since 2013, that gas production is up in every one of the “plays” cited by Heinberg. Production in the Bakken region of North Dakota grew 8 percent; the Eagle Ford, Permian, and Haynesville regions in Texas increased 15, 7, and 97 percent, respectively; the Niobrara region in Wyoming and Colorado rose by 29 percent; and the Utica and Marcellus regions in Ohio, Pennsylvania, and West Virginia surged 142 and 47 percent.

Shale Revolution Deniers Face An Inconvenient Truth - Despite turning the U.S. into the world’s largest producer of natural gas and driving a 3 million barrel per day surge in U.S. oil production in just the last three years, the shale revolution still has its doubters. They couldn’t be more wrong. Time and again over decades, the naysayers and “peak oil” advocates have grossly underestimated the energy industry’s ability to innovate and beat production forecasts. Today’s shale pessimists continue to do so. There are two important reasons why the shale pessimists are wrong: innovation and expertise. The shale revolution was launched because of breakthroughs in a range of technologies, most notably advances in horizontal drilling paired with advanced hydraulic fracturing.Competition and innovation drive the oil and gas industry, particularly in the U.S. The innovation that unlocked the nation’s oceans of shale resources hasn’t stopped but instead has actually intensified. New ideas, technologies and ways of cracking the shale code emerge daily. And America’s amazing “petropreneurs” have obviously gotten very good at what they do.Crews are working more efficiently, bringing wells online in shorter periods and producing more oil and gas from each new well. Consider Arkansas’ Fayetteville Shale, where the average drilling time for a new well has fallen from 17.5 days in 2007 to just 6.2 days in 2013. In the Marcellus Shale, America’s largest single shale gas field, each well is producing eight million cubic feet of gas per day on average — more than eight times what each well produced as recently as 2009.

Fracked Up: Don't Believe In Miracles -- There is no doubt that fracking stopped the long-term decline in U.S. oil output. Since the all-time low output in 2006, daily oil production has increased by 30%. Natural gas production has soared even higher, but seems to have leveled off. Ignoring the environmental impacts of fracking, just the economics alone show that shale oil and gas are not the miracle that will save us from the perils of peak cheap oil. Fracking extraction of oil is extremely expensive. If oil prices were to fall to $80 per barrel, there would be no profits for frackers. They would stop drilling wells. So don’t plan on ever paying less than $3 per gallon for gasoline ever again. Don’t believe in miracles.

How Rising Interest Rates Could Spell the End of the U.S. Energy Boom: The winding down of extraordinary measures taken by the U.S. Federal Reserve to ameliorate the effects of the financial crisis could reverberate through energy markets. The Fed has kept short-term interest rates near zero for several years, a target that the institution hoped would spur lending and kick start the moribund economy in 2009. With job growth anemic for half a decade after the crash, the Fed has maintained its monetary stimulus right up until today.   But with the economy on more solid footing, the Fed is preparing to wind down its stimulus, known as “quantitative easing.” And although details are murky, the Fed will likely decide to raise interest rates sometime in 2015.   So what does this have to do with energy? The oil and gas industry is extremely capital intensive, with billions of dollars required in some cases to pull hydrocarbons from the ground. That means that companies need to sell a lot of debt to financial markets, and use the cash to bring projects online.  But if interest rates rise, it will significantly raise borrowing costs for oil and gas operators. And the repercussions will amount to a double whammy.  First, increasing interest rates should strengthen the U.S. dollar relative to other currencies. Higher interest rates makes holding dollars more attractive, which increases demand for the currency. Why does that matter? Oil is priced in dollars, so a stronger dollar pushes down oil prices, along with other commodities priced in dollars. Lower oil prices mean lower revenues for oil companies.   Second, higher interest rates will make debt more expensive. Yields on corporate debt will rise as the Fed targets higher interest rates, making it more expensive to take out a loan to drill an oil well.

UK Government Says Never Mind What People Want, Let’s Frack -- Following a nearly three-month public comment period in which more than 90 percent of the comments were opposed, the UK government announced it will go ahead with a plan to allow fracking beneath homes without the owners’ permission. Current rules allow homeowners to block shale gas projects. The government says the legal process to force them to allow them so is too time-consuming and expensive.The Guardian of London reported that of the 40, 647 responses received, 99 percent opposed the plan. Removing 28,821 responses submitted by two environmental group campaigns, 92 percent opposed it.“The majority of respondents included campaign text opposing hydraulic fracturing and/or the proposed change to underground access legislation and did not specifically address the questions to the consultation,” the government website said. “We acknowledge the large number of responses against the proposal and the fact that the proposal has provided an opportunity for the public to voice their concerns and raise issues. However the role of the consultation was to seek arguments and evidence to consider in developing the proposed policy. Whilst a wide range of arguments were raised and points covered, we did not identify any issues that persuaded us to change the basic form of the proposals.” So they didn’t.

Look out below: Danger lurks underground from aging gas pipes: About every other day over the past decade, a gas leak in the United States has destroyed property, hurt someone or killed someone, a USA TODAY Network investigation finds. The most destructive blasts have killed at least 135 people, injured 600 and caused $2 billion in damages since 2004. The death toll includes:

  • • The explosion that leveled part of a New York City block in East Harlem in March, killing eight and injuring 48 more.
  • • A blast that flattened the concrete floors of an apartment building in Birmingham, Ala., killing one woman in December.
  • • A flash fireball in 2012 that left an Austin man dead, a scarred foundation where his house once stood and debris strewn across yards of his neighbors.

The gas leaks that fueled those blasts are not uncommon. Neither is the cast-iron pipe — some of it more than a century old — that is the chief suspect in each of those three explosions and many others, according to the investigation by USA TODAY and affiliated newspapers and TV stations across the country.

Top Pittsburgh emergency response official talks about risks of crude oil trains -- Emergency response officials are currently assessing the risks that trains carrying millions of gallons of highly combustible crude oil pose to residents in Southwestern Pennsylvania. Raymond DeMichiei (Dee-Mi-Shay), deputy director of Pittsburgh’s Office of Emergency Management and Homeland Security, is overseeing that appraisal. “We don’t want people to have a false sense of security,” he said. “Yes, there is a risk. [But] we’re managing the risk.” Trains carrying crude snake through Pittsburgh and the region on their way from North Dakota’s Bakken Shale fields to refineries in Philadelphia and other East Coast cities. Pittsburgh landmarks that could be in the line of fire if a train exploded, he said, are all of downtown, Heinz Field, PNC Park and the CONSOL Energy Center. All are within a half mile of rail lines that carry crude oil, said DeMichiei. A half mile on each side of railroad tracks is the federally recommended evacuation zone if a crude-oil train fire occurs.

Oil Producers Say Oil Train Safety Rules Wouldn’t Make Oil Trains Safer -- North Dakota oil producers aren’t happy about new regulations that could force them to make their crude oil less volatile before they load it onto trains, claiming that the regulations won’t actually make shipping oil any safer. As the AP reports, North Dakota is considering implementing new regulations aimed at reducing the volatility of crude oil by removing specific gases and liquids from the oil. The regulations would require oil recovered from North Dakota’s Bakken region to be refined further before being shipped, in an attempt to reduce the chance of the oil catching fire or causing an explosion if the train it’s being carried in derails. But some oil producers in the state don’t think these new precautions are necessary.“To date, no evidence has been presented to suggest that measurable safety improvements would result from processes beyond current oil conditioning,” Hess Corp. spokesman Brent Lohnes told the AP.Kari Cutting, vice president of the North Dakota Petroleum Council, which represents more than 500 companies involved with North Dakota’s oil industry, also tried to downplay crude’s volatility. Several major train accidents have occurred in the last few years, including the disastrous derailment in Lac-Mégantic, Quebec that killed 47 people. Cutting said the crude oil in the railcars “was not the cause” of these accidents.  “Requiring stabilization beyond current conditioning practices would be a costly, redundant process that would not yield any additional safety benefits,” Cutting said.

Why so much oil from the fracking boom is moving by high-risk rail -- Rail shipments of U.S. crude oil produced in the fracking zones rose by 2,400 percent from 2008 to 2012, according to a report issued Monday by the Government Accountability Office — a period when oil production from the shale and sandstone formations, though booming, increased by less than sixfold. Main reason: Pipeline construction lagged far, far behind the surging production of both oil and natural gas, because investment in U.S. infrastructure for transporting, processing and storing both oil and natural gas went up just 60 percent in the same five-year period, with new pipelines accounting for only a piece of that. Main result: More deaths and injuries past and future, because rail shipping is inherently more prone to these than pipeline transport. Also, a much higher risk of catastrophe as oil-laden "unit trains" of 80 to 120 tank cars move through the nation's largest, densest metropolitan areas, including the Twin Cities. (More oil is moving by truck and barge as well.) It is difficult, for some reason, to clearly attribute injuries and fatalities to rail shipments of oil and gas versus other cargo. However, GAO's auditors found that from 2007 to 2011, Fatalities averaged about 14 per year for all pipeline incidents reported to the [Pipeline and Hazardous Materials Safety Administration, part of the U.S. Department of Transportation], including an average of about 2 fatalities per year resulting from incidents on hazardous liquid and natural gas transmission pipelines.

Why It Matters That Statoil Just Shelved Its Multi-Billion-Dollar Tar Sands Project -- In what’s being hailed as a huge win for environmentalists, Norwegian oil company Statoil announced on Thursday that it would postpone a planned multi-billion dollar tar sands oil development project in Fort McMurray, Alberta for at least three years. The major project, when completed, was supposed to produce 40,000 barrels of Canadian tar sands, or oil sands, crude oil every day. Statoil is putting the project on hold for a few reasons, but the most notable is the company’s assertion that there is “limited pipeline access” for the oil. In other words, Statoil is not sure there is enough pipeline capacity for it to actually get the oil out of northern Canada. According to Reuters, Statoil is the first company to explicitly cite pipeline access as a reason for delaying or cancelling a project. For environmentalists and advocates opposed to the controversial Keystone XL pipeline, this decision is huge. A group of six environmental organizations including the Sierra Club and are calling it “tangible proof” that strong, coordinated opposition to big pipeline projects like Keystone XL “lead to real reductions in tar sands investment and associated carbon pollution.”

Could Low Oil Prices Point To A Debt Bubble Collapse?: Oil and other commodity prices have recently been dropping. Is this good news, or bad?I would argue that falling commodity prices are bad news. It likely means that the debt bubble which has been holding up the world economy for a very long–since World War II, at least–is failing to expand sufficiently. If the debt bubble collapses, we will be in huge difficulty. Many people have the impression that falling oil prices mean that the cost of production is falling, and thus that the feared “peak oil” is far in the distance. This is not the correct interpretation, especially when many types of commodities are decreasing in price at the same time. When prices are set in a world market, the big issue is affordability. Even if food, oil and coal are close to necessities, consumers can’t pay more than they can afford. A person can tell from Figure 1 that since the first part of 2011, the prices of Brent oil, Australian coal, and food have been trending downward. This drop in prices continues into September. For example, as I write this, Brent oil price is $97.70, while the average price for the latest month shown (August) is $105.27. It is this steeper, recent drop, which many are concerned about.We are dealing with several confusing issues. Let me try to explain some of them. Issue #1: Over the short term, commodity prices don’t reflect the cost of extraction; they reflect what buyers can afford. Oil prices are set on a worldwide basis. The cost of extraction varies around the world. So it is clear that oil prices will not match the cost of extraction, or the cost of extraction plus a reasonable profit, for any particular producer.

Peak Oil: Are We In The Eye Of The Storm? - Ten years ago peak oil was assumed to be a rather straightforward, transparent process. What was then thought of as “oil” production was going to stop growing around the middle of the last decade. Shortages were going to occur; prices were going to rise; demand was going to drop; economies would falter; and eventually a major economic depression was going to occur. Fortunately or not, depending on your point of view, the last ten years have turned out to a lot more complicated than expected. Production of what is now known as “conventional” oil did indeed peak back around 2005, and many of the phenomena that were expected to result did occur and continue to this day. Oil prices have climbed several-fold from where they were in the early years of the last decade – surging upwards from $20 a barrel to circa $100. This rapid jump in energy costs did slow many nations’ economies, cut oil consumption, and with some other factors set off a “great” recession.  The high selling price per barrel, coupled with cheap money, led to a boom in U.S. oil production where fortuitous geological conditions in North Dakota and South Texas allowed the production of shale oil at money-making prices, provided oil prices stay high.  What is so interesting about all this is that a temporary surge in what was heretofore a little-known source of oil in the U.S. is masking the larger story of what is taking place in the global oil situation. The simple answer is that except for the U.S. shale oil surge, almost no increase in oil production is taking place around the world. No other country as yet has gotten significant amounts of shale oil or gas into production. Russia’s conventional oil production seems to be peaking at present, and its Arctic oil production is still many years, or perhaps even decades, away. Brazilian production is going nowhere at the minute, deepwater production in the Gulf of Mexico is stagnating, and the Middle East is busy killing itself. On top of all this, global demand for oil continues to increase by some million b/d each year – most of which is going to Asia.

Russian gas supplies to Central Europe still falling - — Some Central European countries continued to report declines in Russian gas deliveries on Monday as tensions between Ukraine and Russia persist in the run-up to winter. Austria’s energy regulator E-Control said gas supplies were down by 25% on Friday — the largest decrease for the Alpine country so far. Deliveries did increase the next day and “on Saturday it was only [down] 20%,” E-Control’s Executive Director Martin Graf said. For this time of year, due to weather and the filling of storage capacity, declines of between 10% and 15% are within the range of normal, he added. Slovak natural gas distributor SPP AS said flows of Russian gas to the country were down by 20% from contracted levels on Monday. Last week flows of Russian gas into Slovakia were down by as much as 25%. Polish natural gas operator Gaz System said Russia’s Gazprom continues to deliver less gas than what is ordered. The fall in gas supplies comes as tensions between Russia and Ukraine continue and the two remain at odds regarding payments for gas. Moscow is demanding Kiev pay $385 per thousand cubic meters for its gas, a price the economically stressed Ukraine is unwilling to pay. Russia shut off its gas deliveries to Ukraine in June.

Russia Risks Recession as Oil Drop Seen Squeezing Budget - The easing of tensions in Ukraine will offer little respite to Russia as the lowest oil prices in more than two years threaten to tilt the $2 trillion economy toward recession, according to a Bloomberg survey of analysts. Russia needs Urals, its main export crude blend, to trade at $100 per barrel or higher to avoid a recession, according to 58 percent of respondents in a survey of 19 economists. Given the level of U.S. and European sanctions over Ukraine, at least 19 percent of analysts said the current price is sufficiently low to put Russia’s financial stability at risk. The decline in oil prices is exacting a toll on the world’s biggest energy exporter, which gets about half of its budget revenue from oil and natural gas taxes. That’s limiting Russia’s ability to withstand sanctions by exhausting public finances as the non-oil deficit, the shortfall excluding revenue from the energy industry, exceeds 10 percent of economic output.  “Even if the oil price should recover to low three-digit prices again, Moscow’s hands are rather tied -- the budget is already ailing and the potential funding needs of the banking system could quickly eat up all free resources,” “And its rainy day fund is just too small to be a game changer.”

Ukraine PM Cries "Russia Wants Us To Freeze" As Locals Prepare For A Long, Cold Winter -- We would like to be able to commiserate with Ukraine's US-muppet regime, we really would, but when Ukraine's PM Argeny Yatseniuk, or Yats as he is known to Victoria Nuland, almost cried in an interview with Reuters yesterday when he pleaded that "[Russia] wants us to freeze... This is the aim and this is another trump card in Russian hands.... So, except military offense, except military operation against Ukraine, they have another trump card, which is energy". we have just two things to say to him: i) he is absolutely correct, about Russia having the trump card that is - something obvious to everyone with half a brain from the start of the conflict, and ii) perhaps Ukraine should finally pay Gazprom not only for the gas they would like to use in the future, but also the gas they have already used and payment for which is overdue and which the IMF, i.e., the US taxpayer, gave Ukraine explicit money to pay for and instead was embezzled by the people in power.

Hungary suspends gas supplies to Ukraine: Hungary's gas pipeline operator, FGSZ, says it has suspended delivery of gas to neighbouring Ukraine "indefinitely". Ukraine has been receiving gas from Hungary, Poland and Slovakia since Russia cut off supplies to Ukraine in June in a dispute over unpaid bills. Ukrainian state gas firm Naftogaz confirmed the stoppage, saying it was "unexpected and unexplained". FGSZ said it had acted to raise the flow of gas to Hungary, due to an expected increase in demand. With winter approaching fears are mounting that Ukraine will be unable to heat homes and power industry without Russian gas. Russian and Ukrainian energy ministers are meeting in Berlin for EU-brokered talks, aimed at heading off such a crisis.

Under Pact, Russians to Give Gas to Ukraine - — European officials said Friday that they had brokered a deal between Russia and Ukraine aimed at ensuring gas flows to keep factories running and homes warm over the next six months, despite a dispute over the size of Ukraine’s outstanding bills.Günther H. Oettinger, the European Union energy commissioner, met Friday in Berlin with the energy ministers of Russia and Ukraine to urge the two sides to reach an agreement that would resume the flow of natural gas from Russia to Ukraine for a set price during the winter. Russia’s natural gas giant, Gazprom, cut off supplies to Ukraine this summer after the two countries failed to reach an agreement on how much Kiev owes Russia for past deliveries. Under Friday’s deal, which Moscow and Kiev are expected to approve by next week, Ukraine would pay Russia $3.1 billion toward its outstanding bill, in two separate installments by the end of the year. In exchange, Gazprom will ensure that at least 5 billion cubic meters of gas are supplied to Ukraine from October to March at the set price of $385 per 1,000 cubic meters, which must be prepaid before delivery.

Fracking ISIS: US Allies Enter 3rd Mideast Hydrocarbon War on Saudi’s Side - The US and its allies (France, the UAE, Saudi, etc.) are entering the gas pipeline war in Syria on the side of the loyal Sunni partisans that have been bankrolled by the gulf states gas pipeline consortium (see below) against the the rogue Sunni partisans (ISIS)  that had been initially bankrolled to fight for the same Sunni gas pipeline – that their paymasters in Qatar have lost control over, because ISIS has stolen enough oil fields to sell $3Million a day on the black market to be self-supporting. This means that, since the enemy of my enemy is my friend, the US and its allies are entering the war as against the Shiite and Alawite proxies that have been fighting for Iraq’s pipeline through Syria. The US has finally been drawn into this conflict conveniently on the Sunni side of the street – in tactical and air support of Saudi proxies fighting Assad and his Iranian backers – over a gas pipeline concession. And now, for added melodrama – for control of Eastern Syrian and Northern Iraqi oil fields.

Saudi Could See Budget Deficit Next Year - IMF - Saudi Arabia’s state finances could fall into the red next year and the country could start running down its huge foreign reserves if it does not rein in the growth of government spending, the International Monetary Fund said. The IMF has been urging the world’s top oil exporter to moderate its rapid spending growth for years – warnings which have been publicly dismissed by Saudi officials as alarmist. But an IMF report released this week, following annual consultations with the government, painted the most ominous picture yet of looming financial pressures on the Kingdom. The government has launched huge and costly infrastructure projects, while falling oil prices threaten to shrink state revenues. Meanwhile, Saudi Arabia is spending heavily on aid to other Arab countries in order to maintain geopolitical stability in the region. The wealthy Kingdom could easily handle any one of those pressures, but the IMF report suggested that even Saudi Arabia’s oil wealth might not be enough to cope with all of them at once. The government may post a budget deficit of 1.4 per cent of gross domestic product in 2015 instead of the four per cent surplus which the IMF forecast as recently as April, the report said. Previously, the IMF had predicted Saudi Arabia would fall into deficit only in 2018. Its latest report said the fiscal shortfall was likely to widen to as much as 7.4 per cent of GDP in 2019. Riyadh last posted a budget deficit in 2009, when oil prices briefly plunged because of the global financial crisis.

Strange Bedfellows: To Fight ISIS, US Now Supports Iranian Revolutionary Guard, Other Terror Groups  -- US Mideast relationships get stranger every day. The US has come to the defense or has given aid to three rather unlikely groups in the past few weeks.

  1. Iranian Revolutionary Guard
  2. Kurdish Workers Party (PKK), which directly supports the YPG, on Washington's list of proscribed terror groups
  3. "Moderates" fighting to overthrow Syrian president Assad. Those moderates just signed a non-agression pact with ISIS

The Guardian reports Kurds Flee into Turkey to Escape Isis Offensive More than 70,000 Kurds fled from northern Syria into Turkey at the weekend and tens of thousands more are trying to cross the border as the terror group Islamic State (Isis) intensified its assault on a crucial Kurdish safe haven near the border. Previous attacks have targeted Yazidis, Christians, Kurds and Shia Turkomans in Iraq, and Alawites, Shias and Christians in Syria, forcing most to flee. Those captured have been given the stark choice between converting to the jihadists' hardline view of Sunni Islam or being killed.Inquiring minds may also wish to consider Obama’s “Moderate Rebels” Sign Deal With ISIS. The supposed “moderate” rebels fighting Syrian dictator Bashar al-Assad — self-styled jihadists whom the Obama administration and Congress plan to supply with even more support under the guise of battling the Islamic State (ISIS) — recently signed a non-aggression pact with ISIS (also known as ISIL), according to reports from human-rights groups and French news agency Agence France-Presse (AFP). Lawmakers on Capitol Hill pointed to the news as yet another reason why supplying U.S. arms and support to Islamic forces to battle Islamic forces was a dangerous idea. The foreign-policy establishment, however, plans to proceed with arming and training jihadists anyway.

Could Iran Be Trading Oil With Russia For Nuclear Support? - With the help of a few former Soviet neighbors, Iran is set to revitalize their crude oil exports after the profound effect of past sanctions. Not only has Russia offered to provide goods and services in return for Iranian oil, Azerbaijan and Kazakhstan have proposed reinstating oil swap deals. With limited access to international finance, oil, and insurance markets, U.S. Deputy Secretary of State William Burns said, “Iran may be losing as much as $50 billion to $60 billion overall in potential energy investments [annually].” These sanctions come after prolonged failure of UN nuclear negotiation talks with Iran. Russia, an active member of those talks, often tries to capitalize on its role to proffer access to RosAtom into the Iranian nuclear industry. Originally under the guise of preventing the weaponization of spent Iranian fuel cells, Russia now seeks to offer their services in return for Iranian oil.

Blood, Oil and the Geopolitics of the Gulf - In Afghanistan, Libya, Syria, Israel, Yemen, and elsewhere, the U.S. wages or supports wars, often without a stated political goal to be found.  In Iraq the rationale has shifted from the threat of Saddam to the threat of insurgents, to the threat of the Islamic State, but militarism as a solution has remained the same.  The August airstrikes were also easy to carry out, as the Pentagon currently operates a logistical empire in the Arabian Peninsula, with soldiers, bases, warships and drones stretching the littoral from Kuwait to the Yemeni port of Aden.  Some of the current bombing runs to northern Iraq are taking off from the Gulf based aircraft carrier George H. W. Bush, a reminder of the duration over which this force has been assembled.  And finally there is the oil.  This military footprint stands atop the epicenter of the global energy trade, featuring immense petroleum deposits that have produced immense monetary accounts and located at the crossroads of Asia, Africa, and Europe.  The current bombing of Iraq, and more generally U.S. occupation of this larger area, is the manifestation of the official Washington belief that political power can be effectively gained through warfare, that blood can be used to control oil. Today, however, such control is proving elusive.  Gulf states such as Iraq, Saudi Arabia, the United Arab Emirates and Qatar are looking towards other global actors, primarily China, when making economic and financial decisions.  Despite the Pentagon’s military colossus in the region, the oil, the money, and the people are turning to the east.  As of 2009, one third of China’s oil imports come from the Arab Gulf states, Beijing is now the largest trading partner of Arab heavyweight Saudi Arabia, and 10% of Dubai’s population is now Chinese nationals.  Dozens of flights per week connect the Gulf to China, and economic activity is now beginning to be conducted in the renminbi. U.S. policy is still focused on wielding the sword, but China has emerged as the largest economic force in the region, signaling a possible rupture of the historical trend equating military power to political influence.

The PetroYuan Cometh: China Docks Navy Destroyer In Iran's Strait Of Hormuz Port -- Since China fired its first 'official' shot across the Petrodollar bow a year ago, there has been an increasing groundswell of de-dollarization across the world's energy trade (despite Washington's exclamations of 'isolated' non-dollar transactors). The rise of the PetroYuan has not been far from our headlines in the last year, with China increasingly leveraging its rise as an economic power and as the most important incremental market for hydrocarbon exporters, in the Persian Gulf and the former Soviet Union, to circumscribe dollar dominance in global energy - with potentially profound ramifications for America’s strategic position. And now, as AP reports, for the first time in history, China has docked a Navy Destroyer in the Southern Iranian port of Bandar-Abbas - right across the Straits of Hormuz from 'US stronghold-for-now' Bahrain and UAE.

China risks ‘balance-sheet recession’ as stimulus impact wanes - China has launched a fresh effort to boost its flagging economy with cash injections by the central bank, but signs are mounting that monetary stimulus is losing its effectiveness as debt-ridden companies lose their appetite for borrowing even at low rates. ‘Mini-stimulus’ measures launched since April have focused on increasing the supply of money and credit. Last week the central bank moved to inject $81bn into the banking system via loans to the five biggest banks. That followed targeted cuts to the required reserve ratio for small banks and a loosening of the regulatory loan-to-deposit ratio that gave banks greater freedom to expand lending. Authorities want banks to channel those funds into the real economy, but bankers and analysts say that weak credit creation in recent months is due more to lack of demand from borrowers than to constraints on bank lending. That raises the spectre that China may slip into a so-called “balance-sheet recession”, the kind of economic slump in which monetary policy loses its effectiveness because highly indebted companies concentrate on paying down debt and remain unwilling to borrow even when interest rates fall. Weak demand for goods amid a slowing economy further depresses appetite for investment. “Anyone who runs a company with high leverage is very sensitive to the prospects for final demand,” said Richard Koo, the Nomura economist who pioneered the concept of a balance-sheet recession in his analysis of Japan’s post-bubble stagnation in the 1990s. More recently he has applied the same analysis to the post-crisis economies of the US, European Union, and the UK, where huge expansions of the base money by central banks have largely failed to spur bank lending to the real economy.

No hard landing yet in China -- China’s economic rebalancing has been the main downside risk to global economic activity in 2014, and will probably remain so for the foreseeable future. The industrial production figures for August were the weakest seen since the 2008-09 recession, and they were followed by a statement from finance minister Lou Jiwei to the effect that there would be no change in economic policy “in response to one indicator”.This echoed Premier Li Keqiang’s recent speech at the summer Davos meetings, which indicated broad satisfaction with the overall thrust of policy. “Just like an arrow shot, there will be no turning back”, he promised.The possibility of a clash between a slowing economy and a Chinese administration that appears implacably set on a pre-determined course was not what the markets wanted to hear. Many western investors have long been predicting a hard landing for China, and do not need much persuasion to believe that it is finally at hand. But recent data do not suggest that it is happening yet.The collection of economic activity data published for August were certainly on the weak side. Apart from the industrial production figures, which are normally by far the most reliable single guide to overall activity and GDP, money supply growth was subdued, and there was a sharp fall in electricity consumption. Wei Yao, an analyst at Societe Generale, and a pessimist on China, summarises the data as follows: The shadow banking system continued to delever, with both trust loans and undiscounted bankers’ acceptances (BAs) showing outright contraction for a second month in a row. The shrinking stock of trust loans is particularly dangerous to property developers and as such to residential investment, whereas dwindling BA financing has probably affected commodity financing and contributed to weak commodity imports.

Manufacturing Rebound Relieves Growth Concerns in China - A Chinese manufacturing gauge unexpectedly increased this month, suggesting export demand is helping the economy withstand a property slump. The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 50.5, matching the highest estimates in a Bloomberg News survey of analysts and up from August’s final reading of 50.2. Asian stocks pared declines, the Australian dollar rallied and copper advanced. Today’s report contrasts with August data that showed weaker growth and may ease pressure for stimulus that’s broader than the limited liquidity injections and expedited spending on railways that Premier Li Keqiang’s government has enacted. With the euro region and Japan battling to shore up expansions, a trough in China’s slowdown would aid a patchy global recovery.

Thousands join Hong Kong students' democracy protest as classroom boycott begins - Students will take their fight for democracy to government headquarters today, after thousands formed a sea of white across the Chinese University campus to launch a week-long class boycott yesterday. Organiser the Federation of Students estimated that 13,000 people turned up at the Sha Tin campus - including teachers, secondary school pupils and members of the public, as well as local and mainland students."The turnout is encouraging," secretary general Alex Chow Yong-kang said. "This is not just a matter for the students, but for Hongkongers as a whole." Chow called on the public to join the fight today as the venue switches to Tamar Park, outside government headquarters in Admiralty. Protesters are expected to approach the office of Chief Executive Leung Chun-ying, where the Executive Council meets this morning, to demand Leung address the students. Chow reiterated the students' demands: allow the public to nominate candidates for chief executive in 2017; abolish functional constituencies in the Legislative Council; and apologise for and retract Beijing's ruling limiting political reform. If the government refused, he said Leung, Chief Secretary Carrie Lam Cheng Yuet-ngor and key ministers should quit.

School students join Hong Kong democracy protests (AFP) - More than 2,000 Hong Kong secondary school pupils, some wearing uniforms, joined university students on Friday to bolster a days-long protest against Beijing's refusal to grant the city unfettered democracy. Throngs of teenage students -- many saying they had defied their parents' wishes -- descended on the Southern Chinese city's government headquarters to add their voices to a class boycott kicked off by university students on Monday. Student groups are spearheading a civil disobedience campaign along with democracy activists in protest at Beijing's announcement last month that it would vet who can stand for Hong Kong's top post of chief executive at the next election. University students rallied a crowd on Monday that organisers said was 13,000-strong on a campus in the north of the city, breathing new life into a movement left stunned by Beijing's hardline stance. On Thursday night, more than 2,000 people took their protest to the residence of Hong Kong leader Leung Chun-ying with the hope of speaking to him. Leung has so far refused to speak to the students or meet their leaders.

Riot police deployed after Hong Kong students storm Civic Square outside government HQ -- Occupy Central co-founder Benny Tai Yiu-ting refused to launch the civil disobedience movement earlier than scheduled after student protesters called for immediate action following a night of clashes with police at government headquarters which saw dozens injured. Riot police clashed with hundreds of protesters outside government headquarters in Admiralty in the early hours of Saturday, after students had earlier stormed the building's forecourt, known as "Civic Square".Occupy Central is expected to be launched on National Day, October 1, after Tai this week spoke of "a grand banquet" in Central while others were marking "the big day". Tai said he will stay at Tamar until the last moment, even if that means he gets arrested by the police if officers clear the area. And if he gets arrested, the civil disobedience programme will still go ahead because they have a well-thought out plan.

China hands drugmaker GSK record $489 million fine for paying bribes (Reuters) - China fined GlaxoSmithKline Plc (GSK.L) a record 3 billion yuan ($489 million) on Friday for paying bribes to doctors to use its drugs, underlining the risks of doing business there while also ending a damaging chapter for the British drugmaker. A court in the southern city of Changsha handed suspended jail sentences to Mark Reilly, the former head of GSK in China, and four other GSK executives of between two and four years, according to state news agency Xinhua. Briton Reilly, shown on state television wearing a suit and looking tired during the trial, will be deported, a source with direct knowledge of the case said. true The verdict, handed out behind closed doors in a single-day trial, highlights how Chinese regulators are increasingly cracking down on corporate malpractice. However, it also offers GSK a potential way forward in the fast-growing Chinese pharmaceutical market, a magnet for foreign firms who are attracted by a healthcare bill that McKinsey & Co estimates will hit $1 trillion by 2020. "If GSK China can learn a profound lesson and carry out its business according to the rule of law, then it can once again win the trust of China's government and people," Xinhua said in a commentary. Xinhua closely reflects China's official government view.

China Uncovers More Than $10 Billion in Fraudulent Trade-Financing Deals - WSJ: —A Chinese probe into trade financing found nearly $10 billion in fake deals, a senior official said on Thursday, in the latest warning over practices that socked foreign and Chinese banks with major losses earlier this year. The comments by Wu Ruilin, deputy director of the supervision and inspection department of China's State Administration of Foreign Exchange, mark the most extensive official comments yet on problems in trade finance in China since a scandal involving metal supplies in the port cities of Qingdao and Penglai put the practice under international focus. Foreign banks and commodities firms have exposure to potential losses there of close to $1 billion, while the estimated exposure for Chinese banks stretches into the billions of dollars, according to court filings, public statements by the banks and analysts' estimates. Mr. Wu said the regulator started a campaign to crack down on fraudulent trade financing in April of last year in 13 provinces and cities. He said this year, it expanded the investigation to 24 provinces and cities, including Qingdao. So far this year, the regulator has discovered trade fraud of nearly $10 billion throughout the country and has handed more than 15 cases over to police, Mr. Wu said. "Trade-financing fraud is very harmful not only to trade but also to the overall economy," he told reporters on Thursday. "It increases the pressure of hot money inflows and has even become the channel through which funds of some criminal activities flow in and out of China." Some banks also have failed to fulfill their duty to check on the authenticity of the traders' documents, he added.

China "Faked, Forged" Documents For Exports And Imports: At Least $10 Billion In Fake Trade Exposed - As we have reported since May 2013, when we explained the role of Commodity Funding Deals in Chinese "trade" and especially in the laundering of hot money flows, and most recently when we followed up on the first revelations that unknown amounts of physical commodities had been corizined in China's port of Qingdao, one of the key uses of monetary commodities in China is for purposes of "trade" in the form of FX loans, and especially to artificially boost exports by way of fake trade invoicing. Well, like a recovering junkie addicted to fabricated data, China finally admitted it has a problem when overnight it "uncovered almost $10 billion in fraudulent trade nationwide as part of an investigation begun in April last year, including many irregularities in the port of Qingdao, the country’s currency regulator said today."  “Some companies used the trade channel to bring in hot money,” said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. SAFE’s investigation “will likely further cool down hot money inflows and commodity imports could slow as banks will likely conduct more careful checks on documentation.

China’s Choice: India or Pakistan? --Among China’s relations with Asian neighbors, its ties with the countries in South Asia are generally considered to be the weakest. Now, with Sino-Japan tensions over the East China Sea and conflict with many Southeast Asian countries over the South China Sea, the role of South Asian countries has become more prominent. South Asia is now a focus in China’s regional strategy, as shown by President Xi Jinping’s recent visit to the area.When it comes to South Asia, people think of India and Pakistan first. China has an “all weather friendship” with Pakistan but an ambivalent, often testy relationship with India. But the future is sometimes different from both the past and the present. Moving forward,  which country is more important for China? Even without a clear answer, just puzzling through this question can help make many issues clear. In fact, we only to need to answer two questions to know whether India or Pakistan is more important for China. First, which one is a major power? Second, which one can better help China realize its interests?Which is the major power, India or Pakistan? The answer is relatively simple — India. When it comes to international influence, India is part of BRICS and the G20 and is a leader of the developing world through the G77 and the Non-Aligned Movement. India is well poised to become a major power in the world arena. The answer is even more obvious from the economic perspective. According to the World Bank, India’s GDP in 2013 was roughly $1.9 trillion. By contrast, Pakistan’s GDP was only $236 billion, only about 12 percent of India’s. In 2013, India was the 10th largest economy in the world in terms of GDP.

Does China Seek to Dominate India, Africa and Latin America? --A new study shows that China is now India's top trading partner, edging out the United Arab Emirates—India’s previous top trading partner—and is comfortably ahead of the US and Saudi Arabia. India-China annual trade volume now adds up to about $70 billion, and India is running a massive $40 billion trade deficit with China. China exports high-value, high-tech machines to India while India exports low-value commodities to China. China's state-owned banks are financing huge infrastructure projects in Africa and India to boost Chinese exports. Leading the effort are China's ExIm Bank, China Development Bank and China Industrial Commercial Bank. Major multi-billion dollar projects being signed by Chinese President Xi Jineng, currently visiting India, and Prime Minister Modi will be financed by loans from one or more of the state-owned Chinese banks. China is also pursuing strategic Pakistan-China economic corridor which includes several large infrastructure projects worth tens of billions of US dollars connecting China with the Arabian Sea through Pakistan. These projects will be financed by China's ExIm Bank and other state-owned banks.In a report last year, China's State-owned Xinhua News Agency articulated China's motivation to expand land trade in addition to building its navy to protect its sea trade.

An ASEAN Economic Community by 2015? - The Association of Southeast Asian Nations is the most successful regional grouping in the developing would. Its latest project is to establish an ASEAN Economic Community by 31 December 2015, consisting of economic, political-security, and social cultural components.  This column argues that giving commitments more teeth is the key challenge to be overcome in realising the ASEAN Economic Community if it is to be more than a political exercise in solidarity.

Weak yen puts Japan at risk of recession, says ex-BOJ deputy - Japan is in danger of falling into a recession as the yen’s decline reduces the purchasing power of households and squeezes corporate profits, according to a former deputy governor of the Bank of Japan. “The current yen weakness is slightly excessive,” Kazumasa Iwata, the deputy from 2003 to 2008, said in an interview last week in Tokyo. ” ‘Abenomics’ entails the risk of ‘beggar thyself’ consequences and signs are already emerging.” The yen is trading near a six-year low against the dollar as diverging monetary policies from the U.S. to Japan threaten to increase exchange-rate volatility. Rising import costs are straining the economy as Prime Minister Shinzo Abe weighs whether Japan can take another consumption tax increase to rein in the world’s biggest debt burden. “Currency levels appropriate for reflecting Japan’s economic fundamentals are ¥90 to ¥100 to the dollar,” said Iwata, now the president of the Japan Center of Economic Research. The yen touching 109.46 to the dollar on Friday, the weakest since August 2008, according Bloomberg data. It has depreciated by 4.5 percent over the past month, the most among the 16 major currencies tracked by Bloomberg.

Bank of Japan dives into sharemarket to help economy: The Bank of Japan is on track to becoming the largest shareholder on the Nikkei stock exchange as the central bank takes the bold move of stepping up its purchases of riskier assets to help support its fragile economy. According to Japanese press reports, the Bank of Japan bought ¥123.6 billion ($1.27 billion) worth of exchange-traded funds (ETFs) in August, bolstering its equities portfolio to an estimated $72 billion. The central bank has stayed away from the market in September because of the share market rally. The Nikkei fell 5.39 per cent from July 31 to August 8 of this year, but since then has surged nearly 9.5 per cent. The subsequent rally in the Nikkei could help to make Japanese investors – who have been large buyers of Australian assets – feel wealthier at a time when the Yen is weakening.

Inflation Could Slip Back Below 1%, But Policy Remains Unchanged - After a sharp flip from negative to positive, Japan’s key price gauge has now stalled, and risks falling back below a 1% annual growth rate in the coming months, largely due to falling energy prices. That was once seen as the tripwire figure likely to prompt more stimulus from the Bank of Japan, which has promised to deliver 2% inflation by next year. But central bankers now claim they’re not too worried by the trend. That’s because they see the main cause as a drop in global oil prices, while they say other data still support their scenario that inflationary pressures are building in the domestic economy, notably a tighter labor market and higher wages.“There seems to be no great reason for the BOJ to change its price scenario,” The annual rate of inflation, as measured by the core consumer price index, fell to 1.1% in August from 1.3% the previous month, according to data out Friday. In the wake of the Bank of Japan’s massive new stimulus program unveiled in April 2013, that figure surged in just one year from a rate of negative %0.4 to a peak of %1.5 this past April.  The figure is adjusted to exclude the impact on prices of an April sales tax increase.While most economists expected some deceleration in August, the size of the drop exceeded expectations, and immediately raised questions over mid-summer statements by BOJ Gov. Haruhiko Kuroda that there was “no possibility” of a break below 1%. Indeed, some officials at the BOJ now think such a drop is “possible,” said people close to the central bank. “Crude oil prices fell $10 a barrel over the past two months or so. You can’t predict that,” one of the people said. (In Japan, the “core” CPI figure excludes fresh food prices, but includes energy, a contrast with the U.S., where the “core” figure also excludes energy.)

Japan Needs Global Growth to Boost Exports Says OECD Official - Is the exchange rate the main factor determining a nation’s export growth? The recent experience of a weakening yen suggests the currency effect on exports–at least in Japan’s case–may be much more limited than previously assumed. The failure of Japan’s exports to log significant growth despite the yen’s sharp depreciation, defies what economists call “the J-curve effect.” Under the J-curve, a weakening of a currency leads to a short-term worsening of the trade balance followed by a pickup in exports and a drop in imports, with a lag of about 12 months. But after two years of a falling yen, its export-boosting effect has yet to kick in. On Monday, Rintaro Tamaki, the deputy secretary-general and acting chief economist of the Organization for Economic Cooperation and Development, joined in the debate, saying that the impact of the exchange rate on the nation’s trade balance has always been limited. He added that attempts to restore exports to levels prior to the 2008 global financial crisis through a weak yen are likely to fail. Mr. Tamaki, a former vice finance minister, noted that the 77% growth in exports Japan experienced in the first eight years of the 2000s was made possible by a global economic boom. During that period, the yen was hovering around ¥120 to the dollar, but Mr. Tamaki said that had little to do with the export surge. Today, the global economy is far from solid, even six years after the global financial crisis. International trade is growing at 3% per year, half the pace before the Lehman shock, according to the OECD. “With global trade growth slowing to half the pre-Lehman pace, there simply isn’t room for big export growth even with a weakening yen,”

Japan trade minister: No progress with U.S. in TPP trade talks (Reuters) - Japan's Trade Minister Akira Amari said he and his U.S. counterpart made no progress in bilateral talks that are key to an ambitious multilateral trade deal. "Japan made a flexible proposal, but we weren't able to make further progress," Amari told reporters on Wednesday evening in Washington. "Further negotiations are undecided." Amari met with U.S. Trade Representative Michael Froman, who last week urged Tokyo to ramp up efforts to break the standoff between the two biggest economies in the 12-country Trans-Pacific Partnership. true The bilateral talks have foundered over access to farm and auto markets, boding ill for the TPP talks, which aim at a broad agreement by year-end to open up trade around the Pacific.

Despite Bold Japan Trade Pledges, U.S. Still Wonders: ‘Where’s the Beef?’ -  Japanese Prime Minister Shinzo Abe began and ended a trip to New York this week with bold pledges to help advance stalled talks on an ambitious pan-Pacific free-trade pact. But mid-week, his chief negotiator walked out of a Washington session with his American counterpart, after U.S. officials accused Tokyo of moving too timidly on opening up Japan’s agriculture market, leaving the agreement’s fate as uncertain as ever. “We entered the negotiation with a flexible attitude, but it turned out that we were not on the same page,” a Japanese government spokesman said in a phone interview, explaining the latest breakdown in the talks over the Trans-Pacific Partnership. This week’s action followed a pattern that has become familiar ever since Mr. Abe won kudos from Americans in early 2013 for telling President Barack Obama during a Washington visit that he was prepared to enter the trade agreement, even though it would mean painful concessions for Japan’s protected and politically powerful farm lobby. Mr. Abe has made TPP a pillar of reforms he is promoting to revive his country’s long-stalled economy. But Americans have repeatedly complained that Japan’s negotiators have failed to back up Mr. Abe’s words with concrete proposals. While the pact involves 12 nations, the main focus has been on discussions between the U.S. and Japan, by far the two largest economies participating. There’s no formal deadline for completion, but both sides have said they’re aiming to reach an agreement by the end of this year.

TPP Talks Dead In The Water, BMO's Doug Porter Says: The controversial Trans-Pacific Partnership (TPP) agreement may be crucial for Canada’s economy, but it’s unlikely to close anytime soon, says one of Canada’s top economists. The multilateral talks — involving hundreds of negotiators from 12 countries over an agreement that would create one of the world’s largest free trade areas — have stalled. There have already been more than 20 rounds of negotiations, the details of which have been kept secret. Doug Porter, chief economist at Bank of Montreal believes the chances of talks settling outstanding issues are slim.“I’m not optimistic on those talks at least not over the next three years or so,” he said during a panel discussion for the Toronto Region Board of Trade. “The reality of the situation is unless the U.S. gets fast-track authority (for a free trade negotiation) it’s going nowhere ... The multilateral nature of these talks means that if everybody isn’t cooperating then it’s not happening.” U.S. president Barack Obama has faced difficulty in getting Congress on board with the trade talks and has not been able to convince politicians to give the White House “fast-track authority,” which would allow Obama to sign the deal without a debate in Congress.

Australia’s Central Bank Makes Pre-Emptive Move on House Prices - —Warnings from Australia’s central bank on Wednesday that  it is in talks with the country’s banking regulator about possibly introducing measures aimed at cooling off an investor-led house-price boom are as much about its own image management as they are about facing up to a growing problem for the economy. “The bank is discussing with the Australian Prudential Regulation Authority…additional steps that might be taken to reinforce sound lending practices, particularly for lending to investors,” the reserve bank said in its twice-annual review of financial stability. The comment comes as a boom in house prices continues apace, and the reserve bank is being badgered to back the introduction of so-called macroprudential tools, a term that covers measures used to target lending for housing. The benefit of leaning against an asset class like investment housing is that lending is slowed without the broader economy being dragged down. That would be the case if the reserve bank raised interest rates, its tool of choice. The idea is being employed in different forms in New Zealand, Canada and the U.K. The Reserve Bank of Australia has never liked the idea, with Governor Glenn Stevens referring to it recently as a “fad.” Part of Stevens’ objection goes to the idea that embracing change would imply the current prudential framework was weak. Australia, like many other countries, has been busily strengthening its banks and its regulation since the global financial crisis. Meanwhile, the International Monetary Fund has said it likes the idea.

India: A finite balance - For those who don’t know, India is a big, extremely uneven, place. From HSBC: India is a federation, with the central and state governments having both separate and shared responsibilities. While central government policies and transfers shape state policy agendas, states still have a relatively high degree of autonomy. As a result, state policies vary greatly. The rise of India can be seen in each state, but in some more than others. Between the 1990s and 2000s a handful saw average growth rates jump significantly – Uttarakhand in the north (8.5ppts) and Bihar (5.1ppts), Sikkim (8.4ppts) and Nagaland (4.7ppts) in the east.A number of states and union territories have averaged double-digit growth since 2000, including Uttarakhand, Chandigarh, Sikkim and Nagaland. However, these are all relatively small states. The larger economies that have delivered impressive growth rates in this period include New Delhi (8.6%), Haryana (8.6%), Gujarat (8.8%), Maharashtra (7.7%) and Bihar (8.5%). Volatility in the rate of growth also differs. Some states are more susceptible to changes in global economic conditions and subsequently took a relatively large hit during the global financial crisis of 2008-09. They were typically states with a larger share of manufacturing (Gujarat and Maharashtra) and a sizeable business services sector (Gujarat and Maharashtra again, and also Karnataka, which has a relatively large IT services sector). And what about relative performance – is the gap between states closing? The answer is no. The richer states have, on average, experienced relatively faster per capita GDP growth than the poorer states, despite the strong performance of low income states such as Bihar, Orissa and Uttarakhand. The reality is that the pace at which richer states are pulling away appears to be increasing. And in chart form:

India Becomes First Asian Country to Successfully Reach Mars -- India’s Mars Orbiter Mission (MOM), more commonly known by the Hindi nickname Mangalyaan (meaning Mars-craft), reached Mars early Wednesday (Indian Standard Time). The probe went into orbit around Mars after it was captured by Mars’ gravity around 7:41 a.m.  This marks the end of the spacecraft’s ten month journey, which began with its launch on November 5, 2013. Mangalyaan’s success makes India only the fourth entity to put a spacecraft in Mars’ orbit, after the United States, the Soviet Union, and the European Space Agency. India is the first Asian country to successfully place a spacecraft in orbit around Mars, and the first country anywhere to do so on its first attempt. A previous Chinese attempt to reach Mars failed in 2011.  Even more notable are the implications of Mangalyaan’s success for the costs of space travel. Mangalyaan cost India about $74 million, a fraction of the $671 million cost of the U.S. National Aeronautics and Space Administration’s latest Mars program. This fact led Prime Minister Modi to remark that “the amount our scientists have spent on this mission is even less than what they spend in making Hollywood movies,” referring to the American space movie Gravity, which cost around $100 million to make.

US Federal Court Issues Summons Against Narendra Modi -- Some 24 hours before he arrives in the United States on his first visit to the country as prime minster, the U.S. Federal Court of the Southern District of New York issued a summons against Narendra Modi regarding his alleged involvement in the 2002 Godhra riots, in his home state of Gujarat. The summons requires Modi to respond within 21 days of receipt, barring which the court will decide in default against Modi for the damages sought by the plaintiffs. According to The Hindu, the summons “charges PM Modi with committing crimes against humanity, extra-judicial killings, torture and inflicting mental and physical trauma on the victims, mostly from the Muslim community.” The summons was issued in connection with a lawsuit filed by the American Justice Center (AJC), a non-profit human rights organization representing the plaintiffs in the case who have been described as “two survivors of the horrific and organised violence of Gujarat 2002.” The riots in question took place under Modi’s tenure as chief minister of Gujarat. While the Supreme Court of India found no evidence of Modi’s complicity in enabling the riots, many of the prime minister’s critics allege that his inaction allowed several hundred Muslims to perish at the hands of Hindu rioters. The Indian government’s official death toll of the riots counts 790 Muslims and 254 Hindus among the victims. Another 2500 were injured and 223 were reported missing.

Battling to Curb “Vulture Funds” - Yves here. Martin Khor focuses on the alarm created by the ruling against Argentina that allowed a Paul Singer's NML, a vulture fund with a small position in Argentina's bonds, to vitiate a hard-fought bond restructuring. The particularly ugly part that don't get the attention warranted is that it is widely believed that Singer took a much larger position in credit default swaps, meaning he was seeking to create and betting on an Argentine default. And another ugly wrinkle is the role of private law in these processes. ISDA, a private organization, determines what is an event of default for credit default swaps. Singer was on the committee that voted whether Argentina was in default (recall it had made payment under the restructuring to the trustee, Bank of New York, but BONY was barred by the court from remitting payment to the bondholders). This gave him a direct say in an event in which he had a large economic interest. And that was no lucky accident.

Argentina running out of options -- With Argentina's private sector in disarray, Cristina Fernandez de Kirchner's government has been forced to increasingly bail out failing businesses, particularly importers that are critical to Argentina's stability. The nation's fiscal problems are escalating rapidly as it undertakes what amounts to a form of nationalization.A great deal of hard currency now goes to support domestic importers and the country is becoming desperate for dollars needed to import the products the population needs. In the past, some of the greatest sources of foreign currency for Argentina have been grain exports, particularly soy. Except now there is a problem ...With fiscal deficit growing rapidly and access to international markets shut off due to the recent default, Argentina's central bank has been doing the only thing a central bank can do in this situation - monetize the deficit by printing more pesos. This has resulted in inflation levels of over 36% this summer and probably even higher currently. Not quite Zimbabwe levels yet, but moving in that direction.In response to such inflationary pressures and fully aware that further currency devaluation by the Fernandez regime is inevitable, businesses and households are hoarding dollars. One US dollar now trades at over 15 pesos in the unofficial ("blue") exchange market - some 80% premium to the official exchange rate. There are no easy answers at this juncture. With foreign reserves expected to dwindle and risks rising of foreign bondholders accelerating full debt repayment - which they can do now that they are no longer receiving their coupon payments - Argentina is running out of options. The authorities are becoming increasingly desperate as Fernandez, in search of blaming someone other than her own failed policies, turns on Argentina's private sector. New legislation that resembles Venezuela's heavy handed socialist style has made strong corporate profit margins in Argentina illegal.

Global Trade Collapses: One Of World's Largest Logistics Companies Slashes Forecast; Blames Europe, US Trade - Listening to the iPhone and Alibaba infotainment channel, the name TNT Express has been mentioned exactly zero times today. For those who are unaware, Dutch TNT Express, which UPS tried to acquire in 2012, is one of the world's largest logistics companies competing with UPS, FDX and DHL. And the reason the name is important this morning, and thus why it is being avoided on this side of the Atlantic, is because earlier today it provided the latest confirmation of Goldman showed previously, namely that the global economy has not only hit a brick wall, but is now in reverse, when it warned that as a result of "weak growth in Europe and the US" it would not meet its overoptimistic full-year targets. The result: its stock plunged by 11%. And since global logistics and trade, or lack thereof, is universal, expect FedEx and UPS to follow shortly with guidance cuts of their own in the coming days and weeks.

Beyond Foreign Aid -- About 1.2 billion people around the world have a consumption level of less than $1.25 per day, and 2.4 billion have a consumption level of less than $2 per day, according to the World Bank. One standard policy prescription has been to try improve the standard of living for this group through foreign aid. Indeed, the higher-income nations of the world gave $134.9 billion in official development assistance in 2013, according to the OECD. One can argue that foreign aid should be higher.  But a bigger problem for foreign aid is suggested by long division: Take $134.9 billion in aid and divide it by 2.4 billion people consuming less than $2 per day, and it works out to about $56 per person. Even if effectively administered and invested, that amount of aid isn't going to budge the needle on global poverty by very much. Thus, it's natural to ask what high-income countries might do, other than tweaking their foreign aid budgets, to help the world's poor. A committee in the UK House of Commons is apparently seeking to compile a policy agenda along these lines. Owen Barder and Theodore Talbot of the Center for Global Development drew up a memo for the House of Commons committee. The memo is here; a blog post about the issue at the CGD website is here. Here's a sampling of their policy proposals to help the world's poor that go beyond the foreign aid budget

How sanctions are hastening the world without the West -- Western sanctions are having an unintended effect. They are accelerating the birth of a parallel ecosystem where countries not allied to the West are able to operate without the constant threat of sanctions. Free of western control, this alternative platform is gaining traction at a surprisingly fast pace. It is worth mentioning at the start that western companies have a huge exposure in the Russian market. In contrast, Russia is primarily an exporter of commodities such as oil, gas, metals and minerals which are in great demand – especially in Asia’s ravenous markets. Bottom line: while western consumer and capital goods can be replaced by Asian manufacturers, Russian commodities are the lifeblood of economies in both Asia and Europe. SWIFT move The move towards a non-western world is happening most rapidly in the area of finance. This is hardly surprising because financial flows are easier to reroute – and replace – than say, a shipment of coal or an oil tanker. Among the dozens of sanctions directed against Russia, the most extreme one was proposed by the UK, which pressed European Union leaders to block Russian access to the SWIFT banking transaction system. The Belgium-based SWIFT, which stands for the Society for Worldwide Interbank Financial Telecommunication, is the financial world’s very arteries. Restricting Russian usage of SWIFT would no doubt disrupt financial and commercial activities in the country, but according to Richard Reid of the University of Dundee in Scotland it may carry a longer-term downside. “Large chunks of Russian international payments flows would move to much less well monitored and measured financial channels and thus be beyond sanctions at any future point,” he told Bloomberg News.

Barbarism Versus Stupidism -- Kunstler -- In my lifetime, the USA has not blundered into a more incoherent, feckless, and unfavorable foreign policy quandary than we see today.The US-led campaign to tilt Ukraine to Euroland and NATO — and away from the Russian-led Eurasian Customs Union — turned an “intelligence” fiasco into a strategic humiliation for the Obama White House. Notice that the story has vamoosed utterly from the American media headlines, even when the Russian Engineers’ Union issued a report last week asserting that the Malaysian Airlines Flight MH17 was most likely shot down by 30mm cannon fire from Ukrainian military aircraft. The USA State Department didn’t deign to refute it because doing so would have drawn attention to the fact that it was the only plausible explanation for what happened. Likewise, the campaign to paint Vladimir Putin as Stalin-in-a-judo-robe never really reached take-off velocity, since by all appearances he was the most rational and cool-headed actor on the geopolitical stage, following logical and long-established national interests. If the West had just left Ukraine alone, and allowed it to join the Eurasian Customs Union, that basket-case nation would have been Russia’s economic ward. Now the US and the EU have to support it with billions in loans that will never be paid back. Meanwhile, our European allies have been snookered into a set of economic and financial sanctions against Russia that guarantees they’ll be starved for oil and gas supplies in the winter months ahead. Smooth move. So, the reason that all this has vanished from the news media is that it’s game-over in Ukraine. We busted it up, and can do more with it, and pretty soon the rump Ukraine region run out of Kiev will go crawling back to Russia begging for a little heating fuel.

Ukraine on the brink --  While we see a great deal of media coverage of Ukraine-related geopolitical risks, there hasn't been a much said with respect to the dire economic and fiscal conditions the nation is facing. Writing about men in masks fighting in eastern Ukraine sells far more advertising than covering the nation's economic activity. However it's the economy, not the Russian army that has brought Ukraine close to the brink. And just to be clear, some of Kiev's economic and fiscal problems were visible long before the spat with Russia (see post from 2012).  Ukraine is now in recession. Deep economic ties with Russia have resulted in painful adjustments in recent months. The nation's exports are down some 19% from last year in dollar terms and expected to fall further. Here are some key indicators of Ukraine's worsening situation: 1. The nation's GDP is down almost 5% from a year ago and growth is expected to worsen. 2. Ukraine's retail sales are falling at the rate we haven't seen since the financial crisis. 3. And industrial production is collapsing. 4. The most immediate concern however is the nation's currency, which has been trading near record lows in spite of currency controls. In fact Friday's fall in hryvnia was unprecedented (over 11%), as Kiev fails to stem capital outflows. Intraday exchange rate (source: Bloomberg) Those who have spend any time in Ukraine during the winter know how harsh the weather can get. And at these valuations, hryvnia isn't going to buy much heating fuel from abroad. Furthermore, it's not clear if the government will have the wherewithal to provide sufficient assistance to the population. 5. Inflation rate is running above 14% and will spike sharply from here in the next few months if the currency weakness persists. Real wages are collapsing. 6. Finally, Ukraine's fiscal situation is unraveling. In its attempts to defend the currency, Kiev has been using up its foreign exchange reserves. It is only the access to some IMF funding that has allowed Ukraine's government to maintain some semblance of order in its FX markets.

Ukraine May Need Far More Foreign Aid to Rescue Its Economy - Ukraine needs three to four times more emergency cash than the International Monetary Fund currently forecasts. That’s the view of Lubomir Mitov, chief Europe economist for the Institute of International Finance, a global banking group. “The economic situation has deteriorated sharply; it is close to disastrous,” said Mr. Mitov. “The IMF program has to be redone, has to be extended for three years at least.” He estimates Ukraine faces a financing hole of $13 billion to $15 billion through next year even if a ceasefire between Kiev and Russia-backed separatists holds. The IMF earlier this month said the country needs at least $3.5 billion more than originally planned to keep it afloat through the end of next year. That amount could rise to $19 billion if the civil war continues, the fund said. That’s on top of the $30 billion global bailout program the IMF is already spearheading.  But Mr. Mitov, who recently returned from the war-torn country, says the needs are far larger than the IMF’s public assessment. The IIF expects the economy will contract at a double-digit pace this year, down from its previous estimate for an 8% contraction, based on the presumption of a prolonged stalemate with the separatists. He estimates Kiev’s budget deficit will hit 12% this year and banking recapitalization needs are likely to be more urgent and much larger than the $4 billion detailed by government officials. Major Ukrainian manufacturing infrastructure is damaged or offline, Kiev’s budget is suffering from weak revenues and rising military costs and the country’s devalued currency is still wreaking havoc on the financial system.

Russia’s Ruble Falls to Record on Fed Woes as Brent Drops - The ruble fell to a record as Brent crude dropped and concern grew that an increase in the Federal Reserve’s interest-rate target will spur capital flight from developing-nation assets. The currency retreated 0.5 percent to 38.615 per dollar as of 12:34 p.m. in Moscow, an all-time low on a closing basis. Government bonds due February 2027 were little changed, with yields at 9.57 percent. Brent oil slid 0.6 percent to $97.76 a barrel today. Russia receives about half its budget revenue from oil and natural gas taxes. Fed policy makers on Sept. 17 raised by 25 basis points their median estimate for where the fed funds rate will be by end-2015, while keeping a pledge to maintain low rates for a “considerable time” after the bond purchase program ends. A dearth of foreign currency in Russia has been exacerbated by the latest sanctions imposed by the European Union and the U.S. “Oil is falling and that’s pressuring the ruble,”  “A combination of declining oil and investors’ switch into dollar assets on expectations of the Fed’s tightening monetary policy are weighing on the currency,” Brent declined for the third time in four days before manufacturing data from China, the world’s second-biggest oil consumer. “The ruble is being sold off with other riskier assets following the Fed meeting as tapering continues and investors expect a rate hike,”

French Farmers Torch Tax Office in Brittany Protest - French vegetable farmers protesting against falling living standards have set fire to tax and insurance offices in town of Morlaix, in Brittany. The farmers used tractors and trailers to dump artichokes, cauliflowers and manure in the streets and also smashed windows, police said. Prime Minister Manuel Valls condemned protesters for preventing firefighters from dealing with the blaze. The farmers say they cannot cope with falling prices for their products. A Russian embargo on some Western goods - imposed over the Ukraine crisis - has blocked off one of their main export markets.About 100 farmers first launched an overnight attack on an insurance office outside Morlaix, which they set light to and completely destroyed, officials said. They then drove their tractors to the main tax office in the town where they dumped unsold artichokes and cauliflowers, smashed windows and then set the building on fire.

Low German Infrastructure Investment Worries Experts - SPIEGEL - Despite its shiny façade, the German economy is crumbling at its core. That, at least, is how Marcel Fratzscher sees it. With the country's infrastructure becoming obsolete and companies preferring to invest abroad, the government advisor argues that German prosperity is faltering. When Fratzscher, the head of the German Institute for Economic Research, gives a talk these days, he likes to pose a question to his audience: "Which country is this?" He then describes a place that has seen less growth than the average among euro-zone countries since the turn of the millenium, where productivity has only increased slightly and where two out of three employees earn less today than they did in 2000. Fratzscher usually doesn't have to wait long before people begin raising their hands. "Portugal," one person offers; "Italy," says another; "France," exclaims a third. The economist allows his audience to continue searching for the right answer, until, with a triumphant smile, he announces the answer. The country he is looking for, the one with the weak economic results, is Germany.

ECB Urges Berlin to Cut Taxes and Spend - Berlin has hit back at calls from a top European Central Bank official urging Germany to spend more to help the eurozone escape from its economic malaise.  In one of the most politically charged statements to come from the central bank, Benoît Cœuré, a member of the ECB’s executive board, urged Berlin to increase borrowing in order to support investment and cut taxes. The article follows calls by ECB president Mario Draghi last month for governments to match the central bank’s steps in loosening monetary policy with growth-boosting measures. However, Mr Cœuré and Mr Asmussen have gone further than Mr Draghi, who stopped short of asking Germany to raid its fiscal coffers. The German government reacted angrily at the op-ed, which comes ahead of French prime minister Manuel Valls’ visit to Germany on Monday. “The article does not reflect current government policy and we don’t agree,” a spokesperson for Germany’s finance ministry said. “Complaints that the German government supposedly does not invest enough are unfounded. We do invest significantly.”

ECB and Fed: Separated at Birth? — In terms of governance and communications, the Fed and the ECB have evolved over the past 15 years into virtual doppelgängers. The remaining differences in their decision-making and communications frameworks are secondary. Even the widely-touted differences in their mandates – with the ECB focusing first on price stability and the Fed placing equal emphasis on employment and prices – have limited practical significance in differentiating their behavior.In our view, the key behavioral disparity between the two central banks in recent years – with the Fed more willing to expand its balance sheet aggressively – arises primarily from the differences in their financial systems that make it more challenging for the ECB to implement quantitative easing (and some other types of unconventional policy). Put differently, if we were to replace the ECB’s mandate, governance apparatus, and communications practices with the Fed’s, we doubt that euro-area monetary policy would change much. Let’s start with the stunning convergence of governance and communications between the two central banks. This re-alignment reflects changes on both sides, as practical experience (nurture) trumped nature.

Draghi mulls QE to revive deflating Europe -- The ECB President, Mario “whatever it takes” Draghi is letting the QE cat out of the bag stating last night that he wants governments to do some heavy lifting on restructuring while he grabs the “unconventional” printing lever: The ECB stands ready to use additional unconventional tools and tweak its existing efforts to spur inflation and growth in the euro zone if needed, ECB President Mario Draghi said on Monday, speaking to the economic and monetary affairs committee of the European parliament. Lower than expected take-up of the initial tranche of loans last week has fuelled expectations the ECB may eventually take more radical stimulus measures, such as buying large amounts of sovereign debt in a policy known as quantitative easing or QE.Of course, QE is off the table due to the REAL centralised power – the Germans. That leaves structural reforms, which the Germans genuinely want, but don’t want to pay the price for: “As I have indicated now at several occasions, no monetary – and also no fiscal – stimulus can ever have a meaningful effect without such structural reforms,” he said. He said the ECB had “done a lot over the past three years”.But Draghi questioned whether governments had made use of the opportunity to reform.

The EU’s GDP Is Bigger Than Thought — But Hold the Bubbly - On Oct. 17, the European Union will get some good news: That day, the bloc’s statistics office will announce that the EU economy is actually around 2.5% bigger than previously thought. But don’t break out the bubbly just yet. The expected boost in gross domestic product — based on early estimates from Eurostat — is the result of changes to the way the EU calculates national accounts, rather than an actual uptick in economic activity. Eurostat says the new accounting system, known as ESA 2010, will give a more accurate picture of what gets produced, spent and invested within the 28-country bloc. Spending on research and development, such as new satellites in the German Center for Aerospace, will lift GDP in the EU.  The most significant change under ESA 2010 is that spending on research and development — whether by companies or the government — will be counted as an investment that creates value, or assets, for the future, just like spending on new machinery or infrastructure. Previously, this was recorded as “intermediate consumption” meaning it was deemed to be consumed at the end of each year or quarter. Eurostat says the new treatment of R&D alone will lift EU GDP by around 1.9% and the changes vary widely from country to country. Finland, for instance, has said that the capitalization of R&D spending would increase its 2011 GDP by 3.7%, while countries such as Poland and Hungary expect little change. Another boost to GDP figures will come from a similar change in the treatment of military expenditure, which will also be viewed as an investment for the future. “Military vessels are not ‘consumed’ at the end of their first year (except if sunk at war!). These types of weapon systems can be used over many years,” explains Eurostat. Military investment is expected to increase EU GDP by about 0.1%.

Euro Zone Business Growth Slows In September As Prices Keep Sliding: PMI - (Reuters) - Euro zone business activity has expanded at a slightly weaker pace than expected in September as firms cut prices for the 30th month in a row, a survey showed on Tuesday. The data will dishearten the European Central Bank, which is struggling to spur growth and revive inflation rooted way below its target. Markit's Composite Flash Purchasing Managers' Index, based on surveys of thousands of companies across the region and seen as a good indicator of growth, dipped to a nine-month low of 52.3, shy of expectations in a Reuters poll for no change from August's 52.5. The index has been above the 50 mark that separates growth from contraction since July 2013 although Markit said the latest survey pointed to third-quarter economic growth of just 0.3 percent. "The ECB will be disappointed. It's got a big uphill battle on its hands and perhaps what the survey is saying is what they have done to date is not going to be enough," "Although they will want to wait and see what the ABS purchases do in terms of stimulating the economy, the danger is the longer you wait, the more entrenched the downturn becomes."

Eurozone business growth slows in September, PMI survey finds: Eurozone business growth cooled in September for a second consecutive month, dropping to its slowest pace since December, a survey suggests. The latest Markit Composite Purchasing Managers' Index (PMI) fell to 52.3 from August's 52.5. A reading above 50 indicates growth. Modest growth in Europe's biggest economy, Germany, provided some cheer, but the eurozone was brought down by stagnation elsewhere, particularly in France, where PMI fell to 49.1. Manufacturing across the eurozone fared worse than the service sector, with the PMI reading falling to 50.5, the lowest measure since July of last year. "The survey paints a picture of ongoing malaise in the eurozone economy," said Chris Williamson, Markit's chief economist. "With growth of output and demand slowing, employment once again failed to show any meaningful increase. Such torpor meant prices continued to fall as firms fought for customers, which will inevitably heighten concerns that the region is facing deflation." He added that the European Central Bank (ECB), which is faced with the task of warding off deflation, would be "disappointed" by the PMI numbers.

Eurozone Composite Signals Slowdown; French Private Sector Output Decline 5th Month; German Manufacturing Approaches Stagnation - The demise in France continues. Markit reports French Private Sector Output Falls Further in September. Key points:

  • Flash France Composite Output Index(1) falls to 49.1 (49.5 in August), 3-month low
  • Flash France Services Activity Index(2) drops to 49.4 (50.3 in August), 3-month low
  • Flash France Manufacturing Output Index(3) rises to 47.9 (45.8 in August), 4-month high
  • Flash France Manufacturing PMI(4) climbs to 48.8 (46.9 in August), 4-month high

The latest flash PMI data indicated a fifth consecutive monthly decline in French private sector output during September.Underlying reduced activity was a drop in the level of new business received by French private sector firms during the latest survey period. Although slight, the reduction in new orders reversed a rise in August. Whereas manufacturers signalled a solid decline in new work, service providers registered a fractional fall.  Employment in the French private sector continued to fall in September, extending the current period of job shedding to 11 months. Markit reports Flash Eurozone PMI Signals Further Waning of Growth. Key points:

  • Flash Eurozone PMI Composite Output Index(1) at 52.3 (52.5 in August). 9-month low.
  • Flash Eurozone Services PMI Activity Index(2) at 52.8 (53.1 in August). 3-month low.
  • Flash Eurozone Manufacturing PMI(3) at 50.5 (50.7 in August). 14-month low.
  • Flash Eurozone Manufacturing PMI Output Index(4) at 51.0 (51.0 in August). Unchanged.

Euro area business activity grew in September at the lowest rate seen so far this year, according to the preliminary ‘flash’ PMI survey data.At 52.3, down from 52.5 in August, the Markit Eurozone PMI™ Composite Output Index fell for a second month running, dropping to its lowest since December of last year. At 52.9, the average quarterly reading for the three months to September was also the lowest so far this year.

ECB’s Draghi takes up new weapon in war on deflation - Draghi watches a technical measure of inflation expectations used by financial markets. Just one problem: it suggests the European Central Bank president is not achieving his objective – and that markets’ fears of eurozone deflation are mounting. Since late August, investors have focused on a financial gauge previously watched only by specialists – the “five-year, five-year euro inflation swap rate”. That is the average level of inflation that swaps prices imply over five years starting in five years’ time. Inflation swaps are used to protect investors against inflation. Mr Draghi had highlighted the inflation swap rate when he addressed a global summit of central bankers in Jackson Hole, Wyoming. In a big hint of a fresh ECB effort to stimulate eurozone growth, he noted that the gauge had fallen sharply. Central bankers have long used the measure. In 2002, Jean-Claude Trichet, then head of the Banque de France and later Mr Draghi’s predecessor at the ECB, commissioned research into whether inflation-linked bond and swap markets could produce a measure of inflation expectations for policy makers. But never before August’s Jackson Hole speech had a president of the ECB made such a clear link between its behaviour and policy action. “It was a surprise that Draghi mentioned it so explicitly in Jackson Hole. It was at least to some extent an excuse to serve his own purpose [to ease monetary policy],” says Frederik Ducrozet, an economist at Crédit Agricole who worked on the Banque de France research team. A few weeks later, the ECB president announced a further cut in eurozone interest rates and a private sector asset purchase programme. But after rising a little immediately after Mr Draghi’s announcement, the five-year, five-year inflation swap rate has fallen again more recently. Late last week it dipped to 1.91 per cent, the lowest since October 2010.

Why Europe is terrified of deflation - — From Putin’s hordes massing over the eastern borders of Ukraine to the army of home-grown Islamic State fanatics threatening a murderous return from the Middle East, Europe has a lot be frightened of right now. Yet there’s another nightmare haunting Europe’s economic policy makers: a monster called deflation that’s already clawing at the continent’s financial fundaments. “We are meeting here at the time when Europe is facing a great threat,” Polish Finance Minister Mateusz Szczurek warned in a recent speech. “We are on the verge of deflation,” he told a Sept. 4 conference in Brussels. “As Europeans we should never forget that it was depression and deflation … that brought to power the totalitarian regime that devastated our continent through the world war and unspeakable atrocities 75 years ago.” At first glance deflation doesn’t sound so bad. “Anybody who doubts how bad it could get should look back to the last time the US caught a serious dose of deflation. They called that the Great Depression.” Prices go down, what’s not to like? Yet the cold economic reality means that when prices fall people stop spending, hoping things will get even cheaper. In response, businesses cut production and lay off workers. That means even less demand, and prices drop further. By then, your economy’s in a vicious downward spiral.

Europe’s Austerity Zombies by Joseph E. Stiglitz - Austerity has failed. But its defenders are willing to claim victory on the basis of the weakest possible evidence: the economy is no longer collapsing, so austerity must be working! But if that is the benchmark, we could say that jumping off a cliff is the best way to get down from a mountain; after all, the descent has been stopped. But every downturn comes to an end. Success should not be measured by the fact that recovery eventually occurs, but by how quickly it takes hold and how extensive the damage caused by the slump. Viewed in these terms, austerity has been an utter and unmitigated disaster, which has become increasingly apparent as European Union economies once again face stagnation, if not a triple-dip recession, with unemployment persisting at record highs and per capita real (inflation-adjusted) GDP in many countries remaining below pre-recession levels. In even the best-performing economies, such as Germany, growth since the 2008 crisis has been so slow that, in any other circumstance, it would be rated as dismal. The most afflicted countries are in a depression. There is no other word to describe an economy like that of Spain or Greece, where nearly one in four people – and more than 50% of young people – cannot find work. To say that the medicine is working because the unemployment rate has decreased by a couple of percentage points, or because one can see a glimmer of meager growth, is akin to a medieval barber saying that a bloodletting is working, because the patient has not died yet.

The New York Times Claims that Opposing EU Austerity Leads to Anti-SemitismWilliam K. Black -- I have written a series of columns describing the New York Times’ horrific coverage of austerity and the Great Recessions and Great Depressions that it has gratuitously inflicted on the people of the eurozone.  I thought I was safe from such coverage, however, reading a NYT column entitled “Europe’s Anti-Semitism Comes Out of the Shadows.”  Silly me. It turns out that opposition to austerity is a key cause of Anti-Semitism – at least in the imagination of NYT reporters. “With Europe still shaking from a populist backlash against fiscal austerity, some Jews speak of feeling politically isolated, without an ideological home.” That sentence is odd on multiple dimensions.  First, there is the question of what is “shaking” Europe.  The NYT thinks it is opposition to austerity – not austerity – that is “shaking” Europe.  That reverses reality.  The troika’s infliction of austerity forced the Eurozone back into a gratuitous Second Great Recession and much of periphery into a gratuitous Second Great Depression.  It has now pushed Italy into a third recession and the eurozone as a whole into “stagnation” – eight years after the bubbles burst and six years after the most acute phase of the financial crisis.  Eurozone austerity is one of the great crimes against humanity.

French economy flat-lines as business activity falters (Reuters) - French business activity slowed again in September amid weakness in the key service sector, two surveys showed on Tuesday, as the euro zone's second-biggest economy posted zero growth for the second quarter in a row. In the face of weak demand, companies are proving reluctant to heed the call of President Francois Hollande's government to drive a recovery with investment as pledges to cut their payroll tax do little to revive their confidence. Data compiler Markit said its preliminary composite purchasing managers index, covering activity in the services and manufacturing sectors which make up around two-thirds of the economy, eased to 49.1 this month from 49.5 in August. That marked the weakest level of activity in three months and brought the index further below the 50 point line that separates expansions in activity from contractions. With the European Central Bank struggling to revive euro zone demand through cheap credit, there were few prospects for any immediate improvement in French growth, Markit chief economist Chris Williamson said. "The overall picture for France when you put this all together is another quarter of stagnation at best," he told Reuters, adding that government spending was the only thing that was preventing an outright contraction.

Illegal Activities Boost Spain's GDP by $11 Bln -Spain's National Statistics Institute says money generated by drug trafficking, prostitution, smuggling and illegal gambling contributed some 9 billion euros ($11.4 billion) to the national economy last year. The institute said Thursday that the country's gross domestic product is 26.2 billion euros larger — at 1.05 trillion euros — when estimates for illegal economic activities as well as money spent on investigation and research and military armament are included. Illegal activities represented 0.9 percent of total economic activity. The figures are being included in GDP calculations on the recommendation of the European Union, which is trying to harmonize estimates across member states and get a full picture of economic activity, whether legal or not. The institute based the estimates for illegal activities on government reports.

Spain Mandates Public Companies "Stop the Bleeding" No More Layoffs - In a concern over votes, regional government spending is on the rise. In addition, Spain Mandates "Stop the Bleeding" No More Layoffs in Public Companies. "Stop the Bleeding" via translation ...  Nine months after the local elections, the government has begun to show signs of needing a push to overcome the electoral polls. The unemployment remains, along with public debt, macroeconomic data that further tarnishes their results. For this reason, some sources claim that the Government has called on companies possessing some control to hire staff or fail to fire.  Although the discourse of government is to "rationalize public spending" and "reduce the number of officials," the fact is that regional governments are the largest employer in the country. Together, they have more than 2.5 million workers, and despite successive cut plans, thirteen regions have increased their spending on staff. According to sources, some companies linked to State or investments through the State Society for Industrial Holdings (Sepi), have begun to put the brakes on the dismissal of staff working at the express request of the Government.

Germany's Ukip threatens to paralyse eurozone rescue efforts - Telegraph: The stunning rise of Germany’s anti-euro party threatens to paralyse efforts to hold the eurozone together and may undermine any quantitative easing by the European Central Bank, Standard & Poor’s has warned. Alternative für Deutschland (AfD) has swept through Germany like a tornado, winning 12.6pc of the vote in Brandenburg and 10.6pc in Thuringia a week ago. The party has broken into three regional assemblies, after gaining its first platform in Strasbourg with seven euro-MPs. The rating agency said AfD’s sudden surge has become a credit headache for the whole eurozone, forcing Chancellor Angela Merkel to take a tougher line in European politics and risking an entirely new phase of the crisis. “Until recently, no openly Eurosceptic party in Germany has been able to galvanise opponents of European 'bail-outs’. But this comfortable position now appears to have come to an end,” it said. The report warned that AfD has upset the chemistry of German politics, implying even greater resistance to any loosening of EMU fiscal rules. It raises the political bar yet further for serious QE, and therefore makes the tool less usable. There has long been anger in Germany over the direction of EMU politics, with a near universal feeling that German taxpayers are being milked to prop up southern Europe, but dissidents were until now scattered. “AfD appears to enjoy a disciplined leadership, and is a well-funded party appealing to conservatives more broadly, beyond its europhobe core,” it said. “This shift in the partisan landscape could have implications for euro area policies by diminishing the German government’s room for manoeuvre. We will monitor any signs of Germany hardening its stance.”

Iceland: Bankers Convicted, Unemployment Down -- Yves here. Correlation is not causation. However, as this post makes clear, Iceland had a vastly worse bubble than the US did and prosecuting the executives of banks that went bust was an important component of its post-crisis recovery program. Iceland is on the mend and unemployment has fallen considerably. And the contrast between Iceland’s results versus those of Ireland, which also had an outsided banking system that went bust, are striking (although Ireland was crippled by a traitor, the head of its central bank, who effectively sold out his country to increase his odds of garnering a more important post in the EU. There was no reason not to let the Irish banks go bust, but the government was pressured to backstop them, which meant dumping costs on taxpayers. Why were Irish citizens victimized this way? The likely reason was blowback to Germany. Hypo Bank, which was not exactly the most solid institution, bought Irish “specialist” lender Depfa. Hypo was nationalized by Germany. Sticking Irish taxpayer with the cost of the entire unguaranteed banking sector was a way of getting them to pay for part of the cost of the Hypo rescue. And who helped push this toxic arrangement over the line? Timothy Geithner). If nothing else, the Iceland example challenges the hypothesis that busting the top bankers will undermine confidence in the system. Anyone who remembers September 2008 to March 2009 will recall that confidence in financial institutions was so deservedly low that it could hardly go lower.And please, spare us any talk of how hard it would be to prosecute bank executives. Plenty of people have set forth legal theories with supporting evidence, including Charles Ferguson in his book Predator Nation and yours truly in this blog.

A Kingdom Still Whole, but Far From United -  The debate over regional and national autonomy that was set off by the Scots has just begun, and it promises a constitutional shake-up in the United Kingdom, which remains intact but by no means fixed or unchallenged.While the outcome of the vote was met with tremendous relief from Downing Street and Buckingham Palace to Brussels and Washington, Britain was also awakening to the realization on Friday that it had agreed to grant the Scots considerable new powers to run their own affairs. Prime Minister David Cameron now faces a broader debate over the centralization of power in London, uncertainty over Britain’s place in Europe, intense budget pressures, and fissures within his own Conservative Party as he heads toward a general election campaign in the spring. Nearly 45 percent of Scots voted on Thursday to abandon the United Kingdom forever, but when the ballots from all 32 voting districts were tallied early Friday, the “no” campaign had won 55.3 percent of the vote, ensuring a more powerful Scotland within Britain.The victory of the “Better Together” camp was ensured late in the campaign when all three main political leaders from Westminster — Mr. Cameron, the Labour Party leader Ed Miliband and the Liberal Democrat Nick Clegg — jointly promised “extensive new powers” to the Scottish Parliament over taxing, spending and welfare, while also pledging to continue the budget allowance Scotland gets, a generous allowance per capita compared with what the rest of Britain receives. Alex Salmond, Scotland’s first minister, who led the independence fight, called for reconciliation on Friday and then, visibly dejected, announced that he would step down in November. But he made it clear that Scotland would hold the party leaders to their last-minute promises, which Parliament must turn into law, even if the three parties have not quite agreed on the details.

BOE Inching Towards Raising U.K. Interest Rates, Says Carney -  The Bank of England is inching closer to raising interest rates in the U.K. but future increases in borrowing costs are likely to be gradual and limited, BOE Gov. Mark Carney said Thursday, in a sign the central bank remains on course to raise rates early next year despite evidence of an economic slowdown elsewhere in Europe. In a reprise of recent remarks, Mr. Carney told actuaries and insurance professionals in a speech in Wales that the precise timing of the first rise in the BOE’s benchmark rate will depend on the U.K. economy’s performance. Officials have put particular emphasis on seeing a revival in wage growth, and investors expect the BOE to lift its main interest rate from a low of 0.5% early next year. “We have no preset course,” Mr. Carney said, adding the timing “will depend on the data.” Mr. Carney’s remarks come amid deepening concern among policy makers over the economic prospects of the neighboring eurozone, where the European Central Bank is coming under increasing pressure to revive growth with an aggressive program of asset purchases. A further slowdown in the currency union could hurt British exports and undermine the U.K.’s recovery.

Grossly Distorted Procedures: Mish Proposal to Raise GDP Calculation  - Here's the question of the day: Does GDP stand for Gross Domestic Product or Grossly Distorted Procedures? One of the reasons I ask is the latest push by countries to include prostitution and drugs sales in GDP calculations.

From the preceding link, the WSJ reports ... The U.K. could add as much as $9 billion to the value of its GDP by including prostitution and about $7.4 billion by adding illegal drugs, by one estimate, enough to boost the size of its economy by 0.7%. Not to be outdone, Italy will include smuggling as well as drugs and prostitution.As long as we are counting prostitution, why not count consensual sex? What about sex between husbands and wives? What about teen sex?  Isn't the product the same? Are we counting products and services or not?  If husbands did not get sex from their wives, wouldn't some of them pay to get sex elsewhere?

G20 Finance Ministers Reveal Impotence in the Face of Rising Stresses -- Yves here. It’s hardly uncommon for big international pow-wows like the G20 to produce grand-sounding statements that when read carefully call for unthreatening, which usually means inconsequential, next steps. But this G20 just past was revealing, in a bad way, about the state of international political economy. This post by Jesse Griffiths contends that the lack of anything beyond the recycling of dubious economic ideas at the G20 session just past is a sign that the international economic architecture is under stress. He goes over a list of sobering failures and retreats, such as weak proposals on combatting tax avoidance, a loss of will on reining in too big to fail banks, and too much fondness for the looting program know as public/private partnerships. The financial crisis showed the old system to be more and more unstable, yet the remedy was to as much as possible restore it. With that salvage operation coming at very high cost to the citizens in many countries (start with Europe’s periphery), the underlying economic fragility remains unresolved, and a new set of political pressures are now part of the mix. And the intellectual rigidity of the economics profession, which has far too much sway given that the system that blew up was shaped by their advice, sure isn’t helping.

G20 Finance Ministers Cannot Hide Failure to Tackle Major Issues -- The G20 cannot hide the continued high levels of fragility, huge unemployment, and glaring inequality that continue to characterise the global economic situation. The finance ministers’ communiqué notes that, “the global economy still faces persistent weaknesses in demand, and supply side constraints hamper growth.” Recent reports that companies are buying their own stocks at record rates, helping stock market bubbles build rather than investing for future growth, is one reason the ministers “are mindful of the potential for a build-up of excessive risk in financial markets,” though they promise no new measures to tackle this. Instead, their response has been to trumpet the promise they made in Sydney earlier in the year to “develop new measures that aim to lift our collective GDP by more than 2 per cent by 2018.” They get the seal of approval from the IMF and OECD’s “preliminary analysis, ” which, at three pages long, has so little detail it is impossible to assess its accuracy. Interestingly, according to the crystal ball gazing that inevitably characterises such attempts to assess global impacts of national policy changes, “product market reforms aimed at increasing productivity are the largest contributor to raising GDP,” which appears to largely mean changes in trade policies in emerging markets. The next biggest impact comes from public infrastructure investment commitments – highlighting the problems with the G20’s focus on private investments in infrastructure, discussed below. Brief reference is made to the problem that dominated the G20 Finance Ministers’ meeting in February: developing countries’ concern about how the gradual ending of quantitative easing and possible future rises in interest rates in the developed world will affect capital inflows and outflows, which can create huge problems for them. The rich countries that dominate the G20 cannot offer more than the promise to be “mindful of the impacts on the global economy as [monetary] policy settings are recalibrated.”

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