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

Saturday, September 6, 2014

week ending Sept 6

FRB: H.4.1 Release--Factors Affecting Reserve Balances--September 4, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed Watch: Fed Positioning to Normalize Policy -  With asset purchases likely ending in October, time is growing short for the Fed to communicate a plan for the normalization of policy. To be sure, the outline of the plan is already in place, with interest on reserves playing a primary role backed by overnight repurchase operations. The timing of any action to raise rates, however, is likely to become a more contentious issue during the fall. Hawks will be pitted against doves as the former focus on improving labor markets while the latter point to underemployment and low inflation as reason for patience. The baseline scenario is that Fed Chair Janet Yellen guides the Fed to a delayed and gradual rate hike scenario. Given that this is just about the most dovish scenario imaginable at this juncture, the balance of risks is weighted toward a more aggressive approach to normalization.The FOMC next meets Sept. 16 and 17.  The subsequent press conference provides the opportunity to communicate more clearly the technical elements of the normalization process if the Fed feels sufficiently confident in the broad outlines of their plan.  The pattern of initial unemployment claims data points toward fairly strong momentum in labor markets:  Further improvements in labor markets will be make it difficult to promise a "considerable" period of time before the FOMC decides conditions are ripe for the first rate hike. Moreover, I found Yellen's language regarding the summary of labor market conditions in her Jackson Hole speech to be intriguing: One convenient way to summarize the information contained in a large number of indicators is through the use of so-called factor models. Following this methodology, Federal Reserve Board staff developed a labor market conditions index from 19 labor market indicators, including four I just discussed. This broadly based metric supports the conclusion that the labor market has improved significantly over the past year, but it also suggests that the decline in the unemployment rate over this period somewhat overstates the improvement in overall labor market conditions. Notice that the unemployment rate only "somewhat" overstates improvement in labor market conditions. "Somewhat" is not a word that suggests much conviction. Quite the contrary. And Yellen would have good reason to have little conviction on this point. I would caution against reading too much of significance into the Fed's new labor market indicators

Mester Says Fed Needs to Clearly Tie Rate Increases to Data —Federal Reserve Bank of Cleveland Loretta Mester said Thursday in her first official speech that she wants the central bank to make clearer that the timing and pace of future interest-rate increases will be driven by how the economy is performing. But Ms. Mester, who took over the reins of the bank in June, declined to say when she wants the central bank to lift short-term rates off of what are currently near-zero-percent levels. It is important that “changes in the stance of policy will be calibrated to the economy’s actual progress and anticipated progress toward our dual-mandate goals, and to the speed with which that progress is being achieved,” Ms. Mester said. “A faster pace of progress toward our goals would argue for a faster return to normal, while a more subdued pace would argue for a slower return” on the monetary-policy front, she said. Speaking to reporters after her speech, Ms. Mester said “we are moving closer to the Fed’s goals,” and added, “as that happens the Fed is going to have to be normalizing its policy” by lifting rates back toward levels last seen some time ago. The official declined to say whether there were any specific milestones that, once crossed, would cause her to support rate increases. “I look at a panoply of economic indicators. I don’t put one indicator above another” when assessing the economy, she said. Ms. Mester’s comments came from a speech given before an audience in Pittsburgh. The official is currently a voting member of the policy-setting Federal Open Market Committee, which meets later this month to take stock of the economy and monetary policy. Most expect the Fed to continue to shrink the pace of its bond-buying program on the way to ending it altogether later in the fall.

Fed’s Powell: Fed May ‘Move Faster’ On Rate Hikes If It Sees Strong Job, GDP Growth - Federal Reserve governor Jerome Powell said the central bank could move sooner than expected to raise interest rates if it continues to see strong job gains and economic growth. “If we continue to see strengthening payroll, [gross domestic product], employment, then we’ll move faster. If it goes the other way and things weaken, it’ll be slower,” Mr. Powell said Thursday in answer to audience questions following a speech to the Money Marketeers of New York University. “There’s nothing I can know until we see what the economy is going to do.” Mr. Powell spoke as debate is heating up within the Fed over when to start lifting rates from near zero, where they have been since late 2008. Many investors expect the central bank to move in the summer of next year, a perception some top Fed officials have encouraged. The Labor Department on Friday releases its August employment report. He said he was not too worried the Fed’s policies aimed at spurring growth—such as very low interest rates—will fuel excessive inflation. “People have been guessing too high on inflation for years. I just don’t see the likelihood of that,” he said. “For one, it’s not showing up in wage data. And I’m looking at a wide range of indicators, beyond just wages.” Mr. Powell said earlier, in his prepared remarks, that an improved U.S. dollar Libor rate and alternative interest rates should be developed as new benchmarks for the financial markets. “Regulators need to work with market participants to encourage them to develop and adopt alternative reference rates,”

Low Long Term Rates to Stay? - As I begin teaching finance in the new semester, I am highlighting the key puzzle of our times, discussed by Jim in his last post, with this graph: The key point of this graph is that the US debt-to-GDP ratio has risen, starting upward in 2008Q3; and yet nominal ten year yields have continued to decline, despite the warnings of Paul Ryan, and others, contra the crowding out hypothesis. Some of this decline can attributed to a decline in expected inflation, but not by any means most. Real interest rates calculated using yields minus expected inflation have also declined. Aside from the financial turmoil surround Lehman’s collapse, TIPS yields confirm the decline. Why have government yields declined so much, despite the reversal in the debt-GDP ratio engineered by the Bush Administration (remember EGTRRA and JGTRRA?). About ten years ago, Jeff Frankel and I started investigating this puzzle [1]. We regressed US yields on actual and expected US debt-GDP ratios (annual data), and found that up to 2002, the canonical regression worked well. But incorporating data up to 2006, the correlation broke down — and yields were over-predicted. This finding was one manifestation of the “conundrum”. Only by incorporating foreign purchases of US Treasurys could we restore the correlation (and fit the data).

U.S. Needs Lower Rates, More Inflation: Fed’s Kocherlakota -  The Federal Reserve has consistently fallen short of its inflation and employment goals, suggesting U.S. borrowing costs remain too high and the country still isn’t making full use of its productive resources, a top central bank official said late Thursday. Minneapolis Fed President Narayana Kocherlakota, speaking at an event in Helena, Mont., reinforced views that have made him arguably the most dovish member of the central bank’s Federal Open Market Committee. He indicated the Fed should be doing more rather than less to support the economy, saying the country’s falling unemployment rate, now at 6.2%, remains “unacceptably high.” Pushing back against the notion that too much regulation is hurting economic progress, Mr. Kocherlakota said low inflation was a sign that the economy wasn’t operating close to its full potential, and that consumer demand remains too weak after the deepest recession in generations. A weak labor market reflects those trends, he said. “There are many people in this country who want to work more hours, and our society is deprived of their production,” Mr. Kocherlakota said. “Right now, this nation needs more inflation,” he added, predicting U.S. consumer prices will continue to undershoot the Fed’s 2% target until 2018. “Interest rates are not low enough.” Asked why the Fed was pulling back on its latest bond-purchase program even though inflation remains below the central bank’s 2% target, Mr. Kocherlakota was stumped. “That’s a really challenging question — and I don’t really have a good answer for it,” he said. “Given where we are with inflation it’s hard to know why we’re removing stimulus from the economy at the pace we are.”

Fed’s Rosengren: ‘Significant’ Slack Calls for ‘Patient’ Monetary Policy - –Federal Reserve Bank of Boston President Eric Rosengren said Friday the central bank has seen enough progress on its employment and inflation goals to move toward a more data-driven policy outlook, although he added he sees no urgency to raise rates soon. “Significant slack remains, and thus monetary policy needs to be patient in removing stimulus,” Mr. Rosengren said in prepared remarks before a Boston conference for bankers from Vermont and New Hampshire. He added while fielding post-speech questions that Fed policy makers are steadily discussing how to most carefully unwind the balance sheet amassed during the recession recovery, but said actions will be based on economic factors, not the calendar. Minutes from recent Fed meetings reflect this focus, and future meetings should as well, he said. He also said the Fed is on track to end a bond-purchase program in October as planned. This stimulus program has involved purchasing billions in Treasury and mortgage bonds in a bid to push down long-term borrowing rates and spur on the economy. Mr. Rosengren has long been a steadfast supporter of aggressive Fed action to support the economy. He continues to believe underlying weakness in the job market and inflation, which is falling short of the Fed’s 2% target, means there is no urgency to lift short-term interest rates off their current level near zero. That said, Mr. Rosengren said the Fed needs to change the way it describes the monetary policy outlook, and back away from language that suggests the Fed is very confident interest rates will stay very low for a long time to come.

WSJ’s Hilsenrath: Jobs Report Leaves Fed in No Hurry To Alter Views on Slack or Rates - Friday’s mixed jobs report relieves pressure on the Federal Reserve to significantly alter its policy stance at its meeting later this month. When Fed officials said in their July policy statement that they saw “significant underutilization of labor resources” – a signal of continued low interest rates – they were looking at an unemployment rate in June of 6.1%. The rate rose a notch to 6.2% in July and returned in August to 6.1%, the Labor Department said Friday. The fact that unemployment hasn’t fallen since the July meeting —and that job growth slowed in August— suggests Fed officials won’t make big changes to their policy statement and the signal they’re sending about rates when they meet Sept. 16 and 17. Fed officials are beginning a debate that could run a few months about whether to change that assessment of labor market slack and, more broadly, about the guidance they’re giving the public about the outlook for interest rates. The job market over the past year has improved more quickly than they expected, a message Fed Chairwoman Janet Yellen underscored in a speech in Jackson Hole last month. That raised the prospect of early interest rate increases, but the job market appears to have lost a little momentum in the past few months.

What the World Needs Now Is NICE Monetary Policy, John Taylor Says —Stanford University’s John Taylor has a new talking point in his lifelong campaign to get central banks to use a rules-based approach in setting monetary policy. His approach, he said, will lead to a world that’s nice. Actually, not just nice, but nice squared. Mr. Taylor has long been the most outspoken advocate of adjusting interest rates according to a mathematical formula (the most famous such formula was proposed by Mr. Taylor himself and is known as the Taylor Rule). Such rules, he argues, lead to policies that are more predictable and thus lead to better macroeconomic outcomes, namely low inflation and consistent growth. His new claim: Predictability also leads to an international monetary policy system that’s “near an internationally cooperative equilibrium” (NICE, get it?). Foreign central banks can then predict how their counterparts will behave and respond appropriately, Mr. Taylor said today at an economics conference here sponsored by the Center for Financial Stability. “International spillover effects have again become a major issue,” Mr. Taylor said. Countries including India and Brazil have complained that Federal Reserve policies have been destabilizing to their economies and have called for greater coordination among the world’s central banks.

Why inflation remains best way to avoid stagnation - Given the severity of the crisis and the inadequacy of the policy response, it should be no surprise that recovery has been slow and anaemic: that is what economic history always suggested. Yet some economists are growing disheartened. The talk is of “secular stagnation” – a phrase which could mean two things, neither of them good. One fear has been well-aired: that future growth possibilities will be limited by an ageing population or perhaps even technological stagnation.The second meaning of secular stagnation is altogether stranger: it is that regardless of their potential for growth, modern economies may suffer from a persistent tendency to slip below that potential, sliding into stubborn recessions. The west’s lost decade of economic growth may be a taste of things to come. Normally, when an economy slips into recession, the standard response is to cut interest rates. This encourages us to spend, rather than save, giving the economy an immediate boost. Things become more difficult if nominal interest rates are already low. Central banks have to employ radical tactics of uncertain effectiveness, such as quantitative easing. Governments could and should borrow and spend to support the economy.  There is a simple alternative, albeit one that carries risks. Central bank targets for inflation should be raised to 4 per cent. A credible higher inflation target would provide immediate stimulus (who wants to squirrel away money that is eroding at 4 per cent a year?) and would give central banks more leeway to cut real rates in future. If equilibrium real interest rates are zero, that might not matter when central banks can produce real rates of minus 4 per cent.

Three meanings of "printing money causes inflation" -   Nick Rowe - "Printing money causes inflation" can mean three different things. What I will say here should be obvious to economists, but I'm not sure if it is obvious to non-economists. And it makes me wonder if sometimes things get lost in translation. Maybe, just maybe, some people are strongly opposed to central banks printing very large amounts of money because they misunderstand "printing money causes inflation". Those of us who teach Intro Economics know we have to spend some time carefully explaining the "other things equal" clause, and why it matters. Because the students won't get it unless we explain it. We tend to take it for granted that the silent "other things equal" clause is understood, but it might not be understood by all. Here are three meanings of "Printing money causes inflation": 1. If the central bank prints money, so the stock of money grows at above 0%, that will cause the inflation rate to be above 0%. (And if it prints a lot of money, so the stock of money grows a lot above 0%, that will cause the inflation rate to be a lot above 0%.) Relative to 0%. 2. If the central bank prints money faster than it did in the past, that will cause the inflation rate to be higher than it was in the past. Relative to the past. 3. If the central bank prints money faster than it would otherwise have done, that will cause the inflation rate to be higher than it would otherwise have been. Relative to the counterfactual conditional. When I say "printing money causes inflation" I always mean it in that third sense.

Hard money is not a mistake - Steve Randy Waldman - Paul Krugman is wondering hard about why fear of inflation so haunts the wealthy and well-off. Like many people on the Keynes-o-monetarist side of the economic punditry, he is puzzled. After all, aren’t “rentiers” — wealthy debt holders — often also equity holders? Why doesn’t their interest in the equity appreciation that might come with a booming economy override the losses they might experience from their debt positions? Surely a genuinely rising tide would lift all boats?  As Krugman points out, there is nothing very new in fear of inflation by the rich. The rich almost always and almost everywhere are in favor of “hard money”. When William Jennings Bryan worried, in 1896, about “crucify[ing] mankind on a cross of gold”, he was not channeling the concerns of the wealthy, who quickly mobilized more cash (as a fraction of GDP) to destroy his candidacy for President than has been mobilized in any campaign before or since. (Read Sam Pizzigati.)  Krugman tentatively concludes that “it…looks like a form of false consciousness on the part of elite.” I wish that were so, but it isn’t. Let’s talk through the issue both in very general and in very specific terms.

Class Interests and Monetary Policy, Take II - Paul Krugman -- Steve Randy Waldman has a long, thoughtful take on my speculations about the hard-money preferences of the wealthy. Basically I confessed myself somewhat confused: I get why creditors should hate inflation, but aggressive monetary responses to the Lesser Depression have been good for asset prices, and hence for the wealthy. Why, then, the vociferous protests? Waldman raises a historical point I neglected: if your view is that it’s all about the 1970s (by the way, “septaphobia” is Kevin Drum’s coinage, not mine), you have to ask not just about defense of the gold standard in the 30s but about the truly massive rallying of the propertied classes against William Jennings Bryan.  As I understand part of his argument, it is that while monetary expansion might be expected on average to be a good thing in a weak economy, that’s a risky proposition for wealth holders, and they hate risk. I might put it a bit differently: someone like me could argue that loose money, despite its direct adverse effects on creditors, will produce large gains indirectly; but those indirect effects are less certain than the direct effects, and assessing them depends on your model of the economy. So wealthy creditors may go for the direct stuff: they want low inflation and higher interest rates, and never mind the consequences.But I’m not entirely prepared to give up on the false consciousness notion, in part because I keep being struck by the enormous appetite of the one percent for really bad economic analysis. Think about CNBC economics (aka Santellinomics, aka the finance macro canon). This stuff, with its prediction of soaring inflation and interest rates, has been utterly wrong for more than five years. Yet it remains very popular among wealthy investors. I think this may in part reflect the problem that always comes with wealth and power: people tell you what you want to hear. CNBC economics stays on the air, despite its awesomely bad track record, because it caters to the prejudices of the target audience.

Money in a Time of Zero - Paul Krugman - My old teacher Charles Kindleberger used to say that anyone who spends too much time thinking about international money goes mad; he meant that people start obsessing about the international role of the dollar or whatever, and start to think that it’s the most important thing in the world, when it’s actually fairly trivial. What he didn’t say, but seems obvious these days, is that a similar thing happens to people who spend too much time thinking about money in general — specifically, on trying to decode money’s true meaning and find the real, true measure of the money supply; they end up starting to believe that everything in economics hinges on getting that measure right, when in fact almost nothing does. One particular variant of this madness — which I found myself thinking about after reading these two pieces by Simon Wren-Lewis and Frances Coppola (neither of whom has, I think, gone mad in this way, but allude to people who have) — is the sort of boomerang position that since we can’t clearly define money, and because there isn’t a fixed money multiplier, monetary policy doesn’t matter. That’s as wrong as the simplistic quantity-theory view that “printing money” leads directly to inflation, do not pass Go, do not collect $200. It’s true that we’re living in a time of monetary impotence, where central banks trying to reflate economies are not having much success gaining traction. But it’s important to note that contractionary monetary policy is working just fine; all the central banks that mistakenly decided that it was time to raise rates succeeded in doing just that, before realizing their error and reversing course.

The Deflation Caucus, by Paul Krugman  - On Thursday, the European Central Bank announced a series of new steps it was taking in an effort to boost Europe’s economy.  But its epiphany may have come too late. It’s far from clear that the measures now on the table will be strong enough to reverse the downward spiral.  And there but for the grace of Bernanke go we. Things are far from O.K., but we seem ... to have steered clear of the kind of trap facing Europe. Why? One answer is that the Federal Reserve started doing the right thing years ago, buying trillions of dollars’ worth of bonds in order to avoid the situation its European counterpart now faces. You can argue, and I would, that the Fed should have done even more. But Fed officials have faced fierce attacks all the way. Pundits, politicians and plutocrats have accused them, over and over again, of “debasing” the dollar, and warned that soaring inflation is just around the corner. The predicted surge in inflation has never arrived, but despite being wrong year after year, hardly any of the critics have admitted being wrong, or even changed their tune. And the question I’ve been trying to answer is why. What is it that makes a powerful faction in our body politic — call it the deflation caucus — demand tight money even in a depressed, low-inflation economy?One thing is clear: Like so much else these days, monetary policy has become very much a partisan issue. It’s not just that talk of dollar debasement comes pretty much exclusively from the right of the political spectrum; inflation paranoia has, to a remarkable extent, become a matter of conservative political correctness, so that even economists who should know better have joined in the chorus.

Fed ignores likelihood of weaker growth - The US Federal Reserve may have a problem. When it finally does move to increase short-term interest rates, it may prove too late to counter a bout of higher inflation. Why? Because it is becoming increasingly clear there is a limited ceiling on the long-term growth potential in the US economy. US GDP growth is likely to average 2 per cent a year in future, rather than the 3 per cent of the past 50 years. There are two main reasons for this, the first being labour market dynamics. The US labour force over the past five years has risen just 0.2 per cent a year, in spite of a population increase of 10.1m. This in turn has caused a sharp decline in the labour force participation rate. Conventional wisdom has it that millions of Americans have given up looking for a job because they believe none are available. The numbers in the monthly employment report flatly contradict this. In July 2009, 796,000 people said this was the case, while in July 2014, it had fallen to 741,000. When I’m 65 The real problem is demographics. The traditional retirement age in the US is 65, when most people tend to drop out of the labour force. The number of people turning 65 between 2010 and 2012 rose 33 per cent, or by almost 900,000. This is a headwind the US labour force will face for the next 15 years. It will be exacerbated by lower levels of new labour market entrants due to a relatively low birth rate in the late 1990s and 2000s. Even assuming some cyclical bounce in labour force participation in future, it is hard to see how the number of US workers could grow more than 0.5 per cent a year in the decade ahead. The second reason the US faces a more constrained long-term growth outlook has to do with productivity. Due to too little investment spending on equipment for workers to use, the total average output per worker has drifted down in recent years, making the total annual growth in the capital stock lower today than it was in the 2000s. That, in turn, is far below the average of the 1990s.

Employment Report and Second Estimate for Q2 GDP: The Dog Days of The Recovery - (all graphed) The employment report from the BLS release this morning sobered up many who had anticipated a healthy jobs report: payroll employment increased a lean 142k. The forecasters were looking at employment to increase by about 220k. In addition, employment over the past two months was revised down a total of 28k. This is a disappointment given that monthly job growth has averaged 226,000 jobs in the first seven months of the year. Aside from the downturn in hiring activity the labor market picture remained largely unchanged.  It is neither robust nor stagnant. Although the unemployment rate ticked down slightly, from 6.2 to 6.1, the labor force fell by 64k. Average hours and average hourly earnings were basically flat. Much of the commentary from the Fed has revolved around the slack labor market and the latest report may affect the stance of monetary policy going forward.  Last week the second estimate for Q2 GDP released by the BEA on August 28 revised up GDP growth from 4.0% to 4.2%. Business fixed investment largely led the way, contributing roughly 1 percentage point to overall growth. Personal Income was released on August 29. It showed an increase of .2 % in July. The recovery continues but at a very slow pace compared to past recoveries. We finish again with the bar chart showing the growth rate of GDP during the current recovery compared with the growth rate during past recoveries.  The stagnation question is still open.

State and Local Governments: Contributions to GDP and Employment - Two and half years ago I argued that "most of the drag from state and local governments would be over by mid-year 2012. Just eliminating the drag from state and local governments would help GDP and employment growth". This has been an important change.  Here is a graph showing the contribution to percent change in GDP for residential investment and state and local governments since 2005. The blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. RI (blue) added to GDP growth for a few years, before subtracting in Q4 2013 and Q1 2014. RI bounced back in Q2, and since RI is still very low, I expect RI to make a positive contribution to GDP for some time.  State and local governments had been a drag on GDP for several years (red). Although not as large a negative as the worst of the housing bust (and much smaller spillover effects), this decline was relentless and unprecedented. Now the contribution from state and local governments has been positive for 5 of the last 6 quarters.The second graph shows total state and government payroll employment since January 2007. State and local governments lost jobs for four straight years, but the decline slowed sharply in 2012.  In July 2014, state and local governments added 11,000 jobs. State and local government employment is now up 151,000 from the bottom, but still 593,000 below the peak. It is pretty clear that state and local employment is now increasing. Note: Federal government layoffs have slowed (unchanged in July), but Federal employment is still down 22,000 for the year. I expect state and local governments to make a positive contribution going forward.

Forget about government, just how fast is the private economy growing? - In his morning note, economic analyst Ed Yardeni offers a bit of the old optimism (referencing the above chart): We aren’t convinced that US economic growth is going to remain subpar. We have noted often in the past that both real GDP excluding government as well as real nonfarm business output are growing close to their old normal rates around 3%.  Still, as Yardeni notes, private GDP isn’t growing quite the way it used to (illustrated by me with the green lines). And when combined with less overall government spending, GDP in aggregate is growing a lot slower, as this chart shows: Of course, we don’t want to crank up government spending just to inflate GDP numbers. As much as possible, officially measured economic growth should reflect the ability of the economy to produce, in Tyler Cowen’s great phrase, “actual consumer-relevant value.” For instance: In 1985, real GDP grew by 4.2% with government spending contributing 1.38 percentage points to that total. By contrast, in 1997 GDP growth was a bit stronger, 4.5%, but government contributed a loss less to that total, just 0.35 percentage points. The latter year was far more impressive in terms of producing ACRV.

Construction, gasoline prices, manufacturing, state and local contribution to gdp, restaurant performance index, saudi output, sun spots: Headlines sound a lot better than the charts look. Absolute levels and growth rates continue to fall short of prior cycles: Construction Spending Highlights Construction outlays saw a broad-based gain in July. Construction spending rebounded 1.8 percent after a 0.9 percent dip in June. While all broad categories advanced, July’s increase was led by the public sector-up 3.0 percent, following a 1.8 percent decrease in June. Private nonresidential spending rebounded 2.1 percent in July after slipping 0.8 percent the month before. Private residential outlays gained 0.7 percent, following a 0.4 percent dip in June. On a year-ago basis, total outlays were up 8.2 percent in July, compared to 7.0 percent the month before. Overall, the latest construction data add to third quarter momentum. Third quarter GDP estimates will likely be nudged up. There is a lot of recent volatility in construction data but the residential gain is encouraging.This helps consumers some and also puts downward pressure on ‘inflation’: Manufacturing continues to do reasonably well, chugging along about the way it always does until the cycle ends:Don’t be misled by the talk of state and local govt contributing to GDP. The spending side is only half the story- they also tax. So you need to look at state and local govt deficits to get an idea of their net contribution: This is the spending side: Full size image It’s a bit tricky as you don’t want to double count federal $ spent by the states: Sure enough, tax receipts which tend to be highly cyclical, going up when the economy does better, seem to have stalled, and state and local deficits have gone up. So is that an indicator of growth?

Fed's Beige Book: Economic Activity Expanded, No "distinct shift in the overall pace of growth" -- Fed's Beige Book "Prepared at the Federal Reserve Bank of Philadelphia and based on information collected on or before August 22, 2014."  Reports from the twelve Federal Reserve Districts indicated that economic activity has expanded since the previous Beige Book report; however, none of the Districts pointed to a distinct shift in the overall pace of growth. The New York, Cleveland, Chicago, Minneapolis, Dallas, and San Francisco Districts characterized their growth rates as moderate; Philadelphia, Atlanta, St. Louis, and Kansas City reported modest growth. Boston reported that business activity appeared to be improving, and Richmond reported further strengthening. Philadelphia, Atlanta, Chicago, Kansas City, and Dallas explicitly reported that contacts in their Districts generally remained optimistic about future growth; most of the other Districts cited various examples of ongoing optimism from specific sectors.  And on real estate:  Barely half of the Districts reported stable or growing residential real estate activity related to the construction of new homes and sales of existing houses. New construction and existing home sales generally grew modestly; market conditions tended to vary by metropolitan area and by neighborhood within metropolitan areas. A little over half of the Districts reported some degree of growth in nonresidential real estate activity, with increased construction, leasing, or both tied to steady or falling vacancy rates and to rent increases. None of the Districts reported a decline in overall activity, although New York and St. Louis described activity as mixed. In addition to traditional office space, certain Districts reported increased demand for specific projects: Boston noted demand for construction in the hospitality sector, Philadelphia cited industrial and warehouse projects, Richmond noted distribution centers, and St. Louis reported new retail and mixed-use projects as well as new industrial facility construction. 

The Fed’s Beige Book: We Read It So You Don’t Have To The outlook for the U.S. economy brightened over the summer, with tourism and back-to-school shopping driving consumer spending. But the Federal Reserve’s Beige Book also suggested some companies continue to have trouble finding skilled workers. Several regions also reported rising food prices, which is putting pressure on restaurants to pass along those costs to customers. Here are some of the anecdotes offered from the Fed’s 12 regional districts:

CBO, Fed Growth Forecasts Unattainable, Northwestern’s Gordon Says - The Congressional Budget Office’s projection of modest annual U.S. output growth of 2.2% in the coming decade is unattainable, as is the Federal Reserve’s expectation of growth near 3% in the next two years, according to a new paper by Northwestern University economics professor Robert Gordon. Slow growth in the productivity of the U.S. labor force and a slowdown in the growth of the workforce make it impossible to meet these meager projections without overheating the economy, Mr. Gordon says in a new working paper. Instead, in his baseline forecast, the economy will grow at a 1.6% rate in the decade ahead. By 2024, annual inflation-adjusted economic output will be $1.9 trillion less than the $20.5 trillion estimate of the CBO, government debt will be 87% of GDP rather than the 78% the CBO projects, and the Fed will be forced to push interest rates up sooner than expected. “The optimistic demand-side forecasts will not happen, at least not in 2016 and 2017,” Mr. Gordon argues in his paper. “The Fed will tighten, and higher interest rates will bring the universally expected 2014-16 growth rate of three percent or above back from the stratosphere to the reality that the economy is not capable in the long run of achieving the CBO’s projection of 2.2 percent per year.” A tighter Fed, he argued further in an email exchange, will be bad news for stock markets. The CBO hasn’t published a response to Mr. Gordon’s critique. The Fed doesn’t comment on monetary-policy critiques or its projections.

Potentially interesting - The Economist - THE American economy, we wrote in July, almost certainly has less room to grow than it used to. Estimates of the economy's potential output, or how much it can produce at a given time without serious inflationary pressure building, have been revised down substantially by the Congressional Budget Office and other economists studying the issue. A recent NBER working paper by John Fernald, a productivity expert at the Federal Reserve Bank of San Francisco, reckoned that America's output gap had shrunk to about 2% of GDP, suggesting that most of the shortfall in output relative to the pre-recession trend represents a loss of structural capacity.  Brand new work by economist Robert Gordon, of Northwestern University, is more pessimistic still. Mr Gordon has made headlines in recent years for his dour assessments of America's future growth prospects. As we noted in early 2013 he is sceptical of the potential of new technological discoveries to engineer a productivity rebound sufficient to offset the growth-crimping effects of rising inequality, growing public debt, and demographic change. Mr Gordon's latest research casts a doubting eye at most near-term economic growth forecasts, which have the American economy growing between 2% and 3% in coming years. Instead, he reckons America will be lucky to have potential GDP growth around 1.6% per year through the end of the decade, and that anything much faster is well nigh impossible given recent trends in labour markets.

A productive decade - The Economist - IF AMERICA'S potential rate of economic growth is slowing, it is almost certainly not slowing as much as the most dour of pessimists, like Robert Gordon, say it is. Yesterday, I took a look at Mr Gordon's most recent paper, which reckons that underlying growth in potential output is perhaps no more than 1.6%—which stands in stark contrast to the stance of other forecasters who generally project growth in potential of 2% or more and growth in actual GDP over the next few years of 3% or more.In his analysis, Mr Gordon uses a unique measure of productivity growth: output per hour across the whole of the economy and not just in the private sector. To calculate that he uses an unpublished data series collected by the Bureau of Labour Statistics, for aggregate hours worked across the entire economy. I hadn't been able to get my hands on it when I published yesterday's post, but the BLS very kindly sent the series along late yesterday. I have since done a bit more number crunching. The thrust of the argument in yesterday's post stands: recent productivity growth isn't that bad, and is certainly better than Mr Gordon's estimates, until one gets to 2014. And the weak productivity performance through the first half of this year is due to a sharp uptick in total hours worked. (Replicating the scatterplot from yesterday's post with the new data once again yields a pleasingly tight fit with a sharply negative slope.) But there are a few more things worth mentioning about the productivity numbers which, with new data in hand, can be calculated back to the early 1950s. Here's a chart:

Fiscal pessimism - At Pieria, I discuss the inadequacy of monetary policy and the implications of the Fiscal Theory of the Price Level for the conduct of government policy. There needs to be a greater role for fiscal policy, and an end to the fear of debt and inflation that is preventing governments from taking the actions required to restore growth. But this means reversing the prevailing direction of economic thought for the last 30 years:"In the present situation - what Sims calls “fiscal pessimism” - FTPL predicts disinflation. Fiscal pessimism means that people look with horror at rising government debt burdens and future fiscal commitments such as those arising from an ageing population, and think “how on earth are we going to afford this”? They expect much higher taxes in the future and/or serious cuts to spending programmes. If this is also combined with very low interest rates, so they make little or nothing on their growing holdings of government debt, they feel poorer even though their nominal wealth is actually increasing. They may therefore cut discretionary spending and increase precautionary saving in compensation, causing a disinflationary trend...."It is all very well observing that hope seems to have departed and people appear to have resigned themselves to a depressing, and depressed, future. But why are people so pessimistic? What – or who - has convinced people that government debt levels are unsustainable and there is significant pain to come? In a word, economists."

Objections to Fiscal Policy are Groundless—It Works - One of the more controversial policies instituted in an attempt to stimulate the economy out of the Great Recession was the $816.3 billion fiscal stimulus package enacted just after Obama took office.  The stimulus package, known formally as the American Recovery and Reinvestment Act, had three main components: tax benefits ($290.7 billion), contracts, grants, and loans ($261.2 billion), and entitlements ($264.4). Roughly, the first category is tax cuts, the second is new government spending, and the third is enhancements to programs such as unemployment insurance and Medicaid/Medicare, what economists call “transfer payments.”  Why is the first category, tax cuts, controversial as a stimulus policy? The problem is that tax cuts might be saved rather than spent and thus fail to stimulate aggregate demand. This is a bigger worry when the tax cuts go to the wealthy rather than the working class since the wealthy are more likely to put any reduction in taxes into saving. An additional worry is that if the tax cuts are permanent, they may lead to reductions in important social programs down the road. However, the fact that some households use the money to rebuild savings or pay off debt rather than purchase new goods and services may not be so worrisome after all. After a “balance sheet recession” such as we had, where housing equity and financial assets are wiped out while high debts remain, households need to deleverage and recover their losses before their consumption habits will return to normal. Objections to the second category, government expenditures to stimulate the economy, are based upon a “crowding out” argument and the belief that government cannot spend money as efficiently as the private sector. Crowding out occurs when government spending reduces or “crowds out” private spending. The idea is that government borrowing to pay for new spending drives up interest rates, and as interest rates increase consumption, investment, and net exports fall and offset the increase in government spending. The result is a net stimulus of near zero.  

CBO’s Projection of Federal Interest Payments - CBO: Federal debt held by the public will reach about $12.8 trillion by the end of this fiscal year, an amount that equals 74 percent of the nation’s total output (gross domestic product, or GDP) this year. If current laws generally remained unchanged—the assumption that underlies CBO’s baseline projections—CBO projects that such debt would climb to $20.6 trillion, or 77 percent of GDP, in 2024. Interest payments on that debt represent a large and rapidly growing expense of the federal government. CBO’s baseline shows net interest payments more than tripling under current law, climbing from $231 billion in 2014, or 1.3 percent of GDP, to $799 billion in 2024, or 3.0 percent of GDP—the highest ratio since 1996. The rising debt accounts for some of that increase, but much of it stems from CBO’s expectation that—largely owing to the improving economy—the average interest rate paid on that debt will more than double over the next 10 years, from 1.8 percent in 2014 to 3.9 percent in 2024. (Although interest rates are projected to rise sharply, CBO’s current projections of those rates are lower than its projections earlier in the year, reflecting the agency’s reassessment of the factors influencing real interest rates.)

Bank Dollars & Sovereign Spending --  J.D. Alt - Why do so many people—including the authors of most economics textbooks—believe the U.S. banking system creates the U.S. dollars we earn and spend and pay our taxes with? It’s because the U.S. banking system does, in fact, “issue” the great majority of the dollars we use—by making loans to businesses and citizens which are not backed by “real” dollars the banks have on deposit. What everyone overlooks, however (for reasons not entirely clear) is the fact that these new loan dollars are “made real” by the U.S. government’s solemn promise to convert them at any time, on demand, into actual, “real”, sovereign U.S. dollars. The U.S. government is able to make this promise because, by law, it can issue the necessary actual dollars by fiat (by simply “declaring” the dollars into existence.) A lot of people (again for reasons not entirely clear) don’t like to hear that last part. But it’s simply a fact of life: the cash dollar bills you get from an ATM machine are not printed up (created) by the banks—they are printed (or created electronically as needed) ONLY by the U.S. sovereign government. This seamless transmutation of bank dollars into U.S. sovereign dollars has the unfortunate side-effect of hiding the real distinction between the two kinds of money—a distinction (I think) I’m now starting to get a handle on:  Bank dollars are created specifically to facilitate the production and exchange of private goods and services. Sovereign dollars, in contrast, are created to facilitate the production of collective goods and services—and, furthermore, one of the PRIMARY collective goods the sovereign dollars create is the private banking system itself (which, as we have just noted, is made possible and viable by the promise of the sovereign-issued dollars.)

Want better, smaller government? Hire another million federal bureaucrats. - We all know that the federal government has gotten a lot bigger in the past half century. In 2013, Washington spent five times what it spent in 1960, adjusted for inflation. Annual federal spending doubled between 1960 and 1975 — and had doubled again by 2000. And dozens of bureaucracies created after 1960, from the Environmental Protection Agency (1970) to the Department of Homeland Security (2002), dot the federal landscape.
And yet, the number of federal civilian workers (excluding postal workers) has barely budged. When George W. Bush became president, the executive branch employed about 1.8 million civilians, about the same as when John F. Kennedy won the White House. There were more federal bureaucrats (about 2.2 million) when Ronald Reagan won reelection in 1984 than when Barack Obama won reelection in 2012 (about 2 million).  How is this possible, when Washington is doing so much more?  This is the dirty secret behind all those debates over the size of government. Yes, government is big and is dangerously debt-financed, but it is also administered by outsiders — and that is what guarantees that our big government produces bad government, too.

Elizabeth II (And Me) - Paul Krugman -- Well, they messed up the livestream of my dialogue with Elizabeth Warren, but here it is as video on demand.

Regulators Need to Actively Manage Financial Cycles - Brookings - The disastrous financial crisis of 2007-2009 underlined the serious damage our economy suffers from booms and busts in the financial system. The harm from busts is obvious, with credit crunches inhibiting business investment and consumer purchases while falling asset values destroy confidence and lead to further cutbacks. As a result, serious financial busts produce severe recessions. The excesses of boom times do harm as well, mostly by setting up the inevitable bust, but also by encouraging activities that are a poor use of resources, simply because money is so cheap and readily available. Think about the vast waste during the "Dot Com" bubble for what can happen when silly money floods into a sector of the economy. The housing bubble that helped lead to the recent financial crisis was less silly, but ultimately more harmful. There is more that the Federal Reserve and financial regulators can do to moderate the financial cycle. It will never be possible to eliminate the cycles, which stem from multiple causes, including the basic human tendencies towards "group think" and extremes of optimism and pessimism. However, authorities do have the ability to change incentives to discourage excesses during boom times and encourage sound economic activity when pessimism reigns.

Financial reforms will make the next crisis even messier - There is a time-honoured way of protecting taxpayers from picking up the bill for the failure of a systemically important financial institution. It involves central banks and finance ministries pressing a better capitalised bank to absorb the ailing business through an arranged merger. Yet it is becoming clear that this tool of crisis management can no longer be put to use, raising questions about the authorities’ ability to stabilise the financial system in a crisis. Nothing better illustrates the point than Bank of America’s $16.7bn payment last month to resolve allegations that it misled investors in its mortgage-backed securities. This was a curious form of justice. The allegations arose not from BofA’s activities but from those of Merrill Lynch and Countrywide, which it acquired in 2008. Of course, if the rules of the game had been set by the Federal Reserve and the US Treasury these pre-merger transgressions might not have been punished, which would have raised a different set of questions about justice, or the lack of it. But because the Department of Justice, the Securities and Exchange Commission and six state attorneys-general had a splendid opportunity to put all four feet in this potentially lucrative trough, the rules conformed to a different logic. The message for the financial community – as with the punishment of JPMorgan Chase for the misbehaviour of Washington Mutual before it was absorbed by the bigger bank in 2008 – is that due diligence on a crisis merger would now take too long to be practicable. Equally important is the problem of banks that are not only too big to fail, but too big to rescue because their liabilities are so big that the government lacks the fiscal capacity to stand behind them. The devastation wrought by oversized banks in Ireland and Iceland offers a stark lesson. Big bank mergers in the advanced countries are dead. Yet since the collapse of Lehman Brothers in 2008, the disadvantages of conventional bankruptcy have been all too apparent. In the US, government bailouts have been outlawed by the Dodd-Frank legislation. So new sources of finance have to be found to recapitalise systemically important banks that are in trouble.

Another Private Equity Scam: Clawback Language Does Not Work As AdvertisedYves Smith - As the SEC, reporters, and analysts dig into the operations of private equity firms, it is becoming obvious that one of the reasons that these financiers have cornered the best legal talent in America is for the express purpose of better fleecing their investors. A prime example comes up in the use of clawbacks in private equity agreements. For those new to private equity, the clawback provisions are meant to assure that the private equity fund managers do not receive fees meant to reward good performance when the performance was no good.  The prototypical fee structure for a private equity fund is an annual management fee of 2% of assets under management plus 20% of the profits. The majority of funds stipulate that that 20% upside fee (called “carried interest”) kicks in only after a certain rate of return (the “hurdle rate”) has been surpassed. The typical hurdle rate is 8%.  While some fund agreements provide that no upside fees are paid until the end of the fund’s life, most funds in the US allow the managers (who are members/owners of an entity that serves as general partner) to pay themselves a share of the profits in excess of any hurdle rate on each deal based on the sales price of that portfolio company. Since the most lucrative deals are generally sold early in the fund’s life, and the dogs linger, this raises the possibility that the so-called success fees that the managers pay themselves on those early winners are offset partly or in total by the underperformance of companies sold later.  The famed “clawback” provisions in the limited partnership agreements that govern these deals are meant to remedy that by requiring that the fund managers, who are general partners, settle up with the limited partners at the end of the fund’s life and return any overpayment of profits ultimately washed out by losses.

Bond market conundrum redux -- As the U.S. economy returns to healthier growth, many of us expected long-term interest rates to return to more normal historical levels. But the general trend has been down since the end of the Great Recession. The 10-year rate did jump back up in the spring of 2013. But during most of this year it has been falling again. And it’s not just that people are getting used to the idea that inflation is always going to be low. The drop in the yield on a 10-year Treasury inflation-protected security (TIPS), whose coupon and par value go up with the headline CPI, has also been impressive.But here’s an interesting detail. While the return on a 10-year Treasury has been falling for most of this year, the 5-year yield has held fairly steady. Sometimes we summarize the relation between those two yields using a forward rate. If today you simultaneously bought $1000 worth of a pure-discount 10-year bond and sold $1000 worth of the 5-year discount bond, it would be a complete wash in terms of the cash flow for the next 5 years. Five years from now you’d have to pay back the 5-year bond, and 10 years from now you’d get the proceeds from the 10 year bond. In effect you’ve locked in the terms today on a 5-year bond that you’re not going to buy until 5 years from now.     What could produce such a pattern? It’s hard to attribute it to changing perceptions about the Fed, which should surely matter more for the next 5 years than they would for 5 to 10 years from now. More confidence that the U.S. government will be able to keep debt from growing relative to GDP over the next decade may have played a role.Another possibility is that more people are starting to take seriously the suggestion that we’re on a path now of secular stagnation with weak economic growth and poor investment opportunities over the next decade. But that’s hard to reconcile with the stock market, which climbed impressively this year.

Another Bond Market Conundrum? - Is the U.S. economy in the midst of another bond  market "conundrum"? The last time we had one was in 2005 when former Fed chairman Alan Greenspan became perplexed over long-term interest rates failing to rise with the tightening of monetary policy. Some observers see something similar happening today. They note that the Fed has been tightening monetary policy with its tapering of QE3 and yet the benchmark 10-year treasury interest rate has been falling since the beginning of 2014. This conundrum gets even more interesting when one looks at the five-year treasury interest rate. It has hardly budged since the beginning of the year even as the 10-year interest rate has steadily declined. Jim Hamilton calls these developments the 'bond market condrum redux.'  So what could be driving these developments? Robin Harding and Michael Mackenzie suggest it is the worsening economic conditions in the Eurozone and its implications for ECB monetary policy. Here is Harding-Mackenzie: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.[...] Five-year bond yields closely reflect the path of interest rates that markets expect from central banks. Ten-year yields normally move in tandem. But so far in 2014, the US ten-year has fallen from 3 per cent to 2.4 per cent – even as news on the economy has got stronger – while the US five-year yield has barely changed.That is unprecedented: no other global shock going back to the 1960s has ever caused US five and 10-year yields to diverge like this. In recent months, the US 10-year yield has been more correlated with falling five-year yields in Europe.>

The long game: How hackers spent months pulling bank data from JPMorgan The electronic attack on JPMorgan Chase’s network, now under investigation by federal law enforcement, apparently spanned months, according to a report by Bloomberg News. Starting in June, hackers used multiple custom-crafted bits of malware to infiltrate the bank’s infrastructure and slowly shipped bits of bank transaction data back out through computers in several countries before it was sent onward to Russia.  The attack, which went on for more than two months before being detected by JPMorgan in a security scan, bears the fingerprints of similar long-game attacks against corporate targets by cybercriminals from Eastern Europe, some of whom have developed capabilities more advanced than state-sponsored hackers. While the details obtained by Bloomberg are sparse, the information provided by their sources is consistent with attacks on a number of European banks earlier this year.  While the FBI and National Security Agency are reportedly investigating whether the attack came from Russian state-sponsored hackers—or at least state-sanctioned ones—in retaliation for sanctions against Russia, making that connection will be difficult at best. It seems more likely, based on recent security reports, that the attacks were criminal in nature—but relied on tools and techniques that may have a mixed provenance, using methods honed in attacks on other banks and on government targets for financial gain.

U.S. judge throws out aluminum price-fixing suit against banks (Reuters) - A U.S. judge on Friday dismissed antitrust litigation accusing Wall Street banks and commodity merchants including Goldman Sachs Group Inc and Glencore Plc of conspiring to drive up aluminum prices by reducing supply. In an 85-page decision, U.S. District Judge Katherine Forrest in Manhattan said there was no indication the defendants intended to manipulate prices, though it was clear that their actions affected the aluminum marketplace. "As cast in the complaints, this was an unintended consequence of rational profit maximizing behavior rather than the product of conspiratorial design," she wrote. JPMorgan Chase & Co was also named in the lawsuit. In the highest profile legal action to rock the base metals market in almost two decades, more than two dozen small aluminum fabricators alleged the defendants had colluded since May 2009 by hoarding metal in warehouses, driving up prices of industrial products from soft drink cans to airplanes. According to the plaintiffs, this caused delays of up to 16 months to fill orders, leading to higher storage costs at warehouses, many in the Detroit area where Goldman Sachs' warehousing unit is based. The dismissal comes just over a year after the first price-fixing case was filed. But complaints from companies such as Coca-Cola Co and MillerCoors LLC, which use aluminum to make cans, about long wait times to take delivery of base metals and inflated physical metal prices have plagued the London Metal Exchange, which oversees the warehouses, for years.

Single-Point-of-Entry: No Bank Left Behind -- Last December the FDIC put out for comment a proposal for a Single-Point-of-Entry (SPOE) Strategy to implement its Orderly Liquidation Authority (OLA) under Title II of Dodd-Frank. Single-Point-of-Entry has gotten a lot of policy traction. The Treasury Secretary supports it and there’s huge buy-in from Wall Street.  And it’s an approach that is likely to ensure financial stability in the event that a systemically important financial institution gets into trouble.  There’s just one problem with it.  SPOE means “No Bank Left Behind”.   Here’s the idea behind SPOE. SIFIs have complex corporate structures with lots of subs under a holding company and all sorts of liabilities at both holding company and subsidiary level. The SPOE strategy is based on splitting off the subs from the holding company in a single fell swoop. The HoldCo gets placed into FDIC OLA receivership and all of the subsidiaries are transferred to an FDIC-run bridge holding company. The only liabilities that would remain with the old HoldCo would be the long-bonds (senior and subordinated).  FDIC’s bridge holding company (HoldCo2) would get financing from the FDIC, which would fund the loan through a line of credit with Treasury. So HoldCo2 loses money, the FDIC will be on the hook.   So three key things to see here. (1) the equity and the long-bonds of the HoldCo would get wiped out or get pennies on the dollar in the FDIC receivership. And (2) all of the liabilities of the subsidiaries would be paid in full because (3) the FDIC (and ultimately Treasury) are taking on all of the credit risk of the bank’s operating subsidiaries.  The fundamental operation of SPOE is that all creditors of the banks get bailed out.  In other words, not only are deposits and the payment systems protected, but all of the derivative counterparties, all of the commercial paper creditors, all of the repo counterparties, and all of the securities lending counterparties get bailed out. 

Tony West’s Departure Ends Era of Pathetic Bank Settlements - With the imminent departure of Tony West from the Justice Department, we can assuredly close the book on this latest round of financial fraud settlements. West was a co-chair of the vaunted task force known as the RMBS working group: of the original members, only U.S. Attorney for Colorado John Walsh and New York Attorney General Eric Schneiderman remain. And West was the point person inside the Justice Department for the JPMorgan, Citigroup and Bank of America cases (“Top Nemesis of Big Banks,” screams the New York Times for some reason).  There were surely more banks selling RMBS than those three – the Federal Housing Finance Agency sued 17 of them – but without West’s, er, leadership, I wouldn’t expect any further action. Especially given the other prosecutors heading for the exits, including Antonia Apps, the lead lawyer in the SAC Capital case, and Jeffrey Knox, the I would assume lonely head of the criminal-fraud division. Both hooked on with white-collar legal defense practices. With the end upon us, we can therefore assess this working group and their efforts. We know the raw numbers you see in headlines – $36.65 billion spread among the three settlements. We also know that these numbers are wrong. The JPMorgan settlement includes the $4 billion agreement with FHFA, even though it was settled weeks before DoJ announced. Yves quite properly coined the phrase “bullshit to cash ratio” to describe how the consumer relief portions of the settlement – where banks can use other people’s money, get credit for routine operations like donating homes and even money-making enterprises like making loans, and satisfy their obligations through HAMP loans that allows them to collect incentive payments – look nothing like any kind of penalty you would see in any other format. No bank robber is told that he can serve out his sentence by opening a lemonade stand.

Unofficial Problem Bank list declines to 439 Institutions - This is an unofficial list of Problem Banks compiled only from public sources.Here is the unofficial problem bank list for Aug 29, 2014.  As expected, the FDIC released q2 industry results and provided an update on its latest enforcement action activity. The update led to six removals from the Unofficial Problem Bank List pushing the list total down to 439 institutions with assets of $139.97 billion. A year ago, the list held 707 institutions with assets of $250.6 billion. The FDIC told there are 354 institutions with assets of $110 billion on the Official Problem Bank List. Since their last update, the official list declined by 13.9 percent or 57 institutions, which the largest percentage decline over the past 13 quarters since the official list peaked at 888 institutions in the first quarter of 2011. The unofficial list fell by an identical 57 institutions since the last update from the FDIC on May 28, 2014.  Note: The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public. (CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.) As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.

Hidden Bomb in Single-Family Rental Securitizations: Trigger Risk --  Yves Smith - Yield-hungry investors have been snapping up single family rental securitizations, with recent deals heavily oversubscribed. Buyers have been comforted by raging agency reviews that give the top tranches AAA grades, based on loss cushions that these scorekeepers treat as generous (a dissenting view comes from Standard & Poors, which stated that the “operational infancy” of these rental securitizations made them ineligible for a triple A rating). However, investors appear to be overlooking a risk component that can deliver large-scale losses. We’ll call it trigger risk.  Recall that private equity firms hoovered up houses out of foreclosure in hard-hit Sunbelt states, buying the properties with cash. The fact that they did not use leverage at the time of purchase, however, did not mean that these financiers were going to let an opportunity to use other people’s money go by. These securitizations have a mortgage. Singular. For instance, see this section of the transaction summary from Kroll’s New Issue Report on a Blackstone Group Invitation Homes offering, Invitation Homes 2014-SFR2: IH 2014-SFR2 is backed by a non-recourse first-lien mortgage loan originated by German American Capital Corporation (the lender). The loan will have a principal balance of $719.9 million as of the cut-off date and will close simultaneously with the securitization. The loan is secured by the borrower’s fee simple interest in 3,749 single-family residential properties.

Black Knight releases Mortgage Monitor for July - Black Knight Financial Services (BKFS) released their Mortgage Monitor report for July today. According to BKFS, 5.64% of mortgages were delinquent in July, down from 5.70% in June. BKFS reports that 1.85% of mortgages were in the foreclosure process, down from 2.82% in July 2013.This gives a total of 7.49% delinquent or in foreclosure. It breaks down as:
• 1,713,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,136,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 935,000 loans in foreclosure process.
For a total of ​​3,785,000 loans delinquent or in foreclosure in June. This is down from 4,599,000 in July 2013. This graph from BKFS shows percent of loans delinquent and in the foreclosure process over time. Delinquencies and foreclosures are moving down - and might be back to normal levels in a couple of years.  The second graph from BKFS shows the percent of new problem loans. From Black Knight: July’s data also showed continued improvement in new problem loans, which, at 0.6% of active loans, are now firmly back to 2005-2006 levels. Likewise, “roll rates” (the number of loans that shift from current into progressively more delinquent statuses) have been improving over the long term across all categories. Black Knight has observed roll rates increasing on loans shifting from 60 to 90 days delinquent and from 90 days to foreclosure over the last four months. It should be noted, however, that nearly 75 percent of 90-day defaults and almost 80 percent of foreclosure starts are from loans originated in 2008 and earlier.

HELOC Holders May Be In for Payment Shock When Loans Reset - Payment shock among holders of home equity lines of credit (HELOCs) is a growing concern as 2.5 million HELOCs are scheduled to reset over the next three years, according to the latest Mortgage Monitor Report from Black Knight Financial Services. In fact, the average HELOC holder faces a monthly payment increase of $250 sometime in the next three years as he or she reaches the end-of-draw period and has to begin making principal and interest payments on his or her HELOC loan, according to Black Knight Financial Services' data. Furthermore, the analysts at Black Knight Financial Services point out, the average HELOC borrower is currently using a little less than 60 percent of his or her available credit, leaving open the possibility of borrowing more before his or her HELOC resets. "Further draws on these lines—for those that have not been locked—could result in 'payment shock' after they are reset that is even higher than the national average of $250 per month," said Kostya Gradushy, manager of research and analytics at Black Knight Financial Services. Looking ahead, things don't get much better, according to Black Knight Financial Services. Beyond the next three years, Black Knight Financial Services predicts still-high payment increases as the next phase of HELOCs resets. Borrowers with HELOCs scheduled to reset in 2019 are using an average of about 40 percent of their available credit and will incur payment increases of about $200 per month based on their current rates.

2.5 million borrowers face imminent payment shock -- At least 2.5 million borrowers will face an average increase of $250 per month on their monthly mortgage payment due to the imminent reset in home equity lines of credit over the next three years, according to Black Knight Financial Services’ Mortgage Monitor Report. However, depending upon borrower behavior between now and the time of the reset, payment increases could change, Kostya Gradushy, Black Knight’s manager of research and analytics, said. Borrowers whose home equity line of credit will reset over the next three years are utilizing just under 60% of their available credit. If these borrowers utilize more of their credit, they could face even more payment shock as the monthly increase would rise above the $250. And the news is not much better for the borrowers whose payments are not likely to reset until 2019. These borrowers are exhibiting even lower utilization ratios — about 40% of their available credit. Once reset, they will likely face an average monthly increase of $200.

MBA: Mortgage Applications Increase in Latest MBA Weekly Survey -  From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 29, 2014. ... The Refinance Index increased 1 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. ... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.25 percent, the lowest level since June 2013, from 4.28 percent, with points decreasing to 0.24 from 0.25 (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 73% 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 12% from a year ago.

Mortgage Rates Hover At Lowest Levels of the Year - Mortgage rates hovered at their lowest levels of the year for the third straight week this week, according to a survey published Thursday by Freddie Mac. The average 30-year fixed-rate mortgage stood at 4.1% for the week ending Wednesday, according to Freddie’s survey. To get that rate, borrowers had to pay fees equal to around 0.5% of the loan amount. Mortgage rates have drifted down in recent weeks as bond yields on 10-year Treasury notes have fallen. Investors have bought government debt amid rising concerns over geopolitical instability. Few expected rates would be this low at the beginning of the year. Indeed, one of the biggest surprises of 2013 came in the spring, when mortgage rates jumped suddenly as anxious investors sold off Treasury securities amid signs that the Federal Reserve was thinking about slowing down its bond-buying program. By contrast, one of the bigger surprises of 2014 may be that mortgage rates might end the year lower than they began, at around 4.5%, even as the Federal Reserve has gradually pared back its purchases of mortgage-backed securities. One reason the taper has had less of an impact than some feared: big declines in refinancing last year reduced the overall issuance of mortgage bonds. This meant that the Fed was still accounting for a high share of mortgage-bond purchases, even as it reduced the overall volume of those purchases. Mortgage refinancing has largely subsided because even though mortgage rates are at their lowest levels of the year, they’re still higher than they were for all of 2012 and the first half of 2013, when the 30-year fixed-rate mortgage fell to as low as 3.3%.

Mortgage Rates: A Long Way to Fall for a Significant Increase in Refinance Activity - Bill Mcbride - I've seen some recent discussion suggesting that mortgage refinance activity might pickup significantly if mortgage rates fall just a little more. I think this is incorrect. First, from Freddie Mac last week: Mortgage Rates Remain Low Heading Into Holiday Weekend Freddie Mac ... released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates largely unchanged amid mixed news on the housing front heading into the Labor Day weekend....30-year fixed-rate mortgage (FRM) averaged 4.10 percent with an average 0.5 point for the week ending August 28, 2014, unchanged from last week. A year ago at this time, the 30-year FRM averaged 4.51 percent.  15-year FRM this week averaged 3.25 percent with an average 0.6 point, up from last week when it averaged 3.23 percent. A year ago at this time, the 15-year FRM averaged 3.54 percent.

McMansions not only survive, they’re getting bigger - The Census Bureau recently released some data on the characteristics of newly built housing. There are some fun trends in there — about the increasing popularity of air-conditioning over time, for example — but perhaps the most compelling series has to do with the size of houses.  During the bubble years, American houses got bigger and bigger (especially relative to their counterparts in other rich countries). But guess what? Builders increased the size of new homes built after the bubble burst, too. In 1973, the median newly-completed single-family house was 1,525 square feet; forty years later, in 2013, it was 2,384 square feet. That is a record high. That’s just the median, of course. But the share of newly built homes that are at least 4,000 square feet is now at 10 percent, equaling the series’s peak in 2008, after having dipped slightly immediately after the crash. The share of homes that have at least four bedrooms is also at a historical high, at 44 percent. That’s almost twice the share in 1973.  Some of the growth in the size of houses in recent years may reflect the changing composition of home buyers. If the kinds of people able to afford newly built single-family homes are increasingly higher-income, we would expect that the kinds of houses being built might be increasingly higher-end, and thus larger. The size of the typical unit in a multifamily building – which has had a much stronger recovery than the single-family home market, perhaps partly because so many Americans now can’t afford to buy or rent a standalone home — is below its peak in 2007.

New Report: Homeowner Tax Programs Massively Favor the Rich -- It would be tough to find anyone in Congress who doesn’t believe our tax code is too complicated and needs to be reformed. For Republicans, that often means lowering tax rates. For Democrats, it means closing tax loopholes and making the system more progressive. But if policymakers really want to clean up the tax code, they need to look at tax breaks that are embedded in our system. And the best place to start is with some of the most regressive ones: taxes breaks for homeownership. A new report released Thursday by the Corporation for Enterprise Development, finds that homeowners collected $200 billion in 2013 from an assortment of different tax deductions. But the vast majority of those benefits accrued to the wealthy. For instance, a household in the top 0.1 percent receives an average of $17,276 in annual benefits from homeowner tax programs. For a household in the bottom 20 percent, it’s just $3. In other words, the rich receive 5,756 times as much in benefits from homeownership tax programs as the poor. That’s not that surprising, since many more upper-income households purchase homes than lower-income ones do. There’s another way to capture the imbalance. Just look at the amount of money that the federal government is not collecting, because of these tax breaks. In 2013, the housing deductions were worth almost $70 billion for the top 20 percent of earners—and just $700 million for the bottom 20 percent of earners. Yes, that’s a factor of 100.

CoreLogic: House Prices up 7.4% Year-over-year in July --  The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Reports Home Prices Rose by 7.4 Percent Year Over Year in July Home prices nationwide, including distressed sales, increased 7.4 percent in July 2014 compared to July 2013. This change represents 29 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased 1.2 percent in July 2014 compared to June 2014...Excluding distressed sales, home prices nationally increased 6.8 percent in July 2014 compared to July 2013 and 1.1 percent month over month compared to June 2014. ...“While home prices have clearly moderated nationwide since the spring, the geographic drivers of price increases are shifting,” said Sam Khater, deputy chief economist for CoreLogic. “Entering this year, price increases were led by western and southern states, but over the last few months northeastern and midwestern states are migrating to the forefront of home price rankings.”  This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 1.2 in July, and is up 7.4% over the last year. This index is not seasonally adjusted, so a solid month-to-month gain was expected for July. The second graph is from CoreLogic. The year-over-year comparison has been positive for twenty nine consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit). The YoY increase was slightly higher in July than in June (revised), however I expect the year-over-year increases to continue to slow.

Lawler: Latest Release Shows Sizable Revisions in S&P/Case-Shiller “National” Home Price Index -  From housing economist Tom Lawler: This week’s S&P/Case-Shiller Home Price Report for June 2014 contained two data “surprises.” The first was that the SPCS “National” HPI, previously released only quarterly, will now be published on a monthly basis. The second, and much more dramatic, surprise was that the historical data for the SPCS “National” HPI was revised substantially. Here is a table showing growth rates in the previously-published National HPI and the revised National HPI over selected periods, using not seasonally adjusted data. While the revised HPI shows very similar growth rates to the previous HPI from 1990 to 2000, it shows (1) slower growth rates during the 2000-2006 period; (2) a substantially smaller peak-to-trough decline from mid-2006 to late 2011/early 2012; and (3) a somewhat slower growth rate from early 2012 to early 2014. The catalyst for this revision appears to a change in the sources of sales transactions data to sources used by CoreLogic, which “bought” the SPCS HPIs last year. Here is an excerpt from a July 2014 “methodology” report. “The sources for sale transaction data were changed to sources used by CoreLogic, Inc. beginning with the March 2014 update of the S&P/Case-Shiller indices. Since the repeat sale pair samples collected from CoreLogic sources are not identical to samples collected from prior sources1, divisors are used to prevent any breaks in the index series. The divisors applied to index points estimated for March 2014 and all months afterward are listed below. The divisors are calculated by calculating the index value for February, 2014 with the old data source and the new data source separately. If we assume that the change in the data source increases the index level for February 2014 by 5%. Then the divisor is set to 1.05 and the index based on the new data source is divided by 1.05 for March 2014 and all subsequent months. This prevents a jump in the index and preserves the month-to-month percentage changes.”

The BLS digs into the cost of housing - We understand if you missed it given all the focus given to another report published on Friday by the US Bureau of Labor Statistics, but we want to call your attention to a new BLS study on housing costs. The most expensive metro area isn’t New York or San Francisco but Washington, DC — after comprehensively counting the costs of utilities and other services besides the raw amount of money spent on rent or a mortgage. Meanwhile, it costs more to live in Detroit than in Miami!  The BLS report also addresses the question of whether it is cheaper to rent or own housing. There is no single right answer since a lot depends on the terms of your mortgage, where you want to live, and how much flexibility you want. Even with that hefty caveat, the chart below is pretty interesting: As you can see, the raw cost of shelter was lower than the average monthly rent during a period when mortgage rates were low and house prices were still significantly below their previous peaks. The average renter, however, saved a significant amount of money on everything else, including furnishings, maintenance, insurance, and utilities. This intuitively makes sense, since buildings have significant economies of scale relative to single-family homes that ought to lower the cost of upkeep per person.

Construction Spending increased 1.8% in July - Earlier the Census Bureau reported that overall construction spending increased in July: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during July 2014 was estimated at a seasonally adjusted annual rate of $981.3 billion, 1.8 percent above the revised June estimate of $963.7 billion. The July figure is 8.2 percent above the July 2013 estimate of $906.6 billion. Both private and public spending increased in July:   Spending on private construction was at a seasonally adjusted annual rate of $701.7 billion, 1.4 percent above the revised June estimate of $692.2 billion. Residential construction was at a seasonally adjusted annual rate of $358.1 billion in July, 0.7 percent above the revised June estimate of $355.6 billion. Nonresidential construction was at a seasonally adjusted annual rate of $343.6 billion in July, 2.1 percent above the revised June estimate of $336.6 billion. ... In July, the estimated seasonally adjusted annual rate of public construction spending was $279.6 billion, 3.0 percent above the revised June estimate of $271.5 billion.

Where are Americans’ debts? - During the peak of the bubble, the average Nevadan carried about two-and-a-half times as much mortgage and consumer debt as the average Texan, according to the Federal Reserve Bank of New York: What’s striking to us, from a new research note published by the Federal Reserve Bank of Cleveland, is that the amount of variation within metro areas was often as big as, if not greater than, the variation between them.Consider Columbus, Ohio, which is about average in terms of household indebtedness. The chart below looks at debt-to-income ratios by census tract for the city and its suburbs. As you can see, some parts of the city carry very little debt, while other areas — both in the suburban periphery and in the core — borrow a lot relative to what they earn: Even parts of Las Vegas, which gorged itself on widely available credit during the go-go years, were relatively free of debt during the peak of the bubble: These variations affect who ended up cutting their debt loads the most. Debt reduction since 2007 has been heavily concentrated in extremely indebted neighborhoods, also according to the Cleveland Fed. Many of these ultra-borrowers did not reduce their debt burdens solely out of their income. According to a study from the New York Fed published at the end of last year, foreclosures (red) reduced mortgage balances more than paydowns (green):

Real Median Household Income Rose 0.20% in July - Summary: The Sentier Research monthly median household income data series is now available for July. The nominal median household income was up $154 month-over-month and $1,945 year-over-year. Adjusted for inflation, it was up $105 MoM and only $905 YoY. The real numbers equate to a 0.20% MoM increase and a 1.70% YoY increase. July marks the third month of real increases following two months of declines. In real dollar terms, the median annual income is 6.4% lower (about $3,700) than its interim high in January 2008  The first chart below is an overlay of the nominal values and real monthly values chained in July 2014 dollars. The red line illustrates the history of nominal median household, and the blue line shows the real (inflation-adjusted value). I've added callouts to show specific nominal and real monthly values for January 2000 start date and the peak and post-peak troughs.In the latest press release, Sentier Research spokesman Gordon Green summarizes the recent data:The lack of significant change in real median annual household income between June and July 2014 underscores the uneven trend in the series since the low-point reached in August 2011. Our time series charts clearly illustrate that although the economic recovery officially began in June 2009, the recovery in household income did not begin to emerge until after August 2011. While many of the month-to-month changes in median income since the low-point in August 2011 have not been statistically significant, an overall upward trend is still clearly evident.

This is why it feels like the recession never ended - Take a look at this chart. It shows everything you need to know about why Americans are still so down on the economy.  From the start of the recession in 2007 to today, the average price of the things you buy - clothes, food, housing - has risen by 15 percent. This, in itself, isn't a problem at all. The problem is that wages haven't kept pace with that increase. In fact, for all but the top wage earners, real (inflation-adjusted) earnings are actually down over the same period. Let's put it another way. Say that you're a median wage earner, right in the 50th percentile. And let's say that in 2007 you could buy a week's worth of groceries for $100. Fast forward to today: those exact same groceries cost $115, but you only have $112 dollars in your pocket.These figures are from a recent Economic Policy Institute report on our mediocre wage growth (for a great summary of the whole thing, check out Jonnelle Marte's take over at her new blog, Get There). And they provide important context for a new Rutgers University poll released today, showing increasing pessimism in the aftermath of the Great Recession. Most strikingly, seven in ten Americans now say the recession has done permanent damage to the American economy. In 2009, at the start of the recovery, only 49 percent of Americans said the same.

The "Real" Retail Story: The Consumer Economy Remains At A Recessionary Level -- Earlier this month, Retail Sales missed expectations for the 3rd month in a row, essentially flat on the month. As Doug Short rhetorically asks 'how much insight into the US economy does the nominal retail sales report offer?' With the release of the CPI data, we can judge this in 'real' terms (adjusted for inflation and against the backdrop of our growing population)... and the picture is anything but healthy. Via Advisor Perspectives, How much insight into the US economy does the nominal retail sales report offer? The next chart gives us a perspective on the extent to which this indicator is skewed by inflation and population growth. The nominal sales number shows a cumulative growth of 168.0% since the beginning of this series. Adjust for population growth and the cumulative number drops to 114.7%. And when we adjust for both population growth and inflation, retail sales are up only 24.8% over the past two-plus decades. With this adjustment, we're now at a level we first reached in September 2004.

If Consumers Are So Confident, Then Why Aren't They Spending? -- The sheep have been told their confidence is at a 7 year high by the propaganda peddlers working at the behest of the oligarchy. The sheep are also told that 10 million jobs have been added since the GOTUS played his first round back in 2009. The sheep have been told the record highs in the stock market prove that all is well. If the .1% are doing fantastic, some of the wealth must be trickling down. The sheep are told that QE and ZIRP were really to save Main Street and not the bonuses of Wall Street (at record highs by the way). The sheep are told to fear ISIS, Iran, Assad, Putin, and China. The sheep are told U.S. energy independence is just around the corner and to ignore the fact that gas prices have tripled since in the last ten years. The sheep are told drones will keep them safe and the DHS militarizing the police is just for their safety and security. The sheep are told guns are dangerous in their hands, but not in the hands of the government. The sheep passively eat their iGadgets and barely bleat while being led to the slaughter house.

Fed Survey of Consumer Finances Shows Americans Are Well-Informed on Their Economic Well-Being -- The Fed’s Survey of Consumer Finances came out yesterday, and it offered a pretty good answer for why the country won’t just snap out of it and admit that Recovery Summer is here. The survey covers 2010 to 2013 and it’s stocked with interesting data, but the main point is the continued breaking away of top income earners from the rest of their counterparts. McClatchy summarizes:Americans’ average income of grew by 4 percent from 2010 to 2013, a misleading number since it was pulled up by the richest Americans who grew wealthier during the period, according to a Federal Reserve report released Thursday. In its Survey of Consumer Finances, conducted every three years, the Fed found that while average income rose by 4 percent, the midpoint income for American families actually fell 5 percent “consistent with increasing income concentration during this period.”  Translation: The growing wealth of the richest Americans pulled up the average. It’s the same phenomenon as if you and Microsoft founder Bill Gates pooled your salaries, you too would be a billionaire. Matthew C. Klein supplies the charts, and they’re quite striking. Median income has dropped 12.4 percent since 2004, a dramatic decline in fortunes:

Median Incomes Fell for All But Richest in 2010-13, Fed Says --Only the richest Americans enjoyed gains in income from the economic recovery during 2010-2013, as median earnings fell for all others, a report from the Federal Reserve showed. Median income adjusted for inflation rose 2 percent to $223,200 for the wealthiest 10 percent of households from 2010 to 2013, the Fed said yesterday from Washington in its Survey of Consumer Finances, taken every three years. The bottom 60 percent saw the biggest declines. Household wealth and incomes have become increasingly stratified during the recovery, thanks in part to gains in the stock and housing markets that have been boosted by the Fed’s unprecedented stimulus. The labor market has been slower to progress, with wages remaining stagnant for many workers. The Fed survey suggests much of the divide is driven by the changing nature of work in America. “What we have seen in recent years is the polarization of the labor market” as job growth is skewed toward the highest and lowest skill levels, hollowing out the middle,"

Fed: Don’t Blame the 1%, Blame the Top 3% -- The Federal Reserve’s triennial Survey of Consumer Finances, released Thursday, contains data on the wealth and income of Americans from all walks of life. It found deepening wealth and income inequality in the post-recession years, with significant pay gains limited to the richest families. The report comes amid a broad debate over the uneven gains of the economic recovery and deepening inequality in the U.S., from Occupy Wall Street to Thomas Piketty. The top 1% have come in for criticism as part of that debate.  But the Fed report said the new data “show that the top few percent of families have experienced rising shares of income and wealth,” not just the top 1% or top 0.5%.  In other words, look at the top 3%, who have seen their share of household wealth rise from 44.8% in 1989 to 54.4% in 2013. The bottom 90%, meanwhile, have gone from holding 33.2% of the wealth in 1989 to just 24.7% last year.

It Only Takes $10,400 to be Richer Than Most Millennials -- Are you a millennial with a net worth of more than $10,400? Congratulations, you’re wealthier than half of your generation. The figure comes from the Federal Reserve’s Survey of Consumer Finances released today, which tracked the net worth and income of American families in 2013. The report breaks down finances by age, income, home ownership and a range of other factors. Why so low?

  • First, obviously, incomes. Incomes for most Americans, adjusted for inflation, have been falling in recent years. If you earn more than $35,300, you’re bringing in more than half of millennials, according to the Fed’s survey.  In 2010, those under age 35 had median earnings of $37,600. That’s a drop of $2,300 during the past 3 years.
  • • Second, the rise of student debt, which now burdens 41.4% of those under 35. In 2007, only 33.6% of people under 35 had loans and in 1998 it was 23.3%. The balances of those who borrow have been growing as well, to $17,300 in this survey, up from $13,000 in 2007 and $10,000 in 1998.
  • • Third, many millennials have avoided stocks and missed out on surging equity prices over the past five years. Today 38.6% hold stocks, either directly or indirectly. That’s down slightly from 2010 (even though prices have climbed relentlessly in that period) when 39.8% held stocks. In 2001, about half of people under age 35 owned some stocks.
  • • Fourth, few people in this age group own their homes (and many of those who bought homes earlier than 2010 did not do well on the investment). Only 35.6% of those under age 35 own homes, compared with 40.6% before the recession.

It only takes $10,400 to be wealthier than half of millennials (the median) but it takes $75,500 to be richer than millennials on average.

Gallup Survey: 38% Think Economy Getting Better, 56% Say Worse - In spite of a manufacturing ISM in positive territory for 15 consecutive months, a Gallup Survey shows Economic Confidence at -16, Economic Outlook at -18Gallup's Economic Confidence Index is the average of two components: how Americans view current economic conditions and their perception of whether the economy is getting better or worse. In August, 20% said the economy is "excellent" or "good," while 34% said it is poor. This resulted in a current conditions index score of -14, the same current conditions score found for five consecutive months. Economic outlook has varied a bit more over the past six months, ranging from -14 to -19, although still a much narrower range than in previous years. In August, 38% of Americans said the economy is getting better, while 56% said the economy is getting worse. This resulted in an economic outlook score of -18, similar to the -19 in July.

Dear Future American Generations, You Are Screwed - Faith that the future will be better than the present is slipping, as despite President Obama's demands that Americans not be "cynics," a new report shows there is a major lack of confidence that the next generation will have it better than the last one. As WSJ reports, most strikingly, only 16% of respondents agree that job and career opportunities will be better for the next generation than for their own – a drop from the 56% who were optimistic about this measure in 1999 and down even from the 40% who agreed in November 2009, well into the recession

Restaurant Performance Index declined in July - From the National Restaurant Association: Restaurant Performance Index Dipped in July Due in part to a dampened outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) registered a modest decline in July. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.0 in July, down from a level of 101.3 in June and the second consecutive monthly decline. Despite the recent downticks, the RPI remained above 100 for the 17th consecutive month, which signifies expansion in the index of key industry indicators. “Restaurant operators were less bullish about the direction of the overall economy, and rising wholesale food costs are once again starting to pose a significant challenge.” The index decreased to 101.0 in July, down from 101.3 in June. (above 100 indicates expansion).

Early: August Vehicle Sales may be over 17 Million SAAR, Highest Sales Rate since July 2006  -- From John Sousanis at WardsAuto Counting Cars: Summer Sales Heat Up With a few exceptions, automakers are reporting higher than expected August sales, pointing to the possibility that the forecasted July 17-million SAAR, which failed to materialize, just may have been a month late coming. WardsAuto is currently projecting sales in August at 17.06 million seasonally adjusted annual rate (SAAR).  This would be the highest sales rate since July 2006.A few excerpts:  Toyota beat WardsAuto expections by nearly 9%, delivering 246,100 LVs in August. The automaker's daily sales rose 10.2% from same-month year-ago ...[Ford] daily deliveries up just 3.9% over same-month year-ago, on total LV sales of 217,040...General Motors poored a little cold water on August sales reports, recording a 2.4% DSR gain on year-ago, with LV deliveries of 272,243 units - 3% below WardsAuto's expectations for the company ...Nissan is reporting August sales of almost 135,000 LVs, a 15.7% rise in DSR compared with same-month 2013. Volkswagen brand daily sales fell 9.6%, but the result was better than expected, with VW moving 35,181 units during the month. Fiat-Chrysler reports over 197,000 LV deliveries in August, a massive 24.2% leap over year-ago sales

U.S. Light Vehicle Sales increase to 17.45 million annual rate in August, Highest since Jan 2006 --  Based on an WardsAuto estimate, light vehicle sales were at a 17.45 million SAAR in August. That is up 10% from August 2013, and up 6.4% from the 16.4 million annual sales rate last month. This was well above the consensus forecast of 16.5 million SAAR (seasonally adjusted annual rate).This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for August (red, light vehicle sales of 17.45 million SAAR from WardsAuto). From WardsAuto: August's 17.45 million-unit seasonally adjusted annual rate of sales is the industry's highest monthly SAAR since January 2006. The 103-month high was set as rising automaker incentives intersected with a strengthening economy and growing consumer confidence to boost deliveries well past 1.5 million units, for an industry wide 9.3% rise in daily sales. The second graph shows light vehicle sales since the BEA started keeping data in 1967. Note: dashed line is current estimated sales rate.

Trade Deficit decreased in July to $40.5 Billion -- Earlier the Department of Commerce reported: [T]otal July exports of $198.0 billion and imports of $238.6 billion resulted in a goods and services deficit of $40.5 billion, down from $40.8 billion in June, revised. July exports were $1.8 billion more than June exports of $196.2 billion. July imports were $1.6 billion more than June imports of $237.0 billion. The trade deficit was smaller than the consensus forecast of $42.7 billion and the deficit was revised down for Q1 and Q2. The first graph shows the monthly U.S. exports and imports in dollars through July 2014.Imports and exports increased in July. Exports are 19% above the pre-recession peak and up 4% compared to July 2013; imports are about 3% above the pre-recession peak, and up about 4% compared to July 2013. The second graph shows the U.S. trade deficit, with and without petroleum, through June. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil imports averaged $97.81 in July, up from $96.41 in June, and down up $97.07 in July 2013. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China increased to $30.9 billion in July, from $30.1 billion in July 2013. The trade deficit was revised down (exports up, imports down) for the previous six months.

Trade Deficit Hits Six-Month Low as Exports Rise - The U.S. trade deficit narrowed in July to its lowest point in six months as exports rose to a record high, supporting views of sturdy economic growth in the third quarter. The Commerce Department said on Thursday the trade gap fell 0.6 percent to $40.5 billion, the lowest since January. June's trade deficit was revised to $40.8 billion. Economists polled by Reuters had expected the deficit to widen to $42.2 billion in July from a previously reported $41.5 billion shortfall in June. When adjusted for inflation, the deficit narrowed to $48.2 billion, the lowest since December 2013, from $48.9 billion in June, which could see economists raise their estimates for third quarter gross domestic product. Trade weighed on growth in the April-June period. Exports increased 0.9 percent to a record high of $198.0 billion in July, supported by a surge in goods, automobiles, parts and engines, as well as non-petroleum products. Imports rebounded 0.7 percent in July to $238.6 billion after declining in June. The rebound in imports is a sign of underlying strength in domestic demand. The increase in imports was driven by food and autos, which both hit record highs. Petroleum imports declined, which saw the petroleum deficit hitting its lowest level since May 2009. A domestic energy boom has seen the United States reduce its dependence on foreign oil. The politically sensitive trade gap with China was the highest on record in July.

July Trade Deficit Better Than Expected, But Excluding Oil Remains Near Record High - After several months of disappointing trade data which dragged on GDP for the past two quarters, the July trade balance finally was a welcome beat of already low expectations, printing at a deficit of $40.5, better than the $42.4 billion expected, and an improvement from the downward revised deficit of $40.8 billion in July. The deficit declined as exports increased more than imports. The goods deficit decreased $0.2 billion from June to $60.2 billion in July; the services surplus was nearly unchanged from June at $19.6 billion. And yet, even as the deficit contracted, the trade balance excluding the shale revolution, has almost never been worse.

US Factory Orders up Record 10.5 Percent in July- Business orders for U.S. factory goods shot up by a record amount in July, reflecting a surge in demand in the volatile category of commercial aircraft. But outside of transportation, orders actually fell slightly during the month although the setback was expected to be temporary. Factory orders rose 10.5 percent in July, the biggest one-month increase on records going back to 1992, the Commerce Department reported Wednesday. Orders for civilian jetliners rose four-fold. But excluding transportation, orders edged down 0.8 percent and a key category that serves as a proxy for business investment plans fell 0.7 percent. Manufacturing has been a source of strength this year, helped by robust demand for new cars, other consumer items and business equipment. Economists expect that strength to continue. The report showed that durable goods, items expected to last at least three years, were up 22.6 percent in July, unchanged from the estimate in a preliminary report last week. Orders for nondurable goods such as paper, chemicals and food were down 0.9 percent in July after a 0.4 percent increase in June. In addition to the surge in demand for airplanes, orders for motor vehicles and parts rose 7.3 percent, reflecting continued strong consumer demand for new cars and trucks. But there was slippage in other areas. Orders for primary metals such as steel fell 0.3 percent, demand for machinery was down 1.2 percent and orders for computers and other electronics products fell 14.7 percent.

July Factory Orders Soar By Most On Record - Sustainable? Thanks to various massive airplane orders (as Ex-Im is threatened with extinction), US Factory Orders rose 10.5% MoM in July - the biggest MoM rise ever. However, this was a miss against expectations of an 11.2% rise and perhaps most critically, Factory Orders Ex-Transports dropped 0.8%, also missing expectations with its worst print since March 2013. So where did the boost come from? Same place where the record surge in durable goods orders arrived last week: Boeing airshow orders, funded courtesy of the ExIm bank and never before cheaper credit. Finally, those curious what the level of inventory is, here is the answer: Inventories of manufactured durable goods in July, up fifteen of the last sixteen months, increased $1.9 billion or 0.5 percent to $401.5 billion, unchanged from the previously published increase. This was at the highest level since the series was first published on a NAICS  basis and followed a 0.4 percent June increase.

ISM Manufacturing index increases to 59.0 in August -- The ISM manufacturing index suggests faster expansion in August than in July. The PMI was at 59.0% in August, up from 57.1% in July. The employment index was at 58.1%, down slightly from 58.2% in July, and the new orders index was at 66.7%, up from 63.4% in July. From the Institute for Supply Management: August 2014 Manufacturing ISM® Report On Business®  “The August PMI® registered 59 percent, an increase of 1.9 percentage points from July's reading of 57.1 percent, indicating continued expansion in manufacturing. This month's PMI® reflects the highest reading since March 2011 when the index registered 59.1 percent. The New Orders Index registered 66.7 percent, an increase of 3.3 percentage points from the 63.4 percent reading in July, indicating growth in new orders for the 15th consecutive month. The Production Index registered 64.5 percent, 3.3 percentage points above the July reading of 61.2 percent. The Employment Index grew for the 14th consecutive month, registering 58.1 percent, a slight decrease of 0.1 percentage point below the July reading of 58.2 percent. Inventories of raw materials registered 52 percent, an increase of 3.5 percentage points from the July reading of 48.5 percent, indicating growth in inventories following one month of contraction. The August PMI® is led by the highest recorded New Orders Index since April 2004 when it registered 67.1 percent. At the same time, comments from the panel reflect a positive outlook mixed with caution over global geopolitical unrest. Here is a long term graph of the ISM manufacturing index. This was solidly above expectations of 56.8%.  The employment index was strong - and the new orders index was at the highest level since April 2004.

ISM Manufacturing Index: Growth Again Beats Forecast - Today the Institute for Supply Management published its July Manufacturing Report. The latest headline PMI at 59.0 came in above last month's 57.1 percent and above the forecast of 56.8. The August level is the highest since March 2011. Here is the key analysis from the report: "The August PMI® registered 59 percent, an increase of 1.9 percentage points from July's reading of 57.1 percent, indicating continued expansion in manufacturing. This month's PMI® reflects the highest reading since March 2011 when the index registered 59.1 percent. The New Orders Index registered 66.7 percent, an increase of 3.3 percentage points from the 63.4 percent reading in July, indicating growth in new orders for the 15th consecutive month. The Production Index registered 64.5 percent, 3.3 percentage points above the July reading of 61.2 percent. The Employment Index grew for the 14th consecutive month, registering 58.1 percent, a slight decrease of 0.1 percentage point below the July reading of 58.2 percent. Inventories of raw materials registered 52 percent, an increase of 3.5 percentage points from the July reading of 48.5 percent, indicating growth in inventories following one month of contraction. The August PMI® is led by the highest recorded New Orders Index since April 2004 when it registered 67.1 percent. At the same time, comments from the panel reflect a positive outlook mixed with caution over global geopolitical unrest."  Here is the table of PMI components.

ISM Manufacturing Surges With New Orders At 10-Year High; Construction Spending Jumps Most In Over 2 Years -- ISM Manufacturing has risen almost without hesitation for the seven months from the January collapse to new 3-year highs, printing at a dramatic 59.0, its biggest beat in over a year, just shy of the recovery cycle's highs in 2011. New orders grew for the 15th month in a row to the highest reading since 2004! Earlier, Markit's US PMI missed expectations and fell modestly from preliminary data to 57.9, but moved to its highest since April 2010. Construction spending also surged, rising 1.8% (smashing expectations) - its biggest MoM gain since May 2012.

ISM Non-Manufacturing Index increased to 59.6% in August -  The August ISM Non-manufacturing index was at 59.6%, up from 58.7% in July. The employment index increased in August to 57.1%, up from 56.0% in July. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: August 2014 Non-Manufacturing ISM Report On Business® "The NMI® registered 59.6 percent in August, 0.9 percentage point higher than the July reading of 58.7 percent. This represents continued growth in the Non-Manufacturing sector. The August reading of 59.6 percent is the highest for the composite index since its inception in January 2008. The Non-Manufacturing Business Activity Index increased to 65 percent, which is 2.6 percentage points higher than the July reading of 62.4 percent, reflecting growth for the 61st consecutive month at a faster rate. This is the highest reading for the index since December of 2004 when the index also registered 65 percent. The New Orders Index registered 63.8 percent, 1.1 percentage points lower than the reading of 64.9 percent registered in July. The Employment Index increased 1.1 percentage points to 57.1 percent from the July reading of 56 percent and indicates growth for the sixth consecutive month. The Prices Index decreased 3.2 percentage points from the July reading of 60.9 percent to 57.7 percent, indicating prices increased at a slower rate in August when compared to July. According to the NMI®, 15 non-manufacturing industries reported growth in August.  The majority of the comments reflect continued optimism in regards to business conditions. This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was solidly above the consensus forecast of 57.1% and suggests faster expansion in August than in July. The NMI was at the highest level since its inception.  New orders was strong - and employment was up solidly.

ISM Non-Manufacturing: August Composite at Another Record High - Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 59.6 percent, up from last month's 58.7 percent and another record high for this relatively new indicator, which goes back to January 2008, the second month of the Great Recession. Today's number came in well above the forecast of 57.5.Here is the report summary: "The NMI® registered 59.6 percent in August, 0.9 percentage point higher than the July reading of 58.7 percent. This represents continued growth in the Non-Manufacturing sector. The August reading of 59.6 percent is the highest for the composite index since its inception in January 2008. The Non-Manufacturing Business Activity Index increased to 65 percent, which is 2.6 percentage points higher than the July reading of 62.4 percent, reflecting growth for the 61st consecutive month at a faster rate. This is the highest reading for the index since December of 2004 when the index also registered 65 percent. The New Orders Index registered 63.8 percent, 1.1 percentage points lower than the reading of 64.9 percent registered in July. The Employment Index increased 1.1 percentage points to 57.1 percent from the July reading of 56 percent and indicates growth for the sixth consecutive month. The Prices Index decreased 3.2 percentage points from the July reading of 60.9 percent to 57.7 percent, indicating prices increased at a slower rate in August when compared to July. According to the NMI®, 15 non-manufacturing industries reported growth in August.  Like its much older kin, the ISM Manufacturing Series, I have been reluctant to focus on this collection of diffusion indexes. For one thing, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

ISM Services Surges To Highest In 9 Years, Despite New Order Weakness --Despite 2 straight months of weakness in Services PMI, ISM's non-manufacturing index (adjusted for whatever meme is required) exploded to 59.6, another huge beat, and its highest since August 2005. The Business Activity index is highest since 2004, employment highest since Feb 2006, but new orders (domestic and export) dropped. "The NMI® registered 59.6 percent in August, 0.9 percentage point higher than the July reading of 58.7 percent. This represents continued growth in the Non-Manufacturing sector. The August reading of 59.6 percent is the highest for the composite index since its inception in January 2008. The Non-Manufacturing Business Activity Index increased to 65 percent, which is 2.6 percentage points higher than the July reading of 62.4 percent, reflecting growth for the 61st consecutive month at a faster rate. This is the highest reading for the index since December of 2004 when the index also registered 65 percent.

About That Seasonally-Adjusted Soaring ISM Number -- Moments ago, the Institute for Supply Management, reported some blistering numbers in the August Non-Manufacturing Report, whose headline print rose once again, this time to 59.6, or the highest since August 2005. Not only that, but the all-important employment component, ahead of tomorrow's NFP report, which also rose to 57.1, printed at what, at least on the surface, was the highest number since February 2006!  Superficially, this is great news. And yet, remember: this is the seasonal-adjustment challenged ISM, the same ISM which for some inexplicable reason believes that survey responses (not hard, or soft data), have to be seasonally adjusted. So what happens when one looks below the seasonally-adjusted surface. Well, then things get uglier.

US Services PMI Falls For 2nd Month In A Row -- From the earlier August flash print of 58.5, Markit's US Services PMI rose modestly to 59.5 but has now fallen 2 months in a row to the lowest since May. While a solid number in 'expansionary' >50 territory, pressure on margins continues as input cost inflation picks up. Employment gained also, prompting Markit to question "how long policymakers will be comfortable with the economy growing at this pace before hiking interest rates?"

Small Firms Poised to Spend More on Plants, Equipment - WSJ: There is a point in every recovery when small businesses move from slashing costs to spending more on new plants and industrial machinery, trucks, computers, office equipment and furniture. It is a "Field of Dreams" transition, when more owners begin to believe that if they build it, then customers will come. There are signs that this may be where the recovery is now, according to three recent measures of small firms' fixed investment trends.Among 798 small private firms with less than $20 million in revenue, for instance, 51% said in August that they planned to increase their capital outlays in the next 12 months. That is a record high, and it is also up from 42% a year ago, according to the survey by The Wall Street Journal and Vistage International, a San Diego executive-advisory group. August marked the first month since June 2012, when the monthly survey began, that owners of small firms who planned to spend more on fixed investments outnumbered those who planned to hold steady or cut back. Those who planned to increase capital outlays were owners and CEOs at firms in a range of industries, including service (17%), manufacturing (10%) and finance and insurance (nearly 5%). Separately, in a July survey of 1,645 private firms, nearly all with fewer than 40 employees, 55% said they had made capital outlays during the previous six months. That's not a peak. In December 2013, when a number of tax breaks for equipment purchases were set to expire, 64% said they made such outlays, for instance.

A Farmer Speaks Out: Unsustainable High Input Costs of Industrial Farming | Big Picture Agriculture: Relentlessly driven by economic competition, farming today is a high input game hunting the highest yield. Ironically in the same shows which feature serious brokers and farm journalists warning the farmers to be prepared for the consequences of their own endeavors and pointing out the vicious cycle of great harvests and depressed prices, farmers are still admonished to be early adopters of the latest technology, i.e. yield enhancing chemicals, machinery and growing methods…as if the narrow band of specialization of row crop farmers was leading anywhere but disastrous ruin for most in the long run. Only a few very large operations of that kind make it – not without help from the taxpayer, by the way. Who profits most? The providers of said chemicals, machinery and growing methods. I do not need to point out who suffers most from that kind of agriculture which has been in the heads of most farmers. On the other hand, there are a good number of examples of farmers who are breaking the mold, resorting to very different approaches to farming, but they are not featured. Most of them can be found in the organic and/or horse-farming community. As long as farmers let themselves be talked into the afore-mentioned rat race the attrition of their numbers can be safely assumed.

The Business of America is Dirty Tricks - With metronomic predictability, the wise men of Washington preach austerity amid a raging jobs recession and wish away the bulwarks of economic security that make life in these United States (barely) tolerable for fixed-income retirees and poor people who have had the unpardonable bad taste to fall ill. As major manufacturing metropolises go bankrupt, as wages continue to go south while productivity climbs, as mortgages and pension plans are pillaged by the bailed-out banking class, we are trapped in a political consensus that urges government continually to shrink and depicts tax increases on the rich as an unholy abomination against the market’s righteous will. Why, for God’s sake?  One answer comes from a place that few Americans spend much time thinking about: the stodgy and terminally respectable U.S. Chamber of Commerce, a lobbying group best known for its civic booster speeches and “young entrepreneur” scholarships.  What has the U.S. Chamber of Commerce done to advance the undoing of the American middle-class dream? One might ask, far more efficiently, what the Chamber hasn’t done along these lines. The group, which commands an annual budget of more than $200 million covering six legal sub-entities, has proven a diehard foe of federal health care reform, global warming legislation, rational tax policy, and virtually any piece of legislation not designed to feather the nest of a plutocrat. And thanks to its little-noted recent makeover as a corporate sluicegate for soft-money campaign contributions, this formerly milquetoast business lobby is probably the main reason that the Tea Party will hold domestic policymaking in a functional state of suspended animation for the foreseeable future.

America suffering from ‘economic calcification’ – JP Morgan - Talk about two worrisome long-term trends. America, as I have written, is experiencing fewer business startups and less labor market churn. The result, according to a new JP Morgan research note, is the “economic calcification” of the US economy: The churning that has long characterized the US economy, the  frenetic creative destruction of firms rising and falling, has become less frenetic recently. New business creation has  trended lower, as has the normally-massive amount of labor market reallocation. … This reduction in economic  dynamism has taken place over the course of the last few decades … Less churning in the economy can have beneficial  consequences, but the reality is that the negative effects likely outweigh the positive effects. The symptoms of reduced churn look similar to Euro-sclerosis. Basically, a less dynamic economy will be marked by (a) less productivity and innovation, (b) less hiring and more labor force discouragement, (c) a lower natural unemployment rate since there will be fewer bouts of between-job unemployment. As evidence, JPM economist Michael Feroli summons a number of data points (reflected in the charts below). Let me paraphrase:

  • – Net job openings at new firms is down, averaging 1.3 million at the end of 2013 vs 1.5 million in the last business cycle and 1.8 million in the 1990s.
  • – Employment at newly-opened firms — not including reopening of seasonal firms  – was 0.7% of all employment vs. between 1.1% and 1.3% during the 1990s.
  • – Throughout the 1990s, quarterly job reallocation — measured by the Business Employment Dynamics report  – has fallen to around 12% vs. 15% and 16% in the 1990s.
  • –  Worker reallocation (the sum of the hiring and separations rate) has also trended lower, as measured by the Job Openings and Labor Turnover Survey.

S&P Report Dives into Skills Gap to Find Ways Bridge It - Businesses finally are hiring at a monthly pace above 200,000 jobs–a trend that is expected to be extended when the government reports on August payrolls on Friday. Along with more job openings, however, has come complaints about the difficulty of finding workers who possess the talents and experience needed. Wednesday’s Beige Book from the Federal Reserve noted contacts in all 12 districts mentioned a shortage of skilled workers. The National Federation of Independent Business reports a rising share of small business owners say they cannot find qualified workers. Economists at Standard & Poor’s Ratings Services examined the skills-gap dilemma and what can be done about it. What they found was that the gap can be divided into two different skills sets: basic math and language skills that should be acquired in school, and specialized knowledge attached to specific jobs and experience. While specialized skills are–almost by definition–higher up on the learning curve, S&P projects this is where the skills gap will be narrowed faster in the short run. That’s because companies have a financial incentive to provide the training needed to run their machinery, follow company-specific processes and program company computers. According to the report, existing economic research suggest part of the skills gap can be explained by the unwillingness among companies to train their employees and the desire to hire people with the right skills at low wages.

Wolf Richter: Startup CEO (Unwittingly) Explains Biggest Problem in America’s Unemployment Crisis - The somewhat peculiar results of the Challenger Labor Shortage Survey showed that 77% of the approximately 100 human resources executives polled said their companies were having difficulty filling open positions due to a shortage of available talent. And 45% said they were having a hard time filling tech jobs, which run the gamut from software engineers to medical technicians. Peculiar because there are still many millions of Americans who are unemployed. But the report was the opinion of only a tiny group of select HR executives. So not exactly a universal statement. But today, I ran into something that put that report in a different light, via Rebekah Campbell’s article in the New York Times, which describes her experiences in trying to rope in potential investors for her company, Posse. It was a story of how time and money – two commodities a startup CEO is desperately short of – went down the drain during her pursuit of VC, angel, and corporate investors. A successful pitch led to lunches, dinners, and drinks, and to meetings, and some took weeks to set up, and more meetings with different people, and everything was exciting, and big money was being dangled out in front of her eyes, and then there would have to be a meeting with the senior guy, who was on vacation. Due diligence had started, and she and her team got peppered with questions, spreadsheets had to be redone, projections were challenged, but there was still no term sheet that would nail down the deal. And after months of seeing money and time spiraling down the drain, she ended up without a deal.

Weekly Initial Unemployment Claims increase to 302,000 - The DOL reports: In the week ending August 30, the advance figure for seasonally adjusted initial claims was 302,000, an increase of 4,000 from the previous week's unrevised level of 298,000. The 4-week moving average was 302,750, an increase of 3,000 from the previous week's unrevised average of 299,750.  There were no special factors impacting this week's initial claims.  The previous week was unrevised at 298,000. The following graph shows the 4-week moving average of weekly claims since January 1971.

ADP: Private Employment increased 204,000 in August - From ADP: Private sector employment increased by 204,000 jobs from July to August according to the August ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis...Mark Zandi, chief economist of Moody’s Analytics, said, "Steady as she goes in the job market. Businesses continue to hire at a solid pace. Job gains are broad based across industries and company sizes. At the current pace of job growth the economy will return to full employment by the end of 2016.”  This was below the consensus forecast for 213,000 private sector jobs added in the ADP report. 

ADP Private Payrolls Miss, Add Only 204K Private Jobs, Lowest Since March -- In what will hardly be a good sign for tomorrow's "critical" non-farm payrolls report, moments ago ADP reported that in August only 204K private payrolls were created in the US economy, below the downward revised 212K in July, and below the consensus estimate of 220K. The good news, as Carlos Rodriguez, president and chief executive officer of ADP said, is that "August marks the fifth straight month of employment gains above 200,000, continuing an encouraging trend for the U.S. labor market.” Just barely. The bad news: this was the lowest ADP print since March, and hardly the "lift off"  trend that many were expecting. Notably, the June 281K jobs print was revised even higher to 297K the highest in years and makes one wonder how much forward demand was pulled back into Q2 as a result of abnormally easy credit conditions and generous government spending.

August Employment Report: 142,000 Jobs, 6.1% Unemployment Rate - From the BLSTotal nonfarm payroll employment increased by 142,000 in August, and the unemployment rate was little changed at 6.1 percent, the U.S. Bureau of Labor Statistics reported today... The change in total nonfarm payroll employment for June was revised from +298,000 to +267,000, and the change for July was revised from +209,000 to +212,000. With these revisions, employment gains in June and July combined were 28,000 less than previously reported.The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes). Employment is now up 2.48 million year-over-year. Total employment is now 753 thousand above the pre-recession peak. The second graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate decreased in August to 62.8% from 62.9% in July. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The participation rate has mostly moved sideways all year. The Employment-Population ratio was unchanged at 59.0% (black line). The third graph shows the unemployment rate.

August Jobs Report – The Numbers -- The economy added an average of 177,000 jobs the past two months, including July’s upwardly revised gain of 212,000. The recent pace is more consistent with the lackluster growth recorded for most of the recovery, rather than the stronger gains this spring. U.S. payrolls posted an average gain of 267,000 from April through June. The recent figures indicate hiring has downshifted. Private-sector payrolls have grown by more than 10 million since the jobs recovery began for the category in March 2010. Employers outside the government have added jobs for 54 straight months—the longest such streak on records back to 1939. However, the average number of jobs added each month of the recovery remains weak by historical standards.  A broader measure of unemployment that includes the unemployed, those stuck in part-time jobs and those who have given up looking for work because they are discouraged fell to 12.0% in August from 12.2% in July. While down from a peak of over 17% in 2010, the number remains historically high and shows many would-be workers remaining on the sidelines.  Average hourly earnings for all employees in August was $24.53, up 6 cents from the prior month and 50 cents from a year earlier. Over the past 12 months, average hourly earnings have risen by 2.1%, a rate that’s slightly outpacing inflation. Federal Reserve policymakers are closely watching wage measures to assess the amount of slack in the labor market. Before the most recent recession, wage growth routinely exceeded 3%.   The labor-force participation rate fell in August to 62.8% from 62.9% the prior month. The August rate matches the lowest level since the late 1970s. The smaller share of Americans participating in the workforce suggests the economy’s potential to grow is more limited today compared to previous decades.

Disappointment: Only 142K New Nonfarm Jobs in August - Here are the lead paragraphs from the Employment Situation Summary released this morning by the Bureau of Labor Statistics: Total nonfarm payroll employment increased by 142,000 in August, and the unemployment rate was little changed at 6.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services and in health care.  Today's report of 142K new nonfarm jobs was substantially below the forecast of 225K and the lowest monthly change since December. The unemployment rate ticked down from 6.2% to 6.1%, matching the expectation. The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948.The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. It dropped below 3% in April of last year and is now at its post-recession low of 1.9%. Click for a larger image The next chart is an overlay of the unemployment rate and the employment-population ratio. This is the ratio of the number of employed people to the total civilian population age 16 and over. The inverse correlation between the two series is obvious. We can also see the accelerating growth of women in the workforce and two-income households in the early 1980's. Following the end of the last recession, the employment population has been range bound between 58.2% and 59.4% — the lower end of which that harkens back to the 58.1% ratio of March 1953, when Eisenhower was president of a country of one-income households, the Korean War was still underway, and rumors were circulating that soft drinks would soon be sold in cans. The latest ratio of 59.0% is near the top of a narrow range since the end of the last recession.

Nonfarm Payrolls 142,000; Unemployment 6.1%; Employed +16K; Labor Force -64K - The payroll survey shows a net gain of 162,000 jobs vs an expectation of 230,000 jobs. This broke a six-month string of +200,000 jobs.  Digging into the details, things look far worse. the household survey showed a gain in employment of only 16,000. This is the third consecutive month, the household survey was substantially weaker than the headline number.  The labor force fell by 64,000. Those not in the labor force increased by 268,000. The unemployment rate fell by 0.1% thanks to a decline in the labor force greater than the rise in employment.BLS Jobs Statistics at a Glance:

  • Nonfarm Payroll: +142,000 - Establishment Survey
  • Employment: +16,000 - Household Survey
  • Unemployment: -80,000 - Household Survey
  • Involuntary Part-Time Work: -234,000 - Household Survey
  • Voluntary Part-Time Work: -136,000 - Household Survey
  • Baseline Unemployment Rate: -0.1 at 6.1% - Household Survey
  • U-6 unemployment: -0.2 to 12.0% - Household Survey
  • Civilian Non-institutional Population: +206,000
  • Civilian Labor Force: -64,000 - Household Survey
  • Not in Labor Force: -268,000 - Household Survey
  • Participation Rate: -0.1 at 62.8 - Household Survey
  • The unemployment rate varies in accordance with the Household Survey, not the reported headline jobs number, and not in accordance with the weekly claims data.
  • In the past year the working-age population rose by 2,270,000.
  • In the last year the labor force rose by 524,000.
  • In the last year, those "not" in the labor force rose by 1,745,000
  • In the past year, the number of people employed rose by 2,189,000 (an average of 182,417 a month)

Please note that over the course of the last year, the working-age population rose by more than the number of people employed. In normal times, the unemployment rate would have gone up slightly. Instead, the unemployment rate fell from 7.2% to 6.1%. Over 100% of the decline in unemployment was due to people dropping out of the labor force, rather than strength in the economy!

Jobs Day! First Impressions–It’s a disappointing report, but one month does not a new trend make. -In a surprisingly downbeat look at last month’s job market, today’s jobs report shows payrolls up only 142,000 in August, a downward revision to June’s gain, flat weekly hours, and a slight tick down in the labor force. While one month does not a new trend make—far from it, as these are noisy data—the report is a unfortunate reminder that this recovery has been fraught with “head fakes,” as favorable trends have fizzled. Unemployment ticked down slightly, from 6.2% to 6.1%, but this was largely due to labor force exits, not jobseekers finding work .Today’s report will surely be a noted over at the Federal Reserve, as their data-driven mode of operations will likely take the August report as support for Chair Yellen’s view that considerable slack remains in the job market. Job creation weakened across many industries. The large service sector was up 112,000, down from an average of 186,000 over the prior two months. After adding an average of 25,000 jobs in June and July, factory payrolls come in at zero in August, with autos down 5,000. (The Bureau noted there could be a seasonal issue distorting these data as the pattern of layoffs for factory retooling changed in ways they may not have adequately adjusted for.) Given all this these monthly bips and bops, it makes sense to take an average of the monthly payroll results. Below is this month’s version of JB’s Jobs Day Smoother, wherein I show average monthly job growth over the past three, six, and twelve months—a useful way of pulling recent trends out of the bouncy monthly data. The underlying pace of payroll job growth over both the past three months—207,000 per month—is the same as over the past year. This is a slight deceleration from the bump up in more recent payroll reports, as the monthly average over the past six months is 226,000.

Pace of Job Growth Slows Further in August: The pace of growth slowed sharply to 142,000 in August. Coupled with downward revisions to June's data, this brings the average rate of job growth over the last three months to 207,000. The economy had been adding jobs added jobs at a 267,000 monthly rate between March and June. The falloff was widespread across industries. Manufacturing employment was flat after adding an average of 21,000 jobs a month in the prior three months. Retail employment fell by 8,400 in August after adding an average of 22,700 jobs in the prior three months. Transportation added just 1,200 jobs, down from an average 16,400 in the prior three months. Job growth in professional and technical services (16,800) and restaurants (21,100) was also somewhat weaker than its recent pace.In percentage terms motion pictures continues to be a big job loser, shedding 6,000 jobs in August, 2.0 percent of total employment. Jobs in the sector have fallen by 18.6 percent over the last two years. On the opposite side, health care added 34,000 jobs, the third biggest rise in the last five years. This is likely an anomaly that will be offset by weaker growth in the months ahead.There is little evidence that the strengthening labor market is leading to wage pressures. Over the last three months, the average hourly wage has risen at a 2.3 percent annual rate, virtually identical to the 2.1 percent rate over the last year. In fact, almost no sectors show evidence of substantial wage growth. Only three sectors, mining, information, and leisure and hospitality have seen hourly wage growth in excess of 2.5 percent over the last year. A 3.5 percent rate of wage growth is consistent with the Fed’s 2.0 percent inflation target (assuming 1.5 percent productivity growth), only mining at 4.1 percent and information at 3.8 percent cross this threshold. 

August Jobs Tumble To Only 142K, Lowest Monthly Print Of 2014 And Below Lowest Forecast; Unemployment Rate 6.1% -- So much for the latest recovery: with not a single analyst expecting a NFP print below 190K, the BLS just reported that August payrolls tumbled from a revised 212K to only 142K, which was not only below the lowest Wall Street estimate of 190K, but it was also the the lowest monthly jobs print in all of 2014 and the biggest miss to expectations since the "polar vortex"! The Unemployment rate dripped modestly from 6.2% to 6.1% confirming yet again it has become a completely meaningless metric. From the report: In August, both the unemployment rate (6.1 percent) and the number of unemployed persons (9.6 million) changed little. Over the year, the unemployment rate and the number of unemployed persons were down by 1.1 percentage points and 1.7 million, respectively. (See table A-1.) Among the major worker groups, the unemployment rates in August showed little or no change for adult men (5.7 percent), adult women (5.7 percent), teenagers (19.6 percent), whites (5.3 percent), blacks (11.4 percent), and Hispanics (7.5 percent). The jobless rate for Asians was 4.5 percent (not seasonally adjusted), little changed from a year earlier. (See tables A-1, A-2, and A-3.) The number of long-term unemployed (those jobless for 27 weeks or more) declined by 192,000 to 3.0 million in August. These individuals accounted for 31.2 percent of the unemployed. Over the past 12 months, the number of long-term unemployed has declined by 1.3 million. (See table A-12.)

The August Jobs Report in Six Charts

August’s Job Gain Suggests A Tougher Path To Full Employment - Achieving what Federal Reserve officials view as the economy’s long-run unemployment rate may take longer in the wake of the release of the August jobs data. According to a Federal Reserve Bank of Atlanta online tool, if the August payroll gain of 142,000 were sustained over coming months, it would take two years to get from August’s 6.1% jobless rate down to 5.5%. There’s nothing inherently magical about a 5.5% jobless rate, but it does represent the upper end of the Fed’s current consensus on the nation’s likely long-run unemployment rate. Many central bank officials believe they should start raising short-term interest rates from near zero—an extremely low level historically—before unemployment drops that low to avoid fueling inflation pressures. It’s important to note that monthly job gains are highly variable and it’s pretty unlikely the August job gain will be repeated every month to come. Indeed, that’s why economists and policymakers usually try to look at the trend of hiring. And it’s there that the Atlanta Fed jobs tool is again useful at uncovering the distance to the Fed’s promised land. The average monthly job gain seen over 2014 of 215,000 would deliver a 5.5% jobless rate in seven to eight months, all else being equal, according to the Atlanta Fed. If the average of the last three months of 207,000 were sustained, it would take about the same time to hit 5.5%. Over recent months, the unemployment rate has fallen much more quickly than many policy makers had expected. While several Fed officials and many market participants expect the central bank to begin raising rates around the middle of next year, the labor market’s better-than-expected rebound over most of 2014 has fueled a debate about the possibility of raising rates sooner.

Job Growth Slows in August; Wage Growth Far From Inflationary - Today’s jobs report showed the economy added 142,000 jobs in August, far below expectations. Prior to this, monthly job growth has averaged 226,000 this year. We haven’t seen job growth this slow since December of last year. At the same time, wage growth is far below the 3.5 percent rate consistent with the Federal Reserve Board’s inflation target of 2 percent. It’s clear that Fed policymakers should abandon notions of slowing the economy.While it’s yet to be seen whether this slower job growth is an anomaly or a new trend, these numbers should give us pause. Adding in this month’s disappointing numbers, job growth this year is still above last year’s average at this time. Job growth has averaged 215,000 jobs a month thus far in 2014, compared to 197,000 in the first eight months of 2013. We need to be consistently adding jobs at a much faster rate to return to the labor market conditions before the recession began—arguably a labor market that still had considerable slack.The slack in the today’s labor market is best indicated by lackluster wage growth. Private sector nominal average hourly earnings grew 2.1 percent annually in August—consistent with what we’ve seen this year so far. Employers just don’t have to offer big wage increases to get and keep the workers they need, when hiring rates and net job creation remain far slower than what’s needed to for a healthy labor market.

The anemic August jobs report: Where are the jobs? Where is the wage growth? -- This was not a good jobs report. Certainly not one that suggests a shift into a higher growth gear. The Two Percent-ish economy crawls on. The US economy added 142,000 jobs in August — much less than 225,000 expected — as the unemployment rate ticked down to 6.1%. But the jobless rate fell only because the labor force shrank by 64,000, notes economist Paul Ashworth of Capital Economics. The alternative household survey found employment increased by only 16,000 last month. Also, payroll gains in June and July were revised lower by 28,000, although those downward revisions were all in government. Private payrolls were actually nudged up, according to RDQ Economics. And consider: There are just 1.2 million more private jobs today than January 2008 despite 15.6 million more non-jailed, non-military adults. While the unemployment rate has dropped by 1.1 percentage points over the past year, the employment rate is up just 0.2 points. Still, the year overall is shaping up as one of modest employment improvement. Average monthly jobs gains, including the August bummer, are averaging 215,000 vs. 194,000 last year, and 186,000 in 2012, calculates economist Justin Wolfers. Two more bits of good news: Long-term unemployment finally fell below 3 million, and the underemployment rate fell to a new recovery low of 12.0% from 12.2% in July. Overall, Barclays calls the report a “reality check” after a series of robust economic surveys, and forecasts that it  “will likely reduce the probability that the Fed takes an abrupt change in tone in September to a more hawkish policy stance, and we continue to see longer-term economic trends as consistent with a June 2015 rate hike.”

Broad and Long-Term Unemployment Fall to New Lows Despite Slowdown in Payroll Job Growth - The Bureau of Labor Statistics reported Friday that the broad unemployment rate and long-term unemployment have fallen to new lows for the recovery, despite a slowdown in the growth of payroll jobs. Payroll employment increased by 142,000 in August, significantly less than the 212,000 average for the previous three months. The standard unemployment rate fell fractionally, returning to the low of 6.1 percent first reached in June. The percentage of the labor force working part-time for economic reasons also decreased. The standard unemployment rate, U-3, is the ratio of unemployed persons to the civilian labor force. Both the numerator and denominator of the ratio fell in August. The broad unemployment rate, U-6, also takes into account discouraged workers (people who would like to work but have stopped looking because they think no jobs are available) and involuntary part-time workers. As the following chart shows, that rate fell to 12.0 percent in August, a new low for the recovery. Long-term unemployment has been a particularly painful feature of the Great Recession. By early 2010, the percentage of all unemployed workers who were out of work for 27 weeks or more rose to nearly three times its normal level. As the next chart shows, long-term unemployment still remains elevated by historical standards, but after a sharp decline in August, it has fallen halfway back to its prerecession level. Overall, the August employment situation indicates that the recovery is continuing in the third quarter of 2014, although possibly at a slower pace than earlier in the summer. The trajectory of the economy will become clearer next month when government statisticians release September job numbers and the advance estimate of Q3 GDP

Jobs report disappoints in otherwise strong week of US indicators -- Blowout ISM readings for both manufacturing and services. A trade deficit shrinking more quickly than expected. Auto sales in July hitting a 103-month high. Initial jobless claims in August were little changed and remained low. All indicators released just this week. Now, in the employment situation report for August… just 142,000 jobs created? Net revisions of negative 28,000 jobs for the prior two months? And in the household survey, the slight drop in the unemployment rate to 6.1 per cent was driven by a small decline in the labour force participation rate. Wage growth has increased somewhat but remains tepid.  Prepare for an outbreak in the use of “anomalous”, “blip”, “data are noisy”, and “it’s just one report”, etc… And fair enough. The report is hard to reconcile not only other recent indicators but also with the obviously stronger momentum in prior jobs reports this year.Yet this is also the second straight month of significant declines, and the strong June report was revised down. The average jobs growth for the year now stands at about 215,000, a more modest increase than previously believed on last year’s pace of 194,000. (Prior to this report and its revisions, this year’s pace was thought to be 230,000.)  If the acceleration in the recovery since the end of the first quarter has slowed, it wouldn’t be the first time that the US economy has head-faked observers, especially in the summer. But it’s far too early to know if it’s happened again, and of course today’s numbers will themselves be revised — possibly quite a bit higher given other indicators of activity.

Slow Job Growth Should Give Us Pause - Today’s jobs report showed the economy added 142,000 jobs in August, far below expectations of job growth closer to 230,000. Prior to August, monthly job growth averaged 226,000 this year. The figure below charts monthly job growth since the start of the recovery in July 2009. While the general trend has gone up, this month’s job growth was disappointingly below trend. We haven’t seen job growth this slow since December of last year. While it’s yet to be seen whether this slower job growth is an anomaly or a new trend, these numbers should give us pause. Adding in this month’s disappointing numbers, job growth this year is still above last year’s average at this time. Job growth has averaged 215,000 jobs a month thus far in 2014, compared to 197,000 in the first eight months of 2013. We need to be consistently adding jobs at a much faster rate to return to the labor market conditions before the recession began. Arguably, that standard is a low bar as the labor market at that time still had considerable slack.

Quality Of Jobs Created In August Deteriorates Again - Back in 2011 we noted that while the market, and at the time, the Fed, have been focused exclusively on the quantity of jobs created each month, a far more important aspect of the US economic recovery is the quality of newly created jobs. It took the Fed about three years to catch up but it finally did, and Yellen no longer cares so much about the headline NFP print or the unemployment number but rather how good the newly created jobs are, manifesting in the quality of wages and earnings. So what was the quality of seasonally-adjusted job gains in August? In a word: disturbing. Of the 142K jobs created, just under half came from the lowest paying jobs possible: education and health; leisure and hospitality; and temp-help. The best paying jobs, finance and information, added a whopping 4K jobs between them. Finally, about that much delayed US manufacturing renaissance: stick a fork in it - in August the number of manufacturing jobs created was exactly 0.

Labor Participation Rate Drops To Lowest Since 1978; People Not In Labor Force Rise To Record 92.3 Million - No matter how you spin it, today's data was bad: because not only did the headline data disappoint, the labor force participation rate dropped once again to 62.8% from 62.9%, matching the lowest since 1978, as a result of the people not in labor force rising once again, and hitting a new all time high record of 92,269,000, up 268,000 from the prior month. In fact, in August the number of people not in the labor force increased by nearly double the number of people who found jobs, which as we reported previously, was only 142K.

Back at a 36-year low, participation rate may still have more room to fall - Tying a 36-year low, the labor-force participation rate slipped back to 62.8% in August from 62.9% in July. The drop from its 2000 peak of 67.3% represents a number of factors, but much of it is the aging of the workforce.  A Federal Reserve research paper attributes about half the drop to the aging of the baby-boom generation. That’s despite actual rising participation in the working world by those older than 55 due to increasing longevity and better health. There’s also been a decades-long shift away from youth employment, due to greater competition for low-skilled jobs traditionally held by teenagers and young adults. But there’s also an element of weakness in the jobs market playing into the low readings. The Fed paper says as much as 1 percentage point of the decline is due to cyclical factors. In fact, there was a small piece of good news in the August report, in that the participation of those between 25 and 54 years old — prime working age — improved, to 81.1% from 80.8% in July. Still, that’s down from the 83% level in 2008. Where will it go from here? Well, the aging effect is still playing out — the Fed paper estimates a 2.5 percentage point drag over the next 10 years just on baby-boomer retirement. The health of the economy, immigration and changing work patterns could all offset that to some degree, but the decline is probably here to stay.

Don’t Blame Boomers For Unemployed Workers Leaving The Labor Force -- In my roundup of Friday’s jobs report, I noted that, once again, more unemployed workers gave up looking for jobs than found work. I included this chart, versions of which we’ve run several times before: On Twitter, several people asked how much of the trend is explained by the aging U.S. population. It’s a good question. As I’ve written before, the aging of the baby boom generation explains much — though certainly not all — of the steep decline in the labor-force participation rate, the share of the population that’s working or looking for work. It’s reasonable to suspect that the same trend is driving unemployed workers out of the labor force. But while the aging population may be a contributing factor, it isn’t the primary explanation. A breakdown by age shows that most of the unemployed workers leaving the labor force aren’t boomers. In fact, only 5 percent are of retirement age (65 or older), and most aren’t even close.  This shouldn’t be too surprising. Unemployment is concentrated among the young: The unemployment rate for Americans younger than 25 was 13 percent in August, compared to 4.6 percent for those 55 and older. So it makes sense that younger workers would make up an outsize share of those abandoning their job searches.

Wages Are Growing Far Below the Fed’s Target - Despite fears from some inflation hawks, the fact is that the weak labor market of the last seven years has put enormous downward pressure on wages, and there has been no significant pickup in nominal wage growth in recent years. As shown in the figure below, wage growth is far below the 3.5 percent rate consistent with the Federal Reserve Board’s inflation target of 2 percent. It’s clear that Fed policymakers should abandon notions of slowing the economy. (For a longer analysis of what to watch for in upcoming months on wage growth, see this explainer.) What is more than obvious is that employers just don’t have to offer big wage increases to get and keep the workers they need, when hiring rates and net job creation remain far slower than what’s needed to generate healthy labor market outcomes. The result is that over the last year slow nominal wage growth, and inflation-adjusted wage stagnation (or even outright declines), have continued.

53 Million Temps: All You Need To Know About The "Jobs Recovery" -- The chart below shows the civilian employment to population ratio: a convenient indicator of the real state of the US labor market which does away with the labor force entirely, and the associated rhetoric of why it may or may not be plunging, and merely focuses on two simple things: total population and the total civilian population of the US. One thing is clear: the ratio crashed when the depression started and has flatlined since. Which, incidentally, may be all you, and the Fed, needs to know about the recovery.

Comments on Employment Report - Although the headline number and revisions were disappointing, this is just one month of data and historically the employment report is "noisy".  There were some positives in the report: the unemployment rate declined to 6.1%, U-6 (an alternative measure for labor underutilization) was at the lowest level since 2008, the number of part time workers for economic reasons declined, the number of long term unemployed declined to the lowest level since January 2009 - and payroll growth is still on pace to be the best year since 1999. At the current pace (through August), the economy will add 2.58 million jobs this year (2.52 million private sector jobs). Right now 2014 is still on pace to be the best year for both total and private sector job growth since 1999.  Total employment increased 142,000 from July to August, and is now 753,000 above the previous peak.  Total employment is up 9.463 million from the employment recession low. Private payroll employment increased 134,000 from July to August, and private employment is now 1,244,000 above the previous peak (the unprecedented large number of government layoffs has held back total employment). Private employment is up 10.03 million from the low. Through the first eight months of 2014, the economy has added 1,723,000 payroll jobs - up from 1,572,000 added during the same period in 2013.   My expectation at the beginning of the year was the economy would add between 2.4 and 2.7 million payroll jobs this year.  That still looks about right. Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old. In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate has mostly moved sideways (with a downward drift started around '00) - and with ups and downs related to the business cycle. The 25 to 54 participation rate increased in August to 81.1% from 80.8% in July, and the 25 to 54 employment population ratio increased to 76.8% from 76.7%. As the recovery continues, I expect the participation rate for this group to increase - although the participation rate has been trending down for this group since the '90s.

August 2014 Employment Report - I'm sticking to my guns here.  I still think we are due for a gap down in the unemployment rate.  There is a range of about 0.4% of potential reported unemployment in any given month, and I think the odds are that this month's reading of 6.1% (which was under 6.2% by a hair's breadth) was a product of riding the top of the statistical range of a declining rate, as opposed to a leveling off of the trend.  Here are the durations from the past several months. All of the short duration levels rose.  Especially considering continued declines in insured unemployment, this movement seems inaccurate.  Generally, these durations level off after labor market recoveries, with a continued slight drift downward, and a lot of month-to-month noise.  That is almost certainly the case here.  The 0-4 week category, by itself, was about 0.1% above the average from the past 6 months.  The 15-26 week category had fallen to 0.90% last month, but moved back up to 0.95% this month.  We could conservatively expect this to decline to 0.80% before it levels off.  This month's reading was probably also nearly 0.1% above the trend for the category, although this depends partly on expectations for upcoming months. Back in May, after the April report, I outlined a detailed forecast of how we might expect unemployment declines to play out for the rest of 2014.  Here is a graph comparing that forecast to the actual August reading. The reading for August long term unemployment (which is mostly based on the 15-26 week unemployment level from April)came in very close to expectations.  The chart shows the noise in the shorter durations.  But, the real wild card here is 15-26 week durations.
I would expect this to quickly settle 0.15% lower than it came in at for August, and I would also expect this to lead to another 0.2% drop in 27+ week durations, as those better performing cohorts move into the longer durations.  So, the difference between this being a trend versus noise could mean a 0.3%-0.4% difference in the rate at year's end.  As in April, I believe this month mostly reflects noise, so over the next 4 months, if this month did reflect noise, trends would lead to these reductions:

Did Unemployment Benefits Boost Jobless Rate? Only Slightly, Fed Paper Says - The extension of unemployment benefits offered during and after the Great Recession had very little to do with boosting the jobless rate, a new Federal Reserve Board paper says. A number of economists, including some Fed officials, have argued the benefits extension to unprecedented levels — as much as 99 weeks in some states — may have dampened incentives for a proactive job search. However, economists find the data simply do not bear out that hypothesis. Their model identifies just a 0.3 percentage point increase in overall unemployment “at its peak” because of extended or emergency benefits. “We estimate that it had non-negligible effects on the unemployment rate in recent years,” the authors say. The U.S. jobless rate has fallen from a postrecession high of 10% in October 2009 to 6.1% last month. The study also finds no impact at all from extended benefits on the rate of labor force participation, which matched a 36-year low of 62.8% in August and has been a source of concern for Fed officials. Despite recent improvement, the labor market is still some ways from full health, according to most Fed officials. The August jobs report showed a disappointing net gain of just 142,000 new jobs. The central bank believes an unemployment rate in the 5.2%-5.5% range would be more consistent with full employment. That’s one half of the Fed’s congressional mandate, alongside price stability.

Don’t Blame Shrinking Work Force Participation on Great Recession: Fed Board Paper - A decline in the share of Americans holding or seeking jobs is largely the product of longer-term factors such as a rising number of retirees rather than the aftermath of a particularly awful recession, economists at the Federal Reserve board say in a new paper. The U.S. labor force participation rate was 62.9% in July, down from 66% in December 2007 when the recession began and a peak above 67% in 1999. Fed officials have long debated how much of the recent decline in labor force participation is “structural,” and therefore more intractable, or “cyclical,” the result of an unusually weak economic recovery. The difference matters for the central bank because the latter type is more likely to be reversed by Fed policies aimed at boosting economic demand, such as holding interest rates very low. The hope has been that if the economy strengthens, some people who have stopped looking for work—and therefore aren’t counted as part of the labor force—would return to the job market. But if the drop is mostly structural, then very low interest rates aren’t likely to make much difference. The new research comes down squarely on the structural side of the argument. “Much of the steep decline in the labor force participation rate since 2007 owes to ongoing structural influences that are pushing down the participation rate rather than a pronounced cyclical weakness related to potential jobseekers’ discouragement about the weak state of the labor market,” several top central bank staffers write in a paper set to be presented at a Brookings Institution conference next week.

The “40-Hour” Workweek Is Actually Longer — by Seven Hours - Gallup-- Adults employed full time in the U.S. report working an average of 47 hours per week, almost a full workday longer than what a standard five-day, 9-to-5 schedule entails. In fact, half of all full-time workers indicate they typically work more than 40 hours, and nearly four in 10 say they work at least 50 hours. The 40-hour workweek is widely regarded as the standard for full-time employment, and many federal employment laws -- including the Affordable Care Act, or "Obamacare" -- use this threshold to define what a full-time employee is. However, barely four in 10 full-time workers in the U.S. indicate they work precisely this much. The hefty proportion who tell Gallup they typically log more than 40 hours each week push the average number of hours worked up to 47. Only 8% of full-time employees claim to work less than 40 hours. These findings are based on data from Gallup's annual Work and Education Survey. The combined sample for 2013 and 2014 includes 1,271 adults, aged 18 and older, who are employed full time. While for some workers the number of hours worked may be an indicator of personal gumption, for others it may be a function of their pay structure. Hourly workers can be restricted in the amount they work by employers who don't need or can't afford to pay overtime. By contrast, salaried workers generally don't face this issue. And, perhaps as a result, salaried employees work five hours more per week, on average, than full-time hourly workers (49 vs. 44, respectively), according to the 2014 Work and Education survey.

Temp labor at record levels in US - The National Employment Law Project (NELP) reported that both the number of people working for labor contractors and the percentage of the workforce employed by such companies have hit record highs. According to figures from the American Staffing Agency, more than 12 million people, or ten percent of the labor force, worked for a temporary employment agency at some point in 2013. The NELP report showed that, far from being confined to clerical work, temporary workers are increasingly being employed in industry and warehousing. A record 42 percent of temporary workers are now employed in such industries, up from 28 percent in 1990.Workers employed by staffing agencies are subject to lower wages, making an average of $3.40 per hour less than traditional employees. They are more likely to be injured or killed on the job, according to a recent study published by the American Journal of Industrial Medicine.The NELP report concluded: “Major corporations now use [temporary] staffing as a permanent feature of their business model,” adding that “Seventy-seven percent of Fortune 500 firms now use third-party logistics firms, who may then contract out to an army of smaller firms to move their goods.” The article noted that last week a California appeals court ruled that shipping company FedEx deliberately misclassified its delivery drivers as independent contractors, even though they were actually employees, in order to avoid paying them overtime and health and retirement benefits.

The Changing Face of Temporary Employment : The work of temping has changed vastly — today 42 percent of temporary workers labor in light industry or warehouses. And there are more of them. The number of workers employed through temp agencies has climbed to a new high — 2.87 million, according to the Bureau of Labor Statistics, and they represent a record share of the nation’s work force, 2 percent.Labor groups fret that the trend signals the decline of full-time and permanent jobs with good benefits. But what is happening with temp employment is no sharp break with the past.Temp employment has traditionally followed the business cycle, though in an exaggerated way. Temps are disproportionately thrown out of work when there is a slowdown, but when the economy starts to pick up — with businesses still wary of committing to making permanent hires — they disproportionately hire temps.More than five years into a recovery marked by halting growth, many businesses are still adding temp jobs rather than permanent ones. “This is a reflection of business uncertainty, that businesses need to be more responsive, and part of that is keeping their work force flexible,” said Steven Berchem, the chief operating officer of the American Staffing Association.Mr. Berchem is reluctant to accept the government’s numbers. “Certainly staffing employment has grown, and it has returned to prerecession levels,” he said. “Whether it’s a record is still an open question. Our own set of numbers show substantial growth, but not at the level the B.L.S. has.”

It’s harder to reach the American dream if you’re reaching all alone -  “Hours of chaos” is how the New York Times described the work reality of more and more Americans. It highlighted Jannette Navarra, a Starbucks barrista, who is regularly forced to work part-time with fluctuating hours. She usually gets her work schedule three days ahead of the workweek, so she is always scrambling to arrange childcare for her son. Any hope Navarra has of advancing by pursuing a degree is shattered by her inability to schedule classes. These sorts of lousy jobs are the increasing reality for many American workers. They are labeled “contingent” workers — part-time, temporary, on contract, on call. They generally earn lower wages than fulltime employees, with little or no benefits, and constant insecurity. They now represent one-third, perhaps as much as 40 percent of the workforce. The Times focused on new technology that allows Starbucks to micro-manage worker hours to fit outlet demand. This really isn’t about technology, however. It’s about power. Workers have less power in the workplace in part because of continued high unemployment. When jobs are scarce, workers have learned to accept what they can get. It’s is also due to the absence of a worker voice on the job because of the virtual disappearance of unions, particularly in the private sector.

Unemployment Trickles Down to Poorer Workers, Study Finds -- Unemployment “trickles down” to America’s poorest and most vulnerable because, during recessions, higher-income workers with more education take jobs that are below their qualification level, according to new research. Such underemployment, in turn, leaves fewer job openings for which the so-called lower-skilled workers are qualified. “Some high-skill workers move down the occupational ladder in order to find a job more easily,” write Regis Barnichon and Yanos Zylberberg, economists at CREI, Universitat Pompeu Fabra, in Barcelona. “Through this process, unemployment trickles down from the upper-occupation groups to the lower-occupation groups, so that high-skill workers enjoy not only higher expected income but also lower income volatility.” “Job competition is biased and favors high skills, because a high-skill worker applying to a low-skill job is systematically hired over competing low-skill applicants,”  the CREI research paper finds. “Trickle-down unemployment can be a powerful redistributive mechanism” that further boosts already historically elevated levels of income inequality, the authors add. The U.S. unemployment rate has fallen sharply from a postrecession peak of 10% in October 2009 to 6.2% in July, still well above the 5.2%-5.5% range Federal Reserve officials expect to see in the long run. This rate is technically known as the U-3 rate, which counts the number of unemployed people actively looking for work as a share of the total labor force

The United States Leads in Low-Wage Work and the Lowest Wages for Low-Wage Workers - Fast-food workers across the country are on strike today, as a way of demanding higher wages and calling attention to the extremely low wages of low-wage workers. As Elise Gould shows in her recent paper, Why America’s Workers Need Faster Wage Growth—And What We Can Do About It, the wages of low-wage workers (the 10th percentile of wage earners) declined by five percent over the 1979-2013 period, despite a generation of productivity gains (64.9 percent).  Low-wage workers in the United States also fare very poorly by international standards, as the OECD’s recent Employment Outlook report reminds us. In the United States, according to the OECD, 25.3 percent of workers had “low-pay”—earning less than two-thirds of the median wage—which was the highest incidence of low-pay work among the twenty-six countries surveyed and far higher than the OECD average of 16.3 percent. In fact, as the figure below shows, low-wage workers fare worse in the United States than any other OECD nation. Low-wage workers earned just 46.7 percent of that of the median worker—far beneath the OECD average of 59.9 percent in 2012. To catch up to the OECD average, U.S. low wage workers would need a 28 percent wage boost.

Labor Day anxiety: Will wages ever start rising? (+video) - As Americans pause for Labor Day, workers can be forgiven for wondering: Will all the talk of an improving job market ever translate into rising wages? It’s been five years since the official end of the Great Recession, as reckoned by economists. The job market has been improving – with employment growth solid if unspectacular. The unemployment rate has been falling. There have even been pay raises. But when measured against inflation in consumer prices, the average hourly wage for workers has flat-lined over the 12 month ended in July, according to the Labor Department. Performance for the year before that was the same – with wages struggling to match a rising cost of living.On one level that’s disappointing but not shocking. Wages don’t always rise faster than inflation, even in a good economy. And it can take a while after a recession for the labor market to tighten, so that employers feel pressure to pay more as they compete for workers. But some measures suggest that the depth of the 2007-2009 recession, coupled with the slow job recovery since then, has made it even harder than usual for workers to get meaningful raises. Many economists say that, as the economy continues to gradually strengthen over time, the wage picture should improve. But they are divided over how quickly that will occur.

Actually, the Chinese Can Do the High-Skilled Jobs at Lower Wages -- Joe Nocera had a good piece discussing the plight of factory workers in the United States subjected to low cost competition from China and other developing countries. He argues that the government has done too little to help the workers and the communities that have suffered from such competition. However his prescription, that workers should get more skills, is somewhat misleading. While it is always better to have a more skilled workforce, one of the main reasons that more skilled workers have done better in the era of globalization is that they have been largely protected from the same sort of competition faced by less-educated workers. While trade agreements were explicitly designed to put manufacturing workers in direct competition with the low-paid workers in the developing world, there has been no similar effort to subject our doctors, dentists, lawyers and other highly paid professionals to the same sort of competition. Trade agreements could have focused on reducing barriers that make it difficult for qualified professionals from the developing world to work in the United States. For example, we could have fully transparent sets of standards to become a doctor or lawyer in the United States, with tests administered in other countries (by U.S. certified test givers). Anyone from Mexico, India, or China who passed these tests would have the same ability to work in the United States as someone who grew up in Kansas.  The potential benefits to consumers and the economy would run into the hundreds of billions of dollars annually. And this would have the effect of shifting income downward rather than upward. (Yes folks, we can design a mechanism to reimburse developing countries for the professionals they educated who come here, which would ensure they gain as well.)

How to Eliminate the Scourge of Unemployment: Jobs Now at a Living Wage -- L. Randall Wray It is amazing no one has thought of this before. Seven years after the GFC began, we’ve still got up to 25 million people who want jobs but cannot find them. Of course that’s far more than the official unemployment numbers—which don’t count anyone who worked just an hour or so, or who gave up looking altogether. Gee, I wonder how on earth we can find a solution to joblessness, or to low pay? It is all so complicated. How can we stroke the business class in just the right way to get them to create a job or two? How can we prevent our corporations from taking jobs abroad? Should we slash “guv’ment” regulations to raise the spirits of our business undertakers? Maybe we should just eliminate minimum wages so that they can afford “expensive” American labor? Then we could compete with Viet Nam. Or slash taxes to boost the supply side? Or maybe we should just throw-in the towel and admit that we’ll never solve the problem of unemployment? Just throw more welfare hand-outs at the jobless? Expand the dependent classes to include more of the able-bodied. Admit that our Captains of Industry as well as our Public Stewards have failed us. We have created a dysfunctional social system that cannot provide jobs to those who work. As Hyman Minsky put it a half-century ago, we must pursue an alternative: ““We have to reverse the thrust of policy of the past 40 years and move towards a system in which labor force attachment is encouraged. But to do that we must make jobs available; any policy strategy which does not take job creation as its first and primary objective is but a continuation of the impoverishing strategy of the past decade.” Here’s an idea: why not create jobs with decent pay? Now, why didn’t anyone ever think of that before?

More Workers Are Claiming ‘Wage Theft’ - — Week after week, Guadalupe Rangel worked seven days straight, sometimes 11 hours a day, unloading dining room sets, trampolines, television stands and other imports from Asia that would soon be shipped to Walmart stores.Even though he often clocked 70 hours a week at the Schneider warehouse here, he was never paid time-and-a-half overtime, he said. And now, having joined a lawsuit involving hundreds of warehouse workers, Mr. Rangel stands to receive more than $20,000 in back pay as part of a recent $21 million legal settlement with Schneider, a national trucking company.“Sometimes I’d work 60, even 90 days in a row,” said Mr. Rangel, a soft-spoken immigrant from Mexico. “They never paid overtime.”  The lawsuit is part of a flood of recent cases — brought in California and across the nation — that accuse employers of violating minimum wage and overtime laws, erasing work hours and wrongfully taking employees’ tips. Worker advocates call these practices “wage theft,” insisting it has become far too prevalent.Some federal and state officials agree. They assert that more companies are violating wage laws than ever before, pointing to the record number of enforcement actions they have pursued. They complain that more employers — perhaps motivated by fierce competition or a desire for higher profits — are flouting wage laws.

Fedex’s Ruthless Approach to Misclassifying Employees Ruled Unlawful by California Court - In California last week, the Ninth Circuit of Appeal ruled in favor of 2,300 FedEx drivers who were illegally misclassified as independent contractors.  The class action lawsuit covers drivers who worked in California between 2000 and 2007.   While no monetary penalty or settlement has been announced, the ruling could potentially leave FedEx on the hook for hundreds of millions of dollars.   In the majority opinion, Judge W. Fletcher made it clear the class of workers were misclassified, writing, “We hold that plaintiffs are employees as a matter of law under California’s right-to-control test.” Independent contractors are a major part of FedEx’s business model. The ruling could have a tremendous effect on the company’s employees henceforth, as attorney Beth A. Ross told CNBC: Those misclassified by FedEx had to deal with the following everyday occurrences:

FedEx Ground drivers were required to pay out of out of pocket for everything from the FedEx Ground branded trucks they drove (painted with the FedEx Ground logo) to fuel, various forms of insurance, tires, oil changes, maintenance, etc. as well as their uniforms, scanners and even workers compensation coverage.
• In some cases workers were required to pay the wages of employees who FedEx Ground required them to hire to cover for them if they were sick or needed a vacation, to help out during the Christmas rush, and in some cases to drive other FedEx Ground trucks.

Fast Food Workers Plan Another Strike in 150 Cities - Fast food workers around the country are planning another set of one-day walkouts this Thursday, according to Fast Food Forward, an organizing group for the protests. The strikes will take place in 150 cities at restaurants such as McDonald’s, Wendy’s and KFC. Fast-food workers have spent almost two years using such walkouts as part of an ongoing campaign to demand pay of $15 an hour—what they call a living wage—and the right to unionize. The average hourly wage for restaurant workers was $8.74 as of May 2013, according to the Bureau of Labor Statistics.The efforts began with 200 fast-food workers in New York City in November 2012 and have since become a regular occurrence across the country every three or four months. In their attempts to reach their stated goals, the workers’ efforts have so far yielded modest results. In May Daisha Mims, a McDonadl’s employee who has participated in walkouts, told TIME she’d received 35 cents in raises since the strikes began. “I still feel as though I need a second job,” she said at the time. Organizers pointed to similarly sized gains for a small number of individuals across the country.But there have been larger shifts in the labor landscape that seem clearly influenced by the fast food workers’ actions. Thirteen states increased their minimum wages at the start of the year by an average of 28¢, according to the National Employment Law Project, and the city of Seattle has approved a $15 minimum wage. More recently, the National Labor Relations Board ruled in July that McDonald’s is jointly responsible for wage and labor violations that are enacted by its franchise owners. Previously, McDonald’s and other fast food corporations have argued that franchisees are solely responsible for determining the wages and working conditions for their restaurants. McDonald’s has said it will appeal the decision.

Fast food strikes hit 150 US cities — For nearly a month and a half, protesting fast food workers have insisted that they were willing to do “whatever it takes” in order to earn union recognition and a higher wage. On Thursday, they demonstrated what that means. Hundreds of workers across the United States engaged in non-violent acts of civil disobedience, risking arrest to demonstrate their commitment to boosting wages and working conditions. In Durham, N.C., 23 workers occupied a series of increasingly busy street intersections, sitting on the pavement and block traffic for an hour or so before moving on to the next location. Other workers chanted and danced around those who were obstructing traffic, as a drum line of supporters pounded away on their snare and bass drums. All told, thousands of fast food workers across 150 U.S. cities walked off the job on Thursday. Hundreds of those workers — nearly 500 of them, according to a public relations firm supporting the strikes — willfully committed civil disobedience as part of their protest, and were subsequently arrested by the police. A member of Congress who participated in one of the protests was also arrested.

What Unions No Longer Do, by Justin Fox: Forty years ago, about quarter of American workers belonged to unions, and those unions were a major economic and political force. Now union membership is down to 11.2% of the U.S. workforce, and it’s increasingly concentrated in the public sector — only 6.7% of private-sector workers were union members in 2013. This isn’t exactly news... What doesn’t get talked about so much, though, are the consequences. Income inequality has, for example, become a hot topic. You might think that the dwindling away of an institution that devoted much of its energy to equalizing incomes would be a big part of that discussion. It hasn’t been.Jake Rosenfeld, an associate professor of sociology at the University of Washington ... is out to change that. His book What Unions No Longer Do ... is an account of Rosenfeld’s attempt to empirically establish (mainly through a lot of regressions...) the consequences of Big Labor’s decline. ... [H]ere, for Labor Day, are the four big things that, according to Rosenfeld, unions in the U.S. no longer do:

    • Unions no longer equalize incomes. ...
    • Unions no longer counteract racial inequality. ...
    • Unions no longer play a big role in assimilating immigrants. ...
    • Unions no longer give lower-income Americans a political voice.

The class war in American politics is over. The rich won. -  There are no two words in politics I hate hearing more than "class warfare." You'd think I'd like the term. For the last seven years, I've been researching class and politics in America. Class warfare should be my thing. But it's just a huge lie, a metaphor used by elites to cover up the fact that they've already won. The simple fact is you can't have a war when there's only one side. And right now, one class of Americans is almost entirely locked out of our political institutions. So don't listen to the class war nonsense. Here are five ways that class actually matters in American politics.
1) Our political institutions are packed with rich people
2) Yes, the big problems do divide America by class
3) Rich politicians tend to support policies that rich people like
4) It's getting harder for lower-income and working-class people to influence our political institutions from the outside
5) Money and power is good at protecting money and power

Minimum Wage Levels, by state -- Political Calculations has a great post with some interactive maps that allow you to compare minimum wage levels and cost of living among the 50 states.  I have been a little worried, because it seems as though a decent number of states are starting to increase minimum wages above the Federal level.  As Political Calculations has pointed out, they were starting to do that about 15 years ago, before the national level caught up with most of them in 2007-2009.But, looking at his recent post, it seems that most of the increases are in states with higher costs of living.  A comparison of minimum wage employment as a proportion of the labor force suggests that at levels below about 28% of the average wage, at the national level, the legal minimum wage mostly appears to stop being a binding constraint.  We are probably nearing that level now at the national level.  So, if states with high average wages raise their legal minimum wage levels moderately, it may not create a significant amount of labor dislocation. As shown in this map, many of the high-wage/high-cost states have relatively low minimum wage levels, when adjusted for cost of living.  Washington and Oregon are the only states with grossly inflated minimum wage levels, adjusted for cost. This might signal a build up to an eventual national hike in the next few years.  And, if that does happen, the effect of the minimum wage on employment might be similar to past experience, even with a few states already above the new minimums, because it would be having an effect in the states where it is the most binding.

California Minimum-Wage Earners Work 19 Hours-A-Day, 7 Days-A-Week To Afford Rent -- Thanks to The Fed-inspired fast-money flood driving up asset prices, owning or even renting a home has become unaffordable to most. Working a 40-hour-week, a single-earner in D.C. would need to be paid a $28.25 minimum wage for afford to rent a home... and if you live in California (and earn minimum wage), you will need to work 18.6 hours-a-day, 7 days-a-week to afford rent. Thank you Ben and Janet...

It's OK to make money hurting the poor, but not helping them - “We allow people to make huge profits doing any number of things that will hurt the poor, but we want to crucify anyone who wants to make money helping them.” These are the words of Dan Pallotta, an entrepreneur who, until the early 2000s, ran a company that organized charity fundraisers. In 2002, the company netted $81 million for charity—a figure equivalent to about half the annual giving of The Rockefeller Foundation. But it was based on a for-profit model, and it compensated as such, with Pallotta himself earning about $400,000 per year. When word of his salary got out, he came under intense criticism. “Shame on Pallotta,” concluded one critic. But why? “Want to make a million selling violent video games to kids? Go for it,” Pallotta is quoted as saying in a 2008 New York Times column by Nicholas Kristof. “Want to make a million helping cure kids of cancer? You’re labeled a parasite.”   The problem is, people have a “general bias against the very notion of seeking personal gains from charity,” according to a recent paper in Psychological Science, authored by George Newman and Daylian Cain, both of Yale SOM. “People [evaluate] charitable actions that were ‘tainted’ by personal benefits as worse (less moral, ethical, etc.) than equivalent self-interested behaviors that produced no charitable benefit.” The authors labeled this the tainted-altruism effect. ...

With little progress against poverty, U.S. household food insecurity remains above 14% -  The prevalence of household food insecurity in the United States remained above 14% in 2013, according to new data released today by USDA's Economic Research Service. Here is the abstract to today's report: An estimated 14.3 percent of American households were food insecure at least some time during the year in 2013, meaning they lacked access to enough food for an active, healthy life for all household members. The change from 14.5 percent in 2012 was not statistically significant.The prevalence of very low food security was essentially unchanged at 5.6 percent. Household food insecurity means that some household members at some times of the year experienced food-related hardships (the household respondent gave 3 or more "yes" answers to a set of 18 survey questions about experiences of hardship). The high rate of household food insecurity represents a major disappointment for U.S. anti-poverty policy. Rates of household food insecurity fell during the economic expansion of the 1990s, stagnated in the early 2000s, and rose dramatically during the financial crisis of the late 2000s. Despite hopes for renewed economic growth and reduced unemployment, these remain very difficult times for low-income Americans. In previous years, the United States solemnly adopted targets for reducing the prevalence of food insecurity from 12% (the level observed in the mid-1990s) to 6%. As my chart (based on USDA data) shows, this effort to improve U.S. food security has failed.

US household food security fails to improve --More U.S. households are having a hard time putting food on the table than before the recession. But there is a sliver of hope: The numbers are not going up. In 2013, 14.3 percent of households (17.5 million) experienced varying degrees of food insecurity, according to a report released Wednesday by the U.S. Department of Agriculture. The change from 2012 was not statistically significant, but the latest research shows a slight dip since 2011, when 14.9 percent of households suffered from hunger or poor nutrition. “It’s a matter of interpretation if you think it’s good news or bad news,” said Alisha Coleman-Jensen, lead researcher with the USDA’s Economic Research Service. “We didn’t find anything that got worse. Basically, it seems like things are holding steady or improving a little bit, but it’s not down to those prerecession levels.” In 2013 there was not enough food for families at various times during the year in 6.8 million homes, or 5.6 percent of households. In 3.8 million homes, families were not able to provide adequate, nutritious food for their children. But the number of homes with kids who experienced hunger has dropped a bit since 2011. “What people don’t realize is that the rate of insecure households with children under 6 actually increased,”

Food-Stamp Use Starting to Fall - After soaring in the years since the recession, use of food stamps, one of the federal government's biggest social-welfare programs, is beginning to decline. There were 46.2 million Americans on food stamps in May, the latest data available, down 1.6 million from a record 47.8 million in December 2012. Some 14.8% of the U.S. population is on the Supplemental Nutrition Assistance Program, or SNAP, down from 15.3% last August, U.S. Department of Agriculture data show. Food-stamp use remains high, historically speaking. The share of Americans on the benefit—which lets them buy basics like cereal and meat and treats like cookies, but not tobacco, alcohol or pet food—is above the 8% to 11% that prevailed before the financial crisis. And experts expect enrollment and costs to keep falling: As more Americans find jobs and collect paychecks, fewer will be eligible, lowering program costs. The Congressional Budget Office sees food-stamp costs—now running at $80 billion, or 0.5% of gross domestic product—returning to 1995 levels around 0.35% as a share of GDP in five years.

America’s growing food inequality problem - Income inequality isn't the only gap the U.S. needs to mind these days; the country is amassing a sad and expensive discrepancy between what its poor and rich eat.  America's wealthiest people are eating better, while its poorest are eating worse, concludes a new study published this week in The Journal of the American Medical Association Internal Medicine, which measured the quality of diets among American adults between 1999 and 2010. "Socioeconomic status was associated strongly with dietary quality, and the gaps in dietary quality between higher and lower SES [socioeconomic status] widened over time." the study said. On the one hand, the analysis found that the American diet, on the whole, improved during the observed period. "Our study suggests that the overall dietary quality of the U.S. population steadily improved from 1999 through 2010," the study said, suggesting that Americans are likely responding to recent nutrition education efforts. That's consistent with a number of macroeconomic food trends, including America's shift away from soda. But that improvement, however encouraging, doesn't appear to be happening society-wide. Americans in the top socioeconomic tier are leading the charge while Americans in the bottom tier are being left behind.  The researchers found the yawning nutrition gap. The difference in median index value between what the study considers a high socioeconomic status and what it considers a low socioeconomic status rose from 5.7 in 1999 to 7.3 in 2010.

Puerto Rico economic activity drops to 20-year low (Reuters) - Economic activity in Puerto Rico fell in July for a nineteenth straight month to a 20-year low, according to a government economic activity index published on Friday.The Government Development Bank's economic activity index (EAI) fell 0.7 percent year-on-year in July. That brought the index level back to 125.1, the lowest since 1994. The report is another indication that the island's economy continues to struggle, posing a headache for the government as it deals with budget deficits and high levels of debt. Puerto Rico says the index strongly correlates to the island's gross national product. Puerto Rico's economy has been in or near recession since 2006. However, the EAI, which began a steep decline in 2006 that did not halt until 2011, has shown some signs of stabilization since then, despite July's drop. true July's drop was mainly concentrated in cement sales and gasoline consumption. Cement sales fell 6.9 percent year-on-year to 1.25 million bags in July, while gasoline consumption dipped 7.2 percent to 81.9 million gallons.

Atlantic City facing unprecedented economic collapse: The Atlantic City region is on the brink of a short-term economic disaster. Atlantic City made history 36 years ago when it opened the first legal casinos in the United States outside Las Vegas. Now it's doing so again as casino employment - which for years exceeded the number of city residents - drops precipitously after a decade of steady decline. The closing of three casinos, starting with Showboat and Revel this weekend followed by Trump Plaza two weeks later, and the rapid-fire loss of 5,700 jobs, draw historic comparisons to longer-term collapses of U.S. industries such as steel.  Showboat closing its doors today at 4 p.m. "This is a massive economic body blow to Atlantic City on par with the hit to the national economy during the Great Recession," said Mark Zandi, chief economist at Moody's Analytics in West Chester. Beyond the thousands of job losses, which will spread into related industries and the general economy, Atlantic City will soon be left with four empty buildings (including the shuttered Atlantic Club) that have no clear future. "What we've got in Atlantic City is unprecedented. It hasn't happened before in this type of context, where they are going to shutter them up and literally can't give them away for pennies on the dollar, like Revel,"

Nevada is Biggest Loser of Tesla Auction -- On September 4, Nevada Governor Brian Sandoval announced that electric car-maker Tesla had chosen Nevada for the location of its much sought-after Gigafactory. Contrary to its claim that it wanted $500 million, Tesla in fact wanted speed plus the highest bidder. As I analyzed last month, a $500 million subsidy would have been relatively low as measured by the benchmarks of cost per job and aid intensity (subsidy divided by investment). Instead, Nevada gave Tesla subsides worth $1.25 billion over 20 years. This is not a good deal, as I will detail below. First, of course the cost was far higher than Tesla had hinted; it clearly was just trying to squeeze extra incentives out of the “winner” by conducting a five-state auction. Using a discount rate of 2.5% (the 10-year Treasury bond yield on Sept. 4 was 2.45%) the $1.25 billion in nominal value has a present value of about $1.1 billion, by my calculations. In fact, it is probably quite close to the full $1.25 billion because the sales tax breaks based on the actual investment in plant and equipment will be heavily front-loaded, not spread evenly over the 20-year period.

Infrastructure Cracks as Los Angeles Defers Repairs — The scene was apocalyptic: a torrent of water from a ruptured pipe valve bursting through Sunset Boulevard, hurling chunks of asphalt 40 feet into the air as it closed down the celebrated thoroughfare and inundated the campus of the University of California, Los Angeles. By the time emergency crews patched the pipe, 20 million gallons of water had cascaded across the college grounds. The failure of this 90-year-old water main, which happened in July in the midst of a historic drought, no less, was hardly an isolated episode for Los Angeles. Instead, it was the latest sign of what officials here described as a continuing breakdown of the public works skeleton of the second-largest city in the nation: its roads, sidewalks and water system. With each day, it seems, another accident illustrates the cost of deferred maintenance on public works, while offering a frustrating reminder to this cash-strained municipality of the daunting task it faces in dealing with the estimated $8.1 billion it would take to do the necessary repairs. The city’s total annual budget is about $8.1 billion.Los Angeles’s problems reflect the challenges many American cities face after years of recession-era belt-tightening prompted them to delay basic maintenance. But the sheer size of Los Angeles, its reliance on the automobile and, perhaps most important, the stringent voter-imposed restrictions on the government’s ability to raise taxes have turned the region into a symbol of the nation’s infrastructure woes.

Detroit: "Now Is Not the Time for Defiant Swagger..." -- Let's get literal about the judicial role at this juncture. There's no way over the finish line without a determination by the bankruptcy court that the City has met its burden of showing its plan satisfies all legal requirements by a preponderance of the evidence. This standard includes the City showing that the plan is not likely to fail. Back in January 2014, as the parties negotiated the plan's initial version, Judge Rhodes called for restraint in creditor demands, modesty in City promises: Now is not the time for defiant swagger or for dismissive pound-the-table, take-it-or-leave-it proposals that are nothing but a one-way ticket to Chapter 18 ... . If the plan ... promises  more to creditors than the city can reasonably be expected to pay, it will fail, and history will judge each and everyone of us accordingly.  Detroit's plan includes revitalization investments, and does so not merely to show how it will service its debt. That scope takes the court into a farther-reaching review.  And the judge appointed his own feasibility expert, and is planning to conduct the direct examination of the expert himself. Such factors further fuel the image of a judge as gatekeeper of Detroit's future. Yet, no bankruptcy judge should be saddled with the full weight of longstanding socio-economic and geographic challenges. Historian Thomas Sugrue teaches us that the roots of Detroit's crisis run quite deep. Deeper than the recent past of corruption in the Kilpatrick administration, or dependence on casino revenues, interest rate swaps on certificates of participation, or questions about thirteenth checks. Even before the height of worries about auto industry competition abroad, or the enactment of Michigan constitution language on pensions. By Sugrue's account, Detroit's economic decline started in the 1940s and 1950s with hemorrhaging (his word) of good jobs and capital. For the spiral downward from there, the book is here, the speech, 19 minutes into the video, there.  Repair depends on collaborative work: many tools, many hands.

The Bankruptcy of Detroit and the Division of America - Robert Reich - Detroit is the largest city ever to seek bankruptcy protection, so its bankruptcy is seen as a potential model for other American cities now teetering on the edge. But Detroit is really a model for how wealthier and whiter Americans escape the costs of public goods they’d otherwise share with poorer and darker Americans.Judge Steven W. Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan is now weighing Detroit’s plan to shed $7 billion of its debts and restore some $1.5 billion of city services by requiring various groups of creditors to make sacrifices.No one knows whether Judge Rhodes will accept or reject the plan. But one thing is for certain. A very large and prosperous group close by won’t sacrifice a cent: They’re the mostly-white citizens of neighboring Oakland County. Oakland County is the fourth wealthiest county in the United States, of counties with a million or more residents.In fact, Greater Detroit, including its suburbs, ranks among the top financial centers, top four centers of high technology employment, and second largest source of engineering and architectural talent in America. The median household in the County earned over $65,000 last year. The median household in Birmingham, Michigan, just across Detroit’s border, earned more than $94,000. In nearby Bloomfield Hills, still within the Detroit metropolitan area, the median was close to $105,000.

Judge puts off decision on Detroit water shutoffs, orders mediation (Reuters) - A federal bankruptcy judge has ordered Detroit and civil rights attorneys into two weeks of confidential mediation over the city's practice of shutting off water to residents with unpaid bills.Federal Bankruptcy Judge Steven Rhodes will announce on Sept. 17 whether he will issue a temporary restraining order on Detroit's controversial attempt to reduce its $90 million backlog of unpaid water bills, according to an order signed on Tuesday and publicly released on Wednesday. Until then, the court's chief judge, Phillip Shefferly, will mediate negotiations with the bankrupt city and those who filed a class action to stop the city from cutting off water access to delinquent accounts. The Motor City received international criticism this summer when it halted service to residents who were months behind or owed thousands of dollars on their water bills. It then put in place a one-month moratorium on shutoffs and introduced payment plans. true The moratorium ended last week and cutoffs resumed. Rhodes is currently holding a confirmation hearing on Detroit's plan to exit its historic bankruptcy.

Incarceration society - It is becoming increasingly clear that the criminal justice system is an important component of the system of race in the United States today. Michelle Alexander's important book The New Jim Crow: Mass Incarceration in the Age of Colorblindness makes the case that the war on drugs and the war on crime have functioned disproportionately to incarcerate and control young black men in America's inner cities. Here is how she summarizes her position: What has changed since the collapse of Jim Crow has less to do with the basic structure of our society than with the language we use to justify it. In the era of colorblindness, it is no longer socially permissible to use race, explicitly, as a justification for discrimination, exclusion, and social contempt. So we don’t. Rather than rely on race, we use our criminal justice system to label people of color “criminals” and then engage in all the practices we supposedly left behind. Today it is perfectly legal to discriminate against criminals in nearly all the ways that it was once legal to discriminate against African Americans. Once you’re labeled a felon, the old forms of discrimination—employment discrimination, housing discrimination, denial of the right to vote, denial of educational opportunity, denial of food stamps and other public benefits, and exclusion from jury service—are suddenly legal. As a criminal, you have scarcely more rights, and arguably less respect, than a black man living in Alabama at the height of Jim Crow. We have not ended racial caste in America; we have merely redesigned it

I just freed an innocent man from death row. And I’m still furious. - Watching an innocent client walk out of prison is every defense lawyer’s dream, especially for those of us who represent people condemned to die. This week, I got to watch my client, Henry McCollum, North Carolina’s longest serving death row inmate, regain his freedom after 30 years behind bars. New DNA evidence turned up by the N.C. Innocence Inquiry Commission proved that another man, a serial rapist and murderer, was the perpetrator in the crime for which Henry and his brother, Leon Brown, were sentenced to death in Robeson County in 1984. Finally proving Henry and Leon’s innocence was a great victory, but what I cannot forget is that this case is, above all, a tragedy. Two innocent men — both intellectually disabled — spent three decades of their lives being, essentially, tortured by the state of North Carolina.

The Stupendous Failure Of Big City Education: How The Philly Teachers Union Loots The Schools -- So let us get this straight. The average Philadelphia teacher is receiving compensation and benefits of $112,700 and 50% of their students dropout; while of the remaining students only 45% can do math, 35% can read, and 30% can write. But at least they have some nice murals dotting the decaying schools. Furthermore, every new year will bring higher 'fairer' pension payment requirements. This is a crisis that grows larger by the day and is willfully ignored by politicians beholden to these government unions. The sheer idiocy of the following plan to "save" the schools this year is lost on the brainless media twits mouthing the teacher's union talking points.

iFail: Why John Deasy's Risky iPad Gambit Crashed and Burned at LAUSD - In a surprising reversal, L.A. Unified Superintendent John Deasy has abruptly halted the district's billion-dollar technology program, which aimed to put an iPad into the hands of every student and teacher by the end of, yes, this year. It's a rare retreat for the headstrong superintendent intent on getting the tablets into classrooms as soon as humanly possible. But it comes after more than a year of negative news stories – everything from LAUSD students "hacking" devices to the incomplete iPAD-friendly software to an allegedly chummy bidding process in which Deasy gave Apple and Pearson, the software company, a leg up.  "We have an opportunity to put a halt on the current contract, write a new contract, address those issues that are suboptimal,"  Deasy tells us. "We’re a tiny way into it. We've given them out to 47 schools. There are 1,019 [schools] to go."  Deasy's plan had gotten all sorts of bad press over its cost, over Apple's involvement and over the troubled initial roll-out to the schools. And during the weekend, the Los Angeles Times and KPCC published eyebrow-raising emails that were released to both news organizations in response to their public records requests.  The stories seemed to confirm the longtime rumor that Pearson and, to a lesser extent, Apple, were unfairly favored.

Attendance Rates for U.S. K-12 Teachers - Tim Taylor - My heart always sinks a bit when one my children reports over dinner that their class had a substitute teacher that day. What usually follows is a discussion of the video they watched, or the worksheet they filled out, or how many other children in the class (never mine, of course) misbehaved. How prevalent is teacher absence from classes in the U.S.? The National Council on Teacher Quality collects some evidence in its June 2014 report "Roll call: The importance of teacher attendance. The study collected data from 40 urban school districts across the United States for the 2012-13 school year. The definition of "absence" in this study was that a substitute teacher was used in the classroom. Thus, the overall totals mix together the times when a teacher was absent from the classroom for sickness, for other personal leave, and for some kind of professional development. As the authors of the study note: "Importantly, we looked only at short-term absences, which are absences of 1 to 10 consecutive days. Long-term absences (absences lasting more than 10 consecutive days) were not included to exclude leave taken for serious illness and maternity/paternity leave." The average teachers across these 40 districts was absent 11 days during the school year. This amount of teacher absence matters to students. The NCTQ study cites studies to make the point: " As common sense suggests, teacher attendance is directly related to student outcomes: the more teachers are absent, the more their students’ achievement suffers. When teachers are absent 10 days, the decrease in student achievement is equivalent to the difference between having a brand new teacher and one with two or three years more experience."

Back to College, the Only Gateway to the Middle Class - Robert Reich - This week, millions of young people head to college and universities, aiming for a four-year liberal arts degree. They assume that degree is the only gateway to the American middle class. It shouldn’t be. For one thing, a four-year liberal arts degree is hugely expensive.  And too many of them can’t find good jobs when they graduate, in any event.  They end up overqualified for the work they do, and underwhelmed by it. Others drop out of college because they’re either unprepared or unsuited for a four-year liberal arts curriculum. When they leave, they feel like failures. We need to open other gateways to the middle class. Consider, for example, technician jobs. They don’t require a four-year degree. But they do require mastery over a domain of technical knowledge, which can usually be obtained in two years. Technician jobs are growing in importance. As digital equipment replaces the jobs of routine workers and lower-level professionals, technicians are needed to install, monitor, repair, test, and upgrade all the equipment. Hospital technicians are needed to monitor ever more complex equipment that now fills medical centers; office technicians, to fix the hardware and software responsible for much of the work that used to be done by secretaries and clerks. Automobile technicians are in demand to repair the software that now powers our cars; manufacturing technicians, to upgrade the numerically controlled machines and 3-D printers that have replaced assembly lines; laboratory technicians, to install and test complex equipment for measuring results; telecommunications technicians, to install, upgrade, and repair the digital systems linking us to one another.

The Value of a College Degree - NY Fed -- Not so long ago, people rarely questioned the value of a college degree. A bachelor’s degree was seen as a surefire ticket to a career-oriented, good-paying job. Today, however, many people are uncertain whether going to college is such a wise decision. It’s easy to see why. Tuition costs have been rising considerably faster than inflation, student debt is mounting, wages for college graduates have been falling, and recent college graduates have been struggling to find good jobs. These trends might lead one to believe that college is no longer a good investment. But when you dig into the data, is this really true? This week, we examine the value of a college degree in a four-part blog series. In this first post, we do the basic math and show that despite what appears to be a set of alarming trends, the value of a bachelor’s degree for the average graduate has held near its all-time high of about $300,000 for more than a decade.

A College Degree Pays Off Far Faster Than It Used To -  College graduates may be taking on historically high debt burdens to finance their educations. But it will take them far less time to get a return on that “investment” than it took their parents’ generation. That’s the conclusion of new research from the Federal Reserve Bank of New York. Researchers there estimate someone earning a bachelor’s degree in 2013 will need 10 years to recoup the entire cost of that degree. Those who earned a bachelor’s in 1983 needed 23 years to do so. That’s the good news. The bad news is that the shift has a lot to do with the plight of those who never went to school, rather than simply the higher wages of college graduates. The Fed first had to calculate the cost of a bachelor’s, a sum that includes direct costs and “opportunity” costs. Direct costs are tuition and fees. “Opportunity” costs are foregone wages that students would have earned had they worked those four years (or three, or five) instead of going to school. The New York Fed, using data from the federal government and the College Board, pegs the total cost of a bachelor’s degree in 2013 at $122,000 ($26,000 in net tuition and fees over four years; roughly $96,000 in foregone wages). Researchers then calculated the value of a bachelor’s degree by calculating how much more graduates earn, on average, than those who never graduated, or the “wage premium.” So the chart above reflects the number of years that wage premium would take to pay off the total costs of earning a bachelor’s. The chart seems counterintuitive given that wages of college grads have been stagnant while tuitions and debt loads have climbed. But the New York Fed researchers conclude the main driver is the weak earnings of high school grads.

Staying in College Longer Than Four Years Costs More Than You Might Think - NY Fed - In yesterday’s blog post and in our recent article in the New York Fed’s Current Issues series, we showed that the economic benefits of a bachelor’s degree still outweigh the costs, on average, even in today’s difficult labor market. Like others who assess the value of a bachelor’s degree, we base our estimates on the assumption that a student takes four years to finish the degree. But it is not uncommon for people to take longer than that. In fact, recent data indicate that among those who complete a bachelor’s degree within six years, only about two-thirds finish in four years or less. What does it cost to stay in college for a fifth or sixth year before finishing that degree? Perhaps more than you might think.  How should we measure the costs of taking an extra year or two to complete a bachelor’s degree? The most obvious cost is the extra tuition and fees that must be paid (room and board are not really an extra cost from an economic perspective, since they have to be purchased regardless of whether one is in school). In our recent article, we showed that the average net tuition cost—which reflects what the average student actually pays out-of-pocket when various forms of aid and tax benefits are taken into account—is a little more than $6,500 per year. However, in economic terms, tuition is only a small part of the extra costs incurred for that fifth or sixth year of school. There are also opportunity costs to consider, and these add up in ways that may not be obvious at first glance.

College May Not Pay Off for Everyone -- New York Fed - In our recent Current Issues article and blog post on the value of a college degree, we showed that the economic benefits of a bachelor’s degree still far outweigh the costs. However, this does not mean that college is a good investment for everyone. Our work, like the work of many others who come to a similar conclusion, is based in large part on the empirical observation that the average wages of college graduates are significantly higher than the average wages of those with only a high school diploma. However, not all college students come from Lake Wobegon, where “all of the children are above average.” In this post, we show that a good number of college graduates earn wages that are not materially different from those of the typical worker with just a high school diploma. This suggests that, at least from an economic perspective, college may not pay off for a significant number of people.  The chart below plots the median annual wage for full-time employed workers with a bachelor’s degree between 1970 and 2013, together with the median annual wage for those with only a high school diploma. We also plot the annual wage for the 25th percentile of college graduates. All figures are expressed in constant 2013 dollars.

Federal Reserve Warns That "College May Not Pay Off for Everyone" "However, when we look at wages for the 25th percentile of college graduates, the picture is not quite so rosy. In fact, there is almost no difference in the wages for this percentile ranking of college graduates and the median wage for high school graduates throughout the entire period. This means that the wages for a sizable share of college graduates below the 25th percentile are actually less than the wages earned by a typical worker with a high school diploma. While we can’t be sure that the wages of this group wouldn’t have been lower if they had never gone to college, this pattern strongly suggests that the economic benefit of a college education is relatively small for at least a quarter of those graduating with a bachelor’s degree."

Are the Job Prospects of Recent College Graduates Improving? -- New York Fed - The promise of finding a good job upon graduation has always been an important consideration when weighing the value of a college degree. In our final post of this week’s blog series, we take a look at the job prospects of recent college graduates. While unemployment among recent graduates has continued to fall since 2011, underemployment has continued to climb—meaning that fewer graduates are finding jobs that make use of their degrees. Do these trends mean that there has been a decline in the demand for those with college degrees? Using data on online job postings, we show that after falling sharply during the Great Recession, the demand for college graduates rebounded during the early stages of the recovery, but has been flat for the past year and a half, suggesting that the demand for college graduates has leveled off. All in all, while finding a job has become easier for recent college graduates over the past few years, finding a good job has not, and doing so is likely to remain a challenge for some time to come.

25 Years of Declining State Support for Public Colleges  -- As student debt continues to climb, it’s important to understand how our once debt-free system of public universities and colleges has been transformed into a system in which most students borrow, and at increasingly higher amounts. In less than a generation, our nation’s higher education system has become a debt-for-diploma system—more than seven out of 10 college seniors now borrow to pay for college and graduate with an average debt of $29,400.1 Up until about two decades ago, state funding ensured college tuition remained within reach for most middle-class families, and financial aid provided extra support to ensure lower-income students could afford the costs of college.  As Demos chronicled in its first report in the The Great Cost Shift series, this compact began to unravel as states disinvested in higher education during economic downturns but were unable, or unwilling, to restore funding levels during times of economic expansion. Today, as a result, public colleges and universities rely on tuition to fund an ever-increasing share of their operating expenses. And students and their families rely more and more on debt to meet those rising tuition costs. Nationally, revenue from tuition paid for 44 percent of all operating expenses of public colleges and universities in 2012, the highest share ever. A quarter century ago, the share was just 20 percent. This shift—from a collective funding of higher education to one borne increasingly by individuals—has come at the very same time that low- and middle-income households experienced stagnant or declining household income.

Chinese Drop-Off in US Graduate Schools Triggers False Alarm - The Chronicle of Higher Education blog first sounded the alarm on August 21: a just-released survey by the Council of Graduate Schools reported that graduate school admission offers to Chinese students had plateaued. As a result, the Chronicle made clear: “Chinese appetite for American higher education may have finally hit a saturation point. That could spell trouble for American universities who have come to rely on students from China, who account for one in three foreign graduate students….”Well, yes, offers had plateaued and, in fact, more tellingly, applications for graduate study in the United States for fall 2014 from China were down 1 percent from 2013.  Fortunately, there doesn’t seem to be any real reason for concern on any of these fronts.First, overall, international graduate applications to the United States for fall 2014 were up 10 percent over fall 2013. Second, India, which is the country with the second-largest number of international graduate students in the United States witnessed a 33 percent jump in applications for fall 2014 from fall 2013, more than compensating for a 1 percent drop in Chinese applicants. In fact, China only surpassed India as the largest source of foreign graduate students in the United States in 2010.Third, the United States remains the number one pick for Chinese students studying abroad. A survey of 21,352 Chinese, ages 15-36, reported in January 2014, found that for 26.8 percent of those who planned to study abroad, the United States was the top destination. Of the roughly half million Chinese students studying abroad in 2013, 235,597 studied in the United States, representing an increase from 194,029 Chinese students in 2012. Of the top scorers on the college entrance exam in China (gaokao) who finish their undergraduate studies in China, 60 percent go abroad for their M.A.’s or Ph.D’s.

The Education Department’s Problematic Billion-Dollar Partnership With Debt Collection Agencies - A new report suggests that private debt collectors are incentivized by the government to act against the interests of student loan borrowers struggling to pay back their debts. The report, released today by the National Consumer Law Center (NCLC), claims that the $1 billion per year partnership between the Education Department and private loan collectors leads to abuse and hurts students borrowers because of its ratings system and compensation structure for debt collection.  When students default on their federal loans, the Education Department outsources collection duties to one of 22 different private agencies, which are tasked both with collecting the money and informing borrowers about their options to resolve the debt. Because those private agencies are driven by profit, the NCLC report says, they often act in their own financial interests, rather than those of borrowers. “Debt collection agencies’ job is to collect money, not to help oversee a complex administrative system like the federal loan system,”  “Matching borrowers with the right program is something that is not in the scope of what debt collection does.”

Three ways that politicians are storing up disaster for pensioners  - From coast to coast, Democrats and Republicans appear united in devastating what remains of traditional pensions in America. Through three basic strategies — smoothing, spiking and starving — politicians can burnish their images as public benefactors today, but only by inflating future costs and risks that will slam society after their careers are over. Voters, workers and taxpayers whose time horizon is more than the next election cycle need to police their politicians now, or they and their progeny will bear a terrible burden later.Smoothing is the polite term for putting less money into a pension plan than is prudent. President Barack Obama and members of Congress in both parties engaged in smoothing by agreeing last month to let corporations reduce the amount of money they put into their pension plans. That will increase corporate profits, which means larger corporate income tax revenues. The extra revenues will be used to keep the federal Highway Trust Fund from going broke this fall, which would have thrown construction workers into the unemployment lines. The second ploy is spiking, in which public sector workers artificially inflate their income in the last year or sometimes last day on the job. Most traditional pensions pay out based on the average earnings of the last five years in the job. The worst stratagem for cutting pensions is starvation. New Jersey put no state money into its public employee pension plan in 15 of the last 20 years under governors from both parties, even though local governments found ways to make the required payments and balance their budgets.

Tennessee Decides to Expand Medicaid -- It has been said of many of the holdout states in denying the expansion of Medicaid, they would eventually come to the table and accept the expansion. August 28, The Tennessean quoted him “I think we’ll probably go to them sometime this fall with a plan … that we think makes sense for Tennessee.”  Not only is the expansion important for the uninsured, it is important for hospitals which were previously reimbursed for care to the uninsured through other federal programs. These programs would be discontinued under the Medicaid Expansion whether the state went forward with it or not. Many of these hospitals would be faced with bankruptcy or denying care to the uninsured. Tennessee Justice Executive Director: “It’s urgent that the governor submit a serious plan to accept federal funds to expand health coverage for Tennesseans. The Consequences of delay are devastating for both the healthcare infrastructure we all rely upon as well as Tennesseans.”  The same as the delay in Michigan, the delay in Tennessee also costs the state aid at the rate of $2.7 million/day.

The Medicare Miracle, By Paul Krugman -- So, what do you think about those Medicare numbers? What, you haven’t heard about them? Well, they haven’t been front-page news. But something remarkable has been happening on the health-spending front, and it should (but probably won’t) transform a lot of our political debate. The story so far: We’ve all seen projections of giant federal deficits... Policy wonks have long known that health care, rather than retirement, was driving those scary projections. Why? Because, historically, health spending has grown much faster than G.D.P., and it was assumed that this trend would continue.  But a funny thing has happened: Health spending has slowed sharply ... This is a really big deal.. But what accounts for this good news?  Medicare is spending much less than expected, and those Obamacare cost-saving measures are at least part of the story. The conventional wisdom on what is and isn’t serious is completely wrong.

Obamacare Life Spiral - Paul Krugman -- Ezra Klein directs us to the latest from the Kaiser Family Foundation, which asks what the average Obamacare 2015 premium increase will be for those places for which we have full information — and finds that premiums will actually decline slightly. Ezra tries to get us to appreciate just how good the Obamacare news has been with a thought experiment:Imagine taking a time machine back to 2010 and telling Republicans in Congress, who were arguing that the CBO was wildly underestimating Obamacare’s cost, that the law would be cheaper than predicted and, at least in the states that accepted its Medicaid dollars, cover more people than the Congressional Budget Office thought. After the laughing and mocking and the calling of security, let’s say you offered this prediction in the form a of a bet. What odds do you think Obamacare’s critics would have offered? 2:1? 5:1? 10:1?  One question we might ask here is, why is the news so good? The answer, I’d suggest — although I hope the real experts will weigh in — is that we’re actually seeing the opposite of a death spiral; call it a life spiral. For one thing, the huge surge in enrollments late in the day meant that the risk pool this year is better than insurers expected, and they now expect 2015 to be better still. Also, importantly, big enrollments mean that more insurers are entering the market, increasing competition. And, of course, the better the deal the more people will sign up: success feeds success.

IRS releases O-Care employer mandate guidance after long wait- The Obama administration released guidance for businesses that must comply with the employer mandate Thursday after a long wait that raised questions about a possible third delay in the policy. The Internal Revenue Service posted draft instructions on its website related to the mandate's reporting requirements, a final step before businesses can construct the databases they need in order to comply. The materials had been expected prior to July 4, and frustration rose among businesses when the IRS released several outstanding forms last month without the necessary technical guidance made available on Thursday. "Filling out the forms without instructions is kind of like putting a piece of furniture together without the guide," said Neil Trautwein, vice president at the National Retail Federation. "The big get was the forms themselves, but the instructions will hopefully tell us what to do with each screw." Trautwein later released a statement calling the instructions "helpful" and welcome to the retail industry. The employer mandate, which requires businesses to offer health coverage to workers, is scheduled to take effect in January for larger firms. Hacked -- Just when one thought the embarrassment for Obamacare, and its epically flawed website, which according to some accounts had over 100 million lines of code, the vast majority of which did not work as it is after all a government project, could not get any worse it just did following a report in the WSJ that the website which is reasonably expected to be the safest in the world (and at a price of over $500 million it should be the safest in the world) considering it holds not only the financial but personal and healthcare data of millions of Americans, has been hacked. According to the WSJ, a hacker broke into part of the insurance enrollment website in July and uploaded malicious software. And the punchline: neither the government, nor the security contractor, Blue Canopy Group, found out it had been hacked until two months later.

What Happens When Health Plans Compete -- As a candidate in 2008, President Obama promised that health reform would reduce family premiums by up to $2,500, equivalent today to about a 15 percent reduction from the 2013 level.  So it’s worth asking: How much savings can additional competition produce? The most direct answer to this question comes from analysis by Leemore Dafny and Christopher Ody of Northwestern University and Jonathan Gruber of M.I.T. They estimated the effect of greater competition on premiums for the second-cheapest silver-rated plans in the 34 exchanges that rely on at least some operational assistance from the federal government, known as “federally facilitated” exchanges. Their findings were based on a statistical model that predicts the effect of competition in the marketplace on premiums, controlling for other factors that could affect premiums like the demographics, income and hospital price levels in each market. Many insurers did not participate in many of these exchanges in 2014. UnitedHealthcare, the nation’s largest insurer with 84 million policies in force in 2010, did not participate in any exchanges. Had it done so, Ms. Dafny and colleagues estimated that premiums would have been 5.4 percent lower. Had all insurers in each state’s 2011 individual market participated in that state’s exchange in 2014, premiums would have been 11 percent lower, saving $1.7 billion in federal premium subsidies.

High Health Plan Deductibles Weigh Down More Employees - Just as employers replaced pensions with retirement savings plans, more large companies appear to be in a similar cost-sharing shift with health plans. Besides making workers responsible for more of their care, employers hope these plans will motivate employees to comparison-shop for medical services — an admirable goal but one that some say is hard to achieve.  Several big companies started offering consumer-driven plans as their only option in the last couple of years, including JPMorgan, Wells Fargo, General Electric and Honeywell, among others; it is the only choice for Bank of America employees earning more than $100,000.  Next year, nearly a third of large employers will offer only high-deductible plans — up from 22 percent in 2014 and 10 percent in 2010, according to a study by the National Business Group on Health, which included 136 large companies that collectively employ 7.5 million workers. And 81 percent of those large employers will have added one of these plans to their lineup of choices, up from 53 percent in 2010.

25% of Americans Have Medical Debt; 55% Worry About It: Twenty five percent of Americans say they currently have more medical debt than emergency savings, according to a report. This number nearly doubles (44%) among those earning less than $30,000 per year. Also, according to the report, people who do not currently have medical debt are concerned about it. Over half of Americans (55%) are worried they will find themselves overwhelmed by medical debt (27% are very worried and 28% are somewhat worried). “These results show that more than half the population feels financially insecure when it comes to health care. This is an issue that affects consumer confidence and the broader economy,” according to insurance analyst Doug Whiteman. Adding to the negative sentiment, the majority of Americans (55%) are worried that they will not have affordable health insurance in the future (versus 43% who were either not too worried or not worried at all). “This might suggest that many people are either uninformed about the exchanges or lacking confidence in the Affordable Care Act,” added Whiteman.

CMS: Health spending to hit $5.2T within 10 years - U.S. healthcare spending will rise to $5.2 trillion by 2023 as the economy grows and baby boomers become eligible for Medicare, government actuaries said Wednesday. The new forecast from the Centers for Medicare and Medicaid Services (CMS) showed total health spending will rise to about one-fifth of the economy in nine years compared with 17.2 percent in 2012.  The upswing will follow near historically slow growth in health spending during the economic recession. CMS officials projected 3.6 percent growth for 2013 and 5.6 percent for 2014, with an average rate of 5.7 percent growth over the next decade. "The acceleration … is commensurate with projected economic growth," said Andrea Sisko, an economist in the CMS Office of the Actuary. "A demographic shift is also occurring over that period of time with baby boomers coming into Medicare." The shift will also coincide with the expansion of insurance coverage under ObamaCare, another factor that will raise healthcare spending. While the rise will be pronounced, actuaries said it pales in comparison to the late 1990s, when the growth in health spending was outpacing GDP. Health spending grew at an average annual rate of 7.2 percent between 1990 and 2008, the report stated. The CMS forecast encompasses all healthcare spending, not just money paid by the government for Medicare and Medicaid.

Low carb crushes low fat. Screw you guys! I’m going home. -- This is the kind of study I want to see. And still, ARGH! “Effects of Low-Carbohydrate and Low-Fat Diets: A Randomized Trial“: For decades, it’s been fat is gonna kill you. It’s the red meat, it’s the butter, it’s the bacon. Then along came some crazies who said it was the carbs instead. So we tried to reduce carbs, but I mean you’ve got to eat something! So which is better? A low carb or a low fat diet? This was a randomized controlled trial of a low carb (< 40g/d) versus a low-fat (<30% daily calories from fat and <7% saturated fat) diet. Those are defined differently, so let’s try this. Those in the low-carb diet obtained about 30% of their calories from carbs. Those in the low-fat diet diet shot for 30% of their calories from fats. Outcomes included weight, risk factors for cardiovascular disease, and compliance with the diet. The percentage of people who completed the study in each arm was about 80%, which is pretty good. Who won? Well, it turns out that people on the low-carb diet lost, on average, more weight – about 7.7 pounds more over a year. They also had more of a fat loss (1.5%). Their ratio of total-HDL cholesterol improved more. Their triglyceride levels fell more. Their HDL cholesterol levels went up more. In terms of 10-year Framingham risk scores, those on the low-carb diet saw significant decreases, while those on the low-fat diet did not. So in pretty much every metric you could pick, the low-carb diet beat the low-fat diet.

To Cook or Not to Cook: The Question of Heterocyclic Amines | Eric Garza: In fact, there are several types of toxins created by cooking, compounds that are the direct result of one chemical in food reacting with one or more other chemicals in the presence of heat to create another compound that exhibits toxic effects in people. Given the importance of cooking in today’s culture, and given that so few people seem to be aware of these toxins, I think it worthwhile to dedicate a series of posts to them. The first of the cooking-created toxins I’ll look at are hetercyclic amines, often abbreviated as HCAs. Heterocyclic amines are a class of compounds formed when amino acids, sugars and either creatine or creatinine, compounds found in the muscle tissue of animals, react at high cooking temperatures [1]. In particular, HCAs tend to form preferentially when meats are cooked at temperatures above 300 degrees Fahrenheit, as happens during grilling, broiling and frying. HCA formation is also enhanced when meats are cooked for extended periods of time, irregardless of temperature. HCA’s in their native state aren’t toxic, but become so once bioactivated within our bodies by one of our cytochrome P450 enzymes [2, 3]. In many meats cooked at higher temperatures, it’s common to measure HCAs at the part per billion level.

Drug company admits it concealed debilitating side effects, fatalities from government regulators: The Japanese unit of Swiss pharma giant Novartis has admitted it did not report more than 2,500 cases of serious side effects in patients using its leukaemia and other cancer drugs, reportedly including some fatalities. The revelations, which marked the latest in a string of scandals at the company’s Japanese subsidiary, come after local authorities slapped the firm on the wrist, saying it had to clean up its operations. On Friday, Novartis issued a statement saying it had failed to report to regulators at least 2,579 cases where patients had suffered serious potential side effects from its drugs. Japan’s Jiji Press news agency said they included some fatal cases, without specifying a figure. The unit declined to comment on Monday, referring questions to its Swiss headquarters. Japanese media said the number of cases involved could rise as Novartis probes 6,000 other cases.

30 Million Americans On Antidepressants And 21 Other Facts About America's Endless Pharmaceutical Nightmare - Has there ever been a nation more hooked on drugs than the United States? And we are not just talking about illegal drugs – the truth is that the number of Americans addicted to legal drugs is far greater than the number of Americans addicted to illegal drugs. They trusted that their doctors would never prescribe something for them that would be harmful, and they trusted that the federal government would never approve any drugs that were not safe. And once the drug companies get you hooked, they often have you for life. Very powerful people will often do some really crazy things when there are hundreds of billions of dollars at stake. The following are 22 facts about America’s endless pharmaceutical nightmare that everyone should know...

Poverty Blamed for Return of Rickets and Gout to Britain - A "toxic combination" of poor wage growth and higher food prices has led to the return of Victorian-era diseases like rickets and gout to Britain.The Faculty of Public Health (FPH), which represents doctors and health workers, links food poverty with the rise in those diseases. "It's getting worse because people can't afford good quality food," the FPH's John Middleton told the Observer newspaper. "Malnutrition, rickets and other manifestations of extreme poor diet are becoming apparent. (Doctors) are reporting rickets anecdotally in Manchester, the East End of London, Birmingham and the West Midlands. It is a condition we believed should have died out." Poverty in Britain has become a hot political topic since the global financial crisis. Wages have been consistently below the rate of inflation since 2008 there has been a rise in food banks. Rickets is caused by lack of vitamin D and calcium and affects bone development in children. Gout, a type of arthritis, can be caused by obesity and a diet rich in chemical compounds called purines found in foods like sardines and liver.

The Consequences Of America’s Invasion Of Afghanistan: NYC Heroin Deaths Highest In A Decade - While back in May Obama promised America's mission in Afghanistan was over, and all US troops would leave the country by the end of 2016, the "unintended" consequences of the US presence in this favored by al-Qaeda country will haunt America for a long time. And especially New York, where according to a new report by the Department of Mental Hygiene, the number of people who died from unintentional heroin overdoses in New York City last year was the highest in over a decade.

3 dengue fever infections blamed on mosquitoes in Yoyogi Park — Japanese health officials said Thursday that three young people have contracted dengue fever, the first such infections in the country in nearly 70 years. The three are suspected of having contracted the disease when they were bitten by mosquitoes in Yoyogi Park in central Tokyo, officials said. Parts of the park were closed Thursday afternoon while health officials sprayed insecticide. The patients—a man in his 20s in Tokyo as well as a teen and woman in her 20s in Saitama Prefecture north of the capital—go to the same educational institution in Tokyo. None of them is in a life-threatening condition, officials said. The last domestic infection of dengue fever was in 1945, although there are around 200 cases annually among those who have traveled abroad, mainly in Southeast Asia. Dengue fever is not transmitted directly from person-to-person and symptoms range from mild fever, to incapacitating high temperatures, according to the World Health Organization. There is no vaccine or any specific medicine to treat dengue and patients should rest, drink plenty of fluids and reduce the fever using paracetamol or see a doctor, it says.

Quarantine for Ebola Lifted in Liberia Slum - Residents of the neighborhood, West Point, will be free to move in and out starting Saturday at 6 a.m., said Lewis Brown, the minister of information. The army, which had pressed for the quarantine and took the lead in enforcing it in the first two days, will be removed from West Point, leaving only the police, Mr. Brown said. A nationwide curfew, from 9 p.m. to 6 a.m., will remain in place, he said. “This was a tool intended to help the community to help themselves and get the help they desperately need,” Mr. Brown said in a telephone interview. “We’re pleased with the way that the community has owned up to this.” Ms. Johnson Sirleaf ordered the quarantine on Aug. 20, rejecting the advice of international Ebola experts and her own health officials who argued that such a large-scale quarantine, especially one led by the military, would be unmanageable and could exacerbate the spread of the disease. The quarantine immediately led to running battles between residents and the security forces; Shakie Kamara, a 15-year-old boy caught in the violence, died after suffering bullet wounds to both legs. During the quarantine, many residents have sneaked out of West Point by paying bribes to soldiers and police officers. Prices of food and basic goods have doubled, causing living conditions in the slum to degrade further.

Face to Face with Ebola — An Emergency Care Center in Sierra Leone — NEJM: At our 80-bed center here near the borders of Liberia and Guinea, 8 new patients were admitted yesterday, 9 need to have a repeat test 72 hours after their symptoms began, and some we hope to discharge today: at least 18 blood samples to obtain. The center currently houses 64 patients in all, 4 of them children less than 5 years of age. We have already seen 2 patients die today. I have been here for 7 weeks, working as a nurse and emergency coordinator for the Médecins sans Frontières (MSF) Ebola response. Today we're lucky: it's raining, so we won't be too hot in the personal protective equipment (PPE) we must wear. We control who goes into the isolation area, how often, and for how long. No one should wear the PPE for longer than 40 minutes; it's unbearable for any longer than that, but it's easy to lose track of time, so we have to monitor our colleagues. The process starts in the dressing room, where getting into the PPE takes about 5 minutes. We have a designated dresser, responsible solely for making sure that we are wearing our equipment properly and that not a square millimeter of skin is exposed. In case one layer is accidently perforated, we wear two pairs of gloves, two masks, and a heavy apron on top of the full-body overalls. When we exit the isolation area, we are sprayed down with chlorine solution and peel off the PPE layer by layer. Some of the equipment — goggles, apron, boots, thick gloves — can be sterilized and used again. Everything else — overalls, masks, headcover — is burned.

Ebola virus mutating rapidly as it spreads - Nature - Goba and his colleagues have now decoded the genetic sequences of 99 Ebola viruses collected from 78 patients during the first 24 days of the epidemic in Sierra Leone. The work1, published online in Science, could help to inform the design of diagnostics, therapeutics and vaccines, says structural biologist Erica Ollmann Saphire of The Scripps Research Institute in La Jolla, California. “This paper is terrific,” she adds.The Ebola epidemic in West Africa has already killed more than 1,400 people — including five of Goba's co-authors from Kenema. The paper is dedicated to their memory. The sequence data, which were made publicly available by 31 July, constitute the largest collection of genetic information on Ebola ever to be released. To get them, the group collected leftover blood from samples taken for diagnostic tests in Kenema. They then used a chemical solution to deactivate the Ebola viruses, and sent the samples to be sequenced at the Broad Institute in Cambridge, Massachusetts. The researchers sequenced the viral genomes from each sample an average of more than 2,000 times, allowing them track how the virus mutated as it spread from patient to patient. In April, researchers reported2 that they had sequenced data from Guinean patients' viruses. That team, however, produced one composite viral genome sequence for each patient, rather than individually sequencing different copies of the virus found in each patient, as in the work reported today. The virus amassed 50 mutations during its first month, the researchers found. They say there is no sign that any of these mutations have contributed to the unprecedented size of the outbreak by changing the characteristics of the Ebola virus — for instance, its ability to spread from person to person or to kill infected patients. But others are eager to examine these questions.

Leadership and Calm Are Urged in Ebola Outbreak - Unusual tactics and inventive thinking will be needed to beat West Africa’s Ebola outbreak, according to some of the world’s top experts in disease eradication. About 3,000 Africans have been infected and about half of those have died. The World Health Organization has warned that infections could rise to 20,000, and Senegal on Friday announced its first case, a Guinean who entered a hospital in the capital, Dakar, seeking treatment. Leadership must be imposed, the experts said, perhaps with a West African in charge. Donors must commit at least $500 million. And a new strategy is needed, with the first priority being to stop the panic caused by imprisoning residents of the affected countries behind barbed wire and roadblocks. The outbreak will not end, they argued, until average citizens calm down and help their infected neighbors instead of fleeing from them.“Liberians are not going to be saved by internationals coming in,” said Dr. Bruce Aylward, one of the leaders of the drive to eliminate polio and an author of the health organization’s Ebola-fighting plan introduced this week. “They’re going to be saved by Liberians.”

Ebola threat to Norway: Sweden fears first case - A hospital in Stockholm is investigating a possible case of Ebola, reported NTB. A man who recently travelled to a "risk area" for the virus was taken to Karolinska University Hospital in the Swedish capital suffering from a fever. He is being treated in an isolation unit. Åke Örtqvist, doctor at the infectious disease unit at Karolinska hospital, said to Aftonbladet: "The risk is minimal of it being Ebola, but we handle all such cases in seriously. We have a high level of safety to ensure we don't overlook a possible case of contamination." More than 1,500 people have died in an Ebola outbreak in West Africa since March, stated Reuters.

Ebola Outbreak Spreads To 6th African Nation: 20 Cases In Senegal - Despite border closures, flight bans, cordoning off the sick (and healthy), and rubber (and live) bullets and tear gas on 'protesters'; the world's worst outbreak of Ebola just keeps spreading, now to a sixth African nation. Just day after Congo (5th nation) reported cases of Ebola, as The BBC reports, Senegal's health minister confirmed the first case of Ebola in his nation yesterday and Bloomberg confirms 20 more people are "under surveillance." Meanwhile, in Guinea a Red Cross official said riots had broken out in the nation's 2nd largest city over rumors that health workers had infected people with the virus; and Nigerians are protesting plans to build isolation units in some local clinics. "contained"

Dispatch from Guinea: Containing Ebola — UNC’s Dr. William Fischer II has been working in an isolation area in Gueckedou, Guinea, since May 28, 2014, as part of a team from Doctors without Borders (Médecins Sans Frontières/MSF) to try to help reduce mortality from Ebola Virus in rural communities. Dr. Fischer was recruited by the World Health Organization (WHO) because of his critical care medicine expertise. With Dr. Fischer’s permission, we are posting his descriptive emails, that give insight into the experience of a frontline effort to contain the deadly pathogen.

"World Is Losing Battle To Contain Ebola Epidemic," MSF Warns Response "Lethally Inadequate" -- The CDC's worst nightmare is coming true. Despite reassurances from the government that it was 'contained', the Ebola outbreak in Nigeria is accelerating fast. Health Minister Chukwu said that 17 had now been infected and 271 were under surveillance (including most horrifyingly, 72 in Lagos). In addition, Congo is seeing cases increase rapidly, with WHO reporting 53 cases of Ebola (31 dead) and warning, perhaps ominously, that there is no link with the West Africa strain. Liberian President Ellen Johnson Sirleaf said the situation in her country "remains grave," adding "People now don't see this as a Liberia or West Africa crisis. It could easily become a global crisis." Furthermore, Doctors-without-Borders warns, "the world is losing the battle to contain the Ebola epidemic."

World losing Ebola battle, warns medical group -- The international group Doctors Without Borders warned on Tuesday that the world is losing the battle against Ebola and lamented that treatment centers in West Africa have been "reduced to places where people go to die alone." In separate remarks after a United Nations meeting on the crisis, the World Health Organization chief said everyone involved had underestimated the outbreak, which has now killed more than 1,500 people in Guinea, Liberia, Sierra Leone and Nigeria. U.N. officials implored governments worldwide to send medical workers and material contributions. Meanwhile in Liberia, a missionary organization announced that another American doctor has become infected.  Doctors Without Borders, which has treated more than 1,000 Ebola patients in West Africa since March, is completely overwhelmed by the disease, said Joanne Liu, the organization's president. She called on other countries to contribute civilian and military medical personnel familiar with biological disasters. "Six months into the worst Ebola epidemic in history, the world is losing the battle to contain it," Liu said at a U.N. forum on the outbreak. "Ebola treatment centers are reduced to places where people go to die alone, where little more than palliative care is offered." In Sierra Leone, she said, infectious bodies are rotting in the streets. Liberia had to build a new crematorium instead of new Ebola care centers. At the U.N. meeting, WHO Director Margaret Chan thanked countries that have helped but said: "We need more from you. And we also need those countries that have not come on board." Later at a news conference, she warned that the outbreak will get worse before it gets better.

Here's Why Africa's Ebola Epidemic Is Officially 'Spiraling Out of Control' - Health authorities admitted Tuesday that the West African Ebola virus epidemic is accelerating quickly and may soon outpace the ability of medical teams to contain it. Meanwhile, the grim situation is being made worse by a massive strike among Liberian health care workers, who have accumulated large amounts of unpaid wages while suffering from overwork and the constant risk of exposure."It's spiraling out of control. The situation is bad, and it looks like it's going to get worse quickly," Centers for Disease Control and Prevention director Tom Frieden told NBC News. "There is still a window of opportunity to tamp it down but that window is closing, and we need to act now. ... This is different than every other Ebola situation we've ever had. It's spreading widely, throughout entire countries, through multiple countries, in cities and very fast."  Ebola virus outbreaks typically originate in rural areas where residents often come into contact with potentially infected wildlife like monkeys or fruit bats. The outbreaks are limited by geographic isolation. With over 3,000 confirmed cases throughout Liberia, Guinea, Sierra Leone, Nigeria and now Senegal, this particular infection has unfortunately spread into urban areas, sparking "low-level panic" in Freetown and other cities. Because Ebola spreads easily in dense, unhygienic environments, poverty-ridden areas of West African metros are particularly at risk. Frieden told CNN's New Day that restricting air travel to and from the nations suffering the worst of the Ebola epidemic was actually aiding the spread of the disease by making it much more difficult to transport in aid workers, supplies and medical equipment."What we're seeing is a spiraling of cases, a hugely fast increase in cases, that's harder and harder to manage," he said. "The more we can get in there and tamp that down, the fewer cases we'll have in the weeks and months to come."

Amid Ebola crisis, is something worse around corner?: The worst outbreak of Ebola to date serves as a timely reminder of the threat deadly viruses pose to the world economy. Border closures, the suspension of some international flights and slowed economic activity have already hit the west African countries worst affected by Ebola.   Analysts expect the economic damage from the virus, which has led to over 1,500 deaths in recent months, to be largely contained to Africa. Still, they warn that the risk of a pandemic that could have a devastating impact on world growth remains. "On a regional scale, we have already seen geopolitical implications of the Ebola outbreak with flight cancellations and significantly impaired trade and human mobility," said Vikas Shah, CEO of Swiscot, a global textiles firm and a professor who's been following the Ebola crisis closely. "Should a novel or other virus emerge with high mortality and ease of transmission, it could lock-up our global economy quite fast," he said, adding that some studies suggest that the cost of a major flu-pandemic could be almost $200 billion in the U.S. alone.

16 Stunning Quotes From Global Health Officials On The Ebola Epidemic - Ebola continues to spread an an exponential rate. According to the World Health Organization, 40 percent of all Ebola cases have happened in just the last three weeks. At this point, the official numbers tell us that approximately 3,967 people have gotten the virus in Africa and more than 2,105 people have died. That is quite alarming, but the real problem will arise if this disease continues to spread at an exponential pace. We have never seen anything like this in any of our lifetimes, and the scary part is that this might only be just the beginning, as the following 16 quotes from health officials suggests...

Mexico baffled by sudden death of thousands of fish in Lake Cajititlán --  Mexicans are baffled at the sudden death of thousands of fish in a lake in the centre of the country, a dramatic intensification of a problem that no one has yet been able to explain. Nearly 50 tonnes of dead popoche chub fish were removed at the weekend from Lake Cajititlán, a lagoon in the central state of Jalisco. Fishermen, firefighters, town hall workers and staff from the state agricultural ministry pulled hundreds of thousands of dead popoche chub fish from the lake and buried them in a pit. The incident comes after of a series of smaller waves of dead popoche chub in the lake in recent months, including one last week, ensuring that 2014 is already by far the worst year for the species, which has been under attack for the past few years. The authorities in the lakeside town of Tlajomulco de Zúñiga, about 25 minutes' drive south of the city of Guadalajara, had previously blamed the deaths on "a cyclical phenomenon caused by temperature variations and the reduction of oxygen". This weekend, the state's environment secretary, Magdalena Ruiz Mejía, ruled out natural causes and blamed "poor management of the body of water". She pointed to municipal waste water treatment facilities and promised a full investigation. There have been complaints that a nearby tequila distillery is storing waste in containers that drain into channels that feed into the lake.

More than one in three wild boar in Germany are too radioactive to eat - If you've going to Germany to experience Oktoberfest for beer and sausages this fall, chances are you might want to stay away from the boar while you're there. A new study from the German government, reported by The Telegraph, shows that more than one in three wild boar killed by hunters in the region are too radioactive to be safe for humans to eat.  Since 2012, hunters in the Saxony region of Germany have had to get any wild boar they kill tested for radiation. In one year, the state reports that 297 of 752 boar tested contained more than the safe limit of 600 becquerels of radioactive material caesium-137 per kilogram for human consumption. Some boar tested had radiation levels dozens of times higher than the safe limit. Some boar had radioactive material dozens of times higher than the safe limit  Saxony is 700 miles from Chernobyl, where a 1986 explosion at a nuclear plant sent radioactive material into the atmosphere. Subsequent rain and wind carried the radioactive material far and wide across Europe. It's thought that boar are more susceptible to radiation contamination because their diet consists of mushrooms and truffles that are buried in the ground and hold radiation longer than other vegetation. As a result of the contaminated meat, the German government has paid out thousands of euros in compensation to hunters, which have to destroy anything that tests as unsafe and cannot sell it for profit.  Even though it has been 28 years since the Chernobyl disaster, The Telegraph points out that experts say the radiation could be around in unsafe levels for another 50 years.

U.S. court rules OK to sue chocolate firms over child slave labor - Nestle and other major companies that merchandise chocolate from Africa can be sued for importing cocoa harvested by child slave laborers in the Ivory Coast, a federal appeals court ruled Thursday. The companies, which also included Archer Daniels Midland and Cargill, were well aware - from their own frequent visits and independent studies - that they were selling the products of child slavery, but insisted on "finding the cheapest sources of cocoa," said the Ninth U.S. Circuit Court of Appeals in San Francisco. The plaintiffs in the case, three former slave laborers, worked without pay for up to 14 hours a day, six days a week, were given scraps to eat, were beaten and whipped by their overseers, and were locked in small rooms at night, the court said. The suit covered the years between 1994 and 2000, when their ages ranged from 12 to 20. The Ivory Coast produces 70 percent of the world's cocoa supply, and the companies named in the lawsuit dominate the Ivorian market, the court said. Rather than trying to end child slavery, the court said, the U.S. chocolate industry successfully lobbied Congress in 2001 to defeat a bill that would have required all U.S. importers and manufacturers to certify that their products were "slave free."

Don Quijones: Judge Turns Monsanto’s GMO Mexican Dream Into Legal Nightmare -- Yves Smith --Yves here. The success of seed companies in extracting rents from farmers, particularly in countries where subsistence farming is widespread, is yet another example of how corporations like Monsanto abuse intellectual property laws and monopoly/oligopoly power. For the most part, governments have by their inaction backed this scheme. And that’s before you get to the fact that GMO crops, as a former NIH biomedical researcher stressed to me, is a massive experiment being conducted on the public at large without consent or controls.Don Quijones reports on a ruling in Mexico that has, at least for the moment, thrown a spanner in the seed companies’ plans by barring field trials of GMO crops due to environmental risks. They are appealing, accusing the judge of bias. I’d be curious to get informed reader views as to how likely this move is to succeed. However, if the TransPacific Partnership were signed, there’d be no need to worry about pesky courts. Monanato and the other seed companies would be able to rely on the intellectual property and other chapters of this pact, which institutionalize a “race to the bottom” approach to environmental, consumer, and labor protection. It provides for a large-scale expansion for the rights of investors to resort to secret, cronyistic arbitration panels that can fine governments for depriving foreign investors of potential profits. Bye bye national sovereignity.

Parched California and Australia Suffer Honey Drought - California's honey crop has tumbled from 27.5 million pounds in 2010 to 10.9 million pounds in 2013. That's a 61 percent plummet, and, according to some beekeepers, the number for 2014 will be significantly lower. So what's going on? The lack of rainfall over the last three years has caused all plants to reduce the number of flowers they grow or refrain from growing any flowers whatsoever. Fewer flowers translate to less nectar. Bees collect nectar to make honey, their only food source. Across the Pacific, extreme heatwaves and repeated sub-continental drought has left Australia's honey supply at an all-time low.  In fact, Australia's honeybees had to contend with another crisis this past summer as climate disruption had their colonies operating in an emergency mode. Bees store their honey in honey comb cells made of beeswax, which melted because daytime temps regularly exceeded 95 degrees (F).

Drought-Stricken California Makes Historic Move To Regulate Underground Water For The First Time -- At least one in four Californians get their water from underground aquifers, and up until now, use of this water has been totally unregulated, with disputes about overuse settled in court. California is one of the few where it’s “pump as you please” with groundwater. That is about to change.As the California State Legislature wrapped up their session, they passed the state’s first-ever plan to regulate underground water supplies. Urban Democrats, water district managers, and environmental advocates gave the measure enough support to pass it over the opposition of Republicans and farm-area legislators. The legislation now goes to Governor Jerry Brown for his signature. Clean Water Action’s Jennifer Clary said, “the passage of the Sustainable Groundwater Management legislation takes an historic first step towards ensuring that our groundwater will remain a resource for future Californians.”Three bills make up the groundwater regulatory plan: one tells local agencies to come up with water management programs, another establishes parameters for state intervention, and the third delays that intervention in areas where groundwater pumping has affected surface water. Some agricultural interests fear regulation of the groundwater reserves that many farmers have turned to in the midst of the worst drought in a generation. State Senator Fran Pavley, author of two of the bills, said she worked with farmers to draft them, gaining the support of the Community Alliance with Family Farmers. “The state cannot manage water in California until we manage groundwater,” said Assembly Speaker Toni Atkins, D-San Diego. “You cannot have reliability with no plan to manage water.”

Government To Regulate Groundwater For 1st Time As California Drought Becomes "Race To The Bottom"--The ongoing disaster that is the drought in the West is leaving wells dry across California - which account for up to 60% of water usage. As WSJ reports, as groundwater levels plunge (100 feet or more lower than norm), wells are being driven further and further into the earth (500 feet in some cases) forcing the state legislature is considering regulating underground water for the first time. "We can't continue to pump groundwater at the rates we are and expect it to continue in the future," warns one engineer, adding "What's scary is we're not fixing anything... It's a race to the bottom."

Earthquakes pose a hazard to much of California’s fresh water - Had Sunday’s magnitude 6.0 Napa earthquake been located a few miles to the southeast, it could have caused a severe shortage of fresh water felt up and down California, exacerbating the effects of our historic drought. The Sacramento-San Joaquin River Delta, a short drive from Napa, is the hub of the state's water distribution system, delivering fresh water to more than 25 million residents and 3 million acres of farmland. Delta water conveyed through a network of levees is crucial to Southern California, the Central Coast, parts of the Bay Area and much of the Central Valley. The drought has significantly curtailed water export, and salt water has intruded into parts of the delta as a result of reduced fresh water outflows. Islands in the delta are formed by land that has subsided as much as 30 feet below sea level because of the construction of levees around their perimeter and reclamation of delta land for agricultural use. Levee construction began about 150 years ago by dredging soil from adjacent channels, and placing it in an ad hoc manner. Many of these unengineered levees have only a few feet of freeboard (distance from water level to top of levee) at high tide. A breach of a single segment within a levee system will inundate the interior island. The vast open space within the delta islands exceeds the immediately available volume of fresh water. - Accordingly, simultaneous flooding of multiple islands would draw in saline water from San Francisco Bay, contaminating the fresh water supply for California's water projects. With insufficient fresh water reserves to flush the salt out of the delta during our historic drought, delta water could remain salty for years.

California Drought: Irrigation irritation running rampant over water wasters - Call it irrigation irritation. Bay Area water watchers have a bad case of it. The expanse of verdant lawn ringing a large vacant construction site in Santa Clara sets off Brian Johns. For Vickie Chang, it's the city of Albany's sprinklers that spray her when they go off each night along her street. And Dave Pearce is peeved by the water he sees gushing straight into San Francisco Bay from the leaky Hetch Hetchy Aqueduct pipeline while he kayaks along the Peninsula. As California contends with a protracted drought, folks who are dutifully practicing the new mantra of "brown is the new green" are seething at the sight of freshly irrigated sidewalks and lush green lawns. "That just torques my jaw," Herb Gomes says of the emerald baseball and softball fields at Ohlone College in Fremont, where he often walks his dog. "I'm doing my part -- my lawn has turned brown!"  Despite calls from Gov. Jerry Brown for 20 percent cutbacks in water use and the first-ever state mandate to restrict outdoor watering, there is no consensus on how green is too green. Rules on watering are different from community to community, and so is compliance.But irrigation irritation is rampant -- and on the rise. The Santa Clara Valley Water District received almost 240 reports of water waste -- mostly sprinklers spraying pavement or running off into the street -- in August alone, four times the number of complaints earlier in the year. Calls to the East Bay Municipal Utility District soared in July, when it received 211 complaints.

Desperately Dry California Tries to Curb Private Drilling for Water - California’s vicious, prolonged drought, which has radically curtailed most natural surface water supplies, is making farmers look deeper and deeper underground to slake their thirst. This means the drought is a short-term bonanza for firms like Arthur & Orum, which expects to gross as much as $3 million this year.But in a drought as long and severe as the current one, over-reliance on groundwater means that land sinks, old wells go dry, and saltwater invades coastal aquifers. Aquifers are natural savings accounts, a place to go when the streams run dry. Exhaust them, and the $45 billion annual agricultural economy will take a severe hit, while small towns run dry.Yet for a century, farmers believed that the law put control of groundwater in the hands of landowners, who could drill as many wells as deeply as they wanted, and court challenges were few.That just changed. The California Legislature, in its closing hours on Friday, passed new and sweeping groundwater controls. The measures do not eliminate private ownership, but they do establish a framework for managing withdrawals through local agencies.It all happened after many farmers slowly rethought their priorities, as they surveyed a landscape of over-pumping, dropping water levels and multimillion-dollar groundwater sales. Ceding some control of groundwater management to local water agencies, an idea long opposed, became palatable enough to win over a significant share of farmers. It helped that the controls were matched by the state’s commitment to expanding existing water storage.But the new legal framework not only empowers local control of groundwater, it sets out another requirement: When localities fail to manage their aquifers sustainably, the state can step in. Water managers in 126 of more than 500 groundwater basins — the ones designated high or medium priority — must develop groundwater-management plans by 2020 or give way to the state.

The Scariest California Drought Map Yet -- Across California, reservoirs are running dry as the drought continues to weigh dramatically on many parts of the economy. The following map, showing the dismally low levels of reservoirs in all their horrible glory could be the scariest drought map yet...

California's 100-year drought -- California is in the third year of one of the state's worst droughts in the past century, one that's led to fierce wildfires, water shortages and restrictions, and potentially staggering agricultural losses. The dryness in California is only part of a longer-term, 15-year drought across most of the Western USA, one that bioclimatologist Park Williams said is notable because "more area in the West has persistently been in drought during the past 15 years than in any other 15-year period since the 1150s and 1160s" — that's more than 850 years ago. "When considering the West as a whole, we are currently in the midst of a historically relevant megadrought," Megadroughts are what Cornell University scientist Toby Ault calls the "great white sharks of climate: powerful, dangerous and hard to detect before it's too late. They have happened in the past, and they are still out there, lurking in what is possible for the future, even without climate change." Ault goes so far as to call megadroughts "a threat to civilization." . Megadroughts have parched the West, including present-day California, long before Europeans settled the region in the 1800s. Most of the USA's droughts of the past century, even the infamous 1930s Dust Bowl that forced migrations of Oklahomans and others from the Plains, "were exceeded in severity and duration multiple times by droughts during the preceding 2,000 years," the National Climate Assessment reported this year. The difference now, of course, is the Western USA is home to more than 70 million people who weren't here for previous megadroughts. The implications are far more daunting.

New study finds the Southwest might be facing 'megadrought' -- A new study by The University of Arizona, Cornell University and the U.S. Geological Survey says the chances of a "megadrought" that runs 35 years or more ranges from 30 to 40 percent over the next century in the Grand Canyon State. Arizona State University climate expert Randy Cerveny said the region has been in a megadrought before -- the last happening about 400 years ago. "It was incredibly destructive to the Native American population that was here at that time," Cerveny said. "But we haven't experienced anything since modern settlement." The impacts of a megadrought would be far worse now because tens of millions of people now call the Southwest home."Places like Los Angeles are taking a lot more water out of Lake Mead than they used to," the climatologist said. "Lake Mead is not only responding to drought, but demand." The northwestern Arizona-southeastern Nevada lake is currently at its lowest level since Hoover Dam was built in the 1930s. Cerveny said Arizona has been in drought since 1997 and that there's no way to know if we're entering another megadrought. "We don't have the good precursors or indicators to tell us we would be entering one now," he said. "The only way to tell if we're in a megadrought is to keep watching, and if we don't come out of the drought in the next 20 to 30, years then we are in a megadrought."

Water scarcity in China - China’s Yellow River under threat (video) An excellent short report from Lucy Hornby of the Financial Times on how large coal and oil projects along the course of the Yellow River are causing water shortages for millions of people and threatening the local farming industry. Water has composite demand - it has many uses and farmers along the famous yellow River are finding that the country's rising thirst for energy is placing increasing demand on the supply of water from the river. Difficult choice are having to be made.

Brazil Vows Water Supply Is Under Control as Basins Dry -- The state of Sao Paulo is facing its worst drought in eight decades, threatening the water supplies for 20 million people -- but you wouldn’t know that by asking Brazil’s elected officials.Sao Paulo Governor Geraldo Alckmin, who is seeking re-election in October, has been minimizing the crisis for the region, which includes South America’s largest city. The reaction is a far cry from the response in drought-stricken California, where Governor Jerry Brown has declared a state of emergency and residents are being fined for watering their lawns.Sao Paulo state is already rationing water for more than 2 million people in 18 cities. The capital city’s main reservoir is now at only 12 percent of capacity, according to the water utility Cia. de Saneamento Basico do Estado de Sao Paulo, known as Sabesp. While the utility received a warning at the end of July that it risks running out of drinking water in 100 days, officials vow the situation is under control.“Sao Paulo is denying this crisis because we are in the middle of the political campaign,” said Joao Simanke, a hydrogeologist consultant who worked for Sabesp for more than two decades. “The crisis is already in place and it is getting worse, but until now it has been possible to mask it.”

Study links polar vortex chills to melting sea ice: (AP) — Remember the polar vortex, the huge mass of Arctic air that can plunge much of the U.S. into the deep freeze? You might have to get used to it. A new study says that as the world gets warmer, parts of North America, Europe and Asia could see more frequent and stronger visits of that cold air. Researchers say that's because of shrinking ice in the seas off Russia. Normally, the polar vortex is penned in the Arctic. But at times it escapes and wanders south, bringing with it a bit of Arctic super chill. That can happen for several reasons, and the new study suggests that one of them occurs when ice in northern seas shrinks, leaving more water uncovered. Normally, sea ice keeps heat energy from escaping the ocean and entering the atmosphere. When there's less ice, more energy gets into the atmosphere and weakens the jet stream, the high-altitude river of air that usually keeps Arctic air from wandering south, said study co-author Jin-Ho Yoon of the Pacific Northwest National Laboratory in Richland, Washington. So the cold air escapes instead. That happened relatively infrequently in the 1990s, but since 2000 it has happened nearly every year, according to a study published Tuesday in the journal Nature Communications. A team of scientists from South Korea and United States found that many such cold outbreaks happened a few months after unusually low sea ice levels in the Barents and Kara seas, off Russia.

Reuters - Water's edge: the crisis of rising sea levels: All along the ragged shore of Chesapeake Bay and the Atlantic coast of the Delmarva Peninsula, north into New England and south into Florida, along the Gulf Coast and parts of the West Coast, people, businesses and governments are confronting rising seas not as a future possibility. For them, the ocean’s rise is a troubling everyday reality. This is the first in a series of articles examining the phenomenon of rising seas, its effects on the United States, and the country’s response to an increasingly watery world. Other stories will show how other nations are coping. In cities like Norfolk, Virginia, and Annapolis, Maryland, coastal flooding has become more frequent. Beyond the cities, seawater and tidal marsh have consumed farmland and several once-inhabited islands. Here in Accomack County alone, encroaching seawater is converting an estimated 50 acres (20 hectares) of farmland into wetlands each year, according to a 2009 Environmental Protection Agency study. “It breaks my heart to think about it,”. Some nearby villages have disappeared altogether. “You’ve got to deal with the fact that it’s happening – and what are you going to do with those of us on the edge?”  It’s a question the U.S. government is dodging. More than 300 counties claim a piece of more than 86,000 miles (138,000 km) of tidal coastline in the United States, yet no clear national policy determines which locations receive help to protect their shorelines. That has left communities fighting for attention and resources, lest they be abandoned to the sea, as is playing out in Chincoteague.

Antarctic sea-level surge linked to icesheet loss- Sea levels around Antarctica have been rising a third faster than the global average, a clear sign of high melt water runoff from the continent's icesheet, say scientists.Satellite data from 1992 to 2011 found the sea surface around Antarctica's coast rose by around eight centimetres in total compared to a rise of six centimetres for the average of the world's oceans, they report in the journal Nature Geoscience.The local increase is accompanied by a fall in salinity at the sea surface, as detected by research ships.These dramatic changes can only be explained by an influx of freshwater from melting ice, say the study's authors."Freshwater is less dense than salt water, and so in regions where an excess of freshwater has accumulated, we expect a localised rise in sea level," says study co-author Craig Rye from Britain's National Oceanography Centre.But the estimate of ice loss and the precise source of it are hard to pin down.According to the team's computer model, around 350 billion tonnes a year of freshwater influx, plus or minus 100 billion tonnes, would explain the rise.This estimate puts together freshwater from the ground-based icesheet and also from the thinning of ice shelves -- floating ice that is attached to the coast and created by glaciers disgorging from the icesheet.

Some important context on Arctic sea ice melt - The Mail on Sunday reports that Arctic summer ice is on the increase, disproving the "myth of Arctic meltdown". But the article, by journalist David Rose, acknowledges a declining trend in summer Arctic sea-ice. And scientists tell us the increase in ice is natural year-to-year variation. Climate change is warming the Arctic, and scientists think it will make the region ice-free in summer at some point this century - points that despite the hyperbolic headline, the Mail on Sunday notes. Ice gain or loss? The Mail article reveals "how melt has slowed over ten years" using the graph below, showing Arctic sea ice extent from 2004 to 2014. Arctic sea-ice extent 2004-2014. Mail on Sunday However, taking a longer view shows a different picture. The graph below is from the NSIDC (National Snow and Ice Data Centre) at the University of Colorado, and plots data for the past 60 years. The pink line shows the average area of Arctic sea-ice each year, compared with the long-term average - what's called the sea ice 'anomaly'. While the amount of ice increases and decreases from year to year, the long term trend is clearly downwards.

Cuba and sea level rise - Cuba risks losing a vast stretch of beach front homes and pristine coastal habitat by 2050, because of rapidly rising sea levels, a top environmental official warned Thursday. At a panel discussion on Cuban environmental policy, Tomas Escobar, director of the island's National Environment Agency, said rising oceans could submerge huge areas of the Caribbean island, with potentially devastating consequences. The changes "could affect ecosystems, increase the vulnerability of coastal settlements, reduce agricultural soil productivity, crops and forestry and reduce the quality and availability of water," the Prensa Latina news agency quoted Escobar as saying."At the current rate of increase in sea level, by 2050 we will have lost nearly 2,700 square kilometers of land area and 9,000 homes," he said.Cuba has an area of 109,884 square kilometers (42 square miles), and more than 5,700 kilometers (3,500 miles) of coastline that includes everything from steep cliffs to sandy beaches to swamps.

NewScientist: No more pause: Global warming will be non-stop from now on  - Enjoy the pause in global warming while it lasts, because it's probably the last one we will get this century. Once temperatures start rising again, it looks like they will keep going up without a break for the rest of the century, unless we cut our greenhouse gas emissions. The slowdown in global warming since 1997 seems to be driven by unusually powerful winds over the Pacific Ocean, which are burying heat in the water. But even if that happens again, or a volcanic eruption spews cooling particles into the air, we are unlikely to see a similar hiatus, according to two independent studies. Masahiro Watanabe of the University of Tokyo in Japan and his colleagues have found that, over the past three decades, the natural ups and downs in temperature have had less influence on the planet's overall warmth. In the 1980s, natural variability accounted for almost half of the temperature changes seen. That fell to 38% in the 1990s and just 27% in the 2000s. Instead, human-induced warming is accounting for more and more of the changes from year to year, says Watanabe. With ever-faster warming, small natural variations have less impact and are unlikely to override the human-induced warming. "The implication is that we will get fewer hiatus periods, or hiatus periods that last for a shorter period," says Wenju Cai at the CSIRO in Melbourne, Australia, who wasn't involved in the work.

Changing global diets is vital to reducing climate change: A new study, published today in Nature Climate Change, suggests that – if current trends continue – food production alone will reach, if not exceed, the global targets for total greenhouse gas (GHG) emissions in 2050. The study's authors say we should all think carefully about the food we choose and its environmental impact. A shift to healthier diets across the world is just one of a number of actions that need to be taken to avoid dangerous climate change and ensure there is enough food for all. As populations rise and global tastes shift towards meat-heavy Western diets, increasing agricultural yields will not meet projected food demands of what is expected to be 9.6 billion people - making it necessary to bring more land into cultivation. This will come at a high price, warn the authors, as the deforestation will increase carbon emissions as well as biodiversity loss, and increased livestock production will raise methane levels. They argue that current food demand trends must change through reducing waste and encouraging balanced diets. If we maintain 'business as usual', say the authors, then by 2050 cropland will have expanded by 42% and fertiliser use increased sharply by 45% over 2009 levels. A further tenth of the world's pristine tropical forests would disappear over the next 35 years. The study shows that increased deforestation, fertilizer use and livestock methane emissions are likely to cause GHG from food production to increase by almost 80%. This will put emissions from food production alone roughly equal to the target greenhouse gas emissions in 2050 for the entire global economy.

Ruin is forever: When the precautionary principle is justified - If you are dead, you cannot mount a comeback. If all life on Earth were destroyed by, say, a large comet impact, there would be no revival. Ruin is forever. The destruction of all life on Earth is not 10 times worse than the destruction of one-tenth of all life on Earth. It is infinitely worse. A fall of 1 foot is not one-tenth as damaging to the human body as a fall of 10 feet, nor is it one-hundredth as damaging as a fall of 100 feet (which is very likely to be lethal). It is just these properties--scope and severity--that most humans seem blind to when introducing innovations into society and the environment according to a recent paper entitled "The Precautionary Principle: Fragility and Black Swans from Policy Actions." The paper comes from the Extreme Risk Initiative at the New York University School of Engineering and one of its authors, Nassim Nicholas Taleb, is well-known to my readers. The The precautionary principle refers to a policy that demands proof that an innovation in not broadly harmful to humans or the environment before it is deployed. We are referring here to public policy issues, not decisions by individuals. The question the paper tries to answer is: When should this principle be invoked in public policy? The answer the authors give is surprisingly simple: when the risk of ruin is systemic.   An explosion at one fireworks factory cannot set off a chain reaction around the world. Individuals in and around the plant might be ruined. But all of humanity would not ruined.

Debt Rattle: This Is As Big As We Will Get - This is it. This is the biggest we’re going to get. We won’t grow anymore. Not bigger, not wider, not taller (just thicker perhaps, in the sense of more stupid). I return to this from time to time, and still I never see even just one voice in the media with even one hair’s breadth of doubt about the overarching theme of growth at all costs. Is this a sign that economists and other poorly educated people have taken over the world, or is it simply what we are all programmed for? The only discussion out there is how we can best return to growth. Never if we should return to it. But still, when I look around me I don’t have the feeling that we desperately need to grow bigger. That we need to consume more than we already do, that we need to drive our cars more or move into larger homes or buy more clothes or gadgets or anything. At least 99% of the time I think that it’s all more than enough. And not just because of the damage our consumption patterns inflicts on our lives and our health and our planet, but certainly also because of what these patterns do to my own mind and soul. To say that this is it, and we won’t grow any bigger, is not just some spurious remark. The world economy hasn’t actually grown for decades, other than through debt. The credit issued by Jimmy Stewart in It’s a Wonderful Life could bolster growth. But in a world that’s steeped as deeply in debt as we have become, that debt actually turns into the opposite of growth. We know this happens when more debt is needed every day just to not shrink, like the Red Queen running just to stand still. From that moment on, more debt can only buy you the appearance and illusion of growth, not the real thing. We passed that point some 40 years ago. If not earlier. You can argue about the exact timing. But not about the fact itself. Still, there’s no argument out there about either.

Limits to Growth was right. New research shows we're nearing collapse - The 1972 book Limits to Growth, which predicted our civilisation would probably collapse some time this century, has been criticised as doomsday fantasy since it was published. Back in 2002, self-styled environmental expert Bjorn Lomborg consigned it to the “dustbin of history”.  It doesn’t belong there. Research from the University of Melbourne has found the book’s forecasts are accurate, 40 years on. If we continue to track in line with the book’s scenario, expect the early stages of global collapse to start appearing soon.  Limits to Growth was commissioned by a think tank called the Club of Rome.  The team tracked industrialisation, population, food, use of resources, and pollution. They modelled data up to 1970, then developed a range of scenarios out to 2100, depending on whether humanity took serious action on environmental and resource issues. If that didn’t happen, the model predicted “overshoot and collapse” – in the economy, environment and population – before 2070. This was called the “business-as-usual” scenario. The book’s central point, much criticised since, is that “the earth is finite” and the quest for unlimited growth in population, material goods etc would eventually lead to a crash.So were they right? We decided to check in with those scenarios after 40 years. Dr Graham Turner gathered data from the UN (its department of economic and social affairs, Unesco, the food and agriculture organisation, and the UN statistics yearbook). He also checked in with the US national oceanic and atmospheric administration, the BP statistical review, and elsewhere. That data was plotted alongside the Limits to Growth scenarios.  The results show that the world is tracking pretty closely to the Limits to Growth “business-as-usual” scenario. The data doesn’t match up with other scenarios.These graphs show real-world data (first from the MIT work, then from our research), plotted in a solid line. The dotted line shows the Limits to Growth “business-as-usual” scenario out to 2100. Up to 2010, the data is strikingly similar to the book’s forecasts.

Nine Years After Katrina, Coastal Restoration Plans Remain Distant Dream for New Orleans -- The scars of Hurricane Katrina in New Orleans that remain nine years later are a reminder of the city’s vulnerability to rising tides and storm surges. Both Katrina and Rita, a hurricane that followed just weeks later, washed away miles of coastal marshland, the state’s first line of defense from storms.  There is a land loss on the Louisiana coast of approximately one football field every 38 minutes according to the Louisiana Department of Natural Resources. Their figures are based on numbers released by the United States Geological Survey.“At current land loss rates, nearly 640,000 more acres, an area nearly the size of Rhode Island, will be under water by 2050,” The Louisiana agency says. Plaquemines and Jefferson Parrish have waged multiple lawsuits against oil and gas companies alleging they broke the rules required in the permits allowing them to work in the wetlands, while others operated without permits at all, hastening coastal erosion. The permits require the companies to restore the area they damaged to its original condition when work is complete — a condition overlooked for years by industry.The lawsuits aim to recover funds needed to repair and restore the coast. The Parish lawsuits target individual companies citing specific wrongdoing, coinciding with the damage they allege was caused. The Southeast Louisiana Flood Protection Authority-East (known as the levee board) waged its own lawsuit against the 97 oil and gas companies. They claim all of the companies contributed to damage to the coast that has weakened New Orleans’ flood protection.

As Louisiana Sinks And Sea Levels Rise, The State Is Drowning. Fast.: In just 80 years, some 2,000 square miles of its coastal landscape have turned to open water, wiping places off maps, bringing the Gulf of Mexico to the back door of New Orleans and posing a lethal threat to an energy and shipping corridor vital to the nation’s economy. And it’s going to get worse, even quicker. Scientists now say one of the greatest environmental and economic disasters in the nation’s history is rushing toward a catastrophic conclusion over the next 50 years, so far unabated and largely unnoticed. At the current rates that the sea is rising and land is sinking, National Oceanic and Atmospheric Administration scientists say by 2100 the Gulf of Mexico could rise as much as 4.3 feet across this landscape, which has an average elevation of about 3 feet. If that happens, everything outside the protective levees — most of Southeast Louisiana — would be underwater.  The effects would be felt far beyond bayou country. The region best known for its self-proclaimed motto “laissez les bons temps rouler” — let the good times roll — is one of the nation’s economic linchpins. This land being swallowed by the Gulf is home to half of the country’s oil refineries, a matrix of pipelines that serve 90 percent of the nation’s offshore energy production and 30 percent of its total oil and gas supply, a port vital to 31 states, and 2 million people who would need to find other places to live. The landscape on which all that is built is washing away at a rate of a football field every hour, 16 square miles per year.

Consortium scraps plans to dump waste in Great Barrier Reef - Plans to dump 3 million cubic metres of material dredged from the ocean floor into the Great Barrier Reef area will be abandoned under changes to already approved plans to expand the Abbot Point coal terminal in Queensland. North Queensland Bulk Ports, GVK Hancock and Adani Group will re-submit a proposal as early as this week to Environment Minister Greg Hunt proposing alternative dumping sites on land. The change is designed to neutralise controversy over potential damage to the reef and avoid a court case launched by the North Queensland Conservation Council. The fresh proposal will supersede Mr Hunt’s previous approval of dumping the material in the ocean under strict conditions and restart the process, which could delay construction. Mr Hunt has long been lobbying for the change behind the scenes, according to sources. Last week local Liberal MP George Christensen declared he had “got it wrong” in his support for the expansion project and called on the owners of Abbot Point to look at alternative onshore options. While he supported the expansion in principle, he was concerned about the impact the court case would have on the long-term viability of the project and said he would listen to ­community concerns.

Massive Canadian Mining Waste Spill Was Nearly 70 Percent Larger Than Previous Estimates -The mining waste spill that led to water bans for hundreds of British Columbians was almost 70 percent larger than previously estimated, according to the company in charge of the mine. A tailings pond from the open-pit Mount Polley copper and gold mine in British Columbia breached in early August, sending what the B.C. government originally estimated as five million cubic meters (1.3 billion gallons) of mining waste slurry into nearby Hazeltine Creek. Now, mining company Imperial Metals estimates the spill at 10.6 million cubic meters (2.8 billion gallons) of water, 7.3 million cubic meters (1.9 billion gallons) of tailings and 6.5 million cubic meters (1.7 billion gallons) of interstitial water, or the water that sits between the spaces of the ground-up rock in the tailings pond. Right now, Imperial Metals is working to determine the makeup of the mine tailings and water that flooded the region. The B.C. government reported this week that it had found copper, iron, manganese, arsenic, silver, selenium and vanadium in higher levels than provincial standards near the mine in the days after the spill, but the government also noted that these substances were found to be elevated in the area before the spill, too. The CBC noted in August that the Mount Polley mine disposed of arsenic, lead, nickel, selenium, mercury, and other compounds on-site.

US State Department underestimates carbon pollution from Keystone XL - This is like the movie Groundhog Day. I seem forever forced to correct the State Department’s errant analysis of Alberta tar sands emissions. Now, however, other people are agreeing with me. A recent paper published in Nature Climate Change reviewed the State Department’s accounting and found it deeply flawed.The authors, Peter Erickson and Michael Lazarus of the Stockholm Institute included the impacts of Keystone on the global oil markets. This inclusion tripled the climate change impact of the Keystone pipeline compared to the State Department’s analysis. Let’s get into the study to see the reason for the change and also to understand why even this new analysis is flawed.First, the State Department assesses the impact of tar sands by assuming it will merely displace, barrel for barrel, some other oil extracted somewhere else on the planet. Therefore, the State Department analysis only counts the incremental emissions for tar sands. Tar sands are approximately 17% worse in terms of emissions than other fuels (it depends on which fuel is the reference); the State Department only counts these extra emissions.What the new study does is ask, how will the Keystone pipeline increase oil extraction globally? For instance, if oil prices decrease because of Keystone, then more oil will be extracted (up to 0.6 barrels more per barrel of tar sands). They reason, correctly, that an honest account must include the increased extraction. In fact, this new accounting shows that the actual emissions are up to four times those proposed by the government analysis. To put some real numbers in, the authors report that Keystone would lead to up to 110 million tons of carbon dioxide equivalent per year.

Experts Warn of ‘Inevitable’ Fukushima Disaster in California - Since the catastrophic meltdown of the Fukushima nuclear power plant in March of 2011 irreparably altered the state of the planet for the known future, the incident has been shrouded in nothing but bureaucratic cover ups and government-backed disinformation. Now, within our own borders, top experts turned whistleblowers are warning of a nuclear nightmare that could surpass Fukushima and Chernobyl alike by leaps and bounds. Initially listed as a Level 4 incident on the International Nuclear Event Scale, pressure from scientists on an international level ultimately led to Fukushima’s classification as a maximum Level 7 accident within the INES system — with some suggesting an entirely new level was needed to describe the true impact and atrocity of the nuclear meltdown. Now, even after witnessing what happens when a major power plant is placed within the crosshairs of earthquake activity, a ‘new Fukushima’ is sitting off the Central Coast within California’s Diablo Canyon. And top level nuclear experts, including a senior federal nuclear inspector turned whistleblower, are warning that the California-based plant is a sitting radioactive duck amid the nearby faults that have actually been found to be more dangerous than previously thought. Back in 2008, a new fault known as the Shoreline fault was discovered just offshore from the Diablo Canyon nuclear facility: a discovery that truly changes everything about the ‘safety’ of the California plant.

Coal trains kill Cold Trains: Fruit delivery service shuts down as rail congestion heats up - Puget Sound Business Journal: Congestion from coal and oil trains seems to be the key factor forcing closure of a prominent express rail service that carries Washington fruit and produce to East Coast markets. Cold Train on Thursday announced it is shutting down its express service from Quincy, Wash. because restrictions in the BNSF Railway schedule changed delivery guarantees from three days to six days. “BNSF’s business decision to direct its resources away from Cold Train resulted in millions of dollars in operating losses and millions of dollars in capital investment losses, both of which are simply unsustainable,” said a Cold Train release. The release connected the closure directly to coal and oil shipments by BNSF Rail. “The announcement by Cold Train follows a number of scheduling issues on BNSF Railway’s Northern Corridor line that have been occurring with BNSF beginning late last fall because of increased rail congestion as result of a surge of oil and coal shipments on the Northern Corridor line,” it said. “In fact, from November of 2013 to April of 2014, BNSF’s on-time percentage dramatically dropped from an average of over 90 percent to less than 5 percent.”

Full extent of global coal 'binge' is hidden, say researchers: The climate impacts of the world's fossil-fuelled power plants are being underestimated because of poor accounting, say researchers. Governments would get a truer picture if they included the lifetime emissions of a facility in the year it goes into production These "committed emissions" have been growing by 4% a year between 2000 and 2012, the scientists say. Power plants in China and India alone account for half of this commitment. At present, UN accounting procedures only include the emissions from coal and gas powered electricity generation in the year in which they occur.  According to the authors of the new paper, this method means they are missing a significant part of the picture. "We are trying to get past a kind of myopia that sets in when people focus exclusively on the emissions of the day," said one of the authors, Prof Robert Socolow from Princeton. By taking an expected production life of 40 years, the researchers calculated that the new coal and gas plants built in 2012 would, in total, produce around 19bn tonnes of CO2. This is significantly more than the 14bn tonnes produced by all the existing fossil fuel plants in the world in the same year. "We've been hiding things from ourselves," said Prof Socolow.

Workers At Coal Waste Landfill Told That Coal Ash Is ‘Safe Enough To Eat,’ Lawsuit Says - Employees of an Ohio landfill used primarily for disposing of toxic coal waste byproducts like coal ash were told that the waste was “safe enough to eat” and weren’t required to wear protective gear, resulting in numerous illnesses and some deaths, according to a lawsuit filed on behalf of 77 people last month.  Doug Workman, a supervisor at the General James M. Gavin Residual Waste Landfill landfill in North Cheshire, Ohio, allegedly responded to worker inquiries about whether working with the coal waste was safe “by sticking his finger into the coal waste and then placing his fly-ash covered finger into his own mouth,” thereby implying that “that coal waste was ‘safe enough to eat,’” according to a report in the West Virginia Record. Both Workman and American Electric Power — the power company that owns the landfill — are targets of the lawsuit, which claims that workers who handled the waste were not adequately protected from its toxic properties. “Repeatedly, individuals were not provided with protective equipment, such as overalls, gloves or respirators when working in and around coal waste,” the lawsuit reads. “These working men and women, already exposed to the contaminants at the job site, then, in turn, carried the coal waste home to their families on their clothes and shoes, thus even exposing family members to the deadly toxins.”

Big Fracking Lie Version 2.0: “LNG exports will reduce global warming” --LNG exports have been promoted as helping the Ukraine.”  And natural gas has been promoted as a way to “reduce global warming.”  Needless to say, all of this tendentious nonsense originates from companies seeking to maximize their profits – and is parroted by frackademics, lobbyists, politicians, and the press. None of it is true. In fact, much of  it is the inverse of the truth – a gaseous form of swiftboating: what is demonstrably ruinous for the environment is greenwashed into being good for the environment. The exportation of methane in the form of liquified natural gas (LNG) is unquestionably the worst use of the molecule – since it virtually guarantees that the maximum amount of it will be vented into the atmosphere  - dramatically increasing global warming. Any industry propaganda to the contrary is a Big Fracking Lie.  Natural gas cannot be produced (by fracking shale) transported, compressed into a liquid and transported thousands of miles by specialized cryogenically cooled tankers without venting gas. The LNG facilities and tankers would explode if they did not vent gas every step of the process. That is the Hobson’s Choice of LNG – it either cooks the planet or it explodes. There is, obviously, another alternative: none of the above.A new paper summarizes the ways that LNG exports lead the list in global warming. Starting with venting methane wells. Climate Impacts of LNG Exports (paper embedded)

US EPA may force drillers to reduce methane leaks - -- The Environmental Protection Agency is considering rules that would force oil and gas producers to cut methane emissions, its chief said, stepping up efforts to curb the most potent greenhouse gas linked to climate change. Gina McCarthy, the EPA administrator, told investors at a New York forum today the agency will decide this year whether to issue regulations mandating emission cuts, or to rely only on voluntary steps. "We are looking at what are the most cost-effective regulatory and-or voluntary efforts that can take a chunk out of methane in the system," McCarthy said. "It’s not just for climate, but for air quality" reasons, she said. Methane is 21 times more potent than carbon dioxide, and climate advocates have said that without curbs on emissions from the oil and gas industry, President Barack Obama will fall short of his goal to cut climate-change emissions. The administration’s plan to cut methane, issued in March, said the EPA would decide whether to regulate the industry. Rules, if issued, would take effect in 2016, the government said. McCarthy said two sections of the Clean Air Act could be used to regulate methane. Because production is causing dangerously high ozone levels in some areas where hydraulic fracturing, or fracking, is booming, "we recognize that this is a traditional air quality problem," she said. The issue has gained attention as fracking fuels a boom in gas and oil production in states such as North Dakota, Texas and Pennsylvania, leading to some air-quality woes. Critics of fracking say methane leaks undercut the climate benefits of using natural gas. When it’s burned to produce electricity, natural gas emits about half the carbon dioxide, the main gas tied to global warming, as coal. If too much methane escapes during production and transport, that environmental benefit is diminished or lost.

Natural gas production in the Utica Shale has increased almost 7X in 2 years and its potential just got even bigger - The chart above shows natural gas production in the Utica Shale area of Ohio and Pennsylvania (see map below), based on EIA data. In only two years, the production of natural gas in the Utica Shale region has increased from about 200,000,000 cubic feet per day in September 2012 to 1.34 billion cubic feet per day this month based on the EIA’s most recent estimate (see chart). And we can expect the eye-popping increase in shale gas in the Utica to continue, according to a news report today from Bloomberg about Shell’s recent discovery of two new very promising natural gas fields in the Utica:Royal Dutch Shell’s natural gas discoveries near the Pennsylvania-New York border indicate that the Utica shale formation extends hundreds of miles farther east than originally thought. Two gas finds in Tioga County, Pennsylvania, announced today by Europe’s largest oil company are more than 300 miles away from the epicenter of Utica shale drilling in Monroe County, Ohio. Shell, which has been selling gas assets in other parts of the U.S. to focus on its highest-profit prospects, said it owns drilling rights across about 430,000 acres in the discovery zone, an area five times the size of Philadelphia.

Anti-fracking charter amendment to be on Nov. 4 ballot in Youngstown - The anti-fracking “Community Bill of Rights” charter amendment will be in front of Youngstown voters for the fourth time. The Mahoning County Board of Elections certified Tuesday that the citizen-initiative has the required signatures to be on the Nov. 4 ballot. The Community Bill of Rights committee submitted petitions with 2,058 signatures. The board determined 1,447 of the signatures are valid. The committee needed at least 1,216 valid signatures to get the proposal on the ballot. “We’re pleased with the certification,” said Susie Beiersdorfer, a committee member. “We’re going again. There’s no one protecting our air and property rights so the community members have to do it.” The voting results get closer each time, but the proposal has failed three times. In May 2013, it lost by 13.7 percentage points. It lost by 9.7 percentage points in November 2013, and by 8.3 percentage points in May 2014.  The proposal would ban fracking in Youngstown even though opponents and state officials say that isn’t enforceable, as those decisions are made by the Ohio Department of Natural Resources.

Fracking fire points out failings | The Columbus Dispatch: — Phillip Keevert, the only paid firefighter in Monroe County, was working a diesel spill on the morning of June 28 when a 911 dispatcher called his cellphone about another emergency. Keevert was out of range of the county’s radio system, so he got in his truck and drove toward town. As he got closer, the radio static gave way to snippets of conversation. He heard the word “well.” More static. Then the word “fire.” One tanker truck was on fire at a StatOil North America well pad in Clarington. Now, two trucks were on fire. Now, three. Keevert turned onto Rt. 78 east heading toward Clarington, about a 30-minute drive from the well pad, and saw a thick plume of black smoke cutting into the sky. “It was like a bomb had gone off,” he said. “Just coal-black smoke, just rolling.” Three years ago, before the shale-gas industry started booming in Ohio, oil and gas companies had permits for five hydraulically fractured wells in Monroe County, a rural county of about 15,000 people along the Ohio River near the West Virginia and Pennsylvania borders. As of June 28, the day a well pad caught fire there, oil and gas companies had permits for 135 wells that either had been or could be hydraulically fractured, or fracked.The StatOil fire started when a hydraulic tube used during the fracking process broke, according to preliminary reports. The broken line sprayed fracking fluid onto hot equipment, igniting it. Twenty trucks went up in flames. Tires exploded. Chemicals burned. The firefighters’ radio equipment wouldn’t work at the site without a communications truck, something Monroe County doesn’t own. The nearest trucks, in Guernsey and Athens counties, were both in the shop.

ODNR investigating quake centered at Weathersfield injection wells - After reviewing the data the United States Geological Survey has revised information on a Sunday afternoon earthquake in Trumbull county. The initial report by the USGS placed the center of the 1.8 magnitude quake about a mile from an injection well site on Route 169. The new data says the quake was centered adjacent to the well site and the magnitude was slightly higher at 2.1. There are four remote seismic monitors surrounding the site and a spokesperson for the Ohio Department of Natural Resources says the data is being reviewed. A statement issued Tuesday reads in part.."The review of this data will allow ODNR to determine if any correlation can be made and whether or not any regulatory action is necessary." Because of increased oil and gas exploration there is more monitoring of seismic activity. "Perhaps because we have more seismic monitors in the area now we are detecting low magnitude activity that went un-noticed before" said Bill Klingle, President of American Water Management Services which operates the injection wells. The National Earthquake Information Center says that the Sunday quake was picked up by 49 seismic monitors. There are estimated 1-point-3 million earthquakes annually of 2.1 magnitude or smaller. YSU geology professor Ray Beiersdorfer says what is unusual is the Mahoning valley recording more than 100 earthquakes in just the past three years. "But here in northeast Ohio prior to all this development we weren't a seismically active place and that's one of my concerns" Beiersdorfer said.

Experts explore whether Ohio quake tied to wells - (AP) - State regulators and scientists in Ohio are working to determine whether an earthquake in northeast Ohio on Sunday has any connection to nearby injection wells.The Warren Tribune Chronicle reported Wednesday ( ) that the Ohio Department of Natural Resources and scientists from Columbia University are studying the cause of the 2.1-magnitude quake centered in Weathersfield, near Youngstown. ODNR spokesman Mark Bruce said a determination should be made by week's end.The newspaper reports two injection wells for the disposal of wastewater from oil and gas drilling had received permission to operate nearby in March. Bruce said one of the wells recently received permission to increase its pressures. The citizens group Frackfree Mahoning Valley called for an immediate halt to deep injection at the wells. It plans a public meeting Wednesday.

Northeast Ohio injection operation halted after quake: – State regulators in Ohio suspended operations at two deep injection wells for fracking wastewater in northeast Ohio Friday after discovering possible evidence the operation caused a 2.1-magnitude earthquake over the weekend. A spokeswoman said the Ohio Department of Natural Resources issued a chief’s order to American Water Management Services for its Weathersfield site, near Warren. Messages seeking comment were left after regular business hours for the company. ODNR spokeswoman Bethany McCorkle called Sunday’s quake “relatively minor.” She said the suspension is effective until a full investigation occurs. American Water Management Services had recently received permission to increase pressures at its Weathersfield site. The citizens group Frackfree Mahoning Valley had called for an immediate halt to deep injection at the wells after the earthquake. “The suspension was a prudent thing to do,” said Youngstown State University geologist Ray Beiersdorfer, who is affiliated with the group. He said he hopes ODNR will release more information regarding the pressures at the Weathersfield site following its investigation.

Community adjusts around fracking industry: —Money is rolling into Guernsey County because of the exploration of the Utica Shale formation, but only for those directly in its path; others are stagnant or even struggling to stay afloat amid the effects of the new industry. Several restaurants and hotels are doing well, but housing rental rates are climbing to inaccessible heights for some families who have lived in the same home for years. Car and truck sales are increasing, and residents are trading their local jobs for jobs in the oil and gas industry, leaving vacancies that aren't easily filled. The county is raking in tax dollars, but some businesses are still waiting for the effects to reach them. As of this month, there are three hydraulic fracturing wells in Muskingum County, five in Coshocton County and 123 in Guernsey County. Guernsey County residents, business owners, renters and county administrators are trying to adjust to the small and sizable changes taking place in their communities, from the financial to the social, since fracking began a few years ago. Ruth Dixon said the lines at area restaurants have become longer, and local residents tell her they don't go out to eat as much anymore since all the oil and gas workers have come to town. And a formerly 10-minute drive has doubled, with traffic congested from all the oil and gas trucks on the roads.

Fracking comes closer to Akron-Canton area in experimental oil-and-gas drilling of Clinton sandstone - A Texas oil and gas drilling company is exploring the Clinton sandstone formation in Stark County to determine whether there is another layer of riches to be exploited in Ohio. EnerVest Ltd., based in Houston, has drilled several miniaturized horizontal wells, mostly around Louisville and Alliance in northeast Stark County, to test the potential profitability of the sandstone. Another company has done the same in Coshocton County, southwest of Canton. For about a century, Clinton sandstone has been an oil and gas producer, but the wells have always been straight vertical holes into the formation that is 3,000 to 4,600 feet below the surface. EnerVest is looking for areas of Clinton that have not been over-tapped with vertical wells. The company is experimenting with the new horizontal drilling technology that allows the driller to go to a specified depth, turn 90 degrees, drill horizontally, fracture the underground rock with high-pressure water, sand and chemicals and break loose the trapped oil and gas. This comes at the same time eastern Ohio has become one of the nation’s biggest oil and gas plays as drillers find lucrative reserves in the Utica shale formation, which rests several thousand feet deeper and extends into Pennsylvania and West Virginia. Natural resources valued at billions of dollars have been pulled from the Utica formation in the nearly four years since drillers began work in Ohio, and landowners who leased mineral rights to their property have been sharing in the profits. If the Clinton formation can be made more productive, landowners, investors and drillers could make even more money.

Studying fracking's effects, up close and personal: Ten years ago, hydraulic fracturing barely existed. Today 45,000 fracked wells produce natural gas, providing energy for millions of homes and businesses, and nearly a quarter of the nation's electricity. But scientists are far behind in understanding how this boom affects people near wells. Geochemists Beizhan Yan and James Ross of Columbia University's Lamont-Doherty Earth Observatory are trying to fill in this gap in rural northeastern Pennsylvania, where thousands of fracking operations have taken over formerly quiet hilltops, farms and back roads. With new wells being drilled all the time, Yan and Ross are recruiting nearby homeowners to help them test groundwater and air for potential toxins before, during and after fracking. University of Pennsylvania medical researchers studying the region have already shown that people living in heavily fracked areas have been visiting hospitals increasingly for skin, respiratory and cardiovascular ailments since the boom began in 2007. But they cannot say whether this is linked to fracking, and if so, to which of the many substances it might introduce into the environment. Yan and Ross hope to help provide that information. This photo essay shows their work over one day this summer.

Pennsylvania Finally Reveals Fracking Has Contaminated Drinking Water Hundreds Of Times - For the first time, Pennsylvania has made public 243 cases of contamination of private drinking wells from oil and gas drilling operations.  As the AP reports, Pennsylvania’s Department of Environmental Protection posted details about the contamination cases online on Thursday. The cases occurred in 22 counties, with Susquehanna, Tioga, Lycoming, and Bradford counties having the most incidences of contamination.  In some cases, one drilling operation contaminated the water of multiple wells, with water issues resulting from methane gas contamination, wastewater spills, and wells that simply went dry or undrinkable. The move to release the contamination information comes after years of the AP and other news outlets filing lawsuits and Freedom of Information Act requests from the DEP on water issues related to oil and gas drilling and fracking.The Pennsylvania DEP has been criticized for its poor record of providing information on fracking-related contamination to state residents. In April, a Pennsylvania Superior Court case claimed that due to the way DEP operates and its lack of public record, it’s impossible for citizens to know about cases where private wells, groundwater and springs are contaminated by drilling and fracking.

DEP publishes official determinations of damaged water supplies related to oil and gas operations: The Pennsylvania Department of Environmental Protection has publicly posted documents revealing official determinations that oil and gas operations have damaged Pennsylvania water supplies since late 2008. The determination letters, made available for the first time late Thursday afternoon, show 248 incidents where drilling has contaminated water supplies, a number higher than the 209 first tallied by the DEP. In July, state environmental regulators provided the Pittsburgh Post-Gazette an early version of the spreadsheet in response to an open records request. The highest number of confirmed incidents occurred in 2010, according to DEP records. That year saw 58 occurrences, followed by 39 in 2011 and 37 in 2009. In 2014 so far, there have been 11 incidents, according to the DEP letters. Each entry represents one water supply that environmental regulators determined was polluted by drilling operations. That information was compiled from letters and orders issued by the DEP’s regional offices throughout the state, according to DEP spokesman Eric Shirk. The numbers vary by region. In Southwestern Pennsylvania, the second most heavily drilled portion of the state, saw nine incidents, according to DEP data. Washington County, which has 1,042 unconventional wells, counts two incidents. Meanwhile, Bradford County in the prolific region of northeastern Pennsylvania has 52 incidents on 1,295 unconventional wells drilled. Mr. Shirk said the DEP is continuing to review and update the data.

State determines wastewater from gas drilling contaminated drinking water in Westmoreland County: The state Department of Environmental Protection has officially determined that drinking water at a third residence is contaminated by WPX Appalachia LLC’s leaky Marcellus Shale gas drilling wastewater impoundment near Stahlstown, Westmoreland County. Whether that gets any of the three families living along rural Route 711 south of Ligonier any closer to a permanent replacement water supply is another matter. The DEP last week ordered WPX to restore or replace the water supply at the home of Ken and Mildred Geary, both in their 80s, who first complained that their water had a foul, chemical smell and taste a year ago. The order came down two years after the DEP first received a complaint about possible ground water contamination from the impoundment at WPX’s Kelp shale gas drilling pad. The DEP made the contamination determination based on tests done in June, that showed the well water contained higher concentrations of chloride, barium, calcium, magnesium, manganese, strontium and total dissolved solids than it did prior to November 2011 when WPX drilled the Kelp well. “In February, I believe the data was already there to show contamination,” said Nick Kennedy, an attorney with the Mountain Watershed Association, a local environmental advocacy group that has worked with the families. “This determination and order should have been made months ago.”

The evidence is in, so ban fracking   - NY Daily News: If anyone in New York was still buying the utopian vision being sold by the oil and gas industry regarding fracking — free energy! new jobs! no risk! — a flood of recent news should end the delusion once and for all. Consider fresh reports about the experience of Finleyville, Pa., where residents were promised easy money with no headaches back in 2008. But once the trucks and heavy machinery came in and the fracking began, everything changed. Families found their homes unlivable. Houses vibrated and were filled with continuous noise. Air quality warnings and gas odors forced some to flee. In one especially disturbing case, a pregnant woman was advised by her doctor to relocate to an area further away from a drilling site. Given the gas industry’s track record, what came next in Finleyville shouldn’t be a shock — but, in its utter shamelessness, it was pretty rare, even for them. In 2013, homeowners were offered $50,000 to sign away their rights to hold the drilling corporation, EQT, legally responsible for its negative consequences, and those of any future operations. These agreements covered health problems, property damage, and other negative effects including noise, dust, light, smoke, odors, fumes, soot, air pollution or vibrations. And the liability releases wouldn’t just exempt the drillers from damages related to drilling, but from its construction of pipelines, power lines, roads, tanks, ponds, pits, compressor stations, houses and buildings as well.

Shale drillers’ landfill records don’t match those of Pennsylvania DEP: Data submitted by oil and gas operators on the amount of drilling cuttings and fracking fluid sent to Pittsburgh-area landfills don’t match up to reporting required of landfills. The DEP has opened an investigation into drillers’ under-reporting of the landfill waste.EQT Corp. told the Pennsylvania Department of Environmental Protection that it sent 21 tons of drill cuttings from its Marcellus Shale wells to area landfills in 2013. But landfills in southwestern Pennsylvania told a different story. Six facilities in this part of the state reported receiving nearly 95,000 tons of drill cuttings and fracking fluid from the Downtown-based oil and gas operator last year. The landfills’ records are the correct ones, said Mike Forbeck, waste management director with the DEP. He said the agency has opened an investigation into drillers’ under-reporting of landfill waste. The EQT case — 21 tons vs. 95,000 tons — may be the most dramatic example of how data submitted by oil and gas operators don’t match up to reporting required of landfills. The DEP said it has been aware of the problem for “a number of months” and is looking into why the different reporting channels aren’t yielding the same results. Across the board, nine southwestern Pennsylvania landfills analyzed for this story reported accepting three to four times the amount of waste that operators said they sent there.

Marcellus Shale drillers under-reported waste - EQT Corp. told the Pennsylvania Department of Environmental Protection that it sent 21 tons of drill cuttings from its Marcellus Shale wells to area landfills in 2013. But landfills in southwestern Pennsylvania told a different story. Six facilities in this part of the state reported receiving nearly 95,000 tons of drill cuttings and fracking fluid from the Downtown-based oil and gas operator last year. The landfills' records are the correct ones, said Mike Forbeck, waste management director with the DEP. He said the agency has opened an investigation into drillers' under-reporting of landfill waste. The EQT case — 21 tons vs. 95,000 tons — may be the most dramatic example of how data submitted by oil and gas operators don't match up to reporting required of landfills. The DEP said it has been aware of the problem for "a number of months" and is looking into why the different reporting channels aren't yielding the same results. When the EQT figures were brought to its attention, the DEP launched an investigation into the company's reporting practices, said John Poister, a spokesman for the agency. "We don't understand why there's that discrepancy," Mr. Forbeck said. Asked for comment on inconsistencies in waste sent to landfills by Range Resources last year, the DEP started another investigation and found that Range's numbers were off by 22,000 tons compared with what landfills reported receiving from the Texas-based driller in 2013. "We're also having discussions with the company to try to find out what's going on there," Mr. Forbeck said.

Huge Reversal on Fracking In Pennsylvania - For those of you familiar with oil and gas operations, the idea of forced pooling is no surprise. It’s a legal arrangement that enables drilling companies to extract oil or gas in a given area, once they bring a certain number of willing property owners under lease. Forced pooling has been in widespread use for generations (the Pennsylvania law dates back to 1961), but fracking water contamination and other fracking issues have been raising new red flags, so when Hilcorp began leasing an area in the Utica shale, four property owners balked. The fact that Hilcorp backed down against just four small property owners is significant because Hilcorp Energy is no small potatoes. The Fortune 500 company bills itself as “one of the largest privately-held independent oil and natural gas exploration and production companies in the United States.” In other words, one of the biggest, most deep-pocketed operators in the country just tried to test forced pooling against a handful of property owners, and it failed. The case is also significant because it has tested the limits of Hilcorp’s business model. Although the company got its start in 1989 with a focus on conventional drilling, it appears to have become an aggressive participant in the fracking boom.

Judge bars natural gas well in residential area - - A judge in northern Pennsylvania is throwing out a municipality's decision to allow a natural gas well to be drilled in a residentially zoned area. The environmental group PennFuture said Wednesday the ruling was a test of a state Supreme Court decision that struck down a 2012 law restricting municipalities' ability to control where companies may drill. PennFuture had sued on behalf of a nearby landowner. The Marcellus Shale well pad was to be as large as 300 feet by 350 feet, and located within 3,000 feet of a large residential development. But Lycoming County Judge Marc Lovecchio's ruling Friday says neither the drilling company nor Fairfield Township showed how the operation is compatible with permitted land use in the residential district.

Wood Mackenzie: Marcellus could hold another $90 billion in value - The Marcellus Shale is currently the “largest shale gas play in the world,” and a study from Wood Mackenzie predicts that growth won’t stop any time soon because the formation holds more than $90 billion in remaining value. The consultancy expects the top 20 operators in the northeastern shale gas play to drill 25,000 natural gas wells through 2035 at a cost of nearly $110 billion.Meanwhile, data released earlier this month by the U.S. Energy Information Administration also points to continued growth from the northeastern shale play.  EIA data revealed that natural gas production clocked in at more than 15 billion cubic feet per day through July, and accounts for almost 40 percent of U.S. shale gas production. Drilling and completion costs typically range from $6 million to $9 million per well across the Marcellus formation, Wood Mackenzie noted. However, the firm said that a closer look at well costs shows that drillers are using more water and sand, key components to hydraulic fracturing. Operators have gone from using 4 million gallons of water and 1 million pounds of sand per well, to about 10 million gallons of water and 13 million pounds of sand over the last four years. Proppant usage, which is used to hold open fractures in shale to allow natural gas to flow, usage increased by 58 percent between 2012 and 2013 alone, according to Wood Mackenzie data.

EPA chief to investors: We need more gas pipelines --Environmental Protection Agency Administrator Gina McCarthy wants energy investors to spend their dollars on building infrastructure to carry natural gas across the country. McCarthy's pitch to the business community at a Barclays-hosted conference in New York Tuesday instead of, say, regulators or policymakers stems from the EPA having no jurisdiction over the pipes that send natural gas into homes and businesses. Federal regulations, therefore, can't address all the issues the agency sees with natural gas infrastructure, and McCarthy wants businesses to answer calls for improvements from state governments and utilities.  This is really about building a healthy industry, a healthy investment market, and lowering carbon pollution," McCarthy said. The United States doesn't have enough pipelines for natural gas, from the "upstream" portion that brings energy out of the ground to the "downstream" arena that pumps it into homes. Companies in North Dakota and elsewhere have resorted to burning excess natural gas at drilling sites because there are not enough pipes nearby to send it to another location. New England has a shortage of pipelines to get fuel to customers, and the region's governors have banded together to address the issue. Under many cities, older pipelines are leaking — sending greenhouse gases, not to mention product, into the air while also posing safety risks — and must be replaced. But all of that costs money. Marshaling private dollars to the sector would solve the financing aspect for state officials and utilities looking to make those changes — and, at the same time, those upgrades would prevent escaped emissions that contribute to climate change and lost fuel.

Dominion announces gas pipeline partnership - Richmond-based Dominion Resources on Tuesday announced plans to advance a 550-mile-long interstate natural gas pipeline by forming a four-way joint venture company to build and own the project. The proposed $5 billion Atlantic Coast Pipeline would begin in West Virginia, run through Virginia – including Nelson and Buckingham counties – and end in North Carolina. Duke Energy, Piedmont Natural Gas and AGL Resources are partners in the project, which was previously proposed by Dominion and known as the Southeast Reliability Project. In a Tuesday news conference in Richmond, Gov. Terry McAuliffe called the project “a game changer for Virginia’s economy” with benefits that “will be both immediate and long-lasting.” Dominion officials said last month about 35 miles of the pipeline would run through Nelson County, where strong community opposition to the project has emerged. “While I cannot speak for the entire Board of Supervisors at this time, I will say for myself that I can see nothing in the pipeline proposal that benefits our beautiful county,” board Chairwoman Connie Brennan said in an email. “We have no natural gas infrastructure, so the gas itself will in no way be available to us,” she said. “Any jobs created will be temporary. Pipeline construction will be a nightmare for our tourist industry and our citizens. Safety issues are of paramount concern.

$5B natural gas pipeline may run through Virginia -- Dominion Resources and other partners are proposing a $5 billion natural gas pipeline to connect the Southeast with the rapidly growing supply of natural gas being produced in Pennsylvania, Ohio and West Virginia. The 550-mile Atlantic Coast Pipeline, which would include a 70-mile spur into Hampton Roads through Suffolk and Chesapeake, would begin in West Virginia and stretch through Virginia and North Carolina, ending near the South Carolina border. It's designed to tap gas from two geological formations, the Marcellus and Utica shale, that account for more than a quarter of the nation's natural gas. Gov. Terry McAuliffe touted the pipeline, which could be operating by 2018, as a "game-changer for Virginia" at a news conference Tuesday. He said an economic impact study showed that the project would support 8,800 jobs and generate $233,000 in annual state tax revenue. Some environmentalists are opposing the line, saying it would lead to more hydraulic fracturing, or fracking, in wells, which could lead to water contamination and other problems. They also said it could add more methane emissions, which contribute to global warming. They called for more support for solar and wind projects.

New Natural Gas Pipeline Would Run Through The George Washington National Forest - Four U.S. energy companies announced Tuesday that they were joining together to build a 550-mile natural gas pipeline that, if approved, would run from West Virginia to North Carolina.   The newly-proposed, $4.5-$5 billion Atlantic Coast Pipeline would carry 1.5 billion cubic feet of natural gas each day, and if the pipeline gains swift approval from the Federal Energy Regulatory Commission (FERC), the companies say it could be online as soon as late 2018. The pipeline would carry gas from West Virginia, Ohio, and Pennsylvania’s Utica and Marcellus shale basins.  The four companies — Dominion, Duke Energy, Piedmont Natural Gas, and AGL Resources — are still deciding upon the pipeline’s exact route, but the general route was released Tuesday. If approved, the pipeline would start in Harrison County in northern West Virginia, and would run southeast into Greensville County, Virginia, and then terminate in Robeson County, North Carolina.. Virginia Gov. Terry McAuliffe (D) supports the pipeline, saying that it would bring construction jobs and make Virginia more attractive to manufacturers.  West Virginia Gov. Earl Ray Tomblin (D) also heralded the pipeline proposal.  But not everyone is happy with the announcement of the pipeline proposal. Glen Besa, Director of the Virginia chapter of the Sierra Club, told ThinkProgress that he’s most concerned about the fact that the pipeline’s proposed route takes it through the George Washington National Forest — as well as the Allegheny Mountains, Blue Ridge mountains and the Shenandoah Valley. McAullife opposed opening the George Washington National Forest to fracking during his campaign for Governor, but Besa is concerned that a natural gas pipeline running through the forest could renew the push for fracking in the forest.

Three counties take different approaches to frac sand mining - — A group of northeast Iowans effectively has kept large frac sand mine companies from mining silica-rich sand in their county by building a consortium that set aside politics and focused on dealing with the matter locally, instead of with state intervention. Allamakee County enacted this year a countywide ordinance restricting mining the silica sand used in other states to extract natural gas and oil in a process called hydraulic fracturing. Silica sand, a natural resource found in northeast Iowa, the southeast corner of Minnesota and much of Wisconsin, is found in only three Iowa counties — Allamakee, Winneshiek and Clayton. “I’m not opposed to sand mining, but I do feel that it could occur under restrictions or controls that protect the residents and the resident’s interests,” Allamakee County Planning and Zoning Commissioner Thomas Blake said. Allamakee County’s neighbors to the west, in Winneshiek County, have passed a moratorium on large-scale sand mining and are considering a countywide ordinance to restrict it. Clayton County, however, allows frac sand mining without the kinds of restrictions found in its neighbors to the north.

"Sand Is The New Gold"? -- Thanks to the growing use of fracking, or extracting oil and natural gas from shale formations, shares of U.S. companies which supply sand to energy producers are surging, and as Bloomberg reports, it does not look set to stop anytime soon. “Sand is the new gold,” says Ivaylo Ivanov, founder of Ivanhoff Capital, as Ole Slorer, a New York-based analyst at Morgan Stanley, expects demand for fracking sand in 2016 will be 96 percent higher than last year’s level. Nope, no bubble here... As Bloomberg adds, Emerge Energy, a Southlake, Texas-based partnership that made its initial public offering at $17 a share, changed hands for more than $140 yesterday. Hi-Crush, based in Houston, and U.S. Silica, based in Frederick, Maryland, more than tripled during the past 15 months. Demand for fracking sand in 2016 will be 96 percent higher than last year’s level, Ole Slorer, a New York-based analyst at Morgan Stanley, wrote. He expects shortages for years, with supplies in 2016 trailing demand by 10 percent. Slorer raised his 12-month price estimate for U.S. Silica by 36 percent, to $80, and wrote that the stock may reach $95. U.S. Silica traded yesterday at a record $71.29 and closed at $70.72, up 4 percent.

Free Speech Case Springs From Barnett Shale Fracking Dispute - Steve Lipsky’s tainted water well had already stirred national debate about the impacts of oil and gas production. Now it stars in a free speech dispute that has landed in Texas’ highest court – the biggest test of a state law meant to curb attempts to stifle public protest. So much methane has migrated into the well on Lipsky’s Parker County estate that he can ignite the stream that flows from it with the flick of a barbeque lighter. The Wisconsin transplant blames the phenomenon on nearby gas drilling in the Barnett Shale. In the past three years, he has shared those suspicions in Youtube videos, the film Gasland Part II and in news reports. Range Resources, the accused local driller, has maintained it is not to blame. In 2011 it filed a lawsuit against Lipsky, his wife Shyla Lipsky and Alisa Rich, a toxicologist the couple hired to test their well. The $3 million suit alleges the three conspired to “defame and disparage” Range and force federal regulators to intervene. Range representatives did not respond to interview requests. In 2010, the Environmental Protection Agency charged Range with tainting the well and ordered the company to provide drinking water to Lipsky and a neighbor. But the agencywithdrew that order after the Railroad Commission of Texas said Range was not linked to the contamination.

Satellite Map Shows Fracking Flares in Texas and North Dakota Equal to Greenhouse Emissions From 1.5 Million Cars  -- Earthworks, a nonprofit which works to protect communities from the impacts of mineral and fossil fuel extraction and promote sustainable energy development, has released a new report showing that the flaring of natural gas waste in just two shale plays, or exploration areas, is the equivalent of an additional 1.5 million cars on the road. The flares occur when natural gas is burned rather than captured. The report, “Up in Flames: U.S. Shale Oil Boom Comes at Expense of Wasted Natural Gas, Increased Carbon Dioxide,” accompanied by an interactive map by SkyTruth, a group that provides aerial evidence of environmental impacts. This map allows people to track flaring activity in the U.S. and around the world based on nightly infrared data collected by a National Oceanic and Atmospheric Administration (NOAA) satellite.  This new tool makes the scale and frequency of flaring more comprehensible and less abstract. Hopefully, enabling everyone to see where, when, and how often operators are flaring will create public pressure on government and industry to reduce the waste of this hard-won natural resource.

Scientists Find ‘Alarming’ Amount Of Arsenic In Groundwater Near Texas Fracking Sites - After testing 100 water wells atop one of the largest natural gas reserves in the U.S., scientists at the University of Texas have found that nearly 30 percent of them contain levels of arsenic above the limit considered safe by the U.S. Environmental Protection Agency, according to a study published in the journal Environmental Science and Technology. Twenty-nine groundwater sites within 1.8 miles of active natural gas drilling had unusually high levels of heavy metals, including arsenic, the study found. And while it’s not conclusive that the contamination is because of fracking, the team of 11 biochemists say their findings provide further evidence that could link the controversial natural gas drilling technique to groundwater pollution.  “I can’t say we have a smoking gun. We don’t want the public to take away from this that we have pegged fracking as the cause of these issues,” Brian Fontenot, the paper’s lead author, told ProPublica. “But we have shown that these issues do occur in close relation, geographically, to natural gas extraction.” The EPA classifies arsenic as a carcinogen, and warns that long-term exposure to it can cause cancer, cardiovascular disease, immunological disorders, diabetes and other medical issues.

Oil and gas well blowout in Tyler County: - First responders are working an oil and gas well blowout near Dam B in Tyler County. Dale Freeman, the Tyler County Emergency Management Coordinator, says a company was putting together some equipment for drilling an oil and gas well for another company when it blew out at about 1 a.m. Monday, about seven miles north of Highway 190, north of Dam B. Natural gas was released and oil began leaking into the Tamplin Creek. They called a clean-up crew that captured all of the oil that went down the creek. There were no injuries. Workers were evacuated from the scene. There is still oil and natural gas coming out of the well. Workers are containing the oil before it flows into the creek. There is a safety zone, a quarter to half mile away. No residents live in that area.

Commission adopts fracking regulations for Nevada — A state panel has approved regulations guiding oil and gas exploration companies' use of hydraulic fracturing, better known as fracking, in Nevada. The Commission on Mineral Resources' unanimous decision Thursday in Elko drew criticism from opponents, who say fracking could lead to water contamination, excessive water consumption and earthquake activity. But supporters say the concerns are exaggerated, and oil and gas development resulting from fracking will provide a boost to Nevada's economy. Bob Fulkerson of the Progressive Leadership Alliance of Nevada says the governor-appointed commission was stacked with people with ties to "extractive industries" such as oil and mining.

Kansas task force: No clear answers as to what’s causing quake increase -- There is insufficient research available to say what has caused a significant increase of minor earthquakes in Kansas, a governor-appointed task force concluded in a report that was made available this week. To improve the information, the group asked for six state-operated monitoring stations to be installed to gather data. There now are two, and both are run by a federal agency. The task force also developed a unique scoring formula that it hopes will improve understanding of whether the quakes are man-made or natural. Fingers have frequently pointed at the gas and oil industry for causing an unusual increase in earthquakes – 49 this year through Aug. 25, according to the U.S. Geological Survey.

Amid oil and gas boom, Colorado continues role as earthquake lab - All over, phones rang and neighbors compared notes as the mystery unraveled: Weld County had felt the tremors of a magnitude-3.2 earthquake — jarring but accompanied by little, if any, damage. In an area peppered with wells pulling energy resources from below ground — and many pumping wastewater from the process back into it through injection wells — an old question resurfaced: Could the same geological tinkering that has revved a formidable economic engine also trigger potentially damaging earthquakes? "I knew there had been speculation around injection wells causing seismic activity," Baker says. "This sort of confirmed what I'd been reading." Speculation has turned to full-on investigation as researchers from the University of Colorado jumped at the chance to gather data — and within days had set up a network of seismometers surrounding the estimated epicenter. State regulators eventually zeroed in on one high-volume injection well and had its operator shut off the flow for 3½ weeks before resuming activity on a gradual basis, while the CU scientists track seismic activity nearby. The unexpected opportunity revives the concept of "induced seismicity" explored in Denver more than half a century ago at the Rocky Mountain Arsenal chemical weapons plant and then in oil and gas fields of western Colorado into the 1970s.  The Greeley quake, in a region not known for extensive seismic activity, came on the heels of research out of Oklahoma, a state also undergoing intensive oil and gas extraction and wastewater injection. That study linked a stunning spike in earthquake activity to the pressurized fluids pumped far underground — where, scientists say, they migrated to and essentially lubricated existing faults.

Fracking Fissures: Will Politics Impede Production? - Environmental and community activists fearful of relatively new natural gas and oil drilling technologies that have transformed the U.S. energy economy have launched a high-profile, highly hyped campaign to shut down new natural gas production. But their prospects of success look dodgy. Ground Zero in the debate over fracking—shorthand for the combination of horizontal drilling and hydraulic fracturing to extract oil, natural gas, and natural gas liquids trapped in tight shale formations—has turned out to be Colorado. The state, long one of the nation’s top 10 oil and gas producers, is also home to a large and feisty environmental movement, mostly located outside of the areas where fossil fuels traditionally have ruled. Historically, most of Colorado’s oil, gas, and coal has been produced in the Rocky Mountain area west of the state’s most populous region. Fracking has changed that geography, moving energy production to Colorado’s eastern plains. Colorado politics today features a running dispute over whether local governments can ban fracking in their communities. Two potential November ballot initiatives—both aimed at stalling oil and gas development—have divided the state’s Democratic Party. They could lead to Republicans winning major elections in a state that has shifted from Republican red to Democratic blue and that can clearly now be counted as purple.

Belleville disposal site center of controversy over fracking, radioactive waste -- Wayne Disposal Inc. has suddenly become a hot topic after years without controversy, a development that company officials don’t completely understand.The private landfill operation that sits just off Interstate 94 in Belleville is caught in the tug of war over energy policy in Michigan as well as other states. It has been here for several decades handling wastes that can’t be stored in a normal solid waste landfill — such as incinerator ash, dust from steel mill air filtering systems or PCB-contaminated soils and sediments from industrial sites.But it wasn’t until last month — when the public became aware the facility planned to take a shipment of hydraulic fracturing sludge from Pennsylvania — that anyone seemed to care. State Sen. Rick Jones, R-Grand Ledge, said he was “shocked to learn that a landfill in Michigan was scheduled to accept nearly 40 tons of low-level radioactive sludge” and announced he would introduce a bill banning companies from shipping such wastes to Michigan.Wayne Disposal is one of 17 sites across the country qualified to handle these wastes, classified as technologically enhanced naturally occurring radioactive material. Nearly a year ago, the facility asked for permission from the state to accept material with radiation levels as high as 500 picocuries per gram — up from the current maximum of 50 picocuries per gram.

White House reviews federal-land fracking rules -- The White House Office of Management and Budget (OMB) has started to review new regulations for hydraulic fracturing on federal land, the last step before the rules can be made final. The rules for the oil and gas drilling process, also known as fracking, were proposed last year after a mid-2012 proposal was pulled back. The Obama administration said it plans to unveil the final rules in September. The Interior Department submitted the rules to the OMB earlier this week, but the office did not publicize its review until Friday. Last year’s proposal would mandate that fracking companies disclose the chemicals they use to break underground shale in the process. They would also have to ensure that the fracking fluids do not escape into groundwater and that the fluids that flow back are properly discarded. Environmentalists said the rules did not go far enough, but the oil and gas industry said federal rules were not necessary for states that already regulate fracking. The House passed a bill in November that would prohibit Interior Department rules in states that already regulate the process. According to the department, about 90 percent of the oil and gas wells on federal land use fracking. The new rules would also apply to land owned by American Indian tribes.

When the Going Gets Tough, the Frackos Get Weird -Having struck out on Home Rule at the Supremes, and at trial on their lawsuit against the DEC, the New York frack wannabes, aka the Frack Babies, Fracking Chickenhawks or just plain Disjointed Landowners Coalition are now trying to milk money out of dairy farmers so that they can pay some Shale Shysters to file yet another frivolous Publicity Stunt Lawsuit against somebody – they’re a bit fuzzy on that part.Here’s the pitch – the entire grass roots anti-fracking movement in New York is master-minded and paid for a few “green billionaires” Or maybe the Russians. Or the Saudis. So the Disjointed Landowners (and their Sugar Daddies, the Koch Brothers have to “fight back” – by hitting dairy farmers up for more dough to maybe sue somebody else, or not. Got it ?   There is a lot of news lately about the extent of the funding and the questionable motives, strategy, and tactics of the liberal elite who are truly leading and funding the fight against Natural Gas. It is horrifying to see how these 1% types are manipulating our democracy and society according their hidden personal agendas regardless of the harm to your rights and finances. To learn more please click on the three following links to articles on our website.

Hollywood celebrities caught on hidden camera accepting money from "Middle Eastern oil interests"-- (video) In a blockbuster new video, Project Veritas has exposed the truth about the dark funding behind Hollywood's anti-fracking messaging machine. New York Times Bestselling Author and Project Veritas founder and president James O'Keefe debuted the latest investigation at a "premiere" in Cannes, France on Wednesday. In the investigation, an undercover journalist from Project Veritas posed as a member of a Middle Eastern oil dynasty and offered $9 million in funding to American filmmakers to fund an anti-fracking movie. In video from a meeting with Ed Begley Jr., Mariel Hemingway and Josh Tickell, a Project Veritas investigator disguised as "Muhammed" offered $9 million for an anti-fracking film. "Muhammad" clearly states: "If Washington DC continues fracking, America will be energy efficient, and then they won't need my oil anymore." In the same conversation, Begley and Hemingway accept the funding and agree to hide the source of funds for the anti-fracking movie. Hemingway agreeing that those who will know the source of the funding are "only at this table."

Fracking Industry Resorts to Crude Caricatures and Economic Nationalism -- The hydraulic fracturing (fracking)  industry is fighting regulations or outright bans against fracking in a variety of states and localities. There are many reasons to oppose government restrictions on fracking, of course. If a fracking operation can arrange to frack on private land and pay market rates (not subsidized rates) for water, then there is no reason why a private company should not be free to do so. If fracking results in polluting a neighbor’s land or water, the fracking organization in question should be liable in the fashion outlined by Rothbard for dealing with polluters. One reason to not support fracking, though, is because it is good for “energy independence” or economic nationalism. Both concepts have long been dreams of militarists and economic interventionists who believe that investors, consumers, and private citizens should be dictated to by government as to what they can buy, where they should invest, and whom they should be able to work for. Every now and then, one sees a new article coming from nationalists such as Pat Buchanan who claim that it is a matter of “national security” that the United State attempt autarky in food production, energy production, and, of course, production of the machinery of war.  Since capital and labor move constantly to better accommodate consumers and do not respect national borders, such autarky can only be achieved through government regulation, prohibition, and force.

The Popping of the Shale Gas Bubble - Forbes: For much of the past decade we have been inundated by reports of how the wonders of technology, specifically horizontal drilling and hydraulic fracturing, have unleashed a new era for energy supplies. Industry leaders have touted that shale gas, along with burgeoning shale oil production, will lead to America’s energy independence, kindle a manufacturing renaissance, lower bills for everyday Americans and create millions of much-needed jobs. While there is little doubt that booming shale gas production, along with a very deep recession put an end to the natural gas price spike of 2008, much of the accepted conventional wisdom about the longevity of the shale gas bonanza is wrong. America’s shale gas resources and reserves have been grossly exaggerated and today’s level of shale gas production is unsustainable. In fact, due the distortions of zero interest rates and other factors, an enormous shale gas bubble has developed. Like all bubbles, this one will pop sooner than expected and when it does, the aftermath will be very unpleasant.

Just What the Gulf of Mexico Needs: Deepwater Fracking Slated to Expand - Hey, fossil fuel industry — good news! The Gulf of Mexico’s font of oil has yet to be fully tapped. (Just kidding, they’re definitely aware of this already). Whereas production was once forecast to decline, it turns out there’s still plenty to pump from its Lower Tertiary Basin — a.k.a. “final frontier of oil exploration in the Gulf of Mexico” — and we have a way of getting it: deepwater hydraulic fracturing, a.k.a. fracking. Heard of it?The high-stakes, unconventional drilling method is already at play in the Gulf, and the possibilities are only growing. Writing at DeSmogBlog, Steve Horn calls out the extreme underplayed news that of the more than 400,000 acres off the Texas coast sold by the U.S. Bureau of Ocean Energy Management for gas and oil development, “most” bidders were focused on the Lower Tertiary. Horn calculates that about 54 percent of the total acreage is located there — meaning the federal government’s more or less opened the doors for the Gulf to become frack central. Already, one industry exec is predicting that fracking activity there will increase by more then 10 percent this year. Like the land-based version, offshore fracking, which involves injecting a mixture of water and chemicals into the seafloor, is understood to be risky, and the risks poorly understood. In a recent Bloomberg investigation, an engineer at Halliburton, the world’s leader in fracking, described deepwater drilling as “the most challenging, harshest environment that we’ll be working in.” Even when things go right, Emily Jeffers, a staff attorney at the Center for Biological Diversity, explained to Salon, there don’t seem to have been any studies of the process’ potential environmental impacts (a representative for the Environmental Protection Agency confirmed as much to Bloomberg). And while drinking water contamination isn’t the main concern here the way it is on land, the potential for air pollution, earthquakes and the general disruption to marine life from increased traffic and lighting are all cited as risks. Most importantly, there’s the question of what happens to fracking’s byproduct. Under the current, EPA-mandated system, wastewater is treated and then dumped back into the Gulf, “where dilution renders it harmless”

Judge Finds BP Was ‘Reckless’ And Grossly Negligent In 2010 Deepwater Horizon Spill -- A federal judge ruled Thursday that BP was grossly negligent in helping cause the Deepwater Horizon oil spill of 2010, and that the oil company is liable for 67 percent of the blame. U.S. District Judge Carl Barbier said in his decision that BP’s conduct was “reckless,” while the conduct of Halliburton and Transocean — the other two companies involved in the spill — was “negligent.” While BP was 67 percent responsible for the spill, Transocean, an offshore drilling company that owned the Deepwater Horizon drilling rig, was 30 percent responsible, and Halliburton, the contracting company that was responsible for cementing the Macondo well, was only 3 percent responsible. “The Court finds that BP’s conduct was ‘reckless’ under general maritime law and a substantial cause of the blowout, explosion, and oil spill,” the ruling reads. It documents Transocean’s transgressions relating to the spill, including “the drill crew’s misinterpretation of the negative pressure test,” and “the drill crew’s failure to detect the pressure anomaly between 9:08 p.m. and 9:14 p.m.” However, the judge ruled, “BP had a hand in most of these failures.” “The Court also considers the proper actions taken by the marine crew following the explosions. BP’s conduct, by contrast, lacks similar balance,” the ruling reads. “For these reasons, the Court concludes that Transocean’s conduct was negligent and that Transocean’s share of liability is considerably less than BP’s.”

BP Guilty of 'Gross Negligence' in 2010 Gulf Oil Disaster: Today a federal judge in New Orleans found BP guilty of “gross negligence” and “willful misconduct” in the April 20, 2010 explosion of an oil rig in the Gulf of Mexico. The oil spill that resulted from the explosion of the Deepwater Horizon rig was the largest in U.S. history, spewing oil for more than three months. It killed 11 people and continues to have environmental impacts to this day on beaches, wetlands, wildlife, fisheries and a host of businesses in five states. According to Bloomberg, BP could face a fine as high as $18 billion. Plaintiffs included the federal government, the five Gulf of Mexico states of Texas, Louisiana, Mississippi, Alabama and Florida, banks, restaurants and fishermen, among others.This comes on the heels of the news Tuesday that Halliburton, contracted by BP to cement the oil well, had reached a $1.1 settlement with the businesses, citizens and governments impacted by the spill. But Halliburton was a bit player in BP’s disaster scenario. Judge Carl J. Barbier wrote in his ruling, “BP’s conduct was reckless, Transocean’s conduct was negligent. Halliburton’s conduct was negligent. He held that BP was 67 percent responsible for the spill, [offshore drilling contractor] Transocean 30 percent, and Halliburton 3 percent.

BP prepares for long battle over oil spill negligence ruling - BP is digging in for a long legal battle that could defer for several years the financial impact of Thursday’s court ruling that it acted with gross negligence and wilful misconduct in the Deepwater Horizon disaster. “It’s going to be a long time before we resolve this,” Brian Gilvary, BP’s chief financial officer, told the Financial Times. “The appeals process could take a number of years. This is just another step in the process.”  He also said that BP was financially strong enough to cope with the potential penalties of up to $18bn that could arise from the ruling. BP was “running a strong balance sheet and . . . we will manage all scenarios,” he said. Mr Gilvary was speaking a day after Judge Carl Barbier of the US District Court in New Orleans found that BP had acted with gross negligence in the 2010 disaster, which killed 11 people and caused the worst offshore oil spill in US history. The ruling, the first key decision to come out of the civil trial over the spill, means that under the Clean Water Act BP faces a penalty of up to $4,300 for each barrel of crude spilled. Based on the US government’s estimate that 4.2m barrels leaked into the Gulf of Mexico, that would mean a maximum penalty of about $18bn. BP said it “strongly disagrees” with the decision, and would appeal against it. The judge’s 153-page ruling highlighted BP employees’ failure to run properly a critical safety test, and listed a series of other decisions that he said taken together amounted to “reckless” conduct and showed a “conscious disregard of known risks”.

Halliburton to Pay $1.1 Billion to Settle Oil Spill Lawsuits -  Halliburton Co. agreed to pay $1.1 billion to settle a majority of lawsuits brought over its role in the largest offshore oil spill in U.S. history. The agreement is subject to court approval and includes legal fees, the Houston-based company said in a statement today. Halliburton was accused by spill victims and BP Plc of doing defective cementing work on the Macondo well before the April 2010 Gulf of Mexico oil spill. Halliburton blamed the incident on decisions by BP, which owned the well. The settlement comes as the judge overseeing oil-spill cases weighs fault for the disaster. An agreement now averts the company’s risk of a more costly judgment for some spill victims and removes much of the uncertainty that has plagued Halliburton for the past four years as investors waited to see the payout tally. With its biggest piece of liability resolved, Halliburton can refocus its attention on developing new oilfield technology that will help it boost profits worldwide. The settlement represents the most significant payout yet for Halliburton from the explosion aboard the Deepwater Horizon drilling rig, which killed 11 workers and caused millions of barrels of oil to spill into the Gulf. The accident sparked hundreds of lawsuits against London-based BP, Halliburton and Vernier, Switzerland-based Transocean Ltd., the rig’s owner.

CPUC Fines PG&E $1.4 Billion in Connection with San Bruno Pipeline Explosion (AP) - California regulatory judges have issued a $1.4 billion penalty against the state's largest utility for a 2010 gas pipeline explosion that engulfed a suburban San Francisco neighborhood in fire, killing eight people and prompting national alerts about aging pipelines. The California Public Utilities Commission on Tuesday announced the figure reached by two administrative law judges against Pacific Gas & Electric Co., saying it would be the largest safety-related penalty it had ever imposed. PG&E can appeal the fine. In response, the utility says they are "deeply sorry for this tragic event," and are "accountable, and fully accept that a penalty is appropriate." Read their response here.  The commission previously ordered PG&E to pay $635 million for pipeline modernization in the wake of the Sept. 9, 2010, blast in the suburban San Francisco community of San Bruno. embedded: CPUC Fines PG&amp;E $1.4B

Oilprice Intelligence Report: LNG Exporters Struggling to Find Customers -- As Qatar delivers a large shipment of liquefied natural gas (LNG) to China’s national oil company, the global race is on in earnest, with Iran promising to out-produce Qatar by 2018 and analysts predicting that Malaysia will also give the Qataris a run for their money. This month, Qatargas—the largest LNG producer in the world—delivered a new cargo of LNG to China National Oil Corps (CNOOC) at the Hainan terminal, China. In turn, this LNG will be used to commission CNOOC’s new LNG terminal, which should begin operations soon. Now Iran is claiming that it will outpace Qatar in terms of natural gas extraction in the South Pars field by March 2018. Between March 2017 and March 2018, Iran’s Oil Ministry says it will complete five phases of gas field development that will boost production by 400 million cubic meters and gas condensate production by 600,000 barrels per day. Right now, Iran is producing just over 300 million cubic meters per day of gross gas at South Pars, along with around 0.4 million barrels per day of gas condensate. According to Wood Mackenzie, within 10 years, Malaysia could overtake Qatar as the leading supplier of flexible (uncontracted) LNG to the global market. Malaysia is already the biggest LNG supplier in the Asia Pacific region, and Wood Mackenzie predicts its uncontracted supply capacity will grow from 2.5 mtpa in 2013 to 26 mtpa by 2022. Last year, Qatar estimated it would have 20 mtpa of flexible volumes, and faces a moratorium on new developments in its North Field.At the same time, Malaysia is planning some significant expansion projects, including at its main LNG complex and two floating LNG projects, as well as agreements with Gladstone LNG in Australia.

Bakken crude oil production relies on rail shipments - The frequency and volume of Bakken crude rail shipments are driven by oil production in North Dakota that is second only to Texas in the U.S. Production there rose from 81,000 barrels a day in 2006 to 900,000 barrels a day last year. With production exceeding pipeline capacity, “rail became attractive because of the location and the fact there is a ready market for (light crude oil) on the East Coast,” said Sandy Fielden, an analyst at RBN Energy in Houston. “Generally, everything produced there is going to be consumed in the region,” Fielden said. The industry is shipping about 600,000 barrels a day to East Coast refineries, primarily using rail cars and barges. Nationwide, rail shipments of crude oil rose from 5,000 carloads in 2006 to 400,000 carloads last year, using “unit trains” of up to 105 cars. “The game-changer here is the unit train,” said rail safety activist Fred Millar. The oil industry said the best alternative to rail and barge shipment would be pipelines, such as the proposed Keystone XL pipeline from Canada to the Gulf Coast, which the industry said would reduce the proportion of Bakken crude shipped by rail from 76 percent to 56 percent. Shipping by pipeline is cheaper than by rail, Fielden said, but Keystone wouldn’t help East Coast refineries that are geared to process light crude, not the heavy bitumen produced from Canadian tar sands.

Fracking’s water woes: Drink or drill? - Fresh water has always been a big part of fracking operations, but as it expands beyond North America to other parts of the world, researchers say it will increasing be competing for water in places that don’t have much. This could set up difficult choices for countries between drilling for oil and gas or ensuring a fresh supply of H20 to their parched citizens. A new study by the global research organization World Resources Institute (WRI) found that the best shale deposits where the fracking would be done are in places like China, Mexico and South Africa, locales that are already facing water challenges. The Washington, D.C., organization released a report Tuesday that found that 38% of shale resources are in areas that are either arid or under high to extremely high levels of water stress; 19% are in areas of high extremely high variability and 17% are in locations exposed to high or extremely high drought severity. The report includes the first maps to illustrate these issues. . “The potential for expansion is huge: known shale gas deposits worldwide add 47% to the global technically recoverable natural gas resources, and underground stores of tight oil add 11% to the world’s technically recoverable oil,” the report said. “But as countries escalate their shale exploration, limited availability of freshwater could become a stumbling block.”

Lack Of Water Could Limit Oil And Gas Development In Energy-Rich Nations - A lack of available water could crimp energy development in many of the nations with the most abundant shale oil and shale gas resources, a new study predicts. Forty percent of the world’s countries with the largest shale oil and shale gas resources have arid conditions or steep competition for water, according to the World Resources Institute report, Global Shale Gas Development: Water Availability & Business Risk. “Water risk is one of the most important, but underappreciated challenges when it comes to shale gas development,” said Andrew Steer, president and CEO of WRI. “With 386 million people living on land above shale plays, governments and business face critical choices about how to manager their energy and water needs. This analysis should serve as a wake-up call for countries seeking to develop shale gas. Energy development and responsible water management must go hand in hand.” Because hydraulic fracturing to stimulate oil and gas production is becoming so widespread and uses large quantities of water, there is likely to be stiff competition from other water users such as agriculture. The report found that in two-fifths of shale energy plays, agriculture is the largest user of available water. The WRI report comes on the heels of a similar study of such water competition in the U.S. That report by CERES found that nearly half of about 25,000 operating oil and gas wells were located in areas of higher water stress.

Pipeline Giant Handed Permit to Open Tar Sands Rail Facility -- On the Friday before Labor Day—in the form of an age-old “Friday News Dump“—the Federal Energy Regulatory Commission (FERC) handed a permit to Enbridge, the tar sands-carrying corporate pipeline giant, to open a tar sands-by-rail facility in Flanagan, Illinois by early 2016. With the capacity to accept 140,000 barrels of tar sands product per day, the company’s rail facility serves as another step in the direction towards Enbridge’s quiet creation of a “Keystone XL clone.” That is, like TransCanada’s Keystone pipeline system sets out to do, sending Alberta’s tar sands all the way down to the Gulf of Mexico’s refinery row—and perhaps to the global export market. Flanagan sits as the starting point of Enbridge’s Flanagan South pipeline, which will take tar sands diluted bitumen (“dilbit”) from Flanagan to Cushing, Okla. beginning in October, according to a recent company earnings call. From there, Enbridge’s Seaway Twin pipeline will bring dilbit to Port Arthur, Texas near the Gulf. Enbridge made the prospect of a tar sands-by-rail terminal public for the first time during its quarter two investor call.

Oil train wrecks prompt scrutiny -- The same day a CSX train carrying almost 3 million gallons of crude oil derailed in downtown Lynchburg, federal investigators took a sample of oil at a rail transfer terminal 1,750 miles away in North Dakota. The oil sampled in North Dakota was owned by Plains Marketing, the same Texas company that owned roughly 30,000 gallons of crude oil that either burned in a fiery, black plume above Lynchburg or gushed into the James River from one of three tanker cars that tumbled down the riverbank at 2 p.m. on April 30. Federal tests showed the North Dakota oil was highly flammable and belonged in the most hazardous category of flammable liquids under federal regulations. The crude oil shipments travel through some of the most highly populated, historic and environmentally sensitive areas of Virginia, including the heart of downtown Richmond along the James. They pose a mighty challenge to local fire and emergency professionals who would respond to a wreck potentially involving multiple tanker cars along a 400-mile route through Virginia that passes directly through Richmond, as well as Covington, Clifton Forge, Lynchburg and Williamsburg. “It’s either going to be a really big spill or a really big fire,” said Rick Edinger, assistant chief of fire and emergency services in Chesterfield County, which would be part of a regional response to a derailment in the Richmond area.

Oil train regulation passes in California (Reuters) - California lawmakers on Friday passed legislation requiring railroad companies to tell emergency officials when crude oil trains will chug through the state.The bill would require railroads to notify the state's Office of Emergency Services when trains carrying crude oil from Canada and North Dakota are headed to refineries in the most populous U.S. state. It passed its final vote in the Assembly 61-1, with strong bipartisan support in the state legislature in Sacramento. The bill now goes to Democratic Governor Jerry Brown for his signature. true “We have a spotlight on this issue because of the seriousness of the risk to public safety that it presents,” said the bill's author, Democratic Assemblyman Roger Dickinson, whose district encompasses parts of Sacramento along the trains’ route. The legislation follows a disastrous oil train derailment in Canada that killed 47 people and spilled 1.6 million gallons of crude last year. Worried that a similar spill could happen in California, firefighters and other safety officials have urged state lawmakers to increase safety regulations on oil trains and improve communication between railroads and first responders about when oil shipments are coming through.

Oil Is Back! A Global Warming President Presides Over a Drill-Baby-Drill America - Considering all the talk about global warming, peak oil, carbon divestment, and renewable energy, you’d think that oil consumption in the United States would be on a downward path.  By now, we should certainly be witnessing real progress toward a post-petroleum economy.  As it happens, the opposite is occurring.  U.S. oil consumption is on an upward trajectory, climbing by 400,000 barrels per day in 2013 alone — and, if current trends persist, it should rise again both this year and next. In other words, oil is back.  Big time.  Signs of its resurgence abound.  Despite what you may think, Americans, on average, are driving more miles every day, not fewer, filling ever more fuel tanks with ever more gasoline, and evidently feeling ever less bad about it.  The stigma of buying new gas-guzzling SUVs, for instance, seems to have vanished; according to CNN Money, nearly one out of three vehicles sold today is an SUV.  As a result of all this, America’s demand for oil grew more than China’s in 2013, the first time that’s happened since 1999. Accompanying all this is a little noticed but crucial shift in White House rhetoric.  While President Obama once spoke of the necessity of eliminating our reliance on petroleum as a major source of energy, he now brags about rising U.S. oil output and touts his efforts to further boost production.

Return to the Arctic: Shell Looks Set To Take Another Run -- Shell could be returning to the Arctic after a two-year hiatus.  The company submitted a drilling plan to the U.S. Department of Interior on Aug. 28, which suggests it is considering returning to the icy waters in the far north to look for oil. While no final decision has been made, Shell’s submission puts the company on track to drill in the summer of 2015. Shell has spent several years and nearly $6 billion on its Arctic campaign thus far. Harsh conditions, poor infrastructure, and a short drilling season hindered its progress, but it was the company’s bungled 2012 operations – a rig ran aground and its oil spill response ship failed inspection -- that nearly ended its plans in the Arctic for good.  Hoping to put those troubles behind it, Shell has now submitted a paired-down drilling blueprint that eliminates exploration in the Beaufort Sea.  But before Shell can move its rigs into the Chukchi Sea, several obstacles remain. Perhaps the most important is a revised Environmental Impact Statement (EIS) currently under review by the U.S. Bureau of Ocean Energy Management. The bureau is redoing its analysis after a court earlier this year invalidated parts of a 2008 environmental assessment.  The problem was that in its evaluation of the environmental impact of drilling, the government only assumed 1 billion barrels of oil would be discovered. Environmental groups successfully sued, arguing that regulators did not consider the possibility that more resources would be discovered, or the possibility that multiple wells would be developed, leading to potentially more environmental damage than the government estimated.

Has Ukraine Shot Itself In The Foot With Gas Pipeline Deal? - Last week, Ukrainian Prime Minister Yatsenyuk pushed a bill through the Verkhovna Rada that would see his country’s gas transportation system sold off to a group of international investors. The provisions of the law would permit the transit of natural gas to be blocked. This decision may hurt the fragile industrial recovery in Germany and finish off Ukraine’s potential as a gas transit route to Europe.

Black Sea Oil Claims Before and After Russia Annexed Crimea - The significance of the annexation of Crimea by Russia goes far beyond land territorial claims. Here are a couple of maps that show how Crimea affects oil rights in the black sea.The above charts from the New York Times article In Taking Crimea, Putin Gains a Sea of Fuel Reserves.Russia did not annex Crimea just because of Black Sea claims. But, those claims make it all the more unlikely that Russia would ever cede Crimea back to Ukraine under any circumstances.Moreover, Crimea is land-locked, and Russia has every reason to want to end that situation. If you are looking for another reason for the rebel counteroffensive "march to the sea", you now have one.

Commodity Prices: Financialization or Supply/Demand? - -- I've often panned the idea that commodity prices have been greatly influenced by so-called financialization---the emergence of tradable commodity price indices and growing participation by Wall Street in commodity futures trading. No, Goldman Sachs did not cause the food and oil-price spikes in recent years. I've had good company in this view.   See, for example, Killian, Knittel and Pindyck, Krugman (also here), Hamilton, Irwin and coauthers, and I expect many others.  I don't deny that Wall Street has gotten deeper into the commodity game, a trend that many connect to Gorton and Rouwenhorst (and much earlier similar findings).  But my sense is that commodity prices derive from more-or-less fundamental factors--supply and demand--and fairly reasonable expectations about future supply and demand.  Bubbles can happen in commodities, but mainly when there is poor information about supply, demand, trade and inventories.  Consider rice, circa 2008. But most aren't thinking about rice. They're thinking about oil. The financialization/speculation meme hasn't gone away, and now bigger guns are entering the fray, with some new theorizing and evidence.

Surge In U.S. Oil Production Finally Reflected At Pump - Geopolitical turmoil, particularly in oil-producing regions, usually means higher retail costs for petroleum products, specifically gasoline.  Not so this year. Oil analysts say American drivers taking their last summer road trips cars will enjoy the lowest pump prices this Labor Day weekend than they have in four years. That’s despite ongoing conflicts in Iraq, Libya, Syria, and between Russia and Ukraine.  Even word of unexpectedly low oil supplies hasn’t kept the price of gasoline from falling. On Aug. 27, the U.S. Energy Information Administration (EIA) reported that crude oil stockpiles fell to 360.5 million barrels last week, the lowest levels since January.Part of the reason for the price drop is production. Despite attacks in Iraq by the Islamic State, the oil keeps flowing. The same is true in Libya. And the conflict between Ukraine and Russia threatens gas, not oil.Price have been easing downward for the past month, according to, a price-tracking website. It reports that the benchmark price for U.S. crude has dropped by almost $9 per barrel since late May. The global price has dropped $7 in during the same period.  Even better news for motorists is that prices are expected to keep falling. GasBuddy’s chief oil analyst, Tom Kloza, told the Houston Chronicle that 10 states, including major oil producer Texas, could see prices below $3.25 during the Labor Day weekend.

Libya May Be Focus Of Major Rift Between US And Regional Allies - It had become clear by late August 2014 that Libya could no longer be seen as a unified state; at best it was in two parts, even with the communal leaderships of both sides professing a desire to resume national unity. By late August 2014, the country had two parliaments: one elected by the Libyan people, and the other given legitimacy solely by foreign support.   The situation seemed so intractable by that point that it was possible that a full military intervention by regional states, perhaps spearheaded by Egypt, could be attempted, with the goal of stabilizing the country and eliminating the foreign-funded and foreign-armed jihadis who were using Libya as a springboard for a proposed pro-Islamist war against the current Egyptian Government. The proxy forces of the 2011 unilateral intervention by Qatar, supporting jihadis and the Muslim Brothers (Ikhwan), and by Turkey and the US, into the Cyrenaican revolt against Mu’ammar al-Qadhafi, were still dominating the Libyan political scene, much to the frustration of Libyan tribal forces.  Qatar was creating a “Free Egyptian Army” in the Cyrenaica desert, and patterned on the “Free Syrian Army” which Qatar, Turkey, and the US had built to challenge Syrian leader Bashar al-Assad.   Significantly, while the US and European Union (EU) continued in August 2014 to promote the concept of a unified Libya, they were basing their approach around what was essentially a modification of the mode of governance practiced by Mu’ammar al-Qadhafi, who seized power by a coup in 1969, and held it until 2011. Widespread Libyan calls for a return to the 1951 Constitution — drafted by the United Nations and the 140 or so Libyan tribes — have been consistently ignored by Washington and Brussels. 

What It's All About: Russia, China Begin Construction Of World's Largest Gas Pipeline -- If after months of Eurasian axis formation, one still hasn't realized why in the grand game over Ukraine supremacy - not to mention superpower geopolitics - Europe, and the West, has zero leverage, while Russia has all the trump cards, then today's latest development in Chinese-Russian cooperation should make it abundantly clear.  Overnight, following a grand ceremony in the Siberian city of Yakutsk, Russia and China officially began the construction of a new gas pipeline linking the countries. The bottom line to Russia - nearly half a trillion after China's CNPC agreed to buy $400bn in gas from Russia's Gazprom back in May. In return, Russia will ship 38 billion cubic meters (bcm) of gas annually over a period of 30 years. The 3,968 km pipeline linking gas fields in eastern Siberia to China will be the world's largest fuel network in the world.

China Loses Growth Momentum as Manufacturing Pulls Back - China’s manufacturing slowed more than estimated last month, joining weaker-than-anticipated credit, production and investment data in suggesting the economy is losing momentum. The government’s Purchasing Managers’ Index (MXAP) was at 51.1 for August, missing the median 51.2 estimate in a Bloomberg survey. The final reading of a separate manufacturing gauge from HSBC Holdings Plc and Markit Economics was 50.2. Both readings fell from 51.7 in July and remain above 50, indicating expansion. A pullback in manufacturing, coming as the property market slumps, adds pressure on the government to step up efforts to meet its expansion target of 7.5 percent this year. More stimulus measures will be announced in the next few weeks, said Lu Ting, Bank of America Corp.’s Hong Kong-based head of Greater China economics. “The two PMIs both show that the current recovery is relatively weak and choppy,” Lu said. Stimulus may include a greater re-lending quota from the central bank, and the government has “pretty firm confidence” it will keep the economy stable, he said.

Double Whammy China PMI Misses Spark Sell-Side Demands For More Stimulus - A record-breaking surge in monthly credit creation and a trillion Yuan of QE-lite was enough to provide a glimmer of hope into the tumbling Chinese economy for one or maybe two months but with the real estate market continuing to free-fall, it should be no surprise that China's PMIs finally catch down to the erstwhile reality simmering under the surface in the ultimate centrally-planned economy. China's official government PMI dropped from 30-month highs, missed expectations and the early month flash print, to less exuberant 51.1 reading (with Steel industry new orders totally collapsing) with both medium- and small-companies printing contractionary sub-50 levels. Then (after Japan's PMI beat - of course it did as hard data crashes worst on record), HSBC China PMI also missed, printing a slightly expansionary 50.2 Showing, as BofA warns "the two PMIs both show that the current recovery is relatively weak and choppy..." and RBS adds "we expect the government to interpret such an outlook as challenging its growth target and to take more, and more significant, measures to support growth."

Economists React: China’s Economy to Face Headwinds This Fall - After a modest uptick in the middle of the year, the Chinese economy once again showed signs of weakness, pointing to a chiller autumn than some had expected. Two closely-watched gauges of China’s manufacturing sector dropped in August from their relatively high levels in July, which was largely in line with expectations, as the country’s prolonged property woes continue to drag growth. China’s official August manufacturing Purchasing Managers Index came at 51.1 in August, down from 51.7 in July. Likewise HSBCs manufacturing PMI, a competing indicator, also slipped to 50.2 from 51.7, Monday’s data showed. Are the two indicators are weak enough to trigger further policy easing measures and can Beijing reach this year’s economic growth target of around 7.5%? Broadly speaking, today’s PMI reading suggests that downwards pressure on the economy, as a result of slowing investment in sectors with overcapacity, particularly property, is no longer being fully offset by policy support measures. The weakness should not be cause for significant concern since it reflects a welcome correction in sectors which have suffered from overinvestment. Meanwhile, the risk of an imminent hard landing appears small — policymakers have plenty of tools with which to fight a rapid drop off in growth and we expect more targeted measures to be rolled out in coming months.

China’s Productivity Problem Drags on Growth -- China’s productivity is slipping away, the miracle days are largely over and the best way for Beijing to slow its slide into “the middle-income trap” is through meaningful structural reform, two reports argue, a process that has so far remained largely in the slow lane. China’s economy, once described as miraculous, is now struggling with rapid wage increases and a declining number of new workers, so productivity gains increasingly must come from structural reform, automation, greater company efficiency and innovation, the reports say. “China is now at this critical juncture, and maybe has been for several years,” writes Harry X. Wu, a senior advisor to The Conference Board’s China Center and an economics professor at Japan’s Hitotsubashi University. “This explains the ongoing ‘soft fall’ slowdown in economic growth despite the government’s continued stimulus exercises and continuing high-levels of investment and supporting credit expansion.” Mr. Wu argues in a Conference Board paper that China’s economic ascent may have been less miraculous than it appeared, with total factor productivity – a measure of an economy’s technological dynamism – badly lagging other Asian high-growth economies at a similar stage in their development. China’s 1% average annual growth in total factor productivity between 1978 and 2012 – a period when average per capita annual incomes rose from $2,000 to $8,000 — compares with 4% annual gains for Japan during its comparable 1950-1970 high-growth period, 3% for Taiwan from 1966-1990 and 2% for South Korea from 1966-1990, he said, when purchasing power in the relative economies is taken into account. “Our study shows that China’s spectacular growth in the reform period has been mainly investment-driven and quite inefficient,” Mr. Wu wrote.

China Will Revise Its GDP Definition Until Its Hits Government "Growth Targets", Goldman Explains - Moments ago, in an example of "very serious phrasing", none other than the bank that does god's work on earth (especially when it means providing off balance sheet financing for the bank of the Holy Spirit), just reported that the reason why China will hit its growth target is because of, drumroll, its fudged GDP. Only Goldman is far more serious when it says all of this, with the result being just too hilarious for words: to wit: "In the coming months, China’s National Bureau of Statistics is to make adjustments to the methodology used to calculate GDP. These adjustments are likely to boost real GDP growth by 0.1-0.2pp, thereby making it easier for the government to reach its goal of “around 7.5%” GDP growth in 2014."

China Services PMI Jumps Most On Record To 18-Month Highs -- While Markit's Manufacturing PMI fell in August, the apparent demand for 'services' in China exploded. China Services PMI jumped from the worst on record 50.0 in July to 54.1 in August (18-month highs). This is the biggest MoM rise in the data on record... because they can. We have nothing to add because it's simply becoming too surreal and manipulated for rational explanation. HSBC is quick to note that it's not all unicorns and ponies and that more stimulus is still needed.

Baby Boom or Economy Bust: Stern Warnings About China’s Falling Fertility Rate - China needs a baby boom—and badly, researchers say. “Get married soon and have lots of children.” That’s the advice that 49-year-old Huang Wenzheng gave to college students at a recent forum in Beijing about China’s population and urban policy. Mr. Huang, one of the most outspoken one-child policy opponents in China, along with other activists and economists, said at the forum that China needs babies more urgently than ever before, and the country’s economic fate depends on whether Beijing can do more to encourage child births. A shirking population would be detrimental to China’s development, “leading to a drop of China’s national power and even a decline of the civilization,” said Mr. Huang, a co-founder of the website Population and the Future, which promotes the right to have more than one child. China’s total population continues to grow, but the nation’s working-age population—those between the ages of 16 and 59—has dropped two years in a row, raising concerns about a shrinking labor force and economic growth prospects. The share of the elderly, or those who are more than 65 years old, was 9.7% in 2013, up from 9.4% in 2012, official data showed. A labor shortage in the short run would be followed by diminishing demand, which in the long run will likely hurt China’s job market and decrease the number of jobs being created, said Mr. Huang, who received a PhD in biostatistics at John Hopkins University.

China’s bad bank clean-up crew - The prospect of the first ever default in China’s rapidly expanding shadow banking sector sent shockwaves through financial markets this year. As word spread that a Rmb3bn trust product called “China Credit Equals Gold #1” was on the verge of defaulting, investors began to question the stability of China’s entire financial system. But just days before the scheduled default, a mystery buyer bailed out the product, allowing investors to get back all the principal and most of the interest they were owed. The Financial Times has learnt that the covert saviour, not publicly identified until now, was Huarong Asset Management, one of four “bad banks” set up in the late 1990s to deal with an enormous load of non-performing loans in the banking system. More than five years into one of the biggest credit booms in history, Chinese banks are bracing for a fresh wave of bad debt that some analysts and economists believe could rival that of the late 1990s. Companies such as Huarong are again expected to play a crucial role. Signs of stress are already emerging as scores and perhaps hundreds of high-interest trust loans to risky borrowers run into trouble and China’s state-backed banking system struggles to avoid outright defaults.

Huarong’s Shadow Bank Bailout: This Changes Everything - Two days ago, we learned that the Chinese government was behind the bailout earlier this year of a trust product—a type of financial product that the central government has heretofore emphatically distanced itself from. Huarong Asset Management, using a 3 billion RMB loan from the Industrial and Commercial Bank of China (ICBC), the trust product seller, was the mystery lender behind the January bailout of the Credit Equals Gold trust product, the Financial Times reported on August 31. ICBC and Huarong Asset Management are both state-owned entities. This is a notable event that changes the way that analysts look at shadow banking financial products. Up until this point, there appeared to be a firewall between the traditional banking system and the shadow banking sector. The China Banking Regulatory Commission (CBRC) has sternly warned the financial sector that it would not bail out non-traditional loans or other assets. In keeping with this approach, many flagging financial products were indeed not bailed out by the central government, including trust products like those sold by Jilin Trust and CITIC Trust and, more recently, mutual fund products including those sold by Shanghai Goldstate Brilliance Asset Management and Mirae Asset Huachen Fund Management Co. The central government aimed to limit its implicit backing of the financial sector.  Now, however, as a result of the Huarong fund injection, we know that the implicit guarantee in practice runs deep, especially when financial products are sold via state-owned banks.

Hong Kong's 'era of disobedience' has begun, says Occupy leader as protesters join forces - Venting anger and grief, thousands of people joined leaders of Occupy Central and other civic groups in Tamar Park last night as they vowed to start waves of protests against Beijing's decision to tightly control elections in Hong Kong. While one of Occupy's leaders vowed to usher in "wave after wave" of protest, Joshua Wong Chi-fung, convenor of student-led Scholarism, urged secondary school pupils to boycott classes. "In addition to our academic responsibility, we also have our social responsibility," he said.At 7pm, three hours after a state committee announced Beijing would essentially approve candidates for Hong Kong's 2017 chief executive race, throngs flowed into the park at the government headquarters in Admiralty.  Many in the crowd urged the Legislative Council to reject election reform proposals that would deny residents the ability to cast ballots for a broad array of candidates. Under the terms laid out by Beijing, the central government would vet candidates, essentially barring pan-democrats."The framework is definitely unacceptable," said Lau Kim-ling, executive secretary of the Student Christian Movement of Hong Kong. "We should never let this reform proposal get passed as, with 'one man, one vote', it would offer fake credibility to the next chief executive. Hong Kong is more than ready to have democracy. We are not living in North Korea."

China’s Weak Demand for Asia’s Exports Sows Confusion -- China’s weak demand for electronics parts and other goods made in Asian countries has economists scratching their heads. U.S. economic growth is picking up, and if history is any guide, this should lead to stronger demand for Chinese-assembled electronics. That in turn should fire demand for electronics parts supplied from across Asia.Something is different this time. South Korea is China’s main source of intermediary goods for computers and other electronics. But Korea’s exports to China declined between May and July. Exports from Taiwan to China also have been subdued. Officials in Seoul worry that China is moving up the value chain, producing its own higher-end electronic parts, and eating Korea’s lunch in the process. Economists have rushed to explain this surprising trend. As yet, there’s no consensus over what’s going on. Johanna Chua, an economist with Citibank, thinks China could be moving up the value chain, reducing its need for imports from northeast Asia. But she’s unsure and sees other reasons for the decline, including that some factories may have relocated from China to Southeast Asia, where costs are lower. Ronald Man, an HSBC economist, thinks China is still too far down the supply chain to start taking business away from the likes of South Korea and Taiwan.

South Korea Hopes Consumer Goods Could Lift Exports to China - South Korea should focus more on selling finished consumer goods to China in order to turn around another monthly decline in exports to its biggest trade partner, South Korea’s finance ministry said on Friday. After racking its brains on how to reverse the decline in exports to China following a third-straight monthly fall, South Korea points to China’s fast-growing consumer market as an answer. The finance ministry in Seoul on Friday suggested that Korea should have its Chinese-bound shipments focus more on consumer goods in the years to come because it expects China to become a $10 trillion-consumer market in 2020, double last year’s $5 trillion figure. “The Chinese domestic market is rapidly growing in size with consumer demand getting more luxurious and various…but Korea’s exports of consumption goods there are meager,” the ministry said in a report. Signs of shipments to China losing steam is a big worry for policy makers in Seoul. About half of Korea’s growth comes from exports, one quarter of which go to China. Of the total exports from Korea to China, 72% are intermediate goods like vehicle parts or electronics components and 24% are capital goods. Only 3% are consumer products, the ministry said. The ministry said it would help Korean exporters market quality consumer goods—organic agricultural and fishery products as well as popular Korean soap operas and films—and high-end medical services to China. To that end, Korea will seek partnership with the e-commerce giant, Alibaba, and local wholesale-store chains in China.

Work Smart, Not Hard: Korea's OECD-Worst Productivity - The stereotype of Asians as colorless "worker bees" toiling away during hours and hours of white collar drudgery is, alas, not entirely made up. Actually, the system gears up young people to expect this kind of mindless effort, e.g., all-important examinations based on rote learning that determine access to higher education and hence future prospects. The workplace is not much better: consider the case of South Korea. Otherwise much lauded for its fearsome export industries and "cool" image, workers there are not particularly productive compared to their OECD peers. In fact, they are bottom of the barrel in productivity:  In 2012, each waged Korean employee worked for 2,092 hours, which was 420 hours more than the OECD average. The numbers were 1,765 for Japanese workers, and 1,334 for the Dutch. Meanwhile, the labor productivity per working hour was US$29.75 as of the end of 2011, whereas the OCED average was US$44.56. The Netherlands’ labor productivity per working hour amounted to US$59.73, in spite of the much shorter hours worked. According to the Ministry of Employment and Labor’s survey carried out this year, 43.65 percent of employees in Korea worked overtime each day for at least one hour. Fully 25.8 percent of the respondents said that they worked overtime because it was considered natural, while 20.9 percent and 9.4 percent mentioned low work efficiency during working hours and pressure from their senior workers, respectively.

The Potential of the TPP for Vietnam -- As negotiations for the Trans-Pacific Partnership (TPP) agreement take place behind closed doors in Hanoi from September 1 through 10, the TPP issue is becoming increasingly controversial in Vietnam. An intense domestic debate provides multiple lines of thought. One thing is certain, although not overtly discussed: the “China factor.” It is in fact an indispensable element of economic and political discourse revolving around Vietnam’s TPP accession. For certain analysts, it is either a driving force or a source of friction for the evolving nature of relations between these two neighbors cum comrades. Domestically, the Vietnamese elite and scholars are debating the need for an urgent and dramatic shift, both in Vietnam’s distinctive growth model and its strategic approach, in order to seek a balanced position between great powers in the region.

Japan moves from Paul Krugman's liquidity trap to Haruhiko Kuroda's "indefinite QE" trap - Japan's 10-year government bond yield is hovering around 0.5%, an all-time low.Clearly this is the result of the Bank of Japan's unprecedented securities purchases via the ongoing quantitative easing (QE) program that was accelerated last year.While a number of economists such as Paul Krugman fully support this effort as a way of exiting the so-called "liquidity trap", the central bank's purchases are eroding the JGB market.  The Economist: - The BoJ is buying ¥7 trillion ($67 billion) of JGBs a month. It now owns a fifth of the government’s outstanding debt. Trading volumes have fallen dramatically, as has volatility in prices. One day in April there was no trading at all in the most recent issue of the benchmark ten-year bond. Last year's QE acceleration has begun to take more securities out of the private market than is being issued by the government. The Bank of Japan was hoping that as yields decline, the banking system will begin replacing JGBs it holds with loans to the private sector, thus stimulating growth and releasing more bonds into the market. But banks have been slow to get out of JGBs. With rates on private sector loans now also at historical lows (around 0.8%–0.9% according to DB) and the overall private inventory of government paper declining, JGBs remain attractive on a relative basis, even at current rates. Moreover, markets are pricing in an ongoing QE effort for the foreseeable future, which will end up taking even more paper out of private hands. Deutsche Bank: - ... note that implied volatility in the JGB futures market is now abnormally low, which would appear to reflect a general expectation that the BOJ will persist with its massive bond-buying operations indefinitely. Put simply, very few market participants currently believe that the central bank is capable of achieving its +2% "price stability target", and therefore assume that it will remain in easing mode for the foreseeable future.Exiting this program in a market that has become increasingly dysfunctional will be more difficult and disruptive with time. And given the government's unparalleled debt problem, is exit from QE even possible without nudging the "unsustainable equilibrium" (vicious circle of rising rates and rising debt burden)?

Japan budget requests for Financial Year 2015/16 to total 101.68 trillion yen (Reuters) - Japan's government ministries made a record 101.68 trillion yen ($967 billion) in budget requests for the fiscal year starting next April, a draft obtained by Reuters showed on Wednesday.The budget requests compare with 95.88 trillion yen earmarked for this fiscal year's budget. Although the Ministry of Finance in recent years has typically trimmed actual spending by several trillion yen from requested levels when it compiles the budget in December, massive spending requests could add to the difficulties Japan's faces in shrinking its budget deficit and government debt. Prime Minister Shinzo Abe has said he is sticking to a long-term to bring the budget excluding debt servicing costs into surplus by 2020, which is seen as the first step towards balancing the overall budget. true To help achieve that, Japan raised sales tax in April and Abe will soon need to decide whether to raise the tax rate again next October as planned. Abe has said he would make a decision on whether to go ahead with the tax increase by the end of year.

Bank of Japan Eyes Higher Inflation, Even with Slower Growth -- When Bank of Japan Gov. Haruhiko Kuroda holds his monthly press conference Thursday, he’ll face two big questions. First, will he temper his steadfast optimism about Japan’s economic recovery after a string of disappointing summer data? Second, if he does, will that alter his confidence that inflation remains on track to hit his target next year? The answer to the first may be yes. Even so, the answer to the second is probably no. That means the central bank is likely to stick this week to its current stimulus program without any expansion. Unless conditions continue to decline markedly, that stance could hold through the end of the year. That has, in fact, been the pattern for the BOJ over the past year. Policy board members have issued four updated consensus forecasts for the current fiscal year ending next March. Each time, they’ve marked down projections for price-adjusted economic growth, from 1.5% in October to 1.0% in July. The next official forecast is due in late October and another BOJ downward revision is likely. Still, the BOJ has, throughout, kept steady its forecast for inflation, maintaining its view that the most closely watched price gauge would rise 1.3% for the year, a crucial stepping stone to hitting its 2% inflation target next year. There are several reasons for its optimism: First: BOJ economists believe that as long as the economy expands faster than its “potential” rate — the pace a country can grow without straining resources — inflationary pressures will build. And the central bank calculates that Japan’s economy has become so sclerotic that its “potential” growth rate has fallen to about 0.5% per year. Between the steady hollowing out of Japanese industry, and a shrinking, aging workforce, it doesn’t take much growth to spark inflation, in the BOJ view. Second: the still-tight labor market. The BOJ model leans heavily on the notion that worker shortages will prompt higher wages, more consumption, and more efficiency-seeking capital spending.

Japan’s Car Slump Signals Return of Factory Hollowing Out -  Japan’s lowest auto sales in three years are reviving concerns that manufacturing will hollow out in Asia’s second-largest economy. Such rhetoric was tossed around regularly as recently as 2012 by car executives as the stronger yen forced production to shift out of Japan. While favorable currency rates since then paused such talk -- Toyota Motor Corp. (7203) is headed for a second straight year of record profit -- the country’s first sales-tax increase in 17 years has led to a slump in consumption and carmakers have resumed scaling back output in the country. Sales in August tumbled 9.1 percent, the steepest drop in 14 months, serving as the latest sign of the trouble ahead for Asia’s second-largest auto market. Japan’s main association for car dealers warned yesterday that further declines loom. “Demand in Japan continues to decline, and as long as that’s the case, many of the companies will continue to reduce their capacity in Japan,”

BOJ Shows Subtle Signs of Cautiousness - Real Time Economics - WSJ: The Bank of Japan on Thursday may have looked optimistic in its first update on the economy since the release of grim data over the past few weeks, but details of its assessment suggest some renewed cautiousness among policy makers. The central bank’s latest policy meeting took place amid growing pessimism among private economists that a sales tax increase in April may have put Prime Minister Shinzo Abe’s growth-revival plan at risk. Data out ahead of the meeting showed that Japan’s economy shrank at the sharpest rate since the March 2011 earthquake in the quarter through June, and that it is struggling to regain steam in July. A quick look at a statement issued by the BOJ suggests that officials aren’t worried. They simply recycled the wording on the overall economic assessment from the previous month. The Japanese economy “has continued to recovery moderately as a trend” despite a pullback in demand following the increase in the sales tax to 8% from 5%, it said. But there are slight changes in the statement that may warrant attention. The clearest one is that the central bank cut its view on housing investment. Housing starts fell 14.1% in July, worse than in June and the fifth straight month of declines, suggesting the economy has yet to overcome the hangover from the tax change. What the central bank didn’t say may also be as important as what it did say.Ahead of the policy meeting, some officials had an idea that if July industrial output data showed good numbers, they should reword the main assessment language to note that the effects of the tax increase were fading, according to people familiar with the matter. But officials apparently gave up on that intention after industrial production rose only 0.2% in July.

Japan GDP seen revised down, raises concern about tax hike plan (Reuters) - The contraction in Japan's economy from April-June is expected to be worse than initially reported last month when revised data is published on Monday, reflecting a slump in capital expenditure and underscoring concerns that the blow from April's sales tax rise may have been harder than first believed. A leading indicator of capital expenditure is also forecast to show that business investment will lose momentum, which could make the government reluctant to go ahead with another sales tax increase scheduled for next year. The data may suggest an economic rebound widely expected in July-September could lack momentum, keeping policymakers under pressure to expand fiscal and monetary stimulus. "The way things are going, the economy could undershoot our growth forecasts for the third quarter," said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting Co. "That would still be enough to raise the sales tax again, but the chances of more fiscal spending would increase." Japan's economy is forecast to have shrunk an annualised 7.0 percent in April-June, according to a Reuters poll of 27 economists. That would be larger than a preliminary 6.8 percent annualised decline.

Why India’s Modi and Japan’s Abe Need Each Other — Badly -- Shinzo Abe, like most Japanese politicians, often appears overly formal, while Narendra Modi has a reputation for being demanding and stern. But apparently the two feel warm and fuzzy about each other. Abe made the unusual gesture of welcoming Modi on his five-day official visit to Japan with an uncharacteristic hug. After that, the duo chatted over an informal dinner and strolled through a temple in the historic cultural center of Kyoto. The leaders of Asia’s two most prominent democracies have good reasons to cozy up. Greater cooperation between India and Japan could prove critical in helping Abe and Modi achieve their economic goals at home and their strategic aims in the region — which means countering an aggressive China. That’s why the two have gushed about the importance of the India-Japan relationship. Modi said in a statement that his visit would “write a new chapter” in relations, while Abe in a Monday press conference said that their bilateral ties have the “most potential in the world.” They have a lot of catching up to do. For economies of such size — Japan and India are the second and third largest in Asia, respectively — their exchange is still relatively small. Trade between the two reached only $15.8 billion in 2013 — a mere quarter of India’s trade with China. Japanese direct investment into India totaled $21 billion between 2007 and 2013, making Japan an extremely important investor for the country. But recently, the inflows have tapered off amid India’s economic slowdown. Over the past three years, Japanese firms have invested more in Vietnam and Indonesia than India.

How Can India Be Breaking WTO Rules When Rich Countries Spend So Much More on Their Farmers? - The collapse of a global trade deal last month over India’s right to stockpile food has some crying “double standards”: Rich countries grouse about poor countries’ agricultural subsidies, the complaint goes, while doling out handsomely to their own farmers back home.  Speaking before India’s parliament last week, Commerce Minister Nirmala Sitharaman said it is “regrettable” that the World Trade Organization can’t agree on how to treat India’s efforts to provide food for its poor “while the rich world can continue to subsidize their farmers unabatedly.” Arvind Virmani, India’s former representative to the International Monetary Fund, decried developed countries’ “hypocrisy” over subsidies, echoing language used by two Tufts University researchers in an Al Jazeera op-ed.  It’s an appealing narrative, one with the added benefit of being somewhat true. The U.S. government, for instance, supports grain producers so massively that it ends up subsidizing the production of high-fructose corn syrup and fueling obesity. The European Union, meanwhile, pays off everyone from Spanish citrus farmers to Greek olive growers to French dairy producers—mostly, cynics would say, to keep them from taking to the barricades. (This week’s beneficiaries of EU largess: the Continent’s growers of peaches and nectarines.) But for the WTO, the relevant question isn’t just how much support governments provide to their farmers. It’s also how they provide this support. And it’s in asking the second question that the character of India’s farm subsidies, and the reason they may be at odds with WTO rules, comes into focus.

Coalgate: India urges supreme court not to close coal mines - The Indian government has urged the country’s supreme court to allow 46 illegally granted coal licenses to continue to operate. The court is considering what action to take in the “Coalgate” corruption scandal. Last week, it found that every coal mining license the government allocated between 1993 and 2009, 218 in all, had been granted in an “illegal and arbitrary” manner and the government committee that oversaw the process was a regulatory vacuum in which cronyism thrived. India’s attorney general Mukul Rohatgi told the nation’s highest court on Monday that the government was “not protecting anyone” and that if coal licenses were to be revoked, it was ready to re-auction them quickly in order to cause as little economic disruption as possible. But he asked the justices to consider protecting leases that were currently producing coal, or close to producing, from “the guillotine of cancellation”.  AFP reported Rohatgi telling the court: “Everything must not go in one brush. Don’t cancel everything: 46 allocations should be exempted. They must be saved because they are in absolute readiness.”  It is expected that some, possibly all, licenses granted during the period will be revoked and companies will have to bid for them in a transparent, law-abiding way. The court must balance the need to take appropriately harsh action against endemic corruption – which government auditors estimated has cost the country $31bn (£19bn) – with the damage a wholesale shutdown of private mining operations could cause to the flagging coal sector. Coal supplies two-thirds of the country’s power and the sector is struggling with crippling shortages. Commentators have warned that a total revocation could set India’s economic growth back by up to a year.

Indian Central Bank Sees Development Mission -- As the central banker for a developing economy, Raghuram Rajan sees his mission going beyond conventional monetary policy. “Financial development is critical to macroeconomic growth, and we’re working on financial development,” Mr. Rajan said in an interview with The Wall Street Journal. “So people say central banks in other countries have inflation as their primary concern. Here, over and above monetary policy and inflation control…we also have a development angle.” One of Mr. Rajan’s main projects, in partnership with the government of Prime Minister Narendra Modi, is expanding access to banking and credit. Just 35% of India’s 1.2 billion people have bank accounts, according to the World Bank, compared with 64% in China, and just over 10% of the country’s 600,000 villages have access to banks. Specifically, he is moving to accelerate the creation of special banks that can accept deposits and make payments, as a way of cutting out informal high-charging lenders. “We need to give people a safe place to put their money, with reasonable interest rates,” he said. “Over time this will be the backbone of Indian growth.”

India’s Central Banker Relaxed on Capital Flows—For Now -- Reserve Bank of India chief, Raghuram Rajan, has made a name in global economic policy circles for his broadsides against advanced economies’ central banks and the spillover effect of their extreme stimulus policies on emerging markets. The gist of his complaint: smaller economies like his get unfairly buffeted by sharp shifts of capital flows triggered by the expansion and contraction of unconventional monetary policies adopted by the U.S. Federal Reserve and others. Now, Mr. Rajan seems more relaxed about the state of global monetary policy, at least for the moment, arguing that as the improving U.S. economy heads in a different direction from struggling Europe and Japan, that will tend to smooth out global gyrations, and give India and others more flexibility to pursue their own monetary policies. “The differentiation in policy is good,” he said in an interview with The Wall Street Journal. When he first took office a year ago, Mr. Rajan faced an immediate crisis, as the prospect of Fed “tapering”—winding down its bond-buying stimulus program—triggered a sharp outflow of capital from India and other emerging markets. That forced the Reserve Bank of India to raise interest rates to stanch the bleeding, even as economic growth slowed. In April, Mr. Rajan gave a speech at the Brookings Institution in Washington, D.C., insisting on some kind of global coordination mechanism to help protect emerging economies from the actions of the world’s main central banks. “The current non-system in international monetary policy is, in my view, a substantial risk,” he said. “A first step to prescribing the right medicine is to recognize the cause of the sickness. Extreme monetary easing, in my view, is more cause than medicine.” But now, as the European Central Bank seems to be heading toward just such extreme monetary easing, Mr. Rajan is more relaxed. In fact, he thinks it’s a good thing, for Europe, and for the global economy.

Mr. Rajan’s Bag of Low-Key Tricks -- When Mr. Rajan came into office on Sep. 4, 2013, the Indian rupee was in free fall as investors fled the country. He hiked interest rates and reoriented the central bank as an inflation-fighter, shoring up confidence. But the RBI also undertook two technical steps to reassure investors, both outside a central bank’s conventional toolkit. First, Mr. Rajan created a new capital flow. On his first day in office, the RBI announced it would subsidize Indian banks to allow them to take larger deposits of foreign-currency funds from nonresident Indians. NRIs had been allowed to deposit dollar or euro-denominated funds in Indian banks before, the idea being the banks would convert the dollars into rupees, invest them in a higher-yielding rupee asset and return the money to the depositor.But this process usually cost the banks too much because they had to protect against the likelihood that the currency’s value would change. This time, the RBI took the unusual move of bearing most of the currency risk. That meant it barely cost the banks to hedge, and they could offer customers much higher returns. The promise of that return lured in $34 billion in deposits into India between September and November, reversing the earlier capital flight. The RBI also took steps to stop massive capital outflows linked to oil purchases. India’s single largest import is oil, which refiners pay for by selling their rupees and buying dollars. The act of selling rupees for oil is a major downward force on the rupee’s value. So the RBI swapped dollars from its own foreign-exchange hoard for the refiners’ rupees, with the understanding that this transaction would be reversed in the future at a predetermined exchange rate. That means the central bank once again assumed the risk that the currency would fluctuate.

Blackout casts shadow over Modi's economic recovery (Reuters) - Narendra Modi took decisive action as chief minister of Gujarat to secure round-the-clock supplies of electricity. Now, as prime minister of India, he is under attack for failing to avert a national power crisis. More than half of India's thermal power stations have less than a week's supply of fuel - the lowest levels since mid-2012 when hundreds of millions of people were cut off in one of the world's worst blackouts. Coal stocks at thermal stations have hit critical levels as payment disputes escalate, unleashing power cuts that could choke off an economic recovery before it takes hold and hurt Modi's prospects at forthcoming state elections. true Financial metropolis Mumbai was plunged into darkness for most of Tuesday, amid a row between private generators and regional distributors that is symptomatic of an industry mired in debt and arrears of at least $100 billion. It's a headache for Modi that experts say will only get worse. His government is resisting political pressure for a bailout, just two years after a rescue by the last government that it denounces as a "farce". "The moment I start with financial assistance for one state, all the states will be asking me,"

India's rupee slump takes toll as corporate leverage rises: Indian companies' ability to repay debt is close to the lowest in more than a decade after a seven-year slump in the rupee, prompting ratings companies to warn of a rise in stressed assets. The ratio of net debt-to-earnings on the S&P BSE 500 Index is 3.1 times and reached 3.7 times in August 2013, a record in Bloomberg data back to 2002. The rupee has fallen 34 per cent against the dollar since October 2007, Asia's worst-performing major currency, fuelling inflation that's driven borrowing costs higher. Indian companies need to service the equivalent of $42.3 billion in offshore bonds and loans by the end of 2015, Bloomberg-compiled data show. The local arms of Fitch Ratings and Moody's Investors Service say large borrowers and importers are most at risk, even as newly elected Prime Minister Narendra Modi seeks to accelerate project investment to spur economic growth. Larsen & Toubro, India's largest engineering company, is trying to swap out high-cost debt, while Tata Steel is tapping cheaper overseas facilities as first-quarter profit slumped 70 per cent. "Companies are facing a shortfall in liquidity and some may need to restructure their loans," said Anjan Ghosh, the group head of corporate ratings at ICRA, Moody's local unit. "Infrastructure, roads, metals and mining companies may find themselves in a tight spot."

Pakistan protesters storm state TV as country teeters on the brink - Telegraph: Pakistan prime minister Nawaz Sharif’s beleaguered government is braced for new clashes with thousands of demonstrators, after an aborted attempt to seize control of state television. Paramilitary troops regained control of the broadcaster from protesters on Monday, but the riots did not melt away and by the evening police were firing tear gas in the capital. Violence had escalated over the weekend, after supporters of the former cricket captain-turned-opposition leader Imran Khan and the Muslim cleric Tahir-ul-Qadri attacked police outside the prime minister’s official residence. Three protesters died and several hundred were injured in the clashes. Early on Monday, a group of between 400 and 600 protesters invaded Pakistan Television’s English-language service in the heart of the capital and forced it off air. Shortly before ending transmission, its announcer said: "They have stormed the PTV office. PTV staff performing their duties are being beaten up." The brief occupation was ended by Pakistan Rangers paramilitary troops.

Pakistan Parliament to Meet After Second Day of Violence - Pakistan's parliament will hold an emergency meeting today to try and defuse two weeks of protests that have turned deadly as demonstrators step up efforts to force the resignation of Prime Minister Nawaz Sharif. The joint session will begin in Islamabad at 11 a.m. and was called by the government yesterday as demonstrators clashed with police, forcing their way into government buildings and briefly taking the state television network off the air. Three people were killed on Aug. 31 and about 500 injured in an increasingly violent standoff over the legitimacy of elections held last year. “Your leaders have asked you to be peaceful,” TV channels showed a military officer telling protesters at the Pakistan TV building yesterday. “If you enter such places you’ll not only embarrass your leaders but those who are securing these buildings, so if you have respect for your leaders, please vacate the building.” The violence has raised the stakes for army chief General Raheel Sharif, who agreed on Aug. 28 to try to resolve the crisis sparked by opposition politician Imran Khan and cleric Tahir-ul-Qadri accusing the prime minister of voter fraud. The two Sharifs are not related. The army is not backing Khan or Qadri and supports democracy, its press office said yesterday in a text message.   The crisis threatens to distract the military from its fight against Taliban insurgents in the north and comes at a time of border skirmishes with India. It risks jeopardizing an already-tepid economic recovery and potentially complicates Pakistan’s ability to meet the terms of a $6.7 billion International Monetary Fund loan program.

How one-time cricket star Imran Khan could help bring down Pakistan’s government - But perhaps Monday was tougher for Pakistan. Khan and his supporters again protested Prime Minister Nawaz Sharif, whom they accuse of fixing last year’s election, which Khan’s Movement for Justice party lost. The protests have roiled the capital for three weeks, heightening fears the nuclear-armed country could soon return to military rule. Sharif, for now, is hanging tough. “I will not resign under any pressure and I will not go on leave,” Sharif said, The Post reported. “There shall be no precedent in Pakistan that only a few people take as hostage the mandate of millions by resorting to force.” The drama then took a bizarre turn. The president of Khan’s own political party accused him of colluding with the army to oust the besieged prime minister and set fresh elections later this month. The party official said if Pakistan’s government collapsed, the responsibility would lie with Khan. Khan denied the allegations — and then fired his former associate. “I am disappointed with” him, Khan said, according to local media. It’s another bit a drama for a man who’s no stranger to it. After his cricket career, which included leading Pakistan’s team to its one and only world championship in 1992, he soon married the glamorous daughter of a British billionaire. She was Jewish. And half his age. Though Jemima Khan converted to Islam, their return to Pakistan was rocky and she was subjected to anti-Semitic attacks. There was an anger to Khan. He was mad at his political rivals, whom he called “stooges” and “puppets” of the United States. He was upset at American foreign policy: “All they want is obedient slaves,” he told The Post. But he was most angry at Pakistan’s government. “The whole system has collapsed,” he said. “There is no government today…. The system is destroying the people, but the politicians are getting richer than before.”

Security clearance: Uncertainty surrounds Chinese president’s visit to Pakistan – Chinese President Xi Jinping’s trip to Pakistan has been postponed after his security team denied giving him clearance to visit the country, Express News reported quoting sources. However, the Foreign Office and the Chinese embassy refused to comment on the President’s trip. When asked during the weekly briefing whether the Chinese president’s impending visit was being reviewed owing to the political crisis in Islamabd, the Foreign Office spokesperson said ”both sides are closely monitoring the situation in Islamabad.” However, she refused to comment further.

Indonesia’s Economy Remains Fragile - Indonesia squeezed out a narrow trade surplus in July but the Southeast Asian nation’s economy remains fragile and exposed to sudden shifts in capital flows. The country trade balance is in deficit for the year, and the government also runs a budget deficit, a reflection of costly state subsidies on the price of fuel. These twin deficits mean the country is reliant on foreign funding to make up the difference, largely in the form of hot money flows into the nation’s stock and bond markets. A year ago, a reversal of these flows caused by fears that U.S. yields would move higher, hurt Indonesian assets. The government has set about trying to readjust the economy, but as Monday’s figures show, there’s still a way to go. The region’s largest economy posted a $124 million surplus on about $28 billion in trade in July. But the return to surplus in July masks weakness in the economy. Exports fell 6% on year, reflecting lower commodity export growth as China’s growth moderates. Imports fell 19.3%, keeping the trade balance positive. Both figures were partly distorted by the Muslim holiday period. Still, the underlying trend is worrisome. The commodity-dependent economy’s main growth engine is stalling, and the contraction of imports shows low domestic investment and consumption.

Factory activity in Europe, Asia cools; demand lull a concern (Reuters) - Factory activity in Europe and Asia cooled in August after a strong July, as new orders dwindled in the face of escalating tensions in Ukraine and a patchy recovery in China, purchasing managers indexes showed. Despite euro zone manufacturers barely raising their prices, growth in the region slowed slightly more than initially thought, and activity in China's vast factory sector slackened on weak foreign and domestic demand, stoking speculation that further policy stimulus would be needed. "A concerted slowdown in the China, euro zone and UK manufacturing PMIs as the second quarter gets under way raises alarm bells about global demand conditions," "This raises serious questions about the ability of major economies such as the U.S. and the UK, to weather higher interest rates, or in the case of the euro zone to withstand deflationary pressures without further stimulus." Euro zone factories stumbled with the final August PMI at 50.7, the lowest in over a year, as new orders slowed amidst rising tensions over Ukraine that have triggered sanctions from the West and countermeasures from Russia. Still, that was the 14th month the index has been above the 50 line that separates growth from contraction. The factory PMI for Germany, Russia's biggest trade partner in the European Union, fell to an 11-month low while in the bloc's second-largest economy France it dropped further below the breakeven mark.  The drop in euro zone manufacturing activity came despite factories barely increasing prices and, with inflation dropping to a fresh five year low of 0.3 percent in August, that raises risks of the region slipping into deflation.

The Manufacturing World Suddenly Goes Into Reverse: Global August PMI Summary -- While yesterday everyone was focusing on the ongoing escalation in Ukraine, or BBQing, the real story was the sudden and quite dramatic collapse, or as we called it, "bloodbath" in global manufacturing as tracked by various PMI indices. Here is the summary.

Real GDP per capita growth over the past 10 years: not what you’d think -  A recent speech by Reserve Bank of Australia boss Glenn Stevens contained this striking chart: A few points stand out, most obviously the impressive performance of Australia. (This was what Stevens wanted to highlight, although there are are reasons to wonder whether it will continue.) But there are other interesting things we can learn from this chart. The US had the slowest growth in living standards of the major rich countries before the crisis and remains one of the weakest performers over the entire period. In second-to-last place before the crisis was Canada. Its recovery got going earlier only to stall more recently after commodity prices peaked. The era of Canadian outperformance of the US may be coming to a close. The UK grew the most in the bubbly years. It is now the laggard compared to its peers, although it is rapidly catching up to the euro area. Its current growth rate appears to be the fastest.

Global property markets: Frothy again - The Economist -- BEFORE the financial crisis of 2007-08 low long-term interest rates fuelled an extraordinary house-price boom around the world. That bubble was pricked in the crisis and subsequent recession. Since then, however, central banks’ attempts to crank up the recovery by pushing down long-term interest rates to new lows have had a predictable consequence in many property markets. House prices are now rising in 18 of the 23 economies that we track, in eight of them at a faster pace than three months ago (see table). There remain some weak spots, especially in Europe. Prices in Spain, which had one of the biggest bubbles before the crisis, are still falling. They have also been declining in France and Italy, reflecting continuing economic weakness in the euro zone’s second- and third-largest economies. In contrast, housing markets are buoyant in some northern European countries, notably Britain.Since some recovery was bound to occur after the housing slump, how worrying are the renewed signs of exuberance? To assess whether house prices are at sustainable levels, we use two yardsticks. One is affordability, measured by the ratio of prices to income per person after tax. The other is the case for investing in housing, based on the ratio of house prices to rents, much as stockmarket investors look at the ratio of equity prices to earnings. If these gauges are higher than their historical averages then property is deemed overvalued; if they are lower, it is undervalued. Based on an average of these measures, houses are at least 25% overvalued in nine countries. Judged by rents, the most glaring examples are in Hong Kong, Canada and New Zealand. The overshoot in these economies and others bears an unhappy resemblance to that prevailing in America at the height of its boom before the crisis.

An unequal world is an uncharted economic threat - This week, the American economy won a little burst of applause. The World Economic Forum issued its latest report on which countries are considered to be creating “sustained prosperity” (that is, growth). America jumped to third place in the league table, behind Singapore and smug little Switzerland. This marks a rebound from the period after the crisis, when the US fell to seventh place. This is pretty gratifying, at least for Washington. What is really interesting about this year’s WEF report, however, is not the public ranking of nations but a furtive debate bubbling about income inequality in America and elsewhere. Until recently, the WEF did not spend much time worrying about this issue. But at this year’s annual meeting in Davos, the think-tank revealed that its elite members, such as chief executives of multinational companies, now consider inequality the dominant risk facing the world – the first time it has ever featured in the list. Since then, the WEF has been quietly mulling over whether it should emphasise inequality when measuring national competitiveness and the potential for growth. If a country (such as America) is becoming polarised, in other words, does this make it less likely to grow? “We think it is extremely important to include the issue of income inequality in how we assess countries,” says Jennifer Blanke, a WEF economist, who is now overhauling how the institute examines growth.

Argentina Senate passes bill to put debt outside U.S. reach (Reuters) - Argentina's Senate on Thursday passed a bill aimed at circumventing U.S. court decisions regarding its defaulted debt by changing payment jurisdiction, sending the proposal to the lower house Chamber of Deputies for final approval. The chamber, like the Senate, is controlled by government allies who are expected to vote the bill into law. Debate in the lower chamber is set to start next week. The Senate vote approving the measure was 39 to 27. President Cristina Fernandez wants to resume servicing sovereign bonds that were restructured after Argentina's previous default in 2002. Her government missed a coupon payment on its restructured bonds in July, thrusting the South American country into default. true The proposed law, which says that foreign debt can be paid through intermediaries outside the United States, is Fernandez's attempt at getting back on a paying basis by putting government debt out of reach of U.S. courts that have jurisdiction over some of the original bond contracts. The bill would replace Bank of New York Mellon with state-controlled bank Banco Nacion as trustee for bond payments. It would also allow holders of restructured bonds governed by foreign law to swap them for paper governed by Argentine law. Both moves would be in violation of U.S. court orders.

Presenting The Worst-Capitalized Central Bank In The West (Hint: Not The Fed) - Canada is seen as the new banking safe haven and an “island of safety and stability” because of its perceived sound fiscal position, commodity wealth and solid economic performance. Now, anytime we see central bankers slapping each other on the back, we're going to be skeptical. As it turns out, Banque du Canada is actually the most pitifully capitalized central bank in the western world. They’re in such bad shape they actually make the Fed look healthy. Hong Kong’s Monetary Authority Exchange Fund is a good example of a strong balance sheet; their latest figures as of 30 June show a whopping capital reserve equal to nearly 22% of total assets. This is a massive margin of safety for the central bank. The US Federal Reserve, on the other hand, shows a capital reserve of just 1.27%. And Canada? A tiny 0.47%... as in less than one half of one percent. This isn’t safety and stability. It’s a rounding error.

Ukraine Crisis Hits Economy and Could Require Bigger loan -  In its first full review since agreeing a $16.7bn standby facility earlier this year, the IMF warned that the two main risks it had foreseen – intensification of the conflict in the east and a natural gas shut-off by Russia – had materialised. If fighting continued in eastern Ukraine at the same level throughout 2015, it added, Ukraine would need additional financing of $19bn to shore up its central bank reserves. “I am afraid that this should be the IMF’s base case. The original IMF programme was built on totally unrealistic assumptions,” said Tim Ash, economist at Standard Bank, in a note to clients. “The main question being asked by investors is when, not if, Ukraine will be forced to restructure/reprofile its debt ratios.” Under its base case, it forecast Ukraine’s economy would contract 6.5 per cent this year – making it one of the worst performers in the world – rather than the 5 per cent previously assumed. Growth next year would be only 1 per cent, down from 2 per cent previously forecast, even if the fighting stopped soon. If fighting continued through the rest of this year and 2015, however, the economy would contract by 7.3 per cent this year and another 4.2 per cent next year. Many experts had warned when the IMF-led bailout was agreed that it was based on the most optimistic assumptions, with western political leaders anxious to support the new government in Kiev. But the fund conceded that Ukraine now faced “heightened geopolitical tensions and deepening economic crisis”.

Busybody Nation -- Kunstler - If anyone above a kindergarten pay-grade has figured out America’s vital interest in the Ukraine, it has not been reported — or even leaked from the foundering vessel that is the US State Department. In fact, when you consider the results, it’s hard to understand the rationale behind any recent US foreign policy endeavor. Mr. Putin of Russia summed it up last week, saying, “Anything the US touches turns to Libya or Iraq.” Vlad has a point there, and what he left off the list, of course, was Ukraine, which entered the zone of failing states a few months ago when the US lubricated the overthrow of its previously-elected government.  What complicates things is that Ukraine is right next door to Russia. For many years it was even part of the same nation as Russia. Russia has a lot of hard assets in Ukraine: pipelines, factories, port facilities. Because they were recently part of the same nation, a lot of Russian-speaking people live in the eastern part of Ukraine bordering Russia. The casual observer from Mars might easily discern that Russia has a range of real interests in Ukraine. Especially if the central government of Ukraine can’t control its own economic affairs.  The US claims to have interests in Afghanistan, Iraq, Syria, and Libya. These nations are respectively 11,925, 11,129, 10,745, and 10,072, miles away from America — not exactly neighbors of ours. All of them, one way or another, and partly due to our exertions, are checking into the homeless shelter of failed statedom. Afghanistan was, shall we say, a special case, since it was being used thirteen years ago explicitly as a “base” (al Qaeda) for launching attacks on US soil. But that was then. No other war or “war” in US history has lasted as long. And it remains unclear whether our presence there yet today is a “nation-building” project or a mere occupation, in the absence of some better idea of what to do.

EU Vows More Russia Sanctions If War in Ukraine Worsens - European Union leaders agreed to impose tougher sanctions on Russia, possibly targeting energy and finance, if the war in Ukraine worsens. Leaders early today gave the European Commission a week to deliver proposals for the penalties. The EU left open the precise trigger for further sanctions, contrasting with a four-point ultimatum issued to Russian President Vladimir Putin on June 27 that preceded the latest curbs.  “We are close to the point of no return,” Ukrainian President Petro Poroshenko told reporters at the EU summit. “Thousands of foreign troops and hundreds of foreign tanks are now on the territory of Ukraine.”   Earlier, EU leaders selected Polish Prime Minister Donald Tusk as the bloc’s next president and Italian Foreign Minister Federica Mogherini as chief diplomat after a bitter contest that showed the 28-nation EU’s divisions on how to deal with the Kremlin. Tusk has pushed for tougher sanctions on Russia while Mogherini has favored diplomacy. Leaders also met with Poroshenko. The EU and the U.S. have already slapped visa bans and asset freezes on Russian individuals and companies, and since July have imposed steadily tougher sanctions targeting the country’s energy, finance and defense industries. Merkel said the EU is looking at more measures to target Russia’s energy and finance industry. Leaders disagreed about possible military assistance to Ukraine, with Lithuanian President Dalia Grybauskaite telling reporters before the meeting: “We need militarily to support and send military materials to Ukraine.”

More Sanctions: Europe Will Ban Purchase Of Russian Bonds; However Russian Gas Exports Remain Untouched -- Over the weekend, insolvent, debt-dependent Europe thought long and hard how to best punish Russia and moments ago reached yet another milestone in deep projective thought: as Reuters reports, Europeans could be barred from buying new Russian government bonds "under a package of extra sanctions over Moscow's military role in Ukraine that European Union ambassadors were to start discussing on Monday, three EU sources said." This will be in addition to the ban on the debt funding of most Russian corporations. So as Europe's 7-day ultimatum for the Kremlin to "de-escalate" counts down, Putin has a choice: continue operating under a budget surplus and ignore Europe's latest and most amusing hollow threat which is merely a projection of Europe's biggest fears, or spend himself into oblivion as Europe has done over the past decade and become a vassal state of the Frankfurt central bank.. Somehow we doubt Putin will lose too much sleep over this latest "escalation"...

Choking Russia’s Banks Would Be the Ultimate Sanction - The European Union is poised to hit Russia with a fresh round of sanctions amid mounting evidence of direct Russian military intervention in southeastern Ukraine. EU leaders said on Aug. 31 after a weekend summit meeting in Brussels that they’ll decide within a week on possible new penalties against Moscow. Meanwhile, Ukrainian officials are meeting with pro-Russian separatists in Minsk on Monday for preliminary peace talks. So far, the sanctions imposed on Russia don’t seem to have caused a major disruption to its $2 trillion economy. Now some are urging the EU to wield what may be the most powerful sanctions weapon at its disposal, the same one it used against Iran in 2012: locking Russia out of the Swift interbank payments system. The Belgium-based Society for Worldwide Interbank Financial Telecommunication system, known as Swift, is a secure messaging system used by more than 10,500 banks for international money transfers. Without it, Russian banks and their customers couldn’t readily send or receive money across the country’s borders, which would wreak havoc with trade, investment, and millions of routine financial transactions. Swift has to comply with EU decisions because the organization is incorporated under Belgian law.

Mathew D. Rose: Merkel’s Götterdämmerung, Victory in Ukraine and Draghi’s Old Trick - Yves here. Mathew’s post describes the political and ideological dynamics that continue to drive failed austerity policies in Europe. But even more important, it also explains why Europe, and German leaders like Angela Merkel have fallen in line with the US and are escalating the conflict with Russia over Ukraine. As we’ve discussed, they’ve convinced themselves that Russia will suffer from the economic sanctions imposed by the US and EU before Russia can play its energy card. And some analysts further believe that Russia would not dare restrict gas supplies to Europe, that it cannot afford to lose the income.

Eurozone Manufacturing PMI at 13-Month Low, with Germany Worse than Expected, Italy and France in Contraction -- The Markit Eurozone Manufacturing final data shows Eurozone Manufacturing PMI at 13-month low in August. The rate of expansion in eurozone manufacturing production eased to its lowest during the current 14-month growth sequence in August, as companies faced slower increases in both total new orders and new export business. The final seasonally adjusted Markit Eurozone Manufacturing PMI® posted 50.7 in August, down from 51.8 in July, its lowest reading since July last year. The headline PMI was also below its earlier flash estimate of 50.8. National PMI data signalled a broad easing in the manufacturing recoveries underwa y across much of the currency union. Although Ireland was a noticeable exception, with its PMI at the highest level since the end of 1999, rates of expansion slowed in Spain, the Netherlands and Germany.  The rate of expansion in new work received also slowed to the weakest in the current 14-month period of growth. Economic and geopolitical uncertainties were the main factors underlying slower demand growth. Inflows of new export business posted the slowest rise since July 2013. France was the only nation to report an outright decline in new export orders in August, while rates of increase eased in Germany, Italy and Greece. Ireland, Spain and Austria reported stronger inflows of new export business.  The big-three nations of Germany, France and Italy all reported job losses, as did Greece. Staffing rose in Spain, the Netherlands, Austria and Ireland, but Ireland was the only nation to report a faster pace of hiring than in July. Signs that the manufacturing sector may be on course for further easing in the coming months was signalled by data on purchasing and stock holdings. Input buying volumes fell for the first time in over a year and inventories were reduced further as strong competition led companies to maintain a cost-cautious position. Meanwhile, the forward-looking ratio of new orders to finished goods inventories dipped to a 13-month low.

France Asks for More Action From ECB to Correct Overvalued Euro - French Prime Minister Manuel Valls called for more action from the European Central Bank to lower the value of the euro, amid concerns the 18-nation region might be headed toward deflation.“The monetary policy has started to change,” Valls said today in a speech made at the Socialist Party’s summer school in La Rochelle, France. While he called the ECB’s package of measures taken in June a “strong signal,” he also said that “one will have to go even further.”Valls’s comments come after ECB President Mario Draghi, who’ll meet French President Francois Hollande tomorrow in Paris, signaled that declining inflation expectations are pushing the central bank toward introducing quantitative easing. Policy makers will gather in Frankfurt on Sept. 4 for their monetary-policy meeting.    Inflation in the currency bloc slowed to 0.3 percent in August from a year earlier, the lowest since 2009, compared with an ECB target for price growth of just under 2 percent. Draghi has said that the ECB stands ready to embark on unconventional measures such as broad-based asset purchases to avoid a deflationary spiral of falling prices and households postponing their spending plans.    In his speech, Draghi also called for complementary action on a European level and “a large public investment program.” German Chancellor Angela Merkel was disgruntled with the comments and called Draghi to ask if the ECB had changed course on austerity, Der Spiegel reported, without saying where it got the information.

Stopping Europe's Descent Into Deflation - Until recently it was debatable whether Europe's economy was recovering. No longer. Its recovery has stopped. The question now is whether the stagnation will tip over into something worse. In an Aug. 22 speech, European Central Bank President Mario Draghi moved a little closer to acknowledging the danger. This aroused hopes that he would announce decisive action on Sept. 4, after the next meeting of the bank's policy committee. For Europe's sake, he'd better deliver. The preliminary estimate of euro-area inflation in August from a year earlier is 0.3 percent -- yet another drop. Recall that the ECB's target is "close to, but below, 2 percent." Outright deflation, with all the perils that brings, is an imminent threat. In the longer term, inflation expectations also seem to be slipping: The standard measure of expected inflation five years ahead has dropped to less than 2 percent.  Meanwhile, there's no growth in the euro area. France is stagnant, Italy is back in recession, and even Germany, according to revised figures, shrank in the second quarter. Admittedly, that's partly because of the effect of sanctions against Russia -- but the economic drag from the crisis in Ukraine isn't about to end soon. Conditions are increasingly aligned for deflation. What can the ECB do? Draghi says the bank has already acted to stimulate demand, and in time the economy will see the benefits. Yet the package of measures the ECB unveiled in June didn't amount to much. Europe needs quantitative easing of the kind the U.S. Federal Reserve has used to good effect -- that is, bond purchases financed with newly created money. For months, Draghi has said that the ECB is looking into it. There are legal obstacles and, even now, the policy would be controversial. But it's past time for Draghi to push through those difficulties and test the limits of what politics and the law will allow. Forthright action can't wait any longer.

Scylla, Charybdis, and the Euro - Paul Krugman - I’ve been talking to some people I respect about the fate of the euro, and specifically yesterday’s column, and it seems to me that the key issue here involves the balance of risks.Think of it as Scylla and Charybdis. On one side, there is the risk of seeing European economies dashed against the rocks of debt crisis; on the other, the danger of seeing Europe pulled down into a vortex of deflation.  For the past four years European policy has been dominated by a completely one-sided assessment of these risks: imminent debt disaster (90 percent omg), and nothing to worry about from austerity — the Confidence Fairy will take care of it. But there is a more sober, serious position which considers the shoals of debt a serious risk, and the vortex of deflation not yet too threatening. As you might guess, I have a different view. Now that the ECB is willing to do its job as lender of last resort, the debt threat is much less pressing than previously portrayed — and I have been arguing all along that for non-euro countries it’s not a threat at all. Meanwhile, I’m terrified about that vortex; Europe may still be circling the drain fairly slowly, but inflation expectations have become unmoored, actual inflation is falling, the recovery, such as it was, has stalled. And by the time the downward spiral becomes undeniable it may well be irreversible.

Once again we wait for "shock and awe" from the ECB -- The ECB (Eurosystem) balance sheet continues to decline as the LTRO/MRO loans to the banking system are repaid. We've seen a decline of about one trillion euros in the past year and a half. Anywhere else this would have been considered a massive tightening of monetary policy (imagine the Fed selling $1.3 trillion of bonds). But not in the Eurozone. In fact the area has experienced some significant easing recently. Both the euro and the long-term rates have fallen far below ECB's own forecast.Near-term German rates are now firmly in the negative territory (see chart) - you now have to pay the German government to hold your money for 2-3 years. The central bank was able to loosen conditions while reducing its balance sheet as a result of unexpectedly soft economic reports from the area, falling inflation (see chart) and inflation expectations (see chart), as well as Draghi's jawboning. The ECB got this round of easing "for free", but now markets will be expecting a follow-through from the central bank. And unless we see some "shock and awe", some of this easing (lower rates and lower euro) could see a sharp reversal.

German GDP Shrinking Signals Fading Euro-Area Powerhouse - Cracks are emerging in Germany’s once rock-solid economy as companies’ reluctance to invest bears out Mario Draghi’s warning that the euro-area recovery is in danger. Gross domestic product in Europe’s largest economy shrank 0.2 percent in the second quarter, the Federal Statistics Office said today, confirming an Aug. 14 estimate. While part of the drop can be attributed to a mild winter that front-loaded output earlier in the year, the Bundesbank has cast doubt on a second-half rebound and suggested its forecasts may prove too optimistic. The weakness of a German economy that has outperformed its peers since the regional debt crisis comes as European Central Bank President Draghi ponders adding more stimulus to fight the threat of deflation in the currency bloc. He signaled that declining inflation (ECCPEST) expectations could tip the ECB into broad-based asset purchases, an option officials may discuss at this week’s policy-setting meeting.

Without German Support, QE In The Euro Area Remains A Distant Dream - Since Draghi’s Jackson Hole speech there has been much discussion about the path of Eurozone monetary policy. In the speech, Draghi indicated concern that inflation expectations were becoming unanchored on the downside and suggested that further monetary easing might be needed. All eyes are now on the September decision. The figures released in the last few days appear to support the case for further easing. Manufacturing PMIs were universally awful, and service and composite PMIs were disappointing in many countries including both France and Germany. Unemployment is still very high at 11.5% – twice that for young people. Inflation continues to drift downwards.Tomas Hirst at Business Insider says that this chart indicates that deflation is not far away: But how exactly is this inflation made up? This chart from Capital Economics (h/t FT Alphaville) gives a handy breakdown:From this chart it appears that core inflation, while far below target at 0.6%, is actually trending slightly UPWARDS. What is falling is food and energy prices – which are driven mainly by external factors. The ECB has been roundly criticized for raising interest rates in 2011 to counter inflationary pressures from sharp rises in global energy and food prices at that time. Is it now to be criticized for deciding NOT to respond to external shocks to energy and food prices? There must be a strong case for waiting for global prices to stabilize, especially in the light of the Ukraine crisis. If inflation is still falling in, say, November, there might be a case for further monetary easing to prevent a debt deflationary spiral developing in highly-indebted periphery countries such as Italy. But at present the case for further monetary easing does not appear to be made on disinflation grounds alone. If there is a case for further monetary easing, therefore, it must be to encourage growth.

Draghi Sees Almost $1 Trillion Stimulus With No QE Fight - Mario Draghi signaled at least 700 billion euros ($906 billion) of fresh aid for his moribund economy and left a fight with Germany over sovereign-bond purchases for another day. Pledging to “significantly steer” the European Central Bank’s balance sheet back toward the 2.7 trillion euros of early 2012 from 2 trillion euros now, the ECB president today announced a final round of interest-rate cuts and a plan to buy privately owned securities. His mission: to revive inflation in the 18-nation euro area. Fully-fledged quantitative easing as deployed in the U.S. and Japan wasn’t enacted amid a split on the 24-member Governing Council, with Bundesbank President Jens Weidmann opposing the new stimulus and others seeking more. The latest round of measures pushed the euro below $1.30 for the first time since July 2013 and sent European bond yields negative. The steps “probably reflect that President Draghi does not have unanimity, or a large enough majority for quantitative easing,”

In Shocking Move, ECB Cuts By 10 Bps, Sends Deposit Rate Further Into Negative Territory -- While everyone was expecting Mario Draghi to announce ABS purchases, few if any had expected the ECB to also cut rates. Which it just did whacking its corridor rates across the board by 10 bps, in the process sending the Deposit Facility rate even further into negative territory, now down at -0.2%.

  • The interest rate on the main refinancing operations of the Eurosystem will be decreased by 10 basis points to 0.05%, starting from the operation to be settled on 10 September 2014.
  • The interest rate on the marginal lending facility will be decreased by 10 basis points to 0.30%, with effect from 10 September 2014.
  • The interest rate on the deposit facility will be decreased by 10 basis points to -0.20%, with effect from 10 September 2014.

Europe’s Bank Takes Aggressive Steps - — Mario Draghi, the European Central Bank president, is reaching deep into his toolbox to revive the region’s moribund economy.He is cutting interest rates to the bone. He is charging banks even more to park their money. And he is using the central bank’s financial muscle to spur lending.But the question is whether the new actions, announced on Thursday, will be enough to fix Europe’s problems. If they don’t, Mr. Draghi doesn’t have many options left.“It’s a positive step by the E.C.B.,” said Carl B. Weinberg, chief economist of High Frequency Economics in Valhalla, N.Y. But he added, “no matter how you look at it, monetary policy has done all it can.”Mr. Draghi’s aggressive moves reflect the gloomy, if familiar, state of the European economy. Low inflation and stagnant growth feed on each other in a vicious cycle, making existing debt burdens more onerous and making adjustments between the more prosperous Northern European nations and weaker southern ones more painful. The situation has confounded policy makers and politicians who are now grappling with how to prevent another full-on recession.

ECB's €40bn Stimulus Gamble; ECB Pulls Out Bazooka, Cuts Rates, Buys Assets; Will this Stimulate Lending? --ECB president Mario Draghi pulled out a bazooka today announcing asset purchases. The ECB also cut interest rates to 0.05% (from 0.15%) while offering negative 0.2% on funds parked with the ECB. Here are some details from the ECB Announcement.

  • Governing Council decided today to lower the interest rate on the main refinancing operations of the Eurosystem by 10 basis points to 0.05% and the rate on the marginal lending facility by 10 basis points to 0.30%.
  • The rate on the deposit facility was lowered by 10 basis points to -0.20%.
  • The Governing Council decided to start purchasing non-financial private sector assets. The Eurosystem will purchase a broad portfolio of simple and transparent asset-backed securities (ABSs) with underlying assets consisting of claims against the euro area non-financial private sector under an ABS purchase programme (ABSPP). This reflects the role of the ABS market in facilitating new credit flows to the economy and follows the intensification of preparatory work on this matter, as decided by the Governing Council in June.
  • In parallel, the Eurosystem will also purchase a broad portfolio of euro-denominated covered bonds issued by MFIs domiciled in the euro area under a new covered bond purchase programme (CBPP3). Interventions under these programmes will start in October 2014. The detailed modalities of these programmes will be announced after the Governing Council meeting of 2 October 2014. The newly decided measures, together with the targeted longer-term refinancing operations which will be conducted in two weeks, will have a sizeable impact on our balance sheet.

So is this (finally) QE from the ECB? -- The Governing Council of the ECB has announced an important package of new measures, including cuts of around 0.1 per cent in policy rates, and an asset purchase programme of unknown size, confined to private sector assets, with no sovereign bond purchases. The immediate question that investors are asking is whether this is, at last, a programme of quantitative easing by the most reluctant of all quantitative easers, the ECB. My instant answer is yes, this is indeed QE, and in significant scale. But its effects on expectations may be dampened by the fact that Mr Draghi was obviously so reluctant to admit as much. The ECB President was asked directly whether the Governing Council had intended to introduce QE today. He prevaricated. But he offered a very clear statement on how QE should be defined. He said it would consist of a programme of direct, broad based asset purchases, financed by an increase in central bank money. This is a widely accepted definition among economists. Note that it does not require the assets purchased to be government bonds. Private assets, like the ABS securities and covered bonds that the ECB will now buy, clearly fall within this definition. Mr Draghi also intimated that the purchases will not be “sterilised”, meaning that they will be financed by increases in central bank money and will therefore increase the size of the ECB’s balance sheet.

The ECB as Enabler: Doubles Down on Failed Monetary Policies - Yves Smith -- The ECB took a few surprise measures on Thursday mainly as a signal that central banks are willing to Do Something, even when sort of somethings they can do are at best unproductive. But the weak tea of lowering the benchmark rate by 10 basis points to 0.05% and announced it would be implementing a watered-down version of QE, in which it will start buying asset backed securities and covered bonds nevertheless pleased investors initially. bu the enthusiasm proved to be short lived; in the US, the modest stock market lift in the morning had gone into reverse by the close of trading. The announcement did produce one tangible positive outcome for the flagging European economy, which was to lower the value of the euro.  In fact, the ECB’s QE lite will do even less to goose the real economy than its older sibling did in the US. did in the US. First, the pool of asset-backed securities in the Eurozone is small, and some may already be in the hands of the ECB. Second, to the extent that mortgage-bond buying in the US lowered mortgage interest rates (there is considerable debate as to how much effect there really was), it did help increase consumer spending power a bit by allowing for a wave of mortgage refinancings at super-lower rates.* By contrast, outside the US, mortgages are typically floating-rate and/or restrict refinancing into lower-rate mortgages. Similarly, as Ed Harrison pointed out via e-mail, the Breugel blog last July was skeptical about the impact of having the ECB purchase backed securities. So this program is not a policy, it’s a gimmick.

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